UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

(Mark One)

x    Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended June 30, 2014

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

Commission File Number: 1-8351

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

Delaware	31-0791746	
(State or other jurisdiction of incorporation or
organization)	(IRS Employer Identification No.)	
 	 	
255 E. Fifth Street, Suite 2600, Cincinnati, Ohio	45202	
(Address of principal executive offices)	(Zip code)	
 	
(513) 762-6500
(Registrant’s telephone number, including area code)	

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

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

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

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

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

Class	 	Amount	 	Date	
 	 	 	 	 	
Capital Stock $1 Par Value	 	17,287,284 Shares	 	June 30, 2014	

 

 
 
-1-

 

CHEMED CORPORATION AND
SUBSIDIARY COMPANIES

Index

 	Page No.	
PART I.    FINANCIAL INFORMATION:	 	
Item 1.  Financial Statements	 	
Unaudited Consolidated Balance Sheet -	 	
June 30, 2014 and December 31, 2013	3	
 	 	
Unaudited Consolidated Statement of Income -	 	
Three and six months ended June 30, 2014 and 2013	4	
 	 	
Unaudited Consolidated Statement of Cash Flows -	 	
Six months ended June 30, 2014 and 2013	5	
 	 	
Notes to Unaudited Consolidated Financial Statements	6	
 	 	
Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations	15	
 	 	
Item 3.  Quantitative and Qualitative Disclosures about Market Risk	31	
 	 	
Item 4.  Controls and Procedures	31	
 	 	
PART II.   OTHER INFORMATION	 	
Item 1.    Legal Proceedings	31	
 	 	
Item 1A. Risk Factors	31	
 	 	
Item 2.    Unregistered Sales of Equity Securities and Use of  Proceeds	32	
 	 	
Item 3.    Defaults Upon Senior Securities	32	
 	 	
Item 4.    Mine Safety Disclosures	32	
 	 	
Item 5.    Other Information	32	
 	 	
Item 6.    Exhibits	33	
EX – 31.1	 	
EX – 31.2	 	
EX – 31.3	 	
EX – 32.1	 	
EX – 32.2	 	
EX – 32.3	 	
EX – 101.INS	 	
EX – 101.SCH	 	
EX – 101.CAL	 	
EX – 101.DEF	 	
EX – 101.LAB	 	
EX – 101.PRE	 	

-2-

 

PART I. FINANCIAL INFORMATION	
Item 1. Financial Statements	
CHEMED CORPORATION AND SUBSIDIARY COMPANIES	
UNAUDITED CONSOLIDATED BALANCE SHEET	
(in thousands, except share and per share data)	

 	 	 	 	 	 	 	
 	 	June 30, 2014	 	December 31, 2013	
ASSETS	 	 	 	 	 	 	
Current assets	 	 	 	 	 	 	
Cash and cash equivalents	 	$	27,913	 	 	$	84,418	 	
Accounts receivable less allowances of $13,997 (2013 - $12,590)	 	 	92,152	 	 	 	91,770	 	
Inventories	 	 	6,856	 	 	 	6,703	 	
Current deferred income taxes	 	 	13,459	 	 	 	20,257	 	
Prepaid income taxes	 	 	4,001	 	 	 	3,690	 	
Prepaid expenses	 	 	21,119	 	 	 	17,818	 	
Total current assets	 	 	165,500	 	 	 	224,656	 	
Investments of deferred compensation plans	 	 	47,314	 	 	 	42,465	 	
Properties and equipment, at cost, less accumulated depreciation of $188,462 (2013 - $180,550)	 	 	97,206	 	 	 	92,955	 	
Identifiable intangible assets less accumulated amortization of $32,513 (2013 - $32,055)	 	 	56,288	 	 	 	56,556	 	
Goodwill	 	 	466,867	 	 	 	466,871	 	
Other assets	 	 	8,420	 	 	 	10,198	 	
Total Assets	 	$	841,595	 	 	$	893,701	 	
 	 	 	 	 	 	 	 	 	
LIABILITIES	 	 	 	 	 	 	 	 	
Current liabilities	 	 	 	 	 	 	 	 	
Accounts payable	 	$	35,013	 	 	$	41,758	 	
Current portion of long-term debt	 	 	5,000	 	 	 	183,564	 	
Income taxes	 	 	6,029	 	 	 	111	 	
Accrued insurance	 	 	40,164	 	 	 	41,859	 	
Accrued compensation	 	 	42,527	 	 	 	48,323	 	
Accrued legal	 	 	7,429	 	 	 	23,210	 	
Other current liabilities	 	 	20,511	 	 	 	25,161	 	
Total current liabilities	 	 	156,673	 	 	 	363,986	 	
Deferred income taxes	 	 	27,270	 	 	 	27,301	 	
Long-term debt	 	 	155,000	 	 	 	-	 	
Deferred compensation liabilities	 	 	46,917	 	 	 	42,348	 	
Other liabilities	 	 	11,251	 	 	 	11,176	 	
Total Liabilities	 	 	397,111	 	 	 	444,811	 	
Commitments and contingencies	 	 	 	 	 	 	 	 	
STOCKHOLDERS' EQUITY	 	 	 	 	 	 	 	 	
Capital stock - authorized 80,000,000 shares $1 par; issued 32,980,045 shares (2013 - 32,245,226 shares)	 	 	32,980	 	 	 	32,245	 	
Paid-in capital	 	 	511,794	 	 	 	481,011	 	
Retained earnings	 	 	724,295	 	 	 	686,114	 	
Treasury stock - 15,791,322 shares (2013 - 14,660,427)	 	 	(826,802	)	 	 	(752,634	)	
Deferred compensation payable in Company stock	 	 	2,217	 	 	 	2,154	 	
Total Stockholders' Equity	 	 	444,484	 	 	 	448,890	 	
Total Liabilities and Stockholders' Equity	 	$	841,595	 	 	$	893,701	 	

See accompanying notes to unaudited consolidated financial statements.	

-3-

 

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

 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three Months Ended June 30,	 	Six Months Ended June 30,	
 	 	2014	 	2013	 	2014	 	2013	
Service revenues and sales	 	$	360,182	 	 	$	357,198	 	 	$	718,482	 	 	$	723,839	 	
Cost of services provided and goods sold (excluding depreciation)	 	 	257,007	 	 	 	255,359	 	 	 	514,826	 	 	 	519,666	 	
Selling, general and administrative expenses	 	 	53,649	 	 	 	53,107	 	 	 	109,320	 	 	 	108,667	 	
Depreciation	 	 	7,272	 	 	 	6,899	 	 	 	14,421	 	 	 	13,694	 	
Amortization	 	 	735	 	 	 	1,181	 	 	 	1,744	 	 	 	2,308	 	
Other operating expenses	 	 	-	 	 	 	14,760	 	 	 	-	 	 	 	14,760	 	
Total costs and expenses	 	 	318,663	 	 	 	331,306	 	 	 	640,311	 	 	 	659,095	 	
Income from operations	 	 	41,519	 	 	 	25,892	 	 	 	78,171	 	 	 	64,744	 	
Interest expense	 	 	(2,429	)	 	 	(3,697	)	 	 	(6,244	)	 	 	(7,791	)	
Other income - net	 	 	756	 	 	 	1,696	 	 	 	1,572	 	 	 	3,402	 	
Income before income taxes	 	 	39,846	 	 	 	23,891	 	 	 	73,499	 	 	 	60,355	 	
Income taxes	 	 	(15,483	)	 	 	(9,283	)	 	 	(28,562	)	 	 	(23,469	)	
Net income	 	$	24,363	 	 	$	14,608	 	 	$	44,937	 	 	$	36,886	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings Per Share	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	$	1.41	 	 	$	0.79	 	 	$	2.59	 	 	$	1.99	 	
Average number of shares outstanding	 	 	17,236	 	 	 	18,606	 	 	 	17,374	 	 	 	18,564	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Diluted Earnings Per Share	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	$	1.36	 	 	$	0.77	 	 	$	2.48	 	 	$	1.94	 	
Average number of shares outstanding	 	 	17,880	 	 	 	18,966	 	 	 	18,097	 	 	 	18,980	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash Dividends Per Share	 	$	0.20	 	 	$	0.18	 	 	$	0.40	 	 	$	0.36	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
See accompanying notes to unaudited consolidated financial statements.	

-4-

 

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

 	 	Six Months Ended June 30,	
 	 	2014	 	2013	
Cash Flows from Operating Activities	 	 	 	 	 	 	
Net income	 	$	44,937	 	 	$	36,886	 	
Adjustments to reconcile net income to net cash provided	 	 	 	 	 	 	 	 	
by operating activities:	 	 	 	 	 	 	 	 	
Depreciation and amortization	 	 	16,165	 	 	 	16,002	 	
Deferred income taxes	 	 	6,180	 	 	 	(5,375	)	
Provision for uncollectible accounts receivable	 	 	6,449	 	 	 	5,432	 	
Amortization of discount on convertible notes	 	 	3,392	 	 	 	4,264	 	
Stock option expense	 	 	2,453	 	 	 	3,103	 	
Amortization of debt issuance costs	 	 	564	 	 	 	1,097	 	
Noncash long-term incentive compensation	 	 	986	 	 	 	1,106	 	
Changes in operating assets and liabilities, excluding	 	 	 	 	 	 	 	 	
amounts acquired in business combinations:	 	 	 	 	 	 	 	 	
Decrease/(increase) in accounts receivable	 	 	(6,782	)	 	 	11,745	 	
Decrease/(increase) in inventories	 	 	(153	)	 	 	902	 	
Increase in prepaid expenses	 	 	(3,301	)	 	 	(2,017	)	
Increase/(decrease) in accounts payable and other current liabilities	 	 	(33,584	)	 	 	14,721	 	
Increase/(decrease) in income taxes	 	 	7,224	 	 	 	(409	)	
Increase in other assets	 	 	(2,748	)	 	 	(4,914	)	
Increase in other liabilities	 	 	4,644	 	 	 	4,401	 	
Excess tax benefit on share-based compensation	 	 	(1,866	)	 	 	(2,478	)	
Other sources	 	 	553	 	 	 	200	 	
Net cash provided by operating activities	 	 	45,113	 	 	 	84,666	 	
Cash Flows from Investing Activities	 	 	 	 	 	 	 	 	
Capital expenditures	 	 	(19,454	)	 	 	(12,200	)	
Business combinations, net of cash acquired	 	 	(250	)	 	 	(1,501	)	
Other sources	 	 	192	 	 	 	101	 	
Net cash used by investing activities	 	 	(19,512	)	 	 	(13,600	)	
Cash Flows from Financing Activities	 	 	 	 	 	 	 	 	
Repayment of convertible notes	 	 	(186,956	)	 	 	-	 	
Proceeds from issuance of term loan	 	 	100,000	 	 	 	-	 	
Proceeds from revolving line of credit	 	 	245,500	 	 	 	-	 	
Payments on revolving line of credit	 	 	(185,500	) 	 	 	-	 	
Purchases of treasury stock	 	 	(58,493	)	 	 	(18,448	)	
Dividends paid	 	 	(6,757	)	 	 	(6,775	)	
Capital stock surrendered to pay taxes on stock-based compensation	 	 	(3,543	)	 	 	(4,269	)	
Retirement of warrants	 	 	(2,645	)	 	 	-	 	
Proceeds from exercise of stock options	 	 	16,092	 	 	 	12,558	 	
Excess tax benefit on share-based compensation	 	 	1,866	 	 	 	2,478	 	
Decrease in cash overdrafts payable	 	 	(479	)	 	 	(11,608	)	
Debt issuance costs	 	 	(939	)	 	 	(1,104	)	
Other uses	 	 	(252	)	 	 	(382	)	
Net cash used by financing activities	 	 	(82,106	)	 	 	(27,550	)	
Increase/(Decrease) in Cash and Cash Equivalents	 	 	(56,505	)	 	 	43,516	 	
Cash and cash equivalents at beginning of year	 	 	84,418	 	 	 	69,531	 	
Cash and cash equivalents at end of period	 	$	27,913	 	 	$	113,047	 	
 	 	 	 	 	 	 	 	 	
See accompanying notes to unaudited consolidated financial statements.	

-5-

 
 
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
Notes to Unaudited Consolidated Financial Statements
 
1.   Basis of Presentation

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

We have prepared the accompanying unaudited consolidated financial statements of Chemed in accordance with Rule 10-01 of SEC Regulation S-X.  Consequently, we have omitted certain disclosures required under generally accepted accounting principles in the United States (“GAAP”) for complete financial statements. The December 31, 2013 balance sheet data were derived from audited financial statements but do not include all disclosures required by GAAP.  However, in our opinion, the financial statements presented herein contain all adjustments, consisting only of normal recurring adjustments, necessary to state fairly our financial position, results of operations and cash flows.  These financial statements are prepared on the same basis as and should be read in conjunction with the audited Consolidated Financial Statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2013.

2.   Revenue Recognition

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

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

During the three and six month periods ended June 30, 2014, we reversed Medicare cap liability for amounts recorded in the fourth of 2013 for two programs’ projected 2014 measurement period liability.  We reversed these amounts as improving admissions trends in these programs indicate that the liability had been eliminated for one program and partially eliminated for the other program.  During the second quarter of 2014 this reversal was partially offset by a $406,000 Medicare cap liability for one program’s projected 2014 measurement period liability.

During the second quarter of 2014, we received notice from a third party intermediary for amounts accrued related to the 2013 measurement period. As a result we repaid $3.4 million.

