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 ~~March 31,~~September 30, 2019

☐

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

	~~Yes~~	☒	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

Accelerated Filer

Non-accelerated Filer

~~Emerging growth company~~

Smaller Reporting Company

☐

Emerging growth company o

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

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:


Title of ~~each class~~Each Class	Trading Symbol	Name of ~~each exchange~~ Each Exchange on which Registered	Amount	Date
		~~which registered~~
Capital Stock $1 Par Value	CHE	New York Stock Exchange	~~15,940,201~~ 16,009,258 Shares	~~March 31,~~ September 30, 2019

‎

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CHEMED CORPORATION AND

SUBSIDIARY COMPANIES

Index

			~~Index~~

				Page No.
PART I. FINANCIAL INFORMATION:

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

		Unaudited Consolidated Statements of Income -
			Three and nine months ended ~~March 31,~~September 30, 2019 and 2018	4

		Unaudited Consolidated Statements of Cash Flows -
			~~Three~~ Nine months ended ~~March 31,~~September 30, 2019 and 2018	5

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

		Notes to Unaudited Consolidated Financial Statements		7 8

	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			22 25

	Item 3. Quantitative and Qualitative Disclosures about Market Risk			34 43

	Item 4. Controls and Procedures			34 43

PART II. OTHER INFORMATION

Item 1. Legal Proceedings	34 43

	Item 1A. Risk Factors			34 43

	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			35 44

	Item 3. Defaults Upon Senior Securities			35 44

	Item 4. Mine Safety Disclosures			35 44

	Item 5. Other Information			35 44

	Item 6. Exhibits			36 45

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

‎

~~-2-~~

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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, 2019		December 31, 2018
ASSETS
Current assets
Cash and cash equivalents	$	9,066	$	4,831
Accounts receivable		114,480		119,504
Inventories		7,354		5,705
Prepaid income taxes		10,745		10,646
Prepaid expenses		26,150		19,154
Total current assets		167,795		159,840
Investments of deferred compensation plans		73,714		65,624
Properties and equipment, at cost, less accumulated depreciation of $264,075 (2018 - $248,370)		172,932		162,033
Lease right of use asset		103,286		-
Identifiable intangible assets less accumulated amortization of $34,651 (2018 - $33,283)		129,276		68,253
Goodwill		576,600		510,570
Other assets		8,982		9,209
Total Assets	$	1,232,585	$	975,529

LIABILITIES
Current liabilities
Accounts payable	$	44,027	$	50,150
Accrued insurance		47,726		46,095
Accrued compensation		75,208		63,329
Accrued legal		7,283		1,857
Short-term lease liability		33,761		-
Other current liabilities		43,496		30,239
Total current liabilities		251,501		191,670
Deferred income taxes		15,512		21,598
Long-term debt		130,000		89,200
Deferred compensation liabilities		73,335		64,616
Long-term lease liability		82,012		-
Other liabilities		7,845		17,111
Total Liabilities		560,205		384,195
Commitments and contingencies (Note 11)
STOCKHOLDERS' EQUITY
Capital stock - authorized 80,000,000 shares $1 par; issued 35,737,995 shares (2018 - 35,311,418 shares)		35,738		35,311
Paid-in capital		841,837		774,358
Retained earnings		1,365,303		1,225,617
Treasury stock - 19,808,981 shares (2018 - 19,438,358 shares)		(1,572,844)		(1,446,296)
Deferred compensation payable in Company stock		2,346		2,344
Total Stockholders' Equity		672,380		591,334
Total Liabilities and Stockholders' Equity	$	1,232,585	$	975,529

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)

March 31, 2019 December 31, 2018
ASSETS
Current assets
Cash and cash equivalents $ 8,768 $ 4,831
Accounts receivable 119,575 119,504
Inventories 6,315 5,705
Prepaid income taxes 5,349 10,646
Prepaid expenses 19,148 19,154
Total current assets 159,155 159,840
Investments of deferred compensation plans 70,632 65,624
Properties and equipment, at cost, less accumulated depreciation of $254,499 (2018 - $248,370) 164,629 162,033
Lease right of use assets less accumulated amoritzation of $5,450 87,811 -
Identifiable intangible assets less accumulated amortization of $33,803 (2018 - $33,284) 67,868 68,253
Goodwill 510,598 510,570
Other assets 9,138 9,209
Total Assets $ 1,069,831 $ 975,529

LIABILITIES
Current liabilities
Accounts payable $ 39,737 $ 50,150
Income taxes 3,922 -
Accrued insurance 48,477 46,095
Accrued compensation 52,526 63,329
Accrued legal 8,163 1,857
Short-term lease liability 30,699 -
Other current liabilities 33,576 30,239
Total current liabilities 217,100 191,670
Deferred income taxes 18,108 21,598
Long-term debt 100,000 89,200
Deferred compensation liabilities 70,934 64,616
Long-term lease liability 67,960 -
Other liabilities 7,719 17,111
Total Liabilities 481,821 384,195
Commitments and contingencies (Note 10)
STOCKHOLDERS' EQUITY
Capital stock - authorized 80,000,000 shares $1 par; issued 35,520,908 shares (2018 - 35,311,418 shares) 35,521 35,311
Paid-in capital 803,701 774,358
Retained earnings 1,265,485 1,225,617
Treasury stock - 19,661,407 shares (2018 - 19,438,358) (1,519,077 ) (1,446,296 )
Deferred compensation payable in Company stock 2,380 2,344
Total Stockholders' Equity 588,010 591,334
Total Liabilities and Stockholders' Equity $ 1,069,831 $ 975,529

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,
	2019		2018		2019		2018
Service revenues and sales	$	480,613	$	444,151	$	1,416,231	$	1,325,140
Cost of services provided and goods sold (excluding depreciation)		328,183		305,312		973,771		915,589
Selling, general and administrative expenses		76,836		67,177		222,421		204,474
Depreciation		10,147		9,657		29,744		28,642
Amortization		441		35		1,366		96
Other operating expenses		78		257		9,001		88
Total costs and expenses		415,685		382,438		1,236,303		1,148,889
Income from operations		64,928		61,713		179,928		176,251
Interest expense		(1,041)		(1,082)		(3,402)		(3,813)
Other income - net		3,036		2,300		5,488		4,356
Income before income taxes		66,923		62,931		182,014		176,794
Income taxes		(7,976)		(11,682)		(27,671)		(25,578)
Net income	$	58,947	$	51,249	$	154,343	$	151,216

Earnings Per Share:
Net income	$	3.69	$	3.19	$	9.68	$	9.41
Average number of shares outstanding		15,970		16,074		15,952		16,070

Diluted Earnings Per Share:
Net income	$	3.56	$	3.06	$	9.35	$	8.98
Average number of shares outstanding		16,555		16,772		16,514		16,830

Cash Dividends Per Share	$	0.32	$	0.30	$	0.92	$	0.86

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 March 31,
2019 2018
Service revenues and sales $ 462,034 $ 439,176
Cost of services provided and goods sold (excluding depreciation) 321,951 304,536
Selling, general and administrative expenses 74,029 69,000
Depreciation 9,710 9,267
Amortization 519 27
Other operating expenses/(income) 6,353 (51 )
Total costs and expenses 412,562 382,779
Income from operations 49,472 56,397
Interest expense (1,124 ) (1,207 )
Other income - net 2,439 1,018
Income before income taxes 50,787 56,208
Income taxes (6,120 ) (11,212 )
Net income $ 44,667 $ 44,996

Earnings Per Share:
Net income $ 2.80 $ 2.79
Average number of shares outstanding 15,954 16,100

Diluted Earnings Per Share:
Net income $ 2.70 $ 2.66
Average number of shares outstanding 16,525 16,887

Cash Dividends Per Share $ 0.30 $ 0.28

See accompanying notes to unaudited consolidated financial statements.

‎

~~-4-~~

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

	Nine Months Ended September 30,
	2019		2018
Cash Flows from Operating Activities
Net income	$	154,343	$	151,216
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization		31,110		28,738
Stock option expense		10,729		9,360
Benefit for deferred income taxes		(6,085)		(1,344)
Litigation settlement		6,000		-
Noncash long-term incentive compensation		4,184		4,176
Asset impairment loss		2,266		-
Noncash directors' compensation		767		766
Amortization of debt issuance costs		229		361
Amortization of restricted stock awards		-		446
Changes in operating assets and liabilities:
Decrease in accounts receivable		10,558		4,637
Increase in inventories		(1,649)		(429)
Increase in prepaid expenses		(6,836)		(1,518)
Increase in accounts payable and other current liabilities		28,622		12,182
Net change in lease assets and liabilities		1,311		-
Change in current income taxes		(81)		23,858
Increase in other assets		(8,145)		(9,441)
Increase in other liabilities		9,045		7,190
Other sources		1,277		410
Net cash provided by operating activities		237,645		230,608
Cash Flows from Investing Activities
Business combinations		(138,010)		(12,875)
Capital expenditures		(39,753)		(36,554)
Other sources		101		480
Net cash used by investing activities		(177,662)		(48,949)
Cash Flows from Financing Activities
Proceeds from revolving line of credit		400,700		428,150
Payments on revolving line of credit		(359,900)		(324,350)
Purchases of treasury stock		(71,926)		(121,976)
Capital stock surrendered to pay taxes on stock-based compensation		(26,108)		(24,763)
Proceeds from exercise of stock options		23,383		23,079
Dividends paid		(14,657)		(13,850)
Change in cash overdrafts payable		(7,535)		(15,307)
Payments on other long-term debt		-		(75,000)
Debt issuance costs		-		(985)
Other sources/(uses)		295		(319)
Net cash used by financing activities		(55,748)		(125,321)
Increase in Cash and Cash Equivalents		4,235		56,338
Cash and cash equivalents at beginning of year		4,831		11,121
Cash and cash equivalents at end of period	$	9,066	$	67,459

See accompanying Notes to Unaudited Consolidated Financial Statements.

CHEMED CORPORATION AND SUBSIDIARY COMPANIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Three Months Ended March 31,
2019 2018
Cash Flows from Operating Activities
Net income $ 44,667 $ 44,996
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 10,229 9,294
Litigation settlement 6,000 -
Stock option expense 4,089 3,653
Benefit for deferred income taxes (3,489 ) (2,807 )
Noncash long-term incentive compensation 1,119 1,721
Amortization of debt issuance costs 76 128
Amortization of restricted stock awards - 291
Changes in operating assets and liabilities:
(Increase)/decrease in accounts receivable (81 ) 1,591
(Increase)/decrease in inventories (610 ) 60
Decrease in prepaid expenses 6 1,045
Increase/(decrease) in accounts payable and other current liabilities 348 (7,911 )
Change in current income taxes 9,219 13,642
Increase in other assets (5,006 ) (4,263 )
Increase in other liabilities 6,459 3,758
Other sources/(uses) 559 (5 )
Net cash provided by operating activities 73,585 65,193
Cash Flows from Investing Activities
Capital expenditures (13,866 ) (12,648 )
Business combinations - (1,450 )
Other (uses)/sources (68 ) 181
Net cash used by investing activities (13,934 ) (13,917 )
Cash Flows from Financing Activities
Proceeds from revolving line of credit 125,100 134,300
Payments on revolving line of credit (114,300 ) (90,500 )
Purchases of treasury stock (49,250 ) (81,125 )
Change in cash overdrafts payable (13,303 ) (6,671 )
Proceeds from exercise of stock options 11,827 8,923
Capital stock surrendered to pay taxes on stock-based compensation (11,170 ) (6,377 )
Dividends paid (4,799 ) (4,533 )
Payments on other long-term debt - (2,500 )
Other sources/(uses) 181 (228 )
Net cash used by financing activities (55,714 ) (48,711 )
Increase in Cash and Cash Equivalents 3,937 2,565
Cash and cash equivalents at beginning of year 4,831 11,121
Cash and cash equivalents at end of period $ 8,768 $ 13,686

See accompanying notes to unaudited consolidated financial statements.

