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, 2010	
 
 	 	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	 	22,792,430 Shares	 	September 30, 2010	

 

 

-1-

 
 
CHEMED CORPORATION AND
SUBSIDIARY COMPANIES

Index
 
 	 	 	Page No.	
PART I.    FINANCIAL INFORMATION:	 	 	 	
Item 1.  Financial Statements	 	 	 	
Unaudited Consolidated Balance Sheet -	 	 	 	
September 30, 2010 and December 31, 2009	 	 	3	
 	 	 	 	
Unaudited Consolidated Statement of Income -	 	 	 	
Three and nine months ended September 30, 2010 and 2009	 	 	4	
 	 	 	 	
Unaudited Consolidated Statement of Cash Flows -	 	 	 	
Nine months ended September 30, 2010 and 2009	 	 	5	
 	 	 	 	
Notes to Unaudited Financial Statements	 	 	6	
 	 	 	 	
Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations	 	 	16	
 	 	 	 	
Item 3.  Quantitative and Qualitative Disclosures about Market Risk	 	 	30	
 	 	 	 	
Item 4.  Controls and Procedures	 	 	30 	
 	 	 	 	
PART II.   OTHER INFORMATION	 	 	 	
Item 1.    Legal Proceedings	 	 	30	
 	 	 	 	
Item 1A. Risk Factors	 	 	30	
 	 	 	 	
Item 2.    Unregistered Sales of Equity Securities and Use of  Proceeds	 	 	31	
 	 	 	 	
Item 3.    Defaults Upon Senior Securities	 	 	31	
 	 	 	 	
Item 4.    Removed and Reserved	 	 	31	
 	 	 	 	
Item 5.    Other Information	 	 	31	
 	 	 	 	
Item 6.    Exhibits	 	 	32	
EX – 31.1	 	 	 	
EX – 31.2	 	 	 	
EX – 31.3	 	 	 	
EX – 32.1	 	 	 	
EX – 32.2	 	 	 	
EX – 32.3	 	 	 	
EX – 101.INS 	 	 	 	
EX – 101.SCH	 	 	 	
EX – 101.CAL	 	 	 	
EX – 101.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,	 	
 	2010	 	 	2009	 	
ASSETS	 	 	 	 	 	 	
Current assets	 	 	 	 	 	 	
Cash and cash equivalents	 	$	137,457	 	 	$	112,416	 	
Accounts receivable less allowances of $13,815 (2009 - $12,595)	 	 	105,686	 	 	 	53,461	 	
Inventories	 	 	7,951	 	 	 	7,543	 	
Current deferred income taxes	 	 	14,650	 	 	 	13,701	 	
Prepaid income taxes	 	 	337	 	 	 	749	 	
Prepaid expenses	 	 	9,925	 	 	 	10,388	 	
 Total current assets	 	 	276,006	 	 	 	198,258	 	
Investments of deferred compensation plans	 	 	26,022	 	 	 	24,158	 	
Properties and equipment, at cost, less accumulated depreciation of $127,848
(2009 - $115,181)	 	 	78,982	 	 	 	75,358	 	
Identifiable intangible assets less accumulated amortization of $27,101
(2009 - $25,349)	 	 	56,097	 	 	 	57,920	 	
Goodwill	 	 	450,095	 	 	 	450,042	 	
Other assets	 	 	11,190	 	 	 	13,734	 	
 Total Assets	 	$	898,392	 	 	$	819,470	 	
 	 	 	 	 	 	 	 	 	
LIABILITIES	 	 	 	 	 	 	 	 	
Current liabilities	 	 	 	 	 	 	 	 	
Accounts payable	 	$	52,552	 	 	$	52,071	 	
Income taxes	 	 	4,575	 	 	 	63	 	
Accrued insurance	 	 	34,320	 	 	 	35,161	 	
Accrued compensation	 	 	45,183	 	 	 	34,662	 	
Other current liabilities	 	 	15,637	 	 	 	14,127	 	
Total current liabilities	 	 	152,267	 	 	 	136,084	 	
Deferred income taxes	 	 	23,045	 	 	 	25,924	 	
Long-term debt	 	 	157,392	 	 	 	152,127	 	
Deferred compensation liabilities	 	 	25,508	 	 	 	23,637	 	
Other liabilities	 	 	6,624	 	 	 	4,536	 	
Total Liabilities	 	 	364,836	 	 	 	342,308	 	
 	 	 	 	 	 	 	 	 	
STOCKHOLDERS' EQUITY	 	 	 	 	 	 	 	 	
Capital stock - authorized 80,000,000 shares $1 par; issued 30,207,002 shares
(2009 - 29,890,628 shares)	 	 	30,207	 	 	 	29,891	 	
Paid-in capital	 	 	354,473	 	 	 	335,890	 	
Retained earnings	 	 	453,886	 	 	 	403,366	 	
Treasury stock - 7,515,127 shares (2009 - 7,275,070 shares), at cost	 	 	(306,977	)	 	 	(293,941	)	
Deferred compensation payable in Company stock	 	 	1,967	 	 	 	1,956	 	
Total Stockholders' Equity	 	 	533,556	 	 	 	477,162	 	
Total Liabilities and Stockholders' Equity	 	$	898,392	 	 	$	819,470	 	
 	 	 	 	 	 	 	 	 	
See accompanying notes to unaudited financial statements.	

 
 
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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,	 	
 	 	2010	 	 	2009	 	 	2010	 	 	2009	 	
Service revenues and sales	 	$	320,451	 	 	$	296,794	 	 	$	944,259	 	 	$	886,987	 	
Cost of services provided and goods sold (excluding
depreciation)	 	 	227,915	 	 	 	208,888	 	 	 	670,754	 	 	 	623,238	 	
Selling, general and administrative expenses	 	 	48,200	 	 	 	48,148	 	 	 	146,694	 	 	 	143,521	 	
Depreciation	 	 	6,385	 	 	 	5,361	 	 	 	18,048	 	 	 	16,024	 	
Amortization	 	 	1,196	 	 	 	1,611	 	 	 	3,707	 	 	 	4,765	 	
Other operating expenses	 	 	-	 	 	 	-	 	 	 	-	 	 	 	3,989	 	
 Total costs and expenses	 	 	283,696	 	 	 	264,008	 	 	 	839,203	 	 	 	791,537	 	
 Income from operations	 	 	36,755	 	 	 	32,786	 	 	 	105,056	 	 	 	95,450	 	
Interest expense	 	 	(2,995	)	 	 	(2,853	)	 	 	(8,946	)	 	 	(8,839	)	
Other income--net	 	 	222	 	 	 	1,733	 	 	 	418	 	 	 	4,815	 	
 Income before income taxes	 	 	33,982	 	 	 	31,666	 	 	 	96,528	 	 	 	91,426	 	
Income taxes	 	 	(12,994	)	 	 	(12,456	)	 	 	(37,327	)	 	 	(35,627	)	
 Net income	 	$	20,988	 	 	$	19,210	 	 	$	59,201	 	 	$	55,799	 	

Earnings Per Share	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Net income	 	$	0.93	 	 	$	0.86	 	 	$	2.62	 	 	$	2.49	 	
 Average number of shares outstanding	 	 	22,597	 	 	 	22,461	 	 	 	22,604	 	 	 	22,425	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Diluted Earnings Per Share	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Net income	 	$	0.91	 	 	$	0.84	 	 	$	2.57	 	 	$	2.46	 	
 Average number of shares outstanding	 	 	22,996	 	 	 	22,744	 	 	 	23,006	 	 	 	22,679	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash Dividends Per Share	 	$	0.14	 	 	$	0.12	 	 	$	0.38	 	 	$	0.24	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
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,	 	
 	 	2010	 	 	2009	 	
Cash Flows from Operating Activities	 	 	 	 	 	 	
Net income	 	$	59,201	 	 	$	55,799	 	
 Adjustments to reconcile net income to net cash provided	 	 	 	 	 	 	 	 	
 by operating activities:	 	 	 	 	 	 	 	 	
 Depreciation and amortization	 	 	21,755	 	 	 	20,789	 	
 Provision for uncollectible accounts receivable	 	 	7,248	 	 	 	8,297	 	
 Stock option expense	 	 	6,365	 	 	 	6,699	 	
 Amortization of discount on convertible notes	 	 	5,265	 	 	 	4,921	 	
 Provision for deferred income taxes	 	 	(3,886	)	 	 	(1,336	)	
 Noncash long-term incentive compensation	 	 	1,580	 	 	 	-	 	
 Changes in operating assets and liabilities, excluding	 	 	 	 	 	 	 	 	
 amounts acquired in business combinations:	 	 	 	 	 	 	 	 	
Increase in accounts receivable	 	 	(59,528	)	 	 	(16,936	)	
Increase in inventories	 	 	(408	)	 	 	(499	)	
Decrease in prepaid expenses	 	 	463	 	 	 	1,406	 	
Increase/(decrease) in accounts payable and other current liabilities	 	 	12,479	 	 	 	(4,584	)	
Increase in income taxes	 	 	6,729	 	 	 	8,657	 	
Increase in other assets	 	 	(2,180	)	 	 	(103	)	
Increase/(decrease) in other liabilities	 	 	3,960	 	 	 	(1,632	)	
Excess tax benefit on share-based compensation	 	 	(1,823	)	 	 	(1,519	)	
Other sources	 	 	770	 	 	 	588	 	
 Net cash provided by operating activities	 	 	57,990	 	 	 	80,547	 	
Cash Flows from Investing Activities	 	 	 	 	 	 	 	 	
Capital expenditures	 	 	(19,107	)	 	 	(14,471	)	
 Proceeds from sales of property and equipment	 	 	182	 	 	 	1,519	 	
 Business combinations, net of cash acquired	 	 	(30	)	 	 	(1,859	)	
Other uses	 	 	(630	)	 	 	(950	)	
 Net cash used by investing activities	 	 	(19,585	)	 	 	(15,761	)	
Cash Flows from Financing Activities	 	 	 	 	 	 	 	 	
 Purchases of treasury stock	 	 	(10,140	)	 	 	(1,684	)	
Dividends paid	 	 	(8,682	)	 	 	(5,429	)	
 Proceeds from issuance of capital stock	 	 	3,632	 	 	 	486	 	
 Excess tax benefit on share-based compensation	 	 	1,823	 	 	 	1,519	 	
 Changes in cash overdrafts payable	 	 	(184	)	 	 	943	 	
 Repayment of long-term debt	 	 	-	 	 	 	(14,599	)	
 Net decrease in revolving line of credit	 	 	-	 	 	 	(8,200	)	
Other sources	 	 	187	 	 	 	597	 	
 Net cash used by financing activities	 	 	(13,364	)	 	 	(26,367	)	
Increase in Cash and Cash Equivalents	 	 	25,041	 	 	 	38,419	 	
Cash and cash equivalents at beginning of year	 	 	112,416	 	 	 	3,628	 	
Cash and cash equivalents at end of period	 	$	137,457	 	 	$	42,047	 	
 	 	 	 	 	 	 	 	 	
 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, 2009 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, 2009.

