CHEMED CORP - Quarter Report: 2013 September (Form 10-Q)

a50738518.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended September 30, 2013

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

Commission File Number: 1-8351

CHEMED CORPORATION

(Exact name of registrant as specified in its charter)


Delaware		31-0791746
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)
255 E. Fifth Street, Suite 2600, Cincinnati, Ohio		45202
(Address of principal executive offices)		(Zip code)
(513) 762-6500 (Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes

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

Yes

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.


Class	Amount	Date

Capital Stock $1 Par Value	17,634,176 Shares	September 30, 2013

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CHEMED CORPORATION AND

SUBSIDIARY COMPANIES

Index



	Page No.
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Unaudited Consolidated Balance Sheet -
September 30, 2013 and December 31, 2012	3

Unaudited Consolidated Statement of Income -
Three and nine months ended September 30, 2013 and 2012	4

Unaudited Consolidated Statement of Cash Flows -
Nine months ended September 30, 2013 and 2012	5

Notes to Unaudited Consolidated Financial Statements	6

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	18

Item 3. Quantitative and Qualitative Disclosures about Market Risk	34

Item 4. Controls and Procedures	34

PART II. OTHER INFORMATION

Item 1. Legal Proceedings	34

Item 1A. Risk Factors	34

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

Item 3. Defaults Upon Senior Securities	35

Item 4. Mine Safety Disclosures	35

Item 5. Other Information	35

Item 6. Exhibits	36
EX – 31.1
EX – 31.2
EX – 31.3
EX – 32.1
EX – 32.2
EX – 32.3
EX – 101.INS
EX – 101.SCH
EX – 101.CAL
EX – 101.DEF
EX – 101.LAB
EX – 101.PRE

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


	September 30,			December 31,
	2013			2012
ASSETS
Current assets
Cash and cash equivalents	$	83,204		$	69,531
Accounts receivable less allowances of $12,555 (2012 - $10,892)		80,117			93,333
Inventories		6,729			7,058
Current deferred income taxes		25,101			13,659
Prepaid income taxes		3,538			2,643
Prepaid expenses		17,684			11,447
Total current assets		216,373			197,671
Investments of deferred compensation plans		40,683			36,089
Properties and equipment, at cost, less accumulated depreciation of $178,720 (2012 - $164,607)		89,800			91,934
Identifiable intangible assets less accumulated amortization of $31,633 (2012 - $30,414)		56,979			57,177
Goodwill		466,940			465,832
Other assets		10,765			10,923
Total Assets	$	881,540		$	859,626

LIABILITIES
Current liabilities
Accounts payable	$	44,523		$	48,472
Current portion of long-term debt		181,340			-
Income taxes		5,529			4,938
Accrued insurance		41,737			40,654
Accrued compensation		46,689			45,457
Other current liabilities		56,536			17,301
Total current liabilities		376,354			156,822
Deferred income taxes		27,454			27,662
Long-term debt		-			174,890
Deferred compensation liabilities		39,406			35,599
Other liabilities		11,499			11,362
Total Liabilities		454,713			406,335
Commitments and contingencies
STOCKHOLDERS' EQUITY
Capital stock - authorized 80,000,000 shares $1 par; issued 32,085,561 shares (2012 - 31,589,366 shares)		32,086			31,589
Paid-in capital		469,934			437,364
Retained earnings		666,894			623,035
Treasury stock - 14,548,735 shares (2012 - 13,057,270)		(744,210	)		(640,732	)
Deferred compensation payable in Company stock		2,123			2,035
Total Stockholders' Equity		426,827			453,291
Total Liabilities and Stockholders' Equity	$	881,540		$	859,626


See accompanying notes to unaudited consolidated financial statements.

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



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


Earnings Per Share
Net income	$	0.96		$	1.10		$	2.95		$	3.30
Average number of shares outstanding		18,184			18,960			18,436			18,977

Diluted Earnings Per Share
Net income	$	0.94		$	1.07		$	2.89		$	3.23
Average number of shares outstanding		18,522			19,404			18,824			19,382

Cash Dividends Per Share	$	0.20		$	0.18		$	0.56		$	0.50

See accompanying notes to unaudited consolidated financial statements.

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

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

See accompanying notes to unaudited consolidated financial statements.

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CHEMED CORPORATION AND SUBSIDIARY COMPANIES

Notes to Unaudited Consolidated Financial Statements

1. Basis of Presentation

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

We have prepared the accompanying unaudited consolidated financial statements of Chemed in accordance with Rule 10-01 of SEC Regulation S-X. Consequently, we have omitted certain disclosures required under generally accepted accounting principles in the United States (“GAAP”) for complete financial statements. The December 31, 2012 balance sheet data were derived from audited financial statements but do not include all disclosures required by GAAP. However, in our opinion, the financial statements presented herein contain all adjustments, consisting only of normal recurring adjustments, necessary to state fairly our financial position, results of operations and cash flows. These financial statements are prepared on the same basis as and should be read in conjunction with the Consolidated Financial Statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2012.

2. Revenue Recognition

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

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

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

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

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

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

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


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

3. Segments

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



	Three months ended September 30,						Nine months ended September 30,
	2013			2012			2013			2012
Service Revenues and Sales
VITAS	$	254,001		$	267,990		$	788,896		$	794,050
Roto-Rooter		86,885			86,363			275,829			267,416
Total	$	340,886		$	354,353		$	1,064,725		$	1,061,466

After-tax Earnings
VITAS	$	14,608		$	21,940		$	55,237		$	61,999
Roto-Rooter		8,181			6,145			19,218			21,715
Total		22,789			28,085			74,455			83,714
Corporate		(5,357	) *		(7,240	)		(20,137	) *		(21,150	)
Net income	$	17,432		$	20,845		$	54,318		$	62,564

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

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

4. Earnings per Share

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

			Net Income
For the Three Months Ended September 30,		Income		Shares	Earnings per Share
2013
	Earnings	$	17,432	18,184	$	0.96
	Dilutive stock options		-	235
	Nonvested stock awards		-	103
	Diluted earnings	$	17,432	18,522	$	0.94

2012
	Earnings	$	20,845	18,960	$	1.10
	Dilutive stock options		-	341
	Nonvested stock awards		-	103
	Diluted earnings	$	20,845	19,404	$	1.07

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			Net Income
For the Nine Months Ended September 30,		Income		Shares	Earnings per Share
2013
	Earnings	$	54,318	18,436	$	2.95
	Dilutive stock options		-	287
	Nonvested stock awards		-	101
	Diluted earnings	$	54,318	18,824	$	2.89

2012
	Earnings	$	62,564	18,977	$	3.30
	Dilutive stock options		-	313
	Nonvested stock awards		-	92
	Diluted earnings	$	62,564	19,382	$	3.23

For the three and nine-month periods ended September 30, 2013, 434,000 and 31,000, respectively, stock options were excluded from the computation of diluted earnings per share because they would have been anti-dilutive. For the three and nine-month period ended September 30, 2012, 1.4 million stock options were excluded from the computation of diluted earnings per share.

