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, ~~2017~~

☐2019

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

Commission File Number: 1-8351

CHEMED CORPORATION

(Exact name of registrant as specified in its charter)

~~Delaware~~		~~31-0791746~~
Delaware		31-0791746
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

255 E. Fifth Street, Suite 2600, Cincinnati, Ohio		45202
(Address of principal executive offices)		(Zip code)
(513) 762-6690 (Registrant’s telephone number, including area code)

~~(513) 762-6690~~

~~(Registrant’s telephone number, including area code)~~

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

	~~Yes~~	☒	No
Yes	☐ x	No	o

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

	~~Yes~~	☒	No
Yes	☐ x	No	o

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

~~Large accelerated filer~~

☒

~~Accelerated filer~~

☐

~~Non-accelerated filer~~

☐

~~Smaller reporting company~~

☐

Large Accelerated Filer

Accelerated Filer

Non-accelerated Filer

~~Emerging growth company~~

Smaller Reporting Company

☐

Emerging growth company o

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

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

	~~Yes~~	☐	No		☒
Yes	o	No		x

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

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

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

Capital Stock $1 Par Value	CHE	~~15,966,003~~ New York Stock Exchange	15,921,808 Shares	June 30, 2019
	~~September 30, 2017~~

‎

-1-

CHEMED CORPORATION AND

SUBSIDIARY COMPANIES

Index

~~Index~~

				~~Page No.~~

	Page No.
PART I. FINANCIAL INFORMATION:

Item 1. Financial Statements
		Unaudited Consolidated Balance Sheets -
		~~September~~June 30, ~~2017~~2019 and December 31, ~~2016~~2018		3

		Unaudited Consolidated Statements of Income -
		Three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018		4

		Unaudited Consolidated Statements of Cash Flows -
		~~Nine~~ Six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018		5

Unaudited Consolidated Statements of Changes in Stockholders’ Equity-
Three and six months ended June 30, 2019 and 2018	6

Notes to Unaudited Consolidated Financial Statements	6 7

	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			16 23

	Item 3. Quantitative and Qualitative Disclosures about Market Risk			34 41

	Item 4. Controls and Procedures			34 41

PART II. OTHER INFORMATION

Item 1. Legal Proceedings	34 41

	Item 1A. Risk Factors			34 41

	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			35 42

	Item 3. Defaults Upon Senior Securities			35 42

	Item 4. Mine Safety Disclosures			35 42

	Item 5. Other Information			35 42

	Item 6. Exhibits			36 43

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

‎

-2-


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



	June 30, 2019		December 31, 2018
ASSETS
Current assets
Cash and cash equivalents	$	3,323	$	4,831
Accounts receivable		136,113		119,504
Inventories		6,336		5,705
Prepaid income taxes		12,951		10,646
Prepaid expenses		21,455		19,154
Total current assets		180,178		159,840
Investments of deferred compensation plans		70,460		65,624
Properties and equipment, at cost, less accumulated depreciation of $259,495 (2018 - $248,370)		149,917		162,033
Assets held for sale		15,750		-
Lease right of use assets less accumulated amortization of $13,415		90,755		-
Identifiable intangible assets less accumulated amortization of $34,210 (2018 - $33,284)		67,511		68,253
Goodwill		510,627		510,570
Other assets		8,874		9,209
Total Assets	$	1,094,072	$	975,529

LIABILITIES
Current liabilities
Accounts payable	$	51,143	$	50,150
Accrued insurance		46,912		46,095
Accrued compensation		50,123		63,329
Accrued legal		8,431		1,857
Short-term lease liability		31,614		-
Other current liabilities		35,446		30,239
Total current liabilities		223,669		191,670
Deferred income taxes		18,828		21,598
Long-term debt		85,000		89,200
Deferred compensation liabilities		70,273		64,616
Long-term lease liability		69,979		-
Other liabilities		7,754		17,111
Total Liabilities		475,503		384,195
Commitments and contingencies (Note 11)
STOCKHOLDERS' EQUITY
Capital stock - authorized 80,000,000 shares $1 par; issued 35,590,832 shares (2018 - 35,311,418 shares)		35,591		35,311
Paid-in capital		817,255		774,358
Retained earnings		1,311,446		1,225,617
Treasury stock - 19,749,166 shares (2018 - 19,438,358)		(1,548,138)		(1,446,296)
Deferred compensation payable in Company stock		2,415		2,344
Total Stockholders' Equity		618,569		591,334
Total Liabilities and Stockholders' Equity	$	1,094,072	$	975,529

See accompanying notes to unaudited consolidated financial statements.

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
UNAUDITED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

September 30, 2017 December 31, 2016
ASSETS
Current assets
Cash and cash equivalents $ 18,871 $ 15,310
Accounts receivable less allowances of $14,997 (2016 - $14,236) 91,483 132,021
Inventories 5,658 5,755
Prepaid income taxes 3,621 3,709
Prepaid expenses 15,678 13,105
Total current assets 135,311 169,900
Investments of deferred compensation plans 60,445 54,389
Properties and equipment, at cost, less accumulated depreciation of $227,036 (2016 - $211,290) 143,148 121,302
Identifiable intangible assets less accumulated amortization of $32,862 (2016 - $33,225) 54,793 55,065
Goodwill 473,024 472,366
Deferred income taxes 21,893 8
Other assets 6,845 7,029
Total Assets $ 895,459 $ 880,059

LIABILITIES
Current liabilities
Accounts payable $ 34,752 $ 39,586
Current portion of long-term debt 10,000 8,750
Income taxes 12,349 -
Accrued insurance 44,584 47,960
Accrued compensation 53,857 53,979
Accrued legal 91,450 1,805
Other current liabilities 22,382 19,752
Total current liabilities 269,374 171,832
Deferred income taxes - 14,291
Long-term debt 72,500 100,000
Deferred compensation liabilities 59,389 54,288
Other liabilities 16,494 15,549
Total Liabilities 417,757 355,960
Commitments and contingencies (Note 11)
STOCKHOLDERS' EQUITY
Capital stock - authorized 80,000,000 shares $1 par; issued 34,513,535 shares (2016 - 34,270,104 shares) 34,514 34,270
Paid-in capital 668,573 639,703
Retained earnings 988,895 958,149
Treasury stock - 18,632,867 shares (2016 - 18,083,527) (1,216,509 ) (1,110,536 )
Deferred compensation payable in Company stock 2,229 2,513
Total Stockholders' Equity 477,702 524,099
Total Liabilities and Stockholders' Equity $ 895,459 $ 880,059

See accompanying notes to unaudited consolidated financial statements.

-3-


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



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Service revenues and sales	$	473,584	$	441,813	$	935,618	$	880,989
Cost of services provided and goods sold (excluding depreciation)		323,637		305,741		645,588		610,277
Selling, general and administrative expenses		71,556		68,297		145,585		137,297
Depreciation		9,887		9,718		19,597		18,985
Amortization		406		34		925		61
Other operating expenses/(income)		2,570		(118)		8,923		(169)
Total costs and expenses		408,056		383,672		820,618		766,451
Income from operations		65,528		58,141		115,000		114,538
Interest expense		(1,237)		(1,524)		(2,361)		(2,731)
Other income - net		13		1,038		2,452		2,056
Income before income taxes		64,304		57,655		115,091		113,863
Income taxes		(13,575)		(2,684)		(19,695)		(13,896)
Net income	$	50,729	$	54,971	$	95,396	$	99,967

Earnings Per Share:
Net income	$	3.18	$	3.43	$	5.98	$	6.22
Average number of shares outstanding		15,928		16,035		15,941		16,067

Diluted Earnings Per Share:
Net income	$	3.08	$	3.27	$	5.79	$	5.93
Average number of shares outstanding		16,449		16,811		16,489		16,854

Cash Dividends Per Share	$	0.30	$	0.28	$	0.60	$	0.56

See accompanying notes to unaudited consolidated financial statements.

CHEMED CORPORATION AND SUBSIDIARY COMPANIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Service revenues and sales $ 417,444 $ 392,607 $ 1,238,367 $ 1,173,405
Cost of services provided and goods sold (excluding depreciation) 288,047 281,658 859,039 836,348
Selling, general and administrative expenses 66,919 59,373 205,031 181,046
Depreciation 8,819 8,614 26,545 25,619
Amortization 33 91 111 274
Other operating expenses/(income) (371 ) - 91,138 4,491
Total costs and expenses 363,447 349,736 1,181,864 1,047,778
Income from operations 53,997 42,871 56,503 125,627
Interest expense (1,048 ) (1,018 ) (3,164 ) (2,831 )
Other income - net 1,323 1,640 5,439 1,933
Income before income taxes 54,272 43,493 58,778 124,729
Income taxes (18,835 ) (16,664 ) (15,153 ) (48,175 )
Net income $ 35,437 $ 26,829 $ 43,625 $ 76,554

Earnings Per Share
Net income $ 2.22 $ 1.66 $ 2.72 $ 4.66
Average number of shares outstanding 15,976 16,166 16,068 16,443

Diluted Earnings Per Share
Net income $ 2.13 $ 1.62 $ 2.60 $ 4.54
Average number of shares outstanding 16,676 16,559 16,763 16,851

Cash Dividends Per Share $ 0.28 $ 0.26 $ 0.80 $ 0.74

See accompanying notes to unaudited consolidated financial statements.

‎

-4-


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

	Six Months Ended June 30,
	2019		2018
Cash Flows from Operating Activities
Net income	$	95,396	$	99,967
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization		20,522		19,046
Stock option expense		8,018		7,305
Litigation settlement		6,000		-
(Benefit)/provision for deferred income taxes		(2,769)		2,173
Noncash long-term incentive compensation		2,506		2,942
Asset impairment loss		2,266		-
Noncash directors' compensation		767		766
Amortization of debt issuance costs		153		288
Amortization of restricted stock awards		-		446
Changes in operating assets and liabilities:
Increase in accounts receivable		(16,613)		(6,057)
Increase in inventories		(631)		(362)
Increase in prepaid expenses		(2,301)		(113)
Decrease in accounts payable and other current liabilities		(4,175)		(14,909)
Change in current income taxes		(2,249)		10,136
Increase in other assets		(4,653)		(5,667)
Increase in other liabilities		5,833		4,889
Other sources		837		186
Net cash provided by operating activities		108,907		121,036
Cash Flows from Investing Activities
Capital expenditures		(28,312)		(23,872)
Business combinations		-		(1,875)
Other (uses)/sources		(137)		533
Net cash used by investing activities		(28,449)		(25,214)
Cash Flows from Financing Activities
Payments on revolving line of credit		(227,000)		(281,150)
Proceeds from revolving line of credit		222,800		358,350
Purchases of treasury stock		(71,926)		(84,304)
Proceeds from exercise of stock options		16,517		20,209
Capital stock surrendered to pay taxes on stock-based compensation		(14,884)		(21,022)
Dividends paid		(9,567)		(9,016)
Change in cash overdrafts payable		1,710		(711)
Payments on other long-term debt		-		(75,000)
Debt issuance costs		-		(968)
Other sources/(uses)		384		(663)
Net cash used by financing activities		(81,966)		(94,275)
Increase in Cash and Cash Equivalents		(1,508)		1,547
Cash and cash equivalents at beginning of year		4,831		11,121
Cash and cash equivalents at end of period	$	3,323	$	12,668

See accompanying notes to unaudited consolidated financial statements.

CHEMED CORPORATION AND SUBSIDIARY COMPANIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

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

See accompanying notes to unaudited consolidated financial statements.

‎

-5-



CHEMED CORPORATION AND SUBSIDIARY COMPANIES
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(in thousands, except per share data)
										Deferred
										Compensation
								Treasury		Payable in
		Capital		Paid-in		Retained		Stock-		Company
		Stock		Capital		Earnings		at Cost		Stock		Total
Balance at March 31, 2019		35,521		803,701		1,265,485		(1,519,077)		2,380		588,010
Net income		-		-		50,729		-		-		50,729
Dividends paid ($0.30 per share)		-		-		(4,768)		-		-		(4,768)
Stock awards and exercise of stock options		70		13,337		-		(6,350)		-		7,057
Purchases of treasury stock		-		-		-		(22,676)		-		(22,676)
Other		-		217		-		(35)		35		217
Balance at June 30, 2019	$	35,591	$	817,255	$	1,311,446	$	(1,548,138)	$	2,415	$	618,569
										Deferred
										Compensation
								Treasury		Payable in
		Capital		Paid-in		Retained		Stock-		Company
		Stock		Capital		Earnings		at Cost		Stock		Total
Balance at March 31, 2018		34,885		712,991		1,078,690		(1,321,843)		2,236		506,959
Net income		-		-		54,971		-		-		54,971
Dividends paid ($0.28 per share)		-		-		(4,483)		-		-		(4,483)
Stock awards and exercise of stock options		256		31,660		-		(29,481)		-		2,435
Purchases of treasury stock		-		-		-		(3,179)		-		(3,179)
Other		-		(423)		111		(35)		35		(312)
Balance at June 30, 2018	$	35,141	$	744,228	$	1,129,289	$	(1,354,538)	$	2,271	$	556,391
										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		-		-		95,396		-		-		95,396
Dividends paid ($0.60 per share)		-		-		(9,567)		-		-		(9,567)
Stock awards and exercise of stock options		280		42,489		-		(29,845)		-		12,924
Purchases of treasury stock		-		-		-		(71,926)		-		(71,926)
Other		-		408		-		(71)		71		408
Balance at June 30, 2019	$	35,591	$	817,255	$	1,311,446	$	(1,548,138)	$	2,415	$	618,569
										Deferred
										Compensation
								Treasury		Payable in
		Capital		Paid-in		Retained		Stock-		Company
		Stock		Capital		Earnings		at Cost		Stock		Total
Balance at December 31, 2017		34,732		695,797		1,038,955		(1,231,332)		2,202		540,354
Net income		-		-		99,967		-		-		99,967
Dividends paid ($0.56 per share)		-		-		(9,016)		-		-		(9,016)
Stock awards and exercise of stock options		409		49,070		-		(38,833)		-		10,646
Purchases of treasury stock		-		-		-		(84,304)		-		(84,304)
Other		-		(639)		(617)		(69)		69		(1,256)
Balance at June 30, 2018	$	35,141	$	744,228	$	1,129,289	$	(1,354,538)	$	2,271	$	556,391

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

-6-

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, ~~2016~~2018 balance sheet data were derived from audited financial statements but do not include all disclosures required by GAAP. However, in our opinion, the financial statements presented herein contain all adjustments, consisting only of normal recurring adjustments, necessary to state fairly our financial position, results of operations and cash flows. These financial statements are prepared on the same basis as and should be read in conjunction with the audited Consolidated Financial Statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~

~~EARNINGS PER SHARE~~

2018.

LEASE ACCOUNTING

In ~~March~~February 2016, the FASB issued Accounting Standards Update “ASU No. ~~2016-09 -~~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 $87.8 million and $98.7 million, respectively, as of March 31, 2019. In determining the liability, we used our incremental borrowing rate based on the information available at the time of adoption, since the rate implicit in the leases cannot be readily determined. At January 1, 2019, the weighted average rate was 3.47%. The standard did not materially impact our consolidated net income or cash flows. We did not book a cumulative effect adjustment upon adoption of the standard.

