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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

ANNUAL REPORT

PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

þ	For the fiscal year ended December 31, 2014

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

For the Transition Period from ________ to ___________

Commission File Number: 1-8351

CHEMED CORPORATION

(Exact name of registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization) Suite 2600, 255 East Fifth Street, Cincinnati, Ohio (Address of principal executive offices)	31-0791746 (I.R.S. Employer Identification Number) 45202-4726 (Zip Code)
(513) 762-6500 (Registrant’s Telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Capital Stock – Par Value $1 Per Share	Name of each exchange on which registered New York Stock Exchange

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No þ

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 period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, if definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes o No þ

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 þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “accelerated filer, large accelerated filer and smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One): Large accelerated filer þ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).Yes ¨ No þ

The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing price of said stock on the New York Stock Exchange – Composite Transaction Listing on June 30, 2014 ($93.72 per share), was $1,575,785,587.

At February 13, 2015, 16,999,406 shares of Chemed Capital Stock (par value $1 per share) were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Document	Where Incorporated
2014 Annual Report to Stockholders (specified portions) Proxy Statement for Annual Meeting to be held May 18, 2015	Parts I, II, and IV Part III

CHEMED CORPORATION

2014 FORM 10-K ANNUAL REPORT

Table of Contents

PART I



Item 1.	Business
Item 1A.	Risk Factors
Item 1B.	Unresolved Staff Comments
Item 2.	Properties
Item 3.	Legal Proceedings
Item 4.	Mine Safety Disclosures


PART II

Item 5.	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6.	Selected Financial Data
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk
Item 8.	Financial Statements and Supplementary Data
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.	Controls and Procedures
Item 9B.	Other Information


PART III

Item 10.	Directors, Executive Officers and Corporate Governance
Item 11.	Executive Compensation
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13.	Certain Relationships and Related Transactions and Director Independence
Item 14.	Principal Accountant Fees and Services


PART IV

Item 15.	Exhibits and Financial Statement Schedules

Item 1. Business

General

Chemed Corporation (the Company or Chemed) was incorporated in Delaware in 1970 as a subsidiary of W.R. Grace & Co. and succeeded to the business of W.R. Grace & Co.’s Special Products Group as of April 30, 1971 and remained a subsidiary of W.R. Grace & Co. until March 10, 1982.

Chemed purchases, operates and divests subsidiaries engaged in diverse business activities for the purposes of maximizing shareholder value. The Company’s operating businesses are managed on a decentralized basis. There are few integrated business functions (such as sales, marketing or purchasing). Chemed’s corporate office management participates in and is ultimately responsible for significant capital allocation decisions, investment activities, financial reporting, tax, legal and the selection of the key executives of each of the operating businesses. Since its inception, the Company has engaged in twelve significant acquisitions or divestitures of diverse business units.

During 2014, Chemed conducted its business operations in two segments: the VITAS segment (VITAS) and the Roto-Rooter segment (Roto-Rooter). VITAS provides hospice and palliative care services to its patients through a network of physicians, registered nurses, home health aides, social workers, clergy and volunteers. Roto-Rooter provides plumbing and drain cleaning services to both residential and commercial customers.

Forward Looking Statements

This Annual Report contains or incorporates by reference certain forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The Company intends such statements to be subject to the safe harbors created by that legislation. Such statements involve risks and uncertainties that could cause actual results of operations to differ materially from these forward looking statements.

Financial Information about Industry Segments

The required segment and geographic data for the Company’s continuing operations (as described below) for three years ended December 31, 2012, 2013 and 2014 are shown in Note 5 of the Notes to Consolidated Financial Statements on pages 57-59 of the 2014 Annual Report to Stockholders and are incorporated herein by reference.

Description of Business by Segment

The information called for by this item is included within Note 5 of the Notes to Consolidated Financial Statements appearing on pages 57-59 of the 2014 Annual Report to Stockholders is incorporated herein by reference.

Product and Market Development

Each segment of the Company’s business engages in a continuing program for the development and marketing of new services and products. While new products and services and new market development are important factors for the growth of each active segment of the Company’s business, the Company does not expect that any new products and services or marketing effort, including those in the development stage, will require the investment of a material amount of the Company’s assets.

Patents, Service Marks and Licenses

The Roto-Rooterâ trademarks and service marks have been used and advertised since 1935 by Roto-Rooter Corporation, a wholly owned indirect subsidiary of the Company. The Roto-Rooterâ marks are among the most highly recognized trademarks and service marks in the United States. The Company considers the Roto-Rooterâ marks to be a valuable asset and a significant factor in the marketing of Roto-Rooter’s franchises, products and services and the products and services provided by its franchises.

“VITAS” and “Innovative Hospice Care” are trademarks and servicemarks of VITAS Healthcare Corporation. The Company and its subsidiaries also own certain trade secrets including training manuals, cost information, patient information and software source codes. Certain states require certificates of need to conduct hospice operations. In those states, we consider certificates of need valuable assets.

Seasonality

Roto-Rooter’s revenue and operating results are impacted by significant weather patterns across the United States. Significant changes in precipitation or temperatures in areas we have significant company-owned operations will generally affect the revenue and operating results at Roto-Rooter.

A significant portion of our VITAS business is operated in the state of Florida. As the vast majority of our patients are Medicare recipients, retirees relocating to Florida during the winter months generally result in higher admissions and revenue for our Florida programs during that period.

Customer Concentration

Roto-Rooter’s business has a large and diverse customer base. Approximately 90% of VITAS’ revenue is from the United States government through the Medicare program. The loss of a portion or all of our Medicare revenue would have a material adverse effect on the Company.

Competition

Roto-Rooter

All aspects of the sewer, drain and pipe cleaning and plumbing repair businesses are highly competitive. Competition is, however, fragmented in most markets with local and regional firms providing the primary competition. The principal methods of competition are advertising, range of services provided, name recognition, emergency-service availability, speed and quality of customer service, service guarantees, and pricing.

VITAS

Hospice care in the United States is competitive. Because programs for hospice services are generally uniform, VITAS competes primarily on the basis of its ability to deliver quality, responsive services. VITAS is one of the nation’s largest providers of hospice services in an industry dominated primarily by small, non-profit, community-based hospices. Approximately 30% of all hospices are not-for-profit. Because the hospice care industry is highly fragmented, VITAS competes with a large number of organizations.

VITAS also competes with a number of national and regional hospice providers, hospitals, nursing homes, home health agencies and other health care providers. Many providers offer home care to patients who are terminally ill, and some actively market palliative care and hospice-like programs. In addition, various health care companies have diversified into the hospice market. Some of these health care companies have greater financial resources than VITAS. Relatively few barriers to entry exist in the majority of markets served by VITAS. Accordingly, other companies that are not currently providing hospice care may enter these markets and expand the variety of services they offer to include hospice.

Research and Development

The Company engages in a continuous program directed toward the development of new services, products and processes, the improvement of existing services, products and processes, and the development of new and different uses of existing products. The research and development expenditures from continuing operations have not been nor are they expected to be material.

Government Regulations

Roto-Rooter

Roto-Rooter’s franchising activities are subject to various federal and state franchising laws and regulations, including the rules and regulations of the Federal Trade Commission (the “FTC”) regarding the offering or sale of franchises. The rules and regulations of the FTC require that Roto-Rooter provide all the prospective franchises with specific information regarding the franchise program and Roto-Rooter in the form of a detailed franchise offering circular. In addition, a number of states require Roto-Rooter to register its franchise offering prior to offering or selling franchises in the state. Various state laws also provide for certain rights in favor of franchisees, including (i) limitations on the franchisor’s ability to terminate a franchise except for good cause, (ii) restrictions on the franchisor’s ability to deny renewal of a franchise, (iii) circumstances under which the franchisor may be required to purchase certain inventory of franchisees when a franchise is terminated or not renewed in violation of such laws, and (iv) provisions relating to arbitration. Roto-Rooter’s ability to engage in the plumbing repair business is also subject to certain limitations and restrictions imposed by state and local licensing laws and regulations.

VITAS

General. The health care industry and VITAS’ hospice programs are subject to extensive federal and state regulation. VITAS’ hospices are licensed as required under state law as either hospices or home health agencies, or both, depending on the regulatory requirements of each particular state. In addition, VITAS’ hospices are required to meet certain conditions of participation to be eligible to receive payments as hospices under Medicare and Medicaid programs. All of VITAS’ hospices, other than those currently in development, are certified for participation as hospices in the Medicare program, and are also eligible to receive payments as hospices from the Medicaid program in each of the states in which VITAS operates. VITAS’ hospices are subject to periodic survey by governmental authorities or private accrediting entities to assure compliance with state licensing, certification and accreditation requirements.

Medicare Conditions of Participation. Federal regulations require that a hospice program satisfy certain Conditions Of Participation (“COP”) to be certified and receive Medicare payment for the services it provides. Failure to comply with the conditions of participation may result in sanctions, up to and including decertification from the Medicare program. See “Surveys and Audits” below.

The Medicare COP for hospice programs include the following:

Governing Body. Each hospice must have a governing body that assumes full responsibility for the policies and the overall operation of the hospice and for ensuring that all services are provided in a manner consistent with accepted standards of practice. The governing body must designate one individual who is responsible for the day-to-day management of the hospice.

Medical Director. Each hospice must have a medical director who is a physician and who assumes responsibility for overseeing the medical component of the hospice’s patient care program.

Direct Provision of Core Services. Medicare limits those services for which the hospice may use individual independent contractors or contract agencies to provide care to patients. Specifically, substantially all nursing, social work, and counseling services must be provided directly by hospice employees meeting specific educational and professional standards. During periods of peak patient loads or under extraordinary circumstances, the hospice may be permitted to use contract workers, but the hospice must agree in writing to maintain professional, financial and administrative responsibility for the services provided by those individuals or entities.

Professional Management of Non-Core Services. A hospice may arrange to have non-core services such as therapy services, home health aide services, medical supplies or drugs provided by a non-employee or outside entity. If the hospice elects to use an independent contractor to provide non-core services, however, the hospice must retain professional management responsibility for the arranged services and ensure that the services are furnished in a safe and effective manner by qualified personnel, and in accordance with the patient’s plan of care.

Plan of Care. The patient’s attending physician, the medical director or the designated hospice physician, and interdisciplinary team must establish an individualized written plan of care prior to providing care to any hospice patient. The plan must assess the patient’s needs and identify services to be provided to meet those needs and must be reviewed and updated at specified intervals.

Continuation of Care. A hospice may not discontinue or reduce care provided to a Medicare beneficiary if the individual becomes unable to pay for that care.

Informed Consent. The hospice must obtain the informed consent of the hospice patient, or the patient’s legal representative, that specifies the type of care services that may be provided as hospice care.

Training. A hospice must provide ongoing training for its employees.

Quality Assurance. A hospice must conduct ongoing and comprehensive self-assessments of the quality and appropriateness of care it provides and that its contractors provide under arrangements to hospice patients.

Interdisciplinary Team. A hospice must designate an interdisciplinary team to provide or supervise hospice care services. The interdisciplinary team develops and updates plans of care, and establishes policies governing the day-to-day provision of hospice services. The team must include at least a physician, registered nurse, social worker and spiritual or other counselor. A registered nurse must be designated to coordinate the plan of care.

Volunteers. Hospice programs are required to recruit and train volunteers to provide patient care services or administrative services. Volunteer services must be provided in an amount equal to at least five percent of the total patient care hours provided by all paid hospice employees and contract staff.

Licensure. Each hospice and all hospice personnel must be licensed, certified or registered in accordance with applicable federal, state and local laws and regulations.

Central Clinical Records. Hospice programs must maintain clinical records for each hospice patient that are organized in such a way that they may be easily retrieved. The clinical records must be complete and accurate and protected against loss, destruction and unauthorized use.

Surveys and Audits. Hospice programs are subject to periodic survey by federal and state regulatory authorities and private accrediting entities to ensure compliance with applicable licensing and certification requirements and accreditation standards. Regulators conduct periodic surveys of hospice programs and provide reports containing statements of deficiencies for alleged failure to comply with various regulatory requirements. Survey reports and statements of deficiencies are common in the healthcare industry. In most cases, the hospice program and regulatory authorities will agree upon any steps to be taken to bring the hospice into compliance with applicable regulatory requirements. In some cases, however, a state or federal regulatory authority may take a number of adverse actions against a hospice program, including the imposition of fines, temporary suspension of admission of new patients to the hospice’s service or, in extreme circumstances, decertification from participation in the Medicare or Medicaid programs or revocation of the hospice’s license.

From time to time VITAS receives survey reports containing statements of deficiencies. VITAS reviews such reports and takes appropriate corrective action. VITAS believes that its hospices are in material compliance with applicable licensure and certification requirements. If a VITAS hospice were found to be out of compliance and actions were taken against a VITAS hospice, they could materially adversely affect the hospice’s ability to continue to operate, to provide certain services and to participate in the Medicare and Medicaid programs, which could materially adversely affect VITAS.

Billing Audits/ Claims Reviews. The Medicare program and its fiscal intermediaries and other payors periodically conduct pre-payment or post-payment reviews and other reviews and audits of health care claims, including hospice claims. There is pressure from state and federal governments and other payors to scrutinize health care claims to determine their validity and appropriateness. In order to conduct these reviews, the payor requests documentation from VITAS and then reviews that documentation to determine compliance with applicable rules and regulations, including the eligibility of patients to receive hospice benefits, the appropriateness of the care provided to those patients and the documentation of that care. VITAS’ claims have been subject to review and audit. We make appropriate provisions in our accounting records to reduce our revenue for anticipated denial of payment related to these audits and reviews. We believe our hospice programs comply with all payor requirements at the time of billing. However, we cannot predict whether future billing reviews or similar audits by payors will result in material denials or reductions in revenue.

Certificate of Need Laws and Other Restrictions. Some states, including Florida, have certificate of need or similar health planning laws that apply to hospice care providers. These states may require some form of state agency review or approval prior to opening a new hospice program, to adding or expanding hospice services, to undertaking significant capital expenditures or under other specified circumstances. Approval under these certificate of need laws is generally conditioned on the showing of a demonstrable need for services in the community. VITAS may seek to develop, acquire or expand hospice programs in states having certificate of need laws. To the extent that state agencies require VITAS to obtain a certificate of need or other similar approvals to expand services at existing hospice programs or to make acquisitions or develop hospice programs in new or existing geographic markets, VITAS’ plans could be adversely affected by a failure to obtain such certificate or approval. In addition, competitors may seek administratively or judicially to challenge such an approval or proposed approval by the state agency. Such a challenge, whether or not ultimately successful, could adversely affect VITAS.

Limitations on For-Profit Ownership. A few states have laws that restrict the development and expansion of for-profit hospice programs. For example, in New York, a hospice generally cannot be owned by a corporation that has another corporation as a stockholder. These types of restrictions could affect VITAS’ ability to expand into New York, or in other jurisdictions with similar restrictions.

Limits on the Acquisition or Conversion of Non-Profit Health Care Organizations. A number of states have enacted laws that restrict the ability of for-profit entities to acquire or otherwise assume the operations of a non-profit health care provider. Some states may require government review, public hearings, and/or government approval of transactions in which a for-profit entity proposes to purchase certain non-profit healthcare organizations. Heightened scrutiny of these transactions may significantly increase the costs associated with future acquisitions of non-profit hospice programs in some states, otherwise increase the difficulty in completing those acquisitions or prevent them entirely. VITAS cannot assure that it will not encounter regulatory or governmental obstacles in connection with any proposed acquisition of non-profit hospice programs in the future.

Professional Licensure and Participation Agreements. Many hospice employees are subject to federal and state laws and regulations governing the ethics and practice of their profession, including physicians, physical, speech and occupational therapists, social workers, home health aides, pharmacists and nurses. In addition, those professionals who are eligible to participate in the Medicare, Medicaid or other federal health care programs as individuals must not have been excluded from participation in those programs at any time.

State Licensure of Hospice. Each of VITAS’ hospices must be licensed in the state in which it operates. State licensure rules and regulations require that VITAS’ hospices maintain certain standards and meet certain requirements, which may vary from state to state. VITAS believes that its hospices are in material compliance with applicable licensure requirements. If a VITAS hospice were found to be out of compliance and actions were taken against a VITAS hospice, they could materially adversely affect the hospice’s ability to continue to operate, to provide certain services and to participate in the Medicare and Medicaid programs, which could materially adversely affect VITAS.

Overview of Government Payments—General. Over 90% of VITAS’ revenue consisted of payments from the Medicare and Medicaid programs. Such payments are made primarily on a “per diem” basis. Under the per diem reimbursement methodology, VITAS is essentially at risk for the cost of eligible services provided to hospice patients. Profitability is therefore largely dependent upon VITAS’ ability to manage the costs of providing hospice services to patients. Increases in operating costs, such as labor and supply costs that are subject to inflation and other increases, without a compensating increase in Medicare and Medicaid rates, could have a material adverse effect on VITAS’ business in the future. The Medicare and Medicaid programs are increasing pressure to control health care costs and to decrease or limit increases in reimbursement rates for health care services. As with most government programs, the Medicare and Medicaid programs are subject to statutory and regulatory changes, possible retroactive and prospective rate and payment adjustments, administrative rulings, freezes and funding reductions, all of which may adversely affect the level of program payments and could have a material adverse effect on VITAS’ business. VITAS’ levels of revenues and profitability are subject to the effect of legislative and regulatory changes, including possible reductions in coverage or payment rates, or changes in methods of payment, by the Medicare and Medicaid programs.

Overview of Government Payments – Medicare

Medicare Eligibility Criteria. To receive Medicare payment for hospice services, the hospice medical director and, if the patient has one, the patient’s attending physician, must certify and describe in a brief narrative that the patient has a life expectancy of six months or less if the illness runs its normal course. This determination is made based on the physician’s clinical judgement. Due to the uncertainty of such prognoses, however, it is likely and expected that some percentage of hospice patients will not die within six months of entering a hospice program. The Medicare program (among other third-party payers) recognizes that terminal illnesses often do not follow an entirely predictable course, and therefore the hospice benefit remains available to beneficiaries so long as the hospice physician or the patient’s attending physician continues to certify that the patient’s life expectancy remains six months or less. Specifically, the Medicare hospice benefit provides for two initial 90-day benefit periods followed by an unlimited number of 60-day periods. In order to qualify for hospice care, a Medicare beneficiary must elect hospice care and waive any right to other Medicare benefits related to his or her terminal illness. A Medicare beneficiary may revoke his or her election of the Medicare hospice benefit at any time and resume receiving regular Medicare benefits. The patient may elect the hospice benefit again at a later date so long as he or she remains eligible. Increased regulatory scrutiny of compliance with the Medicare six-month eligibility rule has impacted the hospice industry. The Medicare program, however, has reaffirmed that Medicare hospice beneficiaries are not limited to six months of coverage and that there is no limit on how long a Medicare beneficiary can continue to receive hospice benefits and services, provided that the beneficiary continues to meet the eligibility criteria under the Medicare hospice program.

Levels of Care. Medicare pays for hospice services on a prospective payment system basis under which VITAS receives an established payment rate for each day that it provides hospice services to a Medicare beneficiary. These rates are subject to annual adjustments for inflation and vary based upon the geographic location where the services are provided. The rate VITAS receives depends on which level of care is being provided to the beneficiary.

There are four levels of care and related reimbursement within the Medicare Hospice Benefit. These levels of care are Routine Home Care, Continuous Care, Inpatient Care and Respite Care. Medicare hospice providers are required, under Medicare’s Conditions of Participation and their regulations, to provide all four levels of care, when appropriate.

Vitas, as required under Medicare’s Conditions of Participation and their regulations, has the ability to provide all levels of care to its patients. The actual level of care a patient receives on any given day is based upon the clinical needs of the patient.

Routine Home Care. 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. The routine home care rate does not vary based upon the volume or intensity of services provided by the hospice program.

General Inpatient Care. The general inpatient care rate is paid when a patient requires inpatient services for a short period 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. Continuous home care, which VITAS refers to as “Intensive Comfort Care,” is provided to patients while at home, 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 and ends at midnight. The care must be predominantly nursing care provided by either a registered nurse or licensed practical nurse. While the published Medicare continuous home care rates are daily rates, Medicare actually pays for continuous home care in fifteen minute increments. This fifteen minute rate is calculated by dividing the daily rate by 96.

Respite Care. 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.

Medicare Payment for Physician Services. Payment for direct patient care physician services delivered by hospice physicians is billed separately by the hospice to the Medicare fiscal intermediary and paid at the lesser of the actual charge or the Medicare allowable charge for these services. This payment is in addition to the per diem rates VITAS receives for hospice care. Payment for hospice physicians’ administrative and general supervisory activities is included in the daily rates discussed above. Payments for attending physician professional services (other than services furnished by hospice physicians) are not paid to the hospice, but rather are paid directly to the attending physician by the Medicare fiscal intermediary. For fiscal 2014, approximately 2% of VITAS’ net revenue was attributable to physician services.

Medicare Limits on Hospice Care Payments. Medicare payments for hospice services are subject to two additional limits or “caps”. Each of VITAS’ hospice programs is separately subject to both of these “caps”. Both of these “caps” are determined on an annual basis for the period running from November 1 through October 31 of each year.

First, under a Medicare rule known as the “80-20” rule applicable to the Medicare inpatient services, if the number of inpatient care days furnished by a hospice to Medicare beneficiaries exceeds 20% of the total days of hospice care furnished by such hospice to Medicare beneficiaries, Medicare payments to the hospice for inpatient care days exceeding the cap are reduced to the routine home care rate.

Second, Medicare payments to a hospice are also subject to a separate cap based on overall average payments per admission. Any payments exceeding this overall hospice cap must be refunded by the hospice. This cap was set at $26,725.79 per admission for the twelve-month period ended on October 31, 2014, and is adjusted annually to account for inflation. VITAS’ hospices may be subject to future payment reductions or recoupments as the result of this cap.

Medicare Managed Care Programs. The Medicare program has entered into contracts with managed care companies to provide managed care benefits to Medicare beneficiaries who elect to participate in managed care programs. These managed care programs are commonly referred to as Medicare HMOs, Medicare + Choice or Medicare risk products. VITAS provides hospice care to Medicare beneficiaries who participate in these managed care programs, and VITAS is paid for services provided to these beneficiaries in the same way and at the same rates as those of other Medicare beneficiaries who are not in a Medicare managed care program. Under current Medicare policy, Medicare pays the hospice directly for services provided to these managed care program participants.

Overview of Government Payments – Medicaid

Medicaid Coverage and Reimbursements. State Medicaid programs are another source of VITAS’ net patient revenue. Medicaid is a state-administered program financed by state funds and matching federal funds to provide medical assistance to the indigent and certain other eligible persons. In 1986, hospice services became an optional state Medicaid benefit. For those states that elect to provide a hospice benefit, the Medicaid program is required to pay the hospice at rates at least equal to the rates provided under Medicare and calculated using the same methodology. States maintain flexibility to establish their own hospice election procedures and to limit the number and duration of benefit periods for which they will pay for hospice services. Reimbursement from state Medicaid programs in 2014 accounted for 5% of VITAS’ revenues.

Nursing Home Residents. For VITAS’ patients who receive nursing home care under a state Medicaid program and who elect hospice care under Medicare or Medicaid, VITAS contracts with nursing homes for the nursing homes’ provision of room and board services. In addition to the applicable Medicare or Medicaid hospice daily or hourly rate, the state generally must pay VITAS an amount equal to at least 95% of the Medicaid daily nursing home rate for room and board services furnished to the patient by the nursing home. Under VITAS’ standard nursing home contracts, VITAS pays the nursing home for these room and board services at the Medicaid daily nursing home rate.

Adjustments to Medicare and Medicaid Payment Rates. Payment rates under the Medicare and Medicaid programs are adjusted annually based upon the Hospital Market Basket Index and the Consumer Price Index; however, the adjustments have historically been less than actual inflation. These base rates are further modified by the Hospice Wage Index to reflect local differences in wages according to the revised wage index. Effective April 1, 2013, the Federal government implemented a 2% reimbursement cut for all Medicare programs, including hospice. It is possible that there will be further modifications to the rate structure under which the Medicare or Medicaid programs pay for hospice care services. Any future reductions in the rate of increase or an actual decrease in Medicare and Medicaid payments may have an adverse impact on VITAS’ net patient service revenue and profitability.

Other Healthcare Regulations

Federal and State Anti-Kickback Laws and Safe Harbor Provisions. The federal Anti-Kickback Law makes it a felony to knowingly and willingly offer, pay, solicit or receive any form of remuneration in exchange for referring, recommending, arranging, purchasing, leasing or ordering items or services covered by a federal health care program including Medicare or Medicaid. The Anti-Kickback Law applies regardless of whether the remuneration is provided directly or indirectly, in cash or in kind. Although the Anti-Kickback statute does not prohibit all financial transactions or relationships that providers of healthcare items or services may have with each other, interpretations of the law have been very broad. Under current law, courts and federal regulatory authorities have stated that this law is violated if even one purpose (as opposed to the sole or primary purpose) of the arrangement is to induce referrals.

Violations of the Anti-Kickback Law carry potentially severe penalties including imprisonment of up to five years, criminal fines of up to $25,000 per act, civil money penalties of up to $50,000 per act, and additional damages of up to three times the amounts claimed or remuneration offered or paid. Federal law also authorizes exclusion from the Medicare and Medicaid programs for violations of the Anti-Kickback Law.

The Anti-Kickback Law contains several statutory exceptions to the broad prohibition. In addition, Congress authorized the Office of Inspector General (“OIG”) to publish numerous “safe harbors” that exempt some practices from enforcement action under the Anti-Kickback Law and related laws. These statutory exceptions and regulatory safe harbors protect various bona fide employment relationships, contracts for the rental of space or equipment, personal service arrangements, and management contracts, among other things, provided that certain conditions set forth in the statute or regulations are satisfied. The safe harbor regulations, however, do not comprehensively describe all lawful relationships between healthcare providers and referral sources, and the failure of an arrangement to satisfy all of the requirements of a particular safe harbor does not mean that the arrangement is unlawful. Failure to comply with the safe harbor provisions, however, may mean that the arrangement will be subject to scrutiny.

Many states, including states where VITAS does business, have adopted similar prohibitions against payments that are intended to induce referrals of patients, regardless of the source of payment. Some of these state laws lack explicit “safe harbors” that may be available under federal law. Sanctions under these state anti-kickback laws may include civil money penalties, license suspension or revocation, exclusion from the Medicare or Medicaid programs, and criminal fines or imprisonment. Little precedent exists regarding the interpretation or enforcement of these statutes.

VITAS is required under the Medicare conditions of participation and some state licensing laws to contract with numerous healthcare providers and practitioners, including physicians, hospitals and nursing homes, and to arrange for these individuals or entities to provide services to VITAS’ patients. In addition, VITAS has contracts with other suppliers, including pharmacies, ambulance services and medical equipment companies. Some of these individuals or entities may refer, or be in a position to refer, patients to VITAS, and VITAS may refer, or be in a position to refer, patients to these individuals or entities. These arrangements may not qualify for a safe harbor. VITAS from time to time seeks guidance from regulatory counsel as to the changing and evolving interpretations and the potential applicability of these anti-kickback laws to its programs, and in response thereto, takes such actions as it deems appropriate. The Company generally believes that VITAS’ contracts and arrangements with providers, practitioners and suppliers do not violate applicable anti-kickback laws. However, the Company cannot assure that such laws will ultimately be interpreted in a manner consistent with VITAS’ practices.

HIPAA Anti-Fraud Provisions. HIPAA includes several revisions to existing health care fraud laws by permitting the imposition of civil monetary penalties in cases involving violations of the anti-kickback statute or contracting with excluded providers. In addition, HIPAA created new statutes making it a federal felony to engage in fraud, theft, embezzlement, or the making of false statements with respect to healthcare benefit programs, which include private, as well as government programs. In addition, federal enforcement officials have the ability to exclude from the Medicare and Medicaid programs any investors, officers and managing employees associated with business entities that have committed healthcare fraud, even if the investor, officer or employee had no actual knowledge of the fraud.

