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~~June 30, ~~2020~~2021

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

Commission File Number: 1-8351

CHEMED CORPORATION

(Exact name of registrant as specified in its charter)


Delaware		31-0791746
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)
255 E. Fifth Street, Suite 2600, Cincinnati, Ohio		45202
(Address of principal executive offices)		(Zip code)
(513) 762-6690 (Registrant’s telephone number, including area code)

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


Yes	x	No	o

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


Yes	x	No	o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Large Accelerated Filer

Accelerated Filer

Non-accelerated Filer

Smaller Reporting Company

Emerging growth company o

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

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


Yes	o	No	x

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

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


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

Capital Stock $1 Par Value	CHE	New York Stock Exchange	~~15,951,822~~15,731,457 Shares	~~September~~June 30, ~~2020~~2021

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CHEMED CORPORATION AND

SUBSIDIARY COMPANIES

Index



	Page No.
PART I. FINANCIAL INFORMATION:

Item 1. Financial Statements
Unaudited Consolidated Balance Sheets -
~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020	3

Unaudited Consolidated Statements of Income -
Three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020	4

Unaudited Consolidated Statements of Cash Flows -
~~Nine~~Six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020	5

Unaudited Consolidated Statements of Changes in Stockholders’ Equity-
Three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020	6

Notes to Unaudited Consolidated Financial Statements	78

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	2422

Item 3. Quantitative and Qualitative Disclosures about Market Risk	4339

Item 4. Controls and Procedures	4339

PART II. OTHER INFORMATION

Item 1. Legal Proceedings	4339

Item 1A. Risk Factors	4339

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	4440

Item 3. Defaults Upon Senior Securities	4440

Item 4. Mine Safety Disclosures	4440

Item 5. Other Information	4440

Item 6. Exhibits	4540

EX – 31.1
EX – 31.2
EX – 31.3
EX – 32.1
EX – 32.2
EX – 32.3 EX – 101 EX – 104

‎

-2-


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



	September 30, 2020		December 31, 2019		June 30, 2021		December 31, 2020
ASSETS
Current assets
Cash and cash equivalents	$	112,765	$	6,158	$	92,120	$	162,675
Accounts receivable less allowances of $1,293 (2019 - $353)		110,839		143,827
Accounts receivable						123,329		126,853
Inventories		7,546		7,462		7,411		7,095
Prepaid income taxes		14,224		10,074		23,386		6,603
Prepaid expenses		25,222		23,150		22,840		26,177
Total current assets		270,596		190,671		269,086		329,403
Investments of deferred compensation plans		86,865		77,446		98,256		88,811
Properties and equipment, at cost, less accumulated depreciation of $288,657 (2019 - $270,140)		181,386		175,763
Properties and equipment, at cost, less accumulated depreciation of $307,347 (2020 - $293,380)						192,653		187,820
Lease right of use asset		120,382		111,652		123,207		123,448
Identifiable intangible assets less accumulated amortization of $45,095 (2019 - $37,620)		120,401		126,370
Identifiable intangible assets less accumulated amortization of $52,628 (2020 - $47,607)						113,137		118,085
Goodwill		578,519		577,367		578,650		578,585
Other assets		8,805		9,048		8,807		8,759
Total Assets	$	1,366,954	$	1,268,317	$	1,383,796	$	1,434,911

LIABILITIES
Current liabilities
Accounts payable	$	39,268	$	51,101	$	55,975	$	54,234
Income taxes						5		9,464
Accrued insurance		50,727		50,328		51,963		54,703
Accrued compensation		101,868		70,814		83,608		91,282
Accrued legal		9,561		6,941		1,391		10,632
Short-term lease liability		33,311		39,280		36,440		36,200
Unutilized CARES Act grant		48,041		-
Other current liabilities		46,387		43,756		38,020		42,593
Total current liabilities		329,163		262,220		267,402		299,108
Deferred income taxes		19,222		18,504		21,713		20,664
Long-term debt		-		90,000
Deferred compensation liabilities		86,875		76,446		97,374		88,456
Long-term lease liability		99,241		86,656		99,093		99,210
Other liabilities		31,045		7,883		27,440		26,273
Total Liabilities		565,546		541,709		513,022		533,711
Commitments and contingencies (Note 11)
Commitments and contingencies (Note 10)
STOCKHOLDERS' EQUITY
Capital stock - authorized 80,000,000 shares $1 par; issued 36,137,463 shares (2019 - 35,810,528 shares)		36,137		35,811
Capital stock - authorized 80,000,000 shares $1 par; issued 36,385,091 shares (2020 - 36,258,638 shares)						36,385		36,259
Paid-in capital		925,271		860,671		999,697		961,404
Retained earnings		1,615,465		1,425,752		1,834,835		1,723,777
Treasury stock - 20,261,187 shares (2019 - 19,867,220 shares)		(1,777,809)		(1,597,940)
Treasury stock - 20,720,835 shares (2020 - 20,351,562 shares)						(2,002,326)		(1,822,579)
Deferred compensation payable in Company stock		2,344		2,314		2,183		2,339
Total Stockholders' Equity		801,408		726,608		870,774		901,200
Total Liabilities and Stockholders' Equity	$	1,366,954	$	1,268,317	$	1,383,796	$	1,434,911

See accompanying Notes to Unaudited Consolidated Financial Statements.	See accompanying Notes to Unaudited Consolidated Financial Statements.				See accompanying Notes to Unaudited Consolidated Financial Statements.

‎

-3-


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



	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019		2021		2020		2021		2020
Service revenues and sales	$	528,297	$	480,613	$	1,546,294	$	1,416,231	$	532,256	$	502,199	$	1,059,616	$	1,017,997
Cost of services provided and goods sold (excluding depreciation)		339,240		328,183		1,043,148		973,771		350,493		352,163		690,966		703,908
Selling, general and administrative expenses		88,317		76,836		243,413		222,421		93,838		84,513		185,437		155,096
Depreciation		11,714		10,147		34,761		29,744		13,612		11,659		25,327		23,047
Amortization		2,511		441		7,476		1,366		2,510		2,488		5,020		4,965
Other operating (income)/expenses		12,207		78		(28,935)		9,001
Other operating expenses/(income)										104		(41,384)		726		(41,142)
Total costs and expenses		453,989		415,685		1,299,863		1,236,303		460,557		409,439		907,476		845,874
Income from operations		74,308		64,928		246,431		179,928		71,699		92,760		152,140		172,123
Interest expense		(379)		(1,041)		(2,005)		(3,402)		(379)		(651)		(760)		(1,626)
Other income - net		7,675		3,036		5,723		5,488
Other income/(expense) - net										3,785		7,514		7,387		(1,952)
Income before income taxes		81,604		66,923		250,149		182,014		75,105		99,623		158,767		168,545
Income taxes		(13,882)		(7,976)		(44,435)		(27,671)		(18,583)		(17,522)		(36,845)		(30,553)
Net income	$	67,722	$	58,947	$	205,714	$	154,343	$	56,522	$	82,101	$	121,922	$	137,992

Earnings Per Share:
Net income	$	4.25	$	3.69	$	12.90	$	9.68	$	3.57	$	5.16	$	7.66	$	8.65
Average number of shares outstanding		15,940		15,970		15,948		15,952		15,829		15,914		15,919		15,953

Diluted Earnings Per Share:
Net income	$	4.14	$	3.56	$	12.53	$	9.35	$	3.51	$	5.01	$	7.52	$	8.39
Average number of shares outstanding		16,373		16,555		16,419		16,514		16,101		16,373		16,205		16,445

Cash Dividends Per Share	$	0.34	$	0.32	$	0.98	$	0.92	$	0.34	$	0.32	$	0.68	$	0.64

See accompanying Notes to Unaudited Consolidated Financial Statements.	See accompanying Notes to Unaudited Consolidated Financial Statements.								See accompanying Notes to Unaudited Consolidated Financial Statements.

‎

-4-


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

	Nine Months Ended September 30,				Six Months Ended June 30,
	2020		2019		2021		2020
Cash Flows from Operating Activities
Net income	$	205,714	$	154,343	$	121,922	$	137,992
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization						30,347		28,012
Stock option expense						12,345		10,113
Litigation settlements paid						(9,440)		-
Noncash long-term incentive compensation						3,402		3,527
Noncash directors' compensation						1,173		1,171
Provision for deferred income taxes						1,051		2,717
Amortization of debt issuance costs						153		153
Provision for bad debts						40		871
Unutilized CARES Act grant		48,041		-		-		39,236
Depreciation and amortization		42,237		31,110
Deferred payroll taxes		22,941		-		-		10,716
Stock option expense		13,296		10,729
Noncash long-term incentive compensation		5,301		4,184
Litigation settlement		2,684		6,000
Noncash directors' compensation		1,171		767
Provision/(benefit) for deferred income taxes		831		(6,085)
Amortization of debt issuance costs		229		229
Asset impairment loss		-		2,266
Changes in operating assets and liabilities:
Decrease in accounts receivable		27,993		10,558		4,722		6,696
Increase in inventories		(84)		(1,649)		(316)		(5)
Increase in prepaid expenses		(2,072)		(6,836)
Increase in accounts payable and other current liabilities		34,526		28,622
Decrease/(increase) in prepaid expenses						3,337		(33)
(Decrease)/increase in accounts payable and other current liabilities						(10,815)		13,303
Change in current income taxes		(4,366)		(81)		(26,242)		23,725
Net change in lease assets and liabilities		1,583		1,311		(436)		1,287
Increase in other assets		(9,646)		(8,145)		(10,088)		(2,988)
Increase in other liabilities		10,735		9,045		10,088		1,383
Other sources		1,298		1,277
Other sources/(uses)						796		(54)
Net cash provided by operating activities		402,412		237,645		132,039		277,822
Cash Flows from Investing Activities
Capital expenditures		(42,670)		(39,753)		(33,604)		(32,251)
Business combinations		(3,600)		(138,010)		-		(3,600)
Other sources		672		101		302		473
Net cash used by investing activities		(45,598)		(177,662)		(33,302)		(35,378)
Cash Flows from Financing Activities
Purchases of treasury stock						(166,649)		(122,148)
Proceeds from exercise of stock options						16,186		19,440
Dividends paid						(10,864)		(10,238)
Capital stock surrendered to pay taxes on stock-based compensation						(8,598)		(14,845)
Payments on revolving line of credit		(264,900)		(359,900)		-		(264,900)
Proceeds from revolving line of credit		174,900		400,700		-		174,900
Purchases of treasury stock		(147,123)		(71,926)
Proceeds from exercise of stock options		31,498		23,383
Capital stock surrendered to pay taxes on stock-based compensation		(18,707)		(26,108)
Dividends paid		(15,639)		(14,657)
Change in cash overdrafts payable		(9,849)		(7,535)		-		(9,849)
Other (uses)/sources		(387)		295
Other sources/(uses)						633		(586)
Net cash used by financing activities		(250,207)		(55,748)		(169,292)		(228,226)
Increase in Cash and Cash Equivalents		106,607		4,235
(Decrease)/Increase in Cash and Cash Equivalents						(70,555)		14,218
Cash and cash equivalents at beginning of year		6,158		4,831		162,675		6,158
Cash and cash equivalents at end of period	$	112,765	$	9,066	$	92,120	$	20,376

See accompanying Notes to Unaudited Consolidated Financial Statements.	See accompanying Notes to Unaudited Consolidated Financial Statements.				See accompanying Notes to Unaudited Consolidated Financial Statements.

‎

-5-



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

For the three months ended September 30, 2020 and 2019:										Deferred
For the three months ended June 30, 2021 and 2020:													For the three months ended June 30, 2021 and 2020:									Deferred
										Compensation												Compensation
								Treasury		Payable in										Treasury		Payable in
		Capital		Paid-in		Retained		Stock-		Company				Capital		Paid-in		Retained		Stock-		Company
		Stock		Capital		Earnings		at Cost		Stock		Total		Stock		Capital		Earnings		at Cost		Stock		Total
Balance at June 30, 2020		36,040		904,421		1,553,144		(1,745,299)		2,390		750,696
Balance at March 31, 2021														36,345		982,739		1,783,740		(1,876,315)		2,375		928,884
Net income		-		-		67,722		-		-		67,722		-		-		56,522		-		-		56,522
Dividends paid ($0.34 per share)		-		-		(5,401)		-		-		(5,401)		-		-		(5,427)		-		-		(5,427)
Stock awards and exercise of stock options		97		20,636		-		(7,581)		-		13,152		40		16,630		-		(4,323)		-		12,347
Purchases of treasury stock		-		-		-		(24,975)		-		(24,975)		-		-		-		(121,882)		-		(121,882)
Other		-		214		-		46		(46)		214		-		328		-		194		(192)		330
Balance at September 30, 2020	$	36,137	$	925,271	$	1,615,465	$	(1,777,809)	$	2,344	$	801,408
Balance at June 30, 2021													$	36,385	$	999,697	$	1,834,835	$	(2,002,326)	$	2,183	$	870,774
										Deferred												Deferred
										Compensation												Compensation
						`		Treasury		Payable in								`		Treasury		Payable in
		Capital		Paid-in		Retained		Stock-		Company				Capital		Paid-in		Retained		Stock-		Company
		Stock		Capital		Earnings		at Cost		Stock		Total		Stock		Capital		Earnings		at Cost		Stock		Total
Balance at June 30, 2019		35,591		817,255		1,311,446		(1,548,138)		2,415		618,569
Balance at March 31, 2020														35,912		878,550		1,476,151		(1,709,390)		2,378		683,601
Net income		-		-		58,947		-		-		58,947		-		-		82,101		-		-		82,101
Dividends paid ($0.32 per share)		-		-		(5,090)		-		-		(5,090)		-		-		(5,108)		-		-		(5,108)
Stock awards and exercise of stock options		147		24,660		-		(24,775)		-		32		128		25,340		-		(13,995)		-		11,473
Other		-		(78)		-		69		(69)		(78)
Balance at September 30, 2019	$	35,738	$	841,837	$	1,365,303	$	(1,572,844)	$	2,346	$	672,380
For the nine months ended September 30, 2020 and 2019:										Deferred
										Compensation
								Treasury		Payable in
		Capital		Paid-in		Retained		Stock-		Company
		Stock		Capital		Earnings		at Cost		Stock		Total
Balance at December 31, 2019		35,811		860,671		1,425,752		(1,597,940)		2,314		726,608
Net income		-		-		205,714		-		-		205,714
Dividends paid ($0.98 per share)		-		-		(15,639)		-		-		(15,639)
Stock awards and exercise of stock options		326		64,948		-		(32,716)		-		32,558
Purchases of treasury stock		-		-		-		(147,123)		-		(147,123)		-		-		-		(21,914)		-		(21,914)
Other		-		(348)		(362)		(30)		30		(710)		-		531		-		-		12		543
Balance at September 30, 2020	$	36,137	$	925,271	$	1,615,465	$	(1,777,809)	$	2,344	$	801,408
										Deferred
										Compensation
								Treasury		Payable in
		Capital		Paid-in		Retained		Stock-		Company
		Stock		Capital		Earnings		at Cost		Stock		Total
Balance at December 31, 2018		35,311		774,358		1,225,617		(1,446,296)		2,344		591,334
Net income		-		-		154,343		-		-		154,343
Dividends paid ($0.92 per share)		-		-		(14,657)		-		-		(14,657)
Stock awards and exercise of stock options		427		67,149		-		(54,620)		-		12,956
Purchases of treasury stock		-		-		-		(71,926)		-		(71,926)
Other		-		330		-		(2)		2		330
Balance at September 30, 2019	$	35,738	$	841,837	$	1,365,303	$	(1,572,844)	$	2,346	$	672,380
Balance at June 30, 2020													$	36,040	$	904,421	$	1,553,144	$	(1,745,299)	$	2,390	$	750,696

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

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-6-


CHEMED CORPORATION AND SUBSIDIARY COMPANIES
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(in thousands, except per share data)
For the six months ended June 30, 2021 and 2020:										Deferred
										Compensation
								Treasury		Payable in
		Capital		Paid-in		Retained		Stock-		Company
		Stock		Capital		Earnings		at Cost		Stock		Total
Balance at December 31, 2020		36,259		961,404		1,723,777		(1,822,579)		2,339		901,200
Net income		-		-		121,922		-		-		121,922
Dividends paid ($0.68 per share)		-		-		(10,864)		-		-		(10,864)
Stock awards and exercise of stock options		126		37,637		-		(13,255)		-		24,508
Purchases of treasury stock		-		-		-		(166,649)		-		(166,649)
Other		-		656		-		157		(156)		657
Balance at June 30, 2021	$	36,385	$	999,697	$	1,834,835	$	(2,002,326)	$	2,183	$	870,774
										Deferred
										Compensation
								Treasury		Payable in
		Capital		Paid-in		Retained		Stock-		Company
		Stock		Capital		Earnings		at Cost		Stock		Total
Balance at December 31, 2019		35,811		860,671		1,425,752		(1,597,940)		2,314		726,608
Net income		-		-		137,992		-		-		137,992
Dividends paid ($0.64 per share)		-		-		(10,238)		-		-		(10,238)
Stock awards and exercise of stock options		229		44,312		-		(25,135)		-		19,406
Purchases of treasury stock		-		-		-		(122,148)		-		(122,148)
Other		-		(562)		(362)		(76)		76		(924)
Balance at June 30, 2020	$	36,040	$	904,421	$	1,553,144	$	(1,745,299)	$	2,390	$	750,696

The Notes to Consolidated Financial Statements are integral parts of these 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, ~~2019~~2020 balance sheet data were derived from audited financial statements but do not include all disclosures required by GAAP. However, in our opinion, the financial statements presented herein contain all adjustments, consisting only of normal recurring adjustments, necessary to state fairly our financial position, results of operations and cash flows. The results of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2020~~2021 or any other future period, and we make no representations related thereto. These financial statements are prepared on the same basis as and should be read in conjunction with the audited Consolidated Financial Statements and related ~~notes~~Notes included in our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~

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

~~CURRENT EXPECTED CREDIT LOSSES~~

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

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

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

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

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

In conjunction with its quarter and year to date September 30, 2020 closing process, subsequent to the adoption of ASU No. 2016-13, Roto-Rooter re-assessed its expected credit losses as a result of COVID-19. In addition to the historical provision matrix

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described above, and in conjunction with the quarterly assessment of current economic conditions and published default rates to evaluate credit risk over the life of the account, Roto-Rooter analyzed the industries from which the accounts receivable originated. Using available information and judgment, additional expected credit losses were recorded for industries deemed higher risk during the economic shut down, such as restaurants, hotels and bars. The additional charge taken for the three and nine months ended September 30, 2020 related to expected credit losses from COVID-19 issues was $185,000 and $1.1 million, respectively. The full economic impact as a result of COVID-19 and the related business shut-downs will not be known for some period of time. The amount recorded for the three and nine months ended September 30, 2020 represents management’s current best estimate.2020.