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, 2010, VITAS has approximately $5.6 million in unbilled revenue included in accounts receivable (December 31, 2009 - $9.9 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, 2010 we recorded $117,000 for one small program’s projected Medicare cap liability for the 2010 measurement period.  For the nine month period ended September 30, 2010, we reversed $1.7 million, net in Medicare cap liability for amounts recorded in the fourth quarter of 2009 for two programs’ projected 2010 measurement period liability.  For the three-month period ended September 30, 2009, we recorded $43,000 in Medicare cap liability related to a retroactive billing for 2006.  For the nine month period ended September 30, 2009, we reversed $235,000 for the 2009 measurement period offset by $43,000 in Medicare cap liability related to a retroactive billing for 2006.

The U.S. government revises hospice reimbursement rates on an annual basis using the Hospice Wage Index (HWI) and the Consumer Price Index plus a phase out of the Budget Neutrality Adjustment Factor (BNAF).  The HWI is geographically adjusted to reflect local differences in wages.  The BNAF is a portion of inflation calculated in prior years that is being phased out over a seven year period.  In August 2008, the U.S. government announced a 25% reduction in the BNAF for its fiscal 2009 (October 2008 through September 2009) pursuant to a three year phase-out of the BNAF.  The February 2009 American Recovery and Reinvestment Act mandated a one year delay in the BNAF phase-out.  In August 2009, the Centers for Medicare and Medicaid Services (CMS) revised the phase-out schedule of the BNAF.  CMS reduced the price increase in hospice reimbursement by 10% of the BNAF effective October 1, 2009.  The remaining 90% of the BNAF will be phased out over the next nine years by revising the October 1 reimbursement adjustment by 15% of the original BNAF inflation factor.  Based upon this revised schedule, 100% of the BNAF will be eliminated on October 1, 2015.  As a result, included in the nine months ended September 30, 2009 results, is $1.95 million of revenue for the retroactive price increase related to services provided by VITAS in the fourth quarter of 2008.

 
-6-

 

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,	 	
 	 	 	2010	 	 	2009	 	 	2010	 	 	2009	 	
Service Revenues and Sales	 	 	 	 	 	 	 	 	 	 	 	 	
VITAS	 	 	$	233,964	 	 	$	217,067	 	 	$	683,542	 	 	$	636,787	 	
Roto-Rooter	 	 	 	86,487	 	 	 	79,727	 	 	 	260,717	 	 	 	250,200	 	
Total	$	320,451	 	 	$	296,794	 	 	$	944,259	 	 	$	886,987	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
After-tax Earnings	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
VITAS	 	 	$	19,803	 	 	$	18,148	 	 	$	56,523	 	 	$	52,442	 	
Roto-Rooter	 	 	 	7,747	 	 	 	7,935	 	 	 	24,420	 	 	 	24,962	 	
Total	 	 	27,550	 	 	 	26,083	 	 	 	80,943	 	 	 	77,404	 	
Corporate	 	 	 	(6,562	)	 	 	(6,873	)	 	 	(21,742	)	 	 	(21,605	)	
Net income	 	$	20,988	 	 	$	19,210	 	 	$	59,201	 	 	$	55,799	 	

We report corporate administrative expenses and unallocated investing and financing income and expense not directly related to either segment as “Corporate”.  Historically, we have recorded stock award amortization as a corporate expense.  In the first quarter of 2010, our chief decision maker determined that this was an on-going expense and should be reported within the appropriate business segment.  Accordingly, stock award amortization has been reclassified to the corresponding business segment for all periods presented.

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 2010 and 2009 are computed as follows (in thousands, except per share data):

For the Three Months Ended September 30,	 	Net Income	 	 	Shares	 	 	Earnings per Share	 	
2010	 	 	 	 	 	 	 	 	 	
Earnings	 	$	20,988	 	 	 	22,597	 	 	$	0.93	 	
Dilutive stock options	 	 	-	 	 	 	304	 	 	 	 	 	
Nonvested stock awards	 	 	-	 	 	 	95	 	 	 	 	 	
     Diluted earnings	 	$	20,988	 	 	 	22,996	 	 	$	0.91	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
2009	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings	 	$	19,210	 	 	 	22,461	 	 	$	0.86	 	
Dilutive stock options	 	 	-	 	 	 	227	 	 	 	 	 	
Nonvested stock awards	 	 	-	 	 	 	56	 	 	 	 	 	
     Diluted earnings	 	$	19,210	 	 	 	22,744	 	 	$	0.84	 	

 
 
-7-

 
 
For the Nine Months Ended September 30,	 	Net Income	 	 	Shares	 	 	Earnings per Share	 	
2010	 	 	 	 	 	 	 	 	 	
Earnings	 	$	59,201	 	 	 	22,604	 	 	$	2.62	 	
Dilutive stock options	 	 	-	 	 	 	314	 	 	 	 	 	
Nonvested stock awards	 	 	-	 	 	 	88	 	 	 	 	 	
     Diluted earnings	 	$	59,201	 	 	 	23,006	 	 	$	2.57	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
2009	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings	 	$	55,799	 	 	 	22,425	 	 	$	2.49	 	
Dilutive stock options	 	 	-	 	 	 	212	 	 	 	 	 	
Nonvested stock awards	 	 	-	 	 	 	42	 	 	 	 	 	
     Diluted earnings	 	$	55,799	 	 	 	22,679	 	 	$	2.46	 	

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 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, 2009, 1.3 million and 1.7 million stock options were excluded from the computation of diluted earnings per share.

Diluted earnings per share may be impacted in future periods 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	 	 	 	15,037	 	 	 	-	 	 	 	15,037	 	 	 	(16,087	)	 	 	(1,050	)	
$	90.73	 	 	 	270,280	 	 	 	-	 	 	 	270,280	 	 	 	(289,138	)	 	 	(18,858	)	
$	100.73	 	 	 	474,844	 	 	 	-	 	 	 	474,844	 	 	 	(507,974	)	 	 	(33,130	)	
$	110.73	 	 	 	642,460	 	 	 	119,123	 	 	 	761,583	 	 	 	(687,285	)	 	 	74,298	 	
$	120.73	 	 	 	782,309	 	 	 	315,790	 	 	 	1,098,099	 	 	 	(836,891	)	 	 	261,208	 	
$	130.73	 	 	 	900,763	 	 	 	482,369	 	 	 	1,383,132	 	 	 	(963,610	)	 	 	419,522	 	
 
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.	

 
 
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5.      Long-Term Debt
We are in compliance with all debt covenants as of September 30, 2010.  We have issued $28.2 million in standby letters of credit as of September 30, 2010 for insurance purposes.  Issued letters of credit reduce our available credit under the revolving credit agreement.  As of September 30, 2010, we have approximately $146.8 million of unused lines of credit available and eligible to be drawn down under our revolving credit facility, excluding the $100 million expansion feature.

In May 2008, the FASB issued authoritative guidance for accounting for convertible debt instruments that may be settled in cash upon conversion including partial cash settlement.  This guidance requires all convertible debentures classified as Instruments B or C to separately account for the debt and equity pieces of the instrument.   Convertible debentures classified as Instruments B may be settled in either stock or cash equivalent to the conversion value and convertible debentures classified as Instruments C must settle the accreted value of the obligation in cash and may satisfy the excess conversion value in either cash or stock.  At inception of the convertible instrument, cash flows related to the convertible instrument are to be discounted using a market rate of interest.  We adopted the provisions of the guidance on January 1, 2009 and applied the guidance retrospectively.  Upon adoption, the Notes had a discount of approximately $55.1 million.

The following amounts are included in our consolidated balance sheet related to the Notes:
 
 	 	September 30,
 2010	 	 	December 31,
2009	 	
Principal amount of convertible debentures	 	$	186,956	 	 	$	186,956	 	
Unamortized debt discount	 	 	(29,564	)	 	 	(34,829	)	
Carrying amount of convertible debentures	 	$	157,392	 	 	$	152,127	 	
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,	 	
 	 	2010	 	 	2009	 	 	2010	 	 	2009	 	
Cash interest expense	 	$	1,044	 	 	$	1,014	 	 	$	3,198	 	 	$	3,438	 	
Non-cash amortization of debt discount	 	 	1,785	 	 	 	1,668	 	 	 	5,265	 	 	 	4,921	 	
Amortization of debt costs	 	 	166	 	 	 	171	 	 	 	483	 	 	 	480	 	
Total interest expense	 	$	2,995	 	 	$	2,853	 	 	$	8,946	 	 	$	8,839	 	

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%.

6.      Other Operating Expenses
For the nine-month period of 2009, we recorded pretax expenses of $4.0 million related to the costs of a contested proxy solicitation.  There were no other operating expenses for any other period presented.

 
 
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7.      Other Income -- Net
Other income -- net comprises the following (in thousands):

 	 	Three Months Ended September 30,	 	 	Nine Months Ended September 30,	 	
 	 	2010	 	 	2009	 	 	2010	 	 	2009	 	
Market value gains on assets held in	 	 	 	 	 	 	 	 	 	 	 	 	
    deferred compensation trust	 	$	243	 	 	$	1,789	 	 	$	348	 	 	$	3,374	 	
Gain on settlement of company-owned life insurance	 	 	-	 	 	 	-	 	 	 	-	 	 	 	1,211	 	
Loss on disposal of property and equipment	 	 	(141	)	 	 	(159	)	 	 	(293	)	 	 	(213	)	
Interest income	 	 	109	 	 	 	86	 	 	 	334	 	 	 	375	 	
Other - net	 	 	11	 	 	 	17	 	 	 	29	 	 	 	68	 	
     Total other income	 	$	222	 	 	$	1,733	 	 	$	418	 	 	$	4,815	 	

 8.      Stock-Based Compensation Plans
On May 17, 2010 the stockholders approved the adoption of the Company’s 2010 Stock Incentive Plan.  The Stock Incentive Plan authorizes the issuance or transfer of a maximum of 1,750,000 shares of capital stock pursuant to stock incentives granted to key employees of the Company.  Stock incentives granted under the Stock Plan may be in the form of options to purchase capital stock or in the form of capital stock awards.
 
In April 2010, we met the stock price target of our Long-Term Incentive Plan.  The stock price hurdle of $54.00 was achieved during 30 trading days out of a 60 day trading day period. On April 16, 2010, the Compensation/Incentive Committee of the Board of Directors (“CIC”) approved a stock grant of 27,900 shares and the related allocation to participants.  The pretax cost of the stock grant was $1.8 million.

On February 18, 2010, the CIC approved a grant of 47,896 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 $2.5 million and will be recognized ratably over the four-year vesting period.  We assumed no forfeitures in determining the cumulative compensation expense of the grant.

On February 18, 2010, the CIC approved a grant of 515,100 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 $7.8 million and will be recognized over the three-year vesting period.  We used the Black-Scholes option valuation method to determine the cumulative compensation expense of the grant.

