a5947893.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 March 31, 2009
 
 
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number: 1-8351

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

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

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

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

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

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

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

Class
  
Amount
  
Date
         
Capital Stock $1 Par Value
  
22,583,072 Shares
  
March 31, 2009
         
 


CHEMED CORPORATION AND
SUBSIDIARY COMPANIES



Index

   
Page No.
  
     
     
   
3
  
         
   
4
  
         
   
5
  
         
   
6
  
         
   
15
  
         
   
20
  
         
   
20
  
         
       
Item 1. Legal Proceedings    
21
  
         
Item 1A. Risk Factors    
21
  
         
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds    
21
  
         
Item 3. Defaults Upon Senior Securities    
21
  
         
Item 4. Submission of Matters to a Vote of Security Holders    
21
  
         
Item 5. Other Information    
21
  
         
   
21
  
         
 
 
-2-

 CHEMED CORPORATION AND SUBSIDIARY COMPANIES
 (in thousands except share and per share data)
             
             
   
March 31,
    
December 31,
  
   
2009
    
2008
  
ASSETS
            
Current assets
            
Cash and cash equivalents
   $ 11,859     $ 3,628  
Accounts receivable less allowances of $10,822 (2008 - $10,320)
     107,364       98,076  
Inventories
     8,083       7,569  
Current deferred income taxes
     16,692       15,392  
Prepaid expenses and other current assets
     9,046       11,268  
Total current assets
     153,044       135,933  
Investments of deferred compensation plans held in trust
     22,803       22,628  
Properties and equipment, at cost, less accumulated
                
depreciation of $104,715 (2008 - $101,689)
     73,631       76,962  
Identifiable intangible assets less accumulated
                
amortization of $22,275 (2008 - $21,272)
     60,748       61,303  
Goodwill
     450,000       448,721  
Other assets
     13,999       14,075  
Total Assets
   $ 774,225     $ 759,622  
 
               
LIABILITIES
                
Current liabilities
                
Accounts payable
   $ 48,883     $ 52,810  
Current portion of long-term debt
     10,070       10,169  
Income taxes
     13,872       2,181  
Accrued insurance
     37,840       35,994  
Accrued compensation
     33,069       40,741  
Other current liabilities
     14,715       12,180  
Total current liabilities
     158,449       154,075  
Deferred income taxes
     22,239       22,477  
Long-term debt
     149,122       158,210  
Deferred compensation liabilities
     22,691       22,417  
Other liabilities
     4,581       5,612  
Total Liabilities
     357,082       362,791  
 
               
STOCKHOLDERS' EQUITY
                
Capital stock - authorized 80,000,000 shares $1 par; issued
                
29,585,826 shares (2008 - 29,514,877 shares)
     29,586       29,515  
Paid-in capital
     316,209       313,516  
Retained earnings
     355,723       337,739  
Treasury stock - 7,111,514 shares (2008 - 7,100,475 shares), at cost
     (286,427 )     (285,977 )
Deferred compensation payable in Company stock
     2,052       2,038  
Total Stockholders' Equity
     417,143       396,831  
Total Liabilities and Stockholders' Equity
   $ 774,225     $ 759,622  
                 
                 
 See accompanying notes to unaudited financial statements.
                 
 
-3-

 CHEMED CORPORATION AND SUBSIDIARY COMPANIES
 (in thousands, except per share data)
             
             
             
   
Three Months Ended March 31,
  
   
2009
    
2008
  
Service revenues and sales
   $ 294,938     $ 285,268  
Cost of services provided and goods sold (excluding depreciation)
     207,013       205,812  
Selling, general and administrative expenses
     45,793       42,727  
Depreciation
     5,325       5,438  
Amortization
     1,536       1,450  
Other operating expense
     545       -  
Total costs and expenses
     260,212       255,427  
Income from operations
     34,726       29,841  
Interest expense
     (2,844 )     (3,109 )
Other expense--net
     (276 )     (1,189 )
Income before income taxes
     31,606       25,543  
Income taxes
     (12,267 )     (9,683 )
Net income
   $ 19,339     $ 15,860  
                 
                 
Earnings Per Share
                
Net income
   $ 0.86     $ 0.66  
Average number of shares outstanding
     22,394       23,873  
                 
Diluted Earnings Per Share
                
Net income
   $ 0.85     $ 0.65  
Average number of shares outstanding
     22,647       24,285  
                 
Cash Dividends Per Share
   $ 0.06     $ 0.06  
                 
 See accompanying notes to unaudited financial statements.
                 
 
-4-
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
  
 
(in thousands)
  
             
   
Three Months Ended
  
   
March 31,
  
   
2009
    
2008
  
Cash Flows from Operating Activities
            
Net income
   $ 19,339     $ 15,860  
 Adjustments to reconcile net income to net cash provided
                
by operating activities:
                
Depreciation and amortization
     6,861       6,888  
Provision for uncollectible accounts receivable
     3,071       2,002  
Stock option expense
     2,042       1,391  
Provision for deferred income taxes
     (1,529 )     (1,678 )
Amortization of discount on convertible notes
     1,612       1,612  
Amortization of debt issuance costs
     154       154  
Changes in operating assets and liabilities, excluding
                
amounts acquired in business combinations:
                
(Increase)/Decrease in accounts receivable
     (12,399 )     12,112  
Increase in inventories
     (514 )     (843 )
Decrease in prepaid expenses and other current assets
     1,002       1,488  
Decrease in accounts payable and other current liabilities
     (7,900 )     (5,679 )
Increase in income taxes
     13,056       6,677  
Increase in other assets
     (203 )     (293 )
Increase in other liabilities
     486       532  
Excess tax benefit on share-based compensation
     (145 )     (825 )
Other sources
     168       133  
Net cash provided by operating activities
     25,101       39,531  
Cash Flows from Investing Activities
                
Capital expenditures
     (3,376 )     (3,891 )
 Business combinations, net of cash acquired
     (1,944 )     -  
 Proceeds from sales of property and equipment
     1,360       19  
 Net proceeds/(uses) from the disposition of discontinued operations
     (121 )     9,556  
Other uses
     (31 )     (122 )
Net cash provided/(used) by investing activities
     (4,112 )     5,562  
Cash Flows from Financing Activities
                
 Purchases of treasury stock
     (231 )     (16,263 )
 Repayment of long-term debt
     (10,799 )     (2,595 )
Dividends paid
     (1,355 )     (1,449 )
 Decrease in cash overdrafts payable
     (342 )     (963 )
 Excess tax benefit on share-based compensation
     145       825  
Other (uses)/sources
     (176 )     68  
Net cash used by financing activities
     (12,758 )     (20,377 )
Increase in Cash and Cash Equivalents
     8,231       24,716  
Cash and cash equivalents at beginning of year
     3,628       4,988  
Cash and cash equivalents at end of period
   $ 11,859     $ 29,704  
                 
See accompanying notes to unaudited financial statements.
  
