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 September 30, 2013

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	 	17,634,176 Shares	 	September 30, 2013	

 
-1-

 
 
CHEMED CORPORATION AND
SUBSIDIARY COMPANIES

Index

 	 	
 	Page No.	
PART I.    FINANCIAL INFORMATION:	 	
Item 1.  Financial Statements	 	
Unaudited Consolidated Balance Sheet -	 	
September 30, 2013 and December 31, 2012	3	
 	 	
Unaudited Consolidated Statement of Income -	 	
Three and nine months ended September 30, 2013 and 2012	4	
 	 	
Unaudited Consolidated Statement of Cash Flows -	 	
Nine months ended September 30, 2013 and 2012	5	
 	 	
Notes to Unaudited Consolidated Financial Statements	6	
 	 	
Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations	18	
 	 	
Item 3.  Quantitative and Qualitative Disclosures about Market Risk	34	
 	 	
Item 4.  Controls and Procedures	34	
 	 	
PART II.   OTHER INFORMATION	 	
 	 	
Item 1.    Legal Proceedings	34	
 	 	
Item 1A. Risk Factors	34	
 	 	
Item 2.    Unregistered Sales of Equity Securities and Use of  Proceeds	35	
 	 	
Item 3.    Defaults Upon Senior Securities	35	
 	 	
Item 4.    Mine Safety Disclosures	35	
 	 	
Item 5.    Other Information	35	
 	 	
Item 6.    Exhibits	36	
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)	 	

 	 	September 30,	 	 	December 31,	 	
 	 	2013	 	 	2012	 	
ASSETS	 	 	 	 	 	 	
Current assets	 	 	 	 	 	 	
Cash and cash equivalents	 	$	83,204	 	 	$	69,531	 	
Accounts receivable less allowances of $12,555 (2012 - $10,892)	 	 	80,117	 	 	 	93,333	 	
Inventories	 	 	6,729	 	 	 	7,058	 	
Current deferred income taxes	 	 	25,101	 	 	 	13,659	 	
Prepaid income taxes	 	 	3,538	 	 	 	2,643	 	
Prepaid expenses	 	 	17,684	 	 	 	11,447	 	
Total current assets	 	 	216,373	 	 	 	197,671	 	
Investments of deferred compensation plans	 	 	40,683	 	 	 	36,089	 	
Properties and equipment, at cost, less accumulated depreciation of $178,720 (2012 - $164,607)	 	 	89,800	 	 	 	91,934	 	
Identifiable intangible assets less accumulated amortization of $31,633 (2012 - $30,414)	 	 	56,979	 	 	 	57,177	 	
Goodwill	 	 	466,940	 	 	 	465,832	 	
Other assets	 	 	10,765	 	 	 	10,923	 	
Total Assets	 	$	881,540	 	 	$	859,626	 	
 	 	 	 	 	 	 	 	 	
LIABILITIES	 	 	 	 	 	 	 	 	
Current liabilities	 	 	 	 	 	 	 	 	
Accounts payable	 	$	44,523	 	 	$	48,472	 	
Current portion of long-term debt	 	 	181,340	 	 	 	-	 	
Income taxes	 	 	5,529	 	 	 	4,938	 	
Accrued insurance	 	 	41,737	 	 	 	40,654	 	
Accrued compensation	 	 	46,689	 	 	 	45,457	 	
Other current liabilities	 	 	56,536	 	 	 	17,301	 	
Total current liabilities	 	 	376,354	 	 	 	156,822	 	
Deferred income taxes	 	 	27,454	 	 	 	27,662	 	
Long-term debt	 	 	-	 	 	 	174,890	 	
Deferred compensation liabilities	 	 	39,406	 	 	 	35,599	 	
Other liabilities	 	 	11,499	 	 	 	11,362	 	
Total Liabilities	 	 	454,713	 	 	 	406,335	 	
Commitments and contingencies	 	 	 	 	 	 	 	 	
STOCKHOLDERS' EQUITY	 	 	 	 	 	 	 	 	
Capital stock - authorized 80,000,000 shares $1 par; issued 32,085,561 shares (2012 - 31,589,366 shares)	 	 	32,086	 	 	 	31,589	 	
Paid-in capital	 	 	469,934	 	 	 	437,364	 	
Retained earnings	 	 	666,894	 	 	 	623,035	 	
Treasury stock - 14,548,735 shares (2012 - 13,057,270)	 	 	(744,210	)	 	 	(640,732	)	
Deferred compensation payable in Company stock	 	 	2,123	 	 	 	2,035	 	
Total Stockholders' Equity	 	 	426,827	 	 	 	453,291	 	
Total Liabilities and Stockholders' Equity	 	$	881,540	 	 	$	859,626	 	

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 September 30,	 	 	Nine Months Ended September 30,	 	
 	 	2013	 	 	2012	 	 	2013	 	 	2012	 	
Service revenues and sales	 	$	340,886	 	 	$	354,353	 	 	$	1,064,725	 	 	$	1,061,466	 	
Cost of services provided and goods sold (excluding depreciation)	 	 	243,184	 	 	 	256,610	 	 	 	762,850	 	 	 	771,423	 	
Selling, general and administrative expenses	 	 	48,870	 	 	 	52,955	 	 	 	157,537	 	 	 	155,892	 	
Depreciation	 	 	6,971	 	 	 	6,557	 	 	 	20,665	 	 	 	19,178	 	
Amortization	 	 	1,190	 	 	 	1,135	 	 	 	3,498	 	 	 	3,375	 	
Other operating expenses	 	 	11,461	 	 	 	1,126	 	 	 	26,221	 	 	 	1,126	 	
Total costs and expenses	 	 	311,676	 	 	 	318,383	 	 	 	970,771	 	 	 	950,994	 	
Income from operations	 	 	29,210	 	 	 	35,970	 	 	 	93,954	 	 	 	110,472	 	
Interest expense	 	 	(3,500	)	 	 	(3,743	)	 	 	(11,291	)	 	 	(11,032	)	
Other income/(expense) - net	 	 	(90	)	 	 	1,840	 	 	 	3,312	 	 	 	2,965	 	
Income before income taxes	 	 	25,620	 	 	 	34,067	 	 	 	85,975	 	 	 	102,405	 	
Income taxes	 	 	(8,188	)	 	 	(13,222	)	 	 	(31,657	)	 	 	(39,841	)	
Net income	 	$	17,432	 	 	$	20,845	 	 	$	54,318	 	 	$	62,564	 	

Earnings Per Share	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	$	0.96	 	 	$	1.10	 	 	$	2.95	 	 	$	3.30	 	
Average number of shares outstanding	 	 	18,184	 	 	 	18,960	 	 	 	18,436	 	 	 	18,977	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Diluted Earnings Per Share	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	$	0.94	 	 	$	1.07	 	 	$	2.89	 	 	$	3.23	 	
Average number of shares outstanding	 	 	18,522	 	 	 	19,404	 	 	 	18,824	 	 	 	19,382	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash Dividends Per Share	 	$	0.20	 	 	$	0.18	 	 	$	0.56	 	 	$	0.50	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
See accompanying notes to unaudited consolidated financial statements.	 	

-4-

 

CHEMED CORPORATION AND SUBSIDIARY COMPANIES	 	
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS	 	
(in thousands)	 	
 	 	 	 	 	 	 	
 	 	Nine Months Ended	 	
 	 	September 30,	 	
 	 	2013	 	 	2012	 	
Cash Flows from Operating Activities	 	 	 	 	 	 	
Net income	 	$	54,318	 	 	$	62,564	 	
Adjustments to reconcile net income to net cash provided	 	 	 	 	 	 	 	 	
by operating activities:	 	 	 	 	 	 	 	 	
Depreciation and amortization	 	 	24,163	 	 	 	22,553	 	
Deferred income taxes	 	 	(11,681	)	 	 	(6,808	)	
Provision for uncollectible accounts receivable	 	 	8,211	 	 	 	7,303	 	
Amortization of discount on convertible notes	 	 	6,450	 	 	 	6,028	 	
Stock option expense	 	 	4,732	 	 	 	6,709	 	
Amortization of debt issuance costs	 	 	1,421	 	 	 	940	 	
Noncash long-term incentive compensation	 	 	1,161	 	 	 	-	 	
Changes in operating assets and liabilities, excluding	 	 	 	 	 	 	 	 	
amounts acquired in business combinations:	 	 	 	 	 	 	 	 	
Decrease/(increase) in accounts receivable	 	 	5,293	 	 	 	(30,409	)	
Decrease in inventories	 	 	329	 	 	 	1,029	 	
Decrease/(increase) in prepaid expenses	 	 	(6,183	)	 	 	1,554	 	
Increase in accounts payable and other current liabilities	 	 	48,967	 	 	 	4,454	 	
Increase in income taxes	 	 	1,923	 	 	 	1,292	 	
Increase in other assets	 	 	(5,002	)	 	 	(3,944	)	
Increase in other liabilities	 	 	3,978	 	 	 	6,648	 	
Excess tax benefit on share-based compensation	 	 	(2,507	)	 	 	(2,714	)	
Other sources	 	 	285	 	 	 	138	 	
Net cash provided by operating activities	 	 	135,858	 	 	 	77,337	 	
Cash Flows from Investing Activities	 	 	 	 	 	 	 	 	
Capital expenditures	 	 	(18,887	)	 	 	(26,489	)	
Business combinations, net of cash acquired	 	 	(2,210	)	 	 	(5,900	)	
Other sources	 	 	139	 	 	 	528	 	
Net cash used by investing activities	 	 	(20,958	)	 	 	(31,861	)	
Cash Flows from Financing Activities	 	 	 	 	 	 	 	 	
Purchases of treasury stock	 	 	(89,611	)	 	 	(11,724	)	
Dividends paid	 	 	(10,459	)	 	 	(9,641	)	
Capital stock surrendered to pay taxes on stock-based compensation	 	 	(4,280	)	 	 	(3,236	)	
Proceeds from exercise of stock options	 	 	13,125	 	 	 	10,483	 	
Excess tax benefit on share-based compensation	 	 	2,507	 	 	 	2,714	 	
Decrease in cash overdrafts payable	 	 	(10,928	)	 	 	(3,299	)	
Debt issuance costs	 	 	(1,108	)	 	 	-	 	
Other sources/(uses)	 	 	(473	)	 	 	442	 	
Net cash used by financing activities	 	 	(101,227	)	 	 	(14,261	)	
Increase in Cash and Cash Equivalents	 	 	13,673	 	 	 	31,215	 	
Cash and cash equivalents at beginning of year	 	 	69,531	 	 	 	38,081	 	
Cash and cash equivalents at end of period	 	$	83,204	 	 	$	69,296	 	
 	 	 	 	 	 	 	 	 	
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, 2012 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 Consolidated Financial Statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2012.

2.   Revenue Recognition

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

As of September 30, 2013, VITAS has approximately $224,000 in unbilled revenue included in accounts receivable (December 31, 2012 - $457,000).  The unbilled revenue at VITAS relates to hospice programs currently undergoing various patient file reviews.  Surveyors working on behalf of the various payers review certain patient files for compliance with applicable regulations.  During the time the patient file is under review, we are unable to bill for care provided to those patients.  We make appropriate provisions to reduce our accounts receivable balance for any governmental or other payer reviews resulting in denials of patient service revenue.  We believe our hospice programs comply with all payer requirements.  However, we cannot predict whether future billing reviews or similar audits by payers will result in material denials or reductions in revenue.

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 nine month periods ended September 30, 2013, we reversed Medicare cap liability of $873,000 for amounts recorded in the fourth quarter of 2012 for three programs’ projected 2013 measurement period liability.  We reversed these amounts as improving admissions trends in these programs indicate that the liability had been eliminated.  During 2013 this reversal was offset by a $4.0 million Medicare cap liability for one program’s projected 2013 measurement period liability.

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

 	September 30,	 	
 	2013	 	2012	 	
Beginning balance January 1,	 	$	1,261	 	 	$	2,965	 	
2013 measurement period	 	 	3,161	 	 	 	-	 	
2012 measurement period	 	 	-	 	 	 	(2,577	)	
Ending balance September 30,	 	$	4,422	 	 	$	388	 	

-6-

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

Three months ended September 30,	 	 	Nine months ended September 30,	 	
2013	 	 	2012	 	 	2013	 	 	2012	 	
$	1,909	 	 	$	1,983	 	 	$	5,793	 	 	$	6,021	 	
 
3.   Segments

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

 	 	 	 	 	 	 	
 	 	Three months ended September 30,	 	 	Nine months ended September 30,	 	
 	 	2013	 	 	2012	 	 	2013	 	 	2012	 	
Service Revenues and Sales	 	 	 	 	 	 	 	 	 	 	 	 	
VITAS	 	$	254,001	 	 	$	267,990	 	 	$	788,896	 	 	$	794,050	 	
Roto-Rooter	 	 	86,885	 	 	 	86,363	 	 	 	275,829	 	 	 	267,416	 	
Total	 	$	340,886	 	 	$	354,353	 	 	$	1,064,725	 	 	$	1,061,466	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
After-tax Earnings	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
VITAS	 	$	14,608	 	 	$	21,940	 	 	$	55,237	 	 	$	61,999	 	
Roto-Rooter	 	 	8,181	 	 	 	6,145	 	 	 	19,218	 	 	 	21,715	 	
Total	 	 	22,789	 	 	 	28,085	 	 	 	74,455	 	 	 	83,714	 	
Corporate	 	 	(5,357	) *	 	 	(7,240	)	 	 	(20,137	) *	 	 	(21,150	)	
Net income	 	$	17,432	 	 	$	20,845	 	 	$	54,318	 	 	$	62,564	 	

*Corporate includes a credit of $1.8 million related to the expiration of tax statutes for uncertain tax positions recorded in prior years.