OIG Fraud Alerts, Advisory Opinions and Other Program Guidance. In 1976, Congress established the OIG to, among other things, identify and eliminate fraud, abuse and waste in HHS programs. To identify and resolve such problems, the OIG conducts audits, investigations and inspections across the country and issues public pronouncements identifying practices that may be subject to heightened scrutiny. There have been a number of hospice related audits and reviews conducted. These reviews and recommendations have included:

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Ensuring that Medicare hospice eligibility determinations are made in accordance with the Medicare regulations; and

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Revising the annual cap on hospice benefits to better reflect the cost of care provided.

From time to time, various federal and state agencies, such as HHS and the OIG, issue a variety of pronouncements, including fraud alerts, the OIG’s Annual Work Plan and other reports, identifying practices that may be subject to heightened governmental scrutiny. The Company cannot predict what, if any, changes may be implemented in coverage, reimbursement, or enforcement policies as a result of these OIG reviews and recommendations.

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

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

On May 2, 2013, the government filed a False Claims Act complaint against the Company and certain of its hospice-related subsidiaries in the U.S. District Court for the Western District of Missouri, United States v. VITAS Hospice Services, LLC, et al., No. 4:13-cv-00449-BCW (the “2013 Action”). Prior to that date, the Company received various subpoenas from the U.S. Department of Justice and OIG that have been previously disclosed. The 2013 Action alleges that, since at least 2002, VITAS, and since 2004, the Company, submitted or caused the submission of false claims to the Medicare program by (a) billing Medicare for continuous home care services when the patients were not eligible, the services were not provided, or the medical care was inappropriate, and (b) billing Medicare for patients who were not eligible for the Medicare hospice benefit because they did not have a life expectancy of six months or less if their illnesses ran their normal course. This complaint seeks treble damages, statutory penalties, and the costs of the action, plus interest. On August 1, 2013, the government filed its First Amended Complaint in the 2013 Action. The First Amended Complaint changed and supplemented some of the allegations, but did not otherwise expand the causes of action or the nature of the relief sought against VITAS. The defendants filed a motion to dismiss on September 24, 2013. The Court denied the motion, except to the extent that claims were filed before July 24, 2002, on September 30, 2014.

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

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

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

The net costs incurred related to U.S. v. Vitas and related regulatory matters were $2.1 million, $2.1 million and $1.2 million for 2014, 2013 and 2012 respectively.

Federal False Claims Acts. The federal law includes several criminal and civil false claims provisions, which provide that knowingly submitting claims for items or services that were not provided as represented may result in the imposition of multiple damages, administrative civil money penalties, criminal fines, imprisonment, and/or exclusion from participation in federally funded healthcare programs, including Medicare and Medicaid. In addition, the OIG may impose extensive and costly corporate integrity requirements upon a healthcare provider that is the subject of a false claims judgement or settlement. These requirements may include the creation of a formal compliance program, the appointment of a government monitor, and the imposition of annual reporting requirements and audits conducted by an independent review organization to monitor compliance with the terms of the agreement and relevant laws and regulations. The Affordable Care Act also contains provisions aimed at strengthening fraud and abuse enforcement.

The Civil False Claims Act prohibits the known filing of a false claim or the known use of false statements to obtain payments. Penalties for violations include fines ranging from $5,500 to $11,000, plus treble damages, for each claim filed. Provisions in the Civil False Claims Act also permit individuals to bring actions against individuals or businesses in the name of the government as so called “qui tam” relators. If a qui tam relator’s claim is successful, he or she is entitled to share the government’s recovery.

Both direct enforcement activity by the government and qui tam actions have increased significantly in recent years and have increased the risk that a healthcare company may have to defend a false claims action, pay fines or be excluded from the Medicare and/or Medicaid programs as a result of an investigation arising out of this type of an action. Because of the complexity of the government regulations applicable to the healthcare industry, the Company cannot assure that VITAS will not be the subject of other actions under the False Claims Act.

State False Claims Laws. Several states in which VITAS currently operates have adopted state false claims laws that mirror to some degree the federal false claims laws. While these statutes vary in scope and effect, the penalties for violating these false claims laws include administrative, civil and/or criminal fines and penalties, imprisonment, and the imposition of multiple damages.

The Stark Law and State Physician Self-Referral Laws. Section 1877 of the Social Security Act, commonly known as the “Stark Law”, prohibits physicians from referring Medicare or Medicaid patients for “designated health services” to entities in which they hold an ownership or investment interest or with whom they have a compensation arrangement, subject to a number of statutory and regulatory exceptions. Penalties for violating the Stark Law are severe and include:

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Denial of payment;

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Civil monetary penalties of $15,000 per referral or $1,000,000 for “circumvention schemes;”

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Assessments equal to 200% of the dollar value of each such service provided; and

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Exclusion from the Medicare and Medicaid programs.

Hospice care itself is not specifically listed as a designated health service; however, certain services that VITAS provides, or in the future may provide, are among the services identified as designated health services for purposes of the self-referral laws. The Company cannot assure that future regulatory changes will not result in hospice services becoming subject to the Stark Law’s ownership, investment or compensation prohibitions in the future.

Many states where VITAS operates have laws similar to the Stark Law, but with broader effect because they apply regardless of the source of payment for care. Penalties similar to those listed above as well as the loss of state licensure may be imposed in the event of a violation of these state self-referral laws. Little precedent exists regarding the interpretation or enforcement of these statutes.

Civil Monetary Penalties. The Civil Monetary Penalties Statute provides that civil penalties ranging between $10,000 and $50,000 per claim or act may be imposed on any person or entity that knowingly submits improperly filed claims for federal health benefits or that offers or makes payment to induce a beneficiary or provider to reduce or limit the use of health care services or to use a particular provider or supplier. Civil monetary penalties may be imposed for violations of the anti-kickback statute and for the failure to return known overpayments, among other things.

Prohibition on Employing or Contracting with Excluded Providers. The Social Security Act and federal regulations state that individuals or entities that have been convicted of a criminal offense related to the delivery of an item or service under Medicare or Medicaid programs or that have been convicted, under state and federal law, of a criminal offense relating to neglect or abuse of residents in connection with the delivery of a healthcare item or service cannot participate in any federal health care programs, including Medicare and Medicaid. Additionally, individuals and entities convicted of fraud, that have had their licenses revoked or suspended, or that have failed to provide services of adequate quality also may be excluded from the Medicare and Medicaid programs. Federal regulations prohibit Medicare providers, including hospice programs, from submitting claims for items or services or their related costs if an excluded provider furnished those items or services. The OIG maintains a list of excluded persons and entities. Nonetheless, it is possible that VITAS might unknowingly bill for services provided by an excluded person or entity with whom it contracts. The penalty for contracting with an excluded provider may range from civil monetary penalties of $50,000 and damages of up to three times the amount of payment that was inappropriately received.

Corporate Practice of Medicine and Fee Splitting. Most states have laws that restrict or prohibit anyone other than a licensed physician, including business entities such as corporations, from employing physicians and/or prohibit payments or fee-splitting arrangements between physicians and corporations or unlicensed individuals. Penalties for violations of corporate practice of medicine and fee-splitting laws vary from state to state, but may include civil or criminal penalties, the restructuring or termination of the business arrangements between the physician and unlicensed individual or business entity, or even the loss of the physician’s license to practice medicine. These laws vary widely from state to state both in scope and origin (e.g. statute, regulation, Attorney General opinion, court ruling, agency policy) and in most instances have been subject to only limited interpretation by the courts or regulatory bodies.

VITAS employs or contracts with physicians to provide medical direction and patient care services to its patients. VITAS has made efforts in those states where certain contracting or fee arrangements are restricted or prohibited to structure those arrangements, including its palliative care offerings, in compliance with the applicable laws and regulations. Despite these efforts, however, the Company cannot assure that agency officials charged with enforcing these laws will not interpret VITAS’ contracts with employed or independent contractor physicians as violating the relevant laws or regulations. Future determinations or interpretations by individual states with corporate practice of medicine or fee splitting restrictions may force VITAS to restructure its arrangements with physicians in those locations.

Health Information Practices. There currently are numerous legislative and regulatory initiatives at both the state and federal levels that address patient privacy concerns. In particular, federal regulations issued under the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) and the Health Information Technology for Electronic and Clinical Health Act (“HITECH”) require VITAS to protect the privacy and security of patients’ individual health information. HIPAA and HITECH do not automatically preempt applicable state laws and regulations concerning VITAS’ use, disclosure and maintenance of patient health information, which means that VITAS is subject to a complex regulatory scheme that, in many instances, requires VITAS to comply with both federal and state laws and regulations.

Additional Federal and State Regulation. Federal and state governments also regulate various aspects of the hospice industry. In particular, VITAS’ operations are subject to federal and state health regulatory laws covering professional services, the dispensing of drugs and certain types of hospice activities. Some of VITAS’ employees are subject to state laws and regulations governing the ethics and professional practice of medicine, respiratory therapy, pharmacy and nursing.

Compliance with Health Regulatory Laws. VITAS maintains an internal regulatory compliance review program and from time to time retains regulatory counsel for guidance on compliance matters. The Company cannot assure, however, that VITAS’ practices, if reviewed, would be found to be in compliance with applicable health regulatory laws, as such laws ultimately may be interpreted, or that any non-compliance with such laws would not have a material adverse effect, including an effect on its brand reputation, on VITAS.

Environmental Matters

Roto-Rooter’s operations are subject to various federal, state, and local laws and regulations regarding environmental matters and other aspects of the operation of a sewer and drain cleaning, HVAC and plumbing services business. For certain other activities, such as septic tank and grease trap pumping, Roto-Rooter is subject to state and local environmental health and sanitation regulations.

At December 31, 2014, the Company’s accrual for its estimated liability for potential environmental cleanup and related costs arising from the 1991 sale of DuBois Chemicals Inc. (“DuBois”) amounted to $1.7 million. Of this balance, $901,000 is included in other liabilities and $826,000 is included in other current liabilities. The Company is contingently liable for additional DuBois-related environmental cleanup and related costs up to a maximum of $14.9 million. On the basis of a continuing evaluation of the Company’s potential liability, and in consultation with the Company’s environmental attorney, management believes that it is not probable this additional liability will be paid. Accordingly, no provision for this contingent liability has been recorded. Although it is not presently possible to reliably project the timing of payments related to the Company’s potential liability for environmental costs, management believes that any adjustments to its recorded liability will not materially adversely affect its financial position or results of operations.

The Company, to the best of its knowledge, is currently in compliance in all material respects with the environmental laws and regulations affecting its operations. Such environmental laws, regulations and enforcement proceedings have not required the Company to make material increases in or modifications to its capital expenditures and they have not had a material adverse effect on sales or net income. Capital expenditures for the purpose of complying with environmental laws and regulations during 2015 and 2016 with respect to continuing operations are not expected to be material in amount; there can be no assurance, however, that presently unforeseen legislative enforcement actions will not require additional expenditures.

Employees

On December 31, 2014, Chemed Corporation had a total of 14,190 employees.

Available Information

The Company’s Internet address is www.chemed.com . The Company’s Annual Report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are electronically available through the SEC (http://www.sec.gov) or the Company’s website as soon as reasonably practicable after such reports are filed with, or furnished to, the SEC.

Annual reports, press releases, Board Committee charters, Code of Ethics, Corporate governance guidelines and other printed materials may be obtained from the website or from Chemed Investor Relations without charge by writing to, 255 East Fifth Street, Suite 2600, Cincinnati, Ohio 45202 or by calling 800-2CHEMED or 800-224-3633. The Company intends to satisfy the disclosure requirement under Item 5.05 of Form 8-K by posting such information on its website.

Item 1A. Risk Factors

You should carefully consider the risks described below. They are not the only ones facing the Company. Other risks and uncertainties not currently known to us or that we deem to be immaterial may also materially and adversely affect our business, financial condition, or results of operations.

GENERAL

We have incurred debt to finance the operations of the Company.

The Company has debt service obligations that may restrict our operating flexibility. We cannot assure you that our cash flow from operations will be sufficient to service our debt, which may require us to borrow additional funds, or restructure or otherwise refinance our debt. In addition, the Company has the ability to expand its debt and borrowing capacity subject to various restrictions and covenants defined by its creditors. The interest rate the Company pays will fluctuate from time to time based upon a number of factors including current LIBOR rates and Company operating performance. Significant changes in these factors could result in a material change in the Company’s interest expense.

Our ability to repay or to refinance our indebtedness and to pay interest on our indebtedness will depend on our operating performance, which may be affected by factors beyond our control. These factors could include operating difficulties, increased operating costs, our competitors’ actions and regulatory developments. Our ability to meet our debt service and other obligations may depend in significant part on the extent to which we successfully implement our business strategy. We cannot assure you that we will be able to implement our strategy fully or that the anticipated results of our strategy will be realized. Credit market conditions may make it difficult for us to obtain new financing or refinance our current debt on terms and conditions acceptable to us.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets, seek additional equity capital or restructure our debt. We cannot assure you that our cash flows and capital resources will be sufficient to make scheduled payments of principal and interest on our indebtedness in the future or that alternative measures would successfully meet our debt service obligations.

The agreements and instruments governing our outstanding debt contain restrictions and limitations that could significantly impact our ability to operate our business and adversely affect the price of our Capital Stock.

The operating and financial restrictions and covenants in our instruments of indebtedness restrict our ability to incur additional debt; issue and sell capital stock of subsidiaries; sell assets; engage in transactions with affiliates; restrict distributions from subsidiaries; incur liens; engage in business other than permitted businesses; engage in sale/leaseback transactions; engage in mergers or consolidations; make capital expenditures; make guarantees; make investments and acquisitions; enter into operating leases; hedge interest rates; and prepay other debt.

Moreover, if we are unable to meet the terms of the financial covenants or if we breach any of these covenants, a default could result under one or more of these agreements. A default, if not waived by our lenders, could accelerate repayment of our outstanding indebtedness. If acceleration occurs, we may not be able to repay our debt and it is unlikely that we would be able to borrow sufficient additional funds to refinance such debt on acceptable terms. In the event of any default under our credit facilities, the lenders thereunder could elect to declare all outstanding borrowings, together with accrued and unpaid interest and other fees, to be due and payable, and to require us to apply all of our available cash to repay these borrowings, any of which would be an event of default.

We depend on our management team and the loss of their service could have a material adverse effect on our business, financial condition and results of operations.

Our success depends to a large extent upon the continued services of our executive management team. The loss of key personnel could have a material adverse effect on our business, financial condition, results of operations and cash flows. Additionally, we cannot assure you that we will be able to attract or retain other skilled personnel in the future.

Environmental compliance costs and liabilities could increase our expenses and adversely affect our financial condition.

Our operations are subject to numerous environmental, health and safety laws and regulations that prohibit or restrict the discharge of pollutants into the environment and regulate employee exposure to hazardous substance in the workplace. Failure to comply with these laws could subject us to material costs and liabilities, including civil and criminal fines, costs to cleanup contamination we cause and, in some circumstances, costs to cleanup contamination we discover on our own property but did not cause.

Because we use and generate hazardous materials in some of our operations, we are potentially subject to material liabilities relating to the cleanup of contamination and personal injury claims. In addition, we have retained certain environmental liabilities in connection with the sale of former businesses. We are currently funding the cleanup of historical contamination at one of our former properties and contributing to the cleanup of third-party sites as a result of our sale of our former subsidiary DuBois Chemicals Inc. Although we have established a reserve for these liabilities, actual cleanup costs may exceed our current estimates due to factors beyond our control, such as the discovery of additional contamination or the enforcement of more stringent cleanup requirements. New laws and regulations or their stricter enforcement, the discovery of presently unknown conditions or the receipt of additional claims for indemnification could require us to incur costs or become the basis for new or increased liabilities including impairment of our brand that could have a material adverse effect on our business, financial condition and results of operations.

We are subject to certain anti-takeover statutes that might make it more difficult to effect a change in control of the Company.

We are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which prohibits us from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. The application of Section 203 could have the effect of delaying or preventing a change of control that could be advantageous to stockholders.

An adverse ruling against us in certain litigation could have an adverse effect on our financial condition and results of operations.

We are involved in litigation incidental to the conduct of our business currently and from time to time. The damages claimed against us in some of these cases are substantial. See the “Legal Proceedings” sections of this 10-K for discussion of particular matters. We cannot assure you that we will prevail in pending cases. Regardless of the outcome, such litigation is costly to manage, investigate and defend, and the related defense costs, diversion of management’s time and related publicity may adversely affect the conduct of our business and the results of our operations.

ROTO-ROOTER

We face intense competition from numerous, fragmented competitors. If we do not compete effectively, our business may suffer.

We face intense competition from numerous competitors. The sewer, drain and pipe cleaning, excavation and plumbing repair businesses are highly fragmented, with the bulk of the industries consisting of local and regional competitors. We compete primarily on the basis of advertising, range of services provided, name recognition, availability of emergency service, speed and quality of customer service, service guarantees and pricing. Our competitors may succeed in developing new or enhanced products and services more successful than ours and in marketing and selling existing and new products and services better than we do. In addition, new competitors may emerge. We cannot make any assurances that we will continue to be able to compete successfully with any of these companies.

Our operations are subject to numerous laws and regulations, exposing us to potential claims and compliance costs that could adversely affect our business.

We are subject to federal, state and local laws and regulations relating to franchising, insurance and other aspects of our business. These are discussed in greater detail under “Government Regulations” in the Description of Business section hereof. If we fail to comply with existing or future laws and regulations, we may be subject to governmental or judicial fines and sanctions. Our franchising activities are subject to various federal and state franchising laws and regulations, including the rules and regulations of the FTC regarding the offering or sale of franchises. These rules and regulations require us to provide all of our prospective franchisees with specific information regarding us and our franchise program in the form of a detailed franchise offering circular. In addition, a number of states require us to register our franchise offering prior to offering or selling franchises in such states. Various state laws also provide for certain rights in favor of franchisees, including (i) limitations on the franchisor’s ability to terminate a franchise except for good cause, (ii) restrictions on the franchisor’s ability to deny renewal of a franchise, (iii) circumstances under which the franchisor may be required to purchase certain inventory of franchisees when a franchise is terminated or not renewed in violation of such laws and (iv) provisions relating to arbitration. The ability to engage in the plumbing repair business is also subject to certain limitations and restrictions imposed by the state and local licensing laws and regulations. We cannot predict what legislation or regulations affecting our business will be enacted in the future, how existing or future laws or regulations will be enforced, administered and interpreted, or the amount of future expenditures that may be required to comply with these laws or regulations. Compliance costs associated with governmental regulations could have a material adverse effect on our business, financial condition and results of operations.

Roto-Rooter’s loss of key management personnel or its inability to hire and retain skilled employees could adversely affect its business, financial condition and results of operations.

Roto-Rooter’s future success significantly depends upon the continued service of its senior management personnel. The loss of one or more of Roto-Rooter’s key senior management personnel or its inability to hire and retain new skilled employees could negatively impact its ability to maintain or increase customer calls and jobs, a key aspect of its growth strategy, and could adversely affect its future operating results.

Competition for skilled employees, particularly licensed plumbers, is intense, and the process of locating and recruiting skilled employees with the combination of qualifications and attributes required to adequately perform plumbing duties can be difficult and lengthy. We cannot assure you that Roto-Rooter will be successful in attracting, retaining or training highly skilled personnel. Roto-Rooter’s business could be disrupted and its growth and profitability negatively impacted if it is unable to attract and retain skilled employees.

Cybersecurity

In the normal course of business, our information technology systems hold sensitive customer information including names, addresses and partial credit card information. Additionally, we utilize those same systems to perform our day-to-day activities, such as receiving customer calls, dispatching technicians to jobs and maintaining an accurate record of all transactions. We have not experienced any known attacks on our information technology systems that compromised customer data or the Company’s proprietary data. We maintain our information technology systems with safeguard protection against cyber-attacks including intrusion detection and protection services, firewalls and virus detection software. Additionally, on a quarterly basis, we test our information technology systems using cyber-attack software and methods to learn how a successful attack may be made. We remedy any issues encountered during these tests. However, these safeguards do not ensure that a significant cyber-attack could not occur. A successful attack on our information technology systems could have significant consequences to the business including liability for compromised customer information and business interruption.

Roto-Rooter’s success is highly dependent on its brand reputation

Roto-Rooter’s national reputation and brand image for performing necessary, high quality services in a timely manner is critical to Roto-Rooter’s continued success. Adverse publicity, litigation or on-line negative reviews focused on the Roto-Rooter brand could negatively impact Roto-Rooter’s national reputation resulting in decreased future demand for Roto-Rooter branded services. Roto-Rooter maintains a reputation management risk program, however, a loss of brand reputation at Roto-Rooter could adversely affect consumer willingness to use our service and thus, adversely affect our future operating performance.

VITAS

VITAS is highly dependent on payments from Medicare and Medicaid. If there are changes in the rate or methods governing these payments, VITAS’ net patient service revenue and profits could materially decline.

In excess of 90% of VITAS’ net patient service revenue consists of payments from the Medicare and Medicaid programs. Such payments are made primarily on a “per diem” basis, subject to annual reimbursement caps. Because VITAS receives a per diem fee to provide eligible services to all patients, VITAS’ profitability is largely dependent upon its ability to manage the costs of providing hospice services to patients. Increases in operating costs, such as labor and supply costs that are subject to inflation, without a compensating increase in Medicare and Medicaid rates, could have a material adverse effect on VITAS’ business in the future. Medicare and Medicaid currently adjust the various hospice payment rates annually based primarily on the increase or decrease of the hospital wage index basket, regionally adjusted. However, the increases may be less than actual inflation. VITAS’ profitability could be negatively impacted if this adjustment were eliminated or reduced, or if VITAS’ costs of providing hospice services increased more than the annual adjustment. In addition, cost pressures resulting from shorter patient lengths of stay and the use of more expensive forms of palliative care, including drugs and drug delivery systems, could negatively impact VITAS’ profitability. Many payors are increasing pressure to control health care costs. In addition, both public and private payors are increasing pressure to decrease, or limit increases in, reimbursement rates for health care services. VITAS’ levels of revenue and profitability will be subject to the effect of possible reductions in coverage or payment rates by third-party payors, including payment rates from Medicare and Medicaid.

Each state that maintains a Medicaid program has the option to provide reimbursement for hospice services at reimbursement rates generally required to be at least as much as Medicare rates. All states in which VITAS operates cover Medicaid hospice services; however, we cannot assure you that the states in which VITAS is presently operating or states into which VITAS could expand operations will continue to cover Medicaid hospice services. In addition, the Medicare and Medicaid programs are subject to statutory and regulatory changes, retroactive and prospective rate and payment adjustments, administrative rulings, freezes and funding reductions, all of which may adversely affect the level of program payments and could have a material adverse effect on VITAS’ business. We cannot assure that Medicare and/or Medicaid payments to hospices will not decrease. Reductions in amounts paid by government programs for services or changes in methods or regulations governing payments could cause VITAS’ net patient service revenue and profits to materially decline.

Approximately 20% of VITAS’ days of care are provided to patients who reside in nursing homes. Changes in the laws and regulations regarding payments for hospice services and “room and board” provided to VITAS’ hospice patients residing in nursing homes could reduce its net patient service revenue and profitability.

For VITAS’ hospice patients receiving nursing home care under certain state Medicaid programs who elect hospice care under Medicare and Medicaid, the state generally must pay VITAS, in addition to the applicable Medicare or Medicaid hospice per diem rate, an amount equal to at least 95% of the Medicaid per diem nursing home rate for “room and board” furnished to the patient by the nursing home. VITAS contracts with various nursing homes for the nursing homes’ provision of certain “room and board” services that the nursing homes would otherwise provide Medicaid nursing home patients. VITAS bills and collects from the applicable state Medicaid program an amount equal to approximately 95% of the amount that would otherwise have been paid directly to the nursing home under the state’s Medicaid plan. Under VITAS’ standard nursing home contracts, it pays the nursing home for these “room and board” services at approximately 100% of the Medicaid per diem nursing home rate.

The reduction or elimination of Medicare and Medicaid payments for hospice patients residing in nursing homes would reduce VITAS’ net patient service revenue and profitability. In addition, changes in the way nursing homes are reimbursed for “room and board” services provided to hospice patients residing in nursing homes could affect VITAS’ ability to serve patients in nursing homes.

If VITAS is unable to maintain relationships with existing patient referral sources or to establish new referral sources, VITAS’ growth and profitability could be adversely affected.

VITAS’ success is heavily dependent on referrals from physicians, long-term care facilities, hospitals and other institutional health care providers, managed care companies, insurance companies and other patient referral sources in the communities that its hospice locations serve, as well as on its ability to maintain good relations with these referral sources. VITAS’ referral sources may refer their patients to other hospice care providers or not to a hospice provider at all. VITAS’ growth and profitability depend significantly on its ability to establish and maintain close working relationships with these patient referral sources and to increase awareness and acceptance of hospice care by its referral sources and their patients. We cannot assure that VITAS will be able to maintain its existing relationships or that it will be able to develop and maintain new relationships in existing or new markets. VITAS’ loss of existing relationships or its failure to develop new relationships could adversely affect its ability to expand or maintain its operations and operate profitably. Moreover, we cannot assure you that awareness or acceptance of hospice care will increase or remain at current levels.

VITAS operates in an industry that is subject to extensive government regulation and claims reviews, and changes in law and regulatory interpretations could reduce its net patient service revenue and profitability and adversely affect its financial condition and results of operations.

The healthcare industry is subject to extensive federal, state and local laws, rules and regulations relating to, among others:

	●	Payment for services;

	●	Conduct of operations, including fraud and abuse, anti-kickback prohibitions, self-referral prohibitions and false claims;

	●	Privacy and security of medical records;

	●	Employment practices; and

	●	Various state approval requirements, such as facility and professional licensure, certificate of need, compliance surveys and other certification or recertification requirements.

Changes in these laws, rules and regulations or in interpretations thereof could reduce VITAS’ net patient service revenue and profitability. VITAS’ ability to comply with such regulations is a key factor in determining the success of its business. See the “Government Regulations” section of this 10-K for a greater description of these matters.

Fraud and Abuse Laws. VITAS contracts with a significant number of health care providers and practitioners, including physicians, hospitals and nursing homes and arranges for these entities to provide services to VITAS’ patients. Some of these health care providers and practitioners may refer, or be in a position to refer, patients to VITAS (or VITAS may refer patients to them). These arrangements may not qualify for a safe harbor. VITAS from time to time seeks guidance from regulatory counsel as to the changing and evolving interpretations and the potential applicability of the Anti-Kickback Law to its programs, and in response thereto, takes such actions as it deems appropriate. VITAS generally believes that its contracts and arrangements with providers, practitioners and suppliers should not be found to violate the Anti-Kickback Law. However, we cannot assure you that such laws will ultimately be interpreted in a manner consistent with VITAS’ practices.

Several health care reform proposals have included an expansion of the Anti-Kickback Law to include referrals of any patients regardless of payor source, which is similar to the scope of certain laws that have been enacted at the state level. In addition, a number of states in which VITAS operates have laws, which vary from state to state, prohibiting certain direct or indirect remuneration or fee-splitting arrangements between health care providers, regardless of payor source, for the referral of patients to a particular provider.

The federal Ethics in Patient Referral Act, Section 1877 of the Social Security Act (commonly known as the “Stark Law”) prohibits physicians from referring Medicare or Medicaid patients for “designated health services” to entities in which they hold an ownership or investment interest or with whom they have a compensation arrangement, subject to certain statutory or regulatory exceptions. We cannot assure you that future statutory or regulatory changes will not result in hospice services being subject to the Stark Law’s ownership, investment, compensation or referral prohibitions. Several states in which VITAS operates have similar laws which likewise are subject to change. Any such changes could adversely affect the business, financial condition and operating results of VITAS.

