a5809671.htm
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

 
(Mark One)
 
X
Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended September 30, 2008
     
   
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 is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act).

Large accelerated filer
X
 
Accelerated filer
   
Non-accelerated filer
   
Smaller reporting company
 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes
   
No
X
 

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

 
Class
 
Amount
 
Date
 
             
 
Capital Stock $1 Par Value
 
22,369,968 Shares
 
September 30, 2008
 
             
 
 
 
 
 
 
-1-

 
CHEMED CORPORATION AND
SUBSIDIARY COMPANIES

Index
 
 
Page No.
 
 
 
   
   
   
   
   
   
   
 
   
   
 
 
-2-

 
 
 PART I.   FINANCIAL INFORMATION
 CHEMED CORPORATION, INC. AND SUBSIDIARY COMPANIES
 (in thousands except share and per share data)
 
 
   
September 30,
   
December 31,
 
   
2008
   
2007
 
 ASSETS
           
 Current assets
           
 Cash and cash equivalents
  $ 6,804     $ 4,988  
 Accounts receivable less allowances of $10,347 (2007 - $9,746)
    88,206       101,170  
 Inventories
    7,494       6,596  
 Current deferred income taxes
    15,500       14,212  
 Prepaid expenses and other current assets
    7,702       10,496  
 Total current assets
    125,706       137,462  
 Investments of deferred compensation plans held in trust
    28,897       29,417  
 Notes receivable
    -       9,701  
 Properties and equipment, at cost, less accumulated
               
 depreciation of $99, 446 (2007 - $88,639)
    70,970       74,513  
 Identifiable intangible assets less accumulated
               
 amortization of $20,267 (2007 - $17,245)
    62,152       65,177  
 Goodwill
    439,909       438,689  
 Other assets
    16,042       15,411  
 Total Assets
  $ 743,676     $ 770,370  
                 
 LIABILITIES
               
 Current liabilities
               
 Accounts payable
  $ 46,187     $ 46,168  
 Current portion of long-term debt
    10,166       10,162  
 Income taxes
    2,736       4,221  
 Accrued insurance
    34,567       36,337  
 Accrued compensation
    38,385       40,072  
 Other current liabilities
    13,412       13,929  
 Total current liabilities
    145,453       150,889  
 Deferred income taxes
    4,849       5,802  
 Long-term debt
    207,070       214,669  
 Deferred compensation liabilities
    29,133       29,149  
 Other liabilities
    6,123       5,512  
 Total liabilities
    392,628       406,021  
                 
 STOCKHOLDERS' EQUITY
               
 Capital stock - authorized 80,000,000 shares $1 par; issued
               
 29,445,706 shares (2007 - 29,260,791 shares)
    29,446       29,261  
 Paid-in capital
    277,602       267,312  
 Retained earnings
    326,002       278,336  
 Treasury stock - 7,075,738 shares (2007 - 5,299,056 shares), at cost
    (284,436 )     (213,041 )
 Deferred compensation payable in Company stock
    2,434       2,481  
 Total Stockholders' Equity
    351,048       364,349  
 Total Liabilities and Stockholders' Equity
  $ 743,676     $ 770,370  
                 
                 
 See accompanying notes to unaudited financial statements.
 
 
-3-

 
 CHEMED CORPORATION AND SUBSIDIARY COMPANIES
 (in thousands, except per share data)
 
 
Three Months Ended
   
Nine Months Ended
 
 
September 30,
   
September 30,
 
 
2008
 
2007
   
2008
   
2007
 
Continuing Operations
                 
 Service revenues and sales
  $ 288,312     $ 272,503     $ 856,736     $ 814,329  
Cost of services provided and goods sold
                 
 (excluding depreciation)
    202,446       192,882       609,397       569,845  
 Selling, general and administrative expenses
    44,022       42,526       133,070       136,686  
 Depreciation
    5,441       5,220       16,249       14,897  
 Amortization
    1,494       1,292       4,433       3,901  
 Other operating income
    -       -       -       (1,138 )
 Total costs and expenses
    253,403       241,920       763,149       724,191  
 Income from operations
    34,909       30,583       93,587       90,138  
 Interest expense
    (1,570 )     (2,515 )     (4,589 )     (9,657 )
 Loss on extinguishment of debt
    -       (83 )     -       (13,798 )
 Other (expense)/income--net
    (1,908 )     11       (2,211 )     3,068  
 Income before income taxes
    31,431       27,996       86,787       69,751  
 Income taxes
    (13,483 )     (11,080 )     (34,769 )     (27,181 )
 Income from continuing operations
    17,948       16,916       52,018       42,570  
 Discontinued operations, net of income taxes
    -       1,201       -       1,201  
 Net income
  $ 17,948     $ 18,117     $ 52,018     $ 43,771  
                                 
                                 
Earnings Per Share
                         
 Income from continuing operations
  $ 0.80     $ 0.71     $ 2.23     $ 1.72  
 Net income
  $ 0.80     $ 0.76     $ 2.23     $ 1.77  
 Average number of share outstanding
    22,503       23,933       23,285       24,711  
                                 
Diluted Earnings Per Share
                       
 Income from continuing operations
  $ 0.79     $ 0.69     $ 2.20     $ 1.69  
 Net income
  $ 0.79     $ 0.74     $ 2.20     $ 1.73  
 Average number of share outstanding
    22,818       24,466       23,620       25,249  
                                 
 Cash Dividends Per Share
  $ 0.06     $ 0.06     $ 0.18     $ 0.18  
                                 
 
 See accompanying notes to unaudited financial statements.
 
 
-4-

 
 
 CHEMED CORPORATION AND SUBSIDIARY COMPANIES
 
 
 (in thousands)
 
             
   
Nine Months Ended
 
   
September 30,
 
   
2008
   
2007
 
 Cash Flows from Operating Activities
           
 Net income
  $ 52,018     $ 43,771  
 Adjustments to reconcile net income to net cash provided by
               
 operating activities:
               
 Depreciation and amortization
    20,682       18,798  
 Provision for uncollectible accounts receivable
    7,101       6,025  
 Stock option expense
    5,084       3,074  
 Provision for deferred income taxes
    (2,257 )     (1,388 )
 Amortization of debt issuance costs
    760       970  
 Discontinued operations
    -       (1,201 )
 Write off unamortized debt issuance costs
    -       7,235  
 Noncash long-term incentive compensation
    -       6,154  
 Changes in operating assets and liabilities, excluding
               
 amounts acquired in business combinations:
               
 Decrease in accounts receivable
    5,846       4,796  
 Increase in inventories
    (851 )     (246 )
 Decrease in prepaid expenses and other
               
 current assets
    2,804       2,964  
 Decrease in accounts payable and other current liabilities
    (875 )     (9,873 )
 Increase/(decrease) in income taxes
    (329 )     11,825  
 Increase in other assets
    (547 )     (3,109 )
 Increase in other liabilities
    674       3,908  
 Excess tax benefit on share-based compensation
    (1,234 )     (2,506 )
 Other sources/(uses)
    654       (1,054 )
 Net cash provided by operating activities
    89,530       90,143  
 Cash Flows from Investing Activities
               
 Capital expenditures
    (13,103 )     (20,145 )
 Net sources/(uses) from disposals of discontinued operations
    8,980       (6,121 )
 Business combinations, net of cash acquired
    (1,578 )     (1,079 )
 Proceeds from sales of property and equipment
    200       3,072  
 Other uses
    (421 )     (1,415 )
 Net cash used by investing activities
    (5,922 )     (25,688 )
 Cash Flows from Financing Activities
               
 Purchases of treasury stock
    (69,136 )     (130,873 )
 Repayment of long-term debt
    (7,595 )     (215,644 )
 Dividends paid
    (4,352 )     (4,441 )
 Increase in cash overdraft payable
    (1,913 )     2,554  
 Excess tax benefit on share-based compensation
    1,234       2,506  
 Issuance of capital stock
    290       2,429  
 Proceeds from issuance  of long-term debt
    -       300,000  
 Purchases of note hedges
    -       (55,093 )
 Proceeds from issuance of warrants
    -       27,614  
 Debt issuance costs
    -       (6,887 )
 Other sources/(uses)
    (320 )     836  
 Net cash used by financing activities
    (81,792 )     (76,999 )
 Increase/(Decrease) in Cash and Cash Equivalents
    1,816       (12,544 )
 Cash and cash equivalents at beginning of year
    4,988       29,274  
 Cash and cash equivalents at end of period
  $ 6,804     $ 16,730  
                 
 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, 2007 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, 2007.  Certain 2007 amounts have been reclassified to conform with current period presentation on the balance sheet related to the presentation of Medicaid nursing home pass-through activity at our VITAS subsidiary.

