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

(Mark One)

x QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934  For the quarterly period ended March 31, 2006 or


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


Commission File Number 1-8269

| |                                                                                      |  |                                      | 
| | ------------------------------------------------------------------------------------ |  | ------------------------------------ | 
| | OMNICARE,
  INC.                                                                     | 
| |                                                                                      | 
| | (Exact
  name of registrant as specified in its charter)                             | 
|
| | Delaware                                                                             |  | 31-1001351                           | 
| |                                                                                      |  |                                      | 
| | (State
  or other jurisdiction of
  incorporation or organization)                   |  | (I.R.S. Employer Identification No.) | 
| |                                                                                      |  |                                      | 
| | 100
  East RiverCenter Boulevard, Covington, Kentucky 41011                          | 
| |                                                                                      | 
| | (Address of principal executive
  offices)                    (Zip
  Code)           | 
| |                                                                                      |  |                                      | 
| | (859)
  392-3300                                                                     | 
| |                                                                                      | 
| | (Registrants
  telephone number, 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 or a
non-accelerated filer. See definition of accelerated filer and large
accelerated filer in Rule 12b-2 of the Exchange Act (Check one):

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

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

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

Yes o No o

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

COMMON
STOCK OUTSTANDING

|                           |  |                    |             |      |  |                  | 
|-------------------------- |  | ------------------ | ----------- | ---- |  | ---------------- | 
|                           |  | Number of
  Shares |             | Date | 
|                           |  |                    |             |      | 
|Common Stock, $1 par value |  |                    | 121,143,420 |      |  | March
  31, 2006 | 

---



OMNICARE, INC. AND

SUBSIDIARY COMPANIES

INDEX

|         |          |                        |                                                                                                      |  |      | 
|-------- | -------- | ---------------------- | ---------------------------------------------------------------------------------------------------- |  | ---- | 
|         |          |                        |                                                                                                      |  | PAGE
|         |          |                        |                                                                                                      |  |     
|         |          |                        |                                                                                                      |  |      | 
|PART I.  |          | FINANCIAL INFORMATION: |                                                                                                      |  |     
|         |          |                        |                                                                                                      |  |      | 
|         | ITEM 1.  |                        | FINANCIAL STATEMENTS (UNAUDITED)                                                                     |  |      | 
|         |          |                        |                                                                                                      |  |      | 
|         |          |                        | Consolidated
        Statements of Income 
        Three months ended  March 31, 2006 and 2005     |  | 3    | 
|         |          |                        |                                                                                                      |  |      | 
|         |          |                        | Consolidated
        Balance Sheets 
        March 31, 2006 and December 31, 2005                   |  | 4    | 
|         |          |                        |                                                                                                      |  |      | 
|         |          |                        | Consolidated
        Statements of Cash Flows 
        Three months ended  March 31, 2006 and 2005 |  | 5    | 
|         |          |                        |                                                                                                      |  |      | 
|         |          |                        | Notes to Consolidated Financial
        Statements                                                   |  | 6    | 
|         |          |                        |                                                                                                      |  |      | 
|         | ITEM 2.  |                        | MANAGEMENTS
        DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS        |  | 33   | 
|         |          |                        |                                                                                                      |  |      | 
|         | ITEM 3.  |                        | QUANTITATIVE
        AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                   |  | 61   | 
|         |          |                        |                                                                                                      |  |      | 
|         | ITEM 4.  |                        | CONTROLS AND PROCEDURES                                                                              |  | 63   | 
|         |          |                        |                                                                                                      |  |      | 
|PART II. |          | OTHER INFORMATION:     |                                                                                                      |  |     
|         |          |                        |                                                                                                      |  |      | 
|         | ITEM 1.  |                        | LEGAL PROCEEDINGS                                                                                    |  | 64   | 
|         |          |                        |                                                                                                      |  |      | 
|         | ITEM 1A. |                        | RISK FACTORS                                                                                         |  | 65   | 
|         |          |                        |                                                                                                      |  |      | 
|         | ITEM 2.  |                        | UNREGISTERED
        SALE OF EQUITY SECURITIES AND USE OF PROCEEDS                                   |  | 68   | 
|         |          |                        |                                                                                                      |  |      | 
|         | ITEM 6.  |                        | EXHIBITS                                                                                             |  | 68   | 

---



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,
        March 31, |          
|                                                              |  |                                               |          
|                                                              |  | 2006                                          |           | 2005 |  
|                                                              |  |                                               |           |      |  
|                                                              |  |                                               |           |      |   |           |  
|Net
        sales                                             |  | $                                             | 1,658,598 |      | $ | 1,096,146 |  
|                                                             
|Cost
        of sales                                         |  |                                               | 1,242,083 |      |   | 826,824   |  
|                                                              |  |                                               |           |      |   |           |  
|Gross
        profit                                          |  |                                               | 416,515   |      |   | 269,322   |  
|                                                             
|Selling,
        general and administrative expenses          |  |                                               | 247,342   |      |   | 157,759   |  
|Restructuring
        and other related charges (Note 10)     |  |                                               | 7,713     |      |   |          |  
|Litigation
        charge (Note 2 and Note 11)                |  |                                               | 34,100    |      |   |          |  
|                                                              |  |                                               |           |      |   |           |  
|Operating
        income                                      |  |                                               | 127,360   |      |   | 111,563   |  
|                                                              |  |                                               |           |      |   |           |  
|Investment
        income                                     |  |                                               | 1,799     |      |   | 1,153     |  
|Interest
        expense                                      |  |                                               | (42,412   | )    |   | (19,919   | )
|                                                              |  |                                               |           |      |   |           |  
|Income
        before income taxes                            |  |                                               | 86,747    |      |   | 92,797    |  
|                                                              |  |                                               |           |      |   |           |  
|Income
        tax provision                                  |  |                                               | 33,516    |      |   | 34,802    |  
|                                                              |  |                                               |           |      |   |           |  
|Net
        income                                            |  | $                                             | 53,231    |      | $ | 57,995    |  
|                                                              |  |                                               |           |      |   |           |  
|                                                              |  |                                               |           |      |   |           |  
|Earnings
        per share:                                   |  |                                               |           |      |   |           |  
|Basic                                                         |  | $                                             | 0.45      |      | $ | 0.57      |  
|                                                              |  |                                               |           |      |   |           |  
|                                                             
|Diluted
        (Note 4)                                      |  | $                                             | 0.43      |      | $ | 0.54      |  
|                                                              |  |                                               |           |      |   |           |  
|                                                             
|Dividends
        per common share                            |  | $                                             | 0.0225    |      | $ | 0.0225    |  
|                                                              |  |                                               |           |      |   |           |  
|Weighted
        average number of common shares outstanding: |  |                                               |           |      |   |           |  
|                                                             
|Basic                                                         |  |                                               | 117,911   |      |   | 101,759   |  
|                                                              |  |                                               |           |      |   |           |  
|                                                             
|Diluted
        (Note 4)                                      |  |                                               | 123,595   |      |   | 109,940   |  
|                                                              |  |                                               |           |      |   |           |  
|                                                             
|Comprehensive
        income                                  |  | $                                             | 50,879    |      | $ | 57,180    |  
|                                                              |  |                                               |           |      |   |           |  

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

3

---



CONSOLIDATED BALANCE SHEETS
OMNICARE, INC. AND SUBSIDIARY COMPANIES
UNAUDITED

(in thousands, except share
data)

|                                                                                                                        |  |                  |           |                     |   |           |  
|----------------------------------------------------------------------------------------------------------------------- |  | ---------------- | --------- | ------------------- | - | --------- | -
|                                                                                                                        |  | March 31,
  2006 |           | December 31,
  2005 |  
|                                                                                                                        |  |                  |           |                     |  
|ASSETS                                                                                                                  |  |                  |           |                     |   |           |  
|Current assets:                                                                                                         |  |                  |           |                     |   |           |  
|Cash and cash equivalents                                                                                               |  | $                | 315,500   |                     | $ | 215,421   |  
|Restricted cash                                                                                                         |  |                  | 12,151    |                     |   | 2,674     |  
|Deposits with drug wholesalers                                                                                          |  |                  | 44,740    |                     |   | 83,036    |  
|Accounts receivable, less allowances of $170,005
(2005-$169,390)                                                        |  |                  | 1,394,972 |                     |   | 1,260,634 |  
|Unbilled receivables                                                                                                    |  |                  | 20,828    |                     |   | 17,195    |  
|Inventories                                                                                                             |  |                  | 476,427   |                     |   | 473,942   |  
|Deferred income tax benefits                                                                                            |  |                  | 116,557   |                     |   | 107,967   |  
|Other current assets                                                                                                    |  |                  | 176,322   |                     |   | 200,026   |  
|                                                                                                                        |  |                  |           |                     |   |           |  
|Total current assets                                                                                                    |  |                  | 2,557,497 |                     |   | 2,360,895 |  
|                                                                                                                        |  |                  |           |                     |   |           |  
|Properties and equipment, at cost less accumulated depreciation of
  $265,215(2005-$252,489)                            |  |                  | 222,770   |                     |   | 231,734   |  
|Goodwill                                                                                                                |  |                  | 4,071,714 |                     |   | 4,029,482 |  
|Identifiable intangible assets, less accumulated amortization of
  $54,007(2005-$45,153)                                |  |                  | 332,070   |                     |   | 339,474   |  
|Other noncurrent assets                                                                                                 |  |                  | 194,992   |                     |   | 195,820   |  
|                                                                                                                        |  |                  |           |                     |   |           |  
|Total noncurrent assets                                                                                                 |  |                  | 4,821,546 |                     |   | 4,796,510 |  
|                                                                                                                        |  |                  |           |                     |   |           |  
|Total assets                                                                                                            |  | $                | 7,379,043 |                     | $ | 7,157,405 |  
|                                                                                                                        |  |                  |           |                     |   |           |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                    |  |                  |           |                     |   |           |  
|Current liabilities:                                                                                                    |  |                  |           |                     |   |           |  
|Accounts payable                                                                                                        |  | $                | 391,835   |                     | $ | 397,471   |  
|Accrued employee compensation                                                                                           |  |                  | 66,646    |                     |   | 56,063    |  
|Deferred revenue                                                                                                        |  |                  | 26,554    |                     |   | 24,857    |  
|Current debt (Note 7)                                                                                                   |  |                  | 357,854   |                     |   | 355,943   |  
|Other current liabilities and income taxes payable                                                                      |  |                  | 235,746   |                     |   | 166,170   |  
|                                                                                                                        |  |                  |           |                     |   |           |  
|Total current liabilities                                                                                               |  |                  | 1,078,635 |                     |   | 1,000,504 |  
|                                                                                                                        |  |                  |           |                     |   |           |  
|Long-term debt                                                                                                          |  |                  | 750,968   |                     |   | 752,901   |  
|8.125% senior subordinated notes, due 2011                                                                              |  |                  | 8,225     |                     |   | 8,775     |  
|6.125% senior subordinated notes, net, due 2013                                                                         |  |                  | 224,401   |                     |   | 230,216   |  
|6.75% senior subordinated notes, due 2013                                                                               |  |                  | 225,000   |                     |   | 225,000   |  
|6.875% senior subordinated notes, due 2015                                                                              |  |                  | 525,000   |                     |   | 525,000   |  
|4.00% junior subordinated convertible debentures, due 2033 (Note
7)                                                     |  |                  |          |                     |   |          |  
|3.25% convertible senior debentures, due 2035                                                                           |  |                  | 977,500   |                     |   | 977,500   |  
|Deferred income tax liabilities                                                                                         |  |                  | 265,074   |                     |   | 249,034   |  
|Other noncurrent liabilities                                                                                            |  |                  | 270,181   |                     |   | 246,429   |  
|                                                                                                                        |  |                  |           |                     |   |           |  
|Total noncurrent liabilities                                                                                            |  |                  | 3,246,349 |                     |   | 3,214,855 |  
|                                                                                                                        |  |                  |           |                     |   |           |  
|Total liabilities                                                                                                       |  |                  | 4,324,984 |                     |   | 4,215,359 |  
|                                                                                                                        |  |                  |           |                     |   |           |  
|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,
124,046,500
  shares issued (2005-122,619,100 shares issued) |  |                  | 124,047   |                     |   | 122,619   |  
|Paid-in capital                                                                                                         |  |                  | 1,857,960 |                     |   | 1,861,483 |  
|Retained earnings                                                                                                       |  |                  | 1,178,421 |                     |   | 1,127,915 |  
|Treasury stock, at cost-2,903,100 shares (2005-2,737,100
shares)                                                        |  |                  | (89,368   | )                   |   | (78,418   | )
|Deferred compensation
        (Note 3)                                                                                  |  |                  |          |                     |   | (76,904   | )
|Accumulated other comprehensive income                                                                                  |  |                  | (17,001   | )                   |   | (14,649   | )
|                                                                                                                        |  |                  |           |                     |   |           |  
|Total stockholders equity                                                                                              |  |                  | 3,054,059 |                     |   | 2,942,046 |  
|                                                                                                                        |  |                  |           |                     |   |           |  
|Total liabilities and stockholders equity                                                                              |  | $                | 7,379,043 |                     | $ | 7,157,405 |  
|                                                                                                                        |  |                  |           |                     |   |           |  

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

4

---



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

(in thousands)

|                                                                                                          |  |                                 |          |      |   |          |  
|--------------------------------------------------------------------------------------------------------- |  | ------------------------------- | -------- | ---- | - | -------- | -
|                                                                                                          |  | Three months ended,
  March 31, |         
|                                                                                                          |  |                                 |         
|                                                                                                          |  | 2006                            |          | 2005 |  
|                                                                                                          |  |                                 |          |      |  
|Cash flows from operating activities:                                                                     |  |                                 |          |      |   |          |  
|Net income                                                                                                |  | $                               | 53,231   |      | $ | 57,995   |  
|Adjustments to reconcile net income to net cash flows from operating
  activities:                        |  |                                 |          |      |   |          |  
|Depreciation                                                                                              |  |                                 | 14,382   |      |   | 8,194    |  
|Amortization                                                                                              |  |                                 | 16,516   |      |   | 6,075    |  
|Provision for doubtful accounts                                                                           |  |                                 | 17,094   |      |   | 12,409   |  
|Deferred tax provision                                                                                    |  |                                 | 8,463    |      |   | 14,068   |  
|Changes in assets and liabilities, net of effects from acquisition of
  businesses:                       |  |                                 |          |      |   |          |  
|Accounts receivable and unbilled receivables                                                              |  |                                 | (158,186 | )    |   | (54,829  | )
|Inventories                                                                                               |  |                                 | (766     | )    |   | 8,428    |  
|Deposits with drug wholesalers                                                                            |  |                                 | 38,296   |      |   |         |  
|Current and noncurrent assets                                                                             |  |                                 | 24,035   |      |   | (15,630  | )
|Accounts payable                                                                                          |  |                                 | (13,790  | )    |   | 3,019    |  
|Accrued employee compensation                                                                             |  |                                 | 22,007   |      |   | 7,605    |  
|Deferred revenue                                                                                          |  |                                 | 1,697    |      |   | (1,025   | )
|Income taxes payable                                                                                      |  |                                 | 303      |      |   | 4,830    |  
|Current and noncurrent liabilities                                                                        |  |                                 | 59,495   |      |   | 13,915   |  
|                                                                                                          |  |                                 |          |      |   |          |  
|Net cash flows from operating activities                                                                  |  |                                 | 82,777   |      |   | 65,054   |  
|                                                                                                          |  |                                 |          |      |   |          |  
|                                                                                                          |  |                                 |          |      |   |          |  
|Cash flows from investing activities:                                                                     |  |                                 |          |      |   |          |  
|Acquisition of businesses, net of cash received                                                           |  |                                 | (23,201  | )    |   | (28,180  | )
|Capital expenditures                                                                                      |  |                                 | (6,109   | )    |   | (3,133   | )
|Transfer of cash to trusts for employee health and severance costs,
  net of payments out of the trust    |  |                                 | (9,871   | )    |   | (5,522   | )
|Other                                                                                                     |  |                                 | 82       |      |   | 34       |  
|                                                                                                          |  |                                 |          |      |   |          |  
|Net cash flows from investing activities                                                                  |  |                                 | (39,099  | )    |   | (36,801  | )
|                                                                                                          |  |                                 |          |      |   |          |  
|                                                                                                          |  |                                 |          |      |   |          |  
|Cash flows from financing activities:                                                                     |  |                                 |          |      |   |          |  
|Borrowings on line of credit facilities and term A loan                                                   |  |                                 | 133,000  |      |   | 157,000  |  
|Payments on line of credit facilities and term A loan                                                     |  |                                 | (133,000 | )    |   | (163,154 | )
|Proceeds from long-term borrowings and obligations                                                        |  |                                 | 63       |      |   | 41,345   |  
|Payments on long-term borrowings and obligations                                                          |  |                                 | (584     | )    |   | (35      | )
|Fees paid for financing arrangements                                                                      |  |                                 | (2,052   | )    |   | (1,454   | )
|Change in cash overdraft balance                                                                          |  |                                 | 8,423    |      |   | (1,645   | )
|Proceeds from stock offering, net of issuance costs                                                       |  |                                 | 49,239   |      |   |         |  
|Proceeds from stock awards and exercise of stock options and
warrants,
  net of stock tendered in payment |  |                                 | (6,030   | )    |   | 605      |  
|Excess tax benefits from stock-based compensation                                                         |  |                                 | 10,021   |      |   |         |  
|Dividends paid                                                                                            |  |                                 | (2,725   | )    |   | (2,358   | )
|                                                                                                          |  |                                 |          |      |   |          |  
|Net cash flows from financing activities                                                                  |  |                                 | 56,355   |      |   | 30,304   |  
|                                                                                                          |  |                                 |          |      |   |          |  
|                                                                                                          |  |                                 |          |      |   |          |  
|Effect of exchange rate changes on cash                                                                   |  |                                 | 46       |      |   | 297      |  
|                                                                                                          |  |                                 |          |      |   |          |  
|Net increase in cash and cash equivalents                                                                 |  |                                 | 100,079  |      |   | 58,854   |  
|Cash and cash equivalents at beginning of year                                                            |  |                                 | 215,421  |      |   | 84,169   |  
|                                                                                                          |  |                                 |          |      |   |          |  
|                                                                                                          |  |                                 |          |      |   |          |  
|Cash and cash equivalents at end of year                                                                  |  | $                               | 315,500  |      | $ | 143,023  |  
|                                                                                                          |  |                                 |          |      |   |          |  

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

5

---



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

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

Interim Financial Data

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

Description of Business and Summary of Significant Accounting Policies

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

Stock-Based Compensation

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

SFAS
123R requires the Company to record compensation costs relating to share-based
payment transactions in its financial statements. Under the fair value
recognition provisions of SFAS 123R, share-based compensation cost is measured
at the grant date based on the fair value of the award and is recognized as
expense ratably over the requisite service period of the award (usually the
vesting period). The Company elected the modified prospective method of
implementing SFAS 123R, which requires that SFAS 123R be applied to all new
awards whose

6

---



inception date
follows the effective date of January 1, 2006, and all existing awards
modified, repurchased or cancelled after January 1, 2006. In addition, this
method requires compensation cost for the portion of awards for which service
has not been rendered (i.e., nonvested portion) and were outstanding as of
January 1, 2006. Estimated compensation for awards that were outstanding as of
January 1, 2006 will be recognized over the remaining service period using the
compensation cost estimate included in the SFAS 123 pro forma disclosures at
the time the awards were issued. In accordance with the modified prospective
method, the Companys Consolidated Financial Statements for prior periods have
not been restated to reflect the adoption of SFAS 123R.

Operating
  income for the three months ended March 31, 2006, includes additional share-based
  compensation expense for stock options and stock awards of approximately $2.9
  million before taxes related to the adoption of SFAS 123R. See the Stock-Based
  Employee Compensation note for further information regarding our stock-based
  compensation assumptions and expenses, including pro forma disclosures for the
  comparable prior year period as if we had recorded stock-based compensation
  expense.

Concentration of Credit Risk

The
  new prescription drug benefit under Medicare Part D (Part D) became
  effective on January 1, 2006. As a result, Omnicare experienced a significant
  shift in payor mix during the quarter ended March 31, 2006, as Part D currently
  represents over 40% of Omnicares overall revenues. Prior to the implementation
  of the new Medicare Part D program, most of these residents were reimbursed
  under state Medicaid programs and, to a lesser extent, private pay sources.

Under
  the new Part D benefit, payment is determined in accordance with the agreements
  Omnicare has negotiated with the Part D Plans. The remainder of Omnicares
  billings are paid or reimbursed by individual residents, long-term care facilities
  (including revenues for residents funded under Medicare Part A) and other third
  party payors, including private insurers. The Medicaid and Medicare programs
  are highly regulated. The failure, even if inadvertent, of Omnicare and/or client
  facilities to comply with applicable reimbursement regulations could adversely
  affect Omnicares reimbursement under these programs and Omnicares
  ability to continue to participate in these programs. In addition, failure to
  comply with these regulations could subject the Company to other penalties.

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 negotiate agreements with Part D Plans.
Moreover, as expected in the transition to a new program of this magnitude,
certain administrative and payment issues have arisen. Until all such
agreements are finalized and Medicare beneficiaries complete enrollment in the
Plans, and until these administrative and payment issues have been resolved,
the Company will not be able to determine the impact of the

7

---



new Part D Drug Benefit on the Companys results of operations,
  financial condition and cash flows.

Recently Issued Accounting Standards

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

|                    | 
|------------------- | 
|2. Subsequent Event

On
  May 10, 2006, the Company announced that it has recorded a special litigation
  charge of $34.1 million pretax ($24 million aftertax) in its financial results
  for the quarter ended March 31, 2006 to establish a settlement reserve relating
  to previously disclosed inquiries by the federal government and certain states
  relating to three generic pharmaceuticals provided by the Company, based on
  recent discussions between these government representatives and the Companys
  legal counsel during May 2006. As previously disclosed, the inquiries relate
  to the substitution of capsules for tablets (Ranitidine), tablets for capsules
  (Fluoxetine) and two 7.5 mg tablets for one 15 mg tablet (Buspirone). This special
  litigation charge represents the Companys current best estimate of potential
  settlement amounts and associated costs under SFAS No. 5, Accounting for
  Contingencies. The Company cannot predict the ultimate outcome of this
  matter. See further discussion at the Commitments and Contingencies
  note of the Notes to Consolidated Financial Statements.

|                                     | 
|------------------------------------ | 
|3. Stock-Based Employee Compensation

SFAS 123R Adoption

At
  March 31, 2006, the Company had four stock-based employee compensation plans
  under which incentive awards were outstanding, which are described more fully
  below. Omnicare believes that the incentive awards issued under these plans
  serve to better align the interests of its employees with those of its stockholders.
  Prior to January 1, 2006, the Company accounted for those plans under the recognition
  and measurement provisions of APB 25, and related Interpretations (intrinsic
  value method). As a result, no stock-based employee compensation cost for stock
  options was reflected in net income, as all options granted under the plans
  had an exercise price equal to or greater than the market value of the underlying
  common stock on the date of grant. Effective January 1, 2006, the Company adopted
  the fair value recognition provisions of SFAS 123R as further described in the
  Interim Financial Data, Description of Business and Summary of Significant
  Accounting Policies note of the Notes to Consolidated Financial Statements.

Stock-Based Employee Compensation Plans

During
2004, stockholders of the Company approved the 2004 Stock and Incentive Plan,
under which the Company is authorized to grant equity-based and other incentive
compensation to employees, officers, directors, consultants and advisors of the
Company in an amount aggregating up to 10 million shares of Company common
stock. Beginning May 18, 2004, stock-based incentive awards are made only from
the 2004 Stock and Incentive Plan.

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

During
1995, the Companys Board of Directors and stockholders approved the 1995
Premium-Priced Stock Option Plan, providing options to purchase 2.5 million
shares of

8

---



Company common
stock available for grant at an exercise price of 125% of the stocks fair
market value at the date of grant.

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

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

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

Employee Stock Purchase Plan

In
November 1999, the Companys Board of Directors adopted the Omnicare StockPlus
Program, a non-compensatory employee stock purchase plan (the ESPP). Under
the ESPP, employees and non-employee directors of the Company who elect to
participate may contribute up to 6% of eligible compensation (or an amount not
to exceed $20,000 for non-employee directors) to purchase shares of the
Companys common stock. For each share of stock purchased, the participant also
receives two options to purchase additional shares of the Companys stock. The
stock options are subject to a four-year vesting period and are generally
subject to forfeiture in the event the related shares purchased are not held by
the participant for a minimum of two years. The stock options have a ten-year
life from the date of issuance. Amounts contributed to the ESPP are used by the
plan administrator to purchase the Companys stock on the open market. Prior to
May 18, 2004, stock options awarded under the ESPP were issued out of the
1992-Long-Term Stock Incentive Plan and the 1998 Long-Term Employee Incentive
Plan. Beginning May 18, 2004, stock options under the ESPP are only issued out
of the 2004 Stock and Incentive Plan.

Stock Awards

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

9

---



Stock-Based Compensation

As
  discussed in the “Interim Financial Data, Description of Business and
  Summary of Significant Accounting Policies” note of the Notes to Consolidated
  Financial Statements, effective January 1, 2006, the Company adopted the provisions
  of SFAS 123R, which requires the Company to record compensation costs relating
  to share-based payment transactions, including stock options, in its financial
  statements, based on estimated fair values. The Company currently uses the Black-Scholes
  options pricing model to determine the fair value of stock options on the grant
  date, which is affected by Omnicares stock price as well as assumptions
  regarding a number of complex and subjective variables, as further discussed
  below. These variables include Omnicares expected stock price volatility
  over the expected term of the awards, actual and projected employee exercise
  behaviors, the risk-free interest rate and the stocks dividend yield.

