UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


(Mark One)


☒

x    Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended September 30, 2017


☐2022

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

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)


(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

☒

No

Yes  

☐

x

No  

o


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes

☒

No

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

☐

Large Accelerated Filer

x

Accelerated Filer

o

Non-accelerated Filer

o

Emerging growth company

Smaller Reporting Company

☐

o

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

☐

No

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:


Class

Amount

Date

Title of Each Class

Trading Symbol

Name of Each Exchange

on which Registered

Amount

Date

Capital Stock $1 Par Value

CHE

15,966,003

New York Stock Exchange

14,870,305 Shares

September 30, 20172022




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CHEMED CORPORATION AND

SUBSIDIARY COMPANIES

Index




Index

Page No.

Page No.

PART I. FINANCIAL INFORMATION:

Item 1. Financial Statements

Unaudited Consolidated Balance Sheets -

September 30, 20172022 and December 31, 2016

2021

3

Unaudited Consolidated Statements of Income -

Three and nine months ended September 30, 20172022 and 2016

2021

4

Unaudited Consolidated Statements of Cash Flows -

Nine months ended September 30, 20172022 and 2016

2021

5

Unaudited Consolidated Statements of Changes in Stockholders’ Equity-

Three and nine months ended September 30, 2022 and 2021

6

Notes to Unaudited Consolidated Financial Statements

6

8

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

16

23

Item 3. Quantitative and Qualitative Disclosures about Market Risk

34

40

Item 4. Controls and Procedures

34

40

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

34

40

Item 1A. Risk Factors

34

40

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

35

41

Item 3. Defaults Upon Senior Securities

35

41

Item 4. Mine Safety Disclosures

35

41

Item 5. Other Information

35

41

Item 6. Exhibits

36

42

EX – 31.1

EX – 31.2

EX – 31.3

EX – 32.1

EX – 32.2

EX – 32.3

EX – 101.INS101

EX – 101.SCH104

EX – 101.CAL
EX – 101.DEF
EX – 101.LAB
EX – 101.PRE


‎

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-2-

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CHEMED CORPORATION AND SUBSIDIARY COMPANIES

UNAUDITED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

September 30, 2022

December 31, 2021

ASSETS

Current assets

Cash and cash equivalents

$

7,781

$

32,895 

Accounts receivable

121,662

137,217 

Inventories

10,469

10,109 

Prepaid income taxes

27,526

17,377 

Prepaid expenses

31,431

32,688 

Total current assets

198,869

230,286 

Investments of deferred compensation plans

90,097

98,884 

Properties and equipment, at cost, less accumulated depreciation of $337,528 (2021- $317,911)

193,705

193,680 

Lease right of use asset

131,430

125,048 

Identifiable intangible assets less accumulated amortization of $65,203 (2021 - $57,648)

102,103

108,096 

Goodwill

579,887

578,591 

Other assets

60,104

8,138 

Total Assets

$

1,356,195

$

1,342,723 

LIABILITIES

Current liabilities

Accounts payable

$

77,170

$

73,024 

Current portion of long-term debt

5,000

-

Income taxes

-

41 

Accrued insurance

56,732

55,918 

Accrued compensation

67,230

95,598 

Accrued legal

653

872 

Short-term lease liability

39,813

37,913 

Other current liabilities

51,552

39,033 

Total current liabilities

298,150

302,399 

Deferred income taxes

33,590

23,183 

Long-term debt

95,850

185,000 

Deferred compensation liabilities

89,873

98,597 

Long-term lease liability

105,594

100,629 

Other liabilities

11,722

9,642 

Total Liabilities

634,779

719,450 

Commitments and contingencies (Note 10)

 

 

STOCKHOLDERS' EQUITY

Capital stock - authorized 80,000,000 shares $1 par; issued 36,670,460 shares (2021 - 36,513,857 shares)

36,670

36,514 

Paid-in capital

1,100,161

1,044,341 

Retained earnings

2,141,418

1,970,311 

Treasury stock - 21,866,038 shares (2021 - 21,601,325 shares)

(2,559,141)

(2,430,094)

Deferred compensation payable in Company stock

2,308

2,201 

Total Stockholders' Equity

721,416

623,273 

Total Liabilities and Stockholders' Equity

$

1,356,195

$

1,342,723 

See Accompanying Notes to Unaudited Consolidated Financial Statements.

PART I. FINANCIAL INFORMATION 
Item 1. Financial Statements 
CHEMED CORPORATION AND SUBSIDIARY COMPANIES 
UNAUDITED CONSOLIDATED BALANCE SHEETS
 
(in thousands, except share and per share data) 
       
       
       
  September 30, 2017  December 31, 2016 
ASSETS      
Current assets      
Cash and cash equivalents $18,871  $15,310 
Accounts receivable less allowances of $14,997 (2016 - $14,236)  91,483   132,021 
Inventories  5,658   5,755 
Prepaid income taxes  3,621   3,709 
Prepaid expenses  15,678   13,105 
Total current assets  135,311   169,900 
Investments of deferred compensation plans  60,445   54,389 
Properties and equipment, at cost, less accumulated depreciation of $227,036 (2016 - $211,290)  143,148   121,302 
Identifiable intangible assets less accumulated amortization of $32,862 (2016 - $33,225)  54,793   55,065 
Goodwill  473,024   472,366 
Deferred income taxes  21,893   8 
Other assets  6,845   7,029 
Total Assets $895,459  $880,059 
         
LIABILITIES        
Current liabilities        
Accounts payable $34,752  $39,586 
Current portion of long-term debt  10,000   8,750 
Income taxes  12,349   - 
Accrued insurance  44,584   47,960 
Accrued compensation  53,857   53,979 
Accrued legal  91,450   1,805 
Other current liabilities  22,382   19,752 
Total current liabilities  269,374   171,832 
Deferred income taxes  -   14,291 
Long-term debt  72,500   100,000 
Deferred compensation liabilities  59,389   54,288 
Other liabilities  16,494   15,549 
Total Liabilities  417,757   355,960 
Commitments and contingencies (Note 11)        
STOCKHOLDERS' EQUITY        
Capital stock - authorized 80,000,000 shares $1 par; issued 34,513,535 shares (2016 - 34,270,104 shares)  34,514   34,270 
Paid-in capital  668,573   639,703 
Retained earnings  988,895   958,149 
Treasury stock - 18,632,867 shares (2016 - 18,083,527)  (1,216,509)  (1,110,536)
Deferred compensation payable in Company stock  2,229   2,513 
Total Stockholders' Equity  477,702   524,099 
Total Liabilities and Stockholders' Equity $895,459  $880,059 
  
See accompanying notes to unaudited consolidated financial statements. 


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CHEMED CORPORATION AND SUBSIDIARY COMPANIES

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

Three Months Ended September 30,

Nine Months Ended September 30,

2022

2021

2022

2021

Service revenues and sales

$

526,472 

$

538,667 

$

1,588,309 

$

1,598,283 

Cost of services provided and goods sold (excluding depreciation)

346,934 

342,164 

1,020,307 

1,033,130 

Selling, general and administrative expenses

83,992 

89,217 

261,799 

274,654 

Depreciation

12,154 

11,844 

37,006 

37,171 

Amortization

2,520 

2,510 

7,558 

7,530 

Other operating expense/(income)

15 

63 

(530)

789 

Total costs and expenses

445,615 

445,798 

1,326,140 

1,353,274 

Income from operations

80,857 

92,869 

262,169 

245,009 

Interest expense

(1,271)

(583)

(2,983)

(1,343)

Other (expense)/income - net

(3,115)

3,134 

(11,907)

10,521 

Income before income taxes

76,471 

95,420 

247,279 

254,187 

Income taxes

(19,598)

(23,417)

(59,781)

(60,262)

Net income

$

56,873 

$

72,003 

$

187,498 

$

193,925 

Earnings Per Share:

Net income

$

3.82 

$

4.62 

$

12.55 

$

12.27 

Average number of shares outstanding

14,888 

15,587 

14,935 

15,808 

Diluted Earnings Per Share:

Net income

$

3.78 

$

4.55 

$

12.41 

$

12.06 

Average number of shares outstanding

15,042 

15,842 

15,114 

16,083 

Cash Dividends Per Share

$

0.38 

$

0.36 

$

1.10 

$

1.04 

See Accompanying Notes to Unaudited Consolidated Financial Statements.

CHEMED CORPORATION AND SUBSIDIARY COMPANIES 
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
 
(in thousands, except per share data) 
             
             
             
  Three Months Ended September 30,  Nine Months Ended September 30, 
  2017  2016  2017  2016 
Service revenues and sales $417,444  $392,607  $1,238,367  $1,173,405 
Cost of services provided and goods sold (excluding depreciation)  288,047   281,658   859,039   836,348 
Selling, general and administrative expenses  66,919   59,373   205,031   181,046 
Depreciation  8,819   8,614   26,545   25,619 
Amortization  33   91   111   274 
Other operating expenses/(income)  (371)  -   91,138   4,491 
Total costs and expenses  363,447   349,736   1,181,864   1,047,778 
Income from operations  53,997   42,871   56,503   125,627 
Interest expense  (1,048)  (1,018)  (3,164)  (2,831)
Other income - net  1,323   1,640   5,439   1,933 
Income before income taxes  54,272   43,493   58,778   124,729 
Income taxes  (18,835)  (16,664)  (15,153)  (48,175)
Net income $35,437  $26,829  $43,625  $76,554 
                 
Earnings Per Share                
Net income $2.22  $1.66  $2.72  $4.66 
Average number of shares outstanding  15,976   16,166   16,068   16,443 
                 
Diluted Earnings Per Share                
Net income $2.13  $1.62  $2.60  $4.54 
Average number of shares outstanding  16,676   16,559   16,763   16,851 
                 
Cash Dividends Per Share $0.28  $0.26  $0.80  $0.74 
                 
See accompanying notes to unaudited consolidated financial statements. 


‎

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CHEMED CORPORATION AND SUBSIDIARY COMPANIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Nine Months Ended September 30,

2022

2021

Cash Flows from Operating Activities

Net income

$

187,498 

$

193,925 

Adjustments to reconcile net income to net cash provided

by operating activities:

Depreciation and amortization

44,564 

44,701 

Stock option expense

19,343 

16,342 

Provision/(benefit) for deferred income taxes

10,408 

(561)

Noncash long-term incentive compensation

4,343 

5,344 

Noncash directors' compensation

1,170 

1,173 

Amortization of debt issuance costs

247 

229 

Litigation settlements paid previously accrued

-

(9,440)

Changes in operating assets and liabilities:

Decrease in accounts receivable

16,166 

9,247 

Increase in inventories

(360)

(1,299)

Decrease/(increase) in prepaid expenses

1,257 

(6,117)

Increase/(decrease) in accounts payable and other current liabilities

(15,765)

6,330 

Change in current income taxes

(10,277)

(15,749)

Net change in lease assets and liabilities

313 

15 

Increase in other assets

(42,424)

(13,561)

(Decrease)/increase in other liabilities

(6,555)

13,474 

Other (uses)/sources

(241)

974 

Net cash provided by operating activities

209,687 

245,027 

Cash Flows from Investing Activities

Capital expenditures

(39,066)

(44,472)

Proceeds from sale of fixed assets

2,037 

-

Business combinations, net of cash acquired

(2,044)

-

Other (uses)/sources

(841)

760 

Net cash used by investing activities

(39,914)

(43,712)

Cash Flows from Financing Activities

Payments on revolving line of credit

(299,400)

(1,500)

Proceeds from revolving line of credit

116,500 

1,500 

Proceeds from other long-term debt

100,000 

-

Payments on other long-term debt

(1,250)

-

Purchases of treasury stock

(101,539)

(330,380)

Proceeds from exercise of stock options

17,128 

17,918 

Dividends paid

(16,391)

(16,457)

Capital stock surrendered to pay taxes on stock-based compensation

(12,497)

(9,445)

Change in cash overdrafts payable

5,535 

3,054 

Debt issuance costs

(1,584)

-

Other (uses)/sources

(1,389)

63 

Net cash used by financing activities

(194,887)

(335,247)

Decrease in Cash and Cash Equivalents

(25,114)

(133,932)

Cash and cash equivalents at beginning of year

32,895 

162,675 

Cash and cash equivalents at end of period

$

7,781 

$

28,743 

See Accompanying Notes to Unaudited Consolidated Financial Statements.

CHEMED CORPORATION AND SUBSIDIARY COMPANIES 
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(in thousands) 
    
  Nine Months Ended September 30, 
  2017  2016 
Cash Flows from Operating Activities      
Net income $43,625  $76,554 
Adjustments to reconcile net income to net cash provided        
by operating activities:        
Depreciation and amortization  26,656   25,893 
Provision for uncollectible accounts receivable  12,953   12,132 
Stock option expense  7,738   6,259 
Benefit for deferred income taxes  (36,175)  (5,530)
Potential litigation settlement  90,000   - 
Noncash early retirement expense  -   1,747 
Amortization of restricted stock awards  933   1,415 
Noncash directors' compensation  766   541 
Noncash long-term incentive compensation  2,888   837 
Amortization of debt issuance costs  387   390 
Changes in operating assets and liabilities:        
Decrease in accounts receivable  27,534   8,061 
Decrease in inventories  97   213 
Increase in prepaid expenses  (2,573)  (1,646)
Increase/(decrease) in accounts payable and other current liabilities  2,448   (5,471)
Increase in income taxes  12,432   8,587 
Increase in other assets  (6,238)  (5,694)
Increase in other liabilities  6,046   6,835 
Excess tax benefit on share-based compensation  -   (2,974)
Other sources  1,472   204 
Net cash provided by operating activities  190,989   128,353 
Cash Flows from Investing Activities        
Capital expenditures  (50,247)  (29,708)
Business combinations  (525)  - 
Other sources/(uses)  116   (114)
Net cash used by investing activities  (50,656)  (29,822)
Cash Flows from Financing Activities        
Payments on revolving line of credit  (203,700)  (85,200)
Proceeds from revolving line of credit  183,700   110,200 
Purchases of treasury stock  (94,640)  (102,313)
Dividends paid  (12,879)  (12,215)
Proceeds from exercise of stock options  11,625   4,625 
Change in cash overdrafts payable  (8,139)  2,092 
Capital stock surrendered to pay taxes on stock-based compensation  (7,637)  (7,051)
Payments on other long-term debt  (6,250)  (5,625)
Excess tax benefit on share-based compensation  -   2,974 
Other sources  1,148   540 
Net cash used by financing activities  (136,772)  (91,973)
Increase in Cash and Cash Equivalents  3,561   6,558 
Cash and cash equivalents at beginning of year  15,310   14,727 
Cash and cash equivalents at end of period $18,871  $21,285 
         
See accompanying notes to unaudited consolidated financial statements. 


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CHEMED CORPORATION AND SUBSIDIARY COMPANIES

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(in thousands, except per share data)

For the three months ended September 30, 2022 and 2021:

Deferred

Compensation

Treasury

Payable in

Capital

Paid-in

Retained

Stock-

Company

Stock

Capital

Earnings

at Cost

Stock

Total

Balance at June 30, 2022

36,651 

1,089,129 

2,090,214 

(2,533,306)

2,272 

$

684,960 

Net income

-

-

56,873 

-

-

56,873 

Dividends paid ($0.38 per share)

-

-

(5,669)

-

-

(5,669)

Stock awards and exercise of stock options

19 

12,295 

-

(1,916)

-

10,398 

Purchases of treasury stock

-

-

-

(23,884)

-

(23,884)

Other

-

(1,263)

-

(35)

36 

(1,262)

Balance at September 30, 2022

$

36,670 

$

1,100,161 

$

2,141,418 

$

(2,559,141)

$

2,308 

$

721,416 

Deferred

Compensation

`

Treasury

Payable in

Capital

Paid-in

Retained

Stock-

Company

Stock

Capital

Earnings

at Cost

Stock

Total

Balance at June 30, 2021

36,385 

999,697 

1,834,835 

(2,002,326)

2,183 

870,774 

Net income

-

-

72,003 

-

-

72,003 

Dividends paid ($0.36 per share)

-

-

(5,593)

-

-

(5,593)

Stock awards and exercise of stock options

17 

8,233 

-

(1,426)

-

6,824 

Purchases of treasury stock

-

-

-

(163,731)

-

(163,731)

Other

-

(424)

-

(157)

23 

(558)

Balance at September 30, 2021

$

36,402 

$

1,007,506 

$

1,901,245 

$

(2,167,640)

$

2,206 

$

779,719 

See Accompanying Notes to Unaudited Consolidated Financial Statements.


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CHEMED CORPORATION AND SUBSIDIARY COMPANIES

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(in thousands, except per share data)

For the nine months ended September 30, 2022 and 2021:

Deferred

Compensation

Treasury

Payable in

Capital

Paid-in

Retained

Stock-

Company

Stock

Capital

Earnings

at Cost

Stock

Total

Balance at December 31, 2021

36,514 

1,044,341 

1,970,311 

(2,430,094)

2,201 

623,273 

Net income

-

-

187,498 

-

-

187,498 

Dividends paid ($1.10 per share)

-

-

(16,391)

-

-

(16,391)

Stock awards and exercise of stock options

156 

57,172 

-

(27,842)

-

29,486 

Purchases of treasury stock

-

-

-

(101,098)

-

(101,098)

Other

-

(1,352)

-

(107)

107 

(1,352)

Balance at September 30, 2022

$

36,670 

$

1,100,161 

$

2,141,418 

$

(2,559,141)

$

2,308 

$

721,416 

Deferred

Compensation

Treasury

Payable in

Capital

Paid-in

Retained

Stock-

Company

Stock

Capital

Earnings

at Cost

Stock

Total

Balance at December 31, 2020

36,259 

961,404 

1,723,777 

(1,822,579)

2,339 

901,200 

Net income

-

-

193,925 

-

-

193,925 

Dividends paid ($1.04 per share)

-

-

(16,457)

-

-

(16,457)

Stock awards and exercise of stock options

143 

45,870 

-

(14,681)

-

31,332 

Purchases of treasury stock

-

-

-

(330,380)

-

(330,380)

Other

-

232 

-

-

(133)

99 

Balance at September 30, 2021

$

36,402 

$

1,007,506 

$

1,901,245 

$

(2,167,640)

$

2,206 

$

779,719 

See Accompanying Notes to Unaudited Consolidated Financial Statements.


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Ye

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, 20162021 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. The results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022 or any other future period, and we make no representations related thereto. These financial statements are prepared on the same basis as and should be read in conjunction with the audited Consolidated Financial Statements and related notesNotes included in our Annual Report on Form 10-K for the year ended December 31, 2016.2021.

CORONAVIRUS IMPACT

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 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.

CLOUD COMPUTING

As of September 30, 2022, Roto-Rooter has one cloud computing arrangement that is a service contract. The system is a single source data warehouse that is to be integrated with our enterprise software. We have capitalized $497,000 related to this project. The data warehouse was placed into service in August 2022 and is being amortized over 36 months. For the three and nine months ended September 30, 2022, $28,000 has been amortized.