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

The following table provides examples of how changes in our stock price impact the number of shares that would be included in our diluted earnings per share calculation at September 30, 2013. It also shows the impact on the number of shares issuable upon conversion of the Notes and settlement of the purchased call options and sold warrants:

		Shares				Total Treasury		Shares Due			Incremental
		Underlying 1.875%				Method		to the Company			Shares Issued/
Share		Convertible		Warrant		Incremental		under Notes			(Received) by the Company
Price		Notes		Shares		Shares (a)		Hedges			upon Conversion (b)
$	80.73		61,766		-		61,766		(66,076	)		(4,310	)
$	90.73		317,009		-		317,009		(339,127	)		(22,118	)
$	100.73		521,573		-		521,573		(557,964	)		(36,391	)
$	110.73		689,189		121,511		810,700		(737,274	)		73,426
$	120.73		829,038		322,121		1,151,159		(886,880	)		264,279
$	130.73		947,492		492,040		1,439,532		(1,013,599	)		425,933

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

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

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5. Long-Term Debt

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


Description		Requirement

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

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

Annual Operating Lease Commitment		< $30.0 million

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

The following amounts are included in our consolidated balance sheet related to the Notes:

	September 30, 2013			December 31, 2012
Principal amount of convertible debentures	$	186,956		$	186,956
Unamortized debt discount		(5,616	)		(12,066	)
Carrying amount of convertible debentures	$	181,340		$	174,890
Additional paid in capital (net of tax)	$	31,310		$	31,310

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

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


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

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

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6. Other Income/(expense) – Net

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


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

7. Stock-Based Compensation Plans

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

8. Independent Contractor Operations

The Roto-Rooter segment sublicenses with 68 independent contractors to operate certain plumbing repair and drain cleaning businesses in lesser-populated areas of the United States and Canada. We had notes receivable from our independent contractors as of September 30, 2013 totaling $1.4 million (December 31, 2012 - $1.3 million). In most cases these loans are fully or partially secured by equipment owned by the contractor. The interest rates on the loans range from 0% to 8% per annum and the remaining terms of the loans range from 2 months to 5 years at September 30, 2013. We recorded the following from our independent contractors (in thousands):


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

9. Retirement Plans

All of the Company’s plans that provide retirement and similar benefits are defined contribution plans. These expenses include the impact of market gains and losses on assets held in deferred compensation plans. Expenses for the Company’s pension and profit-sharing plans, excess benefit plans and other similar plans are as follows (in thousands):



Three months ended September 30,				Nine months ended September 30,
2013		2012		2013		2012
$	2,098	$	2,646	$	9,796	$	8,501

10. Legal and Regulatory Matters

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

-10-

Regulatory Matters and Litigation

In February 2010, Chemed and Roto-Rooter were named as defendants in a lawsuit filed in the United States District Court for the Eastern District of New York, Anthony Morangelli, et al., v. Chemed Corp. and Roto-Rooter Services Co., No. 10 CV-00876 (BMC). The named plaintiffs, current and former technicians employed by Roto-Rooter who were paid on a commission basis, asserted against Chemed and Roto-Rooter claims for violation of the Fair Labor Standards Act (“FLSA”) and claims for violations of the labor laws of multiple states. In June 2013 the parties reached an agreement to settle the case for $14.3 million plus applicable payroll taxes ($9.0 million after tax), which is subject to Court approval. As such, $14.8 million is recorded as other operating expense in the quarter ended June 30, 2013 Statement of Income.

VITAS is party to a class action lawsuit filed in the Superior Court of California, Los Angeles County in September 2006 by Bernadette Santos, Keith Knoche and Joyce White, Bernadette Santos, et al. v. Vitas Healthcare Corporation of California, BC359356. This case alleges failure to pay overtime and failure to provide meal and rest periods to a purported class of California admissions nurses, chaplains and sales representatives. The case seeks payment of penalties, interest and Plaintiffs’ attorney fees. In December 2009, the trial court denied Plaintiffs’ motion for class certification. In July 2011, the Court of Appeals affirmed denial of class certification on the travel time, meal and rest period claims, and reversed the trial court’s denial on the off-the-clock and sales representation exemption claims. Plaintiffs filed an appeal of this decision. In September 2012, in response to an order of reconsideration, the Court of Appeals reiterated its previous rulings. In March 2013, the Court granted summary judgment dismissing the sales representatives’ claims as they are exempt employees. In October 2013 we reached agreement, subject to Court approval, to settle the case for $10.3 million plus applicable payroll taxes ($6.5 million aftertax). As such, $10.5 million is recorded as other operating expense in the quarter ended September 30, 2013 Statement of Income.

On January 12, 2012, a putative class action lawsuit was filed in the U.S. District Court for the Southern District of Ohio against the Company, Kevin McNamara, David Williams, and Timothy O’Toole, In re Chemed Corp. Securities Litigation, Civil Action No. 1:12-cv-28 (S.D. Ohio). On June 18, 2012, an amended complaint was filed alleging violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 against all Defendants, and violation of Section 20(a) of the Securities Exchange Act of 1934 against Messrs. McNamara, Williams, and O’Toole. The suit’s allegations concern the VITAS hospice segment of the Company’s business. Plaintiffs seek, on behalf of a putative class of purchasers of Chemed Capital Stock, compensatory damages in an unspecified amount and attorneys’ fees and expenses, arising from Defendants’ alleged failure to disclose an alleged fraudulent scheme at VITAS to enroll ineligible hospice patients and to fraudulently obtain payments from the federal government. Defendants filed motions to dismiss the amended complaint on August 17, 2012, which were pending when the parties reached an agreement to settle the action. On June 7, 2013, following the filing of U.S. v. VITAS, discussed below, Plaintiffs filed a motion for leave to file a second amended complaint. Defendants oppose this motion. On September 16, 2013, Plaintiffs, on behalf of a putative class of purchasers of Chemed Capital Stock between February 15, 2010, and May 3, 2013, inclusive, executed a Settlement Term Sheet with Defendants (“Settlement”), reaching an agreement in principle to settle this case in full and with prejudice, and to provide Defendants with full releases of all claims that are or could have been asserted by Plaintiffs in exchange for payment of $6.0 million by our insurer into a settlement fund for the benefit of the putative class. The Settlement has been recorded as an accrual and offsetting prepaid in the accompanying Balance Sheet. This Settlement is subject to final documentation by the parties as well as Court approval. Defendants agreed to enter into this Settlement in order to eliminate the burden, expense and distraction of further litigation.