CLOUD COMPUTING

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

As of June 30, 2019, we have two cloud computing arrangements that are service contracts. Roto-Rooter is implementing a system to assist in technician dispatch and VITAS is implementing a new human resources system. We have capitalized approximately $2.8 million related to implementation of this project which is included in prepaid assets in the accompanying balance sheets. There has been no amortization expense associated with the asset, as the software has not yet been placed in service. We anticipate amortizing the assets over the original term of the arrangements plus renewal options that are reasonably certain of being exercised.

-7-

NON-EMPLOYEE STOCK COMPENSATION

In June 2018, the FASB issued Accounting Standards Update “ASU No. 2018-07 – Compensation – Stock Compensation” ~~which~~. The ASU expands the scope of current guidance to include all share-based payment arrangements related to the acquisition of goods and services from both non-employees and employees. The guidance in the ASU is ~~part of~~effective for the ~~FASB’s Simplification Initiative. The object~~Company in all fiscal years beginning after December 15, 2018. Adoption of this ~~initiative is to identify, evaluate, and improve areas of GAAP. The areas of simplification in this initiative involve several aspects of~~standard had no material impact on our consolidated financial statements.

CASH FLOW CLASSIFICATION

In August 2016, the ~~accounting for share-based payment transactions, including~~FASB issued Accounting Standards Update “ASU No. 2016-15 – Cash Flow Classification” which amends guidance on the ~~income tax consequences,~~ classification of ~~awards as either equity or liabilities,~~certain cash receipts and ~~classification on~~payments in the statement of cash flows. The primary purpose of ASU 2016-15 was to reduce diversity in practice related to eight specific cash flow issues. The guidance in this ASU was effective for fiscal years beginning after December 15, ~~2016.~~2017. We adopted ~~the applicable provisions of ASU 2016-09 on a prospective basis. The impact of~~ this ASU as of January 1, 2018. There was no material effect to our statements of cash flow.

INCOME TAXES

Our effective income tax rate was 21.1% in the second quarter of 2019 compared to 4.7% during the second quarter of 2018. Excess tax benefit on ~~our financial statements for the quarter ended September 30, 2017 was to decrease~~stock options reduced our income tax expenses by $3.2 million and $11.7 million, respectively for the quarters ended June 30, 2019 and 2018.

Our effective income tax rate was 17.1% for the first six months of 2019 compared to 12.2% during the first six months of 2018. Excess tax benefit on stock options reduced our income tax expenses by $9.9 million and $15.5 million, respectively for the first six months ended June 30, 2019 and 2018.

NON-CASH TRANSACTIONS

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

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.

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 ~~$1.8~~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

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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.

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 June 30, 2019 and 2018 was $2.2 million and $2.1 million, respectively. The cost of providing charity care during the first six months ended June 30, 2019 and 2018 was $4.3 million and $4.2 million, respectively. The cost of charity care is included in cost of services provided and goods sold and is calculated by taking the ratio of charity care days to total days of care and multiplying by the total cost of care.

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

Laws and regulations concerning government programs, including Medicare and Medicaid, are complex and subject to varying interpretation. Compliance with such laws and regulations may be subject to future government review and interpretation. 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

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care. The variable consideration is estimated based ~~compensation being recorded~~ on the ~~statements~~terms of ~~income. This, combined with~~ the required change in diluted share count, resulted in an increase to basic and diluted earnings per share of $0.11 and $0.09, respectively. The impact of this ASU on our financial statements for the nine months ended September 30, 2017 was to decrease our income tax expense by $8.1 million as the result of excess tax benefits on stock based compensation being recorded on the statements of income. This, combined with the required change in diluted share count, resulted in an increase to basic earnings per share by $0.51 and an increase to diluted earnings per share by $0.46.

~~INCOME TAXES~~

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

~~2. Revenue Recognition~~

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

We are subject to certain limitations on Medicare payments for services which are considered variable consideration, as ~~described below.~~

follows:

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

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 June 30, 2019, all our programs except one are using the “streamlined” method.

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

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

year.

In 2013, the U.S. government implemented automatic budget reductions of 2.0% for all government payees, including hospice benefits paid under the Medicare program. In 2015, 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~~ third-party intermediary that an additional ~~$2.3~~$5.8 million is owed for Medicare cap in three programs arising during the 2013 ~~2014 and 2015~~through 2017 measurement periods. The amounts ~~were~~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 ~~demand~~ the ~~$2.3 million~~amounts they have withheld and intend to withhold under their current “as if” methodology. We have ~~not recorded a reserve as of September 30, 2017 for $480,000 of the potential exposure. We have~~ appealed CMS’s methodology ~~change with the appropriate regulatory appeal board.~~

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change.

During the quarter ended June 30, 2019, we recorded $2.4 million in net Medicare cap revenue reduction related to three ~~and nine~~programs for the 2019 government fiscal year. Additionally, we recorded $847,000 related to adjustments of prior year cap liabilities. During the quarter ended June 30, 2018, we recorded $355,000 in net Medicare cap revenue reduction related to one program for the 2018 government fiscal year. Additionally, we recorded $181,000 related to adjustments of prior year cap liabilities.

During the first six months ended ~~September~~June 30, ~~2016, respectively, $228,000~~2019, we recorded $5.8 million in net Medicare cap ~~was~~revenue reduction related to four programs for the 2019 government fiscal year. Additionally, we recorded ~~for one program’s projected 2015 measurement period liability~~

~~There was no~~$847,000 related to adjustments of prior year cap liabilities. During the six months ended June 30, 2018, we reversed $1.5 million of the $2.4 million Medicare cap ~~recorded~~revenue reduction recognized in the fourth quarter of 2017 due to improved metrics in two VITAS programs offset by $181,000 related to adjustments of prior year cap liabilities.

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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, ~~2017. During the nine months ended September 30, 2017, we recorded $247,000 for two programs cap liability~~2019 is as follows (in thousands):



	Medicare		Medicaid		Commercial		Total
Routine home care	$	248,545	$	11,907		6,009	$	266,461
Continuous care		27,975		1,408		1,403		30,786
Inpatient care		19,282		2,117		1,495		22,894
	$	295,802	$	15,432	$	8,907	$	320,141

All other revenue - self-pay, respite care, etc.								2,237
Subtotal							$	322,378
Medicare cap adjustment								(3,198)
Implicit price concessions								(3,720)
Room and board, net								(2,710)
Net revenue							$	312,750

The composition of patient care service revenue by payor and level of care for the ~~2013, 2014 and 2015 measurement periods of the amount recorded, $105,000 relates to the sequestration issue described above.~~

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

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

Vitas provides charity care, in certain circumstances, to patients without charge when management of the hospice program determines, at the time services are performed, that the patient cannot afford payment. There is no revenue or associated accounts receivable in the accompanying consolidated financial statements related to charity care. The cost of charity care is calculated by taking the ratio of charity care days to total days of care and multiplying by total cost of care. The cost of charity careJune 30, 2018 is as follows (in thousands):


	Medicare		Medicaid		Commercial		Total
Routine home care	$	232,637	$	12,019	$	5,725	$	250,381
Continuous care		27,581		1,428		1,504		30,513
Inpatient care		17,029		1,853		1,195		20,077
	$	277,247	$	15,300	$	8,424	$	300,971

All other revenue - self-pay, respite care, etc.								1,998
Subtotal							$	302,969
Medicare cap adjustment								(536)
Implicit price concessions								(2,959)
Room and board, net								(2,675)
Net revenue							$	296,799

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


	Medicare		Medicaid		Commercial		Total
Routine home care	$	489,978	$	23,581	$	11,753	$	525,312
Continuous care		56,949		3,195		2,886		63,030
Inpatient care		38,271		4,265		2,928		45,464
	$	585,198	$	31,041	$	17,567	$	633,806

All other revenue - self-pay, respite care, etc.								4,242
Subtotal							$	638,048
Medicare cap adjustment								(6,598)
Implicit price concessions								(6,667)
Room and board, net								(5,252)
Net revenue							$	619,531

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

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


	Medicare		Medicaid		Commercial		Total
Routine home care	$	456,658	$	23,299	$	11,455	$	491,412
Continuous care		55,213		3,031		3,035		61,279
Inpatient care		35,887		3,901		2,398		42,186
	$	547,758	$	30,231	$	16,888	$	594,877

All other revenue - self-pay, respite care, etc.								3,740
Subtotal							$	598,617
Medicare cap adjustment								1,282
Implicit price concessions								(5,792)
Room and board, net								(5,294)
Net revenue							$	588,813

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 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

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

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

Roto-Rooter has licensed the rights to operate under Roto-Rooter’s registered trademarks in other territories to franchisees. 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 second quarter is as follows (in thousands):


	June 30,
	2019		2018
Short-term core service jobs	$	115,143	$	105,086
Water restoration		28,239		24,765
Contractor revenue		14,580		12,366
Franchise fees		1,623		1,574
All other		2,974		2,835
Subtotal	$	162,559	$	146,626
Implicit price concessions and credit memos		(1,725)		(1,612)
Net revenue	$	160,834	$	145,014

‎

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


	June 30,
	2019		2018
Short-term core service jobs	$	226,202	$	209,172
Water restoration		55,891		52,502
Contractor revenue		28,589		24,731
Franchise fees		3,245		3,165
All other		5,981		6,155
Subtotal	$	319,908	$	295,725
Implicit price concessions and credit memos		(3,821)		(3,549)
Net revenue	$	316,087	$	292,176

Initial Adoption of ASC 606

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

3. Segments

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



	Three months ended June 30,				Six months ended June 30,
	2019		2018		2019		2018
After-tax Income/(Loss)
VITAS	$	37,339	$	31,785	$	66,626	$	63,800
Roto-Rooter		27,175		25,298		50,162		48,236
Total		64,514		57,083		116,788		112,036
Corporate		(13,785)		(2,112)		(21,392)		(12,069)
Net income	$	50,729	$	54,971	$	95,396	$	99,967

Three months ended September 30, Nine months ended September 30,
2017 2016 2017 2016
Service Revenues and Sales

VITAS $ 288,951 $ 282,865 $ 855,977 $ 839,131
Roto-Rooter 128,493 109,742 382,390 334,274
Total $ 417,444 $ 392,607 $ 1,238,367 $ 1,173,405

After-tax Income/(Loss)

VITAS $ 26,454 $ 20,903 $ 14,797 $ 58,538
Roto-Rooter 16,034 12,855 47,716 39,216
Total 42,488 33,758 62,513 97,754
Corporate (7,051 ) (6,929 ) (18,888 ) (21,200 )
Net income $ 35,437 $ 26,829 $ 43,625 $ 76,554

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

~~-7-~~

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4. Earnings per Share

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


			Net Income
For the Three Months Ended June 30,		Income		Shares	Earnings per Share
2019
	Earnings	$	50,729	15,928	$	3.18
	Dilutive stock options		-	449
	Nonvested stock awards		-	72
	Diluted earnings	$	50,729	16,449	$	3.08

2018
	Earnings	$	54,971	16,035	$	3.43
	Dilutive stock options		-	674
	Nonvested stock awards		-	102
	Diluted earnings	$	54,971	16,811	$	3.27


			Net Income
For the Six Months Ended June 30,		Income		Shares	Earnings per Share
2019
	Earnings	$	95,396	15,941	$	5.98
	Dilutive stock options		-	474
	Nonvested stock awards		-	74
	Diluted earnings	$	95,396	16,489	$	5.79

2018
	Earnings	$	99,967	16,067	$	6.22
	Dilutive stock options		-	683
	Nonvested stock awards		-	104
	Diluted earnings	$	99,967	16,854	$	5.93

Net Income
For the Three Months Ended September 30, Income Shares Earnings per Share
2017
Earnings $ 35,437 15,976 $ 2.22
Dilutive stock options - 616
Nonvested stock awards - 84
Diluted earnings $ 35,437 16,676 $ 2.13

2016
Earnings $ 26,829 16,166 $ 1.66
Dilutive stock options - 294
Nonvested stock awards - 99
Diluted earnings $ 26,829 16,559 $ 1.62

Net Income
For the Nine Months Ended September 30, Income Shares Earnings per Share
2017
Earnings $ 43,625 16,068 $ 2.72
Dilutive stock options - 609
Nonvested stock awards - 86
Diluted earnings $ 43,625 16,763 $ 2.60

2016
Earnings $ 76,554 16,443 $ 4.66
Dilutive stock options - 296
Nonvested stock awards - 112
Diluted earnings $ 76,554 16,851 $ 4.54

For the three ~~months~~and six month periods ended ~~September~~June 30, ~~2017, no~~2019, there were 246,000 stock options ~~and nonvested stock awards have been~~ excluded in the ~~calculation~~computation of dilutive earnings per share because they would have been anti-dilutive.

For the ~~nine~~three and six month ~~period~~periods ended ~~September~~June 30, ~~2017,~~2018, there were ~~7,304~~no stock options excluded ~~from~~in the computation of ~~diluted~~dilutive earnings per share because they would have been anti-dilutive.

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

5. Long-Term Debt

and Lines of Credit

On June ~~30, 2014,~~20, 2018, we replaced our existing credit agreement with the ~~Third~~Fourth Amended and Restated Credit Agreement (“~~2014~~2018 Credit Agreement”). Terms of the ~~2014~~2018 Credit Agreement consist of a ~~five-year, $350~~five year, $450 million revolving credit facility and a ~~$100~~$150 million expansion feature, which may consist of term ~~loan.~~loans or additional revolving commitments. The ~~2014~~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 ~~interest rate as of September 30, 2017 is LIBOR plus 113 basis points.~~

~~-8-~~

~~The debt~~amount outstanding as of ~~September~~June 30, ~~2017 consists of~~2019 is $85.0 million.

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

-15-

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

~~Scheduled principal payments of the term loan are as follows:~~

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

The ~~2014~~2018 Credit Agreement contains the following quarterly financial covenants:

~~Description~~		~~Requirement~~

Description		Requirement

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

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

~~Annual Operating Lease Commitment~~		~~< $50.0 million~~

We are in compliance with all debt covenants as of ~~September~~June 30, ~~2017.~~2019. We have issued ~~$35.6~~$38.0 million in standby letters of credit as of ~~September~~June 30, ~~2017~~2019, mainly for insurance purposes. Issued letters of credit reduce our available credit under the ~~2014~~2018 Credit Agreement. As of ~~September~~June 30, ~~2017,~~2019, we have approximately ~~$309.4~~$327.0 million of unused lines of credit available and eligible to be drawn down under our revolving credit facility.

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


	Three months ended June 30,				Six months ended June 30,
	2019		2018		2019		2018

Litigation settlement	$	-	$	(204)	$	6,000	$	(204)
Transportation equipment held for sale		2,266		-		2,266		-
Loss on disposal of fixed assets		304		86		657		35
Total other operating expenses/(income)	$	2,570	$	(118)	$	8,923	$	(169)

Three months ended September 30, Nine months ended September 30,
2017 2016 2017 2016

Potential litigation settlement $ - $ - $ 90,000 $ -
Program closure (income)/expenses (371 ) - 1,138 -
Retirement expenses - - - 4,491
Total other operating (income)/expenses $ (371 ) $ - $ 91,138 $ 4,491

During the three ~~and nine~~ months ended ~~September~~June 30, ~~2017,~~2019, the Company recorded ~~a credit~~$2.3 million for ~~recovery~~the impairment of ~~previously expensed costs of $371,000 and a net expense of $1.1 million, respectively, related to the closure of three Alabama programs at VITAS.~~

transportation equipment that is being held for sale. See footnote 18.

