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UNITED STATES 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 10-Q

|                                                                                           |                                                          
|------------------------------------------------------------------------------------------ | ---------------------------------------------------------
|(Mark One)                                                                                
|xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
 THE SECURITIES EXCHANGE ACT OF 1934 
|                                                                                           | For
 the quarterly period ended June 30, 2008            
|                                                                                          
|                                                                                           | or                                                       
|                                                                                          
|oTRANSITION 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.                                                                                                                                                               
|                                                |    |                                                                                                                                                                                                                                   
|                                                |    | Yes
 x
      No o                                                                                                                                                                                                                 

Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated filer and smaller reporting company
in Rule 12b-2 of the Exchange Act.

|                        |   |                                               |                           |  
|----------------------- | - | --------------------------------------------- | ------------------------- | -
|Large accelerated filer | x |                                               | Accelerated filer         | o
|Non-accelerated filer   | o | (Do not check if a smaller reporting company) | Smaller reporting company | o

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

|                           |  |                   |  |               
|-------------------------- |  | ----------------- |  | --------------
|COMMON STOCK OUTSTANDING   |  |                   |  |               
|                           |  |                   |  |               
|                           |  | Number of
 Shares |  | Date          
|                           |  |                   |  |               
|Common Stock, $1 par value |  | 118,177,947       |  | June
 30, 2008

---

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OMNICARE, INC. AND

SUBSIDIARY COMPANIES

FORM 10-Q QUARTERLY REPORT JUNE 30, 2008

INDEX

|         |  |                                                                                              |  |      | 
|-------- |  | -------------------------------------------------------------------------------------------- |  | ---- | 
|         |  |                                                                                              |  | PAGE
|         |  |                                                                                              |  |     
|         |  | PART I - FINANCIAL
 INFORMATION:                                                             |  |     
|         |  |                                                                                              |  |     
|ITEM 1.  |  | FINANCIAL STATEMENTS (UNAUDITED)                                                             |  |     
|         |  |                                                                                              |  |     
|         |  | Consolidated Statements of Income 
 Three and six months ended  June 30, 2008 and 2007     |  | 3    | 
|         |  |                                                                                              |  |      | 
|         |  | Consolidated Balance Sheets 
 June 30, 2008 and December 31, 2007                           |  | 4    | 
|         |  |                                                                                              |  |      | 
|         |  | Consolidated Statements of Cash Flows 
 Three and six months ended  June 30, 2008 and 2007 |  | 5    | 
|         |  |                                                                                              |  |      | 
|         |  | Notes to Consolidated Financial
Statements                                                   |  | 6    | 
|         |  |                                                                                              |  |      | 
|ITEM 2.  |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF
 FINANCIAL CONDITION AND RESULTS OF OPERATIONS       |  | 41   | 
|         |  |                                                                                              |  |      | 
|ITEM 3.  |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
 MARKET RISK                                  |  | 70   | 
|         |  |                                                                                              |  |      | 
|ITEM 4.  |  | CONTROLS AND PROCEDURES                                                                      |  | 72   | 
|         |  |                                                                                              |  |      | 
|         |  | PART II - OTHER
INFORMATION:                                                                 |  |      | 
|         |  |                                                                                              |  |      | 
|ITEM 1.  |  | LEGAL PROCEEDINGS                                                                            |  | 72   | 
|         |  |                                                                                              |  |      | 
|ITEM 1A. |  | RISK FACTORS                                                                                 |  | 75   | 
|         |  |                                                                                              |  |      | 
|ITEM 2.  |  | UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF
 PROCEEDS                                  |  | 84   | 
|         |  |                                                                                              |  |      | 
|ITEM 4.  |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY
 HOLDERS                                         |  | 85   | 
|         |  |                                                                                              |  |      | 
|ITEM 6.  |  | EXHIBITS                                                                                     |  | 85   | 

---



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,
 June 30, |           | Six months ended
 June 30, |  
|                                                         |  |                               |           |                            |  
|                                                         |  | 2008                          |           | 2007                       |   | 2008      |   | 2007 |          
|                                                         |  |                               |           |                            |   |           |   |      |          
|Net sales                                                |  | $                             | 1,550,152 |                            | $ | 1,549,157 |   | $    | 3,109,131 |   | $ | 3,126,222 |  
|                                                        
|Cost of sales                                            |  |                               | 1,166,461 |                            |   | 1,150,109 |   |      | 2,344,224 |   |   | 2,341,102 |  
|Heartland matters (Note 11)                              |  |                               | 1,560     |                            |   | 4,015     |   |      | 3,134     |   |   | 8,311     |  
|                                                         |  |                               |           |                            |   |           |   |      |           |   |   |           |  
|Gross profit                                             |  |                               | 382,131   |                            |   | 395,033   |   |      | 761,773   |   |   | 776,809   |  
|                                                        
|Selling, general and administrative expenses             |  |                               | 237,019   |                            |   | 228,008   |   |      | 473,616   |   |   | 453,617   |  
|Provision for doubtful accounts                          |  |                               | 25,767    |                            |   | 29,899    |   |      | 56,159    |   |   | 58,803    |  
|Restructuring and other related charges (Note 10)        |  |                               | 10,784    |                            |   | 6,250     |   |      | 17,232    |   |   | 15,424    |  
|Litigation and other related professional fees (Note 11) |  |                               | 16,022    |                            |   | 9,010     |   |      | 37,664    |   |   | 15,917    |  
|Heartland matters (Note 11)                              |  |                               | 180       |                            |   | 896       |   |      | 499       |   |   | 2,392     |  
|                                                         |  |                               |           |                            |   |           |   |      |           |   |   |           |  
|Operating income                                         |  |                               | 92,359    |                            |   | 120,970   |   |      | 176,603   |   |   | 230,656   |  
|                                                        
|Investment income                                        |  |                               | 1,959     |                            |   | 2,102     |   |      | 4,570     |   |   | 4,023     |  
|Interest expense                                         |  |                               | (35,940   | )                          |   | (41,718   | ) |      | (72,996   | ) |   | (83,766   | )
|                                                         |  |                               |           |                            |   |           |   |      |           |   |   |           |  
|                                                        
|Income before income taxes                               |  |                               | 58,378    |                            |   | 81,354    |   |      | 108,177   |   |   | 150,913   |  
|                                                        
|Income tax provision                                     |  |                               | 21,573    |                            |   | 32,113    |   |      | 41,428    |   |   | 58,685    |  
|                                                        
|                                                         |  |                               |           |                            |   |           |   |      |           |   |   |           |  
|Net income                                               |  | $                             | 36,805    |                            | $ | 49,241    |   | $    | 66,749    |   | $ | 92,228    |  
|                                                         |  |                               |           |                            |   |           |   |      |           |   |   |           |  
|Earnings per share:                                      |  |                               |           |                            |   |           |   |      |           |   |   |           |  
|Basic                                                    |  | $                             | 0.31      |                            | $ | 0.41      |   | $    | 0.56      |   | $ | 0.77      |  
|                                                         |  |                               |           |                            |   |           |   |      |           |   |   |           |  
|Diluted                                                  |  | $                             | 0.31      |                            | $ | 0.41      |   | $    | 0.56      |   | $ | 0.76      |  
|                                                         |  |                               |           |                            |   |           |   |      |           |   |   |           |  
|Dividends per common share                               |  | $                             | 0.0225    |                            | $ | 0.0225    |   | $    | 0.0450    |   | $ | 0.0450    |  
|                                                         |  |                               |           |                            |   |           |   |      |           |   |   |           |  
|Weighted average number of common shares outstanding:    |  |                               |           |                            |   |           |   |      |           |   |   |           |  
|Basic                                                    |  |                               | 117,901   |                            |   | 119,389   |   |      | 118,874   |   |   | 119,233   |  
|                                                         |  |                               |           |                            |   |           |   |      |           |   |   |           |  
|Diluted                                                  |  |                               | 118,672   |                            |   | 121,371   |   |      | 119,606   |   |   | 121,375   |  
|                                                         |  |                               |           |                            |   |           |   |      |           |   |   |           |  
|                                                        
|Comprehensive income                                     |  | $                             | 36,001    |                            | $ | 49,831    |   | $    | 75,072    |   | $ | 95,206    |  
|                                                         |  |                               |           |                            |   |           |   |      |           |   |   |           |  

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

3

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CONSOLIDATED BALANCE SHEETS
OMNICARE, INC. AND SUBSIDIARY COMPANIES(in thousands, except
share data)

|                                                                                                                      |  |                |           |                    |   |           |  
|--------------------------------------------------------------------------------------------------------------------- |  | -------------- | --------- | ------------------ | - | --------- | -
|                                                                                                                      |  | (UNAUDITED)    |           |                    |   |          
|                                                                                                                      |  | June 30,
 2008 |           | December 31,
 2007 |  
|                                                                                                                      |  |                |           |                    |  
|ASSETS                                                                                                                |  |                |           |                    |   |           |  
|Current assets:                                                                                                       |  |                |           |                    |   |           |  
|Cash and cash equivalents                                                                                             |  | $              | 208,730   |                    | $ | 274,448   |  
|Restricted cash                                                                                                       |  |                | 15,019    |                    |   | 3,155     |  
|Accounts receivable, less allowances of $342,686
(2007-$334,061)                                                      |  |                | 1,348,042 |                    |   | 1,376,288 |  
|Unbilled receivables, CRO                                                                                             |  |                | 28,509    |                    |   | 24,855    |  
|Inventories                                                                                                           |  |                | 400,084   |                    |   | 448,183   |  
|Deferred income tax benefits                                                                                          |  |                | 129,507   |                    |   | 126,239   |  
|Other current assets                                                                                                  |  |                | 204,101   |                    |   | 202,982   |  
|                                                                                                                      |  |                |           |                    |   |           |  
|Total current assets                                                                                                  |  |                | 2,333,992 |                    |   | 2,456,150 |  
|                                                                                                                      |  |                |           |                    |   |           |  
|Properties and equipment, at cost less accumulated depreciation of
 $335,512 (2007-$311,422)                          |  |                | 203,665   |                    |   | 199,449   |  
|Goodwill                                                                                                              |  |                | 4,377,813 |                    |   | 4,342,169 |  
|Identifiable intangible assets, less accumulated amortization of
 $133,206 (2007-$115,042)                            |  |                | 313,678   |                    |   | 323,637   |  
|Rabbi trust assets for settlement of pension obligations                                                              |  |                | 119,704   |                    |   | 123,035   |  
|Other noncurrent assets                                                                                               |  |                | 133,328   |                    |   | 149,339   |  
|                                                                                                                      |  |                |           |                    |   |           |  
|Total noncurrent assets                                                                                               |  |                | 5,148,188 |                    |   | 5,137,629 |  
|                                                                                                                      |  |                |           |                    |   |           |  
|Total assets                                                                                                          |  | $              | 7,482,180 |                    | $ | 7,593,779 |  
|                                                                                                                      |  |                |           |                    |   |           |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                  |  |                |           |                    |   |           |  
|Current liabilities:                                                                                                  |  |                |           |                    |   |           |  
|Accounts payable                                                                                                      |  | $              | 329,355   |                    | $ | 371,020   |  
|Accrued employee compensation                                                                                         |  |                | 36,722    |                    |   | 32,696    |  
|Deferred revenue, CRO                                                                                                 |  |                | 22,780    |                    |   | 22,068    |  
|Current debt                                                                                                          |  |                | 2,819     |                    |   | 3,192     |  
|Other current liabilities                                                                                             |  |                | 195,102   |                    |   | 223,184   |  
|                                                                                                                      |  |                |           |                    |   |           |  
|Total current liabilities                                                                                             |  |                | 586,778   |                    |   | 652,160   |  
|                                                                                                                      |  |                |           |                    |   |           |  
|Long-term debt, notes and convertible debentures                                                                      |  |                | 2,766,063 |                    |   | 2,820,751 |  
|Deferred income tax liabilities                                                                                       |  |                | 498,910   |                    |   | 449,789   |  
|Other noncurrent liabilities                                                                                          |  |                | 361,126   |                    |   | 379,376   |  
|                                                                                                                      |  |                |           |                    |   |           |  
|Total noncurrent liabilities                                                                                          |  |                | 3,626,099 |                    |   | 3,649,916 |  
|                                                                                                                      |  |                |           |                    |   |           |  
|Total liabilities                                                                                                     |  |                | 4,212,877 |                    |   | 4,302,076 |  
|                                                                                                                      |  |                |           |                    |   |           |  
|Commitments and contingencies (Note 11)                                                                               |  |                |           |                    |   |           |  
|                                                                                                                     
|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,125,318,800
 shares issued (2007-124,599,300 shares issued) |  |                | 125,319   |                    |   | 124,599   |  
|Paid-in capital                                                                                                       |  |                | 1,927,816 |                    |   | 1,917,062 |  
|Retained earnings                                                                                                     |  |                | 1,459,168 |                    |   | 1,397,831 |  
|Treasury stock, at cost-7,140,900 shares
(2007-2,827,300 shares) (Note
 2)                                            |  |                | (193,325  | )                  |   | (89,791   | )
|Accumulated other comprehensive income                                                                                |  |                | (49,675   | )                  |   | (57,998   | )
|                                                                                                                      |  |                |           |                    |   |           |  
|Total stockholders equity                                                                                            |  |                | 3,269,303 |                    |   | 3,291,703 |  
|                                                                                                                      |  |                |           |                    |   |           |  
|Total liabilities and stockholders
equity                                                                            |  | $              | 7,482,180 |                    | $ | 7,593,779 |  
|                                                                                                                      |  |                |           |                    |   |           |  

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

4

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CONSOLIDATED STATEMENTS OF CASH FLOWS
OMNICARE, INC. AND SUBSIDIARY COMPANIES
UNAUDITED(in thousands)

|                                                                                                      |  |                            |          |      |   |          |  
|----------------------------------------------------------------------------------------------------- |  | -------------------------- | -------- | ---- | - | -------- | -
|                                                                                                      |  | Six months ended
 June 30, |         
|                                                                                                      |  |                            |         
|                                                                                                      |  | 2008                       |          | 2007 |  
|                                                                                                      |  |                            |          |      |  
|Cash flows from operating activities:                                                                 |  |                            |          |      |   |          |  
|Net income                                                                                            |  | $                          | 66,749   |      | $ | 92,228   |  
|Adjustments to reconcile net income to net cash
flows from operating
 activities:                     |  |                            |          |      |   |          |  
|Depreciation                                                                                          |  |                            | 26,058   |      |   | 28,080   |  
|Amortization                                                                                          |  |                            | 31,605   |      |   | 29,128   |  
|Provision for doubtful accounts                                                                       |  |                            | 56,159   |      |   | 58,803   |  
|Deferred tax provision                                                                                |  |                            | 44,069   |      |   | 35,424   |  
|Changes in assets and liabilities, net of effects from acquisition of
 businesses:                    |  |                            |          |      |   |          |  
|Accounts receivable and unbilled
receivables                                                          |  |                            | (19,322  | )    |   | (36,594  | )
|Inventories                                                                                           |  |                            | 52,283   |      |   | 26,244   |  
|Other current and noncurrent assets                                                                   |  |                            | 28,825   |      |   | (34,820  | )
|Accounts payable                                                                                      |  |                            | (40,285  | )    |   | 28,340   |  
|Accrued employee compensation                                                                         |  |                            | 4,107    |      |   | (4,379   | )
|Deferred revenue                                                                                      |  |                            | 712      |      |   | (3,083   | )
|Current and noncurrent liabilities                                                                    |  |                            | (22,348  | )    |   | 16,556   |  
|                                                                                                      |  |                            |          |      |   |          |  
|Net cash flows from operating activities                                                              |  |                            | 228,612  |      |   | 235,927  |  
|                                                                                                      |  |                            |          |      |   |          |  
|Cash flows from investing activities:                                                                 |  |                            |          |      |   |          |  
|Acquisition of businesses, net of cash
received                                                       |  |                            | (90,988  | )    |   | (69,299  | )
|Capital expenditures                                                                                  |  |                            | (28,468  | )    |   | (18,925  | )
|Transfer of cash to trusts for employee health and
severance costs,
 net of payments out of the trust |  |                            | (11,589  | )    |   | (10,501  | )
|Other                                                                                                 |  |                            | (6       | )    |   | (106     | )
|                                                                                                      |  |                            |          |      |   |          |  
|Net
    cash flows used in investing activities                                                       |  |                            | (131,051 | )    |   | (98,831  | )
|                                                                                                      |  |                            |          |      |   |          |  
|Cash flows from financing activities:                                                                 |  |                            |          |      |   |          |  
|Borrowings on line of credit facilities and term A
loan                                               |  |                            | 59,000   |      |   | 74,000   |  
|Payments on line of credit facilities and term A
loan                                                 |  |                            | (109,000 | )    |   | (174,000 | )
|Payments on long-term borrowings and
obligations                                                      |  |                            | (1,606   | )    |   | (3,631   | )
|Change in cash overdraft balance                                                                      |  |                            | (3,606   | )    |   | (11,644  | )
|Payments for Omnicare common stock repurchases (Note
2)                                               |  |                            | (100,165 | )    |   |         |  
|Payments for stock awards and exercise of stock
options, net of stock
 tendered in payment            |  |                            | (3,803   | )    |   | (8,132   | )
|Excess tax benefits from stock-based
compensation                                                     |  |                            | 82       |      |   | 4,079    |  
|Dividends paid                                                                                        |  |                            | (5,412   | )    |   | (5,482   | )
|                                                                                                      |  |                            |          |      |   |          |  
|Net cash flows used in financing
activities                                                           |  |                            | (164,510 | )    |   | (124,810 | )
|                                                                                                      |  |                            |          |      |   |          |  
|Effect of exchange rate changes on cash                                                               |  |                            | 1,231    |      |   | 942      |  
|                                                                                                      |  |                            |          |      |   |          |  
|Net (decrease) increase
    in cash and cash equivalents                                              |  |                            | (65,718  | )    |   | 13,228   |  
|Cash and cash equivalents at beginning of period                                                      |  |                            | 274,448  |      |   | 138,034  |  
|                                                                                                      |  |                            |          |      |   |          |  
|Cash and cash equivalents at end of period                                                            |  | $                          | 208,730  |      | $ | 151,262  |  
|                                                                                                      |  |                            |          |      |   |          |  

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

5

---



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

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

Interim Financial Data

The interim
financial data is unaudited; however, in the opinion of the management of
Omnicare, Inc., the interim data includes all adjustments (which include only
normal adjustments, except as described in the Restructuring and Other Related
Charges and Commitments and Contingencies notes) considered necessary for a
fair statement of the consolidated results of operations, financial position
and cash flows of Omnicare, Inc. and its consolidated subsidiaries (Omnicare
or the Company). These financial statements should be read in conjunction with
the Consolidated Financial Statements and related notes included in Omnicares
Annual Report on Form 10-K for the year ended December 31, 2007 (Omnicares
2007 Annual Report) and any related updates included in the Companys periodic
quarterly Securities and Exchange Commission (SEC) filings. Certain
reclassifications of prior year amounts have been made to conform with the
current year presentation.

Description of Business and Summary of
Significant Accounting Policies

The Companys
description of business and significant accounting policies have been disclosed
in Omnicares 2007 Annual Report. As previously disclosed, these financial
statements should be read in conjunction with the Consolidated Financial
Statements and related notes included in Omnicares 2007 Annual Report and any
related updates contained in the Companys periodic quarterly SEC filings,
including those presented below.

Concentration of Credit Risk

The
prescription drug benefit under Medicare Part D (Part D) became effective on
January 1, 2006. As a result, providers of long-term care pharmacy services,
including Omnicare, experienced a significant shift in payor mix beginning in
2006. Approximately 41% of the Companys revenues in the six months ended June
30, 2008 were generated under the Part D program. The Company estimates that
approximately 23.5% of these Part D revenues during the six months ended June
30, 2008 relate to patients enrolled in Part D prescription drug plans
sponsored by UnitedHealth Group and its Affiliates (United). Prior to the
implementation of the Medicare Part D program, most of the Part D residents
served by the Company were reimbursed under state Medicaid programs and, to a
lesser extent, private pay sources.

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

6

---



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. The Company may, as appropriate,
renegotiate agreements. Moreover, as expected in the transition to a program of
this magnitude, certain administrative and payment issues have arisen,
resulting in higher operating expenses, as well as outstanding gross accounts
receivable (net of allowances for contractual adjustments, and prior to any
allowance for doubtful accounts), particularly for copays. As of June 30, 2008,
copays outstanding from Part D Plans were approximately $27 million relating to
2006 and 2007. The Company is pursuing solutions, including legal actions
against certain Part D payors, to collect outstanding copays, as well as
certain rejected claims.

On July 11,
2007, the Company commenced legal action against a group of its customers for,
among other things, the collection of past-due receivables that are owed to the
Company. Specifically, approximately $93 million (excluding interest) is owed
to the Company by this group of customers as of June 30, 2008, of which
approximately $84 million is past due based on applicable payment terms (a
significant portion of which is not reserved based on the relevant facts and
circumstances).

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

Accumulated Other Comprehensive Income (Loss)

The
accumulated other comprehensive income (loss) balances at June 30, 2008 and
December 31, 2007, net of aggregate applicable tax benefits of $38.2 million
and $40.2 million, respectively, by component and in the aggregate, follow (in
thousands):

|                                                            |  |                |         |                    |   |         |  
|----------------------------------------------------------- |  | -------------- | ------- | ------------------ | - | ------- | -
|                                                            |  | June 30,
 2008 |         | December 31,
 2007 |  
|                                                            |  |                |         |                    |  
|Cumulative foreign currency translation adjustments         |  | $              | 7,976   |                    | $ | 3,888   |  
|Unrealized gain on fair value of investments                |  |                | 2,550   |                    |   | 2,400   |  
|Pension and postemployment benefits                         |  |                | (60,201 | )                  |   | (64,286 | )
|                                                            |  |                |         |                    |   |         |  
|Total accumulated other comprehensive loss adjustments, net |  | $              | (49,675 | )                  | $ | (57,998 | )
|                                                            |  |                |         |                    |   |         |  

7

---



Recently Issued Accounting Standards

In December
2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 141 (revised 2007), Business Combinations
(SFAS 141R). Among other changes, SFAS 141R requires the acquiring entity in
a business combination to recognize all (and only) the assets acquired and
liabilities assumed in the transaction at fair value; establishes the
acquisition-date fair value as the measurement objective for all assets
acquired and liabilities assumed, including earn-out provisions. SFAS 141R is
generally effective for business combinations occurring in the first annual
reporting period beginning after December 15, 2008. The Company is evaluating
the anticipated effect of this recently issued standard on its future
consolidated results of operations, financial position and cash flows.

In December 2007,
the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements, an amendment of ARB No. 51 (SFAS 160). Among other
items, SFAS 160 requires all entities to report noncontrolling (minority)
interests in subsidiaries in the same way as equity in the consolidated
financial statements. SFAS 160 is effective for the first annual reporting
period beginning after December 15, 2008. The Company is evaluating the
anticipated effect of this recently issued standard on its consolidated results
of operations, financial position and cash flows.

In December
2007, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments
and Hedging Activities, an amendment of FASB Statement No. 133 (SFAS
161).
Among other items, SFAS 161 requires qualitative disclosures about objectives
and strategies for using derivatives, quantitative disclosures about fair value
amounts of, and gains and losses on, derivative instruments, and disclosures
about credit-risk-related contingent features in derivative agreements. SFAS
161 is effective for the first annual reporting period beginning after November
15, 2008. The Company does not anticipate the effect of this recently issued
standard to be material on its consolidated results of operations, financial
position and cash flows based on its capital structure and financial
instruments outstanding at quarter end.

In May 2008,
the FASB issued FASB Staff Position (FSP) No. APB 14-1, Accounting for
Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement) (FSP APB 14-1). Among other items, FAS
APB 14-1 specifies that issuers of convertible debt instruments that may be
settled in cash upon conversion (including partial cash settlement) should separately
account for the liability and equity components in a manner that will reflect
the entitys nonconvertible debt borrowing rate when interest cost is
recognized in subsequent periods. FSP APB 14-1 is effective for financial
statements issued for fiscal years beginning after December 15, 2008, and
interim periods within those fiscal years. The Company is evaluating the impact
of this recently issued standard on its consolidated results of operations,
financial position and cash flows, and there can be no assurance that the
impact of this new requirement will not be material upon adoption.

8

---



Note 2 - Common Stock Repurchase Program

On March 27,
2008, the Company announced that its Board of Directors authorized a new
program to repurchase, from time to time, shares of Omnicares outstanding
common stock having an aggregate value of up to $100 million, depending on
market conditions and other factors. In the three months ended June 30, 2008,
the Company repurchased approximately 4.1 million shares at a cost of
approximately $100 million. Accordingly, as of June 30, 2008, the Company had
utilized the full amount of share repurchase authority and successfully
completed the program. These repurchases were made in open market or privately
negotiated transactions in compliance with Securities and Exchange Commission
Rule 10b-18 and other applicable legal requirements. On June 30, 2008, Omnicare
had approximately 118.2 million shares of common stock outstanding.

Note 3 - Acquisitions

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

During the
first six months of 2008, Omnicare completed 5 acquisitions of businesses in
the Pharmacy Services segment, none of which were, individually or in the
aggregate, significant to the Company. Acquisitions of businesses required
outlays of $91.0 million (including amounts payable pursuant to acquisition
agreements relating to pre-2008 acquisitions) in the six months ended June 30,
2008. The impact of these aggregate acquisitions on the Companys overall
goodwill balance has been reflected in the disclosures at the Goodwill and
Other Intangible Assets note. The Company continues to evaluate the tax
effects, identifiable intangible assets and other pre-acquisition contingencies
relating to certain acquisitions. Omnicare is in the process of completing its
allocation of the purchase price for certain acquisitions and, accordingly, the
goodwill and other identifiable intangible assets balances are preliminary and
subject to change. The net assets and operating results of acquisitions have
been included in the Companys consolidated financial statements from their
respective dates of acquisition.

9

---



Note 4 - Goodwill and Other Intangible Assets

Changes in the
carrying amount of goodwill for the six months ended June 30, 2008, by business
segment, are as follows (in thousands):

|                                                        |  |                    |           |               |   |        |  |   |           |  
|------------------------------------------------------- |  | ------------------ | --------- | ------------- | - | ------ |  | - | --------- | -
|                                                        |  | Pharmacy
 Services |           | CRO
 Services |   | Total  | 
|                                                        |  |                    |           |               |   |        | 
|Balance as of December 31, 2007                         |  | $                  | 4,250,114 |               | $ | 92,055 |  | $ | 4,342,169 |  
|Goodwill acquired in the six months ended June 30, 2008 |  |                    | 43,823    |               |   |       |  |   | 43,823    |  
|Other                                                   |  |                    | (9,009    | )             |   | 830    |  |   | (8,179    | )
|                                                        |  |                    |           |               |   |        |  |   |           |  
|Balance as of June 30, 2008                             |  | $                  | 4,284,928 |               | $ | 92,885 |  | $ | 4,377,813 |  
|                                                        |  |                    |           |               |   |        |  |   |           |  

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

The decrease
in the net carrying amount of the Companys other identifiable intangible
assets of approximately $10 million from December 31, 2007, primarily relates
to amortization expense recorded during the period, partially offset by
increases due primarily to customer relationship assets and non-compete
agreements related primarily to recent acquisitions, with a weighted-average
life of approximately 11 years.

10

---



Note 5 - Debt

A summary of
debt follows (in thousands):

|                                                           |  |                |           |                    |   |           |  
|---------------------------------------------------------- |  | -------------- | --------- | ------------------ | - | --------- | -
|                                                           |  | June 30,
 2008 |           | December 31,
 2007 |  
|                                                           |  |                |           |                    |  
|Revolving loans, due 2010, $800 million                    |  | $              |          |                    | $ |          |  
|Term loan, due 2010                                        |  |                | 49,500    |                    |   | 50,602    |  
|Senior term A loan, due 2010                               |  |                | 400,000   |                    |   | 450,000   |  
|6.125% senior subordinated notes, due 2013                 |  |                | 250,000   |                    |   | 250,000   |  
|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   |  
|Capitalized lease and other debt obligations               |  |                | 6,500     |                    |   | 8,831     |  
|                                                           |  |                |           |                    |   |           |  
|Subtotal                                                   |  |                | 2,778,500 |                    |   | 2,831,933 |  
|(Subtract) interest
    rate swap agreement                |  |                | (9,618    | )                  |   | (7,990    | )
|(Subtract) current portion of debt                         |  |                | (2,819    | )                  |   | (3,192    | )
|                                                           |  |                |           |                    |   |           |  
|Total long-term debt, net                                  |  | $              | 2,766,063 |                    | $ | 2,820,751 |  
|                                                           |  |                |           |                    |   |           |  

The Companys
debt instruments, including related terms and certain financial covenants, have
been disclosed in further detail at the Debt note of the Notes to
Consolidated Financial Statements in Omnicares 2007 Annual Report.

At June 30,
2008, there was no outstanding balance under the Companys $800 million
revolving credit facility, maturing on July 28, 2010 (Revolving Loans), and
$400 million outstanding under the Companys senior term A loan facility,
maturing on July 28, 2010 (the Term Loans). The Company repaid $50 million on
the Term Loans during the six months ended June 30, 2008. The interest rate on
the Term Loans was 4.23% at June 30, 2008. As of June 30, 2008, the Company had
approximately $27 million outstanding relating to standby letters of credit,
substantially all of which are subject to automatic annual renewals. The
Company amortized to expense $4.1 million of deferred debt issuance costs
during the six months ended June 30, 2008 and 2007.

At June 30,
2008, 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 4.46%. The estimated floating interest rate on the interest rate
swap agreement was 5.40% at June 30, 2008.

Note 6 - Fair Value

On January 1,
2008, the Company partially adopted the provisions of SFAS No. 157, Fair Value
Measurements (SFAS 157). SFAS 157 defines a hierarchy which prioritizes the
inputs in fair value measurements. Level 1 measurements are measurements
using quoted prices in active markets for identical assets or liabilities.
Level 2 measurements use significant other

11

---



observable
inputs. Level 3 measurements are measurements using significant unobservable
inputs which require a company to develop its own assumptions. In recording the
fair value of assets and liabilities, companies must use the most reliable
measurement available. The impact to the Companys consolidated results of operations,
financial position and cash flows upon partial adoption of SFAS 157 was not
material. The Company elected to partially defer adoption of SFAS 157 related
to goodwill and indefinite-lived intangible assets in accordance with FASB
Staff Position 157-2.

|                                                                          |  |                               |         |                                              |   |                                      |  |                                 |        |   |   |   | 
|------------------------------------------------------------------------- |  | ----------------------------- | ------- | -------------------------------------------- | - | ------------------------------------ |  | ------------------------------- | ------ | - | - | - | 
|                                                                          |  |                               |         | Based on                                     |  
|                                                                          |  |                               |         |                                              |  
|                                                                          |  | Fair Value
 at June 30,
 2008 |         | Quoted Prices
 in Active
 Markets
 (Level 1) |   | Other
 Observable
 Inputs
 (Level 2) |  | Unobservable
 Inputs
 (Level 3) |       
|                                                                          |  |                               |         |                                              |   |                                      |  |                                 |       
|Assets and (Liabilities) Measured at Fair Value on a
 Recurring Basis:(1) |  |                               |         |                                              |   |                                      |  |                                 |        |   |   |   | 
|Rabbi trust assets (2)                                                    |  | $                             | 119,704 |                                              | $ | 119,704                              |  | $                               |       |   | $ |  | 
|Interest rate swap agreement - fair value hedge
(3)                       |  |                               | (9,618  | )                                            |   |                                     |  |                                 | (9,618 | ) |   |  | 
|Derivatives (4)                                                           |  |                               |        |                                              |   |                                     |  |                                 |       |   |   |  | 
|                                                                          |  |                               |         |                                              |   |                                      |  |                                 |        |   |   |   | 
|Total                                                                     |  | $                             | 110,086 |                                              | $ | 119,704                              |  | $                               | (9,618 | ) | $ |  | 
|                                                                          |  |                               |         |                                              |   |                                      |  |                                 |        |   |   |   | 

(1) For cash
and cash equivalents, restricted cash, accounts receivable, unbilled
receivables, and accounts payable, the net carrying value of these items
approximates their fair value at period end. Further, at period end, the fair
value of Omnicares variable rate debt facilities approximates the carrying
value, as the effective interest rates fluctuate with changes in market rates.
The fair value of the Companys fixed-rate debt facilities is based on quoted
market prices and, while not recorded on the Consolidated Balance Sheets and
thus excluded from the fair value table above, these fair values are summarized
at the Quantitative and Qualitative Disclosures About Market Risk section at
Part I, Item 3 of this Filing.

