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

(Mark One)

X	Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 2011	
 
 	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934	

Commission File Number: 1-8351

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

Delaware	 	31-0791746	
(State or other jurisdiction of incorporation or organization)	 	(IRS Employer Identification No.)	
 
2600 Chemed Center, 255 E. Fifth Street, Cincinnati, Ohio	 	45202	
(Address of principal executive offices)	 	(Zip code)	
 
(513) 762-6900
(Registrant’s telephone number, including area code)	

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 	Yes	X	 	No	 	 	

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

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

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

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

Class	 	Amount	 	Date	
 	 	 	 	 	
Capital Stock $1 Par Value	 	21,405,258 Shares	 	June 30, 2011	

 
 
-1-

 

CHEMED CORPORATION AND
SUBSIDIARY COMPANIES

Index

 	 	Page No.	 	
PART I.    FINANCIAL INFORMATION:	 	 	 	
Item 1.  Financial Statements	 	 	 	
Unaudited Consolidated Balance Sheet -June 30, 2011 and December 31, 2010	 	 	3	 	
 	 	 	 	 	
Unaudited Consolidated Statement of Income -Three and six months ended June 30, 2011 and 2010	 	 	4	 	
 	 	 	 	 	
Unaudited Consolidated Statement of Cash Flows -Six months ended June 30, 2011 and 2010	 	 	5	 	
 	 	 	 	 	
Notes to Unaudited Financial Statements	 	 	6	 	
 	 	 	 	 	
Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations	 	 	17	 	
 	 	 	 	 	
Item 3.  Quantitative and Qualitative Disclosures about Market Risk	 	 	31	 	
 	 	 	 	 	
Item 4.  Controls and Procedures	 	 	31	 	
 	 	 	 	 	
PART II.   OTHER INFORMATION	 	 	 	 	
Item 1.    Legal Proceedings	 	 	31	 	
 	 	 	 	 	
Item 1A. Risk Factors	 	 	31	 	
 	 	 	 	 	
Item 2.    Unregistered Sales of Equity Securities and Use of  Proceeds	 	 	32	 	
 	 	 	 	 	
Item 3.    Defaults Upon Senior Securities	 	 	32	 	
 	 	 	 	 	
Item 4.    Removed and Reserved	 	 	32	 	
 	 	 	 	 	
Item 5.    Other Information	 	 	32	 	
 	 	 	 	 	
Item 6.    Exhibits	 	 	33	 	
EX – 31.1
EX – 31.2
EX – 31.3
EX – 32.1
EX – 32.2
EX – 32.3
EX – 101.INS
EX – 101.SCH
EX – 101.CAL
EX – 101.LAB
EX – 101.PRE

-2-

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

 	June 30,	 	 	 	December 31,	 	
 	2011	 	 	 	2010	 	
 ASSETS	 	 	 	 	 	 	 	
     Current assets	 	 	 	 	 	 	 	
          Cash and cash equivalents	 	$	50,941	 	 	 	$	49,917	 	
          Accounts receivable less allowances of $12,257 (2010 - $13,332)	 	 	118,281	 	 	 	 	112,999	 	
 Inventories	 	 	8,682	 	 	 	 	7,728	 	
          Current deferred income taxes	 	 	14,052	 	 	 	 	15,098	 	
 Prepaid income taxes	 	 	1,300	 	 	 	 	770	 	
 Prepaid expenses	 	 	10,344	 	 	 	 	10,285	 	
 Total current assets	 	 	203,600	 	 	 	 	196,797	 	
     Investments of deferred compensation plans	 	 	33,066	 	 	 	 	28,304	 	
     Properties and equipment, at cost, less accumulated depreciation of $142,247 (2010 - $132,696)	 	 	81,471	 	 	 	 	79,292	 	
     Identifiable intangible assets less accumulated amortization of $28,155 (2010 - $27,438)	 	 	56,358	 	 	 	 	56,410	 	
     Goodwill	 	 	460,793	 	 	 	 	458,343	 	
 Other assets	 	 	15,325	 	 	 	 	11,015	 	
Total Assets	 	$	850,613	 	 	 	$	830,161	 	
 	 	 	 	 	 	 	 	 	 	
 LIABILITIES	 	 	 	 	 	 	 	 	 	
      Current liabilities	 	 	 	 	 	 	 	 	 	
 Accounts payable	 	$	39,459	 	 	 	$	55,829	 	
 Income taxes	 	 	2,096	 	 	 	 	1,161	 	
 Accrued insurance	 	 	35,143	 	 	 	 	36,492	 	
     Accrued compensation	 	 	43,633	 	 	 	 	39,719	 	
 Other current liabilities	 	 	14,972	 	 	 	 	16,141	 	
   Total current liabilities	 	 	135,303	 	 	 	 	149,342	 	
 Deferred income taxes	 	 	24,053	 	 	 	 	25,085	 	
 Long-term debt	 	 	162,932	 	 	 	 	159,208	 	
 Deferred compensation liabilities	 	 	32,255	 	 	 	 	27,851	 	
 Other liabilities	 	 	6,736	 	 	 	 	6,626	 	
Total Liabilities	 	 	361,279	 	 	 	 	368,112	 	
 	 	 	 	 	 	 	 	 	 	
 STOCKHOLDERS' EQUITY	 	 	 	 	 	 	 	 	 	
Capital stock - authorized 80,000,000 shares $1 par; issued 30,906,532 shares (2010 - 30,381,863 shares)	 	 	30,907	 	 	 	 	30,382	 	
  Paid-in capital	 	 	391,507	 	 	 	 	365,007	 	
  Retained earnings	 	 	505,736	 	 	 	 	473,316	 	
Treasury stock - 9,600,834 shares (2010 - 9,103,185 shares), at cost	 	 	(440,809	)	 	 	 	(408,615	)	
Deferred compensation payable in Company stock	 	 	1,993	 	 	 	 	1,959	 	
   Total Stockholders' Equity	 	 	489,334	 	 	 	 	462,049	 	
 Total Liabilities and Stockholders' Equity	 	$	850,613	 	 	 	$	830,161	 	

 See accompanying notes to unaudited financial statements.	

 
-3-

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

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three Months Ended June 30,	 	 	Six Months Ended June 30,	
 	 	2011	 	 	 	2010	 	 	 	2011	 	 	 	2010	 	
 Service revenues and sales	 	$	333,360	 	 	 	$	314,995	 	 	 	$	664,278	 	 	 	$	623,808	 	
 Cost of services provided and goods sold (excluding depreciation)	 	 	239,597	 	 	 	 	223,702	 	 	 	 	477,055	 	 	 	 	442,839	 	
 Selling, general and administrative expenses	 	 	50,424	 	 	 	 	49,956	 	 	 	 	106,078	 	 	 	 	98,494	 	
 Depreciation	 	 	6,358	 	 	 	 	6,194	 	 	 	 	12,646	 	 	 	 	11,663	 	
 Amortization	 	 	1,139	 	 	 	 	1,287	 	 	 	 	2,109	 	 	 	 	2,511	 	
 Total costs and expenses	 	 	297,518	 	 	 	 	281,139	 	 	 	 	597,888	 	 	 	 	555,507	 	
 Income from operations	 	 	35,842	 	 	 	 	33,856	 	 	 	 	66,390	 	 	 	 	68,301	 	
 Interest expense	 	 	(3,461	)	 	 	 	(2,999	)	 	 	 	(6,705	)	 	 	 	(5,951	)	
 Other income - net	 	 	714	 	 	 	 	10	 	 	 	 	2,816	 	 	 	 	196	 	
 Income before income taxes	 	 	33,095	 	 	 	 	30,867	 	 	 	 	62,501	 	 	 	 	62,546	 	
 Income taxes	 	 	(12,809	)	 	 	 	(12,012	)	 	 	 	(24,114	)	 	 	 	(24,333	)	
 Net income	 	$	20,286	 	 	 	$	18,855	 	 	 	$	38,387	 	 	 	$	38,213	 	

 Earnings Per Share	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Net income	 	$	0.96	 	 	 	$	0.83	 	 	 	$	1.82	 	 	 	$	1.69	 	
   Average number of shares outstanding	 	 	21,115	 	 	 	 	22,644	 	 	 	 	21,067	 	 	 	 	22,608	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Diluted Earnings Per Share	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Net income	 	$	0.94	 	 	 	$	0.82	 	 	 	$	1.78	 	 	 	$	1.66	 	
   Average number of shares outstanding	 	 	21,637	 	 	 	 	23,080	 	 	 	 	21,586	 	 	 	 	23,012	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Cash Dividends Per Share	 	$	0.14	 	 	 	$	0.12	 	 	 	$	0.28	 	 	 	$	0.24	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
See accompanying notes to unaudited financial statements.	

-4-

 
 
 CHEMED CORPORATION AND SUBSIDIARY COMPANIES	
 UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS	
 (in thousands)	
 	 	 	 	 	 	 	 	
 	 	Six Months Ended	 	
 	 	June 30,	
 	 	2011	 	 	 	2010	 	
Cash Flows from Operating Activities	 	 	 	 	 	 	 	
      Net income	 	$	38,387	 	 	 	$	38,213	 	
   Adjustments to reconcile net income to net cash provided by operating activities:	 	 	 	 	 	 	 	 	 	
 Depreciation and amortization	 	 	14,755	 	 	 	 	14,174	 	
 Noncash long-term incentive compensation	 	 	2,595	 	 	 	 	1,580	 	
 Provision for uncollectible accounts receivable	 	 	4,365	 	 	 	 	4,863	 	
 Stock option expense	 	 	4,495	 	 	 	 	4,397	 	
 Amortization of discount on convertible notes	 	 	3,724	 	 	 	 	3,481	 	
 Provision for deferred income taxes	 	 	(18	)	 	 	 	(2,364	)	
 Changes in operating assets and liabilities, excluding amounts acquired in business combinations:	 	 	 	 	 	 	 	 	 	
Increase in accounts receivable	 	 	(9,271	)	 	 	 	(53,169	)	
Increase in inventories	 	 	(954	)	 	 	 	(435	)	
Increase in prepaid expenses	 	 	(59	)	 	 	 	(35	)	
     Increase/(decrease) in accounts payable and other current liabilities	 	 	(6,603	)	 	 	 	3,035	 	
Increase in income taxes	 	 	3,738	 	 	 	 	6,902	 	
Increase in other assets	 	 	(5,652	)	 	 	 	(1,935	)	
Increase in other liabilities	 	 	4,514	 	 	 	 	2,938	 	
Excess tax benefit on share-based compensation	 	 	(3,339	)	 	 	 	(1,802	)	
Other sources	 	 	450	 	 	 	 	434	 	
Net cash provided by operating activities	 	 	51,127	 	 	 	 	20,277	 	
Cash Flows from Investing Activities	 	 	 	 	 	 	 	 	 	
      Capital expenditures	 	 	(14,960	)	 	 	 	(11,942	)	
   Business combinations, net of cash acquired	 	 	(3,689	)	 	 	 	(30	)	
   Other uses	 	 	(869	)	 	 	 	(197	)	
 Net cash used by investing activities	 	 	(19,518	)	 	 	 	(12,169	)	
Cash Flows from Financing Activities	 	 	 	 	 	 	 	 	 	
   Purchases of treasury stock	 	 	(25,482	)	 	 	 	(10,149	)	
   Decrease in cash overdrafts payable	 	 	(7,814	)	 	 	 	(1,314	)	
   Proceeds from issuance of capital stock	 	 	7,698	 	 	 	 	3,475	 	
  Dividends paid	 	 	(5,967	)	 	 	 	(5,481	)	
  Debt issuance costs	 	 	(2,723	)	 	 	 	-	 	
   Excess tax benefit on share-based compensation	 	 	3,339	 	 	 	 	1,802	 	
  Other sources	 	 	364	 	 	 	 	223	 	
  Net cash used by financing activities	 	 	(30,585	)	 	 	 	(11,444	)	
Increase/(Decrease) in Cash and Cash Equivalents	 	 	1,024	 	 	 	 	(3,336	)	
   Cash and cash equivalents at beginning of year	 	 	49,917	 	 	 	 	112,416	 	
   Cash and cash equivalents at end of period	 	$	50,941	 	 	 	$	109,080	 	
 	 	 	 	 	 	 	 	 	 	
See accompanying notes to unaudited financial statements.	

-5-

 
 
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
Notes to Unaudited Financial Statements

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

We have prepared the accompanying unaudited consolidated financial statements of Chemed in accordance with Rule 10-01 of SEC Regulation S-X.  Consequently, we have omitted certain disclosures required under generally accepted accounting principles in the United States (“GAAP”) for complete financial statements.  The December 31, 2010 balance sheet data were derived from audited financial statements but do not include all disclosures required by GAAP.  However, in our opinion, the financial statements presented herein contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly our financial position, results of operations and cash flows.  These financial statements are prepared on the same basis as and should be read in conjunction with the Consolidated Financial Statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2010.

2.  Revenue Recognition
Both the VITAS segment and the Roto-Rooter segment recognize service revenues and sales when the earnings process has been completed.  Generally, this occurs when services are provided or products are delivered.  VITAS recognizes revenue at the estimated realizable amount due from third-party payers.  Medicare payments are subject to certain limitations, as described below.
 
