UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended ~~June 30, 2019~~March 31, 2020

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 every Interactive Data File required to be submitted 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 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

Accelerated Filer

Non-accelerated Filer

Smaller Reporting Company

Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended the extended transition period for complying with a new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act 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.

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol	Name of Each Exchange on which Registered	Amount	Date

Capital Stock $1 Par Value	CHE	New York Stock Exchange	~~15,921,808~~15,873,532 Shares	~~June 30, 2019~~March 31, 2020

‎

~~-1-~~-1-

CHEMED CORPORATION AND

SUBSIDIARY COMPANIES

Index



	Page No.
PART I. FINANCIAL INFORMATION:

Item 1. Financial Statements
Unaudited Consolidated Balance Sheets -
~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019	3

Unaudited Consolidated Statements of Income -
Three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~	4

Unaudited Consolidated Statements of Cash Flows -
~~Six~~Three months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~	5

Unaudited Consolidated Statements of Changes in Stockholders’ Equity-
Three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~	6

Notes to Unaudited Consolidated Financial Statements	7

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	2322

Item 3. Quantitative and Qualitative Disclosures about Market Risk	4133

Item 4. Controls and Procedures	4134

PART II. OTHER INFORMATION

Item 1. Legal Proceedings	4134

Item 1A. Risk Factors	4134

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	4234

Item 3. Defaults Upon Senior Securities	4234

Item 4. Mine Safety Disclosures	4234

Item 5. Other Information	4235

Item 6. Exhibits	4336

EX – 31.1
EX – 31.2
EX – 31.3
EX – 32.1
EX – 32.2
EX – 32.3 EX – ~~101.INS~~101 EX – ~~101.SCH~~ ~~EX – 101.CAL~~ ~~EX – 101.DEF~~ ~~EX – 101.LAB~~ ~~EX – 101.PRE~~104

‎

~~-2-~~-2-


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



	June 30, 2019		December 31, 2018		March 31, 2020		December 31, 2019
ASSETS
Current assets
Cash and cash equivalents	$	3,323	$	4,831	$	28,951	$	6,158
Accounts receivable		136,113		119,504
Accounts receivable less allowances of $1,427 (2019 - $353)						134,695		143,827
Inventories		6,336		5,705		7,313		7,462
Prepaid income taxes		12,951		10,646		5,917		10,074
Prepaid expenses		21,455		19,154		21,939		23,150
Total current assets		180,178		159,840		198,815		190,671
Investments of deferred compensation plans		70,460		65,624		72,296		77,446
Properties and equipment, at cost, less accumulated depreciation of $259,495 (2018 - $248,370)		149,917		162,033
Assets held for sale		15,750		-
Lease right of use assets less accumulated amortization of $13,415		90,755		-
Identifiable intangible assets less accumulated amortization of $34,210 (2018 - $33,284)		67,511		68,253
Properties and equipment, at cost, less accumulated depreciation of $278,768 (2019 - $270,140)						183,729		175,763
Lease right of use asset						112,302		111,652
Identifiable intangible assets less accumulated amortization of $40,094 (2019 - $37,620)						124,219		126,370
Goodwill		510,627		510,570		577,236		577,367
Other assets		8,874		9,209		8,962		9,048
Total Assets	$	1,094,072	$	975,529	$	1,277,559	$	1,268,317

LIABILITIES
Current liabilities
Accounts payable	$	51,143	$	50,150	$	37,838	$	51,101
Accrued insurance		46,912		46,095		56,480		50,328
Accrued compensation		50,123		63,329		63,622		70,814
Accrued legal		8,431		1,857		7,114		6,941
Short-term lease liability		31,614		-		36,252		39,280
Other current liabilities		35,446		30,239		45,431		43,756
Total current liabilities		223,669		191,670		246,737		262,220
Deferred income taxes		18,828		21,598		20,681		18,504
Long-term debt		85,000		89,200		160,000		90,000
Deferred compensation liabilities		70,273		64,616		70,363		76,446
Long-term lease liability		69,979		-		88,278		86,656
Other liabilities		7,754		17,111		7,899		7,883
Total Liabilities		475,503		384,195		593,958		541,709
Commitments and contingencies (Note 11)
STOCKHOLDERS' EQUITY
Capital stock - authorized 80,000,000 shares $1 par; issued 35,590,832 shares (2018 - 35,311,418 shares)		35,591		35,311
Capital stock - authorized 80,000,000 shares $1 par; issued 35,911,724 shares (2019 - 35,810,528 shares)						35,912		35,811
Paid-in capital		817,255		774,358		878,550		860,671
Retained earnings		1,311,446		1,225,617		1,476,151		1,425,752
Treasury stock - 19,749,166 shares (2018 - 19,438,358)		(1,548,138)		(1,446,296)
Treasury stock - 20,116,345 shares (2019 - 19,867,220 shares)						(1,709,390)		(1,597,940)
Deferred compensation payable in Company stock		2,415		2,344		2,378		2,314
Total Stockholders' Equity		618,569		591,334		683,601		726,608
Total Liabilities and Stockholders' Equity	$	1,094,072	$	975,529	$	1,277,559	$	1,268,317

See accompanying notes to unaudited consolidated financial statements.
See accompanying Notes to Unaudited Consolidated Financial Statements.					See accompanying Notes to Unaudited Consolidated Financial Statements.

‎

~~-3-~~-3-


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



	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended March 31,
	2019		2018		2019		2018		2020		2019
Service revenues and sales	$	473,584	$	441,813	$	935,618	$	880,989	$	515,798	$	462,034
Cost of services provided and goods sold (excluding depreciation)		323,637		305,741		645,588		610,277		351,745		321,951
Selling, general and administrative expenses		71,556		68,297		145,585		137,297		70,583		74,029
Depreciation		9,887		9,718		19,597		18,985		11,388		9,710
Amortization		406		34		925		61		2,477		519
Other operating expenses/(income)		2,570		(118)		8,923		(169)
Other operating expenses										242		6,353
Total costs and expenses		408,056		383,672		820,618		766,451		436,435		412,562
Income from operations		65,528		58,141		115,000		114,538		79,363		49,472
Interest expense		(1,237)		(1,524)		(2,361)		(2,731)		(975)		(1,124)
Other income - net		13		1,038		2,452		2,056
Other (expense)/income - net										(9,466)		2,439
Income before income taxes		64,304		57,655		115,091		113,863		68,922		50,787
Income taxes		(13,575)		(2,684)		(19,695)		(13,896)		(13,031)		(6,120)
Net income	$	50,729	$	54,971	$	95,396	$	99,967	$	55,891	$	44,667

Earnings Per Share:
Net income	$	3.18	$	3.43	$	5.98	$	6.22	$	3.50	$	2.80
Average number of shares outstanding		15,928		16,035		15,941		16,067		15,991		15,954

Diluted Earnings Per Share:
Net income	$	3.08	$	3.27	$	5.79	$	5.93	$	3.38	$	2.70
Average number of shares outstanding		16,449		16,811		16,489		16,854		16,516		16,525

Cash Dividends Per Share	$	0.30	$	0.28	$	0.60	$	0.56	$	0.32	$	0.30

See accompanying notes to unaudited consolidated financial statements.
See accompanying Notes to Unaudited Consolidated Financial Statements.									See accompanying Notes to Unaudited Consolidated Financial Statements.

‎

~~-4-~~

CHEMED CORPORATION AND SUBSIDIARY COMPANIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Six Months Ended June 30,
2019
2018
Cash Flows from Operating Activities
Net income
$
95,396
$
99,967
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization
20,522
19,046
Stock option expense
8,018
7,305
Litigation settlement
6,000
-
(Benefit)/provision for deferred income taxes
(2,769)
2,173
Noncash long-term incentive compensation
2,506
2,942
Asset impairment loss
2,266
-
Noncash directors' compensation
767
766
Amortization of debt issuance costs
153
288
Amortization of restricted stock awards
-
446
Changes in operating assets and liabilities:
Increase in accounts receivable
(16,613)
(6,057)
Increase in inventories
(631)
(362)
Increase in prepaid expenses
(2,301)
(113)
Decrease in accounts payable and other current liabilities
(4,175)
(14,909)
Change in current income taxes
(2,249)
10,136
Increase in other assets
(4,653)
(5,667)
Increase in other liabilities
5,833
4,889
Other sources
837
186
Net cash provided by operating activities
108,907
121,036
Cash Flows from Investing Activities
Capital expenditures
(28,312)
(23,872)
Business combinations
-
(1,875)
Other (uses)/sources
(137)
533
Net cash used by investing activities
(28,449)
(25,214)
Cash Flows from Financing Activities
Payments on revolving line of credit
(227,000)
(281,150)
Proceeds from revolving line of credit
222,800
358,350
Purchases of treasury stock
(71,926)
(84,304)
Proceeds from exercise of stock options
16,517
20,209
Capital stock surrendered to pay taxes on stock-based compensation
(14,884)
(21,022)
Dividends paid
(9,567)
(9,016)
Change in cash overdrafts payable
1,710
(711)
Payments on other long-term debt
-
(75,000)
Debt issuance costs
-
(968)
Other sources/(uses)
384
(663)
Net cash used by financing activities
(81,966)
(94,275)
Increase in Cash and Cash Equivalents
(1,508)
1,547
Cash and cash equivalents at beginning of year
4,831
11,121
Cash and cash equivalents at end of period
$
3,323
$
12,668
See accompanying notes to unaudited consolidated financial statements.

‎-4

~~-5-~~

CHEMED CORPORATION AND SUBSIDIARY COMPANIES
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(in thousands, except per share data)
Deferred
Compensation
Treasury
Payable in
Capital
Paid-in
Retained
Stock-
Company
Stock
Capital
Earnings
at Cost
Stock
Total
Balance at March 31, 2019
35,521
803,701
1,265,485
(1,519,077)
2,380
588,010
Net income
-
-
50,729
-
-
50,729
Dividends paid ($0.30 per share)
-
-
(4,768)
-
-
(4,768)
Stock awards and exercise of stock options
70
13,337
-
(6,350)
-
7,057
Purchases of treasury stock
-
-
-
(22,676)
-
(22,676)
Other
-
217
-
(35)
35
217
Balance at June 30, 2019
$
35,591
$
817,255
$
1,311,446
$
(1,548,138)
$
2,415
$
618,569
Deferred
Compensation
Treasury
Payable in
Capital
Paid-in
Retained
Stock-
Company
Stock
Capital
Earnings
at Cost
Stock
Total
Balance at March 31, 2018
34,885
712,991
1,078,690
(1,321,843)
2,236
506,959
Net income
-
-
54,971
-
-
54,971
Dividends paid ($0.28 per share)
-
-
(4,483)
-
-
(4,483)
Stock awards and exercise of stock options
256
31,660
-
(29,481)
-
2,435
Purchases of treasury stock
-
-
-
(3,179)
-
(3,179)
Other
-
(423)
111
(35)
35
(312)
Balance at June 30, 2018
$
35,141
$
744,228
$
1,129,289
$
(1,354,538)
$
2,271
$
556,391
Deferred
Compensation
Treasury
Payable in
Capital
Paid-in
Retained
Stock-
Company
Stock
Capital
Earnings
at Cost
Stock
Total
Balance at December 31, 2018
35,311
774,358
1,225,617
(1,446,296)
2,344
591,334
Net income
-
-
95,396
-
-
95,396
Dividends paid ($0.60 per share)
-
-
(9,567)
-
-
(9,567)
Stock awards and exercise of stock options
280
42,489
-
(29,845)
-
12,924
Purchases of treasury stock
-
-
-
(71,926)
-
(71,926)
Other
-
408
-
(71)
71
408
Balance at June 30, 2019
$
35,591
$
817,255
$
1,311,446
$
(1,548,138)
$
2,415
$
618,569
Deferred
Compensation
Treasury
Payable in
Capital
Paid-in
Retained
Stock-
Company
Stock
Capital
Earnings
at Cost
Stock
Total
Balance at December 31, 2017
34,732
695,797
1,038,955
(1,231,332)
2,202
540,354
Net income
-
-
99,967
-
-
99,967
Dividends paid ($0.56 per share)
-
-
(9,016)
-
-
(9,016)
Stock awards and exercise of stock options
409
49,070
-
(38,833)
-
10,646
Purchases of treasury stock
-
-
-
(84,304)
-
(84,304)
Other
-
(639)
(617)
(69)
69
(1,256)
Balance at June 30, 2018
$
35,141
$
744,228
$
1,129,289
$
(1,354,538)
$
2,271
$
556,391
The Notes to Consolidated Financial Statements are integral parts of these statements.

~~-6-~~-


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

	Three Months Ended March 31,
	2020		2019
Cash Flows from Operating Activities
Net income	$	55,891	$	44,667
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization		13,865		10,229
Stock option expense		5,045		4,089
Provision/(benefit) for deferred income taxes		2,290		(3,489)
Noncash long-term incentive compensation		1,598		1,119
Provision for bad debts		594		-
Amortization of debt issuance costs		76		76
Litigation settlement		-		6,000
Changes in operating assets and liabilities:
Decrease/(increase) in accounts receivable		6,269		(81)
Decrease/(increase) in inventories		149		(610)
Decrease in prepaid expenses		1,211		6
(Decrease)/increase in accounts payable and other current liabilities		(7,037)		348
Change in current income taxes		10,159		9,219
Net change in lease assets and liabilities		(153)		(328)
Decrease/(increase) in other assets		5,048		(5,006)
(Decrease)/increase in other liabilities		(6,067)		6,459
Other sources		388		887
Net cash provided by operating activities		89,326		73,585
Cash Flows from Investing Activities
Capital expenditures		(19,897)		(13,866)
Business combinations		(1,452)		-
Other uses		(144)		(68)
Net cash used by investing activities		(21,493)		(13,934)
Cash Flows from Financing Activities
Proceeds from revolving line of credit		174,100		125,100
Payments on revolving line of credit		(104,100)		(114,300)
Purchases of treasury stock		(100,235)		(49,250)
Change in cash overdrafts payable		(9,849)		(13,303)
Proceeds from exercise of stock options		9,241		11,827
Capital stock surrendered to pay taxes on stock-based compensation		(7,951)		(11,170)
Dividends paid		(5,130)		(4,799)
Other (uses)/sources		(1,116)		181
Net cash used by financing activities		(45,040)		(55,714)
Increase in Cash and Cash Equivalents		22,793		3,937
Cash and cash equivalents at beginning of year		6,158		4,831
Cash and cash equivalents at end of period	$	28,951	$	8,768

See accompanying Notes to Unaudited Consolidated Financial Statements.

‎

-5-


CHEMED CORPORATION AND SUBSIDIARY COMPANIES
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(in thousands, except per share data)


										Deferred
										Compensation
								Treasury		Payable in
		Capital		Paid-in		Retained		Stock-		Company
		Stock		Capital		Earnings		at Cost		Stock		Total
Balance at December 31, 2019		35,811		860,671		1,425,752		(1,597,940)		2,314		726,608
Net income		-		-		55,891		-		-		55,891
Dividends paid ($0.32 per share)		-		-		(5,130)		-		-		(5,130)
Stock awards and exercise of stock options		101		18,972		-		(11,140)		-		7,933
Purchases of treasury stock		-		-		-		(100,235)		-		(100,235)
Other		-		(1,093)		(362)		(75)		64		(1,466)
Balance at March 31, 2020	$	35,912	$	878,550	$	1,476,151	$	(1,709,390)	$	2,378	$	683,601

										Deferred
										Compensation
								Treasury		Payable in
		Capital		Paid-in		Retained		Stock-		Company
		Stock		Capital		Earnings		at Cost		Stock		Total
Balance at December 31, 2018		35,311		774,358		1,225,617		(1,446,296)		2,344		591,334
Net income		-		-		44,667		-		-		44,667
Dividends paid ($0.30 per share)		-		-		(4,799)		-		-		(4,799)
Stock awards and exercise of stock options		210		29,152		-		(23,495)		-		5,867
Purchases of treasury stock		-		-		-		(49,250)		-		(49,250)
Other		-		191		-		(36)		36		191
Balance at March 31, 2019	$	35,521	$	803,701	$	1,265,485	$	(1,519,077)	$	2,380	$	588,010

The Notes to Consolidated Financial Statements are integral parts of these statements.

‎

-6-

CHEMED CORPORATION AND SUBSIDIARY COMPANIES

Notes to Unaudited Consolidated Financial Statements

1. Basis of Presentation

As used herein, the terms ~~"We," "Company"~~“We,” “Company” and ~~"Chemed"~~“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, ~~2018~~2019 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, ~~2018.~~2019.

Certain reclassifications have been made to prior year financial statements to conform to current presentation.

CURRENT EXPECTED CREDIT LOSSES

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments, Credit Losses. The ASU introduces the current expected credit loss (“CECL”) methodology. The CECL methodology utilizes a lifetime “expected credit loss” measurement objective for the recognition of credit losses for financial assets at the time the asset is originated or acquired. This generally results in earlier recognition of credit losses and greater transparency about credit risk. The Company adopted the provisions of ASU No. 2016-13 on January 1, 2020 using the modified retrospective method. The provisions of ASU No. 2016-13 did not significantly impact the method or timing that the Company recognizes expected credit losses and the cumulative effect of adoption was immaterial.

The Company’s only material financial asset subject to ASU No. 2016-13 is accounts receivable, trade and other. The Company recognizes an allowance for credit losses related to accounts receivable to present the net amount expected to be collected as of the balance sheet date. Accounts receivable are written-off when it is determined that the amount is deemed uncollectible. The following presents a detailed discussion of the operating subsidiaries’ accounts receivable and their evaluation of credit risk related to those accounts:

Roto-Rooter’s trade accounts receivable are comprised mainly of amounts due from commercial entities and commercial insurance carriers. Roto-Rooter’s accounts receivable are generally outstanding for 90 days or less and there are no significant amounts outstanding greater than one year. Roto-Rooter historically has not experienced significant write-offs due to credit losses. For amounts due from commercial entities, Roto-Rooter utilizes a provision matrix based on historical credit losses by aging category. For amounts due from commercial insurance carriers, mainly from water restoration revenue, Roto-Rooter periodically reviews published default tables related to commercial insurance carriers and provides an allowance. As further discussed below, Roto-Rooter assesses on a quarterly basis whether the historical rates used are expected to be representative of credit risk over the life of the account taking into consideration existing economic conditions.

In excess of 90% of VITAS’ accounts receivable are from the Federal or state governments under Medicare and Medicaid. VITAS believes that it is reasonable to expect that the risk of non-payment as a result of credit issues from these government entities is zero. As such, there is no allowance for credit losses established related to these accounts. The remainder of VITAS’ accounts are from commercial insurance carriers. VITAS’ accounts are generally outstanding for 90 days or less and there are no significant amounts outstanding greater than one year. VITAS historically has not experienced significant write-offs due to credit losses. VITAS periodically reviews published default tables related to commercial insurance carriers and provides an allowance. VITAS assesses on a quarterly basis whether these default rates are expected to be representative of credit risk over the life of the account taking into consideration existing economic conditions.

As further discussed in footnote 5, Chemed has $37.9 million in standby letters of credit outstanding. These letters of credit are with large, highly rated financial institutions. The Company periodically reviews published default tables related to these institutions to assess the need for an allowance. Chemed believes that any expected credit loss related to outstanding letters of credit based on current economic conditions is not material.

In conjunction with its first quarter of 2020 closing process, subsequent to the adoption of ASU No. 2016-13, Roto-Rooter re-assessed its expected credit losses as a result of COVID-19. In addition to the historical provision matrix described above, and in conjunction with the quarterly assessment of current economic conditions and published default rates to evaluate credit risk over the life of the account, Roto-Rooter analyzed the industries from which the accounts receivable originated. Using available information and judgement, additional expected credit losses were recorded for industries deemed higher risk during the economic shut down, such as

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restaurants, hotels and bars. The additional charge taken for the three-month period ended March 31, 2020 related to expected credit losses from COVID-19 issues was $524,000. The full economic impact as a result of COVID-19 and the related business shut-downs will not be known for some period of time. The amount recorded in the first quarter of 2020 represents management’s current best estimate.