2.  Segments
Service revenues and sales and after-tax earnings by business segment are as follows (in thousands):
 
     
Three months ended
   
Nine months ended
 
     
September 30,
   
September 30,
 
     
2008
   
2007
   
2008
   
2007
 
 Service Revenues and Sales
                       
VITAS
    $ 204,956     $ 188,474     $ 602,589     $ 558,224  
Roto-Rooter
      83,356       84,029       254,147       256,105  
 
Total
  $ 288,312     $ 272,503     $ 856,736     $ 814,329  
Aftertax Earnings
                               
VITAS
    $ 17,561     $ 13,921     $ 45,180     $ 43,062  
Roto-Rooter
      7,957       9,236       25,445       29,233  
 
Total
    25,518       23,157       70,625       72,295  
Corporate
      (7,570 )     (6,241 )     (18,607 )     (29,725 )
Discontinued operations
    -       1,201       -       1,201  
 
Net income
  $ 17,948     $ 18,117     $ 52,018     $ 43,771  
 
 
Beginning on January 1, 2008, the income statement impact of our deferred compensation plans covering Roto-Rooter employees has been classified as a Corporate activity.  Historically, the income statement impact has been recorded as a Roto-Rooter activity.  Due to the volatility in the capital markets, Roto-Rooter’s operational results were being distorted in our management reporting as a result of the activity of the deferred compensation plans.  Our Chief Operating Decision Maker, Kevin McNamara, determined that the income statement impact of Roto-Rooter’s deferred compensation plans is more appropriately classified as a Corporate activity.  Our internal management reporting documents have been changed to reflect this determination.  The comparable prior-year period has been reclassified to conform to the current-year presentation.

3.  Revenue Recognition
Both the VITAS segment and 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 caps, as described below.

As of September 30, 2008, VITAS has approximately $12.1 million in unbilled revenue included in accounts receivable (December 31, 2007 - $9.5 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.  During the past year, the pace of FMR activity has increased industry-wide, resulting in our significant unbilled revenue balances.  We make appropriate provisions to reduce our accounts receivable balance for potential denials of patient service revenue due to FMR activity.
 
-6-

 
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.  As of the date of this filing, for the 2007 and 2008 measurement periods, we estimate that no programs have a required Medicare billing reduction.  Therefore, no revenue reduction for Medicare cap has been recorded for the three or nine-month periods ended September 30, 2008.

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 2008 and 2007 are computed as follows (in thousands, except per share data):
 
   
Income from Continuing Operations
   
Net Income
 
For the Three Months Ended September 30,
 
Income
   
Shares
   
Earnings per Share
   
Income
   
Shares
   
Earnings per Share
 
2008
                                   
Earnings
  $ 17,948       22,503     $ 0.80     $ 17,948       22,503     $ 0.80  
Dilutive stock options
    -       287               -       287          
Nonvested stock awards
    -       28               -       28          
     Diluted earnings
  $ 17,948       22,818     $ 0.79     $ 17,948       22,818     $ 0.79  
2007
                                               
Earnings
  $ 16,916       23,933     $ 0.71     $ 18,117       23,933     $ 0.76  
Dilutive stock options
    -       462               -       462          
Nonvested stock awards
    -       71               -       71          
     Diluted earnings
  $ 16,916       24,466     $ 0.69     $ 18,117       24,466     $ 0.74  
                                     
For the Nine Months Ended September 30,
 
Income
   
Shares
   
Earnings per Share
   
Income
   
Shares
   
Earnings per Share
 
2008
                                               
Earnings
  $ 52,018       23,285     $ 2.23     $ 52,018       23,285     $ 2.23  
Dilutive stock options
    -       305               -       305          
Nonvested stock awards
    -       30               -       30          
     Diluted earnings
  $ 52,018       23,620     $ 2.20     $ 52,018       23,620     $ 2.20  
2007
                                               
Earnings
  $ 42,570       24,711     $ 1.72     $ 43,771       24,711     $ 1.77  
Dilutive stock options
    -       463               -       463          
Nonvested stock awards
    -       75               -       75          
     Diluted earnings
  $ 42,570       25,249     $ 1.69     $ 43,771       25,249     $ 1.73  
 
For each of the three and nine month periods ended September 30, 2008, 829,000 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 quarter.  No stock options were excluded for the comparable period in 2007.

Diluted earnings per share may be impacted in future periods as the result of the issuance of our $200 million Convertible Notes and related purchased call options and sold warrants.  Under EITF 04-8 ”The Effect of Contingently Convertible Instruments on Diluted Earnings per Share” and EITF 90-19, we will not include any shares related to the Convertible Notes in our calculation of diluted earnings per share until our average stock price for a quarter exceeds the conversion price of $80.73.  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.
 
-7-

 
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 by
 
Share
   
Convertible
   
Warrant
   
Incremental
   
under Notes
   
the Company
 
Price
   
Notes
   
Shares
   
Shares (a)
   
Hedges
   
upon Conversion (b)
 
$ 80.73       -       -       -       -       -  
$ 90.73       273,061       -       273,061       (273,061 )     -  
$ 100.73       491,905       -       491,905       (491,905 )     -  
$ 110.73       671,222       118,359       789,581       (671,222 )     118,359  
$ 120.73       820,833       313,764       1,134,597       (820,833 )     313,764  
$ 130.73       947,556       479,274       1,426,830       (947,556 )     479,274  
                                             
 
      (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
 
5.  Other (Expense)/Income -- Net
Other (expense)/income -- net comprise the following (in thousands):
 
     
Three Months Ended
September 30,
   
Nine Months Ended 
September 30,
 
     
2008
   
2007
   
2008
   
2007
 
 
Interest income
  $ 159     $ 897     $ 602     $ 2,608  
 
(Loss)/gain on trading investments of employee benefit trust
    (1,944 )     (522 )     (2,625 )     927  
 
Loss on disposal of property and equipment
    (147 )     (57 )     (260 )     (250 )
 
Other - net
    24       (307 )     72       (217 )
 
     Total other (expense)/income
  $ (1,908 )   $ 11     $ (2,211 )   $ 3,068  
 
6.  Long-Term Debt
We are in compliance with all debt covenants as of September 30, 2008.  We have issued $27.3 million in standby letters of credit as of September 30, 2008 mainly for insurance purposes.  Issued letters of credit reduce our available credit under the revolving credit agreement.  As of September 30, 2008, we have approximately $147.7 million of unused lines of credit available and eligible to be drawn down under our revolving credit facility, excluding the expansion feature.

7.  Stock-Based Compensation Awards
On May 19, 2008, the Compensation/Incentive Committee of the Board of Directors (“CIC”) approved a grant of 508,600 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 $5.3 million and will be recognized ratably over the three year vesting period.  We used the Black-Scholes option valuation method to determine the cumulative compensation expense of the grant.
 
-8-

 
On February 13, 2008, the CIC approved a grant of 40,315 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 $2.1 million and will be recognized ratably over the four-year vesting period.  We assumed no forfeitures in determining the cumulative compensation expense of the grant.

8.  Loans Receivable from Independent Contractors
The Roto-Rooter segment sublicenses with approximately sixty-three independent contractors to operate certain plumbing repair and drain cleaning businesses in lesser-populated areas of the United States and Canada.  As of September 30, 2008, we had notes receivable from our independent contractors totaling $1.7 million (December 31, 2007 - $1.6 million).  In most cases these loans are fully or partially secured by equipment owned by the contractor.  The interest rates on the loans range from zero to 8% per annum and the remaining terms of the loans range from 2 months to 5 years.  During the three months ended September 30, 2008, we recorded revenues of $5.3 million (2007 - $5.3 million) and pretax profits of $2.5 million (2007 - $2.3 million) from our independent contractors.  During the nine months ended September 30, 2008, we recorded revenues of $16.5 million (2007 - $16.2 million) and pretax profits of $7.6 million (2007 - $7.1 million) from our independent contractors.

We have adopted the provisions of Financial Accounting Standards Board ("FASB") Interpretation No. 46R "Consolidation of Variable Interest Entities--an interpretation of Accounting Research Bulletin No. 51 (revised)" ("FIN 46R") relative to our contractual relationships with the independent contractors.  FIN 46R requires the primary beneficiary of a Variable Interest Entity ("VIE") to consolidate the accounts of the VIE.  We have evaluated our relationships with our independent contractors based upon guidance provided in FIN 46R and have concluded that some of the contractors who have loans payable to us may be VIE’s.  We believe consolidation, if required, of the accounts of any VIE’s for which we might be the primary beneficiary would not materially impact our financial position, results of operations or cash flows.

9.  Pension and Retirement Plans
All of the Company’s plans that provide retirement and similar benefits are defined contribution plans.  Expenses for the Company’s pension and profit-sharing plans, excess benefit plans and other similar plans were $838,000 and $2.0 million for the three months ended September 30, 2008 and 2007, respectively.  Expenses for the Company’s pension and profit-sharing plans, excess benefit plans and other similar plans were $6.3 million and $9.7 million for the nine months ended September 30, 2008 and 2007, respectively.