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

(3) In
connection with its offering of $250 million of 6.125% senior subordinated
notes due 2013 (the 6.125% Senior Notes), the Company entered into an
interest rate swap agreement (the Swap Agreement) with respect to all $250
million of the aggregate principal amount of the 6.125% Senior Notes. The Swap
Agreement hedges against exposure to long-term U.S. dollar interest rates, and
is designated and accounted for as a fair value hedge. The Company is
accounting for the Swap Agreement in accordance with SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities, 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 is recorded in the Other noncurrent assets or Other noncurrent
liabilities line of the Consolidated Balance Sheets, as applicable, and as an
adjustment to the book carrying value of the related 6.125% Senior Notes. The
fair value of over-the-counter derivative instruments, such as the Companys
interest rate swap, can be modeled for valuation using a variety of techniques.
The Companys interest rate swap is valued using market inputs with mid-market
pricing as a practical expedient for the bid/ask

12

---



spread as
allowed by SFAS 157. As such, the swap is categorized within Level 2 of the
hierarchy.

(4) Embedded
in the Companys 4.00% Trust Preferred Income Equity Redeemable Securities due
2033 (the Old Trust PIERS), Series B 4.00% Trust Preferred Income Equity
Redeemable Securities due 2033 (the New Trust PIERS), and the 3.25%
convertible senior debentures due 2035 (the 3.25% Convertible Debentures) are
two derivative instruments, specifically, a contingent interest provision and a
contingent conversion parity provision. In addition, the 3.25% Convertible
Debentures include an interest reset provision. The embedded derivatives are
periodically valued, and at period end, the values of the derivatives embedded
in the Old Trust PIERS, the New Trust PIERS and the 3.25% Convertible Debentures
were not material. However, the values are subject to change, based on market
conditions, which could affect the Companys consolidated future results of
operations, financial position or cash flows and fair value disclosures.

Note 7 - Stock-Based Compensation

At June 30,
2008, the Company had four stock-based employee compensation plans under which
incentive awards were outstanding, which are described in further detail at the
Stock-Based Compensation note of the Notes to Consolidated Financial
Statements in Omnicares 2007 Annual Report. Omnicare believes that the
incentive awards issued under these plans serve to better align the interests
of its employees with those of its stockholders. As further described in
Omnicares 2007 Annual Report, non-vested stock awards are granted to key
employees at the discretion of the Compensation and Incentive Committee of the
Board of Directors.

Total pretax
stock-based compensation expense recognized in the Consolidated Statement of
Income as part of S,G&A expense for stock options and stock awards for the
three and six months ended June 30, 2008 and 2007 is as follows (in thousands):

|                                       |  |                               |       |                            |   |       |  |      |        |  |   |        | 
|-------------------------------------- |  | ----------------------------- | ----- | -------------------------- | - | ----- |  | ---- | ------ |  | - | ------ | 
|                                       |  | Three months ended,
 June 30, |       | Six months ended
 June 30, |  
|                                       |  |                               |       |                            |  
|                                       |  | 2008                          |       | 2007                       |   | 2008  |  | 2007 |       
|                                       |  |                               |       |                            |   |       |  |      |       
|Stock awards                           |  | $                             | 5,369 |                            | $ | 4,990 |  | $    | 11,064 |  | $ | 9,437  | 
|Stock options                          |  |                               | 1,214 |                            |   | 1,026 |  |      | 2,245  |  |   | 2,042  | 
|                                       |  |                               |       |                            |   |       |  |      |        |  |   |        | 
|Total stock-based compensation expense |  | $                             | 6,583 |                            | $ | 6,016 |  | $    | 13,309 |  | $ | 11,479 | 
|                                       |  |                               |       |                            |   |       |  |      |        |  |   |        | 

13

---



The
assumptions used to value stock options granted during the periods ended June
30, 2008 and 2007 are as follows:

|                                     |  |      |      |      |  |      |  
|------------------------------------ |  | ---- | ---- | ---- |  | ---- | -
|                                     |  | 2008 |      | 2007 | 
|                                     |  |      |      |      | 
|Expected volatility                  |  |      | 30.8 | %    |  | 30.3 | %
|Risk-free interest rate              |  |      | 3.1  | %    |  | 4.6  | %
|Expected dividend yield              |  |      | 0.4  | %    |  | 0.2  | %
|Expected term of options
 (in years) |  |      | 4.7  |      |  | 4.5  |  

|                                        |  |                              |      |                            |   |       |  |      |      |  |   |       | 
|--------------------------------------- |  | ---------------------------- | ---- | -------------------------- | - | ----- |  | ---- | ---- |  | - | ----- | 
|                                        |  | Three months ended
 June 30, |      | Six months ended
 June 30, |  
|                                        |  |                              |      |                            |  
|                                        |  | 2008                         |      | 2007                       |   | 2008  |  | 2007 |     
|                                        |  |                              |      |                            |   |       |  |      |     
|Weighted average fair
 value per option |  | $                            | 7.50 |                            | $ | 11.25 |  | $    | 7.44 |  | $ | 12.14 | 

A summary of
stock option activity under the plans for the six months ended June 30, 2008,
is presented below (in thousands, except exercise price and term data):

|                                          |  |        |       |                                     |   |                                                  |  |                         |     |  |   |        | 
|----------------------------------------- |  | ------ | ----- | ----------------------------------- | - | ------------------------------------------------ |  | ----------------------- | --- |  | - | ------ | 
|                                          |  | Shares |       | Weighted-
 Average
 Exercise
 Price |   | Weighted-
 Average
 Remaining
 Contractual
 Term |  | AggregateIntrinsicValue |    
|                                          |  |        |       |                                     |   |                                                  |  |                         |    
|Options outstanding,
 beginning of period |  |        | 7,259 |                                     | $ | 30.78                                            |  |                         |     |  |   |        | 
|Options granted                           |  |        | 754   |                                     |   | 23.53                                            |  |                         |     |  |   |        | 
|Options exercised                         |  |        | (2    | )                                   |   | 19.87                                            |  |                         |     |  |   |        | 
|Options forfeited                         |  |        | (52   | )                                   |   | 37.21                                            |  |                         |     |  |   |        | 
|                                          |  |        |       |                                     |   |                                                  |  |                         |     |  |   |        | 
|Options outstanding, end
 of period       |  |        | 7,959 |                                     | $ | 30.05                                            |  |                         | 5.0 |  | $ | 24,004 | 
|                                          |  |        |       |                                     |   |                                                  |  |                         |     |  |   |        | 
|Options exercisable, end
 of period       |  |        | 6,406 |                                     | $ | 29.66                                            |  |                         | 4.0 |  | $ | 21,964 | 
|                                          |  |        |       |                                     |   |                                                  |  |                         |     |  |   |        | 

The total exercise date
intrinsic value of options exercised during the six months ended June 30, 2008
was insignificant.

14

---



A summary of
non-vested restricted stock awards for the six months ended June 30, 2008 is
presented below (in thousands, except grant price data):

|                                        |  |        |   |                                       |       | 
|--------------------------------------- |  | ------ | - | ------------------------------------- | ----- | 
|                                        |  | Shares |   | Weighted-
 Average
 Grant Date
 Price |      
|                                        |  |        |   |                                       |      
|Non-vested shares,
 beginning of period |  | 2,103  |   | $                                     | 37.27 | 
|Shares awarded                          |  | 714    |   |                                       | 23.55 | 
|Shares vested                           |  | (507   | ) |                                       | 30.66 | 
|Shares forfeited                        |  | (14    | ) |                                       | 31.88 | 
|                                        |  |        |   |                                       |       | 
|Non-vested shares, end of
 period       |  | 2,296  |   | $                                     | 34.50 | 
|                                        |  |        |   |                                       |       | 

As of June 30,
2008, there was approximately $81 million of total unrecognized compensation
cost related to non-vested stock awards and stock options granted to Omnicare
employees, which is expected to be recognized as expense prospectively over a
remaining weighted-average period of approximately six years. The total grant
date fair value of shares vested during the six months ended June 30, 2008
related to stock awards and stock options was approximately $16.1 million.

Note 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, as further
described in Omnicares 2007 Annual Report. Expense relating primarily to the
Companys matching contributions for these defined contribution plans was $1.7
million and $3.6 million for the three and six months ended June 30, 2008,
respectively, and $1.6 million and $3.2 million for the three and six months
ended June 30, 2007, respectively.

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

The Company
also 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 Qualified Plan. The retirement benefits provided
by the EBP are generally comparable to those that would have been earned in the
Qualified Plan, if payments under the Qualified Plan were not limited by the
Internal Revenue Code.

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. All
benefits under the SPP became fully vested and

15

---



accrued as of
January 1, 2008. In February of 2008, all participants received a lump sum
payment of all their fully accrued benefits under the SPP.

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

The following
table presents the components of net periodic pension cost for all pension
plans for the three and six months ended June 30, 2008 and 2007 (pretax, in
thousands):

|                                                                    |  |                              |       |                            |   |       |   |      |        |   |   |        |  
|------------------------------------------------------------------- |  | ---------------------------- | ----- | -------------------------- | - | ----- | - | ---- | ------ | - | - | ------ | -
|                                                                    |  | Three months ended
 June 30, |       | Six months ended
 June 30, |  
|                                                                    |  |                              |       |                            |  
|                                                                    |  | 2008                         |       | 2007                       |   | 2008  |   | 2007 |       
|                                                                    |  |                              |       |                            |   |       |   |      |        |   |   |        |  
|Service cost                                                        |  | $                            | 1,280 |                            | $ | 1,087 |   | $    | 2,779  |   | $ | 2,174  |  
|Interest cost                                                       |  |                              | 2,374 |                            |   | 2,051 |   |      | 4,759  |   |   | 4,102  |  
|Amortization of deferred amounts (primarily prior
actuarial losses) |  |                              | 3,674 |                            |   | 2,901 |   |      | 7,347  |   |   | 5,802  |  
|Return on assets                                                    |  |                              | (54   | )                          |   | (47   | ) |      | (108   | ) |   | (94    | )
|Other                                                               |  |                              |      |                            |   |      |   |      | (268   | ) |   |       |  
|                                                                    |  |                              |       |                            |   |       |   |      |        |   |   |        |  
|Net periodic pension
cost                                           |  | $                            | 7,274 |                            | $ | 5,992 |   | $    | 14,509 |   | $ | 11,984 |  
|                                                                    |  |                              |       |                            |   |       |   |      |        |   |   |        |  

As of June 30,
2008, the aggregate defined benefit plans liabilities total approximately $170
million. During the first six months of 2008, the Company made no payments
related to funding the rabbi trusts for the settlement of the Companys pension
obligations, resulting in aggregate assets with a fair value of approximately
$119.7 million at June 30, 2008. The Company currently anticipates making
contributions of approximately $5 million during the remainder of the 2008
year.

Note 9 - Earnings Per Share Data

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

16

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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):

|                                                 |  |                             |        |                               |  |                             |  |   |      | 
|------------------------------------------------ |  | --------------------------- | ------ | ----------------------------- |  | --------------------------- |  | - | ---- | 
|                                                 |  | Three months ended June 30, |       
|                                                 |  |                             |       
|2008:                                            |  | Income
 (Numerator)         |        | Common
 Shares
 (Denominator) |  | Per
 Common
 Share
 Amounts | 
|                                                 |  |                             |        |                               |  |                             | 
|Basic EPS                                        |  |                             |        |                               |  |                             |  |   |      | 
|Net income                                       |  | $                           | 36,805 |                               |  | 117,901                     |  | $ | 0.31 | 
|                                                 |  |                             |        |                               |  |                             |  |   |      | 
|Effect of Dilutive Securities                    |  |                             |        |                               |  |                             |  |   |      | 
|4.00% junior subordinated convertible
debentures |  |                             | 69     |                               |  | 275                         |  |   |      | 
|Stock options, warrants and awards               |  |                             |       |                               |  | 496                         |  |   |      | 
|                                                 |  |                             |        |                               |  |                             |  |   |      | 
|Diluted EPS                                      |  |                             |        |                               |  |                             |  |   |      | 
|Net income plus assumed conversions              |  | $                           | 36,874 |                               |  | 118,672                     |  | $ | 0.31 | 
|                                                 |  |                             |        |                               |  |                             |  |   |      | 

|                                                 |  |   |        |  |  |         |  |   |      | 
|------------------------------------------------ |  | - | ------ |  |  | ------- |  | - | ---- | 
|2007:                                            |  |   |        |  |  |         |  |   |      | 
|                                                 |  |   |        |  |  |         |  |   |      | 
|Basic EPS                                        |  |   |        |  |  |         |  |   |      | 
|Net income                                       |  | $ | 49,241 |  |  | 119,389 |  | $ | 0.41 | 
|                                                 |  |   |        |  |  |         |  |   |      | 
|Effect of Dilutive Securities                    |  |   |        |  |  |         |  |   |      | 
|4.00% junior subordinated convertible
debentures |  |   | 72     |  |  | 275     |  |   |      | 
|Stock options, warrants and awards               |  |   |       |  |  | 1,707   |  |   |      | 
|                                                 |  |   |        |  |  |         |  |   |      | 
|Diluted EPS                                      |  |   |        |  |  |         |  |   |      | 
|Net income plus assumed conversions              |  | $ | 49,313 |  |  | 121,371 |  | $ | 0.41 | 
|                                                 |  |   |        |  |  |         |  |   |      | 

17

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|                                                 |  |                           |        |                               |  |                             |  |   |      | 
|------------------------------------------------ |  | ------------------------- | ------ | ----------------------------- |  | --------------------------- |  | - | ---- | 
|                                                 |  | Six months ended June 30, |       
|                                                 |  |                           |       
|2008:                                            |  | Income
 (Numerator)       |        | Common
 Shares
 (Denominator) |  | Per
 Common
 Share
 Amounts | 
|                                                 |  |                           |        |                               |  |                             | 
|Basic EPS                                        |  |                           |        |                               |  |                             |  |   |      | 
|Net income                                       |  | $                         | 66,749 |                               |  | 118,874                     |  | $ | 0.56 | 
|                                                 |  |                           |        |                               |  |                             |  |   |      | 
|Effect of Dilutive Securities                    |  |                           |        |                               |  |                             |  |   |      | 
|4.00% junior subordinated convertible
debentures |  |                           | 139    |                               |  | 275                         |  |   |      | 
|Stock options, warrants and awards               |  |                           |       |                               |  | 457                         |  |   |      | 
|                                                 |  |                           |        |                               |  |                             |  |   |      | 
|Diluted EPS                                      |  |                           |        |                               |  |                             |  |   |      | 
|Net income plus assumed conversions              |  | $                         | 66,888 |                               |  | 119,606                     |  | $ | 0.56 | 
|                                                 |  |                           |        |                               |  |                             |  |   |      | 

|                                                 |  |   |        |  |  |         |  |   |      | 
|------------------------------------------------ |  | - | ------ |  |  | ------- |  | - | ---- | 
|2007:                                            |  |   |        |  |  |         |  |   |      | 
|                                                 |  |   |        |  |  |         |  |   |      | 
|Basic EPS                                        |  |   |        |  |  |         |  |   |      | 
|Net income                                       |  | $ | 92,228 |  |  | 119,233 |  | $ | 0.77 | 
|                                                 |  |   |        |  |  |         |  |   |      | 
|Effect of Dilutive Securities                    |  |   |        |  |  |         |  |   |      | 
|4.00% junior subordinated convertible
debentures |  |   | 144    |  |  | 316     |  |   |      | 
|Stock options, warrants and awards               |  |   |       |  |  | 1,826   |  |   |      | 
|                                                 |  |   |        |  |  |         |  |   |      | 
|Diluted EPS                                      |  |   |        |  |  |         |  |   |      | 
|Net income plus assumed conversions              |  | $ | 92,372 |  |  | 121,375 |  | $ | 0.76 | 
|                                                 |  |   |        |  |  |         |  |   |      | 

During the
three and six months ended June 30, 2008 and 2007, the anti-dilutive effect
associated with certain stock options, warrants and stock awards was excluded
from the computation of diluted EPS, since the exercise price was greater than
the average market price of the Companys common stock during these periods.
The aggregate number of stock options, warrants and stock awards excluded from
the computation of diluted EPS for the quarters ended June 30, 2008 and 2007
totaled 7.5 million and 3.7 million, respectively, and for the six months ended
June 30, 2008 and 2007, totaled 7.3 million and 3.7 million, respectively.

Note 10 - Restructuring and Other Related
Charges

Omnicare Full Potential Program

In 2006, the
Company commenced the implementation of the Omnicare Full Potential Plan, a
major initiative primarily designed to re-engineer the Companys pharmacy
operating model to increase efficiency and enhance customer growth. The
Omnicare Full Potential Plan is expected to optimize resources across the
entire organization by implementing best practices, including the realignment
and right-sizing of functions, and a hub-and-spoke model, whereby certain key
administrative and production functions will be transferred to regional support
centers (hubs)

18

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specifically
designed and managed to perform these tasks, with local pharmacies (spokes)
focusing on time-sensitive services and customer-facing processes.

This program
is expected to be completed over a multi-year period and is estimated to result
in total pretax restructuring and other related charges of approximately $93
million. The charges primarily include severance pay, employment agreement
buy-outs, excess lease costs and professional fees, as well as other related
costs. The Company recorded restructuring and other related charges for the
Omnicare Full Potential Plan of approximately $11 million and $17 million
pretax (approximately $7 million and $11 million aftertax) during the three and
six months ended June 30, 2008, respectively, and approximately $29 million
pretax during the year ended December 31, 2007 (approximately $8 million and
$17 million pretax in the three and six months ended June 30, 2007,
respectively). The Omnicare Full Potential Plan initiatives required cumulative
restructuring and other related charges of approximately $64 million before
taxes through the second quarter of 2008. The remainder of the overall
restructuring and other related charges will be recognized and disclosed
prospectively as various phases of the project are finalized and implemented.
Through March 31, 2008, the Company had eliminated approximately 1,200
positions in completing its initial phase of the program. The remainder of the
    program is expected to result in a net reduction of approximately 1,000 positions
    (1,700 positions eliminated, net of new positions filled in different geographic
locations as well as to perform new functions required by the hub-and-spoke
model of operations). The foregoing reductions do not include additional
savings expected from lower levels of overtime and reduced temporary labor.

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

|                                              |  |                                |       |                           |   |                        |  |                            |         |   |   |       | 
|--------------------------------------------- |  | ------------------------------ | ----- | ------------------------- | - | ---------------------- |  | -------------------------- | ------- | - | - | ----- | 
|Restructuring
 charges:                       |  | Balance at
 December 31,
 2007 |       | 2008
 Provision/
 Accrual |   | Utilized
 during
 2008 |  | Balance at
 June 30,
 2008 |        
|                                              |  |                                |       |                           |   |                        |  |                            |        
|Employee severance                            |  | $                              | 35    |                           | $ | 3,053                  |  | $                          | (3,088  | ) | $ |      | 
|Employment agreement buy-outs                 |  |                                | 1,199 |                           |   | 206                    |  |                            | (951    | ) |   | 454   | 
|Lease terminations                            |  |                                | 3,128 |                           |   | 2,924                  |  |                            | (1,738  | ) |   | 4,314 | 
|Other assets, fees and facility exit
costs    |  |                                | 1,858 |                           |   | 8,561                  |  |                            | (7,052  | ) |   | 3,367 | 
|                                              |  |                                |       |                           |   |                        |  |                            |         |   |   |       | 
|Total restructuring charges                   |  | $                              | 6,220 |                           |   | 14,744                 |  | $                          | (12,829 | ) | $ | 8,135 | 
|                                              |  |                                |       |                           |   |                        |  |                            |         |   |   |       | 
|                                              |  |                                |       |                           |   |                        |  |                            |         |   |   |       | 
|Other related charges                         |  |                                |       |                           |   | 2,488                  |  |                            |         |   |   |       | 
|                                              |  |                                |       |                           |   |                        |  |                            |         |   |   |       | 
|                                              |  |                                |       |                           |   |                        |  |                            |         |   |   |       | 
|Total restructuring and other related
charges |  |                                |       |                           | $ | 17,232                 |  |                            |         |   |   |       | 
|                                              |  |                                |       |                           |   |                        |  |                            |         |   |   |       | 

As of June 30,
2008, the Company has made cumulative payments of approximately $14.1 million
of severance and other employee-related costs for the Omnicare Full Potential
Plan. The remaining liabilities at June 30, 2008, represent amounts not yet
paid relating to actions taken in connection with the program (primarily
employment agreement buy-out related payments, lease payments and professional
fees) and will be settled as these matters are finalized. The

19

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provision/accrual
and corresponding payment amounts relating to employee severance are being
accounted for primarily in accordance with SFAS No. 112, Employers Accounting
for Postemployment Benefits; and the provision/accrual and corresponding
payment amounts relating to employment agreement buy-outs are being accounted
for primarily in accordance with SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities (SFAS 146).

2005 Program

In connection
with the previously disclosed consolidation plans and other productivity
initiatives to streamline pharmacy services (related, in part, to the
NeighborCare, Inc. acquisition) and contract research organization operations,
including maximizing workforce and operating asset utilization, and producing
    a more cost-efficient, operating infrastructure (the 2005 Program),
    the Company had liabilities of $5.3 million at December 31, 2007, of which
    $0.8 million was utilized in the six months ended June 30, 2008. The remaining
    liabilities of $4.5 million at June 30, 2008 represent amounts not yet paid
    relating to actions taken in connection with the program (primarily lease
    payments) and will be settled as these matters are finalized. As previously
    disclosed, the Company recorded a credit to restructuring and other related
    charges of approximately ($1.6) million pretax (approximately ($1.0) million
    aftertax) during the three and six months ended June 30, 2007 in connection
    with the finalization of certain liabilities under the 2005 program.

Note 11 - 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 United
States Attorneys Office, District of Massachusetts, is conducting an
investigation relating to 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. Any action by the U.S. Attorneys Office, District of
Massachusetts, could result in civil or criminal proceedings against the
Company. The Company believes that it has complied with all applicable laws and
regulations with respect to these matters.

The federal
government and certain states had been 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). On November 14, 2006,
the Company entered into a voluntary civil settlement agreement, under which
the Company paid the federal government and participating state governments $51
million to satisfy all of the federal and state civil claims and related
plaintiff legal fees. The Company recorded a special litigation charge, for the
settlement and related legal fees, of $57.5 million pretax ($45.3 million
aftertax) in its financial results for 2006

20

---



to establish a
reserve relating to the aforementioned investigation. The settlement agreement
also resulted in the dismissal, with prejudice, of a number of other
allegations included in complaints filed by two qui tam relators. Another issue alleged by one of the
qui tam relators remains under seal and
was not resolved by the settlement. The settlement agreement did not include
any finding of wrongdoing or any admission of liability. As part of the
settlement agreement, on November 9, 2006, the Company entered into a Corporate
Integrity Agreement with the Department of Health and Human Services Office of
the Inspector General with a term of five years from November 9, 2006. The
Corporate Integrity Agreement requires that the Company maintain its compliance
program in accordance with the terms of the Corporate Integrity Agreement. The
agreement contains specific requirements regarding the development and
implementation of therapeutic interchange programs and the general training of
certain Company employees as to the requirements of the Companys compliance
program and the Corporate Integrity Agreement. The requirements of the
Corporate Integrity Agreement have resulted in increased costs to maintain the
Companys compliance program and could result in greater scrutiny by federal
regulatory authorities. Violations of the Corporate Integrity Agreement could
subject the Company to significant monetary and/or administrative penalties.

On July 11,
2006, the Attorney Generals Office in Michigan provided the Companys legal
counsel with information concerning its investigation relating to certain
billing issues under the Michigan Medicaid program at Specialized Pharmacy
Services, a subsidiary of the Company located in Michigan. On October 5, 2006,
the Company entered into a voluntary settlement agreement and a two-year
Corporate Integrity Agreement with the State of Michigan to resolve the
Michigan Attorney Generals investigation relating to certain billing issues
under the Michigan Medicaid program at Specialized Pharmacy Services. Under the
terms of the settlement agreement, the Company paid the State of Michigan
approximately $43 million, with an additional amount of approximately $6
million to be paid over the following three years. The Company also reached an
agreement in principle with the State of Michigan to resolve claims relating to
billing by Specialized Pharmacy Services for drugs provided to hospice patients
for a settlement amount of approximately $3.5 million. On October 26, 2007, the
Company entered into settlement agreements with the federal government and the
State of Michigan to resolve these hospice claims. Under the terms of the
October 26, 2007 settlement agreements, the Company paid the federal government
and the State of Michigan an aggregate amount of approximately $3.5 million. In
connection with the settlements, the November 9, 2006 Corporate Integrity
Agreement with the Department of Health and Human Services Office of the
Inspector General was also amended to cover certain hospice billing matters.
The settlement agreements do not include any finding of wrongdoing or any
admission of liability. The Company recorded a special litigation charge of
$54.0 million pretax ($46.7 million aftertax) in its financial results for 2006
based on the terms of the settlement agreement. The Corporate Integrity
Agreement with the State of Michigan requires that the Company and Specialized
Pharmacy Services maintain Specialized Pharmacy Services compliance program in
accordance with the terms of the Corporate Integrity Agreement. The agreement
contains specific requirements regarding compliance with Medicaid policies
governing access to pharmacy facilities and records, unit dose billing
agreements, consumption billing, hospice patient terminal illness prescriptions
and prescriptions dispensed after a patients death. The requirements of the
Corporate Integrity Agreement have resulted in increased costs to maintain
Specialized Pharmacy Services compliance program and could result in greater
scrutiny by Michigan

21

---



regulatory
authorities. Violations of the Corporate Integrity Agreement could subject the
Company to significant monetary and/or administrative penalties.

On February 2
and February 13, 2006, respectively, two substantially similar putative class
action lawsuits, entitled Indiana State
Dist. Council of Laborers & HOD Carriers Pension & Welfare Fund v.
Omnicare, Inc., et al., No. 2:06cv26 (HOD Carriers), and Chi
v. Omnicare, Inc., et al., No.
2:06cv31 (Chi), were filed against Omnicare and two of its officers
in the United States District Court for the Eastern District of Kentucky purporting
to assert claims for violation of §§10(b) and 20(a) of the Securities
Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, and seeking, among
other things, compensatory damages and injunctive relief. The complaints, which
purported to be brought on behalf of all open-market purchasers of Omnicare common
stock from August 3, 2005 through January 27, 2006, alleged that Omnicare had
artificially inflated its earnings by engaging in improper generic drug
substitution and that defendants had made false and misleading statements
regarding the Companys business and prospects. On 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. On October 31, 2006, plaintiffs
moved for leave to file a second amended complaint, which was granted on
January 26, 2007, on the condition that no further amendments would be
permitted absent extraordinary circumstances. Plaintiffs thereafter filed their
second amended complaint on January 29, 2007. The second amended complaint (i)
expands the putative class to include all purchasers of Omnicare common stock
from August 3, 2005 through July 27, 2006, (ii) names two members of the
Companys board of directors as additional defendants, (iii) adds a new
plaintiff and a new claim for violation of Section 11 of the Securities Act of
1933 based on alleged false and misleading statements in the registration
statement filed in connection with the Companys December 2005 public offering,
(iv) alleges that the Company failed to timely disclose its contractual dispute
with UnitedHealth, and (v) alleges that the Company failed to timely record
certain special litigation reserves. The defendants filed a motion to dismiss
the second amended complaint on March 12, 2007, claiming that plaintiffs had
failed adequately to plead loss causation, scienter or any actionable
misstatement or omission. That motion was fully briefed as of May 1, 2007. In
response to certain arguments relating to the individual claims of the named
plaintiffs that were raised in defendants pending motion to dismiss,
plaintiffs filed a motion to add, or in the alternative, to intervene an
additional named plaintiff, Alaska Electrical Pension Fund, on July 27, 2007.
On October 12, 2007, the court issued an opinion and order dismissing the case
and denying plaintiffs motion to add an additional named plaintiff. On
November 9, 2007, plaintiffs filed a notice of appeal with the United States
Court of Appeals for the Sixth Circuit with respect to the dismissal of their
case. That appeal is fully briefed and oral argument has  been scheduled for
September 18, 2008.

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

22

---



of directors,
individually, purporting to assert claims for breach of fiduciary duty, abuse
of control, gross mismanagement, waste of corporate assets and unjust
enrichment arising out of the Companys alleged violations of federal and state
health care laws based upon the same purportedly improper generic drug
substitution that is the subject of the federal purported class action
lawsuits. The complaints seek, among other things, damages, restitution and
injunctive relief. The Isak and Fragnoli actions were later consolidated
by agreement of the parties. On January 12, 2007, the defendants filed a motion
to dismiss the consolidated action on the grounds that the dismissal of the
substantially identical shareholder derivative action, Irwin v.
Gemunder, et al., 2:06cv62, by the United States District Court for
the Eastern District of Kentucky on November 20, 2006 should be given
preclusive effect and thus bars re-litigation of the issues already decided in Irwin. Instead of opposing
that motion, on
March 16, 2007, the plaintiffs filed an amended consolidated complaint, which
continues to name all of the directors as defendants and asserts the same
claims, but attempts to bolster those claims by adding nearly all of the
substantive allegations from the most recent complaint in the federal
securities class action (seediscussion
of HOD Carriers above) and an
amended complaint in Irwin that
added the same factual allegations that were added to the consolidated amended
complaint in theHOD Carriers
action. On April 16, 2007, defendants filed a supplemental memorandum of law in
further support of their pending motion to dismiss contending that the amended
complaint should be dismissed on the same grounds previously articulated for
dismissal, namely, the preclusive effect of the dismissal of the Irwin action. That motion has been fully
briefed, oral argument was held on August 21, 2007, and the court reserved
decision.

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

The three and
six months ended June 30, 2008 included a $16.0 million pretax charge ($10.1
million after taxes) and a $37.7 million pretax charge ($23.1 million after
taxes), respectively, and the three and six months ended June 30, 2007 included
a $9.0 million pretax charge ($5.5 million after taxes) and a $15.9 million
pretax charge ($9.8 million after taxes), respectively, reflected in the
Litigation and other related professional fees line of the Consolidated
Statements of Income, primarily for litigation-related professional expenses in
connection with the Companys lawsuit against United, certain other large
customer disputes, the administrative subpoenas from the United States
Attorneys Office, District of Massachusetts, the purported class and
derivative actions, the investigation by the federal government and certain
states relating to drug substitutions, the Companys response to subpoenas it
received relating to other legal proceedings to which the Company is not a
party, and the inquiry conducted by the Attorney Generals Office in Michigan
relating to certain billing issues under the Michigan Medicaid program.