‎

~~-5-~~

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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, 2019 and 2018:
										Deferred
										Compensation
								Treasury		Payable in
		Capital		Paid-in		Retained		Stock-		Company
		Stock		Capital		Earnings		at Cost		Stock		Total
Balance at June 30, 2019		35,591		817,255		1,311,446		(1,548,138)		2,415		618,569
Net income		-		-		58,947		-		-		58,947
Dividends paid ($0.32 per share)		-		-		(5,090)		-		-		(5,090)
Stock awards and exercise of stock options		147		24,660		-		(24,775)		-		32
Other		-		(78)		-		69		(69)		(78)
Balance at September 30, 2019	$	35,738	$	841,837	$	1,365,303	$	(1,572,844)	$	2,346	$	672,380

										Deferred
										Compensation
								Treasury		Payable in
		Capital		Paid-in		Retained		Stock-		Company
		Stock		Capital		Earnings		at Cost		Stock		Total
Balance at June 30, 2018		35,141		744,228		1,129,289		(1,354,538)		2,271		556,391
Net income		-		-		51,249		-		-		51,249
Dividends paid ($0.28 per share)		-		-		(4,834)		-		-		(4,834)
Stock awards and exercise of stock options		70		10,679		-		(8,331)		-		2,418
Purchases of treasury stock		-		-		-		(37,672)		-		(37,672)
Other		-		356		245		(36)		36		601
Balance at September 30, 2018	$	35,211	$	755,263	$	1,175,949	$	(1,400,577)	$	2,307	$	568,153

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

CHEMED CORPORATION AND SUBSIDIARY COMPANIES
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY

(in thousands, except per share data)

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

Deferred
Compensation
Treasury Payable in
Capital Paid-in Retained Stock- Company
Stock Capital Earnings at Cost Stock Total
    Balance at December 31, 2017 34,732 695,797 1,038,955 (1,231,332 ) 2,202 540,354
Net income - - 44,996 - - 44,996
Dividends paid ($0.28 per share) - - (4,533 ) - - (4,533 )
Stock awards and exercise of stock options 153 17,410 - (9,352 ) - 8,211
Purchases of treasury stock - - - (81,125 ) - (81,125 )
Other - (216 ) (728 ) (34 ) 34 (944 )
    Balance at March 31, 2018 $ 34,885 $ 712,991 $ 1,078,690 $ (1,321,843 ) $ 2,236 $ 506,959

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

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~~-6-~~

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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, 2019 and 2018:

										Deferred
										Compensation
								Treasury		Payable in
		Capital		Paid-in		Retained		Stock-		Company
		Stock		Capital		Earnings		at Cost		Stock		Total
Balance at December 31, 2018		35,311		774,358		1,225,617		(1,446,296)		2,344		591,334
Net income		-		-		154,343		-		-		154,343
Dividends paid ($0.92 per share)		-		-		(14,657)		-		-		(14,657)
Stock awards and exercise of stock options		427		67,149		-		(54,620)		-		12,956
Purchases of treasury stock		-		-		-		(71,926)		-		(71,926)
Other		-		330		-		(2)		2		330
Balance at September 30, 2019	$	35,738	$	841,837	$	1,365,303	$	(1,572,844)	$	2,346	$	672,380

										Deferred
										Compensation
								Treasury		Payable in
		Capital		Paid-in		Retained		Stock-		Company
		Stock		Capital		Earnings		at Cost		Stock		Total
Balance at December 31, 2017		34,732		695,797		1,038,955		(1,231,332)		2,202		540,354
Net income		-		-		151,216		-		-		151,216
Dividends paid ($0.86 per share)		-		-		(13,850)		-		-		(13,850)
Stock awards and exercise of stock options		479		59,749		-		(47,164)		-		13,064
Purchases of treasury stock		-		-		-		(121,976)		-		(121,976)
Other		-		(283)		(372)		(105)		105		(655)
Balance at September 30, 2018	$	35,211	$	755,263	$	1,175,949	$	(1,400,577)	$	2,307	$	568,153

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

‎

-7-

CHEMED CORPORATION AND SUBSIDIARY COMPANIES

Notes to Unaudited Consolidated Financial Statements

1. Basis of Presentation

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

We have prepared the accompanying unaudited consolidated financial statements of Chemed in accordance with Rule 10-01 of SEC Regulation S-X. Consequently, we have omitted certain disclosures required under generally accepted accounting principles in the United States (“GAAP”) for complete financial statements. The December 31, 2018 balance sheet data were derived from audited financial statements but do not include all disclosures required by GAAP. However, in our opinion, the financial statements presented herein contain all adjustments, consisting only of normal recurring adjustments, necessary to state fairly our financial position, results of operations and cash flows. These financial statements are prepared on the same basis as and should be read in conjunction with the audited Consolidated Financial Statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2018.

LEASE ACCOUNTING

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

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

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

CLOUD COMPUTING

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

As of ~~March 31,~~September 30, 2019, we have ~~two~~2 cloud computing arrangements that are service contracts. Roto-Rooter is implementing a system to assist in technician dispatch and VITAS is implementing a new human resources system. We have capitalized approximately ~~$2.6~~$4.8 million related to implementation of ~~this project~~these projects which isare included in prepaid assets in the accompanying balance sheets. There has been no0 amortization expense associated with the asset, as the software has not yet been placed in service. We anticipate amortizing the assets over the original term of the arrangements plus renewal options that are reasonably certain of being exercised.

-8-

NON-EMPLOYEE STOCK COMPENSATION

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

~~-7-~~

Consolidated Financial Statements.

CASH FLOW CLASSIFICATION

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

Cash Flow.

INCOME TAXES

Our effective income tax rate was ~~12.1%~~11.9% in the ~~first~~third quarter of 2019 compared to ~~19.9%~~18.6% during the ~~first~~third quarter of 2018. Excess tax benefit on stock options reduced our income tax expenses by ~~$6.7~~$8.8 million and ~~$3.8~~$3.1 million, respectively for the quarters ended ~~March 31,~~September 30, 2019 and 2018.

Our effective income tax rate was 15.2% for the first nine months of 2019 compared to 14.5% during the first nine months of 2018. Excess tax benefit on stock options reduced our income tax expenses by $18.7 million and $18.6 million, respectively for the first nine months ended September 30, 2019 and 2018.

NON-CASH TRANSACTIONS

Included in the accompanying Consolidated Balance Sheets are ~~$2.1~~$1.1 million and $3.2 million of capitalized property and equipment which were not paid for as of ~~March 31,~~September 30, 2019 and December 31, 2018, respectively. These amounts have been excluded from capital expenditures in the accompanying Consolidated Statements of Cash Flow. There are no material non-cash amounts included in interest expense for any period presented.

BUSINESS COMBINATIONS

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

2. Revenue Recognition

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

VITAS

Service revenue for VITAS is reported at the amount that reflects the ultimate consideration we expect to receive in exchange for providing patient care. These amounts are due from third-party payors, primarily commercial health insurers and government programs (Medicare and Medicaid), and ~~includes~~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.

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

Routine Home Care occurs when a patient receives hospice care in their home, including a nursing home setting. The routine home care rate is paid for each day that a patient is in a hospice program and is not receiving one of the other categories of hospice care. For Medicare patients, the routine home care rate reflects a two-tiered rate, with a higher rate for the first 60 days of a hospice patient’s care and a lower rate for days 61 and after. In addition, there is a Service Intensity Add-on payment which covers direct home care visits conducted by a registered nurse or social worker in the last seven days of a hospice patient’s life, reimbursed up to ~~four~~4 hours per day in ~~fifteen~~15 minute increments at the continuous home care rate.

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

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

~~-8-~~

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

Each level of care represents a separate promise under the contract of care and is provided independently for each patient contingent upon the patient’s specific medical needs as determined by a physician. However, the clinical criteria used to determine a patient’s level of care is consistent across all patients, given that, each patient is subject to the same payor rules and regulations. As a result, we have concluded that each level of care is capable of being distinct and is distinct in the context of the contract. Furthermore, we have determined that each level of care represents a stand ready service provided as a series of either days or hours of patient care. We believe that the performance obligations for each level of care meet criteria to be satisfied over time. VITAS recognizes revenue based on the service output. VITAS believes this to be the most faithful depiction of the transfer of control of services as the patient simultaneously receives and consumes the benefits provided by our performance. Revenue is recognized on a daily or hourly basis for each patient in accordance with the reimbursement model for each type of service. VITAS’ performance obligations relate to contracts with an expected duration of less than one year. Therefore, VITAS has elected to apply the optional exception provided in ASC 606 and is not required to disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period. The unsatisfied or partially satisfied performance obligations referred to above relate to bereavement services provided to patients’ families for at least 12 months after discharge.

Care is provided to patients regardless of their ability to pay. Patients who meet our criteria for charity care are provided care without charge. There is no revenue or associated accounts receivable in the accompanying ~~consolidated financial statements~~Consolidated Financial Statements related to charity care. The cost of providing charity care during the quarters ended ~~March 31,~~September 30, 2019 and 2018 was ~~$2.1~~$2.3 million ~~in each quarter.~~and $2.0 million, respectively. The cost of providing charity care during the first nine months ended September 30, 2019 and 2018 was $6.6 million and $6.2 million, respectively. The cost of charity care is included in cost of services provided and goods sold and is calculated by taking the ratio of charity care days to total days of care and multiplying by the total cost of care.

Generally, patients who are covered by third-party payors are responsible for related deductibles and coinsurance which vary in amount. VITAS also provides service to patients without a reimbursement source and may offer those patients discounts from standard charges. VITAS estimates the transaction price for patients with deductibles and coinsurance, along with those uninsured patients, based on historical experience and current conditions. The estimate of any contractual adjustments, discounts or implicit price concessions reduces the amount of revenue initially recognized. Subsequent changes

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to the estimate of the transaction price are recorded as adjustments to patient service revenue in the period of change. Subsequent changes that are determined to be the result of an adverse change in the patients’ ability to pay (i.e. change in credit risk) are recorded as bad debt expense. VITAS has no material adjustments related to subsequent changes in the estimate of the transaction price or subsequent changes as the result of an adverse change in the patient’s ability to pay for any period reported.

Laws and regulations concerning government programs, including Medicare and Medicaid, are complex and subject to varying interpretation. ~~Compliance~~Medicare and Medicaid programs have broad authority to audit and review compliance with such laws and regulations, ~~may be subject to future government review~~ and ~~interpretation.~~impose payment suspensions when merited. Additionally, the contracts we have with commercial health insurance payors provide for retroactive audit and review of claims. Settlement with third party payors for retroactive adjustments due to audits, reviews or investigations are considered variable consideration and are included in the determination of the estimated transaction price for providing patient care. The variable consideration is estimated based on the terms of the payment agreement, existing correspondence from the payor and our historical settlement activity. These estimates are adjusted in future periods, as new information becomes available.

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

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

~~-9-~~

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

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

We actively monitor each of our hospice programs, by provider number, as to their specific admission, discharge rate and median length of stay data in an attempt to determine whether revenues are likely to exceed the annual per-beneficiary Medicare cap. Should we determine that revenues for a program are likely to exceed the Medicare cap based on projected trends, we attempt to institute corrective actions, which include changes to the patient mix and increased patient admissions. However, should we project our corrective action will not prevent that program from exceeding its Medicare cap, we estimate revenue recognized during the government fiscal year that will require repayment to the Federal government under the Medicare cap and record an adjustment to revenue of an amount equal to a ratable portion of our best estimate for the year.

In 2013, the U.S. government implemented automatic budget reductions of 2.0% for all government payees, including hospice benefits paid under the Medicare program. In 2015, CMS determined that the Medicare cap should be calculated “as if” sequestration did not occur. As a result of this decision, VITAS has received notification from our third-party intermediary that an additional $~~4.1~~6.7 million is owed for Medicare cap in three programs arising during the 2013 through ~~2017~~2019 measurement periods. The amounts are automatically deducted from our semi-monthly PIP payments. We do not believe that CMS is authorized under the sequestration authority or the statutory methodology for establishing the Medicare cap to the amounts they have withheld and intend to withhold under their current “as if” methodology. We have appealed CMS’s methodology change.

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During the quarter ended ~~March 31,~~September 30, 2019, we recorded $~~3.4~~1.3 million in net Medicare cap revenue reduction related to ~~three~~four programs for the 2019 government fiscal year. During the quarter ended ~~March 31,~~September 30, 2018, we ~~reversed $1.8~~recorded $2.0 million ~~of the $2.4 million~~ in net Medicare cap revenue reduction ~~recognized~~related to two programs for the 2018 government fiscal year.

During the first nine months ended September 30, 2019, we recorded $7.1 million in net Medicare cap revenue reduction related to four programs for the ~~fourth quarter~~2019 government fiscal year. Additionally, we recorded $847,000 related to adjustments of ~~2017 due~~prior year cap liabilities. During the nine months ended September 30, 2018, we recorded $487,000 in net Medicare cap revenue reduction related to ~~improved metrics~~two programs for the 2018 government fiscal year and $181,000 related to adjustments of prior year cap liabilities. The Medicare cap liability of $11.8 million and $6.4 million as of September 30, 2019 and December 31, 2018 is included in ~~VITAS programs.~~

other current liabilities on the Consolidated Financial Statements.

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.

~~-10-~~

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



	Medicare		Medicaid		Commercial		Total
Routine home care	$	255,856	$	12,332		6,558	$	274,746
Continuous care		26,423		1,549		1,474		29,446
Inpatient care		20,038		1,976		1,585		23,599
	$	302,317	$	15,857	$	9,617	$	327,791

All other revenue - self-pay, respite care, etc.								2,356
Subtotal							$	330,147
Medicare cap adjustment								(1,317)
Implicit price concessions								(4,236)
Room and board, net								(2,846)
Net revenue							$	321,748

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

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

The composition of patient care service revenue by payor and level of care for the quarter ended ~~March 31,~~September 30, 2018 is as follows (in thousands):


	Medicare		Medicaid		Commercial		Total
Routine home care	$	239,590	$	11,984	$	5,560	$	257,134
Continuous care		27,391		1,539		1,455		30,385
Inpatient care		16,287		1,998		1,332		19,617
	$	283,268	$	15,521	$	8,347	$	307,136

All other revenue - self-pay, respite care, etc.								2,104
Subtotal							$	309,240
Medicare cap adjustment								(1,950)
Implicit price concessions								(2,957)
Room and board, net								(2,569)
Net revenue							$	301,764

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Medicare Medicaid Commercial Total
Routine home care $ 224,021 $ 11,280 $ 5,730 $ 241,031
Continuous care 27,632 1,603 1,531 30,766
Inpatient care 18,857 2,048 1,203 22,108
$ 270,510 $ 14,931 $ 8,464 $ 293,905

All other revenue - self-pay, respite care, etc. 1,741
Subtotal $ 295,646
Medicare cap adjustment 1,818
Implicit price concessions (2,833 )
Room and board, net (2,618 )
Net revenue $ 292,013

The composition of patient care service revenue by payor and level of care for the nine months ended September 30, 2019 is as follows (in thousands):


	Medicare		Medicaid		Commercial		Total
Routine home care	$	745,835	$	35,913	$	18,311	$	800,059
Continuous care		83,372		4,744		4,360		92,476
Inpatient care		58,309		6,241		4,513		69,063
	$	887,516	$	46,898	$	27,184	$	961,598

All other revenue - self-pay, respite care, etc.								6,598
Subtotal							$	968,196
Medicare cap adjustment								(7,915)
Implicit price concessions								(10,904)
Room and board, net								(8,098)
Net revenue							$	941,279

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


	Medicare		Medicaid		Commercial		Total
Routine home care	$	696,248	$	35,283	$	17,015	$	748,546
Continuous care		82,604		4,570		4,490		91,664
Inpatient care		52,174		5,899		3,730		61,803
	$	831,026	$	45,752	$	25,235	$	902,013

All other revenue - self-pay, respite care, etc.								5,844
Subtotal							$	907,857
Medicare cap adjustment								(668)
Implicit price concessions								(8,749)
Room and board, net								(7,863)
Net revenue							$	890,577

Roto-Rooter

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

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

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generally granted to resolve customer service issues. Variable consideration is estimated based on historical activity and recorded at the time service is completed.

