CHEMED CORP - Quarter Report: 2012 June (Form 10-Q)

a50358290.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, 2012

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.)

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

(513) 762-6500

(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	19,099,057 Shares	June 30, 2012

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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, 2012 and December 31, 2011	3

			Unaudited Consolidated Statement of Income -
				Three and six months ended June 30, 2012 and 2011	4

			Unaudited Consolidated Statement of Cash Flows -
				Six months ended June 30, 2012 and 2011	5

			Notes to Unaudited Consolidated Financial Statements		6

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations			17

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk			31

	Item 4.	Controls and Procedures			31

PART II. OTHER INFORMATION
	Item 1.	Legal Proceedings			31

	Item 1A.	Risk Factors			31

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds			32

	Item 3.	Defaults Upon Senior Securities			32

	Item 4.	Mine Safety Disclosures			32

	Item 5.	Other Information			32

	Item 6.	Exhibits			32
				EX - 31.1
				EX - 31.2
				EX - 31.3
				EX - 32.1
				EX - 32.2
				EX - 32.3
				EX - 101.INS
				EX - 101.SCH
				EX - 101.CAL
				EX - 101.DEF
				EX - 101.LAB
				EX - 101.PRE

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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,
	2012			2011
ASSETS
Current assets
Cash and cash equivalents	$	59,966		$	38,081
Accounts receivable less allowances of $11,414 (2011 - $11,524)		81,811			77,924
Inventories - net		8,146			8,668
Current deferred income taxes		13,226			12,540
Prepaid income taxes		4,187			2,131
Prepaid expenses		10,737			11,409
Total current assets		178,073			150,753
Investments of deferred compensation plans		33,215			31,629
Properties and equipment, at cost, less accumulated depreciation of $155,406 (2011 - $146,709)		88,571			82,951
Identifiable intangible assets less accumulated amortization of $29,654 (2011 - $28,904)		57,635			58,262
Goodwill		461,965			460,633
Other assets		11,669			11,677
Total Assets	$	831,128		$	795,905

LIABILITIES
Current liabilities
Accounts payable	$	51,002		$	48,225
Income taxes		167			90
Accrued insurance		36,786			37,147
Accrued compensation		39,729			41,087
Other current liabilities		14,906			18,851
Total current liabilities		142,590			145,400
Deferred income taxes		25,257			29,463
Long-term debt		170,769			166,784
Deferred compensation liabilities		33,149			30,693
Other liabilities		11,918			9,881
Total Liabilities		383,683			382,221

STOCKHOLDERS' EQUITY
Capital stock - authorized 80,000,000 shares $1 par; issued 31,142,442 shares (2011 - 30,936,925 shares)		31,142			30,937
Paid-in capital		410,957			398,094
Retained earnings		582,316			546,757
Treasury stock - 12,141,664 shares (2011 - 11,880,051)		(579,013	)		(564,091	)
Deferred compensation payable in Company stock		2,043			1,987
Total Stockholders' Equity		447,445			413,684
Total Liabilities and Stockholders' Equity	$	831,128		$	795,905


See accompanying notes to unaudited consolidated 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,
	2012			2011			2012			2011
Service revenues and sales	$	354,170		$	333,360		$	707,113		$	664,278
Cost of services provided and goods sold (excluding depreciation)		257,368			239,597			514,813			477,055
Selling, general and administrative expenses		49,770			50,424			102,937			106,078
Depreciation		6,380			6,358			12,621			12,646
Amortization		1,127			1,139			2,240			2,109
Total costs and expenses		314,645			297,518			632,611			597,888
Income from operations		39,525			35,842			74,502			66,390
Interest expense		(3,672	)		(3,461	)		(7,289	)		(6,705	)
Other income/(expense) - net		(970	)		714			1,125			2,816
Income before income taxes		34,883			33,095			68,338			62,501
Income taxes		(13,609	)		(12,809	)		(26,619	)		(24,114	)
Net income	$	21,274		$	20,286		$	41,719		$	38,387


Earnings Per Share
Net income	$	1.12		$	0.96		$	2.20		$	1.82
Average number of shares outstanding		18,998			21,115			18,976			21,067

Diluted Earnings Per Share
Net income	$	1.10		$	0.94		$	2.16		$	1.78
Average number of shares outstanding		19,369			21,637			19,357			21,586

Cash Dividends Per Share	$	0.16		$	0.14		$	0.32		$	0.28

See accompanying notes to unaudited consolidated financial statements.

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

	Six Months Ended
	June 30,
	2012			2011
Cash Flows from Operating Activities
Net income	$	41,719		$	38,387
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization		14,861			14,755
Deferred income taxes		(4,895	)		(18	)
Provision for uncollectible accounts receivable		4,730			4,365
Amortization of discount on convertible notes		3,985			3,724
Stock option expense		4,312			4,495
Noncash long-term incentive compensation		-			2,595
Changes in operating assets and liabilities, excluding
amounts acquired in business combinations:
Increase in accounts receivable		(8,543	)		(9,271	)
Decrease/(increase) in inventories		522			(954	)
Decrease/(increase) in prepaid expenses		672			(59	)
Decrease in accounts payable and other current liabilities		(3,593	)		(6,603	)
Increase/(decrease) in income taxes		(1,029	)		3,738
Increase in other assets		(2,283	)		(5,652	)
Increase in other liabilities		4,493			4,514
Excess tax benefit on share-based compensation		(1,069	)		(3,339	)
Other sources		773			450
Net cash provided by operating activities		54,655			51,127
Cash Flows from Investing Activities
Capital expenditures		(18,474	)		(14,960	)
Business combinations, net of cash acquired		(1,500	)		(3,689	)
Other sources/(uses)		357			(869	)
Net cash used by investing activities		(19,617	)		(19,518	)
Cash Flows from Financing Activities
Dividends paid		(6,160	)		(5,967	)
Purchases of treasury stock		(12,841	)		(25,482	)
Proceeds from issuance of capital stock		3,670			7,698
Excess tax benefit on share-based compensation		1,069			3,339
Increase/(decrease) in cash overdrafts payable		985			(7,814	)
Debt issuance costs		-			(2,723	)
Other sources		124			364
Net cash used by financing activities		(13,153	)		(30,585	)
Increase in Cash and Cash Equivalents		21,885			1,024
Cash and cash equivalents at beginning of year		38,081			49,917
Cash and cash equivalents at end of period	$	59,966		$	50,941

See accompanying notes to unaudited consolidated financial statements.

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CHEMED CORPORATION AND SUBSIDIARY COMPANIES

Notes to Unaudited Consolidated 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, 2011 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, 2011.

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, 2012, VITAS has approximately $510,000 in unbilled revenue included in accounts receivable (December 31, 2011 - $720,000). 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 revenue and accounts receivable balance for potential denials of patient service revenue due to FMR activity.

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

During the three-month period ended June 30, 2012, we did not record any Medicare cap liability. During the six-month period ended June 30, 2012, we reversed Medicare cap liability for amounts recorded in the fourth quarter of 2011 for three programs’ projected 2012 measurement period liability. We reversed these amounts as improving admissions trends in these programs indicate that the liability had been eliminated.