During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, the Company recorded ~~$90~~$6.0 million for a potential legal settlement, which includes the settlement amount, estimated employment taxes and other litigation ~~settlement.~~costs. See footnote 11 for further discussion.

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

~~-9-~~

7. Other Income – Net

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



	Three months ended June 30,				Six months ended June 30,
	2019		2018		2019		2018
Market value adjustment on assets held in
deferred compensation trust	$	(130)	$	779	$	2,207	$	1,638
Interest income		112		259		214		417
Other - net		31		-		31		1
Total other income - net	$	13	$	1,038	$	2,452	$	2,056

8. Leases

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

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

Adoption of the new standard resulted in right of use assets and lease liabilities of approximately $87.8 million and $98.7 million, respectively, as of March 31, 2019. In determining the liability, we used our incremental borrowing rate based

-16-

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

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.

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

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


	Six months ended ‎June 30,
	2019
Assets
Operating lease assets	$	90,755

Liabilities
Current operating leases		31,614
Noncurrent operating leases		69,979
Total operating lease liabilities	$	101,593

The components of lease expense were as follows:


	Three months ended ‎June 30,		Six months ended ‎June 30,
	2019		2019
Lease Expense (a)
Operating lease expense	$	11,573	$	23,098
Sublease income		-		(6)
Net lease expense	$	11,573	$	23,092

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

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


	Three months ended		Six months ended
	June 30, 2019		June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from leases	$	10,214	$	20,201

Leased assets obtained in exchange for new operating lease liabilities	$	12,731	$	15,944


Weighted Average Remaining Lease Term
Operating leases	4.34	years


Weighted Average Discount Rate
Operating leases	3.46	%

-17-


Maturity of Operating Lease Liabilities (in thousands)

2019	$	34,669
2020		25,465
2021		18,796
2022		12,074
2023		7,656
Thereafter		12,327
Total lease payments	$	110,987
Less: interest		(8,143)
Less: future lease obligations not yet commenced		(1,251)
Total liability recognized on the balance sheet	$	101,593

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


Maturity of Operating Lease Liabilities (in thousands)

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

For leases commencing prior to 2019, minimum rental payments exclude payments to landlords for real estate taxes and common area maintenance. Operating lease payments include $2.3 million related to extended lease terms that are reasonably certain of being exercised and exclude $1.3 million lease payments for leases signed but not yet commenced.

9. Stock-Based Compensation Plans

On February ~~17, 2017,~~22, 2019, the Compensation/Incentive Committee of the Board of Directors (“CIC”) granted ~~7,304~~6,864 Performance Stock Units (“PSUs”) contingent upon the achievement of certain total ~~shareholders~~shareholder return (“TSR”) targets as compared to the TSR of a group of peer companies for the ~~three-year~~three year period ending December 31, ~~2019,~~2021, the date at which such awards vest. The cumulative compensation cost of the TSR-based PSU award to be recorded over the three year service period is ~~$1.7~~$3.0 million.

On February ~~17, 2017,~~22, 2019, the CIC also granted ~~7,304~~6,864 PSUs contingent upon the achievement of certain earnings per share (“EPS”) targets for the ~~three-year~~three year period ending December 31, ~~2019.~~2021. At the end of each reporting period, the Company estimates the number of shares that it believes will ultimately be earned and records ~~that~~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 ~~$1.3~~$2.2 million.

~~9. Independent Contractor Operations~~

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

Three months ended September 30, Nine months ended September 30,
2017 2016 2017 2016
Revenues $ 10,455 $ 9,823 $ 32,632 $ 29,451
Pretax income 6,311 5,835 19,742 18,015

10. Retirement Plans

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



Three months ended June 30,				Six months ended June 30,
2019		2018		2019		2018
$	3,796	$	4,807	$	10,710	$	9,974

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

~~-10-~~

-18-

11. Legal and Regulatory Matters

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

Regulatory Matters and Litigation

On ~~May 2, 2013,~~October 30, 2017, the ~~government filed~~Company entered into a settlement agreement (the “Settlement Agreement”) to resolve civil litigation under the False Claims Act ~~complaint against~~brought by the ~~Company~~United States Department of Justice (“DOJ”) on behalf of the OIG and ~~certain of its hospice-related subsidiaries~~various relators concerning VITAS, filed in the U.S. District Court ~~for~~of the Western District of Missouri ~~United States v. VITAS Hospice Services, LLC, et al., No. 4:13-cv-00449-BCW~~ (the “2013 Action”). ~~Prior~~The Company denied any violation of law and agreed to ~~that date,~~settlement without admission of wrongdoing.

In connection with the ~~Company received various qui tam lawsuits and subpoenas from the U.S. Department of Justice and OIG that have been previously disclosed. The 2013 Action alleges that, since at least 2002,~~settlement VITAS and ~~since 2004,~~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 ~~Company, submitted or caused the submission~~event of false claims to the Medicare program by (a) billing Medicare for continuous home care services when the patients were not eligible, the services were not provided, or the medical care was inappropriate, and (b) billing Medicare for patients who were not eligible for the Medicare hospice benefit because they did not have a life expectancy of six months or less if their illnesses ran their normal course. This complaint seeks treble damages, statutory penalties, and the costsbreach of the action, plus interest. The defendants filed a motion to dismiss on September 24, 2013. On September 30, 2014, the Court denied the motion, except to the extent that claims were filed before July 24, 2002. On November 13, 2014, the government filed a Second Amended Complaint. The Second Amended Complaint changed and supplemented someCIA, VITAS could become liable for payment of ~~the allegations, but did not otherwise expand the causes of action~~stipulated penalties or the nature of the relief sought against VITAS. VITAS filed its Answer to the Second Amended Complaint on August 11, 2015. Based on recent case developments, including recent mediation discussions with the U.S. Department of Justice, we believe it probable that this matter willcould be settled, to include payments of $55.8 million after-tax ($90.0 million pretax) including attorneys’ fees. A final settlement will require the parties to resolve several outstanding issues, and to draft and negotiate definitive documentation. There can be no assurance that such a final definitive settlement will be reached on these, or other, terms. For additional procedural history of this litigation, please refer to our prior quarterly and annual filings. The costs incurred related to U.S. v. Vitas and related regulatory matters were $935,000 and $599,000 for the quarters ended September 30, 2017 and 2016, respectively. For the nine months ended September 30, 2017 and 2016, the net costs were $5.2 million and $4.1 million respectively.

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

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

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

~~-11-~~

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

federal healthcare programs.

Jordan Seper (“Seper”), a Registered Nurse at ~~VITAS'~~VITAS’ Inland Empire program from May 12, 2014 to March 21, 2015, filed a lawsuit in San Francisco Superior Court on September 26, 2016. She alleged VITAS Healthcare Corp of CA (“VITAS CA”) (1) failed to provide minimum wage for all hours worked; (2) failed to provide overtime for all hours worked; (3) failed to provide a second meal period; (4) failed to provide rest breaks; (5) failed to indemnify for necessary expenditures; (6) failed to timely pay wages due at time of separation; and (7) engaged in unfair business practices. Seper ~~seeks~~sought a state-wide class action of current and former non-exempt employees employed with VITAS in California within the four years preceding the filing of the lawsuit. She ~~seeks~~sought court determination that this action may be maintained as a class action for the entire California class and subclasses, designation as class representative, declaratory relief, injunctive relief, damages (including wages for regular or overtime hours allegedly worked but not paid, premium payments for missed meal or rest periods, and unreimbursed expenses), all applicable penalties associated with each claim, pre and post-judgment interest, and ~~attorneys'~~attorneys’ fees and costs. Seper served VITAS CA with the lawsuit,, Jordan A. Seper on behalf of herself and others similarly situated v. VITAS Healthcare Corporation of California, a Delaware corporation; VITAS Healthcare Corp of CA, a business entity unknown; and DOES 1 to 100,~~, inclusive;~~ inclusive; Los Angeles Superior Court Case Number BC 642857 on October 13, ~~2016.~~

~~On November 14,~~ 2016 ~~the Parties filed a Stipulation to transfer the venue of the lawsuit from San Francisco to Los Angeles.~~ (“Jordan Seper case”).

The Los Angeles Superior Court Complex Division accepted transfer of the case on December 6, 2016 and stayed the case. On December 16, 2016, VITAS CA filed its Answer and served written discovery on Seper.

~~Jiwan~~

Jiwann Chhina ~~("Chhina"~~(“Chhina”), hired by VITAS as a Home Health Aide on February 5, 2002, is currently a Licensed Vocational Nurse for ~~VITAS'~~VITAS’ San Diego program. On September 27, 2016, Chhina filed a lawsuit in San Diego Superior Court, alleging (1) failure to pay minimum wage for all hours worked; (2) failure to provide overtime for all hours worked; (3) failure to pay wages for all hours at the regular rate; (4) failure to provide meal periods; (5) failure to provide rest breaks; (6) failure to provide complete and accurate wage statements; (7) failure to pay for all reimbursement expenses; (8) unfair business practices; and (9) violation of the California Private Attorneys General Act. Chhina ~~seeks~~sought to pursue these claims in the form of a state-wide class action of current and former non-exempt employees employed with VITAS in California within the four years preceding the filing of the lawsuit. He ~~seeks~~sought court determination that this action may be maintained as a class action for the entire California class and subclasses, designation as class representative, declaratory relief, injunctive relief, damages (including wages for regular or overtime hours allegedly worked but not paid, premium payments for missed meal or rest ~~periods,~~period, and unreimbursed expenses), all applicable penalties associated with each claim, pre-judgment interest, and ~~attorneys'~~attorneys’ fees and costs. Chhina served VITAS CA with the lawsuit,~~, Jiwann~~Jiwan Chhina v. VITAS Health Services of California, Inc., a California corporation; VITAS Healthcare Corporation of California, a Delaware corporation; VITAS Healthcare Corporation of California, a Delaware corporation dba VITAS Healthcare Inc.; and DOES 1 to 100, inclusive; San Diego Superior Court Case Number 37-2015-00033978-CU-OE-CTL on November 3, ~~2016.~~2016 (“Jiwann Chhina case”). On December 1, 2016, VITAS CA filed its Answer and served written discovery on Chhina.

-19-

wages due; (2) failure to authorize and permit rest periods; (3) failure to provide off-duty meal periods; (4) failure to furnish accurate wage statements; (5) unreimbursed business expenses; (6) waiting time penalties; (7) violations of unfair competition law; and (8) violation of the Private ~~Attorney~~Attorneys General Act. The case is captioned: Chere Phillips and Lady Moore v. VITAS Healthcare Corporation of California, Sacramento County Superior Court, Case No. 34-2017-0021-2755. Plaintiffs sought to pursue these claims in the form of a state-wide class action of current and former non-exempt employees employed with VITAS CA in California within the four years preceding the filing of the lawsuit. Plaintiffs served VITAS with the lawsuit on June 5, 2017. VITAS CA timely answered the Complaint generally denying the Plaintiffs’ allegations. The Court has stayed all class discovery in this case pending resolution of the ~~November 10, 2017 mediation in the~~ Jordan Seper and Jiwann Chhina cases.

~~-12-~~

There are currently three other lawsuits against VITAS pending in the superior courts of other California counties that contain claims and class periods that substantially overlap with Phillips’ and Moore’s ~~claims. These are~~ claims: the Jordan Seper ~~v. VITAS Healthcare Corp of California et al., filed on September 26, 2016 in Los Angeles County Superior Court BC 642857;~~and Jiwann Chhina ~~v. VITAS Health Service, Inc. et al., filed on September 27, 2016 in San Diego County Superior Court, 34-2015-00033998 CU_OE_CTL; both described above~~cases, and Williams v. VITAS Healthcare Corporation of California, filed on May 22, 2017 in Alameda County Superior Court, RG 17853886.

Jazzina Williams’ (a Home Health Aide in Sacramento) lawsuit alleges claims for (1) failure to pay all wages due; (2) failure to authorize and permit rest periods; (3) failure to provide off-duty meal periods; (4) failure to furnish accurate wage statements; (5) unreimbursed business expenses; (6) waiting time penalties; and (7) violations of the Private ~~Attorney~~Attorneys General ~~Act.~~Act (“PAGA”). Williams seeks to pursue these claims inboth individually and as a representative action under the ~~form of a state-wide class action~~PAGA on behalf of current and former California non-exempt employees. Plaintiff served VITAS with the lawsuit on May 31, 2017. VITAS CA timely answered the Complaint generally denying Plaintiff’s allegations. Williams is ~~pursuing~~pursing discovery of her individual ~~claims~~claim and has agreed to a stay of class discovery pending ~~outcome of a November 10, 2017~~possible resolution through ongoing mediation ofin the Jordan Seper and Jiwann Chhina cases. Defendant filed and served each of Plaintiffs Williams, Phillips, and Moore with a Notice of Related Cases on July 19, 2017.

~~Defendant understands that the~~

The Seper and Chhina cases ~~will be effectively~~were consolidated in Los Angeles County Superior ~~court:~~ Court; Chhina ~~will be~~ was dismissed as a separate action and joined with Seper ~~through~~ in the filing of an amended complaint in ~~Seper~~on August 28, 2018, in which both Chhina ~~is also~~ and Seper were identified as named plaintiffs. The parties engaged in a ~~named plaintiff.~~

mediation process beginning in October 2018 and concluded with an agreement in March 2019. The agreement has been incorporated into a long-form agreement to be presented to the court for preliminary approval, notice to class members, and eventual final approval and payment. The settlement amount, subject to court approval is $5.75 million plus employment taxes. 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.

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

The Company is not able to reasonably estimate the probability of loss or range of loss for any of these lawsuits at this ~~time.~~

time, with the exception of Seper/Chhina, Phillips and Moore and the class claims in Williams.

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

-20-

12. Concentration of Risk

During the quarter VITAS had pharmacy services agreements with one service provider to provide specified pharmacy services for VITAS and its hospice patients. VITAS made purchases from this provider of ~~$7.7~~$7.0 and ~~$24.8~~$8.5 million for the three ~~and nine~~ months ended ~~September~~June 30, ~~2017,~~2019 and 2018, respectively. ~~Vitas~~VITAS made purchases from ~~two providers~~this provider of ~~$9.5~~$14.3 and ~~$26.9~~$16.8 million for the ~~three and nine~~first six months ended ~~September~~June 30, ~~2016,~~2019 and 2018, respectively. Purchases from ~~these providers were~~this provider represent more than 90% of all pharmacy services used by VITAS during each period presented.

13. Cash Overdrafts and Cash Equivalents

There are ~~$468,000~~$15.5 million in cash overdrafts payable included in accounts payable at ~~September~~June 30, ~~2017~~2019 (December 31, ~~2016~~2018 - ~~$8.6~~$13.8 million).

From time to time throughout the year, we invest excess cash in money market funds with major commercial banks. We closely monitor the creditworthiness of the institutions with which we invest our overnight funds. The amount invested was ~~less than $100,000~~not material for each balance sheet date presented.