                 


-5-
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
Notes to Unaudited Financial Statements

1.  Basis of Presentation
 As used herein, the terms "We," "Company" and "Chemed" refer to Chemed Corporation or Chemed Corporation and its consolidated subsidiaries.
 
We have prepared the accompanying unaudited consolidated financial statements of Chemed in accordance with Rule 10-01 of SEC Regulation S-X.  Consequently, we have omitted certain disclosures required under generally accepted accounting principles in the United States (“GAAP”) for complete financial statements.  The December 31, 2008 balance sheet data were derived from audited financial statements but do not include all disclosures required by GAAP.  However, in our opinion, the financial statements presented herein contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly our financial position, results of operations and cash flows.  These financial statements are prepared on the same basis as and should be read in conjunction with the Consolidated Financial Statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2008.  Certain 2008 amounts have been restated to conform with current period presentation related to adoption of new accounting guidance for our convertible debt, as described in Note 5.

2.  Revenue Recognition
Both the VITAS segment and the Roto-Rooter segment recognize service revenues and sales when the earnings process has been completed.  Generally, this occurs when services are provided or products are delivered.  VITAS recognizes revenue at the estimated realizable amount due from third-party payers.  Medicare payments are subject to certain caps, as described below.
 
As of March 31, 2009, VITAS has approximately $18.0 million in unbilled revenue (December 31, 2008 - $13.9 million).  The unbilled revenue at VITAS relates to hospice programs currently undergoing focused medical reviews (“FMR”).  During FMR, surveyors working on behalf of the U.S. Federal government review certain patient files for compliance with Medicare regulations.  During the time the patient file is under review, we are unable to bill for care provided to those patients.  During the past year, the pace of FMR activity has increased industry-wide, resulting in our significant unbilled revenue balances.  We make appropriate provisions to reduce our accounts receivable balance for potential denials of patient service revenue due to FMR activity.
 
The U.S. government revises hospice reimbursement rates on an annual basis using the Hospice Wage Index (HWI) and the Budget Neutrality Adjustment Factor (BNAF).  The HWI is used to adjust reimbursement rates to reflect local differences in wages.  The BNAF is an estimated inflation factor applied to the HWI.  In August 2008, the U.S. government announced a 25% reduction in the BNAF for its fiscal 2009 (October 2008 through September 2009) pursuant to a three-year phase-out of the BNAF.  The February 2009 American Recovery and Reinvestment Act mandated a one year delay in the BNAF phase-out.  As a result, included in the March 31, 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.  The March 31, 2009 results also include the full BNAF for services provided in the first quarter of 2009.
 
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.  For the 2009 measurement period, we recorded $270,000 during the period ended March 31, 2009, which relates to one program’s projected liability. We did not record any Medicare cap liability during the period ended March 31, 2008.


-6-
3.  Segments
Service revenues and sales and after-tax earnings by business segment are as follows (in thousands):

     
Three months ended
  
     
March 31,
  
     
2009
    
2008
  
Service Revenues and Sales
            
VITAS
     $ 208,417     $ 198,585  
Roto-Rooter
       86,521       86,683  
Total
 
   $ 294,938     $ 285,268  
                   
After-tax Earnings
                
VITAS
     $ 17,283     $ 13,298  
Roto-Rooter
       8,276       9,095  
Total
 
     25,559       22,393  
Corporate
       (6,220 )     (6,533 )
Net income
 
   $ 19,339     $ 15,860  

4.  Earnings per Share
Earnings per share are computed using the weighted average number of shares of capital stock outstanding.  Earnings and diluted earnings per share for 2009 and 2008 are computed as follows (in thousands, except per share data):

   
Net Income
  
For the Three Months Ended March 31,
  
Income
    
Shares
    
Earnings
per Share
  
2009
                  
Earnings
   $ 19,339       22,394     $ 0.86  
Dilutive stock options
     -       216          
Nonvested stock awards
     -       37          
     Diluted earnings
   $ 19,339       22,647     $ 0.85  
2008
                        
Earnings
   $ 15,860       23,873     $ 0.66  
Dilutive stock options
     -       377          
Nonvested stock awards
     -       35          
     Diluted earnings
   $ 15,860       24,285     $ 0.65  
 
For the periods ended March 31, 2009 and 2008, 1,660,017 and 832,567, respectively, stock options were excluded from the computation of diluted earnings per share as their exercise prices were greater than the average market price for most of the quarter.
 
Diluted earnings per share may be impacted in future periods as the result of the issuance of our 1.875% Senior Convertible Notes (the "Notes") and related purchased call options and sold warrants.  Under EITF 04-8 "The Effect of Contingently Convertible Instruments on Diluted Earnings per Share" and EITF 90-19 "Convertible Bonds with Issuer Option to Settle for Cash upon Conversion", we will not include any shares related to the Notes in our calculation of diluted earnings per share until our average stock price for a quarter exceeds the conversion price of $80.73.  We would then include in our diluted earnings per share calculation those shares issuable using the treasury stock method.  The amount of shares issuable is based upon the amount by which the average stock price for the quarter exceeds the conversion price.  The purchased call option does not impact the calculation of diluted earnings per share as it is always anti-dilutive. The sold warrants become dilutive when our average stock price for a quarter exceeds the strike price of the warrant.

