CHEMED CORP - Quarter Report: 2010 June (Form 10-Q)

a6371735.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, 2010

	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number: 1-8351

CHEMED CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	31-0791746
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

2600 Chemed Center, 255 E. Fifth Street, Cincinnati, Ohio		45202
(Address of principal executive offices)		(Zip code)

(513) 762-6900

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes

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

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

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

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	22,787,983 Shares	June 30, 2010

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CHEMED CORPORATION AND

SUBSIDIARY COMPANIES

Index

	Page No.
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Unaudited Consolidated Balance Sheet - June 30, 2010 and December 31, 2009		3

Unaudited Consolidated Statement of Income - Three and six months ended June 30, 2010 and 2009		4

Unaudited Consolidated Statement of Cash Flows - Six months ended June 30, 2010 and 2009		5

Notes to Unaudited Financial Statements		6

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		16

Item 3. Quantitative and Qualitative Disclosures about Market Risk		30

Item 4. Controls and Procedures		30

PART II. OTHER INFORMATION
Item 1. Legal Proceedings		30

Item 1A. Risk Factors		30

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		31

Item 3. Defaults Upon Senior Securities		31

Item 4. Submission of Matters to a Vote of Security Holders		31

Item 5. Other Information		31

Item 6. Exhibits		31

EX – 101.INS

EX – 101.SCH

EX – 101.CAL

EX – 101.LAB

EX – 101.PRE

EX – 101.DEF

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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,
	2010			2009
ASSETS
Current assets
Cash and cash equivalents	$	109,080		$	112,416
Accounts receivable less allowances of $13,808 (2009 - $12,595)		101,736			53,461
Inventories		7,978			7,543
Current deferred income taxes		14,453			13,701
Prepaid income taxes		351			749
Prepaid expenses		10,423			10,388
Total current assets		244,021			198,258
Investments of deferred compensation plans		26,282			24,158
Properties and equipment, at cost, less accumulated depreciation of $123,209 (2009 - $115,181)		78,437			75,358
Identifiable intangible assets less accumulated amortization of $26,582 (2009 - $25,349)		56,620			57,920
Goodwill		450,105			450,042
Other assets		10,498			13,734
Total Assets	$	865,963		$	819,470

LIABILITIES
Current liabilities
Accounts payable	$	49,131		$	52,071
Income taxes		4,783			63
Accrued insurance		34,729			35,161
Accrued compensation		41,613			34,662
Other current liabilities		11,669			14,127
Total current liabilities		141,925			136,084
Deferred income taxes		24,353			25,924
Long-term debt		155,608			152,127
Deferred compensation liabilities		25,374			23,637
Other liabilities		5,736			4,536
Total Liabilities		352,996			342,308

STOCKHOLDERS' EQUITY
Capital stock - authorized 80,000,000 shares $1 par; issued 30,202,452 shares (2009 - 29,890,628 shares)		30,202			29,891
Paid-in capital		351,672			335,890
Retained earnings		436,098			403,366
Treasury stock - 7,517,328 shares (2009 - 7,275,070 shares), at cost		(307,003	)		(293,941	)
Deferred compensation payable in Company stock		1,998			1,956
Total Stockholders' Equity		512,967			477,162
Total Liabilities and Stockholders' Equity	$	865,963		$	819,470


See accompanying notes to unaudited financial statements.

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



	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
Service revenues and sales	$	314,995		$	295,255		$	623,808		$	590,193
Cost of services provided and goods sold (excluding depreciation)		223,702			207,337			442,839			414,350
Selling, general and administrative expenses		49,956			49,580			98,494			95,373
Depreciation		6,194			5,338			11,663			10,663
Amortization		1,287			1,618			2,511			3,154
Other operating expenses		-			3,444			-			3,989
Total costs and expenses		281,139			267,317			555,507			527,529
Income from operations		33,856			27,938			68,301			62,664
Interest expense		(2,999	)		(3,142	)		(5,951	)		(5,986	)
Other income--net		10			3,358			196			3,082
Income before income taxes		30,867			28,154			62,546			59,760
Income taxes		(12,012	)		(10,904	)		(24,333	)		(23,171	)
Net income	$	18,855		$	17,250		$	38,213		$	36,589


Earnings Per Share
Net income	$	0.83		$	0.77		$	1.69		$	1.63
Average number of shares outstanding		22,644			22,417			22,608			22,406

Diluted Earnings Per Share
Net income	$	0.82		$	0.76		$	1.66		$	1.61
Average number of shares outstanding		23,080			22,672			23,012			22,660

Cash Dividends Per Share	$	0.12		$	0.06		$	0.24		$	0.12


See accompanying notes to unaudited financial statements.

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CHEMED CORPORATION AND SUBSIDIARY COMPANIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)

	Six Months Ended
	June 30,
	2010			2009
Cash Flows from Operating Activities
Net income	$	38,213		$	36,589
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization		14,174			13,817
Provision for uncollectible accounts receivable		4,863			5,459
Stock option expense		4,397			4,485
Amortization of discount on convertible notes		3,481			3,253
Provision for deferred income taxes		(2,364	)		317
Noncash long-term incentive compensation		1,580			-
Changes in operating assets and liabilities, excluding
amounts acquired in business combinations:
Increase in accounts receivable		(53,169	)		(11,575	)
Increase in inventories		(435	)		(668	)
Decrease/(increase) in prepaid expenses		(35	)		902
Increase/(decrease) in accounts payable and other current liabilities		3,035			(4,005	)
Increase/(decrease) in income taxes		6,902			(4,267	)
Decrease/(increase) in other assets		(1,935	)		2,264
Increase/(decrease) in other liabilities		2,938			(3,481	)
Excess tax benefit on share-based compensation		(1,802	)		(313	)
Other sources		434			343
Net cash provided by operating activities		20,277			43,120
Cash Flows from Investing Activities
Capital expenditures		(11,942	)		(8,136	)
Proceeds from sales of property and equipment		89			1,496
Business combinations, net of cash acquired		(30	)		(1,859	)
Other uses		(286	)		(475	)
Net cash used by investing activities		(12,169	)		(8,974	)
Cash Flows from Financing Activities
Purchases of treasury stock		(10,125	)		(526	)
Dividends paid		(5,481	)		(2,711	)
Proceeds from issuance of capital stock		3,475			68
Excess tax benefit on share-based compensation		1,802			313
Decrease in cash overdrafts payable		(1,314	)		(781	)
Repayment of long-term debt		-			(9,599	)
Net decrease in revolving line of credit		-			(8,200	)
Other sources		199			294
Net cash used by financing activities		(11,444	)		(21,142	)
(Decrease)/Increase in Cash and Cash Equivalents		(3,336	)		13,004
Cash and cash equivalents at beginning of year		112,416			3,628
Cash and cash equivalents at end of period	$	109,080		$	16,632

See accompanying notes to unaudited financial statements.

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CHEMED CORPORATION AND SUBSIDIARY COMPANIES

Notes to Unaudited Financial Statements

1. Basis of Presentation

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

We have prepared the accompanying unaudited consolidated financial statements of Chemed in accordance with Rule 10-01 of SEC Regulation S-X. Consequently, we have omitted certain disclosures required under generally accepted accounting principles in the United States (“GAAP”) for complete financial statements. The December 31, 2009 balance sheet data were derived from audited financial statements but do not include all disclosures required by GAAP. However, in our opinion, the financial statements presented herein contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly our financial position, results of operations and cash flows. These financial statements are prepared on the same basis as and should be read in conjunction with the Consolidated Financial Statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2009.