14. Financial Instruments

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

~~-13-~~

The following shows the carrying value, fair value and the hierarchy for our financial instruments as of ~~September~~

June 30, ~~2017~~2019 (in thousands):


				Fair Value Measure
		Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Mutual fund investments of deferred
compensation plans held in trust	$	70,460	$	70,460	$	-	$	-
Total debt		85,000		-		85,000		-

Fair Value Measure
Carrying Value
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)

Significant Other Observable Inputs
(Level 2)

Significant
Unobservable
Inputs (Level 3)

Mutual fund investments of deferred
compensation plans held in trust $ 60,445 $ 60,445 $ - $ -
Total debt 82,500 - 82,500 -

The following shows the carrying value, fair value and the hierarchy for our financial instruments as of December 31, ~~2016~~2018 (in thousands):


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

Fair Value Measure
Carrying Value
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)

Significant Other Observable Inputs
(Level 2)

Significant
Unobservable
Inputs (Level 3)

Mutual fund investments of deferred
compensation plans held in trust $ 54,389 $ 54,389 $ - $ -
Total debt 108,750 - 108,750 -

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

-21-

15. Capital Stock Repurchase Plan Transactions

We repurchased the following capital stock for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016:~~2018:



	Three months ended June 30,				Six months ended June 30,
	2019		2018		2019		2018

Total cost of repurchased shares (in thousands)	$	22,676	$	3,179	$	71,926	$	84,304
Shares repurchased		69,009		10,000		219,009		310,000
Weighted average price per share	$	328.59	$	317.86	$	328.41	$	271.95

Three months ended September 30, Nine months ended September 30,
2017 2016 2017 2016

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

In ~~March 2017,~~February 2019, the Board of Directors authorized an additional ~~$100.0~~$150.0 million for stock repurchase under Chemed’s existing share repurchase program. We currently have $~~55.5 million~~$124.7 million of au~~thorization~~authorization remaining under this share repurchase plan.

~~-14-~~

16. Recent Accounting Standards

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

In February 2016, the FASB issued Accounting Standards Update “ASU No. 2016-02 – Leases” which introduces a lessee model that brings most leases on to the balance sheets and updates lessor accounting to align with changes in the lessee model and the revenue recognition standard. The guidance is effective for fiscal years beginning after December 15, 2018. Based on the provisions of the ASU, we anticipate a material increase in both assets and liabilities when our current operating lease contracts are recorded on the balance sheet. We do not currently have a specific estimate of the impact.

In August 2016, the FASB issued Accounting Standards Update “ASU No. 2016-15 – Cash Flow Classification” which amends guidance on the classification of certain cash receipts and payments in the statement of cash flows. The primary purpose of ASU 2016-15 is to reduce diversity in practice related to eight specific cash flow issues. The guidance in this ASU is effective for fiscal years beginning after December 15, 2017. We have analyzed the impact of ASU 2016-15 on our statement of cash flows and do not expect it to have a material effect.

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

In June 2016, FASB issued Accounting Standards Update “ASU No. 2016-13 - Measurement of Credit Losses on Financial Instruments”. The ASU requires the use of the current expected credit loss model to measure impairments of financial assets. The ASU is effective for the Company for fiscal years beginning after December 15, 2019. Management is currently evaluating the impact of this ASU on the Company’ financial statements.

17. ~~Goodwill~~

Acquisitions

During the first six months of 2019, we did not complete any business combinations within our Roto-Rooter or VITAS segment.

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

Shown below is movement in Goodwill (in thousands):


	VITAS		Roto-Rooter		Total
Balance at December 31, 2018	$	333,331	$	177,239	$	510,570
Foreign currency adjustments		-		57		57
Balance at June 30, 2019	$	333,331	$	177,296	$	510,627

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

~~During 2017,~~

18. Assets Held for Sale

In the second quarter of 2019, we entered into an agreement to trade-in certain transportation equipment to offset replacement equipment expected to be delivered in 2020. The net book value of the transportation equipment has been reduced to the expected trade in value of $15.8 million resulting in a $2.3 million impairment charge in the second quarter of 2019.

19. Subsequent Events

On July 1, 2019, we completed ~~one business combination within~~ the acquisition of a Roto-Rooter ~~segment~~franchise and the related assets in Oakland, CA for ~~$525,000~~$18.0 million in ~~cash~~cash. A substantial portion of the aggregate purchase price will be allocated to ~~increase our market penetration.~~goodwill, reacquired franchise rights and other intangibles. The accounting for this acquisition has not yet been finalized.
‎

~~-15-~~

-22-

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

Executive Summary

We operate through our two wholly-owned subsidiaries, VITAS Healthcare Corporation and Roto-Rooter Group, Inc. VITAS focuses on hospice care that helps make terminally ill patients’ final days as comfortable as possible. Through its teams of doctors, nurses, home health aides, social workers, clergy and volunteers, VITAS provides direct medical services to patients, as well as spiritual and emotional counseling to both patients and their families. Roto-Rooter’s services are focused on providing plumbing, drain cleaning, water restoration and other related services to both residential and commercial customers. Through its network of company-owned branches, independent 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 June 30,						Six months ended June 30,
	2019			2018			2019			2018
Service revenues and sales	$	473,584		$	441,813		$	935,618		$	880,989
Net income	$	50,729		$	54,971		$	95,396		$	99,967
Diluted EPS	$	3.08		$	3.27		$	5.79		$	5.93
Adjusted net income	$	55,215		$	47,158		$	103,390		$	93,009
Adjusted diluted EPS	$	3.36		$	2.81		$	6.27		$	5.52
Adjusted EBITDA	$	85,089		$	73,682		$	159,888		$	146,449
Adjusted EBITDA as a % of revenue		18.0	%		16.7	%		17.1	%		16.6	%

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

Adjusted net income, adjusted diluted EPS, earnings before interest, taxes and depreciation and amortization (“EBITDA”), Adjusted EBITDA and Adjusted EBITDA as a percent of revenue are not measures derived in accordance with US GAAP. We provide non-GAAP measures to help readers evaluate our operating results and to compare our operating performance with that of similar companies that have different capital structures. Our non-GAAP measures should not be considered in isolation or as a substitute for comparable measures presented in accordance with GAAP. A reconciliation of our non-GAAP measures is presented on pages ~~30-32.~~

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

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

37-39.

For the three months ended ~~September~~June 30, ~~2017,~~2019, the increase in consolidated service revenues and sales was driven by a ~~17.1%~~10.9% increase at Roto-Rooter and a ~~2.2%~~5.4% increase at VITAS. The increase in service revenues at Roto-Rooter was driven by an increase in all service lines. The increase in service revenues at VITAS is comprised primarily of a 0.5% geographically weighted average Medicare reimbursement rate increase, a 5.9% increase in days of care, offset by $3.2 million in Medicare cap revenue reduction. See page 40 for additional VITAS operating metrics.

For the six months ended June 30, 2019, the increase in consolidated service revenues and sales was driven by an 8.2% increase at Roto-Rooter and a 5.2% increase at VITAS. The increase in service revenues at Roto-Rooter was driven by an increase in all major service lines. ~~Of Roto-Rooter’s total revenue increase, 49.1% is related to water restoration.~~ The increase in service revenues at VITAS ~~was~~is comprised primarily of a ~~result of~~0.5% geographically weighted average Medicare reimbursement ~~rates increasing 1.3%,~~rate increase, a ~~2.8%~~6.2% increase in days of care, offset by ~~acuity mix shift which negatively impacted~~$6.6 million in Medicare cap revenue ~~2.2% when compared to the~~reduction. The first six months of 2018 included a reversal of prior ~~year period. Adjusted EBITDA as a percent~~Medicare cap expense of ~~revenue increased 160 basis points when compared to the prior year quarter mainly as a result of mix shift in levels of care and improved cost management for high acuity care.~~$1.3 million. See page 3340 for additional VITAS operating metrics.

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

-23-

~~For the nine months ended September 30, 2017, the increase~~

Roto-Rooter purchases equipment and leases it to certain of its independent contractors. We analyzed these leases in ~~consolidated service revenues~~accordance with ASC 842 and sales was driven by a 14.4% increase at Roto-Rooter and a 2.0% increase at VITAS. The increase in service revenues at Roto-Rooter was driven by an increase in all major service lines. Of Roto-Rooter’s total revenue increase, 49.0% was related to water restoration. The increase in service revenues at VITAS was primarilydetermined 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 ~~Medicare reimbursement rates increasing 1.7%, a 2.7% increase~~the new standard resulted in ~~days~~right of ~~care, offset by acuity mix shift which negatively impacted revenue 2.4% when compared to~~use assets and lease liabilities of $87.8 million and $98.7 million, respectively, as of March 31, 2019. In determining the ~~prior year period. Adjusted EBITDA as a percent~~liability, we used our incremental borrowing rate based on the information available at the time of ~~revenue increased 130 basis points when compared to~~adoption, since the ~~prior year quarter mainly as a result of mix shift in levels of care and improved cost management for high acuity care. See page 33 for additional VITAS operating metrics.~~

~~VITAS expects its full-year 2017 revenue growth, prior to Medicare cap, to be~~rate implicit in the ~~range of 2.0% to 3.0%. Admissions and Average Daily Census in 2017 are estimated to expand approximately 2.0% to 3.0%. Adjusted EBITDA margin, prior to Medicare cap, is estimated to~~leases cannot be ~~15.0%. This guidance includes $1.5 million for Medicare cap billing limitations. Roto-Rooter expects full-year 2017 revenue growth of 13.0% to 14.0%~~readily determined. At January 1, 2019, the weighted average rate was 3.47%. The ~~revenue estimate is~~standard did not materially impact our consolidated net income or cash flows. We did not book a ~~based~~cumulative effect adjustment upon ~~increased job pricing~~adoption of ~~approximately 2.0% and continued growth in water restoration services. Adjusted EBITDA margin for 2017 is estimated in~~ the ~~range of 22.5%. We anticipate that our operating income and cash flows will be sufficient to operate our businesses and meet any commitments for the foreseeable future.~~

~~-16-~~

standard.

Financial Condition

Liquidity and Capital Resources

Material changes in the balance sheet accounts from December 31, ~~2016~~2018 to ~~September~~June 30, ~~2017~~2019 include the following:

A ~~$40.5~~$16.6 million ~~decrease~~increase in accounts receivable due ~~mainly~~ to timing of ~~Medicare and Medicaid payments.~~

receipts.

A ~~$21.8~~$90.8 million increase in ~~properties plant and equipment mainly~~lease right of use assets due to the ~~purchase~~adoption of ~~transportation equipment during the quarter.~~

ASC 842.

A ~~$36.2~~$15.8 million increase in ~~net deferred taxes associated with amounts recorded~~assets held for sale as a ~~potential litigation settlement.~~

result of an agreement to trade-in certain transportation

equipment to offset replacement equipment expected to be delivered in 2020.

A ~~$4.8 million~~$13.2 decrease in ~~accounts payable mainly~~accrued compensation due to ~~timing~~the payments of ~~payments.~~

cash bonuses in 2019 accrued in 2018.

A ~~$12.3 increase in income taxes due to timing of payments.~~

~~An $89.6~~$6.6 million increase in accrued legal primarily due to a ~~potential~~$6.0 million litigation ~~settlement.~~

settlement at VITAS.

A ~~$26.3~~$31.6 million ~~decrease~~and $70.0 million increase in short-term and long-term ~~debt~~lease liability, respectively, due to ~~payments on our term loan and revolving line~~

the adoption of ~~credit.~~

ASC 842.

A $101.8 million increase in treasury stock due mainly to stock repurchases.

Net cash provided by operating activities ~~increased $62.6~~decreased $12.1 million mainly as a result of a $22.9 million increase in net income excluding potential litigation settlement and a $19.5 million decrease caused by changes in accounts receivable. The potential litigation settlement recorded is non-cash at Septemberfrom June 30, ~~2017 and does not impact net cash provided by operating activities.~~

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

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

On June 20, 2018, we replaced our existing credit agreement with the Fourth Amended and Restated Credit Agreement (“2018 Credit Agreement”). Terms of the 2018 Credit Agreement consist of a five year, $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 is LIBOR plus 100 basis points. The 2018 Credit Agreement has a floating interest rate that is generally LIBOR plus a tiered additional rate which varies based on our current leverage ratio.

We have issued ~~$35.6~~$38.0 million in standby letters of credit as of ~~September~~June 30, ~~2017,~~2019, mainly for insurance purposes. Issued letters of credit reduce our available credit under the revolving credit agreement. As of ~~September~~June 30, ~~2017,~~2019, we have approximately ~~$309.4~~$327.0 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, ~~2017~~2019 and anticipate remaining in compliance throughout the foreseeable future.

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

~~-17-~~

-24-

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

~~-18-~~

federal healthcare programs.

Jordan Seper (“Seper”), a Registered Nurse at ~~VITAS'~~VITAS’ Inland Empire program from May 12, 2014 to March 21, 2015, filed a lawsuit in San Francisco Superior Court on September 26, 2016. She alleged VITAS Healthcare Corp of CA (“VITAS CA”) (1) failed to provide minimum wage for all hours worked; (2) failed to provide overtime for all hours worked; (3) failed to provide a second meal period; (4) failed to provide rest breaks; (5) failed to indemnify for necessary expenditures; (6) failed to timely pay wages due at time of separation; and (7) engaged in unfair business practices. Seper ~~seeks~~sought a state-wide class action of current and former non-exempt employees employed with VITAS in California within the four years preceding the filing of the lawsuit. She ~~seeks~~sought court determination that this action may be maintained as a class action for the entire California class and subclasses, designation as class representative, declaratory relief, injunctive relief, damages (including wages for regular or overtime hours allegedly worked but not paid, premium payments for missed meal or rest periods, and unreimbursed expenses), all applicable penalties associated with each claim, pre and post-judgment interest, and ~~attorneys'~~attorneys’ fees and costs. Seper served VITAS CA with the lawsuit, Jordan A. Seper on behalf of herself and others similarly situated v. VITAS Healthcare Corporation of California, a Delaware corporation; VITAS Healthcare Corp of CA, a business entity unknown; and DOES 1 to 100, inclusive; Los Angeles Superior Court Case Number BC 642857 on October 13, ~~2016.~~

~~On November 14,~~ 2016 ~~the Parties filed a Stipulation to transfer the venue of the lawsuit from San Francisco to Los Angeles.~~ (“Jordan Seper case”).

~~Jiwan~~

Jiwann Chhina ~~("Chhina"~~(“Chhina”), hired by VITAS as a Home Health Aide on February 5, 2002, is currently a Licensed Vocational Nurse for ~~VITAS'~~VITAS’ San Diego program. On September 27, 2016, Chhina filed a lawsuit in San Diego Superior Court, alleging (1) failure to pay minimum wage for all hours worked; (2) failure to provide overtime for all hours worked; (3) failure to pay wages for all hours at the regular rate; (4) failure to provide meal periods; (5) failure to provide rest breaks; (6) failure to provide complete and accurate wage statements; (7) failure to pay for all reimbursement expenses; (8) unfair business practices; and (9) violation of the California Private Attorneys General Act. Chhina ~~seeks~~sought to pursue these claims in the form of a state-wide class action of current and former non-exempt employees employed with VITAS in California within the four years preceding the filing of the lawsuit. He ~~seeks~~sought court determination that this action may be maintained as a class action for the entire California class and subclasses, designation as class representative, declaratory relief, injunctive relief, damages (including wages for regular or overtime hours allegedly worked but not paid, premium payments for missed meal or rest ~~periods,~~period, and unreimbursed expenses), all applicable penalties associated with each claim, pre-judgment interest, and ~~attorneys'~~attorneys’ fees and costs. Chhina served VITAS CA with the lawsuit, ~~Jiwann~~Jiwan Chhina v. VITAS Health Services of California, Inc., a California corporation; VITAS Healthcare Corporation of California, a Delaware corporation; VITAS Healthcare Corporation of California, a Delaware corporation dba VITAS Healthcare Inc.; and DOES 1 to 100, inclusive; San Diego Superior Court Case Number 37-2015-00033978-CU-OE-CTL on November 3, ~~2016.~~2016 (“Jiwann Chhina case”). On December 1, 2016, VITAS CA filed its Answer and served written discovery on Chhina.