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 September 30,	 	Income	 	Shares	 	Earnings per Share	
2013	 	 	 	 	 	 	 	 	 	
 	Earnings	 	$	 17,432	 	 18,184	 	$	 0.96	
 	Dilutive stock options	 	 	 -	 	 235	 	 	 	
 	Nonvested stock awards	 	 	 -	 	 103	 	 	 	
 	Diluted earnings	 	$	 17,432	 	 18,522	 	$	 0.94	
 	 	 	 	 	 	 	 	 	 	
2012	 	 	 	 	 	 	 	 	 	
 	Earnings	 	$	 20,845	 	 18,960	 	$	 1.10	
 	Dilutive stock options	 	 	 -	 	 341	 	 	 	
 	Nonvested stock awards	 	 	 -	 	 103	 	 	 	
 	Diluted earnings	 	$	 20,845	 	 19,404	 	$	 1.07	

 
-7-

 

 	 	 	 	Net Income	
For the Nine Months Ended September 30,	 	Income	 	Shares	 	Earnings per Share	
2013	 	 	 	 	 	 	 	 	 	
 	Earnings	 	$	 54,318	 	 18,436	 	$	 2.95	
 	Dilutive stock options	 	 	 -	 	 287	 	 	 	
 	Nonvested stock awards	 	 	 -	 	 101	 	 	 	
 	Diluted earnings	 	$	 54,318	 	 18,824	 	$	 2.89	
 	 	 	 	 	 	 	 	 	 	
2012	 	 	 	 	 	 	 	 	 	
 	Earnings	 	$	 62,564	 	 18,977	 	$	 3.30	
 	Dilutive stock options	 	 	 -	 	 313	 	 	 	
 	Nonvested stock awards	 	 	 -	 	 92	 	 	 	
 	Diluted earnings	 	$	 62,564	 	 19,382	 	$	 3.23	
 
For the three and nine-month periods ended September 30, 2013, 434,000 and 31,000, respectively, stock options were excluded from the computation of diluted earnings per share because they would have been anti-dilutive. For the three and nine-month period ended September 30, 2012, 1.4 million stock options were excluded from the computation of diluted earnings per share.

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

The following table provides examples of how changes in our stock price impact the number of shares that would be included in our diluted earnings per share calculation at September 30, 2013.  It also shows the impact on the number of shares issuable upon conversion of the Notes and settlement of the purchased call options and sold warrants:
 
 	 	 	Shares	 	 	 	 	 	Total Treasury	 	 	Shares Due	 	 	Incremental	 	
 	 	 	Underlying 1.875%	 	 	 	 	 	Method	 	 	to the Company	 	 	Shares Issued/	 	
Share	 	 	Convertible	 	 	Warrant	 	 	Incremental	 	 	under Notes	 	 	(Received) by the Company	
Price	 	 	Notes	 	 	Shares	 	 	Shares (a)	 	 	Hedges	 	 	upon Conversion (b)	 	
$	80.73	 	 	 	61,766	 	 	 	-	 	 	 	61,766	 	 	 	(66,076	)	 	 	(4,310	)	
$	90.73	 	 	 	317,009	 	 	 	-	 	 	 	317,009	 	 	 	(339,127	)	 	 	(22,118	)	
$	100.73	 	 	 	521,573	 	 	 	-	 	 	 	521,573	 	 	 	(557,964	)	 	 	(36,391	)	
$	110.73	 	 	 	689,189	 	 	 	121,511	 	 	 	810,700	 	 	 	(737,274	)	 	 	73,426	 	
$	120.73	 	 	 	829,038	 	 	 	322,121	 	 	 	1,151,159	 	 	 	(886,880	)	 	 	264,279	 	
$	130.73	 	 	 	947,492	 	 	 	492,040	 	 	 	1,439,532	 	 	 	(1,013,599	)	 	 	425,933	 	

 	a)	Represents the number of incremental shares that must be included in the calculation of fully diluted shares under U.S. GAAP.	

 	b)	Represents the number of incremental shares to be issued by the Company upon conversion of the 1.875% Convertible Notes, assuming concurrent settlement of the note hedges and warrants.	

-8-

 
 
5.   Long-Term Debt

On January 18, 2013, we replaced our existing credit agreement with our Revolving Credit Facility (“2013 Credit Agreement”).  Terms of the 2013 Credit Agreement consist of a five-year, $350 million revolving credit facility.  This 2013 Credit Agreement has a floating interest rate that is currently LIBOR plus 125 basis points.  The 2013 Credit Agreement also includes a $150 million expansion feature.  Debt issuance costs associated with the existing credit agreement were not material.  With respect to the 2013 Credit Agreement, deferred financing costs are immaterial.  The 2013 Credit Agreement contains the following quarterly financial covenants:

Description	 	Requirement	
 	 	 	
Leverage Ratio (Consolidated Indebtedness/Consolidated  Adj. EBITDA)	 	< 3.50 to 1.00	
 	 	 	
Fixed Charge Coverage Ratio (Consolidated Free Cash Flow/Consolidated Fixed Charges)	 	> 1.50 to 1.00	
 	 	 	
Annual Operating Lease Commitment	 	< $30.0 million	

We are in compliance with all debt covenants as of September 30, 2013.  We have issued $32.9 million in standby letters of credit as of September 30, 2013 for insurance purposes.  Issued letters of credit reduce our available credit under the 2013 Credit Agreement.  As of September 30, 2013, we have approximately $317.1 million of unused lines of credit available and eligible to be drawn down under our revolving credit facility, excluding the $150 million expansion feature.

The following amounts are included in our consolidated balance sheet related to the Notes:
 
 	 	September 30, 2013	 	 	December 31, 2012	 	
Principal amount of convertible debentures	 	$	186,956	 	 	$	186,956	 	
Unamortized debt discount	 	 	(5,616	)	 	 	(12,066	)	
Carrying amount of convertible debentures	 	$	181,340	 	 	$	174,890	 	
Additional paid in capital (net of tax)	 	$	31,310	 	 	$	31,310	 	

In the second quarter of 2013, the principal amount of the convertible debentures was reclassified to current as the amounts are due in May 2014.

The following amounts comprise interest expense included in our consolidated income statement (in thousands):

 	Three months ended September 30,	 	 	Nine months ended September 30,	 	
 	2013	 	 	2012	 	 	2013	 	 	2012	 	
Cash interest expense	$	990	 	 	$	1,381	 	 	$	3,420	 	 	$	4,064	 	
Non-cash amortization of debt discount	 	2,186	 	 	 	2,043	 	 	 	6,450	 	 	 	6,028	 	
Amortization and write-off of debt costs	 	324	 	 	 	319	 	 	 	1,421	 	 	 	940	 	
Total interest expense	$	3,500	 	 	$	3,743	 	 	$	11,291	 	 	$	11,032	 	

The unamortized debt discount is being amortized using the effective interest method over the remaining life of the Notes.  The effective rate on the Notes is approximately 6.875% as of September 30, 2013.

-9-

 
 
6.   Other Income/(expense) – Net

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

 	Three months ended September 30,	 	Nine months ended September 30,	
 	2013	 	2012	 	2013	 	2012	
Market value gains/(losses) on assets held in	 	 	 	 	 	 	 	 	 	 	
deferred compensation trust	$	 (189)	 	$	 1,576	 	$	 2,346	 	$	 2,761	
Loss on disposal of property and equipment	 	 (101)	 	 	 (80)	 	 	 (180)	 	 	 (228)	
Interest income	 	 192	 	 	 291	 	 	 1,165	 	 	 401	
Other - net	 	 8	 	 	 53	 	 	 (19)	 	 	 31	
     Total other income/(expense) - net	$	 (90)	 	$	 1,840	 	$	 3,312	 	$	 2,965	

 7.   Stock-Based Compensation Plans

On February 20, 2013, the Compensation/Incentive Committee of the Board of Directors (“CIC”) approved a grant of 28,992 shares of restricted stock to certain key employees.  The restricted shares cliff vest four years from the date of issuance.  The cumulative compensation expense related to the restricted stock award is $2.3 million and will be recognized ratably over the 4 year vesting period.  We assumed no forfeitures in determining the cumulative compensation expense of the grant.

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 September 30, 2013 totaling $1.4 million (December 31, 2012 - $1.3 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 September 30, 2013.  We recorded the following from our independent contractors (in thousands):

 	Three months ended September 30,	 	 	Nine months ended September 30,	 	
 	2013	 	 	2012	 	 	2013	 	 	2012	 	
Revenues	 	$	8,054	 	 	$	6,942	 	 	$	24,418	 	 	$	20,434	 	
Pretax profits	 	 	4,243	 	 	 	3,611	 	 	 	13,015	 	 	 	10,424	 	

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 September 30,	 	Nine months ended September 30,	
2013	 	2012	 	2013	 	2012	
$	 2,098	 	$	 2,646	 	$	 9,796	 	$	 8,501	
 
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 lawsuits and investigations of which the Company is currently aware.  Unless otherwise indicated, 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.

-10-

 
 
Regulatory Matters and Litigation
In February 2010, Chemed and Roto-Rooter were named as defendants in a lawsuit filed in the United States District Court for the Eastern District of New York,  Anthony Morangelli, et al., v. Chemed Corp. and Roto-Rooter Services Co.,  No. 10 CV-00876 (BMC).  The named plaintiffs, current and former technicians employed by Roto-Rooter who were paid on a commission basis, asserted against Chemed and Roto-Rooter claims for violation of the Fair Labor Standards Act (“FLSA”) and claims for violations of the labor laws of multiple states.  In June 2013 the parties reached an agreement to settle the case for $14.3 million plus applicable payroll taxes ($9.0 million after tax), which is subject to Court approval.  As such, $14.8 million is recorded as other operating expense in the quarter ended June 30, 2013 Statement of Income.
  
VITAS is party to a class action lawsuit filed in the Superior Court of California, Los Angeles County in September 2006 by Bernadette Santos, Keith Knoche and Joyce White,  Bernadette Santos, et al. v. Vitas Healthcare Corporation of California , BC359356.  This case alleges failure to pay overtime and failure to provide meal and rest periods to a purported class of California admissions nurses, chaplains and sales representatives.  The case seeks payment of penalties, interest and Plaintiffs’ attorney fees.    In December 2009, the trial court denied Plaintiffs’ motion for class certification.  In July 2011, the Court of Appeals affirmed denial of class certification on the travel time, meal and rest period claims, and reversed the trial court’s denial on the off-the-clock and sales representation exemption claims.  Plaintiffs filed an appeal of this decision.  In September 2012, in response to an order of reconsideration, the Court of Appeals reiterated its previous rulings.  In March 2013, the Court granted summary judgment dismissing the sales representatives’ claims as they are exempt employees.  In October 2013 we reached agreement, subject to Court approval, to settle the case for $10.3 million plus applicable payroll taxes ($6.5 million aftertax).  As such, $10.5 million is recorded as other operating expense in the quarter ended September 30, 2013 Statement of Income.

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 concern the VITAS hospice segment of the Company’s business.  Plaintiffs seek, 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 oppose this motion. On September 16, 2013, Plaintiffs, on behalf of a putative class of purchasers of Chemed Capital Stock between February 15, 2010, and May 3, 2013, inclusive, executed a Settlement Term Sheet with Defendants (“Settlement”), reaching an agreement in principle 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 class.  The Settlement has been recorded as an accrual and offsetting prepaid in the accompanying Balance Sheet. This Settlement is subject to final documentation by the parties as well as Court approval.  Defendants agreed to enter into this Settlement in order to eliminate the burden, expense and distraction of further litigation.
 
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.

-11-

 
 
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 ., 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 has filed a notice of election to intervene in the Gonzales complaint.  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 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.

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 Company intends to defend vigorously against the allegations in each of the above lawsuits.    The Company had a net recovery for these investigations, due to a one-time insurance reimbursement of $1.0 million for certain legal costs, for the three month period ended September 30, 2013 of $591,000. The net costs to comply with these investigations were $1.4 million for the nine month period ended September 30, 2013. 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.

-12-

 
 
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 $9.7 million and $10.6 million for the three months ended September 30, 2013 and 2012, respectively.  VITAS made purchases from OCR of $29.3 million and $30.9 million for the nine months ended September 30, 2013 and 2012, respectively For the three and nine month periods ending September 30, 2013 and 2012, 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 September 30, 2013 is cash overdrafts payable of $1.3 million (December 31, 2012 - $12.2 million).

From time to time throughout the year, we invest excess cash in money market funds with major commercial banks. We closely monitor the creditworthiness of the institutions with which we invest our overnight funds.  We had $41.0 million in cash equivalents as of September 30, 2013.  There was $56.6 million in cash equivalents as of December 31, 2012.  The weighted average rate of return for our cash equivalents was 0.07% for September 30, 2013 and 0.2% for December 31, 2012.

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 September 30, 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	 	$	40,683	 	 	$	40,683	 	 	$	-	 	 	$	-	 	
Long-term debt	 	 	181,340	 	 	 	195,257	 	 	 	-	 	 	 	-	 	

The following shows the carrying value, fair value and the hierarchy for our financial instruments as of December 31, 2012 (in thousands):

 	 	 	 	 	Fair Value Measure	 	
 	 	Carrying Value	 	 	 
Quoted Prices in Active Markets for Identical Assets (Level 1)	 	 	Significant Other Observable Inputs (Level 2)	 	 	Significant Unobservable Inputs (Level 3)	 	
Mutual fund investments of deferred	 	 	 	 	 	 	 	 	 	 	 	 	
compensation plans held in trust	 	$	36,089	 	 	$	36,089	 	 	$	-	 	 	$	-	 	
Long-term debt	 	 	174,890	 	 	 	197,874	 	 	 	-	 	 	 	-	 	

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.

-13-

 

14.   Capital Stock Repurchase Plan Transactions

We repurchased the following capital stock for the three and nine-months ended September 30, 2013 and 2012:
 	 	 	 	 	 	 	 	 	 	 	 	
 	Three months ended September 30,	 	 	Nine months ended September 30,	 	
 	2013	 	 	2012	 	 	2013	 	 	2012	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Shares repurchased	 	1,032,754	 	 	 	9,334	 	 	 	1,313,455	 	 	 	209,234	 	
Weighted average price per share	$	68.91	 	 	$	62.75	 	 	$	68.23	 	 	$	56.03	 	

In February 2013, the Board of Directors authorized an additional $100 million for stock repurchase under Chemed’s existing share repurchase program. We currently have $25.1 million of authorization remaining under this share repurchase plan.
 
15.  Other Operating Expenses

Other operating expenses comprise (in thousands):

 	Three months ended September 30,	 	Nine months ended September 30,	 	
 	2013	 	 	2012	 	 	2013	 	 	2012	 	
Litigation settlement of VITAS segment (a)	$	10,500	 	 	$	-	 	 	$	10,500	 	 	$	-	 	
Settlements of Roto-Rooter segment (b)	 	961	 	 	 	-	 	 	 	15,721	 	 	 	-	 	
Severance and other operating costs related	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
to closing Roto-Rooter's HVAC business	 	-	 	 	 	1,126	 	 	 	-	 	 	 	1,126	 	
Total other operating expenses	$	11,461	 	 	$	1,126	 	 	$	26,221	 	 	$	1,126	 	

(a) Santos claims discussed in Note 10.
(b) Morganelli claims discussed in Note 10 and estimated cost of certain customer claims currently under negotiation.