-7-
The following table provides examples of how changes in our stock price impact the number of shares that would be included in our diluted earnings per share calculation.  It also shows the impact on the number of shares issuable upon conversion of the Notes and settlement of the purchased call options and sold warrants:

                             
Incremental
  
     
Shares
          
Total Treasury
    
Shares Due
    
Shares Issued/
  
     
Underlying 1.875%
          
Method
    
to the Company
    
(Received) by
  
Share
    
Convertible
    
Warrant
    
Incremental
    
under Notes
    
 the Company
  
Price
    
Notes
    
Shares
    
Shares (a)
    
Hedges
    
upon Conversion (b)
  
$ 80.73       -       -       -       -       -  
$ 90.73       255,243       -       255,243       (273,061 )     (17,818 )
$ 100.73       459,807       -       459,807       (491,905 )     (32,098 )
$ 110.73       627,423       118,359       745,782       (671,222 )     74,560  
$ 120.73       767,272       313,764       1,081,036       (820,833 )     260,203  
$ 130.73       885,726       479,274       1,365,000       (947,556 )     417,444  
                                             
(a) Represents the number of incremental shares that must be included in the calculation of fully diluted shares under U.S. GAAP.
  
 
                                  
(b) Represents the number of incremental shares to be issued by the Company upon conversion of the Notes, assuming concurrent settlement of the note hedges and warrants.
  
 
          
5.  Long-Term Debt
We are in compliance with all debt covenants as of March 31, 2009.  We have issued $25.6 million in standby letters of credit as of March 31, 2009 for insurance purposes.  Issued letters of credit reduce our available credit under the revolving credit agreement.  As of March 31, 2009, we have approximately $149.4 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 Staff Position No. APB 14-1, “Accounting for Convertible Debt Instruments that may be Settled in Cash Upon Conversion (Including Partial Cash Settlement).”  This new guidance requires all convertible debentures classified as Instruments B or C under EITF 90-19 to separately account for the debt and equity pieces of the instrument.   At inception of the convertible instrument, cash flows related to the convertible instrument are to be discounted using a market rate of interest.  We adopted the new standard on January 1, 2009.  The FSP was applied retrospectively.  Upon adoption, the Notes issued had a discount of approximately $54.9 million.  Retained earnings as of January 1, 2008 decreased $2.3 million as a result of the cumulative effect of adoption.

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

   
March 31,
    
December 31,
  
   
2009
    
2008
  
Principal amount of convertible debentures
   $ 186,956     $ 186,956  
Unamortized debt discount
     (39,834 )     (41,446 )
Carrying amount of convertible debentures
   $ 147,122     $ 145,510  
                 
Additional paid in capital (net of tax)
   $ 31,310     $ 31,310  

The following amounts comprise interest expense included in our consolidated income statement for the quarters ended March 31:

   
2009
    
2008
  
Cash interest expense
   $ 1,078     $ 1,343  
Non-cash amortization of debt discount
     1,612       1,612  
Amortization of debt costs       154       154  
Total interest expense
   $ 2,844     $ 3,109  

-8-
The unamortized debt discount will be amortized using the effective interest method over the remaining life of the Notes.  The effective rate on the Notes after adoption of the standard is approximately 6.875%.  The gain on extinguishment of debt recognized in 2008 upon our repurchase of a portion of the Notes decreased by approximately $802,000 upon adoption, due to a portion of the extinguishment being attributed to the equity component of our Notes.

6.  Other Operating Expenses
During the first quarter of 2009, we recorded pretax expenses of $545,000 related to the costs of a contested proxy solicitation.

7.  Other Expense -- Net
Other expense -- net comprises the following (in thousands):

   
Three Months Ended 
March 31,
  
   
2009
    
2008
  
Interest income
   $ 82     $ 337  
Loss on trading investments of employee benefit trust
     (403 )     (1,522 )
(Loss)/gain on disposal of property and equipment
     24       (29 )
Other - net
     21       25  
     Total expense
   $ (276 )   $ (1,189 )

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

   
2009
    
2008
  
Accrued legal settlements
   $ 516     $ 410  
Accrued divestiture expenses
     845       837  
Accrued Medicare cap estimate
     1,005       735  
Other
     12,349       10,198  
                 
     Total other current liabilities
   $ 14,715     $ 12,180  

9.  Stock-Based Compensation Awards
On February 19, 2009, the Compensation/Incentive Committee of the Board of Directors (“CIC”) approved a grant of 53,199 shares of restricted stock to certain key employees.  The restricted shares cliff vest four-years from the date of issuance.  The cumulative compensation expense related to the restricted stock award is $2.3 million and will be recognized ratably over the four-year vesting period.  We assumed no forfeitures in determining the cumulative compensation expense of the grant.
 
On February 19, 2009, the CIC approved a grant of 508,600 stock options to certain employees.  The stock options vest ratably over three years from the date of issuance.  The cumulative compensation expense related to the stock option grant is $7.1 million and will be recognized over the three-year vesting period.  We used the Black-Scholes option valuation method to determine the cumulative compensation expense of the grant.

10.  Loans Receivable from Independent Contractors
The Roto-Rooter segment sublicenses with approximately sixty-five independent contractors to operate certain plumbing repair and drain cleaning businesses in lesser-populated areas of the United States and Canada.  We had notes receivable from our independent contractors as of March 31, 2009 totaling $1.6 million (December 31, 2008 -$1.6 million).  In most cases these loans are fully or partially secured by equipment owned by the contractor.  The interest rates on the loans range from zero to 8% per annum and the remaining terms of the loans range from two months to 5 years at March 31, 2009.  During the three-months ended March 31, 2009, we recorded revenues of $5.3 million (2008 - $5.6 million) and pretax profits of $2.3 million (2008 - $2.7 million) from our independent contractors.

-9-
We have adopted the provisions of Financial Accounting Standards Board ("FASB") Interpretation No. 46R "Consolidation of Variable Interest Entities--an interpretation of Accounting Research Bulletin No. 51 (revised)" ("FIN 46R") relative to our contractual relationships with the independent contractors.  FIN 46R requires the primary beneficiary of a Variable Interest Entity ("VIE") to consolidate the accounts of the VIE.  We have evaluated our relationships with our independent contractors based upon guidance provided in FIN 46R and have concluded that some of the contractors who have loans payable to us may be VIE’s.  We believe consolidation, if required, of the accounts of any VIE’s for which we might be the primary beneficiary would not materially impact our financial position, results of operations or cash flows.

11.  Pension and Retirement Plans
All of the Company’s plans that provide retirement and similar benefits are defined contribution plans.  Expenses for the Company’s pension and profit-sharing plans, excess benefit plans and other similar plans were $1.5 million and $2.3 million for the three months ended March 31, 2009 and 2008, respectively.

