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

(Mark One)

X	Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended June 30, 2012	
 
 	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934	

Commission File Number: 1-8351

CHEMED CORPORATION
(Exact name of registrant as specified in its charter)

Delaware	31-0791746	
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)	
 
255 E. Fifth Street, Suite 2600, Cincinnati, Ohio	45202	
(Address of principal executive offices)	(Zip code)	
 
(513) 762-6500
(Registrant’s telephone number, including area code)	

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 periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 	Yes	X	 	No	 	 	

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 	Yes	X	 	No	 	 	

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
 	Large accelerated filer	X	 	Accelerated filer	 	 	Non-accelerated filer	 	 	Smaller reporting company	 	

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

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Class	Amount	Date	
 	 	 	
Capital Stock $1 Par Value	19,099,057 Shares	June 30, 2012	

 

 
-1-

 
 
CHEMED CORPORATION AND
SUBSIDIARY COMPANIES

 
Index

 	 	 	 	 	Page No.	
 	
PART I.     FINANCIAL INFORMATION:	 	
 	Item 1.	Financial Statements	 	
 	 	 	Unaudited Consolidated Balance Sheet -	 	
 	 	 	 	June 30, 2012 and December 31, 2011	3	
 	
 	 	 	Unaudited Consolidated Statement of Income -	 	
 	 	 	 	Three and six months ended June 30, 2012 and 2011	4	
 	
 	 	 	Unaudited Consolidated Statement of Cash Flows -	 	
 	 	 	 	Six months ended June 30, 2012 and 2011	5	
 	
 	 	 	Notes to Unaudited Consolidated Financial Statements	6	
 	
 	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	17	
 	
 	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	31	
 	
 	Item 4.	Controls and Procedures	31	
 	 	 	 	 	 	
PART II.     OTHER INFORMATION	 	
 	Item 1.	Legal Proceedings	31	
 	
 	Item 1A.	Risk Factors	31	
 	
 	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32	
 	
 	Item 3.	Defaults Upon Senior Securities	32	
 	
 	Item 4.	Mine Safety Disclosures	32	
 	
 	Item 5.	Other Information	32	
 	
 	Item 6.	Exhibits	32	
 	 	 	 	EX - 31.1	 	
 	 	 	 	EX - 31.2	 	
 	 	 	 	EX - 31.3	 	
 	 	 	 	EX - 32.1	 	
 	 	 	 	EX - 32.2	 	
 	 	 	 	EX - 32.3	 	
 	 	 	 	EX - 101.INS	 	
 	 	 	 	EX - 101.SCH	 	
 	 	 	 	EX - 101.CAL	 	
 	 	 	 	EX - 101.DEF	 	
 	 	 	 	EX - 101.LAB	 	
 	 	 	 	EX - 101.PRE	 	

-2-

 

PART I. FINANCIAL INFORMATION	 	
Item 1. Financial Statements	 	
CHEMED CORPORATION AND SUBSIDIARY COMPANIES	 	
UNAUDITED CONSOLIDATED BALANCE SHEET	 	
(in thousands, except share and per share data)	 	

 	 	June 30,	 	 	December 31,	 	
 	 	2012	 	 	2011	 	
ASSETS	 	 	 	 	 	 	
Current assets	 	 	 	 	 	 	
Cash and cash equivalents	 	$	59,966	 	 	$	38,081	 	
Accounts receivable less allowances of $11,414 (2011 - $11,524)	 	 	81,811	 	 	 	77,924	 	
Inventories - net	 	 	8,146	 	 	 	8,668	 	
Current deferred income taxes	 	 	13,226	 	 	 	12,540	 	
Prepaid income taxes	 	 	4,187	 	 	 	2,131	 	
Prepaid expenses	 	 	10,737	 	 	 	11,409	 	
Total current assets	 	 	178,073	 	 	 	150,753	 	
Investments of deferred compensation plans	 	 	33,215	 	 	 	31,629	 	
Properties and equipment, at cost, less accumulated depreciation of $155,406 (2011 - $146,709)	 	 	88,571	 	 	 	82,951	 	
Identifiable intangible assets less accumulated amortization of $29,654 (2011 - $28,904)	 	 	57,635	 	 	 	58,262	 	
Goodwill	 	 	461,965	 	 	 	460,633	 	
Other assets	 	 	11,669	 	 	 	11,677	 	
Total Assets	 	$	831,128	 	 	$	795,905	 	
 	 	 	 	 	 	 	 	 	
LIABILITIES	 	 	 	 	 	 	 	 	
Current liabilities	 	 	 	 	 	 	 	 	
Accounts payable	 	$	51,002	 	 	$	48,225	 	
Income taxes	 	 	167	 	 	 	90	 	
Accrued insurance	 	 	36,786	 	 	 	37,147	 	
Accrued compensation	 	 	39,729	 	 	 	41,087	 	
Other current liabilities	 	 	14,906	 	 	 	18,851	 	
Total current liabilities	 	 	142,590	 	 	 	145,400	 	
Deferred income taxes	 	 	25,257	 	 	 	29,463	 	
Long-term debt	 	 	170,769	 	 	 	166,784	 	
Deferred compensation liabilities	 	 	33,149	 	 	 	30,693	 	
Other liabilities	 	 	11,918	 	 	 	9,881	 	
Total Liabilities	 	 	383,683	 	 	 	382,221	 	
 	 	 	 	 	 	 	 	 	
STOCKHOLDERS' EQUITY	 	 	 	 	 	 	 	 	
Capital stock - authorized 80,000,000 shares $1 par; issued 31,142,442 shares (2011 - 30,936,925 shares)	 	 	31,142	 	 	 	30,937	 	
Paid-in capital	 	 	410,957	 	 	 	398,094	 	
Retained earnings	 	 	582,316	 	 	 	546,757	 	
Treasury stock - 12,141,664 shares (2011 - 11,880,051)	 	 	(579,013	)	 	 	(564,091	)	
Deferred compensation payable in Company stock	 	 	2,043	 	 	 	1,987	 	
Total Stockholders' Equity	 	 	447,445	 	 	 	413,684	 	
Total Liabilities and Stockholders' Equity	 	$	831,128	 	 	$	795,905	 	

See accompanying notes to unaudited consolidated financial statements.	 	

-3-

 

CHEMED CORPORATION AND SUBSIDIARY COMPANIES	 	
UNAUDITED CONSOLIDATED STATEMENT OF INCOME	 	
(in thousands, except per share data)	 	

 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three Months Ended June 30,	 	 	Six Months Ended June 30,	 	
 	 	2012	 	 	2011	 	 	2012	 	 	2011	 	
Service revenues and sales	 	$	354,170	 	 	$	333,360	 	 	$	707,113	 	 	$	664,278	 	
Cost of services provided and goods sold (excluding depreciation)	 	 	257,368	 	 	 	239,597	 	 	 	514,813	 	 	 	477,055	 	
Selling, general and administrative expenses	 	 	49,770	 	 	 	50,424	 	 	 	102,937	 	 	 	106,078	 	
Depreciation	 	 	6,380	 	 	 	6,358	 	 	 	12,621	 	 	 	12,646	 	
Amortization	 	 	1,127	 	 	 	1,139	 	 	 	2,240	 	 	 	2,109	 	
Total costs and expenses	 	 	314,645	 	 	 	297,518	 	 	 	632,611	 	 	 	597,888	 	
Income from operations	 	 	39,525	 	 	 	35,842	 	 	 	74,502	 	 	 	66,390	 	
Interest expense	 	 	(3,672	)	 	 	(3,461	)	 	 	(7,289	)	 	 	(6,705	)	
Other income/(expense) - net	 	 	(970	)	 	 	714	 	 	 	1,125	 	 	 	2,816	 	
Income before income taxes	 	 	34,883	 	 	 	33,095	 	 	 	68,338	 	 	 	62,501	 	
Income taxes	 	 	(13,609	)	 	 	(12,809	)	 	 	(26,619	)	 	 	(24,114	)	
Net income	 	$	21,274	 	 	$	20,286	 	 	$	41,719	 	 	$	38,387	 	

Earnings Per Share	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	$	1.12	 	 	$	0.96	 	 	$	2.20	 	 	$	1.82	 	
Average number of shares outstanding	 	 	18,998	 	 	 	21,115	 	 	 	18,976	 	 	 	21,067	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Diluted Earnings Per Share	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	$	1.10	 	 	$	0.94	 	 	$	2.16	 	 	$	1.78	 	
Average number of shares outstanding	 	 	19,369	 	 	 	21,637	 	 	 	19,357	 	 	 	21,586	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash Dividends Per Share	 	$	0.16	 	 	$	0.14	 	 	$	0.32	 	 	$	0.28	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
See accompanying notes to unaudited consolidated financial statements.	 	

-4-

 

CHEMED CORPORATION AND SUBSIDIARY COMPANIES	 	
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS	 	
(in thousands)	 	
 	 	 	 	 	 	 	
 	 	Six Months Ended	 	
 	 	June 30,	 	
 	 	2012	 	 	2011	 	
Cash Flows from Operating Activities	 	 	 	 	 	 	
Net income	 	$	41,719	 	 	$	38,387	 	
Adjustments to reconcile net income to net cash provided	 	 	 	 	 	 	 	 	
by operating activities:	 	 	 	 	 	 	 	 	
Depreciation and amortization	 	 	14,861	 	 	 	14,755	 	
Deferred income taxes	 	 	(4,895	)	 	 	(18	)	
Provision for uncollectible accounts receivable	 	 	4,730	 	 	 	4,365	 	
Amortization of discount on convertible notes	 	 	3,985	 	 	 	3,724	 	
Stock option expense	 	 	4,312	 	 	 	4,495	 	
Noncash long-term incentive compensation	 	 	-	 	 	 	2,595	 	
Changes in operating assets and liabilities, excluding	 	 	 	 	 	 	 	 	
amounts acquired in business combinations:	 	 	 	 	 	 	 	 	
Increase in accounts receivable	 	 	(8,543	)	 	 	(9,271	)	
Decrease/(increase) in inventories	 	 	522	 	 	 	(954	)	
Decrease/(increase) in prepaid expenses	 	 	672	 	 	 	(59	)	
Decrease in accounts payable and other current liabilities	 	 	(3,593	)	 	 	(6,603	)	
Increase/(decrease) in income taxes	 	 	(1,029	)	 	 	3,738	 	
Increase in other assets	 	 	(2,283	)	 	 	(5,652	)	
Increase in other liabilities	 	 	4,493	 	 	 	4,514	 	
Excess tax benefit on share-based compensation	 	 	(1,069	)	 	 	(3,339	)	
Other sources	 	 	773	 	 	 	450	 	
Net cash provided by operating activities	 	 	54,655	 	 	 	51,127	 	
Cash Flows from Investing Activities	 	 	 	 	 	 	 	 	
Capital expenditures	 	 	(18,474	)	 	 	(14,960	)	
Business combinations, net of cash acquired	 	 	(1,500	)	 	 	(3,689	)	
Other sources/(uses)	 	 	357	 	 	 	(869	)	
Net cash used by investing activities	 	 	(19,617	)	 	 	(19,518	)	
Cash Flows from Financing Activities	 	 	 	 	 	 	 	 	
Dividends paid	 	 	(6,160	)	 	 	(5,967	)	
Purchases of treasury stock	 	 	(12,841	)	 	 	(25,482	)	
Proceeds from issuance of capital stock	 	 	3,670	 	 	 	7,698	 	
Excess tax benefit on share-based compensation	 	 	1,069	 	 	 	3,339	 	
Increase/(decrease) in cash overdrafts payable	 	 	985	 	 	 	(7,814	)	
Debt issuance costs	 	 	-	 	 	 	(2,723	)	
Other sources	 	 	124	 	 	 	364	 	
Net cash used by financing activities	 	 	(13,153	)	 	 	(30,585	)	
Increase in Cash and Cash Equivalents	 	 	21,885	 	 	 	1,024	 	
Cash and cash equivalents at beginning of year	 	 	38,081	 	 	 	49,917	 	
Cash and cash equivalents at end of period	 	$	59,966	 	 	$	50,941	 	
 	 	 	 	 	 	 	 	 	
See accompanying notes to unaudited consolidated financial statements.	 	

-5-

 

CHEMED CORPORATION AND SUBSIDIARY COMPANIES
Notes to Unaudited Consolidated Financial Statements

1.  Basis of Presentation
As used herein, the terms "We," "Company" and "Chemed" refer to Chemed Corporation or Chemed Corporation and its consolidated subsidiaries.

We have prepared the accompanying unaudited consolidated financial statements of Chemed in accordance with Rule 10-01 of SEC Regulation S-X.  Consequently, we have omitted certain disclosures required under generally accepted accounting principles in the United States (“GAAP”) for complete financial statements. The December 31, 2011 balance sheet data were derived from audited financial statements but do not include all disclosures required by GAAP.  However, in our opinion, the financial statements presented herein contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly our financial position, results of operations and cash flows.  These financial statements are prepared on the same basis as and should be read in conjunction with the Consolidated Financial Statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2011.

2.  Revenue Recognition
Both the VITAS segment and the Roto-Rooter segment recognize service revenues and sales when the earnings process has been completed.  Generally, this occurs when services are provided or products are delivered.  VITAS recognizes revenue at the estimated realizable amount due from third-party payers.  Medicare payments are subject to certain limitations, as described below.
 
As of June 30, 2012, VITAS has approximately $510,000 in unbilled revenue included in accounts receivable (December 31, 2011 - $720,000).  The unbilled revenue at VITAS relates to hospice programs currently undergoing focused medical reviews (“FMR”).  During FMR, surveyors working on behalf of the U.S. Federal government review certain patient files for compliance with Medicare regulations.  During the time the patient file is under review, we are unable to bill for care provided to those patients.  We make appropriate provisions to reduce our revenue and accounts receivable balance for potential denials of patient service revenue due to FMR activity.

We actively monitor each of our hospice programs, by provider number, as to their specific admission, discharge rate and median length of stay data in an attempt to determine whether they are likely to exceed the annual per-beneficiary Medicare cap (“Medicare cap”).  Should we determine that revenues for a program are likely to exceed the Medicare cap based on projected trends, we attempt to institute corrective action to influence the patient mix or to increase patient admissions.  However, should we project our corrective action will not prevent that program from exceeding its Medicare cap, we estimate the amount of revenue recognized during the period that will require repayment to the Federal government under the Medicare cap and record the amount as a reduction to patient revenue.  The Medicare cap measurement period is from September 29 through September 28 of the following year for admissions and from November 1 through October 31 of the following year for revenue.

During the three-month period ended June 30, 2012, we did not record any Medicare cap liability.  During the six-month period ended June 30, 2012, we reversed Medicare cap liability for amounts recorded in the fourth quarter of 2011 for three programs’ projected 2012 measurement period liability.  We reversed these amounts as improving admissions trends in these programs indicate that the liability had been eliminated.

