0001157523-19-000468.txt : 20190227 0001157523-19-000468.hdr.sgml : 20190227 20190227103822 ACCESSION NUMBER: 0001157523-19-000468 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 124 CONFORMED PERIOD OF REPORT: 20181231 FILED AS OF DATE: 20190227 DATE AS OF CHANGE: 20190227 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHEMED CORP CENTRAL INDEX KEY: 0000019584 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HOME HEALTH CARE SERVICES [8082] IRS NUMBER: 310791746 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-08351 FILM NUMBER: 19636234 BUSINESS ADDRESS: STREET 1: SUITE 2600 STREET 2: 255 E FIFTH ST CITY: CINCINNATI STATE: OH ZIP: 45202 BUSINESS PHONE: (513)762-6690 MAIL ADDRESS: STREET 1: SUITE 2600 STREET 2: 255 E FIFTH STREET CITY: CINCINNATI STATE: OH ZIP: 45202-4726 FORMER COMPANY: FORMER CONFORMED NAME: ROTO-ROOTER INC DATE OF NAME CHANGE: 20030613 FORMER COMPANY: FORMER CONFORMED NAME: CHEMED CORP DATE OF NAME CHANGE: 19920703 10-K 1 a51945094.htm CHEMED CORP. 10-K


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
For the fiscal year ended December 31, 2018

    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 31-0791746
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
   
Suite 2600, 255 East Fifth Street, Cincinnati, Ohio 45202-4726
(Address of principal executive offices) (Zip Code)

(513) 762-6690
(Registrant’s Telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class Name of each exchange on which registered
   
 Capital Stock –  Par Value $1 Per Share
 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        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 

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      No 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes       No 

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       No 

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

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

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

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 29, 2018 ($320.64 per share), was $5,077,902,421.

At February 15, 2019, 15,967,469 shares of Chemed Capital Stock (par value $1 per share) were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Document
Where Incorporated
2018 Annual Report to Stockholders (specified portions)
Parts I, II, and IV
Proxy Statement for Annual Meeting to be held May 20, 2019
Part III



CHEMED CORPORATION
2018 FORM 10-K ANNUAL REPORT

Table of Contents

PART I
 
   
   
   
PART II
 
   
   
   
PART III
 
   
   
   
PART IV
 
   
Form 10-K Summary



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 day to day operating businesses are managed on a decentralized basis.  There are few integrated business functions between the operating units and Chemed (such as sales, marketing or purchasing).  Chemed’s corporate office management participates in and is ultimately responsible for long term strategic planning, 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 2018, 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, drain cleaning, water restoration and other related services to 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, 2016, 2017 and 2018 are shown in Note 5 of the Notes to Consolidated Financial Statements on pages 80-82 of the 2018 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 80-82 of the 2018 Annual Report to Stockholders is incorporated herein by reference.

Product and Market Development

Each segment of the Company’s business analyzes opportunities for the development and marketing of new services and products.  While new products and services and new market development are important factors for the long term 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 code.  Certain states require certificates of need to conduct hospice operations.  In those states, we consider certificates of need valuable assets.

1


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 company-owned and independent contractor 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.  The vast majority of our patients are Medicare recipients. Medicare patients 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 93% 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, plumbing repair and water restoration businesses are highly competitive.  Competition is 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.  Plans of care for hospice services are not proprietary. As a result, VITAS competes and differentiates itself primarily on the basis of its ability to deliver quality, responsive services within the requirements of Medicare’s hospice conditions of participation.  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 hospice providers 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.

2


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, which is palliative and not curative care.  The patient or the patient’s legal representative must also acknowledge that by choosing hospice care, certain other Medicare benefits are waived.

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.

3


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 Medicare Administrative Contractors 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.

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

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.

4


 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 95% 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 judgment.  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 and the patient or patient’s legal guardian, continues to maintain the hospice election.  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.    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.

5


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, available on a 24/7 basis, 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  is a two-tiered rate, with a higher rate for the first 60 days of a hospice patient’s care and a lower rate for days 61 and after.  In addition there is a Service Intensity Add-on payment which covers direct home care visits conducted by a registered nurse or social worker in the last seven days of a hospice patient’s life, reimbursed up to four hours per day in fifteen minute increments at the continuous care rate.

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 Administrative Contractors 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 Administrative Contractors.  For fiscal 2018, less than 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 $28,689.04 per admission for the twelve-month period ended on October 31, 2018, 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.