 
-14-

 
 
16.   Guarantor Subsidiaries
Our 1.875% Notes are fully and unconditionally guaranteed on an unsecured, jointly, and severally liable basis by certain of our 100% owned subsidiaries.  The following unaudited, condensed, consolidating financial data presents the composition of the parent company (Chemed), the guarantor subsidiaries and the non-guarantor subsidiaries as of September 30, 2013 and December 31, 2012 for the balance sheet, the three and nine months ended September 30, 2013 and September 30, 2012 for the income statement and the nine months ended September 30, 2013 and September 30, 2012 for the statement of cash flows  (dollars in thousands):

September 30, 2013	 	 	 	 	Guarantor	 	 	Non-Guarantor	 	 	Consolidating	 	 	 	 	
 	 	Parent	 	 	Subsidiaries	 	 	Subsidiaries	 	 	Adjustments	 	 	Consolidated	 	
ASSETS	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	$	84,842	 	 	$	(10,511	)	 	$	8,873	 	 	$	-	 	 	$	83,204	 	
Accounts receivable, including intercompany	 	 	960	 	 	 	496,001	 	 	 	741	 	 	 	(417,585	)	 	 	80,117	 	
Inventories	 	 	-	 	 	 	6,175	 	 	 	554	 	 	 	-	 	 	 	6,729	 	
Current deferred income taxes	 	 	-	 	 	 	27,237	 	 	 	177	 	 	 	(2,313	)	 	 	25,101	 	
Prepaid income taxes	 	 	6,583	 	 	 	-	 	 	 	218	 	 	 	(3,263	)	 	 	3,538	 	
Prepaid expenses	 	 	7,199	 	 	 	10,245	 	 	 	240	 	 	 	-	 	 	 	17,684	 	
     Total current assets	 	 	99,584	 	 	 	529,147	 	 	 	10,803	 	 	 	(423,161	)	 	 	216,373	 	
Investments of deferred compensation plans	 	 	-	 	 	 	-	 	 	 	40,683	 	 	 	-	 	 	 	40,683	 	
Properties and equipment, at cost less accumulated depreciation	 	 	10,361	 	 	 	76,957	 	 	 	2,482	 	 	 	-	 	 	 	89,800	 	
Identifiable intangible assets less accumulated amortization	 	 	-	 	 	 	56,979	 	 	 	-	 	 	 	-	 	 	 	56,979	 	
Goodwill	 	 	-	 	 	 	462,489	 	 	 	4,451	 	 	 	-	 	 	 	466,940	 	
Other assets	 	 	18,155	 	 	 	1,770	 	 	 	15,177	 	 	 	(24,337	)	 	 	10,765	 	
Investments in subsidiaries	 	 	924,423	 	 	 	27,629	 	 	 	-	 	 	 	(952,052	)	 	 	-	 	
          Total assets	 	$	1,052,523	 	 	$	1,154,971	 	 	$	73,596	 	 	$	(1,399,550	)	 	$	881,540	 	
LIABILITIES AND STOCKHOLDERS' EQUITY	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Accounts payable, including intercompany	 	$	421,662	 	 	$	35,005	 	 	$	5,441	 	 	$	(417,585	)	 	$	44,523	 	
Current portion of long-term debt	 	 	181,340	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	181,340	 	
Income taxes	 	 	5,034	 	 	 	3,349	 	 	 	409	 	 	 	(3,263	)	 	 	5,529	 	
Accrued insurance	 	 	153	 	 	 	41,584	 	 	 	-	 	 	 	-	 	 	 	41,737	 	
Accrued compensation	 	 	3,226	 	 	 	43,131	 	 	 	332	 	 	 	-	 	 	 	46,689	 	
Other current liabilities	 	 	11,023	 	 	 	47,646	 	 	 	180	 	 	 	(2,313	)	 	 	56,536	 	
      Total current liabilities	 	 	622,438	 	 	 	170,715	 	 	 	6,362	 	 	 	(423,161	)	 	 	376,354	 	
Deferred income taxes	 	 	-	 	 	 	51,791	 	 	 	-	 	 	 	(24,337	)	 	 	27,454	 	
Deferred compensation liabilities	 	 	-	 	 	 	-	 	 	 	39,406	 	 	 	-	 	 	 	39,406	 	
Other liabilities	 	 	3,258	 	 	 	7,265	 	 	 	976	 	 	 	-	 	 	 	11,499	 	
Stockholders' equity	 	 	426,827	 	 	 	925,200	 	 	 	26,852	 	 	 	(952,052	)	 	 	426,827	 	
     Total liabilities and stockholders' equity	 	$	1,052,523	 	 	$	1,154,971	 	 	$	73,596	 	 	$	(1,399,550	)	 	$	881,540	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
December 31, 2012	 	 	 	 	 	Guarantor	 	 	Non-Guarantor	 	 	Consolidating	 	 	 	 	 	
 	 	Parent	 	 	Subsidiaries	 	 	Subsidiaries	 	 	Adjustments	 	 	Consolidated	 	
ASSETS	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	$	56,342	 	 	$	4,674	 	 	$	8,515	 	 	$	-	 	 	$	69,531	 	
Accounts receivable, including intercompany	 	 	925	 	 	 	427,341	 	 	 	889	 	 	 	(335,822	)	 	 	93,333	 	
Inventories	 	 	-	 	 	 	6,505	 	 	 	553	 	 	 	-	 	 	 	7,058	 	
Current deferred income taxes	 	 	-	 	 	 	14,633	 	 	 	173	 	 	 	(1,147	)	 	 	13,659	 	
Prepaid income taxes	 	 	4,043	 	 	 	-	 	 	 	-	 	 	 	(1,400	)	 	 	2,643	 	
Prepaid expenses	 	 	564	 	 	 	10,656	 	 	 	227	 	 	 	-	 	 	 	11,447	 	
     Total current assets	 	 	61,874	 	 	 	463,809	 	 	 	10,357	 	 	 	(338,369	)	 	 	197,671	 	
Investments of deferred compensation plans	 	 	-	 	 	 	-	 	 	 	36,089	 	 	 	-	 	 	 	36,089	 	
Properties and equipment, at cost less accumulated depreciation	 	 	10,984	 	 	 	78,236	 	 	 	2,714	 	 	 	-	 	 	 	91,934	 	
Identifiable intangible assets less accumulated amortization	 	 	-	 	 	 	57,177	 	 	 	-	 	 	 	-	 	 	 	57,177	 	
Goodwill	 	 	-	 	 	 	461,277	 	 	 	4,555	 	 	 	-	 	 	 	465,832	 	
Other assets	 	 	19,025	 	 	 	2,005	 	 	 	13,797	 	 	 	(23,904	)	 	 	10,923	 	
Investments in subsidiaries	 	 	874,692	 	 	 	24,298	 	 	 	-	 	 	 	(898,990	)	 	 	-	 	
          Total assets	 	$	966,575	 	 	$	1,086,802	 	 	$	67,512	 	 	$	(1,261,263	)	 	$	859,626	 	
LIABILITIES AND STOCKHOLDERS' EQUITY	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Accounts payable, including intercompany	 	$	325,916	 	 	$	53,934	 	 	$	4,444	 	 	$	(335,822	)	 	$	48,472	 	
Income taxes	 	 	1,019	 	 	 	3,816	 	 	 	1,503	 	 	 	(1,400	)	 	 	4,938	 	
Accrued insurance	 	 	1,339	 	 	 	39,315	 	 	 	-	 	 	 	-	 	 	 	40,654	 	
Accrued compensation	 	 	4,119	 	 	 	40,891	 	 	 	447	 	 	 	-	 	 	 	45,457	 	
Other current liabilities	 	 	2,786	 	 	 	13,903	 	 	 	1,759	 	 	 	(1,147	)	 	 	17,301	 	
      Total current liabilities	 	 	335,179	 	 	 	151,859	 	 	 	8,153	 	 	 	(338,369	)	 	 	156,822	 	
Deferred income taxes	 	 	-	 	 	 	51,566	 	 	 	-	 	 	 	(23,904	)	 	 	27,662	 	
Long-term debt	 	 	174,890	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	174,890	 	
Deferred compensation liabilities	 	 	-	 	 	 	-	 	 	 	35,599	 	 	 	-	 	 	 	35,599	 	
Other liabilities	 	 	3,215	 	 	 	7,352	 	 	 	795	 	 	 	-	 	 	 	11,362	 	
Stockholders' equity	 	 	453,291	 	 	 	876,025	 	 	 	22,965	 	 	 	(898,990	)	 	 	453,291	 	
     Total liabilities and stockholders' equity	 	$	966,575	 	 	$	1,086,802	 	 	$	67,512	 	 	$	(1,261,263	)	 	$	859,626	 	

-15-

 

For the three months ended September 30, 2013	 	 	 	 	Guarantor	 	 	Non-Guarantor	 	 	Consolidating	 	 	 	 	
 	 	Parent	 	 	Subsidiaries	 	 	Subsidiaries	 	 	Adjustments	 	 	Consolidated	 	
Continuing Operations	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Service revenues and sales	 	$	-	 	 	$	333,750	 	 	$	7,136	 	 	$	-	 	 	$	340,886	 	
Cost of services provided and goods sold	 	 	-	 	 	 	239,122	 	 	 	4,062	 	 	 	-	 	 	 	243,184	 	
Selling, general and administrative expenses	 	 	5,562	 	 	 	42,113	 	 	 	1,195	 	 	 	-	 	 	 	48,870	 	
Depreciation	 	 	240	 	 	 	6,497	 	 	 	234	 	 	 	-	 	 	 	6,971	 	
Amortization	 	 	501	 	 	 	689	 	 	 	-	 	 	 	-	 	 	 	1,190	 	
Other operating expenses	 	 	-	 	 	 	11,461	 	 	 	-	 	 	 	-	 	 	 	11,461	 	
     Total costs and expenses	 	 	6,303	 	 	 	299,882	 	 	 	5,491	 	 	 	-	 	 	 	311,676	 	
     Income/ (loss) from operations	 	 	(6,303	)	 	 	33,868	 	 	 	1,645	 	 	 	-	 	 	 	29,210	 	
Interest expense	 	 	(3,579	)	 	 	(131	)	 	 	210	 	 	 	-	 	 	 	(3,500	)	
Other (expense)/income - net	 	 	3,944	 	 	 	(3,840	)	 	 	(194	)	 	 	-	 	 	 	(90	)	
     Income/ (loss) before income taxes	 	 	(5,938	)	 	 	29,897	 	 	 	1,661	 	 	 	-	 	 	 	25,620	 	
Income tax (provision)/ benefit	 	 	2,042	 	 	 	(11,393	)	 	 	1,163	 	 	 	-	 	 	 	(8,188	)	
Equity in net income of subsidiaries	 	 	21,328	 	 	 	2,086	 	 	 	-	 	 	 	(23,414	)	 	 	-	 	
Net income	 	$	17,432	 	 	$	20,590	 	 	$	2,824	 	 	$	(23,414	)	 	$	17,432	 	

For the three months ended September 30, 2012	 	 	 	 	 	Guarantor	 	 	Non-Guarantor	 	 	Consolidating	 	 	 	 	 	
 	 	Parent	 	 	Subsidiaries	 	 	Subsidiaries	 	 	Adjustments	 	 	Consolidated	 	
Continuing Operations	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Service revenues and sales	 	$	-	 	 	$	347,384	 	 	$	6,969	 	 	$	-	 	 	$	354,353	 	
Cost of services provided and goods sold	 	 	-	 	 	 	252,688	 	 	 	3,922	 	 	 	-	 	 	 	256,610	 	
Selling, general and administrative expenses	 	 	5,991	 	 	 	43,992	 	 	 	2,972	 	 	 	-	 	 	 	52,955	 	
Depreciation	 	 	237	 	 	 	6,099	 	 	 	221	 	 	 	-	 	 	 	6,557	 	
Amortization	 	 	486	 	 	 	649	 	 	 	-	 	 	 	-	 	 	 	1,135	 	
Other operating expenses	 	 	-	 	 	 	1,126	 	 	 	-	 	 	 	-	 	 	 	1,126	 	
     Total costs and expenses	 	 	6,714	 	 	 	304,554	 	 	 	7,115	 	 	 	-	 	 	 	318,383	 	
     Income/ (loss) from operations	 	 	(6,714	)	 	 	42,830	 	 	 	(146	)	 	 	-	 	 	 	35,970	 	
Interest expense	 	 	(3,517	)	 	 	(211	)	 	 	(15	)	 	 	-	 	 	 	(3,743	)	
Other (expense)/income - net	 	 	4,450	 	 	 	(4,184	)	 	 	1,574	 	 	 	-	 	 	 	1,840	 	
     Income/ (loss) before income taxes	 	 	(5,781	)	 	 	38,435	 	 	 	1,413	 	 	 	-	 	 	 	34,067	 	
Income tax (provision)/ benefit	 	 	1,877	 	 	 	(14,560	)	 	 	(539	)	 	 	-	 	 	 	(13,222	)	
Equity in net income of subsidiaries	 	 	24,749	 	 	 	885	 	 	 	-	 	 	 	(25,634	)	 	 	-	 	
Net income	 	$	20,845	 	 	$	24,760	 	 	$	874	 	 	$	(25,634	)	 	$	20,845	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
For the nine months ended September 30, 2013	 	 	 	 	 	Guarantor	 	 	Non-Guarantor	 	 	Consolidating	 	 	 	 	 	
 	 	Parent	 	 	Subsidiaries	 	 	Subsidiaries	 	 	Adjustments	 	 	Consolidated	 	
Continuing Operations	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Service revenues and sales	 	$	-	 	 	$	1,042,449	 	 	$	22,276	 	 	$	-	 	 	$	1,064,725	 	
Cost of services provided and goods sold	 	 	-	 	 	 	750,230	 	 	 	12,620	 	 	 	-	 	 	 	762,850	 	
Selling, general and administrative expenses	 	 	17,290	 	 	 	133,419	 	 	 	6,828	 	 	 	-	 	 	 	157,537	 	
Depreciation	 	 	718	 	 	 	19,241	 	 	 	706	 	 	 	-	 	 	 	20,665	 	
Amortization	 	 	1,480	 	 	 	2,018	 	 	 	-	 	 	 	-	 	 	 	3,498	 	
Other operating expenses	 	 	-	 	 	 	26,221	 	 	 	-	 	 	 	-	 	 	 	26,221	 	
     Total costs and expenses	 	 	19,488	 	 	 	931,129	 	 	 	20,154	 	 	 	-	 	 	 	970,771	 	
     Income/ (loss) from operations	 	 	(19,488	)	 	 	111,320	 	 	 	2,122	 	 	 	-	 	 	 	93,954	 	
Interest expense	 	 	(11,089	)	 	 	(384	)	 	 	182	 	 	 	-	 	 	 	(11,291	)	
Other (expense)/income - net	 	 	12,526	 	 	 	(11,549	)	 	 	2,335	 	 	 	-	 	 	 	3,312	 	
     Income/ (loss) before income taxes	 	 	(18,051	)	 	 	99,387	 	 	 	4,639	 	 	 	-	 	 	 	85,975	 	
Income tax (provision)/ benefit	 	 	6,036	 	 	 	(37,755	)	 	 	62	 	 	 	-	 	 	 	(31,657	)	
Equity in net income of subsidiaries	 	 	66,333	 	 	 	4,057	 	 	 	-	 	 	 	(70,390	)	 	 	-	 	
Net income	 	$	54,318	 	 	$	65,689	 	 	$	4,701	 	 	$	(70,390	)	 	$	54,318	 	

