10-K 1 l12498be10vk.txt CHEMED CORPORATION 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [X] For the fiscal year ended December 31, 2004 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Transition period from _______________ to ______________ Commission File Number: 1-8351 CHEMED CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 31-0791746 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 2600 Chemed Center, 255 East Fifth Street, Cincinnati, Ohio 45202-4726 (Address of principal executive offices) (Zip Code) (513) 762-6900 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered -------------------------------------- ----------------------- Capital Stock - Par Value $1 Per Share New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None 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 period 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes[ ] No [X] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [X] No [ ] The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the average bid and asked price of said stock on the New York Stock Exchange - Composite Transaction Listing on June 30, 2004 ($48.48 per share), was $581,870,609. At March 8, 2005, 12,640,349 shares of Chemed Capital Stock (par value $1 per share) were outstanding. DOCUMENTS INCORPORATED BY REFERENCE DOCUMENT WHERE INCORPORATED -------- ------------------ 2004 Annual Report to Stockholders (specified portions) Parts I, II and IV Proxy Statement for Annual Meeting to be held May 16, 2005 Part III CHEMED CORPORATION 2004 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS

PAGE ---- PART I Item 1. Business............................................................... 1 Item 2. Properties............................................................. 18 Item 3. Legal Proceedings...................................................... 18 Item 4. Submission of Matters to a Vote of Security Holders.................... 19 -- Executive Officers of the Registrant................................... 19 PART II Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.......... 20 Item 6. Selected Financial Data................................................ 21 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................... 21 Item 7A. Quantitative and Qualitative Disclosures About Market Risk............. 22 Item 8. Financial Statements and Supplementary Data............................ 22 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................... 22 Item 9A. Controls and Procedures................................................ 22 -- Status of Management's Report on Internal Control Over Financial Reporting.............................................................. 22 PART III Item 10. Directors and Executive Officers of the Registrant..................... 23 Item 11. Executive Compensation................................................. 23 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters............................. 23 Item 13. Certain Relationships and Related Transactions......................... 24 Item 14. Principal Accountant Fees and Services................................. 24 PART IV Item 15. Exhibits and Financial Statement Schedules............................. 25