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

The
assumptions used to value stock options granted during the three months ended
March 31, 2006 and 2005 are as follows:

|                                                       |  |                                  |       |      |   |       |  
|------------------------------------------------------ |  | -------------------------------- | ----- | ---- | - | ----- | -
|                                                       |  | Three
  months ended
  March 31, |      
|                                                       |  |                                  |      
|                                                       |  | 2006                             |       | 2005 |  
|                                                       |  |                                  |       |      |  
|Expected volatility                                    |  |                                  | 30    | %    |   | 47    | %
|Risk-free interest rate                                |  |                                  | 4.7   | %    |   | 4.1   | %
|Expected dividend yield                                |  |                                  | 0.2   | %    |   | 0.3   | %
|Expected term of stock
  options (in years)            |  |                                  | 4.6   |      |   | 5.1   |  
|Weighted-average fair
  value of stock options granted |  | $                                | 16.93 |      | $ | 14.25 |  

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

10

---



Total
stock-based compensation expense recognized in the Consolidated Statement of
Income for the three months ended March 31, 2006 is $6.7 million pretax
(approximately $4.3 million aftertax) and is classified as selling, general and
administrative expenses.

The
following table illustrates the effect on net income and earnings per share,
for the three months ended March 31, 2005, if the Company had accounted for
share-based payment transactions under the fair value recognition provisions of
SFAS 123, as
amended by SFAS No. 148, Accounting for Stock-Based Compensation-Transition
and Disclosure-an amendment of SFAS 123 (SFAS 148) (in thousands, except per
share data):

|                                                                                                                                                                |  |      |        |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------ | -
|                                                                                                                                                                |  | 2005 |       
|                                                                                                                                                                |  |      |       
|Net income, as reported                                                                                                                                         |  | $    | 57,995 |  
|                                                                                                                                                                |  |      |        |  
|Add: Stock-based employee compensation expense (stock awards) included
  in reported net income, net of related tax effects                                     |  |      | 1,411  |  
|Deduct: Total stock-based employee compensation expense (stock
options
  and awards) determined under the fair value based method, net of related tax
  effects |  |      | (6,845 | )
|                                                                                                                                                                |  |      |        |  
|Pro forma net income                                                                                                                                            |  | $    | 52,561 |  
|                                                                                                                                                                |  |      |        |  
|                                                                                                                                                                |  |      |        |  
|Earnings per common share:                                                                                                                                      |  |      |        |  
|Basic - as reported                                                                                                                                             |  | $    | 0.57   |  
|                                                                                                                                                                |  |      |        |  
|Basic - pro forma                                                                                                                                               |  | $    | 0.52   |  
|                                                                                                                                                                |  |      |        |  
|                                                                                                                                                                |  |      |        |  
|Diluted - as reported                                                                                                                                           |  | $    | 0.54   |  
|                                                                                                                                                                |  |      |        |  
|Diluted - pro forma                                                                                                                                             |  | $    | 0.49   |  
|                                                                                                                                                                |  |      |        |  

Prior
to the adoption of SFAS 123R, the Company presented all tax benefits for
deductions resulting from the exercise of stock options and disqualifying dispositions
as operating cash flows on the Consolidated Statement of Cash Flows. SFAS 123R
requires the benefits of tax deductions in excess of recognized compensation
expense to be reported as a financing cash flow rather than an operating cash
flow, totaling approximately $10 million during the first quarter of 2006. This
requirement serves to reduce net operating cash flows and increase net
financing cash flows in the period of adoption and thereafter. Total cash flows
will remain unchanged from what would have been reported under prior accounting
rules.

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

11

---



As
  of March 31, 2006, there was approximately $93 million of total unrecognized
  compensation cost related to nonvested stock awards and stock options granted
  to Omnicare employees. That cost is expected to be recognized over a weighted-average
  period of approximately 5.1 years. The total fair value of shares vested during
  the three months ended March 31, 2006 related to stock awards and stock options
  was approximately $12 million.

General Stock Option Information

A
summary of stock option activity under the plans for the three months ended
March 31, 2006 is presented below (in thousands, except exercise price data):

|                                           |  |        |   |          |          |       |  |           |   |         | 
|------------------------------------------ |  | ------ | - | -------- | -------- | ----- |  | --------- | - | ------- | 
|                                           |  |        |   | Weighted |          |       | 
|                                           |  |        |   |          | Average  |       |  | Aggregate |  
|                                           |  |        |   |          | Exercise |       |  | Intrinsic |  
|                                           |  | Shares |   |          | Price    |       |  | Value     |  
|                                           |  |        |   |          |          |       |  |           |  
|Options outstanding,
  beginning of period |  | 7,309  |   |          | $        | 29.84 |  |           |   |         | 
|Options granted                            |  | 23     |   |          |          | 52.25 |  |           |   |         | 
|Options exercised                          |  | (280   | ) |          |          | 24.25 |  |           |   |         | 
|Options forfeited                          |  | (26    | ) |          |          | 35.87 |  |           |   |         | 
|                                           |  |        |   |          |          |       |  |           |   |         | 
|Options outstanding, end
  of period       |  | 7,026  |   |          | $        | 30.12 |  |           | $ | 174,742 | 
|                                           |  |        |   |          |          |       |  |           |   |         | 
|Options exercisable, end
  of period       |  | 4,903  |   |          | $        | 24.06 |  |           | $ | 151,685 | 
|                                           |  |        |   |          |          |       |  |           |   |         | 

The
total intrinsic value of options exercised during the period was approximately
$9.5 million.

The
following summarizes information about stock options outstanding and
exercisable as of March 31, 2006 (in thousands, except exercise price and
remaining life data):

|                      |        |                       |      |       |             |                   |     |  |          |       |   |                  |      |          |             |                   |  |     |          |       |  |   |       | 
|--------------------- | ------ | --------------------- | ---- | ----- | ----------- | ----------------- | --- |  | -------- | ----- | - | ---------------- | ---- | -------- | ----------- | ----------------- |  | --- | -------- | ----- |  | - | ----- | 
|OPTIONS
  OUTSTANDING |        | OPTIONS
  EXERCISABLE
|                      |        |                       |      |      
|                      |        |                       |      |       | Weighted    |                   |     |  |          |       |   |                  |      | Weighted |             |                   |  |    
|                      |        | Number                |      |       | Average     |                   |     |  | Weighted |       |   | Number           |      |          | Average     |                   |  |     | Weighted |      
|                      |        | Outstanding
  at      |      |       | Remaining   |                   |     |  | Average  |       |   | Exercisable
  at |      |          | Remaining   |                   |  |     | Average  |      
|Range of Exercise     |        | March 31,             |      |       | Contractual |                   |     |  | Exercise |       |   | March 31,        |      |          | Contractual |                   |  |     | Exercise |      
|Prices                |        |                       | 2006 |       |             | Life (in
  years) |     |  |          | Price |   |                  | 2006 |          |             | Life (in
  years) |  |     |          | Price | 
|                      |        |                       |      |      
|$7.72 -               | $15.45 |                       |      | 1,286 |             |                   | 3.3 |  |          |       | $ | 15.30            |      |          | 1,286       |                   |  | 3.3 |          |       |  | $ | 15.30 | 
|15.46 -               | 23.17  |                       |      | 1,157 |             |                   | 5.1 |  |          |       |   | 18.82            |      |          | 1,117       |                   |  | 5.1 |          |       |  |   | 18.71 | 
|23.18 -               | 30.90  |                       |      | 2,324 |             |                   | 6.9 |  |          |       |   | 27.40            |      |          | 1,772       |                   |  | 7.0 |          |       |  |   | 27.48 | 
|30.91 -               | 38.61  |                       |      | 436   |             |                   | 3.1 |  |          |       |   | 36.44            |      |          | 383         |                   |  | 2.4 |          |       |  |   | 36.65 | 
|38.62 -               | 61.79  |                       |      | 1,823 |             |                   | 8.9 |  |          |       |   | 49.70            |      |          | 345         |                   |  | 7.9 |          |       |  |   | 42.44 | 
|                      |        |                       |      |       |             |                   |     |  |          |       |   |                  |      |          |             |                   |  |     |          |       |  |   |       | 
|$7.72 -               | $61.79 |                       |      | 7,026 |             |                   | 6.2 |  |          |       | $ | 30.12            |      |          | 4,903       |                   |  | 5.3 |          |       |  | $ | 24.06 | 
|                      |        |                       |      |       |             |                   |     |  |          |       |   |                  |      |          |             |                   |  |     |          |       |  |   |       | 

12

---



General Restricted Stock Award Information

A
summary of nonvested restricted stock awards for the three months ended March
31, 2006 is presented below (in thousands, except fair value data):

|                        |  |            |   |  |  |                    |       | 
|----------------------- |  | ---------- | - |  |  | ------------------ | ----- | 
|                        |  |            |   |  |  | Weighted           |      
|                        |  |            |   |  |  | Average            |      
|                        |  | Non-vested |   |  |  | Grant
        Date |      
|Restricted Stock Awards |  | Shares     |   |  |  | Fair
        Value |      
|                        |  |            |   |  |  |                    |      
|Beginning of period     |  | 2,967      |   |  |  | $                  | 29.80 | 
|Awarded                 |  | 292        |   |  |  |                    | 57.75 | 
|Vested                  |  | (544       | ) |  |  |                    | 21.04 | 
|Forfeited               |  | (13        | ) |  |  |                    | 31.35 | 
|                        |  |            |   |  |  |                    |       | 
|End of period           |  | 2,702      |   |  |  | $                  | 34.58 | 
|                        |  |            |   |  |  |                    |       | 

|                             | 
|---------------------------- | 
|4. Earnings Per
  Share Data

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

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

|                                                   |  |                                        |        |               |        |         |        |   |      | 
|-------------------------------------------------- |  | -------------------------------------- | ------ | ------------- | ------ | ------- | ------ | - | ---- | 
|                                                   |  | For the
  three months ended March 31, |       
|                                                   |  |                                        |       
|                                                   |  |                                        |        |               |        |         | Per    |  
|                                                   |  |                                        |        |               | Common |         | Common |  
|                                                   |  | Income                                 |        | Shares        |        | Share   |       
|2006:                                              |  | (Numerator)                            |        | (Denominator) |        | Amounts |       
|                                                   |  |                                        |        |               |        |         |       
|Basic EPS                                          |  |                                        |        |               |        |         |        |   |      | 
|Net income                                         |  | $                                      | 53,231 |               |        | 117,911 |        | $ | 0.45 | 
|                                                   |  |                                        |        |               |        |         |        |   |      | 
|Effect of
  Dilutive Securities                    |  |                                        |        |               |        |         |        |   |      | 
|4.00% junior subordinated
  convertible debentures |  |                                        | 72     |               |        | 2,570   |        |   |      | 
|Stock options, warrants and
  awards               |  |                                        |       |               |        | 3,114   |        |   |      | 
|                                                   |  |                                        |        |               |        |         |        |   |      | 
|Diluted
  EPS                                      |  |                                        |        |               |        |         |        |   |      | 
|Net income plus assumed
  conversions              |  | $                                      | 53,303 |               |        | 123,595 |        | $ | 0.43 | 
|                                                   |  |                                        |        |               |        |         |        |   |      | 
|                                                   |  |                                        |        |               |        |         |        |   |      | 
|2005:                                              |  |                                        |        |               |        |         |        |   |      | 
|                                                   |  |                                        |        |               |        |         |        |   |      | 
|Basic EPS                                          |  |                                        |        |               |        |         |        |   |      | 
|Net income                                         |  | $                                      | 57,995 |               |        | 101,759 |        | $ | 0.57 | 
|                                                   |  |                                        |        |               |        |         |        |   |      | 
|Effect of
  Dilutive Securities                    |  |                                        |        |               |        |         |        |   |      | 
|4.00% junior subordinated
  convertible debentures |  |                                        | 1,682  |               |        | 6,271   |        |   |      | 
|Stock options, warrants and
  awards               |  |                                        |       |               |        | 1,910   |        |   |      | 
|                                                   |  |                                        |        |               |        |         |        |   |      | 
|Diluted
  EPS                                      |  |                                        |        |               |        |         |        |   |      | 
|Net income plus assumed
  conversions              |  | $                                      | 59,677 |               |        | 109,940 |        | $ | 0.54 | 
|                                                   |  |                                        |        |               |        |         |        |   |      | 

13

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During
the three months ended March 31, 2006 and 2005, the anti-dilutive effect
associated with certain stock options, warrants and awards was excluded from
the computation of diluted EPS, since the exercise price was greater than the
average market price of the Companys common stock during these periods. The
aggregate number of stock options, warrants and awards excluded from the
computation of diluted EPS for those periods totaled 1.1 million and 4.4
million, respectively.

In
  October 2004, the FASB ratified Emerging Issues Task Force (EITF)
  Issue No. 04-8, The Effect of Contingently Convertible Instruments on
  Diluted Earnings per Share (EITF No. 04-8), which requires
  the shares underlying contingently convertible debt instruments to be included
  in diluted earnings per share computations using the if-converted
  accounting method, regardless of whether the market price threshold has been
  met. Under that method, the convertible debentures are assumed to be converted
  to common shares (weighted for the number of days assumed to be outstanding
  during the period), and interest expense, net of taxes, related to the convertible
  debentures is added back to net income. As further discussed in the Debt
  note of the Notes to Consolidated Financial Statements, the Company completed
  the exchange offer relating to the 4.00% junior subordinated convertible debentures
  on March 8, 2005. Accordingly, the effect of Omnicares fourth quarter
  2004 adoption of EITF No. 04-8 was to decrease diluted earnings per share $0.02
  for the three months ended March 31, 2005 (primarily relating to the period
  from January 1, 2005 through the exchange offering completion date of March
  8, 2005). For purposes of the if-converted calculation, 6.3 million
  shares were assumed to be converted for the three months ended March 31, 2005.
  Additionally, interest expense net of taxes, of $1.7 million for the three months
  ended March 31, 2005, was added back to net income for purposes of calculating
  diluted earnings per share using this method. There was no impact relating to
  this change on reported diluted earnings per share for the three months ended
  March 31, 2006. See further discussion of the 4.00% junior subordinated convertible
  debentures exchange offering in the Debt note.

|                | 
|--------------- | 
|5. Acquisitions

Since
  1989, the Company has been involved in a program to acquire providers of pharmaceutical
  products and related pharmacy management services and medical supplies to long-term
  care facilities and their residents. The Companys strategy has included
  the acquisition of freestanding institutional pharmacy businesses, as well as
  other assets, generally insignificant in size, which have been combined with
  existing pharmacy operations to augment their internal growth. From time to
  time the Company may acquire other businesses, such as long-term care software
  companies, contract research organizations, pharmacy consulting companies, specialty
  pharmacy companies, medical supply companies, hospice pharmacy companies and
  companies providing distribution and patient assistance services for specialty
  pharmaceuticals, which complement the Companys core business. During the
  first three months of 2006, Omnicare completed certain acquisitions of businesses
  and other assets in the Pharmacy Services segment, none of which were, individually
  or in the aggregate, significant to the Company. Acquisitions of businesses
  required cash payments of $23.2 million (including amounts payable pursuant
  to acquisition agreements relating to pre-2006 acquisitions) in the three months
  ended March 31, 2006. The impact of acquisitions on the Companys overall
  goodwill balance has been reflected in the disclosures at the Goodwill
  and Other Intangible Assets note. The Company has engaged an independent
  valuation firm to assist with

14

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identification and valuation of other
identifiable assets in connection with the purchase price allocation for
certain acquisitions. The Company also continues to evaluate the tax effects
and other preacquisition contingencies relating to certain acquisitions.
Omnicare is in the process of completing its allocation of the purchase price
for these acquisitions and, accordingly, the goodwill balance is preliminary
and subject to change. The net assets and operating results of acquisitions
have been included in the Companys consolidated financial statements from
their respective dates of acquisition.

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

The
acquisition of NeighborCare was accounted for as a purchase business
combination and included cash consideration of approximately $1.9 billion. The
cash consideration included the payoff of certain NeighborCare debt totaling
approximately $328 million, of which $78 million was retired by Omnicare
immediately following the acquisition. In addition, on August 27, 2005 the
Company closed its tender offer for cash to purchase all of the $250 million
outstanding principal amount of NeighborCares 6.875% senior subordinated notes
due 2013 (the NeighborCare Notes). All of the NeighborCare Notes were validly
tendered in the offer. The total consideration, excluding accrued and unpaid interest,
for each $1,000 principal amount of NeighborCare Notes validly tendered was
$1,096.85.

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

Unaudited
pro forma combined results of operations of the Company and NeighborCare for
the quarter ended March 31, 2005 is presented below. Such pro forma
presentation has been prepared assuming that the NeighborCare acquisition had
been made as of January 1, 2005.

15

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The
unaudited pro forma combined financial information of the Company and
NeighborCare for the three months ended March 31, 2005 follows (in thousands,
except per share data):

|                                |  |        |           | 
|------------------------------- |  | ------ | --------- | 
|                                |  | Amount |          
|                                |  |        |          
|Pro forma net sales             |  | $      | 1,500,852 | 
|Pro forma net income            |  |        | 56,528    | 
|Pro forma earnings per
  share: |  |        |           | 
|Basic                           |  | $      | 0.56      | 
|                                |  |        |          
|Diluted                         |  | $      | 0.53      | 
|                                |  |        |          

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

|                                          | 
|----------------------------------------- | 
|6. Goodwill and
  Other Intangible Assets

Changes
in the carrying amount of goodwill for the three months ended March 31, 2006,
by business segment, are as follows (in thousands):

|                                                           |  |          |           |          |   |        |  |   |           | 
|---------------------------------------------------------- |  | -------- | --------- | -------- | - | ------ |  | - | --------- | 
|                                                           |  | Pharmacy |           | CRO      |   |        | 
|                                                           |  | Services |           | Services |   | Total  | 
|                                                           |  |          |           |          |   |        | 
|Balance as of December 31, 2005                            |  | $        | 3,952,472 |          | $ | 77,010 |  | $ | 4,029,482 | 
|Goodwill acquired in the three months ended March 31, 2006 |  |          | 119       |          |   |       |  |   | 119       | 
|Other                                                      |  |          | 29,789    |          |   | 12,324 |  |   | 42,113    | 
|                                                           |  |          |           |          |   |        | 
|Balance as of March 31, 2006                               |  | $        | 3,982,380 |          | $ | 89,334 |  | $ | 4,071,714 | 
|                                                           |  |          |           |          |   |        | 

The
Other caption above includes the settlement of acquisition matters relating
to prior-year acquisitions (including payments pursuant to acquisition
agreements such as deferred payments, indemnification payments and payments
originating from earnout provisions, as well as adjustments for the
finalization of purchase price allocations). Other also includes the effect
of adjustments due to foreign currency translations, which relate 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 $7.4 million from December 31, 2005 primarily relates to
amortization expense recorded during the period.

16

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|        | 
|------- | 
|7. Debt

Current and Long-Term Debt

At
March 31, 2006, there was no outstanding balance under the Companys $800
million revolving credit facility, maturing on July 28, 2010 (the Revolving
Loans) and $700 million outstanding under the Companys senior term A loan
facility, maturing on July 28, 2010 (the Term Loans). The interest rate on
the Revolving Loans and Term Loans was 5.47% at March 31, 2006. As of March 31,
2006, the Company had approximately $23.8 million outstanding relating to
standby letters of credit, substantially all of which are subject to automatic
annual renewals.

The
Companys debt instruments, including related terms and financial covenants,
have been disclosed at the Debt note in Omnicares Annual Report on Form 10-K
for the year ended December 31, 2005. The Company had additional borrowings of
long-term debt during the three months ended March 31, 2005 approximating $41
million, primarily consisting of a note payable carrying a five-year term and a
variable interest rate of 4.82% per annum at March 31, 2006.

At
  March 31, 2006, the overall weighted average interest rate on the Companys
  variable interest portion of its long-term debt, excluding the interest rate
  swap agreement, was 5.43%. The estimated floating interest rate on the interest
  rate swap agreement was 7.41% at March 31, 2006.

4.00% Junior Subordinated Convertible
Debentures:

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

Original 4.00% Junior Subordinated
Convertible Debentures

In
connection with the offering of the Old Trust PIERS in the second quarter of
2003, the Company issued a corresponding amount of original 4.00% junior
subordinated convertible debentures (Old 4.00% Debentures) due 2033 to the
Old Trust. The Old Trust is a 100%-owned finance subsidiary of the Company. The
Company has fully and unconditionally guaranteed the securities of the Old
Trust. The Old Trust PIERS offer fixed cash distributions at a rate of 4.00%
per annum payable quarterly, and a fixed conversion price of $40.82 under a
contingent conversion feature whereby the holders may convert their Old Trust
PIERS if the closing sales price of Omnicare common stock for a predetermined
period, beginning with the

17

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quarter ending September 30, 2003, is more than 130% of the then-applicable
  conversion price or, during a predetermined period, if the daily average of
  the trading prices for the Old Trust PIERS is less than 105% of the average
  of the conversion values for the Old Trust PIERS through 2028 (98% for any period
  thereafter through maturity) and in certain other circumstances. The Old Trust
  PIERS also will pay contingent distributions, commencing with the quarterly
  distribution period beginning June 15, 2009, if the average trading prices of
  the Old Trust PIERS for a predetermined period equals 115% or more of the stated
  liquidation amount of the Old Trust PIERS. Embedded in the Old Trust PIERS are
  two derivative instruments, specifically, a contingent interest provision and
  a contingent conversion parity provision. The embedded derivatives are periodically
  valued by a third-party advisor, and at period end, the values of both derivatives
  embedded in the Old Trust PIERS were not material. However, the values are subject
  to change, based on market conditions, which could affect the Companys
  future financial position, cash flows and results of operations. Omnicare irrevocably
  and unconditionally guarantees, on a subordinated basis, certain payments to
  be made by the Old Trust in connection with the Old Trust PIERS. Subsequent
  to the first quarter 2005 exchange offer discussed in further detail at the
  Series B 4.00% Junior Subordinated Convertible Debentures caption below, the
  Company has $11,233,050 aggregate liquidation amount of the Old Trust PIERS
  and underlying Old 4.00% Debentures remaining outstanding at period end.

As
of March 31, 2006, and consistent with December 31, 2005, the aforementioned
contingent conversion threshold of the Old 4.00% Debentures had been attained
(as the closing sales price of Omnicare common stock exceeded 130% of the
applicable conversion price of $40.82, or was above $53.07, for the twenty
trading days prior to quarter end). As a result, the Old 4.00% Debentures were
convertible by the debt holders to cash and to common stock, and have been
classified as current versus long-term debt on the consolidated balance sheet
as of period end.

Series B 4.00% Junior Subordinated
Convertible Debentures

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

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

18

---



As
of March 31, 2006, and consistent with December 31, 2005, the aforementioned
contingent conversion threshold of the New 4.00% Debentures had been attained
(as the closing sales price of Omnicare common stock exceeded 130% of the
applicable conversion price of $40.82, or was above $53.07, for the twenty
trading days prior to quarter end). As a result, the New 4.00% Debentures were
convertible by the debt holders to cash and to common stock, and have been
classified as current versus long-term debt on the consolidated balance sheet as
of period end.

In
connection with the issuance of the Old 4.00% Debentures and the New 4.00%
Debentures, the Company has deferred $11.8 million in debt issuance costs, of
which approximately $0.1 million was amortized to expense in the three months
ended March 31, 2006 and 2005, respectively. The three months ended March 31,
2005 included a special charge to operating expenses totaling $1.2 million
pretax relating to professional fees and expenses incurred in connection with
the issuance of the New Trust PIERS.

8. Public Offering of Common Stock

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

9. Employee Benefit Plans

The
Company has various defined contribution savings plans under which eligible
employees can participate by contributing a portion of their salary for
investment, at the direction of each employee, in one or more investment funds.
Expense relating primarily to the Companys matching contributions for these
defined contribution plans was $1.8 million and $1.3 million for the three
months ended March 31, 2006 and 2005, respectively.

The
Company also has an excess benefit plan (EBP) that provides retirement
payments to certain headquarters employees in amounts generally consistent with
what they would have received under the Companys non-contributory, defined
benefit pension plan (the Qualified Plan) for corporate headquarters
employees, frozen and fully vested as of January 1, 1994. The retirement
benefits provided by the EBP are generally comparable to those that would have
been earned in the Qualified Plan, if payments under the Qualified Plan were
not limited by the Internal Revenue Code. The Company has established rabbi
trusts, which are invested primarily in a mutual fund holding U.S. Treasury
obligations, to provide for retirement obligations under

19

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

The
following table presents the components of pension cost for each of the three
months ended March 31, 2006 and 2005 (in thousands):

|                                                                     |  |                                |       |      |   |       |  
|-------------------------------------------------------------------- |  | ------------------------------ | ----- | ---- | - | ----- | -
|                                                                     |  | Three
  months ended March 31, |      
|                                                                     |  |                                |      
|                                                                     |  | 2006                           |       | 2005 |  
|                                                                     |  |                                |       |      |  
|Service cost                                                         |  | $                              | 456   |      | $ | 365   |  
|Interest cost                                                        |  |                                | 976   |      |   | 798   |  
|Amortization of
  deferred amounts(primarily prior actuarial losses) |  |                                | 1,091 |      |   | 816   |  
|Return on assets                                                     |  |                                | (44   | )    |   | (58   | )
|                                                                     |  |                                |       |      |   |       |  
|Net periodic
  pension cost                                          |  | $                              | 2,479 |      | $ | 1,921 |  
|                                                                     |  |                                |       |      |   |       |  

During
the first quarter of 2006, the Company made payments of $3.3 million related to
funding plan assets for the settlement of the Companys pension obligations,
resulting in aggregate assets for the settlement of the Companys pension
obligations with a fair value of approximately $66 million at period end
(included in the Other noncurrent assets section of the Consolidated Balance
Sheets). The Company anticipates payments of approximately $10.9 million during
the remainder of the 2006 year. The aftertax accumulated unrealized depreciation
in fair value of investments included in accumulated other comprehensive income
at March 31, 2006 totaled $1.9 million, representing an increase of $1.2
million from December 31, 2005.