During 2006,
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 was closed, the Company conducted certain environmental
tests at the facility. Based on the results of these tests, which showed very
low levels of beta lactam residue, and the time and expense associated with
completing the necessary remediation procedures, as well as the short remaining
term on the lease for the current

23

---



facility, the
Company decided not to reopen the Heartland facility. The Company continues to
work to address and resolve all issues, and restore centralized repackaging to
full capacity. In order to temporarily replace the capacity of the 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, the Company has been and continues to be able to meet the needs of all
of its client facilities and their residents. Addressing these issues served to
increase costs and as a result, the three months ended June 30, 2008 included
special charges of approximately $1.7 million pretax (approximately $1.5
million and approximately $0.2 million was recorded in the cost of sales and
operating expenses sections of the Consolidated Statements of Income,
respectively) ($1.1 million after taxes) for costs associated with the quality
control, product recall and fire damage issues at Heartland (Heartland
Matters). The associated costs for the six months ended June 30, 2008 totaled
$3.6 million pretax ($3.1 million and $0.5 million was recorded in the cost of
sales and operating expenses sections of the Consolidated Statements of Income,
respectively) ($2.2 million after taxes). The three months ended June 30, 2007
included special charges of approximately $4.9 million pretax ($4.0 million and
$0.9 million was recorded in the cost of sales and operating expenses sections
of the Consolidated Statements of Income, respectively) ($3.0 million after
taxes) for costs associated with the Heartland Matters. The associated costs
for the six months ended June 30, 2007 totaled $10.7 million pretax ($8.3
million and $2.4 million was recorded in the cost of sales and operating
expenses sections of the Consolidated Statements of Income, respectively) ($6.6
million after taxes). The Company maintains product recall, property and
casualty and business interruption insurance, and the extent of insurance
recovery for these expenses continues to be reviewed by its outside advisors.
As of June 30, 2008, no receivables for insurance recoveries have been recorded
by the Company. Further, in order to replace the repackaging capacity of the
Heartland facility, on February 27, 2007, Omnicare entered into an agreement
for the Repackaging Services division of Cardinal Health to serve as the
contract repackager for pharmaceutical volumes previously repackaged at the
Heartland facility. The agreement initially extends through October 2010.

Although the
Company cannot know with certainty 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 results of operations, financial position or cash flows
or, in the case of the investigations regarding certain drug substitutions 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. The Company 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 associated with certain 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

24

---



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.
Accordingly, no liabilities have been recorded for the indemnifications.

Note 12 - 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, the
District of Columbia and in Canada at June 30, 2008. 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 June 30,
2008, including the United States. Certain reclassification of prior-year
depreciation and amortization amounts have been made to conform with the
current-year presentation.

25

---



The table
below presents information about the segments as of and for the three and six
months ended June 30, 2008 and 2007, and should be read in conjunction with the
paragraph that follows (in thousands):

|                                                |  |                             |           |               |   |                              |   |                      |         |   |   |           |  
|----------------------------------------------- |  | --------------------------- | --------- | ------------- | - | ---------------------------- | - | -------------------- | ------- | - | - | --------- | -
|                                                |  | Three months ended June 30, |          
|                                                |  |                             |          
|2008:                                           |  | Pharmacy
 Services          |           | CRO
 Services |   | Corporate and
 Consolidating |   | Consolidated
 Totals |        
|                                                |  |                             |           |               |   |                              |   |                      |        
|Net sales                                       |  | $                           | 1,496,521 |               | $ | 53,631                       |   | $                    |        |   | $ | 1,550,152 |  
|Depreciation and
 amortization                  |  |                             | (20,692   | )             |   | (450                         | ) |                      | (7,006  | ) |   | (28,148   | )
|Restructuring and other
 related charges        |  |                             | (9,222    | )             |   | (600                         | ) |                      | (962    | ) |   | (10,784   | )
|Litigation and other
 related professional fees |  |                             | (16,022   | )             |   |                             |   |                      |        |   |   | (16,022   | )
|Heartland matters                               |  |                             | (1,740    | )             |   |                             |   |                      |        |   |   | (1,740    | )
|Operating income (expense)                      |  |                             | 117,516   |               |   | 3,800                        |   |                      | (28,957 | ) |   | 92,359    |  
|Total assets                                    |  |                             | 6,915,425 |               |   | 194,286                      |   |                      | 372,469 |   |   | 7,482,180 |  
|Capital expenditures                            |  |                             | (14,220   | )             |   | (1,728                       | ) |                      | (81     | ) |   | (16,029   | )
|                                                |  |                             |           |               |   |                              |   |                      |         |   |   |           |  
|2007:                                           |  |                             |           |               |   |                              |   |                      |         |   |   |           |  
|                                                |  |                             |           |               |   |                              |   |                      |         |   |   |           |  
|Net sales                                       |  | $                           | 1,498,918 |               | $ | 50,239                       |   | $                    |        |   | $ | 1,549,157 |  
|Depreciation and
 amortization                  |  |                             | (21,269   | )             |   | (477                         | ) |                      | (6,740  | ) |   | (28,486   | )
|Restructuring and other
 related charges        |  |                             | (5,004    | )             |   | (252                         | ) |                      | (994    | ) |   | (6,250    | )
|Litigation and other
 related professional fees |  |                             | (9,010    | )             |   |                             |   |                      |        |   |   | (9,010    | )
|Heartland matters                               |  |                             | (4,911    | )             |   |                             |   |                      |        |   |   | (4,911    | )
|Operating income (expense)                      |  |                             | 144,274   |               |   | 2,904                        |   |                      | (26,208 | ) |   | 120,970   |  
|Total assets                                    |  |                             | 7,001,157 |               |   | 181,252                      |   |                      | 287,811 |   |   | 7,470,220 |  
|Capital expenditures                            |  |                             | (9,629    | )             |   | (388                         | ) |                      | (627    | ) |   | (10,644   | )

26

---



|                                                |  |                           |           |               |   |                              |   |                      |         |   |   |           |  
|----------------------------------------------- |  | ------------------------- | --------- | ------------- | - | ---------------------------- | - | -------------------- | ------- | - | - | --------- | -
|                                                |  | Six months ended June 30, |          
|                                                |  |                           |          
|2008:                                           |  | Pharmacy
 Services        |           | CRO
 Services |   | Corporate and
 Consolidating |   | Consolidated
 Totals |        
|                                                |  |                           |           |               |   |                              |   |                      |        
|Net sales                                       |  | $                         | 3,006,327 |               | $ | 102,804                      |   | $                    |        |   | $ | 3,109,131 |  
|Depreciation and
 amortization                  |  |                           | (40,931   | )             |   | (889                         | ) |                      | (15,843 | ) |   | (57,663   | )
|Restructuring and other related
 charges        |  |                           | (14,318   | )             |   | (1,374                       | ) |                      | (1,540  | ) |   | (17,232   | )
|Litigation and other
 related professional fees |  |                           | (37,664   | )             |   |                             |   |                      |        |   |   | (37,664   | )
|Heartland matters                               |  |                           | (3,633    | )             |   |                             |   |                      |        |   |   | (3,633    | )
|Operating income (expense)                      |  |                           | 226,751   |               |   | 6,468                        |   |                      | (56,616 | ) |   | 176,603   |  
|Total assets                                    |  |                           | 6,915,425 |               |   | 194,286                      |   |                      | 372,469 |   |   | 7,482,180 |  
|Capital expenditures                            |  |                           | (26,144   | )             |   | (2,070                       | ) |                      | (254    | ) |   | (28,468   | )
|                                                |  |                           |           |               |   |                              |   |                      |         |   |   |           |  
|2007:                                           |  |                           |           |               |   |                              |   |                      |         |   |   |           |  
|                                                |  |                           |           |               |   |                              |   |                      |         |   |   |           |  
|Net sales                                       |  | $                         | 3,028,561 |               | $ | 97,661                       |   | $                    |        |   | $ | 3,126,222 |  
|Depreciation and amortization                   |  |                           | (42,880   | )             |   | (954                         | ) |                      | (13,374 | ) |   | (57,208   | )
|Restructuring and other
 related charges        |  |                           | (9,756    | )             |   | (2,070                       | ) |                      | (3,598  | ) |   | (15,424   | )
|Litigation and other
 related professional fees |  |                           | (15,917   | )             |   |                             |   |                      |        |   |   | (15,917   | )
|Heartland matters                               |  |                           | (10,703   | )             |   |                             |   |                      |        |   |   | (10,703   | )
|Operating income (expense)                      |  |                           | 279,864   |               |   | 3,634                        |   |                      | (52,842 | ) |   | 230,656   |  
|Total assets                                    |  |                           | 7,001,157 |               |   | 181,252                      |   |                      | 287,811 |   |   | 7,470,220 |  
|Capital expenditures                            |  |                           | (17,100   | )             |   | (662                         | ) |                      | (1,163  | ) |   | (18,925   | )

In accordance
with Emerging Issues Task Force (EITF) Issue No. 01-14, Income Statement
Characterization of Reimbursements Received for Out-of-Pocket Expenses
Incurred (EITF No. 01-14), Omnicare included in its reported CRO segment net
sales amount, for the three and six month periods ended June 30, 2008,
reimbursable out-of-pockets totaling $8.8 million and $16.2 million,
respectively, and $8.2 million and $15.4 million for the three and six months
ended June 30, 2007, respectively.

Note 13 - Guarantor Subsidiaries

The Companys
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 June 30, 2008 and December 31, 2007 for the balance sheets,
the three and six months ended June 30, 2008 and 2007 for the statements of
income, and the statements of cash flows for the six months ended June 30, 2008
and 2007. Management believes separate complete financial statements of the
respective Guarantor Subsidiaries would not provide information that would be
necessary for evaluating the sufficiency of the Guarantor Subsidiaries, and
thus are not presented. No consolidating/eliminating 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.

27

---



Note 13 - Guarantor Subsidiaries (Continued)

Summary Consolidating Statements of Income - Unaudited(in thousands)

|                                               |  |                             |         |                         |   |                               |   |                                          |        |                                   |   |         |   |   |           |  
|---------------------------------------------- |  | --------------------------- | ------- | ----------------------- | - | ----------------------------- | - | ---------------------------------------- | ------ | --------------------------------- | - | ------- | - | - | --------- | -
|                                               |  | Three months ended June 30, |        
|                                               |  |                             |        
|2008:                                          |  | Parent                      |         | Guarantor
 Subsidiaries |   | Non-
 Guarantor
 Subsidiaries |   | Consolidating/
 Eliminating
 Adjustments |        | Omnicare,
 Inc. and
 Subsidiaries |  
|                                               |  |                             |         |                         |   |                               |   |                                          |        |                                   |  
|Net sales                                      |  | $                           |        |                         | $ | 1,488,742                     |   | $                                        | 61,410 |                                   | $ |        |   | $ | 1,550,152 |  
|Cost of sales                                  |  |                             |        |                         |   | 1,119,065                     |   |                                          | 47,396 |                                   |   |        |   |   | 1,166,461 |  
|Heartland matters                              |  |                             |        |                         |   | 1,560                         |   |                                          |       |                                   |   |        |   |   | 1,560     |  
|                                               |  |                             |         |                         |   |                               |   |                                          |        |                                   |   |         |   |   |           |  
|Gross profit                                   |  |                             |        |                         |   | 368,117                       |   |                                          | 14,014 |                                   |   |        |   |   | 382,131   |  
|Selling, general and administrative expenses   |  |                             | 2,349   |                         |   | 225,988                       |   |                                          | 8,682  |                                   |   |        |   |   | 237,019   |  
|Provision for doubtful accounts                |  |                             |        |                         |   | 24,751                        |   |                                          | 1,016  |                                   |   |        |   |   | 25,767    |  
|Restructuring and other related charges        |  |                             |        |                         |   | 10,560                        |   |                                          | 224    |                                   |   |        |   |   | 10,784    |  
|Litigation and other related professional fees |  |                             |        |                         |   | 16,022                        |   |                                          |       |                                   |   |        |   |   | 16,022    |  
|Heartland matters                              |  |                             |        |                         |   | 180                           |   |                                          |       |                                   |   |        |   |   | 180       |  
|                                               |  |                             |         |                         |   |                               |   |                                          |        |                                   |   |         |   |   |           |  
|Operating income (loss)                        |  |                             | (2,349  | )                       |   | 90,616                        |   |                                          | 4,092  |                                   |   |        |   |   | 92,359    |  
|Investment income                              |  |                             | 817     |                         |   | 1,142                         |   |                                          |       |                                   |   |        |   |   | 1,959     |  
|Interest expense                               |  |                             | (34,846 | )                       |   | (271                          | ) |                                          | (823   | )                                 |   |        |   |   | (35,940   | )
|                                               |  |                             |         |                         |   |                               |   |                                          |        |                                   |   |         |   |   |           |  
|Income (loss) before income taxes              |  |                             | (36,378 | )                       |   | 91,487                        |   |                                          | 3,269  |                                   |   |        |   |   | 58,378    |  
|Income tax (benefit) expense                   |  |                             | (13,668 | )                       |   | 34,001                        |   |                                          | 1,240  |                                   |   |        |   |   | 21,573    |  
|Equity in net income of subsidiaries           |  |                             | 59,515  |                         |   |                              |   |                                          |       |                                   |   | (59,515 | ) |   |          |  
|                                               |  |                             |         |                         |   |                               |   |                                          |        |                                   |   |         |   |   |           |  
|Net income                                     |  | $                           | 36,805  |                         | $ | 57,486                        |   | $                                        | 2,029  |                                   | $ | (59,515 | ) | $ | 36,805    |  
|                                               |  |                             |         |                         |   |                               |   |                                          |        |                                   |   |         |   |   |           |  
|                                              
|2007:                                          |  |                             |         |                         |   |                               |   |                                          |        |                                   |   |         |   |   |           |  
|                                               |  |                             |         |                         |   |                               |   |                                          |        |                                   |   |         |   |   |           |  
|Net sales                                      |  | $                           |        |                         | $ | 1,491,712                     |   | $                                        | 57,445 |                                   | $ |        |   | $ | 1,549,157 |  
|Cost of sales                                  |  |                             |        |                         |   | 1,107,178                     |   |                                          | 42,931 |                                   |   |        |   |   | 1,150,109 |  
|Heartland matters                              |  |                             |        |                         |   | 4,015                         |   |                                          |       |                                   |   |        |   |   | 4,015     |  
|                                               |  |                             |         |                         |   |                               |   |                                          |        |                                   |   |         |   |   |           |  
|Gross profit                                   |  |                             |        |                         |   | 380,519                       |   |                                          | 14,514 |                                   |   |        |   |   | 395,033   |  
|Selling, general and administrative expenses   |  |                             | 2,140   |                         |   | 215,310                       |   |                                          | 10,558 |                                   |   |        |   |   | 228,008   |  
|Provision for doubtful accounts                |  |                             |        |                         |   | 29,457                        |   |                                          | 442    |                                   |   |        |   |   | 29,899    |  
|Restructuring and other related charges        |  |                             |        |                         |   | 6,250                         |   |                                          |       |                                   |   |        |   |   | 6,250     |  
|Litigation and other related professional fees |  |                             |        |                         |   | 9,010                         |   |                                          |       |                                   |   |        |   |   | 9,010     |  
|Heartland matters                              |  |                             |        |                         |   | 896                           |   |                                          |       |                                   |   |        |   |   | 896       |  
|                                               |  |                             |         |                         |   |                               |   |                                          |        |                                   |   |         |   |   |           |  
|Operating income (loss)                        |  |                             | (2,140  | )                       |   | 119,596                       |   |                                          | 3,514  |                                   |   |        |   |   | 120,970   |  
|Investment income                              |  |                             | 764     |                         |   | 1,338                         |   |                                          |       |                                   |   |        |   |   | 2,102     |  
|Interest expense                               |  |                             | (40,600 | )                       |   | (293                          | ) |                                          | (825   | )                                 |   |        |   |   | (41,718   | )
|                                               |  |                             |         |                         |   |                               |   |                                          |        |                                   |   |         |   |   |           |  
|Income (loss) before income taxes              |  |                             | (41,976 | )                       |   | 120,641                       |   |                                          | 2,689  |                                   |   |        |   |   | 81,354    |  
|Income tax (benefit) expense                   |  |                             | (16,474 | )                       |   | 47,529                        |   |                                          | 1,058  |                                   |   |        |   |   | 32,113    |  
|Equity in net income of subsidiaries           |  |                             | 74,743  |                         |   |                              |   |                                          |       |                                   |   | (74,743 | ) |   |          |  
|                                               |  |                             |         |                         |   |                               |   |                                          |        |                                   |   |         |   |   |           |  
|Net income                                     |  | $                           | 49,241  |                         | $ | 73,112                        |   | $                                        | 1,631  |                                   | $ | (74,743 | ) | $ | 49,241    |  
|                                               |  |                             |         |                         |   |                               |   |                                          |        |                                   |   |         |   |   |           |  

28

---



Note 13 - Guarantor Subsidiaries (Continued)

Summary Consolidating Statements of Income - Unaudited(in thousands)

|                                               |  |                           |         |                         |   |                               |   |                                          |         |                                   |   |          |   |   |           |  
|---------------------------------------------- |  | ------------------------- | ------- | ----------------------- | - | ----------------------------- | - | ---------------------------------------- | ------- | --------------------------------- | - | -------- | - | - | --------- | -
|                                               |  | Six months ended June 30, |        
|                                               |  |                           |        
|2008:                                          |  | Parent                    |         | Guarantor
 Subsidiaries |   | Non-
 Guarantor
 Subsidiaries |   | Consolidating/
 Eliminating
 Adjustments |         | Omnicare,
 Inc. and
 Subsidiaries |  
|                                               |  |                           |         |                         |   |                               |   |                                          |         |                                   |  
|Net sales                                      |  | $                         |        |                         | $ | 2,987,427                     |   | $                                        | 121,704 |                                   | $ |         |   | $ | 3,109,131 |  
|Cost of sales                                  |  |                           |        |                         |   | 2,250,679                     |   |                                          | 93,545  |                                   |   |         |   |   | 2,344,224 |  
|Heartland matters                              |  |                           |        |                         |   | 3,134                         |   |                                          |        |                                   |   |         |   |   | 3,134     |  
|                                               |  |                           |         |                         |   |                               |   |                                          |         |                                   |   |          |   |   |           |  
|Gross profit                                   |  |                           |        |                         |   | 733,614                       |   |                                          | 28,159  |                                   |   |         |   |   | 761,773   |  
|Selling, general and administrative expenses   |  |                           | 4,297   |                         |   | 450,983                       |   |                                          | 18,336  |                                   |   |         |   |   | 473,616   |  
|Provision for doubtful accounts                |  |                           |        |                         |   | 53,802                        |   |                                          | 2,357   |                                   |   |         |   |   | 56,159    |  
|Restructuring and other related charges        |  |                           |        |                         |   | 17,008                        |   |                                          | 224     |                                   |   |         |   |   | 17,232    |  
|Litigation and other related professional fees |  |                           |        |                         |   | 37,664                        |   |                                          |        |                                   |   |         |   |   | 37,664    |  
|Heartland matters                              |  |                           |        |                         |   | 499                           |   |                                          |        |                                   |   |         |   |   | 499       |  
|                                               |  |                           |         |                         |   |                               |   |                                          |         |                                   |   |          |   |   |           |  
|Operating income (loss)                        |  |                           | (4,297  | )                       |   | 173,658                       |   |                                          | 7,242   |                                   |   |         |   |   | 176,603   |  
|Investment income                              |  |                           | 1,391   |                         |   | 3,179                         |   |                                          |        |                                   |   |         |   |   | 4,570     |  
|Interest expense                               |  |                           | (69,831 | )                       |   | (1,426                        | ) |                                          | (1,739  | )                                 |   |         |   |   | (72,996   | )
|                                               |  |                           |         |                         |   |                               |   |                                          |         |                                   |   |          |   |   |           |  
|Income (loss) before income taxes              |  |                           | (72,737 | )                       |   | 175,411                       |   |                                          | 5,503   |                                   |   |         |   |   | 108,177   |  
|Income tax (benefit) expense                   |  |                           | (28,164 | )                       |   | 67,461                        |   |                                          | 2,131   |                                   |   |         |   |   | 41,428    |  
|Equity in net income of subsidiaries           |  |                           | 111,322 |                         |   |                              |   |                                          |        |                                   |   | (111,322 | ) |   |          |  
|                                               |  |                           |         |                         |   |                               |   |                                          |         |                                   |   |          |   |   |           |  
|Net income                                     |  | $                         | 66,749  |                         | $ | 107,950                       |   | $                                        | 3,372   |                                   | $ | (111,322 | ) | $ | 66,749    |  
|                                               |  |                           |         |                         |   |                               |   |                                          |         |                                   |   |          |   |   |           |  
|                                               |  |                           |         |                         |   |                               |   |                                          |         |                                   |   |          |   |   |           |  
|2007:                                          |  |                           |         |                         |   |                               |   |                                          |         |                                   |   |          |   |   |           |  
|                                               |  |                           |         |                         |   |                               |   |                                          |         |                                   |   |          |   |   |           |  
|Net sales                                      |  | $                         |        |                         | $ | 3,011,730                     |   | $                                        | 114,492 |                                   | $ |         |   | $ | 3,126,222 |  
|Cost of sales                                  |  |                           |        |                         |   | 2,255,878                     |   |                                          | 85,224  |                                   |   |         |   |   | 2,341,102 |  
|Heartland matters                              |  |                           |        |                         |   | 8,311                         |   |                                          |        |                                   |   |         |   |   | 8,311     |  
|                                               |  |                           |         |                         |   |                               |   |                                          |         |                                   |   |          |   |   |           |  
|Gross profit                                   |  |                           |        |                         |   | 747,541                       |   |                                          | 29,268  |                                   |   |         |   |   | 776,809   |  
|Selling, general and administrative expenses   |  |                           | 4,273   |                         |   | 429,377                       |   |                                          | 19,967  |                                   |   |         |   |   | 453,617   |  
|Provision for doubtful accounts                |  |                           |        |                         |   | 57,919                        |   |                                          | 884     |                                   |   |         |   |   | 58,803    |  
|Restructuring and other related charges        |  |                           |        |                         |   | 14,514                        |   |                                          | 910     |                                   |   |         |   |   | 15,424    |  
|Litigation and other related professional fees |  |                           |        |                         |   | 15,917                        |   |                                          |        |                                   |   |         |   |   | 15,917    |  
|Heartland matters                              |  |                           |        |                         |   | 2,392                         |   |                                          |        |                                   |   |         |   |   | 2,392     |  
|                                               |  |                           |         |                         |   |                               |   |                                          |         |                                   |   |          |   |   |           |  
|Operating income (loss)                        |  |                           | (4,273  | )                       |   | 227,422                       |   |                                          | 7,507   |                                   |   |         |   |   | 230,656   |  
|Investment income                              |  |                           | 1,335   |                         |   | 2,688                         |   |                                          |        |                                   |   |         |   |   | 4,023     |  
|Interest expense                               |  |                           | (81,606 | )                       |   | (569                          | ) |                                          | (1,591  | )                                 |   |         |   |   | (83,766   | )
|                                               |  |                           |         |                         |   |                               |   |                                          |         |                                   |   |          |   |   |           |  
|Income (loss) before income taxes              |  |                           | (84,544 | )                       |   | 229,541                       |   |                                          | 5,916   |                                   |   |         |   |   | 150,913   |  
|Income tax (benefit) expense                   |  |                           | (32,735 | )                       |   | 89,129                        |   |                                          | 2,291   |                                   |   |         |   |   | 58,685    |  
|Equity in net income of subsidiaries           |  |                           | 144,037 |                         |   |                              |   |                                          |        |                                   |   | (144,037 | ) |   |          |  
|                                               |  |                           |         |                         |   |                               |   |                                          |         |                                   |   |          |   |   |           |  
|Net income                                     |  | $                         | 92,228  |                         | $ | 140,412                       |   | $                                        | 3,625   |                                   | $ | (144,037 | ) | $ | 92,228    |  
|                                               |  |                           |         |                         |   |                               |   |                                          |         |                                   |   |          |   |   |           |  

29

---



Note 13 - Guarantor Subsidiaries (Continued)

|                                                  |  |        |           |                         |   |                               |  |                                          |         |                                   |   |            |   |   |           | 
|------------------------------------------------- |  | ------ | --------- | ----------------------- | - | ----------------------------- |  | ---------------------------------------- | ------- | --------------------------------- | - | ---------- | - | - | --------- | 
|Condensed Consolidating Balance Sheets           
|(in thousands)                                   
|                                                  |  |        |           |                         |   |                               |  |                                          |         |                                   |   |            |   |   |           | 
|As of June
 30, 2008 (Unaudited):                 |  | Parent |           | Guarantor
 Subsidiaries |   | Non-
 Guarantor
 Subsidiaries |  | Consolidating/
 Eliminating
 Adjustments |         | Omnicare,
 Inc. and
 Subsidiaries |  
|                                                  |  |        |           |                         |   |                               |  |                                          |         |                                   |  
|ASSETS                                            |  |        |           |                         |   |                               |  |                                          |         |                                   |   |            |   |   |           | 
|Cash and cash equivalents                         |  | $      | 135,886   |                         | $ | 52,742                        |  | $                                        | 20,102  |                                   | $ |           |   | $ | 208,730   | 
|Restricted cash                                   |  |        |          |                         |   | 15,019                        |  |                                          |        |                                   |   |           |   |   | 15,019    | 
|Accounts receivable, net (including intercompany) |  |        |          |                         |   | 1,316,705                     |  |                                          | 35,701  |                                   |   | (4,364     | ) |   | 1,348,042 | 
|Unbilled receivables, CRO                         |  |        |          |                         |   | 28,509                        |  |                                          |        |                                   |   |           |   |   | 28,509    | 
|Inventories                                       |  |        |          |                         |   | 388,240                       |  |                                          | 11,844  |                                   |   |           |   |   | 400,084   | 
|Deferred income tax benefits, net-current         |  |        |          |                         |   | 132,763                       |  |                                          | 96      |                                   |   | (3,352     | ) |   | 129,507   | 
|Other current assets                              |  |        | 1,608     |                         |   | 198,006                       |  |                                          | 4,487   |                                   |   |           |   |   | 204,101   | 
|                                                  |  |        |           |                         |   |                               |  |                                          |         |                                   |   |            |   |   |           | 
|Total current assets                              |  |        | 137,494   |                         |   | 2,131,984                     |  |                                          | 72,230  |                                   |   | (7,716     | ) |   | 2,333,992 | 
|                                                  |  |        |           |                         |   |                               |  |                                          |         |                                   |   |            |   |   |           | 
|Properties and equipment, net                     |  |        |          |                         |   | 193,909                       |  |                                          | 9,756   |                                   |   |           |   |   | 203,665   | 
|Goodwill                                          |  |        |          |                         |   | 4,274,581                     |  |                                          | 103,232 |                                   |   |           |   |   | 4,377,813 | 
|Identifiable intangible assets, net               |  |        |          |                         |   | 308,400                       |  |                                          | 5,278   |                                   |   |           |   |   | 313,678   | 
|Other noncurrent assets                           |  |        | 48,181    |                         |   | 204,593                       |  |                                          | 258     |                                   |   |           |   |   | 253,032   | 
|Investment in subsidiaries                        |  |        | 5,920,359 |                         |   |                              |  |                                          |        |                                   |   | (5,920,359 | ) |   |          | 
|                                                  |  |        |           |                         |   |                               |  |                                          |         |                                   |   |            |   |   |           | 
|Total assets                                      |  | $      | 6,106,034 |                         | $ | 7,113,467                     |  | $                                        | 190,754 |                                   | $ | (5,928,075 | ) | $ | 7,482,180 | 
|                                                  |  |        |           |                         |   |                               |  |                                          |         |                                   |   |            |   |   |           | 
|                                                  |  |        |           |                         |   |                               |  |                                          |         |                                   |   |            |   |   |           | 
|LIABILITIES
 AND STOCKHOLDERS EQUITY             |  |        |           |                         |   |                               |  |                                          |         |                                   |   |            |   |   |           | 
|Current liabilities (including intercompany)      |  | $      | 28,906    |                         | $ | 543,505                       |  | $                                        | 18,731  |                                   | $ | (4,364     | ) | $ | 586,778   | 
|Long-term debt, notes and convertible debentures  |  |        | 2,712,882 |                         |   | 3,159                         |  |                                          | 50,022  |                                   |   |           |   |   | 2,766,063 | 
|Deferred income tax liabilities, net-noncurrent   |  |        | 85,325    |                         |   | 407,148                       |  |                                          | 9,789   |                                   |   | (3,352     | ) |   | 498,910   | 
|Other noncurrent liabilities                      |  |        | 9,618     |                         |   | 350,296                       |  |                                          | 1,212   |                                   |   |           |   |   | 361,126   | 
|Stockholders equity                              |  |        | 3,269,303 |                         |   | 5,809,359                     |  |                                          | 111,000 |                                   |   | (5,920,359 | ) |   | 3,269,303 | 
|                                                  |  |        |           |                         |   |                               |  |                                          |         |                                   |   |            |   |   |           | 
|Total liabilities and stockholders
equity        |  | $      | 6,106,034 |                         | $ | 7,113,467                     |  | $                                        | 190,754 |                                   | $ | (5,928,075 | ) | $ | 7,482,180 | 
|                                                  |  |        |           |                         |   |                               |  |                                          |         |                                   |   |            |   |   |           | 

30

---



Note 13 - Guarantor Subsidiaries (Continued)

|                                                     |  |        |           |                         |   |                               |  |                                          |         |                                   |   |            |   |   |           | 
|---------------------------------------------------- |  | ------ | --------- | ----------------------- | - | ----------------------------- |  | ---------------------------------------- | ------- | --------------------------------- | - | ---------- | - | - | --------- | 
|Condensed Consolidating Balance Sheets - (Continued)
|(in thousands)                                      
|                                                     |  |        |           |                         |   |                               |  |                                          |         |                                   |   |            |   |   |           | 
|As of
 December 31, 2007:                            |  | Parent |           | Guarantor
 Subsidiaries |   | Non-
 Guarantor
 Subsidiaries |  | Consolidating/
 Eliminating
 Adjustments |         | Omnicare,
 Inc. and
 Subsidiaries |  
|                                                     |  |        |           |                         |   |                               |  |                                          |         |                                   |  
|ASSETS                                               |  |        |           |                         |   |                               |  |                                          |         |                                   |   |            |   |   |           | 
|Cash and cash equivalents                            |  | $      | 171,779   |                         | $ | 70,088                        |  | $                                        | 32,581  |                                   | $ |           |   | $ | 274,448   | 
|Restricted cash                                      |  |        |          |                         |   | 3,155                         |  |                                          |        |                                   |   |           |   |   | 3,155     | 
|Accounts receivable, net (including intercompany)    |  |        |          |                         |   | 1,348,504                     |  |                                          | 30,386  |                                   |   | (2,602     | ) |   | 1,376,288 | 
|Unbilled receivables, CRO                            |  |        |          |                         |   | 24,855                        |  |                                          |        |                                   |   |           |   |   | 24,855    | 
|Inventories                                          |  |        |          |                         |   | 436,639                       |  |                                          | 11,544  |                                   |   |           |   |   | 448,183   | 
|Deferred income tax benefits, net-current            |  |        | 878       |                         |   | 125,474                       |  |                                          |        |                                   |   | (113       | ) |   | 126,239   | 
|Other current assets                                 |  |        | 1,336     |                         |   | 196,474                       |  |                                          | 5,172   |                                   |   |           |   |   | 202,982   | 
|                                                     |  |        |           |                         |   |                               |  |                                          |         |                                   |   |            |   |   |           | 
|Total current assets                                 |  |        | 173,993   |                         |   | 2,205,189                     |  |                                          | 79,683  |                                   |   | (2,715     | ) |   | 2,456,150 | 
|                                                     |  |        |           |                         |   |                               |  |                                          |         |                                   |   |            |   |   |           | 
|Properties and equipment, net                        |  |        |          |                         |   | 188,340                       |  |                                          | 11,109  |                                   |   |           |   |   | 199,449   | 
|Goodwill                                             |  |        |          |                         |   | 4,238,547                     |  |                                          | 103,622 |                                   |   |           |   |   | 4,342,169 | 
|Identifiable intangible assets, net                  |  |        |          |                         |   | 318,255                       |  |                                          | 5,382   |                                   |   |           |   |   | 323,637   | 
|Other noncurrent assets                              |  |        | 52,135    |                         |   | 219,906                       |  |                                          | 333     |                                   |   |           |   |   | 272,374   | 
|Investment in subsidiaries                           |  |        | 5,939,714 |                         |   |                              |  |                                          |        |                                   |   | (5,939,714 | ) |   |          | 
|                                                     |  |        |           |                         |   |                               |  |                                          |         |                                   |   |            |   |   |           | 
|Total assets                                         |  | $      | 6,165,842 |                         | $ | 7,170,237                     |  | $                                        | 200,129 |                                   | $ | (5,942,429 | ) | $ | 7,593,779 | 
|                                                     |  |        |           |                         |   |                               |  |                                          |         |                                   |   |            |   |   |           | 
|                                                     |  |        |           |                         |   |                               |  |                                          |         |                                   |   |            |   |   |           | 
|LIABILITIES AND STOCKHOLDERS EQUITY                 |  |        |           |                         |   |                               |  |                                          |         |                                   |   |            |   |   |          
|Current liabilities (including intercompany)         |  | $      | 33,105    |                         | $ | 600,095                       |  | $                                        | 21,562  |                                   | $ | (2,602     | ) | $ | 652,160   | 
|Long-term debt, notes and convertible debentures     |  |        | 2,764,510 |                         |   | 4,505                         |  |                                          | 51,736  |                                   |   |           |   |   | 2,820,751 | 
|Deferred income tax liabilities, net-noncurrent      |  |        | 68,534    |                         |   | 372,110                       |  |                                          | 9,258   |                                   |   | (113       | ) |   | 449,789   | 
|Other noncurrent liabilities                         |  |        | 7,990     |                         |   | 370,352                       |  |                                          | 1,034   |                                   |   |           |   |   | 379,376   | 
|Stockholders equity                                 |  |        | 3,291,703 |                         |   | 5,823,175                     |  |                                          | 116,539 |                                   |   | (5,939,714 | ) |   | 3,291,703 | 
|                                                     |  |        |           |                         |   |                               |  |                                          |         |                                   |   |            |   |   |           | 
|Total liabilities and stockholders equity           |  | $      | 6,165,842 |                         | $ | 7,170,237                     |  | $                                        | 200,129 |                                   | $ | (5,942,429 | ) | $ | 7,593,779 | 
|                                                     |  |        |           |                         |   |                               |  |                                          |         |                                   |   |            |   |   |           | 