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

 	 	June 30,	
 	 	2014	 	2013	
Beginning balance January 1,	 	$	8,260	 	 	$	1,261	 	
2014 measurement period	 	 	(704	)	 	 	-	 	
2013 measurement period	 	 	-	 	 	 	(18	)	
Payments	 	 	(3,439	)	 	 	-	 	
Ending balance June 30,	 	$	4,117	 	 	$	1,243	 	

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

-6-

 
 
Three months ended June 30,	 	Six months ended June 30,	
2014	 	2013	 	2014	 	2013	
$	1,931	 	 	$	1,955	 	 	$	3,630	 	 	$	3,884	 	

3.   Segments

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

 	 	Three months ended June 30,	 	Six months ended June 30,	
 	 	2014	 	2013	 	2014	 	2013	
Service Revenues and Sales	 	 	 	 	 	 	 	 	 	 	 	 	
VITAS	 	$	264,026	 	 	$	263,568	 	 	$	524,438	 	 	$	534,895	 	
Roto-Rooter	 	 	96,156	 	 	 	93,630	 	 	 	194,044	 	 	 	188,944	 	
Total	 	$	360,182	 	 	$	357,198	 	 	$	718,482	 	 	$	723,839	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
After-tax Earnings	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
VITAS	 	$	20,892	 	 	$	20,485	 	 	$	39,051	 	 	$	40,628	 	
Roto-Rooter	 	 	10,719	 	 	 	1,414	 	 	 	20,751	 	 	 	11,038	 	
Total	 	 	31,611	 	 	 	21,899	 	 	 	59,802	 	 	 	51,666	 	
Corporate	 	 	(7,248	)	 	 	(7,291	)	 	 	(14,865	)	 	 	(14,780	)	
Net income	 	$	24,363	 	 	$	14,608	 	 	$	44,937	 	 	$	36,886	 	

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

4.  Earnings per Share

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

 	 	 	 	Net Income	 	
For the Three Months Ended June 30,	 	Income	 	 	Shares	 	Earnings per
Share	 	
2014	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Earnings	 	$	 24,363	 	 	 	 17,236	 	 	$	 1.41	 	
 	Dilutive stock options	 	 	 -	 	 	 	 376	 	 	 	 	 	
 	Nonvested stock awards	 	 	 -	 	 	 	 147	 	 	 	 	 	
 	Conversion of Notes	 	 	 -	 	 	 	 121	 	 	 	 	 	
 	Diluted earnings	 	$	 24,363	 	 	 	 17,880	 	 	$	 1.36	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
2013	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Earnings	 	$	 14,608	 	 	 	 18,606	 	 	$	 0.79	 	
 	Dilutive stock options	 	 	 -	 	 	 	 267	 	 	 	 	 	
 	Nonvested stock awards	 	 	 -	 	 	 	 93	 	 	 	 	 	
 	Diluted earnings	 	$	 14,608	 	 	 	 18,966	 	 	$	 0.77	 	

-7-

 

 	 	 	 	Net Income	
For the Six Months Ended June 30,	 	Income	 	 	Shares	 	Earnings per
Share	
2014	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Earnings	 	$	 44,937	 	 	 	 17,374	 	 	$	 2.59	 	
 	Dilutive stock options	 	 	 -	 	 	 	 374	 	 	 	 	 	
 	Nonvested stock awards	 	 	 -	 	 	 	 147	 	 	 	 	 	
 	Conversion of Notes	 	 	 -	 	 	 	 202	 	 	 	 	 	
 	Diluted earnings	 	$	 44,937	 	 	 	 18,097	 	 	$	 2.48	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
2013	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Earnings	 	$	 36,886	 	 	 	 18,564	 	 	$	 1.99	 	
 	Dilutive stock options	 	 	 -	 	 	 	 316	 	 	 	 	 	
 	Nonvested stock awards	 	 	 -	 	 	 	 100	 	 	 	 	 	
 	Diluted earnings	 	$	 36,886	 	 	 	 18,980	 	 	$	 1.94	 	

For the three and six-month periods ended June 30, 2014, no stock options were excluded from the computation of diluted earnings per share because they would have been anti-dilutive. For the three and six-month periods ended June 30, 2013, 31,000 stock options were excluded from the computation of diluted earnings per share.

Diluted earnings per share was impacted by the issuance of 249,000 shares of capital stock under the conversion feature of our 1.875% Senior Convertible Notes (the “Notes”) on May 15, 2014.  Assuming these shares were issued April 1, 2014 increases average diluted shares outstanding for the second quarter of 2014 by 121,000 shares.  Similarly, the dilutive impact of this conversion feature for the first six months of 2014 was 202,000 shares.

5.   Long-Term Debt

On May 15, 2014, we retired our Senior Convertible Notes (the “Notes”) outstanding.  We paid the $187.0 million of principal outstanding using a combination of cash on-hand and our existing revolving credit facility.  In addition, we issued 249,000 Chemed shares in conjunction with the conversion feature of the Notes.  At the time we issued the Notes, we also entered into a purchased call transaction to offset any potential economic dilution resulting from the conversion feature in the Notes.  As a result, we received 266,000 Chemed shares from the exercise of the purchased call transaction.  The issuance of shares under the conversion feature of the Notes, as well as the receipt of shares from the purchased call transaction were recorded as adjustments to paid in capital during the quarter ended June 30, 2014.
 
At the time we issued the Notes, we also sold warrants for the right to purchase approximately 2,477,000 Chemed shares in the future.  During the quarter ended June 30, 2014, we settled these warrants with one counterparty representing half of the total warrants issued for $2.6 million.  The amount paid was recorded as an adjustment to paid in capital.   The remaining half of the sold warrants remain outstanding and mature ratably from August 15 through December 15, 2014.   If our average stock price per share exceeds $102.20, these warrants will be dilutive on our outstanding share count.

On June 30, 2014, we replaced our existing credit agreement with the Third Amended and Restated Credit Agreement (“2014 Credit Agreement”).  Terms of the 2014 Credit Agreement consist of a five-year, $350 million revolving credit facility and a $100 million term loan.  The 2014 Credit Agreement currently has a floating interest rate that is currently LIBOR plus 125 basis points.

The debt outstanding consists of the following:

Revolver	 	$	60,000,000	 	
Term loan	 	 	100,000,000	 	
Total	 	 	160,000,000	 	
Current portion of term loan	 	 	(5,000,000	)	
Long-term debt	 	$	155,000,000	 	

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Scheduled principal payments of the term loan are as follows:

2014	 	$	2,500,000	 	
2015	 	 	6,250,000	 	
2016	 	 	7,500,000	 	
2017	 	 	8,750,000	 	
2018	 	 	10,000,000	 	
2019	 	 	65,000,000	 	
 	 	$	100,000,000	 	

Debt issuance costs associated with the existing credit agreement were not written-off as the lenders and their relative percentage participation in the facility did not change. With respect to the 2014 Credit Agreement, deferred financing costs were $0.9 million.  The 2014 Credit Agreement contains the following quarterly financial covenants:

Description	 	Requirement	
 	 	 	
Leverage Ratio (Consolidated Indebtedness/Consolidated  Adj. EBITDA)	 	< 3.50 to 1.00	
 	 	 	
Fixed Charge Coverage Ratio (Consolidated Free Cash Flow/Consolidated Fixed Charges)	 	> 1.50 to 1.00	
 	 	 	
Annual Operating Lease Commitment	 	< $50.0 million	

We are in compliance with all debt covenants as of June 30, 2014. We have issued $36.9 million in standby letters of credit as of June 30, 2014 for insurance purposes.  Issued letters of credit reduce our available credit under the 2014 Credit Agreement.  As of June 30, 2014, we have approximately $253.1 million of unused lines of credit available and eligible to be drawn down under our revolving credit facility.

6.   Other Income – Net

Other income -- net comprises the following (in thousands):
 
 	 	Three months ended June 30,	 	Six months ended June 30,	
 	 	2014	 	2013	 	2014	 	2013	
Market value gains on assets held in deferred	 	 	 	 	 	 	 	 	 	 	 	 	
compensation trust	 	$	650	 	 	$	1,063	 	 	$	1,812	 	 	$	2,535	 	
Loss on disposal of property and equipment	 	 	(48	)	 	 	(1	)	 	 	(326	)	 	 	(79	)	
Interest income - net	 	 	58	 	 	 	670	 	 	 	8	 	 	 	973	 	
Other - net	 	 	96	 	 	 	(36	)	 	 	78	 	 	 	(27	)	
Total other income - net	 	$	756	 	 	$	1,696	 	 	$	1,572	 	 	$	3,402	 	

 7.   Stock-Based Compensation Plans

On February 21, 2014, the Compensation/Incentive Committee of the Board of Directors (“CIC”) granted 10,340 Performance Stock Units (“PSUs”) contingent upon the achievement of certain total shareholders return (“TSR”) targets as compared to the TSR of a group of peer companies for the three-year period ending December 31, 2016, the date at which such awards may vest.  The cumulative compensation cost of the TSR-based PSUs award to be recorded over the three year service period is $1.2 million.

On February 21, 2014, the CIC also granted 14,061 PSUs contingent upon the achievement of certain earnings per share (“EPS”) targets for the three-year period ending December 31, 2016.  At the end of each reporting period, the Company estimates the number of shares that it believes will ultimately be earned and records that expense over the service period of the award.  We currently estimate the cumulative compensation cost of the EPS-based PSUs to be recorded over the three year service period is $1.2 million.

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8.   Independent Contractor Operations

The Roto-Rooter segment sublicenses with 68 independent contractors to operate certain plumbing repair and drain cleaning businesses in lesser-populated areas of the United States and Canada.  We had notes receivable from our independent contractors as of June 30, 2014 totaling $1.5 million (December 31, 2013 - $1.5 million).  In most cases these loans are fully or partially secured by equipment owned by the contractor.  The interest rates on the loans range from 0% to 8% per annum and the remaining terms of the loans range from 2 months to 5 years at June 30, 2014.  We recorded the following from our independent contractors (in thousands):
 
 	Three months ended June 30,	 	Six months ended June 30,	
 	2014	 	2013	 	2014	 	2013	
Revenues	$ 	9,190	 	 	$	8,154	 	 	$	18,213	 	 	$	16,364	 	
Pretax profits	 	5,235	 	 	 	4,513	 	 	 	10,395	 	 	 	8,771	 	

9.   Retirement Plans

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

Three months ended June 30,	 	Six months ended June 30,	
2014	 	2013	 	2014	 	2013	
$	3,324	 	 	$	3,402	 	 	$	7,222	 	 	$	7,698	 	

10.  Legal and Regulatory Matters

The VITAS segment of the Company’s business operates in a heavily-regulated industry.  As a result, the Company is subjected to inquiries and investigations by various government agencies, as well as to lawsuits, including  qui tam  actions.  The following sections describe the various ongoing material lawsuits and investigations of which the Company is currently aware.  It is not possible at this time for us to estimate either the timing or outcome of any of those matters, or whether any potential loss, or range of potential losses, is probable or estimable.

Regulatory Matters and Litigation
On January 12, 2012, a putative class action lawsuit was filed in the U.S. District Court for the Southern District of Ohio against the Company, Kevin McNamara, David Williams, and Timothy O’Toole,  In re Chemed Corp. Securities Litigation , Civil Action No. 1:12-cv-28 (S.D. Ohio).  On June 18, 2012, an amended complaint was filed alleging violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 against all Defendants, and violation of Section 20(a) of the Securities Exchange Act of 1934 against Messrs. McNamara, Williams, and O’Toole.  The suit’s allegations concerned the VITAS hospice segment of the Company’s business.  Plaintiffs sought, on behalf of a putative class of purchasers of Chemed Capital Stock, compensatory damages in an unspecified amount and attorneys’ fees and expenses, arising from Defendants’ alleged failure to disclose an alleged fraudulent scheme at VITAS to enroll ineligible hospice patients and to fraudulently obtain payments from the federal government.  Defendants filed motions to dismiss the amended complaint on August 17, 2012, which were pending when the parties reached an agreement to settle the action.  On June 7, 2013, following the filing of U.S. v. VITAS, discussed below, Plaintiffs filed a motion for leave to file a second amended complaint.  Defendants opposed this motion.  On September 16, 2013, Plaintiffs executed a Settlement Term Sheet with Defendants, reaching an agreement in principle to settle this case subject to Court approval.  On February 6, 2014, Plaintiffs, on behalf of a putative class of purchasers of Chemed Capital Stock between February 15, 2010 and May 2, 2013, inclusive, executed a stipulation of settlement with defendants, agreeing to settle this case in full and with prejudice, and to provide Defendants with full releases of all claims that are or could have been asserted by Plaintiffs in exchange for payment of $6.0 million by our insurer into a settlement fund for the benefit of the putative settlement class (“Settlement”).  The Settlement has been recorded as accrued legal and offsetting prepaid expenses in the accompanying Consolidated Balance Sheet. This Settlement received preliminary Court approval on March 27, 2014 and was approved on July 15, 2014, resulting in the dismissal of the case.  Defendants agreed to enter into this Settlement in order to eliminate the burden, expense and distraction of further litigation.

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In June 2011, the U.S. Attorney provided the Company with a partially unsealed qui tam complaint filed under seal in the U.S. District Court for the Western District of Texas,   United States, et al. ex rel. Urick v. VITAS HME Solutions, Inc. et al. , 5:08-cv-0663 (“ Urick ”).  The U.S. Attorney filed a notice in May 2012 stating that it had decided not to intervene in the case at that time but indicating that it continues to investigate the allegations.  In June 2012, the complaint was unsealed.  The complaint asserts violations of the federal False Claims Act and the Texas Medicaid Fraud Prevention Act based on allegations of a conspiracy to submit to Medicare and Medicaid false claims involving hospice services for ineligible patients, unnecessary medical supplies, failing to satisfy certain prerequisites for payment, and altering patient records, including backdating patient revocations.  The suit was brought by Barbara Urick, a registered nurse in VITAS’s San Antonio program, against VITAS, certain of its affiliates, and several former VITAS employees, including physicians Justo Cisneros and Antonio Cavasos and nurses Sally Schwenk, Diane Anest, and Edith Reed.  In September 2012 and July 2013, the plaintiff dismissed all claims against the individual defendants.  The complaint was served on the VITAS entities on April 12, 2013.

Also in June 2011, the U.S. Attorney provided the Company with a partially unsealed qui tam complaint filed under seal in the U.S. District Court for the Northern District of Illinois,  United States, et al. ex rel. Spottiswood v. Chemed Corp. , 1:07-cv-4566 (“ Spottiswood ”).  In April 2012, the complaint was unsealed.  The U.S. Attorney and Attorney General for the State of Illinois filed notices in April and May 2012, respectively, stating that they had decided not to intervene in the case at that time but indicating that they continue to investigate the allegations.  Plaintiff filed an amended complaint in November 2012.  The complaint asserts violations of the federal False Claims Act and the Illinois Whistleblower Reward and Protection Act based on allegations that VITAS fraudulently billed Medicare and Medicaid for providing unwarranted continuous care services.  The suit was brought by Laura Spottiswood, a former part-time pool registered nurse at VITAS, against Chemed, VITAS, and a VITAS affiliate.  The complaint was served on the defendants on April 12, 2013.  On May 29 and June 4, 2013, respectively, the Court granted the government’s motion to partially intervene in  Spottiswood  and in  Urick  on the allegations that VITAS submitted or caused to be submitted false or fraudulent claims for continuous care and routine home care on behalf of certain ineligible Medicare beneficiaries.  The Court also transferred them to the U.S. District Court for the Western District of Missouri under docket Nos. 4:13-cv-505 and 4:13-cv-563, respectively.