Shown below is the Medicare cap liability activity for the periods ended (in thousands):

	June 30,
	2012				2011
Beginning balance January 1,		$	2,965			$	1,371
Reversal - 2012 measurement period			(2,577	)			-
Expense - 2011 measurement period			-				299
Reversal - 2011 measurement period			-				(743	)
Other			-				(198	)
Ending balance June 30,		$	388			$	729

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Vitas provides charity care, in certain circumstances, to patients without charge when management of the hospice program determines, at the time services are performed, that the patient does not have the financial wherewithal to make payment. There is no revenue or associated accounts receivable in the accompanying consolidated financial statements related to charity care. The cost of charity care is calculated by taking the ratio of charity care days to total days of care and multiplying by total cost of care. The cost of charity care is as follows (in thousands):

Three months ended					Six months ended
June 30,					June 30,
2012			2011		2012			2011
	$	1,789	$	1,763		$	4,038		$	3,522

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,
	2012			2011			2012			2011
Service Revenues and Sales
VITAS	$	265,213		$	243,095		$	526,060		$	478,768
Roto-Rooter		88,957			90,265			181,053			185,510
Total	$	354,170		$	333,360		$	707,113		$	664,278

After-tax Earnings
VITAS	$	20,433		$	18,589		$	40,060		$	36,714
Roto-Rooter		8,074			9,092			15,569			17,602
Total		28,507			27,681			55,629			54,316
Corporate		(7,233	)		(7,395	)		(13,910	)		(15,929	)
Net income	$	21,274		$	20,286		$	41,719		$	38,387

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

4. Earnings per Share

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


			Net Income
For the Three Months Ended June 30,		Income		Shares	Earnings per Share
2012
	Earnings	$	21,274	18,998	$	1.12
	Dilutive stock options		-	288
	Nonvested stock awards		-	83
	Diluted earnings	$	21,274	19,369	$	1.10

2011
	Earnings	$	20,286	21,115	$	0.96
	Dilutive stock options		-	433
	Nonvested stock awards		-	89
	Diluted earnings	$	20,286	21,637	$	0.94

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			Net Income
For the Six Months Ended June 30,		Income		Shares	Earnings per Share
2012
	Earnings	$	41,719	18,976	$	2.20
	Dilutive stock options		-	294
	Nonvested stock awards		-	87
	Diluted earnings	$	41,719	19,357	$	2.16

2011
	Earnings	$	38,387	21,067	$	1.82
	Dilutive stock options		-	433
	Nonvested stock awards		-	86
	Diluted earnings	$	38,387	21,586	$	1.78

For the three and six-month periods ended June 30, 2012, 1.4 million stock options were excluded from the computation of diluted earnings per share as their exercise prices were greater than the average market price for most of the period. For the three and six-month period ended June 30, 2011, 970,000 stock options were excluded from the computation of diluted earnings per share.

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

The following table provides examples of how changes in our stock price impact the number of shares that would be included in our diluted earnings per share calculation at June 30, 2012. 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	40,072	-	40,072	(42,868)	(2,796)
$	90.73	295,315	-	295,315	(315,919)	(20,604)
$	100.73	499,879	-	499,879	(534,756)	(34,877)
$	110.73	667,495	120,403	787,898	(714,066)	73,832
$	120.73	807,344	319,182	1,126,526	(863,672)	262,854
$	130.73	925,798	487,550	1,413,348	(990,391)	422,957

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

On March 1, 2011, we replaced our existing credit agreement with our Revolving Credit Facility (“2011 Credit Agreement”). Terms of the 2011 Credit Agreement consist of a five-year, $350 million revolving credit facility. This 2011 Credit Agreement has a floating interest rate that is currently LIBOR plus 175 basis points. The 2011 Credit Agreement also includes a $150 million expansion feature. The 2011 Credit Agreement contains the following quarterly financial covenants:



Description		Requirement

Leverage Ratio (Consolidated Indebtedness/Consolidated Adj. EBITDA)		< 3.50 to 1.00

Fixed Charge Coverage Ratio (Consolidated Free Cash Flow/Consolidated Fixed Charges)		> 1.50 to 1.00

Annual Operating Lease Commitment		< $30.0 million

We are in compliance with all debt covenants as of June 30, 2012. We have issued $29.4 million in standby letters of credit as of June 30, 2012 for insurance purposes. Issued letters of credit reduce our available credit under the 2011 Credit Agreement. As of June 30, 2012, we have approximately $320.6 million of unused lines of credit available and eligible to be drawn down under our revolving credit facility, excluding the $150 million expansion feature.

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

	June 30, 2012			December 31, 2011
Principal amount of convertible debentures	$	186,956		$	186,956
Unamortized debt discount		(16,187	)		(20,172	)
Carrying amount of convertible debentures	$	170,769		$	166,784
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,
	2012		2011		2012		2011
Cash interest expense	$	1,350	$	1,288	$	2,683	$	2,440
Non-cash amortization of debt discount		2,009		1,878		3,985		3,724
Amortization of debt costs		313		295		621		541
Total interest expense	$	3,672	$	3,461	$	7,289	$	6,705

The unamortized debt discount is being amortized using the effective interest method over the remaining life of the Notes. The effective rate on the Notes is approximately 6.875%.

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6. Other Income/(Expense) -- Net

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


	Three months ended June 30,						Six months ended June 30,
	2012			2011			2012			2011
Market value gains/(losses) on assets held in
deferred compensation trust	$	(948	)	$	743		$	1,185		$	2,807
Gain/(loss) on disposal of property and equipment		(67	)		32			(148	)		11
Interest income		59			62			110			123
Other - net		(14	)		(123	)		(22	)		(125	)
Other income/(expense) - net	$	(970	)	$	714		$	1,125		$	2,816

7. Stock-Based Compensation Plans

On February 17, 2012, the Compensation/Incentive Committee of the Board of Directors (“CIC”) approved a grant of 35,969 shares of restricted stock to certain key employees. The restricted shares cliff vest four years from the date of issuance. The cumulative compensation expense related to the restricted stock award is $2.3 million and will be recognized ratably over the 4 year vesting period. We assumed no forfeitures in determining the cumulative compensation expense of the grant.

On February 17, 2012, the CIC approved a grant of 442,350 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 3 year vesting period. We used the Black-Scholes option valuation method to determine the cumulative compensation expense of the grant.

8. Independent Contractor Operations

The Roto-Rooter segment sublicenses with 65 independent contractors to operate certain plumbing repair and drain cleaning businesses in lesser-populated areas of the United States and Canada. We had notes receivable from our independent contractors as of June 30, 2012 totaling $1.1 million (December 31, 2011 - $1.1 million). In most cases these loans are fully or partially secured by equipment owned by the contractor. The interest rates on the loans range from 0% to 8% per annum and the remaining terms of the loans range from 2 months to 5 years at June 30, 2012. We recorded the following from our independent contractors (in thousands):


	Three months ended June 30,				Six months ended June 30,
	2012		2011		2012		2011
Revenues	$	6,809	$	6,528	$	13,491	$	13,039
Pretax profits		3,732		3,402		6,813		6,389

9. Pension and Retirement Plans

All of the Company’s plans that provide retirement and similar benefits are defined contribution plans. These expenses include the impact of market gains and losses on assets held in deferred compensation plans. Expenses for the Company’s pension and profit-sharing plans, excess benefit plans and other similar plans are as follows (in thousands):

Three months ended June 30,				Six months ended June 30,
2012		2011		2012		2011
$	1,162	$	2,871	$	5,854	$	6,954

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10. Legal and Regulatory Matters

Litigation

On March 1, 2010 Anthony Morangelli and Frank Ercole filed a class action lawsuit in federal district court for the Eastern District of New York seeking unpaid minimum wages and overtime service technician compensation from Roto-Rooter and Chemed. They also seek payment of penalties, interest and plaintiffs’ attorney fees. We contest these allegations. In September 2010, the Court conditionally certified a nationwide class of service technicians, excluding those who signed dispute resolution agreements in which they agreed to arbitrate claims arising out of their employment. We are unable to estimate our potential liability, if any, with respect to this case.

