a6018395.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 June 30, 2009
       
     
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
Commission File Number: 1-8351

CHEMED CORPORATION
(Exact name of registrant as specified in its charter)
 
Delaware
31-0791746
(State or other jurisdiction of incorporation or
organization)
(IRS Employer Identification No.)
 
 
2600 Chemed Center, 255 E. Fifth Street, Cincinnati, Ohio
45202
(Address of principal executive offices)
(Zip code)

(513) 762-6900
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes        X    
No            
 
 

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

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

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

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

Class
 
Amount
 
Date
         
Capital Stock $1 Par Value
 
22,495,675 Shares
 
June 30, 2009

 
 
 


 
-1-


CHEMED CORPORATION AND
SUBSIDIARY COMPANIES


Index

 
Page No.
 
       
   
       
Item 1.               
Financial Statements     
       
   
   
 
                    
   
       
 
 
       
   
     
 
 
     
 
 
 
 
   
 
       
   
       
 
       
 
       
 
       
 
       
 
       
 
       
 
 
 
-2-


 PART I.   FINANCIAL INFORMATION
 Item 1.   Financial Statements
 CHEMED CORPORATION AND SUBSIDIARY COMPANIES
 UNAUDITED CONSOLIDATED BALANCE SHEET
 (in thousands except share and per share data)
             
             
   
June 30,
   
December 31,
 
   
2009
   
2008
 
ASSETS
           
Current assets
           
Cash and cash equivalents
  $ 16,632     $ 3,628  
Accounts receivable less allowances of $11,757 (2008 - $10,320)
    104,123       98,076  
Inventories
    8,240       7,569  
Current deferred income taxes
    15,911       15,392  
Prepaid income taxes
    5,049       1,349  
Prepaid expenses and other current assets
    9,031       9,919  
Total current assets
    158,986       135,933  
Investments of deferred compensation plans held in trust
    20,348       22,628  
Properties and equipment, at cost, less accumulated
               
depreciation of $107,342 (2008 - $101,689)
    73,081       76,962  
Identifiable intangible assets less accumulated
               
amortization of $23,301 (2008 - $21,272)
    59,875       61,303  
Goodwill
    450,005       448,721  
Other assets
    13,908       14,075  
Total Assets
  $ 776,203     $ 759,622  
                 
LIABILITIES
               
Current liabilities
               
Accounts payable
  $ 49,471     $ 52,810  
Current portion of long-term debt
    5,070       10,169  
Income taxes
    1,301       2,181  
Accrued insurance
    35,029       35,994  
Accrued compensation
    37,936       40,741  
Other current liabilities
    13,876       12,180  
Total current liabilities
    142,683       154,075  
Deferred income taxes
    23,305       22,477  
Long-term debt
    148,763       158,210  
Deferred compensation liabilities
    20,157       22,417  
Other liabilities
    4,391       5,612  
Total Liabilities
    339,299       362,791  
                 
STOCKHOLDERS' EQUITY
               
Capital stock - authorized 80,000,000 shares $1 par; issued
               
29,614,446 shares (2008 - 29,514,877 shares)
    29,614       29,515  
Paid-in capital
    320,629       313,516  
Retained earnings
    371,617       337,739  
Treasury stock - 7,118,771 shares (2008 - 7,100,475 shares), at cost
    (286,888 )     (285,977 )
Deferred compensation payable in Company stock
    1,932       2,038  
Total Stockholders' Equity
    436,904       396,831  
Total Liabilities and Stockholders' Equity
  $ 776,203     $ 759,622  
                 
                 
See accompanying notes to unaudited financial statements.
 
 
-3-

 
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
UNAUDITED CONSOLIDATED STATEMENT OF INCOME
 (in thousands, except per share data)
                         
                         
                         
   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2009
   
2008
   
2009
   
2008
 
Service revenues and sales
  $ 295,255     $ 283,156     $ 590,193     $ 568,424  
Cost of services provided and goods sold (excluding depreciation)
    207,337       201,139       414,350       406,951  
Selling, general and administrative expenses
    49,580       46,321       95,373       89,048  
Depreciation
    5,338       5,370       10,663       10,808  
Amortization
    1,618       1,489       3,154       2,939  
Other operating expense
    3,444       -       3,989       -  
Total costs and expenses
    267,317       254,319       527,529       509,746  
Income from operations
    27,938       28,837       62,664       58,678  
Interest expense
    (3,142 )     (2,964 )     (5,986 )     (6,073 )
Other income/(expense)--net
    3,358       886       3,082       (303 )
Income before income taxes
    28,154       26,759       59,760       52,302  
Income taxes
    (10,904 )     (10,488 )     (23,171 )     (20,171 )
Net income
  $ 17,250     $ 16,271     $ 36,589     $ 32,131  
                                 
                                 
Earnings Per Share
                               
Net income
  $ 0.77     $ 0.69     $ 1.63     $ 1.36  
Average number of shares outstanding
    22,417       23,486       22,406       23,681  
                                 
Diluted Earnings Per Share
                               
Net income
  $ 0.76     $ 0.68     $ 1.61     $ 1.34  
Average number of shares outstanding
    22,672       23,759       22,660       24,026  
                                 
Cash Dividends Per Share
  $ 0.06     $ 0.06     $ 0.12     $ 0.12  
                                 
                                 
                                 
                                 
                                 
See accompanying notes to unaudited financial statements.
 
 
-4-


 CHEMED CORPORATION AND SUBSIDIARY COMPANIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
 (in thousands)
 
   
Six Months Ended
 
   
June 30,
 
   
2009
   
2008
 
Cash Flows from Operating Activities
           
Net income
  $ 36,589     $ 32,131  
Adjustments to reconcile net income to net cash provided
               
by operating activities:
               
Depreciation and amortization
    13,817       13,747  
Provision for uncollectible accounts receivable
    5,459       4,351  
Stock option expense
    4,485       2,982  
Amortization of debt issuance costs
    3,253       3,252  
Provision for deferred income taxes
    317       (2,809 )
Amortization of debt issuance costs
    309       309  
Changes in operating assets and liabilities, excluding
               
amounts acquired in business combinations:
               
Increase in accounts receivable
    (11,575 )     (4,652 )
Increase in inventories
    (668 )     (953 )
Decrease in prepaid expenses and other current assets
    902       1,179  
Decrease in accounts payable and other current liabilities
    (4,005 )     (2,248 )
Decrease in income taxes
    (4,267 )     (4,903 )
Decrease/(increase) in other assets
    2,264       (1,906 )
Increase/(decrease) in other liabilities
    (3,481 )     1,910  
Excess tax benefit on share-based compensation
    (313 )     (825 )
Other sources
    34       206  
Net cash provided by operating activities
    43,120       41,771  
Cash Flows from Investing Activities
               
Capital expenditures
    (8,136 )     (8,715 )
Business combinations, net of cash acquired
    (1,859 )     (577 )
Proceeds from sales of property and equipment
    1,496       71  
Net proceeds/(uses) from the disposals of discontinued operations
    (219 )     9,439  
Other uses
    (256 )     (306 )
Net cash used by investing activities
    (8,974 )     (88 )
Cash Flows from Financing Activities
               
Repayment of long-term debt
    (9,599 )     (5,095 )
Net increase/(decrease) in revolving line of credit
    (8,200 )     8,300  
Dividends paid
    (2,711 )     (2,900 )
Decrease in cash overdrafts payable
    (781 )     (655 )
Purchases of treasury stock
    (526 )     (45,791 )
Excess tax benefit on share-based compensation
    313       825  
Other sources
    362       170  
Net cash used by financing activities
    (21,142 )     (45,146 )
Increase/(Decrease) in Cash and Cash Equivalents
    13,004       (3,463 )
Cash and cash equivalents at beginning of year
    3,628       4,988  
Cash and cash equivalents at end of period
  $ 16,632     $ 1,525  
                 
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, 2008 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, 2008.  Certain 2008 amounts have been restated to conform with current period presentation related to adoption of new accounting guidance for our convertible debt, as described in Note 5.