Shown below is the Medicare cap liability activity for the periods ended (in thousands):

 	June 30,	 	
 	2012	 	2011	 	
Beginning balance January 1,	 	$	2,965	 	 	$	1,371	 	
Reversal - 2012 measurement period	 	 	(2,577	)	 	 	-	 	
Expense - 2011 measurement period	 	 	-	 	 	 	299	 	
Reversal -  2011 measurement period	 	 	-	 	 	 	(743	)	
Other	 	 	-	 	 	 	(198	)	
Ending balance June 30,	 	$	388	 	 	$	729	 	

-6-

 

Vitas provides charity care, in certain circumstances, to patients without charge when management of the hospice program determines, at the time services are performed, that the patient does not have the financial wherewithal to make payment. There is no revenue or associated accounts receivable in the accompanying consolidated financial statements related to charity care. The cost of charity care is calculated by taking the ratio of charity care days to total days of care and multiplying by total cost of care. The cost of charity care is as follows (in thousands):

Three months ended	 	Six months ended	
June 30,	 	June 30,	
2012	 	 	2011	 	2012	 	2011	
 	$	1,789	 	 	$	1,763	 	 	$	4,038	 	 	$	3,522	

3.      Segments
Service revenues and sales and after-tax earnings by business segment are as follows (in thousands):

 	 	Three months ended	 	 	Six months ended	 	
 	 	June 30,	 	 	June 30,	 	
 	 	2012	 	 	2011	 	 	2012	 	 	2011	 	
Service Revenues and Sales	 	 	 	 	 	 	 	 	 	 	 	 	
VITAS	 	$	265,213	 	 	$	243,095	 	 	$	526,060	 	 	$	478,768	 	
Roto-Rooter	 	 	88,957	 	 	 	90,265	 	 	 	181,053	 	 	 	185,510	 	
Total	 	$	354,170	 	 	$	333,360	 	 	$	707,113	 	 	$	664,278	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
After-tax Earnings	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
VITAS	 	$	20,433	 	 	$	18,589	 	 	$	40,060	 	 	$	36,714	 	
Roto-Rooter	 	 	8,074	 	 	 	9,092	 	 	 	15,569	 	 	 	17,602	 	
Total	 	 	28,507	 	 	 	27,681	 	 	 	55,629	 	 	 	54,316	 	
Corporate	 	 	(7,233	)	 	 	(7,395	)	 	 	(13,910	)	 	 	(15,929	)	
Net income	 	$	21,274	 	 	$	20,286	 	 	$	41,719	 	 	$	38,387	 	

We report corporate administrative expenses and unallocated investing and financing income and expense not directly related to either segment as “Corporate”.

4.      Earnings per Share
Earnings per share (“EPS”) are computed using the weighted average number of shares of capital stock outstanding.  Earnings and diluted earnings per share are computed as follows (in thousands, except per share data):

 	 	 	 	Net Income	 	
For the Three Months Ended June 30,	 	Income	 	 	Shares	 	 	Earnings per
Share	 	
2012	 	 	 	 	 	 	 	 	 	 	 	 	
 	Earnings	 	$	 21,274	 	 	 18,998	 	 	$	 1.12	 	
 	Dilutive stock options	 	 	 -	 	 	 288	 	 	 	 	 	
 	Nonvested stock awards	 	 	 -	 	 	 83	 	 	 	 	 	
 	Diluted earnings	 	$	 21,274	 	 	 19,369	 	 	$	 1.10	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
2011	 	 	 	 	 	 	 	 	 	 	 	 	
 	Earnings	 	$	 20,286	 	 	 21,115	 	 	$	 0.96	 	
 	Dilutive stock options	 	 	 -	 	 	 433	 	 	 	 	 	
 	Nonvested stock awards	 	 	 -	 	 	 89	 	 	 	 	 	
 	Diluted earnings	 	$	 20,286	 	 	 21,637	 	 	$	 0.94	 	

-7-

 
 
 	 	 	 	Net Income	 	
For the Six Months Ended June 30,	 	Income	 	 	Shares	 	 	Earnings per
Share	 	
2012	 	 	 	 	 	 	 	 	 	 	 	 	
 	Earnings	 	$	 41,719	 	 	 18,976	 	 	$	 2.20	 	
 	Dilutive stock options	 	 	 -	 	 	 294	 	 	 	 	 	
 	Nonvested stock awards	 	 	 -	 	 	 87	 	 	 	 	 	
 	Diluted earnings	 	$	 41,719	 	 	 19,357	 	 	$	 2.16	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
2011	 	 	 	 	 	 	 	 	 	 	 	 	
 	Earnings	 	$	 38,387	 	 	 21,067	 	 	$	 1.82	 	
 	Dilutive stock options	 	 	 -	 	 	 433	 	 	 	 	 	
 	Nonvested stock awards	 	 	 -	 	 	 86	 	 	 	 	 	
 	Diluted earnings	 	$	 38,387	 	 	 21,586	 	 	$	 1.78	 	

For the three and six-month periods ended June 30, 2012, 1.4 million stock options were excluded from the computation of diluted earnings per share as their exercise prices were greater than the average market price for most of the period. For the three and six-month period ended June 30, 2011, 970,000 stock options were excluded from the computation of diluted earnings per share.

Diluted earnings per share may be impacted in the future as the result of the issuance of our 1.875% Senior Convertible Notes (the “Notes”) and related purchased call options and sold warrants.  Per FASB’s authoritative guidance on the effect of contingently convertible instruments on diluted earnings per share and convertible bonds with an issuer option to settle for cash upon conversion, we will not include any shares related to the Notes in our calculation of diluted earnings per share until our average stock price for a quarter exceeds the current conversion price.  We would then include in our diluted earnings per share calculation those shares issuable using the treasury stock method.  The amount of shares issuable is based upon the amount by which the average stock price for the quarter exceeds the conversion price.  The purchased call option does not impact the calculation of diluted earnings per share as it is always anti-dilutive. The sold warrants become dilutive when our average stock price for a quarter exceeds the strike price of the warrant.

The following table provides examples of how changes in our stock price impact the number of shares that would be included in our diluted earnings per share calculation at June 30, 2012.  It also shows the impact on the number of shares issuable upon conversion of the Notes and settlement of the purchased call options and sold warrants:
 
 	 	 	Shares	 	 	 	Total Treasury	 	Shares Due	 	Incremental	
 	 	 	Underlying 1.875%	 	 	 	Method	 	to the Company	 	Shares Issued/	
 	Share	 	Convertible	 	Warrant	 	Incremental	 	under Notes	 	Received by the Company	
 	Price	 	Notes	 	Shares	 	Shares (a)	 	Hedges	 	upon Conversion (b)	
$	 80.73 	 	 40,072 	 	 -	 	 40,072 	 	 (42,868)	 	 (2,796)	
$	 90.73 	 	 295,315 	 	 -	 	 295,315 	 	 (315,919)	 	 (20,604)	
$	 100.73 	 	 499,879 	 	 -	 	 499,879 	 	 (534,756)	 	 (34,877)	
$	 110.73 	 	 667,495 	 	 120,403 	 	 787,898 	 	 (714,066)	 	 73,832 	
$	 120.73 	 	 807,344 	 	 319,182 	 	 1,126,526 	 	 (863,672)	 	 262,854 	
$	 130.73 	 	 925,798 	 	 487,550 	 	 1,413,348 	 	 (990,391)	 	 422,957 	

                a)  	Represents the number of incremental shares that must be included in the calculation of fully diluted shares under U.S. GAAP.	

                b)  	Represents the number of incremental shares to be issued by the Company upon conversion of the 1.875% Convertible Notes, assuming concurrent settlement of the note hedges and warrants.	

-8-

 

5.      Long-Term Debt
On March 1, 2011, we replaced our existing credit agreement with our Revolving Credit Facility (“2011 Credit Agreement”).  Terms of the 2011 Credit Agreement consist of a five-year, $350 million revolving credit facility.  This 2011 Credit Agreement has a floating  interest rate that is currently LIBOR plus 175 basis points.  The 2011 Credit Agreement also includes a $150 million expansion feature.  The 2011 Credit Agreement contains the following quarterly financial covenants:

Description	 	Requirement	
 	 	 	
Leverage Ratio (Consolidated Indebtedness/Consolidated  Adj. EBITDA)	 	< 3.50 to 1.00	
 	 	 	
Fixed Charge Coverage Ratio (Consolidated Free Cash Flow/Consolidated Fixed Charges)	 	> 1.50 to 1.00	
 	 	 	
Annual Operating Lease Commitment	 	< $30.0 million	

We are in compliance with all debt covenants as of June 30, 2012.  We have issued $29.4 million in standby letters of credit as of June 30, 2012 for insurance purposes.  Issued letters of credit reduce our available credit under the 2011 Credit Agreement.  As of June 30, 2012, we have approximately $320.6 million of unused lines of credit available and eligible to be drawn down under our revolving credit facility, excluding the $150 million expansion feature.

The following amounts are included in our consolidated balance sheet related to the Notes:

 	 	June 30, 2012	 	 	December 31, 2011	 	
Principal amount of convertible debentures	 	$	186,956	 	 	$	186,956	 	
Unamortized debt discount	 	 	(16,187	)	 	 	(20,172	)	
Carrying amount of convertible debentures	 	$	170,769	 	 	$	166,784	 	
Additional paid in capital (net of tax)	 	$	31,310	 	 	$	31,310	 	

The following amounts comprise interest expense included in our consolidated income statement (in thousands):

 	Three months ended June 30,	 	 	Six months ended June 30,	 	
 	2012	 	 	2011	 	 	2012	 	 	2011	 	
Cash interest expense	$	1,350	 	 	$	1,288	 	 	$	2,683	 	 	$	2,440	 	
Non-cash amortization of debt discount	 	 	2,009	 	 	 	1,878	 	 	 	3,985	 	 	 	3,724	 	
Amortization of debt costs	 	 	313	 	 	 	295	 	 	 	621	 	 	 	541	 	
Total interest expense	$	3,672	 	 	$	3,461	 	 	$	7,289	 	 	$	6,705	 	

The unamortized debt discount is being amortized using the effective interest method over the remaining life of the Notes.  The effective rate on the Notes is approximately 6.875%.

-9-

 

6.      Other Income/(Expense) -- Net
Other income/(expense) -- net comprises the following (in thousands):
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Three months ended June 30,	 	 	Six months ended June 30,	 	
 	2012	 	 	2011	 	 	2012	 	 	2011	 	
Market value gains/(losses) on assets held in	 	 	 	 	 	 	 	 	 	 	 	 	
deferred compensation trust	 $	(948	)	 	$	743	 	 	$	1,185	 	 	$	2,807	 	
Gain/(loss) on disposal of property and equipment	 	 	(67	)	 	 	32	 	 	 	(148	)	 	 	11	 	
Interest income	 	 	59	 	 	 	62	 	 	 	110	 	 	 	123	 	
Other - net	 	(14	)	 	 	(123	)	 	 	(22	)	 	 	(125	)	
Other income/(expense) - net	 $	(970	)	 	$	714	 	 	$	1,125	 	 	$	2,816	 	

 7.    Stock-Based Compensation Plans
On February 17, 2012, the Compensation/Incentive Committee of the Board of Directors (“CIC”) approved a grant of 35,969 shares of restricted stock to certain key employees.  The restricted shares cliff vest four years from the date of issuance.  The cumulative compensation expense related to the restricted stock award is $2.3 million and will be recognized ratably over the 4 year vesting period.  We assumed no forfeitures in determining the cumulative compensation expense of the grant.

      On February 17, 2012, the CIC approved a grant of 442,350 stock options to certain employees.  The stock options vest ratably over three years from the date of issuance.  The cumulative compensation expense related to the stock option grant is $7.1 million and will be recognized over the 3 year vesting period.  We used the Black-Scholes option valuation method to determine the cumulative compensation expense of the grant.

8.    Independent Contractor Operations
The Roto-Rooter segment sublicenses with 65 independent contractors to operate certain plumbing repair and drain cleaning businesses in lesser-populated areas of the United States and Canada.  We had notes receivable from our independent contractors as of June 30, 2012 totaling $1.1 million (December 31, 2011 - $1.1 million).  In most cases these loans are fully or partially secured by equipment owned by the contractor.  The interest rates on the loans range from 0% to 8% per annum and the remaining terms of the loans range from 2 months to 5 years at June 30, 2012.  We recorded the following from our independent contractors (in thousands):
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Three months ended June 30,	 	 	Six months ended June 30,	 	
 	2012	 	 	2011	 	 	2012	 	 	2011	 	
Revenues	$	6,809	 	 	$	6,528	 	 	$	13,491	 	 	$	13,039	 	
Pretax profits	 	 	3,732	 	 	 	3,402	 	 	 	6,813	 	 	 	6,389	 	

9.  Pension and Retirement Plans
All of the Company’s plans that provide retirement and similar benefits are defined contribution plans.  These expenses include the impact of market gains and losses on assets held in deferred compensation plans.  Expenses for the Company’s pension and profit-sharing plans, excess benefit plans and other similar plans are as follows (in thousands):
 
Three months ended June 30,	 	 	Six months ended June 30,	 	
2012	 	 	2011	 	 	2012	 	 	2011	 	
$	1,162	 	 	$	2,871	 	 	$	5,854	 	 	$	6,954	 	

-10-

 

10.   Legal and Regulatory Matters
Litigation
On March 1, 2010 Anthony Morangelli and Frank Ercole filed a class action lawsuit in federal district court for the Eastern District of New York seeking unpaid minimum wages and overtime service technician compensation from Roto-Rooter and Chemed.  They also seek payment of penalties, interest and plaintiffs’ attorney fees.  We contest these allegations.  In September 2010, the Court conditionally certified a nationwide class of service technicians, excluding those who signed dispute resolution agreements in which they agreed to arbitrate claims arising out of their employment.  We are unable to estimate our potential liability, if any, with respect to this case.
 
VITAS is party to a class action lawsuit filed in the Superior Court of California, Los Angeles County, in September 2006 by Bernadette Santos, Keith Knoche and Joyce White.  This case alleges failure to pay overtime and failure to provide meal and rest periods to a purported class of California admissions nurses, chaplains and sales representatives.  The case seeks payment of penalties, interest and Plaintiffs’ attorney fees.  We contest these allegations.  In December 2009, the trial court denied Plaintiffs’ motion for class certification.  In July 2011, the Court of Appeals affirmed denial of class certification on the travel time, meal and rest period claims, and reversed the trial court’s denial on the off-the-clock and sales representation exemption claims.  Plaintiffs have filed an appeal of this decision.  We are unable to estimate our potential liability or potential range of loss, if any, with respect to this case.

On January 12, 2012, the Greater Pennsylvania Carpenters Pension Fund filed a putative class action lawsuit in the United States District Court for the Southern District of Ohio against the Company, Kevin McNamara, David Williams, and Timothy O’Toole.  On April 9, 2012, the Court issued orders (a) renaming the suit as  In re Chemed Corp. Securities Litigation , Civil Action No. 1:12-cv-28 (S.D. Ohio), (b) appointing the Greater Pennsylvania Carpenters Pension Fund and the Electrical Workers Pension Fund, Local 103, I.B.E.W. as Lead Plaintiffs; and (c) approving Lead Plaintiffs’ selection of Labaton Sucharow LLP and Robbins Geller Rudman & Dowd LLP as Co-Lead Counsel.  On June 18, 2012, Lead Plaintiffs filed an amended complaint alleging violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 against all Defendants, and violation of Section 20(a) of the Securities Exchange Act of 1934 against Messrs. McNamara, Williams and O’Toole.  The suit’s allegations concern the VITAS hospice segment of the Company’s business.  Lead Plaintiffs seek, on behalf of a putative class of purchasers of Chemed Capital Stock between February 15, 2010 and November 16, 2011, compensatory damages in an unspecified amount and attorneys’ fees and expenses, arising from Defendants’ failure to disclose an alleged fraudulent scheme to enroll ineligible hospice patients and to fraudulently obtain payments from the federal government.  Defendants are required to move or otherwise respond to the amended complaint on or before August 17, 2012.  Defendants believe the claims are without merit, and intend to defend vigorously against them.

Regardless of outcome, defense of litigation adversely affects us through defense costs, diversion of our time and related publicity.