~~-11-~~

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

Independent contractors pay Roto-Rooter a standard fee calculated as a percentage of their weekly labor sales. The primary value for the independent contractors under these arrangements is the right to use Roto-Rooter’s registered trademarks. Roto-Rooter recognizes revenue from independent contractors over-time (weekly) as the independent contractor’s labor sales are completed. 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. ~~The~~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.

~~-12-~~

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


	September 30,
	2019		2018
Short-term core service jobs	$	115,135	$	102,346
Water restoration		25,738		25,001
Contractor revenue		14,342		12,219
Franchise fees		1,819		1,593
All other		2,791		2,876
Subtotal	$	159,825	$	144,035
Implicit price concessions and credit memos		(960)		(1,648)
Net revenue	$	158,865	$	142,387

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


	September 30,
	2019		2018
Short-term core service jobs	$	341,337	$	311,518
Water restoration		81,629		77,502
Contractor revenue		42,931		36,950
Franchise fees		5,063		4,758
All other		8,773		9,032
Subtotal	$	479,733	$	439,760
Implicit price concessions and credit memos		(4,781)		(5,197)
Net revenue	$	474,952	$	434,563

March 31,
2019 2018
Short-term core service jobs $ 111,059 $ 104,086
Water restoration 27,652 27,737
Contractor revenue 14,009 12,365
Franchise fees 1,621 1,592
All other 3,008 3,320
Subtotal $ 157,349 $ 149,100
Implicit price concessions and credit memos (2,096 ) (1,937 )
Net revenue $ 155,253 $ 147,163

Initial Adoption of ASC 606

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

3. Segments

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



	Three months ended September 30,				Nine months ended September 30,
	2019		2018		2019		2018
After-tax Income/(Loss)
VITAS	$	39,773	$	35,921	$	106,400	$	99,720
Roto-Rooter		26,140		24,563		76,302		72,799
Total		65,913		60,484		182,702		172,519
Corporate		(6,966)		(9,235)		(28,359)		(21,303)
Net income	$	58,947	$	51,249	$	154,343	$	151,216

Three months ended March 31,
2019
2018

After-tax Income/(Loss)

VITAS $ 29,288 $ 32,015
Roto-Rooter 22,986 22,938
Total 52,274 54,953
Corporate (7,607 ) (9,957 )
Net income $ 44,667 $ 44,996

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
2019
	Earnings	$	58,947	15,970	$	3.69
	Dilutive stock options		-	500
	Nonvested stock awards		-	85
	Diluted earnings	$	58,947	16,555	$	3.56

2018
	Earnings	$	51,249	16,074	$	3.19
	Dilutive stock options		-	613
	Nonvested stock awards		-	85
	Diluted earnings	$	51,249	16,772	$	3.06


			Net Income
For the Nine Months Ended September 30,		Income		Shares	Earnings per Share
2019
	Earnings	$	154,343	15,952	$	9.68
	Dilutive stock options		-	484
	Nonvested stock awards		-	78
	Diluted earnings	$	154,343	16,514	$	9.35

2018
	Earnings	$	151,216	16,070	$	9.41
	Dilutive stock options		-	662
	Nonvested stock awards		-	98
	Diluted earnings	$	151,216	16,830	$	8.98

Net Income
For the Three Months Ended March 31, Income Shares
Earnings per
Share

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

2018
Earnings $ 44,996 16,100 $ 2.79
Dilutive stock options - 680
Nonvested stock awards - 107
Diluted earnings $ 44,996 16,887 $ 2.66

~~-13-~~

For the ~~three-month periods~~three months ended ~~March 31,~~September 30, 2019, ~~and 2018,~~ there were ~~246,000 and 328,000, respectively,~~0 stock options ~~were~~ excluded in the computation of dilutive earnings per share because they would have been anti-dilutive.

For the nine months ended September 30, 2019, there were 246,000 stock options excluded in the computation of dilutive earnings per share because they would have been anti-dilutive.

For the three and nine month periods ended September 30, 2018, there were 0 stock options excluded in the computation of dilutive earnings per share because they would have been anti-dilutive.

5. Long-Term Debt and Lines of Credit

On June 20, 2018, we replaced our existing credit agreement with the Fourth Amended and Restated Credit Agreement (“2018 Credit Agreement”). Terms of the 2018 Credit Agreement consist of a ~~five-year,~~five year, $450 million revolving credit facility and a $150 million expansion feature, which may consist of term loans or additional revolving commitments. The interest rate at the inception of the agreement is LIBOR plus 100 basis points. The 2018 Credit Agreement has a floating interest rate that is generally LIBOR plus a tiered additional rate which varies based on our current leverage ratio. The amount outstanding as of ~~March 31,~~September 30, 2019 is ~~$100.0~~$130.0 million.

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

-16-

The 2018 Credit Agreement contains the following quarterly financial covenants:

~~Description~~		~~Requirement~~

Description		Requirement

Leverage Ratio (Consolidated Indebtedness/Consolidated Adj. EBITDA)		< 3.50 to 1.00

Fixed Charge Coverage Ratio (Consolidated Free Cash Flow/Consolidated Fixed Charges)		> 1.50 to 1.00

We are in compliance with all debt covenants as of ~~March 31,~~September 30, 2019. We have issued ~~$36.3~~$37.9 million in standby letters of credit as of ~~March 31, 2019.~~September 30, 2019, mainly for insurance purposes. Issued letters of credit reduce our available credit under the 2018 Credit Agreement. As of ~~March 31,~~September 30, 2019, we have approximately ~~$313.7~~$282.1 million of unused lines of credit available and eligible to be drawn down under our revolving credit facility.

6. Other Operating Expenses/(Income)


	Three months ended September 30,				Nine months ended September 30,
	2019		2018		2019		2018

Litigation settlement	$	-	$	-	$	6,000	$	(204)
Transportation equipment sold		-		-		2,266		-
Loss on disposal of fixed assets		78		257		735		292
Total other operating expenses	$	78	$	257	$	9,001	$	88

Three months ended March 31,
2019
2018

Litigation settlement $ 6,000 $ -
Loss/(income) on disposal of fixed assets 353 (51 )
Total other operating expenses/(income) $ 6,353 $ (51 )

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

7. Other Income – Net

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



	Three months ended September 30,				Nine months ended September 30,
	2019		2018		2019		2018
Market value adjustment on assets held in
deferred compensation trust	$	2,886	$	2,189	$	5,094	$	3,827
Interest income		173		111		387		529
Other - net		(23)		-		7		-
Total other income - net	$	3,036	$	2,300	$	5,488	$	4,356

Three months ended March 31,
2019
2018

Market value adjustment on assets held in
deferred compensation trust $ 2,338 $ 860
Interest income 101 158
Total other income - net $ 2,439 $ 1,018

~~-14-~~

8. Leases

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

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

Adoption of the new standard resulted in right of use assets and lease liabilities of approximately $87.8 million and $98.7 million, respectively, as of March 31, 2019. In determining the liability, we used our incremental borrowing rate based on the information available at the time of adoption, since the rate implicit in the leases cannot be readily determined. At

-17-

January 1, 2019, the weighted average rate was 3.47%. The standard did not materially impact our consolidated net income or cash flows. We did not book a cumulative effect adjustment upon adoption of the standard.

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

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


	As of September 30,
	2019
Assets
Operating lease assets	$	103,286

Liabilities
Current operating leases		33,761
Noncurrent operating leases		82,012
Total operating lease liabilities	$	115,773

Three months ended March 31,
2019
Assets

Operating lease assets $ 87,811

Liabilities

Current operating leases 30,699
Noncurrent operating leases 67,960
Total operating lease liabilities $ 98,659

The components of lease expense were as follows:


	Three months ended ‎September 30,		Nine months ended September 30,
	2019		2019
Lease Expense (a)
Operating lease expense	$	12,728	$	35,181
Sublease income		-		(6)
Net lease expense	$	12,728	$	35,175

Three months ended March 31,
2019
Lease Expense (a)

Operating lease expense $ 11,537
Sublease income (6 )
Net lease expense $ 11,531

~~(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.~~

(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:


	Three months ended ‎September 30,		Nine months ended September 30,
	2019		2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from leases	$	10,605	$	30,237

Leased assets obtained in exchange for new operating lease liabilities	$	22,946	$	38,890

Three months ended March 31,
2019
Cash paid for amounts included in the measurement of lease liabilities

Operating cash flows from leases $ 9,987

Leased assets obtained in exchange for new operating lease liabilities
$ 3,213

~~-15-~~


Weighted Average Remaining Lease Term
Operating leases	~~4.21~~	4.63	years


Weighted Average Discount Rate
Operating leases	~~3.47~~	3.38	%

Maturity of Operating Lease Liabilities (in thousands)

2019 $ 33,836
2020 26,044
2021 18,914
2022 12,479
2023 7,262
Thereafter 11,039
Total lease payments $ 109,574
Less: interest (7,915 )
Less: future lease obligations not yet commenced (3,000 )
Total liability recognized on the balance sheet $ 98,659

-18-


Maturity of Operating Lease Liabilities (in thousands)

2019	$	37,852
2020		28,242
2021		21,181
2022		13,976
2023		9,642
Thereafter		15,125
Total lease payments	$	126,018
Less: interest		(9,381)
Less: future lease obligations not yet commenced		(864)
Total liability recognized on the balance sheet	$	115,773

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


Maturity of Operating Lease Liabilities (in thousands)

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

Maturity of Operating Lease Liabilities (in thousands)

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

For leases commencing prior to 2019, minimum rental payments exclude payments to landlords for real estate taxes and common area maintenance. Operating lease payments include $2.3 million related to extended lease terms that are reasonably certain of being exercised and exclude ~~$3.0 million~~$864,000 lease payments for leases signed but not yet commenced.

9. Stock-Based Compensation Plans

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

On February 22, 2019, the CIC also granted 6,864 PSUs contingent upon the achievement of certain earnings per share (“EPS”) targets for the ~~three-year~~three year period ending December 31, 2021. At the end of each reporting period, the Company estimates the number of shares that it believes will ultimately be earned and records the corresponding expense over the service period of the award. We currently estimate the cumulative compensation cost of the EPS-based PSUs to be recorded over the three year service period is $2.2 million.

~~-16-~~

10. Retirement Plans

All of the Company’s plans that provide retirement and similar benefits are defined contribution plans. These expenses include the impact of market gains and losses on assets held in deferred compensation plans and are recorded in selling, general and administrative expenses. Expenses 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,
2019		2018		2019		2018
$	6,445	$	5,463	$	17,155	$	15,436

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Three months ended March 31,
2019
2018

$ 6,914 $ 5,166

11. Legal and Regulatory Matters

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

Regulatory Matters and Litigation

~~The Company and certain current and former directors and officers were named as 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.~~

As stated in prior disclosures, Lead Plaintiff Michael Kvint filed a Corrected Amended Complaint in this matter on May 30, 2017. The Kvint Complaint asserted a single claim for breach of the fiduciary duties of good faith, loyalty, due care and candor and sought, on behalf of the Company: (a) compensatory, restitutionary and exemplary damages in an unspecified amount, together with interest thereon; (b) attorneys’ fees and expenses; and (c) implementation of unspecified policies and procedures meant to prevent future instances of alleged wrongdoing. 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 setting a schedule for the remaining Defendants to file a motion to dismiss the Corrected Amended Complaint. The remaining Defendants subsequently did so. On February 26, 2019, Magistrate Judge Burke issued a Report and Recommendation recommending that Defendants’ motion to dismiss be granted with prejudice, and that the matter be dismissed as to all Defendants. On March 14, 2019, the Court adopted the Report, granted Defendants’ motion to dismiss with prejudice, and dismissed this matter as to all Defendants. The deadline for Plaintiff to file a timely notice of appeal was April 15, 2019. No such notice was filed. Consequently, this matter is now concluded. 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

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

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

Under the Settlement Agreement, the United States agreed to release the Company, VITAS, and its hospice operation subsidiaries from any civil or administrative monetary liability relating to any patients’ disputed terminal medical prognosis of six months or less; a lack of medical necessity for billed Continuous Home Care, General Inpatient Care, or Respite Care levels of hospice care; or that the claims for those levels of hospice care were not eligible for payment for any other reason. The OIG agreed, conditioned on the Company’s full payment and in consideration of VITAS’ obligations under the CIA, to release its permissive exclusion rights and refrain from instituting any administrative action seeking to exclude the Company, VITAS, and its affiliates from participating in Medicare, Medicaid, or other federal healthcare programs in this regard.

