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 September 30, 2011	
 	 	
 	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.)	
 	 	 	
2600 Chemed Center, 255 E. Fifth Street, Cincinnati, Ohio	 	45202	
(Address of principal executive offices)	 	(Zip code)	
 
(513) 762-6900
(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	 	19,881,497 Shares	 	September 30, 2011	

 
 
-1-

 

CHEMED CORPORATION AND
SUBSIDIARY COMPANIES

Index

 	Page No.	
PART I.    FINANCIAL INFORMATION:	 	
 	Item 1.  Financial Statements	 	
 	Unaudited Consolidated Balance Sheet -	 	
 	September 30, 2011 and December 31, 2010	3	
 	 	 	
 	Unaudited Consolidated Statement of Income -	 	
 	Three and nine months ended September 30, 2011 and 2010	4	
 	 	 	
 	Unaudited Consolidated Statement of Cash Flows -	 	
 	Nine months ended September 30, 2011 and 2010	5	
 	 	 	
 	Notes to Unaudited 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.    Removed and Reserved	32	
 	 	 	
 	Item 5.    Other Information	32	
 	 	 	
 	Item 6.    Exhibits	33	
 	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.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)	 	

 	 	September 30,	 	 	December 31,	 	
 	 	2011	 	 	2010	 	
ASSETS	 	 	 	 	 	 	
Current assets	 	 	 	 	 	 	
Cash and cash equivalents	 	$	21,342	 	 	$	49,917	 	
Accounts receivable less allowances of $12,033 (2010 - $13,332)	 	 	112,721	 	 	 	112,999	 	
Inventories	 	 	8,888	 	 	 	7,728	 	
Current deferred income taxes	 	 	14,850	 	 	 	15,098	 	
Prepaid income taxes	 	 	764	 	 	 	770	 	
Prepaid expenses	 	 	10,031	 	 	 	10,285	 	
Total current assets	 	 	168,596	 	 	 	196,797	 	
Investments of deferred compensation plans	 	 	31,339	 	 	 	28,304	 	
Properties and equipment, at cost, less accumulated depreciation of $142,067 (2010 - $132,696)	 	 	83,484	 	 	 	79,292	 	
Identifiable intangible assets less accumulated amortization of $28,530 (2010 - $27,438)	 	 	55,983	 	 	 	56,410	 	
Goodwill	 	 	460,747	 	 	 	458,343	 	
Other assets	 	 	14,907	 	 	 	11,015	 	
Total Assets	 	$	815,056	 	 	$	830,161	 	
 	 	 	 	 	 	 	 	 	
LIABILITIES	 	 	 	 	 	 	 	 	
Current liabilities	 	 	 	 	 	 	 	 	
Accounts payable	 	$	59,186	 	 	$	55,829	 	
Income taxes	 	 	8,267	 	 	 	1,161	 	
Accrued insurance	 	 	35,655	 	 	 	36,492	 	
Accrued compensation	 	 	40,376	 	 	 	39,719	 	
Other current liabilities	 	 	17,308	 	 	 	16,141	 	
Total current liabilities	 	 	160,792	 	 	 	149,342	 	
Deferred income taxes	 	 	23,262	 	 	 	25,085	 	
Long-term debt	 	 	164,841	 	 	 	159,208	 	
Deferred compensation liabilities	 	 	30,267	 	 	 	27,851	 	
Other liabilities	 	 	9,559	 	 	 	6,626	 	
Total Liabilities	 	 	388,721	 	 	 	368,112	 	
 	 	 	 	 	 	 	 	 	
STOCKHOLDERS' EQUITY	 	 	 	 	 	 	 	 	
Capital stock - authorized 80,000,000 shares $1 par; issued 30,913,424 shares (2010 - 30,381,863 shares)	 	 	30,913	 	 	 	30,382	 	
Paid-in capital	 	 	394,822	 	 	 	365,007	 	
Retained earnings	 	 	524,197	 	 	 	473,316	 	
Treasury stock - 11,128,851 shares (2010 - 9,103,185 shares), at cost	 	 	(525,555	)	 	 	(408,615	)	
Deferred compensation payable in Company stock	 	 	1,958	 	 	 	1,959	 	
Total Stockholders' Equity	 	 	426,335	 	 	 	462,049	 	
Total Liabilities and Stockholders' Equity	 	$	815,056	 	 	$	830,161	 	
 
See accompanying notes to unaudited financial statements.

-3-

 

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

 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three Months Ended September 30,	 	 	Nine Months Ended September 30,	 	
 	 	2011	 	 	2010	 	 	2011	 	 	2010	 	
Service revenues and sales	 	$	341,439	 	 	$	320,451	 	 	$	1,005,717	 	 	$	944,259	 	
Cost of services provided and goods sold (excluding depreciation)	 	 	245,063	 	 	 	227,915	 	 	 	722,118	 	 	 	670,754	 	
Selling, general and administrative expenses	 	 	47,618	 	 	 	48,200	 	 	 	153,696	 	 	 	146,694	 	
Depreciation	 	 	6,313	 	 	 	6,385	 	 	 	18,959	 	 	 	18,048	 	
Amortization	 	 	1,134	 	 	 	1,196	 	 	 	3,243	 	 	 	3,707	 	
Total costs and expenses	 	 	300,128	 	 	 	283,696	 	 	 	898,016	 	 	 	839,203	 	
Income from operations	 	 	41,311	 	 	 	36,755	 	 	 	107,701	 	 	 	105,056	 	
Interest expense	 	 	(3,555	)	 	 	(2,995	)	 	 	(10,260	)	 	 	(8,946	)	
Other income/(expense) - net	 	 	(1,935	)	 	 	222	 	 	 	881	 	 	 	418	 	
Income before income taxes	 	 	35,821	 	 	 	33,982	 	 	 	98,322	 	 	 	96,528	 	
Income taxes	 	 	(13,934	)	 	 	(12,994	)	 	 	(38,048	)	 	 	(37,327	)	
Net income	 	$	21,887	 	 	$	20,988	 	 	$	60,274	 	 	$	59,201	 	

Earnings Per Share	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	$	1.06	 	 	$	0.93	 	 	$	2.88	 	 	$	2.62	 	
Average number of shares outstanding	 	 	20,674	 	 	 	22,597	 	 	 	20,934	 	 	 	22,604	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Diluted Earnings Per Share	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	$	1.04	 	 	$	0.91	 	 	$	2.82	 	 	$	2.57	 	
Average number of shares outstanding	 	 	21,055	 	 	 	22,996	 	 	 	21,400	 	 	 	23,006	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash Dividends Per Share	 	$	0.16	 	 	$	0.14	 	 	$	0.44	 	 	$	0.38	 	
 
See accompanying notes to unaudited financial statements.

-4-

 

CHEMED CORPORATION AND SUBSIDIARY COMPANIES	 	
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS	 	
(in thousands)	 	
 	 	 	 	 	 	 	
 	 	Nine Months Ended	 	
 	 	September 30,	 	
 	 	2011	 	 	2010	 	
Cash Flows from Operating Activities	 	 	 	 	 	 	
Net income	 	$	60,274	 	 	$	59,201	 	
Adjustments to reconcile net income to net cash provided	 	 	 	 	 	 	 	 	
by operating activities:	 	 	 	 	 	 	 	 	
Depreciation and amortization	 	 	22,202	 	 	 	21,755	 	
Stock option expense	 	 	6,903	 	 	 	6,365	 	
Provision for uncollectible accounts receivable	 	 	6,640	 	 	 	7,248	 	
Amortization of discount on convertible notes	 	 	5,633	 	 	 	5,265	 	
Noncash long-term incentive compensation	 	 	2,595	 	 	 	1,580	 	
Provision for deferred income taxes	 	 	(1,608	)	 	 	(3,886	)	
Changes in operating assets and liabilities, excluding	 	 	 	 	 	 	 	 	
amounts acquired in business combinations:	 	 	 	 	 	 	 	 	
Increase in accounts receivable	 	 	(5,991	)	 	 	(59,528	)	
Increase in inventories	 	 	(1,160	)	 	 	(408	)	
Decrease in prepaid expenses	 	 	254	 	 	 	463	 	
Increase in accounts payable and other current liabilities	 	 	2,654	 	 	 	12,479	 	
Increase in income taxes	 	 	12,253	 	 	 	6,729	 	
Increase in other assets	 	 	(3,811	)	 	 	(2,180	)	
Increase in other liabilities	 	 	3,567	 	 	 	3,960	 	
Excess tax benefit on share-based compensation	 	 	(3,368	)	 	 	(1,823	)	
Other sources	 	 	899	 	 	 	770	 	
Net cash provided by operating activities	 	 	107,936	 	 	 	57,990	 	
Cash Flows from Investing Activities	 	 	 	 	 	 	 	 	
Capital expenditures	 	 	(23,459	)	 	 	(19,107	)	
Business combinations, net of cash acquired	 	 	(3,689	)	 	 	(30	)	
Other uses	 	 	(829	)	 	 	(448	)	
Net cash used by investing activities	 	 	(27,977	)	 	 	(19,585	)	
Cash Flows from Financing Activities	 	 	 	 	 	 	 	 	
Purchases of treasury stock	 	 	(110,288	)	 	 	(10,175	)	
Dividends paid	 	 	(9,393	)	 	 	(8,682	)	
Proceeds from issuance of capital stock	 	 	7,979	 	 	 	3,632	 	
Excess tax benefit on share-based compensation	 	 	3,368	 	 	 	1,823	 	
Debt issuance costs	 	 	(2,723	)	 	 	-	 	
Increase/(decrease) in cash overdrafts payable	 	 	2,297	 	 	 	(184	)	
Other sources	 	 	226	 	 	 	222	 	
Net cash used by financing activities	 	 	(108,534	)	 	 	(13,364	)	
Increase/(Decrease) in Cash and Cash Equivalents	 	 	(28,575	)	 	 	25,041	 	
Cash and cash equivalents at beginning of year	 	 	49,917	 	 	 	112,416	 	
Cash and cash equivalents at end of period	 	$	21,342	 	 	$	137,457	 	
 
See accompanying notes to unaudited financial statements.

-5-

 
 
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
Notes to Unaudited 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, 2010 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, 2010.

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 September 30, 2011, VITAS has approximately $1.1 million in unbilled revenue included in accounts receivable (December 31, 2010 - $2.8 million).  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 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 September 30, 2011 we recorded a reversal of $384,000 in Medicare cap liability for one small program for the 2011 measurement period.  During the nine-month period ended September 30, 2011, we had a net Medicare cap liability reversal for amounts recorded in the fourth quarter of 2010.  We reversed these amounts as improving admissions trends in these programs indicate that the liability had been eliminated.  We also reversed the remaining Medicare cap liability for our Phoenix program due to expiration for the period under review.
 