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

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

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

The government continues to investigate the complaint’s allegations.  In March 2009, we received a letter from the government reiterating the basis of their investigation.  We are unable to predict the outcome of this matter or the impact, if any, that the investigation may have on our business, results of operations, liquidity or capital resources.  Regardless of outcome, responding to the subpoenas can adversely affect us through defense costs, diversion of our time and related publicity.

14.  Related Party Agreement
VITAS has two pharmacy services agreements ("Agreements") with Omnicare, Inc. and its subsidiaries (“OCR”) whereby OCR provides specified pharmacy services for VITAS and its hospice patients in geographical areas served by both VITAS and OCR.  The Agreements renew automatically for one-year terms.  Either party may cancel the Agreements at the end of any term by giving written notice at least 90 days prior to the end of said term.  VITAS made purchases from OCR of $7.9 million and $8.3 million for the three months ended March 31, 2009 and 2008, respectively and has accounts payable to OCR of $259,000 at March 31, 2009.
 
Mr. E. L. Hutton was non-executive Chairman of the Board and a director of the Company until his death in March 2009.  He was a director of OCR until his retirement in the first quarter of 2008 at which time he assumed the honorary post of Chairman Emeritus of OCR’s Board.  Mr. Joel F. Gemunder, President and Chief Executive Officer of OCR, Ms. Andrea Lindell and Ms. Sandra Laney are directors of both OCR and the Company. Mr. Kevin J. McNamara, President, Chief Executive Officer and a director of the Company, is a director emeritus of OCR.  We believe that the terms of these agreements are no less favorable to VITAS than we could negotiate with an unrelated party.

-10-
15.  Cash Overdrafts Payable
Included in accounts payable at March 31, 2009 is cash overdrafts payable of $8.5 million (December 31, 2008 - $8.8 million).

16.  Financial Instruments
On January 1, 2008, we partially adopted the provisions of Statement No. 157, “Fair Value Measurements” (“SFAS 157”).  This statement defines a hierarchy which prioritizes the inputs in fair value measurements.  Level 1 measurements are measurements using quoted prices in active markets for identical assets or liabilities.  Level 2 measurements use significant other observable inputs.  Level 3 measurements are measurements using significant unobservable inputs which require a company to develop its own assumptions.  In recording the fair value of assets and liabilities, companies must use the most reliable measurement available.  There was no impact on our financial position or results of operations upon adoption of SFAS 157.
 
On January 1, 2009, the deferral period granted by FASB Staff Position 157-2 relative to our goodwill and indefinite lived intangible assets expired.  There was no impact on our financial position or results of operations as a result of the expiration of the deferral.

The following shows the carrying value, fair value and SFAS 157 hierarchy for our financial instruments as of  March 31, 2009 (in thousands):

         
Fair Value Measure
  
   
Carrying Value
    
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
    
Significant
Other
Observable
Inputs (Level 2)
    
Significant
Unobservable
Inputs (Level 3)
  
Mutual fund investments of deferred compensation plans held in trust
   $ 7,425     $ 7,425     $ -     $ -  
Long-term debt
     159,192       120,941       -       -  

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.  The remaining amount of investments of deferred compensation plans held in trust at March  31, 2009 relate to the cash surrender value of life insurance policies which are not subject to the guidance in SFAS 157.

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

-11-
18.  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 March 31, 2009 and December 31, 2008 for the balance sheet and the three months ended March 31, 2009 for the income statement and the statement of cash flows (dollars in thousands):
                               
As of March 31, 2009
        
Guarantor
    
Non-Guarantor
  
Consolidating
        
   
Parent
    
Subsidiaries
    
Subsidiaries
    
Adjustments
    
Consolidated
  
ASSETS
                              
Cash and cash equivalents
   $ 7,107     $ 1,966     $ 2,786     $ -     $ 11,859  
Accounts receivable, less allowances
     940       105,601       823       -       107,364  
Intercompany receivables
     -       53,120       -       (53,120 )     -  
Inventories
     -       7,357       726       -       8,083  
Current deferred income taxes
     (39 )     16,601       130       -       16,692  
Prepaid expenses and other current assets
     475       8,364       207       -       9,046  
     Total current assets
     8,483       193,009       4,672       (53,120 )     153,044  
Investments of deferred compensation plans held in trust
     -       -       22,803       -       22,803  
Properties and equipment, at cost, less accumulated depreciation
     10,376       61,324       1,931       -       73,631  
Identifiable intangible assets less accumulated amortization
     -       60,748       -       -       60,748  
Goodwill
     -       445,828       4,172       -       450,000  
Other assets
     11,175       2,530       294       -       13,999  
Investments in subsidiaries
     588,689       12,477       -       (601,166 )     -  
          Total assets
   $ 618,723     $ 775,916     $ 33,872     $ (654,286 )   $ 774,225  
LIABILITIES AND STOCKHOLDERS' EQUITY
                                  
Accounts payable
   $ 137     $ 48,432     $ 314     $ -     $ 48,883  
Intercompany payables
     47,874       -       5,246       (53,120 )     -  
Current portion of long-term debt
     10,000       70       -       -       10,070  
Income taxes
     (6,629 )     19,217       1,284       -       13,872  
Accrued insurance
     1,774       36,066       -       -       37,840  
Accrued salaries and wages
     832       31,832       405       -       33,069  
Other current liabilities
     3,460       11,120       135       -       14,715  
     Total current liabilities
     57,448       146,737       7,384       (53,120 )     158,449  
Deferred income taxes
     (7,873 )     38,207       (8,095 )     -       22,239  
Long-term debt
     149,122       -       -       -       149,122  
Deferred compensation liabilities
     -       -       22,691       -       22,691  
Other liabilities
     2,883       1,698       -       -       4,581  
Stockholders' equity
     417,143       589,274       11,892       (601,166 )     417,143  
     Total liabilities and stockholders' equity
   $ 618,723     $ 775,916     $ 33,872     $ (654,286 )   $ 774,225  
                                         