VITAS is party to a class action lawsuit filed in the Superior Court of California, Los Angeles County, in September 2006 by Bernadette Santos, Keith Knoche and Joyce White. This case alleges failure to pay overtime and failure to provide meal and rest periods to a purported class of California admissions nurses, chaplains and sales representatives. The case seeks payment of penalties, interest and Plaintiffs’ attorney fees. We contest these allegations. In December 2009, the trial court denied Plaintiffs’ motion for class certification. In July 2011, the Court of Appeals affirmed denial of class certification on the travel time, meal and rest period claims, and reversed the trial court’s denial on the off-the-clock and sales representation exemption claims. Plaintiffs have filed an appeal of this decision. We are unable to estimate our potential liability or potential range of loss, if any, with respect to this case.

On January 12, 2012, the Greater Pennsylvania Carpenters Pension Fund filed a putative class action lawsuit in the United States District Court for the Southern District of Ohio against the Company, Kevin McNamara, David Williams, and Timothy O’Toole. On April 9, 2012, the Court issued orders (a) renaming the suit as In re Chemed Corp. Securities Litigation, Civil Action No. 1:12-cv-28 (S.D. Ohio), (b) appointing the Greater Pennsylvania Carpenters Pension Fund and the Electrical Workers Pension Fund, Local 103, I.B.E.W. as Lead Plaintiffs; and (c) approving Lead Plaintiffs’ selection of Labaton Sucharow LLP and Robbins Geller Rudman & Dowd LLP as Co-Lead Counsel. On June 18, 2012, Lead Plaintiffs filed an amended complaint alleging violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 against all Defendants, and violation of Section 20(a) of the Securities Exchange Act of 1934 against Messrs. McNamara, Williams and O’Toole. The suit’s allegations concern the VITAS hospice segment of the Company’s business. Lead Plaintiffs seek, on behalf of a putative class of purchasers of Chemed Capital Stock between February 15, 2010 and November 16, 2011, compensatory damages in an unspecified amount and attorneys’ fees and expenses, arising from Defendants’ failure to disclose an alleged fraudulent scheme to enroll ineligible hospice patients and to fraudulently obtain payments from the federal government. Defendants are required to move or otherwise respond to the amended complaint on or before August 17, 2012. Defendants believe the claims are without merit, and intend to defend vigorously against them.

Regardless of outcome, defense of litigation adversely affects us through defense costs, diversion of our time and related publicity.

Regulatory Matters

In June 2012, VITAS received an administrative subpoena from the Office of the Inspector General (“OIG”) of the U.S. Department of Health and Human Services in connection with an investigation of possible improper claims submitted to the Medicare and Medicaid Programs. It seeks production to the OIG of various categories of documents concerning the provision of hospice services, for headquarters and its Southern California programs, for the period January 1, 2007 through the date of the subpoena. The categories of documents include policy, procedure and training manuals; documents concerning patient eligibility for hospice care, including referrals, admissions, certification, revocations and census information; documents concerning claims submitted to government programs; certain information concerning employees and their compensation; and documents concerning VITAS’ financial performance. We are conferring with the U.S. Attorney’s Office for the Central District of California regarding the document requests. We cannot predict the timing or outcome of this investigation, or estimate our potential liability, if any.

In May 2009, VITAS received an administrative subpoena from the U.S. Department of Justice requesting VITAS deliver to the OIG documents, patient records, and policy and procedure manuals for headquarters and its Texas programs concerning hospice services provided for the period January 1, 2003 to the date of the letter. In August 2009, the OIG selected medical records for 59 past and current patients from a Texas program for review. In February 2010, VITAS received a companion civil investigative demand (“CID”) from the State of Texas Attorney General’s Office, seeking related documents. In September 2010, it received a second CID and a second administrative subpoena seeking related documents. In April 2011, the U.S. Attorney provided the Company with a copy of qui tam complaint filed under seal in the U.S. District Court for the Northern District of Texas. The Court unsealed this complaint in November 2011. The U.S. Attorney and the Attorney General for the State of Texas filed a notice in November 2011 that they had decided not to intervene at that time in the case. They continue to investigate its allegations. It was brought by Michael Rehfelt, a former VITAS San Antonio program general manager, against VITAS, the program’s former Regional Vice President Keith Becker, its former Medical Director Justos Cisneros, and their current employers: Wellmed Medical Management, Care Level Management LLC, and Inspiris Inc. Plaintiff dismissed his case against their current employers in March of 2012. The case alleges admission and recertification of inappropriate patients, backdating revocations, and conspiring to admit inappropriate patients to hospice. In June 2011, the U.S. Attorney provided the Company with a partially unsealed second qui tam complaint filed under seal in the U.S. District Court for the Western District of Texas. In June 2011, the U.S. Attorney also provided the Company with a partially unsealed third qui tam complaint filed under seal in the Northern District of Illinois, Eastern Division. We are conferring with the U.S. Attorney regarding the Company’s defenses to each complaint’s allegations. We can neither predict the outcome of this investigation nor estimate our potential liability, if any.

-11-

In April 2005, the OIG served VITAS with civil subpoenas relating to VITAS’ alleged failure to appropriately bill Medicare and Medicaid for hospice services. As part of this investigation, the OIG selected medical records for 320 past and current patients from VITAS’ three largest programs for review. It also sought policies and procedures dating back to 1998 covering admissions, certifications, recertifications and discharges. During the third quarter of 2005 and again in May 2006, the OIG requested additional information from us. The Court dismissed a related qui tam complaint filed in U.S. District Court for the Southern District of Florida with prejudice in July 2007. The plaintiffs appealed this dismissal, which the Court of Appeals affirmed. The government continues to investigate the complaint’s allegations. In March 2009, we received a letter from the government reiterating the basis of their investigations. In July 2012, we received an administrative subpoena from the Office of the Attorney General of Florida seeking documents from January 1, 2007 covering areas including billing, marketing, referrals, incentives, patient eligibility for hospice care, claims submitted to government programs, and VITAS’ financial performance. We are conferring with the government’s counsel regarding the document requests. We are unable to estimate the timing or outcome of this investigation or our potential liability, if any, with respect to this matter.

Regardless of outcome, responding to the subpoenas can adversely affect us through defense costs, diversion of our time and related publicity.

11. Concentration of Risk

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 $10.2 million and $9.8 million for the three months ended June 30, 2012 and 2011, respectively. VITAS made purchases from OCR of $20.3 million and $19.1 million for the six months ended June 30, 2012 and 2011, respectively. For the three and six month periods ending June 30, 2012 and 2011, respectively, purchases from this vendor represent over 90% of all pharmacy services used by VITAS.

12. Cash Overdrafts and Cash Equivalents

Included in accounts payable at June 30, 2012 is cash overdrafts payable of $11.3 million (December 31, 2011 - $10.3 million).

From time to time throughout the year, we invest excess cash in money market funds with major commercial banks. We closely monitor the creditworthiness of the institutions with which we invest our overnight funds. We had $53.4 million in cash equivalents as of June 30, 2012. There was $32.5 million in cash equivalents as of December 31, 2011. The weighted average rate of return for our cash equivalents was 0.2% for June 30, 2012 and 0.1% for December 31, 2011.

13. Financial Instruments

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

-12-

The following shows the carrying value, fair value and the hierarchy for our financial instruments as of June 30, 2012 (in thousands):

			Fair Value Measure
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Mutual fund investments of deferred
compensation plans held in trust	$	33,215	$	33,215	$	-	$	-
Long-term debt		170,769		187,984		-		-

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.