On May 19, 2017, Chere Phillips (a Home Health Aide in Sacramento) and Lady Moore (a former Social Worker in Sacramento) filed a lawsuit against VITAS ~~Healthcare Corporation of California~~CA in Sacramento County Superior Court, alleging claims for (1) failure to pay all wages due; (2) failure to authorize and permit rest periods; (3) failure to provide off-duty meal periods; (4) failure to furnish accurate wage statements; (5) unreimbursed business expenses; (6) waiting time penalties; (7) violations of unfair competition law; and (8) violation of the Private ~~Attorney~~Attorneys General Act. The case is captioned: Chere Phillips and Lady Moore v. VITAS Healthcare Corporation of California, Sacramento County Superior Court, Case No. 34-2017-0021-2755. Plaintiffs sought to pursue these claims in the form of a state-wide class action of current and former non-exempt employees employed with VITAS CA in California within the four years preceding the filing of the lawsuit. Plaintiffs served VITAS with the lawsuit on June 5, 2017. VITAS CA timely answered the Complaint generally denying the Plaintiffs’ allegations. The Court has stayed all class discovery in this case pending ~~the~~ resolution of the ~~November 10, 2017 in the~~ Jordan Seper and Jiwann Chhina cases.

-25-

~~-19-~~

The Company is not able to reasonably estimate the probability of loss or range of loss for any of these lawsuits at this ~~time.~~

time, with the exception of Seper/Chhina, Phillips and Moore, and the class claims in Williams.

‎

-26-

Results of Operations

Three months ended ~~September~~June 30, ~~2017~~2019 versus ~~2016~~2018 - Consolidated Results

Our service revenues and sales for the ~~third~~second quarter of ~~2017~~2019 increased ~~6.3%~~7.2% versus services and sales revenues for the ~~third~~second quarter of ~~2016.~~2018. Of this increase, a ~~$6.1~~$16.0 million increase was attributable to VITAS and ~~$18.8~~$15.8 million increase was attributable to Roto-Rooter. The following chart shows the components of ~~those changes~~revenue by operating segment (in thousands):



	Three months ended June 30,
	2019		2018
VITAS
Routine homecare	$	266,461	$	250,381
Continuous care		30,786		30,513
General inpatient		22,894		20,077
Other		2,237		1,998
Medicare cap adjustment		(3,198)		(536)
Room and board - net		(2,710)		(2,675)
Implicit price concessions		(3,720)		(2,959)
Roto-Rooter
Drain cleaning - short term core		45,558		41,959
Plumbing - short term core		33,837		30,538
Subtotal		79,395		72,497
Excavation - short term core		35,172		32,014
Water restoration		28,239		24,765
Contractor operations		14,580		12,366
Outside franchisee fees		1,623		1,574
Other - short term core		576		575
Other		2,974		2,835
Implicit price concessions		(1,725)		(1,612)
Total	$	473,584	$	441,813

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


	Days of Care		Increase/(Decrease)
	2019	2018	Percent

Routine homecare	1,621,837	1,534,162	5.7
Continuous care	41,804	42,488	(1.6)
General inpatient	36,332	28,971	25.4
Total days of care	1,699,973	1,605,621	5.9

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

The remaining increase in VITAS’ revenues for the ~~third~~second quarter of ~~2017~~2019 versus the ~~third~~second quarter of ~~2016~~2018 was primarily comprised of ana geographically weighted average ~~net~~ Medicare reimbursement rate ~~increasing~~increase of approximately ~~1.3%, a 2.8% increase in days of care~~0.5% offset by ~~acuity mix shift which negatively impacted~~$3.2 million in Medicare cap revenue ~~2.2% when~~reductions compared to ~~the prior year period.~~

~~Days~~a Medicare cap revenue reduction of ~~care during the quarter ended September 30 were as follows:~~

Days of Care Increase/(Decrease)
2017 2016 Percent

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

$536,000 in 2018. Over 90% of VITAS’ service revenues for the period were from Medicare and Medicaid.

The increase in plumbing revenues for the ~~third~~second quarter of ~~2017~~2019 versus ~~2016~~2018 is attributable to a ~~14.2%~~6.6% increase in price and service mix shift ~~as well as~~and a ~~1.0%~~4.2% increase in job count. The increase in excavation revenues for the second quarter of 2019 versus 2018 is attributable to a 5.5% increase in price and service mix shift and a 4.4% increase in job count. Drain cleaning revenues for the ~~third~~second quarter of ~~2017~~2019 versus ~~2016~~2018 reflect a ~~6.2%~~6.3% increase in price and service mix shift ~~offset by~~and a ~~2.1% decrease~~2.3% increase in job count. Water restoration revenue for the ~~third~~second quarter of ~~2017~~2019 versus ~~2016 increased 77.2% as~~2018 is attributable to a ~~result of continued expansion of this service offering including a 38.0%~~7.1% increase in ~~number of jobs performed.~~price and service mix shift and a 6.9% increase in job count. Contractor operations increased ~~6.4%~~17.9% mainly due to their expansion into water restoration.

~~-20-~~

-27-

The consolidated gross margin was ~~31.0%~~31.7% in the ~~third~~second quarter of ~~2017~~2019 as compared with ~~28.3%~~30.8% in the ~~third~~second quarter of ~~2016.~~2018. On a segment basis, VITAS’ gross margin was ~~23.1%~~22.9% in the ~~third~~second quarter of ~~2017~~2019 as compared with ~~20.7%~~21.5%, in the ~~third~~second quarter of ~~2016. The increase in VITAS gross margin is the result of~~2018 primarily due to improved labor management and reduced ancillary ~~cost management.~~costs. The Roto-Rooter segment’s gross margin was 48.7% for the ~~third~~second quarter of ~~2017~~2019 compared with ~~47.8%~~49.9% in the ~~third~~second quarter of ~~2016. The increase~~2018 primarily due to higher labor costs and medical insurance claims in ~~Roto-Rooter gross margin is~~ the ~~result mainly~~second quarter of ~~higher revenues, particularly in water restoration, with relatively low increase in branch level fixed costs.~~

2019.

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


	Three months ended June 30,
	2019		2018
SG&A expenses before long-term incentive compensation and the impact of
market value adjustments related to deferred compensation trusts	$	70,300	$	66,296
Impact of market value adjustments related to assets held in deferred
compensation trusts		1,386		1,222
Long-term incentive compensation		(130)		779
Total SG&A expenses	$	71,556	$	68,297

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

~~SG&A~~

Other operating expenses ~~before long-term incentive compensation, expenses related to OIG investigation and~~increased $2.7 million from the ~~impact of market value adjustments related to assets held in deferred compensation trusts for the third~~second quarter of ~~2017 were up 12.4% when compared to the third quarter of 2016. This increase was mainly~~2018 primarily as a result of ~~the increase in variable expenses caused by increased revenue, particularly in the Roto-Rooter segment, increased advertising expense at Roto-Rooter and normal salary increases in 2017.~~

~~During the third quarter~~a $2.3 million impairment of ~~2017, a credit of $371,000 was recorded due to the recovery of previously recognized expenses related to the closure of the programs in one state at Vitas. There were no other operating expenses~~transportation equipment held for sale recorded in the ~~third~~second quarter of ~~2016.~~

2019.

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


	Three months ended June 30,
	2019		2018
Market value adjustment on assets held in
deferred compensation trusts	$	(130)	$	779
Interest income		112		259
Other		31		-
Total other income - net	$	13	$	1,038

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

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


	Three months ended June 30,
	2019			2018

Income tax provision calculated at the statutory federal rate	$	13,504		$	12,108
Stock compensation tax benefits		(2,867)			(10,448)
State and local income taxes		1,868			186
Other--net		1,070			838
Income tax provision	$	13,575		$	2,684
Effective tax rate		21.1	%		4.7	%

‎

~~-21-~~

-28-

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


	Three months ended June 30,
	2019		2018
VITAS
Litigation settlement	$	-	$	152
Medicare cap sequestration adjustment		(1,253)		(138)
Non cash ASC 842 benefit		(1)		-
Roto-Rooter
Amortization of acquired and cancelled franchise agreements		(244)		-
Acquisition expenses		(71)		-
Corporate
Excess tax benefits on stock compensation		3,212		11,702
Stock option expense		(3,197)		(2,900)
Impairment loss on transportation equipment		(1,733)		-
Long-term incentive compensation		(1,199)		(1,003)
Total	$	(4,486)	$	7,813

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

Three months ended ~~September~~June 30, ~~2017~~2019 versus ~~2016~~2018 - Segment Results

~~The change in net~~

Net income/(loss) for the ~~third~~second quarter of ~~2017~~2019 versus the ~~third~~second quarter of ~~2016 is due to~~2018 by segment (in thousands):



	Three months ended June 30,
	2019		2018
VITAS	$	37,339	$	31,785
Roto-Rooter		27,175		25,298
Corporate		(13,785)		(2,112)
	$	50,729	$	54,971

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

VITAS’ after-tax earnings were positively impacted in ~~2017~~2019 compared to ~~2016 by a $6.1 million increase in~~2018 due to higher revenue and ~~a $2.3 million decrease in cost of services provided~~improved labor management and ~~goods sold.~~ancillary costs. After-tax earnings as a percent of revenue at VITAS in the ~~third~~second quarter of ~~2017 were 9.2%, an increase of 1.8% over~~2019 was 11.9% as compared to 10.7% in the ~~third~~second quarter of ~~2016.~~

2018.

Roto-Rooter’s net income was positively impacted in ~~2017~~2019 compared to ~~2016~~2018 primarily by ~~a $9.2 million revenue increase in Roto-Rooter’s water restoration line of business and a $7.3 million increase in plumbing~~higher revenue. After-tax earnings as a percent of revenue at Roto-Rooter in the ~~third~~second quarter of ~~2017~~2019 was ~~12.5%~~16.9% as compared to ~~11.7%~~17.4% in the ~~third~~second quarter of ~~2016.~~2018.

After-tax Corporate expenses for 2019 increased 552.7% when compared to 2018 due mainly to a $8.5 million decrease in the excess tax benefits on stock compensation and a $2.3 million ($1.7 million after-tax) impairment of transportation equipment held for sale.

-29-

Results of Operations

~~Nine~~

Six months ended ~~September~~June 30, ~~2017~~2019 versus ~~2016~~2018 - Consolidated Results

Our service revenues and sales for the first ~~nine~~six months of ~~2017~~2019 increased ~~5.5%~~6.2% versus services and sales revenues for the first ~~nine~~six months of ~~2016.~~2018. Of this increase, a ~~$16.9~~$30.7 million increase was attributable to VITAS and ~~$48.1~~$23.9 million increase was attributable to Roto-Rooter. The following chart shows the components of ~~those changes~~revenue by operating segment (in thousands):


	Six months ended June 30,
	2019		2018
VITAS
Routine homecare	$	525,312	$	491,412
Continuous care		63,030		61,279
General inpatient		45,464		42,186
Other		4,242		3,740
Medicare cap adjustment		(6,598)		1,282
Room and board - net		(5,252)		(5,294)
Implicit price concessions		(6,667)		(5,792)
Roto-Rooter
Drain cleaning - short term core		89,700		83,289
Plumbing - short term core		65,892		61,349
Subtotal		155,592		144,638
Excavation - short term core		69,457		63,335
Water restoration		55,891		52,502
Contractor operations		28,589		24,731
Outside franchisee fees		3,245		3,165
Other - short term core		1,153		1,199
Other		5,981		6,155
Implicit price concessions		(3,821)		(3,549)
Total	$	935,618	$	880,989

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


	Days of Care		Increase/(Decrease)
	2019	2018	Percent

Routine homecare	3,193,505	3,008,130	6.2
Continuous care	85,727	85,685	0.0
General inpatient	71,783	60,641	18.4
Total days of care	3,351,015	3,154,456	6.2

Increase/(Decrease)
Amount Percent
VITAS
Routine homecare $ 33,882 5.1
Continuous care (11,600 ) (10.9 )
General inpatient (5,417 ) (7.3 )
Medicare cap (19 ) (8.3 )
Roto-Rooter
Plumbing 16,852 11.6
Drain cleaning 3,454 3.2
Water restoration 23,597 64.6
Contractor operations 3,180 10.8
Other 1,033 6.9
Total $ 64,962 5.5

~~-22-~~

The remaining increase in VITAS’ revenues for the first ~~nine~~six months of ~~2017~~2019 versus the first ~~nine~~six months of ~~2016~~2018 was primarily comprised of ana geographically weighted average ~~net~~ Medicare reimbursement rate ~~increasing~~increase of approximately ~~1.3%, a 2.7% increase in days of care~~0.5% offset by ~~acuity mix shift which negatively impacted~~$6.6 million in Medicare cap revenue ~~when~~reductions compared to ~~the prior year period.~~

~~Days~~Medicare cap reversal of ~~care during the nine months ended September 30 were as follows:~~

Days of Care Increase/(Decrease)
2017 2016 Percent

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

$1.3 million in 2018. Over 90% of VITAS’ service revenues for the period were from Medicare and Medicaid.

The increase in plumbing revenues for the first ~~nine~~six months of ~~2017~~2019 versus ~~2016~~2018 is attributable ~~primarily~~ to a 6.0% increase in price and service mix shift ~~as well as~~and by a ~~0.6%~~1.4% increase in job count. ~~Drain cleaning~~The increase in excavation revenues for the first ~~nine~~six months of ~~2017~~2019 versus ~~2016 reflect~~2018 is attributable to a ~~5.3%~~11.0% increase in price and service mix shift offset by a ~~2.1%~~1.3% decrease in job count. ~~Water restoration~~Drain cleaning revenues for the first ~~nine~~six months of ~~2017~~2019 versus ~~2016 increased 64.6% as~~2018 reflect a ~~result of continued expansion of this service offering including a 32.6%~~5.6% increase in ~~jobs performed.~~price and service mix shift and a 2.1% increase in job count. The increase in water restoration revenue for the first six months of 2019 versus 2018 is attributable to a 3.2% increase in price and service mix shift and a 3.3% increase in job count. Contractor operations increased ~~10.8%~~15.6% mainly due to their expansion into water restoration.