For the nine months ended September 30, 2012	 	 	 	 	 	Guarantor	 	 	Non-Guarantor	 	 	Consolidating	 	 	 	 	 	
 	 	Parent	 	 	Subsidiaries	 	 	Subsidiaries	 	 	Adjustments	 	 	Consolidated	 	
Continuing Operations	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Service revenues and sales	 	$	-	 	 	$	1,040,015	 	 	$	21,451	 	 	$	-	 	 	$	1,061,466	 	
Cost of services provided and goods sold	 	 	-	 	 	 	759,549	 	 	 	11,874	 	 	 	-	 	 	 	771,423	 	
Selling, general and administrative expenses	 	 	17,124	 	 	 	131,695	 	 	 	7,073	 	 	 	-	 	 	 	155,892	 	
Depreciation	 	 	704	 	 	 	17,816	 	 	 	658	 	 	 	-	 	 	 	19,178	 	
Amortization	 	 	1,437	 	 	 	1,938	 	 	 	-	 	 	 	-	 	 	 	3,375	 	
Other operating expenses	 	 	-	 	 	 	1,126	 	 	 	-	 	 	 	-	 	 	 	1,126	 	
     Total costs and expenses	 	 	19,265	 	 	 	912,124	 	 	 	19,605	 	 	 	-	 	 	 	950,994	 	
     Income/ (loss) from operations	 	 	(19,265	)	 	 	127,891	 	 	 	1,846	 	 	 	-	 	 	 	110,472	 	
Interest expense	 	 	(10,437	)	 	 	(551	)	 	 	(44	)	 	 	-	 	 	 	(11,032	)	
Other (expense)/income - net	 	 	13,196	 	 	 	(12,982	)	 	 	2,751	 	 	 	-	 	 	 	2,965	 	
     Income/ (loss) before income taxes	 	 	(16,506	)	 	 	114,358	 	 	 	4,553	 	 	 	-	 	 	 	102,405	 	
Income tax (provision)/ benefit	 	 	5,376	 	 	 	(43,442	)	 	 	(1,775	)	 	 	-	 	 	 	(39,841	)	
Equity in net income of subsidiaries	 	 	73,694	 	 	 	2,857	 	 	 	-	 	 	 	(76,551	)	 	 	-	 	
Net income	 	$	62,564	 	 	$	73,773	 	 	$	2,778	 	 	$	(76,551	)	 	$	62,564	 	

-16-

 

For the nine months ended September 30, 2013	 	 	 	 	Guarantor	 	 	Non-Guarantor	 	 	 	 	
 	 	Parent	 	 	Subsidiaries	 	 	Subsidiaries	 	 	Consolidated	 	
Cash Flow from Operating Activities:	 	 	 	 	 	 	 	 	 	 	 	 	
Net cash provided by operating activities	 	$	16,336	 	 	$	118,998	 	 	$	524	 	 	$	135,858	 	
Cash Flow from Investing Activities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Capital expenditures	 	 	(96	)	 	 	(18,297	)	 	 	(494	)	 	 	(18,887	)	
 Business combinations, net of cash acquired	 	 	-	 	 	 	(2,210	)	 	 	-	 	 	 	(2,210	)	
 Other sources/(uses) - net	 	 	(53	)	 	 	171	 	 	 	21	 	 	 	139	 	
      Net cash used by investing activities	 	 	(149	)	 	 	(20,336	)	 	 	(473	)	 	 	(20,958	)	
Cash Flow from Financing Activities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Increase /(decrease) in cash overdrafts payable	 	 	5,378	 	 	 	(16,306	)	 	 	-	 	 	 	(10,928	)	
 Change in intercompany accounts	 	 	96,731	 	 	 	(97,541	)	 	 	810	 	 	 	-	 	
 Dividends paid	 	 	(10,459	)	 	 	-	 	 	 	-	 	 	 	(10,459	)	
 Debt issuance costs	 	 	(1,108	)	 	 	-	 	 	 	-	 	 	 	(1,108	)	
 Capital stock surrendered to pay taxes on stock-based compensation	 	 	(4,280	)	 	 	-	 	 	 	-	 	 	 	(4,280	)	
 Purchases of treasury stock	 	 	(89,611	)	 	 	-	 	 	 	-	 	 	 	(89,611	)	
 Proceeds from exercise of stock options	 	 	13,125	 	 	 	-	 	 	 	-	 	 	 	13,125	 	
 Excess tax benefit on share-based compensation	 	 	2,507	 	 	 	-	 	 	 	-	 	 	 	2,507	 	
 Other sources/(uses) - net	 	 	30	 	 	 	-	 	 	 	(503	)	 	 	(473	)	
      Net cash provided/(used) by financing activities	 	 	12,313	 	 	 	(113,847	)	 	 	307	 	 	 	(101,227	)	
Net increase/(decrease) in cash and cash equivalents	 	 	28,500	 	 	 	(15,185	)	 	 	358	 	 	 	13,673	 	
Cash and cash equivalents at beginning of year	 	 	56,342	 	 	 	4,674	 	 	 	8,515	 	 	 	69,531	 	
Cash and cash equivalents at end of period	 	$	84,842	 	 	$	(10,511	)	 	$	8,873	 	 	$	83,204	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
For the nine months ended September 30, 2012	 	 	 	 	 	Guarantor	 	 	Non-Guarantor	 	 	 	 	 	
 	 	Parent	 	 	Subsidiaries	 	 	Subsidiaries	 	 	Consolidated	 	
Cash Flow from Operating Activities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net cash provided by operating activities	 	$	1,486	 	 	$	74,206	 	 	$	1,645	 	 	$	77,337	 	
Cash Flow from Investing Activities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Capital expenditures	 	 	(196	)	 	 	(25,491	)	 	 	(802	)	 	 	(26,489	)	
 Business combinations, net of cash acquired	 	 	-	 	 	 	(5,900	)	 	 	-	 	 	 	(5,900	)	
 Other sources/(uses) - net	 	 	201	 	 	 	359	 	 	 	(32	)	 	 	528	 	
      Net cash provided/(used) by investing activities	 	 	5	 	 	 	(31,032	)	 	 	(834	)	 	 	(31,861	)	
Cash Flow from Financing Activities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Increase/(decrease) in cash overdrafts payable	 	 	(4,580	)	 	 	1,281	 	 	 	-	 	 	 	(3,299	)	
 Change in intercompany accounts	 	 	40,489	 	 	 	(40,022	)	 	 	(467	)	 	 	-	 	
 Dividends paid	 	 	(9,641	)	 	 	-	 	 	 	-	 	 	 	(9,641	)	
 Capital stock surrendered to pay taxes on stock-based compensation	 	 	(3,236	)	 	 	-	 	 	 	-	 	 	 	(3,236	)	
 Purchases of treasury stock	 	 	(11,724	)	 	 	-	 	 	 	-	 	 	 	(11,724	)	
 Proceeds from exercise of stock options	 	 	10,483	 	 	 	-	 	 	 	-	 	 	 	10,483	 	
 Excess tax benefit on share-based compensation	 	 	2,714	 	 	 	-	 	 	 	-	 	 	 	2,714	 	
 Other sources/(uses) - net	 	 	(17	)	 	 	(1	)	 	 	460	 	 	 	442	 	
      Net cash provided/(used) by financing activities	 	 	24,488	 	 	 	(38,742	)	 	 	(7	)	 	 	(14,261	)	
Net increase in cash and cash equivalents	 	 	25,979	 	 	 	4,432	 	 	 	804	 	 	 	31,215	 	
Cash and cash equivalents at beginning of year	 	 	32,470	 	 	 	(1,422	)	 	 	7,033	 	 	 	38,081	 	
Cash and cash equivalents at end of period	 	$	58,449	 	 	$	3,010	 	 	$	7,837	 	 	$	69,296	 	

-17-

 

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 September 30,	 	 	Nine months ended September 30,	 	
 	 	2013	 	 	2012	 	 	2013	 	 	2012	 	
Service revenues and sales	 	$	340,886	 	 	$	354,353	 	 	$	1,064,725	 	 	$	1,061,466	 	
Net income	 	$	17,432	 	 	$	20,845	 	 	$	54,318	 	 	$	62,564	 	
Diluted EPS	 	$	0.94	 	 	$	1.07	 	 	$	2.89	 	 	$	3.23	 	
Adjusted net income	 	$	25,098	 	 	$	24,749	 	 	$	78,470	 	 	$	72,419	 	
Adjusted diluted EPS	 	$	1.36	 	 	$	1.28	 	 	$	4.17	 	 	$	3.74	 	
Adjusted EBITDA	 	$	49,739	 	 	$	49,020	 	 	$	153,978	 	 	$	143,533	 	
Adjusted EBITDA as a % of revenue	 	 	14.6	%	 	 	13.8	%	 	 	14.5	%	 	 	13.5	%	

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 EBITDA 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 31- 33.

For the three months ended September 30, 2013, the decrease in consolidated service revenues and sales was driven by a 0.6% increase at Roto-Rooter and a 5.2% decrease at VITAS.  The increase in service revenues at Roto-Rooter was driven by a 3.7% increase in price and mix shift offset by a 4.9% decrease in job count. The remaining difference relates to increases in contractor and Roto-Rooter Corp. revenues.  The decrease in service revenues at VITAS was a result of Medicare reimbursement rates including the effects of sequestration, declining approximately 1.1%, decreased ADC of 0.3%, a $3.2 million Medicare cap charge during the quarter and level of care mix shift.  Consolidated net income decreased 16.4% as a result of the lower revenue at VITAS and tentative litigation settlements at Vitas and Roto-Rooter.  Diluted EPS decreased 12.1% as a result of the decrease in net income offset by a lower number of shares outstanding.  Adjusted EBITDA as a percent of revenue increased 0.8% mainly as a result of improved gross profit margins at Roto-Rooter.  See page 34 for additional VITAS operating metrics.

For the nine months ended September 30, 2013, the increase in consolidated service revenues and sales was driven by a 3.1% increase at Roto-Rooter and a 0.6% decrease at VITAS.  The increase in service revenues at Roto-Rooter was driven by a 3.2% increase in price and mix shift offset by a 1.2% decrease in job count.  The remaining difference relates to increases in contractor and Roto-Rooter Corp. revenues.  The decrease in service revenues at VITAS was a result of a decrease in Medicare reimbursement rates, a $3.2 million net Medicare cap charge (compared to a $2.6 million reversal in the same period of 2012) and level of care mix shift offset by increased ADC of 3.0%.  Consolidated net income decreased 13.2% primarily as a result of lower revenue at VITAS and tentative litigation settlements at VITAS and Roto-Rooter.  Diluted EPS decreased 10.5% as a result of the decrease in net income offset by a lower number of shares outstanding.  Adjusted EBITDA as a percent of revenue increased 1.0% mainly as a result of improved gross profit margins at Roto-Rooter.  See page 34 for additional VITAS operating metrics.

Effective October 1, 2012, Medicare increased the hospice reimbursement rates by approximately 0.9% and effective April 1, 2013, as a result of sequestration, Medicare reduced hospice reimbursement rates for Medicare beneficiaries 2.0% for a net decline of 1.1% in reimbursement rates.   VITAS expects its full-year 2013 revenue, prior to Medicare cap, to be approximately 1% below the prior year.  Admissions are estimated to decline approximately 3.0%.  Adjusted EBITDA margin, prior to Medicare cap, is estimated to be 14.5% to 15.0%.  Medicare cap is estimated to be $1.8 million in the fourth quarter of 2013. Roto-Rooter expects full-year 2013 revenue growth of 2.5%.  The revenue estimate is a result of increased pricing of approximately 3.2% and job count essentially equal to the prior year.  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, 2012 to September 30, 2013 include the following:

 	•	A $39.2 million increase in other current liabilities primarily due to tentative litigation settlements and the Medicare cap liability.	

 	•	A $13.2 million decrease in accounts receivable related to the timing of receipts.	

 	•	A $11.4 million increase in current deferred income taxes due to the accrual of tentative litigation settlements.	

 	•	A reclass of our convertible notes from long-term to current as they are due in May 2014.	

Net cash provided by operating activities increased $58.5 million primarily as a result of a decrease in accounts receivable and an increase in 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 $32.9 million in standby letters of credit as of September 30, 2013, for insurance purposes.  Issued letters of credit reduce our available credit under the revolving credit agreement.  As of September 30, 2013, we have approximately $317.1 million of unused lines of credit available and eligible to be drawn down under our revolving credit facility, excluding the $150 million expansion feature. Management believes its liquidity and sources of capital are satisfactory for the Company’s needs in the foreseeable future.

Commitments and Contingencies
Collectively, the terms of our credit agreements require us to meet various financial covenants, to be tested quarterly.  We are in compliance with all financial and other debt covenants as of September 30, 2013 and anticipate remaining in compliance throughout 2013.

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 lawsuits and investigations of which the Company is currently aware.  Unless otherwise indicated, 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.

In February 2010, Chemed and Roto-Rooter were named as defendants in a lawsuit filed in the United States District Court for the Eastern District of New York,  Anthony Morangelli, et al., v. Chemed Corp. and Roto-Rooter Services Co.,  No. 10 CV-00876 (BMC).  The named plaintiffs, current and former technicians employed by Roto-Rooter who were paid on a commission basis, asserted against Chemed and Roto-Rooter claims for violation of the Fair Labor Standards Act (“FLSA”) and claims for violations of the labor laws of multiple states.  In June 2013 the parties reached an agreement to settle the case for $14.3 million plus applicable payroll taxes ($9.0 million after tax), which is subject to Court approval.  As such, $14.8 million is recorded as other operating expense in the quarter ended June 30, 2013 Statement of Income.
  