2.      Revenue Recognition
 
Both the VITAS segment and the Roto-Rooter segment recognize service revenues and sales when the earnings process has been completed.  Generally, this occurs when services are provided or products are delivered.  VITAS recognizes revenue at the estimated realizable amount due from third-party payers.  Medicare payments are subject to certain caps, as described below.

As of June 30, 2009, VITAS has approximately $13.8 million in unbilled revenue (December 31, 2008 - $13.9 million).  The unbilled revenue at VITAS relates to hospice programs currently undergoing focused medical reviews (“FMR”).  During FMR, surveyors working on behalf of the U.S. Federal government review certain patient files for compliance with Medicare regulations.  During the time the patient file is under review, we are unable to bill for care provided to those patients.  We make appropriate provisions to reduce our accounts receivable balance for potential denials of patient service revenue due to FMR activity.

The U.S. government revises hospice reimbursement rates on an annual basis using the Hospice Wage Index (HWI) and the Budget Neutrality Adjustment Factor (BNAF).  The HWI is used to adjust reimbursement rates to reflect local differences in wages.  The BNAF is an estimated inflation factor applied to the HWI.  In August 2008, the U.S. government announced a 25% reduction in the BNAF for its fiscal 2009 (October 2008 through September 2009) pursuant to a three year phase-out of the BNAF.  The February 2009 American Recovery and Reinvestment Act mandated a one year delay in the BNAF phase-out.  As a result, included in the six months ended June 30, 2009 results, is $1.95 million of revenue for the retroactive price increase related to services provided by VITAS in the fourth quarter of 2008.  Revenue for service provided in fiscal 2009 includes a reimbursement rate with the full BNAF increase.

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 a result of improved admission trends, we reversed our estimated liability of $505,000 for one provider number during the three months ended June 30, 2009.  This relates to one program’s projected liability that was recorded during the fourth quarter of 2008 and the first quarter of 2009. No revenue reduction for Medicare cap liability was recorded for the three or six-month periods ended June 30, 2008.
 
-6-


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

     
Three months ended
   
Six months ended
 
     
June 30,
   
June 30,
 
     
2009
   
2008
   
2009
   
2008
 
Service Revenues and Sales
                       
VITAS
    $ 211,303     $ 199,048     $ 419,720     $ 397,633  
Roto-Rooter
      83,952       84,108       170,473       170,791  
 
Total
  $ 295,255     $ 283,156     $ 590,193     $ 568,424  
                                   
After-tax Earnings
                               
VITAS
    $ 17,244     $ 14,321     $ 34,527     $ 27,619  
Roto-Rooter
      8,851       8,393       17,127       17,488  
 
Total
    26,095       22,714       51,654       45,107  
Corporate
      (8,845 )     (6,443 )     (15,065 )     (12,976 )
 
Net income
  $ 17,250     $ 16,271     $ 36,589     $ 32,131  


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 2009 and 2008 are computed as follows (in thousands, except per share data):

For the Three Months Ended 
June 30,
 
Net
Income
   
Shares
   
Earnings
per Share
 
2009
                 
Earnings
  $ 17,250       22,417     $ 0.77  
Dilutive stock options
    -       214          
Nonvested stock awards
    -       41          
Diluted earnings
  $ 17,250       22,672     $ 0.76  
                         
2008
                       
Earnings
  $ 16,271       23,486     $ 0.69  
Dilutive stock options
    -       247          
Nonvested stock awards
    -       26          
Diluted earnings
  $ 16,271       23,759     $ 0.68  
                         
                         
                         
                         
For the Six Months Ended
June 30,
 
Net
Income
   
Shares
   
Earnings
per Share
 
2009
                       
Earnings
  $ 36,589       22,406     $ 1.63  
Dilutive stock options
    -       216          
Nonvested stock awards
    -       38          
Diluted earnings
  $ 36,589       22,660     $ 1.61  
                         
2008
                       
Earnings
  $ 32,131       23,681     $ 1.36  
Dilutive stock options
    -       315          
Nonvested stock awards
    -       30          
Diluted earnings
  $ 32,131       24,026     $ 1.34  

 
-7-

 
For both the three and six-month periods ended June 30, 2009 1,828,017 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. For the three and six-month periods ended June 30, 2008 1,084,267 and 832,267 stock options were excluded, respectively, from the computation of diluted earnings per share.
 
Diluted earnings per share may be impacted in future periods as the result of the issuance of our 1.875% Senior Convertible Notes (the “Notes”) and related purchased call options and sold warrants.  Under EITF 04-8 ”The Effect of Contingently Convertible Instruments on Diluted Earnings per Share” and EITF 90-19 “Convertible Bonds with Issuer Option to Settle for Cash upon Conversion”, we will not include any shares related to the Notes in our calculation of diluted earnings per share until our average stock price for a quarter exceeds the 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.
 
The following table provides examples of how changes in our stock price impact the number of shares that would be included in our diluted earnings per share calculation.  It also shows the impact on the number of shares issuable upon conversion of the Notes and settlement of the purchased call options and sold warrants:

     
Shares
         
Total Treasury
   
Shares Due
   
Incremental
 
     
Underlying 1.875%
         
Method
   
to the Company
   
Shares Issued/
 
Share
   
Convertible
   
Warrant
   
Incremental
   
under Notes
   
(Received) by the Company
 
Price
   
Notes
   
Shares
   
Shares (a)
   
Hedges
   
upon Conversion (b)
 
$ 80.73       -       -       -       -       -  
$ 90.73       255,243       -       255,243       (273,061 )     (17,818 )
$ 100.73       459,807       -       459,807       (491,905 )     (32,098 )
$ 110.73       627,423       118,359       745,782       (671,222 )     74,560  
$ 120.73       767,272       313,764       1,081,036       (820,833 )     260,203  
$ 130.73       885,726       479,274       1,365,000       (947,556 )     417,444  
                                             
(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 Notes, assuming concurrent settlement of the note hedges and warrants.
 


-8-


5.      Long-Term Debt
 
We are in compliance with all debt covenants as of June 30, 2009.  We have issued $27.8 million in standby letters of credit as of June 30, 2009 for insurance purposes.  Issued letters of credit reduce our available credit under the revolving credit agreement.  As of June 30, 2009, we have approximately $147.2 million of unused lines of credit available and eligible to be drawn down under our revolving credit facility, excluding the expansion feature.  During June 2009, we paid $7.0 million on our term loan of which $4.5 million was a principal prepayment.

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.  We adopted the new standard on January 1, 2009.  The FSP was applied retrospectively.  Upon adoption, the Notes had a discount of approximately $54.9 million.  Retained earnings as of January 1, 2008 decreased $2.3 million as a result of the cumulative effect of adoption.

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

   
June 30,
2009
   
December 31,
2008
 
Principal amount of convertible debentures
  $ 186,956     $ 186,956  
Unamortized debt discount
    (38,193 )     (41,446 )
Carrying amount of convertible debentures
  $ 148,763     $ 145,510  
Additional paid in capital (net of tax)
  $ 31,310     $ 31,310  
 

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

   
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
   
2009
   
2008
   
2009
   
2008
 
Cash interest expense
  $ 1,346     $ 1,168     $ 2,424     $ 2,510  
Non-cash amortization of debt discount
    1,640       1,640       3,253       3,252  
Amortization of debt costs
    156       156       309       311  
Total interest expense
  $ 3,142     $ 2,964     $ 5,986     $ 6,073  
 
The unamortized debt discount will be amortized using the effective interest method over the remaining life of the Notes.  The effective rate on the Notes after adoption of the standard is approximately 6.875%.  The gain on extinguishment of debt recognized in 2008 upon our repurchase of a portion of the Notes decreased by approximately $802,000 upon adoption, due to a portion of the extinguishment being attributed to the equity component of our Notes.

6.      Other Operating Expenses
 
For the three and six-month periods ended June 30, 2009 we recorded pretax expenses of $3.4 million and $4.0 million, respectively, related to the costs of a contested proxy solicitation.
 