6


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 Advantage 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 federal funds to provide medical assistance to the indigent and certain other eligible persons.  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 2018 accounted for 4% 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 for inflation 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; the current cut is scheduled to last through the Federal Government’s fiscal year 2027.  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.  On July 31, 2015, CMS published the final full year 2016 hospice wage index providing guidance to hospice providers regarding changes to hospice reimbursement for full year 2016.  Effective January 1, 2016 the routine home care rate changed to reflect a two-tiered rate, with a higher rate for the first 60 days of a hospice patient’s care, and a lower rate for days 61 and after.  In addition, the full year 2016 wage rule provides reimbursement of a Service Intensity Add-on payment.  This Service Intensity Add-on payment also went into effect on January 1, 2016, and applies to direct home care visits conducted by a registered nurse or social worker in the last seven days of a hospice patient’s life while on the routine home care level of care.

Managed Medicaid. In some states in which VITAS operates, the state legislatures have established managed Medicaid programs.  Managed Medicaid programs outsource the process of eligibility determination and payment by Medicaid to private insurance companies.  In some states, participants are required to choose a managed Medicaid provider.  VITAS negotiates participant eligibility and documentation requirements, as well as hospice pay rates with each managed Medicaid provider.  These requirements and pay rates may or may not align with the applicable Medicare hospice regulations and pay rates.

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.

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Violations of the Anti-Kickback Law carry potentially severe penalties including imprisonment of up to ten years, criminal fines of up to $100,000 per act, civil money penalties of up to $100,000 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 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 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.  The OIG identifies and seeks to eliminate fraud, abuse and waste in HHS programs.  The OIG conducts audits, investigations and inspections 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:

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

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.

On October 30, 2017, the Company entered into a settlement agreement (the “Settlement Agreement”) to resolve civil litigation under the False Claims Act brought by the United States Department of Justice (“DOJ”) on behalf of the OIG and various relators concerning VITAS, filed in the U.S. District Court of the Western District of Missouri (the “2013 Action”).  The Company denied any violation of law and agreed to settlement without admission of wrongdoing.

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

Under the Settlement Agreement, the United States agreed to release the Company, VITAS, and its hospice operation subsidiaries from any civil or administrative monetary liability relating to any patients’ disputed terminal medical prognosis of six months or less; a lack of medical necessity for billed Continuous Home Care, General Inpatient Care, or Respite Care levels of hospice care; or that the claims for those levels of hospice care were not eligible for payment for any other reason.  The OIG agreed, conditioned on the Company’s full payment and in consideration of VITAS’ obligations under the CIA, to release its permissive exclusion rights and refrain from instituting any administrative action seeking to exclude the Company, VITAS, and its affiliates from participating in Medicare, Medicaid, or other federal healthcare programs in this regard.

Under the Settlement Agreement, the Company paid $75 million plus interest, plus certain attorney fees and expenses of qui tam relators.  The Company made these payments during the fourth quarter of 2017.  The Company previously recorded a $90 million loss reserve ($55.8 million after-tax) related to the Settlement Agreement, and associated costs in the second quarter of 2017.  During the fourth quarter of 2017, approximately $5.5 million ($3.4 million after-tax) recorded as part of the $90 million was reversed as relator attorney' fees were less than originally estimated

The costs incurred related to U.S. v. VITAS and related regulatory matters, exclusive of the settlement were, $5.2 million and $5.3 million for 2017, and 2016 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 judgment 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.

As described above, VITAS and certain of its subsidiaries entered into a CIA with the OIG on October 30, 2017 in connection with the settlement of a False Claims Act Case In the event of breach of the CIA, VITAS could become liable for payment of stipulated penalties or could be excluded from participation in federal healthcare programs.

The 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 (as adjusted for inflation), 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 “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 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.

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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:

Denial of payment;

Civil monetary penalties of $15,000 per referral or $100,000 for “circumvention schemes;”

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

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 $100,000 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.

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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.  If we are found to have violated these laws, we could be subject to sanctions, fines, damages, and other civil and criminal penalties.

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, plumbing, and water restoration 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, 2018, 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 2018 and 2019 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, 2018, the Company had a total of 15,707 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.

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Item 1A.  Risk Factors

You should carefully consider the risks described below, together with all of the information included in this Annual Report on Form 10-K, in evaluating us and our Capital Stock.  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.

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Environmental and safety 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 can be 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, plumbing repair and water restoration 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.

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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 by using cyber-scanning software and other methods to learn how a successful attack may be made.  We remedy any issues encountered during these tests.  We have developed and tested a response plan in the event of a successful attack and we maintain commercial insurance related to a cyber-attack.  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.

We are regularly the target of attempted cyber and other security threats and must continuously monitor and develop our information technology networks and infrastructure to prevent, detect, address and mitigate the risk of unauthorized access, misuse, computer viruses and other events that could have a security impact.  Insider or employee cyber and security threats are increasingly a concern for all large companies, including ours.