31

---



Note 13 - Guarantor Subsidiaries (Continued)

|                                                                                                      |  |                           |          |                         |   |                             |   |                                  |         |   |   |          |  
|----------------------------------------------------------------------------------------------------- |  | ------------------------- | -------- | ----------------------- | - | --------------------------- | - | -------------------------------- | ------- | - | - | -------- | -
|Condensed Consolidating Statements of Cash Flows -
 Unaudited                                        
|(in
 thousands)                                                                                      
|                                                                                                      |  |                           |          |                         |   |                             |   |                                  |         |   |   |          |  
|                                                                                                      |  | Six months ended June 30, |         
|                                                                                                      |  |                           |         
|2008:                                                                                                 |  | Parent                    |          | Guarantor
 Subsidiaries |   | Non-Guarantor
 Subsidiaries |   | Omnicare, Inc. and
 Subsidiaries |        
|                                                                                                      |  |                           |          |                         |   |                             |   |                                  |        
|Cash flows from operating activities:                                                                 |  |                           |          |                         |   |                             |   |                                  |         |   |   |          |  
|Net cash flows from operating activities                                                              |  | $                         | (20,886  | )                       | $ | 263,011                     |   | $                                | (13,513 | ) | $ | 228,612  |  
|                                                                                                      |  |                           |          |                         |   |                             |   |                                  |         |   |   |          |  
|                                                                                                      |  |                           |          |                         |   |                             |   |                                  |         |   |   |          |  
|Cash flows from investing activities:                                                                 |  |                           |          |                         |   |                             |   |                                  |         |   |   |          |  
|Acquisition of businesses, net of cash received                                                       |  |                           |         |                         |   | (90,988                     | ) |                                  |        |   |   | (90,988  | )
|Capital expenditures                                                                                  |  |                           |         |                         |   | (28,271                     | ) |                                  | (197    | ) |   | (28,468  | )
|Transfer of cash to trusts for employee health and severance costs,
 net of payments out of the trust |  |                           |         |                         |   | (11,589                     | ) |                                  |        |   |   | (11,589  | )
|Other                                                                                                 |  |                           |         |                         |   | (6                          | ) |                                  |        |   |   | (6       | )
|                                                                                                      |  |                           |          |                         |   |                             |   |                                  |         |   |   |          |  
|Net cash flows
    used in investing activities                                                       |  |                           |         |                         |   | (130,854                    | ) |                                  | (197    | ) |   | (131,051 | )
|                                                                                                      |  |                           |          |                         |   |                             |   |                                  |         |   |   |          |  
|                                                                                                      |  |                           |          |                         |   |                             |   |                                  |         |   |   |          |  
|Cash flows from financing activities:                                                                 |  |                           |          |                         |   |                             |   |                                  |         |   |   |          |  
|Borrowings on line of credit facilities and term A loan                                               |  |                           | 59,000   |                         |   |                            |   |                                  |        |   |   | 59,000   |  
|Payments on line of credit facilities and term A loan                                                 |  |                           | (109,000 | )                       |   |                            |   |                                  |        |   |   | (109,000 | )
|Payments on long-term borrowings and obligations                                                      |  |                           | (1,606   | )                       |   |                            |   |                                  |        |   |   | (1,606   | )
|Change in cash overdraft balance                                                                      |  |                           | (4,032   | )                       |   | 426                         |   |                                  |        |   |   | (3,606   | )
|Payments for Omnicare common stock repurchases                                                        |  |                           | (100,165 | )                       |   |                            |   |                                  |        |   |   | (100,165 | )
|(Payments) for stock awards and exercise of stock options, net of
 stock tendered in payment          |  |                           | (3,803   | )                       |   |                            |   |                                  |        |   |   | (3,803   | )
|Excess tax benefits from stock-based compensation                                                     |  |                           | 82       |                         |   |                            |   |                                  |        |   |   | 82       |  
|Dividends paid                                                                                        |  |                           | (5,412   | )                       |   |                            |   |                                  |        |   |   | (5,412   | )
|Other                                                                                                 |  |                           | 149,929  |                         |   | (149,929                    | ) |                                  |        |   |   |         |  
|                                                                                                      |  |                           |          |                         |   |                             |   |                                  |         |   |   |          |  
|Net cash flows used in financing activities                                                           |  |                           | (15,007  | )                       |   | (149,503                    | ) |                                  |        |   |   | (164,510 | )
|                                                                                                      |  |                           |          |                         |   |                             |   |                                  |         |   |   |          |  
|                                                                                                      |  |                           |          |                         |   |                             |   |                                  |         |   |   |          |  
|Effect of exchange rate changes on cash                                                               |  |                           |         |                         |   |                            |   |                                  | 1,231   |   |   | 1,231    |  
|                                                                                                      |  |                           |          |                         |   |                             |   |                                  |         |   |   |          |  
|                                                                                                      |  |                           |          |                         |   |                             |   |                                  |         |   |   |          |  
|Net (decrease)
    in cash and cash equivalents                                                       |  |                           | (35,893  | )                       |   | (17,346                     | ) |                                  | (12,479 | ) |   | (65,718  | )
|Cash and cash equivalents at beginning of period                                                      |  |                           | 171,779  |                         |   | 70,088                      |   |                                  | 32,581  |   |   | 274,448  |  
|                                                                                                      |  |                           |          |                         |   |                             |   |                                  |         |   |   |          |  
|Cash and cash equivalents at end of period                                                            |  | $                         | 135,886  |                         | $ | 52,742                      |   | $                                | 20,102  |   | $ | 208,730  |  
|                                                                                                      |  |                           |          |                         |   |                             |   |                                  |         |   |   |          |  

32

---



Note 13 - Guarantor Subsidiaries (Continued)

|                                                                                                     |  |                           |          |                         |   |                             |   |                                  |        |   |   |          |  
|---------------------------------------------------------------------------------------------------- |  | ------------------------- | -------- | ----------------------- | - | --------------------------- | - | -------------------------------- | ------ | - | - | -------- | -
|Condensed Consolidating Statements of Cash Flows -
 (Continued) - Unaudited                         
|(in
 thousands)                                                                                     
|                                                                                                     |  |                           |          |                         |   |                             |   |                                  |        |   |   |          |  
|                                                                                                     |  | Six months ended June 30, |         
|                                                                                                     |  |                           |         
|2007:                                                                                                |  | Parent                    |          | Guarantor
 Subsidiaries |   | Non-Guarantor
 Subsidiaries |   | Omnicare,  Inc.and
 Subsidiaries |       
|                                                                                                     |  |                           |          |                         |   |                             |   |                                  |       
|Cash flows from operating activities:                                                                |  |                           |          |                         |   |                             |   |                                  |        |   |   |          |  
|Net cash flows from operating activities                                                             |  | $                         | (29,750  | )                       | $ | 257,935                     |   | $                                | 7,742  |   | $ | 235,927  |  
|                                                                                                     |  |                           |          |                         |   |                             |   |                                  |        |   |   |          |  
|                                                                                                     |  |                           |          |                         |   |                             |   |                                  |        |   |   |          |  
|Cash flows from investing activities:                                                                |  |                           |          |                         |   |                             |   |                                  |        |   |   |          |  
|Acquisition of businesses, net of cash received                                                      |  |                           |         |                         |   | (69,299                     | ) |                                  |       |   |   | (69,299  | )
|Capital expenditures                                                                                 |  |                           |         |                         |   | (18,179                     | ) |                                  | (746   | ) |   | (18,925  | )
|Transfer of cash to trusts for employee health and
severance costs, net of payments out of the trust |  |                           |         |                         |   | (10,501                     | ) |                                  |       |   |   | (10,501  | )
|Other                                                                                                |  |                           |         |                         |   | (98                         | ) |                                  | (8     | ) |   | (106     | )
|                                                                                                     |  |                           |          |                         |   |                             |   |                                  |        |   |   |          |  
|Net cash flows
    used in investing activities                                                      |  |                           |         |                         |   | (98,077                     | ) |                                  | (754   | ) |   | (98,831  | )
|                                                                                                     |  |                           |          |                         |   |                             |   |                                  |        |   |   |          |  
|                                                                                                     |  |                           |          |                         |   |                             |   |                                  |        |   |   |          |  
|Cash flows from financing activities:                                                                |  |                           |          |                         |   |                             |   |                                  |        |   |   |          |  
|Borrowings on line of credit facilities and term A loan                                              |  |                           | 74,000   |                         |   |                            |   |                                  |       |   |   | 74,000   |  
|Payments on line of credit facilities and term A loan                                                |  |                           | (174,000 | )                       |   |                            |   |                                  |       |   |   | (174,000 | )
|Payments on long-term borrowings and obligations                                                     |  |                           | (3,631   | )                       |   |                            |   |                                  |       |   |   | (3,631   | )
|Change in cash overdraft balance                                                                     |  |                           | (9,372   | )                       |   | (2,272                      | ) |                                  |       |   |   | (11,644  | )
|(Payments) for stock awards and exercise of stock options, net of stock tendered in payment          |  |                           | (8,132   | )                       |   |                            |   |                                  |       |   |   | (8,132   | )
|Excess tax benefits from stock-based compensation                                                    |  |                           | 4,079    |                         |   |                            |   |                                  |       |   |   | 4,079    |  
|Dividends paid                                                                                       |  |                           | (5,482   | )                       |   |                            |   |                                  |       |   |   | (5,482   | )
|Other                                                                                                |  |                           | 187,469  |                         |   | (187,469                    | ) |                                  |       |   |   |         |  
|                                                                                                     |  |                           |          |                         |   |                             |   |                                  |        |   |   |          |  
|Net cash flows from financing activities                                                             |  |                           | 64,931   |                         |   | (189,741                    | ) |                                  |       |   |   | (124,810 | )
|                                                                                                     |  |                           |          |                         |   |                             |   |                                  |        |   |   |          |  
|                                                                                                     |  |                           |          |                         |   |                             |   |                                  |        |   |   |          |  
|Effect of exchange rate changes on cash                                                              |  |                           |         |                         |   |                            |   |                                  | 942    |   |   | 942      |  
|                                                                                                     |  |                           |          |                         |   |                             |   |                                  |        |   |   |          |  
|                                                                                                     |  |                           |          |                         |   |                             |   |                                  |        |   |   |          |  
|Net increase (decrease) in cash and cash equivalents                                                 |  |                           | 35,181   |                         |   | (29,883                     | ) |                                  | 7,930  |   |   | 13,228   |  
|Cash and cash equivalents at beginning of period                                                     |  |                           | 43,494   |                         |   | 74,262                      |   |                                  | 20,278 |   |   | 138,034  |  
|                                                                                                     |  |                           |          |                         |   |                             |   |                                  |        |   |   |          |  
|Cash and cash equivalents at end of period                                                           |  | $                         | 78,675   |                         | $ | 44,379                      |   | $                                | 28,208 |   | $ | 151,262  |  
|                                                                                                     |  |                           |          |                         |   |                             |   |                                  |        |   |   |          |  

33

---



Note 13 - Guarantor Subsidiaries (Continued)

The Companys
3.25% convertible senior debentures due 2035 are fully and unconditionally
guaranteed on an unsecured basis by Omnicare Purchasing Company, LP, a
wholly-owned subsidiary of the Company (the Guarantor Subsidiary). The
following condensed consolidating financial data illustrates the composition of
Omnicare, Inc. (Parent), the Guarantor Subsidiary and the Non-Guarantor
Subsidiaries as of June 30, 2008 and December 31, 2007 for the balance sheets,
the three and six months ended June 30, 2008 and 2007 for the statements of
income, and the statements of cash flows for the six months ended June 30, 2008
and 2007. Management believes separate complete financial statements of the
respective Guarantor Subsidiary would not provide information that would be
necessary for evaluating the sufficiency of the Guarantor Subsidiary, and thus
are not presented. The Guarantor Subsidiary does not have any material net cash
flows in the condensed consolidating statements of cash flows. No
consolidating/eliminating adjustments column is presented for the condensed
consolidating statements of cash flows since there were no significant
consolidating/eliminating adjustment amounts during the periods presented.

34

---



Summary Consolidating Statements of Income -
Unaudited(in thousands)

|                                                |  |                             |         |                       |   |                               |   |                                          |           |                                   |   |         |   |   |           |  
|----------------------------------------------- |  | --------------------------- | ------- | --------------------- | - | ----------------------------- | - | ---------------------------------------- | --------- | --------------------------------- | - | ------- | - | - | --------- | -
|                                                |  | Three months ended June 30, |        
|                                                |  |                             |        
|2008:                                           |  | Parent                      |         | Guarantor
 Subsidiary |   | Non-
 Guarantor
 Subsidiaries |   | Consolidating/
 Eliminating
 Adjustments |           | Omnicare,
 Inc. and
 Subsidiaries |  
|                                                |  |                             |         |                       |   |                               |   |                                          |           |                                   |  
|Net sales                                       |  | $                           |        |                       | $ |                              |   | $                                        | 1,550,152 |                                   | $ |        |   | $ | 1,550,152 |  
|Cost of sales                                   |  |                             |        |                       |   |                              |   |                                          | 1,166,461 |                                   |   |        |   |   | 1,166,461 |  
|Heartland matters                               |  |                             |        |                       |   |                              |   |                                          | 1,560     |                                   |   |        |   |   | 1,560     |  
|                                                |  |                             |         |                       |   |                               |   |                                          |           |                                   |   |         |   |   |           |  
|Gross profit                                    |  |                             |        |                       |   |                              |   |                                          | 382,131   |                                   |   |        |   |   | 382,131   |  
|Selling, general and administrative
 expenses   |  |                             | 2,349   |                       |   | 346                           |   |                                          | 234,324   |                                   |   |        |   |   | 237,019   |  
|Provision for doubtful accounts                 |  |                             |        |                       |   |                              |   |                                          | 25,767    |                                   |   |        |   |   | 25,767    |  
|Restructuring and other related charges         |  |                             |        |                       |   |                              |   |                                          | 10,784    |                                   |   |        |   |   | 10,784    |  
|Litigation and other related professional
 fees |  |                             |        |                       |   |                              |   |                                          | 16,022    |                                   |   |        |   |   | 16,022    |  
|Heartland matters                               |  |                             |        |                       |   |                              |   |                                          | 180       |                                   |   |        |   |   | 180       |  
|                                                |  |                             |         |                       |   |                               |   |                                          |           |                                   |   |         |   |   |           |  
|Operating income (loss)                         |  |                             | (2,349  | )                     |   | (346                          | ) |                                          | 95,054    |                                   |   |        |   |   | 92,359    |  
|Investment income                               |  |                             | 817     |                       |   |                              |   |                                          | 1,142     |                                   |   |        |   |   | 1,959     |  
|Interest expense                                |  |                             | (34,846 | )                     |   |                              |   |                                          | (1,094    | )                                 |   |        |   |   | (35,940   | )
|                                                |  |                             |         |                       |   |                               |   |                                          |           |                                   |   |         |   |   |           |  
|Income (loss) before income taxes               |  |                             | (36,378 | )                     |   | (346                          | ) |                                          | 95,102    |                                   |   |        |   |   | 58,378    |  
|Income tax (benefit) expense                    |  |                             | (13,668 | )                     |   | (130                          | ) |                                          | 35,371    |                                   |   |        |   |   | 21,573    |  
|Equity in net income of subsidiaries            |  |                             | 59,515  |                       |   |                              |   |                                          |          |                                   |   | (59,515 | ) |   |          |  
|                                                |  |                             |         |                       |   |                               |   |                                          |           |                                   |   |         |   |   |           |  
|Net income (loss)                               |  | $                           | 36,805  |                       | $ | (216                          | ) | $                                        | 59,731    |                                   | $ | (59,515 | ) | $ | 36,805    |  
|                                                |  |                             |         |                       |   |                               |   |                                          |           |                                   |   |         |   |   |           |  

|                                                |  |   |         |   |   |      |   |   |           |   |   |         |   |   |           |  
|----------------------------------------------- |  | - | ------- | - | - | ---- | - | - | --------- | - | - | ------- | - | - | --------- | -
|2007:                                           |  |   |         |   |   |      |   |   |           |   |   |         |   |   |           |  
|                                                |  |   |         |   |   |      |   |   |           |   |   |         |   |   |           |  
|Net sales                                       |  | $ |        |   | $ |     |   | $ | 1,549,157 |   | $ |        |   | $ | 1,549,157 |  
|Cost of sales                                   |  |   |        |   |   |     |   |   | 1,150,109 |   |   |        |   |   | 1,150,109 |  
|Heartland matters                               |  |   |        |   |   |     |   |   | 4,015     |   |   |        |   |   | 4,015     |  
|                                                |  |   |         |   |   |      |   |   |           |   |   |         |   |   |           |  
|Gross profit                                    |  |   |        |   |   |     |   |   | 395,033   |   |   |        |   |   | 395,033   |  
|Selling, general and administrative
 expenses   |  |   | 2,140   |   |   | 270  |   |   | 225,598   |   |   |        |   |   | 228,008   |  
|Provision for doubtful accounts                 |  |   |        |   |   |     |   |   | 29,899    |   |   |        |   |   | 29,899    |  
|Restructuring and other related charges         |  |   |        |   |   |     |   |   | 6,250     |   |   |        |   |   | 6,250     |  
|Litigation and other related professional
 fees |  |   |        |   |   |     |   |   | 9,010     |   |   |        |   |   | 9,010     |  
|Heartland matters                               |  |   |        |   |   |     |   |   | 896       |   |   |        |   |   | 896       |  
|                                                |  |   |         |   |   |      |   |   |           |   |   |         |   |   |           |  
|Operating income (loss)                         |  |   | (2,140  | ) |   | (270 | ) |   | 123,380   |   |   |        |   |   | 120,970   |  
|Investment income                               |  |   | 764     |   |   |     |   |   | 1,338     |   |   |        |   |   | 2,102     |  
|Interest expense                                |  |   | (40,600 | ) |   |     |   |   | (1,118    | ) |   |        |   |   | (41,718   | )
|                                                |  |   |         |   |   |      |   |   |           |   |   |         |   |   |           |  
|Income (loss) before income taxes               |  |   | (41,976 | ) |   | (270 | ) |   | 123,600   |   |   |        |   |   | 81,354    |  
|Income tax (benefit) expense                    |  |   | (16,474 | ) |   | (105 | ) |   | 48,692    |   |   |        |   |   | 32,113    |  
|Equity in net income of subsidiaries            |  |   | 74,743  |   |   |     |   |   |          |   |   | (74,743 | ) |   |          |  
|                                                |  |   |         |   |   |      |   |   |           |   |   |         |   |   |           |  
|Net income (loss)                               |  | $ | 49,241  |   | $ | (165 | ) | $ | 74,908    |   | $ | (74,743 | ) | $ | 49,241    |  
|                                                |  |   |         |   |   |      |   |   |           |   |   |         |   |   |           |  

35

---



Note 13 - Guarantor Subsidiaries (Continued)

Summary Consolidating Statements of Income -
Unaudited 
(in thousands)

|                                                |  |                           |         |                        |   |                                |   |                                           |           |                                    |   |          |   |   |           |  
|----------------------------------------------- |  | ------------------------- | ------- | ---------------------- | - | ------------------------------ | - | ----------------------------------------- | --------- | ---------------------------------- | - | -------- | - | - | --------- | -
|                                                |  | Six months ended June 30, |        
|                                                |  |                           |        
|2008:                                           |  | Parent                    |         | Guarantor 
 Subsidiary |   | Non-
 Guarantor 
 Subsidiaries |   | Consolidating/
 Eliminating 
 Adjustments |           | Omnicare,
 Inc. and 
 Subsidiaries |  
|                                                |  |                           |         |                        |   |                                |   |                                           |           |                                    |   |          |   |   |           |  
|Net sales                                       |  | $                         |        |                        | $ |                               |   | $                                         | 3,109,131 |                                    | $ |         |   | $ | 3,109,131 |  
|Cost of sales                                   |  |                           |        |                        |   |                               |   |                                           | 2,344,224 |                                    |   |         |   |   | 2,344,224 |  
|Heartland matters                               |  |                           |        |                        |   |                               |   |                                           | 3,134     |                                    |   |         |   |   | 3,134     |  
|                                                |  |                           |         |                        |   |                                |   |                                           |           |                                    |   |          |   |   |           |  
|Gross profit                                    |  |                           |        |                        |   |                               |   |                                           | 761,773   |                                    |   |         |   |   | 761,773   |  
|Selling, general and administrative
 expenses   |  |                           | 4,297   |                        |   | 646                            |   |                                           | 468,673   |                                    |   |         |   |   | 473,616   |  
|Provision for doubtful accounts                 |  |                           |        |                        |   |                               |   |                                           | 56,159    |                                    |   |         |   |   | 56,159    |  
|Restructuring and other related charges         |  |                           |        |                        |   |                               |   |                                           | 17,232    |                                    |   |         |   |   | 17,232    |  
|Litigation and other related professional
 fees |  |                           |        |                        |   |                               |   |                                           | 37,664    |                                    |   |         |   |   | 37,664    |  
|Heartland matters                               |  |                           |        |                        |   |                               |   |                                           | 499       |                                    |   |         |   |   | 499       |  
|                                                |  |                           |         |                        |   |                                |   |                                           |           |                                    |   |          |   |   |           |  
|Operating income (loss)                         |  |                           | (4,297  | )                      |   | (646                           | ) |                                           | 181,546   |                                    |   |         |   |   | 176,603   |  
|Investment income                               |  |                           | 1,391   |                        |   |                               |   |                                           | 3,179     |                                    |   |         |   |   | 4,570     |  
|Interest expense                                |  |                           | (69,831 | )                      |   |                               |   |                                           | (3,165    | )                                  |   |         |   |   | (72,996   | )
|                                                |  |                           |         |                        |   |                                |   |                                           |           |                                    |   |          |   |   |           |  
|Income (loss) before income taxes               |  |                           | (72,737 | )                      |   | (646                           | ) |                                           | 181,560   |                                    |   |         |   |   | 108,177   |  
|Income tax (benefit) expense                    |  |                           | (28,164 | )                      |   | (250                           | ) |                                           | 69,842    |                                    |   |         |   |   | 41,428    |  
|Equity in net income of subsidiaries            |  |                           | 111,322 |                        |   |                               |   |                                           |          |                                    |   | (111,322 | ) |   |          |  
|                                                |  |                           |         |                        |   |                                |   |                                           |           |                                    |   |          |   |   |           |  
|Net income (loss)                               |  | $                         | 66,749  |                        | $ | (396                           | ) | $                                         | 111,718   |                                    | $ | (111,322 | ) | $ | 66,749    |  
|                                                |  |                           |         |                        |   |                                |   |                                           |           |                                    |   |          |   |   |           |  

|                                                |  |   |         |   |   |      |   |   |           |   |   |          |   |   |           |  
|----------------------------------------------- |  | - | ------- | - | - | ---- | - | - | --------- | - | - | -------- | - | - | --------- | -
|2007:                                           |  |   |         |   |   |      |   |   |           |   |   |          |   |   |           |  
|                                                |  |   |         |   |   |      |   |   |           |   |   |          |   |   |           |  
|Net sales                                       |  | $ |        |   | $ |     |   | $ | 3,126,222 |   | $ |         |   | $ | 3,126,222 |  
|Cost of sales                                   |  |   |        |   |   |     |   |   | 2,341,102 |   |   |         |   |   | 2,341,102 |  
|Heartland matters                               |  |   |        |   |   |     |   |   | 8,311     |   |   |         |   |   | 8,311     |  
|                                                |  |   |         |   |   |      |   |   |           |   |   |          |   |   |           |  
|Gross profit                                    |  |   |        |   |   |     |   |   | 776,809   |   |   |         |   |   | 776,809   |  
|Selling, general and administrative
 expenses   |  |   | 4,273   |   |   | 541  |   |   | 448,803   |   |   |         |   |   | 453,617   |  
|Provision for doubtful accounts                 |  |   |        |   |   |     |   |   | 58,803    |   |   |         |   |   | 58,803    |  
|Restructuring and other related charges         |  |   |        |   |   |     |   |   | 15,424    |   |   |         |   |   | 15,424    |  
|Litigation and other related professional
 fees |  |   |        |   |   |     |   |   | 15,917    |   |   |         |   |   | 15,917    |  
|Heartland matters                               |  |   |        |   |   |     |   |   | 2,392     |   |   |         |   |   | 2,392     |  
|                                                |  |   |         |   |   |      |   |   |           |   |   |          |   |   |           |  
|Operating income (loss)                         |  |   | (4,273  | ) |   | (541 | ) |   | 235,470   |   |   |         |   |   | 230,656   |  
|Investment income                               |  |   | 1,335   |   |   |     |   |   | 2,688     |   |   |         |   |   | 4,023     |  
|Interest expense                                |  |   | (81,606 | ) |   |     |   |   | (2,160    | ) |   |         |   |   | (83,766   | )
|                                                |  |   |         |   |   |      |   |   |           |   |   |          |   |   |           |  
|Income (loss) before income taxes               |  |   | (84,544 | ) |   | (541 | ) |   | 235,998   |   |   |         |   |   | 150,913   |  
|Income tax (benefit) expense                    |  |   | (32,735 | ) |   | (209 | ) |   | 91,629    |   |   |         |   |   | 58,685    |  
|Equity in net income of subsidiaries            |  |   | 144,037 |   |   |     |   |   |          |   |   | (144,037 | ) |   |          |  
|                                                |  |   |         |   |   |      |   |   |           |   |   |          |   |   |           |  
|Net income (loss)                               |  | $ | 92,228  |   | $ | (332 | ) | $ | 144,369   |   | $ | (144,037 | ) | $ | 92,228    |  
|                                                |  |   |         |   |   |      |   |   |           |   |   |          |   |   |           |  

36

---



Note 13 - Guarantor Subsidiaries (Continued)

Condensed Consolidating Balance Sheets(in thousands)

|                                                   |  |        |           |                        |   |                                |  |                                           |           |                                    |   |            |   |   |           | 
|-------------------------------------------------- |  | ------ | --------- | ---------------------- | - | ------------------------------ |  | ----------------------------------------- | --------- | ---------------------------------- | - | ---------- | - | - | --------- | 
|As of June 30, 2008 (Unaudited):                   |  | Parent |           | Guarantor 
 Subsidiary |   | Non-
 Guarantor 
 Subsidiaries |  | Consolidating/
 Eliminating 
 Adjustments |           | Omnicare,
 Inc. and 
 Subsidiaries |  
|                                                   |  |        |           |                        |   |                                |  |                                           |           |                                    |  
|ASSETS                                             |  |        |           |                        |   |                                |  |                                           |           |                                    |   |            |   |   |           | 
|Cash and cash equivalents                          |  | $      | 135,886   |                        | $ |                               |  | $                                         | 72,844    |                                    | $ |           |   | $ | 208,730   | 
|Restricted cash                                    |  |        |          |                        |   |                               |  |                                           | 15,019    |                                    |   |           |   |   | 15,019    | 
|Accounts receivable, net (including
 intercompany) |  |        |          |                        |   | 56                             |  |                                           | 1,348,042 |                                    |   | (56        | ) |   | 1,348,042 | 
|Unbilled receivables, CRO                          |  |        |          |                        |   |                               |  |                                           | 28,509    |                                    |   |           |   |   | 28,509    | 
|Inventories                                        |  |        |          |                        |   |                               |  |                                           | 400,084   |                                    |   |           |   |   | 400,084   | 
|Deferred income tax benefits, net-current          |  |        |          |                        |   |                               |  |                                           | 132,859   |                                    |   | (3,352     | ) |   | 129,507   | 
|Other current assets                               |  |        | 1,608     |                        |   |                               |  |                                           | 202,493   |                                    |   |           |   |   | 204,101   | 
|                                                   |  |        |           |                        |   |                                |  |                                           |           |                                    |   |            |   |   |           | 
|Total current assets                               |  |        | 137,494   |                        |   | 56                             |  |                                           | 2,199,850 |                                    |   | (3,408     | ) |   | 2,333,992 | 
|                                                   |  |        |           |                        |   |                                |  |                                           |           |                                    |   |            |   |   |           | 
|Properties and equipment, net                      |  |        |          |                        |   | 29                             |  |                                           | 203,636   |                                    |   |           |   |   | 203,665   | 
|Goodwill                                           |  |        |          |                        |   |                               |  |                                           | 4,377,813 |                                    |   |           |   |   | 4,377,813 | 
|Identifiable intangible assets, net                |  |        |          |                        |   |                               |  |                                           | 313,678   |                                    |   |           |   |   | 313,678   | 
|Other noncurrent assets                            |  |        | 48,181    |                        |   | 19                             |  |                                           | 204,832   |                                    |   |           |   |   | 253,032   | 
|Investment in subsidiaries                         |  |        | 5,920,359 |                        |   |                               |  |                                           |          |                                    |   | (5,920,359 | ) |   |          | 
|                                                   |  |        |           |                        |   |                                |  |                                           |           |                                    |   |            |   |   |           | 
|Total assets                                       |  | $      | 6,106,034 |                        | $ | 104                            |  | $                                         | 7,299,809 |                                    | $ | (5,923,767 | ) | $ | 7,482,180 | 
|                                                   |  |        |           |                        |   |                                |  |                                           |           |                                    |   |            |   |   |           | 
|                                                   |  |        |           |                        |   |                                |  |                                           |           |                                    |   |            |   |   |           | 
|LIABILITIES AND STOCKHOLDERS EQUITY               |  |        |           |                        |   |                                |  |                                           |           |                                    |   |            |   |   |           | 
|Current liabilities (including
 intercompany)      |  | $      | 28,906    |                        | $ | 16                             |  | $                                         | 557,912   |                                    | $ | (56        | ) | $ | 586,778   | 
|Long-term debt, notes and convertible
 debentures  |  |        | 2,712,882 |                        |   |                               |  |                                           | 53,181    |                                    |   |           |   |   | 2,766,063 | 
|Deferred income tax liabilities,
 net-noncurrent   |  |        | 85,325    |                        |   |                               |  |                                           | 416,937   |                                    |   | (3,352     | ) |   | 498,910   | 
|Other noncurrent liabilities                       |  |        | 9,618     |                        |   |                               |  |                                           | 351,508   |                                    |   |           |   |   | 361,126   | 
|Stockholders equity                               |  |        | 3,269,303 |                        |   | 88                             |  |                                           | 5,920,271 |                                    |   | (5,920,359 | ) |   | 3,269,303 | 
|                                                   |  |        |           |                        |   |                                |  |                                           |           |                                    |   |            |   |   |           | 
|Total liabilities and stockholders
equity         |  | $      | 6,106,034 |                        | $ | 104                            |  | $                                         | 7,299,809 |                                    | $ | (5,923,767 | ) | $ | 7,482,180 | 
|                                                   |  |        |           |                        |   |                                |  |                                           |           |                                    |   |            |   |   |           | 