14. Capital Stock Transactions

We repurchased the following capital stock for the three and six-months ended June 30, 2012 and 2011:


	Three months ended June 30,					Six months ended June 30,
	2012			2011		2012		2011

Shares repurchased			199,900		-		199,900		341,513
Weighted average price per share		$	55.72	$	-	$	55.72	$	63.79

15. Business Combinations

In the first six months of 2012, we completed three business combinations within our Roto-Rooter segment for $1.5 million in cash to increase our market penetration in Bend, Oregon; Shreveport, Louisiana; and Boise, Idaho. A substantial portion of this aggregate purchase price was allocated to goodwill. The operating results of these business combinations have been included in our results of operations since the acquisition date and are not material for the three and six-month periods ended June 30, 2012 nor for the comparable prior year periods.

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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, 2012 and December 31, 2011 for the balance sheet, the three and six months ended June 30, 2012 and June 30, 2011 for the income statement and the six months ended June 30, 2012 and June 30, 2011 for the statement of cash flows (dollars in thousands):


June 30, 2012				Guarantor			Non-Guarantor			Consolidating
	Parent			Subsidiaries			Subsidiaries			Adjustments			Consolidated
ASSETS
Cash and cash equivalents	$	53,280		$	(803	)	$	7,489		$	-		$	59,966
Accounts receivable, less allowances		1,082			80,120			609			-			81,811
Intercompany receivables		-			303,347			-			(303,347	)		-
Inventories - net		-			7,414			732			-			8,146
Current deferred income taxes		(1,311	)		14,329			208			-			13,226
Prepaid income taxes		4,701			(890	)		376			-			4,187
Prepaid expenses		980			9,554			203			-			10,737
Total current assets		58,732			413,071			9,617			(303,347	)		178,073
Investments of deferred compensation plans		-			-			33,215			-			33,215
Properties and equipment, at cost, less accumulated depreciation		11,203			74,761			2,607			-			88,571
Identifiable intangible assets less accumulated amortization		-			57,635			-			-			57,635
Goodwill		-			457,487			4,478			-			461,965
Other assets		7,010			1,733			2,926			-			11,669
Investments in subsidiaries		833,241			23,043			-			(856,284	)		-
Total assets	$	910,186		$	1,027,730		$	52,843		$	(1,159,631	)	$	831,128
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable	$	(748	)	$	51,304		$	446		$	-		$	51,002
Intercompany payables		298,601			-			4,746			(303,347	)		-
Income taxes		-			-			167			-			167
Accrued insurance		402			36,384			-			-			36,786
Accrued compensation		2,020			37,166			543			-			39,729
Other current liabilities		1,992			12,618			296			-			14,906
Total current liabilities		302,267			137,472			6,198			(303,347	)		142,590
Deferred income taxes		(13,314	)		49,264			(10,693	)		-			25,257
Long-term debt		170,769			-			-			-			170,769
Deferred compensation liabilities		-			30			33,119			-			33,149
Other liabilities		3,019			6,394			2,505			-			11,918
Stockholders' equity		447,445			834,570			21,714			(856,284	)		447,445
Total liabilities and stockholders' equity	$	910,186		$	1,027,730		$	52,843		$	(1,159,631	)	$	831,128

December 31, 2011				Guarantor			Non-Guarantor			Consolidating
	Parent			Subsidiaries			Subsidiaries			Adjustments			Consolidated
ASSETS
Cash and cash equivalents	$	32,470		$	(1,422	)	$	7,033		$	-		$	38,081
Accounts receivable, less allowances		606			76,816			502			-			77,924
Intercompany receivables		-			273,413			-			(273,413	)		-
Inventories - net		-			8,032			636			-			8,668
Current deferred income taxes		(650	)		13,059			131			-			12,540
Prepaid income taxes		(114	)		1,689			556			-			2,131
Prepaid expenses		503			10,757			149			-			11,409
Total current assets		32,815			382,344			9,007			(273,413	)		150,753
Investments of deferred compensation plans		-			-			31,629			-			31,629
Properties and equipment, at cost, less accumulated depreciation		11,641			68,755			2,555			-			82,951
Identifiable intangible assets less accumulated amortization		-			58,262			-			-			58,262
Goodwill		-			456,183			4,450			-			460,633
Other assets		7,616			1,552			2,509			-			11,677
Investments in subsidiaries		793,277			21,148			-			(814,425	)		-
Total assets	$	845,349		$	988,244		$	50,150		$	(1,087,838	)	$	795,905
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable	$	(683	)	$	48,490		$	418		$	-		$	48,225
Intercompany payables		269,042			-			4,371			(273,413	)		-
Income taxes		-			-			90			-			90
Accrued insurance		489			36,658			-			-			37,147
Accrued compensation		3,828			36,655			604			-			41,087
Other current liabilities		1,719			15,728			1,404			-			18,851
Total current liabilities		274,395			137,531			6,887			(273,413	)		145,400
Deferred income taxes		(12,330	)		51,601			(9,808	)		-			29,463
Long-term debt		166,784			-			-			-			166,784
Deferred compensation liabilities		-			-			30,693			-			30,693
Other liabilities		2,816			4,630			2,435			-			9,881
Stockholders' equity		413,684			794,482			19,943			(814,425	)		413,684
Total liabilities and stockholders' equity	$	845,349		$	988,244		$	50,150		$	(1,087,838	)	$	795,905

-14-


For the three months ended June 30, 2012				Guarantor			Non-Guarantor			Consolidating
	Parent			Subsidiaries			Subsidiaries			Adjustments			Consolidated
Continuing Operations
Service revenues and sales	$	-		$	347,017		$	7,153		$	-		$	354,170
Cost of services provided and goods sold		-			253,434			3,934			-			257,368
Selling, general and administrative expenses		5,937			43,356			477			-			49,770
Depreciation		234			5,926			220			-			6,380
Amortization		481			646			-			-			1,127
Total costs and expenses		6,652			303,362			4,631			-			314,645
Income/ (loss) from operations		(6,652	)		43,655			2,522			-			39,525
Interest expense		(3,487	)		(171	)		(14	)		-			(3,672	)
Other (expense)/income - net		4,340			(4,357	)		(953	)		-			(970	)
Income/ (loss) before income taxes		(5,799	)		39,127			1,555			-			34,883
Income tax (provision)/ benefit		1,918			(14,918	)		(609	)		-			(13,609	)
Equity in net income of subsidiaries		25,155			990			-			(26,145	)		-
Net income	$	21,274		$	25,199		$	946		$	(26,145	)	$	21,274


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

For the six months ended June 30, 2012				Guarantor			Non-Guarantor			Consolidating
	Parent			Subsidiaries			Subsidiaries			Adjustments			Consolidated
Continuing Operations
Service revenues and sales	$	-		$	692,631		$	14,482		$	-		$	707,113
Cost of services provided and goods sold		-			506,861			7,952			-			514,813
Selling, general and administrative expenses		11,133			87,703			4,101			-			102,937
Depreciation		467			11,717			437			-			12,621
Amortization		951			1,289			-			-			2,240
Total costs and expenses		12,551			607,570			12,490			-			632,611
Income/ (loss) from operations		(12,551	)		85,061			1,992			-			74,502
Interest expense		(6,920	)		(340	)		(29	)		-			(7,289	)
Other (expense)/income - net		8,746			(8,798	)		1,177			-			1,125
Income/ (loss) before income taxes		(10,725	)		75,923			3,140			-			68,338
Income tax (provision)/ benefit		3,499			(28,882	)		(1,236	)		-			(26,619	)
Equity in net income of subsidiaries		48,945			1,972			-			(50,917	)		-
Net income	$	41,719		$	49,013		$	1,904		$	(50,917	)	$	41,719