2. Revenue Recognition

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

As of June 30, 2010, VITAS has approximately $7.6 million in unbilled revenue included in accounts receivable (December 31, 2009 - $9.9 million). The unbilled revenue at VITAS relates to hospice programs currently undergoing focused medical reviews (“FMR”). During FMR, surveyors working on behalf of the U.S. Federal government review certain patient files for compliance with Medicare regulations. During the time the patient file is under review, we are unable to bill for care provided to those patients. We make appropriate provisions to reduce our accounts receivable balance for potential denials of patient service revenue due to FMR activity.

We actively monitor each of our hospice programs, by provider number, as to their specific admission, discharge rate and median length of stay data in an attempt to determine whether they are likely to exceed the annual per-beneficiary Medicare cap (“Medicare cap”). Should we determine that revenues for a program are likely to exceed the Medicare cap based on projected trends, we attempt to institute corrective action to influence the patient mix or to increase patient admissions. However, should we project our corrective action will not prevent that program from exceeding its Medicare cap, we estimate the amount of revenue recognized during the period that will require repayment to the Federal government under the Medicare cap and record the amount as a reduction to patient revenue. The Medicare cap measurement period is from September 29 through September 28 of the following year for admissions and from November 1 through October 31 of the following year for revenue. During the three-month periods ended June 30, 2010 and 2009, we reversed $35,000 and $505,000, respectively of Medicare cap liability recorded during previous quarters due to improved admission trends. For the six month period ended June 30, 2010, we reversed $1.8 million in Medicare cap liability recorded in the fourth quarter of 2009 for two programs’ projected liability for the 2010 measurement period. For the six month period ended June 30, 2009, we reversed $235,000 for the 2009 measurement period.

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

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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,
		2010			2009			2010			2009
Service Revenues and Sales
VITAS		$	226,638		$	211,303		$	449,578		$	419,720
Roto-Rooter			88,357			83,952			174,230			170,473
	Total	$	314,995		$	295,255		$	623,808		$	590,193

After-tax Earnings
VITAS		$	18,281		$	17,122		$	36,719		$	34,292
Roto-Rooter			8,860			8,798			16,673			17,027
	Total		27,141			25,920			53,392			51,319
Corporate			(8,286	)		(8,670	)		(15,179	)		(14,730	)
	Net income	$	18,855		$	17,250		$	38,213		$	36,589

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

4. Earnings per Share

Earnings per share are computed using the weighted average number of shares of capital stock outstanding. Earnings and diluted earnings per share for 2010 and 2009 are computed as follows (in thousands, except per share data):

For the Three Months Ended June 30,	Net Income		Shares		Earnings per Share
2010
Earnings	$	18,855		22,644	$	0.83
Dilutive stock options		-		348
Nonvested stock awards		-		88
Diluted earnings	$	18,855		23,080	$	0.82

2009
Earnings	$	17,250		22,417	$	0.77
Dilutive stock options		-		214
Nonvested stock awards		-		41
Diluted earnings	$	17,250		22,672	$	0.76

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For the Six Months Ended June 30,	Net Income		Shares		Earnings per Share
2010
Earnings	$	38,213		22,608	$	1.69
Dilutive stock options		-		319
Nonvested stock awards		-		85
Diluted earnings	$	38,213		23,012	$	1.66

2009
Earnings	$	36,589		22,406	$	1.63
Dilutive stock options		-		216
Nonvested stock awards		-		38
Diluted earnings	$	36,589		22,660	$	1.61

For the three and six-month periods ended June 30, 2010, 976,000 and 991,000 stock options, respectively were excluded from the computation of diluted earnings per share as their exercise prices were greater than the average market price for most of the period. For the three and six-month periods ended June 30, 2009, 1.8 million stock options were excluded from the computation of diluted earnings per share.

Diluted earnings per share may be impacted in future periods as the result of the issuance of our 1.875% Senior Convertible Notes (the “Notes”) and related purchased call options and sold warrants. Per FASB’s authoritative guidance on the effect of contingently convertible instruments on diluted earnings per share and convertible bonds with an issuer option to settle for cash upon conversion, we will not include any shares related to the Notes in our calculation of diluted earnings per share until our average stock price for a quarter exceeds the current conversion price. We would then include in our diluted earnings per share calculation those shares issuable using the treasury stock method. The amount of shares issuable is based upon the amount by which the average stock price for the quarter exceeds the conversion price. The purchased call option does not impact the calculation of diluted earnings per share as it is always anti-dilutive. The sold warrants become dilutive when our average stock price for a quarter exceeds the strike price of the warrant.

The following table provides examples of how changes in our stock price impact the number of shares that would be included in our diluted earnings per share calculation. It also shows the impact on the number of shares issuable upon conversion of the Notes and settlement of the purchased call options and sold warrants:

		Shares									Incremental
		Underlying				Total Treasury		Shares Due			Shares Issued/
		1.875%				Method		to the Company			Received by the
Share		Convertible		Warrant		Incremental		under Notes			Company upon
Price		Notes		Shares		Shares (a)		Hedges			Conversion (b)
$	80.73		11,398		-		11,398		(12,194	)		(796	)
$	90.73		266,091		-		266,091		(284,657	)		(18,566	)
$	100.73		470,215		-		470,215		(503,022	)		(32,807	)
$	110.73		637,470		118,682		756,152		(681,947	)		74,205
$	120.73		777,018		314,621		1,091,639		(831,231	)		260,408
$	130.73		895,216		480,584		1,375,800		(957,676	)		418,124

a)	Represents the number of incremental shares that must be included in the calculation of fully diluted shares under U.S. GAAP.

b)	Represents the number of incremental shares to be issued by the Company upon conversion of the 1.875% Convertible Notes, assuming concurrent settlement of the note hedges and warrants.

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5. Long-Term Debt

We are in compliance with all debt covenants as of June 30, 2010. We have issued $28.3 million in standby letters of credit as of June 30, 2010 for insurance purposes. Issued letters of credit reduce our available credit under the revolving credit agreement. As of June 30, 2010, we have approximately $146.7 million of unused lines of credit available and eligible to be drawn down under our revolving credit facility, excluding the expansion feature.

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

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

	June 30, 2010			December 31, 2009
Principal amount of convertible debentures	$	186,956		$	186,956
Unamortized debt discount		(31,348	)		(34,829	)
Carrying amount of convertible debentures	$	155,608		$	152,127
Additional paid in capital (net of tax)	$	31,310		$	31,310

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2010		2009		2010		2009
Cash interest expense	$	1,083	$	1,346	$	2,153	$	2,424
Non-cash amortization of debt discount		1,755		1,640		3,480		3,253
Amortization of debt costs		161		156		318		309
Total interest expense	$	2,999	$	3,142	$	5,951	$	5,986

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

6. Other Operating Expenses

For the three and six-month periods ended June 30, 2010, there were no other operating expenses recorded. 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.