~~-17-~~

~~Under the Settlement Agreement, the Company paid $75 million plus interest, plus certain attorney fees and expenses of qui tam relators.~~

The Company ~~made these payments during~~has also entered into a settlement agreement that, once approved by the fourth quarter of 2017. The Company previously recorded a $90 million loss reserve ($55.8 million after-tax) related to the Settlement Agreement, and associated costs in the second quarter of 2017. During the fourth quarter of 2017, approximately $5.5 million ($3.4 million after-tax) recorded as part of the $90 million was reversed as relator attorney' fees were less than originally estimated

~~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~~Los Angeles County Superior Court, ~~on September 26, 2016. She alleged VITAS Healthcare Corp of CA (“VITAS CA”) (1) failed to provide minimum~~will resolve state-wide wage for all hours worked; (2) failed to provide overtime for all hours worked; (3) failed to provide a second meal period; (4) failed to provide rest breaks; (5) failed to indemnify for necessary expenditures; (6) failed to timely pay wages due at time of separation; and ~~(7) engaged in unfair business practices. Seper seeks a state-wide~~hour class action ~~of current and former non-exempt employees employed with VITAS~~claims raised in ~~California within the~~ four years preceding the filing of the lawsuit. She 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, separate cases: (1) Jordan A. Seper on behalf of herself and others similarly situated v. VITAS Healthcare Corporation of California, a Delaware corporation; VITAS Healthcare Corp of CA, a business entity unknown; and DOES 1 to 100, inclusive; Los Angeles Superior Court Case Number BC 642857 ~~on October 13, 2016~~ (“~~Jordan~~ Seper ~~case”~~”).

~~On November 14, 2016, the Parties filed~~; (2) Jiwan Chhina v. VITAS Health Services of California, Inc., a ~~Stipulation~~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 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.

Jiwann Chhina (“Chhina”), hired by VITAS as a Home Health Aide on February 5, 2002, is currently a Licensed Vocational Nurse for VITAS’ San Diego program. On September 27, 2016, Chhina filed a lawsuit in100, inclusive; San Diego Superior Court ~~alleging~~Case Number 37-2015-00033978-CU-OE-CTL (“Chhina”) (which was subsequently merged with Seper); (3) Chere Phillips and Lady Moore v. VITAS Healthcare Corporation of California, Sacramento County Superior Court, Case No. 34-2017-0021-2755; and (4) Williams v. VITAS Healthcare Corporation of California, Alameda County Superior Court Case No. RG 17853886. These actions were brought by both current and former employees including a registered nurse, a licensed vocational nurse (LVN), home health aides and a social worker. Each action stated multiple claims generally including (1) failure to pay minimum wage for all hours worked; (2) failure to provide overtime for all hours worked; (3) failure to pay wages for all hours at the regular rate; (4) failure to provide meal periods; (5) failure to provide rest breaks; (6) failure to provide complete and accurate wage statements; (7) failure to pay for all reimbursement expenses; (8) unfair business practices; and (9) violation of the California Private Attorneys General Act. ~~Chhina seeks~~The cases generally asserted claims on behalf of classes defined to ~~pursue these claims in the form of a state-wide class action of~~include all current and former non-exempt employees employed with VITAS in California within the four years preceding the filing of ~~the~~each lawsuit. ~~He seeks court determination that this action may be maintained as a class action for the entire California class~~For additional procedural history of these cases, please refer to our prior quarterly and subclasses, designation as class representative, declaratory relief, injunctive relief, damages (including wages for regular or overtime hours allegedly worked but not paid, premium payments for missed meal or rest period,annual filings.

The Seper and ~~unreimbursed expenses), all applicable penalties associated with each claim, pre-judgment interest, and attorneys’ fees and costs.~~ Chhina ~~served VITAS CA with the lawsuit,~~ Jiwan Chhina v. VITAS Health Services of California, Inc., a California corporation; VITAS Healthcare Corporation of California, a Delaware corporation; VITAS Healthcare Corporation of California, a Delaware corporation dba VITAS Healthcare Inc.; and DOES 1 to 100, inclusive; San Diego Superior Court Case Number 37-2015-00033978-CU-OE-CTL on November 3, 2016 (“Jiwann Chhina case”). On December 1, 2016, VITAS CA filed its Answer and served written discovery on Chhina.

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

~~-18-~~

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

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

~~The~~ ~~Seper~~ ~~and~~ ~~Chhina~~ cases were consolidated in Los Angeles County Superior Court; Chhina was dismissed as a separate action and joined with Seper in the filing of amended complaint on August 28, 2018, in which both Chhina and Seper were identified as named plaintiffs. Discovery in the remaining cases was stayed as to class claims and each court was advised of the pendency of the consolidated Seper/Chhina action. The parties engaged in a mediation process beginning in October 2018 and concluded with an agreement in March 2019. The ~~agreement is in the process of incorporation into a long-form agreement to be presented to the court for preliminary approval, notice to class members, and eventual final approval and payment. The~~ settlement amount, subject to court approval, is $5.75 million plus employment taxes. As of September 30, 2019, $6.0 million was accrued in the accompanying Consolidated Balance Sheet. The definition of the class to participate in the settlement is intended to cover claims raised in the consolidated Seper/Chhina matter, claims raised in Phillips and Moore, as well as any class claims in Williams.

The parties have filed a motion for preliminary approval of the settlement and notice to class members and eventual final approval and payment. The hearing on this approval motion is December 2, 2019

-20-

as a class action and for compensatory and statutory damages (premium payments for missed rest periods, uncompensated rest periods, wages for time allegedly not paid such as travel time, repair time, and vehicle maintenance time, and unreimbursed expenses), penalties and restitutions, pre- and post-judgement interest and attorneys’ fees and costs. The lawsuit, Alfred Lax, on behalf of himself and all others similarly situated v. Roto-Rooter Services Company, and Does 1 through 50 inclusive; Santa Clara County Superior Court Case Number 18CV338652, was received by RRSC on December 11, 2018 and RRSC timely filed its answer denying the claims.

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

Williams.

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. Concentration of Risk

During the quarter VITAS had pharmacy services agreements with ~~one~~1 service provider to provide specified pharmacy services for VITAS and its hospice patients. VITAS made purchases from this provider of ~~$7.3~~$7.0 and ~~$8.2~~$8.0 million for the three months ended ~~March 31,~~September 30, 2019 and 2018, respectively. VITAS made purchases from this provider of $21.3 and $24.1 million for the first nine months ended September 30, 2019 and 2018, respectively. Purchases from this provider represent more than ~~85%~~90% of all pharmacy services ~~used~~purchased by VITAS during each period presented.

~~-19-~~

13. Cash Overdrafts and Cash Equivalents

There are ~~$473,000~~$6.2 million in cash overdrafts payable included in accounts payable at ~~March 31,~~September 30, 2019 (December 31, 2018 - $13.8 million).

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

14. Financial Instruments

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

The following shows the carrying value, fair value and the hierarchy for our financial instruments as of ~~March 31,~~September 30, 2019 (in thousands):


				Fair Value Measure
		Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Mutual fund investments of deferred
compensation plans held in trust	$	73,714	$	73,714	$	-	$	-
Total debt		130,000		-		130,000		-

-21-

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 $ 70,632 $ 70,632 $ - $ -
Total debt 100,000 - 100,000 -

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


				Fair Value Measure
		Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Mutual fund investments of deferred
compensation plans held in trust	$	65,624	$	65,624	$	-	$	-
Total debt		89,200		-		89,200		-

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 $ 65,624 $ 65,624 $ - $ -
Total debt 89,200 - 89,200 -

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

~~-20-~~

15. Capital Stock Repurchase Plan Transactions

We repurchased the following capital stock for the three and nine months ended ~~March 31,~~September 30, 2019 and 2018:



	Three months ended September 30,				Nine months ended September 30,
	2019		2018		2019		2018

Total cost of repurchased shares (in thousands)	$	-	$	37,672	$	71,926	$	121,976
Shares repurchased		-		120,622		219,009		430,622
Weighted average price per share	$	-	$	312.31	$	328.41	$	283.26

Three months ended March 31,
2019
2018

Total cost of repurchased shares (in thousands) $ 49,250 $ 81,125
Shares repurchased 150,000 300,000
Weighted average price per share $ 328.33 $ 270.42

In February 2019, the Board of Directors authorized an additional $150.0 million for stock repurchase under Chemed’s existing share repurchase program. We currently have $~~147.4 million~~$124.7 million of au~~thorization~~authorization remaining under this share repurchase plan.

16. Recent Accounting Standards

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~~Consolidated Financial Statements.

In June 2016, FASB issued Accounting Standards Update “ASU No. 2016-13 - Measurement of Credit Losses on Financial Instruments”. The ASU requires the use of the current expected credit loss model to measure impairments of financial ~~statements.~~

assets. The ASU is effective for the Company for fiscal years beginning after December 15, 2019. Management does not expect the adoption to have a material effect on the Consolidated Financial Statements.

17. Acquisitions

On August 2, 2019, we entered into an Asset Purchase Agreement (the “Agreement”) to purchase substantially all of the assets of HSW RR, Inc., a Delaware corporation (“HSW”) and certain related assets of its affiliates, for $120 million, subject to a working capital adjustment. HSW owned and operated fourteen Roto-Rooter franchises mainly in the southwestern section of the United States, including Los Angeles, Dallas and Phoenix. Included in the assets purchased were the assets of Western Drain Supply, Inc., a plumbing supply company. The purchase was made using a combination of cash on-hand and borrowings under Chemed’s existing $450 million revolving credit facility. On September 16, 2019, we completed the acquisition.

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

-22-

~~During~~

The acquisitions were made as a continuation of Roto-Rooter’s strategy to re-acquire franchises in large markets in the ~~first three months~~United States. The allocation of the fair value of the acquired business was based upon a preliminary valuation. Mainly as a result of the timing of the HSW acquisition, our estimates and assumptions are subject to change as we obtain additional information for our estimates during the fourth quarter of 2019. The primary areas of the allocation of the fair value consideration transferred that are not yet finalized relate to the fair value of working capital. The allocation for the two acquisitions completed in the third quarter of 2019 ~~we did~~is as follows (in thousands):



	HSW		Oakland		Total
Goodwill	$	55,448	$	10,535	$	65,983
Reacquired franchise rights		52,980		6,190		59,170
Property, plant, and equipment		5,699		675		6,374
Working capital		3,574		22		3,596
Customer relationships		2,220		500		2,720
Non-compete agreements		140		100		240
Other assets and liabilities - net		(96)		23		(73)
	$	119,965	$	18,045	$	138,010

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

The franchise fee revenue, the valuation of reacquired franchise rights and amortization for the acquired franchises are as follows:


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

Amortization of acquired and cancelled franchise agreements comprises the following (in thousands):


Three months ended September 30,				Nine months ended September 30,
2019		2018		2019		2018

$	331	$	-	$	1,103	$	-

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

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

‎

-23-

The revenue and earnings included in the Company’s results of financial operation since the acquisition date of the transactions completed in the third quarter of 2019 are not ~~complete any business combinations within our Roto-Rooter or VITAS segment.~~

material.

During 2018, we completed ~~four~~4 business combinations of former franchisees within the Roto-Rooter segment for $42.2 million in cash to increase our market penetration. The VITAS segment completed ~~one~~1 business combination in Florida for $11.0 million to increase our market penetration.

The pro forma revenue and earnings of the Company, as if all acquisitions made in fiscal 2018 and 2019 were completed on January 1, 2018, are as follows (in thousands, except per share data):


	Three months ended September 30,				Nine months ended September 30,
	2019		2018		2019		2018

Service revenues and sales	$	500,108	$	472,090	$	1,479,859	$	1,420,535
Net income	$	62,154	$	56,408	$	164,562	$	166,640
Earnings per share	$	3.89	$	3.51	$	10.32	$	10.37
Diluted earnings per share	$	3.75	$	3.36	$	9.96	$	9.90

There are no material pro forma adjustments directly attributable to the acquisition included in the reported pro-forma revenue and earnings.

Shown below is movement in Goodwill (in thousands):


	VITAS		Roto-Rooter		Total
Balance at December 31, 2018	$	333,331	$	177,239	$	510,570
Business combinations		-		65,983		65,983
Foreign currency adjustments		-		47		47
Balance at September 30, 2019	$	333,331	$	243,269	$	576,600

VITAS Roto-Rooter Total
Balance at December 31, 2018 $ 333,331 $ 177,239 $ 510,570
Foreign currency adjustments - 28 28
Balance at March 31, 2019 $ 333,331 $ 177,267 $ 510,598

‎

~~-21-~~

-24-

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

Executive Summary

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

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



	Three months ended September 30,						Nine months ended September 30,
	2019			2018			2019			2018
Service revenues and sales	$	480,613		$	444,151		$	1,416,231		$	1,325,140
Net income	$	58,947		$	51,249		$	154,343		$	151,216
Diluted EPS	$	3.56		$	3.06		$	9.35		$	8.98
Adjusted net income	$	57,213		$	51,456		$	160,603		$	144,465
Adjusted diluted EPS	$	3.46		$	3.07		$	9.73		$	8.58
Adjusted EBITDA	$	86,907		$	77,740		$	246,794		$	224,189
Adjusted EBITDA as a % of revenue		18.1	%		17.5	%		17.4	%		16.9	%

Three months ended March 31,
2019
2018

Service revenues and sales $ 462,034 $ 439,176
Net income $ 44,667 $ 44,996
Diluted EPS $ 2.70 $ 2.66
Adjusted net income $ 48,175 $ 45,851
Adjusted diluted EPS $ 2.92 $ 2.72
Adjusted EBITDA $ 74,798 $ 72,767
Adjusted EBITDA as a % of revenue 16.2 % 16.6 %

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 ~~31-32.~~

39-41.