Shown below is the Medicare cap liability activity for the periods ended September 30, 2011 and 2010 (in thousands):
 
 	 	September 30,	 	
 	 	2011	 	 	2010	 	
Beginning balance January 1,	 	$	1,371	 	 	$	1,981	 	
Reversal - 2011 measurement period	 	 	(829	)	 	 	-	 	
Reversal - 2010 measurement period	 	 	-	 	 	 	(1,783	)	
Accrual -  2010 measurement period	 	 	-	 	 	 	117	 	
Other	 	 	(198	)	 	 	-	 	
Ending balance September 30,	 	$	344	 	 	$	315	 	

-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 for the three and nine month periods ended September 30, 2011 and 2010 is as follows (in thousands):
 
Three months ended	 	 	Nine months ended	 	
September 30,	 	 	September 30,	 	
2011	 	 	2010	 	 	2011	 	 	2010	 	
$	1,775	 	 	$	2,012	 	 	$	5,298	 	 	$	5,386	 	

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

 	 	Three months ended	 	 	Nine months ended	 	
 	 	September 30,	 	 	September 30,	 	
 	 	2011	 	 	2010	 	 	2011	 	 	2010	 	
Service Revenues and Sales	 	 	 	 	 	 	 	 	 	 	 	 	
VITAS	 	$	252,944	 	 	$	233,964	 	 	$	731,712	 	 	$	683,542	 	
Roto-Rooter	 	 	88,495	 	 	 	86,487	 	 	 	274,005	 	 	 	260,717	 	
Total	 	$	341,439	 	 	$	320,451	 	 	$	1,005,717	 	 	$	944,259	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
After-tax Earnings	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
VITAS	 	$	20,970	 	 	$	19,803	 	 	$	57,684	 	 	$	56,523	 	
Roto-Rooter	 	 	8,016	 	 	 	7,747	 	 	 	25,618	 	 	 	24,420	 	
Total	 	 	28,986	 	 	 	27,550	 	 	 	83,302	 	 	 	80,943	 	
Corporate	 	 	(7,099	)	 	 	(6,562	)	 	 	(23,028	)	 	 	(21,742	)	
Net income	 	$	21,887	 	 	$	20,988	 	 	$	60,274	 	 	$	59,201	 	
 
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 are computed using the weighted average number of shares of capital stock outstanding.  Earnings and diluted earnings per share for 2011 and 2010 are computed as follows (in thousands, except per share data):

 	 	Net Income	 	
For the Three Months Ended
September 30,	 	Income	 	 	Shares	 	 	Earnings per
Share	 	
2011	 	 	 	 	 	 	 	 	 	
Earnings	 	$	21,887	 	 	 	20,674	 	 	$	1.06	 	
Dilutive stock options	 	 	-	 	 	 	293	 	 	 	 	 	
Nonvested stock awards	 	 	-	 	 	 	88	 	 	 	 	 	
Diluted earnings	 	$	21,887	 	 	 	21,055	 	 	$	1.04	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
2010	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings	 	$	20,988	 	 	 	22,597	 	 	$	0.93	 	
Dilutive stock options	 	 	-	 	 	 	304	 	 	 	 	 	
Nonvested stock awards	 	 	-	 	 	 	95	 	 	 	 	 	
Diluted earnings	 	$	20,988	 	 	 	22,996	 	 	$	0.91	 	

-7-

 
 
 	 	Net Income	 	
For the Nine Months Ended
September 30,	 	Income	 	 	Shares	 	 	Earnings per
Share	 	
2011	 	 	 	 	 	 	 	 	 	
Earnings	 	$	60,274	 	 	 	20,934	 	 	$	2.88	 	
Dilutive stock options	 	 	-	 	 	 	379	 	 	 	 	 	
Nonvested stock awards	 	 	-	 	 	 	87	 	 	 	 	 	
Diluted earnings	 	$	60,274	 	 	 	21,400	 	 	$	2.82	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
2010	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings	 	$	59,201	 	 	 	22,604	 	 	$	2.62	 	
Dilutive stock options	 	 	-	 	 	 	314	 	 	 	 	 	
Nonvested stock awards	 	 	-	 	 	 	88	 	 	 	 	 	
Diluted earnings	 	$	59,201	 	 	 	23,006	 	 	$	2.57	 	
 
For the three and nine-month periods ended September 30, 2011, 1.5 million and 980,000 stock options, respectively, 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 nine-month periods ended September 30, 2010, 990,000 and 986,000 stock options, respectively, 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.  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	 	 	 	28,058	 	 	 	-	 	 	 	28,058	 	 	 	(30,015	)	 	 	(1,957	)	
$	90.73	 	 	 	283,300	 	 	 	-	 	 	 	283,300	 	 	 	(303,066	)	 	 	(19,766	)	
$	100.73	 	 	 	487,865	 	 	 	-	 	 	 	487,865	 	 	 	(521,903	)	 	 	(34,038	)	
$	110.73	 	 	 	655,480	 	 	 	119,789	 	 	 	775,269	 	 	 	(701,214	)	 	 	74,055	 	
$	120.73	 	 	 	795,329	 	 	 	317,554	 	 	 	1,112,883	 	 	 	(850,820	)	 	 	262,063	 	
$	130.73	 	 	 	913,783	 	 	 	485,064	 	 	 	1,398,847	 	 	 	(977,538	)	 	 	421,309	 	
 
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.  Debt issuance costs associated with the existing credit agreement were not material.   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 September 30, 2011.  We have issued $29.5 million in standby letters of credit as of September 30, 2011 for insurance purposes.  Issued letters of credit reduce our available credit under the 2011 Credit Agreement.  As of September 30, 2011, we have approximately $320.5 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:
 
 	 	September 30, 2011	 	 	December 31, 2010	 	
Principal amount of convertible debentures	 	$	186,956	 	 	$	186,956	 	
Unamortized debt discount	 	 	(22,115	)	 	 	(27,748	)	
Carrying amount of convertible debentures	 	$	164,841	 	 	$	159,208	 	
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
September 30,	 	 	Nine months ended
September 30,	 	
 	 	2011	 	 	2010	 	 	2011	 	 	2010	 	
Cash interest expense	 	$	1,345	 	 	$	1,044	 	 	$	3,786	 	 	$	3,198	 	
Non-cash amortization of debt discount	 	 	1,910	 	 	 	1,785	 	 	 	5,633	 	 	 	5,265	 	
Amortization of debt costs	 	 	300	 	 	 	166	 	 	 	841	 	 	 	483	 	
Total interest expense	 	$	3,555	 	 	$	2,995	 	 	$	10,260	 	 	$	8,946	 	

The unamortized debt discount will be amortized using the effective interest method over the remaining life of the Notes.  The effective rate on the Notes after adoption of the standard is approximately 6.875%.

-9-

 

6.   Other Income/(Expense) -- Net
Other income/(expense) -- net comprises the following (in thousands):

 	 	Three months ended
September 30,	 	 	Nine months ended
September 30,	 	
 	 	2011	 	 	2010	 	 	2011	 	 	2010	 	
Market value gains/(losses) on assets held in	 	 	 	 	 	 	 	 	 	 	 	 	
deferred compensation trust	 	$	(2,011	)	 	$	243	 	 	$	796	 	 	$	348	 	
Loss on disposal of property and equipment	 	 	(79	)	 	 	(141	)	 	 	(68	)	 	 	(293	)	
Interest income	 	 	74	 	 	 	109	 	 	 	197	 	 	 	334	 	
Other – net	 	 	81	 	 	 	11	 	 	 	(44	)	 	 	29	 	
Other income/(expense) - net	 	$	(1,935	)	 	$	222	 	 	$	881	 	 	$	418	 	

7.   Stock-Based Compensation Plans
In January 2011, we met a stock price target of $62.00 under our Long-Term Incentive Plan.  On January 14, 2011, the Compensation/Incentive Committee of the Board of Directors (“CIC”) approved a stock grant of 41,100 shares (including 7,350 shares from the discretionary pool) and the related allocation to participants.  The cumulative compensation expense related to the stock grant was $3.0 million.
 
On February 18, 2011, the CIC approved a time-based LTIP award of 42,000 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 award is $2.7 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 18, 2011, the CIC approved a grant of 35,713 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 18, 2011, the CIC approved a grant of 513,100 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 $9.8 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 64 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 September 30, 2011 totaling $1.2 million (December 31, 2010 - $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 September 30, 2011.  We recorded the following from our independent contractors (in thousands):

 	 	Three months ended
September 30,	 	 	Nine months ended
September 30,	 	
 	 	2011	 	 	2010	 	 	2011	 	 	2010	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenues	 	$	6,575	 	 	$	5,507	 	 	$	19,614	 	 	$	16,724	 	
Pretax profits	 	 	3,236	 	 	 	2,530	 	 	 	9,625	 	 	 	7,634	 	

-10-

 

 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 for the three and nine months ended September 30, 2011 and 2010 are as follows (in thousands):

Three months ended	 	 	Nine months ended	 	
September 30,	 	 	September 30,	 	
2011	 	 	2010	 	 	2011	 	 	2010	 	
$	105	 	 	$	2,271	 	 	$	7,058	 	 	$	7,017	 	

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 class of service technicians, excluding those who signed dispute resolution agreements in which they agreed to arbitrate claims arising out of their employment.  In June 2011, the Court granted certification of a class of technicians in 14 states on certain claims. We are unable to estimate our potential liability or range of potential loss, 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 California admissions nurses, chaplains and sales representatives.  The case seeks payment of penalties, interest and Plaintiffs’ attorney fees.  VITAS contests 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 range of potential loss, if any, with respect to this case.
 
Regardless of outcome, defense of litigation adversely affects us through defense costs, diversion of our time and related publicity.

Regulatory Matters
In May 2009, VITAS received an administrative subpoena from the U.S. Department of Justice requesting VITAS deliver to the Office of Inspector General (“OIG”) for the Department of Health and Human Services 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 a qui tam complaint filed under seal in U.S. District Court for the Northern District of Texas.  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.  The complaint and all the filings in each of these actions remain under seal.  The U.S. Attorney has not decided whether to intervene in any of the actions.  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 or range of potential loss, if any.  We believe that we are in compliance with Medicare and Medicaid rules and regulations applicable to hospice providers.
 
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 investigation.  We are unable to estimate our potential liability or range of potential loss, if any, with respect to this matter. We believe that we are in compliance with Medicare and Medicaid rules and regulations applicable to hospice providers.

-11-

 
 
The costs to comply with either of these investigations were not material for any period presented.  Regardless of outcome, responding to the subpoenas can adversely affect us through defense costs, diversion of our time and related publicity.

11.  Related Party Agreement
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 $10.0 million and $9.0 million for the three months ended September 30, 2011 and 2010, respectively.  VITAS made purchases from OCR of $29.2 million and $26.5 million for the nine months ended September 30, 2011 and 2010, respectively.
 
Mr. Joel Gemunder retired as President and CEO of OCR during the third quarter of 2010 and is a director of the Company.  Ms. Andrea Lindell is a director of both OCR and the Company.  We believe that the terms of the Agreements are no less favorable to VITAS than we could negotiate with an unrelated party.

12.  Cash Overdrafts and Cash Equivalents
Included in accounts payable at September 30, 2011 is cash overdrafts payable of $13.4 million (December 31, 2010 - $11.1 million).
 
From time to time throughout the year, we invest excess cash in money market funds or repurchase agreements directly with major commercial banks.  We do not physically hold the collateral for repurchase agreements, but the term is less than 10 days.  We closely monitor the creditworthiness of the institutions with which we invest our overnight funds and the quality of the collateral underlying those investments.  We had $16.0 million in cash equivalents as of   September 30, 2011.  There was $45.5 million in cash equivalents as of December 31, 2010.  The weighted average rate of return for our cash equivalents was 0.2% for September 30, 2011 and 0.1% for December 31, 2010.

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.
 
The following shows the carrying value, fair value and the hierarchy for our financial instruments as of September 30, 2011 (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	 	$	31,339	 	 	$	31,339	 	 	$	-	 	 	$	-	 	
Long-term debt	 	 	164,841	 	 	 	186,021	 	 	 	-	 	 	 	-	 	
 
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.

-12-

 

14.  Capital Stock Transactions
On February 22, 2011 our Board of Directors authorized $100 million of capital stock repurchases under the newly established February 2011 repurchase program.   We repurchased the following capital stock for the three and nine months ended September 30, 2011 and 2010:

 	 	Three months ended
September 30,	 	 	Nine months ended
September 30,	 	
 	 	2011	 	 	2010	 	 	2011	 	 	2010	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Shares repurchased	 	 	1,530,030	 	 	 	-	 	 	 	1,871,543	 	 	 	146,275	 	
Weighted average price per share	 	$	55.39	 	 	$	-	 	 	$	60.30	 	 	$	53.32	 	

15.  Business Combinations
On April 29, 2011, our VITAS segment completed an acquisition of the operating assets of Family Comfort Hospice which is based in Alabama.  This acquisition adds three Central-Alabama locations serving ten counties to VITAS’ network of hospice programs.  We made no acquisitions within the Roto-Rooter segment.  The purchase price of this acquisition is allocated as follows (in thousands):
 
Working capital	 	$	382	 	
Identifiable intangible assets	 	 	664	 	
Goodwill	 	 	2,345	 	
Other assets and liabilities - net	 	 	298	 	
 	 	$	3,689	 	
 
The operating results of Family Comfort Hospice have been included in our results of operations since the acquisition date and are not material for either the three or nine-month period ended September 30, 2011.

16.  Recent Accounting Statements
In September 2011, the FASB issued Accounting Standards Update “ASU” No. 2011-08 – Goodwill Impairment Testing which provides additional guidance related to the impairment testing of goodwill.  ASU No. 2011-08 allows an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test.  An entity will no longer be required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount.  The revised guidance is effective for fiscal years beginning after December 15, 2011 but early adoption is permitted. Our impairment testing date is October 1 of each year and we adopted the new guidelines in the fourth quarter of 2011.  There was no impact as a result of the adoption.
 