as of December 31, 2008
          
Guarantor
    
Non-Guarantor
  
Consolidating
          
   
Parent
    
Subsidiaries
    
Subsidiaries
    
Adjustments
    
Consolidated
  
ASSETS
                                        
Cash and cash equivalents
   $ 65     $ 202     $ 3,361     $ -     $ 3,628  
Accounts receivable, less allowances
     1,261       96,112       703       -       98,076  
Intercompany receivables
     -       37,105       -       (37,105 )     -  
Inventories
     -       7,021       548       -       7,569  
Current deferred income taxes
     (229 )     15,511       110       -       15,392  
Prepaid expenses and other current assets
     2,296       7,982       990       -       11,268  
     Total current assets
     3,393       163,933       5,712       (37,105 )     135,933  
Investments of deferred compensation plans held in trust
     -       -       22,628       -       22,628  
Properties and equipment, at cost, less accumulated depreciation
     11,665       63,179       2,118       -       76,962  
Identifiable intangible assets less accumulated amortization
     -       61,303       -       -       61,303  
Goodwill
     -       444,433       4,288       -       448,721  
Other assets
     11,312       2,455       308       -       14,075  
Investments in subsidiaries
     568,038       11,196       -       (579,234 )     -  
          Total assets
   $ 594,408     $ 746,499     $ 35,054     $ (616,339 )   $ 759,622  
LIABILITIES AND STOCKHOLDERS' EQUITY
                                  
Accounts payable
   $ (1,688 )   $ 54,175     $ 323     $ -     $ 52,810  
Intercompany payables
     29,513       -       7,592       (37,105 )     -  
Current portion of long-term debt
     10,000       169       -       -       10,169  
Income taxes
     (1,940 )     3,909       212       -       2,181  
Accrued insurance
     1,425       34,569       -       -       35,994  
Accrued salaries and wages
     3,817       36,523       401       -       40,741  
Other current liabilities
     2,022       8,979       1,179       -       12,180  
     Total current liabilities
     43,149       138,324       9,707       (37,105 )     154,075  
Deferred income taxes
     (7,801 )     38,310       (8,032 )     -       22,477  
Long-term debt
     158,210       -       -       -       158,210  
Deferred compensation liabilities
     -       -       22,417       -       22,417  
Other liabilities
     4,019       1,593       -       -       5,612  
Stockholders' equity
     396,831       568,272       10,962       (579,234 )     396,831  
     Total liabilities and stockholders' equity
   $ 594,408     $ 746,499     $ 35,054     $ (616,339 )   $ 759,622  
                                         
                                         
 
-12-
 
For the three months ended March 31, 2009
        
Guarantor
    
Non-Guarantor
    
Consolidating
        
   
Parent
    
Subsidiaries
    
Subsidiaries
    
Adjustments
    
Consolidated
  
Continuing Operations
                              
Net sales and service revenues
   $ -     $ 289,139     $ 5,799     $ -     $ 294,938  
Cost of services provided and goods sold
     -       204,029       2,984       -       207,013  
Selling, general and administrative expenses
     5,229       40,648       (84 )     -       45,793  
Depreciation
     151       5,007       167       -       5,325  
Amortization
     531       1,005       -       -       1,536  
Other operating expense
     545       -       -       -       545  
     Total costs and expenses
     6,456       250,689       3,067       -       260,212  
     Income/ (loss) from operations
     (6,456 )     38,450       2,732       -       34,726  
Interest expense
     (2,770 )     (80 )     6       -       (2,844 )
Other (expense)/income - net
     384       (277 )     (383 )     -       (276 )
     Income/ (loss) before income taxes
     (8,842 )     38,093       2,355       -       31,606  
Income tax (provision)/ benefit
     3,270       (14,450 )     (1,087 )     -       (12,267 )
Equity in net income of subsidiaries
     24,911       1,605       -       (26,516 )     -  
Net income
   $ 19,339     $ 25,248     $ 1,268     $ (26,516 )   $ 19,339  
                                         
For the three months ended March 31, 2008
          
Guarantor
    
Non-Guarantor
    
Consolidating
          
   
Parent
    
Subsidiaries
    
Subsidiaries
    
Adjustments
    
Consolidated
  
Continuing Operations
                                        
Net sales and service revenues
   $ -     $ 278,862     $ 6,406     $ -     $ 285,268  
Cost of services provided and goods sold
     -       202,704       3,108       -       205,812  
Selling, general and administrative expenses
     4,050       38,788       (111 )     -       42,727  
Depreciation
     124       5,149       165       -       5,438  
Amortization
     441       1,009       -       -       1,450  
     Total costs and expenses
     4,615       247,650       3,162       -       255,427  
     Income/ (loss) from operations
     (4,615 )     31,212       3,244       -       29,841  
Interest expense
     (2,975 )     (133 )     (1 )     -       (3,109 )
Other (expense)/income - net
     1,368       (1,056 )     (1,501 )     -       (1,189 )
     Income/ (loss) before income taxes
     (6,222 )     30,023       1,742       -       25,543  
Income tax (provision)/ benefit
     2,610       (10,979 )     (1,314 )     -       (9,683 )
Equity in net income of subsidiaries
     19,472       699       -       (20,171 )     -  
Net income
   $ 15,860     $ 19,743     $ 428     $ (20,171 )   $ 15,860  
                                         

-13-

For the three months ended March 31, 2009
        
Guarantor
    
Non-Guarantor
        
   
Parent
    
Subsidiaries
  
Subsidiaries
    
Consolidated
  
Cash Flow from Operating Activities:
                        
Net cash (used)/provided by operating activities
   $ (5,656 )   $ 28,627     $ 2,130     $ 25,101  
Cash Flow from Investing Activities:
                                
Capital expenditures
     (7 )     (3,345 )     (24 )     (3,376 )
Business combinations, net of cash acquired
     -       (1,944 )     -       (1,944 )
Net payments from sale of discontinued operations
     (121 )     -       -       (121 )
Proceeds from sale of property and equipment
     1,256       104       -       1,360  
Other sources and uses - net
     (77 )     46       -       (31 )
       Net cash provided/ (used) by investing activities
     1,051       (5,139 )     (24 )     (4,112 )
Cash Flow from Financing Activities:
                                