37

---



Note 13 - Guarantor Subsidiaries (Continued)

Condensed Consolidating Balance Sheets -
(Continued)(in thousands)

|                                                   |  |        |           |                        |   |                                |  |                                           |           |                                    |   |            |   |   |           | 
|-------------------------------------------------- |  | ------ | --------- | ---------------------- | - | ------------------------------ |  | ----------------------------------------- | --------- | ---------------------------------- | - | ---------- | - | - | --------- | 
|As of December 31, 2007:                           |  | Parent |           | Guarantor 
 Subsidiary |   | Non-
 Guarantor 
 Subsidiaries |  | Consolidating/
 Eliminating 
 Adjustments |           | Omnicare,
 Inc. and 
 Subsidiaries |  
|                                                   |  |        |           |                        |   |                                |  |                                           |           |                                    |  
|ASSETS                                             |  |        |           |                        |   |                                |  |                                           |           |                                    |   |            |   |   |           | 
|Cash and cash equivalents                          |  | $      | 171,779   |                        | $ |                               |  | $                                         | 102,669   |                                    | $ |           |   | $ | 274,448   | 
|Restricted cash                                    |  |        |          |                        |   |                               |  |                                           | 3,155     |                                    |   |           |   |   | 3,155     | 
|Accounts receivable, net (including
 intercompany) |  |        |          |                        |   | 43                             |  |                                           | 1,376,288 |                                    |   | (43        | ) |   | 1,376,288 | 
|Unbilled receivables, CRO                          |  |        |          |                        |   |                               |  |                                           | 24,855    |                                    |   |           |   |   | 24,855    | 
|Inventories                                        |  |        |          |                        |   |                               |  |                                           | 448,183   |                                    |   |           |   |   | 448,183   | 
|Deferred income tax benefits, net-current          |  |        | 878       |                        |   |                               |  |                                           | 125,361   |                                    |   |           |   |   | 126,239   | 
|Other current assets                               |  |        | 1,336     |                        |   |                               |  |                                           | 201,646   |                                    |   |           |   |   | 202,982   | 
|                                                   |  |        |           |                        |   |                                |  |                                           |           |                                    |   |            |   |   |           | 
|Total current assets                               |  |        | 173,993   |                        |   | 43                             |  |                                           | 2,282,157 |                                    |   | (43        | ) |   | 2,456,150 | 
|                                                   |  |        |           |                        |   |                                |  |                                           |           |                                    |   |            |   |   |           | 
|Properties and equipment, net                      |  |        |          |                        |   | 28                             |  |                                           | 199,421   |                                    |   |           |   |   | 199,449   | 
|Goodwill                                           |  |        |          |                        |   |                               |  |                                           | 4,342,169 |                                    |   |           |   |   | 4,342,169 | 
|Identifiable intangible assets, net                |  |        |          |                        |   |                               |  |                                           | 323,637   |                                    |   |           |   |   | 323,637   | 
|Other noncurrent assets                            |  |        | 52,135    |                        |   | 19                             |  |                                           | 220,220   |                                    |   |           |   |   | 272,374   | 
|Investment in subsidiaries                         |  |        | 5,939,714 |                        |   |                               |  |                                           |          |                                    |   | (5,939,714 | ) |   |          | 
|                                                   |  |        |           |                        |   |                                |  |                                           |           |                                    |   |            |   |   |           | 
|Total assets                                       |  | $      | 6,165,842 |                        | $ | 90                             |  | $                                         | 7,367,604 |                                    | $ | (5,939,757 | ) | $ | 7,593,779 | 
|                                                   |  |        |           |                        |   |                                |  |                                           |           |                                    |   |            |   |   |           | 
|                                                   |  |        |           |                        |   |                                |  |                                           |           |                                    |   |            |   |   |           | 
|LIABILITIES AND STOCKHOLDERS EQUITY               |  |        |           |                        |   |                                |  |                                           |           |                                    |   |            |   |   |           | 
|Current liabilities (including
 intercompany)      |  | $      | 33,105    |                        | $ |                               |  | $                                         | 619,098   |                                    | $ | (43        | ) | $ | 652,160   | 
|Long-term debt, notes and convertible
 debentures  |  |        | 2,764,510 |                        |   |                               |  |                                           | 56,241    |                                    |   |           |   |   | 2,820,751 | 
|Deferred income tax liabilities,
 net-noncurrent   |  |        | 68,534    |                        |   |                               |  |                                           | 381,255   |                                    |   |           |   |   | 449,789   | 
|Other noncurrent liabilities                       |  |        | 7,990     |                        |   |                               |  |                                           | 371,386   |                                    |   |           |   |   | 379,376   | 
|Stockholders equity                               |  |        | 3,291,703 |                        |   | 90                             |  |                                           | 5,939,624 |                                    |   | (5,939,714 | ) |   | 3,291,703 | 
|                                                   |  |        |           |                        |   |                                |  |                                           |           |                                    |   |            |   |   |           | 
|Total liabilities and stockholders
equity         |  | $      | 6,165,842 |                        | $ | 90                             |  | $                                         | 7,367,604 |                                    | $ | (5,939,757 | ) | $ | 7,593,779 | 
|                                                   |  |        |           |                        |   |                                |  |                                           |           |                                    |   |            |   |   |           | 

38

---



Note 13 - Guarantor Subsidiaries (Continued)

Condensed Consolidating Statements of Cash Flows -
Unaudited(in thousands)

|                                                                                                      |  |                           |          |                       |   |                             |  |                                  |          |   |   |          |  
|----------------------------------------------------------------------------------------------------- |  | ------------------------- | -------- | --------------------- | - | --------------------------- |  | -------------------------------- | -------- | - | - | -------- | -
|                                                                                                      |  | Six months ended June 30, |         
|                                                                                                      |  |                           |         
|2008:                                                                                                 |  | Parent                    |          | Guarantor
 Subsidiary |   | Non-Guarantor
 Subsidiaries |  | Omnicare, Inc. and
 Subsidiaries |         
|                                                                                                      |  |                           |          |                       |   |                             |  |                                  |         
|Cash flows from operating activities:                                                                 |  |                           |          |                       |   |                             |  |                                  |          |   |   |          |  
|Net cash flows from operating activities                                                              |  | $                         | (20,886  | )                     | $ |                            |  | $                                | 249,498  |   | $ | 228,612  |  
|                                                                                                      |  |                           |          |                       |   |                             |  |                                  |          |   |   |          |  
|                                                                                                      |  |                           |          |                       |   |                             |  |                                  |          |   |   |          |  
|Cash flows from investing activities:                                                                 |  |                           |          |                       |   |                             |  |                                  |          |   |   |          |  
|Acquisition of businesses, net of cash received                                                       |  |                           |         |                       |   |                            |  |                                  | (90,988  | ) |   | (90,988  | )
|Capital expenditures                                                                                  |  |                           |         |                       |   |                            |  |                                  | (28,468  | ) |   | (28,468  | )
|Transfer of cash to trusts for employee health and severance costs,
 net of payments out of the trust |  |                           |         |                       |   |                            |  |                                  | (11,589  | ) |   | (11,589  | )
|Other                                                                                                 |  |                           |         |                       |   |                            |  |                                  | (6       | ) |   | (6       | )
|                                                                                                      |  |                           |          |                       |   |                             |  |                                  |          |   |   |          |  
|Net
    cash flows used in investing activities                                                       |  |                           |         |                       |   |                            |  |                                  | (131,051 | ) |   | (131,051 | )
|                                                                                                      |  |                           |          |                       |   |                             |  |                                  |          |   |   |          |  
|                                                                                                      |  |                           |          |                       |   |                             |  |                                  |          |   |   |          |  
|Cash flows from financing activities:                                                                 |  |                           |          |                       |   |                             |  |                                  |          |   |   |          |  
|Borrowings on line of credit facilities and term A loan                                               |  |                           | 59,000   |                       |   |                            |  |                                  |         |   |   | 59,000   |  
|Payments on line of credit facilities and term A loan                                                 |  |                           | (109,000 | )                     |   |                            |  |                                  |         |   |   | (109,000 | )
|Payments on long-term borrowings and obligations                                                      |  |                           | (1,606   | )                     |   |                            |  |                                  |         |   |   | (1,606   | )
|Change in cash overdraft balance                                                                      |  |                           | (4,032   | )                     |   |                            |  |                                  | 426      |   |   | (3,606   | )
|Payments for Omnicare common stock repurchases                                                        |  |                           | (100,165 | )                     |   |                            |  |                                  |         |   |   | (100,165 | )
|(Payments) for stock awards and exercise of stock options, net of
 stock tendered in payment          |  |                           | (3,803   | )                     |   |                            |  |                                  |         |   |   | (3,803   | )
|Excess tax benefits from stock-based compensation                                                     |  |                           | 82       |                       |   |                            |  |                                  |         |   |   | 82       |  
|Dividends paid                                                                                        |  |                           | (5,412   | )                     |   |                            |  |                                  |         |   |   | (5,412   | )
|Other                                                                                                 |  |                           | 149,929  |                       |   |                            |  |                                  | (149,929 | ) |   |         |  
|                                                                                                      |  |                           |          |                       |   |                             |  |                                  |          |   |   |          |  
|Net cash flows used in financing
activities                                                           |  |                           | (15,007  | )                     |   |                            |  |                                  | (149,503 | ) |   | (164,510 | )
|                                                                                                      |  |                           |          |                       |   |                             |  |                                  |          |   |   |          |  
|                                                                                                      |  |                           |          |                       |   |                             |  |                                  |          |   |   |          |  
|Effect of exchange rate changes on cash                                                               |  |                           |         |                       |   |                            |  |                                  | 1,231    |   |   | 1,231    |  
|                                                                                                      |  |                           |          |                       |   |                             |  |                                  |          |   |   |          |  
|                                                                                                      |  |                           |          |                       |   |                             |  |                                  |          |   |   |          |  
|Net (decrease)
    in cash and cash equivalents                                                       |  |                           | (35,893  | )                     |   |                            |  |                                  | (29,825  | ) |   | (65,718  | )
|Cash and cash equivalents at beginning of period                                                      |  |                           | 171,779  |                       |   |                            |  |                                  | 102,669  |   |   | 274,448  |  
|                                                                                                      |  |                           |          |                       |   |                             |  |                                  |          |   |   |          |  
|Cash and cash equivalents at end of period                                                            |  | $                         | 135,886  |                       | $ |                            |  | $                                | 72,844   |   | $ | 208,730  |  
|                                                                                                      |  |                           |          |                       |   |                             |  |                                  |          |   |   |          |  

39

---



Note 13 - Guarantor Subsidiaries (Continued)

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

|                                                                                                      |  |                           |          |                       |   |                             |  |                                   |          |   |   |          |  
|----------------------------------------------------------------------------------------------------- |  | ------------------------- | -------- | --------------------- | - | --------------------------- |  | --------------------------------- | -------- | - | - | -------- | -
|                                                                                                      |  | Six months ended June 30, |         
|                                                                                                      |  |                           |         
|2007:                                                                                                 |  | Parent                    |          | Guarantor
 Subsidiary |   | Non-Guarantor
 Subsidiaries |  | Omnicare, Inc.
 and
 Subsidiaries |         
|                                                                                                      |  |                           |          |                       |   |                             |  |                                   |         
|Cash flows from operating activities:                                                                 |  |                           |          |                       |   |                             |  |                                   |          |   |   |          |  
|Net cash flows from operating activities                                                              |  | $                         | (29,750  | )                     | $ |                            |  | $                                 | 265,677  |   | $ | 235,927  |  
|                                                                                                      |  |                           |          |                       |   |                             |  |                                   |          |   |   |          |  
|                                                                                                      |  |                           |          |                       |   |                             |  |                                   |          |   |   |          |  
|Cash flows from investing activities:                                                                 |  |                           |          |                       |   |                             |  |                                   |          |   |   |          |  
|Acquisition of businesses, net of cash received                                                       |  |                           |         |                       |   |                            |  |                                   | (69,299  | ) |   | (69,299  | )
|Capital expenditures                                                                                  |  |                           |         |                       |   |                            |  |                                   | (18,925  | ) |   | (18,925  | )
|Transfer of cash to trusts for employee health and severance costs,
 net of payments out of the trust |  |                           |         |                       |   |                            |  |                                   | (10,501  | ) |   | (10,501  | )
|Other                                                                                                 |  |                           |         |                       |   |                            |  |                                   | (106     | ) |   | (106     | )
|                                                                                                      |  |                           |          |                       |   |                             |  |                                   |          |   |   |          |  
|Net
    cash flows used in investing activities                                                       |  |                           |         |                       |   |                            |  |                                   | (98,831  | ) |   | (98,831  | )
|                                                                                                      |  |                           |          |                       |   |                             |  |                                   |          |   |   |          |  
|                                                                                                      |  |                           |          |                       |   |                             |  |                                   |          |   |   |          |  
|Cash flows from financing activities:                                                                 |  |                           |          |                       |   |                             |  |                                   |          |   |   |          |  
|Borrowings on line of credit facilities and term A loan                                               |  |                           | 74,000   |                       |   |                            |  |                                   |         |   |   | 74,000   |  
|Payments on line of credit facilities and term A loan                                                 |  |                           | (174,000 | )                     |   |                            |  |                                   |         |   |   | (174,000 | )
|Payments on long-term borrowings and obligations                                                      |  |                           | (3,631   | )                     |   |                            |  |                                   |         |   |   | (3,631   | )
|Change in cash overdraft balance                                                                      |  |                           | (9,372   | )                     |   |                            |  |                                   | (2,272   | ) |   | (11,644  | )
|(Payments) for stock awards and exercise of stock options, net of
 stock tendered in payment          |  |                           | (8,132   | )                     |   |                            |  |                                   |         |   |   | (8,132   | )
|Excess tax benefits from stock-based compensation                                                     |  |                           | 4,079    |                       |   |                            |  |                                   |         |   |   | 4,079    |  
|Dividends paid                                                                                        |  |                           | (5,482   | )                     |   |                            |  |                                   |         |   |   | (5,482   | )
|Other                                                                                                 |  |                           | 187,469  |                       |   |                            |  |                                   | (187,469 | ) |   |         |  
|                                                                                                      |  |                           |          |                       |   |                             |  |                                   |          |   |   |          |  
|Net cash flows from financing activities                                                              |  |                           | 64,931   |                       |   |                            |  |                                   | (189,741 | ) |   | (124,810 | )
|                                                                                                      |  |                           |          |                       |   |                             |  |                                   |          |   |   |          |  
|                                                                                                      |  |                           |          |                       |   |                             |  |                                   |          |   |   |          |  
|Effect of exchange rate changes on cash                                                               |  |                           |         |                       |   |                            |  |                                   | 942      |   |   | 942      |  
|                                                                                                      |  |                           |          |                       |   |                             |  |                                   |          |   |   |          |  
|                                                                                                      |  |                           |          |                       |   |                             |  |                                   |          |   |   |          |  
|Net increase (decrease) in cash and cash equivalents                                                  |  |                           | 35,181   |                       |   |                            |  |                                   | (21,953  | ) |   | 13,228   |  
|Cash and cash equivalents at beginning of period                                                      |  |                           | 43,494   |                       |   |                            |  |                                   | 94,540   |   |   | 138,034  |  
|                                                                                                      |  |                           |          |                       |   |                             |  |                                   |          |   |   |          |  
|Cash and cash equivalents at end of period                                                            |  | $                         | 78,675   |                       | $ |                            |  | $                                 | 72,587   |   | $ | 151,262  |  
|                                                                                                      |  |                           |          |                       |   |                             |  |                                   |          |   |   |          |  

40

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

The following
discussion should be read in conjunction with the Consolidated Financial
Statements, related notes and other financial information appearing elsewhere
in this report. In addition, see Safe Harbor Statement under the Private
Securities Litigation Reform Act of 1995 Regarding Forward-Looking
Information. The reader should also refer to the Consolidated Financial
Statements and notes thereto and MD&A, including critical accounting
policies, for the year ended December 31, 2007, which appear in the Companys
Annual Report on Form 10-K, (Omnicares 2007 Annual Report), which was filed
with the Securities and Exchange Commission on February 28, 2008.

|                                                                               
|-------------------------------------------------------------------------------
|Overview of
 Three and Six Months Ended June 30, 2008 and Results of Operations
|                                                                               

Omnicare, Inc.
(Omnicare or the Company) is a leading geriatric pharmaceutical
services company. Omnicare is the nations largest provider of pharmaceuticals
and related pharmacy and ancillary services to long-term healthcare institutions.
Omnicares clients include primarily skilled nursing facilities (SNFs),
assisted living facilities, retirement centers, independent living communities,
hospitals, hospice, and other healthcare settings and service providers. At
June 30, 2008, Omnicare served long-term care facilities as well as chronic
care and other settings comprising approximately 1,438,000 beds, including approximately
70,000 patients served by the patient assistance programs of its specialty
pharmacy services business. The comparable number at June 30, 2007 was approximately
1,449,000 (including approximately 60,000 patients served by patient assistance
programs). Omnicare provides its pharmacy services in 47 states in the United
States, the District of Columbia and Canada at June 30, 2008. As well, Omnicare
provides operational software and support systems to long-term care pharmacy
providers across the United States. 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.

The following
summary table presents consolidated net sales and results of operations of
Omnicare for the three and six months ended June 30, 2008 and 2007 (in
thousands, except per share amounts). In accordance with the Securities and
Exchange Commission (SEC) release entitled Conditions for Use of Non-GAAP
Financial Measures, the Company has disclosed in this MD&A, with the
exception of EBITDA (discussed below), only those measures that are in
accordance with U.S. Generally Accepted Accounting Principles (GAAP).

41

---



|                                                                                  |  |                              |           |                            |   |           |   |      |           |   |   |           |  
|--------------------------------------------------------------------------------- |  | ---------------------------- | --------- | -------------------------- | - | --------- | - | ---- | --------- | - | - | --------- | -
|                                                                                  |  | Three months ended
 June 30, |           | Six months ended
 June 30, |  
|                                                                                  |  |                              |           |                            |  
|                                                                                  |  | 2008                         |           | 2007                       |   | 2008      |   | 2007 |          
|                                                                                  |  |                              |           |                            |   |           |   |      |          
|                                                                                  |  |                              |           |                            |   |           |   |      |           |   |   |           |  
|Net sales                                                                         |  | $                            | 1,550,152 |                            | $ | 1,549,157 |   | $    | 3,109,131 |   | $ | 3,126,222 |  
|                                                                                  |  |                              |           |                            |   |           |   |      |           |   |   |           |  
|                                                                                  |  |                              |           |                            |   |           |   |      |           |   |   |           |  
|Net income                                                                        |  | $                            | 36,805    |                            | $ | 49,241    |   | $    | 66,749    |   | $ | 92,228    |  
|                                                                                  |  |                              |           |                            |   |           |   |      |           |   |   |           |  
|                                                                                  |  |                              |           |                            |   |           |   |      |           |   |   |           |  
|Earnings per share:                                                               |  |                              |           |                            |   |           |   |      |           |   |   |           |  
|Basic                                                                             |  | $                            | 0.31      |                            | $ | 0.41      |   | $    | 0.56      |   | $ | 0.77      |  
|                                                                                  |  |                              |           |                            |   |           |   |      |           |   |   |           |  
|Diluted                                                                           |  | $                            | 0.31      |                            | $ | 0.41      |   | $    | 0.56      |   | $ | 0.76      |  
|                                                                                  |  |                              |           |                            |   |           |   |      |           |   |   |           |  
|                                                                                  |  |                              |           |                            |   |           |   |      |           |   |   |           |  
|EBITDA(a)                                                                         |  | $                            | 120,507   |                            | $ | 149,456   |   | $    | 234,266   |   | $ | 287,864   |  
|                                                                                  |  |                              |           |                            |   |           |   |      |           |   |   |           |  
|                                                                                  |  |                              |           |                            |   |           |   |      |           |   |   |           |  
|EBITDA reconciliation to net cash flows from operating
activities:                |  |                              |           |                            |   |           |   |      |           |   |   |           |  
|EBITDA(a)                                                                         |  | $                            | 120,507   |                            | $ | 149,456   |   | $    | 234,266   |   | $ | 287,864   |  
|(Subtract)/Add:                                                                   |  |                              |           |                            |   |           |   |      |           |   |   |           |  
|Interest expense, net of investment income                                        |  |                              | (33,981   | )                          |   | (39,616   | ) |      | (68,426   | ) |   | (79,743   | )
|Income tax provision                                                              |  |                              | (21,573   | )                          |   | (32,113   | ) |      | (41,428   | ) |   | (58,685   | )
|Changes in assets and liabilities, net of effects from acquisition of
 businesses |  |                              | (24,464   | )                          |   | (68,655   | ) |      | 3,972     |   |   | (7,736    | )
|Provision for doubtful accounts                                                   |  |                              | 25,767    |                            |   | 29,899    |   |      | 56,159    |   |   | 58,803    |  
|Deferred tax provision                                                            |  |                              | 20,092    |                            |   | 22,167    |   |      | 44,069    |   |   | 35,424    |  
|                                                                                  |  |                              |           |                            |   |           |   |      |           |   |   |           |  
|Net cash flows from operating activities                                          |  | $                            | 86,348    |                            | $ | 61,138    |   | $    | 228,612   |   | $ | 235,927   |  
|                                                                                  |  |                              |           |                            |   |           |   |      |           |   |   |           |  

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

|                                          
|------------------------------------------
|Three Months
 Ended June 30, 2008 vs. 2007
|                                          

Total net
sales for the three months ended June 30, 2008 increased to $1,550.2 million
from $1,549.2 million in the comparable prior-year period. Net income for the
three months ended June 30, 2008 was $36.8 million versus $49.2 million earned
in the comparable 2007 period. Diluted earnings per share for the three months
ended June 30, 2008 were $0.31 versus $0.41 in the same prior-year period.
EBITDA totaled $120.5 million for the three months ended June 30, 2008 as
compared with $149.5 million for the same period of 2007.

42

---



The Company
continues to be impacted by the unilateral reduction in April 2006 by
UnitedHealth Group, Inc. and its Affiliates (United) in the reimbursement
rates paid by United to Omnicare by switching to its PacifiCare pharmacy
network contract for services rendered by Omnicare to beneficiaries of Uniteds
drug benefit plans under the Medicare Part D program. The differential in
reimbursement rates that resulted from Uniteds action, as compared with
reimbursement rates under the originally negotiated contract, reduced sales and
operating profit in the second quarter of 2008 by approximately $24 million
(approximately $15 million aftertax), and cumulatively since April 2006 by
approximately $246 million (approximately $153 million aftertax). This matter
is currently the subject of litigation initiated by Omnicare and is before the
federal court in the Northern District of Illinois. See further discussion at
the Legal Proceedings section at Part II, Item 1 of this Filing.

Net sales for
the quarter were favorably impacted primarily by drug price
inflation, increased use of certain higher acuity drugs and biologic agents,
and acquisitions, as well as increased CRO Services revenues. Partially
offsetting these factors was the unfavorable sales impact of a lower number of
beds served, combined with a year-over-year shift in mix towards assisted
living, the increased availability and utilization of generic drugs, reductions
in reimbursement and/or utilization for certain drugs as well as competitive
pricing issues, and lower revenues reported from copays and rejects under Part
D as well as from certain matters currently in litigation. See discussion of
sales and operating profit results in more detail at the Pharmacy Services
Segment and CRO Services Segment captions below.

The Companys
consolidated gross profit of $382.1 million decreased $12.9 million for the
three months ended June 30, 2008, from the same prior-year period amount of
$395.0 million. Gross profit as a percentage of total net sales of 24.7% in the
three months ended June 30, 2008, was lower than the 25.5% experienced during
the comparable 2007 period. Gross profit was unfavorably affected in the 2008
period largely due to the aforementioned factors that reduced net sales,
primarily the lower net number of beds served, competitive pricing issues and
the reductions in reimbursement and/or utilization for certain drugs. Partially
offsetting these factors were the increased availability and utilization of
higher margin generic drugs, the continued integration of prior-period
acquisitions, the favorable effect of drug price inflation, lower incremental
costs associated with the closure of the Companys Heartland repackaging
facility as further described below, and, purchasing improvements.

Omnicares
consolidated selling, general and administrative (operating) expenses for the
three months ended June 30, 2008 of $237.0 million were higher than the
comparable prior-year amount of $228.0 million by $9.0 million. Operating
expenses as a percentage of net sales amounted to 15.3% in the second quarter
of 2008, representing an increase from the 14.7% experienced in the comparable
prior-year period. Operating expenses for the quarter ended June 30, 2008 were
unfavorably impacted largely by increases in employee benefit costs and
increased operating costs associated with recent acquisitions. Partially
offsetting the increased operating expenses were the favorable impact of the
Companys continued integration of prior-year acquisitions, purchasing
improvements and productivity enhancements.

The provision for doubtful accounts for the three months ended June 30,
2008 was $25.8 million versus $29.9 million in the comparable prior-year
period, lower by $4.1 million due to improved collections and recovery of
previously uncollected copays and rejects.

43

---



Investment
income for the three months ended June 30, 2008 of $2.0 million was modestly
lower than the $2.1 million earned in the comparable prior-year period,
primarily due to lower interest rates versus the prior year.

Interest
expense for the three months ended June 30, 2008 of $35.9 million is lower than
the $41.7 million in the comparable prior-year period, primarily due to lower
debt outstanding resulting from payments aggregating $150 million on the
Companys senior term A loan facility, maturing on July 28, 2010 (the Term
Loans) during the second quarter of 2007 through the first six months of 2008,
and lower interest rates on variable rate loans.

The effective
income tax rate was 37.0% for the three months ended June 30, 2008, as compared
to the second quarter of 2007 rate of 39.5%. The year-over-year decrease in the
effective tax rate is largely attributable to the favorable impact of a change
in filing methodology for a state taxing jurisdiction in the second quarter of
2008. The effective tax rates in 2008 and 2007 are higher than the federal
statutory rate largely as a result of the impact of state and local income
taxes and various nondeductible expenses.

Special Items:

The three
months ended June 30, 2008 included the following charges, which primarily
impacted the Pharmacy Services segment. Management believes that these special
items are either infrequent occurrences or otherwise not related to Omnicares
ordinary course of business:

(i) Operating income included
restructuring and other related charges of approximately $10.8 million pretax
($6.7 million aftertax), relating to the implementation of the Omnicare Full
Potential Plan, a major initiative primarily designed to re-engineer the
pharmacy operating model to increase efficiency and enhance customer growth.
See further discussion at the Restructuring and Other Related Charges note of
the Notes to Consolidated Financial Statements and the Restructuring and Other
Related Charges section of this MD&A.

(ii) During 2006, the Company experienced certain quality
control and product recall issues, as well as fire damage, at one of its
repackaging facilities, Heartland Repack Services (Heartland), as described
in further detail at the Commitments and Contingencies note of the Notes to
Consolidated Financial Statements (the Heartland Matters). In addressing and
resolving these Heartland Matters, the Company continues to experience
increased costs and as a result, the three months ended June 30, 2008 included
special charges of $1.7 million pretax (approximately $1.5 million and $0.2
million was recorded in the cost of sales and operating expense sections of the
Consolidated Statements of Income, respectively) ($1.1 million aftertax) for
these increased costs. The Company maintains product recall, property and casualty
and business interruption insurance, and the extent of insurance recovery for
these expenses continues to be reviewed by its outside advisors. As of June 30,
2008, no receivables for insurance recoveries have been recorded by the
Company.

(iii) Operating
income included special litigation and other related professional fees of $16.0
million pretax ($10.1 million aftertax) for litigation-related professional
expenses primarily in connection with the Companys lawsuit against United,
certain other large customer disputes, the

44

---



investigation
by the United States Attorneys Office, District of Massachusetts, the
purported class and derivative actions, the investigation by the federal
government and certain states relating to drug substitutions, and the Companys
response to subpoenas it received relating to other legal proceedings to which
the Company is not a party. With respect to these proceedings to which the
Company is a party, 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
months ended June 30, 2007 included the following charges, which primarily
impacted the Pharmacy Services segment. Management believes that these special
items are either infrequent occurrences or otherwise not related to Omnicares
ordinary course of business:

(i) Operating
income included restructuring and other related charges of approximately $6.3
million pretax ($3.8 million aftertax), $7.8 million of which related to the
implementation of the Omnicare Full Potential Plan, a major initiative
primarily designed to re-engineer the pharmacy operating model to increase
efficiency and enhance customer growth, partially offset by a ($1.6) million
credit adjustment to the previously disclosed consolidation and productivity
initiatives related, in part, to the integration of the NeighborCare, Inc.
(NeighborCare) acquisition and other related activities. See further
discussion at the Restructuring and Other Related Charges note of the Notes
to Consolidated Financial Statements and the Restructuring and Other Related
Charges section of this MD&A.

(ii) During
the three months ended June 30, 2007, special charges relating to the
aforementioned Heartland Matters of $4.9 million pretax (approximately $4.0
million and $0.9 million was recorded in the cost of sales and operating
expense sections of the Consolidated Statements of Income, respectively) ($3.0
million aftertax) were recorded associated with these increased costs. As
previously disclosed, the Company maintains product recall, property and
casualty, and business interruption insurance, and the extent of insurance
recovery for these expenses continues to be reviewed by its outside advisors.
As of June 30, 2007, no receivables for insurance recoveries were recorded by
the Company.

(iii) Operating income included
a special litigation charge of $9.0 million pretax ($5.5 million aftertax) for
litigation-related professional expenses primarily in connection with the
investigation by the United States Attorneys Office, District of
Massachusetts, the purported class and derivative actions, the Companys
lawsuit against United, the inquiry conducted by the Attorney Generals office in
Michigan relating to certain billing issues under the Michigan Medicaid
program, the investigation by the federal government and certain states
relating to drug substitutions and the Companys response to subpoenas it
received relating to other legal proceedings to which the Company is not a
party. With respect to these proceedings to which the Company is a party, 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.

