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 June 30, 2006            
|or                                                      
|o                                                        | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
|THE SECURITIES EXCHANGE
  ACT OF 1934                   
|For the transition period from __________ to __________.

Commission File Number 1-8269

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

|                                                                 |  |                                     
|---------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                         |  | 31-1001351                          
|                                                                 |  |                                     
|(State or other jurisdiction of
  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 xNo 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 |  |                    | 121,337,990 |      |  | June 30, 2006 | 

---



OMNICARE, INC. AND

SUBSIDIARY COMPANIES

INDEX

|         |          |                        |                                                                                              |     
|-------- | -------- | ---------------------- | -------------------------------------------------------------------------------------------- | ----
|         |          |                        |                                                                                              | PAGE
|         |          |                        |                                                                                              |     
|        
|PART I.  |          | FINANCIAL INFORMATION: |                                                                                             
|         |          |                        |                                                                                              |     
|         | ITEM 1.  |                        | FINANCIAL STATEMENTS (UNAUDITED)                                                             |     
|         |          |                        |                                                                                              |     
|         |          |                        | Consolidated Statements of Income 
  Three and six months ended  
  June 30, 2006 and 2005 | 3   
|         |          |                        |                                                                                              |     
|         |          |                        | Consolidated Balance Sheets

  June 30, 2006 and December 31, 2005                          | 4   
|         |          |                        |                                                                                              |     
|         |          |                        | Consolidated Statements of Cash
Flows 
  Six months ended 
  June 30, 2006 and 2005        | 5   
|         |          |                        |                                                                                              |     
|         |          |                        | Notes to Consolidated Financial Statements                                                   | 6   
|         |          |                        |                                                                                              |     
|         | ITEM 2.  |                        | MANAGEMENTS DISCUSSION AND ANALYSIS OF
  FINANCIAL CONDITION AND RESULTS OF OPERATIONS      | 39  
|         |          |                        |                                                                                              |     
|         | ITEM 3.  |                        | QUANTITATIVE AND QUALITATIVE DISCLOSURES
  ABOUT MARKET RISK                                 | 72  
|         |          |                        |                                                                                              |     
|         | ITEM 4.  |                        | CONTROLS AND PROCEDURES                                                                      | 73  
|         |          |                        |                                                                                              |     
|PART II. |          | OTHER INFORMATION:     |                                                                                             
|         |          |                        |                                                                                             
|         | ITEM 1.  |                        | LEGAL PROCEEDINGS                                                                            | 75  
|         |          |                        |                                                                                              |     
|         | ITEM 1A. |                        | RISK FACTORS                                                                                 | 77  
|         |          |                        |                                                                                              |     
|         | ITEM 2.  |                        | UNREGISTERED SALE OF EQUITY SECURITIES AND
  USE OF PROCEEDS                                 | 83  
|         |          |                        |                                                                                              |     
|         | ITEM 4.  |                        | SUBMISSION OF MATTERS TO A VOTE OF
  SECURITY HOLDERS                                        | 83  
|         |          |                        |                                                                                              |     
|         | ITEM 6.  |                        | EXHIBITS                                                                                     | 83  

---



PART I  FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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

(in thousands,
except per share data)

|                                                        |  |                                  |           |                                |   |           |   |      |           |   |   |           |  
|------------------------------------------------------- |  | -------------------------------- | --------- | ------------------------------ | - | --------- | - | ---- | --------- | - | - | --------- | -
|                                                        |  | Three
  months ended,
  June 30, |           | Six months
  ended,
  June 30, |  
|                                                        |  |                                  |           |                                |  
|                                                        |  | 2006                             |           | 2005                           |   | 2006      |   | 2005 |          
|                                                        |  |                                  |           |                                |   |           |   |      |          
|                                                        |  |                                  |           |                                |   |           |   |      |           |   |   |           |  
|Net sales
  (Note 2 and Note 11)                        |  | $                                | 1,641,110 |                                | $ | 1,123,397 |   | $    | 3,299,708 |   | $ | 2,219,543 |  
|                                                        |  |                                  |           |                                |   |           |   |      |           |   |   |           |  
|Cost of
  sales                                         |  |                                  | 1,240,819 |                                |   | 848,551   |   |      | 2,482,902 |   |   | 1,675,375 |  
|                                                        |  |                                  |           |                                |   |           |   |      |           |   |   |           |  
|                                                        |  |                                  |           |                                |   |           |   |      |           |   |   |           |  
|Gross profit                                            |  |                                  | 400,291   |                                |   | 274,846   |   |      | 816,806   |   |   | 544,168   |  
|                                                        |  |                                  |           |                                |   |           |   |      |           |   |   |           |  
|Selling,
  general and administrative expenses          |  |                                  | 239,751   |                                |   | 156,995   |   |      | 487,093   |   |   | 314,754   |  
|Restructuring
  and other related charges (Note 10)     |  |                                  | 11,889    |                                |   |          |   |      | 19,602    |   |   |          |  
|Litigation
  charges (Note 2 and Note 11)               |  |                                  | 64,482    |                                |   |          |   |      | 98,582    |   |   |          |  
|                                                        |  |                                  |           |                                |   |           |   |      |           |   |   |           |  
|Operating
  income                                      |  |                                  | 84,169    |                                |   | 117,851   |   |      | 211,529   |   |   | 229,414   |  
|                                                        |  |                                  |           |                                |   |           |   |      |           |   |   |           |  
|Investment
  income                                     |  |                                  | 3,049     |                                |   | 1,091     |   |      | 4,848     |   |   | 2,244     |  
|Interest
  expense                                      |  |                                  | (43,069   | )                              |   | (20,439   | ) |      | (85,481   | ) |   | (40,358   | )
|                                                        |  |                                  |           |                                |   |           |   |      |           |   |   |           |  
|Income
  before income taxes                            |  |                                  | 44,149    |                                |   | 98,503    |   |      | 130,896   |   |   | 191,300   |  
|                                                        |  |                                  |           |                                |   |           |   |      |           |   |   |           |  
|Income tax
  provision                                  |  |                                  | 35,770    |                                |   | 36,771    |   |      | 69,286    |   |   | 71,573    |  
|                                                        |  |                                  |           |                                |   |           |   |      |           |   |   |           |  
|                                                       
|Net income                                              |  | $                                | 8,379     |                                | $ | 61,732    |   | $    | 61,610    |   | $ | 119,727   |  
|                                                        |  |                                  |           |                                |   |           |   |      |           |   |   |           |  
|                                                        |  |                                  |           |                                |   |           |   |      |           |   |   |           |  
|Earnings per
  share:                                   |  |                                  |           |                                |   |           |   |      |           |   |   |           |  
|Basic                                                   |  | $                                | 0.07      |                                | $ | 0.60      |   | $    | 0.52      |   | $ | 1.17      |  
|                                                        |  |                                  |           |                                |   |           |   |      |           |   |   |           |  
|                                                        |  |                                  |           |                                |   |           |   |      |           |   |   |           |  
|Diluted (Note 4)                                        |  | $                                | 0.07      |                                | $ | 0.59      |   | $    | 0.50      |   | $ | 1.13      |  
|                                                        |  |                                  |           |                                |   |           |   |      |           |   |   |           |  
|                                                        |  |                                  |           |                                |   |           |   |      |           |   |   |           |  
|Dividends
  per common share                            |  | $                                | 0.0225    |                                | $ | 0.0225    |   | $    | 0.0450    |   | $ | 0.0450    |  
|                                                        |  |                                  |           |                                |   |           |   |      |           |   |   |           |  
|Weighted
  average number of common shares outstanding: |  |                                  |           |                                |   |           |   |      |           |   |   |           |  
|Basic                                                   |  |                                  | 118,544   |                                |   | 102,381   |   |      | 118,229   |   |   | 102,069   |  
|                                                        |  |                                  |           |                                |   |           |   |      |           |   |   |           |  
|                                                       
|Diluted (Note 4)                                        |  |                                  | 123,016   |                                |   | 104,742   |   |      | 123,303   |   |   | 107,332   |  
|                                                        |  |                                  |           |                                |   |           |   |      |           |   |   |           |  
|                                                        |  |                                  |           |                                |   |           |   |      |           |   |   |           |  
|Comprehensive
  income                                  |  | $                                | 8,597     |                                | $ | 61,048    |   | $    | 59,476    |   | $ | 118,228   |  
|                                                        |  |                                  |           |                                |   |           |   |      |           |   |   |           |  

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)

|                                                                                                                      |  |              |           |                    |   |           |  
|--------------------------------------------------------------------------------------------------------------------- |  | ------------ | --------- | ------------------ | - | --------- | -
|                                                                                                                      |  | June 30,2006 |           | December
  31,2005 |  
|                                                                                                                      |  |              |           |                    |  
|ASSETS                                                                                                                |  |              |           |                    |   |           |  
|Current assets:                                                                                                       |  |              |           |                    |   |           |  
|Cash and cash equivalents                                                                                             |  | $            | 327,263   |                    | $ | 215,421   |  
|Restricted cash                                                                                                       |  |              | 11,767    |                    |   | 2,674     |  
|Deposits with drug wholesalers                                                                                        |  |              | 45,367    |                    |   | 83,036    |  
|Accounts receivable, less allowances of $172,609
(2005-$169,390)                                                      |  |              | 1,420,079 |                    |   | 1,260,634 |  
|Unbilled receivables                                                                                                  |  |              | 19,448    |                    |   | 17,195    |  
|Inventories                                                                                                           |  |              | 483,987   |                    |   | 473,942   |  
|Deferred income tax benefits                                                                                          |  |              | 118,549   |                    |   | 107,967   |  
|Other current assets                                                                                                  |  |              | 201,493   |                    |   | 200,026   |  
|                                                                                                                      |  |              |           |                    |   |           |  
|Total current assets                                                                                                  |  |              | 2,627,953 |                    |   | 2,360,895 |  
|                                                                                                                      |  |              |           |                    |   |           |  
|                                                                                                                      |  |              |           |                    |   |           |  
|Properties and equipment, at cost less accumulated
depreciation of
  $266,132 (2005-$252,489)                         |  |              | 223,602   |                    |   | 231,734   |  
|Goodwill                                                                                                              |  |              | 4,233,607 |                    |   | 4,029,482 |  
|Identifiable intangible assets, less accumulated
amortization of
  $62,267 (2005-$45,153)                             |  |              | 337,412   |                    |   | 339,474   |  
|Other noncurrent assets                                                                                               |  |              | 193,097   |                    |   | 195,820   |  
|                                                                                                                      |  |              |           |                    |   |           |  
|Total noncurrent assets                                                                                               |  |              | 4,987,718 |                    |   | 4,796,510 |  
|                                                                                                                      |  |              |           |                    |   |           |  
|Total assets                                                                                                          |  | $            | 7,615,671 |                    | $ | 7,157,405 |  
|                                                                                                                      |  |              |           |                    |   |           |  
|                                                                                                                      |  |              |           |                    |   |           |  
|LIABILITIES AND STOCKHOLDERS
EQUITY                                                                                  |  |              |           |                    |   |           |  
|Current liabilities:                                                                                                  |  |              |           |                    |   |           |  
|Accounts payable                                                                                                      |  | $            | 385,544   |                    | $ | 397,471   |  
|Accrued employee compensation                                                                                         |  |              | 39,178    |                    |   | 56,063    |  
|Deferred revenue                                                                                                      |  |              | 25,068    |                    |   | 24,857    |  
|Current debt (Note 7)                                                                                                 |  |              | 8,126     |                    |   | 355,943   |  
|Accrued litigation (Note 11)                                                                                          |  |              | 105,429   |                    |   |          |  
|Other current liabilities and income taxes
payable                                                                    |  |              | 211,260   |                    |   | 166,170   |  
|                                                                                                                      |  |              |           |                    |   |           |  
|Total current liabilities                                                                                             |  |              | 774,605   |                    |   | 1,000,504 |  
|                                                                                                                      |  |              |           |                    |   |           |  
|Long-term debt                                                                                                        |  |              | 756,270   |                    |   | 752,901   |  
|8.125% senior subordinated notes, due
2011                                                                            |  |              | 8,225     |                    |   | 8,775     |  
|6.125% senior subordinated notes, net, due
2013                                                                       |  |              | 221,988   |                    |   | 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)                                                   |  |              | 345,000   |                    |   |          |  
|3.25% convertible senior debentures, due
2035                                                                         |  |              | 977,500   |                    |   | 977,500   |  
|Deferred income tax liabilities                                                                                       |  |              | 419,777   |                    |   | 249,034   |  
|Other noncurrent liabilities                                                                                          |  |              | 287,383   |                    |   | 246,429   |  
|                                                                                                                      |  |              |           |                    |   |           |  
|Total noncurrent liabilities                                                                                          |  |              | 3,766,143 |                    |   | 3,214,855 |  
|                                                                                                                      |  |              |           |                    |   |           |  
|Total liabilities                                                                                                     |  |              | 4,540,748 |                    |   | 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, 124,190,200 shares issued (2005-122,619,100 shares
issued) |  |              | 124,190   |                    |   | 122,619   |  
|Paid-in capital                                                                                                       |  |              | 1,871,396 |                    |   | 1,861,483 |  
|Retained earnings                                                                                                     |  |              | 1,184,064 |                    |   | 1,127,915 |  
|Treasury stock, at cost-2,852,200 shares
(2005-2,737,100 shares)                                                      |  |              | (87,944   | )                  |   | (78,418   | )
|Deferred compensation (Note 3)                                                                                        |  |              |          |                    |   | (76,904   | )
|Accumulated other comprehensive income                                                                                |  |              | (16,783   | )                  |   | (14,649   | )
|                                                                                                                      |  |              |           |                    |   |           |  
|Total stockholders equity                                                                                            |  |              | 3,074,923 |                    |   | 2,942,046 |  
|                                                                                                                      |  |              |           |                    |   |           |  
|                                                                                                                     
|Total liabilities and stockholders
equity                                                                            |  | $            | 7,615,671 |                    | $ | 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)                                                                                                                 |  | Six months
  ended,
  June 30, |         
|                                                                                                                               |  |                                |         
|                                                                                                                               |  | 2006                           |          | 2005 |  
|                                                                                                                               |  |                                |          |      |  
|Cash flows from operating activities:                                                                                          |  |                                |          |      |   |          |  
|Net income                                                                                                                     |  | $                              | 61,610   |      | $ | 119,727  |  
|Adjustments to reconcile net income to net
  cash flows from operating activities:                                             |  |                                |          |      |   |          |  
|Depreciation                                                                                                                   |  |                                | 28,453   |      |   | 16,354   |  
|Amortization                                                                                                                   |  |                                | 32,684   |      |   | 12,788   |  
|Provision for doubtful accounts                                                                                                |  |                                | 35,160   |      |   | 24,750   |  
|Deferred tax provision                                                                                                         |  |                                | 16,916   |      |   | 26,006   |  
|Changes in assets and liabilities, net of
  effects from acquisition of businesses:                                            |  |                                |          |      |   |          |  
|Accounts receivable and unbilled
  receivables                                                                                 |  |                                | (197,633 | )    |   | (108,604 | )
|Inventories                                                                                                                    |  |                                | (6,037   | )    |   | 12,513   |  
|Deposits with drug wholesalers                                                                                                 |  |                                | 37,669   |      |   |         |  
|Current and noncurrent assets                                                                                                  |  |                                | (4,595   | )    |   | (12,626  | )
|Accounts payable                                                                                                               |  |                                | (23,602  | )    |   | (11,389  | )
|Accrued employee compensation                                                                                                  |  |                                | 1,694    |      |   | (1,904   | )
|Deferred revenue                                                                                                               |  |                                | 211      |      |   | (7,163   | )
|Income taxes payable                                                                                                           |  |                                | 16,150   |      |   | (5,487   | )
|Current and noncurrent liabilities                                                                                             |  |                                | 129,377  |      |   | 16,876   |  
|                                                                                                                               |  |                                |          |      |   |          |  
|Net cash flows from operating
activities                                                                                       |  |                                | 128,057  |      |   | 81,841   |  
|                                                                                                                               |  |                                |          |      |   |          |  
|                                                                                                                               |  |                                |          |      |   |          |  
|Cash flows from investing activities:                                                                                          |  |                                |          |      |   |          |  
|Acquisition of businesses, net of cash
  received                                                                              |  |                                | (51,076  | )    |   | (77,781  | )
|Capital expenditures                                                                                                           |  |                                | (14,565  | )    |   | (7,938   | )
|Transfer of cash to trusts for employee
  health and severance costs, net of payments out of the trust                         |  |                                | (9,311   | )    |   | (5,886   | )
|Other                                                                                                                          |  |                                | 90       |      |   | 34       |  
|                                                                                                                               |  |                                |          |      |   |          |  
|Net cash flows from investing
activities                                                                                       |  |                                | (74,862  | )    |   | (91,571  | )
|                                                                                                                               |  |                                |          |      |   |          |  
|                                                                                                                               |  |                                |          |      |   |          |  
|Cash flows from financing activities:                                                                                          |  |                                |          |      |   |          |  
|Borrowings on line of credit facilities and
  term A loan                                                                      |  |                                | 133,000  |      |   | 415,000  |  
|Payments on line of credit facilities and
  term A loan                                                                        |  |                                | (133,000 | )    |   | (427,308 | )
|Proceeds from long-term borrowings and
  obligations                                                                           |  |                                | 63       |      |   | 41,380   |  
|Payments on long-term borrowings and
  obligations                                                                             |  |                                | (1,457   | )    |   | (35      | )
|Fees paid for financing arrangements                                                                                           |  |                                | (3,212   | )    |   | (1,454   | )
|Change in cash overdraft balance                                                                                               |  |                                | 10,287   |      |   | 2,300    |  
|Proceeds from stock offering, net of
  issuance costs                                                                          |  |                                | 49,239   |      |   |         |  
|(Payments) for and proceeds from stock
  awards and exercise of stock options and warrants, net of stock tendered in
  payment |  |                                | (3,295   | )    |   | 5,492    |  
|Excess tax benefits from stock-based
  compensation                                                                            |  |                                | 11,472   |      |   |         |  
|Dividends paid                                                                                                                 |  |                                | (5,461   | )    |   | (4,737   | )
|                                                                                                                               |  |                                |          |      |   |          |  
|Net cash flows from financing
activities                                                                                       |  |                                | 57,636   |      |   | 30,638   |  
|                                                                                                                               |  |                                |          |      |   |          |  
|                                                                                                                               |  |                                |          |      |   |          |  
|Effect of exchange rate changes on
cash                                                                                        |  |                                | 1,011    |      |   | (814     | )
|                                                                                                                               |  |                                |          |      |   |          |  
|Net increase in cash and cash
equivalents                                                                                      |  |                                | 111,842  |      |   | 20,094   |  
|Cash and cash equivalents at beginning of
  period                                                                             |  |                                | 215,421  |      |   | 84,169   |  
|                                                                                                                               |  |                                |          |      |   |          |  
|                                                                                                                               |  |                                |          |      |   |          |  
|Cash and cash equivalents at end of
period                                                                                     |  | $                              | 327,263  |      | $ | 104,263  |  
|                                                                                                                               |  |                                |          |      |   |          |  

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

5

---



NOTES TO
CONSOLIDATED FINANCIAL STATEMENTSOMNICARE, 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, Subsequent Events and Commitments
  and Contingencies notes) considered necessary for a fair presentation
  of the consolidated financial position, results of operations and cash flows
  of Omnicare, Inc. and its consolidated subsidiaries (Omnicare or
  the Company). These financial statements should be read in conjunction
  with the Consolidated Financial Statements and related notes included in Omnicares
  Annual Report on Form 10-K for the year ended December 31, 2005 and any related
  updates included in the Companys periodic quarterly Securities and Exchange
  Commission (SEC) filings. Certain reclassifications of prior year
  amounts have been made to conform with the current year presentation.

Description of Business and Summary of Significant Accounting Policies

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

Stock-Based Compensation

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

6

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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 and six months ended June 30, 2006, includes additional
  share-based compensation expense for stock options and stock awards of approximately
  $2.2 million and $5.1 million before taxes, respectively, 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 under SFAS 123.

Concentration of Credit Risk

The
  new prescription drug benefit under Medicare Part D (Part D) became
  effective on January 1, 2006. As a result, Omnicare experienced a significant
  shift in payor mix during the six months ended June 30, 2006, as Part D currently
  represents approximately 40% of Omnicares overall revenues. The Company
  estimates that approximately 35% to 40% of its Part D revenues relate to patients
  enrolled in Part D prescription drug plans sponsored by United Health Group
  and its affiliates. 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.

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

7

---



Income Taxes

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

Recently Issued Accounting Standards

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

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

2. Subsequent Events

On
  August 9, 2006, the Company announced that it has recorded a special litigation
  charge of $54.0 million pretax ($46.7 million aftertax) including $10.3 million
  and $43.7 million recorded in the net sales and litigation charges lines of
  the Consolidated Statements of Income, respectively, in its financial results
  for the three and six months ended June 30, 2006. The special litigation charge
  related to the establishment of a reserve relating to an inquiry being conducted
  by the Attorney Generals Office in Michigan relating to certain billing
  issues under the Michigan Medicaid program, based on recent discussions between
  the Attorney Generals Office, the Company and its legal counsel. This
  special litigation charge represents the Companys current best estimate
  of the settlement amounts and associated costs under SFAS No. 5, Accounting
  for Contingencies (SFAS 5). 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.

One
  of the Companys repackaging facilities, Heartland Repack Services, has
  experienced certain quality control issues. As a result of these issues, the
  Company initiated a voluntary recall of certain of the products packaged at
  Heartland that may have been affected by the quality control issues. Thereafter,
  the Company voluntarily and temporarily suspended operations at Heartland in
  order to examine and address the quality control issues. In addition, following
  the suspension of operations there was a fire at the Heartland facility that
  caused damage to certain equipment and inventory in the facility. The United
  States Food and Drug Administration is currently conducting an inspection and
  reviewing the quality control issues. Because the Company is still in the process
  of investigating these matters, there can be no assurance that these matters
  will not have a material adverse impact on the Companys consolidated financial
  position or results of operations or cash flows.

3. Stock-Based
Employee Compensation

SFAS 123R Adoption

At
June 30, 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

8

---



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 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.

9

---



Employee Stock Purchase Plan

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

Stock Awards

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

Stock-Based Compensation

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

The
expected term of stock options granted represents the period of time that stock
options granted are expected to be outstanding and is estimated based on
historical stock option exercise experience.
The expected volatility is based on the historical volatility of the
Companys stock over a period generally commensurate with the expected term of
the stock options.  The risk-free
interest rate used in the option valuation model is based on United States
Treasury Strip (stripped coupon interest) issues with remaining terms similar
to the expected

10

---



term of the
stock options.  The expected dividend
yield is based on the current Omnicare stock yield.  The Company is required to estimate forfeitures at the time
of
the grant and revise those estimates in subsequent periods as necessary to
reflect any changes in actual forfeiture experience.  Omnicare uses historical data to estimate pre-vesting stock
option forfeitures and records stock-based compensation expense only for those
awards that are expected to vest.  All
stock option awards are amortized on a straight-line basis over the requisite
service periods of the awards, which are generally the vesting period.