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7. Other Income -- Net

Other income -- net comprises the following (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
Market value gains/(losses) on assets held in
deferred compensation trust	$	(83	)	$	3,199		$	105		$	1,585
Gain on settlement of company-owned life insurance		-			-			-			1,211
Loss on disposal of property and equipment		(58	)		(78	)		(152	)		(54	)
Interest income		150			207			225			289
Other - net		1			30			18			51
Total other income	$	10		$	3,358		$	196		$	3,082

8. Stock-Based Compensation Plans

On May 17, 2010 the stockholders approved the adoption of the Company’s 2010 Stock Incentive Plan. The Stock Incentive Plan authorizes the issuance or transfer of a maximum of 1,750,000 shares of capital stock pursuant to stock incentives granted to key employees of the Company. Stock incentives granted under the Stock Plan may be in the form of options to purchase capital stock or in the form of capital stock awards.

In April 2010, we met the stock price target of our Long-Term Incentive Plan. The stock price hurdle of $54.00 was achieved during 30 trading days out of a 60 day trading day period. On April 16, 2010, the Compensation/Incentive Committee of the Board of Directors (“CIC”) approved a stock grant of 27,900 shares and the related allocation to participants. The pretax cost of the stock grant was $1.8 million.

On February 18, 2010, the CIC approved a grant of 47,896 shares of restricted stock to certain key employees. The restricted shares cliff vest four years from the date of issuance. The cumulative compensation expense related to the restricted stock award is $2.5 million and will be recognized ratably over the four-year vesting period. We assumed no forfeitures in determining the cumulative compensation expense of the grant.

On February 18, 2010, the CIC approved a grant of 515,100 stock options to certain employees. The stock options vest ratably over three years from the date of issuance. The cumulative compensation expense related to the stock option grant is $7.8 million and will be recognized over the three-year vesting period. We used the Black-Scholes option valuation method to determine the cumulative compensation expense of the grant.

9. Independent Contractor Operations

The Roto-Rooter segment sublicenses with sixty-one independent contractors to operate certain plumbing repair and drain cleaning businesses in lesser-populated areas of the United States and Canada. We had notes receivable from our independent contractors as of June 30, 2010 totaling $1.2 million (December 31, 2009 -$1.3 million). In most cases these loans are fully or partially secured by equipment owned by the contractor. The interest rates on the loans range from zero to 8% per annum and the remaining terms of the loans range from two months to 5 years at June 30, 2010. During the three months ended June 30, 2010, we recorded revenues of $5.6 million (2009 - $5.4 million) and pretax profits of $2.7 million (2009 - $2.4 million) from our independent contractors. During the six months ended June 30, 2010, we recorded revenues of $11.2 million (2009 - $10.7 million) and pretax profits of $5.1 million (2009 - $4.7 million) from our independent contractors.

10. Pension and Retirement Plans

All of the Company’s plans that provide retirement and similar benefits are defined contribution plans. Expenses for the Company’s pension and profit-sharing plans, excess benefit plans and other similar plans were $2.2 million and $5.6 million for the three months ended June 30, 2010 and 2009, respectively. Expenses for the Company’s pension and profit-sharing plans, excess benefit plans and other similar plans were $4.7 million and $7.0 million for the six months ended June 30, 2010 and 2009, respectively.

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11. Legal and Regulatory Matters

Litigation

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

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

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

Regulatory Matters

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

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

The costs to comply with either of these investigations were not material for any period presented. We are unable to predict the outcome of these matters or the impact, if any, that the investigation may have on our business, results of operations, liquidity or capital resources. Regardless of outcome, responding to the subpoenas can adversely affect us through defense costs, diversion of our time and related publicity.

12. Related Party Agreement

VITAS has pharmacy services agreements ("Agreements") with Omnicare, Inc. and its subsidiaries (“OCR”) whereby OCR provides specified pharmacy services for VITAS and its hospice patients in geographical areas served by both VITAS and OCR. The Agreements renew automatically for one-year terms. Either party may cancel the Agreements at the end of any term by giving 90 days prior written notice. VITAS made purchases from OCR of $8.9 million and $8.2 million for the three months ended June 30, 2010 and 2009, respectively. VITAS made purchases from OCR of $17.5 million and $16.1 million for the six months ended June 30, 2010 and 2009, respectively.

-11-

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 the Agreements are no less favorable to VITAS than we could negotiate with an unrelated party.

13. Cash Overdrafts Payable

Included in accounts payable at June 30, 2010 is cash overdrafts payable of $10.4 million (December 31, 2009 - $11.7 million).

14. Financial Instruments

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

The following shows the carrying value, fair value and the hierarchy for our financial instruments as of June 30, 2010 (in thousands):

			Fair Value Measure
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Mutual fund investments of deferred compensation plans held in trust	$	26,282	$	26,282	$	-	$	-
Long-term debt		155,608		172,701		-		-

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

15. Capital Stock Transactions

On April 26, 2007, our Board of Directors authorized a $150 million stock repurchase program. On May 19, 2008, our Board of Directors authorized an additional $56 million to the April 2007 stock repurchase program. For the quarter ended June 30, 2010, we repurchased 114,900 shares at a weighted average cost per share of $54.99 under the April 2007 program. For the six months ended June 30, 2010, we repurchased 146,275 shares at a weighted average cost per share of $53.32. For the quarter and six months ended June 30, 2009 there was no stock repurchased.

-12-

16. Guarantor Subsidiaries
Our 1.875% Notes are fully and unconditionally guaranteed on an unsecured, jointly and severally liable basis by certain of our 100% owned subsidiaries. The following unaudited, condensed, consolidating financial data presents the composition of the parent company (Chemed), the guarantor subsidiaries and the non-guarantor subsidiaries as of June 30, 2010 and December 31, 2009 for the balance sheet, the three and six months ended June 30, 2010 and June 30, 2009 for the income statement and the six months ended June 30, 2010 and June 30, 2009 for the statement of cash flows (dollars in thousands):

June 30, 2010				Guarantor			Non-Guarantor			Consolidating
	Parent			Subsidiaries			Subsidiaries			Adjustments			Consolidated
ASSETS
Cash and cash equivalents	$	105,276		$	(1,238	)	$	5,042		$	-		$	109,080
Accounts receivable, less allowances		560			100,754			422			-			101,736
Intercompany receivables		-			149,823			-			(149,823	)		-
Inventories		-			7,272			706			-			7,978
Current deferred income taxes		(962	)		15,312			103			-			14,453
Prepaid income taxes		3,424			(2,939	)		(134	)		-			351
Prepaid expenses		1,047			9,326			50			-			10,423
Total current assets		109,345			278,310			6,189			(149,823	)		244,021
Investments of deferred compensation plans		-			-			26,282			-			26,282
Properties and equipment, at cost, less accumulated depreciation		12,987			63,209			2,241			-			78,437
Identifiable intangible assets less accumulated amortization		-			56,620			-			-			56,620
Goodwill		-			445,644			4,461			-			450,105
Other assets		6,373			2,384			1,741			-			10,498
Investments in subsidiaries		677,384			17,356			-			(694,740	)		-
Total assets	$	806,089		$	863,523		$	40,914		$	(844,563	)	$	865,963
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable	$	(970	)	$	49,646		$	455		$	-		$	49,131
Intercompany payables		143,947			-			5,876			(149,823	)		-
Income taxes		(969	)		6,199			(447	)		-			4,783
Accrued insurance		677			34,052			-			-			34,729
Accrued compensation		2,063			39,026			524			-			41,613
Other current liabilities		1,215			10,346			108			-			11,669
Total current liabilities		145,963			139,269			6,516			(149,823	)		141,925
Deferred income taxes		(11,417	)		43,452			(7,682	)		-			24,353
Long-term debt		155,608			-			-			-			155,608
Deferred compensation liabilities		-			-			25,374			-			25,374
Other liabilities		2,968			2,327			441			-			5,736
Stockholders' equity		512,967			678,475			16,265			(694,740	)		512,967
Total liabilities and stockholders' equity	$	806,089		$	863,523		$	40,914		$	(844,563	)	$	865,963