On May 2, 2013, the government filed a False Claims Act complaint against the Company and certain of its hospice-related subsidiaries in the U.S. District Court for the Western District of Missouri,  United States v. VITAS Hospice Services, LLC, et al. , No. 4:13-cv-00449-BCW (the “2013 Action”).  Prior to that date, the Company received various subpoenas from the U.S. Department of Justice and OIG that have been previously disclosed.  The 2013 Action alleges that, since at least 2002, VITAS, and since 2004, the Company, submitted or caused the submission of false claims to the Medicare program by (a) billing Medicare for continuous home care services when the patients were not eligible, the services were not provided, or the medical care was inappropriate, and (b) billing Medicare for patients who were not eligible for the Medicare hospice benefit because they did not have a life expectancy of six months or less if their illnesses ran their normal course.  This complaint seeks treble damages, statutory penalties, and the costs of the action, plus interest.  On August 1, 2013, the government filed its First Amended Complaint in the 2013 Action.  The First Amended Complaint changed and supplemented some of the allegations, but did not otherwise expand the causes of action or the nature of the relief sought against VITAS.  The defendants filed a motion to dismiss on September 24, 2013.  

On May 6, 2013, the U.S. District Court for the Western District of Missouri, at the request of the government, unsealed a  qui tam  complaint against VITAS and VITAS Healthcare Corporation of California,  United States ex rel. Charles Gonzales v. VITAS Healthcare Corporation, et al . ,  CV 12-0761-R (“ Gonzales ”).  The case was transferred from the Central District of California to the Western District of Missouri under docket No. 4:13-cv-344.  The government partially intervened in  Gonzales .  The  Gonzales  complaint alleges that VITAS’ Los Angeles program falsely certified and recertified patients as eligible for the Medicare Hospice Benefit.  It alleges violations of the False Claims Act and seeks treble damages, civil penalties, recovery of costs, attorneys’ fees and expenses, and pre- and post-judgment interest.  

On September 25, 2013, the Court granted a joint motion by the government, the relators, and VITAS to consolidate the Spottiswood ,   Urick , and   Gonzales  complaints with the 2013 Action.  As a result, the First Amended Complaint will govern the consolidated federal claims brought by the United States and the relators for all purposes.  The relators and VITAS have stipulated that certain non-intervened claims will not be pursued by the relators.  The Spottiswood relator filed an action under the Illinois False Claims Act,  The State of Illinois ex rel. Laura Spottiswood v. Chemed Corporation , et al., No. 14 L 2786 in the Circuit Court of Cook County, Illinois on March 6, 2014.  The Court granted the parties’ joint motion to place this case on its stay calendar, pending resolution of the 2013 Action.

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VITAS has also received document subpoenas in related state matters.  In February 2010, VITAS received a civil investigative demand (“CID”) from the Texas Attorney General seeking documents from January 1, 2002 through the date of the CID, and interrogatory responses in connection with an investigation of possible fraudulent submission of Medicaid claims for non-qualifying patients and fraudulent shifting of costs from VITAS to the State of Texas and the United States.  The CID requested similar information sought by prior Department of Justice subpoenas, including policy and procedure manuals and information concerning Medicare and Medicaid billing, patient statistics and sales and marketing practices, together with information concerning record-keeping and retention practices, and medical records concerning 117 patients.  In September 2010, VITAS received a second CID from the Texas Attorney General seeking additional documents concerning business plans and results, revocation forms for certain patients, and electronic documents of 10 current and former employees.  In July 2012, VITAS received an investigative subpoena from the Florida Attorney General seeking documents previously produced in the course of prior government investigations as well as, for the period January 1, 2007 through the date of production, billing records and procedures; information concerning business results, plans, and strategies; documents concerning patient eligibility for hospice care; and certain information concerning employees and their compensation.

The net costs incurred related to U.S. v. Vitas and related regulatory matters were $410,000 and $1.0 million for the three months ended June 30, 2014 and 2013, respectively.  For the six months ended June 30, 2014 and 2013, the net costs were $1.2 million and $2.0 million respectively.

In November 2013, two shareholder derivative lawsuits were filed against the Company’s current and former directors, as well as certain of its officers, both of which are covered by the Company’s commercial insurance.  On November 6, 2013, KBC Asset Management NV filed suit in the United States District Court for the District of Delaware, KBC Asset Management NV, derivatively on behalf of Chemed Corp. v. McNamara, et al. , No. 13 Civ. 1854 (LPS) (D. Del.).  It sued Kevin McNamara, Joel Gemunder, Patrick Grace, Thomas Hutton, Walter Krebs, Andrea Lindell, Thomas Rice, Donald Saunders, Arthur Tucker, Jr., George Walsh III, Frank Wood, Timothy O’Toole, David Williams and Ernest Mrozek, together with the Company as nominal defendant.  Plaintiff alleges that since at least 2004, Chemed, through VITAS, has submitted or caused the submission of false claims to Medicare.  The suit alleges a claim for breach of fiduciary duty against the individual defendants, and seeks (a) a declaration that the individual defendants breached their fiduciary duties to the Company; (b) an order requiring those defendants to pay compensatory damages, restitution and exemplary damages, in unspecified amounts, to the Company; (c) an order directing the Company to implement new policies and procedures; and (d) costs and disbursements incurred in bringing the action, including attorneys’ fees.

On November 14, 2013, Mildred A. North filed suit in the United States District Court for the Southern District of Ohio, North, derivatively on behalf of Chemed Corp. v. Kevin McNamara, el al. , No. 13 Civ. 833 (MDB) (S.D. Ohio).  She sued Kevin McNamara, David Williams, Timothy O’Toole, Joel Gemunder, Patrick Grace, Walter Krebs, Andrea Lindell, Thomas Rice, Donald Saunders, George Walsh III, Frank Wood and Thomas Hutton, together with the Company as nominal defendant.  Plaintiff alleges that, between February 2010 and the present, the individual defendants breached their fiduciary duties as officers and directors of Chemed by, among other things, (a) allegedly causing VITAS to submit improper and ineligible claims to Medicare and Medicaid; and (b) allegedly misrepresenting the state of Chemed’s internal controls.  The suit alleges claims for breach of fiduciary duty, abuse of control and gross mismanagement against the individual defendants.  The complaint also alleges unjust enrichment and insider trading against Messrs. McNamara, Williams and O’Toole.  Plaintiff seeks (a) a declaration that the individual defendants breached their fiduciary duties to the Company; (b) an order requiring those defendants to pay compensatory damages, restitution and exemplary damages, in unspecified amounts, to the Company; (c) an order directing the Company to implement new policies and procedures; and (d) costs and disbursements incurred in bringing the action, including attorneys’ fees.

On December 20, 2013, Plaintiff in the North action filed a motion before the Judicial Panel on Multidistrict Litigation seeking centralized treatment of her action and the  KBC  action in the U.S. District Court for the Southern District of Ohio.  Defendants in both cases, as well as Plaintiff KBC, opposed that motion, consistent with Chemed’s By-law 8.07, which requires all derivative suits brought in Chemed’s name to proceed in federal or state court in Delaware.  The MDL Panel denied the motion on April 2, 2014.  On January 29, 2014 Defendants filed motions to transfer North  to Delaware under 28 U.S.C § 1404 and to stay the case until after resolution of that motion and the MDL motion.  Defendants have moved to dismiss the  KBC  complaint for failure to plead demand futility and for failure to state a claim.

The Company intends to defend vigorously against the allegations in each of the above lawsuits.  Regardless of the outcome of any of the preceding matters, responding to the subpoenas and dealing with the various regulatory agencies and opposing parties can adversely affect us through defense costs, potential payments, diversion of management time, and related publicity.  Although the Company intends to defend them vigorously, there can be no assurance that those suits will not have a material adverse effect on the Company.

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11.   Concentration of Risk

VITAS has pharmacy services agreements ("Agreements") with Omnicare, Inc. and its subsidiaries (“OCR”) whereby OCR provides specified pharmacy services for VITAS and its hospice patients in geographical areas served by both VITAS and OCR.  The Agreements renew automatically for three-year terms.  Either party may cancel the Agreements at the end of any term by giving 30 days prior written notice.  VITAS made purchases from OCR of $8.8 million and $9.9 million for the three months ended June 30, 2014 and 2013, respectively.  VITAS made purchases from OCR of $17.7 million and $19.5 million for the six months ended June 30, 2014 and 2013, respectively. For the three and six month periods ending June 30, 2014 and 2013, respectively, purchases from this vendor represent approximately 90% of all pharmacy services used by VITAS.

12.   Cash Overdrafts and Cash Equivalents

Included in accounts payable at June 30, 2014 is cash overdrafts payable of $327,000 (December 31, 2013 - $806,000).

From time to time throughout the year, we invest excess cash in money market funds with major commercial banks. We closely monitor the creditworthiness of the institutions with which we invest our overnight funds.  We had $59,000 in cash equivalents as of June 30, 2014.  There was $23.1 million in cash equivalents as of December 31, 2013.  The weighted average rate of return for our cash equivalents was 0.15% for June 30, 2014 and 0.08% for December 31, 2013.

13.   Financial Instruments

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

The following shows the carrying value, fair value and the hierarchy for our financial instruments as of June 30, 2014 (in thousands):
 
 	 	 	 	 	Fair Value Measure	
 	 	Carrying Value	 	Quoted Prices in
 Active Markets for
 Identical Assets
 (Level 1)	 	Significant Other
Observable Inputs
 (Level 2)	 	Significant
Unobservable
Inputs (Level 3)	
Mutual fund investments of deferred	 	 	 	 	 	 	 	 	 	 	 	 	
compensation plans held in trust	 	$	47,314	 	 	$	47,314	 	 	$	-	 	 	$	-	 	
Long-term debt	 	 	160,000	 	 	 	-	 	 	 	160,000	 	 	 	-	 	

The following shows the carrying value, fair value and the hierarchy for our financial instruments as of December 31, 2013 (in thousands):
 
 	 	 	 	 	Fair Value Measure	
 	 	Carrying Value	 	Quoted Prices in
Active Markets for
 Identical Assets
(Level 1)	 	Significant Other
 Observable Inputs
 (Level 2)	 	Significant
 Unobservable
Inputs (Level 3)	
Mutual fund investments of deferred	 	 	 	 	 	 	 	 	 	 	 	 	
compensation plans held in trust	 	$	42,465	 	 	$	42,465	 	 	$	-	 	 	$	-	 	
Long-term debt	 	 	183,564	 	 	 	193,032	 	 	 	-	 	 	 	-	 	

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

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14.   Capital Stock Repurchase Plan Transactions

We repurchased the following capital stock for the three and six-months ended June 30, 2014 and 2013:
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Three months ended June 30,	 	Six months ended June 30,	
 	2014	 	2013	 	2014	 	2013	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Shares repurchased	 	300,000	 	 	 	280,701	 	 	 	682,934	 	 	 	280,701	 	
Weighted average price per share	$ 	85.04	 	 	$	65.72	 	 	$	85.65	 	 	$	65.72	 	

In February 2014, the Board of Directors authorized an additional $100 million for stock repurchase under Chemed’s existing share repurchase program. We currently have $63.3 million of authorization remaining under this share repurchase plan.

15.   Recent Accounting Statements

In May 2014, the FASB issued Accounting Standards Update “ASU No. 2014-09 – Revenue from Contracts with Customers” which provides additional guidance to clarify the principles for recognizing revenue.  The standard will also be used to develop a common revenue standard for removing inconsistencies and weaknesses, improve comparability, provide more useful information to users through improved disclosure requirements, and simplify the preparation of financial statements.  The guidance is effective for fiscal years beginning after December 15, 2016.  We are currently evaluating the impact of this ASU on our existing revenue recognition policies and disclosures.

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

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

The following is a summary of the key operating results (in thousands except per share amounts):
 
 	 	Three months ended June 30,	 	Six months ended June 30,	
 	 	2014	 	2013	 	2014	 	2013	
Service revenues and sales	 	$	360,182	 	 	$	357,198	 	 	$	718,482	 	 	$	723,839	 	
Net income	 	$	24,363	 	 	$	14,608	 	 	$	44,937	 	 	$	36,886	 	
Diluted EPS	 	$	1.36	 	 	$	0.77	 	 	$	2.48	 	 	$	1.94	 	
Adjusted net income	 	$	26,580	 	 	$	27,232	 	 	$	50,293	 	 	$	53,372	 	
Adjusted diluted EPS	 	$	1.50	 	 	$	1.44	 	 	$	2.81	 	 	$	2.81	 	
Adjusted EBITDA	 	$	52,213	 	 	$	52,943	 	 	$	99,885	 	 	$	104,239	 	
Adjusted EBITDA as a % of revenue	 	 	14.5	%	 	 	14.8	%	 	 	13.9	%	 	 	14.4	%	
 
Adjusted net income, adjusted diluted EPS, earnings before interest, taxes and depreciation and amortization (“EBITDA”) and Adjusted EBITDA are not measures derived in accordance with GAAP.  We use Adjusted Diluted EPS as a measure of earnings for our long-term incentive plan awards.  We provide non-GAAP measures to help readers evaluate our operating results, compare our operating performance with that of similar companies that have different capital structures and help evaluate our ability to meet future debt service, capital expenditure and working capital requirements.  Our non-GAAP measures should not be considered in isolation or as a substitute for comparable measures presented in accordance with GAAP.  A reconciliation of our non-GAAP measures are presented on pages 27-29.
 
For the three months ended June 30, 2014, the increase in consolidated service revenues and sales was driven by a 2.7% increase at Roto-Rooter and a 0.2% increase at VITAS.  The increase in service revenues at Roto-Rooter was driven by an increase in a combination of price and service/geographical mix shift offset by a decrease in job count. The remaining difference relates to increases in contractor revenue and increases in non-plumbing and non sewer and drain cleaning related revenues.  The increase in service revenues at VITAS was a result of Medicare reimbursement rates increasing 1.4%, offset by a 1.0% decrease in average daily census.  Consolidated net income increased 66.8% mainly as a result of a lawsuit settlement in 2013 at Roto-Rooter that did not repeat in 2014.   Diluted EPS increased 76.6% as a result of the increase in net income as well as a lower number of shares outstanding.  Adjusted EBITDA as a percent of revenue decreased 0.3%.   See page 30 for additional VITAS operating metrics.
 
For the six months ended June 30, 2014, the decrease in consolidated service revenues and sales was driven by a 2.7% increase at Roto-Rooter and a 2.0% decrease at VITAS.  The increase in service revenues at Roto-Rooter was driven by an increase in a combination of price, and service/geographical mix shift offset by a decrease in job count. The remaining difference relates to increases in contractor revenue and increases in non-plumbing and non sewer and drain cleaning related revenues.  The decrease in service revenues at VITAS was a result of Medicare reimbursement rates increasing 1.4%, offset by a 2.0% decrease as a result of sequestration, decreased ADC of 0.9%, and geographical and level of care mix shift.  Consolidated net income increased 21.8% mainly as a result of a lawsuit settlement in 2013 at Roto-Rooter that did not repeat in 2014 offset by lower revenue at VITAS.  Diluted EPS increased 27.8% as a result of the increase in net income as well as a lower number of shares outstanding.  Adjusted EBITDA as a percent of revenue decreased 0.5%. See page 30 for additional VITAS operating metrics.
 