Further, under separate statutes, submission of claims for items or services that are “not provided as claimed” may lead to civil money penalties, criminal fines and imprisonment and/or exclusion from participation in Medicare, Medicaid and other federally funded state health care programs. These false claims statutes include the federal False Claims Act, which allows any person to bring suit on behalf of the federal government, known as a qui tam action, alleging false or fraudulent Medicare or Medicaid claims or other violations of the statute and to share in any amounts paid by the entity to the government in fines or settlement. See the discussion of the governmental investigations and litigation pending against VITAS under Other Healthcare Regulations, above and Legal Proceedings, below.

Certificate of Need Laws. Many states, including Florida, have certificate of need laws or other similar health planning laws that apply to hospice care providers. These states may require some form of state agency review or approval prior to opening a new hospice program, to adding or expanding hospice services, to undertaking significant capital expenditures or under other specified circumstances. Approval under these certificate of need laws is generally conditioned on the showing of a demonstrable need for services in the community. VITAS may seek to develop, acquire or expand hospice programs in states having certificate of need laws. To the extent that state agencies require VITAS to obtain a certificate of need or other similar approvals to expand services at existing hospice programs or to make acquisitions or develop hospice programs in new or existing geographical markets, VITAS’ plans could be adversely affected by a failure to obtain a certificate or approval. In addition, competitors may seek administratively or judicially to challenge such an approval or proposed approval by the state agency. Such a challenge, whether or not ultimately successful, could adversely affect VITAS.

Other Federal and State Regulations. The federal government and all states regulate various aspects of the hospice industry and VITAS’ business. In particular, VITAS’ operations are subject to federal and state health regulatory laws, including those covering professional services, the dispensing of drugs and certain types of hospice activities. Certain of VITAS’ employees are subject to state laws and regulations governing professional practice. VITAS’ operations are subject to periodic survey by governmental authorities and private accrediting entities to assure compliance with applicable state licensing, and Medicare and Medicaid certification and accreditation standards, as the case may be. From time to time in the ordinary course of business, VITAS receives survey reports noting deficiencies for alleged failure to comply with applicable requirements. VITAS reviews such reports and takes appropriate corrective action. The failure to effect such action could result in one of VITAS’ hospice programs being terminated from the Medicare hospice program. Any termination of one or more of VITAS’ hospice locations from the Medicare hospice program could adversely affect VITAS’ net patient service revenue and profitability and adversely affect its financial condition and results of operations. The failure to obtain, renew or maintain any of the required regulatory approvals, certifications or licenses could materially adversely affect VITAS’ business and could prevent the programs involved from offering products and services to patients. In addition, laws and regulations often are adopted to regulate new products, services and industries. We cannot assure you that either the states or the federal government will not impose additional regulations on VITAS’ activities, which might materially adversely affect VITAS, including impairing the value of its brand.

Claims Review. The Medicare and Medicaid programs and their fiscal intermediaries and other payors periodically conduct pre-payment or post-payment reviews and other reviews and audits of health care claims, including hospice claims. As a result of such reviews or audits, VITAS could be required to return any amounts found to be overpaid, or amounts found to be overpaid could be recouped through reductions in future payments. There is pressure from state and federal governments and other payors to scrutinize health care claims to determine their validity and appropriateness. VITAS’ claims have been subject to review and audit. We cannot assure you that reviews and/or similar audits of VITAS’ claims will not result in material recoupments, denials or other actions that could have a material adverse effect on VITAS’ business, financial condition and results of operations. See the discussion of OIG investigations pending against VITAS under Other Health Care Regulations, above.

Regulation and Provision of Continuous Home Care. VITAS provides continuous home care to patients requiring such care. Continuous home care is provided to patients while at home, 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 and ends at midnight. The care must be predominantly nursing care provided by either a registered nurse or licensed practical nurse.

Continuous home care can be challenging for a hospice to provide for a number of reasons, including the need to have available sufficient skilled and trained staff to furnish such care, the need to manage the staffing and provision of such care, and a shortage of nurses that can make it particularly difficult to attract and retain nurses that are required to furnish a majority of such care. Medicare reimbursement for continuous home care has been calculated by multiplying the applicable continuous home care hourly rate by the number of hours of care provided. If the care was provided for less than one hour, Medicare requires reporting in 15-minute increments of care provided, with no rounding.

Medicare reimbursement for continuous home care is subject to a number of requirements posing further challenges for a hospice providing such care. For example, if a patient requires skilled interventions for palliation or symptom management that can be accomplished in less than 8 aggregate hours within the 24-hour period, if the majority of care can be accomplished by someone other than a registered nurse or a licensed practical nurse (e.g., if a majority of care is furnished by a home health aide or homemaker), or if for any reason less than 8 hours of direct care are provided (such as when a patient dies before 8 AM even if 7 or more hours of care has been provided), the care rendered cannot be reimbursed by Medicare at the continuous home care rate (although the care instead may be eligible for Medicare reimbursement at the reduced routine home care day rate). As a result of such requirements, VITAS may incur the costs of providing services intended to be continuous home care services yet be unable to bill or be reimbursed for such services at the continuous home care rate. We cannot assure you that challenges in providing continuous home care will not cause VITAS’ net patient service revenue and profits to materially decline or that reviews and/or similar audits of VITAS’ claims will not result in material recoupments, denials or other actions that could have a material adverse effect on VITAS’ business, financial condition and results of operations.

Compliance. VITAS maintains an internal regulatory compliance review program and from time to time retains regulatory counsel for guidance on compliance matters. We cannot assure you, however, that VITAS’ practices, if reviewed, would be found to be in compliance with applicable health regulatory laws, as such laws ultimately may be interpreted, or that any non-compliance with such laws would not have a material adverse effect on VITAS.

Federal and state legislative and regulatory initiatives could require VITAS to expend substantial sums on acquiring, implementing and supporting new information systems, which could negatively impact its profitability.

There are currently numerous legislative and regulatory initiatives at both the state and federal levels that address patient privacy concerns. We cannot predict the total financial or other impact of the regulations on VITAS’ operations. In addition, although VITAS’ management believes it is in compliance with the requirement of patient privacy regulations, we cannot assure you that VITAS will not be found to have violated state and federal laws, rules or guidelines surrounding patient privacy. Compliance with current and future HIPAA and HITECH requirements or any other federal or state privacy initiatives could require VITAS to make substantial investments, which could negatively impact its profitability and cash flows.

VITAS’ growth strategies may not be successful, which could adversely affect its business.

A significant element of VITAS’ growth strategy is expected to include expansion of its business in new and existing markets. This aspect of VITAS’ growth strategy may not be successful, which could adversely impact its growth and profitability. We cannot assure you that VITAS will be able to:

●

Identify markets that meet its selection criteria for new hospice locations;

●

Hire and retain qualified management teams to operate each of its new hospice locations;

●

Manage a large and geographically diverse group of hospice locations;

●

Become Medicare and Medicaid certified in new markets;

●

Generate sufficient hospice admissions to operate profitably in these new markets;

●

Compete effectively with existing hospices in new markets; or

●

Obtain state licensure and/or a certificate of need from appropriate state agencies in new markets.

VITAS’ loss of key management personnel or its inability to hire and retain skilled employees could adversely affect its business, financial condition and results of operations.

VITAS’ future success significantly depends upon the continued service of its senior management personnel. The loss of one or more of VITAS’ key senior management personnel or its inability to hire and retain new skilled employees could negatively impact VITAS’ ability to maintain or increase patient referrals, a key aspect of its growth strategy, and could adversely affect its future operating results.

Competition for skilled employees is intense, and the process of locating and recruiting skilled employees with the combination of qualifications and attributes required to care effectively for terminally ill patients and their families can be difficult and lengthy. We cannot assure you that VITAS will be successful in attracting, retaining or training highly skilled nursing, management, community education, operations, admissions and other personnel. VITAS’ business could be disrupted and its growth and profitability negatively impacted if it is unable to attract and retain skilled employees.

A nationwide shortage of qualified nurses could adversely affect VITAS’ profitability, growth and ability to continue to provide quality, responsive hospice services to its patients as nursing wages and benefits increase.

Approximately 40% of VITAS’ workforce is licensed nurses. VITAS depends on qualified nurses to provide quality, responsive hospice services to its patients. The current nationwide shortage of qualified nurses impacts some of the markets in which VITAS provides hospice services. In response to this shortage, VITAS has adjusted its wages and benefits to recruit and retain nurses and to engage contract nurses. VITAS’ inability to attract and retain qualified nurses could adversely affect its ability to provide quality, responsive hospice services to its patients and its ability to increase or maintain patient census in those markets. Increases in the wages and benefits required to attract and retain qualified nurses or an increase in reliance on contract nurses could negatively impact profitability.

VITAS may not be able to compete successfully against other hospice providers, and competitive pressures may limit its ability to maintain or increase its market position and adversely affect its profitability, financial condition and results of operations.

Hospice care in the United States is highly competitive. In many areas in which VITAS’ hospices are located, they compete with a large number of organizations, including:

● Community-based hospice providers;

● National and regional companies;

● Hospital-based hospice and palliative care programs;

● Physician groups;

● Nursing homes;

● Home health agencies;

● Infusion therapy companies; and

● Nursing agencies.

Various health care companies have diversified into the hospice industry. Other companies, including hospitals and health care organizations that are not currently providing hospice care, may enter the markets VITAS serves and expand the variety of services offered to include hospice care. We cannot assure you that VITAS will not encounter increased competition in the future that could limit its ability to maintain or increase its market position, including competition from parties in a position to impact referrals to VITAS. Such increased competition could have a material adverse effect on VITAS’ business, financial condition and results of operations.

Changes in rates or methods of payment for VITAS’ services could adversely affect its revenues and profits.

Managed care organizations have grown substantially in terms of the percentage of the population they cover and their control over an increasing portion of the health care economy. Managed care organizations have continued to consolidate to enhance their ability to influence the delivery of health care services and to exert pressure to control health care costs. VITAS has a number of contractual arrangements with managed care organizations and other similar parties.

VITAS provides hospice care to many Medicare beneficiaries who receive their non-hospice health care services from health maintenance organizations (“HMOs”) under Medicare risk contracts. Under such contracts between HMOs and the federal Department of Health and Human Services, the Medicare payments for hospice services are excluded from the per-member, per-month payment from Medicare to HMOs and instead are paid directly by Medicare to the hospices. As a result, VITAS’ payments for Medicare beneficiaries enrolled in Medicare risk HMOs are processed in the same way with the same rates as other Medicare beneficiaries. We cannot assure, however, that payment for hospice services will continue to be excluded from HMO payment under Medicare risk contracts and similar Medicare managed care plans or that if not excluded, managed care organizations or other large third-party payors would not use their power to influence and exert pressure on health care providers to reduce costs in a manner that could have a material adverse effect on VITAS’ business, financial condition and results of operations.

Liability claims may have an adverse effect on VITAS, and its insurance coverage may be inadequate.

Participants in the hospice industry are subject to lawsuits alleging negligence, product liability or other similar legal theories, many of which involve large claims and significant defense costs. From time to time, VITAS is subject to such and other types of lawsuits. See the description below under Legal Proceedings. The ultimate liability for claims, if any, could have a material adverse effect on its financial condition or operating results. Although VITAS currently maintains liability insurance intended to cover the claims, we cannot assure you that the coverage limits of such insurance policies will be adequate or that all such claims will be covered by the insurance. In addition, VITAS’ insurance policies must be renewed annually and may be subject to cancellation during the policy period. While VITAS has been able to obtain liability insurance in the past, such insurance varies in cost, and may not be available in the future on terms acceptable to VITAS, if at all.

A successful claim in excess of the insurance coverage could have a material adverse effect on VITAS. Claims, regardless of their merit or eventual outcome, also may have a material adverse effect on VITAS’ business and reputation due to the costs of litigation, diversion of management’s time and related publicity.

VITAS procures professional liability coverage on a claims-made basis. The insurance contracts specify that coverage is available only during the term of each insurance contract. VITAS’ management intends to renew or replace the existing claims-made policy annually but such coverage is difficult to obtain, may be subject to cancellation and may be written by carriers that are unable, or unwilling to pay claims Certain claims have been asserted where the coverage would be the responsibility of this prior carrier and/or other carriers that may not have the financial wherewithal to satisfy the claims. Additionally, some risks and liabilities, including claims for punitive damages, are not covered by insurance.

Cybersecurity

In the normal course of business, our information technology systems hold sensitive patient information including patient demographic data, eligibility for various medical plans including Medicare and Medicaid and protected health information. Additionally, we utilize those same systems to perform our day-to-day activities, such as receiving referrals, assigning medical teams to patients, documenting medical information and maintaining an accurate record of all transactions. We have not experienced any known attacks on our information technology systems that have compromised patient data or the Company’s proprietary data. We maintain our information technology systems with safeguard protection against cyber-attacks including active intrusion protection, firewalls and virus detection software. As discussed previously, we are subject to and comply with HIPPA and HITECH regulations. However, these safeguards do not ensure that a significant cyber-attack could not occur. A successful attack on our information technology systems could have significant consequences to the business including liability for compromised patient information and business interruption.

VITAS’ success is highly dependent on its brand reputation

VITAS’ reputation for performing quality routine and high acuity patient hospice care within the regulations mandated by Medicare, Medicaid and commercial payors is critical to our success. Failure to provide quality patient care within the regulations mandated by our third-party payors, or the perception of inappropriate care resulting in adverse publicity, litigation or a campaign of negative on-line reviews are some of the factors that could negatively impact VITAS’ national reputation. VITAS maintains a reputation management risk program however, a loss of brand reputation at VITAS could adversely affect referral sources’ willingness to refer our service and thus, adversely affect our future operating performance.

VITAS’ headquarters and a significant portion of its operations are in south Florida

The occurrence of a natural disaster in any region that VITAS has significant operations could have a negative impact on the business. VITAS’ headquarters are located in Miami, Florida. In addition, two of our largest programs are in south Florida. The location of our headquarters and these large programs increases our exposure to hurricanes. A major hurricane in south Florida could impede our ability to bill for our services, operate our businesses and serve our patients’ in the affected area. VITAS maintains a disaster recovery program to mitigate this risk however, natural disasters could have an adverse affect on our future operating performance.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

The Company’s corporate offices and the headquarters for Roto-Rooter are located in Cincinnati, Ohio. Roto-Rooter has manufacturing and distribution center facilities in West Des Moines, Iowa and has 120 leased and owned office and service facilities in 30 states. VITAS, headquartered in Miami, operates 49 programs from 153 leased facilities and 34 inpatient units in 19 states and the District of Columbia.

All “owned” property is held in fee and is subject to the security interests of the holders of our debt instruments. The leased properties have lease terms ranging from monthly to eleven years. Management does not foresee any difficulty in renewing or replacing the remainder of its current leases. The Company considers all of its major operating properties to be maintained in good operating condition and to be generally adequate for present and anticipated needs.

Item 3. Legal Proceedings

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

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

On January 29, 2014 defendants in North filed a motion to transfer that case to Delaware under 28 U.S.C § 1404(a). On February 12, 2014, defendants in KBC filed a motion to dismiss that case pursuant to Federal Rules of Civil Procedure 23.1 and 12(b)(6). On September 19, 2014, the Ohio court granted defendants’ motion to transfer North to Delaware. Following that decision and in light of that transfer, on September 29, 2014, the Delaware court denied without prejudice defendants’ motion to dismiss KBC, and referred both cases to Magistrate Judge Burke.

On October 15, 2014, Plaintiff KBC filed a motion to consolidate KBC with North. On February 2, 2015 the court granted the motion for consolidation in full, appointing Plaintiff KBC the sole lead plaintiff and its counsel, the sole lead and liaison counsel. The court ordered that both cases will proceed under the caption In re Chemed Corp. Shareholder and Derivative Litigation, No. 13 Civ. 1854 (LPS) (CJB) (D. Del.). The court granted Plaintiff KBC 30 days from the date of the order to file a consolidated complaint or designate one of the pending complaints as the operative complaint in the consolidated proceedings. Defendants will have 21 days thereafter in which to answer, move to dismiss, or otherwise respond to the operative complaint. Defendants intend to renew their motion to dismiss the claims and allegations once that occurs.

The Company intends to defend vigorously against the allegations in each of the above lawsuits. The net costs incurred related to U.S. v. Vitas and related regulatory matters were $2.1 million, $2.1 million and $1.2 million for 2014, 2013 and 2012 respectively. Regardless of the outcome of any of the preceding matters, responding to the subpoenas and dealing with the various regulatory agencies and opposing parties can adversely affect us through defense costs, potential payments, diversion of management time, and related publicity. Although the Company intends to defend them vigorously, there can be no assurance that those suits will not have a material adverse effect on the Company.

See also the OIG matters pending against VITAS under Other Healthcare Regulations, above.

Item 4. Mine Safety Disclosures

None

Executive Officers of the Company

9
Name	Age	Office	First Elected
Kevin J. McNamara Timothy S. O’Toole Spencer S. Lee David P. Williams Arthur V. Tucker, Jr.	61 59 59 54 65	President and Chief Executive Officer Executive Vice President Executive Vice President Executive Vice President and Chief Financial Officer Vice President and Controller	August 2, 1994 (1) May 18, 1992 (2) May 15, 2000 (3) March 5, 2004 (4) February 1, 1989 (5)

(1)

Mr. K. J. McNamara is President and Chief Executive Officer of the Company and has held these positions since August 1994 and May 2001, respectively. Previously, he served as an Executive Vice President, Secretary and General Counsel of the Company, since November 1993, August 1986 and August 1986, respectively. He previously held the position of Vice President of the Company, from August 1986 to May 1992.

(2)

Mr. T.S. O’Toole is an Executive Vice President of the Company and has held this position since May 1992. He is also Chief Executive Officer of VITAS, a wholly owned subsidiary of the Company, and has held this position since February 24, 2004. Previously, from May 1992 to February 24, 2004, he also served the Company as Treasurer.

(3)

Mr. S. S. Lee is an Executive Vice President of the Company and has held this position since May 15, 2000. Mr. Lee is also Chairman and Chief Executive Officer of Roto-Rooter Services Company, a wholly owned subsidiary of the Company, and has held this position since January 1999. Previously, he served as a Senior Vice President of Roto-Rooter Services Company from May 1997 to January 1999.

(4)

Mr. D. P. Williams is an Executive Vice President and the Chief Financial Officer of the company and has held these positions since August 10, 2007 and March 5, 2004, respectively. Mr. Williams is also Senior Vice President and Chief Financial Officer of Roto-Rooter Group, Inc., and has held these positions since January 1999.

(5)	Mr. A. V. Tucker, Jr. is a Vice President and Controller of the Company and has held these positions since February 1989. From May 1983 to February 1989, he held the position of Assistant Controller of the Company.

Each executive officer holds office until the annual election at the next annual organizational meeting of the Board of Directors of the Company which is scheduled to be held on May 18, 2015.

Part II

Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The Company’s Capital Stock (par value $1 per share) is traded on the New York Stock Exchange under the symbol CHE. The range of the high and low sale prices on the New York Stock Exchange and dividends paid per share for each quarter of 2013 and 2014 are set forth below.


	Closing				Dividends Paid
	High		Low		Per Share
2013

First Quarter	$	79.98	$	70.31	$	0.18
Second Quarter		81.79		63.90		0.18
Third Quarter		75.88		66.04		0.20
Fourth Quarter		79.93		66.14		0.20

2014

First Quarter	$	89.45		73.31	$	0.20
Second Quarter		93.72		83.27		0.20
Third Quarter		107.31		93.64		0.22
Fourth Quarter		110.83		98.25		0.22

Future dividends are dependent upon the Company’s earnings and financial condition, compliance with certain debt covenants and other factors not presently determinable.

As of February 13, 2015, there were approximately 1,969 stockholders of record of the Company’s Capital Stock. This number only includes stockholders of record and does not include stockholders with shares beneficially held in nominee name or within clearinghouse positions of brokers, banks or other institutions.

During 2014, the number of shares of Capital Stock repurchased by the Company, the weighted average price paid for each share, the cumulative shares repurchased under each program and the dollar amounts remaining under each program were as follows:

Company Purchase of Shares of Capital Stock


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

February 2011 Program
January 1 through January 31, 2014		-	$	-		4,891,885	$	21,828,041
February 1 through February 28, 2014		132,934		82.50		5,024,819		110,860,736
March 1 through March 31, 2014		250,000		88.06		5,274,819	$	88,845,624

First Quarter Total		382,934	$	86.13

April 1 through April 30, 2014		-	$	-		5,274,819	$	88,845,624
May 31 through May 31, 2014		300,000		85.04		5,574,819		63,334,823
June 1 through June 30, 2014		-		-		5,574,819	$	63,334,823

Second Quarter Total		300,000	$	85.04

July 1 through July 31, 2014		-	$	-		5,574,819	$	63,334,823
August 1 through August 31, 2014		358,178		101.35		5,932,997		27,032,332
September 1 through September 30, 2014		41,822		103.00		5,974,819	$	22,724,648

Third Quarter Total		400,000	$	101.53

October 1 October 31, 2014		-	$	-		5,974,819	$	22,724,648
November 1 through November 30, 2014		-		-		5,974,819		22,724,648
December 1 through December 31, 2014		100,000		109.16		6,074,819	$	11,808,785

Fourth Quarter Total		100,000	$	109.16
__________________________

On February 21, 2014, our Board of Directors authorized an additional $100 million under February 2011 Repurchase Program.

As of December 31, 2014, the number of stock options and performance share units outstanding under the Company’s equity compensation plans, the weighted average exercise price of outstanding options, and the number of securities remaining available for issuance were as follows:

EQUITY COMPENSATION PLAN INFORMATION


	Number of securities to be issued upon exercise of outstanding warrants and rights		Weighted- average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column)
Plan Category

Equity compensation plans approved by stockholders (1)		1,824,873	$	70.87		59,705
_________________

(1)	Amount includes 30,210 shares allocated to certain employees which vest upon attainment of specified earnings per share targets and 26,489 shares which vest upon attainment of specified total shareholder return targets.

Comparative Stock Performance

The graph below compares the yearly percentage change in the Company’s cumulative total stockholder return on Capital Stock (as measured by dividing (i) the sum of (A) the cumulative amount of dividends for the period December 31, 2009, to December 31, 2014, assuming dividend reinvestment, and (B) the difference between the Company’s share price at December 31, 2009 and December 31, 2014; by (ii) the share price at December 31, 2009) with the cumulative total return, assuming reinvestment of dividends, of the (1) S&P 500 Stock Index and (2) Dow Jones Industrial Diversified Index.


December 31,	2009	2010	2011	2012	2013	2014
Chemed Corporation	100.00	133.64	108.83	147.40	166.37	231.47
S&P 500	100.00	115.06	117.49	136.30	180.44	205.14
Dow Jones Diversified Industrials	100.00	122.86	123.84	149.61	212.64	214.87

Item 6. Selected Financial Data

The information called for by this Item for the five years ended December 31, 2014 is set forth on page 72 of the 2014 Annual Report to Stockholders and is incorporated herein by reference.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The information called for by this Item is set forth on pages 76 through 93 of the 2014 Annual Report to Stockholders and is incorporated herein by reference.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The Company’s primary market risk exposure relates to interest rate risk exposure through its variable interest term note and line of credit. 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.

The market value of the Company’s long-term debt at December 31, 2014 is approximately $147.5 million which equals the carrying value of $147.5 million as all outstanding debt is at a variable interest rate.

Item 8. Financial Statements and Supplementary Data

The consolidated financial statements, together with the report thereon of PricewaterhouseCoopers LLP dated February 27, 2015, appearing on pages 43 through 69 of the 2014 Annual Report to Stockholders, along with the Supplementary Data (Unaudited Summary of Quarterly Results) appearing on pages 70-71, are incorporated herein by reference.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company’s management, under the supervision of and with the participation of the Company’s President and Chief Executive Officer, Executive Vice President and Chief Financial Officer and Vice President and Controller, has evaluated the effectiveness of the Company’s disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report. Based on such evaluation, the Company’s President and Chief Executive Officer, Executive Vice President and Chief Financial Officer and Vice President and Controller have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective and are reasonably designed to ensure that all material information relating to the Company required to be included in the Company’s reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and that such information is accumulated and communicated to management, including the President and Chief Executive Officer, Executive Vice President and Chief Financial Officer and Vice President and Controller, as appropriate, to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control Over Financial Reporting

Refer to Management’s Report on Internal Control over Financial Reporting and Report of Independent Registered Public Accounting Firm on pages 43 and 44 of the Company’s 2014 Annual Report to Stockholders, which are incorporated herein by reference.

Changes in Internal Control Over Financial Reporting

There have not been any changes in the Company’s internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act during the Company’s fiscal quarter ended December 31, 2014 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B. Other Information

Not applicable.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The directors of the Company are:

Kevin J. McNamara

Joel F. Gemunder

Patrick P. Grace

Thomas C. Hutton

Walter L. Krebs

Andrea R. Lindell

Thomas P. Rice

Donald E. Saunders

George J. Walsh III

Frank E. Wood

The additional information required under this Item is set forth in the Company’s 2015 Proxy Statement and in Part I hereof under the caption “Executive Officers of the Registrant” and is incorporated herein by reference.

The Company has adopted a Code of Ethics that applies to the Company’s principal executive officer, principal financial officer, principal accounting officer, directors and employees. A copy of this Code of Ethics is incorporated with this report as Exhibit 14 and it is also posted on the Company’s Web site, www.chemed.com.

Item 11. Executive Compensation

Information required under this Item is set forth in the Company’s 2015 Proxy Statement, which is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information required under this Item is set forth in the Company’s 2015 Proxy Statement, which is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions and Director Independence.

Information required under this Item is set forth in the Company’s 2015 Proxy Statement, which is incorporated herein by reference.

Item 14. Principal Accountant Fees and Services

Audit Fees

PricewaterhouseCoopers LLP billed the Company $1,902,000 for 2013 and $1,913,000 for 2014. These fees were for professional services rendered for the integrated audit of the Company’s annual financial statements and of its internal control over financial reporting, review of the financial statements included in the Company’s Forms 10-Q and review of documents filed with the SEC.

Audit-Related Fees

PricewaterhouseCoopers LLP billed the Company $128,000 and $130,000 for 2013 and 2014, respectively, for audit-related services. These services were related primarily to the audit of one of VITAS’ Florida subsidiaries.

Tax Fees

No such services were rendered in 2013 or 2014.

All Other Fees

No such other services were rendered in 2013 or 2014.

The Audit Committee has adopted a policy which requires the Committee’s pre-approval of audit and non-audit services performed by the independent auditor to assure that the provision of such services does not impair the auditor’s independence. The Audit Committee pre-approved all of the audit and non-audit services rendered by PricewaterhouseCoopers LLP as listed above.