In
  addition, the Company has a supplemental pension plan (SPP) in which
  certain of its officers participate. Retirement benefits under the SPP are calculated
  on the basis of a specified percentage of the officers covered compensation,
  years of credited service and a vesting schedule, as specified in the plan document.
  Expense relating to the SPP was $0.2 million for the three month periods ended
  March 31, 2006 and March 31, 2005. Obligations of the SPP of $4.9 million were
  fully funded in rabbi trusts at March 31, 2006.

10. Restructuring and Other Related Charges

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

20

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operations and eliminate redundant assets. This portion of the
  consolidation activity and other productivity initiatives are expected to result
  in the closure of 31 Omnicare facilities, of which 28 are pharmacy operations.
  It will also lead to a net reduction in force of approximately 900 positions.
  Of this reduction in force, approximately 96% are in pharmacy operations and
  the remaining reductions are at the corporate headquarters or the Companys
  contract research operations. Approximately 600 of these positions have been
  eliminated as of March 31, 2006. Restructuring activities in the contract research
  organization segment relate primarily to facility lease obligations.

In
connection with this program, these particular consolidation and productivity
initiatives are expected to be completed within 12 months of commencement of
the 2005 Program. These initiatives are currently estimated to require total
restructuring and other related charges of approximately $30 million before
taxes, which relate to the costs associated with the consolidation of Omnicare
pharmacies and the other consolidation and productivity initiatives described
above. The Company recorded restructuring and other related charges of
approximately $19 million pretax (approximately $12 million aftertax) during
the year ended December 31, 2005. Additionally, the Company recorded
restructuring and other related charges of approximately $8 million pretax
(approximately $5 million aftertax) during the quarter ended March 31, 2006.
The Company expects charges of approximately $3 million before taxes during the
remainder of the program.

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

|                                                |  |                                  |        |                             |   |                          |  |                               |        |   |   |        | 
|----------------------------------------------- |  | -------------------------------- | ------ | --------------------------- | - | ------------------------ |  | ----------------------------- | ------ | - | - | ------ | 
|                                                |  | Balance at
  December 31,
  2005 |        | 2006
  Provision/
  Accrual |   | Utilized
  during
  2006 |  | Balance at
  March 31,
  2006 |       
|                                                | 
|Restructuring
  charges:                        |  |                                  |        |                             |   |                          |  |                               |        |   |   |        | 
|Employee
  severance                            |  | $                                | 2,809  |                             | $ | 2,445                    |  | $                             | (499   | ) | $ | 4,755  | 
|Employment
  agreement buy-outs                 |  |                                  | 734    |                             |   | 933                      |  |                               | (963   | ) |   | 704    | 
|Lease
  terminations                            |  |                                  | 9,833  |                             |   | 874                      |  |                               | (1,694 | ) |   | 9,013  | 
|Other assets,
  fees and facility exit costs    |  |                                  | 1,335  |                             |   | 931                      |  |                               | (1,486 | ) |   | 780    | 
|                                                |  |                                  |        |                             |   |                          |  |                               |        |   |   |        | 
|Total
  restructuring charges                   |  | $                                | 14,711 |                             | $ | 5,183                    |  | $                             | (4,642 | ) | $ | 15,252 | 
|                                                |  |                                  |        |                             |   |                          |  |                               |        |   |   |        | 
|                                               
|Other related
  charges                         |  |                                  |        |                             |   | 2,530                    |  |                               |        |   |   |        | 
|                                                |  |                                  |        |                             |   |                          |  |                               |        |   |   |        | 
|Total
  restructuring and other related charges |  |                                  |        |                             | $ | 7,713                    |  |                               |        |   |   |        | 
|                                                |  |                                  |        |                             |   |                          |  |                               |        |   |   |        | 

As
  of March 31, 2006, the Company had paid approximately $3.9 million of severance
  and other employee-related costs. The remaining liabilities at March 31, 2006
  represent amounts not yet paid relating to actions taken in

21

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connection with the program (primarily severance payments and
  lease payments), and will be settled as these matters are finalized.

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 Company has received administrative subpoenas from the United
  States Attorneys Office, District of Massachusetts, seeking information
  arising out of the Companys relationships with certain manufacturers and
  distributors of pharmaceutical products. The Company believes that its purchases
  of pharmaceuticals comply with all applicable laws and regulations. In addition,
  the federal government and certain states are investigating allegations relating
  to three generic pharmaceuticals provided by the Company in connection with
  the substitution of capsules for tablets (Ranitidine), tablets for capsules
  (Fluoxetine) and two 7.5 mg tablets for one 15 mg tablet (Buspirone). The Company
  is cooperating fully in these matters. See further discussion in the Subsequent
  Event note of the Notes to Consolidated Financial Statements.

On February 2 and February 13, 2006, respectively, two substantially
  similar putative class action lawsuits, entitled Indiana State Dist. Council
  of Laborers & HOD Carriers Pension & Welfare Fund v. Omnicare, Inc.,
  et al., No. 2:06cv26 (HOD Carriers), and Chi v. Omnicare,
  Inc., et al., No. 2:06cv31 (Chi), were filed against
  Omnicare and two of its officers in the United States District Court For the
  Eastern District of Kentucky purporting to assert claims for violation of §§
  10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated
  thereunder. The complaints, which purport to be brought on behalf of all Omnicare
  shareholders, allege that Omnicare has artificially inflated its earnings by
  engaging in improper generic drug substitution and that the defendants have
  made false and misleading statements regarding the Companys business and
  prospects. The complaints seek, among other things, compensatory damages and
  injunctive relief. On March 7, 2006, the parties to both actions filed stipulations
  agreeing that the cases should be consolidated and proposing a scheduling order
  for the conduct of the actions upon consolidation. Those scheduling orders were
  entered on March 10, 2006. 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. That motion is currently pending.

Also
  on February 13, 2006, two substantially similar shareholder derivative actions,
  entitled Isak v. Gemunder, et al., Case No. 06-CI-390, and Fragnoli
  v. Hutton, et al., Case No. 06-CI-389, were filed in Kentucky State Circuit
  Court, Kenton Circuit, against the members of Omnicares board of directors,
  individually, purporting to assert claims for breach of fiduciary duty, abuse
  of control, gross mismanagement, waste of corporate assets and unjust enrichment
  arising out of the Companys alleged violations of federal and state health
  care laws based upon the same purportedly improper generic drug substitution
  that is the subject of the federal purported class action lawsuits. The complaints
  seek, among other things, damages, restitution and injunctive relief. On April
  7, 2006, the defendants moved to stay all proceedings in both actions pending
  resolution of the earlier-filed federal class actions and virtually identical
  derivative action (see discussion of the Irwin matter below) pending
  in the Eastern District of Kentucky. On May 4, 2006, the defendants moved to
  consolidate the Isak and Fragnoli actions.

On
March 23, 2006, a shareholder derivative action entitled Irwin v. Gemunder, et al., 2:06cv62, was filed in
the United States District Court For the Eastern District of Kentucky against
the members of Omnicares board of directors, individually, purporting to
assert claims for breach of fiduciary duty, abuse of control, gross
mismanagement, waste of corporate assets

22

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and unjust enrichment
arising out of the Companys alleged violations of federal and state health
care laws based upon the purported improper substitution of generic drugs. The
complaint seeks, among other things, damages, restitution and injunctive
relief.

The
Company believes the above-described purported class and derivative actions are
without merit and intends to vigorously defend the actions.

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

As
  part of its ongoing operations, the Company is subject to various inspections,
  audits, inquiries and similar actions by third parties, as well as governmental/regulatory
  authorities responsible for enforcing the laws and regulations to which the
  Company is subject. Omnicare is also involved in various legal actions arising
  in the normal course of business. These matters are continuously being evaluated
  and, in many cases, are being contested by the Company and the outcome is not
  predictable. Consequently, an estimate of the possible loss or range of loss
  associated with these actions cannot be made. Although occasional adverse outcomes
  (or settlements) may occur and could possibly have an adverse effect on the
  results of operations and cash flows in any one accounting period, outside of
  the matters described in the preceding paragraphs, the Company is not aware
  of any such matters whereby it is presently believed that the final disposition
  will have a material adverse affect on the Companys overall consolidated
  financial position.

The
Company indemnifies the directors and officers of the Company for certain
liabilities that might arise from the performance of their job responsibilities
for the Company. Additionally, in the normal course of business, the Company
enters into contracts that contain a variety of representations and warranties
and which provide general indemnifications. The Companys maximum exposure
under these arrangements is unknown, as this involves the resolution of claims
made, or future claims that may be made, against the Company, its directors
and/or officers, the outcomes of which is unknown and not currently
predictable.

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

23

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specialty pharmaceuticals. The Companys customers are
primarily skilled nursing, assisted living, hospice and other providers of
healthcare services in 47 states in the United States of America (USA), the
District of Columbia and in Canada at March 31, 2006. The Companys other
segment is CRO Services, which provides comprehensive product development and
research services to client companies in pharmaceutical, biotechnology, medical
devices and diagnostics industries in 30 countries around the world at March
31, 2006, including the USA.

The
table below presents information about the reportable segments as of and for
the three months ended March 31, 2006 and 2005 and should be read in conjunction
with the paragraph that follows (in thousands):

|                                        |  |                                |           |                |   |                                 |   |                       |   |         |   |  |  
|--------------------------------------- |  | ------------------------------ | --------- | -------------- | - | ------------------------------- | - | --------------------- | - | ------- | - |  | -
|                                        |  | Three
  months ended March 31, |          
|                                        |  |                                |          
|2006:                                   |  | Pharmacy
  Services            |           | CRO
  Services |   | Corporate
  and
  Consolidating |   | Consolidated
  Totals |  
|                                       
|Net sales                               |  | $                              | 1,616,552 |                | $ | 42,046                          |   |                       | $ |        |   |  | $
|Depreciation and amortization           |  |                                | 29,672    |                |   | 487                             |   |                       |   | 739     |   |  |  
|Restructuring and other related charges |  |                                | (5,316    | )              |   | (298                            | ) |                       |   | (2,099  | ) |  |  
|Litigation charge                       |  |                                | (34,100   | )              |   |                                |   |                       |   |        |   |  |  
|Operating income (expense)              |  |                                | 150,506   |                |   | 1,163                           |   |                       |   | (24,309 | ) |  |  
|Total assets                            |  |                                | 6,690,518 |                |   | 160,483                         |   |                       |   | 528,042 |   |  |  
|Capital expenditures                    |  |                                | 5,663     |                |   | 96                              |   |                       |   | 350     |   |  |  

|                              |  |   |           |  |   |         |  |  |   |         |   |  |   |           | 
|----------------------------- |  | - | --------- |  | - | ------- |  |  | - | ------- | - |  | - | --------- | 
|2005:                         |  |   |           |  |   |         |  |  |   |         |   |  |   |           | 
|                             
|Net sales                     |  | $ | 1,050,099 |  | $ | 46,047  |  |  | $ |        |   |  | $ | 1,096,146 | 
|Depreciation and amortization |  |   | 13,070    |  |   | 547     |  |  |   | 652     |   |  |   | 14,269    | 
|Operating income (expense)    |  |   | 124,903   |  |   | 2,559   |  |  |   | (15,899 | ) |  |   | 111,563   | 
|Total assets                  |  |   | 3,570,977 |  |   | 151,785 |  |  |   | 326,667 |   |  |   | 4,049,429 | 
|Capital expenditures          |  |   | 2,292     |  |   | 221     |  |  |   | 620     |   |  |   | 3,133     | 

In
accordance with EITF Issue No. 01-14, Income Statement Characterization of
Reimbursements Received for Out-of-Pocket Expenses Incurred, the Company
included in its reported CRO segment net sales amount, reimbursable
out-of-pockets totaling $6.2 million and $7.3 million for the three month
period ended March 31, 2006 and 2005, respectively.

24

---



13. Guarantor Subsidiaries

The
Companys $375.0 million 8.125% senior subordinated notes due 2011 and the
6.125% senior subordinated notes due 2013 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 March 31, 2006
and December 31, 2005 for the balance sheets, as well as the statements of
income and the statements of cash flows for the three months ended March 31,
2006 and 2005.  Separate complete
financial statements of the respective Guarantor Subsidiaries would not provide
additional information that would be useful in assessing the financial
condition of the Guarantor Subsidiaries and thus are not presented.  No consolidating/eliminating adjustment
column is presented for the condensed consolidating statements of cash flows
since there were no significant consolidating/eliminating adjustment amounts
during the periods presented.

Summary Consolidating Statements of Income

|                                             |  |                              |         |                          |   |                              |   |                                            |        |                                     |   |         |   |   |           |  
|-------------------------------------------- |  | ---------------------------- | ------- | ------------------------ | - | ---------------------------- | - | ------------------------------------------ | ------ | ----------------------------------- | - | ------- | - | - | --------- | -
|(in thousands)                               |  | Three months ended March 31, |        
|                                             |  |                              |        
|2006:                                        |  | Parent                       |         | Guarantor
  Subsidiaries |   | Non-Guarantor
  Subsidiaries |   | Consolidating/
  Eliminating
  Adjustments |        | Omnicare, Inc.
  and
  Subsidiaries |  
|                                             |  |                              |         |                          |   |                              |   |                                            |        |                                     |  
|                                             |  |                              |         |                          |   |                              |   |                                            |        |                                     |  
|Net sales                                    |  | $                            |        |                          | $ | 1,566,726                    |   | $                                          | 91,872 |                                     | $ |        |   | $ | 1,658,598 |  
|Cost of sales                                |  |                              |        |                          |   | 1,172,772                    |   |                                            | 69,311 |                                     |   |        |   |   | 1,242,083 |  
|                                             |  |                              |         |                          |   |                              |   |                                            |        |                                     |   |         |   |   |           |  
|Gross profit                                 |  |                              |        |                          |   | 393,954                      |   |                                            | 22,561 |                                     |   |        |   |   | 416,515   |  
|Selling, general and administrative expenses |  |                              | 1,981   |                          |   | 232,855                      |   |                                            | 12,506 |                                     |   |        |   |   | 247,342   |  
|Restructuring and other related charges      |  |                              |        |                          |   | 7,713                        |   |                                            |       |                                     |   |        |   |   | 7,713     |  
|Litigations
        charge                   |  |                              |        |                          |   | 34,100                       |   |                                            |       |                                     |   |        |   |   | 34,100    |  
|                                             |  |                              |         |                          |   |                              |   |                                            |        |                                     |   |         |   |   |           |  
|Operating income (loss)                      |  |                              | (1,981  | )                        |   | 119,286                      |   |                                            | 10,055 |                                     |   |        |   |   | 127,360   |  
|Investment income                            |  |                              | 991     |                          |   | 808                          |   |                                            |       |                                     |   |        |   |   | 1,799     |  
|Interest expense                             |  |                              | (41,192 | )                        |   | (650                         | ) |                                            | (570   | )                                   |   |        |   |   | (42,412   | )
|                                             |  |                              |         |                          |   |                              |   |                                            |        |                                     |   |         |   |   |           |  
|Income (loss) before income taxes            |  |                              | (42,182 | )                        |   | 119,444                      |   |                                            | 9,485  |                                     |   |        |   |   | 86,747    |  
|Income tax (benefit) expense                 |  |                              | (15,228 | )                        |   | 45,320                       |   |                                            | 3,424  |                                     |   |        |   |   | 33,516    |  
|Equity in net income of subsidiaries         |  |                              | 80,185  |                          |   |                             |   |                                            |       |                                     |   | (80,185 | ) |   |          |  
|                                             |  |                              |         |                          |   |                              |   |                                            |        |                                     |   |         |   |   |           |  
|Net income                                   |  | $                            | 53,231  |                          | $ | 74,124                       |   | $                                          | 6,061  |                                     | $ | (80,185 | ) | $ | 53,231    |  
|                                             |  |                              |         |                          |   |                              |   |                                            |        |                                     |   |         |   |   |           |  

|                                             |  |   |         |   |   |           |   |   |        |   |   |         |   |   |           |  
|-------------------------------------------- |  | - | ------- | - | - | --------- | - | - | ------ | - | - | ------- | - | - | --------- | -
|2005:                                        |  |   |         |   |   |           |   |   |        |   |   |         |   |   |           |  
|                                             |  |   |         |   |   |           |   |   |        |   |   |         |   |   |           |  
|                                             |  |   |         |   |   |           |   |   |        |   |   |         |   |   |           |  
|Net sales                                    |  | $ |        |   | $ | 1,053,679 |   | $ | 42,467 |   | $ |        |   | $ | 1,096,146 |  
|Cost of sales                                |  |   |        |   |   | 794,725   |   |   | 32,099 |   |   |        |   |   | 826,824   |  
|                                             |  |   |         |   |   |           |   |   |        |   |   |         |   |   |           |  
|Gross profit                                 |  |   |        |   |   | 258,954   |   |   | 10,368 |   |   |        |   |   | 269,322   |  
|Selling, general and administrative expenses |  |   | 1,820   |   |   | 149,811   |   |   | 6,128  |   |   |        |   |   | 157,759   |  
|                                             |  |   |         |   |   |           |   |   |        |   |   |         |   |   |           |  
|Operating income (loss)                      |  |   | (1,820  | ) |   | 109,143   |   |   | 4,240  |   |   |        |   |   | 111,563   |  
|Investment income                            |  |   | 331     |   |   | 822       |   |   |       |   |   |        |   |   | 1,153     |  
|Interest expense                             |  |   | (19,276 | ) |   | (229      | ) |   | (414   | ) |   |        |   |   | (19,919   | )
|                                             |  |   |         |   |   |           |   |   |        |   |   |         |   |   |           |  
|Income (loss) before income taxes            |  |   | (20,765 | ) |   | 109,736   |   |   | 3,826  |   |   |        |   |   | 92,797    |  
|Income tax (benefit) expense                 |  |   | (7,787  | ) |   | 41,154    |   |   | 1,435  |   |   |        |   |   | 34,802    |  
|Equity in net income of subsidiaries         |  |   | 70,973  |   |   |          |   |   |       |   |   | (70,973 | ) |   |          |  
|                                             |  |   |         |   |   |           |   |   |        |   |   |         |   |   |           |  
|Net income                                   |  | $ | 57,995  |   | $ | 68,582    |   | $ | 2,391  |   | $ | (70,973 | ) | $ | 57,995    |  
|                                             |  |   |         |   |   |           |   |   |        |   |   |         |   |   |           |  

25

---



13. Guarantor Subsidiaries (Continued)

Condensed Consolidating Balance Sheets

(in thousands)

|                                                              |  |        |           |                          |   |                              |  |                                            |         |                                     |   |            |   |   |           | 
|------------------------------------------------------------- |  | ------ | --------- | ------------------------ | - | ---------------------------- |  | ------------------------------------------ | ------- | ----------------------------------- | - | ---------- | - | - | --------- | 
|As of March
  31, 2006:                                       |  | Parent |           | Guarantor
  Subsidiaries |   | Non-Guarantor
  Subsidiaries |  | Consolidating/
  Eliminating
  Adjustments |         | Omnicare, Inc.
  and
  Subsidiaries |  
|                                                              |  |        |           |                          |   |                              |  |                                            |         |                                     |  
|                                                              |  |        |           |                          |   |                              |  |                                            |         |                                     |  
|ASSETS                                                        |  |        |           |                          |   |                              |  |                                            |         |                                     |   |            |   |   |           | 
|Cash and cash equivalents                                     |  | $      | 238,591   |                          | $ | 48,619                       |  | $                                          | 28,290  |                                     | $ |           |   | $ | 315,500   | 
|Restricted cash                                               |  |        |          |                          |   | 12,151                       |  |                                            |        |                                     |   |           |   |   | 12,151    | 
|Deposits with drug wholesalers                                |  |        |          |                          |   | 44,740                       |  |                                            |        |                                     |   |           |   |   | 44,740    | 
|Accounts receivable, net (including intercompany)             |  |        |          |                          |   | 1,371,500                    |  |                                            | 50,111  |                                     |   | (26,639    | ) |   | 1,394,972 | 
|Unbilled receivables                                          |  |        |          |                          |   | 20,828                       |  |                                            |        |                                     |   |           |   |   | 20,828    | 
|Inventories                                                   |  |        |          |                          |   | 455,557                      |  |                                            | 20,870  |                                     |   |           |   |   | 476,427   | 
|Deferred income tax benefits (liabilities), net-current       |  |        | (3,925    | )                        |   | 120,183                      |  |                                            | 299     |                                     |   |           |   |   | 116,557   | 
|Other current assets                                          |  |        | 1,643     |                          |   | 170,765                      |  |                                            | 3,914   |                                     |   |           |   |   | 176,322   | 
|                                                              |  |        |           |                          |   |                              |  |                                            |         |                                     |   |            |   |   |           | 
|Total current assets                                          |  |        | 236,309   |                          |   | 2,244,343                    |  |                                            | 103,484 |                                     |   | (26,639    | ) |   | 2,557,497 | 
|                                                              |  |        |           |                          |   |                              |  |                                            |         |                                     |   |            |   |   |           | 
|Properties and equipment, net                                 |  |        |          |                          |   | 206,916                      |  |                                            | 15,854  |                                     |   |           |   |   | 222,770   | 
|Goodwill                                                      |  |        |          |                          |   | 3,969,895                    |  |                                            | 101,819 |                                     |   |           |   |   | 4,071,714 | 
|Identifiable intangible assets, net                           |  |        |          |                          |   | 332,070                      |  |                                            |        |                                     |   |           |   |   | 332,070   | 
|Other noncurrent assets                                       |  |        | 66,639    |                          |   | 127,769                      |  |                                            | 584     |                                     |   |           |   |   | 194,992   | 
|Investment in subsidiaries                                    |  |        | 5,804,269 |                          |   |                             |  |                                            |        |                                     |   | (5,804,269 | ) |   |          | 
|                                                              |  |        |           |                          |   |                              |  |                                            |         |                                     |   |            |   |   |           | 
|Total assets                                                  |  | $      | 6,107,217 |                          | $ | 6,880,993                    |  | $                                          | 221,741 |                                     | $ | (5,830,908 | ) | $ | 7,379,043 | 
|                                                              |  |        |           |                          |   |                              |  |                                            |         |                                     |   |            |   |   |           | 
|                                                              |  |        |           |                          |   |                              |  |                                            |         |                                     |   |            |   |   |           | 
|LIABILITIES AND STOCKHOLDERS EQUITY                          |  |        |           |                          |   |                              |  |                                            |         |                                     |   |            |   |   |           | 
|Current liabilities
        (including intercompany) - Note 7 |  | $      | 401,582   |                          | $ | 658,801                      |  | $                                          | 44,891  |                                     | $ | (26,639    | ) | $ | 1,078,635 | 
|Long-term debt                                                |  |        | 700,000   |                          |   | 4,925                        |  |                                            | 46,043  |                                     |   |           |   |   | 750,968   | 
|8.125% senior subordinated notes, due 2011                    |  |        | 8,225     |                          |   |                             |  |                                            |        |                                     |   |           |   |   | 8,225     | 
|6.125% senior subordinated notes, net, due 2013               |  |        | 224,401   |                          |   |                             |  |                                            |        |                                     |   |           |   |   | 224,401   | 
|6.75% senior subordinated notes, due 2013                     |  |        | 225,000   |                          |   |                             |  |                                            |        |                                     |   |           |   |   | 225,000   | 
|6.875% senior subordinated notes, due 2015                    |  |        | 525,000   |                          |   |                             |  |                                            |        |                                     |   |           |   |   | 525,000   | 
|3.25% convertible senior debentures, due 2035                 |  |        | 977,500   |                          |   |                             |  |                                            |        |                                     |   |           |   |   | 977,500   | 
|Deferred income tax liabilities (benefits), net-noncurrent    |  |        | (34,150   | )                        |   | 305,246                      |  |                                            | (6,022  | )                                   |   |           |   |   | 265,074   | 
|Other noncurrent liabilities                                  |  |        | 25,600    |                          |   | 243,531                      |  |                                            | 1,050   |                                     |   |           |   |   | 270,181   | 
|Stockholders equity                                          |  |        | 3,054,059 |                          |   | 5,668,490                    |  |                                            | 135,779 |                                     |   | (5,804,269 | ) |   | 3,054,059 | 
|                                                              |  |        |           |                          |   |                              |  |                                            |         |                                     |   |            |   |   |           | 
|Total liabilities and stockholders
equity                    |  | $      | 6,107,217 |                          | $ | 6,880,993                    |  | $                                          | 221,741 |                                     | $ | (5,830,908 | ) | $ | 7,379,043 | 
|                                                              |  |        |           |                          |   |                              |  |                                            |         |                                     |   |            |   |   |           | 