10.  Litigation
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 (“Santos”).  This case alleges failure to pay overtime and failure to provide meal and rest periods to a purported class of California admissions nurses, chaplains and sales representatives.  The case seeks payment of penalties, interest and Plaintiffs’ attorney fees.  VITAS contests these allegations.  The lawsuit is in its early stages and we are unable to estimate our potential liability, if any, with respect to these allegations.

In April 2007, our Roto-Rooter subsidiary was named in a class action lawsuit filed in San Mateo Superior Court by Stanley Ita (“Ita”) alleging class-wide wage and hour violations at one California branch.  This suit alleges failure to provide meal and break periods, credit for work time beginning from the first call to dispatch rather than arrival at first assignment and improper calculations of work time and overtime.  The case sought payment of penalties, interest and Plaintiffs’ attorney fees.  After the suit was filed, we offered a settlement to certain members of the class and paid approximately $200,000.  In January 2008, we agreed to a tentative settlement with the remaining members of the class for approximately $1.8 million.  The tentative settlement was preliminarily approved by the court in May 2008.  Final approval and payment of the settlement was made in August 2008.  The settlement was accrued in the fourth quarter of 2007.

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

11.  OIG Investigation
In April 2005, the Office of Inspector General (“OIG”) for the Department of Health and Human Services served VITAS with civil subpoenas relating to VITAS’ alleged failure to appropriately bill Medicare and Medicaid for hospice services.  As part of this investigation, the OIG selected medical records for 320 past and current patients from VITAS’ three largest programs for review.  It also sought policies and procedures dating back to 1998 covering admissions, certifications, recertifications and discharges.  During the third quarter of 2005 and again in May 2006, the OIG requested additional information from us.  The Court dismissed a related qui tam complaint filed in U.S. District Court for the Southern District of Florida with prejudice in July 2007.  The plaintiffs are appealing this dismissal.  Pretax expenses related to complying with OIG requests were immaterial for the three and nine months ended September 30, 2008 and 2007.
 
-9-

 
The government continues to investigate the complaint’s allegations.  We are unable to predict the outcome of this matter or the impact, if any, that the investigation may have on our business, results of operations, liquidity or capital resources.  Regardless of outcome, responding to the subpoenas and defending the litigation can adversely affect us through defense costs, diversion of our time and related publicity.

12.  Related Party Agreement
In October 2004, VITAS entered into a pharmacy services agreement ("Agreement") with Omnicare, Inc. ("OCR") whereby OCR provides specified pharmacy services for VITAS and its hospice patients in geographical areas served by both VITAS and OCR.  The Agreement has an initial term of three years that renews automatically for one-year terms.  Either party may cancel the Agreement at the end of any term by giving written notice at least 90 days prior to the end of said term.  In June 2004, VITAS entered into a pharmacy services agreement with excelleRx.  The agreement has a one-year term and automatically renews unless either party provides a 90-day written termination notice.  Subsequent to June 2004, OCR acquired excelleRx.  Under both agreements, VITAS made purchases of $8.3 million and $8.6 million for the three months ended September 30, 2008 and 2007, respectively.  Under both agreements, VITAS made purchases of $24.8 million and $25.1 million for the nine months ended September 30, 2008 and 2007, respectively.  VITAS has accounts payable to OCR of $960,000 at September 30, 2008.

Mr. E. L. Hutton is non-executive Chairman of the Board and a director of the Company.  He was a director of OCR until his retirement in the first quarter of 2008 at which time he assumed the honorary post of Chairman Emeritus of OCR’s Board.  Mr. Joel F. Gemunder, President and Chief Executive Officer of OCR., Ms. Andrea Lindell and Ms. Sandra Laney are directors of both OCR and the Company. Mr. Kevin J. McNamara, President, Chief Executive Officer and a director of the Company, is a director emeritus of OCR.  We believe that the terms of these agreements are no less favorable to VITAS than we could negotiate with an unrelated party.

13.  Cash Equivalents and Cash Overdrafts Payable
On September 30, 2008, we had $3.7 million in a mutual fund investing in U.S. Treasury securities.  We closely monitor the creditworthiness of the institutions with which we invest our overnight funds and the quality of the collateral underlying those investments.

Included in accounts payable at September 30, 2008 is cash overdrafts payable of $7.8 million (December 31, 2007 - $9.5 million).

14.  Capital Stock Transactions
On May 19, 2008 our Board of Directors authorized an additional $56 million to the April 2007 stock repurchase program.  For the nine months ended September 30, 2008 and 2007, we repurchased approximately 1.7 million shares at a weighted average cost of $39.73 per share and 2.1 million shares at a weighted average cost of $59.82 per share, respectively.

15.  Fair Value Measurements
On January 1, 2008, we partially adopted the provisions of Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS 157”).  This statement defines a hierarchy which prioritizes the inputs in fair value measurements.  Level 1 measurements are measurements using quoted prices in active markets for identical assets or liabilities.  Level 2 measurements use significant other observable inputs.  Level 3 measurements are measurements using significant unobservable inputs which require a company to develop its own assumptions.  In recording the fair value of assets and liabilities, companies must use the most reliable measurement available.  There was no impact on our financial position or results of operations upon adoption of SFAS 157.   We have elected to partially defer adoption of SFAS 157 related to our goodwill and indefinite lived intangible assets in accordance with FASB Staff Position No. 157-2.

As of September 30, 2008, we hold $28.9 million of investments in mutual funds and company owned life insurance policies in a Rabbi Trust related to certain of our deferred compensation plans.  These investments are valued using quoted prices in active markets for identical investments (Level 1).  We do not hold any financial assets for which the market for that asset is inactive.
 
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16.  Recent Accounting Statements
In June 2008, the EITF reached a consensus on EITF Issue No. 07-5, “Determining Whether an Instrument (or an Embedded Feature) Is Indexed to an Entity’s Own Stock”.  The consensus provides additional guidance when determining whether an option or warrant on an entity’s own shares are eligible for the equity classification provided for in EITF 00-19.  The consensus is effective for fiscal years beginning after December 15, 2008.  We are currently evaluating the impact of this consensus on our outstanding options and warrants issued in connection with our 2007 convertible debt transaction.

In May 2008, the FASB issued Staff Position No. APB 14-1, “Accounting for Convertible Debt Instruments that may be Settled in Cash Upon Conversion (Including Partial Cash Settlement).”  This new guidance requires all convertible debentures classified as Instruments B or C under EITF 90-19 to separately account for the debt and equity pieces of the instrument.   At inception of the convertible instrument, cash flows related to the convertible instrument are to be discounted using a market rate of interest.  This will create a discount at inception to be recorded in equity.  The debt portion is to be accreted to its face value, through interest expense, over the life of the instrument using the effective interest method.  This will result in higher interest expense over the life of the instrument and an increase in equity at the inception of the instrument.  Debt issuance costs are also to be allocated between the debt and equity components using a rationale method.  Finally, the FSP requires that the Company value any embedded features of the instrument, other than the conversion option, as a part of the liability.  The new standard is effective for all fiscal years (and interim periods) beginning after December 15, 2008.  As such, we will adopt the new standard on January 1, 2009.  The FSP is to be applied retrospectively.  Upon adoption, our preliminary estimate is that our $200 million, 1.875% Convertible Debentures issued in May 2007 will have a discount of between $50 million and $60 million.

In May 2008, the FASB issued Statement of Financial Accounting Standard No. 162 “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS 162”).  The purpose of this standard is to provide a consistent framework for determining what accounting principles should be used when preparing U.S. GAAP financial statements.  SFAS 162 categorizes accounting pronouncements in a descending order of authority.  In the instance of potentially conflicting accounting principles, the standard in the highest category must be used.  This statement will be effective 60 days after the SEC approves the Public Company Accounting and Oversight Board’s related amendments.  We believe that SFAS 162 will have no impact on our existing accounting methods.

In December 2007, the FASB issued Statement of Financial Accounting Standard No. 141(R) “Business Combinations (revised 2007)” (“SFAS 141(R)”), which changes certain aspects of the accounting for business combinations.  This Statement retains the fundamental requirements in Statement No. 141 that the purchase method of accounting be used for all business combinations and for an acquirer to be identified for each business combination.  SFAS 141(R) modifies existing accounting guidance in the areas of deal and restructuring costs, acquired contingencies, contingent consideration, in-process research and development, accounting for subsequent tax adjustments and assessing the valuation date.  This Statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. An entity may not apply it before that date.  There will be no impact on our financial statements as a result of the adoption of SFAS 141(R); however our accounting for all business combinations after adoption will comply with the new standard.

In December 2007, the FASB issued Statement of Financial Accounting Standard No. 160 “Non-controlling Interests in Consolidated Financial Statements – an amendment of ARB No. 51” (“SFAS 160”), which requires ownership interests in subsidiaries held by others to be clearly identified, labeled and presented in the consolidated balance sheet within equity but separate from the parent company’s equity.  SFAS 160 also affects the accounting requirements when the parent company either purchases a higher ownership interest or deconsolidates the equity investment.  This Statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. An entity may not apply it before that date.  We currently do not have non-controlling interests in our consolidated financial statements.
 