In June 2011, the U.S. Attorney provided the Company with a partially unsealed qui tam complaint filed under seal in the U.S. District Court for the Western District of Texas, United States, et al. ex rel. Urick v. Vitas HME Solutions, Inc. et al., 5:08-cv-0663 (“Urick”). The U.S. Attorney filed a notice in May 2012 stating that it had decided not to intervene in the case at that time but indicating that it continues to investigate the allegations. In June 2012, the complaint was unsealed. The complaint asserts violations of the federal False Claims Act and the Texas Medicaid Fraud Prevention Act based on allegations of a conspiracy to submit to Medicare and Medicaid false claims involving hospice services for ineligible patients, unnecessary medical supplies, failing to satisfy certain prerequisites for payment, and altering patient records, including backdating patient revocations. The suit was brought by Barbara Urick, a registered nurse in VITAS’s San Antonio program, against VITAS, certain of its affiliates, and several former VITAS employees, including physicians Justo Cisneros and Antonio Cavasos and nurses Sally Schwenk, Diane Anest, and Edith Reed. In September 2012 and July 2013, the plaintiff dismissed all claims against the individual defendants. The complaint was served on the VITAS entities on April 12, 2013.

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

-11-

On May 2, 2013, the government filed a False Claims Act complaint against the Company and certain of its hospice-related subsidiaries in the U.S. District Court for the Western District of Missouri, United States v. VITAS Hospice Services, LLC, et al., 4:13-cv-00449-BCW (the “2013 Action”). Prior to that date, the Company received various subpoenas from the U.S. Department of Justice and OIG that have been previously disclosed. The 2013 Action alleges that, since at least 2002, VITAS, and since 2004, the Company, submitted or caused the submission of false claims to the Medicare program by (a) billing Medicare for continuous home care services when the patients were not eligible, the services were not provided, or the medical care was inappropriate, and (b) billing Medicare for patients who were not eligible for the Medicare hospice benefit because they did not have a life expectancy of six months or less if their illnesses ran their normal course. This complaint seeks treble damages, statutory penalties, and the costs of the action, plus interest. On August 1, 2013, the government filed its First Amended Complaint in the 2013 Action. The First Amended Complaint changed and supplemented some of the allegations, but did not otherwise expand the causes of action or the nature of the relief sought against VITAS. The defendants filed a motion to dismiss on September 24, 2013.

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

On September 25, 2013, the Court granted a joint motion by the government, the relators, and VITAS to consolidate the Spottiswood, Urick, and Gonzales complaints with the 2013 Action. As a result, the First Amended Complaint will govern the consolidated claims brought by the United States and the relators for all purposes. The relators and VITAS have stipulated that certain non-intervened claims will not be pursued by the relators.

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

The Company intends to defend vigorously against the allegations in each of the above lawsuits. The Company had a net recovery for these investigations, due to a one-time insurance reimbursement of $1.0 million for certain legal costs, for the three month period ended September 30, 2013 of $591,000. The net costs to comply with these investigations were $1.4 million for the nine month period ended September 30, 2013. Regardless of the outcome of any of the preceding matters, responding to the subpoenas and dealing with the various regulatory agencies and opposing parties can adversely affect us through defense costs, potential payments, diversion of management time, and related publicity. Although the Company intends to defend them vigorously, there can be no assurance that those suits will not have a material adverse effect on the Company.

-12-

11. Concentration of Risk

VITAS has pharmacy services agreements ("Agreements") with Omnicare, Inc. and its subsidiaries (“OCR”) whereby OCR provides specified pharmacy services for VITAS and its hospice patients in geographical areas served by both VITAS and OCR. The Agreements renew automatically for three-year terms. Either party may cancel the Agreements at the end of any term by giving 30 days prior written notice. VITAS made purchases from OCR of $9.7 million and $10.6 million for the three months ended September 30, 2013 and 2012, respectively. VITAS made purchases from OCR of $29.3 million and $30.9 million for the nine months ended September 30, 2013 and 2012, respectively For the three and nine month periods ending September 30, 2013 and 2012, respectively, purchases from this vendor represent approximately 90% of all pharmacy services used by VITAS.

12. Cash Overdrafts and Cash Equivalents

Included in accounts payable at September 30, 2013 is cash overdrafts payable of $1.3 million (December 31, 2012 - $12.2 million).

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

13. Financial Instruments

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

The following shows the carrying value, fair value and the hierarchy for our financial instruments as of September 30, 2013 (in thousands):

			Fair Value Measure
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Mutual fund investments of deferred
compensation plans held in trust	$	40,683	$	40,683	$	-	$	-
Long-term debt		181,340		195,257		-		-

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


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

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

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14. Capital Stock Repurchase Plan Transactions

We repurchased the following capital stock for the three and nine-months ended September 30, 2013 and 2012:


	Three months ended September 30,				Nine months ended September 30,
	2013		2012		2013		2012

Shares repurchased		1,032,754		9,334		1,313,455		209,234
Weighted average price per share	$	68.91	$	62.75	$	68.23	$	56.03

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

15. Other Operating Expenses

Other operating expenses comprise (in thousands):


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

(a) Santos claims discussed in Note 10.

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

-14-

16. Guarantor Subsidiaries

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


September 30, 2013			Guarantor			Non-Guarantor		Consolidating
	Parent		Subsidiaries			Subsidiaries		Adjustments			Consolidated
ASSETS
Cash and cash equivalents	$	84,842	$	(10,511	)	$	8,873	$	-		$	83,204
Accounts receivable, including intercompany		960		496,001			741		(417,585	)		80,117
Inventories		-		6,175			554		-			6,729
Current deferred income taxes		-		27,237			177		(2,313	)		25,101
Prepaid income taxes		6,583		-			218		(3,263	)		3,538
Prepaid expenses		7,199		10,245			240		-			17,684
Total current assets		99,584		529,147			10,803		(423,161	)		216,373
Investments of deferred compensation plans		-		-			40,683		-			40,683
Properties and equipment, at cost less accumulated depreciation		10,361		76,957			2,482		-			89,800
Identifiable intangible assets less accumulated amortization		-		56,979			-		-			56,979
Goodwill		-		462,489			4,451		-			466,940
Other assets		18,155		1,770			15,177		(24,337	)		10,765
Investments in subsidiaries		924,423		27,629			-		(952,052	)		-
Total assets	$	1,052,523	$	1,154,971		$	73,596	$	(1,399,550	)	$	881,540
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable, including intercompany	$	421,662	$	35,005		$	5,441	$	(417,585	)	$	44,523
Current portion of long-term debt		181,340		-			-		-			181,340
Income taxes		5,034		3,349			409		(3,263	)		5,529
Accrued insurance		153		41,584			-		-			41,737
Accrued compensation		3,226		43,131			332		-			46,689
Other current liabilities		11,023		47,646			180		(2,313	)		56,536
Total current liabilities		622,438		170,715			6,362		(423,161	)		376,354
Deferred income taxes		-		51,791			-		(24,337	)		27,454
Deferred compensation liabilities		-		-			39,406		-			39,406
Other liabilities		3,258		7,265			976		-			11,499
Stockholders' equity		426,827		925,200			26,852		(952,052	)		426,827
Total liabilities and stockholders' equity	$	1,052,523	$	1,154,971		$	73,596	$	(1,399,550	)	$	881,540

