CHE Chemed Corporation

Chemed Corporation (Chemed) (NYSE:CHE), which operates VITAS Healthcare Corporation (VITAS), the nation’s largest provider of end-of-life care, and Roto-Rooter, the nation’s largest commercial and residential plumbing and drain cleaning services provider, reported financial results for its first quarter ended March 31, 2011, versus the comparable prior-year period, as follows:

Consolidated operating results:

• Revenue increased 7.2% to $331 million
• GAAP Diluted EPS $0.84 equal to prior year
• Adjusted EPS increased 12.6% to $1.07

VITAS segment operating results:

• Net Patient Revenue of $236 million, an increase of 5.7%
• Average Daily Census (ADC) of 12,919, an increase of 4.8%
• Admissions of 15,798, an increase of 6.4%
• Net Income of $18.1 million, a decline of 1.7%
• Adjusted EBITDA of $33.2 million, an increase of 1.4%
• Adjusted EBITDA margin of 14.1%, a decrease of 60 basis points

Roto-Rooter segment operating results:

• Revenue of $95.2 million, an increase of 10.9%
• Job count of 179,716, an increase of 5.8%
• Net Income of $8.5 million, an increase of 8.9%
• Adjusted EBITDA of $15.6 million, an increase of 13.8%
• Adjusted EBITDA margin of 16.4%, an increase of 42 basis points

VITAS

Net revenue for VITAS was $236 million in the first quarter of 2011, which is an increase of 5.7% over the prior-year period. Both periods include revenue from the reversal of Medicare Cap accruals. Excluding this impact of Medicare Cap, revenue increased 6.1%. This revenue growth was the result of increased ADC of 4.8%, driven by an increase in admissions of 6.4%, combined with Medicare price increases of approximately 2.1%. This growth was partially offset by geographic and level of acuity mix shift of the patient base.

Average revenue per patient per day in the quarter, excluding the impact of Medicare Cap, was $201.82, which is 1.2% above the prior-year period. Routine home care reimbursement and high acuity care averaged $157.93 and $696.25, respectively, per patient per day in the first quarter of 2011. During the quarter, high acuity days of care were 8.2% of total days of care, 35 basis points lower than the prior-year quarter.

In the first quarter of 2011, VITAS recorded a positive revenue adjustment of $1.0 million due to the reversal of estimated Medicare Cap billing limitations recorded in prior periods. This compares with a similar adjustment of $1.7 million for reversal of Medicare Cap recorded in the first quarter of 2010. The reversal of these Medicare Cap liabilities relates predominantly to VITAS’ largest Medicare provider number.

Of VITAS’ 33 unique Medicare provider numbers, 31 provider numbers, or 94%, have a Medicare Cap cushion of 15% or greater for the current Medicare Cap period. One provider has a Medicare Cap of 5% and one small program has a modest Medicare Cap liability. VITAS generated an aggregate Medicare Cap cushion of $223 million, or 26%, during the trailing twelve-month period.

The first quarter of 2011 gross margin, excluding the impact of Medicare Cap, was 21.5%, which is a decline of 74 basis points from the first quarter of 2010. This decline in margin is a result of increased costs related to the newly mandated physician visit for recertification, expansion of our community liaison program as well as costs associated with our continued expansion of inpatient units.

Selling, general and administrative expense was $18.7 million in the first quarter of 2011, which is an increase of 3.1% when compared to the prior-year quarter. Adjusted EBITDA totaled $33.2 million in the quarter, an increase of 1.4% over the prior-year period. Adjusted EBITDA margin, excluding the impact from Medicare Cap, was 13.7% in the quarter which was 30 basis points below the prior-year quarter.

Roto-Rooter

Roto-Rooter’s plumbing and drain cleaning business generated sales of $95.2 million for the first quarter of 2011, an increase of 10.9% over the prior-year quarter. Roto-Rooter’s gross margin was 44.2% in the quarter, a 103 basis point decline when compared to the first quarter of 2010. Adjusted EBITDA in the first quarter of 2011 totaled $15.6 million, an increase of 13.8%, and the Adjusted EBITDA margin was 16.4% in the quarter, an increase of 42 basis points, when compared to the prior-year quarter.