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17.  Guarantor Subsidiaries
Our 1.875% Notes are fully and unconditionally guaranteed on an unsecured, joint and severally liable basis by certain of our 100% owned subsidiaries.  The following unaudited, condensed, consolidating financial data presents the composition of the parent company (Chemed), the guarantor subsidiaries and the non-guarantor subsidiaries as of September 30, 2008 and December 31, 2007 for the balance sheet and the three and nine months ended September 30, 2008 and 2007 for the income statement and the statement of cash flows (dollars in thousands):
 
As of September 30, 2008
       
Guarantor
   
Non-Guarantor
   
Consolidating
       
   
Parent
   
Subsidiaries
   
Subsidiaries
   
Adjustments
   
Consolidated
 
ASSETS
                             
Cash and cash equivalents
  $ 3,879     $ (94 )   $ 3,019     $ -     $ 6,804  
Accounts receivable, less allowances
    917       86,417       872       -       88,206  
Intercompany receivables
    -       32,805       -       (32,805 )     -  
Inventories
    -       6,828       666       -       7,494  
Current deferred income taxes
    (664 )     15,923       241       -       15,500  
Prepaid expenses and other current assets
    1,427       6,196       79       -       7,702  
     Total current assets
    5,559       148,075       4,877       (32,805 )     125,706  
Investments of deferred compensation plans held in trust
    -       -       28,897       -       28,897  
Properties and equipment, at cost, less accumulated depreciation
    4,355       64,300       2,315       -       70,970  
Identifiable intangible assets less accumulated amortization
    -       62,151       1       -       62,152  
Goodwill
    -       435,352       4,557       -       439,909  
Other assets
    13,208       2,545       289       -       16,042  
Investments in subsidiaries
    552,070       13,022       -       (565,092 )     -  
          Total assets
  $ 575,192     $ 725,445     $ 40,936     $ (597,897 )   $ 743,676  
LIABILITIES AND STOCKHOLDERS' EQUITY
                                 
Accounts payable
  $ (1,881 )   $ 47,700     $ 368     $ -     $ 46,187  
Intercompany payables
    25,420       -       7,385       (32,805 )     -  
Current portion of long-term debt
    10,000       166       -       -       10,166  
Income taxes
    (2,597 )     4,831       502       -       2,736  
Accrued insurance
    (124 )     34,691       -       -       34,567  
Accrued salaries and wages
    2,398       35,526       461       -       38,385  
Other current liabilities
    3,128       10,127       157       -       13,412  
     Total current liabilities
    36,344       133,041       8,873       (32,805 )     145,453  
Deferred income taxes
    (23,224 )     38,387       (10,314 )     -       4,849  
Long-term debt
    207,000       70       -       -       207,070  
Deferred compensation liabilities
    -       -       29,133       -       29,133  
Other liabilities
    4,024       2,080       19       -       6,123  
Stockholders' equity
    351,048       551,867       13,225       (565,092 )     351,048  
     Total liabilities and stockholders' equity
  $ 575,192     $ 725,445     $ 40,936     $ (597,897 )   $ 743,676  
                                         
as of December 31, 2007
         
Guarantor
   
Non-Guarantor
   
Consolidating
         
   
Parent
   
Subsidiaries
   
Subsidiaries
   
Adjustments
   
Consolidated
 
ASSETS
                                       
Cash and cash equivalents
  $ 3,877     $ (1,584 )   $ 2,695     $ -     $ 4,988  
Accounts receivable, less allowances
    706       99,900       564       -       101,170  
Intercompany receivables
    42,241       -       (3,925 )     (38,316 )     -  
Inventories
    -       6,116       480       -       6,596  
Current deferred income taxes
    130       13,964       118       -       14,212  
Prepaid expenses and other current assets
    884       9,521       91       -       10,496  
     Total current assets
    47,838       127,917       23       (38,316 )     137,462  
Investments of deferred compensation plans held in trust
    -       -       29,417       -       29,417  
Note receivable
    9,701       -       -       -       9,701  
Properties and equipment, at cost, less accumulated depreciation
    4,306       68,303       1,904       -       74,513  
Identifiable intangible assets less accumulated amortization
    -       65,176       1       -       65,177  
Goodwill
    -       433,946       4,743       -       438,689  
Other assets
    12,658       2,450       303       -       15,411  
Investments in subsidiaries
    500,952       11,005       -       (511,957 )     -  
          Total assets
  $ 575,455     $ 708,797     $ 36,391     $ (550,273 )   $ 770,370  
LIABILITIES AND STOCKHOLDERS' EQUITY
                                 
Accounts payable
  $ (1,236 )   $ 47,035     $ 369     $ -     $ 46,168  
Intercompany payables
    -       34,992       3,324       (38,316 )     -  
Current portion of long-term debt
    10,000       162       -       -       10,162  
Income taxes
    1,137       3,034       50       -       4,221  
Accrued insurance
    255       36,082       -       -       36,337  
Accrued salaries and wages
    3,882       35,505       685       -       40,072  
Other current liabilities
    2,047       10,486       1,396       -       13,929  
     Total current liabilities
    16,085       167,296       5,824       (38,316 )     150,889  
Deferred income taxes
    (23,174 )     39,247       (10,271 )     -       5,802  
Long-term debt
    214,500       169       -       -       214,669  
Deferred compensation liabilities
    -       -       29,149       -       29,149  
Other liabilities
    3,695       1,797       20       -       5,512  
Stockholders' equity
    364,349       500,288       11,669       (511,957 )     364,349  
     Total liabilities and stockholders' equity
  $ 575,455     $ 708,797     $ 36,391     $ (550,273 )   $ 770,370  
 
-12-

 
For the three months ended September 30, 2008
   
Guarantor
   
Non-Guarantor
   
Consolidating
       
   
Parent
   
Subsidiaries
   
Subsidiaries
   
Adjustments
   
Consolidated
 
 Continuing Operations
                             
 Net sales and service revenues
  $ -     $ 282,103     $ 6,209     $ -     $ 288,312  
 Cost of services provided and goods sold
    -       199,308       3,138       -       202,446  
 Selling, general and administrative expenses
    5,015       39,725       (718 )     -       44,022  
 Depreciation
    130       5,122       189       -       5,441  
 Amortization
    487       1,007       -       -       1,494  
      Total costs and expenses
    5,632       245,162       2,609       -       253,403  
      Income/ (loss) from operations
    (5,632 )     36,941       3,600       -       34,909  
 Interest expense
    (1,480 )     (89 )     (1 )     -       (1,570 )
 Other (expense)/income - net
    1,151       (1,138 )     (1,921 )     -       (1,908 )
      Income/ (loss) before income taxes
    (5,961 )     35,714       1,678       -       31,431  
 Income tax (provision)/ benefit
    1,451       (13,533 )     (1,401 )     -       (13,483 )
 Equity in net income of subsidiaries
    22,458       581       -       (23,039 )     -  
      Income from continuing operations
    17,948       22,762       277       (23,039 )     17,948  
 Net income
  $ 17,948     $ 22,762     $ 277     $ (23,039 )   $ 17,948  
                                         
For the three months ended September 30, 2007
   
Guarantor
   
Non-Guarantor
   
Consolidating
         
   
Parent
   
Subsidiaries
   
Subsidiaries
   
Adjustments
   
Consolidated
 
 Continuing Operations
                                       
 Net sales and service revenues
  $ -     $ 266,382     $ 6,121     $ -     $ 272,503  
 Cost of services provided and goods sold
    -       189,854       3,028       -       192,882  
 Selling, general and administrative expenses
    4,155       37,755       616       -       42,526  
 Depreciation
    123       4,940       157       -       5,220  
 Amortization
    282       1,008       2       -       1,292  
      Total costs and expenses
    4,560       233,557       3,803       -       241,920  
      Income/ (loss) from operations
    (4,560 )     32,825       2,318       -       30,583  
 Interest expense
    (2,169 )     (120 )     (226 )     -       (2,515 )
 Loss on extinguishment of debt
    (83 )     -       -       -       (83 )
 Other (expense)/income - net
    2,838       (2,258 )     (569 )     -       11  
      Income/ (loss) before income taxes
    (3,974 )     30,447       1,523       -       27,996  
 Income tax (provision)/ benefit
    1,570       (11,749 )     (901 )     -       (11,080 )
 Equity in net income of subsidiaries
    20,521       790       -       (21,311 )     -  
      Income from continuing operations
    18,117       19,488       622       (21,311 )     16,916  
 Discontinued Operations
    -       1,201       -       -       1,201  
 Net income
  $ 18,117     $ 20,689     $ 622     $ (21,311 )   $ 18,117  
                                         