ITEM 1. BUSINESS GENERAL The Company was incorporated in Delaware in 1970 as a subsidiary of W. R. Grace & Co. and succeeded to the business of W. R. Grace & Co.'s Specialty Products Group as of April 30, 1971 and remained a subsidiary of W. R. Grace & Co. until March 10, 1982. As used herein, "Company" refers to Chemed Corporation, and its subsidiaries and "Grace" refers to W. R. Grace & Co. and its subsidiaries. On March 10, 1982, the Company transferred to Dearborn Chemical Company, a wholly owned subsidiary of the Company, the business and assets of the Company's Dearborn Group, including the stock of certain subsidiaries within the Dearborn Group, plus $185 million in cash, and Dearborn Chemical Company assumed the Dearborn Group's liabilities. Thereafter, on March 10, 1982 the Company transferred all of the stock of Dearborn Chemical Company to Grace in exchange for 16,740,802 shares of the capital stock of the Company owned by Grace with the result that Grace no longer has any ownership interest in the Company. On December 31, 1986, the Company completed the sale of substantially all of the business and assets of Vestal Laboratories, Inc., a wholly owned subsidiary. The Company received cash payments aggregating approximately $67.4 million over the four-year period following the closing, the substantial portion of which was received on December 31, 1986. On April 2, 1991, the Company completed the sale of DuBois Chemicals, Inc. ("DuBois"), a wholly owned subsidiary, to the Diversey Corporation ("Diversey"), then a subsidiary of The Molson Companies Ltd. Under the terms of the sale, Diversey agreed to pay the Company net cash payments aggregating $223,386,000, including deferred payments aggregating $32,432,000. On December 21, 1992, the Company acquired The Veratex Corporation and related businesses ("Veratex Group") from Omnicare, Inc. The purchase price was $62,120,000 in cash paid at closing, plus a post-closing payment of $1,514,000 (paid in April 1993) based on the net assets of Veratex. Effective January 1, 1994, the Company acquired all the capital stock of Patient Care, Inc. ("Patient Care"), for cash payments aggregating $20,582,000, plus 17,500 shares of the Company's Capital Stock. An additional cash payment of $1,000,000 was made on March 31, 1996 and another payment of $1,000,000 was made on March 31, 1997. In July 1995, the Company's Omnia Group (formerly Veratex Group) completed the sale of the business and assets of its Veratex Retail division to Henry Schein, Inc. ("HSI") for $10 million in cash plus a $4.1 million note for which payment was received in December 1995. Effective September 17, 1996, the Company completed a merger of a subsidiary of the Company, Chemed Acquisition Corp., and Roto-Rooter, Inc. pursuant to a Tender Offer commenced on August 8, 1996 to acquire any and all of the outstanding shares of Common Stock of Roto-Rooter, Inc. for $41.00 per share in cash. On September 24, 1997, the Company completed the sale of its wholly owned businesses comprising the Omnia Group to Banta Corporation for $50 million in cash and $2.3 million in deferred payments. 1 Effective September 30, 1997, the Company completed a merger between its 81-percent-owned subsidiary, National Sanitary Supply Company, and a wholly owned subsidiary of Unisource Worldwide, Inc. for $21.00 per share, with total payments of $138.3 million. Effective October 11, 2002, the Company sold its Patient Care subsidiary ("Patient Care") to an investor group that included Schroder Ventures Life Sciences Group, Oak Investment Partners, Prospect Partners and Salix Ventures. Patient Care provides home-healthcare services primarily in the New York-New Jersey-Connecticut area. The cash proceeds to the Company totaled $57,500,000, of which $5,000,000 was placed in escrow pending settlement of Patient Care's receivables with third-party payers. Of this amount, $2,500,000 was distributed as of October 2003 and the remainder, except for $769,042 was distributed as of October 2004. The Company may also be entitled to additional funds based on the final value of the estimated balance sheet valuation. This claim is currently in litigation. In addition, the Company received a senior subordinated note receivable ("Note") for $12,500,000 and a common stock purchase warrant ("Warrant") for 2% of the outstanding stock of the purchasing company. The Note is due October 11, 2007, and bears interest at the annual rate of 7.5% through September 30, 2004, 8.5% from October 1, 2004, through September 30, 2005, and 9.5% thereafter. The Warrant has an estimated fair value of $1,445,000. Effective February 24, 2004, The Company completed a merger of its wholly owned indirect subsidiary, Marlin Merger Corp., and Vitas Healthcare Corporation. Under the terms of the merger agreement, Vitas stockholders received cash of $30.00 per share. The transaction, including the refinancing of existing Vitas debt and other payments made in connection with the merger, totaled approximately $415 million in cash. In order to complete the merger the Company sold two million shares of its Capital Stock in a private placement at a price of $50.00 per share, issued $110 million principal amount of floating rate senior secured notes due 2010 ("Floating Rate Notes"), issued $150 million principal amount of 8.75% Senior Notes due 2011 ("Fixed Rate Notes"), and entered into new $135 million senior secured credit facilities. More information with respect to the Company's merger with Vitas is included within Note 7 of the Notes to Consolidated Financial Statements appearing on pages 24-25 of the Annual Report to Stockholders and incorporated herein by reference. During 2004 the Company conducted its business operations in three segments: Vitas Group ("Vitas"), Roto-Rooter Group ("Roto-Rooter") and Service America Network, Inc. ("Service America"). On December 22, 2004, the Board of Directors authorized the discontinuance of the operations of the Company's Service America segment, through an asset sale to employees of Service America. The acquiring corporation will purchase a substantial majority of Service America's assets in exchange for assuming substantially all of Service America's liabilities. Included in the assets to be acquired is a receivable from the Company for approximately $4.7 million. The Company will pay $1 million of the receivable upon closing and the remainder over the following year in 11 equal monthly installments. The amount of this receivable is subject to adjustment for changes in Service America's balance sheet through the date of closing. The disposal is subject to certain regulatory and other approvals and is expected to be completed during the first half of 2005. 2 FORWARD LOOKING STATEMENTS This Annual Report contains or incorporates by reference certain forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The Company intends such statements to be subject to the safe harbors created by that legislation. Such statements involve risks and uncertainties that could cause actual results of operations to differ materially from these forward looking statements. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS The required segment and geographic data for the Company's continuing operations (as described below) for the three years ended December 31, 2002, 2003 and 2004 are shown in Note 2 of the Notes to Consolidated Financial Statements on pages 15-18 of the 2004 Annual Report to Stockholders and are incorporated herein by reference. DESCRIPTION OF BUSINESS BY SEGMENT The information called for by this item is included within Note 2 of the Notes to Consolidated Financial Statements appearing on pages 15-18 of the 2004 Annual Report to Stockholders and is incorporated herein by reference. PRODUCT AND MARKET DEVELOPMENT Each segment of the Company's business engages in a continuing program for the development and marketing of new services and products. While new products and services and new market development are important factors for the growth of each active segment of the Company's business, the Company does not expect that any new products and services or marketing effort, including those in the development stage, will require the investment of a material amount of the Company's assets. RAW MATERIALS The principal raw materials needed for the Company's manufacturing operations are purchased from United States sources. No segment of the Company experienced any material raw material shortages during 2004, although such shortages may occur in the future. Products manufactured and sold by the Company's active business segments generally may be reformulated to avoid the adverse impact of a specific raw material shortage. PATENTS, SERVICE MARKS AND LICENSES The Roto-Rooter(R) trademarks and service marks have been used and advertised since 1935 by Roto-Rooter Corporation, a wholly owned indirect subsidiary of the Company. The Roto-Rooter(R) marks are among the most highly recognized trademarks and service marks in the United States. The Company considers the Roto-Rooter(R) marks to be a valuable asset and a significant factor in the marketing of Roto-Rooter's franchises, products and services and the products and services provided by its franchisees. "Vitas" and "Innovative Hospice Care" are trademarks and servicemarks of Vitas Healthcare Corporation. The Company and 3 its subsidiaries also own certain trade secrets including training manuals, pricing information, customer information and software source codes. COMPETITION ROTO-ROOTER All aspects of the sewer, drain, and pipe cleaning, HVAC services and plumbing repair businesses are highly competitive. Competition is, however, fragmented in most markets with local and regional firms providing the primary competition. The principal methods of competition are advertising, range of services provided, name recognition, speed and quality of customer service, service guarantees, and pricing. No individual customer or market group is critical to the total sales of this segment. VITAS Hospice care in the United States is competitive. Because payments for hospice services are generally fixed, Vitas competes primarily on the basis of its ability to deliver quality, responsive services. Vitas is the nation's largest provider of hospice services in a market dominated by small, non-profit, community-based hospices. Approximately 70% of all hospices are not-for-profit. Because the hospice care market is highly fragmented, Vitas competes with a large number of organizations. Vitas also competes with a number of national and regional hospice providers, including Odyssey Healthcare, Inc. and VistaCare, Inc., hospitals, nursing homes, home health agencies and other health care providers. Many providers offer home care to patients who are terminally ill, and some actively market palliative care and hospice-like programs. In addition, various health care companies have diversified into the hospice market. Some of these health care companies may have greater financial resources than Vitas. Relatively few barriers to entry exist in the markets served by Vitas. Accordingly, other companies that are not currently providing hospice care may enter these markets and expand the variety of services offered. RESEARCH AND DEVELOPMENT The Company engages in a continuous program directed toward the development of new services, products and processes, the improvement of existing services, products and processes, and the development of new and different uses of existing products. The research and development expenditures from continuing operations have not been nor are they expected to be material. GOVERNMENT REGULATIONS ROTO-ROOTER Roto-Rooter's franchising activities are subject to various federal and state franchising laws and regulations, including the rules and regulations of the Federal Trade Commission (the "FTC") regarding the offering or sale of franchises. The rules and 4 regulations of the FTC require that Roto-Rooter provide all prospective franchisees with specific information regarding the franchise program and Roto-Rooter in the form of a detailed franchise offering circular. In addition, a number of states require Roto-Rooter to register its franchise offering prior to offering or selling franchises in the state. Various state laws also provide for certain rights in favor of franchisees, including (i) limitations on the franchisor's ability to terminate a franchise except for good cause, (ii) restrictions on the franchisor's ability to deny renewal of a franchise, (iii) circumstances under which the franchisor may be required to purchase certain inventory of franchisees when a franchise is terminated or not renewed in violation of such laws, and (iv) provisions relating to arbitration. Roto-Rooter's ability to engage in the plumbing repair business is also subject to certain limitations and restrictions imposed by state and local licensing laws and regulations. VITAS General. The health care industry and Vitas' hospice programs are subject to extensive federal and state regulation. Vitas' hospices are licensed as required under state law as either hospices or home health agencies, or both, depending on the regulatory requirements of each particular state. In addition, Vitas' hospices are required to meet certain conditions of participation to be eligible to receive payments as hospices under the Medicare and Medicaid programs. All of Vitas' hospices, other than those currently in development, are certified for participation as hospices in the Medicare program, and are also eligible to receive payments as hospices from the Medicaid program in each of the states in which Vitas operates. Vitas' hospices are subject to periodic survey by governmental authorities or private accrediting entities to assure compliance with state licensing, certification and accreditation requirements, as the case may be. Medicare Conditions of Participation. Federal regulations require that a hospice program satisfy certain conditions of participation to be certified and receive Medicare payment for the services it provides. Failure to comply with the conditions of participation may result in sanctions, up to and including decertification from the Medicare program. See "Surveys and Audits" below. The Medicare conditions of participation for hospice programs include the following: Governing Body. Each hospice must have a governing body that assumes full responsibility for the policies and the overall operation of the hospice and for ensuring that all services are provided in a manner consistent with accepted standards of practice. The governing body must designate one individual who is responsible for the day-to-day management of the hospice. Medical Director. Each hospice must have a medical director who is a physician and who assumes responsibility for overseeing the medical component of the hospice's patient care program. Direct Provision of Core Services. Medicare limits those services for which the hospice may use individual independent contractors or contract agencies to provide care to patients. Specifically, substantially all nursing, social work, and counseling services must be provided directly by hospice employees meeting specific educational and professional standards. During periods of peak patient loads or under extraordinary circumstances, the hospice may be permitted to use 5 contract workers, but the hospice must agree in writing to maintain professional, financial and administrative responsibility for the services provided by those individuals or entities. Professional Management of Non-Core Services. A hospice may arrange to have non-core services such as therapy services, home health aide services, medical supplies or drugs provided by a non-employee or outside entity. If the hospice elects to use an independent contractor to provide non-core services, however, the hospice must retain professional management responsibility for the arranged services and ensure that the services are furnished in a safe and effective manner by qualified personnel, and in accordance with the patient's plan of care. Plan of Care. The patient's attending physician, the medical director or designated hospice physician, and the interdisciplinary team must establish an individualized written plan of care prior to providing care to any hospice patient. The plan must assess the patient's needs and identify services to be provided to meet those needs and must be reviewed and updated at specified intervals. Continuation of Care. A hospice may not discontinue or reduce care provided to a Medicare beneficiary if the individual becomes unable to pay for that care. Informed Consent. The hospice must obtain the informed consent of the hospice patient, or the patient's legal representative, that specifies the type of care services that may be provided as hospice care. Training. A hospice must provide ongoing training for its employees. Quality Assurance. A hospice must conduct ongoing and comprehensive self-assessments of the quality and appropriateness of care it provides and that its contractors provide under arrangements to hospice patients. Interdisciplinary Team. A hospice must designate an interdisciplinary team to provide or supervise hospice care services. The interdisciplinary team develops and updates plans of care, and establishes policies governing the day-to-day provision of hospice services. The team must include at least a physician, registered nurse, social worker and spiritual or other counselor. A registered nurse must be designated to coordinate the plan of care. Volunteers. Hospice programs are required to recruit and train volunteers to provide patient care services or administrative services. Volunteer services must be provided in an amount equal to at least five percent of the total patient care hours provided by all paid hospice employees and contract staff. Licensure. Each hospice and all hospice personnel must be licensed, certified or registered in accordance with applicable federal, state and local laws and regulations. Central Clinical Records. Hospice programs must maintain clinical records for each hospice patient that are organized in such a way that they may be easily retrieved. The clinical records must be complete and accurate and protected against loss, destruction, and unauthorized use. 6 Surveys and Audits. Hospice programs are subject to periodic survey by federal and state regulatory authorities and private accrediting entities to ensure compliance with applicable licensing and certification requirements and accreditation standards. Regulators conduct periodic surveys of hospice programs and provide reports containing statements of deficiencies for alleged failure to comply with various regulatory requirements. Survey reports and statements of deficiencies are common in the healthcare industry. In most cases, the hospice program and regulatory authorities will agree upon any steps to be taken to bring the hospice into compliance with applicable regulatory requirements. In some cases, however, a state or federal regulatory authority may take a number of adverse actions against a hospice program, including the imposition of fines, temporary suspension of admission of new patients to the hospice's service or, in extreme circumstances, de-certification from participation in the Medicare or Medicaid programs or revocation of the hospice's license. From time to time Vitas receives survey reports containing statements of deficiencies. Vitas reviews such reports and takes appropriate corrective action. Vitas believes that its hospices are in material compliance with applicable licensure and certification requirements. If a Vitas hospice were found to be out of compliance and actions were taken against a Vitas hospice, they could materially adversely affect the hospice's ability to continue to operate, to provide certain services and to participate in the Medicare and Medicaid programs, which could materially adversely affect Vitas. Billing Audits/ Claims Reviews. The Medicare program and its fiscal intermediaries and other payors periodically conduct pre-payment or post-payment reviews and other reviews and audits of health care claims, including hospice claims. There is pressure from state and federal governments and other payors to scrutinize health care claims to determine their validity and appropriateness. In order to conduct these reviews, the payor requests documentation from Vitas and then reviews that documentation to determine compliance with applicable rules and regulations, including the eligibility of patients to receive hospice benefits, the appropriateness of the care provided to those patients and the documentation of that care. During the past several years, Vitas' claims have been subject to review and audit. Certificate of Need Laws and Other Restrictions. Some states, including Florida, have certificate of need or similar health planning laws that apply to hospice care providers. These states may require some form of state agency review or approval prior to opening a new hospice program, to adding or expanding hospice services, to undertaking significant capital expenditures or under other specified circumstances. Approval under these certificate of need laws is generally conditioned on the showing of a demonstrable