CHEMED CORP - Quarter Report: 2014 March (Form 10-Q)

Three months ended March 31,

a50852729.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 March 31, 2014

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

Commission File Number: 1-8351

CHEMED CORPORATION

(Exact name of registrant as specified in its charter)


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

(513) 762-6500 (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	17,539,101 Shares	March 31, 2014

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CHEMED CORPORATION AND

SUBSIDIARY COMPANIES

Index



	Page No.
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Unaudited Consolidated Balance Sheet -
March 31, 2014 and December 31, 2013	3

Unaudited Consolidated Statement of Income -
Three months ended March 31, 2014 and 2013	4

Unaudited Consolidated Statement of Cash Flows -
Three months ended March 31, 2014 and 2013	5

Notes to Unaudited Consolidated Financial Statements	6

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	17

Item 3. Quantitative and Qualitative Disclosures about Market Risk	28

Item 4. Controls and Procedures	28

PART II. OTHER INFORMATION
Item 1. Legal Proceedings	28

Item 1A. Risk Factors	28

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	29

Item 3. Defaults Upon Senior Securities	29

Item 4. Mine Safety Disclosures	29

Item 5. Other Information	29

Item 6. Exhibits	30
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)


	March 31,			December 31,
	2014			2013
ASSETS
Current assets
Cash and cash equivalents	$	39,479		$	84,418
Accounts receivable less allowances of $13,824 (2013 - $12,590)		116,152			91,770
Inventories		6,676			6,703
Current deferred income taxes		13,769			20,257
Prepaid income taxes		3,406			3,690
Prepaid expenses		18,930			17,818
Total current assets		198,412			224,656
Investments of deferred compensation plans		45,732			42,465
Properties and equipment, at cost, less accumulated depreciation of $185,056 (2013 - $180,550)		93,575			92,955
Identifiable intangible assets less accumulated amortization of $32,380 (2013 - $32,055)		56,276			56,556
Goodwill		466,961			466,871
Other assets		7,664			10,198
Total Assets	$	868,620		$	893,701

LIABILITIES
Current liabilities
Accounts payable	$	38,599		$	41,758
Current portion of long-term debt		185,825			183,564
Income taxes		3,967			111
Accrued insurance		39,391			41,859
Accrued compensation		38,233			48,323
Accrued legal		7,154			23,210
Other current liabilities		24,682			25,161
Total current liabilities		337,851			363,986
Deferred income taxes		28,232			27,301
Deferred compensation liabilities		45,498			42,348
Other liabilities		11,106			11,176
Total Liabilities		422,687			444,811
Commitments and contingencies
STOCKHOLDERS' EQUITY
Capital stock - authorized 80,000,000 shares $1 par; issued 32,621,360 shares (2013 - 32,245,226 shares)		32,621			32,245
Paid-in capital		504,883			481,011
Retained earnings		703,385			686,114
Treasury stock - 15,180,456 shares (2013 - 14,660,427)		(797,141	)		(752,634	)
Deferred compensation payable in Company stock		2,185			2,154
Total Stockholders' Equity		445,933			448,890
Total Liabilities and Stockholders' Equity	$	868,620		$	893,701


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 March 31,
	2014			2013
Service revenues and sales	$	358,300		$	366,641
Cost of services provided and goods sold (excluding depreciation)		257,819			264,307
Selling, general and administrative expenses		55,671			55,560
Depreciation		7,149			6,795
Amortization		1,009			1,127
Total costs and expenses		321,648			327,789
Income from operations		36,652			38,852
Interest expense		(3,815	)		(4,094	)
Other income - net		816			1,706
Income before income taxes		33,653			36,464
Income taxes		(13,079	)		(14,186	)
Net income	$	20,574		$	22,278

Earnings Per Share
Net income	$	1.17		$	1.20
Average number of shares outstanding		17,510			18,522

Diluted Earnings Per Share
Net income	$	1.12		$	1.17
Average number of shares outstanding		18,305			19,000

Cash Dividends Per Share	$	0.20		$	0.18

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)

	Three Months Ended
	March 31,
	2014			2013
Cash Flows from Operating Activities
Net income	$	20,574		$	22,278
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization		8,158			7,922
Deferred income taxes		6,841			(681	)
Provision for uncollectible accounts receivable		3,304			2,967
Amortization of discount on convertible notes		2,261			2,114
Stock option expense		1,309			1,491
Amortization of debt issuance costs		337			780
Noncash long-term incentive compensation		373			612
Changes in operating assets and liabilities, excluding
amounts acquired in business combinations:
Increase in accounts receivable		(27,700	)		(36,706	)
Decrease in inventories		27			499
Increase in prepaid expenses		(1,112	)		(1,092	)
Decrease in accounts payable and other current liabilities		(32,561	)		(698	)
Increase in income taxes		5,322			10,139
Increase in other assets		(1,069	)		(3,071	)
Increase in other liabilities		3,080			3,282
Excess tax benefit on share-based compensation		(1,399	)		(1,891	)
Other sources		409			196
Net cash provided/(used) by operating activities		(11,846	)		8,141
Cash Flows from Investing Activities
Capital expenditures		(8,131	)		(5,406	)
Business combinations, net of cash acquired		(250	)		-
Other sources		29			78
Net cash used by investing activities		(8,352	)		(5,328	)
Cash Flows from Financing Activities
Purchases of treasury stock		(32,982	)		-
Dividends paid		(3,303	)		(3,367	)
Capital stock surrendered to pay taxes on stock-based compensation		(2,916	)		(3,389	)
Proceeds from exercise of stock options		13,193			10,168
Excess tax benefit on share-based compensation		1,399			1,891
Increase/(decrease) in cash overdrafts payable		369			(3,165	)
Debt issuance costs		-			(1,107	)
Other uses		(501	)		(419	)
Net cash provided/(used) by financing activities		(24,741	)		612
Increase/(Decrease) in Cash and Cash Equivalents		(44,939	)		3,425
Cash and cash equivalents at beginning of year		84,418			69,531
Cash and cash equivalents at end of period	$	39,479		$	72,956

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, 2013 balance sheet data were derived from audited financial statements but do not include all disclosures required by GAAP. However, in our opinion, the financial statements presented herein contain all adjustments, consisting only of normal recurring adjustments, necessary to state fairly our financial position, results of operations and cash flows. These financial statements are prepared on the same basis as and should be read in conjunction with the audited Consolidated Financial Statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2013.