For the three months ended ~~March 31,~~September 30, 2019, the increase in consolidated service revenues and sales was driven by a ~~5.5%~~11.6% increase at Roto-Rooter and a ~~5.1%~~6.6% increase at VITAS. The increase in service revenues at Roto-Rooter was driven by an increase in ~~plumbing, drain cleaning, excavation and contractors. Water restoration was flat between quarters.~~all major service lines. The increase in service revenues at VITAS is comprised primarily of a ~~0.6%~~0.5% geographically weighted average Medicare reimbursement rate increase, a ~~6.6%~~6.3% increase in days of care, ~~offset by $3.4 million~~and a $633,000 decrease in Medicare cap revenue reduction. This growth iswas partially offset by ~~a combination of~~ acuity mix shift, fluctuations in net room and board and contractual adjustments, ~~that~~the combination of which negatively impacted revenue growth approximately 0.4%, when compared to the prior-year period. See page 42 for additional VITAS operating metrics.

For the nine months ended September 30, 2019, the increase in consolidated service revenues and sales was driven by an 9.3% increase at Roto-Rooter and a 5.7% increase at VITAS. The increase in service revenues at Roto-Rooter was driven by an increase in all major service lines. The increase in service revenues at VITAS is comprised primarily of a 0.5% geographically weighted average Medicare reimbursement rate increase, a 6.3% increase in days of care, offset by $7.9 million in Medicare cap revenue reduction. The first ~~quarter~~nine months of 2018 included a reversal of prior Medicare cap expense of ~~$1.8~~$668,000 million. See page 3342 for additional VITAS operating metrics.

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

-25-

~~-22-~~

~~VITAS expects~~

On August 2, 2019, we entered into an Asset Purchase Agreement (the “Agreement”) to purchase substantially all of the assets of HSW RR, Inc., a Delaware corporation (“HSW”) and certain related assets of its ~~full-year 2019 revenue growth, prior~~affiliates, for $120 million, subject to ~~Medicare cap, to be~~a working capital adjustment. HSW owned and operated fourteen Roto-Rooter franchises mainly in the ~~range~~southwestern section of ~~5.5% to 6.0%. Admissions~~the United States, including Los Angeles, Dallas and Phoenix. Included in the assets purchased were the assets of Western Drain Supply, Inc., a plumbing supply company. The purchase was made using a combination of cash on-hand and borrowings under Chemed’s existing $450 million revolving credit facility. On September 16, 2019, we completed the acquisition.

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

Reacquired franchise rights, included in identifiable intangibles on the Consolidated Balance Sheets, are ~~estimated to expand approximately 3.0% to 4.0% and Average Daily Census~~amortized over the period remaining in each individual franchise agreement. The average amortization period for reacquired franchise rights for the acquisitions made in the third quarter of 2019 is ~~estimated to expand 4.0% to 5.0%. Adjusted EBITDA margin, prior to Medicare cap, is estimated to be 15.9%. We are currently estimating $10.0 million for Medicare Cap billing limitations~~7.4 years.

The franchise fee revenue, the valuation of reacquired franchise rights and amortization for the ~~full-year 2019. Roto-Rooter expects to achieve full-year 2019 revenue growth~~acquired franchises are as follows:



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

Amortization of ~~9.0% to 10.0%. The revenue estimate is based upon increased job pricing of approximately 2.0%, continued growth in core plumbing~~acquired and drain cleaning services as well as continued but slowing revenue growth in water restoration services. Adjusted EBITDA margin for 2019 is estimated at 23.7%. We anticipate that our operating income and cash flows will be sufficient to operate our businesses and meet any commitments forcancelled franchise agreements comprises the ~~foreseeable future.~~following (in thousands):


Three months ended September 30,				Nine months ended September 30,
2019		2018		2019		2018

$	331	$	-	$	1,103	$	-

‎

-26-

Financial Condition

Liquidity and Capital Resources

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

~~An $87.8~~

A $10.9 million increase in properties and equipment mainly due to business combinations.

A $103.3 million increase in lease right of use assets due to the adoption of ASC 842.

A ~~$10.4~~$61.0 million ~~decrease~~increase in ~~accounts payable~~identifiable intangibles due to business combinations.

A $66.0 million increase in goodwill due to business combinations.

An $11.9 increase in accrued compensation primarily due to timing of ~~payments.~~

~~A $10.8 decrease in accrued compensation due to the payments of cash bonuses in the first quarter of 2019 accrued in 2018.~~

~~A $6.3 million increase in accrued legal primarily due to a $6.0 million litigation settlement~~month end payroll at VITAS.

A ~~$30.7~~$33.8 million and ~~$68.0~~$82.2 million increase in short-term and long-term lease liability, respectively, due to the adoption of ASC 842.

A ~~$10.8~~$13.2 million increase in other current liabilities mainly due to a $5.4 million increase in accrued medicare cap, $2.5 million in increased accrued administrative expenses and a $2.2 million increase in accrued acquisition expenses.

A $40.8 million increase in long-term debt due mainly ~~as a result of stock repurchases.~~

to business combinations.

A ~~$72.8~~$126.6 million increase in treasury stock due mainly to stock repurchases.

Net cash provided by operating activities increased ~~$8.4~~$7.0 million from ~~March 31,~~September 30, 2018 to ~~March 31,~~September 30, 2019. Significant changes in our accounts receivable balances are typically driven by the timing of payments received from the Federal government at our VITAS subsidiary. We typically receive a payment in excess of $40.0 million from the Federal government from hospice services every other Friday. The timing of period end will have a significant impact on the accounts receivable at VITAS. These changes generally normalize over a two year period, as cash flow variations in one year are offset in the following year.

Management continually evaluates cash utilization alternatives, including share repurchase, debt repurchase, acquisitions and increased dividends to determine the most beneficial use of available capital resources.

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

We have issued ~~$36.3~~$37.9 million in standby letters of credit as of ~~March 31,~~September 30, 2019, mainly for insurance purposes. Issued letters of credit reduce our available credit under the revolving credit agreement. As of ~~March 31,~~September 30, 2019, we have approximately ~~$313.7~~$282.1 million of unused lines of credit available and eligible to be drawn down under our revolving credit facility. Management believes its liquidity and sources of capital are satisfactory for the Company’s needs in the foreseeable future.

Commitments and Contingencies

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

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

~~-23-~~

-27-

various relators concerning VITAS, filed in the U.S. District Court of the Western District of Missouri (the “2013 Action”). The Company denied any violation of law and agreed to settlement without admission of wrongdoing.

~~Under the Settlement Agreement, the Company paid $75 million plus interest, plus certain attorney fees and expenses of qui tam relators.~~

~~-24-~~

~~-25-~~

The parties have filed a motion for preliminary approval of the settlement and notice to class members and eventual final approval and payment. The hearing on this approval motion is December 2, 2019.

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

-28-

publicity. Although the Company intends to defend them vigorously, there can be no assurance that those suits will not have a material adverse effect on the Company.

Results of Operations

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

Our service revenues and sales for the ~~first~~third quarter of 2019 increased ~~5.2%~~8.2% versus services and sales revenues for the ~~first~~third quarter of 2018. Of this increase, a ~~$14.8~~$20.0 million increase was attributable to VITAS and ~~$8.1~~$15.8 million increase was attributable to Roto-Rooter. The following chart shows the components of revenue by operating segment (in thousands):



	Three months ended September 30,
	2019		2018
VITAS
Routine homecare	$	274,746	$	257,134
Continuous care		29,446		30,385
General inpatient		23,599		19,617
Other		2,356		2,104
Medicare cap adjustment		(1,317)		(1,950)
Room and board - net		(2,846)		(2,569)
Implicit price concessions		(4,236)		(2,957)
Roto-Rooter
Drain cleaning - short term core		45,989		40,852
Plumbing - short term core		34,394		30,464
Subtotal		80,383		71,316
Excavation - short term core		34,269		30,534
Water restoration		25,738		25,001
Contractor operations		14,342		12,219
Outside franchisee fees		1,819		1,593
Other - short term core		483		496
Other		2,791		2,876
Implicit price concessions		(960)		(1,648)
Total	$	480,613	$	444,151

Three months ended March 31,
2019 2018
VITAS
Routine homecare $ 258,847 $ 241,031
Continuous care 32,244 30,766
General inpatient 22,570 22,108
Other 2,010 1,741
Medicare cap adjustment (3,400 ) 1,818
Room and board - net (2,542 ) (2,618 )
Implicit price concessions (2,948 ) (2,833 )
Roto-Rooter
Drain cleaning - short term core 44,142 41,330
Plumbing - short term core 32,055 30,810
Subtotal 76,197 72,140
Excavation - short term core 34,285 31,321
Water restoration 27,652 27,737
Contractor operations 14,009 12,365
Outside franchisee fees 1,621 1,592
Other - short term core 577 625
Other 3,008 3,320
Implicit price concessions (2,096 ) (1,937 )
Total $ 462,034 $ 439,176

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


	Days of Care		Increase/(Decrease)
	2019	2018	Percent

Routine homecare	1,685,656	1,584,820	6.4
Continuous care	39,670	41,462	(4.3)
General inpatient	30,553	25,731	18.7
Total days of care	1,755,879	1,652,013	6.3

Days of Care Increase/(Decrease)
2019 2018 Percent

Routine homecare 1,577,969 1,476,918 6.8
Continuous care 43,923 43,197 1.7
General inpatient 29,150 28,720 1.5
Total days of care 1,651,042 1,548,835 6.6

~~-26-~~

The remaining increase in VITAS’ revenues for the ~~first~~third quarter of 2019 versus the ~~first~~third quarter of 2018 was primarily comprised of a geographically weighted average Medicare reimbursement rate increase of approximately ~~0.6% offset~~0.5% and by ~~$3.4~~$1.3 million in Medicare cap revenue reductions compared to a Medicare cap ~~reversal~~revenue reduction of ~~$1.8~~$2.0 million in 2018. ~~This growth is partially~~Partially offset by ~~the combination of~~ acuity mix shift, fluctuations in net room and board and contractual adjustments, ~~that~~the combination of which negatively impacted revenue growth approximately 0.4%, when compared to the prior-year period. Over 90% of VITAS’ service revenues for the period were from Medicare and Medicaid.

The increase in plumbing revenues for the ~~first~~third quarter of 2019 versus 2018 is attributable to a ~~5.5%~~8.4% increase in price and service mix shift ~~offset by a 1.5% decrease~~and an 4.5% increase in job count. The increase in excavation revenues for the ~~first~~third quarter of 2019 versus 2018 is attributable to a ~~16.3% increase in price and service mix shift offset by a 6.8% decrease in job count. Drain cleaning revenues for the first quarter of 2019 versus 2018 reflect a 5.0%~~7.8% increase in price and service mix shift and a ~~1.8%~~4.4% increase in job count. Drain cleaning revenues for the third quarter of 2019 versus 2018 reflect a 9.8% increase in price and service mix shift and a 2.8% increase in

-29-

job count. Water restoration revenue for the ~~first~~third quarter of 2019 versus 2018 ~~was essentially flat.~~is attributable to a 0.7% increase in price and service mix shift and a 2.3% increase in job count. Contractor operations increased ~~13.3%~~17.4% mainly due to their expansion into water restoration.

The consolidated gross margin was ~~30.3%~~31.7% in the ~~first~~third quarter of 2019 as compared with ~~30.7%~~31.3% in the ~~first~~third quarter of 2018. On a segment basis, VITAS’ gross margin was ~~21.9%~~23.1% in the ~~first~~third quarter of 2019 as compared with ~~22.1%~~22.8%, in the ~~first~~third quarter of ~~2018.~~2018 primarily due to improved labor management and reduced ancillary costs. The Roto-Rooter segment’s gross margin was ~~47.0%~~49.2% for the ~~first~~third quarter of 2019 ~~compared with 47.5% in~~essentially equal to the ~~first~~third quarter of 2018.

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


	Three months ended September 30,
	2019		2018
SG&A expenses before long-term incentive compensation and the impact of market value adjustments related to deferred compensation trusts	$	72,273	$	63,754
Impact of market value adjustments related to assets held in deferred compensation trusts		2,886		2,189
Long-term incentive compensation		1,677		1,234
Total SG&A expenses	$	76,836	$	67,177

Three months ended March 31,
2019 2018
SG&A expenses before long-term incentive compensation and the impact of
market value adjustments related to deferred compensation trusts $ 70,203 $ 66,220
Impact of market value adjustments related to assets held in deferred
compensation trusts 2,338 860
Long-term incentive compensation 1,488 1,920
Total SG&A expenses $ 74,029 $ 69,000

~~Other operating~~

SG&A expenses ~~increased $6.4 million from~~before long-term incentive compensation and the ~~first~~impact of market value adjustments related to deferred compensation trusts for the third quarter of ~~2018 primarily as~~2019 were up 13.4% when compared to the third quarter of 2018. This increase was mainly a result of ~~a $6.0 million litigation settlement~~the increase in variable selling expenses caused by increased revenue and increased advertising expense at ~~VITAS recorded~~Roto-Rooter as well as acquisition related expenses at Roto-Rooter in the ~~first~~third quarter of 2019.

