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, 2014

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

Commission File Number: 1-8351

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

Delaware	31-0791746	
(State or other jurisdiction of incorporation or organization)
 	(IRS Employer Identification No.)	
255 E. Fifth Street, Suite 2600, Cincinnati, Ohio	45202	
(Address of principal executive offices)	(Zip code)	

(513) 762-6690
(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	17,010,464 Shares	September 30, 2014	

-1-

 

CHEMED CORPORATION AND
SUBSIDIARY COMPANIES

Index

 	Page No.	
PART I.    FINANCIAL INFORMATION:	 	
Item 1.  Financial Statements	 	
Unaudited Consolidated Balance Sheet - September 30, 2014 and December 31, 2013	3	
 	 	
Unaudited Consolidated Statement of Income - Three and nine months ended September 30, 2014 and 2013	4	
 	 	
Unaudited Consolidated Statement of Cash Flows - Nine months ended September 30, 2014 and 2013	5	
 	 	
Notes to Unaudited Consolidated Financial Statements	6	
 	 	
Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations	15	
 	 	
Item 3.  Quantitative and Qualitative Disclosures about Market Risk	32	
 	 	
Item 4.  Controls and Procedures	32	
 	 	
PART II.   OTHER INFORMATION	 	
Item 1.    Legal Proceedings	32	
 	 	
Item 1A. Risk Factors	32	
 	 	
Item 2.    Unregistered Sales of Equity Securities and Use of  Proceeds	33	
 	 	
Item 3.    Defaults Upon Senior Securities	33	
 	 	
Item 4.    Mine Safety Disclosures	33	
 	 	
Item 5.    Other Information	33	
 	 	
Item 6.    Exhibits	34	
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, 2014	 	December 31, 2013	
ASSETS	 	 	 	 	 	 	
Current assets	 	 	 	 	 	 	
Cash and cash equivalents	 	$	18,562	 	 	$	84,418	 	
Accounts receivable less allowances of $13,887 (2013 - $12,590)	 	 	132,340	 	 	 	91,770	 	
Inventories	 	 	6,385	 	 	 	6,703	 	
Current deferred income taxes	 	 	14,543	 	 	 	20,257	 	
Prepaid income taxes	 	 	3,488	 	 	 	3,690	 	
Prepaid expenses	 	 	13,420	 	 	 	17,818	 	
Total current assets	 	 	188,738	 	 	 	224,656	 	
Investments of deferred compensation plans	 	 	47,780	 	 	 	42,465	 	
Properties and equipment, at cost, less accumulated depreciation of $187,983 (2013 - $180,550)	 	 	101,845	 	 	 	92,955	 	
Identifiable intangible assets less accumulated amortization of $32,644 (2013 - $32,055)	 	 	56,158	 	 	 	56,556	 	
Goodwill	 	 	466,844	 	 	 	466,871	 	
Other assets	 	 	8,143	 	 	 	10,198	 	
Total Assets	 	$	869,508	 	 	$	893,701	 	
 	 	 	 	 	 	 	 	 	
LIABILITIES	 	 	 	 	 	 	 	 	
Current liabilities	 	 	 	 	 	 	 	 	
Accounts payable	 	$	57,067	 	 	$	41,758	 	
Current portion of long-term debt	 	 	20,425	 	 	 	183,564	 	
Income taxes	 	 	4,608	 	 	 	111	 	
Accrued insurance	 	 	39,927	 	 	 	41,859	 	
Accrued compensation	 	 	50,412	 	 	 	48,323	 	
Accrued legal	 	 	685	 	 	 	23,210	 	
Other current liabilities	 	 	24,131	 	 	 	25,161	 	
Total current liabilities	 	 	197,255	 	 	 	363,986	 	
Deferred income taxes	 	 	27,853	 	 	 	27,301	 	
Long-term debt	 	 	153,125	 	 	 	-	 	
Deferred compensation liabilities	 	 	47,736	 	 	 	42,348	 	
Other liabilities	 	 	11,108	 	 	 	11,176	 	
Total Liabilities	 	 	437,077	 	 	 	444,811	 	
Commitments and contingencies	 	 	 	 	 	 	 	 	
STOCKHOLDERS' EQUITY	 	 	 	 	 	 	 	 	
Capital stock - authorized 80,000,000 shares $1 par; issued 33,199,078 shares (2013 - 32,245,226 shares)	 	 	33,199	 	 	 	32,245	 	
Paid-in capital	 	 	528,973	 	 	 	481,011	 	
Retained earnings	 	 	745,077	 	 	 	686,114	 	
Treasury stock - 16,287,526 shares (2013 - 14,660,427)	 	 	(877,067	)	 	 	(752,634	)	
Deferred compensation payable in Company stock	 	 	2,249	 	 	 	2,154	 	
Total Stockholders' Equity	 	 	432,431	 	 	 	448,890	 	
Total Liabilities and Stockholders' Equity	 	$	869,508	 	 	$	893,701	 	

See accompanying notes to unaudited consolidated financial statements.

-3-

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

 	 	
 	 	Three Months Ended September 30,	 	Nine Months Ended September 30,	
 	 	2014	 	2013	 	2014	 	2013	
Service revenues and sales	 	$	358,389	 	 	$	340,886	 	 	$	1,076,871	 	 	$	1,064,725	 	
Cost of services provided and goods sold (excluding depreciation)	 	 	256,445	 	 	 	243,184	 	 	 	771,271	 	 	 	762,850	 	
Selling, general and administrative expenses	 	 	53,566	 	 	 	48,870	 	 	 	162,886	 	 	 	157,537	 	
Depreciation	 	 	7,450	 	 	 	6,971	 	 	 	21,871	 	 	 	20,665	 	
Amortization	 	 	717	 	 	 	1,190	 	 	 	2,461	 	 	 	3,498	 	
Other operating expenses	 	 	-	 	 	 	11,461	 	 	 	-	 	 	 	26,221	 	
Total costs and expenses	 	 	318,178	 	 	 	311,676	 	 	 	958,489	 	 	 	970,771	 	
Income from operations	 	 	40,211	 	 	 	29,210	 	 	 	118,382	 	 	 	93,954	 	
Interest expense	 	 	(980	)	 	 	(3,500	)	 	 	(7,224	)	 	 	(11,291	)	
Other income - net	 	 	705	 	 	 	(90	)	 	 	2,277	 	 	 	3,312	 	
Income before income taxes	 	 	39,936	 	 	 	25,620	 	 	 	113,435	 	 	 	85,975	 	
Income taxes	 	 	(15,351	)	 	 	(8,188	)	 	 	(43,913	)	 	 	(31,657	)	
Net income	 	$	24,585	 	 	$	17,432	 	 	$	69,522	 	 	$	54,318	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings Per Share	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	$	1.44	 	 	$	0.96	 	 	$	4.03	 	 	$	2.95	 	
Average number of shares outstanding	 	 	17,039	 	 	 	18,184	 	 	 	17,263	 	 	 	18,436	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Diluted Earnings Per Share	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	$	1.39	 	 	$	0.94	 	 	$	3.87	 	 	$	2.89	 	
Average number of shares outstanding	 	 	17,627	 	 	 	18,522	 	 	 	17,968	 	 	 	18,824	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash Dividends Per Share	 	$	0.22	 	 	$	0.20	 	 	$	0.62	 	 	$	0.56	 	

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,	
 	 	2014	 	2013	
Cash Flows from Operating Activities	 	 	 	 	 	 	
Net income	 	$	69,522	 	 	$	54,318	 	
Adjustments to reconcile net income to net cash provided	 	 	 	 	 	 	 	 	
by operating activities:	 	 	 	 	 	 	 	 	
Depreciation and amortization	 	 	24,332	 	 	 	24,163	 	
Deferred income taxes	 	 	5,630	 	 	 	(11,681	)	
Provision for uncollectible accounts receivable	 	 	9,573	 	 	 	8,211	 	
Amortization of discount on convertible notes	 	 	3,392	 	 	 	6,450	 	
Stock option expense	 	 	3,430	 	 	 	4,732	 	
Amortization of debt issuance costs	 	 	697	 	 	 	1,421	 	
Noncash long-term incentive compensation	 	 	1,988	 	 	 	1,161	 	
Changes in operating assets and liabilities, excluding	 	 	 	 	 	 	 	 	
amounts acquired in business combinations:	 	 	 	 	 	 	 	 	
Decrease/(increase) in accounts receivable	 	 	(50,027	)	 	 	5,293	 	
Decrease in inventories	 	 	318	 	 	 	329	 	
Decrease/(increase) in prepaid expenses	 	 	4,398	 	 	 	(6,183	)	
Increase/(decrease) in accounts payable and other current liabilities	 	 	(29,680	)	 	 	48,967	 	
Increase in income taxes	 	 	8,186	 	 	 	1,923	 	
Increase in other assets	 	 	(3,138	)	 	 	(5,002	)	
Increase in other liabilities	 	 	5,370	 	 	 	3,978	 	
Excess tax benefit on share-based compensation	 	 	(3,737	)	 	 	(2,507	)	
Other sources	 	 	755	 	 	 	285	 	
Net cash provided by operating activities	 	 	51,009	 	 	 	135,858	 	
Cash Flows from Investing Activities	 	 	 	 	 	 	 	 	
Capital expenditures	 	 	(31,745	)	 	 	(18,887	)	
Business combinations, net of cash acquired	 	 	(250	)	 	 	(2,210	)	
Other sources	 	 	189	 	 	 	139	 	
Net cash used by investing activities	 	 	(31,806	)	 	 	(20,958	)	
Cash Flows from Financing Activities	 	 	 	 	 	 	 	 	
Proceeds from revolving line of credit	 	 	308,600	 	 	 	-	 	
Payments on revolving line of credit	 	 	(233,800	)	 	 	-	 	
Payments on other long-term debt	 	 	(188,206	)	 	 	-	 	
Proceeds from other long-term debt	 	 	100,000	 	 	 	-	 	
Purchases of treasury stock	 	 	(99,103	)	 	 	(89,611	)	
Dividends paid	 	 	(10,558	)	 	 	(10,459	)	
Capital stock surrendered to pay taxes on stock-based compensation	 	 	(6,121	)	 	 	(4,280	)	
Retirement of warrants	 	 	(2,645	)	 	 	-	 	
Proceeds from exercise of stock options	 	 	22,123	 	 	 	13,125	 	
Excess tax benefit on share-based compensation	 	 	3,737	 	 	 	2,507	 	
Increase/(decrease) in cash overdrafts payable	 	 	22,233	 	 	 	(10,928	)	
Debt issuance costs	 	 	(939	)	 	 	(1,108	)	
Other uses	 	 	(380	)	 	 	(473	)	
Net cash used by financing activities	 	 	(85,059	)	 	 	(101,227	)	
Increase/(Decrease) in Cash and Cash Equivalents	 	 	(65,856	)	 	 	13,673	 	
Cash and cash equivalents at beginning of year	 	 	84,418	 	 	 	69,531	 	
Cash and cash equivalents at end of period	 	$	18,562	 	 	$	83,204	 	
 
See accompanying notes to unaudited consolidated financial statements.