December 31, 2012			Guarantor			Non-Guarantor		Consolidating
	Parent		Subsidiaries			Subsidiaries		Adjustments			Consolidated
ASSETS
Cash and cash equivalents	$	56,342	$	4,674		$	8,515	$	-		$	69,531
Accounts receivable, including intercompany		925		427,341			889		(335,822	)		93,333
Inventories		-		6,505			553		-			7,058
Current deferred income taxes		-		14,633			173		(1,147	)		13,659
Prepaid income taxes		4,043		-			-		(1,400	)		2,643
Prepaid expenses		564		10,656			227		-			11,447
Total current assets		61,874		463,809			10,357		(338,369	)		197,671
Investments of deferred compensation plans		-		-			36,089		-			36,089
Properties and equipment, at cost less accumulated depreciation		10,984		78,236			2,714		-			91,934
Identifiable intangible assets less accumulated amortization		-		57,177			-		-			57,177
Goodwill		-		461,277			4,555		-			465,832
Other assets		19,025		2,005			13,797		(23,904	)		10,923
Investments in subsidiaries		874,692		24,298			-		(898,990	)		-
Total assets	$	966,575	$	1,086,802		$	67,512	$	(1,261,263	)	$	859,626
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable, including intercompany	$	325,916	$	53,934		$	4,444	$	(335,822	)	$	48,472
Income taxes		1,019		3,816			1,503		(1,400	)		4,938
Accrued insurance		1,339		39,315			-		-			40,654
Accrued compensation		4,119		40,891			447		-			45,457
Other current liabilities		2,786		13,903			1,759		(1,147	)		17,301
Total current liabilities		335,179		151,859			8,153		(338,369	)		156,822
Deferred income taxes		-		51,566			-		(23,904	)		27,662
Long-term debt		174,890		-			-		-			174,890
Deferred compensation liabilities		-		-			35,599		-			35,599
Other liabilities		3,215		7,352			795		-			11,362
Stockholders' equity		453,291		876,025			22,965		(898,990	)		453,291
Total liabilities and stockholders' equity	$	966,575	$	1,086,802		$	67,512	$	(1,261,263	)	$	859,626

-15-


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


For the three months ended September 30, 2012				Guarantor			Non-Guarantor			Consolidating
	Parent			Subsidiaries			Subsidiaries			Adjustments			Consolidated
Continuing Operations
Service revenues and sales	$	-		$	347,384		$	6,969		$	-		$	354,353
Cost of services provided and goods sold		-			252,688			3,922			-			256,610
Selling, general and administrative expenses		5,991			43,992			2,972			-			52,955
Depreciation		237			6,099			221			-			6,557
Amortization		486			649			-			-			1,135
Other operating expenses		-			1,126			-			-			1,126
Total costs and expenses		6,714			304,554			7,115			-			318,383
Income/ (loss) from operations		(6,714	)		42,830			(146	)		-			35,970
Interest expense		(3,517	)		(211	)		(15	)		-			(3,743	)
Other (expense)/income - net		4,450			(4,184	)		1,574			-			1,840
Income/ (loss) before income taxes		(5,781	)		38,435			1,413			-			34,067
Income tax (provision)/ benefit		1,877			(14,560	)		(539	)		-			(13,222	)
Equity in net income of subsidiaries		24,749			885			-			(25,634	)		-
Net income	$	20,845		$	24,760		$	874		$	(25,634	)	$	20,845

For the nine months ended September 30, 2013				Guarantor			Non-Guarantor			Consolidating
	Parent			Subsidiaries			Subsidiaries			Adjustments			Consolidated
Continuing Operations
Service revenues and sales	$	-		$	1,042,449		$	22,276		$	-		$	1,064,725
Cost of services provided and goods sold		-			750,230			12,620			-			762,850
Selling, general and administrative expenses		17,290			133,419			6,828			-			157,537
Depreciation		718			19,241			706			-			20,665
Amortization		1,480			2,018			-			-			3,498
Other operating expenses		-			26,221			-			-			26,221
Total costs and expenses		19,488			931,129			20,154			-			970,771
Income/ (loss) from operations		(19,488	)		111,320			2,122			-			93,954
Interest expense		(11,089	)		(384	)		182			-			(11,291	)
Other (expense)/income - net		12,526			(11,549	)		2,335			-			3,312
Income/ (loss) before income taxes		(18,051	)		99,387			4,639			-			85,975
Income tax (provision)/ benefit		6,036			(37,755	)		62			-			(31,657	)
Equity in net income of subsidiaries		66,333			4,057			-			(70,390	)		-
Net income	$	54,318		$	65,689		$	4,701		$	(70,390	)	$	54,318


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

-16-


For the nine months ended September 30, 2013				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Consolidated
Cash Flow from Operating Activities:
Net cash provided by operating activities	$	16,336		$	118,998		$	524		$	135,858
Cash Flow from Investing Activities:
Capital expenditures		(96	)		(18,297	)		(494	)		(18,887	)
Business combinations, net of cash acquired		-			(2,210	)		-			(2,210	)
Other sources/(uses) - net		(53	)		171			21			139
Net cash used by investing activities		(149	)		(20,336	)		(473	)		(20,958	)
Cash Flow from Financing Activities:
Increase /(decrease) in cash overdrafts payable		5,378			(16,306	)		-			(10,928	)
Change in intercompany accounts		96,731			(97,541	)		810			-
Dividends paid		(10,459	)		-			-			(10,459	)
Debt issuance costs		(1,108	)		-			-			(1,108	)
Capital stock surrendered to pay taxes on stock-based compensation		(4,280	)		-			-			(4,280	)
Purchases of treasury stock		(89,611	)		-			-			(89,611	)
Proceeds from exercise of stock options		13,125			-			-			13,125
Excess tax benefit on share-based compensation		2,507			-			-			2,507
Other sources/(uses) - net		30			-			(503	)		(473	)
Net cash provided/(used) by financing activities		12,313			(113,847	)		307			(101,227	)
Net increase/(decrease) in cash and cash equivalents		28,500			(15,185	)		358			13,673
Cash and cash equivalents at beginning of year		56,342			4,674			8,515			69,531
Cash and cash equivalents at end of period	$	84,842		$	(10,511	)	$	8,873		$	83,204