As of June 30, 2011, VITAS has approximately $1.6 million in unbilled revenue included in accounts receivable (December 31, 2010 - $2.8 million).  The unbilled revenue at VITAS relates to hospice programs currently undergoing focused medical reviews (“FMR”).  During FMR, surveyors working on behalf of the U.S. Federal government review certain patient files for compliance with Medicare regulations.  During the time the patient file is under review, we are unable to bill for care provided to those patients.  We make appropriate provisions to reduce our accounts receivable balance for potential denials of patient service revenue due to FMR activity.
 
Vitas provides charity care, in certain circumstances, to patients without charge when management of the hospice program determines that the patient does not have the financial wherewithal to make payment.  There is no revenue or associated accounts receivable in the accompanying consolidated financial statements related to charity care.  The cost of charity care is calculated by taking the ratio of charity care days to total days of care and multiplying by total cost of care.  The cost of charity care for the three and six month periods ended June 30, 2011 and 2010 is as follows (in thousands):

Three months ended	 	 	Six months ended	 	
June 30,	 	 	June 30,	 	
2011	 	 	2010	 	 	2011	 	 	2010	 	
$	1,763	 	 	$	1,727	 	 	$	3,522	 	 	$	3,374	 	
 
We actively monitor each of our hospice programs, by provider number, as to their specific admission, discharge rate and median length of stay data in an attempt to determine whether they are likely to exceed the annual per-beneficiary Medicare cap (“Medicare cap”).  Should we determine that revenues for a program are likely to exceed the Medicare cap based on projected trends, we attempt to institute corrective action to influence the patient mix or to increase patient admissions.  However, should we project our corrective action will not prevent that program from exceeding its Medicare cap, we estimate the amount of revenue recognized during the period that will require repayment to the Federal government under the Medicare cap and record the amount as a reduction to patient revenue.  The Medicare cap measurement period is from September 29 through September 28 of the following year for admissions and from November 1 through October 31 of the following year for revenue.

During the three-month period ended June 30, 2011 we recorded $368,000 in Medicare cap liability for one small program for the 2011 measurement period.  During the six-month period ended June 30, 2011, we had a net Medicare cap liability reversal for amounts recorded in the fourth quarter of 2010.  We reversed these amounts as improving admissions trends in these programs indicate that the liability had been eliminated.  We also reversed the remaining Medicare cap liability for our Phoenix program due to expiration for the period under review.

-6-

 
 
Shown below is the Medicare cap liability activity for the periods ended June 30, 2011 and 2010 (in thousands):

 	 	 	June 30,	 	
 	 	 	2011	 	 	2010	 	
 	Beginning balance January 1,	 	$	1,371	 	 	 	$	1,981	 	 	
 	Reversal - 2011 measurement period	 	 	(743	)	 	 	 	-	 	 	
 	Accrual -  2011 measurement period	 	 	299	 	 	 	 	 	 	 	
 	Reversal - 2010 measurement period	 	 	-	 	 	 	 	(1,783	)	 	
 	  Other	 	 	(198	)	 	 	 	-	 	 	
 	Ending balance June 30,	 	$	729	 	 	 	$	198	 	 	

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

 	 	 	 	Three months ended	 	 	 	Six months ended	 	 	
 	 	 	 	June 30,	 	 	 	June 30,	 	 	
 	 	 	 	2011	 	 	 	2010	 	 	 	2011	 	 	 	2010	 	
 	Service Revenues and Sales	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	VITAS	 	 	$	243,095	 	 	 	$	226,638	 	 	 	$	478,768	 	 	 	$	449,578	 	 	
 	Roto-Rooter	 	 	 	90,265	 	 	 	 	88,357	 	 	 	 	185,510	 	 	 	 	174,230	 	 	
 	                                      Total	 	 	$	333,360	 	 	 	$	314,995	 	 	 	$	664,278	 	 	 	$	623,808	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	After-tax Earnings	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	VITAS	 	 	$	18,589	 	 	 	$	18,281	 	 	 	$	36,714	 	 	 	$	36,719	 	 	
 	Roto-Rooter	 	 	 	9,092	 	 	 	 	8,860	 	 	 	 	17,602	 	 	 	 	16,673	 	 	
 	                                      Total	 	 	 	27,681	 	 	 	 	27,141	 	 	 	 	54,316	 	 	 	 	53,392	 	 	
 	Corporate	 	 	 	(7,395	)	 	 	 	(8,286	)	 	 	 	(15,929	)	 	 	 	(15,179	)	 	
 	Net income	 	 	$	20,286	 	 	 	$	18,855	 	 	 	$	38,387	 	 	 	$	38,213	 	 	

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

4.      Earnings per Share
 	Earnings per share are computed using the weighted average number of shares of capital stock outstanding.  Earnings and diluted earnings per share for 2011 and 2010 are computed as follows (in thousands, except per share data):	

 	 	Net Income	 	 	
For the Three Months Ended
June 30,	 	Income	 	 	Shares	 	 	Earnings per
Share	 	 	
2011	 	 	 	 	 	 	 	 	 	 	
Earnings	 	$	20,286	 	 	 	21,115	 	 	$	0.96	 	 	
Dilutive stock options	 	 	-	 	 	 	433	 	 	 	 	 	 	
Nonvested stock awards	 	 	-	 	 	 	89	 	 	 	 	 	 	
     Diluted earnings	 	$	20,286	 	 	 	21,637	 	 	$	0.94	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
2010	 	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings	 	$	18,855	 	 	 	22,644	 	 	$	0.83	 	 	
Dilutive stock options	 	 	-	 	 	 	348	 	 	 	 	 	 	
Nonvested stock awards	 	 	-	 	 	 	88	 	 	 	 	 	 	
     Diluted earnings	 	$	18,855	 	 	 	23,080	 	 	$	0.82	 	 	

-7-

 
 
 	 	Net Income	 	 	
For the Six Months Ended
June 30,	 	Income	 	 	Shares	 	 	Earnings per
Share	 	 	
2011	 	 	 	 	 	 	 	 	 	 	
Earnings	 	$	38,387	 	 	 	21,067	 	 	$	1.82	 	 	
Dilutive stock options	 	 	-	 	 	 	433	 	 	 	 	 	 	
Nonvested stock awards	 	 	-	 	 	 	86	 	 	 	 	 	 	
     Diluted earnings	 	$	38,387	 	 	 	21,586	 	 	$	1.78	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
2010	 	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings	 	$	38,213	 	 	 	22,608	 	 	$	1.69	 	 	
Dilutive stock options	 	 	-	 	 	 	319	 	 	 	 	 	 	
Nonvested stock awards	 	 	-	 	 	 	85	 	 	 	 	 	 	
     Diluted earnings	 	$	38,213	 	 	 	23,012	 	 	$	1.66	 	 	

For the three and six-month periods ended June 30, 2011, 970,000 stock options were excluded from the computation of diluted earnings per share as their exercise prices were greater than the average market price for most of the period. For the three and six-month periods ended June 30, 2010, 976,000 and 991,000 stock options were excluded from the computation of diluted earnings per share.
 
Diluted earnings per share may be impacted in the future as the result of the issuance of our 1.875% Senior Convertible Notes (the “Notes”) and related purchased call options and sold warrants.  Per FASB’s authoritative guidance on the effect of contingently convertible instruments on diluted earnings per share and convertible bonds with an issuer option to settle for cash upon conversion, we will not include any shares related to the Notes in our calculation of diluted earnings per share until our average stock price for a quarter exceeds the current conversion price.  We would then include in our diluted earnings per share calculation those shares issuable using the treasury stock method.  The amount of shares issuable is based upon the amount by which the average stock price for the quarter exceeds the conversion price.  The purchased call option does not impact the calculation of diluted earnings per share as it is always anti-dilutive. The sold warrants become dilutive when our average stock price for a quarter exceeds the strike price of the warrant.
 
The following table provides examples of how changes in our stock price impact the number of shares that would be included in our diluted earnings per share calculation.  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	 	 	 	23,877	 	 	 	-	 	 	 	23,877	 	 	 	(25,542	)	 	 	 	(1,665	)	
$	90.73	 	 	 	279,119	 	 	 	-	 	 	 	279,119	 	 	 	(298,594	)	 	 	 	(19,475	)	
$	100.73	 	 	 	483,684	 	 	 	-	 	 	 	483,684	 	 	 	(517,430	)	 	 	 	(33,746	)	
$	110.73	 	 	 	651,299	 	 	 	119,575	 	 	 	770,874	 	 	 	(696,741	)	 	 	 	74,133	 	
$	120.73	 	 	 	791,148	 	 	 	316,987	 	 	 	1,108,135	 	 	 	(846,347	)	 	 	 	261,788	 	
$	130.73	 	 	 	909,602	 	 	 	484,198	 	 	 	1,393,800	 	 	 	(973,065	)	 	 	 	420,735	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
a) Represents the number of incremental shares that must be included in the calculation of fully diluted shares under U.S. GAAP.	 	
b) Represents the number of incremental shares to be issued by the Company upon conversion of the 1.875% Convertible Notes, assuming concurrent settlement of the note hedges and warrants.	 	

-8-

 

5.      Long-Term Debt
On March 1, 2011, we replaced our existing credit agreement with our Revolving Credit Facility (“2011 Credit Agreement”).  Terms of the 2011 Credit Agreement consist of a five-year, $350 million revolving credit facility.  This 2011 Credit Agreement has a floating interest rate that is currently LIBOR plus 175 basis points.  The 2011 Credit Agreement also includes a $150 million expansion feature.  Debt issuance costs associated with the existing credit agreement were not material.   The 2011 Credit Agreement contains the following quarterly financial covenants:

 	Description	 	Requirement	 	
 	 	 	 	 	
 	Leverage Ratio (Consolidated Indebtedness/Consolidated  Adj. EBITDA)	 	< 3.50 to 1.00	 	
 	 	 	 	 	
 	Fixed Charge Coverage Ratio (Consolidated Free Cash Flow/Consolidated Fixed Charges)	 	> 1.50 to 1.00	 	
 	 	 	 	 	
 	Annual Operating Lease Commitment	 	< $30.0 million	 	
 
We are in compliance with all debt covenants as of June 30, 2011.  We have issued $29.5 million in standby letters of credit as of June 30, 2011 for insurance purposes.  Issued letters of credit reduce our available credit under the 2011 Credit Agreement.  As of June 30, 2011, we have approximately $320.5 million of unused lines of credit available and eligible to be drawn down under our revolving credit facility, excluding the $150 million expansion feature.

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 to our outstanding Convertible Notes (“Notes”), 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:
 
 	 	 	June 30, 2011	 	 	December 31, 2010	 	
 	Principal amount of convertible debentures	 	$	186,956	 	 	 	$	186,956	 	 	
 	Unamortized debt discount	 	 	(24,024	)	 	 	 	(27,748	)	 	
 	Carrying amount of convertible debentures	 	$	162,932	 	 	 	$	159,208	 	 	
 	Additional paid in capital (net of tax)	 	$	31,310	 	 	 	$	31,310	 	 	
 
The following amounts comprise interest expense included in our consolidated income statement (in thousands):

 	 	 	Three months ended 
June 30,	 	 	Six months ended 
June 30,	 	
 	 	 	2011	 	 	2010	 	 	2011	 	 	2010	 	
 	Cash interest expense	 	$	1,288	 	 	$	1,083	 	 	$	2,440	 	 	$	2,152	 	
 	Non-cash amortization of debt discount	 	 	1,878	 	 	 	1,755	 	 	 	3,724	 	 	 	3,481	 	
 	Amortization of debt costs	 	 	295	 	 	 	161	 	 	 	541	 	 	 	318	 	
 	Total interest expense	 	$	3,461	 	 	$	2,999	 	 	$	6,705	 	 	$	5,951	 	
 
The unamortized debt discount will be amortized using the effective interest method over the remaining life of the Notes.  The effective rate on the Notes after adoption of the standard is approximately 6.875%.

-9-

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

 	 	Three months ended 
June 30,	 	 	Six months ended 
June 30,	
 	 	2011	 	 	 	2010	 	 	 	2011	 	 	 	2010	 	
Market value gains/(losses) on assets held in deferred compensation trust	 	$	743	 	 	 	$	(83	)	 	 	$	2,807	 	 	 	$	105	 	
Gain /(loss) on disposal of property and equipment	 	 	32	 	 	 	 	(58	)	 	 	 	11	 	 	 	 	(152	)	
Interest income	 	 	62	 	 	 	 	150	 	 	 	 	123	 	 	 	 	225	 	
Other - net	 	 	(123	)	 	 	 	1	 	 	 	 	(125	)	 	 	 	18	 	
     Other income - net	 	$	714	 	 	 	$	10	 	 	 	$	2,816	 	 	 	$	196	 	
 
7.      Stock-Based Compensation Plans
In January 2011, we met a stock price target of $62.00 under our Long-Term Incentive Plan.  On January 14, 2011, the Compensation/Incentive Committee of the Board of Directors (“CIC”) approved a stock grant of 41,100 shares (including 7,350 shares from the discretionary pool) and the related allocation to participants.  The cumulative compensation expense related to the stock grant was $3.0 million.
 