VITAS utilizes a human resources system that is considered a cloud computing arrangement. We have capitalized approximately $5.6 million related to implementation of this project which is 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 5.7 years. For the three months ended September 30, 2022 and 2021, $249,000 has been amortized. For the nine months ended September 30, 2022 and 2021, $746,000 and $697,000, respectively, has been amortized.

INCOME TAXES

Our effective income tax rate was 25.6% in the third quarter of 2022 compared to 24.5% during the third quarter of 2021. Excess tax benefit on stock options exercised reduced our income tax expenses by $450,000 and $1.2 million, respectively for the quarters ended September 30, 2022 and 2021.

Our effective income tax rate was 24.2% in the first nine months of 2022 compared to 23.7% during the first nine months of 2021. Excess tax benefit on stock options exercised reduced our income tax expenses by $4.4 million and $5.3 million, respectively for the first nine months ended September 30, 2022 and 2021

NON-CASH TRANSACTIONS

Included in the accompanying Consolidated Balance Sheets are $1.6 million and $1.9 million of capitalized property and equipment which were not paid for as of September 30, 2022 and December 31, 2021, respectively. Accrued property and equipment purchases 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.


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EARNINGS PER SHARE

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 Note 16 for discussion of recent acquisitions.

Quarterly amortization of intangible assets is mainly driven by two Roto-Rooter franchise acquisitions completed in 2019. The total purchase price of these acquisitions was $138.0 million. As part of the purchase price allocation, approximately $59.2 million was determined to be the value of reacquired franchise rights which are being amortized over the remaining life of each franchise agreement. The average remaining life on the reacquired franchise agreements was approximately seven years. Quarterly amortization of reacquired franchise rights for these two acquisitions is approximately $2.0 million ($8.1 million annualized through 2026). This contrasts to quarterly franchise fees historically collected from these two franchisees of approximately $470,000 ($1.9 million annualized).

ESTIMATES

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect amounts reported in the consolidated financial statements and accompanying Notes. Actual results could differ from those estimates. Disclosures of after-tax expenses and adjustments are based on estimates of the effective income tax rates for the applicable segments.

2.    Revenue Recognition

In March 2016,May 2014, the FASB issued Accounting Standards Update “ASU No. 2016-09 - Compensation2014-09 – Stock Compensation” whichRevenue from Contracts with Customers.” The standard and subsequent amendments are 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 partalso referred to as Accounting Standards Codification No. 606 (“ASC 606”).

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 FASB’s Simplification Initiative.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 objecttypes of this initiativehospice 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 to identify, evaluate,paid for each day that a patient is in a hospice program and improve areas of GAAP. The areas of simplification in this initiative involve several aspectsis not receiving one of the accountingother categories of hospice care.  For Medicare patients, the routine home care rate reflects a two-tiered rate, with a higher rate for share-basedthe first 60 days of a hospice patient’s care and a lower rate for days 61 and after.  In addition, there is a Service Intensity Add-on payment transactions,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

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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 income tax consequences, classificationpublished 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 awardstime 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 equitydays or liabilities, and classificationhours 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 statementservice output. VITAS believes this to be the most faithful depiction of cash flows.  The guidance was effective for fiscal years beginning after December 15, 2016.  We adopted the applicable provisionstransfer of ASU 2016-09control of services as the patient simultaneously receives and consumes the benefits provided by our performance. Revenue is recognized on a prospective basis.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 partially unsatisfied at the end of the reporting period. The impactunsatisfied 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 this ASU ontheir ability to pay. Patients who meet our financial statementscriteria for charity care are provided care without charge. There is no revenue or associated accounts receivable in the quarteraccompanying Consolidated Financial Statements related to charity care. The cost of providing charity care during the quarters ended September 30, 20172022 and 2021 was to decrease our income tax expense by $1.8$1.9 million as the result of excess tax benefits on stock based compensation being recorded on the statements of income. This, combined with the required change in diluted share count, resulted in an increase to basic and diluted earnings per share of $0.11 and $0.09,$2.1 million, respectively. The impactcost of this ASU on our financial statements forproviding charity case during the first nine months ended September 30, 20172022 and 2021 was $5.9 million and $6.4 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 decrease our income tax expensetotal days of care and multiplying by $8.1 millionthe 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 excess tax benefits on stockan 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. Medicare and Medicaid programs have broad authority to audit and review compliance with such laws and regulations, and 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 care. The variable consideration is estimated based compensation being recorded on the statementsterms of income. This, combined with the required change in diluted share count, resulted in an increase to basic earnings per share by $0.51 and an increase to diluted earnings per share by $0.46.


INCOME TAXES
The effective tax rate for the three and nine month periods ended September 30, 2017 was 34.7% and 25.8%, respectively.  These rates differpayment agreement, existing correspondence from the US statutory tax rates primarilypayor and our historical settlement activity. These estimates are adjusted in future periods, as the result of the adoption of ASU 2016-09 described above. 

2.   Revenue Recognition

Both the VITAS segment and the Roto-Rooter segment recognize service revenues and sales when the earnings process has been completed.  Generally, this occurs when services are provided or products are shipped.  VITAS recognizes revenue at the estimated realizable amount due from third-party payers.  Medicare paymentsnew information becomes available.

We are subject to certain limitations on Medicare payments for services which are considered variable consideration, as described below.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 months ended September 30, 2022 and 2021.

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


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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 September 30, 2022, 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 theyrevenues are likely to exceed the annual per-beneficiary Medicare cap (“Medicare cap”).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 actionactions, which include changes to influence the patient mix or to increaseand increased patient admissions. However, should we project our corrective action will not prevent that program from exceeding its Medicare cap, we estimate the amount of revenue recognized during the periodgovernment 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 amount as a reduction to patient revenue.


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, CMSCenters for Medicare and Medicaid Services (“CMS”) determined that the Medicare cap should be calculated “as if” sequestration did not occur. As a result of this decision, VITAS hashad received notification from our third party third-party intermediary that an additional $2.3$9.0 million iswas owed for Medicare cap in three programs arising duringfor the 2013 2014 and 2015through 2022 measurement periods. The amounts were automatically deducted from our semi-monthly PIP payments.payments and we did not recognize any revenue for these disputed amounts, but recorded a receivable offset by a reserve of equal amount. We dodid not believe that CMS iswas authorized under the sequestration authority or the statutory methodology for establishing the Medicare cap to demand the $2.3 millionamounts they have withheld and intend to withhold under their current “as if” methodology. We have not recorded a reserveHowever, due to recent court decisions, we are no longer appealing the CMS’s methodology change. During the quarter ended September 30, 2022 we reversed the related receivable and reserve. There was no impact on the consolidated balance sheets or the consolidated statements of income as of and for the period ended September 30, 2017 for $480,000 of the potential exposure.  We have appealed CMS’s methodology change with the appropriate regulatory appeal board.

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2022.

During the three andquarter ended September 30, 2022, we recorded $618,000 in net Medicare cap revenue reduction related to two programs for the 2022 government fiscal year. During the quarter ended September 30, 2021, we recorded $97,000 in net Medicare cap revenue reduction related to two programs for the 2021 government fiscal year.

During the first nine months ended September 30, 2016, respectively, $228,0002022, we recorded $5.1 million in net Medicare cap wasrevenue reduction related to two programs for the 2022 government fiscal year. During the first nine months ended September 30, 2021, we recorded for one program’s projected 2015 measurement period liability


There was no$3.6 million in net Medicare cap recordedrevenue reduction related to two programs for the 2021 government fiscal year.

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.


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The composition of patient care service revenue by payor and level of care for the quarter ended September 30, 2017.  During2022 is as follows (in thousands):

Medicare

Medicaid

Commercial

Total

Routine home care

$

239,670 

$

10,822 

5,761 

$

256,253 

Continuous care

17,083 

787 

730 

18,600 

Inpatient care

21,391 

1,838 

1,297 

24,526 

$

278,144 

$

13,447 

$

7,788 

$

299,379 

All other revenue - self-pay, respite care, etc.

3,240 

Subtotal

$

302,619 

Medicare cap adjustment

(618)

Implicit price concessions

(2,952)

Room and board, net

(2,513)

Net revenue

$

296,536 

The composition of patient care service revenue by payor and level of care for the quarter ended September 30, 2021 is as follows (in thousands):

Medicare

Medicaid

Commercial

Total

Routine home care

$

249,633 

$

12,102 

$

6,402 

$

268,137 

Continuous care

20,000 

1,105 

922 

22,027 

Inpatient care

25,249 

2,628 

1,491 

29,368 

$

294,882 

$

15,835 

$

8,815 

$

319,532 

All other revenue - self-pay, respite care, etc.

3,225 

Subtotal

$

322,757 

Medicare cap adjustment

(97)

Implicit price concessions

(3,119)

Room and board, net

(2,130)

Net revenue

$

317,411 

The composition of patient care service revenue by payor and level of care for the nine months ended September 30, 2017, we recorded $247,000 for two programs cap liability for the 2013, 2014 and 2015 measurement periods of the amount recorded, $105,000 relates to the sequestration issue described above.


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

  September 30, 
  2017  2016 
Beginning balance January 1, $235  $1,165 
Prior measurement periods  247   228 
Payments  (482)  (1,158)
Ending balance September 30, $-  $235 

Vitas provides charity care, in certain circumstances, to patients without charge when management of the hospice program determines, at the time services are performed, that the patient cannot afford payment.  There is no revenue or associated accounts receivable in the accompanying consolidated financial statements related to charity care.  The cost of charity care is calculated by taking the ratio of charity care days to total days of care and multiplying by total cost of care.  The cost of charity care2022 is as follows (in thousands):

Medicare

Medicaid

Commercial

Total

Routine home care

$

722,035 

$

32,848 

$

16,637 

$

771,520 

Continuous care

53,103 

2,337 

2,277 

57,717 

Inpatient care

66,412 

5,608 

3,694 

75,714 

$

841,550 

$

40,793 

$

22,608 

$

904,951 

All other revenue - self-pay, respite care, etc.

9,461 

Subtotal

$

914,412 

Medicare cap adjustment

(5,118)

Implicit price concessions

(8,992)

Room and board, net

(6,796)

Net revenue

$

893,506 


‎

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Three months ended September 30,  Nine months ended September 30, 
2017  2016  2017  2016 
 $1,906   $1,711   $5,603   $5,231 


The composition of patient care service revenue by payor and level of care for the nine months ended September 30, 2021 is as follows (in thousands):

Medicare

Medicaid

Commercial

Total

Routine home care

$

742,759 

$

35,190 

$

18,868 

$

796,817 

Continuous care

66,916 

3,601 

3,141 

73,658 

Inpatient care

74,594 

7,168 

4,133 

85,895 

$

884,269 

$

45,959 

$

26,142 

$

956,370 

All other revenue - self-pay, respite care, etc.

9,241 

Subtotal

$

965,611 

Medicare cap adjustment

(3,597)

Implicit price concessions

(9,428)

Room and board, net

(7,451)

Net revenue

$

945,135 

Roto-Rooter

Roto-Rooter provides plumbing, drain cleaning, excavation, 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 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 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 (“Independent Contractors”). 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

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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 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 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. 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 third quarter is as follows (in thousands):

September 30,

2022

2021

Drain cleaning

$

62,764 

$

63,072 

Plumbing

48,737 

45,124 

Excavation

54,164 

52,607 

Other

193 

254 

Subtotal - short term core

165,858 

161,057 

Water restoration

43,645 

39,786 

Independent contractors

20,474 

18,969 

Franchisee fees

1,559 

1,260 

Other

4,030 

3,773 

Gross revenue

235,566 

224,845 

Implicit price concessions and credit memos

(5,630)

(3,589)

Net revenue

$

229,936 

$

221,256 


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

September 30,

2022

2021

Drain cleaning

$

193,983 

$

187,477 

Plumbing

145,294 

131,045 

Excavation

164,898 

159,714 

Other

513 

853 

Subtotal - short term core

504,688 

479,089 

Water restoration

127,678 

115,804 

Independent contractors

62,897 

56,754 

Franchisee fees

4,246 

3,842 

Other

12,462 

11,601 

Gross revenue

711,971 

667,090 

Implicit price concessions and credit memos

(17,168)

(13,942)

Net revenue

$

694,803 

$

653,148 

3.    Segments


Service revenues and sales and after-tax earningsby business segment are shown in Note 2. After-tax income/(loss) by business segment are as follows (in thousands):

Three months ended September 30,

Nine months ended September 30,

2022

2021

2022

2021

VITAS

$

26,086 

$

42,950 

$

97,779 

$

113,430 

Roto-Rooter

47,586 

44,554 

138,595 

124,504 

Total

73,672 

87,504 

236,374 

237,934 

Corporate

(16,799)

(15,501)

(48,876)

(44,009)

Net income

$

56,873 

$

72,003 

$

187,498 

$

193,925 


  Three months ended September 30,  Nine months ended September 30, 
  2017  2016  2017  2016 
Service Revenues and Sales
            
VITAS $288,951  $282,865  $855,977  $839,131 
Roto-Rooter  128,493   109,742   382,390   334,274 
Total $417,444  $392,607  $1,238,367  $1,173,405 
                 
After-tax Income/(Loss)
                
VITAS $26,454  $20,903  $14,797  $58,538 
Roto-Rooter  16,034   12,855   47,716   39,216 
Total  42,488   33,758   62,513   97,754 
Corporate  (7,051)  (6,929)  (18,888)  (21,200)
Net income $35,437  $26,829  $43,625  $76,554 

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

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4.    Earnings per Share


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

Net Income

For the Three Months Ended September 30,

Income

Shares

Earnings per Share

2022

Earnings

$

56,873

14,888

$

3.82

Dilutive stock options

-

118

Nonvested stock awards

-

36

Diluted earnings

$

56,873

15,042

$

3.78

2021

Earnings

$

72,003

15,587

$

4.62

Dilutive stock options

-

215

Nonvested stock awards

-

40

Diluted earnings

$

72,003

15,842

$

4.55

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  Net Income 
For the Three Months Ended September 30, Income  Shares  Earnings per Share 
2017         
Earnings $35,437   15,976  $2.22 
Dilutive stock options  -   616     
Nonvested stock awards  -   84     
Diluted earnings $35,437   16,676  $2.13 
             
2016            
Earnings $26,829   16,166  $1.66 
Dilutive stock options  -   294     
Nonvested stock awards  -   99     
Diluted earnings $26,829   16,559  $1.62 


Net Income

For the Nine Months Ended September 30,

Income

Shares

Earnings per Share

2022

Earnings

$

187,498 

14,935 

$

12.55 

Dilutive stock options

-

140 

Nonvested stock awards

-

39 

Diluted earnings

$

187,498 

15,114 

$

12.41 

2021

Earnings

$

193,925 

15,808 

$

12.27 

Dilutive stock options

-

233 

Nonvested stock awards

-

42 

Diluted earnings

$

193,925 

16,083 

$

12.06 

  Net Income 
For the Nine Months Ended September 30, Income  Shares  Earnings per Share 
2017         
Earnings $43,625   16,068  $2.72 
Dilutive stock options  -   609     
Nonvested stock awards  -   86     
Diluted earnings $43,625   16,763  $2.60 
             
2016            
Earnings $76,554   16,443  $4.66 
Dilutive stock options  -   296     
Nonvested stock awards  -   112     
Diluted earnings $76,554   16,851  $4.54 

For the three and nine months ended September 30, 2017, no2022, there were 592,000 and 593,000, respectively, stock options and nonvested stock awards have been excluded infrom the calculationcomputation of dilutive earnings per share because they would have been anti-dilutive.


For the three and nine month periodmonths ended September 30, 2017,2021, there were 7,304297,000 and 299,000, respectively, stock options excluded from the computation of diluteddilutive earnings per share because they would have been anti-dilutive.


 For the three and nine month periods ended September 30, 2016, 418,000 stock options were excluded from the computation of diluted earnings per share because they would have been anti-dilutive.

5.    Long-Term Debt


and Lines of Credit

On June 30, 2014,28, 2022, we replaced our existing credit agreementfacility with the Third Amendeda fifth amended and Restatedrestated Credit Agreement (“20142022 Credit Agreement”Facilities”). Terms of the 20142022 Credit AgreementFacilities consist of a five-year, $350five-year $450 million revolving credit facility andrevolver as well as afive-year $100 million term loan. Principal payments of $1.25 million on the term loan are due on the last day of each fiscal quarter, with a final payment due at the end of the agreement. The 20142022 Credit Agreement hasFacilities have a floating interest rate that is generally LIBORthe secured overnight financing rate (“SOFR”) plus aan additional tiered additional rate which varies based on our current leverage ratio. The interest rate asAs of September 30, 20172022, the interest rate is LIBORSOFR plus 113100 basis points.


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The 2022 Credit Facilities include an expansion feature that provides the Company the opportunity to increase its revolver and or term loan by an additional $250 million.

The debt outstanding as of September 30, 20172022 consists of the following:

Revolver

$

2,100 

Term loan

98,750 

Total

100,850 

Current portion of long-term debt

(5,000)

Long-term debt

$

95,850 


Revolver $5,000 
Term loan  77,500 
Total  82,500 
Current portion of long-term debt  (10,000)
Long-term debt $72,500 

Debt issuance costs associated with the prior credit agreement were not written off as the lenders did not change and their relative percentage participation in the facility was substantially the same. Deferred financing cost of $1.5 million for the 2022 Credit Facilities were capitalized during the quarter ended September 30, 2022.

Scheduled principal payments of the term loan2022 Credit Facilities are as follows:

2022

$

1,250 

2023

5,000 

2024

5,000 

2025

5,000 

2026

5,000 

Thereafter

79,600 

$

100,850 

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2017 $2,500 
2018  10,000 
2019  65,000 
  $77,500 

The 20142022 Credit Agreement containsFacilities contain the following quarterly financial covenants:

covenants effective as of September 30, 2022:


Description

Requirement

Description

Requirement

Leverage Ratio (Consolidated Indebtedness/Consolidated Adj. EBITDA)

< 3.50 to 1.00

Fixed Charge

Interest Coverage Ratio (Consolidated Free Cash Flow/Adj. EBITDA/Consolidated Fixed Charges)Interest Expense)

> 1.503.00 to 1.00

Annual Operating Lease Commitment< $50.0 million


We are in compliance with all debt covenants as of September 30, 2017.2022. We have issued $35.6$47.2 million in standby letters of credit as of September 30, 20172022, mainly for insurance purposes. Issued letters of credit reduce our available credit under the 20142022 Credit Agreement.Facilities. As of September 30, 2017,2022, we have approximately $309.4$400.7 million of unused lines of credit available and eligible to be drawn down under our revolving credit facility.