need for services in the community. Vitas may seek to develop, acquire or expand hospice programs in states having certificate of need laws. To the extent that state agencies require Vitas to obtain a certificate of need or other similar approvals to expand services at existing hospice programs or to make acquisitions or develop hospice programs in new or existing geographic markets, Vitas' plans could be adversely affected by a failure to obtain such certificate or approval. In addition, competitors may seek administratively or judicially to challenge such an approval or proposed approval by the state agency, and Vitas has been defending against such a challenge in connection with the development of its Palm Beach County, Florida hospice program. Such a challenge, whether or not ultimately successful, could adversely affect Vitas. Limitations on For-Profit Ownership. A few states have laws that restrict the development and expansion of for-profit hospice programs. For example, Florida law does 7 not permit the operation of a hospice by a for-profit corporation unless it was operated in that capacity on or before July 1, 1978, although under certain circumstances a for-profit corporation may be permitted to purchase a grandfathered hospice program and continue to operate it. In New York, a hospice generally cannot be owned by a corporation that has another corporation as a stockholder. These types of restrictions could affect Vitas' ability to expand in Florida or into New York, or in other jurisdictions with similar restrictions. Limits on the Acquisition or Conversion of Non-Profit Health Care Organizations. An increasing number of states have enacted laws that restrict the ability of for-profit entities to acquire or otherwise assume the operations of a non-profit health care provider. Some states may require government review, public hearings, and/or government approval of transactions in which a for-profit entity proposes to purchase certain non-profit healthcare organizations. Heightened scrutiny of these transactions may significantly increase the costs associated with future acquisitions of non-profit hospice programs in some states, otherwise increase the difficulty in completing those acquisitions or prevent them entirely. Vitas cannot assure that it will not encounter regulatory or governmental obstacles in connection with any proposed acquisition of non-profit hospice programs in the future. Professional Licensure and Participation Agreements. Many hospice employees are subject to federal and state laws and regulations governing the ethics and practice of their profession, including physicians, physical, speech and occupational therapists, social workers, home health aides, pharmacists and nurses. In addition, those professionals who are eligible to participate in the Medicare, Medicaid or other federal health care programs as individuals must not have been excluded from participation in those programs at any time. State Licensure of Hospice. Each of Vitas' hospices must be licensed in the state in which it operates. State licensure rules and regulations require that Vitas' hospices maintain certain standards and meet certain requirements, which may vary from state to state. Vitas believes that its hospices are in material compliance with applicable licensure requirements. If a Vitas hospice were found to be out of compliance and actions were taken against a Vitas hospice, they could materially adversely affect the hospice's ability to continue to operate, to provide certain services and to participate in the Medicare and Medicaid programs, which could materially adversely affect Vitas. Overview of Government Payments -- General. A substantial portion of Vitas' revenues are derived from payments received from the Medicare and Medicaid programs. 95.4% of Vitas' net patient service revenue for the years ended September 30, 2002 and 2003, respectively, and 96% of Vitas' net patient service revenue for the ten months ended December 31, 2004, consisted of payments from the Medicare and Medicaid programs. Such payments are made primarily on a "per diem" basis. Under the per diem reimbursement methodology, Vitas is essentially at risk for the cost of eligible services provided to hospice patients. Profitability is therefore largely dependent upon Vitas' ability to manage the costs of providing hospice services to patients. Increases in operating costs, such as labor and supply costs that are subject to inflation and other increases, without a compensating increase in Medicare and Medicaid rates, could have a material adverse effect on Vitas' business in the future. The Medicare and Medicaid programs are increasing pressure to control health care costs and to decrease or limit increases in reimbursement rates for health care services. As with most government programs, the Medicare and Medicaid programs are subject to statutory 8 and regulatory changes, possible retroactive and prospective rate and payment adjustments, administrative rulings, freezes and funding reductions, all of which may adversely affect the level of program payments and could have a material adverse effect on Vitas' business. Vitas' levels of revenues and profitability will be subject to the effect of legislative and regulatory changes, including possible reductions in coverage or payment rates, or changes in methods of payment, by the Medicare and Medicaid programs. Overview of Government Payments -- Medicare Medicare Eligibility Criteria. To receive Medicare payment for hospice services, the hospice medical director and, if the patient has one, the patient's attending physician, must certify that the patient has a life expectancy of six months or less if the illness runs its normal course. This determination is made based on the physician's clinical judgment. Due to the uncertainty of such prognoses, however, it is likely and expected that some percentage of hospice patients will not die within six months of entering a hospice program. The Medicare program (among other third-party payors) recognizes that terminal illnesses often do not follow an entirely predictable course, and therefore the hospice benefit remains available to beneficiaries so long as the hospice physician or the patient's attending physician continues to certify that the patient's life expectancy remains six months or less. Specifically, the Medicare hospice benefit provides for two initial 90-day benefit periods followed by an unlimited number of 60-day periods. In order to qualify for hospice care, a Medicare beneficiary also must elect hospice care and waive any right to other Medicare benefits related to his or her terminal illness. A Medicare beneficiary may revoke his or her election of the Medicare hospice benefit at any time and resume receiving regular Medicare benefits. The patient may elect the hospice benefit again at a later date so long as he or she remains eligible. Increased regulatory scrutiny of compliance with the Medicare six-month eligibility rule has impacted the hospice industry. The Medicare program, however, has recently reaffirmed that Medicare hospice beneficiaries are not limited to six months of coverage and that there is no limit on how long a Medicare beneficiary can continue to receive hospice benefits and services, provided that the beneficiary continues to meet the eligibility criteria under the Medicare hospice program. In addition, the Medicare, Medicaid and SCHIP Benefits Improvement and Protection Act of 2000 requires HHS to conduct a study to examine the appropriateness of the current physician certification requirement required before a Medicare beneficiary is eligible to receive the Medicare hospice benefit. Levels of Care. Medicare pays for hospice services on a prospective payment system basis under which Vitas receives an established payment rate for each day that it provides hospice services to a Medicare beneficiary. These rates are subject to annual adjustments for inflation and may also be adjusted based upon the geographic location where the services are provided. The rate Vitas receives will vary depending on which of the following four levels of care is being provided to the beneficiary: Routine Home Care. The routine home care rate is paid for each day that a patient is in a hospice program and is not receiving one of the other categories of hospice care. The routine home care rate does not vary based upon the volume or intensity of services provided by the hospice program. General Inpatient Care. The general inpatient care rate is paid when a patient requires inpatient services for a short period for pain control or symptom management which cannot be managed in other settings. General inpatient care 9 services must be provided in a Medicare or Medicaid certified hospital or long-term care facility or at a freestanding inpatient hospice facility with the required registered nurse staffing. Continuous Home Care. Continuous home care is provided to patients while at home, during periods of crisis when intensive monitoring and care, primarily nursing care, is required in order to achieve palliation or management of acute medical symptoms. Continuous home care requires a minimum of 8 hours of care within a 24-hour day, which begins and ends at midnight. The care must be predominantly nursing care provided by either a registered nurse or licensed practical nurse. While the published Medicare continuous home care rates are daily rates, Medicare actually pays for continuous home care services on an hourly basis. This hourly rate is calculated by dividing the daily rate by 24. Respite Care. Respite care permits a hospice patient to receive services on an inpatient basis for a short period of time in order to provide relief for the patient's family or other caregivers from the demands of caring for the patient. A hospice can receive payment for respite care for a given patient for up to five consecutive days at a time, after which respite care is reimbursed at the routine home care rate. Medicare Payment for Physician Services. Payment for direct patient care physician services delivered by hospice physicians is billed separately by the hospice to the Medicare intermediary and paid at the lesser of the actual charge or the Medicare allowable charge for these services. This payment is in addition to the daily rates Vitas receives for hospice care. Payment for hospice physicians' administrative and general supervisory activities is included in the daily rates discussed above. Payments for attending physician professional services (other than services furnished by hospice physicians) are not paid to the hospice, but rather are paid directly to the attending physician by the Medicare carrier. For fiscal 2004, 1.6% of Vitas' net revenue was attributable to physician services. Medicare Limits on Hospice Care Payments. Medicare payments for hospice services are subject to two additional limits or "caps." Each of Vitas' hospice programs is separately subject to both of these "caps." Both of these "caps" are determined on an annual basis for the period running from November 1 through October 31 of each year. First, under a Medicare rule known as the "80-20" rule applicable to Medicare inpatient services, if the number of inpatient care days furnished by a hospice to Medicare beneficiaries exceeds 20% of the total days of hospice care furnished by such hospice to Medicare beneficiaries, Medicare payments to the hospice for inpatient care days exceeding the inpatient cap are reduced to the routine home care rate. During its history, Vitas has never exceeded the inpatient cap. Second, overall Medicare payments to a hospice are also subject to a separate cap based on overall average payments per admission. Any payments exceeding this overall hospice cap must be refunded by the hospice. This cap was set at $19,635.67 per admission through the twelve-month period ended on October 31, 2004, and is adjusted annually to account for inflation. While historically Vitas' revenues per admission generally have not exceeded the applicable cap, there can be no assurance that Vitas' hospices will not be subject to future payment reductions or recoupments as the result of this cap. 10 Medicare Managed Care Programs. The Medicare program has entered into contracts with managed care companies to provide a managed care benefit to Medicare beneficiaries who elect to participate in managed care programs. These managed care programs are commonly referred to as Medicare HMOs, Medicare + Choice or Medicare risk products. Vitas provides hospice care to Medicare beneficiaries who participate in these managed care programs, and Vitas is paid for services provided to these beneficiaries in the same way and at the same rates as those of other Medicare beneficiaries who are not in a Medicare managed care program. Under current Medicare policy, Medicare pays the hospice directly for services provided to these managed care program participants and then reduces the standard per-member, per-month payment that the managed care program otherwise receives. Overview of Government Payments -- Medicaid Medicaid Coverage and Reimbursement. State Medicaid programs are another source of Vitas' net patient revenue. Medicaid is a state-administered program financed by state funds and matching federal funds to provide medical assistance to the indigent and certain other eligible persons. In 1986, hospice services became an optional state Medicaid benefit. For those states that elect to provide a hospice benefit, the Medicaid program is required to pay the hospice at rates at least equal to the rates provided under Medicare and calculated using the same methodology. States maintain flexibility to establish their own hospice election procedures and to limit the number and duration of benefit periods for which they will pay for hospice services. Nursing Home Residents. For Vitas' patients who receive nursing home care under a state Medicaid program and who elect hospice care under Medicare or Medicaid, Vitas generally contracts with nursing homes for the nursing homes' provision to patients of room and board services. In addition to the applicable Medicare or Medicaid hospice daily or hourly rate, the state generally must pay Vitas an amount equal to at least 95% of the Medicaid daily nursing home rate for room and board services furnished to the patient by the nursing home. Under Vitas' standard nursing home contracts, Vitas pays the nursing home for these room and board services at the Medicaid daily nursing home rate. Adjustments to Medicare and Medicaid Payment Rates. Payment rates under the Medicare and Medicaid programs are adjusted annually based upon the Hospital Market Basket Index; however, the adjustments have historically been less than actual inflation. On October 1, 2001, the base Medicare payment rates for hospice care increased by approximately 3.2% over the base rates previously in effect. On October 1, 2002 and on October 1, 2003, the base Medicare payment rates for hospice care increased by approximately 3.4% each year over the base rates in effect in the prior year. On October 1, 2004 the rates increased by 3.3%. These base rates are further modified by the Hospice Wage Index to reflect local differences in wages according to the revised wage index. It is possible that there will be further modifications to the rate structure under which the Medicare or Medicaid programs pay for hospice care services. Any future reductions in the rate of increase in Medicare and Medicaid payments may have an adverse impact on Vitas' net patient service revenue and profitability. OTHER HEALTHCARE REGULATIONS Federal and State Anti-Kickback Laws and Safe Harbor Provisions. The federal Anti-Kickback Law makes it a felony to knowingly and willfully offer, pay, solicit or receive any form of remuneration in exchange for referring, recommending, arranging, purchasing, leasing or ordering items or services covered by a federal health care program including 11 Medicare or Medicaid. The Anti-Kickback Law applies regardless of whether the remuneration is provided directly or indirectly, in cash or in kind. Although the anti-kickback statute does not prohibit all financial transactions or relationships that providers of healthcare items or services may have with each other, interpretations of the law have been very broad. Under current law, courts and federal regulatory authorities have stated that this law is violated if even one purpose (as opposed to the sole or primary purpose) of the arrangement is to induce referrals. Violations of the Anti-Kickback Law carry potentially severe penalties including imprisonment of up to five years, criminal fines of up to $25,000 per act, civil money penalties of up to $50,000 per act, and additional damages of up to three times the amounts claimed or remuneration offered or paid. Federal law also authorizes exclusion from the Medicare and Medicaid programs for violations of the Anti-Kickback Law. The Anti-Kickback Law contains several statutory exceptions to the broad prohibition. In addition, Congress authorized the Office of Inspector General ("OIG") to publish numerous "safe harbors" that exempt some practices from enforcement action under the Anti-Kickback Law and related laws. These statutory exceptions and regulatory safe harbors protect various bona fide employment relationships, contracts for the rental of space or equipment, personal service arrangements, and management contracts, among other things, provided that certain conditions set forth in the statute or regulations are satisfied. The safe harbor regulations, however, do not comprehensively describe all lawful relationships between healthcare providers and referral sources, and the failure of an arrangement to satisfy all of the requirements of a particular safe harbor does not mean that the arrangement is unlawful. Failure to comply with the safe harbor provisions, however, may mean that the arrangement will be subject to scrutiny. It is possible for healthcare providers to request an advisory opinion from the OIG regarding an existing or proposed business arrangement and the possible anti-kickback concerns raised by that arrangement. Many states, including states where Vitas does business, have adopted similar prohibitions against payments that are intended to induce referrals of patients, regardless of the source of payment. Some of these state laws lack explicit "safe harbors" that may be available under federal law. Sanctions under these state anti-kickback laws may include civil money penalties, license suspension or revocation, exclusion from Medicare or Medicaid, and criminal fines or imprisonment. Little precedent exists regarding the interpretation or enforcement of these statutes. Vitas is required under the Medicare conditions of participation and some state licensing laws to contract with numerous healthcare providers and practitioners, including physicians, hospitals and nursing homes, and to arrange for these individuals or entities to provide services to Vitas' patients. In addition, Vitas has contracts with other suppliers, including pharmacies, ambulance services and medical equipment companies. Some of these individuals or entities may refer, or be in a position to refer, patients to Vitas, and Vitas may refer, or be in a position to refer, patients to these individuals or entities. These arrangements may not qualify for a safe harbor. Vitas from time to time seeks guidance from regulatory counsel as to the changing and evolving interpretations and the potential applicability of these anti-kickback laws to its programs, and in response thereto, takes such actions as it deems appropriate. The Company generally believes that Vitas' contracts and arrangements with providers, practitioners and suppliers do not violate applicable anti-kickback laws. However, the Company cannot assure that such laws will ultimately be interpreted in a manner consistent with Vitas' practices. 