Job count in the first quarter of 2011 increased 5.8% when compared to the prior-year period. During the first quarter of 2011, total residential jobs increased 4.7%, as residential plumbing jobs increased 5.4% and residential drain cleaning jobs increased 4.5%, when compared to the first quarter of 2010. Residential jobs represented 72% of total job count in the quarter. Total commercial jobs increased 8.7%, with commercial plumbing/excavation job count increasing 10.2% and commercial drain cleaning increasing 8.1% when compared to the prior-year quarter. The “All Other” residential and commercial job category increased 3.6%.

Roto-Rooter continues to have periodic discussions with existing franchisees to acquire franchise territories. Management will be highly disciplined in terms of valuation, risk assessment and overall return on investment of any potential acquisition. The timing or actual completion of any acquisition cannot be predicted.

Chemed Consolidated Debt and Cash Flows

Chemed had total debt of $161 million at March 31, 2011. This debt is net of the discount taken as a result of convertible debt accounting requirements. Excluding this discount, aggregate debt is $187 million and is due in May 2014. Chemed’s total debt equates to less than one times trailing twelve-month adjusted EBITDA.

In March 2011 Chemed replaced its existing credit facility with a new Credit Agreement. Terms of this Credit Agreement consist of a five-year $350 million revolving credit facility. The interest rate on this Credit Agreement has a floating rate that is currently LIBOR plus 175 basis points. This Credit Agreement provides Chemed with increased flexibility in terms of acquisitions, share repurchases, dividends and other corporate needs. In addition, an expansion feature is included in this facility that provides Chemed the opportunity to increase its revolver and/or enter into term loans for an additional $150 million. At March 31, 2011, this credit facility had approximately $322 million of undrawn borrowing capacity after deducting $28 million for letters of credit issued under this facility to secure the Company’s workers’ compensation insurance.

Capital expenditures for the first quarter of 2011 aggregated $6.2 million and compared favorably to depreciation and amortization during the same period of $7.3 million.

The Company increased its quarterly dividend per share in the third quarter of 2010, from $0.12 per share to $0.14 per share. The company purchased $96.3 million of treasury stock in the fourth quarter of 2010 and an additional $21.8 million in the first quarter of 2011. Total shares repurchased in the first quarter of 2011 totaled 341,513. Approximately $97.4 million is remaining under Chemed’s previously announced share repurchase program. Management will continually evaluate cash utilization alternatives, including share repurchase, debt repurchase, acquisitions and increased dividends to determine the most beneficial use of available capital resources.

Guidance for 2011

VITAS expects to achieve full-year 2011 revenue growth, prior to Medicare Cap, of 7% to 9%. Admissions in 2011 are estimated to increase 5% to 7% and full-year Adjusted EBITDA margin, prior to Medicare Cap, is estimated to be 15.3% to 16.3%. Effective October 1, 2010, Medicare increased the average hospice reimbursement rates by approximately 2.1%. Consistent with prior years, our guidance assumes VITAS will incur an additional $3.7 million of estimated Medicare contractual billing limitations for the remainder of 2011.

Roto-Rooter expects to achieve full-year 2011 revenue growth of 5% to 8%. The revenue estimate is a result of increased pricing of approximately 3.0%, a favorable mix shift to higher revenue jobs, with job count growth estimated at 0% to 3%. Adjusted EBITDA margin for 2011 is estimated in the range of 16.5% to 17.5%.

Based upon the above metrics, an effective tax rate of 39.0% and a full-year average diluted share count of 21.6 million, management estimates 2011 earnings per diluted share, excluding non-cash expense for stock options, the non-cash interest expense related to the accounting for convertible debt and other items not indicative of ongoing operations will be in the range of $4.65 to $4.85. This compares to Chemed’s 2010 adjusted earnings per diluted share of $4.17.