ADDITIONS

(CHARGED)

CREDITED

(CHARGED)

BALANCE AT

TO COSTS

CREDITED

BALANCE

BEGINNING

AND

TO OTHER

AT END

DESCRIPTION

OF PERIOD

EXPENSES

ACCOUNTS

OTHER

OF PERIOD

March 31, 2020

(353)

(594)

(475)

(5)

(1,427)

CORONAVIRUS AID, RELIEF AND ECONOMIC STIMULUS (CARES) ACT

The recent COVID-19 pandemic did not have a material impact on our results of operations, cash flow and financial position as of and for the three months-ended March 31, 2020. We are closely monitoring the impact of the pandemic on all aspects of our business including impacts to employees, customers, patients, suppliers and vendors. The Company’s two operating subsidiaries have been categorized as critical infrastructure businesses and are not currently materially limited by federal, state or local regulations that restrict movement or operating ability.

The length and severity of the pandemic, coupled with related governmental actions including relief acts and actions relating to our workforce at federal, state and local levels, and underlying economic disruption will determine the ultimate short-term and long-term impact to our business operations and financial results. We are unable to predict the myriad of possible issues that could arise or the ultimate effect to our businesses as a result of the unknown short, medium and long-term impacts that the pandemic will have on the United States economy and society as a whole.

On March 27, 2020, the CARES Act was passed. It is intended to provide economic relief to individuals and businesses affected by the coronavirus pandemic. It also contains provisions related to healthcare providers’ operations and the issues caused by the coronavirus pandemic. The following significant economic impacts for Chemed and its subsidiaries as a result of specific provisions of the CARES Act:

Chemed deferred its first quarter 2020 income tax payment of $8.8 million to the Federal government until July 15, 2020, as permitted by the CARES Act. In addition, Chemed and its subsidiaries deferred payment of certain employer payroll taxes and certain state tax payments, as permitted by the CARES Act.

A portion of the CARES Act provides $100 billion from the Public Health and Social Services Emergency Fund (“Relief Fund)” to hospitals and other healthcare providers on the front lines of the coronavirus response. Of this $100 billion distribution from the Relief Fund, $30 billion was designated to be automatically distributed to facilities and healthcare providers based upon their 2019 Medicare fee-for-service revenue. On April 10, 2020 VITAS automatically received $80.2 million from the Relief Fund based upon VITAS’s 2019 Medicare fee-for-service Medicare revenue. While specific details of the program have not been finalized, recipients of this $30 billion in CARES Act relief are specified to use these funds to prevent, prepare for, and respond to coronavirus, and shall reimburse the recipient only for health care related expenses or lost revenues that are attributable to coronavirus. The ability of VITAS to retain and utilize the full $80.2 million from the Relief Fund will depend on the magnitude, timing and nature of the economic impact of COVID-19 within VITAS, as well as the guidelines and rules of the Relief Fund program.

During the period from May 1, 2020 through December 31, 2020, the 2% Medicare sequestration reimbursement cut is suspended. VITAS anticipates the impact to increase revenue approximately $15 million to $20 million, excluding the impact of the Medicare Cap.

LEASE ACCOUNTING

In February 2016, the FASB issued Accounting Standards Update “ASU No. 2016-02 Leases” which introduced a lessee model that brings most leases onto the balance sheets and updates lessor accounting to align with changes in the lessee model and the revenue recognition standard. This standard is also referred to as Accountings Standards Codification No.842 (“ASC 842”). We adopted ASC 842 effective January 1, 2019, using the optional transition method requiring leases existing at, or entered into after, January 1, 2019 to be recognized and measured. The transition method selected does not require adjustments to prior period amounts, which continue to be reflected in accordance with historical accounting. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard which among other things, allowed us to carry forward the historical lease classification.

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Roto-Rooter purchases equipment and leases it to certain of its independent contractors. We analyzed these leases in accordance with ASC 842 and determined they are operating leases. As a result, Roto-Rooter will continue to capitalize the equipment underlying these leases, depreciate the equipment and recognize rental income.

Adoption of the new standard resulted in right of use assets and lease liabilities of ~~$87.8~~$93.1 million and ~~$98.7~~$104.3 million, respectively, as of ~~March 31,~~January 1, 2019. In determining the liability, we used our incremental borrowing rate based on the information available at the time of adoption, since the rate implicit in the leases cannot be readily determined. At January 1, 2019, the weighted average rate was 3.47%. The standard did not materially impact our consolidated net income or cash flows. We did not book a cumulative effect adjustment upon adoption of the standard.

CLOUD COMPUTING

On January 1, 2019, we early adopted ASU No. 2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract”. This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal use software. We adopted the ASU on a prospective basis.

As of ~~June 30, 2019,~~March 31, 2020, we have ~~two~~2 cloud computing arrangements that are service contracts. Roto-Rooter is implementing a system to assist in technician dispatch and VITAS ~~is implementing~~implemented a new human resources system. We have capitalized approximately ~~$2.8~~$6.0 million related to implementation of ~~this project~~these projects which isare included in prepaid assets in the accompanying balance sheets. The VITAS human resource system was placed into service in January 2020 and is being amortized over 5 years. Through March 31, 2020, $262,000 has been amortized. There has been no0 amortization expense associated with the ~~asset,~~Roto-Rooter project, as the software has not yet been placed in service. We anticipate amortizing ~~the assets~~this asset over the original term of the ~~arrangements~~arrangement plus renewal options that are reasonably certain of being exercised.

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NON-EMPLOYEE STOCK COMPENSATION

In June 2018, the FASB issued Accounting Standards Update “ASU No. 2018-07 – Compensation – Stock Compensation”. The ASU expands the scope of current guidance to include all share-based payment arrangements related to the acquisition of goods and services from both non-employees and employees. The guidance in the ASU is effective for the Company in all fiscal years beginning after December 15, 2018. Adoption of this standard had no material impact on our ~~consolidated financial statements.~~

~~CASH FLOW CLASSIFICATION~~

In August 2016, the FASB issued Accounting Standards Update “ASU No. 2016-15 – Cash Flow Classification” which amends guidance on the classification of certain cash receipts and payments in the statement of cash flows. The primary purpose of ASU 2016-15 was to reduce diversity in practice related to eight specific cash flow issues. The guidance in this ASU was effective for fiscal years beginning after December 15, 2017. We adopted this ASU as of January 1, 2018. There was no material effect to our statements of cash flow.Consolidated Financial Statements.

INCOME TAXES

Our effective income tax rate was ~~21.1%~~18.9% in the ~~second~~first quarter of ~~2019~~2020 compared to ~~4.7%~~12.1% during the ~~second~~first quarter of ~~2018.~~2019. Excess tax benefit on stock options reduced our income tax expenses by ~~$3.2~~$4.6 million and ~~$11.7~~$6.7 million, respectively for the quarters ended ~~June 30, 2019~~March 31, 2020 and ~~2018.~~

Our effective income tax rate was 17.1% for the first six months of 2019 compared to 12.2% during the first six months of 2018. Excess tax benefit on stock options reduced our income tax expenses by $9.9 million and $15.5 million, respectively for the first six months ended June 30, 2019 and 2018.2019.

NON-CASH TRANSACTIONS

Included in the accompanying Consolidated Balance Sheets are ~~$1.1~~$1.7 million and ~~$3.2~~$1.8 million of capitalized property and equipment which were not paid for as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. These amounts have been excluded from capital expenditures in the accompanying Consolidated Statements of Cash Flow. There are no material non-cash amounts included in interest expense for any period presented.

BUSINESS COMBINATIONS

We account for acquired businesses using the acquisition method of accounting. All assets acquired and liabilities assumed are recorded at their respective fair values at the date of acquisition. The determination of fair value involves estimates and the use of valuation techniques when market value is not readily available. We use various techniques to determine fair value in accordance with accepted valuation models, primarily the income approach. The significant assumptions used in developing fair values include, but are not limited to, revenue growth rates, the amount and timing of future cash flows, discount rates, useful lives, royalty rates and future tax rates. The excess of purchase price over the fair value of assets and liabilities acquired is recorded as goodwill. See footnote 17 for discussion of recent acquisitions.

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2. Revenue Recognition

In May 2014, the FASB issued Accounting Standards Update “ASU No. 2014-09 – Revenue from Contracts with Customers.” The standard and subsequent amendments are theoretically intended to develop a common revenue standard for removing inconsistencies and weaknesses, improve comparability, provide for more useful information to users through improved disclosure requirements and simplify the preparation of financial statements. The standard is also referred to as Accounting Standards Codification No. 606 (“ASC 606”). We adopted ASC 606 effective January 1, 2018. The required disclosures of ASC 606 and impact of adoption are discussed below for each of our operating subsidiaries.

VITAS

Service revenue for VITAS is reported at the amount that reflects the ultimate consideration we expect to receive in exchange for providing patient care. These amounts are due from third-party payors, primarily commercial health insurers and government programs (Medicare and Medicaid), and include variable consideration for revenue adjustments due to settlements of audits and reviews, as well as certain hospice-specific revenue capitations. Amounts are generally billed monthly or subsequent to patient discharge. Subsequent changes in the transaction price initially recognized are not significant.

Hospice services are provided on a daily basis and the type of service provided is determined based on a physician’s determination of each patient’s specific needs on that given day. Reimbursement rates for hospice services are on a per diem basis regardless of the type of service provided or the payor. Reimbursement rates from government programs are established by the appropriate governmental agency and are standard across all hospice providers. Reimbursement rates from health insurers are negotiated with each payor and generally structured to closely mirror the Medicare reimbursement model. The types of hospice services provided and associated reimbursement model for each are as follows:

Routine Home Care occurs when a patient receives hospice care in their home, including a nursing home setting. The routine home care rate is paid for each day that a patient is in a hospice program and is not receiving one of the other categories of hospice care. For Medicare patients, the routine home care rate reflects a two-tiered rate, with a higher rate for the first 60 days of a hospice patient’s care and a lower rate

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for days 61 and after. In addition, there is a Service Intensity Add-on payment which covers direct home care visits conducted by a registered nurse or social worker in the last seven days of a hospice patient’s life, reimbursed up to 4 hours per day in 15 minute increments at the continuous home care rate.

General Inpatient Care occurs when a patient requires services in a controlled setting for a short period of time for pain control or symptom management which cannot be managed in other settings. General inpatient care services must be provided in a Medicare or Medicaid certified hospital or long-term care facility or at a freestanding inpatient hospice facility with the required registered nurse staffing.

Continuous Home Care is provided to patients while at home, including a nursing home setting, during periods of crisis when intensive monitoring and care, primarily nursing care, is required in order to achieve palliation or management of acute medical symptoms. Continuous home care requires a minimum of 8 hours of care within a 24-hour day, which begins at midnight. The care must be predominantly nursing care provided by either a registered nurse or licensed nurse practitioner. While the published Medicare continuous home care rates are daily rates, Medicare pays for continuous home care in 15 minute increments. This 15 minute rate is calculated by dividing the daily rate by 96.

Respite Care permits a hospice patient to receive services on an inpatient basis for a short period of time in order to provide relief for the patient’s family or other caregivers from the demands of caring for the patient. A hospice can receive payment for respite care for a given patient for up to five consecutive days at a time, after which respite care is reimbursed at the routine home care rate.

Each level of care represents a separate promise under the contract of care and is provided independently for each patient contingent upon the patient’s specific medical needs as determined by a physician. However, the clinical criteria used to determine a patient’s level of care is consistent across all patients, given that, each patient is subject to the same payor rules and regulations. As a result, we have concluded that each level of care is capable of being distinct and is distinct in the context of the contract. Furthermore, we have determined that each level of care represents a stand ready service provided as a series of either days or hours of patient care. We believe that the performance obligations for each level of care meet criteria to be satisfied over time. VITAS recognizes revenue based on the service output. VITAS believes this to be the most faithful depiction of the transfer of control of services as the patient simultaneously receives and consumes the benefits provided by our performance. Revenue is recognized on a daily or hourly basis for each patient in accordance with the reimbursement model for each type of service. VITAS’ performance obligations relate to contracts with an expected duration of less than one year. Therefore, VITAS has elected to apply the optional exception provided in ASC 606 and is not required to disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or

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partially unsatisfied at the end of the reporting period. The unsatisfied or partially satisfied performance obligations referred to above relate to bereavement services provided to patients’ families for at least 12 months after discharge.

Care is provided to patients regardless of their ability to pay. Patients who meet our criteria for charity care are provided care without charge. There is no revenue or associated accounts receivable in the accompanying ~~consolidated financial statements~~Consolidated Financial Statements related to charity care. The cost of providing charity care during the quarters ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ was $2.2 million and $2.1 ~~million, respectively. The cost of providing charity care during the first six months ended June 30, 2019 and 2018 was $4.3 million and $4.2~~ million, respectively. The cost of charity care is included in cost of services provided and goods sold and is calculated by taking the ratio of charity care days to total days of care and multiplying by the total cost of care.

Generally, patients who are covered by third-party payors are responsible for related deductibles and coinsurance which vary in amount. VITAS also provides service to patients without a reimbursement source and may offer those patients discounts from standard charges. VITAS estimates the transaction price for patients with deductibles and coinsurance, along with those uninsured patients, based on historical experience and current conditions. The estimate of any contractual adjustments, discounts or implicit price concessions reduces the amount of revenue initially recognized. Subsequent changes to the estimate of the transaction price are recorded as adjustments to patient service revenue in the period of change. Subsequent changes that are determined to be the result of an adverse change in the patients’ ability to pay (i.e. change in credit risk) are recorded as bad debt expense. VITAS has no material adjustments related to subsequent changes in the estimate of the transaction price or subsequent changes as the result of an adverse change in the patient’s ability to pay for any period reported.

Laws and regulations concerning government programs, including Medicare and Medicaid, are complex and subject to varying interpretation. ~~Compliance~~Medicare and Medicaid programs have broad authority to audit and review compliance with such laws and regulations, ~~may be subject to future government review~~ and ~~interpretation.~~impose payment suspensions when merited. Additionally, the contracts we have with commercial health insurance payors provide for retroactive audit and review of claims. Settlement with third party payors for retroactive adjustments due to audits, reviews or investigations are considered variable consideration and are included in the determination of the estimated transaction price for providing patient

~~-9-~~

care. The variable consideration is estimated based on the terms of the payment agreement, existing correspondence from the payor and our historical settlement activity. These estimates are adjusted in future periods, as new information becomes available.

We are subject to certain limitations on Medicare payments for services which are considered variable consideration, as follows:

Inpatient Cap. If the number of inpatient care days any hospice program provides to Medicare beneficiaries exceeds 20% of the total days of hospice care such program provided to all Medicare patients for an annual period beginning September 28, the days in excess of the 20% figure may be reimbursed only at the routine homecare rate. None of VITAS’ hospice programs exceeded the payment limits on inpatient services during the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 and ~~2018.~~2019.

Medicare Cap. We are also subject to a Medicare annual per-beneficiary cap (“Medicare cap”). Compliance with the Medicare cap is measured in one of two ways based on a provider election. The “streamlined” method compares total Medicare payments received under a Medicare provider number with respect to services provided to all Medicare hospice care beneficiaries in the program or programs covered by that Medicare provider number with the product of the per-beneficiary cap amount and the number of Medicare beneficiaries electing hospice care for the first time from that hospice program or programs from September 28 through September 27 of the following year. At ~~June 30, 2019,~~March 31, 2020, all our programs except one are using the “streamlined” method.

The “proportional” method compares the total Medicare payments received under a Medicare provider number with respect to services provided to all Medicare hospice care beneficiaries in the program or programs covered by the Medicare provider number between September 28 and September 27 of the following year with the product of the per beneficiary cap amount and a pro-rated number of Medicare beneficiaries receiving hospice services from that program during the same period. The pro-rated number of Medicare beneficiaries is calculated based on the ratio of days the beneficiary received hospice services during the measurement period to the total number of days the beneficiary received hospice services.

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 revenues are likely to exceed the annual per-beneficiary 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 actions, which include changes to the patient mix and increased patient admissions. However, should we project our corrective action will not prevent that program from exceeding its Medicare cap, we estimate revenue recognized during the government fiscal year that will require repayment to the Federal government under the Medicare cap and record an adjustment to revenue of an amount equal to a ratable portion of our best estimate for the year.

In 2013, the U.S. government implemented automatic budget reductions of 2.0% for all government payees, including hospice benefits paid under the Medicare program. In 2015, CMS determined that the Medicare cap should be calculated “as if” sequestration

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did not occur. As a result of this decision, VITAS has received notification from our third-party intermediary that an additional $~~5.8~~8.3 million is owed for Medicare cap in three programs arising during the 2013 through ~~2017~~2019 measurement periods. The amounts are automatically deducted from our semi-monthly PIP payments. We do not believe that CMS is authorized under the sequestration authority or the statutory methodology for establishing the Medicare cap to the amounts they have withheld and intend to withhold under their current “as if” methodology. We have appealed CMS’s methodology change. Pursuant to the recent legislation, the sequestration has been lifted for the period from May 1 through December 31, 2020.

During the quarter ended ~~June 30,~~March 31, 2020, we recorded $2.5 million in net Medicare cap revenue reduction related to five programs for the 2020 government fiscal year.

During the quarter ended March 31, 2019, we recorded $~~2.4~~3.4 million ~~million~~ in net Medicare cap revenue reduction related to three programs for the 2019 government fiscal year. Additionally, we recorded $847,000 related to adjustments of prior year cap liabilities. During the quarter ended June 30, 2018, we recorded $355,000 in net Medicare cap revenue reduction related to one program for the 2018 government fiscal year. Additionally, we recorded $181,000 related to adjustments of prior year cap liabilities.

~~During the first six months ended June 30, 2019, we recorded $5.8~~ million in net Medicare cap revenue reduction related to four programs for the 2019 government fiscal year. Additionally, we recorded $847,000 related to adjustments of prior year cap liabilities. During the six months ended June 30, 2018, we reversed $1.5 million of the $2.4 million Medicare cap revenue reduction recognized in the fourth quarter of 2017 due to improved metrics in two VITAS programs offset by $181,000 related to adjustments of prior year cap liabilities.

~~-10-~~

For VITAS’ patients in the nursing home setting in which Medicaid pays the nursing home room and board, VITAS serves as a pass-through between Medicaid and the nursing home. We are responsible for paying the nursing home for that patient’s room and board. Medicaid reimburses us for 95% of the amount we have paid. This results in a 5% net expense for VITAS related to nursing home room and board. This transaction creates a performance obligation in that VITAS is facilitating room and board being delivered to our patient. As a result, the 5% net expense is recognized as a contra-revenue account under ASC 606 in the accompanying financial statements.