On February 18, 2011, the CIC approved a time-based LTIP award of 42,000 shares of restricted stock to certain key employees.  The restricted shares cliff vest four years from the date of issuance.  The cumulative compensation expense related to the restricted award is $2.7 million and will be recognized ratably over the 4 year vesting period.  We assumed no forfeitures in determining the cumulative compensation expense of the grant.
 
On February 18, 2011, the CIC approved a grant of 35,713 shares of restricted stock to certain key employees.  The restricted shares cliff vest four years from the date of issuance.  The cumulative compensation expense related to the restricted stock award is $2.3 million and will be recognized ratably over the 4 year vesting period.  We assumed no forfeitures in determining the cumulative compensation expense of the grant.
 
On February 18, 2011, the CIC approved a grant of 513,100 stock options to certain employees.  The stock options vest ratably over three years from the date of issuance.  The cumulative compensation expense related to the stock option grant is $9.8 million and will be recognized over the 3 year vesting period.  We used the Black-Scholes option valuation method to determine the cumulative compensation expense of the grant.

8.    Independent Contractor Operations
The Roto-Rooter segment sublicenses with 65 independent contractors to operate certain plumbing repair and drain cleaning businesses in lesser-populated areas of the United States and Canada.  We had notes receivable from our independent contractors as of June 30, 2011 totaling $1.4 million (December 31, 2010 -$1.1 million).  In most cases these loans are fully or partially secured by equipment owned by the contractor.  The interest rates on the loans range from 0% to 8% per annum and the remaining terms of the loans range from 2 months to 5 years at June 30, 2011.  We recorded the following from our independent contractors (in thousands):

 	 	Three months ended
 June 30,	 	 	Six months ended 
June 30,	 	
 	 	2011	 	 	2010	 	 	2011	 	 	2010	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenues	 	$	6,528	 	 	$	5,562	 	 	$	13,039	 	 	$	11,217	 	
Pretax profits	 	 	3,402	 	 	 	2,721	 	 	 	6,389	 	 	 	5,104	 	

-10-

 
 
 9.  Pension and Retirement Plans
All of the Company’s plans that provide retirement and similar benefits are defined contribution plans.  These expenses include the impact of market gains and losses on assets held in deferred compensation plans.  Expenses for the Company’s pension and profit-sharing plans, excess benefit plans and other similar plans for the three and six months ended June 30, 2011 and 2010 are as follows (in thousands):
 
Three months ended	 	 	Six months ended	 	
June 30,	 	 	June 30,	 	
2011	 	 	2010	 	 	2011	 	 	2010	 	
$	2,871	 	 	$	2,200	 	 	$	6,954	 	 	$	4,746	 	
 
10.      Legal and Regulatory Matters
Litigation
On March 1, 2010 Anthony Morangelli and Frank Ercole filed a class action lawsuit in federal district court for the Eastern District of New York seeking unpaid minimum wages and overtime service technician compensation from Roto-Rooter and Chemed.  They also seek payment of penalties, interest and plaintiffs’ attorney fees.  We contest these allegations.  In September 2010, the Court conditionally certified a class of service technicians, excluding those who signed dispute resolution agreements in which they agreed to arbitrate claims arising out of their employment.  In June 2011, the Court granted certification of a class of technicians in 14 states on certain claims. We are unable to estimate our potential liability, if any, with respect to this case.
 
VITAS is party to a class action lawsuit filed in the Superior Court of California, Los Angeles County, in September 2006 by Bernadette Santos, Keith Knoche and Joyce White.  This case alleges failure to pay overtime and failure to provide meal and rest periods to California admissions nurses, chaplains and sales representatives.  The case seeks payment of penalties, interest and Plaintiffs’ attorney fees.  VITAS contests these allegations.  In December 2009, the trial court denied Plaintiffs’ motion for class certification.  In July 2011, the Court of Appeals affirmed denial of class certification on the travel time, meal and rest period claims, and reversed the trial court’s denial on the off-the-clock and sales representation exemption claims. We are unable to estimate our potential liability, if any, with respect to this case.
 
Regardless of outcome, defense of litigation adversely affects us through defense costs, diversion of our time and related publicity.

Regulatory Matters
In May 2009, VITAS received an administrative subpoena from the U.S. Department of Justice requesting VITAS deliver to the Office of Inspector General (“OIG”) for the Department of Health and Human Services documents, patient records, and policy and procedure manuals for headquarters and its Texas programs concerning hospice services provided for the period January 1, 2003 to the date of the letter.  In August 2009, the OIG selected medical records for 59 past and current patients from a Texas program for review.   In February 2010, VITAS received a companion civil investigative demand (“CID”) from the State of Texas Attorney General’s Office, seeking related documents. In September 2010, it received a second CID and a second administrative subpoena seeking related documents.  In April 2011, the U.S. Attorney provided the Company with a copy of a qui tam complaint filed under seal in U.S. District Court for the Northern District of Texas.  In June 2011, the U.S. Attorney provided the company with a partially unsealed second qui tam complaint filed under seal in the U.S. District Court for the Western District of Texas.  In June 2011, the U.S. Attorney also provided the Company with a partially unsealed third qui tam complaint filed under seal in the Northern District of Illinois, Eastern Division.  The complaint and all the filings in each of these actions remain under seal.  The U.S. Attorney has not decided whether to intervene in any of the actions.  We are conferring with the U.S. Attorney regarding the Company’s defenses to each complaint’s allegations.   We can neither predict the outcome of this investigation nor estimate our potential liability, if any.  We believe that we are in compliance with Medicare and Medicaid rules and regulations applicable to hospice providers.
 
In April 2005, the OIG served VITAS with civil subpoenas relating to VITAS’ alleged failure to appropriately bill Medicare and Medicaid for hospice services.  As part of this investigation, the OIG selected medical records for 320 past and current patients from VITAS’ three largest programs for review.  It also sought policies and procedures dating back to 1998 covering admissions, certifications, recertifications and discharges.  During the third quarter of 2005 and again in May 2006, the OIG requested additional information from us.  The Court dismissed a related qui tam complaint filed in U.S. District Court for the Southern District of Florida with prejudice in July 2007.  The plaintiffs appealed this dismissal, which the Court of Appeals affirmed.  The government continues to investigate the complaint’s allegations.  In March 2009, we received a letter from the government reiterating the basis of their investigation.  We are unable to estimate our potential liability, if any, with respect to this matter. We believe that we are in compliance with Medicare and Medicaid rules and regulations applicable to hospice providers.

-11-

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

11.      Related Party Agreement
VITAS has pharmacy services agreements ("Agreements") with Omnicare, Inc. and its subsidiaries (“OCR”) whereby OCR provides specified pharmacy services for VITAS and its hospice patients in geographical areas served by both VITAS and OCR.  The Agreements renew automatically for one-year terms.  Either party may cancel the Agreements at the end of any term by giving 90 days prior written notice.  VITAS made purchases from OCR of $9.8 million and $8.9 million for the three months ended June 30, 2011 and 2010, respectively.  VITAS made purchases from OCR of $19.1 million and $17.5 million for the six months ended June 30, 2011 and 2010, respectively.
 
Mr. Joel Gemunder retired as President and CEO of OCR during the third quarter of 2010 and is a director of the Company.  Ms. Andrea Lindell is a director of both OCR and the Company.  We believe that the terms of the Agreements are no less favorable to VITAS than we could negotiate with an unrelated party.

12.  Cash Overdrafts and Cash Equivalents
Included in accounts payable at June 30, 2011 is cash overdrafts payable of $3.3 million (December 31, 2010 - $11.1 million).

From time to time throughout the year, we invest excess cash in money market funds or repurchase agreements directly with major commercial banks.  We do not physically hold the collateral for repurchase agreements, but the term is less than 10 days.  We closely monitor the creditworthiness of the institutions with which we invest our overnight funds and the quality of the collateral underlying those investments.  We had $30.1 million in cash equivalents as of   June 30, 2011.  There was $45.5 million in cash equivalents as of December 31, 2010.  The weighted average rate of return for our cash equivalents was 0.2% for June 30, 2011 and 0.1% for December 31, 2010.

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

The following shows the carrying value, fair value and the hierarchy for our financial instruments as of June 30, 2011 (in thousands):
 
 	 	 	 	 	Fair Value Measure	 	
 	 	Carrying Value	 	 	Quoted Prices in Active Markets for Identical Assets (Level 1)	 	 	Significant Other Observable Inputs (Level 2)	 	 	Significant Unobservable Inputs (Level 3)	 	
Mutual fund investments of deferred compensation plans held in trust	 	$	33,066	 	 	$	33,066	 	 	$	-	 	 	$	-	 	
Long-term debt	 	 	162,932	 	 	 	195,593	 	 	 	-	 	 	 	-	 	

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

 
-12-

 

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

 	 	Three months ended 
June 30,	 	 	Six months ended 
June 30,	 	
 	 	2011	 	 	2010	 	 	2011	 	 	2010	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Shares repurchased	 	 	-	 	 	 	114,900	 	 	 	341,513	 	 	 	146,275	 	
Weighted average price per share	 	$	-	 	 	$	54.99	 	 	$	63.79	 	 	$	53.32	 	
 
15.  Business Combinations
On April 29, 2011, our VITAS segment completed an acquisition of the operating assets of Family Comfort Hospice which is based in Alabama.  This acquisition adds three Central-Alabama locations serving ten counties to VITAS’ network of hospice programs.  We made no acquisitions within the Roto-Rooter segment.  The purchase price of this acquisition is allocated as follows (in thousands):

Working capital	 	$	382	 	
Identifiable intangible assets	 	 	664	 	
Goodwill	 	 	2,345	 	
Other assets and liabilities - net	 	 	298	 	
 	 	$	3,689	 	

 
-13-

 
 
16.  Guarantor Subsidiaries
         Our 1.875% Notes are fully and unconditionally guaranteed on an unsecured, jointly and severally liable basis by certain of our 100% owned subsidiaries.  The following unaudited, condensed, consolidating financial data presents the composition of the parent company (Chemed), the guarantor subsidiaries and the non-guarantor subsidiaries as of June 30, 2011 and December 31, 2010 for the balance sheet, the three and six months ended June 30, 2011 and June 30, 2010 for the income statement and the six months ended June 30, 2011  and  June 30, 2010 for the statement of cash flows (dollars in thousands):
 
June 30, 2011	 	 	 	 	 	Guarantor	 	 	Non-Guarantor	 	 	Consolidating	 	 	 	 	
 	 	Parent	 	 	Subsidiaries	 	 	Subsidiaries	 	 	Adjustments	 	 	Consolidated	
ASSETS	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	$	53,191	 	 	 	$	(8,582	)	 	 	$	6,332	 	 	 	$	-	 	 	 	$	50,941	 	
Accounts receivable, less allowances	 	 	904	 	 	 	 	116,492	 	 	 	 	885	 	 	 	 	-	 	 	 	 	118,281	 	
Intercompany receivables	 	 	-	 	 	 	 	190,014	 	 	 	 	-	 	 	 	 	(190,014	)	 	 	 	-	 	
Inventories	 	 	-	 	 	 	 	7,889	 	 	 	 	793	 	 	 	 	-	 	 	 	 	8,682	 	
Current deferred income taxes	 	 	(1,291	)	 	 	 	15,202	 	 	 	 	141	 	 	 	 	-	 	 	 	 	14,052	 	
Prepaid income taxes	 	 	4,081	 	 	 	 	(2,442	)	 	 	 	(339	)	 	 	 	-	 	 	 	 	1,300	 	
Prepaid expenses	 	 	903	 	 	 	 	9,250	 	 	 	 	191	 	 	 	 	-	 	 	 	 	10,344	 	
     Total current assets	 	 	57,788	 	 	 	 	327,823	 	 	 	 	8,003	 	 	 	 	(190,014	)	 	 	 	203,600	 	
Investments of deferred compensation plans	 	 	-	 	 	 	 	-	 	 	 	 	33,066	 	 	 	 	-	 	 	 	 	33,066	 	
Properties and equipment, at cost, less accumulated depreciation	 	 	12,043	 	 	 	 	66,916	 	 	 	 	2,512	 	 	 	 	-	 	 	 	 	81,471	 	
Identifiable intangible assets less accumulated amortization	 	 	-	 	 	 	 	56,358	 	 	 	 	-	 	 	 	 	-	 	 	 	 	56,358	 	
Goodwill	 	 	-	 	 	 	 	456,208	 	 	 	 	4,585	 	 	 	 	-	 	 	 	 	460,793	 	
Other assets	 	 	8,262	 	 	 	 	4,433	 	 	 	 	2,630	 	 	 	 	-	 	 	 	 	15,325	 	
Investments in subsidiaries	 	 	752,252	 	 	 	 	20,712	 	 	 	 	-	 	 	 	 	(772,964	)	 	 	 	-	 	
          Total assets	 	$	830,345	 	 	 	$	932,450	 	 	 	$	50,796	 	 	 	$	(962,978	)	 	 	$	850,613	 	
LIABILITIES AND STOCKHOLDERS' EQUITY	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Accounts payable	 	$	(6	)	 	 	$	38,994	 	 	 	$	471	 	 	 	$	-	 	 	 	$	39,459	 	
Intercompany payables	 	 	182,383	 	 	 	 	-	 	 	 	 	7,631	 	 	 	 	(190,014	)	 	 	 	-	 	
Income taxes	 	 	504	 	 	 	 	2,354	 	 	 	 	(762	)	 	 	 	-	 	 	 	 	2,096	 	
Accrued insurance	 	 	228	 	 	 	 	34,915	 	 	 	 	-	 	 	 	 	-	 	 	 	 	35,143	 	
Accrued compensation	 	 	1,996	 	 	 	 	41,098	 	 	 	 	539	 	 	 	 	-	 	 	 	 	43,633	 	
Other current liabilities	 	 	1,923	 	 	 	 	12,918	 	 	 	 	131	 	 	 	 	-	 	 	 	 	14,972	 	
      Total current liabilities	 	 	187,028	 	 	 	 	130,279	 	 	 	 	8,010	 	 	 	 	(190,014	)	 	 	 	135,303	 	
Deferred income taxes	 	 	(11,774	)	 	 	 	45,482	 	 	 	 	(9,655	)	 	 	 	-	 	 	 	 	24,053	 	
Long-term debt	 	 	162,932	 	 	 	 	-	 	 	 	 	-	 	 	 	 	-	 	 	 	 	162,932	 	
Deferred compensation liabilities	 	 	-	 	 	 	 	-	 	 	 	 	32,255	 	 	 	 	-	 	 	 	 	32,255	 	
Other liabilities	 	 	2,825	 	 	 	 	3,328	 	 	 	 	583	 	 	 	 	-	 	 	 	 	6,736	 	
Stockholders' equity	 	 	489,334	 	 	 	 	753,361	 	 	 	 	19,603	 	 	 	 	(772,964	)	 	 	 	489,334	 	
     Total liabilities and stockholders' equity	 	$	830,345	 	 	 	$	932,450	 	 	 	$	50,796	 	 	 	$	(962,978	)	 	 	$	850,613	 	