On April 1, 2013, Medicare reduced hospice reimbursement rates 2.0%.  Effective October 1, 2013, Medicare increased the average hospice rate approximately 1.4% This effectively reduced Medicare hospice reimbursement 0.6% through the first quarter of 2014.  VITAS expects its full-year 2014 revenue growth, prior to Medicare cap, to be in the range of 1.0% to 2.0%.  Admissions in 2014 are estimated to increase 2.0%.  Adjusted EBITDA margin, prior to Medicare cap, is estimated to be 14.5% to 15.0%.  Medicare cap is estimated to be $3.7 million in 2014. Roto-Rooter expects full-year 2014 revenue growth of 3.0% to 4.0%.  The revenue estimate is a result of increased job pricing of approximately 2.0%. Adjusted EBITDA margin for 2014 is estimated in the range of 19.5% to 20.0%.  We anticipate that our operating income and cash flows will be sufficient to operate our businesses and meet any commitments for the foreseeable future.

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Financial Condition
Liquidity and Capital Resources
Material changes in the balance sheet accounts from December 31, 2013 to June 30, 2014 include the following:

●       	A $56.5 million decrease in cash due to purchases of treasury stock and a net payment of our long-term debt.	

●       	A $6.8 million decrease in current deferred income taxes mainly related to the payment of litigation settlements.	

●       	A $6.7 million decrease in accounts payable due to timing of payments.	

●       	A $23.6 million decrease in current portion and long-term debt as a result of the payment of outstanding debt using cash on-hand.	

●       	A $5.9 million increase in income taxes as a result of the timing of tax payments.	

●       	A $5.8 million decrease in accrued compensation related to the payment of incentive compensation in the first quarter.	

●       	A $15.8 million decrease in accrued legal due to the payment of litigation settlements.	

Net cash provided by operating activities decreased $39.6 million primarily as a result of the decrease in accounts payable and other current liabilities.  Management continually evaluates cash utilization alternatives, including share repurchase, debt repurchase, acquisitions and increased dividends to determine the most beneficial use of available capital resources.
 
We have issued $36.9 million in standby letters of credit as of June 30, 2014, for insurance purposes.  Issued letters of credit reduce our available credit under the revolving credit agreement.  As of June 30, 2014, we have approximately $253.1 million of unused lines of credit available and eligible to be drawn down under our revolving credit facility. Management believes its liquidity and sources of capital are satisfactory for the Company’s needs in the foreseeable future.

Commitments and Contingencies
Collectively, the terms of our credit agreements require us to meet various financial covenants, to be tested quarterly.  We are in compliance with all financial and other debt covenants as of June 30, 2014 and anticipate remaining in compliance throughout 2014.

The VITAS segment of the Company’s business operates in a heavily-regulated industry.  As a result, the Company is subjected to inquiries and investigations by various government agencies, as well as to lawsuits, including  qui tam  actions.  The following sections describe the various ongoing material lawsuits and investigations of which the Company is currently aware.  It is not possible at this time for us to estimate either the timing or outcome of any of those matters, or whether any potential loss, or range of potential losses, is probable or estimable.

On January 12, 2012, a putative class action lawsuit was filed in the U.S. District Court for the Southern District of Ohio against the Company, Kevin McNamara, David Williams, and Timothy O’Toole,  In re Chemed Corp. Securities Litigation , Civil Action No. 1:12-cv-28 (S.D. Ohio).  On June 18, 2012, an amended complaint was filed alleging violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 against all Defendants, and violation of Section 20(a) of the Securities Exchange Act of 1934 against Messrs. McNamara, Williams, and O’Toole.  The suit’s allegations concerned the VITAS hospice segment of the Company’s business.  Plaintiffs sought, on behalf of a putative class of purchasers of Chemed Capital Stock, compensatory damages in an unspecified amount and attorneys’ fees and expenses, arising from Defendants’ alleged failure to disclose an alleged fraudulent scheme at VITAS to enroll ineligible hospice patients and to fraudulently obtain payments from the federal government.  Defendants filed motions to dismiss the amended complaint on August 17, 2012, which were pending when the parties reached an agreement to settle the action.  On June 7, 2013, following the filing of U.S. v. VITAS, discussed below, Plaintiffs filed a motion for leave to file a second amended complaint.  Defendants opposed this motion.  On September 16, 2013, Plaintiffs executed a Settlement Term Sheet with Defendants, reaching an agreement in principle to settle this case subject to Court approval.  On February 6, 2014, Plaintiffs, on behalf of a putative class of purchasers of Chemed Capital Stock between February 15, 2010 and May 2, 2013, inclusive, executed a stipulation of settlement with defendants, agreeing to settle this case in full and with prejudice, and to provide Defendants with full releases of all claims that are or could have been asserted by Plaintiffs in exchange for payment of $6.0 million by our insurer into a settlement fund for the benefit of the putative settlement class (“Settlement”).  The Settlement  has been recorded as accrued legal and offsetting prepaid expenses in the accompanying Consolidated Balance Sheet. This Settlement received preliminary Court approval on March 27, 2014 and was approved on July 15, 2014, resulting in dismissal of the case.  Defendants agreed to enter into this Settlement in order to eliminate the burden, expense and distraction of further litigation.

-16-

 
 
In June 2011, the U.S. Attorney provided the Company with a partially unsealed qui tam complaint filed under seal in the U.S. District Court for the Western District of Texas,   United States, et al. ex rel. Urick v. VITAS HME Solutions, Inc. et al. , 5:08-cv-0663 (“ Urick ”).  The U.S. Attorney filed a notice in May 2012 stating that it had decided not to intervene in the case at that time but indicating that it continues to investigate the allegations.  In June 2012, the complaint was unsealed.  The complaint asserts violations of the federal False Claims Act and the Texas Medicaid Fraud Prevention Act based on allegations of a conspiracy to submit to Medicare and Medicaid false claims involving hospice services for ineligible patients, unnecessary medical supplies, failing to satisfy certain prerequisites for payment, and altering patient records, including backdating patient revocations.  The suit was brought by Barbara Urick, a registered nurse in VITAS’s San Antonio program, against VITAS, certain of its affiliates, and several former VITAS employees, including physicians Justo Cisneros and Antonio Cavasos and nurses Sally Schwenk, Diane Anest, and Edith Reed.  In September 2012 and July 2013, the plaintiff dismissed all claims against the individual defendants.  The complaint was served on the VITAS entities on April 12, 2013.

Also in June 2011, the U.S. Attorney provided the Company with a partially unsealed qui tam complaint filed under seal in the U.S. District Court for the Northern District of Illinois,  United States, et al. ex rel. Spottiswood v. Chemed Corp. , 1:07-cv-4566 (“ Spottiswood ”).  In April 2012, the complaint was unsealed.  The U.S. Attorney and Attorney General for the State of Illinois filed notices in April and May 2012, respectively, stating that they had decided not to intervene in the case at that time but indicating that they continue to investigate the allegations.  Plaintiff filed an amended complaint in November 2012.  The complaint asserts violations of the federal False Claims Act and the Illinois Whistleblower Reward and Protection Act based on allegations that VITAS fraudulently billed Medicare and Medicaid for providing unwarranted continuous care services.  The suit was brought by Laura Spottiswood, a former part-time pool registered nurse at VITAS, against Chemed, VITAS, and a VITAS affiliate.  The complaint was served on the defendants on April 12, 2013.  On May 29 and June 4, 2013, respectively, the Court granted the government’s motion to partially intervene in  Spottiswood  and in  Urick  on the allegations that VITAS submitted or caused to be submitted false or fraudulent claims for continuous care and routine home care on behalf of certain ineligible Medicare beneficiaries.  The Court also transferred them to the U.S. District Court for the Western District of Missouri under docket Nos. 4:13-cv-505 and 4:13-cv-563, respectively.

On May 2, 2013, the government filed a False Claims Act complaint against the Company and certain of its hospice-related subsidiaries in the U.S. District Court for the Western District of Missouri,  United States v. VITAS Hospice Services, LLC, et al. , No. 4:13-cv-00449-BCW (the “2013 Action”).  Prior to that date, the Company received various subpoenas from the U.S. Department of Justice and OIG that have been previously disclosed.  The 2013 Action alleges that, since at least 2002, VITAS, and since 2004, the Company, submitted or caused the submission of false claims to the Medicare program by (a) billing Medicare for continuous home care services when the patients were not eligible, the services were not provided, or the medical care was inappropriate, and (b) billing Medicare for patients who were not eligible for the Medicare hospice benefit because they did not have a life expectancy of six months or less if their illnesses ran their normal course.  This complaint seeks treble damages, statutory penalties, and the costs of the action, plus interest.  On August 1, 2013, the government filed its First Amended Complaint in the 2013 Action.  The First Amended Complaint changed and supplemented some of the allegations, but did not otherwise expand the causes of action or the nature of the relief sought against VITAS.  The defendants filed a motion to dismiss on September 24, 2013.  

On May 6, 2013, the U.S. District Court for the Western District of Missouri, at the request of the government, unsealed a qui tam  complaint against VITAS and VITAS Healthcare Corporation of California,  United States ex rel. Charles Gonzales v. VITAS Healthcare Corporation, et al . ,  CV 12-0761-R (“ Gonzales ”).  The case was transferred from the Central District of California to the Western District of Missouri under docket No. 4:13-cv-344.  The government partially intervened in Gonzales .  The  Gonzales  complaint alleges that VITAS’ Los Angeles program falsely certified and recertified patients as eligible for the Medicare Hospice Benefit.  It alleges violations of the False Claims Act and seeks treble damages, civil penalties, recovery of costs, attorneys’ fees and expenses, and pre- and post-judgment interest.  

On September 25, 2013, the Court granted a joint motion by the government, the relators, and VITAS to consolidate the Spottiswood ,   Urick , and   Gonzales  complaints with the 2013 Action.  As a result, the First Amended Complaint will govern the consolidated federal claims brought by the United States and the relators for all purposes.  The relators and VITAS have stipulated that certain non-intervened claims will not be pursued by the relators.  The Spottiswood relator filed an action under the Illinois False Claims Act,  The State of Illinois ex rel. Laura Spottiswood v. Chemed Corporation , et al., No. 14 L 2786 in the Circuit Court of Cook County, Illinois on March 6, 2014.  The Court granted the parties’ joint motion to place this case on its stay calendar, pending resolution of the 2013 Action.

VITAS has also received document subpoenas in related state matters.  In February 2010, VITAS received a civil investigative demand (“CID”) from the Texas Attorney General seeking documents from January 1, 2002 through the date of the CID, and interrogatory responses in connection with an investigation of possible fraudulent submission of Medicaid claims for non-qualifying patients and fraudulent shifting of costs from VITAS to the State of Texas and the United States.  The CID requested similar information sought by prior Department of Justice subpoenas, including policy and procedure manuals and information concerning Medicare and Medicaid billing, patient statistics and sales and marketing practices, together with information concerning record-keeping and retention practices, and medical records concerning 117 patients.  In September 2010, VITAS received a second CID from the Texas Attorney General seeking additional documents concerning business plans and results, revocation forms for certain patients, and electronic documents of 10 current and former employees.  In July 2012, VITAS received an investigative subpoena from the Florida Attorney General seeking documents previously produced in the course of prior government investigations as well as, for the period January 1, 2007 through the date of production, billing records and procedures; information concerning business results, plans, and strategies; documents concerning patient eligibility for hospice care; and certain information concerning employees and their compensation.

-17-

 
 
The net costs incurred related to U.S. v. Vitas and related regulatory matters were $410,000 and $1.0 million for the three months ended June 30, 2014 and 2013, respectively.  For the six months ended June 30, 2014 and 2013, the net costs were $1.2 million and $2.0 million respectively.

In November 2013, two shareholder derivative lawsuits were filed against the Company’s current and former directors, as well as certain of its officers, both of which are covered by the Company’s commercial insurance.  On November 6, 2013, KBC Asset Management NV filed suit in the United States District Court for the District of Delaware,  KBC Asset Management NV, derivatively on behalf of Chemed Corp. v. McNamara, et al. , No. 13 Civ. 1854 (LPS) (D. Del.).  It sued Kevin McNamara, Joel Gemunder, Patrick Grace, Thomas Hutton, Walter Krebs, Andrea Lindell, Thomas Rice, Donald Saunders, Arthur Tucker, Jr., George Walsh III, Frank Wood, Timothy O’Toole, David Williams and Ernest Mrozek, together with the Company as nominal defendant.  Plaintiff alleges that since at least 2004, Chemed, through VITAS, has submitted or caused the submission of false claims to Medicare.  The suit alleges a claim for breach of fiduciary duty against the individual defendants, and seeks (a) a declaration that the individual defendants breached their fiduciary duties to the Company; (b) an order requiring those defendants to pay compensatory damages, restitution and exemplary damages, in unspecified amounts, to the Company; (c) an order directing the Company to implement new policies and procedures; and (d) costs and disbursements incurred in bringing the action, including attorneys’ fees.

On November 14, 2013, Mildred A. North filed suit in the United States District Court for the Southern District of Ohio, North, derivatively on behalf of Chemed Corp. v. Kevin McNamara, el al. , No. 13 Civ. 833 (MDB) (S.D. Ohio).  She sued Kevin McNamara, David Williams, Timothy O’Toole, Joel Gemunder, Patrick Grace, Walter Krebs, Andrea Lindell, Thomas Rice, Donald Saunders, George Walsh III, Frank Wood and Thomas Hutton, together with the Company as nominal defendant.  Plaintiff alleges that, between February 2010 and the present, the individual defendants breached their fiduciary duties as officers and directors of Chemed by, among other things, (a) allegedly causing VITAS to submit improper and ineligible claims to Medicare and Medicaid; and (b) allegedly misrepresenting the state of Chemed’s internal controls.  The suit alleges claims for breach of fiduciary duty, abuse of control and gross mismanagement against the individual defendants.  The complaint also alleges unjust enrichment and insider trading against Messrs. McNamara, Williams and O’Toole.  Plaintiff seeks (a) a declaration that the individual defendants breached their fiduciary duties to the Company; (b) an order requiring those defendants to pay compensatory damages, restitution and exemplary damages, in unspecified amounts, to the Company; (c) an order directing the Company to implement new policies and procedures; and (d) costs and disbursements incurred in bringing the action, including attorneys’ fees.

On December 20, 2013, Plaintiff in the North action filed a motion before the Judicial Panel on Multidistrict Litigation seeking centralized treatment of her action and the  KBC  action in the U.S. District Court for the Southern District of Ohio.  Defendants in both cases, as well as Plaintiff KBC, opposed that motion, consistent with Chemed’s By-law 8.07, which requires all derivative suits brought in Chemed’s name to proceed in federal or state court in Delaware.  The MDL Panel denied the motion on April 2, 2014.  On January 29, 2014 Defendants filed motions to transfer  North  to Delaware under 28 U.S.C § 1404 and to stay the case until after resolution of that motion and the MDL motion. Defendants have moved to dismiss the  KBC  complaint for failure to plead demand futility and for failure to state a claim.