For the nine months ended September 30, 2012				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Consolidated
Cash Flow from Operating Activities:
Net cash provided by operating activities	$	1,486		$	74,206		$	1,645		$	77,337
Cash Flow from Investing Activities:
Capital expenditures		(196	)		(25,491	)		(802	)		(26,489	)
Business combinations, net of cash acquired		-			(5,900	)		-			(5,900	)
Other sources/(uses) - net		201			359			(32	)		528
Net cash provided/(used) by investing activities		5			(31,032	)		(834	)		(31,861	)
Cash Flow from Financing Activities:
Increase/(decrease) in cash overdrafts payable		(4,580	)		1,281			-			(3,299	)
Change in intercompany accounts		40,489			(40,022	)		(467	)		-
Dividends paid		(9,641	)		-			-			(9,641	)
Capital stock surrendered to pay taxes on stock-based compensation		(3,236	)		-			-			(3,236	)
Purchases of treasury stock		(11,724	)		-			-			(11,724	)
Proceeds from exercise of stock options		10,483			-			-			10,483
Excess tax benefit on share-based compensation		2,714			-			-			2,714
Other sources/(uses) - net		(17	)		(1	)		460			442
Net cash provided/(used) by financing activities		24,488			(38,742	)		(7	)		(14,261	)
Net increase in cash and cash equivalents		25,979			4,432			804			31,215
Cash and cash equivalents at beginning of year		32,470			(1,422	)		7,033			38,081
Cash and cash equivalents at end of period	$	58,449		$	3,010		$	7,837		$	69,296

-17-

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

Executive Summary

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

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


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

Adjusted net income, adjusted diluted EPS, earnings before interest, taxes and depreciation and amortization (“EBITDA”) and Adjusted EBITDA are not measures derived in accordance with GAAP. We use Adjusted EBITDA as a measure of earnings for our long-term incentive plan awards. We provide non-GAAP measures to help readers evaluate our operating results, compare our operating performance with that of similar companies that have different capital structures and help evaluate our ability to meet future debt service, capital expenditure and working capital requirements. Our non-GAAP measures should not be considered in isolation or as a substitute for comparable measures presented in accordance with GAAP. A reconciliation of our non-GAAP measures are presented on pages 31- 33.

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

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

Effective October 1, 2012, Medicare increased the hospice reimbursement rates by approximately 0.9% and effective April 1, 2013, as a result of sequestration, Medicare reduced hospice reimbursement rates for Medicare beneficiaries 2.0% for a net decline of 1.1% in reimbursement rates. VITAS expects its full-year 2013 revenue, prior to Medicare cap, to be approximately 1% below the prior year. Admissions are estimated to decline approximately 3.0%. Adjusted EBITDA margin, prior to Medicare cap, is estimated to be 14.5% to 15.0%. Medicare cap is estimated to be $1.8 million in the fourth quarter of 2013. Roto-Rooter expects full-year 2013 revenue growth of 2.5%. The revenue estimate is a result of increased pricing of approximately 3.2% and job count essentially equal to the prior year. We anticipate that our operating income and cash flows will be sufficient to operate our businesses and meet any commitments for the foreseeable future.

-18-

Financial Condition

Liquidity and Capital Resources

Material changes in the balance sheet accounts from December 31, 2012 to September 30, 2013 include the following:

•

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

•

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

•

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

•

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

Net cash provided by operating activities increased $58.5 million primarily as a result of a decrease in accounts receivable and an increase in other current liabilities. Management continually evaluates cash utilization alternatives, including share repurchase, debt repurchase, acquisitions and increased dividends to determine the most beneficial use of available capital resources.

We have issued $32.9 million in standby letters of credit as of September 30, 2013, for insurance purposes. Issued letters of credit reduce our available credit under the revolving credit agreement. As of September 30, 2013, we have approximately $317.1 million of unused lines of credit available and eligible to be drawn down under our revolving credit facility, excluding the $150 million expansion feature. Management believes its liquidity and sources of capital are satisfactory for the Company’s needs in the foreseeable future.

Commitments and Contingencies

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

-19-

On January 12, 2012, a putative class action lawsuit was filed in the U.S. District Court for the Southern District of Ohio against the Company, Kevin McNamara, David Williams, and Timothy O’Toole, In re Chemed Corp. Securities Litigation, Civil Action No. 1:12-cv-28 (S.D. Ohio);. On June 18, 2012, an amended complaint was filed alleging violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 against all Defendants, and violation of Section 20(a) of the Securities Exchange Act of 1934 against Messrs. McNamara, Williams, and O’Toole. The suit’s allegations concern the VITAS hospice segment of the Company’s business. Plaintiffs seek, on behalf of a putative class of purchasers of Chemed Capital Stock, compensatory damages in an unspecified amount and attorneys’ fees and expenses, arising from Defendants’ alleged failure to disclose an alleged fraudulent scheme at VITAS to enroll ineligible hospice patients and to fraudulently obtain payments from the federal government. Defendants filed motions to dismiss the amended complaint on August 17, 2012, which were pending when the parties reached an agreement to settle the action. On June 7, 2013, following the filing of U.S. v. VITAS, discussed below, Plaintiffs filed a motion for leave to file a second amended complaint. Defendants oppose this motion. On September 16, 2013, Plaintiffs, on behalf of a putative class of purchasers of Chemed Capital Stock between February 15, 2010, and May 3, 2013, inclusive, executed a Settlement Term Sheet with Defendants (“Settlement”), reaching an agreement in principle to settle this case in full and with prejudice, and to provide Defendants with full releases of all claims that are or could have been asserted by Plaintiffs in exchange for payment of $6.0 million by our insurer into a settlement fund for the benefit of the putative class. The Settlement has been recorded as an accrual and offsetting prepaid in the accompanying Balance Sheet. This Settlement is subject to final documentation by the parties as well as Court approval. Defendants agreed to enter into this Settlement in order to eliminate the burden, expense and distraction of further litigation.

-20-

The Company intends to defend vigorously against the allegations in each of the above lawsuits. The Company had a net recovery for these investigations, due to a one-time insurance reimbursement of $1.0 million for certain legal costs, for the three month period ended September 30, 2013 of $591,000. The net costs to comply with these investigations were $1.4 million for the nine month period ended September 30, 2013. Regardless of the outcome of any of the preceding matters, responding to the subpoenas and dealing with the various regulatory agencies can adversely affect us through defense costs, potential payments, diversion of management time, and related publicity. Although the Company intends to defend them vigorously, there can be no assurance that those suits will not have a material adverse effect on the Company.

Results of Operations

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

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

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

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

-21-

The decrease in plumbing revenues for the third quarter of 2013 versus 2012 is attributable to a 4.8% decrease in job count offset by a 4.0% increase in price and mix shift. Drain cleaning revenues for the third quarter of 2013 versus 2012 reflect a 4.5% decrease in the number of jobs perfomed offset by a 4.0% increase in price and mix shift. Contractor operations revenue increased 16.0% for the third quarter of 2013 due to four acquisitions that were completed in 2012 as well as improved operating conditions. HVAC revenues were essentially zero as a result of the shut-down of Roto-Rooter’s one remaining HVAC operation during the third quarter of 2012.