Change in cash overdrafts payable
     1,343       (1,685 )     -       (342 )
Change in intercompany accounts
     22,357       (20,011 )     (2,346 )     -  
Dividends paid to shareholders
     (1,355 )     -       -       (1,355 )
Purchases of treasury stock
     (231 )     -       -       (231 )
Proceeds from exercise of stock options
     68       -       -       68  
Realized excess tax benefit on share based compensation
     145       -       -       145  
Net increase/(decrease) in  revolving credit facility
     (8,200 )     -       -       (8,200 )
Repayment of long-term debt
     (2,500 )     (99 )     -       (2,599 )
Other sources and uses - net
     20       71       (335 )     (244 )
       Net cash provided/(used) by financing activities
     11,647       (21,724 )     (2,681 )     (12,758 )
Net increase/(decrease) in cash and cash equivalents
     7,042       1,764       (575 )     8,231  
Cash and cash equivalents at beginning of year
     65       202       3,361       3,628  
Cash and cash equivalents at end of period
   $ 7,107     $ 1,966     $ 2,786     $ 11,859  
                                 
                                 
For the three months ended March 31, 2008
          
Guarantor
    
Non-Guarantor
          
   
Parent
    
Subsidiaries
  
Subsidiaries
    
Consolidated
  
Cash Flow from Operating Activities:
                                
Net cash (used)/provided by operating activities
   $ (7,889 )   $ 46,513     $ 907     $ 39,531  
Cash Flow from Investing Activities:
                                
Capital expenditures
     (42 )     (3,695 )     (154 )     (3,891 )
Net proceeds from sale of discontinued operations
     9,556       -       -       9,556  
Proceeds from sale of property and equipment
     10       7       2       19  
Other sources and uses - net
     (155 )     33       -       (122 )
       Net cash provided/(used) by investing activities
     9,369       (3,655 )     (152 )     5,562  
Cash Flow from Financing Activities:
                                
Decrease in cash overdrafts payable
     (332 )     (631 )     -       (963 )
Change in intercompany accounts
     42,838       (42,009 )     (829 )     -  
Dividends paid to shareholders
     (1,449 )     -       -       (1,449 )
Purchases of treasury stock
     (16,263 )     -       -       (16,263 )
Proceeds from exercise of stock options
     116       -       -       116  
Realized excess tax benefit on share based compensation
     825       -       -       825  
Repayment of long-term debt
     (2,500 )     (95 )     -       (2,595 )
Other sources and uses - net
     (68 )     72       (52 )     (48 )
       Net cash provided/(used) by financing activities
     23,167       (42,663 )     (881 )     (20,377 )
Net increase/(decrease) in cash and cash equivalents
     24,647       195       (126 )     24,716  
Cash and cash equivalents at beginning of period
     3,877       (1,584 )     2,695       4,988  
Cash and cash equivalents at end of period
   $ 28,524     $ (1,389 )   $ 2,569     $ 29,704  
                                 
 
-14-
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

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

The following is a summary of the key operating results for the three months ended March 31, 2009 and 2008 (in thousands except per share amounts):

   
Three Months Ended March 31,
  
   
2009
    
2008
  
 Consolidated service revenues and sales
   $ 294,938     $ 285,268  
 Consolidated net income
   $ 19,339     $ 15,860  
 Diluted EPS
   $ 0.85     $ 0.65  
 
The increase in consolidated service revenues and sales was driven by a 5% increase at VITAS while Roto-Rooter revenues were essentially flat.  The increase in service revenues at VITAS was primarily the result of the 2008 Medicare reimbursement rate increase of approximately 3.5%, an $1.95 million increase related to the one-year delay in the BNAF phaseout and the related retroactive price increase for services in the fourth quarter of 2008 and a mix shift to higher acuity days of care.  Roto-Rooter was driven by a 6.9% decrease in job count offset with an approximate 7.9% price and mix shift increase.  The Roto-Rooter changes include the impact of acquisitions in 2008, offset by the conversion of one company-owned branch to an independent contractor in 2009. The Colorado Springs acquisition was integrated into our Denver branch and the net revenues, expenses and profitability cannot be separated from the Denver branch. The impact of these acquisitions is not material.  Consolidated net income increased mainly as a result of the increase in revenues.  Diluted EPS increased as the result of increased earnings and a reduction of diluted share count due to our stock repurchase program.
 
Vitas expects to achieve full-year 2009 revenue growth, prior to Medicare cap, of 5.5% to 7.0%.  Admissions are estimated to increase 1.5% to 3.5%. Full calendar year 2009 Medicare contractual billing limitations are estimated at $4.0 million.  Roto-Rooter expects to achieve full-year 2009 revenue growth of 3.0% to 4.0%.  The revenue growth is a result of increased pricing of 5.0%, a favorable mix shift to higher revenue jobs, partially offset by a job count decline estimated at 7.0% to 9.0%.  We anticipate that our operating income and cash flows will be sufficient to operate our businesses and meet any commitments for the foreseeable future.

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

•  
A $9.3 million increase in accounts receivable which results primarily from a $4.1 million increase in unbilled revenue from FMR activity at VITAS as well as $4.0 million related to the BNAF adjustment.  Roto-Rooter receivables are virtually unchanged reflecting the flat revenues from the fourth quarter of 2008.
•  
A $9.1 million decrease in long-term debt which results primarily from an $8.2 million payment on our revolving line of credit, a $2.5 million payment on our term loan offset by $1.6 million of unamortized bond discount.

 Net cash provided by operating activities decreased $14.4 million due primarily to the increase in accounts receivable discussed above.

We have issued $25.6 million in standby letters of credit as of March 31, 2009, for insurance purposes.  Issued letters of credit reduce our available credit under the revolving credit agreement.  As of March 31, 2009, we have approximately $149.4 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.

-15-
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 March 31, 2009 and anticipate remaining in compliance throughout 2009.
 
VITAS is party to a class action lawsuit filed in the Superior Court of California, Los Angeles County, in September 2006 by Bernadette Santos, Keith Knoche and Joyce White (“Santos”).  This case alleges failure to pay overtime and failure to provide meal and rest periods to a purported class of California admissions nurses, chaplains and sales representatives.  The case seeks payment of penalties, interest and Plaintiffs’ attorney fees.  VITAS contests these allegations.  The lawsuit is in its early stages and we are unable to estimate our potential liability, if any, with respect to these allegations.
 