PART IV


Item 15		Exhibits and Financial Statement Schedule

Exhibits
3.1		Certificate of Incorporation of Chemed Corporation.*

3.2		Certificate of Amendment to Certificate of Incorporation.*

3.3		By-Laws of Chemed Corporation, as amended August 2, 2013.*

10.1		1999 Long-Term Employee Incentive Plan as amended through May 20, 2002.,*

10.2		2002 Executive Long-Term Incentive Plan, as amended May 18, 2004.,*

10.3		2004 Stock Incentive Plan.,*

10.4		2006 Stock Incentive Plan, as amended August 11, 2006.,*

10.5		2010 Stock Incentive Plan.,*

10.6		Employment Agreement with David P. Williams dated December 1, 2006.,*

10.7		First Amendment to Employment Agreement with David P. Williams dated July 9, 2009.,*

10.8		Employment Agreement with Timothy S. O’Toole dated May 6, 2007.,*

10.9		First Amendment to Employment Agreement with Timothy S. O’Toole dated July 9, 2009.,*

10.10		Employment Agreement with Kevin J. McNamara dated May 3, 2008.,*

10.11		First Amendment to Employment Agreement with Kevin J. McNamara dated July 9, 2009.,*

10.12		Excess Benefits Plan, as restated and amended, effective June 1, 2001.,*

10.13		Amendment No. 1 to Excess Benefits Plan, effective July 1, 2001.,*

10.14		Amendment No. 2 to Excess Benefits Plan, effective November 7, 2003.,*

10.15		Non-Employee Directors’ Deferred Compensation Plan.,*

10.16		Chemed/Roto-Rooter Savings & Retirement Plan, effective January 1, 1999.,*

10.17		First Amendment to Chemed/Roto-Rooter Savings & Retirement Plan, effective September 6, 2000.,*

10.18		Second Amendment to Chemed/Roto-Rooter Savings & Retirement Plan, effective January 1, 2001.,*

10.19		Third Amendment to Chemed/Roto-Rooter Savings & Retirement Plan, effective December 12, 2001.,*

10.20		Directors Emeriti Plan.,*

10.21		Chemed Corporation Change in Control Severance Plan, as amended July 9, 2009.,*

10.22		Chemed Corporation Senior Executive Severance Policy, as amended July 9, 2009.,*

10.23		Roto-Rooter Deferred Compensation Plan No. 1, as amended January 1, 1998.,*

10.24		Roto-Rooter Deferred Compensation Plan No. 2.,*

10.25		Form of Performance-Based Restricted Stock Units Award,*

10.26		Form of Restricted Stock Award.,*

10.27		Form of Stock Option Grant, pre-2013.,*

10.28		Form of Stock Option Grant, 2013.,*

10.29		Second Amended and Restated Credit Agreement by and among Chemed Corporation, JP Morgan Chase Bank NA, and other lenders as of January 18, 2013, exhibits and schedules thereto.

10.30		Third Amended and Restated Credit Agreement by and among Chemed Corporation, JP Morgan Chase Bank NA, and other lenders as of June 30, 2014, exhibits and schedules thereto.*

12		Computation of Ratio of Earnings to Fixed Charges.

13		2014 Annual Report to Stockholders.

14		Policies on Business Ethics of Chemed Corporation

21		Subsidiaries of Chemed Corporation.

23		Consent of Independent Registered Public Accounting Firm.

24		Powers of Attorney.

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

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

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

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

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

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

101.INS		XBRL Instance Document*

101.SCH		XBRL 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*

	*	This exhibit is being filed by means of incorporation by reference (see Index to Exhibits on page E-1). Each other exhibit is being filed with this Annual Report on Form 10-K.

	**	Management contract or compensatory plan or arrangement.

	Financial Statement Schedule

		See Index to Financial Statements and Financial Statement Schedule on page S-1.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

February 27, 2015	CHEMED CORPORATION

	By:	/s/ Kevin J. McNamara
		Kevin J. McNamara
		President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title		Date
/s/ Kevin J. McNamara Kevin J. McNamara	President and Chief Executive Officer and a Director (Principal Executive Officer)
/s/ David P. Williams David P. Williams	Executive Vice President and Chief Financial Officer (Principal Financial Officer)
/s/ Arthur V. Tucker, Jr. Arthur V. Tucker, Jr.	Vice President and Controller (Principal Accounting Officer)		February 27, 2015
Joel F. Gemunder* Patrick P. Grace* Thomas C. Hutton* Walter L. Krebs* Andrea R. Lindell*	Thomas P. Rice* Donald E. Saunders* George J Walsh III* Frank E. Wood*	- -Directors

________________________
* Naomi C. Dallob by signing her name hereto signs this document on behalf of each of the persons indicated above pursuant to powers of attorney duly executed by such persons and filed with the Securities and Exchange Commission.
February 27, 2015		/s/ Naomi C. Dallob
Date		Naomi C. Dallob (Attorney-in-Fact)

CHEMED CORPORATION AND SUBSIDIARY COMPANIES

INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE

2012, 2013 AND 2014


	Page(s)
Chemed Corporation Consolidated Financial Statements and Financial Statement Schedule Report of Independent Registered Public Accounting Firm Consolidated Statement of Income Consolidated Balance Sheet Consolidated Statement of Cash Flows Consolidated Statement of Changes in Stockholders’ Equity Notes to Consolidated Financial Statements Report of Independent Registered Public Accounting Firm on Financial Statement Schedule Schedule II – Valuation and Qualifying Accounts	44* 45* 46* 47* 48* 49-69* S-2 S-3
________________

* Indicates page numbers in Chemed Corporation 2014 Annual Report to Stockholders

The consolidated financial statements of Chemed Corporation listed above, appearing in the 2014 Annual Report to Stockholders, are incorporated herein by reference. The Financial Statement Schedule should be read in conjunction with the consolidated financial statements listed above. Schedules not included have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto as listed above.

S-1

Report of Independent Registered Public Accounting

Firm on Financial Statement Schedule

To the Board of Directors and Stockholders of Chemed Corporation:

Our audits of the consolidated financial statements and of the effectiveness of internal control over financial reporting referred to in our report dated February 27, 2015 appearing in the 2014 Annual Report to Stockholders of Chemed Corporation (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedule listed in Item 15 of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

Cincinnati, Ohio

February 27, 2015

S-2

												SCHEDULE II

CHEMED CORPORATION AND SUBSIDIARY COMPANIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
DR/(CR)

				ADDITIONS
				(CHARGED)
				CREDITED			(CHARGED)
	BALANCE AT			TO COSTS			CREDITED					BALANCE
	BEGINNING			AND			TO OTHER			DEDUCTIONS		AT END
DESCRIPTION	OF PERIOD			EXPENSES			ACCOUNTS			(a)		OF PERIOD
Allowances for doubtful
accounts (b)

For the year 2014	$	(12,590	)	$	(13,079	)	$	(840	)	$	11,781	$	(14,728	)

For the year 2013	$	(10,892	)	$	(10,690	)	$	(1,318	)	$	10,310	$	(12,590	)

For the year 2012	$	(11,524	)	$	(9,233	)	$	(1,326	)	$	11,191	$	(10,892	)

Allowances for doubtful
accounts - notes
receivable (c)

For the year 2014	$	(378	)	$	(94	)	$	(33	)	$	-	$	(505	)

For the year 2013	$	(132	)	$	(217	)	$	(29	)	$	-	$	(378	)

For the year 2012	$	(305	)	$	122		$	51		$	-	$	(132	)


(a) With respect to allowances for doubtful accounts, deductions include accounts considered uncollectible or
written off, payments, companies divested, etc.

(b) Classified in consolidated balance sheet as a reduction of accounts receivable.

(c) Classified in consolidated balance sheet as a reduction of other assets.

					S-3

INDEX TO EXHIBITS

			Page Number
			or
			Incorporation by Reference

Exhibit		File No. and	Previous
Number		Filing Date	Exhibit No.

3.1	Certificate of Incorporation of	Form S-3	4.1
	Chemed Corporation	Reg. No. 33-44177
		11/26/91

3.2	Certificate of Amendment to	Form 8-K	3.1
	Certificate of Incorporation	5/16/06

3.3	By-Laws of Chemed Corporation	Form 8-K	3.1
	as amended August 2, 2013	8/5/13

10.1	1999 Long Term Employee	Form 10-K	10.16
	Incentive Plan as amended	3/28/03, **
	through May 20, 2002

10.2	2002 Executive Long-Term	Form 10-Q	10.16
	Incentive Plan, as amended	8/19/04, **
	May 18, 2004

10.3	2004 Stock Incentive Plan	Proxy Statement	A
		3/25/04, **

10.4	2006 Stock Incentive Plan,	Form 10-Q	10.1
	as amended August 11, 2006	8/14/06, **

10.5	2010 Stock Incentive Plan	Form 8-K	99.1
		5/18/10, **

10.6	Employment Agreement with David	Form 8-K	10.01
	P. Williams dated December 1, 2006.	12/1/06, **


10.7	First Amendment to Employment	Form 10-Q	10.2
	Agreement with David P. Williams	10/30/09, **
	dated July 9, 2009.

10.8	Employment Agreement with	Form 8-K	10.02
	Timothy S. O’Toole dated	5/7/07, **
	May 6, 2007.

10.9	First Amendment to Employment	Form 10-Q	10.3
	Agreement with Timothy S.	10/30/09, **
	O’Toole dated July 9, 2009.

10.10	Employment Agreement with	Form 8-K	10.01
	Kevin J. McNamara dated	5/6/08, **
	May 3, 2008.

10.11	First Amendment to Employment	Form 10-Q	10.1
	Agreement with Kevin J.	10/30/09, **
	McNamara dated July 9, 2009.

10.12	Excess Benefits Plan, as restated	Form 10-K	10.24
	and amended, effective June 1, 2001	3/12/04, **

10.13	Amendment No. 1 to Excess Benefits	Form 10-K	10.25
	Plan, effective July 1, 2002	3/12/04, **

10.14	Amendment No. 2 to Excess Benefits	Form 10-K	10.26
	Plan, effective November 7, 2003	3/12/04, **

10.15	Non-Employee Directors' Deferred	Form 10-K	10.10
	Compensation Plan	3/24/88, **

10.16	Chemed/Roto-Rooter Savings &	Form 10-K	10.25
	Retirement Plan, effective	3/25/99, **
	January 1, 1999

10.17	First Amendment to Chemed/	Form 10-K	10.22
	Roto-Rooter Savings & Retirement	3/28/02, **
	Plan effective September 6, 2000

10.18	Second Amendment to Chemed/	Form 10-K	10.23
	Roto-Rooter Savings & Retirement	3/28/02, **
	Plan effective January 1, 2001

10.19	Third Amendment to Chemed/	Form 10-K	10.24
	Roto-Rooter Savings & Retirement	3/28/02, **
	Plan effective December 12, 2001

10.20	Directors Emeriti Plan	Form 10-Q	10.11
		5/12/88, **

10.21	Change in Control Severance	Form 10-Q	10.5
	Plan as amended July 9, 2009.	10/30/09, **

10.22	Senior Executive Severance	Form 10-Q	10.4
	Policy as amended July 9, 2009.	10/30/09, **

10.23	Roto-Rooter Deferred Compensation	Form 10-K	10.37
	Plan No. 1, as amended January 1, 1998	3/28/01, **

10.24	Roto-Rooter Deferred Compensation	Form 10-K	10.38
	Plan No. 2	3/28/01, **

10.25	Form of Performance Based Restricted	Form 10-K	10.32
	Stock Unit Award	2/27/14, **

10.26	Form of Restricted Stock Award	Form 10-K	10.50
		3/28/05, **

10.27	Form of Stock Option Grant Pre-2013	Form 10-K	10.51

10.28	Form of Stock Option Grant – 2013	Form 10-K	10.35
		2/27/14, **

10.29	Second Amended and Restated Credit	Form 8-K	10.1
	Agreement by and among Chemed Corporation,	1/22/13
	JP Morgan Chase Bank NA, and other lenders
	As of January 18, 2013 exhibits and schedules thereto.

10.30	Third Amended and Restated Credit	Form 8-K	10.1
	Agreement by and among Chemed Corporation,	7/2/14
	JP Morgan Chase Bank NA, and other lenders
	As of June 30, 2014 exhibits and schedules thereto.

12	Computation of Ratio of Earnings	*
	to Fixed Charges

13	2014 Annual Report to Stockholders	*

14	Policies on Business Ethics of Chemed	Form 10-K
	Corporation	2/27/14

21	Subsidiaries of Chemed Corporation	*

23	Consent of Independent Registered	*
	Public Accounting Firm

24	Powers of Attorney	*

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

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

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

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

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

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


101.INS	XBRL Instance Document	*

101.SCH	XBRL 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

* Filed herewith.

** Management contract or compensatory plan or arrangement.

a51044635ex12.htm

EXHIBIT 12

CHEMED CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(in thousands, except ratios)

	2010			2011			2012			2013			2014

Pretax income from continuing operations	$	133,831		$	140,556		$	145,819		$	123,829		$	162,754

Additions:
Fixed charges		24,230			26,656			28,021			28,032			21,388
Amortization of capitalized interest		331			438			435			435			435

Adjusted income	$	158,392		$	167,650		$	174,275		$	152,296		$	184,577

Fixed Charges:
Interest expense	$	11,959		$	13,888		$	14,723		$	15,035		$	8,186
Interest component of rental expense		12,271			12,768			13,298			12,997			13,202

Fixed charges	$	24,230		$	26,656		$	28,021		$	28,032		$	21,388

Ratio of earnings to fixed charges (a)		6.5	x		6.3	x		6.2	x		5.4	x		8.6	x

(a) For purposes of computing the ratio of earnings to fixed charges, pretax income from continuing operations has been added to fixed charges and adjusted for capitalized interest to derive adjusted income. Fixed charges consist of interest expense on debt (including the amortization of deferred financing costs), prepayment penalties on the early extinguishment of debt and one-third (the proportion deemed representative of the interest component) of rental expense. Fixed charge amounts include interest from both continuing and discontinued operations.

a51044635ex13.htm

EXHIBIT 13

Financial Review

Contents

	Report of Independent Registered Public Accounting Firm	44
	Consolidated Statement of Income	45
	Consolidated Balance Sheet	46
	Consolidated Statement of Cash Flows	47
	Consolidated Statement of Changes in Stockholders’ Equity	48
	Notes to Consolidated Financial Statements	49
	Unaudited Summary of Quarterly Results	70
	Selected Financial Data	72
	Unaudited Consolidating Statements of Income	73
	Management’s Discussion and Analysis of Financial Conditions and Results of Operations	76

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as that term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and disposition of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorization of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The Company’s management, including the President and Chief Executive Officer, Executive Vice President and Chief Financial Officer and Vice President and Controller, has conducted an evaluation of the effectiveness of its internal control over financial reporting as of December 31, 2014, based on the framework established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this evaluation, management concluded that internal control over financial reporting was effective as of December 31, 2014, based on criteria in Internal Control—Integrated Framework issued by COSO.

PricewaterhouseCoopers LLP, our independent registered public accounting firm, has audited the effectiveness of the Company’s internal control over financial reporting as of December 31, 2014, as stated in their report which appears on 44.

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Chemed Corporation:

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, changes in stockholders' equity and cash flows present fairly, in all material respects, the financial position of Chemed Corporation and its subsidiaries at December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2014, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

Cincinnati, OH

February 27, 2015

CONSOLIDATED STATEMENT OF INCOME

Chemed Corporation and Subsidiary Companies
(in thousands, except per share data)
For the Years Ended December 31,	2014			2013			2012

Service revenues and sales	$	1,456,282		$	1,413,329		$	1,430,043
Cost of services provided and goods sold (excluding depreciation)		1,034,673			1,008,808			1,033,321
Selling, general and administrative expenses		220,118			212,518			208,656
Depreciation		29,881			27,698			26,009
Amortization		3,191			4,690			4,512
Other operating expenses (Note 21)		-			26,221			1,126
Total costs and expenses		1,287,863			1,279,935			1,273,624
Income from operations		168,419			133,394			156,419
Interest expense		(8,186	)		(15,035	)		(14,723	)
Other income--net (Note 10)		2,521			5,470			4,123
Income before income taxes		162,754			123,829			145,819
Income taxes (Note 11)		(63,437	)		(46,602	)		(56,515	)
Net Income	$	99,317		$	77,227		$	89,304

Earnings Per Share (Note 15)
Net Income	$	5.79		$	4.24		$	4.72
Average number of shares outstanding		17,165			18,199			18,924
Diluted Earnings Per Share (Note 15)
Net Income	$	5.57		$	4.16		$	4.62
Average number of shares outstanding		17,840			18,585			19,339

The Notes to Consolidated Financial Statements are integral parts of this statement.

CONSOLIDATED BALANCE SHEET

Chemed Corporation and Subsidiary Companies
(in thousands, except shares and per share data)
December 31,	2014			2013
Assets
Current assets
Cash and cash equivalents (Note 9)	$	14,132		$	84,418
Accounts receivable less allowances of $14,728 (2013 - $12,590)		124,607			91,770
Inventories		6,168			6,703
Current deferred income taxes (Note 11)		15,414			20,257
Prepaid income taxes		2,787			3,690
Prepaid expenses		11,456			17,818
Total current assets		174,564			224,656
Investments of deferred compensation plans held in trust (Notes 14 and 16)		49,147			42,465
Properties and equipment, at cost, less accumulated depreciation (Note 12)		105,336			92,955
Identifiable intangible assets less accumulated amortization of $32,772 (2013 - $32,055) (Note 6)		56,027			56,556
Goodwill		466,722			466,871
Other assets		8,136			10,198
Total Assets	$	859,932		$	893,701

Liabilities
Current liabilities
Accounts payable	$	46,849		$	41,758
Current portion of long-term debt (Note 3)		6,250			183,564
Income taxes (Note 11)		5,818			111
Accrued insurance		40,814			41,859
Accrued compensation		50,718			48,323
Accrued legal		753			23,210
Other current liabilities		24,352			25,161
Total current liabilities		175,554			363,986
Deferred income taxes (Note 11)		29,945			27,301
Long-term debt (Note 3)		141,250			-
Deferred compensation liabilities (Note 14)		48,684			42,348
Other liabilities		13,143			11,176
Total Liabilities		408,576			444,811
Commitments and contingencies (Notes 13 and 18)
Stockholders' Equity
Capital stock - authorized 80,000,000 shares $1 par; issued 33,337,297 shares
(2013 - 32,245,226 shares)		33,337			32,245
Paid-in capital		538,845			481,011
Retained earnings		771,176			686,114
Treasury stock - 16,446,572 shares (2013 - 14,660,427 shares), at cost		(894,285	)		(752,634	)
Deferred compensation payable in Company stock (Note 14)		2,283			2,154
Total Stockholders' Equity		451,356			448,890
Total Liabilities and Stockholders' Equity	$	859,932		$	893,701

The Notes to Consolidated Financial Statements are integral parts of this statement.

CONSOLIDATED STATEMENT OF CASH FLOWS

Chemed Corporation and Subsidiary Companies
(in thousands)
For the Years Ended December 31,	2014			2013			2012
Cash Flows from Operating Activities
Net income	$	99,317		$	77,227		$	89,304
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization		33,072			32,388			30,521
Provision for uncollectible accounts receivable		13,173			10,907			9,111
Stock option expense		4,802			6,042			8,130
Amortization of discount on convertible notes		3,392			8,674			8,106
Provision for deferred income taxes (Note 11)		6,978			(6,988	)		(3,151	)
Noncash portion of long-term incentive compensation		2,569			1,301			360
Amortization of debt issuance costs		826			1,751			1,265
Changes in operating assets and liabilities, excluding amounts acquired in business combinations:
Increase in accounts receivable		(45,785	)		(9,009	)		(24,421	)
Decrease in inventories		535			355			1,610
Decrease/(increase) in prepaid expenses		6,362			(6,317	)		(38	)
Increase/(decrease) in accounts payable and other current liabilities		(25,824	)		40,340			4,954
Increase/(decrease) in income taxes		11,279			(2,461	)		6,020
Increase in other assets		(4,769	)		(6,507	)		(5,203	)
Increase in other liabilities		8,484			6,713			8,329
Excess tax benefit on stock-based compensation		(5,172	)		(3,982	)		(3,435	)
Other sources		1,040			413			306
Net cash provided by operating activities		110,279			150,847			131,768
Cash Flows from Investing Activities
Capital expenditures		(43,571	)		(29,324	)		(35,252	)
Business combinations, net of cash acquired (Note 7)		(250	)		(2,257	)		(5,900	)
Other sources		294			235			468
Net cash used by investing activities		(43,527	)		(31,346	)		(40,684	)
Cash Flows from Financing Activities
Proceeds from revolving line of credit		386,350			-			-
Payments on revolving line of credit		(336,350	)		-			-
Payments on other long-term debt		(189,456	)		-			-
Purchases of treasury stock		(110,019	)		(92,911	)		(60,624	)
Proceeds from other long-term debt		100,000			-			-
Capital stock surrendered to pay taxes on stock-based compensation		(7,524	)		(5,348	)		(4,098	)
Dividends paid		(14,255	)		(14,148	)		(13,026	)
Proceeds from exercise of stock options (Note 4)		23,910			17,122			12,310
Excess tax benefit on stock-based compensation		5,172			3,982			3,435
Retirement of warrants		(2,648	)		-			-
Debt issuance costs		(914	)		(1,108	)		-
Increase/(decrease) in cash overdraft payable		9,714			(11,415	)		1,924
Other sources/(uses)		(1,018	)		(788	)		445
Net cash used by financing activities		(137,038	)		(104,614	)		(59,634	)
Increase/(decrease) in cash and cash equivalents		(70,286	)		14,887			31,450
Cash and cash equivalents at beginning of year		84,418			69,531			38,081
Cash and cash equivalents at end of year	$	14,132		$	84,418		$	69,531

The Notes to Consolidated Financial Statements are integral parts of this statement.

CONSOLIDATED STATEMENT OF CHANGES

IN STOCKHOLDERS' EQUITY

Chemed Corporation and Subsidiary Companies
(in thousands, except per share data)												Deferred
												Compensation
									Treasury			Payable in
	Capital		Paid-in			Retained			Stock-			Company
	Stock		Capital			Earnings			at Cost			Stock		Total
Balance at December 31, 2011	$	30,937	$	398,094		$	546,757		$	(564,091	)	$	1,987	$	413,684
Net income		-		-			89,304			-			-		89,304
Dividends paid ($.68 per share)		-		-			(13,026	)		-			-		(13,026	)
Stock awards and exercise of stock options (Note 4)		652		38,893			-			(16,085	)		-		23,460
Purchases of treasury stock (Note 20)		-		-			-			(60,624	)		-		(60,624	)
Other		-		377			-			68			48		493
Balance at December 31, 2012		31,589		437,364			623,035			(640,732	)		2,035		453,291
Net income		-		-			77,227			-			-		77,227
Dividends paid ($.76 per share)		-		-			(14,148	)		-			-		(14,148	)
Stock awards and exercise of stock options (Note 4)		656		44,366			-			(18,851	)		-		26,171
Purchases of treasury stock (Note 20)		-		-			-			(92,911	)		-		(92,911	)
Other		-		(719	)		-			(140	)		119		(740	)
Balance at December 31, 2013		32,245		481,011			686,114			(752,634	)		2,154		448,890
Net income		-		-			99,317			-			-		99,317
Dividends paid ($.84 per share)		-		-			(14,255	)		-			-		(14,255	)
Stock awards and exercise of stock options (Note 4)		809		61,469			-			(31,237	)		-		31,041
Purchases of treasury stock (Note 20)		-		-			-			(110,019	)		-		(110,019	)
Retirement of warrants		-		(2,645	)		-			-			-		(2,645	)
Other		283		(990	)		-			(395	)		129		(973	)
Balance at December 31, 2014	$	33,337	$	538,845		$	771,176		$	(894,285	)	$	2,283	$	451,356

The Notes to Consolidated Financial Statements are integral parts of this statement.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.	Summary of Significant Accounting Policies

NATURE OF OPERATIONS

We operate through our two wholly-owned subsidiaries: VITAS Healthcare Corporation (“VITAS”) and Roto-Rooter Group, Inc. (“Roto-Rooter”). VITAS focuses on hospice care that helps make terminally ill patients' final days as comfortable as possible. Through its team 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 provides plumbing and drain cleaning services to both residential and commercial customers. Through its network of company-owned branches, independent contractors and franchisees, Roto-Rooter offers plumbing and drain cleaning service to approximately 90% of the U.S. population.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Chemed Corporation and its wholly owned subsidiaries. All significant intercompany transactions have been eliminated.

We have analyzed the provisions of the Financial Accounting Standards Board (“FASB”) authoritative guidance on the consolidation of variable interest entities relative to our contractual relationships with Roto-Rooter’s independent contractors and franchisees. The guidance requires the primary beneficiary of a Variable Interest Entity (“VIE”) to consolidate the accounts of the VIE. Based upon the guidance provided by the FASB, we have concluded that neither the independent contractors nor the franchisees are VIEs.

CASH EQUIVALENTS

Cash equivalents comprise short-term, highly liquid investments, including money market funds that have original maturities of three months or less.

ACCOUNTS AND LOANS RECEIVABLE

Accounts and loans receivable are recorded at the principal balance outstanding less estimated allowances for uncollectible accounts. For the Roto-Rooter segment, allowances for trade accounts receivable are generally provided for accounts more than 90 days past due, although collection efforts continue beyond that time. Due to the small number of loans receivable outstanding, allowances for loan losses are determined on a case-by-case basis. For the VITAS segment, allowances for accounts receivable are provided on accounts based on expected collection rates by payer types. The expected collection rate is based on both historical averages and known current trends. Final write-off of overdue accounts or loans receivable is made when all reasonable collection efforts have been made and payment is not forthcoming. We closely monitor our receivables and periodically review procedures for granting credit to attempt to hold losses to a minimum.

We make appropriate provisions to reduce our accounts receivable balance for any governmental or other payer reviews resulting in denials of patient service revenue. We believe our hospice programs comply with all payer requirements at the time of billing. However, we cannot predict whether future billing reviews or similar audits by payers will result in material denials or reductions in revenue.

CONCENTRATION OF RISK

As of December 31, 2014 and 2013, approximately 61% and 60%, respectively, of VITAS’ total accounts receivable balance were due from Medicare and 31% and 31%, respectively, of VITAS’ total accounts receivable balance were due from various state Medicaid programs. Combined accounts receivable from Medicare and Medicaid represent 83% of the consolidated net accounts receivable in the accompanying consolidated balance sheet as of December 31, 2014.

As further described in Note 19, we have agreements with one vendor to provide specified pharmacy services for VITAS and its hospice patients. In 2014 and 2013, respectively, purchases made from this vendor represent approximately 90% of all pharmacy services used by VITAS.

INVENTORIES

Substantially all of the inventories are either general merchandise or finished goods. Inventories are stated at the lower of cost or market. For determining the value of inventories, cost methods that reasonably approximate the first-in, first-out (“FIFO”) method are used.

DEPRECIATION AND PROPERTIES AND EQUIPMENT

Depreciation of properties and equipment is computed using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the lesser of the remaining lease terms (excluding option terms) or their useful lives. Expenditures for maintenance, repairs, renewals and betterments that do not materially prolong the useful lives of the assets are expensed as incurred. The cost of property retired or sold and the related accumulated depreciation are removed from the accounts, and the resulting gain or loss is reflected currently in other income, net.

Expenditures for major software purchases and software developed for internal use are capitalized and depreciated using the straight-line method over the estimated useful lives of the assets. For software developed for internal use, external direct costs for materials and services and certain internal payroll and related fringe benefit costs are capitalized in accordance with the FASB’s authoritative guidance on accounting for the costs of computer software developed or obtained for internal use.

The weighted average lives of our property and equipment at December 31, 2014, were:

Buildings and building improvements	11.5	yrs.
Transportation equipment	11.8
Machinery and equipment	5.5
Computer software	4.9
Furniture and fixtures	4.9

GOODWILL AND INTANGIBLE ASSETS

Identifiable, definite-lived intangible assets arise from purchase business combinations and are amortized using either an accelerated method or the straight-line method over the estimated useful lives of the assets. The selection of an amortization method is based on which method best reflects the economic pattern of usage of the asset. The weighted average lives of our identifiable, definite-lived intangible assets at December 31, 2014, were:

Covenants not to compete	6.4	yrs.
Reaquired franchise rights	6.5
Referral networks	10.0
Customer lists	13.3

The date of our annual goodwill and indefinite-lived intangible asset impairment analysis is October 1. The VITAS trade name is considered to have an indefinite life. We also capitalize the direct costs of obtaining licenses to operate either hospice programs or plumbing operations subject to a minimum capitalization threshold. These costs are amortized over the life of the license using the straight line method. Certificates of Need (CON), which are required in certain states for hospice operations, are generally granted without expiration and thus, we believe them to be indefinite-lived assets subject to impairment testing.