9.    Independent Contractor Operations
The Roto-Rooter segment sublicenses with sixty-one 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, 2010 totaling $1.2 million (December 31, 2009 -$1.3 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 zero to 8% per annum and the remaining terms of the loans range from two months to 5 years at September 30, 2010.  During the three months ended September 30, 2010, we recorded revenues of $5.5 million (2009 - $5.3 million) and pretax profits of $2.5 million (2009 - $2.4 million) from our independent contractors.  During the nine months ended September 30, 2010, we recorded revenues of $16.7 million (2009 - $16.0 million) and pretax profits of $7.6 million (2009 - $7.1 million) from our independent contractors.

10.  Pension and Retirement Plans
All of the Company’s plans that provide retirement and similar benefits are defined contribution plans.  Expenses for the Company’s pension and profit-sharing plans, excess benefit plans and other similar plans were $2.3 million and $4.3 million for the three months ended September 30, 2010 and 2009, respectively. Expenses for the Company’s pension and profit-sharing plans, excess benefit plans and other similar plans were $7.0 million and $11.3 million for the nine months ended September 30, 2010 and 2009, respectively.

 
 
-10-

 
 
11.   Legal and Regulatory Matters

Litigation
On March 1, 2010 Anthony Morangelli and Frank Ercole filed a class action lawsuit in federal district court for the Eastern District of New York seeking unpaid minimum wages and overtime service technician compensation from     Roto-Rooter and Chemed.  They also seek payment of penalties, interest and plaintiffs’ attorney fees.  We contest these allegations.  In September 2010, the Court conditionally certified a nationwide class of service technicians, excluding those who signed dispute resolution agreements in which they agreed to arbitrate claims arising out of their employment.  There has been no final determination of the merits of collective treatment of the case.  The lawsuit is in its early stage and we are unable to estimate our potential liability, if any, with respect to these allegations.

VITAS is party to a class action lawsuit filed in the Superior Court of California, Los Angeles County, in September 2006 by Bernadette Santos, Keith Knoche and Joyce White.  This case alleges failure to pay overtime and failure to provide meal and rest periods to a purported class of California admissions nurses, chaplains and sales representatives.  The case seeks payment of penalties, interest and Plaintiffs’ attorney fees.  VITAS contests these allegations.  In December 2009, the trial court denied Plaintiffs’ motion for class certification. The lawsuit is in its early stages and we are unable to estimate our potential liability, if any, with respect to these allegations.

Regardless of outcome, defense of litigation adversely affects us through defense costs, diversion of our time and related publicity.  In the normal course of business, we are a party to various claims and legal proceedings.  We record a reserve for these matters when an adverse outcome is probable and the amount of the potential liability is reasonably estimable.

Regulatory Matters
In April 2005, the Office of Inspector General (“OIG”) for the Department of Health and Human Services served VITAS with civil subpoenas relating to VITAS’ alleged failure to appropriately bill Medicare and Medicaid for hospice services.  As part of this investigation, the OIG selected medical records for 320 past and current patients from VITAS’ three largest programs for review.  It also sought policies and procedures dating back to 1998 covering admissions, certifications, recertifications and discharges.  During the third quarter of 2005 and again in May 2006, the OIG requested additional information from us.  The Court dismissed a related qui tam complaint filed in U.S. District Court for the Southern District of Florida with prejudice in July 2007.  The plaintiffs appealed this dismissal, which the Court of Appeals affirmed.  The government continues to investigate the complaint’s allegations.  In March 2009, we received a letter from the government reiterating the basis of their investigation.

In May 2009, VITAS received an administrative subpoena from the U.S. Department of Justice requesting VITAS deliver to the OIG documents, patient records, and policy and procedure manuals for headquarters and its Texas programs concerning hospice services provided for the period January 1, 2003 to the date of the letter.  In August 2009, the OIG selected medical records for 59 past and current patients from a Texas program for review.   In February 2010, VITAS received a companion civil investigative demand (“CID”) from the state of Texas Attorney General’s Office, seeking related documents. In September 2010, it received a second CID and a second administrative subpoena seeking related documents.  Based on the early stage of the investigation and the limited information we have at this time, we cannot predict the outcome of this investigation.  We believe that we are in material 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.  We are unable to predict the outcome of these matters or the impact, if any, that the investigation may have on our business, results of operations, liquidity or capital resources.  Regardless of outcome, responding to the subpoenas can adversely affect us through defense costs, diversion of our time and related publicity.

12.   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 $9.0 million and $8.5 million for the three months ended September 30, 2010 and 2009, respectively.  VITAS made purchases from OCR of $26.5 million and $24.6 million for the nine months ended September 30, 2010 and 2009, respectively.

 
-11-

 

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. Mr. Kevin J. McNamara, President, Chief Executive Officer and a director of the Company, is a director emeritus of OCR.  We believe that the terms of the Agreements are no less favorable to VITAS than we could negotiate with an unrelated party.

13.  Cash Overdrafts Payable
Included in accounts payable at September 30, 2010 is cash overdrafts payable of $11.5 million (December 31, 2009 - $11.7 million).

14.   Financial Instruments
We adopted the provisions of the FASB’s authoritative guidance on fair value measurements.  This statement 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, 2010 (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	 	$	26,022	 	 	$	26,022	 	 	$	-	 	 	$	-	 	
Long-term debt	 	 	157,392	 	 	 	181,114	 	 	 	-	 	 	 	-	 	

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.

15.  Capital Stock Transactions
On April 26, 2007, our Board of Directors authorized a $150 million stock repurchase program.  On May 19, 2008, our Board of Directors authorized an additional $56 million to the April 2007 stock repurchase program.  For the quarter ended September 30, 2010, there were no shares repurchased.  For the nine months ended September 30, 2010, we repurchased 146,275 shares at a weighted average cost per share of $53.32. For the quarter and nine months ended September 30, 2009 we repurchased no stock.

 
 
-12-

 
 
16.  Guarantor Subsidiaries
Our 1.875% Notes are fully and unconditionally guaranteed on an unsecured, jointly and severally liable basis by certain of our 100% owned subsidiaries.  The following unaudited, condensed, consolidating financial data presents the composition of the parent company (Chemed), the guarantor subsidiaries and the non-guarantor subsidiaries as of September 30, 2010 and December 31, 2009 for the balance sheet, the three and nine months ended September 30, 2010 and September 30, 2009 for the income statement and the nine months ended September 30, 2010  and  September 30, 2009 for the statement of cash flows (dollars in thousands):
 
September 30, 2010	 	 	 	 	Guarantor	 	 	Non-Guarantor	 	Consolidating	 	 	 	
 	 	Parent	 	 	Subsidiaries	 	 	Subsidiaries	 	 	Adjustments	 	 	Consolidated	 	
ASSETS	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	$	131,776	 	 	$	314	 	 	$	5,367	 	 	$	-	 	 	$	137,457	 	
Accounts receivable, less allowances	 	 	913	 	 	 	104,115	 	 	 	658	 	 	 	-	 	 	 	105,686	 	
Intercompany receivables	 	 	-	 	 	 	175,204	 	 	 	-	 	 	 	(175,204	)	 	 	-	 	
Inventories	 	 	-	 	 	 	7,301	 	 	 	650	 	 	 	-	 	 	 	7,951	 	
Current deferred income taxes	 	 	(1,164	)	 	 	15,680	 	 	 	134	 	 	 	-	 	 	 	14,650	 	
Prepaid income taxes	 	 	4,109	 	 	 	(3,490	)	 	 	(282	)	 	 	-	 	 	 	337	 	
Prepaid expenses	 	 	946	 	 	 	8,811	 	 	 	168	 	 	 	-	 	 	 	9,925	 	
     Total current assets	 	 	136,580	 	 	 	307,935	 	 	 	6,695	 	 	 	(175,204	)	 	 	276,006	 	
Investments of deferred compensation plans	 	 	-	 	 	 	-	 	 	 	26,022	 	 	 	-	 	 	 	26,022	 	
Properties and equipment, at cost, less accumulated depreciation	 	 	12,747	 	 	 	63,983	 	 	 	2,252	 	 	 	-	 	 	 	78,982	 	
Identifiable intangible assets less accumulated amortization	 	 	-	 	 	 	56,097	 	 	 	-	 	 	 	-	 	 	 	56,097	 	
Goodwill	 	 	-	 	 	 	445,639	 	 	 	4,456	 	 	 	-	 	 	 	450,095	 	
Other assets	 	 	6,204	 	 	 	2,729	 	 	 	2,257	 	 	 	-	 	 	 	11,190	 	
Investments in subsidiaries	 	 	696,578	 	 	 	18,261	 	 	 	-	 	 	 	(714,839	)	 	 	-	 	
          Total assets	 	$	852,109	 	 	$	894,644	 	 	$	41,682	 	 	$	(890,043	)	 	$	898,392	 	
LIABILITIES AND STOCKHOLDERS' EQUITY	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Accounts payable	 	$	(1,725	)	 	$	53,857	 	 	$	420	 	 	$	-	 	 	$	52,552	 	
Intercompany payables	 	 	169,942	 	 	 	-	 	 	 	5,262	 	 	 	(175,204	)	 	 	-	 	
Income taxes	 	 	(4,848	)	 	 	8,791	 	 	 	632	 	 	 	-	 	 	 	4,575	 	
Accrued insurance	 	 	666	 	 	 	33,654	 	 	 	-	 	 	 	-	 	 	 	34,320	 	
Accrued compensation	 	 	3,064	 	 	 	41,632	 	 	 	487	 	 	 	-	 	 	 	45,183	 	
Other current liabilities	 	 	3,084	 	 	 	12,433	 	 	 	120	 	 	 	-	 	 	 	15,637	 	
      Total current liabilities	 	 	170,183	 	 	 	150,367	 	 	 	6,921	 	 	 	(175,204	)	 	 	152,267	 	
Deferred income taxes	 	 	(11,958	)	 	 	43,473	 	 	 	(8,470	)	 	 	-	 	 	 	23,045	 	
Long-term debt	 	 	157,392	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	157,392	 	
Deferred compensation liabilities	 	 	-	 	 	 	-	 	 	 	25,508	 	 	 	-	 	 	 	25,508	 	
Other liabilities	 	 	2,936	 	 	 	3,212	 	 	 	476	 	 	 	-	 	 	 	6,624	 	
Stockholders' equity	 	 	533,556	 	 	 	697,592	 	 	 	17,247	 	 	 	(714,839	)	 	 	533,556	 	
     Total liabilities and stockholders' equity	 	$	852,109	 	 	$	894,644	 	 	$	41,682	 	 	$	(890,043	)	 	$	898,392	 	