In July 2011, the FASB issued ASU No. 2011-07 – Health Care Entities which provides additional guidance to health care entities related to the recognition of patient service revenue and related disclosures.  The additional guidance is effective for fiscal years beginning after December 15, 2011 but early adoption is permitted.  Management is still evaluating the impact of this guidance.

-13-

 
 
17.  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 September 30, 2011 and December 31, 2010 for the balance sheet, the three and nine months ended September 30, 2011 and September 30, 2010 for the income statement and the nine months ended September 30, 2011  and  September 30, 2010 for the statement of cash flows (dollars in thousands):
 
September 30, 2011	 	 	 	 	Guarantor	 	 	Non-Guarantor	 	 	Consolidating	 	 	 	 	
 	 	Parent	 	 	Subsidiaries	 	 	Subsidiaries	 	 	Adjustments	 	 	Consolidated	 	
ASSETS	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	$	15,950	 	 	$	(1,449	)	 	$	6,841	 	 	$	-	 	 	$	21,342	 	
Accounts receivable, less allowances	 	 	641	 	 	 	111,650	 	 	 	430	 	 	 	-	 	 	 	112,721	 	
Intercompany receivables	 	 	-	 	 	 	214,413	 	 	 	-	 	 	 	(214,413	)	 	 	-	 	
Inventories	 	 	-	 	 	 	8,137	 	 	 	751	 	 	 	-	 	 	 	8,888	 	
Current deferred income taxes	 	 	(1,435	)	 	 	16,104	 	 	 	181	 	 	 	-	 	 	 	14,850	 	
Prepaid income taxes	 	 	4,606	 	 	 	(3,432	)	 	 	(410	)	 	 	-	 	 	 	764	 	
Prepaid expenses	 	 	671	 	 	 	9,181	 	 	 	179	 	 	 	-	 	 	 	10,031	 	
Total current assets	 	 	20,433	 	 	 	354,604	 	 	 	7,972	 	 	 	(214,413	)	 	 	168,596	 	
Investments of deferred compensation plans	 	 	-	 	 	 	-	 	 	 	31,339	 	 	 	-	 	 	 	31,339	 	
Properties and equipment, at cost, less accumulated depreciation	 	 	11,825	 	 	 	69,197	 	 	 	2,462	 	 	 	-	 	 	 	83,484	 	
Identifiable intangible assets less accumulated amortization	 	 	-	 	 	 	55,983	 	 	 	-	 	 	 	-	 	 	 	55,983	 	
Goodwill	 	 	-	 	 	 	456,208	 	 	 	4,539	 	 	 	-	 	 	 	460,747	 	
Other assets	 	 	7,957	 	 	 	4,352	 	 	 	2,598	 	 	 	-	 	 	 	14,907	 	
Investments in subsidiaries	 	 	771,709	 	 	 	21,404	 	 	 	-	 	 	 	(793,113	)	 	 	-	 	
Total assets	 	$	811,924	 	 	$	961,748	 	 	$	48,910	 	 	$	(1,007,526	)	 	$	815,056	 	
LIABILITIES AND STOCKHOLDERS' EQUITY	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Accounts payable	 	$	7,715	 	 	$	51,056	 	 	$	415	 	 	$	-	 	 	$	59,186	 	
Intercompany payables	 	 	209,680	 	 	 	-	 	 	 	4,733	 	 	 	(214,413	)	 	 	-	 	
Income taxes	 	 	6,800	 	 	 	1,575	 	 	 	(108	)	 	 	-	 	 	 	8,267	 	
Accrued insurance	 	 	352	 	 	 	35,303	 	 	 	-	 	 	 	-	 	 	 	35,655	 	
Accrued compensation	 	 	2,946	 	 	 	36,899	 	 	 	531	 	 	 	-	 	 	 	40,376	 	
Other current liabilities	 	 	2,900	 	 	 	14,238	 	 	 	170	 	 	 	-	 	 	 	17,308	 	
Total current liabilities	 	 	230,393	 	 	 	139,071	 	 	 	5,741	 	 	 	(214,413	)	 	 	160,792	 	
Deferred income taxes	 	 	(12,629	)	 	 	45,661	 	 	 	(9,770	)	 	 	-	 	 	 	23,262	 	
Long-term debt	 	 	164,841	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	164,841	 	
Deferred compensation liabilities	 	 	-	 	 	 	-	 	 	 	30,267	 	 	 	-	 	 	 	30,267	 	
Other liabilities	 	 	2,984	 	 	 	4,176	 	 	 	2,399	 	 	 	-	 	 	 	9,559	 	
Stockholders' equity	 	 	426,335	 	 	 	772,840	 	 	 	20,273	 	 	 	(793,113	)	 	 	426,335	 	
Total liabilities and stockholders' equity	 	$	811,924	 	 	$	961,748	 	 	$	48,910	 	 	$	(1,007,526	)	 	$	815,056	 	

December 31, 2010	 	 	 	 	Guarantor	 	 	Non-Guarantor	 	 	Consolidating	 	 	 	 	
 	 	Parent	 	 	Subsidiaries	 	 	Subsidiaries	 	 	Adjustments	 	 	Consolidated	 	
ASSETS	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	$	45,324	 	 	$	(1,571	)	 	$	6,164	 	 	$	-	 	 	$	49,917	 	
Accounts receivable, less allowances	 	 	802	 	 	 	111,716	 	 	 	481	 	 	 	-	 	 	 	112,999	 	
Intercompany receivables	 	 	-	 	 	 	172,426	 	 	 	-	 	 	 	(172,426	)	 	 	-	 	
Inventories	 	 	-	 	 	 	7,191	 	 	 	537	 	 	 	-	 	 	 	7,728	 	
Current deferred income taxes	 	 	(688	)	 	 	15,666	 	 	 	120	 	 	 	-	 	 	 	15,098	 	
Prepaid income taxes	 	 	2,787	 	 	 	(1,809	)	 	 	(208	)	 	 	-	 	 	 	770	 	
Prepaid expenses	 	 	782	 	 	 	9,244	 	 	 	259	 	 	 	-	 	 	 	10,285	 	
Total current assets	 	 	49,007	 	 	 	312,863	 	 	 	7,353	 	 	 	(172,426	)	 	 	196,797	 	
Investments of deferred compensation plans	 	 	-	 	 	 	-	 	 	 	28,304	 	 	 	-	 	 	 	28,304	 	
Properties and equipment, at cost, less accumulated depreciation	 	 	12,513	 	 	 	64,743	 	 	 	2,036	 	 	 	-	 	 	 	79,292	 	
Identifiable intangible assets less accumulated amortization	 	 	-	 	 	 	56,410	 	 	 	-	 	 	 	-	 	 	 	56,410	 	
Goodwill	 	 	-	 	 	 	453,864	 	 	 	4,479	 	 	 	-	 	 	 	458,343	 	
Other assets	 	 	6,049	 	 	 	2,791	 	 	 	2,175	 	 	 	-	 	 	 	11,015	 	
Investments in subsidiaries	 	 	716,815	 	 	 	18,696	 	 	 	-	 	 	 	(735,511	)	 	 	-	 	
Total assets	 	$	784,384	 	 	$	909,367	 	 	$	44,347	 	 	$	(907,937	)	 	$	830,161	 	
LIABILITIES AND STOCKHOLDERS' EQUITY	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Accounts payable	 	$	4,924	 	 	$	50,457	 	 	$	448	 	 	$	-	 	 	$	55,829	 	
Intercompany payables	 	 	167,067	 	 	 	-	 	 	 	5,359	 	 	 	(172,426	)	 	 	-	 	
Income taxes	 	 	(7,190	)	 	 	8,745	 	 	 	(394	)	 	 	-	 	 	 	1,161	 	
Accrued insurance	 	 	906	 	 	 	35,586	 	 	 	-	 	 	 	-	 	 	 	36,492	 	
Accrued compensation	 	 	4,235	 	 	 	35,016	 	 	 	468	 	 	 	-	 	 	 	39,719	 	
Other current liabilities	 	 	1,549	 	 	 	13,447	 	 	 	1,145	 	 	 	-	 	 	 	16,141	 	
Total current liabilities	 	 	171,491	 	 	 	143,251	 	 	 	7,026	 	 	 	(172,426	)	 	 	149,342	 	
Deferred income taxes	 	 	(11,356	)	 	 	45,168	 	 	 	(8,727	)	 	 	-	 	 	 	25,085	 	
Long-term debt	 	 	159,208	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	159,208	 	
Deferred compensation liabilities	 	 	-	 	 	 	-	 	 	 	27,851	 	 	 	-	 	 	 	27,851	 	
Other liabilities	 	 	2,992	 	 	 	3,123	 	 	 	511	 	 	 	-	 	 	 	6,626	 	
Stockholders' equity	 	 	462,049	 	 	 	717,825	 	 	 	17,686	 	 	 	(735,511	)	 	 	462,049	 	
Total liabilities and stockholders' equity	 	$	784,384	 	 	$	909,367	 	 	$	44,347	 	 	$	(907,937	)	 	$	830,161	 	

-14-

 

For the three months ended September 30, 2011	 	 	 	 	Guarantor	 	 	Non-Guarantor	 	 	Consolidating	 	 	 	 	
 	 	Parent	 	 	Subsidiaries	 	 	Subsidiaries	 	 	Adjustments	 	 	Consolidated	 	
Continuing Operations	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Service revenues and sales	 	$	-	 	 	$	334,937	 	 	$	6,502	 	 	$	-	 	 	$	341,439	 	
Cost of services provided and goods sold	 	 	-	 	 	 	241,604	 	 	 	3,459	 	 	 	-	 	 	 	245,063	 	
Selling, general and administrative expenses	 	 	5,678	 	 	 	42,595	 	 	 	(655	)	 	 	-	 	 	 	47,618	 	
Depreciation	 	 	235	 	 	 	5,870	 	 	 	208	 	 	 	-	 	 	 	6,313	 	
Amortization	 	 	467	 	 	 	667	 	 	 	-	 	 	 	-	 	 	 	1,134	 	
Total costs and expenses	 	 	6,380	 	 	 	290,736	 	 	 	3,012	 	 	 	-	 	 	 	300,128	 	
Income/ (loss) from operations	 	 	(6,380	)	 	 	44,201	 	 	 	3,490	 	 	 	-	 	 	 	41,311	 	
Interest expense	 	 	(3,361	)	 	 	(194	)	 	 	-	 	 	 	-	 	 	 	(3,555	)	
Other (expense)/income - net	 	 	4,379	 	 	 	(4,301	)	 	 	(2,013	)	 	 	-	 	 	 	(1,935	)	
Income/ (loss) before income taxes	 	 	(5,362	)	 	 	39,706	 	 	 	1,477	 	 	 	-	 	 	 	35,821	 	
Income tax (provision)/ benefit	 	 	1,677	 	 	 	(15,029	)	 	 	(582	)	 	 	-	 	 	 	(13,934	)	
Equity in net income of subsidiaries	 	 	25,572	 	 	 	953	 	 	 	-	 	 	 	(26,525	)	 	 	-	 	
Net income	 	$	21,887	 	 	$	25,630	 	 	$	895	 	 	$	(26,525	)	 	$	21,887	 	