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

 
-14-

 
 
For the three months ended June 30, 2011	 	 	 	 	 	Guarantor	 	 	 	Non-Guarantor	 	 	 	Consolidating	 	 	 	 	 	
 	 	Parent	 	 	Subsidiaries	 	 	Subsidiaries	 	 	Adjustments	 	 	Consolidated	
 Continuing Operations	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Service revenues and sales	 	$	-	 	 	 	$	326,406	 	 	 	$	6,954	 	 	 	$	-	 	 	 	$	333,360	 	
 Cost of services provided and goods sold	 	 	-	 	 	 	 	235,855	 	 	 	 	3,742	 	 	 	 	-	 	 	 	 	239,597	 	
 Selling, general and administrative expenses	 	 	5,574	 	 	 	 	42,441	 	 	 	 	2,409	 	 	 	 	-	 	 	 	 	50,424	 	
 Depreciation	 	 	237	 	 	 	 	5,919	 	 	 	 	202	 	 	 	 	-	 	 	 	 	6,358	 	
 Amortization	 	 	465	 	 	 	 	674	 	 	 	 	-	 	 	 	 	-	 	 	 	 	1,139	 	
      Total costs and expenses	 	 	6,276	 	 	 	 	284,889	 	 	 	 	6,353	 	 	 	 	-	 	 	 	 	297,518	 	
      Income/ (loss) from operations	 	 	(6,276	)	 	 	 	41,517	 	 	 	 	601	 	 	 	 	-	 	 	 	 	35,842	 	
 Interest expense	 	 	(3,321	)	 	 	 	(140	)	 	 	 	-	 	 	 	 	-	 	 	 	 	(3,461	)	
 Other (expense)/income - net	 	 	3,862	 	 	 	 	(3,888	)	 	 	 	740	 	 	 	 	-	 	 	 	 	714	 	
      Income/ (loss) before income taxes	 	 	(5,735	)	 	 	 	37,489	 	 	 	 	1,341	 	 	 	 	-	 	 	 	 	33,095	 	
 Income tax (provision)/ benefit	 	 	1,783	 	 	 	 	(14,083	)	 	 	 	(509	)	 	 	 	-	 	 	 	 	(12,809	)	
 Equity in net income of subsidiaries	 	 	24,238	 	 	 	 	875	 	 	 	 	-	 	 	 	 	(25,113	)	 	 	 	-	 	
 Net income	 	$	20,286	 	 	 	$	24,281	 	 	 	$	832	 	 	 	$	(25,113	)	 	 	$	20,286	 	

For the three months ended June 30, 2010	 	 	 	 	 	Guarantor	 	 	 	Non-Guarantor	 	 	 	Consolidating	 	 	 	 	 	
 	 	Parent	 	 	Subsidiaries	 	 	Subsidiaries	 	 	Adjustments	 	 	Consolidated	
 Continuing Operations	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Service revenues and sales	 	$	-	 	 	 	$	308,825	 	 	 	$	6,170	 	 	 	$	-	 	 	 	$	314,995	 	
 Cost of services provided and goods sold	 	 	-	 	 	 	 	220,455	 	 	 	 	3,247	 	 	 	 	-	 	 	 	 	223,702	 	
 Selling, general and administrative expenses	 	 	6,508	 	 	 	 	42,302	 	 	 	 	1,146	 	 	 	 	-	 	 	 	 	49,956	 	
 Depreciation	 	 	244	 	 	 	 	5,749	 	 	 	 	201	 	 	 	 	-	 	 	 	 	6,194	 	
 Amortization	 	 	366	 	 	 	 	921	 	 	 	 	-	 	 	 	 	-	 	 	 	 	1,287	 	
      Total costs and expenses	 	 	7,118	 	 	 	 	269,427	 	 	 	 	4,594	 	 	 	 	-	 	 	 	 	281,139	 	
      Income/ (loss) from operations	 	 	(7,118	)	 	 	 	39,398	 	 	 	 	1,576	 	 	 	 	-	 	 	 	 	33,856	 	
 Interest expense	 	 	(2,888	)	 	 	 	(111	)	 	 	 	-	 	 	 	 	-	 	 	 	 	(2,999	)	
 Other (expense)/income - net	 	 	3,670	 	 	 	 	(3,562	)	 	 	 	(98	)	 	 	 	-	 	 	 	 	10	 	
      Income/ (loss) before income taxes	 	 	(6,336	)	 	 	 	35,725	 	 	 	 	1,478	 	 	 	 	-	 	 	 	 	30,867	 	
 Income tax (provision)/ benefit	 	 	2,150	 	 	 	 	(13,567	)	 	 	 	(595	)	 	 	 	-	 	 	 	 	(12,012	)	
 Equity in net income of subsidiaries	 	 	23,041	 	 	 	 	994	 	 	 	 	-	 	 	 	 	(24,035	)	 	 	 	-	 	
 Net income	 	$	18,855	 	 	 	$	23,152	 	 	 	$	883	 	 	 	$	(24,035	)	 	 	$	18,855	 	

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

For the six months ended June 30, 2010	 	 	 	 	 	Guarantor	 	 	 	Non-Guarantor	 	 	 	Consolidating	 	 	 	 	 	
 	 	Parent	 	 	Subsidiaries	 	 	Subsidiaries	 	 	Adjustments	 	 	Consolidated	
 Continuing Operations	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Service revenues and sales	 	$	-	 	 	 	$	611,827	 	 	 	$	11,981	 	 	 	$	-	 	 	 	$	623,808	 	
 Cost of services provided and goods sold	 	 	-	 	 	 	 	436,655	 	 	 	 	6,184	 	 	 	 	-	 	 	 	 	442,839	 	
 Selling, general and administrative expenses	 	 	12,206	 	 	 	 	83,619	 	 	 	 	2,669	 	 	 	 	-	 	 	 	 	98,494	 	
 Depreciation	 	 	380	 	 	 	 	10,882	 	 	 	 	401	 	 	 	 	-	 	 	 	 	11,663	 	
 Amortization	 	 	696	 	 	 	 	1,815	 	 	 	 	-	 	 	 	 	-	 	 	 	 	2,511	 	
      Total costs and expenses	 	 	13,282	 	 	 	 	532,971	 	 	 	 	9,254	 	 	 	 	-	 	 	 	 	555,507	 	
      Income/ (loss) from operations	 	 	(13,282	)	 	 	 	78,856	 	 	 	 	2,727	 	 	 	 	-	 	 	 	 	68,301	 	
 Interest expense	 	 	(5,739	)	 	 	 	(212	)	 	 	 	-	 	 	 	 	-	 	 	 	 	(5,951	)	
 Other (expense)/income - net	 	 	7,291	 	 	 	 	(7,199	)	 	 	 	104	 	 	 	 	-	 	 	 	 	196	 	
      Income/ (loss) before income taxes	 	 	(11,730	)	 	 	 	71,445	 	 	 	 	2,831	 	 	 	 	-	 	 	 	 	62,546	 	
 Income tax (provision)/ benefit	 	 	3,894	 	 	 	 	(27,106	)	 	 	 	(1,121	)	 	 	 	-	 	 	 	 	(24,333	)	
 Equity in net income of subsidiaries	 	 	46,049	 	 	 	 	1,820	 	 	 	 	-	 	 	 	 	(47,869	)	 	 	 	-	 	
 Net income	 	$	38,213	 	 	 	$	46,159	 	 	 	$	1,710	 	 	 	$	(47,869	)	 	 	$	38,213	 	

-15-

 
 
For the six months ended June 30, 2011	 	 	 	 	 	Guarantor	 	 	 	Non-Guarantor	 	 	 	 	
 	 	Parent	 	 	Subsidiaries	 	 	Subsidiaries	 	 	Consolidated	
 Cash Flow from Operating Activities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Net cash provided/(used) by operating activities	 	$	3,594	 	 	 	$	48,849	 	 	 	$	(1,316	)	 	 	$	51,127	 	
 Cash Flow from Investing Activities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
  Capital expenditures	 	 	(5	)	 	 	 	(14,085	)	 	 	 	(870	)	 	 	 	(14,960	)	
  Business combinations, net of cash acquired	 	 	-	 	 	 	 	(3,689	)	 	 	 	-	 	 	 	 	(3,689	)	
  Other sources/(uses) - net	 	 	(103	)	 	 	 	(771	)	 	 	 	5	 	 	 	 	(869	)	
       Net cash used by investing activities	 	 	(108	)	 	 	 	(18,545	)	 	 	 	(865	)	 	 	 	(19,518	)	
 Cash Flow from Financing Activities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
  Change in cash overdrafts payable	 	 	698	 	 	 	 	(8,512	)	 	 	 	-	 	 	 	 	(7,814	)	
  Change in intercompany accounts	 	 	26,733	 	 	 	 	(28,804	)	 	 	 	2,071	 	 	 	 	-	 	
  Dividends paid to shareholders	 	 	(5,967	)	 	 	 	-	 	 	 	 	-	 	 	 	 	(5,967	)	
  Purchases of treasury stock	 	 	(25,438	)	 	 	 	-	 	 	 	 	(44	)	 	 	 	(25,482	)	
  Proceeds from exercise of stock options	 	 	7,698	 	 	 	 	-	 	 	 	 	-	 	 	 	 	7,698	 	
  Realized excess tax benefit on share based compensation	 	 	3,339	 	 	 	 	-	 	 	 	 	-	 	 	 	 	3,339	 	
  Debt issuance cost	 	 	(2,723	)	 	 	 	-	 	 	 	 	-	 	 	 	 	(2,723	)	
  Other sources - net	 	 	41	 	 	 	 	1	 	 	 	 	322	 	 	 	 	364	 	
       Net cash provided/(used) by financing activities	 	 	4,381	 	 	 	 	(37,315	)	 	 	 	2,349	 	 	 	 	(30,585	)	
 Net increase/(decrease) in cash and cash equivalents	 	 	7,867	 	 	 	 	(7,011	)	 	 	 	168	 	 	 	 	1,024	 	
 Cash and cash equivalents at beginning of year	 	 	45,324	 	 	 	 	(1,571	)	 	 	 	6,164	 	 	 	 	49,917	 	
 Cash and cash equivalents at end of period	 	$	53,191	 	 	 	$	(8,582	)	 	 	$	6,332	 	 	 	$	50,941	 	