The Company intends to defend vigorously against the allegations in each of the above lawsuits.  Regardless of the outcome of any of the preceding matters, responding to the subpoenas and dealing with the various regulatory agencies and opposing parties can adversely affect us through defense costs, potential payments, diversion of management time, and related publicity.  Although the Company intends to defend them vigorously, there can be no assurance that those suits will not have a material adverse effect on the Company.

-18-

 

Results of Operations
Three months ended June 30, 2014 versus  2013 - Consolidated Results
Our service revenues and sales for the second quarter of 2014 increased 0.8% versus services and sales revenues for the second quarter of 2013.  Of this increase, $458,000 was attributable to VITAS and a $2.5 million increase at Roto-Rooter.  The following chart shows the components of those changes (in thousands):

 	 	Increase/(Decrease)	
 	 	Amount	 	 	Percent	
VITAS	 	 	 	 	 	 	 	 	
    Routine homecare	 	$	145	 	 	 	0.1	 	
Continuous care	 	 	 (542	) 	 	 	 (1.4	) 	
    General inpatient	 	 	143	 	 	 	0.6	 	
    Medicare cap	 	 	712	 	 	 	83.3	 	
Roto-Rooter	 	 	 	 	 	 	 	 	
    Plumbing	 	 	49	 	 	 	0.1	 	
    Drain cleaning	 	 	 (1,061	) 	 	 	(2.9	) 	
    Contractor operations	 	 	1,035	 	 	 	12.7	 	
    Other	 	 	2,503	 	 	 	41.5	 	
          Total	 	$	2,984	 	 	 	0.8	 	
 
The increase in VITAS’ revenues for the second quarter of 2014 versus the second quarter of 2013 was a combination of Medicare reimbursement rates increasing approximately 1.4%, offset by a 1.0% decline in ADC.  In the second quarter of 2014, VITAS recorded a net revenue reduction of $143,000 related to partially eliminating the Medicare cap billing limitation recorded in the fourth quarter of 2013 for one program offset by the recording of Medicare Cap liability for one program’s 2014 Medicare cap billing limitation.  The ADC decrease was driven by a 0.9% decrease in routine homecare, a decrease of 2.6% in continuous care and a decrease of 0.2% in general inpatient.  Over 90% of VITAS’ service revenues for the period were from Medicare and Medicaid.
 
The increase in plumbing revenues for the second quarter of 2014 versus 2013 is attributable to a 2.1% decrease in job count, offset by a 2.2% increase in a combination of price and service/geographical mix shift.  Drain cleaning revenues for the second quarter of 2014 versus 2013 reflect a 7.3% decrease in the number of jobs performed, offset by a 4.4% increase in a combination of price and service/geographical mix shift.  Contractor operations revenue increased 12.7% for the second quarter of 2014.  Other Roto-Rooter revenue increased 41.5% as a result of increases in other lines of business including franchise fees, product sales and other non plumbing service revenues.
 
The consolidated gross margin was 28.6% in the second quarter of 2014 as compared with 28.5% in the second quarter of 2013.  On a segment basis, VITAS’ gross margin was 22.0% in the second quarter of 2014 and 21.9% in the second quarter of 2013.  The Roto-Rooter segment’s gross margin was 46.8% for the second quarter of 2014 as compared with 47.1% for the second quarter of 2013.
 
Selling, general and administrative expenses (“SG&A”) comprise (in thousands):
 
 	 	Three months ended June 30,	
 	 	2014	 	2013	
SG&A expenses before the impact of market gains of deferred compensation plans,	 	 	 	 	 	 	
long-term incentive compensation, and OIG investigation expenses	 	$	51,976	 	 	$	50,554	 	
Long-term incentive compensation	 	 	613	 	 	 	494	 	
Expenses related to OIG investigation	 	 	410	 	 	 	996	 	
Impact of market value gains on liabilities held in deferred compensation	 	 	 	 	 	 	 	 	
trusts	 	 	650	 	 	 	1,063	 	
Total SG&A expenses	 	$	53,649	 	 	$	53,107	 	

SG&A expenses before long-term incentive compensation, expenses related to OIG investigation and the impact of market gains of deferred compensation plans for the second quarter of 2014 were up 2.8% when compared to the second quarter of 2013 mainly as a result of normal salary increases.

-19-

 

Other operating expenses decreased $14.8 million in the second quarter of 2014 when compared to the second quarter of 2013 as a result of a lawsuit settlement at Roto-Rooter in 2013 that did not repeat in 2014.

Other income - net comprise (in thousands):
 
 	 	Three months ended June 30,	
 	 	2014	 	2013	
Market value gains on assets held in deferred	 	 	 	 	 	 	
compensation trusts	 	$	650	 	 	$	1,063	 	
Loss on disposal of property and equipment	 	 	(48	)	 	 	(1	)	
Interest income - net	 	 	58	 	 	 	670	 	
Other	 	 	96	 	 	 	(36	)	
Total other income - net	 	$	756	 	 	$	1,696	 	

Our effective income tax rate was 38.9% in the second quarter of 2014 which is flat when compared to the second quarter of 2013.

Net income for both periods included the following after-tax items/adjustments that reduced or increased after-tax earnings (in thousands):
 
 	 	Three months ended June 30,	
 	 	2014	 	2013	
VITAS	 	 	 	 	 	 	
Expenses related to OIG investigation	 	$	(254	)	 	$	(618	)	
Acquisition expenses	 	 	-	 	 	 	(12	)	
Roto-Rooter	 	 	 	 	 	 	 	 	
Litigation settlement	 	 	-	 	 	 	(8,967	)	
Expenses related to litigation settlements	 	 	(20	)	 	 	(344	)	
Acquisition expenses	 	 	-	 	 	 	(1	)	
Corporate	 	 	 	 	 	 	 	 	
Noncash impact of change in accounting for convertible debt	 	 	(714	)	 	 	(1,348	)	
Stock option expense	 	 	(722	)	 	 	(1,020	)	
Long-term incentive compensation	 	 	(388	)	 	 	(313	)	
Expenses related to securities litigation	 	 	(119	)	 	 	(1	)	
Total	 	$	(2,217	)	 	$	(12,624	)	

Three months ended June 30, 2014 versus 2013 - Segment Results

The change in after-tax earnings for the second quarter of 2014 versus the second quarter of 2013 is due to (in thousands):
 
 	 	Increase/(Decrease)	
 	 	 	Amount	 	Percent	
VITAS	 	$	407	 	 	 	2.0	 	
Roto-Rooter	 	 	9,305	 	 	 	658.1	 	
Corporate	 	 	43	 	 	 	0.6	 	
 	 	$	9,755	 	 	 	66.8	 	

-20-

 

Results of Operations
Six months ended June 30, 2014 versus  2013 - Consolidated Results
Our service revenues and sales for the first six months of 2014 decreased 0.7% versus services and sales revenues for the first six months of 2013.  Of this decrease, $10.5 million was attributable to VITAS offset by a $5.1 million increase at Roto-Rooter.  The following chart shows the components of those changes (in thousands):
 
 	 	Increase/(Decrease)	
 	 	Amount	 	Percent	
VITAS	 	 	 	 	 	 	 	 	
Routine homecare	 	$	 (1,119	)	 	 	 (0.3	) 	
Continuous care	 	 	 (7,692	)	 	 	 (9.2	) 	
General inpatient	 	 	 (2,332	)	 	 	 (4.3	) 	
Medicare cap	 	 	 686	 	 	 	3,811.1	 	
Roto-Rooter	 	 	 	 	 	 	 	 	
Plumbing	 	 	2,691	 	 	 	3.1	 	
Drain cleaning	 	 	 (2,428	)	 	 	 (3.3	) 	
Contractor operations	 	 	 1,849	 	 	 	11.3	 	
Other	 	 	 2,988	 	 	 	24.0	 	
Total	 	$	 (5,357	)	 	 	 (0.7	) 	
 
The decrease in VITAS’ revenues for the first six months of 2014 versus the first six months of 2013 was a combination of Medicare reimbursement rates increasing approximately 1.4%, offset by a 2.0% decline due to sequestration (which was effective May 1, 2013), an ADC decrease of 0.9%, and geographical and level of care mix shift.  In the first six months of 2014, VITAS recorded a positive revenue adjustment of $704,000 related to eliminating the Medicare cap billing limitation recorded in the fourth quarter of 2013 for one program and partially eliminating the Medicare cap billing limitation in another program offset by the recording of Medicare cap billing limitation for one program’s liability for the 2014 Medicare cap year.  This compares with a $18,000 Medicare cap liability reversal recorded in the first six months of 2013.  The ADC decrease was driven by a 0.4% decrease in routine homecare, a decrease of 9.4% in continuous care and a decrease of 3.5% in general inpatient.  Over 90% of VITAS’ service revenues for the period were from Medicare and Medicaid.
 
The increase in plumbing revenues for the first six months of 2014 versus 2013 is attributable to a 3.4% increase in job count, offset by a 0.3% decrease in geographical and service mix shift.  Drain cleaning revenues for the first six months of 2014 versus 2013 reflect a 7.6% decrease in the number of jobs performed, offset by a 4.3% increase in a combination of price and geographical/service mix shift.  Contractor operations revenue increased 11.3% for the first six months of 2014.  Other Roto-Rooter revenue increased 24.0% as a result of increases in other lines of business including franchisee fees, product sales, and other non plumbing service revenues.
 
The consolidated gross margin was 28.3% in the first six months of 2014 as compared with 28.2% in the first six months of 2013.  On a segment basis, VITAS’ gross margin was 21.6% in the first six months of 2014 and 21.7% in the first six months of 2013.  The Roto-Rooter segment’s gross margin was 46.6% for the first six months of 2014 as compared with 46.7% for the first six months of 2013.
 
Selling, general and administrative expenses (“SG&A”) comprise (in thousands):
 
 	 	Six months ended June 30,	
 	 	2014	 	2013	
SG&A expenses before long-term incentive	 	 	 	 	 	 	
compensation and the impact of market gains and	 	 	 	 	 	 	
losses of deferred compensation plans	 	$	105,364	 	 	$	102,991	 	
Long-term incentive compensation	 	 	986	 	 	 	1,106	 	
Expenses related to OIG investigation	 	 	1,158	 	 	 	2,035	 	
Impact of market value gains on liabilities held in	 	 	 	 	 	 	 	 	
deferred compensation trusts	 	 	1,812	 	 	 	2,535	 	
Total SG&A expenses	 	$	109,320	 	 	$	108,667	 	

-21-

 
 
SG&A expenses before long-term incentive compensation, expenses related to OIG investigation and the impact of market gains of deferred compensation plans for the first six months of 2014 were up 2.3% when compared to the first six months of 2013 mainly as a result of normal salary increases.

Other operating expenses decreased $14.8 million in the first six months of 2014 when compared to the first six months of 2013 as a result of a lawsuit settlement at Roto-Rooter in 2013 that did not repeat in 2014.

Other income - net comprise (in thousands):
 
 	 	Six months ended June 30,	 	
 	 	2014	 	 	2013	 	
Market value gains on assets held in deferred	 	 	 	 	 	 	
compensation trusts	 	$	1,812	 	 	$	2,535	 	
Loss on disposal of property and equipment	 	 	(326	)	 	 	(79	)	
Interest income	 	 	8	 	 	 	973	 	
Other	 	 	78	 	 	 	(27	)	
Total other income - net	 	$	1,572	 	 	$	3,402	 	

Our effective income tax rate was 38.9% in the first six months of 2014 which is flat when compared to the first six months of 2013.

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

 	 	Six Months Ended June 30,	 	
 	 	2014	 	 	2013	 	
VITAS	 	 	 	 	 	 	
Legal expenses of OIG investigation	 	$	(718	)	 	$	(1,262	)	
Expenses related to litigation settlements	 	 	(70	)	 	 	-	 	
Acquisition expenses	 	 	(1	)	 	 	(12	)	
Roto-Rooter	 	 	 	 	 	 	 	 	
Litigation settlements	 	 	-	 	 	 	(8,967	)	
Expenses related to litigation settlements	 	 	(137	)	 	 	(430	)	
Expenses of severance arrangements	 	 	-	 	 	 	(184	)	
Acquisition expenses	 	 	-	 	 	 	(1	)	
Corporate	 	 	 	 	 	 	 	 	
Stock option expense	 	 	(1,544	)	 	 	(1,963	)	
Noncash impact of change in accounting for convertible debt	 	 	(2,143	)	 	 	(2,671	)	
Long-term incentive compensation	 	 	(624	)	 	 	(700	)	
Expenses of securities litigation	 	 	(119	)	 	 	(2	)	
Loss on extinguishment of debt	 	 	-	 	 	 	(294	)	
Total	 	$	(5,356	)	 	$	(16,486	)	

Six months ended June 30, 2014 versus 2013 - Segment Results

The change in after-tax earnings for the first six months of 2014 versus the first six months of 2013 is due to (in thousands):

 	Increase/(Decrease)	 	
 	Amount	 	 	Percent	 	
VITAS	 	$	(1,577	)	 	 	(3.9	)	
Roto-Rooter	 	 	9,713	 	 	 	88.0	 	
Corporate	 	 	(85	)	 	 	0.6	 	
 	 	$	8,051	 	 	 	21.8	 	

-22-

 
 
CHEMED CORPORATION AND SUBSIDIARY COMPANIES	 	
CONSOLIDATING STATEMENT OF INCOME	 	
FOR THE THREE MONTHS ENDED JUNE 30, 2014	 	
(in thousands)(unaudited)	 	
 	 	