|                                                              |  |   |           |   |   |           |  |   |         |   |   |            |   |   |           | 
|------------------------------------------------------------- |  | - | --------- | - | - | --------- |  | - | ------- | - | - | ---------- | - | - | --------- | 
|As of December 31, 2005:                                      |  |   |           |   |   |           |  |   |         |   |   |            |   |   |           | 
|                                                              |  |   |           |   |   |           |  |   |         |   |   |            |   |   |           | 
|                                                              |  |   |           |   |   |           |  |   |         |   |   |            |   |   |           | 
|ASSETS                                                        |  |   |           |   |   |           |  |   |         |   |   |            |   |   |           | 
|Cash and cash equivalents                                     |  | $ | 143,227   |   | $ | 38,999    |  | $ | 33,195  |   | $ |           |   | $ | 215,421   | 
|Restricted cash                                               |  |   |          |   |   | 2,674     |  |   |        |   |   |           |   |   | 2,674     | 
|Deposits with drug wholesalers                                |  |   |          |   |   | 83,036    |  |   |        |   |   |           |   |   | 83,036    | 
|Accounts receivable, net (including intercompany)             |  |   |          |   |   | 1,244,234 |  |   | 43,332  |   |   | (26,932    | ) |   | 1,260,634 | 
|Unbilled receivables                                          |  |   |          |   |   | 17,195    |  |   |        |   |   |           |   |   | 17,195    | 
|Inventories                                                   |  |   |          |   |   | 457,072   |  |   | 16,870  |   |   |           |   |   | 473,942   | 
|Deferred income tax benefits (liabilities), net-current       |  |   | (369      | ) |   | 108,016   |  |   | 320     |   |   |           |   |   | 107,967   | 
|Other current assets                                          |  |   | 1,469     |   |   | 196,152   |  |   | 2,405   |   |   |           |   |   | 200,026   | 
|                                                              |  |   |           |   |   |           |  |   |         |   |   |            |   |   |           | 
|Total current assets                                          |  |   | 144,327   |   |   | 2,147,378 |  |   | 96,122  |   |   | (26,932    | ) |   | 2,360,895 | 
|                                                              |  |   |           |   |   |           |  |   |         |   |   |            |   |   |           | 
|Properties and equipment, net                                 |  |   |          |   |   | 215,625   |  |   | 16,109  |   |   |           |   |   | 231,734   | 
|Goodwill                                                      |  |   |          |   |   | 3,932,201 |  |   | 97,281  |   |   |           |   |   | 4,029,482 | 
|Identifiable intangible assets, net                           |  |   |          |   |   | 339,474   |  |   |        |   |   |           |   |   | 339,474   | 
|Other noncurrent assets                                       |  |   | 68,616    |   |   | 126,775   |  |   | 429     |   |   |           |   |   | 195,820   | 
|Investment in subsidiaries                                    |  |   | 5,764,008 |   |   |          |  |   |        |   |   | (5,764,008 | ) |   |          | 
|                                                              |  |   |           |   |   |           |  |   |         |   |   |            |   |   |           | 
|Total assets                                                  |  | $ | 5,976,951 |   | $ | 6,761,453 |  | $ | 209,941 |   | $ | (5,790,940 | ) | $ | 7,157,405 | 
|                                                              |  |   |           |   |   |           |  |   |         |   |   |            |   |   |           | 
|                                                              |  |   |           |   |   |           |  |   |         |   |   |            |   |   |           | 
|LIABILITIES AND STOCKHOLDERS EQUITY                          |  |   |           |   |   |           |  |   |         |   |   |            |   |   |           | 
|Current liabilities
        (including intercompany) - Note 7 |  | $ | 377,269   |   | $ | 602,516   |  | $ | 47,651  |   | $ | (26,932    | ) | $ | 1,000,504 | 
|Long-term debt                                                |  |   | 700,000   |   |   | 6,837     |  |   | 46,064  |   |   |           |   |   | 752,901   | 
|8.125% senior subordinated notes, due 2011                    |  |   | 8,775     |   |   |          |  |   |        |   |   |           |   |   | 8,775     | 
|6.125% senior subordinated notes, net, due 2013               |  |   | 230,216   |   |   |          |  |   |        |   |   |           |   |   | 230,216   | 
|6.75% senior subordinated notes, due 2013                     |  |   | 225,000   |   |   |          |  |   |        |   |   |           |   |   | 225,000   | 
|6.875% senior subordinated notes, due 2015                    |  |   | 525,000   |   |   |          |  |   |        |   |   |           |   |   | 525,000   | 
|3.25% convertible senior debentures, due 2035                 |  |   | 977,500   |   |   |          |  |   |        |   |   |           |   |   | 977,500   | 
|Deferred income tax liabilities (benefits),
net-noncurrent    |  |   | (28,639   | ) |   | 283,701   |  |   | (6,028  | ) |   |           |   |   | 249,034   | 
|Other noncurrent liabilities                                  |  |   | 19,784    |   |   | 225,796   |  |   | 849     |   |   |           |   |   | 246,429   | 
|Stockholders equity                                          |  |   | 2,942,046 |   |   | 5,642,603 |  |   | 121,405 |   |   | (5,764,008 | ) |   | 2,942,046 | 
|                                                              |  |   |           |   |   |           |  |   |         |   |   |            |   |   |           | 
|Total liabilities and stockholders
equity                    |  | $ | 5,976,951 |   | $ | 6,761,453 |  | $ | 209,941 |   | $ | (5,790,940 | ) | $ | 7,157,405 | 
|                                                              |  |   |           |   |   |           |  |   |         |   |   |            |   |   |           | 

26

---



13. Guarantor Subsidiaries (Continued)

Condensed Consolidating Statements of Cash
Flows

|                                                                                                          |  |                              |          |                           |   |                               |   |                                      |        |   |   |          |  
|--------------------------------------------------------------------------------------------------------- |  | ---------------------------- | -------- | ------------------------- | - | ----------------------------- | - | ------------------------------------ | ------ | - | - | -------- | -
|(in
  thousands)                                                                                          |  | Three months ended March 31, |         
|                                                                                                          |  |                              |         
|2006:                                                                                                     |  | Parent                       |          | Guarantor 
  Subsidiaries |   | Non-Guarantor 
  Subsidiaries |   | Omnicare, Inc. 
  and
  Subsidiaries |       
|                                                                                                          |  |                              |          |                           |   |                               |   |                                      |        |   |   |          |  
|                                                                                                          |  |                              |          |                           |   |                               |   |                                      |        |   |   |          |  
|Cash flows from operating activities:                                                                     |  |                              |          |                           |   |                               |   |                                      |        |   |   |          |  
|Provision for doubtful accounts                                                                           |  | $                            |         |                           | $ | 16,784                        |   | $                                    | 310    |   | $ | 17,094   |  
|Other                                                                                                     |  |                              | (14,312  | )                         |   | 89,871                        |   |                                      | (9,876 | ) |   | 65,683   |  
|                                                                                                          |  |                              |          |                           |   |                               |   |                                      |        |   |   |          |  
|Net cash flows from operating activities                                                                  |  |                              | (14,312  | )                         |   | 106,655                       |   |                                      | (9,566 | ) |   | 82,777   |  
|                                                                                                          |  |                              |          |                           |   |                               |   |                                      |        |   |   |          |  
|                                                                                                          |  |                              |          |                           |   |                               |   |                                      |        |   |   |          |  
|Cash flows from investing activities:                                                                     |  |                              |          |                           |   |                               |   |                                      |        |   |   |          |  
|Acquisition of businesses, net of cash received                                                           |  |                              |         |                           |   | (24,047                       | ) |                                      | 846    |   |   | (23,201  | )
|Capital expenditures                                                                                      |  |                              |         |                           |   | (6,009                        | ) |                                      | (100   | ) |   | (6,109   | )
|Transfer of cash to trusts for employee health and severance costs,
  net of payments out of the trust    |  |                              |         |                           |   | (9,871                        | ) |                                      |       |   |   | (9,871   | )
|Other                                                                                                     |  |                              |         |                           |   | 82                            |   |                                      |       |   |   | 82       |  
|                                                                                                          |  |                              |          |                           |   |                               |   |                                      |        |   |   |          |  
|Net cash flows from investing activities                                                                  |  |                              |         |                           |   | (39,845                       | ) |                                      | 746    |   |   | (39,099  | )
|                                                                                                          |  |                              |          |                           |   |                               |   |                                      |        |   |   |          |  
|                                                                                                          |  |                              |          |                           |   |                               |   |                                      |        |   |   |          |  
|Cash flows from financing activities:                                                                     |  |                              |          |                           |   |                               |   |                                      |        |   |   |          |  
|Borrowings on line of credit facilities and term A loan                                                   |  |                              | 133,000  |                           |   |                              |   |                                      |       |   |   | 133,000  |  
|Payments on line of credit facilities and term A loan                                                     |  |                              | (133,000 | )                         |   |                              |   |                                      |       |   |   | (133,000 | )
|(Payments on) / proceeds from long-term borrowings and
obligations                                        |  |                              | (521     | )                         |   | 21                            |   |                                      | (21    | ) |   | (521     | )
|Fees paid for financing arrangements                                                                      |  |                              | (2,052   | )                         |   |                              |   |                                      |       |   |   | (2,052   | )
|Change in cash overdraft balance                                                                          |  |                              | 2,164    |                           |   | 6,259                         |   |                                      |       |   |   | 8,423    |  
|Proceeds from stock offering, net of issuance costs                                                       |  |                              | 49,239   |                           |   |                              |   |                                      |       |   |   | 49,239   |  
|Proceeds from stock awards and exercise of stock options and
  warrants, net of stock tendered in payment |  |                              | (6,030   | )                         |   |                              |   |                                      |       |   |   | (6,030   | )
|Excess tax benefits from stock-based compensation                                                         |  |                              | 10,021   |                           |   |                              |   |                                      |        |   |   | 10,021   |  
|Dividends paid                                                                                            |  |                              | (2,725   | )                         |   |                              |   |                                      |       |   |   | (2,725   | )
|Other                                                                                                     |  |                              | 59,580   |                           |   | (63,470                       | ) |                                      | 3,890  |   |   |         |  
|                                                                                                          |  |                              |          |                           |   |                               |   |                                      |        |   |   |          |  
|Net cash flows from financing activities                                                                  |  |                              | 109,676  |                           |   | (57,190                       | ) |                                      | 3,869  |   |   | 56,355   |  
|                                                                                                          |  |                              |          |                           |   |                               |   |                                      |        |   |   |          |  
|                                                                                                          |  |                              |          |                           |   |                               |   |                                      |        |   |   |          |  
|Effect of exchange rate changes on cash                                                                   |  |                              |         |                           |   |                              |   |                                      | 46     |   |   | 46       |  
|                                                                                                          |  |                              |          |                           |   |                               |   |                                      |        |   |   |          |  
|                                                                                                          |  |                              |          |                           |   |                               |   |                                      |        |   |   |          |  
|Net increase
        (decrease) in cash and cash equivalents                                              |  |                              | 95,364   |                           |   | 9,620                         |   |                                      | (4,905 | ) |   | 100,079  |  
|Cash and cash equivalents at beginning of year                                                            |  |                              | 143,227  |                           |   | 38,999                        |   |                                      | 33,195 |   |   | 215,421  |  
|                                                                                                          |  |                              |          |                           |   |                               |   |                                      |        |   |   |          |  
|Cash and cash equivalents at end of year                                                                  |  | $                            | 238,591  |                           | $ | 48,619                        |   | $                                    | 28,290 |   | $ | 315,500  |  
|                                                                                                          |  |                              |          |                           |   |                               |   |                                      |        |   |   |          |  

27

---



13. Guarantor Subsidiaries (Continued)

Condensed Consolidating Statements of Cash
Flows - Continued

|                                                                                                          |  |                              |          |   |   |                           |   |   |                               |   |   |                                       |  
|--------------------------------------------------------------------------------------------------------- |  | ---------------------------- | -------- | - | - | ------------------------- | - | - | ----------------------------- | - | - | ------------------------------------- | -
|(in
  thousands)                                                                                          |  | Three months ended March 31, |         
|                                                                                                          |  |                              |         
|2005:                                                                                                     |  |                              | Parent   |   |   | Guarantor 
  Subsidiaries |   |   | Non-Guarantor 
  Subsidiaries |   |   | Omnicare, Inc. 
  and 
  Subsidiaries |  
|                                                                                                          |  |                              |          |   |   |                           |   |   |                               |   |   |                                       |  
|                                                                                                          |  |                              |          |   |   |                           |   |   |                               |   |   |                                       |  
|Cash flows from operating activities:                                                                     |  |                              |          |   |   |                           |   |   |                               |   |   |                                       |  
|Provision for doubtful accounts                                                                           |  | $                            |         |   | $ | 12,174                    |   | $ | 235                           |   | $ | 12,409                                |  
|Other                                                                                                     |  |                              | (8,078   | ) |   | 98,205                    |   |   | (37,482                       | ) |   | 52,645                                |  
|                                                                                                          |  |                              |          |   |   |                           |   |   |                               |   |   |                                       |  
|Net cash flows from operating activities                                                                  |  |                              | (8,078   | ) |   | 110,379                   |   |   | (37,247                       | ) |   | 65,054                                |  
|                                                                                                          |  |                              |          |   |   |                           |   |   |                               |   |   |                                       |  
|                                                                                                          |  |                              |          |   |   |                           |   |   |                               |   |   |                                       |  
|Cash flows from investing activities:                                                                     |  |                              |          |   |   |                           |   |   |                               |   |   |                                       |  
|Acquisition of businesses, net of cash received                                                           |  |                              |         |   |   | (27,059                   | ) |   | (1,121                        | ) |   | (28,180                               | )
|Capital expenditures                                                                                      |  |                              |         |   |   | (3,088                    | ) |   | (45                           | ) |   | (3,133                                | )
|Transfer of cash to trusts for employee health and severance costs,
  net of payments out of the trust    |  |                              |         |   |   | (5,522                    | ) |   |                              |   |   | (5,522                                | )
|Other                                                                                                     |  |                              |         |   |   | 34                        |   |   |                              |   |   | 34                                    |  
|                                                                                                          |  |                              |          |   |   |                           |   |   |                               |   |   |                                       |  
|Net cash flows from investing activities                                                                  |  |                              |         |   |   | (35,635                   | ) |   | (1,166                        | ) |   | (36,801                               | )
|                                                                                                          |  |                              |          |   |   |                           |   |   |                               |   |   |                                       |  
|                                                                                                          |  |                              |          |   |   |                           |   |   |                               |   |   |                                       |  
|Cash flows from financing activities:                                                                     |  |                              |          |   |   |                           |   |   |                               |   |   |                                       |  
|Borrowings on line of credit facilities                                                                   |  |                              | 157,000  |   |   |                          |   |   |                              |   |   | 157,000                               |  
|Payments on line of credit facilities and term A loan                                                     |  |                              | (163,154 | ) |   |                          |   |   |                              |   |   | (163,154                              | )
|(Payments on)/proceeds from long-term borrowings and
obligations                                          |  |                              | (83      | ) |   |                          |   |   | 41,393                        |   |   | 41,310                                |  
|Fees paid for financing arrangements                                                                      |  |                              | (1,454   | ) |   |                          |   |   |                              |   |   | (1,454                                | )
|Change in cash overdraft balance                                                                          |  |                              | (4,063   | ) |   | 2,418                     |   |   |                              |   |   | (1,645                                | )
|Proceeds from stock awards and exercise of stock options and
  warrants, net of stock tendered in payment |  |                              | 605      |   |   |                          |   |   |                              |   |   | 605                                   |  
|Dividends paid                                                                                            |  |                              | (2,358   | ) |   |                          |   |   |                              |   |   | (2,358                                | )
|Other                                                                                                     |  |                              | 81,252   |   |   | (81,252                   | ) |   |                              |   |   |                                      |  
|                                                                                                          |  |                              |          |   |   |                           |   |   |                               |   |   |                                       |  
|Net cash flows from financing activities                                                                  |  |                              | 67,745   |   |   | (78,834                   | ) |   | 41,393                        |   |   | 30,304                                |  
|                                                                                                          |  |                              |          |   |   |                           |   |   |                               |   |   |                                       |  
|                                                                                                          |  |                              |          |   |   |                           |   |   |                               |   |   |                                       |  
|Effect of exchange rate changes on cash                                                                   |  |                              |         |   |   |                          |   |   | 297                           |   |   | 297                                   |  
|                                                                                                          |  |                              |          |   |   |                           |   |   |                               |   |   |                                       |  
|                                                                                                          |  |                              |          |   |   |                           |   |   |                               |   |   |                                       |  
|Net increase (decrease) in cash and cash equivalents                                                      |  |                              | 59,667   |   |   | (4,090                    | ) |   | 3,277                         |   |   | 58,854                                |  
|Cash and cash equivalents at beginning of period                                                          |  |                              | 46,569   |   |   | 32,453                    |   |   | 5,147                         |   |   | 84,169                                |  
|                                                                                                          |  |                              |          |   |   |                           |   |   |                               |   |   |                                       |  
|Cash and cash equivalents at end of period                                                                |  | $                            | 106,236  |   | $ | 28,363                    |   | $ | 8,424                         |   | $ | 143,023                               |  
|                                                                                                          |  |                              |          |   |   |                           |   |   |                               |   |   |                                       |  

28

---



13. Guarantor Subsidiaries (Continued)

The
Companys 3.25% Convertible Debentures due 2035 are fully and unconditionally
guaranteed on an unsecured basis by Omnicare Purchasing Company, LP, a
wholly-owned subsidiary of the Company (the Guarantor Subsidiary). The
following condensed consolidating financial data illustrates the composition of
Omnicare, Inc. (Parent), the Guarantor Subsidiary and the Non-Guarantor
Subsidiaries as of March 31, 2006 and December 31, 2005 for the balance sheets,
as well as the statements of income and the statements of cash flows for each
of the three months ended March 31, 2006 and 2005. Separate complete financial
statements of the respective Guarantor Subsidiary would not provide additional
information that would be useful in assessing the financial condition of the
Guarantor Subsidiary and thus are not presented. The Guarantor Subsidiary does
not have any material net cash flows in the condensed consolidating statements
of cash flows. No eliminations column is presented for the condensed
consolidating statements of cash flows since there were no significant eliminating
amounts during the periods presented.

Summary
Consolidating Statements of Income

|                                                     |  |                                      |         |   |   |                               |   |   |                                     |   |   |                                                         |   |   |                                                 |  
|---------------------------------------------------- |  | ------------------------------------ | ------- | - | - | ----------------------------- | - | - | ----------------------------------- | - | - | ------------------------------------------------------- | - | - | ----------------------------------------------- | -
|(in thousands)                                       |  | Three months
        ended March 31, |        
|                                                     |  |                                      |        
|2006:                                                |  |                                      | Parent  |   |   | Guarantor 
        Subsidiary |   |   | Non-Guarantor 
        Subsidiaries |   |   | Consolidating/
        Eliminating 
        Adjustments |   |   | Omnicare, Inc.
        and
        Subsidiaries |  
|                                                     |  |                                      |         |   |   |                               |   |   |                                     |   |   |                                                         |   |   |                                                 |  
|                                                    
|Net
        sales                                    |  | $                                    |        |   | $ |                              |   | $ | 1,658,598                           |   | $ |                                                        |   | $ | 1,658,598                                       |  
|Cost
        of sales                                |  |                                      |        |   |   |                              |   |   | 1,242,083                           |   |   |                                                        |   |   | 1,242,083                                       |  
|                                                     |  |                                      |         |   |   |                               |   |   |                                     |   |   |                                                         |   |   |                                                 |  
|Gross
        profit                                 |  |                                      |        |   |   |                              |   |   | 416,515                             |   |   |                                                        |   |   | 416,515                                         |  
|Selling,
        general and administrative expenses |  |                                      | 1,981   |   |   | 261                           |   |   | 245,100                             |   |   |                                                        |   |   | 247,342                                         |  
|Restructuring
        and other related charges      |  |                                      |        |   |   |                              |   |   | 7,713                               |   |   |                                                        |   |   | 7,713                                           |  
|Litigation
        charge                            |  |                                      |        |   |   |                              |   |   | 34,100                              |   |   |                                                        |   |   | 34,100                                          |  
|                                                     |  |                                      |         |   |   |                               |   |   |                                     |   |   |                                                         |   |   |                                                 |  
|Operating
        income (loss)                      |  |                                      | (1,981  | ) |   | (261                          | ) |   | 129,602                             |   |   |                                                        |   |   | 127,360                                         |  
|Investment
        income                            |  |                                      | 991     |   |   |                              |   |   | 808                                 |   |   |                                                        |   |   | 1,799                                           |  
|Interest
        expense                             |  |                                      | (41,192 | ) |   |                              |   |   | (1,220                              | ) |   |                                                        |   |   | (42,412                                         | )
|                                                     |  |                                      |         |   |   |                               |   |   |                                     |   |   |                                                         |   |   |                                                 |  
|Income
        (loss) before income taxes            |  |                                      | (42,182 | ) |   | (261                          | ) |   | 129,190                             |   |   |                                                        |   |   | 86,747                                          |  
|Income
        tax (benefit) expense                 |  |                                      | (15,228 | ) |   | (94                           | ) |   | 48,838                              |   |   |                                                        |   |   | 33,516                                          |  
|Equity
        in net income of subsidiaries         |  |                                      | 80,185  |   |   |                              |   |   |                                    |   |   | (80,185                                                 | ) |   |                                                |  
|                                                     |  |                                      |         |   |   |                               |   |   |                                     |   |   |                                                         |   |   |                                                 |  
|Net
        income (loss)                            |  | $                                    | 53,231  |   | $ | (167                          | ) | $ | 80,352                              |   | $ | (80,185                                                 | ) | $ | 53,231                                          |  
|                                                     |  |                                      |         |   |   |                               |   |   |                                     |   |   |                                                         |   |   |                                                 |  

|                                             |  |   |         |   |   |      |   |   |           |   |   |         |   |   |           |  
|-------------------------------------------- |  | - | ------- | - | - | ---- | - | - | --------- | - | - | ------- | - | - | --------- | -
|2005:                                        |  |   |         |   |   |      |   |   |           |   |   |         |   |   |           |  
|                                             |  |   |         |   |   |      |   |   |           |   |   |         |   |   |           |  
|                                            
|Net sales                                    |  | $ |        |   | $ |     |   | $ | 1,096,146 |   | $ |        |   | $ | 1,096,146 |  
|Cost of sales                                |  |   |        |   |   |     |   |   | 826,824   |   |   |        |   |   | 826,824   |  
|                                             |  |   |         |   |   |      |   |   |           |   |   |         |   |   |           |  
|Gross profit                                 |  |   |        |   |   |     |   |   | 269,322   |   |   |        |   |   | 269,322   |  
|Selling, general and administrative
expenses |  |   | 1,820   |   |   | 227  |   |   | 155,712   |   |   |        |   |   | 157,759   |  
|                                             |  |   |         |   |   |      |   |   |           |   |   |         |   |   |           |  
|Operating income (loss)                      |  |   | (1,820  | ) |   | (227 | ) |   | 113,610   |   |   |        |   |   | 111,563   |  
|Investment income                            |  |   | 331     |   |   |     |   |   | 822       |   |   |        |   |   | 1,153     |  
|Interest expense                             |  |   | (19,276 | ) |   |     |   |   | (643      | ) |   |        |   |   | (19,919   | )
|                                             |  |   |         |   |   |      |   |   |           |   |   |         |   |   |           |  
|Income (loss) before income taxes            |  |   | (20,765 | ) |   | (227 | ) |   | 113,789   |   |   |        |   |   | 92,797    |  
|Income tax (benefit) expense                 |  |   | (7,787  | ) |   | (85  | ) |   | 42,674    |   |   |        |   |   | 34,802    |  
|Equity in net income of subsidiaries         |  |   | 70,973  |   |   |     |   |   |          |   |   | (70,973 | ) |   |          |  
|                                             |  |   |         |   |   |      |   |   |           |   |   |         |   |   |           |  
|Net income (loss)                            |  | $ | 57,995  |   | $ | (142 | ) | $ | 71,115    |   | $ | (70,973 | ) | $ | 57,995    |  
|                                             |  |   |         |   |   |      |   |   |           |   |   |         |   |   |           |  