For the three months ended September 30, 2010	 	 	 	 	Guarantor	 	 	Non-Guarantor	 	 	Consolidating	 	 	 	 	
 	 	Parent	 	 	Subsidiaries	 	 	Subsidiaries	 	 	Adjustments	 	 	Consolidated	 	
Continuing Operations	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Service revenues and sales	 	$	-	 	 	$	313,787	 	 	$	6,664	 	 	$	-	 	 	$	320,451	 	
Cost of services provided and goods sold	 	 	-	 	 	 	224,316	 	 	 	3,599	 	 	 	-	 	 	 	227,915	 	
Selling, general and administrative expenses	 	 	5,134	 	 	 	41,648	 	 	 	1,418	 	 	 	-	 	 	 	48,200	 	
Depreciation	 	 	241	 	 	 	5,945	 	 	 	199	 	 	 	-	 	 	 	6,385	 	
Amortization	 	 	370	 	 	 	826	 	 	 	-	 	 	 	-	 	 	 	1,196	 	
Total costs and expenses	 	 	5,745	 	 	 	272,735	 	 	 	5,216	 	 	 	-	 	 	 	283,696	 	
Income/ (loss) from operations	 	 	(5,745	)	 	 	41,052	 	 	 	1,448	 	 	 	-	 	 	 	36,755	 	
Interest expense	 	 	(2,893	)	 	 	(102	)	 	 	-	 	 	 	-	 	 	 	(2,995	)	
Other (expense)/income - net	 	 	3,889	 	 	 	(3,902	)	 	 	235	 	 	 	-	 	 	 	222	 	
Income/ (loss) before income taxes	 	 	(4,749	)	 	 	37,048	 	 	 	1,683	 	 	 	-	 	 	 	33,982	 	
Income tax (provision)/ benefit	 	 	1,498	 	 	 	(13,859	)	 	 	(633	)	 	 	-	 	 	 	(12,994	)	
Equity in net income of subsidiaries	 	 	24,239	 	 	 	1,005	 	 	 	-	 	 	 	(25,244	)	 	 	-	 	
Net income	 	$	20,988	 	 	$	24,194	 	 	$	1,050	 	 	$	(25,244	)	 	$	20,988	 	

For the nine months ended September 30, 2011	 	 	 	 	Guarantor	 	 	Non-Guarantor	 	 	Consolidating	 	 	 	 	
 	 	Parent	 	 	Subsidiaries	 	 	Subsidiaries	 	 	Adjustments	 	 	Consolidated	 	
Continuing Operations	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Service revenues and sales	 	$	-	 	 	$	985,500	 	 	$	20,217	 	 	$	-	 	 	$	1,005,717	 	
Cost of services provided and goods sold	 	 	-	 	 	 	711,335	 	 	 	10,783	 	 	 	-	 	 	 	722,118	 	
Selling, general and administrative expenses	 	 	17,936	 	 	 	130,617	 	 	 	5,143	 	 	 	-	 	 	 	153,696	 	
Depreciation	 	 	711	 	 	 	17,651	 	 	 	597	 	 	 	-	 	 	 	18,959	 	
Amortization	 	 	1,287	 	 	 	1,956	 	 	 	-	 	 	 	-	 	 	 	3,243	 	
Total costs and expenses	 	 	19,934	 	 	 	861,559	 	 	 	16,523	 	 	 	-	 	 	 	898,016	 	
Income/ (loss) from operations	 	 	(19,934	)	 	 	123,941	 	 	 	3,694	 	 	 	-	 	 	 	107,701	 	
Interest expense	 	 	(9,814	)	 	 	(446	)	 	 	-	 	 	 	-	 	 	 	(10,260	)	
Other (expense)/income - net	 	 	12,011	 	 	 	(11,918	)	 	 	788	 	 	 	-	 	 	 	881	 	
Income/ (loss) before income taxes	 	 	(17,737	)	 	 	111,577	 	 	 	4,482	 	 	 	-	 	 	 	98,322	 	
Income tax (provision)/ benefit	 	 	5,863	 	 	 	(42,164	)	 	 	(1,747	)	 	 	-	 	 	 	(38,048	)	
Equity in net income of subsidiaries	 	 	72,148	 	 	 	2,861	 	 	 	-	 	 	 	(75,009	)	 	 	-	 	
Net income	 	$	60,274	 	 	$	72,274	 	 	$	2,735	 	 	$	(75,009	)	 	$	60,274	 	

For the nine months ended September 30, 2010	 	 	 	 	Guarantor	 	 	Non-Guarantor	 	 	Consolidating	 	 	 	 	
 	 	Parent	 	 	Subsidiaries	 	 	Subsidiaries	 	 	Adjustments	 	 	Consolidated	 	
Continuing Operations	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Service revenues and sales	 	$	-	 	 	$	925,614	 	 	$	18,645	 	 	$	-	 	 	$	944,259	 	
Cost of services provided and goods sold	 	 	-	 	 	 	660,971	 	 	 	9,783	 	 	 	-	 	 	 	670,754	 	
Selling, general and administrative expenses	 	 	17,340	 	 	 	125,267	 	 	 	4,087	 	 	 	-	 	 	 	146,694	 	
Depreciation	 	 	621	 	 	 	16,827	 	 	 	600	 	 	 	-	 	 	 	18,048	 	
Amortization	 	 	1,066	 	 	 	2,641	 	 	 	-	 	 	 	-	 	 	 	3,707	 	
Total costs and expenses	 	 	19,027	 	 	 	805,706	 	 	 	14,470	 	 	 	-	 	 	 	839,203	 	
Income/ (loss) from operations	 	 	(19,027	)	 	 	119,908	 	 	 	4,175	 	 	 	-	 	 	 	105,056	 	
Interest expense	 	 	(8,632	)	 	 	(314	)	 	 	-	 	 	 	-	 	 	 	(8,946	)	
Other (expense)/income - net	 	 	11,180	 	 	 	(11,101	)	 	 	339	 	 	 	-	 	 	 	418	 	
Income/ (loss) before income taxes	 	 	(16,479	)	 	 	108,493	 	 	 	4,514	 	 	 	-	 	 	 	96,528	 	
Income tax (provision)/ benefit	 	 	5,392	 	 	 	(40,965	)	 	 	(1,754	)	 	 	-	 	 	 	(37,327	)	
Equity in net income of subsidiaries	 	 	70,288	 	 	 	2,825	 	 	 	-	 	 	 	(73,113	)	 	 	-	 	
Net income	 	$	59,201	 	 	$	70,353	 	 	$	2,760	 	 	$	(73,113	)	 	$	59,201	 	

-15-

 

For the nine months ended September 30, 2011	 	 	 	 	Guarantor	 	 	Non-Guarantor	 	 	 	 	
 	 	Parent	 	 	Subsidiaries	 	 	Subsidiaries	 	 	Consolidated	 	
Cash Flow from Operating Activities:	 	 	 	 	 	 	 	 	 	 	 	 	
Net cash provided by operating activities	 	$	21,558	 	 	$	83,903	 	 	$	2,475	 	 	$	107,936	 	
Cash Flow from Investing Activities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Capital expenditures	 	 	(23	)	 	 	(22,378	)	 	 	(1,058	)	 	 	(23,459	)	
Business combinations, net of cash acquired	 	 	-	 	 	 	(3,689	)	 	 	-	 	 	 	(3,689	)	
Other sources/(uses) - net	 	 	(150	)	 	 	(713	)	 	 	34	 	 	 	(829	)	
Net cash used by investing activities	 	 	(173	)	 	 	(26,780	)	 	 	(1,024	)	 	 	(27,977	)	
Cash Flow from Financing Activities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Change in cash overdrafts payable	 	 	208	 	 	 	2,089	 	 	 	-	 	 	 	2,297	 	
Change in intercompany accounts	 	 	60,028	 	 	 	(59,090	)	 	 	(938	)	 	 	-	 	
Dividends paid to shareholders	 	 	(9,393	)	 	 	-	 	 	 	-	 	 	 	(9,393	)	
Purchases of treasury stock	 	 	(110,221	)	 	 	-	 	 	 	(67	)	 	 	(110,288	)	
Proceeds from exercise of stock options	 	 	7,979	 	 	 	-	 	 	 	-	 	 	 	7,979	 	
Realized excess tax benefit on share based compensation	 	 	3,368	 	 	 	-	 	 	 	-	 	 	 	3,368	 	
Debt issuance cost	 	 	(2,723	)	 	 	-	 	 	 	-	 	 	 	(2,723	)	
Other sources/(uses) - net	 	 	(5	)	 	 	-	 	 	 	231	 	 	 	226	 	
Net cash used by financing activities	 	 	(50,759	)	 	 	(57,001	)	 	 	(774	)	 	 	(108,534	)	
Net increase/(decrease) in cash and cash equivalents	 	 	(29,374	)	 	 	122	 	 	 	677	 	 	 	(28,575	)	
Cash and cash equivalents at beginning of year	 	 	45,324	 	 	 	(1,571	)	 	 	6,164	 	 	 	49,917	 	
Cash and cash equivalents at end of period	 	$	15,950	 	 	$	(1,449	)	 	$	6,841	 	 	$	21,342	 	

For the nine months ended September 30, 2010	 	 	 	 	Guarantor	 	 	Non-Guarantor	 	 	 	 	
 	 	Parent	 	 	Subsidiaries	 	 	Subsidiaries	 	 	Consolidated	 	
Cash Flow from Operating Activities:	 	 	 	 	 	 	 	 	 	 	 	 	
Net cash provided/(used) by operating activities	 	$	(4,364	)	 	$	61,703	 	 	$	651	 	 	$	57,990	 	
Cash Flow from Investing Activities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Capital expenditures	 	 	(14	)	 	 	(18,399	)	 	 	(694	)	 	 	(19,107	)	
Business combinations, net of cash acquired	 	 	-	 	 	 	(30	)	 	 	-	 	 	 	(30	)	
Other uses - net	 	 	(116	)	 	 	(313	)	 	 	(19	)	 	 	(448	)	
Net cash used by investing activities	 	 	(130	)	 	 	(18,742	)	 	 	(713	)	 	 	(19,585	)	
Cash Flow from Financing Activities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Change in cash overdrafts payable	 	 	508	 	 	 	(692	)	 	 	-	 	 	 	(184	)	
Change in intercompany accounts	 	 	40,895	 	 	 	(41,841	)	 	 	946	 	 	 	-	 	
Dividends paid to shareholders	 	 	(8,682	)	 	 	-	 	 	 	-	 	 	 	(8,682	)	
Purchases of treasury stock	 	 	(10,164	)	 	 	-	 	 	 	(11	)	 	 	(10,175	)	
Proceeds from exercise of stock options	 	 	3,632	 	 	 	-	 	 	 	-	 	 	 	3,632	 	
Realized excess tax benefit on share based compensation	 	 	716	 	 	 	1,107	 	 	 	-	 	 	 	1,823	 	
Other sources - net	 	 	34	 	 	 	-	 	 	 	188	 	 	 	222	 	
Net cash provided/(used) by financing activities	 	 	26,939	 	 	 	(41,426	)	 	 	1,123	 	 	 	(13,364	)	
Net increase in cash and cash equivalents	 	 	22,445	 	 	 	1,535	 	 	 	1,061	 	 	 	25,041	 	
Cash and cash equivalents at beginning of year	 	 	109,331	 	 	 	(1,221	)	 	 	4,306	 	 	 	112,416	 	
Cash and cash equivalents at end of period	 	$	131,776	 	 	$	314	 	 	$	5,367	 	 	$	137,457	 	

-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 for the three and nine months ended September 30, 2011 and 2010 (in thousands except per share amounts):

 	 	Three months ended
September 30,	 	 	Nine months ended
September 30,	 	
 	 	2011	 	 	2010	 	 	2011	 	 	2010	 	
Service revenues and sales	 	$	341,439	 	 	$	320,451	 	 	$	1,005,717	 	 	$	944,259	 	
Net income	 	$	21,887	 	 	$	20,988	 	 	$	60,274	 	 	$	59,201	 	
Diluted EPS	 	$	1.04	 	 	$	0.91	 	 	$	2.82	 	 	$	2.57	 	
Adjusted EBITDA	 	$	49,556	 	 	$	46,280	 	 	$	141,831	 	 	$	134,237	 	
Adjusted EBITDA as a % of revenue	 	 	14.5	%	 	 	14.4	%	 	 	14.1	%	 	 	14.2	%	
 
EBITDA and Adjusted EBITDA are not measures derived in accordance with GAAP.  We use Adjusted EBITDA as a measure of earnings for our LTIP 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 September 30, 2011, the increase in consolidated service revenues and sales was driven by a 8.1% increase at VITAS and a 2.3% increase at Roto-Rooter.  The increase in service revenues at VITAS was a result of increased average daily census (“ADC”) of 6.2%, driven by an increase in admissions of 2.7% and a 2.4% increase in average length of stay, combined with Medicare price increases of approximately 2.1%.  Roto-Rooter was driven by a 0.2% price and mix shift increase and a 1.5% increase in job count. The remaining Roto-Rooter revenue increase is related mainly to our independent contractor operations. Consolidated net income increased 4.3% driven mainly by the increase in revenue.  Diluted EPS increased 14.3% as a result of the increase in net income and a lower number of shares outstanding.  Adjusted EBITDA as a percent of revenue was virtually flat when compared with the prior year.  See page 30 for additional operating metrics.
 