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

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For the six months ended June 30, 2012				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Consolidated
Cash Flow from Operating Activities:
Net cash provided by operating activities	$	(3,716	)	$	57,667		$	704		$	54,655
Cash Flow from Investing Activities:
Capital expenditures		(28	)		(17,966	)		(480	)		(18,474	)
Business combinations, net of cash acquired		-			(1,500	)		-			(1,500	)
Other sources/(uses) - net		200			167			(10	)		357
Net cash used by investing activities		172			(19,299	)		(490	)		(19,617	)
Cash Flow from Financing Activities:
Change in cash overdrafts payable		(46	)		1,031			-			985
Change in intercompany accounts		38,573			(38,780	)		207			-
Dividends paid to shareholders		(6,160	)		-			-			(6,160	)
Purchases of treasury stock		(12,783	)		-			(58	)		(12,841	)
Proceeds from exercise of stock options		3,670			-			-			3,670
Realized excess tax benefit on share based compensation		1,069			-			-			1,069
Other sources - net		31			-			93			124
Net cash used by financing activities		24,354			(37,749	)		242			(13,153	)
Net increase in cash and cash equivalents		20,810			619			456			21,885
Cash and cash equivalents at beginning of year		32,470			(1,422	)		7,033			38,081
Cash and cash equivalents at end of period	$	53,280		$	(803	)	$	7,489		$	59,966

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

-16-

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

Executive Summary

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

The following is a summary of the key operating results (in thousands except per share amounts):


	Three months ended June 30,							Six months ended June 30,
	2012				2011			2012			2011
Service revenues and sales		$	354,170		$	333,360		$	707,113		$	664,278
Net income		$	21,274		$	20,286		$	41,719		$	38,387
Diluted EPS		$	1.10		$	0.94		$	2.16		$	1.78
Adjusted EBITDA		$	48,173		$	46,657		$	94,513		$	92,275
Adjusted EBITDA as a % of revenue			13.6	%		14.0	%		13.4	%		13.9	%

Earnings before interest, taxes and depreciation and amortization (“EBITDA”) and Adjusted EBITDA are not measures derived in accordance with GAAP. We use Adjusted EBITDA as a measure of earnings for our long-term incentive plan awards. We provide EBITDA and Adjusted EBITDA to help readers evaluate our operating results, compare our operating performance with that of similar companies that have different capital structures and help evaluate our ability to meet future debt service, capital expenditure and working capital requirements. Our EBITDA and Adjusted EBITDA should not be considered in isolation or as a substitute for comparable measures presented in accordance with GAAP. A reconciliation of our net income to our EBITDA and Adjusted EBITDA is presented on pages 28 and 29.

For the three months ended June 30, 2012, the increase in consolidated service revenues and sales was driven by a 9.1% increase at VITAS partially offset by a 1.4% decrease at Roto-Rooter. The increase in service revenues at VITAS was a result of increased average daily census (“ADC”) of 6.0%, driven by an increase in admissions of 4.0%, and Medicare price increases of approximately 2.5%. The decrease in service revenues at Roto-Rooter was driven by a 3.7% decrease in job count partially offset by a 2.2% price and mix shift increase. Consolidated net income increased 4.9%. Diluted EPS increased 17.0% as a result of the increase in net income and a lower number of shares outstanding. Adjusted EBITDA as a percent of revenue decreased 0.4% as a result of the decrease in service revenues at Roto-Rooter. See page 30 for additional VITAS operating metrics.

For the six months ended June 30, 2012, the increase in consolidated service revenues and sales was driven by a 9.9% increase at VITAS partially offset by a 2.4% decrease at Roto-Rooter. The increase in service revenues at VITAS was a result of increased average daily census (“ADC”) of 6.0%, driven by an increase in admissions of 3.7% and Medicare price increases of approximately 2.5%. The decrease in service revenues at Roto-Rooter was driven by a 4.9% decrease in job count partially offset by a 2.3% price and mix shift increase. Consolidated net income increased 8.7%. Diluted EPS increased 21.3% as a result of the increase in net income and a lower number of shares outstanding. Adjusted EBITDA as a percent of revenue decreased 0.5% as a result of the decrease in service revenues at Roto-Rooter. See page 30 for additional VITAS operating metrics.

VITAS expects to achieve full-year 2012 revenue growth, prior to Medicare cap, of 7.5% to 9.0%. Admissions are estimated to increase approximately 3.5% to 4.0%. Adjusted EBITDA margin prior to Medicare cap is estimated to be 14.5% to 15.0%. Roto-Rooter expects full-year 2012 revenue growth equal to the prior year. The revenue estimate is a result of increased pricing of approximately 2.0%, a favorable mix shift to higher revenue jobs, with job count estimated to range between down 2.0% to 4.0%. Adjusted EBITDA margin for 2012 is estimated to be in the range of 16.0% to 17.0%. 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, 2011 to June 30, 2012 include the following:

•	A $3.9 million increase in accounts receivable related to the timing of receipts.

•	A $5.6 million increase in properties and equipment due to the opening of the Florida Home Medical Equipment location and a data center relocation.

•	A $2.8 million increase in accounts payable related to timing of payments.

•	A $3.9 million decrease in other current liabilities primarily due to a $2.6 million decrease in accrued Medicare cap.

•	A $1.4 million decrease in accrued compensation related to the timing of payments of incentive compensation.

Net cash provided by operating activities increased by $3.5 million due primarily to the change in the increase in net income. Management continually evaluates cash utilization alternatives, including share repurchase, debt repurchase, acquisitions and increased dividends to determine the most beneficial use of available capital resources.

We have issued $29.4 million in standby letters of credit as of June 30, 2012, for insurance purposes. Issued letters of credit reduce our available credit under the revolving credit agreement. As of June 30, 2012, we have approximately $320.6 million of unused lines of credit available and eligible to be drawn down under our revolving credit facility, excluding the $150 million expansion feature. Management believes its liquidity and sources of capital are satisfactory for the Company’s needs in the foreseeable future.

Commitments and Contingencies

Collectively, the terms of our credit agreements require us to meet various financial covenants, to be tested quarterly. We are in compliance with all financial and other debt covenants as of June 30, 2012 and anticipate remaining in compliance throughout 2012.

-18-

Regardless of outcome, defense of litigation adversely affects us through defense costs, diversion of our time and related publicity.

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 investigations. In July 2012, we received an administrative subpoena from the Office of the Attorney General of Florida seeking documents from January 1, 2007 covering areas including billing, marketing, referrals, incentives, patient eligibility for hospice care, claims submitted to government programs, and VITAS’s financial performance. We are conferring with the government’s counsel regarding the document requests. We are unable to estimate the timing or outcome of this investigation or our potential liability, if any, with respect to this matter.

Regardless of outcome, responding to the subpoenas can adversely affect us through defense costs, diversion of our time and related publicity.

-19-

Results of Operations

Three months ended June 30, 2012 versus 2011 - Consolidated Results

Our service revenues and sales for the second quarter of 2012 increased 6.2% versus services and sales revenues for the second quarter of 2011. Of this increase, $22.1 million was attributable to VITAS partially offset by a $1.3 million decrease at Roto-Rooter. The following chart shows the components of those changes (in thousands):

	Increase/(Decrease)
	Amount		Percent
VITAS
Routine homecare	$	16,083	9.1
Continuous care		3,603	9.2
General inpatient		2,064	7.6
Medicare cap		368	100.0
Roto-Rooter
Plumbing		(575)	(1.3)
Drain cleaning		(562)	(1.6)
Contractor Operations		281	4.3
Other		(452)	(6.8)
Total	$	20,810	6.2

The increase in VITAS’ revenues for the second quarter of 2012 versus the second quarter of 2011 was a result of increased ADC of 6.0% driven by an increase in admissions of 4.0% and Medicare reimbursement rate increases of approximately 2.5%. The ADC increase was driven by a 6.1% increase in routine homecare, an increase of 4.3% in general inpatient and an increase of a 6.2% in continuous care. In excess of 90% of VITAS’ service revenues for the period were from Medicare and Medicaid.