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Pharmacy Services Segment

|                 |  |                              |           |      |   |           | 
|---------------- |  | ---------------------------- | --------- | ---- | - | --------- | 
|                 |  | Three months ended
 June 30, |          
|                 |  |                              |          
|                 |  | 2008                         |           | 2007 |  
|                 |  |                              |           |      |  
|                
|Net sales        |  | $                            | 1,496,521 |      | $ | 1,498,918 | 
|                 |  |                              |           |      |   |           | 
|Operating income |  | $                            | 117,516   |      | $ | 144,274   | 
|                 |  |                              |           |      |   |           | 

Three Months Ended June 30, 2008 vs. 2007

Omnicares
Pharmacy Services segment recorded sales of $1,496.5 million for the three
months ended June 30, 2008, down modestly from the 2007 amount of $1,498.9
million by $2.4 million, or 0.2%. At June 30, 2008, Omnicare served long-term
care facilities as well as chronic care and other settings comprising
approximately 1,438,000 beds, including approximately 70,000 patients served by
the patient assistance programs of its specialty pharmacy business. The
comparable number at June 30, 2007 was approximately 1,449,000 (including
approximately 60,000 patients served by patient assistance programs). Pharmacy
Services sales were unfavorably impacted by a lower number of beds served, as
well as the impact of a bed mix shift toward assisted living, which typically
has lower penetration rates than skilled nursing facilities, the increased
availability and utilization of generic drugs, reductions in reimbursement
and/or utilization of certain drugs as well as competitive pricing issues, and lower revenues reported from
copays and rejects under Part D as well as from certain matters currently in
litigation. Largely offsetting these factors was the favorable impact of drug
price inflation, increased use of certain higher acuity drugs and biologic agents,
and acquisitions. While the Company is focused on reducing its
costs to mitigate the impact of drug pricing and reimbursement issues, there
can be no assurance that such issues or other pricing and reimbursement
pressures will not adversely impact the Pharmacy Services segment.

Operating
income of the Pharmacy Services segment was $117.5 million in the second
quarter of 2008, a $26.8 million decrease as compared with the $144.3 million
earned in the comparable period of 2007. As a percentage of the segments
sales, operating income was 7.9% for the second quarter of 2008, compared with
9.6% in 2007. The 2008 quarter was unfavorably affected primarily by the
operating income effect of certain of the aforementioned reductions in sales,
as well as the year-over-year impact of the previously mentioned special items.
Operating income in 2008 was favorably impacted largely by the increased
availability and utilization of higher margin generic drugs, drug price
inflation, lower bad debt expense and purchasing improvements, as well as the
Companys
continued integration of prior-period acquisitions and productivity enhancements.

The Company
derives a significant portion of its revenues directly or indirectly from
government-sponsored programs, principally the federal Medicare program and to
a lesser extent state Medicaid programs. As part of ongoing operations, the
Company and its customers are subject to regulatory changes in the level of
reimbursement received from the Medicare and Medicaid programs. Since 1997,
Congress has passed a number of federal laws that have effected major changes
in the healthcare system and payments to certain providers.

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The Balanced
Budget Act of 1997 (the BBA) mandated a prospective payment system (PPS)
for Medicare-eligible residents of skilled nursing facilities (SNFs). Under
PPS, Medicare pays SNFs a fixed fee per patient per day based upon the acuity
level of the resident, covering substantially all items and services furnished
during a Medicare-covered stay, including pharmacy services. PPS initially
resulted in a significant reduction of reimbursement to SNFs. Congress
subsequently sought to restore some of the reductions in reimbursement
resulting from PPS. One provision gave SNFs a temporary rate increase for
certain specific high-acuity patients beginning April 1, 2000, and ending when
the 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, 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 resource utilization
group 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 received the full 3.1 percent market basket
increase to rates, increasing payments to SNFs by approximately $560 million
for fiscal year 2007. On August 3, 2007, CMS published its final SNF PPS update
for fiscal year 2008. Effective October 1, 2007, SNFs received a 3.3 percent
market basket increase, which increases Medicare payments to SNFs by
approximately $690 million in fiscal year 2008. The final rule also includes
several policy and payment provisions, including rebasing the market basket,
which currently reflects data from fiscal 1997, to a base year of fiscal year
2004; revisions to the calculation of the SNF market basket (including revising
the pharmacy component); changing the threshold for forecast error adjustments
from the current 0.25 percentage point to 0.5 percentage point; and continuing
a special adjustment made to cover the additional services required by nursing
home residents with HIV/AIDS. On May 1, 2008, CMS released its proposed SNF PPS
update for fiscal year 2009. Among other things, the proposed rule would
recalibrate case mix weights, resulting in an overall 3.3 percent reduction in
Medicare payments. Most of the decrease would be offset by a 3.1 percent market
basket increase, but if the rule were adopted as proposed, SNFs would
experience a net reduction in Medicare payments of $60 million, or
approximately 0.3 percent. The rule was subject to public comment until June
30, 2008, and a final rule will be issued this summer. While the fiscal year
2007 and 2008 SNF PPS rates do not decrease payments to SNFs, the potential
loss of revenues associated with the proposed fiscal year 2009 changes to SNF
payments or other potential reimbursement changes 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.

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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 five years (fiscal years 2006-2010). On
February 4, 2008, the Bush Administration released its fiscal year 2009 budget
proposal, which includes legislative and administrative proposals that would
reduce Medicare spending by approximately $12.2 billion in fiscal year 2009 and
$178 billion over five years. Among other things, the budget would provide no
annual update for SNFs in 2009 through 2011 and a -0.65 percent adjustment to
the update annually thereafter. In addition, the budget would apply a
sequester of -0.4 percent to all Medicare provider payments when general fund
contributions exceed 45 percent of program spending. The sequester order would
increase each year by -0.4 percent until general revenue funding is brought
back to 45 percent. The budget also would move toward site-neutral
post-hospital payments to limit perceived inappropriate incentives for five
conditions commonly treated in both SNFs and inpatient rehabilitation
facilities. The Administration also proposes to achieve savings by issuing
regulations to adjust for case mix distribution in the SNF payment system. CMS
included this provision in its proposed SNF prospective payment system update
for fiscal year 2009, released May 1, 2008. CMS estimates that the
recalibration would result in an overall 3.3 percent reduction in Medicare
payments in fiscal year 2009, although the proposed rule would partially offset
the case mix recalibration payment decrease with a 3.1 percent market basket increase.
In addition, the budget proposal would eliminate all bad debt reimbursements
for unpaid beneficiary cost-sharing over four years. Many provisions of the
proposed Bush budget would require Congressional action to implement.
Separately, on August 1, 2007, the House of Representatives approved H.R. 3162,
the Childrens Health and Medicare Protection Act of 2007, that included a
number of Medicare policy changes, including a freeze in fiscal year 2008 SNF
PPS rates at fiscal year 2007 levels. Note that while the version of the bill
that ultimately passed Congress did not include Medicare provisions impacting
SNF reimbursement, 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 included a major expansion of the
Medicare prescription drug benefit under a new Medicare Part D.

Under the
Medicare Part D 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. Effective January 1, 2006, Medicare
beneficiaries who are also entitled to benefits under a state Medicaid program
(so-called dual eligibles) have their prescription drug costs covered by the
new Medicare drug benefit. Many

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nursing home
residents Omnicare serves are dual eligibles, whose drug costs were previously
covered by state Medicaid programs. In 2007, approximately 42% of Omnicares
revenue was derived from beneficiaries covered under the federal Medicare Part
D program.

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 do not affirmatively enroll in a Part D Plan are
automatically enrolled into a Prescription Drug Plan (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 to offer an exceptions process to
provide coverage for medically necessary drugs.

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. Moreover, the Company may, as appropriate, renegotiate
agreements. Further, the proportion of the Companys Part D business serviced
under specific agreements may change over time. Consequently, there can be no
assurance that the reimbursement terms which currently apply to the Companys
Part D business will not change. In addition, as expected in the transition to
a new program of this magnitude, certain administrative and payment issues have
arisen, resulting in higher operating expenses, as well as outstanding gross
accounts receivable (net of allowances for contractual adjustments, and prior
to any allowance for doubtful accounts), particularly for copays. As of June
30, 2008, copays outstanding from Part D Plans were approximately $27 million
relating to 2006 and 2007. The Company is pursuing solutions, including legal
actions against certain Part D payors, to collect outstanding copays, as well
as certain rejected claims. Participants in the long-term care pharmacy
industry continue to address these issues with CMS and the Part D Plans and
attempt to develop solutions. However, until all administrative and payment
issues are fully resolved, there can be no assurance that the impact of the
Part D drug benefit on the Companys results of operations, financial position
or cash flows will not change based on the outcome of any unforeseen future
developments.

The 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, in
accordance with the terms of the agreements 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

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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 beginning in 2007,
Part D sponsors must 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 issued subregulatory
guidelines specifying the information that CMS is requiring from Plan sponsors
with respect to rebates paid to long-term care pharmacies. CMS has also issued
reporting requirements for 2008 which, among other things, require disclosure
of rebates provided to long-term care pharmacies at a more detailed level. The
Company has agreed with various Plan sponsors and their agents with respect to
the format, terms and conditions for providing such information and the Company
intends to continue to work with other sponsors with respect to providing such
information.

On July 15,
2008, Congress enacted into law H.R. 6331, the Medicare Improvements for
Patients and Providers Act of 2008, by overriding the Presidents veto of the
bill. The new law includes further reforms to the Part D program. Among other
things, from and after January 1, 2010, the law requires that long-term care
pharmacies have between 30 and 90 days to submit claims to a Part D Plan.
Commencing January 1, 2009, the law also requires Part D Plan sponsors to
update the prescription drug pricing data they use to pay pharmacies no less
frequently than every seven days. The law also expands the number of Medicare
beneficiaries who will be entitled to premium and cost-sharing subsidies by
modifying previous income and asset requirements, eliminates late enrollment
penalties for beneficiaries entitled to these subsidies, and limits the sales
and marketing activities in which Part D Plan sponsors may engage, among other
things.

Moreover, CMS
continues to issue guidance on and make revisions to the Part D program. The
Company is continuing to monitor issues relating to implementation of the Part
D benefit, and until further agency guidance is known and until all
administrative and payment issues associated with the transition to this
massive program are fully resolved, there can be no assurance that the impact
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 will not change based on the outcome of any unforeseen future
developments.

The MMA also
changed the Medicare payment methodology and conditions for coverage of certain
items of durable medical equipment prosthetics, orthotics, and supplies
(DMEPOS) under Medicare Part B. Approximately 1% of the Companys revenue is
derived from

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beneficiaries
covered under Medicare Part B. The changes include a temporary freeze in annual
increases in payments for durable medical equipment from 2004 through 2008, new
clinical conditions for payment, quality standards (applied by CMS-approved
accrediting organizations), and competitive bidding requirements. On April 10,
2007, CMS issued a final rule establishing the Medicare competitive bidding
program. Only suppliers that are winning bidders will be eligible to provide
competitively-bid items to Medicare beneficiaries in the selected areas.
Enteral nutrients, equipment and supplies and oxygen equipment and supplies
were among the 10 categories of DMEPOS included in the first round of the
competitive bidding program.

In mid-2007
CMS conducted a first round of bidding for these 10 DMEPOS product categories
in 10 competitive bidding areas, and CMS began announcing winning bidders in
March 2008. In light of concerns about implementation of the bidding program,
including CMS disqualification of many bids based upon bidders submission of
allegedly incomplete financial documentation and the potential adverse impact
on beneficiary access to certain types of DMEPOS, Congress has, through the
enactment into law on July 15, 2008 of H.R. 6331, the Medicare Improvements
for Patients and Providers Act of 2008, terminated the contracts awarded by
CMS in the first round of competitive bidding, required that new bidding be
conducted for the first round, and required certain reforms to the bidding
process. Among other things, the law requires CMS to rebid those areas in 2009,
with bidding for round two delayed until 2011. The delay will be financed by
reducing Medicare fee schedule payments for all items covered by round one
bidding program by 9.5 percent nationwide beginning January 1, 2009, followed
by a 2 percent increase in 2014 (with certain exceptions). The legislation also
includes a series of procedural improvements to the bidding process, including
requiring CMS to notify bidders about paperwork discrepancies and providing
suppliers with an opportunity to submit proper documentation, and it requires
contracting suppliers to disclose all subcontracting relationships to CMS. The
Company intends to participate in the new bidding process for round one, and is
assessing the potential impact of the fee schedule reductions on its business.

CMS requires
all existing DMEPOS suppliers to submit proof of accreditation by a deemed
accreditation organization by September 30, 2009, although suppliers in the
competitive bidding regions and new suppliers have been subject to earlier
accreditation deadlines. The Medicare Improvements for Patients and Providers
Act of 2008 codifies the requirement that all suppliers be accredited by
October 1, 2009 and extends the accreditation requirement to companies that
subcontract with contract suppliers under the competitive bidding program. The
Company intends to comply with all accreditation requirements for DMEPOS
suppliers by the applicable deadline.

With respect
to Medicaid, the BBA repealed the Boren Amendment federal payment standard
for Medicaid payments to nursing facilities, 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. 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

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penalty
period, increase facilities exposure to uncompensated care. This provision is
expected to reduce Medicaid spending by an estimated $2.4 billion over five
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. No assurances can be given that state Medicaid programs ultimately
will not change the reimbursement system for long-term care or pharmacy
services in a way that adversely impacts the Company.

The DRA also
changed the so-called federal upper limit payment rules for multiple source
prescription drugs covered under Medicaid. Like the current upper limit, it
only applies to drug ingredient costs and does not include dispensing fees,
which will continue to be determined by the states. First, the DRA redefined a
multiple source drug subject to the upper limit rules to be a covered
outpatient drug that has at least one other drug product that is
therapeutically equivalent. Thus, the federal upper limit is triggered when
there are two or more therapeutic equivalents, instead of three or more as was
previously the case. Second, effective January 1, 2007, the DRA changed the
federal upper payment limit from 150 percent of the lowest published price for
a drug (which is usually the average wholesale price) to 250 percent of the
lowest average manufacturer price (AMP). Congress expected these DRA
provisions to reduce federal and state Medicaid spending by $8.4 billion over
five years. On July 17, 2007, CMS issued a final rule with comment period to implement
changes to the upper limit rules. Among other things, the final rule:
established a new federal upper limit calculation for multiple source drugs
based on 250 percent of the lowest AMP in a drug class; required CMS to post
AMP amounts on its web site; and established a uniform definition for AMP.
Additionally, the final rule provided that sales of drugs to long-term care
pharmacies for supply to nursing homes and assisted living facilities (as well
as associated discounts, rebates or other price concessions) are not to be
taken into account in determining AMP where such sales can be identified with
adequate documentation, and that any AMPs which are not at least 40% of the
next highest AMP will not be taken into account in determining the upper limit amount
(the so-called outlier test). However, on December 19, 2007, the United
States District Court for the District of Columbia issued a preliminary
injunction that enjoins CMS from implementing provisions of the July 17, 2007
rule to the extent that it affects Medicaid reimbursement rates for retail
pharmacies under the Medicaid program. The order also enjoins CMS from posting
AMP data on a public website or disclosing it to states. As a result of this
preliminary injunction, CMS did not post AMPs or new upper limit prices in late
December 2007 based upon the July 17, 2007 final rule despite its earlier
planned timetable, and the schedule for states to implement the new upper
limits will be delayed until further notice. Separately, on March 14, 2008, CMS
published an interim final rule with comment period revising the Medicaid
rebate definition of multiple source drug set forth in the July 17, 2007 final
rule. In short, the effect of the rule will be that federal upper limits apply
in all states unless the state finds that a particular generic drug is not
available within that state. While the rules effective date is April 14, 2008,
it is subject to public comment. CMS also notes that the regulation is subject
to the injunction by the United States District Court for the District of
Columbia to the extent that it may affect Medicaid reimbursement rates for
pharmacies. Most recently, on July 15, 2008, Congress enacted into law over the
Presidents veto H.R. 6331, the Medicare Improvements for Patients

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and Providers
Act of 2008. The new law delays the adoption of the DRAs new
federal upper limit payment rules for Medicaid based on AMP for multiple source
drugs and prevents CMS from publishing AMP data until October 1, 2009. With the
advent of Medicare Part D, the Companys revenues from state Medicaid programs
are substantially lower than has been the case previously. However, some of the
Companys agreements with Part D Plans and other payors have incorporated the
Medicaid upper limit rules into the pricing mechanisms for prescription drugs.
Until the litigation regarding the final rule is resolved and new upper limit
amounts are published by CMS, the Company cannot predict the impact of the
final rule on the Companys business. There can be no assurance, however, that
the changes under the DRA or other efforts by payors to limit reimbursement for
certain drugs will not have an adverse impact on the Companys business.

The Medicare Improvements for Patients and Providers Act of
    2008 also seeks to promote e-prescribing by providing incentive payments
    for physicians and other practitioners paid under the Medicare physician
    fee schedule who are
successful electronic prescribers. Specifically, successful electronic
prescribers are to receive a 2 percent bonus during 2009 and 2010, a 1 percent
bonus for 2011 and 2012 and a 0.5 percent bonus for 2013; practitioners who are
not successful electronic prescribers are penalized by a 1 percent reduction
from the current fee schedule in 2012, a 1.5 percent reduction in 2013, and
thereafter a 2 percent reduction. The requirements for a practitioner to
qualify as a successful electronic prescriber are to be specified by CMS, and
may relate to either the submission of a minimum number of e-prescriptions
under Medicare Part D, or to simply having a qualifying e-prescribing system
and reporting whether it was used under an existing program for reporting
certain physician quality measures for at least 50 percent of applicable
encounters. Numerous details relating to this provision, including the
timetable for adoption, will need to be specified by CMS. The Company is
closely monitoring developments related to this initiative, and will seek to
make available to practitioners systems under which they may submit
prescriptions to the Companys pharmacies electronically so as to enable
them to qualify for the incentive payments.

President
Bushs fiscal year 2009 budget proposal includes a series of proposals
impacting Medicaid, including legislative and administrative changes that would
reduce Medicaid payments by more than $18 billion over five years. Among other
things, the proposed budget would further reduce the federal upper limit
reimbursement for multiple source drugs to 150 percent of the AMP and replace
the best price component of the Medicaid drug rebate formula with a
budget-neutral flat rebate. Many of the proposed policy changes would require
Congressional approval to implement. 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 its business.

Two recent
actions at the federal level could impact Medicaid payments to nursing
facilities. The Tax Relief and Health Care Act of 2006 modified several
Medicaid policies including, among other things, reducing the limit on Medicaid
provider taxes from 6 percent to 5.5 percent from January 1, 2008 through
September 30, 2011. The Bush Administration had been expected to issue
regulations calling for deeper cuts in this funding. On February 22, 2008, CMS
published a final rule that implements this legislation, and makes other
clarifications to the

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standards for
determining the permissibility of provider tax arrangements. On June 30, 2008,
President Bush signed into law a supplemental appropriations bill (P.L.
110-252) that imposes a moratorium on implementation of certain provisions of
this rule until April 1, 2009. Second, on January 18, 2007, CMS published a
proposed rule designed to ensure that Medicaid payments to
governmentally-operated nursing facilities and certain other health care
providers are based on actual costs and that state financing arrangements are
consistent with the Medicaid statute. CMS estimates that the rule, if
finalized, would save $120 million during the first year and $3.87 billion over
five years. On May 29, 2007, CMS published a final rule to implement this provision,
but Congress blocked the rule for one year in an emergency fiscal year 2007
spending bill, H.R. 2206. The supplemental appropriations bill, P.L. 110-252,
further extends the moratorium on implementation of the rule through April 1,
2009.

On October 4,
2006, the plaintiffs in New England
Carpenters Health Benefits Fund et al. v. First DataBank, Inc. and McKesson
Corporation, CA No. 1:05-CV-11148-PBS (United District Court for the
District of Massachusetts) and defendant First DataBank, Inc. (First DataBank)
entered into a settlement agreement relating to First DataBanks publication of
average wholesale price (AWP). AWP is a pricing benchmark that is widely used
to calculate a portion of the reimbursement payable to pharmacy providers for
the drugs and biologicals they provide, including under State Medicaid
programs, Medicare Part D Plans and certain of the Companys contracts with
long-term care facilities. The settlement agreement would have required First
DataBank to cease publishing AWP two years after the settlement became
effective unless a competitor of First DataBank was then publishing AWP, and
would have required that First DataBank modify the manner in which it
calculates AWP for over 8,000 distinct drugs (NDCs) from 125% of the drugs wholesale
acquisition cost (WAC) price established by manufacturers to 120% of WAC
until First DataBank ceased publishing same. In a related case, District Council 37 Health and Security Plan v.
Medi-Span,CA No. 1:07-CV-10988-PBS (United States District Court
for the District of Massachusetts), in which Medi-Span is accused of
misrepresenting pharmaceutical prices by relying on and publishing First
DataBanks price list, the parties entered into a similar settlement agreement.
The Court granted preliminary approval of both agreements, however on January
22, 2008, the court held a hearing on a motion for final approval of the
proposed settlements, and after hearing various objections to the proposed
settlements indicated that it would not approve the settlements as proposed.
The parties filed amendments to the proposed settlements on March 19, 2008, and
at a status hearing held that day, the Court asked the parties to further
revise the amended settlements. On May 29, 2008, the plaintiffs and First
DataBank filed a new settlement that included a reduction in the number of NDCs
to which a new mark-up over WAC would apply (20% vs. 25%) from over 8,000 to
1,356, and removed the provision requiring that AWP no longer be published in
the future. First DataBank also agreed to contribute $2 million to a settlement
fund and for legal fees. First DataBank, independent of the settlement,
announced that it would, of its own volition, reduce to 20% the markup on all
drugs with a mark-up higher than 20% and stop publishing AWP within two years
after the changes in mark-up are implemented. On June 3, 2008, the Court
granted preliminary approval to the revised settlement, and on July 23, 2008
the Court approved the process for class notification. The matter is still
subject to opposition by others, a fairness hearing which has been scheduled
for December 17, 2008, and final approval.

54

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The Company is
monitoring these cases for further developments and evaluating potential
implications and/or actions that may be required, including any adverse effect
on the Companys reimbursement for drugs and biologicals and any actions that
may be taken to offset or otherwise mitigate such impact. 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; the
impact of the Medicare Part D program; and the long-term financing of the
Medicare and Medicaid programs. Given competing national priorities, it remains
difficult to predict the outcome and impact on the Company of any changes in
healthcare policy relating to the future funding of the Medicare and Medicaid
programs.

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

In order to fund this growing
demand, the Company 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 ultimate effect
of the 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.

55

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CRO Services
Segment

|                  |  |                              |        |      |   |        | 
|----------------- |  | ---------------------------- | ------ | ---- | - | ------ | 
|                  |  | Three months ended
 June 30, |       
|                  |  |                              |       
|                  |  | 2008                         |        | 2007 |  
|                  |  |                              |        |      |  
|                 
|Revenues          |  | $                            | 53,631 |      | $ | 50,239 | 
|                  |  |                              |        |      |   |        | 
|Operating
 income |  | $                            | 3,800  |      | $ | 2,904  | 
|                  |  |                              |        |      |   |        | 

Three Months Ended June 30, 2008 vs. 2007

Omnicares CRO
Services segment recorded revenues of $53.6 million for the three months ended
June 30, 2008, which increased by $3.4 million, or 6.8% from the $50.2 million
recorded in the same prior-year period. In accordance with Emerging Issues Task
Force (EITF) Issue No. 01-14, Income Statement Characterization of
Reimbursements Received for Out-of-Pocket Expenses Incurred (EITF No.
01-14), the Company included $8.8 million and $8.2 million of reimbursable
out-of-pockets in its CRO Services segment reported revenue and direct cost
amounts for the three months ended June 30, 2008 and 2007, respectively.
Revenues for 2008 were higher than in the same prior-year period primarily due
to the commencement and ramp-up of projects that were awarded in 2007 and in
the first six months of 2008, exceeding project terminations and cancellations.

Operating
income in the CRO Services segment was $3.8 million in the second quarter of
2008 compared with $2.9 million in 2007, an increase of $0.9 million or 30.9%.
As a percentage of the segments revenue, operating income was 7.1% in the
second quarter of 2008 compared with 5.8% in the same period of 2007. This
increase is primarily attributable to the favorable impact of the increase in
revenues discussed above, combined with operating expense control. Backlog at
June 30, 2008 was $337.4 million, representing an increase of $23.1 million
from the December 31, 2007 backlog of $314.3 million, and an increase of $21.9
million from the June 30, 2007 backlog of $315.5 million.

|                                        
|----------------------------------------
|Six Months
 Ended June 30, 2008 vs. 2007
|                                        

Total net
sales for the six months ended June 30, 2008 decreased to $3,109.1 million from
$3,126.2 million in the comparable prior-year period. Net income for the six
months ended June 30, 2008 was $66.7 million versus $92.2 million earned in the
comparable 2007 period. Diluted earnings per share for the six months ended
June 30, 2008 were $0.56 versus $0.76 in the same prior-year period. EBITDA
totaled $234.3 million for the six months ended June 30, 2008 as compared with
$287.9 million for the same period of 2007.

The Company
continues to be impacted by the unilateral reduction in April 2006 by
United in the reimbursement
rates paid by United to Omnicare by switching to its PacifiCare pharmacy
network contract for services rendered by Omnicare to beneficiaries of Uniteds
drug benefit plans under the Medicare Part D program. The differential in
reimbursement rates that resulted from Uniteds action, as compared with

56

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reimbursement
rates under the originally negotiated contract, reduced sales and operating
profit in the first six months of 2008 by approximately $47 million
(approximately $29 million aftertax), and cumulatively since April 2006 by
approximately $246 million (approximately $153 million aftertax). This matter
is currently the subject of litigation initiated by Omnicare and is before the
federal court in the Northern District of Illinois. See further discussion at
the Legal Proceedings section at Part II, Item 1 of this Filing.

Net sales for
the first six months were unfavorably impacted by a lower number of beds
served, combined with a year-over-year shift in mix towards assisted living,
the increased availability and utilization of generic drugs, reductions in
reimbursement and/or utilization for certain drugs as well as competitive
pricing issues, and lower revenues reported from copays and rejects under Part
D as well as from certain matters currently in litigation. Partially offsetting
these factors was the favorable impact of drug price inflation, increased use
of certain higher acuity drugs and biologic agents, acquisitions,
and year-over-year growth in CRO Services revenues. See discussion of sales and
operating profit results in more detail at the Pharmacy Services Segment and
CRO Services Segment captions below.

The Companys
consolidated gross profit of $761.8 million decreased $15.0 million for the six
months ended June 30, 2008, from the same prior-year period amount of $776.8
million. Gross profit as a percentage of total net sales of 24.5% in the six
months ended June 30, 2008, was modestly lower than the 24.8% experienced
during the comparable 2007 period. Gross profit was unfavorably impacted in the
2008 period largely as a result of the gross profit impact of the
aforementioned reduction in net sales, primarily the lower net number of beds
served, and the reductions in reimbursement. Largely offsetting these factors
was the increased availability and utilization of higher margin generic drugs,
the continued integration of prior-period acquisitions, the favorable effect of
drug price inflation, purchasing improvements and lower incremental costs
associated with the closure of the Companys Heartland repackaging facility as
further described below.

Omnicares
operating expenses for the six months ended June 30, 2008 of $473.6 million
were higher than the comparable prior-year amount of $453.6 million by $20.0
million. Operating expenses as a percentage of net sales amounted to 15.2% in
the first half of 2008, representing an increase from the 14.5% experienced in
the comparable prior-year period. Operating expenses for the six months ended
June 30, 2008 were unfavorably impacted largely by increases in employee
benefit costs and increased operating costs associated with recent
acquisitions. Partially offsetting the increased operating expenses were the
favorable impact of the Companys continued integration of prior-year
acquisitions, purchasing improvements and productivity enhancements.

The provision
for doubtful accounts for the six months ended June 30, 2008 of $56.2 million
was modestly lower than the comparable prior year amount of $58.8 million.

Investment
income for the six months ended June 30, 2008 of $4.6 million was marginally
higher than the $4.0 million earned in the comparable prior-year period,
primarily due to higher average invested balances versus the prior year.

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Interest
expense for the six months ended June 30, 2008 of $73.0 million is lower than
the $83.8 million in the comparable prior-year period, primarily due to lower
debt outstanding resulting from payments aggregating $200 million on the
Term Loans throughout 2007 and the first six months of 2008 and lower interest
rates on variable rate loans.

The effective
income tax rate was 38.3% for the six months ended June 30, 2008, as compared
to the rate of 38.9% for the same prior year period. The effective tax rates in
2008 and 2007 are higher than the federal statutory rate largely as a result of
the impact of state and local income taxes and various nondeductible expenses.

Special Items:

The six months
ended June 30, 2008 included the following charges, which primarily impacted
the Pharmacy Services segment. Management believes that these special items are
either infrequent occurrences or otherwise not related to Omnicares ordinary
course of business:

(i) Operating
income included restructuring and other related charges of approximately $17.2
million pretax ($10.6 million aftertax), relating to the implementation of the
Omnicare Full Potential Plan, a major initiative primarily designed to
re-engineer the pharmacy operating model to increase efficiency and enhance
customer growth. See further discussion at the Restructuring and Other Related
Charges note of the Notes to Consolidated Financial Statements and the
Restructuring and Other Related Charges section of this MD&A.

(ii) During
the six months ended June 30, 2008, special charges relating to the
aforementioned Heartland Matters of $3.6 million pretax (approximately $3.1
million and $0.5 million was recorded in the cost of sales and operating
expense sections of the Consolidated Statements of Income, respectively) ($2.2
million aftertax) were recorded associated with these increased costs. As
previously disclosed, the Company maintains product recall, property and
casualty, and business interruption insurance, and the extent of insurance
recovery for these expenses continues to be reviewed by its outside advisors.
As of June 30, 2008, no receivables for insurance recoveries were recorded by
the Company.

(iii)
Operating income included special litigation and other related professional
fees of $37.7 million pretax ($23.1 million aftertax) for litigation-related
professional expenses primarily in connection with the Companys lawsuit
against United, certain other large customer disputes, the investigation by the
United States Attorneys Office, District of Massachusetts, the purported class
and derivative actions, the investigation by the federal government and certain
states relating to drug substitutions, and the Companys response to subpoenas
it received relating to other legal proceedings to which the Company is not a
party. With respect to these proceedings to which the Company is a party, 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 six months
ended June 30, 2007 included the following charges, which primarily impacted
the Pharmacy Services segment. Management believes that these special items are
either infrequent occurrences or otherwise not related to Omnicares ordinary
course of business:

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(i) Operating
income included restructuring and other related charges of approximately $15.4
million pretax ($9.5 million aftertax), $17.0 million of which related to the
implementation of the Omnicare Full Potential Plan, a major initiative
primarily designed to re-engineer the pharmacy operating model to increase
efficiency and enhance customer growth, partially offset by a ($1.6) million
credit adjustment to the previously disclosed consolidation and productivity
initiatives related, in part, to the integration of the NeighborCare
acquisition and other related activities. See further discussion at the
Restructuring and Other Related Charges note of the Notes to Consolidated
Financial Statements and the Restructuring and Other Related Charges section
of this MD&A.

(ii) During
the six months ended June 30, 2007, special charges relating to the
aforementioned Heartland Matters of $10.7 million pretax (approximately $8.3
million and $2.4 million was recorded in the cost of sales and operating
expense sections of the Consolidated Statements of Income, respectively) ($6.6
million aftertax) were recorded associated with these increased costs. As
previously disclosed, the Company maintains product recall, property and
casualty, and business interruption insurance, and the extent of insurance
recovery for these expenses continues to be reviewed by its outside advisors.
As of June 30, 2007, no receivables for insurance recoveries were recorded by
the Company.

(iii)
Operating income included a special litigation charge of $15.9 million pretax
($9.8 million aftertax) for litigation-related professional expenses in
connection with the investigation by the United States Attorneys Office,
District of Massachusetts, the purported class and derivative actions, the
Companys lawsuit against United, the inquiry conducted by the Attorney Generals
office in Michigan relating to certain billing issues under the Michigan
Medicaid program, the investigation by the federal government and certain
states relating to drug substitutions and the Companys response to subpoenas
it received relating to other legal proceedings to which the Company is not a
party. With respect to these proceedings to which the Company is a party, 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.