12 HIPAA Anti-Fraud Provisions. HIPAA includes several revisions to existing health care fraud laws by permitting the imposition of civil monetary penalties in cases involving violations of the anti-kickback statute or contracting with excluded providers. In addition, HIPAA created new statutes making it a federal felony to engage in fraud, theft, embezzlement, or the making of false statements with respect to healthcare benefit programs, which include private, as well as government programs. In addition, for the first time, federal enforcement officials have the ability to exclude from the Medicare and Medicaid programs any investors, officers and managing employees associated with business entities that have committed healthcare fraud, even if the investor, officer or employee had no actual knowledge of the fraud. OIG Fraud Alerts, Advisory Opinions and Other Program Guidance. In 1976, Congress established the OIG to, among other things, identify and eliminate fraud, abuse and waste in HHS programs. To identify and resolve such problems, the OIG conducts audits, investigations and inspections across the country and issues public pronouncements identifying practices that may be subject to heightened scrutiny. In the last several years, there have been a number of hospice related audits and reviews conducted. These reviews and recommendations have included: - better ensuring that Medicare hospice eligibility determinations are made in accordance with the Medicare regulations; and - revising the annual cap on hospice benefits to better reflect the cost of care provided. From time to time, various federal and state agencies, such as HHS and the OIG, issue a variety of pronouncements, including fraud alerts, the OIG's Annual Work Plan and other reports, identifying practices that may be subject to heightened governmental scrutiny. For example, the OIG in 2002 specifically called for a review of hospice plans of care to examine the variance among hospice plans of care and the extent to which services are provided in accordance with plans of care, and to determine whether there should be uniform standards or minimum requirements for their completion. In addition, the OIG called for a review of payments for the care of hospice patients residing in nursing homes and the level of services they receive. The Company cannot predict what, if any changes may be implemented in coverage, reimbursement, or enforcement policies as a result of these OIG reviews and recommendations. Additionally, in March 1998, the OIG issued a special fraud alert titled "Fraud and Abuse in Nursing Home Arrangements with Hospices." This special fraud alert focused on payments received by nursing homes from hospices. Federal False Claims Acts. The federal law includes several criminal and civil false claims provisions, which provide that knowingly submitting claims for items or services that were not provided as represented may result in the imposition of multiple damages, administrative civil money penalties, criminal fines, imprisonment, and/or exclusion from participation in federally funded healthcare programs, including Medicare and Medicaid. In addition, the OIG may impose extensive and costly corporate integrity requirements upon a healthcare provider that is the subject of a false claims judgment or settlement. These requirements may include the creation of a formal compliance program, the appointment of a government monitor, and the imposition of annual reporting requirements and audits conducted by an independent review organization to monitor compliance with the terms of the agreement and relevant laws and regulations. 13 The Civil False Claims Act prohibits the known filing of a false claim or the known use of false statements to obtain payments. Penalties for violations include fines ranging from $5,500 to $11,000, plus treble damages, for each claim filed. Provisions in the Civil False Claims Act also permit individuals to bring actions against individuals or businesses in the name of the government as so called "qui tam" relators. If a qui tam relator's claim is successful, he or she is entitled to share in the government's recovery. Both direct enforcement activity by the government and qui tam actions have increased significantly in recent years and have increased the risk that a healthcare company may have to defend a false claims action, pay fines or be excluded from the Medicare and/or Medicaid programs as a result of an investigation arising out of this type of an action. Because of the complexity of the government regulations applicable to the healthcare industry, the Company cannot assure that Vitas will not be the subject of an action under the False Claims Act. State False Claims Laws. At least 10 states and the District of Columbia, including states in which Vitas currently operates, have adopted state false claims laws that mirror to some degree the federal false claims laws. While these statutes vary in scope and effect, the penalties for violating these false claims laws include administrative, civil and/or criminal fines and penalties, imprisonment, and the imposition of multiple damages. The Stark Law and State Physician Self-Referral Laws. Section 1877 of the Social Security Act, commonly known as the "Stark Law," prohibits physicians from referring Medicare or Medicaid patients for "designated health services" to entities in which they hold an ownership or investment interest or with whom they have a compensation arrangement, subject to a number of statutory and regulatory exceptions. Penalties for violating the Stark Law are severe and include: - denial of payment; - civil monetary penalties of $15,000 per referral or $1,000,000 for "circumvention schemes;" - assessments equal to 200% of the dollar value of each such service provided; and - exclusion from the Medicare and Medicaid programs. Hospice care itself is not specifically listed as a designated health service; however, certain services that Vitas provides, or in the future may provide, are among the services identified as designated health services for purposes of the self-referral laws. The Company cannot assure that future regulatory changes will not result in hospice services becoming subject to the Stark Law's ownership, investment or compensation prohibitions in the future. Many states where Vitas operates have laws similar to the Stark Law, but with broader effect because they apply regardless of the source of payment for care. Penalties similar to those listed above as well as the loss of state licensure may be imposed in the event of a violation of these state self-referral laws. Little precedent exists regarding the interpretation or enforcement of these statutes. 14 Civil Monetary Penalties. The Civil Monetary Penalties Statute provides that civil penalties ranging between $10,000 and $50,000 per claim or act may be imposed on any person or entity that knowingly submits improperly filed claims for federal health benefits or that offers or makes payments to induce a beneficiary or provider to reduce or limit the use of health care services or to use a particular provider or supplier. Civil monetary penalties may be imposed for violations of the anti-kickback statute and for the failure to return known overpayments, among other things. Prohibition on Employing or Contracting with Excluded Providers. The Social Security Act and federal regulations state that individuals or entities that have been convicted of a criminal offense related to the delivery of an item or service under the Medicare or Medicaid programs or that have been convicted, under state or federal law, of a criminal offense relating to neglect or abuse of residents in connection with the delivery of a healthcare item or service cannot participate in any federal health care programs, including Medicare and Medicaid. Additionally, individuals and entities convicted of fraud, that have had their licenses revoked or suspended, or that have failed to provide services of adequate quality also may be excluded from the Medicare and Medicaid programs. Federal regulations prohibit Medicare providers, including hospice programs, from submitting claims for items or services or their related costs if an excluded provider furnished those items or services. The OIG maintains a list of excluded persons and entities. Nonetheless, it is possible that Vitas might unknowingly bill for services provided by an excluded person or entity with whom it contracts. The penalty for contracting with an excluded provider may range from civil monetary penalties of $50,000 and damages of up to three times the amount of payment that was inappropriately received. Corporate Practice of Medicine and Fee Splitting. Most states have laws that restrict or prohibit anyone other than a licensed physician, including business entities such as corporations, from employing physicians and/or prohibit payments or fee-splitting arrangements between physicians and corporations or unlicensed individuals. Penalties for violations of corporate practice of medicine and fee-splitting laws vary from state to state, but may include civil or criminal penalties, the restructuring or termination of the business arrangements between the physician and unlicensed individual or business entity, or even the loss of the physician's license to practice medicine. These laws vary widely from state to state both in scope and origin (e.g. statute, regulation, Attorney General opinion, court ruling, agency policy) and in most instances have been subject to only limited interpretation by the courts or regulatory bodies. Vitas employs or contracts with physicians to provide medical direction and patient care services to its patients. Vitas has made efforts in those states where certain contracting or fee arrangements are restricted or prohibited to structure those arrangements in compliance with the applicable laws and regulations. Despite these efforts, however, the Company cannot assure that agency officials charged with enforcing these laws will not interpret Vitas' contracts with employed or independent contractor physicians as violating the relevant laws or regulations. Future determinations or interpretations by individual states with corporate practice of medicine or fee splitting restrictions may force Vitas to restructure its arrangements with physicians in those locations. Health Information Practices. There currently are numerous legislative and regulatory initiatives at both the state and federal levels that address patient privacy concerns. In particular, federal regulations issued under the HIPAA Act of 1996 ("HIPAA") require Vitas to protect the privacy and security of patients' individual 15 health information. HHS published final regulations addressing patient privacy on December 28, 2000, which were modified on August 14, 2002 (the "Privacy Rule"). Vitas was required to comply with the Privacy Rule by April 14, 2003, and Vitas believes that it is in material compliance. Additionally, HIPAA does not automatically preempt applicable state laws and regulations concerning Vitas' use, disclosure and maintenance of patient health information, which means that Vitas is subject to a complex regulatory scheme that, in many instances, requires Vitas to comply with both federal and state laws and regulations. In August 2000, HHS published final regulations establishing health care transaction standards and code sets for the electronic transmission of health care information in connection with certain transactions, such as billing or health plan eligibility (the "Transactions Standard"). The official deadline for compliance with the Transactions Standard for covered entities such as Vitas was October 16, 2003. The Centers for Medicare and Medicaid Services ("CMS") is the division of HHS that is responsible for interpreting and enforcing the Transactions Standard. Failure to comply with the Transactions Standard may subject covered entities, including Vitas, to civil monetary penalties and possibly to criminal penalties. Vitas believes that it has made significant and appropriate good faith efforts to comply with the Transactions Standard and to develop an appropriate contingency plan as encouraged by CMS. It is unclear, however, how CMS will regulate providers in general or Vitas in particular with respect to compliance with the Transactions Standard. Consequently, it also is unclear whether Vitas would be found to be in material compliance with the Transactions Standard if CMS were to review Vitas' electronic claims submissions and assess Vitas' electronic transactions, or whether Vitas would be required to expend substantial sums on acquiring and implementing new information systems, or would otherwise be affected in a manner that would negatively impact its profitability. On May 31, 2002, HHS published its final rule regarding the HIPAA Unique Employer Identifier Standard, which establishes a standard for identifying employers in healthcare transactions where information about the employer is transmitted electronically, as well as requirements concerning its use by HIPAA covered entities. The deadline for compliance with the Unique Employer Identifier Standard rule was July 30, 2004. Additionally, HHS published final regulations addressing the security of such health information on February 20, 2003 (the "Security Rule"), and Vitas will be required to comply with the Security Rule by April 21, 2005. Also, HHS published its final rule adopting the HIPAA Standard Unique Health Identifier for health care providers on January 23, 2004, and Vitas' compliance deadline for that rule is May 23, 2007. Because compliance with the final rules regarding the HIPAA Unique Employer Identifier Standard and the Standard Unique Health Identifier, and the Security Rule is not yet required, the Company cannot predict the total financial or other impact of any of these final regulations on Vitas' operations, including any need for Vitas to expend financial resources on acquiring and implementing new information systems or any other negative impact on Vitas' profitability. Additional Federal and State Regulation. Federal and state governments also regulate various aspects of the hospice industry. In particular, Vitas' operations are subject to federal and state health regulatory laws covering professional services, the dispensing of drugs and certain types of hospice activities. Some of Vitas' employees are subject to state laws and regulations governing the ethics and professional practice of medicine, respiratory therapy, pharmacy and nursing. 16 Compliance with Health Regulatory Laws. Vitas maintains an internal regulatory compliance review program and from time to time retains regulatory counsel for guidance on compliance matters. The Company cannot assure, however, that Vitas' practices, if reviewed, would be found to be in compliance with applicable health regulatory laws, as such laws ultimately may be interpreted, or that any non-compliance with such laws would not have a material adverse effect on Vitas. ENVIRONMENTAL MATTERS Roto-Rooter's operations are subject to various federal, state, and local laws and regulations regarding environmental matters and other aspects of the operation of a sewer and drain cleaning, HVAC and plumbing services business. For certain other activities, such as septic tank and grease trap pumping, Roto-Rooter is subject to state and local environmental health and sanitation regulations. Service America's operations are also subject to various federal, state and local laws and regulations regarding environmental matters and other aspects of the operation of a HVAC and appliance repair and maintenance service industry. At December 31, 2004, the Company's accrual for its estimated liability for potential environmental cleanup and related costs arising from the sale of DuBois Chemicals Inc. ("DuBois") amounted to $2,951,000. Of this balance, $1,900,000 is included in other liabilities and $1,051,000 is included in other current liabilities. The Company is contingently liable for additional DuBois-related environmental cleanup and related costs up to a maximum of $15,999,000. On the basis of a continuing evaluation of the Company's potential liability, and in consultation with the Company's environmental attorney, management believes that it is not probable this additional liability will be paid. Accordingly, no provision for this contingent liability has been recorded. Although it is not presently possible to reliably project the timing of payments related to the Company's potential liability for environmental costs, management believes that any adjustments to its recorded liability will not materially adversely affect its financial position or results of operations. The Company, to the best of its knowledge, is currently in compliance in all material respects with the environmental laws and regulations affecting its operations. Such environmental laws, regulations and enforcement proceedings have not required the Company to make material increases in or modifications to its capital expenditures and they have not had a material adverse effect on sales or net income. Capital expenditures for the purposes of complying with environmental laws and regulations during 2005 and 2006 with respect to continuing operations are not expected to be material in amount; there can be no assurance, however, that presently unforeseen legislative or enforcement actions will not require additional expenditures. SEASONALITY Advertising costs for Roto-Rooter inordinately impact the Company's fourth-quarter results. Roto-Rooter recognizes telephone directory costs immediately upon distribution of a directory by its publisher into the community. Since a large number of directories are distributed in the fourth quarter, this direct expense accounting policy results in fourth-quarter earnings including a disproportionately large share of Roto-Rooter's full-year telephone directory advertising expense. In the fourth quarter 2004, Roto-Rooter expensed $6.4 million of total advertising costs that represented 35% of the aggregate advertising costs for the full-year 2004. 17 EMPLOYEES On December 31, 2004, Chemed Corporation had a total of 9,822 employees. AVAILABLE INFORMATION The Company's Internet address is www.chemed.com. The Company's annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are electronically available through the SEC (http://www.sec.gov) or the Company's website as soon as reasonably practicable after such reports are filed with, or furnished to, the SEC. Annual reports, press releases, and other printed materials may also be obtained from Chemed Investor Relations without charge by writing or by calling 800-2CHEMED or 513-762-6429. ITEM 2. PROPERTIES The Company's corporate offices and the headquarters for the Roto-Rooter Group are located in Cincinnati, Ohio. Roto-Rooter has manufacturing and distribution center facilities in West Des Moines, Iowa and has 72 office and service facilities in 26 states. Vitas, headquartered in Miami, operates 35 programs from 61 leased facilities in 12 states, including Florida, California, Texas and Illinois. All "owned" property is held in fee and is subject to the security interests of the holders of the Notes issued in connection with the Company's merger with Vitas. The leased properties have lease terms ranging from one year to sixteen years. Management does not foresee any difficulty in renewing or replacing the remainder of its current leases. The Company considers all of its major operating properties to be maintained in good operating condition and to be generally adequate for present and anticipated needs. ITEM 3. LEGAL PROCEEDINGS The Company is party to a class action lawsuit filed in the Third Judicial Circuit Court of Madison County, Illinois in June of 2000 by Robert Harris, alleging certain Roto-Rooter plumbing was performed by unlicensed employees. The Company contests these allegations and believes them without merit. Plaintiff moved for certification of a class of customers in 32 states who allegedly paid for plumbing work performed by unlicensed employees. Plaintiff also moved for partial summary judgment on grounds the licensed apprentice plumber who installed his faucet did not work under the direct personal supervision of a licensed master plumber. On June 19, 2002, the trial judge certified an Illinois-only plaintiffs class and granted summary judgment for the named party Plaintiff on the issue of liability, finding violation of the Illinois Plumbing License Act and the Illinois Consumer Fraud Act, through Roto-Rooter's representation of the licensed apprentice as a plumber. The court has not yet ruled on certification of a class in the remaining 31 states. In December 2004, the Company reached a tentative resolution of this matter with the plaintiff. This proposed settlement has not yet been finalized by the parties nor approved by the court. Nonetheless, the Company, in anticipation of such approval, accrued $3.1 million as the anticipated cost of settling this litigation. 18 Vitas Healthcare Corporation is party to a class action lawsuit filed in the Superior Court of California, Los Angeles County, in April of 2004 by Ann Marie Costa, Ana Jimenez, Mariea Ruteaya and Gracetta Wilson alleging failure to pay overtime wages and to provide meal and break periods to California nurses, home health aides and licensed clinical social workers. The Company contests these allegations and believes them without merit. Due to the complex legal and other issues involved, it is not presently possible to estimate the amount of liability, if any, related to this case. Management cannot provide assurance the Company will ultimately prevail in it. Regardless of outcome, such litigation can adversely affect the Company through defense costs, diversion of management's time, and related publicity. On April 5, 2002 Michael Linn, an attorney, filed a class action complaint against the Company in the Court of Common Pleas, Cuyahoga County, Ohio. He alleged Roto-Rooter Services Company's miscellaneous parts charge, ranging from $4.95 to $12.95 per job, violated the Ohio Consumer Sales Practices Act. The Company contended that the charge, which is included within the estimate approved by its customers, is a fully disclosed component of its pricing. Plaintiff dismissed the case without payment and with prejudice following the Ohio Supreme Court's denial of review of the Eighth District Court of Appeals decertification of this class action. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. EXECUTIVE OFFICERS OF THE COMPANY