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
December 31, 2009	 	 	 	 	 	Guarantor	 	 	Non-Guarantor	 	Consolidating	 	 	 	 	
 	 	Parent	 	 	Subsidiaries	 	 	Subsidiaries	 	 	Adjustments	 	 	Consolidated	 	
ASSETS	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	$	109,331	 	 	$	(1,221	)	 	$	4,306	 	 	$	-	 	 	$	112,416	 	
Accounts receivable, less allowances	 	 	618	 	 	 	52,303	 	 	 	540	 	 	 	-	 	 	 	53,461	 	
Intercompany receivables	 	 	-	 	 	 	149,888	 	 	 	-	 	 	 	(149,888	)	 	 	-	 	
Inventories	 	 	-	 	 	 	7,009	 	 	 	534	 	 	 	-	 	 	 	7,543	 	
Current deferred income taxes	 	 	(378	)	 	 	14,048	 	 	 	31	 	 	 	-	 	 	 	13,701	 	
Prepaid expenses	 	 	(2,457	)	 	 	13,706	 	 	 	(112	)	 	 	-	 	 	 	11,137	 	
     Total current assets	 	 	107,114	 	 	 	235,733	 	 	 	5,299	 	 	 	(149,888	)	 	 	198,258	 	
Investments of deferred compensation plans	 	 	-	 	 	 	-	 	 	 	24,158	 	 	 	-	 	 	 	24,158	 	
Properties and equipment, at cost, less accumulated depreciation	 	 	10,309	 	 	 	62,912	 	 	 	2,137	 	 	 	-	 	 	 	75,358	 	
Identifiable intangible assets less accumulated amortization	 	 	-	 	 	 	57,920	 	 	 	-	 	 	 	-	 	 	 	57,920	 	
Goodwill	 	 	-	 	 	 	445,662	 	 	 	4,380	 	 	 	-	 	 	 	450,042	 	
Other assets	 	 	11,190	 	 	 	2,232	 	 	 	312	 	 	 	-	 	 	 	13,734	 	
Investments in subsidiaries	 	 	643,572	 	 	 	15,523	 	 	 	-	 	 	 	(659,095	)	 	 	-	 	
          Total assets	 	$	772,185	 	 	$	819,982	 	 	$	36,286	 	 	$	(808,983	)	 	$	819,470	 	
LIABILITIES AND STOCKHOLDERS' EQUITY	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Accounts payable	 	$	(2,411	)	 	$	54,084	 	 	$	398	 	 	$	-	 	 	$	52,071	 	
Intercompany payables	 	 	147,744	 	 	 	-	 	 	 	2,144	 	 	 	(149,888	)	 	 	-	 	
Income taxes	 	 	(2,145	)	 	 	2,159	 	 	 	49	 	 	 	-	 	 	 	63	 	
Accrued insurance	 	 	1,231	 	 	 	33,930	 	 	 	-	 	 	 	-	 	 	 	35,161	 	
Accrued compensation	 	 	4,235	 	 	 	30,020	 	 	 	407	 	 	 	-	 	 	 	34,662	 	
Other current liabilities	 	 	1,643	 	 	 	11,367	 	 	 	1,117	 	 	 	-	 	 	 	14,127	 	
      Total current liabilities	 	 	150,297	 	 	 	131,560	 	 	 	4,115	 	 	 	(149,888	)	 	 	136,084	 	
Deferred income taxes	 	 	(10,549	)	 	 	43,183	 	 	 	(6,710	)	 	 	-	 	 	 	25,924	 	
Long-term debt	 	 	152,127	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	152,127	 	
Deferred compensation liabilities	 	 	-	 	 	 	-	 	 	 	23,637	 	 	 	-	 	 	 	23,637	 	
Other liabilities	 	 	3,148	 	 	 	1,388	 	 	 	-	 	 	 	-	 	 	 	4,536	 	
Stockholders' equity	 	 	477,162	 	 	 	643,851	 	 	 	15,244	 	 	 	(659,095	)	 	 	477,162	 	
     Total liabilities and stockholders' equity	 	$	772,185	 	 	$	819,982	 	 	$	36,286	 	 	$	(808,983	)	 	$	819,470	 	

 
 
-13-

 
 
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 (excluding depreciation)	 	 	-	 	 	 	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 three months ended September 30, 2009	 	 	 	 	 	Guarantor	 	 	Non-Guarantor	 	Consolidating	 	 	 	 	 	
 	 	Parent	 	 	Subsidiaries	 	 	Subsidiaries	 	 	Adjustments	 	 	Consolidated	 	
 Continuing Operations	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Service revenues and sales	 	$	-	 	 	$	291,121	 	 	$	5,673	 	 	$	-	 	 	$	296,794	 	
 Cost of services provided and goods sold (excluding depreciation)	 	 	-	 	 	 	205,940	 	 	 	2,948	 	 	 	-	 	 	 	208,888	 	
 Selling, general and administrative expenses	 	 	5,568	 	 	 	39,721	 	 	 	2,859	 	 	 	-	 	 	 	48,148	 	
 Depreciation	 	 	166	 	 	 	5,016	 	 	 	179	 	 	 	-	 	 	 	5,361	 	
 Amortization	 	 	315	 	 	 	1,296	 	 	 	-	 	 	 	-	 	 	 	1,611	 	
      Total costs and expenses	 	 	6,049	 	 	 	251,973	 	 	 	5,986	 	 	 	-	 	 	 	264,008	 	
      Income/ (loss) from operations	 	 	(6,049	)	 	 	39,148	 	 	 	(313	)	 	 	-	 	 	 	32,786	 	
 Interest expense	 	 	(2,759	)	 	 	(94	)	 	 	-	 	 	 	-	 	 	 	(2,853	)	
 Other income - net	 	 	1,188	 	 	 	(1,271	)	 	 	1,816	 	 	 	-	 	 	 	1,733	 	
      Income/ (loss) before income taxes	 	 	(7,620	)	 	 	37,783	 	 	 	1,503	 	 	 	-	 	 	 	31,666	 	
 Income tax (provision)/ benefit	 	 	2,452	 	 	 	(14,317	)	 	 	(591	)	 	 	-	 	 	 	(12,456	)	
 Equity in net income of subsidiaries	 	 	24,378	 	 	 	903	 	 	 	-	 	 	 	(25,281	)	 	 	-	 	
 Net income	 	$	19,210	 	 	$	24,369	 	 	$	912	 	 	$	(25,281	)	 	$	19,210	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
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 (excluding depreciation)	 	 	-	 	 	 	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	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
For the nine months ended September 30, 2009	 	 	 	 	 	Guarantor	 	 	Non-Guarantor	 	Consolidating	 	 	 	 	 	
 	 	Parent	 	 	Subsidiaries	 	 	Subsidiaries	 	 	Adjustments	 	 	Consolidated	 	
 Continuing Operations	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Service revenues and sales	 	$	-	 	 	$	869,642	 	 	$	17,345	 	 	$	-	 	 	$	886,987	 	
 Cost of services provided and goods sold (excluding depreciation)	 	 	-	 	 	 	614,385	 	 	 	8,853	 	 	 	-	 	 	 	623,238	 	
 Selling, general and administrative expenses	 	 	16,836	 	 	 	119,699	 	 	 	6,986	 	 	 	-	 	 	 	143,521	 	
 Depreciation	 	 	465	 	 	 	15,039	 	 	 	520	 	 	 	-	 	 	 	16,024	 	
 Amortization	 	 	905	 	 	 	3,860	 	 	 	-	 	 	 	-	 	 	 	4,765	 	
 Other operating expenses	 	 	3,989	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	3,989	 	
      Total costs and expenses	 	 	22,195	 	 	 	752,983	 	 	 	16,359	 	 	 	-	 	 	 	791,537	 	
      Income/ (loss) from operations	 	 	(22,195	)	 	 	116,659	 	 	 	986	 	 	 	-	 	 	 	95,450	 	
 Interest (expense)/income	 	 	(8,286	)	 	 	(559	)	 	 	6	 	 	 	-	 	 	 	(8,839	)	
 Other (expense)/income - net	 	 	1,678	 	 	 	(1,510	)	 	 	4,647	 	 	 	-	 	 	 	4,815	 	
      Income/ (loss) before income taxes	 	 	(28,803	)	 	 	114,590	 	 	 	5,639	 	 	 	-	 	 	 	91,426	 	
 Income tax (provision)/ benefit	 	 	9,870	 	 	 	(43,533	)	 	 	(1,964	)	 	 	-	 	 	 	(35,627	)	
 Equity in net income of subsidiaries	 	 	74,732	 	 	 	3,803	 	 	 	-	 	 	 	(78,535	)	 	 	-	 	
 Net income	 	$	55,799	 	 	$	74,860	 	 	$	3,675	 	 	$	(78,535	)	 	$	55,799	 	

 
 
-14-

 
 
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	)	
  Proceeds from sale of property and equipment	 	 	-	 	 	 	176	 	 	 	6	 	 	 	182	 	
  Other uses - net	 	 	(116	)	 	 	(489	)	 	 	(25	)	 	 	(630	)	
       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	 	 	(10,129	)	 	 	-	 	 	 	(11	)	 	 	(10,140	)	
  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	 	 	(1	)	 	 	-	 	 	 	188	 	 	 	187	 	
       Net cash provided/ (used) by financing activities	 	 	26,939	 	 	 	(41,426	)	 	 	1,123	 	 	 	(13,364	)	
 Net increase/(decrease) 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	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
For the nine months ended September 30, 2009	 	 	 	 	 	Guarantor	 	 	Non-Guarantor	 	 	 	 	 	
 	 	Parent	 	 	Subsidiaries	 	 	Subsidiaries	 	 	Consolidated	 	
 Cash Flow from Operating Activities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Net cash provided/(used) by operating activities	 	$	(2,579	)	 	$	77,254	 	 	$	5,872	 	 	$	80,547	 	
 Cash Flow from Investing Activities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
  Capital expenditures	 	 	(44	)	 	 	(14,007	)	 	 	(420	)	 	 	(14,471	)	
  Business combinations, net of cash acquired	 	 	-	 	 	 	(1,859	)	 	 	-	 	 	 	(1,859	)	
  Proceeds from sale of property and equipment	 	 	1,286	 	 	 	233	 	 	 	-	 	 	 	1,519	 	
  Other uses - net	 	 	(458	)	 	 	(676	)	 	 	184	 	 	 	(950	)	
       Net cash provided/(used) by investing activities	 	 	784	 	 	 	(16,309	)	 	 	(236	)	 	 	(15,761	)	
 Cash Flow from Financing Activities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
  Change in cash overdrafts payable	 	 	(602	)	 	 	1,545	 	 	 	-	 	 	 	943	 	
  Change in intercompany accounts	 	 	69,635	 	 	 	(64,031	)	 	 	(5,604	)	 	 	-	 	
  Dividends paid to shareholders	 	 	(5,429	)	 	 	-	 	 	 	-	 	 	 	(5,429	)	
  Purchases of treasury stock	 	 	(1,684	)	 	 	-	 	 	 	-	 	 	 	(1,684	)	
  Proceeds from exercise of stock options	 	 	486	 	 	 	-	 	 	 	-	 	 	 	486	 	
  Realized excess tax benefit on share based compensation	 	 	1,519	 	 	 	-	 	 	 	-	 	 	 	1,519	 	
  Repayment of long-term debt	 	 	(22,700	)	 	 	(99	)	 	 	-	 	 	 	(22,799	)	
  Other sources/(uses) - net	 	 	(84	)	 	 	262	 	 	 	419	 	 	 	597	 	
       Net cash provided/ (used) by financing activities	 	 	41,141	 	 	 	(62,323	)	 	 	(5,185	)	 	 	(26,367	)	
 Net increase/(decrease) in cash and cash equivalents	 	 	39,346	 	 	 	(1,378	)	 	 	451	 	 	 	38,419	 	
 Cash and cash equivalents at beginning of year	 	 	65	 	 	 	202	 	 	 	3,361	 	 	 	3,628	 	
 Cash and cash equivalents at end of period	 	$	39,411	 	 	$	(1,176	)	 	$	3,812	 	 	$	42,047	 	

 
 
-15-

 
 
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, 2010 and 2009 (in thousands except per share amounts):

 	 	Three Months Ended
September 30,	 	 	Nine Months Ended
September 30,	 	
 	 	2010	 	 	2009	 	 	2010	 	 	2009	 	
Service revenues and sales	 	$	320,451	 	 	$	296,794	 	 	$	944,259	 	 	$	886,987	 	
Net income	 	$	20,988	 	 	$	19,210	 	 	$	59,201	 	 	$	55,799	 	
Diluted EPS	 	$	0.91	 	 	$	0.84	 	 	$	2.57	 	 	$	2.46	 	
Adjusted EBITDA*	 	$	46,280	 	 	$	43,496	 	 	$	134,237	 	 	$	129,370	 	
Adjusted EBITDA as a % of revenue	 	 	14.4	%	 	 	14.7	%	 	 	14.2	%	 	 	14.6	%	

*See pages 27 - 28 for reconciliation to GAAP measures.