-5-

 
 
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
Notes to Unaudited Consolidated Financial Statements

1.   Basis of Presentation

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

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

2.   Revenue Recognition

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

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

During the third quarter of 2014, we recorded $2.5 million Medicare cap liability for two programs’ projected 2014 measurement period liability.

During the nine months ended September 30, 2014 we recorded a net Medicare cap liability of $1.8 million for two programs’ projected 2014 measurement period liability offset by the reversal of Medicare cap liability for amounts recorded in the fourth quarter of 2013 for projected 2014 measurement period liability. Also during the nine months ended September 30, 2014, we received notice from a third party intermediary for amounts accrued related to the 2013 measurement period. As a result we repaid $3.4 million.

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

 	 	September 30,	
 	 	2014	 	2013	
Beginning balance January 1,	 	$	8,260	 	 	$	1,261	 	
2014 measurement period	 	 	 1,796	 	 	 	 -	 	
2013 measurement period	 	 	 -	 	 	 	 3,161	 	
Payments	 	 	 (3,439	)	 	 	 -	 	
Ending balance September 30,	 	$	6,617	 	 	$	4,422	 	

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

-6-

 

Three months ended September 30,	 	 	Nine months ended September 30,	 	
2014	 	 	2013	 	 	2014	 	 	2013	 	
$	1,827	 	 	$	1,909	 	 	$	5,518	 	 	$	5,793	 	

 
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,	
 	 	2014	 	2013	 	2014	 	2013	
Service Revenues and Sales	 	 	 	 	 	 	 	 	 	 	 	 	
VITAS	 	$	265,384	 	 	$	254,001	 	 	$	789,822	 	 	$	788,896	 	
Roto-Rooter	 	 	93,005	 	 	 	86,885	 	 	 	287,049	 	 	 	275,829	 	
Total	 	$	358,389	 	 	$	340,886	 	 	$	1,076,871	 	 	$	1,064,725	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
After-tax Earnings	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
VITAS	 	$	21,593	 	 	$	14,608	 	 	$	60,645	 	 	$	55,237	 	
Roto-Rooter	 	 	9,848	 	 	 	8,181	 	 	 	30,599	 	 	 	19,218	 	
Total	 	 	31,441	 	 	 	22,789	 	 	 	91,244	 	 	 	74,455	 	
Corporate	 	 	(6,856	)	 	 	(5,357	)	 	 	(21,722	)	 	 	(20,137	)	
Net income	 	$	24,585	 	 	$	17,432	 	 	$	69,522	 	 	$	54,318	 	

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	
2014	 	 	 	 	 	 	 	 	 	 	
 	Earnings	 	$	24,585	 	 	 	17,039	 	 	$	1.44	 	
 	Dilutive stock options	 	 	 -	 	 	 	416	 	 	 	 	 	
 	Nonvested stock awards	 	 	 -	 	 	 	151	 	 	 	 	 	
 	Impact of warrants outstanding	 	 	 -	 	 	 	21	 	 	 	 	 	
 	Diluted earnings	 	$	24,585	 	 	 	17,627	 	 	$	1.39	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
2013	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Earnings	 	$	17,432	 	 	 	18,184	 	 	$	0.96	 	
 	Dilutive stock options	 	 	 -	 	 	 	235	 	 	 	 	 	
 	Nonvested stock awards	 	 	 -	 	 	 	103	 	 	 	 	 	
 	Diluted earnings	 	$	17,432	 	 	 	18,522	 	 	$	0.94	 	

-7-

 
 
 	 	 	Net Income	
For the Nine Months Ended September 30,	 	Income	 	Shares	 	Earnings
per Share	
2014	 	 	 	 	 	 	 	 	 	 	
 	Earnings	 	$	69,522	 	 	 	17,263	 	 	$	4.03	 	
 	Dilutive stock options	 	 	 -	 	 	 	402	 	 	 	 	 	
 	Nonvested stock awards	 	 	 -	 	 	 	147	 	 	 	 	 	
 	Conversion of Notes and impact of warrants outstanding	 	 	 -	 	 	 	156	 	 	 	 	 	
 	Diluted earnings	 	$	69,522	 	 	 	17,968	 	 	$	3.87	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
2013	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Earnings	 	$	54,318	 	 	 	18,436	 	 	$	2.95	 	
 	Dilutive stock options	 	 	 -	 	 	 	287	 	 	 	 	 	
 	Nonvested stock awards	 	 	 -	 	 	 	101	 	 	 	 	 	
 	Diluted earnings	 	$	54,318	 	 	 	18,824	 	 	$	2.89	 	
 
For the three and nine-month periods ended September 30, 2014, no stock options were excluded from the computation of diluted earnings per share because they would have been anti-dilutive. For the three and nine-month periods ended September 30, 2013, 434,000 and 31,000 stock options, respectively, were excluded from the computation of diluted earnings per share.

Diluted earnings per share was impacted by the issuance of 249,000 shares of capital stock under the conversion feature of our 1.875% Senior Convertible Notes (the “Notes”) on May 15, 2014.  The dilutive impact of this conversion feature for the first nine months of 2014 was 135,000 shares.

At the time we issued the Notes, as discussed in Note 5 below, we also sold warrants for the right to purchase approximately 2,477,000 Chemed shares in the future.  During the quarter ended June 30, 2014, we settled these warrants with one counterparty representing half of the total warrants issued for $2.6 million.  The amount paid was recorded as an adjustment to paid-in capital.   The remaining half of the sold warrants remain outstanding and mature ratably from August 15 through December 8, 2014.  The dilutive impact of the warrants was 21,000 shares for the three and nine months periods ended September 30, 2014.

5.   Long-Term Debt

On May 15, 2014, we retired our Senior Convertible Notes (the “Notes”) outstanding.  We paid the $187.0 million of principal outstanding using a combination of cash on-hand and our existing revolving credit facility.  In addition, we issued 249,000 Chemed shares in conjunction with the conversion feature of the Notes.  At the time we issued the Notes, we also entered into a purchased call transaction to offset any potential economic dilution resulting from the conversion feature in the Notes.  As a result, we received 266,000 Chemed shares from the exercise of the purchased call transaction.  The issuance of shares under the conversion feature of the Notes, as well as the receipt of shares from the purchased call transaction were recorded as adjustments to paid-in capital during the quarter ended June 30, 2014.
 
On June 30, 2014, we replaced our existing credit agreement with the Third Amended and Restated Credit Agreement (“2014 Credit Agreement”).  Terms of the 2014 Credit Agreement consist of a five-year, $350 million revolving credit facility and a $100 million term loan.  The 2014 Credit Agreement has a floating interest rate that is currently LIBOR plus 113 basis points.

The debt outstanding consists of the following:

Revolver	 	$	74,800,000	 	
Term loan	 	 	98,750,000	 	
Total	 	 	173,550,000	 	
Current portion of term and revolving loan	 	 	(20,425,000	)	
Long-term debt	 	$	153,125,000	 	

-8-

 

Scheduled principal payments of the term loan are as follows:

2014	 	$	1,250,000	 	
2015	 	 	6,250,000	 	
2016	 	 	7,500,000	 	
2017	 	 	8,750,000	 	
2018	 	 	10,000,000	 	
2019	 	 	65,000,000	 	
 	 	$	98,750,000	 	

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

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

We are in compliance with all debt covenants as of September 30, 2014. We have issued $36.9 million in standby letters of credit as of September 30, 2014 for insurance purposes.  Issued letters of credit reduce our available credit under the 2014 Credit Agreement.  As of September 30, 2014, we have approximately $238.3 million of unused lines of credit available and eligible to be drawn down under our revolving credit facility.

6.   Other Income – Net

Other income -- net comprises the following (in thousands):
 
 	 	Three months ended September 30,	 	Nine months ended September 30,	
 	 	2014	 	2013	 	2014	 	2013	
Market value gains/(losses) on assets held in	 	 	 	 	 	 	 	 	 	 	 	 	
deferred compensation trust	 	$	896	 	 	$	(189	)	 	$	2,708	 	 	$	2,346	 	
Loss on disposal of property and equipment	 	 	 (167	)	 	 	 (101	)	 	 	 (493	)	 	 	 (180	)	
Interest income - net	 	 	 (13	)	 	 	 192	 	 	 	 (5	)	 	 	 1,165	 	
Other - net	 	 	 (11	)	 	 	 8	 	 	 	 67	 	 	 	 (19	)	
     Total other income - net	 	$	705	 	 	$	(90	)	 	$	2,277	 	 	$	3,312	 	

 7.   Stock-Based Compensation Plans

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

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

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8.   Independent Contractor Operations

The Roto-Rooter segment sublicenses with 68 independent contractors to operate certain plumbing repair and drain cleaning businesses in lesser-populated areas of the United States and Canada.  We had notes receivable from our independent contractors as of September 30, 2014 totaling $1.4 million (December 31, 2013 - $1.5 million).  In most cases these loans are fully or partially secured by equipment owned by the contractor.  The interest rates on the loans range from 0% to 8% per annum and the remaining terms of the loans range from 2 months to 5 years at September 30, 2014.  We recorded the following from our independent contractors (in thousands):

 	 	Three months ended September 30,	 	Nine months ended September 30,	
 	 	2014	 	2013	 	2014	 	2013	
Revenues	 	$	8,751	 	 	$	8,054	 	 	$	26,964	 	 	$	24,418	 	
Pretax profits	 	 	 4,946	 	 	 	 4,243	 	 	 	 15,341	 	 	 	 13,015	 	

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,	
2014	 	2013	 	2014	 	2013	
$	3,635	 	 	$	2,098	 	 	$	10,856	 	 	$	9,796	 	

10.  Legal and Regulatory Matters

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

Regulatory Matters and Litigation

On January 12, 2012, a putative class action lawsuit was filed in the U.S. District Court for the Southern District of Ohio against the Company, David Williams, and Timothy O’Toole , In re Chemed Corp. Securities Litigation , Civil Action No. 1:12-cv-28 (S.D. Ohio).  As the Company has previously disclosed, on February 6, 2014, the Plaintiffs, on behalf of a putative class of purchasers of Chemed Capital Stock between February 15, 2010 and May 2, 2013, inclusive, executed a stipulation of settlement with Defendants.  That settlement received final court approval on July 15, 2014, resulting in the dismissal of the case.  No appeal of that judgment has since been filed.  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.