Pharmacy Services Segment

|                  |  |                            |           |      |   |           | 
|----------------- |  | -------------------------- | --------- | ---- | - | --------- | 
|                  |  | Six months ended
 June 30, |          
|                  |  |                            |          
|                  |  | 2008                       |           | 2007 |  
|                  |  |                            |           |      |  
|Net sales         |  | $                          | 3,006,327 |      | $ | 3,028,561 | 
|                  |  |                            |           |      |   |           | 
|Operating
 income |  | $                          | 226,751   |      | $ | 279,864   | 
|                  |  |                            |           |      |   |           | 

Six Months Ended June 30, 2008 vs. 2007

Omnicares
Pharmacy Services segment recorded sales of $3,006.3 million for the six months
ended June 30, 2008, down from the 2007 amount of $3,028.6 million by
approximately $22.3

59

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million, or
0.7%. At June 30, 2008, Omnicare served long-term care facilities as well as
chronic care and other settings comprising approximately 1,438,000 beds,
including approximately 70,000 patients served by the patient assistance
programs of its specialty pharmacy business. The comparable number at December
    31, 2007 was approximately 1,449,000 (including approximately 57,000 specialty
    pharmacy patients) and 1,449,000 (including approximately 60,000 patients
    served by patient assistance programs) at June 30, 2007. Pharmacy Services
    sales were unfavorably impacted by a lower number of beds served, as well
    as the impact of a bed mix shift toward assisted living, which typically
    has lower penetration rates than skilled nursing facilities, the increased
    availability and utilization of generic drugs, reductions in reimbursement
    and/or utilization of certain drugs as well as competitive pricing issues,and
    lower revenues reported from copays and rejects under Part D as well as from
    certain matters currently in litigation. Partially offsetting these factors
    was the favorable impact of drug price inflation, increased use of certain
     higher acuity drugs and biologic agents, and acquisitions. While
    the Company is focused on reducing its costs to mitigate the impact of drug
    pricing and reimbursement issues, there can be no assurance that such issues
    or other pricing and reimbursement pressures will not adversely impact the
Pharmacy Services segment.

Operating
income of the Pharmacy Services segment was $226.8 million in the first six
months of 2008, a $53.1 million decrease as compared with the $279.9 million
earned in the comparable period of 2007. As a percentage of the segments
sales, operating income was 7.5% for the first six months of 2008, compared
with 9.2% in 2007. The 2008 quarter was unfavorably impacted primarily by the
operating income effect of the aforementioned reductions in sales as well as
the year-over-year impact of the previously mentioned special items. Operating
income in 2008 was favorably impacted largely by the increased availability and
utilization of higher margin generic drugs, the Companys continued integration
of prior-period acquisitions and productivity enhancements, drug price
inflation, lower bad debt expense, and purchasing improvements.

CRO Services Segment

|                 |  |                             |         |      |   |        | 
|---------------- |  | --------------------------- | ------- | ---- | - | ------ | 
|                 |  | Six months ended 
 June 30, |        
|                 |  |                             |        
|                 |  | 2008                        |         | 2007 |  
|                 |  |                             |         |      |  
|                 |  |                             |         |      |  
|Revenues         |  | $                           | 102,804 |      | $ | 97,661 | 
|                 |  |                             |         |      |   |        | 
|                 |  |                             |         |      |   |        | 
|Operating income |  | $                           | 6,468   |      | $ | 3,634  | 
|                 |  |                             |         |      |   |        | 

Six Months Ended June 30, 2008 vs. 2007

Omnicares CRO
Services segment recorded revenues of $102.8 million for the six months ended
June 30, 2008, which increased by $5.1 million, or 5.3% from the $97.7 million
recorded in the same prior-year period. In accordance with EITF No. 01-14, the
Company included $16.2 million and $15.4 million of reimbursable out-of-pockets
in its CRO Services segment reported revenue and direct cost amounts for the
six months ended June 30, 2008 and 2007, respectively. Revenues for 2008 were
higher than in the same prior-year period primarily due to the

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commencement
and ramp-up of projects that were awarded in 2007 and in the first six months
of 2008, exceeding project terminations and cancellations.

Operating
income in the CRO Services segment was $6.5 million in the first six months of
2008 compared with $3.6 million in 2007, an increase of $2.8 million. As a
percentage of the segments revenue, operating income was 6.3% in the first six
months of 2008 compared with 3.7% in the same period of 2007. This increase is
primarily attributable to the favorable impact of the increase in revenues
discussed above and the favorable year-over-year impact of special items.

Restructuring and Other Related Charges

Omnicare Full Potential Program

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

This program
is expected to be completed over a multi-year 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, with the remainder
being realized in operating expenses. The program is estimated to result in
total pretax restructuring and other related charges of approximately $93
million over this implementation period. The charges primarily include
severance pay, employment agreement buy-outs, excess lease costs and
professional fees, as well as other related costs. The Company recorded
restructuring and other related charges for the Omnicare Full Potential Plan
    of approximately $11 million and $17 million pretax (approximately $7 million
    and $11 million aftertax) during the three and six months ended June 30,
    2008, respectively, and approximately $29 million pretax during the year
    ended December 31, 2007 (approximately $8 million and $17 million pretax
    in the three and six months ended June 30, 2007, respectively). The Omnicare
    Full Potential Plan initiatives required cumulative restructuring and other
    related charges of approximately $64 million before taxes through the second
    quarter of 2008. The remainder of the overall restructuring and other related
    charges will be recognized and disclosed prospectively, as various phases
    of the project are finalized and implemented. Incremental capital expenditures
    related to this program are expected to total approximately $50 million to
    $55 million over the implementation period. Through March 31, 2008, the Company
    had eliminated approximately 1,200 positions in completing its initial phase
    of the program. The remainder of the program is expected to result in a net
    reduction of approximately 1,000 positions (1,700 positions eliminated net
    of new positions filled in different geographic locations as well as to perform
    new functions required by the hub-and-spoke model of operations). The foregoing

61

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reductions do
not include additional savings expected from lower levels of overtime and
reduced temporary labor.

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

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

2005 Program

In connection
with the previously disclosed consolidation plans and other productivity
initiatives to streamline pharmacy services (related, in part, to the
NeighborCare acquisition) and contract research organization operations,
including maximizing workforce and operating asset utilization, and producing
    a more cost-efficient, operating infrastructure (the 2005 Program),
    the Company had liabilities of $5.3 million at December 31, 2007, of which
    $0.8 million was utilized in the six months ended June 30, 2008. The remaining
    liabilities of $4.5 million at June 30, 2008 represent amounts not yet paid
    relating to actions taken in connection with the program (primarily lease
    payments) and will be settled as these matters are finalized. As previously
    disclosed, the Company recorded a credit to restructuring and other related
    charges of approximately ($1.6) million pretax (approximately ($1.0) million
    aftertax) during the three and six months ended June 30, 2007 in connection
    with the finalization of certain liabilities under the 2005 program.

|                                                     
|-----------------------------------------------------
|Financial
 Condition, Liquidity and Capital Resources
|                                                     

Cash and cash
equivalents and restricted cash at June 30, 2008 were $223.7 million compared
with $277.6 million at December 31, 2007 (including restricted cash amounts of
$15.0 million and $3.2 million, respectively).

The Company
generated positive net cash flows from operating activities of $228.6 million
during the six months ended June 30, 2008, compared with net cash flows from
operating activities of $235.9 million during the six months ended June 30,
2007. Compared to the same prior-year period, cash flow from operating
activities was unfavorably impacted largely by the year-over-year trend in
accounts payable on operating cash flows.

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Net cash used
by investing activities was $131.1 million and $98.8 million for the six months
ended June 30, 2008 and 2007, respectively. Acquisitions of businesses,
primarily funded by operating cash flows, required outlays of $91.0 million
(including amounts payable pursuant to acquisition agreements relating to
pre-2008 acquisitions) in the first six months of 2008. Acquisitions of
businesses during the first six months of 2007 required $69.3 million of cash
payments (including amounts payable pursuant to acquisition agreements relating
to pre-2007 acquisitions) which were primarily funded by operating cash flows.
Omnicares capital requirements, in addition to the payment of debt and dividends,
are primarily comprised of its acquisition program and capital expenditures,
largely relating to investments in the Companys information technology systems
and the implementation of the Omnicare Full Potential Plan.

Net cash used
in financing activities was $164.5 million for the six months ended June 30,
2008 as compared to $124.8 million for the comparable prior-year period. During
the first six months of 2008 and 2007, the Company paid down $50 million and
$100 million, respectively, on the Companys senior term A loan facility,
maturing on July 28, 2010. Borrowings on the revolving credit facility totaled
approximately $59 million during the first six months of 2008 and were
completely repaid prior to the end of the period.

At June 30, 2008,
there were no outstanding borrowings under the $800 million revolving credit
facility, and $400 million in borrowings were outstanding under the senior term
A loan facility due 2010. As of June 30, 2008, the Company had approximately
$27 million outstanding relating to standby letters of credit, substantially
all of which are subject to automatic annual renewals.

On May 23,
2008, the Companys Board of Directors declared a quarterly cash dividend of
2.25 cents per common share for an indicated annual rate of 9 cents per common
share for 2008, which is consistent with the annual dividends per share
actually paid in 2007. Aggregate dividends paid of $5.4 million during the six
month periods ended June 30, 2008 were relatively consistent with those paid in
the comparable prior-year period.

On March 27,
2008, the Company announced that its Board of Directors authorized a new
program to repurchase, from time to time, shares of Omnicare's outstanding
common stock having an aggregate value of up to $100 million, depending on
market conditions and other factors. In the three months ended June 30, 2008,
the Company repurchased approximately 4.1 million shares at a cost of
approximately $100 million. Accordingly, as of June 30, 2008 the Company had
utilized the full amount of share repurchase authority and successfully
completed the program. These repurchases were made in open market or privately
negotiated transactions in compliance with Securities and Exchange Commission
Rule 10b-18 and other applicable legal requirements. On June 30, 2008, Omnicare
had approximately 118.2 million shares of common stock outstanding.

There were no
known material commitments and contingencies outstanding at June 30, 2008,
other than the contractual obligations summarized in the Disclosures About
Aggregate Contractual Obligations and Off-Balance Sheet Arrangements section
below; certain acquisition-related payments potentially due in the future,
including deferred payments, indemnification payments and payments originating
from earnout and other provisions that may become payable; as well as the
matters discussed in the Commitments and Contingencies note

63

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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. Additionally, the Company believes that external sources of
financing are available, 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:

The following
summarizes the Companys aggregate contractual obligations as of June 30, 2008,
and the effect such obligations are expected to have on the Companys liquidity
and cash flows in future periods (in thousands):

|                                                                    |  |       |           |                   |   |           |  |           |           |               |   |         |  |   |           | 
|------------------------------------------------------------------- |  | ----- | --------- | ----------------- | - | --------- |  | --------- | --------- | ------------- | - | ------- |  | - | --------- | 
|                                                                    |  | Total |           | Less Than 1
 Year |   | 1-3 Years |  | 4-5 Years |           | After 5 Years |  
|                                                                    |  |       |           |                   |   |           |  |           |           |               |  
|                                                                    |  |       |           |                   |   |           |  |           |           |               |  
|Debt obligations(a)                                                 |  | $     | 2,772,000 |                   | $ |          |  | $         | 449,500   |               | $ | 250,000 |  | $ | 2,072,500 | 
|Capital lease obligations(a)                                        |  |       | 6,500     |                   |   | 2,819     |  |           | 2,844     |               |   | 440     |  |   | 397       | 
|Operating lease
 obligations                                        |  |       | 158,363   |                   |   | 42,811    |  |           | 57,601    |               |   | 27,006  |  |   | 30,945    | 
|Purchase obligations(b)                                             |  |       | 82,664    |                   |   | 64,899    |  |           | 11,220    |               |   | 6,545   |  |   |          | 
|Other current obligations(c)                                        |  |       | 336,094   |                   |   | 336,094   |  |           |          |               |   |        |  |   |          | 
|Other long-term
 obligations(d)                                     |  |       | 361,126   |                   |   |          |  |           | 322,389   |               |   | 28,841  |  |   | 9,896     | 
|                                                                    |  |       |           |                   |   |           |  |           |           |               |   |         |  |   |           | 
|Subtotal                                                            |  |       | 3,716,747 |                   |   | 446,623   |  |           | 843,554   |               |   | 312,832 |  |   | 2,113,738 | 
|Future interest relating
 to debt and capital lease
 obligations(e) |  |       | 1,684,979 |                   |   | 132,596   |  |           | 244,634   |               |   | 223,144 |  |   | 1,084,605 | 
|                                                                    |  |       |           |                   |   |           |  |           |           |               |   |         |  |   |           | 
|Total contractual cash
 obligations                                 |  | $     | 5,401,726 |                   | $ | 579,219   |  | $         | 1,088,188 |               | $ | 535,976 |  | $ | 3,198,343 | 
|                                                                    |  |       |           |                   |   |           |  |           |           |               |   |         |  |   |           | 

(a) The noted
obligation amounts represent the principal portion of the associated debt
obligations. Details of the Companys outstanding debt instruments can be found
in the Debt note of the Notes to Consolidated Financial Statements.

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

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

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

(e) Represents
estimated future pretax 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. Further, these analyses do not consider the effects of potential
changes in the Companys credit rating.

As of June 30,
2008, the Company had approximately $27 million outstanding relating to standby
letters of credit, substantially all of which are subject to automatic annual
renewals.

65

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Off-Balance Sheet Arrangements:

As of June 30,
2008, the Company had two unconsolidated entities, Omnicare Capital Trust I, a
statutory trust formed by the Company (the Old Trust) and Omnicare Capital
Trust II (the New Trust), which were established for the purpose of
facilitating the offerings of the 4.00% Trust Preferred Income Equity
Redeemable Securities due 2033 (the Old Trust PIERS) and the Series B 4.00%
Trust Preferred Income Equity Redeemable Securities (the New Trust PIERS),
respectively. For financial reporting purposes, the Old Trust and New Trust are
treated as equity method investments of the Company. The Old Trust and New
Trust are 100%-owned finance subsidiaries of the Company. The Company has fully
and unconditionally guaranteed the securities of the Old Trust and New Trust.
The Old 4.00% Debentures issued by the Company to the Old Trust and the 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 in Omnicares Consolidated Balance Sheets and
debt footnote disclosures. Additionally, the related disclosures concerning the
Old Trust PIERS and the New Trust PIERS, the guarantees, and the Old 4.00% Debentures
and New 4.00% Debentures are included in the Debt note of the Notes to
Consolidated Financial Statements in Omnicares 2007 Annual Report. Omnicare
records interest payable to the Old Trust and New Trust as interest expense in
its Consolidated Statements of Income.

As of June 30,
2008, 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.

Critical Accounting Policies

Allowance for Doubtful Accounts

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

The Company
computes and monitors its accounts receivable days sales outstanding (DSO), a
non-GAAP measure, in order to evaluate the liquidity and collection patterns of
its accounts receivable. DSO is calculated by averaging the beginning and end
of quarter accounts receivable, less contractual allowances and the allowance
for doubtful accounts, to derive

66

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average
accounts receivable and dividing average accounts receivable by the sales
amount (excluding reimbursable out-of-pockets) for the related quarter. The
resultant percentage is multiplied by 92 days to derive the DSO amount.
Omnicares DSO approximated 81 days at June 30, 2008, which was lower than the December 31, 2007
DSO of approximately 84 days, largely attributable to the Companys late
2007 increase in its provision for doubtful accounts. As previously disclosed,
the Company has experienced on-going administrative and payment issues associated
with the Medicare Part D implementation, resulting in outstanding gross
accounts receivable (net of allowances for contractual adjustments, and prior
to any allowance for doubtful accounts), particularly for copays. As of June
30, 2008, copays outstanding from Part D Plans were approximately $27 million
relating to 2006 and 2007. The Company is pursuing solutions, including legal
actions against certain Part D payors, to collect outstanding copays, as well
as certain rejected claims. Unfavorably impacting the overall DSO, as well as
increases in the 181 days and over past due accounts receivable balance, is the
aging in accounts receivable relating to several of the Companys larger nursing home chain customers, and the continued aging of
copays and rejected claims. On July 11, 2007, the Company commenced legal
action against a group of its customers for, among other things, the collection
of past-due receivables that are owed to the Company. Specifically,
approximately $93 million (excluding interest and prior to any allowance for
doubtful accounts) is owed to the Company by this group of customers as of June
30, 2008, of which approximately $84 million is past due based on applicable
payment terms (a significant portion of which is not reserved based on the
relevant facts and circumstances). The $93 million represents approximately 5
days of the overall DSO at June 30, 2008. Until all administrative and payment
issues relating to the Part D Drug Benefit as well as the aforementioned legal
action against a group of Omnicares customers are fully resolved, there can be
no assurance that the impact of these matters on the Companys results of
operations, financial position or cash flows will not change based on the
outcome of any unforeseen future developments.

The allowance
for doubtful accounts as of June 30, 2008 was $342.7 million, compared with
$334.1 million at December 31, 2007. The allowance for doubtful accounts
represented 20.3% and 19.5% of gross receivables (net of contractual
allowances) as of June 30, 2008 and December 31, 2007, respectively. Unforeseen
future developments could lead to changes in the Companys provision for doubtful
accounts levels and future allowance for doubtful accounts percentages, which
could materially impact the overall financial results, financial position or
cash flows of the Company. For example, a one percentage point increase in the
allowance for doubtful accounts as a percentage of gross receivables (net of
allowances for contractual adjustments, and prior to allowances for doubtful
accounts) as of June 30, 2008 would result in an increase to the provision for
doubtful accounts and related allowance for doubtful accounts on the balance
sheet of approximately $16.9 million pretax.

The following
table is an aging of the Companys June 30, 2008 and December 31, 2007 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):

67

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|                                                                            |  |                                   |           |                              |   |         |  |   |           | 
|--------------------------------------------------------------------------- |  | --------------------------------- | --------- | ---------------------------- | - | ------- |  | - | --------- | 
|                                                                            |  | June 30, 2008                     |          
|                                                                            |  |                                   |          
|                                                                            |  | Current and
 0-180 Days
 Past Due |           | 181 Days and
 Over
 Past Due |   | Total   | 
|                                                                            |  |                                   |           |                              |   |         | 
|Medicare (Part D and Part B), Medicaid and Third-Party
payors               |  | $                                 | 362,223   |                              | $ | 185,925 |  | $ | 548,148   | 
|Facility payors                                                             |  |                                   | 510,055   |                              |   | 359,028 |  |   | 869,083   | 
|Private Pay payors                                                          |  |                                   | 120,451   |                              |   | 129,544 |  |   | 249,995   | 
|CRO                                                                         |  |                                   | 23,502    |                              |   |        |  |   | 23,502    | 
|                                                                            |  |                                   |           |                              |   |         |  |   |           | 
|Total gross accounts receivable (net of contractual allowance
 adjustments) |  | $                                 | 1,016,231 |                              | $ | 674,497 |  | $ | 1,690,728 | 
|                                                                            |  |                                   |           |                              |   |         |  |   |           | 
|                                                                            |  |                                   |           |                              |   |         |  |   |           | 
|                                                                            |  | December 31, 2007                 |          
|                                                                            |  |                                   |          
|                                                                            |  | Current and
 0-180 Days
 Past Due |           | 181 Days and
 Over
 Past Due |   | Total   | 
|                                                                            |  |                                   |           |                              |   |         | 
|Medicare (Part D and Part B), Medicaid and Third-Party
payors               |  | $                                 | 390,663   |                              | $ | 167,116 |  | $ | 557,779   | 
|Facility payors                                                             |  |                                   | 527,879   |                              |   | 347,551 |  |   | 875,430   | 
|Private Pay payors                                                          |  |                                   | 126,480   |                              |   | 124,958 |  |   | 251,438   | 
|CRO                                                                         |  |                                   | 25,702    |                              |   |        |  |   | 25,702    | 
|                                                                            |  |                                   |           |                              |   |         |  |   |           | 
|Total gross accounts receivable (net of contractual allowance
 adjustments) |  | $                                 | 1,070,724 |                              | $ | 639,625 |  | $ | 1,710,349 | 
|                                                                            |  |                                   |           |                              |   |         |  |   |           | 

Fair Value

On January 1,
2008, the Company partially adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 157, Fair Value Measurements
(SFAS 157). SFAS 157 defines a hierarchy which prioritizes the inputs in fair
value measurements. Level 1 measurements are measurements using quoted prices
in active markets for identical assets or liabilities. Level 2 measurements
use significant other observable inputs. Level 3 measurements are
measurements using significant unobservable inputs which require a company to
develop its own assumptions. In recording the fair value of assets and
liabilities, companies must use the most reliable measurement available. The
impact to the Companys consolidated results of operations, financial position
and cash flows upon partial adoption of SFAS 157 was not material. The Company
elected to partially defer adoption of SFAS 157 related to goodwill and
indefinite-lived intangible assets in accordance with Financial Accounting
Standards Board (FASB) Staff Position 157-2.

See further
discussion at the Fair Value note of the Notes to Consolidated Financial
Statements.

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Legal Contingencies

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

Recently Issued Accounting Standards

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

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

In addition to
historical information, this report contains certain statements that constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements include, but
are not limited to, all statements regarding the intent, belief or current
expectations regarding the matters discussed or incorporated by reference in
this document (including statements as to beliefs, expectations,
anticipations, intentions or similar words) and all statements which are
not statements of historical fact. Such forward-looking statements, together
with other statements that are not historical, are based on managements
current expectations and involve known and unknown risks, 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,
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

69

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state budget
shortfalls; efforts by payors to control costs; changes to or termination of
the Companys contracts with Medicare Part D plan sponsors or to the proportion
of the Companys Part D business covered by specific contracts; the outcome of
litigation; potential liability for losses not covered by, or in excess of,
insurance; the impact of differences in actuarial assumptions and estimates as
compared to eventual outcomes; events or circumstances which result in an impairment
of assets, including but not limited to, goodwill; market conditions; the
outcome of audit, compliance, administrative, regulatory, or investigatory
reviews; volatility in the market for the Companys stock and in the financial
markets generally; access to adequate capital and financing; changes in
international economic and political conditions and currency fluctuations
between the U.S. dollar and other currencies; changes in tax laws and
regulations; changes in accounting rules and standards; and costs to comply
with our Corporate Integrity Agreements. Should one or more of these risks or
uncertainties materialize or should underlying assumptions prove incorrect, the
Companys actual results, performance or achievements could differ materially
from those expressed in, or implied by, such forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. Except as otherwise
required by law, the Company does not undertake any obligation to publicly
release any revisions to these forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.

ITEM
3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Omnicares
primary market risk exposure relates to variable interest rate risk through its
borrowings. Accordingly, market risk loss is primarily defined as the potential
loss in earnings due to higher interest rates on variable-rate debt of the
Company. The modeling technique used by Omnicare for evaluating interest rate
risk exposure involves performing sensitivity analysis on the variable-rate
debt, assuming a change in interest rates of 100 basis-points. The Companys
debt obligations at June 30, 2008 include $400.0 million outstanding under the
variable-rate Senior term A loan, due 2010, at an interest rate of 4.23% at
June 30, 2008 (a 100 basis-point change in the interest rate would increase or
decrease pretax interest expense by approximately $4.0 million per year); $49.5
million borrowed on a variable-rate term loan, due 2010, at an interest rate of
6.26% at June 30, 2008 (a 100 basis-point change in the interest rate would
increase or decrease pretax interest expense by approximately $0.5 million per
year); $250.0 million outstanding under its fixed-rate 6.125% Senior Notes, due
2013; $225.0 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;
$345.0 million outstanding under its fixed-rate 4.00% Convertible Debentures,
due 2033; and $977.5 million outstanding under its fixed-rate 3.25% Convertible
Debentures, due 2035 (with an optional repurchase right of holders on December
15, 2015). In connection with its offering of $250.0 million of 6.125% Senior
Notes during 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% and pays a floating rate
based on LIBOR with a maturity of six months, plus a spread of 2.27%. The
estimated LIBOR-based floating rate (including the 2.27% spread) was 5.40% at
June 30, 2008 (a 100 basis-point change in the interest rate would increase or
decrease pretax

70

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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 is recorded
as a noncurrent asset or (liability), with an offsetting increase or
(decrease), respectively, to the book carrying value of the related 6.125%
Senior Notes, and amounted to approximately $(9.6) million at the end of the
2008 second quarter. Additionally, at June 30, 2008, the fair value of
Omnicares variable rate debt facilities approximated the carrying value, as
the effective interest rates fluctuate with changes in market rates.

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

Fair Value of Financial Instruments

|                                                           |  |               |   |                   |  |            |  |              |         |  |  |  |   |         |  |  |  |   |         |  | 
|---------------------------------------------------------- |  | ------------- | - | ----------------- |  | ---------- |  | ------------ | ------- |  |  |  | - | ------- |  |  |  | - | ------- |  | 
|                                                           |  | June 30, 2008 |   | December 31, 2007 | 
|                                                           |  |               |   |                   | 
|Financial
 Instrument:                                     |  | Book Value    |   | Market Value      |  | Book Value |  | Market Value |        
|                                                           |  |               |   |                   |  |            |  |              |        
|                                                           |  |               |   |                   |  |            |  |              |        
|6.125% senior subordinated notes, due 2013, gross          |  |               | $ | 250,000           |  |            |  | $            | 233,800 |  |  |  | $ | 250,000 |  |  |  | $ | 230,000 |  | 
|6.75% senior subordinated notes, due 2013                  |  |               |   | 225,000           |  |            |  |              | 212,700 |  |  |  |   | 225,000 |  |  |  |   | 212,600 |  | 
|6.875% senior subordinated notes, due 2015                 |  |               |   | 525,000           |  |            |  |              | 485,600 |  |  |  |   | 525,000 |  |  |  |   | 486,900 |  | 
|4.00% junior subordinated convertible debentures, due 2033 |  |               |   | 345,000           |  |            |  |              | 268,200 |  |  |  |   | 345,000 |  |  |  |   | 246,700 |  | 
|3.25% convertible senior debentures, due 2035              |  |               |   | 977,500           |  |            |  |              | 713,600 |  |  |  |   | 977,500 |  |  |  |   | 703,800 |  | 

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

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

71

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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 quarter ended June 30, 2008 that have materially
affected, or are reasonably likely to materially affect, the Companys internal
control over financial reporting.

PART
II - OTHER INFORMATION:

ITEM
1 - LEGAL PROCEEDINGS

On May 18,
2006, an antitrust and fraud action entitled Omnicare, Inc. v. UnitedHealth
Group, Inc., et al., 2:06-cv-00103-WOB, was filed by the Company in the
United States District Court for the Eastern District of Kentucky against
UnitedHealth Group, Inc., PacifiCare Health Systems, Inc., and RxSolutions,
Inc. d/b/a Prescription Solutions, asserting claims of violations of federal
and state antitrust laws, civil conspiracy and common law fraud arising out of
an alleged conspiracy by defendants to illegally and fraudulently coordinate
their negotiations with the Company for Medicare Part D contracts as part of
an effort to defraud the Company and fix prices. The complaint seeks, among other
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. In an order dated November 9, 2006, a
motion by defendants to transfer venue to the United States District Court for
the Northern District of Illinois was granted, but a motion to dismiss the
antitrust claims was denied without prejudice, with leave to refile in the
transferee court. In the United States District Court for the Northern District
of Illinois, the defendants renewed their motion to dismiss the Companys
antitrust claims on December 22, 2006, and on September 28, 2007 their motion
was denied. On March 7, 2007, the Court entered a Minute Order setting a
discovery schedule for the litigation. Fact discovery has been completed, and
expert discovery is nearly completed. On June 20, 2008, the defendants filed
a motion for summary judgement on all claims and the Company filed a motion for
summary judgement on certain affirmative defenses asserted by the defendants.
Opposition briefs were filed on July 18, 2008 and reply briefs are due on August
8, 2008. On

72

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April 18,
2008, the Court entered a Minute Order affirming its previous May 22, 2007
Minute Order that set a trial date of October 14, 2008.

The United
States Attorneys Office, District of Massachusetts, is conducting an
investigation relating to 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. Any
action by the U.S. Attorneys Office, District of Massachusetts, could result
in civil or criminal proceedings against the Company. The Company believes that
it has complied with all applicable laws and regulations with respect to these
matters.

On February 2
and February 13, 2006, respectively, two substantially similar putative class
action lawsuits, entitled Indiana State
Dist. Council of Laborers & HOD Carriers Pension & Welfare Fund v.
Omnicare, Inc., et al.,
No. 2:06cv26 (HOD Carriers), and Chi v.
Omnicare, Inc., et al., No. 2:06cv31 (Chi), were filed
against Omnicare and two of its officers in the United States District Court
for the Eastern District of Kentucky purporting to assert claims for violation
of §§10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5
promulgated thereunder, and seeking, among other things, compensatory damages
and injunctive relief. The complaints, which purported to be brought on behalf
of all open-market purchasers of Omnicare common stock from August 3, 2005
through January 27, 2006, alleged that Omnicare had artificially inflated its
earnings by engaging in improper generic drug substitution and that defendants
had made false and misleading statements regarding the Companys business and
prospects. On 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. On October 31, 2006, plaintiffs
moved for leave to file a second amended complaint, which was granted on
January 26, 2007, on the condition that no further amendments would be
permitted absent extraordinary circumstances. Plaintiffs thereafter filed their
second amended complaint on January 29, 2007. The second amended complaint (i)
expands the putative class to include all purchasers of Omnicare common stock
from August 3, 2005 through July 27, 2006, (ii) names two members of the
Companys board of directors as additional defendants, (iii) adds a new
plaintiff and a new claim for violation of Section 11 of the Securities Act of
1933 based on alleged false and misleading statements in the registration
statement filed in connection with the Companys December 2005 public offering,
(iv) alleges that the Company failed to timely disclose its contractual dispute
with UnitedHealth Group (see discussion of the UnitedHealth Group matter
above), and (v) alleges that the Company failed to timely record certain
special litigation reserves. The defendants filed a motion to dismiss the
second amended complaint on March 12, 2007, claiming that plaintiffs had failed
adequately to plead loss causation, scienter or any actionable misstatement or
omission. That motion was fully briefed as of May 1, 2007. In response to
certain arguments relating to the individual claims of the named plaintiffs
that were raised in defendants pending motion to dismiss, plaintiffs filed a
motion to add, or in the alternative, to intervene an additional named
plaintiff, Alaska Electrical Pension Fund, on July 27, 2007. On October 12,
2007, the court issued an opinion and order

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dismissing the
case and denying plaintiffs motion to add an additional named plaintiff.
On November 9, 2007, plaintiffs filed a notice of appeal with the United States
Court of Appeals for the Sixth Circuit with respect to the dismissal of their
case. That appeal is fully briefed and oral argument has been scheduled for September
18, 2008.

On February
13, 2006, two substantially similar shareholder derivative actions, entitled Isak v. Gemunder, et al.,
Case No. 06-CI-390, and Fragnoli v. Hutton,
et al., Case No. 06-CI-389, were filed in Kentucky State Circuit
Court, Kenton Circuit, against the members of Omnicares board of directors,
individually, purporting to assert claims for breach of fiduciary duty, abuse
of control, gross mismanagement, waste of corporate assets and unjust
enrichment arising out of the Companys alleged violations of federal and state
health care laws based upon the same purportedly improper generic drug
substitution that is the subject of the federal purported class action
lawsuits. The complaints seek, among other things, damages, restitution and
injunctive relief. The Isak and Fragnoli actions were later
consolidated by agreement of the parties. On January 12, 2007, the defendants
filed a motion to dismiss the consolidated action on the grounds that the
dismissal of the substantially identical shareholder derivative action, Irwin
v. Gemunder, et al., 2:06cv62, by
the United States District Court for the Eastern District of Kentucky on
November 20, 2006 should be given preclusive effect and thus bars re-litigation
of the issues already decided in Irwin. Instead of opposing that motion, on
March 16, 2007, the plaintiffs filed an amended consolidated complaint, which
continues to name all of the directors as defendants and asserts the same
claims, but attempts to bolster those claims by adding nearly all of the
substantive allegations from the most recent complaint in the federal securities
class action (seediscussion of HOD Carriers above) and an amended
complaint in Irwin that added the same factual allegations that were
added to the consolidated amended complaint in the HOD Carriers action. On
April 16, 2007, defendants filed a supplemental memorandum of law in further
support of their pending motion to dismiss contending that the amended
complaint should be dismissed on the same grounds previously articulated for
dismissal, namely, the preclusive effect of the dismissal of the Irwin action.
That motion has been fully briefed, oral argument was held on August 21, 2007,
and the court reserved decision.