ADDITIONS
(CHARGED)
CREDITED
(CHARGED)
TO COSTS
CREDITED
BALANCE AT
AND
TO OTHER
BALANCE AT
1/1/2020
EXPENSES
ACCOUNTS
DEDUCTIONS
OTHER
9/30/2020
$
(353)
$
(1,052)
$
(475)
$
574
$
13
$
(1,293)

CORONAVIRUS AID, RELIEF AND ECONOMIC STIMULUS (CARES) ACT

The current COVID-19 pandemic did have a material impact on our results of operations, cash flow and financial position as of and for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. We are closely monitoring the impact of the pandemic on all aspects of our business including impacts to employees, customers, patients, suppliers and vendors. The Company’s two operating subsidiaries have been categorized as critical infrastructure businesses and are not currently materially limited by federal, state or local regulations that restrict movement or operating ability.

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

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

A portion of the CARES Act provides $100 billion from the Public Health and Social Services Emergency Fund (“Relief Fund”) to healthcare providers on the front lines of the coronavirus response. Of this distribution, $30 billion was designated to be automatically distributed to facilities and healthcare providers based upon their 2019 Medicare fee-for-service revenue.

On April 10, 2020 VITAS automatically received $80.2 million from the Relief Fund based upon VITAS’s 2019 Medicare fee-for-service Medicare revenue. The main condition that is attached to the grant is that the money will be used “only for health care related expenses or lost revenues that are attributable to coronavirus”. HHS guidance does not specifically designate what healthcare expenses are related to COVID-19. The guidance to date is general and broad but does provide some examples such as equipment and supplies, workforce training, reporting COVID-19 test results, securing separate facilities for COVID-19 patients and acquiring additional resources to expand or preserve care delivery. VITAS has cared for approximately ~~3,500~~3,200 COVID positive patients through ~~September~~June 30, ~~2020.~~2021.

The additional conditions to the Relief Fund payment are specific in nature, such as the money cannot be used for gun control advocacy purposes, abortions, embryo research, etc. The Company is in compliance, and intends to maintain compliance, with these specific conditions. Based on this analysis, management believes that there is reasonable assurance that VITAS will comply with the conditions.

Chemed and its subsidiaries have deferred ~~$22.9~~$36.4 million of certain employer payroll taxes as permitted by the CARES Act. $18.2 million is classified as short-term and $18.2 million is classified as a long-term liability.

During the period from May 1, 2020 through ~~December 31, 2020,~~June 30, 2021, the 2% Medicare sequestration reimbursement cut iswas suspended. For the three and ~~nine~~six month ~~period~~periods ended ~~September~~June 30, ~~2020~~2021, approximately ~~$6.3~~$5.9 million and ~~$10.5~~$11.9 million, respectively, was recognized as revenue due to the suspension of sequestration. In April 2021, legislation was signed into law that suspended sequestration through December 31, 2021.

There is no U.S. GAAP that covers accounting for such government “grants” to for-profit entities. As a result, the Company analogized to International Accounting Standard 20 – Accounting for Government Grants and Disclosures (“IAS 20”). Under IAS 20,

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once it is reasonably assured that the entity will comply with the conditions of the grant, the grant money should be recognized on a systematic basis over the periods in which the entity recognizes the related expenses or ~~losses.~~

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~~The components of the amount recognized are as follows, (in thousands):~~lost revenue.

Three months ended
Nine months ended
September 30, 2020
September 30, 2020
Incremental PTO
$
-
$
21,425
Hard costs
6,945
10,759
Incremental Medicare Cap
(2,250)
-
Lost revenue
(13,500)
-
Other operating (income)/expense
$
(8,805)
$
32,184

~~Hard costs are primarily expenses paid to outside vendors for personal protection equipment, COVID testing for front line workers, and deep cleaning~~All CARES Act funds received were fully recognized as of ~~in-patient facilities. In April, VITAS provided an extra two weeks of paid time off to all frontline workers.~~

~~During~~December 31, 2020. However, the ~~second quarter of 2020, VITAS recognized $2.3 million for anticipated additional Medicare Cap revenue reductions. The deterioration of admissions was not as severe as anticipated and therefore,~~rules concerning the ~~$2.3 million was reversed in the third quarter of 2020.~~

~~During the second quarter of 2020, VITAS recognized $13.5 million for estimated lost revenue as a result~~utilization of the ~~pandemic. On September 19, 2020, the U.S. Department of Health~~funds continue to evolve and Human Services (“HHS”) released additional guidance related to Relief Funds granted. Included in this guidance was clarification that lost revenue represents “a negative change in year-over-year net patient care operating income”. This is a significant change from the definition of lost revenue previously provided by HHS. As a result of these changes in facts and circumstances, the $13.5 million that was previously recognized was reversed in the third quarter of 2020. Wewe will continue to ~~monitor guidance provided~~comply with those applicable to us. The portal to report utilization of CARES Act funds opened on July 1, 2021. We intend to complete reporting by ~~HHS. Current guidance states that~~ the ~~Company has through June~~September 30, 2021 ~~to utilize the provider relief funding; any unutilized amounts remaining after June 30, 2021 will need to be returned to the government.~~

~~LEASE ACCOUNTING~~

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

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

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

CLOUD COMPUTING

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

As of ~~September~~June 30, ~~2020,~~2021, we have 2 cloud computing arrangements that are service contracts. Roto-Rooter is implementing a system to assist in technician dispatch and VITAS implemented a new human resources system. We have capitalized approximately ~~$9.2~~$9.1 million related to implementation of these projects which are included in prepaid assets in the accompanying balance sheets. The VITAS human resource system was placed into service in January 2020 and is being amortized over 5 years. For the three ~~and nine~~ months ended ~~September~~June 30, 2021 and 2020, ~~$282,000~~$249,000 and ~~$807,000~~$263,000, respectively, has been amortized. ~~There~~For the six months ended June 30, 2021 and 2020, $448,000 and $525,000, respectively, has been ~~no other amortization expense~~

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~~associated with the~~amortized. The Roto-Rooter project aswas placed into service during the ~~software~~second quarter of 2021. For the quarter and year to date ended June 30, 2021, $349,000 has ~~not yet~~ been ~~placed in service. We anticipate amortizing this asset over the original term of the arrangement plus renewal options that are reasonably certain of being exercised.~~amortized.

~~NON-EMPLOYEE STOCK COMPENSATION~~INCOME TAXES

In ~~June 2018,~~December 2019, the FASB issued Accounting Standards Update “ASU No. ~~2018-07~~2019-12 – ~~Compensation – Stock Compensation”~~Simplifying the Accounting for Income Taxes”. The ASU ~~expands the scope of current~~adds new guidance to ~~include all share-based payment arrangements related~~simplify accounting for income taxes, changes the accounting for certain income tax transactions and makes minor improvements to the ~~acquisition of goods and services from both non-employees and employees.~~codifications. The ~~guidance in the~~ ASU is effective for the Company ~~in all fiscal years beginning after December 15, 2018. Adoption~~on January 1, 2021. The impact of ~~this standard had no material impact on our Consolidated Financial Statements.~~

~~INCOME TAXES~~adoption was not material.

Our effective income tax rate was ~~17.0%~~24.7% in the ~~third~~second quarter of ~~2020~~2021 compared to ~~11.9%~~17.6% during the ~~third~~second quarter of ~~2019.~~2020. Excess tax benefit on stock options reduced our income tax expenses by ~~$7.2 million~~$868,000 and ~~$8.8~~$8.2 million, respectively for the quarters ended ~~September~~June 30, ~~2020~~2021 and ~~2019.~~2020.

Our effective income tax rate was ~~17.8%~~23.2% in the first ~~nine~~six months of ~~2020~~2021 compared to ~~15.2%~~18.1% during the first ~~nine~~six months of ~~2019.~~2020. Excess tax benefit on stock options reduced our income tax expenses by ~~$19.9~~$4.1 million and ~~$18.7~~$12.8 million, respectively for the first ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019.~~2020.

NON-CASH TRANSACTIONS

Included in the accompanying Consolidated Balance Sheets are ~~$979,000~~$1.6 million and ~~$1.8~~$3.9 million of capitalized property and equipment which were not paid for as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. ~~These amounts~~Accrued property and equipment purchases have been excluded from capital expenditures in the accompanying Consolidated Statements of Cash Flow. There are no material non-cash amounts included in interest expense for any period presented.

BUSINESS COMBINATIONS

We account for acquired businesses using the acquisition method of accounting. All assets acquired and liabilities assumed are recorded at their respective fair values at the date of acquisition. The determination of fair value involves estimates and the use of valuation techniques when market value is not readily available. We use various techniques to determine fair value in accordance with accepted valuation models, primarily the income approach. The significant assumptions used in developing fair values include, but are not limited to, revenue growth rates, the amount and timing of future cash flows, discount rates, useful lives, royalty rates and future tax rates. The excess of purchase price over the fair value of assets and liabilities acquired is recorded as goodwill. See ~~footnote 17~~Note 16 for discussion of recent acquisitions.

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

ESTIMATES

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

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2. Revenue Recognition

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

VITAS

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

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

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

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

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

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

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

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Care is provided to patients regardless of their ability to pay. Patients who meet our criteria for charity care are provided care without charge. There is no revenue or associated accounts receivable in the accompanying Consolidated Financial Statements related to charity care. The cost of providing charity care during the quarters ended ~~September~~June 30, 2021 and 2020 ~~and 2019~~ was ~~$2.1~~$2.3 million and ~~$2.3~~$1.7 million, respectively. The cost of providing charity care during the ~~nine~~first six months ended ~~September~~June 30, 2021 and 2020 ~~and 2019~~ was ~~$6.1~~$4.4 million and ~~$6.6~~$3.9 million, respectively. The cost of charity care is included in cost of services provided and goods sold and is calculated by taking the ratio of charity care days to total days of care and multiplying by the total cost of care.

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

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related to subsequent changes in the estimate of the transaction price or subsequent changes as the result of an adverse change in the patient’s ability to pay for any period reported.

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

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

Inpatient Cap. If the number of inpatient care days any hospice program provides to Medicare beneficiaries exceeds 20% of the total days of hospice care such program provided to all Medicare patients for an annual period beginning September 28, the days in excess of the 20% figure may be reimbursed only at the routine homecare rate. None of VITAS’ hospice programs exceeded the payment limits on inpatient services during the three ~~and nine~~ months ended ~~September~~June 30, ~~2020~~2021 and ~~2019.~~2020.

Medicare Cap. We are also subject to a Medicare annual per-beneficiary cap (“Medicare cap”). Compliance with the Medicare cap is measured in one of two ways based on a provider election. The “streamlined” method compares total Medicare payments received under a Medicare provider number with respect to services provided to all Medicare hospice care beneficiaries in the program or programs covered by that Medicare provider number with the product of the per-beneficiary cap amount and the number of Medicare beneficiaries electing hospice care for the first time from that hospice program or programs from September 28 through September 27 of the following year. At ~~September~~June 30, ~~2020,~~2021, all our programs except one are using the “streamlined” method.

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

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

In 2013, the U.S. government implemented automatic budget reductions of 2.0% for all government payees, including hospice benefits paid under the Medicare program. In 2015, CMS determined that the Medicare cap should be calculated “as if” sequestration did not occur. As a result of this decision, VITAS has received notification from our third-party intermediary that an additional $8.7

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million is owed for Medicare cap in three programs arising during the 2013 through 2020 measurement periods. The amounts are automatically deducted from our semi-monthly PIP payments. We do not believe that CMS is authorized under the sequestration authority or the statutory methodology for establishing the Medicare cap to the amounts they have withheld and intend to withhold under their current “as if” methodology. We have appealed CMS’s methodology change. Pursuant to the recent legislation and the April extension, the sequestration has been lifted for the period from May 1, 2020 through December 31, ~~2020.~~2021.

During the quarter ended ~~September~~June 30, ~~2020, we recorded a reversal of $4.1 million in net Medicare cap revenue reduction for the 2020 government fiscal year. During the quarter ended September 30, 2019,~~2021, we recorded $~~1.3~~2.0 million in net Medicare cap revenue reduction related to ~~four~~two programs for the ~~2019~~2021 government fiscal year.

During the ~~first nine months~~quarter ended ~~September~~June 30, 2020, we recorded $~~4.2~~5.8 million in net Medicare cap revenue reduction related to five programs for the 2020 government fiscal year.

During the first ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2021, we recorded $~~7.1~~3.5 million in net Medicare cap revenue reduction related to ~~four~~two programs for the ~~2019~~2021 government fiscal year. ~~Additionally,~~During the first six months ended June 30, 2020, we recorded ~~$847,000~~$8.3 million in net Medicare cap revenue reduction related to ~~adjustments of prior year cap liabilities.~~five programs for the 2020 government fiscal year.

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

The composition of patient care service revenue by payor and level of care for the quarter ended ~~September~~June 30, ~~2020~~2021 is as follows (in thousands):



	Medicare		Medicaid		Commercial		Total		Medicare		Medicaid		Commercial		Total
Routine home care	$	260,658	$	12,107		6,091	$	278,856	$	247,061	$	11,509		6,356	$	264,926
Continuous care		27,739		1,364		1,596		30,699		22,010		1,237		1,035		24,282
Inpatient care		24,199		2,415		1,019		27,633		23,905		2,069		1,397		27,371
	$	312,596	$	15,886	$	8,706	$	337,188	$	292,976	$	14,815	$	8,788	$	316,579

All other revenue - self-pay, respite care, etc.								2,910								3,078
Subtotal							$	340,098							$	319,657
Medicare cap adjustment								4,072								(2,000)
Implicit price concessions								(3,784)								(3,065)
Room and board, net								(3,289)								(2,657)
Net revenue							$	337,097							$	311,935

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

Medicare
Medicaid
Commercial
Total
Routine home care
$
255,856
$
12,332
$
6,558
$
274,746
Continuous care
26,423
1,549
1,474
29,446
Inpatient care
20,038
1,976
1,585
23,599
$
302,317
$
15,857
$
9,617
$
327,791
All other revenue - self-pay, respite care, etc.
2,356
Subtotal
$
330,147
Medicare cap adjustment
(1,317)
Implicit price concessions
(4,236)
Room and board, net
(2,846)
Net revenue
$
321,748

~~The composition of patient care service revenue by payor and level of care for the nine months ended September~~June 30, 2020 is as follows (in thousands):


	Medicare		Medicaid		Commercial		Total		Medicare		Medicaid		Commercial		Total
Routine home care	$	772,162	$	36,914	$	17,878	$	826,954	$	257,550	$	12,673	$	6,122	$	276,345
Continuous care		96,354		4,856		4,626		105,836		31,483		1,622		1,477		34,582
Inpatient care		74,796		7,285		3,902		85,983		22,448		2,311		1,109		25,868
	$	943,312	$	49,055	$	26,406	$	1,018,773	$	311,481	$	16,606	$	8,708	$	336,795

All other revenue - self-pay, respite care, etc.								8,175								2,109
Subtotal							$	1,026,948							$	338,904
Medicare cap adjustment								(4,178)								(5,750)
Implicit price concessions								(10,976)								(3,042)
Room and board, net								(9,317)								(2,647)
Net revenue							$	1,002,477							$	327,465

‎

-1312-

The composition of patient care service revenue by payor and level of care for the ~~nine~~six months ended ~~September 30, 2019~~June 30,2021 is as follows (in thousands):


	Medicare		Medicaid		Commercial		Total
Routine home care	$	493,125	$	23,088	$	12,467	$	528,680
Continuous care		46,917		2,496		2,218		51,631
Inpatient care		49,346		4,539		2,642		56,527
	$	589,388	$	30,123	$	17,327	$	636,838

All other revenue - self-pay, respite care, etc.								6,016
Subtotal							$	642,854
Medicare cap adjustment								(3,500)
Implicit price concessions								(6,309)
Room and board, net								(5,322)
Net revenue							$	627,723

The composition of patient care service revenue by payor and level of care for the six months ended June 30, 2020 is as follows (in thousands):


	Medicare		Medicaid		Commercial		Total		Medicare		Medicaid		Commercial		Total
Routine home care	$	745,835	$	35,913	$	18,311	$	800,059	$	511,505	$	24,806	$	11,787	$	548,098
Continuous care		83,372		4,744		4,360		92,476		68,615		3,493		3,029		75,137
Inpatient care		58,309		6,241		4,513		69,063		50,596		4,870		2,884		58,350
	$	887,516	$	46,898	$	27,184	$	961,598	$	630,716	$	33,169	$	17,700	$	681,585

All other revenue - self-pay, respite care, etc.								6,598								5,265
Subtotal							$	968,196							$	686,850
Medicare cap adjustment								(7,915)								(8,250)
Implicit price concessions								(10,904)								(7,192)
Room and board, net								(8,098)								(6,028)
Net revenue							$	941,279							$	665,380

Roto-Rooter

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

Roto-Rooter owns and operates branches focusing mainly on large population centers in the United States. Roto-Rooter’s primary lines of business in company-owned branches consist of plumbing, sewer and drain cleaning, excavation and water restoration. For purposes of ASC 606 analysis, plumbing, sewer and drain cleaning, and excavation have been combined into one portfolio and are referred to as “short-term core services”. Water restoration is analyzed as a separate portfolio. The following describes the key characteristics of these portfolios:

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

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

Water Restoration Services involve the remediation of water and humidity after a flood. These services are provided to both commercial and residential customers. The duration of services provided in this category generally ranges from 3 to 5 days. There are

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no significant warranties or on-going obligations to the customer once service has been completed. The majority of these services are paid by the customer’s insurance company. Variable consideration relates primarily to allowances taken by insurance companies upon payment. Variable consideration is estimated based on historical activity and recorded at the time service is completed.

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

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

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management of the business including staffing decisions and pricing of services provided. All performance obligations of Roto-Rooter cease at the termination of the arrangement.

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

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

Franchisees pay Roto-Rooter a standard monthly fee based on the population within the franchise territory. The standard fee is revised on a yearly basis based on changes in the Consumer Price Index for All Urban Consumers. The primary value for the franchisees under this arrangement is the right to use Roto-Rooter’s registered trademarks. Roto-Rooter recognizes revenue from franchisees over-time (monthly). Payment from franchisees is also received on a monthly basis. The use of Roto-Rooter’s registered trademarks and advertising provides immediate value to the franchisees as a result of Roto-Rooter’s nationally recognized brand. Therefore, over-time recognition provides the most faithful depiction of the transfer of services as the customer simultaneously receives and consumes the benefits provided. There is no significant variable consideration related to these arrangements.