The
assumptions used to value stock options granted during the three and six months
ended June 30, 2006 and 2005 are as follows:

|                                                       |  |                                 |       |                               |   |       |   |      |       |   |   |       |  
|------------------------------------------------------ |  | ------------------------------- | ----- | ----------------------------- | - | ----- | - | ---- | ----- | - | - | ----- | -
|                                                       |  | Three
  months ended
  June 30, |       | Six months
  ended
  June 30, |  
|                                                       |  | 2006                            |       | 2005                          |   | 2006  |   | 2005 |      
|                                                       |  |                                 |       |                               |   |       |   |      |      
|Expected volatility                                    |  |                                 | 30    | %                             |   | 36    | % |      | 30    | % |   | 36    | %
|Risk-free interest rate                                |  |                                 | 5.1   | %                             |   | 3.6   | % |      | 5.1   | % |   | 3.6   | %
|Expected dividend yield                                |  |                                 | 0.2   | %                             |   | 0.2   | % |      | 0.2   | % |   | 0.2   | %
|Expected term of stock
  options (in years)            |  |                                 | 4.7   |                               |   | 5.0   |   |      | 4.7   |   |   | 5.0   |  
|Weighted-average fair
  value of stock options granted |  | $                               | 15.07 |                               | $ | 12.90 |   | $    | 16.02 |   | $ | 13.61 |  

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

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

|                                         |  |                                      |       |                                    |   |        | 
|---------------------------------------- |  | ------------------------------------ | ----- | ---------------------------------- | - | ------ | 
|                                         |  | Three
  months ended
  June 30, 2006 |       | Six months
  ended
  June 30, 2006 |  
|                                         |  |                                      |       |                                    |  
|                                         |  |                                      |       |                                    |   |        | 
|Stock awards                             |  | $                                    | 5,228 |                                    | $ | 9,956  | 
|Stock options                            |  |                                      | 1,309 |                                    |   | 3,328  | 
|                                         |  |                                      |       |                                    |   |        | 
|                                        
|Total stock-based
  compensation expense |  | $                                    | 6,537 |                                    | $ | 13,284 | 
|                                         |  |                                      |       |                                    |   |        | 

11

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The
following table illustrates the effect on net income and earnings per share,
for the three and six months ended June 30, 2005, as 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):

|                                                                                                                                                                |  |                                          |        |                                      |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------- | ------ | ------------------------------------ | - | ------- | -
|                                                                                                                                                                |  | Three
  months
  ended
  June 30,
  2005 |        | Six months
  ended
  June 30,
  2005 |  
|                                                                                                                                                                |  |                                          |        |                                      |  
|Net income, as reported                                                                                                                                         |  | $                                        | 61,732 |                                      | $ | 119,727 |  
|Add: Stock-based employee compensation expense
(stock awards)
  included in reported net income, net of related tax effects                                     |  |                                          | 1,591  |                                      |   | 3,002   |  
|Deduct: Total stock-based employee compensation
expense (stock
  options and awards) determined under the fair value based method, net of
  related tax effects |  |                                          | (7,098 | )                                    |   | (13,943 | )
|                                                                                                                                                                |  |                                          |        |                                      |   |         |  
|Pro forma net income                                                                                                                                            |  | $                                        | 56,225 |                                      | $ | 108,786 |  
|                                                                                                                                                                |  |                                          |        |                                      |   |         |  
|                                                                                                                                                               
|Earnings per common share:                                                                                                                                      |  |                                          |        |                                      |   |         |  
|Basic - as reported                                                                                                                                             |  | $                                        | 0.60   |                                      | $ | 1.17    |  
|                                                                                                                                                                |  |                                          |        |                                      |   |         |  
|Basic - pro forma                                                                                                                                               |  | $                                        | 0.55   |                                      | $ | 1.07    |  
|                                                                                                                                                                |  |                                          |        |                                      |   |         |  
|                                                                                                                                                                |  |                                          |        |                                      |   |         |  
|Diluted - as reported                                                                                                                                           |  | $                                        | 0.59   |                                      | $ | 1.13    |  
|                                                                                                                                                                |  |                                          |        |                                      |   |         |  
|Diluted - pro forma                                                                                                                                             |  | $                                        | 0.54   |                                      | $ | 1.03    |  
|                                                                                                                                                                |  |                                          |        |                                      |   |         |  

Prior
to the adoption of SFAS 123R, the Company presented all tax benefits for
deductions resulting from the exercise of stock options and disqualifying
dispositions as operating cash flows on the Consolidated Statement of Cash
Flows.  SFAS 123R requires the benefits
of tax deductions in excess of recognized compensation expense to be reported
as a financing cash flow rather than an operating cash flow, totaling
approximately $11.5 million for the six months ended June 30, 2006.  This requirement serves to reduce net
operating cash flows and increase net financing cash flows in the period of
adoption and thereafter.  Total cash
flows remain unchanged from what would have been reported under prior
accounting rules.

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

As
of June 30, 2006, there was approximately $88 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 5.0
years.  The total fair value of shares
vested during the three and six months

12

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ended June 30, 2006 related to stock awards and stock options
  was approximately $7.6 million and $19.6 million, respectively.

General Stock Option Information

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

|                                           |  |        |       |                                       |   |                               |  |   |         | 
|------------------------------------------ |  | ------ | ----- | ------------------------------------- | - | ----------------------------- |  | - | ------- | 
|                                           |  | Shares |       | Weighted
  Average
  Exercise
  Price |   | Aggregate
  Intrinsic
  Value | 
|                                           |  |        |       |                                       |   |                               | 
|Options outstanding,
  beginning of period |  |        | 7,309 |                                       | $ | 29.84                         |  |   |         | 
|Options granted                            |  |        | 45    |                                       |   | 54.83                         |  |   |         | 
|Options exercised                          |  |        | (397  | )                                     |   | 24.83                         |  |   |         | 
|Options forfeited                          |  |        | (34   | )                                     |   | 36.90                         |  |   |         | 
|                                           |  |        |       |                                       |   |                               |  |   |         | 
|Options outstanding, end
  of period       |  |        | 6,923 |                                       | $ | 30.26                         |  | $ | 127,046 | 
|                                           |  |        |       |                                       |   |                               |  |   |         | 
|Options exercisable, end
  of period       |  |        | 5,223 |                                       | $ | 24.26                         |  | $ | 120,993 | 
|                                           |  |        |       |                                       |   |                               |  |   |         | 

The
total intrinsic value of options exercised during the six months ended June 30,
2006 was approximately $12.6 million.

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

|                             |  |                                           |       |                                                                |  |                                       |  |                                           |       |                                                                |  |                                       |  |  |     |  |   |       | 
|---------------------------- |  | ----------------------------------------- | ----- | -------------------------------------------------------------- |  | ------------------------------------- |  | ----------------------------------------- | ----- | -------------------------------------------------------------- |  | ------------------------------------- |  |  | --- |  | - | ----- | 
|OPTIONS
  OUTSTANDING        |  | OPTIONS
  EXERCISABLE                     |      
|                             |  |                                           |      
|Range of
  Exercise
  Prices |  | Number
  Outstanding at
  June 30,
  2006 |       | Weighted
  Average
  Remaining
  Contractual
  Life (in years) |  | Weighted
  Average
  Exercise
  Price |  | Number
  Exercisable at
  June 30,
  2006 |       | Weighted
  Average
  Remaining
  Contractual
  Life (in years) |  | Weighted
  Average
  Exercise
  Price | 
|                             |  |                                           |       |                                                                |  |                                       |  |                                           |       |                                                                |  |                                       | 
|$7.72-$15.45                 |  |                                           | 1,286 |                                                                |  | 3.0                                   |  | $                                         | 15.30 |                                                                |  | 1,286                                 |  |  | 3.0 |  | $ | 15.30 | 
|15.46-23.17                  |  |                                           | 1,133 |                                                                |  | 4.9                                   |  |                                           | 18.81 |                                                                |  | 1,095                                 |  |  | 4.8 |  |   | 18.70 | 
|23.18-30.90                  |  |                                           | 2,238 |                                                                |  | 6.7                                   |  |                                           | 27.42 |                                                                |  | 2,122                                 |  |  | 6.6 |  |   | 27.41 | 
|30.91-38.61                  |  |                                           | 432   |                                                                |  | 2.8                                   |  |                                           | 36.46 |                                                                |  | 380                                   |  |  | 2.1 |  |   | 36.67 | 
|38.62-61.79                  |  |                                           | 1,834 |                                                                |  | 8.7                                   |  |                                           | 49.83 |                                                                |  | 340                                   |  |  | 7.6 |  |   | 42.47 | 
|                             |  |                                           |       |                                                                |  |                                       |  |                                           |       |                                                                |  |                                       |  |  |     |  |   |       | 
|                             |  |                                           |       |                                                                |  |                                       |  |                                           |       |                                                                |  |                                       |  |  |     |  |   |       | 
|$7.72-$61.79                 |  |                                           | 6,923 |                                                                |  | 6.0                                   |  | $                                         | 30.26 |                                                                |  | 5,223                                 |  |  | 5.1 |  | $ | 24.26 | 
|                             |  |                                           |       |                                                                |  |                                       |  |                                           |       |                                                                |  |                                       |  |  |     |  |   |       | 

13

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General Restricted Stock Award Information

A
summary of nonvested restricted stock awards for the six months ended June 30,
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                   |  |            | 317   |            |          | 57.32 | 
| | Vested                    |  |            | (568  | )          |          | 21.37 | 
| | Forfeited                 |  |            | (15   | )          |          | 33.05 | 
| |                           |  |            |       |            |          |       | 
| | End of period             |  |            | 2,701 |            | $        | 34.78 | 
| |                           |  |            |       |            |          |       | 

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 June 30, |       
|                                                   |  |                                       |       
|                                                   |  |                                       |        |               |        |         |        | Per |     
|                                                   |  |                                       |        |               | Common |         | Common |    
|                                                   |  | Income                                |        | Shares        |        | Share   |       
|2006:                                              |  | (Numerator)                           |        | (Denominator) |        | Amounts |       
|                                                   |  |                                       |        |               |        |         |       
|Basic EPS                                          |  |                                       |        |               |        |         |        |     |      | 
|Net income                                         |  | $                                     | 8,379  |               |        | 118,544 |        | $   | 0.07 | 
|                                                   |  |                                       |        |               |        |         |        |     |      | 
|Effect of
  Dilutive Securities                    |  |                                       |        |               |        |         |        |     |      | 
|4.00% junior subordinated
  convertible debentures |  |                                       | 72     |               |        | 1,838   |        |     |      | 
|Stock options, warrants and
  awards               |  |                                       |       |               |        | 2,634   |        |     |      | 
|                                                   |  |                                       |        |               |        |         |        |     |      | 
|Diluted
  EPS                                      |  |                                       |        |               |        |         |        |     |      | 
|Net income plus assumed
  conversions              |  | $                                     | 8,451  |               |        | 123,016 |        | $   | 0.07 | 
|                                                   |  |                                       |        |               |        |         |        |     |      | 
|                                                   |  |                                       |        |               |        |         |        |     |      | 
|2005:                                              |  |                                       |        |               |        |         |        |     |      | 
|                                                   |  |                                       |        |               |        |         |        |     |      | 
|Basic EPS                                          |  |                                       |        |               |        |         |        |     |      | 
|Net income                                         |  | $                                     | 61,732 |               |        | 102,381 |        | $   | 0.60 | 
|                                                   |  |                                       |        |               |        |         |        |     |      | 
|Effect of
  Dilutive Securities                    |  |                                       |        |               |        |         |        |     |      | 
|4.00% junior subordinated
  convertible debentures |  |                                       | 132    |               |        | 275     |        |     |      | 
|Stock options, warrants and
  awards               |  |                                       |       |               |        | 2,086   |        |     |      | 
|                                                   |  |                                       |        |               |        |         |        |     |      | 
|Diluted
  EPS                                      |  |                                       |        |               |        |         |        |     |      | 
|Net income plus assumed
  conversions              |  | $                                     | 61,864 |               |        | 104,742 |        | $   | 0.59 | 
|                                                   |  |                                       |        |               |        |         |        |     |      | 

14

---



|                                                   |  |                                     |         |               |  |         |  |   |      | 
|-------------------------------------------------- |  | ----------------------------------- | ------- | ------------- |  | ------- |  | - | ---- | 
|                                                   |  | For the
  six months ended June 30, |        
|                                                   |  |                                     |        
|                                                   |  |                                     |         |               |  | Per     | 
|                                                   |  |                                     |         | Common        |  | Common  | 
|                                                   |  | Income                              |         | Shares        |  | Share   | 
|2006:                                              |  | (Numerator)                         |         | (Denominator) |  | Amounts | 
|                                                   |  |                                     |         |               |  |         | 
|Basic EPS                                          |  |                                     |         |               |  |         |  |   |      | 
|Net income                                         |  | $                                   | 61,610  |               |  | 118,229 |  | $ | 0.52 | 
|                                                   |  |                                     |         |               |  |         |  |   |      | 
|Effect of
  Dilutive Securities                    |  |                                     |         |               |  |         |  |   |      | 
|4.00% junior subordinated
  convertible debentures |  |                                     | 144     |               |  | 2,202   |  |   |      | 
|Stock options, warrants
  and awards               |  |                                     |        |               |  | 2,872   |  |   |      | 
|                                                   |  |                                     |         |               |  |         |  |   |      | 
|Diluted
  EPS                                      |  |                                     |         |               |  |         |  |   |      | 
|Net income plus assumed
  conversions              |  | $                                   | 61,754  |               |  | 123,303 |  | $ | 0.50 | 
|                                                   |  |                                     |         |               |  |         |  |   |      | 
|                                                   |  |                                     |         |               |  |         |  |   |      | 
|2005:                                              |  |                                     |         |               |  |         |  |   |      | 
|                                                   |  |                                     |         |               |  |         |  |   |      | 
|Basic EPS                                          |  |                                     |         |               |  |         |  |   |      | 
|Net income                                         |  | $                                   | 119,727 |               |  | 102,069 |  | $ | 1.17 | 
|                                                   |  |                                     |         |               |  |         |  |   |      | 
|Effect of
  Dilutive Securities                    |  |                                     |         |               |  |         |  |   |      | 
|4.00% junior subordinated
  convertible debentures |  |                                     | 1,814   |               |  | 3,256   |  |   |      | 
|Stock options, warrants
  and awards               |  |                                     |        |               |  | 2,007   |  |   |      | 
|                                                   |  |                                     |         |               |  |         |  |   |      | 
|Diluted
  EPS                                      |  |                                     |         |               |  |         |  |   |      | 
|Net income plus assumed
  conversions              |  | $                                   | 121,541 |               |  | 107,332 |  | $ | 1.13 | 
|                                                   |  |                                     |         |               |  |         |  |   |      | 

During
  the three and six months ended June 30, 2006 and 2005, the anti-dilutive effect
  associated with certain stock options, warrants and awards was excluded from
  the computation of diluted EPS, since the exercise price was greater than the
  average market price of the Companys common stock during these periods.
  The aggregate number of stock options, warrants and awards excluded from the
  computation of diluted EPS for the quarter ended June 30, 2006 and 2005 totaled
  1.6 million and 2.9 million, respectively, and for the six months ended June
  30, 2006 and 2005 totaled 1.6 million and 3.9 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 six months ended June 30,
2005 (primarily relating to the period from January 1, 2005 through the
exchange offering completion date of March 8, 2005).  For purposes of the if-converted calculation, 3.3 million
shares were assumed to be converted for the six months ended June 30, 2005.  Additionally, interest expense net of taxes,
of $1.8 million for the six months ended June 30, 2005, was added back to net
income for purposes of calculating diluted earnings per share using this
method.  There was no impact relating to
this change on reported diluted earnings per share for the three months ended
June 30,

15

---



2005, or the
three and six months ended June 30, 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 six 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 $51 million (including amounts payable pursuant to acquisition
agreements relating to pre-2006 acquisitions) in the six months ended June 30,
2006.  The impact of acquisitions on the
Companys overall goodwill balance has been reflected in the disclosures at the
Goodwill and Other Intangible Assets note.
The Company has engaged an independent valuation firm to assist with
identification and valuation of other identifiable assets in connection with
the purchase price allocation for certain acquisitions.  The Company also continues to evaluate the
tax effects and other pre-acquisition contingencies relating to certain
acquisitions.  Omnicare is in the
process of completing its allocation of the purchase price for certain
acquisitions, and accordingly, the goodwill balance is preliminary and subject
to change.  The net assets and operating
results of acquisitions have been included in the Companys consolidated
financial statements from their respective dates of acquisition.

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

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

16

---



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

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

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

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

| |                                 |  |                  |           |                  |   |           | 
| | ------------------------------- |  | ---------------- | --------- | ---------------- | - | --------- | 
| |                                 |  | Three
  Months   |           | Six Months       |  
| |                                 |  | ended June
  30, |           | ended June
  30, |  
| |                                 |  | 2005             |           | 2005             |  
| |                                 |  |                  |           |                  |  
| | Pro forma net sales             |  | $                | 1,526,702 |                  | $ | 3,027,554 | 
| | Pro forma net income            |  |                  | 50,285    |                  |   | 106,813   | 
| | Pro forma earnings per
  share: |  |                  |           |                  |   |           | 
| | Basic                           |  | $                | 0.49      |                  | $ | 1.05      | 
| |                                 |  |                  |           |                  |   |           | 
| | Diluted                         |  | $                | 0.48      |                  | $ | 1.01      | 
| |                                 |  |                  |           |                  |   |           | 

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

17

---



6. Goodwill
and Other Intangible Assets

Changes
in the carrying amount of goodwill for the six months ended June 30, 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
  six months ended June 30, 2006 |  |          | 6,267     |          |   |       |  |   | 6,267     | 
|Other                                                     |  |          | 184,913   |          |   | 12,945 |  |   | 197,858   | 
|                                                          |  |          |           |          |   |        |  |   |           | 
|Balance as of June 30,
  2006                             |  | $        | 4,143,652 |          | $ | 89,955 |  | $ | 4,233,607 | 
|                                                          |  |          |           |          |   |        |  |   |           | 

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

The
decrease in the net carrying amount of the Companys other identifiable
intangible assets of approximately $2 million from December 31, 2005 primarily
relates to amortization expense recorded during the period partially offset by
increases due primarily to customer relationship assets and non-compete
agreements recorded as part of the purchase price allocation for certain
acquisitions.

7. Debt

Current and Long-Term Debt

At
June 30, 2006, there was no outstanding balance under the Companys $800
million revolving credit facility, maturing on July 28, 2010 (the Revolving
Loans) and $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 5.95% at June 30, 2006.
As of June 30, 2006, the Company had approximately $23.5 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 in 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 six

18

---



months ended
June 30, 2005 approximating $41 million, primarily consisting of a note payable
carrying a five-year term and a variable interest rate of  5.30% per annum at June 30, 2006.

At
June 30, 2006, the overall weighted average interest rate on the Companys
variable interest portion of its long-term debt, excluding the interest rate
swap agreement, was 5.91%.  The estimated
floating interest rate on the interest rate swap agreement was 7.86% at June
30, 2006.

4.00% Junior Subordinated Convertible Debentures:

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

Original 4.00% Junior Subordinated
Convertible 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 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.

19

---



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

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).

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

In
  connection with the issuance of the Old 4.00% Debentures and the New 4.00% Debentures,
  the Company has deferred $11.1 million in debt issuance costs, of which approximately
  $0.1 million and $0.2 million was amortized to expense in the three and six
  months ended June 30, 2006 and 2005, respectively. The six months ended June
  30, 2005 included a special charge to operating expenses totaling $1.2 million
  pretax relating to professional fees and expenses incurred in connection with
  the issuance of the New Trust PIERS.

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.

20

---



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
$1.6 million and $3.5 million for the three and six months ended June 30, 2006,
respectively, and $1.4 million and $2.7 million for the three and six months
ended June 30, 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 the EBP.

The
Companys policy is to fund its retirement and 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
and six months ended June 30, 2006 and 2005 (in thousands):

|                                                                       |  |                      |       |                    |   |       |   |      |       |   |   |       |  
|---------------------------------------------------------------------- |  | -------------------- | ----- | ------------------ | - | ----- | - | ---- | ----- | - | - | ----- | -
|                                                                       |  | Three
  months ended |       | Six months
  ended |  
|                                                                       |  | June 30,             |       | June 30,           |  
|                                                                       |  |                      |       |                    |  
|                                                                       |  | 2006                 |       | 2005               |   | 2006  |   | 2005 |      
|                                                                       |  |                      |       |                    |   |       |   |      |      
|Service cost                                                           |  | $                    | 460   |                    | $ | 408   |   | $    | 916   |   | $ | 773   |  
|Interest cost                                                          |  |                      | 976   |                    |   | 797   |   |      | 1,952 |   |   | 1,595 |  
|Amortization of deferred amounts 
  (primarily prior actuarial losses) |  |                      | 1,090 |                    |   | 817   |   |      | 2,181 |   |   | 1,633 |  
|Return on assets                                                       |  |                      | (44   | )                  |   | (59   | ) |      | (88   | ) |   | (117  | )
|                                                                       |  |                      |       |                    |   |       |   |      |       |   |   |       |  
|Net periodic pension cost                                              |  | $                    | 2,482 |                    | $ | 1,963 |   | $    | 4,961 |   | $ | 3,884 |  
|                                                                       |  |                      |       |                    |   |       |   |      |       |   |   |       |  

During
the three and six months ended June 30, 2006, the Company made payments of $1.7
million and $5.0 million, respectively, related to funding plan assets for the
settlement of the Companys pension obligations, resulting in aggregate assets
for the settlement of the Companys pension obligations with a fair value of
approximately $67 million at period end (included in the Other noncurrent
assets section of the Consolidated Balance Sheets).  The Company anticipates payments of approximately $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 June 30, 2006
totaled $2.6 million, representing an increase of $1.9 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

21

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percentage of
the officers covered compensation, years of credited service and a vesting
schedule, as specified in the plan document.
Expense relating to the SPP was approximately $0.2 million and $0.4
million pretax in each of the three and six month periods ended June 30, 2006
and June 30, 2005, respectively.
Obligations of the SPP of approximately $5.1 million were fully funded
in rabbi trusts at June 30, 2006.

10. Restructuring
and Other Related Charges

Omnicare
Full Potential Program

In
the second quarter of 2006, the Company announced the implementation of the
Omnicare Full Potential Plan, a major initiative designed to re-engineer the
Companys pharmacy operating model to increase efficiency and enhance customer
growth.  The Omnicare Full Potential
Plan is expected to optimize resources across the entire organization by implementing
best practices and a hub-and-spoke model whereby certain key support and
production functions will be transferred to regional hubs specifically
designed and managed to perform these tasks, with local spoke pharmacies
focusing on time-sensitive services and customer-facing processes.  It is expected that this program will be
completed by the end of 2008.

The
program is estimated to result in total pretax restructuring and other related
charges of approximately $80 million over this 30-month period.  The charges include severance pay, lease
costs, professional fees and other related costs.  Approximately $15 million of this restructuring charge is
associated with the initial phase of the program and will be taken in 2006,
with $8.4 million in the quarter ended June 30, 2006 and the remainder taken
over the balance of the 2006 year.  The
remainder of the restructuring charge will be recognized and disclosed over the
fiscal years 2007 and 2008 as various phases of the project are finalized and
implemented.  The Company estimates that
this initial phase of the program will lead to a reduction in force of
approximately 1,200 positions, associated primarily with pharmacy operations.

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

|                                              |  |            |       |          |   |            |   |   |       | 
|--------------------------------------------- |  | ---------- | ----- | -------- | - | ---------- | - | - | ----- | 
|                                              |  | 2006       |       | Utilized |   | Balance at |  
|                                              |  | Provision/ |       | during   |   | June 30,   |  
|                                              |  | Accrual    |       | 2006     |   | 2006       |  
|                                              |  |            |       |          |   |            |  
|Restructuring charges:                        |  |            |       |          |   |            |   |   |       | 
|Employee severance                            |  | $          | 5,083 |          | $ | (1,351     | ) | $ | 3,732 | 
|Other assets, fees and facility exit
costs    |  |            | 999   |          |   |           |   |   | 999   | 
|                                              |  |            |       |          |   |            |   |   |       | 
|Total restructuring charges                   |  |            | 6,082 |          | $ | (1,351     | ) | $ | 4,731 | 
|                                              |  |            |       |          |   |            |   |   |       | 
|                                              |  |            |       |          |   |            |   |   |       | 
|Other related charges                         |  |            | 2,331 |          |   |            |   |   |       | 
|                                              |  |            |       |          |   |            |   |   |       | 
|Total restructuring and other related
charges |  | $          | 8,413 |          |   |            |   |   |       | 
|                                              |  |            |       |          |   |            |   |   |       | 

22

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As
  of June 30, 2006, the Company had paid approximately $1.4 million of severance
  and other employee-related costs. The remaining liabilities at June 30, 2006
  represent amounts not yet paid relating to actions taken in connection with
  the program (primarily severance payments and professional fees) and will be
  settled as these matters are finalized. The provision/accrual and corresponding
  payment amounts relating to employee severance are being accounted for in accordance
  with SFAS No. 112 Employers Accounting for Postemployment Benefits.

2005
Program

In
  the third quarter of 2005, the Company announced the implementation of certain
  consolidation plans and other productivity initiatives to streamline pharmacy
  services and contract research organization operations, including maximizing
  workforce and operating asset utilization, and producing a more cost-efficient,
  operating infrastructure (the 2005 Program). These consolidation
  and productivity initiatives 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 were also identified for consolidation into NeighborCare
  locations. Additionally, as part of the evaluation process on how best to integrate
  the two organizations, the Company also focused broadly on ways to lower operating
  infrastructure costs to maximize efficiencies and asset utilization and identified
  opportunities to right-size the business, streamline operations and eliminate
  redundant assets. This portion of the consolidation activity and other productivity
  initiatives are expected to result in the closure of 31 Omnicare facilities,
  of which 28 are pharmacy operations. It is also expected to 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
  760 of these positions have been eliminated as of June 30, 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 $31 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 $3 million and $11 million pretax (approximately $2
million and $7 million aftertax) during the three and six months ended June 30,
2006, respectively.