The consolidated gross margin was 28.7% in the third quarter of 2013 as compared with 27.6% in the third quarter of 2012. On a segment basis, VITAS’ gross margin was 22.3% in the third quarter of 2013 and 22.2% in the third quarter of 2012. The Roto-Rooter segment’s gross margin was 47.3% for the third quarter of 2013 as compared with 44.3% for the third quarter of 2012. The increase in Roto-Rooter’s gross margin is the result of higher revenue, lower health care and casualty insurance costs and reduced field operating expenses.

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

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

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

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

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

Other income - net comprise (in thousands):

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

-22-

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

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

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

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

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


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

-23-

Results of Operations

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

Our service revenues and sales for the first nine months of 2013 increased 0.3% versus services and sales revenues for the first nine months of 2012. Of this increase, $8.4 million was attributable to Roto-Rooter offset by a $5.2 million decrease at VITAS. The following chart shows the components of those changes (in thousands):

	Increase/(Decrease)
	Amount			Percent
VITAS
Routine homecare	$	15,899		2.8
Continuous care		(8,015	)	(6.3	)
General inpatient		(7,300	)	(8.4
Medicare cap		(5,738	)	(222.7	)
Roto-Rooter
Plumbing		685		0.5
Drain cleaning		5,242		5.2
Contractor operations		3,984		19.5
HVAC operations		(1,121	)	(100.0	)
Other		(377	)	(2.2	)
Total	$	3,259		0.3

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

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

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

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

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

-24-

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

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

Other operating expenses comprise (in thousands):

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

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

Other income - net comprise (in thousands):

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

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

-25-

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

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

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

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

	Increase/(Decrease)
	Amount			Percent
VITAS	$	(6,762	)		(10.9	)
Roto-Rooter		(2,497	)		(11.5	)
Corporate		1,013			4.8
	$	(8,246	)		(13.2	)

-26-

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

										Chemed
	VITAS			Roto-Rooter			Corporate			Consolidated
2013 (a)
Service revenues and sales	$	254,001		$	86,885		$	-		$	340,886
Cost of services provided and goods sold		197,387			45,797			-			243,184
Selling, general and administrative expenses		18,637			25,009			5,224			48,870
Depreciation		4,545			2,292			134			6,971
Amortization		538			151			501			1,190
Other operating expenses		10,500			961			-			11,461
Total costs and expenses		231,607			74,210			5,859			311,676
Income/(loss) from operations		22,394			12,675			(5,859	)		29,210
Interest expense		(48	)		(82	)		(3,370	)		(3,500	)
Intercompany interest income/(expense)		1,231			579			(1,810	)		-
Other income/(expense)—net		73			8			(171	)		(90	)
Income/(expense) before income taxes		23,650			13,180			(11,210	)		25,620
Income taxes		(9,042	)		(4,999	)		5,853			(8,188	)
Net income/(loss)	$	14,608		$	8,181		$	(5,357	)	$	17,432

(a) The following amounts are included in net income (in thousands):
										Chemed
	VITAS			Roto-Rooter			Corporate			Consolidated
Pretax benefit/(cost):
Stock option expense	$	-		$	-		$	(1,629	)	$	(1,629	)
Noncash impact of accounting for convertible debt		-			-			(2,174	)		(2,174	)
Long-term incentive compensation		-			-			(55	)		(55	)
Litigation settlement		(10,500	)		(961	)		-			(11,461	)
Expenses related to litigation settlements		-			(443	)		-			(443	)
Expenses related to securities litigation		-			-			(1	)		(1	)
Acquisition expenses		(18	)		(3	)		-			(21	)
Expenses/(cost recovery) related to OIG investigation		591			-			-			591
Total	$	(9,927	)	$	(1,407	)	$	(3,859	)	$	(15,193	)

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

-27-


CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2012
(in thousands)(unaudited)

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


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

											Chemed
		VITAS			Roto-Rooter			Corporate			Consolidated
After-tax benefit/(cost):
Stock option expense		$	-		$	-		$	(1,516	)	$	(1,516	)
Noncash impact of accounting for convertible debt			-			-			(1,272	)		(1,272	)
Expenses related to securities litigation			-			-			(44	)		(44	)
Expenses related to litigation settlements			-			(70	)		-			(70	)
Acquisition expenses			(1	)		(52	)		-			(53	)
Expenses of OIG investigation			(300	)		-			-			(300	)
HVAC shut down costs			-			(649	)		-			(649	)
Total		$	(301	)	$	(771	)	$	(2,832	)	$	(3,904	)

-28-



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

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


(a) The following amounts are included in net income (in thousands):
										Chemed
	VITAS			Roto-Rooter			Corporate			Consolidated
Pretax benefit/(cost):
Stock option expense	$	-		$	-		$	(4,732	)	$	(4,732	)
Noncash impact of accounting for convertible debt		-			-			(6,397	)		(6,397	)
Long-term incentive compensation		-			-			(1,161	)		(1,161	)
Expenses of severance arrangements		-			(302	)		-			(302	)
Loss on extinguishment of debt		-			-			(465	)		(465	)
Litigation settlement		(10,500	)		(15,721	)		-			(26,221	)
Expenses related to litigation settlements		-			(1,151	)		-			(1,151	)
Expenses related to securities litigation		-			-			(4	)		(4	)
Acquisition expenses		(38	)		(4	)		-			(42	)
Expenses related to OIG investigation		(1,444	)		-			-			(1,444	)
Total	$	(11,982	)	$	(17,178	)	$	(12,759	)	$	(41,919	)

										Chemed
	VITAS			Roto-Rooter			Corporate			Consolidated
After-tax benefit/(cost):
Stock option expense	$	-		$	-		$	(2,993	)	$	(2,993	)
Noncash impact of accounting for convertible debt		-			-			(4,046	)		(4,046	)
Long-term incentive compensation		-			-			(734	)		(734	)
Uncertain tax position adjustments		-			-			1,782			1,782
Expenses of severance arrangements		-			(184	)		-			(184	)
Loss on extinguishment of debt		-			-			(294	)		(294	)
Litigation settlement		(6,510	)		(9,551	)		-			(16,061	)
Expenses related to litigation settlements		-			(699	)		-			(699	)
Expenses related to securities litigation		-			-			(3	)		(3	)
Acquisition expenses		(23	)		(2	)		-			(25	)
Expenses related to OIG investigation		(895	)		-			-			(895	)
Total	$	(7,428	)	$	(10,436	)	$	(6,288	)	$	(24,152	)

-29-



CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012
(in thousands)(unaudited)