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.

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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 95% 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.  The U.S. federal budget remains in flux, which could, among other things, cut Medicare payments to providers.  The Medicare program is frequently mentioned as a target for spending cuts.  The full impact on our business of any future cuts in Medicare or other programs is uncertain.  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.

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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 their interpretations 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.

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, as well as a state significantly changing its existing certificate of need rules and regulations, could adversely affect VITAS.

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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 Medicare Administrative Contractors 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.

Regulation and Provision of Continuous Home Care.  VITAS provides continuous home care to patients requiring such care.  Continuous home care is provided to allow the patient to remain in their 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.

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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.

A significant portion 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.

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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.

If VITAS fails to comply with the terms of the CIA, it could be subject to substantial monetary penalties or suspension or exclusion from participation in the Medicare and Medicaid programs.

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

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 have elected Medicare managed care.  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.

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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, wage and hour or other similar legal theories, many of which involve large claims and significant defense costs.  We are also subject to the risk of lawsuits under the False Claims Act and comparable state laws for allegedly submitting fraudulent bills for services to the Medicare and Medicaid programs and other federal and state healthcare programs.  These lawsuits, which may be initiated by “whistleblowers” can involve significant monetary damages, fines, attorneys’ fees and the award of bounties to private qui tam plaintiffs. 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. 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 HIPAA and HITECH regulations.  We have developed and tested a response plan in the event of a successful attack and we maintain commercial insurance related to a cyber-attack. 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.

We are regularly the target of attempted cyber and other security threats and must continuously monitor and develop our information technology networks and infrastructure to prevent, detect, address and mitigate the risk of unauthorized access, misuse, computer viruses and other events that could have a security impact.  Insider or employee cyber and security threats are increasingly a concern for all large companies, including ours.

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 effect on our future operating performance.

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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 129 leased and owned office and service facilities in 27 states.  VITAS, headquartered in Miami, operates 47 programs from 169 leased and owned facilities and 27 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

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

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

However, on June 13, 2016, counsel for Chemed shareholder Michael Kvint filed a letter with the Court requesting a two-week extension to file a motion to substitute Mr. Kvint as lead plaintiff, in place of Lead Plaintiff KBC and to file an amended Complaint.  Alternatively, counsel for Mr. Kvint requested that any dismissal of the action be with prejudice to KBC only.  On June 14, 2016, Chemed filed a reply letter with the Court, reserving its rights to oppose any motion filed by Mr. Kvint and, if warranted, to oppose any other actions taken by Mr. Kvint to proceed with the action (including by filing an untimely amended Complaint).  On June 21, 2016, the Court entered an Oral Order providing Mr. Kvint until June 30, 2016 to file a Motion to Substitute and Motion for Leave to File an Amended Complaint.  On that date, Mr. Kvint filed, under seal, a Motion to Substitute Plaintiff and File Amended Complaint, and attached a Proposed Amended Complaint.  Mr. Kvint’s motion was fully briefed by the parties.  On April 25, 2017, Magistrate Judge Burke issued a Report and Recommendation recommending that the Court permit Mr. Kvint to intervene as Lead Plaintiff and grant leave to amend the complaint to replead the duty of loyalty claim only.  On May 16, 2017, Chief Judge Stark signed an Order adopting that Report and Recommendation.  Plaintiff Kvint filed a Corrected Amended Complaint on May 30, 2017.  On September 13, 2017, the Court entered an order dismissing with prejudice the claims against defendants Timothy S. O’Toole and Joel F. Gemunder and permitting Defendants to file a Motion to Dismiss the Corrected Amended Complaint. The matter has been fully briefed and argued. On February 26, 2019, Magistrate Judge Burke issued a Report and Recommendations recommending that Defendants' motion to dismiss the amended complaint be granted. Any objections to that Report are due March 12, 2019, and any responses thereto are due March 26, 2019.  The Court will then decide whether to accept the Report and Recommendations.  As the Company has previously disclosed, the legal fees and costs associated with defending against this lawsuit are presently being paid by insurance.  For additional procedural history of this litigation, please refer to our prior quarterly and annual filings.

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On October 30, 2017, the Company entered into a settlement agreement (the “Settlement Agreement”) to resolve civil litigation under the False Claims Act brought by the United States Department of Justice (“DOJ”) on behalf of the OIG and various relators concerning VITAS, filed in the U.S. District Court of the Western District of Missouri (the “2013 Action”).  The Company denied any violation of law and agreed to settlement without admission of wrongdoing.