23

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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 2005 Program restructuring and other
  related charges follow (pretax, in thousands):

|                                              |  |                |        |            |   |          |  |            |        |   |   |        | 
|--------------------------------------------- |  | -------------- | ------ | ---------- | - | -------- |  | ---------- | ------ | - | - | ------ | 
|                                              |  | Balance at     |        | 2006       |   | Utilized |  | Balance at |       
|                                              |  | December
  31, |        | Provision/ |   | during   |  | June 30,   |       
|                                              |  | 2005           |        | Accrual    |   | 2006     |  | 2006       |       
|                                              |  |                |        |            |   |          |  |            |       
|Restructuring charges:                        |  |                |        |            |   |          |  |            |        |   |   |        | 
|Employee severance                            |  | $              | 2,809  |            | $ | 1,930    |  | $          | (2,224 | ) | $ | 2,515  | 
|Employment agreement buy-outs                 |  |                | 734    |            |   | 1,459    |  |            | (1,485 | ) |   | 708    | 
|Lease terminations                            |  |                | 9,833  |            |   | 2,861    |  |            | (3,054 | ) |   | 9,640  | 
|Other assets, fees and facility exit
costs    |  |                | 1,335  |            |   | 2,409    |  |            | (1,822 | ) |   | 1,922  | 
|                                              |  |                |        |            |   |          |  |            |        |   |   |        | 
|Total restructuring charges                   |  | $              | 14,711 |            |   | 8,659    |  | $          | (8,585 | ) | $ | 14,785 | 
|                                              |  |                |        |            |   |          |  |            |       
|                                              |  |                |        |            |   |          |  |            |        |   |   |        | 
|Other related charges                         |  |                |        |            |   | 2,530    |  |            |        |   |   |        | 
|                                              |  |                |        |            |   |          |  |            |        |   |   |        | 
|Total restructuring and other related
charges |  |                |        |            | $ | 11,189   |  |            |        |   |   |        | 
|                                              |  |                |        |            |   |          |  |            |        |   |   |        | 

As of June 30,
2006, the Company had paid approximately $6.2 million of severance and other
employee-related costs.  The remaining
liabilities at June 30, 2006 represent amounts not yet paid relating to actions
taken in connection with the program (primarily severance payments and lease
payments) and will be settled as these matters are finalized.

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 and certain customers, as well as with respect to contracts with certain
  companies acquired by the Company. The Company believes that it has complied
  with all applicable laws and regulations with respect to these matters.

In
addition, the federal government and certain states are investigating
allegations relating to three generic pharmaceuticals provided by the Company
in connection with the substitution of capsules for tablets (Ranitidine),
tablets for capsules (Fluoxetine) and two 7.5 mg tablets for one 15 mg tablet
(Buspirone).  The Company is cooperating
fully in these matters.  The Company has
recorded a special litigation charge of $19.3 million and $53.4 million pretax
($18.6 million and $42.6 million aftertax) in its financial results for the
three and six months ended June 30, 2006, respectively, to establish a
settlement reserve relating to the aforementioned inquiries by the federal
government and certain states relating to three generic

24

---



pharmaceuticals provided by the Company, based on discussions
  between these government representatives, the Company and its legal counsel.
  This special litigation charge represents the Companys current best estimate
  of the settlement amounts and associated costs under SFAS 5.

On
  July 11, 2006, the Attorney Generals Office in Michigan provided the Companys
  legal counsel with information concerning an investigation that it has been
  conducting relating to certain billing issues under the Michigan Medicaid program.
  The Company has since responded to various requests for documents and is cooperating
  fully in this matter. The Company has recorded a special litigation charge of
  $54.0 million pretax ($46.7 million aftertax) in its financial results for the
  three and six months ended June 30, 2006 to establish a reserve relating
  to this matter based on discussions between the Attorney Generals Office,
  the Company and its legal counsel. See further discussion in the Subsequent
  Events 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
Carrierscase formally moved for consolidation and the appointment of lead
plaintiff and lead counsel pursuant to the Private Securities Litigation Reform
Act of 1995. On May 22, 2006, that
motion was granted, the cases were consolidated, and a lead plaintiff and lead
counsel were appointed. On July 20,
2006, plaintiffs filed a consolidated amended complaint, adding new factual
allegations and a third officer as a defendant. The new allegations primarily relate to revenue recognition, the
valuation of receivables and the valuation of inventories.

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 (seediscussion of the Irwinmatter
below) pending in the Eastern District of Kentucky. Shortly thereafter, the defendants moved to consolidate the Isakand Fragnoli actions, and plaintiffs consented to the consolidation. The motion to stay was argued to the court
on July 27, 2006, and the parties are awaiting a decision on the motion.

25

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On
March 23, 2006, a shareholder derivative action entitled Irwin v. Gemunder, et al., 2:06cv62, was filed in
the United States District Court For the Eastern District of Kentucky against
the members of Omnicares board of directors, individually, purporting to
assert claims for breach of fiduciary duty, abuse of control, gross
mismanagement, waste of corporate assets and unjust enrichment arising out of
the Companys alleged violations of federal and state health care laws based
upon the purported improper substitution of generic drugs. The complaint seeks,
among other things, damages, restitution and injunctive relief. On May 26,
2006, the Companys board of directors moved to dismiss the complaint for
failure to make a pre-suit demand, among other grounds. On July 27, 2006, the
date plaintiffs opposition to the motion to dismiss was due, plaintiff filed
an amended complaint, adding the same new factual allegations as were added to
the HOD Carriers complaint and a
third officer as a defendant.

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

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

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.

26

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12. Segment
Information

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

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

|                                        |  |                               |           |                |   |                                 |   |                       |         |   |   |           |  
|--------------------------------------- |  | ----------------------------- | --------- | -------------- | - | ------------------------------- | - | --------------------- | ------- | - | - | --------- | -
|                                        |  | Three
  months ended June 30, |          
|                                        |  |                               |          
|2006:                                   |  | Pharmacy
  Services           |           | CRO
  Services |   | Corporate
  and
  Consolidating |   | Consolidated
  Totals |        
|                                        |  |                               |           |                |   |                                 |   |                       |        
|Net sales                               |  | $                             | 1,598,604 |                | $ | 42,506                          |   | $                     |        |   | $ | 1,641,110 |  
|Depreciation and amortization           |  |                               | 28,970    |                |   | 493                             |   |                       | 776     |   |   | 30,239    |  
|Restructuring and other related charges |  |                               | (9,562    | )              |   | (1,004                          | ) |                       | (1,323  | ) |   | (11,889   | )
|Litigation charges                      |  |                               | (64,482   | )              |   |                                |   |                       |        |   |   | (64,482   | )
|Operating income (expense)              |  |                               | 107,225   |                |   | 1,301                           |   |                       | (24,357 | ) |   | 84,169    |  
|Total assets                            |  |                               | 6,975,876 |                |   | 159,086                         |   |                       | 480,709 |   |   | 7,615,671 |  
|Capital expenditures                    |  |                               | 8,025     |                |   | 80                              |   |                       | 351     |   |   | 8,456     |  
|                                        |  |                               |           |                |   |                                 |   |                       |         |   |   |           |  
|2005:                                   |  |                               |           |                |   |                                 |   |                       |         |   |   |           |  
|                                        |  |                               |           |                |   |                                 |   |                       |         |   |   |           |  
|Net sales                               |  | $                             | 1,073,203 |                | $ | 50,194                          |   | $                     |        |   | $ | 1,123,397 |  
|Depreciation and amortization           |  |                               | 13,763    |                |   | 437                             |   |                       | 673     |   |   | 14,873    |  
|Operating income (expense)              |  |                               | 126,669   |                |   | 3,710                           |   |                       | (12,528 | ) |   | 117,851   |  
|Total assets                            |  |                               | 3,787,356 |                |   | 149,409                         |   |                       | 151,703 |   |   | 4,088,468 |  
|Capital expenditures                    |  |                               | 4,300     |                |   | 203                             |   |                       | 302     |   |   | 4,805     |  

27

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|                                        |  |                           |           |                |   |                                 |   |                       |         |   |   |           |  
|--------------------------------------- |  | ------------------------- | --------- | -------------- | - | ------------------------------- | - | --------------------- | ------- | - | - | --------- | -
|                                        |  | Six months ended June 30, |          
|                                        |  |                           |          
|2006:                                   |  | Pharmacy
  Services       |           | CRO
  Services |   | Corporate
  and
  Consolidating |   | Consolidated
  Totals |        
|                                        |  |                           |           |                |   |                                 |   |                       |        
|Net sales                               |  | $                         | 3,215,156 |                | $ | 84,552                          |   | $                     |        |   | $ | 3,299,708 |  
|Depreciation and amortization           |  |                           | 58,642    |                |   | 980                             |   |                       | 1,515   |   |   | 61,137    |  
|Restructuring and other related charges |  |                           | (14,878   | )              |   | (1,302                          | ) |                       | (3,422  | ) |   | (19,602   | )
|Litigation charges                      |  |                           | (98,582   | )              |   |                                |   |                       |        |   |   | (98,582   | )
|Operating income (expense)              |  |                           | 257,731   |                |   | 2,464                           |   |                       | (48,666 | ) |   | 211,529   |  
|Total assets                            |  |                           | 6,975,876 |                |   | 159,086                         |   |                       | 480,709 |   |   | 7,615,671 |  
|Capital expenditures                    |  |                           | 13,688    |                |   | 176                             |   |                       | 701     |   |   | 14,565    |  
|                                        |  |                           |           |                |   |                                 |   |                       |         |   |   |           |  
|2005:                                   |  |                           |           |                |   |                                 |   |                       |         |   |   |           |  
|                                        |  |                           |           |                |   |                                 |   |                       |         |   |   |           |  
|Net sales                               |  | $                         | 2,123,302 |                | $ | 96,241                          |   | $                     |        |   | $ | 2,219,543 |  
|Depreciation and amortization           |  |                           | 26,833    |                |   | 984                             |   |                       | 1,325   |   |   | 29,142    |  
|Operating income (expense)              |  |                           | 251,572   |                |   | 6,269                           |   |                       | (28,427 | ) |   | 229,414   |  
|Total assets                            |  |                           | 3,787,356 |                |   | 149,409                         |   |                       | 151,703 |   |   | 4,088,468 |  
|Capital expenditures                    |  |                           | 6,592     |                |   | 424                             |   |                       | 922     |   |   | 7,938     |  

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 $6.1 million and $12.3 million for the three and six
months ended June 30, 2006, respectively, and $8.5 million and $15.7 million
for the three and six months ended June 30, 2005, respectively.

28

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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 June 30, 2006 and December 31, 2005 for the balance sheets, the three and
six months ended June 30, 2006 and 2005 for the statements of income, and the
statements of cash flows for the six months ended June 30, 2006 and 2005.
Separate complete financial statements of the respective Guarantor Subsidiaries
would not provide additional meaningful information that would be useful in
evaluating the sufficiency of the Guarantor Subsidiaries and thus are not
presented. No consolidating/eliminating adjustment column is presented for the
condensed consolidating statements of cash flows since there were no significant
consolidating/eliminating adjustment amounts during the periods presented.

Summary Consolidating Statements of Income

|                                                  |  |                               |         |                          |   |                              |   |                                            |        |                                     |   |         |   |   |           |  
|------------------------------------------------- |  | ----------------------------- | ------- | ------------------------ | - | ---------------------------- | - | ------------------------------------------ | ------ | ----------------------------------- | - | ------- | - | - | --------- | -
|(in thousands)                                    |  | Three
  months ended June 30, |        
|                                                  |  |                               |        
|2006:                                             |  | Parent                        |         | Guarantor
  Subsidiaries |   | Non-Guarantor
  Subsidiaries |   | Consolidating/
  Eliminating
  Adjustments |        | Omnicare, Inc.
  and
  Subsidiaries |  
|                                                  |  |                               |         |                          |   |                              |   |                                            |        |                                     |  
|                                                  |  |                               |         |                          |   |                              |   |                                            |        |                                     |  
|Net sales (Note 2 and Note 11)                    |  | $                             |        |                          | $ | 1,549,758                    |   | $                                          | 91,352 |                                     | $ |        |   | $ | 1,641,110 |  
|Cost of sales                                     |  |                               |        |                          |   | 1,170,210                    |   |                                            | 70,609 |                                     |   |        |   |   | 1,240,819 |  
|                                                  |  |                               |         |                          |   |                              |   |                                            |        |                                     |   |         |   |   |           |  
|Gross profit                                      |  |                               |        |                          |   | 379,548                      |   |                                            | 20,743 |                                     |   |        |   |   | 400,291   |  
|Selling, general and administrative expenses      |  |                               | 2,278   |                          |   | 223,881                      |   |                                            | 13,592 |                                     |   |        |   |   | 239,751   |  
|Restructuring and other related charges (Note 10) |  |                               |        |                          |   | 11,889                       |   |                                            |       |                                     |   |        |   |   | 11,889    |  
|Litigation charges (Note 2 and Note 11)           |  |                               |        |                          |   | 64,482                       |   |                                            |       |                                     |   |        |   |   | 64,482    |  
|                                                  |  |                               |         |                          |   |                              |   |                                            |        |                                     |   |         |   |   |           |  
|Operating income (loss)                           |  |                               | (2,278  | )                        |   | 79,296                       |   |                                            | 7,151  |                                     |   |        |   |   | 84,169    |  
|Investment income                                 |  |                               | 2,020   |                          |   | 1,029                        |   |                                            |       |                                     |   |        |   |   | 3,049     |  
|Interest expense                                  |  |                               | (41,918 | )                        |   | (504                         | ) |                                            | (647   | )                                   |   |        |   |   | (43,069   | )
|                                                  |  |                               |         |                          |   |                              |   |                                            |        |                                     |   |         |   |   |           |  
|Income (loss) before income taxes                 |  |                               | (42,176 | )                        |   | 79,821                       |   |                                            | 6,504  |                                     |   |        |   |   | 44,149    |  
|Income tax (benefit) expense                      |  |                               | (15,723 | )                        |   | 49,051                       |   |                                            | 2,442  |                                     |   |        |   |   | 35,770    |  
|Equity in net income of subsidiaries              |  |                               | 34,832  |                          |   |                             |   |                                            |       |                                     |   | (34,832 | ) |   |          |  
|                                                  |  |                               |         |                          |   |                              |   |                                            |        |                                     |   |         |   |   |           |  
|Net income (loss)                                 |  | $                             | 8,379   |                          | $ | 30,770                       |   | $                                          | 4,062  |                                     | $ | (34,832 | ) | $ | 8,379     |  
|                                                  |  |                               |         |                          |   |                              |   |                                            |        |                                     |   |         |   |   |           |  
|                                                  |  |                               |         |                          |   |                              |   |                                            |        |                                     |   |         |   |   |           |  
|2005:                                             |  |                               |         |                          |   |                              |   |                                            |        |                                     |   |         |   |   |           |  
|                                                  |  |                               |         |                          |   |                              |   |                                            |        |                                     |   |         |   |   |           |  
|                                                  |  |                               |         |                          |   |                              |   |                                            |        |                                     |   |         |   |   |           |  
|Net sales                                         |  | $                             |        |                          | $ | 1,061,962                    |   | $                                          | 61,435 |                                     | $ |        |   | $ | 1,123,397 |  
|Cost of sales                                     |  |                               |        |                          |   | 803,629                      |   |                                            | 44,922 |                                     |   |        |   |   | 848,551   |  
|                                                  |  |                               |         |                          |   |                              |   |                                            |        |                                     |   |         |   |   |           |  
|Gross profit                                      |  |                               |        |                          |   | 258,333                      |   |                                            | 16,513 |                                     |   |        |   |   | 274,846   |  
|Selling, general and administrative expenses      |  |                               | 399     |                          |   | 148,818                      |   |                                            | 7,778  |                                     |   |        |   |   | 156,995   |  
|                                                  |  |                               |         |                          |   |                              |   |                                            |        |                                     |   |         |   |   |           |  
|Operating income (loss)                           |  |                               | (399    | )                        |   | 109,515                      |   |                                            | 8,735  |                                     |   |        |   |   | 117,851   |  
|Investment income                                 |  |                               | 241     |                          |   | 850                          |   |                                            |       |                                     |   |        |   |   | 1,091     |  
|Interest expense                                  |  |                               | (19,899 | )                        |   | (87                          | ) |                                            | (453   | )                                   |   |        |   |   | (20,439   | )
|                                                  |  |                               |         |                          |   |                              |   |                                            |        |                                     |   |         |   |   |           |  
|Income (loss) before income taxes                 |  |                               | (20,057 | )                        |   | 110,278                      |   |                                            | 8,282  |                                     |   |        |   |   | 98,503    |  
|Income tax (benefit) expense                      |  |                               | (7,487  | )                        |   | 41,166                       |   |                                            | 3,092  |                                     |   |        |   |   | 36,771    |  
|Equity in net income of subsidiaries              |  |                               | 74,302  |                          |   |                             |   |                                            |       |                                     |   | (74,302 | ) |   |          |  
|                                                  |  |                               |         |                          |   |                              |   |                                            |        |                                     |   |         |   |   |           |  
|Net income (loss)                                 |  | $                             | 61,732  |                          | $ | 69,112                       |   | $                                          | 5,190  |                                     | $ | (74,302 | ) | $ | 61,732    |  
|                                                  |  |                               |         |                          |   |                              |   |                                            |        |                                     |   |         |   |   |           |  

29

---



13. Guarantor Subsidiaries (Continued)

Summary Consolidating Statements of Income
- Continued

|                                                  |  |                           |         |                          |   |                              |   |                                            |         |                                     |   |          |   |   |           |  
|------------------------------------------------- |  | ------------------------- | ------- | ------------------------ | - | ---------------------------- | - | ------------------------------------------ | ------- | ----------------------------------- | - | -------- | - | - | --------- | -
|(in thousands)                                    |  | Six months ended June 30, |        
|                                                  |  |                           |        
|2006:                                             |  | Parent                    |         | Guarantor
  Subsidiaries |   | Non-Guarantor
  Subsidiaries |   | Consolidating/
  Eliminating
  Adjustments |         | Omnicare, Inc.
  and
  Subsidiaries |  
|                                                  | 
|                                                  |  |                           |         |                          |   |                              |   |                                            |         |                                     |   |          |   |   |           |  
|Net sales (Note 2 and Note 11)                    |  | $                         |        |                          | $ | 3,116,484                    |   | $                                          | 183,224 |                                     | $ |         |   | $ | 3,299,708 |  
|Cost of sales                                     |  |                           |        |                          |   | 2,342,982                    |   |                                            | 139,920 |                                     |   |         |   |   | 2,482,902 |  
|                                                  |  |                           |         |                          |   |                              |   |                                            |         |                                     |   |          |   |   |           |  
|Gross profit                                      |  |                           |        |                          |   | 773,502                      |   |                                            | 43,304  |                                     |   |         |   |   | 816,806   |  
|Selling, general and administrative
expenses      |  |                           | 4,259   |                          |   | 456,736                      |   |                                            | 26,098  |                                     |   |         |   |   | 487,093   |  
|Restructuring and other related charges
(Note 10) |  |                           |        |                          |   | 19,602                       |   |                                            |        |                                     |   |         |   |   | 19,602    |  
|Litigation charges (Note 2 and Note
11)           |  |                           |        |                          |   | 98,582                       |   |                                            |        |                                     |   |         |   |   | 98,582    |  
|                                                  |  |                           |         |                          |   |                              |   |                                            |         |                                     |   |          |   |   |           |  
|Operating income (loss)                           |  |                           | (4,259  | )                        |   | 198,582                      |   |                                            | 17,206  |                                     |   |         |   |   | 211,529   |  
|Investment income                                 |  |                           | 3,011   |                          |   | 1,837                        |   |                                            |        |                                     |   |         |   |   | 4,848     |  
|Interest expense                                  |  |                           | (83,110 | )                        |   | (1,154                       | ) |                                            | (1,217  | )                                   |   |         |   |   | (85,481   | )
|                                                  |  |                           |         |                          |   |                              |   |                                            |         |                                     |   |          |   |   |           |  
|Income (loss) before income
taxes                 |  |                           | (84,358 | )                        |   | 199,265                      |   |                                            | 15,989  |                                     |   |         |   |   | 130,896   |  
|Income tax (benefit) expense                      |  |                           | (30,951 | )                        |   | 94,371                       |   |                                            | 5,866   |                                     |   |         |   |   | 69,286    |  
|Equity in net income of
subsidiaries              |  |                           | 115,017 |                          |   |                             |   |                                            |        |                                     |   | (115,017 | ) |   |          |  
|                                                  |  |                           |         |                          |   |                              |   |                                            |         |                                     |   |          |   |   |           |  
|Net
        income (loss)                         |  | $                         | 61,610  |                          | $ | 104,894                      |   | $                                          | 10,123  |                                     | $ | (115,017 | ) | $ | 61,610    |  
|                                                  |  |                           |         |                          |   |                              |   |                                            |         |                                     |   |          |   |   |           |  

|                                             |  |   |         |   |   |           |   |   |         |   |   |          |   |   |           |  
|-------------------------------------------- |  | - | ------- | - | - | --------- | - | - | ------- | - | - | -------- | - | - | --------- | -
|2005:                                        |  |   |         |   |   |           |   |   |         |   |   |          |   |   |           |  
|                                             | 
|                                             |  |   |         |   |   |           |   |   |         |   |   |          |   |   |           |  
|Net sales                                    |  | $ |        |   | $ | 2,115,641 |   | $ | 103,902 |   | $ |         |   | $ | 2,219,543 |  
|Cost of sales                                |  |   |        |   |   | 1,598,354 |   |   | 77,021  |   |   |         |   |   | 1,675,375 |  
|                                             |  |   |         |   |   |           |   |   |         |   |   |          |   |   |           |  
|Gross profit                                 |  |   |        |   |   | 517,287   |   |   | 26,881  |   |   |         |   |   | 544,168   |  
|Selling, general and administrative
expenses |  |   | 2,219   |   |   | 298,629   |   |   | 13,906  |   |   |         |   |   | 314,754   |  
|                                             |  |   |         |   |   |           |   |   |         |   |   |          |   |   |           |  
|Operating income (loss)                      |  |   | (2,219  | ) |   | 218,658   |   |   | 12,975  |   |   |         |   |   | 229,414   |  
|Investment income                            |  |   | 572     |   |   | 1,672     |   |   |        |   |   |         |   |   | 2,244     |  
|Interest expense                             |  |   | (39,175 | ) |   | (316      | ) |   | (867    | ) |   |         |   |   | (40,358   | )
|                                             |  |   |         |   |   |           |   |   |         |   |   |          |   |   |           |  
|Income (loss) before income
taxes            |  |   | (40,822 | ) |   | 220,014   |   |   | 12,108  |   |   |         |   |   | 191,300   |  
|Income tax (benefit) expense                 |  |   | (15,272 | ) |   | 82,315    |   |   | 4,530   |   |   |         |   |   | 71,573    |  
|Equity in net income of
subsidiaries         |  |   | 145,277 |   |   |          |   |   |        |   |   | (145,277 | ) |   |          |  
|                                             |  |   |         |   |   |           |   |   |         |   |   |          |   |   |           |  
|Net
        income (loss)                    |  | $ | 119,727 |   | $ | 137,699   |   | $ | 7,578   |   | $ | (145,277 | ) | $ | 119,727   |  
|                                             |  |   |         |   |   |           |   |   |         |   |   |          |   |   |           |  