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

-13-

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

For the three months ended June 30, 2009				Guarantor			Non-Guarantor			Consolidating
	Parent			Subsidiaries			Subsidiaries			Adjustments			Consolidated
Continuing Operations
Service revenues and sales	$	-		$	289,382		$	5,873		$	-		$	295,255
Cost of services provided and goods sold		-			204,416			2,921			-			207,337
Selling, general and administrative expenses		5,783			39,586			4,211			-			49,580
Depreciation		148			5,016			174			-			5,338
Amortization		315			1,303			-			-			1,618
Other operating expenses		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 six months ended June 30, 2010				Guarantor			Non-Guarantor			Consolidating
	Parent			Subsidiaries			Subsidiaries			Adjustments			Consolidated
Continuing Operations
Service revenues and sales	$	-		$	611,827		$	11,981		$	-		$	623,808
Cost of services provided and goods sold		-			436,655			6,184			-			442,839
Selling, general and administrative expenses		12,206			83,619			2,669			-			98,494
Depreciation		380			10,882			401			-			11,663
Amortization		696			1,815			-			-			2,511
Total costs and expenses		13,282			532,971			9,254			-			555,507
Income/ (loss) from operations		(13,282	)		78,856			2,727			-			68,301
Interest expense		(5,739	)		(212	)		-			-			(5,951	)
Other (expense)/income - net		7,291			(7,199	)		104			-			196
Income/ (loss) before income taxes		(11,730	)		71,445			2,831			-			62,546
Income tax (provision)/ benefit		3,894			(27,106	)		(1,121	)		-			(24,333	)
Equity in net income of subsidiaries		46,049			1,820			-			(47,869	)		-
Net income	$	38,213		$	46,159		$	1,710		$	(47,869	)	$	38,213

For the six months ended June 30, 2009				Guarantor			Non-Guarantor			Consolidating
	Parent			Subsidiaries			Subsidiaries			Adjustments			Consolidated
Continuing Operations
Service revenues and sales	$	-		$	578,521		$	11,672		$	-		$	590,193
Cost of services provided and goods sold		-			408,445			5,905			-			414,350
Selling, general and administrative expenses		11,268			79,978			4,127			-			95,373
Depreciation		299			10,023			341			-			10,663
Amortization		590			2,564			-			-			3,154
Other operating expenses		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)/income		(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

-14-

For the six months ended June 30, 2010				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Consolidated
Cash Flow from Operating Activities:
Net cash provided/(used) by operating activities	$	(3,737	)	$	24,585		$	(571	)	$	20,277
Cash Flow from Investing Activities:
Capital expenditures		(10	)		(11,454	)		(478	)		(11,942	)
Business combinations, net of cash acquired		-			83			6			89
Proceeds from sale of property and equipment		-			(30	)		-			(30	)
Other uses - net		(89	)		(171	)		(26	)		(286	)
Net cash used by investing activities		(99	)		(11,572	)		(498	)		(12,169	)
Cash Flow from Financing Activities:
Change in cash overdrafts payable		1,338			(2,652	)		-			(1,314	)
Change in intercompany accounts		9,830			(11,478	)		1,648			-
Dividends paid to shareholders		(5,481	)		-			-			(5,481	)
Purchases of treasury stock		(10,083	)		-			(42	)		(10,125	)
Proceeds from exercise of stock options		3,475			-			-			3,475
Realized excess tax benefit on share based compensation		702			1,100			-			1,802
Other sources - net		-			-			199			199
Net cash provided/ (used) by financing activities		(219	)		(13,030	)		1,805			(11,444	)
Net increase/(decrease) in cash and cash equivalents		(4,055	)		(17	)		736			(3,336	)
Cash and cash equivalents at beginning of year		109,331			(1,221	)		4,306			112,416
Cash and cash equivalents at end of period	$	105,276		$	(1,238	)	$	5,042		$	109,080

For the six months ended June 30, 2009				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Consolidated
Cash Flow from Operating Activities:
Net cash provided/(used) 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	)
Proceeds from sale of property and equipment		1,280			216			-			1,496
Other uses - net		(365	)		(110	)		-			(475	)
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	)
Proceeds from exercise of stock options		68			-			-			68
Realized excess tax benefit on share based compensation		313			-			-			313
Repayment of long-term debt		(17,700	)		(99	)		-			(17,799	)
Other sources/(uses) - net		(93	)		148			239			294
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

-15-

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

Executive Summary

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

The following is a summary of the key operating results for the three and six months ended June 30, 2010 and 2009 (in thousands except per share amounts):

	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
Service revenues and sales	$	314,995		$	295,255		$	623,808		$	590,193
Net income	$	18,855		$	17,250		$	38,213		$	36,589
Diluted EPS	$	0.82		$	0.76		$	1.66		$	1.61
Adjusted EBITDA*	$	44,887		$	43,650		$	87,957		$	85,874
Adjusted EBITDA as a % of revenue		14.3	%		14.8	%		14.1	%		14.6	%

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

For the three months ended June 30, 2010, the increase in consolidated service revenues and sales was driven by a 7.3% increase at VITAS while Roto-Rooter revenues increased by 5.2%. The increase in service revenues at VITAS was a result of increased average daily census (“ADC”) of 5.6%, driven by an increase in admissions of 4.2%, combined with Medicare price increases of approximately 1.3%. Roto-Rooter was driven by an approximate 6.0% price and mix shift increase offset by a 0.7% decrease in job count. Consolidated net income increased 9.3% mainly as a result of the increase in revenues and lower corporate expenses due to the 2009 costs associated with the contested proxy solicitation. Diluted EPS increased as the result of increased earnings. Adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) increased 2.8% from the second quarter of 2009 to the second quarter of 2010.

For the six months ended June 30, 2010, the increase in consolidated service revenues and sales was driven by a 7.1% increase at VITAS and a 2.2% increase at Roto-Rooter. The increase in service revenues at VITAS was a result of increased average daily census (“ADC”) of 5.3%, driven by an increase in admissions of 4.5%, combined with Medicare price increases of approximately 1.3%. Roto-Rooter was driven by an approximate 6.3% price and mix shift increase offset by a 4.0% decrease in job count. Consolidated net income increased 4.4% over prior year. Diluted EPS increased as a result of increased earnings. Adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) increased 2.4% for the six month period ended June 30, 2010 compared to the same period in 2009.

EBITDA and Adjusted EBITDA are not measures derived in accordance with GAAP and exclude components that are important to understanding our financial performance. We use Adjusted EBITDA as a measure of earnings for our LTIP awards. We provide EBITDA and Adjusted EBITDA to help readers evaluate our operating results, compare our operating performance with that of similar companies that have different capital structures and help evaluate our ability to meet future debt service, capital expenditure and working capital requirements. Our EBITDA and Adjusted EBITDA should not be considered in isolation or as a substitute for comparable measures presented in accordance with GAAP. A reconciliation of our net income to our Adjusted EBITDA is presented on pages 27 - 28.