For the nine months ended September 30, 2011, the increase in consolidated service revenues and sales was driven by a 7.0% increase at VITAS and a 5.1% increase at Roto-Rooter.  The increase in service revenues at VITAS was a result of increased average daily census (“ADC”) of 5.6%, driven by an increase in admissions of 5.1%, combined with Medicare price increases of approximately 2.1%.  Roto-Rooter was driven by a 2.4% price and mix shift increase and a 2.5% increase in job count. Consolidated net income increased 1.8% driven mainly by the increase in revenue.  Diluted EPS increased 9.7% as a result of the increase in net income and a lower number of shares outstanding.  Adjusted EBITDA as a percent of revenue was virtually flat when compared with the prior year.
 
VITAS expects to achieve full-year 2011 revenue growth, prior to Medicare cap, of 7.5% to 8.0%.  Admissions are estimated to increase approximately 5.0% to 5.5%.  Adjusted EBITDA margin prior to Medicare cap is estimated to be 15.2% to 15.7%.  Roto-Rooter expects full-year 2011 revenue growth of 4.5% to 5.5%.  The revenue estimate is a result of increased pricing of 2.0% to 3.0%, a favorable mix shift to higher revenue jobs, with job count growth estimated at 0.0% to 1.0%.  Adjusted EBITDA margin for 2011 is estimated to be in the range of 17.0% to 18.0%.  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, 2010 to September 30, 2011 include the following:

•          	A $3.8 million increase in other long-term assets related to an increase in deferred long-term debt costs due to our debt refinancing as well an increase in licensure expenses at Vitas.	

•          	A $3.4 million increase in accounts payable related to timing of payments.	

•          	A $7.1 million increase in income taxes payable related to timing of payments.	
 
Net cash provided by operating activities increased $49.9 million due primarily to the change in accounts receivable.  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 $29.5 million in standby letters of credit as of September 30, 2011, for insurance purposes.  Issued letters of credit reduce our available credit under the revolving credit agreement.  As of September 30, 2011, we have approximately $320.5 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 September 30, 2011 and anticipate remaining in compliance throughout 2011.
 
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 class of service technicians, excluding those who signed dispute resolution agreements in which they agreed to arbitrate claims arising out of their employment.  In June 2011, the Court granted certification of a class of technicians in 14 states on certain claims. We are unable to estimate our potential liability or range of potential loss, 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 California admissions nurses, chaplains and sales representatives.  The case seeks payment of penalties, interest and Plaintiffs’ attorney fees.  VITAS contests 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.
 
Regardless of outcome, defense of litigation adversely affects us through defense costs, diversion of our time and related publicity.
 
In May 2009, VITAS received an administrative subpoena from the U.S. Department of Justice requesting VITAS deliver to the Office of Inspector General (“OIG”) for the Department of Health and Human Services 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 a qui tam complaint filed under seal in U.S. District Court for the Northern District of Texas.  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.  The complaint and all the filings in each of these actions remain under seal.  The U.S. Attorney has not decided whether to intervene in any of the actions.  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 or potential range of loss, if any.  We believe that we are in compliance with Medicare and Medicaid rules and regulations applicable to hospice providers.

-18-

 
 
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 investigation.  We are unable to estimate our potential liability or potential range of loss, if any, with respect to this matter. We believe that we are in compliance with Medicare and Medicaid rules and regulations applicable to hospice providers.
 
The costs to comply with either of these investigations were not material for any period presented.  Regardless of outcome, responding to the subpoenas can adversely affect us through defense costs, diversion of our time and related publicity.

Results of Operations
Three months ended September 30, 2011 versus  2010 - Consolidated Results
 
Our service revenues and sales for the third quarter of 2011 increased 6.5% versus services and sales revenues for the third quarter of 2010.  Of this increase, $19.0 million was attributable to VITAS and $2.0 million was attributable to Roto-Rooter.  The following chart shows the components of those changes (dollar amounts in thousands):

 	 	Increase/(Decrease)	 	
 	 	Amount	 	 	Percent	 	
VITAS	 	 	 	 	 	 	
Routine homecare	 	$	14,849	 	 	 	8.8	 	
Continuous care	 	 	1,301	 	 	 	3.4	 	
General inpatient	 	 	2,329	 	 	 	9.0	 	
Medicare cap	 	 	501	 	 	 	428.2	 	
Roto-Rooter	 	 	 	 	 	 	 	 	
Plumbing	 	 	502	 	 	 	1.2	 	
Drain cleaning	 	 	785	 	 	 	2.5	 	
Contractor operations	 	 	1,068	 	 	 	19.4	 	
Other	 	 	(347	)	 	 	-5.0	 	
Total	 	$	20,988	 	 	 	6.5	 	
 
The increase in VITAS’ revenues for the third quarter of 2011 versus the third quarter of 2010 was a result of increased ADC of 6.2% driven by an increase in admissions of 2.7% and a 2.4% increase in average length of stay, combined with Medicare reimbursement rate increases of approximately 2.1%.  The ADC increase was driven by a 6.5% increase in routine homecare, an increase of 7.3% in general inpatient and an increase of a 0.5% in continuous care. In excess of 90% of VITAS’ service revenues for the period were from Medicare and Medicaid.
 
The increase in plumbing revenues for the third quarter of 2011 versus 2010 is attributable to a 4.1% increase in the number of jobs performed offset by a 2.9% decrease in the average price per job.  Our excavation job count increased by 13.6% compared to 2010.  Drain cleaning revenues for the third quarter of 2011 versus 2010 reflect a 2.3% increase in price per job and a 0.2% increase in the number of jobs performed.  Contractor operations revenue increased 19.4% for the first nine months of 2011, as a result of acquisitions and higher job count.
 
The consolidated gross margin was 28.2% in the third quarter of 2011 as compared with 28.9% in the third quarter of 2010.  On a segment basis, VITAS’ gross margin was 22.4% in the third quarter of 2011 and 23.1% in the third quarter of 2010.  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 45.0% for the third quarter of 2011 as compared with 44.6% for the third quarter of 2010.

-19-

 
 
Selling, general and administrative expenses (“SG&A”) for the third quarter of 2011 and 2010 comprise (in thousands):
 
 	 	Three months ended
September 30,	 	
 	 	2011	 	 	2010	 	
SG&A expenses before long-term incentive	 	 	 	 	 	 	
compensation and the impact of market gains and	 	 	 	 	 	 	
losses of deferred compensation plans	 	$	49,629	 	 	$	47,957	 	
Impact of market value gains/(losses) on liabilities held in	 	 	 	 	 	 	 	 	
deferred compensation trusts	 	 	(2,011	)	 	 	243	 	
Total SG&A expenses	 	$	47,618	 	 	$	48,200	 	
 
Normal salary increases and revenue related expense increases between periods accounts for the 3.5% increase in SG&A expenses before long-term incentive compensation and the impact of market gains of deferred compensation plans.
 
Interest expense increased 18.7% between periods as a result of the debt refinancing that took place in the first quarter of 2011.
 
Other income/(expense) for the third quarter of 2011 and 2010 comprise (in thousands):
 
 	 	Three months ended
September 30,	 	
 	 	2011	 	 	2010	 	
Market value gains/(losses) on assets held in deferred	 	 	 	 	 	 	
compensation trusts	 	$	(2,011	)	 	$	243	 	
Loss on disposal of property and equipment	 	 	(79	)	 	 	(141	)	
Interest income	 	 	74	 	 	 	109	 	
Other	 	 	81	 	 	 	11	 	
Total other income/(expense)-net	 	$	(1,935	)	 	$	222	 	
 
Our effective income tax rate increased to 38.9% in the third quarter of 2011 from 38.2% when compared with the third quarter of 2010.
 
Net income for both periods included the following after-tax items/adjustments that reduced after-tax earnings (in thousands):
 
 	 	Three months ended September 30,	 	
 	 	2011	 	 	2010	 	
VITAS	 	 	 	 	 	 	
Legal expenses of OIG investigation	 	$	(131	)	 	$	(69	)	
Acquisition expenses	 	 	(2	)	 	 	-	 	
Roto-Rooter	 	 	 	 	 	 	 	 	
Expenses of class action litigation	 	 	(467	)	 	 	(194	)	
Corporate	 	 	 	 	 	 	 	 	
Stock option expense	 	 	(1,523	)	 	 	(1,244	)	
Noncash impact of change in accounting for convertible debt	 	 	(1,177	)	 	 	(1,088	)	
Total	 	$	(3,300	)	 	$	(2,595	)	

-20-

 

Three months ended September 30, 2011 versus 2010 - Segment Results
 
The change in after-tax earnings for the third quarter of 2011 versus the third quarter of 2010 is due to (dollars in thousands):

 	 	Increase/(Decrease)	 	
 	 	Amount	 	 	Percent	 	
VITAS	 	$	1,167	 	 	 	5.9	 	
Roto-Rooter	 	 	269	 	 	 	3.5	 	
Corporate	 	 	(537	)	 	 	-8.2	 	
 	 	$	899	 	 	 	4.3	 	

Nine months ended September 30, 2011 versus  2010 - Consolidated Results
 
Our service revenues and sales for the first nine months of 2011 increased 6.5% versus services and sales revenues for the first nine months of 2010.  Of this increase, $48.2 million was attributable to VITAS and $13.3 million was attributable to Roto-Rooter.  The following chart shows the components of those changes (dollar amounts in thousands):

 	 	Increase/(Decrease)	 	
 	 	Amount	 	 	Percent	 	
VITAS	 	 	 	 	 	 	
Routine homecare	 	$	39,830	 	 	 	8.1	 	
Continuous care	 	 	4,362	 	 	 	3.8	 	
General inpatient	 	 	4,617	 	 	 	5.9	 	
Medicare cap	 	 	(639	)	 	 	-38.4	 	
Roto-Rooter	 	 	 	 	 	 	 	 	
Plumbing	 	 	7,481	 	 	 	6.1	 	
Drain cleaning	 	 	3,303	 	 	 	3.3	 	
Contractor operations	 	 	2,890	 	 	 	17.3	 	
Other	 	 	(386	)	 	 	-1.9	 	
Total	 	$	61,458	 	 	 	6.5	 	
 
The increase in VITAS’ revenues for the first nine months of 2011 versus the first nine months of 2010 was a result of increased ADC of 5.6% driven by an increase in admissions of 5.1%, combined with Medicare reimbursement rate increases of approximately 2.1%.  The ADC increase was driven by a 5.9% increase in routine homecare, an increase of 4.2% in general inpatient and an increase of 1.0% in continuous care. In excess of 90% of VITAS’ service revenues for the period were from Medicare and Medicaid.
 
The increase in plumbing revenues for the first nine months of 2011 versus 2010 is attributable to a 2.6% increase in the average price per job and a 3.6% increase in the number of jobs performed.  The increase in the plumbing price per job was a result of favorable job mix shift to more expensive jobs such as excavation.  Our excavation job count increased by 17.1% compared to 2010.  On average, the price per job for our excavation jobs is approximately 5 times greater than the price per job of other plumbing jobs.  Drain cleaning revenues for the first nine months of 2011 versus 2010 reflect a 2.0% increase in job count and a 1.3% increase in the average price per job.  Contractor operation revenues increased 17.3%, due to acquisitions and higher job count.
 
The consolidated gross margin was 28.2% in the first nine months of 2011 as compared with 29.0% in the first nine months of 2010.  On a segment basis, VITAS’ gross margin was 22.0% in the first nine months of 2011 and 22.9% in the first nine months of 2010.  The decrease in VITAS’ gross margin is attributable to a smaller Medicare cap reversal in 2011, higher labor costs for admissions and Medicare compliance personnel and the opening of new operations, both new locations and inpatient units, which carry significant time start-up costs as capacity begins to ramp-up.  The Roto-Rooter segment’s gross margin was 44.7% for the first nine months of 2011 as compared with 45.0% for the first nine months of 2010.