Regulatory Matters
In June 2012, VITAS received an administrative subpoena from the Office of the Inspector General (“OIG”) of the U.S. Department of Health and Human Services in connection with an investigation of possible improper claims submitted to the Medicare and Medicaid Programs.  It seeks production to the OIG of various categories of documents concerning the provision of hospice services, for headquarters and its Southern California programs, for the period January 1, 2007 through the date of the subpoena.  The categories of documents include policy, procedure and training manuals; documents concerning patient eligibility for hospice care, including referrals, admissions, certification, revocations and census information; documents concerning claims submitted to government programs; certain information concerning employees and their compensation; and documents concerning VITAS’ financial performance.  We are conferring with the U.S. Attorney’s Office for the Central District of California regarding the document requests.  We cannot predict the timing or outcome of this investigation, or estimate our potential liability, if any.
 
In May 2009, VITAS received an administrative subpoena from the U.S. Department of Justice requesting VITAS deliver to the OIG documents, patient records, and policy and procedure manuals for headquarters and its Texas programs concerning hospice services provided for the period January 1, 2003 to the date of the letter.  In August 2009, the OIG selected medical records for 59 past and current patients from a Texas program for review.   In February 2010, VITAS received a companion civil investigative demand (“CID”) from the State of Texas Attorney General’s Office, seeking related documents. In September 2010, it received a second CID and a second administrative subpoena seeking related documents.  In April 2011, the U.S. Attorney provided the Company with a copy of qui tam complaint filed under seal in the U.S. District Court for the Northern District of Texas.  The Court unsealed this complaint in November 2011.  The U.S. Attorney and the Attorney General for the State of Texas filed a notice in November 2011 that they had decided not to intervene at that time in the case.  They continue to investigate its allegations.  It was brought by Michael Rehfelt, a former VITAS San Antonio program general manager, against VITAS, the program’s former Regional Vice President Keith Becker, its former Medical Director Justos Cisneros, and their current employers:  Wellmed Medical Management, Care Level Management LLC, and Inspiris Inc.  Plaintiff dismissed his case against their current employers in March of 2012.  The case alleges admission and recertification of inappropriate patients, backdating revocations, and conspiring to admit inappropriate patients to hospice.  In June 2011, the U.S. Attorney provided the Company with a partially unsealed second qui tam complaint filed under seal in the U.S. District Court for the Western District of Texas.  In June 2011, the U.S. Attorney also provided the Company with a partially unsealed third qui tam complaint filed under seal in the Northern District of Illinois, Eastern Division.  We are conferring with the U.S. Attorney regarding the Company’s defenses to each complaint’s allegations.  We can neither predict the outcome of this investigation nor estimate our potential liability, if any.

-11-

 
 
In April 2005, the OIG served VITAS with civil subpoenas relating to VITAS’ alleged failure to appropriately bill Medicare and Medicaid for hospice services.  As part of this investigation, the OIG selected medical records for 320 past and current patients from VITAS’ three largest programs for review.  It also sought policies and procedures dating back to 1998 covering admissions, certifications, recertifications and discharges.  During the third quarter of 2005 and again in May 2006, the OIG requested additional information from us.  The Court dismissed a related qui tam complaint filed in U.S. District Court for the Southern District of Florida with prejudice in July 2007.  The plaintiffs appealed this dismissal, which the Court of Appeals affirmed.  The government continues to investigate the complaint’s allegations.  In March 2009, we received a letter from the government reiterating the basis of their investigations.  In July 2012, we received an administrative subpoena from the Office of the Attorney General of Florida seeking documents from January 1, 2007 covering areas including billing, marketing, referrals, incentives, patient eligibility for hospice care, claims submitted to government programs, and VITAS’ financial performance.  We are conferring with the government’s counsel regarding the document requests.  We are unable to estimate the timing or outcome of this investigation or our potential liability, if any, with respect to this matter.

Regardless of outcome, responding to the subpoenas can adversely affect us through defense costs, diversion of our time and related publicity.

11.  Concentration of Risk
VITAS has pharmacy services agreements ("Agreements") with Omnicare, Inc. and its subsidiaries (“OCR”) whereby OCR provides specified pharmacy services for VITAS and its hospice patients in geographical areas served by both VITAS and OCR.  The Agreements renew automatically for one-year terms.  Either party may cancel the Agreements at the end of any term by giving 90 days prior written notice.  VITAS made purchases from OCR of $10.2 million and $9.8 million for the three months ended June 30, 2012 and 2011, respectively.  VITAS made purchases from OCR of $20.3 million and $19.1 million for the six months ended June 30, 2012 and 2011, respectively.  For the three and six month periods ending June 30, 2012 and 2011, respectively, purchases from this vendor represent over 90% of all pharmacy services used by VITAS.

12.  Cash Overdrafts and Cash Equivalents
Included in accounts payable at June 30, 2012 is cash overdrafts payable of $11.3 million (December 31, 2011 - $10.3 million).
 
From time to time throughout the year, we invest excess cash in money market funds with major commercial banks. We closely monitor the creditworthiness of the institutions with which we invest our overnight funds.  We had $53.4 million in cash equivalents as of June 30, 2012.  There was $32.5 million in cash equivalents as of December 31, 2011.  The weighted average rate of return for our cash equivalents was 0.2% for June 30, 2012 and 0.1% for December 31, 2011.

13.      Financial Instruments
FASB’s authoritative guidance on fair value measurements defines a hierarchy which prioritizes the inputs in fair value measurements.  Level 1 measurements are measurements using quoted prices in active markets for identical assets or liabilities.  Level 2 measurements use significant other observable inputs.  Level 3 measurements are measurements using significant unobservable inputs which require a company to develop its own assumptions.  In recording the fair value of assets and liabilities, companies must use the most reliable measurement available.

-12-

 

The following shows the carrying value, fair value and the hierarchy for our financial instruments as of June 30, 2012 (in thousands):
 
 	 	 	 	 	Fair Value Measure	 	
 	 	Carrying Value	 	 	Quoted Prices in
 Active Markets for
 Identical Assets
 (Level 1)	 	 	Significant Other
 Observable Inputs
 (Level 2)	 	 	Significant
 Unobservable
Inputs (Level 3)	 	
Mutual fund investments of deferred	 	 	 	 	 	 	 	 	 	 	 	 	
compensation plans held in trust	 	$	33,215	 	 	$	33,215	 	 	$	-	 	 	$	-	 	
Long-term debt	 	 	170,769	 	 	 	187,984	 	 	 	-	 	 	 	-	 	

For cash and cash equivalents, accounts receivable and accounts payable, the carrying amount is a reasonable estimate of fair value because of the liquidity and short-term nature of these instruments.

14.  Capital Stock Transactions
We repurchased the following capital stock for the three and six-months ended June 30, 2012 and 2011:
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Three months ended June 30,	 	 	Six months ended June 30,	 	
 	2012	 	 	2011	 	 	2012	 	 	2011	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Shares repurchased	 	 	199,900	 	 	 	-	 	 	 	199,900	 	 	 	341,513	 	
Weighted average price per share	 	$	55.72	 	 	$	-	 	 	$	55.72	 	 	$	63.79	 	

15.  Business Combinations
In the first six months of 2012, we completed three business combinations within our Roto-Rooter segment for $1.5 million in cash to increase our market penetration in Bend, Oregon; Shreveport, Louisiana; and Boise, Idaho.  A substantial portion of this aggregate purchase price was allocated to goodwill.  The operating results of these business combinations have been included in our results of operations since the acquisition date and are not material for the three and six-month periods ended June 30, 2012 nor for the comparable prior year periods.

-13-

 

16. Guarantor Subsidiaries
Our 1.875% Notes are fully and unconditionally guaranteed on an unsecured, jointly, and severally liable basis by certain of our 100% owned subsidiaries.  The following unaudited, condensed, consolidating financial data presents the composition of the parent company (Chemed), the guarantor subsidiaries and the non-guarantor subsidiaries as of June 30, 2012 and December 31, 2011 for the balance sheet, the three and six months ended June 30, 2012 and June 30, 2011 for the income statement and the six months ended June 30, 2012 and June 30, 2011 for the statement of cash flows (dollars in thousands):
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
June 30, 2012	 	 	 	 	Guarantor	 	 	Non-Guarantor	 	 	Consolidating	 	 	 	 	
 	 	Parent	 	 	Subsidiaries	 	 	Subsidiaries	 	 	Adjustments	 	 	Consolidated	 	
ASSETS	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	$	53,280	 	 	$	(803	)	 	$	7,489	 	 	$	-	 	 	$	59,966	 	
Accounts receivable, less allowances	 	 	1,082	 	 	 	80,120	 	 	 	609	 	 	 	-	 	 	 	81,811	 	
Intercompany receivables	 	 	-	 	 	 	303,347	 	 	 	-	 	 	 	(303,347	)	 	 	-	 	
Inventories - net	 	 	-	 	 	 	7,414	 	 	 	732	 	 	 	-	 	 	 	8,146	 	
Current deferred income taxes	 	 	(1,311	)	 	 	14,329	 	 	 	208	 	 	 	-	 	 	 	13,226	 	
Prepaid income taxes	 	 	4,701	 	 	 	(890	)	 	 	376	 	 	 	-	 	 	 	4,187	 	
Prepaid expenses	 	 	980	 	 	 	9,554	 	 	 	203	 	 	 	-	 	 	 	10,737	 	
     Total current assets	 	 	58,732	 	 	 	413,071	 	 	 	9,617	 	 	 	(303,347	)	 	 	178,073	 	
Investments of deferred compensation plans	 	 	-	 	 	 	-	 	 	 	33,215	 	 	 	-	 	 	 	33,215	 	
Properties and equipment, at cost, less accumulated depreciation	 	 	11,203	 	 	 	74,761	 	 	 	2,607	 	 	 	-	 	 	 	88,571	 	
Identifiable intangible assets less accumulated amortization	 	 	-	 	 	 	57,635	 	 	 	-	 	 	 	-	 	 	 	57,635	 	
Goodwill	 	 	-	 	 	 	457,487	 	 	 	4,478	 	 	 	-	 	 	 	461,965	 	
Other assets	 	 	7,010	 	 	 	1,733	 	 	 	2,926	 	 	 	-	 	 	 	11,669	 	
Investments in subsidiaries	 	 	833,241	 	 	 	23,043	 	 	 	-	 	 	 	(856,284	)	 	 	-	 	
          Total assets	 	$	910,186	 	 	$	1,027,730	 	 	$	52,843	 	 	$	(1,159,631	)	 	$	831,128	 	
LIABILITIES AND STOCKHOLDERS' EQUITY	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Accounts payable	 	$	(748	)	 	$	51,304	 	 	$	446	 	 	$	-	 	 	$	51,002	 	
Intercompany payables	 	 	298,601	 	 	 	-	 	 	 	4,746	 	 	 	(303,347	)	 	 	-	 	
Income taxes	 	 	-	 	 	 	-	 	 	 	167	 	 	 	-	 	 	 	167	 	
Accrued insurance	 	 	402	 	 	 	36,384	 	 	 	-	 	 	 	-	 	 	 	36,786	 	
Accrued compensation	 	 	2,020	 	 	 	37,166	 	 	 	543	 	 	 	-	 	 	 	39,729	 	
Other current liabilities	 	 	1,992	 	 	 	12,618	 	 	 	296	 	 	 	-	 	 	 	14,906	 	
      Total current liabilities	 	 	302,267	 	 	 	137,472	 	 	 	6,198	 	 	 	(303,347	)	 	 	142,590	 	
Deferred income taxes	 	 	(13,314	)	 	 	49,264	 	 	 	(10,693	)	 	 	-	 	 	 	25,257	 	
Long-term debt	 	 	170,769	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	170,769	 	
Deferred compensation liabilities	 	 	-	 	 	 	30	 	 	 	33,119	 	 	 	-	 	 	 	33,149	 	
Other liabilities	 	 	3,019	 	 	 	6,394	 	 	 	2,505	 	 	 	-	 	 	 	11,918	 	
Stockholders' equity	 	 	447,445	 	 	 	834,570	 	 	 	21,714	 	 	 	(856,284	)	 	 	447,445	 	
     Total liabilities and stockholders' equity	 	$	910,186	 	 	$	1,027,730	 	 	$	52,843	 	 	$	(1,159,631	)	 	$	831,128	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
December 31, 2011	 	 	 	 	 	Guarantor	 	 	Non-Guarantor	 	 	Consolidating	 	 	 	 	 	
 	 	Parent	 	 	Subsidiaries	 	 	Subsidiaries	 	 	Adjustments	 	 	Consolidated	 	
ASSETS	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	$	32,470	 	 	$	(1,422	)	 	$	7,033	 	 	$	-	 	 	$	38,081	 	
Accounts receivable, less allowances	 	 	606	 	 	 	76,816	 	 	 	502	 	 	 	-	 	 	 	77,924	 	
Intercompany receivables	 	 	-	 	 	 	273,413	 	 	 	-	 	 	 	(273,413	)	 	 	-	 	
Inventories - net	 	 	-	 	 	 	8,032	 	 	 	636	 	 	 	-	 	 	 	8,668	 	
Current deferred income taxes	 	 	(650	)	 	 	13,059	 	 	 	131	 	 	 	-	 	 	 	12,540	 	
Prepaid income taxes	 	 	(114	)	 	 	1,689	 	 	 	556	 	 	 	-	 	 	 	2,131	 	
Prepaid expenses	 	 	503	 	 	 	10,757	 	 	 	149	 	 	 	-	 	 	 	11,409	 	
     Total current assets	 	 	32,815	 	 	 	382,344	 	 	 	9,007	 	 	 	(273,413	)	 	 	150,753	 	
Investments of deferred compensation plans	 	 	-	 	 	 	-	 	 	 	31,629	 	 	 	-	 	 	 	31,629	 	
Properties and equipment, at cost, less accumulated depreciation	 	 	11,641	 	 	 	68,755	 	 	 	2,555	 	 	 	-	 	 	 	82,951	 	
Identifiable intangible assets less accumulated amortization	 	 	-	 	 	 	58,262	 	 	 	-	 	 	 	-	 	 	 	58,262	 	
Goodwill	 	 	-	 	 	 	456,183	 	 	 	4,450	 	 	 	-	 	 	 	460,633	 	
Other assets	 	 	7,616	 	 	 	1,552	 	 	 	2,509	 	 	 	-	 	 	 	11,677	 	
Investments in subsidiaries	 	 	793,277	 	 	 	21,148	 	 	 	-	 	 	 	(814,425	)	 	 	-	 	
          Total assets	 	$	845,349	 	 	$	988,244	 	 	$	50,150	 	 	$	(1,087,838	)	 	$	795,905	 	
LIABILITIES AND STOCKHOLDERS' EQUITY	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Accounts payable	 	$	(683	)	 	$	48,490	 	 	$	418	 	 	$	-	 	 	$	48,225	 	
Intercompany payables	 	 	269,042	 	 	 	-	 	 	 	4,371	 	 	 	(273,413	)	 	 	-	 	
Income taxes	 	 	-	 	 	 	-	 	 	 	90	 	 	 	-	 	 	 	90	 	
Accrued insurance	 	 	489	 	 	 	36,658	 	 	 	-	 	 	 	-	 	 	 	37,147	 	
Accrued compensation	 	 	3,828	 	 	 	36,655	 	 	 	604	 	 	 	-	 	 	 	41,087	 	
Other current liabilities	 	 	1,719	 	 	 	15,728	 	 	 	1,404	 	 	 	-	 	 	 	18,851	 	
      Total current liabilities	 	 	274,395	 	 	 	137,531	 	 	 	6,887	 	 	 	(273,413	)	 	 	145,400	 	
Deferred income taxes	 	 	(12,330	)	 	 	51,601	 	 	 	(9,808	)	 	 	-	 	 	 	29,463	 	
Long-term debt	 	 	166,784	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	166,784	 	
Deferred compensation liabilities	 	 	-	 	 	 	-	 	 	 	30,693	 	 	 	-	 	 	 	30,693	 	
Other liabilities	 	 	2,816	 	 	 	4,630	 	 	 	2,435	 	 	 	-	 	 	 	9,881	 	
Stockholders' equity	 	 	413,684	 	 	 	794,482	 	 	 	19,943	 	 	 	(814,425	)	 	 	413,684	 	
     Total liabilities and stockholders' equity	 	$	845,349	 	 	$	988,244	 	 	$	50,150	 	 	$	(1,087,838	)	 	$	795,905	 	