30

---



13. Guarantor Subsidiaries (Continued)

Condensed Consolidating Balance Sheets

|                                                                      |  |        |           |                          |   |                              |  |                                            |         |                                     |  
|--------------------------------------------------------------------- |  | ------ | --------- | ------------------------ | - | ---------------------------- |  | ------------------------------------------ | ------- | ----------------------------------- | -
|(in thousands)                                                       
|As of June 30,
  2006:                                                |  | Parent |           | Guarantor
  Subsidiaries |   | Non-Guarantor
  Subsidiaries |  | Consolidating/
  Eliminating
  Adjustments |         | Omnicare, Inc.
  and
  Subsidiaries |  
|                                                                      | 
|                                                                      |  |        |           |                          |   |                              |  |                                            |         |                                     |  
|ASSETS                                                                |  |        |           |                          |   |                              |  |                                            |         |                                     |  
|Cash and cash equivalents                                             |  | $      | 224,202   |                          | $ | 74,095                       |  | $                                          | 28,966  |                                     | $
|Restricted cash                                                       |  |        |          |                          |   | 11,767                       |  |                                            |        |                                     |  
|Deposits with drug wholesalers                                        |  |        |          |                          |   | 45,367                       |  |                                            |        |                                     |  
|Accounts receivable, net (including
intercompany)                     |  |        |          |                          |   | 1,371,647                    |  |                                            | 52,094  |                                     |  
|Unbilled receivables                                                  |  |        |          |                          |   | 19,448                       |  |                                            |        |                                     |  
|Inventories                                                           |  |        |          |                          |   | 462,000                      |  |                                            | 21,987  |                                     |  
|Deferred income tax benefits
(liabilities), net-current               |  |        | 6,349     |                          |   | 111,841                      |  |                                            | 359     |                                     |  
|Other current assets                                                  |  |        | 2,342     |                          |   | 190,220                      |  |                                            | 8,931   |                                     |  
|                                                                      |  |        |           |                          |   |                              |  |                                            |         |                                     |  
|Total current assets                                                  |  |        | 232,893   |                          |   | 2,286,385                    |  |                                            | 112,337 |                                     |  
|                                                                      |  |        |           |                          |   |                              |  |                                            |         |                                     |  
|Properties and equipment, net                                         |  |        |          |                          |   | 208,240                      |  |                                            | 15,362  |                                     |  
|Goodwill                                                              |  |        |          |                          |   | 4,133,761                    |  |                                            | 99,846  |                                     |  
|Identifiable intangible assets,
net                                   |  |        |          |                          |   | 331,857                      |  |                                            | 5,555   |                                     |  
|Other noncurrent assets                                               |  |        | 63,740    |                          |   | 128,760                      |  |                                            | 597     |                                     |  
|Investment in subsidiaries                                            |  |        | 5,797,322 |                          |   |                             |  |                                            |        |                                     |  
|                                                                      |  |        |           |                          |   |                              |  |                                            |         |                                     |  
|Total assets                                                          |  | $      | 6,093,955 |                          | $ | 7,089,003                    |  | $                                          | 233,697 |                                     | $
|                                                                      |  |        |           |                          |   |                              |  |                                            |         |                                     |  
|                                                                      |  |        |           |                          |   |                              |  |                                            |         |                                     |  
|LIABILITIES AND STOCKHOLDERS
EQUITY                                  |  |        |           |                          |   |                              |  |                                            |         |                                     |  
|Current
        liabilities (including intercompany) - Notes 7 and 11 |  | $      | 27,969    |                          | $ | 729,723                      |  | $                                          | 20,575  |                                     | $
|Long-term debt                                                        |  |        | 700,000   |                          |   | 8,189                        |  |                                            | 48,081  |                                     |  
|8.125% senior subordinated notes, due
2011                            |  |        | 8,225     |                          |   |                             |  |                                            |        |                                     |  
|6.125% senior subordinated notes, net,
due 2013                       |  |        | 221,988   |                          |   |                             |  |                                            |        |                                     |  
|6.75% senior subordinated notes, due
2013                             |  |        | 225,000   |                          |   |                             |  |                                            |        |                                     |  
|6.875% senior subordinated notes, due
2015                            |  |        | 525,000   |                          |   |                             |  |                                            |        |                                     |  
|4.00% junior subordinated convertible
debentures, due 2033            |  |        | 345,000   |                          |   |                             |  |                                            |        |                                     |  
|3.25% convertible senior debentures, due
2035                         |  |        | 977,500   |                          |   |                             |  |                                            |        |                                     |  
|Deferred income tax liabilities
(benefits), net-noncurrent            |  |        | (39,662   | )                        |   | 466,303                      |  |                                            | (6,864  | )                                   |  
|Other noncurrent liabilities                                          |  |        | 28,012    |                          |   | 258,357                      |  |                                            | 1,014   |                                     |  
|Stockholders equity                                                  |  |        | 3,074,923 |                          |   | 5,626,431                    |  |                                            | 170,891 |                                     |  
|                                                                      |  |        |           |                          |   |                              |  |                                            |         |                                     |  
|Total liabilities and stockholders
equity                            |  | $      | 6,093,955 |                          | $ | 7,089,003                    |  | $                                          | 233,697 |                                     | $
|                                                                      |  |        |           |                          |   |                              |  |                                            |         |                                     |  

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

31

---



13. Guarantor
Subsidiaries (Continued)

Condensed Consolidating Statements of Cash Flows

|                                                                                                           |  |                           |          |                          |   |                              |   |                                     |        |   |   |          |  
|---------------------------------------------------------------------------------------------------------- |  | ------------------------- | -------- | ------------------------ | - | ---------------------------- | - | ----------------------------------- | ------ | - | - | -------- | -
|(in thousands)                                                                                             |  | Six months ended June 30, |         
|                                                                                                           |  |                           |         
|2006:                                                                                                      |  | Parent                    |          | Guarantor
  Subsidiaries |   | Non-Guarantor
  Subsidiaries |   | Omnicare, Inc.
  and
  Subsidiaries |       
|                                                                                                           | 
|Cash flows from operating activities:                                                                      |  |                           |          |                          |   |                              |   |                                     |        |   |   |          |  
|Provision for doubtful accounts                                                                            |  | $                         |         |                          | $ | 34,617                       |   | $                                   | 543    |   | $ | 35,160   |  
|Other                                                                                                      |  |                           | (95,527  | )                        |   | 197,869                      |   |                                     | (9,445 | ) |   | 92,897   |  
|                                                                                                           |  |                           |          |                          |   |                              |   |                                     |        |   |   |          |  
|Net
  cash flows from operating activities                                                                 |  |                           | (95,527  | )                        |   | 232,486                      |   |                                     | (8,902 | ) |   | 128,057  |  
|                                                                                                           |  |                           |          |                          |   |                              |   |                                     |        |   |   |          |  
|Cash flows from investing activities:                                                                      |  |                           |          |                          |   |                              |   |                                     |        |   |   |          |  
|Acquisition of businesses, net of cash received                                                            |  |                           |         |                          |   | (49,772                      | ) |                                     | (1,304 | ) |   | (51,076  | )
|Capital expenditures                                                                                       |  |                           |         |                          |   | (14,340                      | ) |                                     | (225   | ) |   | (14,565  | )
|Transfer of cash to trusts for employee health and severance costs,
  net of payments out of the trust     |  |                           |         |                          |   | (9,311                       | ) |                                     |       |   |   | (9,311   | )
|Other                                                                                                      |  |                           |         |                          |   | 90                           |   |                                     |       |   |   | 90       |  
|                                                                                                           |  |                           |          |                          |   |                              |   |                                     |        |   |   |          |  
|Net
  cash flows from investing activities                                                                 |  |                           |         |                          |   | (73,333                      | ) |                                     | (1,529 | ) |   | (74,862  | )
|                                                                                                           |  |                           |          |                          |   |                              |   |                                     |        |   |   |          |  
|                                                                                                           |  |                           |          |                          |   |                              |   |                                     |        |   |   |          |  
|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 | )
|Proceeds from long-term borrowings and obligations                                                         |  |                           | 63       |                          |   | (70                          | ) |                                     | 70     |   |   | 63       |  
|Payments on long-term borrowings and obligations                                                           |  |                           | (1,457   | )                        |   |                             |   |                                     |       |   |   | (1,457   | )
|Fees paid for financing arrangements                                                                       |  |                           | (3,212   | )                        |   |                             |   |                                     |       |   |   | (3,212   | )
|Change in cash overdraft balance                                                                           |  |                           | 1,530    |                          |   | 8,757                        |   |                                     |       |   |   | 10,287   |  
|Proceeds from stock offering, net of issuance costs                                                        |  |                           | 49,239   |                          |   |                             |   |                                     |       |   |   | 49,239   |  
|(Payments) for stock awards and exercise of stock options and
  warrants, net of stock tendered in payment |  |                           | (3,295   | )                        |   |                             |   |                                     |       |   |   | (3,295   | )
|Excess tax benefits from stock-based compensation                                                          |  |                           | 11,472   |                          |   |                             |   |                                     |       |   |   | 11,472   |  
|Dividends paid                                                                                             |  |                           | (5,461   | )                        |   |                             |   |                                     |       |   |   | (5,461   | )
|Other                                                                                                      |  |                           | 127,623  |                          |   | (132,744                     | ) |                                     | 5,121  |   |   |         |  
|                                                                                                           |  |                           |          |                          |   |                              |   |                                     |        |   |   |          |  
|Net
  cash flows from financing activities                                                                 |  |                           | 176,502  |                          |   | (124,057                     | ) |                                     | 5,191  |   |   | 57,636   |  
|                                                                                                           |  |                           |          |                          |   |                              |   |                                     |        |   |   |          |  
|                                                                                                           |  |                           |          |                          |   |                              |   |                                     |        |   |   |          |  
|Effect of exchange rate changes on cash                                                                    |  |                           |         |                          |   |                             |   |                                     | 1,011  |   |   | 1,011    |  
|                                                                                                           |  |                           |          |                          |   |                              |   |                                     |        |   |   |          |  
|                                                                                                           |  |                           |          |                          |   |                              |   |                                     |        |   |   |          |  
|Net increase (decrease) in cash and cash equivalents                                                       |  |                           | 80,975   |                          |   | 35,096                       |   |                                     | (4,229 | ) |   | 111,842  |  
|Cash and cash equivalents at beginning of year                                                             |  |                           | 143,227  |                          |   | 38,999                       |   |                                     | 33,195 |   |   | 215,421  |  
|                                                                                                           |  |                           |          |                          |   |                              |   |                                     |        |   |   |          |  
|Cash and cash equivalents at end of year                                                                   |  | $                         | 224,202  |                          | $ | 74,095                       |   | $                                   | 28,966 |   | $ | 327,263  |  
|                                                                                                           |  |                           |          |                          |   |                              |   |                                     |        |   |   |          |  

32

---



13. Guarantor
Subsidiaries (Continued)

Condensed Consolidating Statements of Cash Flows -
Continued

|                                                                                                          |  |                           |          |                          |   |                              |   |                                     |         |   |   |          |  
|--------------------------------------------------------------------------------------------------------- |  | ------------------------- | -------- | ------------------------ | - | ---------------------------- | - | ----------------------------------- | ------- | - | - | -------- | -
|(in thousands)                                                                                            |  | Six months ended June 30, |         
|                                                                                                          |  |                           |         
|2005:                                                                                                     |  | Parent                    |          | Guarantor
  Subsidiaries |   | Non-Guarantor
  Subsidiaries |   | Omnicare, Inc.
  and
  Subsidiaries |        
|                                                                                                          | 
|Cash flows from operating activities:                                                                     |  |                           |          |                          |   |                              |   |                                     |         |   |   |          |  
|Provision for doubtful accounts                                                                           |  | $                         |         |                          | $ | 24,163                       |   | $                                   | 587     |   | $ | 24,750   |  
|Other                                                                                                     |  |                           | 15,009   |                          |   | 70,913                       |   |                                     | (28,831 | ) |   | 57,091   |  
|                                                                                                          |  |                           |          |                          |   |                              |   |                                     |         |   |   |          |  
|Net
  cash flows from operating activities                                                                |  |                           | 15,009   |                          |   | 95,076                       |   |                                     | (28,244 | ) |   | 81,841   |  
|                                                                                                          |  |                           |          |                          |   |                              |   |                                     |         |   |   |          |  
|                                                                                                          |  |                           |          |                          |   |                              |   |                                     |         |   |   |          |  
|Cash flows from investing activities:                                                                     |  |                           |          |                          |   |                              |   |                                     |         |   |   |          |  
|Acquisition of businesses, net of cash received                                                           |  |                           |         |                          |   | (74,645                      | ) |                                     | (3,136  | ) |   | (77,781  | )
|Capital expenditures                                                                                      |  |                           |         |                          |   | (7,171                       | ) |                                     | (767    | ) |   | (7,938   | )
|Transfer of cash to trusts for employee health and severance costs,
  net of payments out of the trust    |  |                           |         |                          |   | (5,886                       | ) |                                     |        |   |   | (5,886   | )
|Other                                                                                                     |  |                           |         |                          |   | 34                           |   |                                     |        |   |   | 34       |  
|                                                                                                          |  |                           |          |                          |   |                              |   |                                     |         |   |   |          |  
|Net
  cash flows from investing activities                                                                |  |                           |         |                          |   | (87,668                      | ) |                                     | (3,903  | ) |   | (91,571  | )
|                                                                                                          |  |                           |          |                          |   |                              |   |                                     |         |   |   |          |  
|                                                                                                          |  |                           |          |                          |   |                              |   |                                     |         |   |   |          |  
|Cash flows from financing activities:                                                                     |  |                           |          |                          |   |                              |   |                                     |         |   |   |          |  
|Borrowings on line of credit facilities                                                                   |  |                           | 415,000  |                          |   |                             |   |                                     |        |   |   | 415,000  |  
|Payments on line of credit facilities and term A loan                                                     |  |                           | (427,308 | )                        |   |                             |   |                                     |        |   |   | (427,308 | )
|Proceeds from long-term borrowings and obligations                                                        |  |                           | 549      |                          |   |                             |   |                                     | 40,796  |   |   | 41,345   |  
|Fees paid for financing arrangements                                                                      |  |                           | (1,454   | )                        |   |                             |   |                                     |        |   |   | (1,454   | )
|Change in cash overdraft balance                                                                          |  |                           | (2,117   | )                        |   | 4,417                        |   |                                     |        |   |   | 2,300    |  
|Proceeds from stock awards and exercise of stock options and
warrants,
  net of stock tendered in payment |  |                           | 5,492    |                          |   |                             |   |                                     |        |   |   | 5,492    |  
|Dividends paid                                                                                            |  |                           | (4,737   | )                        |   |                             |   |                                     |        |   |   | (4,737   | )
|Other                                                                                                     |  |                           | 23,964   |                          |   | (23,964                      | ) |                                     |        |   |   |         |  
|                                                                                                          |  |                           |          |                          |   |                              |   |                                     |         |   |   |          |  
|Net
  cash flows from financing activities                                                                |  |                           | 9,389    |                          |   | (19,547                      | ) |                                     | 40,796  |   |   | 30,638   |  
|                                                                                                          |  |                           |          |                          |   |                              |   |                                     |         |   |   |          |  
|                                                                                                          |  |                           |          |                          |   |                              |   |                                     |         |   |   |          |  
|Effect of exchange rate changes on cash                                                                   |  |                           |         |                          |   |                             |   |                                     | (814    | ) |   | (814     | )
|                                                                                                          |  |                           |          |                          |   |                              |   |                                     |         |   |   |          |  
|                                                                                                          |  |                           |          |                          |   |                              |   |                                     |         |   |   |          |  
|Net increase (decrease) in cash and cash equivalents                                                      |  |                           | 24,398   |                          |   | (12,139                      | ) |                                     | 7,835   |   |   | 20,094   |  
|Cash and cash equivalents at beginning of period                                                          |  |                           | 46,569   |                          |   | 32,453                       |   |                                     | 5,147   |   |   | 84,169   |  
|                                                                                                          |  |                           |          |                          |   |                              |   |                                     |         |   |   |          |  
|Cash and cash equivalents at end of period                                                                |  | $                         | 70,967   |                          | $ | 20,314                       |   | $                                   | 12,982  |   | $ | 104,263  |  
|                                                                                                          |  |                           |          |                          |   |                              |   |                                     |         |   |   |          |  

33

---



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 June 30, 2006 and
December 31, 2005 for the balance sheets, the three and six months ended June
30, 2006 and 2005 for the statements of income, and the statements of cash
flows for each of the six months ended June 30, 2006 and 2005.  Separate complete financial statements of
the respective Guarantor Subsidiary would not provide additional meaningful
information that would be useful in assessing the sufficiency of the Guarantor
Subsidiary and thus are not presented.
The Guarantor Subsidiary does not have any material net cash flows in
the condensed consolidating statements of cash flows.  No eliminations column is presented for the condensed
consolidating statements of cash flows since there were no significant
eliminating amounts during the periods presented.

Summary Consolidating Statements of Income

|                                                    |  |                             |         |                        |   |                              |   |                                            |           |                                     |   |         |   |   |           |  
|--------------------------------------------------- |  | --------------------------- | ------- | ---------------------- | - | ---------------------------- | - | ------------------------------------------ | --------- | ----------------------------------- | - | ------- | - | - | --------- | -
|(in
  thousands)                                    |  | Three months ended June 30, |        
|                                                    |  |                             |        
|2006:                                               |  | Parent                      |         | Guarantor
  Subsidiary |   | Non-Guarantor
  Subsidiaries |   | Consolidating/
  Eliminating
  Adjustments |           | Omnicare, Inc.
  and
  Subsidiaries |  
|                                                    | 
|                                                    |  |                             |         |                        |   |                              |   |                                            |           |                                     |   |         |   |   |           |  
|Net sales (Note 2 and Note
  11)                    |  | $                           |        |                        | $ |                             |   | $                                          | 1,641,110 |                                     | $ |        |   | $ | 1,641,110 |  
|Cost of sales                                       |  |                             |        |                        |   |                             |   |                                            | 1,240,819 |                                     |   |        |   |   | 1,240,819 |  
|                                                    |  |                             |         |                        |   |                              |   |                                            |           |                                     |   |         |   |   |           |  
|Gross profit                                        |  |                             |        |                        |   |                             |   |                                            | 400,291   |                                     |   |        |   |   | 400,291   |  
|Selling, general and
  administrative expenses      |  |                             | 2,278   |                        |   | 265                          |   |                                            | 237,208   |                                     |   |        |   |   | 239,751   |  
|Restructuring and other
  related charges (Note 10) |  |                             |        |                        |   |                             |   |                                            | 11,889    |                                     |   |        |   |   | 11,889    |  
|Litigation charges (Note 2
  and Note 11)           |  |                             |        |                        |   |                             |   |                                            | 64,482    |                                     |   |        |   |   | 64,482    |  
|                                                    |  |                             |         |                        |   |                              |   |                                            |           |                                     |   |         |   |   |           |  
|Operating income (loss)                             |  |                             | (2,278  | )                      |   | (265                         | ) |                                            | 86,712    |                                     |   |        |   |   | 84,169    |  
|Investment income                                   |  |                             | 2,020   |                        |   |                             |   |                                            | 1,029     |                                     |   |        |   |   | 3,049     |  
|Interest expense                                    |  |                             | (41,918 | )                      |   |                             |   |                                            | (1,151    | )                                   |   |        |   |   | (43,069   | )
|                                                    |  |                             |         |                        |   |                              |   |                                            |           |                                     |   |         |   |   |           |  
|Income (loss) before income
  taxes                 |  |                             | (42,176 | )                      |   | (265                         | ) |                                            | 86,590    |                                     |   |        |   |   | 44,149    |  
|Income tax (benefit)
  expense                      |  |                             | (15,723 | )                      |   | (99                          | ) |                                            | 51,592    |                                     |   |        |   |   | 35,770    |  
|Equity in net income of
  subsidiaries              |  |                             | 34,832  |                        |   |                             |   |                                            |          |                                     |   | (34,832 | ) |   |          |  
|                                                    |  |                             |         |                        |   |                              |   |                                            |           |                                     |   |         |   |   |           |  
|Net income (loss)                                   |  | $                           | 8,379   |                        | $ | (166                         | ) | $                                          | 34,998    |                                     | $ | (34,832 | ) | $ | 8,379     |  
|                                                    |  |                             |         |                        |   |                              |   |                                            |           |                                     |   |         |   |   |           |  
|                                                    |  |                             |         |                        |   |                              |   |                                            |           |                                     |   |         |   |   |           |  
|2005:                                               |  |                             |         |                        |   |                              |   |                                            |           |                                     |   |         |   |   |           |  
|                                                    | 
|                                                   
|Net sales                                           |  | $                           |        |                        | $ |                             |   | $                                          | 1,123,397 |                                     | $ |        |   | $ | 1,123,397 |  
|Cost of sales                                       |  |                             |        |                        |   |                             |   |                                            | 848,551   |                                     |   |        |   |   | 848,551   |  
|                                                    |  |                             |         |                        |   |                              |   |                                            |           |                                     |   |         |   |   |           |  
|Gross profit                                        |  |                             |        |                        |   |                             |   |                                            | 274,846   |                                     |   |        |   |   | 274,846   |  
|Selling, general and
  administrative expenses      |  |                             | 399     |                        |   | 220                          |   |                                            | 156,376   |                                     |   |        |   |   | 156,995   |  
|                                                    |  |                             |         |                        |   |                              |   |                                            |           |                                     |   |         |   |   |           |  
|Operating income (loss)                             |  |                             | (399    | )                      |   | (220                         | ) |                                            | 118,470   |                                     |   |        |   |   | 117,851   |  
|Investment income                                   |  |                             | 241     |                        |   |                             |   |                                            | 850       |                                     |   |        |   |   | 1,091     |  
|Interest expense                                    |  |                             | (19,899 | )                      |   |                             |   |                                            | (540      | )                                   |   |        |   |   | (20,439   | )
|                                                    |  |                             |         |                        |   |                              |   |                                            |           |                                     |   |         |   |   |           |  
|Income (loss) before income
  taxes                 |  |                             | (20,057 | )                      |   | (220                         | ) |                                            | 118,780   |                                     |   |        |   |   | 98,503    |  
|Income tax (benefit)
  expense                      |  |                             | (7,487  | )                      |   | (82                          | ) |                                            | 44,340    |                                     |   |        |   |   | 36,771    |  
|Equity in net income of
  subsidiaries              |  |                             | 74,302  |                        |   |                             |   |                                            |          |                                     |   | (74,302 | ) |   |          |  
|                                                    |  |                             |         |                        |   |                              |   |                                            |           |                                     |   |         |   |   |           |  
|Net income (loss)                                   |  | $                           | 61,732  |                        | $ | (138                         | ) | $                                          | 74,440    |                                     | $ | (74,302 | ) | $ | 61,732    |  
|                                                    |  |                             |         |                        |   |                              |   |                                            |           |                                     |   |         |   |   |           |  

34

---



13. Guarantor
Subsidiaries (Continued)

|                                                       |  |                           |         |                        |   |                              |   |                                            |           |                                     |   |          |   |   |           |  
|------------------------------------------------------ |  | ------------------------- | ------- | ---------------------- | - | ---------------------------- | - | ------------------------------------------ | --------- | ----------------------------------- | - | -------- | - | - | --------- | -
|Summary Consolidating Statements of Income - Continued
|(in
  thousands)                                       |  | Six months ended June 30, |        
|                                                       |  |                           |        
|2006:                                                  |  | Parent                    |         | Guarantor
  Subsidiary |   | Non-Guarantor
  Subsidiaries |   | Consolidating/
  Eliminating
  Adjustments |           | Omnicare, Inc.
  and
  Subsidiaries |  
|                                                       |  |                           |         |                        |   |                              |   |                                            |           |                                     |  
|                                                       |  |                           |         |                        |   |                              |   |                                            |           |                                     |   |          |   |   |           |  
|Net sales (Note 2 and Note 11)                         |  | $                         |        |                        | $ |                             |   | $                                          | 3,299,708 |                                     | $ |         |   | $ | 3,299,708 |  
|Cost of sales                                          |  |                           |        |                        |   |                             |   |                                            | 2,482,902 |                                     |   |         |   |   | 2,482,902 |  
|                                                       |  |                           |         |                        |   |                              |   |                                            |           |                                     |   |          |   |   |           |  
|Gross profit                                           |  |                           |        |                        |   |                             |   |                                            | 816,806   |                                     |   |         |   |   | 816,806   |  
|Selling, general and administrative
expenses           |  |                           | 4,259   |                        |   | 526                          |   |                                            | 482,308   |                                     |   |         |   |   | 487,093   |  
|Restructuring and other related charges (Note
10)      |  |                           |        |                        |   |                             |   |                                            | 19,602    |                                     |   |         |   |   | 19,602    |  
|Litigation charges (Note 2 and Note 11)                |  |                           |        |                        |   |                             |   |                                            | 98,582    |                                     |   |         |   |   | 98,582    |  
|                                                       |  |                           |         |                        |   |                              |   |                                            |           |                                     |   |          |   |   |           |  
|Operating income (loss)                                |  |                           | (4,259  | )                      |   | (526                         | ) |                                            | 216,314   |                                     |   |         |   |   | 211,529   |  
|Investment income                                      |  |                           | 3,011   |                        |   |                             |   |                                            | 1,837     |                                     |   |         |   |   | 4,848     |  
|Interest expense                                       |  |                           | (83,110 | )                      |   |                             |   |                                            | (2,371    | )                                   |   |         |   |   | (85,481   | )
|                                                       |  |                           |         |                        |   |                              |   |                                            |           |                                     |   |          |   |   |           |  
|Income (loss) before income taxes                      |  |                           | (84,358 | )                      |   | (526                         | ) |                                            | 215,780   |                                     |   |         |   |   | 130,896   |  
|Income tax (benefit) expense                           |  |                           | (30,951 | )                      |   | (193                         | ) |                                            | 100,430   |                                     |   |         |   |   | 69,286    |  
|Equity in net income of subsidiaries                   |  |                           | 115,017 |                        |   |                             |   |                                            |          |                                     |   | (115,017 | ) |   |          |  
|                                                       |  |                           |         |                        |   |                              |   |                                            |           |                                     |   |          |   |   |           |  
|Net
        income (loss)                              |  | $                         | 61,610  |                        | $ | (333                         | ) | $                                          | 115,350   |                                     | $ | (115,017 | ) | $ | 61,610    |  
|                                                       |  |                           |         |                        |   |                              |   |                                            |           |                                     |   |          |   |   |           |  
|2005:                                                  |  |                           |         |                        |   |                              |   |                                            |           |                                     |   |          |   |   |           |  
|                                                       |  |                           |         |                        |   |                              |   |                                            |           |                                     |  
|                                                       |  |                           |         |                        |   |                              |   |                                            |           |                                     |   |          |   |   |           |  
|Net sales                                              |  | $                         |        |                        | $ |                             |   | $                                          | 2,219,543 |                                     | $ |         |   | $ | 2,219,543 |  
|Cost of sales                                          |  |                           |        |                        |   |                             |   |                                            | 1,675,375 |                                     |   |         |   |   | 1,675,375 |  
|                                                       |  |                           |         |                        |   |                              |   |                                            |           |                                     |   |          |   |   |           |  
|Gross profit                                           |  |                           |        |                        |   |                             |   |                                            | 544,168   |                                     |   |         |   |   | 544,168   |  
|Selling, general and administrative
expenses           |  |                           | 2,219   |                        |   | 447                          |   |                                            | 312,088   |                                     |   |         |   |   | 314,754   |  
|                                                       |  |                           |         |                        |   |                              |   |                                            |           |                                     |   |          |   |   |           |  
|Operating income (loss)                                |  |                           | (2,219  | )                      |   | (447                         | ) |                                            | 232,080   |                                     |   |         |   |   | 229,414   |  
|Investment income                                      |  |                           | 572     |                        |   |                             |   |                                            | 1,672     |                                     |   |         |   |   | 2,244     |  
|Interest expense                                       |  |                           | (39,175 | )                      |   |                             |   |                                            | (1,183    | )                                   |   |         |   |   | (40,358   | )
|                                                       |  |                           |         |                        |   |                              |   |                                            |           |                                     |   |          |   |   |           |  
|Income (loss) before income taxes                      |  |                           | (40,822 | )                      |   | (447                         | ) |                                            | 232,569   |                                     |   |         |   |   | 191,300   |  
|Income tax (benefit) expense                           |  |                           | (15,272 | )                      |   | (167                         | ) |                                            | 87,012    |                                     |   |         |   |   | 71,573    |  
|Equity in net income of subsidiaries                   |  |                           | 145,277 |                        |   |                             |   |                                            |          |                                     |   | (145,277 | ) |   |          |  
|                                                       |  |                           |         |                        |   |                              |   |                                            |           |                                     |   |          |   |   |           |  
|Net income (loss)                                      |  | $                         | 119,727 |                        | $ | (280                         | ) | $                                          | 145,557   |                                     | $ | (145,277 | ) | $ | 119,727   |  
|                                                       |  |                           |         |                        |   |                              |   |                                            |           |                                     |   |          |   |   |           |  