The consolidated gross margin was ~~30.6%~~31.0% in the first ~~nine~~six months of ~~2017~~2019 as compared with ~~28.7%~~30.7% in the first ~~nine~~six months of ~~2016.~~2018 primarily. On a segment basis, VITAS’ gross margin was ~~22.5%~~22.4% in the first ~~nine~~six months of ~~2017~~2019 as compared

-30-

with ~~21.1%~~21.8%, in the first ~~nine~~six months of ~~2016. The increase in VITAS’ gross margin is the result of mix shift~~2018 primarily due to ~~higher margin care,~~improved labor management and ancillary ~~cost management.~~costs. The Roto-Rooter segment’s gross margin was ~~48.9%~~47.9% for the first ~~nine~~six months of ~~2017~~2019 compared with ~~48.0%~~48.7% in the first ~~nine~~six months of ~~2016. The increase in the Roto-Rooter gross margin is the result mainly of~~2018 primarily due to higher ~~revenues, particularly in water restoration, with relatively low increase in branch level fixed~~labor costs.

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


	Six months ended June 30,
	2019		2018
SG&A expenses before long-term incentive compensation and the impact of
market value adjustments related to deferred compensation trusts	$	140,504	$	132,517
Long-term incentive compensation		2,874		3,142
Impact of market value adjustments related to assets held in deferred
compensation trusts		2,207		1,638
Total SG&A expenses	$	145,585	$	137,297

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

~~SG&A~~

Other operating expenses ~~before long-term incentive compensation, expenses related to OIG investigation and the impact of market value adjustments related to assets held in deferred compensation trusts for~~increased $9.1 million from the first ~~nine~~six months of ~~2017 were up 9.8% when compared to the first nine months of 2016. This increase was mainly~~2018 primarily as a result of ~~the increase in variable expenses caused by increased revenue, particularly~~a $6.0 million litigation settlement at VITAS and a $2.3 million impairment of transportation equipment held for sale recorded in the ~~in the Roto-Rooter segment, increased advertising expense at Roto-Rooter and normal salary increases in 2017.~~

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

~~-23-~~

2019.

Other income - net comprise (in thousands):


	Six months ended June 30,
	2019		2018
Market value adjustment on assets held in
deferred compensation trusts	$	2,207	$	1,638
Interest income		214		417
Other		31		1
Total other income - net	$	2,452	$	2,056

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

Our effective ~~income~~ tax rate ~~was 25.8% in the first nine months of 2017 compared to 38.6% during the first nine months of 2016. The change in the effective income tax rate~~reconciliation is due to the adoption of ASU No. 2016-09 – Compensation – Stock Compensation which requires that the excess tax benefits from stock based compensation now be recorded in the income tax provision on the statements of income. Excluding the impact of the ASU, our effective income tax rate for the first nine months of 2017 was 39.6%.as follows:


	Six months ended June 30,
	2019			2018

Income tax provision calculated at the statutory federal rate	$	24,169		$	23,911
Stock compensation tax benefits		(8,876)			(13,839)
State and local income taxes		3,470			2,790
Other--net		932			1,034
Income tax provision	$	19,695		$	13,896
Effective tax rate		17.1	%		12.2	%

-31-

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



	Six Months Ended June 30,
	2019		2018
VITAS
Litigation settlement	$	(4,476)	$	152
Medicare cap sequestration adjustment		(1,640)		(401)
Acquisition expenses		(490)		-
Roto-Rooter
Amortization of acquired and cancelled franchise agreements		(568)		-
Acquisition expenses		(71)		-
Expenses related to litigation settlements		(40)		-
Corporate
Excess tax benefits on stock compensation		9,944		15,500
Stock option expense		(6,524)		(5,791)
Long-term incentive compensation		(2,429)		(2,502)
Impairment loss on transportation equipment		(1,733)		-
Non cash ASC 842 benefit		124		-
Acquisition expenses		(91)		-
Total	$	(7,994)	$	6,958

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

~~Nine~~

Six months ended ~~September~~June 30, ~~2017~~2019 versus ~~2016~~2018 - Segment Results

~~The change in net~~

Net income/(loss) for the first ~~nine~~six months of ~~2017~~2019 versus the first ~~nine~~six months of ~~2016 is due to~~2018 by segment (in thousands):



	Six months ended June 30,
	2019		2018
VITAS	$	66,626	$	63,800
Roto-Rooter		50,162		48,236
Corporate		(21,392)		(12,069)
	$	95,396	$	99,967

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

VITAS’ ~~2017~~ after-tax earnings were positively impacted in ~~2017 when~~2019 compared to ~~2016 by a $55.8 million (after-tax) potential ligation settlement~~2018 due to higher revenue offset by the impact of a ~~$16.8~~litigation settlement of approximately $6.0 million ~~increase~~($4.5 million after-tax). After-tax earnings as a percent of revenue at VITAS in ~~revenue~~the first six months of 2019 and ~~a $1.2 million decrease in cost of services provided and goods sold.~~

~~-24-~~

2018 was 10.8%.

Roto-Rooter’s net income was positively impacted in ~~2017~~2019 compared to ~~2016~~2018 primarily by ~~a $23.6 million revenue increase in Roto-Rooter’s water restoration line of business, a $16.9 million increase in plumbing revenue and a $7.7 million increase in all other revenue types.~~higher revenue. After-tax earnings as a percent of revenue at Roto-Rooter in ~~2017 were 12.5%~~the first six months of 2019 was 15.9% as compared to ~~11.7%~~16.5% in ~~2016.~~

~~The improvement at~~the first six months of 2018.

After-tax Corporate isexpenses for 2019 decreased 77.2% when compared to 2018 due mainly to a $5.6 million decrease in the ~~impact~~excess tax benefits on stock compensation and a $2.3 million ($1.7 million after-tax) impairment of ~~the adoption of ASU 2016-09 which positively impacted the Company’s tax provision by approximately $8.1 million which is partially offset by higher stock based compensation expenses.~~

transportation equipment held for sale.

~~-25-~~

-32-


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

							Chemed
	VITAS		Roto-Rooter		Corporate		Consolidated
2019 (a)
Service revenues and sales	$	312,750	$	160,834	$	-	$	473,584
Cost of services provided and goods sold		241,104		82,533		-		323,637
Selling, general and administrative expenses		21,682		39,377		10,497		71,556
Depreciation		4,831		5,017		39		9,887
Amortization		18		388		-		406
Other operating expense		69		235		2,266		2,570
Total costs and expenses		267,704		127,550		12,802		408,056
Income/(loss) from operations		45,046		33,284		(12,802)		65,528
Interest expense		(53)		(100)		(1,084)		(1,237)
Intercompany interest income/(expense)		4,382		2,180		(6,562)		-
Other income—net		101		42		(130)		13
Income/(expense) before income taxes		49,476		35,406		(20,578)		64,304
Income taxes		(12,137)		(8,231)		6,793		(13,575)
Net income/(loss)	$	37,339	$	27,175	$	(13,785)	$	50,729

(a) The following amounts are included in net income (in thousands):
							Chemed
		VITAS	Roto-Rooter		Corporate		Consolidated
Pretax benefit/(cost):
Stock option expense	$	-	$	-	$	(3,929)	$	(3,929)
Impairment loss on transportation equipment		-		-		(2,266)		(2,266)
Medicare cap sequestration		(1,689)		-		-		(1,689)
Long-term incentive compensation		-		-		(1,386)		(1,386)
Amortization of acquired and cancelled franchise agreements		-		(331)		-		(331)
Acquisition expenses		-		(97)		-		(97)
Total	$	(1,689)	$	(428)	$	(7,581)	$	(9,698)

							Chemed
		VITAS	Roto-Rooter		Corporate		Consolidated
After-tax benefit/(cost):
Stock option expense	$	-	$	-	$	(3,197)	$	(3,197)
Impairment loss on transportation equipment		-		-		(1,733)		(1,733)
Medicare cap sequestration		(1,253)	$	-		-		(1,253)
Long-term incentive compensation		-		-		(1,199)		(1,199)
Amortization of acquired and cancelled franchise agreements		-		(244)		-		(244)
Acquisition expenses		-		(71)		-		(71)
Non cash ASC 842 expenses		(1)		-		-		(1)
Excess tax benefits on stock compensation		-		-		3,212		3,212
Total	$	(1,254)	$	(315)	$	(2,917)	$	(4,486)

CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2017
(in thousands)(unaudited)

Chemed
VITAS Roto-Rooter Corporate Consolidated
2017 (a)
Service revenues and sales $ 288,951 $ 128,493 $ - $ 417,444
Cost of services provided and goods sold 222,119 65,928 - 288,047
Selling, general and administrative expenses 23,783 33,694 9,442 66,919
Depreciation 4,529 4,268 22 8,819
Amortization - 33 - 33
Other operating expenses (371 ) - - (371 )
Total costs and expenses 250,060 103,923 9,464 363,447
Income/(loss) from operations 38,891 24,570 (9,464 ) 53,997
Interest expense (53 ) (73 ) (922 ) (1,048 )
Intercompany interest income/(expense) 2,950 1,378 (4,328 ) -
Other income/(expense)—net (86 ) (8 ) 1,417 1,323
Income/(expense) before income taxes 41,702 25,867 (13,297 ) 54,272
Income taxes (15,248 ) (9,833 ) 6,246 (18,835 )
Net income/(loss) $ 26,454 $ 16,034 $ (7,051 ) $ 35,437

(a) The following amounts are included in net income (in thousands):
Chemed
VITAS Roto-Rooter Corporate Consolidated
Pretax benefit/(cost):
Stock option expense $ - $ - $ (1,683 ) $ (1,683 )
Long-term incentive compensation - - (1,104 ) (1,104 )
Program closure expenses 371 - - 371
Expenses related to OIG investigation (935 ) - - (935 )
Total $ (564 ) $ - $ (2,787 ) $ (3,351 )

Chemed
VITAS Roto-Rooter Corporate Consolidated
After-tax benefit/(cost):
Stock option expense $ - $ - $ (1,064 ) $ (1,064 )
Long-term incentive compensation - - (699 ) (699 )
Program closure expenses 223 - - 223
Expenses related to OIG investigation (578 ) - - (578 )
Excess tax benefits on stock compensation - - 1,783 1,783
Total $ (355 ) $ - $ 20 $ (335 )

~~-26-~~

-33-


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

							Chemed
	VITAS		Roto-Rooter		Corporate		Consolidated
2018 (a)
Service revenues and sales	$	296,799	$	145,014	$	-	$	441,813
Cost of services provided and goods sold		233,073		72,668		-		305,741
Selling, general and administrative expenses		20,702		35,909		11,686		68,297
Depreciation		5,050		4,628		40		9,718
Amortization		-		34		-		34
Other operating expenses		(67)		(51)		-		(118)
Total costs and expenses		258,758		113,188		11,726		383,672
Income/(loss) from operations		38,041		31,826		(11,726)		58,141
Interest expense		(53)		(92)		(1,379)		(1,524)
Intercompany interest income/(expense)		3,124		1,739		(4,863)		-
Other income—net		238		21		779		1,038
Income/(expense) before income taxes		41,350		33,494		(17,189)		57,655
Income taxes		(9,565)		(8,196)		15,077		(2,684)
Net income/(loss)	$	31,785	$	25,298	$	(2,112)	$	54,971

(a) The following amounts are included in net income (in thousands):
							Chemed
		VITAS	Roto-Rooter		Corporate		Consolidated
Pretax benefit/(cost):
Stock option expense	$	-	$	-	$	(3,652)	$	(3,652)
Long-term incentive compensation		-		-		(1,222)		(1,222)
Litigation settlement		204		-		-		204
Medicare cap sequestration adjustment		(185)		-		-		(185)
Total	$	19	$	-	$	(4,874)	$	(4,855)

							Chemed
		VITAS	Roto-Rooter		Corporate		Consolidated
After-tax benefit/(cost):
Stock option expense	$	-	$	-	$	(2,900)	$	(2,900)
Long-term incentive compensation		-		-		(1,003)		(1,003)
Litigation settlement		152		-		-		152
Medicare cap sequestration adjustment		(138)		-		-		(138)
Excess tax benefits on stock compensation		-		-		11,702		11,702
Total	$	14	$	-	$	7,799	$	7,813

CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2016
(in thousands)(unaudited)

Chemed
VITAS Roto-Rooter Corporate Consolidated
2016 (a)
Service revenues and sales $ 282,865 $ 109,742 $ - $ 392,607
Cost of services provided and goods sold 224,410 57,248 - 281,658
Selling, general and administrative expenses 21,775 28,635 8,963 59,373
Depreciation 4,751 3,731 132 8,614
Amortization 14 77 - 91
Total costs and expenses 250,950 89,691 9,095 349,736
Income/(loss) from operations 31,915 20,051 (9,095 ) 42,871
Interest expense (59 ) (78 ) (881 ) (1,018 )
Intercompany interest income/(expense) 1,810 800 (2,610 ) -
Other income/(expense)—net (1 ) (14 ) 1,655 1,640
Income/(expense) before income taxes 33,665 20,759 (10,931 ) 43,493
Income taxes (12,762 ) (7,904 ) 4,002 (16,664 )
Net income/(loss) $ 20,903 $ 12,855 $ (6,929 ) $ 26,829

(a) The following amounts are included in net income (in thousands):
Chemed
VITAS Roto-Rooter Corporate Consolidated
Pretax benefit/(cost):
Stock option expense $ - $ - $ (1,419 ) $ (1,419 )
Long-term incentive compensation - - (643 ) (643 )
Medicare cap sequestration adjustment (228 ) - - (228 )
Expenses related to OIG investigation (599 ) - - (599 )
Total $ (827 ) $ - $ (2,062 ) $ (2,889 )

Chemed
VITAS Roto-Rooter Corporate Consolidated
After-tax benefit/(cost):
Stock option expense $ - $ - $ (897 ) $ (897 )
Long-term incentive compensation - - (406 ) (406 )
Medicare cap sequestration adjustment (141 ) - - (141 )
Expenses related to OIG investigation (370 ) - - (370 )
Total $ (511 ) $ - $ (1,303 ) $ (1,814 )

~~-27-~~

-34-



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

							Chemed
	VITAS		Roto-Rooter		Corporate		Consolidated
2019 (a)
Service revenues and sales	$	619,531	$	316,087	$	-	$	935,618
Cost of services provided and goods sold		480,847		164,741		-		645,588
Selling, general and administrative expenses		43,218		78,978		23,389		145,585
Depreciation		9,539		9,980		78		19,597
Amortization		35		890		-		925
Other operating expenses		6,423		234		2,266		8,923
Total costs and expenses		540,062		254,823		25,733		820,618
Income/(loss) from operations		79,469		61,264		(25,733)		115,000
Interest expense		(101)		(194)		(2,066)		(2,361)
Intercompany interest income/(expense)		8,777		4,375		(13,152)		-
Other income/(expense)—net		188		56		2,208		2,452
Income/(expense) before income taxes		88,333		65,501		(38,743)		115,091
Income taxes		(21,707)		(15,339)		17,351		(19,695)
Net income/(loss)	$	66,626	$	50,162	$	(21,392)	$	95,396