VITAS expects to achieve full-year 2010 revenue growth, prior to Medicare cap, of 6.0% to 7.0%. Admissions are estimated to increase 3.0% to 4.0%. Adjusted EBITDA margin prior to Medicare cap is estimated to be 15.0% to 15.5%. Roto-Rooter expects full-year 2010 revenue growth of 4.0% to 4.5%. The revenue estimate is a result of increased pricing of 3.0%, a favorable mix shift to higher revenue jobs, offset by a job count decline estimated at 2.0% to 4.0%. Adjusted EBITDA margin for 2010 is estimated to be in the range of 17.5% to 18.0%. We anticipate that our operating income and cash flows will be sufficient to operate our businesses and meet any commitments for the foreseeable future.

-16-

Financial Condition

Liquidity and Capital Resources

Material changes in the balance sheet accounts from December 31, 2009 to June 30, 2010 include the following:

•	A $48.3 million increase in accounts receivable primarily at VITAS, related to timing of Medicare payments and refund of overpayments from prior years.

•	A $4.7 million increase in income taxes payable, related to timing of payments.

Net cash provided by operating activities decreased $22.8 million due primarily to the increase in accounts receivable, partially offset by a decrease in accounts payable and other current liabilities. Management continually evaluates cash utilization alternatives, including share repurchase, debt repurchase, acquisitions and increased dividends to determine the most beneficial use of available capital resources.

We have issued $28.3 million in standby letters of credit as of June 30, 2010, for insurance purposes. Issued letters of credit reduce our available credit under the revolving credit agreement. As of June 30, 2010, we have approximately $146.7 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, 2010 and anticipate remaining in compliance throughout 2010.

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

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

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

-17-

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

Results of Operations

Three months ended June 30, 2010 versus 2009 - Consolidated Results

Our service revenues and sales for the second quarter of 2010 increased 6.7% versus services and sales revenues for the second quarter of 2009. Of this increase, $15.3 million was attributable to VITAS and $4.4 million was attributable to Roto-Rooter. The following chart shows the components of those changes (dollar amounts in thousands):

			Increase/(Decrease)
			Amount			Percent
VITAS
	Routine homecare			11,506			7.6	%
	Continuous care			1,977			5.6	%
	General inpatient			2,322			9.8	%
	Medicare cap			(470	)		-93.1	%
Roto-Rooter
	Plumbing			4,039			10.6	%
	Drain cleaning			(245	)		-0.7	%
	Other			611			5.1	%
		Total	$	19,740			6.7	%

The increase in VITAS’ revenues for the second quarter of 2010 versus the second quarter of 2009 was a result of increased ADC of 5.6% driven by an increase in admissions of 4.2%, combined with Medicare reimbursement rate increases of approximately 1.3%. The ADC increase was driven by a 5.5% increase in routine homecare, an increase of 9.9% in general inpatient and a 3.0% increase in continuous care. In excess of 90% of VITAS’ service revenues for the period were from Medicare and Medicaid.

The increase in plumbing revenues for the second quarter of 2010 versus 2009 is attributable to a 6.4% increase in the average price per job and a 4.5% increase in the number of jobs performed. The increase in the plumbing price per job was a combination of increased pricing and favorable job mix shift to more expensive jobs such as excavation. Our excavation job count increased by 18.2% compared to 2009. Drain cleaning revenues for the second quarter of 2010 versus 2009 reflect a 3.2% decline in the number of jobs, while the average price per job increased 2.5%. The increase in other revenues is attributable to an increase in our independent contractor operations and an increase in product sales.

The consolidated gross margin was 29.0% in the second quarter of 2010 as compared with 29.8% in the second quarter of 2009. On a segment basis, VITAS’ gross margin was 22.7% in the second quarter of 2010 and 23.3% in the second quarter of 2009. The decrease in VITAS’ gross margin is attributable to higher labor costs for admissions and Medicare compliance personnel and the opening of inpatient units which carry significant one time start-up costs as capacity begins to ramp-up. The Roto-Rooter segment’s gross margin was 45.2% for the second quarter of 2010 as compared with 46.2% for the second quarter of 2009. The decrease in Roto-Rooter’s gross margin was attributable to continued mix shift to excavation which has higher revenue per job but a slightly lower gross margin percentage per job as well as an unfavorable adjustment to casualty insurance.

-18-

Selling, general and administrative expenses ("SG&A") for the second quarter of 2010 and 2009 comprise (in thousands):

	2010			2009
SG&A expenses before long-term incentive
compensation and the impact of market gains and
losses of deferred compensation plans		48,240			46,381
Long-term incentive compensation		1,799			-
Impact of market value gains/(losses) on liabilities
held in deferred compensation trusts		(83	)		3,199
Total SG&A expenses	$	49,956		$	49,580

Normal salary increases and revenue related expense increases between periods account for the change in SG&A from $46.4 million in the second quarter of 2009 to $48.2 million in the second quarter of 2010.

Depreciation expense increased $856,000 to $6.2 million in the second quarter of 2010 due to the installation of patient capture software at our VITAS segment.

Other income for the second quarter of 2010 and 2009 comprise (in thousands):

	2010			2009
Interest income		150			207
Market value gains/(losses) on assets held in deferred
compensation trusts		(83	)		3,199
Loss on disposal of property and equipment		(58	)		(78	)
Other		1			30
Total other income	$	10		$	3,358

Our effective income tax rate of 38.9% in the second quarter of 2010 was essentially flat with the second quarter of 2009.

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

	2010			2009
VITAS
Costs associated with the OIG investigation	$	(74	)	$	(53	)
Roto-Rooter
Costs of class action lawsuit		(63	)		-
Corporate
Stock option expense		(1,484	)		(1,544	)
Long-term incentive compensation		(1,124	)		-
Noncash interest expense related to accounting for
conversion feature of the convertible notes		(1,068	)		(987	)
Expenses of contested proxy solicitation		-			(2,180	)
Impact of non-deductible losses and non-taxable gains on
investments held in deferred compensation trusts		-			20
Total	$	(3,813	)	$	(4,744	)

-19-

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

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

	Increase/(Decrease)
	Amount		Percent
VITAS	$	1,159		6.8	%
Roto-Rooter		62		0.7	%
Corporate		384		4.4	%
	$	1,605		9.3	%

Six months ended June 30, 2010 versus 2009 - Consolidated Results

Our service revenues and sales for the first six months of 2010 increased 5.7% versus services and sales revenues for the first six months of 2009. Of this increase, $29.8 million was attributable to VITAS and $3.8 million was attributable to Roto-Rooter. The following chart shows the components of those changes (dollars in thousands):

			Increase/(Decrease)
			Amount			Percent
VITAS
	Routine homecare		$	21,678			7.2	%
	Continuous care			5,060			7.3	%
	General inpatient			3,522			7.2	%
	Medicare cap			1,548			658.7	%
	BNAF			(1,950	)		-100.0	%
Roto-Rooter
	Plumbing			5,167			6.8	%
	Drain cleaning			(2,188	)		-3.1	%
	Other			778			3.2	%
		Total	$	33,615			5.7	%

The increase in VITAS’ revenues for the first six months of 2010 versus the first six months of 2009 was a result of increased ADC of 5.3% driven by an increase in admissions of 4.5%, combined with Medicare reimbursement rate increases of approximately 1.3%. The ADC increase was driven by a 5.3% increase in routine homecare, an increase of 7.6% in general inpatient and a 4.8% increase in continuous care. In excess of 90% of VITAS’ service revenues for the period were from Medicare and Medicaid.