-14-

 

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
For the three months ended June 30, 2012	 	 	 	 	Guarantor	 	 	Non-Guarantor	 	 	Consolidating	 	 	 	 	
 	 	Parent	 	 	Subsidiaries	 	 	Subsidiaries	 	 	Adjustments	 	 	Consolidated	 	
Continuing Operations	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Service revenues and sales	 	$	-	 	 	$	347,017	 	 	$	7,153	 	 	$	-	 	 	$	354,170	 	
Cost of services provided and goods sold	 	 	-	 	 	 	253,434	 	 	 	3,934	 	 	 	-	 	 	 	257,368	 	
Selling, general and administrative expenses	 	 	5,937	 	 	 	43,356	 	 	 	477	 	 	 	-	 	 	 	49,770	 	
Depreciation	 	 	234	 	 	 	5,926	 	 	 	220	 	 	 	-	 	 	 	6,380	 	
Amortization	 	 	481	 	 	 	646	 	 	 	-	 	 	 	-	 	 	 	1,127	 	
     Total costs and expenses	 	 	6,652	 	 	 	303,362	 	 	 	4,631	 	 	 	-	 	 	 	314,645	 	
     Income/ (loss) from operations	 	 	(6,652	)	 	 	43,655	 	 	 	2,522	 	 	 	-	 	 	 	39,525	 	
Interest expense	 	 	(3,487	)	 	 	(171	)	 	 	(14	)	 	 	-	 	 	 	(3,672	)	
Other (expense)/income - net	 	 	4,340	 	 	 	(4,357	)	 	 	(953	)	 	 	-	 	 	 	(970	)	
     Income/ (loss) before income taxes	 	 	(5,799	)	 	 	39,127	 	 	 	1,555	 	 	 	-	 	 	 	34,883	 	
Income tax (provision)/ benefit	 	 	1,918	 	 	 	(14,918	)	 	 	(609	)	 	 	-	 	 	 	(13,609	)	
Equity in net income of subsidiaries	 	 	25,155	 	 	 	990	 	 	 	-	 	 	 	(26,145	)	 	 	-	 	
Net income	 	$	21,274	 	 	$	25,199	 	 	$	946	 	 	$	(26,145	)	 	$	21,274	 	

For the three months ended June 30, 2011	 	 	 	 	 	Guarantor	 	 	Non-Guarantor	 	 	Consolidating	 	 	 	 	 	
 	 	Parent	 	 	Subsidiaries	 	 	Subsidiaries	 	 	Adjustments	 	 	Consolidated	 	
Continuing Operations	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Service revenues and sales	 	$	-	 	 	$	326,406	 	 	$	6,954	 	 	$	-	 	 	$	333,360	 	
Cost of services provided and goods sold	 	 	-	 	 	 	235,855	 	 	 	3,742	 	 	 	-	 	 	 	239,597	 	
Selling, general and administrative expenses	 	 	5,574	 	 	 	42,441	 	 	 	2,409	 	 	 	-	 	 	 	50,424	 	
Depreciation	 	 	237	 	 	 	5,919	 	 	 	202	 	 	 	-	 	 	 	6,358	 	
Amortization	 	 	465	 	 	 	674	 	 	 	-	 	 	 	-	 	 	 	1,139	 	
     Total costs and expenses	 	 	6,276	 	 	 	284,889	 	 	 	6,353	 	 	 	-	 	 	 	297,518	 	
     Income/ (loss) from operations	 	 	(6,276	)	 	 	41,517	 	 	 	601	 	 	 	-	 	 	 	35,842	 	
Interest expense	 	 	(3,321	)	 	 	(140	)	 	 	-	 	 	 	-	 	 	 	(3,461	)	
Other (expense)/income - net	 	 	3,862	 	 	 	(3,888	)	 	 	740	 	 	 	-	 	 	 	714	 	
     Income/ (loss) before income taxes	 	 	(5,735	)	 	 	37,489	 	 	 	1,341	 	 	 	-	 	 	 	33,095	 	
Income tax (provision)/ benefit	 	 	1,783	 	 	 	(14,083	)	 	 	(509	)	 	 	-	 	 	 	(12,809	)	
Equity in net income of subsidiaries	 	 	24,238	 	 	 	875	 	 	 	-	 	 	 	(25,113	)	 	 	-	 	
Net income	 	$	20,286	 	 	$	24,281	 	 	$	832	 	 	$	(25,113	)	 	$	20,286	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
For the six months ended June 30, 2012	 	 	 	 	 	Guarantor	 	 	Non-Guarantor	 	 	Consolidating	 	 	 	 	 	
 	 	Parent	 	 	Subsidiaries	 	 	Subsidiaries	 	 	Adjustments	 	 	Consolidated	 	
Continuing Operations	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Service revenues and sales	 	$	-	 	 	$	692,631	 	 	$	14,482	 	 	$	-	 	 	$	707,113	 	
Cost of services provided and goods sold	 	 	-	 	 	 	506,861	 	 	 	7,952	 	 	 	-	 	 	 	514,813	 	
Selling, general and administrative expenses	 	 	11,133	 	 	 	87,703	 	 	 	4,101	 	 	 	-	 	 	 	102,937	 	
Depreciation	 	 	467	 	 	 	11,717	 	 	 	437	 	 	 	-	 	 	 	12,621	 	
Amortization	 	 	951	 	 	 	1,289	 	 	 	-	 	 	 	-	 	 	 	2,240	 	
     Total costs and expenses	 	 	12,551	 	 	 	607,570	 	 	 	12,490	 	 	 	-	 	 	 	632,611	 	
     Income/ (loss) from operations	 	 	(12,551	)	 	 	85,061	 	 	 	1,992	 	 	 	-	 	 	 	74,502	 	
Interest expense	 	 	(6,920	)	 	 	(340	)	 	 	(29	)	 	 	-	 	 	 	(7,289	)	
Other (expense)/income - net	 	 	8,746	 	 	 	(8,798	)	 	 	1,177	 	 	 	-	 	 	 	1,125	 	
     Income/ (loss) before income taxes	 	 	(10,725	)	 	 	75,923	 	 	 	3,140	 	 	 	-	 	 	 	68,338	 	
Income tax (provision)/ benefit	 	 	3,499	 	 	 	(28,882	)	 	 	(1,236	)	 	 	-	 	 	 	(26,619	)	
Equity in net income of subsidiaries	 	 	48,945	 	 	 	1,972	 	 	 	-	 	 	 	(50,917	)	 	 	-	 	
Net income	 	$	41,719	 	 	$	49,013	 	 	$	1,904	 	 	$	(50,917	)	 	$	41,719	 	

For the six months ended June 30, 2011	 	 	 	 	 	Guarantor	 	 	Non-Guarantor	 	 	Consolidating	 	 	 	 	 	
 	 	Parent	 	 	Subsidiaries	 	 	Subsidiaries	 	 	Adjustments	 	 	Consolidated	 	
Continuing Operations	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Service revenues and sales	 	$	-	 	 	$	650,563	 	 	$	13,715	 	 	$	-	 	 	$	664,278	 	
Cost of services provided and goods sold	 	 	-	 	 	 	469,731	 	 	 	7,324	 	 	 	-	 	 	 	477,055	 	
Selling, general and administrative expenses	 	 	12,258	 	 	 	88,022	 	 	 	5,798	 	 	 	-	 	 	 	106,078	 	
Depreciation	 	 	476	 	 	 	11,781	 	 	 	389	 	 	 	-	 	 	 	12,646	 	
Amortization	 	 	820	 	 	 	1,289	 	 	 	-	 	 	 	-	 	 	 	2,109	 	
     Total costs and expenses	 	 	13,554	 	 	 	570,823	 	 	 	13,511	 	 	 	-	 	 	 	597,888	 	
     Income/ (loss) from operations	 	 	(13,554	)	 	 	79,740	 	 	 	204	 	 	 	-	 	 	 	66,390	 	
Interest expense	 	 	(6,453	)	 	 	(252	)	 	 	-	 	 	 	-	 	 	 	(6,705	)	
Other (expense)/income - net	 	 	7,632	 	 	 	(7,617	)	 	 	2,801	 	 	 	-	 	 	 	2,816	 	
     Income/ (loss) before income taxes	 	 	(12,375	)	 	 	71,871	 	 	 	3,005	 	 	 	-	 	 	 	62,501	 	
Income tax (provision)/ benefit	 	 	4,186	 	 	 	(27,135	)	 	 	(1,165	)	 	 	-	 	 	 	(24,114	)	
Equity in net income of subsidiaries	 	 	46,576	 	 	 	1,908	 	 	 	-	 	 	 	(48,484	)	 	 	-	 	
Net income	 	$	38,387	 	 	$	46,644	 	 	$	1,840	 	 	$	(48,484	)	 	$	38,387	 	

-15-

 

For the six months ended June 30, 2012	 	 	 	 	Guarantor	 	 	Non-Guarantor	 	 	 	 	
 	 	Parent	 	 	Subsidiaries	 	 	Subsidiaries	 	 	Consolidated	 	
Cash Flow from Operating Activities:	 	 	 	 	 	 	 	 	 	 	 	 	
Net cash provided by operating activities	 	$	(3,716	)	 	$	57,667	 	 	$	704	 	 	$	54,655	 	
Cash Flow from Investing Activities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Capital expenditures	 	 	(28	)	 	 	(17,966	)	 	 	(480	)	 	 	(18,474	)	
 Business combinations, net of cash acquired	 	 	-	 	 	 	(1,500	)	 	 	-	 	 	 	(1,500	)	
 Other sources/(uses) - net	 	 	200	 	 	 	167	 	 	 	(10	)	 	 	357	 	
      Net cash used by investing activities	 	 	172	 	 	 	(19,299	)	 	 	(490	)	 	 	(19,617	)	
Cash Flow from Financing Activities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Change in cash overdrafts payable	 	 	(46	)	 	 	1,031	 	 	 	-	 	 	 	985	 	
 Change in intercompany accounts	 	 	38,573	 	 	 	(38,780	)	 	 	207	 	 	 	-	 	
 Dividends paid to shareholders	 	 	(6,160	)	 	 	-	 	 	 	-	 	 	 	(6,160	)	
 Purchases of treasury stock	 	 	(12,783	)	 	 	-	 	 	 	(58	)	 	 	(12,841	)	
 Proceeds from exercise of stock options	 	 	3,670	 	 	 	-	 	 	 	-	 	 	 	3,670	 	
 Realized excess tax benefit on share based compensation	 	 	1,069	 	 	 	-	 	 	 	-	 	 	 	1,069	 	
 Other sources - net	 	 	31	 	 	 	-	 	 	 	93	 	 	 	124	 	
      Net cash used by financing activities	 	 	24,354	 	 	 	(37,749	)	 	 	242	 	 	 	(13,153	)	
Net increase in cash and cash equivalents	 	 	20,810	 	 	 	619	 	 	 	456	 	 	 	21,885	 	
Cash and cash equivalents at beginning of year	 	 	32,470	 	 	 	(1,422	)	 	 	7,033	 	 	 	38,081	 	
Cash and cash equivalents at end of period	 	$	53,280	 	 	$	(803	)	 	$	7,489	 	 	$	59,966	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
For the six months ended June 30, 2011	 	 	 	 	 	Guarantor	 	 	Non-Guarantor	 	 	 	 	 	
 	 	Parent	 	 	Subsidiaries	 	 	Subsidiaries	 	 	Consolidated	 	
Cash Flow from Operating Activities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net cash provided/(used) by operating activities	 	$	3,594	 	 	$	48,849	 	 	$	(1,316	)	 	$	51,127	 	
Cash Flow from Investing Activities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Capital expenditures	 	 	(5	)	 	 	(14,085	)	 	 	(870	)	 	 	(14,960	)	
 Business combinations, net of cash acquired	 	 	-	 	 	 	(3,689	)	 	 	-	 	 	 	(3,689	)	
 Other sources/(uses) - net	 	 	(103	)	 	 	(771	)	 	 	5	 	 	 	(869	)	
      Net cash used by investing activities	 	 	(108	)	 	 	(18,545	)	 	 	(865	)	 	 	(19,518	)	
Cash Flow from Financing Activities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Purchases of treasury stock	 	 	(25,438	)	 	 	-	 	 	 	(44	)	 	 	(25,482	)	
 Change in cash overdrafts payable	 	 	698	 	 	 	(8,512	)	 	 	-	 	 	 	(7,814	)	
 Change in intercompany accounts	 	 	26,733	 	 	 	(28,804	)	 	 	2,071	 	 	 	-	 	
 Proceeds from exercise of stock options	 	 	7,698	 	 	 	-	 	 	 	-	 	 	 	7,698	 	
 Dividends paid to shareholders	 	 	(5,967	)	 	 	-	 	 	 	-	 	 	 	(5,967	)	
 Debt issuance costs	 	 	(2,723	)	 	 	-	 	 	 	-	 	 	 	(2,723	)	
 Realized excess tax benefit on share based compensation	 	 	3,339	 	 	 	-	 	 	 	-	 	 	 	3,339	 	
 Other sources - net	 	 	41	 	 	 	1	 	 	 	322	 	 	 	364	 	
      Net cash provided/(used) by financing activities	 	 	4,381	 	 	 	(37,315	)	 	 	2,349	 	 	 	(30,585	)	
Net increase/(decrease) in cash and cash equivalents	 	 	7,867	 	 	 	(7,011	)	 	 	168	 	 	 	1,024	 	
Cash and cash equivalents at beginning of year	 	 	45,324	 	 	 	(1,571	)	 	 	6,164	 	 	 	49,917	 	
Cash and cash equivalents at end of period	 	$	53,191	 	 	$	(8,582	)	 	$	6,332	 	 	$	50,941	 	

-16-

 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Executive Summary
We operate through our two wholly-owned subsidiaries, VITAS Healthcare Corporation and Roto-Rooter Group, Inc.  VITAS focuses on hospice care that helps make terminally ill patients’ final days as comfortable as possible.  Through its teams of doctors, nurses, home health aides, social workers, clergy and volunteers, VITAS provides direct medical services to patients, as well as spiritual and emotional counseling to both patients and their families.  Roto-Rooter’s services are focused on providing plumbing and drain cleaning services to both residential and commercial customers.  Through its network of company-owned branches, independent contractors and franchisees, Roto-Rooter offers plumbing and drain cleaning service to over 90% of the U.S. population.