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

On May 2, 2013, the government filed a False Claims Act complaint against the Company and certain of its hospice-related subsidiaries in the U.S. District Court for the Western District of Missouri,  United States v. VITAS Hospice Services, LLC, et al. , No. 4:13-cv-00449-BCW (the “2013 Action”).  Prior to that date, the Company received various subpoenas from the U.S. Department of Justice and OIG that have been previously disclosed.  The 2013 Action alleges that, since at least 2002, VITAS, and since 2004, the Company, submitted or caused the submission of false claims to the Medicare program by (a) billing Medicare for continuous home care services when the patients were not eligible, the services were not provided, or the medical care was inappropriate, and (b) billing Medicare for patients who were not eligible for the Medicare hospice benefit because they did not have a life expectancy of six months or less if their illnesses ran their normal course.  This complaint seeks treble damages, statutory penalties, and the costs of the action, plus interest.  On August 1, 2013, the government filed its First Amended Complaint in the 2013 Action.  The First Amended Complaint changed and supplemented some of the allegations, but did not otherwise expand the causes of action or the nature of the relief sought against VITAS.  The defendants filed a motion to dismiss on September 24, 2013.  The Court denied the motion, except to the extent that claims were filed before July 24, 2002, on September 30, 2014. 

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

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

VITAS has also received document subpoenas in related state matters.  In February 2010, VITAS received a civil investigative demand (“CID”) from the Texas Attorney General seeking documents from January 1, 2002 through the date of the CID, and interrogatory responses in connection with an investigation of possible fraudulent submission of Medicaid claims for non-qualifying patients and fraudulent shifting of costs from VITAS to the State of Texas and the United States.  The CID requested similar information sought by prior Department of Justice subpoenas, including policy and procedure manuals and information concerning Medicare and Medicaid billing, patient statistics and sales and marketing practices, together with information concerning record-keeping and retention practices, and medical records concerning 117 patients.  In September 2010, VITAS received a third 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.

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The net costs incurred related to U.S. v. Vitas and related regulatory matters were $450,000 and a $591,000 credit for the three months ended September 30, 2014 and 2013, respectively.  For the nine months ended September 30, 2014 and 2013, the net costs were $1.6 million and $1.4 million respectively.

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

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

On January 29, 2014 defendants in North filed a motion to transfer that case to Delaware under 28 U.S.C § 1404(a). On February 12, 2014, defendants in  KBC  filed a motion to dismiss that case pursuant to Federal Rules of Civil Procedure 23.1 and 12(b)(6).  On September 19, 2014, the Ohio court granted defendants’ motion to transfer  North  to Delaware.  Following that decision and in light of that transfer, on September 29, 2014, the Delaware court denied without prejudice defendants’ motion to dismiss  KBC,  and referred both cases to Magistrate Judge Burke.  Defendants intend to renew their motion to dismiss the claims and allegations in KBC once it has been determined how these two cases are to proceed.  On October 15, 2014, the plaintiff in  KBC  filed a motion seeking to consolidate  KBC  and  North , to have plaintiff KBC  appointed the sole lead plaintiff and its counsel, Motley Rice, sole lead counsel, and to designate  KBC  the sole operative complaint.  Plaintiff North has indicated that she does not oppose consolidation of the two cases, but otherwise opposes  KBC’s  motion with regard to the appointment of lead plaintiff and lead counsel and designation of the operative complaint.  On October 20, 2014, the Court stayed Defendants’ obligation to answer, move, or otherwise respond to the complaints in KBC and North pending further order of the Court.

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

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11.   Concentration of Risk

VITAS has pharmacy services agreements ("Agreements") with Omnicare, Inc. and its subsidiaries (“OCR”) whereby OCR provides specified pharmacy services for VITAS and its hospice patients in geographical areas served by both VITAS and OCR.  The Agreements renew automatically for three-year terms.  Either party may cancel the Agreements at the end of any term by giving 30 days prior written notice.  VITAS made purchases from OCR of $8.8 million and $9.7 million for the three months ended September 30, 2014 and 2013, respectively.  VITAS made purchases from OCR of $26.5 million and $29.3 million for the nine months ended September 30, 2014 and 2013, respectively. For the three and nine month periods ending September 30, 2014 and 2013, respectively, purchases from this vendor represent approximately 90% of all pharmacy services used by VITAS.

12.   Cash Overdrafts and Cash Equivalents

Included in accounts payable at September 30, 2014 is cash overdrafts payable of $23.0 million (December 31, 2013 - $806,000).

From time to time throughout the year, we invest excess cash in money market funds with major commercial banks. We closely monitor the creditworthiness of the institutions with which we invest our overnight funds.  We had $68,000 in cash equivalents as of September 30, 2014.  There was $23.1 million in cash equivalents as of December 31, 2013.  The weighted average rate of return for our cash equivalents was 0.09% at September 30, 2014 and 0.08% at December 31, 2013.

13.   Financial Instruments

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

The following shows the carrying value, fair value and the hierarchy for our financial instruments as of September 30, 2014 (in thousands):
 
 	 	 	Fair Value Measure	
 	 	 	 	 	
 	 	Carrying Value	 	Quoted Prices in
Active Markets for Identical Assets
(Level 1)	 	Significant Other Observable Inputs
(Level 2)	 	Significant
Unobservable
Inputs (Level 3)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Mutual fund investments of deferred compensation plans held in trust	 	$	47,780	 	 	$ 	47,780	 	 	$ 	 -	 	 	$ 	 -	 	
Long-term debt	 	 	173,550	 	 	 	-	 	 	 	173,550	 	 	 	-	 	

All outstanding long-term debt is at a floating interest rate tied to LIBOR. Therefore, the carrying amount is a reasonable estimation of fair value.

The following shows the carrying value, fair value and the hierarchy for our financial instruments as of December 31, 2013 (in thousands):

 	 	 	Fair Value Measure	
 	 	 	 	 	
 	 	Carrying Value	 	Quoted Prices in
Active Markets for Identical Assets
(Level 1)	 	Significant Other Observable Inputs
(Level 2)	Significant
Unobservable
Inputs (Level 3)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Mutual fund investments of deferred compensation plans held in trust	 	$	42,465	 	 	$	42,465	 	 	$	-	 	 	$	-	 	
Long-term debt	 	 	183,564	 	 	 	193,032	 	 	 	-	 	 	 	-	 	

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

-13-

 

14.   Capital Stock Repurchase Plan Transactions

We repurchased the following capital stock for the three and nine-months ended September 30, 2014 and 2013:
 
 	 	Three months ended September 30,	 	Nine months ended September 30,	
 	 	2014	 	2013	 	2014	 	2013	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Shares repurchased	 	 	 400,000	 	 	 	 1,032,754	 	 	 	 1,082,934	 	 	 	 1,313,455	 	
Weighted average price per share	 	$	101.53	 	 	$	68.91	 	 	$	91.51	 	 	$	68.23	 	

In February 2014, the Board of Directors authorized an additional $100 million for stock repurchase under Chemed’s existing share repurchase program. We currently have $22.7 million of authorization remaining under this share repurchase plan.

15.   Recent Accounting Statements

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

In August 2014, the FASB issued Accounting Standards Update No. 2014-15, “ASU No. 2014-15 - Presentation of Financial Statements-Going Concern”.   ASU 2014-15 is intended to define management's responsibility to evaluate whether there is substantial doubt about an organization's ability to continue as a going concern and to provide related footnote disclosures. This guidance is effective for us for the annual period ending December 31, 2016 and interim periods thereafter. We do not expect the adoption of this standard to have a material impact on our consolidated financial position, results of operations and cash flows.

-14-

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

Executive Summary
We operate through our two wholly-owned subsidiaries, VITAS Healthcare Corporation and Roto-Rooter Group, Inc.  VITAS focuses on hospice care that helps make terminally ill patients’ final days as comfortable as possible.  Through its 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,	
 	 	2014	 	2013	 	2014	 	2013	
Service revenues and sales	 	$	358,389	 	 	$	340,886	 	 	$	1,076,871	 	 	$	1,064,725	 	
Net income	 	$	24,585	 	 	$	17,432	 	 	$	69,522	 	 	$	54,318	 	
Diluted EPS	 	$	1.39	 	 	$	0.94	 	 	$	3.87	 	 	$	2.89	 	
Adjusted net income	 	$	26,058	 	 	$	25,098	 	 	$	76,351	 	 	$	78,470	 	
Adjusted diluted EPS	 	$	1.48	 	 	$	1.36	 	 	$	4.28	 	 	$	4.17	 	
Adjusted EBITDA	 	$	50,946	 	 	$	49,739	 	 	$	150,831	 	 	$	153,978	 	
Adjusted EBITDA as a % of revenue	 	 	14.2	%	 	 	14.6	%	 	 	14.0	%	 	 	14.5	%	

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 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 28-30.

For the three months ended September 30, 2014, the increase in consolidated service revenues and sales was driven by a 7.0% increase at Roto-Rooter and a 4.5% increase at VITAS.  The increase in service revenues at Roto-Rooter was driven by an increase in a combination of price and service mix shift offset by a decrease in job count. The remaining difference relates to increases in contractor revenue and increases in our water restoration business line.  Water restoration is the remediation of water and humidity damage after a flood.  The increase in service revenues at VITAS was a result of Medicare reimbursement rates increasing 1.4%, a 2.8% increase in average daily census and mix shift.  Consolidated net income increased 41.0% mainly as a result of lawsuit settlements in 2013 at Vitas and Roto-Rooter that did not repeat in 2014.   Diluted EPS increased 47.9% as a result of the increase in net income as well as a lower number of shares outstanding.  Adjusted EBITDA as a percent of revenue decreased 0.4%.   See page 31 for additional VITAS operating metrics.