The decrease in plumbing revenues for the second quarter of 2012 versus 2011 is attributable to a 1.8% decrease in the average price per job partially offset by a 0.3% increase in job count. Our excavation job count increased by 8.0% compared to 2011. Drain cleaning revenues for the second quarter of 2012 versus 2011 reflect a 5.6% decrease in the number of jobs perfomed partially offset by a 4.3% increase in the price per job. Contractor operations revenue increased 4.3% for the second quarter of 2012.

The consolidated gross margin was 27.3% in the second quarter of 2012 as compared with 28.1% in the second quarter of 2011. On a segment basis, VITAS’ gross margin was 21.6% in the second quarter of 2012 and 21.9% in the second quarter of 2011. The decrease in VITAS’ gross margin is attributable to higher labor costs for admissions and Medicare compliance personnel and the opening of new operations, both new locations and new inpatient units, which carry significant start-up costs as capacity begins to ramp-up. The Roto-Rooter segment’s gross margin was 44.3% for the second quarter of 2012 as compared with 45.0% for the second quarter of 2011. The decrease in Roto-Rooter’s gross margin is primarily the result of increased medical costs combined with lower revenue.

Selling, general and administrative expenses (“SG&A”) comprise (in thousands):


	Three months ended June 30,
	2012			2011
SG&A expenses before the impact of market gains
of deferred compensation plans	$	50,718		$	49,681
Impact of market value gains/(losses) on liabilities
held in deferred compensation trusts		(948	)		743
Total SG&A expenses	$	49,770		$	50,424

Normal salary increases and revenue related expense increases between periods accounts for the 2.1% increase in SG&A expenses before long-term incentive compensation and the impact of market gains of deferred compensation plans.

Interest expense increased 6.1% between periods primarily as a result of the increase in amortization of bond discount expense.

-20-

Other income/(expense) comprise (in thousands):


	Three months ended June 30,
	2012			2011
Market value gains/(losses) on assets held in deferred
compensation trusts	$	(948	)	$	743
Gain/(loss) on disposal of property and equipment		(67	)		32
Interest Income		59			62
Other		(14	)		(123	)
Total other income/(expense)	$	(970	)	$	714

Our effective income tax rate increased to 39.0% in the second quarter of 2012 from 38.7% when compared with the second quarter of 2011.

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


	Three Months Ended June 30,
	2012			2011
VITAS
Legal expenses of OIG investigation	$	(121	)	$	(301	)
Acquisition expenses		-			(31	)
Roto-Rooter
Expenses of class action litigation		(49	)		(113	)
Acquisition expenses		(12	)		8
Corporate
Stock option expense		(1,502	)		(1,620	)
Expenses of securities litigation		(124	)		-
Noncash impact of change in accounting for convertible debt		(1,248	)		(1,155	)
Total	$	(3,056	)	$	(3,212	)

Three months ended June 30, 2012 versus 2011 - Segment Results

The change in after-tax earnings for the second quarter of 2012 versus the second quarter of 2011 is due to (in thousands):


	Increase/(Decrease)
	Amount			Percent
VITAS	$	1,844			9.9
Roto-Rooter		(1,018	)		(11.2	)
Corporate		162			2.2
	$	988			4.9

-21-

Results of Operations

Six months ended June 30, 2012 versus 2011 - Consolidated Results

Our service revenues and sales for the first six months of 2012 increased 6.4% versus services and sales revenues for the first six months of 2011. Of this increase, $47.3 million was attributable to VITAS partially offset by a $4.5 million decrease at Roto-Rooter. The following chart shows the components of those changes (in thousands):


	Increase/(Decrease)
	Amount		Percent
VITAS
Routine homecare	$	34,028	9.8
Continuous care		7,499	9.6
General inpatient		3,830	7.0
Medicare cap		1,935	301.4
Roto-Rooter
Plumbing		(1,938)	(2.2)
Drain cleaning		(2,142)	(3.0)
Contractor Operations		452	3.5
Other		(829)	(6.1)
Total	$	42,835	6.4

The increase in VITAS’ revenues for the first six months of 2012 versus the first six months of 2011 was a result of increased ADC of 6.0% driven by an increase in admissions of 3.7% and Medicare reimbursement rate increases of approximately 2.5%. The ADC increase was driven by a 6.1% increase in routine homecare, an increase of 4.5% in general inpatient and an increase of a 5.5% in continuous care. Medicare cap increased 301.4% as a result of the reversal of amounts recorded in the fourth quarter of 2011 due to improving admissions trends. In excess of 90% of VITAS’ service revenues for the period were from Medicare and Medicaid.

The decrease in plumbing revenues for the first six months of 2012 versus 2011 is attributable to a 0.9% decrease in the number of jobs performed as well as a 1.5% decrease in the average price per job. Our excavation job count increased by 7.1% compared to 2011. Drain cleaning revenues for the first six months of 2012 versus 2011 reflect a 6.9% decrease in the number of jobs perfomed partially offset by a 4.2% increase in the price per job. Contractor operations revenue increased 3.5% for the first six months of 2012.

The consolidated gross margin was 27.2% for the first six months of 2012 as compared with 28.2% for the first six months of 2011. On a segment basis, VITAS’ gross margin was 21.4% for the first six months of 2012 and 21.8% for the first six months of 2011. The decrease in VITAS’ gross margin is attributable to higher labor costs for admissions and Medicare compliance personnel and the opening of new operations, both new locations and new inpatient units, which carry significant start-up costs as capacity begins to ramp-up. The Roto-Rooter segment’s gross margin was 44.0% for the first six months of 2012 as compared with 44.6% for the first six months of 2011. The decrease in Roto-Rooter’s gross margin is primarily the result of increased medical costs combined with lower revenue.

Selling, general and administrative expenses (“SG&A”) comprise (in thousands):


	Six months ended June 30,
	2012		2011
SG&A expenses before long-term incentive
compensation and the impact of market gains and
losses of deferred compensation plans	$	101,752	$	100,259
Long-term incentive compensation		-		3,012
Impact of market value gains on liabilities held in
deferred compensation trusts		1,185		2,807
Total SG&A expenses	$	102,937	$	106,078

Normal salary increases and revenue related expense increases between periods accounts for the 1.5% increase in SG&A expenses before long-term incentive compensation and the impact of market gains of deferred compensation plans.

-22-

Interest expense increased 8.7% between periods as a result of the debt refinancing that took place in the first quarter of 2011.

Other income/(expense) comprise (in thousands):


	Six months ended June 30,
	2012			2011
Market value gains on assets held in deferred
compensation trusts	$	1,185		$	2,807
Gain/(loss) on disposal of property and equipment		(148	)		11
Interest Income		110			123
Other		(22	)		(125	)
Total other income	$	1,125		$	2,816

Our effective income tax rate increased to 39.0% for the first six months of 2012 from 38.6% when compared with the first six months of 2011.