We consider that Roto-Rooter Corp. (RRC), Roto-Rooter Services Co. (RRSC) and VITAS are appropriate reporting units for testing goodwill impairment. We consider RRC and RRSC separate reporting units but one operating segment. This is appropriate as they each have their own set of general ledger accounts that can be analyzed at “one level below an operating segment” per the definition of a reporting unit in FASB guidance.

In July 2012, the FASB issued Accounting Standards Update (“ASU”) No. 2012-02 – Intangibles Goodwill and Other which provided additional guidance related to the impairment testing of indefinite-lived intangible assets. ASU No. 2012–02 allows an entity to first assess qualitative factors to determine whether it is necessary to perform further impairment testing. The revised guidance was effective for fiscal years beginning after September 15, 2012, but early adoption was permitted. Our impairment testing date is October 1 of each year and we adopted the new guidelines in the third quarter of 2012.

We completed our qualitative analysis for impairment of goodwill and our indefinite-lived intangible assets as of October 1, 2014. Based on our assessment, we do not believe that it is more likely than not that our reporting units or indefinite-lived assets fair values are less than their carrying values.

LONG-LIVED ASSETS

If we believe a triggering event may have occurred that indicates a possible impairment of our long-lived assets, we perform an estimate and valuation of the future benefits of our long-lived assets (other than goodwill, the VITAS trade name and capitalized CON costs) based on key financial indicators. If the projected undiscounted cash flows of a major business unit indicate that property and equipment or identifiable, definite-lived intangible assets have been impaired, a write-down to fair value is made.

OTHER ASSETS

Debt issuance costs are included in other assets. Issuance costs related to revolving credit agreements are amortized using the straight line method, over the life of the agreement. All other issuance costs are amortized using the effective interest method over the life of the debt.

REVENUE RECOGNITION

Both the VITAS segment and Roto-Rooter segment recognize service revenues and sales when the earnings process has been completed. Generally, this occurs when services are provided or products are delivered. Sales of Roto-Rooter products, including drain cleaning machines and drain cleaning solution, comprise less than 3% of our total service revenues and sales for each of the three years in the period ended December 31, 2014.

CHARITY CARE

VITAS provides charity care, in certain circumstances, to patients without charge when management of the hospice program determines that the patient does not have the financial wherewithal to make payment. There is no revenue or associated accounts receivable in the accompanying consolidated financial statements related to charity care.

The cost of providing charity care during the years ended December 31, 2014, 2013 and 2012, was $7.3 million, $7.5 million and $8.4 million, respectively and is included in cost of services provided and goods sold. 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.

SALES TAX

The Roto-Rooter segment collects sales tax from customers when required by state and federal laws. We record the amount of sales tax collected net in the accompanying consolidated statement of income.

GUARANTEES

In the normal course of business, Roto-Rooter enters into various guarantees and indemnifications in our relationships with customers and others. These arrangements include guarantees of services for periods ranging from one day to one year and product satisfaction guarantees. At December 31, 2014 and 2013, our accrual for service guarantees and warranty claims was $350,000 and $321,000 respectively.

OPERATING EXPENSES

Cost of services provided and goods sold (excluding depreciation) includes salaries, wages and benefits of service providers and field personnel, material costs, medical supplies and equipment, pharmaceuticals, insurance costs, service vehicle costs and other expenses directly related to providing service revenues or generating sales. Selling, general and administrative expenses include salaries, wages, stock option expense and benefits of selling, marketing and administrative employees, advertising expenses, communications and branch telephone expenses, office rent and operating costs, legal, banking and professional fees and other administrative costs. The cost associated with VITAS sales personnel is included in cost of services provided and goods sold (excluding depreciation).

ADVERTISING

We expense the production costs of advertising the first time the advertising takes place. The costs of telephone directory listings are expensed when the directories are placed in circulation. These directories are generally in circulation for approximately one year, at which point they are typically replaced by the publisher with a new directory. We generally pay for directory placement assuming it is in circulation for one year. If the directory is in circulation for less than or greater than one year, we receive a credit or additional billing, as necessary. We do not control the timing of when a new directory is placed in circulation. We pay for and expense the cost of internet advertising and placement on a “per click” basis. Advertising expense for the year ended December 31, 2014, was $32.8 million (2013 – $31.0 million; 2012 - $29.2 million).

COMPUTATION OF EARNINGS PER SHARE

Earnings per share are computed using the weighted average number of shares of capital stock outstanding. Diluted earnings per share reflect the dilutive impact of our outstanding stock options and nonvested stock awards. Stock options whose exercise price is greater than the average market price of our stock are excluded from the computation of diluted earnings per share.

STOCK-BASED COMPENSATION PLANS

Stock-based compensation cost is measured at the grant date, based on the fair value of the award and recognized as expense over the employee’s requisite service period on a straight-line basis.

INSURANCE ACCRUALS

For our Roto-Rooter segment and Corporate Office, we self-insure for all casualty insurance claims (workers’ compensation, auto liability and general liability). As a result, we closely monitor and frequently evaluate our historical claims experience to estimate the appropriate level of accrual for self-insured claims. Our third-party administrator (“TPA”) processes and reviews claims on a monthly basis. Currently, our exposure on any single claim is capped at $750,000. In developing our estimates, we accumulate historical claims data for the previous 10 years to calculate loss development factors (“LDF”) by insurance coverage type. LDFs are applied to known claims to estimate the ultimate potential liability for known and unknown claims for each open policy year. LDFs are updated annually. Because this methodology relies heavily on historical claims data, the key risk is whether the historical claims are an accurate predictor of future claims exposure. The risk also exists that certain claims have been incurred and not reported on a timely basis. To mitigate these risks, in conjunction with our TPA, we closely monitor claims to ensure timely accumulation of data and compare claims trends with the industry experience of our TPA.

For the VITAS segment, we self-insure for workers’ compensation claims. Currently, VITAS’ exposure on any single claim is capped at $1,000,000. For VITAS’ self-insurance accruals for workers’ compensation, the valuation methods used are similar to those used internally for our other business units.

TAXES ON INCOME

Deferred taxes are provided on an asset and liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss carry-forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amount of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in our opinion, it is more likely than not that some portion or all of the deferred tax assets will not be realized due to insufficient taxable income within the carryback or carryforward period available under the tax laws. Deferred tax assets and liabilities are adjusted for the effects of changes in laws and rates on the date of enactment.

We are subject to income taxes in Canada, U.S. federal and most state jurisdictions. Significant judgment is required to determine our provision for income taxes. Our financial statements reflect expected future tax consequences of such uncertain positions assuming the taxing authorities’ full knowledge of the position and all relevant facts.

CONTINGENCIES

As discussed in Note 18, we are subject to various lawsuits and claims in the normal course of our business. In addition, we periodically receive communications from governmental and regulatory agencies concerning compliance with Medicare and Medicaid billing requirements at our VITAS subsidiary. We establish reserves for specific, uninsured liabilities in connection with regulatory and legal action that we deem to be probable and estimable. We record legal fees associated with legal and regulatory actions as the costs are incurred. We disclose material loss contingencies that are probable but not reasonably estimable and those that are at least reasonably possible.

ESTIMATES

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

2.	Hospice Revenue Recognition

VITAS recognizes revenue at the estimated realizable amount due from third-party payers, which are primarily Medicare and Medicaid. Payers may deny payment for services in whole or in part on the basis that such services are not eligible for coverage and do not qualify for reimbursement. We estimate denials each period and make adequate provision in the financial statements. The estimate of denials is based on historical trends and known circumstances and does not vary materially from period to period on an aggregate basis. Medicare billings are subject to certain limitations, as described below.

The allowance for doubtful accounts for VITAS comprises the following (in thousands):

	Medicare			Medicaid			Commercial			Other			Total
Beginning Balance January 1, 2012	$	4,211		$	4,234		$	1,189		$	(147	)	$	9,487
Bad debt provision		506			5,169			3,084			591			9,350
Write-offs		(1,304	)		(4,361	)		(2,691	)		(534	)		(8,890	)
Other/Contractual adjustments		462			152			622			112			1,348
Ending Balance December 31, 2013		3,875			5,194			2,204			22			11,295
Bad debt provision		1,901			4,902			2,026			1,992			10,821
Write-offs		(1,452	)		(4,342	)		(2,877	)		(1,269	)		(9,940	)
Other/Contractual adjustments		490			145			684			(445	)		874
Ending Balance December 31, 2014	$	4,814		$	5,899		$	2,037		$	300		$	13,050

VITAS is 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 between November 1 of each year and October 31 of the following year 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.

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

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

During the year ended December 31, 2014, we recorded a net Medicare cap liability of $1.3 million for two programs’ projected 2014 and 2015 measurement period liability offset by the reversal of one program’s 2011 measurement period projected Medicare cap liability. During the year ended December 31, 2013, we reversed the Medicare cap liability for amounts recorded in the fourth quarter of 2012 for three programs’ projected 2013 measurement period liability. During 2013 this reversal was offset by the Medicare cap liability for two programs’ projected 2014 measurement period liability. The net pretax expense/(income) was $1.3 million, $7.0 million, and ($1.7 million) for fiscal years 2014, 2013 and 2012, respectively.

Shown below is the Medicare cap liability activity for the years ended December 31, 2014 and 2013, (in thousands):

	2014			2013
Beginning Balance January 1,	$	8,260		$	1,261
2015 measurement period		165			-
2014 measurement period		1,451			3,881
2013 measurement period		-			3,181
2011 measurement period		(325	)		-
2010 measurement period		-			(63	)
Payments		(3,439	)		-
Ending Balance December 31,	$	6,112		$	8,260

3.	Long-Term Debt and Lines of Credit

On May 15, 2014, we retired our Senior Convertible Notes (the “Notes”) outstanding. We paid the $187.0 million of principal outstanding using a combination of cash on hand and our existing revolving credit facility. In addition, we issued 249,000 Chemed shares in conjunction with the conversion feature of the Notes. At the time we issued the Notes, we also entered into a purchased call transaction to offset any potential economic dilution resulting from the conversion feature in the Notes. As a result, we received 266,000 Chemed shares from the exercise of the purchased call transaction. The issuance of shares under the conversion feature of the Notes, as well as the receipt of shares from the purchased call transaction were recorded as adjustments to paid-in capital during the quarter ended June 30, 2014.

On June 30, 2014, we replaced our existing credit agreement with the Third Amended and Restated Credit Agreement (“2014 Credit Agreement”). Terms of the 2014 Credit Agreement consist of a five-year, $350 million revolving credit facility and a $100 million term loan. The 2014 Credit Agreement has a floating interest rate that is currently LIBOR plus 125 basis points.

At the time we issued the Notes we also sold warrants for the right to purchase approximately 2,477,000 Chemed shares in the future. During the quarter ended June 30, 2014, we settled these warrants with one counterparty representing half of the total warrants issued for $2.6 million in cash. The amount paid was recorded as an adjustment to paid-in capital. During the third quarter of 2014, Chemed’s stock price exceeded the exercise price of the remaining outstanding sold warrants resulting in the Company, on December 8, 2014, issuing 35,166 of common shares to the other counterparty in full settlement of the warrants. Pursuant to authoritative guidance, the settlement of the sold warrants was accounted for as an equity transaction.

The debt outstanding at December 31, 2014 consists of the following (in thousands):

Revolver	$	50,000
Term loan		97,500
Total		147,500
Current portion of term and revolving loan		(6,250	)
Long-term debt	$	141,250

Scheduled principal payments of the term loan are as follows:

2015	$	6,250
2016		7,500
2017		8,750
2018		10,000
2019		65,000
	$	97,500

Debt issuance costs associated with the existing credit agreement were not written off as the lenders and their relative percentage participation in the facility did not change. With respect to the 2014 Credit Agreement, deferred financing costs were $0.9 million. The 2014 Credit Agreement contains the following quarterly financial covenants:

Description	Requirement	Chemed


Leverage Ratio (Consolidated Indebtedness/Consolidated Adj. EBITDA)	< 3.50 to 1.00	0.86 to 1.00

Fixed Charge Coverage Ratio (Consolidated Free Cash Flow/Consolidated
Fixed Charges)	> 1.50 to 1.00	2.38 to 1.00

Annual Operating Lease Commitment	< $50.0 million	$26.1 million

We are in compliance with all debt covenants as of December 31, 2014. We have issued $36.7 million in standby letters of credit as of December 31, 2014 for insurance purposes. Issued letters of credit reduce our available credit under the 2014 Credit Agreement. As of December 31, 2014, we have approximately $263.3 million of unused lines of credit available and eligible to be drawn down under our revolving credit facility.

4.	Stock-Based Compensation Plans

We have three stock incentive plans under which 6.2 million shares can be issued to key employees and directors through a grant of stock options, stock awards and/or performance stock units (“PSUs”). The Compensation/Incentive Committee (“CIC”) of the Board of Directors administers these plans.

We grant stock options, stock awards and PSUs to our officers, other key employees and directors to better align their long-term interests with those of our shareholders. We grant stock options at an exercise price equal to the market price of our stock on the date of grant. Options generally vest evenly annually over a three-year period and have a contractual life of 10 years. Restricted stock awards generally cliff vest over a three- or four-year period. Unrestricted stock awards generally are granted to our non-employee directors annually at the time of our annual meeting. PSUs are contingent upon achievement of multi-year earnings targets or market targets. Upon achievement of targets, PSUs are converted to unrestricted shares of Capital stock.

We recognize the cost of stock options, stock awards and PSUs on a straight-line basis over the service life of the award, generally the vesting period. We include the cost of restricted stock awards in amortization expense and the cost of all other stock-based compensation in selling, general and administrative expense.

In May 2014, the CIC granted 5,432 unrestricted shares of Capital stock to the Company’s outside directors.

PERFORMANCE AWARDS

In November 2013 and February 2014, the CIC granted PSUs contingent upon the achievement of certain total stockholder return (“TSR”) targets as compared to the TSR of a group of peer companies for the three-year measurement period, at which date the awards may vest. We utilize a Monte Carlo simulation approach in a risk-neutral framework with inputs including historical volatility and the risk-free rate of interest to value these TSR awards. We amortize the total estimated cost over the service period of the award.

In November 2013 and February 2014, the CIC granted PSUs contingent the achievement of certain earnings per share (“EPS”) targets over the three-year measurement period. At the end of each reporting period, we estimate the number of shares we believe will ultimately vest and record that expense over the service period of the award.

Comparative data for the PSUs include:

	2014 Awards			2013 Awards
TSR Awards
Shares granted		10,340			16,149
Per-share fair value	$	112.60		$	123.81
Volatility		30.8	%		21.2	%
Risk-free interest rate		0.33	%		0.25	%

EPS Awards
Shares granted and expected to vest		14,061			16,149
Per-share fair value	$	82.80		$	106.53

Common Assumptions
Service period (years)		2.9			2.2
Three-year measurement period ends December 31,		2016			2015

The following table summarizes total stock option, stock award and PSU activity during 2014:

	Stock Options									Stock Awards and PSUs
				Weighted Average				Aggregate					Weighted
						Remaining		Intrinsic					Average
	Number of			Exercise		Contractual		Value		Number of			Grant-Date
	Options			Price		Life (Years)		(thousands)		Awards			Price
Outstanding at January 1, 2014		2,167,412		$	61.63						281,558		$	56.93
Granted		410,800			106.59						29,833	*		94.16
Exercised/Vested		(803,170	)		59.26						(54,905	)		56.64
Canceled/ Forfeited		(6,868	)		65.89						(59,277	)		26.49
Outstanding at December 31, 2014		1,768,174			73.14		7.0	$	59,065		197,209			71.79

Vested and expected to vest at December 31, 2014		1,768,174			73.14		7.0		59,065		197,209			71.79
Exercisable at December 31, 2014		997,632			61.38		5.3		45,048	n.a.			n.a.

*Stock awards and PSUs granted comprise (in shares):

	Years Ended December 31,
	2014		2013		2012

Immediate vesting and time-based vesting stock awards		5,432		37,024		44,657
Performance awards vesting upon attainment of earnings targets (not yet earned)		14,061		16,149		-
Market awards vesting upon attainment of TSR or market price targets (not yet earned)		10,340		16,149		58,515
Total stock awards and PSUs granted		29,833		69,322		103,172

We estimate the fair value of stock options using the Black-Scholes valuation model. We determine expected term, volatility, dividend yield and forfeiture rate based on our historical experience. We believe that historical experience is the best indicator of these factors.

Comparative data for stock options, stock awards and PSUs include (in thousands, except per-share amounts):

	Years Ended December 31,
	2014		2013		2012
Total compensation cost of stock-based compensation
plans charged against income	$	10,323	$	10,868	$	11,974
Total income tax benefit recognized in income for stock
based compensation plans		3,794		3,994		4,401
Total intrinsic value of stock options exercised		26,344		16,922		15,671
Total intrinsic value of stock awards vested during the period		4,564		4,298		2,786
Per-share weighted averaged grant-date fair value of stock awards
and PSUs granted		94.16		74.60		41.49

The assumptions we used to value stock option grants are as follows:

	2014			2013			2012

Stock price on date of issuance	$	106.59		$	70.30		$	63.36
Grant date fair value per share	$	21.58		$	14.79		$	15.98
Number of options granted		410,800			329,274			442,350
Expected term (years)		4.8			4.9			4.9
Risk free rate of return		1.59	%		1.39	%		0.89	%
Volatility		22.60	%		24.90	%		30.80	%
Dividend yield		0.8	%		1.1	%		1.0	%
Forfeiture rate		-			-			-

Other data for stock options, stock awards and PSUs for 2014 include (dollar amounts in thousands):

	Stock		Stock Awards
	Options		and PSUs
Total unrecognized compensation related to nonvested options and awards at end of year	$	11,743	$	5,259
Weighted average period over which unrecognized compensation cost of nonvested options
and awards to be recognized (years)		2.5		1.2
Actual income tax benefit realized from options exercised or stock awards vested	$	9,724		1,682
Aggregate intrinsic value of stock options, stock awards and PSUs vested and expected to vest	$	59,065	$	21,009

EMPLOYEE STOCK PURCHASE PLAN (“ESPP”)

The ESPP allows eligible participants to purchase our shares through payroll deductions at current market value. We pay administrative and broker fees associated with the ESPP. Shares purchased for the ESPP are purchased on the open market and credited directly to participants’ accounts. In accordance with the FASB’s guidance, the ESPP is non-compensatory.

5.	Segments and Nature of the Business

Our segments include the VITAS segment and the Roto-Rooter segment. Relative contributions of each segment to service revenues and sales were 73% and 27%, respectively, in 2014 and 74% and 26%, respectively, in 2013. The vast majority of our service revenues and sales from continuing operations are generated from business within the United States.

The reportable segments have been defined along service lines, which is consistent with the way the businesses are managed. In determining reportable segments, the RRSC and RRC operating units of the Roto-Rooter segment have been aggregated on the basis of possessing similar operating and economic characteristics. The characteristics of these operating segments and the basis for aggregation are reviewed annually. Accordingly, the reportable segments are defined as follows:

	●	The VITAS segment provides hospice services for patients with terminal illnesses. This type of care is aimed at making the terminally ill patient’s end of life as comfortable and pain-free as possible. Hospice care is available to patients who have been initially certified or re-certified as terminally ill (i.e., a prognosis of six months or less) by their attending physician, if any, and the hospice physician. VITAS offers all levels of hospice care in a given market, including routine home care, inpatient care and continuous care. Over 90% of VITAS’ revenues are derived through the Medicare and Medicaid reimbursement programs.

	●	The Roto-Rooter segment provides repair and maintenance services to residential and commercial accounts using the Roto-Rooter registered service marks. Such services include plumbing and sewer, drain and pipe cleaning. They are delivered through company-owned and operated territories, independent contractor-operated territories and franchised locations. This segment also manufactures and sells products and equipment used to provide such services.

		We report corporate administrative expenses and unallocated investing and financing income and expense not directly related to either segment as “Corporate”. Corporate administrative expense includes the stewardship, accounting and reporting, legal, tax and other costs of operating a publicly held corporation. Corporate investing and financing income and expenses include the costs and income associated with corporate debt and investment arrangements.

Segment data are set forth below (in thousands):

	For the Years Ended December 31,
	2014			2013			2012
Revenues by Type of Service
VITAS
Routine homecare	$	810,413		$	791,735		$	778,776
Continuous care		152,206			155,409			172,063
General inpatient		102,876			104,968			114,494
Medicare cap		(1,290	)		(6,999	)		1,704
Total segment		1,064,205			1,045,113			1,067,037
Roto-Rooter
Sewer and drain cleaning		141,078			141,283			138,500
Plumbing repair and maintenance		174,993			168,942			171,890
Independent contractors		36,496			33,030			28,522
Water restoration		18,480			3,042			414
Other products and services		21,030			21,919			23,680
Total segment		392,077			368,216			363,006
Total service revenues and sales	$	1,456,282		$	1,413,329		$	1,430,043
Aftertax Segment Earnings/(Loss)
VITAS	$	86,185		$	76,144		$	86,577
Roto-Rooter		42,075			29,243			30,905
Total		128,260			105,387			117,482
Corporate		(28,943	)		(28,160	)		(28,178	)
Net income	$	99,317		$	77,227		$	89,304
Interest Income
VITAS	$	6,111		$	5,038		$	3,883
Roto-Rooter		2,931			2,096			1,647
Total		9,042			7,134			5,530
Corporate		10			56			76
Intercompany eliminations		(9,081	)		(6,343	)		(4,797	)
Total interest income	$	(29	)	$	847		$	809
Interest Expense
VITAS	$	207		$	182		$	233
Roto-Rooter		363			322			433
Total		570			504			666
Corporate		7,616			14,531			14,057
Total interest expense	$	8,186		$	15,035		$	14,723

	For the Years Ended December 31,
	2014			2013			2012
Income Tax Provision
VITAS	$	53,278		$	46,910		$	53,092
Roto-Rooter		25,808			17,560			18,770
Total		79,086			64,470			71,862
Corporate		(15,649	)		(17,868	)		(15,347	)
Total income tax provision	$	63,437		$	46,602		$	56,515
Identifiable Assets
VITAS	$	546,031		$	518,316		$	519,555
Roto-Rooter		251,407			241,679			224,735
Total		797,438			759,995			744,290
Corporate		62,494			133,706			115,336
Total identifiable assets	$	859,932		$	893,701		$	859,626
Additions to Long-Lived Assets
VITAS	$	21,880		$	16,219		$	24,735
Roto-Rooter		21,595			15,202			16,132
Total		43,475			31,421			40,867
Corporate		346			160			285
Total additions to long-lived assets	$	43,821		$	31,581		$	41,152
Depreciation and Amortization
VITAS	$	19,635		$	20,251		$	19,043
Roto-Rooter		11,227			9,621			9,029
Total		30,862			29,872			28,072
Corporate		2,210			2,516			2,449
Total depreciation and amortization	$	33,072		$	32,388		$	30,521

6.	Intangible Assets

Amortization of definite-lived intangible assets for the years ended December 31, 2014, 2013, 2012, was $720,000, $1.6 million and $1.5 million, respectively. The following is a schedule by year of projected amortization expense for definite-lived intangible assets (in thousands):

2015	$	505
2016		423
2017		262
2018		243
2019		153
Thereafter		142

The balance in identifiable intangible assets comprises the following (in thousands):

	Gross		Accumulated			Net Book
	Asset		Amortization			Value
December 31, 2014
Referral networks	$	22,599	$	(21,626	)	$	973
Covenants not to compete		9,575		(9,209	)		366
Customer lists		1,219		(1,194	)		25
Reaquired franchise rights		1,106		(743	)		363
Subtotal - definite-lived intangibles		34,499		(32,772	)		1,727
VITAS trade name		51,300		-			51,300
Rapid Rooter trade name		150		-			150
Operating licenses		2,850		-			2,850
Total	$	88,799	$	(32,772	)	$	56,027

December 31, 2013
Referral networks	$	22,599	$	(21,219	)	$	1,380
Covenants not to compete		9,570		(9,096	)		474
Customer lists		1,222		(1,170	)		52
Reaquired franchise rights		1,065		(570	)		495
Subtotal - definite-lived intangibles		34,456		(32,055	)		2,401
VITAS trade name		51,300		-			51,300
Rapid Rooter trade name		150		-			150
Operating licenses		2,705		-			2,705
Total	$	88,611	$	(32,055	)	$	56,556

7.	Business Combinations

During 2014, we completed one business combination within the Roto-Rooter segment for $250,000 in cash to increase our market penetration in Boise, Idaho. The purchase price of this acquisition was allocated as follows (in thousands):

Identifiable intangible assets	$	47
Goodwill		198
Other assets and liabilities - net		5
	$	250

During 2013, we completed one business combination within the Roto-Rooter segment for $756,000 in cash to increase our market penetration in Pueblo, Colorado. We made one acquisition within the VITAS segment for $1.5 million in cash to increase our market penetration in Houston, Texas during 2013. The purchase price of these acquisitions was allocated as follows (in thousands):

Identifiable intangible assets	$	1,023
Goodwill		1,212
Other assets and liabilities - net		22
	$	2,257

During 2012, we completed four business combinations within the Roto-Rooter segment for $5.9 million in cash to increase our market penetration in Bend, Oregon, Boise, Idaho, Shreveport, Louisiana and Ft. Lauderdale, Florida. We have made no acquisitions with the VITAS segment during 2012. The purchase price of these acquisitions was allocated as follows (in thousands):

Identifiable intangible assets	$	373
Goodwill		5,094
Other assets and liabilities - net		433
	$	5,900

The unaudited pro forma results of operations, assuming purchase business combinations completed in 2014 and 2013 were completed on January 1, 2013, do not materially impact the accompanying consolidated financial statements. The results of operations of each of the above business combinations are included in our results of operations from the date of the respective acquisition.

8.	Discontinued Operations

At December 31, 2014 and 2013, the accrual for our estimated liability for potential environmental cleanup and related costs arising from the 1991 sale of DuBois amounted to $1.7 million. Of the 2014 balance, $826,000 is included in other current liabilities and $901,000 is included in other liabilities (long-term). The estimated amounts and timing of payments of these liabilities follows (in thousands):

2015	$	826
2016		300
Thereafter		601
	$	1,727

We are contingently liable for additional DuBois-related environmental cleanup and related costs up to a maximum of $14.9 million. On the basis of a continuing evaluation of the potential liability, we believe it is not probable this additional liability will be paid. Accordingly, no provision for this contingent liability has been recorded. The potential liability is not insured, and the recorded liability does not assume the recovery of insurance proceeds. Also, the environmental liability has not been discounted because it is not possible to reliably project the timing of payments. We believe that any adjustments to our recorded liability will not materially adversely affect our financial position, results of operations or cash flows.

9.	Cash Overdrafts and Cash Equivalents

Included in accounts payable are cash overdrafts of $10.5 million and $806,000 as of December 31, 2014 and 2013, respectively.

From time to time throughout the year, we invest excess cash in money market funds or repurchase agreements directly with major commercial banks. We do not physically hold the collateral for repurchase agreements, but the term is less than 10 days. We closely monitor the creditworthiness of the institutions with which we invest our overnight funds and the quality of the collateral underlying those investments. We had $80,000 in cash equivalents as of December 31, 2014. There was $23.1 million in cash equivalents as of December 31, 2013. The weighted average rate of return for our cash equivalents was 0.06% in 2014 and 0.08% in 2013.

10.	Other Income—Net

Other income—net from continuing operations comprises the following (in thousands):

	For the Years Ended December 31,
	2014			2013			2012
Market value gains related to deferred
compensation trusts	$	3,118		$	4,982		$	3,499
Loss on disposal of property and equipment		(640	)		(320	)		(347	)
Interest income/ (expense)		(29	)		847			809
Other - net		72			(39	)		162
Total other income	$	2,521		$	5,470		$	4,123

The offset for market value gains or losses of the deferred compensation trust are recorded in selling, general and administrative expenses.