Conference Call

Chemed will host a conference call and webcast at 10 a.m., ET, on Tuesday, April 26, 2011, to discuss the Company's quarterly results and to provide an update on its business. The dial-in number for the conference call is (800) 510-0178 for U.S. and Canadian participants and (617) 614-3450 for international participants. The participant passcode is 43461477. A live webcast of the call can be accessed on Chemed's website at www.chemed.com by clicking on Investor Relations Home.

A taped replay of the conference call will be available beginning approximately 24 hours after the call's conclusion. It can be accessed by dialing (888) 286-8010 for U.S. and Canadian callers and (617) 801-6888 for international callers and will be available for one week following the live call. The replay passcode is 97719698. An archived webcast will also be available at www.chemed.com.

Chemed Corporation operates in the healthcare field through its VITAS Healthcare Corporation subsidiary. VITAS provides daily hospice services to approximately 13,000 patients with severe, life-limiting illnesses. This type of care is focused on making the terminally ill patient's final days as comfortable and pain-free as possible.

Chemed operates in the residential and commercial plumbing and drain cleaning industry under the brand name Roto-Rooter. Roto-Rooter provides plumbing and drain service through company-owned branches, independent contractors and franchisees in the United States and Canada. Roto-Rooter also has licensed master franchisees in Indonesia, Singapore, Japan, and the Philippines.

This press release contains information about Chemed’s EBITDA, Adjusted EBITDA and Adjusted Diluted EPS, which are not measures derived in accordance with GAAP and which exclude components that are important to understanding Chemed’s financial performance. In reporting its operating results, Chemed provides EBITDA, Adjusted EBITDA and Adjusted Diluted EPS measures to help investors and others evaluate the Company’s operating results, compare its operating performance with that of similar companies that have different capital structures and evaluate its ability to meet its future debt service, capital expenditures and working capital requirements. Chemed’s management similarly uses EBITDA, Adjusted EBITDA and Adjusted Diluted EPS to assist it in evaluating the performance of the Company across fiscal periods and in assessing how its performance compares to its peer companies. These measures also help Chemed’s management to estimate the resources required to meet Chemed’s future financial obligations and expenditures. Chemed’s EBITDA, Adjusted EBITDA and Adjusted Diluted EPS should not be considered in isolation or as a substitute for comparable measures calculated and presented in accordance with GAAP. We calculated Adjusted EBITDA Margin by dividing Adjusted EBITDA by service revenue and sales. A reconciliation of Chemed’s net income to its EBITDA, Adjusted EBITDA and Adjusted Diluted EPS is presented in the tables following the text of this press release.

Forward-Looking Statements

Certain statements contained in this press release and the accompanying tables 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. 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. These statements are based on current expectations and assumptions and involve various risks and uncertainties, which could cause Chemed's actual results to differ from those expressed in such forward-looking statements. These risks and uncertainties arise from, among other things, possible changes in regulations governing the hospice care or plumbing and drain cleaning industries; periodic changes in reimbursement levels and procedures under Medicare and Medicaid programs; difficulties predicting patient length of stay and estimating potential Medicare reimbursement obligations; challenges inherent in Chemed's growth strategy; the current shortage of qualified nurses, other healthcare professionals and licensed plumbing and drain cleaning technicians; Chemed’s dependence on patient referral sources; and other factors detailed under the caption "Description of Business by Segment" or "Risk Factors" in Chemed’s most recent report on form 10-Q or 10-K and its other filings with the Securities and Exchange Commission. You are cautioned not to place undue reliance on such forward-looking statements and there are no assurances that the matters contained in such statements will be achieved.