2. Revenue Recognition

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

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

During the three month period ended March 31, 2014, we reversed Medicare cap liability of $847,000 for amounts recorded in the fourth quarter of 2013 for two programs’ projected 2014 measurement period liability. We reversed these amounts as improving admissions trends in these programs indicate that the liability had been eliminated for one program and partially eliminated for the other program.

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

	March 31,
	2014			2013
Beginning balance January 1,	$	8,260		$	1,261
2014 measurement period		(847	)		-
2013 measurement period		-			(873	)
Ending balance March 31,	$	7,413		$	388

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):

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3. Segments

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



	Three months ended March 31,
	2014			2013
Service Revenues and Sales
VITAS	$	260,412		$	271,326
Roto-Rooter		97,888			95,315
Total	$	358,300		$	366,641

After-tax Earnings
VITAS	$	18,159		$	20,142
Roto-Rooter		10,033			9,624
Total		28,192			29,766
Corporate		(7,618	)		(7,488	)
Net income	$	20,574		$	22,278

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 March 31,		Income		Shares	Earnings per Share
2014
	Earnings	$	20,574	17,510	$	1.17
	Dilutive stock options		-	362
	Nonvested stock awards		-	148
	Conversion of Notes		-	285
	Diluted earnings	$	20,574	18,305	$	1.12

2013
	Earnings	$	22,278	18,522	$	1.20
	Dilutive stock options		-	371
	Nonvested stock awards		-	107
	Diluted earnings	$	22,278	19,000	$	1.17

For the three-month period ended March 31, 2014, 329,000 stock options were excluded from the computation of diluted earnings per share because they would have been anti-dilutive. For the three-month period ended March 31, 2013, 11,000 stock options were excluded from the computation of diluted earnings per share.

Diluted earnings per share was impacted as the result of our 1.875% Senior Convertible Notes (the “Notes”). Beginning March 1, 2014, the Notes can be converted into our Capital Stock in accordance with the terms of the Notes. At March 31, 2014, our share price exceeded the Convertible Note price. Using the treasury method, the diluted share count was 285,000 shares higher assuming 100% of the Notes are presumed for net share settlement. The purchased call option is anticipated to offset any shares issued at the maturity of the Notes. Under generally accepted accounting principles the purchased call option does not impact the calculation of diluted earnings per share as it is always anti-dilutive. There is no economic dilution anticipated upon conversion as a result of our purchased call options.

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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 March 31, 2014. We have issued $35.0 million in standby letters of credit as of March 31, 2014 for insurance purposes. Issued letters of credit reduce our available credit under the 2013 Credit Agreement. As of March 31, 2014, we have approximately $315.0 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:

	March 31, 2014			December 31, 2013
Principal amount of convertible debentures	$	186,956		$	186,956
Unamortized debt discount		(1,131	)		(3,392	)
Carrying amount of convertible debentures	$	185,825		$	183,564
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 March 31,
	2014		2013
Cash interest expense	$	1,217	$	1,200
Non-cash amortization of debt discount		2,261		2,114
Amortization and write-off of debt costs		337		780
Total interest expense	$	3,815	$	4,094

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 March 31, 2014.

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6. Other Income – Net

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

	Three months ended March 31,
	2014				2013
Market value gains on assets held in deferred
compensation trust		$	1,162		$	1,472
Loss on disposal of property and equipment			(278	)		(78	)
Interest income - net			(50	)		303
Other - net			(18	)		9
Total other income - net		$	816		$	1,706

7. Stock-Based Compensation Plans

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

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

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 March 31, 2014 totaling $1.5 million (December 31, 2013 - $1.5 million). In most cases these loans are fully or partially secured by equipment owned by the contractor. The interest rates on the loans range from 0% to 8% per annum and the remaining terms of the loans range from 2 months to 5 years at March 31, 2014. We recorded the following from our independent contractors (in thousands):

	Three months ended March 31,
	2014			2013
Revenues		$	9,023		$	8,210
Pretax profits			5,159			4,258

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 March 31,
2014		2013
$	3,897	$	4,296

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10. Legal and Regulatory Matters

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

Regulatory Matters and Litigation

On January 12, 2012, a putative class action lawsuit was filed in the U.S. District Court for the Southern District of Ohio against the Company, 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 opposed this motion. On September 16, 2013, Plaintiffs executed a Settlement Term Sheet with Defendants, reaching an agreement in principle to settle this case subject to Court approval. On February 6, 2014, Plaintiffs, on behalf of a putative class of purchasers of Chemed Capital Stock between February 15, 2010 and May 2, 2013, inclusive, executed a stipulation of settlement with defendants, agreeing 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 settlement class (“Settlement”). The Settlement of $6.0 million has been recorded as an accrual and offsetting prepaid in the accompanying Consolidated Balance Sheet. This Settlement received preliminary Court approval on March 27, 2014 and is scheduled for a final hearing on July 19, 2014. 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.