For the Nine Months Ending September 30, 2008
   
Guarantor
   
Non-Guarantor
   
Consolidating
         
   
Parent
   
Subsidiaries
   
Subsidiaries
   
Adjustments
   
Consolidated
 
 Continuing Operations
                                       
 Net sales and service revenues
  $ -     $ 837,938     $ 18,798     $ -     $ 856,736  
 Cost of services provided and goods sold
    -       600,110       9,287       -       609,397  
 Selling, general and administrative expenses
    13,544       118,255       1,271       -       133,070  
 Depreciation
    372       15,355       522       -       16,249  
 Amortization
    1,409       3,024       -       -       4,433  
      Total costs and expenses
    15,325       736,744       11,080       -       763,149  
      Income/ (loss) from operations
    (15,325 )     101,194       7,718       -       93,587  
 Interest expense
    (4,256 )     (331 )     (2 )     -       (4,589 )
 Other (expense)/income - net
    4,025       (3,683 )     (2,553 )     -       (2,211 )
      Income/ (loss) before income taxes
    (15,556 )     97,180       5,163       -       86,787  
 Income tax (provision)/ benefit
    4,811       (36,492 )     (3,088 )     -       (34,769 )
 Equity in net income of subsidiaries
    62,763       2,582       -       (65,345 )     -  
      Income from continuing operations
    52,018       63,270       2,075       (65,345 )     52,018  
 Net income
  $ 52,018     $ 63,270     $ 2,075     $ (65,345 )   $ 52,018  
                                         
For the Nine Months Ending September 30, 2007
   
Guarantor
   
Non-Guarantor
   
Consolidating
         
   
Parent
   
Subsidiaries
   
Subsidiaries
   
Adjustments
   
Consolidated
 
 Continuing Operations
                                       
 Net sales and service revenues
  $ -     $ 795,912     $ 18,417     $ -     $ 814,329  
 Cost of services provided and goods sold
    -       560,630       9,215       -       569,845  
 Selling, general and administrative expenses
    14,513       119,397       2,776       -       136,686  
 Depreciation
    366       14,075       456       -       14,897  
 Amortization
    871       3,028       2       -       3,901  
 Other operating income
    (1,138 )     -       -       -       (1,138 )
      Total costs and expenses
    14,612       697,130       12,449       -       724,191  
      Income/ (loss) from operations
    (14,612 )     98,782       5,968       -       90,138  
 Interest expense
    (9,065 )     (365 )     (227 )     -       (9,657 )
 Loss on extinguishment of debt
    (13,798 )     -       -       -       (13,798 )
 Other income - net
    12,436       (8,885 )     (483 )     -       3,068  
      Income/ (loss) before income taxes
    (25,039 )     89,532       5,258       -       69,751  
 Income tax (provision)/ benefit
    9,439       (34,182 )     (2,438 )     -       (27,181 )
 Equity in net income of subsidiaries- Non GS
    59,371       2,988       -       (62,359 )     -  
      Income from continuing operations
    43,771       58,338       2,820       (62,359 )     42,570  
 Discontinued Operations
    -       1,201       -       -       1,201  
 Net income
  $ 43,771     $ 59,539     $ 2,820     $ (62,359 )   $ 43,771  
                                         
 
-13-

 
For the nine months ended September 30, 2008
       
Guarantor
   
Non-Guarantor
       
   
Parent
   
Subsidiaries
   
Subsidiaries
   
Consolidated
 
 Cash Flow from Operating Activities:
                       
 Net cash (used)/provided by operating activities
  $ (6,959 )   $ 94,811     $ 1,678     $ 89,530  
 Cash Flow from Investing Activities:
                               
  Capital expenditures
    (429 )     (11,685 )     (989 )     (13,103 )
  Business combinations, net of cash acquired
    -       (1,578 )     -       (1,578 )
  Net proceeds from sale of discontinued operations
    8,980       -       -       8,980  
  Proceeds from sale of property and equipment
    10       162       28       200  
  Other sources and uses - net
    (495 )     84       (10 )     (421 )
       Net cash provided/ (used) by investing activities
    8,066       (13,017 )     (971 )     (5,922 )
 Cash Flow from Financing Activities:
                               
  Decrease in cash overdrafts payable
    (629 )     (1,284 )     -       (1,913 )
  Change in intercompany accounts
    79,010       (79,144 )     134       -  
  Dividends paid to shareholders
    (4,352 )     -       -       (4,352 )
  Purchases of treasury stock
    (69,136 )     -       -       (69,136 )
  Proceeds from exercise of stock options
    290       -       -       290  
  Realized excess tax benefit on share based compensation
    1,234       -       -       1,234  
  Repayment of long-term debt
    (7,500 )     (95 )     -       (7,595 )
  Other sources and uses - net
    (23 )     221       (518 )     (320 )
       Net cash used by financing activities
    (1,106 )     (80,302 )     (384 )     (81,792 )
 Net increase in cash and cash equivalents
    1       1,492       323       1,816  
 Cash and cash equivalents at beginning of year
    3,877       (1,584 )     2,695       4,988  
 Cash and cash equivalents at end of period
  $ 3,878     $ (92 )   $ 3,018     $ 6,804  
                                 
                                 
For the nine months ended September 30, 2007
         
Guarantor
   
Non-Guarantor
         
   
Parent
   
Subsidiaries
   
Subsidiaries
   
Consolidated
 
 Cash Flow from Operating Activities:
                               
 Net cash provided by operating activities
  $ 4,821     $ 83,913     $ 1,409     $ 90,143  
 Cash Flow from Investing Activities:
                               
  Capital expenditures
    (175 )     (19,469 )     (501 )     (20,145 )
  Business combinations, net of cash acquired
    -       (1,079 )     -       (1,079 )
  Net payments from sale of discontinued operations
    (2,382 )     (3,739 )     -       (6,121 )
  Proceeds from sale of property and equipment
    2,964       83       25       3,072  
  Other uses - net
    (680 )     (721 )     (14 )     (1,415 )
       Net cash used by investing activities
    (273 )     (24,925 )     (490 )     (25,688 )
 Cash Flow from Financing Activities:
                               
  Increase/(decrease) in cash overdrafts payable
    (352 )     2,906       -       2,554  
  Change in intercompany accounts
    66,481       (63,165 )     (3,316 )     -  
  Dividends (paid to)/received from shareholders
    (4,441 )     1,446       (1,446 )     (4,441 )
  Purchases of treasury stock
    (130,873 )     -       -       (130,873 )
  Proceeds from exercise of stock options
    2,429       -       -       2,429  
  Realized excess tax benefit on share based compensation
    2,506       -       -       2,506  
  Purchase of note hedges
    (55,093 )     -       -       (55,093 )
  Proceeds from issuance of warrants
    27,614       -       -       27,614  
  Proceeds from issuance of long-term debt
    300,000       -       -       300,000  
  Debt issuance costs
    (6,887 )     -       -       (6,887 )
  Repayment of long-term debt
    (215,500 )     (144 )     -       (215,644 )
  Other sources and uses - net
    27       (1 )     810       836  
       Net cash used by financing activities
    (14,089 )     (58,958 )     (3,952 )     (76,999 )
 Net increase/(decrease) in cash and cash equivalents
    (9,541 )     30       (3,033 )     (12,544 )
 Cash and cash equivalents at beginning of period
    25,258       (1,314 )     5,330       29,274  
 Cash and cash equivalents at end of period
  $ 15,717     $ (1,284 )   $ 2,297     $ 16,730  
 
-14-

 
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 team of doctors, nurses, home health aides, social workers, clergy and volunteers, VITAS provides direct medical services to patients, as well as spiritual and emotional counseling to both patients and their families.  Roto-Rooter’s services are focused on providing plumbing and drain cleaning services to both residential and commercial customers.  Through its network of company-owned branches, independent contractors and franchisees, Roto-Rooter offers plumbing and drain cleaning service to over 90% of the U.S. population.  The following is a summary of the key operating results for the three and nine months ended September 30, 2008 and 2007 (in thousands except per share amounts):
 
   
Three Months Ended 
September 30,
   
Nine Months Ended 
September 30,
 
   
2008
   
2007
   
2008
   
2007
 
Consolidated service revenues and sales
  $ 288,312     $ 272,503     $ 856,736     $ 814,329  
Consolidated income from continuing operations
  $ 17,948     $ 16,916     $ 52,018     $ 42,570  
Diluted EPS from continuing operations
  $ 0.79     $ 0.69     $ 2.20     $ 1.69  
 
For the three months ended September 30, 2008, the increase in consolidated service revenues and sales was driven by a 9% increase at VITAS offset by a 1% decline at Roto-Rooter.  The increase at VITAS was primarily the result of a 4% increase in average daily census (ADC) from the third quarter of 2007, the October 1, 2007 Medicare reimbursement rate increase of approximately 3% and a shift in the mix of care provided.  Roto-Rooter was driven by a 12% decrease in job count offset by an 11% price and mix shift increase.