The following is a summary of the key operating results (in thousands except per share amounts):
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Three months ended June 30,	 	 	Six months ended June 30,	 	
 	2012	 	 	2011	 	 	2012	 	 	2011	 	
Service revenues and sales	 	$	354,170	 	 	$	333,360	 	 	$	707,113	 	 	$	664,278	 	
Net income	 	$	21,274	 	 	$	20,286	 	 	$	41,719	 	 	$	38,387	 	
Diluted EPS	 	$	1.10	 	 	$	0.94	 	 	$	2.16	 	 	$	1.78	 	
Adjusted EBITDA	 	$	48,173	 	 	$	46,657	 	 	$	94,513	 	 	$	92,275	 	
Adjusted EBITDA as a % of revenue	 	 	13.6	 %	 	 	14.0	 %	 	 	13.4	 %	 	 	13.9	 %	

Earnings before interest, taxes and depreciation and amortization (“EBITDA”) and Adjusted EBITDA are not measures derived in accordance with GAAP.  We use Adjusted EBITDA as a measure of earnings for our long-term incentive plan awards.  We provide EBITDA and Adjusted EBITDA to help readers evaluate our operating results, compare our operating performance with that of similar companies that have different capital structures and help evaluate our ability to meet future debt service, capital expenditure and working capital requirements.  Our EBITDA and Adjusted EBITDA should not be considered in isolation or as a substitute for comparable measures presented in accordance with GAAP.  A reconciliation of our net income to our EBITDA and Adjusted EBITDA is presented on pages 28 and 29.

For the three months ended June 30, 2012, the increase in consolidated service revenues and sales was driven by a 9.1% increase at VITAS partially offset by a 1.4% decrease at Roto-Rooter.  The increase in service revenues at VITAS was a result of increased average daily census (“ADC”) of 6.0%, driven by an increase in admissions of 4.0%, and Medicare price increases of approximately 2.5%.  The decrease in service revenues at Roto-Rooter was driven by a 3.7% decrease in job count partially offset by a 2.2% price and mix shift increase.  Consolidated net income increased 4.9%.  Diluted EPS increased 17.0% as a result of the increase in net income and a lower number of shares outstanding.  Adjusted EBITDA as a percent of revenue decreased 0.4% as a result of the decrease in service revenues at Roto-Rooter.  See page 30 for additional VITAS operating metrics.

For the six months ended June 30, 2012, the increase in consolidated service revenues and sales was driven by a 9.9% increase at VITAS partially offset by a 2.4% decrease at Roto-Rooter.  The increase in service revenues at VITAS was a result of increased average daily census (“ADC”) of 6.0%, driven by an increase in admissions of 3.7% and Medicare price increases of approximately 2.5%.  The decrease in service revenues at Roto-Rooter was driven by a 4.9% decrease in job count partially offset by a 2.3% price and mix shift increase.  Consolidated net income increased 8.7%.  Diluted EPS increased 21.3% as a result of the increase in net income and a lower number of shares outstanding.  Adjusted EBITDA as a percent of revenue decreased 0.5% as a result of the decrease in service revenues at Roto-Rooter.  See page 30 for additional VITAS operating metrics.

VITAS expects to achieve full-year 2012 revenue growth, prior to Medicare cap, of 7.5% to 9.0%.  Admissions are estimated to increase approximately 3.5% to 4.0%.  Adjusted EBITDA margin prior to Medicare cap is estimated to be 14.5% to 15.0%.  Roto-Rooter expects full-year 2012 revenue growth equal to the prior year.  The revenue estimate is a result of increased pricing of approximately 2.0%, a favorable mix shift to higher revenue jobs, with job count estimated to range between down 2.0% to 4.0%.  Adjusted EBITDA margin for 2012 is estimated to be in the range of 16.0% to 17.0%.  We anticipate that our operating income and cash flows will be sufficient to operate our businesses and meet any commitments for the foreseeable future.

-17-

 

Financial Condition
Liquidity and Capital Resources
Material changes in the balance sheet accounts from December 31, 2011 to June 30, 2012 include the following:

                •  	A $3.9 million increase in accounts receivable related to the timing of receipts.	

                •  	A $5.6 million increase in properties and equipment due to the opening of the Florida Home Medical Equipment location and a data center relocation.	

                •  	A $2.8 million increase in accounts payable related to timing of payments.	

                •  	A $3.9 million decrease in other current liabilities primarily due to a $2.6 million decrease in accrued Medicare cap.	

                •  	A $1.4 million decrease in accrued compensation related to the timing of payments of incentive compensation.	

Net cash provided by operating activities increased by $3.5 million due primarily to the change in the increase in net income. Management continually evaluates cash utilization alternatives, including share repurchase, debt repurchase, acquisitions and increased dividends to determine the most beneficial use of available capital resources.
 
We have issued $29.4 million in standby letters of credit as of June 30, 2012, for insurance purposes.  Issued letters of credit reduce our available credit under the revolving credit agreement.  As of June 30, 2012, we have approximately $320.6 million of unused lines of credit available and eligible to be drawn down under our revolving credit facility, excluding the $150 million expansion feature. Management believes its liquidity and sources of capital are satisfactory for the Company’s needs in the foreseeable future.

Commitments and Contingencies
Collectively, the terms of our credit agreements require us to meet various financial covenants, to be tested quarterly.  We are in compliance with all financial and other debt covenants as of June 30, 2012 and anticipate remaining in compliance throughout 2012.
 
On March 1, 2010 Anthony Morangelli and Frank Ercole filed a class action lawsuit in federal district court for the Eastern District of New York seeking unpaid minimum wages and overtime service technician compensation from Roto-Rooter and Chemed.  They also seek payment of penalties, interest and plaintiffs’ attorney fees.  We contest these allegations.  In September 2010, the Court conditionally certified a nationwide class of service technicians, excluding those who signed dispute resolution agreements in which they agreed to arbitrate claims arising out of their employment.  We are unable to estimate our potential liability, if any, with respect to this case.
 
VITAS is party to a class action lawsuit filed in the Superior Court of California, Los Angeles County, in September 2006 by Bernadette Santos, Keith Knoche and Joyce White.  This case alleges failure to pay overtime and failure to provide meal and rest periods to a purported class of California admissions nurses, chaplains and sales representatives.  The case seeks payment of penalties, interest and Plaintiffs’ attorney fees.  We contest these allegations.  In December 2009, the trial court denied Plaintiffs’ motion for class certification.  In July 2011, the Court of Appeals affirmed denial of class certification on the travel time, meal and rest period claims, and reversed the trial court’s denial on the off-the-clock and sales representation exemption claims.  Plaintiffs have filed an appeal of this decision.  We are unable to estimate our potential liability or potential range of loss, if any, with respect to this case.
 
On January 12, 2012, the Greater Pennsylvania Carpenters Pension Fund filed a putative class action lawsuit in the United States District Court for the Southern District of Ohio against the Company, Kevin McNamara, David Williams, and Timothy O’Toole.  On April 9, 2012, the Court issued orders (a) renaming the suit as  In re Chemed Corp. Securities Litigation , Civil Action No. 1:12-cv-28 (S.D. Ohio), (b) appointing the Greater Pennsylvania Carpenters Pension Fund and the Electrical Workers Pension Fund, Local 103, I.B.E.W. as Lead Plaintiffs; and (c) approving Lead Plaintiffs’ selection of Labaton Sucharow LLP and Robbins Geller Rudman & Dowd LLP as Co-Lead Counsel.  On June 18, 2012, Lead Plaintiffs filed an amended complaint alleging violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 against all Defendants, and violation of Section 20(a) of the Securities Exchange Act of 1934 against Messrs. McNamara, Williams and O’Toole.  The suit’s allegations concern the VITAS hospice segment of the Company’s business.  Lead Plaintiffs seek, on behalf of a putative class of purchasers of Chemed Capital Stock between February 15, 2010 and November 16, 2011, compensatory damages in an unspecified amount and attorneys’ fees and expenses, arising from Defendants’ failure to disclose an alleged fraudulent scheme to enroll ineligible hospice patients and to fraudulently obtain payments from the federal government.  Defendants are required to move or otherwise respond to the amended complaint on or before August 17, 2012.  Defendants believe the claims are without merit, and intend to defend vigorously against them.

-18-

 
 
Regardless of outcome, defense of litigation adversely affects us through defense costs, diversion of our time and related publicity.
 
In June 2012, VITAS received an administrative subpoena from the Office of the Inspector General (“OIG”) of the U.S. Department of Health and Human Services in connection with an investigation of possible improper claims submitted to the Medicare and Medicaid Programs.  It seeks production to the OIG of various categories of documents concerning the provision of hospice services, for headquarters and its Southern California programs, for the period January 1, 2007 through the date of the subpoena.  The categories of documents include policy, procedure and training manuals; documents concerning patient eligibility for hospice care, including referrals, admissions, certification, revocations and census information; documents concerning claims submitted to government programs; certain information concerning employees and their compensation; and documents concerning VITAS’ financial performance.  We are conferring with the U.S. Attorney’s Office for the Central District of California regarding the document requests.  We cannot predict the timing or outcome of this investigation, or estimate our potential liability, if any.
 
In May 2009, VITAS received an administrative subpoena from the U.S. Department of Justice requesting VITAS deliver to the OIG documents, patient records, and policy and procedure manuals for headquarters and its Texas programs concerning hospice services provided for the period January 1, 2003 to the date of the letter.  In August 2009, the OIG selected medical records for 59 past and current patients from a Texas program for review.   In February 2010, VITAS received a companion civil investigative demand (“CID”) from the State of Texas Attorney General’s Office, seeking related documents. In September 2010, it received a second CID and a second administrative subpoena seeking related documents.  In April 2011, the U.S. Attorney provided the Company with a copy of qui tam complaint filed under seal in the U.S. District Court for the Northern District of Texas.  The Court unsealed this complaint in November 2011.  The U.S. Attorney and the Attorney General for the State of Texas filed a notice in November 2011 that they had decided not to intervene at that time in the case.  They continue to investigate its allegations.  It was brought by Michael Rehfelt, a former VITAS San Antonio program general manager, against VITAS, the program’s former Regional Vice President Keith Becker, its former Medical Director Justos Cisneros, and their current employers:  Wellmed Medical Management, Care Level Management LLC, and Inspiris Inc.  Plaintiff dismissed his case against their current employers in March of 2012.  The case alleges admission and recertification of inappropriate patients, backdating revocations, and conspiring to admit inappropriate patients to hospice.  In June 2011, the U.S. Attorney provided the Company with a partially unsealed second qui tam complaint filed under seal in the U.S. District Court for the Western District of Texas.  In June 2011, the U.S. Attorney also provided the Company with a partially unsealed third qui tam complaint filed under seal in the Northern District of Illinois, Eastern Division.  We are conferring with the U.S. Attorney regarding the Company’s defenses to each complaint’s allegations.  We can neither predict the outcome of this investigation nor estimate our potential liability, if any.
 
In April 2005, the Office of Inspector General (“OIG”) for the Department of Health and Human Services served VITAS with civil subpoenas relating to VITAS’ alleged failure to appropriately bill Medicare and Medicaid for hospice services.  As part of this investigation, the OIG selected medical records for 320 past and current patients from VITAS’ three largest programs for review.  It also sought policies and procedures dating back to 1998 covering admissions, certifications, recertifications and discharges.  During the third quarter of 2005 and again in May 2006, the OIG requested additional information from us.  The Court dismissed a related qui tam complaint filed in U.S. District Court for the Southern District of Florida with prejudice in July 2007.  The plaintiffs appealed this dismissal, which the Court of Appeals affirmed.  The government continues to investigate the complaint’s allegations.  In March 2009, we received a letter from the government reiterating the basis of their investigations.  In July 2012, we received an administrative subpoena from the Office of the Attorney General of Florida seeking documents from January 1, 2007 covering areas including billing, marketing, referrals, incentives, patient eligibility for hospice care, claims submitted to government programs, and VITAS’s financial performance.  We are conferring with the government’s counsel regarding the document requests.  We are unable to estimate the timing or outcome of this investigation or our potential liability, if any, with respect to this matter.

Regardless of outcome, responding to the subpoenas can adversely affect us through defense costs, diversion of our time and related publicity.

-19-

 

Results of Operations
Three months ended June 30, 2012 versus  2011 - Consolidated Results
Our service revenues and sales for the second quarter of 2012 increased 6.2% versus services and sales revenues for the second quarter of 2011.  Of this increase, $22.1 million was attributable to VITAS partially offset by a $1.3 million decrease at Roto-Rooter.  The following chart shows the components of those changes (in thousands):
 
 	 	Increase/(Decrease)	
 	 	Amount	 	Percent	
VITAS	 	 	 	 	 	
Routine homecare	 	$	 16,083	 	 9.1	
Continuous care	 	 	 3,603	 	 9.2	
General inpatient	 	 	 2,064	 	 7.6	
Medicare cap	 	 	 368	 	 100.0	
Roto-Rooter	 	 	 	 	 	
Plumbing	 	 	 (575)	 	 (1.3)	
Drain cleaning	 	 	 (562)	 	 (1.6)	
Contractor Operations	 	 	 281	 	 4.3	
Other	 	 	 (452)	 	 (6.8)	
Total	 	$	 20,810	 	 6.2	

The increase in VITAS’ revenues for the second quarter of 2012 versus the second quarter of 2011 was a result of increased ADC of 6.0% driven by an increase in admissions of 4.0% and Medicare reimbursement rate increases of approximately 2.5%.  The ADC increase was driven by a 6.1% increase in routine homecare, an increase of 4.3% in general inpatient and an increase of a 6.2% in continuous care.  In excess of 90% of VITAS’ service revenues for the period were from Medicare and Medicaid.

The decrease in plumbing revenues for the second quarter of 2012 versus 2011 is attributable to a 1.8% decrease in the average price per job partially offset by a 0.3% increase in job count.  Our excavation job count increased by 8.0% compared to 2011.  Drain cleaning revenues for the second quarter of 2012 versus 2011 reflect a 5.6% decrease in the number of jobs perfomed partially offset by a 4.3% increase in the price per job.  Contractor operations revenue increased 4.3% for the second quarter of 2012.
 
The consolidated gross margin was 27.3% in the second quarter of 2012 as compared with 28.1% in the second quarter of 2011.  On a segment basis, VITAS’ gross margin was 21.6% in the second quarter of 2012 and 21.9% in the second quarter of 2011.  The decrease in VITAS’ gross margin is attributable to higher labor costs for admissions and Medicare compliance personnel and the opening of new operations, both new locations and new inpatient units, which carry significant start-up costs as capacity begins to ramp-up.  The Roto-Rooter segment’s gross margin was 44.3% for the second quarter of 2012 as compared with 45.0% for the second quarter of 2011.  The decrease in Roto-Rooter’s gross margin is primarily the result of increased medical costs combined with lower revenue.
 
Selling, general and administrative expenses (“SG&A”) comprise (in thousands):

 	Three months ended June 30,	 	
 	2012	 	 	2011	 	
SG&A expenses before the impact of market gains	 	 	 	 	 	 	
of deferred compensation plans	$	50,718	 	 	$	49,681	 	
Impact of market value gains/(losses) on liabilities	 	 	 	 	 	 	 	 	
held in deferred compensation trusts	 	 	(948	)	 	 	743	 	
Total SG&A expenses	$	49,770	 	 	$	50,424	 	

Normal salary increases and revenue related expense increases between periods accounts for the 2.1% increase in SG&A expenses before long-term incentive compensation and the impact of market gains of deferred compensation plans.

Interest expense increased 6.1% between periods primarily as a result of the increase in amortization of bond discount expense.

-20-

 
 
Other income/(expense) comprise (in thousands):
 	 	 	 	 	 	 	
 	 	Three months ended June 30,	 	
 	 	2012	 	 	2011	 	
Market value gains/(losses) on assets held in deferred	 	 	 	 	 	 	
compensation trusts	 	$	(948	)	 	$	743	 	
Gain/(loss) on disposal of property and equipment	 	 	(67	)	 	 	32	 	
Interest Income	 	 	59	 	 	 	62	 	
Other	 	 	(14	)	 	 	(123	)	
Total other income/(expense)	 	$	(970	)	 	$	714	 	

Our effective income tax rate increased to 39.0% in the second quarter of 2012 from 38.7% when compared with the second quarter of 2011.