  CHEMED CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENT OF INCOME (in thousands, except per share data)(unaudited)                   Three Months Ended March 31, 2011 2010 Service revenues and sales $ 330,918   $ 308,813   Cost of services provided and goods sold 237,458 219,137 Selling, general and administrative expenses (aa) 55,654 48,538 Depreciation 6,288 5,469 Amortization   970     1,224   Total costs and expenses   300,370     274,368   Income from operations 30,548 34,445 Interest expense (3,244 ) (2,952 ) Other income/(expense)--net (bb)   2,102     186   Income before income taxes 29,406 31,679 Income taxes   (11,305 )   (12,321 ) Net income $ 18,101   $ 19,358     Earnings Per Share Net income $ 0.86   $ 0.86   Average number of shares outstanding   21,055     22,593     Diluted Earnings Per Share Net income $ 0.84   $ 0.84   Average number of shares outstanding   21,568     23,021       (aa) Selling, general and administrative ("SG&A") expenses comprise (in thousands): Three Months Ended March 31, 2011 2010 SG&A expenses before long-term incentive compensation and the impact of market value gains of deferred compensation plans $ 50,578 $ 48,350 Long-term incentive compensation 3,012 - Market value gains on assets held in deferred compensation trusts   2,064     188   Total SG&A expenses $ 55,654   $ 48,538     (bb) Other income/(expense)--net comprises (in thousands): Three Months Ended March 31, 2011 2010 Market value on assets held in deferred compensation trusts $ 2,064 $ 188 Interest income 61 75 Loss on disposal of property and equipment (21 ) (94 ) Other   (2 )   17   Total other income/(expense)--net $ 2,102   $ 186     CHEMED CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEET (in thousands, except per share data)(unaudited)                       March 31, 2011 2010 Assets Current assets Cash and cash equivalents $ 59,745 $ 112,119 Accounts receivable less allowances 92,912 87,412 Inventories 7,967 7,609 Current deferred income taxes 13,352 15,008 Prepaid expenses   9,538     9,886   Total current assets 183,514 232,034 Investments of deferred compensation plans held in trust 31,897 25,925 Properties and equipment, at cost less accumulated depreciation 79,146 75,189 Identifiable intangible assets less accumulated amortization 56,061 57,239 Goodwill 458,434 450,149 Other assets   13,676     13,692   Total Assets $ 822,728   $ 854,228     Liabilities Current liabilities Accounts payable $ 38,249 $ 49,844 Income taxes 8,250 12,150 Accrued insurance 35,511 34,478 Accrued compensation 39,469 37,613 Other current liabilities   14,457     12,439   Total current liabilities 135,936 146,524 Deferred income taxes 24,164 24,969 Long-term debt 161,054 153,853 Deferred compensation liabilities 31,437 25,522 Other liabilities   6,267     5,374   Total Liabilities   358,858     356,242   Stockholders' Equity Capital stock 30,709 30,087 Paid-in capital 379,167 343,967 Retained earnings 488,439 419,985 Treasury stock, at cost (436,427 ) (298,031 ) Deferred compensation payable in Company stock   1,982     1,978   Total Stockholders' Equity   463,870     497,986   Total Liabilities and Stockholders' Equity $ 822,728   $ 854,228     CHEMED CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands)(unaudited)                         Three Months Ended March 31, 2011 2010 Cash Flows from Operating Activities Net income $ 18,101 $ 19,358

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 7,258 6,693 Noncash long-term incentive compensation 2,595 - Provision for uncollectible accounts receivable 2,111 2,472 Stock option expense 1,933 2,051 Amortization of discount on convertible notes 1,846 1,726 Provision for deferred income taxes 814 (2,282 ) Amortization of debt issuance costs 246 157

Changes in operating assets and liabilities, excluding amounts acquired in business combinations:

Decrease/(increase) in accounts receivable 17,923 (36,445 ) Increase in inventories (239 ) (66 ) Decrease in prepaid expenses 747 502 Decrease in accounts payable and other current liabilities (12,137 ) (381 ) Increase in income taxes 9,739 13,955 Increase in other assets (3,667 ) (1,672 ) Increase in other liabilities 3,227 2,724 Excess tax benefit on share-based compensation (1,895 ) (1,135 ) Other uses   (61 )   (6 ) Net cash provided by operating activities   48,541     7,651   Cash Flows from Investing Activities Capital expenditures (6,173 ) (5,424 )