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


(a) The following amounts are included in net income (in thousands):
										Chemed
	VITAS			Roto-Rooter			Corporate			Consolidated
Pretax benefit/(cost):
Stock option expense	$	-		$	-		$	(6,709	)	$	(6,709	)
Noncash impact of accounting for convertible debt		-			-			(5,919	)		(5,919	)
Expenses related to securities litigation		-			-			(265	)		(265	)
Expenses related to litigation settlements		-			(843	)		-			(843	)
Acquisition expenses		(2	)		(120	)		-			(122	)
Expenses related to OIG investigation		(749	)		-			-			(749	)
HVAC shut down costs		-			(1,126	)		-			(1,126	)
Total	$	(751	)	$	(2,089	)	$	(12,893	)	$	(15,733	)

										Chemed
	VITAS			Roto-Rooter			Corporate			Consolidated
After-tax benefit/(cost):
Stock option expense	$	-		$	-		$	(4,243	)	$	(4,243	)
Noncash impact of accounting for convertible debt		-			-			(3,744	)		(3,744	)
Expenses related to securities litigation		-			-			(168	)		(168	)
Expenses related to litigation settlements		-			(512	)		-			(512	)
Acquisition expenses		(1	)		(73	)		-			(74	)
Expenses related to OIG investigation		(465	)		-			-			(465	)
HVAC shut down costs		-			(649	)		-			(649	)
Total	$	(466	)	$	(1,234	)	$	(8,155	)	$	(9,855	)

-30-


Consolidating Summary and Reconciliation of Adjusted EBITDA

Chemed Corporation and Subsidiary Companies
(in thousands)													Chemed
For the three months ended September 30, 2013	VITAS					Roto-Rooter			Corporate				Consolidated

Net income/(loss)		$	14,608			$	8,181			$	(5,357	)		$	17,432
Add/(deduct):
Interest expense			48				82				3,370				3,500
Income taxes			9,042				4,999				(5,853	)			8,188
Depreciation			4,545				2,292				134				6,971
Amortization			538				151				501				1,190
EBITDA			28,781				15,705				(7,205	)			37,281
Add/(deduct):
Intercompany interest expense/(income)			(1,231	)			(579	)			1,810				-
Interest income			(163	)			(10	)			(19	)			(192	)
Expenses/(cost recovery) related to OIG investigation			(591	)			-				-				(591	)
Acquisition expenses			18				3				-				21
Litigation settlements			10,500				961				-				11,461
Expenses related to litigation settlements			-				443				-				443
Advertising cost adjustment			-				(369	)			-				(369	)
Stock option expense			-				-				1,629				1,629
Long-term incentive compensation			-				-				55				55
Expenses related to securities litigation			-				-				1				1
Adjusted EBITDA		$	37,314			$	16,154			$	(3,729	)		$	49,739

													Chemed
For the three months ended September 30, 2012	VITAS				Roto-Rooter				Corporate				Consolidated

Net income/(loss)		$	21,940			$	6,145			$	(7,240	)		$	20,845
Add/(deduct):
Interest expense			62				150				3,531				3,743
Income taxes			13,516				3,661				(3,955	)			13,222
Depreciation			4,333				2,093				131				6,557
Amortization			489				160				486				1,135
EBITDA			40,340				12,209				(7,047	)			45,502
Add/(deduct):
Intercompany interest expense/(income)			(795	)			(396	)			1,191				-
Interest income			(256	)			(12	)			(23	)			(291	)
Expenses related to OIG investigation			483				-				-				483
Acquisition expenses			2				85				-				87
HVAC shut down costs			-				1,126				-				1,126
Expenses related to litigation settlements			-				116				-				116
Advertising cost adjustment			-				(468	)			-				(468	)
Stock option expense			-				-				2,397				2,397
Expenses related to securities litigation			-				-				68				68
Adjusted EBITDA		$	39,774			$	12,660			$	(3,414	)		$	49,020

-31-


Consolidating Summary and Reconciliation of Adjusted EBITDA

Chemed Corporation and Subsidiary Companies
(in thousands)													Chemed
For the nine months ended September 30, 2013	VITAS				Roto-Rooter				Corporate				Consolidated

Net income/(loss)		$	55,237			$	19,218			$	(20,137	)		$	54,318
Add/(deduct):
Interest expense			145				239				10,907				11,291
Income taxes			34,051				11,580				(13,974	)			31,657
Depreciation			13,579				6,685				401				20,665
Amortization			1,564				454				1,480				3,498
EBITDA			104,576				38,176				(21,323	)			121,429
Add/(deduct):
Intercompany interest expense/(income)			(2,940	)			(1,443	)			4,383				-
Interest income			(1,051	)			(66	)			(48	)			(1,165	)
Expenses related to OIG investigation			1,444				-				-				1,444
Acquisition expenses			38				4				-				42
Litigation settlement			10,500				15,721				-				26,221
Expenses related to litigation settlements			-				1,151				-				1,151
Advertising cost adjustment			-				(1,343	)			-				(1,343	)
Expenses of severance arrangements			-				302				-				302
Stock option expense			-				-				4,732				4,732
Long-term incentive compensation			-				-				1,161				1,161
Expenses related to securities litigation			-				-				4				4
Adjusted EBITDA		$	112,567			$	52,502			$	(11,091	)		$	153,978

													Chemed
For the nine months ended September 30, 2012	VITAS				Roto-Rooter				Corporate				Consolidated

Net income/(loss)		$	61,999			$	21,715			$	(21,150	)		$	62,564
Add/(deduct):
Interest expense			188				364				10,480				11,032
Income taxes			38,080				13,341				(11,580	)			39,841
Depreciation			12,521				6,264				393				19,178
Amortization			1,467				471				1,437				3,375
EBITDA			114,255				42,155				(20,420	)			135,990
Add/(deduct):
Intercompany interest expense/(income)			(2,361	)			(1,221	)			3,582				-
Interest income			(328	)			(22	)			(51	)			(401	)
Expenses related to OIG investigation			749				-				-				749
Acquisition expenses			2				120				-				122
HVAC shut down costs			-				1,126				-				1,126
Expenses related to litigation settlements			-				843				-				843
Advertising cost adjustment			-				(1,870	)			-				(1,870	)
Stock option expense			-				-				6,709				6,709
Expenses related to securities litigation			-				-				265				265
Adjusted EBITDA		$	112,317			$	41,131			$	(9,915	)		$	143,533

-32-


CHEMED CORPORATION AND SUBSIDIARY COMPANIES
RECONCILIATION OF ADJUSTED NET INCOME
(in thousands, except per share data)(unaudited)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2013			2012		2013			2012
Net income as reported	$	17,432		$	20,845	$	54,318		$	62,564