(a) The following amounts are included in net income (in thousands):
							Chemed
		VITAS	Roto-Rooter		Corporate		Consolidated
Pretax benefit/(cost):
Stock option expense	$	-	$	-	$	(8,018)	$	(8,018)
Litigation settlement		(6,000)		-		-		(6,000)
Long-term incentive compensation		-		-		(2,874)		(2,874)
Impairment loss on transportation equipment		-		-		(2,266)		(2,266)
Medicare cap sequestration adjustment		(2,204)		-		-		(2,204)
Amortization of acquired and cancelled franchise agreements		-		(772)		-		(772)
Non cash ASC 842 (expenses)/benefit		(656)		(55)		163		(548)
Acquisition expenses		-		(97)		(120)		(217)
Total	$	(8,860)	$	(924)	$	(13,115)	$	(22,899)

							Chemed
		VITAS	Roto-Rooter		Corporate		Consolidated
After-tax benefit/(cost):
Stock option expense	$	-	$	-	$	(6,524)	$	(6,524)
Litigation settlement		(4,476)		-		-		(4,476)
Long-term incentive compensation		-		-		(2,429)		(2,429)
Impairment loss on transportation equipment		-		-		(1,733)		(1,733)
Medicare cap sequestration adjustment		(1,640)		-		-		(1,640)
Amortization of acquired and cancelled franchise agreements		-		(568)		-		(568)
Non cash ASC 842 (expenses)/benefit		(490)		(40)		124		(406)
Acquisition expenses		-		(71)		(91)		(162)
Excess tax benefits on stock compensation		-		-		9,944		9,944
Total	$	(6,606)	$	(679)	$	(709)	$	(7,994)

CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017
(in thousands)(unaudited)

Chemed
VITAS Roto-Rooter Corporate Consolidated
2017 (a)
Service revenues and sales $ 855,977 $ 382,390 $ - $ 1,238,367
Cost of services provided and goods sold 663,565 195,474 - 859,039
Selling, general and administrative expenses 72,608 100,917 31,506 205,031
Depreciation 14,048 12,322 175 26,545
Amortization 14 97 - 111
Other operating expenses 91,138 - - 91,138
Total costs and expenses 841,373 308,810 31,681 1,181,864
Income/(loss) from operations 14,604 73,580 (31,681 ) 56,503
Interest expense (161 ) (259 ) (2,744 ) (3,164 )
Intercompany interest income/(expense) 8,478 4,035 (12,513 ) -
Other income/(expense)—net (95 ) (85 ) 5,619 5,439
Income/(expense) before income taxes 22,826 77,271 (41,319 ) 58,778
Income taxes (8,029 ) (29,555 ) 22,431 (15,153 )
Net income/(loss) $ 14,797 $ 47,716 $ (18,888 ) $ 43,625

(a) The following amounts are included in net income (in thousands):
Chemed
VITAS Roto-Rooter Corporate Consolidated
Pretax benefit/(cost):
Potential litigation settlement $ (90,000 ) $ - $ - $ (90,000 )
Medicare cap sequestration adjustments (105 ) - - (105 )
Stock option expense - - (7,738 ) (7,738 )
Long-term incentive compensation - - (3,021 ) (3,021 )
Expenses related to litigation settlements - (213 ) - (213 )
Program closure expenses (1,138 ) - - (1,138 )
Expenses related to OIG investigation (5,178 ) - - (5,178 )
Total $ (96,421 ) $ (213 ) $ (10,759 ) $ (107,393 )

Chemed
VITAS Roto-Rooter Corporate Consolidated
After-tax benefit/(cost):
Potential litigation settlement $ (55,800 ) $ - $ - $ (55,800 )
Medicare cap sequestration adjustments (65 ) - - (65 )
Stock option expense - - (4,892 ) (4,892 )
Long-term incentive compensation - - (1,911 ) (1,911 )
Expenses related to litigation settlements - (129 ) - (129 )
Program closure expenses (675 ) - - (675 )
Expenses related to OIG investigation (3,198 ) - - (3,198 )
Excess tax benefits on stock compensation - - 8,121 8,121
Total $ (59,738 ) $ (129 ) $ 1,318 $ (58,549 )

~~-28-~~

-35-



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

							Chemed
	VITAS		Roto-Rooter		Corporate		Consolidated
2018 (a)
Service revenues and sales	$	588,813	$	292,176	$	-	$	880,989
Cost of services provided and goods sold		460,329		149,948		-		610,277
Selling, general and administrative expenses		41,213		72,006		24,078		137,297
Depreciation		9,846		9,072		67		18,985
Amortization		-		61		-		61
Other operating expenses		(84)		(85)		-		(169)
Total costs and expenses		511,304		231,002		24,145		766,451
Income/(loss) from operations		77,509		61,174		(24,145)		114,538
Interest expense		(104)		(184)		(2,443)		(2,731)
Intercompany interest income/(expense)		6,218		3,417		(9,635)		-
Other income—net		380		37		1,639		2,056
Income/(expense) before income taxes		84,003		64,444		(34,584)		113,863
Income taxes		(20,203)		(16,208)		22,515		(13,896)
Net income/(loss)	$	63,800	$	48,236	$	(12,069)	$	99,967


(a) The following amounts are included in net income (in thousands):
							Chemed
		VITAS	Roto-Rooter		Corporate		Consolidated
Pretax benefit/(cost):
Stock option expense	$	-	$	-	$	(7,305)	$	(7,305)
Long-term incentive compensation		-		-		(3,142)		(3,142)
Medicare cap sequestration adjustment		(537)		-		-		(537)
Litigation settlement		204		-		-		204
Total	$	(333)	$	-	$	(10,447)	$	(10,780)

							Chemed
		VITAS	Roto-Rooter		Corporate		Consolidated
After-tax benefit/(cost):
Stock option expense	$	-	$	-	$	(5,791)	$	(5,791)
Long-term incentive compensation		-		-		(2,502)		(2,502)
Medicare cap sequestration adjustment		(401)		-		-		(401)
Litigation settlement		152		-		-		152
Excess tax benefits on stock compensation		-		-		15,500		15,500
Total	$	(249)	$	-	$	7,207	$	6,958

CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016
(in thousands)(unaudited)

Chemed
VITAS Roto-Rooter Corporate Consolidated
2016 (a)
Service revenues and sales $ 839,131 $ 334,274 $ - $ 1,173,405
Cost of services provided and goods sold 662,371 173,977 - 836,348
Selling, general and administrative expenses 69,197 87,890 23,959 181,046
Depreciation 14,346 10,860 413 25,619
Amortization 41 233 - 274
Other operating expenses 4,491 - - 4,491
Total costs and expenses 750,446 272,960 24,372 1,047,778
Income/(loss) from operations 88,685 61,314 (24,372 ) 125,627
Interest expense (176 ) (264 ) (2,391 ) (2,831 )
Intercompany interest income/(expense) 5,840 2,614 (8,454 ) -
Other income/(expense)—net 76 (2 ) 1,859 1,933
Income/(expense) before income taxes 94,425 63,662 (33,358 ) 124,729
Income taxes (35,887 ) (24,446 ) 12,158 (48,175 )
Net income/(loss) $ 58,538 $ 39,216 $ (21,200 ) $ 76,554

(a) The following amounts are included in net income (in thousands):
Chemed
VITAS Roto-Rooter Corporate Consolidated
Pretax benefit/(cost):
Stock option expense $ - $ - $ (6,259 ) $ (6,259 )
Medicare cap sequestration adjustment (228 ) - - (228 )
Long-term incentive compensation - - (901 ) (901 )
Early retirement expenses (4,491 ) - - (4,491 )
Expenses related to litigation settlements - (44 ) - (44 )
Expenses related to OIG investigation (4,105 ) - - (4,105 )
Total $ (8,824 ) $ (44 ) $ (7,160 ) $ (16,028 )

Chemed
VITAS Roto-Rooter Corporate Consolidated
After-tax benefit/(cost):
Stock option expense $ - $ - $ (3,958 ) $ (3,958 )
Medicare cap sequestration adjustment (141 ) - - (141 )
Long-term incentive compensation - - (570 ) (570 )
Early retirement expenses (2,840 ) - - (2,840 )
Expenses related to litigation settlements - (27 ) - (27 )
Expenses related to OIG investigation (2,535 ) - - (2,535 )
Total $ (5,516 ) $ (27 ) $ (4,528 ) $ (10,071 )

~~-29-~~

-36-


Unaudited Consolidating Summary and Reconciliation of Adjusted EBITDA

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

	Net income/(loss)	$	37,339	$	27,175	$	(13,785)	$	50,729
	Add/(deduct):
	Interest expense		53		100		1,084		1,237
	Income taxes		12,137		8,231		(6,793)		13,575
	Depreciation		4,831		5,017		39		9,887
	Amortization		18		388		-		406
	EBITDA		54,378		40,911		(19,455)		75,834
	Add/(deduct):
	Intercompany interest expense/(income)		(4,382)		(2,180)		6,562		-
	Interest income		(69)		(43)		-		(112)
	Stock option expense		-		-		3,929		3,929
	Impairment loss on transportation equipment		-		-		2,266		2,266
	Medicare cap sequestration adjustment		1,689		-		-		1,689
	Long-term incentive compensation		-		-		1,386		1,386
	Acquisition expense		-		97		-		97
	Adjusted EBITDA	$	51,616	$	38,785	$	(5,312)	$	85,089

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

	Net income/(loss)	$	31,785	$	25,298	$	(2,112)	$	54,971
	Add/(deduct):
	Interest expense		53		92		1,379		1,524
	Income taxes		9,565		8,196		(15,077)		2,684
	Depreciation		5,050		4,628		40		9,718
	Amortization		-		34		-		34
	EBITDA		46,453		38,248		(15,770)		68,931
	Add/(deduct):
	Intercompany interest expense/(income)		(3,124)		(1,739)		4,863		-
	Interest income		(237)		(22)		-		(259)
	Stock option expense		-		-		3,652		3,652
	Long-term incentive compensation		-		-		1,222		1,222
	Litigation settlement		(204)		-		-		(204)
	Medicare cap sequestration adjustment		185		-		-		185
	Amortization of stock awards		37		35		83		155
	Adjusted EBITDA	$	43,110	$	36,522	$	(5,950)	$	73,682

Unaudited Consolidating Summary and Reconciliation of Adjusted EBITDA

Chemed Corporation and Subsidiary Companies
(in thousands) Chemed
For the three months ended September 30, 2017 VITAS Roto-Rooter Corporate Consolidated

Net income/(loss) $ 26,454 $ 16,034 $ (7,051 ) $ 35,437
Add/(deduct):
Interest expense 53 73 922 1,048
Income taxes 15,248 9,833 (6,246 ) 18,835
Depreciation 4,529 4,268 22 8,819
Amortization - 33 - 33
EBITDA 46,284 30,241 (12,353 ) 64,172
Add/(deduct):
Intercompany interest expense/(income) (2,950 ) (1,378 ) 4,328 -
Interest income (48 ) (4 ) - (52 )
Expenses related to OIG investigation 935 - - 935
Program closure expenses (371 ) - - (371 )
Amortization of stock awards 72 67 156 295
Advertising cost adjustment - (162 ) - (162 )
Stock option expense - - 1,683 1,683
Long-term incentive compensation - - 1,104 1,104
Adjusted EBITDA $ 43,922 $ 28,764 $ (5,082 ) $ 67,604

Chemed
For the three months ended September 30, 2016 VITAS Roto-Rooter Corporate Consolidated

Net income/(loss) $ 20,903 $ 12,855 $ (6,929 ) $ 26,829
Add/(deduct):
Interest expense 59 78 881 1,018
Income taxes 12,762 7,904 (4,002 ) 16,664
Depreciation 4,751 3,731 132 8,614
Amortization 14 77 - 91
EBITDA 38,489 24,645 (9,918 ) 53,216
Add/(deduct):
Intercompany interest expense/(income) (1,810 ) (800 ) 2,610 -
Interest income (108 ) (11 ) - (119 )
Expenses related to litigation settlements 1,149 - - 1,149
Expenses related to OIG investigation 599 - - 599
Medicare cap sequestration adjustment 228 - - 228
Amortization of stock awards 85 76 279 440
Advertising cost adjustment - (188 ) - (188 )
Stock option expense - - 1,419 1,419
Long-term incentive compensation - - 643 643
Adjusted EBITDA $ 38,632 $ 23,722 $ (4,967 ) $ 57,387

~~-30-~~

-37-


Unaudited Consolidating Summary and Reconciliation of Adjusted EBITDA

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

	Net income/(loss)	$	66,626	$	50,162	$	(21,392)	$	95,396
	Add/(deduct):
	Interest expense		101		194		2,066		2,361
	Income taxes		21,707		15,339		(17,351)		19,695
	Depreciation		9,539		9,980		78		19,597
	Amortization		35		890		-		925
	EBITDA		98,008		76,565		(36,599)		137,974
	Add/(deduct):
	Intercompany interest expense/(income)		(8,777)		(4,375)		13,152		-
	Interest income		(157)		(56)		-		(213)
	Stock option expense		-		-		8,018		8,018
	Litigation settlement		6,000		-		-		6,000
	Long-term incentive compensation		-		-		2,874		2,874
	Impairment loss on transportation equipment		-		-		2,266		2,266
	Medicare cap sequestration adjustment		2,204		-		-		2,204
	Non cash ASC 842 expenses/(benefit)		656		55		(163)		548
	Acquisition expenses		-		97		120		217
	Adjusted EBITDA	$	97,934	$	72,286	$	(10,332)	$	159,888

								Chemed
For the six months ended June 30, 2018		VITAS		Roto-Rooter		Corporate		Consolidated

	Net income/(loss)	$	63,800	$	48,236	$	(12,069)	$	99,967
	Add/(deduct):
	Interest expense		104		184		2,443		2,731
	Income taxes		20,203		16,208		(22,515)		13,896
	Depreciation		9,846		9,072		67		18,985
	Amortization		-		61		-		61
	EBITDA		93,953		73,761		(32,074)		135,640
	Add/(deduct):
	Intercompany interest expense/(income)		(6,218)		(3,417)		9,635		-
	Interest income		(380)		(37)		-		(417)
	Stock option expense		-		-		7,305		7,305
	Long-term incentive compensation		-		-		3,142		3,142
	Medicare cap sequestration adjustment		537		-		-		537
	Stock award amortization		107		100		239		446
	Litigation settlement		(204)		-		-		(204)
	Adjusted EBITDA	$	87,795	$	70,407	$	(11,753)	$	146,449

Unaudited Consolidating Summary and Reconciliation of Adjusted EBITDA

Chemed Corporation and Subsidiary Companies
(in thousands) Chemed
For the nine months ended September 30, 2017 VITAS Roto-Rooter Corporate Consolidated

Net income/(loss) $ 14,797 $ 47,716 $ (18,888 ) $ 43,625
Add/(deduct):
Interest expense 161 259 2,744 3,164
Income taxes 8,029 29,555 (22,431 ) 15,153
Depreciation 14,048 12,322 175 26,545
Amortization 14 97 - 111
EBITDA 37,049 89,949 (38,400 ) 88,598
Add/(deduct):
Intercompany interest expense/(income) (8,478 ) (4,035 ) 12,513 -
Interest income (267 ) (29 ) - (296 )
Potential litigation settlement 90,000 - - 90,000
Medicare cap sequestration adjustment 105 - - 105
Program closure expenses 1,138 - - 1,138
Expenses related to OIG investigation 5,178 - - 5,178
Stock award amortization 220 203 510 933
Advertising cost adjustment - (707 ) - (707 )
Expenses related to litigation settlements - 213 - 213
Stock option expense - - 7,738 7,738
Long-term incentive compensation - - 3,021 3,021
Adjusted EBITDA $ 124,945 $ 85,594 $ (14,618 ) $ 195,921