For the nine months ended September 30, 2014, the increase in consolidated service revenues and sales was driven by a 4.1% increase at Roto-Rooter and a 0.1% increase at VITAS.  The increase in service revenues at Roto-Rooter was driven by an increase in a combination of price, and service mix shift offset by a decrease in job count. The remaining difference relates to increases in contractor revenue and increases in our water restoration business line.  Consolidated net income increased 28.0% mainly as a result of lawsuit settlements in 2013 at VITAS and Roto-Rooter that did not repeat in 2014.  Diluted EPS increased 33.9% as a result of the increase in net income as well as a lower number of shares outstanding.  Adjusted EBITDA as a percent of revenue decreased 0.5%. See page 31 for additional VITAS operating metrics.

On April 1, 2013, Medicare reduced hospice reimbursement rates 2.0%.  Effective October 1, 2013, Medicare increased the average hospice rate approximately 1.4% This effectively reduced Medicare hospice reimbursement 0.6% through the first quarter of 2014.  VITAS expects its full-year 2014 revenue growth, prior to Medicare cap, to be in the range of 1.0% to 2.0%.  Admissions in 2014 are estimated to increase 2.0%.  Adjusted EBITDA margin, prior to Medicare cap, is estimated to be 14.5% to 15.0%.  Medicare cap is estimated to be $3.6 million in 2014. Roto-Rooter expects full-year 2014 revenue growth of 4.0% to 5.0%.  The revenue estimate is a result of increased job pricing of approximately 2.0%. Adjusted EBITDA margin for 2014 is estimated in the range of 19.0% to 19.5%.  We anticipate that our operating income and cash flows will be sufficient to operate our businesses and meet any commitments for the foreseeable future.

-15-

 

Financial Condition
Liquidity and Capital Resources
Material changes in the balance sheet accounts from December 31, 2013 to September 30, 2014 include the following:
 
●	A $65.9 million decrease in cash due to purchases of treasury stock and capital expenditures, partially offset by cash generated by operations.	
●	A $40.6 million increase in accounts receivable related to the timing of payments.	
●	A $15.3 million increase in accounts payable due to timing of payments.	
●	A $10.0 million decrease in total long-term debt as a result of net payments of outstanding debt using cash on-hand.	
●	A $22.5 million decrease in accrued legal due to the payment of litigation settlements.	
 
Net cash provided by operating activities decreased $84.8 million primarily as a result of the increase in accounts receivable and a decline in accrued legal expenses.  Management continually evaluates cash utilization alternatives, including share repurchase, debt repurchase, acquisitions and increased dividends to determine the most beneficial use of available capital resources.

We have issued $36.9 million in standby letters of credit as of September 30, 2014, for insurance purposes.  Issued letters of credit reduce our available credit under the revolving credit agreement.  As of September 30, 2014, we have approximately $238.3 million of unused lines of credit available and eligible to be drawn down under our revolving credit facility. Management believes its liquidity and sources of capital are satisfactory for the Company’s needs in the foreseeable future.

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

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

On January 12, 2012, a putative class action lawsuit was filed in the U.S. District Court for the Southern District of Ohio against the Company, David Williams, and Timothy O’Toole,  In re Chemed Corp. Securities Litigation , Civil Action No. 1:12-cv-28 (S.D. Ohio).  As the Company has previously disclosed, on February 6, 2014, the Plaintiffs, on behalf of a putative class of purchasers of Chemed Capital Stock between February 15, 2010 and May 2, 2013, inclusive, executed a stipulation of settlement with Defendants.  That settlement received final court approval on July 15, 2014, resulting in the dismissal of the case.  No appeal of that judgment has since been filed.  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.

-16-

 

On May 2, 2013, the government filed a False Claims Act complaint against the Company and certain of its hospice-related subsidiaries in the U.S. District Court for the Western District of Missouri,  United States v. VITAS Hospice Services, LLC, et al. , No. 4:13-cv-00449-BCW (the “2013 Action”).  Prior to that date, the Company received various subpoenas from the U.S. Department of Justice and OIG that have been previously disclosed.  The 2013 Action alleges that, since at least 2002, VITAS, and since 2004, the Company, submitted or caused the submission of false claims to the Medicare program by (a) billing Medicare for continuous home care services when the patients were not eligible, the services were not provided, or the medical care was inappropriate, and (b) billing Medicare for patients who were not eligible for the Medicare hospice benefit because they did not have a life expectancy of six months or less if their illnesses ran their normal course.  This complaint seeks treble damages, statutory penalties, and the costs of the action, plus interest.  On August 1, 2013, the government filed its First Amended Complaint in the 2013 Action.  The First Amended Complaint changed and supplemented some of the allegations, but did not otherwise expand the causes of action or the nature of the relief sought against VITAS.  The defendants filed a motion to dismiss on September 24, 2013.  The Court denied the motion, except to the extent that claims were filed before July 24, 2002, on September 30, 2014. 

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

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

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

The net costs incurred related to U.S. v. Vitas and related regulatory matters were $450,000 and a $591,000 credit for the three months ended September 30, 2014 and 2013, respectively.  For the nine months ended September 30, 2014 and 2013, the net costs were $1.6 million and $1.4 million respectively.

-17-

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

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

On January 29, 2014 defendants in North filed a motion to transfer that case to Delaware under 28 U.S.C § 1404(a). On February 12, 2014, defendants in  KBC  filed a motion to dismiss that case pursuant to Federal Rules of Civil Procedure 23.1 and 12(b)(6).  On September 19, 2014, the Ohio court granted defendants’ motion to transfer  North  to Delaware.  Following that decision and in light of that transfer, on September 29, 2014, the Delaware court denied without prejudice defendants’ motion to dismiss  KBC,  and referred both cases to Magistrate Judge Burke.  Defendants intend to renew their motion to dismiss the claims and allegations in KBC once it has been determined how these two cases are to proceed.  On October 15, 2014, the plaintiff in  KBC  filed a motion seeking to consolidate  KBC  and  North , to have plaintiff  KBC appointed the sole lead plaintiff and its counsel, Motley Rice, sole lead counsel, and to designate  KBC  the sole operative complaint.  Plaintiff North has indicated that she does not oppose consolidation of the two cases, but otherwise opposes KBC’s  motion with regard to the appointment of lead plaintiff and lead counsel and designation of the operative complaint.  On October 20, 2014, the Court stayed Defendants’ obligation to answer, move, or otherwise respond to the complaints in KBC and North pending further order of the Court.

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

-18-

 
 
Results of Operations
Three months ended September 30, 2014 versus  2013 - Consolidated Results
Our service revenues and sales for the third quarter of 2014 increased 5.1% versus services and sales revenues for the third quarter of 2013.  Of this increase, $11.4 million was attributable to VITAS and a $6.1 million increase at Roto-Rooter.  The following chart shows the components of those changes (in thousands):

 	 	Increase/(Decrease)	
 	 	Amount	 	 	Percent	
VITAS	 	 	 	 	 	 	
Routine homecare	 	$	 8,489	 	 	 4.3	
Continuous care	 	 	 2,027	 	 	 5.6	
General inpatient	 	 	 188	 	 	 0.8	
Medicare cap	 	 	 679	 	 	 21.4	
Roto-Rooter	 	 	 	 	 	 	
Plumbing	 	 	 996	 	 	 2.5	
Drain cleaning	 	 	 92	 	 	 0.3	
Contractor operations	 	 	 697	 	 	 8.7	
Other	 	 	 4,335	 	 	 70.0	
Total	 	$	 17,503	 	 	 5.1	

The increase in VITAS’ revenues for the third quarter of 2014 versus the third quarter of 2013 was a combination of Medicare reimbursement rates increasing approximately 1.4% and a 2.8% increase in ADC.  In the third quarter of 2014, VITAS recorded a net revenue reduction of $2.5 million related to the recording of Medicare Cap liability for two programs’ 2014 Medicare cap billing limitation which compares to a revenue reduction of $3.2 million in the same quarter of 2013.  The ADC increase was driven by a 2.8% increase in routine homecare and a 3.8% increase in continuous care.  Over 90% of VITAS’ service revenues for the period were from Medicare and Medicaid.

The increase in plumbing revenues for the third quarter of 2014 versus 2013 is attributable to a 3.6% decrease in job count, offset by a 6.3% increase in a combination of price and service mix shift.  Drain cleaning revenues for the third quarter of 2014 versus 2013 reflect a 3.9% decrease in the number of jobs performed, offset by a 4.2% increase in a combination of price and service mix shift.  Other Roto-Rooter revenue increased 70.0% mainly as a result of an increase in our water restoration line of business.   Water restoration is the remediation of water and humidity damage after a flood.
 
The consolidated gross margin was 28.4% in the third quarter of 2014 as compared with 28.7% in the third quarter of 2013.  On a segment basis, VITAS’ gross margin was 22.0% in the third quarter of 2014 and 22.3% in the third quarter of 2013.  The Roto-Rooter segment’s gross margin was 46.9% for the third quarter of 2014 as compared with 47.3% for the third quarter of 2013.
 
Selling, general and administrative expenses (“SG&A”) comprise (in thousands):

 	 	Three months ended September 30,	
 	 	2014	 	2013	
SG&A expenses before the impact of market gains/(losses) of deferred compensation	 	 	 	 	 	 	
plans, long-term incentive compensation, and OIG investigation expenses	 	$	51,218	 	 	$	49,595	 	
Long-term incentive compensation	 	 	1,002	 	 	 	55	 	
Net expenses/(cost recovery) related to OIG investigation	 	 	450	 	 	 	(591	)	
Market value gains/(losses) related to assets held in deferred compensation	 	 	 	 	 	 	 	 	
trusts	 	 	896	 	 	 	(189	)	
Total SG&A expenses	 	$	53,566	 	 	$	48,870	 	

SG&A expenses before long-term incentive compensation, expenses related to OIG investigation and the impact of market gains of deferred compensation plans for the third quarter of 2014 were up 3.3% when compared to the third quarter of 2013 as a result of normal salary increases and favorable insurance accrual adjustments in 2013.