11.	Income Taxes

The provision for income taxes comprises the following (in thousands):

	For the Years Ended December 31,
	2014		2013			2012
Current
U.S. federal	$	48,577	$	45,348		$	51,467
U.S. state and local		7,285		7,731			7,813
Foreign		597		511			386
Deferred
U.S. federal, state and local		6,970		(6,995	)		(3,271	)
Foreign		8		7			120
Total	$	63,437	$	46,602		$	56,515

A summary of the temporary differences that give rise to deferred tax assets/ (liabilities) follows (in thousands):

	December 31,
	2014			2013
Accrued liabilities	$	37,879		$	41,434
Stock compensation expense		11,591			14,866
Allowance for uncollectible accounts receivable		2,779			1,396
State net operating loss carryforwards		1,603			1,495
Other		807			800
Deferred income tax assets		54,659			59,991
Amortization of intangible assets		(47,946	)		(45,941	)
Accelerated tax depreciation		(15,641	)		(15,379	)
Market valuation of investments		(2,346	)		(2,279	)
Currents assets		(1,519	)		(1,459	)
Other		(1,721	)		(1,949	)
Deferred income tax liabilities		(69,173	)		(67,007	)
Net deferred income tax liabilities	$	(14,514	)	$	(7,016	)

At December 31, 2014 and 2013, state net operating loss carryforwards were $31.8 million and $29.4 million, respectively. These net operating losses will expire, in varying amounts, between 2022 and 2034. Based on our history of operating earnings, we have determined that our operating income will, more likely than not, be sufficient to ensure realization of our deferred income tax assets.

A reconciliation of the beginning and ending of year amount of our unrecognized tax benefit is as follows (in thousands):

	2014			2013			2012
Balance at January 1,	$	892		$	2,646		$	2,612
Unrecognized tax benefits due to positions taken in current year		247			219			219
Decrease due to expiration of statute of limitations		(159	)		(1,973	)		(185	)
Balance at December 31,	$	980		$	892		$	2,646

We file tax returns in the U.S. federal jurisdiction and various states. The years ended December 31, 2011 and forward remain open for review for federal income tax purposes. The earliest open year relating to any of our major state jurisdictions is the fiscal year ended December 31, 2009. During the next twelve months, we do not anticipate a material net change in unrecognized tax benefits.

We classify interest related to our accrual for uncertain tax positions in separate interest accounts. As of December 31, 2014 and 2013, we have approximately $123,000 and $116,000, respectively, accrued in interest payable related to uncertain tax positions. These accruals are included in other current liabilities in the accompanying consolidated balance sheet. Net interest expense related to uncertain tax positions included in interest expense in the accompanying consolidated statement of income is not material.

The difference between the actual income tax provision for continuing operations and the income tax provision calculated at the statutory U.S. federal tax rate is explained as follows (in thousands):

	For the Years Ended December 31,
	2014			2013			2012

Income tax provision calculated using the statutory rate of 35%	$	56,964		$	43,340		$	51,037
State and local income taxes, less federal income tax effect		5,536			4,323			4,601
Uncertain tax position adjustments		-			(1,782	)		-
Nondeductible expenses		1,290			1,250			1,137
Other --net		(353	)		(529	)		(260	)
Income tax provision	$	63,437		$	46,602		$	56,515
Effective tax rate		39.0	%		37.6	%		38.8	%

Summarized below are the total amounts of income taxes paid during the years ended December 31 (in thousands):

2014	$	44,921
2013		55,827
2012		53,436

Provision has not been made for additional taxes on $35.1 million of undistributed earnings of our domestic subsidiaries. Should we elect to sell our interest in all of these businesses rather than to effect a tax-free liquidation, additional taxes amounting to approximately $12.9 million would be incurred based on current income tax rates.

12.	Properties and Equipment

A summary of properties and equipment follows (in thousands):

	December 31,
	2014			2013
Land	$	4,261		$	1,392
Buildings		61,401			52,328
Transportation equipment		26,904			20,381
Machinery and equipment		77,273			71,121
Computer software		51,564			49,110
Furniture and fixtures		66,248			71,167
Projects under development		3,420			8,006
Total properties and equipment		291,071			273,505
Less accumulated depreciation		(185,735	)		(180,550	)
Net properties and equipment	$	105,336		$	92,955

The net book value of computer software at December 31, 2014 and 2013, was $10.5 million and $12.2 million, respectively. Depreciation expense for computer software was $4.4 million, $3.9 million and $4.3 million for the years ended December 31, 2014, 2013 and 2012, respectively.

13.	Lease Arrangements

We have operating leases that cover our corporate office headquarters, various warehouse and office facilities, office equipment and transportation equipment. The remaining terms of these leases range from monthly to eleven years, and in most cases we expect that these leases will be renewed or replaced by other leases in the normal course of business. We have no significant capital leases as of December 31, 2014 or 2013.

The following is a summary of future minimum rental payments and sublease rentals to be received under operating leases that have initial or remaining noncancelable terms in excess of one year at December 31, 2014 (in thousands):

2015	$	22,535
2016		17,391
2017		12,330
2018		7,628
2019		4,096
Thereafter		9,375
Total minimum rental payments	$	73,355

Total rental expense incurred under operating leases for continuing operations follows (in thousands):

	For the Years Ended December 31,
	2014		2013		2012
Total rental expense	$	39,606	$	38,992	$	39,997
Less sublease rentals		-		-		(103	)
Net rental expense	$	39,606	$	38,992	$	39,894

14.	Retirement Plans

Retirement obligations under various plans cover substantially all full-time employees who meet age and/or service eligibility requirements. All plans providing retirement benefits to our employees are defined contribution plans. Expenses for our retirement and profit-sharing plans, excess benefit plans and other similar plans are as follows (in thousands):

For the Years Ended December 31,
2014		2013		2012

$	13,838	$	14,511	$	11,376

These expenses include the impact of market gains and losses on assets held in deferred compensation plans.

We have excess benefit plans for key employees whose participation in the qualified plans is limited by U.S. Employee Retirement Income Security Act requirements. Benefits are determined based on theoretical participation in the qualified plans. Benefits are only invested in mutual funds, and participants are not permitted to diversify accumulated benefits in shares of our stock. Trust assets invested in shares of our stock are included in treasury stock, and the corresponding liability is included in a separate component of stockholders’ equity. At December 31, 2014, these trusts held 99,231 shares at historical average cost or $2.3 million of our stock (2013 – 97,801 shares or $2.2 million).

15.	Earnings Per Share

The computation of earnings per share follows (in thousands, except per share data):

	Net Income
For the Years Ended December 31,	Net Income		Shares	Earnings per Share
2014
Earnings	$	99,317	17,165	$	5.79
Dilutive stock options		-	412
Nonvested stock awards		-	149
Conversion of Notes and impact of warrants outstanding		-	114
Diluted earnings	$	99,317	17,840	$	5.57

2013
Earnings	$	77,227	18,199	$	4.24
Dilutive stock options		-	278
Nonvested stock awards		-	108
Diluted earnings	$	77,227	18,585	$	4.16

2012
Earnings	$	89,304	18,924	$	4.72
Dilutive stock options		-	316
Nonvested stock awards		-	99
Diluted earnings	$	89,304	19,339	$	4.62

During 2014, 411,000 stock options were excluded from the computation of diluted earnings per share as their exercise prices were greater than the average market price during most of the year. During 2013, 358,000 stock options were also excluded. During 2012, 1.4 million stock options were also excluded.

Diluted earnings per share was impacted by the issuance of 249,000 shares of capital stock under the conversion feature of our 1.875% Senior Convertible Notes (the “Notes”) on May 15, 2014. The dilutive impact of this conversion feature for 2014 was 102,000 shares.

At the time we issued the Notes, as discussed in Note 3, we also sold warrants for the right to purchase approximately 2,477,000 Chemed shares in the future. During the quarter ended June 30, 2014, we settled these warrants with one counterparty representing half of the total warrants issued for $2.6 million. The amount paid was recorded as an adjustment to paid-in capital. During the third quarter of 2014, Chemed’s stock price exceeded the exercise price of the remaining outstanding sold warrants resulting in the Company, on December 8, 2014, issuing 35,166 of Capital shares to the other counterparty in full settlement of the warrants. Pursuant to authoritative guidance, the settlement of the sold warrants were accounted for as an equity transactions. The dilutive impact of the warrants was 12,000 shares for the year ended December 31, 2014.

16.	Financial Instruments

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

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

			Fair Value Measure
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

Investments of deferred compensation plans held in trust	$	49,147	$	49,147	$	-	$	-
Long-term debt and current portion of long-term debt		147,500		-		147,500		-

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

			Fair Value Measure
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservabl Inputs (Level 3)

Investments of deferred compensation plans held in trust	$	42,465	$	42,465	$	-	$	-
Long-term debt		183,564		193,032		-		-

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

17.	Loans Receivable from Independent Contractors

At December 31, 2014, we had contractual arrangements with 68 independent contractors to provide plumbing repair and drain cleaning services under sublicensing agreements using the Roto-Rooter name in lesser-populated areas of the United States and Canada. The arrangements give the independent contractors the right to conduct a plumbing and drain cleaning business using the Roto-Rooter name in a specified territory in exchange for a royalty based on a percentage of labor sales, depending upon type of service this percentage ranges between 27%–32%. We also pay for certain telephone directory advertising and internet marketing in these areas, lease certain capital equipment and provide operating manuals to serve as resources for operating a plumbing and drain cleaning business. The contracts are generally cancelable upon 90 days’ written notice (without cause) or upon a few days notice (with cause). The independent contractors are responsible for running the businesses as they believe best.

Our maximum exposure to loss from arrangements with our independent contractors at December 31, 2014, is approximately $1.6 million (2013 - $1.5 million). The exposure to loss is mainly the result of loans provided to the independent contractors. In most cases, these loans are partially secured by receivables and equipment owned by the independent contractor. The interest rates on the loans range from zero to 8% per annum, and the remaining terms of the loans range from 2.5 months to 5.4 years at December 31, 2014. We recorded the following from our independent contractors (in thousands):

	For the Years Ended December 31,
	2014		2013		2012

Revenues	$	36,496	$	33,030	$	28,522
Pretax profits		21,238		17,726		14,790

18.	Legal and Regulatory Matters

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

Regulatory Matters and Litigation

The net costs incurred related to U.S. v. Vitas and related regulatory matters was $2.1 million, $2.1 million and $1.2 million for 2014, 2013 and 2012 respectively.

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

19.	Concentration of Risk

VITAS has pharmacy services agreements (“Agreements”) with Omnicare, Inc. and its subsidiaries ("OCR") whereby OCR provides specified pharmacy services for VITAS and its hospice patients in geographical areas served by both VITAS and OCR. Either party may cancel the Agreements at the end of any term by giving 90 days prior written notice. VITAS made purchases from OCR of $35.6 million, $39.0 million and $40.9 million for the years ended December 31, 2014, 2013 and 2012, respectively. For the years ended December 31, 2014, 2013 and 2012, respectively, purchases from this vendor represent approximately 90% of all pharmacy services used by VITAS. VITAS’ accounts payable to OCR and its subsidiaries was $3.6 million at December 31, 2014.

20.	Capital Stock Transactions

In February 2014, our Board of Directors authorized an additional $100 million for stock repurchase under the February 2011 repurchase program. We repurchased the following capital stock:

	For the Years Ended December 31,
	2014		2013		2012
Shares repurchased		1,182,934		1,356,344		932,706
Weighted average price per share	$	93.01	$	68.50	$	64.87

21.	Other Operating Expenses

	For the Years Ended December 31,
	2014		2013		2012
Litigation settlement of VITAS segment	$	-	$	10,500	$	-
Settlements of Roto-Rooter segment		-		15,721		-
Severance and other operating costs related
to closing Roto-Rooter's HVAC business		-		-		1,126
Total other operating expenses	$	-	$	26,221	$	1,126

In August 2012, Roto-Rooter management made the decision to shut down its one remaining heating, ventilation and air conditioning (HVAC) business located in Baltimore, Maryland. The HVAC business was a portion of a larger business which included plumbing operations. The plumbing and HVAC businesses shared facilities and administrative functions. The costs and related cash flows of these shared facilities and administrative functions were not separately tracked or allocated for the HVAC operation. As a result, the HVAC business does not qualify for discontinued operation treatment under US GAAP. The operating results of the HVAC operation are reported in continuing operations in the consolidated financial statements for all periods presented. The pretax costs incurred in conjunction with the shut-down were $1.1 million and are recorded in other operating expenses. The costs comprise mainly severance and lease termination costs.

UNAUDITED SUMMARY OF QUARTERLY RESULTS


Chemed Corporation and Subsidiary Companies
(in thousands, except per share and footnote data)

	First			Second			Third			Fourth			Total
For the Year Ended December 31, 2014	Quarter			Quarter			Quarter			Quarter			Year
Total service revenues and sales	$	358,300		$	360,182		$	358,389		$	379,411		$	1,456,282
Gross profit (excluding depreciation)	$	100,481		$	103,175		$	101,944		$	116,009		$	421,609
Income from operations	$	36,652		$	41,519		$	40,211		$	50,037		$	168,419
Interest expense		(3,815	)		(2,429	)		(980	)		(962	)		(8,186	)
Other income/(expense)--net		816			756			705			244			2,521
Income before income taxes		33,653			39,846			39,936			49,319			162,754
Income taxes		(13,079	)		(15,483	)		(15,351	)		(19,524	)		(63,437	)
Net income (a)	$	20,574		$	24,363		$	24,585		$	29,795		$	99,317

Earnings Per Share (a)
Net income	$	1.17		$	1.41		$	1.44		$	1.77		$	5.79
Average number of shares outstanding		17,510			17,236			17,039			16,878			17,165

Diluted Earnings Per Share (a)
Net income	$	1.12		$	1.36		$	1.39		$	1.71		$	5.57
Average number of shares outstanding		18,305			17,880			17,627			17,469			17,840

(a) The following amounts are included in income during the respective quarter (in thousands):

	First			Second			Third			Fourth			Total
	Quarter			Quarter			Quarter			Quarter			Year
Pretax (cost)/benefit:
Stock option expense	$	(1,309	)	$	(1,144	)	$	(977	)	$	(1,372	)	$	(4,802	)
Noncash impact of change in accounting for convertible debt		(2,259	)		(1,130	)		-			-			(3,389	)
Long-term incentive compensation		(373	)		(613	)		(1,002	)		(581	)		(2,569	)
Acquisition expenses		(1	)		-			-			(23	)		(24	)
Recoveries/(expenses) related to litigation settlements		(306	)		(32	)		234			(16	)		(120	)
Expenses related to securities litigation		-			(189	)		(138	)		-			(327	)
Expenses related to the Office
of Inspector General investigation		(748	)		(410	)		(450	)		(533	)		(2,141	)
Total	$	(4,996	)	$	(3,518	)	$	(2,333	)	$	(2,525	)	$	(13,372	)
After-tax (cost)/benefit:
Stock option expense	$	(822	)	$	(722	)	$	(615	)	$	(863	)	$	(3,022	)
Noncash impact of change in accounting for convertible debt		(1,429	)		(714	)		-			-			(2,143	)
Long-term incentive compensation		(236	)		(388	)		(634	)		(367	)		(1,625	)
Acquisition expenses		(1	)		-			-			(14	)		(15	)
Recoveries/(expenses) related to litigation settlements		(187	)		(20	)		143			(10	)		(74	)
Expenses related to securities litigation		-			(119	)		(88	)		-			(207	)
Expenses related to the Office
of Inspector General investigation		(464	)		(254	)		(279	)		(331	)		(1,328	)
Total	$	(3,139	)	$	(2,217	)	$	(1,473	)	$	(1,585	)	$	(8,414	)

UNAUDITED SUMMARY OF QUARTERLY RESULTS

Chemed Corporation and Subsidiary Companies
(in thousands, except per share and footnote data)

	First			Second			Third			Fourth			Total
For the Year Ended December 31, 2013	Quarter			Quarter			Quarter			Quarter			Year
Total service revenues and sales	$	366,641		$	357,198		$	340,886		$	348,604		$	1,413,329
Gross profit (excluding depreciation)	$	102,334		$	101,839		$	97,702		$	102,646		$	404,521
Income from operations	$	38,852		$	25,892		$	29,210		$	39,440		$	133,394
Interest expense		(4,094	)		(3,697	)		(3,500	)		(3,744	)		(15,035	)
Other income/(expense)--net		1,706			1,696			(90	)		2,158			5,470
Income before income taxes		36,464			23,891			25,620			37,854			123,829
Income taxes		(14,186	)		(9,283	)		(8,188	)		(14,945	)		(46,602	)
Net income (a)	$	22,278		$	14,608		$	17,432		$	22,909		$	77,227

Earnings Per Share (a)
Net income	$	1.20		$	0.79		$	0.96		$	1.31		$	4.24
Average number of shares outstanding		18,522			18,606			18,184			17,492			18,199

Diluted Earnings Per Share (a)
Net income	$	1.17		$	0.77		$	0.94		$	1.28		$	4.16
Average number of shares outstanding		19,000			18,966			18,522			17,899			18,585

(a) The following amounts are included in income during the respective quarter (in thousands):

	First			Second			Third			Fourth			Total
	Quarter			Quarter			Quarter			Quarter			Year
Pretax (cost)/benefit:
Stock option expense	$	(1,491	)	$	(1,612	)	$	(1,629	)	$	(1,310	)	$	(6,042	)
Noncash impact of change in accounting for convertible debt		(2,091	)		(2,132	)		(2,174	)		(2,216	)		(8,613	)
Expenses of severance arrangements		(302	)		-			-			-			(302	)
Loss on extinguishment of debt		(465	)		-			-			-			(465	)
Acquisition expenses		(1	)		(20	)		(21	)		(20	)		(62	)
Litigation Settlement		-			(14,760	)		(11,461	)		-			(26,221	)
Expenses related to litigation settlements		(141	)		(567	)		(443	)		(274	)		(1,425	)
Expenses related to securities litigation		(2	)		(1	)		(1	)		(105	)		(109	)
Long-term incentive compensation		(612	)		(494	)		(55	)		(140	)		(1,301	)
Expenses incurred in connection with the Office
of Inspector General investigation		(1,039	)		(996	)		591			(705	)		(2,149	)
Total	$	(6,144	)	$	(20,582	)	$	(15,193	)	$	(4,770	)	$	(46,689	)
After-tax (cost)/benefit:
Stock option expense	$	(943	)	$	(1,020	)	$	(1,030	)	$	(820	)	$	(3,813	)
Noncash impact of change in accounting for convertible debt		(1,323	)		(1,348	)		(1,375	)		(1,402	)		(5,448	)
Expenses of severance arrangements		(184	)		-			-			-			(184	)
Uncertain tax position adjustments		-			-			1,782			-			1,782
Loss on extinguishment of debt		(294	)		-			-			-			(294	)
Acquisition expenses		-			(13	)		(12	)		(13	)		(38	)
Litigation Settlement		-			(8,967	)		(7,094	)		-			(16,061	)
Expenses related to litigation settlements		(86	)		(344	)		(269	)		(166	)		(865	)
Expenses related to securities litigation		(1	)		(1	)		(1	)		(66	)		(69	)
Long-term incentive compensation		(387	)		(313	)		(34	)		(88	)		(822	)
Expenses incurred in connection with the Office
of Inspector General investigation		(644	)		(618	)		367			(438	)		(1,333	)
Total	$	(3,862	)	$	(12,624	)	$	(7,666	)	$	(2,993	)	$	(27,145	)

SELECTED FINANCIAL DATA

Chemed Corporation and Subsidiary Companies
(in thousands, except per share and footnote data, ratios, percentages and personnel)
	2014			2013			2012		2011		2010
Summary of Operations
Continuing operations (a)
Service revenues and sales	$	1,456,282		$	1,413,329		$	1,430,043	$	1,355,970	$	1,280,545
Gross profit (excluding depreciation)		421,609			404,521			396,722		385,486		374,529
Depreciation		29,881			27,698			26,009		25,247		24,386
Amortization		3,191			4,690			4,512		4,252		4,657
Income from operations		168,419			133,394			156,419		153,727		143,522
Income from continuing operations (b)		99,317			77,227			89,304		85,979		81,831
Net income (b)		99,317			77,227			89,304		85,979		81,831
Earnings per share
Income from continuing operations	$	5.79		$	4.24		$	4.72	$	4.19	$	3.62
Net income		5.79			4.24			4.72		4.19		3.62
Average number of shares outstanding		17,165			18,199			18,924		20,523		22,587
Diluted earnings per share
Income from continuing operations	$	5.57		$	4.16		$	4.62	$	4.10	$	3.55
Net income		5.57			4.16			4.62		4.10		3.55
Average number of shares outstanding		17,840			18,585			19,339		20,945		23,031
Cash dividends per share	$	0.84		$	0.76		$	0.68	$	0.60	$	0.52
Financial Position--Year-End
Cash and cash equivalents	$	14,132		$	84,418		$	69,531	$	38,081	$	49,917
Working capital/(deficit)		(990	)		(139,330	)		40,849		5,353		47,455
Current ratio		0.99			0.62			1.26		1.04		1.32
Properties and equipment, at cost less
accumulated depreciation	$	105,336		$	92,955		$	91,934	$	82,951	$	79,292
Total assets		859,932			893,701			859,626		795,905		830,161
Long-term debt		141,250			-			174,890		166,784		159,208
Stockholders' equity		451,356			448,890			453,291		413,684		462,049
Other Statistics
Capital expenditures	$	43,571		$	29,324		$	35,252	$	29,592	$	25,639
Number of employees		14,190			13,952			14,096		13,733		13,058

(a) The following amounts are included in income from continuing operations during the respective year (in thousands):

	2014			2013			2012			2011			2010
After-tax benefit/(cost):
Stock option expense	$	(3,022	)	$	(3,813	)	$	(5,143	)	$	(5,298	)	$	(4,909	)
Noncash impact of change in accounting for convertible debt		(2,143	)		(5,448	)		(5,041	)		(4,664	)		(4,313	)
Long-term incentive compensation		(1,625	)		(822	)		(228	)		(1,880	)		(2,957	)
Litigation settlements		(74	)		(16,061	)		-			-			-
Expenses related to litigation settlements		-			(865	)		(617	)		(1,397	)		(1,126	)
Expenses incurred in connection with the Office of Inspector
General investigation		(1,328	)		(1,333	)		(752	)		(737	)		(627	)
Acquisition expense		(15	)		(38	)		(114	)		(75	)		(198	)
Cost to shut down HVAC operations		-			-			(649	)		-			-
Expenses of securities litigation		(207	)		(69	)		(469	)		-			-
Loss on extinguishment of debt		-			(294	)		-			-			-
Severance arrangements		-			(184	)		-			-			-
Uncertain tax position adjustments		-			1,782			-			-			-
Total	$	(8,414	)	$	(27,145	)	$	(13,013	)	$	(14,051	)	$	(14,130	)

CHEMED CORPORATION AND SUBSIDIARY COMPANIES
UNAUDITED CONSOLIDATING STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2014
(in thousands)(unaudited)

				Roto-						Chemed
	VITAS			Rooter			Corporate			Consolidated
2014
Service revenues and sales	$	1,064,205		$	392,077		$	-		$	1,456,282
Cost of services provided and goods sold		825,739			208,934			-			1,034,673
Selling, general and administrative expenses		84,597			106,708			28,813			220,118
Depreciation		18,601			10,702			578			29,881
Amortization		1,034			525			1,632			3,191
Total costs and expenses		929,971			326,869			31,023			1,287,863
Income/(loss) from operations		134,234			65,208			(31,023	)		168,419
Interest expense		(207	)		(363	)		(7,616	)		(8,186	)
Intercompany interest income/(expense)		6,189			2,892			(9,081	)		-
Other income/(expense)—net		(753	)		146			3,128			2,521
Income/(loss) before income taxes		139,463			67,883			(44,592	)		162,754
Income taxes		(53,278	)		(25,808	)		15,649			(63,437	)
Net income/(loss)	$	86,185		$	42,075		$	(28,943	)	$	99,317

(a) The following amounts are included in income from continuing operations (in thousands):

				Roto-						Chemed
	VITAS			Rooter			Corporate			Consolidated
Pretax benefit/(cost):
Stock option expense	$	-		$	-		$	(4,802	)	$	(4,802	)
Noncash impact of change in accounting for convertible debt		-			-			(3,389	)		(3,389	)
Long-term incentive compensation		-			-			(2,569	)		(2,569	)
Securities litigation		-			-			(327	)		(327	)
Expenses related to litigation settlements		(113	)		(7	)		-			(120	)
Acquisition expense		(1	)		(23	)		-			(24	)
Expenses incurred in connection with the Office of Inspector
General investigation		(2,141	)		-			-			(2,141	)
Total	$	(2,255	)	$	(30	)	$	(11,087	)	$	(13,372	)

					Roto-						Chemed
		VITAS			Rooter			Corporate			Consolidated
After-tax benefit/(cost):
Stock option expense	$	-		$	-		$	(3,022	)	$	(3,022	)
Noncash impact of change in accounting for convertible debt		-			-			(2,143	)		(2,143	)
Long-term incentive compensation		-			-			(1,625	)		(1,625	)
Securities litigation		-			-			(207	)		(207	)
Expenses related to litigation settlements		(70	)		(4	)		-			(74	)
Acquisition expense		(1	)		(14	)		-			(15	)
Expenses incurred in connection with the Office of Inspector
General investigation		(1,328	)		-			-			(1,328	)
Total	$	(1,399	)	$	(18	)	$	(6,997	)	$	(8,414	)

CHEMED CORPORATION AND SUBSIDIARY COMPANIES
UNAUDITED CONSOLIDATING STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2013
(in thousands)(unaudited)

				Roto-						Chemed
	VITAS			Rooter			Corporate			Consolidated
2013
Service revenues and sales	$	1,045,113		$	368,216		$	-		$	1,413,329
Cost of services provided and goods sold		813,600			195,208			-			1,008,808
Selling, general and administrative expenses		82,252			102,592			27,674			212,518
Depreciation		18,149			9,014			535			27,698
Amortization		2,102			607			1,981			4,690
Other operating expenses		10,500			15,721			-			26,221
Total costs and expenses		926,603			323,142			30,190			1,279,935
Income/(loss) from operations		118,510			45,074			(30,190	)		133,394
Interest expense		(182	)		(322	)		(14,531	)		(15,035	)
Intercompany interest income/(expense)		4,288			2,055			(6,343	)		-
Other income/(expense)—net		438			(4	)		5,036			5,470
Income/(loss) before income taxes		123,054			46,803			(46,028	)		123,829
Income taxes		(46,910	)		(17,560	)		17,868			(46,602	)
Net income/(loss)	$	76,144		$	29,243		$	(28,160	)	$	77,227

(a) The following amounts are included in income from continuing operations (in thousands):

				Roto-						Chemed
	VITAS			Rooter			Corporate			Consolidated
Pretax benefit/(cost):
Stock option expense	$	-		$	-		$	(6,042	)	$	(6,042	)
Noncash impact of change in accounting for convertible debt		-			-			(8,613	)		(8,613	)
Long-term incentive compensation		-			-			(1,301	)		(1,301	)
Loss on extinguishment of debt		-			-			(465	)		(465	)
Securities litigation		-			-			(109	)		(109	)
Litigation settlement costs		(10,500	)		(15,721	)		-			(26,221	)
Expenses related to litigation settlements		-			(1,425	)		-			(1,425	)
Severance arrangements		-			(302	)		-			(302	)
Acquisition expense		(58	)		(4	)		-			(62	)
Expenses incurred in connection with the Office of Inspector
General investigation		(2,149	)		-			-			(2,149	)
Total	$	(12,707	)	$	(17,452	)	$	(16,530	)	$	(46,689	)