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

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

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

VITAS has also received document subpoenas in related state matters. In February 2010, VITAS received a civil investigative demand (“CID”) from the Texas Attorney General seeking documents from January 1, 2002 through the date of the CID, and interrogatory responses in connection with an investigation of possible fraudulent submission of Medicaid claims for non-qualifying patients and fraudulent shifting of costs from VITAS to the State of Texas and the United States. The CID requested similar information sought by prior Department of Justice subpoenas, including policy and procedure manuals and information concerning Medicare and Medicaid billing, patient statistics and sales and marketing practices, together with information concerning record-keeping and retention practices, and medical records concerning 117 patients. In September 2010, VITAS received a 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 net costs incurred related to U.S. v. Vitas and related regulatory matters were $748,000 and $1.0 million for the periods ending March 31, 2014 and 2013, respectively.

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

- 11 -

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

On December 20, 2013, Plaintiff in the North action filed a motion before the Judicial Panel on Multidistrict Litigation seeking centralized treatment of her action and the KBC action in the U.S. District Court for the Southern District of Ohio. Defendants in both cases, as well as Plaintiff KBC, opposed that motion, consistent with Chemed’s By-law 8.07, which requires all derivative suits brought in Chemed’s name to proceed in federal or state court in Delaware. The MDL Panel denied the motion on April 2, 2014. On January 29, 2014 Defendants filed motions to transfer North to Delaware under 28 U.S.C § 1404 and to stay the case until after resolution of that motion and the MDL motion.

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

11. Concentration of Risk

VITAS has pharmacy services agreements ("Agreements") with Omnicare, Inc. and its subsidiaries (“OCR”) whereby OCR provides specified pharmacy services for VITAS and its hospice patients in geographical areas served by both VITAS and OCR. The Agreements renew automatically for three-year terms. Either party may cancel the Agreements at the end of any term by giving 30 days prior written notice. VITAS made purchases from OCR of $8.8 million and $9.6 million for the three months ended March 31, 2014 and 2013, respectively. Purchases from OCR represent approximately 90% of all pharmacy services used by VITAS.

12. Cash Overdrafts and Cash Equivalents

Included in accounts payable at March 31, 2014 is cash overdrafts payable of $1.2 million (December 31, 2013 - $806,000).

From time to time throughout the year, we invest excess cash in money market funds with major commercial banks. We closely monitor the creditworthiness of the institutions with which we invest our overnight funds. We had $20.0 million in cash equivalents as of March 31, 2014. There was $23.1 million in cash equivalents as of December 31, 2013. The weighted average rate of return for our cash equivalents was 0.09% for March 31, 2014 and 0.08% for December 31, 2013.

13. Financial Instruments

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

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The following shows the carrying value, fair value and the hierarchy for our financial instruments as of March 31, 2014 (in thousands):

			Fair Value Measure
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Mutual fund investments of deferred
compensation plans held in trust	$	45,498	$	45,732	$	-	$	-
Long-term debt		185,825		209,157		-		-

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

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

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

14. Capital Stock Repurchase Plan Transactions

We repurchased the following capital stock for the three months ended March 31, 2014 and 2013:

	Three months ended March 31,
	2014			2013

Shares repurchased			382,934			-
Weighted average price per share		$	86.13		$	-

In February 2014, the Board of Directors authorized an additional $100 million for stock repurchase under Chemed’s existing share repurchase program. We currently have $88.8 million of authorization remaining under this share repurchase plan.

- 13 -

15. 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 March 31, 2014 and December 31, 2013 for the balance sheet, the three months ended March 31, 2014 and December 31, 2013 for the income statement and the three months ended March 31, 2014 and March 31, 2013 for the statement of cash flows (dollars in thousands):


March 31, 2014			Guarantor			Non-Guarantor		Consolidating
	Parent		Subsidiaries			Subsidiaries		Adjustments			Consolidated
ASSETS
Cash and cash equivalents	$	41,808	$	(11,336	)	$	9,007	$	-		$	39,479
Accounts receivable, including intercompany		1,231		517,646			1,256		(403,981	)		116,152
Inventories		-		6,148			528		-			6,676
Current deferred income taxes		-		14,720			264		(1,215	)		13,769
Prepaid income taxes		9,155		-			7		(5,756	)		3,406
Prepaid expenses		6,612		11,958			360		-			18,930
Total current assets		58,806		539,136			11,422		(410,952	)		198,412
Investments of deferred compensation plans		-		-			45,732		-			45,732
Properties and equipment, at cost less accumulated depreciation		9,963		81,033			2,579		-			93,575
Identifiable intangible assets less accumulated amortization		-		56,276			-		-			56,276
Goodwill		-		462,687			4,274		-			466,961
Other assets		12,745		1,877			17,141		(24,099	)		7,664
Investments in subsidiaries		964,753		28,007			-		(992,760	)		-
Total assets	$	1,046,267	$	1,169,016		$	81,148	$	(1,427,811	)	$	868,620
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable, including intercompany	$	398,529	$	39,213		$	4,838	$	(403,981	)	$	38,599
Current portion of long-term debt		185,825		-			-		-			185,825
Income taxes		-		7,663			2,060		(5,756	)		3,967
Accrued insurance		1,433		37,958			-		-			39,391
Accrued compensation		1,086		36,807			340		-			38,233
Accrued legal		6,043		1,111			-		-			7,154
Other current liabilities		4,288		21,429			180		(1,215	)		24,682
Total current liabilities		597,204		144,181			7,418		(410,952	)		337,851
Deferred income taxes		-		52,331			-		(24,099	)		28,232
Deferred compensation liabilities		-		-			45,498		-			45,498
Other liabilities		3,130		6,879			1,097		-			11,106
Stockholders' equity		445,933		965,625			27,135		(992,760	)		445,933
Total liabilities and stockholders' equity	$	1,046,267	$	1,169,016		$	81,148	$	(1,427,811	)	$	868,620