-9-


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

   
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
   
2009
   
2008
   
2009
   
2008
 
Interest income
  $ 207     $ 106     $ 289     $ 443  
(Loss)/gain on trading investments of employee benefit trust
    3,199       841       2,796       (681 )
Loss on disposal of property and equipment
    (78 )     (84 )     (54 )     (113 )
Other - net
    30       23       51       48  
     Total other income
  $ 3,358     $ 886     $ 3,082     $ (303 )


8.      Other Current Liabilities
 
Other current liabilities as of June 30, 2009 and December 31, 2008 consist of the following (in thousands):

   
2009
   
2008
 
Accrued legal settlements
  $ 431     $ 410  
Accrued divestiture expenses
    852       837  
Accrued Medicare cap estimate
    500       735  
Other
    12,093       10,198  
     Total other current liabilities
  $ 13,876     $ 12,180  

 9.      Stock-Based Compensation Plans
 
On February 19, 2009, the Compensation/Incentive Committee of the Board of Directors (“CIC”) approved a grant of 53,199 shares of restricted stock to certain key employees.  The restricted shares cliff vest four years from the date of issuance.  The cumulative compensation expense related to the restricted stock award is $2.3 million and will be recognized ratably over the four-year vesting period.  We assumed no forfeitures in determining the cumulative compensation expense of the grant.

On February 19, 2009, the 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 $7.1 million and will be recognized over the three-year vesting period.  We used the Black-Scholes option valuation method to determine the cumulative compensation expense of the grant.

On May 29, 2009, the Compensation/Incentive Committee (“CIC”) approved a new stock-price target portion of the Company’s Executive Long-Term Incentive Plan (“LTIP”), which covers our officers and key employees.  The new stock price hurdles are as follows:

 
Stock
Price
 
Shares to
be
 
 
Hurdle
 
Issued
 
  $ 54.00     22,500  
  $ 58.00     33,750  
  $ 62.00     33,750  
 
Total
    90,000  

The stock price hurdles must be achieved during 30 trading days out of any 60 trading day period between May 29, 2009 and February 28, 2012.
 
-10-


10.  Loans Receivable from Independent Contractors
 
The Roto-Rooter segment sublicenses with approximately sixty-five independent contractors to operate certain plumbing repair and drain cleaning businesses in lesser-populated areas of the United States and Canada.  We had notes receivable from our independent contractors as of June 30, 2009 totaling $1.6 million (December 31, 2008 -$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 two months to 5 years at June 30, 2009.  During the three months ended June 30, 2009, we recorded revenues of $5.4 million (2008 - $5.6 million) and pretax profits of $2.4 million (2008 - $2.4 million) from our independent contractors.  During the six months ended June 30, 2009, we recorded revenues of $10.7 million (2008 - $11.2 million) and pretax profits of $4.7 million (2008 - $5.1 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.

11.   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 $5.6 million and $3.8 million for the three months ended June 30, 2009 and 2008, respectively.  Expenses for the Company’s pension and profit-sharing plans, excess benefit plans and other similar plans were $7.0 million and $5.5 million for the six months ended June 30, 2009 and 2008, respectively.

12.  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.

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.

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

In May of 2009, VITAS received an administrative subpoena from the U.S. Department of Justice requesting VITAS deliver to the OIG documents, patient records, and policy and procedure manuals for headquarters and its Texas programs concerning hospice services provided for the period January 1, 2003 to the date of the letter.  Based on the early stage of the investigation and the limited information we have at this time, we cannot predict the outcome of this investigation.  We believe that we are in material compliance with Medicare and Medicaid rules and regulations applicable to hospice providers.
 
-11-

 
We are unable to predict the outcome of these matters or the impact, if any, that the investigation may have on our business, results of operations, liquidity or capital resources.  Regardless of outcome, responding to the subpoenas can adversely affect us through defense costs, diversion of our time and related publicity.

14.   Related Party Agreement
 
VITAS has two pharmacy services agreements ("Agreements") with Omnicare, Inc. and its subsidiaries (“OCR”) whereby OCR provides specified pharmacy services for VITAS and its hospice patients in geographical areas served by both VITAS and OCR.  The Agreements renew automatically for one-year terms.  Either party may cancel the Agreements at the end of any term by giving written notice at least 90 days prior to the end of said term.  VITAS made purchases from OCR of $8.2 million and $8.3 million for the three months ended June 30, 2009 and 2008, respectively.  VITAS made purchases of $16.1 million and $16.5 million for the six months ended June 30, 2009 and 2008, respectively.  VITAS has accounts payable to OCR of $363,000 at June 30, 2009.

 Mr. Joel F. Gemunder, President and Chief Executive Officer of OCR and Ms. Andrea Lindell 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.

15.   Cash Overdrafts Payable
 
Included in accounts payable at June 30, 2009 is cash overdrafts payable of $8.0 million (December 31, 2008 - $8.8 million).

16.   Financial Instruments
 
On January 1, 2008, we partially adopted the provisions of Statement 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 partial adoption of SFAS 157.

On January 1, 2009, the deferral period granted by FASB Staff Position 157-2 relative to our goodwill and indefinite lived intangible assets expired.  There was no impact on our financial position or results of operations as a result of the expiration of the deferral.

The following shows the carrying value, fair value and SFAS 157 hierarchy for our financial instruments as of June 30, 2009 (in thousands):
 
         
Fair Value Measure
 
   
Carrying Value
   
Quoted Prices in Active Markets
for Identical
Assets (Level 1)
   
Significant
Other
Observable
Inputs (Level 2)
   
Significant Unobservable
Inputs (Level 3)
 
Mutual fund investments of deferred compensation plans held in trust
  $ 20,348     $ 20,348     $ -     $ -  
Long-term debt
    153,833       143,487       -       -  

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

17.   Subsequent Events

In May 2009, the FASB issued Statement of Financial Accounting Standard No. 165 “Subsequent Events” (“SFAS 165”), which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be issued.  It requires the disclosure of the date through which subsequent events have been evaluated as well as the basis for that date. This statement is effective prospectively for interim or annual financial periods ending after June 15, 2009.  We have evaluated all subsequent events through July 31, 2009, the date of this filing, and determined there are no material recognized or unrecognized subsequent events.
 
-12-


18.  Recent Accounting Statements

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 standard will be replaced when the Statement of Financial Accounting Standard No. 168 “The FASB Accounting Standards Codification” ™ (“SFAS 168”) becomes effective.  We believe that SFAS 162 has no impact on our existing accounting methods.

In June 2009, the FASB issued Statement of Financial Accounting Standard No. 167 “Amendments to FASB Interpretation No. 46(R)” (“SFAS 167”), which makes significant changes to the model for determining who should consolidate an entity and also addresses how often this assessment should be performed. The determination of who should consolidate a variable interest entity will be based on both quantitative and qualitative factors relating to control, as well as risks and benefits of ownership.  This statement is effective in 2010 for calendar-year companies and is to be adopted through a cumulative-effect adjustment.  We are currently evaluating the impact of  SFAS 167 on our existing accounting methods.

In June 2009, the FASB issued Statement of Financial Accounting Standard No. 168 “The FASB Accounting Standards Codification” ™ (“SFAS 168”).  SFAS 168 establishes the Codification as the single source of authoritative nongovernmental U.S. GAAP.  The Codification is not intended to change GAAP, but it represents a significant change in the way issues are researched and U.S. GAAP is referenced in financial statements and accounting policies.  SFAS 168 will be effective for interim or annual financial periods ending after September 15, 2009.  We believe that SFAS 168 will have no impact on our existing accounting methods.  However, upon adoption all references in our financial statements to authoritative U.S. GAAP will be changed to the Codification and not the historical U.S. GAAP reference.
 