VITAS is party to a class action lawsuit filed in the Superior Court of California, Los Angeles County in September 2006 by Bernadette Santos, Keith Knoche and Joyce White,  Bernadette Santos, et al. v. Vitas Healthcare Corporation of California , BC359356.  This case alleges failure to pay overtime and failure to provide meal and rest periods to a purported class of California admissions nurses, chaplains and sales representatives.  The case seeks payment of penalties, interest and Plaintiffs’ attorney fees.    In December 2009, the trial court denied Plaintiffs’ motion for class certification.  In July 2011, the Court of Appeals affirmed denial of class certification on the travel time, meal and rest period claims, and reversed the trial court’s denial on the off-the-clock and sales representation exemption claims.  Plaintiffs filed an appeal of this decision.  In September 2012, in response to an order of reconsideration, the Court of Appeals reiterated its previous rulings.  In March 2013, the Court granted summary judgment dismissing the sales representatives’ claims as they are exempt employees.  In October 2013 we reached agreement, subject to Court approval, to settle the case for $10.3 million plus applicable payroll taxes ($6.5 million aftertax).  As such, $10.5 million is recorded as other operating expense in the quarter ended September 30, 2013 Statement of Income.

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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 concern the VITAS hospice segment of the Company’s business.  Plaintiffs seek, 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 oppose this motion. On September 16, 2013, Plaintiffs, on behalf of a putative class of purchasers of Chemed Capital Stock between February 15, 2010, and May 3, 2013, inclusive, executed a Settlement Term Sheet with Defendants (“Settlement”), reaching an agreement in principle 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 class.  The Settlement has been recorded as an accrual and offsetting prepaid in the accompanying Balance Sheet.  This Settlement is subject to final documentation by the parties as well as Court approval. Defendants agreed to enter into this Settlement in order to eliminate the burden, expense and distraction of further litigation.
 
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. , 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 has filed a notice of election to intervene in the Gonzales complaint.  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.  

-20-

 
 
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 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.

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 Company intends to defend vigorously against the allegations in each of the above lawsuits.    The Company had a net recovery for these investigations, due to a one-time insurance reimbursement of $1.0 million for certain legal costs, for the three month period ended September 30, 2013 of $591,000. The net costs to comply with these investigations were $1.4 million for the nine month period ended September 30, 2013.  Regardless of the outcome of any of the preceding matters, responding to the subpoenas and dealing with the various regulatory agencies 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.

Results of Operations
Three months ended September 30, 2013 versus  2012 - Consolidated Results
Our service revenues and sales for the third quarter of 2013 decreased 3.8% versus services and sales revenues for the third quarter of 2012.  Of this decrease, $14.0 million was attributable to VITAS offset by a $522,000 increase at Roto-Rooter.  The following chart shows the components of those changes (in thousands):

 	 	Increase/(Decrease)	 	
 	 	Amount	 	 	Percent	 	
VITAS	 	 	 	 	 	 	 	
Routine homecare	 	$	 (1,288	) 	 	 (0.7	)	
Continuous care	 	 	 (6,264	) 	 	 (14.9	)	
General inpatient	 	 	 (3,258	) 	 	 (11.6	)	
Medicare cap	 	 	 (3,179	) 	 	-	 	
Roto-Rooter	 	 	 	 	 	 	 	
Plumbing	 	 	 (346	) 	 	 (0.8	)	
Drain cleaning	 	 	 (155	) 	 	 (0.5	)	
Contractor operations	 	 	 1,112	 	 	16.0	 	
HVAC operations	 	 	 1	 	 	 100.0	 	
Other	 	 	 (90	) 	 	 (1.7	)	
Total	 	$	 (13,467	) 	 	 (3.8	)	

The decrease in VITAS’ revenues for the third quarter of 2013 versus the third quarter of 2012 was a combination of Medicare reimbursement rates including the effect of sequestration declining approximately 1.1%, decreased ADC of 0.3%, and level of care mix shift.  In the third quarter of 2013, VITAS recorded a Medicare Cap charge of $3.2 million related to one program’s projected 2013 Medicare Cap liability.  This compares with no Medicare Cap liability recorded in the third quarter of 2012.  The ADC decrease was driven by a 0.7% increase in routine homecare, a decrease of 13.0% in continuous care and a decrease of 9.3% in general inpatient.  In excess of 90% of VITAS’ service revenues for the period were from Medicare and Medicaid.

-21-

 
 
The decrease in plumbing revenues for the third quarter of 2013 versus 2012 is attributable to a 4.8% decrease in job count offset by a 4.0% increase in price and mix shift.  Drain cleaning revenues for the third quarter of 2013 versus 2012 reflect a 4.5% decrease in the number of jobs perfomed offset by a 4.0% increase in price and mix shift.  Contractor operations revenue increased 16.0% for the third quarter of 2013 due to four acquisitions that were completed in 2012 as well as improved operating conditions.  HVAC revenues were essentially zero as a result of the shut-down of Roto-Rooter’s one remaining HVAC operation during the third quarter of 2012.
 
The consolidated gross margin was 28.7% in the third quarter of 2013 as compared with 27.6% in the third quarter of 2012.  On a segment basis, VITAS’ gross margin was 22.3% in the third quarter of 2013 and 22.2% in the third quarter of 2012.  The Roto-Rooter segment’s gross margin was 47.3% for the third quarter of 2013 as compared with 44.3% for the third quarter of 2012.  The increase in Roto-Rooter’s gross margin is the result of higher revenue, lower health care and casualty insurance costs and reduced field operating expenses.
 
Selling, general and administrative expenses (“SG&A”) comprise (in thousands):

 	Three months ended September 30,	 	
 	2013	 	 	2012	 	
SG&A expenses before the impact of market gains/(losses) of deferred compensation	 	 	 	 	 	
plans, long-term incentive compensation, and OIG investigation expenses	$	49,705	 	 	$	50,896	 	
Long-term incentive compensation	 	(55	)	 	 	-	 	
Expenses/(cost recovery) related to OIG investigation	 	(591	)	 	 	483	 	
Impact of market value gains/(losses) on liabilities held in	 	 	 	 	 	 	 	
deferred compensation trusts	 	(189	)	 	 	1,576	 	
Total SG&A expenses	$	48,870	 	 	$	52,955	 	

SG&A expenses before long-term incentive compensation, expenses related to OIG investigation and the impact of market gains/(losses) of deferred compensation plans for the third quarter of 2013 were down 2.3% when compared to the third quarter of 2012.

 	Three months ended September 30,	 	
 	2013	 	2012	 	
Litigation settlement of VITAS segment (a)	$	10,500	 	 	$	-	 	
Settlements of Roto-Rooter segment (b)	 	961	 	 	 	-	 	
Severance and other operating costs related	 	 	 	 	 	 	 	
to closing Roto-Rooter's HVAC business	 	-	 	 	 	1,126	 	
Total other operating expenses	$	11,461	 	 	$	1,126	 	
 	 	 	 	 	 	 	 	
(a) Santos claims discussed in Note 10.	 	 	 	 	 	 	 	
(b) Estimated cost of certain customer claims currently under negotiation.	 	

Other income - net comprise (in thousands):
 
 	 	Three months ended September 30,	 	
 	 	2013	 	 	2012	 	
Market value gains/(losses) on assets held in deferred	 	 	 	 	 	 	
compensation trusts	 	$	(189	)	 	$	1,576	 	
Loss on disposal of property and equipment	 	 	(101	)	 	 	(80	)	
Interest income	 	 	192	 	 	 	291	 	
Other	 	 	8	 	 	 	53	 	
Total other income/(expense) - net	 	$	(90	)	 	$	1,840	 	

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Our effective income tax rate was 32.0% in the third quarter of 2013 compared to 38.8% for the third quarter of 2012.  This is a result of a $1.8 million credit related to the expiration of tax statutes for uncertain tax positions recorded in prior years.

Net income for both periods included the following after-tax items/adjustments that reduced or increased after-tax earnings (in thousands):
 
 	 	Three months ended September 30,	 	
 	 	2013	 	 	2012	 	
VITAS	 	 	 	 	 	 	
Litigation settlement	 	$	(6,510	)	 	$	-	 	
Legal expenses of OIG investigation	 	 	367	 	 	 	(300	)	
Acquisition expenses	 	 	(11	)	 	 	(1	)	
Roto-Rooter	 	 	 	 	 	 	 	 	
Litigation settlement	 	 	(584	)	 	 	-	 	
Expenses related to litigation settlements	 	 	(269	)	 	 	(70	)	
HVAC shut down costs	 	 	-	 	 	 	(649	)	
Acquisition expenses	 	 	(1	)	 	 	(52	)	
Corporate	 	 	 	 	 	 	 	 	
Stock option expense	 	 	(1,030	)	 	 	(1,516	)	
Noncash impact of change in accounting for convertible debt	 	 	(1,375	)	 	 	(1,272	)	
Uncertain tax position adjustments	 	 	1,782	 	 	 	-	 	
Long-term incentive compensation	 	 	(34	)	 	 	-	 	
Expenses related to securities litigation	 	 	(1	)	 	 	(44	)	
Total	 	$	(7,666	)	 	$	(3,904	)	

Three months ended September 30, 2013 versus 2012 - Segment Results

The change in after-tax earnings for the third quarter of 2013 versus the third quarter of 2012 is due to (in thousands):

 	Increase/(Decrease)	 	
 	Amount	 	 	Percent	 	
VITAS	 	$	(7,332	)	 	 	(33.4	)	
Roto-Rooter	 	 	2,036	 	 	 	33.1	 	
Corporate	 	 	1,883	 	 	 	26.0	 	
 	 	$	(3,413	)	 	 	(16.4	)	

 
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Results of Operations
Nine months ended September 30, 2013 versus  2012 - Consolidated Results
Our service revenues and sales for the first nine months of 2013 increased 0.3% versus services and sales revenues for the first nine months of 2012.  Of this increase, $8.4 million was attributable to Roto-Rooter offset by a $5.2 million decrease at VITAS.  The following chart shows the components of those changes (in thousands):
 
 	 	Increase/(Decrease)	 	
 	 	Amount	 	 	Percent	 	
VITAS	 	 	 	 	 	 	 	
Routine homecare	 	$	 15,899	 	 	 2.8	 	
Continuous care	 	 	 (8,015	)	 	 (6.3	) 	
General inpatient	 	 	 (7,300	)	 	 (8.4	 	
Medicare cap	 	 	 (5,738	)	 	 (222.7	) 	
Roto-Rooter	 	 	 	 	 	 	 	
Plumbing	 	 	 685	 	 	 0.5	 	
Drain cleaning	 	 	 5,242	 	 	 5.2	 	
Contractor operations	 	 	 3,984	 	 	 19.5	 	
HVAC operations	 	 	 (1,121	)	 	 (100.0	) 	
Other	 	 	 (377	)	 	 (2.2	) 	
Total	 	$	 3,259	 	 	 0.3	 	

The decrease in VITAS’ revenues for the first nine months of 2013 versus the first nine months of 2012 is a result of, increased ADC of 3.0%, offset by a Medicare reimbursement rate decrease and level of care mix shift.  In the first nine months, VITAS recorded a net Medicare Cap charge of $3.2 million related to eliminating the Medicare Cap billing limitation recorded in the fourth quarter of 2012 offset by one programs’ projected 2013 Medicare Cap liability.  This compares to $2.6 million of additional revenue recorded in the first nine months of 2012.  The ADC decrease was driven by a 3.7% increase in routine homecare, offset by a decrease of 4.8% in continuous care and a decrease of 5.6% in general inpatient.  In excess of 90% of VITAS’ service revenues for the period were from Medicare and Medicaid.

The increase in plumbing revenues for the first nine months of 2013 versus 2012 is attributable to a 4.3% decrease in job count offset by a 4.8% increase in price and mix shift.  Drain cleaning revenues for the first nine months of 2013 versus 2012 reflect a 1.0% increase in the number of jobs perfomed as well as a 4.2% increase in price and mix shift.  Contractor operations revenue increased 19.5% for the first nine months of 2013 due to four acquisitions that were completed in 2012 as well as improved operating conditions.  HVAC operations decreased as a result of the shut-down of Roto-Rooter’s one remaining HVAC operation during the third quarter of 2012.

The consolidated gross margin was 28.4% for the first nine months of 2013 as compared with 27.3% in the first nine months of 2012.  On a segment basis, VITAS’ gross margin was 21.9% for the first nine months of 2013 and 21.7% for the first nine months of 2012.  The Roto-Rooter segment’s gross margin was 46.9% for the first nine months of 2013 as compared with 44.1% for the first nine months of 2012.  The increase in Roto-Rooter’s gross margin is the result of higher revenue, lower health care and casualty insurance costs and reduced field operating expenses.

Selling, general and administrative expenses (“SG&A”) comprise (in thousands):
 
 	 	Nine months ended September 30,	 	
 	 	2013	 	 	2012	 	
SG&A expenses before long-term incentive	 	 	 	 	 	 	
compensation and the impact of market gains and	 	 	 	 	 	 	
losses of deferred compensation plans	 	$	154,908	 	 	$	152,382	 	
Long-term incentive compensation	 	 	(1,161	)	 	 	-	 	
Expenses related to OIG investigation	 	 	1,444	 	 	 	749	 	
Impact of market value gains on liabilities held in	 	 	 	 	 	 	 	 	
deferred compensation trusts	 	 	2,346	 	 	 	2,761	 	
Total SG&A expenses	 	$	157,537	 	 	$	155,892	 	

-24-

 
 
Normal salary increases and revenue related expense increases between periods account for the 1.7% increase in SG&A expenses before long-term incentive compensation, expenses related to OIG investigation and the impact of market gains of deferred compensation plans.

Interest expense for the first nine months of 2013 increased 2.3% when compared to the first nine months of  2012 as a result of the increase in amortization of  bond discount expense and the loss on extinguishment of debt resulting from the replacement of the previous Credit Agreement in January 2013.