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

Under the Settlement Agreement, the United States agreed to release the Company, VITAS, and its hospice operation subsidiaries from any civil or administrative monetary liability relating to any patients’ disputed terminal medical prognosis of six months or less; a lack of medical necessity for billed Continuous Home Care, General Inpatient Care, or Respite Care levels of hospice care; or that the claims for those levels of hospice care were not eligible for payment for any other reason.  The OIG agreed, conditioned on the Company’s full payment and in consideration of VITAS’ obligations under the CIA, to release its permissive exclusion rights and refrain from instituting any administrative action seeking to exclude the Company, VITAS, and its affiliates from participating in Medicare, Medicaid, or other federal healthcare programs in this regard.

Under the Settlement Agreement, the Company paid $75 million plus interest, plus certain attorney fees and expenses of qui tam relators.  The Company made these payments during the fourth quarter of 2017.  The Company previously recorded a $90 million loss reserve ($55.8 million after-tax) related to the Settlement Agreement, and associated costs in the second quarter of 2017.  During the fourth quarter of 2017, approximately $5.5 million ($3.4 million after-tax) recorded as part of the $90 million was reversed as relator attorney' fees were less than originally estimated

The costs incurred related to U.S. v. VITAS and related regulatory matters, exclusive of the settlement were $5.2 million and $5.3 million for 2017, and 2016 respectively.

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

On November 14, 2016, the Parties filed a Stipulation to transfer the venue of the lawsuit from San Francisco to Los Angeles.  The Los Angeles Superior Court Complex Division accepted transfer of the case on December 6, 2016 and stayed the case.  On December 16, 2016, VITAS CA filed its Answer and served written discovery on Seper.

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

22


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

There are currently three other lawsuits against VITAS pending in the superior courts of other California counties that contain claims and class periods that substantially overlap with Phillips’ and Moore’s claims: the Jordan Seper and Jiwann Chhina cases, and Williams v. VITAS Healthcare Corporation of California, filed on May 22, 2017 in Alameda County Superior Court, RG 17853886.

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

The Jordan Seper and Jiwann Chhina cases have been consolidated in Los Angeles County Superior court; Chhina was dismissed as a separate action and joined with Seper through the filing of an amended complaint in Seper in which Chhina is also identified as a named plaintiff, on August 28, 2018.

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

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

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

23


Item 4.  Mine Safety Disclosures

None

Executive Officers of the Company

Name
 
Age
 
Office
 
First Elected
Kevin J. McNamara
 
65
 
President and Chief Executive Officer
 
August 2, 1994 (1)
David P. Williams
 
58
 
Executive Vice President and Chief Financial Officer
 
March 5, 2004 (4)
Spencer S. Lee
 
63
 
Executive Vice President
 
May 15, 2000 (3)
Nicholas M. Westfall
 
40
 
Executive Vice President
 
June 16, 2016 (2)
Naomi C. Dallob
 
65
 
Vice President and Chief Legal Officer
 
May 4, 1987 (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. D.P. Williams is an Executive Vice President and the Chief Financial Officer of the company and has held these positions since August 2007 and March 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.
(3)
Mr. S.S. Lee is an Executive Vice President of the Company and has held this position since May 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. N.M. Westfall is an Executive Vice President of the Company and has held this position since June 2016.  He is also Chief Executive Officer of VITAS, a wholly owned subsidiary of the Company, and has held this position since June 2016.  Previously, from May 2015 to June 2016, he also served as Chief Operating Officer of VITAS.  Previously, he served as Senior Vice President of VITAS from April 2012 to April of 2015.  Prior to that he served as Director of Information Technology and Operations for Chemed from May 2009 to April 2012.
(5)
Ms. N.C. Dallob is a Vice President and the Secretary and Chief Legal Officer of the Company.  She has held these positions since May 1987, May 1995, and May 2009, respectively.  From May 1986 to May 1995 she held the position of Assistant Secretary 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 20, 2019.

PART II

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

The Company has historically paid cash dividends quarterly.  However, 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 15, 2019, there were approximately 1,607 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.