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


	September 30,				June 30,
	2020		2019		2021		2020
Short-term core service jobs	$	143,089	$	116,277	$	162,683	$	126,541
Water restoration		32,137		27,642		38,583		31,426
Contractor revenue		16,274		14,359		19,026		15,193
Franchise fees		1,235		1,819		1,255		1,210
All other		3,332		2,791		3,882		2,971
Subtotal	$	196,067	$	162,888	$	225,429	$	177,341
Implicit price concessions and credit memos		(4,867)		(4,023)		(5,108)		(2,607)
Net revenue	$	191,200	$	158,865	$	220,321	$	174,734

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


	September 30,				June 30,
	2020		2019		2021		2020
Short-term core service jobs	$	404,054	$	344,673	$	318,032	$	260,965
Water restoration		92,810		86,804		76,018		60,672
Contractor revenue		47,695		42,986		37,785		31,421
Franchise fees		3,635		5,063		2,582		2,400
All other		9,836		8,773		7,828		6,505
Subtotal	$	558,030	$	488,299	$	442,245	$	361,963
Implicit price concessions and credit memos		(14,213)		(13,347)		(10,352)		(9,346)
Net revenue	$	543,817	$	474,952	$	431,893	$	352,617

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3. Segments

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



	Three months ended September 30,				Nine months ended September 30,				Three months ended June 30,				Six months ended June 30,
	2020		2019		2020		2019		2021		2020		2021		2020

VITAS	$	45,737	$	39,773	$	147,262	$	106,400	$	29,712	$	60,245	$	70,481	$	101,524
Roto-Rooter		31,176		26,140		84,966		76,302		42,773		29,468		79,950		53,790
Total		76,913		65,913		232,228		182,702		72,485		89,713		150,431		155,314
Corporate		(9,191)		(6,966)		(26,514)		(28,359)		(15,963)		(7,612)		(28,509)		(17,322)
Net income	$	67,722	$	58,947	$	205,714	$	154,343	$	56,522	$	82,101	$	121,922	$	137,992

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
2020
Earnings
$
67,722
15,940
$
4.25
Dilutive stock options
-
358
Nonvested stock awards
-
75
Diluted earnings
$
67,722
16,373
$
4.14
2019
Earnings
$
58,947
15,970
$
3.69
Dilutive stock options
-
500
Nonvested stock awards
-
85
Diluted earnings
$
58,947
16,555
$
3.56


			Net Income
For the Three Months Ended June 30,		Income		Shares	Earnings per Share
2021
	Earnings	$	56,522	15,829	$	3.57
	Dilutive stock options		-	235
	Nonvested stock awards		-	37
	Diluted earnings	$	56,522	16,101	$	3.51

2020
	Earnings	$	82,101	15,914	$	5.16
	Dilutive stock options		-	383
	Nonvested stock awards		-	76
	Diluted earnings	$	82,101	16,373	$	5.01

‎

Net Income
For the Nine Months Ended September 30,
Income
Shares
Earnings per Share
2020
Earnings
$
205,714
15,948
$
12.90
Dilutive stock options
-
394
Nonvested stock awards
-
77
Diluted earnings
$
205,714
16,419
$
12.53
2019
Earnings
$
154,343
15,952
$
9.68
Dilutive stock options
-
484
Nonvested stock awards
-
78
Diluted earnings
$
154,343
16,514
$
9.35

-15-


			Net Income
For the Six Months Ended June 30,		Income		Shares	Earnings per Share
2021
	Earnings	$	121,922	15,919	$	7.66
	Dilutive stock options		-	242
	Nonvested stock awards		-	44
	Diluted earnings	$	121,922	16,205	$	7.52

2020
	Earnings	$	137,992	15,953	$	8.65
	Dilutive stock options		-	415
	Nonvested stock awards		-	77
	Diluted earnings	$	137,992	16,445	$	8.39

For the three and six months ended ~~September~~June 30, ~~2020,~~2021, there were 0235,000 and 242,000, respectively, stock options ~~excluded from the computation of dilutive earnings per share because they would have been anti-dilutive.~~

~~For the nine months ended September 30, 2020, there~~ were ~~277,000 stock options~~ excluded from the computation of dilutive earnings per share because they would have been anti-dilutive.

For the three and six months ended ~~September~~June 30, ~~2019,~~2020, there were ~~0 stock options excluded from the computation of dilutive earnings per share because they would have been anti-dilutive.~~

-16-

~~For the nine months ended September 30, 2019, there were 246,000~~285,000 stock options excluded from the computation of dilutive earnings per share because they would have been anti-dilutive.

5. Long-Term Debt and Lines of Credit

On June 20, 2018, we replaced our existing credit agreement with the Fourth Amended and Restated Credit Agreement (“2018 Credit Agreement”). Terms of the 2018 Credit Agreement consist of a five year, $450 million revolving credit facility and a $150 million expansion feature, which may consist of term loans or additional revolving commitments. The interest rate at the inception of the agreement is LIBOR plus 100 basis points. The 2018 Credit Agreement has a floating interest rate that is generally LIBOR plus a tiered additional rate which varies based on our current leverage ratio. The 2018 Credit Agreement includes transition provisions in the instance LIBOR is no longer published or used as an industry-accepted rate.

There is 0 debt outstanding as of ~~September~~June 30, ~~2020.~~2021.

The 2018 Credit Agreement contains the following quarterly financial covenants effective as of ~~September~~June 30, ~~2020:~~2021:



Description		Requirement

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

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

We are in compliance with all debt covenants as of ~~September~~June 30, ~~2020.~~2021. We have issued ~~$37.9~~$46.3 million in standby letters of credit as of ~~September~~June 30, ~~2020,~~2021, mainly for insurance purposes. Issued letters of credit reduce our available credit under the 2018 Credit Agreement. As of ~~September~~June 30, ~~2020,~~2021, we have approximately ~~$412.1~~$403.7 million of unused lines of credit available and eligible to be drawn down under our revolving credit facility.

6. Other ~~Operating Expenses/(Income)~~

Three months ended September 30,
Nine months ended September 30,
2020
2019
2020
2019
CARES Act grant
$
8,805
$
-
$
(32,184)
$
-
Litigation settlement
3,095
-
3,095
6,000
Loss on disposal of fixed assets
307
78
154
735
Transportation equipment held for sale
-
-
-
2,266
Total other operating expenses/(income)
$
12,207
$
78
$
(28,935)
$
9,001

~~See Footnote 1 for further discussion of the accounting for the CARES Act grant.~~

~~7. Other Income~~Income/(Expense) – Net

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



	Three months ended September 30,				Nine months ended September 30,				Three months ended June 30,				Six months ended June 30,
	2020		2019		2020		2019		2021		2020		2021		2020
Market value adjustment on assets held in	Market value adjustment on assets held in								Market value adjustment on assets held in
deferred compensation trust	$	7,256	$	2,886	$	5,093	$	5,094	$	3,655	$	7,408	$	6,693	$	(2,164)
Interest income		423		173		647		387		138		116		230		225
Other-net		(4)		(23)		(17)		7		(8)		(10)		464		(13)
Total other income - net	$	7,675	$	3,036	$	5,723	$	5,488
Total other income/(expense) - net									$	3,785	$	7,514	$	7,387	$	(1,952)

8.-16-

7. Leases

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

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

-17-

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


	‎September 30,		‎December 31,		‎June 30,		‎December 31,
	2020		2019		2021		2020
Assets
Operating lease assets	$	120,382	$	111,652	$	123,207	$	123,448

Liabilities
Current operating leases		33,311		39,280		36,440		36,200
Noncurrent operating leases		99,241		86,656		99,093		99,210
Total operating lease liabilities	$	132,552	$	125,936	$	135,533	$	135,410

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


	Three months ended September 30,				Three months ended June 30,
	2020		2019		2021		2020
Lease Expense (a)
Operating lease expense	$	15,277	$	12,728	$	15,550	$	15,103
Sublease income		(31)		-		(46)		(7)
Net lease expense	$	15,246	$	12,728	$	15,504	$	15,096

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


	Nine months ended September 30,				Six months ended June 30,
	2020		2019		2021		2020
Lease Expense (a)
Operating lease expense	$	45,007	$	35,181	$	30,911	$	29,731
Sublease income		(38)		(6)		(90)		(7)
Net lease expense	$	44,969	$	35,175	$	30,821	$	29,724

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

‎

-17-

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


	Nine months ended ‎September 30,				Six months ended ‎June 30,
	2020		2019		2021		2020
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from leases	$	37,393	$	30,237	$	25,901	$	24,967

Leased assets obtained in exchange for new operating lease liabilities	$	44,366	$	38,890	$	25,685	$	40,133


Weighted Average Remaining Lease Term at ~~September~~June 30, ~~2020~~2021
Operating leases	~~5.1~~4.9	years


Weighted Average Discount Rate at ~~September~~June 30, ~~2020~~2021
Operating leases	~~2.98~~2.56	%


Maturity of Operating Lease Liabilities (in thousands)

2020	$	11,344
2021		39,588	$	23,050
2022		29,719		35,336
2023		22,767		27,905
2024		16,931		21,414
2025				15,163
Thereafter		27,738		21,414
Total lease payments	$	148,087	$	144,282
Less: interest		(10,977)		(8,749)
Less: future lease obligations not yet commenced		(4,558)
Total liability recognized on the balance sheet	$	132,552	$	135,533

-18-

For leases commencing prior to April 2019, minimum rental payments exclude payments to landlords for real estate taxes and common area maintenance. Operating lease payments include $2.3 million related to extended lease terms that are reasonably certain of being exercised and exclude ~~$4.6~~$2.1 million of lease payments for leases signed but not yet commenced.

9.8. Stock-Based Compensation Plans

On February ~~21, 2020,~~19, 2021, the Compensation/Incentive Committee of the Board of Directors (“CIC”) granted ~~5,156~~6,277 Performance Stock Units (“PSUs”) contingent upon the achievement of certain total shareholder return (“TSR”) targets as compared to the TSR of a group of peer companies for the three year period ending December 31, ~~2022,~~2023, the date at which such awards vest. The cumulative compensation cost of the TSR-based PSU award to be recorded over the three year service period is ~~$3.3~~$3.8 million.

On February ~~21, 2020,~~19, 2021, the CIC also granted ~~5,156~~6,277 PSUs contingent upon the achievement of certain earnings per share (“EPS”) targets for the three year period ending December 31, ~~2022.~~2023. At the end of each reporting period, the Company estimates the number of shares that it believes will ultimately be earned and records the corresponding expense over the service period of the award. We currently estimate the cumulative compensation cost of the EPS-based PSUs to be recorded over the three year service period is ~~$5.0~~$3.1 million.

~~10.~~

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

Three months ended September 30,
Nine months ended September 30,
2020
2019
2020
2019
$
11,506
$
6,445
$
18,445
$
17,155



Three months ended June 30,				Six months ended June 30,
2021		2020		2021		2020
$	7,904	$	11,354	$	16,603	$	6,940

~~11.~~10. Legal and Regulatory Matters

-18-

withholding, or debarment, as well as to lawsuits, including qui tam actions. The following sections describe the various ongoing material lawsuits and investigations of which the Company is currently aware. Other than as described below, it is not possible at this time for us to estimate either the timing or outcome of any of those matters, or whether any potential loss, or range of potential losses, is probable or reasonably estimable.

Regulatory Matters and Litigation

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

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

The Company entered into a settlement agreement in March 2019 that ~~will resolve~~resolved the California state-wide wage and hour class action claims raised in four separate cases: (1) Jordan A. Seper on behalf of herself and others similarly situated v. VITAS Healthcare Corporation of California, a Delaware corporation; VITAS Healthcare Corp of CA, a business entity unknown; and DOES 1 to 100, inclusive; Los Angeles Superior Court Case Number BC 642857 (“Seper”); (2) Jiwan Chhina v. VITAS Health Services of California, Inc., a California corporation; VITAS Healthcare Corporation of California, a Delaware corporation; VITAS Healthcare Corporation of California, a Delaware corporation dba VITAS Healthcare Inc.; and DOES 1 to 100, inclusive; San Diego Superior Court Case Number 37-2015-00033978-CU-OE-CTL (“Chhina”) (which was subsequently merged with Seper); (3) Chere Phillips and Lady Moore v. VITAS Healthcare Corporation of California, Sacramento County Superior Court, Case No. 34-2017-0021-2755 (“Phillips and Moore”); and (4) Williams v. VITAS Healthcare Corporation of California, Alameda County Superior Court Case No. RG 17853886 (“Williams”).

-19-

These actions were brought by both current and former employees including a registered nurse, a licensed vocational nurse (LVN), home health aides and a social worker. Each action stated multiple claims generally including (1) failure to pay minimum wage for all hours worked; (2) failure to provide overtime for all hours worked; (3) failure to pay wages for all hours at the regular rate; (4) failure to provide meal periods; (5) failure to provide rest breaks; (6) failure to provide complete and accurate wage statements; (7) failure to pay for all reimbursement expenses; (8) unfair business practices; and (9) violation of the California Private Attorneys General Act. The cases generally asserted claims on behalf of classes defined to include all current and former non-exempt employees employed with VITAS in California within the four years preceding the filing of each lawsuit.~~For additional procedural history of these cases, please refer to our prior quarterly and annual filings.~~

The settlement amount of $5.75 million plus employment taxes was recorded in the first quarter of 2019. ~~As of December 31, 2019, $6.0 million was accrued in the accompanying Consolidated Balance Sheet.~~ The definition of the class to participate in the settlement is intended to cover claims raised in the consolidated Seper/Chhina matter, claims raised in Phillips and Moore, as well as any class claims in Williams. ~~On January 28, 2020, the~~The court granted ~~preliminary approval of the settlement. A notice of the proposed settlement has been sent to the members of the class by the class claims administrator. The court has re-set the date for the~~ final approval of the settlement hearing ~~for~~in December ~~8, 2020.~~of 2020 and the settlement was paid in the first quarter of 2021.

Alfred Lax (“Lax”), a former employee of Roto-Rooter Services Company (“RRSC”) filed a class action lawsuit in Santa Clara County Superior Court in November of 2018 alleging (1) failure to provide or compensate for required rest breaks; (2) failure to properly pay for all hours worked; (3) failure to provide accurate wage statements; (4) failure to reimburse for work-related expenses; and (5) unfair business practices. Lax stated these claims as a representative of a class defined as all service technicians employed by RRSC in California during the four years preceding the filing of the complaint. He sought a determination that the action may proceed and be maintained as a class action and for compensatory and statutory damages (premium payments for missed rest periods, uncompensated rest periods, wages for time allegedly not paid such as travel time, repair time, and vehicle maintenance time, and unreimbursed expenses), penalties and restitutions, pre- and post-judgement interest and attorneys’ fees and costs. The lawsuit is, Alfred Lax on behalf of himself and all others similarly situated v. Roto-Rooter Services Company, and Does 1 through 50 inclusive; Santa Clara County Superior Court Case Number 18CV338652. The Company entered into a settlement agreement in August 2020 to resolve the allegations, for a settlement amount of $2.6 million plus employment taxes. The settlement includes technicians in its Menlo Park and Bristol locations. The settlement was recorded in the third quarter of 2020. ~~As of September 30, 2020, $3.1 million was accrued in the accompanying Consolidated Balance Sheet. A hearing for preliminary~~Final approval of the settlement ~~is scheduled for November 19, 2020.~~was granted in the first quarter of 2021 and the settlement was paid.

On October 16, 2020, VITAS received a Civil Investigative Demand (“CID”) issued by the U.S. Department of Justice pursuant to the False Claims Act concerning allegations of the submission of false claims for hospice services for which reimbursement was sought from federal healthcare programs, including Medicare. The CID has requested information regarding 32 patients from our Florida operations. We are cooperating with the U.S. Department of Justice with respect to this investigation. The Company cannot predict when the investigation will be resolved or the outcome of the investigation.

-19-

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

As of ~~September~~June 30, ~~2020,~~2021, and December 31, ~~2019,~~2020, approximately ~~67%~~68% and ~~71%~~74%, respectively, of VITAS’ total accounts receivable balance were from Medicare and ~~26%~~24% and ~~24%~~20%, respectively, of VITAS’ total accounts receivable balance were due from various state Medicaid or managed Medicaid programs. Combined accounts receivable from Medicare, Medicaid, and managed Medicaid represent approximately ~~80%~~75% of the consolidated net accounts receivable in the accompanying consolidated balance sheets as of ~~September~~June 30, ~~2020.~~2021.

VITAS has a pharmacy services contract with 1 service provider for specified pharmacy services related to its hospice operations. A large majority of VITAS’ pharmaceutical purchases are from this vendor. The pharmaceuticals purchased by VITAS are available through many providers in the United States. However, a disruption from VITAS’ main service provider could adversely impact VITAS’ operations, including temporary logistical challenges and increased cost associated with getting medication to our patients.

~~13.~~12. Cash Overdrafts and Cash Equivalents

There are 0 cash overdrafts payable included in accounts payable at ~~September~~June 30, ~~2020 (December~~2021 or December 31, ~~2019 - $9.8 million).~~2020.

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

-20-

~~14.~~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~~June 30, ~~2020~~2021 (in thousands):


				Fair Value Measure								Fair Value Measure
		Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Mutual fund investments of deferred
compensation plans held in trust	$	86,865	$	86,865	$	-	$	-	$	98,256	$	98,256	$	-	$	-
Total debt		-		-		-		-

The following shows the carrying value, fair value and the hierarchy for our financial instruments as of December 31, ~~2019~~2020 (in thousands):


				Fair Value Measure								Fair Value Measure
		Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Mutual fund investments of deferred
compensation plans held in trust	$	77,446	$	77,446	$	-	$	-	$	88,811	$	88,811	$	-	$	-
Total debt		90,000		-		90,000		-

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

‎

~~15.~~-20-

14. Capital Stock Repurchase Plan Transactions

We repurchased the following capital stock:



	Three months ended September 30,				Nine months ended September 30,				Three months ended June 30,				Six months ended June 30,
	2020		2019		2020		2019		2021		2020		2021		2020

Total cost of repurchased shares (in thousands)	$	24,975	$	-	$	147,123	$	71,926	$	121,882	$	21,914	$	166,649	$	122,148
Shares repurchased		50,000		-		325,000		219,009		250,000		50,000		350,000		275,000
Weighted average price per share	$	499.48	$	-	$	452.69	$	328.41	$	487.52	$	438.27	$	476.14	$	444.18

In ~~March 2020,~~May 2021, the Board of Directors authorized an additional ~~$250.0~~$300.0 million for stock repurchase under Chemed’s existing share repurchase program. We currently have ~~$206.9~~$311.8 million of authorization remaining under this share repurchase plan.