For the nine months ended September 30, 2008, the increase in consolidated service revenues and sales was driven by an 8% increase at VITAS offset by a 1% decline at Roto-Rooter.  The increase at VITAS was primarily the result of a 4% increase in ADC, the October 1, 2007 Medicare reimbursement rate increase and a slight shift in mix of service provided.  Roto-Rooter was driven by a 9% decrease in job count offset by a 8% increase in price and mix shift increase.  Consolidated  income from continuing operations for 2007 includes a $13.8 million pretax loss on extinguishment of debt which did not recur for the same time period of 2008.  Diluted EPS increased as the result of increased earnings and a reduction of diluted share count due to our stock repurchase program.

Financial Condition
Liquidity and Capital Resources
Significant changes in the balance sheet accounts from December 31, 2007 to September 30, 2008 include the following:

•  
The notes receivable due from Patient Care were collected in full during the first quarter of 2008.
•  
The increase in treasury stock relates to the repurchase of approximately 1.7 million shares under the 2007 Share Repurchase Program since year end.

Net cash provided by operations decreased $613,000 due primarily to the non-cash impact of writing-off debt issuance costs and the long-term incentive compensation costs in 2007 offset by the increase in net income.  Capital expenditures for the first nine months of 2008 decreased by $7.0 million compared to the same period in 2007 due mainly to the development of a patient information capture software system in 2007 at VITAS.

We have issued $27.3 million in standby letters of credit as of September 30, 2008 mainly for insurance purposes.  Issued letters of credit reduce our available credit under the revolving credit agreement.  As of September 30, 2008, we have approximately $147.7 million of unused lines of credit available and eligible to be drawn down under our revolving credit facility, excluding the expansion feature.  We believe our liquidity and sources of capital are satisfactory for our capital and operating requirements in the foreseeable future.

Commitments and Contingencies
Collectively, the terms of our credit agreements require us to meet various financial covenants, to be tested quarterly.  In connection therewith, we are in compliance with all financial and other debt covenants as of September 30, 2008 and anticipate remaining in compliance throughout 2008.
 
-15-

 
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 (“Santos”).  This case alleges failure to pay overtime and failure to provide meal and rest periods to a purported class of California admissions nurses, chaplains and sales representatives.  The case seeks payment of penalties, interest and Plaintiffs’ attorney fees.  VITAS contests these allegations.  The lawsuit is in its early stage and we are unable to estimate our potential liability, if any, with respect to these allegations.

In April 2007, our Roto-Rooter subsidiary was named in a class action lawsuit filed in San Mateo Superior Court by Stanley Ita (“Ita”) alleging class-wide wage and hour violations at one California branch.  This suit alleges failure to provide meal and break periods, credit for work time beginning from the first call to dispatch rather than arrival at first assignment and improper calculations of work time and overtime.  The case sought payment of penalties, interest and Plaintiffs’ attorney fees.  After the suit was filed, we offered a settlement to certain members of the class and paid approximately $200,000.  In January 2008, we agreed to a tentative settlement with the remaining members of the class for approximately $1.8 million.  The tentative settlement was preliminarily approved by the court in May 2008.  Final approval and payment of the settlement was made in August 2008.  The settlement was accrued in the fourth quarter of 2007.

In April 2005, the Office of Inspector General (“OIG”) for the Department of Health and Human Services served VITAS with civil subpoenas relating to VITAS’ alleged failure to appropriately bill Medicare and Medicaid for hospice services.  As part of this investigation, the OIG selected medical records for 320 past and current patients from VITAS’ three largest programs for review.  It also sought policies and procedures dating back to 1998 covering admissions, certifications, recertifications and discharges.  During the third quarter of 2005 and again in May 2006, the OIG requested additional information from us.  The Court dismissed a related qui tam complaint filed in U.S. District Court for the Southern District of Florida with prejudice in July 2007.  The plaintiffs are appealing this dismissal.  Pretax expenses related to complying with OIG requests were immaterial for the three and nine months ended September 30, 2008 and 2007.  The government continues to investigate the complaint’s allegations.  We are unable to predict the outcome of this matter or the impact, if any, that the investigation may have on our business, results of operations, liquidity or capital resources.  Regardless of outcome, responding to the subpoenas and defending the litigation can adversely affect us through defense costs, diversion of our time and related publicity.

Results of Operations
Three months ended September 30, 2008 versus 2007 - Consolidated Results
Our service revenues and sales for the third quarter of 2008 increased 5.8% versus revenues for the third quarter of 2007.  Of this increase, $16.5 million was attributable to VITAS offset by a $673,000 decrease attributable to Roto-Rooter, as follows (dollars in thousands):
 
     
Increase/(Decrease)
 
     
Amount
   
Percent
 
 
VITAS
           
 
Routine homecare
  $ 12,326       9.0 %
 
Continuous care
    2,148       7.4 %
 
General inpatient
    1,294       5.7 %
 
Medicare cap
    714       -  
 
Roto-Rooter
               
 
Plumbing
    1,054       3.0 %
 
Drain cleaning
    (1,381 )     -3.8 %
 
Other
    (346 )     -2.8 %
                   
 
Total
  $ 15,809       5.8 %
 
The increase in VITAS’ revenues for the third quarter of 2008 versus the third quarter of 2007 is attributable to an increase in ADC of 4.7% for routine homecare and a 1.6% increase in continuous care offset by a 0.5% decline in general inpatient care. ADC is a key measure we use to monitor volume growth in our hospice business.  Changes in total program admissions and average length of stay for our patients are the main drivers of changes in ADC. The remainder of the revenue increase is due primarily to the annual increase in Medicare reimbursement rates in the fourth quarter of 2007.  In excess of 90% of VITAS’ revenues for the period were from Medicare and Medicaid.  We recorded a $714,000 reduction in revenue in September 2007 related to Medicare cap billing limitations for the 2006 measurement period for 3 programs.  The adjustment for the 2006 measurement period was due to the normal allocation of transferred patients performed by the Federal government’s fiscal intermediary.  We did not record any Medicare cap billing limitations related to the 2007 or 2008 measurement period.
 
-16-

 
The increase in the plumbing revenues for the third quarter of 2008 versus 2007 comprises a 10.1% decrease in the number of jobs performed more than offset by a 14.8% increase caused by increased prices and job mix.  During the third quarter of 2008, we experienced a significant increase in excavation jobs for our plumbing business which generally have higher revenue per job than other plumbing jobs.  The decrease in drain cleaning revenues for the third quarter of 2008 versus 2007 comprised a 12.3% decline in the number of jobs offset by a 9.4% increase caused by increased prices and job mix.

The consolidated gross margin was 29.8% in the third quarter of 2008 as compared with 29.2% in the third quarter of 2007.  On a segment basis, VITAS’ gross margin was 23.6% in the third quarter of 2008 and 21.4% in the third quarter of 2007.  The increase in VITAS’ gross margin in 2008 is attributable to a reduction in the Medicare cap expense in 2007 of $714,000, as well as the continued focus on more efficient scheduling of direct labor. The Roto-Rooter segment’s gross margin was 45.1% in the third quarter of 2008 and 46.9% in the third quarter of 2007.  The decrease in Roto-Rooter’s gross margin in 2008 is primarily attributable to an increase in large medical claims affecting our health insurance costs.

Selling, general and administrative expenses (“SG&A”) for the third quarter of 2008 were $44.0 million, an increase of $1.5 million (3.5%) versus the third quarter of 2007.  The increase is due mainly to higher variable selling costs and increased stock-based compensation costs related to the May 2008 stock option grant.

Interest expense, substantially all of which is incurred at Corporate, declined from $2.5 million in the third quarter of 2007 to $1.6 million in the third quarter of 2008.  This decline is due to debt repayments made during the most recent twelve months and a decrease in the average interest rate on our floating rate debt.

Other (expense)/income - net decreased from income of $11,000 in the third quarter of 2007 to a loss of $1.9 million in the third quarter of 2008.  The decrease is attributable to market losses from investments held in our deferred compensation benefit trusts.

Our effective income tax rate was 42.9% in the third quarter of 2008 compared to 39.6% in the third quarter of 2007.  The increase in the effective income tax rate is due to the impact of non-deductible market losses on investments in our deferred compensation benefit trusts.