Other operating expenses comprise (in thousands):

 	Nine months ended September 30,	 	
 	2013	 	2012	 	
Litigation settlement of VITAS segment (a)	$	10,500	 	 	$	-	 	
Settlements of Roto-Rooter segment (b)	 	15,721	 	 	 	-	 	
Severance and other operating costs related	 	 	 	 	 	 	 	
to closing Roto-Rooter's HVAC business	 	-	 	 	 	1,126	 	
Total other operating expenses	$	26,221	 	 	$	1,126	 	
 	 	 	 	 	 	 	 	
(a) Santos claims discussed in Note 10.	 	 	 	 	 	 	 	
(b) Morangelli claims discussed in Note 10 and estimated cost of certain customer claims currently under negotiation.	 	

Other income - net comprise (in thousands):

 	 	Nine months ended September 30,	 	
 	 	2013	 	 	2012	 	
Market value gains on assets held in deferred	 	 	 	 	 	 	
compensation trusts	 	$	2,346	 	 	$	2,761	 	
Loss on disposal of property and equipment	 	 	(180	)	 	 	(228	)	
Interest income	 	 	1,165	 	 	 	401	 	
Other	 	 	(19	)	 	 	31	 	
Total other income - net	 	$	3,312	 	 	$	2,965	 	

Our effective income tax rate was 36.8% in the third quarter of 2013 compared to 38.9% for the third quarter of 2012.  This is a result of a $1.8 million credit related to the expiration of tax statutes for uncertain tax positions recorded in prior years.

 
-25-

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

 	 	Nine Months Ended September 30,	 	
 	 	2013	 	 	2012	 	
VITAS	 	 	 	 	 	 	
Litigation settlement	 	$	(6,510	)	 	$	-	 	
Legal expenses of OIG investigation	 	 	(895	)	 	 	(465	)	
Acquisition expenses	 	 	(23	)	 	 	(1	)	
Roto-Rooter	 	 	 	 	 	 	 	 	
Litigation settlements	 	 	(9,551	)	 	 	-	 	
Expenses related to litigation settlements	 	 	(699	)	 	 	(512	)	
HVAC shut down costs	 	 	-	 	 	 	(649	)	
Expenses of severance arrangements	 	 	(184	)	 	 	-	 	
Acquisition expenses	 	 	(2	)	 	 	(73	)	
Corporate	 	 	 	 	 	 	 	 	
Stock option expense	 	 	(2,993	)	 	 	(4,243	)	
Noncash impact of change in accounting for convertible debt	 	 	(4,046	)	 	 	(3,744	)	
Uncertain tax position adjustments	 	 	1,782	 	 	 	-	 	
Long-term incentive compensation	 	 	(734	)	 	 	-	 	
Expenses of securities litigation	 	 	(3	)	 	 	(168	)	
Loss on extinguishment of debt	 	 	(294	)	 	 	-	 	
Total	 	$	(24,152	)	 	$	(9,855	)	

Nine months ended September 30, 2013 versus 2012 - Segment Results

The change in after-tax earnings for the first nine months of 2013 versus the first nine months of 2012 is due to (in thousands):
 
 	Increase/(Decrease)	 	
 	Amount	 	 	Percent	 	
VITAS	$	(6,762	)	 	 	(10.9	)	
Roto-Rooter	 	(2,497	)	 	 	(11.5	)	
Corporate	 	1,013	 	 	 	4.8	 	
 	$	(8,246	)	 	 	(13.2	)	

-26-

 
 
CHEMED CORPORATION AND SUBSIDIARY COMPANIES	 	
CONSOLIDATING STATEMENT OF INCOME	 	
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2013	 	
(in thousands)(unaudited)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	Chemed	 	
 	 	VITAS	 	 	Roto-Rooter	 	 	Corporate	 	 	Consolidated	 	
2013 (a)	 	 	 	 	 	 	 	 	 	 	 	 	
Service revenues and sales	 	$	254,001	 	 	$	86,885	 	 	$	-	 	 	$	340,886	 	
Cost of services provided and goods sold	 	 	197,387	 	 	 	45,797	 	 	 	-	 	 	 	243,184	 	
Selling, general and administrative expenses	 	 	18,637	 	 	 	25,009	 	 	 	5,224	 	 	 	48,870	 	
Depreciation	 	 	4,545	 	 	 	2,292	 	 	 	134	 	 	 	6,971	 	
Amortization	 	 	538	 	 	 	151	 	 	 	501	 	 	 	1,190	 	
Other operating expenses	 	 	10,500	 	 	 	961	 	 	 	-	 	 	 	11,461	 	
Total costs and expenses	 	 	231,607	 	 	 	74,210	 	 	 	5,859	 	 	 	311,676	 	
Income/(loss) from operations	 	 	22,394	 	 	 	12,675	 	 	 	(5,859	)	 	 	29,210	 	
Interest expense	 	 	(48	)	 	 	(82	)	 	 	(3,370	)	 	 	(3,500	)	
Intercompany interest income/(expense)	 	 	1,231	 	 	 	579	 	 	 	(1,810	)	 	 	-	 	
Other income/(expense)—net	 	 	73	 	 	 	8	 	 	 	(171	)	 	 	(90	)	
Income/(expense) before income taxes	 	 	23,650	 	 	 	13,180	 	 	 	(11,210	)	 	 	25,620	 	
Income taxes	 	 	(9,042	)	 	 	(4,999	)	 	 	5,853	 	 	 	(8,188	)	
Net income/(loss)	 	$	14,608	 	 	$	8,181	 	 	$	(5,357	)	 	$	17,432	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
(a) The following amounts are included in net income (in thousands):	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	Chemed	 	
 	 	VITAS	 	 	Roto-Rooter	 	 	Corporate	 	 	Consolidated	 	
Pretax benefit/(cost):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Stock option expense	 	$	-	 	 	$	-	 	 	$	(1,629	)	 	$	(1,629	)	
Noncash impact of accounting for convertible debt	 	 	-	 	 	 	-	 	 	 	(2,174	)	 	 	(2,174	)	
Long-term incentive compensation	 	 	-	 	 	 	-	 	 	 	(55	)	 	 	(55	)	
Litigation settlement	 	 	(10,500	)	 	 	(961	)	 	 	-	 	 	 	(11,461	)	
Expenses related to litigation settlements	 	 	-	 	 	 	(443	)	 	 	-	 	 	 	(443	)	
Expenses related to securities litigation	 	 	-	 	 	 	-	 	 	 	(1	)	 	 	(1	)	
Acquisition expenses	 	 	(18	)	 	 	(3	)	 	 	-	 	 	 	(21	)	
Expenses/(cost recovery) related to OIG investigation	 	 	591	 	 	 	-	 	 	 	-	 	 	 	591	 	
Total	 	$	(9,927	)	 	$	(1,407	)	 	$	(3,859	)	 	$	(15,193	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	Chemed	 	
 	 	VITAS	 	 	Roto-Rooter	 	 	Corporate	 	 	Consolidated	 	
After-tax benefit/(cost):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Stock option expense	 	$	-	 	 	$	-	 	 	$	(1,030	)	 	$	(1,030	)	
Noncash impact of accounting for convertible debt	 	 	-	 	 	 	-	 	 	 	(1,375	)	 	 	(1,375	)	
Uncertain tax position adjustments	 	 	-	 	 	 	-	 	 	 	1,782	 	 	 	1,782	 	
Long-term incentive compensation	 	 	-	 	 	 	-	 	 	 	(34	)	 	 	(34	)	
Litigation settlement	 	 	(6,510	)	 	 	(584	)	 	 	-	 	 	 	(7,094	)	
Expenses related to litigation settlements	 	 	-	 	 	 	(269	)	 	 	-	 	 	 	(269	)	
Expenses related to securities litigation	 	 	-	 	 	 	-	 	 	 	(1	)	 	 	(1	)	
Acquisition expenses	 	 	(11	)	 	 	(1	)	 	 	-	 	 	 	(12	)	
Expenses related to OIG investigation	 	 	367	 	 	 	-	 	 	 	-	 	 	 	367	 	
Total	 	$	(6,154	)	 	$	(854	)	 	$	(658	)	 	$	(7,666	)	

 
-27-

 

 	 	 	 	 	 	 	 	 	 	 	 	 	
CHEMED CORPORATION AND SUBSIDIARY COMPANIES	 	
CONSOLIDATING STATEMENT OF INCOME	 	
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2012	 	
(in thousands)(unaudited)	 	
 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	Chemed	 	
 	VITAS	 	 	Roto-Rooter	 	 	Corporate	 	 	Consolidated	 	
2012 (a)	 	 	 	 	 	 	 	 	 	 	 	 	
Service revenues and sales	 	$	267,990	 	 	$	86,363	 	 	$	-	 	 	$	354,353	 	
Cost of services provided and goods sold	 	 	208,473	 	 	 	48,137	 	 	 	-	 	 	 	256,610	 	
Selling, general and administrative expenses	 	 	20,148	 	 	 	25,350	 	 	 	7,457	 	 	 	52,955	 	
Depreciation	 	 	4,333	 	 	 	2,093	 	 	 	131	 	 	 	6,557	 	
Amortization	 	 	489	 	 	 	160	 	 	 	486	 	 	 	1,135	 	
Other operating expenses	 	 	-	 	 	 	1,126	 	 	 	-	 	 	 	1,126	 	
Total costs and expenses	 	 	233,443	 	 	 	76,866	 	 	 	8,074	 	 	 	318,383	 	
Income/(loss) from operations	 	 	34,547	 	 	 	9,497	 	 	 	(8,074	)	 	 	35,970	 	
Interest expense	 	 	(62	)	 	 	(150	)	 	 	(3,531	)	 	 	(3,743	)	
Intercompany interest income/(expense)	 	 	795	 	 	 	396	 	 	 	(1,191	)	 	 	-	 	
Other income/(expense)—net	 	 	176	 	 	 	63	 	 	 	1,601	 	 	 	1,840	 	
Income/(expense) before income taxes	 	 	35,456	 	 	 	9,806	 	 	 	(11,195	)	 	 	34,067	 	
Income taxes	 	 	(13,516	)	 	 	(3,661	)	 	 	3,955	 	 	 	(13,222	)	
Net income/(loss)	 	$	21,940	 	 	$	6,145	 	 	$	(7,240	)	 	$	20,845	 	

(a) The following amounts are included in net income (in thousands):	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	Chemed	 	
 	 	VITAS	 	 	Roto-Rooter	 	 	 	Corporate	 	 	Consolidated	 	
Pretax benefit/(cost):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
     Stock option expense	 	$	-	 	 	$	-	 	 	$	(2,397	)	 	$	(2,397	)	
     Noncash impact of accounting for convertible debt	 	 	-	 	 	 	-	 	 	 	(2,011	)	 	 	(2,011	)	
     Expenses related to securities litigation	 	 	-	 	 	 	-	 	 	 	(68	)	 	 	(68	)	
     Expenses related to litigation settlements	 	 	-	 	 	 	(116	)	 	 	-	 	 	 	(116	)	
     Acquisition expenses	 	 	(2	)	 	 	(85	)	 	 	-	 	 	 	(87	)	
     Expenses of OIG investigation	 	 	(483	)	 	 	-	 	 	 	-	 	 	 	(483	)	
     HVAC shut down costs	 	 	-	 	 	 	(1,126	)	 	 	-	 	 	 	(1,126	)	
          Total	 	$	(485	)	 	$	(1,327	)	 	$	(4,476	)	 	$	(6,288	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	Chemed	 	
 	 	VITAS	 	 	Roto-Rooter	 	 	Corporate	 	 	Consolidated	 	
After-tax benefit/(cost):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
     Stock option expense	 	$	-	 	 	$	-	 	 	$	(1,516	)	 	$	(1,516	)	
     Noncash impact of accounting for convertible debt	 	 	-	 	 	 	-	 	 	 	(1,272	)	 	 	(1,272	)	
     Expenses related to securities litigation	 	 	-	 	 	 	-	 	 	 	(44	)	 	 	(44	)	
     Expenses related to litigation settlements	 	 	-	 	 	 	(70	)	 	 	-	 	 	 	(70	)	
     Acquisition expenses	 	 	(1	)	 	 	(52	)	 	 	-	 	 	 	(53	)	
     Expenses of OIG investigation	 	 	(300	)	 	 	-	 	 	 	-	 	 	 	(300	)	
     HVAC shut down costs	 	 	-	 	 	 	(649	)	 	 	-	 	 	 	(649	)	
          Total	 	$	(301	)	 	$	(771	)	 	$	(2,832	)	 	$	(3,904	)	

-28-

 

 	 	 	 	 	 	 	 	 	 	 	 	 	
CHEMED CORPORATION AND SUBSIDIARY COMPANIES	 	
CONSOLIDATING STATEMENT OF INCOME	 	
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013	 	
(in thousands)(unaudited)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	Chemed	 	
 	 	VITAS	 	 	Roto-Rooter	 	 	Corporate	 	 	Consolidated	 	
2013 (a)	 	 	 	 	 	 	 	 	 	 	 	 	
Service revenues and sales	 	$	788,896	 	 	$	275,829	 	 	$	-	 	 	$	1,064,725	 	
Cost of services provided and goods sold	 	 	616,334	 	 	 	146,516	 	 	 	-	 	 	 	762,850	 	
Selling, general and administrative expenses	 	 	61,304	 	 	 	76,901	 	 	 	19,332	 	 	 	157,537	 	
Depreciation	 	 	13,579	 	 	 	6,685	 	 	 	401	 	 	 	20,665	 	
Amortization	 	 	1,564	 	 	 	454	 	 	 	1,480	 	 	 	3,498	 	
Other operating expenses	 	 	10,500	 	 	 	15,721	 	 	 	-	 	 	 	26,221	 	
Total costs and expenses	 	 	703,281	 	 	 	246,277	 	 	 	21,213	 	 	 	970,771	 	
Income/(loss) from operations	 	 	85,615	 	 	 	29,552	 	 	 	(21,213	)	 	 	93,954	 	
Interest expense	 	 	(145	)	 	 	(239	)	 	 	(10,907	)	 	 	(11,291	)	
Intercompany interest income/(expense)	 	 	2,940	 	 	 	1,443	 	 	 	(4,383	)	 	 	-	 	
Other income/(expense)—net	 	 	878	 	 	 	42	 	 	 	2,392	 	 	 	3,312	 	
Income/(expense) before income taxes	 	 	89,288	 	 	 	30,798	 	 	 	(34,111	)	 	 	85,975	 	
Income taxes	 	 	(34,051	)	 	 	(11,580	)	 	 	13,974	 	 	 	(31,657	)	
Net income/(loss)	 	$	55,237	 	 	$	19,218	 	 	$	(20,137	)	 	$	54,318	 	