-21-

 
 
Selling, general and administrative expenses (“SG&A”) for the first nine months of 2011 and 2010 comprise (in thousands):
 
 	 	Nine months ended
September 30,	 	
 	 	2011	 	 	2010	 	
SG&A expenses before long-term incentive	 	 	 	 	 	 	
compensation and the impact of market gains and	 	 	 	 	 	 	
losses of deferred compensation plans	 	$	149,888	 	 	$	144,547	 	
Long-term incentive compensation	 	 	3,012	 	 	 	1,799	 	
Impact of market value gains on liabilities held in	 	 	 	 	 	 	 	 	
deferred compensation trusts	 	 	796	 	 	 	348	 	
Total SG&A expenses	 	$	153,696	 	 	$	146,694	 	
 
Normal salary increases and revenue related expense increases between periods accounts for the 3.7% increase in SG&A expenses before long-term incentive compensation and the impact of market gains of deferred compensation plans.
 
Depreciation expense increased 5.0% to $19.0 million for the first nine months of 2011 due mainly to the installation of patient capture software at our VITAS segment in the second quarter of 2010.
 
Interest expense increased 14.7% between periods as a result of the debt refinancing that took place in the first quarter of 2011.
 
Other income for the third quarter of 2011 and 2010 comprise (in thousands):
 
 	 	Nine months ended
September 30,	 	
 	 	2011	 	 	2010	 	
Market value gains on assets held in deferred	 	 	 	 	 	 	
compensation trusts	 	$	796	 	 	$	348	 	
Loss on disposal of property and equipment	 	 	(68	)	 	 	(293	)	
Interest Income	 	 	197	 	 	 	334	 	
Other	 	 	(44	)	 	 	29	 	
Total other income	 	$	881	 	 	$	418	 	
 
Our effective income tax rate was 38.7% in the first nine months of 2011 which was essentially flat when compared with the first nine months of 2010.
 
Net income for both periods included the following after-tax items/adjustments that reduced after-tax earnings (in thousands):
 
 	 	Nine months ended September 30,	 	
 	 	2011	 	 	2010	 	
VITAS	 	 	 	 	 	 	
Legal expenses of OIG investigation	 	$	(749	)	 	$	(242	)	
Acquisition expenses	 	 	(73	)	 	 	-	 	
Roto-Rooter	 	 	 	 	 	 	 	 	
Expenses of class action litigation	 	 	(881	)	 	 	(257	)	
Acquisition expenses	 	 	4	 	 	 	-	 	
Corporate	 	 	 	 	 	 	 	 	
Stock option expense	 	 	(4,366	)	 	 	(4,026	)	
Noncash impact of change in accounting for convertible debt	 	 	(3,464	)	 	 	(3,203	)	
Long-term incentive compensation	 	 	(1,880	)	 	 	(1,124	)	
Total	 	$	(11,409	)	 	$	(8,852	)	

-22-

 
 
Nine months ended September 30, 2011 versus 2010 - Segment Results
 
The change in after-tax earnings for the first nine months of 2011 versus the first nine months of 2010 is due to (dollars in thousands):

 	 	Increase/(Decrease)	 	
 	 	Amount	 	 	Percent	 	
VITAS	 	$	1,161	 	 	 	2.1	 	
Roto-Rooter	 	 	1,198	 	 	 	4.9	 	
Corporate	 	 	(1,286	)	 	 	-5.9	 	
 	 	$	1,073	 	 	 	1.8	 	

 
 
-23-

 

CHEMED CORPORATION AND SUBSIDIARY COMPANIES	 	
CONSOLIDATING STATEMENT OF INCOME	 	
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011	 	
(in thousands)(unaudited)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	Chemed	 	
 	 	 	VITAS	 	 	Roto-Rooter	 	 	Corporate	 	 	Consolidated	 	
2011 (a)	 	 	 	 	 	 	 	 	 	 	 	 	 	
Service revenues and sales	 	 	$	252,944	 	 	$	88,495	 	 	$	-	 	 	$	341,439	 	
Cost of services provided and goods sold	 	 	 	196,407	 	 	 	48,656	 	 	 	-	 	 	 	245,063	 	
Selling, general and administrative expenses	 	 	 	18,945	 	 	 	25,057	 	 	 	3,616	 	 	 	47,618	 	
Depreciation	 	 	 	4,123	 	 	 	2,058	 	 	 	132	 	 	 	6,313	 	
Amortization	 	 	 	510	 	 	 	156	 	 	 	468	 	 	 	1,134	 	
Total costs and expenses	 	 	 	219,985	 	 	 	75,927	 	 	 	4,216	 	 	 	300,128	 	
Income/(loss) from operations	 	 	 	32,959	 	 	 	12,568	 	 	 	(4,216	)	 	 	41,311	 	
Interest expense	 	 	 	(62	)	 	 	(132	)	 	 	(3,361	)	 	 	(3,555	)	
Intercompany interest income/(expense)	 	 	 	834	 	 	 	451	 	 	 	(1,285	)	 	 	-	 	
Other income/(expense)—net	 	 	 	62	 	 	 	(7	)	 	 	(1,990	)	 	 	(1,935	)	
Income/(expense) before income taxes	 	 	 	33,793	 	 	 	12,880	 	 	 	(10,852	)	 	 	35,821	 	
Income taxes	 	 	 	(12,823	)	 	 	(4,864	)	 	 	3,753	 	 	 	(13,934	)	
Net income/(loss)	 	 	$	20,970	 	 	$	8,016	 	 	$	(7,099	)	 	$	21,887	 	

(a)   The following amounts are included in net income (in thousands):	 	 	 	 	 	 	 	 	 	

 	 	 	 	 	 	 	 	 	 	 	Chemed	 	
 	 	VITAS	 	 	Roto-Rooter	 	 	Corporate	 	 	Consolidated	 	
Pretax benefit/(cost):	 	 	 	 	 	 	 	 	 	 	 	 	
Stock option expense	 	$	-	 	 	$	-	 	 	$	(2,408	)	 	$	(2,408	)	
Noncash impact of accounting for convertible debt	 	 	-	 	 	 	-	 	 	 	(1,861	)	 	 	(1,861	)	
Expenses of class action litigation	 	 	-	 	 	 	(770	)	 	 	-	 	 	 	(770	)	
Acquisition expenses	 	 	(2	)	 	 	-	 	 	 	-	 	 	 	(2	)	
Legal expenses of OIG investigation	 	 	(212	)	 	 	-	 	 	 	-	 	 	 	(212	)	
Total	 	$	(214	)	 	$	(770	)	 	$	(4,269	)	 	$	(5,253	)	

 	 	VITAS	 	 	Roto-Rooter	 	 	Corporate	 	 	Consolidated	 	
After-tax benefit/(cost):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Stock option expense	 	$	-	 	 	$	-	 	 	$	(1,523	)	 	$	(1,523	)	
Noncash impact of accounting for convertible debt	 	 	-	 	 	 	-	 	 	 	(1,177	)	 	 	(1,177	)	
Expenses of class action litigation	 	 	-	 	 	 	(467	)	 	 	-	 	 	 	(467	)	
Acquisition expenses	 	 	(2	)	 	 	-	 	 	 	-	 	 	 	(2	)	
Legal expenses of OIG investigation	 	 	(131	)	 	 	-	 	 	 	-	 	 	 	(131	)	
Total	 	$	(133	)	 	$	(467	)	 	$	(2,700	)	 	$	(3,300	)	

-24-

 
 
CHEMED CORPORATION AND SUBSIDIARY COMPANIES	 	
CONSOLIDATING STATEMENT OF INCOME	 	
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2010	 	
(in thousands)(unaudited)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	Chemed	 	
 	 	 	VITAS	 	 	Roto-Rooter	 	 	Corporate	 	 	Consolidated	 	
2010 (a)	 	 	 	 	 	 	 	 	 	 	 	 	 	
Service revenues and sales	 	 	$	233,964	 	 	$	86,487	 	 	$	-	 	 	$	320,451	 	
Cost of services provided and goods sold	 	 	 	179,997	 	 	 	47,918	 	 	 	-	 	 	 	227,915	 	
Selling, general and administrative expenses	 	 	 	18,370	 	 	 	24,573	 	 	 	5,257	 	 	 	48,200	 	
Depreciation	 	 	 	4,321	 	 	 	1,925	 	 	 	139	 	 	 	6,385	 	
Amortization	 	 	 	694	 	 	 	133	 	 	 	369	 	 	 	1,196	 	
Total costs and expenses	 	 	 	203,382	 	 	 	74,549	 	 	 	5,765	 	 	 	283,696	 	
Income/(loss) from operations	 	 	 	30,582	 	 	 	11,938	 	 	 	(5,765	)	 	 	36,755	 	
Interest expense	 	 	 	(48	)	 	 	(55	)	 	 	(2,892	)	 	 	(2,995	)	
Intercompany interest income/(expense)	 	 	 	1,139	 	 	 	651	 	 	 	(1,790	)	 	 	-	 	
Other income/(expense)—net	 	 	 	(92	)	 	 	11	 	 	 	303	 	 	 	222	 	
Income/(expense) before income taxes	 	 	 	31,581	 	 	 	12,545	 	 	 	(10,144	)	 	 	33,982	 	
Income taxes	 	 	 	(11,778	)	 	 	(4,798	)	 	 	3,582	 	 	 	(12,994	)	
Net income/(loss)	 	 	$	19,803	 	 	$	7,747	 	 	$	(6,562	)	 	$	20,988	 	

(a)   The following amounts are included in net income (in thousands):	 	 	 	 	 	 	 	 	 	

 	 	 	 	 	 	 	 	 	 	 	Chemed	 	
 	 	VITAS	 	 	Roto-Rooter	 	 	Corporate	 	 	Consolidated	 	
Pretax benefit/(cost):	 	 	 	 	 	 	 	 	 	 	 	 	
Stock option expense	 	$	-	 	 	$	-	 	 	$	(1,968	)	 	$	(1,968	)	
Noncash impact of accounting for convertible debt	 	 	-	 	 	 	-	 	 	 	(1,721	)	 	 	(1,721	)	
Expenses of class action litigation	 	 	-	 	 	 	(322	)	 	 	-	 	 	 	(322	)	
Legal expenses of OIG investigation	 	 	(112	)	 	 	-	 	 	 	-	 	 	 	(112	)	
Total	 	$	(112	)	 	$	(322	)	 	$	(3,689	)	 	$	(4,123	)	

 	 	VITAS	 	 	Roto-Rooter	 	 	Corporate	 	 	Consolidated	 	
After-tax benefit/(cost):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Stock option expense	 	$	-	 	 	$	-	 	 	$	(1,244	)	 	$	(1,244	)	
Noncash impact of accounting for convertible debt	 	 	-	 	 	 	-	 	 	 	(1,088	)	 	 	(1,088	)	
Expenses of class action litigation	 	 	-	 	 	 	(194	)	 	 	-	 	 	 	(194	)	
Legal expenses of OIG investigation	 	 	(69	)	 	 	-	 	 	 	-	 	 	 	(69	)	
Total	 	$	(69	)	 	$	(194	)	 	$	(2,332	)	 	$	(2,595	)	

-25-

 

CHEMED CORPORATION AND SUBSIDIARY COMPANIES	 	
CONSOLIDATING STATEMENT OF INCOME	 	
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011	 	
(in thousands)(unaudited)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	Chemed	 	
 	 	 	VITAS	 	 	Roto-Rooter	 	 	Corporate	 	 	Consolidated	 	
2011 (a)	 	 	 	 	 	 	 	 	 	 	 	 	 	
Service revenues and sales	 	 	$	731,712	 	 	$	274,005	 	 	$	-	 	 	$	1,005,717	 	
Cost of services provided and goods sold	 	 	 	570,648	 	 	 	151,470	 	 	 	-	 	 	 	722,118	 	
Selling, general and administrative expenses	 	 	 	57,392	 	 	 	76,181	 	 	 	20,123	 	 	 	153,696	 	
Depreciation	 	 	 	12,489	 	 	 	6,067	 	 	 	403	 	 	 	18,959	 	
Amortization	 	 	 	1,513	 	 	 	443	 	 	 	1,287	 	 	 	3,243	 	
Total costs and expenses	 	 	 	642,042	 	 	 	234,161	 	 	 	21,813	 	 	 	898,016	 	
Income/(loss) from operations	 	 	 	89,670	 	 	 	39,844	 	 	 	(21,813	)	 	 	107,701	 	
Interest expense	 	 	 	(172	)	 	 	(274	)	 	 	(9,814	)	 	 	(10,260	)	
Intercompany interest income/(expense)	 	 	 	3,263	 	 	 	1,742	 	 	 	(5,005	)	 	 	-	 	
Other income/(expense)—net	 	 	 	3	 	 	 	(2	)	 	 	880	 	 	 	881	 	
Income/(expense) before income taxes	 	 	 	92,764	 	 	 	41,310	 	 	 	(35,752	)	 	 	98,322	 	
Income taxes	 	 	 	(35,080	)	 	 	(15,692	)	 	 	12,724	 	 	 	(38,048	)	
Net income/(loss)	 	 	$	57,684	 	 	$	25,618	 	 	$	(23,028	)	 	$	60,274	 	