Proceeds from sales of property and equipment

33 27 Other uses   (142 )   (157 ) Net cash used by investing activities   (6,282 )   (5,554 ) Cash Flows from Financing Activities Purchases of treasury stock (24,260 ) (2,516 ) Decrease in cash overdrafts payable (8,310 ) (1,216 )

Proceeds from issuance of capital stock

3,647 2,672 Dividends paid (2,977 ) (2,739 ) Debt issuance costs (2,708 ) - Excess tax benefit on share-based compensation 1,895 1,135 Other sources   282     270   Net cash used by financing activities   (32,431 )   (2,394 ) Increase/(Decrease) in Cash and Cash Equivalents 9,828 (297 ) Cash and cash equivalents at beginning of year   49,917     112,416   Cash and cash equivalents at end of period $ 59,745   $ 112,119     CHEMED CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATING STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010 (in thousands)(unaudited)                 Chemed VITAS Roto-Rooter Corporate Consolidated

2011

Service revenues and sales $ 235,673   $ 95,245   $ -   $ 330,918   Cost of services provided and goods sold 184,300 53,158 - 237,458 Selling, general and administrative expenses (a) 18,711 26,740 10,203 55,654 Depreciation 4,167 1,984 137 6,288 Amortization   483     132     355     970   Total costs and expenses   207,661     82,014     10,695     300,370   Income/(loss) from operations 28,012 13,231 (10,695 ) 30,548 Interest expense (a) (48 ) (64 ) (3,132 ) (3,244 ) Intercompany interest income/(expense) 1,213 639 (1,852 ) -

Other income/(expense)—net

  30     (9 )   2,081     2,102   Income/(loss) before income taxes 29,207 13,797 (13,598 ) 29,406 Income taxes (a)   (11,082 )   (5,286 )   5,063     (11,305 ) Net income/(loss) $ 18,125   $ 8,511   $ (8,535 ) $ 18,101    

2010

Service revenues and sales $ 222,940   $ 85,873   $ -   $ 308,813   Cost of services provided and goods sold 172,093 47,044 - 219,137 Selling, general and administrative expenses (b) 18,145 24,758 5,635 48,538 Depreciation 3,485 1,951 33 5,469 Amortization   771     123     330     1,224   Total costs and expenses   194,494     73,876     5,998     274,368   Income/(loss) from operations 28,446 11,997 (5,998 ) 34,445 Interest expense (b) (32 ) (68 ) (2,852 ) (2,952 ) Intercompany interest income/(expense) 1,289 702 (1,991 ) -

Other income/(expense)—net (b)