Chemed
For the nine months ended September 30, 2016 VITAS Roto-Rooter Corporate Consolidated

Net income/(loss) $ 58,538 $ 39,216 $ (21,200 ) $ 76,554
Add/(deduct):
Interest expense 176 264 2,391 2,831
Income taxes 35,887 24,446 (12,158 ) 48,175
Depreciation 14,346 10,860 413 25,619
Amortization 41 233 - 274
EBITDA 108,988 75,019 (30,554 ) 153,453
Add/(deduct):
Intercompany interest expense/(income) (5,840 ) (2,614 ) 8,454 -
Interest income (256 ) (45 ) - (301 )
Early retirement expenses 4,491 - - 4,491
Expenses related to OIG investigation 4,105 - - 4,105
Stock award amortization 302 230 883 1,415
Medicare cap sequestration adjustment 228 - - 228
Expenses related to litigation settlements 1,149 44 - 1,193
Advertising cost adjustment - (1,353 ) - (1,353 )
Stock option expense - - 6,259 6,259
Long-term incentive compensation - - 901 901
Adjusted EBITDA $ 113,167 $ 71,281 $ (14,057 ) $ 170,391

~~-31-~~

-38-



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

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Net income as reported	$	50,729	$	54,971	$	95,396	$	99,967

Add/(deduct) pre-tax cost of:
Stock option expense		3,929		3,652		8,018		7,305
Litigation settlement		-		(204)		6,000		(204)
Long-term incentive compensation		1,386		1,222		2,874		3,142
Impairment loss on transportation equipment		2,266		-		2,266		-
Medicare cap sequestration adjustment		1,689		185		2,204		537
Amortization of acquired and cancelled franchise agreements		331		-		772		-
Non cash ASC 842 expenses		-		-		548		-
Acquisition expenses		97		-		217		-
Add/(deduct) tax impacts:
Tax impact of the above pre-tax adjustments (1)		(2,000)		(966)		(4,961)		(2,238)
Excess tax benefits on stock compensation		(3,212)		(11,702)		(9,944)		(15,500)
Adjusted net income	$	55,215	$	47,158	$	103,390	$	93,009

Diluted Earnings Per Share As Reported
Net income	$	3.08	$	3.27	$	5.79	$	5.93
Average number of shares outstanding		16,449		16,811		16,489		16,854

Adjusted Diluted Earnings Per Share
Adjusted net income	$	3.36	$	2.81	$	6.27	$	5.52
Adjusted average number of shares outstanding		16,449		16,811		16,489		16,854

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

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

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Net income/(loss) as reported $ 35,437 $ 26,829 $ 43,625 $ 76,554

Add/(deduct) after-tax cost of:
Excess tax benefits on stock compensation (1,783 ) - (8,121 ) -
Stock option expense 1,064 897 4,892 3,958
Long-term incentive compensation 699 406 1,911 570
Expenses of OIG investigation 578 370 3,198 2,535
Program closure expenses (223 ) - 675 -
Medicare cap sequestration adjustment - 141 65 141
Potential litigation settlement - - 55,800 -
Expenses related to litigation settlements - - 129 27
Early retirement expenses - - - 2,840
Adjusted net income $ 35,772 $ 28,643 $ 102,174 $ 86,625

Diluted Earnings Per Share As Reported
Net income/(loss) $ 2.13 $ 1.62 $ 2.60 $ 4.54
Average number of shares outstanding 16,676 16,559 16,763 16,851

Adjusted Diluted Earnings Per Share
Adjusted net income $ 2.15 $ 1.73 $ 6.10 $ 5.14
Adjusted average number of shares outstanding 16,676 16,559 16,763 16,851

~~-32-~~

-39-


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

	Three Months Ended June 30,						Six Months Ended June 30,
OPERATING STATISTICS	2019			2018			2019			2018
Net revenue ($000)
Homecare	$	266,461		$	250,381		$	525,312		$	491,412
Inpatient		22,894			20,077			45,464			42,186
Continuous care		30,786			30,513			63,030			61,279
Other		2,237			1,998			4,242			3,740
Subtotal	$	322,378		$	302,969		$	638,048		$	598,617
Room and board, net		(2,710)			(2,675)			(5,252)			(5,294)
Contractual allowances		(3,720)			(2,959)			(6,667)			(5,792)
Medicare cap allowance		(3,198)			(536)			(6,598)			1,282
Total	$	312,750		$	296,799		$	619,531		$	588,813
Net revenue as a percent of total before Medicare cap allowances
Homecare		82.7	%		82.6	%		82.3	%		82.1	%
Inpatient		7.1			6.6			7.1			7.0
Continuous care		9.5			10.1			9.9			10.2
Other		0.7			0.7			0.7			0.7
Subtotal		100.0			100.0			100.0			100.0
Room and board, net		(0.8)			(0.9)			(0.8)			(0.9)
Contractual allowances		(1.2)			(1.0)			(1.0)			(1.0)
Medicare cap allowance		(1.0)			(0.1)			(1.0)			0.3
Total		97.0	%		98.0	%		97.2	%		98.4	%
Average daily census (days)
Homecare		14,482			13,583			14,364			13,375
Nursing home		3,382			3,275			3,318			3,245
Routine homecare		17,864			16,858			17,682			16,620
Inpatient		358			318			359			335
Continuous care		459			467			474			473
Total		18,681			17,643			18,515			17,428
Total Admissions		17,491			16,658			35,249			35,137
Total Discharges		17,008			16,474			34,350			34,054
Average length of stay (days)		91.1			89.0			91.2			88.4
Median length of stay (days)		16.0			17.0			15.0			16.0
ADC by major diagnosis
Cerebro		35.7	%		36.2	%		35.8	%		36.4	%
Neurological		20.4			18.6			20.2			18.6
Cancer		12.7			13.9			12.7			13.9
Cardio		17.0			16.6			16.9			16.4
Respiratory		8.2			8.3			8.2			8.2
Other		6.0			6.4			6.2			6.5
Total		100.0	%		100.0	%		100.0	%		100.0	%
Admissions by major diagnosis
Cerebro		20.6			21.7	%		20.7	%		22.2	%
Neurological		12.2			11.1			12.5			11.2
Cancer		29.2			30.5			28.6			29.2
Cardio		16.0			15.6			16.1			15.6
Respiratory		11.7			10.8			11.8			11.3
Other		10.3			10.3			10.3			10.5
Total		100.0	%		100.0	%		100.0	%		100.0	%

Estimated uncollectible accounts as a percent of revenues		1.2	%		1.0	%		1.1	%		1.0	%
Accounts receivable --
Days of revenue outstanding- excluding unapplied Medicare payments		32.7			31.9			N.A.			N.A.
Days of revenue outstanding- including unapplied Medicare payments		27.7			25.6			N.A.			N.A.

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

~~-33-~~

-40-

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, ~~2017,~~2019, the Company had ~~$82.5~~$85.0 million of variable rate debt outstanding. For each $10 million dollars borrowed under the credit facility, an increase or decrease of 100 basis points (1% point), increases or decreases the Company’s annual interest expense by $100,000.

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

Item 4. Controls and Procedures

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

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

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

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

~~-34-~~

-41-

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 ~~2017:~~2019:



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

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

First Quarter Total	150,000	$	328.33

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

Second Quarter Total	69,009	$	328.59


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

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

February 2011 Program

January 1 through January 31, 2017 - $ - 7,315,718 $ 50,173,009
February 1 through February 28, 2017 104,358 178.39 7,420,076 31,556,555
March 1 through March 31, 2017 195,642 182.20 7,615,718 $ 95,910,768

First Quarter Total 300,000 $ 180.87

April 1 through April 30, 2017 - $ - 7,615,718 $ 95,910,768
May 1 through May 31, 2017 150,000 205.34 7,765,718 65,109,586
June 1 through June 30, 2017 - - 7,765,718 $ 65,109,586

Second Quarter Total 150,000 $ 205.34

July 1 through July 31, 2017 - $ - 7,765,718 $ 65,109,586
August 1 through August 31, 2017 47,726 191.53 7,813,444 55,968,634
September 1 through September 30, 2017 2,274 191.42 7,815,718 $ 55,533,344

Third Quarter Total 50,000 $ 191.52

~~On March 13, 2017 our Board of Directors authorized an additional $100 million under the February 2011 Repurchase Program.~~

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

‎

~~-35-~~

-42-

Item 6. Exhibits

~~Exhibit No.~~		~~Description~~

~~31.1~~ Exhibit No.		Description

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

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

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

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

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

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

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema

101.CAL		XBRL Taxonomy Extension Calculation Linkbase

101.DEF		XBRL Taxonomy Extension Definition Linkbase

101.LAB		XBRL Taxonomy Extension Label Linkbase

101.PRE		XBRL Taxonomy Extension Presentation Linkbase

‎

~~SIGNATURES~~

-43-

SIGNATURES

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

							~~Chemed Corporation~~
							~~(Registrant)~~ Chemed Corporation
							(Registrant)

	~~Dated:~~		~~October 27, 2017~~		~~By:~~
Dated:		July 31, 2019		By:		/s/ Kevin J. McNamara
							Kevin J. McNamara
							(President and Chief Executive Officer)


Dated:	~~Dated:~~	July 31, 2019	~~October 27, 2017~~	By:	~~By:~~		/s/ David P. Williams
							David P. Williams
							(Executive Vice President and Chief Financial Officer)


Dated:	~~Dated:~~	July 31, 2019	~~October 27, 2017~~	By:	~~By:~~		/s/ Michael D. Witzeman
							Michael D. Witzeman
							(Vice President and Controller)

-44-

~~-36-~~

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

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

	Net Income
For the Three Months Ended September 30,	Income		Shares		Earnings per Share
2017
Earnings	$	35,437		15,976	$	2.22
Dilutive stock options		-		616
Nonvested stock awards		-		84
Diluted earnings	$	35,437		16,676	$	2.13

2016
Earnings	$	26,829		16,166	$	1.66
Dilutive stock options		-		294
Nonvested stock awards		-		99
Diluted earnings	$	26,829		16,559	$	1.62

	Net Income
For the Nine Months Ended September 30,	Income		Shares		Earnings per Share
2017
Earnings	$	43,625		16,068	$	2.72
Dilutive stock options		-		609
Nonvested stock awards		-		86
Diluted earnings	$	43,625		16,763	$	2.60

2016
Earnings	$	76,554		16,443	$	4.66
Dilutive stock options		-		296
Nonvested stock awards		-		112
Diluted earnings	$	76,554		16,851	$	4.54

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

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

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

CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2017
(in thousands)(unaudited)

										Chemed
	VITAS			Roto-Rooter			Corporate			Consolidated
2017 (a)
Service revenues and sales	$	288,951		$	128,493		$	-		$	417,444
Cost of services provided and goods sold		222,119			65,928			-			288,047
Selling, general and administrative expenses		23,783			33,694			9,442			66,919
Depreciation		4,529			4,268			22			8,819
Amortization		-			33			-			33
Other operating expenses		(371	)		-			-			(371	)
Total costs and expenses		250,060			103,923			9,464			363,447
Income/(loss) from operations		38,891			24,570			(9,464	)		53,997
Interest expense		(53	)		(73	)		(922	)		(1,048	)
Intercompany interest income/(expense)		2,950			1,378			(4,328	)		-
Other income/(expense)—net		(86	)		(8	)		1,417			1,323
Income/(expense) before income taxes		41,702			25,867			(13,297	)		54,272
Income taxes		(15,248	)		(9,833	)		6,246			(18,835	)
Net income/(loss)	$	26,454		$	16,034		$	(7,051	)	$	35,437

(a) The following amounts are included in net income (in thousands):
										Chemed
	VITAS			Roto-Rooter			Corporate			Consolidated
Pretax benefit/(cost):
Stock option expense	$	-		$	-		$	(1,683	)	$	(1,683	)
Long-term incentive compensation		-			-			(1,104	)		(1,104	)
Program closure expenses		371			-			-			371
Expenses related to OIG investigation		(935	)		-			-			(935	)
Total	$	(564	)	$	-		$	(2,787	)	$	(3,351	)

										Chemed
	VITAS			Roto-Rooter			Corporate			Consolidated
After-tax benefit/(cost):
Stock option expense	$	-		$	-		$	(1,064	)	$	(1,064	)
Long-term incentive compensation		-			-			(699	)		(699	)
Program closure expenses		223			-			-			223
Expenses related to OIG investigation		(578	)		-			-			(578	)
Excess tax benefits on stock compensation		-			-			1,783			1,783
Total	$	(355	)	$	-		$	20		$	(335	)

CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017
(in thousands)(unaudited)

										Chemed
	VITAS			Roto-Rooter			Corporate			Consolidated
2017 (a)
Service revenues and sales	$	855,977		$	382,390		$	-		$	1,238,367
Cost of services provided and goods sold		663,565			195,474			-			859,039
Selling, general and administrative expenses		72,608			100,917			31,506			205,031
Depreciation		14,048			12,322			175			26,545
Amortization		14			97			-			111
Other operating expenses		91,138			-			-			91,138
Total costs and expenses		841,373			308,810			31,681			1,181,864
Income/(loss) from operations		14,604			73,580			(31,681	)		56,503
Interest expense		(161	)		(259	)		(2,744	)		(3,164	)
Intercompany interest income/(expense)		8,478			4,035			(12,513	)		-
Other income/(expense)—net		(95	)		(85	)		5,619			5,439
Income/(expense) before income taxes		22,826			77,271			(41,319	)		58,778
Income taxes		(8,029	)		(29,555	)		22,431			(15,153	)
Net income/(loss)	$	14,797		$	47,716		$	(18,888	)	$	43,625


(a) The following amounts are included in net income (in thousands):
										Chemed
	VITAS			Roto-Rooter			Corporate			Consolidated
Pretax benefit/(cost):
Potential litigation settlement	$	(90,000	)	$	-		$	-		$	(90,000	)
Medicare cap sequestration adjustments		(105	)		-			-			(105	)
Stock option expense		-			-			(7,738	)		(7,738	)
Long-term incentive compensation		-			-			(3,021	)		(3,021	)
Expenses related to litigation settlements		-			(213	)		-			(213	)
Program closure expenses		(1,138	)		-			-			(1,138	)
Expenses related to OIG investigation		(5,178	)		-			-			(5,178	)
Total	$	(96,421	)	$	(213	)	$	(10,759	)	$	(107,393	)

										Chemed
	VITAS			Roto-Rooter			Corporate			Consolidated
After-tax benefit/(cost):
Potential litigation settlement	$	(55,800	)	$	-		$	-		$	(55,800	)
Medicare cap sequestration adjustments		(65	)		-			-			(65	)
Stock option expense		-			-			(4,892	)		(4,892	)
Long-term incentive compensation		-			-			(1,911	)		(1,911	)
Expenses related to litigation settlements		-			(129	)		-			(129	)
Program closure expenses		(675	)		-			-			(675	)
Expenses related to OIG investigation		(3,198	)		-			-			(3,198	)
Excess tax benefits on stock compensation		-			-			8,121			8,121
Total	$	(59,738	)	$	(129	)	$	1,318		$	(58,549	)