					Roto-						Chemed
		VITAS			Rooter			Corporate			Consolidated
After-tax benefit/(cost):
Stock option expense	$	-		$	-		$	(3,813	)	$	(3,813	)
Noncash impact of change in accounting for convertible debt		-			-			(5,448	)		(5,448	)
Long-term incentive compensation		-			-			(822	)		(822	)
Loss on extinguishment of debt		-			-			(294	)		(294	)
Securities litigation		-			-			(69	)		(69	)
Litigation settlement costs		(6,510	)		(9,551	)		-			(16,061	)
Expenses related to litigation settlements		-			(865	)		-			(865	)
Severance arrangements		-			(184	)		-			(184	)
Acquisition expense		(36	)		(2	)		-			(38	)
Expenses incurred in connection with the Office of Inspector
General investigation		(1,333	)		-			-			(1,333	)
Uncertain tax position adjustments		-			-			1,782			1,782
Total	$	(7,879	)	$	(10,602	)	$	(8,664	)	$	(27,145	)

CHEMED CORPORATION AND SUBSIDIARY COMPANIES
UNAUDITED CONSOLIDATING STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2012
(in thousands)(unaudited)

				Roto-						Chemed
	VITAS			Rooter			Corporate			Consolidated
2012
Service revenues and sales	$	1,067,037		$	363,006		$	-		$	1,430,043
Cost of services provided and goods sold		831,321			202,000			-			1,033,321
Selling, general and administrative expenses		80,494			102,366			25,796			208,656
Depreciation		17,087			8,397			525			26,009
Amortization		1,956			632			1,924			4,512
Other operating expenses		-			1,126			-			1,126
Total costs and expenses		930,858			314,521			28,245			1,273,624
Income/(loss) from operations		136,179			48,485			(28,245	)		156,419
Interest expense		(233	)		(433	)		(14,057	)		(14,723	)
Intercompany interest income/(expense)		3,180			1,617			(4,797	)		-
Other income/(expense)—net		543			6			3,574			4,123
Income/(loss) before income taxes		139,669			49,675			(43,525	)		145,819
Income taxes		(53,092	)		(18,770	)		15,347			(56,515	)
Net income/(loss)	$	86,577		$	30,905		$	(28,178	)	$	89,304

(a) The following amounts are included in income from continuing operations (in thousands):

				Roto-						Chemed
	VITAS			Rooter			Corporate			Consolidated
Pretax benefit/(cost):
Stock option expense	$	-		$	-		$	(8,130	)	$	(8,130	)
Noncash impact of change in accounting for convertible debt		-			-			(7,971	)		(7,971	)
Long-term incentive compensation		-			-			(360	)		(360	)
Expenses related to litigation settlements		-			(1,016	)		-			(1,016	)
Expenses of securities litigation		-			-			(742	)		(742	)
Cost to shut down HVAC operations		-			(1,126	)		-			(1,126	)
Acquisition expense		(15	)		(173	)		-			(188	)
Expenses incurred in connection with the Office of Inspector
General investigation		(1,212	)		-			-			(1,212	)
Total	$	(1,227	)	$	(2,315	)	$	(17,203	)	$	(20,745	)

					Roto-						Chemed
		VITAS			Rooter			Corporate			Consolidated
After-tax benefit/(cost):
Stock option expense	$	-		$	-		$	(5,143	)	$	(5,143	)
Noncash impact of change in accounting for convertible debt		-			-			(5,041	)		(5,041	)
Long-term incentive compensation		-			-			(228	)		(228	)
Expenses related to litigation settlements		-			(617	)		-			(617	)
Expenses of securities litigation		-			-			(469	)		(469	)
Cost to shut down HVAC operations		-			(649	)		-			(649	)
Acquisition expense		(9	)		(105	)		-			(114	)
Expenses incurred in connection with the Office of Inspector
General investigation		(752	)		-			-			(752	)
Total	$	(761	)	$	(1,371	)	$	(10,881	)	$	(13,013	)

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 (“VITAS”) and Roto-Rooter Group, Inc. (“Roto-Rooter”). VITAS focuses on hospice care that helps make terminally ill patients' final days as comfortable as possible. Through its team 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 is focused on providing plumbing and drain cleaning services to both residential and commercial customers. Through its network of company-owned branches, independent contractors and franchisees, Roto-Rooter offers plumbing and drain cleaning service to over 90% of the U.S. population.

The following is a summary of the key operating results for the years ended December 31, 2014, 2013 and 2012 (in thousands except percentages and per share amounts):

	2014			2013			2012
Consolidated service revenues and sales	$	1,456,282		$	1,413,329		$	1,430,043
Consolidated net income	$	99,317		$	77,227		$	89,304
Diluted EPS	$	5.57		$	4.16		$	4.62
Adjusted net income	$	107,731		$	104,372		$	102,317
Adjusted diluted EPS	$	6.07		$	5.62		$	5.29
Adjusted EBITDA	$	212,562		$	206,850		$	201,455
Adjusted EBITDA as a % of revenue		14.6	%		14.6	%		14.1	%

Adjusted net income, adjusted diluted EPS, earnings before interest, taxes and depreciation and amortization (“EBITDA”) and Adjusted EBITDA are not measures derived in accordance with GAAP. We use Adjusted EPS as a measure of earnings for certain long-term incentive awards. We also use adjusted EBITDA to determine compliance with certain debt covenants. We provide non-GAAP measures to help readers evaluate our operating results, compare our operating performance with that of similar companies that have different capital structures and help evaluate our ability to meet future debt service, capital expenditure and working capital requirements. Our non-GAAP measures should not be considered in isolation or as a substitute for comparable measures presented in accordance with GAAP. Reconciliations of our non-GAAP measures are presented in tables following the Critical Accounting Policies section.

2014 versus 2013

The increase in consolidated service revenues and sales from 2013 to 2014 was a result of a 6.5% increase at Roto-Rooter and by a 1.8% increase at VITAS. The increase at Roto-Rooter was driven by a 7.7% increase in price and mix shift offset by a decrease in job count of 1.2%. The increase in service revenues at VITAS was a result of Medicare reimbursement rates increasing approximately 1.4%, offset by a 2.0% decline due to sequestration (which was effective May 1, 2013), an average daily census (“ADC”) increase of 1.4%, a $1.3 million net Medicare cap charge (compared to a of $7.0 million charge in the same period of 2013) and level of care and geographical mix shift. Consolidated net income increased 28.6% over prior year mainly as a result of increased revenue at VITAS and Roto-Rooter as well as $16.1 million (after tax) in litigation settlements in 2013 that did not repeat in 2014. Diluted EPS increased mainly as a result of the increase in earnings and by a decrease in the number of shares outstanding. Adjusted EBITDA as a percent of revenue was essentially flat when compared to 2013.

Roto-Rooter utilizes a universal calendar of four 13 week quarters equating to a 52 week full year reporting period and then accrues for an additional one or two days of operating results in the fourth quarter to equate to a full 365 or 366 day year. In the fourth quarter of 2014, Roto-Rooter had 14 weeks of operating activity during the quarter. This additional week of operating activity, net of the accrued operating results from earlier years, resulted in Roto-Rooter recognizing an incremental $2.8 million of revenue, $0.9 million of Adjusted EBITDA and $0.5 million of net income in the fourth quarter of 2014 when compared to the fourth quarter of 2013.

2013 versus 2012

The decrease in consolidated service revenues and sales from 2012 to 2013 was a result of a 1.4% increase at Roto-Rooter offset by a 2.1% decrease at VITAS. The increase at Roto-Rooter was driven by a 3.5% increase in price and mix shift offset by a decrease in job count of 1.9%. The decrease in service revenues at VITAS was a result of Medicare reimbursement rates including the effects of sequestration, declining approximately 0.5%, a $7.0 million net Medicare cap charge (compared to a reversal of $1.7 million in the same period of 2012) and level of care mix shift offset by increased ADC of 1.7%. Consolidated net income decreased 13.5% over prior year mainly as a result of the $16.1 million (after tax) in litigation settlements as well as the lower revenue at VITAS. Diluted EPS decreased mainly as a result of the decrease in earnings offset by a decrease in the number of shares outstanding. Adjusted EBITDA as a percent of revenue increased 2.7% from 2012 to 2013 mainly as a result of improved gross margins at Roto-Rooter.

Impact of Current Market Conditions

We expect Roto-Rooter to achieve full-year 2015 revenue growth of 3.0% to 4.0%. This revenue estimate is based upon increased job pricing of approximately 1.0%. Adjusted EBITDA margin for 2015 is estimated in the range of 19.0% to 20.0%.

We expect VITAS to achieve full-year 2015 revenue growth, prior to Medicare cap, of 3.0% to 4.0%. Admissions in 2015 are estimated to increase 4.0%. We also expect VITAS to have estimated Medicare contractual billing limitations of $5.5 million. Adjusted EBITDA margin, prior to Medicare cap, for 2015 is estimated to be in the range of 14.0% to 15.0%.

LIQUIDITY AND CAPITAL RESOURCES

Significant factors affecting our cash flows during 2014 and financial position at December 31, 2014, include the following:

●	Our operations generated cash of $110.3 million.

●	We repurchased $110.0 million of our stock in the open market using cash on hand.

●	We spent $43.6 million on capital expenditures.

●	A $36.1 million decrease as a result of a net payment of in long-term debt.

●	A $32.8 million increase in accounts receivable due to the increase in revenues and the timing of payments

●	A $12.4 million increase in properties and equipment due mainly to the purchase of water restoration equipment and the completion of the Dayton facility at Roto-Rooter

●	A $22.5 million decrease in accrued legal due to the payment of litigation settlements.

The ratio of total debt to total capital was 24.6% at December 31, 2014, compared with 29.0% at December 31, 2013. Our current ratio was 0.99 and 0.62 at December 31, 2014 and 2013, respectively. The increase in the current ratio is a primarily a result of the decrease in current long term debt.

The 2014 Credit Agreement requires us to meet certain restrictive non-financial and financial covenants. We are in compliance with all non-financial debt covenants as of December 31, 2014. The restrictive financial covenants are defined in the 2014 Credit Agreement and include maximum leverage ratios, minimum fixed charge coverage and consolidated net worth ratios, limits on operating leases and minimum asset value limits. We are in compliance with all financial debt covenants as of December 31, 2014, as follows:

Description	Requirement	Chemed


Leverage Ratio (Consolidated Indebtedness/Consolidated Adj. EBITDA)	< 3.50 to 1.00	0.86 to 1.00

Fixed Charge Coverage Ratio (Consolidated Free Cash Flow/Consolidated
Fixed Charges	> 1.50 to 1.00	2.38 to 1.00

Annual Operating Lease Commitment	< $50.0 million	$26.1 million

Our 2014 Credit Agreement replaced the 2013 Credit Agreement in May 2014. We forecast to be in compliance with all debt covenants through fiscal 2015.

We have issued $36.7 million in standby letters of credit as of December 31, 2014, mainly for insurance purposes. Issued letters of credit reduce our available credit under the revolving credit agreement. As of December 31, 2014, we have approximately $263.3 million of unused lines of credit available and eligible to be drawn down under our revolving credit facility. We believe our cash flow from operating activities and our unused eligible lines of credit are sufficient to fund our obligations and operate our business in the near and long term. We continually evaluate cash utilization alternatives, including share repurchase, debt repurchase, acquisitions, and increased dividends to determine the most beneficial use of available capital resources.

CASH FLOW

Our cash flows for 2014, 2013 and 2012 are summarized as follows (in millions):

	For the Years Ended December 31,
	2014			2013			2012
Net cash provided by operating activities	$	110.3		$	150.8		$	131.8
Capital expenditures		(43.6	)		(29.3	)		(35.3	)
Operating cash after capital expenditures		66.7			121.5			96.5
Purchase of treasury stock in the open market		(110.0	)		(92.9	)		(60.5	)
Net change in long-term debt		(39.5	)		-			-
Business combinations		(0.3	)		(2.3	)		(5.9	)
Dividends paid		(14.3	)		(14.1	)		(13.0	)
Proceeds from exercise of stock options		23.9			17.1			12.3
Increase/(decrease) in cash overdraft payable		9.7			(11.4	)		1.9
Other--net		(6.5	)		(3.0	)		0.2
Increase/(decrease) in cash and cash equivalents	$	(70.3	)	$	14.9		$	31.5

2014 versus 2013

The net decrease in cash flows generated between 2014 and 2013 of $85.2 million is mainly the result of an increase in the purchase of treasury stock of $17.1 million (resulting in a decrease in cash flow), a $14.3 million increase in capital expenditures, a net payment of $39.5 million of long-term debt and a decrease in cash provided by operating activities of $40.5 million. These decreases were offset by a $21.1 million increase due to changes in overdrafts payable.

In 2014, we repurchased approximately 1.2 million shares of Chemed capital stock at a weighted average price of $93.01 per share. In 2013, we repurchased approximately 1.4 million shares of Chemed stock at a weighted average price of $68.50 per share. Based on our current operations and our current sources of capital, we believe we have the ability to continue our current share repurchase program in to the foreseeable future.

The change in net cash provided by operating activities is mainly the result of a $66.2 million decrease in cash flows related to accounts payable and other current liabilities offset by an increase in the cash flows related to accounts receivable of $36.9 million.

The decrease in accounts payable and other current liabilities is mainly the result of payment in 2014 of $20.8 million of accrued but unpaid legal settlements as of December 31, 2013 and an increase in our Medicare Cap liability of $2.1 million between years. The remainder of the increase is the result of the normal timing of payments with respect to accounts payable and accrued compensation.

Significant changes in our accounts receivable balances are driven mainly by the timing of payments received from the Federal government at our VITAS subsidiary. We typically receive a payment in excess of $35.0 million from the Federal government from hospice services every other Friday. The timing of year 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.

The change in overdrafts payable is also a function of the timing of cash payments made and cash receipts near year end.

2013 versus 2012

The net decrease in cash flows generated between 2013 and 2012 of $16.6 million is mainly the result of an increase in the purchase of treasury stock of $32.3 million (resulting in a decrease in cash flow) offset by an increase in cash provided by operating activities of $19.0 million.

In 2013, we repurchased approximately 1.4 million shares of Chemed capital stock at a weighted average price of $68.50 per share. In 2012, we repurchased approximately 900,000 shares of Chemed stock at a weighted average price of $64.87 per share. Based on our current operations and our current sources of capital, we believe we have the ability to continue our current share repurchase program in to the foreseeable future.

The change in net cash provided by operating activities is mainly the result of a $35.4 million increase in cash flows related to accounts payable and other current liabilities offset by a decrease in the cash flows related to accounts receivable of $15.4 million.

The increase in accounts payable and other current liabilities is mainly the result of $20.8 million of accrued but unpaid legal settlements as of December 31, 2013 and an increase in our Medicare Cap liability of $7.0 million between years. The remainder of the increase is the result of the normal timing of payments with respect to accounts payable and accrued compensation.

COMMITMENTS AND CONTINGENCIES

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

In connection with the sale of DuBois Chemicals, Inc. ("DuBois") in 1991, we provided allowances and accruals relating to several long-term costs, including income tax matters, lease commitments and environmental costs. Additionally, we retained liability for casualty insurance claims for Service America and Patient Care that were incurred prior to the respective disposal dates, 2005 and 2002. In the aggregate, we believe these allowances and accruals are adequate as of December 31, 2013. Based on reviews of our environmental-related liabilities under the DuBois sale agreement, we have estimated our remaining liability to be $1.7 million. As of December 31, 2013, we are contingently liable for additional cleanup and related costs up to a maximum of $14.9 million. We do not believe it is probable that we will be required to make any payment towards this contingent liability. Thus, no provision has been recorded in accordance with the applicable accounting guidance.

The net costs incurred related to U.S. v. Vitas and related regulatory matters was $2.1 million, $2.1 million and $1.2 million for 2014, 2013 and 2012 respectively.

CONTRACTUAL OBLIGATIONS

The table below summarizes our debt and contractual obligations as of December 31, 2014 (in thousands):

			Less than						After
	Total		1 year		1-3 Years		4 -5 Years		5 Years
Long-term debt obligations (a)	$	147,500	$	6,250	$	16,250	$	125,000	$	-
Interest on long-term debt		8,356		2,049		3,787		2,520		-
Operating lease obligations		73,355		22,535		29,721		11,724		9,375
Purchase obligations (b)		46,849		46,849		-		-		-
Other long-term obligations (c)		59,908		-		5,612		5,612		48,684
Total contractual cash obligations	$	335,968	$	77,683	$	55,370	$	144,856	$	58,059

(a)	Represents the face value of the obligation.
(b)	Purchase obligations primarily consist of accounts payable at December 31, 2014.
(c)	Other long-term obligations comprise largely excess benefit obligations.

RESULTS OF OPERATIONS

2014 Versus 2013 – Consolidated Results

Set forth below are the year-to-year changes in the components of the statement of operations relating to income for 2014 versus 2013 (in thousands, except percentages):

	Favorable/(Unfavorable)
	Amount			Percent
Service revenues and sales
VITAS	$	19,092			2	%
Roto-Rooter		23,861			6
Total		42,953			3
Cost of services provided and goods sold		(25,865	)		(3	)
Selling, general and administrative expenses		(7,600	)		(4	)
Depreciation		(2,183	)		(8	)
Amortization		1,499			32
Other operating expenses		26,221			100
Income from operations		35,025			26
Interest expense		6,849			46
Other income - net		(2,949	)		(54	)
Income before income taxes		38,925			31
Income taxes		(16,835	)		(36	)
Net income	$	22,090			29

The VITAS segment revenue increase is the result of the following (dollars in thousands):

	Amount			Percent
Routine homecare	$	18,678			2	%
Continuous care		(3,203	)		(2	)
General inpatient		(2,092	)		(2	)
Medicare cap		5,709			82
	$	19,092			2

The increase in VITAS’ revenue from 2013 to 2014 was a combination of Medicare remimbursement rates increasing approximately 1.4%, partially offset by a 0.5% decline due to sequestration (which was effective April 1, 2013), an increase in ADC of 1.4% driven by an increase in admissions of 2.0% and geographical and level of care mix shift. For 2014, VITAS recorded a net Medicare cap charge of $1.3 million related to eliminating the Medicare Cap billing limitation recorded in the fourth quarter of 2013 offset by two programs’ projected Medicare Cap liability. This compares to $7.0 million in additional Medicare cap liability recorded in 2013. The ADC increase was driven by a 1.7% increase in routine homecare offset by a decrease of 2.9% in continuous care and a 2.3% decrease in general inpatient. ADC is a key measure we use to monitor volume growth in our hospice programs. Changes in total program admissions, discharges and average length of stay for our patients are the main drivers of changes in ADC.

The Roto-Rooter segment revenue increase is the result of the following (dollars in thousands):

	Amount			Percent
Plumbing	$	6,051			4	%
Sewer and drain cleaning		(205	)		-
Contractor operations		3,466			10
Water restoration		15,438			507
Other		(889	)		4
	$	23,861			6

Plumbing revenues for 2014 increased 3.6% when compared to 2013 due to a 1.5% increase in the number of jobs performed and a 2.1% increase in price and service mix. Sewer and drain cleaning revenues were essentially flat when compared to 2013 due to a 3.5% decrease in the number of jobs performed offset by a 3.4% increase in price and service mix shift. Contractor operations revenue increased 10.5% as a result of performance of acquisitions in 2014 and 2013 and higher job count. Water restoration is a Roto-Rooter new line of business, and is the remediation of water and humidity damage after a flood.

The consolidated gross margin was 29.0% in 2014 versus 28.6% in 2013. On a segment basis, VITAS’ gross margin was 22.4% in 2014 and 22.2% in 2013. Roto-Rooter’s gross margin was 46.7% in 2014 and 47.0% in 2013.

Selling, general and administrative expenses (“SG&A”) for 2014 comprise (in thousands):

	2014		2013
SG&A expenses before long-term incentive
compensation, OIG expenses and the impact
of market gains of deferred compensation plans	$	212,290	$	204,086
Long-term incentive compensation		2,569		1,301
Expenses related to OIG investigation		2,141		2,149
Impact of market value gains on liabilities
held in deferred compensation trusts		3,118		4,982
Total SG&A expenses	$	220,118	$	212,518

Depreciation expense increased $2.2 million (7.9%) in 2014 mainly due to an increase in capital expenditures in the prior year.

Amortization expense decreased $1.5 million (32.0%) in 2014 due to a decrease in stock award amortization and intangible amortization related to network relationships.

Other operating expenses comprise (in thousands):

	2014		2013

Litigation settlement of VITAS segment	$	-	$	10,500
Settlements of Roto-Rooter segment		-		15,721
Total other operating expenses	$	-	$	26,221

Interest expense decreased $6.8 million (45.6%) from 2013 to 2014 primarily as a result of the retirement of our Convertible Notes.

Other income-net for 2014 and 2013 comprise (in thousands):

	2014			2013
Market value gains on assets held in deferred
compensation trusts	$	3,118		$	4,982
Loss on disposal of property and equipment		(640	)		(320	)
Interest income/ (expense)		(29	)		847
Other		72			(39	)
Total other income	$	2,521		$	5,470

Our effective tax rate was 39.0% in 2014 compared to 37.6% for 2013. This is a result of a $1.8 million credit recorded in 2013 related to the expiration of tax statutes for uncertain tax positions recorded in prior years that did not repeat in 2014.

Net income for both periods include the following aftertax adjustments that increased/ (reduced) aftertax earnings (in thousands):

	2014			2013
VITAS
Costs associated with the OIG investigation	$	(1,328	)	$	(1,333	)
Litigation settlement		-			(6,510	)
Litigation settlement costs		(70	)		-
Acquisition expense		(1	)		(36	)
Roto-Rooter
Expenses related to litigation settlements		(4	)		(865	)
Litigation settlements		-			(9,551	)
Acquisition expense		(14	)		(2	)
Expenses of severance arrangements		-			(184	)
Corporate
Long-term incentive compensation		(1,625	)		(822	)
Noncash impact of change in accounting of convertible debt		(2,143	)		(5,448	)
Costs related to securities litigation		(207	)		(69	)
Stock option expense		(3,022	)		(3,813	)
Uncertain tax position adjustments		-			1,782
Loss on extinguishment of debt		-			(294	)
Total	$	(8,414	)	$	(27,145	)

2014 Versus 2013 – Segment Results

The change in net income for 2014 versus 2013 is due to (in thousands, except percentages):

	Increase/(Decrease)
	Amount			Percent
VITAS	$	10,041			13	%
Roto-Rooter		12,832			44
Corporate		(783	)		(3	)
	$	22,090			29

VITAS’ after-tax earnings were positively impacted in 2014 compared to 2014 by a $19.1 million increase in revenue. This revenue increase is a result of an increase of 1.4% in ADC, driven by a 2.0% increase in admissions and a $5.7 million decrease in the Medicare cap charge when compared to 2013. After-tax earnings as a percent of revenue in 2014, excluding the impact of litigation settlements in 2013, were 8.1% as compared to 8.0% in 2013.

Roto-Rooter’s after-tax earnings were positively impacted in 2014 compared to 2013 by a $15.4 million revenue increase in Roto-Rooter’s water restoration line of business. After-tax earnings as a percent of revenue at Roto-Rooter in 2014, excluding the impact of the litigation settlements, were 10.7% as compared to 10.5% in 2013.

After-tax Corporate expenses for 2014 increased 2.8% when compared to 2013 mainly due to the higher cost of liability insurance in 2014.

RESULTS OF OPERATIONS

2013 Versus 2012 – Consolidated Results

Set forth below are the year-to-year changes in the components of the statement of income for 2013 versus 2012 (in thousands, except percentages):

	Favorable/(Unfavorable)
	Amount			Percent
Service revenues and sales
VITAS	$	(21,924	)		(2	) %
Roto-Rooter		5,210			1
Total		(16,714	)		(1	)
Cost of services provided and goods sold		24,513			2
Selling, general and administrative expenses		(3,862	)		(2	)
Depreciation		(1,689	)		(6	)
Amortization		(178	)		(4	)
Other operating expenses		(25,095	)		(2,229	)
Income from operations		(23,025	)		(15	)
Interest expense		(312	)		(2	)
Other income - net		1,347			33
Income before income taxes		(21,990	)		(15	)
Income taxes		9,913			18
Net income	$	(12,077	)		(14	)

The VITAS segment revenue increase is the result of the following (dollars in thousands):

	Amount			Percent
Routine homecare	$	12,959			2	%
Continuous care		(16,654	)		(10	)
General inpatient		(9,526	)		(8	)
Medicare cap		(8,703	)		(511	)
	$	(21,924	)		(2	)

The decrease in VITAS’ revenue from 2012 to 2013 was a result of increased ADC of 1.7%, offset by a Medicare reimbursement rate decrease and level of car mix shift. For 2013, VITAS recorded a net Medicare cap charge of $7.0 million related to eliminating the Medicare Cap billing limitation recorded in the fourth quarter of 2012 offset by two programs’ projected Medicare Cap liability. This compares to $1.7 million in additional revenue recorded in 2012. The ADC increase was driven by a 2.4% increase in routine homecare offset by a decrease of 8.2% in continuous care and a 5.2% decrease in general inpatient. ADC is a key measure we use to monitor volume growth in our hospice programs. Changes in total program admissions, discharges and average length of stay for our patients are the main drivers of changes in ADC.

The Roto-Rooter segment revenue decrease is the result of the following (dollars in thousands):

	Amount			Percent
Plumbing	$	(308	)		-	%
Sewer and drain cleaning		2,783			2
Contractor operations		4,508			16
HVAC operations		(1,109	)		(100	)
Other		(664	)		(3	)
	$	5,210			1

Plumbing revenues for 2013 were essentially flat compared to 2012 due to a 1.8% decrease in the number of jobs performed offset by a 1.7% increase in the average price per job. Sewer and drain cleaning revenues increased from 2012 as a result of a 4.2% increase in average price per job offset by a 1.4% decrease in the number of jobs performed. Contractor operations revenue increased 15.8% as a result of performance by recent acquisitions and higher job count.

The consolidated gross margin was 28.6% in 2013 versus 27.7% in 2012. On a segment basis, VITAS’ gross margin was 22.2% in 2013 and 22.1% in 2012. Roto-Rooter’s gross margin was 47.0% in 2013 and 44.4% in 2012. The increase in Roto-Rooter’s gross margin is the result of higher revenue, lower healthcare and casualty insurance costs and reduced field operating expenses.

Selling, general and administrative expenses (“SG&A”) for 2013 comprise (in thousands):

	2013		2012
SG&A expenses before long-term incentive
compensation, OIG expenses and the impact
of market gains of deferred compensation plans	$	204,086	$	203,585
Long-term incentive compensation		1,301		360
Expenses related to OIG investigation		2,149		1,212
Impact of market value gains on liabilities		-
held in deferred compensation trusts		4,982		3,499
Total SG&A expenses	$	212,518	$	208,656

SG&A expenses before long-term incentive compensation, expenses related to OIG investigation and the impact of market gains of deferred compensation plans for 2014 were essentially flat when compared to 2013.

Depreciation expense increased $1.7 million (6.5%) in 2013 mainly due to an increase in capital expenditures in the prior year.

Other operating expenses comprise (in thousands):

	2013		2012

Litigation settlement of VITAS segment	$	10,500	$	-
Settlements of Roto-Rooter segment		15,721		-
Severance and other operating costs related
to closing Roto-Rooter's HVAC business		-		1,126
Total other operating expenses	$	26,221	$	1,126

Interest expense increased $312,000 (2.1%) from 2012 to 2013 primarily as a result of the increase in amortization of bond discount expense and the loss on extinguishment of debt resulting from the replacement of the previous Credit Agreement in January 2013.