Net income for both periods included the following after-tax items/adjustments that reduced after-tax earnings (in thousands):
 	 	 	 	 	 	 	
 	 	Three Months Ended June 30,	 	
 	 	2012	 	 	2011	 	
VITAS	 	 	 	 	 	 	
Legal expenses of OIG investigation	 	$	(121	)	 	$	(301	)	
Acquisition expenses	 	 	-	 	 	 	(31	)	
Roto-Rooter	 	 	 	 	 	 	 	 	
Expenses of class action litigation	 	 	(49	)	 	 	(113	)	
Acquisition expenses	 	 	(12	)	 	 	8	 	
Corporate	 	 	 	 	 	 	 	 	
Stock option expense	 	 	(1,502	)	 	 	(1,620	)	
Expenses of securities litigation	 	 	(124	)	 	 	-	 	
Noncash impact of change in accounting for convertible debt	 	 	(1,248	)	 	 	(1,155	)	
Total	 	$	(3,056	)	 	$	(3,212	)	

Three months ended June 30, 2012 versus 2011 - Segment Results

The change in after-tax earnings for the second quarter of 2012 versus the second quarter of 2011 is due to (in thousands):

 	Increase/(Decrease)	 	
 	Amount	 	 	Percent	 	
VITAS	$	1,844	 	 	 	9.9	 	
Roto-Rooter	 	 	(1,018	)	 	 	(11.2	)	
Corporate	 	 	162	 	 	 	2.2	 	
 	$	988	 	 	 	4.9	 	

-21-

 

Results of Operations
Six months ended June 30, 2012 versus  2011 - Consolidated Results
Our service revenues and sales for the first six months of 2012 increased 6.4% versus services and sales revenues for the first six months of 2011.  Of this increase, $47.3 million was attributable to VITAS partially offset by a $4.5 million decrease at Roto-Rooter.  The following chart shows the components of those changes (in thousands):

 	 	Increase/(Decrease)	
 	 	Amount	 	Percent	
VITAS	 	 	 	 	 	
Routine homecare	 	$	34,028	 	 9.8	
Continuous care	 	 	 7,499	 	 9.6	
General inpatient	 	 	 3,830	 	 7.0	
Medicare cap	 	 	 1,935	 	 301.4	
Roto-Rooter	 	 	 	 	 	
Plumbing	 	 	 (1,938)	 	 (2.2)	
Drain cleaning	 	 	 (2,142)	 	 (3.0)	
Contractor Operations	 	 	 452	 	 3.5	
Other	 	 	 (829)	 	 (6.1)	
Total	 	$	 42,835	 	 6.4	

The increase in VITAS’ revenues for the first six months of 2012 versus the first six months of 2011 was a result of increased ADC of 6.0% driven by an increase in admissions of 3.7% and Medicare reimbursement rate increases of approximately 2.5%.  The ADC increase was driven by a 6.1% increase in routine homecare, an increase of 4.5% in general inpatient and an increase of a 5.5% in continuous care. Medicare cap increased 301.4% as a result of the reversal of amounts recorded in the fourth quarter of 2011 due to improving admissions trends.  In excess of 90% of VITAS’ service revenues for the period were from Medicare and Medicaid.

The decrease in plumbing revenues for the first six months of 2012 versus 2011 is attributable to a 0.9% decrease in the number of jobs performed as well as a 1.5% decrease in the average price per job.  Our excavation job count increased by 7.1% compared to 2011.  Drain cleaning revenues for the first six months of 2012 versus 2011 reflect a 6.9% decrease in the number of jobs perfomed partially offset by a 4.2% increase in the price per job.  Contractor operations revenue increased 3.5% for the first six months of 2012.
 
The consolidated gross margin was 27.2% for the first six months of 2012 as compared with 28.2% for the first six months of 2011.  On a segment basis, VITAS’ gross margin was 21.4% for the first six months of 2012 and 21.8% for the first six months of 2011.  The decrease in VITAS’ gross margin is attributable to higher labor costs for admissions and Medicare compliance personnel and the opening of new operations, both new locations and new inpatient units, which carry significant start-up costs as capacity begins to ramp-up.  The Roto-Rooter segment’s gross margin was 44.0% for the first six months of 2012 as compared with 44.6% for the first six months of 2011.  The decrease in Roto-Rooter’s gross margin is primarily the result of increased medical costs combined with lower revenue.
 
Selling, general and administrative expenses (“SG&A”) comprise (in thousands):

 	Six months ended June 30,	 	
 	2012	 	 	2011	 	
SG&A expenses before long-term incentive	 	 	 	 	 	 	
compensation and the impact of market gains and	 	 	 	 	 	 	
losses of deferred compensation plans	$	101,752	 	 	$	100,259	 	
Long-term incentive compensation	 	 	-	 	 	 	3,012	 	
Impact of market value gains on liabilities held in	 	 	 	 	 	 	 	 	
deferred compensation trusts	 	 	1,185	 	 	 	2,807	 	
Total SG&A expenses	$	102,937	 	 	$	106,078	 	

Normal salary increases and revenue related expense increases between periods accounts for the 1.5% increase in SG&A expenses before long-term incentive compensation and the impact of market gains of deferred compensation plans.

-22-

 
 
Interest expense increased 8.7% between periods as a result of the debt refinancing that took place in the first quarter of 2011.

Other income/(expense) comprise (in thousands):

 	 	Six months ended June 30,	 	
 	 	2012	 	 	2011	 	
Market value gains on assets held in deferred	 	 	 	 	 	 	
compensation trusts	 	$	1,185	 	 	$	2,807	 	
Gain/(loss) on disposal of property and equipment	 	 	(148	)	 	 	11	 	
Interest Income	 	 	110	 	 	 	123	 	
Other	 	 	(22	)	 	 	(125	)	
Total other income	 	$	1,125	 	 	$	2,816	 	

Our effective income tax rate increased to 39.0% for the first six months of 2012 from 38.6% when compared with the first six months of 2011.

Net income for both periods included the following after-tax items/adjustments that reduced after-tax earnings (in thousands):

 	 	Six Months Ended June 30,	 	
 	 	2012	 	 	2011	 	
VITAS	 	 	 	 	 	 	
Legal expenses of OIG investigation	 	$	(165	)	 	$	(618	)	
Acquisition expenses	 	 	-	 	 	 	(71	)	
Roto-Rooter	 	 	 	 	 	 	 	 	
Expenses of class action litigation	 	 	(442	)	 	 	(414	)	
Acquisition expenses	 	 	(21	)	 	 	4	 	
Corporate	 	 	 	 	 	 	 	 	
Stock option expense	 	 	(2,727	)	 	 	(2,843	)	
Expenses of securities litigation	 	 	(124	)	 	 	-	 	
Noncash impact of change in accounting for convertible debt	 	 	(2,472	)	 	 	(2,287	)	
Long-term incentive compensation	 	 	-	 	 	 	(1,880	)	
Total	 	$	(5,951	)	 	$	(8,109	)	

Six months ended June 30, 2012 versus 2011 - Segment Results

The change in after-tax earnings for the first six months of 2012 versus the first months six of 2011 is due to (in thousands):

 	Increase/(Decrease)	 	
 	Amount	 	 	Percent	 	
VITAS	 	$	3,346	 	 	 	9.1	 	
Roto-Rooter	 	 	(2,033	)	 	 	(11.5	)	
Corporate	 	 	2,019	 	 	 	12.7	 	
 	 	$	3,332	 	 	 	8.7	 	

-23-

 
 
CHEMED CORPORATION AND SUBSIDIARY COMPANIES	 	
CONSOLIDATING STATEMENT OF INCOME	 	
FOR THE THREE MONTHS ENDED JUNE 30, 2012	 	
(in thousands)(unaudited)	 	
 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	Chemed	 	
 	 	VITAS	 	 	Roto-Rooter	 	 	Corporate	 	 	Consolidated	 	
2012 (a)	 	 	 	 	 	 	 	 	 	 	 	 	
Service revenues and sales	 	$	265,213	 	 	$	88,957	 	 	$	-	 	 	$	354,170	 	
Cost of services provided and goods sold	 	 	207,839	 	 	 	49,529	 	 	 	-	 	 	 	257,368	 	
Selling, general and administrative expenses	 	 	20,471	 	 	 	24,372	 	 	 	4,927	 	 	 	49,770	 	
Depreciation	 	 	4,164	 	 	 	2,085	 	 	 	131	 	 	 	6,380	 	
Amortization	 	 	488	 	 	 	157	 	 	 	482	 	 	 	1,127	 	
Total costs and expenses	 	 	232,962	 	 	 	76,143	 	 	 	5,540	 	 	 	314,645	 	
Income/(loss) from operations	 	 	32,251	 	 	 	12,814	 	 	 	(5,540	)	 	 	39,525	 	
Interest expense	 	 	(63	)	 	 	(107	)	 	 	(3,502	)	 	 	(3,672	)	
Intercompany interest income/(expense)	 	 	812	 	 	 	430	 	 	 	(1,242	)	 	 	-	 	
Other income/(expense)—net	 	 	(1	)	 	 	(33	)	 	 	(936	)	 	 	(970	)	
Income/(expense) before income taxes	 	 	32,999	 	 	 	13,104	 	 	 	(11,220	)	 	 	34,883	 	
Income taxes	 	 	(12,566	)	 	 	(5,030	)	 	 	3,987	 	 	 	(13,609	)	
Net income/(loss)	 	$	20,433	 	 	$	8,074	 	 	$	(7,233	)	 	$	21,274	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
(a) The following amounts are included in net income (in thousands):	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	Chemed	 	
 	 	VITAS	 	 	Roto-Rooter	 	 	Corporate	 	 	Consolidated	 	
Pretax benefit/(cost):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Stock option expense	 	$	-	 	 	$	-	 	 	$	(2,374	)	 	$	(2,374	)	
Noncash impact of accounting for convertible debt	 	 	-	 	 	 	-	 	 	 	(1,973	)	 	 	(1,973	)	
Expenses of class action litigation	 	 	-	 	 	 	(80	)	 	 	-	 	 	 	(80	)	
Expenses of securities litigation	 	 	-	 	 	 	-	 	 	 	(197	)	 	 	(197	)	
Acquisition expenses	 	 	-	 	 	 	(20	)	 	 	-	 	 	 	(20	)	
Legal expenses of OIG investigation	 	 	(195	)	 	 	-	 	 	 	-	 	 	 	(195	)	
Total	 	$	(195	)	 	$	(100	)	 	$	(4,544	)	 	$	(4,839	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	Chemed	 	
 	 	VITAS	 	 	Roto-Rooter	 	 	Corporate	 	 	Consolidated	 	
After-tax benefit/(cost):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Stock option expense	 	$	-	 	 	$	-	 	 	$	(1,502	)	 	$	(1,502	)	
Noncash impact of accounting for convertible debt	 	 	-	 	 	 	-	 	 	 	(1,248	)	 	 	(1,248	)	
Expenses of class action litigation	 	 	-	 	 	 	(49	)	 	 	-	 	 	 	(49	)	
Expenses of securities litigation	 	 	-	 	 	 	-	 	 	 	(124	)	 	 	(124	)	
Acquisition expenses	 	 	-	 	 	 	(12	)	 	 	-	 	 	 	(12	)	
Legal expenses of OIG investigation	 	 	(121	)	 	 	-	 	 	 	-	 	 	 	(121	)	
Total	 	$	(121	)	 	$	(61	)	 	$	(2,874	)	 	$	(3,056	)	

-24-

 

CHEMED CORPORATION AND SUBSIDIARY COMPANIES	 	
CONSOLIDATING STATEMENT OF INCOME	 	
FOR THE THREE MONTHS ENDED JUNE 30, 2011	 	
(in thousands)(unaudited)	 	
 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	Chemed	 	
 	 	VITAS	 	 	Roto-Rooter	 	 	Corporate	 	 	Consolidated	 	
2011 (a)	 	 	 	 	 	 	 	 	 	 	 	 	
Service revenues and sales	 	$	243,095	 	 	$	90,265	 	 	$	-	 	 	$	333,360	 	
Cost of services provided and goods sold	 	 	189,940	 	 	 	49,657	 	 	 	-	 	 	 	239,597	 	
Selling, general and administrative expenses	 	 	19,735	 	 	 	24,384	 	 	 	6,305	 	 	 	50,424	 	
Depreciation	 	 	4,199	 	 	 	2,025	 	 	 	134	 	 	 	6,358	 	
Amortization	 	 	520	 	 	 	155	 	 	 	464	 	 	 	1,139	 	
Total costs and expenses	 	 	214,394	 	 	 	76,221	 	 	 	6,903	 	 	 	297,518	 	
Income/(loss) from operations	 	 	28,701	 	 	 	14,044	 	 	 	(6,903	)	 	 	35,842	 	
Interest expense	 	 	(62	)	 	 	(77	)	 	 	(3,322	)	 	 	(3,461	)	
Intercompany interest income/(expense)	 	 	1,215	 	 	 	652	 	 	 	(1,867	)	 	 	-	 	
Other income/(expense)—net	 	 	(90	)	 	 	15	 	 	 	789	 	 	 	714	 	
Income/(expense) before income taxes	 	 	29,764	 	 	 	14,634	 	 	 	(11,303	)	 	 	33,095	 	
Income taxes	 	 	(11,175	)	 	 	(5,542	)	 	 	3,908	 	 	 	(12,809	)	
Net income/(loss)	 	$	18,589	 	 	$	9,092	 	 	$	(7,395	)	 	$	20,286	 	

(a) The following amounts are included in net income (in thousands):	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	Chemed	 	
 	 	VITAS	 	 	Roto-Rooter	 	 	Corporate	 	 	Consolidated	 	
Pretax benefit/(cost):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
     Stock option expense	 	$	-	 	 	$	-	 	 	$	(2,562	)	 	$	(2,562	)	
     Noncash impact of accounting for convertible debt	 	 	-	 	 	 	-	 	 	 	(1,825	)	 	 	(1,825	)	
     Expenses of class action litigation	 	 	-	 	 	 	(186	)	 	 	-	 	 	 	(186	)	
     Acquisition expenses	 	 	(51	)	 	 	12	 	 	 	-	 	 	 	(39	)	
     Legal expenses of OIG investigation	 	 	(486	)	 	 	-	 	 	 	-	 	 	 	(486	)	
          Total	 	$	(537	)	 	$	(174	)	 	$	(4,387	)	 	$	(5,098	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	Chemed	 	
 	 	VITAS	 	 	Roto-Rooter	 	 	Corporate	 	 	Consolidated	 	
After-tax benefit/(cost):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
     Stock option expense	 	$	-	 	 	$	-	 	 	$	(1,620	)	 	$	(1,620	)	
     Noncash impact of accounting for convertible debt	 	 	-	 	 	 	-	 	 	 	(1,155	)	 	 	(1,155	)	
     Expenses of class action litigation	 	 	-	 	 	 	(113	)	 	 	-	 	 	 	(113	)	
     Acquisition expenses	 	 	(31	)	 	 	8	 	 	 	-	 	 	 	(23	)	
     Legal expenses of OIG investigation	 	 	(301	)	 	 	-	 	 	 	-	 	 	 	(301	)	
          Total	 	$	(332	)	 	$	(105	)	 	$	(2,775	)	 	$	(3,212	)	

-25-

 
 