Name Age Office First Elected ---- --- ------ ------------- Kevin J. McNamara 51 President and Chief Executive Officer August 2, 1994 (1) Timothy S. O'Toole 49 Executive Vice President May 18, 1992 (2) Spencer S. Lee 49 Executive Vice President May 15, 2000 (3) David P. Williams 44 Vice President and Chief Financial March 5, 2004 (4) Officer Arthur V. Tucker, 55 Vice President and Controller May 20, 1991 (5) Jr.

(1) Mr. K. J. McNamara is President and Chief Executive Officer of the Company and has held these positions since August 1994 and May 2001, respectively. Previously, he served as an Executive Vice President, Secretary and General Counsel of the Company, since November 1993, August 1986 and August 1986, respectively. He previously held the position of Vice President of the Company, from August 1986 to May 1992. (2) Mr. T. S. O'Toole is an Executive Vice President of the Company and has held this position since May 1992. He is also Chief Executive Officer of Vitas, a wholly owned subsidiary of the Company, and has held this position since February 24, 2004. Previously, from May 1992 to February 24, 2004, he also served the Company as Treasurer. 19 (3) Mr. S. S. Lee is an Executive Vice President of the Company and has held this position since May 15, 2000. Mr. Lee is also Chairman and Chief Executive Officer of Roto-Rooter Services Company, a wholly owned subsidiary of the Company, and has held this position since January 1999. Previously, he served as a Senior Vice President of Roto-Rooter Services Company from May 1997 to January 1999. (4) Mr. D. P. Williams is Vice President and Chief Financial Officer of the Company and has held these positions since March 5, 2004. Mr. Williams is also Senior Vice President and Chief Financial Officer of Roto-Rooter Group, Inc. and has held these positions since January 1999. (5) Mr. A. V. Tucker, Jr. is a Vice President and Controller of the Company and has held these positions since February 1989. From May 1983 to February 1989, he held the position of Assistant Controller of the Company. Each executive officer holds office until the annual election at the next annual organizational meeting of the Board of Directors of the Company which is scheduled to be held on May 16, 2005. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES The Company's Capital Stock (par value $1 per share) is traded on the New York Stock Exchange under the symbol CHE. The range of the high and low sale prices on the New York Stock Exchange and dividends paid per share for each quarter of 2003 and 2004 are set forth below. Closing