  (39 )   10     215     186   Income/(loss) before income taxes 29,664 12,641 (10,626 ) 31,679 Income taxes (b)   (11,226 )   (4,828 )   3,733     (12,321 ) Net income/(loss) $ 18,438   $ 7,813   $ (6,893 ) $ 19,358     The "Footnotes to Financial Statements" are integral parts of this financial information.   CHEMED CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATING SUMMARY OF EBITDA FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010 (in thousands)(unaudited)                       Chemed VITAS Roto-Rooter Corporate Consolidated 2011 Net income/(loss) $ 18,125 $ 8,511 $ (8,535 ) $ 18,101 Add/(deduct): Interest expense 48 64 3,132 3,244 Income taxes 11,082 5,286 (5,063 ) 11,305 Depreciation 4,167 1,984 137 6,288 Amortization   483     132     355     970   EBITDA 33,905 15,977 (9,974 ) 39,908 Add/(deduct): Legal expenses of OIG investigation 511 - - 511 Acquisition expenses 64 6 - 70 Expenses of class action litigation - 495 - 495 Long-term incentive compensation - - 3,012 3,012 Stock option expense - - 1,933 1,933 Advertising cost adjustment (c) - (250 ) - (250 ) Interest income (37 ) (7 ) (17 ) (61 ) Intercompany interest income/(expense)   (1,213 )   (639 )   1,852     -   Adjusted EBITDA $ 33,230   $ 15,582   $ (3,194 ) $ 45,618     2010 Net income/(loss) $ 18,438 $ 7,813 $ (6,893 ) $ 19,358 Add/(deduct): Interest expense 32 68 2,852 2,952 Income taxes 11,226 4,828 (3,733 ) 12,321 Depreciation 3,485 1,951 33 5,469 Amortization   771     123     330     1,224   EBITDA 33,952 14,783 (7,411 ) 41,324 Add/(deduct): Legal expenses of OIG investigation 160 - - 160 Stock option expense - - 2,051 2,051 Advertising cost adjustment (c) - (389 ) - (389 ) Interest income (45 ) (2 ) (28 ) (75 ) Intercompany interest income/(expense)   (1,289 )   (702 )   1,991     -   Adjusted EBITDA $ 32,778   $ 13,690   $ (3,397 ) $ 43,071     The "Footnotes to Financial Statements" are integral parts of this financial information.   CHEMED CORPORATION AND SUBSIDIARY COMPANIES RECONCILIATION OF ADJUSTED NET INCOME (in thousands, except per share data)(unaudited)                 Three Months Ended March 31, 2011 2010 Net income as reported $ 18,101 $ 19,358   Add/(deduct): After-tax cost of long-term incentive compensation 1,880 - After-tax stock option expense 1,223 1,298

After-tax additional interest expense resulting from the change in accounting for the conversion feature of the convertible notes

1,132 1,047 After-tax cost of legal expenses of OIG investigation 317 99 After-tax cost of expenses of class action litigation 301 - After-tax cost of acquisition expenses   44   - Adjusted net income $ 22,998 $ 21,802     Earnings Per Share As Reported Net income $ 0.86 $ 0.86 Average number of shares outstanding   21,055   22,593 Diluted Earnings Per Share As Reported Net income $ 0.84 $ 0.84 Average number of shares outstanding   21,568   23,021     Adjusted Earnings Per Share Net income $ 1.09 $ 0.96 Average number of shares outstanding   21,055   22,593 Adjusted Diluted Earnings Per Share Net income $ 1.07 $ 0.95 Average number of shares outstanding   21,568   23,021   The "Footnotes to Financial Statements" are integral parts of this financial information.   CHEMED CORPORATION AND SUBSIDIARY COMPANIES OPERATING STATISTICS FOR VITAS SEGMENT (unaudited)                 Three Months Ended March 31, OPERATING STATISTICS 2011 2010 Net revenue ($000) (d) Homecare $ 168,652 $ 157,226 Inpatient 27,386 26,291 Continuous care   38,625   37,674 Total before Medicare cap allowance $ 234,663 $ 221,191 Medicare cap allowance   1,010   1,749 Total $ 235,673 $ 222,940

Net revenue as a percent of total before Medicare cap allowance

Homecare 71.8 % 71.1 % Inpatient 11.7 11.9 Continuous care   16.5   17.0 Total before Medicare cap allowance 100.0 100.0 Medicare cap allowance   0.4   0.8 Total   100.4 %   100.8 % Average daily census ("ADC") (days) Homecare 8,833 8,112 Nursing home   3,033   3,162 Routine homecare 11,866 11,274 Inpatient 450 442 Continuous care   603   606 Total   12,919   12,322   Total Admissions 15,798 14,844 Total Discharges 15,552 14,461 Average length of stay (days) 78.9 75.8 Median length of stay (days) 13.0 13.0 ADC by major diagnosis Neurological 34.0 % 32.6 % Cancer 17.9 18.8 Cardio 11.8 11.9 Respiratory 6.7 6.6 Other   29.6   30.1 Total   100.0 %   100.0 % Admissions by major diagnosis Neurological 19.5 % 18.6 % Cancer 31.7 33.5 Cardio 11.1 11.6 Respiratory 9.1 8.4 Other   28.6   27.9 Total   100.0 %   100.0 % Direct patient care margins (e) Routine homecare 51.5 % 51.3 % Inpatient 13.0 15.2 Continuous care 20.5 20.7 Homecare margin drivers (dollars per patient day) Labor costs $ 55.38 $ 53.93 Drug costs 7.94 7.77 Home medical equipment 5.94 6.94 Medical supplies 2.76 2.44 Inpatient margin drivers (dollars per patient day) Labor costs $ 306.66 $ 286.81 Continuous care margin drivers (dollars per patient day) Labor costs $ 544.16 $ 526.47 Bad debt expense as a percent of revenues 0.6 % 1.0 % Accounts receivable -- Days of revenue outstanding- excluding unapplied Medicare payments 55.3 43.4 Days of revenue outstanding- including unapplied Medicare payments 29.1 29.2   The "Footnotes to Financial Statements" are integral parts of this financial information.   CHEMED CORPORATION AND SUBSIDIARY COMPANIES FOOTNOTES TO FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010 (unaudited)                       (a)