For the three months ended September 30, 2010, the increase in consolidated service revenues and sales was driven by a 7.8% increase at VITAS while Roto-Rooter revenues increased by 8.5%.  The increase in service revenues at VITAS was a result of increased average daily census (“ADC”) of 6.1%, driven by an increase in admissions of 5.4%, combined with Medicare price increases of approximately 1.3%.  Roto-Rooter was driven by an approximate 9.3% price and mix shift increase offset by a 0.4% decrease in job count. Consolidated net income increased 9.3% mainly as a result of the increase in revenues.  Diluted EPS increased as the result of increased earnings.  Adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) for the third quarter of 2010 increased 6.4% from the third quarter of 2009 mainly as a result of increased earnings.

For the nine months ended September 30, 2010, the increase in consolidated service revenues and sales was driven by a 7.3% increase at VITAS and a 4.2% 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 4.8%, combined with Medicare price increases of approximately 1.3%.  Roto-Rooter was driven by an approximate 7.3% price and mix shift increase offset by a 2.9% decrease in job count. Consolidated net income increased 6.1% over prior year.  Diluted EPS increased as a result of increased earnings.  Adjusted EBITDA for the nine month period ended September 30, 2010 increased 3.8% when compared to the same period in 2009 mainly as a result of increased earnings.

EBITDA and Adjusted EBITDA are not measures derived in accordance with GAAP and exclude components that are important to understanding our financial performance.  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 Adjusted EBITDA is presented on pages 27 - 28.

VITAS expects to achieve full-year 2010 revenue growth, prior to Medicare cap and BNAF, of 7.5% to 8.2%.  Admissions are estimated to increase 4.0% to 5.0%.  Adjusted EBITDA margin prior to Medicare cap is estimated to be 15.3% to 15.6%.  Roto-Rooter expects full-year 2010 revenue growth of 4.5% to 5.5%.  The revenue estimate is a result of increased pricing of 3.0%, a favorable mix shift to higher revenue jobs, offset by a job count decline estimated at 2.0% to 3.0%.  Adjusted EBITDA margin for 2010 is estimated to be in the range of 17.5% 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.

 
 
-16-

 

Financial Condition
Liquidity and Capital Resources
Material changes in the balance sheet accounts from December 31, 2009 to September 30, 2010 include the following:

 	●	A $52.2 million increase in accounts receivable primarily at VITAS, related to timing of Medicare payments and refund of overpayments from prior years.  The balance at September 30, 2010 is comparable with the balance at September 30, 2009.	

 	●	A $4.5 million increase in income taxes payable, related to timing of payments.	

 	●	A $10.5 million increase in accrued compensation due primarily to the timing of payroll disbursements in the current period versus prior year end.	

 Net cash provided by operating activities decreased $22.6 million due primarily to the increase in accounts receivable, partially offset by the increase in net income and decrease in accounts payable and other current liabilities.  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 $28.2 million in standby letters of credit as of September 30, 2010, for insurance purposes.  Issued letters of credit reduce our available credit under the revolving credit agreement.  As of September 30, 2010, we have approximately $146.8 million of unused lines of credit available and eligible to be drawn down under our revolving credit facility, excluding the $100 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.  In connection therewith, we are in compliance with all financial and other debt covenants as of September 30, 2010 and anticipate remaining in compliance throughout 2010.

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 June 2010, the Court conditionally certified a nationwide class of service technicians, excluding those who signed dispute resolution agreements in which they agreed to arbitrate claims arising out of their employment.  There has been no final determination of the merits of collective treatment of the case.  The lawsuit is in its early stage and we are unable to estimate our potential liability, if any with respect to these allegations.

VITAS is party to a class action lawsuit filed in the Superior Court of California, Los Angeles County, in September 2006 by Bernadette Santos, Keith Knoche and Joyce White.  This case alleges failure to pay overtime and failure to provide meal and rest periods to a purported class of California admissions nurses, chaplains and sales representatives.  The case seeks payment of penalties, interest and Plaintiffs’ attorney fees.  VITAS contests these allegations.  In December 2009, the trial court denied Plantiffs’ motion for class certification. The lawsuit is in its early stages and we are unable to estimate our potential liability, if any, with respect to these allegations.

In April 2005, the Office of Inspector General (“OIG”) for the Department of Health and Human Services served VITAS with civil subpoenas relating to VITAS’ alleged failure to appropriately bill Medicare and Medicaid for hospice services.  As part of this investigation, the OIG selected medical records for 320 past and current patients from VITAS’ three largest programs for review.  It also sought policies and procedures dating back to 1998 covering admissions, certifications, recertifications and discharges.  During the third quarter of 2005 and again in May 2006, the OIG requested additional information from us.  The Court dismissed a related qui tam complaint filed in U.S. District Court for the Southern District of Florida with prejudice in July 2007.  The plaintiffs appealed this dismissal, which the Court of Appeals affirmed.  The government continues to investigate the complaint’s allegations.  In March 2009, we received a letter from the government reiterating the basis of their investigation.

In May 2009, VITAS received an administrative subpoena from the U.S. Department of Justice requesting VITAS deliver to the OIG documents, patient records, and policy and procedure manuals for headquarters and its Texas programs concerning hospice services provided for the period January 1, 2003 to the date of the letter.  In August 2009, the OIG selected medical records for 59 past and current patients from a Texas program for review. In February 2010, VITAS received a companion civil investigative demand (“CID”) from the state of Texas Attorney General’s office, seeking related documents.  In September 2010, it received a second CID and a second administrative subpoena seeking related documents. Based on the early stage of the investigation and the limited information we have at this time, we cannot predict the outcome of this investigation.  We believe that we are in material compliance with Medicare and Medicaid rules and regulations applicable to hospice providers.

 
 
-17-

 
 
We are unable to predict the outcome of these matters or the impact, if any, that the investigation may have on our business, results of operations, liquidity or capital resources.  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, 2010 versus  2009 - Consolidated Results

Our service revenues and sales for the third quarter of 2010 increased 8.0% versus services and sales revenues for the third quarter of 2009.  Of this increase, $16.9 million was attributable to VITAS and $6.8 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	 	$	12,227	 	 	 	7.8	%	
Continuous care	 	 	2,838	 	 	 	7.9	%	
General inpatient	 	 	1,906	 	 	 	7.9	%	
Medicare cap	 	 	(74	)	 	 	-172.1	%	
Roto-Rooter	 	 	 	 	 	 	 	 	
Plumbing	 	 	6,026	 	 	 	16.7	%	
Drain cleaning	 	 	185	 	 	 	0.6	%	
Other	 	 	549	 	 	 	4.6	%	
Total	 	$	23,657	 	 	 	8.0	%	

The increase in VITAS’ revenues for the third quarter of 2010 versus the third quarter of 2009 was a result of increased ADC of 6.1% driven by an increase in admissions of 5.4%, combined with Medicare reimbursement rate increases of approximately 1.3%.  The ADC increase was driven by a 6.1% increase in routine homecare, an increase of 5.2% in general inpatient and a 6.0% increase 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 2010 versus 2009 is attributable to a 13.5% increase in the average price per job and a 3.2% increase in the number of jobs performed.  The increase in the plumbing price per job was a combination of increased pricing and favorable job mix shift to more expensive jobs such as excavation.  Our excavation job count increased by 14.6% compared to 2009.  On average, the price per job for our excavation jobs is approximately 5.5 times greater than the price per job of other plumbing jobs.  Drain cleaning revenues for the third quarter of 2010 versus 2009 reflect a 3.0% increase in the average price per jobs, while the job count decreased 2.3%.  The increase in other revenues is attributable to an increase in our independent contractor operations and an increase in product sales.
 
The consolidated gross margin was 28.9% in the third quarter of 2010 as compared with 29.6% in the third quarter of 2009.  On a segment basis, VITAS’ gross margin was 23.1% in the third quarter of 2010 and 23.4% in the third quarter of 2009.  The decrease in VITAS’ gross margin is attributable to higher labor costs for admissions and Medicare compliance personnel and the opening of inpatient units which carry significant one time start-up costs as capacity begins to ramp-up.  The Roto-Rooter segment’s gross margin was 44.6% for the third quarter of 2010 as compared with 46.4% for the third quarter of 2009.  The decrease in Roto-Rooter’s gross margin was attributable to continued mix shift to excavation which has higher revenue per job but a slightly lower gross margin percentage per job.  An unfavorable adjustment to medical insurance also contributed to the margin decline.

 
 
-18-

 
 
Selling, general and administrative expenses (“SG&A”) for the third quarter of 2010 and 2009 comprise (in thousands):
 
 	 	Three Months Ended
September 30,	 	
 	 	2010	 	 	2009	 	
SG&A expenses before the impact of market gains	 	 	 	 	 	 	
    of deferred compensation plans	 	$	47,957	 	 	$	46,359	 	
Impact of market value gains on liabilities	 	 	 	 	 	 	 	 	
    held in deferred compensation trusts	 	 	243	 	 	 	1,789	 	
     Total SG&A expenses	 	$	48,200	 	 	$	48,148	 	
 
Normal salary increases and revenue related expense increases between periods accounts for the 3.4% increase in SG&A expenses before the impact of market gains of deferred compensation plans from $46.4 million in the third quarter of 2009 to $48.0 million in the third quarter of 2010.

Depreciation expense increased $1.0 million to $6.4 million in the third quarter of 2010 due to the installation of patient capture software at our VITAS segment in the second quarter of 2010.