December 31, 2013			Guarantor			Non-Guarantor		Consolidating
	Parent		Subsidiaries			Subsidiaries		Adjustments			Consolidated
ASSETS
Cash and cash equivalents	$	84,005	$	(8,777	)	$	9,190	$	-		$	84,418
Accounts receivable, including intercompany		925		509,580			1,000		(419,735	)		91,770
Inventories		-		6,246			457		-			6,703
Current deferred income taxes		-		21,307			126		(1,176	)		20,257
Prepaid income taxes		3,710		1,176			349		(1,545	)		3,690
Prepaid expenses		6,925		10,682			211		-			17,818
Total current assets		95,565		540,214			11,333		(422,456	)		224,656
Investments of deferred compensation plans		-		-			42,465		-			42,465
Properties and equipment, at cost less accumulated depreciation		10,184		80,144			2,627		-			92,955
Identifiable intangible assets less accumulated amortization		-		56,556			-		-			56,556
Goodwill		-		462,489			4,382		-			466,871
Other assets		17,782		1,775			15,888		(25,247	)		10,198
Investments in subsidiaries		945,450		27,564			-		(973,014	)		-
Total assets	$	1,068,981	$	1,168,742		$	76,695	$	(1,420,717	)	$	893,701
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable, including intercompany	$	417,593	$	39,424		$	4,476	$	(419,735	)	$	41,758
Current portion of long-term debt		183,564		-			-		-			183,564
Income taxes		1,106		210			340		(1,545	)		111
Accrued insurance		784		41,075			-		-			41,859
Accrued compensation		5,047		42,905			371		-			48,323
Accrued legal		6,031		17,179			-		-			23,210
Other current liabilities		2,739		22,219			1,379		(1,176	)		25,161
Total current liabilities		616,864		163,012			6,566		(422,456	)		363,986
Deferred income taxes		-		52,548			-		(25,247	)		27,301
Deferred compensation liabilities		-		-			42,348		-			42,348
Other liabilities		3,227		6,914			1,035		-			11,176
Stockholders' equity		448,890		946,268			26,746		(973,014	)		448,890
Total liabilities and stockholders' equity	$	1,068,981	$	1,168,742		$	76,695	$	(1,420,717	)	$	893,701

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For the three months ended March 31, 2014				Guarantor			Non-Guarantor			Consolidating
	Parent			Subsidiaries			Subsidiaries			Adjustments			Consolidated
Continuing Operations
Service revenues and sales	$	-		$	349,890		$	8,410		$	-		$	358,300
Cost of services provided and goods sold		-			253,052			4,767			-			257,819
Selling, general and administrative expenses		5,710			47,005			2,956			-			55,671
Depreciation		241			6,671			237			-			7,149
Amortization		445			564			-			-			1,009
Total costs and expenses		6,396			307,292			7,960			-			321,648
Income/ (loss) from operations		(6,396	)		42,598			450			-			36,652
Interest expense		(3,663	)		(152	)		-			-			(3,815	)
Other (expense)/income - net		3,672			(4,014	)		1,158			-			816
Income/ (loss) before income taxes		(6,387	)		38,432			1,608			-			33,653
Income tax (provision)/ benefit		2,137			(14,613	)		(603	)		-			(13,079	)
Equity in net income of subsidiaries		24,824			1,028			-			(25,852	)		-
Net income	$	20,574		$	24,847		$	1,005		$	(25,852	)	$	20,574


For the three months ended March 31, 2013				Guarantor			Non-Guarantor			Consolidating
	Parent			Subsidiaries			Subsidiaries			Adjustments			Consolidated
Continuing Operations
Service revenues and sales	$	-		$	359,056		$	7,585		$	-		$	366,641
Cost of services provided and goods sold		-			259,977			4,330			-			264,307
Selling, general and administrative expenses		5,872			46,572			3,116			-			55,560
Depreciation		240			6,325			230			-			6,795
Amortization		482			645			-			-			1,127
Total costs and expenses		6,594			313,519			7,676			-			327,789
Income/ (loss) from operations		(6,594	)		45,537			(91	)		-			38,852
Interest expense		(3,975	)		(105	)		(14	)		-			(4,094	)
Other (expense)/income - net		4,273			(4,035	)		1,468			-			1,706
Income/ (loss) before income taxes		(6,296	)		41,397			1,363			-			36,464
Income tax (provision)/ benefit		2,133			(15,817	)		(502	)		-			(14,186	)
Equity in net income of subsidiaries		26,441			910			-			(27,351	)		-
Net income	$	22,278		$	26,490		$	861		$	(27,351	)	$	22,278