29

---



13. Guarantor Subsidiaries (Continued)

Condensed Consolidating Balance Sheets

|                                                              |  |        |           |                        |   |                              |  |                                            |           |                                     |   |            |   |   |           | 
|------------------------------------------------------------- |  | ------ | --------- | ---------------------- | - | ---------------------------- |  | ------------------------------------------ | --------- | ----------------------------------- | - | ---------- | - | - | --------- | 
|(in thousands)                                                |  |        |           |                        |   |                              |  |                                            |           |                                     |   |            |   |   |           | 
|                                                             
|As of March 31, 2006:                                         |  | Parent |           | Guarantor
  Subsidiary |   | Non-Guarantor
  Subsidiaries |  | Consolidating/
  Eliminating
  Adjustments |           | Omnicare, Inc.
  and
  Subsidiaries |  
|                                                              |  |        |           |                        |   |                              |  |                                            |           |                                     |  
|ASSETS                                                        |  |        |           |                        |   |                              |  |                                            |           |                                     |   |            |   |   |           | 
|Cash and cash equivalents                                     |  | $      | 238,591   |                        | $ |                             |  | $                                          | 76,909    |                                     | $ |           |   | $ | 315,500   | 
|Restricted cash                                               |  |        |          |                        |   |                             |  |                                            | 12,151    |                                     |   |           |   |   | 12,151    | 
|Deposits with drug wholesalers                                |  |        |          |                        |   |                             |  |                                            | 44,740    |                                     |   |           |   |   | 44,740    | 
|Accounts receivable, net (including
intercompany)             |  |        |          |                        |   | 170                          |  |                                            | 1,394,972 |                                     |   | (170       | ) |   | 1,394,972 | 
|Unbilled receivables                                          |  |        |          |                        |   |                             |  |                                            | 20,828    |                                     |   |           |   |   | 20,828    | 
|Inventories                                                   |  |        |          |                        |   |                             |  |                                            | 476,427   |                                     |   |           |   |   | 476,427   | 
|Deferred income tax benefits (liabilities),
net-current       |  |        | (3,925    | )                      |   |                             |  |                                            | 120,482   |                                     |   |           |   |   | 116,557   | 
|Other current assets                                          |  |        | 1,643     |                        |   |                             |  |                                            | 174,679   |                                     |   |           |   |   | 176,322   | 
|                                                              |  |        |           |                        |   |                              |  |                                            |           |                                     |   |            |   |   |           | 
|Total current assets                                          |  |        | 236,309   |                        |   | 170                          |  |                                            | 2,321,188 |                                     |   | (170       | ) |   | 2,557,497 | 
|                                                              |  |        |           |                        |   |                              |  |                                            |           |                                     |   |            |   |   |           | 
|Properties and equipment, net                                 |  |        |          |                        |   | 37                           |  |                                            | 222,733   |                                     |   |           |   |   | 222,770   | 
|Goodwill                                                      |  |        |          |                        |   |                             |  |                                            | 4,071,714 |                                     |   |           |   |   | 4,071,714 | 
|Identifiable intangible assets, net                           |  |        |          |                        |   |                             |  |                                            | 332,070   |                                     |   |           |   |   | 332,070   | 
|Other noncurrent assets                                       |  |        | 66,639    |                        |   | 19                           |  |                                            | 128,334   |                                     |   |           |   |   | 194,992   | 
|Investment in subsidiaries                                    |  |        | 5,804,269 |                        |   |                             |  |                                            |          |                                     |   | (5,804,269 | ) |   |          | 
|                                                              |  |        |           |                        |   |                              |  |                                            |           |                                     |   |            |   |   |           | 
|Total assets                                                  |  | $      | 6,107,217 |                        | $ | 226                          |  | $                                          | 7,076,039 |                                     | $ | (5,804,439 | ) | $ | 7,379,043 | 
|                                                              |  |        |           |                        |   |                              |  |                                            |           |                                     |   |            |   |   |           | 
|                                                              |  |        |           |                        |   |                              |  |                                            |           |                                     |   |            |   |   |           | 
|LIABILITIES AND STOCKHOLDERS
EQUITY                          |  |        |           |                        |   |                              |  |                                            |           |                                     |   |            |   |   |           | 
|Current liabilities
        (including intercompany) - Note 7 |  | $      | 401,582   |                        | $ |                             |  | $                                          | 677,223   |                                     | $ | (170       | ) | $ | 1,078,635 | 
|Long-term debt                                                |  |        | 700,000   |                        |   |                             |  |                                            | 50,968    |                                     |   |           |   |   | 750,968   | 
|8.125% senior subordinated notes, due
2011                    |  |        | 8,225     |                        |   |                             |  |                                            |          |                                     |   |           |   |   | 8,225     | 
|6.125% senior subordinated notes, net, due
2013               |  |        | 224,401   |                        |   |                             |  |                                            |          |                                     |   |           |   |   | 224,401   | 
|6.75% senior subordinated notes, due
2013                     |  |        | 225,000   |                        |   |                             |  |                                            |          |                                     |   |           |   |   | 225,000   | 
|6.875% senior subordinated notes, due
2015                    |  |        | 525,000   |                        |   |                             |  |                                            |          |                                     |   |           |   |   | 525,000   | 
|3.25% convertible senior debentures, due
2035                 |  |        | 977,500   |                        |   |                             |  |                                            |          |                                     |   |           |   |   | 977,500   | 
|Deferred income tax liabilities (benefits),
net-noncurrent    |  |        | (34,150   | )                      |   |                             |  |                                            | 299,224   |                                     |   |           |   |   | 265,074   | 
|Other noncurrent liabilities                                  |  |        | 25,600    |                        |   |                             |  |                                            | 244,581   |                                     |   |           |   |   | 270,181   | 
|Stockholders equity                                          |  |        | 3,054,059 |                        |   | 226                          |  |                                            | 5,804,043 |                                     |   | (5,804,269 | ) |   | 3,054,059 | 
|                                                              |  |        |           |                        |   |                              |  |                                            |           |                                     |   |            |   |   |           | 
|Total liabilities and
stockholders equity                    |  | $      | 6,107,217 |                        | $ | 226                          |  | $                                          | 7,076,039 |                                     | $ | (5,804,439 | ) | $ | 7,379,043 | 
|                                                              |  |        |           |                        |   |                              |  |                                            |           |                                     |   |            |   |   |           | 

|                                                              |  |   |           |   |   |     |  |   |           |  |   |            |   |   |           | 
|------------------------------------------------------------- |  | - | --------- | - | - | --- |  | - | --------- |  | - | ---------- | - | - | --------- | 
|As of December 31, 2005:                                      |  |   |           |   |   |     |  |   |           |  |   |            |   |   |           | 
|                                                              |  |   |           |   |   |     |  |   |           |  |   |            |   |   |           | 
|ASSETS                                                        |  |   |           |   |   |     |  |   |           |  |   |            |   |   |           | 
|Cash and cash equivalents                                     |  | $ | 143,227   |   | $ |    |  | $ | 72,194    |  | $ |           |   | $ | 215,421   | 
|Restricted cash                                               |  |   |          |   |   |    |  |   | 2,674     |  |   |           |   |   | 2,674     | 
|Deposits with drug wholesalers                                |  |   |          |   |   |    |  |   | 83,036    |  |   |           |   |   | 83,036    | 
|Accounts receivable, net (including
intercompany)             |  |   |          |   |   | 169 |  |   | 1,260,634 |  |   | (169       | ) |   | 1,260,634 | 
|Unbilled receivables                                          |  |   |          |   |   |    |  |   | 17,195    |  |   |           |   |   | 17,195    | 
|Inventories                                                   |  |   |          |   |   |    |  |   | 473,942   |  |   |           |   |   | 473,942   | 
|Deferred income tax benefits (liabilities),
net-current       |  |   | (369      | ) |   |    |  |   | 108,336   |  |   |           |   |   | 107,967   | 
|Other current assets                                          |  |   | 1,469     |   |   |    |  |   | 198,557   |  |   |           |   |   | 200,026   | 
|                                                              |  |   |           |   |   |     |  |   |           |  |   |            |   |   |           | 
|Total current assets                                          |  |   | 144,327   |   |   | 169 |  |   | 2,216,568 |  |   | (169       | ) |   | 2,360,895 | 
|                                                              |  |   |           |   |   |     |  |   |           |  |   |            |   |   |           | 
|Properties and equipment, net                                 |  |   |          |   |   | 38  |  |   | 231,696   |  |   |           |   |   | 231,734   | 
|Goodwill                                                      |  |   |          |   |   |    |  |   | 4,029,482 |  |   |           |   |   | 4,029,482 | 
|Identifiable intangible assets, net                           |  |   |          |   |   |    |  |   | 339,474   |  |   |           |   |   | 339,474   | 
|Other noncurrent assets                                       |  |   | 68,616    |   |   | 19  |  |   | 127,185   |  |   |           |   |   | 195,820   | 
|Investment in subsidiaries                                    |  |   | 5,764,008 |   |   |    |  |   |          |  |   | (5,764,008 | ) |   |          | 
|                                                              |  |   |           |   |   |     |  |   |           |  |   |            |   |   |           | 
|Total assets                                                  |  | $ | 5,976,951 |   | $ | 226 |  | $ | 6,944,405 |  | $ | (5,764,177 | ) | $ | 7,157,405 | 
|                                                              |  |   |           |   |   |     |  |   |           |  |   |            |   |   |           | 
|                                                              |  |   |           |   |   |     |  |   |           |  |   |            |   |   |           | 
|LIABILITIES AND STOCKHOLDERS
EQUITY                          |  |   |           |   |   |     |  |   |           |  |   |            |   |   |           | 
|Current liabilities
        (including intercompany) - Note 7 |  | $ | 377,269   |   | $ |    |  | $ | 623,404   |  | $ | (169       | ) | $ | 1,000,504 | 
|Long-term debt                                                |  |   | 700,000   |   |   |    |  |   | 52,901    |  |   |           |   |   | 752,901   | 
|8.125% senior subordinated notes, due
2011                    |  |   | 8,775     |   |   |    |  |   |          |  |   |           |   |   | 8,775     | 
|6.125% senior subordinated notes, net, due
2013               |  |   | 230,216   |   |   |    |  |   |          |  |   |           |   |   | 230,216   | 
|6.75% senior subordinated notes, due
2013                     |  |   | 225,000   |   |   |    |  |   |          |  |   |           |   |   | 225,000   | 
|6.875% senior subordinated notes, due
2015                    |  |   | 525,000   |   |   |    |  |   |          |  |   |           |   |   | 525,000   | 
|3.25% convertible senior debentures, due
2035                 |  |   | 977,500   |   |   |    |  |   |          |  |   |           |   |   | 977,500   | 
|Deferred income tax liabilities (benefits),
net-noncurrent    |  |   | (28,639   | ) |   |    |  |   | 277,673   |  |   |           |   |   | 249,034   | 
|Other noncurrent liabilities                                  |  |   | 19,784    |   |   |    |  |   | 226,645   |  |   |           |   |   | 246,429   | 
|Stockholders equity                                          |  |   | 2,942,046 |   |   | 226 |  |   | 5,763,782 |  |   | (5,764,008 | ) |   | 2,942,046 | 
|                                                              |  |   |           |   |   |     |  |   |           |  |   |            |   |   |           | 
|Total liabilities and
stockholders equity                    |  | $ | 5,976,951 |   | $ | 226 |  | $ | 6,944,405 |  | $ | (5,764,177 | ) | $ | 7,157,405 | 
|                                                              |  |   |           |   |   |     |  |   |           |  |   |            |   |   |           | 

30

---



13. Guarantor Subsidiaries (Continued)

Condensed Consolidating Statements of Cash
Flows

|                                                                                                                        |  |                                      |          |                              |   |                                    |  |                                                         |         |   |   |          |  
|----------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------ | -------- | ---------------------------- | - | ---------------------------------- |  | ------------------------------------------------------- | ------- | - | - | -------- | -
|(in
        thousands)                                                                                                  |  | Three months
        ended March 31, |         
|                                                                                                                        |  |                                      |         
|2006:                                                                                                                   |  | Parent                               |          | Guarantor
        Subsidiary |   | Non-Guarantor
        Subsidiaries |  | Omnicare,
        Inc.
        and
        Subsidiaries |        
|                                                                                                                        |  |                                      |          |                              |   |                                    |  |                                                         |        
|Cash
        flows from operating activities:                                                                           |  |                                      |          |                              |   |                                    |  |                                                         |         |   |   |          |  
|Provision
        for doubtful accounts                                                                                 |  | $                                    |         |                              | $ |                                   |  | $                                                       | 17,094  |   | $ | 17,094   |  
|Other                                                                                                                   |  |                                      | (14,312  | )                            |   |                                   |  |                                                         | 79,995  |   |   | 65,683   |  
|                                                                                                                        |  |                                      |          |                              |   |                                    |  |                                                         |         |   |   |          |  
|Net
        cash flows from operating activities                                                                        |  |                                      | (14,312  | )                            |   |                                   |  |                                                         | 97,089  |   |   | 82,777   |  
|                                                                                                                        |  |                                      |          |                              |   |                                    |  |                                                         |         |   |   |          |  
|                                                                                                                        |  |                                      |          |                              |   |                                    |  |                                                         |         |   |   |          |  
|Cash
        flows from investing activities:                                                                           |  |                                      |          |                              |   |                                    |  |                                                         |         |   |   |          |  
|Acquisition
        of businesses, net of cash received                                                                 |  |                                      |         |                              |   |                                   |  |                                                         | (23,201 | ) |   | (23,201  | )
|Capital
        expenditures                                                                                            |  |                                      |         |                              |   |                                   |  |                                                         | (6,109  | ) |   | (6,109   | )
|Transfer
        of cash to trusts for employee health and severance costs, net of payments
        out of the trust    |  |                                      |         |                              |   |                                   |  |                                                         | (9,871  | ) |   | (9,871   | )
|Other                                                                                                                   |  |                                      |         |                              |   |                                   |  |                                                         | 82      |   |   | 82       |  
|                                                                                                                        |  |                                      |          |                              |   |                                    |  |                                                         |         |   |   |          |  
|Net
        cash flows from investing activities                                                                        |  |                                      |         |                              |   |                                   |  |                                                         | (39,099 | ) |   | (39,099  | )
|                                                                                                                        |  |                                      |          |                              |   |                                    |  |                                                         |         |   |   |          |  
|                                                                                                                        |  |                                      |          |                              |   |                                    |  |                                                         |         |   |   |          |  
|Cash
        flows from financing activities:                                                                           |  |                                      |          |                              |   |                                    |  |                                                         |         |   |   |          |  
|Borrowings
        on line of credit facilities and term A loan                                                         |  |                                      | 133,000  |                              |   |                                   |  |                                                         |        |   |   | 133,000  |  
|Payments
        on line of credit facilities and term A loan                                                           |  |                                      | (133,000 | )                            |   |                                   |  |                                                         |        |   |   | (133,000 | )
|Payments
        on long-term borrowings and obligations                                                                |  |                                      | (521     | )                            |   |                                   |  |                                                         |        |   |   | (521     | )
|Fees
        paid for financing arrangements                                                                            |  |                                      | (2,052   | )                            |   |                                   |  |                                                         |        |   |   | (2,052   | )
|Change
        in cash overdraft balance                                                                                |  |                                      | 2,164    |                              |   |                                   |  |                                                         | 6,259   |   |   | 8,423    |  
|Proceeds
        from stock offering, net of issuance costs                                                             |  |                                      | 49,239   |                              |   |                                   |  |                                                         |        |   |   | 49,239   |  
|Proceeds
        from stock awards and exercise of stock options and warrants, net of stock
        tendered in payment |  |                                      | (6,030   | )                            |   |                                   |  |                                                         |        |   |   | (6,030   | )
|Excess
        tax benefits from stock-based compensation                                                               |  |                                      | 10,021   |                              |   |                                   |  |                                                         |        |   |   | 10,021   |  
|Dividends
        paid                                                                                                  |  |                                      | (2,725   | )                            |   |                                   |  |                                                         |        |   |   | (2,725   | )
|Other                                                                                                                   |  |                                      | 59,580   |                              |   |                                   |  |                                                         | (59,580 | ) |   |         |  
|                                                                                                                        |  |                                      |          |                              |   |                                    |  |                                                         |         |   |   |          |  
|Net
        cash flows from financing activities                                                                        |  |                                      | 109,676  |                              |   |                                   |  |                                                         | (53,321 | ) |   | 56,355   |  
|                                                                                                                        |  |                                      |          |                              |   |                                    |  |                                                         |         |   |   |          |  
|                                                                                                                        |  |                                      |          |                              |   |                                    |  |                                                         |         |   |   |          |  
|Effect
        of exchange rate changes on cash                                                                         |  |                                      |         |                              |   |                                   |  |                                                         | 46      |   |   | 46       |  
|                                                                                                                        |  |                                      |          |                              |   |                                    |  |                                                         |         |   |   |          |  
|                                                                                                                        |  |                                      |          |                              |   |                                    |  |                                                         |         |   |   |          |  
|Net
        increase in cash and cash equivalents                                                                       |  |                                      | 95,364   |                              |   |                                   |  |                                                         | 4,715   |   |   | 100,079  |  
|Cash
        and cash equivalents at beginning of year                                                                  |  |                                      | 143,227  |                              |   |                                   |  |                                                         | 72,194  |   |   | 215,421  |  
|                                                                                                                        |  |                                      |          |                              |   |                                    |  |                                                         |         |   |   |          |  
|Cash
        and cash equivalents at end of year                                                                        |  | $                                    | 238,591  |                              | $ |                                   |  | $                                                       | 76,909  |   | $ | 315,500  |  
|                                                                                                                        |  |                                      |          |                              |   |                                    |  |                                                         |         |   |   |          |  

31

---



13. Guarantor Subsidiaries (Continued)

Condensed Consolidating Statements of Cash
Flows - Continued

|                                                                                                          |  |                              |          |                          |   |                              |  |                                     |         |   |   |          |  
|--------------------------------------------------------------------------------------------------------- |  | ---------------------------- | -------- | ------------------------ | - | ---------------------------- |  | ----------------------------------- | ------- | - | - | -------- | -
|(in
  thousands)                                                                                          |  | Three months ended March 31, |         
|                                                                                                          |  |                              |         
|2005:                                                                                                     |  | Parent                       |          | Guarantor
  Subsidiaries |   | Non-Guarantor
  Subsidiaries |  | Omnicare, Inc.
  and
  Subsidiaries |        
|                                                                                                          |  |                              |          |                          |   |                              |  |                                     |        
|                                                                                                          |  |                              |          |                          |   |                              |  |                                     |        
|Cash flows from operating activities:                                                                     |  |                              |          |                          |   |                              |  |                                     |         |   |   |          |  
|Provision for doubtful accounts                                                                           |  | $                            |         |                          | $ |                             |  | $                                   | 12,409  |   | $ | 12,409   |  
|Other                                                                                                     |  |                              | (8,078   | )                        |   |                             |  |                                     | 60,723  |   |   | 52,645   |  
|                                                                                                          |  |                              |          |                          |   |                              |  |                                     |         |   |   |          |  
|Net cash flows from operating
activities                                                                  |  |                              | (8,078   | )                        |   |                             |  |                                     | 73,132  |   |   | 65,054   |  
|                                                                                                          |  |                              |          |                          |   |                              |  |                                     |         |   |   |          |  
|                                                                                                          |  |                              |          |                          |   |                              |  |                                     |         |   |   |          |  
|Cash flows from investing activities:                                                                     |  |                              |          |                          |   |                              |  |                                     |         |   |   |          |  
|Acquisition of businesses, net of cash
received                                                           |  |                              |         |                          |   |                             |  |                                     | (28,180 | ) |   | (28,180  | )
|Capital expenditures                                                                                      |  |                              |         |                          |   |                             |  |                                     | (3,133  | ) |   | (3,133   | )
|Transfer of cash to trusts for employee health
and severance costs,
  net of payments out of the trust    |  |                              |         |                          |   |                             |  |                                     | (5,522  | ) |   | (5,522   | )
|Other                                                                                                     |  |                              |         |                          |   |                             |  |                                     | 34      |   |   | 34       |  
|                                                                                                          |  |                              |          |                          |   |                              |  |                                     |         |   |   |          |  
|Net cash flows from investing
activities                                                                  |  |                              |         |                          |   |                             |  |                                     | (36,801 | ) |   | (36,801  | )
|                                                                                                          |  |                              |          |                          |   |                              |  |                                     |         |   |   |          |  
|                                                                                                          |  |                              |          |                          |   |                              |  |                                     |         |   |   |          |  
|Cash flows from financing activities:                                                                     |  |                              |          |                          |   |                              |  |                                     |         |   |   |          |  
|Borrowings on line of credit
facilities                                                                   |  |                              | 157,000  |                          |   |                             |  |                                     |        |   |   | 157,000  |  
|Payments on line of credit facilities and term A
loan                                                     |  |                              | (163,154 | )                        |   |                             |  |                                     |        |   |   | (163,154 | )
|(Payments on)/proceeds from long-term borrowings
and obligations                                          |  |                              | (83      | )                        |   |                             |  |                                     | 41,393  |   |   | 41,310   |  
|Fees paid for financing arrangements                                                                      |  |                              | (1,454   | )                        |   |                             |  |                                     |        |   |   | (1,454   | )
|Change in cash overdraft balance                                                                          |  |                              | (4,063   | )                        |   |                             |  |                                     | 2,418   |   |   | (1,645   | )
|Proceeds from stock awards and exercise of stock
options and
  warrants, net of stock tendered in payment |  |                              | 605      |                          |   |                             |  |                                     |        |   |   | 605      |  
|Dividends paid                                                                                            |  |                              | (2,358   | )                        |   |                             |  |                                     |        |   |   | (2,358   | )
|Other                                                                                                     |  |                              | 81,252   |                          |   |                             |  |                                     | (81,252 | ) |   |         |  
|                                                                                                          |  |                              |          |                          |   |                              |  |                                     |         |   |   |          |  
|Net cash flows from financing
activities                                                                  |  |                              | 67,745   |                          |   |                             |  |                                     | (37,441 | ) |   | 30,304   |  
|                                                                                                          |  |                              |          |                          |   |                              |  |                                     |         |   |   |          |  
|                                                                                                          |  |                              |          |                          |   |                              |  |                                     |         |   |   |          |  
|Effect of exchange rate changes on
cash                                                                   |  |                              |         |                          |   |                             |  |                                     | 297     |   |   | 297      |  
|                                                                                                          |  |                              |          |                          |   |                              |  |                                     |         |   |   |          |  
|                                                                                                          |  |                              |          |                          |   |                              |  |                                     |         |   |   |          |  
|Net increase (decrease) in cash and cash
equivalents                                                      |  |                              | 59,667   |                          |   |                             |  |                                     | (813    | ) |   | 58,854   |  
|Cash and cash equivalents at beginning of
period                                                          |  |                              | 46,569   |                          |   |                             |  |                                     | 37,600  |   |   | 84,169   |  
|                                                                                                          |  |                              |          |                          |   |                              |  |                                     |         |   |   |          |  
|Cash and cash equivalents at end of
period                                                                |  | $                            | 106,236  |                          | $ |                             |  | $                                   | 36,787  |   | $ | 143,023  |  
|                                                                                                          |  |                              |          |                          |   |                              |  |                                     |         |   |   |          |  

32

---



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

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

|                                            
|--------------------------------------------
|THREE MONTHS
  ENDED MARCH 31, 2006 OVERVIEW
|                                            

Omnicare,
Inc. (Omnicare or the Company) is a leading geriatric pharmaceutical
services company. Omnicare is the nations largest provider of pharmaceuticals
and related ancillary pharmacy services to long-term healthcare institutions.
Omnicares clients include primarily skilled nursing facilities (SNFs),
assisted living facilities, retirement centers, independent living communities,
hospitals, hospice, and other healthcare settings and service providers.
Omnicare provides its pharmacy services to long-term care facilities and other
chronic care settings comprising approximately 1,437,000 beds in 47 states in
the United States (U.S.), the District of Columbia and Canada at March 31,
2006. As well, Omnicare provides operational software and support systems to
long-term care pharmacy providers across the U.S. Omnicares pharmacy services
also include distribution and patient assistance services for specialty
pharmaceuticals. Omnicare provides comprehensive product development and
research services for the pharmaceutical, biotechnology, medical device and
diagnostic industries in 30 countries worldwide.

A
summary of the key operating results for the three months ended March 31, 2006
and 2005 follows (in thousands, except per share amounts):

|                                     |  |                                |           |      |   |           | 
|------------------------------------ |  | ------------------------------ | --------- | ---- | - | --------- | 
|                                     |  | Three months ended
  March 31, |          
|                                     |  |                                |          
|                                     |  | 2006                           |           | 2005 |  
|                                     |  |                                |           |      |  
|Consolidated:                        |  |                                |           |      |   |           | 
|Net sales                            |  | $                              | 1,658,598 |      | $ | 1,096,146 | 
|                                     |  |                                |           |      |   |           | 
|Net income                           |  | $                              | 53,231    |      | $ | 57,995    | 
|                                     |  |                                |           |      |   |           | 
|Diluted earnings per share
  (EPS) |  | $                              | 0.43      |      | $ | 0.54      | 
|                                     |  |                                |           |      |   |           | 

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Subsequent Event                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|On
      May 10, 2006, the Company announced that it has recorded a special litigation
      charge of $34.1 million pretax ($24 million aftertax, or $0.19 per diluted
      share) in its financial results for the quarter ended March 31, 2006 to
      establish a settlement reserve relating to previously disclosed inquiries
      by the federal government and certain states relating to three generic pharmaceuticals
      provided by the Company, based on recent discussions between these government
      representatives and the Companys legal counsel during May 2006. As
      previously disclosed, the inquiries relate to the substitution of capsules
      for tablets (Ranitidine), tablets for capsules (Fluoxetine) and two 7.5
      mg tablets for one 15 mg tablet (Buspirone). This special litigation charge
      represents the Companys current estimate of potential settlement amounts
      and associated costs. The Company cannot predict the ultimate outcome of
      this matter. See further discussion at the Subsequent Event
      and Commitments and Contingencies notes of the Notes to Consolidated
      Financial Statements, and the Legal Proceedings section at Part
      II, Item 1 of this Filing.

Operating
  results for the three months ended March 31, 2006 also included restructuring
  and other related charges of approximately $7.7 million pretax ($4.9 million
  aftertax, or $0.04 per diluted share) in connection with the Companys
  previously disclosed consolidation efforts associated primarily with the NeighborCare,
  Inc. (NeighborCare) consolidation plan and other related productivity
  initiatives to streamline operations, maximize workforce and asset utilization,
  and produce a more cost-efficient, operating infrastructure. See further discussion
  of the restructuring and other related charges at the Restructuring and
  Other Related Charges section of this MD&A. In addition, the Company
  recorded a charge of $6.1 million pretax ($3.9 million aftertax, or $0.03 per
  diluted share) associated with retention payments for certain NeighborCare employees
  as required under the acquisition agreement.

33

---



The
  new prescription drug benefit under Medicare Part D (Part D) became
  effective on January 1, 2006. As a result, Omnicare experienced a significant
  shift in payor mix during the quarter ended March 31, 2006, as Part D currently
  represents over 40% of Omnicares overall revenues. Prior to the implementation
  of the new Medicare Part D program, most of these residents were reimbursed
  under state Medicaid programs and, to a lesser extent, private pay sources.
  As expected with such a significant change in payor source and reimbursement
  system, the quarter ended March 31, 2006 was a transition quarter as the Company
  devoted considerable time, effort and resources to addressing certain administrative,
  operational and payment issues associated with the implementation of Part D.
  As a result, the Company incurred incremental expenses of approximately $9.8
  million during the first quarter of 2006, comprising temporary labor, administrative
  and operating costs incurred in connection with the implementation of the new
  Medicare Part D drug benefit. These expenditures were necessary to support the
  billing and cash collection functions, as well as handle the disruption in the
  timing of work flow and delivery of medications created by these implementation
  issues. While considerable progress has been made in addressing many of the
  Part D implementation issues, Omnicare continues to devote resources to the
  ongoing resolution of these matters.