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

	Six Months Ended June 30,
	2012			2011
VITAS
Legal expenses of OIG investigation	$	(165	)	$	(618	)
Acquisition expenses		-			(71	)
Roto-Rooter
Expenses of class action litigation		(442	)		(414	)
Acquisition expenses		(21	)		4
Corporate
Stock option expense		(2,727	)		(2,843	)
Expenses of securities litigation		(124	)		-
Noncash impact of change in accounting for convertible debt		(2,472	)		(2,287	)
Long-term incentive compensation		-			(1,880	)
Total	$	(5,951	)	$	(8,109	)

Six months ended June 30, 2012 versus 2011 - Segment Results

The change in after-tax earnings for the first six months of 2012 versus the first months six of 2011 is due to (in thousands):


	Increase/(Decrease)
	Amount				Percent
VITAS		$	3,346			9.1
Roto-Rooter			(2,033	)		(11.5	)
Corporate			2,019			12.7
		$	3,332			8.7

-23-

CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 2012
(in thousands)(unaudited)

										Chemed
	VITAS			Roto-Rooter			Corporate			Consolidated
2012 (a)
Service revenues and sales	$	265,213		$	88,957		$	-		$	354,170
Cost of services provided and goods sold		207,839			49,529			-			257,368
Selling, general and administrative expenses		20,471			24,372			4,927			49,770
Depreciation		4,164			2,085			131			6,380
Amortization		488			157			482			1,127
Total costs and expenses		232,962			76,143			5,540			314,645
Income/(loss) from operations		32,251			12,814			(5,540	)		39,525
Interest expense		(63	)		(107	)		(3,502	)		(3,672	)
Intercompany interest income/(expense)		812			430			(1,242	)		-
Other income/(expense)—net		(1	)		(33	)		(936	)		(970	)
Income/(expense) before income taxes		32,999			13,104			(11,220	)		34,883
Income taxes		(12,566	)		(5,030	)		3,987			(13,609	)
Net income/(loss)	$	20,433		$	8,074		$	(7,233	)	$	21,274

(a) The following amounts are included in net income (in thousands):
										Chemed
	VITAS			Roto-Rooter			Corporate			Consolidated
Pretax benefit/(cost):
Stock option expense	$	-		$	-		$	(2,374	)	$	(2,374	)
Noncash impact of accounting for convertible debt		-			-			(1,973	)		(1,973	)
Expenses of class action litigation		-			(80	)		-			(80	)
Expenses of securities litigation		-			-			(197	)		(197	)
Acquisition expenses		-			(20	)		-			(20	)
Legal expenses of OIG investigation		(195	)		-			-			(195	)
Total	$	(195	)	$	(100	)	$	(4,544	)	$	(4,839	)

										Chemed
	VITAS			Roto-Rooter			Corporate			Consolidated
After-tax benefit/(cost):
Stock option expense	$	-		$	-		$	(1,502	)	$	(1,502	)
Noncash impact of accounting for convertible debt		-			-			(1,248	)		(1,248	)
Expenses of class action litigation		-			(49	)		-			(49	)
Expenses of securities litigation		-			-			(124	)		(124	)
Acquisition expenses		-			(12	)		-			(12	)
Legal expenses of OIG investigation		(121	)		-			-			(121	)
Total	$	(121	)	$	(61	)	$	(2,874	)	$	(3,056	)

-24-

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

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


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

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

-25-

CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2012
(in thousands)(unaudited)

										Chemed
	VITAS			Roto-Rooter			Corporate			Consolidated
2012 (a)
Service revenues and sales	$	526,060		$	181,053		$	-		$	707,113
Cost of services provided and goods sold		413,459			101,354			-			514,813
Selling, general and administrative expenses		40,219			50,525			12,193			102,937
Depreciation		8,188			4,171			262			12,621
Amortization		978			311			951			2,240
Total costs and expenses		462,844			156,361			13,406			632,611
Income/(loss) from operations		63,216			24,692			(13,406	)		74,502
Interest expense		(126	)		(214	)		(6,949	)		(7,289	)
Intercompany interest income/(expense)		1,566			825			(2,391	)		-
Other income/(expense)—net		(32	)		(54	)		1,211			1,125
Income/(expense) before income taxes		64,624			25,249			(21,535	)		68,338
Income taxes		(24,564	)		(9,680	)		7,625			(26,619	)
Net income/(loss)	$	40,060		$	15,569		$	(13,910	)	$	41,719


(a) The following amounts are included in net income (in thousands):
										Chemed
	VITAS			Roto-Rooter			Corporate			Consolidated
Pretax benefit/(cost):
Stock option expense	$	-		$	-		$	(4,312	)	$	(4,312	)
Noncash impact of accounting for convertible debt		-			-			(3,908	)		(3,908	)
Expenses of class action litigation		-			(727	)		-			(727	)
Expenses of securities litigation		-			-			(197	)		(197	)
Acquisition expenses		-			(35	)		-			(35	)
Legal expenses of OIG investigation		(266	)		-			-			(266	)
Total	$	(266	)	$	(762	)	$	(8,417	)	$	(9,445	)

										Chemed
	VITAS			Roto-Rooter			Corporate			Consolidated
After-tax benefit/(cost):
Stock option expense	$	-		$	-		$	(2,727	)	$	(2,727	)
Noncash impact of accounting for convertible debt		-			-			(2,472	)		(2,472	)
Expenses of class action litigation		-			(442	)		-			(442	)
Expenses of securities litigation		-			-			(124	)		(124	)
Acquisition expenses		-			(21	)		-			(21	)
Legal expenses of OIG investigation		(165	)		-			-			(165	)
Total	$	(165	)	$	(463	)	$	(5,323	)	$	(5,951	)

-26-

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

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


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

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

-27-

Consolidating Summary and Reconciliation of Adjusted EBITDA

Chemed Corporation and Subsidiary Companies
(in thousands)													Chemed
For the three months ended June 30, 2012	VITAS				Roto-Rooter				Corporate				Consolidated

Net income/(loss)		$	20,433			$	8,074			$	(7,233	)		$	21,274
Add/(deduct):
Interest expense			63				107				3,502				3,672
Income taxes			12,566				5,030				(3,987	)			13,609
Depreciation			4,164				2,085				131				6,380
Amortization			488				157				482				1,127
EBITDA			37,714				15,453				(7,105	)			46,062
Add/(deduct):
Legal expenses of OIG investigation			195				-				-				195
Acquisition expenses			-				20				-				20
Expenses of class action litigation			-				80				-				80
Expenses of securities litigation			-				-				197				197
Stock option expense			-				-				2,374				2,374
Advertising cost adjustment			-				(696	)			-				(696	)
Interest income			(42	)			(2	)			(15	)			(59	)
Intercompany interest income/(expense)			(812	)			(430	)			1,242				-
Adjusted EBITDA		$	37,055			$	14,425			$	(3,307	)		$	48,173

													Chemed
For the three months ended June 30, 2011	VITAS				Roto-Rooter				Corporate				Consolidated

Net income/(loss)		$	18,589			$	9,092			$	(7,395	)		$	20,286
Add/(deduct):
Interest expense			62				77				3,322				3,461
Income taxes			11,175				5,542				(3,908	)			12,809
Depreciation			4,199				2,025				134				6,358
Amortization			520				155				464				1,139
EBITDA			34,545				16,891				(7,383	)			44,053
Add/(deduct):
Legal expenses of OIG investigation			486				-				-				486
Acquisition expenses			51				(12	)			-				39
Expenses of class action litigation			-				186				-				186
Stock option expense			-				-				2,562				2,562
Advertising cost adjustment			-				(607	)			-				(607	)
Interest income			(7	)			(9	)			(46	)			(62	)
Intercompany interest income/(expense)			(1,215	)			(652	)			1,867				-
Adjusted EBITDA		$	33,860			$	15,797			$	(3,000	)		$	46,657