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

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
results of operations, financial position or cash flows.

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 laws and regulations to which the Company is subject,
including reviews of individual Omnicare pharmacys reimbursement documentation
and administrative practices.

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ITEM 1A - RISK FACTORS

The Omnicare
2007 Annual Report on Form 10-K includes a detailed discussion of our risk
factors. The information presented below updates and should be read in
conjunction with the risk factors and information disclosed in that Form 10-K.

Risks Relating to Our Business

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

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) mandated
a prospective payment system (PPS) for Medicare-eligible residents of skilled
nursing facilities (SNFs). Under PPS, Medicare pays SNFs a fixed fee per
patient per day based upon the acuity level of the resident, covering
substantially all items and services furnished during a Medicare-covered stay,
including pharmacy services. PPS initially resulted in a significant reduction
of reimbursement to SNFs. Congress subsequently sought to restore some of the
reductions in reimbursement resulting from PPS. One provision gave SNFs a
temporary rate increase for certain specific high-acuity patients beginning
April 1, 2000, and ending when the 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, 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 resource utilization group 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 received the
full 3.1 percent market basket increase to rates, increasing payments to SNFs
by approximately $560 million for fiscal year 2007. On August 3, 2007, CMS
published its final SNF PPS update for fiscal year 2008. Effective October 1,
2007, SNFs received a 3.3 percent market basket increase, which increases
Medicare payments to SNFs by approximately $690 million in fiscal year 2008.
The final rule also includes several policy and payment provisions, including
rebasing the market basket, which currently reflects data from fiscal 1997, to
a base year of fiscal year 2004; revisions to the calculation of the SNF market
basket (including revising the pharmacy component); changing the threshold for
forecast error adjustments from the current 0.25 percentage point to 0.5
percentage point; and continuing a special adjustment made to cover the
additional services required by nursing home residents with HIV/AIDS. On
May 1, 2008, CMS released its proposed SNF PPS update for fiscal year 2009.
Among other things, the proposed rule would

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recalibrate
case mix weights, resulting in an overall 3.3 percent reduction in Medicare
payments. Most of the decrease would be offset by a 3.1 percent market basket
increase, but if the rule were adopted as proposed, SNFs would experience a net
reduction in Medicare payments of $60 million, or approximately 0.3 percent.
The rule was subject to public comment until June 30, 2008, and a final rule
will be issued this summer. While the fiscal
year 2007 and 2008 SNF PPS rates do not decrease payments to SNFs, the
potential loss of revenues associated with the proposed fiscal year 2009
changes to SNF payments or other potential reimbursement changes 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 five years (fiscal years 2006-2010). On
February 4, 2008, the Bush Administration released its fiscal year 2009 budget
proposal, which includes legislative and administrative proposals that would
reduce Medicare spending by approximately $12.2 billion in fiscal year 2009 and
$178 billion over five years. Among other things, the budget would provide no
annual update for SNFs in 2009 through 2011 and a -0.65 percent adjustment to
the update annually thereafter. In addition, the budget would apply a
sequester of -0.4 percent to all Medicare provider payments when general fund
contributions exceed 45 percent of program spending. The sequester order would
increase each year by -0.4 percent until general revenue funding is brought
back to 45 percent. The budget also would move toward site-neutral
post-hospital payments to limit perceived inappropriate incentives for five
conditions commonly treated in both SNFs and inpatient rehabilitation
facilities. The Administration also proposes to achieve savings by issuing
regulations to adjust for case mix distribution in the SNF payment system. CMS
included this provision in its proposed SNF prospective payment system update
for fiscal year 2009, released May 1, 2008. CMS estimates that the
recalibration would result in an overall 3.3 percent reduction in Medicare
payments in fiscal year 2009, although the proposed rule would partially offset
the case mix recalibration payment decrease with a 3.1 percent market basket
increase. In addition, the budget proposal would eliminate all bad debt reimbursements
for unpaid beneficiary cost-sharing over four years. Many provisions of the
proposed Bush budget would require Congressional action to implement.
Separately, on August 1, 2007, the House of Representatives approved H.R. 3162,
the Childrens Health and Medicare Protection Act of 2007, that included a
number of Medicare policy changes, including a freeze in fiscal year 2008 SNF
PPS rates at fiscal year 2007 levels. Note that while the version of the bill
that ultimately passed Congress did not include Medicare provisions impacting
SNF reimbursement, 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 included a major expansion of the Medicare
prescription drug benefit under a new Medicare Part D.

Under the
Medicare Part D 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

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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.
Effective January 1, 2006, Medicare beneficiaries who are also entitled to
benefits under a state Medicaid program (so-called dual eligibles) have their
prescription drug costs covered by the new Medicare drug benefit. Many nursing
home residents Omnicare serves are dual eligibles, whose drug costs were
previously covered by state Medicaid programs. In 2007, approximately 42% of
Omnicares revenue was derived from beneficiaries covered under the federal
Medicare Part D program.

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 do not affirmatively enroll in a Part D Plan are
automatically enrolled into a Prescription Drug Plan (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 to offer 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. Moreover, we may,
as appropriate, renegotiate agreements. Further, the proportion of our Part D
business serviced under specific agreements may change over time. Consequently,
there can be no assurance that the reimbursement terms which currently apply to
our Part D business will not change. In addition, as expected in the transition
to a new program of this magnitude, certain administrative and payment issues
have arisen,
resulting in higher operating expenses, as well as outstanding gross accounts
receivable (net of allowances for contractual adjustments, and prior to
any allowance for doubtful accounts), particularly for copays. As of June 30,
2008, copays outstanding from Part D Plans were approximately $27 million
relating to 2006 and 2007. The Company is pursuing solutions, including legal
actions against certain Part D payors, to collect outstanding copays, as well
as certain rejected claims. Participants
in the long-term care pharmacy industry continue to address these issues with
CMS and the Part D Plans and attempt to develop solutions. However, until
all administrative and payment issues are fully resolved,

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there can be
no assurance that the impact of the Part D Drug benefit on our results of
operations, financial position or cash flows will not change based on the
outcome of any unforeseen future developments.

The MMA does
not change the manner in which Medicare pays for drugs for Medicare
beneficiaries covered under a Medicare 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 beginning in 2007,
Part D sponsors must 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 issued subregulatory
guidelines specifying the information that CMS is requiring from Plan sponsors
with respect to rebates paid to long-term care pharmacies. CMS has also issued
reporting requirements for 2008 which, among other things, require disclosure
of rebates provided to long-term care pharmacies at a more detailed level. We
have agreed with various Plan sponsors and their agents with respect to the
format, terms and conditions for providing such information and we intend to
continue to work with other sponsors with respect to providing such
information.

On July 15,
2008, Congress enacted into law H.R. 6331, the Medicare Improvements for
Patients and Providers Act of 2008 by overriding the Presidents veto of the
bill. The new law includes further reforms to the Part D program. Among other things,
from and after January 1, 2010, the law requires that long-term care pharmacies
have between 30 and 90 days to submit claims to a Part D Plan. Commencing
January 1, 2009, the law also requires Part D Plan sponsors to update the
prescription drug pricing data they use to pay pharmacies no less frequently
than every seven days. The law also expands the number of Medicare
beneficiaries who will be entitled to premium and cost-sharing subsidies by
modifying previous income and asset requirements, eliminates late enrollment
penalties for beneficiaries entitled to these subsidies, and limits the sales
and marketing activities in which Part D Plan sponsors may engage, among other
things.

Moreover, CMS continues to
issue guidance on and make revisions to the Part D program. We are continuing
to monitor issues relating to implementation of the Part D benefit, and until

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further agency
guidance is known and until all administrative and payment issues associated
with the transition to this massive program are fully resolved, there can be no
assurance that the impact of the final rule or the outcome of other potential
developments relating to its implementation on our business, results of
operations, financial position or cash flows will not change based on the
outcome of any unforeseen future developments.

The MMA also
changed the Medicare payment methodology and conditions for coverage of certain
items of durable medical equipment prosthetics, orthotics, and supplies
(DMEPOS) under Medicare Part B. Approximately 1% of our revenue is
derived from beneficiaries covered under Medicare Part B. The changes include a
temporary freeze in annual increases in payments for durable medical equipment
from 2004 through 2008, new clinical conditions for payment, quality standards
(applied by CMS-approved accrediting organizations), and competitive bidding
requirements. On April 10, 2007, CMS issued a final rule establishing the Medicare
competitive bidding program. Only suppliers that are winning bidders will be
eligible to provide competitively-bid items to Medicare beneficiaries in the
selected areas. Enteral nutrients, equipment and supplies and oxygen
equipment and supplies were among the 10 categories of DMEPOS included in the
first round of the competitive bidding program.

In mid-2007
CMS conducted a first round of bidding for these 10 DMEPOS product categories
in 10 competitive bidding areas, and CMS began announcing winning bidders in
March 2008. In light of concerns about implementation of the bidding program,
including CMS disqualification of many bids based upon bidders submission of
allegedly incomplete financial documentation and the potential adverse impact
on beneficiary access to certain types of DMEPOS, Congress has, through the
enactment into law on July 15, 2008 of H.R. 6331, the Medicare Improvements
for Patients and Providers Act of 2008, terminated the contracts awarded by
CMS in the first round of competitive bidding, required that new bidding be
conducted for the first round, and required certain reforms to the bidding
process. Among other things, the law requires CMS to rebid those areas in 2009,
with bidding for round two delayed until 2011. The delay will be financed by
reducing Medicare fee schedule payments for all items covered by round one
bidding program by 9.5 percent nationwide beginning January 1, 2009, followed
by a 2 percent increase in 2014 (with certain exceptions). The legislation also
includes a series of procedural improvements to the bidding process, including
requiring CMS to notify bidders about paperwork discrepancies and providing
suppliers with an opportunity to submit proper documentation, and it requires
contracting suppliers to disclose all subcontracting relationships to CMS. We
intend to participate in the new bidding process for round one, and are
assessing the potential impact of the fee schedule reductions on its business.

CMS
requires all existing DMEPOS suppliers to submit proof of accreditation by
a deemed accreditation organization by September 30, 2009, although suppliers
in the competitive bidding regions and new suppliers have been subject to
earlier accreditation deadlines. The Medicare Improvements for Patients and
Providers Act of 2008 codifies the requirement that all suppliers be accredited
by October 1, 2009 and extends the accreditation requirement to companies that
subcontract with contract suppliers under the competitive bidding program. We
intend to comply with all accreditation requirements for DMEPOS suppliers by
the applicable deadline.

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With respect
to Medicaid, the BBA repealed the Boren Amendment federal payment standard
for Medicaid payments to nursing facilities, 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. 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 five 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. No
assurances can be given that state Medicaid programs ultimately will not change
the reimbursement system for long-term care or pharmacy services in a way that
adversely impacts the Company.

The DRA also
changed the so-called federal upper limit payment rules for multiple source
prescription drugs covered under Medicaid. Like the current upper limit, it
only applies to drug ingredient costs and does not include dispensing fees,
which will continue to be determined by the states. First, the DRA redefined a
multiple source drug subject to the upper limit rules to be a covered outpatient
drug that has at least one other drug product that is therapeutically
equivalent. Thus, the federal upper limit is triggered when there are two or
more therapeutic equivalents, instead of three or more as was previously the
case. Second, effective January 1, 2007, the DRA changed the federal upper
payment limit from 150 percent of the lowest published price for a drug (which
is usually the average wholesale price) to 250 percent of the lowest average
manufacturer price (AMP). Congress expected these DRA provisions to reduce
federal and state Medicaid spending by $8.4 billion over five years. On July
17, 2007, CMS issued a final rule with comment period to implement changes to
the upper limit rules. Among other things, the final rule: established a new federal
upper limit calculation for multiple source
drug, based on 250 percent of the lowest AMP in a drug class; required CMS to
post AMP amounts on its web site; and established a uniform definition for AMP.
Additionally, the final rule provided that sales of drugs to long-term care
pharmacies for supply to nursing homes and assisted living facilities (as well
as associated discounts, rebates or other price concessions) are not to be
taken into account in determining AMP where such sales can be identified with
adequate documentation, and that any AMPs which are not at least 40% of the
next highest AMP will not be taken into account in determining the upper limit
amount (the so-called outlier test). However, on December 19, 2007, the
United States District Court for the District of Columbia issued a preliminary
injunction that enjoins CMS from implementing provisions of the July 17, 2007
rule to the extent that it affects Medicaid reimbursement rates for retail
pharmacies under the Medicaid program. The order also enjoins CMS from posting
AMP data on a public website or disclosing it to states. As a result of this
preliminary injunction, CMS did not post AMPs or new upper limit prices in late
December 2007 based upon the July 17, 2007 final rule despite its earlier
planned timetable, and

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the schedule for states to implement the new upper limits will be
delayed until further notice. Separately,
on March 14, 2008, CMS published an interim final rule with comment period
revising the Medicaid rebate definition of multiple source drug set forth in
the July 17, 2007 final rule. In short, the effect of the rule will be that
federal upper limits apply in all states unless the state finds that a
particular generic drug is not available within that state. While the rules
effective date is April 14, 2008, it is subject to public comment. CMS also
notes that the regulation is subject to the injunction by the United States
District Court for the District of Columbia to the extent that it may affect
Medicaid reimbursement rates for pharmacies. Most recently, on July 15,
2008, Congress enacted into law over the Presidents veto H.R. 6331, the
Medicare Improvements for Patients and Providers Act of 2008. The
new law delays the adoption of the DRAs new
federal upper limit payment rules for Medicaid based on AMP for multiple source
drugs and prevents CMS from publishing AMP data until October 1, 2009. With
the advent of Medicare Part D, our revenues from state Medicaid programs are
substantially lower than has been the case previously. However, some of our
agreements with Part D Plans and other payors have incorporated the Medicaid
upper limit rules into the pricing mechanisms for prescription drugs. Until the
litigation regarding the final rule is resolved and new upper limit amounts are
published by CMS, we cannot predict the impact of the final rule on our
business. There can be no assurance, however, that the changes under the DRA or
other efforts by payors to limit reimbursement for certain drugs will not have an
adverse impact on our business.

The Medicare Improvements for Patients and Providers Act of 2008 also
seeks to promote e-prescribing by providing incentive payments for physicians
and other practitioners paid under the Medicare physician fee schedule who are
successful electronic prescribers. Specifically, successful electronic
prescribers are to receive a 2 percent bonus during 2009 and 2010, a 1 percent
bonus for 2011 and 2012 and a 0.5 percent bonus for 2013; practitioners who are
not successful electronic prescribers are penalized by a 1 percent reduction from
the current fee schedule in 2012, a 1.5 percent reduction in 2013, and
thereafter a 2 percent reduction. The requirements for a practitioner to
qualify as a successful electronic prescriber are to be specified by CMS, and
may relate to either the submission of a minimum number of e-prescriptions
under Medicare Part D, or to simply having a qualifying e-prescribing system
and reporting whether it was used under an existing program for reporting
certain physician quality measures for at least 50 percent of applicable
encounters. Numerous details relating to this provision, including the
timetable for adoption, will need to be specified by CMS. The Company is
closely monitoring developments related to this initiative, and will seek to
make available to practitioners systems under which they may submit
prescriptions to the Companys pharmacies electronically so as to enable them
to qualify for the incentive payments.

President
Bushs fiscal year 2009 budget proposal includes a series of proposals
impacting Medicaid, including legislative and administrative changes that would
reduce Medicaid payments by more than $18 billion over five years. Among other things, the proposed budget would
further reduce the federal upper limit reimbursement for multiple source drugs
to 150 percent of the AMP and replace the best price component of the
Medicaid drug rebate formula with a budget-neutral flat rebate. Many of
the proposed policy changes would require Congressional approval to implement.
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.

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Two recent
actions at the federal level could impact Medicaid payments to nursing
facilities. The Tax Relief and Health Care Act of 2006 modified several
Medicaid policies including, among other things, reducing the limit on Medicaid
provider taxes from 6 percent to 5.5 percent from January 1, 2008 through
September 30, 2011. The Bush Administration had been expected to issue
regulations calling for deeper cuts in this funding. On February 22, 2008, CMS
published a final rule that implements this legislation, and makes other
clarifications to the standards for determining the permissibility of provider
tax arrangements. On June 30, 2008, President Bush signed into law a
supplemental appropriations bill (P.L. 110-252) that imposes a moratorium on
implementation of certain provisions of this rule until April 1, 2009. Second,
on January 18, 2007, CMS published a proposed rule designed to ensure that
Medicaid payments to governmentally-operated nursing facilities and certain
other health care providers are based on actual costs and that state financing
arrangements are consistent with the Medicaid statute. CMS estimates that the
rule, if finalized, would save $120 million during the first year and $3.87
billion over five years. On May 29, 2007, CMS published a final rule to
implement this provision, but Congress blocked the rule for one year in an
emergency fiscal year 2007 spending bill, H.R. 2206. The supplemental
appropriations bill, P.L. 110-252, further extends the moratorium on
implementation of the rule through April 1, 2009.

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, universal
healthcare coverage, 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. Further, we receive discounts, rebates and other price concessions
from pharmaceutical manufacturers pursuant to contracts for the purchase of
their products. There can be no assurance that any changes in legislation or
regulations, or interpretations of current law, that would eliminate or
significantly reduce the discounts, rebates and other price concessions that we
receive from manufacturers would not have a material adverse impact on our
overall consolidated results of operations, financial position or cash flows.
Longer term, funding for federal and state healthcare programs must consider
the aging of the population; the growth in enrollees as eligibility is
potentially expanded; the escalation in drug costs owing to higher drug
utilization among seniors; the impact of the Medicare Part D benefit for seniors;
the introduction of new, more efficacious but also more expensive medications;
and the long-term financing of the entire Medicare program. Given competing
national priorities, it remains difficult to predict the outcome and impact on
us of any changes in healthcare policy 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

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Court for the
District of Massachusetts) and defendant First DataBank, Inc. (First
DataBank) entered into a settlement agreement relating to First DataBanks
publication of average wholesale price (AWP). AWP is a pricing benchmark that
is widely used to calculate a portion of the reimbursement payable to pharmacy
providers for the drugs and biologicals they provide, including under State
Medicaid programs, Medicare Part D Plans and certain of the Companys contracts
with long-term care facilities. The settlement agreement would have required
First DataBank to cease publishing AWP two years after the settlement became
effective unless a competitor of First DataBank was then publishing AWP, and
would have required that First DataBank modify the manner in which it
calculates AWP for over 8,000 distinct drugs (NDCs) from 125% of the drugs
wholesale acquisition cost (WAC) price established by manufacturers to 120%
of WAC until First DataBank ceased publishing same. In a related case, District
Council 37 Health and Security Plan v. Medi-Span,CA No. 1:07-CV-10988-PBS
(United States District Court for the District of Massachusetts), in which
Medi-Span is accused of misrepresenting pharmaceutical prices by relying on and
publishing First DataBanks price list, the parties entered into a similar
settlement agreement. The Court granted preliminary approval of both
agreements, however on January 22, 2008, the court held a hearing on a motion
for final approval of the proposed settlements, and after hearing various
objections to the proposed settlements indicated that it would not approve the
settlements as proposed. The parties filed amendments to the proposed
settlements on March 19, 2008, and at a status hearing held that day, the Court
asked the parties to further revise the amended settlements. On May 29, 2008, the
plaintiffs and First DataBank filed a new settlement that included a reduction
in the number of NDCs to which a new mark-up over WAC would apply (20% vs. 25%)
from over 8,000 to 1,356, and removed the provision requiring that AWP no
longer be published in the future. First DataBank also agreed to contribute $2
million to a settlement fund and for legal fees. First DataBank, independent of
the settlement, announced that it would, of its own volition, reduce to 20% the
mark-up on all drugs with a mark-up higher than 20% and stop publishing AWP
within two years after the changes in mark-up are implemented. On June 3, 2008,
the Court granted preliminary approval to the revised settlement, and on July
23, 2008 the Court approved the process for class notification. The matter is
still subject to opposition by others, a fairness hearing which has been
scheduled for December 17, 2008, and final approval.

The Company is
monitoring these cases for further developments and evaluating potential
implications and/or actions that may be required, including any adverse effect
on the Companys reimbursement for drugs and biologicals and any actions that
may be taken to offset or otherwise mitigate such impact. 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.

83

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

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

A summary of
the Companys repurchases of Omnicare, Inc. common stock during the quarter
ended June 30, 2008 is as follows (in thousands, except per share data):

|                    |  |                                            |       |                                |   |                                                                                                   |  |                                                                                                                           |       |  |   |         | 
|------------------- |  | ------------------------------------------ | ----- | ------------------------------ | - | ------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------- | ----- |  | - | ------- | 
|Period              |  | Total Number 
 of Shares 
 Purchased(a)(b) |       | Average 
 Price Paid per Share |   | Total Number 
 of Shares 
 Purchased as 
 Part of 
 Publicly 
 Announced 
 Plans or 
 Programs(b) |  | Maximum Number (or 
 Approximate Dollar 
 Value) of Shares that 
 May Yet Be Purchased 
 Under the Plans or 
 Programs(b) |      
|                    |  |                                            |       |                                |   |                                                                                                   |  |                                                                                                                           |      
|April 1 - 30,
 2008 |  |                                            |      |                                | $ |                                                                                                  |  |                                                                                                                           |      |  | $ | 100,000 | 
|May 1 - 31,
 2008   |  |                                            | 4,144 |                                |   | 24.22                                                                                             |  |                                                                                                                           | 4,136 |  |   |        | 
|June 1 - 30,
 2008  |  |                                            |      |                                |   |                                                                                                  |  |                                                                                                                           |      |  |   |        | 
|                    |  |                                            |       |                                |   |                                                                                                   |  |                                                                                                                           |       |  |   |         | 
|Total               |  |                                            | 4,144 |                                | $ | 24.22                                                                                             |  |                                                                                                                           | 4,136 |  | $ |        | 
|                    |  |                                            |       |                                |   |                                                                                                   |  |                                                                                                                           |       |  |   |         | 

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | During the
 second quarter of 2008, the Company purchased 8 shares of Omnicare common
 stock in connection with its employee benefit plans, including any purchases
 associated with the vesting of restricted stock awards. These purchases were
 not made pursuant to a publicly announced repurchase plan or program.                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(b) | On March 27,
 2008, the Company announced that its Board of Directors authorized a new
 program to repurchase, from time to time, shares of Omnicares outstanding
 common stock having an aggregate value of up to $100 million, depending on
 market conditions and other factors. During the second quarter of 2008, the
 Company purchased 4,136 shares of Omnicare common stock in connection with
 this program. Accordingly, as of June 30, 2008, the Company had utilized the
 full amount of share repurchase authority and successfully completed the
 program.

84

---



ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS

(a) Omnicare
held its Annual Meeting of Stockholders on May 23, 2008.

(b) The names
of each director elected at this Annual Meeting, as well as the corresponding
number of shares voted for, and withheld from, each nominee follows:

|                              |             |  |               
|----------------------------- | ----------- |  | --------------
|                              | Votes For   |  | Votes Withheld
|                              |             |  |               
|John T.
 Crotty               | 98,297,310  |  | 11,082,907    
|Joel F.
 Gemunder             | 96,549,254  |  | 12,830,963    
|Steven J.
 Heyer              | 108,708,847 |  | 671,370       
|Sandra E.
 Laney              | 98,246,235  |  | 11,133,982    
|Andrea R.
 Lindell, Ph.D., RN | 98,218,954  |  | 11,161,263    
|James D.
 Shelton             | 108,760,016 |  | 620,201       
|John H.
 Timoney              | 98,304,309  |  | 11,075,908    
|Jeffrey W.
 Ubben             | 106,977,376 |  | 2,402,841     
|Amy Wallman                   | 98,322,364  |  | 11,057,853    

(c) The
Stockholders ratified the appointment by the Audit Committee of the Board of
Directors of PricewaterhouseCoopers LLP as independent registered public
accountants for the Company and its consolidated subsidiaries for the 2008
year. A total of 98,637,902 votes were cast in favor of the proposal; 206,041
votes were cast against it; 10,536,274 votes abstained; and there were no
Broker non-votes.

ITEM 6 - EXHIBITS

See Index of
Exhibits.

85

---



SIGNATURE

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

| |                
| | ---------------
| | Omnicare,
 Inc.
| |                
| | Registrant     

|                     |     |                           
|-------------------- | --- | --------------------------
|Date: July
 31, 2008 | By: | /s/ David W.
 Froesel, Jr.
|                     |     |                           
|                     |     | David W. Froesel, Jr.     
|                     |     | Senior Vice President and 
|                     |     | Chief Financial Officer   
|                     |     | (Principal Financial and  
|                     |     | Accounting Officer)       

---



INDEX OF EXHIBITS

|                                                                                       |  |                                                                                                                                              |  |                             
|-------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------
|Number and
 Description of Exhibit
 (Numbers Coincide with Item 601 of Regulation S-K) |  | Document
 Incorporated by Reference
 from a Previous Filing, Filed
 Herewith or Furnished Herewith, as
 Indicated Below                     
|                                                                                       |  |                                                                                                                                             
|                                                                                       |  |                                                                                                                                              |  |                             
|(3.1)                                                                                  |  | Restated Certificate of Incorporation of Omnicare,
 Inc. (as amended)                                                                        |  | Form 10-K
 March 27, 2003   
|                                                                                       |  |                                                                                                                                              |  |                             
|(3.3)                                                                                  |  | Second Amended and Restated By-Laws of Omnicare,
 Inc.                                                                                       |  | Form 10-Q
 November 14, 2003
|                                                                                       |  |                                                                                                                                              |  |                             
|(12)                                                                                   |  | Statement of Computation of Ratio of Earnings to
 Fixed Charges                                                                              |  | Filed Herewith              
|                                                                                       |  |                                                                                                                                              |  |                             
|(31.1)                                                                                 |  | Rule 13a-14(a) Certification of Chief Executive
 Officer of Omnicare, Inc. in accordance with Section 302 of the
 Sarbanes-Oxley Act of 2002 |  | Filed Herewith              
|                                                                                       |  |                                                                                                                                              |  |                             
|(31.2)                                                                                 |  | Rule 13a-14(a) Certification of Chief Financial
 Officer of Omnicare, Inc. in accordance with Section 302 of the
 Sarbanes-Oxley Act of 2002 |  | Filed Herewith              
|                                                                                       |  |                                                                                                                                              |  |                             
|(32.1)                                                                                 |  | Section 1350 Certification of Chief Executive
 Officer of Omnicare, Inc. in accordance with Section 906 of the
 Sarbanes-Oxley Act of 2002** |  | Furnished Herewith          
|                                                                                       |  |                                                                                                                                              |  |                             
|(32.2)                                                                                 |  | Section 1350 Certification of Chief Financial
 Officer of Omnicare, Inc. in accordance with Section 906 of the
 Sarbanes-Oxley Act of 2002** |  | Furnished Herewith          

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

E-1

---



EXHIBIT
12

|                                                               
|---------------------------------------------------------------
|Statement
 of Computation of Ratio of Earnings to Fixed Charges
|Omnicare,
 Inc. and Subsidiary Companies                       
|(in
 thousands, except ratios)                                 
|Unaudited                                                      

|                                       |  |                              |         |                            |   |         |     |      |         |     |   |         |    
|-------------------------------------- |  | ---------------------------- | ------- | -------------------------- | - | ------- | --- | ---- | ------- | --- | - | ------- | ---
|                                       |  | Three months ended
 June 30, |         | Six months ended
 June 30, |  
|                                       |  |                              |         |                            |  
|                                       |  | 2008                         |         | 2007                       |   | 2008    |     | 2007 |        
|                                       |  |                              |         |                            |   |         |     |      |        
|Income before
 income taxes            |  | $                            | 58,378  | (1)                        | $ | 81,354  | (1) | $    | 108,177 | (1) | $ | 150,913 | (1)
|Add fixed
 charges:                    |  |                              |         |                            |   |         |     |      |         |     |   |         |    
|Interest expense                       |  |                              | 33,904  |                            |   | 39,682  |     |      | 68,923  |     |   | 79,693  |    
|Amortization of
 debt expense          |  |                              | 2,036   |                            |   | 2,036   |     |      | 4,073   |     |   | 4,073   |    
|Interest portion
 of rent expense      |  |                              | 6,703   |                            |   | 6,223   |     |      | 13,168  |     |   | 12,254  |    
|                                       |  |                              |         |                            |   |         |     |      |         |     |   |         |    
|                                       |  |                              |         |                            |   |         |     |      |         |     |   |         |    
|Adjusted income                        |  | $                            | 101,021 |                            | $ | 129,295 |     | $    | 194,341 |     | $ | 246,933 |    
|                                       |  |                              |         |                            |   |         |     |      |         |     |   |         |    
|                                       |  |                              |         |                            |   |         |     |      |         |     |   |         |    
|Fixed charges:                         |  |                              |         |                            |   |         |     |      |         |     |   |         |    
|Interest expense                       |  | $                            | 33,904  |                            | $ | 39,682  |     | $    | 68,923  |     | $ | 79,693  |    
|Amortization of
 debt expense          |  |                              | 2,036   |                            |   | 2,036   |     |      | 4,073   |     |   | 4,073   |    
|Interest portion
 of rent expense      |  |                              | 6,703   |                            |   | 6,223   |     |      | 13,168  |     |   | 12,254  |    
|                                       |  |                              |         |                            |   |         |     |      |         |     |   |         |    
|                                       |  |                              |         |                            |   |         |     |      |         |     |   |         |    
|Fixed charges                          |  | $                            | 42,643  |                            | $ | 47,941  |     | $    | 86,164  |     | $ | 96,020  |    
|                                       |  |                              |         |                            |   |         |     |      |         |     |   |         |    
|                                       |  |                              |         |                            |   |         |     |      |         |     |   |         |    
|Ratio of
 earnings to fixed charges(2) |  |                              | 2.4     | x                          |   | 2.7     | x   |      | 2.3     | x   |   | 2.6     | x  
|                                       |  |                              |         |                            |   |         |     |      |         |     |   |         |    

|                                                                               | 
|------------------------------------------------------------------------------ | 
|(1) Income before income taxes includes the
 following special pretax charges:

|                                                   |  |                              |        |                            |   |       |  |      |        |  |   |        | 
|-------------------------------------------------- |  | ---------------------------- | ------ | -------------------------- | - | ----- |  | ---- | ------ |  | - | ------ | 
|                                                   |  | Three months ended
 June 30, |        | Six months ended
 June 30, |  
|                                                   |  |                              |        |                            |  
|                                                   |  | 2008                         |        | 2007                       |   | 2008  |  | 2007 |       
|                                                   |  |                              |        |                            |   |       |  |      |       
|Restructuring and other related charges (a)        |  | $                            | 10,784 |                            | $ | 6,250 |  | $    | 17,232 |  | $ | 15,424 | 
|Litigation and other related professional fees (b) |  |                              | 16,022 |                            |   | 9,010 |  |      | 37,664 |  |   | 15,917 | 
|Heartland matters (b)                              |  |                              | 1,740  |                            |   | 4,911 |  |      | 3,633  |  |   | 10,703 | 

|                                                                                                                   | 
|------------------------------------------------------------------------------------------------------------------ | 
|(a) See the Restructuring and Other Related Charges
 note of the Notes to the Consolidated Financial Statements.
|                                                                                                                   | 
|(b) See the Commitments and Contingencies note of the
 Notes to the Consolidated Financial Statements.          

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

E-2

---