6.    Other Operating Income/(Expenses)

  Three months ended September 30,  Nine months ended September 30, 
  2017  2016  2017  2016 
             
Potential litigation settlement $-  $-  $90,000  $- 
Program closure (income)/expenses  (371)  -   1,138   - 
Retirement expenses  -   -   -   4,491 
Total other operating (income)/expenses $(371) $-  $91,138  $4,491 

During the three and nine months ended September 30, 2017, the Company recorded a credit for recovery of previously expensed costs of $371,000 and a net expense of $1.1 million, respectively, related to the closure of three Alabama programs at VITAS.

During the nine months ended September 30, 2017, the Company recorded $90 million for a potential litigation settlement.  See footnote 11 for further discussion.

During the nine months ended September 30, 2016, the Company recorded early retirement related costs and accelerated stock-based compensation expense of approximately $4.5 million pretax and $2.8 million after-tax, related to the early retirement of VITAS’ former Chief Executive Officer.
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7.   Other (Expense)/Income – Net

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

Three months ended September 30,

Nine months ended September 30,

2022

2021

2022

2021

Market value adjustment on assets held in

deferred compensation trust

$

(3,176)

$

3,078 

$

(12,196)

$

9,770 

Interest income

62 

57 

288 

288 

Other-net

(1)

(1)

1 

463 

Total other (expense)/income - net

$

(3,115)

$

3,134 

$

(11,907)

$

10,521 

7.    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 inpatient units (“IPUs”) and/or contract beds within hospitals. Roto-Rooter mainly 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.

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.

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

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

September 30,

December 31,

2022

2021

Assets

Operating lease assets

$

131,430 

$

125,048 

Liabilities

Current operating leases

39,813 

37,913 

Noncurrent operating leases

105,594 

100,629 

Total operating lease liabilities

$

145,407 

$

138,542 


‎

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  Three months ended September 30,  Nine months ended September 30, 
  2017  2016  2017  2016 
Market value adjustment on assets held in            
deferred compensation trust $1,417  $ 1,656  $ 5,619  $ 1,857 
Loss on disposal of property and equipment  (146)  (134)  (481)  (224)
Interest income  51   119   297   301 
Other - net  1   (1)  4   (1)
Total other income - net $ 1,323  $ 1,640  $ 5,439  $ 1,933 


The components of lease expense for the third quarter is as follows (in thousands):

Three months ended September 30,

2022

2021

Lease Expense (a)

Operating lease expense

$

12,936 

$

15,342 

Sublease income

(45)

(45)

Net lease expense

$

12,891 

$

15,297 

The components of lease expense for the first nine months is as follows (in thousands):

Nine months ended September 30,

2022

2021

Lease Expense (a)

Operating lease expense

$

39,230 

$

46,255 

Sublease income

(136)

(135)

Net lease expense

$

39,094 

$

46,120 

(a)Includes short-term leases and variable lease costs, which are 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:

Nine months ended September 30,

2022

2021

Cash paid for amounts included in the measurement of lease liabilities

Operating cash flows from leases

$

37,650 

$

38,796 

Leased assets obtained in exchange for new operating lease liabilities

$

41,855 

$

43,143 

Weighted Average Remaining Lease Term at September 30, 2022

Operating leases

4.5

years

Weighted Average Discount Rate at September 30, 2022

Operating leases

2.44

%

Maturity of Operating Lease Liabilities (in thousands)

2022

$

11,900

2023

43,317

2024

33,840

2025

26,416

2026

19,965

Thereafter

18,530

Total lease payments

$

153,968

Less: interest

(8,561)

Total liability recognized on the balance sheet

$

145,407

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 $2.7 million related to extended lease terms that are reasonably certain of being exercised and exclude $4.3 million of lease payments for leases signed but not yet commenced.

8.    Stock-Based Compensation Plans


On February 17, 2017,18, 2022, the Compensation/Incentive Committee of the Board of Directors (“CIC”) granted 7,3047,983 Performance Stock Units (“PSUs”) contingent upon the achievement of certain total shareholdersshareholder return (“TSR”) targets as compared to the TSR of a group of peer companies for the three-yearthree year period ending December 31, 2019,2024, 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 $1.7$4.8 million.


On February 17, 2017,18, 2022, the CIC also granted 7,3047,983 PSUs contingent upon the achievement of certain earnings per share (“EPS”) targets for the three-yearthree year period ending December 31, 2019.2024. At the end of each reporting period, the Company estimates the number of

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shares that it believes will ultimately be earned and records thatthe 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 $1.3$3.7 million.


9.   Independent Contractor Operations


The Roto-Rooter segment sublicenses with 69 independent contractors to operate certain plumbing repair, excavation, water restoration and drain cleaning businesses in lesser-populated areas of the United States and Canada.  We had notes receivable from our independent contractors as of September 30, 2017 totaling $1.5 million (December 31, 2016 - $1.7 million).  In most cases these loans are fully or partially secured by equipment owned by the contractor.  The interest rates on the loans range from 0% to 7% per annum and the remaining terms of the loans range from less than 3 months to approximately 5 years at September 30, 2017.  We recorded the following from our independent contractors (in thousands):
  Three months ended September 30,  Nine months ended September 30, 
  2017  2016  2017  2016 
Revenues $ 10,455  $ 9,823  $ 32,632  $ 29,451 
Pretax income  6,311   5,835   19,742   18,015 


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. ExpensesNet 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 September 30,

Nine months ended September 30,

2022

2021

2022

2021

$

2,091

$

7,006

$

5,647

$

23,609


Three months ended September 30,  Nine months ended Nine 30, 
2017  2016  2017  2016 
 $4,427   $4,423   $15,136   $10,809 
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11.

10.    Legal and Regulatory Matters


The VITAS segment of the Company’s business operates in a heavily-regulated industry. As a result, the Company is subjected to inquiries and investigations by various government agencies, 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, with respect to U.S. v. Vitas, 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 May 2, 2013,October 30, 2017, the government filedCompany entered into a settlement agreement to resolve civil litigation under the False Claims Act complaint againstbrought by the CompanyUnited States Department of Justice (“DOJ”) on behalf of the OIG and certain of its hospice-related subsidiariesvarious relators concerning VITAS, filed in the U.S. District Court forof the Western District of Missouri, United States v.Missouri. The Company denied any violation of law and agreed to settlement without admission of wrongdoing.

In connection with the settlement, VITAS Hospice Services, LLC, et al., No. 4:13-cv-00449-BCW (the “2013 Action”and certain of its subsidiaries entered into a corporate integrity agreement (“CIA”).  Prior on October 30, 2017. The CIA formalizes various aspects of VITAS’ already existing Compliance Program and contains requirements designed to that date,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 Companyevent of breach of the CIA, VITAS could become liable for payment of stipulated penalties or could be excluded from participation in federal healthcare programs.

On October 16, 2020, VITAS received various qui tam lawsuits and subpoenas froma Civil Investigative Demand (“CID”) issued by the U.S. Department of Justice and OIG that have been previously disclosed.  The 2013 Action alleges that, since at least 2002, VITAS, and since 2004,pursuant to the Company, submitted or causedFalse Claims Act concerning allegations of the submission of false claims to the Medicare program by (a) billing Medicare for continuous home carehospice services when thefor which reimbursement was sought from federal healthcare programs, including Medicare. The CID has requested information regarding 32 patients were not eligible, the services were not provided, or the medical care was inappropriate, and (b) billing Medicare for patients who were not eligible for the Medicare hospice benefit because they did not have a life expectancy of six months or less if their illnesses ran their normal course.  This complaint seeks treble damages, statutory penalties, and the costs of the action, plus interest.  The defendants filed a motion to dismiss on September 24, 2013.  On September 30, 2014, the Court denied the motion, except to the extent that claims were filed before July 24, 2002. On November 13, 2014, the government filed a Second Amended Complaint.  The Second Amended Complaint changed and supplemented some of the allegations, but did not otherwise expand the causes of action or the nature of the relief sought against VITAS.  VITAS filed its Answer to the Second Amended Complaint on August 11, 2015.  Based on recent case developments, including recent mediation discussionsfrom our Florida operations. We are cooperating with the U.S. Department of Justice we believe it probable thatwith respect to this matterinvestigation. The Company cannot predict when the investigation will be settled,resolved or the outcome of the investigation.

VITAS is one of a group of hospice providers selected by the OIG’s Office of Audit Services (“OAS”) for inclusion in an audit of the provision of elevated level-of-care hospice services. On July 14, 2022, VITAS received the final audit report from OAS. Per this report, the OAS audit examined VITAS inpatient and continuous care claims for the period April 2017 to include paymentsMarch 2019. The audit covered a total population of $55.850,850 claims representing total Medicare reimbursement of $210.0 million after-tax ($90.0during this two-year time period. From this population, OAS selected 100 claims, representing $688,000 of reimbursement, for detailed review. The final OAS audit report includes a series of recommendations, including that VITAS repay approximately $140.0 million pretax)of the $210.0 million VITAS received from Medicare for hospice services during this two-year period, despite the fact that at the time of the release of the results of the audit, many of the disputed claims were time-barred from being challenged. VITAS believes that the OAS audit process and related final report contains significant flaws including attorneys’ fees.  Aits methodology, medical reviews, technical reviews, proposed extrapolation methodology, and contravenes the “reasonable physician standard” set forth in the appliable Aseracare precedent.

On August 29, 2022, six weeks subsequent to the OAS finalizing its audit, VITAS received a demand letter from its Medicare Administrative Contractor (“MAC”) seeking repayment of $50.3 million. This demand letter is $90.0 million lower than the final settlement will requireOAS audit recommendation, as a significant portion of the parties100 claims reviewed are closed pursuant to resolve several outstanding issues,applicable law and ineligible to be reopened. VITAS intends to appeal the overpayment decision. In order to preserve its appeal rights, and to draft and negotiate definitive documentation.  There can be no assurance that such a final definitive settlement will be reached on these, or other, terms.  For additional procedural history of this litigation, please refer to our prior quarterly and annual filings.remain compliant under the CMS mandated 60-Day Rule, VITAS has deposited $50.3 million under the “Immediate Recoupment” process. The costs incurred related to U.S. v. Vitas and related regulatory matters were $935,000 and $599,000 for the quarters ended September 30, 2017 and 2016, respectively.  For the nine months ended September 30, 2017 and 2016, the net costs were $5.2 million and $4.1 million respectively.


Net income for the nine months ended September 30, 2017 includes the $55.8 million of after-tax expense ($90 million pre-tax) for the accrual of such potential litigation settlement.  As required by GAAP, the Company accrues for contingent loss claims in its financial statements when it is probable that a liabilityamount deposited has been incurred and the amount can be reasonably estimated.

 The Company and certain current and former directors and officers are defendants in a case captioned In re Chemed Corp. Shareholder Derivative Litigation, No. 13 Civ. 1854 (LPS) (CJB) (D. Del.), which was consolidated on February 2, 2015.

On February 2, 2015, the Court appointed KBC Asset Management NV the sole lead plaintiff and its counsel, the sole lead and liaison counsel. On March 3, 2015, Lead Plaintiff KBC designated its Complaintrecorded as the operative complaintan “other long-term asset” in the consolidated proceedings and defendants renewed a previously filed motionbalance sheets, as detailed in Note 13. VITAS intends to dismiss thosevigorously

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defend the claims and allegations.  The consolidated Complaint named fourteen individual defendants, together withbrought; however, the Company as nominal defendant.  The Complaint alleges a claim for breach of fiduciary duty againstcannot predict the individual defendants for allegedly permitting the Company to submit false claims to the U.S. government.  The Complaint seeks (a) a declaration that the individual defendants breached their fiduciary duties to the Company; (b) an order requiring those defendants to pay compensatory damages, restitution and exemplary damages, in unspecified amounts, to the Company; (c) an order directing the Company to implement new policies and procedures; and (d) costs and disbursements incurred in bringing the action, including attorneys’ fees.  On May 12, 2016, the Court issued a Memorandum Order granting Chemed’s motion to dismiss, and  dismissing Lead Plaintiff KBC’s Complaint without prejudice to KBC’s opportunity to file within 30 days of the date of the Court’s Order (i.e., by June 13, 2016) an amended Complaint addressing the deficiencies in its duty of loyalty claim.  Lead Plaintiff KBC did not file an amended Complaint within the time specified by the Court.

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However, on June 13, 2016, counsel for Chemed shareholder Michael Kvint filed a letter with the Court requesting a two-week extension to file a motion to substitute Mr. Kvint as lead plaintiff, in place of Lead Plaintiff KBC and to file an amended Complaint.  Alternatively, counsel for Mr. Kvint requested that any dismissal of the action be with prejudice to KBC only.  On June 14, 2016, Chemed filed a reply letter with the Court, reserving its rights to oppose any motion filed by Mr. Kvint and, if warranted, to oppose any other actions taken by Mr. Kvint to proceed with the action (including by filing an untimely amended Complaint).  On June 21, 2016, the Court entered an Oral Order providing Mr. Kvint until June 30, 2016 to file a Motion to Substitute and Motion for Leave to File an Amended Complaint.  On that date, Mr. Kvint filed, under seal, a Motion to Substitute Plaintiff and File Amended Complaint, and attached a Proposed Amended Complaint.    Mr. Kvint’s motion was fully briefed by the parties.  On April 25, 2017, Magistrate Judge Burke issued a Report and Recommendation recommending that the Court permit Mr. Kvint to intervene as Lead Plaintiff and grant leave to amend the complaint to replead the duty of loyalty claim only.  On May 16, 2017, Chief Judge Stark signed an Order adopting that Report and Recommendation.  Plaintiff Kvint filed a Corrected Amended Complaint on May 30, 2017.  On September 13, 2017, the Court entered an order dismissing with prejudice the claims against defendants Timothy S. O’Toole and Joel F. Gemunder and permitting Defendants to file a Motion to Dismiss the Corrected Amended Complaint oneventual outcome, or before September 29, 2017, with Plaintiff’s Answering Brief to be filed on or before December 1, 2017, and Defendants’ Reply Brief to be filed on or before December 29, 2017.  Defendants filed their Motion to Dismiss timely.  As the Company has previously disclosed, the legal fees and costs associated with defending against this lawsuit are presently being paid by insurance. For additional procedural history of this litigation, please refer to our prior quarterly and annual filings.

Jordan Seper, (“Seper”) a Registered Nurse at VITAS' Inland Empire program from May 12, 2014 to 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 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 seeks a state-wide class action of current and former non-exempt employees employed with VITAS in California within the four years preceding the filing of the lawsuit.  She seeks 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,  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.

On November 14, 2016, the Parties filed a Stipulation to transfer the venue of the lawsuit from San Francisco to Los Angeles.  The Los Angeles Superior Court Complex Division accepted transfer of the case on December 6, 2016 and stayed the case.  On December 16, 2016, VITAS CA filed its Answer and served written discovery on Seper.

 Jiwan 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 (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 seeks to pursue these claims in the form of a state-wide class action of current and former non-exempt employees employed with VITAS in California within the four years preceding the filing of the lawsuit.  He seeks 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-judgment interest, and attorneys' fees and costs.  Chhina served VITAS CA with the lawsuit, Jiwann 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.  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 Healthcare Corporation of California 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 Attorney 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 November 10, 2017 mediation in the Seper and Chhina cases.
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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.  These are Seper, v. VITAS Healthcare Corp of California et al., filed on September 26, 2016 in Los Angeles County Superior Court BC 642857; Chhina v. VITAS Health Service, Inc. et al., filed on September 27, 2016 in San Diego County Superior Court, 34-2015-00033998 CU_OE_CTL; both described above 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 Attorney General Act.  Williams seeks to pursue these claims in the form of a state-wide class action of current and former non-exempt employees.  Plaintiff served VITAS with the lawsuit on May 31, 2017.  VITAS timely answered the Complaint generally denying Plaintiff’s allegations.  Williams is pursuing discovery of her individual claims and has agreed to a stay of class discovery pending outcome of a November 10, 2017 mediation of the Seper and Chhina cases.  Defendant filed and served each of Plaintiffs Williams, Phillips, and Moore with a Notice of Related Cases on July 19, 2017.

Defendant understands that the Seper and Chhina cases will be effectively consolidated in Los Angeles County Superior court: Chhina will be dismissed as a separate action and joined with Seper through the filing of an amended complaint in Seper in which Chhina is also identified as a named plaintiff.

The Company is not able to reasonably estimate the probability ofany potential loss, or range of loss forfrom any of these lawsuitssuch claims at this time.

The Company intends to defend vigorously against the allegations in each of the above lawsuits. 

Regardless of the outcome of any of the preceding matters, 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.


12.

11.    Concentration of Risk


During

As of September 30, 2022, and December 31, 2021, approximately 66% and 73%, respectively, of VITAS’ total accounts receivable balance were from Medicare and 28% and 21%, 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 73% of the quarter consolidated net accounts receivable in the accompanying consolidated balance sheets as of September 30, 2022.

VITAS hadhas a pharmacy services agreementscontract with one service provider to providefor specified pharmacy services for VITAS andrelated to its hospice patients.operations. Similarly, effective January 1, 2022, VITAS madeobtains the majority of its medical supplies from a single vendor. A large majority of VITAS’ pharmaceutical and medical supplies purchases from this provider of $7.7 and $24.8 million for the three and nine months ended September 30, 2017, respectively. Vitas made purchases from two providers of $9.5 and $26.9 million for the three and nine months ended September 30, 2016, respectively.  Purchasesare from these providers were more than 90% of all pharmacy services usedvendors. The pharmaceutical and medical supplies purchased by VITAS during each period presented.


13.are available through many providers in the United States. However, a disruption from VITAS’ main service providers could adversely impact VITAS’ operations, including temporary logistical challenges and increased cost associated with getting medication and medical supplies to our patients.

12.    Cash Overdrafts and Cash Equivalents


There are $468,000$17.4 million in cash overdrafts payable included in accounts payable at September 30, 2017 (December2022. There were $11.9 million in cash overdrafts payable included in accounts payable at December 31, 2016 - $8.6 million).


2021.

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 less than $100,000not material for each balance sheet date presented.

13. OtherAssets

Other assets comprise the following (in thousands):

September 30,

December 31,

2022

2021

Deposit with OAS

$

50,274 

$

-

Cash surrender value life insurance

3,632 

3,640 

Noncurrent advances and deposits

2,374 

2,130 

Deferred debt costs

1,797 

1,894 

Other long-term receivable

2,027 

474 

$

60,104 

$

8,138 


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.