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

Three months ended March 31,
2019
2018

Market value adjustment on assets held in
deferred compensation trusts $ 2,338 $ 860
Interest income 101 158
Total other income - net $ 2,439 $ 1,018

Our effective tax rate reconciliation is as follows:


	Three months ended September 30,
	2019			2018

Income tax provision calculated at the statutory federal rate	$	14,054		$	13,216
Stock compensation tax benefits		(7,848)			(2,784)
State and local income taxes		1,183			1,360
Other--net		587			(110)
Income tax provision	$	7,976		$	11,682
Effective tax rate		11.9	%		18.6	%

Three months ended March 31,
2019 2018

Income tax provision calculated at the statutory federal rate $ 10,665 $ 11,804
Stock compensation tax benefits (6,732 ) (3,798 )
State and local income taxes 1,128 2,325
Other--net 1,059 881
Income tax provision $ 6,120 $ 11,212
Effective tax rate 12.1 % 19.9 %

~~-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,
	2019		2018
VITAS
Medicare cap sequestration adjustment		(639)		(376)
Acquisition expense		-		(132)
Roto-Rooter
Acquisition expense		(2,411)		(130)
Amortization of acquired and cancelled franchise agreements		(244)		-
Corporate
Excess tax benefits on stock compensation		8,792		3,118
Stock option expense		(2,278)		(1,674)
Long-term incentive compensation		(1,486)		(1,013)
Total	$	1,734	$	(207)

-30-

Three months ended March 31,
2019 2018
VITAS
Litigation settlement $ (4,476 ) $ -
Non cash ASC 842 expenses (489 ) -
Medicare cap sequestration adjustment (387 ) (263 )
Roto-Rooter
Amortization of acquired and cancelled franchise agreements (324 ) -
Non cash ASC 842 expenses (40 ) -
Corporate
Excess tax benefits on stock compensation 6,732 3,798
Stock option expense (3,327 ) (2,891 )
Long-term incentive compensation (1,230 ) (1,499 )
Non cash ASC 842 benefit 124 -
Acquisition expenses (91 ) -
Total $ (3,508 ) $ (855 )

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

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



	Three months ended September 30,
	2019		2018
VITAS	$	39,773	$	35,921
Roto-Rooter		26,140		24,563
Corporate		(6,966)		(9,235)
	$	58,947	$	51,249

VITAS’ after-tax earnings were positively impacted in 2019 compared to 2018 due to higher revenue and improved labor management and ancillary costs. After-tax earnings as a percent of revenue at VITAS in the third quarter of 2019 was 12.4% as compared to 11.9% in the third quarter of 2018.

Roto-Rooter’s net income was impacted in 2019 compared to 2018 primarily by higher revenue offset by acquisition related expenses. After-tax earnings as a percent of revenue at Roto-Rooter in the third quarter of 2019 was 16.5% as compared to 17.3% in the third quarter of 2018.

After-tax Corporate expenses for 2019 decreased 24.6% when compared to 2018 due mainly to a $5.7 million increase in the excess tax benefits on stock compensation.

Results of Operations

Nine months ended September 30, 2019 versus 2018 - Consolidated Results

Our service revenues and sales for the first nine months of 2019 increased 6.9% versus services and sales revenues for the first nine months of 2018. Of this increase, a $50.7 million increase was attributable to VITAS and $40.4 million increase was attributable to Roto-Rooter. The following chart shows the components of revenue by operating segment (in thousands):


	Nine months ended September 30,
	2019		2018
VITAS
Routine homecare	$	800,059	$	748,546
Continuous care		92,476		91,664
General inpatient		69,063		61,803
Other		6,598		5,844
Medicare cap adjustment		(7,915)		(668)
Room and board - net		(8,098)		(7,863)
Implicit price concessions		(10,904)		(8,749)
Roto-Rooter
Drain cleaning - short term core		135,689		124,141
Plumbing - short term core		100,286		91,813
Subtotal		235,975		215,954
Excavation - short term core		103,726		93,869
Water restoration		81,629		77,502
Contractor operations		42,931		36,950
Outside franchisee fees		5,063		4,758
Other - short term core		1,636		1,695
Other		8,773		9,032
Implicit price concessions		(4,781)		(5,197)
Total	$	1,416,231	$	1,325,140

-31-

Three months ended March 31,
2019
2018

VITAS $ 29,288 $ 32,015
Roto-Rooter 22,986 22,938
Corporate (7,607 ) (9,957 )
$ 44,667 $ 44,996

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


	Days of Care		Increase/(Decrease)
	2019	2018	Percent

Routine homecare	4,879,161	4,592,950	6.2
Continuous care	125,397	127,147	(1.4)
General inpatient	102,336	86,372	18.5
Total days of care	5,106,894	4,806,469	6.3

The remaining increase in VITAS’ revenues for the first nine months of 2019 versus the first nine months of 2018 was primarily comprised of a geographically weighted average Medicare reimbursement rate increase of approximately 0.5% offset by $7.9 million in Medicare cap revenue reductions compared to Medicare cap revenue reductions of $668,000 in 2018. Over 90% of VITAS’ service revenues for the period were from Medicare and Medicaid.

The increase in plumbing revenues for the first nine months of 2019 versus 2018 is attributable to a 6.8% increase in price and service mix shift and by a 2.4% increase in job count. The increase in excavation revenues for the first nine months of 2019 versus 2018 is attributable to a 10.0% increase in price and service mix shift and an increase of 0.5% in job count. Drain cleaning revenues for the first nine months of 2019 versus 2018 reflect a 7.0% increase in price and service mix shift and a 2.3% increase in job count. The increase in water restoration revenue for the first nine months of 2019 versus 2018 is attributable to a 2.3% increase in price and service mix shift and a 3.0% increase in job count. Contractor operations increased 16.2% mainly due to their expansion into water restoration.

The consolidated gross margin was 31.2% in the first nine months of 2019 as compared with 30.9% in the first nine months of 2018. On a segment basis, VITAS’ gross margin was 22.6% in the first nine months of 2019 as compared with 22.1%, in the first nine months of 2018 primarily due to improved labor management and ancillary costs. The Roto-Rooter segment’s gross margin was 48.3% for the first nine months of 2019 compared with 48.9% in the first nine months of 2018 primarily due to higher labor costs in the first half of 2019.

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


	Nine months ended September 30,
	2019		2018
SG&A expenses before long-term incentive compensation and the impact of market value adjustments related to deferred compensation trusts	$	212,775	$	196,271
Long-term incentive compensation		4,552		4,376
Impact of market value adjustments related to assets held in deferred compensation trusts		5,094		3,827
Total SG&A expenses	$	222,421	$	204,474

SG&A expenses before long-term incentive compensation and the impact of market value adjustments related to deferred compensation trusts for the first nine months of 2019 were up 8.4% when compared to the first nine months of 2018. This increase was mainly a result of the increase in variable selling expenses caused by increased revenue and increased advertising expense at Roto-Rooter as well as acquisition related expenses at Roto-Rooter in the first nine months of 2019.

Other operating expenses increased $8.9 million from the first nine months of 2018 primarily as a result of a $6.0 million litigation settlement at VITAS and a $2.3 million impairment of transportation equipment held for sale recorded in the first nine months of 2019.

Other income - net comprise (in thousands):


	Nine months ended September 30,
	2019		2018
Market value adjustment on assets held in deferred compensation trusts	$	5,094	$	3,827
Interest income		387		529
Other		7		-
Total other income - net	$	5,488	$	4,356

-32-

Our effective tax rate reconciliation is as follows:


	Nine months ended September 30,
	2019			2018

Income tax provision calculated at the statutory federal rate	$	38,223		$	37,127
Stock compensation tax benefits		(16,724)			(16,623)
State and local income taxes		4,652			4,150
Other--net		1,520			924
Income tax provision	$	27,671		$	25,578
Effective tax rate		15.2	%		14.5	%

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,
	2019		2018
VITAS
Litigation settlement	$	(4,476)	$	152
Medicare cap sequestration adjustment		(2,279)		(777)
Non cash ASC 842 benefit		(490)		-
Acquisition expenses		-		(132)
Roto-Rooter
Acquisition expenses		(2,482)		(130)
Amortization of acquired and cancelled franchise agreements		(811)		-
Non cash ASC 842 benefit		(40)		-
Corporate
Excess tax benefits on stock compensation		18,737		18,618
Stock option expense		(8,804)		(7,465)
Long-term incentive compensation		(3,915)		(3,515)
Impairment loss on transportation equipment		(1,733)		-
Non cash ASC 842 benefit		124		-
Acquisition expenses		(91)		-
Total	$	(6,260)	$	6,751

Nine months ended September 30, 2019 versus 2018 - Segment Results

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



	Nine months ended September 30,
	2019		2018
VITAS	$	106,400	$	99,720
Roto-Rooter		76,302		72,799
Corporate		(28,359)		(21,303)
	$	154,343	$	151,216

VITAS’ after-tax earnings were positively impacted in 2019 compared to 2018 due to higher revenue offset by the impact of a litigation settlement of approximately $6.0 million ($4.5 million after-tax). After-tax earnings as a percent of revenue at VITAS in the first ~~quarter~~nine months of 2019 was ~~9.5%~~11.3% as compared to ~~11.0%~~11.2% in the first ~~quarter~~nine months of 2018.

-33-

Roto-Rooter’s net income was ~~positively~~ impacted in 2019 compared to 2018 primarily by higher ~~revenue.~~revenue offset by acquisition related expenses. After-tax earnings as a percent of revenue at Roto-Rooter in the first ~~quarter~~nine months of 2019 was ~~14.8%~~16.1% as compared to ~~15.6%~~16.8% in the first ~~quarter~~nine months of 2018.

After-tax Corporate expenses for 2019 ~~decreased 23.6%~~increased 33.1% when compared to 2018 due mainly to a ~~$2.9~~$2.3 million ~~increase in tax benefit related to the adoption~~($1.7 million after-tax) impairment of ~~ASU 2016-09.~~

transportation equipment held for sale.

‎

~~-28-~~

-34-


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

							Chemed
	VITAS		Roto-Rooter		Corporate		Consolidated
2019 (a)
Service revenues and sales	$	321,748	$	158,865	$	-	$	480,613
Cost of services provided and goods sold		247,551		80,632		-		328,183
Selling, general and administrative expenses		21,965		41,758		13,113		76,836
Depreciation		5,105		5,003		39		10,147
Amortization		18		423		-		441
Other operating expense/(income)		97		(19)		-		78
Total costs and expenses		274,736		127,797		13,152		415,685
Income/(loss) from operations		47,012		31,068		(13,152)		64,928
Interest expense		(48)		(80)		(913)		(1,041)
Intercompany interest income/(expense)		4,618		2,234		(6,852)		-
Other income—net		121		31		2,884		3,036
Income/(expense) before income taxes		51,703		33,253		(18,033)		66,923
Income taxes		(11,930)		(7,113)		11,067		(7,976)
Net income/(loss)	$	39,773	$	26,140	$	(6,966)	$	58,947

(a) The following amounts are included in net income (in thousands):
							Chemed
	VITAS		Roto-Rooter		Corporate		Consolidated
Pretax benefit/(cost):
Acquisition expenses	$	-	$	(3,281)	$	-	$	(3,281)
Stock option expense		-		-		(2,711)		(2,711)
Long-term incentive compensation		-		-		(1,677)		(1,677)
Medicare cap sequestration		(859)		-		-		(859)
Amortization of acquired and cancelled franchise agreements		-		(331)		-		(331)
Total	$	(859)	$	(3,612)	$	(4,388)	$	(8,859)

							Chemed
	VITAS		Roto-Rooter		Corporate		Consolidated
After-tax benefit/(cost):
Acquisition expenses	$	-	$	(2,411)	$	-	$	(2,411)
Stock option expense		-		-		(2,278)		(2,278)
Long-term incentive compensation		-		-		(1,486)		(1,486)
Medicare cap sequestration		(639)		-		-		(639)
Amortization of acquired and cancelled franchise agreements		-		(244)		-		(244)
Non cash ASC 842 expenses		-		-		-		-
Excess tax benefits on stock compensation		-		-		8,792		8,792
Total	$	(639)	$	(2,655)	$	5,028	$	1,734

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

Chemed

VITAS
Roto-Rooter

Corporate

Consolidated

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

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

Chemed

VITAS
Roto-Rooter

Corporate

Consolidated

Pretax benefit/(cost):
Litigation settlement $ (6,000 ) $ - $ - $ (6,000 )
Stock option expense - - (4,089 ) (4,089 )
Long-term incentive compensation - - (1,488 ) (1,488 )
Non cash ASC 842 (expenses)/benefit (656 ) (55 ) 163 (548 )
Medicare cap sequestration (515 ) - - (515 )
Amortization of acquired and cancelled franchise agreements - (441 ) - (441 )
Acquisition expenses - - (120 ) (120 )
Total $ (7,171 ) $ (496 ) $ (5,534 ) $ (13,201 )