-13-

 
19.  Guarantor Subsidiaries
 
    Our 1.875% Notes are fully and unconditionally guaranteed on an unsecured, jointly and severally liable basis by certain of our 100% owned subsidiaries.  The following unaudited, condensed, consolidating financial data presents the composition of the parent company (Chemed), the guarantor subsidiaries and the non-guarantor subsidiaries as of June 30, 2009 and December 31, 2008 for the balance sheet, the three and six months ended June 30, 2009 for the income statement and the six months ended June 30, 2009 for the statement of cash flows (dollars in thousands):
 
As of June 30, 2009
       
Guarantor
   
Non-Guarantor
 
Consolidating
       
   
Parent
   
Subsidiaries
   
Subsidiaries
   
Adjustments
   
Consolidated
 
ASSETS
                             
Cash and cash equivalents
  $ 13,187     $ 130     $ 3,315     $ -     $ 16,632  
Accounts receivable, less allowances
    677       102,764       682       -       104,123  
Intercompany receivables
    -       66,213       -       (66,213 )     -  
Inventories
    -       7,493       747       -       8,240  
Prepaid income taxes
    1,872       414       2,763       -       5,049  
Current deferred income taxes
    (1,298 )     17,142       67       -       15,911  
Prepaid expenses and other current assets
    1,221       7,722       88       -       9,031  
     Total current assets
    15,659       201,878       7,662       (66,213 )     158,986  
Investments of deferred compensation plans held in trust
    -       -       20,348       -       20,348  
Properties and equipment, at cost, less accumulated depreciation
    10,195       60,862       2,024       -       73,081  
Identifiable intangible assets less accumulated amortization
    -       59,875       -       -       59,875  
Goodwill
    -       445,588       4,417       -       450,005  
Other assets
    11,029       2,555       324       -       13,908  
Investments in subsidiaries
    610,262       14,225       -       (624,487 )     -  
          Total assets
  $ 647,145     $ 784,983     $ 34,775     $ (690,700 )   $ 776,203  
LIABILITIES AND STOCKHOLDERS' EQUITY
                                 
Accounts payable
  $ 592     $ 48,627     $ 252     $ -     $ 49,471  
Intercompany payables
    60,424       -       5,789       (66,213 )     -  
Current portion of long-term debt
    5,000       70       -       -       5,070  
Income taxes
    (4,159 )     5,328       132       -       1,301  
Accrued insurance
    471       34,558       -       -       35,029  
Accrued salaries and wages
    1,875       35,565       496       -       37,936  
Other current liabilities
    2,841       10,755       280       -       13,876  
     Total current liabilities
    67,044       134,903       6,949       (66,213 )     142,683  
Deferred income taxes
    (8,474 )     38,073       (6,294 )     -       23,305  
Long-term debt
    148,763       -       -       -       148,763  
Deferred compensation liabilities
    -       -       20,157       -       20,157  
Other liabilities
    2,908       1,483       -       -       4,391  
Stockholders' equity
    436,904       610,524       13,963       (624,487 )     436,904  
     Total liabilities and stockholders' equity
  $ 647,145     $ 784,983     $ 34,775     $ (690,700 )   $ 776,203  
                                         
as of December 31, 2008
         
Guarantor
   
Non-Guarantor
 
Consolidating
         
   
Parent
   
Subsidiaries
   
Subsidiaries
   
Adjustments
   
Consolidated
 
ASSETS
                                       
Cash and cash equivalents
  $ 65     $ 202     $ 3,361     $ -     $ 3,628  
Accounts receivable, less allowances
    1,261       96,112       703       -       98,076  
Intercompany receivables
    -       37,105       -       (37,105 )     -  
Inventories
    -       7,021       548       -       7,569  
Prepaid income taxes
    1,537       (1,097 )     909       -       1,349  
Current deferred income taxes
    (229 )     15,511       110       -       15,392  
Prepaid expenses and other current assets
    759       9,079       81       -       9,919  
     Total current assets
    3,393       163,933       5,712       (37,105 )     135,933  
Investments of deferred compensation plans held in trust
    -       -       22,628       -       22,628  
Properties and equipment, at cost, less accumulated depreciation
    11,665       63,179       2,118       -       76,962  
Identifiable intangible assets less accumulated amortization
    -       61,303       -       -       61,303  
Goodwill
    -       444,433       4,288       -       448,721  
Other assets
    11,312       2,455       308       -       14,075  
Investments in subsidiaries
    568,038       11,196       -       (579,234 )     -  
          Total assets
  $ 594,408     $ 746,499     $ 35,054     $ (616,339 )   $ 759,622  
LIABILITIES AND STOCKHOLDERS' EQUITY
                                 
Accounts payable
  $ (1,688 )   $ 54,175     $ 323     $ -     $ 52,810  
Intercompany payables
    29,513       -       7,592       (37,105 )     -  
Current portion of long-term debt
    10,000       169       -       -       10,169  
Income taxes
    (1,940 )     3,909       212       -       2,181  
Accrued insurance
    1,425       34,569       -       -       35,994  
Accrued salaries and wages
    3,817       36,523       401       -       40,741  
Other current liabilities
    2,022       8,979       1,179       -       12,180  
     Total current liabilities
    43,149       138,324       9,707       (37,105 )     154,075  
Deferred income taxes
    (7,801 )     38,310       (8,032 )     -       22,477  
Long-term debt
    158,210       -       -       -       158,210  
Deferred compensation liabilities
    -       -       22,417       -       22,417  
Other liabilities
    4,019       1,593       -       -       5,612  
Stockholders' equity
    396,831       568,272       10,962       (579,234 )     396,831  
     Total liabilities and stockholders' equity
  $ 594,408     $ 746,499     $ 35,054     $ (616,339 )   $ 759,622  
 
 
-14-


For the three months ended June 30, 2009
       
Guarantor
   
Non-Guarantor
   
Consolidating
       
   
Parent
   
Subsidiaries
   
Subsidiaries
   
Adjustments
   
Consolidated
 
 Continuing Operations
                             
 Net sales and service revenues
  $ -     $ 289,382     $ 5,873     $ -     $ 295,255  
 Cost of services provided and goods sold
    -       204,416       2,921       -       207,337  
 Selling, general and administrative expenses
    5,502       39,867       4,211       -       49,580  
 Depreciation
    148       5,016       174       -       5,338  
 Amortization
    596       1,022       -       -       1,618  
 Other operating expense
    3,444       -       -       -       3,444  
      Total costs and expenses
    9,690       250,321       7,306       -       267,317  
      Income/ (loss) from operations
    (9,690 )     39,061       (1,433 )     -       27,938  
 Interest expense
    (2,757 )     (385 )     -       -       (3,142 )
 Other income - net
    106       38       3,214       -       3,358  
      Income/ (loss) before income taxes
    (12,341 )     38,714       1,781       -       28,154  
 Income tax (provision)/ benefit
    4,148       (14,766 )     (286 )     -       (10,904 )
 Equity in net income of subsidiaries
    25,443       1,295       -       (26,738 )     -  
 Net income
  $ 17,250     $ 25,243     $ 1,495     $ (26,738 )   $ 17,250  
                                         
For the three months ended June 30, 2008
         
Guarantor
   
Non-Guarantor
   
Consolidating
         
   
Parent
   
Subsidiaries
   
Subsidiaries
   
Adjustments
   
Consolidated
 
 Continuing Operations
                                       
 Net sales and service revenues
  $ -     $ 276,973     $ 6,183     $ -     $ 283,156  
 Cost of services provided and goods sold
    -       198,098       3,041       -       201,139  
 Selling, general and administrative expenses
    4,479       39,742       2,100       -       46,321  
 Depreciation
    118       5,084       168       -       5,370  
 Amortization
    481       1,008       -       -       1,489  
      Total costs and expenses
    5,078       243,932       5,309       -       254,319  
      Income/ (loss) from operations
    (5,078 )     33,041       874       -       28,837  
 Interest expense
    (2,855 )     (109 )     -       -       (2,964 )
 Other (expense)/income - net
    1,506       (1,489 )     869       -       886  
      Income/ (loss) before income taxes
    (6,427 )     31,443       1,743       -       26,759  
 Income tax (provision)/ benefit
    1,865       (11,980 )     (373 )     -       (10,488 )
 Equity in net income of subsidiaries
    20,833       1,302       -       (22,135 )     -  
 Net income
  $ 16,271     $ 20,765     $ 1,370     $ (22,135 )   $ 16,271  
                                         