 	 	 	 	 	 	 	 	 	 	 	Chemed	 	
 	 	VITAS	 	 	Roto-Rooter	 	 	Corporate	 	 	Consolidated	 	
2014 (a)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Service revenues and sales	 	 	$	264,026	 	 	 	$	96,156	 	 	 	$	-	 	 	 	$	360,182	 	
Cost of services provided and goods sold	 	 	 	205,818	 	 	 	 	51,189	 	 	 	 	-	 	 	 	 	257,007	 	
Selling, general and administrative expenses	 	 	 	21,002	 	 	 	 	25,705	 	 	 	 	6,942	 	 	 	 	53,649	 	
Depreciation	 	 	 	4,564	 	 	 	 	2,561	 	 	 	 	147	 	 	 	 	7,272	 	
Amortization	 	 	 	205	 	 	 	 	137	 	 	 	 	393	 	 	 	 	735	 	
Total costs and expenses	 	 	 	231,589	 	 	 	 	79,592	 	 	 	 	7,482	 	 	 	 	318,663	 	
Income/(loss) from operations	 	 	 	32,437	 	 	 	 	16,564	 	 	 	 	(7,482	)	 	 	 	41,519	 	
Interest expense	 	 	 	(57	)	 	 	 	(111	)	 	 	 	(2,261	)	 	 	 	(2,429	)	
Intercompany interest income/(expense)	 	 	 	1,517	 	 	 	 	680	 	 	 	 	(2,197	)	 	 	 	-	 	
Other income/(expense)—net	 	 	 	(95	)	 	 	 	198	 	 	 	 	653	 	 	 	 	756	 	
Income/(expense) before income taxes	 	 	 	33,802	 	 	 	 	17,331	 	 	 	 	(11,287	)	 	 	 	39,846	 	
Income taxes	 	 	 	(12,910	)	 	 	 	(6,612	)	 	 	 	4,039	 	 	 	 	(15,483	)	
Net income/(loss)	 	 	$	20,892	 	 	 	$	10,719	 	 	 	$	(7,248	)	 	 	$	24,363	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
(a) The following amounts are included in net income (in thousands):	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Chemed	 	
 	 	 	 	VITAS	 	 	 	 	Roto-Rooter	 	 	 	 	Corporate	 	 	 	 	Consolidated	 	
Pretax benefit/(cost):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Stock option expense	 	 	$	-	 	 	 	$	-	 	 	 	$	(1,144	)	 	 	$	(1,144	)	
Noncash impact of accounting for convertible debt	 	 	 	-	 	 	 	 	-	 	 	 	 	(1,130	)	 	 	 	(1,130	)	
Long-term incentive compensation	 	 	 	-	 	 	 	 	-	 	 	 	 	(613	)	 	 	 	(613	)	
Expenses related to litigation settlements	 	 	 	-	 	 	 	 	(32	)	 	 	 	-	 	 	 	 	(32	)	
Expenses related to securities litigation	 	 	 	-	 	 	 	 	-	 	 	 	 	(189	)	 	 	 	(189	)	
Expenses related to OIG investigation	 	 	 	(410	)	 	 	 	-	 	 	 	 	-	 	 	 	 	(410	)	
Total	 	 	$	(410	)	 	 	$	(32	)	 	 	$	(3,076	)	 	 	$	(3,518	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Chemed	 	
 	 	 	 	VITAS	 	 	 	 	Roto-Rooter	 	 	 	 	Corporate	 	 	 	 	Consolidated	 	
After-tax benefit/(cost):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Stock option expense	 	 	$	-	 	 	 	$	-	 	 	 	$	(722	)	 	 	$	(722	)	
Noncash impact of accounting for convertible debt	 	 	 	-	 	 	 	 	-	 	 	 	 	(714	)	 	 	 	(714	)	
Long-term incentive compensation	 	 	 	-	 	 	 	 	-	 	 	 	 	(388	)	 	 	 	(388	)	
Expenses related to litigation settlements	 	 	 	-	 	 	 	 	(20	)	 	 	 	-	 	 	 	 	(20	)	
Expenses related to securities litigation	 	 	 	-	 	 	 	 	-	 	 	 	 	(119	)	 	 	 	(119	)	
Expenses related to OIG investigation	 	 	 	(254	)	 	 	 	-	 	 	 	 	-	 	 	 	 	(254	)	
Total	 	 	$	(254	)	 	 	$	(20	)	 	 	$	(1,943	)	 	 	$	(2,217	)	

-23-

 
 
CHEMED CORPORATION AND SUBSIDIARY COMPANIES	 	
CONSOLIDATING STATEMENT OF INCOME	 	
FOR THE THREE MONTHS ENDED JUNE 30, 2013	 	
(in thousands)(unaudited)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Chemed	 	
 	 	 	VITAS	 	 	 	Roto-Rooter	 	 	 	Corporate	 	 	 	Consolidated	 	
2013 (a)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Service revenues and sales	 	 	$	263,568	 	 	 	$	93,630	 	 	 	$	-	 	 	 	$	357,198	 	
Cost of services provided and goods sold	 	 	 	205,788	 	 	 	 	49,571	 	 	 	 	-	 	 	 	 	255,359	 	
Selling, general and administrative expenses	 	 	 	21,063	 	 	 	 	25,230	 	 	 	 	6,814	 	 	 	 	53,107	 	
Depreciation	 	 	 	4,520	 	 	 	 	2,246	 	 	 	 	133	 	 	 	 	6,899	 	
Amortization	 	 	 	536	 	 	 	 	149	 	 	 	 	496	 	 	 	 	1,181	 	
Other operating expenses	 	 	 	-	 	 	 	 	14,760	 	 	 	 	-	 	 	 	 	14,760	 	
Total costs and expenses	 	 	 	231,907	 	 	 	 	91,956	 	 	 	 	7,443	 	 	 	 	331,306	 	
Income/(loss) from operations	 	 	 	31,661	 	 	 	 	1,674	 	 	 	 	(7,443	)	 	 	 	25,892	 	
Interest expense	 	 	 	(51	)	 	 	 	(97	)	 	 	 	(3,549	)	 	 	 	(3,697	)	
Intercompany interest income/(expense)	 	 	 	866	 	 	 	 	436	 	 	 	 	(1,302	)	 	 	 	-	 	
Other income/(expense)—net	 	 	 	585	 	 	 	 	34	 	 	 	 	1,077	 	 	 	 	1,696	 	
Income/(expense) before income taxes	 	 	 	33,061	 	 	 	 	2,047	 	 	 	 	(11,217	)	 	 	 	23,891	 	
Income taxes	 	 	 	(12,576	)	 	 	 	(633	)	 	 	 	3,926	 	 	 	 	(9,283	)	
Net income/(loss)	 	 	$	20,485	 	 	 	$	1,414	 	 	 	$	(7,291	)	 	 	$	14,608	 	

(a) The following amounts are included in net income (in thousands):	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Chemed	 	
 	 	 	VITAS	 	 	 	Roto-Rooter	 	 	 	Corporate	 	 	 	Consolidated	 	
Pretax benefit/(cost):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
     Stock option expense	 	 	$	-	 	 	 	$	-	 	 	 	$	(1,612	)	 	 	$	(1,612	)	
     Noncash impact of accounting for convertible debt	 	 	 	-	 	 	 	 	-	 	 	 	 	(2,132	)	 	 	 	(2,132	)	
     Long-term incentive compensation	 	 	 	-	 	 	 	 	-	 	 	 	 	(494	)	 	 	 	(494	)	
     Litigation settlement	 	 	 	-	 	 	 	 	(14,760	)	 	 	 	-	 	 	 	 	(14,760	)	
     Expenses related to litigation settlement	 	 	 	-	 	 	 	 	(567	)	 	 	 	-	 	 	 	 	(567	)	
     Expenses related to securities litigation	 	 	 	-	 	 	 	 	-	 	 	 	 	(1	)	 	 	 	(1	)	
     Acquisition expenses	 	 	 	(19	)	 	 	 	(1	)	 	 	 	-	 	 	 	 	(20	)	
     Expenses of OIG investigation	 	 	 	(996	)	 	 	 	-	 	 	 	 	-	 	 	 	 	(996	)	
          Total	 	 	$	(1,015	)	 	 	$	(15,328	)	 	 	$	(4,239	)	 	 	$	(20,582	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Chemed	 	
 	 	 	VITAS	 	 	 	Roto-Rooter	 	 	 	Corporate	 	 	 	Consolidated	 	
After-tax benefit/(cost):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
     Stock option expense	 	 	$	-	 	 	 	$	-	 	 	 	$	(1,020	)	 	 	$	(1,020	)	
     Noncash impact of accounting for convertible debt	 	 	 	-	 	 	 	 	-	 	 	 	 	(1,348	)	 	 	 	(1,348	)	
     Long-term incentive compensation	 	 	 	-	 	 	 	 	-	 	 	 	 	(313	)	 	 	 	(313	)	
     Litigation settlement	 	 	 	-	 	 	 	 	(8,967	)	 	 	 	-	 	 	 	 	(8,967	)	
     Expenses related to litigation settlements	 	 	 	-	 	 	 	 	(344	)	 	 	 	-	 	 	 	 	(344	)	
     Expenses related to securities litigation	 	 	 	-	 	 	 	 	-	 	 	 	 	(1	)	 	 	 	(1	)	
     Acquisition expenses	 	 	 	(12	)	 	 	 	(1	)	 	 	 	-	 	 	 	 	(13	)	
     Expenses of OIG investigation	 	 	 	(618	)	 	 	 	-	 	 	 	 	-	 	 	 	 	(618	)	
          Total	 	 	$	(630	)	 	 	$	(9,312	)	 	 	$	(2,682	)	 	 	$	(12,624	)	

-24-

 
 
CHEMED CORPORATION AND SUBSIDIARY COMPANIES	 	
CONSOLIDATING STATEMENT OF INCOME	 	
FOR THE SIX MONTHS ENDED JUNE 30, 2014	 	
(in thousands)(unaudited)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	Chemed	 	
 	 	 	VITAS	 	 	Roto-Rooter	 	 	Corporate	 	 	Consolidated	 	
2014 (a)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Service revenues and sales	 	 	$	524,438	 	 	 	$	194,044	 	 	 	$	-	 	 	 	$	718,482	 	
Cost of services provided and goods sold	 	 	 	411,210	 	 	 	 	103,616	 	 	 	 	-	 	 	 	 	514,826	 	
Selling, general and administrative expenses	 	 	 	42,716	 	 	 	 	52,887	 	 	 	 	13,717	 	 	 	 	109,320	 	
Depreciation	 	 	 	9,178	 	 	 	 	4,961	 	 	 	 	282	 	 	 	 	14,421	 	
Amortization	 	 	 	624	 	 	 	 	282	 	 	 	 	838	 	 	 	 	1,744	 	
Total costs and expenses	 	 	 	463,728	 	 	 	 	161,746	 	 	 	 	14,837	 	 	 	 	640,311	 	
Income/(loss) from operations	 	 	 	60,710	 	 	 	 	32,298	 	 	 	 	(14,837	)	 	 	 	78,171	 	
Interest expense	 	 	 	(112	)	 	 	 	(208	)	 	 	 	(5,924	)	 	 	 	(6,244	)	
Intercompany interest income/(expense)	 	 	 	2,860	 	 	 	 	1,330	 	 	 	 	(4,190	)	 	 	 	-	 	
Other income/(expense)—net	 	 	 	(388	)	 	 	 	139	 	 	 	 	1,821	 	 	 	 	1,572	 	
Income/(expense) before income taxes	 	 	 	63,070	 	 	 	 	33,559	 	 	 	 	(23,130	)	 	 	 	73,499	 	
Income taxes	 	 	 	(24,019	)	 	 	 	(12,808	)	 	 	 	8,265	 	 	 	 	(28,562	)	
Net income/(loss)	 	 	$	39,051	 	 	 	$	20,751	 	 	 	$	(14,865	)	 	 	$	44,937	 	

(a) The following amounts are included in net income (in thousands):	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Chemed	 	
 	 	 	VITAS	 	 	Roto-Rooter	 	 	Corporate	 	 	Consolidated	 	
Pretax benefit/(cost):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Stock option expense	 	 	$	-	 	 	 	$	-	 	 	 	$	(2,453	)	 	 	$	(2,453	)	
Noncash impact of accounting for convertible debt	 	 	 	-	 	 	 	 	-	 	 	 	 	(3,389	)	 	 	 	(3,389	)	
Long-term incentive compensation	 	 	 	-	 	 	 	 	-	 	 	 	 	(986	)	 	 	 	(986	)	
Expenses related to litigation settlements	 	 	 	(113	)	 	 	 	(225	)	 	 	 	-	 	 	 	 	(338	)	
Expenses related to securities litigation	 	 	 	-	 	 	 	 	-	 	 	 	 	(189	)	 	 	 	(189	)	
Acquisition expenses	 	 	 	(1	)	 	 	 	-	 	 	 	 	-	 	 	 	 	(1	)	
Expenses related to OIG investigation	 	 	 	(1,158	)	 	 	 	-	 	 	 	 	-	 	 	 	 	(1,158	)	
Total	 	 	$	(1,272	)	 	 	$	(225	)	 	 	$	(7,017	)	 	 	$	(8,514	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Chemed	 	
 	 	 	VITAS	 	 	Roto-Rooter	 	 	Corporate	 	 	Consolidated	 	
After-tax benefit/(cost):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Stock option expense	 	 	$	-	 	 	 	$	-	 	 	 	$	(1,544	)	 	 	$	(1,544	)	
Noncash impact of accounting for convertible debt	 	 	 	-	 	 	 	 	-	 	 	 	 	(2,143	)	 	 	 	(2,143	)	
Long-term incentive compensation	 	 	 	-	 	 	 	 	-	 	 	 	 	(624	)	 	 	 	(624	)	
Expenses related to litigation settlements	 	 	 	(70	)	 	 	 	(137	)	 	 	 	-	 	 	 	 	(207	)	
Expenses related to securities litigation	 	 	 	-	 	 	 	 	-	 	 	 	 	(119	)	 	 	 	(119	)	
Acquisition expenses	 	 	 	(1	)	 	 	 	-	 	 	 	 	-	 	 	 	 	(1	)	
Expenses related to OIG investigation	 	 	 	(718	)	 	 	 	-	 	 	 	 	-	 	 	 	 	(718	)	
Total	 	 	$	(789	)	 	 	$	(137	)	 	 	$	(4,430	)	 	 	$	(5,356	)	

-25-

 

CHEMED CORPORATION AND SUBSIDIARY COMPANIES	 	
CONSOLIDATING STATEMENT OF INCOME	 	
FOR THE SIX MONTHS ENDED JUNE 30, 2013	 	
(in thousands)(unaudited)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	Chemed	 	
 	 	 	VITAS	 	 	 	Roto-Rooter	 	 	Corporate	 	 	Consolidated	 	
2013 (a)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Service revenues and sales	 	 	$	534,895	 	 	 	$	188,944	 	 	 	$	-	 	 	 	$	723,839	 	
Cost of services provided and goods sold	 	 	 	418,949	 	 	 	 	100,717	 	 	 	 	-	 	 	 	 	519,666	 	
Selling, general and administrative expenses	 	 	 	42,667	 	 	 	 	51,892	 	 	 	 	14,108	 	 	 	 	108,667	 	
Depreciation	 	 	 	9,033	 	 	 	 	4,394	 	 	 	 	267	 	 	 	 	13,694	 	
Amortization	 	 	 	1,026	 	 	 	 	303	 	 	 	 	979	 	 	 	 	2,308	 	
Other operating expenses	 	 	 	-	 	 	 	 	14,760	 	 	 	 	-	 	 	 	 	14,760	 	
Total costs and expenses	 	 	 	471,675	 	 	 	 	172,066	 	 	 	 	15,354	 	 	 	 	659,095	 	
Income/(loss) from operations	 	 	 	63,220	 	 	 	 	16,878	 	 	 	 	(15,354	)	 	 	 	64,744	 	
Interest expense	 	 	 	(97	)	 	 	 	(156	)	 	 	 	(7,538	)	 	 	 	(7,791	)	
Intercompany interest income/(expense)	 	 	 	1,709	 	 	 	 	864	 	 	 	 	(2,573	)	 	 	 	-	 	
Other income/(expense)—net	 	 	 	805	 	 	 	 	34	 	 	 	 	2,563	 	 	 	 	3,402	 	
Income/(expense) before income taxes	 	 	 	65,637	 	 	 	 	17,620	 	 	 	 	(22,902	)	 	 	 	60,355	 	
Income taxes	 	 	 	(25,009	)	 	 	 	(6,582	)	 	 	 	8,122	 	 	 	 	(23,469	)	
Net income/(loss)	 	 	$	40,628	 	 	 	$	11,038	 	 	 	$	(14,780	)	 	 	$	36,886	 	