-28-

Consolidating Summary and Reconciliation of Adjusted EBITDA

Chemed Corporation and Subsidiary Companies
(in thousands)													Chemed
For the six months ended June 30, 2012	VITAS				Roto-Rooter				Corporate				Consolidated

Net income/(loss)		$	40,060			$	15,569			$	(13,910	)		$	41,719
Add/(deduct):
Interest expense			126				214				6,949				7,289
Income taxes			24,564				9,680				(7,625	)			26,619
Depreciation			8,188				4,171				262				12,621
Amortization			978				311				951				2,240
EBITDA			73,916				29,945				(13,373	)			90,488
Add/(deduct):
Legal expenses of OIG investigation			266				-				-				266
Acquisition expenses			-				35				-				35
Expenses of class action litigation			-				727				-				727
Expenses of securities litigation			-				-				197				197
Stock option expense			-				-				4,312				4,312
Advertising cost adjustment			-				(1,402	)			-				(1,402	)
Interest income			(72	)			(10	)			(28	)			(110	)
Intercompany interest income/(expense)			(1,566	)			(825	)			2,391				-
Adjusted EBITDA		$	72,544			$	28,470			$	(6,501	)		$	94,513

													Chemed
For the six months ended June 30, 2011	VITAS				Roto-Rooter				Corporate				Consolidated

Net income/(loss)		$	36,714			$	17,602			$	(15,929	)		$	38,387
Add/(deduct):
Interest expense			110				142				6,453				6,705
Income taxes			22,257				10,828				(8,971	)			24,114
Depreciation			8,366				4,009				271				12,646
Amortization			1,003				287				819				2,109
EBITDA			68,450				32,868				(17,357	)			83,961
Add/(deduct):
Legal expenses of OIG investigation			997				-				-				997
Acquisition expenses			115				(6	)			-				109
Expenses of class action litigation			-				681				-				681
Long-term incentive compensation			-				-				3,012				3,012
Stock option expense			-				-				4,495				4,495
Advertising cost adjustment			-				(857	)			-				(857	)
Interest income			(44	)			(16	)			(63	)			(123	)
Intercompany interest income/(expense)			(2,428	)			(1,291	)			3,719				-
Adjusted EBITDA		$	67,090			$	31,379			$	(6,194	)		$	92,275

-29-

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

	Three Months Ended June 30,						Six Months Ended June 30,
OPERATING STATISTICS	2012			2011			2012			2011
Net revenue ($000)
Homecare	$	193,150		$	177,067		$	379,747		$	345,719
Inpatient		29,247			27,183			58,399			54,569
Continuous care		42,816			39,213			85,337			77,838
Total before Medicare cap allowance	$	265,213		$	243,463		$	523,483		$	478,126
Medicare cap allowance		-			(368	)		2,577			642
Total	$	265,213		$	243,095		$	526,060		$	478,768
Net revenue as a percent of total
before Medicare cap allowance
Homecare		72.9	%		72.7	%		72.5	%		72.2	%
Inpatient		11.0			11.2			11.2			11.4
Continuous care		16.1			16.1			16.3			16.4
Total before Medicare cap allowance		100.0			100.0			100.0			100.0
Medicare cap allowance		-			(0.2	)		0.5			0.1
Total		100.0	%		99.8	%		100.5	%		100.1	%
Average daily census (days)
Homecare		9,971			9,229			9,792			9,031
Nursing home		3,036			3,034			3,011			3,034
Routine homecare		13,007			12,263			12,803			12,065
Inpatient		466			447			469			449
Continuous care		638			601			635			602
Total		14,111			13,311			13,907			13,116

Total Admissions		15,912			15,294			32,234			31,092
Total Discharges		15,508			14,885			31,707			30,419
Average length of stay (days)		74.0			77.1			78.3			78.0
Median length of stay (days)		14.0			14.0			14.0			14.0
ADC by major diagnosis
Neurological		33.6	%		34.2	%		34.0	%		34.2	%
Cancer		17.7			17.7			17.8			17.8
Cardio		11.6			11.5			11.5			11.7
Respiratory		6.7			6.9			6.7			6.8
Other		30.4			29.7			30.0			29.5
Total		100.0	%		100.0	%		100.0	%		100.0	%
Admissions by major diagnosis
Neurological		18.9	%		19.4	%		19.2	%		19.5	%
Cancer		33.5			32.8			32.9			32.2
Cardio		10.8			10.8			11.3			11.0
Respiratory		8.1			8.5			8.5			8.8
Other		28.7			28.5			28.1			28.5
Total		100.0	%		100.0	%		100.0	%		100.0	%
Direct patient care margins
Routine homecare		52.4	%		52.4	%		51.4	%		51.7	%
Inpatient		12.7			13.3			13.4			13.1
Continuous care		19.7			20.2			19.8			20.4
Homecare margin drivers (dollars per patient day)
Labor costs	$	54.56		$	53.23		$	56.13		$	54.28
Drug costs		8.31			8.21			8.32			8.08
Home medical equipment		6.79			6.66			6.80			6.66
Medical supplies		2.79			2.83			2.77			2.79
Inpatient margin drivers (dollars per patient day)
Labor costs	$	321.16		$	311.26		$	317.73		$	308.97
Continuous care margin drivers (dollars per patient day)
Labor costs	$	569.98		$	550.40		$	569.76		$	547.29
Bad debt expense as a percent of revenues		0.8	%		0.8	%		0.8	%		0.7	%
Accounts receivable --
Days of revenue outstanding- excluding unapplied Medicare payments		35.0			37.2		n.a			n.a
Days of revenue outstanding- including unapplied Medicare payments		30.6			36.8		n.a			n.a

-30-

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 Regarding Forward-Looking Information

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

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Our primary market risk exposure relates to interest rate risk exposure through variable interest rate borrowings. At June 30, 2012, we had no variable rate debt outstanding. At June 30, 2012, the fair value of the Notes approximates $188.0 million which have a face value of $187.0 million.

Item 4. Controls and Procedures

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

PART II OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

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

-31-

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

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

The following table shows the activity related to our share repurchase program for the first six months of 2012:


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

February 2011 Program
January 1 through January 31, 2012		-	$	-		2,602,513	$	75,268,254
February 1 through February 29, 2012		-		-		2,602,513		75,268,254
March 1 through March 31, 2012		-		-		2,602,513	$	75,268,254

First Quarter Total - February 2011 Program		-	$	-

April 1 through April 30, 2012		-	$	-		2,602,513	$	75,268,254
May 31 through May 31, 2012		168,812		55.77		2,771,325		65,853,060
June 1 through June 30, 2012		31,088		55.42		2,802,413	$	64,130,136

Second Quarter Total - February 2011 Program		199,900	$	55.72

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

None

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.DEF		XBRL Taxonomy Extension Definition Linkbase
101.LAB		XBRL Taxonomy Extension Label Linkbase

101.PRE		XBRL Taxonomy Extension Presentation Linkbase

-32-

SIGNATURES

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


			Chemed Corporation
			(Registrant)


Dated:	August 2, 2012	By:	/s/ Kevin J. McNamara
			Kevin J. McNamara
			(President and Chief Executive Officer)


Dated:	August 2, 2012	By:	/s/ David P. Williams
			David P. Williams
			(Executive Vice President and Chief Financial Officer)


Dated:	August 2, 2012	By:	/s/ Arthur V. Tucker, Jr.
			Arthur V. Tucker, Jr.
			(Vice President and Controller)

-33-