Effective
January 1, 2006, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 123 (revised 2004), Share-Based Payment (SFAS 123R).
This Statement requires the Company to record compensation costs relating to
equity-based payments in its financial statements. Under the fair value
recognition provisions of SFAS 123R, equity-based compensation cost is
estimated at the grant date based on the value of the award and is recognized
as expense ratably over the requisite service period of the award (usually the
vesting period). The Company elected the modified prospective application
method of implementing SFAS 123R, which requires that SFAS 123R be applied to
all new awards whose inception date follows the effective date of January 1,
2006, and all existing awards modified, repurchased or cancelled after January
1, 2006. In addition, this method requires compensation cost for the portion of
awards for which service has not been rendered (i.e., nonvested portion) and
were outstanding as of January 1, 2006. In accordance with the modified
prospective method, the Companys Consolidated Financial Statements for prior
periods have not been restated to reflect the adoption of SFAS 123R. Operating
income for the three months ended March 31, 2006 includes additional
equity-based compensation expense for stock options and stock awards of
approximately $2.9 million pretax ($1.8 million aftertax, or $0.015 per diluted
share) related to the adoption of SFAS 123R.

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

|                           |  |                             |           |      |   |           | 
|-------------------------- |  | --------------------------- | --------- | ---- | - | --------- | 
|                           |  | Three months endedMarch 31, |          
|                           |  |                             |          
|                           |  | 2006                        |           | 2005 |  
|                           |  |                             |           |      |  
|Pharmacy Services Segment: |  |                             |           |      |   |           | 
|Net sales                  |  | $                           | 1,616,552 |      | $ | 1,050,099 | 
|                           |  |                             |           |      |   |           | 
|Operating income           |  | $                           | 150,506   |      | $ | 124,903   | 
|                           |  |                             |           |      |   |           | 

34

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The
  sales growth for the three months ended March 31, 2006 was driven largely by
  the ongoing execution of the Companys acquisition strategy, particularly
  the contribution of the NeighborCare, excelleRx, Inc. (excelleRx)
  and RxCrossroads, L.L.C. (RxCrossroads) acquisitions that were completed
  in the third quarter of 2005. In addition, sales growth is also attributable
  to higher acuity in certain areas, the expansion of the Companys clinical
  and other service programs, especially growth in IV sales, a favorable payor
  mix shift, drug price inflation and market penetration of newer branded drugs
  targeted at the diseases of the elderly, which often carry higher prices, but
  are more effective in reducing overall healthcare costs than those they replace.
  These factors were partially offset by intense competitive pricing pressures,
  the increasing use of generic drugs and the impact of prior-year Medicaid reimbursement
  cuts, although the impact now is much lower than seen historically due to the
  shift in payor mix largely from Medicaid to Medicare Part D. The increased operating
  income was primarily the result of the aforementioned increase in sales, as
  well as ongoing benefits of the Companys acquisition integration efforts
  and productivity enhancement initiatives throughout the Pharmacy Services segment,
  partially offset by the previously mentioned intensified pricing and Medicaid
  reimbursement pressures, as well as the aforementioned Part D transition expenses.
  In addition, operating income for the three months ended March 31, 2006 was
  impacted by special charges of approximately $45.5 million, including the aforementioned
  litigation charge of $34.1 million, a $6.1 million charge associated with retention
  payments for certain NeighborCare employees as required under the acquisition
  agreement and the previously mentioned restructuring and other related charges,
  of which approximately $5.3 million was included in the Pharmacy Services segment.

|                        |  |                             |        |      |   |        | 
|----------------------- |  | --------------------------- | ------ | ---- | - | ------ | 
|                        |  | Three months endedMarch 31, |       
|                        |  |                             |       
|                        |  | 2006                        |        | 2005 |  
|                        |  |                             |        |      |  
|CRO Services
  Segment: |  |                             |        |      |   |        | 
|Revenues                |  | $                           | 42,046 |      | $ | 46,047 | 
|                        |  |                             |        |      |   |        | 
|Operating
  income      |  | $                           | 1,163  |      | $ | 2,559  | 
|                        |  |                             |        |      |   |        | 

The
CRO Services segment revenues and operating income were lower for the three
months ended March 31, 2006 than in the comparable period of 2005 due primarily
to client-driven delays in the commencement of certain projects during the
first quarter of 2006. Operating income in the three months ended March 31,
2006 was also impacted by the previously mentioned restructuring and other
related charges, of which approximately $0.3 million was included in the CRO
Services segment.

35

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|                       
|-----------------------
|RESULTS OF
  OPERATIONS
|                       

The
following table presents the consolidated net sales and results of operations
of Omnicare for the three months ended March 31, 2006 and 2005 (in thousands,
except per share amounts).

|                                                                                   |  |                                |           |      |   |           |  
|---------------------------------------------------------------------------------- |  | ------------------------------ | --------- | ---- | - | --------- | -
|                                                                                   |  | Three months ended
  March 31, |          
|                                                                                   |  |                                |          
|                                                                                   |  | 2006                           |           | 2005 |  
|                                                                                   |  |                                |           |      |  
|                                                                                   |  |                                |           |      |   |           |  
|Net sales                                                                          |  | $                              | 1,658,598 |      | $ | 1,096,146 |  
|                                                                                   |  |                                |           |      |   |           |  
|                                                                                   |  |                                |           |      |   |           |  
|Net income                                                                         |  | $                              | 53,231    |      | $ | 57,995    |  
|                                                                                   |  |                                |           |      |   |           |  
|                                                                                   |  |                                |           |      |   |           |  
|Earnings per share:                                                                |  |                                |           |      |   |           |  
|Basic                                                                              |  | $                              | 0.45      |      | $ | 0.57      |  
|                                                                                   |  |                                |           |      |   |           |  
|Diluted                                                                            |  | $                              | 0.43      |      | $ | 0.54      |  
|                                                                                   |  |                                |           |      |   |           |  
|                                                                                   |  |                                |           |      |   |           |  
|EBITDA(a)                                                                          |  | $                              | 158,258   |      | $ | 125,832   |  
|                                                                                   |  |                                |           |      |   |           |  
|                                                                                   |  |                                |           |      |   |           |  
|                                                                                   |  |                                |           |      |   |           |  
|EBITDA reconciliation to
net cash flows from operating activities:                 |  |                                |           |      |   |           |  
|EBITDA(a)                                                                          |  | $                              | 158,258   |      | $ | 125,832   |  
|(Subtract)/Add:                                                                    |  |                                |           |      |   |           |  
|Interest expense, net of
  investment income                                       |  |                                | (40,613   | )    |   | (18,766   | )
|Income tax provision                                                               |  |                                | (33,516   | )    |   | (34,802   | )
|Changes in assets and
  liabilities, net of effects from acquisition of businesses |  |                                | (26,909   | )    |   | (33,687   | )
|Provision for doubtful
  accounts                                                  |  |                                | 17,094    |      |   | 12,409    |  
|Deferred tax provision                                                             |  |                                | 8,463     |      |   | 14,068    |  
|                                                                                   |  |                                |           |      |   |           |  
|Net cash flows from operating activities                                           |  | $                              | 82,777    |      | $ | 65,054    |  
|                                                                                   |  |                                |           |      |   |           |  

(a)
EBITDA represents earnings before interest (net of investment income), income
taxes, depreciation and amortization. The Company believes that certain
investors find EBITDA to be a useful tool for measuring a companys ability to
service its debt, which is also the primary purpose for which management uses
this financial measure. However, EBITDA does not represent net cash flows from
operating activities, as defined by United States Generally Accepted Accounting
Principles (U.S. GAAP), and should not be considered as a substitute for
operating cash flows as a measure of liquidity. The Companys calculation of
EBITDA may differ from the calculation of EBITDA by others.

Three Months Ended March 31, 2006 vs. 2005

Consolidated

Net
  sales for the three months ended March 31, 2006 rose to $1,658.6 million from
  $1,096.1 million in the comparable prior year period. Net income for the three
  months ended March 31, 2006 was $53.2 million versus $58.0 million earned in
  the comparable 2005 period.

36

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Diluted earnings per share for the three months ended March 31,
  2006 were $0.43 versus $0.54 in the same prior year period. EBITDA totaled $158.3
  million for the three months ended March 31, 2006 as compared with $125.8 million
  for the same period of 2005.

The
three months ended March 31, 2006 included the following charges that
management considers to be special charges:

(i)
  As previously discussed, on May 10, 2006, the Company announced that it has
  recorded a special litigation charge of $34.1 million pretax ($24 million aftertax,
  or $0.19 per diluted share) in its financial results for the quarter ended March 31,
  2006 to establish a settlement reserve relating to previously disclosed inquiries
  by the federal government and certain states relating to three generic pharmaceuticals
  provided by the Company. This special litigation charge represents the Companys
  current estimate of potential settlement amounts and associated costs. See further
  discussion at the Commitments and Contingencies and Subsequent
  Event notes of the Notes to Consolidated Financial Statements, and the
  Legal Proceedings section at Part II, Item 1 of this Filing.

(ii)
Operating income included restructuring and other related charges of
approximately $7.7 million pretax ($4.9 million aftertax, or $0.04 per diluted
share) in connection with the Companys previously disclosed consolidation and
productivity initiatives related, in part, to the integration of the
NeighborCare acquisition and other related activities. See further discussion
of the restructuring and other related charges at the Restructuring and Other
Related Charges section of this MD&A.

(iii)
  Operating income included a special charge of approximately $6.1 million pretax
  ($3.9 million aftertax or $0.03 per diluted share) associated with retention
  payments for certain NeighborCare employees as required under the acquisition
  agreement.

The
  three months ended March 31, 2005, included a special charge to operating expenses
  totaling $1.2 million pretax ($0.8 million aftertax, or $0.01 per diluted share)
  relating to professional fees and expenses incurred in connection with the issuance
  of the Series B 4.00% Trust Preferred Income Equity Redeemable Securities (the
  New Trust PIERS) of Omnicare Capital Trust II (the New Trust).
  See further discussion of this transaction, as well as the impact of Emerging
  Issues Task Force (EITF) No. 04-8, The Effect of Contingently
  Convertible Instruments on Diluted Earnings per Share (EITF No.
  04-8) on Omnicares first quarter 2005 earnings at the Disclosures
  About Aggregate Contractual Obligations and Off-Balance Sheet Arrangements
  and Diluted Earnings Per Share sections, respectively, of this MD&A.

Pharmacy Services Segment

Omnicares
Pharmacy Services segment recorded sales of $1,616.6 million for the three
months ended March 31, 2006, exceeding the 2005 amount of $1,050.1 million by
$566.5 million, or 54%. At March 31, 2006, Omnicare served long-term care facilities
and other chronic care settings comprising approximately 1,437,000 beds as
compared with approximately 1,090,000 beds served at March 31, 2005. The first
quarter 2006 bed count was impacted when a prime contractor did not renew an
agreement to provide services to an 18,000 bed prison system to which Omnicare
was subcontracted to provide pharmacy services; revenues and profits from this
arrangement were negligible. Contributing in large measure to the
year-over-year increase in sales and beds served was the completion of several
acquisitions, in particular, the acquisition of NeighborCare completed in the
third quarter of 2005. Further, the acquisitions of excelleRx and RxCrossroads
in August 2005 also contributed to the year-over-year sales increase. In
addition, Pharmacy Services sales increased due to higher acuity in certain
areas, the expansion of the Companys clinical and other service programs,
especially growth in IV sales, a favorable payor mix shift, drug price
inflation and market penetration of newer branded drugs

37

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targeted at
the diseases of the elderly, which often carry higher prices, but are more
effective in reducing overall healthcare costs than those they replace. These
factors were partially offset by intense competitive pricing pressures, the
increasing use of generic drugs and the impact of prior-year Medicaid
reimbursement cuts, including overall reimbursement formula changes in certain
states, as well as drug-specific pricing reductions or limitations on certain
generic drugs. It should be noted, however, that the impact from Medicaid
reimbursement cuts now is much lower than seen historically due to the shift in
payor mix largely from Medicaid to Medicare Part D. While the Company is
focused on reducing the impact of these factors, there can be no assurance that
these or other pricing and governmental reimbursement pressures will not
continue to impact the Pharmacy Services segment.

Operating
  income of the Pharmacy Services segment was $150.5 million in the first quarter
  of 2006, a $25.6 million improvement as compared with the $124.9 million earned
  in the comparable period of 2005. The increased operating income was primarily
  the result of the increased sales discussed above, the addition of NeighborCare,
  excelleRx and RxCrossroads, the impact of productivity enhancement initiatives,
  as well as the overall synergies from the integration of prior period acquisitions,
  particularly the NeighborCare acquisition. Although operating margins are generally
  unfavorably impacted by the initial addition of lower-margin institutional pharmacy
  acquisitions, the integration efforts have historically resulted in drug purchasing
  improvements, the consolidation of redundant pharmacy locations and other economies
  of scale, which serve to leverage the Companys operating cost structure
  and have historically resulted in improved operating margins in the long-term
  as cost synergies are realized. The aforementioned positive factors were partially
  offset by the previously mentioned intensified competitive pricing and Medicaid
  reimbursement pressures, as well as, the aforementioned special litigation charge
  of $34.1 million, restructuring and other related charges, of which approximately
  $5.3 million pretax was included in the Pharmacy Services segment, and a special
  charge of approximately $6.1 million pretax associated with retention payments
  for certain NeighborCare employees as required under the acquisition agreement.
  Also included in the results of the Pharmacy Services segment for the first
  quarter of 2006 are the previously mentioned expenses totaling approximately
  $9.8 million comprising temporary labor, administrative and operating costs
  incurred in connection with the implementation of the new Medicare Part D drug
  benefit, which went into effect on January 1, 2006.

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

At
the time of the acquisition, NeighborCare was an institutional pharmacy
provider serving long-term care and skilled nursing facilities, specialty
hospitals and assisted and independent living communities comprising
approximately 295,000 beds in 34 states and the

38

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District of
Columbia. NeighborCare also provided infusion therapy services, home medical
equipment, respiratory therapy services, community-based retail pharmacies and
group purchasing.

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

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

As
part of ongoing operations, the Company and its customers are subject to
regulatory changes in the level of reimbursement received from the Medicare and
Medicaid programs. Since 1997, Congress has passed a number of federal laws
that have effected major changes in the healthcare system.

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

In
1999 and 2000, Congress sought to restore some of the reductions in
reimbursement resulting from PPS. This legislation helped to improve the
financial condition of SNFs, motivated them to increase admissions,
particularly of higher acuity residents, and stabilized the unfavorable
operating trends attributable to PPS. One provision gave SNFs a temporary rate
increase for certain specific high-acuity patients beginning April 1, 2000, and
ending when Centers for Medicare & Medicaid Services (CMS) implements 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.

39

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On
July 28, 2005, CMS issued, and on August 4, 2005 published in the Federal
Register, its final SNF PPS rule for fiscal year 2006. Under the rule, the CMS
added nine patient classification categories to the PPS patient classification
system, thus triggering the expiration of the high-acuity payments add-ons.
However, CMS estimates that the rule will 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 will be more than offset by a $510 million
increase in the nursing case-mix weight for all of the RUG categories and a
$530 million increase associated with various updates to the payment rates
(including updates to the wage and market basket indexes), resulting in a $20
million overall increase in payments for fiscal year 2006. The new patient
classification refinements became effective on January 1, 2006, and the market
basket increase became effective October 1, 2005. While the fiscal year 2006
SNF PPS rates will not decrease payments to SNFs, the loss of revenues
associated with future changes in SNF payments could, in the future, have an
adverse effect on the financial condition of the Companys SNF clients which
could, in turn, adversely affect the timing or level of their payments to
Omnicare.

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

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

Under
the new Part D prescription drug benefit, Medicare beneficiaries may enroll in
Part D Plans which provide coverage of outpatient prescription drugs. The
deadline for Part D enrollment for 2006 is generally May 15, 2006, although the
new benefits became available January 1, 2006 and nursing home residents may
enroll at any time. Medicare beneficiaries generally have to pay a premium to
enroll in a Part D Plan, with the premium amount varying from plan to plan,
although CMS is providing various federal subsidies to Part D Plans to reduce
the cost to beneficiaries. Medicare beneficiaries who are also entitled to
benefits under a state

40

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Medicaid
program (so-called dual eligibles), including nursing home residents served
by the Company whose drug costs have been covered by state Medicaid programs,
now have their prescription drug costs covered by the new Medicare drug
benefit. (In 2005, approximately 46% of our revenue was derived from
beneficiaries covered under state Medicaid programs.)

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

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 negotiate agreements with Part D Plans.
Moreover, as expected in the transition to a new program of this magnitude, certain
administrative and payment issues have arisen. Until all such agreements are
finalized and Medicare beneficiaries complete enrollment in the Plans, and
until these administrative and payment issues have been resolved, the Company
will not be able to determine the impact of the new Part D Drug Benefit on the
Companys results of operation, financial condition and cash flows.

The
MMA does not change the manner in which Medicare pays for drugs for Medicare
beneficiaries covered under a Medicare Part A stay. The Company will continue
to receive reimbursement for drugs provided to such residents from the SNFs
pursuant to the contracts it has negotiated with each SNF. The Company will
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 pharmacy services to long-term care residents. CMS
has also expressed some concerns about pharmacies receipt of discounts,
rebates and other price

41

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concessions
from drug manufacturers. Specifically, in a finalized Call Letter for the
2007 calendar year, CMS indicated that while such rebates could create
significant fraud and abuse concerns, they are not prohibited. For 2007, CMS
will require Part D sponsors to have policies and systems in place, as part of
their drug utilization management programs, to protect beneficiaries and reduce
costs when long-term care pharmacies are subject to incentives to move market
share through access/performance rebates from drug manufacturers. For the
purposes of managing and monitoring drug utilization, especially where such
rebates exist, CMS instructs Part D Plan sponsors, to require pharmacies to
disclose to the Part D Plan sponsor any discounts, rebates and other direct or
indirect remuneration designed to directly or indirectly influence or impact
utilization of Part D drugs. CMS stated that Plan sponsors should provide
assurances that such information will remain confidential. CMS appears to have
withdrawn a proposed requirement that would have required that certain rebates
provided to long-term care pharmacies be treated as having been provided to the
Plans and netted against Plans costs for purposes of certain Part D subsidy
calculations. CMS will specify in further guidelines the specific information
that CMS will require from Plan sponsors concerning the procedures and
performance of this aspect of the sponsors drug utilization management
program.

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

Other
healthcare funding issues remain, including pressures on federal and state
Medicaid budgets, and most states are taking steps to implement cost controls
within their Medicaid programs. Some states continue to experience budget
shortfalls, which may prompt them to consider implementing reductions in
Medicaid reimbursement and other cost control measures. Likewise, the DRA
includes several changes to the Medicaid program designed to rein in program
spending. These include, among others, strengthening the Medicaid asset
transfer restrictions for persons seeking to qualify for Medicaid long-term
care coverage, which could, due to the timing of the penalty period, increase
facilities exposure to uncompensated care. This provision is expected to
reduce Medicaid spending by an estimated $2.4 billion over 5 years. The law
also gives states greater flexibility to expand access to home and community
based services by allowing states to provide these services as an optional
benefit without undergoing the waiver approval process, and includes a new
demonstration to encourage states to provide long-term care services in a
community setting to individuals who currently receive Medicaid services in
nursing homes. Together these provisions could increase state funding for home
and community based services, while prompting states to cut funding for nursing
facilities. The DRA also changes the so-called Medicaid upper limit rules for
prescription drugs, effective January 1, 2007. Like the current upper limit, it
only applies to drugs ingredient costs and does

42

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not include
dispensing fees, which will continue to be determined by the states. With the
advent of Medicare Part D, the Companys revenue from state Medicaid programs
will be substantially less than has been the case previously. However, some of
the Companys agreements with Part D Plans have incorporated the Medicaid upper
limit rules into the pricing mechanisms for prescription drugs.

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

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

Demographic
trends indicate that demand for long-term care will increase well into the
middle of this century as the elderly population grows significantly. Moreover,
those over 65 consume a disproportionately high level of healthcare services,
including prescription drugs, when compared with the under-65 population. There
is widespread consensus that appropriate pharmaceutical care is generally
considered the most cost-effective form of treatment for the chronic ailments
afflicting the elderly and also one that is able to improve the quality of
life. Further, the pace and quality of new drug development is yielding many
promising new drugs targeted at the diseases of the elderly. These new drugs
may be more expensive than older, less effective drug therapies due to rising
research costs. However, they are significantly more effective in curing or
ameliorating illness and in lowering overall healthcare costs by reducing,
among other things, hospitalizations, physician visits, nursing time and lab
tests. These trends not only support long-term growth for the geriatric
pharmaceutical industry but also containment of healthcare costs and the
well-being of the nations growing elderly population.

In
order to fund this growing demand, the Company anticipates that the government
and the private sector will continue to review, assess and possibly alter
healthcare delivery systems and payment methodologies. While it cannot at this
time predict the effect of the new Medicare Part D drug benefit or any further
initiatives on Omnicares business, management believes that the Companys
expertise in geriatric pharmaceutical care and pharmaceutical cost management
position Omnicare to help meet the challenges of todays healthcare environment.
Further, while volatility can occur from time to time in the contract research
business owing to factors such as

43

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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.

CRO Services Segment

Omnicares
CRO Services segment earned revenues of $42.0 million for the three months
ended March 31, 2006, which were 9% lower than the $46.0 million recorded in
the same prior year period. In accordance with EITF Issue No. 01-14, Income
Statement Characterization of Reimbursements Received for Out-of-Pocket
Expenses Incurred (EITF No. 01-14), the Company included $6.2 million and
$7.3 million of reimbursable out-of-pockets in its CRO Services segment
reported revenues and cost of sales for the quarters ended March 31, 2006 and
2005, respectively. Revenues were lower for the three months ended March 31,
2006 than in the comparable period of 2005 primarily due to the aforementioned
decrease in reimbursable out-of-pockets of $1.1 million and client-driven
delays in the commencement of certain projects during the first quarter of
2006.

Operating
income in the CRO Services segment was $1.2 million in the first quarter of
2006 compared with $2.6 million in the same 2005 period. The decrease is
attributable to the previously mentioned restructuring and other related
charges, of which approximately $0.3 million was included in the CRO Services
segment, and the client-driven delays in commencement of certain projects as
discussed above. Backlog at March 31, 2006 was $277.8 million, representing an
increase of $8.9 million from the December 31, 2005 backlog of $268.9 million
and an increase of $15.9 million from the March 31, 2005 backlog of $261.9
million.

Consolidated

The
Companys consolidated gross profit of $416.5 million increased $147.2 million
during the first quarter of 2006 from the same prior-year period amount of
$269.3 million. Gross profit as a percentage of total net sales of 25.1% in the
three months ended March 31, 2006, was higher than the 24.6% experienced during
the same period of 2005. Positively impacting overall gross profit margin were
the Companys purchasing leverage associated with the procurement of
pharmaceuticals and benefits realized from compliance with clinical programs,
the increased use of generic drugs, the impact of productivity enhancements, a
favorable payor mix shift, growth in higher margin IV sales, cost savings
associated with the integration of NeighborCare, and the addition of the
higher-margin RxCrossroads and excelleRx businesses. These favorable
year-over-year factors were partially offset by the previously mentioned
intensified competitive pricing and reimbursement pressures, the aforementioned
Part D transition expenses, as well as further market penetration of newer
branded drugs targeted at the diseases of the elderly, which typically produce
higher gross profit but lower gross profit margins.

Omnicares
selling, general and administrative (operating) expenses for the quarter
ended March 31, 2006 of $247.3 million were higher than the comparable year
amount of $157.8 million by $89.5 million, due primarily to the aforementioned
completion of several acquisitions,

44

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including NeighborCare, excelleRx and RxCrossroads in the third
  quarter of 2005. Operating expenses as a percentage of net sales amounted to
  14.9% in the first quarter of 2006, representing an increase from the 14.4%
  experienced in the comparable prior-year period. Operating expenses for the
  quarter ended March 31, 2006 were unfavorably impacted by a $13.8 million increase
  in amortization and depreciation expenses largely related to the 2005 acquisitions,
  the aforementioned $6.1 million charge associated with retention payments for
  certain NeighborCare employees, $2.9 million of additional equity-based compensation
  expense for stock options and stock awards related to the adoption of SFAS 123R,
  and the previously discussed temporary costs associated with the implementation
  of the new Medicare Part D drug benefit. Partially offsetting the increased
  operating expenses were the favorable impact of leveraging of fixed (e.g., rents)
  and variable (e.g., utilities) overhead costs over a larger sales base in 2006
  than that which existed in 2005 and the Companys continued productivity
  enhancements, including the ongoing restructuring program commenced in connection
  with the NeighborCare acquisition. In addition, the quarter ended March 31,
  2005 included the aforementioned $1.2 million special charge for professional
  fees and expenses related to the first quarter 2005 trust PIERS exchange offering.

As
  previously discussed, on May 10, 2006, the Company announced that it has recorded
  a special litigation charge of $34.1 million pretax ($24 million aftertax, or
  $0.19 per diluted share) in its financial results for the quarter ended March
  31, 2006 to establish a settlement reserve relating to previously disclosed
  inquiries by the federal government and certain states relating to three generic
  pharmaceuticals provided by the Company. This special litigation charge represents
  the Companys current estimate of potential settlement amounts and associated
  costs. See further discussion at the Commitments and Contingencies
  and Subsequent Event notes of the Notes to Consolidated Financial
  Statements, and the Legal Proceedings section at Part II, Item 1
  of this Filing.

Investment
income for the three months ended March 31, 2006 of $1.8 million was
approximately $0.6 million greater than the $1.2 million earned in the
comparable prior year quarter, primarily due to higher interest rates and
average invested cash and plan asset balances in comparison to the same prior
year quarter.

Interest
expense for the three months ended March 31, 2006 of $42.4 million was higher
than the $19.9 million in the comparable prior-year period due to increased
overall borrowings resulting from the new debt issuances completed in the
latter half of 2005 in connection with the previously mentioned acquisitions,
and increased interest rates for variable rate loans.

The
  effective income tax rate was 38.6% in the first quarter of 2006, modestly higher
  than the comparable prior year period rate of 37.5% due primarily to certain
  nondeductible litigation costs, partially offset by the completion of routine
  taxing authority examinations in the quarter. The Company expects its effective
  tax rate, excluding the impact of the nondeductible portion of the litigation
  costs, to return to a range of approximately 37% to 38% during the remainder
  of 2006. The effective tax rates in 2006 and 2005 are higher than the federal
  statutory rate largely as a result of the combined impact of state and local
  income taxes, various nondeductible expenses and tax-accrual adjustments.