For the six months ended June 30, 2009
         
Guarantor
   
Non-Guarantor
 
Consolidating
       
   
Parent
   
Subsidiaries
   
Subsidiaries
   
Adjustments
   
Consolidated
 
 Continuing Operations
                                       
 Net sales and service revenues
  $ -     $ 578,521     $ 11,672     $ -     $ 590,193  
 Cost of services provided and goods sold
    -       408,445       5,905       -       414,350  
 Selling, general and administrative expenses
    10,731       80,515       4,127       -       95,373  
 Depreciation
    299       10,023       341       -       10,663  
 Amortization
    1,127       2,027       -       -       3,154  
 Other operating expense
    3,989       -       -       -       3,989  
      Total costs and expenses
    16,146       501,010       10,373       -       527,529  
      Income/ (loss) from operations
    (16,146 )     77,511       1,299       -       62,664  
 Interest expense
    (5,527 )     (465 )     6       -       (5,986 )
 Other (expense)/income - net
    490       (239 )     2,831       -       3,082  
      Income/ (loss) before income taxes
    (21,183 )     76,807       4,136       -       59,760  
 Income tax (provision)/ benefit
    7,418       (29,216 )     (1,373 )     -       (23,171 )
 Equity in net income of subsidiaries
    50,354       2,900       -       (53,254 )     -  
 Net income
  $ 36,589     $ 50,491     $ 2,763     $ (53,254 )   $ 36,589  
                                         
For the six months ended June 30, 2008
         
Guarantor
   
Non-Guarantor
   
Consolidating
         
   
Parent
   
Subsidiaries
   
Subsidiaries
   
Adjustments
   
Consolidated
 
 Continuing Operations
                                       
 Net sales and service revenues
  $ -     $ 555,835     $ 12,589     $ -     $ 568,424  
 Cost of services provided and goods sold
    -       400,802       6,149       -       406,951  
 Selling, general and administrative expenses
    8,529       78,530       1,989       -       89,048  
 Depreciation
    242       10,233       333       -       10,808  
 Amortization
    922       2,017       -       -       2,939  
      Total costs and expenses
    9,693       491,582       8,471       -       509,746  
      Income/ (loss) from operations
    (9,693 )     64,253       4,118       -       58,678  
 Interest expense
    (5,830 )     (242 )     (1 )     -       (6,073 )
 Other (expense)/income - net
    2,874       (2,545 )     (632 )     -       (303 )
      Income/ (loss) before income taxes
    (12,649 )     61,466       3,485       -       52,302  
 Income tax (provision)/ benefit
    4,475       (22,959 )     (1,687 )     -       (20,171 )
 Equity in net income of subsidiaries
    40,305       2,001       -       (42,306 )     -  
 Net income
  $ 32,131     $ 40,508     $ 1,798     $ (42,306 )   $ 32,131  
 
 
-15-


For the six months ended June 30, 2009
       
Guarantor
   
Non-Guarantor
       
   
Parent
   
Subsidiaries
 
Subsidiaries
   
Consolidated
 
 Cash Flow from Operating Activities:
                       
 Net cash (used)/provided by operating activities
  $ (7,802 )   $ 49,192     $ 1,730     $ 43,120  
 Cash Flow from Investing Activities:
                               
  Capital expenditures
    (13 )     (7,912 )     (211 )     (8,136 )
  Business combinations, net of cash acquired
    -       (1,859 )     -       (1,859 )
  Net payments on sale of discontinued operations
    (219 )     -       -       (219 )
  Proceeds from sale of property and equipment
    1,280       216       -       1,496  
  Other uses - net
    (146 )     (110 )     -       (256 )
       Net cash provided/ (used) by investing activities
    902       (9,665 )     (211 )     (8,974 )
 Cash Flow from Financing Activities:
                               
  Change in cash overdrafts payable
    1,242       (2,023 )     -       (781 )
  Change in intercompany accounts
    39,429       (37,625 )     (1,804 )     -  
  Dividends paid to shareholders
    (2,711 )     -       -       (2,711 )
  Purchases of treasury stock
    (526 )     -       -       (526 )
  Realized excess tax benefit on share based compensation
    313       -       -       313  
  Net decrease in  revolving credit facility
    (8,200 )     -       -       (8,200 )
  Repayment of long-term debt
    (9,500 )     (99 )     -       (9,599 )
  Other sources and uses - net
    (25 )     148       239       362  
       Net cash provided/(used) by financing activities
    20,022       (39,599 )     (1,565 )     (21,142 )
 Net increase/(decrease) in cash and cash equivalents
    13,122       (72 )     (46 )     13,004  
 Cash and cash equivalents at beginning of year
    65       202       3,361       3,628  
 Cash and cash equivalents at end of period
  $ 13,187     $ 130     $ 3,315     $ 16,632  
                                 
                                 
For the six months ended June 30, 2008
         
Guarantor
   
Non-Guarantor
         
   
Parent
   
Subsidiaries
 
Subsidiaries
   
Consolidated
 
 Cash Flow from Operating Activities:
                               
 Net cash (used)/provided by operating activities
  $ (3,607 )   $ 45,529     $ (151 )   $ 41,771  
 Cash Flow from Investing Activities:
                               
  Capital expenditures
    (62 )     (8,042 )     (611 )     (8,715 )
  Business combinations, net of cash acquired
    (1 )     (576 )     -       (577 )
  Net proceeds from sale of discontinued operations
    9,439       -       -       9,439  
  Proceeds from sale of property and equipment
    10       43       18       71  
  Other sources and uses - net
    (323 )     17       -       (306 )
       Net cash provided/ (used) by investing activities
    9,063       (8,558 )     (593 )     (88 )
 Cash Flow from Financing Activities:
                               
  Change in cash overdrafts payable
    826       (1,481 )     -       (655 )
  Change in intercompany accounts
    34,654       (35,241 )     587       -  
  Dividends paid to shareholders
    (2,900 )     -       -       (2,900 )
  Purchases of treasury stock
    (45,791 )     -       -       (45,791 )
  Realized excess tax benefit on share based compensation
    825       -       -       825  
  Net increase in  revolving credit facility
    8,300       -       -       8,300  
  Repayment of long-term debt
    (5,000 )     (95 )     -       (5,095 )
  Other sources and uses - net
    63       147       (40 )     170  
       Net cash provided/(used) by financing activities
    (9,023 )     (36,670 )     547       (45,146 )
 Net increase/(decrease) in cash and cash equivalents
    (3,567 )     301       (197 )     (3,463 )
 Cash and cash equivalents at beginning of year
    3,877       (1,584 )     2,695       4,988  
 Cash and cash equivalents at end of period
  $ 310     $ (1,283 )   $ 2,498     $ 1,525  
 
 
-16-

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

Executive Summary
 
We operate through our two wholly owned subsidiaries, VITAS Healthcare Corporation and Roto-Rooter Group, Inc.  VITAS focuses on hospice care that helps make terminally ill patients’ final days as comfortable as possible.  Through its 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 six months ended June 30, 2009 and 2008 (in thousands except per share amounts):
 
   
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
   
2009
   
2008
   
2009
   
2008
 
Consolidated service revenues and sales
  $ 295,255     $ 283,156     $ 590,193     $ 568,424  
Consolidated net income
  $ 17,250     $ 16,271     $ 36,589     $ 32,131  
Diluted EPS
  $ 0.76     $ 0.68     $ 1.61     $ 1.34  
 

For the three months ended June 30, 2009 and 2008, the increase in consolidated service revenues and sales was driven by a 6% increase at VITAS while Roto-Rooter revenues were essentially flat.  The increase in service revenues at VITAS was driven by an approximate 1% increase in average daily census (ADC) from the second quarter of 2008, the October 1, 2008 Medicare reimbursement rate increase of approximately 3.5%, a reversal of Medicare cap billing limitations recorded in previous periods and a mix shift to higher acuity days of care. Roto-Rooter was driven by an 8% decrease in job count offset by an approximate 9% price and mix shift increase. The Roto-Rooter changes include the impact of acquisitions in 2008 and 2009, offset by the conversion of one company-owned branch to an independent contractor in 2009.  The impact of these transactions is not material.  Consolidated net income increased mainly as a result of the increase in revenues.  Diluted EPS increased as the result of increased earnings and a reduction in the average shares outstanding due to our stock repurchase program.