For the six months ended June 30, 2010	 	 	 	 	 	Guarantor	 	 	 	Non-Guarantor	 	 	 	 	
 	 	Parent	 	 	Subsidiaries	 	 	Subsidiaries	 	 	Consolidated	
 Cash Flow from Operating Activities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Net cash provided/(used) by operating activities	 	$	(3,737	)	 	 	$	24,585	 	 	 	$	(571	)	 	 	$	20,277	 	
 Cash Flow from Investing Activities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
  Capital expenditures	 	 	(10	)	 	 	 	(11,454	)	 	 	 	(478	)	 	 	 	(11,942	)	
 Business combinations, net of cash acquired	 	 	-	 	 	 	 	(30	)	 	 	 	-	 	 	 	 	(30	)	
  Other uses - net	 	 	(89	)	 	 	 	(88	)	 	 	 	(20	)	 	 	 	(197	)	
       Net cash used by investing activities	 	 	(99	)	 	 	 	(11,572	)	 	 	 	(498	)	 	 	 	(12,169	)	
 Cash Flow from Financing Activities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
  Change in cash overdrafts payable	 	 	1,338	 	 	 	 	(2,652	)	 	 	 	-	 	 	 	 	(1,314	)	
  Change in intercompany accounts	 	 	9,830	 	 	 	 	(11,478	)	 	 	 	1,648	 	 	 	 	-	 	
  Dividends paid to shareholders	 	 	(5,481	)	 	 	 	-	 	 	 	 	-	 	 	 	 	(5,481	)	
  Purchases of treasury stock	 	 	(10,149	)	 	 	 	-	 	 	 	 	-	 	 	 	 	(10,149	)	
  Proceeds from exercise of stock options	 	 	3,475	 	 	 	 	-	 	 	 	 	-	 	 	 	 	3,475	 	
  Realized excess tax benefit on share based compensation	 	 	702	 	 	 	 	1,100	 	 	 	 	-	 	 	 	 	1,802	 	
  Other sources - net	 	 	-	 	 	 	 	-	 	 	 	 	223	 	 	 	 	223	 	
       Net cash provided/ (used) by financing activities	 	 	(285	)	 	 	 	(13,030	)	 	 	 	1,871	 	 	 	 	(11,444	)	
 Net increase/(decrease) in cash and cash equivalents	 	 	(4,121	)	 	 	 	(17	)	 	 	 	802	 	 	 	 	(3,336	)	
 Cash and cash equivalents at beginning of year	 	 	109,331	 	 	 	 	(1,221	)	 	 	 	4,306	 	 	 	 	112,416	 	
 Cash and cash equivalents at end of period	 	$	105,210	 	 	 	$	(1,238	)	 	 	$	5,108	 	 	 	$	109,080	 	

-16-

 

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

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

The following is a summary of the key operating results for the three and six months ended June 30, 2011 and 2010 (in thousands except per share amounts):

 	 	Three months ended June 30,	 	 	Six months ended June 30,	 	 	
 	 	2011	 	 	2010	 	 	2011	 	 	2010	 	 	
Service revenues and sales	 	$	333,360	 	 	$	314,995	 	 	$	664,278	 	 	$	623,808	 	 	
Net income	 	$	20,286	 	 	$	18,855	 	 	$	38,387	 	 	$	38,213	 	 	
Diluted EPS	 	$	0.94	 	 	$	0.82	 	 	$	1.78	 	 	$	1.66	 	 	
Adjusted EBITDA	 	$	46,657	 	 	$	44,886	 	 	$	92,275	 	 	$	87,957	 	 	
Adjusted EBITDA as a % of revenue	 	 	14.0	%	 	 	14.2	%	 	 	13.9	%	 	 	14.1	%	 	
 
EBITDA and Adjusted EBITDA are not measures derived in accordance with GAAP.  We use Adjusted EBITDA as a measure of earnings for our LTIP awards.  We provide EBITDA and Adjusted EBITDA to help readers evaluate our operating results, compare our operating performance with that of similar companies that have different capital structures and help evaluate our ability to meet future debt service, capital expenditure and working capital requirements.  Our EBITDA and Adjusted EBITDA should not be considered in isolation or as a substitute for comparable measures presented in accordance with GAAP.  A reconciliation of our net income to our EBITDA and Adjusted EBITDA is presented on pages 28 and 29.

For the three months ended June 30, 2011, the increase in consolidated service revenues and sales was driven by a 7.3% increase at VITAS and a 2.2% increase at Roto-Rooter.  The increase in service revenues at VITAS was a result of increased average daily census (“ADC”) of 5.8%, driven by an increase in admissions of 6.0%, combined with Medicare price increases of approximately 2.1%.  Roto-Rooter was driven by a 1.5% price and mix shift increase and a 0.04% increase in job count. When excluding the impact of changes in the number of Company-owned branches, unit-for-unit job count at Roto-Rooter decreased 1.6% during the quarter. The remaining Roto-Rooter revenue increase is related mainly to our independent contractor operations. Consolidated net income increased 7.6% driven mainly by the increase in revenue.  Diluted EPS increased 14.6% as a result of the increase in net income and a lower number of shares outstanding.  Adjusted EBITDA as a percent of revenue was virtually flat when compared with the prior year. See page 30 for additional VITAS operating metrics.
 
For the six months ended June 30, 2011, the increase in consolidated service revenues and sales was driven by a 6.5% increase at VITAS and a 6.5% increase at Roto-Rooter.  The increase in service revenues at VITAS was a result of increased average daily census (“ADC”) of 5.3%, driven by an increase in admissions of 6.2%, combined with Medicare price increases of approximately 2.1%.  Roto-Rooter was driven by a 3.4% price and mix shift increase and a 3.0% increase in job count. Consolidated net income was essential flat over prior year.  Diluted EPS increased 7.2% as a result of a lower number of shares outstanding.  Adjusted EBITDA as a percent of revenue was virtually flat when compared with the prior year.
 
VITAS expects to achieve full-year 2011 revenue growth, prior to Medicare cap, of 7.5% to 8.5%.  Admissions are estimated to increase approximately 6.5% to 7.0%.  Adjusted EBITDA margin prior to Medicare cap is estimated to be 15.3% to 15.8%.  Roto-Rooter expects full-year 2011 revenue growth of 6.5% to 8.5%.  The revenue estimate is a result of increased pricing of 3.0%, a favorable mix shift to higher revenue jobs, with job count growth estimated at 0.0% to 2.0%.  Adjusted EBITDA margin for 2011 is estimated to be in the range of 17.0% to 18.0%.  We anticipate that our operating income and cash flows will be sufficient to operate our businesses and meet any commitments for the foreseeable future.

-17-

 
 
Financial Condition
Liquidity and Capital Resources
Material changes in the balance sheet accounts from December 31, 2010 to June 30, 2011 include the following:
 
• 	A $5.3 million increase in accounts receivable primarily at VITAS, related to timing of receipts from Medicare.	

• 	A $16.4 million decrease in accounts payable related to timing of payments and a reduction in cash overdrafts payable.	

• 	A $3.9 million increase in accrued compensation related to timing of payroll and bonus payments.	
 
Net cash provided by operating activities increased $30.9 million due primarily to the change in accounts receivable offset by the change 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 $29.5 million in standby letters of credit as of June 30, 2011, for insurance purposes.  Issued letters of credit reduce our available credit under the revolving credit agreement.  As of June 30, 2011, we have approximately $320.5 million of unused lines of credit available and eligible to be drawn down under our revolving credit facility, excluding the $150 million expansion feature. Management believes its liquidity and sources of capital are satisfactory for the Company’s needs in the foreseeable future.

Commitments and Contingencies
Collectively, the terms of our credit agreements require us to meet various financial covenants, to be tested quarterly.  We are in compliance with all financial and other debt covenants as of June 30, 2011 and anticipate remaining in compliance throughout 2011.
 
On March 1, 2010 Anthony Morangelli and Frank Ercole filed a class action lawsuit in federal district court for the Eastern District of New York seeking unpaid minimum wages and overtime service technician compensation from Roto-Rooter and Chemed.  They also seek payment of penalties, interest and plaintiffs’ attorney fees.  We contest these allegations.  In September 2010, the Court conditionally certified a class of service technicians, excluding those who signed dispute resolution agreements in which they agreed to arbitrate claims arising out of their employment.  In June 2011, the Court granted certification of a class of technicians in 14 states on certain claims. We are unable to estimate our potential liability, if any, with respect to this case.
 
VITAS is party to a class action lawsuit filed in the Superior Court of California, Los Angeles County, in September 2006 by Bernadette Santos, Keith Knoche and Joyce White.  This case alleges failure to pay overtime and failure to provide meal and rest periods to California admissions nurses, chaplains and sales representatives.  The case seeks payment of penalties, interest and Plaintiffs’ attorney fees.  VITAS contests these allegations.  In December 2009, the trial court denied Plaintiffs’ motion for class certification.  In July 2011, the Court of Appeals affirmed denial of class certification on the travel time, meal and rest period claims, and reversed the trial court’s denial on the off-the-clock and sales representation exemption claims. We are unable to estimate our potential liability, if any, with respect to this case.

Regardless of outcome, defense of litigation adversely affects us through defense costs, diversion of our time and related publicity.
 
In May 2009, VITAS received an administrative subpoena from the U.S. Department of Justice requesting VITAS deliver to the Office of Inspector General (“OIG”) for the Department of Health and Human Services documents, patient records, and policy and procedure manuals for headquarters and its Texas programs concerning hospice services provided for the period January 1, 2003 to the date of the letter.  In August 2009, the OIG selected medical records for 59 past and current patients from a Texas program for review.   In February 2010, VITAS received a companion civil investigative demand (“CID”) from the State of Texas Attorney General’s Office, seeking related documents. In September 2010, it received a second CID and a second administrative subpoena seeking related documents.  In April 2011, the U.S. Attorney provided the Company with a copy of a qui tam complaint filed under seal in U.S. District Court for the Northern District of Texas.  In June 2011, the U.S. Attorney provided the company with a partially unsealed second qui tam complaint filed under seal in the U.S. District Court for the Western District of Texas.  In June 2011, the U.S. Attorney also provided the Company with a partially unsealed third qui tam complaint filed under seal in the Northern District of Illinois, Eastern Division.  The complaint and all the filings in each of these actions remain under seal.  The U.S. Attorney has not decided whether to intervene in any of the actions.  We are conferring with the U.S. Attorney regarding the Company’s defenses to each complaint’s allegations.   We can neither predict the outcome of this investigation nor estimate our potential liability, if any.  We believe that we are in compliance with Medicare and Medicaid rules and regulations applicable to hospice providers.

-18-

 
 
In April 2005, the OIG served VITAS with civil subpoenas relating to VITAS’ alleged failure to appropriately bill Medicare and Medicaid for hospice services.  As part of this investigation, the OIG selected medical records for 320 past and current patients from VITAS’ three largest programs for review.  It also sought policies and procedures dating back to 1998 covering admissions, certifications, recertifications and discharges.  During the third quarter of 2005 and again in May 2006, the OIG requested additional information from us.  The Court dismissed a related qui tam complaint filed in U.S. District Court for the Southern District of Florida with prejudice in July 2007.  The plaintiffs appealed this dismissal, which the Court of Appeals affirmed.  The government continues to investigate the complaint’s allegations.  In March 2009, we received a letter from the government reiterating the basis of their investigation.  We are unable to estimate our potential liability, if any, with respect to this matter. We believe that we are in compliance with Medicare and Medicaid rules and regulations applicable to hospice providers.
 
The costs to comply with either of these investigations were not material for any period presented.  Regardless of outcome, responding to the subpoenas can adversely affect us through defense costs, diversion of our time and related publicity.

Results of Operations
Three months ended June 30, 2011 versus  2010 - Consolidated Results
 
Our service revenues and sales for the second quarter of 2011 increased 5.8% versus services and sales revenues for the second quarter of 2010.  Of this increase, $16.5 million was attributable to VITAS and $1.9 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	 	$	13,555	 	 	 	8.3	 	
          Continuous care	 	 	2,111	 	 	 	5.7	 	
          General inpatient	 	 	1,194	 	 	 	4.6	 	
          Medicare cap	 	 	(403	)	 	 	-1151.4	 	
Roto-Rooter	 	 	 	 	 	 	 	 	
          Plumbing	 	 	852	 	 	 	2.0	 	
          Drain cleaning	 	 	425	 	 	 	1.3	 	
          Other	 	 	631	 	 	 	5.0	 	
                                      Total	 	$	18,365	 	 	 	5.8	 	
 
       The increase in VITAS’ revenues for the second quarter of 2011 versus the second quarter of 2010 was a result of increased ADC of 5.8% driven by an increase in admissions of 6.0%, combined with Medicare reimbursement rate increases of approximately 2.1%.  The ADC increase was driven by a 6.0% increase in routine homecare, an increase of 3.2% in general inpatient and an increase of a 3.1% 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 second quarter of 2011 versus 2010 is attributable to a 2.1% increase in the average price per job and a 0.2% increase in the number of jobs performed.  The increase in the plumbing price per job was a result of favorable job mix shift to more expensive jobs such as excavation.  Our excavation job count increased by 7.9% compared to 2010.  On average, the price per job for our excavation jobs is approximately 5 times greater than the price per job of other plumbing jobs.  Drain cleaning revenues for the second quarter of 2011 versus 2010 reflect a 1.2% increase in price per job and a 0.1% increase in the number of jobs performed.  The increase in other revenues is attributable to an increase in our independent contractor operations.
 
The consolidated gross margin was 28.1% in the second quarter of 2011 as compared with 29.0% in the second quarter of 2010.  On a segment basis, VITAS’ gross margin was 21.9% in the second quarter of 2011 and 22.7% in the second quarter of 2010.  The decrease in VITAS’ gross margin is attributable to a Medicare cap accrual in 2011 versus an Medicare cap reversal in 2010, 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 second quarter of 2011 as compared with 45.2% for the second quarter of 2010.