Restructuring and Other Related Charges

In
the third quarter of 2005, the Company announced the implementation of certain
consolidation plans and other productivity initiatives to streamline pharmacy
services and contract research organization operations, including maximizing
workforce and operating asset utilization, and producing a more cost-efficient,
operating infrastructure (the 2005 Program). These consolidation and
productivity initiatives are related, in part, to the integration of
NeighborCare. Given the geographic overlap of the NeighborCare and Omnicare
pharmacies, substantial opportunities for consolidation existed at the time of
acquisition. While the majority of consolidations have resulted in NeighborCare
pharmacies being consolidated into Omnicare pharmacies, depending on location,
capacity and operating performance, certain Omnicare

45

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pharmacies have also been identified for consolidation into NeighborCare
  locations. Additionally, as part of the evaluation process on how best to integrate
  the two organizations, the Company also focused broadly on ways to lower operating
  infrastructure costs to maximize efficiencies and asset utilization and identified
  opportunities to right-size the business, streamline operations and eliminate
  redundant assets. This portion of the consolidation activity and other productivity
  initiatives are expected to result in the closure of 31 Omnicare facilities,
  of which 28 are pharmacy operations. It will also lead to a net reduction in
  force of approximately 900 positions. Of this reduction in force, approximately
  96% are in pharmacy operations and the remaining reductions are at the corporate
  headquarters or the Companys contract research operations. Approximately
  600 of these positions have been eliminated as of March 31, 2006. Restructuring
  activities in the contract research organization segment relate primarily to
  facility lease obligations.

In
connection with this program, these particular consolidation and productivity
initiatives are expected to be completed within 12 months of commencement of
the 2005 Program. The Company expects to generate in excess of $40 million in
pretax savings from pharmacy closures and other consolidation and productivity
initiatives implemented in connection with these activities. These initiatives
are currently estimated to require total restructuring and other related
charges of approximately $30 million before taxes, which relate to the costs
associated with the consolidation of Omnicare pharmacies and the other
consolidation and productivity initiatives described above. The Company
recorded restructuring and other related charges of approximately $19 million
pretax (approximately $12 million aftertax, or $0.11 per diluted share) during
the year ended December 31, 2005. Additionally, the Company recorded
restructuring and other related charges of approximately $8 million pretax
(approximately $5 million aftertax, or $0.04 per diluted share) during the
quarter ended March 31, 2006. The Company expects charges of approximately $3
million before taxes during the remainder of the program.

46

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

|                                              |  |                            |        |                       |   |                    |  |                         |        |   |   |        | 
|--------------------------------------------- |  | -------------------------- | ------ | --------------------- | - | ------------------ |  | ----------------------- | ------ | - | - | ------ | 
|                                              |  | Balance atDecember 31,2005 |        | 2006Provision/Accrual |   | Utilizedduring2006 |  | Balance atMarch 31,2006 |       
|                                              |  |                            |        |                       |   |                    |  |                         |       
|Restructuring charges:                        |  |                            |        |                       |   |                    |  |                         |        |   |   |        | 
|Employee
  severance                          |  | $                          | 2,809  |                       | $ | 2,445              |  | $                       | (499   | ) | $ | 4,755  | 
|Employment
  agreement buy-outs               |  |                            | 734    |                       |   | 933                |  |                         | (963   | ) |   | 704    | 
|Lease
  terminations                          |  |                            | 9,833  |                       |   | 874                |  |                         | (1,694 | ) |   | 9,013  | 
|Other assets,
  fees and facility exit costs  |  |                            | 1,335  |                       |   | 931                |  |                         | (1,486 | ) |   | 780    | 
|                                              |  |                            |        |                       |   |                    |  |                         |        |   |   |        | 
|Total
  restructuring charges                 |  | $                          | 14,711 |                       | $ | 5,183              |  | $                       | (4,642 | ) | $ | 15,252 | 
|                                              |  |                            |        |                       |   |                    |  |                         |        |   |   |        | 
|Other related charges                         |  |                            |        |                       |   | 2,530              |  |                         |        |   |   |        | 
|                                              |  |                            |        |                       |   |                    |  |                         |        |   |   |        | 
|Total restructuring and other related charges |  |                            |        |                       | $ | 7,713              |  |                         |        |   |   |        | 
|                                              |  |                            |        |                       |   |                    |  |                         |        |   |   |        | 

As
  of March 31, 2006, the Company had paid approximately $3.9 million of severance
  and other employee-related costs. The remaining liabilities at March 31, 2006
  represent amounts not yet paid relating to actions taken in connection with
  the program (primarily severance payments and lease payments), and will be settled
  as these matters are finalized.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

---

Cash
and cash equivalents at March 31, 2006 were $327.7 million compared with $218.1
million at December 31, 2005 (including restricted cash amounts of $12.2
million and $2.7 million, respectively).

The
Company generated positive net cash flows from operating activities of $82.8
million during the three months ended March 31, 2006, compared with net cash
flows from operating activities of $65.1 million during the three months ended
March 31, 2005. Largely contributing to net cash flows from operating
activities during the three months ended March 31, 2006 was earnings during the
period. Compared to the same prior year period, cash flow from operating
activities was impacted by an increase in accounts receivable due to increased
revenue, administrative and payment issues associated with the implementation
of the new Medicare Part D drug benefit, and an approximately $20 million
unfavorable impact due to a significant increase in accounts receivable days
outstanding with the Illinois Department of Public Aid (Illinois Medicaid).
These unfavorable impacts were partially offset by the return of a $38.3

47

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million deposit from one of
the Companys drug wholesalers. Operating cash flows, as well as proceeds from
the issuance of common stock, were used primarily for acquisition-related
payments, capital expenditures, dividend payments and to increase the Companys
cash position as compared with December 31, 2005.

Net
cash used in investing activities was $39.1 million and $36.8 million for the
three months ended March 31, 2006 and 2005, respectively. Acquisitions of
businesses required cash payments of $23.2 million (including amounts payable
pursuant to acquisition agreements relating to pre-2006 acquisitions) in 2006,
which were primarily funded by proceeds from the issuance of common stock and
operating cash flows. Acquisitions of businesses during the first three months
of 2005 required $28.2 million of cash payments (including amounts payable
pursuant to acquisition agreements relating to pre-2005 acquisitions) which
were primarily funded by long-term debt borrowings. Omnicares capital
requirements, in addition to the payment of debt and dividends, are primarily
comprised of its acquisition program and capital expenditures, largely relating
to investments in the Companys information technology systems.

Net
  cash provided by financing activities was $56.4 million for the three months
  ended March 31, 2006 as compared to $30.3 million for the comparable prior year
  period. In January 2006, the underwriters of the common stock offering completed
  by the Company in December 2005 exercised their option, in part, to purchase
  an additional 850,000 shares of common stock at $59.72 per share, for gross
  cash proceeds of approximately $51 million. Borrowings of long-term debt totaled
  approximately $41 million during the first quarter of 2005 and, as previously
  stated, were primarily used for payments relating to the acquisition of businesses.

At
March 31, 2006, there were no outstanding borrowings under the $800 million
revolving credit facility, and $700 million in borrowings were outstanding
under the senior term A loan facility due 2010. As of March 31, 2006, the
Company had approximately $23.8 million outstanding relating to standby letters
of credit, substantially all of which are subject to automatic annual renewals.

In
addition, at March 31, 2006, the contingent conversion threshold of the 4.00% junior subordinated convertible
debentures due 2033 (the 4.00% Convertible Debentures) had been attained (as the closing sales price of
Omnicare common stock exceeded 130% of the applicable conversion price of
$40.82, or was above $53.07, for the twenty trading days prior to quarter end).
As a result, the 4.00% Convertible Debentures were convertible by the debt
holders to cash and common stock, and have been classified as current versus
long-term on the consolidated balance sheet at March 31, 2006.

On
February 16, 2006, 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 2006, which is consistent with the dividends paid in 2005.
Aggregate dividends of $2.7 million and $2.4 million were paid during the three
month periods ended March 31, 2006 and 2005, respectively.

There
were no known material commitments and contingencies outstanding at March 31,
2006, other than the contractual obligations summarized in the Disclosures
About Aggregate Contractual Obligations and Off-Balance Sheet Arrangements
caption below, certain

48

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acquisition-related payments potentially due in the future, including
  deferred payments, indemnification payments and payments originating from earnout
  provisions that may become payable, and the matters discussed in the Commitments
  and Contingencies and “Subsequent Event” notes of the Notes
  to Consolidated Financial Statements, and the “Legal Proceedings”
  section at Part II, Item 1 of this filing.

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

Disclosures
About Aggregate Contractual Obligations and Off-Balance Sheet Arrangements

Aggregate
Contractual Obligations:

|                                                                    |  |       |           |                    |   |           |  |           |         |               |   |           |  |   |           | 
|------------------------------------------------------------------- |  | ----- | --------- | ------------------ | - | --------- |  | --------- | ------- | ------------- | - | --------- |  | - | --------- | 
|                                                                    |  | Total |           | Less Than 1
  Year |   | 1-3 Years |  | 4-5 Years |         | After 5 Years |  
|                                                                    |  |       |           |                    |   |           |  |           |         |               |  
|Debt obligations(a)                                                 |  | $     | 3,073,570 |                    | $ | 345,000   |  | $         |        |               | $ | 742,845   |  | $ | 1,985,725 | 
|Capital lease
  obligations(a)                                      |  |       | 20,977    |                    |   | 12,854    |  |           | 7,788   |               |   | 335       |  |   |          | 
|Operating lease
  obligations                                       |  |       | 186,522   |                    |   | 44,402    |  |           | 66,573  |               |   | 56,716    |  |   | 18,831    | 
|Purchase obligations(b)                                             |  |       | 97,863    |                    |   | 92,844    |  |           | 5,019   |               |   |          |  |   |          | 
|Other current
  obligations(c)                                      |  |       | 426,725   |                    |   | 426,725   |  |           |        |               |   |          |  |   |          | 
|Other long-term
  obligations(d)                                    |  |       | 270,181   |                    |   |          |  |           | 104,615 |               |   | 46,260    |  |   | 119,306   | 
|                                                                    |  |       |           |                    |   |           |  |           |         |               |   |           |  |   |           | 
|Subtotal                                                            |  |       | 4,075,838 |                    |   | 921,825   |  |           | 183,995 |               |   | 846,156   |  |   | 2,123,862 | 
|Future interest
  relating to debt and capital lease obligations(e) |  |       | 2,063,939 |                    |   | 151,726   |  |           | 301,776 |               |   | 274,706   |  |   | 1,335,731 | 
|                                                                    |  |       |           |                    |   |           |  |           |         |               |   |           |  |   |           | 
|Total
  contractual cash obligations                                |  | $     | 6,139,777 |                    | $ | 1,073,551 |  | $         | 485,771 |               | $ | 1,120,862 |  | $ | 3,459,593 | 
|                                                                    |  |       |           |                    |   |           |  |           |         |               |   |           |  |   |           | 

|    |                                                                                                                                                                                                                                                                                                                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | The noted obligation amounts represent the principal
  portion of the associated debt obligations.                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                     
|(b) | Purchase obligations primarily consist of open
  inventory purchase orders, as well as obligations for other goods and
  services, at period end.                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                     
|(c) | Other current obligations primarily consist of
  accounts payable at period end.                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                     
|(d) | Other long-term obligations is largely comprised of
  pension and excess benefit plan obligations, acquisition-related liabilities
  and the obligation associated with the interest rate Swap Agreement discussed
  below.                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                     
|(e) | Represents estimated future interest costs based on
  the stated fixed interest rate of the debt, or the variable interest rate in
  effect at period end for variable interest rate debt. The estimated future
  interest costs presented in this table do not include any amounts potentially
  payable associated with the contingent interest and interest reset provisions
  of

49

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| |                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | the Companys convertible debentures. To the extent
  that any debt would be paid off by Omnicare prior to the stated due date, the
  estimated future interest costs would change accordingly.

As
of March 31, 2006, the Company had approximately $23.8 million outstanding
relating to standby letters of credit, substantially all of which are subject
to automatic annual renewals.

2005 Refinancing

During
the latter half of 2005, the Company entered into a new $3.4 billion Credit
Agreement (Credit Agreement) consisting of a $1.9 billion 364-day loan
facility, with original maturity dates spanning from July 26, 2006 through
August 17, 2006 (the 364-Day Loans), a five year $800 million revolving
credit facility, maturing on July 28, 2010 (the Revolving Loans) and a five
year $700 million senior term A loan facility, maturing on July 28, 2010 (the Term
Loans). Interest on the outstanding balances of the 364-Day Loans was payable,
at the Companys option, (i) at a Eurodollar Base Rate (as defined in the
Credit Agreement) plus a margin of 0.75% or (ii) at an Alternate Base Rate (as
defined in the Credit Agreement). The 364-Day Loans were drawn at various intervals
during the third quarter of 2005, with each separate borrowing having a
slightly different interest rate based on the timing of the borrowing. The
364-Day Loans were repaid in full with proceeds from a major refinancing
completed in late 2005, as further described below. Interest on the outstanding
balances of the Revolving Loans and the Term Loans is payable, at the Companys
option, (i) at a Eurodollar Base Rate plus a margin based on the Companys
senior unsecured long-term debt securities rating and the Companys
Capitalization Ratio (as defined in the Credit Agreement), that can range from
0.50% to 1.75%, or (ii) at an Alternate Base Rate. The interest rate on the
Revolving Loans and the Term Loans was 5.47% at March 31, 2006. The Credit
Agreement requires the Company to comply with certain financial covenants,
including a minimum consolidated net worth and a minimum fixed charges coverage
ratio, and customary affirmative and negative covenants.

The
Company primarily used the net proceeds from the Credit Agreement to repay
amounts outstanding, as of July 28, 2005, under the Companys old term A loan
of $123.1 million and old revolving credit facility of $181 million, and for
the acquisitions of NeighborCare, excelleRx and RxCrossroads. As of March 31,
2006, there was no amount drawn under the Revolving Loans and $700 million
outstanding under the Term Loans due 2010. As of March 31, 2006, the Company
had approximately $23.8 million outstanding relating to standby letters of
credit, substantially all of which are subject to automatic annual renewals.

In
connection with the execution of the new Credit Agreement, the Company has
deferred debt issuance costs of $11.7 million, and has amortized approximately
$0.6 million of these deferred issuance costs during the quarter ended March
31, 2006.

On
December 15, 2005, the Company completed its offering of $225 million aggregate
principal amount of 6.75% senior subordinated notes due 2013 (the 6.75% Senior
Notes), and its offering of $525 million aggregate principal amount of 6.875%
senior subordinated notes due 2015 (the 6.875% Senior Notes). In connection
with the issuance of the 6.75% Senior Notes

50

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and the 6.875% Senior Notes, the Company has deferred
$15.3 million of debt issuance costs, of which approximately $0.4 million was
amortized in the quarter ended March 31, 2006.

On
December 15, 2005, Omnicare also completed its offering of $977.5 million
aggregate principal amount of 3.25% convertible senior debentures due 2035 (the
3.25% Convertible Debentures), including the exercise in full by the
underwriters of their option to purchase additional debentures. The 3.25%
Convertible Debentures have an initial conversion price of approximately $79.73
per share under a contingent conversion feature whereby the holders may convert
their 3.25% Convertible Debentures, prior to December 15, 2033, on any date
during any fiscal quarter beginning after March 31, 2006 (and only during such
fiscal quarter) if the closing sales price of the Companys common stock was
more than 130% of the then current conversion price for at least 20 trading
days in the period of the 30 consecutive trading days ending on the last
trading day of the previous fiscal quarter and in certain other circumstances.
The 3.25% Convertible Debentures bear interest at a rate of 3.25% per year,
subject to an upward adjustment on and after December 15, 2015 in certain
circumstances. The 3.25% Convertible Debentures also will pay contingent
interest in cash, beginning with the six-month interest period commencing
December 15, 2015, during any six-month period in which the trading price of
the 3.25% Convertible Debentures for each of the five trading days ending on
the second trading day immediately preceding the first day of the applicable
six-month interest period equals or exceeds 120% of the principal amount of the
3.25% Convertible Debentures. Embedded in the 3.25% Convertible Debentures are
three derivative instruments, specifically, a contingent interest provision, an
interest reset provision and a contingent conversion parity provision. The
embedded derivatives are valued periodically by a third-party advisor, and at
March 31, 2006, the values of the derivatives were not material. However, the
values are subject to change, based on market conditions, which could affect
the Companys future financial position, cash flows and results of operations.
In connection with the issuance of the 3.25% Convertible Debentures, the
Company has deferred $26.9 million of debt issuance costs, of which
approximately $0.7 million was amortized in the quarter ended March 31, 2006.

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

On
December 5, 2005, Omnicare commenced a tender offer (the Tender Offer) for
cash to purchase any and all of the $375 million outstanding principal amount
of its 8.125% senior subordinated notes due 2011 (the 8.125% Senior Notes),
originally issued, at par value, in 2001. In connection with the Tender Offer,
the Company solicited consents to effect certain proposed amendments to the
indenture governing the 8.125% Senior Notes. On December 16, 2005 (the Consent
Payment Deadline), tenders and consents had been received with respect to
$366.2 million aggregate principal amount of the 8.125% Senior Notes
(approximately 98% of the total outstanding principal amount). The total
consideration, excluding accrued and unpaid interest, for each $1,000 principal
amount of 8.125% Senior Notes validly tendered prior to December 16, 2005 was
$1,048.91, which included a $20 consent payment. Subsequent to the

51

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Consent Payment Deadline and December 31, 2005, and
prior to the Tender Offer expiration of midnight, New York City time, on
January 3, 2006, an additional $0.6 million aggregate principal amount was
validly tendered. The total consideration, excluding accrued and unpaid
interest, for each $1,000 principal amount of 8.125% Senior Notes validly
tendered subsequent to the Consent Payment Deadline and prior to expiration was
$1,028.91, which did not include a $20 consent payment. As of March 31, 2006,
approximately $8.2 million of the 8.125% Senior Notes remained outstanding.

The
  Company had additional borrowings of long-term debt during the quarter ended
  March 31, 2005 approximating $41 million, primarily consisting of a note payable
  carrying a five-year term and a variable interest rate, listed at 4.82% per
  annum as of March 31, 2006.

4.00% Junior Subordinated
Convertible Debentures

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

Original
4.00% Junior Subordinated Convertible Debentures

In
  connection with the offering of the Old Trust PIERS in the second quarter of
  2003, the Company issued a corresponding amount of 4.00% junior subordinated
  convertible debentures (the Old 4.00% Debentures) due 2033 to the
  Old Trust. The Old Trust is a 100%-owned finance subsidiary of the Company.
  The Company has fully and unconditionally guaranteed the securities of the Old
  Trust. The Old Trust PIERS offer fixed cash distributions at a rate of 4.00%
  per annum payable quarterly, and a fixed conversion price of $40.82 under a
  contingent conversion feature whereby the holders may convert their Old Trust
  PIERS if the closing sales price of Company common stock for a predetermined
  period, beginning with the quarter ending September 30, 2003, is more than 130%
  of the then-applicable conversion price or, during a predetermined period, if
  the daily average of the trading prices for the Old Trust PIERS is less than
  105% of the average of the conversion values for the Old Trust PIERS through
  2028 (98% for any period thereafter through maturity) and in certain other circumstances.
  The Old Trust PIERS also will pay contingent distributions, commencing with
  the quarterly distribution period beginning June 15, 2009, if the average trading
  prices of the Old Trust PIERS for a predetermined period equals 115% or more
  of the stated liquidation amount of the Old Trust PIERS. Embedded in the Old
  Trust PIERS are two derivative instruments, specifically, a contingent interest
  provision and a contingent conversion parity provision. The embedded derivatives
  are valued periodically by a third-party advisor, and at March 31, 2006, the
  values of both derivatives embedded in the Old Trust PIERS were not material.
  However, the values are subject to change, based on market conditions, which
  could affect the Companys future financial position, cash flows and results
  of operations. Omnicare irrevocably and unconditionally guarantees, on a subordinated
  basis, certain payments to be made by the Old Trust in connection with the Old
  Trust PIERS. Subsequent to the first

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quarter 2005 exchange offering discussed in further
detail at the Series B 4.00% Junior Subordinated Convertible Debentures
caption below, the Company has $11,233,050 aggregate liquidation amount of the
Old Trust PIERS and underlying Old 4.00% Debentures remaining outstanding at
period end.

Series
B 4.00% Junior Subordinated Convertible Debentures

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

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

As
of March 31, 2006, the aforementioned contingent conversion threshold of the Old
4.00% Debentures and the New 4.00% Debentures had been attained (as the closing
sales price of Omnicare common stock exceeded 130% of the applicable conversion
price of $40.82, or was above $53.07, for the twenty trading days prior to
quarter end). As a result, the Old 4.00% Debentures and the New 4.00%
Debentures were convertible by the debt holders to cash and to common stock,
and have been classified as current versus long-term debt on the consolidated
balance sheet as of March 31, 2006.

In
connection with the issuance of the Old 4.00% Debentures and the New 4.00%
Debentures, the Company has deferred $11.8 million in debt issuance costs, of
which approximately $0.1 million was amortized in each of the quarters ended
March 31, 2006 and 2005. As previously disclosed, the quarter ended March 31,
2005 included a special charge to

53

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operating expenses totaling $1.2 million pretax in
connection with professional fees and expenses incurred relating to the
issuance of the New Trust PIERS.

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

Off-Balance
Sheet Arrangements:

As
of period end, the Company had two unconsolidated entities, the Old Trust and
the New Trust, which were established for the purpose of facilitating the
offerings of the Old Trust PIERS and the New Trust PIERS, respectively. For
financial reporting purposes, the Old Trust and New Trust are treated as equity
method investments of the Company. The Old Trust and New Trust are 100%-owned
finance subsidiaries of the Company. The Company has fully and unconditionally
guaranteed the securities of the Old Trust and New Trust. The Old 4.00%
Debentures issued by the Company to the Old Trust and the New 4.00% Debentures
issued by the Company to the New Trust in connection with the issuance of the
Old Trust PIERS and the New Trust PIERS, respectively, are presented as a
single line item on Omnicares consolidated balance sheet, and the related
disclosures concerning the Old Trust PIERS and the New Trust PIERS, the
guarantees and the Old 4.00% Debentures and New 4.00% Debentures are included
in Omnicares notes to consolidated financial statements. Omnicare records
interest payable to the Old Trust and New Trust as interest expense in its
consolidated statement of income.

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

Critical
Accounting Policies

Stock-Based
Compensation

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

54

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provisions of SFAS 123R,
share-based compensation cost is measured at the grant date based on the fair
value of the award and is recognized as expense ratably over the requisite
service period of the award (usually the vesting period).

The
  Company currently uses the Black-Scholes options pricing model to determine
  the fair value of stock options on the grant date, which is affected by Omnicares
  stock price as well as assumptions regarding a number of complex and subjective
  variables, as further discussed below. These variables include Omnicares
  expected stock price volatility over the expected term of the awards, actual
  and projected employee exercise behaviors, the risk-free interest rate and the
  stocks dividend yield. The expected term of stock options granted represents
  the period of time that stock options granted are expected to be outstanding
  and is estimated based on historical stock option exercise experience. The expected
  volatility is based on the historical volatility of the Companys stock
  over a period generally commensurate with the expected term of the stock options.
  The risk-free interest rate used in the option valuation model is based on United
  States Treasury Strip (stripped coupon interest) issues with remaining
  terms similar to the expected term of the stock options. The expected dividend
  yield is based on the current Omnicare stock yield. The Company is required
  to estimate forfeitures at the time of the grant and revise those estimates
  in subsequent periods if actual forfeitures differ from those estimates. Omnicare
  uses historical data to estimate pre-vesting stock option forfeitures and records
  stock-based compensation expense only for those awards that are expected to
  vest. All stock option awards are amortized on a straight-line basis over the
  requisite service periods of the awards, which are generally the vesting period.
  Considering the importance of each of the above assumptions in the calculation
  of fair value, the Company re-evaluates the estimate of these assumptions on
  a quarterly basis. While the Company believes its stock option fair value calculations
  are materially accurate, a one percentage point change in any of the individual
  aforementioned assumptions, holding all other assumptions constant, would not
  have a material impact on the fair value calculated by the Company.

Allowance
for Doubtful Accounts

Collection
of accounts receivable from customers is the Companys primary source of
operating cash flow and is critical to Omnicares operating performance and
financial condition. Omnicares primary collection risk generally relates to
facility and private pay customers. The Company provides a reserve for accounts
receivable that could become 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 on an ongoing basis
for appropriateness. Judgment is used to assess the collectibility of account
balances and the economic ability of customers to pay.

The
Company computes and monitors its accounts receivable days sales outstanding (DSO)
in order to evaluate the liquidity and collection patterns of its accounts
receivable. DSO is calculated by averaging the beginning and end of quarter accounts
receivable, less

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contractual allowances and the allowance for doubtful
accounts, to derive average accounts receivable; and dividing average
accounts receivable by the sales amount (excluding reimbursable out-of-pockets)
for the related quarter. The resultant percentage is multiplied by 92 days to
derive the DSO amount. Omnicares DSO was approximately 74 days at March 31,
2006, which was slightly higher than the December 31, 2005 DSO of approximately
72 days largely due to the shift in payor mix from Medicaid to Medicare Part D.
The allowance for doubtful accounts as of March 31, 2006 was $170.0 million
compared with $169.4 million at December 31, 2005. These allowances represent
10.9% and 11.8% of gross receivables (net of contractual allowances) as of
March 31, 2006 and December 31, 2005, respectively. Although no significant
changes are expected, unforeseen changes to future allowance for doubtful
accounts percentages could materially impact the overall financial results
and/or financial position of the Company. For example, a one percentage point
increase in the allowance for doubtful accounts as a percentage of gross
receivables as of March 31, 2006 would result in an increase to the allowance
for doubtful accounts, as well as bad debt expense, of approximately $15.6
million pretax.