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For the three months ended March 31 2014				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Consolidated
Cash Flow from Operating Activities:
Net cash provided by operating activities	$	(6,773	)	$	(5,370	)	$	297		$	(11,846	)
Cash Flow from Investing Activities:
Capital expenditures		(20	)		(7,897	)		(214	)		(8,131	)
Business combinations, net of cash acquired		-			(250	)		-			(250	)
Other sources/(uses) - net		(58	)		62			25			29
Net cash used by investing activities		(78	)		(8,085	)		(189	)		(8,352	)
Cash Flow from Financing Activities:
Increase /(decrease) in cash overdrafts payable		323			46			-			369
Change in intercompany accounts		(11,080	)		10,850			230			-
Dividends paid		(3,303	)		-			-			(3,303	)
Debt issuance costs		-			-			-			-
Capital stock surrendered to pay taxes on stock-based compensation		(2,916	)		-			-			(2,916	)
Purchases of treasury stock		(32,982	)		-			-			(32,982	)
Proceeds from exercise of stock options		13,193			-			-			13,193
Excess tax benefit on share-based compensation		1,399			-			-			1,399
Other sources/(uses) - net		20			-			(521	)		(501	)
Net cash provided/(used) by financing activities		(35,346	)		10,896			(291	)		(24,741	)
Net increase/(decrease) in cash and cash equivalents		(42,197	)		(2,559	)		(183	)		(44,939	)
Cash and cash equivalents at beginning of year		84,005			(8,777	)		9,190			84,418
Cash and cash equivalents at end of period	$	41,808		$	(11,336	)	$	9,007		$	39,479

For the three months ended March 31, 2013				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Consolidated
Cash Flow from Operating Activities:
Net cash provided by operating activities	$	(4,511	)	$	12,302		$	350		$	8,141
Cash Flow from Investing Activities:
Capital expenditures		(10	)		(5,278	)		(118	)		(5,406	)
Other sources/(uses) - net		(16	)		71			23			78
Net cash provided/(used) by investing activities		(26	)		(5,207	)		(95	)		(5,328	)
Cash Flow from Financing Activities:
Increase/(decrease) in cash overdrafts payable		(554	)		(2,611	)		-			(3,165	)
Change in intercompany accounts		6,731			(6,570	)		(161	)		-
Dividends paid		(3,367	)		-			-			(3,367	)
Debt issuance		(1,107	)		-			-			(1,107	)
Capital stock surrendered to pay taxes on stock-based compensation		(3,389	)		-			-			(3,389	)
Purchases of treasury stock		-			-			-			-
Proceeds from exercise of stock options		10,168			-			-			10,168
Excess tax benefit on share-based compensation		1,891			-			-			1,891
Other sources/(uses) - net		(4	)		-			(415	)		(419	)
Net cash provided/(used) by financing activities		10,369			(9,181	)		(576	)		612
Net increase in cash and cash equivalents		5,832			(2,086	)		(321	)		3,425
Cash and cash equivalents at beginning of year		56,342			4,674			8,515			69,531
Cash and cash equivalents at end of period	$	62,174		$	2,588		$	8,194		$	72,956

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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 March 31,
	2014			2013
Service revenues and sales	$	358,300		$	366,641
Net income	$	20,574		$	22,278
Diluted EPS	$	1.12		$	1.17
Adjusted net income	$	23,713		$	26,140
Adjusted diluted EPS	$	1.32		$	1.38
Adjusted EBITDA	$	47,672		$	51,296
Adjusted EBITDA as a % of revenue		13.3	%		14.0	%

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 Diluted EPS 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 25-26.

For the three months ended March 31, 2014, the decrease in consolidated service revenues and sales was driven by a 2.7% increase at Roto-Rooter and a 4.0% decrease at VITAS. The increase in service revenues at Roto-Rooter was driven by a 4.8% increase in price and mix shift offset by a 2.4% decrease in job count. The remaining difference relates to increases in contractor revenue. The decrease in service revenues at VITAS was a result of Medicare reimbursement rates increasing 1.4%, offset by a 2.0% decrease as a result of sequestration, decreased ADC of 0.8%, and geographical and level of care mix shift. Consolidated net income decreased 7.6% as a result of the lower revenue at VITAS and higher health insurance costs at Vitas as well as increased advertising expense at Roto-Rooter. Diluted EPS decreased 4.3% as a result of the decrease in net income offset by a lower number of shares outstanding. Adjusted EBITDA as a percent of revenue decreased 0.7% mainly as a result of lower revenue at VITAS. See page 27 for additional VITAS operating metrics.

On April 1, 2013, Medicare reduced hospice reimbursement rates 2.0%. Effective October 1, 2013, Medicare increased the average hospice rate approximately 1.4% This effectively reduced Medicare hospice reimbursement 0.6% in the first quarter of 2014 when compared to the prior year quarter. VITAS expects its full-year 2014 revenue growth, prior to Medicare cap, to be in the range of 1.0% to 3.0%. Admissions in 2014 are estimated to increase 3.0% to 4.0%. Adjusted EBITDA margin, prior to Medicare cap, is estimated to be 14.5% to 15.0%. Medicare cap is estimated to be $5.0 million in 2014. Roto-Rooter expects full-year 2014 revenue growth of 3.0% to 4.0%. The revenue estimate is a result of increased job pricing of approximately 2.0%. Adjusted EBITDA margin for 2014 is estimated in the range of 19.0% to 20.0%. We anticipate that our operating income and cash flows will be sufficient to operate our businesses and meet any commitments for the foreseeable future.

- 17 -

Financial Condition

Liquidity and Capital Resources

Material changes in the balance sheet accounts from December 31, 2013 to March 31, 2014 include the following:

•	A $24.4 million increase in accounts receivable related to the timing of Medicare receipts.

•	A $6.5 million decrease in current deferred income taxes mainly related to the payment of litigation settlements.

•	A $10.1 million decrease in accrued compensation related to the payment of incentive compensation in the first quarter.

•	A $16.1 million decrease in accrued legal due to the payment of litigation settlements.

Net cash provided by operating activities decreased $20.0 million primarily as a result of the decrease in accounts payable and other current liabilities offset by the increase in accounts receivable. Management continually evaluates cash utilization alternatives, including share repurchase, debt repurchase, acquisitions and increased dividends to determine the most beneficial use of available capital resources.