Chemed

VITAS
Roto-Rooter

Corporate

Consolidated

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

‎

~~-29-~~

-35-


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

							Chemed
	VITAS		Roto-Rooter		Corporate		Consolidated
2018 (a)
Service revenues and sales	$	301,764	$	142,387	$	-	$	444,151
Cost of services provided and goods sold		233,006		72,306		-		305,312
Selling, general and administrative expenses		20,394		36,112		10,671		67,177
Depreciation		4,905		4,712		40		9,657
Amortization		-		35		-		35
Other operating expenses		100		157		-		257
Total costs and expenses		258,405		113,322		10,711		382,438
Income/(loss) from operations		43,359		29,065		(10,711)		61,713
Interest expense		(49)		(71)		(962)		(1,082)
Intercompany interest income/(expense)		3,306		1,814		(5,120)		-
Other income—net		89		22		2,189		2,300
Income/(expense) before income taxes		46,705		30,830		(14,604)		62,931
Income taxes		(10,784)		(6,267)		5,369		(11,682)
Net income/(loss)	$	35,921	$	24,563	$	(9,235)	$	51,249

(a) The following amounts are included in net income (in thousands):
							Chemed
	VITAS		Roto-Rooter		Corporate		Consolidated
Pretax benefit/(cost):
Stock option expense	$	-	$	-	$	(2,055)	$	(2,055)
Long-term incentive compensation		-		-		(1,234)		(1,234)
Acquisition expense		(177)		(177)		-		(354)
Medicare cap sequestration adjustment		(503)		-		-		(503)
Total	$	(680)	$	(177)	$	(3,289)	$	(4,146)

							Chemed
	VITAS		Roto-Rooter		Corporate		Consolidated
After-tax benefit/(cost):
Stock option expense	$	-	$	-	$	(1,674)	$	(1,674)
Long-term incentive compensation		-		-		(1,013)		(1,013)
Acquisition expense		(132)		(130)		-		(262)
Medicare cap sequestration adjustment		(376)		-		-		(376)
Excess tax benefits on stock compensation		-		-		3,118		3,118
Total	$	(508)	$	(130)	$	431	$	(207)

CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2018
(in thousands)(unaudited)

Chemed

VITAS
Roto-Rooter

Corporate

Consolidated

2018 (a)
Service revenues and sales $ 292,013 $ 147,163 $ - $ 439,176
Cost of services provided and goods sold 227,256 77,280 - 304,536
Selling, general and administrative expenses 20,510 36,098 12,392 69,000
Depreciation 4,797 4,443 27 9,267
Amortization - 27 - 27
Other operating expenses (18 ) (33 ) - (51 )
Total costs and expenses 252,545 117,815 12,419 382,779
Income/(loss) from operations 39,468 29,348 (12,419 ) 56,397
Interest expense (52 ) (91 ) (1,064 ) (1,207 )
Intercompany interest income/(expense) 3,095 1,677 (4,772 ) -
Other income—net 142 16 860 1,018
Income/(expense) before income taxes 42,653 30,950 (17,395 ) 56,208
Income taxes (10,638 ) (8,012 ) 7,438 (11,212 )
Net income/(loss) $ 32,015 $ 22,938 $ (9,957 ) $ 44,996

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

Chemed

VITAS
Roto-Rooter

Corporate

Consolidated

Pretax benefit/(cost):
Stock option expense $ - $ - $ (3,653 ) $ (3,653 )
Long-term incentive compensation - - (1,920 ) (1,920 )
Medicare cap sequestration adjustment (352 ) - - (352 )
Total $ (352 ) $ - $ (5,573 ) $ (5,925 )

Chemed

VITAS
Roto-Rooter

Corporate

Consolidated

After-tax benefit/(cost):
Stock option expense $ - $ - $ (2,891 ) $ (2,891 )
Long-term incentive compensation - - (1,499 ) (1,499 )
Medicare cap sequestration adjustment (263 ) - - (263 )
Excess tax benefits on stock compensation - - 3,798 3,798
Total $ (263 ) $ - $ (592 ) $ (855 )

‎

~~-30-~~

-36-



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

							Chemed
	VITAS		Roto-Rooter		Corporate		Consolidated
2019 (a)
Service revenues and sales	$	941,279	$	474,952	$	-	$	1,416,231
Cost of services provided and goods sold		728,397		245,374		-		973,771
Selling, general and administrative expenses		65,182		120,736		36,503		222,421
Depreciation		14,644		14,983		117		29,744
Amortization		53		1,313		-		1,366
Other operating expenses		6,521		214		2,266		9,001
Total costs and expenses		814,797		382,620		38,886		1,236,303
Income/(loss) from operations		126,482		92,332		(38,886)		179,928
Interest expense		(150)		(273)		(2,979)		(3,402)
Intercompany interest income/(expense)		13,395		6,609		(20,004)		-
Other income—net		309		86		5,093		5,488
Income/(expense) before income taxes		140,036		98,754		(56,776)		182,014
Income taxes		(33,636)		(22,452)		28,417		(27,671)
Net income/(loss)	$	106,400	$	76,302	$	(28,359)	$	154,343


(a) The following amounts are included in net income (in thousands):
							Chemed
		VITAS	Roto-Rooter		Corporate		Consolidated
Pretax benefit/(cost):
Stock option expense	$	-	$	-	$	(10,729)	$	(10,729)
Litigation settlement		(6,000)		-		-		(6,000)
Long-term incentive compensation		-		-		(4,552)		(4,552)
Impairment loss on transportation equipment		-		-		(2,266)		(2,266)
Medicare cap sequestration adjustment		(3,063)		-		-		(3,063)
Amortization of acquired and cancelled franchise agreements		-		(1,103)		-		(1,103)
Non cash ASC 842 (expenses)/benefit		(656)		(55)		163		(548)
Acquisition expenses		-		(3,377)		(120)		(3,497)
Total	$	(9,719)	$	(4,535)	$	(17,504)	$	(31,758)

							Chemed
		VITAS	Roto-Rooter		Corporate		Consolidated
After-tax benefit/(cost):
Stock option expense	$	-	$	-	$	(8,804)	$	(8,804)
Litigation settlement		(4,476)		-		-		(4,476)
Long-term incentive compensation		-		-		(3,915)		(3,915)
Acquisition expenses		-		(2,482)		(91)		(2,573)
Medicare cap sequestration adjustment		(2,279)		-		-		(2,279)
Impairment loss on transportation equipment		-		-		(1,733)		(1,733)
Amortization of acquired and cancelled franchise agreements		-		(811)		-		(811)
Non cash ASC 842 (expenses)/benefit		(490)		(40)		124		(406)
Excess tax benefits on stock compensation		-		-		18,737		18,737
Total	$	(7,245)	$	(3,333)	$	4,318	$	(6,260)

Unaudited Consolidating Summary and Reconciliation of Adjusted EBITDA

Chemed Corporation and Subsidiary Companies
(in thousands)
Chemed

For the three months ended March 31, 2019
VITAS

Roto-Rooter

Corporate
Consolidated

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

Chemed

For the three months ended March 31, 2018
VITAS

Roto-Rooter

Corporate
Consolidated

Net income/(loss) $ 32,015 $ 22,938 $ (9,957 ) $ 44,996
Add/(deduct):
Interest expense 52 91 1,064 1,207
Income taxes 10,638 8,012 (7,438 ) 11,212
Depreciation 4,797 4,443 27 9,267
Amortization - 27 - 27
EBITDA 47,502 35,511 (16,304 ) 66,709
Add/(deduct):
Intercompany interest expense/(income) (3,095 ) (1,677 ) 4,772 -
Interest income (142 ) (16 ) - (158 )
Medicare cap sequestration adjustment 352 - - 352
Amortization of stock awards 70 65 156 291
Stock option expense - - 3,653 3,653
Long-term incentive compensation - - 1,920 1,920
Adjusted EBITDA $ 44,687 $ 33,883 $ (5,803 ) $ 72,767

‎

~~-31-~~

-37-



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

							Chemed
	VITAS		Roto-Rooter		Corporate		Consolidated
2018 (a)
Service revenues and sales	$	890,577	$	434,563	$	-	$	1,325,140
Cost of services provided and goods sold		693,335		222,254		-		915,589
Selling, general and administrative expenses		61,606		108,120		34,748		204,474
Depreciation		14,753		13,782		107		28,642
Amortization		-		96		-		96
Other operating expenses		16		72		-		88
Total costs and expenses		769,710		344,324		34,855		1,148,889
Income/(loss) from operations		120,867		90,239		(34,855)		176,251
Interest expense		(153)		(255)		(3,405)		(3,813)
Intercompany interest income/(expense)		9,524		5,231		(14,755)		-
Other income—net		469		60		3,827		4,356
Income/(expense) before income taxes		130,707		95,275		(49,188)		176,794
Income taxes		(30,987)		(22,476)		27,885		(25,578)
Net income/(loss)	$	99,720	$	72,799	$	(21,303)	$	151,216


(a) The following amounts are included in net income (in thousands):
							Chemed
	VITAS		Roto-Rooter		Corporate		Consolidated
Pretax benefit/(cost):
Stock option expense	$	-	$	-	$	(9,360)	$	(9,360)
Long-term incentive compensation		-		-		(4,376)		(4,376)
Medicare cap sequestration adjustment		(1,040)		-		-		(1,040)
Acquisition expense		(177)		(177)		-		(354)
Litigation settlement		204		-		-		204
Total	$	(1,013)	$	(177)	$	(13,736)	$	(14,926)

							Chemed
	VITAS		Roto-Rooter		Corporate		Consolidated
After-tax benefit/(cost):
Stock option expense	$	-	$	-	$	(7,465)	$	(7,465)
Long-term incentive compensation		-		-		(3,515)		(3,515)
Medicare cap sequestration adjustment		(777)		-		-		(777)
Acquisition expense		(132)		(130)		-		(262)
Litigation settlement		152		-		-		152
Excess tax benefits on stock compensation		-		-		18,618		18,618
Total	$	(757)	$	(130)	$	7,638	$	6,751

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

Three Months Ended March 31,
2019 2018
Net income as reported $ 44,667 $ 44,996

Add/(deduct) pre-tax cost of:
Litigation settlement 6,000 -
Stock option expense 4,089 3,653
Long-term incentive compensation 1,488 1,920
Non cash ASC 842 expenses 548 -
Medicare cap sequestration adjustment 515 352
Amortization of acquired and cancelled franchise agreements 441 -
Acquisition expenses 120 -
Add/(deduct) tax impacts:
Tax impact of the above pre-tax adjustments (1) (2,961 ) (1,272 )
Excess tax benefits on stock compensation (6,732 ) (3,798 )
Adjusted net income $ 48,175 $ 45,851

Diluted Earnings Per Share As Reported
Net income $ 2.70 $ 2.66
Average number of shares outstanding 16,525 16,887

Adjusted Diluted Earnings Per Share
Adjusted net income $ 2.92 $ 2.72
Adjusted average number of shares outstanding 16,525 16,887

(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.

‎

~~-32-~~

-38-


Unaudited Consolidating Summary and Reconciliation of Adjusted EBITDA

Chemed Corporation and Subsidiary Companies
(in thousands)								Chemed
For the three months ended September 30, 2019		VITAS		Roto-Rooter		Corporate		Consolidated

	Net income/(loss)	$	39,773	$	26,140	$	(6,966)	$	58,947
	Add/(deduct):
	Interest expense		48		80		913		1,041
	Income taxes		11,930		7,113		(11,067)		7,976
	Depreciation		5,105		5,003		39		10,147
	Amortization		18		423		-		441
	EBITDA		56,874		38,759		(17,081)		78,552
	Add/(deduct):
	Intercompany interest expense/(income)		(4,618)		(2,234)		6,852		-
	Interest income		(139)		(34)		-		(173)
	Acquisition expense		-		3,281		-		3,281
	Stock option expense		-		-		2,711		2,711
	Long-term incentive compensation		-		-		1,677		1,677
	Medicare cap sequestration adjustment		859		-		-		859
	Adjusted EBITDA	$	52,976	$	39,772	$	(5,841)	$	86,907

								Chemed
For the three months ended September 30, 2018		VITAS		Roto-Rooter		Corporate		Consolidated

	Net income/(loss)	$	35,921	$	24,563	$	(9,235)	$	51,249
	Add/(deduct):
	Interest expense		49		71		962		1,082
	Income taxes		10,784		6,267		(5,369)		11,682
	Depreciation		4,905		4,712		40		9,657
	Amortization		-		35		-		35
	EBITDA		51,659		35,648		(13,602)		73,705
	Add/(deduct):
	Intercompany interest expense/(income)		(3,306)		(1,814)		5,120		-
	Interest income		(88)		(23)		-		(111)
	Medicare cap sequestration adjustment		503		-		-		503
	Acquisition expense		177		177		-		354
	Stock option expense		-		-		2,055		2,055
	Long-term incentive compensation		-		-		1,234		1,234
	Adjusted EBITDA	$	48,945	$	33,988	$	(5,193)	$	77,740