 
-19-

 
 
Selling, general and administrative expenses (“SG&A”) for the second quarter of 2011 and 2010 comprise (in thousands):
 
 	 	Three months ended 
June 30,	 	
 	 	2011	 	 	2010	 	
SG&A expenses before long-term incentive	 	 	 	 	 	 	 	
    compensation and the impact of market gains and	 	 	 	 	 	 	 	
    losses of deferred compensation plans	 	$	49,681	 	 	$	48,240	 	 	
Long-term incentive compensation	 	 	-	 	 	 	1,799	 	 	
Impact of market value gains on liabilities held in	 	 	 	 	 	 	 	 	 	
    deferred compensation trusts	 	 	743	 	 	 	(83	)	 	
     Total SG&A expenses	 	$	50,424	 	 	$	49,956	 	 	

Normal salary increases and revenue related expense increases between periods accounts for the 3.0% increase in SG&A expenses before long-term incentive compensation and the impact of market gains of deferred compensation plans.

Depreciation expense increased 2.6% to $6.4 million when compared to the second quarter of 2010 due mainly to the installation of patient software at our VITAS segment during the second quarter of 2010.

 Other income for the second quarter of 2011 and 2010 comprise (in thousands):

 	 	Three months ended 
June 30,	 	
 	 	2011	 	 	2010	 	
Market value gains/(losses) on assets held in deferred	 	 	 	 	 	 	 	 	
   compensation trusts	 	$	743	 	 	 	$	(83	)	 	
Interest income	 	 	62	 	 	 	 	150	 	 	
Gain/(loss) on disposal of property and equipment	 	 	32	 	 	 	 	(58	)	 	
Other	 	 	(123	)	 	 	 	1	 	 	
     Total other income	 	$	714	 	 	 	$	10	 	 	

Our effective income tax rate decreased to 38.7% in the second quarter of 2011 from 38.9% when compared with the second quarter of 2010.

Net income for both periods included the following after-tax items/adjustments that reduced after-tax earnings (in thousands):
 
 	 	Three months ended
June 30,	
 	 	2011	 	 	2010	
VITAS	 	 	 	 	 	 	 	
          Legal expenses of OIG investigation	 	$	(301	)	 	 	$	(74	)	
          Acquisition expenses	 	 	(31	)	 	 	 	-	 	
Roto-Rooter	 	 	 	 	 	 	 	 	 	
          Expenses of class action litigation	 	 	(113	)	 	 	 	(63	)	
          Acquisition expenses	 	 	8	 	 	 	 	-	 	
Corporate	 	 	 	 	 	 	 	 	 	
          Stock option expense	 	 	(1,620	)	 	 	 	(1,484	)	
          Noncash impact of change in accounting for convertible debt	 	 	(1,155	)	 	 	 	(1,068	)	
          Long-term incentive compensation	 	 	-	 	 	 	 	(1,124	)	
Total	 	$	(3,212	)	 	 	$	(3,813	)	

 
-20-

 
 
Three months ended June 30, 2011 versus 2010 - Segment Results

The change in after-tax earnings for the second quarter of 2011 versus the second quarter of 2010 is due to (dollars in thousands):

 	 	Increase/(Decrease)	 	
 	 	Amount	 	 	Percent	 	
VITAS	 	$	308	 	 	 	1.7	 	
Roto-Rooter	 	 	232	 	 	 	2.6	 	
Corporate	 	 	891	 	 	 	10.8	 	
 	 	$	1,431	 	 	 	7.6	 	

Six months ended June 30, 2011 versus  2010 - Consolidated Results
 
Our service revenues and sales for the first six months of 2011 increased 6.5% versus services and sales revenues for the first six months of 2010.  Of this increase, $29.2 million was attributable to VITAS and $11.3 million was attributable to Roto-Rooter.  The following chart shows the components of those changes (dollar amounts in thousands):
 
 	 	Increase/(Decrease)	 	
 	 	Amount	 	 	Percent	 	
VITAS	 	 	 	 	 	 	
          Routine homecare	 	$	24,981	 	 	 	7.8	 	
          Continuous care	 	 	3,062	 	 	 	4.1	 	
          General inpatient	 	 	2,288	 	 	 	4.4	 	
          Medicare cap	 	 	(1,141	)	 	 	-64.0	 	
Roto-Rooter	 	 	 	 	 	 	 	 	
          Plumbing	 	 	6,979	 	 	 	8.6	 	
          Drain cleaning	 	 	2,518	 	 	 	3.7	 	
          Other	 	 	1,783	 	 	 	7.2	 	
                    Total	 	$	40,470	 	 	 	6.5	 	
 
The increase in VITAS’ revenues for the first six months of 2011 versus the first six months of 2010 was a result of increased ADC of 5.3% driven by an increase in admissions of 6.2%, combined with Medicare reimbursement rate increases of approximately 2.1%.  The ADC increase was driven by a 5.6% increase in routine homecare, an increase of 2.5% in general inpatient and an increase of 1.3% 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 six months of 2011 versus 2010 is attributable to a 5.5% increase in the average price per job and a 3.4% increase in the number of jobs performed.  The increase in the plumbing price per job was a result of favorable job mix shift to more expensive jobs such as excavation.  Our excavation job count increased by 18.9% compared to 2010.  On average, the price per job for our excavation jobs is approximately 5 times greater than the price per job of other plumbing jobs.  Drain cleaning revenues for the second quarter of 2011 versus 2010 reflect a 2.9% increase in job count and a 0.9% increase in the average price per job.  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 28.2% in the first six months of 2011 as compared with 29.0% in the first six months of 2010.  On a segment basis, VITAS’ gross margin was 21.8% in the first six months of 2011 and 22.7% in the first six months of 2010.  The decrease in VITAS’ gross margin is attributable to a smaller Medicare cap reversal in 2011, higher labor costs for admissions and Medicare compliance personnel and the opening of 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 first six months of 2011 as compared with 45.2% for the first six months of 2010.  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 casualty insurance also contributed to the margin decline.

 
-21-

 
 
Selling, general and administrative expenses (“SG&A”) for the first six months of 2011 and 2010 comprise (in thousands):
 
 	 	Six months ended 
June 30,	 	
 	 	2011	 	 	2010	 	
SG&A expenses before long-term incentive	 	 	 	 	 	 	
    compensation and the impact of market gains and	 	 	 	 	 	 	
    losses of deferred compensation plans	 	$	100,259	 	 	$	96,590	 	
Long-term incentive compensation	 	 	3,012	 	 	 	1,799	 	
Impact of market value gains on liabilities held in	 	 	 	 	 	 	 	 	
    deferred compensation trusts	 	 	2,807	 	 	 	105	 	
     Total SG&A expenses	 	$	106,078	 	 	$	98,494	 	
 
Normal salary increases and revenue related expense increases between periods accounts for the 3.8% increase in SG&A expenses before long-term incentive compensation and the impact of market gains of deferred compensation plans.
 
Depreciation expense increased 8.4% to $12.6 million for the first six months of 2011 due mainly to the installation of patient capture software at our VITAS segment in the second quarter of 2010.

 Other income for the second quarter of 2011 and 2010 comprise (in thousands):
 
 	 	Six months ended 
June 30,	
 	 	2011	 	 	2010	
Market value gains on assets held in deferred	 	 	 	 	 	 	 	
   compensation trusts	 	$	2,807	 	 	 	$	105	 	
Interest income	 	 	123	 	 	 	 	225	 	
Gain/(loss) on disposal of property and equipment	 	 	11	 	 	 	 	(152	)	
Other	 	 	(125	)	 	 	 	18	 	
     Total other income	 	$	2,816	 	 	 	$	196	 	
 
Our effective income tax rate decreased to 38.6% in the first six months of 2011 from 38.9% when compared with the first six months of 2010.

Net income for both periods included the following after-tax items/adjustments that reduced after-tax earnings (in thousands):
 
 	 	Six months ended
June 30,	
 	 	2011	 	 	2010	
VITAS	 	 	 	 	 	 	 	
          Legal expenses of OIG investigation	 	$	(618	)	 	 	$	(173	)	
          Acquisition expenses	 	 	(71	)	 	 	 	-	 	
Roto-Rooter	 	 	 	 	 	 	 	 	 	
          Expenses of class action litigation	 	 	(414	)	 	 	 	(63	)	
          Acquisition expenses	 	 	4	 	 	 	 	-	 	
Corporate	 	 	 	 	 	 	 	 	 	
          Stock option expense	 	 	(2,843	)	 	 	 	(2,782	)	
          Noncash impact of change in accounting for convertible debt	 	 	(2,287	)	 	 	 	(2,115	)	
          Long-term incentive compensation	 	 	(1,880	)	 	 	 	(1,124	)	
Total	 	$	(8,109	)	 	 	$	(6,257	)	

 
-22-

 

Six months ended June 30, 2011 versus 2010 - Segment Results

The change in after-tax earnings for the first six months of 2011 versus the first six months of 2010 is due to (dollars in thousands):

 	 	Increase/(Decrease)	 	
 	 	Amount	 	 	Percent	 	
VITAS	 	$	(5	)	 	 	 	0.0	 	
Roto-Rooter	 	 	929	 	 	 	 	5.6	 	
Corporate	 	 	(750	)	 	 	 	-4.9	 	
 	 	$	174	 	 	 	 	0.5	 	

 
 
-23-

 

CHEMED CORPORATION AND SUBSIDIARY COMPANIES	
CONSOLIDATING STATEMENT OF INCOME	
FOR THE THREE MONTHS ENDED JUNE 30, 2011	
 (in thousands)(unaudited)	

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

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

 	 	 	 	 	 	 	 	
After-tax benefit/(cost):	 	 	VITAS	 	 	 	Roto-Rooter	 	 	 	Corporate	 	 	 	Consolidated	 	
     Stock option expense	 	$	-	 	 	$	-	 	 	$	(1,620	)	 	$	(1,620	)	
     Noncash impact of accounting for convertible debt	 	 	-	 	 	 	-	 	 	 	(1,155	)	 	 	(1,155	)	
     Expenses of class action litigation	 	 	-	 	 	 	(113	)	 	 	-	 	 	 	(113	)	
     Acquisition expenses	 	 	(31	)	 	 	8	 	 	 	-	 	 	 	(23	)	
     Legal expenses of OIG investigation	 	 	(301	)	 	 	-	 	 	 	-	 	 	 	(301	)	
          Total	 	$	(332	)	 	$	(105	)	 	$	(2,775	)	 	$	(3,212	)	

-24-

 

CONSOLIDATING STATEMENT OF INCOME	
FOR THE THREE MONTHS ENDED JUNE 30, 2010	
 (in thousands)(unaudited)	

 	 	VITAS	 	 	Roto-Rooter	 	 	 
Corporate	 	 	 Chemed
Consolidated	 	
 2010 (a)	 	 	 	 	 	 	 	 	 	 	 	 	
 Service revenues and sales	 	$	226,638	 	 	$	88,357	 	 	$	-	 	 	$	314,995	 	
 Cost of services provided and goods sold	 	 	175,257	 	 	 	48,445	 	 	 	-	 	 	 	223,702	 	
 Selling, general and administrative expenses	 	 	18,404	 	 	 	24,192	 	 	 	7,360	 	 	 	49,956	 	
 Depreciation	 	 	4,103	 	 	 	1,950	 	 	 	141	 	 	 	6,194	 	
 Amortization	 	 	788	 	 	 	132	 	 	 	367	 	 	 	1,287	 	
 Total costs and expenses	 	 	198,552	 	 	 	74,719	 	 	 	7,868	 	 	 	281,139	 	
 Income/(loss) from operations	 	 	28,086	 	 	 	13,638	 	 	 	(7,868	)	 	 	33,856	 	
 Interest expense	 	 	(48	)	 	 	(64	)	 	 	(2,887	)	 	 	(2,999	)	
 Intercompany interest income/(expense)	 	 	1,350	 	 	 	773	 	 	 	(2,123	)	 	 	-	 	
 Other income/(expense)—net	 	 	45	 	 	 	14	 	 	 	(49	)	 	 	10	 	
 Income/(expense) before income taxes	 	 	29,433	 	 	 	14,361	 	 	 	(12,927	)	 	 	30,867	 	
 Income taxes	 	 	(11,152	)	 	 	(5,501	)	 	 	4,641	 	 	 	(12,012	)	
 Net income/(loss)	 	$	18,281	 	 	$	8,860	 	 	$	(8,286	)	 	$	18,855	 	

(a) The following amounts are included in net income (in thousands):	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	VITAS	 	 	 	Roto-Rooter	 	 	 	Corporate	 	 	 	Chemed Consolidated	 	
Pretax benefit/(cost):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
     Stock option expense	 	$	-	 	 	$	-	 	 	$	(2,346	)	 	$	(2,346	)	
     Long-term incentive compensation	 	 	-	 	 	 	-	 	 	 	(1,799	)	 	 	(1,799	)	
     Noncash impact of accounting for convertible debt	 	 	-	 	 	 	-	 	 	 	(1,688	)	 	 	(1,688	)	
     Expenses of class action litigation	 	 	-	 	 	 	(105	)	 	 	-	 	 	 	(105	)	
     Legal expenses of OIG investigation	 	 	(118	)	 	 	-	 	 	 	-	 	 	 	(118	)	
          Total	 	$	(118	)	 	$	(105	)	 	$	(5,833	)	 	$	(6,056	)	