During the third quarter of 2007, we recorded a $1.2 million aftertax adjustment related to the Medicare cap liability for our discontinued Phoenix program.  No such adjustment was required during 2008.  Income from continuing operations and net income for both periods included the following aftertax special items/adjustments that reduced aftertax earnings (in thousands):
 
     
Three Months Ended
September 30,
 
     
2008
   
2007
 
 
Stock-option expense
  $ 1,334     $ 1,011  
 
Income tax impact of non-deductible losses on investments in our deferred compensation trusts
    1,237       123  
 
Legal expenses of OIG Investigation
    1       30  
 
Loss on extinguishment of debt
    -       52  
      $ 2,572     $ 1,216  
 
Three-months ended September 30, 2008 versus 2007-Segment Results
The change in aftertax earnings for the third quarter of 2008 versus the third quarter of 2007 is due to (in thousands):
 
     
Net Income
 
     
Increase/(Decrease)
 
     
Amount
   
Percent
 
 
VITAS
  $ 3,640       26.1 %
 
Roto-Rooter
    (1,279 )     -13.8 %
 
Corporate
    (1,329 )     -21.3 %
 
Discontinued operations
    (1,201 )     100.0 %
      $ (169 )     -0.9 %
 
 
-17-

 
Nine-months ended September 30, 2008 versus 2007-Consolidated Results
Our service revenues and sales for the first nine months of 2008 increased 5.2% versus revenues for the first nine months of 2007.  Of this increase, $44.4 million was attributable to VITAS offset by a $2.0 million decline attributable to Roto-Rooter, as follows (in thousands):
 
     
Increase/(Decrease)
 
     
Amount
   
Percent
 
 
VITAS
           
 
Routine homecare
  $ 32,327       8.0 %
 
Continuous care
    6,367       7.4 %
 
General inpatient
    5,429       7.9 %
 
Medicare cap
    242       -100 %
 
Roto-Rooter
               
 
Plumbing
    1,332       1.3 %
 
Drain cleaning
    (2,473 )     -2.2 %
 
Other
    (817 )     -2.2 %
 
Total
  $ 42,407       5.2 %
 
The increase in VITAS’ revenues for the first nine months of 2008 versus the first nine months of 2007 is attributable to an increase in ADC of 4.0% for routine homecare, 2.9% for general inpatient and 1.8% for continuous care.  ADC is a key measure we use to monitor volume growth in our hospice business.  Changes in total program admissions and average length of stay for our patients are the main drivers of changes in ADC. The remainder of the revenue increase is due primarily to the annual increase in Medicare reimbursement rates in the fourth quarter of 2007.  We recorded a $242,000 reduction in revenue during the first nine months of 2007 related to Medicare cap billing limitations from prior years.

The increase in the plumbing revenues for the first nine months of 2008 versus 2007 comprises a 7.5% decrease in the number of jobs performed and a 9.4% increase due to increased price and job mix.  During the first nine months of 2008, we experienced a significant increase in excavation jobs for our plumbing business which generally have higher revenue per job than other plumbing jobs.  The decrease in drain cleaning revenues for the first nine months of 2008 versus 2007 comprised a 10.3% decline in the number of jobs offset by an 8.8% increase due to increased price and job mix.

The consolidated gross margin was 28.9% in the first nine months of 2008 as compared with 30.0% in the first nine months of 2007.  On a segment basis, VITAS’ gross margin was 21.8% in the first nine months of 2008 and 22.1% in the first nine months of 2007.  The Roto-Rooter segment’s gross margin was 45.6% in the first nine months of 2008 as compared to 47.3% in the first nine months of 2007.  The decrease in Roto-Rooter’s gross margin in 2008 is primarily attributable to an increase in large medical claims affecting our health insurance costs.

SG&A for the first nine months of 2008 was $133.1 million, a decrease of $3.6 million (2.6%) versus the first nine months of 2007.  The decrease is largely due to 2007 expenses of $7.1 million related to the LTIP offset by higher expenses due to increased variable selling expenses as well as higher stock option expense.  There have been no LTIP costs during the first nine months of 2008.

Interest expense, substantially all of which is incurred at Corporate, declined from $9.7 million in the first nine months of 2007 to $4.6 million in the first nine months of 2008.  This decline is due to the reduction in debt outstanding and our refinancing transactions in May 2007.  The loss on extinguishment of debt is also the result of the May 2007 refinancing transactions.

Other (expense)/income - net decreased from income of $3.1 million in the first nine months of 2007 to a loss of $2.2 million in the first nine months of 2008.  The decrease is attributable to market losses from investments held in our deferred compensation benefit trusts.

Our effective income tax rate was 40.1% for the first nine months of 2008 as compared to 39.0% for the same period of 2007.  The increase in the effective income tax rate is due to the impact of non-deductible market losses on investments in our deferred compensation benefit trusts.
 
-18-

 
During the first nine months of 2007, we recorded a $1.2 million aftertax adjustment related to the Medicare cap liability for our discontinued Phoenix program.  No such adjustment was required during 2008.  Income from continuing operations and net income for both periods included the following aftertax special items/adjustments that (increased)/reduced aftertax earnings (in thousands):
 
     
Nine Months Ended 
September 30,
 
     
2008
   
2007
 
 
Stock-option expense
  $ 3,228     $ 1,952  
 
Income tax impact of non-deductible losses on investments in our deferred compensation trusts
    1,237       123  
 
Unreserved prior year insurance claim
    358       -  
 
Legal expenses of OIG investigation
    27       117  
 
Tax adjustments from prior year returns
    (322 )     -  
 
Loss on extinguishment of debt
    -       8,778  
 
Long-term incentive compensation award
    -       4,427  
 
Gain on sale of Florida call center
    -       (724 )
 
Other
    -       (296 )
      $ 4,528     $ 14,377  
 
Nine-months ended September 30, 2008 versus 2007-Segment Results
The change in aftertax earnings for the first nine months of 2008 versus the first nine months of 2007 is due to (in thousands):
 
     
Net Income
 
     
Increase/(Decrease)
 
     
Amount
   
Percent
 
 
VITAS
  $ 2,118       4.9 %
 
Roto-Rooter
    (3,788 )     -13.0 %
 
Corporate
    11,118       37.4 %
 
Discontinued operations
    (1,201 )     100.0 %
      $ 8,247       18.8 %
 
 
The following chart updates historical unaudited financial and operating data of VITAS (dollars in thousands, except dollars per patient day):
 
 
-19-

 
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
OPERATING STATISTICS FOR VITAS SEGMENT
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
(unaudited)
 
 
   
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
OPERATING STATISTICS
 
2008
   
2007
   
2008
   
2007
 
Net revenue
                       
Homecare
  $ 149,732     $ 137,406     $ 436,075     $ 403,748  
Inpatient
    24,155       22,861       74,497       69,068  
Continuous care
    31,069       28,921       92,017       85,650  
Total before Medicare cap allowance
    204,956       189,188       602,589       558,466  
Medicare cap allowance
    -       (714 )     -       (242 )
Total
  $ 204,956     $ 188,474     $ 602,589     $ 558,224  
Net revenue as a percent of total
                               
     before Medicare cap allowance
                               
Homecare
    73.0 %     72.6 %     72.4 %     72.3 %
Inpatient
    11.8       12.1       12.3       12.4  
Continuous care
    15.2       15.3       15.3       15.3  
Total before Medicare cap allowance
    100.0       100.0       100.0       100.0  
Medicare cap allowance
    -       (0.4 )     -       -  
Total
    100.0 %     99.6 %     100.0 %     100.0 %
Average daily census ("ADC") (days)
                               
Homecare
    7,534       7,039       7,346       6,914  
Nursing home
    3,570       3,567       3,562       3,572  
Routine homecare
    11,104       10,606       10,908       10,486  
Inpatient
    410       412       429       417  
Continuous care
    519       511       521       512  
Total
    12,033       11,529       11,858       11,415  
                                 
Total Admissions
    13,317       13,436       42,485       41,204  
Total Discharges
    13,279       13,403       41,992       40,823  
Average length of stay (days)
    74.1       76.7       72.9       76.7  
Median length of stay (days)
    15.0       14.0       14.0       13.0  
ADC by major diagnosis
                               
Neurological
    32.5 %     32.8 %     32.5 %     33.1 %
Cancer
    19.9       20.3       19.9       19.9  
Cardio
    12.8       14.2       12.9       14.5  
Respiratory
    6.5       6.8       6.7       6.9  
Other
    28.3       25.9       28.0       25.6  
Total
    100.0 %     100.0 %     100.0 %     100.0 %
Admissions by major diagnosis
                               
Neurological
    18.2 %     18.2 %     18.4 %     18.5 %
Cancer
    37.6       37.5       35.6       35.9  
Cardio
    11.3       12.1       11.8       12.8  
Respiratory
    7.0       7.1       7.8       7.6  
Other
    25.9       25.1       26.4       25.2  
Total
    100.0 %     100.0 %     100.0 %     100.0 %
Direct patient care margins
                               
Routine homecare
    52.4 %     51.0 %     51.2 %     50.9 %
Inpatient
    16.6       15.9       17.9       18.3  
Continuous care
    18.0       16.9       17.4       18.2  
Homecare margin drivers (dollars per patient day)
                               
Labor costs
  $ 48.59     $ 48.86     $ 50.16     $ 48.98  
Drug costs
    7.85       7.88       7.70       7.95  
Home medical equipment
    6.28       5.65       6.22       5.73  
Medical supplies
    2.17       2.22       2.35       2.16  
Inpatient margin drivers (dollars per patient day)
                               
Labor costs
  $ 262.98     $ 274.64     $ 263.71     $ 263.11  
Continuous care margin drivers (dollars per patient day)
                               
Labor costs
  $ 512.04     $ 490.94     $ 511.81     $ 479.83  
Bad debt expense as a percent of revenues
    1.0 %     0.9 %     1.0 %     0.9 %
 Accounts receivable --
                               
  days of revenue outstanding
    46.9       39.6    
N.A.
   