~~16.~~15. Recent Accounting Standards

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

-21-

In December 2019, the FASB issued Accounting Standards Update “ASU No. 2019-12 – Simplifying the Accounting for Income Taxes”. The ASU adds new guidance to simplify accounting for income taxes, changes the accounting for certain income tax transactions and makes minor improvements to the codifications. The ASU is effective for the Company on January 1, 2021. We are currently evaluating the impact of this standard on our consolidated financial statements.

~~17.~~16. Acquisitions

On June 1, 2020, we completed the acquisition of a Roto-Rooter franchise and the related assets in Bloomington, IN for $2.2 million in cash.

On August 2, 2019, we entered into an Asset Purchase Agreement (the “Agreement”) to purchase substantially all of the assets of HSW RR, Inc., a Delaware corporation (“HSW”) and certain related assets of its affiliates, for $120 million, subject to a working capital adjustment that resulted in an additional $1.4 million payment to HSW. HSW owned and operated fourteen Roto-Rooter franchises mainly in the southwestern section of the United States, including Los Angeles, Dallas and Phoenix. Included in the assets purchased were the assets of Western Drain Supply, Inc., a plumbing supply company. The purchase was made using a combination of cash on-hand and borrowings under Chemed’s existing $450 million revolving credit facility. ~~On September 16, 2019, we completed the acquisition.~~

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

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

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

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

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

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

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

Three months ended September 30,
Nine months ended September 30,
2020
2019
2020
2019
$
2,352
$
331
$
7,056
$
1,103

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

-22-

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

The pro forma revenue and earnings of the Company for the three and nine months ended September 30, as if all acquisitions made in fiscal 2020 and 2019 were completed on January 1, 2019, are as follows: (in thousands, except per share data):

Three months ended September 30,
Nine months ended September 30,
2020
2019
2020
2019
Service revenues and sales
$
528,297
$
500,289
$
1,546,674
$
1,480,432
Net income
$
67,722
$
62,194
$
205,773
$
164,679
Earnings per share
$
4.25
$
3.89
$
12.90
$
10.32
Diluted earnings per share
$
4.14
$
3.76
$
12.53
$
9.97

Shown below is movement in Goodwill (in thousands):

VITAS
Roto-Rooter
Total
Balance at December 31, 2019
$
333,331
$
244,036
$
577,367
Business combinations
-
1,193
1,193
Foreign currency adjustments
-
(41)
(41)
Balance at September 30, 2020
$
333,331
$
245,188
$
578,519


	VITAS		Roto-Rooter		Total
Balance at December 31, 2020	$	333,331	$	245,254	$	578,585
Foreign currency adjustments		-		65		65
Balance at June 30, 2021	$	333,331	$	245,319	$	578,650

‎

-2321-

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

Executive Summary

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

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



	Three months ended September 30,						Nine months ended September 30,						Three months ended June 30,						Six months ended June 30,
	2020			2019			2020			2019			2021			2020			2021			2020
Service revenues and sales	$	528,297		$	480,613		$	1,546,294		$	1,416,231		$	532,256		$	502,199		$	1,059,616		$	1,017,997
Net income	$	67,722		$	58,947		$	205,714		$	154,343		$	56,522		$	82,101		$	121,922		$	137,992
Diluted EPS	$	4.14		$	3.56		$	12.53		$	9.35		$	3.51		$	5.01		$	7.52		$	8.39
Adjusted net income	$	79,556		$	57,213		$	212,494		$	160,603		$	74,100		$	72,223		$	146,470		$	132,938
Adjusted diluted EPS	$	4.86		$	3.46		$	12.94		$	9.73		$	4.60		$	4.41		$	9.04		$	8.08
Adjusted EBITDA	$	117,805		$	86,907		$	319,576		$	246,794		$	110,948		$	108,741		$	219,467		$	201,770
Adjusted EBITDA as a % of revenue		22.3	%		18.1	%		20.7	%		17.4	%		20.8	%		21.7	%		20.7	%		19.8	%

Adjusted net income, adjusted diluted EPS, earnings before interest, taxes and depreciation and amortization (“EBITDA”), Adjusted EBITDA and Adjusted EBITDA as a percent of revenue are not measures derived in accordance with US GAAP. We provide non-GAAP measures to help readers evaluate our operating results and to compare our operating performance with that of similar companies that have different capital structures. Our non-GAAP measures should not be considered in isolation or as a substitute for comparable measures presented in accordance with GAAP. A reconciliation of our non-GAAP measures is presented on pages ~~39-41.~~35-37.

For the three months ended ~~September~~June 30, ~~2020,~~2021, the increase in consolidated service revenues and sales was driven by an ~~20.4%~~26.1% increase at Roto-Rooter ~~and~~offset by a ~~4.8% increase~~4.7% decrease at VITAS. The increase in service revenues at Roto-Rooter was driven by an increase in ~~almost~~ all major service ~~lines for residential customers as well as a result of acquisitions completed in 2019.~~lines. Roto-Rooter’s second quarter 2020 revenue was significantly impacted by shut-downs resulting from the COVID pandemic. The ~~increase~~decrease in service revenues at VITAS is comprised primarily of a ~~$5.4 million reduction~~6.3% decrease in ~~Medicare Cap contra-revenue,~~days-of-care offset by a geographically weighted average Medicare reimbursement rate increase (including the suspension of sequestration on May 1, 2020) of approximately ~~5.7%, and acuity~~1.8%. Acuity mix shift ~~which reduced~~had a net impact of reducing revenue approximately $3.8 million, or 1.2% in the ~~blended average~~quarter when compared to the prior year revenue and level-of-care mix. The combination of a lower Medicare ~~rate increase~~cap revenue reduction and other contra revenue changes offset a portion of the revenue decline by approximately ~~2.4% offset by a 0.2% decrease in days-of-care.~~90 basis points. See page 4238 for additional VITAS operating metrics.

For the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, the increase in consolidated service revenues and sales was driven by a ~~14.5%~~22.5% increase at Roto-Rooter ~~and~~offset by a ~~6.5% increase~~5.7% decrease at VITAS. The increase in service revenues at Roto-Rooter was driven by an increase in ~~almost~~ all major service ~~lines for residential customers as well as a result of acquisitions completed in 2019.~~lines. Roto-Rooter’s first six months 2020 revenue was significantly impacted by the COVID pandemic. The ~~increase~~decrease in service revenues at VITAS is comprised primarily of a ~~2.8% increase~~6.7% decrease in days-of-care offset by a geographically weighted average Medicare reimbursement rate increase (including the suspension of sequestration on May 1, 2020) of approximately ~~5.4%, and acuity~~1.7%. Acuity mix shift ~~which reduced~~had a net impact of reducing revenue approximately $9.1 million, or 1.4% in the ~~blended~~quarter when compared to the prior year revenue and level-of-care mix. The combination of a lower Medicare ~~rate increase~~cap revenue reduction and other contra revenue changes offset a portion of the revenue decline by approximately ~~2.1%.~~70 basis points. See page 4238 for additional VITAS operating metrics.

The current COVID-19 pandemic did have a material impact on our business operations, results of operations, cash flow and financial position as of and for the three months and ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021 and 2020, respectively. We are closely monitoring the impact of the pandemic on all aspects of our business including impacts to employees, customers, patients, suppliers and vendors. The Company’s two operating subsidiaries have been categorized as critical infrastructure businesses and are not currently materially limited by federal, state or local regulations that restrict movement or operating ability.

The continued health of our workforce cannot be predicted during the pandemic. Significant shortages of labor could inhibit the ability of both VITAS and Roto-Rooter to perform services. The inability to procure personal-protective equipment, and to protect worker health and customer safety, could negatively impact the health of our workforce. A portion of our workforce is currently working from remote locations on a regular basis which increases both operational and cybersecurity risks.

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

-24-

On April 10, 2020 VITAS automatically received $80.2 million from the Relief Fund based upon VITAS’s 2019 Medicare fee-for-service Medicare revenue. The main condition that is attached to the grant is that the money will be used “only for health care related expenses or lost revenues that are attributable to coronavirus”. HHS guidance does not specifically designate what healthcare expenses are related to COVID-19. The guidance to date is general and broad but does provide some examples such as equipment and supplies, workforce training, reporting COVID-19 test results, securing separate facilities for COVID-19 patients and acquiring additional resources to expand or preserve care delivery. VITAS has cared for approximately 3,500 COVID positive patients through September 30, 2020.

~~Chemed and its subsidiaries have deferred $22.9 million of certain employer payroll taxes as permitted by the CARES Act.~~

During the period from May 1, 2020 through December 31, 2020, the 2% Medicare sequestration reimbursement cut is suspended. For the three and nine month period ended September 30, 2020 approximately $6.3 million and $10.5 million, respectively, was recognized as revenue due to the suspension of sequestration.

~~There is no U.S. GAAP that covers such accounting for government “grants” to for-profit entities. As a result, the Company analogized to International Accounting Standard 20 –~~ ~~Accounting for Government Grants and Disclosures~~ (“IAS 20”). Under IAS 20, once it is reasonably assured that the entity will comply with the conditions of the grant, the grant money should be recognized on a systematic basis over the periods in which the entity recognizes the related expenses or losses.

~~The components of the amount recognized are as follows, (in thousands):~~

Hard costs are primarily expenses paid to outside vendors for personal protection equipment, COVID testing for front line workers and deep cleaning of in-patient facilities. In April, VITAS provided an extra two weeks of paid time off to all frontline workers.

During the second quarter of 2020, VITAS recognized $2.3 million for anticipated additional Medicare Cap revenue reductions. The deterioration of admissions was not as severe as anticipated and therefore, the $2.3 million was reversed in the third quarter of 2020.

During the second quarter of 2020, VITAS recognized $13.5 million for estimated lost revenue as a result of the pandemic. On September 19, 2020, the U.S. Department of Health and Human Services (“HHS”) released additional guidance related to Relief Funds granted. Included in this guidance was clarification that lost revenue represents “a negative change in year-over-year net patient care operating income”. This is a significant change from the definition of lost revenue previously provided by HHS. As a result of these changes in facts and circumstances, the $13.5 million that was previously recognized was reversed in the third quarter of 2020. We will continue to monitor guidance provided by HHS. Current guidance states that the Company has through June 30, 2021 to utilize the provider relief funding; any unutilized amounts remaining after June 30, 2021 will need to be returned to the government.

-2522-

The situation surrounding COVID-19 remains fluid. We evaluate our cash flow, liquidity and capital resources on a daily basis. VITAS and Roto-Rooter continue to operate and have positive net income and operating cash flow. We have $412.1 million available for borrowing under our $450 million revolving line-of-credit.

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

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

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

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

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

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

Three months ended September 30,
Nine months ended September 30,
2020
2019
2020
2019
$
2,352
$
331
$
7,056
$
1,103

Historically, Chemed earnings guidance has been developed using previous years’ key operating metrics which are then modeled and projected out for the calendar year. Critical within these projections is the understanding of traditional patterned correlations among key operating metrics. Once we complete this phase of our projected operating results, we would then modify the projections for the timing of price increases, changes in commission structure, wages, marketing programs and a variety of continuous improvement initiatives that our business segments plan on executing over the coming year. This modeling exercise also takes into consideration anticipated industry and macro-economic issues outside of management’s control but are somewhat predictable in terms of timing and impact on our business segments’ operating results.

The ~~2020~~COVID-19 pandemic has made accurate modeling and providing meaningful earnings guidance ~~for Chemed~~ exceptionally challenging. ~~Federal, state and local government authorities are forced to make swift decisions within our healthcare system, labor pools and general economy. These governmental decisions have~~Since the ~~potential for an immediate and material impact on VITAS and Roto-Rooter operating results.~~

~~Over~~start of the ~~past seven months,~~pandemic, Chemed has been able to successfully navigate within this rapidly changing environment and produce operating results that we believe provide us with the ability to issue earnings guidance for the ~~remainder of the~~2021 calendar year. However,

-26-

this guidance should be taken with the recognition the pandemic will continue to ~~materially~~ disrupt ~~all aspects of~~ our healthcare system and general economy to such an extent that future rules, regulations and government mandates could materially impact ~~our~~the company’s ability to achieve this guidance.

~~Revenue growth~~Statistically, patients residing in senior housing are identified as hospice appropriate earlier into their terminal prognosis and have a much greater probability of having a length of stay in excess of 90 days. Hospice patients referred from hospitals, oncology practices and similar referral sources are generally more acute and have a significantly lower probability of lengths-of-stay exceeding 90 days. According to data released by the National Investment Center for Seniors Housing & Care, COVID-19 continues to adversely affect senior housing occupancy. This reduced occupancy in senior housing has had a corresponding reduction in VITAS nursing home admissions. Nursing home patients represented 14.9% of VITAS’ second quarter 2021 patient census. This compares to nursing home patients averaging 18.2% of total census just prior to the pandemic.

This guidance anticipates senior housing occupancy will begin to normalize to pre-pandemic occupancy starting in ~~2020,~~the second half of calendar year 2021.

Based upon the above discussion, VITAS 2021 revenue, prior to Medicare Cap, is estimated to ~~be 4%.~~ decline approximately 4.5% when compared to the prior year. Average Daily Census in ~~2020~~2021 is estimated to ~~expand~~decline approximately ~~1.3%~~5.0%. Full-year Adjusted EBITDA margin, prior to Medicare Cap, is estimated to be ~~21%~~18.3%. We are currently estimating ~~$8.7~~$7.5 million for Medicare Cap billing limitations ~~for~~in calendar year 2020. We also anticipate the $80.2 million of CARES Act funds formulaically calculated by the federal government based upon our 2019 Medicare fee-for-service revenue will be adequate to cover increased costs specifically related to operating our healthcare unit during the pandemic as well as any incremental Medicare Cap billing limitations triggered from declines in Medicare admissions. Chemed’s full year adjusted earnings per share guidance eliminates any financial benefit from the CARES Act funds that relate to lost revenue. We anticipate returning any unused CARES Act funds to the federal government at the end of the pandemic measurement period.2021. Roto-Rooter is forecasted to achieve full-year ~~2020~~2021 revenue growth of ~~12.5%~~15.0% to ~~13.0%~~15.5%. Roto-Rooter’s Adjusted EBITDA margin for ~~2020~~2021 is estimated to be ~~26.1%~~between 28% to 29%.

Based upon the above, full-year 2021 adjusted earnings per diluted share, excluding non-cash expense for stock options, tax benefits from stock option exercises, costs related to litigation, and other discrete items, is estimated to be in the range of $18.20 to $18.50. This compares to initial 2021 adjusted earnings per diluted share guidance of $17.00 to $17.50. This revised 2021 guidance assumes an effective corporate tax rate on adjusted earnings of 24.7%. Chemed’s 2020 reported adjusted earnings per diluted share was $18.08.

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

Financial Condition

Liquidity and Capital Resources

Material changes in the balance sheet accounts from December 31, ~~2019~~2020 to ~~September~~June 30, ~~2020~~2021 include the following:

A ~~$33.0~~$3.5 million decrease in accounts receivable due to timing of receipts.

A ~~$11.8~~$16.8 million ~~decrease~~increase in ~~accounts payable~~prepaid income taxes due to timing of payments.

A ~~$31.1~~$7.7 million ~~increase~~decrease in accrued compensation due to ~~accrual~~the payments of ~~additional paid time off for VITAS front line works and an increase~~cash bonuses in ~~accrued bonus.~~the first quarter of 2021.

A ~~$48.0~~$9.2 million ~~increase~~decrease in ~~the unutilized portion~~accrued legal mainly as a result of the ~~CARES Act grant received in the second quarter~~payments of ~~2020.~~two legal settlements.

A ~~$90.0 million decrease in long-term debt due to payments made in 2020.~~

~~A $23.2 million increase in other liabilities mainly due to the deferral of certain payroll taxes as permitted by the CARES Act.~~

~~A $179.9~~$179.7 million increase in treasury stock due mainly to stock repurchases.

Net cash provided by operating activities ~~increased $164.8~~decreased $145.8 million from ~~September~~June 30, ~~2019~~2020 to ~~September~~June 30, ~~2020.~~2021. The main drivers of the ~~increase relate to~~decrease are a decrease in net income of $16.1 million, the ~~receipt of $80.2 million in~~Unutilized CARES Act grant ~~funds and~~received in 2020 of $39.2 million, the deferral of payroll ~~tax payments as permitted by~~taxes during the ~~CARES Act. Additionally, significant~~second quarter of 2020 of $10.7 million and increases in cash outflows associated with accounts payable and current income taxes of $74.0 million. Significant changes in our accounts receivable balances are typically driven by the timing of payments received from the Federal government at our VITAS subsidiary. We typically receive a payment in excess of $40.0 million from the Federal government for hospice services every other Friday. The timing of a period end will have a significant impact on the accounts receivable at VITAS. These changes generally normalize over a two year period, as cash flow variations in one year are offset in the following year.

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

-23-

On June 20, 2018, we ~~replaced our existing credit agreement with~~signed the Fourth Amended and Restated Credit Agreement (“2018 Credit Agreement”). Terms of the 2018 Credit Agreement consist of a five year, $450 million revolving credit facility and a $150 million expansion feature, which may consist of term loans or additional revolving commitments. The revolving credit facility has a five year maturity with principal payments due at maturity. The interest rate at the inception of the agreement was LIBOR plus 100 basis points. The 2018 Credit Agreement has a floating interest rate that is generally LIBOR plus a tiered additional rate which varies based on our current leverage ratio. We have no debt outstanding under the 2018 Credit Agreement as of June 30, 2021.

We have issued ~~$37.9~~$46.3 million in standby letters of credit as of ~~September~~June 30, ~~2020,~~2021, mainly for insurance purposes. Issued letters of credit reduce our available credit under the revolving credit agreement. As of ~~September~~June 30, ~~2020,~~2021, we have approximately ~~$412.1~~$403.7 million of unused lines of credit available and eligible to be drawn down under our revolving credit facility. Management believes its liquidity and sources of capital are satisfactory for the Company’s needs in the foreseeable future.

Commitments and Contingencies

Collectively, the terms of our credit agreements require us to meet various financial covenants, to be tested quarterly. We are in compliance with all financial and other debt covenants as of ~~September~~June 30, ~~2020~~2021 and anticipate remaining in compliance throughout the foreseeable future.

-27-

We are subject to various lawsuits and claims in the normal course of our business. In addition, we periodically receive communications from governmental and regulatory agencies concerning compliance with Medicare and Medicaid billing requirements at our VITAS subsidiary. We establish reserves for specific, uninsured liabilities in connection with regulatory and legal action that we deem to be probable and estimable. We disclose the existence of regulatory and legal actions when we believe it is reasonably possible that a loss could occur in connection with the specific action. In most instances, we are unable to make a reasonable estimate of any reasonably possible liability due to the uncertainty of the outcome and stage of litigation. We record legal fees associated with legal and regulatory actions as the costs are incurred.

