Significant Accounting Policies

Interim Financial Data

The interim financial data is unaudited; however, in the opinion of Omnicare management, all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the Omnicare consolidated results of operations, financial position and cash flows for the interim periods presented have been made. All significant intercompany accounts and transactions have been eliminated.

Executive Officers

On September 11, 2012 the Company's Board of Directors ("BOD") appointed John L. Workman as the Chief Executive Officer of the Company. Mr. Workman was also appointed to serve on the BOD as of such date. The Company also announced that its BOD appointed Nitin Sahney, its Chief Operating Officer, to the additional position of President, and appointed Robert O. Kraft, its Senior Vice President of Finance, to the position of Chief Financial Officer, in each case effective September 11, 2012.

Stock-Based Compensation

Stock-based compensation expense recognized in the Consolidated Statements of Comprehensive Income for stock options, restricted stock units, performance share units and stock awards totaled approximately $4.1 million and $13.0 million for the three and nine months ended September 30, 2012, respectively, and approximately $5.3 million and $15.7 million for the three and nine months ended September 30, 2011, respectively.

Accounts Receivable

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



September 30, 2012	Current and 0-180 Days Past Due		181 Days and Over Past Due		Total
Medicare (Part D and Part B), Medicaid and Third-Party payors	$	248,195	$	191,329	$	439,524
Facility payors	386,445		185,285		571,730
Private Pay payors	70,534		117,785		188,319
Total gross accounts receivable	$	705,174	$	494,399	$	1,199,573
December 31, 2011
Medicare (Part D and Part B), Medicaid and Third-Party payors	$	257,782	$	199,303	$	457,085
Facility payors	387,509		204,419		591,928
Private Pay payors	85,934		155,080		241,014
Total gross accounts receivable	$	731,225	$	558,802	$	1,290,027

Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) by component and in the aggregate, follow (in thousands):



	September 30, 2012			December 31, 2011
Cumulative foreign currency translation adjustments	$	9,722		$	8,338
Translation adjustment recorded in disposition of businesses	(9,722		)	—
Unrealized loss on fair value of investments	(276		)	(277		)
Pension and postemployment benefits	(1,752		)	(1,029		)
Total accumulated other comprehensive income, net	$	(2,028	)	$	7,032

The amounts are net of applicable tax benefits which were not material at September 30, 2012 and December 31, 2011.

Fair Value

The Company’s financial assets and liabilities, measured at fair value on a recurring basis, were as follows (in thousands):



			Based on
	Fair Value		Quoted Prices in Active Markets (Level 1)		Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
September 30, 2012
Bond portfolio ⁽¹⁾	$	24,865	$	—	$	24,865	$	—
7.75% interest rate swap agreements - fair value hedge ⁽²⁾	49,428		—		49,428		—
Derivatives	—		—		—		—
Total	$	74,293	$	—	$	74,293	$	—
December 31, 2011
7.75% interest rate swap agreements - fair value hedge ⁽²⁾	$	35,473	$	—	$	35,473	$	—
Derivatives	—		—		—		—
Total	$	35,473	$	—	$	35,473	$	—


(1)	The bond portfolio is presented in "Other current assets" and represent investments in a portfolio of high quality corporate bonds and U.S. treasury bonds which is managed by a third party. The fair value is based on quoted market prices of the individual bonds that make up the portfolio.


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

The fair value of the Company’s fixed-rate debt facilities are shown at the Debt note of the Notes to Consolidated Financial Statements.

Income Taxes

The quarterly effective tax rates are different than the federal statutory rate largely as a result of the impact of state and local income taxes and certain non-deductible charges. The year over year change in the effective tax rate is primarily due to certain non-deductible charges relating to the disposition of businesses in the third quarter of 2012.

Dividends

On September 11, 2012, the Company's BOD authorized a quarterly cash dividend of $0.14 per share on the Company's common stock, a 100% increase over the previous quarterly dividend rate of $0.07 per share.

Other charges (credits)

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



	Three months ended September 30,					Nine months ended September 30,
	2012			2011		2012			2011
Acquisition and other related costs (credits)	$	(3,830	)	$	6,718	$	396		$	10,939
Restructuring charges	11,046			—		11,046			—
Disposition of businesses	(7,680		)	—		(1,777		)	—
Separation costs	5,500			—		21,000			—
Debt related costs	—			—		35,092			—
Total - other charges	$	5,036		$	6,718	$	65,757		$	10,939

The Company completed one acquisition in the three and nine months ended September 30, 2012 which was not significant to the Company. The Company recorded professional fees and acquisition related restructuring costs which were more than offset by a reduction of the Company's original estimate of contingent consideration payable for a prior acquisition during the three and nine months ended September 30, 2012.

In the three months ended March 31, 2012, the Company recorded a goodwill impairment of $5.9 million related to the planned disposition of the Canadian Pharmacy that was not necessary, as the Company inaccurately excluded the cumulative translation amount from the impairment calculation. The goodwill impairment previously reported has been netted against the disposition of businesses in the table above during the nine months ended September 30, 2012 as the Canadian Pharmacy was sold during the third quarter. The amount did not have a material effect on the results of operations in the three months ended March 31, 2012 or September 30, 2012.

Separation Costs

During the three months ended September 30, 2012, the Company recorded a $5.5 million charge in connection with the separation of certain executives of the Company. For the nine months ended September 30, 2012, the Company has recorded aggregate charges of approximately $21 million resulting from the aforementioned actions in the third quarter, the resignation of the Company's former Chief Executive Officer on June 10, 2012 and the separation of other executives prior to the third quarter. These charges are reflected in the "Other charges" caption of the Consolidated Statements of Comprehensive Income.

Disposition of Businesses

In the quarter ended September 30, 2012 the Company completed the disposition of its Canadian pharmacy and the Company's pharmacy operational software business, which were not considered, individually or in the aggregate, significant to the operations of Omnicare. The Company recorded a gain on the disposition of these businesses of $7.7 million and $1.8 million in the three and nine months ended September 30, 2012, respectively. These charges are reflected in the "Other charges" caption of the Consolidated Statements of Comprehensive Income.

Common Stock Repurchase Program

On September 11, 2012, the Company's BOD authorized an additional $350 million in share repurchases, through December 31, 2014. In the nine months ended September 30, 2012, the Company repurchased approximately 3.4 million shares through authorized share repurchase programs at an aggregate cost of approximately $111 million, for a cumulative amount of approximately 12.6 million shares repurchased at an aggregate cost of approximately $352 million through September 30, 2012. The Company had approximately $498 million of combined share repurchase authority remaining as of September 30, 2012, of which $148 million expires on February 28, 2014 and the balance expires on December 31, 2014.

Recently Issued Accounting Standards

In July 2012, the Financial Accounting Standards Board ("FASB") amended the authoritative guidance regarding the impairment testing for indefinite-lived intangible assets. Under the amendments, an entity has the option first to assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset is impaired. If, after assessing the totality of events and circumstances, an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. This amended guidance will not have any material impact on the Company's consolidated results of operations, financial position and cash flows.