Included in the results of operations for the three months ended March 31, 2011, are the following significant credits/(charges) which may not be indicative of ongoing operations (in thousands):

  VITAS

Roto-Rooter

Corporate Total Selling, general and administrative expenses Legal expenses of OIG investigation $ (511 ) $ - $ - $ (511 ) Acquisition expenses (64 ) (6 ) - (70 ) Expenses of class action litigation - (495 ) - (495 ) Long-term incentive compensation - - (3,012 ) (3,012 ) Stock option expense - - (1,933 ) (1,933 ) Interest expense

Additional interest expense resulting from the change in accounting for the conversion feature of the convertible notes

  -     -     (1,790 )   (1,790 ) Pretax impact on earnings (575 ) (501 ) (6,735 ) (7,811 ) Income tax benefit/(charge) on the above   218     196     2,500     2,914   After-tax impact on earnings $ (357 ) $ (305 ) $ (4,235 ) $ (4,897 )   (b)  

Included in the results of operations for the three months ended March 31, 2010, are the following significant credits/(charges) which may not be indicative of ongoing operations (in thousands):

                VITAS Corporate Total Selling, general and administrative expenses Legal expenses of OIG investigation $ (160 ) $ - $ (160 ) Stock option expense - (2,051 ) (2,051 ) Interest expense

Additional interest expense resulting from the change in accounting for the conversion feature of the convertible notes

  -     (1,655 )   (1,655 ) Pretax impact on earnings (160 ) (3,706 ) (3,866 ) Income tax benefit/(charge) on the above   61     1,361     1,422   After-tax impact on earnings $ (99 ) $ (2,345 ) $ (2,444 )   (c)  

Under Generally Accepted Accounting Principles ("GAAP"), the Roto-Rooter segment expenses all advertising, including the cost of telephone directories, immediately upon the initial release of the advertising. Telephone directories are generally in circulation 12 months. If a directory is in circulation for a time period greater or less than 12 months, the publisher adjusts the directory billing for the change in billing period. The timing of when a telephone directory is published can and does fluctuate significantly on a quarterly basis. This "direct expensing" results in significant fluctuations in quarterly advertising expense. In the first quarters of 2011 and 2010, GAAP advertising expense for Roto-Rooter totaled $5,918,000 and $5,735,000, respectively. If the expense of the telephone directories were spread over the periods they are in circulation, advertising expense for the first quarters of 2011 and 2010 would total $6,168,000 and $6,124,000, respectively.

  (d)

VITAS has 6 large (greater than 450 ADC), 21 medium (greater than 200 but less than 450 ADC) and 26 small (less than 200 ADC) hospice programs. There is one program as of March 31, 2011, with Medicare cap cushion of less than 10% for the first six months of the 2011 Medicare cap year. Additionally, one small program has a projected Medicare cap liability of $298,000 for the 2011 measurement period.

  (e) Amounts exclude indirect patient care and administrative costs, as well as Medicare Cap billing limitation.