-19-

 

Other operating expenses decreased $11.5 million in the third quarter of 2014 when compared to the third quarter of 2013 as a result of lawsuit settlements at Vitas and Roto-Rooter in 2013 that did not repeat in 2014.

Other income - net comprise (in thousands):
 
 	 	Three months ended September 30,	
 	 	2014	 	2013	
Market value gains/(losses) on assets held in	 	 	 	 	 	 	
deferred compensation trusts	 	$	896	 	 	$	(189	)	
Loss on disposal of property and equipment	 	 	(167	)	 	 	(101	)	
Interest income - net	 	 	(13	)	 	 	192	 	
Other	 	 	(11	)	 	 	8	 	
Total other income - net	 	$	705	 	 	$	(90	)	

Our effective income tax rate was 38.4% in the third quarter of 2014 compared to 32.0% for the third quarter of 2013.  This is a result of a $1.8 million credit recorded in the third quarter of 2013 related to the expiration of tax statutes for uncertain tax positions recorded in prior years that did not recur in 2014.

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,	
 	 	2014	 	2013	
VITAS	 	 	 	 	 	 	
Litigation settlements	 	$	-	 	 	$	(6,510	)	
Net cost recovery/(expenses) related to OIG investigation	 	 	(279	)	 	 	367	 	
Acquisition expenses	 	 	-	 	 	 	(11	)	
Roto-Rooter	 	 	 	 	 	 	 	 	
Net recoveries related to litigation settlements	 	 	143	 	 	 	-	 	
Litigation settlements	 	 	-	 	 	 	(584	)	
Expenses related to litigation settlements	 	 	-	 	 	 	(269	)	
Acquisition expenses	 	 	-	 	 	 	(1	)	
Corporate	 	 	 	 	 	 	 	 	
Stock option expense	 	 	(615	)	 	 	(1,030	)	
Noncash impact of change in accounting for convertible debt	 	 	-	 	 	 	(1,375	)	
Uncertain tax position adjustments	 	 	-	 	 	 	1,782	 	
Long-term incentive compensation	 	 	(634	)	 	 	(34	)	
Expenses related to securities litigation	 	 	(88	)	 	 	(1	)	
Total	 	$	(1,473	)	 	$	(7,666	)	

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

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

 	 	Increase/(Decrease)	
 	 	Amount	 	Percent	
VITAS	 	$	6,985	 	 	 	47.8	 	
Roto-Rooter	 	 	1,667	 	 	 	20.4	 	
Corporate	 	 	(1,499	)	 	 	(28.0	)	
 	 	$	7,153	 	 	 	41.0	 	

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Results of Operations
Nine months ended September 30, 2014 versus  2013 - Consolidated Results
Our service revenues and sales for the first nine months of 2014 increased 1.1% versus services and sales revenues for the first nine months of 2013.  Of this increase, $926,000 was attributable to VITAS and an $11.2 million increase at Roto-Rooter.  The following chart shows the components of those changes (in thousands):

 	 	Increase/(Decrease)	
 	 	Amount	 	Percent	
VITAS	 	 	 	 	 	 	
Routine homecare	 	$	 7,370	 	 	 1.2	
Continuous care	 	 	 (5,665)	 	 	 (4.7)	
General inpatient	 	 	 (2,144)	 	 	 (2.7)	
Medicare cap	 	 	 1,365	 	 	 43.2	
Roto-Rooter	 	 	 	 	 	 	
Plumbing	 	 	 3,687	 	 	 2.9	
Drain cleaning	 	 	 (2,336)	 	 	 (2.2)	
Contractor operations	 	 	 2,546	 	 	 10.4	
Other	 	 	 7,323	 	 	 39.3	
Total	 	$	 12,146	 	 	 1.1	
 
The increase in VITAS’ revenues for the first nine months of 2014 versus the first nine months of 2013 was a combination of Medicare reimbursement rates increasing approximately 1.4%, offset by a 2.0% decline due to sequestration (which was effective May 1, 2013), an ADC increase of 0.3%, and geographical and level of care mix shift.  In the first nine months of 2014, VITAS recorded a revenue adjustment of $1.8 million related to eliminating the Medicare cap billing limitation recorded in the fourth quarter of 2013 for one program and by the recording of Medicare cap billing limitations for two programs’ liability for the 2014 Medicare cap year.  This compares with a $3.2 million Medicare cap liability recorded in the first nine months of 2013.  The ADC increase was driven by a 0.7% increase in routine homecare, a decrease of 5.3% in continuous care and a decrease of 2.5% in general inpatient.  Over 90% of VITAS’ service revenues for the period were from Medicare and Medicaid.

The increase in plumbing revenues for the first nine months of 2014 versus 2013 is attributable to a 1.1% increase in job count, and a 1.8% increase in price and service mix shift.  Drain cleaning revenues for the first nine months of 2014 versus 2013 reflect a 6.5% decrease in the number of jobs performed, offset by a 4.3% increase in a combination of price and service mix shift.  Other Roto-Rooter revenue increased 39.3% as a result of a increase in our water restoration line of business.  Water restoration is the remediation of water and humidity damage after a flood.
 
The consolidated gross margin was 28.4% in the first nine months of 2014 which is essentially flat when compared with the first nine months of 2013.  On a segment basis, VITAS’ gross margin was 21.7% in the first nine months of 2014 and 21.9% in the first nine months of 2013.  The Roto-Rooter segment’s gross margin was 46.7% for the first nine months of 2014 as compared with 46.9% for the first nine months of 2013.
 
Selling, general and administrative expenses (“SG&A”) comprise (in thousands):

 	 	Nine months ended September 30,	
 	 	2014	 	2013	
SG&A expenses before the impact of market gains of deferred compensation	 	 	 	 	 	 	
plans, long-term incentive compensation, and OIG investigation expenses	 	$	156,582	 	 	$	152,586	 	
Long-term incentive compensation	 	 	1,988	 	 	 	1,161	 	
Expenses related to OIG investigation	 	 	1,608	 	 	 	1,444	 	
Market value gains related to assets held in	 	 	 	 	 	 	 	 	
deferred compensation trusts	 	 	2,708	 	 	 	2,346	 	
Total SG&A expenses	 	$	162,886	 	 	$	157,537	 	

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SG&A expenses before long-term incentive compensation, expenses related to OIG investigation and the impact of market gains of deferred compensation plans for the first nine months of 2014 were up 2.6% when compared to the first nine months of 2013 as a result of normal salary increases and favorable insurance accrual adjustments in 2013.

Other operating expenses decreased $26.2 million in the first nine months of 2014 when compared to the first nine months of 2013 as a result of lawsuit settlements at Vitas and Roto-Rooter in 2013 that did not repeat in 2014.

Other income - net comprise (in thousands):

 	 	Nine months ended September 30,	
 	 	2014	 	2013	
Market value gains on assets held in deferred	 	 	 	 	 	 	
compensation trusts	 	$	2,708	 	 	$	2,346	 	
Loss on disposal of property and equipment	 	 	(493	)	 	 	(180	)	
Interest income - net	 	 	(5	)	 	 	1,165	 	
Other	 	 	67	 	 	 	(19	)	
Total other income - net	 	$	2,277	 	 	$	3,312	 	

Our effective income tax rate was 38.7% in the first nine months of 2014 when compared to 36.8% in the first nine months of 2013.  This increase is a result of a $1.8 million credit recorded in 2013 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):

 	 	Nine Months Ended September 30,	
 	 	2014	 	2013	
VITAS	 	 	 	 	 	 	
Litigation settlements	 	$	-	 	 	$	(6,510	)	
Expenses related to litigation settlements	 	 	(70	)	 	 	-	 	
Legal expenses of OIG investigation	 	 	(997	)	 	 	(895	)	
Acquisition expenses	 	 	(1	)	 	 	(23	)	
Roto-Rooter	 	 	 	 	 	 	 	 	
Net recoveries related to litigation settlements	 	 	6	 	 	 	-	 	
Litigation settlements	 	 	-	 	 	 	(9,551	)	
Expenses related to litigation settlements	 	 	-	 	 	 	(699	)	
Expenses of severance arrangements	 	 	-	 	 	 	(184	)	
Acquisition expenses	 	 	-	 	 	 	(2	)	
Corporate	 	 	 	 	 	 	 	 	
Stock option expense	 	 	(2,159	)	 	 	(2,993	)	
Noncash impact of change in accounting for convertible debt	 	 	(2,143	)	 	 	(4,046	)	
Uncertain tax position adjustments	 	 	-	 	 	 	1,782	 	
Long-term incentive compensation	 	 	(1,258	)	 	 	(734	)	
Expenses of securities litigation	 	 	(207	)	 	 	(3	)	
Loss on extinguishment of debt	 	 	-	 	 	 	(294	)	
Total	 	$	(6,829	)	 	$	(24,152	)	

-22-

 
 
Nine months ended September 30, 2014 versus 2013 - Segment Results

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

 	 	Increase/(Decrease)	
 	 	Amount	 	Percent	
VITAS	 	$	5,408	 	 	 	9.8	 	
Roto-Rooter	 	 	11,381	 	 	 	59.2	 	
Corporate	 	 	(1,585	)	 	 	(7.9	)	
 	 	$	15,204	 	 	 	28.0	 	

-23-

 

CHEMED CORPORATION AND SUBSIDIARY COMPANIES	
CONSOLIDATING STATEMENT OF INCOME	
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2014	
(in thousands)(unaudited)	