Dividends Paid High Low Per Share ---- --- --------- 2004 First Quarter $66.95 $48.95 $.12 Second Quarter 55.30 43.10 .12 Third Quarter 56.25 42.71 .12 Fourth Quarter 67.44 55.11 .12 2003 First Quarter $36.51 $31.55 $.12 Second Quarter 40.20 32.98 .12 Third Quarter 40.35 34.42 .12 Fourth Quarter 51.78 33.69 .12

Future dividends are necessarily dependent upon the Company's earnings and financial condition, compliance with certain debt covenants and other factors not presently determinable. 20 As of March 1, 2005, there were approximately 3,321 stockholders of record of the Company's Capital Stock. This number only includes stockholders of record and does not include stockholders with shares beneficially held in nominee name or within clearinghouse positions of brokers, banks or other institutions. As of December 31, 2004, the number of stock options outstanding under the Company's equity compensation plans, the weighted average exercise price of outstanding options, and the number of securities remaining available for issuance were as follows: EQUITY COMPENSATION PLAN INFORMATION

Number of securities remaining available for Number of Securities to be future issuance under equity issued upon exercise of Weighted-average exercise compensation plans [excluding outstanding warrants and price of outstanding options, securities reflected in Plan Category rights warrants and rights column (a)] ----------------------------- -------------------------- ----------------------------- ----------------------------- (a) (b) (c) Equity Compensation plans approved by stockholders 1,221,590 $38.95 302,877 Equity Compensation plans not approved by stockholders (1) 109,812 35.52 1,044 TOTAL 1,331,402 38.67 303,921

(1) In May 1999 the Board of Directors adopted the 1999 Long-Term Employee Incentive Plan without stockholder approval. This plan permits the Company to grant up to 250,000 shares of non-qualified options and stock awards to a broad base of salaried and hourly employees (excluding officers and directors) of the Company. Except for the exclusion of officers and directors, this plan has the same general terms and provisions as the 2004 Stock Incentive Plan. In addition, pursuant to this plan no individual may be granted more than 25,000 stock options in a calendar year, the aggregate number of the shares of Capital Stock which may be issued pursuant to stock incentives in the form of Stock Awards shall not be more than 135,000, and no stock incentives shall be granted under the plan after May 17, 2009. ITEM 6. SELECTED FINANCIAL DATA The information called for by this Item for the five years ended December 31, 2004 is set forth on page 41 of the 2004 Annual Report to Stockholders and is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information called for by this Item is set forth on pages 44 through 57 of the 2004 Annual Report to Stockholders and is incorporated herein by reference. 21 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's primary market risk exposure relates to interest rate risk exposure through its variable interest rate borrowings. At December 31, 2004 the Company had a total of $140.5 million of variable rate debt outstanding. In February 2005, the Company called its Floating Rate Notes, restructured its revolving credit/ term loan agreement with JPMorgan Chase and reduced its variable rate debt to $88.5 million at February 28, 2005. Should the interest rate on this debt increase or decrease 100 basis points (1% point), the Company's annual interest expense would increase or decrease $885,000. The Company continually evaluates this interest rate exposure and periodically weighs the cost versus the benefit of fixing the variable interest rates through a variety of hedging techniques. Currently, the Company has an interest rate cap with BNP Paribas covering $43.4 million of notional principal at December 31, 2004, decreasing to $35.5 million at September 29, 2006. The cap expires September 29, 2006 and reimburses the Company for interest on the notional principal to the extent that LIBOR exceeds 6.00%. At December 31, 2004, both the market value and carrying value of the cap were approximately $6,000 and the 30-day LIBOR rate was 2.40%. The market value of the Company's long-term debt at December 31, 2004 is approximately $306.2 million versus a carrying value of $291.7 million. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements, together with the report thereon of PricewaterhouseCoopers LLP dated March 22, 2005, appearing on pages 5 through 40 of the 2004 Annual Report to Stockholders, along with the Supplementary Data (Unaudited Summary of Quarterly Results) appearing on pages 42-43, are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures. Based on an evaluation, as of the end of the period covered by this Annual Report on Form 10-K, our President and Chief Executive Officer, Vice President and Chief Financial Officer and Vice President and Controller have concluded that our disclosure controls and procedures (as defined in the Exchange Act Rule 13a-15(e)) are effective to ensure that information required to be disclosed in the reports that the company files under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms and are also effective to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the Company's management, including its President and Chief Executive Officer, Vice President and Chief Financial Officer and Vice President and Controller, to allow timely decisions regarding required disclosure. STATUS OF MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Pursuant to Securities and Exchange Commission Release No. 34-50754, which, subject to certain conditions, provides up to 45 additional days beyond the original due date of this Form 10-K for the filing of management's annual report on internal control over financial reporting required by Item 308(a) of Regulation S-K, and the related attestation report of the independent registered public accounting firm, as required by Item 308(b) of Regulation S-K, management's report on internal control over financial reporting and the associated report on the audit of management's assessment of the effectiveness of the Company's internal control over financial reporting as of December 31, 2004, are not filed herein and are expected to be filed no later than April 30, 2005. The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting, as that term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of the Company's management, including the principal executive officer and principal financial officer, the Company is in the process of conducting an evaluation of its internal control over financial reporting based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. 22 The Company's evaluation of its internal control over financial reporting has not yet been completed. In connection with this ongoing process, the Company has identified certain significant deficiencies and other control deficiencies. As a result of the ongoing evaluation of internal control over financial reporting, additional control deficiencies may be identified. Additionally, once we have completed our evaluation of all deficiencies (those identified to date and those which may be identified as we complete our evaluation) we may determine that the deficiencies, either alone or in combination with others, constitute one or more material weaknesses. The existence of one or more material weaknesses as of December 31, 2004 would preclude a conclusion that the Company's internal control over financial reporting was effective as of that date. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The directors of the Company are: Edward L. Hutton Thomas C. Hutton Kevin J. McNamara Sandra E. Laney Donald Breen, Jr. Timothy S. O'Toole Charles H. Erhart, Jr. Donald E. Saunders Joel F. Gemunder George J. Walsh III Patrick P. Grace Frank E. Wood The additional information required under this Item with respect to the directors and executive officers is set forth in the Company's 2005 Proxy Statement and in Part I hereof under the caption "Executive Officers of the Registrant" and is incorporated herein by reference. The Company has adopted a Code of Ethics that applies to the Company's principal executive officer, principal financial officer, principal accounting officer, directors and employees. A copy of this Code of Ethics is incorporated with this Report as Exhibit 14 and it is also posted on the Company's Web site, www.chemed.com. ITEM 11. EXECUTIVE COMPENSATION Information required under this Item is set forth in the Company's 2005 Proxy Statement, which is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information required under this Item is set forth in the Company's 2005 Proxy Statement, which is incorporated herein by reference. 23 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information required under this Item is set forth in the Company's 2005 Proxy Statement, which is incorporated herein by reference. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES AUDIT FEES PricewaterhouseCoopers LLP billed the company $614,000 and $1,189,000 in 2003 and 2004, respectively. These fees were for professional services rendered for the integrated audit of the Company's annual financial statements and of its internal control over financial reporting, review of the financial statements included in the Company's Forms 10-Q and review of documents filed with the SEC. AUDIT-RELATED FEES PricewaterhouseCoopers LLP billed the company $122,400 and $1,446,000 in 2003 and 2004, respectively for audit-related services. In 2003, these fees related primarily to the audit of the Company's employee benefit plans. In 2004, $1,115,000 of these fees related to audits of significant subsidiaries of the Company for years 2001, 2002, and 2003 financial statements for the purpose of registering the Company's floating rate notes, $205,000 for review of the Private Placement Memorandum related to the acquisition of VITAS, $59,000 for consultation concerning financial accounting and reporting standards and the remaining $67,000 was related primarily to the audit of the Company's employee benefit plans. TAX FEES No such services were rendered in 2003 or 2004. ALL OTHER FEES PricewaterhouseCoopers LLP billed the Company $2,200 and $2,300, respectively, in aggregate fees for services rendered by PricewaterhouseCoopers LLP, other than the services described above, for the years 2003 and 2004. The Audit Committee has adopted a policy which requires the Committee's pre-approval of audit and non-audit services performed by the independent auditor to assure that the provision of such services does not impair the auditor's independence. The Audit Committee pre-approved all of the audit and non-audit services rendered by PricewaterhouseCoopers LLP as listed above. 24 PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

EXHIBITS 3.1 Certificate of Incorporation of Chemed Corporation.* 3.2 Certificate of Amendment to Certificate of Incorporation.* 3.3 By-Laws of Chemed Corporation.* 4.1 Offer to Exchange Chemed Capital Trust Convertible Preferred Securities for Shares of Capital Stock, dated as of December 23, 1999.* 4.2 Chemed Capital Trust, dated as of December 23, 1999.* 4.3 Amended and Restated Declaration of Trust of Chemed Capital Trust, dated February 7, 2000.* 4.4 Indenture, dated as of February 24, 2004, between Roto-Rooter, Inc. and LaSalle Bank National Association.* 4.5 Indenture, dated as of February 24, 2004, among Roto-Rooter, Inc., the subsidiary guarantors listed on Schedule I thereto and Wells Fargo Bank, N.A.* 10.1 Agreement and Plan of Merger among Diversey U.S. Holdings, Inc., D. C. Acquisition Inc., Chemed Corporation and DuBois Chemicals, Inc., dated as of February 25, 1991.* 10.2 Stock Purchase Agreement between Omnicare, Inc. and Chemed Corporation, dated as of August 5, 1992.* 10.3 Agreement and Plan of Merger among National Sanitary Supply Company, Unisource Worldwide, Inc. and TFBD, Inc. dated as of August 11, 1997.* 10.4 Stock Purchase Agreement dated as of May 8, 2002 by and between PCI Holding Corp. and Chemed Corporation. * 10.5 Amendment No. 1 to Stock Purchase Agreement dated as of October 11, 2002 by and among PCI Holding Corp., PCI-A Holding Corp. and Chemed Corporation. * 10.6 Senior Subordinated Promissory Note dated as of October 11, 2002 by and among PCI Holding Corp. and Chemed Corporation. * 10.7 Common Stock Purchase Warrant dated as of October 11, 2002 by and between PCI Holding Corp. and Chemed Corporation. * 10.8 1986 Stock Incentive Plan, as amended through May 20, 1991.*,** 10.9 1988 Stock Incentive Plan, as amended through May 20, 1991.*,**