35

---



13. Guarantor
Subsidiaries (Continued)

|                                                                      |  |        |           |                        |   |                              |  |                                            |           |                                     |   |            |   |   |           | 
|--------------------------------------------------------------------- |  | ------ | --------- | ---------------------- | - | ---------------------------- |  | ------------------------------------------ | --------- | ----------------------------------- | - | ---------- | - | - | --------- | 
|Condensed Consolidating Balance Sheets                               
|                                                                     
|(in thousands)                                                        |  |        |           |                        |   |                              |  |                                            |           |                                     |   |            |   |   |           | 
|As of June 30, 2006:                                                  |  | Parent |           | Guarantor
  Subsidiary |   | Non-Guarantor
  Subsidiaries |  | Consolidating/
  Eliminating
  Adjustments |           | Omnicare, Inc.
  and
  Subsidiaries |  
|                                                                      |  |        |           |                        |   |                              |  |                                            |           |                                     |  
|                                                                      |  |        |           |                        |   |                              |  |                                            |           |                                     |   |            |   |   |           | 
|ASSETS                                                                |  |        |           |                        |   |                              |  |                                            |           |                                     |   |            |   |   |           | 
|Cash and cash equivalents                                             |  | $      | 224,202   |                        | $ |                             |  | $                                          | 103,061   |                                     | $ |           |   | $ | 327,263   | 
|Restricted cash                                                       |  |        |          |                        |   |                             |  |                                            | 11,767    |                                     |   |           |   |   | 11,767    | 
|Deposits with drug wholesalers                                        |  |        |          |                        |   |                             |  |                                            | 45,367    |                                     |   |           |   |   | 45,367    | 
|Accounts receivable, net (including
intercompany)                     |  |        |          |                        |   | 128                          |  |                                            | 1,420,079 |                                     |   | (128       | ) |   | 1,420,079 | 
|Unbilled receivables                                                  |  |        |          |                        |   |                             |  |                                            | 19,448    |                                     |   |           |   |   | 19,448    | 
|Inventories                                                           |  |        |          |                        |   |                             |  |                                            | 483,987   |                                     |   |           |   |   | 483,987   | 
|Deferred income tax benefits (liabilities),
net-current               |  |        | 6,349     |                        |   |                             |  |                                            | 112,200   |                                     |   |           |   |   | 118,549   | 
|Other current assets                                                  |  |        | 2,342     |                        |   |                             |  |                                            | 199,151   |                                     |   |           |   |   | 201,493   | 
|                                                                      |  |        |           |                        |   |                              |  |                                            |           |                                     |   |            |   |   |           | 
|Total current assets                                                  |  |        | 232,893   |                        |   | 128                          |  |                                            | 2,395,060 |                                     |   | (128       | ) |   | 2,627,953 | 
|                                                                      |  |        |           |                        |   |                              |  |                                            |           |                                     |   |            |   |   |           | 
|Properties and equipment, net                                         |  |        |          |                        |   | 35                           |  |                                            | 223,567   |                                     |   |           |   |   | 223,602   | 
|Goodwill                                                              |  |        |          |                        |   |                             |  |                                            | 4,233,607 |                                     |   |           |   |   | 4,233,607 | 
|Identifiable intangible assets, net                                   |  |        |          |                        |   |                             |  |                                            | 337,412   |                                     |   |           |   |   | 337,412   | 
|Other noncurrent assets                                               |  |        | 63,740    |                        |   | 19                           |  |                                            | 129,338   |                                     |   |           |   |   | 193,097   | 
|Investment in subsidiaries                                            |  |        | 5,797,322 |                        |   |                             |  |                                            |          |                                     |   | (5,797,322 | ) |   |          | 
|                                                                      |  |        |           |                        |   |                              |  |                                            |           |                                     |   |            |   |   |           | 
|Total assets                                                          |  | $      | 6,093,955 |                        | $ | 182                          |  | $                                          | 7,318,984 |                                     | $ | (5,797,450 | ) | $ | 7,615,671 | 
|                                                                      |  |        |           |                        |   |                              |  |                                            |           |                                     |   |            |   |   |           | 
|                                                                      |  |        |           |                        |   |                              |  |                                            |           |                                     |   |            |   |   |           | 
|LIABILITIES AND STOCKHOLDERS
EQUITY                                  |  |        |           |                        |   |                              |  |                                            |           |                                     |   |            |   |   |           | 
|Current
        liabilities (including intercompany) - Notes 7 and 11 |  | $      | 27,969    |                        | $ | 2                            |  | $                                          | 746,762   |                                     | $ | (128       | ) | $ | 774,605   | 
|Long-term debt                                                        |  |        | 700,000   |                        |   |                             |  |                                            | 56,270    |                                     |   |           |   |   | 756,270   | 
|8.125% senior subordinated notes, due
2011                            |  |        | 8,225     |                        |   |                             |  |                                            |          |                                     |   |           |   |   | 8,225     | 
|6.125% senior subordinated notes, net, due
2013                       |  |        | 221,988   |                        |   |                             |  |                                            |          |                                     |   |           |   |   | 221,988   | 
|6.75% senior subordinated notes, due 2013                             |  |        | 225,000   |                        |   |                             |  |                                            |          |                                     |   |           |   |   | 225,000   | 
|6.875% senior subordinated notes, due
2015                            |  |        | 525,000   |                        |   |                             |  |                                            |          |                                     |   |           |   |   | 525,000   | 
|4.00% junior subordinated convertible debentures,
due 2033            |  |        | 345,000   |                        |   |                             |  |                                            |          |                                     |   |           |   |   | 345,000   | 
|3.25% convertible senior debentures, due
2035                         |  |        | 977,500   |                        |   |                             |  |                                            |          |                                     |   |           |   |   | 977,500   | 
|Deferred income tax liabilities (benefits),
net-noncurrent            |  |        | (39,662   | )                      |   |                             |  |                                            | 459,439   |                                     |   |           |   |   | 419,777   | 
|Other noncurrent liabilities                                          |  |        | 28,012    |                        |   |                             |  |                                            | 259,371   |                                     |   |           |   |   | 287,383   | 
|Stockholders equity                                                  |  |        | 3,074,923 |                        |   | 180                          |  |                                            | 5,797,142 |                                     |   | (5,797,322 | ) |   | 3,074,923 | 
|                                                                      |  |        |           |                        |   |                              |  |                                            |           |                                     |   |            |   |   |           | 
|Total liabilities and stockholders
equity                            |  | $      | 6,093,955 |                        | $ | 182                          |  | $                                          | 7,318,984 |                                     | $ | (5,797,450 | ) | $ | 7,615,671 | 
|                                                                      |  |        |           |                        |   |                              |  |                                            |           |                                     |   |            |   |   |           | 
|                                                                      |  |        |           |                        |   |                              |  |                                            |           |                                     |   |            |   |   |           | 
|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 | 
|                                                                      |  |        |           |                        |   |                              |  |                                            |           |                                     |   |            |   |   |           | 

36

---



13. Guarantor Subsidiaries
(Continued)

|                                                                                                           |  |                           |          |                        |   |                              |  |                                     |          |   |   |          |  
|---------------------------------------------------------------------------------------------------------- |  | ------------------------- | -------- | ---------------------- | - | ---------------------------- |  | ----------------------------------- | -------- | - | - | -------- | -
|Condensed Consolidating Statements of Cash Flows                                                          
|                                                                                                          
|(in
  thousands)                                                                                           |  | Six months ended June 30, |         
|                                                                                                           |  |                           |         
|2006:                                                                                                      |  | Parent                    |          | Guarantor
  Subsidiary |   | Non-Guarantor
  Subsidiaries |  | Omnicare, Inc.
  and
  Subsidiaries |         
|                                                                                                           |  |                           |          |                        |   |                              |  |                                     |         
|                                                                                                           |  |                           |          |                        |   |                              |  |                                     |          |   |   |          |  
|Cash flows from operating activities:                                                                      |  |                           |          |                        |   |                              |  |                                     |          |   |   |          |  
|Provision for doubtful accounts                                                                            |  | $                         |         |                        | $ |                             |  | $                                   | 35,160   |   | $ | 35,160   |  
|Other                                                                                                      |  |                           | (95,527  | )                      |   |                             |  |                                     | 188,424  |   |   | 92,897   |  
|                                                                                                           |  |                           |          |                        |   |                              |  |                                     |          |   |   |          |  
|Net cash flows from operating activities                                                                   |  |                           | (95,527  | )                      |   |                             |  |                                     | 223,584  |   |   | 128,057  |  
|                                                                                                           |  |                           |          |                        |   |                              |  |                                     |          |   |   |          |  
|                                                                                                           |  |                           |          |                        |   |                              |  |                                     |          |   |   |          |  
|Cash flows from investing activities:                                                                      |  |                           |          |                        |   |                              |  |                                     |          |   |   |          |  
|Acquisition of businesses, net of cash received                                                            |  |                           |         |                        |   |                             |  |                                     | (51,076  | ) |   | (51,076  | )
|Capital expenditures                                                                                       |  |                           |         |                        |   |                             |  |                                     | (14,565  | ) |   | (14,565  | )
|Transfer of cash to trusts for employee health and severance costs,
  net of payments out of the trust     |  |                           |         |                        |   |                             |  |                                     | (9,311   | ) |   | (9,311   | )
|Other                                                                                                      |  |                           |         |                        |   |                             |  |                                     | 90       |   |   | 90       |  
|                                                                                                           |  |                           |          |                        |   |                              |  |                                     |          |   |   |          |  
|Net cash flows from investing activities                                                                   |  |                           |         |                        |   |                             |  |                                     | (74,862  | ) |   | (74,862  | )
|                                                                                                           |  |                           |          |                        |   |                              |  |                                     |          |   |   |          |  
|                                                                                                           |  |                           |          |                        |   |                              |  |                                     |          |   |   |          |  
|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 | )
|Proceeds from long-term borrowings and obligations                                                         |  |                           | 63       |                        |   |                              |  |                                     |          |   |   | 63       |  
|Payments on long-term borrowings and obligations                                                           |  |                           | (1,457   | )                      |   |                             |  |                                     |         |   |   | (1,457   | )
|Fees paid for financing arrangements                                                                       |  |                           | (3,212   | )                      |   |                             |  |                                     |         |   |   | (3,212   | )
|Change in cash overdraft balance                                                                           |  |                           | 1,530    |                        |   |                             |  |                                     | 8,757    |   |   | 10,287   |  
|Proceeds from stock offering, net of issuance costs                                                        |  |                           | 49,239   |                        |   |                             |  |                                     |         |   |   | 49,239   |  
|(Payments) for stock awards and exercise of stock options and
  warrants, net of stock tendered in payment |  |                           | (3,295   | )                      |   |                             |  |                                     |         |   |   | (3,295   | )
|Excess tax benefits from stock-based compensation                                                          |  |                           | 11,472   |                        |   |                             |  |                                     |         |   |   | 11,472   |  
|Dividends paid                                                                                             |  |                           | (5,461   | )                      |   |                             |  |                                     |         |   |   | (5,461   | )
|Other                                                                                                      |  |                           | 127,623  |                        |   |                             |  |                                     | (127,623 | ) |   |         |  
|                                                                                                           |  |                           |          |                        |   |                              |  |                                     |          |   |   |          |  
|Net cash flows from financing activities                                                                   |  |                           | 176,502  |                        |   |                             |  |                                     | (118,866 | ) |   | 57,636   |  
|                                                                                                           |  |                           |          |                        |   |                              |  |                                     |          |   |   |          |  
|                                                                                                           |  |                           |          |                        |   |                              |  |                                     |          |   |   |          |  
|Effect of exchange rate changes on cash                                                                    |  |                           |         |                        |   |                             |  |                                     | 1,011    |   |   | 1,011    |  
|                                                                                                           |  |                           |          |                        |   |                              |  |                                     |          |   |   |          |  
|                                                                                                           |  |                           |          |                        |   |                              |  |                                     |          |   |   |          |  
|Net increase in cash and cash equivalents                                                                  |  |                           | 80,975   |                        |   |                             |  |                                     | 30,867   |   |   | 111,842  |  
|Cash and cash equivalents at beginning of year                                                             |  |                           | 143,227  |                        |   |                             |  |                                     | 72,194   |   |   | 215,421  |  
|                                                                                                           |  |                           |          |                        |   |                              |  |                                     |          |   |   |          |  
|Cash and cash equivalents at end of year                                                                   |  | $                         | 224,202  |                        | $ |                             |  | $                                   | 103,061  |   | $ | 327,263  |  
|                                                                                                           |  |                           |          |                        |   |                              |  |                                     |          |   |   |          |  

37

---



13. Guarantor
Subsidiaries (Continued)

|                                                                                                          |  |                           |          |                        |   |                              |  |                                     |         |   |   |          |  
|--------------------------------------------------------------------------------------------------------- |  | ------------------------- | -------- | ---------------------- | - | ---------------------------- |  | ----------------------------------- | ------- | - | - | -------- | -
|Condensed Consolidating Statements of Cash Flows -
  Continued                                           
|                                                                                                          |  |                           |          |                        |   |                              |  |                                     |         |   |   |          |  
|(in
  thousands)                                                                                          |  | Six months ended June 30, |         
|                                                                                                          |  |                           |         
|2005:                                                                                                     |  | Parent                    |          | Guarantor
  Subsidiary |   | Non-Guarantor
  Subsidiaries |  | Omnicare, Inc.
  and
  Subsidiaries |        
|                                                                                                          |  |                           |          |                        |   |                              |  |                                     |         |   |   |          |  
|                                                                                                          |  |                           |          |                        |   |                              |  |                                     |         |   |   |          |  
|Cash flows from operating activities:                                                                     |  |                           |          |                        |   |                              |  |                                     |         |   |   |          |  
|Provision for doubtful accounts                                                                           |  | $                         |         |                        | $ |                             |  | $                                   | 24,750  |   | $ | 24,750   |  
|Other                                                                                                     |  |                           | 15,009   |                        |   |                             |  |                                     | 42,082  |   |   | 57,091   |  
|                                                                                                          |  |                           |          |                        |   |                              |  |                                     |         |   |   |          |  
|Net cash flows from operating activities                                                                  |  |                           | 15,009   |                        |   |                             |  |                                     | 66,832  |   |   | 81,841   |  
|                                                                                                          |  |                           |          |                        |   |                              |  |                                     |         |   |   |          |  
|                                                                                                          |  |                           |          |                        |   |                              |  |                                     |         |   |   |          |  
|Cash flows from investing activities:                                                                     |  |                           |          |                        |   |                              |  |                                     |         |   |   |          |  
|Acquisition of businesses, net of cash received                                                           |  |                           |         |                        |   |                             |  |                                     | (77,781 | ) |   | (77,781  | )
|Capital expenditures                                                                                      |  |                           |         |                        |   |                             |  |                                     | (7,938  | ) |   | (7,938   | )
|Transfer of cash to trusts for employee health and severance costs,
  net of payments out of the trust    |  |                           |         |                        |   |                             |  |                                     | (5,886  | ) |   | (5,886   | )
|Other                                                                                                     |  |                           |         |                        |   |                             |  |                                     | 34      |   |   | 34       |  
|                                                                                                          |  |                           |          |                        |   |                              |  |                                     |         |   |   |          |  
|Net cash flows from investing activities                                                                  |  |                           |         |                        |   |                             |  |                                     | (91,571 | ) |   | (91,571  | )
|                                                                                                          |  |                           |          |                        |   |                              |  |                                     |         |   |   |          |  
|                                                                                                          |  |                           |          |                        |   |                              |  |                                     |         |   |   |          |  
|Cash flows from financing activities:                                                                     |  |                           |          |                        |   |                              |  |                                     |         |   |   |          |  
|Borrowings on line of credit facilities                                                                   |  |                           | 415,000  |                        |   |                             |  |                                     |        |   |   | 415,000  |  
|Payments on line of credit facilities and term A loan                                                     |  |                           | (427,308 | )                      |   |                             |  |                                     |        |   |   | (427,308 | )
|Proceeds from long-term borrowings and obligations                                                        |  |                           | 549      |                        |   |                             |  |                                     | 40,796  |   |   | 41,345   |  
|Fees paid for financing arrangements                                                                      |  |                           | (1,454   | )                      |   |                             |  |                                     |        |   |   | (1,454   | )
|Change in cash overdraft balance                                                                          |  |                           | (2,117   | )                      |   |                             |  |                                     | 4,417   |   |   | 2,300    |  
|Proceeds from stock awards and exercise of stock options and
warrants,
  net of stock tendered in payment |  |                           | 5,492    |                        |   |                              |  |                                     |        |   |   | 5,492    |  
|Dividends paid                                                                                            |  |                           | (4,737   | )                      |   |                             |  |                                     |        |   |   | (4,737   | )
|Other                                                                                                     |  |                           | 23,964   |                        |   |                             |  |                                     | (23,964 | ) |   |         |  
|                                                                                                          |  |                           |          |                        |   |                              |  |                                     |         |   |   |          |  
|Net cash flows from financing activities                                                                  |  |                           | 9,389    |                        |   |                             |  |                                     | 21,249  |   |   | 30,638   |  
|                                                                                                          |  |                           |          |                        |   |                              |  |                                     |         |   |   |          |  
|                                                                                                          |  |                           |          |                        |   |                              |  |                                     |         |   |   |          |  
|Effect of exchange rate changes on cash                                                                   |  |                           |         |                        |   |                             |  |                                     | (814    | ) |   | (814     | )
|                                                                                                          |  |                           |          |                        |   |                              |  |                                     |         |   |   |          |  
|                                                                                                          |  |                           |          |                        |   |                              |  |                                     |         |   |   |          |  
|Net increase (decrease) in cash and cash
equivalents                                                      |  |                           | 24,398   |                        |   |                             |  |                                     | (4,304  | ) |   | 20,094   |  
|Cash and cash equivalents at beginning of period                                                          |  |                           | 46,569   |                        |   |                             |  |                                     | 37,600  |   |   | 84,169   |  
|                                                                                                          |  |                           |          |                        |   |                              |  |                                     |         |   |   |          |  
|Cash and cash equivalents at end of period                                                                |  | $                         | 70,967   |                        | $ |                             |  | $                                   | 33,296  |   | $ | 104,263  |  
|                                                                                                          |  |                           |          |                        |   |                              |  |                                     |         |   |   |          |  

38

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

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

THREE AND SIX MONTHS ENDED JUNE 30, 2006 OVERVIEW

---

Omnicare,
Inc. (Omnicare or the Company) is a leading geriatric pharmaceutical
services company. Omnicare is the nations largest provider of pharmaceuticals
and related ancillary pharmacy services to long-term healthcare institutions.
Omnicares clients include primarily skilled nursing facilities (SNFs),
assisted living facilities, retirement centers, independent living communities,
hospitals, hospice, and other healthcare settings and service providers.
Omnicare provides its pharmacy services to long-term care facilities and other
chronic care settings comprising approximately 1,419,000 beds in 47 states in
the United States (U.S.), the District of Columbia and Canada at June 30,
2006. As well, Omnicare provides operational software and support systems to
long-term care pharmacy providers across the U.S. Omnicares pharmacy services
also include distribution and patient assistance services for specialty
pharmaceuticals. Omnicare provides comprehensive product development and
research services for the pharmaceutical, biotechnology, medical device and
diagnostic industries in 30 countries worldwide.

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

|                                     |  |                               |           |                             |   |           |  |      |           |  |   |           | 
|------------------------------------ |  | ----------------------------- | --------- | --------------------------- | - | --------- |  | ---- | --------- |  | - | --------- | 
|                                     |  | Three months ended
  June 30, |           | Six months ended
  June 30, |  
|                                     |  |                               |           |                             |  
|                                     |  | 2006                          |           | 2005                        |   | 2006      |  | 2005 |          
|                                     |  |                               |           |                             |   |           |  |      |          
|Consolidated:                        |  |                               |           |                             |   |           |  |      |           |  |   |           | 
|Net sales                            |  | $                             | 1,641,110 |                             | $ | 1,123,397 |  | $    | 3,299,708 |  | $ | 2,219,543 | 
|                                     |  |                               |           |                             |   |           |  |      |           |  |   |           | 
|Net income                           |  | $                             | 8,379     |                             | $ | 61,732    |  | $    | 61,610    |  | $ | 119,727   | 
|                                     |  |                               |           |                             |   |           |  |      |           |  |   |           | 
|Diluted earnings per share
  (EPS) |  | $                             | 0.07      |                             | $ | 0.59      |  | $    | 0.50      |  | $ | 1.13      | 
|                                     |  |                               |           |                             |   |           |  |      |           |  |   |           | 

Operating
results for the three and six months ended June 30, 2006 included special
litigation charges of $74.8 million and $108.9 million pretax, including $10.3
million recorded in the net sales line of the Consolidated Statements of Income
for both periods ($66.2 million and $90.2 million aftertax, or $0.54 and $0.73
per diluted share), respectively, as follows:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The three and six months ended June
        30, 2006 included a $19.3 million and $53.4 million pretax charge ($18.6
        million and $42.6 million aftertax, or $0.15 and $0.35 per diluted share),
        respectively, to establish a settlement reserve relating to previously
        disclosed inquiries by the federal government and certain states relating
        to three generic pharmaceuticals provided by the Company, based on discussions
        between these government representatives, the Company and its legal counsel.
        As previously disclosed, the inquiries relate to the substitution of capsules
        for tablets

39

---



|                                                                                                                                                                                                                                                                                               |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                               |   | (Ranitidine), tablets for capsules (Fluoxetine) and two 7.5 mg
        tablets for one 15mg tablet (Buspirone). This special litigation charge
        represents the Companys current best estimate of the settlement
        amounts and associated costs under Statement of Financial Accounting Standards
        (SFAS) No. 5, Accounting for Contingencies (SFAS
        5). 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, and the Legal
        Proceedings section at Part II, Item 1 of this Filing.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                                                                                                                                                                                                                                                                                               |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                               |  | On August 9, 2006, the Company announced
        that it has recorded a special litigation charge of $54.0 million pretax,
        including $10.3 million and $43.7 million recorded in the net sales and
        litigation charges lines of the Consolidated Statements of Income, respectively
        ($46.7 million aftertax, or $0.38 per diluted share), in its financial
        results for the three and six months ended June 30, 2006. The special
        litigation charge related to the establishment of a reserve relating to
        an inquiry being conducted by the Attorney Generals Office in Michigan
        relating to certain billing issues under the Michigan Medicaid program,
        based on recent discussions between the Attorney Generals Office,
        the Company and its legal counsel. This special litigation charge represents
        the Companys current best estimate of the settlement amounts and
        associated costs under SFAS 5. The Company cannot predict the ultimate
        outcome of this matter. See further discussion at the Subsequent
        Events 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.
|                                                                                                                                                                                                                                                                                               |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                               |  | The
  three and six months ended June 30, 2006 included a $1.5 million pretax
  charge ($1.0 million aftertax, or $0.01 per diluted share) for
  litigation-related professional expenses in connection with the Companys
  lawsuit against UnitedHealth Group and its Affiliates (United).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                                                                                                                                                                                                                                                                                               |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Operating
  results for the three and six months ended June 30, 2006 included
  restructuring and other related charges of approximately $11.9 million and
  $19.6 million pretax ($7.5 million and $12.4 million aftertax, or $0.06 and
  $0.10 per diluted share), respectively, as follows:
|                                                                                                                                                                                                                                                                                               |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                               |  | The
  three and six months ended June 30, 2006 included a $3.5 million and $11.2
  million pretax charge ($2.2 million and $7.1 million aftertax, or $0.02 and
  $0.06 per diluted share), respectively, in connection with the Companys
  previously disclosed consolidation efforts associated primarily with the
  NeighborCare, Inc. (NeighborCare) consolidation plan and other related
  productivity initiatives to streamline operations, maximize workforce and
  asset utilization, and produce a more cost-efficient, operating
  infrastructure. See further discussion of these restructuring and other
  related charges at the Restructuring and Other Related Charges section of
  this MD&A.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                               |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                               |  | The
  three and six months ended June 30, 2006 included an $8.4 million pretax
  charge ($5.3 million aftertax, or $0.04 per diluted share) in connection with
  the implementation of the Omnicare Full Potential Plan, a major initiative
  designed to re-engineer the pharmacy operating model to increase efficiency
  and enhance customer growth. See further discussion of these restructuring
  and other related charges at the Restructuring and Other Related Charges
  section of this MD&A.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

40

---



In
addition, the six months ended June 30, 2006 included 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.