The composition of patient care service revenue by payor and level of care for the quarter ended ~~June 30, 2019~~March 31, 2020 is as follows (in ~~thousands~~)thousands):



	Medicare		Medicaid		Commercial		Total		Medicare		Medicaid		Commercial		Total
Routine home care	$	248,545	$	11,907		6,009	$	266,461	$	253,965	$	12,133		5,664	$	271,762
Continuous care		27,975		1,408		1,403		30,786		37,132		1,871		1,552		40,555
Inpatient care		19,282		2,117		1,495		22,894		28,148		2,559		1,775		32,482
	$	295,802	$	15,432	$	8,907	$	320,141	$	319,245	$	16,563	$	8,991	$	344,799

All other revenue - self-pay, respite care, etc.	All other revenue - self-pay, respite care, etc.							2,237								3,147
Subtotal							$	322,378							$	347,946
Medicare cap adjustment								(3,198)								(2,500)
Implicit price concessions								(3,720)								(4,149)
Room and board, net								(2,710)								(3,381)
Net revenue							$	312,750							$	337,916

The composition of patient care service revenue by payor and level of care for the quarter ended ~~June 30, 2018 is as follows (in thousands):~~

Medicare
Medicaid
Commercial
Total
Routine home care
$
232,637
$
12,019
$
5,725
$
250,381
Continuous care
27,581
1,428
1,504
30,513
Inpatient care
17,029
1,853
1,195
20,077
$
277,247
$
15,300
$
8,424
$
300,971
All other revenue - self-pay, respite care, etc.
1,998
Subtotal
$
302,969
Medicare cap adjustment
(536)
Implicit price concessions
(2,959)
Room and board, net
(2,675)
Net revenue
$
296,799

~~The~~ ~~composition~~ ~~of patient care service revenue by payor and level of care for the six months ended June 30,~~March 31, 2019 is as follows (in thousands):


	Medicare		Medicaid		Commercial		Total
Routine home care	$	241,700	$	11,673	$	5,474	$	258,847
Continuous care		28,973		1,787		1,484		32,244
Inpatient care		18,989		2,148		1,433		22,570
	$	289,662	$	15,608	$	8,391	$	313,661

All other revenue - self-pay, respite care, etc.								2,010
Subtotal							$	315,671
Medicare cap adjustment								(3,400)
Implicit price concessions								(2,948)
Room and board, net								(2,542)
Net revenue							$	306,781

Medicare
Medicaid
Commercial
Total
Routine home care
$
489,978
$
23,581
$
11,753
$
525,312
Continuous care
56,949
3,195
2,886
63,030
Inpatient care
38,271
4,265
2,928
45,464
$
585,198
$
31,041
$
17,567
$
633,806
All other revenue - self-pay, respite care, etc.
4,242
Subtotal
$
638,048
Medicare cap adjustment
(6,598)
Implicit price concessions
(6,667)
Room and board, net
(5,252)
Net revenue
$
619,531

~~-11-~~

~~The~~ ~~composition~~ ~~of patient care service revenue by payor and level of care for the six months ended June 30, 2018 is as follows (in thousands):~~

Medicare
Medicaid
Commercial
Total
Routine home care
$
456,658
$
23,299
$
11,455
$
491,412
Continuous care
55,213
3,031
3,035
61,279
Inpatient care
35,887
3,901
2,398
42,186
$
547,758
$
30,231
$
16,888
$
594,877
All other revenue - self-pay, respite care, etc.
3,740
Subtotal
$
598,617
Medicare cap adjustment
1,282
Implicit price concessions
(5,792)
Room and board, net
(5,294)
Net revenue
$
588,813

Roto-Rooter

Roto-Rooter provides plumbing, drain cleaning, water restoration and other related services to both residential and commercial customers primarily in the United States. Services are provided through a network of company-owned branches, independent contractors and franchisees. Service revenue for Roto-Rooter is reported at the amount that reflects the ultimate consideration we expect to receive in exchange for providing services.

Roto-Rooter owns and operates branches focusing mainly on large population centers in the United States. Roto-Rooter’s primary lines of business in company-owned branches consist of plumbing, sewer and drain cleaning, excavation and water restoration. For purposes of ASC 606 analysis, plumbing, sewer and drain cleaning, and excavation have been combined into one portfolio and are

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referred to as “short-term core services”. Water restoration is analyzed as a separate portfolio. The following describes the key characteristics of these portfolios:

Short-term Core Services are plumbing, drain and sewer cleaning and excavation services. These services are provided to both commercial and residential customers. The duration of services provided in this category range from a few hours to a few days. There are no significant warranty costs or on-going obligations to the customer once a service has been completed. For residential customers, payment is received at the time of job completion before the Roto-Rooter technician leaves the residence. Commercial customers may be granted credit subject to internally designated authority limits and credit check guidelines. If credit is granted, payment terms are generally 30 days or less.

Each job in this category is a distinct service with a distinct performance obligation to the customer. Revenue is recognized at the completion of each job. Variable consideration consists of pre-invoice discounts and post-invoice discounts. Pre-invoice discounts are given in the form of coupons or price concessions. Post-invoice discounts consist of credit memos generally granted to resolve customer service issues. Variable consideration is estimated based on historical activity and recorded at the time service is completed.

Water Restoration Services involve the remediation of water and humidity after a flood. These services are provided to both commercial and residential customers. The duration of services provided in this category generally ranges from 3 to 5 days. There are no significant warranties or on-going obligations to the customer once service has been completed. The majority of these services are paid by the customer’s insurance company. Variable consideration relates primarily to allowances taken by insurance companies upon payment. Variable consideration is estimated based on historical activity and recorded at the time service is completed.

For both short-term core services and water restoration services, Roto-Rooter satisfies its performance obligation at a point in time. The services provided generally involve fixing plumbing, drainage or flood-related issues at the customer’s property. At the time service is complete, the customer acknowledges its obligation to pay for service and its satisfaction with the service performed. This provides evidence that the customer has accepted the service and Roto-Rooter is now entitled to payment. As such, Roto-Rooter recognizes revenue for these services upon completion of the job and receipt of customer acknowledgement. Roto-Rooter’s performance obligations for short-term core services and water restoration services relate to contracts with an expected duration of less than a year. Therefore, Roto-Rooter has elected to apply the optional exception provided in ASC 606 and is not required to disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period. Roto-Rooter does not have significant

~~-12-~~

unsatisfied or partially unsatisfied performance obligations at the time of initial revenue recognition for short-term core or water restoration services.

Roto-Rooter owns the rights to certain territories and contracts with independent third-parties to operate the territory under Roto-Rooter’s registered trademarks. Such contracts are for a specified term but cancellable by either party without penalty with 90 days’ advance notice. Under the terms of these arrangements, Roto-Rooter provides certain back office support and advertising along with a limited license to use Roto-Rooter’s registered trademarks. The independent contractor is responsible for all day-to-day management of the business including staffing decisions and pricing of services provided. All performance obligations of Roto-Rooter cease at the termination of the arrangement.

Independent contractors pay Roto-Rooter a standard fee calculated as a percentage of their cash collection from weekly ~~labor~~ sales. The primary value for the independent contractors under these arrangements is the right to use Roto-Rooter’s registered trademarks. Roto-Rooter recognizes revenue from independent contractors over-time (weekly) as the independent contractor’s labor sales are ~~completed.~~completed and payment from customers are received. Payment from independent contractors is also received on a weekly basis. The use of Roto-Rooter’s registered trademarks and advertising provides immediate value to the independent contractor as a result of Roto-Rooter’s nationally recognized brand. Therefore, over-time recognition provides the most faithful depiction of the transfer of services as the customer simultaneously receives and consumes the benefits provided. There is no significant variable consideration related to these arrangements.

Roto-Rooter has licensed the rights to operate under Roto-Rooter’s registered trademarks in other territories to franchisees. Each such contract is for a 10 year term but cancellable by Roto-Rooter for cause with 60 day advance notice without penalty. The franchisee may cancel the contract for any reason with 60 days advance notice without penalty. Under the terms of the contract, Roto-Rooter provides national advertising and consultation on various aspects of operating a Roto-Rooter business along with the right to use Roto-Rooter’s registered trademarks. The franchisee is responsible for all day- to-day management of the business including staffing decisions, pricing of services provided and local advertising spend and placement. All performance obligations of Roto-Rooter cease at the termination of the arrangement.

Franchisees pay Roto-Rooter a standard monthly fee based on the population within the franchise territory. The standard fee is revised on a yearly basis based on changes in the Consumer Price Index for All Urban Consumers. The primary value for the franchisees under this arrangement is the right to use Roto-Rooter’s registered trademarks. Roto-Rooter recognizes revenue from franchisees over-time (monthly). Payment from franchisees is also received on a monthly basis. The use of Roto-Rooter’s registered trademarks and advertising provides immediate value to the franchisees as a result of Roto-Rooter’s nationally recognized brand.

-13-

Therefore, over-time recognition provides the most faithful depiction of the transfer of services as the customer simultaneously receives and consumes the benefits provided. There is no significant variable consideration related to these arrangements.

The composition of disaggregated revenue for the ~~second~~first quarter is as follows (in thousands):


	June 30,				March 31,
	2019		2018		2020		2019
Short-term core service jobs	$	115,143	$	105,086	$	134,424	$	112,185
Water restoration		28,239		24,765		29,246		29,208
Contractor revenue		14,580		12,366		16,228		14,032
Franchise fees		1,623		1,574		1,190		1,621
All other		2,974		2,835		3,534		3,008
Subtotal	$	162,559	$	146,626	$	184,622	$	160,054
Implicit price concessions and credit memos		(1,725)		(1,612)		(6,740)		(4,801)
Net revenue	$	160,834	$	145,014	$	177,882	$	155,253

‎

~~-13-~~

~~The~~ ~~composition~~ ~~of disaggregated revenue for the first six months is as follows (in thousands):~~

June 30,
2019
2018
Short-term core service jobs
$
226,202
$
209,172
Water restoration
55,891
52,502
Contractor revenue
28,589
24,731
Franchise fees
3,245
3,165
All other
5,981
6,155
Subtotal
$
319,908
$
295,725
Implicit price concessions and credit memos
(3,821)
(3,549)
Net revenue
$
316,087
$
292,176

~~Initial Adoption of ASC 606~~

The Company utilized the modified retrospective method of adoption for all contracts. The Company has consistently applied the accounting policies to all periods presented in the consolidated financial statements. Sales tax collected from customers at Roto-Rooter is excluded from revenue under ASC 606 and prior revenue standards.

3. Segments

Service revenues and sales by business segment are shown in Footnote 2. After-tax earnings by business segment are as follows (in thousands):



	Three months ended June 30,				Six months ended June 30,				Three months ended March 31,
	2019		2018		2019		2018		2020		2019
After-tax Income/(Loss)
VITAS	$	37,339	$	31,785	$	66,626	$	63,800	$	41,279	$	29,288
Roto-Rooter		27,175		25,298		50,162		48,236		24,322		22,986
Total		64,514		57,083		116,788		112,036		65,601		52,274
Corporate		(13,785)		(2,112)		(21,392)		(12,069)		(9,710)		(7,607)
Net income	$	50,729	$	54,971	$	95,396	$	99,967	$	55,891	$	44,667

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

~~-14-~~

4. Earnings per Share

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

Net Income
For the Three Months Ended June 30,
Income
Shares
Earnings per Share
2019
Earnings
$
50,729
15,928
$
3.18
Dilutive stock options
-
449
Nonvested stock awards
-
72
Diluted earnings
$
50,729
16,449
$
3.08
2018
Earnings
$
54,971
16,035
$
3.43
Dilutive stock options
-
674
Nonvested stock awards
-
102
Diluted earnings
$
54,971
16,811
$
3.27


			Net Income
For the Three Months Ended March 31,		Income		Shares	Earnings per Share
2020
	Earnings	$	55,891	15,991	$	3.50
	Dilutive stock options		-	446
	Nonvested stock awards		-	79
	Diluted earnings	$	55,891	16,516	$	3.38

2019
	Earnings	$	44,667	15,954	$	2.80
	Dilutive stock options		-	494
	Nonvested stock awards		-	77
	Diluted earnings	$	44,667	16,525	$	2.70

Net Income
For the Six Months Ended June 30,
Income
Shares
Earnings per Share
2019
Earnings
$
95,396
15,941
$
5.98
Dilutive stock options
-
474
Nonvested stock awards
-
74
Diluted earnings
$
95,396
16,489
$
5.79
2018
Earnings
$
99,967
16,067
$
6.22
Dilutive stock options
-
683
Nonvested stock awards
-
104
Diluted earnings
$
99,967
16,854
$
5.93

For the three ~~and six month periods~~months ended ~~June 30, 2019,~~March 31, 2020, there were ~~246,000~~285,000 stock options excluded in the computation of dilutive earnings per share because they would have been anti-dilutive.

For the three ~~and six month periods~~months ended ~~June 30, 2018,~~March 31, 2019, there were no246,000 stock options excluded in the computation of dilutive earnings per share because they would have been anti-dilutive.

-14-

5. Long-Term Debt and Lines of Credit

On June 20, 2018, we replaced our existing credit agreement with the Fourth Amended and Restated Credit Agreement (“2018 Credit Agreement”). Terms of the 2018 Credit Agreement consist of a five year, $450 million revolving credit facility and a $150 million expansion feature, which may consist of term loans or additional revolving commitments. The interest rate at the inception of the agreement is LIBOR plus 100 basis points. The 2018 Credit Agreement has a floating interest rate that is generally LIBOR plus a tiered additional rate which varies based on our current leverage ratio. The amount outstanding as of ~~June 30, 2019~~March 31, 2020 is ~~$85.0~~$160.0 million.

Debt issuance costs associated with the prior credit agreement were not written off as the lenders and their relative percentages participation in the facility did not change. With respect to the 2018 Credit Agreement, deferred financing costs were $1.0 million.

~~-15-~~

The 2018 Credit Agreement contains the following quarterly financial ~~covenants:~~covenants effective as of March 31, 2020:



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

We are in compliance with all debt covenants as of ~~June 30, 2019.~~March 31, 2020. We have issued ~~$38.0~~$37.9 million in standby letters of credit as of ~~June 30, 2019,~~March 31, 2020, mainly for insurance purposes. Issued letters of credit reduce our available credit under the 2018 Credit Agreement. As of ~~June 30, 2019,~~March 31, 2020, we have approximately ~~$327.0~~$252.1 million of unused lines of credit available and eligible to be drawn down under our revolving credit facility.

6. Other Operating Expenses/(Income)


	Three months ended June 30,				Six months ended June 30,				Three months ended March 31,
	2019		2018		2019		2018		2020		2019

Loss on disposal of fixed assets									$	242	$	353
Litigation settlement	$	-	$	(204)	$	6,000	$	(204)		-		6,000
Transportation equipment held for sale		2,266		-		2,266		-
Loss on disposal of fixed assets		304		86		657		35
Total other operating expenses/(income)	$	2,570	$	(118)	$	8,923	$	(169)
Total other operating expenses									$	242	$	6,353

During the three months ended ~~June 30, 2019, the Company recorded $2.3 million for the impairment of transportation equipment that is being held for sale. See footnote 18.~~

~~During the six months ended June 30,~~March 31, 2019, the Company recorded $6.0 million for a potential legal settlement, which includes the settlement amount, estimated employment taxes and other litigation costs. See footnote 11 for further discussion.

7. Other (Expense)/Income – Net

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



	Three months ended June 30,				Six months ended June 30,				Three months ended March 31,
	2019		2018		2019		2018		2020		2019
Market value adjustment on assets held in	Market value adjustment on assets held in								Market value adjustment on assets held in
deferred compensation trust	$	(130)	$	779	$	2,207	$	1,638	$	(9,572)	$	2,338
Interest income		112		259		214		417		106		101
Other - net		31		-		31		1
Total other income - net	$	13	$	1,038	$	2,452	$	2,056
Total other (expense)/income - net									$	(9,466)	$	2,439

8. Leases

Chemed and each of its operating subsidiaries are service companies. As such, real estate leases comprise the largest lease obligation (and conversely, right of use asset) in our lease portfolio. VITAS has leased office space, as well as space for IPUs and/or contract beds within hospitals. Roto-Rooter has leased office space. Our leases have remaining terms of under 1 year to 10 years, some of which include options to extend the lease for up to 5 years, and some of which include options to terminate the lease within 1 year.

We made a policy election to exclude leases with a lease term less than 12 months from being recorded on the balance sheet. We adopted the practical expedient related to the combining of lease and non-lease components, which allows us to account for the lease and non-lease components as a single lease component.

Adoption of the new standard resulted in right of use assets and lease liabilities of approximately $87.8 million and $98.7 million, respectively, as of March 31, 2019. In determining the liability, we used our incremental borrowing rate based

~~-16-~~

on the information available at the time of adoption, since the rate implicit in the leases cannot be readily determined. At January 1, 2019, the weighted average rate was 3.47%. The standard did not materially impact our consolidated net income or cash flows. We did not book a cumulative effect adjustment upon adoption of the standard.

We do not currently have any finance leases, therefore all lease information disclosed is related to operating leases.

-15-

The components of balance sheet information related to leases were as follows:


	~~Six months ended~~ ‎~~June 30,~~
	~~2019~~
~~Assets~~
~~Operating lease assets~~	$	~~90,755~~

~~Liabilities~~
~~Current operating leases~~		~~31,614~~
~~Noncurrent operating leases~~		~~69,979~~
~~Total operating lease liabilities~~	$	~~101,593~~


	‎March 31,		‎December 31,
	2020		2019
Assets
Operating lease assets	$	112,302	$	111,652

Liabilities
Current operating leases		36,252		39,280
Noncurrent operating leases		88,278		86,656
Total operating lease liabilities	$	124,530	$	125,936

The components of lease expense were as follows:


	Three months ended ‎June 30,		Six months ended ‎June 30,		Three months ended ‎March 31,
	2019		2019		2020		2019
Lease Expense (a)
Operating lease expense	$	11,573	$	23,098	$	14,610	$	11,537
Sublease income		-		(6)		-		(6)
Net lease expense	$	11,573	$	23,092	$	14,610	$	11,531

(a)Includes short-term leases and variable lease costs, which are ~~immaterial~~.immaterial. Included in both cost of services provided and goods sold and selling, general and administrative expenses.

The components of cash flow information related to leases were as follows:


	Three months ended		Six months ended		Three months ended ‎March 31,
	June 30, 2019		June 30, 2019		2020		2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from leases	$	10,214	$	20,201	$	12,028	$	9,987

Leased assets obtained in exchange for new operating lease liabilities	$	12,731	$	15,944	$	12,583	$	3,213


Weighted Average Remaining Lease Term at March 31, 2020
Operating leases	~~4.34~~4.5	years


Weighted Average Discount Rate at March 31, 2020
Operating leases	~~3.46~~3.24	%

~~-17-~~


Maturity of Operating Lease Liabilities (in thousands)

2019	$	34,669
2020		25,465	$	32,855
2021		18,796		32,430
2022		12,074		24,360
2023		7,656		18,089
2024				12,948
Thereafter		12,327		13,387
Total lease payments	$	110,987	$	134,069
Less: interest		(8,143)		(9,423)
Less: future lease obligations not yet commenced		(1,251)		(116)
Total liability recognized on the balance sheet	$	101,593	$	124,530

~~The following is a summary of future minimum rental payments under operating leases that have initial noncancelable terms in excess of one year at December 31, 2018:~~

Maturity of Operating Lease Liabilities (in thousands)
2019
$
26,791
2020
24,152
2021
19,669
2022
13,851
2023
8,179
Thereafter
10,974
Total lease payments
$
103,616

For leases commencing prior to April 2019, minimum rental payments exclude payments to landlords for real estate taxes and common area maintenance. Operating lease payments include $2.3 million related to extended lease terms that are reasonably certain of being exercised and exclude ~~$1.3 million~~$116,000 lease payments for leases signed but not yet commenced.

-16-

9. Stock-Based Compensation Plans

On February ~~22, 2019,~~21, 2020, the Compensation/Incentive Committee of the Board of Directors (“CIC”) granted ~~6,864~~5,156 Performance Stock Units (“PSUs”) contingent upon the achievement of certain total shareholder return (“TSR”) targets as compared to the TSR of a group of peer companies for the three year period ending December 31, ~~2021,~~2022, the date at which such awards vest. The cumulative compensation cost of the TSR-based PSU award to be recorded over the three year service period is ~~$3.0~~$3.3 million.

On February ~~22, 2019,~~21, 2020, the CIC also granted ~~6,864~~5,156 PSUs contingent upon the achievement of certain earnings per share (“EPS”) targets for the three year period ending December 31, ~~2021.~~2022. At the end of each reporting period, the Company estimates the number of shares that it believes will ultimately be earned and records the corresponding 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 ~~$2.2~~$5.0 million.

10. 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 and are recorded in selling, general and administrative expenses. ~~Expenses~~Net (losses)/gains for the Company’s retirement and profit-sharing plans, excess benefit plans and other similar plans are as follows (in thousands):

Three months ended June 30,
Six months ended June 30,
2019
2018
2019
2018
$
3,796
$
4,807
$
10,710
$
9,974



Three months ended March 31,
2020		2019
$	(4,414)	$	6,914

~~-18-~~

11. 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, which can result in penalties including repayment obligations, funding withholding, or debarment, 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. ItOther than as described below, 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 reasonably estimable.