(a) The following amounts are included in net income (in thousands):	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	Chemed	 	
 	 	VITAS	 	 	Roto-Rooter	 	 	Corporate	 	 	Consolidated	 	
Pretax benefit/(cost):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Stock option expense	 	$	-	 	 	$	-	 	 	$	(4,732	)	 	$	(4,732	)	
Noncash impact of accounting for convertible debt	 	 	-	 	 	 	-	 	 	 	(6,397	)	 	 	(6,397	)	
Long-term incentive compensation	 	 	-	 	 	 	-	 	 	 	(1,161	)	 	 	(1,161	)	
Expenses of severance arrangements	 	 	-	 	 	 	(302	)	 	 	-	 	 	 	(302	)	
Loss on extinguishment of debt	 	 	-	 	 	 	-	 	 	 	(465	)	 	 	(465	)	
Litigation settlement	 	 	(10,500	)	 	 	(15,721	)	 	 	-	 	 	 	(26,221	)	
Expenses related to litigation settlements	 	 	-	 	 	 	(1,151	)	 	 	-	 	 	 	(1,151	)	
Expenses related to securities litigation	 	 	-	 	 	 	-	 	 	 	(4	)	 	 	(4	)	
Acquisition expenses	 	 	(38	)	 	 	(4	)	 	 	-	 	 	 	(42	)	
Expenses related to OIG investigation	 	 	(1,444	)	 	 	-	 	 	 	-	 	 	 	(1,444	)	
Total	 	$	(11,982	)	 	$	(17,178	)	 	$	(12,759	)	 	$	(41,919	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	Chemed	 	
 	 	VITAS	 	 	Roto-Rooter	 	 	Corporate	 	 	Consolidated	 	
After-tax benefit/(cost):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Stock option expense	 	$	-	 	 	$	-	 	 	$	(2,993	)	 	$	(2,993	)	
Noncash impact of accounting for convertible debt	 	 	-	 	 	 	-	 	 	 	(4,046	)	 	 	(4,046	)	
Long-term incentive compensation	 	 	-	 	 	 	-	 	 	 	(734	)	 	 	(734	)	
Uncertain tax position adjustments	 	 	-	 	 	 	-	 	 	 	1,782	 	 	 	1,782	 	
Expenses of severance arrangements	 	 	-	 	 	 	(184	)	 	 	-	 	 	 	(184	)	
Loss on extinguishment of debt	 	 	-	 	 	 	-	 	 	 	(294	)	 	 	(294	)	
Litigation settlement	 	 	(6,510	)	 	 	(9,551	)	 	 	-	 	 	 	(16,061	)	
Expenses related to litigation settlements	 	 	-	 	 	 	(699	)	 	 	-	 	 	 	(699	)	
Expenses related to securities litigation	 	 	-	 	 	 	-	 	 	 	(3	)	 	 	(3	)	
Acquisition expenses	 	 	(23	)	 	 	(2	)	 	 	-	 	 	 	(25	)	
Expenses related to OIG investigation	 	 	(895	)	 	 	-	 	 	 	-	 	 	 	(895	)	
Total	 	$	(7,428	)	 	$	(10,436	)	 	$	(6,288	)	 	$	(24,152	)	

 
 
-29-

 

 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
CHEMED CORPORATION AND SUBSIDIARY COMPANIES	 	
CONSOLIDATING STATEMENT OF INCOME	 	
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012	 	
(in thousands)(unaudited)	 	
 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	Chemed	 	
 	 	VITAS	 	 	Roto-Rooter	 	 	Corporate	 	 	Consolidated	 	
2012 (a)	 	 	 	 	 	 	 	 	 	 	 	 	
Service revenues and sales	 	$	794,050	 	 	$	267,416	 	 	$	-	 	 	$	1,061,466	 	
Cost of services provided and goods sold	 	 	621,933	 	 	 	149,490	 	 	 	-	 	 	 	771,423	 	
Selling, general and administrative expenses	 	 	60,367	 	 	 	75,875	 	 	 	19,650	 	 	 	155,892	 	
Depreciation	 	 	12,521	 	 	 	6,264	 	 	 	393	 	 	 	19,178	 	
Amortization	 	 	1,467	 	 	 	471	 	 	 	1,437	 	 	 	3,375	 	
Other operating expenses	 	 	-	 	 	 	1,126	 	 	 	-	 	 	 	1,126	 	
Total costs and expenses	 	 	696,288	 	 	 	233,226	 	 	 	21,480	 	 	 	950,994	 	
Income/(loss) from operations	 	 	97,762	 	 	 	34,190	 	 	 	(21,480	)	 	 	110,472	 	
Interest expense	 	 	(188	)	 	 	(364	)	 	 	(10,480	)	 	 	(11,032	)	
Intercompany interest income/(expense)	 	 	2,361	 	 	 	1,221	 	 	 	(3,582	)	 	 	-	 	
Other income/(expense)—net	 	 	144	 	 	 	9	 	 	 	2,812	 	 	 	2,965	 	
Income/(expense) before income taxes	 	 	100,079	 	 	 	35,056	 	 	 	(32,730	)	 	 	102,405	 	
Income taxes	 	 	(38,080	)	 	 	(13,341	)	 	 	11,580	 	 	 	(39,841	)	
Net income/(loss)	 	$	61,999	 	 	$	21,715	 	 	$	(21,150	)	 	$	62,564	 	

(a) The following amounts are included in net income (in thousands):	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	Chemed	 	
 	 	VITAS	 	 	Roto-Rooter	 	 	Corporate	 	 	Consolidated	 	
Pretax benefit/(cost):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
     Stock option expense	 	$	-	 	 	$	-	 	 	$	(6,709	)	 	$	(6,709	)	
     Noncash impact of accounting for convertible debt	 	 	-	 	 	 	-	 	 	 	(5,919	)	 	 	(5,919	)	
     Expenses related to securities litigation	 	 	-	 	 	 	-	 	 	 	(265	)	 	 	(265	)	
     Expenses related to litigation settlements	 	 	-	 	 	 	(843	)	 	 	-	 	 	 	(843	)	
     Acquisition expenses	 	 	(2	)	 	 	(120	)	 	 	-	 	 	 	(122	)	
     Expenses related to OIG investigation	 	 	(749	)	 	 	-	 	 	 	-	 	 	 	(749	)	
     HVAC shut down costs	 	 	-	 	 	 	(1,126	)	 	 	-	 	 	 	(1,126	)	
          Total	 	$	(751	)	 	$	(2,089	)	 	$	(12,893	)	 	$	(15,733	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	Chemed	 	
 	 	VITAS	 	 	Roto-Rooter	 	 	Corporate	 	 	Consolidated	 	
After-tax benefit/(cost):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
     Stock option expense	 	$	-	 	 	$	-	 	 	$	(4,243	)	 	$	(4,243	)	
     Noncash impact of accounting for convertible debt	 	 	-	 	 	 	-	 	 	 	(3,744	)	 	 	(3,744	)	
     Expenses related to securities litigation	 	 	-	 	 	 	-	 	 	 	(168	)	 	 	(168	)	
     Expenses related to litigation settlements	 	 	-	 	 	 	(512	)	 	 	-	 	 	 	(512	)	
     Acquisition expenses	 	 	(1	)	 	 	(73	)	 	 	-	 	 	 	(74	)	
     Expenses related to OIG investigation	 	 	(465	)	 	 	-	 	 	 	-	 	 	 	(465	)	
     HVAC shut down costs	 	 	-	 	 	 	(649	)	 	 	-	 	 	 	(649	)	
          Total	 	$	(466	)	 	$	(1,234	)	 	$	(8,155	)	 	$	(9,855	)	

 
-30-

 

 	 	 	 	 	 	 	 	 	 	 	 	 	
Consolidating Summary and Reconciliation of 
Adjusted EBITDA	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Chemed Corporation and Subsidiary Companies	 	 	 	 	
(in thousands)	 	 	 	 	 	 	 	 	 	Chemed	 	
For the three months ended September 30, 2013	VITAS	 	 	Roto-Rooter	 	Corporate	 	Consolidated	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income/(loss)	 	$	14,608	 	 	$	8,181	 	 	$	(5,357	)	 	$	17,432	 	
Add/(deduct):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest expense	 	 	48	 	 	 	82	 	 	 	3,370	 	 	 	3,500	 	
Income taxes	 	 	9,042	 	 	 	4,999	 	 	 	(5,853	)	 	 	8,188	 	
Depreciation	 	 	4,545	 	 	 	2,292	 	 	 	134	 	 	 	6,971	 	
Amortization	 	 	538	 	 	 	151	 	 	 	501	 	 	 	1,190	 	
EBITDA	 	 	28,781	 	 	 	15,705	 	 	 	(7,205	)	 	 	37,281	 	
Add/(deduct):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Intercompany interest expense/(income)	 	 	(1,231	)	 	 	(579	)	 	 	1,810	 	 	 	-	 	
Interest income	 	 	(163	)	 	 	(10	)	 	 	(19	)	 	 	(192	)	
Expenses/(cost recovery) related to OIG investigation	 	 	(591	)	 	 	-	 	 	 	-	 	 	 	(591	)	
Acquisition expenses	 	 	18	 	 	 	3	 	 	 	-	 	 	 	21	 	
Litigation settlements	 	 	10,500	 	 	 	961	 	 	 	-	 	 	 	11,461	 	
Expenses related to litigation settlements	 	 	-	 	 	 	443	 	 	 	-	 	 	 	443	 	
Advertising cost adjustment	 	 	-	 	 	 	(369	)	 	 	-	 	 	 	(369	)	
Stock option expense	 	 	-	 	 	 	-	 	 	 	1,629	 	 	 	1,629	 	
Long-term incentive compensation	 	 	-	 	 	 	-	 	 	 	55	 	 	 	55	 	
Expenses related to securities litigation	 	 	-	 	 	 	-	 	 	 	1	 	 	 	1	 	
Adjusted EBITDA	 	$	37,314	 	 	$	16,154	 	 	$	(3,729	)	 	$	49,739	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	Chemed	 	
For the three months ended September 30, 2012	VITAS	 	Roto-Rooter	 	Corporate	 	Consolidated	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income/(loss)	 	$	21,940	 	 	$	6,145	 	 	$	(7,240	)	 	$	20,845	 	
Add/(deduct):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest expense	 	 	62	 	 	 	150	 	 	 	3,531	 	 	 	3,743	 	
Income taxes	 	 	13,516	 	 	 	3,661	 	 	 	(3,955	)	 	 	13,222	 	
Depreciation	 	 	4,333	 	 	 	2,093	 	 	 	131	 	 	 	6,557	 	
Amortization	 	 	489	 	 	 	160	 	 	 	486	 	 	 	1,135	 	
EBITDA	 	 	40,340	 	 	 	12,209	 	 	 	(7,047	)	 	 	45,502	 	
Add/(deduct):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Intercompany interest expense/(income)	 	 	(795	)	 	 	(396	)	 	 	1,191	 	 	 	-	 	
Interest income	 	 	(256	)	 	 	(12	)	 	 	(23	)	 	 	(291	)	
Expenses related to OIG investigation	 	 	483	 	 	 	-	 	 	 	-	 	 	 	483	 	
Acquisition expenses	 	 	2	 	 	 	85	 	 	 	-	 	 	 	87	 	
HVAC shut down costs	 	 	-	 	 	 	1,126	 	 	 	-	 	 	 	1,126	 	
Expenses related to litigation settlements	 	 	-	 	 	 	116	 	 	 	-	 	 	 	116	 	
Advertising cost adjustment	 	 	-	 	 	 	(468	)	 	 	-	 	 	 	(468	)	
Stock option expense	 	 	-	 	 	 	-	 	 	 	2,397	 	 	 	2,397	 	
Expenses related to securities litigation	 	 	-	 	 	 	-	 	 	 	68	 	 	 	68	 	
Adjusted EBITDA	 	$	39,774	 	 	$	12,660	 	 	$	(3,414	)	 	$	49,020	 	

 
-31-

 

 	 	 	 	 	 	 	 	 	 	 	 	 	
Consolidating Summary and Reconciliation of 
Adjusted EBITDA	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Chemed Corporation and Subsidiary Companies	 	 	 	 	
(in thousands)	 	 	 	 	 	 	 	 	 	Chemed	 	
For the nine months ended September 30, 2013	VITAS	 	Roto-Rooter	 	Corporate	 	Consolidated	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income/(loss)	 	$	55,237	 	 	$	19,218	 	 	$	(20,137	)	 	$	54,318	 	
Add/(deduct):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest expense	 	 	145	 	 	 	239	 	 	 	10,907	 	 	 	11,291	 	
Income taxes	 	 	34,051	 	 	 	11,580	 	 	 	(13,974	)	 	 	31,657	 	
Depreciation	 	 	13,579	 	 	 	6,685	 	 	 	401	 	 	 	20,665	 	
Amortization	 	 	1,564	 	 	 	454	 	 	 	1,480	 	 	 	3,498	 	
EBITDA	 	 	104,576	 	 	 	38,176	 	 	 	(21,323	)	 	 	121,429	 	
Add/(deduct):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Intercompany interest expense/(income)	 	 	(2,940	)	 	 	(1,443	)	 	 	4,383	 	 	 	-	 	
Interest income	 	 	(1,051	)	 	 	(66	)	 	 	(48	)	 	 	(1,165	)	
Expenses related to OIG investigation	 	 	1,444	 	 	 	-	 	 	 	-	 	 	 	1,444	 	
Acquisition expenses	 	 	38	 	 	 	4	 	 	 	-	 	 	 	42	 	
Litigation settlement	 	 	10,500	 	 	 	15,721	 	 	 	-	 	 	 	26,221	 	
Expenses related to litigation settlements	 	 	-	 	 	 	1,151	 	 	 	-	 	 	 	1,151	 	
Advertising cost adjustment	 	 	-	 	 	 	(1,343	)	 	 	-	 	 	 	(1,343	)	
Expenses of severance arrangements	 	 	-	 	 	 	302	 	 	 	-	 	 	 	302	 	
Stock option expense	 	 	-	 	 	 	-	 	 	 	4,732	 	 	 	4,732	 	
Long-term incentive compensation	 	 	-	 	 	 	-	 	 	 	1,161	 	 	 	1,161	 	
Expenses related to securities litigation	 	 	-	 	 	 	-	 	 	 	4	 	 	 	4	 	
Adjusted EBITDA	 	$	112,567	 	 	$	52,502	 	 	$	(11,091	)	 	$	153,978	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	Chemed	 	
For the nine months ended September 30, 2012	VITAS	 	Roto-Rooter	 	Corporate	 	Consolidated	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income/(loss)	 	$	61,999	 	 	$	21,715	 	 	$	(21,150	)	 	$	62,564	 	
Add/(deduct):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest expense	 	 	188	 	 	 	364	 	 	 	10,480	 	 	 	11,032	 	
Income taxes	 	 	38,080	 	 	 	13,341	 	 	 	(11,580	)	 	 	39,841	 	
Depreciation	 	 	12,521	 	 	 	6,264	 	 	 	393	 	 	 	19,178	 	
Amortization	 	 	1,467	 	 	 	471	 	 	 	1,437	 	 	 	3,375	 	
EBITDA	 	 	114,255	 	 	 	42,155	 	 	 	(20,420	)	 	 	135,990	 	
Add/(deduct):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Intercompany interest expense/(income)	 	 	(2,361	)	 	 	(1,221	)	 	 	3,582	 	 	 	-	 	
Interest income	 	 	(328	)	 	 	(22	)	 	 	(51	)	 	 	(401	)	
Expenses related to OIG investigation	 	 	749	 	 	 	-	 	 	 	-	 	 	 	749	 	
Acquisition expenses	 	 	2	 	 	 	120	 	 	 	-	 	 	 	122	 	
HVAC shut down costs	 	 	-	 	 	 	1,126	 	 	 	-	 	 	 	1,126	 	
Expenses related to litigation settlements	 	 	-	 	 	 	843	 	 	 	-	 	 	 	843	 	
Advertising cost adjustment	 	 	-	 	 	 	(1,870	)	 	 	-	 	 	 	(1,870	)	
Stock option expense	 	 	-	 	 	 	-	 	 	 	6,709	 	 	 	6,709	 	
Expenses related to securities litigation	 	 	-	 	 	 	-	 	 	 	265	 	 	 	265	 	
Adjusted EBITDA	 	$	112,317	 	 	$	41,131	 	 	$	(9,915	)	 	$	143,533	 	