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-20-

The following shows the carrying value, fair value and the hierarchy for our financial instruments as of September 30, 20172022 (in thousands):

Fair Value Measure

Carrying Value

Quoted Prices in Active Markets for Identical Assets (Level 1)

Significant Other Observable Inputs (Level 2)

Significant Unobservable Inputs (Level 3)

Investments of deferred compensation

plans held in trust

$

90,097 

$

90,097 

$

-

$

-

Long-term debt and current portion of

long-term debt

100,850 

-

100,850 

-

     Fair Value Measure 
  Carrying Value  
Quoted Prices in
Active Markets for
Identical Assets
 (Level 1)
  
Significant Other Observable Inputs
(Level 2)
  
Significant
Unobservable
Inputs (Level 3)
 
Mutual fund investments of deferred            
compensation plans held in trust $60,445  $60,445  $-  $- 
Total debt  82,500   -   82,500   - 

The following shows the carrying value, fair value and the hierarchy for our financial instruments as of December 31, 20162021 (in thousands):

Fair Value Measure

Carrying Value

Quoted Prices in Active Markets for Identical Assets (Level 1)

Significant Other Observable Inputs (Level 2)

Significant Unobservable Inputs (Level 3)

Investments of deferred compensation

plans held in trust

$

98,884 

$

98,884 

$

-

$

-

Long-term debt

185,000 

-

185,000 

-


     Fair Value Measure 
  Carrying Value  
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
  
Significant Other Observable Inputs
(Level 2)
  
Significant
Unobservable
Inputs (Level 3)
 
Mutual fund investments of deferred            
compensation plans held in trust $54,389  $54,389  $-  $- 
Total debt  108,750   -   108,750   - 

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 FootnoteNote 5, our outstanding long-term debt and current portion of long-term debt havehas a floating interest ratesrate that areis 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 theapproximates its carrying value.


15.    Capital Stock Repurchase Plan Transactions


We repurchased the following capital stock for the threestock:

Three months ended September 30,

Nine months ended September 30,

2022

2021

2022

2021

Total cost of repurchased shares (in thousands)

$

23,884

$

163,731

$

101,098

$

330,380

Shares repurchased

50,000

350,000

207,500

700,000

Weighted average price per share

$

477.68

$

467.80

$

487.22

$

471.97

In May and nine months ended September 30, 2017 and 2016:

  Three months ended September 30,  Nine months ended September 30, 
  2017  2016  2017  2016 
             
Total cost of repurchased shares (in thousands) $9,576  $-  $94,640  $102,313 
Shares repurchased  50,000  -   500,000   780,134 
Weighted average price per share $191.52  $-  $189.28  $131.15 

In March 2017,November 2021, the Board of Directors authorized an additional $100.0a total of $600.0 million for additional stock repurchase under Chemed’s existing share repurchase program. We currently have $55.5 million$100.8 million of authorizationauthorization remaining under this share repurchase plan.


‎

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16.    Recent Accounting Standards


In May 2014,Acquisitions

On January 28, 2022 VITAS purchased the FASB issued Accounting Standards Update “ASU No. 2014-09 – Revenue from Contracts with Customers” which provides additional guidance to clarifyhospice assets of Broward Health Hospital System for $1.24 million in cash. On February 1, 2022, Roto-Rooter completed the principles for recognizing revenue.  The standard and subsequent amendments are intended to developacquisition of a common revenue standard for removing inconsistencies and weaknesses, improve comparability, provide more useful information to users through improved disclosure requirements, and simplify the preparation of financial statements. This guidance and subsequent amendments are effective for fiscal years beginning after December 15, 2017.    At both VITAS and Roto-Rooter, we have performed an initial analysis to determine the appropriate aggregation of customers into portfolios with similar collection and service requirement characteristics.  This analysis is currently being refined to ensure the portfolios identified will result in a materially consistent revenue recognition pattern that would result as if each customer were evaluated separately.  Additionally, based on our initial evaluation, we believe the majority of our provision for bad debts, currently classified in selling, general and administrative expense in our Statements of Income, will be reclassified as a contra-revenue as it will be considered an implicit price concession at the time service is performed.  For the nine month period ended September 30, 2017, our total provision for bad debt is $13.0 million.  We anticipate a modified retrospective adoption of the ASU.


In February 2016, the FASB issued Accounting Standards Update “ASU No. 2016-02 – Leases” which introduces a lessee model that brings most leases on to the balance sheets and updates lessor accounting  to align with changes in the lessee modelfranchise and the revenue recognition standard.   The guidancerelated assets in Linden, NJ for $400,000 in cash. On July 1, 2022 Roto-Rooter completed the acquisition of a franchise and related assets in Hunterdon County, NJ for $400,000 in cash.

Goodwill is effectiveassessed for fiscal years beginning after December 15, 2018.  Basedimpairment on the provisionsa yearly basis as of the ASU, we anticipate a material increase in both assets and liabilities when our current operating lease contracts are recorded on the balance sheet.  We do not currently have a specific estimate of the impact.


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 2016-15October 1. All goodwill recognized is to reduce diversity in practice related to eight specific cash flow issues.  The guidance in this ASU is effectivedeductible for fiscal years beginning after December 15, 2017.    We have analyzed the impact of ASU 2016-15 on our statement of cash flows and do not expect it to have a material effect.

In January 2017, the FASB issued Accounting Standards Update “ASU No. 2017-4 – Intangibles – Goodwill and Other”.  To simplify the subsequent measurement of goodwill, the FASB eliminated Step 2 from the goodwill impairment test.  The guidance in the ASU is effective for the Company in fiscal years beginning after December 15, 2019.  Early adoption is permitted.  We anticipate adoption of this standard will have no impact on our consolidated financial statements.
17.   Goodwill

tax purposes.

Shown below is movement in Goodwill (in thousands):

VITAS

Roto-Rooter

Total

Balance at December 31, 2021

$

333,331 

$

245,260 

$

578,591 

Business combinations

732 

676

1,408

Foreign currency adjustments

-

(112)

(112)

Balance at September 30, 2022

$

334,063 

$

245,824

$

579,887

  Vitas  Roto-Rooter  Total 
Balance at December 31, 2016 $328,301  $144,065  $472,366 
Business combinations  -   481   481 
Foreign currency adjustments  -   177   177 
Balance at September 30, 2017 $328,301  $144,723  $473,024 

During 2017, we completed one business combination within the Roto-Rooter segment for $525,000 in cash to increase our market penetration.


‎

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-22-

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 contractorsIndependent Contractors and franchisees, Roto-Rooter offers plumbing and drain cleaning service to over 90% of the U.S. population.


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

Three months ended September 30,

Nine months ended September 30,

2022

2021

2022

2021

Service revenues and sales

$

526,472 

$

538,667 

$

1,588,309 

$

1,598,283 

Net income

$

56,873 

$

72,003 

$

187,498 

$

193,925 

Diluted EPS

$

3.78 

$

4.55 

$

12.41 

$

12.06 

Adjusted net income

$

71,247 

$

80,084 

$

217,117 

$

226,554 

Adjusted diluted EPS

$

4.74 

$

5.06 

$

14.37 

$

14.09 

Adjusted EBITDA

$

108,728 

$

119,373 

$

329,842 

$

338,840 

Adjusted EBITDA as a % of revenue

20.7 

%

22.2 

%

20.8 

%

21.2 

%

  Three months ended September 30,  Nine months ended September 30, 
  2017  2016  2017  2016 
Service revenues and sales $417,444  $392,607  $1,238,367  $1,173,405 
Net income $35,437  $26,829  $43,625  $76,554 
Diluted EPS $2.13  $1.62  $2.60  $4.54 
Adjusted net income $35,772  $28,643  $102,174  $86,625 
Adjusted diluted EPS $2.15  $1.73  $6.10  $5.14 
Adjusted EBITDA $67,604  $57,387  $195,921  $170,391 
Adjusted EBITDA as a % of revenue  16.2%  14.6%  15.8%  14.5%

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 30-32.


Both VITAS and Roto-Rooter have significant operations in Houston and south Florida.  For the three and nine months ended September 30, 2017 we did not experience any material business interruptions or loss of assets related to the hurricanes in Houston or Florida.

Net income for the nine months ended September 30, 2017 includes $55.8 million ($3.33 per share) of after-tax expense ($90 million pre-tax) for the accrual of a potential litigation settlement related to the May 2, 2013 complaint filed against the Company by the U.S. Department of Justice.  As required by U.S. Generally Accepted Accounting Principles, the Company accrues for contingent loss claims in its financial statements when it is probable that a liability has been incurred and the amount can be reasonably estimated.  Based on recent case developments, including recent mediation discussions with the U.S. Department of Justice, the Company believes that it is probable that this matter will be settled, and that such settlement will include settlement payments and relator attorney fees, by the Company of approximately the accrued amount.  However, the achievement of a final, definitive settlement will require the parties to resolve several outstanding issues (and draft and negotiate related definitive documentation), and there can be no assurance that such a final, definitive settlement will be reached and agreed on these or other terms.

36-38.

For the three months ended September 30, 2017,2022, the increasedecrease in consolidated service revenues and sales was driven by a 17.1%3.9% increase at Roto-Rooter offset by a 6.6% decrease at VITAS. The increase in service revenues at Roto-Rooter was driven mainly by an increase in plumbing, excavation, and water restoration. The decrease in service revenues at VITAS is comprised primarily of a 2.2%4.4% decrease in days-of-care and by a geographically weighted average Medicare reimbursement rate decrease of approximately 0.2%. Reimbursement rates in the quarter were negatively impacted by 200-basis points as a result of CMS reimplementing the 2% sequestration cut that was suspended at the start of the pandemic. Acuity mix shift had a net impact of reducing revenue approximately $5.3 million, or 1.7% in the quarter when compared to the prior year revenue and level-of-care mix. The combination of an increase in Medicare cap and other contra revenue changes negatively impacted revenue growth by approximately 30 basis points.

The pandemic has resulted in a significant shortage of licensed healthcare workers industry wide. VITAS has not been immune to this shortage. As a result, on July 1, 2022, VITAS implemented a hiring and retention bonus program for its licensed healthcare workers. It is a temporary program intended to help VITAS attract and retain licensed healthcare workers in light of the pandemic induced healthcare worker shortage. An eligible employee must continue in employment for a period of one-year from July 1st to receive a bonus. Additionally, employees hired between July 1, 2022 and June 30, 2023 are eligible if they continue employment for a one-year period from their hire date. The Company accrued $9.6 million in the third quarter of 2022 related to this retention bonus program. See page 39 for additional VITAS operating metrics.

For the nine months ended September 30, 2022, the decrease in consolidated service revenues and sales was driven by a 6.4% increase at Roto-Rooter offset by a 5.5% decrease at VITAS. The increase in service revenues at Roto-Rooter was driven by an increase in all major service lines. Of Roto-Rooter’s total revenue increase, 49.1% is related to water restoration.  The increasedecrease in service revenues at VITAS wasis comprised primarily of a 4.1% decrease in days-of-care, offset by a geographically weighted average Medicare reimbursement rate increase of approximately 0.6%. Reimbursement rates for the nine months ended September 30, 2022 were negatively impacted by 90-basis points as a result of Medicare reimbursement rates increasing 1.3%, a 2.8% increase in daysCMS reimplementing the sequestration cut that was suspended at the start of care, offset by acuitythe pandemic. Acuity mix shift which negatively impactedhad a net impact of reducing revenue 2.2%approximately 1.9% over the nine months when compared to the prior year period.  Adjusted EBITDA as a percentrevenue and level-of-care mix. The combination of an increase in Medicare cap and other contra revenue increased 160changes negatively impacted revenue growth by approximately 10 basis points when comparedpoints. See page 39 for additional VITAS operating metrics.

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 length and severity of the prior year quarter mainlypandemic, 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

-23-

that could arise or the ultimate effect to our businesses as a result of mix shiftthe unknown short, medium and long-term impacts that the pandemic will have on the United States economy and society as a whole.

Historically, Chemed earnings guidance has been developed using previous periods’ key operating metrics which are then modeled and projected out for future periods. Critical within these projections is the understanding of traditional patterned correlations among key operating metrics. This modeling exercise also takes into consideration anticipated industry and macro-economic issues outside of management’s control but are somewhat predictable in levelsterms of caretiming and improved cost management for high acuity care.  See page 33 for additional VITASimpact on our business segments’ operating metrics.


For the nine months ended September 30, 2017, the increase in consolidated service revenues and sales was driven by a 14.4% increase at Roto-Rooterresults.

The COVID-19 pandemic, uncertainty regarding forward looking inflation, and a 2.0% increase at VITAS.  The increase in service revenues at Roto-Rooter was driven by an increase in all major service lines. Of Roto-Rooter’s totalpotential economic recession, has made accurate modeling and providing meaningful earnings guidance exceptionally challenging. Since the start of the pandemic, Chemed has been able to successfully navigate within this rapidly changing environment and produce operating results that we believe provide us with the ability to issue earnings guidance for the remainder of the 2022 calendar year. However, this guidance should be taken with the recognition the above macro issues could materially impact the company’s ability to achieve this guidance.

Based upon the above discussion, VITAS 2022 revenue, increase, 49.0% was relatedprior to water restoration.  The increase in service revenues at VITAS was primarily a result of Medicare reimbursement rates increasing 1.7%, a 2.7% increase in days of care, offset by acuity mix shift which negatively impacted revenue 2.4%Cap, is estimated to decline 4.5% to 5.0% when compared to 2021. A portion of the prior year period.  Adjusted EBITDA as a percentestimated revenue decline, approximately $15 million or 118-basis points, is the result of revenue increased 130 basis points whenthe phase out of sequestration relief over the first half of 2022 compared to the priora full year quarter mainly as a result of mix shiftsequestration relief in levels of care and improved cost management for high acuity care.  See page 33 for additional VITAS operating metrics.


VITAS expects its full-year 2017 revenue growth,2021. ADC is estimated to decline 3.4%. Full year adjusted EBITDA margin, prior to Medicare cap,Cap, is estimated to be 17.1% to 17.2%. We are currently estimating $8.1 million for Medicare Cap billing limitations in calendar year 2022.

Roto-Rooter is forecasted to achieve full-year 2022 revenue growth of 6.2% to 6.5%. Roto-Rooter’s adjusted EBITDA margin for 2022 is expected to be 29.5% to 29.7%.

Based upon the above, full-year 2022 earnings per diluted share, excluding non-cash expense for stock options, tax benefits from stock option exercises, costs related to litigation, retention program for licensed healthcare employees, and other discrete items, is estimated to be in the range of 2.0%$19.60 to 3.0%$19.70. This compares to our previous 2022 adjusted earnings per share guidance of $19.30 to $19.50. Current 2022 guidance assumes an effective corporate tax rate on adjusted earnings of 25.1% and a diluted share count of 15.12 million shares. Chemed’s 2021 reported adjusted earnings per diluted share was $19.33.

On June 28, 2022, we replaced our existing credit facility with a fifth amended and restated Credit Agreement (“2022 Credit Facilities”). AdmissionsTerms of the 2022 Credit Facilities consist of a five-year $450 million revolver as well as a five-year $100 million term loan. Principal payments of $1.25 million on the term loan are due on the last day of each fiscal quarter, with a final payment due at the end of the agreement. The 2022 Credit Facilities have a floating interest rate that is generally SOFR plus an additional tiered rate which varies based on our current leverage ratio. As of September 30, 2022, the interest rate is SOFR plus 100 basis points. The 2022 Credit Facilities includes an expansion feature that provides the Company the opportunity to increase its revolver and Average Daily Censusor term loan by an additional $250 million.

We have issued $47.2 million in 2017 are estimated to expandstandby letters of credit as of September 30, 2022, mainly for insurance purposes. Issued letters of credit reduce our available credit under the 2022 Credit Facilities. As of September 30, 2022, we have approximately 2.0% to 3.0%.  Adjusted EBITDA margin, prior to Medicare cap, is estimated$400.7 million of unused lines of credit available and eligible to be 15.0%.  This guidance includes $1.5 milliondrawn down under our revolving credit facility. Management believes its liquidity and sources of capital are satisfactory for Medicare cap billing limitations. Roto-Rooter expects full-year 2017 revenue growth of 13.0% to 14.0%.  The revenue estimate is a based upon increased job pricing of approximately 2.0% and continued growth in water restoration services.  Adjusted EBITDA margin for 2017 is estimatedthe Company’s needs in the range of 22.5%.  foreseeable future.

We anticipate that our operating income and cash flows will be sufficient to operate our businesses and meet any commitments for the foreseeable future.

-16-

Financial Condition

Liquidity and Capital Resources

Material changes in the balance sheet accounts from December 31, 20162021 to September 30, 20172022 include the following:


A $40.5$15.6 million decrease in accounts receivable due mainly to timing of Medicare and Medicaid payments.

receipts.

A $21.8$10.1 million increase in properties plant and equipment mainly due to the purchase of transportation equipment during the quarter.

A $36.2 million increase in net deferred taxes associated with amounts recorded for a potential litigation settlement.
A $4.8 million decrease in accounts payable mainly due to timing of payments.
A $12.3 increase inprepaid income taxes due to timing of payments.

An $89.6$8.8 million decrease in investments of deferred compensation plans due to market valuation losses.

A $52.0 million increase in other assets due mainly to the OAS deposit, as discussed in Note 10.

A $28.4 million decline in accrued legalcompensation due to the timing of payroll accruals at VITAS and a potential litigation settlement.decline in accrued bonus and profit-sharing due to lower company earnings in 2022.

A $12.5 million increase in other current liabilities mainly due to the retention bonus program implemented at VITAS for clinical staff in the third quarter of 2022.

-24-

A $26.3$10.4 million increase in long-term deferred income taxes related to the OAS deposit, as discussed in Note 10.

An $89.2 million decrease in long-term debt due to payments on our term loan and revolving line of credit.


repayments.

A $129.0 million increase in treasury stock due mainly to stock repurchases.

Net cash provided by operating activities increased $62.6decreased $35.3 million mainly asfrom September 30, 2021 to September 30, 2022. The main drivers of the decrease are a resultdecrease in net income of $6.4 million, and a $22.9$28.9 million increase in net income excluding potential litigation settlement and a $19.5 million decrease caused by changes in accounts receivable.  The potential litigation settlement recorded is non-cash at September 30, 2017 and does not impact net cash provided by operating activities.


other assets due to OAS deposit. Significant changes in our accounts receivable balances are typically driven mainly by the timing of payments received from the Federal government at our VITAS subsidiary. We typically receive a payment in excess of $40.0$42.0 million from the Federal government fromfor hospice services every other Friday. The timing of a 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.


We have issued $35.6 million in standby letters of credit as of September 30, 2017, mainly for insurance purposes.  Issued letters of credit reduce our available credit under the revolving credit agreement.  As of September 30, 2017, we have approximately $309.4 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 agreementsthe 2022 Credit Facilities require us to meet various financial covenants, to be tested quarterly. We are in compliance with all financial and other debt covenants as of September 30, 20172022 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

We are subject to inquiries and investigations by various government agencies, as well as to lawsuits, including qui tam actions.  The following sections describe the various ongoing material lawsuits and investigations of which the Company is currently aware.  Other than as described below with respect to U.S. v. Vitas, 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.