 	 	 
VITAS	 	 
Roto-Rooter	 	 
Corporate	 	Chemed
Consolidated	
2014 (a)	 	 	 	 	 	 	 	 	 	 	 	 	
Service revenues and sales	 	$	265,384	 	 	$	93,005	 	 	$	-	 	 	$	358,389	 	
Cost of services provided and goods sold	 	 	207,105	 	 	 	49,340	 	 	 	-	 	 	 	256,445	 	
Selling, general and administrative expenses	 	 	20,224	 	 	 	25,682	 	 	 	7,660	 	 	 	53,566	 	
Depreciation	 	 	4,530	 	 	 	2,772	 	 	 	148	 	 	 	7,450	 	
Amortization	 	 	205	 	 	 	114	 	 	 	398	 	 	 	717	 	
Total costs and expenses	 	 	232,064	 	 	 	77,908	 	 	 	8,206	 	 	 	318,178	 	
Income/(loss) from operations	 	 	33,320	 	 	 	15,097	 	 	 	(8,206	)	 	 	40,211	 	
Interest expense	 	 	(55	)	 	 	(87	)	 	 	(838	)	 	 	(980	)	
Intercompany interest income/(expense)	 	 	1,660	 	 	 	760	 	 	 	(2,420	)	 	 	-	 	
Other income/(expense)—net	 	 	(189	)	 	 	(2	)	 	 	896	 	 	 	705	 	
Income/(expense) before income taxes	 	 	34,736	 	 	 	15,768	 	 	 	(10,568	)	 	 	39,936	 	
Income taxes	 	 	(13,143	)	 	 	(5,920	)	 	 	3,712	 	 	 	(15,351	)	
Net income/(loss)	 	$	21,593	 	 	$	9,848	 	 	$	(6,856	)	 	$	24,585	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
(a) The following amounts are included in net income (in thousands):	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Chemed	
 	 	VITAS	 	 	Roto-Rooter	 	 	Corporate	 	 	Consolidated	
Pretax benefit/(cost):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Stock option expense	 	$	-	 	 	$	-	 	 	$	(977	)	 	$	(977	)	
Long-term incentive compensation	 	 	-	 	 	 	-	 	 	 	(1,002	)	 	 	(1,002	)	
Net recoveries related to litigation settlements	 	 	-	 	 	 	234	 	 	 	-	 	 	 	234	 	
Expenses related to securities litigation	 	 	-	 	 	 	-	 	 	 	(138	)	 	 	(138	)	
Expenses related to OIG investigation	 	 	(450	)	 	 	-	 	 	 	-	 	 	 	(450	)	
Total	 	$	(450	)	 	$	234	 	 	$	(2,117	)	 	$	(2,333	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Chemed	
 	 	VITAS	 	 	Roto-Rooter	 	 	Corporate	 	 	Consolidated	
After-tax benefit/(cost):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Stock option expense	 	$	-	 	 	$	-	 	 	$	(615	)	 	$	(615	)	
Long-term incentive compensation	 	 	-	 	 	 	-	 	 	 	(634	)	 	 	(634	)	
Net recoveries related to litigation settlements	 	 	-	 	 	 	143	 	 	 	-	 	 	 	143	 	
Expenses related to securities litigation	 	 	-	 	 	 	-	 	 	 	(88	)	 	 	(88	)	
Expenses related to OIG investigation	 	 	(279	)	 	 	-	 	 	 	-	 	 	 	(279	)	
Total	 	$	(279	)	 	$	143	 	 	$	(1,337	)	 	$	(1,473	)	

-24-

 
 
CHEMED CORPORATION AND SUBSIDIARY COMPANIES	 	
CONSOLIDATING STATEMENT OF INCOME	 	
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2013	 	
(in thousands)(unaudited)	 	

 	 	 	VITAS	 	 	 	Roto-Rooter	 	 	 	Corporate	 	 	 	Chemed 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):	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	
 	 	VITAS	 	 	Roto-Rooter	 	 	Corporate	 	 	Chemed 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 settlements	 	 	(10,500	)	 	 	(961	)	 	 	-	 	 	 	(11,461	)	
     Expenses related to litigation settlements	 	 	-	 	 	 	(443	)	 	 	-	 	 	 	(443	)	
     Expenses related to securities litigation	 	 	-	 	 	 	-	 	 	 	(1	)	 	 	(1	)	
     Acquisition expenses	 	 	(18	)	 	 	(3	)	 	 	-	 	 	 	(21	)	
     Net cost recovery related to OIG investigation	 	 	591	 	 	 	-	 	 	 	-	 	 	 	591	 	
          Total	 	$	(9,927	)	 	$	(1,407	)	 	$	(3,859	)	 	$	(15,193	)	

 	 	VITAS	 	 	Roto-Rooter	 	 	Corporate	 	 	Chemed Consolidated	 	
After-tax benefit/(cost):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
     Stock option expense	 	$	-	 	 	$	-	 	 	$	(1,030	)	 	$	(1,030	)	
     Noncash impact of accounting for convertible debt	 	 	-	 	 	 	-	 	 	 	(1,375	)	 	 	(1,375	)	
     Long-term incentive compensation	 	 	-	 	 	 	-	 	 	 	(34	)	 	 	(34	)	
     Litigation settlements	 	 	(6,510	)	 	 	(584	)	 	 	-	 	 	 	(7,094	)	
     Uncertain tax position adjustments	 	 	-	 	 	 	-	 	 	 	1,782	 	 	 	1,782	 	
     Expenses related to litigation settlements	 	 	-	 	 	 	(269	)	 	 	-	 	 	 	(269	)	
     Expenses related to securities litigation	 	 	-	 	 	 	-	 	 	 	(1	)	 	 	(1	)	
     Acquisition expenses	 	 	(11	)	 	 	(1	)	 	 	-	 	 	 	(12	)	
     Net cost recovery related to OIG investigation	 	 	367	 	 	 	-	 	 	 	-	 	 	 	367	 	
          Total	 	$	(6,154	)	 	$	(854	)	 	$	(658	)	 	$	(7,666	)	

-25-

 
 
CHEMED CORPORATION AND SUBSIDIARY COMPANIES	
CONSOLIDATING STATEMENT OF INCOME	
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014	
(in thousands)(unaudited)	

 	 	 	 	 	 	 	 	 	
 	 	 	VITAS	 	 	 	Roto-Rooter	 	 	 	Corporate	 	 	 	Chemed Consolidated	 	
2014 (a)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Service revenues and sales	 	$	789,822	 	 	$	287,049	 	 	$	-	 	 	$	1,076,871	 	
Cost of services provided and goods sold	 	 	618,315	 	 	 	152,956	 	 	 	-	 	 	 	771,271	 	
Selling, general and administrative expenses	 	 	62,939	 	 	 	78,569	 	 	 	21,378	 	 	 	162,886	 	
Depreciation	 	 	13,709	 	 	 	7,732	 	 	 	430	 	 	 	21,871	 	
Amortization	 	 	829	 	 	 	397	 	 	 	1,235	 	 	 	2,461	 	
Total costs and expenses	 	 	695,792	 	 	 	239,654	 	 	 	23,043	 	 	 	958,489	 	
Income/(loss) from operations	 	 	94,030	 	 	 	47,395	 	 	 	(23,043	)	 	 	118,382	 	
Interest expense	 	 	(167	)	 	 	(295	)	 	 	(6,762	)	 	 	(7,224	)	
Intercompany interest income/(expense)	 	 	4,520	 	 	 	2,090	 	 	 	(6,610	)	 	 	-	 	
Other income/(expense)—net	 	 	(577	)	 	 	137	 	 	 	2,717	 	 	 	2,277	 	
Income/(expense) before income taxes	 	 	97,806	 	 	 	49,327	 	 	 	(33,698	)	 	 	113,435	 	
Income taxes	 	 	(37,161	)	 	 	(18,728	)	 	 	11,976	 	 	 	(43,913	)	
Net income/(loss)	 	$	60,645	 	 	$	30,599	 	 	$	(21,722	)	 	$	69,522	 	

(a) The following amounts are included in net income (in thousands):	 	 	 	 	 	 	 	 	 	
 	 	 	VITAS	 	 	Roto-Rooter	 	 	Corporate	 	 	Chemed
Consolidated	
Pretax benefit/(cost):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Stock option expense	 	$	-	 	 	$	-	 	 	$	(3,430	)	 	$	(3,430	)	
Noncash impact of accounting for convertible debt	 	 	-	 	 	 	-	 	 	 	(3,389	)	 	 	(3,389	)	
Long-term incentive compensation	 	 	-	 	 	 	-	 	 	 	(1,988	)	 	 	(1,988	)	
Net recoveries/(expenses) related to litigation settlements	 	 	(113	)	 	 	9	 	 	 	-	 	 	 	(104	)	
Expenses related to securities litigation	 	 	-	 	 	 	-	 	 	 	(327	)	 	 	(327	)	
Acquisition expenses	 	 	(1	)	 	 	-	 	 	 	-	 	 	 	(1	)	
Expenses related to OIG investigation	 	 	(1,608	)	 	 	-	 	 	 	-	 	 	 	(1,608	)	
Total	 	$	(1,722	)	 	$	9	 	 	$	(9,134	)	 	$	(10,847	)	

 	 	 VITAS	 	 Roto-Rooter	 	 Corporate	 	Chemed Consolidated	
After-tax benefit/(cost):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Stock option expense	 	$	-	 	 	$	-	 	 	$	(2,159	)	 	$	(2,159	)	
Noncash impact of accounting for convertible debt	 	 	-	 	 	 	-	 	 	 	(2,143	)	 	 	(2,143	)	
Long-term incentive compensation	 	 	-	 	 	 	-	 	 	 	(1,258	)	 	 	(1,258	)	
Net recoveries/(expenses) related to litigation settlements	 	 	(70	)	 	 	6	 	 	 	-	 	 	 	(64	)	
Expenses related to securities litigation	 	 	-	 	 	 	-	 	 	 	(207	)	 	 	(207	)	
Acquisition expenses	 	 	(1	)	 	 	-	 	 	 	-	 	 	 	(1	)	
Expenses related to OIG investigation	 	 	(997	)	 	 	-	 	 	 	-	 	 	 	(997	)	
Total	 	$	(1,068	)	 	$	6	 	 	$	(5,767	)	 	$	(6,829	)	

-26-

 
 
CHEMED CORPORATION AND SUBSIDIARY COMPANIES	
CONSOLIDATING STATEMENT OF INCOME	
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013	
(in thousands)(unaudited)	

 	 	 
VITAS	 	 
Roto-Rooter	 	 
Corporate	 	Chemed
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):	 	 	 	 	 	 	 	 	 	
 	 	 	VITAS	 	 	 	Roto-Rooter	 	 	 	Corporate	 	 	 	Chemed 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 settlements	 	 	(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 of OIG investigation	 	 	(1,444	)	 	 	-	 	 	 	-	 	 	 	(1,444	)	
          Total	 	$	(11,982	)	 	$	(17,178	)	 	$	(12,759	)	 	$	(41,919	)	