Regulatory Matters and Litigation

On October 30, 2017, the Company entered into a settlement agreement (the “Settlement Agreement”) to resolve civil litigation under the False Claims Act brought by the United States Department of Justice (“DOJ”) on behalf of the OIG and various relators concerning VITAS, filed in the U.S. District Court of the Western District of ~~Missouri (the “2013 Action”).~~Missouri. The Company denied any violation of law and agreed to settlement without admission of wrongdoing.

In connection with the settlement VITAS and certain of its subsidiaries entered into a corporate integrity agreement (“CIA”) on October 30, 2017. The CIA formalizes various aspects of VITAS’ already existing Compliance Program and contains requirements designed to document compliance with federal healthcare program requirements. It has a term of five years during which it imposes monitoring, reporting, certification, oversight, screening and training obligations, certain of which had previously been implemented by VITAS. It also requires VITAS to engage an Independent Review Organization to perform audit and review functions and to prepare reports regarding compliance with federal healthcare programs. In the event of breach of the CIA, VITAS could become liable for payment of stipulated penalties or could be excluded from participation in federal healthcare programs.

~~Jordan Seper (“Seper”),~~The Company entered into a ~~Registered Nurse at VITAS’ Inland Empire program from May 12, 2014 to~~settlement agreement in March ~~21, 2015, filed a lawsuit in San Francisco Superior Court on September 26, 2016. She alleged VITAS Healthcare Corp of CA (“VITAS CA”) (1) failed to provide minimum~~2019 that will resolve state-wide wage for all hours worked; (2) failed to provide overtime for all hours worked; (3) failed to provide a second meal period; (4) failed to provide rest breaks; (5) failed to indemnify for necessary expenditures; (6) failed to timely pay wages due at time of separation; and ~~(7) engaged in unfair business practices. Seper sought a state-wide~~hour class action ~~of current and former non-exempt employees employed with VITAS~~claims raised in ~~California within the~~ four years preceding the filing of the lawsuit. She sought court determination that this action may be maintained as a class action for the entire California class and subclasses, designation as class representative, declaratory relief, injunctive relief, damages (including wages for regular or overtime hours allegedly worked but not paid, premium payments for missed meal or rest periods, and unreimbursed expenses), all applicable penalties associated with each claim, pre and post-judgment interest, and attorneys’ fees and costs. Seper served VITAS CA with the lawsuit,separate cases: (1) Jordan A. Seper on behalf of herself and others similarly situated v. VITAS Healthcare Corporation of California, a Delaware corporation; VITAS Healthcare Corp of CA, a business entity unknown; and DOES 1 to 100, inclusive; Los Angeles Superior Court Case Number BC 642857 ~~on October 13, 2016~~ (“~~Jordan~~ Seper ~~case”~~”).; (2)

~~The Los Angeles Superior Court Complex Division accepted transfer~~Jiwan Chhina v. VITAS Health Services of ~~the case on December 6, 2016~~California, Inc., a California corporation; VITAS Healthcare Corporation of California, a Delaware corporation; VITAS Healthcare Corporation of California, a Delaware corporation dba VITAS Healthcare Inc.; and ~~stayed the case. On December 16, 2016, VITAS CA filed its Answer and served written discovery on Seper.~~DOES 1 to 100, inclusive

-17-

cases generally asserted claims on behalf of classes defined to ~~pursue these claims in the form of a state-wide class action of~~include all current and former non-exempt employees employed with VITAS in California within the four years preceding the filing of ~~the~~each lawsuit. ~~He sought court determination that this action may be maintained as a class action for the entire California class~~For additional procedural history of these cases, please refer to our prior quarterly and subclasses, designation as class representative, declaratory relief, injunctive relief, damages (including wages for regular or overtime hours allegedly worked but not paid, premium payments for missed meal or rest period, and unreimbursed expenses), all applicable penalties associated with each claim, pre-judgment interest, and attorneys’ fees and costs. Chhina served VITAS CA with the lawsuit, Jiwan Chhina v. VITAS Health Services of California, Inc., a California corporation; VITAS Healthcare Corporation of California, a Delaware corporation; VITAS Healthcare Corporation of California, a Delaware corporation dba VITAS Healthcare Inc.; and DOES 1 to 100, inclusive~~; San Diego Superior Court Case Number 37-2015-00033978-CU-OE-CTL on November 3, 2016 (“Jiwann Chhina case”). On December 1, 2016, VITAS CA filed its Answer and served written discovery on Chhina.~~

~~-19-~~

wages due; (2) failure to authorize and permit rest periods; (3) failure to provide off-duty meal periods; (4) failure to furnish accurate wage statements; (5) unreimbursed business expenses; (6) waiting time penalties; (7) violations of unfair competition law; and (8) violation of the Private Attorneys General Act. The case is captioned: ~~Chere Phillips and Lady Moore v. VITAS Healthcare Corporation of California~~, Sacramento County Superior Court, Case No. 34-2017-0021-2755. Plaintiffs sought to pursue these claims in the form of a state-wide class action of current and former non-exempt employees employed with VITAS CA in California within the four years preceding the filing of the lawsuit. Plaintiffs served VITAS with the lawsuit on June 5, 2017. VITAS CA timely answered the Complaint generally denying the Plaintiffs’ allegations. The Court has stayed all class discovery in this case pending resolution of the Jordan Seper and Jiwann Chhina cases.

There are currently three other lawsuits against VITAS pending in the superior courts of other California counties that contain claims and class periods that substantially overlap with Phillips’ and Moore’s claims: the Jordan Seper and Jiwann Chhina cases, and ~~Williams v. VITAS Healthcare Corporation of California, filed on May 22, 2017 in Alameda County Superior Court, RG 17853886.~~

Jazzina Williams’ (a Home Health Aide in Sacramento) lawsuit alleges claims for (1) failure to pay all wages due; (2) failure to authorize and permit rest periods; (3) failure to provide off-duty meal periods; (4) failure to furnish accurate wage statements; (5) unreimbursed business expenses; (6) waiting time penalties; and (7) violations of the Private Attorneys General Act (“PAGA”). Williams seeks to pursue these claims both individually and as a representative action under the PAGA on behalf of current and former California non-exempt employees. Plaintiff served VITAS with the lawsuit on May 31, 2017. VITAS CA timely answered the Complaint generally denying Plaintiff’s allegations. Williams is pursing discovery of her individual claim and has agreed to a stay of class discovery pending possible resolution through ongoing mediation in the Jordan Seper and Jiwann Chhina cases. Defendant filed and served each of Plaintiffs Williams, Phillips, and Moore with a Notice of Related Cases on July 19, 2017.annual filings.

The Seper and Chhina cases were consolidated in Los Angeles County Superior Court; Chhina was dismissed as a separate action and joined with Seper in the filing of amended complaint on August 28, 2018, in which both Chhina and Seper were identified as named plaintiffs. Discovery in the remaining cases was stayed as to class claims and each court was advised of the pendency of the consolidated Seper/Chhina action. The parties engaged in a mediation process beginning in October 2018 and concluded with an agreement in March 2019. The ~~agreement has been incorporated into a long-form agreement to be presented to the court for preliminary approval, notice to class members, and eventual final approval and payment. The~~ settlement amount ~~subject to court approval is~~of $5.75 million plus employment ~~taxes.~~taxes was recorded in the first quarter of 2019. As of December 31, 2019, $6.0 million was accrued in the accompanying Consolidated Balance Sheet. The definition of the class to participate in the settlement is intended to cover claims raised in the consolidated Seper/Chhina matter, claims raised in Phillips and Moore, as well as any class claims in Williams. On January 28, 2020, the court granted preliminary approval of the settlement. A notice of the proposed settlement has been sent to the members of the class by the class claims administrator. The court has set the date for the final approval of the settlement hearing for May 21, 2020.

Alfred Lax (“Lax”), a current employee of Roto-Rooter Services Company (“RRSC”), was hired in ~~the~~ RRSC’s Menlo Park branch in 2007. On November 30, 2018, Lax filed a class action lawsuit in Santa Clara County Superior Court alleging (1) failure to provide or compensate for required rest breaks; (2) failure to properly pay for all hours worked; (3) failure to provide accurate wage statements; (4) failure to reimburse for work-related expenses; and (5) unfair business practices. Lax ~~has~~ stated these claims as a representative of a class defined as all service technicians employed by RRSC in California during the four years preceding the filing of the complaint. He seeks a determination that the action may proceed and be maintained as a class action and for compensatory and statutory damages (premium payments for missed rest periods, uncompensated rest periods, wages for time allegedly not paid such as travel time, repair time, and vehicle maintenance time, and unreimbursed expenses), penalties and restitutions, pre- and post-judgement interest and attorneys’ fees and costs. The lawsuit is, Alfred Lax on behalf of himself and all others similarly situated v. Roto-Rooter Services Company, and Does 1 through 50 inclusive; Santa Clara County Superior Court Case Number ~~18CV338652, was received by RRSC on December 11, 2018 and RRSC timely filed its answer denying the claims.~~18CV338652.

The Company is not able to reasonably estimate the probability of loss or range of loss for any of these lawsuits at this time, with the exception of Seper/Chhina, Phillips and Moore and the class claims in Williams.

The Company intends to defend vigorously against the allegations in ~~each of~~ the ~~above lawsuits.~~Lax lawsuit. Regardless of the outcome of any of the preceding matters, dealing with the various regulatory agencies and opposing parties can adversely affect us through defense costs, potential payments, withholding of governmental funding, 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.

~~-20-~~

12. Concentration of Risk

~~During~~As of March 31, 2020 and December 31, 2019, approximately 70% and 71%, respectively, of VITAS’ total accounts receivable balance were from Medicare and 25% and 24%, respectively, of VITAS’ total accounts receivable balance were due from various state Medicaid or managed Medicaid programs. Combined accounts receivable from Medicare, Medicaid, and managed Medicaid represent approximately 75% of the ~~quarter~~ consolidated net accounts receivable in the accompanying consolidated balance sheets as of March 31, 2020.

VITAS ~~had~~has a pharmacy services ~~agreements~~contract with ~~one~~1 service provider ~~to provide~~for specified pharmacy services ~~for VITAS and~~related to its hospice ~~patients. VITAS made~~operations. A large majority of VITAS’ pharmaceutical purchases are from this provider of $7.0 and $8.5 million for the three months ended June 30, 2019 and 2018, respectively. VITAS made purchases from this provider of $14.3 and $16.8 million for the first six months ended June 30, 2019 and 2018, respectively. Purchases from this provider represent more than 90% of all pharmacy services usedvendor. The pharmaceuticals purchased by VITAS ~~during each period presented.~~are available through many providers in the United States. However, a disruption from VITAS’ main service provider could adversely impact VITAS’ operations, including temporary logistical challenges and increased cost associated with getting medication to our patients.

13. Cash Overdrafts and Cash Equivalents

There are ~~$15.5 million in~~0 cash overdrafts payable included in accounts payable at ~~June 30, 2019~~March 31, 2020 (December 31, ~~2018~~2019 - ~~$13.8~~$9.8 million).

From time to time throughout the year, we invest excess cash in money market funds with major commercial banks. We closely monitor the creditworthiness of the institutions with which we invest our overnight funds. The amount invested was not material for each balance sheet date presented.

14. 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.

-18-

The following shows the carrying value, fair value and the hierarchy for our financial instruments as of

~~June 30, 2019~~ March 31, 2020 (in thousands):


				Fair Value Measure								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)		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	$	70,460	$	70,460	$	-	$	-	$	72,296	$	72,296	$	-	$	-
Total debt		85,000		-		85,000		-		160,000		-		160,000		-

The following shows the carrying value, fair value and the hierarchy for our financial instruments as of December 31, ~~2018~~2019 (in thousands):


				Fair Value Measure								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)		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	$	65,624	$	65,624	$	-	$	-	$	77,446	$	77,446	$	-	$	-
Total debt		89,200		-		89,200		-		90,000		-		90,000		-

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. As further described in Footnote 5, our outstanding long-term debt and current portion of long-term debt have floating interest rates that are reset at short-term intervals, generally 30 or 60 days. The interest rate we pay also includes an additional amount based on our current leverage ratio. As such, we believe our borrowings reflect significant nonperformance risks, mainly credit risk. Based on these factors, we believe the fair value of our long-term debt and current portion of long-term debt approximate the carrying value.

~~-21-~~

15. Capital Stock Repurchase Plan Transactions

We repurchased the following capital ~~stock for the three and six months ended June 30, 2019 and 2018:~~stock:



	Three months ended June 30,				Six months ended June 30,				Three months ended March 31,
	2019		2018		2019		2018		2020		2019

Total cost of repurchased shares (in thousands)	$	22,676	$	3,179	$	71,926	$	84,304	$	100,235	$	49,250
Shares repurchased		69,009		10,000		219,009		310,000		225,000		150,000
Weighted average price per share	$	328.59	$	317.86	$	328.41	$	271.95	$	445.49	$	328.33

In ~~February 2019,~~March 2020, the Board of Directors authorized an additional ~~$150.0~~$250.0 million for stock repurchase under Chemed’s existing share repurchase program. We currently have ~~$124.7~~$253.8 million of authorization remaining under this share repurchase plan.

16. Recent Accounting Standards

In ~~January 2017,~~March 2020, the FASB issued Accounting Standards Update “ASU No. ~~2017-4 – Intangibles – Goodwill~~2020-04 - Reference Rate Reform”. The update provides optional expedients and ~~Other”. To simplify~~exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another rate expected to be discontinued. The update is effective for all entities as of March 12, 2020 and will apply through December 31, 2022. The interest rate charged on borrowings from our existing revolver is based on LIBOR. The credit agreement includes provisions for modifying the ~~subsequent measurement of goodwill,~~interest rate in the instance that LIBOR is discontinued. As a result, no contract modifications will be required when LIBOR is discontinued.

In December 2019, the FASB ~~eliminated Step 2 from~~issued Accounting Standards Update “ASU No. 2019-12 – Simplifying the ~~goodwill impairment test.~~Accounting for Income Taxes”. The ASU adds new guidance into simplify accounting for income taxes, changes the accounting for certain income tax transactions and makes minor improvements to the codifications. The ASU is effective for the Company ~~in fiscal years beginning after December 15, 2019. Early adoption is permitted.~~on January 1, 2021. We ~~anticipate adoption~~are currently evaluating the impact of this standard ~~will have no impact~~ on our consolidated financial statements.

In June 2016, FASB issued Accounting Standards Update “ASU No. 2016-13 - Measurement of Credit Losses on Financial Instruments”. The ASU requires the use of the current expected credit loss model to measure impairments of financial assets. The ASU is effective for the Company for fiscal years beginning after December 15, 2019. Management is currently evaluating the impact of this ASU on the Company’ financial statements.

-19-

17. Acquisitions

~~During the first six months of 2019, we did not complete any business combinations within our Roto-Rooter or VITAS segment.~~

During 2018, we completed four business combinations of former franchisees within the Roto-Rooter segment for $42.2 million in cash to increase our market penetration. The VITAS segment completed one business combination in Florida for $11.0 million to increase our market penetration.

~~Shown below is movement in Goodwill (in thousands):~~

VITAS
Roto-Rooter
Total
Balance at December 31, 2018
$
333,331
$
177,239
$
510,570
Foreign currency adjustments
-
57
57
Balance at June 30, 2019
$
333,331
$
177,296
$
510,627

~~18. Assets Held for Sale~~

~~In the second quarter of~~On August 2, 2019, we entered into an ~~agreement~~Asset Purchase Agreement (the “Agreement”) to ~~trade-in certain transportation equipment to offset replacement equipment expected to be delivered in 2020. The net book value~~purchase substantially all of the ~~transportation equipment has been reduced~~assets of HSW RR, Inc., a Delaware corporation (“HSW”) and certain related assets of its affiliates, for $120 million, subject to ~~the expected trade~~a working capital adjustment that resulted in ~~value of $15.8~~an additional $1.4 million ~~resulting in a $2.3 million impairment charge~~payment to HSW. HSW owned and operated fourteen Roto-Rooter franchises mainly in the ~~second quarter~~southwestern section of ~~2019.~~the United States, including Los Angeles, Dallas and Phoenix. Included in the assets purchased were the assets of Western Drain Supply, Inc., a plumbing supply company. The purchase was made using a combination of cash on-hand and borrowings under Chemed’s existing $450 million revolving credit facility.

~~19. Subsequent Events~~

On September 16, 2019, we completed the acquisition.

On July 1, 2019, we completed the acquisition of a Roto-Rooter franchise and the related assets in Oakland, CA for $18.0 million in cash. ~~A substantial portion~~

The acquisitions were made as a continuation of Roto-Rooter’s strategy to re-acquire franchises in large markets in the ~~aggregate purchase price will be allocated to goodwill,~~United States. The allocation for the two acquisitions completed in 2019 is as follows (in thousands):



	HSW		Oakland		Total
Goodwill	$	56,191	$	10,535	$	66,726
Reacquired franchise rights		52,980		6,190		59,170
Property, plant, and equipment		5,998		675		6,673
Working capital		3,760		22		3,782
Customer relationships		2,220		500		2,720
Non-compete agreements		140		100		240
Other assets and liabilities - net		128		23		151
	$	121,417	$	18,045	$	139,462

Reacquired franchise rights, included in identifiable intangibles on the Consolidated Balance Sheets, are amortized over the period remaining in each individual franchise agreement. The average amortization period for reacquired franchise rights for the acquisitions made in the third quarter of 2019 is 7.4 years.

The franchise fee revenue, the valuation of reacquired franchise rights and ~~other intangibles. The accounting~~amortization for ~~this acquisition has not yet been finalized.~~ the acquired franchises are as follows:


					Annualized
			Valuation		Amortization of
	2018 Franchise		of Reacquired		Reacquired
	Revenue		Franchise Rights		Franchise Rights
HSW	$	1,782	$	52,980	$	7,258
Oakland		95		6,190		825
Subtotal		1,877	$	59,170	$	8,083
All other franchise territories		4,505
	$	6,382

‎

~~-22-~~-20-

Amortization of reacquired franchise rights comprises the following (in thousands):


Three months ended March 31,
2020		2019

$	2,352	$	441

Customer relationships, included in identifiable intangibles on the Consolidated Balance Sheets, are amortized over an average amortization period of 20.4 years. Non-compete agreements are amortized over the period of the agreement. The average amortization period for non-compete agreements for the transactions made in the third quarter of 2019 is 4.0 years.

Goodwill is assessed for impairment on a yearly basis as of October 1. The primary factor that contributed to the purchase price resulting in the recognition of goodwill is operational efficiencies expected as a result of consolidating stand- alone franchises and Roto-Rooter’s network of nationwide branches. All goodwill recognized is deductible for tax purposes.

The pro forma revenue and earnings of the Company for March 31, 2019, as if all acquisitions made in fiscal 2019 were completed on January 1, 2019, are as follows: (in thousands, except per share data):


Service revenues and sales	$	484,106
Net income	$	47,936
Earnings per share	$	3.00
Diluted earnings per share	$	2.90

Shown below is movement in Goodwill (in thousands):


	VITAS		Roto-Rooter		Total
Balance at December 31, 2019	$	333,331	$	244,036	$	577,367
Foreign currency adjustments		-		(131)		(131)
Balance at March 31, 2020	$	333,331	$	243,905	$	577,236

‎

-21-

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, drain cleaning, water restoration and other related services to both residential and commercial customers. Through its network of company-owned branches, independent contractors and franchisees, Roto-Rooter offers plumbing and drain cleaning service to over 90% of the U.S. population.