(a) The following amounts are included in net income (in thousands):	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Chemed	 	
 	 	 	VITAS	 	 	 	Roto-Rooter	 	 	Corporate	 	 	Consolidated	 	
Pretax benefit/(cost):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
     Stock option expense	 	 	$	-	 	 	 	$	-	 	 	 	$	(3,103	)	 	 	$	(3,103	)	
     Noncash impact of accounting for convertible debt	 	 	 	-	 	 	 	 	-	 	 	 	 	(4,223	)	 	 	 	(4,223	)	
     Long-term incentive compensation	 	 	 	-	 	 	 	 	-	 	 	 	 	(1,106	)	 	 	 	(1,106	)	
     Expenses of severance arrangements	 	 	 	-	 	 	 	 	(302	)	 	 	 	-	 	 	 	 	(302	)	
     Loss on extinguishment of debt	 	 	 	-	 	 	 	 	-	 	 	 	 	(465	)	 	 	 	(465	)	
     Litigation settlement	 	 	 	-	 	 	 	 	(14,760	)	 	 	 	-	 	 	 	 	(14,760	)	
     Expenses related to litigation settlements	 	 	 	-	 	 	 	 	(708	)	 	 	 	-	 	 	 	 	(708	)	
     Expenses related to securities litigation	 	 	 	-	 	 	 	 	-	 	 	 	 	(3	)	 	 	 	(3	)	
     Acquisition expenses	 	 	 	(20	)	 	 	 	(1	)	 	 	 	-	 	 	 	 	(21	)	
     Expenses of OIG investigation	 	 	 	(2,035	)	 	 	 	-	 	 	 	 	-	 	 	 	 	(2,035	)	
          Total	 	 	$	(2,055	)	 	 	$	(15,771	)	 	 	$	(8,900	)	 	 	$	(26,726	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Chemed	 	
 	 	 	VITAS	 	 	 	Roto-Rooter	 	 	Corporate	 	 	Consolidated	 	
After-tax benefit/(cost):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
     Stock option expense	 	 	$	-	 	 	 	$	-	 	 	 	$	(1,963	)	 	 	$	(1,963	)	
     Noncash impact of accounting for convertible debt	 	 	 	-	 	 	 	 	-	 	 	 	 	(2,671	)	 	 	 	(2,671	)	
     Long-term incentive compensation	 	 	 	-	 	 	 	 	-	 	 	 	 	(700	)	 	 	 	(700	)	
     Expenses of severance arrangements	 	 	 	-	 	 	 	 	(184	)	 	 	 	-	 	 	 	 	(184	)	
     Loss on extinguishment of debt	 	 	 	-	 	 	 	 	-	 	 	 	 	(294	)	 	 	 	(294	)	
     Litigation settlement	 	 	 	-	 	 	 	 	(8,967	)	 	 	 	-	 	 	 	 	(8,967	)	
     Expenses related to litigation settlements	 	 	 	-	 	 	 	 	(430	)	 	 	 	-	 	 	 	 	(430	)	
     Expenses related to securities litigation	 	 	 	-	 	 	 	 	-	 	 	 	 	(2	)	 	 	 	(2	)	
     Acquisition expenses	 	 	 	(12	)	 	 	 	(1	)	 	 	 	-	 	 	 	 	(13	)	
     Expenses of OIG investigation	 	 	 	(1,262	)	 	 	 	-	 	 	 	 	-	 	 	 	 	(1,262	)	
          Total	 	 	$	(1,274	)	 	 	$	(9,582	)	 	 	$	(5,630	)	 	 	$	(16,486	)	

-26-

 
 
Consolidating Summary and Reconciliation of
Adjusted EBITDA	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Chemed Corporation and Subsidiary Companies	 	 	 	 	
(in thousands)	 	 	 	 	 	 	 	 	 	Chemed	 	
For the three months ended June 30, 2014	VITAS	 	Roto-Rooter	 	Corporate	 	Consolidated	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income/(loss)	 	$	20,892	 	 	$	10,719	 	 	$	(7,248	)	 	$	24,363	 	
Add/(deduct):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest expense	 	 	57	 	 	 	111	 	 	 	2,261	 	 	 	2,429	 	
Income taxes	 	 	12,910	 	 	 	6,612	 	 	 	(4,039	)	 	 	15,483	 	
Depreciation	 	 	4,564	 	 	 	2,561	 	 	 	147	 	 	 	7,272	 	
Amortization	 	 	205	 	 	 	137	 	 	 	393	 	 	 	735	 	
EBITDA	 	 	38,628	 	 	 	20,140	 	 	 	(8,486	)	 	 	50,282	 	
Add/(deduct):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Intercompany interest expense/(income)	 	 	(1,517	)	 	 	(680	)	 	 	2,197	 	 	 	-	 	
Interest income	 	 	(43	)	 	 	(12	)	 	 	(3	)	 	 	(58	)	
Expenses related to OIG investigation	 	 	410	 	 	 	-	 	 	 	-	 	 	 	410	 	
Expenses related to litigation settlements	 	 	-	 	 	 	32	 	 	 	-	 	 	 	32	 	
Advertising cost adjustment	 	 	-	 	 	 	(399	)	 	 	-	 	 	 	(399	)	
Stock option expense	 	 	-	 	 	 	-	 	 	 	1,144	 	 	 	1,144	 	
Long-term incentive compensation	 	 	-	 	 	 	-	 	 	 	613	 	 	 	613	 	
Expenses related to securities litigation	 	 	-	 	 	 	-	 	 	 	189	 	 	 	189	 	
Adjusted EBITDA	 	$	37,478	 	 	$	19,081	 	 	$	(4,346	)	 	$	52,213	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	Chemed	 	
For the three months ended June 30, 2013	VITAS	 	Roto-Rooter	 	Corporate	 	Consolidated	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income/(loss)	 	$	20,485	 	 	$	1,414	 	 	$	(7,291	)	 	$	14,608	 	
Add/(deduct):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest expense	 	 	51	 	 	 	97	 	 	 	3,549	 	 	 	3,697	 	
Income taxes	 	 	12,576	 	 	 	633	 	 	 	(3,926	)	 	 	9,283	 	
Depreciation	 	 	4,520	 	 	 	2,246	 	 	 	133	 	 	 	6,899	 	
Amortization	 	 	536	 	 	 	149	 	 	 	496	 	 	 	1,181	 	
EBITDA	 	 	38,168	 	 	 	4,539	 	 	 	(7,039	)	 	 	35,668	 	
Add/(deduct):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Intercompany interest expense/(income)	 	 	(866	)	 	 	(436	)	 	 	1,302	 	 	 	-	 	
Interest income	 	 	(642	)	 	 	(14	)	 	 	(14	)	 	 	(670	)	
Expenses related to OIG investigation	 	 	996	 	 	 	-	 	 	 	-	 	 	 	996	 	
Acquisition expenses	 	 	19	 	 	 	1	 	 	 	-	 	 	 	20	 	
Litigation settlement	 	 	-	 	 	 	14,760	 	 	 	-	 	 	 	14,760	 	
Advertising cost adjustment	 	 	-	 	 	 	(505	)	 	 	-	 	 	 	(505	)	
Expenses related to litigation settlements	 	 	-	 	 	 	567	 	 	 	-	 	 	 	567	 	
Long-term incentive compensation	 	 	-	 	 	 	-	 	 	 	494	 	 	 	494	 	
Stock option expense	 	 	-	 	 	 	-	 	 	 	1,612	 	 	 	1,612	 	
Expenses of securities litigation	 	 	-	 	 	 	-	 	 	 	1	 	 	 	1	 	
Adjusted EBITDA	 	$	37,675	 	 	$	18,912	 	 	$	(3,644	)	 	$	52,943	 	

-27-

 
 
Consolidating Summary and Reconciliation of 
Adjusted EBITDA	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Chemed Corporation and Subsidiary Companies	 	 	 	 	
(in thousands)	 	 	 	 	 	 	 	 	 	Chemed	 	
For the six months ended June 30, 2014	VITAS	 	Roto-Rooter	 	Corporate	 	Consolidated	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income/(loss)	 	$	39,051	 	 	$	20,751	 	 	$	(14,865	)	 	$	44,937	 	
Add/(deduct):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest expense	 	 	112	 	 	 	208	 	 	 	5,924	 	 	 	6,244	 	
Income taxes	 	 	24,019	 	 	 	12,808	 	 	 	(8,265	)	 	 	28,562	 	
Depreciation	 	 	9,178	 	 	 	4,961	 	 	 	282	 	 	 	14,421	 	
Amortization	 	 	624	 	 	 	282	 	 	 	838	 	 	 	1,744	 	
EBITDA	 	 	72,984	 	 	 	39,010	 	 	 	(16,086	)	 	 	95,908	 	
Add/(deduct):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Intercompany interest expense/(income)	 	 	(2,860	)	 	 	(1,330	)	 	 	4,190	 	 	 	-	 	
Interest income	 	 	20	 	 	 	(19	)	 	 	(9	)	 	 	(8	)	
Expenses related to OIG investigation	 	 	1,158	 	 	 	-	 	 	 	-	 	 	 	1,158	 	
Acquisition expenses	 	 	1	 	 	 	-	 	 	 	-	 	 	 	1	 	
Expenses related to litigation settlements	 	 	113	 	 	 	225	 	 	 	-	 	 	 	338	 	
Advertising cost adjustment	 	 	-	 	 	 	(1,140	)	 	 	-	 	 	 	(1,140	)	
Stock option expense	 	 	-	 	 	 	-	 	 	 	2,453	 	 	 	2,453	 	
Long-term incentive compensation	 	 	-	 	 	 	-	 	 	 	986	 	 	 	986	 	
Expenses related to securities litigation	 	 	-	 	 	 	-	 	 	 	189	 	 	 	189	 	
Adjusted EBITDA	 	$	71,416	 	 	$	36,746	 	 	$	(8,277	)	 	$	99,885	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	Chemed	 	
For the six months ended June 30, 2013	VITAS	 	Roto-Rooter	 	Corporate	 	Consolidated	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income/(loss)	 	$	40,628	 	 	$	11,038	 	 	$	(14,780	)	 	$	36,886	 	
Add/(deduct):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest expense	 	 	97	 	 	 	156	 	 	 	7,538	 	 	 	7,791	 	
Income taxes	 	 	25,009	 	 	 	6,582	 	 	 	(8,122	)	 	 	23,469	 	
Depreciation	 	 	9,033	 	 	 	4,394	 	 	 	267	 	 	 	13,694	 	
Amortization	 	 	1,026	 	 	 	303	 	 	 	979	 	 	 	2,308	 	
EBITDA	 	 	75,793	 	 	 	22,473	 	 	 	(14,118	)	 	 	84,148	 	
Add/(deduct):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Intercompany interest expense/(income)	 	 	(1,709	)	 	 	(864	)	 	 	2,573	 	 	 	-	 	
Interest income	 	 	(888	)	 	 	(56	)	 	 	(29	)	 	 	(973	)	
Expenses related to OIG investigation	 	 	2,035	 	 	 	-	 	 	 	-	 	 	 	2,035	 	
Acquisition expenses	 	 	20	 	 	 	1	 	 	 	-	 	 	 	21	 	
Litigation settlement	 	 	-	 	 	 	14,760	 	 	 	-	 	 	 	14,760	 	
Advertising cost adjustment	 	 	-	 	 	 	(974	)	 	 	-	 	 	 	(974	)	
Expenses related to litigation settlements	 	 	-	 	 	 	708	 	 	 	-	 	 	 	708	 	
Expenses of severance arrangements	 	 	-	 	 	 	302	 	 	 	-	 	 	 	302	 	
Long-term incentive compensation	 	 	-	 	 	 	-	 	 	 	1,106	 	 	 	1,106	 	
Stock option expense	 	 	-	 	 	 	-	 	 	 	3,103	 	 	 	3,103	 	
Expenses related to securities litigation	 	 	-	 	 	 	-	 	 	 	3	 	 	 	3	 	
Adjusted EBITDA	 	$	75,251	 	 	$	36,350	 	 	$	(7,362	)	 	$	104,239	 	

-28-

 
 
CHEMED CORPORATION AND SUBSIDIARY COMPANIES	 	
RECONCILIATION OF ADJUSTED NET INCOME	 	
(in thousands, except per share data)(unaudited)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three Months Ended June 30,	 	 	Six Months Ended June 30,	 	
 	 	2014	 	 	2013	 	 	2014	 	 	2013	 	
Net income as reported	 	$	24,363	 	 	$	14,608	 	 	$	44,937	 	 	$	36,886	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Add/(deduct) after-tax cost of:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Litigation settlement	 	 	-	 	 	 	8,967	 	 	 	-	 	 	 	8,967	 	
Additional interest expense resulting from the change in accounting	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
for the conversion feature of the convertible notes	 	 	714	 	 	 	1,348	 	 	 	2,143	 	 	 	2,671	 	
Stock option expense	 	 	722	 	 	 	1,020	 	 	 	1,544	 	 	 	1,963	 	
Expenses of OIG investigation	 	 	254	 	 	 	618	 	 	 	718	 	 	 	1,262	 	
Long-term incentive compensation	 	 	388	 	 	 	313	 	 	 	624	 	 	 	700	 	
Expenses related to litigation settlements	 	 	20	 	 	 	344	 	 	 	207	 	 	 	430	 	
Acquisition expenses	 	 	-	 	 	 	13	 	 	 	1	 	 	 	13	 	
Loss on extinguishment of debt	 	 	-	 	 	 	-	 	 	 	-	 	 	 	294	 	
Expenses of severance arrangements	 	 	-	 	 	 	-	 	 	 	-	 	 	 	184	 	
Expenses related to securities litigation	 	 	119	 	 	 	1	 	 	 	119	 	 	 	2	 	
Adjusted net income	 	$	26,580	 	 	$	27,232	 	 	$	50,293	 	 	$	53,372	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Diluted Earnings Per Share As Reported	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	$	1.36	 	 	$	0.77	 	 	$	2.48	 	 	$	1.94	 	
Average number of shares outstanding	 	 	17,880	 	 	 	18,966	 	 	 	18,097	 	 	 	18,980	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Adjusted Diluted Earnings Per Share	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Adjusted net income	 	$	1.50	 	 	$	1.44	 	 	$	2.81	 	 	$	2.81	 	
Adjusted average number of shares outstanding*	 	 	17,759	 	 	 	18,966	 	 	 	17,895	 	 	 	18,980	 	

* Adjusted diluted average shares outstanding excludes the estimated dilutive impact of the Convertible Notes prior to conversion of these Notes on May 15, 2014 (121,000 shares for the three months ended June 30, 2014 and 202,000 shares for the six months ended June 30, 2014) as this impact was entirely offset upon the exercise of the note hedges on May 15, 2014.  	 	