-17-
On May 2, 2013, the government filed a False Claims Act complaint against the Company and certain of its hospice-related subsidiariesclaims in the U.S. District Courtnormal course of our business. In addition, we periodically receive communications from governmental and regulatory agencies concerning compliance with Medicare and Medicaid billing requirements at our VITAS subsidiary. We establish reserves for specific, uninsured liabilities in connection with regulatory and legal action that we deem to be probable and estimable. We disclose the Western Districtexistence of Missouri, United States v. VITAS Hospice Services, LLC, et al., No. 4:13-cv-00449-BCW (the “2013 Action”).  Prior to that date, the Company received various qui tam lawsuitsregulatory and subpoenas from the U.S. Department of Justice and OIG that have been previously disclosed.  The 2013 Action alleges that, since at least 2002, VITAS, and since 2004, the Company, submitted or caused the submission of false claims to the Medicare program by (a) billing Medicare for continuous home care serviceslegal actions when the patients were not eligible, the services were not provided, or the medical care was inappropriate, and (b) billing Medicare for patients who were not eligible for the Medicare hospice benefit because they did not have a life expectancy of six months or less if their illnesses ran their normal course.  This complaint seeks treble damages, statutory penalties, and the costs of the action, plus interest.  The defendants filed a motion to dismiss on September 24, 2013.  On September 30, 2014, the Court denied the motion, except to the extent that claims were filed before July 24, 2002. On November 13, 2014, the government filed a Second Amended Complaint.  The Second Amended Complaint changed and supplemented some of the allegations, but did not otherwise expand the causes of action or the nature of the relief sought against VITAS.  VITAS filed its Answer to the Second Amended Complaint on August 11, 2015.  Based on recent case developments, including recent mediation discussions with the U.S. Department of Justice, we believe it probable that this matter will be settled, to include payments of $55.8 million after-tax ($90.0 million pretax) including attorneys’ fees.  A final settlement will require the parties to resolve several outstanding issues, and to draft and negotiate definitive documentation.  There can be no assurance that such a final definitive settlement will be reached on these, or other, terms.  For additional procedural history of this litigation, please refer to our prior quarterly and annual filings.  The costs incurred related to U.S. v. Vitas and related regulatory matters were $935,000 and $599,000 for the quarters ended September 30, 2017 and 2016, respectively.  For the nine months ended September 30, 2017 and 2016, the net costs were $5.2 million and $4.1 million respectively.

Net income for the nine months ended September 30, 2017 includes the $55.8 million of after-tax expense ($90 million pre-tax) for the accrual of such potential litigation settlement.  As required by GAAP, the Company accrues for contingent loss claims in its financial statements when it is probablereasonably possible that a liability has been incurred and the amount can be reasonably estimated.

The Company and certain current and former directors and officers are defendantsloss could occur in a case captioned In re Chemed Corp. Shareholder Derivative Litigation, No. 13 Civ. 1854 (LPS) (CJB) (D. Del.), which was consolidated on February 2, 2015.

On February 2, 2015, the Court appointed KBC Asset Management NV the sole lead plaintiff and its counsel, the sole lead and liaison counsel. On March 3, 2015, Lead Plaintiff KBC designated its Complaint as the operative complaint in the consolidated proceedings and defendants renewed a previously filed motion to dismiss those claims and allegations.  The consolidated Complaint named fourteen individual defendants, togetherconnection with the Company as nominal defendant.  The Complaint allegesspecific action. In most instances, we are unable to make a claim for breachreasonable estimate of fiduciary duty against the individual defendants for allegedly permitting the Company to submit false claimsany reasonably possible liability due to the U.S. government.  The Complaint seeks (a) a declaration that the individual defendants breached their fiduciary duties to the Company; (b) an order requiring those defendants to pay compensatory damages, restitution and exemplary damages, in unspecified amounts, to the Company; (c) an order directing the Company to implement new policies and procedures; and (d) costs and disbursements incurred in bringing the action, including attorneys’ fees.  On May 12, 2016, the Court issued a Memorandum Order granting Chemed’s motion to dismiss, and  dismissing Lead Plaintiff KBC’s Complaint without prejudice to KBC’s opportunity to file within 30 days of the date of the Court’s Order (i.e., by June 13, 2016) an amended Complaint addressing the deficiencies in its duty of loyalty claim.  Lead Plaintiff KBC did not file an amended Complaint within the time specified by the Court.

However, on June 13, 2016, counsel for Chemed shareholder Michael Kvint filed a letter with the Court requesting a two-week extension to file a motion to substitute Mr. Kvint as lead plaintiff, in place of Lead Plaintiff KBC and to file an amended Complaint.  Alternatively, counsel for Mr. Kvint requested that any dismissal of the action be with prejudice to KBC only.  On June 14, 2016, Chemed filed a reply letter with the Court, reserving its rights to oppose any motion filed by Mr. Kvint and, if warranted, to oppose any other actions taken by Mr. Kvint to proceed with the action (including by filing an untimely amended Complaint).  On June 21, 2016, the Court entered an Oral Order providing Mr. Kvint until June 30, 2016 to file a Motion to Substitute and Motion for Leave to File an Amended Complaint.  On that date, Mr. Kvint filed, under seal, a Motion to Substitute Plaintiff and File Amended Complaint, and attached a Proposed Amended Complaint.    Mr. Kvint’s motion was fully briefed by the parties.  On April 25, 2017, Magistrate Judge Burke issued a Report and Recommendation recommending that the Court permit Mr. Kvint to intervene as Lead Plaintiff and grant leave to amend the complaint to replead the duty of loyalty claim only.  On May 16, 2017, Chief Judge Stark signed an Order adopting that Report and Recommendation.  Plaintiff Kvint filed a Corrected Amended Complaint on May 30, 2017.  On September 13, 2017, the Court entered an order dismissing with prejudice the claims against defendants Timothy S, O’Toole and Joel F. Gemunder and permitting Defendants to file a Motion to Dismiss the Corrected Amended Complaint on or before September 29, 2017, with Plaintiff’s Answering to be filed on or before December 1, 2017, and Defendants’ Reply Brief to be filed on or before December 29, 2017.  Defendants filed their Motion to Dismiss timely. As the Company has previously disclosed, the legal fees and costs associated with defending against this lawsuit are presently being paid by insurance. For additional procedural history of this litigation, please refer to our prior quarterly and annual filings.
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Jordan Seper, (“Seper”) a Registered Nurse at VITAS' Inland Empire program from May 12, 2014 to 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 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 seeks a state-wide class action of current and former non-exempt employees employed with VITAS in California within the four years preceding the filing of the lawsuit.  She seeks 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,  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.

On November 14, 2016, the Parties filed a Stipulation to transfer the venue of the lawsuit from San Francisco to Los Angeles.  The Los Angeles Superior Court Complex Division accepted transfer of the case on December 6, 2016 and stayed the case.  On December 16, 2016, VITAS CA filed its Answer and served written discovery on Seper.

Jiwan 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 (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 seeks to pursue these claims in the form of a state-wide class action of current and former non-exempt employees employed with VITAS in California within the four years preceding the filing of the lawsuit.  He seeks 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-judgment interest, and attorneys' fees and costs.  Chhina served VITAS CA with the lawsuit, Jiwann 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.  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 Healthcare Corporation of California 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 Attorney 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 the resolution of the November 10, 2017 in the Seper and 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.  These are Seper, v. VITAS Healthcare Corp of California et al., filed on September 26, 2016 in Los Angeles County Superior Court BC 642857; Chhina v. VITAS Health Service, Inc. et al., filed on September 27, 2016 in San Diego County Superior Court, 34-2015-00033998 CU_OE_CTL; both described above 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 Attorney General Act.  Williams seeks to pursue these claims in the form of a state-wide class action of current and former non-exempt employees.  Plaintiff served VITAS with the lawsuit on May 31, 2017.  VITAS timely answered the Complaint generally denying Plaintiff’s allegations.  Williams is pursuing discovery of her individual claims and has agreed to a stay of class discovery pending outcome of a November 10, 2017 mediation of the Seper and Chhina cases.  Defendant filed and served each of Plaintiffs Williams, Phillips, and Moore with a Notice of Related Cases on July 19, 2017.  Defendant understands that the Seper and Chhina cases will be effectively consolidated in Los Angeles County Superior court: Chhina will be dismissed as a separate action and joined with Seper through the filing of an amended complaint in Seper in which Chhina is also identified as a named plaintiff.
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The Company is not able to reasonably estimate the probability of loss or range of loss for any of these lawsuits at this time.

The Company intends to defend vigorously against the allegations in each of the above lawsuits.  Regardlessuncertainty of the outcome and stage of anylitigation. We record legal fees associated with legal and regulatory actions as the costs are incurred.

See Note 10 in the Notes to the Unaudited Consolidated Financial Statements in Item 1 above for a description of the preceding matters, dealing with the various regulatory agencies and opposing parties can adversely affect us through defense costs, potential payments, diversion of management time, and related publicity.  Although the Company intends to defend them vigorously, there can be no assurance that those suits will not have acurrent material adverse effect on the Company.legal matters.


‎


-25-

Results of Operations

Three months ended September 30, 20172022 versus 20162021 - Consolidated Results

Our service revenues and sales for the third quarter of 2017 increased 6.3%2022 decreased 2.3% versus services and sales revenues for the third quarter of 2016.2021. Of this increase,decrease, a $6.1$8.7 million increase was attributable to VITAS and $18.8Roto-Rooter, offset by a $20.9 million increase wasdecrease attributable to Roto-Rooter.VITAS. The following chart shows the components of those changesrevenue by operating segment (in thousands):

Three months ended September 30,

Increase/(Decrease)

2022

2021

Percent

VITAS

Routine homecare

$

256,253 

$

268,137 

(4.4)

Continuous care

18,600 

22,027 

(15.6)

General inpatient

24,526 

29,368 

(16.5)

Other

3,240 

3,225 

0.5 

Subtotal

302,619 

322,757 

(6.2)

Medicare cap adjustment

(618)

(97)

(537.1)

Room and board - net

(2,513)

(2,130)

(18.0)

Implicit price concessions

(2,952)

(3,119)

5.4 

Net revenue

$

296,536 

$

317,411 

(6.6)

Roto-Rooter

Drain cleaning

$

62,764 

$

63,072 

(0.5)

Plumbing

48,737 

45,124 

8.0 

Excavation

54,164 

52,607 

3.0 

Other

193 

254 

(24.0)

Subtotal - short term core

165,858 

161,057 

3.0 

Water restoration

43,645 

39,786 

9.7 

Independent Contractors

20,474 

18,969 

7.9 

Outside franchisee fees

1,559 

1,260 

23.7 

Other

4,030 

3,773 

6.8 

Gross revenue

235,566 

224,845 

4.8 

Implicit price concessions

(5,630)

(3,589)

(56.9)

Net revenue

229,936 

221,256 

3.9 

Total Revenues

$

526,472 

$

538,667 

(2.3)

  Increase/(Decrease) 
  Amount  Percent 
VITAS      
Routine homecare $11,217   5.0 
Continuous care  (4,025)  (11.9)
General inpatient  (1,334)  (5.6)
Medicare cap  228   100.0 
Roto-Rooter        
Plumbing  7,262   15.2 
Drain cleaning  1,442   4.1 
Water restoration  9,208   77.2 
Contractor operations  632   6.4 
Other  207   4.2 
Total $24,837   6.3 

The increase in VITAS’ revenues for the third quarter of 2017 versus the third quarter of 2016 was comprised of an average net Medicare reimbursement rate increasing approximately 1.3%, a 2.8% increase in days

Days of care offset by acuity mix shift which negatively impacted revenue 2.2% when compared to the prior year period.


Days of careat VITAS during the quarter ended September 30 were as follows:

Days of Care

Increase/(Decrease)

2022

2021

Percent

Routine homecare

1,271,678 

1,342,841 

(5.3)

Nursing home

264,407 

258,700 

2.2 

Respite

6,635 

5,331 

24.5 

Subtotal routine homecare and respite

1,542,720 

1,606,872 

(4.0)

General inpatient

23,435 

27,962 

(16.2)

Continuous care

20,097 

24,299 

(17.3)

Total days of care

1,586,252 

1,659,133 

(4.4)

 Days of Care Increase/(Decrease)
 2017 2016 Percent
      
Routine homecare 1,458,153  1,407,623  3.6
Continuous care 41,237  46,582  (11.5)
General inpatient 32,567  36,241  (10.1)
Total days of care 1,531,957  1,490,446  2.8

Over 90% of VITAS’

The decrease in service revenues forat VITAS is comprised primarily of a 4.4% decrease in days-of-care and by a geographically weighted average Medicare reimbursement rate decrease of approximately 0.2%. Reimbursement rates in the periodquarter were fromnegatively impacted by 200-basis points as a result of CMS reimplementing the 2% sequestration cut that was suspended at the start of the pandemic Acuity mix shift had a net impact of reducing revenue approximately $5.3 million, or 1.7% in the quarter when compared to the prior year revenue and level-of-care mix. The combination of an increase in Medicare cap and Medicaid.


other contra revenue changes negatively impacted revenue growth by approximately 30 basis points.

The increase in plumbing revenues for the third quarter of 20172022 versus 20162021 is attributable to a 14.2%10.8% increase in price and service mix shift as well asoffset by a 1.0% increase2.8% decrease in job count. Drain cleaning revenues for the third quarter of 20172022 versus 20162021 reflect a 6.2%7.6% increase in price and service mix shift offset by a 2.1%an 8.1% decrease in job count. WaterExcavation and water restoration for the third quarter of 2017 versus 2016 increased 77.2%jobs are generally sold as a result of continued expansion of this service offering includinginitial calls from customers regarding drain cleaning issues. As a 38.0%result, the 3.0% increase in numberexcavation revenue and the 9.7% increase in water restoration revenue are mainly a function of jobs performed.the numbers and size of drain cleaning issues we encounter on a quarterly basis. Independent Contractor operationsrevenue increased 6.4%7.9% due mainly due to theirincreased expansion into water restoration.

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The consolidated gross margin was 31.0%34.1% in the third quarter of 20172022 as compared with 28.3%36.5% in the third quarter of 2016.2021. On a segment basis, VITAS’ gross margin was 23.1%19.1% in the third quarter of 20172022 as compared with 20.7%25.0%, in the third quarter of 2016.2021. The increasedecrease in VITAS gross margin at VITAS is mostly the result of labor and ancillary cost management.the $9.6 million expense recorded in the third quarter of 2022 for the licensed healthcare worker retention bonus program. The Roto-Rooter segment’s gross margin was 48.7%53.4% for the third quarter of 20172022 as compared with 47.8%53.0% in the third quarter of 2016.  The increase in Roto-Rooter gross margin is the result mainly of higher revenues, particularly in water restoration, with relatively low increase in branch level fixed costs.


2021.

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

Three months ended September 30,

2022

2021

SG&A expenses before long-term incentive compensation and the impact of market value adjustments related to deferred compensation trusts

$

85,118

$

84,197 

Impact of market value adjustments related to assets held in deferred compensation trusts

(3,176)

3,078 

Long-term incentive compensation

2,050

1,942 

Total SG&A expenses

$

83,992 

$

89,217 


  Three months ended September 30, 
  2017  2016 
SG&A expenses before market value adjustments of deferred compensation      
plans, long-term incentive compensation, and OIG investigation expenses $63,463  $56,475 
Impact of market value adjustments related to assets held in deferred        
compensation trusts  1,417   1,656 
Long-term incentive compensation  1,104   643 
Expenses related to OIG investigation  935   599 
Total SG&A expenses $66,919  $59,373 

SG&A expenses before long-term incentive compensation expenses related to OIG investigation and the impact of market value adjustments related to assets held in deferred compensation trusts for the third quarter of 20172022 were up 12.4%1.1% when compared to the third quarter of 2016.2021. This increase was mainly a result of the increase in variable selling and general administrative expenses caused by increased revenue, particularly in the Roto-Rooter segment, increased advertising expense at Roto-Rooter and normal salary increases in 2017.

Duringincreases.

Amortization for the third quarter of 2017, a credit of $371,0002022 was recorded dueflat when compared to the recovery of previously recognized expenses related to the closure of the programs in one state at Vitas.  There were no other operating expenses recorded in the third quarter of 2016.


2021. Quarterly amortization of intangible assets is mainly driven by two Roto-Rooter franchise acquisitions completed in 2019. The total purchase price of these acquisitions was $138.0 million. As part of the purchase price allocation, approximately $59.2 million was determined to be the value of reacquired franchise rights which are being amortized over the remaining life of each franchise agreement. The average remaining life on the reacquired franchise agreements was approximately seven years. Quarterly amortization of reacquired franchise rights for these two acquisitions is approximately $2.0 million ($8.1 million annualized through 2026). This contrasts to quarterly franchise fees historically collected from these two franchisees of approximately $470,000 ($1.9 million annualized).

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

Three months ended September 30,

2022

2021

Market value adjustment on assets held in deferred compensation trusts

$

(3,176)

$

3,078 

Interest income

62 

57 

Other

(1)

(1)

Total (expense)/other income - net

$

(3,115)

$

3,134 

  Three months ended September 30, 
  2017  2016 
Market value adjustment on assets held in      
deferred compensation trusts $1,417  $1,656 
Loss on disposal of property and equipment  (146)  (134)
Interest income  51   119 
Other  1   (1)
Total other income/(expense) - net $1,323  $1,640 

Our effective income tax rate was 34.7% in the third quarter of 2017 compared to 38.3% during the third quarter of 2016.  The change in the effective income tax ratereconciliation is a result of the adoption of ASU No. 2016-09 – Compensation – Stock Compensation in 2017 which requires that the excess tax benefits from stock based compensation now be recorded in the income tax provision on the statements of income.  Excluding the adoption of the ASU, our effective income tax rate is 38.0%.as follows (in thousands):

Three months ended September 30,

2022

2021

Income tax provision calculated at the statutory federal rate

$

16,059 

$

20,038 

Stock compensation tax benefits

(450)

(1,199)

State and local income taxes

2,946 

3,153 

Other--net

1,043 

1,425 

Income tax provision

$

19,598 

$

23,417 

Effective tax rate

25.6 

%

24.5 

%



‎

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-27-

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

Three months ended September 30,

2022

2021

VITAS

Licensed healthcare worker retention bonus

$

(7,131)

$

-

Direct costs related to COVID-19

-

(1,866)

Roto-Rooter

Amortization of reacquired franchise agreements

(1,729)

(1,729)

Direct costs related to COVID-19

-

(305)

Corporate

Stock option expense

(4,060)

(3,462)

Excess tax benefits on stock compensation

450

1,199

Long-term incentive compensation

(1,836)

(1,752)

Direct costs related to COVID-19

(68)

-

Other

-

(166)

Total

$

(14,374)

$

(8,081)

  Three months ended September 30, 
  2017  2016 
VITAS      
Expenses related to OIG investigation $(578) $(370)
Program closure income  223   - 
Medicare cap sequestration adjustment  -   (141)
Corporate        
Excess tax benefits on stock compensation  1,783   - 
Stock option expense  (1,064)  (897)
Long-term incentive compensation  (699)  (406)
Total $(335) $(1,814)

Three months ended September 30, 20172022 versus 20162021 - Segment Results


The change in net

Net income/(loss) for the third quarter of 20172022 versus the third quarter of 2016 is due to2021 by segment (in thousands):

Three months ended September 30,

2022

2021

VITAS

$

26,086

$

42,950

Roto-Rooter

47,586

44,554

Corporate

(16,799)

(15,501)

$

56,873

$

72,003


  Increase/(Decrease) 
  Amount  Percent 
VITAS $5,551   26.6 
Roto-Rooter  3,179   24.7 
Corporate  (122)  (1.8)
  $ 8,608   32.1 

VITAS’ after-tax earnings were positively impacteddecreased primarily due to lower revenue and $7.1 million in 2017after-tax expense related to VITAS’ licensed healthcare worker retention bonus program, in the third quarter of 2022 when compared to 2016 by a $6.1 million increase in revenue and a $2.3 million decrease in costthe third quarter of services provided and goods sold.2021. After-tax earnings as a percent of revenue at VITAS in the third quarter of 2017 were 9.2%, an increase of 1.8% over2022 was 8.8% as compared to 13.5% in the third quarter of 2016.