The following is a summary of the key operating results (in thousands except per share amounts):



	Three months ended June 30,						Six months ended June 30,						Three months ended March 31,
	2019			2018			2019			2018			2020			2019
Service revenues and sales	$	473,584		$	441,813		$	935,618		$	880,989		$	515,798		$	462,034
Net income	$	50,729		$	54,971		$	95,396		$	99,967		$	55,891		$	44,667
Diluted EPS	$	3.08		$	3.27		$	5.79		$	5.93		$	3.38		$	2.70
Adjusted net income	$	55,215		$	47,158		$	103,390		$	93,009		$	60,715		$	48,175
Adjusted diluted EPS	$	3.36		$	2.81		$	6.27		$	5.52		$	3.68		$	2.92
Adjusted EBITDA	$	85,089		$	73,682		$	159,888		$	146,449		$	93,029		$	74,798
Adjusted EBITDA as a % of revenue		18.0	%		16.7	%		17.1	%		16.6	%		18.0	%		16.2	%

Adjusted net income, adjusted diluted EPS, earnings before interest, taxes and depreciation and amortization (“EBITDA”), Adjusted EBITDA and Adjusted EBITDA as a percent of revenue are not measures derived in accordance with US GAAP. We provide non-GAAP measures to help readers evaluate our operating results and to compare our operating performance with that of similar companies that have different capital structures. 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 is presented on pages ~~37-39.~~32-33.

For the three months ended ~~June 30, 2019,~~March 31, 2020, the increase in consolidated service revenues and sales was driven by a ~~10.9%~~14.6% increase at Roto-Rooter and a 5.4% increase at VITAS. The increase in service revenues at Roto-Rooter was driven by an increase in all service lines. The increase in service revenues at VITAS is comprised primarily of a 0.5% geographically weighted average Medicare reimbursement rate increase, a 5.9% increase in days of care, offset by $3.2 million in Medicare cap revenue reduction. See page 40 for additional VITAS operating metrics.

~~For the six months ended June 30, 2019, the increase in consolidated service revenues and sales was driven by an 8.2% increase at Roto-Rooter and a 5.2%~~10.1% increase at VITAS. The increase in service revenues at Roto-Rooter was driven by an increase in all major service ~~lines.~~lines as well as a result of acquisitions completed in 2019. The increase in service revenues at VITAS is comprised primarily of a ~~0.5%~~5.9% increase in days-of-care, a geographically weighted average Medicare reimbursement rate increase ~~a 6.2%~~of approximately 5.0%, and acuity mix shift which then reduced the Medicare rate increase ~~in days of care, offset by $6.6 million in Medicare cap revenue reduction. The first six months of 2018 included a reversal of prior Medicare cap expense of $1.3 million.~~approximately 0.9%. See page 4034 for additional VITAS operating metrics.

~~In February 2016,~~The recent COVID-19 pandemic could have a material adverse effect on our business operations, results of operations, cash flow and financial position. We are closely monitoring the ~~FASB issued Accounting Standards Update “ASU No. 2016-02 Leases” which introduced a lessee model~~impact of the pandemic on all aspects of our business including impacts to employees, customers, patients, suppliers and vendors. The Company’s two operating subsidiaries have been categorized as critical infrastructure businesses and are not currently materially limited by federal, state or local regulations that brings most leases on to the balance sheets and updates lessor accounting to align with changes in the lessee model and the revenue recognition standard. This standard is also referred to as Accountings Standards Codification No.842 (“ASC 842”). We adopted ASC 842 effective January 1, 2019, using the optional transition method requiring leases existing at,restrict movement or entered into after, January 1, 2019 to be recognized and measured. The transition method selected does not require adjustments to prior period amounts, which continue to be reflected in accordance with historical accounting. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard which among other things, allowed us to carry forward the historical lease classification.operating ability.

~~Chemed~~The continued health of our workforce cannot be predicted during the pandemic. Significant shortages of labor could inhibit the ability of both VITAS and ~~each~~Roto-Rooter to perform services. The inability to procure personal-protective equipment, and to protect worker health and customer safety, could negatively impact the health of ~~its operating subsidiaries are service companies. As such, real estate leases comprise the largest lease obligation (and conversely, right~~our workforce. A portion of ~~use asset) in~~ our ~~lease portfolio. VITAS has leased office space, as well as space for inpatient units (“IPUs”) and/or contract beds within hospitals. Roto-Rooter mainly has leased office space.~~workforce is currently working from remote locations on a regular basis which increases both operational and cybersecurity risks.

VITAS is working closely with hospitals, doctors and other healthcare providers. The response of these healthcare providers to the pandemic may limit VITAS’ ability to provide care and may result in fewer referrals. A prolonged or severe economic downturn may significantly impact Roto-Rooter’s service revenue. A significant disruption in the supply chain for critical items needed by either VITAS or Roto-Rooter could inhibit our ability to provide services or significantly increase the cost of providing those services.

Identified direct costs incurred for the three-months ended March 31, 2020 related to COVID-19 are $1.8 million. These costs are comprised primarily of additional expected credit losses at Roto-Rooter, additional personal protective equipment and sanitizing supplies at both VITAS and Roto-Rooter and paid time-off for employees potentially directly affected by COVID-19. These costs do

~~-23-~~-22-

~~Roto-Rooter purchases~~not include estimates for lost revenue, operational inefficiencies related to excess utilization of supplies, equipment and ~~leases it~~field staffing, diversion of existing infrastructure resources to ~~certain~~allow for operating during a pandemic, or diversion of ~~its independent contractors.~~management and administrative time to address COVID-19 issues, while continuing to operate both business segments. We ~~analyzed these leases~~anticipate costs during the second quarter of 2020 and the remainder of calendar 2020 to be significantly higher than what were incurred during the first quarter of 2020, given the timing of the onset and spread of the pandemic. Additionally, VITAS implemented a program that awards more than 10,000 frontline employees an additional two weeks of paid time off (“PTO”) in ~~accordance with ASC 842~~2020. VITAS estimates the additional PTO to cost approximately $23.2 million, prior to employee benefit and ~~determined they are operating leases. As a result, Roto-Rooter will continue to capitalize the equipment underlying these leases, depreciate the equipment and recognize rental income.~~payroll tax costs.

~~Adoption~~On March 27, 2020, the CARES Act was passed. It is intended to provide economic relief to individuals and businesses affected by the coronavirus pandemic. It also contains provisions related to healthcare providers’ operations and the issues caused by the coronavirus pandemic. The following significant economic impacts for Chemed and its subsidiaries as a result of specific provisions of the ~~new standard resulted in right~~CARES Act:

Chemed deferred its first quarter 2020 income tax payment of ~~use assets~~$8.8 million to the Federal government until July 15, 2020, as permitted by the CARES Act. In addition, Chemed and ~~lease liabilities~~its subsidiaries deferred payment of ~~$87.8 million~~certain employer payroll taxes and ~~$98.7 million, respectively,~~certain state tax payments, as permitted by the CARES Act.

A portion of ~~March 31, 2019. In determining~~ the ~~liability, we used our incremental borrowing rate based~~CARES Act provides $100 billion from the Public Health and Social Services Emergency Fund (“Relief Fund”) to hospitals and other healthcare providers on the ~~information~~front lines of the coronavirus response. Of this $100 billion distribution from the Relief Fund, $30 billion was designated to be automatically distributed to facilities and healthcare providers based upon their 2019 Medicare fee-for-service revenue. On April 10, 2020 VITAS automatically received $80.2 million from the Relief Fund based upon VITAS’s 2019 Medicare fee-for-service Medicare revenue. While specific details of the program have not been announced, recipients of this $30 billion in CARES Act relief are specified to use these funds to prevent, prepare for, and respond to coronavirus, and shall reimburse the recipient only for health care related expenses or lost revenues that are attributable to coronavirus. The ability of VITAS to retain and utilize the full $80.2 million from the Relief Fund will depend on the magnitude, timing and nature of the economic impact of COVID-19 within VITAS, as well as the guidelines and rules of the Relief Fund program.

During the period from May 1, 2020 through December 31, 2020, the 2% sequestration reimbursement cut is suspended. VITAS anticipates this will increase revenue approximately $15 million to $20 million, excluding the impact of the Medicare Cap.

In addition to the economic impacts, the CARES Act coupled with a series of waivers and guidance issued by the Centers for Medical and Medicaid Services (“CMS”) suspended various Medicare patient coverage criteria and documentation, as well as care requirements. For VITAS, the relief includes the temporary waiver of the requirement to use volunteers and to conduct a nurse visit every two weeks to evaluate aides. Additionally, CMS permitted expanded use of telehealth in providing hospice care to patients.

The situation surrounding COVID-19 remains fluid. We evaluate our cash flow, liquidity and capital resources on a daily basis. VITAS and Roto-Rooter continue to operate and have positive net income and operating cash flow. We have $252.1 million available atfor borrowing under our $450 million revolving line-of-credit.

On August 6, 2019, the ~~time~~Centers for Medicare and Medicaid Services released the fiscal year 2020 hospice wage index and payment rate update (FY 2020 update). The FY 2020 update includes the normal yearly inflationary increase by level of ~~adoption, since~~care plus a rebasing of the continuous care, inpatient care and respite care rates. The rebasing of these levels of care was to reflect non-inflationary changes in providers’ costs over time. The rebasing increased the national average reimbursement rate ~~implicit~~for continuous care by 39.9% and inpatient care by 34.7%. Respite care is not material to our operations. The rebasing of these levels of care was effective on October 1, 2019.

On August 2, 2019, we entered into an Asset Purchase Agreement (the “Agreement”) to purchase substantially all of the assets of HSW RR, Inc., a Delaware corporation (“HSW”) and certain related assets of its affiliates, for $120 million, subject to a working capital adjustment. HSW owned and operated fourteen Roto-Rooter franchises mainly in the ~~leases cannot be readily determined. At January~~southwestern section of the United States, including Los Angeles, Dallas and Phoenix. Included in the assets purchased were the assets of Western Drain Supply, Inc., a plumbing supply company. The purchase was made using a combination of cash on-hand and borrowings under Chemed’s existing $450 million revolving credit facility. On September 16, 2019, we completed the acquisition.

On July 1, 2019, we completed the ~~weighted~~acquisition of a Roto-Rooter franchise and the related assets in Oakland, CA for $18.0 million in cash.

Reacquired franchise rights, included in identifiable intangibles on the Consolidated Balance Sheets, are amortized over the period remaining in each individual franchise agreement. The average ~~rate was 3.47%.~~ amortization period for reacquired franchise rights for the acquisitions made in the third quarter of 2019 is 7.4 years.

The ~~standard did not~~franchise fee revenue, the valuation of reacquired franchise rights and amortization for the acquired franchises are as follows:

-23-


					Multiple of Annual			Annualized
			Valuation			Franchise Fees		Amortization of
	2018 Franchise		of Reacquired		to Reacquired			Reacquired
	Revenue		Franchise Rights		Franchise Rights			Franchise Rights
HSW	$	1,782	$	52,980		29.7	yrs	$	7,258
Oakland		95		6,190		65.2			825
Subtotal		1,877	$	59,170		31.5	yrs	$	8,083
All other franchise territories		4,505
	$	6,382

Amortization of reacquired franchise agreements comprises the following (in thousands):


Three months ended March 31,
2020		2019

$	2,352	$	441

Regarding our outlook for 2020, operating during the pandemic has the potential to materially impact ~~our consolidated net income or cash flows. We did not book a cumulative effect adjustment upon adoption~~the operational metrics and overall operating results of the ~~standard.~~Company. However, it is expected that the CARES Act funds received by Vitas will be sufficient to substantially offset anticipated costs and lost revenue related to the COVID-19 pandemic. Roto-Rooter is anticipated to receive minimal financial support from the CARES Act. However, it is important to consider Roto-Rooter’s main service is to stop water and raw sewage from flowing and causing destruction to residential and commercial structures. It is primarily a necessity and grudge service that has historically been resistant to even the deepest of recessions. We are early into the disruption caused by the COVID-19 pandemic and related shutdown of significant portions of our economy. It is premature, and in fact impossible, to reasonably measure or predict the impact COVID-19 will have on Roto-Rooter’s full year 2020 operating results. Recognizing these issues, we anticipate providing updated 2020 earnings guidance when we issue our second quarter 2020 operating results.

Financial Condition

Liquidity and Capital Resources

Material changes in the balance sheet accounts from December 31, ~~2018~~2019 to ~~June 30, 2019~~March 31, 2020 include the following:

A $22.8 million increase in cash and cash equivalents due to timing of payments from the Federal government.

A ~~$16.6~~$9.1 million ~~increase~~decrease in accounts receivable due to timing of receipts.

A ~~$90.8~~$5.2 million ~~increase~~decrease in ~~lease right~~investments of ~~use assets~~deferred compensation plans and a $6.1 million decrease in deferred compensation liabilities due to stock market losses and retirement payments made from the ~~adoption of ASC 842.~~plan.

A ~~$15.8~~$13.3 million ~~increase~~decrease in ~~assets held for sale as a result~~accounts payable due to timing of ~~an agreement to trade-in certain transportation~~

~~equipment to offset replacement equipment expected to be delivered in 2020.~~payments.

A ~~$13.2~~$6.2 million increase in accrued insurance related to the timing of policy years.

A $7.2 million decrease in accrued compensation due to the payments of cash bonuses in ~~2019 accrued in 2018.~~the first quarter of 2020.

A ~~$6.6~~$70.0 million increase in ~~accrued legal primarily~~long-term debt due mainly due to ~~a $6.0 million litigation settlement at VITAS.~~borrowings related to stock repurchases.

A ~~$31.6 million and $70.0 million increase in short-term and long-term lease liability, respectively, due to~~

~~the adoption of ASC 842.~~

~~A $101.8~~$111.5 million increase in treasury stock due mainly to stock repurchases.

Net cash provided by operating activities ~~decreased $12.1~~increased $15.7 million from ~~June 30, 2018~~March 31, 2019 to ~~June 30, 2019.~~March 31, 2020. Significant changes in our accounts receivable balances are typically driven by the timing of payments received from the Federal government at our VITAS subsidiary. We typically receive a payment in excess of $40.0 million from the Federal government from hospice services every other Friday. The timing of period end will have a significant impact on the accounts receivable at VITAS. These changes generally normalize over a two year period, as cash flow variations in one year are offset in the following year.

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.

On June 20, 2018, we replaced our existing credit agreement with the Fourth Amended and Restated Credit Agreement (“2018 Credit Agreement”). Terms of the 2018 Credit Agreement consist of a five year, $450 million revolving credit facility and a $150 million expansion feature, which may consist of term loans or additional revolving commitments. The revolving credit facility has a five year maturity with principal payments due at maturity. The interest rate at the inception of the agreement iswas LIBOR plus 100 basis points.

-24-

The 2018 Credit Agreement has a floating interest rate that is generally LIBOR plus a tiered additional rate which varies based on our current leverage ratio.

We have issued ~~$38.0~~$37.9 million in standby letters of credit as of ~~June 30, 2019,~~March 31, 2020, mainly for insurance purposes. Issued letters of credit reduce our available credit under the revolving credit agreement. As of ~~June 30, 2019,~~March 31, 2020, we have approximately ~~$327.0~~$252.1 million of unused lines of credit available and eligible to be drawn down under our revolving credit facility. Management believes its liquidity and sources of capital are satisfactory for the Company’s needs in the foreseeable future.

Commitments and Contingencies

Collectively, the terms of our credit agreements require us to meet various financial covenants, to be tested quarterly. We are in compliance with all financial and other debt covenants as of ~~June 30, 2019~~March 31, 2020 and anticipate remaining in compliance throughout the foreseeable future.

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, which can result in penalties including repayment obligations, funding withholding, or debarment, 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. Other than as described below, 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 reasonably estimable.

~~-24-~~

Jiwann Chhina (“Chhina”), hired by VITAS as a Home Health Aide on February 5, 2002, is currently a Licensed Vocational Nurse for VITAS’ San Diego program. On September 27, 2016, Chhina filed a lawsuit in; San Diego Superior Court ~~alleging~~Case Number 37-2015-00033978-CU-OE-CTL (“Chhina”) (which was subsequently merged with Seper); (3) Chere Phillips and Lady Moore v. VITAS Healthcare Corporation of California, Sacramento County Superior Court, Case No. 34-2017-0021-2755 (“Phillips and Moore”); and (4) Williams v. VITAS Healthcare Corporation of California, Alameda County Superior Court Case No. RG 17853886 (“Williams’). These actions were brought by both current and former employees including a registered nurse, a licensed vocational nurse (LVN), home health aides and a social worker. Each action stated multiple claims generally including (1) failure to pay minimum wage for all hours worked; (2) failure to provide overtime for all hours worked; (3) failure to pay wages for all hours at the regular rate; (4) failure to provide meal periods; (5) failure to provide rest breaks; (6) failure to provide complete and accurate wage statements; (7) failure to pay for all reimbursement expenses; (8) unfair business practices; and (9) violation of the California Private Attorneys General Act. ~~Chhina sought~~The cases generally asserted claims on behalf of classes defined to ~~pursue these claims in the form of a state-wide class action of~~include all current and former non-exempt employees employed with VITAS in California within the four years preceding the filing of ~~the~~each lawsuit. ~~He sought court determination that this action may be maintained as a class action for the entire California class~~For additional procedural history of these cases, please refer to our prior quarterly and subclasses, designation as class representative, declaratory relief, injunctive relief, damages (including wages for regular or overtime hours allegedly worked but not paid, premium payments for missed meal or rest period, and unreimbursed expenses), all applicable penalties associated with each claim, pre-judgment interest, and attorneys’ fees and costs. Chhina served VITAS CA with the lawsuit, Jiwan Chhina v. VITAS Health Services of California, Inc., a California corporation; VITAS Healthcare Corporation of California, a Delaware corporation; VITAS Healthcare Corporation of California, a Delaware corporation dba VITAS Healthcare Inc.; and DOES 1 to 100, inclusive~~; San Diego Superior Court Case Number 37-2015-00033978-CU-OE-CTL on November 3, 2016 (“Jiwann Chhina case”). On December 1, 2016, VITAS CA filed its Answer and served written discovery on Chhina.~~

On May 19, 2017, Chere Phillips (a Home Health Aide in Sacramento) and Lady Moore (a former Social Worker in Sacramento) filed a lawsuit against VITAS CA in Sacramento County Superior Court, alleging claims for (1) failure to pay all wages due; (2) failure to authorize and permit rest periods; (3) failure to provide off-duty meal periods; (4) failure to furnish accurate wage statements; (5) unreimbursed business expenses; (6) waiting time penalties; (7) violations of unfair competition law; and (8) violation of the Private Attorneys General Act. The case is captioned: ~~Chere Phillips and Lady Moore v. VITAS Healthcare Corporation of California~~, Sacramento County Superior Court, Case No. 34-2017-0021-2755. Plaintiffs sought to pursue these claims in the form of a state-wide class action of current and former non-exempt employees employed with VITAS CA in California within the four years preceding the filing of the lawsuit. Plaintiffs served VITAS with the lawsuit on June 5, 2017. VITAS CA timely answered the Complaint generally denying the Plaintiffs’ allegations. The Court has stayed all class discovery in this case pending resolution of the Jordan Seper and Jiwann Chhina cases.

~~-25-~~

The Seper and Chhina cases were consolidated in Los Angeles County Superior Court; Chhina was dismissed as a separate action and joined with Seper in the filing of amended complaint on August 28, 2018, in which both Chhina and Seper were identified as named plaintiffs. Discovery in the remaining cases was stayed as to class claims and each court was advised of the pendency of the consolidated Seper/Chhina action. The parties engaged in a mediation process beginning in October 2018 and concluded with an agreement in March 2019. The ~~agreement has been incorporated into a long-form agreement to be presented to the court for preliminary approval, notice to class members, and eventual final approval and payment. The~~ settlement amount ~~subject to court approval is~~of $5.75 million plus employment taxes. was recorded in the first quarter of 2019. As of December 31, 2019, $6.0 million was accrued in the accompanying Consolidated Balance Sheet. The definition of the class to participate in the settlement is intended to cover claims raised in the consolidated Seper/Chhina matter, claims raised in Phillips and Moore, as well as any class claims in Williams. On January 28, 2020, the court granted preliminary approval of the settlement. A notice of the proposed settlement has been sent to the members of the class by the class claims administrator. The court has set the date for the final approval of the settlement hearing for May 21, 2020.