The increase in plumbing revenues for the first six months of 2010 versus 2009 is attributable to a 7.8% increase in the average price per job and a 0.5% decrease in the number of jobs performed. The increase in the plumbing price per job was a combination of increased pricing and favorable job mix shift to more expensive jobs such as excavation. Our excavation job count increased by 15.5% compared to 2009. Drain cleaning revenues for the first six months of 2010 versus 2009 reflect a 5.7% decline in the number of jobs, while the average price per job increased 2.7%. The increase in other revenues is attributable to an increase in our independent contractor operations and an increase in product sales.

The consolidated gross margin was 29.0% in the first six months of 2010 as compared with 29.8% in the first six months of 2009. On a segment basis, VITAS’ gross margin was 22.7% in the first six months of 2010 and 23.3% in the first six months of 2009. The decrease in VITAS’ gross margin is attributable to higher labor costs for admissions and Medicare compliance personnel and the opening of inpatient units which carry significant one time start-up costs as capacity begins to ramp-up. The Roto-Rooter segment’s gross margin was 45.2% for the first six months of 2010 as compared with 45.7% for the first six months of 2009. The decrease in Roto-Rooter’s gross margin is attributable to continued mix shift to excavation which has higher revenue per job but slightly lower gross margin percentage per job.

-20-

Selling, general and administrative expenses ("SG&A") for the six months of 2010 and 2009 comprise (in thousands):

	2010		2009
SG&A expenses before long-term incentive
compensation and the impact of market gains and
losses of deferred compensation plans	$	96,590	$	93,788
Long-term incentive compensation		1,799		-
Impact of market value gains/(losses) on liabilities
held in deferred compensation trusts		105		1,585
Total SG&A expenses	$	98,494	$	95,373

Normal salary increases and revenue related expense increases between periods account for the change in SG&A from $93.8 million for the first six months of 2009 to $96.6 million of the first six months of 2010.

Depreciation expense increased $1.0 million in the first six months of 2010 to $11.7 million due to the installation of patient capture software at our VITAS segment.

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

	2010			2009
Interest income		225			289
Market value gains/(losses) on assets held in deferred
compensation trusts		105			1,585
Loss on disposal of property and equipment		(152	)		(54	)
Non-taxable income from certain investments held
deferred compensation trusts		-			1,211
Other		18			51
Total other income	$	196		$	3,082

Our effective income tax rate of 38.9% in the first six months of 2010 was essentially flat with the first six months of 2009.

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

	2010			2009
VITAS
Costs associated with the OIG investigation	$	(173	)	$	(61	)
Roto-Rooter
Costs of class action lawsuit		(63	)		-
Corporate
Stock option expense		(2,782	)		(2,836	)
Long-term incentive compensation		(1,124	)		-
Noncash interest expense related to accounting for
conversion feature of the convertible notes		(2,115	)		(1,955	)
Expenses of contested proxy solicitation		-			(2,525	)
Impact of non-deductible losses and non-taxable gains on
investments held in deferred compensation trusts		-			756
Total	$	(6,257	)	$	(6,621	)

-21-

Six months ended June 30, 2010 versus 2009 - Segment Results

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

	Increase/(Decrease)
	Amount			Percent
VITAS	$	2,427			7.1	%
Roto-Rooter		(354	)		-2.1	%
Corporate		(449	)		-3.0	%
	$	1,624			4.4	%

-22-

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

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

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

	VITAS			Roto-Rooter			Corporate			Chemed Consolidated
Pretax benefit/(cost):
Stock option expense	$	-		$	-		$	(2,346	)	$	(2,346	)
Long-term incentive compensation		-			-			(1,799	)		(1,799	)
Noncash impact of accounting for convertible debt		-			-			(1,688	)		(1,688	)
Expenses of class action lawsuit		-			(105	)		-			(105	)
Expenses incurred in connection with the Office of Inspector
General investigation		(118	)		-			-			(118	)
Total	$	(118	)	$	(105	)	$	(5,833	)	$	(6,056	)

	VITAS			Roto-Rooter			Corporate			Consolidated
After-tax benefit/(cost):
Stock option expense	$	-		$	-		$	(1,484	)	$	(1,484	)
Long-term incentive compensation		-			-			(1,124	)		(1,124	)
Noncash impact of accounting for convertible debt		-			-			(1,068	)		(1,068	)
Expenses of class action lawsuit		-			(63	)		-			(63	)
Expenses incurred in connection with the Office of Inspector
General investigation		(74	)		-			-			(74	)
Total	$	(74	)	$	(63	)	$	(3,676	)	$	(3,813	)

-23-

CHEMED CORPORATION AND SUBSIDIARY COMPANIES

CONSOLIDATING STATEMENT OF INCOME

FOR THE THREE MONTHS ENDED JUNE 30, 2009

(in thousands)(unaudited)

										Chemed
	VITAS			Roto-Rooter			Corporate			Consolidated
2009 (a)
Service revenues and sales	$	211,303		$	83,952		$	-		$	295,255
Cost of services provided and goods sold		162,175			45,162			-			207,337
Selling, general and administrative expenses		17,877			22,844			8,859			49,580
Depreciation		3,256			2,035			47			5,338
Amortization		1,187			117			314			1,618
Other operating expenses		-			-			3,444			3,444
Total costs and expenses		184,495			70,158			12,664			267,317
Income/(loss) from operations		26,808			13,794			(12,664	)		27,938
Interest expense		(326	)		(59	)		(2,757	)		(3,142	)
Intercompany interest income/(expense)		1,023			581			(1,604	)		-
Other income-net		123			6			3,229			3,358
Income/(loss) before income taxes		27,628			14,322			(13,796	)		28,154
Income taxes		(10,506	)		(5,524	)		5,126			(10,904	)
Net income/(loss)	$	17,122		$	8,798		$	(8,670	)	$	17,250

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

	VITAS			Roto-Rooter		Corporate			Chemed Consolidated
Pretax benefit/(cost):
Stock option expense	$	-		$	-	$	(2,443	)	$	(2,443	)
Noncash impact of accounting for convertible debt		-			-		(1,561	)		(1,561	)
Expenses associated with contested proxy solicitation		-			-		(3,444	)		(3,444	)
Expenses incurred in connection with the Office of Inspector
General investigation		(86	)		-		-			(86	)
Total	$	(86	)	$	-	$	(7,448	)	$	(7,534	)

	VITAS			Roto-Rooter		Corporate			Consolidated
After-tax benefit/(cost):
Stock option expense	$	-		$	-	$	(1,544	)	$	(1,544	)
Noncash impact of accounting for convertible debt		-			-		(987	)		(987	)
Income tax impact of nondeductible losses on investments
held in deferred compensation trusts		-			-		20			20
Expenses associated with contested proxy solicitation		-			-		(2,180	)		(2,180	)
Expenses incurred in connection with the Office of Inspector
General investigation		(53	)		-		-			(53	)
Total	$	(53	)	$	-	$	(4,691	)	$	(4,744	)