 Other income for the third quarter of 2010 and 2009 comprise (in thousands):
 
 	 	Three Months Ended
September 30,	 	
 	 	2010	 	 	2009	 	
Interest income	 	$	109	 	 	$	86	 	
Market value gains on assets held in deferred	 	 	 	 	 	 	 	 	
   compensation trusts	 	 	243	 	 	 	1,789	 	
Loss on disposal of property and equipment	 	 	(141	)	 	 	(159	)	
Other	 	 	11	 	 	 	17	 	
     Total other income	 	$	222	 	 	$	1,733	 	
 
Our effective income tax rate decreased to 38.2% in the third quarter of 2010 from 39.3% when compared with the third quarter of 2009.  This decrease relates primarily to a $236,000 tax adjustment required upon expiration of certain statutes.

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

 	 	2010	 	 	2009	 	
VITAS	 	 	 	 	 	 	
  Costs associated with the OIG investigation	 	$	(69	)	 	$	(213	)	
Roto-Rooter	 	 	 	 	 	 	 	 	
Costs of class action lawsuit	 	 	(194	)	 	 	-	 	
Corporate	 	 	 	 	 	 	 	 	
Stock option expense	 	 	(1,244	)	 	 	(1,401	)	
  Noncash interest expense related to accounting for	 	 	 	 	 	 	 	 	
conversion feature of the convertible notes	 	 	(1,088	)	 	 	(1,006	)	
Total	 	$	(2,595	)	 	$	(2,620	)	

 
 
-19-

 
 
Three months ended September 30, 2010 versus 2009 - Segment Results

The change in after-tax earnings for the third quarter of 2010 versus the third quarter of 2009 is due to (dollars in thousands):

 	 	Increase/(Decrease)	 	
 	 	Amount	 	 	Percent	 	
VITAS	 	$	1,655	 	 	 	9.1	%	
Roto-Rooter	 	 	(188	)	 	 	-2.4	%	
Corporate	 	 	311	 	 	 	4.5	%	
 	 	$	1,778	 	 	 	9.3	%	

Nine months ended September 30, 2010 versus  2009 - Consolidated Results

Our service revenues and sales for the first nine months of 2010 increased 6.5% versus services and sales revenues for the first nine months of 2009.  Of this increase, $46.8 million was attributable to VITAS and $10.5 million was attributable to Roto-Rooter.  The following chart shows the components of those changes (dollars in thousands):

 	 	Increase/(Decrease)	 	
 	 	Amount	 	 	Percent	 	
VITAS	 	 	 	 	 	 	
  Routine homecare	 	$	33,884	 	 	 	7.4	%	
  Continuous care	 	 	7,909	 	 	 	7.5	%	
  General inpatient	 	 	5,438	 	 	 	7.5	%	
  Medicare cap	 	 	1,474	 	 	 	767.7	%	
  BNAF	 	 	(1,950	)	 	 	-100.0	%	
 	 	 	 	 	 	 	 	 	
Roto-Rooter	 	 	 	 	 	 	 	 	
  Plumbing	 	 	11,194	 	 	 	10.0	%	
  Drain cleaning	 	 	(2,003	)	 	 	-2.0	%	
  Other	 	 	1,326	 	 	 	3.7	%	
    Total	 	$	57,272	 	 	 	6.5	%	

The increase in VITAS’ revenues for the first nine months of 2010 versus the first nine months of 2009 was a result of increased ADC of 5.6% driven by an increase in admissions of 4.8%, combined with Medicare reimbursement rate increases of approximately 1.3%.  The ADC increase was driven by a 5.6% increase in routine homecare, an increase of 6.7% in general inpatient and a 5.3% increase 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 2010 versus 2009 is attributable to a 9.7% increase in the average price per job and a 0.8% increase in the number of jobs performed.  The increase in the plumbing price per job was a combination of increased pricing and favorable job mix shift to more expensive jobs such as excavation.  Our excavation job count increased by 15.2% compared to 2009.  On average, the price per job for our excavation jobs is approximately 5.5 times greater than the price per job of other plumbing jobs.  Drain cleaning revenues for the first nine months of 2010 versus 2009 reflect a 2.8% increase in the price per job offset by a 4.7% decrease in the number of jobs.  The increase in other revenues is attributable to an increase in our independent contractor operations and an increase in product sales.
 
The consolidated gross margin was 29.0% in the first nine months of 2010 as compared with 29.7% in the first nine months of 2009.  On a segment basis, VITAS’ gross margin was 22.9% in the first nine months of 2010 and 23.4% in the first nine months of 2009.  The decrease in VITAS’ gross margin is attributable to higher labor costs for admissions and Medicare compliance personnel and the opening of inpatient units which carry significant one time start-up costs as capacity begins to ramp-up. The Roto-Rooter segment’s gross margin was 45.0% for the first nine months of 2010 as compared with 45.9% for the first nine months of 2009.  The decrease in Roto-Rooter’s gross margin is attributable to continued mix shift to excavation which has higher revenue per job but slightly lower gross margin percentage per job.

 
 
-20-

 
 
Selling, general and administrative expenses (“SG&A”) for the first nine months of 2010 and comprise (in thousands):

 	 	Nine Months Ended
September 30,	 	
 	 	2010	 	 	2009	 	
SG&A expenses before long-term incentive	 	 	 	 	 	 	
    compensation and the impact of market gains	 	 	 	 	 	 	
    of deferred compensation plans	 	$	144,547	 	 	$	140,147	 	
Long-term incentive compensation	 	 	1,799	 	 	 	-	 	
Impact of market value gains on liabilities	 	 	 	 	 	 	 	 	
    held in deferred compensation trusts	 	 	348	 	 	 	3,374	 	
     Total SG&A expenses	 	$	146,694	 	 	$	143,521	 	

Normal salary increases and revenue related expense increases between periods account for the 3.1% increase in SG&A expenses before long-term incentive compensation and the impact of market gains of deferred compensation plans from $140.1 million for the first nine months of 2009 to $144.5 million for the first nine months of 2010.
 
Depreciation expense increased $2.0 million in the first nine months of 2010 to $18.0 million due to the installation of patient capture software at our VITAS segment in the second quarter of 2010.

Other income for the first nine months of 2010 and 2009 comprise (in thousands):

 	 	Nine Months Ended
September 30,	 	
 	 	2010	 	 	2009	 	
Interest income	 	$	334	 	 	$	375	 	
Market value gains on assets held in deferred	 	 	 	 	 	 	 	 	
   compensation trusts	 	 	348	 	 	 	3,374	 	
Loss on disposal of property and equipment	 	 	(293	)	 	 	(213	)	
Non-taxable income from certain investments held	 	 	 	 	 	 	 	 	
   deferred compensation trusts	 	 	-	 	 	 	1,211	 	
Other	 	 	29	 	 	 	68	 	
     Total other income	 	$	418	 	 	$	4,815	 	

Our effective income tax rate of 38.7% in the first nine months of 2010 decreased from 39.0% in the first nine months of 2009.

 
-21-

 

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

 	 	2010	 	 	2009	 	
VITAS	 	 	 	 	 	 	
  Costs associated with the OIG investigation	 	$	(242	)	 	$	(274	)	
Roto-Rooter	 	 	 	 	 	 	 	 	
  Costs of class action lawsuit	 	 	(257	)	 	 	-	 	
Corporate	 	 	 	 	 	 	 	 	
  Stock option expense	 	 	(4,026	)	 	 	(4,237	)	
  Long-term incentive compensation	 	 	(1,124	)	 	 	-	 	
  Noncash interest expense related to accounting for	 	 	 	 	 	 	 	 	
  conversion feature of the convertible notes	 	 	(3,203	)	 	 	(2,961	)	
  Expenses of contested proxy solicitation	 	 	-	 	 	 	(2,525	)	
  Impact of non-deductible losses and non-taxable gains on	 	 	 	 	 	 	 	 	
  investments held in deferred compensation trusts	 	 	-	 	 	 	756	 	
Total	 	$	(8,852	)	 	$	(9,241	)	

Nine months ended September 30, 2010 versus 2009 - Segment Results

The change in after-tax earnings for the first nine months of 2010 versus the first nine months of 2009 is due to (dollars in thousands):

 	 	Increase/(Decrease)	 	 	
 	 	Amount	 	 	Percent	 	 	
VITAS	 	$	4,081	 	 	 	7.8	%	 	
Roto-Rooter	 	 	(542	)	 	 	-2.2	%	 	
Corporate	 	 	(137	)	 	 	-0.6	%	 	
 	 	$	3,402	 	 	 	6.1	%	 	

 
 
-22-

 
 
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/(loss) 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 lawsuit	 	 	-	 	 	 	(322	)	 	 	-	 	 	 	(322	)	
Expenses incurred in connection with the Office of Inspector	 	 	 	 	 	 	 	 	 	
          General investigation	 	 	(112	)	 	 	-	 	 	 	-	 	 	 	(112	)	
          Total	 	$	(112	)	 	$	(322	)	 	$	(3,689	)	 	$	(4,123	)	

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	Chemed	 	
 	 	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 lawsuit	 	 	-	 	 	 	(194	)	 	 	-	 	 	 	(194	)	
Expenses incurred in connection with the Office of Inspector	 	 	 	 	 	 	 	 	 	
          General investigation	 	 	(69	)	 	 	-	 	 	 	-	 	 	 	(69	)	
          Total	 	$	(69	)	 	$	(194	)	 	$	(2,332	)	 	$	(2,595	)	

 

-23-

 

CHEMED CORPORATION AND SUBSIDIARY COMPANIES	 	
CONSOLIDATING STATEMENT OF INCOME	 	
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2009	 	
(in thousands)(unaudited)	 	
 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	Chemed	 	
 	 	VITAS	 	Roto-Rooter	 	Corporate	 	Consolidated	 	
2009 (a)	 	 	 	 	 	 	 	 	 	
Service revenues and sales	 	$	217,067	 	$	79,727	 	$	-	 	$	296,794	 	
Cost of services provided and goods sold	 	 	166,183	 	 	42,705	 	 	-	 	 	208,888	 	
Selling, general and administrative expenses	 	 	18,227	 	 	22,740	 	 	7,181	 	 	48,148	 	
Depreciation	 	 	3,292	 	 	2,005	 	 	64	 	 	5,361	 	
Amortization	 	 	1,179	 	 	117	 	 	315	 	 	1,611	 	
Total costs and expenses	 	 	188,881	 	 	67,567	 	 	7,560	 	 	264,008	 	
Income/(loss) from operations	 	 	28,186	 	 	12,160	 	 	(7,560	)	 	32,786	 	
Interest expense	 	 	(51	)	 	(43	)	 	(2,759	)	 	(2,853	)	
Intercompany interest income/(expense)	 	 	1,178	 	 	684	 	 	(1,862	)	 	-	 	
Other income/(expense)-net	 	 	(86	)	 	15	 	 	1,804	 	 	1,733	 	
Income/(loss) before income taxes	 	 	29,227	 	 	12,816	 	 	(10,377	)	 	31,666	 	
Income taxes	 	 	(11,079	)	 	(4,881	)	 	3,504	 	 	(12,456	)	
Net income/(loss)	 	$	18,148	 	$	7,935	 	$	(6,873	)	$	19,210	 	