For the six months ended June 30, 2009 and 2008, the increase in consolidated service revenues and sales was driven by a 6% increase in service revenues at VITAS while Roto-Rooter revenues were essentially flat.  The increase in service revenues at VITAS was driven by the October 1, 2008 Medicare reimbursement rate increase of approximately 3.5%, a reversal of Medicare cap billing limitations recorded in previous periods, an $1.95 million increase related to the retroactive price increase for services in the fourth quarter of 2008 and a mix shift to higher acuity days of care.  ADC was flat between periods.  Roto-Rooter was driven by a 7% decrease in job count offset by an approximate 9% price and mix shift increase.  The Roto-Rooter changes include the impact of acquisitions in 2008, offset by the conversion of one company-owned branch to an independent contractor in 2009.  Consolidated net income increased mainly as a result of the increase in revenues.  Diluted EPS increased as the result of increased earnings and a reduction in the average shares outstanding due to our stock repurchase program.

VITAS expects to achieve full-year 2009 revenue growth, prior to Medicare cap, of 5.0% to 6.0%.  Admissions are estimated to be in the range of 98% to 102% of total 2008 admissions.  Full calendar year 2009 Medicare contractual billing limitations are estimated at $2.3 million.  Roto-Rooter expects full-year 2009 revenue to range from flat to an increase of 1%.  The revenue growth is a result of increased pricing of 5.0%, a favorable mix shift to higher revenue jobs, partially offset by a job count decline estimated at 7.0% to 9.0%.  We anticipate that our operating income and cash flows will be sufficient to operate our businesses and meet any commitments for the foreseeable future.
 
-17-


Financial Condition
Liquidity and Capital Resources
 
Material changes in the balance sheet accounts from December 31, 2008 to June 30, 2009 include the following:

A $6.0 million increase in accounts receivable which results primarily from a $7.5 million increase at VITAS resulting from Medicare related administrative delays in processing payments at certain of our programs offset by a decrease at Roto-Rooter  related to a decrease in days sales outstanding.
A $14.5 million decrease in long-term debt which results primarily from an $8.2 million net reduction in our revolving line of credit and a $9.5 million payment on our term loan, offset by $3.2 million amortization of bond discount.

 Net cash provided by operating activities increased $1.3 million due primarily to the increase in net income offset by the increase in accounts receivable as noted above.

We have issued $27.8 million in standby letters of credit as of June 30, 2009, for insurance purposes.  Issued letters of credit reduce our available credit under the revolving credit agreement.  As of June 30, 2009, we have approximately $147.2 million of unused lines of credit available and eligible to be drawn down under our revolving credit facility, excluding the expansion feature. Management believes its liquidity and sources of capital are satisfactory for the Company’s needs in the foreseeable future.

Commitments and Contingencies
 
Collectively, the terms of our credit agreements require us to meet various financial covenants, to be tested quarterly.  In connection therewith, we are in compliance with all financial and other debt covenants as of June 30, 2009 and anticipate remaining in compliance throughout 2009.

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.

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.

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

In May of 2009, VITAS received an administrative subpoena from the U.S. Department of Justice requesting VITAS deliver to the OIG documents, patient records, and policy and procedure manuals for headquarters and its Texas programs concerning hospice services provided for the period January 1, 2003 to the date of the letter.  Based on the early stage of the investigation and the limited information we have at this time, we cannot predict the outcome of this investigation.  We believe that we are in material compliance with Medicare and Medicaid rules and regulations applicable to hospice providers.

We are unable to predict the outcome of these matters or the impact, if any, that the investigation may have on our business, results of operations, liquidity or capital resources.  Regardless of outcome, responding to the subpoenas can adversely affect us through defense costs, diversion of our time and related publicity.
 
-18-


Results of Operations
Three months ended June 30, 2009 versus  2008 - Consolidated Results
 
Our service revenues and sales for the second quarter of 2009 increased 4.3% versus services and sales revenues for the second quarter of 2008.  Of this increase, $12.3 million was attributable to VITAS offset by a $156,000 decrease at Roto-Rooter.  The following chart shows the components of those changes (dollar amounts in thousands):

       
Increase/(Decrease)
 
       
Amount
   
Percent
 
VITAS
               
 
Routine homecare
  $ 7,280       5.0 %
 
Continuous care
    5,174       17.3 %
 
General inpatient
    (704 )     -2.9 %
 
Medicare cap
    505       -  
Roto-Rooter
                 
 
Plumbing
      2,359       6.6 %
 
Drain cleaning
    (2,218 )     -6.1 %
 
Other
      (297 )     -2.4 %
   
Total
  $ 12,099       4.3 %

The increase in VITAS’ revenues for the second quarter of 2009 versus the second quarter of 2008 was driven by an approximate 1% increase in average daily census (ADC) from the second quarter of 2008, the October 1, 2008 Medicare reimbursement rate increase of approximately 3.5%, a reversal of Medicare cap billing limitations recorded in previous periods, and a mix shift to higher acuity days of care.  The ADC increase is a result of a 0.4% increase in routine homecare, an increase of 11.6% in continuous care and a 6.6% decrease in general inpatient.  In excess of 90% of VITAS’ service revenues for the period were from Medicare and Medicaid.

The increase in the plumbing revenues for the second quarter of 2009 versus 2008 is attributable to a 17% increase in the average price per job and a 10% decrease in the number of jobs performed.  The average price per job for plumbing is attributable to an increase in the number of jobs requiring excavation work.  Drain cleaning revenues for the second quarter of 2009 versus 2008 reflect a 7% decline in the number of jobs offset by a 1% increase in the average price per job.  The decrease in other revenues is attributable primarily to lower sales of drain cleaning products and decreased revenue from the independent contractor operations.
 
The consolidated gross margin was 29.8% in the second quarter of 2009 as compared with 29.0% in the second quarter of 2008.  On a segment basis, VITAS’ gross margin was 23.3% in the second quarter of 2009 and 21.9% in the second quarter of 2008.  VITAS’ gross margin increased due to the reversal of $505,000 in the Medicare cap accrual and refinements to scheduled field labor.  The Roto-Rooter segment’s gross margin was 46.2% in the second quarter of 2009 and 45.8% in the second quarter of 2008.
 
Selling, general and administrative expenses (“SG&A”) for the second quarter of 2009 were $49.6 million, an increase of $3.3 million (7%) versus the second quarter of 2008.  The increase is primarily related to the impact of stock market gains which increase the liabilities of deferred compensation plans held in trust and an increase in stock-based compensation expense over the comparable prior-year period.  The expense associated with the increase in liabilities of deferred compensation plans held in trust is essentially offset with gains recognized in other non-operating income.

Other operating expenses in the second quarter of 2009 of $3.4 million are related to the expenses of a contested proxy solicitation.

 Other income increased $2.5 million in the second quarter of 2008 to $3.4 million in the second quarter of 2009 due to the gain in the investments of deferred compensation plans held in trust.

Our effective income tax rate decreased from 39.2% in the second quarter of 2008 to 38.7% in the second quarter of 2009.
 