-24-

CHEMED CORPORATION AND SUBSIDIARY COMPANIES

CONSOLIDATING STATEMENT OF INCOME

FOR THE SIX MONTHS ENDED JUNE 30, 2010

(in thousands)(unaudited)

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

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

	VITAS			Roto-Rooter			Corporate			Chemed Consolidated
Pretax benefit/(cost):
Stock option expense	$	-		$	-		$	(4,397	)	$	(4,397	)
Long-term incentive compensation		-			-			(1,799	)		(1,799	)
Noncash impact of accounting for convertible debt		-			-			(3,343	)		(3,343	)
Expenses of class action lawsuit		-			(105	)		-			(105	)
Expenses incurred in connection with the Office of Inspector
General investigation		(278	)		-			-			(278	)
Total	$	(278	)	$	(105	)	$	(9,539	)	$	(9,922	)

	VITAS			Roto-Rooter			Corporate			Consolidated
After-tax benefit/(cost):
Stock option expense	$	-		$	-		$	(2,782	)	$	(2,782	)
Long-term incentive compensation		-			-			(1,124	)		(1,124	)
Noncash impact of accounting for convertible debt		-			-			(2,115	)		(2,115	)
Expenses of class action lawsuit		-			(63	)		-			(63	)
Expenses incurred in connection with the Office of Inspector
General investigation		(173	)		-			-			(173	)
Total	$	(173	)	$	(63	)	$	(6,021	)	$	(6,257	)

-25-

CHEMED CORPORATION AND SUBSIDIARY COMPANIES

CONSOLIDATING STATEMENT OF INCOME

FOR THE SIX MONTHS ENDED JUNE 30, 2009

(in thousands)(unaudited)

	VITAS			Roto-Rooter			Corporate			Chemed Consolidated
2009 (a)
Service revenues and sales	$	419,720		$	170,473		$	-		$	590,193
Cost of services provided and goods sold		321,807			92,543			-			414,350
Selling, general and administrative expenses		35,423			47,219			12,731			95,373
Depreciation		6,475			4,089			99			10,663
Amortization		2,358			206			590			3,154
Other operating expenses		-			-			3,989			3,989
Total costs and expenses		366,063			144,057			17,409			527,529
Income/(loss) from operations		53,657			26,416			(17,409	)		62,664
Interest expense		(365	)		(94	)		(5,527	)		(5,986	)
Intercompany interest income/(expense)		1,913			1,117			(3,030	)		-
Other income-net		120			122			2,840			3,082
Income/(loss) before income taxes		55,325			27,561			(23,126	)		59,760
Income taxes		(21,033	)		(10,534	)		8,396			(23,171	)
Net income/(loss)	$	34,292		$	17,027		$	(14,730	)	$	36,589

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

	VITAS			Roto-Rooter		Corporate			Chemed Consolidated
Pretax benefit/(cost):
Stock option expense	$	-		$	-	$	(4,485	)	$	(4,485	)
Noncash impact of accounting for convertible debt		-			-		(3,091	)		(3,091	)
Non-taxable income on certain investments held in deferred
compensation trusts		-			-		1,211			1,211
Expenses associated with contested proxy solicitation		-			-		(3,989	)		(3,989	)
Expenses incurred in connection with the Office of Inspector
General investigation		(99	)		-		-			(99	)
Total	$	(99	)	$	-	$	(10,354	)	$	(10,453	)

	VITAS			Roto-Rooter		Corporate			Consolidated
After-tax benefit/(cost):
Stock option expense	$	-		$	-	$	(2,836	)	$	(2,836	)
Noncash impact of accounting for convertible debt		-			-		(1,955	)		(1,955	)
Non-taxable income on certain investments held in deferred
compensation trusts		-			-		1,211			1,211
Income tax impact of nondeductible losses on investments
held in deferred compensation trusts		-			-		(455	)		(455	)
Expenses associated with contested proxy solicitation		-			-		(2,525	)		(2,525	)
Expenses incurred in connection with the Office of Inspector
General investigation		(61	)		-		-			(61	)
Total	$	(61	)	$	-	$	(6,560	)	$	(6,621	)

-26-

Consolidating Summary and Reconciliation of Adjusted EBITDA

Chemed Corporation and Subsidiary Companies
(in thousands)											Chemed
For the three months ended June 30, 2010	VITAS				Roto-Rooter			Corporate			Consolidated

Net income/(loss)		$	18,281		$	8,860		$	(8,286	)	$	18,855
Add/(deduct):
Interest expense			48			64			2,887			2,999
Income taxes			11,152			5,501			(4,641	)		12,012
Depreciation			4,103			1,950			141			6,194
Amortization			788			132			367			1,287
EBITDA			34,372			16,507			(9,532	)		41,347
Add/(deduct):
Legal expenses of OIG investigation			118			-			-			118
Stock option expense			-			-			2,346			2,346
Advertising cost adjustment			-			(678	)		-			(678	)
Expenses of class action litigation			-			105			-			105
Long-term incentive compensation			-			-			1,799			1,799
Interest income			(90	)		(25	)		(35	)		(150	)
Intercompany interest income/(expense)			(1,350	)		(773	)		2,123			-
Adjusted EBITDA		$	33,050		$	15,136		$	(3,299	)	$	44,887

											Chemed
For the three months ended June 30, 2009	VITAS				Roto-Rooter			Corporate			Consolidated

Net income/(loss)		$	17,122		$	8,798		$	(8,670	)	$	17,250
Add/(deduct):
Interest expense			326			59			2,757			3,142
Income taxes			10,506			5,524			(5,126	)		10,904
Depreciation			3,256			2,035			47			5,338
Amortization			1,187			117			314			1,618
EBITDA			32,397			16,533			(10,678	)		38,252
Add/(deduct):
Expenses associated with contested proxy solicitation			-			-			3,444			3,444
Legal expenses of OIG investigation			86			-			-			86
Stock option expense			-			-			2,443			2,443
Advertising cost adjustment			-			(368	)		-			(368	)
Interest income			(149	)		(18	)		(40	)		(207	)
Intercompany interest income/(expense)			(1,023	)		(581	)		1,604			-
Adjusted EBITDA		$	31,311		$	15,566		$	(3,227	)	$	43,650

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Consolidating Summary and Reconciliation of Adjusted EBITDA

Chemed Corporation and Subsidiary Companies
(in thousands)														Chemed
For the six months ended June 30, 2010	VITAS				Roto-Rooter				Corporate				Consolidated

Net income/(loss)		$	36,719			$	16,673			$	(15,179	)		$	38,213
Add/(deduct):
Interest expense			80				132				5,739				5,951
Income taxes			22,378				10,329				(8,374	)			24,333
Depreciation			7,587				3,901				175				11,663
Amortization			1,559				255				697				2,511
EBITDA			68,323				31,290				(16,942	)			82,671
Add/(deduct):
Legal expenses of OIG investigation			278				-				-				278
Stock option expense			-				-				4,397				4,397
Advertising cost adjustment			-				(1,068	)			-				(1,068	)
Expenses of class action litigation			-				105				-				105
Long-term incentive compensation			-				-				1,799				1,799
Interest income			(135	)			(27	)			(63	)			(225	)
Intercompany interest income/(expense)			(2,639	)			(1,475	)			4,114				-
Adjusted EBITDA		$	65,827			$	28,825			$	(6,695	)		$	87,957

														Chemed
For the six months ended June 30, 2009	VITAS				Roto-Rooter				Corporate				Consolidated