    (a) The following amounts are included in net income (in thousands):	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	Chemed	 	
 	 	VITAS	 	Roto-Rooter	 	Corporate	 	Consolidated	 	
Pretax benefit/(cost):	 	 	 	 	 	 	 	 	 	 	 	 	 	
Stock option expense	 	$	-	 	$	-	 	$	(2,214	)	$	(2,214	)	
Noncash impact of accounting for convertible debt	 	-	 	 	-	 	 	(1,591	)	 	(1,591	)	
Expenses incurred in connection with the Office of Inspector	 	 	 	 	 	 	 	 	 	 	 	 	
General investigation	 	 	(343	)	 	-	 	 	-	 	 	(343	)	
Total	 	$	(343	)	$	-	 	$	(3,805	)	$	(4,148	)	

 	 	 	 	 	 	 	 	 	 	 	Chemed	 	
 	 	VITAS	 	Roto-Rooter	 	Corporate	 	Consolidated	 	
After-tax benefit/(cost):	 	 	 	 	 	 	 	 	 	 	 	 	 	
Stock option expense	 	$	-	 	$	-	 	$	(1,401	)	$	(1,401	)	
Noncash impact of accounting for convertible debt	 	-	 	 	-	 	 	(1,006	)	 	(1,006	)	
Expenses incurred in connection with the Office of Inspector	 	 	 	 	 	 	 	 	 	 	 	 	
General investigation	 	 	(213	)	 	-	 	 	-	 	 	(213	)	
Total	 	$	(213	)	$	-	 	$	(2,407	)	$	(2,620	)	

 

-24-

 
 
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/(loss) 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 lawsuit	 	 	-	 	 	 	(427	)	 	 	-	 	 	 	(427	)	
Expenses incurred in connection with the Office of Inspector	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
General investigation	 	 	(390	)	 	 	-	 	 	 	-	 	 	 	(390	)	
Total	 	$	(390	)	 	$	(427	)	 	$	(13,228	)	 	$	(14,045	)	

 	 	 	 	 	 	 	 	 	 	 	 	 	 	Chemed	 	
 	 	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 lawsuit	 	 	-	 	 	 	(257	)	 	 	-	 	 	 	(257	)	
Expenses incurred in connection with the Office of Inspector	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
General investigation	 	 	(242	)	 	 	-	 	 	 	-	 	 	 	(242	)	
Total	 	$	(242	)	 	$	(257	)	 	$	(8,353	)	 	$	(8,852	)	

 

-25-

 

CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
(in thousands)(unaudited)

 	 	 	 	 	 	 	 	 	 	 	Chemed	 	
 	 	VITAS	 	 	 Roto-Rooter	 	 	 Corporate	 	 	Consolidated	 	
 2009 (a)	 	 	 	 	 	 	 	 	 	 	 	 	
 Service revenues and sales	 	$	636,787	 	 	$	250,200	 	 	$	-	 	 	$	886,987	 	
 Cost of services provided and goods sold	 	 	487,990	 	 	 	135,248	 	 	 	-	 	 	 	623,238	 	
 Selling, general and administrative expenses	 	 	53,650	 	 	 	69,959	 	 	 	19,912	 	 	 	143,521	 	
 Depreciation	 	 	9,767	 	 	 	6,094	 	 	 	163	 	 	 	16,024	 	
 Amortization	 	 	3,537	 	 	 	323	 	 	 	905	 	 	 	4,765	 	
 Other operating expenses	 	 	-	 	 	 	-	 	 	 	3,989	 	 	 	3,989	 	
 Total costs and expenses	 	 	554,944	 	 	 	211,624	 	 	 	24,969	 	 	 	791,537	 	
 Income/(loss) from operations	 	 	81,843	 	 	 	38,576	 	 	 	(24,969	)	 	 	95,450	 	
 Interest expense	 	 	(415	)	 	 	(138	)	 	 	(8,286	)	 	 	(8,839	)	
 Intercompany interest income/(expense)	 	 	3,091	 	 	 	1,801	 	 	 	(4,892	)	 	 	-	 	
 Other income-net	 	 	35	 	 	 	137	 	 	 	4,643	 	 	 	4,815	 	
 Income/(loss) before income taxes	 	 	84,554	 	 	 	40,376	 	 	 	(33,504	)	 	 	91,426	 	
 Income taxes	 	 	(32,112	)	 	 	(15,414	)	 	 	11,899	 	 	 	(35,627	)	
 Net income/(loss)	 	$	52,442	 	 	$	24,962	 	 	$	(21,605	)	 	$	55,799	 	

    (a) The following amounts are included in net income (in thousands):	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	Chemed	 	
 	 	VITAS	 	 	 Roto-Rooter	 	 	  Corporate	 	 	Consolidated	 	
Pretax benefit/(cost):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
     Stock option expense	 	$	-	 	 	$	-	 	 	$	(6,699	)	 	$	(6,699	)	
     Noncash impact of accounting for convertible debt	 	-	 	 	 	-	 	 	 	(4,682	)	 	 	(4,682	)	
Non-taxable income on certain investments held in deferred	 	 	 	 	 	 	 	 	 	
          compensation trusts	 	 	-	 	 	 	-	 	 	 	1,211	 	 	 	1,211	 	
     Expenses associated with contested proxy solicitation	 	-	 	 	 	-	 	 	 	(3,989	)	 	 	(3,989	)	
Expenses incurred in connection with the Office of Inspector	 	 	 	 	 	 	 	 	 	
          General investigation	 	 	(442	)	 	 	-	 	 	 	-	 	 	 	(442	)	
          Total	 	$	(442	)	 	$	-	 	 	$	(14,159	)	 	$	(14,601	)	

 	 	 	 	 	 	 	 	 	 	 	 	 	 	Chemed	 	
 	 	VITAS	 	 	 Roto-Rooter	 	 	 Corporate	 	 	Consolidated	 	
After-tax benefit/(cost):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
     Stock option expense	 	$	-	 	 	$	-	 	 	$	(4,237	)	 	$	(4,237	)	
     Noncash impact of accounting for convertible debt	 	-	 	 	 	-	 	 	 	(2,961	)	 	 	(2,961	)	
Non-taxable income on certain investments held in deferred	 	 	 	 	 	 	 	 	 	
          compensation trusts	 	 	-	 	 	 	-	 	 	 	1,211	 	 	 	1,211	 	
Income tax impact of nondeductible losses on investments	 	 	 	 	 	 	 	 	 	
          held in deferred compensation trusts	 	 	-	 	 	 	-	 	 	 	(455	)	 	 	(455	)	
     Expenses associated with contested proxy solicitation	 	-	 	 	 	-	 	 	 	(2,525	)	 	 	(2,525	)	
Expenses incurred in connection with the Office of Inspector	 	 	 	 	 	 	 	 	 	
          General investigation	 	 	(274	)	 	 	-	 	 	 	-	 	 	 	(274	)	
          Total	 	$	(274	)	 	$	-	 	 	$	(8,967	)	 	$	(9,241	)	

 

 
-26-

 
 
Consolidating Summary and Reconciliation of Adjusted EBITDA	
 	 	
Chemed Corporation and Subsidiary Companies	 	 	 	 	 	 	 	 	 	 	 	 	
(in thousands)	 	 	 	 	 	 	 	 	 	 	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	 	
 Stock option expense	 	 	-	 	 	 	-	 	 	 	1,968	 	 	 	1,968	 	
 Advertising cost adjustment	 	 	-	 	 	 	(571	)	 	 	-	 	 	 	(571	)	
 Expenses of class action litigation	 	 	-	 	 	 	322	 	 	 	-	 	 	 	322	 	
 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	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	Chemed	 	
 For the three months ended September 30, 2009	 	VITAS	 	 	 Roto-Rooter	 	 	Corporate	 	 	Consolidated	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Net income/(loss)	 	$	18,148	 	 	$	7,935	 	 	$	(6,873	)	 	$	19,210	 	
 Add/(deduct):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Interest expense	 	 	51	 	 	 	43	 	 	 	2,759	 	 	 	2,853	 	
 Income taxes	 	 	11,079	 	 	 	4,881	 	 	 	(3,504	)	 	 	12,456	 	
 Depreciation	 	 	3,292	 	 	 	2,005	 	 	 	64	 	 	 	5,361	 	
 Amortization	 	 	1,179	 	 	 	117	 	 	 	315	 	 	 	1,611	 	
 EBITDA	 	 	33,749	 	 	 	14,981	 	 	 	(7,239	)	 	 	41,491	 	
 Add/(deduct):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Legal expenses of OIG investigation	 	 	343	 	 	 	-	 	 	 	-	 	 	 	343	 	
 Stock option expense	 	 	-	 	 	 	-	 	 	 	2,214	 	 	 	2,214	 	
 Advertising cost adjustment	 	 	-	 	 	 	(466	)	 	 	-	 	 	 	(466	)	
 Interest income	 	 	(53	)	 	 	(9	)	 	 	(24	)	 	 	(86	)	
 Intercompany interest income/(expense)	 	 	(1,178	)	 	 	(684	)	 	 	1,862	 	 	 	-	 	
 Adjusted EBITDA	 	$	32,861	 	 	$	13,822	 	 	$	(3,187	)	 	$	43,496	 	

 

-27-

 

Consolidating Summary and Reconciliation of Adjusted EBITDA	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Chemed Corporation and Subsidiary Companies	 	 	 	 	 	 	 	 	 	 	 	 	
(in thousands)	 	 	 	 	 	 	 	 	 	 	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	 	
 Stock option expense	 	 	-	 	 	 	-	 	 	 	6,365	 	 	 	6,365	 	
 Advertising cost adjustment	 	 	-	 	 	 	(1,639	)	 	 	-	 	 	 	(1,639	)	
 Expenses of class action litigation	 	 	-	 	 	 	427	 	 	 	-	 	 	 	427	 	
 Long-term incentive compensation	 	 	-	 	 	 	-	 	 	 	1,799	 	 	 	1,799	 	
 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	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	Chemed	 	
 For the nine months ended September 30, 2009	 	VITAS	 	 	  Roto-Rooter	 	 	Corporate	 	 	Consolidated	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Net income/(loss)	 	$	52,442	 	 	$	24,962	 	 	$	(21,605	)	 	$	55,799	 	
 Add/(deduct):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Interest expense	 	 	415	 	 	 	138	 	 	 	8,286	 	 	 	8,839	 	
 Income taxes	 	 	32,112	 	 	 	15,414	 	 	 	(11,899	)	 	 	35,627	 	
 Depreciation	 	 	9,767	 	 	 	6,094	 	 	 	163	 	 	 	16,024	 	
 Amortization	 	 	3,537	 	 	 	323	 	 	 	905	 	 	 	4,765	 	
 EBITDA	 	 	98,273	 	 	 	46,931	 	 	 	(24,150	)	 	 	121,054	 	
 Add/(deduct):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Non-taxable income from certain investments held in	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 deferred compensation trusts	 	 	-	 	 	 	-	 	 	 	(1,211	)	 	 	(1,211	)	
 Expenses associated with contested proxy solicitation	 	 	-	 	 	 	-	 	 	 	3,989	 	 	 	3,989	 	
 Legal expenses of OIG investigation	 	 	442	 	 	 	-	 	 	 	-	 	 	 	442	 	
 Stock option expense	 	 	-	 	 	 	-	 	 	 	6,699	 	 	 	6,699	 	
 Advertising cost adjustment	 	 	-	 	 	 	(1,228	)	 	 	-	 	 	 	(1,228	)	
 Interest income	 	 	(250	)	 	 	(44	)	 	 	(81	)	 	 	(375	)	
 Intercompany interest income/(expense)	 	 	(3,091	)	 	 	(1,801	)	 	 	4,892	 	 	 	-	 	
 Adjusted EBITDA	 	$	95,374	 	 	$	43,858	 	 	$	(9,862	)	 	$	129,370	 	