-19-


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

   
Three Months Ended
June 30,
 
   
2009
   
2008
 
VITAS
           
Costs associated with  OIG investigations
  $ (53 )   $ (35 )
Corporate
               
Costs related to contested proxy solicitation
    (2,180 )     -  
 Stock option expense
    (1,544 )     (1,010 )
Noncash interest expense related to change in accounting
               
for conversion feature of the convertible notes
    (987 )     (979 )
Impact of non-deductible losses and non-taxable gains on
               
investments held in deferred compensation trusts
    20       -  
Total
  $ (4,744 )   $ (2,024 )

Three months ended June 30,  2009 versus 2008 - Segment Results
 
The change in after-tax earnings for the second quarter of 2009 versus the second quarter of 2008 is due to (in thousands):

   
Net Income
 
   
Increase/(Decrease)
 
   
Amount
   
Percent
 
VITAS
  $ 2,923       20.4 %
Roto-Rooter
    458       5.5 %
Corporate
    (2,402 )     -37.3 %
    $ 979       6.0 %

Six months ended June 30,  2009 versus  2008 - Consolidated Results
 
Our service revenues and sales for the first six months of 2009 increased 3.8% versus services and sales revenues for the first six months of 2008.  Of this increase, $22.1 million was attributable to VITAS offset by a $318,000 decrease at Roto-Rooter.  The following chart shows the components of those changes (dollar amounts in thousands):

       
Increase/(Decrease)
 
       
Amount
   
Percent
 
VITAS
               
 
Routine homecare
  $ 12,717       4.4 %
 
Continuous care
    8,768       14.4 %
 
General inpatient
    (1,583 )     -3.1 %
 
Medicare cap
    235       -  
 
BNAF adjustment
    1,950       -  
Roto-Rooter
                 
 
Plumbing
      4,773       6.7 %
 
Drain cleaning
    (4,505 )     -6.0 %
 
Other
      (586 )     -2.4 %
   
Total
  $ 21,769       3.8 %

The increase in VITAS’ service revenues for the first six months of 2009 versus the first six months of 2008 is primarily the result of the 2008 Medicare reimbursement rate increase of approximately 3.5%, a $1.95 million increase for the BNAF related to the fourth quarter of 2008, a reversal of Medicare cap reserves of $235,000, as well as favorable mix shift to higher acuity days of care. ADC increased 0.5% compared with the prior year period.  This is a result of a 0.4% increase in routine homecare, an increase of 8.8% in continuous care and a 7.1% decrease in general inpatient.  In excess of 90% of VITAS’ service revenues for the period were from Medicare and Medicaid.
 
-20-


The increase in the plumbing revenues for the first six months of 2009 versus 2008 is attributable to a 17% increase in the average price per job offset by an 8% decrease in the number of jobs performed. The average price per job for plumbing is attributable to an increase in the number of jobs requiring excavation work. Drain cleaning revenues for the first six months of 2009 versus 2008 reflect a 7% decline in the number of jobs offset by a 1% increase in the average price per job.  The decrease in other revenues is attributable primarily to lower sales of drain cleaning products and decreased revenue from independent contractor operations.
 
The consolidated gross margin was 29.8% for the first six months of 2009 as compared with 28.4% for the first six months of 2008.  On a segment basis, VITAS’ gross margin was 23.3% for the first six months of 2009 and 20.9% for the first six months of 2008.  VITAS’ gross margin increased as the result of the $1.95 million BNAF adjustment related to fourth quarter of 2008, the reversal of $235,000 in the Medicare cap accrual and refinements to scheduled field labor. The Roto-Rooter segment’s gross margin was 45.7% for the first six months of 2009 and 45.8% for the first six months of 2008.
 
Selling, general and administrative expenses (“SG&A”) for the first six months of 2009 were $95.3 million, an increase of $6.3 million (7%) versus the first six months of 2008.  The increase is due to the impact of stock market gains which increase the liabilities of deferred compensation plans held in trust, an increase in stock-based compensation expense over the comparable period of 2008 as well as an increase in bad debt expense at VITAS.  The expense associated with the increase in the liabilities of deferred compensation plans held in trust is essentially offset with gains recognized in other non-operating income.

Other operating expenses for the first six months of 2009 of $4.0 million are related to the expenses of a contested proxy solicitation.

 Other income/(expense) increased from an expense of $303,000 for the first six months of 2008 to income of $3.1 million for the first six months of  2009 due to the gain in the investments of deferred compensation plans held in trust.

Our effective income tax rate increased from 38.6% for the first six months of 2008 to 38.8% for the first six months of 2009.

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

   
Six Months Ended
June 30,
 
   
2009
   
2008
 
VITAS
           
Costs associated with  OIG investigations
  $ (61 )   $ (26 )
Tax credit related to prior years
    -       322  
Roto-Rooter
               
Unreserved prior year's insurance claims
    -       (358 )
Corporate
               
Costs related to contested proxy solicitation
    (2,525 )     -  
Stock option expense
    (2,836 )     (1,894 )
Noncash interest expense related to change in accounting
               
for conversion feature of the convertible notes
    (1,955 )     (1,939 )
Impact of non-deductible losses and non-taxable gains on
               
investments held in deferred compensation trusts
    756       -  
Total
  $ (6,621 )   $ (3,895 )
 
-21-


Six months ended June 30,  2009 versus 2008 - Segment Results
 
The change in after-tax earnings for the first six months of 2009 versus the first six months of 2008 is due to (in thousands):

   
Net Income
 
   
Increase/(Decrease)
 
   
Amount
   
Percent
 
VITAS
  $ 6,908       25.0 %
Roto-Rooter
    (361 )     -2.1 %
Corporate
    (2,089 )     -16.1 %
    $ 4,458       13.9 %

The following chart updates historical unaudited financial and operating data of VITAS (dollars in thousands, except dollars per patient day):
 
-22-

 
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
OPERATING STATISTICS FOR VITAS SEGMENT
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008
(unaudited)
                         
   
Three Months Ended June 30, 
   
Six Months Ended June 30, 
 
OPERATING STATISTICS
 
2009
   
2008
   
2009
   
2008
 
Net revenue
                       
Homecare
  $ 152,006     $ 144,726     $ 299,060     $ 286,343  
Inpatient
    23,667       24,371       48,759       50,342  
Continuous care
    35,125       29,951       69,716       60,948  
Total before Medicare cap allowance and 2008 BNAF*
  $ 210,798     $ 199,048     $ 417,535     $ 397,633  
Estimated BNAF* Accrual Q4 2008
    -       -       1,950       -  
Medicare cap allowance
    505       -       235       -  
Total
  $ 211,303     $ 199,048     $ 419,720     $ 397,633  
Net revenue as a percent of total
                               
before Medicare cap allowance
                               
Homecare
    72.1 %     72.8 %     71.6 %     72.0 %
Inpatient
    11.2       12.2       11.7       12.7  
Continuous care
    16.7       15.0       16.7       15.3  
Total before Medicare cap allowance and 2008 BNAF*
    100.0       100.0       100.0       100.0  
Estimated BNAF* Accrual Q4 2008
    -       -       0.5       -  
Medicare cap allowance
    0.2       -       -       -  
Total
    100.2 %     100.0 %     100.5 %     100.0 %
Average daily census ("ADC") (days)
                               
Homecare
    7,668       7,347       7,573       7,251  
Nursing home
    3,292       3,570       3,277       3,559  
Routine homecare
    10,960       10,917       10,850       10,810  
Inpatient
    394       422       407       438  
Continuous care
    566       507       567       521  
Total
    11,920       11,846       11,824       11,769  
                                 
Total Admissions
    13,840       13,956       28,008       29,168  
Total Discharges
    13,740       13,707       27,605       28,704  
Average length of stay (days)
    73.4       73.2       75.0       72.3  
Median length of stay (days)
    14.0       13.0       14.0       13.0  
ADC by major diagnosis
                               
Neurological
    32.8 %     32.1 %     32.7 %     32.3 %
Cancer
    19.2       20.0       19.3       20.0  
Cardio
    12.1       12.9       12.2       13.0  
Respiratory
    6.6       6.7       6.6       6.8  
Other
    29.3       28.3       29.2       27.9  
Total
    100.0 %     100.0 %     100.0 %     100.0 %
Admissions by major diagnosis
                               
Neurological
    17.3 %     17.7 %     17.9 %     18.5 %
Cancer
    35.4       35.7       34.9       34.6  
Cardio
    11.9       12.0       12.1       12.0  
Respiratory
    7.7       7.9       7.8       8.2  
Other
    27.7       26.7       27.3       26.7  
Total
    100.0 %     100.0 %     100.0 %     100.0 %
Direct patient care margins
                               
Routine homecare
    52.1 %     51.5 %     51.9 %     50.5 %
Inpatient
    16.6       17.8       17.1       18.6  
Continuous care
    20.2       17.6       20.2       17.1  
Homecare margin drivers (dollars per patient day)
                               
Labor costs
  $ 51.83     $ 49.72     $ 52.32     $ 50.98  
Drug costs
    7.71       7.74       7.68       7.62  
Home medical equipment
    6.82       6.20       6.75       6.19  
Medical supplies
    2.36       2.32       2.32       2.44  
Inpatient margin drivers (dollars per patient day)
                               
Labor costs
  $ 282.46     $ 261.79     $ 276.96     $ 264.06  
Continuous care margin drivers (dollars per patient day)
                               
Labor costs
  $ 522.27     $ 513.89     $ 521.79     $ 511.70  
Bad debt expense as a percent of revenues
    1.1 %     1.0 %     1.1 %     1.0 %
Accounts receivable --
                               
days of revenue outstanding
    55.9       45.3    
N.A.
   