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

On October 30, 2017, the Company entered into a settlement agreement (the “Settlement Agreement”) to resolve civil litigation under the False Claims Act brought by the United States Department of Justice (“DOJ”) on behalf of the OIG and various relators concerning VITAS, filedSee Note 10 in the ~~U.S. District Court of the Western District of Missouri. The Company denied any violation of law and agreed to settlement without admission of wrongdoing.~~

~~The Company entered into a settlement agreement in March 2019 that will resolve state-wide wage and hour class action claims raised in four separate cases: (1)~~ Jordan A. Seper on behalf of herself and others similarly situated v. VITAS Healthcare Corporation of California, a Delaware corporation; VITAS Healthcare Corp of CA, a business entity unknown; and DOES 1 to 100, inclusive~~; Los Angeles Superior Court Case Number BC 642857 (“Seper”); (2)~~ Jiwan Chhina v. VITAS Health Services of California, Inc., a California corporation; VITAS Healthcare Corporation of California, a Delaware corporation; VITAS Healthcare Corporation of California, a Delaware corporation dba VITAS Healthcare Inc.; and DOES 1 to 100, inclusive~~; San Diego Superior Court Case Number 37-2015-00033978-CU-OE-CTL (“Chhina”) (which was subsequently merged with~~ ~~Seper); (3)~~ ~~Chere Phillips and Lady Moore v. VITAS Healthcare Corporation of California, Sacramento County Superior Court, Case No. 34-2017-0021-2755~~ ~~(“Phillips and Moore”); and (4)~~ ~~Williams v. VITAS Healthcare Corporation of California, Alameda County Superior Court Case No. RG 17853886~~ ~~(“Williams’).~~ These actions were brought by both current and former employees including a registered nurse, a licensed vocational nurse (LVN), home health aides and a social worker. Each action stated multiple claims generally including (1) failure to pay minimum wage for all hours worked; (2) failure to provide overtime for all hours worked; (3) failure to pay wages for all hours at the regular rate; (4) failure to provide meal periods; (5) failure to provide rest breaks; (6) failure to provide complete and accurate wage statements; (7) failure to pay for all reimbursement expenses; (8) unfair business practices; and (9) violation of the California Private Attorneys General Act. The cases generally asserted claims on behalf of classes defined to include all current and former non-exempt employees employed with VITAS in California within the four years preceding the filing of each lawsuit. ~~For additional procedural history of these cases, please refer to our prior quarterly and annual filings.~~

The settlement amount of $5.75 million plus employment taxes was recorded in the first quarter of 2019. As of December 31, 2019, $6.0 million was accrued in the accompanying Consolidated Balance Sheet. The definition of the class to participate in the settlement is intended to cover claims raised in the consolidated ~~Seper/Chhina~~ ~~matter, claims raised in~~ ~~Phillips and Moore, as well as any class claims in~~ ~~Williams. On January 28, 2020, the court granted preliminary approval of the settlement. A notice of the proposed settlement has been sent~~Notes to the ~~members of the class by the class claims administrator. The court has re-set the date for the final approval of the settlement hearing for December 8, 2020.~~

~~Alfred Lax (“Lax”), a former employee of Roto-Rooter Services Company (“RRSC”) filed a class action lawsuit~~Unaudited Consolidated Financial Statements in Santa Clara County Superior Court in November of 2018 alleging (1) failure to provide or compensate for required rest breaks; (2) failure to properly pay for all hours worked; (3) failure to provide accurate wage statements; (4) failure to reimburse for work-related expenses; and (5) unfair business practices. Lax stated these claims as a representative of a class defined as all service technicians employed by RRSC in California during the four years preceding the filing of the complaint. He sought a determination that the action may proceed and be maintained as a class action and for compensatory and statutory damages (premium payments for missed rest periods, uncompensated rest periods, wages for time allegedly not paid such as travel time, repair time, and vehicle maintenance time, and unreimbursed expenses), penalties and restitutions, pre- and post-judgement interest and attorneys’ fees and costs. The lawsuit is, ~~Alfred Lax on behalf of himself and all others similarly situated v. Roto-Rooter Services Company, and Does~~Item 1 ~~through 50 inclusive;~~ ~~Santa Clara County Superior Court Case Number 18CV338652. The Company entered into a settlement agreement in August 2020 to resolve the allegations,~~above for a ~~settlement amount~~description of $2.6 million plus employment taxes. The settlement includes technicians in its Menlo Park and Bristol locations. The settlement was recorded in the third quarter of 2020. As of September 30, 2020, $3.1 million was accrued in the accompanying Consolidated Balance Sheet. A hearing for preliminary approval of the settlement is scheduled for November 19, 2020.

-28-

sought from federal healthcare programs, including Medicare. The CID has requested information regarding 32 patients from our Florida operations. We are cooperating with the U.S. Department of Justice with respect to this investigation. The Company cannot predict when the investigation will be resolved or the outcome of the investigation.

Regardless of the outcome of any of the preceding matters, dealing with the various regulatory agencies and opposing parties can adversely affect us through defense costs, potential payments, withholding of governmental funding, diversion of management time, and related publicity. Although the Company intends to defend them vigorously, there can be no assurance that those suits will not have acurrent material ~~adverse effect on the Company.~~legal matters.

Results of Operations

Three months ended ~~September~~June 30, ~~2020~~2021 versus ~~2019~~2020 - Consolidated Results

Our service revenues and sales for the ~~third~~second quarter of ~~2020~~2021 increased ~~9.9%~~6.0% versus services and sales revenues for the ~~third~~second quarter of ~~2019.~~2020. Of this increase, a ~~$15.3~~$45.6 million increase was attributable to ~~VITAS and $32.3~~Roto-Rooter offset by a $15.5 million ~~increase was~~decrease attributable to ~~Roto-Rooter.~~VITAS. The following chart shows the components of revenue by operating segment (in thousands):



	Three months ended June 30,
	2021		2020
VITAS
Routine homecare	$	264,926	$	276,345
Continuous care		24,282		34,582
General inpatient		27,371		25,868
Other		3,078		2,109
Medicare cap adjustment		(2,000)		(5,750)
Room and board - net		(2,657)		(2,647)
Implicit price concessions		(3,065)		(3,042)
Roto-Rooter
Drain cleaning - short term core		62,649		49,455
Plumbing - short term core		44,609		32,022
Subtotal		107,258		81,477
Excavation - short term core		55,114		44,678
Water restoration		38,583		31,426
Contractor operations		19,026		15,193
Outside franchisee fees		1,255		1,210
Other - short term core		311		386
Other		3,882		2,971
Implicit price concessions		(5,108)		(2,607)
Total	$	532,256	$	502,199

-24-

Three months ended September 30,
2020
2019
VITAS
Routine homecare
$
278,856
$
274,746
Continuous care
30,699
29,446
General inpatient
27,633
23,599
Other
2,910
2,356
Medicare cap adjustment
4,072
(1,317)
Room and board - net
(3,289)
(2,846)
Implicit price concessions
(3,784)
(4,236)
Roto-Rooter
Drain cleaning - short term core
55,527
46,485
Plumbing - short term core
39,439
34,772
Subtotal
94,966
81,257
Excavation - short term core
47,688
34,537
Water restoration
32,137
27,642
Contractor operations
16,274
14,359
Outside franchisee fees
1,235
1,819
Other - short term core
435
483
Other
3,332
2,791
Implicit price concessions
(4,867)
(4,023)
Total
$
528,297
$
480,613

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


	Days of Care		Increase/(Decrease)	Days of Care		Increase/(Decrease)
	2020	2019	Percent	2021	2020	Percent

Routine homecare	1,426,191	1,361,508	4.8	1,335,482	1,401,744	(4.7)
Nursing home	261,396	315,566	(17.2)	244,423	279,462	(12.5)
Respite	4,566	8,582	(46.8)	5,338	4,158	28.4
Subtotal routine homecare and respite	1,692,153	1,685,656	0.4	1,585,243	1,685,364	(5.9)
Continuous care	33,013	39,670	(16.8)	25,786	35,814	(28.0)
General inpatient	27,017	30,553	(11.6)	26,493	25,542	3.7
Total days of care	1,752,183	1,755,879	(0.2)	1,637,522	1,746,720	(6.3)

~~This increase~~The decrease in service revenues at VITAS is comprised primarily of ~~reduction~~a 6.3% decline in ~~Medicare Cap contra-revenue of $5.4 million,~~days-of-care offset by a geographically weighted average Medicare reimbursement rate increase (including the suspension of sequestration on May 1, 2020) of approximately ~~5.7%, and acuity~~1.8%. Acuity mix shift ~~which reduced the blended average Medicare rate increase by~~had a net impact of reducing revenue approximately ~~2.4% as well as a 0.2% decrease~~$3.8 million, or 1.2% in ~~days-of-care.~~

~~During~~ the quarter ~~ended September 30, 2020, we reversed $4.1~~ ~~million in net~~when compared to the prior year revenue and level-of-care mix. The combination of a lower Medicare cap revenue reduction ~~for~~and other contra revenue changes offset the ~~2020 government fiscal year. During the quarter ended September 30, 2019, we recorded $1.3 million in net Medicare cap~~ revenue ~~reduction related to three programs for the 2019 government fiscal year. Additionally, we recorded $847,000 related to adjustments to prior year cap liabilities.~~decline by approximately 0.9%.

-29-

The increase in plumbing revenues for the ~~third~~second quarter of ~~2020~~2021 versus ~~2019~~2020 is attributable to a ~~2.8% decrease~~21.1% increase in job count and to a 18.2% increase in price and service mix ~~shift and a 16.2% increase in job count.~~shift. The increase in excavation revenues for the ~~third~~second quarter of ~~2020~~2021 versus ~~2019~~2020 is attributable to a ~~14.2%~~10.1% increase in job count and to a 13.3% increase in price and service mix shift. Drain cleaning revenues for the second quarter of 2021 versus 2020 reflect a 11.7% increase in price and service mix shift and a ~~23.9% increase in job count. Drain cleaning revenues for the third quarter of 2020 versus 2019 reflect a 0.6% increase in price and service mix shift and a 18.9%~~15.0% increase in job count. Water restoration revenue increased for the ~~third~~second quarter of ~~2020~~2021 versus ~~2019~~2020 due to a ~~10.3%~~9.4% increase in job count and ~~an 6.0%~~a 13.4% increase in ~~price. Contractor operations increased 13.3% mainly due to their continued expansion into water restoration.~~price and service mix shift. The increase in job count for all service lines was driven by both residential and commercial customers.

The consolidated gross margin was ~~35.8%~~34.1% in the ~~third~~second quarter of ~~2020~~2021 as compared with ~~31.7%~~29.9% in the ~~third~~second quarter of ~~2019.~~2020. On a segment basis, VITAS’ gross margin was ~~26.8%~~20.7% in the ~~third~~second quarter of ~~2020~~2021 as compared with ~~23.1%~~18.5%, in the ~~third~~second quarter of ~~2019.~~2020. The increase ~~in gross margin~~ is ~~attributable mainly~~primarily due to ~~decreased~~improved labor ~~costs and a reversal of Medicare Cap liability during the third quarter of 2020.~~costs. The Roto-Rooter segment’s gross margin was ~~51.6%~~53.3% for the ~~third~~second quarter of ~~2020~~2021 as compared with ~~49.2%~~51.2% in the ~~third~~second quarter of ~~2019~~2020 primarily due to increased revenue and ~~expense management.~~improved labor costs.

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


	Three months ended September 30,				Three months ended June 30,
	2020		2019		2021		2020
SG&A expenses before long-term incentive compensation and the impact of market value adjustments related to deferred compensation trusts	$	79,287	$	72,273	$	88,510	$	75,176
Impact of market value adjustments related to assets held in deferred compensation trusts		7,256		2,886		3,655		7,408
Long-term incentive compensation		1,774		1,677		1,673		1,929
Total SG&A expenses	$	88,317	$	76,836	$	93,838	$	84,513

SG&A expenses before long-term incentive compensation and the impact of market value adjustments related to deferred compensation trusts for the ~~third~~second quarter of ~~2020~~2021 were up ~~9.7%~~17.7% when compared to the ~~third~~second quarter of ~~2019.~~2020. This increase was mainly a result of the increase in variable selling and general administrative expenses and increased bonus expense at Roto-Rooter caused by increased ~~revenue.~~income as well as a $1.0 million increase in paid time off granted at VITAS.

Depreciation for the ~~third~~second quarter of ~~2020~~2021 increased ~~15.4%~~16.8% when compared to the ~~third~~second quarter of ~~2019~~2020. This increase is primarily ~~due to new equipment purchased at Roto-Rooter related to~~ the ~~acquisitions completed in the second half~~result of ~~2019.~~VITAS’ acceleration of depreciation on leasehold improvements associated with a facility relocation.

Amortization for the ~~third~~second quarter of ~~2020~~2021 increased ~~469.4%~~0.9% when compared to the ~~third~~second quarter of ~~2019 due~~2020. Quarterly amortization of intangible assets is mainly driven by two Roto-Rooter franchise acquisitions completed in 2019. The total purchase price of these acquisitions was $138.0 million. As part of the purchase price allocation, approximately $59.2 million was determined to be the value of reacquired franchise rights which are being amortized over the remaining life of each franchise agreement. The average remaining life on the reacquired franchise agreements was approximately seven years. Quarterly amortization of reacquired franchise rights ~~related~~for these two acquisitions is approximately $2.0 million ($8.1 million annualized through 2026). This contrasts to ~~acquisitions completed in the second half~~quarterly franchise fees historically collected from these two franchisees of ~~2019.~~approximately $470,000 ($1.9 million annualized).

‎

-25-

Other operating (income)/expenses comprise the ~~following (in thousands):~~following:


	Three months ended September 30,				Three months ended June 30,
	2020		2019		2021		2020
CARES Act grant	$	8,805	$	-	$	-	$	(40,989)
Loss on disposal of fixed assets		307		78
Litigation settlement		3,095		-
Loss/(gain) on disposal of fixed assets						104		(395)
Total other operating expenses	$	12,207	$	78	$	104	$	(41,384)

Other income – net comprise (in thousands):


	Three months ended September 30,				Three months ended June 30,
	2020		2019		2021		2020
Market value adjustment on assets held in deferred compensation trusts	$	7,256	$	2,886	$	3,655	$	7,408
Interest income		423		173		138		116
Other		(4)		(23)		(8)		(10)
Total other income - net	$	7,675	$	3,036
Total other income/(expense) - net					$	3,785	$	7,514

‎

-30-

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


	Three months ended September 30,						Three months ended June 30,
	2020			2019			2021			2020

Income tax provision calculated at the statutory federal rate	$	17,137		$	14,054		$	15,772		$	20,921
Stock compensation tax benefits		(7,187)			(8,792)			(868)			(8,203)
State and local income taxes		3,028			1,183			2,671			3,604
Other--net		904			1,531			1,008			1,200
Income tax provision	$	13,882		$	7,976		$	18,583		$	17,522
Effective tax rate		17.0	%		11.9	%		24.7	%		17.6	%

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,				Three months ended June 30,
	2020		2019		2021		2020
VITAS
Direct costs related to COVID-19					$	(8,268)	$	(18,101)
Facility relocation costs						(1,384)		-
CARES Act grant	$	(6,528)	$	-		-		30,537
Direct costs related to COVID-19		(5,181)		-
COVID-19 Medicare cap		1,679		-		-		(1,679)
Medicare cap sequestration adjustment		635		(639)		-		(594)
Roto-Rooter
Litigation settlement		(2,275)		-
Amortization of reacquired franchise agreements		(1,728)		(244)		(1,729)		(1,729)
Direct costs related to COVID-19		(971)		-		(428)		(822)
Acquisition expenses		-		(2,411)
Litigation settlements						72		-
Corporate
Excess tax benefits on stock compensation		7,187		8,792
Stock option expense		(2,970)		(2,278)		(5,166)		(4,209)
Long-term incentive compensation		(1,682)		(1,486)		(1,543)		(1,728)
Excess tax benefits on stock compensation						868		8,203
Total	$	(11,834)	$	1,734	$	(17,578)	$	9,878

‎

-26-

Three months ended ~~September~~June 30, ~~2020~~2021 versus ~~2019~~2020 - Segment Results

Net income/(loss) for the ~~third~~second quarter of ~~2020~~2021 versus the ~~third~~second quarter of ~~2019~~2020 by segment (in thousands):



	Three months ended September 30,				Three months ended June 30,
	2020		2019		2021		2020
VITAS	$	45,737	$	39,773	$	29,712	$	60,245
Roto-Rooter		31,176		26,140		42,773		29,468
Corporate		(9,191)		(6,966)		(15,963)		(7,612)
	$	67,722	$	58,947	$	56,522	$	82,101

VITAS’ after-tax earnings ~~increased~~decreased primarily due to ~~higher revenue and improved labor management and ancillary costs.~~CARES Grant funds received in 2020. After-tax earnings as a percent of revenue at VITAS in the ~~third~~second quarter of ~~2020~~2021 was ~~13.6%~~9.5% as compared to ~~12.3%~~18.4% in the ~~third~~second quarter of ~~2019.~~2020.

Roto-Rooter’s net income was impacted in ~~2020~~2021 compared to ~~2019~~2020 primarily by higher revenue ~~offset by increased depreciation~~ and ~~amortization expense.~~improved labor costs. After-tax earnings as a percent of revenue at Roto-Rooter in the ~~third~~second quarter of ~~2020~~2021 was ~~16.3%~~19.4%, ~~essentially equal~~as compared to 16.9% in the ~~third~~second quarter of ~~2019.~~2020.

After-tax Corporate expenses for ~~2020~~2021 increased ~~31.9%~~109.7% when compared to ~~2019~~2020 due mainly to a ~~$1.6~~$7.3 million decrease in the excess tax benefits on stock compensation.