 	 	 	VITAS	 	 	 	Roto-Rooter	 	 	 	Corporate	 	 	 	Chemed 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 position adjustments	 	 	-	 	 	 	-	 	 	 	1,782	 	 	 	1,782	 	
     Expenses of severance arrangements	 	 	-	 	 	 	(184	)	 	 	-	 	 	 	(184	)	
     Loss on extinguishment of debt	 	 	-	 	 	 	-	 	 	 	(294	)	 	 	(294	)	
     Litigation settlements	 	 	(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 of OIG investigation	 	 	(895	)	 	 	-	 	 	 	-	 	 	 	(895	)	
          Total	 	$	(7,428	)	 	$	(10,436	)	 	$	(6,288	)	 	$	(24,152	)	

-27-

 

Unaudited Consolidating Summary and Reconciliation of Adjusted EBITDA	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Chemed Corporation and Subsidiary Companies	 	 	 	 	
(in thousands)	 	 	 	 	 	 	 	 	 	 	
For the three months ended September 30, 2014	 	 	VITAS	 	 	 	Roto-Rooter	 	 	 	Corporate	 	 	 	Chemed Consolidated	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income/(loss)	 	$	21,593	 	 	$	9,848	 	 	$	(6,856	)	 	$	24,585	 	
Add/(deduct):	 	 	 	 	 	 	 	 	 	 	-	 	 	 	 	 	
Interest expense	 	 	55	 	 	 	87	 	 	 	838	 	 	 	980	 	
Income taxes	 	 	13,143	 	 	 	5,920	 	 	 	(3,712	)	 	 	15,351	 	
Depreciation	 	 	4,530	 	 	 	2,772	 	 	 	148	 	 	 	7,450	 	
Amortization	 	 	205	 	 	 	114	 	 	 	398	 	 	 	717	 	
EBITDA	 	 	39,526	 	 	 	18,741	 	 	 	(9,184	)	 	 	49,083	 	
Add/(deduct):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Intercompany interest expense/(income)	 	 	(1,660	)	 	 	(760	)	 	 	2,420	 	 	 	-	 	
Interest income	 	 	23	 	 	 	(9	)	 	 	(1	)	 	 	13	 	
Expenses related to OIG investigation	 	 	450	 	 	 	-	 	 	 	-	 	 	 	450	 	
Net recoveries related to litigation settlements	 	 	-	 	 	 	(234	)	 	 	-	 	 	 	(234	)	
Advertising cost adjustment	 	 	-	 	 	 	(483	)	 	 	-	 	 	 	(483	)	
Stock option expense	 	 	-	 	 	 	-	 	 	 	977	 	 	 	977	 	
Long-term incentive compensation	 	 	-	 	 	 	-	 	 	 	1,002	 	 	 	1,002	 	
Expenses related to securities litigation	 	 	-	 	 	 	-	 	 	 	138	 	 	 	138	 	
Adjusted EBITDA	 	$	38,339	 	 	$	17,255	 	 	$	(4,648	)	 	$	50,946	 	

 
For the three months ended September 30, 2013	 	 	VITAS	 	 	 	Roto-Rooter	 	 	 	Corporate	 	 	 	Chemed 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 related to OIG investigation	 	 	(591	)	 	 	-	 	 	 	-	 	 	 	(591	)	
Acquisition expenses	 	 	18	 	 	 	3	 	 	 	-	 	 	 	21	 	
Litigation settlements	 	 	10,500	 	 	 	961	 	 	 	-	 	 	 	11,461	 	
Advertising cost adjustment	 	 	-	 	 	 	(369	)	 	 	-	 	 	 	(369	)	
Expenses related to litigation settlements	 	 	-	 	 	 	443	 	 	 	-	 	 	 	443	 	
Long-term incentive compensation	 	 	-	 	 	 	-	 	 	 	55	 	 	 	55	 	
Stock option expense	 	 	-	 	 	 	-	 	 	 	1,629	 	 	 	1,629	 	
Expenses of securities litigation	 	 	-	 	 	 	-	 	 	 	1	 	 	 	1	 	
Adjusted EBITDA	 	$	37,314	 	 	$	16,154	 	 	$	(3,729	)	 	$	49,739	 	

-28-

 
 
Unaudited Consolidating Summary and Reconciliation of Adjusted EBITDA	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Chemed Corporation and Subsidiary Companies	 	 	 	 	
(in thousands)	 	 	 	 	 	 	 	 	 	Chemed	 	
For the nine months ended September 30, 2014	VITAS	Roto-Rooter	Corporate	Consolidated	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income/(loss)	 	$	60,645	 	 	$	30,599	 	 	$	(21,722	)	 	$	69,522	 	
Add/(deduct):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest expense	 	 	167	 	 	 	295	 	 	 	6,762	 	 	 	7,224	 	
Income taxes	 	 	37,161	 	 	 	18,728	 	 	 	(11,976	)	 	 	43,913	 	
Depreciation	 	 	13,709	 	 	 	7,732	 	 	 	430	 	 	 	21,871	 	
Amortization	 	 	829	 	 	 	397	 	 	 	1,235	 	 	 	2,461	 	
EBITDA	 	 	112,511	 	 	 	57,751	 	 	 	(25,271	)	 	 	144,991	 	
Add/(deduct):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Intercompany interest expense/(income)	 	 	(4,520	)	 	 	(2,090	)	 	 	6,610	 	 	 	-	 	
Interest income	 	 	43	 	 	 	(28	)	 	 	(10	)	 	 	5	 	
Expenses related to OIG investigation	 	 	1,608	 	 	 	-	 	 	 	-	 	 	 	1,608	 	
Acquisition expenses	 	 	1	 	 	 	-	 	 	 	-	 	 	 	1	 	
Net expenses/(recoveries) related to litigation settlements	 	 	113	 	 	 	(9	)	 	 	-	 	 	 	104	 	
Advertising cost adjustment	 	 	-	 	 	 	(1,623	)	 	 	-	 	 	 	(1,623	)	
Stock option expense	 	 	-	 	 	 	-	 	 	 	3,430	 	 	 	3,430	 	
Long-term incentive compensation	 	 	-	 	 	 	-	 	 	 	1,988	 	 	 	1,988	 	
Expenses related to securities litigation	 	 	-	 	 	 	-	 	 	 	327	 	 	 	327	 	
Adjusted EBITDA	 	$	109,756	 	 	$	54,001	 	 	$	(12,926	)	 	$	150,831	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	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	 	
Advertising cost adjustment	 	 	-	 	 	 	(1,343	)	 	 	-	 	 	 	(1,343	)	
Cost of severance arrangements	 	 	-	 	 	 	302	 	 	 	-	 	 	 	302	 	
Expenses related to litigation settlements	 	 	-	 	 	 	1,151	 	 	 	-	 	 	 	1,151	 	
Long-term incentive compensation	 	 	-	 	 	 	-	 	 	 	1,161	 	 	 	1,161	 	
Stock option expense	 	 	-	 	 	 	-	 	 	 	4,732	 	 	 	4,732	 	
Expenses related to securities litigation	 	 	-	 	 	 	-	 	 	 	4	 	 	 	4	 	
Adjusted EBITDA	 	$	112,567	 	 	$	52,502	 	 	$	(11,091	)	 	$	153,978	 	

-29-

 
 
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,	
 	 	2014	 	2013	 	2014	 	2013	
Net income as reported	 	$	24,585	 	 	$	17,432	 	 	$	69,522	 	 	$	54,318	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Add/(deduct) after-tax cost of:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net expenses/(recoveries) related to litigation settlements	 	 	(143	)	 	 	269	 	 	 	64	 	 	 	699	 	
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	 	 	 	2,143	 	 	 	4,046	 	
Stock option expense	 	 	615	 	 	 	1,030	 	 	 	2,159	 	 	 	2,993	 	
Net expenses/(cost recovery) of OIG investigation	 	 	279	 	 	 	(367	)	 	 	997	 	 	 	895	 	
Long-term incentive compensation	 	 	634	 	 	 	34	 	 	 	1,258	 	 	 	734	 	
Litigation settlements	 	 	-	 	 	 	7,094	 	 	 	-	 	 	 	16,061	 	
Acquisition expenses	 	 	-	 	 	 	12	 	 	 	1	 	 	 	25	 	
Loss on extinguishment of debt	 	 	-	 	 	 	-	 	 	 	-	 	 	 	294	 	
Expenses of severance arrangements	 	 	-	 	 	 	-	 	 	 	-	 	 	 	184	 	
Expenses related to securities litigation	 	 	88	 	 	 	1	 	 	 	207	 	 	 	3	 	
Adjusted net income	 	$	26,058	 	 	$	25,098	 	 	$	76,351	 	 	$	78,470	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Diluted Earnings Per Share As Reported	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	$	1.39	 	 	$	0.94	 	 	$	3.87	 	 	$	2.89	 	
Average number of shares outstanding	 	 	17,627	 	 	 	18,522	 	 	 	17,968	 	 	 	18,824	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Adjusted Diluted Earnings Per Share	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Adjusted net income	 	$	1.48	 	 	$	1.36	 	 	$	4.28	 	 	$	4.17	 	
Adjusted average number of shares outstanding*	 	 	17,627	 	 	 	18,522	 	 	 	17,833	 	 	 	18,824	 	

* Adjusted diluted average shares outstanding excludes the estimated dilutive impact of the Convertible Notes prior to conversion of these Notes on May 15, 2014 (135,000 shares for the nine months ended September 30, 2014) as this impact was entirely offset upon the exercise of the note hedges on May 15, 2014.