(a)   The following amounts are included in net income (in thousands):	 	 	 	 	 	 	 	 	 	

 	 	 	 	 	 	 	 	 	 	 	Chemed	 	
 	 	VITAS	 	 	Roto-Rooter	 	 	Corporate	 	 	Consolidated	 	
Pretax benefit/(cost):	 	 	 	 	 	 	 	 	 	 	 	 	
Stock option expense	 	$	-	 	 	$	-	 	 	$	(6,903	)	 	$	(6,903	)	
Long-term incentive compensation	 	 	-	 	 	 	-	 	 	 	(3,012	)	 	 	(3,012	)	
Noncash impact of accounting for convertible debt	 	 	-	 	 	 	-	 	 	 	(5,476	)	 	 	(5,476	)	
Expenses of class action litigation	 	 	-	 	 	 	(1,451	)	 	 	-	 	 	 	(1,451	)	
Acquisition expenses	 	 	(117	)	 	 	6	 	 	 	-	 	 	 	(111	)	
Legal expenses of OIG investigation	 	 	(1,209	)	 	 	-	 	 	 	-	 	 	 	(1,209	)	
Total	 	$	(1,326	)	 	$	(1,445	)	 	$	(15,391	)	 	$	(18,162	)	

 	 	VITAS	 	 	Roto-Rooter	 	 	Corporate	 	 	Consolidated	 	
After-tax benefit/(cost):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Stock option expense	 	$	-	 	 	$	-	 	 	$	(4,366	)	 	$	(4,366	)	
Long-term incentive compensation	 	 	-	 	 	 	-	 	 	 	(1,880	)	 	 	(1,880	)	
Noncash impact of accounting for convertible debt	 	 	-	 	 	 	-	 	 	 	(3,464	)	 	 	(3,464	)	
Expenses of class action litigation	 	 	-	 	 	 	(881	)	 	 	-	 	 	 	(881	)	
Acquisition expenses	 	 	(73	)	 	 	4	 	 	 	-	 	 	 	(69	)	
Legal expenses of OIG investigation	 	 	(749	)	 	 	-	 	 	 	-	 	 	 	(749	)	
Total	 	$	(822	)	 	$	(877	)	 	$	(9,710	)	 	$	(11,409	)	

-26-

 

CHEMED CORPORATION AND SUBSIDIARY COMPANIES	 	
CONSOLIDATING STATEMENT OF INCOME	 	
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010	 	
(in thousands)(unaudited)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	Chemed	 	
 	 	 	VITAS	 	 	Roto-Rooter	 	 	Corporate	 	 	Consolidated	 	
2010 (a)	 	 	 	 	 	 	 	 	 	 	 	 	 	
Service revenues and sales	 	 	$	683,542	 	 	$	260,717	 	 	$	-	 	 	$	944,259	 	
Cost of services provided and goods sold	 	 	 	527,347	 	 	 	143,407	 	 	 	-	 	 	 	670,754	 	
Selling, general and administrative expenses	 	 	 	54,920	 	 	 	73,523	 	 	 	18,251	 	 	 	146,694	 	
Depreciation	 	 	 	11,909	 	 	 	5,826	 	 	 	313	 	 	 	18,048	 	
Amortization	 	 	 	2,253	 	 	 	388	 	 	 	1,066	 	 	 	3,707	 	
Total costs and expenses	 	 	 	596,429	 	 	 	223,144	 	 	 	19,630	 	 	 	839,203	 	
Income/(loss) from operations	 	 	 	87,113	 	 	 	37,573	 	 	 	(19,630	)	 	 	105,056	 	
Interest expense	 	 	 	(127	)	 	 	(187	)	 	 	(8,632	)	 	 	(8,946	)	
Intercompany interest income/(expense)	 	 	 	3,778	 	 	 	2,126	 	 	 	(5,904	)	 	 	-	 	
Other income/(expense)—net	 	 	 	(85	)	 	 	35	 	 	 	468	 	 	 	418	 	
Income/(expense) before income taxes	 	 	 	90,679	 	 	 	39,547	 	 	 	(33,698	)	 	 	96,528	 	
Income taxes	 	 	 	(34,156	)	 	 	(15,127	)	 	 	11,956	 	 	 	(37,327	)	
Net income/(loss)	 	 	$	56,523	 	 	$	24,420	 	 	$	(21,742	)	 	$	59,201	 	

(a)   The following amounts are included in net income (in thousands):	 	 	 	 	 	 	 	 	 	

 	 	 	 	 	 	 	 	 	 	 	Chemed	 	
 	 	VITAS	 	 	Roto-Rooter	 	 	Corporate	 	 	Consolidated	 	
Pretax benefit/(cost):	 	 	 	 	 	 	 	 	 	 	 	 	
Stock option expense	 	$	-	 	 	$	-	 	 	$	(6,365	)	 	$	(6,365	)	
Long-term incentive compensation	 	 	-	 	 	 	-	 	 	 	(1,799	)	 	 	(1,799	)	
Noncash impact of accounting for convertible debt	 	 	-	 	 	 	-	 	 	 	(5,064	)	 	 	(5,064	)	
Expenses of class action litigation	 	 	-	 	 	 	(427	)	 	 	-	 	 	 	(427	)	
Legal expenses of OIG investigation	 	 	(390	)	 	 	-	 	 	 	-	 	 	 	(390	)	
Total	 	$	(390	)	 	$	(427	)	 	$	(13,228	)	 	$	(14,045	)	

 	 	VITAS	 	 	Roto-Rooter	 	 	Corporate	 	 	Consolidated	 	
After-tax benefit/(cost):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Stock option expense	 	$	-	 	 	$	-	 	 	$	(4,026	)	 	$	(4,026	)	
Long-term incentive compensation	 	 	-	 	 	 	-	 	 	 	(1,124	)	 	 	(1,124	)	
Noncash impact of accounting for convertible debt	 	 	-	 	 	 	-	 	 	 	(3,203	)	 	 	(3,203	)	
Expenses of class action litigation	 	 	-	 	 	 	(257	)	 	 	-	 	 	 	(257	)	
Legal expenses of OIG investigation	 	 	(242	)	 	 	-	 	 	 	-	 	 	 	(242	)	
Total	 	$	(242	)	 	$	(257	)	 	$	(8,353	)	 	$	(8,852	)	

-27-

 

Consolidating Summary and Reconciliation of Adjusted EBITDA	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Chemed Corporation and Subsidiary Companies	 	 	 	 	 	 	 	 	 	 	 	 	
(in thousands)	 	 	 	 	 	 	 	 	 	 	Chemed	 	
For the three months ended September 30, 2011	 	VITAS	 	 	Roto-Rooter	 	 	Corporate	 	 	Consolidated	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income/(loss)	 	$	20,970	 	 	$	8,016	 	 	$	(7,099	)	 	$	21,887	 	
Add/(deduct):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest expense	 	 	62	 	 	 	132	 	 	 	3,361	 	 	 	3,555	 	
Income taxes	 	 	12,823	 	 	 	4,864	 	 	 	(3,753	)	 	 	13,934	 	
Depreciation	 	 	4,123	 	 	 	2,058	 	 	 	132	 	 	 	6,313	 	
Amortization	 	 	510	 	 	 	156	 	 	 	468	 	 	 	1,134	 	
EBITDA	 	 	38,488	 	 	 	15,226	 	 	 	(6,891	)	 	 	46,823	 	
Add/(deduct):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Legal expenses of OIG investigation	 	 	212	 	 	 	-	 	 	 	-	 	 	 	212	 	
Acquisition expenses	 	 	2	 	 	 	-	 	 	 	-	 	 	 	2	 	
Expenses of class action litigation	 	 	-	 	 	 	770	 	 	 	-	 	 	 	770	 	
Stock option expense	 	 	-	 	 	 	-	 	 	 	2,408	 	 	 	2,408	 	
Advertising cost adjustment	 	 	-	 	 	 	(585	)	 	 	-	 	 	 	(585	)	
Interest income	 	 	(43	)	 	 	(12	)	 	 	(19	)	 	 	(74	)	
Intercompany interest income/(expense)	 	 	(834	)	 	 	(451	)	 	 	1,285	 	 	 	-	 	
Adjusted EBITDA	 	$	37,825	 	 	$	14,948	 	 	$	(3,217	)	 	$	49,556	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	Chemed	 	
For the three months ended September 30, 2010	 	VITAS	 	 	Roto-Rooter	 	 	Corporate	 	 	Consolidated	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income/(loss)	 	$	19,803	 	 	$	7,747	 	 	$	(6,562	)	 	$	20,988	 	
Add/(deduct):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest expense	 	 	48	 	 	 	55	 	 	 	2,892	 	 	 	2,995	 	
Income taxes	 	 	11,778	 	 	 	4,798	 	 	 	(3,582	)	 	 	12,994	 	
Depreciation	 	 	4,321	 	 	 	1,925	 	 	 	139	 	 	 	6,385	 	
Amortization	 	 	694	 	 	 	133	 	 	 	369	 	 	 	1,196	 	
EBITDA	 	 	36,644	 	 	 	14,658	 	 	 	(6,744	)	 	 	44,558	 	
Add/(deduct):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Legal expenses of OIG investigation…	 	 	112	 	 	 	-	 	 	 	-	 	 	 	112	 	
Expenses of class action litigation	 	 	-	 	 	 	322	 	 	 	-	 	 	 	322	 	
Stock option expense	 	 	-	 	 	 	-	 	 	 	1,968	 	 	 	1,968	 	
Advertising cost adjustment	 	 	-	 	 	 	(571	)	 	 	-	 	 	 	(571	)	
Interest income	 	 	(37	)	 	 	(10	)	 	 	(62	)	 	 	(109	)	
Intercompany interest income/(expense)	 	 	(1,139	)	 	 	(651	)	 	 	1,790	 	 	 	-	 	
Adjusted EBITDA	 	$	35,580	 	 	$	13,748	 	 	$	(3,048	)	 	$	46,280	 	

-28-

 