-25-

‎

~~-26-~~

Results of Operations

Three months ended ~~June 30,~~March 31, 2020 versus 2019 ~~versus 2018~~ - Consolidated Results

Our service revenues and sales for the ~~second~~first quarter of ~~2019~~2020 increased ~~7.2%~~11.6% versus services and sales revenues for the ~~second~~first quarter of ~~2018.~~2019. Of this increase, a ~~$16.0~~$31.1 million increase was attributable to VITAS and ~~$15.8~~$22.6 million increase was attributable to Roto-Rooter. The following chart shows the components of revenue by operating segment (in thousands):



	Three months ended June 30,				Three months ended March 31,
	2019		2018		2020		2019
VITAS
Routine homecare	$	266,461	$	250,381	$	271,762	$	258,847
Continuous care		30,786		30,513		40,555		32,244
General inpatient		22,894		20,077		32,482		22,570
Other		2,237		1,998		3,147		2,010
Medicare cap adjustment		(3,198)		(536)		(2,500)		(3,400)
Room and board - net		(2,710)		(2,675)		(3,381)		(2,542)
Implicit price concessions		(3,720)		(2,959)		(4,149)		(2,948)
Roto-Rooter
Drain cleaning - short term core		45,558		41,959		54,020		44,653
Plumbing - short term core		33,837		30,538		36,794		32,418
Subtotal		79,395		72,497		90,814		77,071
Excavation - short term core		35,172		32,014		43,060		34,538
Water restoration		28,239		24,765		29,246		29,208
Contractor operations		14,580		12,366		16,228		14,032
Outside franchisee fees		1,623		1,574		1,190		1,621
Other - short term core		576		575		550		576
Other		2,974		2,835		3,534		3,008
Implicit price concessions		(1,725)		(1,612)		(6,740)		(4,801)
Total	$	473,584	$	441,813	$	515,798	$	462,034

-26-

Days of care at VITAS during the quarter ended ~~June 30~~March 31 were as follows:


	Days of Care		Increase/(Decrease)	Days of Care		Increase/(Decrease)
	2019	2018	Percent	2020	2019	Percent

Routine homecare	1,621,837	1,534,162	5.7	1,364,746	1,281,899	6.5
Nursing home				303,374	289,769	4.7
Respite				6,692	6,301	6.2
Subtotal routine homecare and respite				1,674,812	1,577,969	6.1
Continuous care	41,804	42,488	(1.6)	32,348	29,150	11.0
General inpatient	36,332	28,971	25.4	41,373	43,923	(5.8)
Total days of care	1,699,973	1,605,621	5.9	1,748,533	1,651,042	5.9

The ~~remaining~~revenue increase at VITAS is comprised primarily of the 5.9% increase in ~~VITAS’ revenues for the second quarter of 2019 versus the second quarter of 2018 was primarily comprised of~~days-of-care, a geographically weighted average Medicare reimbursement rate increase of approximately ~~0.5% offset by $3.2 million in~~5.0%, and acuity mix shift which then reduced the Medicare ~~cap revenue reductions compared to a Medicare cap revenue reduction of $536,000 in 2018. Over 90% of VITAS’ service revenues for the period were from Medicare and Medicaid.~~rate increase approximately 0.9%.

The increase in plumbing revenues for the ~~second~~first quarter of ~~2019~~2020 versus ~~2018~~2019 is attributable to a ~~6.6%~~13.1% increase in price and service mix shift and ~~a 4.2%~~an 0.4% increase in job count. The increase in excavation revenues for the ~~second~~first quarter of ~~2019~~2020 versus ~~2018~~2019 is attributable to a ~~5.5%~~5.7% increase in price and service mix shift and a ~~4.4%~~19.0% increase in job count. Drain cleaning revenues for the ~~second~~first quarter of ~~2019~~2020 versus ~~2018~~2019 reflect a ~~6.3%~~8.5% increase in price and service mix shift and a ~~2.3%~~12.5% increase in job count. Water restoration revenue for the ~~second~~first quarter of ~~2019~~2020 versus ~~2018~~2019 is attributable to a ~~7.1% increase in price and service mix shift and a 6.9%~~4.2% increase in job ~~count.~~count offset by a 4.1% decrease in price. Contractor operations increased ~~17.9%~~15.6% mainly due to their continued expansion into water restoration.

~~-27-~~

The consolidated gross margin was ~~31.7%~~31.8% in the ~~second~~first quarter of ~~2019~~2020 as compared with ~~30.8%~~30.3% in the ~~second~~first quarter of ~~2018.~~2019. On a segment basis, VITAS’ gross margin was ~~22.9%~~23.2% in the ~~second~~first quarter of 2020 as compared with 21.9%, in the first quarter of 2019 ~~as compared with 21.5%, in the second quarter of 2018~~ primarily due to ~~improved labor management and reduced ancillary costs.~~increased revenue. The Roto-Rooter segment’s gross margin was ~~48.7%~~48.1% for the ~~second~~first quarter of 2020 as compared with 47.0% in the first quarter of 2019 ~~compared with 49.9% in the second quarter of 2018~~ primarily due to ~~higher labor costs and medical insurance claims in the second quarter of 2019.~~increased revenue.

Selling, general and administrative expenses (“SG&A”) comprise (in thousands):

Three months ended June 30,
2019
2018
SG&A expenses before long-term incentive compensation and the impact of
market value adjustments related to deferred compensation trusts
$
70,300
$
66,296
Impact of market value adjustments related to assets held in deferred
compensation trusts
1,386
1,222
Long-term incentive compensation
(130)
779
Total SG&A expenses
$
71,556
$
68,297


	Three months ended March 31,
	2020		2019
SG&A expenses before long-term incentive compensation and the impact of market value adjustments related to deferred compensation trusts	$	78,334	$	70,203
Impact of market value adjustments related to assets held in deferred compensation trusts		(9,572)		2,338
Long-term incentive compensation		1,821		1,488
Total SG&A expenses	$	70,583	$	74,029

~~Other operating~~

SG&A expenses ~~increased $2.7 million from~~before long-term incentive compensation and the ~~second~~impact of market value adjustments related to deferred compensation trusts for the first quarter of ~~2018 primarily as~~2020 were up 11.6% when compared to the first quarter of 2019. This increase was mainly a result of ~~a $2.3 million impairment~~the increase in variable selling and general administrative expenses caused by increased revenue.

Depreciation for the first quarter of ~~transportation~~2020, increased 17.3% when compared to the first quarter of 2019, primarily due to new equipment ~~held for sale recorded~~purchased at Roto-Rooter related to the acquisitions completed in the second half of 2019.

Amortization for the first quarter of 2020, increased 377.3% when compared to the first quarter of 2019 due to the amortization of reacquired franchise rights related to acquisitions completed in the second half of 2019.

Other operating expenses decreased $6.1 million from the first quarter of 2019 primarily as a result of a $6.0 million litigation settlement at VITAS recorded in the first quarter of 2019.

-27-

Other (expense)/income -– net comprise (in thousands):

Three months ended June 30,
2019
2018
Market value adjustment on assets held in
deferred compensation trusts
$
(130)
$
779
Interest income
112
259
Other
31
-
Total other income - net
$
13
$
1,038



	Three months ended March 31,
	2020		2019
Market value adjustment on assets held in
deferred compensation trust	$	(9,572)	$	2,338
Interest income		106		101
Total other (expense)/income - net	$	(9,466)	$	2,439

Our effective tax rate reconciliation is as follows:


	Three months ended June 30,						Three months ended March 31,
	2019			2018			2020			2019

Income tax provision calculated at the statutory federal rate	$	13,504		$	12,108		$	14,474		$	10,665
Stock compensation tax benefits		(2,867)			(10,448)			(4,553)			(6,732)
State and local income taxes		1,868			186			2,377			1,128
Other--net		1,070			838			733			1,059
Income tax provision	$	13,575		$	2,684		$	13,031		$	6,120
Effective tax rate		21.1	%		4.7	%		18.9	%		12.1	%

‎

~~-28-~~

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


	Three months ended June 30,				Three months ended March 31,
	2019		2018		2020		2019
VITAS
Direct costs related to COVID-19					$	(726)	$	-
Medicare cap sequestration adjustment						(503)		(387)
Litigation settlement	$	-	$	152		-		(4,476)
Medicare cap sequestration adjustment		(1,253)		(138)
Non cash ASC 842 benefit		(1)		-
Non cash ASC 842 expenses						-		(489)
Roto-Rooter
Amortization of acquired and cancelled franchise agreements		(244)		-
Acquisition expenses		(71)		-
Amortization of reacquired franchise agreements						(1,729)		(324)
Direct costs related to COVID-19						(633)		-
Non cash ASC 842 expenses						-		(40)
Corporate
Excess tax benefits on stock compensation		3,212		11,702		4,553		6,732
Stock option expense		(3,197)		(2,900)		(4,190)		(3,327)
Impairment loss on transportation equipment		(1,733)		-
Long-term incentive compensation		(1,199)		(1,003)		(1,596)		(1,230)
Non cash ASC 842 expenses						-		124
Acquisition expense						-		(91)
Total	$	(4,486)	$	7,813	$	(4,824)	$	(3,508)

Three months ended ~~June 30,~~March 31, 2020 versus 2019 ~~versus 2018~~ - Segment Results

Net income/(loss) for the ~~second~~first quarter of ~~2019~~2020 versus the ~~second~~first quarter of ~~2018~~2019 by segment (in thousands):



	Three months ended June 30,				Three months ended March 31,
	2019		2018		2020		2019
VITAS	$	37,339	$	31,785	$	41,279	$	29,288
Roto-Rooter		27,175		25,298		24,322		22,986
Corporate		(13,785)		(2,112)		(9,710)		(7,607)
	$	50,729	$	54,971	$	55,891	$	44,667

VITAS’ after-tax earnings were positively impacted in ~~2019~~2020 compared to ~~2018~~2019 due to higher revenue and improved labor management and ancillary costs. After-tax earnings as a percent of revenue at VITAS in the ~~second~~first quarter of ~~2019~~2020 was ~~11.9%~~12.2% as compared to ~~10.7%~~9.5% in the ~~second~~first quarter of ~~2018.~~2019.

-28-

Roto-Rooter’s net income was ~~positively~~ impacted in ~~2019~~2020 compared to ~~2018~~2019 primarily by ~~higher revenue. After-tax earnings as a percent of revenue at Roto-Rooter in the second quarter of 2019 was 16.9% as compared to 17.4% in the second quarter of 2018.~~

After-tax Corporate expenses for 2019 increased 552.7% when compared to 2018 due mainly to a $8.5 million decrease in the excess tax benefits on stock compensation and a $2.3 million ($1.7 million after-tax) impairment of transportation equipment held for sale.

~~-29-~~

~~Results of Operations~~

~~Six months ended June 30, 2019 versus 2018 - Consolidated Results~~

Our service revenues and sales for the first six months of 2019 increased 6.2% versus services and sales revenues for the first six months of 2018. Of this increase, a $30.7 million increase was attributable to VITAS and $23.9 million increase was attributable to Roto-Rooter. The following chart shows the components of revenue by operating segment (in thousands):

Six months ended June 30,
2019
2018
VITAS
Routine homecare
$
525,312
$
491,412
Continuous care
63,030
61,279
General inpatient
45,464
42,186
Other
4,242
3,740
Medicare cap adjustment
(6,598)
1,282
Room and board - net
(5,252)
(5,294)
Implicit price concessions
(6,667)
(5,792)
Roto-Rooter
Drain cleaning - short term core
89,700
83,289
Plumbing - short term core
65,892
61,349
Subtotal
155,592
144,638
Excavation - short term core
69,457
63,335
Water restoration
55,891
52,502
Contractor operations
28,589
24,731
Outside franchisee fees
3,245
3,165
Other - short term core
1,153
1,199
Other
5,981
6,155
Implicit price concessions
(3,821)
(3,549)
Total
$
935,618
$
880,989

~~Days of care at VITAS during the six months ended June 30 were as follows:~~

Days of Care
Increase/(Decrease)
2019
2018
Percent
Routine homecare
3,193,505
3,008,130
6.2
Continuous care
85,727
85,685
0.0
General inpatient
71,783
60,641
18.4
Total days of care
3,351,015
3,154,456
6.2

The remaining increase in VITAS’ revenues for the first six months of 2019 versus the first six months of 2018 was primarily comprised of a geographically weighted average Medicare reimbursement rate increase of approximately 0.5% offset by $6.6 million in Medicare cap revenue reductions compared to Medicare cap reversal of $1.3 million in 2018. Over 90% of VITAS’ service revenues for the period were from Medicare and Medicaid.

The increase in plumbing revenues for the first six months of 2019 versus 2018 is attributable to a 6.0% increase in price and service mix shift and by a 1.4% increase in job count. The increase in excavation revenues for the first six months of 2019 versus 2018 is attributable to a 11.0% increase in price and service mix shift offset by a 1.3% decrease in job count. Drain cleaning revenues for the first six months of 2019 versus 2018 reflect a 5.6% increase in price and service mix shift and a 2.1% increase in job count. The increase in water restoration revenue for the first six months of 2019 versus 2018 is attributable to a 3.2% increase in price and service mix shift and a 3.3% increase in job count. Contractor operations increased 15.6% mainly due to their expansion into water restoration.

The consolidated gross margin was 31.0% in the first six months of 2019 as compared with 30.7% in the first six months of 2018 primarily. On a segment basis, VITAS’ gross margin was 22.4% in the first six months of 2019 as compared

~~-30-~~

with 21.8%, in the first six months of 2018 primarily due to improved labor management and ancillary costs. The Roto-Rooter segment’s gross margin was 47.9% for the first six months of 2019 compared with 48.7% in the first six months of 2018 primarily due to higher labor costs.

~~Selling, general and administrative expenses (“SG&A”) comprise (in thousands):~~

Six months ended June 30,
2019
2018
SG&A expenses before long-term incentive compensation and the impact of
market value adjustments related to deferred compensation trusts
$
140,504
$
132,517
Long-term incentive compensation
2,874
3,142
Impact of market value adjustments related to assets held in deferred
compensation trusts
2,207
1,638
Total SG&A expenses
$
145,585
$
137,297

Other operating expenses increased $9.1 million from the first six months of 2018 primarily as a result of a $6.0 million litigation settlement at VITAS and a $2.3 million impairment of transportation equipment held for sale recorded in the first six months of 2019.

~~Other income - net comprise (in thousands):~~

Six months ended June 30,
2019
2018
Market value adjustment on assets held in
deferred compensation trusts
$
2,207
$
1,638
Interest income
214
417
Other
31
1
Total other income - net
$
2,452
$
2,056

~~Our effective tax rate reconciliation is as follows:~~

Six months ended June 30,
2019
2018
Income tax provision calculated at the statutory federal rate
$
24,169
$
23,911
Stock compensation tax benefits
(8,876)
(13,839)
State and local income taxes
3,470
2,790
Other--net
932
1,034
Income tax provision
$
19,695
$
13,896
Effective tax rate
17.1
%
12.2
%

~~-31-~~

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

Six Months Ended June 30,
2019
2018
VITAS
Litigation settlement
$
(4,476)
$
152
Medicare cap sequestration adjustment
(1,640)
(401)
Acquisition expenses
(490)
-
Roto-Rooter
Amortization of acquired and cancelled franchise agreements
(568)
-
Acquisition expenses
(71)
-
Expenses related to litigation settlements
(40)
-
Corporate
Excess tax benefits on stock compensation
9,944
15,500
Stock option expense
(6,524)
(5,791)
Long-term incentive compensation
(2,429)
(2,502)
Impairment loss on transportation equipment
(1,733)
-
Non cash ASC 842 benefit
124
-
Acquisition expenses
(91)
-
Total
$
(7,994)
$
6,958

~~Six months ended June 30, 2019 versus 2018 - Segment Results~~

~~Net income/(loss) for the first six months of 2019 versus the first six months of 2018 by segment (in thousands):~~

Six months ended June 30,
2019
2018
VITAS
$
66,626
$
63,800
Roto-Rooter
50,162
48,236
Corporate
(21,392)
(12,069)
$
95,396
$
99,967

~~VITAS’ after-tax earnings were positively impacted in 2019 compared to 2018 due to~~ higher revenue offset by ~~the impact of a litigation settlement of approximately $6.0 million ($4.5 million after-tax). After-tax earnings as a percent of revenue at VITAS in the first six months of 2019 and 2018 was 10.8%.~~

~~Roto-Rooter’s net income was positively impacted in 2019 compared to 2018 primarily by higher revenue.~~increased amortization expense. After-tax earnings as a percent of revenue at Roto-Rooter in the first ~~six months~~quarter of ~~2019~~2020 was ~~15.9%~~13.7% as compared to ~~16.5%~~14.8% in the first ~~six months~~quarter of ~~2018.~~2019.

After-tax Corporate expenses for ~~2019 decreased 77.2%~~2020 increased 27.6% when compared to ~~2018~~2019 due mainly to a ~~$5.6~~$2.2 million decrease in the excess tax benefits on stock ~~compensation and a $2.3 million ($1.7 million after-tax) impairment of transportation equipment held for sale.~~compensation.

‎

~~-32-~~-29-

CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 2019
(in thousands)(unaudited)
Chemed
VITAS
Roto-Rooter
Corporate
Consolidated
2019 (a)
Service revenues and sales
$
312,750
$
160,834
$
-
$
473,584
Cost of services provided and goods sold
241,104
82,533
-
323,637
Selling, general and administrative expenses
21,682
39,377
10,497
71,556
Depreciation
4,831
5,017
39
9,887
Amortization
18
388
-
406
Other operating expense
69
235
2,266
2,570
Total costs and expenses
267,704
127,550
12,802
408,056
Income/(loss) from operations
45,046
33,284
(12,802)
65,528
Interest expense
(53)
(100)
(1,084)
(1,237)
Intercompany interest income/(expense)
4,382
2,180
(6,562)
-
Other income—net
101
42
(130)
13
Income/(expense) before income taxes
49,476
35,406
(20,578)
64,304
Income taxes
(12,137)
(8,231)
6,793
(13,575)
Net income/(loss)
$
37,339
$
27,175
$
(13,785)
$
50,729
(a) The following amounts are included in net income (in thousands):
Chemed
VITAS
Roto-Rooter
Corporate
Consolidated
Pretax benefit/(cost):
Stock option expense
$
-
$
-
$
(3,929)
$
(3,929)
Impairment loss on transportation equipment
-
-
(2,266)
(2,266)
Medicare cap sequestration
(1,689)
-
-
(1,689)
Long-term incentive compensation
-
-
(1,386)
(1,386)
Amortization of acquired and cancelled franchise agreements
-
(331)
-
(331)
Acquisition expenses
-
(97)
-
(97)
Total
$
(1,689)
$
(428)
$
(7,581)
$
(9,698)
Chemed
VITAS
Roto-Rooter
Corporate
Consolidated
After-tax benefit/(cost):
Stock option expense
$
-
$
-
$
(3,197)
$
(3,197)
Impairment loss on transportation equipment
-
-
(1,733)
(1,733)
Medicare cap sequestration
(1,253)
$
-
-
(1,253)
Long-term incentive compensation
-
-
(1,199)
(1,199)
Amortization of acquired and cancelled franchise agreements
-
(244)
-
(244)
Acquisition expenses
-
(71)
-
(71)
Non cash ASC 842 expenses
(1)
-
-
(1)
Excess tax benefits on stock compensation
-
-
3,212
3,212
Total
$
(1,254)
$
(315)
$
(2,917)
$
(4,486)


CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2020
(in thousands)(unaudited)

							Chemed
	VITAS		Roto-Rooter		Corporate		Consolidated
2020 (a)
Service revenues and sales	$	337,916	$	177,882	$	-	$	515,798
Cost of services provided and goods sold		259,429		92,316		-		351,745
Selling, general and administrative expenses		22,269		46,282		2,032		70,583
Depreciation		5,474		5,878		36		11,388
Amortization		18		2,459		-		2,477
Other operating expenses		114		128		-		242
Total costs and expenses		287,304		147,063		2,068		436,435
Income/(loss) from operations		50,612		30,819		(2,068)		79,363
Interest expense		(45)		(102)		(828)		(975)
Intercompany interest income/(expense)		4,386		1,349		(5,735)		-
Other income—net		65		40		(9,571)		(9,466)
Income/(expense) before income taxes		55,018		32,106		(18,202)		68,922
Income taxes		(13,739)		(7,784)		8,492		(13,031)
Net income/(loss)	$	41,279	$	24,322	$	(9,710)	$	55,891