N.A.
 
                                 
 

VITAS has 6 large (greater than 450 ADC), 17 medium (greater than 200 but less than 450 ADC) and 23 small (less than 200 ADC) hospice programs. There are three programs at September 30, 2008 with Medicare cap cushion of less than 10% for the measurements period.
 
Direct patient care margins exclude indirect patient care and administrative costs, as well as Medicare Cap billing limitation.
 
 
-20-

 
Recent Accounting Statements
In June 2008, the EITF reached a consensus on EITF Issue No. 07-5, “Determining Whether an Instrument (or an Embedded Feature) Is Indexed to an Entity’s Own Stock”.  The consensus provides additional guidance when determining whether an option or warrant on an entity’s own shares is eligible for the equity classification provided for in EITF 00-19.  The consensus is effective for fiscal years beginning after December 15, 2008.  We are currently evaluating the impact of this consensus on our outstanding options and warrants issued in connection with our 2007 convertible debt transaction.

In May 2008, the FASB issued Staff Position No. APB 14-1, “Accounting for Convertible Debt Instruments that may be Settled in Cash Upon Conversion (Including Partial Cash Settlement).”  This new guidance requires all convertible debentures classified as Instruments B or C under EITF 90-19 to separately account for the debt and equity pieces of the instrument.   At inception of the convertible instrument, cash flows related to the convertible instrument are to be discounted using a market rate of interest.  This will create a discount at inception to be recorded in equity.  The debt portion is to be accreted to its face value, through interest expense, over the life of the instrument using the effective interest method.  This will result in higher interest expense over the life of the instrument and an increase in equity at the inception of the instrument.  Debt issuance costs are also to be allocated between the debt and equity components using a rationale method.  Finally, the FSP requires that the Company value any embedded features of the instrument, other than the conversion option, as a part of the liability.  The new standard is effective for all fiscal years (and interim periods) beginning after December 15, 2008.  As such, we will adopt the new standard on January 1, 2009.  The FSP is to be applied retrospectively.  Upon adoption, our preliminary estimate is that our $200 million, 1.875% Convertible Debentures issued in May 2007 will have a discount of between $50 million and $60 million.

In May 2008, the FASB issued Statement of Financial Accounting Standard No. 162 “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS 162”).  The purpose of this standard is to provide a consistent framework for determining what accounting principles should be used when preparing U.S. GAAP financial statements.  SFAS 162 categorizes accounting pronouncements in a descending order of authority.  In the instance of potentially conflicting accounting principles, the standard in the highest category must be used.  This statement will be effective 60 days after the SEC approves the Public Company Accounting and Oversight Board’s related amendments.  We believe that SFAS 162 will have no impact on our existing accounting methods.

In December 2007, the FASB issued Statement of Financial Accounting Standard No. 141(R) “Business Combinations (revised 2007)” (“SFAS 141(R)”), which changes certain aspects of the accounting for business combinations.  This Statement retains the fundamental requirements in Statement No. 141 that the purchase method of accounting be used for all business combinations and for an acquirer to be identified for each business combination.  SFAS 141(R) modifies existing accounting guidance in the areas of deal and restructuring costs, acquired contingencies, contingent consideration, in-process research and development, accounting for subsequent tax adjustments and assessing the valuation date.  This Statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. An entity may not apply it before that date.  There will be no impact on our financial statements as a result of the adoption of SFAS 141(R); however our accounting for all business combinations after adoption will comply with the new standard.

In December 2007, the FASB issued Statement of Financial Accounting Standard No. 160 “Non-controlling Interests in Consolidated Financial Statements – an amendment of ARB No. 51” (“SFAS 160”), which requires ownership interests in subsidiaries held by others to be clearly identified, labeled and presented in the consolidated balance sheet within equity but separate from the parent company’s equity.  SFAS 160 also affects the accounting requirements when the parent company either purchases a higher ownership interest or deconsolidates the equity investment.  This Statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. An entity may not apply it before that date.  We currently do not have non-controlling interests in our consolidated financial statements.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 Regarding Forward-Looking Information
In addition to historical information, this report contains forward-looking statements and performance trends that are based upon assumptions subject to certain known and unknown risks, uncertainties, contingencies and other factors.  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.  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.
 
-21-

 
Item 3.  Quantitative and Qualitative Disclosures about Market Risk
Our primary market risk exposure relates to interest rate risk exposure through variable interest rate borrowings.  At September 30, 2008, we had $17.0 million of variable rate debt outstanding.  A 1% change in the interest rate on our variable interest rate borrowings would have a $170,000 full-year impact on our interest expense.  At September 30, 2008, the fair value of our Senior Convertible Notes approximates $153.3 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 2(c).  Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The following table shows the activity related to our share repurchase programs for the nine months ended September 30, 2008:
 
   
Total
   
Weighted Average
   
Cumulative Shares
   
Dollar Amount
 
   
Number of Shares
   
Price Paid Per
   
Repurchased Under
   
Remaining Under
 
   
Repurchased
   
Share
   
the Program
   
The Program
 
April 2007 Program
                       
January 1 through January 31, 2008
    -     $ -       1,293,250     $ 65,004,906  
February 1 through February 29, 2008
    300,000     $ 49.19       1,593,250     $ 50,247,480  
March 1 through March 31, 2008
    -     $ -       1,593,250     $ 50,247,480  
 First Quarter - April 2007 Program
    300,000     $ 49.19                  
April 1 through April 30, 2008
    -     $ -       1,593,250     $ 50,247,480  
May 1 through May 31, 2008
    382,629     $ 34.66       1,975,879     $ 93,047,996  
June 1 through June 30, 2008
    447,068     $ 36.15       2,422,947     $ 76,887,912  
 Second Quarter - April 2007 Program
    829,697     $ 35.46                  
July 1 through July 31, 2008
    260,000     $ 36.75       2,682,947     $ 67,331,650  
August 1 through August 30, 2008
    300,000     $ 44.64       2,982,947     $ 53,940,328  
September 1 through September 30, 2008
    -     $ -       2,982,947     $ 53,940,328  
 Third Quarter - April 2007 Program
    560,000     $ 40.98                  
   
On April 26, 2007, our Board of Directors authorized a $150 million share repurchase plan with no expiration date.
 
   
On May 20, 2008, our Board of Directors authorized an additional $56 million under the April 2007 Program.
 
 
 
-22-

 
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.
 
 

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:
 
October 23, 2008
 
By:
 
Kevin J. McNamara
 
   
 
     
Kevin J. McNamara
 
           
(President and Chief Executive Officer)
 
               
               
Dated:
 
October 23, 2008
 
By:
 
David P. Williams
 
           
David P. Williams
 
           
(Executive Vice President and Chief Financial Officer)
 
               
               
Dated:
 
October 23, 2008
 
By:
 
Arthur V. Tucker, Jr.
 
           
Arthur V. Tucker, Jr.
 
           
(Vice President and Controller)
 
 
 
 
-23-
a5809671ex311.htm
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 quarterly 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 report 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 that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
 
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

 
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:
October 23, 2008
/s/ Kevin J. McNamara
   
Kevin J. McNamara
(President and Chief Executive Officer)
 
 
 
 
E-1
a5809671ex312.htm
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 quarterly 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 report 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 that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

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:

 
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:
October 23, 2008
/s/ David P. Williams
    David P. Williams
(Executive Vice President and Chief Financial Officer) 
 
 
 
E-2
a5809671ex313.htm
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 quarterly 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 report 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 that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

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:

 
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:
October 23, 2008
/s/ Arthur V. Tucker, Jr.
    Arthur V. Tucker, Jr.
(Vice President and Controller) 
 
 
 
E-3
 
a5809671ex321.htm
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 of Form 10-Q for the quarter ending September 30, 2008 (“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:
October 23, 2008
 
/s/ Kevin J. McNamara
       Kevin J. McNamara
(President and Chief Executive Officer)
 
 
 
 
E-4
 
a5809671ex322.htm
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 of Form 10-Q for the quarter ending September 30, 2008 (“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:
October 23, 2008
/s/ David P. Williams
    David P. Williams
(Executive Vice President and Chief Financial Officer) 
 
 
 
 
E-5
a5809671ex323.htm
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 of Form 10-Q for the quarter ending September 30, 2008 (“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:
October 23, 2008
/s/ Arthur V. Tucker, Jr.
    Arthur V. Tucker, Jr.
(Vice President and Controller) 
 
 
 
 
E-6