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 six months ended June 30, 2006, as Part D currently
  represents about 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 six months ended June 30, 2006 was a transition period as the Company
  devoted considerable time, effort and resources to addressing certain administrative,
  operational and payment issues associated with the implementation of Part D.
  As a result, the Company incurred incremental expenses of approximately $7.5
  million and $17.3 million pretax (approximately $4.7 million and $11.0 million
  aftertax, or approximately $0.04 and $0.09 per diluted share) during the three
  and six month periods ended June 30, 2006, respectively, comprising temporary
  labor, administrative and operating costs incurred in connection with the implementation
  of the new Medicare Part D drug benefit. These expenditures were necessary to
  support the billing and cash collection functions, as well as handle the disruption
  in the timing of work flow and delivery of medications created by these implementation
  issues. While considerable progress has been made in addressing many of the
  Part D implementation issues, Omnicare continues to devote resources to the
  ongoing resolution of these matters and expects some portion of the incremental
  Part D transition expenses to continue in the third and fourth quarters of 2006.

The
  results for the second quarter of 2006 were also impacted by the unilateral
  reduction by United in the reimbursement rates paid by United to Omnicare under
  its pharmacy network contract for services rendered by Omnicare to beneficiaries
  of Uniteds drug benefit plans under the Medicare Part D program. The estimated
  impact of Uniteds action was to reduce sales and operating profit in the
  second quarter by approximately $18 million (approximately $11.5 million aftertax,
  or approximately $0.09 per diluted share). This matter is currently the subject
  of litigation initiated by Omnicare in federal court. See further discussion
  at the Legal Proceedings section at Part II, Item 1 of this Filing.

Effective
January 1, 2006, the Company adopted SFAS No. 123 (revised 2004), Share-Based
Payment (SFAS 123R). This Statement requires the Company to record
compensation costs relating to equity-based payments in its financial
statements. Under the fair value recognition provisions of SFAS 123R,
equity-based compensation cost is estimated at the grant date based on the
value of the award and is recognized as expense ratably over the requisite
service period of the award (usually the vesting period). The Company elected
the modified prospective application method of implementing SFAS 123R, which
requires that SFAS 123R be applied to all new awards whose inception date
follows the effective date of January 1, 2006, and all existing awards
modified, repurchased or cancelled after January 1, 2006. In addition, this
method requires compensation cost for the portion of awards for which service
has not been rendered (i.e., nonvested portion) and were outstanding as of
January 1, 2006. In accordance with the modified prospective method, the
Companys Consolidated Financial Statements for prior periods have not been
restated to reflect the adoption of SFAS 123R. Operating income for the three
and six months ended June 30, 2006 includes additional equity-based
compensation expense for stock options and stock awards of approximately $2.2
million and $5.1 million

41

---



pretax (approximately $1.4 million and $3.2 million aftertax,
  or approximately $0.01 and $0.03 per diluted share), respectively, related to
  the adoption of SFAS 123R.

One
  of the Companys repackaging facilities, Heartland Repack Services, has
  experienced certain quality control issues. As a result of these issues, the
  Company initiated a voluntary recall of certain of the products packaged at
  Heartland that may have been affected by the quality control issues. Thereafter,
  the Company voluntarily and temporarily suspended operations at Heartland in
  order to examine and address the quality control issues. In addition, following
  the suspension of operations there was a fire at the Heartland facility that
  caused damage to certain equipment and inventory in the facility. The United
  States Food and Drug Administration is currently conducting an inspection and
  reviewing the quality control issues. Because the Company is still in the process
  of investigating these matters, there can be no assurance that these matters
  will not have a material adverse impact on the Companys consolidated financial
  position or results of operations or cash flows. See discussion at the Subsequent Events note of the Notes to Consolidated Financial Statements.

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

|                           |  |                                 |           |                               |   |           |  |      |           |  |   |           | 
|-------------------------- |  | ------------------------------- | --------- | ----------------------------- | - | --------- |  | ---- | --------- |  | - | --------- | 
|                           |  | Three
  months ended
  June 30, |           | Six months
  ended
  June 30, |  
|                           |  |                                 |           |                               |  
|                           |  | 2006                            |           | 2005                          |   | 2006      |  | 2005 |          
|                           |  |                                 |           |                               |   |           |  |      |          
|Pharmacy Services Segment: |  |                                 |           |                               |   |           |  |      |           |  |   |           | 
|Net sales                  |  | $                               | 1,598,604 |                               | $ | 1,073,203 |  | $    | 3,215,156 |  | $ | 2,123,302 | 
|                           |  |                                 |           |                               |   |           |  |      |           |  |   |           | 
|Operating income           |  | $                               | 107,225   |                               | $ | 126,669   |  | $    | 257,731   |  | $ | 251,572   | 
|                           |  |                                 |           |                               |   |           |  |      |           |  |   |           | 

The
  sales growth for the three and six months ended June 30, 2006 was driven largely
  by the contribution of the NeighborCare, excelleRx, Inc. (excelleRx)
  and RxCrossroads, L.L.C. (RxCrossroads) acquisitions that were completed
  in the third quarter of 2005. In addition, sales growth is also attributable
  to the ongoing execution of the Companys acquisition strategy, the contribution
  of the Companys clinical and other service programs, a favorable payor
  mix shift and drug price inflation. These factors were partially offset by intense
  competitive pricing pressures 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 impact of
  the aforementioned reimbursement rate reduction by United and the increasing
  use of generic drugs. The increased operating income for the year-to-date period
  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 United reimbursement rate reduction,
  Part D transition expenses and certain special charges. Specifically, operating
  income of the Pharmacy Services segment for the six months ended June 30, 2006
  was impacted by special charges of approximately $129.9 million, including the
  aforementioned special litigation charges of $108.9 million, a $6.1 million
  charge associated with retention payments for certain NeighborCare employees
  as required under the acquisition agreement and the previouly mentioned restructuring
  and other related charges, of which approximately $14.9 million was included
  in the Pharmacy Services segment. Operating income for the quarter ended June
  30, 2006 was impacted by the factors discussed above, with the decrease from
  the prior-year quarter primarily attributable to certain special charges recorded
  during 2006. Specifically, operating income of the Pharmacy Services segment
  for the three months ended June 30, 2006 was impacted by special charges of
  approximately $84.4 million, including the aforementioned $74.8 million in special
  litigation charges and the previously mentioned restructuring and other related
  charges, of which approximately $9.6 million was included in the Pharmacy Services
  segment.

|                      |  |                               |        |                             |   |        |  |      |        |  |   |        | 
|--------------------- |  | ----------------------------- | ------ | --------------------------- | - | ------ |  | ---- | ------ |  | - | ------ | 
|                      |  | Three months ended
  June 30, |        | Six months ended
  June 30, |  
|                      |  |                               |        |                             |  
|                      |  | 2006                          |        | 2005                        |   | 2006   |  | 2005 |       
|                      |  |                               |        |                             |   |        |  |      |       
|CRO Services Segment: |  |                               |        |                             |   |        |  |      |        |  |   |        | 
|Revenues              |  | $                             | 42,506 |                             | $ | 50,194 |  | $    | 84,552 |  | $ | 96,241 | 
|                      |  |                               |        |                             |   |        |  |      |        |  |   |        | 
|Operating income      |  | $                             | 1,301  |                             | $ | 3,710  |  | $    | 2,464  |  | $ | 6,269  | 
|                      |  |                               |        |                             |   |        |  |      |        |  |   |        | 

42

---



The
  CRO Services segment revenues and operating income were lower for the three
  and six months ended June 30, 2006 than in the comparable periods of 2005 due
  primarily to client-driven delays in the commencement of certain projects during
  the first six months of 2006. Operating income in the three and six months ended
  June 30, 2006 was impacted by this reduction in revenues and the previously
  mentioned restructuring and other related charges, of which approximately $1.0
  million and $1.3 million pretax, respectively, were included in the CRO Services
  segment.

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

43

---



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

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

|                                                                                   |  |                                 |           |                               |   |           |   |      |           |   |   |           |  
|---------------------------------------------------------------------------------- |  | ------------------------------- | --------- | ----------------------------- | - | --------- | - | ---- | --------- | - | - | --------- | -
|                                                                                   |  | Three months
  ended
  June 30, |           | Six months
  ended
  June 30, |  
|                                                                                   |  |                                 |           |                               |  
|                                                                                   |  | 2006                            |           | 2005                          |   | 2006      |   | 2005 |          
|                                                                                   |  |                                 |           |                               |   |           |   |      |          
|                                                                                   |  |                                 |           |                               |   |           |   |      |           |   |   |           |  
|Net sales                                                                          |  | $                               | 1,641,110 |                               | $ | 1,123,397 |   | $    | 3,299,708 |   | $ | 2,219,543 |  
|                                                                                   |  |                                 |           |                               |   |           |   |      |           |   |   |           |  
|                                                                                   |  |                                 |           |                               |   |           |   |      |           |   |   |           |  
|Net income                                                                         |  | $                               | 8,379     |                               | $ | 61,732    |   | $    | 61,610    |   | $ | 119,727   |  
|                                                                                   |  |                                 |           |                               |   |           |   |      |           |   |   |           |  
|Earnings per share:                                                                |  |                                 |           |                               |   |           |   |      |           |   |   |           |  
|Basic                                                                              |  | $                               | 0.07      |                               | $ | 0.60      |   | $    | 0.52      |   | $ | 1.17      |  
|                                                                                   |  |                                 |           |                               |   |           |   |      |           |   |   |           |  
|Diluted                                                                            |  | $                               | 0.07      |                               | $ | 0.59      |   | $    | 0.50      |   | $ | 1.13      |  
|                                                                                   |  |                                 |           |                               |   |           |   |      |           |   |   |           |  
|                                                                                   |  |                                 |           |                               |   |           |   |      |           |   |   |           |  
|EBITDA(a)                                                                          |  | $                               | 114,408   |                               | $ | 132,724   |   | $    | 272,666   |   | $ | 258,556   |  
|                                                                                   |  |                                 |           |                               |   |           |   |      |           |   |   |           |  
|EBITDA reconciliation to net cash flows from operating
activities:                 |  |                                 |           |                               |   |           |   |      |           |   |   |           |  
|EBITDA(a)                                                                          |  | $                               | 114,408   |                               | $ | 132,724   |   | $    | 272,666   |   | $ | 258,556   |  
|(Subtract)/Add:                                                                    |  |                                 |           |                               |   |           |   |      |           |   |   |           |  
|Interest expense, net of investment income                                         |  |                                 | (40,020   | )                             |   | (19,348   | ) |      | (80,633   | ) |   | (38,114   | )
|Income tax provision                                                               |  |                                 | (35,770   | )                             |   | (36,771   | ) |      | (69,286   | ) |   | (71,573   | )
|Changes in assets and liabilities, net of effects from acquisition of
  businesses |  |                                 | (19,857   | )                             |   | (84,097   | ) |      | (46,766   | ) |   | (117,784  | )
|Provision for doubtful accounts                                                    |  |                                 | 18,066    |                               |   | 12,341    |   |      | 35,160    |   |   | 24,750    |  
|Deferred tax provision                                                             |  |                                 | 8,453     |                               |   | 11,938    |   |      | 16,916    |   |   | 26,006    |  
|                                                                                   |  |                                 |           |                               |   |           |   |      |           |   |   |           |  
|Net cash flows from operating activities                                           |  | $                               | 45,280    |                               | $ | 16,787    |   | $    | 128,057   |   | $ | 81,841    |  
|                                                                                   |  |                                 |           |                               |   |           |   |      |           |   |   |           |  

(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.

44

---



Three Months Ended June
30, 2006 vs. 2005

Consolidated

Net
  sales for the three months ended June 30, 2006 rose to $1,641.1 million from
  $1,123.4 million in the comparable prior-year period. Net income for the three
  months ended June 30, 2006 was $8.4 million versus $61.7 million earned in the
  comparable 2005 period. Diluted earnings per share for the three months ended
  June 30, 2006 were $0.07 versus $0.59 in the same prior-year period. EBITDA
  totaled $114.4 million for the three months ended June 30, 2006 as compared
  with $132.7 million for the same period of 2005.

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

(i)
  Operating income included a special litigation charge of $19.3 million pretax
  ($18.6 million aftertax, or $0.15 per diluted share) to increase the previously
  established settlement reserve relating to previously disclosed inquiries by
  the federal government and certain states concerning the substitution of three
  generic pharmaceuticals by the Company. This special litigation charge represents
  the Companys current estimate of the settlement amounts and associated
  costs under SFAS 5. See further discussion at the Commitments and Contingencies
  note of the Notes to Consolidated Financial Statements, and the Legal
  Proceedings section at Part II, Item 1 of this Filing.

(ii)
  As previously discussed, on August 9, 2006, the Company announced that it has
  recorded a special litigation charge of $54.0 million pretax, including $10.3
  million and $43.7 million recorded in the net sales and litigation charges lines
  of the Consolidated Statements of Income, respectively ($46.7 million aftertax,
  or $0.38 per diluted share), in its financial results for the quarter ended June
  30, 2006. The special litigation charge was for the establishment of a reserve
  relating to an inquiry being conducted by the Attorney Generals Office
  in Michigan relating to certain billing issues under the Michigan Medicaid program,
  based on recent discussions between the Attorney Generals Office, the
  Company and its legal counsel. This special litigation charge represents the
  Companys current best estimate of the settlement amounts and associated
  costs under SFAS 5. 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.

(iii)
Operating income included a special litigation charge of $1.5 million pretax
($1.0 million aftertax, or $0.01 per diluted share) for litigation-related
professional expenses in connection with the Companys lawsuit against United.

(iv)
  Operating income included restructuring and other related charges of approximately
  $11.9 million pretax ($7.5 million aftertax, or $0.06 per diluted share) in
  connection with the Omnicare Full Potential Program, as well as the
  previously disclosed consolidation and productivity initiatives related, in
  part, to the integration of the NeighborCare acquisition and other related activities.
  See further discussion of the restructuring and other related charges at the
  Restructuring and Other Related Charges section of this MD&A.

45

---



The
three months ended June 30, 2005, included a special charge to operating
expenses totaling $1.1 million pretax ($0.7 million aftertax, or $0.01 per
diluted share) for acquisition-related expenses pertaining to a proposed
transaction that was not consummated.

Pharmacy Services Segment

Omnicares
Pharmacy Services segment recorded sales of $1,598.6 million for the three
months ended June 30, 2006, exceeding the 2005 amount of $1,073.2 million by
$525.4 million, or 49%. At June 30, 2006, Omnicare served long-term care
facilities and other chronic care settings comprising approximately 1,419,000
beds as compared with approximately 1,096,000 beds served at June 30, 2005. 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 the ongoing execution of its acquisition strategy, the contribution of
the Companys clinical and other service programs, a favorable payor mix shift
and drug price inflation. These factors were partially offset by intense
competitive pricing pressures, the impact of prior-year Medicaid reimbursement
cuts (although the impact from Medicaid reimbursement cuts now is much lower
than seen historically due to the shift in payor mix largely from Medicaid to
Medicare Part D), the aforementioned rate reduction by United and the
increasing use of generic drugs. 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 $107.2 million in the second quarter
  of 2006, a $19.5 million decrease as compared with the $126.7 million earned
  in the comparable period of 2005. Operating income in the 2006 quarter benefited
  from the increased sales discussed above, the addition of NeighborCare, excelleRx
  and RxCrossroads, the impact of productivity enhancement initiatives, as well
  as the overall synergies from the integration of prior-period acquisitions,
  particularly the NeighborCare acquisition. Although operating margins are generally
  unfavorably impacted by the initial addition of lower-margin institutional pharmacy
  acquisitions, the integration efforts have historically resulted in drug purchasing
  improvements, the consolidation of redundant pharmacy locations and other economies
  of scale, which serve to leverage the Companys operating cost structure
  and have historically resulted in improved operating margins in the long-term
  as cost synergies are realized. The aforementioned positive factors were more
  than offset by the previously mentioned competitive pricing and Medicaid reimbursement
  pressures, reimbursement rate reduction by United and certain special charges.
  Specifically, operating income of the Pharmacy Services segment was impacted
  by special charges of approximately $84.4 million, including the aforementioned
  $74.8 million in special litigation charges and the previously mentioned restructuring
  and other related charges, of which approximately $9.6 million was included
  in the Pharmacy Services segment. Also included in the results of the Pharmacy
  Services segment for the second quarter of 2006 are the previously mentioned
  expenses totaling approximately $7.5 million pretax (approximately $4.7 million
  aftertax, or approximately $0.04 per diluted share) 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

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

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

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

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

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

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

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

On
August 4, 2005 CMS issued its final SNF PPS rule for fiscal year 2006. Under
the rule, the CMS added nine patient classification categories to the PPS
patient classification system, thus triggering the expiration of the
high-acuity payments add-ons. However, CMS estimated that the rule would have a
slightly positive financial impact on SNFs in fiscal year 2006 because the
$1.02 billion reduction from the expiration of the add-on payments would be
more than offset by a $510 million increase in the nursing case-mix weight for
all of the RUG categories and a $530 million increase associated with various
updates to the payment rates (including updates to the wage and market basket
indexes), resulting in a $20 million overall increase in payments for fiscal
year 2006. The new patient classification refinements became effective on
January 1, 2006, and the market basket increase became effective October 1,
2005. On July 27, 2006, CMS posted the proposed SNF PPS rates for fiscal year
2007. Under the proposal, SNFs would receive the full 3.1 percent market basket
increase effective October 1, 2006, increasing payments to SNFs by
approximately $560 million. While the fiscal year 2007 proposed SNF PPS rates
would 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 (which now appears to have been
rejected), 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

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program began in June 2004, and has provided enrollees access to negotiated
discounted prices for prescription drugs. The discount card program ended May
15, 2006.

Under
  the new Part D prescription drug benefit, Medicare beneficiaries may enroll
  in Part D Plans which provide coverage of outpatient prescription drugs. The
  deadline for Part D enrollment for 2006 was generally May 15, 2006, although
  the 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 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 Omnicares
  revenue was derived from beneficiaries covered under state Medicaid programs.)

CMS
provides premium and cost-sharing subsidies to Part D Plans with respect to
dual eligible residents of nursing homes. Therefore, such dual eligibles are
not required to pay a premium for enrollment in a Part D Plan, so long as the
premium for the Part D Plan in which they are enrolled is at or below the
premium subsidy, nor are they required to meet deductibles or pay 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 have ongoing discussions with Part D Plans
in the ordinary course and may, as appropriate, renegotiate agreements. Moreover, as
expected in the transition to a new program of this magnitude, certain
administrative and payment issues have arisen. Until these administrative and payment issues have been resolved, the Company will not
be able to determine
the impact of the new Part D Drug Benefit on the Companys results of
operation, financial condition and cash flows.

The
MMA does not change the manner in which Medicare pays for drugs for Medicare
beneficiaries covered under a Medicare Part A stay. The Company continues to
receive reimbursement for drugs provided to such residents from the SNFs
pursuant to the contracts it has negotiated with each SNF. The Company also
continues to receive reimbursement from the

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state Medicaid programs,
albeit to a greatly reduced extent, for those Medicaid beneficiaries not
eligible for the Part D program, including those under age 65, and for certain
drugs specifically excluded from Medicare Part D.

CMS
has issued subregulatory guidance on many aspects of the final Part D rule
including the provision of pharmacy services to long-term care residents. CMS
has also expressed some concerns about pharmacies receipt of discounts,
rebates and other price concessions from drug manufacturers. Specifically, in a
finalized Call Letter for the 2007 calendar year, CMS indicated that 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 Part D 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

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long-term care services in a
community setting to individuals who currently receive Medicaid services in
nursing homes. Together these provisions could increase state funding for home
and community based services, while prompting states to cut funding for nursing
facilities. The DRA also changes the so-called Medicaid upper limit rules for
prescription drugs, effective January 1, 2007. Like the current upper limit, it
only applies to drugs ingredient costs and does not include dispensing fees,
which will continue to be determined by the states. With the advent of Medicare Part D, the Companys
revenue from state Medicaid programs 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

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the Companys
expertise in geriatric pharmaceutical care and pharmaceutical cost management
position Omnicare to help meet the challenges of todays healthcare
environment. Further, while volatility can occur from time to time in the
contract research business owing to factors such as the success or failure of
its clients compounds, the timing or budgetary constraints of its clients, or
consolidation within our client base, new drug discovery remains an important
priority of drug manufacturers. Drug manufacturers, in order to optimize their
research and development efforts, will continue to turn to contract research
organizations to assist them in accelerating drug research development and
commercialization.

CRO Services Segment

Omnicares
CRO Services segment earned revenues of $42.5 million for the three months
ended June 30, 2006, which were 15% lower than the $50.2 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 $6.1 million and
$8.5 million of reimbursable out-of-pockets in its reported CRO Services
segment revenues and cost of sales for the quarters ended June 30, 2006 and
2005, respectively. Revenues were lower for the three months ended June 30,
2006 than in the comparable period of 2005 primarily due to the aforementioned
decrease in reimbursable out-of-pockets of $2.4 million and client-driven
delays in the commencement of certain projects during the second quarter of
2006.

Operating
  income in the CRO Services segment was $1.3 million in the second quarter of
  2006 compared with $3.7 million in the same 2005 period. The decrease is attributable
  to the previously mentioned reduction in revenues, restructuring and other related
  charges, of which approximately $1.0 million was included in the CRO Services
  segment, as well as the client-driven delays in commencement of certain projects
  as discussed above. Backlog at June 30, 2006 was $287.5 million, representing
  an increase of $18.6 million from the December 31, 2005 backlog of $268.9 million
  and an increase of $27.1 million from the June 30, 2005 backlog of $260.4 million.

Consolidated

The
  Companys consolidated gross profit of $400.3 million increased $125.5
  million during the second quarter of 2006 from the same prior-year period amount
  of $274.8 million. Gross profit as a percentage of total net sales of 24.4%
  in the three months ended June 30, 2006, was slightly lower than the 24.5% 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 more than offset by the previously mentioned intensified competitive pricing
  and Medicaid reimbursement pressures, the United reimbursement rate reduction,
  Part D transition expenses and the Michigan Medicaid matter (which reduced 2006
  gross profit by $10.3 million pretax).