‎

-3127-

Results of Operations

~~Nine~~Six months ended ~~September~~June 30, ~~2020~~2021 versus ~~2019~~2020 - Consolidated Results

Our service revenues and sales for the first ~~nine~~six months of ~~2020~~2021 increased ~~9.2%~~4.1% versus services and sales revenues for the first ~~nine~~six months of ~~2019.~~2020. Of this increase, ~~a $61.2~~$79.3 million ~~increase~~ was attributable to ~~VITAS and $69.9~~Roto-Rooter offset by a $37.7 million ~~increase was~~decrease attributable to ~~Roto-Rooter.~~VITAS. The following chart shows the components of revenue by operating segment (in thousands):

Nine months ended September 30,
2020
2019
VITAS
Routine homecare
$
826,954
$
800,059
Continuous care
105,836
92,476
General inpatient
85,983
69,063
Other
8,175
6,598
Medicare cap adjustment
(4,178)
(7,915)
Room and board - net
(9,317)
(8,098)
Implicit price concessions
(10,976)
(10,904)
Roto-Rooter
Drain cleaning - short term core
159,003
137,176
Plumbing - short term core
108,255
101,361
Subtotal
267,258
238,537
Excavation - short term core
135,425
104,497
Water restoration
92,810
86,804
Contractor operations
47,695
42,986
Outside franchisee fees
3,635
5,063
Other - short term core
1,371
1,639
Other
9,836
8,773
Implicit price concessions
(14,213)
(13,347)
Total
$
1,546,294
$
1,416,231


	Six months ended June 30,
	2021		2020
VITAS
Routine homecare	$	528,680	$	548,098
Continuous care		51,631		75,137
General inpatient		56,527		58,350
Other		6,016		5,265
Medicare cap adjustment		(3,500)		(8,250)
Room and board - net		(5,322)		(6,028)
Implicit price concessions		(6,309)		(7,192)
Roto-Rooter
Drain cleaning - short term core		124,406		103,475
Plumbing - short term core		85,922		68,816
Subtotal		210,328		172,291
Excavation - short term core		107,106		87,738
Water restoration		76,018		60,672
Contractor operations		37,785		31,421
Outside franchisee fees		2,582		2,400
Other - short term core		598		936
Other		7,828		6,505
Implicit price concessions		(10,352)		(9,346)
Total	$	1,059,616	$	1,017,997

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


	Days of Care		Increase/(Decrease)	Days of Care		Increase/(Decrease)
	2020	2019	Percent	2021	2020	Percent

Routine homecare	4,192,681	3,961,261	5.8	2,665,374	2,766,490	(3.7)
Nursing home	844,232	909,318	(7.2)	477,206	582,836	(18.1)
Respite	15,416	21,552	(28.5)	10,178	10,850	(6.2)
Subtotal routine homecare and respite	5,052,329	4,892,131	3.3	3,152,758	3,360,176	(6.2)
Continuous care	110,200	125,397	(12.1)	55,086	77,187	(28.6)
General inpatient	84,907	89,366	(5.0)	54,167	57,890	(6.4)
Total days of care	5,247,436	5,106,894	2.8	3,262,011	3,495,253	(6.7)

The ~~revenue increase~~decrease in service revenues at VITAS is comprised primarily of ~~the 2.8% increase~~a 6.7% decline in days-of-care offset by a geographically weighted average Medicare reimbursement rate increase (including the suspension of sequestration on May 1, 2020) of approximately ~~5.4%, and acuity~~1.7%. Acuity mix shift ~~which then decreased the blended Medicare rate increase by~~had a net impact of reducing revenue approximately ~~2.1%.~~

~~During~~$9.1 million, or 1.4% in the first ~~nine~~six months ~~ended September 30, 2020, we recorded $4.2 million~~ ~~in net~~when compared to the prior year revenue and level-of-care mix. The combination of a lower Medicare cap revenue reduction ~~related to five programs for~~and other contra revenue changes offset a portion of the ~~2020 government fiscal year. During the first nine months ended September 30, 2019, we recorded $7.9 million~~ ~~in net Medicare cap~~ revenue ~~reduction related to four programs for the 2019 government fiscal year. Additionally, we recorded $847,000 related to adjustments of prior year cap liabilities.~~decline by approximately 70 basis points.

The increase in plumbing revenues for the first ~~nine~~six months of ~~2020~~2021 versus ~~2019~~2020 is attributable to a ~~1.7%~~19.1% increase in job count and to a 5.8% increase in price and service mix ~~shift and an 5.1% increase in job count.~~shift. The increase in excavation revenues for the first ~~nine~~six months of ~~2020~~2021 versus ~~2019~~2020 is attributable to a ~~10.0%~~16.0% increase in job count and to a 6.1% increase in price and service mix shift. Drain cleaning revenues for the first six months of 2021 versus 2020 reflect an 8.0% increase in price and service mix shift and a ~~19.6%~~12.2% increase in job count. ~~Drain cleaning revenues~~Water restoration revenue increased for the first ~~nine~~six months of 2021 versus 2020 ~~versus 2019 reflect~~due to a ~~3.6%~~9.8% increase in job count and a 15.5% increase in price and service mix shift and a 12.3% increase in job count. The increase in water restoration revenue for the first nine months of 2020 versus 2019 is attributable to a 6.2% increase in job count and by a 0.7% increase in price. Contractor operations increased 11.0% mainly due to their continued expansion into water restoration.shift. The increase in job count for all service lines was driven by both residential and commercial customers.

-28-

The consolidated gross margin was ~~32.5%~~34.8% in the first ~~nine~~six months of ~~2020~~2021 as compared with ~~31.2%~~30.9% in the first ~~nine~~six months of ~~2019.~~2020. On a segment basis, VITAS’ gross margin was ~~22.9%~~22.5% in the first ~~nine~~six months of ~~2020~~2021 as compared with ~~22.6%~~20.9%, in the first ~~nine~~

-32-

six months of ~~2019.~~2020. The increase is primarily due to improved labor costs. The Roto-Rooter segment’s gross margin was ~~50.3%~~52.6% for the first ~~nine~~six months of ~~2020~~2021 as compared with ~~48.3%~~49.6% in the first ~~nine~~six months of ~~2019~~2020 primarily due to increased revenue and ~~expense management.~~improved labor costs.

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


	Nine months ended September 30,				Six months ended June 30,
	2020		2019		2021		2020
SG&A expenses before long-term incentive compensation and the impact of market value adjustments related to deferred compensation trusts	$	232,797	$	212,775	$	175,178	$	153,511
Impact of market value adjustments related to assets held in deferred compensation trusts						6,693		(2,164)
Long-term incentive compensation		5,523		4,552		3,566		3,749
Impact of market value adjustments related to assets held in deferred compensation trusts		5,093		5,094
Total SG&A expenses	$	243,413	$	222,421	$	185,437	$	155,096

SG&A expenses before long-term incentive compensation and the impact of market value adjustments related to deferred compensation trusts for the first ~~nine~~six months of ~~2020~~2021 were up ~~9.4%~~14.1% when compared to the first ~~nine~~six months of ~~2019.~~2020. This increase was mainly a result of the increase in variable selling and general administrative expenses and increased bonus expense at Roto-Rooter caused by increased ~~revenue.~~income as well as a $1.0 million increase in paid time off granted at VITAS.

Depreciation for the first ~~nine~~six months of ~~2020~~2021 increased ~~16.9%~~9.9% when compared to the first ~~nine~~six months of ~~2019~~2020. This increase is primarily ~~due to new equipment purchased at Roto-Rooter related to~~ the ~~acquisitions completed in the second half~~result of ~~2019.~~VITAS’ acceleration of depreciation on leasehold improvements associated with a facility relocation.

Amortization for the first ~~nine~~six months of ~~2020~~2021 increased ~~447.3%~~1.1% when compared to the first ~~nine~~six months of ~~2019 due~~2020. Quarterly amortization of intangible assets is mainly driven by two Roto-Rooter franchise acquisitions completed in 2019. The total purchase price of these acquisitions was $138.0 million. As part of the purchase price allocation, approximately $59.2 million was determined to be the value of reacquired franchise rights which are being amortized over the remaining life of each franchise agreement. The average remaining life on the reacquired franchise agreements was approximately seven years. Quarterly amortization of reacquired franchise rights ~~related~~for these two acquisitions is approximately $2.0 million ($8.1 million annualized through 2026). This contrasts to ~~acquisitions completed in the second half~~quarterly franchise fees historically collected from these two franchisees of ~~2019.~~approximately $470,000 ($1.9 million annualized).

Other operating (income)/expenses comprise the ~~following (in thousands):~~following:

Nine months ended September 30,
2020
2019
CARES Act grant
$
(32,184)
$
-
Loss on disposal of fixed assets
154
735
Transportation equipment held for sale
-
2,266
Litigation settlement
3,095
6,000
Total other operating (income)/expenses
$
(28,935)
$
9,001


	Six months ended June 30,
	2021		2020
CARES Act grant	$	-	$	(40,989)
Loss/(gain) on disposal of fixed assets		726		(153)
Total other operating (income)/expenses	$	726	$	(41,142)

Other income – net comprise (in thousands):


	Nine months ended September 30,				Six months ended June 30,
	2020		2019		2021		2020
Market value adjustment on assets held in deferred compensation trusts	$	5,093	$	5,094	$	6,693	$	(2,164)
Interest income		647		387		230		225
Other		(17)		7		464		(13)
Total other income - net	$	5,723	$	5,488	$	7,387	$	(1,952)

‎

-29-

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


	Nine months ended September 30,						Six months ended June 30,
	2020			2019			2021			2020

Income tax provision calculated at the statutory federal rate	$	52,531		$	38,223		$	33,341		$	35,394
Stock compensation tax benefits		(19,943)			(18,737)			(4,106)			(12,756)
State and local income taxes		9,118			4,652			5,627			6,182
Other--net		2,729			3,533			1,983			1,733
Income tax provision	$	44,435		$	27,671		$	36,845		$	30,553
Effective tax rate		17.8	%		15.2	%		23.2	%		18.1	%

-33-

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



	Nine Months Ended September 30,				Six months ended June 30,
	2020		2019		2021		2020
VITAS
Direct costs related to COVID-19					$	(9,576)	$	(18,828)
Facility relocation costs						(1,384)		-
CARES Act grant	$	24,009	$	-		-		30,537
COVID-19 Medicare cap						-		(1,679)
Medicare cap sequestration adjustment						-		(1,097)
Roto-Rooter
Amortization of reacquired franchise agreements						(3,457)		(3,457)
Direct costs related to COVID-19		(24,009)		-		(835)		(1,455)
Medicare cap sequestration adjustment		(462)		(2,279)
Litigation settlement		-		(4,476)
Non cash ASC 842 benefit		-		(490)
Roto-Rooter
Amortization of acquired and cancelled franchise agreements		(5,185)		(811)
Litigation settlements						72		-
Corporate
Stock option expense						(10,232)		(8,399)
Excess tax benefits on stock compensation						4,106		12,756
Long-term incentive compensation						(3,212)		(3,324)
Direct costs related to COVID-19		(2,426)		-		(30)		-
Litigation settlement		(2,275)		-
Acquisition expenses		-		(2,482)
Non cash ASC 842 benefit		-		(40)
Corporate
Excess tax benefits on stock compensation		19,943		18,737
Stock option expense		(11,369)		(8,804)
Long-term incentive compensation		(5,006)		(3,915)
Impairment loss on transportation equipment		-		(1,733)
Non cash ASC 842 benefit		-		124
Acquisition expenses		-		(91)
Total	$	(6,780)	$	(6,260)	$	(24,548)	$	5,054

~~Nine~~Six months ended ~~September~~June 30, ~~2020~~2021 versus ~~2019~~2020 - Segment Results

Net income/(loss) for the first ~~nine~~six months of ~~2020~~2021 versus the first ~~nine~~six months of ~~2019~~2020 by segment (in thousands):



	Nine months ended September 30,				Six months ended June 30,
	2020		2019		2021		2020
VITAS	$	147,262	$	106,400	$	70,481	$	101,524
Roto-Rooter		84,966		76,302		79,950		53,790
Corporate		(26,514)		(28,359)		(28,509)		(17,322)
	$	205,714	$	154,343	$	121,922	$	137,992

VITAS’ after-tax earnings ~~were positively impacted in 2020 compared to 2019~~decreased primarily due to ~~higher revenue and improved labor management and ancillary costs.~~the CARES Act Grant received in 2020. After-tax earnings as a percent of revenue at VITAS in the first ~~nine~~six months of ~~2020~~2021 was ~~14.7%~~11.2% as compared to ~~11.3%~~15.3% in the first ~~nine~~six months of ~~2019.~~2020.

Roto-Rooter’s net income was impacted in ~~2020~~2021 compared to ~~2019~~2020 primarily by higher revenue ~~offset by increased depreciation~~ and ~~amortization expense.~~improved labor costs. After-tax earnings as a percent of revenue at Roto-Rooter in the first ~~nine~~six months of ~~2020~~2021 was ~~15.6%~~18.5%, as compared to ~~16.1%~~15.3% in the first ~~nine~~six months of ~~2019.~~2020.

After-tax Corporate expenses for ~~2020 decreased 6.5%~~2021 increased 64.6% when compared to ~~2019~~2020 due mainly to a ~~$1.2~~$8.7 million ~~increase~~decrease in the excess tax benefits on stock compensation.

‎

-30-


CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 2021
(in thousands)(unaudited)

							Chemed
	VITAS		Roto-Rooter		Corporate		Consolidated
2021 (a)
Service revenues and sales	$	311,935	$	220,321	$	-	$	532,256
Cost of services provided and goods sold		247,519		102,974		-		350,493
Selling, general and administrative expenses		22,631		53,556		17,651		93,838
Depreciation		7,125		6,468		19		13,612
Amortization		18		2,492		-		2,510
Other operating expense		87		17		-		104
Total costs and expenses		277,380		165,507		17,670		460,557
Income/(loss) from operations		34,555		54,814		(17,670)		71,699
Interest expense		(43)		(89)		(247)		(379)
Intercompany interest income/(expense)		4,486		1,649		(6,135)		-
Other income—net		99		32		3,654		3,785
Income/(expense) before income taxes		39,097		56,406		(20,398)		75,105
Income taxes		(9,385)		(13,633)		4,435		(18,583)
Net income/(loss)	$	29,712	$	42,773	$	(15,963)	$	56,522

(a) The following amounts are included in net income (in thousands):
							Chemed
	VITAS		Roto-Rooter		Corporate		Consolidated
Pretax benefit/(cost):
Direct costs related to COVID-19	$	(11,084)	$	(582)	$	-	$	(11,666)
Stock option expense		-		-		(6,239)		(6,239)
Amortization of reacquired franchise agreements		-		(2,352)		-		(2,352)
Facility relocation costs		(1,855)		-		-		(1,855)
Long-term incentive compensation		-		-		(1,673)		(1,673)
Litigation settlements		-		98		-		98
Total	$	(12,939)	$	(2,836)	$	(7,912)	$	(23,687)

							Chemed
	VITAS		Roto-Rooter		Corporate		Consolidated
After-tax benefit/(cost):
Direct costs related to COVID-19	$	(8,268)	$	(428)	$	-	$	(8,696)
Stock option expense		-		-		(5,166)		(5,166)
Amortization of reacquired franchise agreements		-		(1,729)		-		(1,729)
Long-term incentive compensation		-		-		(1,543)		(1,543)
Facility relocation costs		(1,384)		-		-		(1,384)
Litigation settlements		-		72		-		72
Excess tax benefits on stock compensation		-		-		868		868
Total	$	(9,652)	$	(2,085)	$	(5,841)	$	(17,578)

‎

-31-


CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 2020
(in thousands)(unaudited)

							Chemed
	VITAS		Roto-Rooter		Corporate		Consolidated
2020 (a)
Service revenues and sales	$	327,465	$	174,734	$	-	$	502,199
Cost of services provided and goods sold		266,815		85,348		-		352,163
Selling, general and administrative expenses		21,072		44,231		19,210		84,513
Depreciation		5,556		6,069		34		11,659
Amortization		18		2,470		-		2,488
Other operating income		(40,826)		(558)		-		(41,384)
Total costs and expenses		252,635		137,560		19,244		409,439
Income/(loss) from operations		74,830		37,174		(19,244)		92,760
Interest expense		(45)		(90)		(516)		(651)
Intercompany interest income/(expense)		4,739		1,422		(6,161)		-
Other income/(expense)—net		104		(10)		7,420		7,514
Income/(expense) before income taxes		79,628		38,496		(18,501)		99,623
Income taxes		(19,383)		(9,028)		10,889		(17,522)
Net income/(loss)	$	60,245	$	29,468	$	(7,612)	$	82,101

(a) The following amounts are included in net income (in thousands):
							Chemed
	VITAS		Roto-Rooter		Corporate		Consolidated
Pretax benefit/(cost):
CARES Act grant	$	40,989	$	-	$	-	$	40,989
Direct costs related to COVID-19		(24,265)		(1,117)		-		(25,382)
Stock option expense		-		-		(5,068)		(5,068)
Amortization of reacquired franchise agreements		-		(2,352)		-		(2,352)
COVID-19 Medicare cap		(2,250)		-		-		(2,250)
Long-term incentive compensation		-		-		(1,929)		(1,929)
Medicare cap sequestration adjustment		(796)		-		-		(796)
Total	$	13,678	$	(3,469)	$	(6,997)	$	3,212

							Chemed
	VITAS		Roto-Rooter		Corporate		Consolidated
After-tax benefit/(cost):
CARES Act grant	$	30,537	$	-	$	-	$	30,537
Direct costs related to COVID-19		(18,101)		(822)		-		(18,923)
Stock option expense		-		-		(4,209)		(4,209)
Amortization of reacquired franchise agreements		-		(1,729)		-		(1,729)
Long-term incentive compensation		-		-		(1,728)		(1,728)
COVID-19 Medicare cap		(1,679)		-		-		(1,679)
Medicare cap sequestration adjustment		(594)		-		-		(594)
Excess tax benefits on stock compensation		-		-		8,203		8,203
	$	10,163	$	(2,551)	$	2,266	$	9,878

‎

-32-



CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2021
(in thousands)(unaudited)

							Chemed
	VITAS		Roto-Rooter		Corporate		Consolidated
2021 (a)
Service revenues and sales	$	627,723	$	431,893	$	-	$	1,059,616
Cost of services provided and goods sold		486,186		204,780		-		690,966
Selling, general and administrative expenses		44,721		106,878		33,838		185,437
Depreciation		12,462		12,821		44		25,327
Amortization		36		4,984		-		5,020
Other operating expense		590		136		-		726
Total costs and expenses		543,995		329,599		33,882		907,476
Income/(loss) from operations		83,728		102,294		(33,882)		152,140
Interest expense		(85)		(179)		(496)		(760)
Intercompany interest income/(expense)		9,011		3,269		(12,280)		-
Other income—net		632		63		6,692		7,387
Income/(expense) before income taxes		93,286		105,447		(39,966)		158,767
Income taxes		(22,805)		(25,497)		11,457		(36,845)
Net income/(loss)	$	70,481	$	79,950	$	(28,509)	$	121,922