 	 	 	 	 	 	 	 	
 	 	 	VITAS	 	 	 	Roto-Rooter	 	 	 	Corporate	 	 	 	Consolidated	 	
After-tax benefit/(cost):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
     Stock option expense	 	$	-	 	 	$	-	 	 	$	(1,484	)	 	$	(1,484	)	
     Long-term incentive compensation	 	 	-	 	 	 	-	 	 	 	(1,124	)	 	 	(1,124	)	
     Noncash impact of accounting for convertible debt	 	 	-	 	 	 	-	 	 	 	(1,068	)	 	 	(1,068	)	
     Expenses of class action litigation	 	 	-	 	 	 	(63	)	 	 	-	 	 	 	(63	)	
     Legal expenses of OIG investigation	 	 	(74	)	 	 	-	 	 	 	-	 	 	 	(74	)	
          Total	 	$	(74	)	 	$	(63	)	 	$	(3,676	)	 	$	(3,813	)	
 
-25-

 

CHEMED CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATING STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2011
 (in thousands)(unaudited)	

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

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

 	 	 	VITAS	 	 	 	Roto-Rooter	 	 	 	Corporate	 	 	 	Consolidated	 	
After-tax benefit/(cost):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
     Stock option expense	 	$	-	 	 	$	-	 	 	$	(2,843	)	 	$	(2,843	)	
     Long-term incentive compensation	 	 	-	 	 	 	-	 	 	 	(2,287	)	 	 	(2,287	)	
     Noncash impact of accounting for convertible debt	 	 	-	 	 	 	-	 	 	 	(1,880	)	 	 	(1,880	)	
     Expenses of class action litigation	 	 	-	 	 	 	(414	)	 	 	-	 	 	 	(414	)	
     Acquisition expenses	 	 	(71	)	 	 	4	 	 	 	-	 	 	 	(67	)	
     Legal expenses of OIG investigation	 	 	(618	)	 	 	-	 	 	 	-	 	 	 	(618	)	
          Total	 	$	(689	)	 	$	(410	)	 	$	(7,010	)	 	$	(8,109	)	
 
-26-

 
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2010
 (in thousands)(unaudited)	

 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 2010 (a)	 	 
VITAS	 	 	 
Roto-Rooter	 	 	 
Corporate	 	 	 Chemed
Consolidated	 	
 Service revenues and sales	 	$	449,578	 	 	$	174,230	 	 	$	-	 	 	$	623,808	 	
 Cost of services provided and goods sold	 	 	347,350	 	 	 	95,489	 	 	 	-	 	 	 	442,839	 	
 Selling, general and administrative expenses	 	 	36,550	 	 	 	48,950	 	 	 	12,994	 	 	 	98,494	 	
 Depreciation	 	 	7,587	 	 	 	3,901	 	 	 	175	 	 	 	11,663	 	
 Amortization	 	 	1,559	 	 	 	255	 	 	 	697	 	 	 	2,511	 	
 Total costs and expenses	 	 	393,046	 	 	 	148,595	 	 	 	13,866	 	 	 	555,507	 	
 Income/(loss) from operations	 	 	56,532	 	 	 	25,635	 	 	 	(13,866	)	 	 	68,301	 	
 Interest expense	 	 	(80	)	 	 	(132	)	 	 	(5,739	)	 	 	(5,951	)	
 Intercompany interest income/(expense)	 	 	2,639	 	 	 	1,475	 	 	 	(4,114	)	 	 	-	 	
 Other income/(expense)—net	 	 	6	 	 	 	24	 	 	 	166	 	 	 	196	 	
 Income/(expense) before income taxes	 	 	59,097	 	 	 	27,002	 	 	 	(23,553	)	 	 	62,546	 	
 Income taxes	 	 	(22,378	)	 	 	(10,329	)	 	 	8,374	 	 	 	(24,333	)	
 Net income/(loss)	 	$	36,719	 	 	$	16,673	 	 	$	(15,179	)	 	$	38,213	 	

(a) The following amounts are included in net income (in thousands):	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	VITAS	 	 	 	Roto-Rooter	 	 	 	Corporate	 	 	 	Chemed
Consolidated	 	
Pretax benefit/(cost):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
     Stock option expense	 	$	-	 	 	$	-	 	 	$	(4,397	)	 	$	(4,397	)	
     Long-term incentive compensation	 	 	-	 	 	 	-	 	 	 	(1,799	)	 	 	(1,799	)	
     Noncash impact of accounting for convertible debt	 	 	-	 	 	 	-	 	 	 	(3,343	)	 	 	(3,343	)	
     Expenses of class action litigation	 	 	-	 	 	 	(105	)	 	 	-	 	 	 	(105	)	
     Legal expenses of OIG investigation	 	 	(278	)	 	 	-	 	 	 	-	 	 	 	(278	)	
          Total	 	$	(278	)	 	$	(105	)	 	$	(9,539	)	 	$	(9,922	)	

 	 	 	VITAS	 	 	 	Roto-Rooter	 	 	 	Corporate	 	 	 	Consolidated	 	
After-tax benefit/(cost):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
     Stock option expense	 	$	-	 	 	$	-	 	 	$	(2,782	)	 	$	(2,782	)	
     Long-term incentive compensation	 	 	-	 	 	 	-	 	 	 	(2,115	)	 	 	(2,115	)	
     Noncash impact of accounting for convertible debt	 	 	-	 	 	 	-	 	 	 	(1,124	)	 	 	(1,124	)	
     Expenses of class action litigation	 	 	-	 	 	 	(63	)	 	 	-	 	 	 	(63	)	
     Legal expenses of OIG investigation	 	 	(173	)	 	 	-	 	 	 	-	 	 	 	(173	)	
          Total	 	$	(173	)	 	$	(63	)	 	$	(6,021	)	 	$	(6,257	)	
 
-27-

 
 
Consolidating Summary and Reconciliation of Adjusted EBITDA	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Chemed Corporation and Subsidiary Companies	 	 	 	 	 	 	 	 	 	 	 	 	
(in thousands)	 	 	 	 	 	 	 	 	 	 	Chemed	 	
 For the three months ended June 30, 2011	VITAS	 	Roto-Rooter	Corporate	 	Consolidated	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 Net income/(loss)	 	$	18,589	 	 	$	9,092	 	 	$	(7,395	)	 	$	20,286	 	
 Add/(deduct):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Interest expense	 	 	62	 	 	 	77	 	 	 	3,322	 	 	 	3,461	 	
 Income taxes	 	 	11,175	 	 	 	5,542	 	 	 	(3,908	)	 	 	12,809	 	
 Depreciation	 	 	4,199	 	 	 	2,025	 	 	 	134	 	 	 	6,358	 	
 Amortization	 	 	520	 	 	 	155	 	 	 	464	 	 	 	1,139	 	
 EBITDA	 	 	34,545	 	 	 	16,891	 	 	 	(7,383	)	 	 	44,053	 	
 Add/(deduct):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Legal expenses of OIG investigation	 	 	486	 	 	 	-	 	 	 	-	 	 	 	486	 	
 Acquisition expenses	 	 	51	 	 	 	(12	)	 	 	-	 	 	 	39	 	
 Expenses of class action litigation	 	 	-	 	 	 	186	 	 	 	-	 	 	 	186	 	
 Stock option expense	 	 	-	 	 	 	-	 	 	 	2,562	 	 	 	2,562	 	
 Advertising cost adjustment	 	 	-	 	 	 	(607	)	 	 	-	 	 	 	(607	)	
 Interest income	 	 	(7	)	 	 	(9	)	 	 	(46	)	 	 	(62	)	
 Intercompany interest income/(expense)	 	 	(1,215	)	 	 	(652	)	 	 	1,867	 	 	 	-	 	
 Adjusted EBITDA	 	$	33,860	 	 	$	15,797	 	 	$	(3,000	)	 	$	46,657	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	Chemed	 	
 For the three months ended June 30, 2010	VITAS	 	Roto-Rooter	Corporate	 	Consolidated	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Net income/(loss)	 	$	18,281	 	 	$	8,860	 	 	$	(8,286	)	 	$	18,855	 	
 Add/(deduct):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Interest expense	 	 	48	 	 	 	64	 	 	 	2,887	 	 	 	2,999	 	
 Income taxes	 	 	11,152	 	 	 	5,501	 	 	 	(4,641	)	 	 	12,012	 	
 Depreciation	 	 	4,103	 	 	 	1,950	 	 	 	141	 	 	 	6,194	 	
 Amortization	 	 	788	 	 	 	132	 	 	 	367	 	 	 	1,287	 	
 EBITDA	 	 	34,372	 	 	 	16,507	 	 	 	(9,532	)	 	 	41,347	 	
 Add/(deduct):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Legal expenses of OIG investigation	 	 	118	 	 	 	-	 	 	 	-	 	 	 	118	 	
 Long-term incentive compensation	 	 	-	 	 	 	-	 	 	 	1,799	 	 	 	1,799	 	
 Expenses of class action litigation	 	 	-	 	 	 	105	 	 	 	-	 	 	 	105	 	
 Stock option expense	 	 	-	 	 	 	-	 	 	 	2,346	 	 	 	2,346	 	
 Advertising cost adjustment	 	 	-	 	 	 	(679	)	 	 	-	 	 	 	(679	)	
 Interest income	 	 	(90	)	 	 	(25	)	 	 	(35	)	 	 	(150	)	
 Intercompany interest income/(expense)	 	 	(1,350	)	 	 	(773	)	 	 	2,123	 	 	 	-	 	
 Adjusted EBITDA	 	$	33,050	 	 	$	15,135	 	 	$	(3,299	)	 	$	44,886	 	
 
-28-

 

Consolidating Summary and Reconciliation of Adjusted EBITDA	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Chemed Corporation and Subsidiary Companies	 	 	 	 	 	 	 	 	 	 	 	 	
(in thousands)	 	 	 	 	 	 	 	 	 	 	Chemed	 	
 For the six months ended June 30, 2011	VITAS	 	Roto-Rooter	Corporate	 	Consolidated	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 Net income/(loss)	 	$	36,714	 	 	$	17,602	 	 	$	(15,929	)	 	$	38,387	 	
 Add/(deduct):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Interest expense	 	 	110	 	 	 	142	 	 	 	6,453	 	 	 	6,705	 	
 Income taxes	 	 	22,257	 	 	 	10,828	 	 	 	(8,971	)	 	 	24,114	 	
 Depreciation	 	 	8,366	 	 	 	4,009	 	 	 	271	 	 	 	12,646	 	
 Amortization	 	 	1,003	 	 	 	287	 	 	 	819	 	 	 	2,109	 	
 EBITDA	 	 	68,450	 	 	 	32,868	 	 	 	(17,357	)	 	 	83,961	 	
 Add/(deduct):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Legal expenses of OIG investigation	 	 	997	 	 	 	-	 	 	 	-	 	 	 	997	 	
 Acquisition expenses	 	 	115	 	 	 	(6	)	 	 	-	 	 	 	109	 	
 Expenses of class action litigation	 	 	-	 	 	 	681	 	 	 	-	 	 	 	681	 	
 Long-term incentive compensation	 	 	-	 	 	 	-	 	 	 	3,012	 	 	 	3,012	 	
 Stock option expense	 	 	-	 	 	 	-	 	 	 	4,495	 	 	 	4,495	 	
 Advertising cost adjustment	 	 	-	 	 	 	(857	)	 	 	-	 	 	 	(857	)	
 Interest income	 	 	(44	)	 	 	(16	)	 	 	(63	)	 	 	(123	)	
 Intercompany interest income/(expense)	 	 	(2,428	)	 	 	(1,291	)	 	 	3,719	 	 	 	-	 	
 Adjusted EBITDA	 	$	67,090	 	 	$	31,379	 	 	$	(6,194	)	 	$	92,275	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	Chemed	 	
 For the six months ended June 30, 2010	VITAS	 	Roto-Rooter	Corporate	 	Consolidated	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Net income/(loss)	 	$	36,719	 	 	$	16,673	 	 	$	(15,179	)	 	$	38,213	 	
 Add/(deduct):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Interest expense	 	 	80	 	 	 	132	 	 	 	5,739	 	 	 	5,951	 	
 Income taxes	 	 	22,378	 	 	 	10,329	 	 	 	(8,374	)	 	 	24,333	 	
 Depreciation	 	 	7,587	 	 	 	3,901	 	 	 	175	 	 	 	11,663	 	
 Amortization	 	 	1,559	 	 	 	255	 	 	 	697	 	 	 	2,511	 	
 EBITDA	 	 	68,323	 	 	 	31,290	 	 	 	(16,942	)	 	 	82,671	 	
 Add/(deduct):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Legal expenses of OIG investigation	 	 	278	 	 	 	-	 	 	 	-	 	 	 	278	 	
 Expenses of class action litigation	 	 	-	 	 	 	105	 	 	 	-	 	 	 	105	 	
 Long-term incentive compensation	 	 	-	 	 	 	-	 	 	 	1,799	 	 	 	1,799	 	
 Stock option expense	 	 	-	 	 	 	-	 	 	 	4,397	 	 	 	4,397	 	
 Advertising cost adjustment	 	 	-	 	 	 	(1,068	)	 	 	-	 	 	 	(1,068	)	
 Interest income	 	 	(135	)	 	 	(27	)	 	 	(63	)	 	 	(225	)	
 Intercompany interest income/(expense)	 	 	(2,639	)	 	 	(1,475	)	 	 	4,114	 	 	 	-	 	
 Adjusted EBITDA	 	$	65,827	 	 	$	28,825	 	 	$	(6,695	)	 	$	87,957	 	
 