Add/(deduct) after-tax cost of:
Litigation settlement		7,094			-		16,061			-
Uncertain tax position adjustments		(1,782	)		-		(1,782	)		-
Additional interest expense resulting from the change
in accounting for the conversion feature of the
convertible notes		1,375			1,272		4,046			3,744
Stock option expense		1,030			1,516		2,993			4,243
HVAC shut down costs		-			649		-			649
Expenses of OIG investigation		(367	)		300		895			465
Expenses related to litigation settlements		269			70		699			512
Long-term incentive compensation		34			-		734			-
Acquisition expenses		12			53		25			74
Expenses related to securities litigation		1			44		3			168
Loss on extinguishment of debt		-			-		294			-
Severance arrangements		-			-		184			-
Adjusted net income	$	25,098		$	24,749	$	78,470		$	72,419

Earnings Per Share As Reported
Net income	$	0.96		$	1.10	$	2.95		$	3.30
Average number of shares outstanding		18,184			18,960		18,436			18,977
Diluted Earnings Per Share As Reported
Net income	$	0.94		$	1.07	$	2.89		$	3.23
Average number of shares outstanding		18,522			19,404		18,824			19,382


Adjusted Earnings Per Share
Net income	$	1.38		$	1.31	$	4.26		$	3.82
Average number of shares outstanding		18,184			18,960		18,436			18,977
Adjusted Diluted Earnings Per Share
Net income	$	1.36		$	1.28	$	4.17		$	3.74
Average number of shares outstanding		18,522			19,404		18,824			19,382

The "Footnotes to Financial Statements" are integral parts of this financial information.

-33-


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

	Three Months Ended September 30,						Nine Months Ended September 30,
OPERATING STATISTICS	2013			2012			2013			2012
Net revenue ($000)
Homecare	$	196,476		$	197,764		$	593,410		$	577,511
Inpatient		24,824			28,082			79,181			86,481
Continuous care		35,880			42,144			119,466			127,481
Total before Medicare cap allowance	$	257,180		$	267,990		$	792,057		$	791,473
Medicare cap allowance		(3,179	)		-			(3,161	)		2,577
Total	$	254,001		$	267,990		$	788,896		$	794,050
Net revenue as a percent of total
before Medicare cap allowance
Homecare		76.4	%		73.8	%		74.9	%		73.0	%
Inpatient		9.7			10.5			10.0			10.9
Continuous care		14.0			15.7			15.2			16.1
Total before Medicare cap allowance		100.1			100.0			100.1			100.0
Medicare cap allowance		(1.3	)		-			(0.4	)		0.3
Total		98.8	%		100.0	%		99.7	%		100.3	%
Average daily census (days)
Homecare		10,373			10,123			10,482			9,904
Nursing home		2,911			3,073			2,928			3,031
Routine homecare		13,284			13,196			13,410			12,935
Inpatient		417			460			440			466
Continuous care		540			621			600			630
Total		14,241			14,277			14,450			14,031

Total Admissions		14,555			15,539			47,413			47,773
Total Discharges		14,971			15,340			47,603			47,064
Average length of stay (days)		82.2			78.5			81.3			78.3
Median length of stay (days)		16.0			15.0			15.0			15.0
ADC by major diagnosis
Neurological		37.8	%		33.9	%		36.8	%		34.1	%
Cancer		17.1			17.3			17.0			17.6
Cardio		13.9			11.2			12.8			11.4
Respiratory		7.8			6.7			7.5			6.7
Other		23.4			30.9			25.9			30.2
Total		100.0	%		100.0	%		100.0	%		100.0	%
Admissions by major diagnosis
Neurological		21.0	%		19.3	%		20.3	%		19.3	%
Cancer		34.4			34.0			33.0			33.3
Cardio		13.8			10.5			13.0			11.1
Respiratory		9.0			7.4			9.3			8.1
Other		21.8			28.8			24.4			28.2
Total		100.0	%		100.0	%		100.0	%		100.0	%
Direct patient care margins
Routine homecare		52.5	%		52.5	%		52.2	%		51.8	%
Inpatient		1.7			9.2			5.6			12.0
Continuous care		14.8			19.0			15.8			19.6
Homecare margin drivers (dollars per patient day)
Labor costs	$	54.64		$	54.69		$	55.61		$	55.64
Drug costs		7.52			8.11			7.55			8.25
Home medical equipment		6.67			7.03			6.69			6.88
Medical supplies		2.83			2.77			2.96			2.77
Inpatient margin drivers (dollars per patient day)
Labor costs	$	354.09		$	326.95		$	339.84		$	320.79
Continuous care margin drivers (dollars per patient day)
Labor costs	$	594.25		$	575.21		$	592.15		$	571.56
Bad debt expense as a percent of revenues		0.9	%		0.8	%		0.9	%		0.8	%
Accounts receivable --
Days of revenue outstanding- excluding unapplied Medicare payments		34.6			35.4		n.a			n.a
Days of revenue outstanding- including unapplied Medicare payments		21.9			27.9		n.a			n.a

-34-

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

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

Item 3. Quantitative and Qualitative Disclosures about Market Risk

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

Item 4. Controls and Procedures

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

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

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

-35-

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

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

The following table shows the activity related to our share repurchase program for the first nine months of 2013:



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

February 2011 Program
January 1 through January 31, 2013	-	$	-	-	$	14,739,197
February 1 through February 28, 2013	-		-	-		114,739,197
March 1 through March 31, 2013	-		-	-	$	114,739,197

First Quarter Total	-	$	-

April 1 through April 30, 2013	-	$	-	-	$	114,739,197
May 31 through May 31, 2013	280,701		65.72	280,701		96,291,009
June 1 through June 30, 2013	-		-	280,701	$	96,291,009

Second Quarter Total	280,701	$	65.72

July 1 through July 31, 2013	219,830	$	70.66	500,531	$	80,758,769
August 1 through August 31, 2013	49,522		71.02	550,053		77,241,690
September 1 through September 30, 2013	763,402		68.26	1,313,455	$	25,128,231

Third Quarter Total	1,032,754	$	68.91

On February 20, 2013, our Board of Directors authorized an additional $100 million under the February 2011 Repurchase
Program.

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

None

Item 5. Other Information

None

-36-

Item 6. Exhibits



Exhibit No.		Description

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

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

31.3		Certification by Arthur V. Tucker, Jr. pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act of 1934.

32.1		Certification by Kevin J. McNamara pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification by David P. Williams pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.3		Certification by Arthur V. Tucker, Jr. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema

101.CAL		XBRL Taxonomy Extension Calculation Linkbase
101.DEF		XBRL Taxonomy Extension Definition Linkbase
101.LAB		XBRL Taxonomy Extension Label Linkbase

101.PRE		XBRL Taxonomy Extension Presentation Linkbase

SIGNATURES

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

			Chemed Corporation
			(Registrant)


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


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


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

-37-