CHEMED CORPORATION AND SUBSIDIARY COMPANIES
OPERATING STATISTICS FOR VITAS SEGMENT
(unaudited)
Three Months Ended March 31,
OPERATING STATISTICS 2019 2018
Net revenue ($000)
Homecare $ 258,847 $ 241,031
Inpatient 22,570 22,108
Continuous care 32,244 30,766
Other 2,010 1,741
Subtotal $ 315,671 $ 295,646
Room and board, net (2,542 ) (2,618 )
Contractual allowances (2,948 ) (2,833 )
Medicare cap allowance (3,400 ) 1,818
Total $ 306,781 $ 292,013
Net revenue as a percent of total before Medicare cap allowances
Homecare 82.0 % 81.5 %
Inpatient 7.1 7.5
Continuous care 10.2 10.4
Other 0.7 0.6
Subtotal 100.0 100.0
Room and board, net (0.9 ) (0.9 )
Contractual allowances (1.0 ) (0.9 )
Medicare cap allowance (0.9 ) 0.6
Total 97.2 % 98.8 %
Average daily census (days)
Homecare 14,243 13,162
Nursing home 3,254 3,215
Routine homecare 17,497 16,377
Inpatient 360 352
Continuous care 488 480
Total 18,345 17,209
Total Admissions 17,758 18,279
Total Discharges 17,339 17,558
Average length of stay (days) 91.3 87.9
Median length of stay (days) 15.0 15.0
ADC by major diagnosis
Cerebro 35.6 % 36.2 %
Neurological 19.9 18.5
Cancer 13.1 13.9
Cardio 16.9 16.4
Respiratory 8.2 8.2
Other 6.3 6.8
Total 100.0 % 100.0 %
Admissions by major diagnosis
Cerebro 20.7 22.6 %
Neurological 12.8 11.4
Cancer 28.0 28.0
Cardio 16.3 15.5
Respiratory 12.0 11.7
Other 10.2 10.8
Total 100.0 % 100.0 %
Direct patient care margins
Routine homecare 52.7 % 52.1 %
Inpatient 6.5 7.5
Continuous care 18.2 17.7
Homecare margin drivers (dollars per patient day)
Labor costs $ 59.42 $ 58.63
Combined drug, HME and medical supplies 13.08 14.47
Inpatient margin drivers (dollars per patient day)
Labor costs $ 364.62 $ 362.75
Continuous care margin drivers (dollars per patient day)
Labor costs $ 582.54 $ 567.51
Estimated uncollectible accounts as a percent of revenues 1.0 % 1.0 %
Accounts receivable -- Days of revenue outstanding- excluding unapplied Medicare payments 34.9 32.6
Accounts receivable -- Days of revenue outstanding- including unapplied Medicare payments 23.3 22.6

~~-33-~~

-39-


Unaudited Consolidating Summary and Reconciliation of Adjusted EBITDA

Chemed Corporation and Subsidiary Companies
(in thousands)							Chemed
For the nine months ended September 30, 2019	VITAS		Roto-Rooter		Corporate		Consolidated

Net income/(loss)	$	106,400	$	76,302	$	(28,359)	$	154,343
Add/(deduct):
Interest expense		150		273		2,979		3,402
Income taxes		33,636		22,452		(28,417)		27,671
Depreciation		14,644		14,983		117		29,744
Amortization		53		1,313		-		1,366
EBITDA		154,883		115,323		(53,680)		216,526
Add/(deduct):
Intercompany interest expense/(income)		(13,395)		(6,609)		20,004		-
Interest income		(296)		(91)		-		(387)
Stock option expense		-		-		10,729		10,729
Litigation settlement		6,000		-		-		6,000
Long-term incentive compensation		-		-		4,552		4,552
Acquisition expenses		-		3,377		120		3,497
Medicare cap sequestration adjustment		3,063		-		-		3,063
Impairment loss on transportation equipment		-		-		2,266		2,266
Non cash ASC 842 expenses/(benefit)		656		55		(163)		548
Adjusted EBITDA	$	150,911	$	112,055	$	(16,172)	$	246,794

							Chemed
For the nine months ended September 30, 2018	VITAS		Roto-Rooter		Corporate		Consolidated

Net income/(loss)	$	99,720	$	72,799	$	(21,303)	$	151,216
Add/(deduct):
Interest expense		153		255		3,405		3,813
Income taxes		30,987		22,476		(27,885)		25,578
Depreciation		14,753		13,782		107		28,642
Amortization		-		96		-		96
EBITDA		145,613		109,408		(45,676)		209,345
Add/(deduct):
Intercompany interest expense/(income)		(9,524)		(5,231)		14,755		-
Interest income		(468)		(60)		-		(528)
Stock option expense		-		-		9,360		9,360
Long-term incentive compensation		-		-		4,376		4,376
Medicare cap sequestration adjustment		1,040		-		-		1,040
Stock award amortization		107		100		239		446
Acquisition expense		177		177		-		354
Litigation settlement		(204)		-		-		(204)
Adjusted EBITDA	$	136,741	$	104,394	$	(16,946)	$	224,189

‎

-40-



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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Net income as reported	$	58,947	$	51,249	$	154,343	$	151,216

Add/(deduct) pre-tax cost of:
Stock option expense		2,711		2,055		10,729		9,360
Litigation settlement		-		-		6,000		(204)
Long-term incentive compensation		1,677		1,234		4,552		4,376
Acquisition expenses		3,281		354		3,497		354
Medicare cap sequestration adjustment		859		503		3,063		1,040
Impairment loss on transportation equipment		-		-		2,266		-
Amortization of acquired and cancelled franchise agreements		331		-		1,103		-
Non cash ASC 842 expenses		-		-		548		-
Add/(deduct) tax impacts:
Tax impact of the above pre-tax adjustments (1)		(1,801)		(821)		(6,761)		(3,059)
Excess tax benefits on stock compensation		(8,792)		(3,118)		(18,737)		(18,618)
Adjusted net income	$	57,213	$	51,456	$	160,603	$	144,465

Diluted Earnings Per Share As Reported
Net income	$	3.56	$	3.06	$	9.35	$	8.98
Average number of shares outstanding		16,555		16,772		16,514		16,830

Adjusted Diluted Earnings Per Share
Adjusted net income	$	3.46	$	3.07	$	9.73	$	8.58
Adjusted average number of shares outstanding		16,555		16,772		16,514		16,830

(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.

-41-


CHEMED CORPORATION AND SUBSIDIARY COMPANIES
OPERATING STATISTICS FOR VITAS SEGMENT
(unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
OPERATING STATISTICS	2019			2018			2019			2018
Net revenue ($000)
Homecare	$	274,746		$	257,134		$	800,059		$	748,546
Inpatient		23,599			19,617			69,063			61,803
Continuous care		29,446			30,385			92,476			91,664
Other		2,356			2,104			6,598			5,844
Subtotal	$	330,147		$	309,240		$	968,196		$	907,857
Room and board, net		(2,846)			(2,569)			(8,098)			(7,863)
Contractual allowances		(4,236)			(2,957)			(10,904)			(8,749)
Medicare cap allowance		(1,317)			(1,950)			(7,915)			(668)
Total	$	321,748		$	301,764		$	941,279		$	890,577
Net revenue as a percent of total before Medicare cap allowances
Homecare		83.2	%		83.2	%		82.6	%		82.5	%
Inpatient		7.1			6.3			7.1			6.8
Continuous care		8.9			9.8			9.6			10.1
Other		0.8			0.7			0.7			0.6
Subtotal		100.0			100.0			100.0			100.0
Room and board, net		(0.9)			(0.8)			(0.8)			(0.9)
Contractual allowances		(1.3)			(1.0)			(1.2)			(1.0)
Medicare cap allowance		(0.4)			(0.6)			(0.8)			(0.1)
Total		97.4	%		97.6	%		97.2	%		98.0	%
Average daily census (days)
Homecare		14,799			13,791			14,510			13,515
Nursing home		3,483			3,402			3,374			3,298
Routine homecare		18,282			17,193			17,884			16,813
Inpatient		373			313			363			328
Continuous care		431			451			460			466
Total		19,086			17,957			18,707			17,607
Total Admissions		17,131			16,403			52,380			51,540
Total Discharges		16,915			16,171			51,274			50,234
Average length of stay (days)		92.6			90.0			91.6			89.0
Median length of stay (days)		17.0			18.0			16.0			16.0
ADC by major diagnosis
Cerebro		35.7	%		36.2	%		35.9	%		36.5	%
Neurological		20.7			18.8			20.4			18.7
Cancer		12.9			13.8			12.9			13.8
Cardio		16.6			16.4			16.7			16.4
Respiratory		8.1			8.1			8.1			8.1
Other		6.0			6.7			6.0			6.5
Total		100.0	%		100.0	%		100.0	%		100.0	%
Admissions by major diagnosis
Cerebro		21.1			21.1	%		20.8	%		21.9	%
Neurological		12.7			11.6			12.6			11.3
Cancer		30.5			31.5			29.2			30.0
Cardio		14.8			14.7			15.7			15.3
Respiratory		10.2			10.3			11.3			11.0
Other		10.7			10.8			10.4			10.5
Total		100.0	%		100.0	%		100.0	%		100.0	%

Estimated uncollectible accounts as a percent of revenues		1.3	%		1.0	%		1.1	%		1.0	%
Accounts receivable --
Days of revenue outstanding- excluding unapplied Medicare payments		32.7			36.0			n.a.			n.a.
Days of revenue outstanding- including unapplied Medicare payments		21.0			22.8			n.a.			n.a.

-42-

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 ~~March 31,~~September 30, 2019, the Company had ~~$100.0~~$130.0 million of variable rate debt outstanding. For each $10 million dollars borrowed under the credit facility, an increase or decrease of 100 basis points (1% point), increases or decreases the Company’s annual interest expense by $100,000.

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

Item 4.Controls and Procedures

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

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

PART II. OTHER INFORMATION

Item 1.Legal Proceedings

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

Item 1A. Risk Factors

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

~~-34-~~

-43-

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 ~~three~~nine months of 2019:



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

February 2011 Program
January 1 through January 31, 2019	-	$	-	8,376,864	$	46,649,495
February 1 through February 28, 2019	91,893		327.84	8,468,757		166,522,918
March 1 through March 31, 2019	58,107		329.10	8,526,864	$	147,399,943

First Quarter Total	150,000	$	328.33

April 1 through April 30, 2019	-	$	-	8,526,864	$	147,399,943
May 1 through May 31, 2019	69,009		328.59	8,595,873		124,723,950
June 1 through June 30, 2019	-		-	8,595,873	$	124,723,950

Second Quarter Total	69,009	$	328.59

July 1 through July 31, 2019	-	$	-	8,595,873	$	124,723,950
August 1 through August 31, 2019	-		-	8,595,873		124,723,950
September 1 through September 30, 2019	-		-	8,595,873	$	124,723,950

Third Quarter Total	-	$	-


On February 25, 2019, our Board of Directors authorized an additional $150 million under the February 2011 Repurchase Program.

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

February 2011 Program

January 1 through January 31, 2019 - $ - 8,376,864 $ 46,649,495
February 1 through February 28, 2019 91,893 327.84 8,468,757 166,522,918
March 1 through March 31, 2019 58,107 329.10 8,526,864 $ 147,399,943

First Quarter Total 150,000 $ 328.33

~~On February 22, 2019 our Board of Directors authorized an additional $150 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.

‎

~~-35-~~

-44-

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.~~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.~~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, 2019 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.

~~101.SCH~~ 104		~~XBRL Taxonomy Extension Schema~~

~~101.CAL~~		~~XBRL Taxonomy Extension Calculation Linkbase~~

~~101.DEF~~		~~XBRL Taxonomy Extension Definition Linkbase~~

~~101.LAB~~		~~XBRL Taxonomy Extension Label Linkbase~~

~~101.PRE~~		~~XBRL Taxonomy Extension Presentation Linkbase~~ The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, formatted in iXBRL and contained in Exhibit 101.

~~SIGNATURES~~

‎

-45-

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:~~	~~May 2,~~
Dated:		November 4, 2019	By:		/s/ Kevin J. McNamara
					Kevin J. McNamara
					(President and Chief Executive Officer)


Dated:	~~Dated:~~	~~May 2,~~ November 4, 2019	By:		/s/ David P. Williams
					David P. Williams
					(Executive Vice President and Chief Financial Officer)


Dated:	~~Dated:~~	~~May 2,~~ November 4, 2019	By:		/s/ Michael D. Witzeman
					Michael D. Witzeman
					(Vice President and Controller)

-46-

~~-1-~~

	March 31,
	2019			2018
Short-term core service jobs	$	111,059		$	104,086
Water restoration		27,652			27,737
Contractor revenue		14,009			12,365
Franchise fees		1,621			1,592
All other		3,008			3,320
Subtotal	$	157,349		$	149,100
Implicit price concessions and credit memos		(2,096	)		(1,937	)
Net revenue	$	155,253		$	147,163

	Three months ended March 31,
	2019			2018
After-tax Income/(Loss)
VITAS	$	29,288		$	32,015
Roto-Rooter		22,986			22,938
Total		52,274			54,953
Corporate		(7,607	)		(9,957	)
Net income	$	44,667		$	44,996

	Net Income
For the Three Months Ended March 31,	Income		Shares		Earnings per Share
2019
Earnings	$	44,667		15,954	$	2.80
Dilutive stock options		-		494
Nonvested stock awards		-		77
Diluted earnings	$	44,667		16,525	$	2.70

2018
Earnings	$	44,996		16,100	$	2.79
Dilutive stock options		-		680
Nonvested stock awards		-		107
Diluted earnings	$	44,996		16,887	$	2.66

Maturity of Operating Lease Liabilities (in thousands)

2019	$	33,836
2020		26,044
2021		18,914
2022		12,479
2023		7,262
Thereafter		11,039
Total lease payments	$	109,574
Less: interest		(7,915	)
Less: future lease obligations not yet commenced		(3,000	)
Total liability recognized on the balance sheet	$	98,659

			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	$	70,632	$	70,632	$	-	$	-
Total debt		100,000		-		100,000		-

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

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

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

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