-29-

 
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
OPERATING STATISTICS FOR VITAS SEGMENT
(unaudited)	
 
 	 	Three Months Ended June 30,	 	 	Six Months Ended June 30,	 	
OPERATING STATISTICS	 	2011	 	 	2010	 	 	2011	 	 	2010	 	
Net revenue ($000)	 	 	 	 	 	 	 	 	 	 	 	 	
Homecare	 	$	177,067	 	 	$	163,512	 	 	$	345,719	 	 	$	320,738	 	
Inpatient	 	 	27,183	 	 	 	25,989	 	 	 	54,569	 	 	 	52,281	 	
Continuous care	 	 	39,213	 	 	 	37,102	 	 	 	77,838	 	 	 	74,776	 	
Total before Medicare cap allowance	 	$	243,463	 	 	$	226,603	 	 	$	478,126	 	 	$	447,795	 	
Medicare cap allowance	 	 	(368	)	 	 	35	 	 	 	642	 	 	 	1,783	 	
Total	 	$	243,095	 	 	$	226,638	 	 	$	478,768	 	 	$	449,578	 	
Net revenue as a percent of total	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
     before Medicare cap allowance	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Homecare	 	 	72.7	%	 	 	72.1	%	 	 	72.2	%	 	 	71.6	%	
Inpatient	 	 	11.2	 	 	 	11.5	 	 	 	11.4	 	 	 	11.7	 	
Continuous care	 	 	16.1	 	 	 	16.4	 	 	 	16.4	 	 	 	16.7	 	
Total before Medicare cap allowance	 	 	100.0	 	 	 	100.0	 	 	 	100.0	 	 	 	100.0	 	
Medicare cap allowance	 	 	(0.2	)	 	 	-	 	 	 	0.1	 	 	 	0.4	 	
Total	 	 	99.8	%	 	 	100.0	%	 	 	100.1	%	 	 	100.4	%	
Average daily census (days)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Homecare	 	 	9,229	 	 	 	8,345	 	 	 	9,031	 	 	 	8,229	 	
Nursing home	 	 	3,034	 	 	 	3,223	 	 	 	3,034	 	 	 	3,193	 	
Routine homecare	 	 	12,263	 	 	 	11,568	 	 	 	12,065	 	 	 	11,422	 	
Inpatient	 	 	447	 	 	 	433	 	 	 	449	 	 	 	438	 	
Continuous care	 	 	601	 	 	 	583	 	 	 	602	 	 	 	594	 	
Total	 	 	13,311	 	 	 	12,584	 	 	 	13,116	 	 	 	12,454	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Admissions	 	 	15,294	 	 	 	14,423	 	 	 	31,092	 	 	 	29,267	 	
Total Discharges	 	 	14,885	 	 	 	14,132	 	 	 	30,419	 	 	 	28,685	 	
Average length of stay (days)	 	 	77.1	 	 	 	77.4	 	 	 	78.0	 	 	 	76.6	 	
Median length of stay (days)	 	 	14.0	 	 	 	14.0	 	 	 	14.0	 	 	 	14.0	 	
ADC by major diagnosis	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Neurological	 	 	34.2	%	 	 	32.8	%	 	 	34.2	%	 	 	32.8	%	
Cancer	 	 	17.7	 	 	 	18.1	 	 	 	17.8	 	 	 	18.5	 	
Cardio	 	 	11.5	 	 	 	12.0	 	 	 	11.7	 	 	 	11.9	 	
Respiratory	 	 	6.9	 	 	 	6.5	 	 	 	6.8	 	 	 	6.6	 	
Other	 	 	29.7	 	 	 	30.6	 	 	 	29.5	 	 	 	30.2	 	
Total	 	 	100.0	%	 	 	100.0	%	 	 	100.0	%	 	 	100.0	%	
Admissions by major diagnosis	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Neurological	 	 	19.4	%	 	 	18.5	%	 	 	19.5	%	 	 	18.6	%	
Cancer	 	 	32.8	 	 	 	33.8	 	 	 	32.2	 	 	 	33.8	 	
Cardio	 	 	10.8	 	 	 	11.2	 	 	 	11.0	 	 	 	11.4	 	
Respiratory	 	 	8.5	 	 	 	8.5	 	 	 	8.8	 	 	 	8.5	 	
Other	 	 	28.5	 	 	 	28.0	 	 	 	28.5	 	 	 	27.7	 	
Total	 	 	100.0	%	 	 	100.0	%	 	 	100.0	%	 	 	100.0	%	
Direct patient care margins	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Routine homecare	 	 	52.4	%	 	 	52.1	%	 	 	51.7	%	 	 	51.6	%	
Inpatient	 	 	13.3	 	 	 	12.3	 	 	 	13.1	 	 	 	13.7	 	
Continuous care	 	 	20.2	 	 	 	21.2	 	 	 	20.4	 	 	 	21.0	 	
Homecare margin drivers (dollars per patient day)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Labor costs	 	$	53.23	 	 	$	52.52	 	 	$	54.28	 	 	$	53.21	 	
Drug costs	 	 	8.21	 	 	 	7.67	 	 	 	8.08	 	 	 	7.72	 	
Home medical equipment	 	 	6.66	 	 	 	7.26	 	 	 	6.66	 	 	 	7.38	 	
Medical supplies	 	 	2.83	 	 	 	2.46	 	 	 	2.79	 	 	 	2.45	 	
Inpatient margin drivers (dollars per patient day)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Labor costs	 	$	311.26	 	 	$	301.81	 	 	$	308.97	 	 	$	294.27	 	
Continuous care margin drivers (dollars per patient day)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Labor costs	 	$	550.40	 	 	$	530.05	 	 	$	547.29	 	 	$	528.23	 	
Bad debt expense as a percent of revenues	 	 	0.8	%	 	 	0.9	%	 	 	0.7	%	 	 	0.9	%	
 Accounts receivable --	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
  Days of revenue outstanding- excluding unapplied Medicare payments	 	 	37.2	 	 	 	42.3	 	 	n.a.	 	 	n.a.	 	
  Days of revenue outstanding- including unapplied Medicare payments	 	 	36.8	 	 	 	34.1	 	 	n.a.	 	 	n.a.	 	

-30-

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

Item 3.   Quantitative and Qualitative Disclosures about Market Risk
 
Our primary market risk exposure relates to interest rate risk exposure through variable interest rate borrowings.  At June 30, 2011, we had no variable rate debt outstanding.  At June 30, 2011, the fair value of the Notes approximates $195.6 million which have a face value of $187.0 million.

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

PART II OTHER INFORMATION
 
Item 1.    Legal Proceedings

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

Item 1A.  Risk Factors

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

-31-

 
 
Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds
 
Item 2(c). Purchases of Equity Securities by Issuer and Affiliated Purchasers

The following table shows the activity related to our share repurchase programs for the first six months of 2011:

 	 	 	 	 	Weighted	 	 	 Cumulative	 	 	 	 	
 	 	Total Number	 	 	Average	 	 	Shares	 	 	Dollar Amount	 	
 	 	of Shares	 	 	Price Paid Per	 	 	Repurchased Under	 	 	Remaining Under	 	
 	 	Repurchased	 	 	Share	 	 	the Program	 	 	The Program	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
April 2007 Program	 	 	 	 	 	 	 	 	 	 	 	 	
January 1 through January 31, 2011	 	 	300,513	 	 	$	63.62	 	 	 	3,654,157	 	 	$	24,543	 	
February 1 through February 28, 2011	 	 	377	 	 	 	65.03	 	 	 	3,654,534	 	 	 	-	 	
March 1 through March 31, 2011	 	 	-	 	 	 	-	 	 	 	3,654,534	 	 	$	-	 	
 First Quarter Total - April 2007 Program	 	 	300,890	 	 	$	63.62	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
February 2011 Program	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
January 1 through January 31, 2011	 	 	-	 	 	$	-	 	 	 	-	 	 	$	-	 	
February 22, 2011 Authorization	 	 	-	 	 	 	-	 	 	 	-	 	 	 	100,000,000	 	
February 1 through February 28, 2011	 	 	40,623	 	 	 	65.03	 	 	 	40,623	 	 	 	97,358,313	 	
March 1 through March 31, 2011	 	 	-	 	 	 	-	 	 	 	40,623	 	 	$	97,358,313	 	
 First Quarter Total - February 2011 Program	 	 	40,623	 	 	$	65.03	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
April 1 through April 30, 2011	 	 	-	 	 	$	-	 	 	 	-	 	 	$	97,358,313	 	
May 1 through May 31, 2011	 	 	-	 	 	 	-	 	 	 	-	 	 	 	97,358,313	 	
June 1 through June 30, 2011	 	 	-	 	 	 	-	 	 	 	-	 	 	$	97,358,313	 	
 Second Quarter Total - February 2011 Program	 	 	-	 	 	$	-	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
On February 22, 2011 our Board of Directors authorized $100 million under the newly established February 2011 Repurchase Program.	 	

Item 3.    Defaults Upon Senior Securities

None

Item 4.    Removed and reserved

Item 5.    Other Information
 
Item 5(a). Submission of Matters to a Vote of Security Holders:  Disclosure regarding frequency of shareholder advisory vote on Executive Compensation

The company has decided to include a non-binding advisory say-on-pay in its proxy materials every year.

The next required non-binding shareholder advisory vote regarding the frequency interval will be held in six years at the Company’s 2017 Annual Meeting of Shareholders.

-32-

 

Item 6.    Exhibits

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

SIGNATURES

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

 	 	 	 	 	 	Chemed Corporation	 	
 	 	 	 	 	 	(Registrant)	 	

Dated:	 	August 5, 2011	 	By:	 	Kevin J. McNamara	 	
 	 	 	 	 	 	Kevin J. McNamara	 	
 	 	 	 	 	 	(President and Chief Executive Officer)	 	

Dated:	 	August 5, 2011	 	By:	 	David P. Williams	 	
 	 	 	 	 	 	David P. Williams	 	
 	 	 	 	 	 	(Executive Vice President and Chief Financial Officer)	 	

Dated:	 	August 5, 2011	 	By:	 	Arthur V. Tucker, Jr.	 	
 	 	 	 	 	 	Arthur V. Tucker, Jr.	 	
 	 	 	 	 	 	(Vice President and Controller)	 	

-33-

EXHIBIT 31.1

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

I, Kevin J. McNamara, certify that:

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

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

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

4.  The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have:
 
 	a)  designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	

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

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

 	d)  disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter  (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and	
 
 5.  The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board  of directors or persons performing the equivalent function:

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

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

Date:	August 5, 2011	/s/ Kevin J. McNamara	
 	 	Kevin J. McNamara	
 	 	(President and Chief	
 	 	Executive Officer)	

E-1

EXHIBIT 31.2

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

I, David P. Williams, certify that:

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

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

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

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

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

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

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

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

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

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

 	b)  any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.	
 
Date:	August 5, 2011	/s/ David P. Williams	
 	 	David P. Williams	
 	 	(Executive Vice President and Chief Financial Officer)	

E-2

EXHIBIT 31.3

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

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

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

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

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

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

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

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

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

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

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

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

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

Date:	August 5, 2011	/s/ Arthur V. Tucker, Jr.	
 	 	Arthur V. Tucker, Jr.	
 	 	(Vice President and	
 	 	Controller)	

E-3

 EXHIBIT 32.1

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

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

 	1)	the Company’s Quarterly Report on Form 10-Q for the quarter ending June 30, 2011 (“Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and	

 	2)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.	
 
Dated:	August 5, 2011	/s/ Kevin J. McNamara	
 	 	Kevin J. McNamara	
 	 	(President and Chief	
 	 	Executive Officer)	

E-4

EXHIBIT 32.2

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

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

 	1)	the Company’s Quarterly Report on Form 10-Q for the quarter ending June 30, 2011 (“Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and	

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

Dated:	August 5, 2011	/s/ David P. Williams	
 	 	David P. Williams	
 	 	 (Executive Vice President and Chief Financial Officer)	

E-5

EXHIBIT 32.3

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

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

 	1)	the Company’s Quarterly Report on Form 10-Q for the quarter ending June 30, 2011 (“Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and	

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

Dated:	August 5, 2011	/s/ Arthur V. Tucker, Jr.	
 	 	Arthur V. Tucker, Jr.	
 	 	 (Vice President and   Controller)	

E-6