 
-32-

 

 	 	 	 	 	 	 	 	 	 	 	 	 	
CHEMED CORPORATION AND SUBSIDIARY COMPANIES	 	
RECONCILIATION OF ADJUSTED NET INCOME	 	
(in thousands, except per share data)(unaudited)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three Months Ended September 30,	 	 	Nine Months Ended September 30,	 	
 	 	2013	 	 	2012	 	 	2013	 	 	2012	 	
Net income as reported	 	$	17,432	 	 	$	20,845	 	 	$	54,318	 	 	$	62,564	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Add/(deduct) after-tax cost of:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Litigation settlement	 	 	7,094	 	 	 	-	 	 	 	16,061	 	 	 	-	 	
Uncertain tax position adjustments	 	 	(1,782	)	 	 	-	 	 	 	(1,782	)	 	 	-	 	
Additional interest expense resulting from the change	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
in accounting for the conversion feature of the	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
convertible notes	 	 	1,375	 	 	 	1,272	 	 	 	4,046	 	 	 	3,744	 	
Stock option expense	 	 	1,030	 	 	 	1,516	 	 	 	2,993	 	 	 	4,243	 	
HVAC shut down costs	 	 	-	 	 	 	649	 	 	 	-	 	 	 	649	 	
Expenses of OIG investigation	 	 	(367	)	 	 	300	 	 	 	895	 	 	 	465	 	
Expenses related to litigation settlements	 	 	269	 	 	 	70	 	 	 	699	 	 	 	512	 	
Long-term incentive compensation	 	 	34	 	 	 	-	 	 	 	734	 	 	 	-	 	
Acquisition expenses	 	 	12	 	 	 	53	 	 	 	25	 	 	 	74	 	
Expenses related to securities litigation	 	 	1	 	 	 	44	 	 	 	3	 	 	 	168	 	
Loss on extinguishment of debt	 	 	-	 	 	 	-	 	 	 	294	 	 	 	-	 	
Severance arrangements	 	 	-	 	 	 	-	 	 	 	184	 	 	 	-	 	
Adjusted net income	 	$	25,098	 	 	$	24,749	 	 	$	78,470	 	 	$	72,419	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings Per Share As Reported	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	$	0.96	 	 	$	1.10	 	 	$	2.95	 	 	$	3.30	 	
Average number of shares outstanding	 	 	18,184	 	 	 	18,960	 	 	 	18,436	 	 	 	18,977	 	
Diluted Earnings Per Share As Reported	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	$	0.94	 	 	$	1.07	 	 	$	2.89	 	 	$	3.23	 	
Average number of shares outstanding	 	 	18,522	 	 	 	19,404	 	 	 	18,824	 	 	 	19,382	 	

Adjusted Earnings Per Share	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	$	1.38	 	 	$	1.31	 	 	$	4.26	 	 	$	3.82	 	
Average number of shares outstanding	 	 	18,184	 	 	 	18,960	 	 	 	18,436	 	 	 	18,977	 	
Adjusted Diluted Earnings Per Share	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	$	1.36	 	 	$	1.28	 	 	$	4.17	 	 	$	3.74	 	
Average number of shares outstanding	 	 	18,522	 	 	 	19,404	 	 	 	18,824	 	 	 	19,382	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
The "Footnotes to Financial Statements" are integral parts of this financial information.	 	

-33-

 

 	 	 	 	 	 	 	 	 	 	 	 	 	
CHEMED CORPORATION AND SUBSIDIARY COMPANIES	 	
OPERATING STATISTICS FOR VITAS SEGMENT	 	
(unaudited)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three Months Ended September 30,	 	 	Nine Months Ended September 30,	 	
OPERATING STATISTICS	 	2013	 	 	2012	 	 	2013	 	 	2012	 	
Net revenue ($000)	 	 	 	 	 	 	 	 	 	 	 	 	
Homecare	 	$	196,476	 	 	$	197,764	 	 	$	593,410	 	 	$	577,511	 	
Inpatient	 	 	24,824	 	 	 	28,082	 	 	 	79,181	 	 	 	86,481	 	
Continuous care	 	 	35,880	 	 	 	42,144	 	 	 	119,466	 	 	 	127,481	 	
Total before Medicare cap allowance	 	$	257,180	 	 	$	267,990	 	 	$	792,057	 	 	$	791,473	 	
Medicare cap allowance	 	 	(3,179	)	 	 	-	 	 	 	(3,161	)	 	 	2,577	 	
Total	 	$	254,001	 	 	$	267,990	 	 	$	788,896	 	 	$	794,050	 	
Net revenue as a percent of total	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
before Medicare cap allowance	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Homecare	 	 	76.4	%	 	 	73.8	%	 	 	74.9	%	 	 	73.0	%	
Inpatient	 	 	9.7	 	 	 	10.5	 	 	 	10.0	 	 	 	10.9	 	
Continuous care	 	 	14.0	 	 	 	15.7	 	 	 	15.2	 	 	 	16.1	 	
Total before Medicare cap allowance	 	 	100.1	 	 	 	100.0	 	 	 	100.1	 	 	 	100.0	 	
Medicare cap allowance	 	 	(1.3	)	 	 	-	 	 	 	(0.4	)	 	 	0.3	 	
Total	 	 	98.8	%	 	 	100.0	%	 	 	99.7	%	 	 	100.3	%	
Average daily census (days)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Homecare	 	 	10,373	 	 	 	10,123	 	 	 	10,482	 	 	 	9,904	 	
Nursing home	 	 	2,911	 	 	 	3,073	 	 	 	2,928	 	 	 	3,031	 	
Routine homecare	 	 	13,284	 	 	 	13,196	 	 	 	13,410	 	 	 	12,935	 	
Inpatient	 	 	417	 	 	 	460	 	 	 	440	 	 	 	466	 	
Continuous care	 	 	540	 	 	 	621	 	 	 	600	 	 	 	630	 	
Total	 	 	14,241	 	 	 	14,277	 	 	 	14,450	 	 	 	14,031	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Admissions	 	 	14,555	 	 	 	15,539	 	 	 	47,413	 	 	 	47,773	 	
Total Discharges	 	 	14,971	 	 	 	15,340	 	 	 	47,603	 	 	 	47,064	 	
Average length of stay (days)	 	 	82.2	 	 	 	78.5	 	 	 	81.3	 	 	 	78.3	 	
Median length of stay (days)	 	 	16.0	 	 	 	15.0	 	 	 	15.0	 	 	 	15.0	 	
ADC by major diagnosis	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Neurological	 	 	37.8	%	 	 	33.9	%	 	 	36.8	%	 	 	34.1	%	
Cancer	 	 	17.1	 	 	 	17.3	 	 	 	17.0	 	 	 	17.6	 	
Cardio	 	 	13.9	 	 	 	11.2	 	 	 	12.8	 	 	 	11.4	 	
Respiratory	 	 	7.8	 	 	 	6.7	 	 	 	7.5	 	 	 	6.7	 	
Other	 	 	23.4	 	 	 	30.9	 	 	 	25.9	 	 	 	30.2	 	
Total	 	 	100.0	%	 	 	100.0	%	 	 	100.0	%	 	 	100.0	%	
Admissions by major diagnosis	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Neurological	 	 	21.0	%	 	 	19.3	%	 	 	20.3	%	 	 	19.3	%	
Cancer	 	 	34.4	 	 	 	34.0	 	 	 	33.0	 	 	 	33.3	 	
Cardio	 	 	13.8	 	 	 	10.5	 	 	 	13.0	 	 	 	11.1	 	
Respiratory	 	 	9.0	 	 	 	7.4	 	 	 	9.3	 	 	 	8.1	 	
Other	 	 	21.8	 	 	 	28.8	 	 	 	24.4	 	 	 	28.2	 	
Total	 	 	100.0	%	 	 	100.0	%	 	 	100.0	%	 	 	100.0	%	
Direct patient care margins	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Routine homecare	 	 	52.5	%	 	 	52.5	%	 	 	52.2	%	 	 	51.8	%	
Inpatient	 	 	1.7	 	 	 	9.2	 	 	 	5.6	 	 	 	12.0	 	
Continuous care	 	 	14.8	 	 	 	19.0	 	 	 	15.8	 	 	 	19.6	 	
Homecare margin drivers (dollars per patient day)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Labor costs	 	$	54.64	 	 	$	54.69	 	 	$	55.61	 	 	$	55.64	 	
Drug costs	 	 	7.52	 	 	 	8.11	 	 	 	7.55	 	 	 	8.25	 	
Home medical equipment	 	 	6.67	 	 	 	7.03	 	 	 	6.69	 	 	 	6.88	 	
Medical supplies	 	 	2.83	 	 	 	2.77	 	 	 	2.96	 	 	 	2.77	 	
Inpatient margin drivers (dollars per patient day)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Labor costs	 	$	354.09	 	 	$	326.95	 	 	$	339.84	 	 	$	320.79	 	
Continuous care margin drivers (dollars per patient day)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Labor costs	 	$	594.25	 	 	$	575.21	 	 	$	592.15	 	 	$	571.56	 	
Bad debt expense as a percent of revenues	 	 	0.9	%	 	 	0.8	%	 	 	0.9	%	 	 	0.8	%	
Accounts receivable --	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
  Days of revenue outstanding- excluding unapplied Medicare payments	 	34.6	 	 	 	35.4	 	 	n.a	 	 	n.a	 	
  Days of revenue outstanding- including unapplied Medicare payments	 	21.9	 	 	 	27.9	 	 	n.a	 	 	n.a	 	

 
-34-

 

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

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

Item 3.    Quantitative and Qualitative Disclosures about Market Risk
Our primary market risk exposure relates to interest rate risk exposure through variable interest rate borrowings.  At September 30, 2013, we had no variable rate debt outstanding.  At September 30, 2013, the fair value of the Notes approximates $195.3 million which have a face value of $187.0 million.

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

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.

 
-35-

 

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 nine months of 2013:

 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	
 	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, 2013	 -	 	$	 -	 	 -	 	$	 14,739,197 	
February 1 through February 28, 2013	 -	 	 	 -	 	 -	 	 	 114,739,197 	
March 1 through March 31, 2013	 -	 	 	 -	 	 -	 	$	 114,739,197 	
 	 	 	 	 	 	 	 	 	 	
First Quarter Total	 -	 	$	 -	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	
April 1 through April 30, 2013	 -	 	$	 -	 	 -	 	$	 114,739,197 	
May 31 through May 31, 2013	 280,701 	 	 	 65.72 	 	 280,701 	 	 	 96,291,009 	
June 1 through June 30, 2013	 -	 	 	 -	 	 280,701 	 	$	 96,291,009 	
 	 	 	 	 	 	 	 	 	 	
Second Quarter Total	 280,701 	 	$	 65.72 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	
July 1 through July 31, 2013	 219,830 	 	$	 70.66 	 	 500,531 	 	$	 80,758,769 	
August 1 through August 31, 2013	 49,522 	 	 	 71.02 	 	 550,053 	 	 	 77,241,690 	
September 1 through September 30, 2013	 763,402 	 	 	 68.26 	 	 1,313,455 	 	$	 25,128,231 	
 	 	 	 	 	 	 	 	 	 	
Third Quarter Total	 1,032,754 	 	$	 68.91 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	
On February 20, 2013, 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

-36-

 
 
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:	 	    November 1, 2013	 	By:	 	/s/ Kevin J. McNamara	 	
 	 	 	 	 	 	 	Kevin J. McNamara	 	
 	 	 	 	 	 	 	(President and Chief Executive Officer)	 	

 	Dated:	 	         November 1, 2013	 	By:	 	/s/ David P. Williams	 	
 	 	 	 	 	 	 	David P. Williams	 	
 	 	 	 	 	 	 	(Executive Vice President and Chief Financial Officer)	 	

 	Dated:	 	         November 1, 2013	 	By:	 	/s/ Arthur V. Tucker, Jr.	 	
 	 	 	 	 	 	 	Arthur V. Tucker, Jr.	 	
 	 	 	 	 	 	 	(Vice President and Controller)	 	

-37-

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:	November 1, 2013      	/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:	November 1, 2013      	/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:	November 1, 2013      	/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 September 30, 2013 (“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.	

 
Date:	November 1, 2013      	/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 September 30, 2013 (“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.	

 
Date:	November 1, 2013      	/s/ David P. Williams	 	
 	 	David P. Williams	 	
 	 	(Executive Vice President and	 	
 	 	Chief Financial Officer)	 	

 

 

 
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 September 30, 2013 (“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.	

 

Date:	November 1, 2013      	/s/ Arthur V. Tucker, Jr.	 	
 	 	Arthur V. Tucker, Jr.	 	
 	 	(Vice President and Controller)	 	

 
E-6