We have issued $35.0 million in standby letters of credit as of March 31, 2014, for insurance purposes. Issued letters of credit reduce our available credit under the revolving credit agreement. As of March 31, 2014, we have approximately $315.0 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 March 31, 2014 and anticipate remaining in compliance throughout 2014.

- 18 -

- 19 -

The net costs incurred related to U.S. v. Vitas and related regulatory matters were $748,000 and $1.0 million for the periods ending March 31, 2014 and 2013, respectively.

- 20 -

Results of Operations

Three months ended March 31, 2014 versus 2013 - Consolidated Results

Our service revenues and sales for the first quarter of 2014 decreased 2.3% versus services and sales revenues for the first quarter of 2013. Of this decrease, $10.9 million was attributable to VITAS offset by a $2.6 million increase at Roto-Rooter. The following chart shows the components of those changes (in thousands):

	Increase/(Decrease)
	Amount			Percent
VITAS
Routine homecare	$	(1,263	)		(0.6	)
Continuous care		(7,150	)		(15.8	)
General inpatient		(2,475	)		(8.7	)
Medicare cap		(26	)		(3.0	)
Roto-Rooter
Plumbing		3,796			8.8
Drain cleaning		(1,367	)		(3.6	)
Contractor operations		813			9.9
Other		(669	)		(11.1	)
Total	$	(8,341	)		(2.3	)

The decrease in VITAS’ revenues for the first quarter of 2014 versus the first quarter of 2013 was a combination of Medicare reimbursement rates increasing approximately 1.4%, offset by a 2.0% decline due to sequestration, an ADC decrease of 0.8%, and geographical and level of care mix shift. In the first quarter of 2014, VITAS recorded a positive revenue adjustment of $847,000 related to eliminating the Medicare cap billing limitation recorded in the fourth quarter of 2013 for one program and partially eliminating the Medicare cap billing limitation in another program. This compares with $873,000 Medicare cap liability recorded in the first quarter of 2013. The ADC decrease was driven by a 0.2% increase in routine homecare, a decrease of 15.4% in continuous care and a decrease of 6.6% 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 quarter of 2014 versus 2013 is attributable to a 9.0% increase in job count offset by a 0.2% decrease in price and mix shift. Drain cleaning revenues for the first quarter of 2014 versus 2013 reflect a 7.9% decrease in the number of jobs performed offset by a 4.3% increase in price and mix shift. Contractor operations revenue increased 9.9% for the first quarter of 2014. Other Roto-Rooter revenue decreased 11.1%.

The consolidated gross margin was 28.0% in the first quarter of 2014 as compared with 27.9% in the first quarter of 2013. On a segment basis, VITAS’ gross margin was 21.1% in the first quarter of 2014 and 21.4% in the first quarter of 2013. The Roto-Rooter segment’s gross margin was 46.4% for the first quarter of 2014 as compared with 46.3% for the first quarter of 2013.

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

	Three months ended March 31,
	2014		2013
SG&A expenses before the impact of market gains of deferred compensation plans,
long-term incentive compensation, and OIG investigation expenses	$	53,388	$	52,437
Long-term incentive compensation		373		612
Expenses related to OIG investigation		748		1,039
Impact of market value gains on liabilities held in deferred compensation
trusts		1,162		1,472
Total SG&A expenses	$	55,671	$	55,560

SG&A expenses before long-term incentive compensation, expenses related to OIG investigation and the impact of market gains of deferred compensation plans for the first quarter of 2014 were up 1.8% when compared to the first quarter of 2013 mainly as a result of normal salary increases.

- 21 -

Other income - net comprise (in thousands):

	Three months ended March 31,
	2014			2013
Market value gains on assets held in deferred
compensation trusts	$	1,162		$	1,472
Loss on disposal of property and equipment		(278	)		(78	)
Interest income - net		(50	)		303
Other		(18	)		9
Total other income - net	$	816		$	1,706

Our effective income tax rate was 38.9% in the first quarter of 2014 which is flat when compared to the first quarter of 2013.

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


	Three months ended March 31,
	2014			2013
VITAS
Expenses related to OIG investigation	$	(464	)	$	(644	)
Expenses related to litigation settlements		(70	)		-
Acquisition expenses		(1	)		-
Roto-Rooter
Expenses related to litigation settlements		(117	)		(86	)
Expenses of severance arrangements		-			(184	)
Corporate
Noncash impact of change in accounting for convertible debt		(1,429	)		(1,323	)
Stock option expense		(822	)		(943	)
Long-term incentive compensation		(236	)		(387	)
Loss on extinguishment of debt		-			(294	)
Expenses related to securities litigation		-			(1	)
Total	$	(3,139	)	$	(3,862	)

Three months ended March 31, 2014 versus 2013 - Segment Results

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

	Increase/(Decrease)
	Amount			Percent
VITAS	$	(1,983	)		(9.8	)
Roto-Rooter		409			4.2
Corporate		(130	)		(1.7	)
	$	(1,704	)		(7.6	)

- 22 -

CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2014
(in thousands)(unaudited)

											Chemed
	VITAS				Roto-Rooter			Corporate				Consolidated
2014 (a)
Service revenues and sales		$	260,412		$	97,888		$	-			$	358,300
Cost of services provided and goods sold			205,392			52,427			-				257,819
Selling, general and administrative expenses			21,714			27,181			6,776				55,671
Depreciation			4,614			2,399			136				7,149
Amortization			419			145			445				1,009
Total costs and expenses			232,139			82,152			7,357				321,648
Income/(loss) from operations			28,273			15,736			(7,357	)			36,652
Interest expense			(56	)		(97	)		(3,662	)			(3,815	)
Intercompany interest income/(expense)			1,344			649			(1,993	)			-
Other income/(expense)—net			(293	)		(59	)		1,168				816
Income/(expense) before income taxes			29,268			16,229			(11,844	)			33,653
Income taxes			(11,109	)		(6,196	)		4,226				(13,079	)
Net income/(loss)		$	18,159		$	10,033		$	(7,618	)		$	20,574