Other income-net for 2013 and 2012 comprise (in thousands):

	2013			2012
Market value gains on assets held in deferred
compensation trusts	$	4,982		$	3,499
Loss on disposal of property and equipment		(320	)		(347	)
Interest income		847			809
Other		(39	)		162
Total other income	$	5,470		$	4,123

Our effective tax rate was 37.6% in 2013 compared to 38.8% for 2012. This is a result of a $1.8 million credit related to the expiration of tax statutes for uncertain tax positions recorded in prior years.

Net income for both periods include the following aftertax adjustments that increased/ (reduced) aftertax earnings (in thousands):

	2013			2012
VITAS
Costs associated with the OIG investigation	$	(1,333	)	$	(752	)
Litigation Settlements		(6,510	)		-
Acquisition expense		(36	)		(9	)
Roto-Rooter
Expenses related to litigation settlements		(865	)		(617	)
Litigation Settlements		(9,551	)		-
Acquisition expense		(2	)		(105	)
Expenses of severance arrangements		(184	)		-
Costs to shut down HVAC operations		-			(649	)
Corporate
Long-term incentive compensation		(822	)		(228	)
Noncash impact of change in accounting of convertible debt		(5,448	)		(5,041	)
Costs related to securities litigation		(69	)		(469	)
Stock option expense		(3,813	)		(5,143	)
Uncertain tax position adjustments		1,782			-
Loss on extinguishment of debt		(294	)		-
Total	$	(27,145	)	$	(13,013	)

2013 Versus 2012 – Segment Results

The change in net income for 2013 versus 2012 is due to (in thousands, except percentages):

	Increase/(Decrease)
	Amount			Percent
VITAS	$	(10,433	)		(12	) %
Roto-Rooter		(1,662	)		(5	)
Corporate		18			-
	$	(12,077	)		(14	)

VITAS’ after-tax earnings were negatively impacted in 2013 compared to 2012 by a $6.5 million after-tax charge for litigation settlements, combined with a revenue decline of 2.0% due to the effects of the Federal government reimbursement cut due to: sequestration beginning April 1, 2013; mix shift away from high acuity care; and an increase in the Medicare Cap charge of $8.7 million. After-tax earnings as a percent of revenue at VITAS in 2013, excluding the impact of the litigation settlements, were 8.0% as compared to 8.1% in 2012. Thus, the decline in revenue between years was essentially matched by operating expense savings, mainly in labor and related fringe benefit costs.

Roto-Rooter’s after-tax earnings were negatively impacted in 2013 compared to 2012 by a $9.6 million after-tax charge for litigation settlements, offset by a revenue increase of 1.0% mainly due to the effect of price increases for services performed. After-tax earnings as a percent of revenue at Roto-Rooter in 2013, excluding the impact of the litigation settlements, were 10.5% as compared to 8.5% in 2012. The improvement in after-tax income as a percent of revenue is the result of expense saving initiatives including a targeted reduction in support employees at the field level, as well as changes to the healthcare and casualty insurance programs.

After-tax Corporate expenses were essentially unchanged between years.

CRITICAL ACCOUNTING POLICIES

Revenue Recognition

For both the Roto-Rooter and VITAS segments, service revenues and sales are recognized when the earnings process has been completed. Generally, this occurs when services are provided or products are delivered. Sales of Roto-Rooter products, including drain cleaning machines and drain cleaning solution, comprise less than 3% of our total service revenues and sales for each of the three years in the period ended December 31, 2014.

VITAS recognizes revenue at the estimated net realizable amount due from third-party payers, which are primarily Medicare and Medicaid. Payers may deny payment for services in whole or in part on the basis that such services are not eligible for coverage and do not qualify for reimbursement. We estimate denials each period and make adequate provision in the financial statements. The estimate of denials is based on historical trends and known circumstances and generally does not vary materially from period to period on an aggregate basis. Medicare billings are subject to certain limitations, as described below.

VITAS is subject to certain limitations on Medicare payments for services. Specifically, if the number of inpatient care days any hospice program provides to Medicare beneficiaries exceeds 20% of the total days of Medicare hospice care such program provides to all 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. We have never had a program reach the inpatient cap. The majority of our programs have expected cushion in excess of 75% of the inpatient cap for the 2014 measurement period. Due to the significant cushion at each program, we do not anticipate it to be reasonably likely that any program will be subject to the inpatient cap in the foreseeable future.

VITAS is also subject to a Medicare annual per-beneficiary cap. Compliance with the Medicare cap is measured in one of two ways based on a provider by provider election. The “stream lined” 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 that Medicare provider number between November 1 of each year and October 31 of the following year 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 during the relevant period.

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

Our estimate of the Medicare cap liability is particularly sensitive to allocations made by our fiscal intermediary relative to patient transfers between hospices. We are allocated a percentage of the Medicare cap based on the total days a patient spent in hospice care. The allocation for patient transfers cannot be determined until a patient dies. As the number of days a patient spends in hospice is based on a future event, this allocation process may take several years. If the actual relationship of transfers in and transfers out for a given measurement period proves to be different for any program at or near a billing limitation, our estimate of the liability would increase or decrease on a dollar-for-dollar basis. While our method has historically been materially accurate, each program can vary during a given measurement period.

During the year ended December 31, 2014, we recorded a net Medicare cap liability of $1.3 million for two programs’ projected 2014 and 2015 measurement period liability offset by the reversal of one program’s 2011 measurement period’s projected Medicare cap liability. During the year ended December 31, 2013, we reversed Medicare cap liability for amounts recorded in the fourth quarter of 2012 for three programs’ projected 2014 measurement period liability. During 2013 this reversal was offset by the Medicare cap liability for two programs’ projected 2014 measurement period liability. Shown below is the Medicare cap liability activity for the years end December 31, 2014 and 2013 (in thousands):

	2014			2013
Beginning Balance January 1,	$	8,260		$	1,261
2015 measurement period		165			-
2014 measurement period		1,451			3,881
2013 measurement period		-			3,181
2011 measurement period		(325	)		-
2010 measurement period		-			(63	)
Payments		(3,439	)		-
Ending Balance December 31,	$	6,112		$	8,260

Insurance Accruals

For the Roto-Rooter segment and Chemed’s Corporate Office, we self-insure for all casualty insurance claims (workers’ compensation, auto liability and general liability). As a result, we closely monitor and frequently evaluate our historical claims experience to estimate the appropriate level of accrual for self-insured claims. Our third-party administrator (“TPA”) processes and reviews claims on a monthly basis. Currently, our exposure on any single claim is capped at $750,000. In developing our estimates, we accumulate historical claims data for the previous 10 years to calculate loss development factors (“LDF”) by insurance coverage type. LDFs are applied to known claims to estimate the ultimate potential liability for known and unknown claims for each open policy year. LDFs are updated annually. Because this methodology relies heavily on historical claims data, the key risk is whether the historical claims are an accurate predictor of future claims exposure. The risk also exists that certain claims have been incurred and not reported on a timely basis. To mitigate these risks, in conjunction with our TPA, we closely monitor claims to ensure timely accumulation of data and compare claims trends with the industry experience of our TPA.

Our casualty insurance liabilities are recorded gross before any estimated recovery for amounts exceeding our stop loss limits. Estimated recoveries from insurance carriers are recorded as accounts receivable. Claims experience adjustments to our casualty and workers’ compensation accrual for the years ended December 31, 2014, 2013 and 2012, were net pretax debits/(credits) of $542,000, ($1,487,000) and ($790,000) respectively.

As an indication of the sensitivity of the accrued liability to reported claims, our analysis indicates that a 1% across-the-board increase or decrease in the amount of projected losses would increase or decrease the accrued insurance liability at December 31, 2014, by $2.6 million or 6.5%. While the amount recorded represents our best estimate of the casualty and workers’ compensation insurance liability, we have calculated, based on historical claims experience, the actual loss could reasonably be expected to increase or decrease by approximately $3.1 million as of December 31, 2014.

Income Taxes

We are subject to income taxes in the federal and most state jurisdictions. We are periodically audited by various taxing authorities. Significant judgment is required to determine our provision for income taxes. We adopted FASB’s authoritative guidance on accounting for uncertainty in income taxes, which prescribes a comprehensive model for how to recognize, measure, present and disclose in financial statements uncertain tax positions taken or expected to be taken on a tax return. Upon adoption of this guidance, the financial statements reflect expected future tax consequences of such uncertain positions assuming the taxing authorities’ full knowledge of the position and all relevant facts.

Goodwill and Intangible Assets

We consider that RRC, RRSC and VITAS are appropriate reporting units for testing goodwill impairment. We consider RRC and RRSC as separate reporting units but one operating segment. This is appropriate as they each have their own set of general ledger accounts that can be analyzed at “one level below an operating segment” per the definition of a reporting unit in FASB guidance.

In July 2012, the FASB issued Accounting Standards Update “ASU” No. 2012-02 – Intangibles Goodwill and Other which provides additional guidance related to the impairment testing of indefinite-lived intangible assets. ASU No. 2012–02 allows an entity to first assess qualitative factors to determine whether it is necessary to perform further impairment testing. The revised guidance was effective for fiscal years beginning after September 15, 2012, but early adoption was permitted. Our impairment testing date is October 1 of each year and we adopted the new guidelines in the third quarter of 2012.

We completed our qualitative analysis for impairment of goodwill and our indefinite-lived intangible assets as of October 1, 2014. We assessed such qualitative factors as macroeconomic conditions, industry and market conditions, cost factors, financial performance and the legislative and regulatory environment. Based on our assessment, we do not believe that it is more likely than not that our reporting units’ or indefinite-lived assets fair values are less than their carrying values.

Stock-based Compensation Plans

Stock-based compensation cost is measured at the grant date, based on the fair value of the award and recognized as expense over the employee’s requisite service period on a straight-line basis. We estimate the fair value of stock options using the Black-Scholes valuation model. We estimate the fair value and derived service periods of market based awards using a Monte Carlo simulation approach in a risk neutral framework. We determine expected term, volatility, dividend yield and forfeiture rate based on our historical experience. We believe that historical experience is the best indicator of these factors.

Contingencies

We are subject to various lawsuits and claims in the normal course of our business. In addition, we periodically receive communications from governmental and regulatory agencies concerning compliance with Medicare and Medicaid billing requirements at our VITAS subsidiary. We establish reserves for specific, uninsured liabilities in connection with regulatory and legal action that we deem to be probable and estimable. We record legal fees associated with legal and regulatory actions as the costs are incurred. We disclose material loss contingencies that probable but not reasonably estimable and those that are at least reasonably possible.

Consolidating Summary of Adjusted EBITDA
Chemed Corporation and Subsidiary Companies
(in thousands)										Chemed
2014	VITAS			Roto-Rooter			Corporate			Consolidated

Net income/(loss)	$	86,185		$	42,075		$	(28,943	)	$	99,317
Add/(deduct):
Interest expense		207			363			7,616			8,186
Income taxes		53,278			25,808			(15,649	)		63,437
Depreciation		18,601			10,702			578			29,881
Amortization		1,034			525			1,632			3,191
EBITDA		159,305			79,473			(34,766	)		204,012
Add/(deduct):
Intercompany interest/(expense)		(6,189	)		(2,892	)		9,081			-
Interest income		78			(39	)		(10	)		29
Expenses related to OIG investigation		2,141			-			-			2,141
Acquisition expenses		1			23			-			24
Expenses related to litigation settlements		113			7			-			120
Advertising cost adjustment		-			(1,462	)		-			(1,462	)
Stock option expense		-			-			4,802			4,802
Long-term incentive compensation		-			-			2,569			2,569
Expenses related to securities litigation		-			-			327			327
Adjusted EBITDA	$	155,449		$	75,110		$	(17,997	)	$	212,562

											Chemed
2013		VITAS			Roto-Rooter			Corporate			Consolidated

Net income/(loss)	$	76,144		$	29,243		$	(28,160	)	$	77,227
Add/(deduct):
Interest expense		182			322			14,531			15,035
Income taxes		46,910			17,560			(17,868	)		46,602
Depreciation		18,149			9,014			535			27,698
Amortization		2,102			607			1,981			4,690
EBITDA		143,487			56,746			(28,981	)		171,252
Add/(deduct):
Intercompany interest/(expense)		(4,288	)		(2,055	)		6,343			-
Interest income		(750	)		(41	)		(56	)		(847	)
Expenses related to OIG investigation		2,149			-			-			2,149
Acquisition expenses		58			4			-			62
Litigation Settlement		10,500			15,721			-			26,221
Expenses related to litigation settlements		-			1,425			-			1,425
Advertising cost adjustment		-			(1,166	)		-			(1,166	)
Expenses of severance arrangements		-			302			-			302
Stock option expense		-			-			6,042			6,042
Long-term incentive compensation		-			-			1,301			1,301
Expenses related to securities litigation		-			-			109			109
Adjusted EBITDA	$	151,156		$	70,936		$	(15,242	)	$	206,850

											Chemed
2012		VITAS			Roto-Rooter			Corporate			Consolidated

Net income/(loss)	$	86,577		$	30,905		$	(28,178	)	$	89,304
Add/(deduct):
Interest expense		233			433			14,057			14,723
Income taxes		53,092			18,770			(15,347	)		56,515
Depreciation		17,087			8,397			525			26,009
Amortization		1,956			632			1,924			4,512
EBITDA		158,945			59,137			(27,019	)		191,063
Add/(deduct):
Intercompany interest/(expense)		(3,180	)		(1,617	)		4,797			-
Interest income		(703	)		(30	)		(76	)		(809	)
Legal expenses of OIG investigation		1,212			-			-			1,212
Acquisition expenses		15			173			-			188
Expenses of securities litigation		-			-			742			742
Long-term incentive compensation		-			-			360			360
Expenses of class action litigation		-			1,016			-			1,016
Cost to shut down HVAC operations		-			1,126			-			1,126
Stock option expense		-			-			8,130			8,130
Advertising cost adjustment		-			(1,573	)		-			(1,573	)
Adjusted EBITDA	$	156,289		$	58,232		$	(13,066	)	$	201,455

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

	For the Years Ended December 31,
	2014			2013			2012
Net income as reported	$	99,317		$	77,227		$	89,304

Add/(deduct) after-tax cost of:
Non-cash expense of change in accounting for convertible		2,143			5,448			5,041
Stock option expense		3,022			3,813			5,143
Expenses related to OIG investigation		1,328			1,333			752
Net expenses related to litigation settlements		74			865			617
Long-term incentive compensation		1,625			822			228
Expenses related to securities litigation		207			69			469
Acquisition expenses		15			38			114
Litigation settlements		-			16,061			-
Uncertain tax position adjustments		-			(1,782	)		-
Loss on extinguishment of debt		-			294			-
Expenses of severance arrangements		-			184			-
Expenses to shut down HVAC operations		-			-			649
Adjusted net income	$	107,731		$	104,372		$	102,317

Diluted Earnings Per Share As Reported
Net income	$	5.57		$	4.16		$	4.62
Average number of shares outstanding		17,840			18,585			19,339

Adjusted Diluted Earnings Per Share
Net income	$	6.07		$	5.62		$	5.29
Average number of shares outstanding		17,738	*		18,585			19,339

*For the purpose of computing adjusted diluted earnings per share for 2014, the estimated dilutive impact of the convertible notes prior to the conversion of these notes on May 15, 2014 (impact of 102,000) has been excluded from the computation of diluted average shares outstanding as this impact was entirely offset by the exercise of the the note hedges on May 15, 2014.

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

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

	Three Months Ended December 31,						Year Ended December 31,
OPERATING STATISTICS	2014			2013			2014			2013
Net revenue ($000)
Homecare	$	209,633		$	198,325		$	810,413		$	791,735
Inpatient		25,839			25,788			102,876			104,968
Continuous care		38,405			35,943			152,206			155,409
Total before Medicare cap allowance	$	273,877		$	260,056		$	1,065,495		$	1,052,112
Medicare cap allowance		506			(3,838	)		(1,290	)		(6,999	)
Total	$	274,383		$	256,218		$	1,064,205		$	1,045,113
Net revenue as a percent of total before Medicare cap allowance
Homecare		76.6	%		76.3	%		76.0	%		75.2	%
Inpatient		9.4			9.9			9.7			10.0
Continuous care		14.0			13.8			14.3			14.8
Total before Medicare cap allowance		100.0			100.0			100.0			100.0
Medicare cap allowance		0.2			(1.5	)		(0.1	)		(0.7	)
Total		100.2	%		98.5	%		99.9	%		99.3	%
Average daily census (days)
Homecare		10,850			10,353			10,634			10,449
Nursing home		2,995			2,862			2,954			2,911
Routine homecare		13,845			13,215			13,588			13,360
Inpatient		427			433			428			438
Continuous care		566			537			568			585
Total		14,838			14,185			14,584			14,383
Total Admissions		16,313			15,445			64,090			62,858
Total Discharges		16,333			15,396			63,478			62,999
Average length of stay (days)		82.7			82.6			82.4			81.6
Median length of stay (days)		15.0			15.0			15.0			15.0
ADC by major diagnosis
Neurological		25.4	%		38.9	%		30.1	%		37.7	%
Cancer		17.2			17.2			17.3			17.1
Cardio		17.8			14.3			17.0			13.2
Respiratory		7.8			7.8			7.9			7.6
Other		31.8			21.8			27.7			24.4
Total		100.0	%		100.0	%		100.0	%		100.0	%
Admissions by major diagnosis
Neurological		13.2	%		21.3	%		18.6	%		20.7	%
Cancer		33.1			33.8			33.3			33.2
Cardio		15.2			13.4			14.9			13.1
Respiratory		9.3			8.7			9.4			9.2
Other		29.2			22.8			23.8			23.8
Total		100.0	%		100.0	%		100.0	%		100.0	%
Direct patient care margins
Routine homecare		54.9	%		53.8	%		53.8	%		52.6	%
Inpatient		7.2			5.0			5.8			5.5
Continuous care		18.2			16.1			17.4			15.9
Homecare margin drivers (dollars per patient day)
Labor costs	$	53.06		$	53.85		$	53.99		$	55.17
Drug costs		6.90			7.54			7.01			7.54
Home medical equipment		6.41			6.38			6.61			6.61
Medical supplies		3.10			2.99			3.18			2.97
Inpatient margin drivers (dollars per patient day)
Labor costs	$	327.53		$	334.50		$	339.90		$	338.51
Continuous care margin drivers (dollars per patient day)
Labor costs	$	582.69		$	589.51		$	585.61		$	591.54
Bad debt expense as a percent of revenues		1.0	%		0.9	%		1.0	%		0.9	%
Accounts receivable --
Days of revenue outstanding- excluding unapplied Medicare payments		38.9			36.5		N.A.			N.A.
Days of revenue outstanding- including unapplied Medicare payments		33.6			25.9		N.A.			N.A.

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 REGARDING FORWARD-LOOKING INFORMATION

In addition to historical information, this report contains forward-looking statements and performance trends that are based upon assumptions subject to certain known and unknown risks, uncertainties, contingencies and other factors. Such forward-looking statements and trends include, but are not limited to, the impact of laws and regulations on our operations, our estimate of future effective income tax rates and the recoverability of deferred tax assets. 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. Our ability to deal with the unknown outcomes of these events, many of which are beyond our control, may affect the reliability of our projections and other financial matters.

a51044635ex21.htm

EXHIBIT 21

SUBSIDIARIES OF CHEMED CORPORATION

The following is a list of subsidiaries of the Company as of December 31, 2014: Other subsidiaries which have been omitted from the list would not, when considered in the aggregate, constitute a significant subsidiary. Each of the companies is incorporated under the laws of the state following its name. The percentage given for each company represents the percentage of voting securities of such company owned by the Company or, where indicated, subsidiaries of the Company as of December 31, 2014.

All of the majority owned companies listed below are included in the consolidated financial statements as of December 31, 2014.

Chemed RT, Inc. (Delaware, 100%)

Comfort Care Holdings Co. (Nevada, 100%)

Consolidated HVAC, Inc. (Ohio, 100% by Roto-Rooter Services Company)

Jet Resource, Inc. (Delaware, 100%)

Nurotoco of Massachusetts, Inc. (Massachusetts, 100% by Roto-Rooter Services Company)

Nurotoco of Massachusetts, Inc. II (Massachusetts, 100% by Roto-Rooter Services Company)

Nurotoco of Massachusetts, Inc. III (Massachusetts, 100% by Roto-Rooter Services Company)

Nurotoco of New Jersey, Inc. (Delaware, 80% by Roto-Rooter Services Company)

Roto RT, Inc. (Delaware, 100% by Roto-Rooter Group, Inc.)

Roto-Rooter Canada, Ltd. (British Columbia, 100% by Roto-Rooter Services Company)

Roto-Rooter Corporation (Iowa, 100% by Roto-Rooter Group, Inc.)

Roto-Rooter Development Company (Delaware, 100% by Roto-Rooter Corporation)

Roto-Rooter Group, Inc. (Delaware, 100%)

Roto-Rooter Services Company (Iowa, 100% by Roto-Rooter Group, Inc.)

RR Plumbing Services Corporation (New York, 49% by Roto-Rooter Services Company; included within the consolidated financial statements as a consolidated subsidiary)

R.R. UK, Inc. (Delaware, 100% by Roto-Rooter Group, Inc.)

VITAS Care Solutions, Inc. (Delaware, 100% by VITAS Hospice Services L.L.C.)

VITAS Healthcare Corporation (Delaware, 100% by Comfort Care Holdings Co.)

VITAS Hospice Services, L.L.C. (Delaware, 100% by VITAS Healthcare Corporation)

VITAS Healthcare Corporation of California (Delaware, 100% by VITAS Hospice Services, L.L.C.)

VITAS Healthcare Corporation of Illinois (Delaware, 100% by VITAS Hospice Services, L.L.C.)

VITAS Healthcare Corporation of Florida (Florida, 100% by VITAS Hospice Services, L.L.C.)

VITAS Healthcare Corporation of Ohio (Delaware, 100% by VITAS Hospice Services, L.L.C.)

VITAS Healthcare Corporation of Atlantic (Delaware, 100% by VITAS Hospice Services, L.L.C.)

VITAS Healthcare of Texas, L.P. (Texas, 99% by VITAS Holding Corporation, the limited partner, 1% by VITAS Hospice Services, L.L.C., the general partner)

VITAS Healthcare Corporation Midwest (Delaware, 100% by VITAS Hospice Services, L.L.C.)

VITAS Healthcare Corporation of Georgia (Delaware, 100% by VITAS Hospice Services, L.L.C.)

VITAS HME Solutions, Inc. (Delaware, 100% by VITAS Hospice Services, L.L.C.)

VITAS of North Florida, Inc. (Florida, 100% by VITAS Hospice Services, L.L.C.)

VITAS Holdings Corporation (Delaware, 100% by VITAS Hospice Services, L.L.C.)

VITAS RT, Inc. (Delaware, 100% by VITAS Hospice Services, L.L.C.)

VITAS Solutions, Inc. (Delaware, 100% by VITAS Hospice Services, L.L.C.)

Hospice Care Incorporated (Delaware, 100% by VITAS Hospice Services, L.L.C.)

Puerto Rico – VITAS Healthcare Corporation (Puerto Rico, 100% VITAS Hospice Services, L.L.C.)

a51044635ex23.htm

EXHIBIT 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-145555) and on Form S-8 (Nos. 333-118714, 333-134107, and 333-167733) of Chemed Corporation of our report dated February 27, 2015 relating to the financial statements and the effectiveness of internal control over financial reporting, which appears in the 2014 Annual Report to Stockholders of Chemed Corporation, which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report dated February 27, 2015 relating to the financial statement schedule, which appears in this Form 10-K.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

Cincinnati, Ohio

February 27, 2015

a51044635ex24.htm

EXHIBIT 24

POWER OF ATTORNEY

The undersigned director of CHEMED CORPORATION ("Company") hereby appoints KEVIN J. MCNAMARA and NAOMI C. DALLOB as his true and lawful attorneys-in-fact for the purpose of signing the Company's Annual Report on Form 10-K for the year ended December 31, 2014, and all amendments thereto, to be filed with the Securities and Exchange Commission. Each of such attorneys-in-fact is appointed with full power to act without the other.

Dated: February 19, 2015



	/s/ Joel F. Gemunder
	Joel F. Gemunder

POWER OF ATTORNEY

Dated: February 20, 2015



	/s/ Patrick P. Grace
	Patrick P. Grace

POWER OF ATTORNEY

Dated: February 20, 2015



	/s/ Thomas C. Hutton
	Thomas C. Hutton

100

POWER OF ATTORNEY

Dated: February 17, 2015



	/s/ Thomas P. Rice
	Thomas P. Rice

101

POWER OF ATTORNEY

Dated: February 16, 2015



	/s/ Donald E. Saunders
	Donald E. Saunders

102

POWER OF ATTORNEY

Dated: February 17, 2015



	/s/ George J. Walsh III
	George J. Walsh III

103

POWER OF ATTORNEY

Dated: February 20, 2015



	/s/ Frank E. Wood
	Frank E. Wood

104

POWER OF ATTORNEY

Dated: February 19, 2015



	/s/ Walter L. Krebs
	Walter L. Krebs

105

POWER OF ATTORNEY

Dated: February 16, 2015



	/s/ Andrea R. Lindell
	Andrea R. Lindell

106

a51044635ex31_1.htm

EXHIBIT 31.1

CERTIFICATION PURSUANT TO RULES 13a-14(a)/15d-14(a) OF THE EXCHANGE ACT OF 1934

I, Kevin J. McNamara, certify that:

1.	I have reviewed this annual report on Form 10-K of Chemed Corporation (“registrant”);

2.	Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations, and cash flow of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls or procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by other within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors or persons performing the equivalent function:

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: February 27, 2015
	/s/ Kevin J. McNamara
	Kevin J. McNamara
	(President and Chief Executive Officer)

107

a51044635ex31_2.htm

EXHIBIT 31.2

CERTIFICATION PURSUANT TO RULES 13a-14(a)/15d-14(a) OF THE EXCHANGE ACT OF 1934

I, David P. Williams, certify that:

I have reviewed this annual report on Form 10-K of Chemed Corporation (“registrant”);

Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations, and cash flow of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors or persons performing the equivalent function:

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: February 27, 2015
	/s/ David P. Williams
	David P. Williams
	(Executive Vice President and Chief Financial Officer)

108

a51044635ex31_3.htm

EXHIBIT 31.3

CERTIFICATION PURSUANT TO RULES 13a-14(a)/15d-14(a) OF THE EXCHANGE ACT OF 1934

I, Arthur V. Tucker, Jr., certify that:

I have reviewed this annual report on Form 10-K of Chemed Corporation (“registrant”);

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: February 27, 2015
	/s/ Arthur V. Tucker, Jr.
	Arthur V. Tucker, Jr.
	(Vice President and Controller)

109

a51044635ex32_1.htm

EXHIBIT 32.1

CERTIFICATION BY KEVIN J. MCNAMARA

PURUSANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, as President and Chief Executive Officer of Chemed Corporation (“Company”), does hereby certify that:

The Company’s Annual Report on Form 10-K for the year ending December 31, 2014 (“Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: February 27, 2015
	/s/ Kevin J. McNamara
	Kevin J. McNamara
	(President and Chief Executive Officer)

110

a51044635ex32_2.htm

EXHIBIT 32.2

CERTIFICATION DAVID P. WILLIAMS

PURUSANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, as Executive Vice President and Chief Financial Officer of Chemed Corporation (“Company”), does hereby certify that:

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: February 27, 2015
	/s/ David P. Williams
	David P. Williams
	(Executive Vice President and Chief Financial Officer)

111

a51044635ex32_3.htm

EXHIBIT 32.3

CERTIFICATION BY ARTHUR V. TUCKER, JR.

PURUSANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, as Vice President and Controller of Chemed Corporation (“Company”), does hereby certify that:

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: February 27, 2015
	/s/ Arthur V. Tucker, Jr.
	Arthur V. Tucker, Jr.
	(Vice President and Controller)

112