Omnicares
selling, general and administrative (operating) expenses for the quarter
ended June 30, 2006 of $239.8 million were higher than the comparable year
amount of $157.0

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million by $82.8 million, due primarily to the aforementioned
  completion of several acquisitions, including NeighborCare, excelleRx and RxCrossroads
  in the third quarter of 2005. Operating expenses as a percentage of net sales
  amounted to 14.6% in the second quarter of 2006, representing an increase from
  the 14.0% experienced in the comparable prior-year period. Operating expenses
  for the quarter ended June 30, 2006 were unfavorably impacted by a $10.5 million
  increase in amortization and depreciation expenses largely related to the 2005
  acquisitions, $2.2 million of additional equity-based compensation expense for
  stock options and stock awards related to the adoption of SFAS 123R, increased
  legal and professional costs, and the previously discussed temporary costs associated
  with the implementation of the new Medicare Part D drug benefit. Partially offsetting
  the increased operating expenses were the favorable impact of leveraging of
  fixed (e.g., rents) and variable (e.g., utilities) overhead costs over a larger
  sales base in 2006 than that which existed in 2005 and the Companys continued
  productivity enhancements, including the ongoing restructuring program commenced
  in connection with the NeighborCare acquisition. In addition, the quarter ended
  June 30, 2005 included the aforementioned $1.1 million special charge for acquisition-related
  expenses pertaining to a proposed transaction that was not consummated.

Investment
  income for the three months ended June 30, 2006 of $3.0 million was approximately
  $1.9 million greater than the $1.1 million earned in the comparable prior-year
  quarter, primarily due to higher interest rates and average invested cash and
  retirement plan asset balances in comparison to the same prior-year quarter.

Interest
  expense for the three months ended June 30, 2006 of $43.1 million was approximately
  $22.7 million higher than the $20.4 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 81.0% in the second quarter of 2006, significantly
  higher than the prior-year period rate of 37.3% due primarily to certain nondeductible
  litigation costs recognized in the quarter. 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.

Six Months Ended June 30, 2006 vs. 2005

Consolidated

Net
  sales for the six months ended June 30, 2006 rose to $3,299.7 million from $2,219.5
  million in the comparable prior-year period. Net income for the six months ended
  June 30, 2006 was $61.6 million versus $119.7 million earned in the comparable
  2005 period. Diluted earnings per share for the six months ended June 30, 2006
  were $0.50 versus $1.13 in the same prior-year period. EBITDA totaled $272.7
  million for the six months ended June 30, 2006 as compared with $258.6 million
  for the same period of 2005.

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

(i)
  Operating income included a special litigation charge of $53.4 million pretax
  ($42.6 million aftertax, or $0.35 per diluted share) to establish a settlement
  reserve relating to previously disclosed inquiries by the federal government
  and certain states concerning the substitution of three generic pharmaceuticals
  by the Company. This special litigation charge represents the Companys
  current estimate of the settlement amounts and associated costs under SFAS 5.
  See further discussion at the Commitments and Contingencies note
  of the Notes to Consolidated Financial Statements, and the Legal Proceedings
  section at Part II, Item 1 of this Filing.

(ii)
  As previously discussed, on August 9, 2006, the Company announced that it has
  recorded a special litigation charge of $54.0 million pretax, including $10.3
  million and $43.7 million recorded in the net sales and litigation charges lines
  of the Consolidated Statements of Income, respectively ($46.7 million aftertax,
  or $0.38 per diluted share), in its financial results for the six months ended
  June 30, 2006. The special litigation charge was for the establishment of a
  reserve relating to an inquiry being conducted by the Attorney Generals
  Office in Michigan relating to certain billing issues under the Michigan Medicaid
  program, based on recent discussions between the Attorney Generals Office,
  the Company and its legal counsel. This special litigation charge represents
  the Companys current best estimate of the settlement amounts and associated
  costs under SFAS 5. See further discussion at the Subsequent Events
  and Commitments and Contingencies note of the Notes to Consolidated
  Financial Statements, and the Legal Proceedings section at Part
  II, Item 1 of this Filing.

(iii)
Operating income included a special litigation charge of $1.5 million pretax
($1.0 million aftertax, or $0.01 per diluted share) for litigation-related
professional expenses in connection with the Companys lawsuit against United.

(iv)
  Operating income included restructuring and other related charges of approximately
  $19.6 million pretax ($12.4 million aftertax, or $0.10 per diluted share) in
  connection with the Omnicare Full Potential Program, as well as the previously
  disclosed consolidation and productivity initiatives related, in part, to the
  integration of the NeighborCare acquisition and other related activities. See
  further discussion of the restructuring and other related charges at the Restructuring
  and Other Related Charges section of this MD&A.

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

The
  six months ended June 30, 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

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MD&A. In
addition, the six months ended June 30, 2005 included a charge to operating
expenses totaling $1.1 million pretax ($0.7 million aftertax, or $0.01 per
diluted share) for acquisition-related expenses pertaining to a proposed
transaction that was not consummated.

Pharmacy Services Segment

Omnicares
  Pharmacy Services segment recorded sales of $3,215.2 million for the six months
  ended June 30, 2006, exceeding the comparable 2005 amount of $2,123.3 million
  by $1,091.9 million, or 51%. At June 30, 2006, Omnicare served long-term care
  facilities and other chronic care settings comprising approximately 1,419,000
  beds as compared with approximately 1,096,000 beds served at June 30, 2005.
  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 the ongoing
  execution of its acquisition strategy, the contribution of the Companys
  clinical and other service programs, a favorable payor mix shift and drug price
  inflation. These factors were partially offset by competitive pricing pressures,
  the impact of prior-year Medicaid reimbursement cuts (although the impact from
  Medicaid reimbursement cuts now is much lower than seen historically due to
  the shift in payor mix largely from Medicaid to Medicare Part D), the aforementioned
  second quarter reimbursement rate reduction by United and the increasing use
  of generic drugs. 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 $257.7 million for the six months
  ended June 30, 2006, a $6.1 million improvement as compared with the $251.6
  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 competitive
  pricing and Medicaid reimbursement pressures, the reimbursement rate reduction
  by United in the second quarter of 2006 and certain special charges. Specifically,
  operating income of the Pharmacy Services segment was impacted by special charges
  of approximately $129.9 million pretax, including the aforementioned special
  litigation charges of $108.9 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 $14.9 million was included in the Pharmacy Services
  segment. Also included in the results of the Pharmacy Services segment are the
  previously mentioned expenses totaling approximately $17.3 million pretax (approximately
  $11.0 million aftertax, or approximately $0.09 per diluted share) 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.

55

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CRO Services Segment

Omnicares
  CRO Services segment earned revenues of $84.6 million for the six months ended
  June 30, 2006, which were approximately 12% lower than the $96.2 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 $12.3
  million and $15.7 million of reimbursable out-of-pockets in its reported CRO
  Services segment revenues and cost of sales for the six months ended June 30,
  2006 and 2005, respectively. Revenues were lower for the six months ended June
  30, 2006 than in the comparable period of 2005 primarily due to the aforementioned
  decrease in reimbursable out-of-pockets of $3.4 million and client-driven delays
  in the commencement of certain projects during the 2006 period.

Operating
  income in the CRO Services segment was $2.5 million for the six months ended
  June 30, 2006 compared with $6.3 million in the same 2005 period. The decrease
  is attributable to the previously mentioned reduction in revenues, restructuring
  and other related charges, of which approximately $1.3 million was included
  in the CRO Services segment, as well as the client-driven delays in commencement
  of certain projects as discussed above.

Consolidated

The
  Companys consolidated gross profit of $816.8 million increased $272.6
  million during the six months ended June 30, 2006 from the same prior-year period
  amount of $544.2 million. Gross profit as a percentage of total net sales of
  24.8% in the six months ended June 30, 2006, was higher than the 24.5% 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 competitive pricing and Medicaid
  reimbursement pressures, the reimbursement rate reduction by United, Part D
  transition expenses and the Michigan Medicaid matter, which reduced 2006 gross
  profit by $10.3 million pretax.

Omnicares
  operating expenses for the six months ended June 30, 2006 of $487.1 million
  were higher than the comparable prior-year amount of $314.8 million by $172.3
  million, due primarily to the aforementioned completion of several acquisitions,
  including NeighborCare, excelleRx and RxCrossroads in the third quarter of 2005.
  Operating expenses as a percentage of net sales amounted to 14.8% for the six
  months ended June 30, 2006, representing an increase from the 14.2% experienced
  in the comparable prior-year period. Operating expenses for the six months ended
  June 30, 2006 were unfavorably impacted by a $21.4 million increase in amortization
  and depreciation expenses largely related to the 2005 acquisitions, the aforementioned
  $6.1 million pretax charge associated with retention payments for certain NeighborCare
  employees, $5.1 million pretax of additional equity-based compensation expense
  for stock options and stock awards related to the adoption of SFAS 123R, increased
  legal and

56

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professional costs, and the previously discussed temporary costs
  associated with the implementation of the new Medicare Part D drug benefit.
  Partially offsetting the increased operating expenses were the favorable impact
  of leveraging of fixed (e.g., rents) and variable (e.g., utilities) overhead
  costs over a larger sales base in 2006 than that which existed in 2005 and the
  Companys continued productivity enhancements, including the ongoing restructuring
  program commenced in connection with the NeighborCare acquisition. In addition,
  the six months ended June 30, 2005 included the aforementioned $1.2 million
  pretax special charge for professional fees and expenses related to the first
  quarter 2005 trust PIERS exchange offering and the aforementioned $1.1 million
  pretax special charge for acquisition-related expenses.

Investment
  income for the six months ended June 30, 2006 of $4.8 million was approximately
  $2.6 million greater than the $2.2 million earned in the comparable prior-year
  period, primarily due to higher interest rates and average invested cash and
  retirement plan asset balances in comparison to the same prior-year period.

Interest
  expense for the six months ended June 30, 2006 of $85.5 million was approximately
  $45.1 million higher than the $40.4 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 52.9% in the year-to-date 2006 period, significantly
  higher than the comparable prior-year period rate of 37.4% due primarily to
  certain nondeductible litigation costs recognized in the period. The effective
  tax rates in 2006 and 2005 are higher than the federal statutory rate largely
  as a result of the combined impact of state and local income taxes, various
  nondeductible expenses and tax-accrual adjustments.

Restructuring and Other Related Charges

Omnicare
Full Potential Program

In
the second quarter of 2006, the Company announced the implementation of the
Omnicare Full Potential Plan, a major initiative designed to re-engineer the
Companys pharmacy operating model to increase efficiency and enhance customer
growth. The Omnicare Full Potential Plan is expected to optimize resources
across the entire organization by implementing best practices and a
hub-and-spoke model whereby certain key support and production functions will
be transferred to regional hubs specifically designed and managed to perform
these tasks, with local spoke pharmacies focusing on time-sensitive services
and customer-facing processes. It is expected that this program will be
completed by the end of 2008.

The
Omnicare Full Potential Plan is expected to generate pretax savings in the
range of $100 million to $120 million annually upon completion of the
initiative. The program is estimated to result in total pretax restructuring
and other related charges of approximately $80 million over this 30-month
period. The charges include severance pay, lease costs, professional fees and
other related costs. Approximately $15 million of this restructuring charge is
associated with the initial phase of the program and will be taken in 2006,
with $8.4 million in the quarter ended June 30, 2006 and the remainder taken
over the balance of the 2006 year. The remainder of the restructuring charge
will be recognized and disclosed over the fiscal years 2007 and 2008 as various
phases of the project are finalized and implemented. Incremental capital
expenditures

57

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related to
this program are expected to total $30 million to $40 million over the 30-month
period. The Company estimates that this initial phase of the program will lead
to a reduction in force of approximately 1,200 positions, associated primarily
with pharmacy operations.

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

|                                              |  |                             |       |                          |   |                            |   |   |       | 
|--------------------------------------------- |  | --------------------------- | ----- | ------------------------ | - | -------------------------- | - | - | ----- | 
|                                              |  | 2006
  Provision/
  Accrual |       | Utilized
  during
  2006 |   | Balance at
  June 30, 2006 |  
|                                              |  |                             |       |                          |   |                            |  
|Restructuring charges:                        |  |                             |       |                          |   |                            |   |   |       | 
|Employee severance                            |  | $                           | 5,083 |                          | $ | (1,351                     | ) | $ | 3,732 | 
|Other assets, fees and facility
exit costs    |  |                             | 999   |                          |   |                           |   |   | 999   | 
|                                              |  |                             |       |                          |   |                            |   |   |       | 
|Total restructuring
charges                   |  |                             | 6,082 |                          | $ | (1,351                     | ) | $ | 4,731 | 
|                                              |  |                             |       |                          |   |                            |   |   |       | 
|                                             
|Other related charges                         |  |                             | 2,331 |                          |   |                            |   |   |       | 
|                                              |  |                             |       |                          |   |                            |   |   |       | 
|Total restructuring and other
related charges |  | $                           | 8,413 |                          |   |                            |   |   |       | 
|                                              |  |                             |       |                          |   |                            |   |   |       | 

As
  of June 30, 2006, the Company had paid approximately $1.4 million of severance
  and other employee-related costs. The remaining liabilities at June 30, 2006
  represent amounts not yet paid relating to actions taken in connection with
  the program (primarily severance payments and professional fees) and will be
  settled as these matters are finalized. The provision/accrual and corresponding
  payment amounts relating to employee severance are being accounted for in accordance
  with SFAS No. 112 Employers Accounting for Postemployment Benefits.

2005
Program

In
  the third quarter of 2005, the Company announced the implementation of certain
  consolidation plans and other productivity initiatives to streamline pharmacy
  services and contract research organization operations, including maximizing
  workforce and operating asset utilization, and producing a more cost-efficient,
  operating infrastructure (the 2005 Program). These consolidation
  and productivity initiatives 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 were also identified for consolidation into NeighborCare
  locations. Additionally, as part of the evaluation process on how best to integrate
  the two organizations, the Company also focused broadly on ways to lower operating
  infrastructure costs to maximize efficiencies and asset utilization and identified
  opportunities to right-size the business, streamline operations and eliminate
  redundant assets. This portion of the consolidation activity and other productivity
  initiatives are expected to result in the closure of 31 Omnicare facilities,
  of which 28 are pharmacy operations. It is also expected to 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.

58

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Approximately 760 of these positions have been eliminated as of
  June 30, 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 $31 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 approximately $0.11 per diluted share) during the year
  ended December 31, 2005. Additionally, the Company recorded restructuring and
  other related charges of approximately $3 million and $11 million pretax (approximately
  $2 million and $7 million aftertax, or approximately $0.02 and $0.06 per diluted
  share) during the three and six months ended June 30, 2006, respectively.

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 2005 Program restructuring and other
  related charges follow (pretax, in thousands):

|                                                |  |                                  |        |                             |   |                          |  |                              |        |   |   |        | 
|----------------------------------------------- |  | -------------------------------- | ------ | --------------------------- | - | ------------------------ |  | ---------------------------- | ------ | - | - | ------ | 
|                                                |  | Balance at
  December 31,
  2005 |        | 2006
  Provision/
  Accrual |   | Utilized
  during
  2006 |  | Balance at
  June 30,
  2006 |       
|                                                |  |                                  |        |                             |   |                          |  |                              |       
|Restructuring charges:                          |  |                                  |        |                             |   |                          |  |                              |        |   |   |        | 
|Employee severance                              |  | $                                | 2,809  |                             | $ | 1,930                    |  | $                            | (2,224 | ) | $ | 2,515  | 
|Employment agreement
buy-outs                   |  |                                  | 734    |                             |   | 1,459                    |  |                              | (1,485 | ) |   | 708    | 
|Lease terminations                              |  |                                  | 9,833  |                             |   | 2,861                    |  |                              | (3,054 | ) |   | 9,640  | 
|Other assets, fees and facility
exit costs      |  |                                  | 1,335  |                             |   | 2,409                    |  |                              | (1,822 | ) |   | 1,922  | 
|                                                |  |                                  |        |                             |   |                          |  |                              |        |   |   |        | 
|Total restructuring
charges                     |  | $                                | 14,711 |                             |   | 8,659                    |  | $                            | (8,585 | ) | $ | 14,785 | 
|                                                |  |                                  |        |                             |   |                          |  |                              |        |   |   |        | 
|                                                |  |                                  |        |                             |   |                          |  |                              |        |   |   |        | 
|Other related charges                           |  |                                  |        |                             |   | 2,530                    |  |                              |        |   |   |        | 
|                                                |  |                                  |        |                             |   |                          |  |                              |        |   |   |        | 
|Total
  restructuring and other related charges |  |                                  |        |                             | $ | 11,189                   |  |                              |        |   |   |        | 
|                                                |  |                                  |        |                             |   |                          |  |                              |        |   |   |        | 

59

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As
of June 30, 2006, the Company had paid approximately $6.2 million of severance
and other employee-related costs. The remaining liabilities at June 30, 2006
represent amounts not yet paid relating to actions taken in connection with the
program (primarily severance payments and lease payments) and will be settled
as these matters are finalized.

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

Cash
and cash equivalents at June 30, 2006 were $339.0 million compared with $218.1
million at December 31, 2005 (including restricted cash amounts of $11.8
million and $2.7 million, respectively).

The
  Company generated positive net cash flows from operating activities of $128.1
  million during the six months ended June 30, 2006, compared with net cash flows
  from operating activities of $81.8 million during the six months ended June
  30, 2005. Compared to the same prior-year period, cash flow from operating activities
  was impacted by an increase in accounts receivable primarily due to increased
  revenue and administrative and payment issues associated with the implementation
  of the new Medicare Part D drug benefit. This unfavorable impact was partially
  offset by the return of a $38.3 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 $74.9 million and $91.6 million for the
  six months ended June 30, 2006 and 2005, respectively. Acquisitions of businesses
  required cash payments of $51.1 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 six months of 2005 required
  $77.8 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 and operating cash flows. Omnicares capital
  requirements, in addition to the payment of debt and dividends, are primarily
  comprised of its acquisition program and capital expenditures, largely relating
  to investments in the Companys information technology systems.

Net
  cash provided by financing activities was $57.6 million for the six months ended
  June 30, 2006 as compared to $30.6 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 six months ended June 30, 2005 and, as
  previously stated, were primarily used for payments relating to the acquisition
  of businesses. The Company also paid $12.3 million on the term A loan during
  the six months ended June 30, 2005.

At
June 30, 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 June 30, 2006, the
Company had approximately $23.5 million

60

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outstanding
relating to standby letters of credit, substantially all of which are subject
to automatic annual renewals.

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

On
May 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 $5.5 million and $4.7 million were paid during the six
month periods ended June 30, 2006 and 2005, respectively.

There
  were no known material commitments and contingencies outstanding at June 30,
  2006, other than the contractual obligations summarized in the Disclosures
  About Aggregate Contractual Obligations and Off-Balance Sheet Arrangements
  caption below, certain acquisition-related payments potentially due in the future,
  including deferred payments, indemnification payments and payments originating
  from earnout provisions that may become payable, and the matters discussed in
  the Commitments and Contingencies and Subsequent Events
  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).

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Disclosures
About Aggregate Contractual Obligations and Off-Balance Sheet Arrangements

Aggregate
Contractual Obligations:

|                                                                  |  |       |           |                    |   |           |  |           |         |                 |   |           |  |   |           | 
|----------------------------------------------------------------- |  | ----- | --------- | ------------------ | - | --------- |  | --------- | ------- | --------------- | - | --------- |  | - | --------- | 
|                                                                  |  | Total |           | Less Than 1
  Year |   | 1-3 Years |  | 4-5 Years |         | After 5
  Years |  
|                                                                  |  |       |           |                    |   |           |  |           |         |                 |  
|                                                                 
|Debt obligations(a)                                               |  | $     | 3,075,568 |                    | $ |          |  | $         |        |                 | $ | 744,843   |  | $ | 2,330,725 | 
|Capital lease obligations(a)                                      |  |       | 19,553    |                    |   | 8,126     |  |           | 8,498   |                 |   | 2,442     |  |   | 487       | 
|Operating lease obligations                                       |  |       | 172,417   |                    |   | 42,695    |  |           | 61,922  |                 |   | 34,031    |  |   | 33,769    | 
|Purchase obligations(b)                                           |  |       | 131,742   |                    |   | 127,742   |  |           | 4,000   |                 |   |          |  |   |          | 
|Other current obligations(c)                                      |  |       | 395,078   |                    |   | 395,078   |  |           |        |                 |   |          |  |   |          | 
|Other long-term obligations(d)                                    |  |       | 287,383   |                    |   |          |  |           | 110,245 |                 |   | 46,495    |  |   | 130,643   | 
|                                                                  |  |       |           |                    |   |           |  |           |         |                 |   |           |  |   |           | 
|Subtotal                                                          |  |       | 4,081,741 |                    |   | 573,641   |  |           | 184,665 |                 |   | 827,811   |  |   | 2,495,624 | 
|Future interest relating to debt and capital lease
obligations(e) |  |       | 2,039,241 |                    |   | 158,039   |  |           | 308,488 |                 |   | 265,316   |  |   | 1,307,398 | 
|                                                                  |  |       |           |                    |   |           |  |           |         |                 |   |           |  |   |           | 
|Total contractual cash obligations                                |  | $     | 6,120,982 |                    | $ | 731,680   |  | $         | 493,153 |                 | $ | 1,093,127 |  | $ | 3,803,022 | 
|                                                                  |  |       |           |                    |   |           |  |           |         |                 |   |           |  |   |           | 

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | The noted
  obligation amounts represent the principal portion of the associated debt
  obligations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|(b) | Purchase
  obligations primarily consist of open inventory purchase orders, as well as
  obligations for other goods and services, at period end.                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|(c) | Other
  current obligations primarily consist of accounts payable at period end.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|(d) | Other
  long-term obligations are largely comprised of pension and excess benefit
  plan obligations, acquisition-related liabilities and the obligation
  associated with the interest rate Swap Agreement discussed below.                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|(e) | Represents
  estimated future interest costs based on the stated fixed interest rate of
  the debt or the variable interest rate in effect at period end for variable
  interest rate debt. The estimated future interest costs presented in this
  table do not include any amounts potentially payable associated with the
  contingent interest and interest reset provisions of the Companys
  convertible debentures. To the extent that any debt would be paid off by
  Omnicare prior to the stated due date, the estimated future interest costs
  would change accordingly.

As
of June 30, 2006, the Company had approximately $23.5 million outstanding
relating to standby letters of credit, substantially all of which are subject
to automatic annual renewals.

2005
Refinancing

During
the latter half of 2005, the Company entered into a new $3.4 billion Credit
Agreement (Credit Agreement) consisting of a $1.9 billion 364-day loan
facility, with original maturity dates spanning from July 26, 2005 through
August 17, 2005 (the 364-Day Loans), a five year $800 million revolving
credit facility, maturing on July 28, 2010 (the Revolving Loans) and 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

62

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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 5.95% at June 30, 2006. The Credit
Agreement requires the Company to comply with certain financial covenants,
including a minimum consolidated net worth and a minimum fixed charges coverage
ratio, and customary affirmative and negative covenants.

The
Company primarily used the net proceeds from the Credit Agreement to repay
amounts outstanding, as of July 28, 2005, under the Companys old term A loan
of $123.1 million and old revolving credit facility of $181 million, and for
the acquisitions of NeighborCare, excelleRx and RxCrossroads. As of June 30,
2006, there was no amount drawn under the Revolving Loans and $700 million
outstanding under the Term Loans due 2010. As of June 30, 2006, the Company had
approximately $23.5 million outstanding relating to standby letters of credit,
substantially all of which are subject to automatic annual renewals.

In
  connection with the execution of the new Credit Agreement, the Company has deferred
  debt issuance costs of $11.7 million, of which, approximately $0.7 million and
  $1.3 million was amortized in the three and six months ended June 30, 2006,
  respectively.

On
  December 15, 2005, the Company completed its offering of $225 million aggregate
  principal amount of 6.75% senior subordinated notes due 2013 (the 6.75%
  Senior Notes), and its offering of $525 million aggregate principal amount
  of 6.875% senior subordinated notes due 2015 (the 6.875% Senior Notes).
  In connection with the issuance of the 6.75% Senior Notes and the 6.875% Senior
  Notes, the Company has deferred $15.0 million of debt issuance costs, of which
  approximately $0.4 million and $0.8 was amortized in the three and six months
  ended June 30, 2006, respectively.