(a) The following amounts are included in net income (in thousands):
											Chemed
		VITAS			Roto-Rooter			Corporate				Consolidated
Pretax benefit/(cost):
Stock option expense		$	-		$	-		$	(1,309	)		$	(1,309	)
Noncash impact of accounting for convertible debt			-			-			(2,259	)			(2,259	)
Long-term incentive compensation			-			-			(373	)			(373	)
Expenses related to litigation settlements			(113	)		(193	)		-				(306	)
Acquisition expenses			(1	)		-			-				(1	)
Expenses related to OIG investigation			(748	)		-			-				(748	)
Total		$	(862	)	$	(193	)	$	(3,941	)		$	(4,996	)

											Chemed
		VITAS			Roto-Rooter			Corporate				Consolidated
After-tax benefit/(cost):
Stock option expense		$	-		$	-		$	(822	)		$	(822	)
Noncash impact of accounting for convertible debt			-			-			(1,429	)			(1,429	)
Long-term incentive compensation			-			-			(236	)			(236	)
Expenses related to litigation settlements			(70	)		(117	)		-				(187	)
Acquisition expenses			(1	)		-			-				(1	)
Expenses related to OIG investigation			(464	)		-			-				(464	)
Total		$	(535	)	$	(117	)	$	(2,487	)		$	(3,139	)

- 23 -

CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2013
(in thousands)(unaudited)

										Chemed
	VITAS			Roto-Rooter			Corporate				Consolidated
2013 (a)
Service revenues and sales	$	271,326		$	95,315		$	-			$	366,641
Cost of services provided and goods sold		213,160			51,147			-				264,307
Selling, general and administrative expenses		21,604			26,662			7,294				55,560
Depreciation		4,514			2,147			134				6,795
Amortization		491			154			482				1,127
Total costs and expenses		239,769			80,110			7,910				327,789
Income/(loss) from operations		31,557			15,205			(7,910	)			38,852
Interest expense		(46	)		(59	)		(3,989	)			(4,094	)
Intercompany interest income/(expense)		843			428			(1,271	)			-
Other income/(expense)—net		221			(1	)		1,486				1,706
Income/(expense) before income taxes		32,575			15,573			(11,684	)			36,464
Income taxes		(12,433	)		(5,949	)		4,196				(14,186	)
Net income/(loss)	$	20,142		$	9,624		$	(7,488	)		$	22,278


(a) The following amounts are included in net income (in thousands):
										Chemed
		VITAS		Roto-Rooter			Corporate				Consolidated
Pretax benefit/(cost):
Stock option expense	$	-		$	-		$	(1,491	)		$	(1,491	)
Noncash impact of accounting for convertible debt		-			-			(2,091	)			(2,091	)
Long-term incentive compensation		-			-			(612	)			(612	)
Expenses of severance arrangements		-			(302	)		-				(302	)
Loss on extinguishment of debt		-			-			(465	)			(465	)
Expenses related to litigation settlement		-			(141	)		-				(141	)
Expenses related to securities litigation		-			-			(2	)			(2	)
Acquisition expenses		(1	)		-			-				(1	)
Expenses of OIG investigation		(1,039	)		-			-				(1,039	)
Total	$	(1,040	)	$	(443	)	$	(4,661	)		$	(6,144	)

										Chemed
	VITAS			Roto-Rooter			Corporate				Consolidated
After-tax benefit/(cost):
Stock option expense	$	-		$	-		$	(943	)		$	(943	)
Noncash impact of accounting for convertible debt		-			-			(1,323	)			(1,323	)
Long-term incentive compensation		-			-			(387	)			(387	)
Expenses of severance arrangements		-			(184	)		-				(184	)
Loss on extinguishment of debt		-			-			(294	)			(294	)
Expenses related to litigation settlements		-			(86	)		-				(86	)
Expenses related to securities litigation		-			-			(1	)			(1	)
Expenses of OIG investigation		(644	)		-			-				(644	)
Total	$	(644	)	$	(270	)	$	(2,948	)		$	(3,862	)

- 24 -

Consolidating Summary and Reconciliation of Adjusted EBITDA

Chemed Corporation and Subsidiary Companies
(in thousands)													Chemed
For the three months ended March 31, 2014	VITAS				Roto-Rooter				Corporate				Consolidated

Net income/(loss)		$	18,159			$	10,033			$	(7,618	)		$	20,574
Add/(deduct):
Interest expense			56				97				3,662				3,815
Income taxes			11,109				6,196				(4,226	)			13,079
Depreciation			4,614				2,399				136				7,149
Amortization			419				145				445				1,009
EBITDA			34,357				18,870				(7,601	)			45,626
Add/(deduct):
Intercompany interest expense/(income)			(1,344	)			(649	)			1,993				-
Interest income			64				(8	)			(6	)			50
Expenses related to OIG investigation			748				-				-				748
Acquisition expenses			1				-				-				1
Expenses related to litigation settlements			113				193				-				306
Advertising cost adjustment			-				(741	)			-				(741	)
Stock option expense			-				-				1,309				1,309
Long-term incentive compensation			-				-				373				373
Adjusted EBITDA		$	33,939			$	17,665			$	(3,932	)		$	47,672