25 10.10 1993 Stock Incentive Plan.*,** 10.11 1995 Stock Incentive Plan.*,** 10.12 1997 Stock Incentive Plan.*,** 10.13 1999 Stock Incentive Plan.*,** 10.14 1999 Long-Term Employee Incentive Plan as amended through May 20, 2002.*,** 10.15 2002 Stock Incentive Plan.*,** 10.16 2002 Executive Long-Term Incentive Plan, as amended May 18, 2004.*,** 10.17 2004 Stock Incentive Plan.*,** 10.18 Employment Contracts with Executives.*,** 10.19 Amendment to Employment Agreements with Kevin J. McNamara, Thomas C. Hutton and Sandra E. Laney dated August 7, 2002.*,** 10.20 Amendment to Employment Agreements with Timothy S. O'Toole and Arthur V. Tucker dated August 7, 2002.*,** 10.21 Amendment to Employment Agreement with Spencer S. Lee dated May 19, 2003.*,** 10.22 Amendment to Employment Agreements with Executives dated January 1, 2002.*,** 10.23 Consulting Agreement between Timothy S. O'Toole and PCI Holding Corp. effective October 11, 2002.*,** 10.24 Amendment No. 16 to Employment Agreement with Sandra E. Laney dated March 1, 2003.*,** 10.25 Amendment No. 16 to Employment Agreement with Kevin J. McNamara dated May 18, 2004.** 10.26 Employment Agreement with David P. Williams dated May 16, 1994; Amendment dated May 21, 2001, and Amendment dated May 19, 2003.** 10.27 Excess Benefits Plan, as restated and amended, effective June 1, 2001.*,** 10.28 Amendment No. 1 to Excess Benefits Plan, effective July 1, 2002.*,** 10.29 Amendment No. 2 to Excess Benefits Plan, effective November 7, 2003.*,** 10.30 Non-Employee Directors' Deferred Compensation Plan.*,** 10.31 Chemed/Roto-Rooter Savings & Retirement Plan, effective January 1, 1999.*,** 10.32 First Amendment to Chemed/Roto-Rooter Savings & Retirement Plan, effective September 6, 2000.*,** 26 10.33 Second Amendment to Chemed/Roto-Rooter Savings & Retirement Plan, effective January 1, 2001.*,** 10.34 Third Amendment to Chemed/Roto-Rooter Savings & Retirement Plan, effective December 12, 2001.*,** 10.35 Stock Purchase Agreement by and Among Banta Corporation, Chemed Corporation and OCR Holding Company as of September 24, 1997.* 10.36 Directors Emeriti Plan.*,** 10.37 Second Amendment to Split Dollar Agreement with Executives.*,** 10.38 Split Dollar Agreement with Executives.*,** 10.39 Split Dollar Agreement with Edward L. Hutton.*,** 10.40 Promissory Note under the Executive Stock Purchase Plan with Kevin J. McNamara.*,** 10.41 Schedule to Promissory Note under the Executive Stock Purchase Plan with Kevin J. McNamara.** 10.42 Roto-Rooter Deferred Compensation Plan No. 1, as amended January 1,1998.*,** 10.43 Roto-Rooter Deferred Compensation Plan No. 2.*,** 10.44 Agreement and Plan of Merger, dated as of December 18, 2003, Among Roto-Rooter, Inc., Marlin Merger Corp. and Vitas Healthcare Corporation.* 10.45 Credit Agreement, dated as of February 24, 2004, among Roto-Rooter, Inc., the lenders from time to time parties thereto and Bank One, NA, as Administrative Agent.* 10.46 Amended and Restated Credit Agreement, dated as of February 24, 2005, among Chemed Corporation, the lenders from time to time parties thereto and JP Morgan Chase Bank, NA, as Administrative Agent. 10.47 Pledge and Security Agreement, dated as of February 24, 2004, among Roto-Rooter, Inc., the subsidiaries of Roto-Rooter, Inc. listed on the signature pages thereto and Bank One, NA, as Collateral Agent.* 10.48 Guaranty Agreement, dated as of February 24, 2004, among the subsidiaries of Roto-Rooter, Inc. listed on the signature pages thereto and Bank One, NA, as Administrative Agent.* 10.49 Collateral Sharing Agreement, dated as of February 24, 2004, among Bank One, NA, as Collateral Agent and Administrative Agent, Wells Fargo Bank, NA, as Trustee, and Roto-Rooter, Inc.* 10.50 Form of Restricted Stock Award.** 10.51 Form of Stock Option Grant.** 27 12 Computation of Ratio of Earnings to Fixed Charges. 13 2004 Annual Report to Stockholders. 14 Policies on Business Ethics of Chemed Corporation.* 21 Subsidiaries of Chemed Corporation. 23 Consent of Independent Registered Public Accounting Firm. 24 Powers of Attorney. 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. * This exhibit is being filed by means of incorporation by reference (see Index to Exhibits on page E-1). Each other exhibit is being filed with this Annual Report on Form 10-K. ** Management contract or compensatory plan or arrangement. FINANCIAL STATEMENT SCHEDULE See Index to Financial Statements and Financial Statement Schedule on page S-1. 28 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities 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 March 23, 2005 By /s/ Kevin J. McNamara -------------------------- Kevin J. McNamara President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature Title Date --------- ----- ---- /s/ Kevin J. McNamara President and Chief ---------------------- Executive Officer and a Kevin J. McNamara Director (Principal Executive Officer) /s/ David P. Williams Vice President and Chief ---------------------- Financial Officer David P. Williams (Principal Financial Officer) /s/ Arthur V. Tucker, Jr. Vice President and March 23, 2005 ------------------------ Controller Arthur V. Tucker, Jr. (Principal Accounting Officer) Edward L. Hutton* Sandra E. Laney* Donald Breen, Jr.* Timothy S. O'Toole* Charles H. Erhart, Jr.* Donald E. Saunders* --Directors Joel F. Gemunder* George J. Walsh III* Patrick P. Grace* Frank E. Wood* Thomas C. Hutton*

---------------------------- * Naomi C. Dallob by signing her name hereto signs this document on behalf of each of the persons indicated above pursuant to powers of attorney duly executed by such persons and filed with the Securities and Exchange Commission. March 23, 2005 /s/ Naomi C. Dallob -------------------- ------------------------------ Date Naomi C. Dallob (Attorney-in-Fact) 29 CHEMED CORPORATION AND SUBSIDIARY COMPANIES INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE 2002, 2003 AND 2004

CHEMED CORPORATION CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE PAGE(S) Report of Independent Registered Public Accounting Firm on Financial Statements.............................................. 5* Consolidated Statement of Operations................................ 6* Consolidated Balance Sheet.......................................... 7* Consolidated Statement of Changes in Stockholders' Equity........... 8* Consolidated Statement of Comprehensive Income/(Loss)............... 8-9* Consolidated Statement of Cash Flows................................ 10* Notes to Consolidated Financial Statements.......................... 11-40* Report of Independent Registered Public Accounting Firm on Financial Statement Schedule...................................... S-2 Schedule II -- Valuation and Qualifying Accounts.................... S-3-S-4

* Indicates page numbers in Chemed Corporation 2004 Annual Report to Stockholders. The consolidated financial statements of Chemed Corporation listed above, appearing in the 2004 Annual Report to Stockholders, are incorporated herein by reference. The Financial Statement Schedule should be read in conjunction with the consolidated financial statements listed above. Schedules not included have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto as listed above. S-1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON FINANCIAL STATEMENT SCHEDULE TO THE BOARD OF DIRECTORS OF CHEMED CORPORATION OUR AUDITS OF THE CONSOLIDATED FINANCIAL STATEMENTS REFERRED TO IN OUR REPORT DATED MARCH 22, 2005 APPEARING ON PAGE 5 OF THE 2004 ANNUAL REPORT TO STOCKHOLDERS OF CHEMED CORPORATION (WHICH REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ARE INCORPORATED BY REFERENCE IN THIS ANNUAL REPORT ON FORM 10-K) ALSO INCLUDED AN AUDIT OF THE FINANCIAL STATEMENT SCHEDULE LISTED IN THE INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE ON PAGE S-1. IN OUR OPINION, THE FINANCIAL STATEMENT SCHEDULE PRESENTS FAIRLY, IN ALL MATERIAL RESPECTS, THE INFORMATION SET FORTH THEREIN WHEN READ IN CONJUNCTION WITH THE RELATED CONSOLIDATED FINANCIAL STATEMENTS. /s/ PRICEWATERHOUSECOOPERS LLP ------------------------------ PRICEWATERHOUSECOOPERS LLP CINCINNATI, OHIO MARCH 22, 2005 S-2 SCHEDULE II CHEMED CORPORATION AND SUBSIDIARY COMPANIES VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS) DR/(CR) ADDITIONS

(CHARGED) APPLICABLE CREDITED (CHARGED) TO BALANCE AT TO COSTS CREDITED COMPANIES BALANCE BEGINNING AND TO OTHER ACQUIRED DEDUCTIONS AT END DESCRIPTION OF PERIOD EXPENSES ACCOUNTS IN PERIOD (b) OF PERIOD ---------------------------- ----------- --------- --------- ---------- ---------- --------- ALLOWANCES FOR DOUBTFUL ACCOUNTS (c) FOR THE YEAR 2004......... $ (2,646) $(5,983) $ - $ (4,946) $ 6,031 $ (7,544) ======== ======= ======= ======== ======= ======== FOR THE YEAR 2003 (a)..... $ (3,337) $(1,497) $ - $ - $ 2,188 $ (2,646) ======== ======= ======= ======== ======= ======== FOR THE YEAR 2002 (a)..... $ (3,950) $(1,866) $ - $ - $ 2,479 $ (3,337) ======== ======= ======= ======== ======= ======== ALLOWANCES FOR DOUBTFUL ACCOUNTS - NOTES RECEIVABLE (d) FOR THE YEAR 2004......... $ (323) $ 323 $ - $ - $ - $ - ======== ======= ======= ======== ======= ======== FOR THE YEAR 2003......... $ (422) $ 99 $ - $ - $ - $ (323) ======== ======= ======= ======== ======= ======== FOR THE YEAR 2002......... $ (900) $ 478 $ - $ - $ - $ (422) ======== ======= ======= ======== ======= ========

S-3

(CHARGED) APPLICABLE CREDITED (CHARGED) TO BALANCE AT TO COSTS CREDITED COMPANIES BALANCE BEGINNING AND TO OTHER ACQUIRED DEDUCTIONS AT END DESCRIPTION OF PERIOD EXPENSES ACCOUNTS IN PERIOD (b) OF PERIOD --------------------------------- ----------- --------- --------- ---------- ---------- --------- VALUATION ALLOWANCE FOR AVAILABLE-FOR-SALE SECURITIES (e) FOR THE YEAR 2004......... $ - $ - $ - $ - $ - $ - ======== ======= ======= ======== ======= ======== FOR THE YEAR 2003......... $ 5,668 $ - $ (278) $ - $(5,390) $ - ======== ======= ======= ======== ======= ======== FOR THE YEAR 2002......... $ 6,483 $ - $ 326 $ - $(1,141) $ 5,668 ======== ======= ======= ======== ======= ========