Consolidating Summary and Reconciliation of Adjusted EBITDA	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Chemed Corporation and Subsidiary Companies	 	 	 	 	 	 	 	 	 	 	 	 	
(in thousands)	 	 	 	 	 	 	 	 	 	 	Chemed	 	
For the nine months ended September 30, 2011	 	VITAS	 	 	Roto-Rooter	 	 	Corporate	 	 	Consolidated	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income/(loss)	 	$	57,684	 	 	$	25,618	 	 	$	(23,028	)	 	$	60,274	 	
Add/(deduct):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest expense	 	 	172	 	 	 	274	 	 	 	9,814	 	 	 	10,260	 	
Income taxes	 	 	35,080	 	 	 	15,692	 	 	 	(12,724	)	 	 	38,048	 	
Depreciation	 	 	12,489	 	 	 	6,067	 	 	 	403	 	 	 	18,959	 	
Amortization	 	 	1,513	 	 	 	443	 	 	 	1,287	 	 	 	3,243	 	
EBITDA	 	 	106,938	 	 	 	48,094	 	 	 	(24,248	)	 	 	130,784	 	
Add/(deduct):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Legal expenses of OIG investigation	 	 	1,209	 	 	 	-	 	 	 	-	 	 	 	1,209	 	
Acquisition expenses	 	 	117	 	 	 	(6	)	 	 	-	 	 	 	111	 	
Expenses of class action litigation	 	 	-	 	 	 	1,451	 	 	 	-	 	 	 	1,451	 	
Long-term incentive compensation	 	 	-	 	 	 	-	 	 	 	3,012	 	 	 	3,012	 	
Stock option expense	 	 	-	 	 	 	-	 	 	 	6,903	 	 	 	6,903	 	
Advertising cost adjustment	 	 	-	 	 	 	(1,442	)	 	 	-	 	 	 	(1,442	)	
Interest income	 	 	(86	)	 	 	(28	)	 	 	(83	)	 	 	(197	)	
Intercompany interest income/(expense)	 	 	(3,263	)	 	 	(1,742	)	 	 	5,005	 	 	 	-	 	
Adjusted EBITDA	 	$	104,915	 	 	$	46,327	 	 	$	(9,411	)	 	$	141,831	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	Chemed	 	
For the nine months ended September 30, 2010	 	VITAS	 	 	Roto-Rooter	 	 	Corporate	 	 	Consolidated	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income/(loss)	 	$	56,523	 	 	$	24,420	 	 	$	(21,742	)	 	$	59,201	 	
Add/(deduct):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest expense	 	 	127	 	 	 	187	 	 	 	8,632	 	 	 	8,946	 	
Income taxes	 	 	34,156	 	 	 	15,127	 	 	 	(11,956	)	 	 	37,327	 	
Depreciation	 	 	11,909	 	 	 	5,826	 	 	 	313	 	 	 	18,048	 	
Amortization	 	 	2,253	 	 	 	388	 	 	 	1,066	 	 	 	3,707	 	
EBITDA	 	 	104,968	 	 	 	45,948	 	 	 	(23,687	)	 	 	127,229	 	
Add/(deduct):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Legal expenses of OIG investigation	 	 	390	 	 	 	-	 	 	 	-	 	 	 	390	 	
Expenses of class action litigation	 	 	-	 	 	 	427	 	 	 	-	 	 	 	427	 	
Long-term incentive compensation	 	 	-	 	 	 	-	 	 	 	1,799	 	 	 	1,799	 	
Stock option expense	 	 	-	 	 	 	-	 	 	 	6,365	 	 	 	6,365	 	
Advertising cost adjustment	 	 	-	 	 	 	(1,639	)	 	 	-	 	 	 	(1,639	)	
Interest income	 	 	(172	)	 	 	(37	)	 	 	(125	)	 	 	(334	)	
Intercompany interest income/(expense)	 	 	(3,778	)	 	 	(2,126	)	 	 	5,904	 	 	 	-	 	
Adjusted EBITDA	 	$	101,408	 	 	$	42,573	 	 	$	(9,744	)	 	$	134,237	 	

-29-

 
 
CHEMED CORPORATION AND SUBSIDIARY COMPANIES	 	
OPERATING STATISTICS FOR VITAS SEGMENT	 	
(unaudited)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three Months Ended September 30,	 	 	Nine Months Ended September 30,	 	
OPERATING STATISTICS	 	2011	 	 	2010	 	 	2011	 	 	2010	 	
Net revenue ($000)	 	 	 	 	 	 	 	 	 	 	 	 	
Homecare	 	$	184,155	 	 	$	169,306	 	 	$	529,874	 	 	$	490,044	 	
Inpatient	 	 	28,292	 	 	 	25,963	 	 	 	82,861	 	 	 	78,244	 	
Continuous care	 	 	40,113	 	 	 	38,812	 	 	 	117,950	 	 	 	113,588	 	
Total before Medicare cap allowance	 	$	252,560	 	 	$	234,081	 	 	$	730,685	 	 	$	681,876	 	
Medicare cap allowance	 	 	384	 	 	 	(117	)	 	 	1,027	 	 	 	1,666	 	
Total	 	$	252,944	 	 	$	233,964	 	 	$	731,712	 	 	$	683,542	 	
Net revenue as a percent of total	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
before Medicare cap allowance	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Homecare	 	 	72.9	%	 	 	72.3	%	 	 	72.5	%	 	 	71.8	%	
Inpatient	 	 	11.2	 	 	 	11.1	 	 	 	11.3	 	 	 	11.5	 	
Continuous care	 	 	15.9	 	 	 	16.6	 	 	 	16.2	 	 	 	16.7	 	
Total before Medicare cap allowance	 	 	100.0	 	 	 	100.0	 	 	 	100.0	 	 	 	100.0	 	
Medicare cap allowance	 	 	0.2	 	 	 	(0.1	)	 	 	0.1	 	 	 	0.2	 	
Total	 	 	100.2	%	 	 	99.9	%	 	 	100.1	%	 	 	100.2	%	
Average daily census (days)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Homecare	 	 	9,485	 	 	 	8,586	 	 	 	9,185	 	 	 	8,350	 	
Nursing home	 	 	3,118	 	 	 	3,250	 	 	 	3,062	 	 	 	3,212	 	
Routine homecare	 	 	12,603	 	 	 	11,836	 	 	 	12,247	 	 	 	11,562	 	
Inpatient	 	 	456	 	 	 	425	 	 	 	451	 	 	 	433	 	
Continuous care	 	 	599	 	 	 	596	 	 	 	601	 	 	 	595	 	
Total	 	 	13,658	 	 	 	12,857	 	 	 	13,299	 	 	 	12,590	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Admissions	 	 	14,879	 	 	 	14,483	 	 	 	45,971	 	 	 	43,750	 	
Total Discharges	 	 	14,682	 	 	 	14,076	 	 	 	45,104	 	 	 	42,767	 	
Average length of stay (days)	 	 	80.1	 	 	 	78.2	 	 	 	78.7	 	 	 	77.1	 	
Median length of stay (days)	 	 	15.0	 	 	 	15.0	 	 	 	14.0	 	 	 	14.0	 	
ADC by major diagnosis	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Neurological	 	 	34.3	%	 	 	33.4	%	 	 	34.4	%	 	 	33.2	%	
Cancer	 	 	17.5	 	 	 	18.5	 	 	 	17.7	 	 	 	18.4	 	
Cardio	 	 	11.3	 	 	 	11.9	 	 	 	11.6	 	 	 	11.9	 	
Respiratory	 	 	6.6	 	 	 	6.5	 	 	 	6.8	 	 	 	6.6	 	
Other	 	 	30.3	 	 	 	29.7	 	 	 	29.5	 	 	 	29.9	 	
Total	 	 	100.0	%	 	 	100.0	%	 	 	100.0	%	 	 	100.0	%	
Admissions by major diagnosis	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Neurological	 	 	19.0	%	 	 	18.4	%	 	 	19.3	%	 	 	18.6	%	
Cancer	 	 	34.7	 	 	 	35.8	 	 	 	33.1	 	 	 	34.6	 	
Cardio	 	 	10.4	 	 	 	11.1	 	 	 	10.9	 	 	 	11.3	 	
Respiratory	 	 	7.8	 	 	 	7.5	 	 	 	8.5	 	 	 	8.1	 	
Other	 	 	28.1	 	 	 	27.2	 	 	 	28.2	 	 	 	27.4	 	
Total	 	 	100.0	%	 	 	100.0	%	 	 	100.0	%	 	 	100.0	%	
Direct patient care margins	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Routine homecare	 	 	52.4	%	 	 	52.7	%	 	 	52.0	%	 	 	52.2	%	
Inpatient	 	 	12.4	 	 	 	12.3	 	 	 	12.9	 	 	 	13.3	 	
Continuous care	 	 	20.7	 	 	 	21.1	 	 	 	20.5	 	 	 	21.0	 	
Homecare margin drivers (dollars per patient day)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Labor costs	 	$	53.13	 	 	$	51.97	 	 	$	53.88	 	 	$	52.79	 	
Drug costs	 	 	8.26	 	 	 	7.89	 	 	 	8.14	 	 	 	7.78	 	
Home medical equipment	 	 	6.64	 	 	 	6.54	 	 	 	6.65	 	 	 	6.71	 	
Medical supplies	 	 	2.81	 	 	 	2.66	 	 	 	2.80	 	 	 	2.53	 	
Inpatient margin drivers (dollars per patient day)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Labor costs	 	$	312.72	 	 	$	304.42	 	 	$	310.25	 	 	$	297.63	 	
Continuous care margin drivers (dollars per patient day)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Labor costs	 	$	555.63	 	 	$	536.83	 	 	$	550.09	 	 	$	531.14	 	
Bad debt expense as a percent of revenues	 	 	0.8	%	 	 	0.9	%	 	 	0.7	%	 	 	0.9	%	
Accounts receivable --	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Days of revenue outstanding- excluding unapplied Medicare payments	 	 	38.9	 	 	 	39.7	 	 	n.a.	 	 	n.a.	 	
Days of revenue outstanding- including unapplied Medicare payments	 	 	34.6	 	 	 	34.9	 	 	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 September 30, 2011, we had no variable rate debt outstanding.  At September 30, 2011, the fair value of the Notes approximates $186.0 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 programs for the first nine months of 2011:
 
 	 	 	 	 	Weighted	 	 	 	 	 	 	 	
 	 	Total Number	 	 	Average	 	 	Cumulative Shares	 	 	Dollar Amount	 	
 	 	of Shares	 	 	Price Paid Per	 	 	Repurchased Under	 	 	Remaining Under	 	
 	 	Repurchased	 	 	Share	 	 	the Program	 	 	The Program	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
April 2007 Program	 	 	 	 	 	 	 	 	 	 	 	 	
January 1 through January 31, 2011	 	 	300,513	 	 	$	63.62	 	 	 	3,654,157	 	 	$	24,543	 	
February 1 through February 28, 2011	 	 	377	 	 	 	65.03	 	 	 	3,654,534	 	 	 	-	 	
March 1 through March 31, 2011	 	 	-	 	 	 	-	 	 	 	3,654,534	 	 	$	-	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
First Quarter Total - April 2007 Program	 	 	300,890	 	 	$	63.62	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
February 2011 Program	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
January 1 through January 31, 2011	 	 	-	 	 	$	-	 	 	 	-	 	 	$	-	 	
February 22, 2011 Authorization	 	 	-	 	 	 	-	 	 	 	-	 	 	 	100,000,000	 	
February 1 through February 28, 2011	 	 	40,623	 	 	 	65.03	 	 	 	40,623	 	 	 	97,358,313	 	
March 1 through March 31, 2011	 	 	-	 	 	 	-	 	 	 	40,623	 	 	$	97,358,313	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
First Quarter Total - February 2011 Program	 	 	40,623	 	 	$	65.03	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
April 1 through April 30, 2011	 	 	-	 	 	$	-	 	 	 	40,623	 	 	$	97,358,313	 	
May 1 through May 31, 2011	 	 	-	 	 	 	-	 	 	 	40,623	 	 	 	97,358,313	 	
June 1 through June 30, 2011	 	 	-	 	 	 	-	 	 	 	40,623	 	 	$	97,358,313	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Second Quarter Total - February 2011 Program	 	 	-	 	 	$	-	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
July 1 through July 31, 2011	 	 	41,112	 	 	$	60.15	 	 	 	81,735	 	 	$	94,885,576	 	
August 1 through August 31, 2011	 	 	710,172	 	 	 	55.51	 	 	 	791,907	 	 	 	55,460,568	 	
September 1 through September 30, 2011	 	 	778,746	 	 	 	55.02	 	 	 	1,570,653	 	 	$	12,615,182	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Third Quarter Total - February 2011 Program	 	 	1,530,030	 	 	$	55.39	 	 	 	 	 	 	 	 	 	
 
On February 22, 2011 our Board of Directors authorized $100 million under the newly established February 2011 Repurchase Program.
Item 3.   Defaults Upon Senior Securities
 
None

Item 4.   Removed and reserved

Item 5.   Other Information
 
None

-32-

 

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.LAB	 	XBRL Taxonomy Extension Label Linkbase	
 	 	 	
101.PRE	 	XBRL Taxonomy Extension Presentation Linkbase	

 
 
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:	November 4, 2011	 	By:	Kevin J. McNamara	
 	 	 	 	 	Kevin J. McNamara	
 	 	 	 	 	(President and Chief Executive Officer)	

 	Dated:	November 4, 2011	 	By:	David P. Williams	
 	 	 	 	 	David P. Williams	
 	 	 	 	 	(Executive Vice President and Chief Financial Officer)	

 	Dated:	November 4, 2011	 	By:	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:   November  4, 2011	/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:   November 4, 2011	/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:   November 4, 2011	/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 September 30, 2011 (“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:   November 4, 2011	/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 September 30, 2011 (“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:   November 4, 2011	/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 September 30, 2011 (“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:   November 4, 2011	/s/ Arthur V. Tucker, Jr.	
 	Arthur V. Tucker, Jr.	
 	(Vice President and	
 	Controller)	

E-6