CHEMED CORPORATION AND SUBSIDIARY COMPANIES	 	
CONSOLIDATING STATEMENT OF INCOME	 	
FOR THE SIX MONTHS ENDED JUNE 30, 2012	 	
(in thousands)(unaudited)	 	
 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	Chemed	 	
 	 	VITAS	 	 	Roto-Rooter	 	 	Corporate	 	 	Consolidated	 	
2012 (a)	 	 	 	 	 	 	 	 	 	 	 	 	
Service revenues and sales	 	$	526,060	 	 	$	181,053	 	 	$	-	 	 	$	707,113	 	
Cost of services provided and goods sold	 	 	413,459	 	 	 	101,354	 	 	 	-	 	 	 	514,813	 	
Selling, general and administrative expenses	 	 	40,219	 	 	 	50,525	 	 	 	12,193	 	 	 	102,937	 	
Depreciation	 	 	8,188	 	 	 	4,171	 	 	 	262	 	 	 	12,621	 	
Amortization	 	 	978	 	 	 	311	 	 	 	951	 	 	 	2,240	 	
Total costs and expenses	 	 	462,844	 	 	 	156,361	 	 	 	13,406	 	 	 	632,611	 	
Income/(loss) from operations	 	 	63,216	 	 	 	24,692	 	 	 	(13,406	)	 	 	74,502	 	
Interest expense	 	 	(126	)	 	 	(214	)	 	 	(6,949	)	 	 	(7,289	)	
Intercompany interest income/(expense)	 	 	1,566	 	 	 	825	 	 	 	(2,391	)	 	 	-	 	
Other income/(expense)—net	 	 	(32	)	 	 	(54	)	 	 	1,211	 	 	 	1,125	 	
Income/(expense) before income taxes	 	 	64,624	 	 	 	25,249	 	 	 	(21,535	)	 	 	68,338	 	
Income taxes	 	 	(24,564	)	 	 	(9,680	)	 	 	7,625	 	 	 	(26,619	)	
Net income/(loss)	 	$	40,060	 	 	$	15,569	 	 	$	(13,910	)	 	$	41,719	 	

(a) The following amounts are included in net income (in thousands):	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	Chemed	 	
 	 	VITAS	 	 	Roto-Rooter	 	 	Corporate	 	 	Consolidated	 	
Pretax benefit/(cost):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
     Stock option expense	 	$	-	 	 	$	-	 	 	$	(4,312	)	 	$	(4,312	)	
     Noncash impact of accounting for convertible debt	 	 	-	 	 	 	-	 	 	 	(3,908	)	 	 	(3,908	)	
     Expenses of class action litigation	 	 	-	 	 	 	(727	)	 	 	-	 	 	 	(727	)	
     Expenses of securities litigation	 	 	-	 	 	 	-	 	 	 	(197	)	 	 	(197	)	
     Acquisition expenses	 	 	-	 	 	 	(35	)	 	 	-	 	 	 	(35	)	
     Legal expenses of OIG investigation	 	 	(266	)	 	 	-	 	 	 	-	 	 	 	(266	)	
          Total	 	$	(266	)	 	$	(762	)	 	$	(8,417	)	 	$	(9,445	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	Chemed	 	
 	 	VITAS	 	 	Roto-Rooter	 	 	Corporate	 	 	Consolidated	 	
After-tax benefit/(cost):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
     Stock option expense	 	$	-	 	 	$	-	 	 	$	(2,727	)	 	$	(2,727	)	
     Noncash impact of accounting for convertible debt	 	 	-	 	 	 	-	 	 	 	(2,472	)	 	 	(2,472	)	
     Expenses of class action litigation	 	 	-	 	 	 	(442	)	 	 	-	 	 	 	(442	)	
     Expenses of securities litigation	 	 	-	 	 	 	-	 	 	 	(124	)	 	 	(124	)	
     Acquisition expenses	 	 	-	 	 	 	(21	)	 	 	-	 	 	 	(21	)	
     Legal expenses of OIG investigation	 	 	(165	)	 	 	-	 	 	 	-	 	 	 	(165	)	
          Total	 	$	(165	)	 	$	(463	)	 	$	(5,323	)	 	$	(5,951	)	

-26-

 
 
CHEMED CORPORATION AND SUBSIDIARY COMPANIES	 	
CONSOLIDATING STATEMENT OF INCOME	 	
FOR THE SIX MONTHS ENDED JUNE 30, 2011	 	
(in thousands)(unaudited)	 	
 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	Chemed	 	
 	VITAS	 	 	Roto-Rooter	 	 	Corporate	 	 	Consolidated	 	
2011 (a)	 	 	 	 	 	 	 	 	 	 	 	 	
Service revenues and sales	 	$	478,768	 	 	$	185,510	 	 	$	-	 	 	$	664,278	 	
Cost of services provided and goods sold	 	 	374,241	 	 	 	102,814	 	 	 	-	 	 	 	477,055	 	
Selling, general and administrative expenses	 	 	38,446	 	 	 	51,124	 	 	 	16,508	 	 	 	106,078	 	
Depreciation	 	 	8,366	 	 	 	4,009	 	 	 	271	 	 	 	12,646	 	
Amortization	 	 	1,003	 	 	 	287	 	 	 	819	 	 	 	2,109	 	
Total costs and expenses	 	 	422,056	 	 	 	158,234	 	 	 	17,598	 	 	 	597,888	 	
Income/(loss) from operations	 	 	56,712	 	 	 	27,276	 	 	 	(17,598	)	 	 	66,390	 	
Interest expense	 	 	(110	)	 	 	(142	)	 	 	(6,453	)	 	 	(6,705	)	
Intercompany interest income/(expense)	 	 	2,428	 	 	 	1,291	 	 	 	(3,719	)	 	 	-	 	
Other income/(expense)—net	 	 	(59	)	 	 	5	 	 	 	2,870	 	 	 	2,816	 	
Income/(expense) before income taxes	 	 	58,971	 	 	 	28,430	 	 	 	(24,900	)	 	 	62,501	 	
Income taxes	 	 	(22,257	)	 	 	(10,828	)	 	 	8,971	 	 	 	(24,114	)	
Net income/(loss)	 	$	36,714	 	 	$	17,602	 	 	$	(15,929	)	 	$	38,387	 	

(a) The following amounts are included in net income (in thousands):	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	Chemed	 	
 	 	VITAS	 	 	Roto-Rooter	 	 	Corporate	 	 	Consolidated	 	
Pretax benefit/(cost):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
     Long-term incentive compensation	 	$	-	 	 	$	-	 	 	$	(3,012	)	 	$	(3,012	)	
     Stock option expense	 	 	-	 	 	 	-	 	 	 	(4,495	)	 	 	(4,495	)	
     Noncash impact of accounting for convertible debt	 	 	-	 	 	 	-	 	 	 	(3,615	)	 	 	(3,615	)	
     Expenses of class action litigation	 	 	-	 	 	 	(681	)	 	 	-	 	 	 	(681	)	
     Acquisition expenses	 	 	(115	)	 	 	6	 	 	 	-	 	 	 	(109	)	
     Legal expenses of OIG investigation	 	 	(997	)	 	 	-	 	 	 	-	 	 	 	(997	)	
          Total	 	$	(1,112	)	 	$	(675	)	 	$	(11,122	)	 	$	(12,909	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	Chemed	 	
 	 	VITAS	 	 	Roto-Rooter	 	 	Corporate	 	 	Consolidated	 	
After-tax benefit/(cost):	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 	 	
     Long-term incentive compensation	 	 	-	 	 	 	-	 	 	 	(2,287	)	 	 	(2,287	)	
     Stock option expense	 	 	-	 	 	 	-	 	 	 	(2,843	)	 	 	(2,843	)	
     Noncash impact of accounting for convertible debt	 	 	-	 	 	 	-	 	 	 	(1,880	)	 	 	(1,880	)	
     Expenses of class action litigation	 	 	-	 	 	 	(414	)	 	 	-	 	 	 	(414	)	
     Acquisition expenses	 	 	(71	)	 	 	4	 	 	 	-	 	 	 	(67	)	
     Legal expenses of OIG investigation	 	 	(618	)	 	 	-	 	 	 	-	 	 	 	(618	)	
          Total	 	$	(689	)	 	$	(410	)	 	$	(7,010	)	 	$	(8,109	)	

-27-

 
 
Consolidating Summary and Reconciliation of Adjusted EBITDA	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Chemed Corporation and Subsidiary Companies	 	 	 	 	
(in thousands)	 	 	 	 	 	 	 	 	 	Chemed	 	
For the three months ended June 30, 2012	VITAS	 	Roto-Rooter	 	Corporate	 	Consolidated	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income/(loss)	 	$	20,433	 	 	$	8,074	 	 	$	(7,233	)	 	$	21,274	 	
Add/(deduct):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest expense	 	 	63	 	 	 	107	 	 	 	3,502	 	 	 	3,672	 	
Income taxes	 	 	12,566	 	 	 	5,030	 	 	 	(3,987	)	 	 	13,609	 	
Depreciation	 	 	4,164	 	 	 	2,085	 	 	 	131	 	 	 	6,380	 	
Amortization	 	 	488	 	 	 	157	 	 	 	482	 	 	 	1,127	 	
EBITDA	 	 	37,714	 	 	 	15,453	 	 	 	(7,105	)	 	 	46,062	 	
Add/(deduct):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Legal expenses of OIG investigation	 	 	195	 	 	 	-	 	 	 	-	 	 	 	195	 	
Acquisition expenses	 	 	-	 	 	 	20	 	 	 	-	 	 	 	20	 	
Expenses of class action litigation	 	 	-	 	 	 	80	 	 	 	-	 	 	 	80	 	
Expenses of securities litigation	 	 	-	 	 	 	-	 	 	 	197	 	 	 	197	 	
Stock option expense	 	 	-	 	 	 	-	 	 	 	2,374	 	 	 	2,374	 	
Advertising cost adjustment	 	 	-	 	 	 	(696	)	 	 	-	 	 	 	(696	)	
Interest income	 	 	(42	)	 	 	(2	)	 	 	(15	)	 	 	(59	)	
Intercompany interest income/(expense)	 	 	(812	)	 	 	(430	)	 	 	1,242	 	 	 	-	 	
Adjusted EBITDA	 	$	37,055	 	 	$	14,425	 	 	$	(3,307	)	 	$	48,173	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	Chemed	 	
For the three months ended June 30, 2011	VITAS	 	Roto-Rooter	 	Corporate	 	Consolidated	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income/(loss)	 	$	18,589	 	 	$	9,092	 	 	$	(7,395	)	 	$	20,286	 	
Add/(deduct):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest expense	 	 	62	 	 	 	77	 	 	 	3,322	 	 	 	3,461	 	
Income taxes	 	 	11,175	 	 	 	5,542	 	 	 	(3,908	)	 	 	12,809	 	
Depreciation	 	 	4,199	 	 	 	2,025	 	 	 	134	 	 	 	6,358	 	
Amortization	 	 	520	 	 	 	155	 	 	 	464	 	 	 	1,139	 	
EBITDA	 	 	34,545	 	 	 	16,891	 	 	 	(7,383	)	 	 	44,053	 	
Add/(deduct):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Legal expenses of OIG investigation	 	 	486	 	 	 	-	 	 	 	-	 	 	 	486	 	
Acquisition expenses	 	 	51	 	 	 	(12	)	 	 	-	 	 	 	39	 	
Expenses of class action litigation	 	 	-	 	 	 	186	 	 	 	-	 	 	 	186	 	
Stock option expense	 	 	-	 	 	 	-	 	 	 	2,562	 	 	 	2,562	 	
Advertising cost adjustment	 	 	-	 	 	 	(607	)	 	 	-	 	 	 	(607	)	
Interest income	 	 	(7	)	 	 	(9	)	 	 	(46	)	 	 	(62	)	
Intercompany interest income/(expense)	 	 	(1,215	)	 	 	(652	)	 	 	1,867	 	 	 	-	 	
Adjusted EBITDA	 	$	33,860	 	 	$	15,797	 	 	$	(3,000	)	 	$	46,657	 	

-28-

 

Consolidating Summary and Reconciliation of Adjusted EBITDA	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Chemed Corporation and Subsidiary Companies	 	 	 	 	
(in thousands)	 	 	 	 	 	 	 	 	 	Chemed	 	
For the six months ended June 30, 2012	VITAS	 	Roto-Rooter	 	Corporate	 	Consolidated	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income/(loss)	 	$	40,060	 	 	$	15,569	 	 	$	(13,910	)	 	$	41,719	 	
Add/(deduct):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest expense	 	 	126	 	 	 	214	 	 	 	6,949	 	 	 	7,289	 	
Income taxes	 	 	24,564	 	 	 	9,680	 	 	 	(7,625	)	 	 	26,619	 	
Depreciation	 	 	8,188	 	 	 	4,171	 	 	 	262	 	 	 	12,621	 	
Amortization	 	 	978	 	 	 	311	 	 	 	951	 	 	 	2,240	 	
EBITDA	 	 	73,916	 	 	 	29,945	 	 	 	(13,373	)	 	 	90,488	 	
Add/(deduct):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Legal expenses of OIG investigation	 	 	266	 	 	 	-	 	 	 	-	 	 	 	266	 	
Acquisition expenses	 	 	-	 	 	 	35	 	 	 	-	 	 	 	35	 	
Expenses of class action litigation	 	 	-	 	 	 	727	 	 	 	-	 	 	 	727	 	
Expenses of securities litigation	 	 	-	 	 	 	-	 	 	 	197	 	 	 	197	 	
Stock option expense	 	 	-	 	 	 	-	 	 	 	4,312	 	 	 	4,312	 	
Advertising cost adjustment	 	 	-	 	 	 	(1,402	)	 	 	-	 	 	 	(1,402	)	
Interest income	 	 	(72	)	 	 	(10	)	 	 	(28	)	 	 	(110	)	
Intercompany interest income/(expense)	 	 	(1,566	)	 	 	(825	)	 	 	2,391	 	 	 	-	 	
Adjusted EBITDA	 	$	72,544	 	 	$	28,470	 	 	$	(6,501	)	 	$	94,513	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	Chemed	 	
For the six months ended June 30, 2011	VITAS	 	Roto-Rooter	 	Corporate	 	Consolidated	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income/(loss)	 	$	36,714	 	 	$	17,602	 	 	$	(15,929	)	 	$	38,387	 	
Add/(deduct):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest expense	 	 	110	 	 	 	142	 	 	 	6,453	 	 	 	6,705	 	
Income taxes	 	 	22,257	 	 	 	10,828	 	 	 	(8,971	)	 	 	24,114	 	
Depreciation	 	 	8,366	 	 	 	4,009	 	 	 	271	 	 	 	12,646	 	
Amortization	 	 	1,003	 	 	 	287	 	 	 	819	 	 	 	2,109	 	
EBITDA	 	 	68,450	 	 	 	32,868	 	 	 	(17,357	)	 	 	83,961	 	
Add/(deduct):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Legal expenses of OIG investigation	 	 	997	 	 	 	-	 	 	 	-	 	 	 	997	 	
Acquisition expenses	 	 	115	 	 	 	(6	)	 	 	-	 	 	 	109	 	
Expenses of class action litigation	 	 	-	 	 	 	681	 	 	 	-	 	 	 	681	 	
Long-term incentive compensation	 	 	-	 	 	 	-	 	 	 	3,012	 	 	 	3,012	 	
Stock option expense	 	 	-	 	 	 	-	 	 	 	4,495	 	 	 	4,495	 	
Advertising cost adjustment	 	 	-	 	 	 	(857	)	 	 	-	 	 	 	(857	)	
Interest income	 	 	(44	)	 	 	(16	)	 	 	(63	)	 	 	(123	)	
Intercompany interest income/(expense)	 	 	(2,428	)	 	 	(1,291	)	 	 	3,719	 	 	 	-	 	
Adjusted EBITDA	 	$	67,090	 	 	$	31,379	 	 	$	(6,194	)	 	$	92,275	 	