------------------------- (a) AMOUNTS WERE RECLASSIFIED FOR OPERATIONS DISCONTINUED IN 2004. (b) WITH RESPECT TO ALLOWANCES FOR DOUBTFUL ACCOUNTS, DEDUCTIONS INCLUDE ACCOUNTS CONSIDERED UNCOLLECTIBLE OR WRITTEN OFF, PAYMENTS, COMPANIES DIVESTED, ETC. WITH RESPECT TO VALUATION ALLOWANCE FOR AVAILABLE-FOR-SALE SECURITIES, DEDUCTIONS COMPRISE NET REALIZED GAINS ON SALES OF INVESTMENTS. (c) CLASSIFIED IN CONSOLIDATED BALANCE SHEET AS A REDUCTION OF ACCOUNTS RECEIVABLE. (d) CLASSIFIED IN CONSOLIDATED BALANCE SHEET AS A REDUCTION OF OTHER ASSETS. (e) WITH RESPECT TO THE VALUATION ALLOWANCE FOR AVAILABLE - FOR - SALE SECURITIES, AMOUNTS CHARGED OR CREDITED TO OTHER ACCOUNTS COMPRISE NET UNREALIZED HOLDING LOSSES OR GAINS ARISING DURING THE PERIOD. S-4 INDEX TO EXHIBITS

Page Number or Incorporation by Reference -------------------------------- Exhibit File No. and Previous Number Filing Date Exhibit No. ------- ------------ ----------- 3.1 Certificate of Incorporation of Form S-3 4.1 Chemed Corporation Reg. No. 33-44177 11/26/91 3.2 Certificate of Amendment to Form S-4 3.3 Certificate of Incorporation Reg. No. 333-115668 5/20/04 3.3 By-Laws of Chemed Corporation Form 8-K 1 as amended November 5, 2004 11/5/04 4.1 Offer to Exchange Chemed Capital Form T-3 T3E.1 Trust Convertible Trust Preferred 12/23/99 Securities for Shares of Capital Stock, dated as of 12/23/99 4.2 Chemed Capital Trust, dated Schedule 13E-4 (b)(1) as of 12/23/99 12/23/99 4.3 Amended and Restated Schedule 13E-4A (b)(2) Declaration of Trust of Chemed 2/7/00, Amendment Capital Trust, dated February No. 2 7, 2000 4.4 Indenture, dated as of February Form 10-K 4.4 24, 2004 between Roto-Rooter, Inc. 3/12/04 and LaSalle Bank National Association 4.5 Indenture, dated as of February Form 10-K 4.5 24, 2004 among Roto-Rooter, Inc., 3/12/04 the subsidiary guarantors listed on Schedule I thereto and Wells Fargo Bank, N.A. 10.1 Agreement and Plan of Merger Form 8-K 1 among Diversey U.S. Holdings, 3/11/91 Inc., D.C. Acquisition Inc., Chemed Corporation and DuBois Chemicals, Inc., dated as of February 25, 1991

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Page Number or Incorporation by Reference -------------------------------- Exhibit File No. and Previous Number Filing Date Exhibit No. ------- ------------ ----------- 10.2 Stock Purchase Agreement between Form 10-K 5 Omnicare, Inc. and Chemed 3/25/93 Corporation dated as of August 5, 1992 10.3 Agreement and Plan of Merger Form 8-K 1 among National Sanitary 10/13/97 Supply Company, Unisource Worldwide, Inc. and TFBD, Inc. 10.4 Stock Purchase Agreement dated Form 8-K 2.1 as of May 8, 2002 by and between 10/11/02 PCI Holding Corp. and Chemed Corporation 10.5 Amendment No. 1 to Stock Purchase Form 8-K 2.2 Agreement dated as of October 11, 10/11/02 2002 by and among PCI Holding Corp., PCI-A Holding Corp. and Chemed Corporation 10.6 Senior Subordinated Promissory Form 8-K 2.3 Note dated as of October 11, 2002 10/11/02 by and among PCI Holding Corp. and Chemed Corporation 10.7 Common Stock Purchase Warrant Form 8-K 2.4 dated as of October 11, 2002 by 10/11/02 and between PCI Holding Corp. and Chemed Corporation 10.8 1986 Stock Incentive Plan, as Form 10- K 9 amended through May 20, 1991 3/27/92, ** 10.9 1988 Stock Incentive Plan, Form 10-K 10 as amended through May 20, 1991 3/27/92, ** 10.10 1993 Stock Incentive Plan Form 10-K 10.8 3/29/94, ** 10.11 1995 Stock Incentive Plan Form 10-K 10.14 3/28/96, ** 10.12 1997 Stock Incentive Plan Form 10-K 10.10 3/27/98, **

2

Page Number or Incorporation by Reference --------------------------------- Exhibit File No. and Previous Number Filing Date Exhibit No. ------- ------------ ----------- 10.13 1999 Stock Incentive Plan Form 10-K 10.11 3/29/00, ** 10.14 1999 Long Term Employee Form 10-K 10.16 Incentive Plan as amended 3/28/03, ** through May 20, 2002 10.15 2002 Stock Incentive Plan Form 10-K 10.17 3/28/03, ** 10.16 2002 Executive Long-Term Form 10-Q 10.16 Incentive Plan, as amended 8/19/04, ** May 18, 2004 10.17 2004 Stock Incentive Plan Proxy Statement A 3/25/04 10.18 Employment Contracts with Form 10-K 10.12 Executives 3/28/89, ** 10.19 Amendment to Employment Form 10-K 10.20 Agreements with Kevin J. 3/28/03, ** McNamara, Thomas C. Hutton and Sandra E. Laney dated August 7, 2002 10.20 Amendment to Employment Form 10-K 10.21 Agreements with Timothy 3/28/03, ** S. O'Toole and Arthur V. Tucker dated August 7, 2002 10.21 Amendment to Employment Form 10-K 10.20 Agreement with Spencer S. Lee 3/12/04, ** dated May 19, 2003 10.22 Amendment to Employment Form 10-K 10.16 Agreement with Executives dated 3/28/02, ** January 1, 2002 10.23 Consulting Agreement between Form 10-K 10.26 Timothy S. O'Toole and PCI 3/28/03, ** Holding Corp effective October 11, 2002.

3

Page Number or Incorporation by Reference ----------------------------- Exhibit File No. and Previous Number Filing Date Exhibit No. ------- ------------ ----------- 10.24 Amendment No. 16 to Employment Form 10-K 10.27 Agreement with Sandra E. Laney 3/28/03, ** dated March 1, 2003 10.25 Amendment No. 16 to Employment *, ** Agreement with Kevin J. McNamara dated May 18, 2004. 10.26 Employment Agreement with David *, ** P. Williams dated May 16, 1994; Amendment dated May 21, 2001, and Amendment dated May 19, 2003. 10.27 Excess Benefits Plan, as restated Form 10-K 10.24 and amended, effective June 1, 3/12/04, ** 2001 10.28 Amendment No. 1 to Excess Benefits Form 10-K 10.25 Plan, effective July 1, 2002 3/12/04, ** 10.29 Amendment No. 2 to Excess Benefits Form 10-K 10.26 Plan, effective November 7, 2003 3/12/04, ** 10.30 Non-Employee Directors' Deferred Form 10-K 10.10 Compensation Plan 3/24/88, ** 10.31 Chemed/Roto-Rooter Savings & Form 10-K 10.25 Retirement Plan, effective 3/25/99, ** January 1, 1999 10.32 First Amendment to Chemed/ Form 10-K 10.22 Roto-Rooter Savings & Retirement 3/28/02, ** Plan effective September 6, 2000 10.33 Second Amendment to Chemed/ Form 10-K 10.23 Roto-Rooter Savings & Retirement 3/28/02, ** Plan effective January 1, 2001 10.34 Third Amendment to Chemed/ Form 10-K 10.24 Roto-Rooter Savings & Retirement 3/28/02, ** Plan effective December 12, 2001

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Page Number or Incorporation by Reference ------------------------------------- Exhibit File No. and Previous Number Filing Date Exhibit No. ------- ------------ ----------- 10.35 Stock Purchase Agreement by and Form 8-K 10.21 among Banta Corporation, Chemed 10/13/97 Corporation and OCR Holding Company 10.36 Directors Emeriti Plan Form 10-Q 10.11 5/12/88, ** 10.37 Second Amendment to Split Dollar Form 10-K 10.26 Agreement with Executives 3/29/00, ** 10.38 Split Dollar Agreements Form 10-K 10.15 with Executives 3/28/96, ** 10.39 Split Dollar Agreement with Form 10-K 10.16 Edward L. Hutton 3/28/96, ** 10.40 Promissory Note under the Form 10-K 10.41 Executive Stock Purchase Plan 3/28/01, ** with Kevin J. McNamara 10.41 Schedule to Promissory Note under *, ** the Executive Stock Purchase Plan with Kevin J. McNamara 10.42 Roto-Rooter Deferred Compensation Form 10-K 10.37 Plan No. 1, as amended January 1, 3/28/01, ** 1998 10.43 Roto-Rooter Deferred Compensation Form 10-K 10.38 Plan No. 2 3/28/01, ** 10.44 Agreement and Plan of Merger, Form 8-K 99.2 dated as of December 18, 2003, 12/19/03 among Roto-Rooter, Inc., Marlin Merger Corp. and Vitas Healthcare Corporation

5

Page Number or Incorporation by Reference ---------------------------------- Exhibit File No. and Previous Number Filing Date Exhibit No. ------- ------------------- ----------- 10.45 Credit Agreement, dated as of Form 10-K 10.46 February 24, 2004, among 3/12/04 Roto-Rooter, Inc., the lenders from time to time parties thereto and Bank One, NA, as Administrative Agent. 10.46 Amended and Restated Credit * Agreement dated as of February 24, 2005 among Chemed Corporation, the lenders from time to time, parties thereto and JP Morgan Chase Bank NA, as Administrative Agent. 10.47 Pledge and Security Agreement, Form 10-K 10.47 dated as of February 24, 2004, 3/12/04 among Roto-Rooter, Inc., the subsidiaries of Roto-Rooter, Inc. listed on the signature pages thereto and Bank One, NA, as Collateral Agent. 10.48 Guaranty Agreement, dated as of Form 10-K 10.48 February 24, 2004, among the 3/12/04 subsidiaries of Roto-Rooter, Inc. listed on the signature pages thereto and Bank One, NA, as Administrative Agent. 10.49 Collateral Sharing Agreement, Form S-2 10.49 dated as of February 24, 2004 Reg. No. 333-115668 among Bank One, NA, as Collateral 5/20/04 Agent and Administrative Agent, Wells Fargo Bank, NA as Trustee, and Roto-Rooter, Inc. 10.50 Form of Restricted Stock Award *, ** 10.51 Form of Stock Option Grant. *, ** 12 Computation of Ratio of Earnings to Fixed Charges * 13 2004 Annual Report to Stockholders * 14 Policies on Business Ethics of Form 10-K 14 Chemed Corporation 3/12/04 21 Subsidiaries of Chemed Corporation *

6

Page Number or Incorporation by Reference ----------------------------- Exhibit File No. and Previous Number Filing Date Exhibit No. ------- ------------ ----------- 23 Consent of Independent Registered Public Accounting Firm * 24 Powers of Attorney * 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

-------------------- * Filed herewith. **Management contract or compensatory plan or arrangement. 7