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

|                                                                             |  |                                     |           |                                |   |         |  |   |           | 
|---------------------------------------------------------------------------- |  | ----------------------------------- | --------- | ------------------------------ | - | ------- |  | - | --------- | 
|                                                                             |  | March 31,
  2006                    |          
|                                                                             |  |                                     |          
|                                                                             |  | Current and
  0-180 Days
  Past Due |           | 181 Days and
  Over
  Past Due |   | Total   | 
|                                                                             |  |                                     |           |                                |   |         | 
|Medicaid,
  Medicare Part B, Medicare Part D and Third-Party payors          |  | $                                   | 588,472   |                                | $ | 22,218  |  | $ | 610,690   | 
|Facility payors                                                              |  |                                     | 534,679   |                                |   | 168,453 |  |   | 703,132   | 
|Private Pay
  payors                                                         |  |                                     | 157,499   |                                |   | 79,330  |  |   | 236,829   | 
|CRO                                                                          |  |                                     | 14,058    |                                |   | 268     |  |   | 14,326    | 
|                                                                             |  |                                     |           |                                |   |         |  |   |           | 
|Total gross
  accounts receivable (net of contractual allowance adjustments) |  | $                                   | 1,294,708 |                                | $ | 270,269 |  | $ | 1,564,977 | 
|                                                                             |  |                                     |           |                                |   |         |  |   |           | 

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

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Legal
  Contingencies

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

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

In
October 2004, the Financial Accounting Standards Board (FASB) ratified EITF No. 04-8, which requires the shares
underlying contingently convertible debt instruments to be included in diluted
earnings per share computations using the if-converted accounting method,
regardless of whether the market price threshold has been attained. Under that
method, the convertible debentures are assumed to be converted to common shares
(weighted for the number of days assumed to be outstanding during the period), and
interest expense, net of taxes, related to the convertible debentures is added
back to net income. As further discussed in the Debt note of the Notes to
Consolidated Financial Statements, the Company completed the exchange offer
relating to the 4.00% junior subordinated convertible debentures on March 8,
2005. Accordingly, the effect of EITF No. 04-8 on the Companys first quarter
2005 earnings results prior to the trust PIERS exchange offer was to decrease
diluted earnings per share $0.02. For purposes of the if-converted
calculation, 6.3 million shares were assumed to be converted for the three
months ended March 31, 2005 (primarily relating to the period from January 1,
2005 through the exchange offering completion date of March 8, 2005). Additionally,
interest expense net of taxes, of $1.7 million for the three months ended March
31, 2005, was added back to net income for purposes of calculating diluted
earnings per share using this method. There was no impact relating to this
change on reported diluted earnings per share for the three months ended March
31, 2006. See further discussion of the trust PIERS exchange offering in the
Disclosures About Aggregate Contractual Obligations and Off-Balance Sheet
Arrangements section of this MD&A.

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

In
  December 2004, the FASB issued SFAS 123R which the Company adopted effective
  January 1, 2006. This statement requires the Company to record compensation
  costs relating to equity-based payments in its financial statements. Under the
  fair value recognition provisions of SFAS 123R, equity-based compensation cost
  is estimated at the grant date based on the value of the award and is recognized
  as expense ratably over the requisite service period of the award (usually the
  vesting period). The Company elected the modified prospective application
  method of implementing SFAS 123R, which requires that SFAS 123R be applied to
  all new awards whose inception date follows the effective date of January 1,
  2006, and all existing awards modified, repurchased or cancelled after January
  1, 2006. In addition, this method requires compensation cost for the portion
  of awards for which service has not been rendered (i.e., nonvested portion)
  and were outstanding as of January 1, 2006. In accordance with the modified
  prospective method, the Companys Consolidated Financial Statements for
  prior periods have not been restated to reflect the adoption of SFAS 123R. Prior
  to January 1, 2006, the Company accounted for stock incentive plans under the
  recognition and measurement provisions of APB 25, and
  related Interpretations (intrinsic value method). As a result, no stock-based employee compensation cost
  for stock options was reflected in net income, as all options granted under
  the plans had an exercise price equal to or greater than the market value of
  the underlying common stock on the date of grant. Operating income for the three
  months ended March 31, 2006 includes additional equity-based compensation expense
  for stock options and stock awards of approximately $2.9 million pretax ($1.8
  million aftertax, or $0.015 per diluted share) related to the adoption of SFAS
  123R. As of March 31, 2006, there was approximately $93 million of

57

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total unrecognized
compensation cost related to nonvested stock awards and stock options granted
to Omnicare employees. That cost is expected to be recognized over a
weighted-average period of approximately 5.1 years. Omnicare currently expects
the dilutive impact of this new standard on its financial results for the full
year 2006 to reduce diluted earnings per share by approximately $0.05, based on
first quarter 2006 actual experience and outstanding stock options and
restricted stock awards at March 31, 2006. To the extent that any new stock
options or stock awards are granted subsequent to March 31, 2006, the estimated
dilutive impact to Omnicares 2006 diluted earnings per share and thereafter
would change accordingly.

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

|                                                                                                                        
|------------------------------------------------------------------------------------------------------------------------
|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 are made on the basis of management’s views and assumptions
  regarding business performance as of the time the statements are made, and management
  does not undertake any obligation to update these statements. 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.

Forward-looking
  statements in this report include, but are not limited to, the following: expectations
  concerning the Company’s financial performance, results of operations, sales,
  earnings or business outlook; expectations regarding acquisitions; trends in
  the long-term healthcare and contract research industries generally; the impact
  of the NeighborCare, excelleRx and RxCrossroads acquisitions and the continued
  successful integration of acquired companies; expectations concerning continued
  relative stability in the operating environment in the long-term care industry;
  anticipated demographic trends in the healthcare industry; the impact of drug
  price inflation; changes in government and other reimbursement formulas to take
  into account drug price inflation or deflation; the ability to allocate resources
  in order to enhance gross profit margins; the ability to continue the Companys
  value creation strategy through expanding its core pharmaceutical business and
  leveraging that business through the development and expansion of clinical information
  services; the Companys ability to continue to leverage fixed and variable
  overhead costs through internal and acquired growth; other factors affecting
  the Companys strategy for future growth; the effectiveness of the Companys
  unit-of-use controls and computerized documentation system; the effectiveness
  of the Companys health and outcomes management programs; expectations
  concerning product and market development efforts; trends concerning the commencement,
  continuation or cancellation of CRO projects and backlog; the effectiveness
  of recent cost reduction efforts in the CRO;volatility
  in the CRO business; anticipated business performance of the CRO in 2006; expectations
  in the CRO business resulting from streamlining and globalization efforts, the
  Companys unique capabilities in the geriatric market and strength of presence
  in the drug development marketplace; trends in healthcare funding issues, including,
  but not limited to, state Medicaid budgets, enrollee eligibility, escalating
  drug prices due to higher utilization among seniors and the aging of the population;
  expectations concerning increasing Medicare admissions and improving occupancy
  rates; the introduction of more expensive medications and the increasing use
  of generic medications; the impact of any changes in healthcare policy relating
  to the future funding of the Medicaid and Medicare programs; the cost-effectiveness
  of pharmaceuticals in treating chronic illnesses for the elderly; the impact
  of the Medicare drug benefit, its implementing regulations and CMS subregulatory
  policies; the ability of the Company to deal with administrative, payment and
  other issues brought about by the



58

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These forward-looking statements, together with other statements that are not historical, involve known and unknown risks, uncertainties, contingencies and other



59

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factors that could cause results, performance or achievements
  to differ materially from those stated. Such risks, uncertainties, contingencies
  and other factors, many of which are beyond the control of the Company, include,
  but are not limited to: overall economic, financial, political and business
  conditions; trends in the long-term healthcare and contract research industries;
  competition in the pharmaceutical, long-term care and contract research industries;
  the impact of consolidation in the pharmaceutical and long-term care industries;
  trends in long-term care occupancy rates and demographics; 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; expectations concerning the development and performance
  of the Company’s informatics business; the effectiveness of the Company’s
  compliance with clinical programs; trends in drug pricing, including the impact
  and pace of pharmaceutical price increases; delays and reductions in reimbursement
  by the government and other payors to customers and to the Company as a result
  of pressures on federal and state budgets or for other reasons; the overall
  financial condition of the Company’s customers; the ability of the Company
  to assess and react to the financial condition of its customers; the effectiveness
  of the Company’s pharmaceutical purchasing programs and its ability to obtain
  discounts and manage pharmaceutical costs; the ability of vendors and business
  partners to continue to provide products and services to the Company; the continued
  successful integration of acquired companies and the ability to realize anticipated
  sales, economies of scale, cost synergies and profitability; the continued availability
  of suitable acquisition candidates; pricing and other competitive factors in
  the industry; increases or decreases in reimbursement rates and the impact of
  other cost control measures; the impact on the Company’s sales, profits
  and margins resulting from market trends in the use of newer branded drugs versus
  generic drugs; the number and usage of generic drugs and price competition in
  the drug marketplace; the ability to attract and retain needed management; competition
  for qualified staff in the healthcare industry; the impact and pace of technological
  advances; the ability to obtain or maintain rights to data, technology and other
  intellectual property; 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 ability
  to benefit from streamlining and globalization efforts at the CRO; trends concerning
  CRO backlog; the effectiveness of the Company’s implementation and expansion
  of its clinical and other service programs; the effect of new legislation, government
  regulations, and/or executive orders, including those relating to reimbursement
  and drug pricing policies and changes in the interpretation and application
  of such policies; the impact of the Medicare drug benefit, its implementing
  regulations and CMS subregulatory policies; legislation and regulations affecting
  payment and reimbursement rates for SNFs; trends in federal
  and state budgets and their impact on Medicaid reimbursement rates; government
  budgetary pressures and shifting priorities; the Company’s ability to
  adjust to federal and state budget shortfalls; efforts by payors to control
  costs; changes to or termination of the Companys contracts with Medicare
  Part D plan sponsors; the failure of the Company or the long-term care facilities
  it serves to obtain or maintain required regulatory approvals or licenses; loss
  or delay of contracts pertaining to the CRO business for regulatory or other
  reasons; the





60

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outcome of litigation; potential liability for losses not covered by, or in excess of, insurance; the impact of differences in actuarial assumptions and estimates pertaining to employee benefit plans and share-based payments; the impact of consolidation in the pharmaceutical and long-term care industries; events or circumstances which result in an impairment of assets, including but not limited to, goodwill; market conditionswhich adversely affect the valuation of the Old Trust PIERS and the New Trust PIERS; the outcome of audit, compliance, administrative or investigatory reviews; volatility in the market for the Company's stock and in the financial markets generally; access to adequate capital and financing; changes in international economic and political conditions and currency fluctuations between the U.S. dollar and other currencies; changes in tax laws, regulations and effective tax
rates; changes in accounting rules and standards; and other risks and uncertainties described in the Company's reports and filings with the Securities and Exchange Commission.

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 March 31, 2006 include $700.0 million outstanding under the
variable-rate term A loan at an interest rate of 5.47% at March 31, 2006 (a 100
basis-point change in the interest rate would increase or decrease pretax
interest expense by approximately $7.0 million per year); $42.8 million
borrowed on a variable-rate term loan at an interest rate of 4.82% at March 31,
2006 (a 100 basis-point change in the interest rate would increase or decrease
pretax interest expense by approximately $0.4 million per year); $8.2 million

61

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outstanding under its
fixed-rate 8.125% Senior Notes, due 2011; $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 the second
quarter of 2003, the Company entered into a Swap Agreement on all $250.0
million of its aggregate principal amount of the 6.125% Senior Notes. Under the
Swap Agreement, which hedges against exposure to long-term U.S. dollar interest
rates, the Company receives a fixed rate of 6.125% 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 7.41% at
March 31, 2006 (a 100 basis-point change in the interest rate would increase or
decrease pretax interest expense by approximately $2.5 million per year). The
Swap Agreement, which matches the terms of the 6.125% Senior Notes, is
designated and accounted for as a fair value hedge. The Company is accounting
for the Swap Agreement in accordance with SFAS No. 133, as amended, so changes
in the fair value of the Swap Agreement are offset by changes in the recorded
carrying value of the related 6.125% Senior Notes. The fair value of the Swap
Agreement of approximately $25.6 million at March 31, 2006 is recorded as a
noncurrent liability and a reduction to the book carrying value of the related
6.125% Senior Notes. At March 31, 2006, the fair value of Omnicares variable
rate debt facilities approximates the carrying value, as the effective interest
rates fluctuate with changes in market rates.

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

Fair
Value of Financial Instruments

|                                                             |  |                  |         |                     |   |            |  |              |         |  |   |         | 
|------------------------------------------------------------ |  | ---------------- | ------- | ------------------- | - | ---------- |  | ------------ | ------- |  | - | ------- | 
|                                                             |  | March 31,
  2006 |         | December 31,
  2005 |  
|                                                             |  |                  |         |                     |  
|Financial
  Instrument:                                      |  | Book Value       |         | Market Value        |   | Book Value |  | Market Value |        
|                                                             |  |                  |         |                     |   |            |  |              |        
|                                                             |  |                  |         |                     |   |            |  |              |        
|8.125% senior
  subordinated notes, due 2011                 |  | $                | 8,225   |                     | $ | 8,600      |  | $            | 8,775   |  | $ | 9,200   | 
|6.125% senior
  subordinated notes, due 2013                 |  |                  | 250,000 |                     |   | 240,000    |  |              | 250,000 |  |   | 245,600 | 
|6.75% senior
  subordinated notes, due 2013                  |  |                  | 225,000 |                     |   | 225,000    |  |              | 225,000 |  |   | 230,900 | 
|6.875% senior
  subordinated notes, due 2015                 |  |                  | 525,000 |                     |   | 526,700    |  |              | 525,000 |  |   | 538,100 | 
|4.00% junior
  subordinated convertible debentures, due 2033 |  |                  | 345,000 |                     |   | 503,600    |  |              | 345,000 |  |   | 512,800 | 
|3.25%
  convertible senior debentures, due 2035              |  |                  | 977,500 |                     |   | 933,500    |  |              | 977,500 |  |   | 972,000 | 

Embedded
in the Old Trust PIERS, the New Trust PIERS and the 3.25% Convertible
Debentures are two derivative instruments, specifically, a contingent interest
provision and a contingent conversion parity provision. In addition, the 3.25%
Convertible Debentures include an interest reset provision. The embedded
derivatives are periodically valued by a third-party advisor, and at period
end, the values of the derivatives embedded in the Old Trust PIERS, the New
Trust PIERS and the 3.25% Convertible Debentures were not material. However,
the

62

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values are subject to
change, based on market conditions, which could affect the Companys future
financial position, cash flows and results of operations.

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

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

ITEM 4. CONTROLS AND
PROCEDURES

(a) Based on a recent evaluation, as of the end of the
period covered by this Quarterly Report on Form 10-Q, the Companys Chief
Executive Officer and Chief Financial Officer have concluded that the Companys
disclosure controls and procedures (as defined in the Exchange Act Rules
13a-15(e) and 15d-15(e)) are effective in timely alerting them to material
information relating to the Company (including its consolidated subsidiaries)
required to be included in periodic reports filed or submitted under the
Securities Exchange Act of 1934. 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.

(b) There were no changes in the Companys internal control over financial
reporting that occurred during the Companys fiscal quarter ended March 31,
2006 that have materially affected, or are reasonably likely to materially
affect, the Companys internal control over financial reporting.

63

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PART II  OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

As
  disclosed in the Companys 2005 Annual Report on Form 10-K, the federal
  government and certain states are investigating allegations relating to three
  generic pharmaceuticals provided by the Company in connection with the substitution
  of capsules for tablets (Ranitidine), tablets for capsules (Fluoxetine) and
  two 7.5 mg tablets for one 15 mg tablet (Buspirone). The Company is cooperating
  fully in these matters. See further discussion at the Subsequent Event caption
  below.

On
March 23, 2006, a shareholder derivative action entitled Irwin v. Gemunder, et al., 2:06cv62, was filed in
the United States District Court For the Eastern District of Kentucky against
the members of Omnicares board of directors, individually, purporting to
assert claims for breach of fiduciary duty, abuse of control, gross
mismanagement, waste of corporate assets and unjust enrichment arising out of
the Companys alleged violations of federal and state health care laws based
upon the purported improper substitution of generic drugs. The complaint seeks,
among other things, damages, restitution and injunctive relief.

The
  Company believes the above-described derivative action is without merit and
  intends to vigorously defend the action.

64

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

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

|Subsequent Event                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|On
        May 10, 2006, the Company announced that it has recorded a special litigation
        charge of $34.1 million pretax ($24 million aftertax, or $0.19 per diluted
        share) in its financial results for the quarter ended March 31, 2006 to
        establish a settlement reserve relating to previously disclosed inquiries
        by the federal government and certain states relating to three generic
        pharmaceuticals provided by the Company, based on recent discussions between
        these government representatives and the Companys legal counsel
        during May 2006. As previously disclosed, the inquiries relate to the
        substitution of capsules for tablets (Ranitidine), tablets for capsules
        (Fluoxetine) and two 7.5 mg tablets for one 15 mg tablet (Buspirone).
        This special litigation charge represents the Companys current estimate
        of potential settlement amounts and associated costs. The Company cannot
        predict the ultimate outcome of this matter. See further discussion at
        the Commitments and Contingencies note of the Notes to Consolidated
        Financial Statements.

ITEM 1A.RISK FACTORS



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



Risks Relating to Our Business



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



Historically,
  approximately one-half of our pharmacy services billings have been directly
  reimbursed by government sponsored programs (including Medicaid and, to a lesser
  extent, Medicare). Beginning January 1, 2006, the new prescription drug benefit
  under Medicare Part D became effective. As a result, we experienced a shift
  in payor mix during the quarter ended March 31, 2006 such that payments under
  Part D currently represent over 40% of our overall revenues. In particular,
  Medicare beneficiaries who are also entitled to benefits under a state Medicaid
  program (so-called dual eligibles), including the nursing home residents
  we serve whose drug costs were previously covered by state Medicaid programs,
  now have their outpatient prescription drug costs covered by the new Medicare
  drug benefit. (In 2005, approximately 46% of our revenue was derived from beneficiaries
  covered under state Medicaid programs.) Under the new Part D benefit, payment
  is determined in accordance with the agreements we have negotiated with the
  Part D Plans. The remainder of our billings are paid or reimbursed by individual
  residents, long-term care facilities and other third party payors, including
  private insurers. A portion of these revenues also are indirectly dependent
  on government programs.



The
  Medicaid and Medicare programs are highly regulated. The failure, even if inadvertent,
  of us and/or our client facilities to comply with applicable reimbursement regulations
  could adversely affect our reimbursement under these programs and our ability
  to continue to participate in these programs. In addition, our failure to comply
  with these regulations could subject us to other penalties. See Managements
  Discussion and Analysis of Financial Condition and Results of Operations (MD&A).



65

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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, or BBA, sought to achieve a balanced federal budget by, among other
  things, changing the reimbursement policies applicable to various healthcare
  providers. In an important change for the SNF industry, the BBA provided for
  the introduction in 1998 of the prospective payment system, or PPS, for Medicare-eligible
  residents of 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. Subsequent legislation in 1999 and 2000 sought to restore some of the
  reductions in reimbursement resulting from PPS. We believe this legislation
  improved the financial condition of SNFs and provided incentives to increase
  occupancy and Medicare admissions, particularly among the more acutely ill.
  This legislation included a temporary rate increase for certain high-acuity
  patients, including medically-complex patients with generally higher pharmacy
  costs, beginning April 1, 2000 through September 30, 2005 when the Centers for
  Medicare & Medicaid Services, or CMS, implemented a refined resource utilization
  group, or RUG, patient classification system that is intended to better account
  for medically-complex patients. The final SNF PPS rule for fiscal year 2006
  added nine patient classification categories to the PPS patient classification
  system, and increased the nursing case-mix weight for all of the RUG categories,
  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. While the fiscal
  year 2006 SNF PPS rates will not decrease payments to SNFs, the loss of revenues
  associated with future changes in SNF payment rates could, in the future, have
  an adverse effect on the financial condition of our SNF clients which could,
  in turn, adversely affect the timing or level of their payments to us. In that
  regard, on February 8, 2006, the President signed into law the Deficit Reduction
  Act, or 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. Further, on February 6, 2006, the Bush Administration
  released its fiscal year 2007 budget proposal, which would reduce Medicare spending
  by $2.5 billion in fiscal year 2007 and $35.9 billion over 5 years. The budget
  would, among other things, freeze payments to SNFs in fiscal year 2007, and
  limit the payment update to market basket minus 0.4 percent in fiscal year 2008
  and 2009. To enhance the long-term financing of the Medicare program, the budget
  also proposes automatic reductions in provider updates if general revenues are
  projected to exceed 45 percent of total Medicare financing. To date, congressional
  resolutions have not included these reimbursement cuts, and these proposals
  would require legislation to be implemented. Nonetheless, Congress may consider
  these and other proposals in the future that would further restrict Medicare
  funding for SNFs. See MD&A.



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

66

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Under
  the new prescription drug benefit, Medicare beneficiaries may enroll in prescription
  drug plans offered by private entities (or in a fallback plan offered
  on behalf of the government through a contractor, to the extent private entities
  fail to offer a plan in a given area), which will 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
  will provide various federal subsidies to Part D Plans to reduce the cost to
  beneficiaries. Medicare beneficiaries who are also entitled to benefits under
  a state Medicaid program (so-called dual eligibles) now have their
  prescription drug costs covered by the new Medicare drug benefit, including
  the nursing home residents Omnicare serves, whose drug costs were previously
  covered by state Medicaid programs. (In 2005, approximately 46% of Omnicares
  revenue was derived from beneficiaries covered under state Medicaid programs.)



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



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



The MMA does not change the manner in which Medicare pays for drugs for Medicare beneficiaries covered in a Part A stay.  We will 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 will 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 bout pharmacies receipt of discounts,
  rebates and other priceconcessions from drug manufacturers.
  Specifically, in a finalized Call Letter for the 2007 calendar year,
  CMS indicated that while such rebates could create significant fraud and abuse
  concerns, they are not prohibited. For 2007, CMS will require Part D sponsors
  to have policies and systems in place, as part of their drug utilization management
  programs, to protect beneficiaries and reduce costs when long-term care pharmacies
  are subject to incentives to move market share through access/performance rebates
  from drug manufacturers. For the purposes of managing and monitoring drug utilization,
  especially where such rebates exist, CMS instructs Part D Plan sponsors to require
  pharmacies to disclose to the Part D Plan sponsor any discounts, rebates and
  other direct or indirect remuneration designed to directly or indirectly influence
  or impact utilization of Part D drugs. CMS stated that Plan sponsors should
  provide assurances that such information will remain confidential. CMS appears
  to have withdrawn a proposed requirement that would have required that certain
  rebates provided to long-term care pharmacies be treated as having been provided
  to the Plans and netted against Plans costs for purposes of certain Part
  D subsidy calculations. CMS will specify in further guidelines the specific
  information that CMS will require from Plan sponsors concerning the procedures
  and performance of this aspect of the sponsors drug utilization management
  program.

67

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



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



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



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



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



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

A
summary of the Companys repurchases of Omnicare, Inc. common stock during the
quarter ended March 31, 2006 is as follows (in thousands, except per share
data):

|                      |  |                                          |     |                                  |   |                                                                                          |  |                                                                                                                       |   |  |  |   | 
|--------------------- |  | ---------------------------------------- | --- | -------------------------------- | - | ---------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------- | - |  |  | - | 
|Period                |  | Total Number
  of Shares
  Purchased (a) |     | Average Price
  Paid per
  Share |   | Total Number of
  Shares Purchased as
  Part of Publicly
  Announced Plans or
  Programs |  | Maximum Number (or
  Approximate Dollar
  Value) of Shares that Must
  Yet Be Purchased Under
  the Plans or Programs |  
|                      |  |                                          |     |                                  |   |                                                                                          |  |                                                                                                                       |  
|January 1 - 31, 2006  |  |                                          | 15  |                                  | $ | 58.52                                                                                    |  |                                                                                                                       |  |  |  |  | 
|February 1 - 28, 2006 |  |                                          | 50  |                                  |   | 52.13                                                                                    |  |                                                                                                                       |  |  |  |  | 
|March 1 - 31, 2006    |  |                                          | 145 |                                  |   | 60.35                                                                                    |  |                                                                                                                       |  |  |  |  | 
|                      |  |                                          |     |                                  |   |                                                                                          |  |                                                                                                                       |   |  |  |   | 
|Total                 |  |                                          | 210 |                                  | $ | 58.28                                                                                    |  |                                                                                                                       |  |  |  |  | 
|                      |  |                                          |     |                                  |   |                                                                                          |  |                                                                                                                       |   |  |  |   | 

(a) During the
first quarter of 2006, the Company purchased 210 shares of Omnicare common
stock in connection with its employee benefit plans, including purchases
associated with the vesting of restricted stock awards. These purchases were
not made pursuant to a publicly announced repurchase plan or program.

ITEM 6.  EXHIBITS

See
Index of Exhibits.

68

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SIGNATURE

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

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

|                     |     |                             | 
|-------------------- | --- | --------------------------- | 
|Date: May
  10, 2006 | By: | /s/ David W.
  Froesel, Jr. | 
|                     |     |                             | 
|                     |     | David W. Froesel, Jr.      
|                     |     | Senior Vice President and  
|                     |     | Chief Financial Officer    
|                     |     | (Principal Financial and   
|                     |     | Accounting Officer)        

69

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INDEX OF EXHIBITS

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

E-1

---



INDEX OF EXHIBITS

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

* Indicates
management contract or compensatory arrangement.

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

E-2

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