-29-

 
 
CHEMED CORPORATION AND SUBSIDIARY COMPANIES	 	
OPERATING STATISTICS FOR VITAS SEGMENT	 	
(unaudited)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three Months Ended June 30,	 	 	Six Months Ended June 30,	 	
OPERATING STATISTICS	 	2014	 	 	2013	 	 	2014	 	 	2013	 	
Net revenue ($000)	 	 	 	 	 	 	 	 	 	 	 	 	
Homecare	 	$	200,418	 	 	$	200,273	 	 	$	395,815	 	 	$	396,934	 	
Inpatient	 	 	26,032	 	 	 	25,889	 	 	 	52,025	 	 	 	54,357	 	
Continuous care	 	 	37,719	 	 	 	38,261	 	 	 	75,894	 	 	 	83,586	 	
Total before Medicare cap allowance	 	$	264,169	 	 	$	264,423	 	 	$	523,734	 	 	$	534,877	 	
Medicare cap allowance	 	 	(143	)	 	 	(855	)	 	 	704	 	 	 	18	 	
Total	 	$	264,026	 	 	$	263,568	 	 	$	524,438	 	 	$	534,895	 	
Net revenue as a percent of total	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
before Medicare cap allowance	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Homecare	 	 	75.9	%	 	 	75.7	%	 	 	75.6	%	 	 	74.2	%	
Inpatient	 	 	9.8	 	 	 	9.8	 	 	 	9.9	 	 	 	10.2	 	
Continuous care	 	 	14.3	 	 	 	14.5	 	 	 	14.5	 	 	 	15.6	 	
Total before Medicare cap allowance	 	 	100.0	 	 	 	100.0	 	 	 	100.0	 	 	 	100.0	 	
Medicare cap allowance	 	 	(0.1	)	 	 	(0.3	)	 	 	0.1	 	 	 	-	 	
Total	 	 	99.9	%	 	 	99.7	%	 	 	100.1	%	 	 	100.0	%	
Average daily census (days)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Homecare	 	 	10,546	 	 	 	10,719	 	 	 	10,511	 	 	 	10,538	 	
Nursing home	 	 	2,989	 	 	 	2,943	 	 	 	2,909	 	 	 	2,936	 	
Routine homecare	 	 	13,535	 	 	 	13,662	 	 	 	13,420	 	 	 	13,474	 	
Inpatient	 	 	433	 	 	 	434	 	 	 	435	 	 	 	451	 	
Continuous care	 	 	568	 	 	 	583	 	 	 	572	 	 	 	631	 	
Total	 	 	14,536	 	 	 	14,679	 	 	 	14,427	 	 	 	14,556	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Admissions	 	 	15,771	 	 	 	15,721	 	 	 	32,124	 	 	 	32,858	 	
Total Discharges	 	 	15,673	 	 	 	15,763	 	 	 	31,678	 	 	 	32,622	 	
Average length of stay (days)	 	 	82.4	 	 	 	84.8	 	 	 	81.7	 	 	 	80.9	 	
Median length of stay (days)	 	 	16.0	 	 	 	16.0	 	 	 	15.0	 	 	 	14.0	 	
ADC by major diagnosis	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Neurological	 	 	41.2	%	 	 	35.5	%	 	 	40.9	%	 	 	35.1	%	
Cancer	 	 	17.3	 	 	 	16.9	 	 	 	17.4	 	 	 	16.9	 	
Cardio	 	 	15.7	 	 	 	12.5	 	 	 	15.4	 	 	 	12.0	 	
Respiratory	 	 	7.7	 	 	 	7.5	 	 	 	7.8	 	 	 	7.3	 	
Other	 	 	18.1	 	 	 	27.6	 	 	 	18.5	 	 	 	28.7	 	
Total	 	 	100.0	%	 	 	100.0	%	 	 	100.0	%	 	 	100.0	%	
Admissions by major diagnosis	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Neurological	 	 	21.6	 	 	 	20.1	%	 	 	22.0	%	 	 	19.8	%	
Cancer	 	 	33.4	 	 	 	33.6	 	 	 	33.1	 	 	 	32.3	 	
Cardio	 	 	15.3	 	 	 	13.2	 	 	 	14.6	 	 	 	12.5	 	
Respiratory	 	 	9.6	 	 	 	9.1	 	 	 	9.8	 	 	 	9.4	 	
Other	 	 	20.1	 	 	 	24.0	 	 	 	20.5	 	 	 	26.0	 	
Total	 	 	100.0	%	 	 	100.0	%	 	 	100.0	%	 	 	100.0	%	
Direct patient care margins	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Routine homecare	 	 	53.4	%	 	 	52.3	%	 	 	53.2	%	 	 	52.1	%	
Inpatient	 	 	6.9	 	 	 	3.6	 	 	 	5.6	 	 	 	7.4	 	
Continuous care	 	 	17.5	 	 	 	14.6	 	 	 	17.0	 	 	 	16.3	 	
Homecare margin drivers (dollars per patient day)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Labor costs	 	$	53.89	 	 	$	55.04	 	 	$	54.65	 	 	$	56.09	 	
Drug costs	 	 	7.26	 	 	 	7.55	 	 	 	7.25	 	 	 	7.56	 	
Home medical equipment	 	 	6.76	 	 	 	6.56	 	 	 	6.69	 	 	 	6.70	 	
Medical supplies	 	 	3.17	 	 	 	3.13	 	 	 	3.20	 	 	 	3.03	 	
Inpatient margin drivers (dollars per patient day)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Labor costs	 	$	337.30	 	 	$	346.46	 	 	$	343.50	 	 	$	333.15	 	
Continuous care margin drivers (dollars per patient day)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Labor costs	 	$	581.00	 	 	$	595.29	 	 	$	587.40	 	 	$	591.24	 	
Bad debt expense as a percent of revenues	 	 	1.0	%	 	 	0.8	%	 	 	1.0	%	 	 	0.8	%	
Accounts receivable --	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
  Days of revenue outstanding- excluding unapplied Medicare payments	 	 	36.6	 	 	 	36.8	 	 	n.a	 	 	n.a	 	
  Days of revenue outstanding- including unapplied Medicare payments	 	 	24.4	 	 	 	20.5	 	 	n.a	 	 	n.a	 	

-30-

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

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

Item 3.    Quantitative and Qualitative Disclosures about Market Risk
The Company’s primary market risk exposure relates to interest rate risk exposure through its variable interest line of credit.  At June 30, 2014, the Company had $160.0 million of variable rate debt outstanding.  For each $10 million dollars borrowed under the credit facility, an increase or decrease of 100 basis points (1% point), increase or decreases the Company’s annual interest expense by $100,000.

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.

Item 4.    Controls and Procedures
We carried out an evaluation, under the supervision of our President and Chief Executive Officer and with the participation of the Executive Vice President and Chief Financial Officer and the Vice President and Controller, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report.  Based on that evaluation, the President and Chief Executive Officer, Executive Vice President and Chief Financial Officer and Vice President and Controller have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.  There has been no change in our internal control over financial reporting that occurred during the quarter covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION
Item 1.    Legal Proceedings

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

Item 1A. Risk Factors

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

-31-

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

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

The following table shows the activity related to our share repurchase program for the first six months of 2014:
 
 	 	Total Number	 	 	Weighted Average	 	 	Cumulative Shares	 	 	Dollar Amount	 	
 	 	of Shares	 	 	Price Paid Per	 	 	Repurchased Under	 	 	Remaining Under	 	
 	 	Repurchased	 	 	Share	 	 	the Program	 	 	The Program	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
February 2011 Program	 	 	 	 	 	 	 	 	 	 	 	 	
January 1 through January 31, 2014	 	 	-	 	 	$	-	 	 	 	4,891,885	 	 	$	21,828,041	 	
February 1 through February 28, 2014	 	 	132,934	 	 	 	82.50	 	 	 	5,024,819	 	 	 	110,860,736	 	
March 1 through March 31, 2014	 	 	250,000	 	 	 	88.06	 	 	 	5,274,819	 	 	$	88,845,624	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
First Quarter Total	 	 	382,934	 	 	$	86.13	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
April 1 through April 30, 2014	 	 	-	 	 	$	-	 	 	 	5,274,819	 	 	$	88,845,624	 	
May 31 through May 31, 2014	 	 	300,000	 	 	 	85.04	 	 	 	5,574,819	 	 	 	63,334,823	 	
June 1 through June 30, 2014	 	 	-	 	 	 	-	 	 	 	5,574,819	 	 	$	63,334,823	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Second Quarter Total	 	 	300,000	 	 	$	85.04	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
On February 21, 2014, our Board of Directors authorized an additional $100 million under the February 2011 Repurchase Program.	 	

Item 3.    Defaults Upon Senior Securities

None

Item 4.    Mine Safety Disclosures

None

Item 5.    Other Information

None

-32-

 
 
Item 6.    Exhibits

 	 	 	
Exhibit No.	 	Description	
 	 	 	
31.1	 	Certification by Kevin J. McNamara pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act of 1934.	
 	 	 	
31.2	 	Certification by David P. Williams pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange  Act of 1934.	
 	 	 	
31.3	 	Certification by Arthur V. Tucker, Jr. pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act of 1934.	
 	 	 	
32.1	 	Certification by Kevin J. McNamara pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	
 	 	 	
32.2	 	Certification by David P. Williams pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	
 	 	 	
32.3	 	Certification by Arthur V. Tucker, Jr. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	
 	 	 	
101.INS	 	XBRL Instance Document	
 	 	 	
101.SCH	 	XBRL Taxonomy Extension Schema	
 	 	 	
101.CAL	 	XBRL Taxonomy Extension Calculation Linkbase
 	
101.DEF	 	XBRL Taxonomy Extension Definition Linkbase
 	
101.LAB	 	XBRL Taxonomy Extension Label Linkbase	
 	 	 	
101.PRE	 	XBRL Taxonomy Extension Presentation Linkbase	

 
SIGNATURES

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

 	 	 	 	Chemed Corporation	
 	 	 	 	(Registrant)	

Dated:	         July 30, 2014	 	By:	/s/ Kevin J. McNamara	
 	 	 	 	Kevin J. McNamara	
 	 	 	 	(President and Chief Executive Officer)	

Dated:	         July 30, 2014	 	By:	/s/ David P. Williams	
 	 	 	 	David P. Williams	
 	 	 	 	(Executive Vice President and Chief Financial Officer)	

Dated:	         July 30, 2014	 	By:	/s/ Arthur V. Tucker, Jr.	
 	 	 	 	Arthur V. Tucker, Jr.	
 	 	 	 	(Vice President and Controller)	

-33-

EXHIBIT 31.1

CERTIFICATION PURSUANT TO RULES 13a-14(a)/15d-14(a) OF THE EXCHANGE ACT OF 1934

I, Kevin J. McNamara, certify that:

1.  I have reviewed this quarterly report on Form 10-Q of Chemed Corporation (“registrant”);

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;

4.  The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have:

 	a)  designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	

 	b)  designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	

 	c)  evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	

 	d)  disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter  (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and	
 
5.  The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors or persons performing the equivalent function:

 	a)  all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and	

 	b)  any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.	

 
Date:  	July 30, 2014              	 	/s/ Kevin J. McNamara
Kevin J. McNamara
(President and Chief
Executive Officer)	
 
E-1

EXHIBIT 31.2

CERTIFICATION PURSUANT TO RULES 13a-14(a)/15d-14(a) OF THE EXCHANGE ACT OF 1934

I, David P. Williams, certify that:

1.  I have reviewed this quarterly report on Form 10-Q of Chemed Corporation (“registrant”);

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;

4.  The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have:

 	a)  designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	

 	b)  designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	

 	c)  evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	

 	d)  disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and	

5.  The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors or persons performing the equivalent function:

 	a)  all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and	

 	b)  any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.	

 
Date:  	July 30, 2014              	 	/s/ David P. Williams
David P. Williams
(Executive Vice President and Chief Financial
Officer)	
 
E-2

EXHIBIT 31.3
 
CERTIFICATION PURSUANT TO RULES 13a-14(a)/15d-14(a) OF THE EXCHANGE ACT OF 1934

I, Arthur V. Tucker, Jr., certify that:

1.  I have reviewed this quarterly report on Form 10-Q of Chemed Corporation (“registrant”);

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;

4.  The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have:

 	a)  designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	

 	b)  designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles,	

 	c)  evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	

 	d)  disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and	

5.  The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors or persons performing the equivalent function:

 	a)  all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and	

 	b)  any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.	

 
Date:  	July 30, 2014              	 	/s/ Arthur V. Tucker, Jr.
Arthur V. Tucker, Jr.
(Vice President and
Controller)	
 
E-3

EXHIBIT 32.1

CERTIFICATION BY KEVIN J. MCNAMARA
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002.

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, as President and Chief Executive Officer of Chemed Corporation (“Company”), does hereby certify that:

 	1)	the Company’s Quarterly Report on Form 10-Q for the quarter ending June 30, 2014 (“Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and	

 	2)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.	

 
Dated:  	July 30, 2014              	 	/s/ Kevin J. McNamara
Kevin J. McNamara
(President and Chief
Executive Officer)	
 
E-4

EXHIBIT 32.2

CERTIFICATION BY DAVID P. WILLIAMS
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002.

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, as Executive Vice President and Chief Financial Officer of Chemed Corporation (“Company”), does hereby certify that:

 	1)	the Company’s Quarterly Report on Form 10-Q for the quarter ending June 30, 2014 (“Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and	

 	2)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.	

 
Dated:  	July 30, 2014              	 	/s/ David P. Williams
David P. Williams
(Executive Vice President and Chief Financial

E-5

EXHIBIT 32.3

CERTIFICATION BY ARTHUR V. TUCKER, JR.
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002.

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, as Vice President and Controller of Chemed Corporation (“Company”), does hereby certify that:

 	1)	the Company’s Quarterly Report on Form 10-Q for the quarter ending June 30, 2014 (“Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and	

 	2)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.	

 
Dated:  	July 30, 2014              	 	/s/ Arthur V. Tucker, Jr.
Arthur V. Tucker, Jr.
(Vice President and  Controller)	
 
E-6