On
  December 15, 2005, Omnicare also completed its offering of $977.5 million aggregate
  principal amount of 3.25% convertible senior debentures due 2035 (the 3.25%
  Convertible Debentures), including the exercise in full by the underwriters
  of their option to purchase additional debentures. The 3.25% Convertible Debentures
  have an initial conversion price of approximately $79.73 per share under a contingent
  conversion feature whereby the holders may convert their 3.25% Convertible Debentures,
  prior to December 15, 2033, on any date during any fiscal quarter beginning
  after March 31, 2006 (and only during such fiscal quarter) if the closing
  sales price of the Companys common stock was more than 130% of the then
  current conversion price for at least 20 trading days in the period of the 30
  consecutive trading days ending on the last trading day of the previous fiscal
  quarter and in certain other circumstances. The 3.25% Convertible Debentures
  bear interest at a rate of 3.25% per year, subject to an upward adjustment on
  and after December 15, 2015 in certain circumstances. The 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 June 30, 2006, the
  values of the derivatives were not material. However, the values are subject
  to change, based on market conditions, which could affect the Companys
  future financial position, cash flows and results of operations. In connection
  with the issuance of the 3.25% Convertible Debentures, the Company has deferred
  $26.4 million of debt issuance costs, of which approximately $0.7 million and
  $1.3 million was amortized in the three and six months ended June 30, 2006,
  respectively.

63

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

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

The
Company had additional borrowings of long-term debt during the six months ended
June 30, 2005 approximating $41 million, primarily consisting of a note payable
carrying a five-year term and a variable interest rate, listed at 5.30% per
annum as of June 30, 2006.

4.00% Junior Subordinated Convertible Debentures

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

64

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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
June 30, 2006, the values of both derivatives embedded in the Old Trust PIERS
were not material. However, the values are subject to change, based on market
conditions, which could affect the Companys future financial position, cash
flows and results of operations. Omnicare irrevocably
and unconditionally guarantees, on a subordinated basis, certain payments to be
made by the Old Trust in connection with the Old Trust PIERS. Subsequent to the
first quarter 2005 exchange offering discussed in further detail at the Series
B 4.00% Junior Subordinated Convertible Debentures caption below, the Company
has $11,233,050 aggregate liquidation amount of the Old Trust PIERS and
underlying Old 4.00% Debentures remaining outstanding at period end.

Series B 4.00% Junior Subordinated Convertible
Debentures

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

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).

65

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

In
  connection with the issuance of the Old 4.00% Debentures and the New 4.00% Debentures,
  the Company has deferred $11.1 million in debt issuance costs, of which approximately
  $0.1 and $0.2 million was amortized in the three and six months ended June 30,
  2006 and 2005, respectively. As previously disclosed, the six months ended June
  30, 2005 included a special charge to operating expenses totaling $1.2 million
  pretax in connection with professional fees and expenses incurred relating to
  the issuance of the New Trust PIERS.

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

Off-Balance
Sheet Arrangements:

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

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

66

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Critical Accounting Policies

Stock-Based
Compensation

Effective
January 1, 2006, the Company adopted the provisions of SFAS 123R, which
replaced SFAS No. 123, Accounting for Stock-Based Compensation (SFAS 123)
and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees
(APB 25). Prior to the adoption of SFAS 123R, the Company accounted for stock
incentive plans under the recognition and measurement principles of APB 25, and
related Interpretations (intrinsic value method). As a result, no stock-based
employee compensation cost for stock options was reflected in net income, as
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 provisions of SFAS 123R,
share-based compensation cost is measured at the grant date based on the fair
value of the award and is recognized as expense ratably over the requisite
service period of the award (usually the vesting period).

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

Allowance
for Doubtful Accounts

Collection
of accounts receivable from customers is the Companys primary source of
operating cash flow and is critical to Omnicares operating performance and
financial condition.

67

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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 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 79
  days at June 30, 2006, which was higher than the December 31, 2005 DSO of approximately
  72 days largely due to the shift in payor mix from Medicaid to Medicare Part
  D. The allowance for doubtful accounts as of June 30, 2006 was $172.6 million
  compared with $169.4 million at December 31, 2005. These allowances represent
  10.8% and 11.8% of gross receivables (net of contractual allowances) as of June
  30, 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 (net of contractual
  allowances) as of June 30, 2006 would result in an increase to the allowance
  for doubtful accounts, as well as bad debt expense, of approximately $15.9 million
  pretax.

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

|                                                                             |  |                                     |           |                                |   |         |  |   |           | 
|---------------------------------------------------------------------------- |  | ----------------------------------- | --------- | ------------------------------ | - | ------- |  | - | --------- | 
|                                                                             |  | June 30, 2006                       |          
|                                                                             |  |                                     |          
|                                                                             |  | Current and
  0-180 Days
  Past Due |           | 181 Days
  and Over
  Past Due |   | Total   | 
|                                                                             |  |                                     |           |                                |   |         | 
|Medicaid, Medicare Part B,
  Medicare Part D and Third-Party payors          |  | $                                   | 564,304   |                                | $ | 13,722  |  | $ | 578,026   | 
|Facility payors                                                              |  |                                     | 548,543   |                                |   | 194,771 |  |   | 743,314   | 
|Private Pay payors                                                           |  |                                     | 166,883   |                                |   | 88,206  |  |   | 255,089   | 
|CRO                                                                          |  |                                     | 15,411    |                                |   | 848     |  |   | 16,259    | 
|                                                                             |  |                                     |           |                                |   |         |  |   |           | 
|Total gross accounts
  receivable (net of contractual allowance adjustments) |  | $                                   | 1,295,141 |                                | $ | 297,547 |  | $ | 1,592,688 | 
|                                                                             |  |                                     |           |                                |   |         |  |   |           | 

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

Legal
Contingencies

The
  status of certain legal proceedings has been updated at the Commitments
  and Contingencies and Subsequent Events 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 2005 earnings results was to decrease
  diluted earnings per share by $0.02 for the six months ended June 30, 2005 (primarily
  relating to the period from January 1, 2005 through the exchange offering completion
  date of March 8, 2005). For purposes of the “if-converted” calculation,
  3.3 million shares were assumed to be converted for the six months ended June
  30, 2005. Additionally, interest expense net of taxes, of $1.8 million for the
  six months ended June 30, 2005, was added back to net income for purposes of
  calculating diluted earnings per share using this method. There was no impact
  relating to this change on reported diluted earnings per share for the three
  months ended June 30, 2005 or the three and six months ended June 30, 2006.
  See further discussion of the trust PIERS exchange offering in the Disclosures
  About Aggregate Contractual Obligations and Off-Balance Sheet Arrangements
  section of this MD&A.

|                                      
|--------------------------------------
|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

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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 and six months ended June 30, 2006
includes additional equity-based compensation expense for stock options and
stock awards of approximately $2.2 million and $5.1 million pretax ($1.4
million and $3.2 million aftertax, or $.01 and $.03 per diluted share),
respectively, related to the adoption of SFAS 123R. As of June 30, 2006, there
was approximately $88 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 5.0 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 the six months ended June
30, 2006 actual experience and outstanding stock options and restricted stock
awards at June 30, 2006. To the extent that any new stock options or stock
awards are granted subsequent to June 30, 2006, the estimated dilutive impact
to Omnicares 2006 diluted earnings per share and thereafter would change
accordingly.

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

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

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

In
addition to historical information, this report contains certain statements
that constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These forward-looking statements
include, but are not limited to, all statements

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regarding the intent, belief or current expectations regarding
  the matters discussed or incorporated by reference in this document (including
  statements as to beliefs, expectations, anticipations,
  intentions or similar words) and all statements which are not statements
  of historical fact. Such forward-looking statements, together with other statements
  that are not historical, are based on managements current expectations
  and involve known and unknown risks, uncertainties, contingencies and other
  factors that could cause results, performance or achievements to differ materially
  from those stated. The most significant of these risks and uncertainties are
  described in the Companys Form 10-K, Form 10-Q and Form 8-K reports filed
  with the Securities and Exchange Commission and include, but are not limited
  to: overall economic, financial, political and business conditions; trends in
  the long-term healthcare, pharmaceutical and contract research industries; the
  ability to attract new clients and service contracts and retain existing clients
  and service contracts; the ability to consummate pending acquisitions; trends
  for the continued growth of the Companys businesses; trends in drug pricing;
  delays and reductions in reimbursement by the government and other payors to
  customers and to the Company; the overall financial condition of the Companys
  customers and the ability of the Company to assess and react to such financial
  condition of its customers; the ability of vendors and business partners to
  continue to provide products and services to the Company; the continued successful
  integration of acquired companies; the continued availability of suitable acquisition
  candidates; the ability to attract and retain needed management; competition
  for qualified staff in the healthcare industry; the demand for the Companys
  products and services; variations in costs or expenses; the ability to implement
  productivity, consolidation and cost reduction efforts and to realize anticipated
  benefits; the ability of clinical research projects to produce revenues in future
  periods; the potential impact of legislation, government regulations, and other
  government action and/or executive orders, including those relating to Medicare
  Part D, including its implementing regulations and any subregulatory guidance,
  reimbursement and drug pricing policies and changes in the interpretation and
  application of such policies; government budgetary pressures and shifting priorities;
  federal and state budget shortfalls; efforts by payors to control costs; changes
  to or termination of the Companys contracts with Medicare Part D plan
  sponsors; the outcome of litigation; potential liability for losses not covered
  by, or in excess of, insurance; the impact of differences in actuarial assumptions
  and estimates as compared to eventual outcomes; events or circumstances which
  result in an impairment of assets, including but not limited to, goodwill; market
  conditions; the outcome of audit, compliance, administrative or investigatory
  reviews; volatility in the market for the Companys stock and in the financial
  markets generally; access to adequate capital and financing; changes in international
  economic and political conditions and currency fluctuations between the U.S.
  dollar and other currencies; changes in tax laws and regulations; changes in
  accounting rules and standards. Should one or more of these risks or uncertainties
  materialize or should underlying assumptions prove incorrect, the Companys
  actual results, performance or achievements could differ materially from those
  expressed in, or implied by, such forward-looking statements. Readers are cautioned
  not to place undue reliance on these forward-looking statements, which speak
  only as of the date hereof. Except as otherwise required by law, the Company
  does not undertake any obligation to publicly release any revisions to these
  forward-looking statements to reflect events or circumstances after the date
  hereof or to reflect the occurrence of unanticipated events.

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ITEM 3. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Omnicares
primary market risk exposure relates to variable interest rate risk through its
borrowings. Accordingly, market risk loss is primarily defined as the potential
loss in earnings due to higher interest rates on variable-rate debt of the
Company. The modeling technique used by Omnicare for evaluating interest rate
risk exposure involves performing sensitivity analysis on the variable-rate
debt, assuming a change in interest rates of 100 basis-points. The Companys
debt obligations at June 30, 2006 include $700 million outstanding under the
variable-rate term A loan at an interest rate of 5.95% at June 30, 2006 (a 100
basis-point change in the interest rate would increase or decrease pretax
interest expense by approximately $7.0 million per year); $44.8 million
borrowed on a variable-rate term loan at an interest rate of 5.30% at June 30,
2006 (a 100 basis-point change in the interest rate would increase or decrease
pretax interest expense by approximately $0.4 million per year); $8.2 million
outstanding under its fixed-rate 8.125% Senior Notes, due 2011; $250 million
outstanding under its fixed-rate 6.125% Senior Notes, due 2013; $225 million
outstanding under its fixed-rate 6.75% Senior Notes, due 2013; $525 million
outstanding under its fixed-rate 6.875% Senior Notes, due 2015; $345 million
outstanding under its fixed-rate 4.00% Convertible Debentures, due 2033; and $977.5
million outstanding under its fixed-rate 3.25% Convertible Debentures, due 2035
(with an optional repurchase right of holders on December 15, 2015). In
connection with its offering of $250.0 million of 6.125% Senior Notes, during
the second quarter of 2003, the Company entered into a Swap Agreement on all
$250.0 million of its aggregate principal amount of the 6.125% Senior Notes. Under
the Swap Agreement, which hedges against exposure to long-term U.S. dollar
interest rates, the Company receives a fixed rate of 6.125% 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 7.86% at June
30, 2006 (a 100 basis-point change in the interest rate would increase or
decrease pretax interest expense by approximately $2.5 million per year). The
Swap Agreement, which matches the terms of the 6.125% Senior Notes, is
designated and accounted for as a fair value hedge. The Company is accounting
for the Swap Agreement in accordance with SFAS No. 133, as amended, so changes
in the fair value of the Swap Agreement are offset by changes in the recorded
carrying value of the related 6.125% Senior Notes. The fair value of the Swap
Agreement of approximately $28 million at June 30, 2006 is recorded as a
noncurrent liability and a reduction to the book carrying value of the related
6.125% Senior Notes. At June 30, 2006, the fair value of Omnicares variable
rate debt facilities approximates the carrying value, as the effective interest
rates fluctuate with changes in market rates.

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

|                                                             |  |                 |         |                     |   |            |  |              |         |  |   |         | 
|------------------------------------------------------------ |  | --------------- | ------- | ------------------- | - | ---------- |  | ------------ | ------- |  | - | ------- | 
|Fair Value of Financial Instruments                          | 
|                                                             | 
|                                                             |  | June 30,
  2006 |         | December 31,
  2005 |  
|                                                             |  |                 |         |                     |  
|Financial
  Instrument:                                      |  | Book Value      |         | Market Value        |   | Book Value |  | Market Value |        
|                                                             |  |                 |         |                     |   |            |  |              |        
|                                                            
|8.125% senior subordinated
  notes, due 2011                 |  | $               | 8,225   |                     | $ | 8,400      |  | $            | 8,775   |  | $ | 9,200   | 
|6.125% senior subordinated
  notes, due 2013                 |  |                 | 250,000 |                     |   | 231,900    |  |              | 250,000 |  |   | 245,600 | 
|6.75% senior subordinated
  notes, due 2013                  |  |                 | 225,000 |                     |   | 214,300    |  |              | 225,000 |  |   | 230,900 | 
|6.875% senior subordinated
  notes, due 2015                 |  |                 | 525,000 |                     |   | 507,300    |  |              | 525,000 |  |   | 538,100 | 
|4.00% junior subordinated
  convertible debentures, due 2033 |  |                 | 345,000 |                     |   | 435,400    |  |              | 345,000 |  |   | 512,800 | 
|3.25% convertible senior
  debentures, due 2035              |  |                 | 977,500 |                     |   | 896,900    |  |              | 977,500 |  |   | 972,000 | 

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

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

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

ITEM 4. CONTROLS AND
PROCEDURES

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

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end of the period covered by this Quarterly Report on
Form 10-Q and concluded that they are effective.

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

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PART II  OTHER
INFORMATION

ITEM 1. LEGAL
PROCEEDINGS

On
  May 18, 2006, an antitrust and fraud action entitled Omnicare, Inc. v. UnitedHealth
  Group, Inc., et al., 2:06-cv-00103-WOB, was filed by the Company in the United
  States District Court for the Eastern District of Kentucky against UnitedHealth
  Group, Inc., PacifiCare Health Systems, Inc., and RxSolutions, Inc. d/b/a Prescription
  Solutions, asserting claims of violations of federal and state antitrust laws,
  civil conspiracy and common law fraud arising out of an alleged conspiracy by
  defendants to illegally and fraudulently coordinate their negotiations with
  the Company for Medicare Part D contracts as part of an effort to defraud the
  Company and fix prices. The complaint seeks, among other things, damages, injunctive
  relief and reformation of certain contracts. On June 5, 2006, the Company filed
  a first supplemental and amended complaint in which it asserted the identical
  claims. On July 10, 2006, the defendants moved to transfer the case to the Northern
  District of Illinois or in the alternative to dismiss the Companys antitrust
  claims because, among other grounds, defendants assert that the Company
  lacks standing to pursue antitrust claims and that defendants were legally unable
  to conspire during the pendency of defendants merger. The Companys
  opposition to the motion is due to be filed with the court on August 11, 2006.

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

As
  disclosed in the Companys 2005 Annual Report on Form 10-K, the federal
  government and certain states are investigating allegations relating to three
  generic pharmaceuticals provided by the Company in connection with the substitution
  of capsules for tablets (Ranitidine), tablets for capsules (Fluoxetine) and
  two 7.5 mg tablets for one 15 mg tablet (Buspirone). The Company is cooperating
  fully in these matters. The Company has recorded a special litigation charge
  of $19.3 million and $53.4 million pretax ($18.6 million and $42.6 million aftertax)
  in its financial results for the three and six months ended June 30, 2006, respectively,
  to establish a settlement reserve relating to the aforementioned inquiries by
  the federal government and certain states relating to three generic pharmaceuticals
  provided by the Company, based on discussions between these government representatives,
  the Company and its legal counsel. This special litigation charge represents
  the Companys current best estimate of the settlement amounts and associated
  costs under SFAS No. 5, Accounting for Contingencies.

On
  July 11, 2006, the Attorney Generals Office in Michigan provided the Companys
  legal counsel with information concerning an investigation that it was conducting
  relating to certain billing issues under the Michigan Medicaid program. The
  Company has since responded to various requests for documents and is cooperating
  fully in this matter. The Company has recorded a special litigation charge of
  $54.0 million pretax ($46.7 million aftertax) in its financial results for the
  three and six months ended June 30, 2006 to establish a reserve relating to
  this matter based on discussions between the Attorney General’s Office,
  the Company and its legal counsel. See further discussion at the Subsequent
  Events caption below.

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

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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. On May 22, 2006, that motion was granted, the
cases were consolidated, and a lead plaintiff and lead counsel were appointed. On
July 20, 2006, plaintiffs filed a consolidated amended complaint, adding new
factual allegations and a third officer as a defendant, but adding no new
claims. The new allegations primarily relate to revenue recognition, the
valuation of receivables and the valuation of inventories. The Company and the
three officers will file a response to the amended complaint in accordance with
the courts scheduling order.

On
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. The motion
to stay was argued to the court on July 27, 2006, and the parties are awaiting
a decision on the motion.

On
March 23, 2006, a shareholder derivative action entitled Irwin v. Gemunder, et al., 2:06cv62, was filed in
the United States District Court For the Eastern District of Kentucky against
the members of Omnicares board of directors, individually, purporting to
assert claims for breach of fiduciary duty, abuse of control, gross
mismanagement, waste of corporate assets and unjust enrichment arising out of
the Companys alleged violations of federal and state health care laws based
upon the purported improper substitution of generic drugs. The complaint seeks,
among other things, damages, restitution and injunctive relief. On May 26,
2006, the Companys board of directors moved to dismiss the complaint for
failure to make a pre-suit demand, among other grounds. On the day plaintiffs
opposition to the motion to dismiss was due, plaintiff filed an amended
complaint. The amended complaint added no new causes of action, but did add a
third officer as a defendant. The Companys board of directors intends to file
a motion to dismiss the amended complaint.

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

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have a material adverse impact on the Companys
consolidated financial position, results of operations or cash flows or, in the
case of the investigations regarding certain drug substitutions and certain
billing issues under the Michigan Medicaid program, that these matters will be
resolved in an amount that would not exceed the amount of the pretax charges
recorded by the Company.

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 EventOn
  August 9, 2006, the Company announced that it has recorded a special litigation
  charge of $54.0 million pretax, including $10.3 million and $43.7 million recorded
  in the net sales and litigation charges lines of the Consolidated Statements
  of Income, respectively ($46.7 million aftertax), in its financial results for
  the three and six months ended June 30, 2006. The special litigation charge
  related to the establishment of a reserve relating to an inquiry being conducted
  by the Attorney Generals Office in Michigan relating to certain billing
  issues under the Michigan Medicaid program, based on recent discussions between
  the Attorney Generals Office, the Company and its legal counsel. This
  special litigation charge represents the Companys current best estimate
  of the settlement amounts and associated costs under SFAS No. 5, Accounting
  for Contingencies. The Company cannot predict the ultimate outcome of
  this matter. See further discussion at the Subsequent Events and
  Commitments and Contingencies notes 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 were directly reimbursed
by government sponsored programs (including Medicaid and, to a lesser extent,
Medicare). Beginning January 1, 2006, the new prescription drug benefit under
Medicare Part D became effective. As a result, we experienced a shift in payor
mix during the quarter ended June 30, 2006 such that payments under Part D
currently represent about 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

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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).

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. On July 27, 2006, CMS posted
the proposed SNF PPS rates for fiscal year 2007. Under the proposal, SNFs would
receive the full 3.1 percent market basket increase effective October 1, 2006,
increasing payments to SNFs by approximately $560 million. While the fiscal
year 2007 proposed SNF PPS rates would 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

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fiscal year 2007 (which now appears to have been
rejected), 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 ended May 15, 2006.

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

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

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

CMS
  has issued subregulatory guidance on many aspects of the final Part D rule,
  including the provision of pharmaceutical services to long-term care residents.
  CMS has also expressed some concerns about pharmacies receipt of discounts,
  rebates and other price concessions from drug manufacturers. Specifically, in
  a finalized Call Letter for the 2007 calendar year, CMS indicated
  that 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 Part D 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. 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

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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 proposed 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

81

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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.

82

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

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

|                   |  |                                              |   |                                                      |   |       |  |                                                                                                                          |   |                                                                                                                                                      |  |   | 
|------------------ |  | -------------------------------------------- | - | ---------------------------------------------------- | - | ----- |  | ------------------------------------------------------------------------------------------------------------------------ | - | ---------------------------------------------------------------------------------------------------------------------------------------------------- |  | - | 
|                   |  |                                              |   |                                                      |   |       |  | Total
        Number of
        Shares Purchased as
        Part of Publicly
        Announced Plans or
        Programs |   | Maximum
        Number (or
        pproximate Dollar Value)
        of Shares that Must Yet
        Be Purchased Under the
        Plans or Programs | 
|                   |  |                                              |   |                                                      |   |       |  |                                                                                                                          |  
|                   |  | Total
        Number
of Shares
Purchased (a) |   | Average
        Price
        Paid per
        Share |   |       | 
|                   |  |                                              |   |                                                      |  
|Period             |  |                                              |   |                                                      |  
|                   |  |                                              |   |                                                      |   |       |  |                                                                                                                          |  
|April 1 - 30, 2006 |  |                                              |  |                                                      |   |      |  |                                                                                                                          |  |                                                                                                                                                      |  |  | 
|May 1 - 31, 2006   |  |                                              | 7 |                                                      | $ | 52.51 |  |                                                                                                                          |  |                                                                                                                                                      |  |  | 
|June 1 - 30, 2006  |  |                                              | 1 |                                                      | $ | 45.38 |  |                                                                                                                          |  |                                                                                                                                                      |  |  | 
|                   |  |                                              |   |                                                      |   |       |  |                                                                                                                          |   |                                                                                                                                                      |  |   | 
|Total              |  |                                              | 8 |                                                      | $ | 52.07 |  |                                                                                                                          |  |                                                                                                                                                      |  |  | 
|                   |  |                                              |   |                                                      |   |       |  |                                                                                                                          |   |                                                                                                                                                      |  |   | 

(a) During the second quarter of 2006, the Company purchased
  8 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

|    |                                                                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Omnicare
  held its Annual Meeting of Stockholders on May 16, 2006.                                                                                             
|    |                                                                                                                                                                 
|(b) | The names of
  each director elected at this Annual Meeting, as well as the corresponding
  number of shares voted for, and withheld from, each nominee follows:

| |                               |  |             |  |               
| | ----------------------------- |  | ----------- |  | --------------
| |                               |  | Votes For   |  | Votes Withheld
| |                               |  |             |  |               
| |                               |  |             |  |               
| | Edward L.
  Hutton            |  | 110,400,163 |  | 2,268,558     
| | Joel F.
  Gemunder            |  | 109,682,716 |  | 2,986,005     
| | John T. Crotty                |  | 107,394,461 |  | 5,274,260     
| | Charles H.
  Erhart, Jr.      |  | 105,903,681 |  | 6,765,040     
| | Sandra E.
  Laney             |  | 102,306,154 |  | 10,362,367    
| | Andrea R.
  Lindell, DNSc, RN |  | 104,958,061 |  | 7,710,660     
| | John H.
  Timoney             |  | 112,249,395 |  | 419,326       
| | Amy Wallman                   |  | 112,259,348 |  | 409,373       

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(c) | The Stockholders approved the Companys
        Annual Incentive Plan for Senior Executive Officers. A total of 108,650,786
        votes were cast in favor of the proposal; 3,038,507 votes were cast against
        it; 979,428 votes abstained; and there were no Broker non-votes.                                                                                                                                                             
|   
|(d) | The Stockholders ratified the appointment
        by the Audit Committee of the Board of Directors of PricewaterhouseCoopers
        LLP as independent registered public accountants for the Company and its
        consolidated subsidiaries for the 2006 year. A total of 110,987,665 votes
        were cast in favor of the proposal; 1,657,704 votes were cast against
        it; 23,352 votes abstained; and there were no Broker non-votes.

ITEM 6. EXHIBITS

See
Index of Exhibits.

83

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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: August
  9, 2006 | By: | /s/ David
  W. Froesel, Jr.                    
|                       |     |                                                 | 
|                       |     | David W. Froesel, Jr.                          
|                       |     | Senior Vice President and                      
|                       |     | Chief Financial Officer                        
|                       |     | (Principal Financial and
   Accounting Officer)

84

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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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