Net income/(loss)		$	34,292			$	17,027			$	(14,730	)		$	36,589
Add/(deduct):
Interest expense			365				94				5,527				5,986
Income taxes			21,033				10,534				(8,396	)			23,171
Depreciation			6,475				4,089				99				10,663
Amortization			2,358				206				590				3,154
EBITDA			64,523				31,950				(16,910	)			79,563
Add/(deduct):
Non-taxable income from certain investments held in
deferred compensation trusts			-				-				(1,211	)			(1,211	)
Expenses associated with contested proxy solicitation			-				-				3,989				3,989
Legal expenses of OIG investigation			99				-				-				99
Stock option expense			-				-				4,485				4,485
Advertising cost adjustment			-				(762	)			-				(762	)
Interest income			(197	)			(36	)			(56	)			(289	)
Intercompany interest income/(expense)			(1,913	)			(1,117	)			3,030				-
Adjusted EBITDA		$	62,512			$	30,035			$	(6,673	)		$	85,874

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CHEMED CORPORATION AND SUBSIDIARY COMPANIES

OPERATING STATISTICS FOR VITAS SEGMENT

(unaudited)

	Three Months Ended June 30,							Six Months Ended June 30,
OPERATING STATISTICS	2010			2009				2010			2009
Net revenue ($000)
Homecare	$	163,512			$	152,006		$	320,738			$	299,060
Inpatient		25,989				23,667			52,281				48,759
Continuous care		37,102				35,125			74,776				69,716
Total before Medicare cap allowance and 2008 BNAF	$	226,603			$	210,798		$	447,795			$	417,535
Estimated BNAF		-				-			-				1,950
Medicare cap allowance		35				505			1,783				235
Total	$	226,638			$	211,303		$	449,578			$	419,720
Net revenue as a percent of total
before Medicare cap allowance
Homecare		72.1	%			72.1	%		71.6	%			71.6	%
Inpatient		11.5				11.2			11.7				11.7
Continuous care		16.4				16.7			16.7				16.7
Total before Medicare cap allowance and 2008 BNAF		100.0				100.0			100.0				100.0
Estimated BNAF		-				-			-				0.5
Medicare cap allowance		-				0.2			0.4				-
Total		100.0	%			100.2	%		100.4	%			100.5	%
Average daily census (days)
Homecare		8,345				7,668			8,229				7,573
Nursing home		3,223				3,292			3,193				3,277
Routine homecare		11,568				10,960			11,422				10,850
Inpatient		433				394			438				407
Continuous care		583				566			594				567
Total		12,584				11,920			12,454				11,824

Total Admissions		14,423				13,840			29,267				28,008
Total Discharges		14,132				13,740			28,685				27,605
Average length of stay (days)		77.4				73.4			76.6				75.0
Median length of stay (days)		14.0				14.0			14.0				14.0
ADC by major diagnosis
Neurological		32.8	%			32.8	%		32.8	%			32.7	%
Cancer		18.1				19.2			18.5				19.3
Cardio		12.0				12.1			11.9				12.2
Respiratory		6.5				6.6			6.6				6.6
Other		30.6				29.3			30.2				29.2
Total		100.0	%			100.0	%		100.0	%			100.0	%
Admissions by major diagnosis
Neurological		18.5	%			17.3	%		18.6	%			17.9	%
Cancer		33.8				35.4			33.8				34.9
Cardio		11.2				11.9			11.4				12.1
Respiratory		8.5				7.7			8.5				7.8
Other		28.0				27.7			27.7				27.3
Total		100.0	%			100.0	%		100.0	%			100.0	%
Direct patient care margins
Routine homecare		52.5	%			52.1	%		51.9	%			51.9	%
Inpatient		12.3				16.6			13.7				17.1
Continuous care		21.2				20.2			21.0				20.2
Homecare margin drivers (dollars per patient day)
Labor costs	$	52.52			$	51.83		$	53.21			$	52.32
Drug costs		7.67				7.71			7.72				7.68
Home medical equipment		6.66				6.82			6.80				6.75
Medical supplies		2.46				2.36			2.45				2.32
Inpatient margin drivers (dollars per patient day)
Labor costs	$	301.81			$	282.46		$	294.27			$	276.96
Continuous care margin drivers (dollars per patient day)
Labor costs	$	530.05			$	522.27		$	528.23			$	521.79
Bad debt expense as a percent of revenues		0.9	%			1.1	%		0.9	%			1.1	%
Accounts receivable --
Days of revenue outstanding- excluding unapplied Medicare payments		42.3				55.9		n.a.				n.a.
Days of revenue outstanding- including unapplied Medicare payments		34.1				36.7		n.a.				n.a.

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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, 2010, we had no variable rate debt outstanding. At June 30, 2010, the fair value of the Notes approximates $172.7 million which have a face value of $187.0 million.

Item 4. Controls and Procedures

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

PART II OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

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

-30-

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

Item 2(c). Purchases of Equity Securities by Issuer and Affiliated Purchasers

The following table shows the activity related to our share repurchase programs for the first six months of 2010:

			Weighted		Cumulative Shares		Dollar Amount
	Total Number		Average		Repurchased		Remaining
	of Shares		Price Paid Per		Under		Under
	Repurchased		Share		the Program		The Program

April 2007 Program
January 1 through January 31, 2010		31,375	$	47.17		1,736,972	$	51,718,696
February 1 through February 29, 2010		-	$	-		1,736,972	$	51,718,696
March 1 through March 31, 2010		-	$	-		1,736,972	$	51,718,696

First Quarter Total - April 2007 Program		31,375	$	47.17

April 1 through April 30, 2010		-	$	-		1,736,972	$	51,718,696
May 1 through May 31, 2010		38,492	$	53.70		1,775,464	$	49,651,677
June 1 through June 30, 2010		76,408	$	55.65		1,851,872	$	45,399,865

Second Quarter Total - April 2007 Program		114,900	$	54.99

On April 26, 2007, our Board of Directors authorized a $150 million share repurchase plan with no expiration date.

On May 20, 2008 our Board of Directors authorized an additional $56 million under the April 2007 Program.

Item 3. Defaults Upon Senior Securities

None

Item 4. Submission of Matters to a Vote of Security Holders

Removed and reserved

Item 5. Other Information

None

Item 6. Exhibits

Exhibit No.		Description

31.1		Certification by Kevin J. McNamara pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act of 1934.

31.2		Certification by David P. Williams pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act of 1934.

31.3		Certification by Arthur V. Tucker, Jr. pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act of 1934.

32.1		Certification by Kevin J. McNamara pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification by David P. Williams pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.3		Certification by Arthur V. Tucker, Jr. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema

101.CAL		XBRL Taxonomy Extension Calculation Linkbase

101.LAB		XBRL Taxonomy Extension Label Linkbase

101.PRE		XBRL Taxonomy Extension Presentation Linkbase

101.DEF		XBRL Taxonomy Extension Definition Document

-31-

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 30, 2010	By:	Kevin J. McNamara
			Kevin J. McNamara
			(President and Chief Executive Officer)


Dated:	July 30, 2010	By:	David P. Williams
			David P. Williams
			(Executive Vice President and Chief Financial Officer)


Dated:	July 30, 2010	By:	Arthur V. Tucker, Jr.
			Arthur V. Tucker, Jr.
			(Vice President and Controller)

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