 

 
-28-

 

CHEMED CORPORATION AND SUBSIDIARY COMPANIES	
OPERATING STATISTICS FOR VITAS SEGMENT	
(unaudited)	

 	 	Three Months Ended September 30,	 	 	 	Nine Months Ended September 30,	 	 	
OPERATING STATISTICS	 	2010	 	 	 	2009	 	 	 	2010	 	 	 	2009	 	 	
Net revenue ($000)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Homecare	 	$	169,306	 	 	 	$	157,079	 	 	 	$	490,044	 	 	 	$	456,160	 	 	
Inpatient	 	 	25,963	 	 	 	 	24,057	 	 	 	 	78,244	 	 	 	 	72,806	 	 	
Continuous care	 	 	38,812	 	 	 	 	35,974	 	 	 	 	113,588	 	 	 	 	105,679	 	 	
Total before Medicare cap allowance and 2008 BNAF	 	$	234,081	 	 	 	$	217,110	 	 	 	$	681,876	 	 	 	$	634,645	 	 	
Estimated BNAF	 	 	-	 	 	 	 	-	 	 	 	 	-	 	 	 	 	1,950	 	 	
Medicare cap allowance	 	 	(117	)	 	 	 	(43	)	 	 	 	1,666	 	 	 	 	192	 	 	
Total	 	$	233,964	 	 	 	$	217,067	 	 	 	$	683,542	 	 	 	$	636,787	 	 	
Net revenue as a percent of total	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
     before Medicare cap allowance	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Homecare	 	 	72.3	 	%	 	 	72.3	 	%	 	 	71.8	 	%	 	 	71.8	 	%	
Inpatient	 	 	11.1	 	 	 	 	11.1	 	 	 	 	11.5	 	 	 	 	11.5	 	 	
Continuous care	 	 	16.6	 	 	 	 	16.6	 	 	 	 	16.7	 	 	 	 	16.7	 	 	
Total before Medicare cap allowance and 2008 BNAF	 	 	100.0	 	 	 	 	100.0	 	 	 	 	100.0	 	 	 	 	100.0	 	 	
Estimated BNAF	 	 	-	 	 	 	 	-	 	 	 	 	-	 	 	 	 	0.3	 	 	
Medicare cap allowance	 	 	(0.1	)	 	 	 	-	 	 	 	 	0.2	 	 	 	 	-	 	 	
Total	 	 	99.9	 	%	 	 	100.0	 	%	 	 	100.2	 	%	 	 	100.3	 	%	
Average daily census (days)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Homecare	 	 	8,586	 	 	 	 	7,835	 	 	 	 	8,350	 	 	 	 	7,661	 	 	
Nursing home	 	 	3,250	 	 	 	 	3,316	 	 	 	 	3,212	 	 	 	 	3,291	 	 	
Routine homecare	 	 	11,836	 	 	 	 	11,151	 	 	 	 	11,562	 	 	 	 	10,952	 	 	
Inpatient	 	 	425	 	 	 	 	404	 	 	 	 	433	 	 	 	 	406	 	 	
Continuous care	 	 	596	 	 	 	 	562	 	 	 	 	595	 	 	 	 	565	 	 	
Total	 	 	12,857	 	 	 	 	12,117	 	 	 	 	12,590	 	 	 	 	11,923	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Admissions	 	 	14,483	 	 	 	 	13,735	 	 	 	 	43,750	 	 	 	 	41,743	 	 	
Total Discharges	 	 	14,076	 	 	 	 	13,441	 	 	 	 	42,767	 	 	 	 	41,064	 	 	
Average length of stay (days)	 	 	78.2	 	 	 	 	78.0	 	 	 	 	77.1	 	 	 	 	75.0	 	 	
Median length of stay (days)	 	 	15.0	 	 	 	 	14.0	 	 	 	 	14.0	 	 	 	 	14.0	 	 	
ADC by major diagnosis	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Neurological	 	 	33.4	 	%	 	 	33.1	 	%	 	 	33.2	 	%	 	 	33.0	 	%	
Cancer	 	 	18.5	 	 	 	 	19.1	 	 	 	 	18.4	 	 	 	 	19.2	 	 	
Cardio	 	 	11.9	 	 	 	 	12.2	 	 	 	 	11.9	 	 	 	 	12.2	 	 	
Respiratory	 	 	6.5	 	 	 	 	6.2	 	 	 	 	6.6	 	 	 	 	6.5	 	 	
Other	 	 	29.7	 	 	 	 	29.4	 	 	 	 	29.9	 	 	 	 	29.1	 	 	
Total	 	 	100.0	 	%	 	 	100.0	 	%	 	 	100.0	 	%	 	 	100.0	 	%	
Admissions by major diagnosis	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Neurological	 	 	18.4	 	%	 	 	17.9	 	%	 	 	18.6	 	%	 	 	17.9	 	%	
Cancer	 	 	35.8	 	 	 	 	36.8	 	 	 	 	34.6	 	 	 	 	35.6	 	 	
Cardio	 	 	11.1	 	 	 	 	11.1	 	 	 	 	11.3	 	 	 	 	11.8	 	 	
Respiratory	 	 	7.5	 	 	 	 	6.8	 	 	 	 	8.1	 	 	 	 	7.5	 	 	
Other	 	 	27.2	 	 	 	 	27.4	 	 	 	 	27.4	 	 	 	 	27.2	 	 	
Total	 	 	100.0	 	%	 	 	100.0	 	%	 	 	100.0	 	%	 	 	100.0	 	%	
Direct patient care margins	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Routine homecare	 	 	52.7	 	%	 	 	51.7	 	%	 	 	52.2	 	%	 	 	51.8	 	%	
Inpatient	 	 	12.3	 	 	 	 	12.8	 	 	 	 	13.3	 	 	 	 	15.7	 	 	
Continuous care	 	 	21.1	 	 	 	 	20.6	 	 	 	 	21.0	 	 	 	 	20.3	 	 	
Homecare margin drivers (dollars per patient day)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Labor costs	 	$	51.97	 	 	 	$	52.56	 	 	 	$	52.79	 	 	 	$	52.40	 	 	
Drug costs	 	 	7.89	 	 	 	 	7.59	 	 	 	 	7.78	 	 	 	 	7.65	 	 	
Home medical equipment	 	 	6.54	 	 	 	 	7.03	 	 	 	 	6.71	 	 	 	 	6.85	 	 	
Medical supplies	 	 	2.66	 	 	 	 	2.48	 	 	 	 	2.53	 	 	 	 	2.37	 	 	
Inpatient margin drivers (dollars per patient day)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Labor costs	 	$	304.42	 	 	 	$	294.24	 	 	 	$	297.63	 	 	 	$	282.74	 	 	
Continuous care margin drivers (dollars per patient day)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Labor costs	 	$	536.83	 	 	 	$	530.88	 	 	 	$	531.14	 	 	 	$	524.84	 	 	
Bad debt expense as a percent of revenues	 	 	0.9	 	%	 	 	1.1	 	%	 	 	0.9	 	%	 	 	1.1	 	%	
 Accounts receivable --	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
  Days of revenue outstanding- excluding unapplied Medicare payments	 	 	39.7	 	 	 	 	52.8	 	 	 	n.a.	 	 	 	n.a.	 	 	
  Days of revenue outstanding- including unapplied Medicare payments	 	 	34.9	 	 	 	 	37.0	 	 	 	n.a.	 	 	 	n.a.	 	 	

 

 
-29-

 
 
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, 2010, we had no variable rate debt outstanding.  At September 30, 2010, the fair value of the Notes approximates $181.1 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.

 
-30-

 
 
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  2010:

 	 	 	 	 	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, 2010	 	 	31,375	 	 	$	47.17	 	 	 	1,736,972	 	 	$	51,718,696	 	
      February 1 through February 29, 2010	 	 	-	 	 	$	-	 	 	 	1,736,972	 	 	$	51,718,696	 	
      March 1 through March 31, 2010	 	 	-	 	 	$	-	 	 	 	1,736,972	 	 	$	51,718,696	 	
      First Quarter Total - April 2007 Program	 	 	31,375	 	 	$	47.17	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
      April 1 through April 30, 2010	 	 	-	 	 	$	-	 	 	 	1,736,972	 	 	$	51,718,696	 	
      May 1 through May 31, 2010	 	 	38,492	 	 	$	53.70	 	 	 	1,775,464	 	 	$	49,651,677	 	
      June 1 through June 30, 2010	 	 	76,408	 	 	$	55.65	 	 	 	1,851,872	 	 	$	45,399,865	 	
      Second Quarter Total - April 2007 Program	 	 	114,900	 	 	$	54.99	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
      July 1 through July 31, 2010	 	 	-	 	 	$	-	 	 	 	1,851,872	 	 	$	45,399,865	 	
      August 1 through August 31, 2010	 	 	-	 	 	$	-	 	 	 	1,851,872	 	 	$	45,399,865	 	
      September 1 through September 30, 2010	 	 	-	 	 	$	-	 	 	 	1,851,872	 	 	$	45,399,865	 	
      Third Quarter Total - April 2007 Program	 	 	-	 	 	$	-	 	 	 	 	 	 	 	 	 	
 
On April 26, 2007, our Board of Directors authorized a $150 million share repurchase plan with no expiration date.
On May 20, 2008 our Board of Directors authorized an additional $56 million under the April 2007 Program.

    Item 3.    Defaults Upon Senior Securities

None

    Item 4.    Removed and Reserved

    Item 5.    Other Information

None

 
-31-

 
 
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 3, 2010	 	By:	Kevin J. McNamara	 	
 	 	 	 	Kevin J. McNamara	 	
 	 	 	 	(President and Chief Executive Officer)	 	

Dated:	November 3, 2010	 	By:	David P. Williams	 	
 	 	 	 	David P. Williams	 	
 	 	 	 	(Executive Vice President and Chief Financial Officer)	 	

Dated:	November 3, 2010	 	By:	Arthur V. Tucker, Jr.	 	
 	 	 	 	Arthur V. Tucker, Jr.	 	
 	 	 	 	(Vice President and Controller)	 	

-32-

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 3, 2010	/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 3, 2010	/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 3, 2010	/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, 2010 (“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 3, 2010	/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, 2010 (“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 3, 2010	/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, 2010 (“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 3, 2010	/s/ Arthur V. Tucker, Jr.	
 	 	Arthur V. Tucker, Jr.	
 	 	(Vice President and Controller)	
 
E-6