-30-

 
 
CHEMED CORPORATION AND SUBSIDIARY COMPANIES	
OPERATING STATISTICS FOR VITAS SEGMENT	
(unaudited)	
 	 	Three Months Ended September 30,	 	Nine Months Ended September 30,	
OPERATING STATISTICS	 	2014	 	2013	 	2014	 	2013	
Net revenue ($000)	 	 	 	 	 	 	 	 	 	 	 	 	
Homecare	 	$	204,965	 	 	$	196,476	 	 	$	600,780	 	 	$	593,410	 	
Inpatient	 	 	25,012	 	 	 	24,824	 	 	 	77,037	 	 	 	79,181	 	
Continuous care	 	 	37,907	 	 	 	35,880	 	 	 	113,801	 	 	 	119,466	 	
Total before Medicare cap allowance	 	$	267,884	 	 	$	257,180	 	 	$	791,618	 	 	$	792,057	 	
Medicare cap allowance	 	 	(2,500	)	 	 	(3,179	)	 	 	(1,796	)	 	 	(3,161	)	
Total	 	$	265,384	 	 	$	254,001	 	 	$	789,822	 	 	$	788,896	 	
Net revenue as a percent of total before Medicare cap allowances	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Homecare	 	 	76.5	%	 	 	76.4	%	 	 	75.9	%	 	 	74.9	%	
Inpatient	 	 	9.3	 	 	 	9.7	 	 	 	9.7	 	 	 	10.0	 	
Continuous care	 	 	14.2	 	 	 	14.0	 	 	 	14.5	 	 	 	15.2	 	
Total before Medicare cap allowance	 	 	100.0	 	 	 	100.1	 	 	 	100.1	 	 	 	100.1	 	
Medicare cap allowance	 	 	(0.9	)	 	 	(1.3	)	 	 	(0.2	)	 	 	(0.4	)	
Total	 	 	99.1	%	 	 	98.8	%	 	 	99.9	%	 	 	99.7	%	
Average daily census (days)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Homecare	 	 	10,662	 	 	 	10,373	 	 	 	10,562	 	 	 	10,482	 	
Nursing home	 	 	2,999	 	 	 	2,911	 	 	 	2,940	 	 	 	2,928	 	
Routine homecare	 	 	13,661	 	 	 	13,284	 	 	 	13,502	 	 	 	13,410	 	
Inpatient	 	 	417	 	 	 	417	 	 	 	429	 	 	 	440	 	
Continuous care	 	 	561	 	 	 	540	 	 	 	568	 	 	 	600	 	
Total	 	 	14,639	 	 	 	14,241	 	 	 	14,499	 	 	 	14,450	 	
Total Admissions	 	 	15,653	 	 	 	14,555	 	 	 	47,777	 	 	 	47,413	 	
Total Discharges	 	 	15,460	 	 	 	14,971	 	 	 	47,139	 	 	 	47,603	 	
Average length of stay (days)	 	 	83.7	 	 	 	82.2	 	 	 	82.4	 	 	 	81.3	 	
Median length of stay (days)	 	 	15.0	 	 	 	16.0	 	 	 	15.0	 	 	 	15.0	 	
ADC by major diagnosis	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Neurological	 	 	32.7	%	 	 	37.8	%	 	 	35.0	%	 	 	36.8	%	
Cancer	 	 	17.3	 	 	 	17.1	 	 	 	17.4	 	 	 	17.0	 	
Cardio	 	 	17.6	 	 	 	13.9	 	 	 	16.6	 	 	 	12.8	 	
Respiratory	 	 	8.0	 	 	 	7.8	 	 	 	7.9	 	 	 	7.5	 	
Other	 	 	24.4	 	 	 	23.4	 	 	 	23.1	 	 	 	25.9	 	
Total	 	 	100.0	%	 	 	100.0	%	 	 	100.0	%	 	 	100.0	%	
Admissions by major diagnosis	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Neurological	 	 	18.2	 	 	 	21.0	%	 	 	20.6	%	 	 	20.3	%	
Cancer	 	 	34.0	 	 	 	34.4	 	 	 	33.3	 	 	 	33.0	 	
Cardio	 	 	15.2	 	 	 	13.8	 	 	 	14.8	 	 	 	13.0	 	
Respiratory	 	 	9.1	 	 	 	9.0	 	 	 	9.5	 	 	 	9.3	 	
Other	 	 	23.5	 	 	 	21.8	 	 	 	21.8	 	 	 	24.4	 	
Total	 	 	100.0	%	 	 	100.0	%	 	 	100.0	%	 	 	100.0	%	
Direct patient care margins	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Routine homecare	 	 	53.8	%	 	 	52.5	%	 	 	53.4	%	 	 	52.2	%	
Inpatient	 	 	4.9	 	 	 	1.7	 	 	 	5.4	 	 	 	5.6	 	
Continuous care	 	 	17.4	 	 	 	14.8	 	 	 	17.2	 	 	 	15.8	 	
Homecare margin drivers (dollars per patient day)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Labor costs	 	$	53.65	 	 	$	54.64	 	 	$	54.31	 	 	$	55.61	 	
Drug costs	 	 	6.64	 	 	 	7.52	 	 	 	7.04	 	 	 	7.55	 	
Home medical equipment	 	 	6.09	 	 	 	6.67	 	 	 	6.07	 	 	 	6.69	 	
Medical supplies	 	 	3.22	 	 	 	2.83	 	 	 	3.20	 	 	 	2.96	 	
Inpatient margin drivers (dollars per patient day)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Labor costs	 	$	345.18	 	 	$	354.09	 	 	$	344.05	 	 	$	339.84	 	
Continuous care margin drivers (dollars per patient day)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Labor costs	 	$	584.99	 	 	$	594.25	 	 	$	586.60	 	 	$	592.15	 	
Bad debt expense as a percent of revenues	 	 	1.0	%	 	 	0.9	%	 	 	1.0	%	 	 	0.9	%	
Accounts receivable --	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Days of revenue outstanding- excluding unapplied Medicare payments	 	 	38.1	 	 	 	34.6	 	 	n.a	 	 	n.a	 	
Days of revenue outstanding- including unapplied Medicare payments	 	 	36.3	 	 	 	21.9	 	 	n.a	 	 	n.a	 	

-31-

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

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

Item 3.   Quantitative and Qualitative Disclosures about Market Risk
The Company’s primary market risk exposure relates to interest rate risk exposure through its variable interest line of credit.  At September 30, 2014, the Company had $173.6 million of variable rate debt outstanding.  For each $10 million dollars borrowed under the credit facility, an increase or decrease of 100 basis points (1% point), increases or decreases the Company’s annual interest expense by $100,000.

The Company continually evaluates this interest rate exposure and periodically weighs the cost versus the benefit of fixing the variable interest rates through a variety of hedging techniques.

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

PART II. OTHER INFORMATION
Item 1.    Legal Proceedings

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

Item 1A. Risk Factors

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

-32-

 
 
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 2014:

 	 	Total Number	 	Weighted	 	Cumulative Shares	 	Dollar Amount	
 	 	of Shares	 	Price Paid Per	 	Repurchased Under	 	Remaining Under	
 	 	Repurchased	 	Share	 	the Program	 	The Program	
 	 	 	 	 	 	 	 	 	 	 	 	 	
February 2011 Program	 	 	 	 	 	 	 	 	 	 	 	 	
January 1 through January 31, 2014	 	 	-	 	 	$	-	 	 	 	4,891,885	 	 	$	21,828,041	 	
February 1 through February 28, 2014	 	 	132,934	 	 	 	82.50	 	 	 	5,024,819	 	 	 	110,860,736	 	
March 1 through March 31, 2014	 	 	250,000	 	 	 	88.06	 	 	 	5,274,819	 	 	$	88,845,624	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
First Quarter Total	 	 	382,934	 	 	$	86.13	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
April 1 through April 30, 2014	 	 	-	 	 	$	-	 	 	 	5,274,819	 	 	$	88,845,624	 	
May 31 through May 31, 2014	 	 	300,000	 	 	 	85.04	 	 	 	5,574,819	 	 	 	63,334,823	 	
June 1 through June 30, 2014	 	 	-	 	 	 	-	 	 	 	5,574,819	 	 	$	63,334,823	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Second Quarter Total	 	 	300,000	 	 	$	85.04	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
July 1 through July 31, 2014	 	 	-	 	 	$	-	 	 	 	5,574,819	 	 	$	63,334,823	 	
August 1 through August 31, 2014	 	 	358,178	 	 	 	101.35	 	 	 	5,932,997	 	 	 	27,032,332	 	
September 1 through September 30, 2014	 	 	41,822	 	 	 	103.00	 	 	 	5,974,819	 	 	$	22,724,648	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Third Quarter Total	 	 	400,000	 	 	$	101.53	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
On February 21, 2014, our Board of Directors authorized an additional $100 million under the February 2011 Repurchase	 	

Item 3.	Defaults Upon Senior Securities	
 	 	
 	None	
 	 	
Item 4.  	Mine Safety Disclosures	
 	 	
 	None	
 	 	
Item 5.     	Other Information	
 	 	
 	None	

-33-

 
                      
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 5, 2014	 	By:	 	/s/ Kevin J. McNamara	
 	 	 	 	 	 	Kevin J. McNamara	
 	 	 	 	 	 	(President and Chief Executive Officer)	

 	Dated:	November 5, 2014	 	By:	 	/s/ David P. Williams	
 	 	 	 	 	 	David P. Williams	
 	 	 	 	 	 	(Executive Vice President and Chief Financial Officer)	

 	Dated:	November 5, 2014	 	By:	 	/s/ Arthur V. Tucker, Jr.	
 	 	 	 	 	 	Arthur V. Tucker, Jr.	
 	 	 	 	 	 	(Vice President and Controller)	

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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 5, 2014	/s/ Kevin J. McNamara	
 	 	Kevin J. McNamara	
 	 	(President and Chief	
 	 	Executive Officer)	
 
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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 5, 2014	/s/ David P. Williams	
 	David P. Williams	
 	(Executive Vice President and Chief Financial Officer)	

E-2

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

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

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

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

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

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

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

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

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

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

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

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

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

 
 Date: 	November 5, 2014	/s/ Arthur V. Tucker, Jr.	
 	Arthur V. Tucker, Jr.	
 	(Vice President and	
 	Controller)	
 
E-3

 EXHIBIT 32.1

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

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

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

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

 
 Date: 	November 5, 2014	/s/ Kevin J. McNamara	
 	Kevin J. McNamara	
 	(President and Chief	
 	Executive Officer)	

E-4

 EXHIBIT 32.2

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

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

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

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

 
 
 Date: 	November 5, 2014	/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, 2014 (“Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and	

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

 
 Date: 	November 5, 2014	/s/ Arthur V. Tucker, Jr.	
 	Arthur V. Tucker, Jr.	
 	(Vice President and  Controller)	
 
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