(a) The following amounts are included in net income (in thousands):
							Chemed
	VITAS		Roto-Rooter		Corporate		Consolidated
Pretax benefit/(cost):
Stock option expense	$	-	$	-	$	(5,045)	$	(5,045)
Amortization of reacquired franchise agreements		-		(2,352)		-		(2,352)
Direct costs related to COVID-19		(973)		(861)		-		(1,834)
Long-term incentive compensation		-		-		(1,821)		(1,821)
Medicare cap sequestration		(675)		-		-		(675)
Total	$	(1,648)	$	(3,213)	$	(6,866)	$	(11,727)

							Chemed
	VITAS		Roto-Rooter		Corporate		Consolidated
After-tax benefit/(cost):
Stock option expense	$	-	$	-	$	(4,190)	$	(4,190)
Amortization of reacquired franchise agreements		-		(1,729)		-		(1,729)
Long-term incentive compensation		-		-		(1,596)		(1,596)
Direct costs related to COVID-19		(726)		(633)		-		(1,359)
Medicare cap sequestration		(503)		-		-		(503)
Excess tax benefits on stock compensation		-		-		4,553		4,553
Total	$	(1,229)	$	(2,362)	$	(1,233)	$	(4,824)

‎

~~-33-~~-30-

CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 2018
(in thousands)(unaudited)
Chemed
VITAS
Roto-Rooter
Corporate
Consolidated
2018 (a)
Service revenues and sales
$
296,799
$
145,014
$
-
$
441,813
Cost of services provided and goods sold
233,073
72,668
-
305,741
Selling, general and administrative expenses
20,702
35,909
11,686
68,297
Depreciation
5,050
4,628
40
9,718
Amortization
-
34
-
34
Other operating expenses
(67)
(51)
-
(118)
Total costs and expenses
258,758
113,188
11,726
383,672
Income/(loss) from operations
38,041
31,826
(11,726)
58,141
Interest expense
(53)
(92)
(1,379)
(1,524)
Intercompany interest income/(expense)
3,124
1,739
(4,863)
-
Other income—net
238
21
779
1,038
Income/(expense) before income taxes
41,350
33,494
(17,189)
57,655
Income taxes
(9,565)
(8,196)
15,077
(2,684)
Net income/(loss)
$
31,785
$
25,298
$
(2,112)
$
54,971
(a) The following amounts are included in net income (in thousands):
Chemed
VITAS
Roto-Rooter
Corporate
Consolidated
Pretax benefit/(cost):
Stock option expense
$
-
$
-
$
(3,652)
$
(3,652)
Long-term incentive compensation
-
-
(1,222)
(1,222)
Litigation settlement
204
-
-
204
Medicare cap sequestration adjustment
(185)
-
-
(185)
Total
$
19
$
-
$
(4,874)
$
(4,855)
Chemed
VITAS
Roto-Rooter
Corporate
Consolidated
After-tax benefit/(cost):
Stock option expense
$
-
$
-
$
(2,900)
$
(2,900)
Long-term incentive compensation
-
-
(1,003)
(1,003)
Litigation settlement
152
-
-
152
Medicare cap sequestration adjustment
(138)
-
-
(138)
Excess tax benefits on stock compensation
-
-
11,702
11,702
Total
$
14
$
-
$
7,799
$
7,813


CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2019
(in thousands)(unaudited)

							Chemed
	VITAS		Roto-Rooter		Corporate		Consolidated
2019 (a)
Service revenues and sales	$	306,781	$	155,253	$	-	$	462,034
Cost of services provided and goods sold		239,743		82,208		-		321,951
Selling, general and administrative expenses		21,536		39,601		12,892		74,029
Depreciation		4,708		4,963		39		9,710
Amortization		18		501		-		519
Other operating expenses		6,354		(1)		-		6,353
Total costs and expenses		272,359		127,272		12,931		412,562
Income/(loss) from operations		34,422		27,981		(12,931)		49,472
Interest expense		(47)		(95)		(982)		(1,124)
Intercompany interest income/(expense)		4,394		2,195		(6,589)		-
Other income—net		88		14		2,337		2,439
Income/(expense) before income taxes		38,857		30,095		(18,165)		50,787
Income taxes		(9,569)		(7,109)		10,558		(6,120)
Net income/(loss)	$	29,288	$	22,986	$	(7,607)	$	44,667

(a) The following amounts are included in net income (in thousands):
							Chemed
	VITAS		Roto-Rooter		Corporate		Consolidated
Pretax benefit/(cost):
Litigation settlement	$	(6,000)	$	-	$	-	$	(6,000)
Stock option expense		-		-		(4,089)		(4,089)
Long-term incentive compensation		-		-		(1,488)		(1,488)
Non cash ASC 842 (expenses)/benefit		(656)		(55)		163		(548)
Medicare cap sequestration adjustment		(515)		-		-		(515)
Acquisition expenses		-		(441)		-		(441)
Amortization of reacquired franchise agreements		-		-		(120)		(120)
Total	$	(7,171)	$	(496)	$	(5,534)	$	(13,201)

							Chemed
	VITAS		Roto-Rooter		Corporate		Consolidated
After-tax benefit/(cost):
Litigation settlement	$	(4,476)	$	-	$	-	$	(4,476)
Stock option expense		-		-		(3,327)		(3,327)
Long-term incentive compensation		-		-		(1,230)		(1,230)
Non cash ASC 842 (expenses)/benefit		(489)		(40)		124		(405)
Medicare cap sequestration adjustment		(387)		-		-		(387)
Acquisition expenses		-		(324)		-		(324)
Amortization of reacquired franchise agreements		-		-		(91)		(91)
Excess tax benefits on stock compensation				-		6,732		6,732
Total	$	(5,352)	$	(364)	$	2,208	$	(3,508)

‎

~~-34-~~-31-

CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2019
(in thousands)(unaudited)
Chemed
VITAS
Roto-Rooter
Corporate
Consolidated
2019 (a)
Service revenues and sales
$
619,531
$
316,087
$
-
$
935,618
Cost of services provided and goods sold
480,847
164,741
-
645,588
Selling, general and administrative expenses
43,218
78,978
23,389
145,585
Depreciation
9,539
9,980
78
19,597
Amortization
35
890
-
925
Other operating expenses
6,423
234
2,266
8,923
Total costs and expenses
540,062
254,823
25,733
820,618
Income/(loss) from operations
79,469
61,264
(25,733)
115,000
Interest expense
(101)
(194)
(2,066)
(2,361)
Intercompany interest income/(expense)
8,777
4,375
(13,152)
-
Other income/(expense)—net
188
56
2,208
2,452
Income/(expense) before income taxes
88,333
65,501
(38,743)
115,091
Income taxes
(21,707)
(15,339)
17,351
(19,695)
Net income/(loss)
$
66,626
$
50,162
$
(21,392)
$
95,396
(a) The following amounts are included in net income (in thousands):
Chemed
VITAS
Roto-Rooter
Corporate
Consolidated
Pretax benefit/(cost):
Stock option expense
$
-
$
-
$
(8,018)
$
(8,018)
Litigation settlement
(6,000)
-
-
(6,000)
Long-term incentive compensation
-
-
(2,874)
(2,874)
Impairment loss on transportation equipment
-
-
(2,266)
(2,266)
Medicare cap sequestration adjustment
(2,204)
-
-
(2,204)
Amortization of acquired and cancelled franchise agreements
-
(772)
-
(772)
Non cash ASC 842 (expenses)/benefit
(656)
(55)
163
(548)
Acquisition expenses
-
(97)
(120)
(217)
Total
$
(8,860)
$
(924)
$
(13,115)
$
(22,899)
Chemed
VITAS
Roto-Rooter
Corporate
Consolidated
After-tax benefit/(cost):
Stock option expense
$
-
$
-
$
(6,524)
$
(6,524)
Litigation settlement
(4,476)
-
-
(4,476)
Long-term incentive compensation
-
-
(2,429)
(2,429)
Impairment loss on transportation equipment
-
-
(1,733)
(1,733)
Medicare cap sequestration adjustment
(1,640)
-
-
(1,640)
Amortization of acquired and cancelled franchise agreements
-
(568)
-
(568)
Non cash ASC 842 (expenses)/benefit
(490)
(40)
124
(406)
Acquisition expenses
-
(71)
(91)
(162)
Excess tax benefits on stock compensation
-
-
9,944
9,944
Total
$
(6,606)
$
(679)
$
(709)
$
(7,994)

~~-35-~~

CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2018
(in thousands)(unaudited)
Chemed
VITAS
Roto-Rooter
Corporate
Consolidated
2018 (a)
Service revenues and sales
$
588,813
$
292,176
$
-
$
880,989
Cost of services provided and goods sold
460,329
149,948
-
610,277
Selling, general and administrative expenses
41,213
72,006
24,078
137,297
Depreciation
9,846
9,072
67
18,985
Amortization
-
61
-
61
Other operating expenses
(84)
(85)
-
(169)
Total costs and expenses
511,304
231,002
24,145
766,451
Income/(loss) from operations
77,509
61,174
(24,145)
114,538
Interest expense
(104)
(184)
(2,443)
(2,731)
Intercompany interest income/(expense)
6,218
3,417
(9,635)
-
Other income—net
380
37
1,639
2,056
Income/(expense) before income taxes
84,003
64,444
(34,584)
113,863
Income taxes
(20,203)
(16,208)
22,515
(13,896)
Net income/(loss)
$
63,800
$
48,236
$
(12,069)
$
99,967
(a) The following amounts are included in net income (in thousands):
Chemed
VITAS
Roto-Rooter
Corporate
Consolidated
Pretax benefit/(cost):
Stock option expense
$
-
$
-
$
(7,305)
$
(7,305)
Long-term incentive compensation
-
-
(3,142)
(3,142)
Medicare cap sequestration adjustment
(537)
-
-
(537)
Litigation settlement
204
-
-
204
Total
$
(333)
$
-
$
(10,447)
$
(10,780)
Chemed
VITAS
Roto-Rooter
Corporate
Consolidated
After-tax benefit/(cost):
Stock option expense
$
-
$
-
$
(5,791)
$
(5,791)
Long-term incentive compensation
-
-
(2,502)
(2,502)
Medicare cap sequestration adjustment
(401)
-
-
(401)
Litigation settlement
152
-
-
152
Excess tax benefits on stock compensation
-
-
15,500
15,500
Total
$
(249)
$
-
$
7,207
$
6,958

~~-36-~~

Unaudited Consolidating Summary and Reconciliation of Adjusted EBITDA
Chemed Corporation and Subsidiary Companies
(in thousands)
Chemed
For the three months ended June 30, 2019
VITAS
Roto-Rooter
Corporate
Consolidated
Net income/(loss)
$
37,339
$
27,175
$
(13,785)
$
50,729
Add/(deduct):
Interest expense
53
100
1,084
1,237
Income taxes
12,137
8,231
(6,793)
13,575
Depreciation
4,831
5,017
39
9,887
Amortization
18
388
-
406
EBITDA
54,378
40,911
(19,455)
75,834
Add/(deduct):
Intercompany interest expense/(income)
(4,382)
(2,180)
6,562
-
Interest income
(69)
(43)
-
(112)
Stock option expense
-
-
3,929
3,929
Impairment loss on transportation equipment
-
-
2,266
2,266
Medicare cap sequestration adjustment
1,689
-
-
1,689
Long-term incentive compensation
-
-
1,386
1,386
Acquisition expense
-
97
-
97
Adjusted EBITDA
$
51,616
$
38,785
$
(5,312)
$
85,089
Chemed
For the three months ended June 30, 2018
VITAS
Roto-Rooter
Corporate
Consolidated
Net income/(loss)
$
31,785
$
25,298
$
(2,112)
$
54,971
Add/(deduct):
Interest expense
53
92
1,379
1,524
Income taxes
9,565
8,196
(15,077)
2,684
Depreciation
5,050
4,628
40
9,718
Amortization
-
34
-
34
EBITDA
46,453
38,248
(15,770)
68,931
Add/(deduct):
Intercompany interest expense/(income)
(3,124)
(1,739)
4,863
-
Interest income
(237)
(22)
-
(259)
Stock option expense
-
-
3,652
3,652
Long-term incentive compensation
-
-
1,222
1,222
Litigation settlement
(204)
-
-
(204)
Medicare cap sequestration adjustment
185
-
-
185
Amortization of stock awards
37
35
83
155
Adjusted EBITDA
$
43,110
$
36,522
$
(5,950)
$
73,682


Unaudited Consolidating Summary and Reconciliation of Adjusted EBITDA

Chemed Corporation and Subsidiary Companies
(in thousands)								Chemed
For the three months ended March 31, 2020		VITAS		Roto-Rooter		Corporate		Consolidated

	Net income/(loss)	$	41,279	$	24,322	$	(9,710)	$	55,891
	Add/(deduct):
	Interest expense		45		102		828		975
	Income taxes		13,739		7,784		(8,492)		13,031
	Depreciation		5,474		5,878		36		11,388
	Amortization		18		2,459		-		2,477
	EBITDA		60,555		40,545		(17,338)		83,762
	Add/(deduct):
	Intercompany interest expense/(income)		(4,386)		(1,349)		5,735		-
	Interest income		(68)		(40)		-		(108)
	Stock option expense		-		-		5,045		5,045
	Direct costs related to COVID-19		973		861		-		1,834
	Long-term incentive compensation		-		-		1,821		1,821
	Medicare cap sequestration adjustment		675		-		-		675
	Adjusted EBITDA	$	57,749	$	40,017	$	(4,737)	$	93,029

								Chemed
For the three months ended March 31, 2019		VITAS		Roto-Rooter		Corporate		Consolidated

	Net income/(loss)	$	29,288	$	22,986	$	(7,607)	$	44,667
	Add/(deduct):
	Interest expense		47		95		982		1,124
	Income taxes		9,569		7,109		(10,558)		6,120
	Depreciation		4,708		4,963		39		9,710
	Amortization		18		501		-		519
	EBITDA		43,630		35,654		(17,144)		62,140
	Add/(deduct):
	Intercompany interest expense/(income)		(4,394)		(2,195)		6,589		-
	Interest income		(88)		(14)		-		(102)
	Litigation settlement		6,000		-		-		6,000
	Non cash ASC 842 expenses/(benefit)		656		55		(163)		548
	Medicare cap sequestration adjustment		515		-		-		515
	Acquisition expense		-		-		120		120
	Stock option expense		-		-		4,089		4,089
	Long-term incentive compensation		-		-		1,488		1,488
	Adjusted EBITDA	$	46,319	$	33,500	$	(5,021)	$	74,798

‎

~~-37-~~-32-

Unaudited Consolidating Summary and Reconciliation of Adjusted EBITDA
Chemed Corporation and Subsidiary Companies
(in thousands)
Chemed
For the six months ended June 30, 2019
VITAS
Roto-Rooter
Corporate
Consolidated
Net income/(loss)
$
66,626
$
50,162
$
(21,392)
$
95,396
Add/(deduct):
Interest expense
101
194
2,066
2,361
Income taxes
21,707
15,339
(17,351)
19,695
Depreciation
9,539
9,980
78
19,597
Amortization
35
890
-
925
EBITDA
98,008
76,565
(36,599)
137,974
Add/(deduct):
Intercompany interest expense/(income)
(8,777)
(4,375)
13,152
-
Interest income
(157)
(56)
-
(213)
Stock option expense
-
-
8,018
8,018
Litigation settlement
6,000
-
-
6,000
Long-term incentive compensation
-
-
2,874
2,874
Impairment loss on transportation equipment
-
-
2,266
2,266
Medicare cap sequestration adjustment
2,204
-
-
2,204
Non cash ASC 842 expenses/(benefit)
656
55
(163)
548
Acquisition expenses
-
97
120
217
Adjusted EBITDA
$
97,934
$
72,286
$
(10,332)
$
159,888
Chemed
For the six months ended June 30, 2018
VITAS
Roto-Rooter
Corporate
Consolidated
Net income/(loss)
$
63,800
$
48,236
$
(12,069)
$
99,967
Add/(deduct):
Interest expense
104
184
2,443
2,731
Income taxes
20,203
16,208
(22,515)
13,896
Depreciation
9,846
9,072
67
18,985
Amortization
-
61
-
61
EBITDA
93,953
73,761
(32,074)
135,640
Add/(deduct):
Intercompany interest expense/(income)
(6,218)
(3,417)
9,635
-
Interest income
(380)
(37)
-
(417)
Stock option expense
-
-
7,305
7,305
Long-term incentive compensation
-
-
3,142
3,142
Medicare cap sequestration adjustment
537
-
-
537
Stock award amortization
107
100
239
446
Litigation settlement
(204)
-
-
(204)
Adjusted EBITDA
$
87,795
$
70,407
$
(11,753)
$
146,449



RECONCILIATION OF ADJUSTED NET INCOME
(in thousands, except per share data)(unaudited)

	Three Months Ended March 31,
	2020		2019
Net income as reported	$	55,891	$	44,667

Add/(deduct) pre-tax cost of:
Stock option expense		5,045		4,089
Amortization of reacquired franchise agreements		2,352		441
Direct costs related to COVID-19		1,834		-
Long-term incentive compensation		1,821		1,488
Medicare cap sequestration adjustment		675		515
Litigation settlement		-		6,000
Acquisition expense		-		120
Non cash ASC 842 expense		-		548
Add/(deduct) tax impacts:
Tax impact of the above pre-tax adjustments (1)		(2,350)		(2,961)
Excess tax benefits on stock compensation		(4,553)		(6,732)
Adjusted net income	$	60,715	$	48,175

Diluted Earnings Per Share As Reported
Net income	$	3.38	$	2.70
Average number of shares outstanding		16,516		16,525

Adjusted Diluted Earnings Per Share
Adjusted net income	$	3.68	$	2.92
Adjusted average number of shares outstanding		16,516		16,525

(1) The tax impact of pre-tax adjustments was calculated using the effective tax rate of the operating unit for which each adjustment is associated.

~~-38-~~-33-

RECONCILIATION OF ADJUSTED NET INCOME
(in thousands, except per share data)(unaudited)
Three Months Ended June 30,
Six Months Ended June 30,
2019
2018
2019
2018
Net income as reported
$
50,729
$
54,971
$
95,396
$
99,967
Add/(deduct) pre-tax cost of:
Stock option expense
3,929
3,652
8,018
7,305
Litigation settlement
-
(204)
6,000
(204)
Long-term incentive compensation
1,386
1,222
2,874
3,142
Impairment loss on transportation equipment
2,266
-
2,266
-
Medicare cap sequestration adjustment
1,689
185
2,204
537
Amortization of acquired and cancelled franchise agreements
331
-
772
-
Non cash ASC 842 expenses
-
-
548
-
Acquisition expenses
97
-
217
-
Add/(deduct) tax impacts:
Tax impact of the above pre-tax adjustments (1)
(2,000)
(966)
(4,961)
(2,238)
Excess tax benefits on stock compensation
(3,212)
(11,702)
(9,944)
(15,500)
Adjusted net income
$
55,215
$
47,158
$
103,390
$
93,009
Diluted Earnings Per Share As Reported
Net income
$
3.08
$
3.27
$
5.79
$
5.93
Average number of shares outstanding
16,449
16,811
16,489
16,854
Adjusted Diluted Earnings Per Share
Adjusted net income
$
3.36
$
2.81
$
6.27
$
5.52
Adjusted average number of shares outstanding
16,449
16,811
16,489
16,854
(1) The tax impact of pre-tax adjustments was calculated using the effective tax rate of the operating unit for which each adjustment is associated.