N.A.
 
                                 
* Budget Neutrality Adjustment Factor.
                               
                                 
VITAS has 4 large (greater than 450 ADC), 18 medium (greater than 200 but less than 450 ADC) and 23 small (less than 200 ADC) hospice programs. There are two continuing programs as of June 30, 2009, with Medicare cap cushion of less than 5% for the most recent twelve month period.
                                 
Direct patient care margins exclude indirect patient care and administrative costs, as well as Medicare cap billing limitation.
 
 
-23-

 
Recent Accounting Statements
 
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 standard will be replaced when the Statement of Financial Accounting Standard No. 168 “The FASB Accounting Standards Codification” ™ (“SFAS 168”) becomes effective.  We believe that SFAS 162 has no impact on our existing accounting methods.

In June 2009, the FASB issued Statement of Financial Accounting Standard No. 167 “Amendments to FASB Interpretation No. 46(R)” (“SFAS 167”), which makes significant changes to the model for determining who should consolidate an entity and also addresses how often this assessment should be performed. The determination of who should consolidate a variable interest entity will be based on both quantitative and qualitative factors relating to control, as well as risks and benefits of ownership.  This statement is effective in 2010 for calendar-year companies and is to be adopted through a cumulative-effect adjustment.  We are currently evaluating the impact of   SFAS 167 on our existing accounting methods.

In June 2009, the FASB issued Statement of Financial Accounting Standard No. 168 “The FASB Accounting Standards Codification” ™ (“SFAS 168”).  SFAS 168 establishes the Codification as the single source of authoritative nongovernmental U.S. GAAP.  The Codification is not intended to change GAAP, but it represents a significant change in the way issues are researched and U.S. GAAP is referenced in financial statements and accounting policies.  SFAS 168 will be effective for interim or annual financial periods ending after September 15, 2009.  We believe SFAS 168 will have no impact on our existing accounting methods.  However, upon adoption, all references in our financial statements to authoritative U.S. GAAP will be made to the Codification and not the historical U.S. GAAP reference.

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

Item 3.   Quantitative and Qualitative Disclosures about Market Risk
 
Our primary market risk exposure relates to interest rate risk exposure through variable interest rate borrowings.  At June 30, 2009, we had $5.0 million of variable rate debt outstanding.  A 1% change in the interest rate on our variable interest rate borrowings would have a $50,000 full-year impact on our interest expense.  At June 30, 2009, the fair value of the Notes approximates $138.4 million which have a face value of $187.0 million.

Item 4.   Controls and Procedures
 
We carried out an evaluation, under the supervision of our President and Chief Executive Officer and with the participation of the Executive Vice President and Chief Financial Officer and the Vice President and Controller, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report.  Based on that evaluation, the President and Chief Executive Officer, Executive Vice President and Chief Financial Officer and Vice President and Controller have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.  There has been no change in our internal control over financial reporting that occurred during the quarter covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
-24-

 
PART II. OTHER INFORMATION
 
Item 1.    Legal Proceedings
 
For information regarding the Company’s legal proceedings, see note 12, Litigation, and note 13, regulatory matters, under Part I, Item I of this Quarterly Report on Form 10-Q.

Item 1A.   Risk Factors
 
There have been no material changes from the risk factors previously disclosed in the Company’s most recent Annual Report on Form 10-K.

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

None

Item 3.    Defaults Upon Senior Securities

None

Item 4.    Submission of Matters to a Vote of Security Holders
 
A.   Chemed Corporation held its annual meeting of stockholders on May 29, 2009.
 
B.   The names of directors elected at this annual meeting are as follows:
 
Kevin J. McNamara
Joel F. Gemunder 
Patrick P. Grace
Thomas C. Hutton 
Walter L. Krebs
Andrea R. Lindell 
Ernest J. Mrozek
Thomas P. Rice
Donald E. Saunders
George J. Walsh III 
Frank E. Wood
 
 
C.    The stockholders ratified the selection by the Board of Directors of PricewaterhouseCoopers LLP as independent accountants for the Company and its consolidated subsidiaries for the year 2009: 19,953,310 votes were cast in favor of the proposal, 192,021 votes were cast against it and 41,809 abstained.
 
D.   With respect to the election of directors, the number of votes cast for each nominee were as follows:

 
For
Withheld   
 
Kevin J. McNamara
20,045,387
141,751
 
Joel F. Gemunder
18,149,648
2,037,491
 
Patrick P. Grace
19,245,567
941,572
 
Thomas C. Hutton
19,242,078
945,061
 
Walter L. Krebs
19,243,039
944,100
 
Andrea R. Lindell
20,037,463
149,675
 
Ernest J. Mrozek
20,043,166
143,973
 
Thomas P. Rice
20,040,108
147,031
 
Donald E. Saunders
19,236,391
950,748
 
George J. Walsh III
18,499,984
1,687,155
 
Frank E. Wood
20,044,990
142,149
 

Item 5.   Other Information

None
 
-25-


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.
 
 
 
-26-

 
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:
 
July 31, 2009
 
By:
 
Kevin J. McNamara
           
Kevin J. McNamara
           
(President and Chief Executive Officer)
             
             
Dated:
 
July 31, 2009
 
By:
 
David P. Williams
           
David P. Williams
           
(Executive Vice President and Chief Financial Officer)
             
             
Dated:
 
July 31, 2009
 
By:
 
Arthur V. Tucker, Jr.
           
Arthur V. Tucker, Jr.
           
(Vice President and Controller)
 
 
-27-
 
 
a6018395_ex311.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 report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;

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

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

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

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

 
d)  disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter 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:
July 31, 2009      
/s/ Kevin J. McNamara
Kevin J. McNamara
(President and Chief Executive Officer)
 
 
E-1
a6018395_ex312.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 report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;

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

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

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

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

 
d)  disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter 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:
July 31, 2009        
/s/ David P. Williams
David P. Williams
(Executive Vice President and Chief Financial Officer)
 
 
E-2
a6018395_ex313.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 report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;

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

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

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

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

 
d)  disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter 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:
July 31, 2009        
/s/ Arthur V. Tucker, Jr.
Arthur V. Tucker, Jr.
(Vice President and Controller)
 
 
E-3
a6018395_ex321.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 on Form 10-Q for the quarter ending June 30, 2009 (“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:
July 31, 2009                
 
/s/ Kevin J. McNamara
Kevin J. McNamara
(President and Chief Executive Officer)
 
 
 
E-4
a6018395_ex322.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 on Form 10-Q for the quarter ending June 30, 2009 (“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:
July 31, 2009              
/s/ David P. Williams
David P. Williams
(Executive Vice President and Chief Financial Officer)
 
 
E-5
a6018395_ex323.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 on Form 10-Q for the quarter ending June 30, 2009 (“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:
July 31, 2009         
/s/ Arthur V. Tucker, Jr.
Arthur V. Tucker, Jr.
(Vice President and Controller)
 
 
E-6