2021.

Roto-Rooter’s net income was positively impacted in 2017the third quarter of 2022 compared to 2016the third quarter of 2021 primarily by a $9.2 million revenue increase in Roto-Rooter’s water restoration line of business and a $7.3 million increase in plumbinghigher revenue. After-tax earnings as a percent of revenue at Roto-Rooter in the third quarter of 20172022 was 12.5%20.7%, as compared to 11.7%20.1% in the third quarter of 2016.2021.

After-tax Corporate expenses for the third quarter of 2022 increased 8.4% when compared to 2021 due to an increase in stock-based compensation and a decrease in the excess tax benefits on stock compensation.


‎


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Results of Operations

Nine months ended September 30, 20172022 versus 20162021 - Consolidated Results

Our service revenues and sales for the first nine months of 2017 increased 5.5%2022 decreased 0.6% versus services and sales revenues for the first nine months of 2016.2021. Of this increase, a $16.9decrease, $51.6 million increase was attributable to VITAS, and $48.1offset by a $41.7 million increase was attributable to Roto-Rooter. The following chart shows the components of those changesrevenue by operating segment (in thousands):

Nine months ended September 30,

Increase/(Decrease)

2022

2021

Percent

VITAS

Routine homecare

$

771,520 

$

796,817 

(3.2)

Continuous care

57,717 

73,658 

(21.6)

General inpatient

75,714 

85,895 

(11.9)

Other

9,461 

9,241 

2.4 

Subtotal

914,412 

965,611 

(5.3)

Medicare cap adjustment

(5,118)

(3,597)

(42.3)

Room and board - net

(6,796)

(7,451)

8.8 

Implicit price concessions

(8,992)

(9,428)

4.6 

Net revenue

$

893,506 

$

945,135 

(5.5)

Roto-Rooterf

Drain cleaning

$

193,983 

$

187,477 

3.5 

Plumbing

145,294 

131,045 

10.9 

Excavation

164,898 

159,714 

3.2 

Other

513 

853 

(39.9)

Subtotal - short term core

504,688 

479,089 

5.3 

Water restoration

127,678 

115,804 

10.3 

Independent Contractors

62,897 

56,754 

10.8 

Outside franchisee fees

4,246 

3,842 

10.5 

Other

12,462 

11,601 

7.4 

Gross revenue

711,971 

667,090 

6.7 

Implicit price concessions

(17,168)

(13,942)

(23.1)

Net revenue

694,803 

$

653,148 

6.4 

Total Revenues

$

1,588,309 

$

1,598,283 

(0.6)


  Increase/(Decrease) 
  Amount  Percent 
VITAS      
Routine homecare $33,882   5.1 
Continuous care  (11,600)  (10.9)
General inpatient  (5,417)  (7.3)
Medicare cap  (19)  (8.3)
Roto-Rooter        
Plumbing  16,852   11.6 
Drain cleaning  3,454   3.2 
Water restoration  23,597   64.6 
Contractor operations  3,180   10.8 
Other  1,033   6.9 
Total $64,962   5.5 
-22-
The increase in VITAS’ revenues for the first nine months of 2017 versus the first nine months of 2016 was comprised of an average net Medicare reimbursement rate increasing approximately 1.3%, a 2.7% increase in days

Days of care offset by acuity mix shift which negatively impacted revenue when compared to the prior year period.


Days of careat VITAS during the nine months ended September 30 were as follows:

Days of Care

Increase/(Decrease)

2022

2021

Percent

Routine homecare

3,796,954 

4,008,215 

(5.3)

Nursing home

771,921 

735,906 

4.9 

Respite

18,098 

15,509 

16.7 

Subtotal routine homecare and respite

4,586,973 

4,759,630 

(3.6)

General inpatient

71,177 

82,129 

(13.3)

Continuous care

61,981 

79,385 

(21.9)

Total days of care

4,720,131 

4,921,144 

(4.1)

 Days of Care Increase/(Decrease)
 2017 2016 Percent
      
Routine homecare 4,256,541  4,109,775  3.6
Continuous care 129,762  145,327  (10.7)
General inpatient 97,803  111,323  (12.1)
Total days of care 4,484,106  4,366,425  2.7

Over 90% of VITAS’

The decrease in service revenues at VITAS is comprised primarily of a 4.1% decrease in days-of-care offset by a geographically weighted average Medicare reimbursement rate increase of approximately 0.6%. Reimbursement rates for the nine months ended September 30, 2022 were negatively impacted by 90-basis points as a result of CMS reimplementing the sequestration cut that was suspended at the start of the pandemic. Acuity mix shift had a net impact of reducing revenue approximately 1.9% in the nine months period were fromwhen compared to the prior year revenue and level-of-care mix. The combination of an increase in Medicare cap and Medicaid.


other contra revenue changes negatively impacted revenue growth by approximately 10 basis points.

The increase in plumbing revenues for the first nine months of 20172022 versus 20162021 is attributable primarily to a 12.3% increase in price and service mix shift as well as a 0.6% increaseand 1.4% decrease in job count. Drain cleaning revenues for the first nine months of 20172022 versus 20162021 reflect a 5.3%an 10.1% increase in price and service mix shift offset by a 2.1%6.6% decrease in job count. WaterExcavation and water restoration for the first nine months of 2017 versus 2016 increased 64.6%jobs are generally sold as a result of continued expansion of this service offering includinginitial calls from customers regarding drain cleaning issues. As a 32.6%result, the 3.2% increase in jobs performed.excavation revenue and the 10.3% increase in water restoration revenue are mainly a function of the numbers and size of drain cleaning issues we encounter on a quarterly basis. Independent Contractor operationsrevenue increased 10.8% due mainly due to theirincreased expansion into water restoration.


-29-

The consolidated gross margin was 30.6%35.8% in the first nine months of 20172022 as compared with 28.7%35.4% in the first nine months of 2016.2021. On a segment basis, VITAS’ gross margin was 22.5%22.3% in the first nine months of 20172022 as compared with 21.1%23.4%, in the first nine months of 2016.  The increase in2021 primarily due to reduced revenue and $9.6 million of expense related to VITAS’ gross margin is the result of mix shift to higher margin care, labor and ancillary cost management.licensed healthcare worker retention bonus program. The Roto-Rooter segment’s gross margin was 48.9%53.1% for the first nine months of 20172022 as compared with 48.0%52.7% in the first nine months of 2016.  The increase in the Roto-Rooter gross margin is the result mainly of higher revenues, particularly in water restoration, with relatively low increase in branch level fixed costs.


2021 primarily due to increased revenue.

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

Nine months ended September 30,

2022

2021

SG&A expenses before long-term incentive compensation and the impact of market value adjustments related to deferred compensation trusts

$

269,118 

$

259,376 

Impact of market value adjustments related to assets held in deferred compensation trusts

(12,196)

9,770 

Long-term incentive compensation

4,877 

5,508 

Total SG&A expenses

$

261,799 

$

274,654 


  Nine months ended September 30, 
  2017  2016 
SG&A expenses before market value adjustments of deferred compensation      
plans, long-term incentive compensation, and OIG investigation expenses $191,213  $174,183 
Impact of market value adjustments related to assets held in deferred        
compensation trusts  5,619   1,857 
Expenses related to OIG investigation  5,178   4,105 
Long-term incentive compensation  3,021   901 
Total SG&A expenses $205,031  $181,046 

SG&A expenses before long-term incentive compensation expenses related to OIG investigation and the impact of market value adjustments related to assets held in deferred compensation trusts for the first nine months of 20172022 were up 9.8%3.8% when compared to the first nine months of 2016.2021. This increase was mainly a result of the increase in variable selling and general administrative expenses caused by increased revenue, particularly in the in the Roto-Rooter segment, increased advertising expense at Roto-Rooter and due to normal salary increases in 2017.

Other operating expenses were $91.1 million during the first nine months of 2017 related to a $90.0 million potential litigation settlement and $1.1 million related to the closure of the programs in one state at Vitas.  During the first nine months of 2016, the Company recorded $4.5 million related to early retirement expenses.

-23-
Other income - net comprise (in thousands):

  Nine months ended September 30, 
  2017  2016 
Market value adjustment on assets held in      
deferred compensation trusts $5,619  $1,857 
Loss on disposal of property and equipment  (481)  (224)
Interest income  297   301 
Other  4   (1)
Total other income - net $5,439  $1,933 

Our effective income tax rate was 25.8% in the first nine months of 2017 compared to 38.6% during the first nine months of 2016.  The change in the effective income tax rate is due to the adoption of ASU No. 2016-09 – Compensation – Stock Compensation which requires that the excess tax benefits from stock based compensation now be recorded in the income tax provision on the statements of income.  Excluding the impact of the ASU, our effective income tax rateincreases.

Amortization for the first nine months of 20172022 was 39.6%flat when compared to the first nine months of 2021. Quarterly amortization of intangible assets is mainly driven by two Roto-Rooter franchise acquisitions completed in 2019. The total purchase price of these acquisitions was $138.0 million. As part of the purchase price allocation, approximately $59.2 million was determined to be the value of reacquired franchise rights which are being amortized over the remaining life of each franchise agreement. The average remaining life on the reacquired franchise agreements was approximately seven years. Quarterly amortization of reacquired franchise rights for these two acquisitions is approximately $2.0 million ($8.1 million annualized through 2026). This contrasts to quarterly franchise fees historically collected from these two franchisees of approximately $470,000 ($1.9 million annualized).

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

Nine months ended September 30,

2022

2021

Market value adjustment on assets held in deferred compensation trusts

$

(12,196)

$

9,770 

Interest income

288 

288 

Other

1 

463 

Total other (expense)/income - net

$

(11,907)

$

10,521 

Our effective tax rate reconciliation is as follows (in thousands):

Nine months ended September 30,

2022

2021

Income tax provision calculated at the statutory federal rate

$

51,929 

$

53,379 

Stock compensation tax benefits

(4,390)

(5,305)

State and local income taxes

9,329 

9,332 

Other--net

2,913 

2,856 

Income tax provision

$

59,781 

$

60,262 

Effective tax rate

24.2 

%

23.7 

%


‎


-30-

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

Nine months ended September 30,

2022

2021

VITAS

Licensed healthcare worker retention bonus

$

(7,131)

$

-

Direct costs related to COVID-19

(231)

(11,442)

Medicare cap sequestration adjustment

(103)

-

Facility relocation costs

-

(1,384)

Roto-Rooter

Amortization of reacquired franchise agreements

(5,186)

(5,186)

Direct costs related to COVID-19

(727)

(1,140)

Litigation settlements

-

72

Corporate

Stock option expense

(16,220)

(13,695)

Excess tax benefits on stock compensation

4,390

5,305

Long-term incentive compensation

(4,343)

(4,964)

Direct costs related to COVID-19

(68)

(29)

Other

-

(166)

Total

$

(29,619)

$

(32,629)

  Nine Months Ended September 30, 
  2017  2016 
VITAS      
Potential litigation settlement $(55,800) $- 
Expenses related to OIG investigation  (3,198)  (2,535)
Program closure expenses  (675)  - 
Medicare cap sequestration adjustment  (65)  (141)
Early retirement expenses  -   (2,840)
Roto-Rooter        
Expenses related to litigation settlements  (129)  (27)
Corporate        
Excess tax benefits on stock compensation  8,121   - 
Stock option expense  (4,892)  (3,958)
Long-term incentive compensation  (1,911)  (570)
Total $(58,549) $(10,071)

Nine months ended September 30, 20172022 versus 20162021 - Segment Results


The change in net

Net income/(loss) for the first nine months of 20172022 versus the first nine months of 2016 is2021 by segment (in thousands):

Nine months ended September 30,

2022

2021

VITAS

$

97,779

$

113,430

Roto-Rooter

138,595

124,504

Corporate

(48,876)

(44,009)

$

187,498

$

193,925

VITAS’ after-tax earnings decreased primarily due to (in thousands):

  Increase/(Decrease) 
  Amount  Percent 
VITAS $(43,741)  (74.7)
Roto-Rooter  8,500   21.7 
Corporate  2,312   10.9 
  $ (32,929)  (43.0)

lower revenue, lower depreciation, and $7.1 million in after-tax expense related to VITAS’ 2017 after-tax earnings were impacted in 2017licensed healthcare worker retention bonus program for the first nine months of 2022 when compared to 2016 bythe first nine months of 2021. After-tax earnings as a $55.8 million (after-tax) potential ligation settlement offset by a $16.8 million increasepercent of revenue at VITAS in revenue and a $1.2 million decreasethe first nine months of 2022 was 10.9% as compared to 12.0% in costthe first nine months of services provided and goods sold.
-24-
2021.

Roto-Rooter’s net income was positively impacted in 2017the first nine months of 2022 compared to 2016the first nine months of 2021 primarily by a $23.6 million revenue increase in Roto-Rooter’s water restoration line of business, a $16.9 million increase in plumbinghigher revenue and a $7.7 million increase in all other revenue types.improved labor costs. After-tax earnings as a percent of revenue at Roto-Rooter in 2017 were 12.5%the first nine months of 2022 was 19.9%, as compared to 11.7%19.1% in 2016.


The improvement atthe first nine months of 2021.

After-tax Corporate is due mainlyexpenses for the first nine months of 2022 increased 11.1% when compared to the impactfirst nine months of the adoption of ASU 2016-09 which positively impacted the Company’s2021 due to a $2.5 million increase in stock-based compensation expense and a $1.4 million increase in after tax provision by approximately $8.1 million which is partially offset by higher stock based compensation expenses.


interest expense.


‎

-25-

-31-

CHEMED CORPORATION AND SUBSIDIARY COMPANIES

CONSOLIDATING STATEMENTS OF INCOME

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2022

(in thousands)(unaudited)

Chemed

VITAS

Roto-Rooter

Corporate

Consolidated

2022 (a)

                         

                         

                         

                         

Service revenues and sales

$

296,536 

$

229,936 

$

-

$

526,472 

Cost of services provided and goods sold

239,755 

107,179 

-

346,934 

Selling, general and administrative expenses

21,581 

53,225 

9,186 

83,992 

Depreciation

5,281 

6,855 

18 

12,154 

Amortization

26 

2,494 

-

2,520 

Other operating (income)/expense

26 

(11)

-

15 

Total costs and expenses

266,669 

169,742 

9,204 

445,615 

Income/(loss) from operations

29,867 

60,194 

(9,204)

80,857 

Interest expense

(44)

(91)

(1,136)

(1,271)

Intercompany interest income/(expense)

4,842 

2,371 

(7,213)

-

Other income—net

26 

36 

(3,177)

(3,115)

Income/(expense) before income taxes

34,691 

62,510 

(20,730)

76,471 

Income taxes

(8,605)

(14,924)

3,931 

(19,598)

Net income/(loss)

$

26,086 

$

47,586 

$

(16,799)

$

56,873 

(a) The following amounts are included in net income (in thousands):

Chemed

VITAS

Roto-Rooter

Corporate

Consolidated

Pretax benefit/(cost):

Licensed healthcare worker retention bonus

$

(9,559)

$

-

$

-

$

(9,559)

Stock option expense

-

-

(4,676)

(4,676)

Amortization of reacquired franchise agreements

-

(2,352)

-

(2,352)

Long-term incentive compensation

-

-

(2,050)

(2,050)

Direct costs related to COVID-19

-

-

(89)

(89)

Total

$

(9,559)

$

(2,352)

$

(6,815)

$

(18,726)

Chemed

VITAS

Roto-Rooter

Corporate

Consolidated

After-tax benefit/(cost):

Licensed healthcare worker retention bonus

$

(7,131)

$

-

$

-

$

(7,131)

Stock option expense

-

-

(4,060)

(4,060)

Long-term incentive compensation

-

-

(1,836)

(1,836)

Amortization of reacquired franchise agreements

-

(1,729)

-

(1,729)

Direct costs related to COVID-19

-

-

(68)

(68)

Excess tax benefits on stock compensation

-

-

450 

450 

Total

$

(7,131)

$

(1,729)

$

(5,514)

$

(14,374)

CHEMED CORPORATION AND SUBSIDIARY COMPANIES 
CONSOLIDATING STATEMENT OF INCOME 
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2017 
(in thousands)(unaudited) 
           
         Chemed 
  VITAS  Roto-Rooter  Corporate  Consolidated 
2017 (a)            
Service revenues and sales $288,951  $128,493  $-  $417,444 
Cost of services provided and goods sold  222,119   65,928   -   288,047 
Selling, general and administrative expenses  23,783   33,694   9,442   66,919 
Depreciation  4,529   4,268   22   8,819 
Amortization  -   33   -   33 
Other operating expenses  (371)  -   -   (371)
Total costs and expenses  250,060   103,923   9,464   363,447 
Income/(loss) from operations  38,891   24,570   (9,464)  53,997 
Interest expense  (53)  (73)  (922)  (1,048)
Intercompany interest income/(expense)  2,950   1,378   (4,328)  - 
Other income/(expense)—net  (86)  (8)  1,417   1,323 
Income/(expense) before income taxes  41,702   25,867   (13,297)  54,272 
Income taxes  (15,248)  (9,833)  6,246   (18,835)
Net income/(loss) $26,454  $16,034  $(7,051) $35,437 
                 
(a) The following amounts are included in net income (in thousands):                
              Chemed 
  VITAS  Roto-Rooter  Corporate  Consolidated 
Pretax benefit/(cost):                
Stock option expense $-  $-  $(1,683) $(1,683)
Long-term incentive compensation  -   -   (1,104)  (1,104)
Program closure expenses  371   -   -   371 
Expenses related to OIG investigation  (935)  -   -   (935)
Total $(564) $-  $(2,787) $(3,351)
                 
              Chemed 
  VITAS  Roto-Rooter  Corporate  Consolidated 
After-tax benefit/(cost):                
Stock option expense $-  $-  $(1,064) $(1,064)
Long-term incentive compensation  -   -   (699)  (699)
Program closure expenses  223   -   -   223 
Expenses related to OIG investigation  (578)  -   -   (578)
Excess tax benefits on stock compensation  -   -   1,783   1,783 
Total $(355) $-  $20  $(335)