													Chemed
For the three months ended March 31, 2013	VITAS				Roto-Rooter				Corporate				Consolidated

Net income/(loss)		$	20,142			$	9,624			$	(7,488	)		$	22,278
Add/(deduct):
Interest expense			46				59				3,989				4,094
Income taxes			12,433				5,949				(4,196	)			14,186
Depreciation			4,514				2,147				134				6,795
Amortization			491				154				482				1,127
EBITDA			37,626				17,933				(7,079	)			48,480
Add/(deduct):
Intercompany interest expense/(income)			(843	)			(428	)			1,271				-
Interest income			(246	)			(42	)			(15	)			(303	)
Expenses related to OIG investigation			1,039				-				-				1,039
Acquisition expenses			1				-				-				1
Expenses of severance arrangements			-				302				-				302
Advertising cost adjustment			-				(469	)			-				(469	)
Expenses related to litigation settlements			-				141				-				141
Long-term incentive compensation			-				-				612				612
Stock option expense			-				-				1,491				1,491
Expenses related to securities litigation			-				-				2				2
Adjusted EBITDA		$	37,577			$	17,437			$	(3,718	)		$	51,296

- 25 -

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

	Three Months Ended March 31,
	2014		2013
Net income as reported	$	20,574	$	22,278

Add/(deduct) after-tax cost of:
Additional interest expense resulting from the change in accounting
for the conversion feature of the convertible notes		1,429		1,323
Stock option expense		822		943
Expenses of OIG investigation		464		644
Long-term incentive compensation		236		387
Expenses related to litigation settlements		187		86
Acquisition expenses		1		-
Loss on extinguishment of debt		-		294
Expenses of severance arrangements		-		184
Expenses related to securities litigation		-		1
Adjusted net income	$	23,713	$	26,140

Diluted Earnings Per Share As Reported
Net income	$	1.12	$	1.17
Average number of shares outstanding		18,305		19,000

Adjusted Diluted Earnings Per Share
Adjusted net income	$	1.32	$	1.38
Adjusted average number of shares outstanding*		18,019		19,000


* Adjusted diluted average shares outstanding exludes the estimated dilutive impact of the Convertible Notes (285,000 share for the first quarter of 2014) as this impact will be offset entirely by the Convertible Note Hedges when such conversion occurs in the second quarter of 2014.

- 26 -

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

	Three Months Ended March 31,
OPERATING STATISTICS	2014			2013
Net revenue ($000)
Homecare	$	195,397		$	196,660
Inpatient		25,993			28,468
Continuous care		38,175			45,325
Total before Medicare cap allowance	$	259,565		$	270,453
Medicare cap allowance		847			873
Total	$	260,412		$	271,326
Net revenue as a percent of total
before Medicare cap allowance
Homecare		75.3	%		72.7	%
Inpatient		10.0			10.5
Continuous care		14.7			16.8
Total before Medicare cap allowance		100.0			100.0
Medicare cap allowance		0.3			0.3
Total		100.3	%		100.3	%
Average daily census (days)
Homecare		10,476			10,354
Nursing home		2,828			2,929
Routine homecare		13,304			13,283
Inpatient		437			468
Continuous care		576			681
Total		14,317			14,432

Total Admissions		16,353			17,137
Total Discharges		16,002			16,843
Average length of stay (days)		81.1			77.4
Median length of stay (days)		14.0			13.0
ADC by major diagnosis
Neurological		39.2	%		33.2	%
Cancer		17.3			16.9
Cardio		14.7			11.2
Respiratory		3.3			6.9
Other		25.5			31.8
Total		100.0	%		100.0	%
Admissions by major diagnosis
Neurological		21.8			19.2	%
Cancer		32.4			30.8
Cardio		13.8			11.6
Respiratory		9.9			9.6
Other		22.1			28.8
Total		100.0	%		100.0	%
Direct patient care margins
Routine homecare		52.8	%		51.9	%
Inpatient		4.2			10.9
Continuous care		16.6			17.7
Homecare margin drivers (dollars per patient day)
Labor costs	$	55.44		$	57.18
Drug costs		7.24			7.57
Home medical equipment		6.61			6.85
Medical supplies		3.22			2.92
Inpatient margin drivers (dollars per patient day)
Labor costs	$	349.71		$	320.67
Continuous care margin drivers (dollars per patient day)
Labor costs	$	593.77		$	587.73
Bad debt expense as a percent of revenues		1.0	%		0.8	%
Accounts receivable --
Days of revenue outstanding- excluding unapplied Medicare payments		42.7			39.0
Days of revenue outstanding- including unapplied Medicare payments		33.8			29.6

- 27 -

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 March 31, 2014, we had no variable rate debt outstanding. At March 31, 2014, the fair value of the Notes approximates $209.2 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.

- 28 -

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

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

The following table shows the activity related to our share repurchase program for the first three months of 2014:

	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, 2014		-	$	-		4,891,885	$	21,828,041
February 1 through February 28, 2014		132,934		82.50		5,024,819		110,860,736
March 1 through March 31, 2014		250,000		88.06		5,274,819	$	88,845,624

First Quarter Total		382,934	$	86.13

On February 21, 2014, 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

- 29 -

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:	May 2, 2014	By:	/s/ Kevin J. McNamara
			Kevin J. McNamara
			(President and Chief Executive Officer)


Dated:	May 2, 2014	By:	/s/ David P. Williams
			David P. Williams
			(Executive Vice President and Chief Financial Officer)


Dated:	May 2, 2014	By:	/s/ Arthur V. Tucker, Jr.
			Arthur V. Tucker, Jr.
			(Vice President and Controller)

- 30 -