-29-

 
 
CHEMED CORPORATION AND SUBSIDIARY COMPANIES	 	
OPERATING STATISTICS FOR VITAS SEGMENT	 	
(unaudited)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three Months Ended June 30,	 	 	Six Months Ended June 30,	 	
OPERATING STATISTICS	 	2012	 	 	2011	 	 	2012	 	 	2011	 	
Net revenue ($000)	 	 	 	 	 	 	 	 	 	 	 	 	
Homecare	 	$	193,150	 	 	$	177,067	 	 	$	379,747	 	 	$	345,719	 	
Inpatient	 	 	29,247	 	 	 	27,183	 	 	 	58,399	 	 	 	54,569	 	
Continuous care	 	 	42,816	 	 	 	39,213	 	 	 	85,337	 	 	 	77,838	 	
Total before Medicare cap allowance	 	$	265,213	 	 	$	243,463	 	 	$	523,483	 	 	$	478,126	 	
Medicare cap allowance	 	 	-	 	 	 	(368	)	 	 	2,577	 	 	 	642	 	
Total	 	$	265,213	 	 	$	243,095	 	 	$	526,060	 	 	$	478,768	 	
Net revenue as a percent of total	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
before Medicare cap allowance	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Homecare	 	 	72.9	 %	 	 	72.7	 %	 	 	72.5	 %	 	 	72.2	 %	
Inpatient	 	 	11.0	  	 	 	11.2	 	 	 	11.2	 	 	 	11.4	 	
Continuous care	 	 	16.1	 	 	 	16.1	 	 	 	16.3	 	 	 	16.4	 	
Total before Medicare cap allowance	 	 	100.0	 	 	 	100.0	 	 	 	100.0	 	 	 	100.0	 	
Medicare cap allowance	 	 	-	 	 	 	(0.2	)	 	 	0.5	 	 	 	0.1	 	
Total	 	 	100.0	 %	 	 	99.8	 %	 	 	100.5	 %	 	 	100.1	 %	
Average daily census (days)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Homecare	 	 	9,971	 	 	 	9,229	 	 	 	9,792	 	 	 	9,031	 	
Nursing home	 	 	3,036	 	 	 	3,034	 	 	 	3,011	 	 	 	3,034	 	
Routine homecare	 	 	13,007	 	 	 	12,263	 	 	 	12,803	 	 	 	12,065	 	
Inpatient	 	 	466	 	 	 	447	 	 	 	469	 	 	 	449	 	
Continuous care	 	 	638	 	 	 	601	 	 	 	635	 	 	 	602	 	
Total	 	 	14,111	 	 	 	13,311	 	 	 	13,907	 	 	 	13,116	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Admissions	 	 	15,912	 	 	 	15,294	 	 	 	32,234	 	 	 	31,092	 	
Total Discharges	 	 	15,508	 	 	 	14,885	 	 	 	31,707	 	 	 	30,419	 	
Average length of stay (days)	 	 	74.0	 	 	 	77.1	 	 	 	78.3	 	 	 	78.0	 	
Median length of stay (days)	 	 	14.0	 	 	 	14.0	 	 	 	14.0	 	 	 	14.0	 	
ADC by major diagnosis	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Neurological	 	 	33.6	 %	 	 	34.2	 %	 	 	34.0	 %	 	 	34.2	 %	
Cancer	 	 	17.7	 	 	 	17.7	 	 	 	17.8	 	 	 	17.8	 	
Cardio	 	 	11.6	 	 	 	11.5	 	 	 	11.5	 	 	 	11.7	 	
Respiratory	 	 	6.7	 	 	 	6.9	 	 	 	6.7	 	 	 	6.8	 	
Other	 	 	30.4	 	 	 	29.7	 	 	 	30.0	 	 	 	29.5	 	
Total	 	 	100.0	 %	 	 	100.0	 %	 	 	100.0	 %	 	 	100.0	 %	
Admissions by major diagnosis	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Neurological	 	 	18.9	 %	 	 	19.4	 %	 	 	19.2	 %	 	 	19.5	 %	
Cancer	 	 	33.5	 	 	 	32.8	 	 	 	32.9	 	 	 	32.2	 	
Cardio	 	 	10.8	 	 	 	10.8	 	 	 	11.3	 	 	 	11.0	 	
Respiratory	 	 	8.1	 	 	 	8.5	 	 	 	8.5	 	 	 	8.8	 	
Other	 	 	28.7	 	 	 	28.5	 	 	 	28.1	 	 	 	28.5	 	
Total	 	 	100.0	 %	 	 	100.0	 %	 	 	100.0	 %	 	 	100.0	 %	
Direct patient care margins	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Routine homecare	 	 	52.4	 %	 	 	52.4	 %	 	 	51.4	 %	 	 	51.7	 %	
Inpatient	 	 	12.7	 	 	 	13.3	 	 	 	13.4	 	 	 	13.1	 	
Continuous care	 	 	19.7	 	 	 	20.2	 	 	 	19.8	 	 	 	20.4	 	
Homecare margin drivers (dollars per patient day)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Labor costs	 	$	54.56	 	 	$	53.23	 	 	$	56.13	 	 	$	54.28	 	
Drug costs	 	 	8.31	 	 	 	8.21	 	 	 	8.32	 	 	 	8.08	 	
Home medical equipment	 	 	6.79	 	 	 	6.66	 	 	 	6.80	 	 	 	6.66	 	
Medical supplies	 	 	2.79	 	 	 	2.83	 	 	 	2.77	 	 	 	2.79	 	
Inpatient margin drivers (dollars per patient day)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Labor costs	 	$	321.16	 	 	$	311.26	 	 	$	317.73	 	 	$	308.97	 	
Continuous care margin drivers (dollars per patient day)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Labor costs	 	$	569.98	 	 	$	550.40	 	 	$	569.76	 	 	$	547.29	 	
Bad debt expense as a percent of revenues	 	 	0.8	 %	 	 	0.8	 %	 	 	0.8	 %	 	 	0.7	 %	
Accounts receivable --	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
  Days of revenue outstanding- excluding unapplied Medicare payments	 	 	35.0	 	 	 	37.2	 	 	n.a	 	 	n.a	 	
  Days of revenue outstanding- including unapplied Medicare payments	 	 	30.6	 	 	 	36.8	 	 	n.a	 	 	n.a	 	

-30-

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

Certain statements contained in this report are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  The words “believe”, “expect”, “hope”, “anticipate”, “plan” and similar expressions identify forward-looking statements, which speak only as of the date the statement was made.  These forward-looking statements are based on current expectations and assumptions and involve various known and unknown risks, uncertainties, contingencies and other factors, which could cause Chemed’s actual results to differ from those expressed in such forward-looking statements.  Variances in any or all of the risks, uncertainties, contingencies, and other factors from our assumptions could cause actual results to differ materially from these forward-looking statements and trends.  In addition, our ability to deal with the unknown outcomes of these events, many of which are beyond our control, may affect the reliability of projections and other financial matters.  Investors are cautioned that such forward-looking statements are subject to inherent risk and there are no assurances that the matters contained in such statements will be achieved.  Chemed does not undertake and specifically disclaims any obligation to publicly update or revise any forward-looking statements, whether as a result of a new information, future events or otherwise.

Item 3.   Quantitative and Qualitative Disclosures about Market Risk
Our primary market risk exposure relates to interest rate risk exposure through variable interest rate borrowings.  At June 30, 2012, we had no variable rate debt outstanding.  At June 30, 2012, the fair value of the Notes approximates $188.0 million which have a face value of $187.0 million.

Item 4.   Controls and Procedures
We carried out an evaluation, under the supervision of our President and Chief Executive Officer and with the participation of the Executive Vice President and Chief Financial Officer and the Vice President and Controller, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report.  Based on that evaluation, the President and Chief Executive Officer, Executive Vice President and Chief Financial Officer and Vice President and Controller have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.  There has been no change in our internal control over financial reporting that occurred during the quarter covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II OTHER INFORMATION
Item 1.    Legal Proceedings

For information regarding the Company’s legal proceedings, see note 11, Legal and Regulatory Matters, under Part I, Item I of this Quarterly Report on Form 10-Q.

Item 1A. Risk Factors

There have been no material changes from the risk factors previously disclosed in the Company’s most recent Annual Report on Form 10-K.

-31-

 
 
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds

Item 2(c). Purchases of Equity Securities by Issuer and Affiliated Purchasers

The following table shows the activity related to our share repurchase program for the first six months of 2012:

 	 	Total
Number	 	 	Weighted
Average	 	 	Cumulative Shares	 	 	Dollar Amount	 	
 	 	of Shares	 	 	Price Paid Per	 	 	Repurchased Under	 	 	Remaining Under	 	
 	 	Repurchased	 	 	Share	 	 	the Program	 	 	The Program	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
February 2011 Program	 	 	 	 	 	 	 	 	 	 	 	 	
January 1 through January 31, 2012	 	 	-	 	 	$	-	 	 	 	2,602,513	 	 	$	75,268,254	 	
February 1 through February 29, 2012	 	 	-	 	 	 	-	 	 	 	2,602,513	 	 	 	75,268,254	 	
March 1 through March 31, 2012	 	 	-	 	 	 	-	 	 	 	2,602,513	 	 	$	75,268,254	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
First Quarter Total - February 2011 Program	 	 	-	 	 	$	-	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
April 1 through April 30, 2012	 	 	-	 	 	$	-	 	 	 	2,602,513	 	 	$	75,268,254	 	
May 31 through May 31, 2012	 	 	168,812	 	 	 	55.77	 	 	 	2,771,325	 	 	 	65,853,060	 	
June 1 through June 30, 2012	 	 	31,088	 	 	 	55.42	 	 	 	2,802,413	 	 	$	64,130,136	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Second Quarter Total - February 2011 Program	 	 	199,900	 	 	$	55.72	 	 	 	 	 	 	 	 	 	

Item 3.   Defaults Upon Senior Securities

None

Item 4.   Mine Safety Disclosures

None

Item 5.   Other Information

None

Item 6.   Exhibits
 	 	 	
Exhibit No.	 	Description	
 	 	 	
31.1	 	Certification by Kevin J. McNamara pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act of 1934.	
 	 	 	
31.2	 	Certification by David P. Williams pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange  Act of 1934.	
 	 	 	
31.3	 	Certification by Arthur V. Tucker, Jr. pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act of 1934.	
 	 	 	
32.1	 	Certification by Kevin J. McNamara pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	
 	 	 	
32.2	 	Certification by David P. Williams pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	
 	 	 	
32.3	 	Certification by Arthur V. Tucker, Jr. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	
 	 	 	
101.INS	 	XBRL Instance Document	
 	 	 	
101.SCH	 	XBRL Taxonomy Extension Schema	
 	 	 	
101.CAL	 	XBRL Taxonomy Extension Calculation Linkbase
 	
101.DEF	 	XBRL Taxonomy Extension Definition Linkbase
 	
101.LAB	 	XBRL Taxonomy Extension Label Linkbase	
 	 	 	
101.PRE	 	XBRL Taxonomy Extension Presentation Linkbase	

 
 
-32-

 
 
SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	Chemed Corporation	
 	 	 	 	 	 	 	(Registrant)	

 	Dated:	 	August 2, 2012	 	By:	 	/s/ Kevin J. McNamara	
 	 	 	 	 	 	 	Kevin J. McNamara	
 	 	 	 	 	 	 	(President and Chief Executive Officer)	

 	Dated:	 	August 2, 2012	 	By:	 	/s/ David P. Williams	
 	 	 	 	 	 	 	David P. Williams	
 	 	 	 	 	 	 	(Executive Vice President and Chief Financial Officer)	

 	Dated:	 	August 2, 2012	 	By:	 	/s/ Arthur V. Tucker, Jr.	
 	 	 	 	 	 	 	Arthur V. Tucker, Jr.	
 	 	 	 	 	 	 	(Vice President and Controller)	

-33-

EXHIBIT 31.1

CERTIFICATION PURSUANT TO RULES 13a-14(a)/15d-14(a) OF THE EXCHANGE ACT OF 1934

I, Kevin J. McNamara, certify that:

1.  I have reviewed this quarterly report on Form 10-Q of Chemed Corporation (“registrant”);

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;

4.  The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have:

 	a)  designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	

 	b)  designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	

 	c)  evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	

 	d)  disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter  (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and	

5.  The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors or persons performing the equivalent function:

 	a)  all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and	

 	b)  any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.	

 
Date:       August 2, 2012        	/s/ Kevin J. McNamara	
 	Kevin J. McNamara	
 	(President and Chief	
 	Executive Officer)	
 
E-1

EXHIBIT 31.2

CERTIFICATION PURSUANT TO RULES 13a-14(a)/15d-14(a) OF THE EXCHANGE ACT OF 1934

I, David P. Williams, certify that:

1.  I have reviewed this quarterly report on Form 10-Q of Chemed Corporation (“registrant”);

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;

4.  The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have:

 	a)  designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	

 	b)  designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	

 	c)  evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	

 	d)  disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and	

5.  The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors or persons performing the equivalent function:

 	a)  all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and	

 	b)  any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.	

 
Date:       August 2, 2012        	/s/ David P. Williams	
 	David P. Williams	
 	(Executive Vice President and Chief Financial Officer)	
 
E-2

EXHIBIT 31.3

CERTIFICATION PURSUANT TO RULES 13a-14(a)/15d-14(a) OF THE EXCHANGE ACT OF 1934

I, Arthur V. Tucker, Jr., certify that:

1.  I have reviewed this quarterly report on Form 10-Q of Chemed Corporation (“registrant”);

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;

4.  The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have:

 	a)  designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	

 	b)  designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles,	

 	c)  evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	

 	d)  disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and	

5.  The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors or persons performing the equivalent function:

 	a)  all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and	

 	b)  any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.	

Date:       August 2, 2012        	/s/ Arthur V. Tucker, Jr.	
 	Arthur V. Tucker, Jr.	
 	(Vice President and	
 	Controller) 	
 
E-3

EXHIBIT 32.1

CERTIFICATION BY KEVIN J. MCNAMARA
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002.

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, as President and Chief Executive Officer of Chemed Corporation (“Company”), does hereby certify that:

 	1)	the Company’s Quarterly Report on Form 10-Q for the quarter ending June 30, 2012 (“Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and	

 	2)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.	

 
Dated:    August 2, 2012        	/s/ Kevin J. McNamara	
 	Kevin J. McNamara	
 	(President and Chief	
 	Executive Officer)	
  E-4

EXHIBIT 32.2

CERTIFICATION BY DAVID P. WILLIAMS
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002.

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, as Executive Vice President and Chief Financial Officer of Chemed Corporation (“Company”), does hereby certify that:

 	1)	the Company’s Quarterly Report on Form 10-Q for the quarter ending June 30, 2012 (“Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and	

 	2)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.	

Dated:    August 2, 2012        	/s/ David P. Williams	
 	David P. Williams	
 	(Executive Vice President and Chief Financial Officer)	
 
E-5

EXHIBIT 32.3

CERTIFICATION BY ARTHUR V. TUCKER, JR.
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002.

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, as Vice President and Controller of Chemed Corporation (“Company”), does hereby certify that:

 	1)	the Company’s Quarterly Report on Form 10-Q for the quarter ending June 30, 2012 (“Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and	

 	2)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.	

Dated:    August 2, 2012        	/s/ Arthur V. Tucker, Jr.	
 	Arthur V. Tucker, Jr.	
 	(Vice President and Controller) 	
 
E-6