‎

-26-

-32-


CHEMED CORPORATION AND SUBSIDIARY COMPANIES

CONSOLIDATING STATEMENTS OF INCOME

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2021

(in thousands)(unaudited)

Chemed

VITAS

Roto-Rooter

Corporate

Consolidated

2021 (a)

                         

                         

                         

                         

Service revenues and sales

$

317,411 

$

221,256 

$

-

$

538,667 

Cost of services provided and goods sold

238,212 

103,952 

-

342,164 

Selling, general and administrative expenses

21,372 

51,914 

15,931 

89,217 

Depreciation

5,286 

6,539 

19 

11,844 

Amortization

18 

2,492 

-

2,510 

Other operating expense

65 

(3)

1 

63 

Total costs and expenses

264,953 

164,894 

15,951 

445,798 

Income/(loss) from operations

52,458 

56,362 

(15,951)

92,869 

Interest expense

(43)

(285)

(255)

(583)

Intercompany interest income/(expense)

4,513 

1,847 

(6,360)

-

Other income—net

22 

34 

3,078 

3,134 

Income/(expense) before income taxes

56,950 

57,958 

(19,488)

95,420 

Income taxes

(14,000)

(13,404)

3,987 

(23,417)

Net income/(loss)

$

42,950 

$

44,554 

$

(15,501)

$

72,003 

(a) The following amounts are included in net income (in thousands):

Chemed

VITAS

Roto-Rooter

Corporate

Consolidated

Pretax benefit/(cost):

Stock option expense

$

-

$

$

(3,998)

$

(3,998)

Direct costs related to COVID-19

(2,501)

(415)

-

(2,916)

Amortization of reacquired franchise agreements

-

(2,352)

-

(2,352)

Long-term incentive compensation

-

-

(1,942)

(1,942)

Other

-

(218)

(218)

Total

$

(2,501)

$

(2,767)

$

(6,158)

$

(11,426)

Chemed

VITAS

Roto-Rooter

Corporate

Consolidated

After-tax benefit/(cost):

Stock option expense

$

-

$

-

$

(3,462)

$

(3,462)

Direct costs related to COVID-19

(1,866)

(305)

-

(2,171)

Amortization of reacquired franchise agreements

-

(1,729)

-

(1,729)

Long-term incentive compensation

-

-

(1,752)

(1,752)

Other

-

(166)

(166)

Excess tax benefits on stock compensation

-

-

1,199 

1,199 

Total

$

(1,866)

$

(2,034)

$

(4,181)

$

(8,081)

CHEMED CORPORATION AND SUBSIDIARY COMPANIES 
CONSOLIDATING STATEMENT OF INCOME 
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2016 
(in thousands)(unaudited) 
           
         Chemed 
  VITAS  Roto-Rooter  Corporate  Consolidated 
2016 (a)            
Service revenues and sales $282,865  $109,742  $-  $392,607 
Cost of services provided and goods sold  224,410   57,248   -   281,658 
Selling, general and administrative expenses  21,775   28,635   8,963   59,373 
Depreciation  4,751   3,731   132   8,614 
Amortization  14   77   -   91 
Total costs and expenses  250,950   89,691   9,095   349,736 
Income/(loss) from operations  31,915   20,051   (9,095)  42,871 
Interest expense  (59)  (78)  (881)  (1,018)
Intercompany interest income/(expense)  1,810   800   (2,610)  - 
Other income/(expense)—net  (1)  (14)  1,655   1,640 
Income/(expense) before income taxes  33,665   20,759   (10,931)  43,493 
Income taxes  (12,762)  (7,904)  4,002   (16,664)
Net income/(loss) $20,903  $12,855  $(6,929) $26,829 
                 
(a) The following amounts are included in net income (in thousands):                
              Chemed 
  VITAS  Roto-Rooter  Corporate  Consolidated 
Pretax benefit/(cost):                
Stock option expense $-  $-  $(1,419) $(1,419)
Long-term incentive compensation  -   -   (643)  (643)
Medicare cap sequestration adjustment  (228)  -   -   (228)
Expenses related to OIG investigation  (599)  -   -   (599)
Total $(827) $-  $(2,062) $(2,889)
                 
              Chemed 
  VITAS  Roto-Rooter  Corporate  Consolidated 
After-tax benefit/(cost):                
Stock option expense $-  $-  $(897) $(897)
Long-term incentive compensation  -   -   (406)  (406)
Medicare cap sequestration adjustment  (141)  -   -   (141)
Expenses related to OIG investigation  (370)  -   -   (370)
Total $(511) $-  $(1,303) $(1,814)


‎

-27-

-33-

CHEMED CORPORATION AND SUBSIDIARY COMPANIES

CONSOLIDATING STATEMENTS OF INCOME

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022

(in thousands)(unaudited)

Chemed

VITAS

Roto-Rooter

Corporate

Consolidated

2022 (a)

                         

                         

                         

                         

Service revenues and sales

$

893,506 

$

694,803 

$

-

$

1,588,309 

Cost of services provided and goods sold

694,528 

325,779 

-

1,020,307 

Selling, general and administrative expenses

67,181 

165,162 

29,456 

261,799 

Depreciation

16,894 

20,058 

54 

37,006 

Amortization

76 

7,482 

-

7,558 

Other operating (income)/expense

(929)

399 

-

(530)

Total costs and expenses

777,750 

518,880 

29,510 

1,326,140 

Income/(loss) from operations

115,756 

175,923 

(29,510)

262,169 

Interest expense

(142)

(319)

(2,522)

(2,983)

Intercompany interest income/(expense)

14,181 

6,751 

(20,932)

-

Other income—net

183 

107 

(12,197)

(11,907)

Income/(expense) before income taxes

129,978 

182,462 

(65,161)

247,279 

Income taxes

(32,199)

(43,867)

16,285 

(59,781)

Net income/(loss)

$

97,779 

$

138,595 

$

(48,876)

$

187,498 

(a) The following amounts are included in net income (in thousands):

Chemed

VITAS

Roto-Rooter

Corporate

Consolidated

Pretax benefit/(cost):

Stock option expense

$

-

$

-

$

(19,343)

$

(19,343)

Licensed healthcare worker retention bonus

(9,559)

-

-

(9,559)

Amortization of reacquired franchise agreements

-

(7,056)

-

(7,056)

Long-term incentive compensation

-

-

(4,877)

(4,877)

Direct costs related to COVID-19

(310)

(988)

(89)

(1,387)

Medicare cap sequestration adjustment

(138)

-

-

(138)

Total

$

(10,007)

$

(8,044)

$

(24,309)

$

(42,360)

Chemed

VITAS

Roto-Rooter

Corporate

Consolidated

After-tax benefit/(cost):

Stock option expense

$

-

$

-

$

(16,220)

$

(16,220)

Licensed healthcare worker retention bonus

(7,131)

-

-

(7,131)

Amortization of reacquired franchise agreements

-

(5,186)

-

(5,186)

Long-term incentive compensation

-

-

(4,343)

(4,343)

Direct costs related to COVID-19

(231)

(727)

(68)

(1,026)

Medicare cap sequestration adjustment

(103)

-

-

(103)

Excess tax benefits on stock compensation

-

-

4,390 

4,390 

Total

$

(7,465)

$

(5,913)

$

(16,241)

$

(29,619)

CHEMED CORPORATION AND SUBSIDIARY COMPANIES 
CONSOLIDATING STATEMENT OF INCOME 
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017 
(in thousands)(unaudited) 
           
         Chemed 
  VITAS  Roto-Rooter  Corporate  Consolidated 
2017 (a)            
Service revenues and sales $855,977  $382,390  $-  $1,238,367 
Cost of services provided and goods sold  663,565   195,474   -   859,039 
Selling, general and administrative expenses  72,608   100,917   31,506   205,031 
Depreciation  14,048   12,322   175   26,545 
Amortization  14   97   -   111 
Other operating expenses  91,138   -   -   91,138 
Total costs and expenses  841,373   308,810   31,681   1,181,864 
Income/(loss) from operations  14,604   73,580   (31,681)  56,503 
Interest expense  (161)  (259)  (2,744)  (3,164)
Intercompany interest income/(expense)  8,478   4,035   (12,513)  - 
Other income/(expense)—net  (95)  (85)  5,619   5,439 
Income/(expense) before income taxes  22,826   77,271   (41,319)  58,778 
Income taxes  (8,029)  (29,555)  22,431   (15,153)
Net income/(loss) $14,797  $47,716  $(18,888) $43,625 
                 
                 
(a) The following amounts are included in net income (in thousands):         
              Chemed 
  VITAS  Roto-Rooter  Corporate  Consolidated 
Pretax benefit/(cost):                
Potential litigation settlement $(90,000) $-  $-  $(90,000)
Medicare cap sequestration adjustments  (105)  -   -   (105)
Stock option expense  -   -   (7,738)  (7,738)
Long-term incentive compensation  -   -   (3,021)  (3,021)
Expenses related to litigation settlements  -   (213)  -   (213)
Program closure expenses  (1,138)  -   -   (1,138)
Expenses related to OIG investigation  (5,178)  -   -   (5,178)
Total $(96,421) $(213) $(10,759) $(107,393)
                 
              Chemed 
  VITAS  Roto-Rooter  Corporate  Consolidated 
After-tax benefit/(cost):                
Potential litigation settlement $(55,800) $-  $-  $(55,800)
Medicare cap sequestration adjustments  (65)  -   -   (65)
Stock option expense  -   -   (4,892)  (4,892)
Long-term incentive compensation  -   -   (1,911)  (1,911)
Expenses related to litigation settlements  -   (129)  -   (129)
Program closure expenses  (675)  -   -   (675)
Expenses related to OIG investigation  (3,198)  -   -   (3,198)
Excess tax benefits on stock compensation  -   -   8,121   8,121 
Total $(59,738) $(129) $1,318  $(58,549)


‎

-28-

-34-


CHEMED CORPORATION AND SUBSIDIARY COMPANIES

CONSOLIDATING STATEMENTS OF INCOME

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021

(in thousands)(unaudited)

Chemed

VITAS

Roto-Rooter

Corporate

Consolidated

2021 (a)

                         

                         

                         

                         

Service revenues and sales

$

945,135 

$

653,148 

$

-

$

1,598,283 

Cost of services provided and goods sold

724,398 

308,732 

-

1,033,130 

Selling, general and administrative expenses

66,094 

158,791 

49,769 

274,654 

Depreciation

17,749 

19,359 

63 

37,171 

Amortization

53 

7,477 

-

7,530 

Other operating expense

655 

133 

1 

789 

Total costs and expenses

808,949 

494,492 

49,833 

1,353,274 

Income/(loss) from operations

136,186 

158,656 

(49,833)

245,009 

Interest expense

(129)

(464)

(750)

(1,343)

Intercompany interest income/(expense)

13,524 

5,116 

(18,640)

-

Other income—net

654 

97 

9,770 

10,521 

Income/(expense) before income taxes

150,235 

163,405 

(59,453)

254,187 

Income taxes

(36,805)

(38,901)

15,444 

(60,262)

Net income/(loss)

$

113,430 

$

124,504 

$

(44,009)

$

193,925 

(a) The following amounts are included in net income (in thousands):

Chemed

VITAS

Roto-Rooter

Corporate

Consolidated

Pretax benefit/(cost):

Direct costs related to COVID-19

$

(15,338)

$

(1,551)

$

(38)

$

(16,927)

Stock option expense

-

-

(16,342)

(16,342)

Amortization of reacquired franchise agreements

-

(7,056)

-

(7,056)

Long-term incentive compensation

-

-

(5,508)

(5,508)

Facility relocation costs

(1,855)

-

-

(1,855)

Litigation settlements

-

98 

-

98 

Other

-

-

(218)

(218)

Total

$

(17,193)

$

(8,509)

$

(22,106)

$

(47,808)

Chemed

VITAS

Roto-Rooter

Corporate

Consolidated

After-tax benefit/(cost):

Stock option expense

$

-

$

-

$

(13,695)

$

(13,695)

Direct costs related to COVID-19

(11,442)

(1,140)

(29)

(12,611)

Amortization of reacquired franchise agreements

-

(5,186)

-

(5,186)

Long-term incentive compensation

-

-

(4,964)

(4,964)

Facility relocation costs

(1,384)

-

-

(1,384)

Litigation settlements

-

72 

-

72 

Other

-

-

(166)

(166)

Excess tax benefits on stock compensation

-

-

5,305 

5,305 

Total

$

(12,826)

$

(6,254)

$

(13,549)

$

(32,629)

CHEMED CORPORATION AND SUBSIDIARY COMPANIES 
CONSOLIDATING STATEMENT OF INCOME 
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016 
(in thousands)(unaudited) 
           
         Chemed 
  VITAS  Roto-Rooter  Corporate  Consolidated 
2016 (a)            
Service revenues and sales $839,131  $334,274  $-  $1,173,405 
Cost of services provided and goods sold  662,371   173,977   -   836,348 
Selling, general and administrative expenses  69,197   87,890   23,959   181,046 
Depreciation  14,346   10,860   413   25,619 
Amortization  41   233   -   274 
Other operating expenses  4,491   -   -   4,491 
Total costs and expenses  750,446   272,960   24,372   1,047,778 
Income/(loss) from operations  88,685   61,314   (24,372)  125,627 
Interest expense  (176)  (264)  (2,391)  (2,831)
Intercompany interest income/(expense)  5,840   2,614   (8,454)  - 
Other income/(expense)—net  76   (2)  1,859   1,933 
Income/(expense) before income taxes  94,425   63,662   (33,358)  124,729 
Income taxes  (35,887)  (24,446)  12,158   (48,175)
Net income/(loss) $58,538  $39,216  $(21,200) $76,554 
                 
                 
(a) The following amounts are included in net income (in thousands):         
              Chemed 
  VITAS  Roto-Rooter  Corporate  Consolidated 
Pretax benefit/(cost):                
Stock option expense $-  $-  $(6,259) $(6,259)
Medicare cap sequestration adjustment  (228)  -   -   (228)
Long-term incentive compensation  -   -   (901)  (901)
Early retirement expenses  (4,491)  -   -   (4,491)
Expenses related to litigation settlements  -   (44)  -   (44)
Expenses related to OIG investigation  (4,105)  -   -   (4,105)
Total $(8,824) $(44) $(7,160) $(16,028)
                 
              Chemed 
  VITAS  Roto-Rooter  Corporate  Consolidated 
After-tax benefit/(cost):                
Stock option expense $-  $-  $(3,958) $(3,958)
Medicare cap sequestration adjustment  (141)  -   -   (141)
Long-term incentive compensation  -   -   (570)  (570)
Early retirement expenses  (2,840)  -   -   (2,840)
Expenses related to litigation settlements  -   (27)  -   (27)
Expenses related to OIG investigation  (2,535)  -   -   (2,535)
Total $(5,516) $(27) $(4,528) $(10,071)


‎

-29-

-35-


Unaudited Consolidating Summary and Reconciliation of Adjusted EBITDA

Chemed Corporation and Subsidiary Companies

(in thousands)

Chemed

For the three months ended September 30, 2022

VITAS

Roto-Rooter

Corporate

Consolidated

                         

                         

                         

Net income/(loss)

$

26,086 

$

47,586 

$

(16,799)

$

56,873 

Add/(deduct):

Interest expense

44 

91 

1,136 

1,271 

Income taxes

8,605 

14,924 

(3,931)

19,598 

Depreciation

5,281 

6,855 

18 

12,154 

Amortization

26 

2,494 

-

2,520 

EBITDA

40,042 

71,950 

(19,576)

92,416 

Add/(deduct):

Intercompany interest expense/(income)

(4,842)

(2,371)

7,213 

-

Interest income

(27)

(35)

-

(62)

Licensed healthcare retention bonus

9,559 

-

-

9,559 

Stock option expense

-

-

4,676 

4,676 

Long-term incentive compensation

-

-

2,050 

2,050 

Direct costs related to COVID-19

-

-

89 

89 

Adjusted EBITDA

$

44,732 

$

69,544 

$

(5,548)

$

108,728 

Chemed

For the three months ended September 30, 2021

VITAS

Roto-Rooter

Corporate

Consolidated

Net income/(loss)

$

42,950 

$

44,554 

$

(15,501)

$

72,003 

Add/(deduct):

Interest expense

43 

285 

255 

583 

Income taxes

14,000 

13,404 

(3,987)

23,417 

Depreciation

5,286 

6,539 

19 

11,844 

Amortization

18 

2,492 

-

2,510 

EBITDA

62,297 

67,274 

(19,214)

110,357 

Add/(deduct):

Intercompany interest expense/(income)

(4,513)

(1,847)

6,360 

-

Interest income

(24)

(34)

-

(58)

Stock option expense

-

-

3,998 

3,998 

Direct costs related to COVID-19

2,501 

415 

-

2,916 

Long-term incentive compensation

-

-

1,942 

1,942 

Other

-

-

218 

218 

Adjusted EBITDA

$

60,261 

$

65,808 

$

(6,696)

$

119,373 

Unaudited Consolidating Summary and Reconciliation of Adjusted EBITDA 
             
Chemed Corporation and Subsidiary Companies    
(in thousands)          Chemed 
For the three months ended September 30, 2017 VITAS  Roto-Rooter  Corporate  Consolidated 
             
Net income/(loss) $26,454  $16,034  $(7,051) $35,437 
Add/(deduct):                
Interest expense  53   73   922   1,048 
Income taxes  15,248   9,833   (6,246)  18,835 
Depreciation  4,529   4,268   22   8,819 
Amortization  -   33   -   33 
EBITDA  46,284   30,241   (12,353)  64,172 
Add/(deduct):                
Intercompany interest expense/(income)  (2,950)  (1,378)  4,328   - 
Interest income  (48)  (4)  -   (52)
Expenses related to OIG investigation  935   -   -   935 
Program closure expenses  (371)  -   -   (371)
Amortization of stock awards  72   67   156   295 
Advertising cost adjustment  -   (162)  -   (162)
Stock option expense  -   -   1,683   1,683 
Long-term incentive compensation  -   -   1,104   1,104 
Adjusted EBITDA $43,922  $28,764  $(5,082) $67,604 
                 
              Chemed 
For the three months ended September 30, 2016 VITAS  Roto-Rooter  Corporate  Consolidated 
                 
Net income/(loss) $20,903  $12,855  $(6,929) $26,829 
Add/(deduct):                
Interest expense  59   78   881   1,018 
Income taxes  12,762   7,904   (4,002)  16,664 
Depreciation  4,751   3,731   132   8,614 
Amortization  14   77   -   91 
EBITDA  38,489   24,645   (9,918)  53,216 
Add/(deduct):                
Intercompany interest expense/(income)  (1,810)  (800)  2,610   - 
Interest income  (108)  (11)  -   (119)
Expenses related to litigation settlements  1,149   -   -   1,149 
Expenses related to OIG investigation  599   -   -   599 
Medicare cap sequestration adjustment  228   -   -   228 
Amortization of stock awards  85   76   279   440 
Advertising cost adjustment  -   (188)  -   (188)
Stock option expense  -   -   1,419   1,419 
Long-term incentive compensation  -   -   643   643 
Adjusted EBITDA $38,632  $23,722  $(4,967) $57,387 