(a) The following amounts are included in net income (in thousands):
							Chemed
		VITAS	Roto-Rooter		Corporate		Consolidated
Pretax benefit/(cost):
Direct costs related to COVID-19	$	(12,836)	$	(1,136)	$	(38)	$	(14,010)
Stock option expense		-		-		(12,345)		(12,345)
Amortization of reacquired franchise agreements		-		(4,704)		-		(4,704)
Long-term incentive compensation		-		-		(3,566)		(3,566)
Facility relocation costs		(1,855)		-		-		(1,855)
Litigation settlement		-		98		-		98
Total	$	(14,691)	$	(5,742)	$	(15,949)	$	(36,382)

							Chemed
		VITAS	Roto-Rooter		Corporate		Consolidated
After-tax benefit/(cost):
Direct costs related to COVID-19	$	(9,576)	$	(835)	$	(30)	$	(10,441)
Stock option expense		-		-		(10,232)		(10,232)
Amortization of reacquired franchise agreements		-		(3,457)		-		(3,457)
Long-term incentive compensation		-		-		(3,212)		(3,212)
Facility relocation costs		(1,384)		-		-		(1,384)
Litigation settlement		-		72		-		72
Excess tax benefits on stock compensation		-		-		4,106		4,106
Total	$	(10,960)	$	(4,220)	$	(9,368)	$	(24,548)

‎

-33-



CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2020
(in thousands)(unaudited)

							Chemed
	VITAS		Roto-Rooter		Corporate		Consolidated
2020 (a)
Service revenues and sales	$	665,380	$	352,617	$	-	$	1,017,997
Cost of services provided and goods sold		526,244		177,664		-		703,908
Selling, general and administrative expenses		43,341		90,513		21,242		155,096
Depreciation		11,030		11,947		70		23,047
Amortization		36		4,929		-		4,965
Other operating expenses		(40,712)		(430)		-		(41,142)
Total costs and expenses		539,939		284,623		21,312		845,874
Income/(loss) from operations		125,441		67,994		(21,312)		172,123
Interest expense		(90)		(192)		(1,344)		(1,626)
Intercompany interest income/(expense)		9,125		2,771		(11,896)		-
Other income—net		169		30		(2,151)		(1,952)
Income/(expense) before income taxes		134,645		70,603		(36,703)		168,545
Income taxes		(33,121)		(16,813)		19,381		(30,553)
Net income/(loss)	$	101,524	$	53,790	$	(17,322)	$	137,992


(a) The following amounts are included in net income (in thousands):
							Chemed
	VITAS		Roto-Rooter		Corporate		Consolidated
Pretax benefit/(cost):
CARES Act grant	$	40,989	$	-	$	-	$	40,989
Direct costs related to COVID-19		(25,238)		(1,978)		-		(27,216)
Stock option expense		-		-		(10,114)		(10,114)
Amortization of reacquired franchise agreements		-		(4,704)		-		(4,704)
Long-term incentive compensation		-		-		(3,749)		(3,749)
COVID-19 Medicare cap		(2,250)		-		-		(2,250)
Medicare cap sequestration adjustment		(1,472)		-		-		(1,472)
Total	$	12,029	$	(6,682)	$	(13,863)	$	(8,516)

							Chemed
	VITAS		Roto-Rooter		Corporate		Consolidated
After-tax benefit/(cost):
CARES Act grant	$	30,537	$	-	$	-	$	30,537
Direct costs related to COVID-19		(18,828)		(1,455)		-		(20,283)
Stock option expense		-		-		(8,399)		(8,399)
Amortization of reacquired franchise agreements		-		(3,457)		-		(3,457)
Long-term incentive compensation		-		-		(3,324)		(3,324)
COVID-19 Medicare cap		(1,679)		-		-		(1,679)
Medicare cap sequestration adjustment		(1,097)		-		-		(1,097)
Excess tax benefits on stock compensation		-		-		12,756		12,756
	$	8,933	$	(4,912)	$	1,033	$	5,054

‎

-34-

CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020
(in thousands)(unaudited)
Chemed
VITAS
Roto-Rooter
Corporate
Consolidated
2020 (a)




Service revenues and sales
$
337,097
$
191,200
$
-
$
528,297
Cost of services provided and goods sold
246,636
92,604
-
339,240
Selling, general and administrative expenses
21,799
48,074
18,444
88,317
Depreciation
5,592
6,089
33
11,714
Amortization
18
2,493
-
2,511
Other operating expense
9,052
3,155
-
12,207
Total costs and expenses
283,097
152,415
18,477
453,989
Income/(loss) from operations
54,000
38,785
(18,477)
74,308
Interest expense
(47)
(80)
(252)
(379)
Intercompany interest income/(expense)
5,337
1,651
(6,988)
-
Other income—net
381
38
7,256
7,675
Income/(expense) before income taxes
59,671
40,394
(18,461)
81,604
Income taxes
(13,934)
(9,218)
9,270
(13,882)
Net income/(loss)
$
45,737
$
31,176
$
(9,191)
$
67,722
(a) The following amounts are included in net income (in thousands):
Chemed
VITAS
Roto-Rooter
Corporate
Consolidated
Pretax benefit/(cost):
CARES Act grant
$
(8,805)
$
-
$
-
$
(8,805)
Direct costs related to COVID-19
(6,945)
(1,321)
-
(8,266)
Stock option expense
-
-
(3,182)
(3,182)
Litigation settlement
-
(3,095)
-
(3,095)
Amortization of reacquired franchise agreements
-
(2,352)
-
(2,352)
COVID-19 Medicare cap
2,250
-
-
2,250
Long-term incentive compensation
-
-
(1,774)
(1,774)
Medicare cap sequestration
852
-
-
852
Total
$
(12,648)
$
(6,768)
$
(4,956)
$
(24,372)
Chemed
VITAS
Roto-Rooter
Corporate
Consolidated
After-tax benefit/(cost):
CARES Act grant
$
(6,528)
$
-
$
-
$
(6,528)
Direct costs related to COVID-19
(5,181)
(971)
-
(6,152)
Stock option expense
-
-
(2,970)
(2,970)
Litigation settlement
-
(2,275)
-
(2,275)
Amortization of reacquired franchise agreements
-
(1,728)
-
(1,728)
Long-term incentive compensation
-
-
(1,682)
(1,682)
COVID-19 Medicare cap
1,679
-
-
1,679
Medicare cap sequestration
635
-
-
635
Excess tax benefits on stock compensation
-
-
7,187
7,187
Total
$
(9,395)
$
(4,974)
$
2,535
$
(11,834)


Unaudited Consolidating Summary and Reconciliation of Adjusted EBITDA

Chemed Corporation and Subsidiary Companies
(in thousands)								Chemed
For the three months ended June 30, 2021		VITAS		Roto-Rooter		Corporate		Consolidated

	Net income/(loss)	$	29,712	$	42,773	$	(15,963)	$	56,522
	Add/(deduct):
	Interest expense		43		89		247		379
	Income taxes		9,385		13,633		(4,435)		18,583
	Depreciation		7,125		6,468		19		13,612
	Amortization		18		2,492		-		2,510
	EBITDA		46,283		65,455		(20,132)		91,606
	Add/(deduct):
	Intercompany interest expense/(income)		(4,486)		(1,649)		6,135		-
	Interest income		(106)		(32)		-		(138)
	Direct costs related to COVID-19		11,084		582		-		11,666
	Stock option expense		-		-		6,239		6,239
	Long-term incentive compensation		-		-		1,673		1,673
	Litigation settlement		-		(98)		-		(98)
	Adjusted EBITDA	$	52,775	$	64,258	$	(6,085)	$	110,948

								Chemed
For the three months ended June 30, 2020		VITAS		Roto-Rooter		Corporate		Consolidated

	Net income/(loss)	$	60,245	$	29,468	$	(7,612)	$	82,101
	Add/(deduct):
	Interest expense		45		90		516		651
	Income taxes		19,383		9,028		(10,889)		17,522
	Depreciation		5,556		6,069		34		11,659
	Amortization		18		2,470		-		2,488
	EBITDA		85,247		47,125		(17,951)		114,421
	Add/(deduct):
	Intercompany interest expense/(income)		(4,739)		(1,422)		6,161		-
	Interest (income)/expense		(113)		10		(13)		(116)
	CARES Act grant		(40,989)		-		-		(40,989)
	Direct costs related to COVID-19		24,265		1,117		-		25,382
	Stock option expense		-		-		5,068		5,068
	COVID-19 related Medicare cap		2,250		-		-		2,250
	Long-term incentive compensation		-		-		1,929		1,929
	Medicare cap sequestration adjustment		796		-		-		796
	Adjusted EBITDA	$	66,717	$	46,830	$	(4,806)	$	108,741

‎

-35-

CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2019
(in thousands)(unaudited)
Chemed
VITAS
Roto-Rooter
Corporate
Consolidated
2019 (a)




Service revenues and sales
$
321,748
$
158,865
$
-
$
480,613
Cost of services provided and goods sold
247,551
80,632
-
328,183
Selling, general and administrative expenses
21,965
41,758
13,113
76,836
Depreciation
5,105
5,003
39
10,147
Amortization
18
423
-
441
Other operating expenses/(income)
97
(19)
-
78
Total costs and expenses
274,736
127,797
13,152
415,685
Income/(loss) from operations
47,012
31,068
(13,152)
64,928
Interest expense
(48)
(80)
(913)
(1,041)
Intercompany interest income/(expense)
4,618
2,234
(6,852)
-
Other income—net
121
31
2,884
3,036
Income/(expense) before income taxes
51,703
33,253
(18,033)
66,923
Income taxes
(11,930)
(7,113)
11,067
(7,976)
Net income/(loss)
$
39,773
$
26,140
$
(6,966)
$
58,947
(a) The following amounts are included in net income (in thousands):
Chemed
VITAS
Roto-Rooter
Corporate
Consolidated
Pretax benefit/(cost):
Acquisition expenses
$
-
$
(3,281)
$
-
$
(3,281)
Stock option expense
-
-
(2,711)
(2,711)
Long-term incentive compensation
-
-
(1,677)
(1,677)
Medicare cap sequestration adjustment
(859)
-
-
(859)
Amortization of reacquired franchise agreements
-
(331)
-
(331)
Total
$
(859)
$
(3,612)
$
(4,388)
$
(8,859)
Chemed
VITAS
Roto-Rooter
Corporate
Consolidated
After-tax benefit/(cost):
Acquisition expenses
$
-
$
(2,411)
$
-
$
(2,411)
Stock option expense
-
-
(2,278)
(2,278)
Long-term incentive compensation
-
-
(1,486)
(1,486)
Medicare cap sequestration adjustment
(639)
-
-
(639)
Amortization of reacquired franchise agreements
-
(244)
-
(244)
Excess tax benefits on stock compensation
-
-
8,792
8,792
Total
$
(639)
$
(2,655)
$
5,028
$
1,734


Unaudited Consolidating Summary and Reconciliation of Adjusted EBITDA

Chemed Corporation and Subsidiary Companies
(in thousands)							Chemed
For the six months ended June 30, 2021	VITAS		Roto-Rooter		Corporate		Consolidated

Net income/(loss)	$	70,481	$	79,950	$	(28,509)	$	121,922
Add/(deduct):
Interest expense		85		179		496		760
Income taxes		22,805		25,497		(11,457)		36,845
Depreciation		12,462		12,821		44		25,327
Amortization		36		4,984		-		5,020
EBITDA		105,869		123,431		(39,426)		189,874
Add/(deduct):
Intercompany interest expense/(income)		(9,011)		(3,269)		12,280		-
Interest income		(167)		(63)		-		(230)
Direct costs related to COVID-19		12,836		1,136		38		14,010
Stock option expense		-		-		12,345		12,345
Long-term incentive compensation		-		-		3,566		3,566
Litigation settlement		-		(98)		-		(98)
Adjusted EBITDA	$	109,527	$	121,137	$	(11,197)	$	219,467

							Chemed
For the six months ended June 30, 2020	VITAS		Roto-Rooter		Corporate		Consolidated

Net income/(loss)	$	101,524	$	53,790	$	(17,322)	$	137,992
Add/(deduct):
Interest expense		90		192		1,344		1,626
Income taxes		33,121		16,813		(19,381)		30,553
Depreciation		11,030		11,947		70		23,047
Amortization		36		4,929		-		4,965
EBITDA		145,801		87,671		(35,289)		198,183
Add/(deduct):
Intercompany interest expense/(income)		(9,125)		(2,771)		11,896		-
Interest income		(181)		(31)		(13)		(225)
CARES Act grant		(40,989)		-		-		(40,989)
Direct costs related to COVID-19		25,238		1,978		-		27,216
Stock option expense		-		-		10,114		10,114
Long-term incentive compensation		-		-		3,749		3,749
COVID-19 related Medicare cap		2,250		-		-		2,250
Medicare cap sequestration adjustment		1,472		-		-		1,472
Adjusted EBITDA	$	124,466	$	86,847	$	(9,543)	$	201,770

‎

-36-

CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020
(in thousands)(unaudited)
Chemed
VITAS
Roto-Rooter
Corporate
Consolidated
2020 (a)




Service revenues and sales
$
1,002,477
$
543,817
$
-
$
1,546,294
Cost of services provided and goods sold
772,880
270,268
-
1,043,148
Selling, general and administrative expenses
65,141
138,587
39,685
243,413
Depreciation
16,622
18,035
104
34,761
Amortization
53
7,423
-
7,476
Other operating (income)/expense
(31,661)
2,725
1
(28,935)
Total costs and expenses
823,035
437,038
39,790
1,299,863
Income/(loss) from operations
179,442
106,779
(39,790)
246,431
Interest expense
(137)
(272)
(1,596)
(2,005)
Intercompany interest income/(expense)
14,463
4,422
(18,885)
-
Other income—net
549
68
5,106
5,723
Income/(expense) before income taxes
194,317
110,997
(55,165)
250,149
Income taxes
(47,055)
(26,031)
28,651
(44,435)
Net income/(loss)
$
147,262
$
84,966
$
(26,514)
$
205,714
(a) The following amounts are included in net income (in thousands):
Chemed
VITAS
Roto-Rooter
Corporate
Consolidated
Pretax benefit/(cost):
Direct costs related to COVID-19
$
(32,184)
$
(3,299)
$
-
$
(35,483)
CARES Act grant
32,184
-
-
32,184
Stock option expense
-
-
(13,296)
(13,296)
Amortization of reacquired franchise agreements
-
(7,056)
-
(7,056)
Long-term incentive compensation
-
-
(5,523)
(5,523)
Litigation settlement
-
(3,095)
-
(3,095)
Medicare cap sequestration adjustment
(619)
-
-
(619)
Total
$
(619)
$
(13,450)
$
(18,819)
$
(32,888)
Chemed
VITAS
Roto-Rooter
Corporate
Consolidated
After-tax benefit/(cost):
Direct costs related to COVID-19
$
(24,009)
$
(2,426)
$
-
$
(26,435)
CARES Act grant
24,009
-
-
24,009
Stock option expense
-
-
(11,369)
(11,369)
Amortization of reacquired franchise agreements
-
(5,185)
-
(5,185)
Long-term incentive compensation
-
-
(5,006)
(5,006)
Litigation settlement
-
(2,275)
-
(2,275)
Medicare cap sequestration adjustment
(462)
-
-
(462)
Excess tax benefits on stock compensation
-
-
19,943
19,943
Total
$
(462)
$
(9,886)
$
3,568
$
(6,780)



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

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Net income as reported	$	56,522	$	82,101	$	121,922	$	137,992

Add/(deduct) pre-tax cost of:
Direct costs related to COVID-19		11,666		25,382		14,010		27,216
Stock option expense		6,239		5,068		12,345		10,114
Amortization of reacquired franchise agreements		2,352		2,352		4,704		4,704
Long-term incentive compensation		1,673		1,929		3,566		3,749
Facility relocation costs		1,855		-		1,855		-
Litigation settlements		(98)		-		(98)		-
COVID-19 related Medicare cap		-		2,250		-		2,250
CARES Act grant		-		(40,989)		-		(40,989)
Medicare cap sequestration adjustment		-		796		-		1,472
Add/(deduct) tax impacts:
Tax impact of the above pre-tax adjustments (1)		(5,241)		1,537		(7,728)		(814)
Excess tax benefits on stock compensation		(868)		(8,203)		(4,106)		(12,756)
Adjusted net income	$	74,100	$	72,223	$	146,470	$	132,938

Diluted Earnings Per Share As Reported
Net income	$	3.51	$	5.01	$	7.52	$	8.39
Average number of shares outstanding		16,101		16,373		16,205		16,445

Adjusted Diluted Earnings Per Share
Adjusted net income	$	4.60	$	4.41	$	9.04	$	8.08
Adjusted average number of shares outstanding		16,101		16,373		16,205		16,445

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

‎

-37-

CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019
(in thousands)(unaudited)
Chemed
VITAS
Roto-Rooter
Corporate
Consolidated
2019 (a)




Service revenues and sales
$
941,279
$
474,952
$
-
$
1,416,231
Cost of services provided and goods sold
728,397
245,374
-
973,771
Selling, general and administrative expenses
65,182
120,736
36,503
222,421
Depreciation
14,644
14,983
117
29,744
Amortization
53
1,313
-
1,366
Other operating expenses
6,521
214
2,266
9,001
Total costs and expenses
814,797
382,620
38,886
1,236,303
Income/(loss) from operations
126,482
92,332
(38,886)
179,928
Interest expense
(150)
(273)
(2,979)
(3,402)
Intercompany interest income/(expense)
13,395
6,609
(20,004)
-
Other income—net
309
86
5,093
5,488
Income/(expense) before income taxes
140,036
98,754
(56,776)
182,014
Income taxes
(33,636)
(22,452)
28,417
(27,671)
Net income/(loss)
$
106,400
$
76,302
$
(28,359)
$
154,343
(a) The following amounts are included in net income (in thousands):
Chemed
VITAS
Roto-Rooter
Corporate
Consolidated
Pretax benefit/(cost):
Stock option expense
$
-
$
-
$
(10,729)
$
(10,729)
Litigation settlement
(6,000)
-
-
(6,000)
Long-term incentive compensation
-
-
(4,552)
(4,552)
Acquisition expense
-
(3,377)
(120)
(3,497)
Medicare cap sequestration adjustment
(3,063)
-
-
(3,063)
Impairment loss on transportation equipment
-
-
(2,266)
(2,266)
Amortization of reacquired franchise agreements
-
(1,103)
-
(1,103)
Non cash ASC 842 (expenses)/benefit
(656)
(55)
163
(548)
Total
$
(9,719)
$
(4,535)
$
(17,504)
$
(31,758)
Chemed
VITAS
Roto-Rooter
Corporate
Consolidated
After-tax benefit/(cost):
Stock option expense
$
-
$
-
$
(8,804)
$
(8,804)
Litigation settlement
(4,476)
-
-
(4,476)
Long-term incentive compensation
-
-
(3,915)
(3,915)
Acquisition expense
-
(2,482)
(91)
(2,573)
Medicare cap sequestration adjustment
(2,279)
-
-
(2,279)
Impairment loss on transportation equipment
-
-
(1,733)
(1,733)
Amortization of reacquired franchise agreements
-
(811)
-
(811)
Non cash ASC 842 (expenses)/benefit
(490)
(40)
124
(406)
Excess tax benefits on stock compensation
-
-
18,737
18,737
Total
$
(7,245)
$
(3,333)
$
4,318
$
(6,260)