Regardless of outcome, defense of litigation adversely affects us through defense costs, diversion of our time and related publicity.  In the normal course of business, we are a party to various claims and legal proceedings.  We record a reserve for these matters when an adverse outcome is probable and the amount of the potential liability is reasonably estimable.
 
In April 2005, the Office of Inspector General (“OIG”) for the Department of Health and Human Services served VITAS with civil subpoenas relating to VITAS’ alleged failure to appropriately bill Medicare and Medicaid for hospice services.  As part of this investigation, the OIG selected medical records for 320 past and current patients from VITAS’ three largest programs for review.  It also sought policies and procedures dating back to 1998 covering admissions, certifications, recertifications and discharges.  During the third quarter of 2005 and again in May 2006, the OIG requested additional information from us.  The Court dismissed a related qui tam complaint filed in U.S. District Court for the Southern District of Florida with prejudice in July 2007.  The plaintiffs appealed this dismissal, which the Court of Appeals affirmed.
 
The government continues to investigate the complaint’s allegations.  In March 2009, we received a letter from the government reiterating the basis of their investigation.  We are unable to predict the outcome of this matter or the impact, if any, that the investigation may have on our business, results of operations, liquidity or capital resources.  Regardless of outcome, responding to the subpoenas can adversely affect us through defense costs, diversion of our time and related publicity.

Results of Operations
First Quarter 2009 versus First Quarter 2008 - Consolidated Results
Our service revenues and sales for the first quarter of 2009 increased 3.4% versus service revenues and sales for the first quarter of 2008.  Of this increase, $9.8 million was attributable to VITAS offset by a $162,000 decrease at Roto-Rooter ..  The following chart shows the components of those changes (dollar amounts in thousands):

       
Increase/(Decrease)
  
       
Amount
    
Percent
  
 VITAS
                
 
Routine homecare
   $ 5,458       3.9 %
 
Continuous care
     3,583       11.6 %
 
General inpatient
     (889 )     -3.4 %
 
Medicare cap
     (270 )     -  
 
BNAF adjustment
     1,950       -  
 Roto-Rooter
                  
 
Plumbing
       2,413       6.8 %
 
Drain cleaning
     (2,287 )     -5.9 %
 
Other
       (288 )     -2.3 %
                     
   
Total
   $ 9,670       3.4 %

-16-
The increase in VITAS’ service revenues for the first quarter of 2009 versus the first quarter of 2008 is primarily the result of the 2008 Medicare reimbursement rate increase of approximately 3.5%, an $1.95 million increase for the BNAF, related to the fourth quarter of 2008, as well as favorable mix shift to higher acuity days of care. Average daily census (ADC) was essentially flat when compared with the prior year period.  This is a result of a 0.4% increase in routine homecare, an increase of 5.8% in continuous care and a 7.0% decrease in general inpatient.  In excess of 90% of VITAS’ service revenues for the period were from Medicare and Medicaid.

The increase in the plumbing revenues for the first quarter of 2009 versus 2008 is attributable to a 15% increase in the average price per job offset by a 7% decrease in the number of jobs performed.  Drain cleaning revenues for the first quarter of 2009 versus 2008 reflect a 7% decline in the number of jobs offset by a 2% increase in the average price per job.  The decrease in other revenues is attributable primarily to lower sales of drain cleaning products and decreased revenue from the independent contractor operations.
 
The consolidated gross margin was 29.8% in the first quarter of 2009 as compared with 27.9% in the first quarter of 2008.  On a segment basis, VITAS’ gross margin was 23.4% in the first quarter of 2009 and 20.0% in the first quarter of 2008.  VITAS’ gross margin increased as the result of the BNAF adjustment related to fourth quarter of 2008 (1.0% of the improvement) and continued refinements to our labor and scheduling process.  The Roto-Rooter segment’s gross margin was 45.2% in the first quarter of 2009 and 45.8% in the first quarter of 2008.
 
Selling, general and administrative expenses (“SG&A”) for the first quarter of 2009 were $45.8 million, an increase of $3.1 million (7%) versus the first quarter of 2008.  This increase is primarily due to an increase in stock-based compensation expense over the first quarter of 2008 as well as an increase in bad debt expense at VITAS. This increase in bad debt expense is a result of continued FMR activity.

Other operating expenses in the first quarter of 2009 of $545,000 are related to the expenses of a contested proxy solicitation.

Interest expense, substantially all of which is incurred at Corporate, declined from $3.1 million in the first quarter of 2008 to $2.8 million in the first quarter of 2009 due to lower interest rates and lower outstanding debt balances.  Interest expense for both quarters was restated to include $1.6 million in additional non-cash interest expense.  Other expenses decreased from $1.2 million in the first quarter of 2008 to $276,000 in the first quarter of 2009.  This is related to the change in realized and unrealized losses in the investments of deferred compensation plans held in trust.

Our effective income tax rate increased from 37.9% in the first quarter of 2008 to 38.8% in the first quarter of 2009.   The increase in the effective income tax rate is due primarily to the impact of non-deductible market gains and losses on investments in our deferred compensation benefit trusts.

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

   
Three Months Ended March 31,
  
   
2009
    
2008
  
 VITAS
            
Costs associated with the OIG investigation
   $ (8 )   $ 9  
Tax adjustments required upon expiration of statutes
     -       322  
 Roto-Rooter
                
Unreserved prior year's insurance claims
     -       (358 )
 Corporate
                
Stock option expense
     (1,292 )     (884 )
Costs related to contested proxy solicitation
     (345 )     -  
Impact of non-deductible losses and non-taxable gains on
                
investments held in deferred compensation trusts
     736       -  
Noncash interest expense related to change in accounting
                
for conversion feature of the convertible notes
     (968 )     (960 )
 Total
   $ (1,877 )   $ (1,871 )

-17-
First quarter 2009 versus First quarter 2008 - Segment Results
The change in after-tax earnings for the first quarter of 2009 versus the first quarter of 2008 is due to (in thousands):

   
Net Income
  
   
Increase/(Decrease)
  
   
Amount
    
Percent
  
 VITAS
   $ 3,985       30.0 %
 Roto-Rooter
     (819 )     -9.0 %
 Corporate
     313       4.8 %
                 
    $ 3,479       21.9 %

The following chart updates historical unaudited financial and operating data of VITAS (dollars in thousands, except dollars per patient day):
 