‎

-30-

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Unaudited Consolidating Summary and Reconciliation of Adjusted EBITDA

Chemed Corporation and Subsidiary Companies

(in thousands)

Chemed

For the nine months ended September 30, 2022

VITAS

Roto-Rooter

Corporate

Consolidated

                         

                         

                         

Net income/(loss)

$

97,779 

$

138,595 

$

(48,876)

$

187,498 

Add/(deduct):

Interest expense

142 

319 

2,522 

2,983 

Income taxes

32,199 

43,867 

(16,285)

59,781 

Depreciation

16,894 

20,058 

54 

37,006 

Amortization

76 

7,482 

-

7,558 

EBITDA

147,090 

210,321 

(62,585)

294,826 

Add/(deduct):

Intercompany interest expense/(income)

(14,181)

(6,751)

20,932 

-

Interest income

(181)

(107)

-

(288)

Stock option expense

-

-

19,343 

19,343 

Licensed healthcare retention bonus

9,559 

-

-

9,559 

Long-term incentive compensation

-

-

4,877 

4,877 

Direct costs related to COVID-19

310 

988 

89 

1,387 

Medicare cap sequestration adjustment

138 

-

-

138 

Adjusted EBITDA

$

142,735 

$

204,451 

$

(17,344)

$

329,842 

Chemed

For the nine months ended September 30, 2021

VITAS

Roto-Rooter

Corporate

Consolidated

Net income/(loss)

$

113,430 

$

124,504 

$

(44,009)

$

193,925 

Add/(deduct):

Interest expense

129 

464 

750 

1,343 

Income taxes

36,805 

38,901 

(15,444)

60,262 

Depreciation

17,749 

19,359 

63 

37,171 

Amortization

53 

7,477 

-

7,530 

EBITDA

168,166 

190,705 

(58,640)

300,231 

Add/(deduct):

Intercompany interest expense/(income)

(13,524)

(5,116)

18,640 

-

Interest income

(191)

(97)

-

(288)

Direct costs related to COVID-19

15,338 

1,551 

38 

16,927 

Stock option expense

-

-

16,342 

16,342 

Long-term incentive compensation

-

-

5,508 

5,508 

Litigation settlement

-

(98)

-

(98)

Other

-

-

218 

218 

Adjusted EBITDA

$

169,789 

$

186,945 

$

(17,894)

$

338,840 

Unaudited Consolidating Summary and Reconciliation of Adjusted EBITDA 
             
Chemed Corporation and Subsidiary Companies    
(in thousands)          Chemed 
For the nine months ended September 30, 2017 VITAS  Roto-Rooter  Corporate  Consolidated 
             
Net income/(loss) $14,797  $47,716  $(18,888) $43,625 
Add/(deduct):                
Interest expense  161   259   2,744   3,164 
Income taxes  8,029   29,555   (22,431)  15,153 
Depreciation  14,048   12,322   175   26,545 
Amortization  14   97   -   111 
EBITDA  37,049   89,949   (38,400)  88,598 
Add/(deduct):                
Intercompany interest expense/(income)  (8,478)  (4,035)  12,513   - 
Interest income  (267)  (29)  -   (296)
Potential litigation settlement  90,000   -   -   90,000 
Medicare cap sequestration adjustment  105   -   -   105 
Program closure expenses  1,138   -   -   1,138 
Expenses related to OIG investigation  5,178   -   -   5,178 
Stock award amortization  220   203   510   933 
Advertising cost adjustment  -   (707)  -   (707)
Expenses related to litigation settlements  -   213   -   213 
Stock option expense  -   -   7,738   7,738 
Long-term incentive compensation  -   -   3,021   3,021 
Adjusted EBITDA $124,945  $85,594  $(14,618) $195,921 
                 
              Chemed 
For the nine months ended September 30, 2016 VITAS  Roto-Rooter  Corporate  Consolidated 
                 
Net income/(loss) $58,538  $39,216  $(21,200) $76,554 
Add/(deduct):                
Interest expense  176   264   2,391   2,831 
Income taxes  35,887   24,446   (12,158)  48,175 
Depreciation  14,346   10,860   413   25,619 
Amortization  41   233   -   274 
EBITDA  108,988   75,019   (30,554)  153,453 
Add/(deduct):                
Intercompany interest expense/(income)  (5,840)  (2,614)  8,454   - 
Interest income  (256)  (45)  -   (301)
Early retirement expenses  4,491   -   -   4,491 
Expenses related to OIG investigation  4,105   -   -   4,105 
Stock award amortization  302   230   883   1,415 
Medicare cap sequestration adjustment  228   -   -   228 
Expenses related to litigation settlements  1,149   44   -   1,193 
Advertising cost adjustment  -   (1,353)  -   (1,353)
Stock option expense  -   -   6,259   6,259 
Long-term incentive compensation  -   -   901   901 
Adjusted EBITDA $113,167  $71,281  $(14,057) $170,391 


‎

-31-

-37-

RECONCILIATION OF ADJUSTED NET INCOME

(in thousands, except per share data)(unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2022

2021

2022

2021

Net income as reported

$

56,873 

$

72,003 

$

187,498 

$

193,925 

Add/(deduct) pre-tax cost of:

Stock option expense

4,676 

3,998 

19,343 

16,342 

Licensed healthcare worker retention bonus

9,559 

-

9,559 

-

Amortization of reacquired franchise agreements

2,352 

2,352 

7,056 

7,056 

Long-term incentive compensation

2,050 

1,942 

4,877 

5,508 

Direct costs related to COVID-19

89 

2,916 

1,387 

16,927 

Medicare cap sequestration adjustment

-

-

138 

-

Facility relocation cost

-

-

-

1,855 

Litigation settlements

-

-

-

(98)

Other

-

218 

-

218 

Add/(deduct) tax impacts:

Tax impact of the above pre-tax adjustments (1)

(3,902)

(2,146)

(8,351)

(9,874)

Excess tax benefits on stock compensation

(450)

(1,199)

(4,390)

(5,305)

Adjusted net income

$

71,247 

$

80,084 

$

217,117 

$

226,554 

Diluted Earnings Per Share As Reported

Net income

$

3.78 

$

4.55 

$

12.41 

$

12.06 

Average number of shares outstanding

15,042 

15,842 

15,114 

16,083 

Adjusted Diluted Earnings Per Share

Adjusted net income

$

4.74 

$

5.06 

$

14.37 

$

14.09 

Adjusted average number of shares outstanding

15,042 

15,842 

15,114 

16,083 

(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.

RECONCILIATION OF ADJUSTED NET INCOME 
(in thousands, except per share data)(unaudited) 
             
  Three Months Ended September 30,  Nine Months Ended September 30, 
  2017  2016  2017  2016 
Net income/(loss) as reported $35,437  $26,829  $43,625  $76,554 
                 
Add/(deduct) after-tax cost of:                
Excess tax benefits on stock compensation  (1,783)  -   (8,121)  - 
Stock option expense  1,064   897   4,892   3,958 
Long-term incentive compensation  699   406   1,911   570 
Expenses of OIG investigation  578   370   3,198   2,535 
Program closure expenses  (223)  -   675   - 
Medicare cap sequestration adjustment  -   141   65   141 
Potential litigation settlement  -   -   55,800   - 
Expenses related to litigation settlements  -   -   129   27 
Early retirement expenses  -   -   -   2,840 
Adjusted net income $35,772  $28,643  $102,174  $86,625 
                 
Diluted Earnings Per Share As Reported                
Net income/(loss) $2.13  $1.62  $2.60  $4.54 
Average number of shares outstanding  16,676   16,559   16,763   16,851 
                 
Adjusted Diluted Earnings Per Share                
Adjusted net income $2.15  $1.73  $6.10  $5.14 
Adjusted average number of shares outstanding  16,676   16,559   16,763   16,851 


‎

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CHEMED CORPORATION AND SUBSIDIARY COMPANIES

OPERATING STATISTICS FOR VITAS SEGMENT

(unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

OPERATING STATISTICS

2022

2021

2022

2021

Net revenue ($000)

Homecare

$

256,253

$

268,137

$

771,520

$

796,817

Inpatient

24,526

29,368

75,714

85,895

Continuous care

18,600

22,027

57,717

73,658

Other

3,240

3,225

9,461

9,241

Subtotal

$

302,619

$

322,757

$

914,412

$

965,611

Room and board, net

(2,513)

(2,130)

(6,796)

(7,451)

Contractual allowances

(2,952)

(3,119)

(8,992)

(9,428)

Medicare cap allowance

(618)

(97)

(5,118)

(3,597)

Total

$

296,536

$

317,411

$

893,506

$

945,135

Net revenue as a percent of total before Medicare cap allowances

Homecare

84.7

%

83.1

%

84.4

%

82.5

%

Inpatient

8.1

9.1

8.3

8.9

Continuous care

6.1

6.8

6.3

7.6

Other

1.1

1.0

1.0

1.0

Subtotal

100.0

100.0

100.0

100.0

Room and board, net

(0.8)

(0.7)

(0.7)

(0.8)

Contractual allowances

(1.0)

(1.0)

(1.0)

(1.0)

Medicare cap allowance

(0.2)

-

(0.6)

(0.3)

Total

98.0

%

98.3

%

97.7

%

97.9

%

Days of care

Homecare

1,271,678

1,342,841

3,796,954

4,008,215

Nursing home

264,407

258,700

771,921

735,906

Respite

6,635

5,331

18,098

15,509

Subtotal routine homecare and respite

1,542,720

1,606,872

4,586,973

4,759,630

Inpatient

23,435

27,962

71,177

82,129

Continuous care

20,097

24,299

61,981

79,385

Total

1,586,252

1,659,133

4,720,131

4,921,144

Number of days in relevant time period

92

92

273

273

Average daily census (days)

Homecare

13,823

14,596

13,908

14,682

Nursing home

2,874

2,812

2,828

2,696

Respite

72

58

66

57

Subtotal routine homecare and respite

16,769

17,466

16,802

17,435

Inpatient

255

304

261

301

Continuous care

218

264

227

291

Total

17,242

18,034

17,290

18,027

Total Admissions

14,680

17,598

45,945

52,573

Total Discharges

14,603

17,686

46,139

52,747

Average length of stay (days)

106.2

96.0

104.9

95.0

Median length of stay (days)

17.0

13.0

16.0

13.0

ADC by major diagnosis

Cerebro

39.3

%

36.4

%

38.5

%

36.7

%

Neurological

22.0

22.7

22.3

22.5

Cancer

10.7

12.0

11.0

12.1

Cardio

15.4

15.5

15.6

15.5

Respiratory

7.2

7.5

7.3

7.5

Other

5.4

5.9

5.3

5.7

Total

100.0

%

100.0

%

100.0

%

100.0

%

Admissions by major diagnosis

Cerebro

25.9

20.3

%

24.2

%

21.1

%

Neurological

12.4

12.1

12.7

12.2

Cancer

26.6

27.0

26.2

26.9

Cardio

14.9

14.1

14.8

14.4

Respiratory

9.5

11.3

10.3

10.9

Other

10.7

15.2

11.8

14.5

Total

100.0

%

100.0

%

100.0

%

100.0

%

Estimated uncollectible accounts as a percent of revenues

1.0

%

1.0

%

1.0

%

1.0

%

Accounts receivable --

Days of revenue outstanding- excluding unapplied Medicare payments

33.8

33.7

n.a.

n.a.

Days of revenue outstanding- including unapplied Medicare payments

24.9

23.4

n.a.

n.a.

CHEMED CORPORATION AND SUBSIDIARY COMPANIES 
OPERATING STATISTICS FOR VITAS SEGMENT 
(unaudited) 
  Three Months Ended September 30,  Nine Months Ended Setpember 30, 
OPERATING STATISTICS 2017  2016  2017  2016 
Net revenue ($000)            
Homecare $236,565  $225,348  $693,359  $659,477 
Inpatient  22,516   23,850   68,439   73,856 
Continuous care  29,870   33,895   94,426   106,026 
Total before Medicare cap allowance $288,951  $283,093  $856,224  $839,359 
Medicare cap allowance  -   (228)  (247)  (228)
Total $288,951  $282,865  $855,977  $839,131 
Net revenue as a percent of total before Medicare cap allowances                
Homecare  81.9%  79.6%  81.0%  78.6%
Inpatient  7.8   8.4   8.0   8.8 
Continuous care  10.3   12.0   11.0   12.6 
Total before Medicare cap allowance  100.0   100.0   100.0   100.0 
Medicare cap allowance  -   (0.1)  -   - 
Total  100.0%  99.9%  100.0%  100.0%
Average daily census (days)                
Homecare  12,596   12,223   12,444   11,972 
Nursing home  3,254   3,077   3,148   3,028 
Routine homecare  15,850   15,300   15,592   15,000 
Inpatient  354   394   358   406 
Continuous care  448   507   475   530 
Total  16,652   16,201   16,425   15,936 
Total Admissions  16,000   16,157   49,874   49,205 
Total Discharges  15,726   15,690   49,074   48,403 
Average length of stay (days)  89.5   87.7   87.9   85.2 
Median length of stay (days)  16.0   16.0   16.0   16.0 
ADC by major diagnosis                
Cerebro  35.6%  32.9%  35.0%  32.2%
Neurological  18.9   20.7   19.4   21.3 
Cardio  16.6   17.1   16.6   17.3 
Cancer  14.4   15.5   14.8   15.3 
Respiratory  7.9   7.8   7.9   7.8 
Other  6.6   6.0   6.3   6.1 
Total  100.0%  100.0%  100.0%  100.0%
Admissions by major diagnosis                
Cerebro  22.0   21.2%  21.9%  20.9%
Neurological  10.0   11.0   10.5   11.0 
Cancer  31.5   33.3   30.8   31.9 
Cardio  14.9   14.4   15.1   15.3 
Respiratory  10.6   9.0   10.9   10.1 
Other  11.0   11.1   10.8   10.8 
Total  100.0%  100.0%  100.0%  100.0%
Direct patient care margins                
Routine homecare  52.4%  51.4%  52.2%  51.8%
Inpatient  3.4   (2.4)  4.4   2.7 
Continuous care  17.3   12.2   16.9   13.7 
Homecare margin drivers (dollars per patient day)                
Labor costs $56.48  $56.53  $57.20  $56.51 
Combined drug, HME and medical supplies  14.67   16.30   14.77   15.90 
Inpatient margin drivers (dollars per patient day)                
Labor costs $362.48  $360.35  $369.77  $346.61 
Continuous care margin drivers (dollars per patient day)                
Labor costs $579.31  $618.15  $584.82  $609.08 
Bad debt expense as a percent of revenues  1.1%  1.2%  1.1%  1.2%
Accounts receivable -- Days of revenue outstanding- excluding unapplied Medicare payments  34.6   38.4  n.a  n.a. 
Accounts receivable -- Days of revenue outstanding- including unapplied Medicare payments  19.9   20.7  n.a  n.a. 


‎

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


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


Item 3.    Quantitative and Qualitative Disclosures about Market Risk

The Company’s primary market risk exposure relates to interest rate risk exposure through its variable interest line of credit. At September 30, 2017,2022, the Company had $82.5$100.9 million of variable rate debt outstanding. For each $10 million dollars borrowed under the credit facility, an increase or decrease of 100 basis points (1% point)), increases or decreases the Company’s annual interest expense by $100,000.


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


Item 4. Controls and Procedures

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


PART II.    OTHER INFORMATION

Item 1.   Legal Proceedings


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


Item 1A.    Risk Factors


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


‎

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-40-

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


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


The following table shows the activity related to our share repurchase program for the first nine months of 2017:2022:

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, 2022

-

$

-

10,225,654 

$

201,941,318 

February 1 through February 28, 2022

-

-

10,225,654 

201,941,318 

March 1 through March 31, 2022

57,500 

475.71 

10,283,154 

$

174,587,938 

First Quarter Total

57,500 

$

475.71 

April 1 through April 30, 2022

4,932 

$

493.78 

10,288,086 

$

172,152,453 

May 1 through May 31, 2022

95,068 

498.86 

10,383,154 

124,726,992 

June 1 through June 30, 2022

-

-

10,383,154 

$

124,726,992 

Second Quarter Total

100,000 

$

498.61 

July 1 through July 31, 2022

-

$

-

10,383,154 

$

124,726,992 

August 1 through August 31, 2022

50,000 

477.68 

10,433,154 

100,842,823 

September 1 through September 30, 2022

-

-

10,433,154 

$

100,842,823 

Third Quarter Total

50,000 

$

477.68 

  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, 2017  -  $-   7,315,718  $50,173,009 
February 1 through February 28, 2017  104,358   178.39   7,420,076   31,556,555 
March 1 through March 31, 2017  195,642   182.20   7,615,718  $95,910,768 
                 
First Quarter Total  300,000  $180.87         
                 
April 1 through April 30, 2017  -  $-   7,615,718  $95,910,768 
May 1 through May 31, 2017  150,000   205.34   7,765,718   65,109,586 
June 1 through June 30, 2017  -   -   7,765,718  $65,109,586 
                 
Second Quarter Total  150,000  $205.34         
                 
July 1 through July 31, 2017  -  $-   7,765,718  $65,109,586 
August 1 through August 31, 2017  47,726   191.53   7,813,444   55,968,634 
September 1 through September 30, 2017  2,274   191.42   7,815,718  $55,533,344 
                 
Third Quarter Total  50,000  $191.52         
On March 13, 2017 our Board of Directors authorized an additional $100 million under the February 2011 Repurchase Program.

Item 3.    Defaults Upon Senior Securities


None.


Item 4.   Mine Safety Disclosures


None.


Item 5.    Other Information


None.



‎

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-41-

Item 6. Exhibits


Exhibit No.

Description

31.1

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 2002.2002

101.INS

101 

XBRL Instance Document

The following materials from Chemed Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022 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.SCHXBRL Taxonomy Extension Schema
101.CALXBRL Taxonomy Extension Calculation Linkbase
101.DEFXBRL Taxonomy Extension Definition Linkbase
101.LABXBRL Taxonomy Extension Label Linkbase
101.PREXBRL Taxonomy Extension Presentation Linkbase

The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, formatted in iXBRL and contained in Exhibit 101.


‎

SIGNATURES

-42-


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)

Chemed Corporation

(Registrant)

Dated:

October 27, 2017

By:

Dated:

November 2, 2022

By:

/s/ Kevin J. McNamara

Kevin J. McNamara

(President and Chief Executive Officer)

Dated:

Dated:

November 2, 2022

October 27, 2017

By:

By:

/s/ David P. Williams

David P. Williams

(Executive Vice President and Chief Financial Officer)

Dated:

Dated:

November 2, 2022

October 27, 2017

By:

By:

/s/ Michael D. Witzeman

Michael D. Witzeman

(Vice President and Controller)


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