CHEMED CORPORATION AND SUBSIDIARY COMPANIES
OPERATING STATISTICS FOR VITAS SEGMENT
(unaudited)
	Three Months Ended March 31,
OPERATING STATISTICS	2020			2019
Net revenue ($000)
Homecare	$	271,762		$	258,847
Inpatient		32,482			22,570
Continuous care		40,555			32,244
Other		3,147			2,010
Subtotal	$	347,946		$	315,671
Room and board, net		(3,381)			(2,542)
Contractual allowances		(4,149)			(2,948)
Medicare cap allowance		(2,500)			(3,400)
Total	$	337,916		$	306,781
Net revenue as a percent of total before Medicare cap allowances
Homecare		78.1	%		82.0	%
Inpatient		9.3			7.1
Continuous care		11.7			10.2
Other		0.9			0.7
Subtotal		100.0			100.0
Room and board, net		(1.0)			(0.9)
Contractual allowances		(1.2)			(1.0)
Medicare cap allowance		(0.7)			(0.9)
Total		97.1	%		97.2	%
Days of care
Homecare		1,364,746			1,281,899
Nursing home		303,374			289,769
Respite		6,692			6,301
Subtotal routine homecare and respite		1,674,812			1,577,969
Inpatient		32,348			29,150
Continuous care		41,373			43,923
Total		1,748,533			1,651,042
Number of days in relevant time period		91			90
Average daily census (days)
Homecare		14,997			14,243
Nursing home		3,334			3,220
Respite		74			70
Subtotal routine homecare and respite		18,405			17,533
Inpatient		355			324
Continuous care		455			488
Total		19,215			18,345
Total Admissions		18,603			17,758
Total Discharges		18,196			17,739
Average length of stay (days)		90.7			91.3
Median length of stay (days)		14.0			15.0
ADC by major diagnosis
Cerebro		35.9	%		35.6	%
Neurological		21.4			19.9
Cancer		12.7			13.1
Cardio		15.9			16.9
Respiratory		8.3			8.2
Other		5.8			6.3
Total		100.0	%		100.0	%
Admissions by major diagnosis
Cerebro		21.1			20.7	%
Neurological		12.5			12.8
Cancer		28.3			28.0
Cardio		15.1			16.3
Respiratory		12.2			12.0
Other		10.8			10.2
Total		100.0	%		100.0	%

Estimated uncollectible accounts as a percent of revenues		1.2	%		1.0	%
Accounts receivable --
Days of revenue outstanding- excluding unapplied Medicare payments		33.9			34.9
Days of revenue outstanding- including unapplied Medicare payments		26.1			23.3

‎

~~-39-~~-

CHEMED CORPORATION AND SUBSIDIARY COMPANIES
OPERATING STATISTICS FOR VITAS SEGMENT
(unaudited)
Three Months Ended June 30,
Six Months Ended June 30,
OPERATING STATISTICS
2019
2018
2019
2018
Net revenue ($000)
Homecare
$
266,461
$
250,381
$
525,312
$
491,412
Inpatient
22,894
20,077
45,464
42,186
Continuous care
30,786
30,513
63,030
61,279
Other
2,237
1,998
4,242
3,740
Subtotal
$
322,378
$
302,969
$
638,048
$
598,617
Room and board, net
(2,710)
(2,675)
(5,252)
(5,294)
Contractual allowances
(3,720)
(2,959)
(6,667)
(5,792)
Medicare cap allowance
(3,198)
(536)
(6,598)
1,282
Total
$
312,750
$
296,799
$
619,531
$
588,813
Net revenue as a percent of total before Medicare cap allowances
Homecare
82.7
%
82.6
%
82.3
%
82.1
%
Inpatient
7.1
6.6
7.1
7.0
Continuous care
9.5
10.1
9.9
10.2
Other
0.7
0.7
0.7
0.7
Subtotal
100.0
100.0
100.0
100.0
Room and board, net
(0.8)
(0.9)
(0.8)
(0.9)
Contractual allowances
(1.2)
(1.0)
(1.0)
(1.0)
Medicare cap allowance
(1.0)
(0.1)
(1.0)
0.3
Total
97.0
%
98.0
%
97.2
%
98.4
%
Average daily census (days)
Homecare
14,482
13,583
14,364
13,375
Nursing home
3,382
3,275
3,318
3,245
Routine homecare
17,864
16,858
17,682
16,620
Inpatient
358
318
359
335
Continuous care
459
467
474
473
Total
18,681
17,643
18,515
17,428
Total Admissions
17,491
16,658
35,249
35,137
Total Discharges
17,008
16,474
34,350
34,054
Average length of stay (days)
91.1
89.0
91.2
88.4
Median length of stay (days)
16.0
17.0
15.0
16.0
ADC by major diagnosis
Cerebro
35.7
%
36.2
%
35.8
%
36.4
%
Neurological
20.4
18.6
20.2
18.6
Cancer
12.7
13.9
12.7
13.9
Cardio
17.0
16.6
16.9
16.4
Respiratory
8.2
8.3
8.2
8.2
Other
6.0
6.4
6.2
6.5
Total
100.0
%
100.0
%
100.0
%
100.0
%
Admissions by major diagnosis
Cerebro
20.6
21.7
%
20.7
%
22.2
%
Neurological
12.2
11.1
12.5
11.2
Cancer
29.2
30.5
28.6
29.2
Cardio
16.0
15.6
16.1
15.6
Respiratory
11.7
10.8
11.8
11.3
Other
10.3
10.3
10.3
10.5
Total
100.0
%
100.0
%
100.0
%
100.0
%
Estimated uncollectible accounts as a percent of revenues
1.2
%
1.0
%
1.1
%
1.0
%
Accounts receivable --
Days of revenue outstanding- excluding unapplied Medicare payments
32.7
31.9
N.A.
N.A.
Days of revenue outstanding- including unapplied Medicare payments
27.7
25.6
N.A.
N.A.

~~-40-~~-

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

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

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Company’s primary market risk exposure relates to interest rate risk exposure through its variable interest line of credit. At ~~June 30, 2019,~~March 31, 2020, the Company had ~~$85.0~~$160.0 million of variable rate debt outstanding. For each $10 million dollars borrowed under the credit facility, an increase or decrease of 100 basis points (1% point), 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. ~~Except as discussed below, there~~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.~~

In the first quarter of 2019, we implemented a new lease accounting system and process in response to the adoption of ASC 842, effective January 1, 2019. These implementations resulted in changes to components of our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

For information regarding the Company’s legal proceedings, see note 11, Legal and Regulatory Matters, under Part I, Item I of this Quarterly Report on Form 10-Q.

Item 1A. Risk Factors

The recent COVID-19 pandemic could have a material adverse effect on our business operations, results of operations, cash flows and financial position.

We are closely monitoring the impact of the COVID-19 pandemic on all aspects of our business and geographies, including how it will impact our customers, team members, suppliers, vendors, business partners and distribution channels. The COVID-19 pandemic has created significant volatility, uncertainty and economic disruption, which will adversely affect our business operations and may materially and adversely affect our results of operations, cash flows and financial position.

For additional information regarding specific risk factors related to the COVID-19 pandemic, see Management’s Discussion and Analysis of Financial Condition and Results of Operation under Part I., Item 2 of this Quarterly Report on Form 10-Q. There have been no other material changes from the risk factors previously disclosed in the Company’s most recent Annual Report on Form 10-K.

~~-41-~~-35-

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

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

The following table shows the activity related to our share repurchase program for the first ~~six~~three months of ~~2019:~~2020:

Total Number
Weighted Average
Cumulative Shares
Dollar Amount
of Shares
Price Paid Per
Repurchased Under
Remaining Under
Repurchased
Share
the Program
The Program
February 2011 Program
January 1 through January 31, 2019
-
$
-
8,376,864
$
46,649,495
February 1 through February 28, 2019
91,893
327.84
8,468,757
166,522,918
March 1 through March 31, 2019
58,107
329.10
8,526,864
$
147,399,943
First Quarter Total
150,000
$
328.33
April 1 through April 30, 2019
-
$
-
8,526,864
$
147,399,943
May 1 through May 31, 2019
69,009
328.59
8,595,873
124,723,950
June 1 through June 30, 2019
-
-
8,595,873
$
124,723,950
Second Quarter Total
69,009
$
328.59
On February 25, 2019 our Board of Directors authorized an additional $150 million under the February 2011 Repurchase
Program.



	Total Number	Weighted Average		Cumulative Shares	Dollar Amount
	of Shares	Price Paid Per		Repurchased Under	Remaining Under
	Repurchased	Share		the Program	The Program

February 2011 Program
January 1 through January 31, 2020	-	$	-	8,645,873	$	104,018,683
February 1 through February 29, 2020	110,497		457.73	8,756,370		53,440,502
March 1 through March 31, 2019	114,503		433.67	8,870,873	$	253,783,766

First Quarter Total	225,000	$	445.49

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

‎

~~-42-~~-36-

Item 6. Exhibits



Exhibit No.		Description

31.1		Certification by Kevin J. McNamara pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act of 1934.

31.2		Certification by David P. Williams pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act of 1934.

31.3		Certification by Michael D. Witzeman 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 Michael D. Witzeman pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

~~101.INS~~		~~XBRL Instance Document~~

~~101.SCH~~101		~~XBRL Taxonomy Extension Schema~~The following materials from Chemed Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) The Condensed Consolidated Balance Sheet, (ii) The Condensed Consolidated Statement of Income, (iii) The Condensed Consolidated Statement of Cash Flows, (iv) The Condensed Statement of Equity, and (v) Notes to the Condensed Consolidated Financial Statements.
104
~~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~~

		The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, formatted in iXBRL and contained in Exhibit 101.

‎

~~-43-~~-37-

SIGNATURES

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


			Chemed Corporation
			(Registrant)


Dated:	~~July 31, 2019~~May 1, 2020	By:	/s/ Kevin J. McNamara
			Kevin J. McNamara
			(President and Chief Executive Officer)


Dated:	~~July 31, 2019~~May 1, 2020	By:	/s/ David P. Williams
			David P. Williams
			(Executive Vice President and Chief Financial Officer)


Dated:	~~July 31, 2019~~May 1, 2020	By:	/s/ Michael D. Witzeman
			Michael D. Witzeman
			(Vice President and Controller)

~~-44-~~-38-


			Net Income
For the Three Months Ended June 30,		Income		Shares	Earnings per Share
2019
	Earnings	$	50,729	15,928	$	3.18
	Dilutive stock options		-	449
	Nonvested stock awards		-	72
	Diluted earnings	$	50,729	16,449	$	3.08

2018
	Earnings	$	54,971	16,035	$	3.43
	Dilutive stock options		-	674
	Nonvested stock awards		-	102
	Diluted earnings	$	54,971	16,811	$	3.27


			Net Income
For the Six Months Ended June 30,		Income		Shares	Earnings per Share
2019
	Earnings	$	95,396	15,941	$	5.98
	Dilutive stock options		-	474
	Nonvested stock awards		-	74
	Diluted earnings	$	95,396	16,489	$	5.79

2018
	Earnings	$	99,967	16,067	$	6.22
	Dilutive stock options		-	683
	Nonvested stock awards		-	104
	Diluted earnings	$	99,967	16,854	$	5.93


Maturity of Operating Lease Liabilities (in thousands)

2019	$	26,791
2020		24,152
2021		19,669
2022		13,851
2023		8,179
Thereafter		10,974
Total lease payments	$	103,616


CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 2019
(in thousands)(unaudited)

							Chemed
	VITAS		Roto-Rooter		Corporate		Consolidated
2019 (a)
Service revenues and sales	$	312,750	$	160,834	$	-	$	473,584
Cost of services provided and goods sold		241,104		82,533		-		323,637
Selling, general and administrative expenses		21,682		39,377		10,497		71,556
Depreciation		4,831		5,017		39		9,887
Amortization		18		388		-		406
Other operating expense		69		235		2,266		2,570
Total costs and expenses		267,704		127,550		12,802		408,056
Income/(loss) from operations		45,046		33,284		(12,802)		65,528
Interest expense		(53)		(100)		(1,084)		(1,237)
Intercompany interest income/(expense)		4,382		2,180		(6,562)		-
Other income—net		101		42		(130)		13
Income/(expense) before income taxes		49,476		35,406		(20,578)		64,304
Income taxes		(12,137)		(8,231)		6,793		(13,575)
Net income/(loss)	$	37,339	$	27,175	$	(13,785)	$	50,729

(a) The following amounts are included in net income (in thousands):
							Chemed
		VITAS	Roto-Rooter		Corporate		Consolidated
Pretax benefit/(cost):
Stock option expense	$	-	$	-	$	(3,929)	$	(3,929)
Impairment loss on transportation equipment		-		-		(2,266)		(2,266)
Medicare cap sequestration		(1,689)		-		-		(1,689)
Long-term incentive compensation		-		-		(1,386)		(1,386)
Amortization of acquired and cancelled franchise agreements		-		(331)		-		(331)
Acquisition expenses		-		(97)		-		(97)
Total	$	(1,689)	$	(428)	$	(7,581)	$	(9,698)

							Chemed
		VITAS	Roto-Rooter		Corporate		Consolidated
After-tax benefit/(cost):
Stock option expense	$	-	$	-	$	(3,197)	$	(3,197)
Impairment loss on transportation equipment		-		-		(1,733)		(1,733)
Medicare cap sequestration		(1,253)	$	-		-		(1,253)
Long-term incentive compensation		-		-		(1,199)		(1,199)
Amortization of acquired and cancelled franchise agreements		-		(244)		-		(244)
Acquisition expenses		-		(71)		-		(71)
Non cash ASC 842 expenses		(1)		-		-		(1)
Excess tax benefits on stock compensation		-		-		3,212		3,212
Total	$	(1,254)	$	(315)	$	(2,917)	$	(4,486)


CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 2018
(in thousands)(unaudited)

							Chemed
	VITAS		Roto-Rooter		Corporate		Consolidated
2018 (a)
Service revenues and sales	$	296,799	$	145,014	$	-	$	441,813
Cost of services provided and goods sold		233,073		72,668		-		305,741
Selling, general and administrative expenses		20,702		35,909		11,686		68,297
Depreciation		5,050		4,628		40		9,718
Amortization		-		34		-		34
Other operating expenses		(67)		(51)		-		(118)
Total costs and expenses		258,758		113,188		11,726		383,672
Income/(loss) from operations		38,041		31,826		(11,726)		58,141
Interest expense		(53)		(92)		(1,379)		(1,524)
Intercompany interest income/(expense)		3,124		1,739		(4,863)		-
Other income—net		238		21		779		1,038
Income/(expense) before income taxes		41,350		33,494		(17,189)		57,655
Income taxes		(9,565)		(8,196)		15,077		(2,684)
Net income/(loss)	$	31,785	$	25,298	$	(2,112)	$	54,971

(a) The following amounts are included in net income (in thousands):
							Chemed
		VITAS	Roto-Rooter		Corporate		Consolidated
Pretax benefit/(cost):
Stock option expense	$	-	$	-	$	(3,652)	$	(3,652)
Long-term incentive compensation		-		-		(1,222)		(1,222)
Litigation settlement		204		-		-		204
Medicare cap sequestration adjustment		(185)		-		-		(185)
Total	$	19	$	-	$	(4,874)	$	(4,855)

							Chemed
		VITAS	Roto-Rooter		Corporate		Consolidated
After-tax benefit/(cost):
Stock option expense	$	-	$	-	$	(2,900)	$	(2,900)
Long-term incentive compensation		-		-		(1,003)		(1,003)
Litigation settlement		152		-		-		152
Medicare cap sequestration adjustment		(138)		-		-		(138)
Excess tax benefits on stock compensation		-		-		11,702		11,702
Total	$	14	$	-	$	7,799	$	7,813



CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2019
(in thousands)(unaudited)

							Chemed
	VITAS		Roto-Rooter		Corporate		Consolidated
2019 (a)
Service revenues and sales	$	619,531	$	316,087	$	-	$	935,618
Cost of services provided and goods sold		480,847		164,741		-		645,588
Selling, general and administrative expenses		43,218		78,978		23,389		145,585
Depreciation		9,539		9,980		78		19,597
Amortization		35		890		-		925
Other operating expenses		6,423		234		2,266		8,923
Total costs and expenses		540,062		254,823		25,733		820,618
Income/(loss) from operations		79,469		61,264		(25,733)		115,000
Interest expense		(101)		(194)		(2,066)		(2,361)
Intercompany interest income/(expense)		8,777		4,375		(13,152)		-
Other income/(expense)—net		188		56		2,208		2,452
Income/(expense) before income taxes		88,333		65,501		(38,743)		115,091
Income taxes		(21,707)		(15,339)		17,351		(19,695)
Net income/(loss)	$	66,626	$	50,162	$	(21,392)	$	95,396


(a) The following amounts are included in net income (in thousands):
							Chemed
		VITAS	Roto-Rooter		Corporate		Consolidated
Pretax benefit/(cost):
Stock option expense	$	-	$	-	$	(8,018)	$	(8,018)
Litigation settlement		(6,000)		-		-		(6,000)
Long-term incentive compensation		-		-		(2,874)		(2,874)
Impairment loss on transportation equipment		-		-		(2,266)		(2,266)
Medicare cap sequestration adjustment		(2,204)		-		-		(2,204)
Amortization of acquired and cancelled franchise agreements		-		(772)		-		(772)
Non cash ASC 842 (expenses)/benefit		(656)		(55)		163		(548)
Acquisition expenses		-		(97)		(120)		(217)
Total	$	(8,860)	$	(924)	$	(13,115)	$	(22,899)

							Chemed
		VITAS	Roto-Rooter		Corporate		Consolidated
After-tax benefit/(cost):
Stock option expense	$	-	$	-	$	(6,524)	$	(6,524)
Litigation settlement		(4,476)		-		-		(4,476)
Long-term incentive compensation		-		-		(2,429)		(2,429)
Impairment loss on transportation equipment		-		-		(1,733)		(1,733)
Medicare cap sequestration adjustment		(1,640)		-		-		(1,640)
Amortization of acquired and cancelled franchise agreements		-		(568)		-		(568)
Non cash ASC 842 (expenses)/benefit		(490)		(40)		124		(406)
Acquisition expenses		-		(71)		(91)		(162)
Excess tax benefits on stock compensation		-		-		9,944		9,944
Total	$	(6,606)	$	(679)	$	(709)	$	(7,994)



CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2018
(in thousands)(unaudited)

							Chemed
	VITAS		Roto-Rooter		Corporate		Consolidated
2018 (a)
Service revenues and sales	$	588,813	$	292,176	$	-	$	880,989
Cost of services provided and goods sold		460,329		149,948		-		610,277
Selling, general and administrative expenses		41,213		72,006		24,078		137,297
Depreciation		9,846		9,072		67		18,985
Amortization		-		61		-		61
Other operating expenses		(84)		(85)		-		(169)
Total costs and expenses		511,304		231,002		24,145		766,451
Income/(loss) from operations		77,509		61,174		(24,145)		114,538
Interest expense		(104)		(184)		(2,443)		(2,731)
Intercompany interest income/(expense)		6,218		3,417		(9,635)		-
Other income—net		380		37		1,639		2,056
Income/(expense) before income taxes		84,003		64,444		(34,584)		113,863
Income taxes		(20,203)		(16,208)		22,515		(13,896)
Net income/(loss)	$	63,800	$	48,236	$	(12,069)	$	99,967


(a) The following amounts are included in net income (in thousands):
							Chemed
		VITAS	Roto-Rooter		Corporate		Consolidated
Pretax benefit/(cost):
Stock option expense	$	-	$	-	$	(7,305)	$	(7,305)
Long-term incentive compensation		-		-		(3,142)		(3,142)
Medicare cap sequestration adjustment		(537)		-		-		(537)
Litigation settlement		204		-		-		204
Total	$	(333)	$	-	$	(10,447)	$	(10,780)

							Chemed
		VITAS	Roto-Rooter		Corporate		Consolidated
After-tax benefit/(cost):
Stock option expense	$	-	$	-	$	(5,791)	$	(5,791)
Long-term incentive compensation		-		-		(2,502)		(2,502)
Medicare cap sequestration adjustment		(401)		-		-		(401)
Litigation settlement		152		-		-		152
Excess tax benefits on stock compensation		-		-		15,500		15,500
Total	$	(249)	$	-	$	7,207	$	6,958