-18-
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
OPERATING STATISTICS FOR VITAS SEGMENT
FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008
(unaudited)
 
OPERATING STATISTICS
  
 2009
    
 2008
  
Net revenue
                
 
Homecare
  
 $
147,075
    
 $
141,617
  
 
Inpatient
    
25,082
      
25,971
  
 
Continuous care
    
34,580
      
30,997
  
   
Total before Medicare cap allowance and 2008 BNAF
  
 $
206,737
    
 $
198,585
  
 
Estimated BNAF Accrual Q4 2008
    
1,950
      
                         -
  
 
Medicare cap allowance
    
(270
 )     
                         -
  
   
Total
  
 $
208,417
    
 $
198,585
  
Net revenue as a percent of total
                
     before Medicare cap allowance
                
 
Homecare
    
71.1
%
    
71.3
%
 
Inpatient
    
12.2
      
13.1
  
 
Continuous care
    
16.7
      
15.6
  
   
Total before Medicare cap allowance and 2008 BNAF
    
100.0
      
100.0
  
 
Estimated BNAF Accrual Q4 2008
     0.9       -  
 
Medicare cap allowance
    
(0.1
 )     
                        -
  
   
Total
    
100.8
%
    
                  100.0
%
Average daily census ("ADC") (days)
                
 
Homecare
    
7,477
      
                  7,154
  
 
Nursing home
    
3,263
      
                  3,548
  
   
Routine homecare
    
10,740
      
                10,702
  
 
Inpatient
    
421
      
                     453
  
 
Continuous care
    
                    567
      
                     536
  
   
Total
    
              11,728
      
                11,691
  
                   
Total Admissions
    
              14,168
      
                15,212
  
Total Discharges
    
              13,865
      
                14,992
  
Average length of stay (days)
    
                   76.6
      
                    71.5
  
Median length of stay (days)
    
                   13.0
      
                    13.0
  
ADC by major diagnosis
                
 
Neurological
    
                   32.5
%
    
                    32.5
%
 
Cancer
    
                   19.6
      
                    20.0
  
 
Cardio
    
                   12.3
      
                    13.0
  
 
Respiratory
    
                     6.7
      
                      6.9
  
 
Other
    
                   28.9
      
                    27.6
  
   
Total
    
                100.0
%
    
                  100.0
%
Admissions by major diagnosis
                
 
Neurological
    
                   18.6
%
    
                    19.0
%
 
Cancer
    
                   35.9
      
                    33.4
  
 
Cardio
    
                   11.1
      
                    11.9
  
 
Respiratory
    
                     7.6
      
                      8.5
  
 
Other
    
                   26.8
      
                    27.2
  
   
Total
    
                100.0
%
    
                  100.0
%
Direct patient care margins
                
 
Routine homecare
    
                   51.5
%
    
                    49.5
%
 
Inpatient
    
                   17.4
      
                    19.3
  
 
Continuous care
    
                   19.1
      
                    16.5
  
Homecare margin drivers (dollars per patient day)
                
 
Labor costs
  
 $
                52.82
    
 $
                  52.26
  
 
Drug costs
    
                   7.65
      
                    7.49
  
 
Home medical equipment
    
                   6.68
      
                    6.17
  
 
Medical supplies
    
                   2.27
      
                    2.57
  
Inpatient margin drivers (dollars per patient day)
                
 
Labor costs
  
 $
              271.75
    
 $
                266.18
  
Continuous care margin drivers (dollars per patient day)
                
 
Labor costs
  
 $
              521.30
    
 $
                509.62
  
Bad debt expense as a percent of revenues
    
                     1.1
%
    
                      0.9
%
 Accounts receivable --
                
  days of revenue outstanding
    
                   68.4
      
                    45.5
  
 
                         
                         
 
VITAS has 5 large (greater than 450 ADC), 17 medium (greater than 200 but less than 450 ADC) and 23 small (less than 200 ADC) hospice programs.  There is one continuing program as of March 31, 2009, with Medicare cap cushion of less  than 10% for the 2008 measurement period.  There are two continuing programs as of March 31, 2009, with Medicare cap cushion of less than 10% for the 2009 measurement period, including one program with a $505,000 liability recorded at March 31, 2009.
                         
 
Direct patient care margins exclude indirect patient care and administrative costs, Medicare cap billing limitation, as well as the BNAF adjustment that relates to the fourth quarter of 2008.
 
-19-
Recent Accounting Statements
In May 2008, the FASB issued Statement of Financial Accounting Standard No. 162 “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS 162”).  The purpose of this standard is to provide a consistent framework for determining what accounting principles should be used when preparing U.S. GAAP financial statements.  SFAS 162 categorizes accounting pronouncements in a descending order of authority.  In the instance of potentially conflicting accounting principles, the standard in the highest category must be used.  This statement will be effective 60 days after the SEC approves the Public Company Accounting and Oversight Board’s related amendments.  We believe that SFAS 162 will have no impact on our existing accounting methods.

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 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 March 31, 2009, we had $12.0 million of variable rate debt outstanding.  A 1% change in the interest rate on our variable interest rate borrowings would have a $120,000 full-year impact on our interest expense.  At March 31, 2009, the fair value of the Notes approximates $138.3 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.
 
 
-20-
 
PART II OTHER INFORMATION
 
Item 1. Legal proceedings
 
For information regarding the Company's legal proceedings, see note 12, Litigation, and note 13, OIG Investigation, under Part I, Item I of this Quarterly Report on Form 10-Q.
 
Item 1A. Risk Factors
 
There have been no material changes from the risk factors previously disclosed in the Company's most recent Annual Report on Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 
None
 
Item 3. Defaults Upon Senior Securities
 
None
 
Item 4. Submission of Matters to a Vote of Security Holders
 
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.
 
-21-
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:
  
April 28, 2009
  
By:
  
Kevin J. McNamara
           
Kevin J. McNamara
           
(President and Chief Executive Officer)
             
             
Dated:
  
April 28, 2009
  
By:
  
David P. Williams
           
David P. Williams
           
(Executive Vice President and Chief Financial Officer)
             
             
Dated:
  
April 28, 2009
  
By:
  
Arthur V. Tucker, Jr.
           
Arthur V. Tucker, Jr.
           
(Vice President and Controller)

 

-22-