‎

-38-

Unaudited Consolidating Summary and Reconciliation of Adjusted EBITDA
Chemed Corporation and Subsidiary Companies
(in thousands)
Chemed
For the three months ended September 30, 2020
VITAS
Roto-Rooter
Corporate
Consolidated



Net income/(loss)
$
45,737
$
31,176
$
(9,191)
$
67,722
Add/(deduct):
Interest expense
47
80
252
379
Income taxes
13,934
9,218
(9,270)
13,882
Depreciation
5,592
6,089
33
11,714
Amortization
18
2,493
-
2,511
EBITDA
65,328
49,056
(18,176)
96,208
Add/(deduct):
Intercompany interest expense/(income)
(5,337)
(1,651)
6,988
-
Interest income
(385)
(38)
-
(423)
CARES Act grant
8,805
-
-
8,805
Direct costs related to COVID-19
6,945
1,321
-
8,266
Stock option expense
-
-
3,182
3,182
Litigation settlement
-
3,095
-
3,095
COVID-19 related Medicare cap
(2,250)
-
-
(2,250)
Long-term incentive compensation
-
-
1,774
1,774
Medicare cap sequestration adjustment
(852)
-
-
(852)
Adjusted EBITDA
$
72,254
$
51,783
$
(6,232)
$
117,805
Chemed
For the three months ended September 30, 2019
VITAS
Roto-Rooter
Corporate
Consolidated
Net income/(loss)
$
39,773
$
26,140
$
(6,966)
$
58,947
Add/(deduct):
Interest expense
48
80
913
1,041
Income taxes
11,930
7,113
(11,067)
7,976
Depreciation
5,105
5,003
39
10,147
Amortization
18
423
-
441
EBITDA
56,874
38,759
(17,081)
78,552
Add/(deduct):
Intercompany interest expense/(income)
(4,618)
(2,234)
6,852
-
Interest income
(139)
(34)
-
(173)
Acquisition expenses
-
3,281
-
3,281
Stock option expense
-
-
2,711
2,711
Long-term incentive compensation
-
-
1,677
1,677
Medicare cap sequestration adjustment
859
-
-
859
Adjusted EBITDA
$
52,976
$
39,772
$
(5,841)
$
86,907


CHEMED CORPORATION AND SUBSIDIARY COMPANIES
OPERATING STATISTICS FOR VITAS SEGMENT
(unaudited)
	Three Months Ended June 30,						Six Months Ended June 30,
OPERATING STATISTICS	2021			2020			2021			2020
Net revenue ($000)
Homecare	$	264,926		$	276,345		$	528,680		$	548,098
Inpatient		27,371			25,868			56,527			58,350
Continuous care		24,282			34,582			51,631			75,137
Other		3,078			2,109			6,016			5,265
Subtotal	$	319,657		$	338,904		$	642,854		$	686,850
Room and board, net		(2,657)			(2,647)			(5,322)			(6,028)
Contractual allowances		(3,065)			(3,042)			(6,309)			(7,192)
Medicare cap allowance		(2,000)			(5,750)			(3,500)			(8,250)
Total	$	311,935		$	327,465		$	627,723		$	665,380
Net revenue as a percent of total before Medicare cap allowances
Homecare		82.9	%		81.5	%		82.2	%		79.8	%
Inpatient		8.6			7.6			8.8			8.5
Continuous care		7.6			10.2			8.0			10.9
Other		0.9			0.7			1.0			0.8
Subtotal		100.0			100.0			100.0			100.0
Room and board, net		(0.8)			(0.8)			(0.8)			(0.9)
Contractual allowances		(1.0)			(0.9)			(1.0)			(1.0)
Medicare cap allowance		(0.6)			(1.7)			(0.6)			(1.2)
Total		97.6	%		96.6	%		97.6	%		96.9	%
Days of care
Homecare		1,335,482			1,401,744			2,665,374			2,766,490
Nursing home		244,423			279,462			477,206			582,836
Respite		5,338			4,158			10,178			10,850
Subtotal routine homecare and respite		1,585,243			1,685,364			3,152,758			3,360,176
Inpatient		26,493			25,542			54,167			57,890
Continuous care		25,786			35,814			55,086			77,187
Total		1,637,522			1,746,720			3,262,011			3,495,253
Number of days in relevant time period		91			91			181			182
Average daily census (days)
Homecare		14,676			15,404			14,726			15,201
Nursing home		2,686			3,071			2,636			3,202
Respite		59			45			57			60
Subtotal routine homecare and respite		17,421			18,520			17,419			18,463
Inpatient		291			281			299			318
Continuous care		283			394			304			424
Total		17,995			19,195			18,022			19,205
Total Admissions		16,840			16,822			34,975			35,425
Total Discharges		16,525			17,000			35,054			35,208
Average length of stay (days)		94.5			90.9			94.4			90.8
Median length of stay (days)		14.0			14.0			13.0			14.0
ADC by major diagnosis
Cerebro		36.8	%		35.2	%		36.5	%		35.7	%
Neurological		22.4			21.7			22.3			21.6
Cancer		12.1			12.8			12.2			12.7
Cardio		15.6			16.1			15.6			15.9
Respiratory		7.3			8.2			7.5			8.3
Other		5.8			6.0			5.9			5.8
Total		100.0	%		100.0	%		100.0	%		100.0	%
Admissions by major diagnosis
Cerebro		21.4			20.9	%		21.5	%		21.0	%
Neurological		12.3			13.4			12.3			12.9
Cancer		28.9			27.6			26.9			28.0
Cardio		14.8			14.6			14.5			14.9
Respiratory		10.5			9.8			10.7			10.9
Other		12.1			13.7			14.1			12.3
Total		100.0	%		100.0	%		100.0	%		100.0	%

Estimated uncollectible accounts as a percent of revenues		1.0	%		0.9	%		1.0	%		1.1	%
Accounts receivable --
Days of revenue outstanding- excluding unapplied Medicare payments		36.3			31.9			n.a.			n.a.
Days of revenue outstanding- including unapplied Medicare payments		21.0			26.7			n.a.			n.a.

‎

-39-

Unaudited Consolidating Summary and Reconciliation of Adjusted EBITDA
Chemed Corporation and Subsidiary Companies
(in thousands)
Chemed
For the nine months ended September 30, 2020
VITAS
Roto-Rooter
Corporate
Consolidated




Net income/(loss)
$
147,262
$
84,966
$
(26,514)
$
205,714
Add/(deduct):
Interest expense
137
272
1,596
2,005
Income taxes
47,055
26,031
(28,651)
44,435
Depreciation
16,622
18,035
104
34,761
Amortization
53
7,423
-
7,476
EBITDA
211,129
136,727
(53,465)
294,391
Add/(deduct):
Intercompany interest expense/(income)
(14,463)
(4,422)
18,885
-
Interest income
(566)
(68)
(13)
(647)
Direct costs related to COVID-19
32,184
3,299
-
35,483
Cares Act grant
(32,184)
-
-
(32,184)
Stock option expense
-
-
13,296
13,296
Long-term incentive compensation
-
-
5,523
5,523
Litigation settlement
-
3,095
-
3,095
Medicare cap sequestration adjustment
619
-
-
619
Adjusted EBITDA
$
196,719
$
138,631
$
(15,774)
$
319,576
Chemed
For the nine months ended September 30, 2019
VITAS
Roto-Rooter
Corporate
Consolidated
Net income/(loss)
$
106,400
$
76,302
$
(28,359)
$
154,343
Add/(deduct):
Interest expense
150
273
2,979
3,402
Income taxes
33,636
22,452
(28,417)
27,671
Depreciation
14,644
14,983
117
29,744
Amortization
53
1,313
-
1,366
EBITDA
154,883
115,323
(53,680)
216,526
Add/(deduct):
Intercompany interest expense/(income)
(13,395)
(6,609)
20,004
-
Interest income
(296)
(91)
-
(387)
Stock option expense
-
-
10,729
10,729
Litigation settlement
6,000
-
-
6,000
Long-term incentive compensation
-
-
4,552
4,552
Acquisition expense
-
3,377
120
3,497
Medicare cap sequestration adjustment
3,063
-
-
3,063
Impairment loss on transportation equipment
-
-
2,266
2,266
Non cash ASC 842 expenses/(benefit)
656
55
(163)
548
Adjusted EBITDA
$
150,911
$
112,055
$
(16,172)
$
246,794

‎

-40-

RECONCILIATION OF ADJUSTED NET INCOME
(in thousands, except per share data)(unaudited)
Three Months Ended September 30,
Nine Months Ended September 30,
2020
2019
2020
2019
Net income as reported
$
67,722
$
58,947
$
205,714
$
154,343
Add/(deduct) pre-tax cost of:
Direct costs related to COVID-19
8,266
-
35,483
-
CARES Act grant
8,805
-
(32,184)
-
Stock option expense
3,182
2,711
13,296
10,729
Amortization of reacquired franchise agreements
2,352
331
7,056
1,103
Long-term incentive compensation
1,774
1,677
5,523
4,552
Litigation settlement
3,095
-
3,095
6,000
Medicare cap sequestration adjustment
(852)
859
619
3,063
COVID-19 related Medicare cap
(2,250)
-
-
-
Impairment loss on transportation equipment
-
-
-
2,266
Acquisition expense
-
3,281
-
3,497
Non cash ASC 842 expense
-
-
-
548
Add/(deduct) tax impacts:
Tax impact of the above pre-tax adjustments (1)
(5,351)
(1,801)
(6,165)
(6,761)
Excess tax benefits on stock compensation
(7,187)
(8,792)
(19,943)
(18,737)
Adjusted net income
$
79,556
$
57,213
$
212,494
$
160,603
Diluted Earnings Per Share As Reported
Net income
$
4.14
$
3.56
$
12.53
$
9.35
Average number of shares outstanding
16,373
16,555
16,419
16,514
Adjusted Diluted Earnings Per Share
Adjusted net income
$
4.86
$
3.46
$
12.94
$
9.73
Adjusted average number of shares outstanding
16,373
16,555
16,419
16,514
(1) The tax impact of pre-tax adjustments was calculated using the effective tax rate of the operating unit for which each adjustment is associated.

-41-

CHEMED CORPORATION AND SUBSIDIARY COMPANIES
OPERATING STATISTICS FOR VITAS SEGMENT
(unaudited)
Three Months Ended September 30,
Nine Months Ended September 30,
OPERATING STATISTICS
2020
2019
2020
2019
Net revenue ($000)
Homecare
$
278,856
$
274,746
$
826,954
$
800,059
Inpatient
27,633
23,599
85,983
69,063
Continuous care
30,699
29,446
105,836
92,476
Other
2,910
2,356
8,175
6,598
Subtotal
$
340,098
$
330,147
$
1,026,948
$
968,196
Room and board, net
(3,289)
(2,846)
(9,317)
(8,098)
Contractual allowances
(3,784)
(4,236)
(10,976)
(10,904)
Medicare cap allowance
4,072
(1,317)
(4,178)
(7,915)
Total
$
337,097
$
321,748
$
1,002,477
$
941,279
Net revenue as a percent of total before Medicare cap allowances
Homecare
82.0
%
83.2
%
80.5
%
82.6
%
Inpatient
8.1
7.1
8.4
7.1
Continuous care
9.0
8.9
10.3
9.6
Other
0.9
0.8
0.8
0.7
Subtotal
100.0
100.0
100.0
100.0
Room and board, net
(1.0)
(0.9)
(0.9)
(0.8)
Contractual allowances
(1.1)
(1.3)
(1.1)
(1.2)
Medicare cap allowance
1.2
(0.4)
(0.4)
(0.8)
Total
99.1
%
97.4
%
97.6
%
97.2
%
Days of care
Homecare
1,426,191
1,361,508
4,192,681
3,961,261
Nursing home
261,396
315,566
844,232
909,318
Respite
4,566
8,582
15,416
21,552
Subtotal routine homecare and respite
1,692,153
1,685,656
5,052,329
4,892,131
Inpatient
27,017
30,553
84,907
89,366
Continuous care
33,013
39,670
110,200
125,397
Total
1,752,183
1,755,879
5,247,436
5,106,894
Number of days in relevant time period
92
92
274
273
Average daily census (days)
Homecare
15,502
14,799
15,302
14,510
Nursing home
2,841
3,430
3,081
3,331
Respite
50
93
56
79
Subtotal routine homecare and respite
18,393
18,322
18,439
17,920
Inpatient
294
332
310
327
Continuous care
358
432
402
460
Total
19,045
19,086
19,151
18,707
Total Admissions
17,943
17,131
53,368
52,380
Total Discharges
18,205
16,915
51,281
51,274
Average length of stay (days)
97.1
92.6
92.9
91.6
Median length of stay (days)
14.0
17.0
14.0
16.0
ADC by major diagnosis
Cerebro
35.1
%
35.7
%
35.7
%
35.9
%
Neurological
22.1
20.7
21.7
20.4
Cancer
12.5
12.9
12.6
12.9
Cardio
16.1
16.6
15.9
16.7
Respiratory
8.0
8.1
8.2
8.1
Other
6.2
6.0
5.9
6.0
Total
100.0
%
100.0
%
100.0
%
100.0
%
Admissions by major diagnosis
Cerebro
21.4
21.1
%
21.2
%
20.8
%
Neurological
13.2
12.7
13.0
12.6
Cancer
27.4
30.5
27.8
29.2
Cardio
13.6
14.8
14.5
15.7
Respiratory
9.9
10.2
10.6
11.3
Other
14.5
10.7
12.9
10.4
Total
100.0
%
100.0
%
100.0
%
100.0
%
Estimated uncollectible accounts as a percent of revenues
1.1
%
1.3
%
1.1
%
1.1
%
Accounts receivable --
Days of revenue outstanding- excluding unapplied Medicare payments
33.4
32.7
n.a.
n.a.
Days of revenue outstanding- including unapplied Medicare payments
22.1
21.0
n.a.
n.a.

‎

-4238-

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

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

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Company’s primary market risk exposure relates to interest rate risk exposure through its variable interest line of credit. At ~~September~~June 30, ~~2020,~~2021, the Company had no variable rate debt outstanding. For each $10 million borrowed under the credit facility, an increase or decrease of 100 basis points (1%), increases or decreases the Company’s annual interest expense by $100,000.

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

Item 4. Controls and Procedures

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

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

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

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

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

‎

-4339-

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~~six months of ~~2020:~~2021:

Total Number
Weighted Average
Cumulative Shares
Dollar Amount
of Shares
Price Paid Per
Repurchased Under
Remaining Under
Repurchased
Share
the Program
The Program
February 2011 Program
January 1 through January 31, 2020
-
$
-
8,645,873
$
104,018,683
February 1 through February 29, 2020
110,497
457.73
8,756,370
53,440,502
March 1 through March 31, 2020
114,503
433.67
8,870,873
$
253,783,766
First Quarter Total
225,000
$
445.49
April 1 through April 30, 2020
-
$
-
8,870,873
$
253,783,766
May 1 through May 31, 2020
-
-
8,870,873
253,783,766
June 1 through June 30, 2020
50,000
438.27
8,920,873
$
231,870,234
Second Quarter Total
50,000
$
438.27
July 1 through July 31, 2020
-
$
-
8,920,873
$
231,870,234
August 1 through August 31, 2020
33,409
499.98
8,954,282
215,166,306
September 1 through September 30, 2020
16,591
498.48
8,970,873
$
206,896,015
Third Quarter Total
50,000
$
499.48



	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, 2021	-	$	-	9,030,125	$	178,424,171
February 1 through February 28, 2021	20,000		446.44	9,050,125		169,495,380
March 1 through March 31, 2021	80,000		447.98	9,130,125	$	133,656,728

First Quarter Total	100,000	$	447.67

April 1 through April 30, 2021	14,685	$	478.70	9,144,810	$	126,627,084
May 1 through May 31, 2021	200,315		486.65	9,345,125		329,142,814
June 1 through June 30, 2021	35,000		496.21	9,380,125	$	311,775,318

Second Quarter Total	250,000	$	487.52

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

‎

-44-

Item 6. Exhibits



Exhibit No.		Description

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

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

31.3		Certification by Michael D. Witzeman pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act of 1934.

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

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

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

101		The following materials from Chemed Corporation’s Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2020~~2021 formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) The Condensed Consolidated Balance Sheet, (ii) The Condensed Consolidated Statement of Income, (iii) The Condensed Consolidated Statement of Cash Flows, (iv) The Condensed Statement of Equity, and (v) Notes to the Condensed Consolidated Financial Statements.
104		The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2020,~~2021, formatted in iXBRL and contained in Exhibit 101.

‎

-4540-

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 4, 2020~~July 30, 2021	By:	/s/ Kevin J. McNamara
			Kevin J. McNamara
			(President and Chief Executive Officer)


Dated:	~~November 4, 2020~~July 30, 2021	By:	/s/ David P. Williams
			David P. Williams
			(Executive Vice President and Chief Financial Officer)


Dated:	~~November 4, 2020~~July 30, 2021	By:	/s/ Michael D. Witzeman
			Michael D. Witzeman
			(Vice President and Controller)

-4641-


			ADDITIONS
			(CHARGED)
			CREDITED		(CHARGED)
			TO COSTS		CREDITED
	BALANCE AT		AND		TO OTHER						BALANCE AT
	1/1/2020		EXPENSES		ACCOUNTS		DEDUCTIONS		OTHER		9/30/2020

$	(353)	$	(1,052)	$	(475)	$	574	$	13	$	(1,293)


	Three months ended		Nine months ended
	September 30, 2020		September 30, 2020

Incremental PTO	$	-	$	21,425
Hard costs		6,945		10,759
Incremental Medicare Cap		(2,250)		-
Lost revenue		(13,500)		-
Other operating (income)/expense	$	(8,805)	$	32,184


			Net Income
For the Nine Months Ended September 30,		Income		Shares	Earnings per Share
2020
	Earnings	$	205,714	15,948	$	12.90
	Dilutive stock options		-	394
	Nonvested stock awards		-	77
	Diluted earnings	$	205,714	16,419	$	12.53

2019
	Earnings	$	154,343	15,952	$	9.68
	Dilutive stock options		-	484
	Nonvested stock awards		-	78
	Diluted earnings	$	154,343	16,514	$	9.35



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


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



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