24


During 2018, 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 Average
   
Cumulative Shares
   
Dollar Amount
 
   
of Shares
   
Price Paid Per
   
Repurchased Under
   
Remaining Under
 
   
Repurchased
   
Share
   
the Program
   
The Program
 
                         
February 2011 Program
                       
January 1 through January 31, 2018
   
-
   
$
-
     
7,815,718
   
$
55,533,344
 
February 1 through February 28, 2018
   
96,890
     
258.26
     
7,912,608
     
30,510,279
 
March 1 through March 31, 2018
   
203,110
     
276.22
     
8,115,718
   
$
124,407,848
 
                                 
First Quarter Total
   
300,000
   
$
270.42
                 
                                 
April 1 through April 30, 2018
   
-
   
$
-
     
8,115,718
   
$
124,407,878
 
May 1 through May 31, 2018
   
-
     
-
     
8,115,718
     
124,407,878
 
June 1 through June 30, 2018
   
10,000
     
317.86
     
8,125,718
   
$
121,229,007
 
                                 
Second Quarter Total
   
10,000
   
$
317.86
                 
                                 
July 1 through July 31, 2018
   
10,249
   
$
314.49
     
8,135,967
   
$
118,005,847
 
August 1 through August 31, 2018
   
39,751
     
315.87
     
8,175,718
     
105,449,705
 
September 1 through September 30, 2018
   
70,622
     
309.99
     
8,246,340
   
$
83,557,343
 
                                 
Third Quarter Total
   
120,622
   
$
312.31
                 
                                 
October 1 through October 31, 2018
   
2,586
   
$
313.03
     
8,248,926
   
$
82,747,856
 
November 1 through November 30, 2018
   
-
     
-
     
8,248,926
     
82,747,856
 
December 1 through December 31, 2018
   
127,938
     
282.16
     
8,376,864
   
$
46,649,495
 
                                 
Fourth Quarter Total
   
130,524
   
$
282.77
                 


On March 6, 2018, our Board of Directors authorized an additional $150 million under February 2011 Repurchase Program.

25


As of December 31, 2018, 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)
   
1,443,770
   
$
175.68
     
1,607,637
 


(1)
Amount includes 48,736 shares allocated to certain employees which vest upon attainment of specified earnings per share targets and specified total shareholder return targets.

26


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, 2013, to December 31, 2018, assuming dividend reinvestment, and (B) the difference between the Company’s share price at December 31, 2013 and December 31, 2018; by (ii) the share price at December 31, 2013) 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
2013
2014
2015
2016
2017
2018
Chemed Corporation
100.00
139.13
198.60
214.24
326.34
381.85
S&P 500
100.00
113.69
115.26
129.05
157.22
150.33
Dow Jones Diversified Industrials
100.00
101.05
114.02
126.52
118.18
88.53

27


Item 6.  Selected Financial Data

The information called for by this Item for the five years ended December 31, 2018 is set forth on page 95 of the 2018 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 99 through 119 of the 2018 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 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, 2018 is approximately $89.2 million which equals the carrying value 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, 2019, appearing on pages 60 through 92 of the 2018 Annual Report to Stockholders, along with the Supplementary Data (Unaudited Summary of Quarterly Results) appearing on pages 93-94, 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 60 through 62 of the Company’s 2018 Annual Report to Stockholders, which are incorporated herein by reference.

28


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, 2018 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 2019 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 2019 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 2019 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 2019 Proxy Statement, which is incorporated herein by reference.

Item 14. Principal Accountant Fees and Services

Audit Fees

PricewaterhouseCoopers LLP charged the Company $2,091,000 for 2017 and $2,205,000 for 2018.  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.

29


Audit-Related Fees

PricewaterhouseCoopers LLP charged the Company $137,000 and $141,000 for 2017 and 2018, 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 2017 or 2018.

All Other Fees

No such other services were rendered in 2017 or 2018.

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.

30


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, dated May 15, 2006.*
     
3.3
 
By-Laws of Chemed Corporation, as amended February 17, 2017
     
10.1
 
2006 Stock Incentive Plan, as amended August 11, 2006.*,**
     
10.2
 
2010 Stock Incentive Plan.*,**
     
10.3
 
2015 Stock Incentive Plan*,**
     
10.4
 
2018 Stock Incentive Plan**
     
10.5
 
Employment Agreement with David P. Williams dated December 1, 2006.*,**
     
10.6
 
First Amendment to Employment Agreement with David P. Williams dated July 9, 2009.*,**
     
10.7
 
Consulting Agreement with Timothy S. O'Toole dated June 16, 2016.
     
10.8
 
Employment Agreement with Kevin J. McNamara dated May 3, 2008.*,**
     
10.9
 
First Amendment to Employment Agreement with Kevin J. McNamara dated July 9, 2009.*,**
     
10.10
 
Excess Benefits Plan, as restated and amended, effective June 1, 2001.*,**
     
10.11
 
Amendment No. 1 to Excess Benefits Plan, effective July 1, 2001.*,**
     
10.12
 
Amendment No. 2 to Excess Benefits Plan, effective November 7, 2003.*,**
     
10.13
 
Non-Employee Directors’ Deferred Compensation Plan.*,**
     
10.14
 
Chemed/Roto-Rooter Savings & Retirement Plan, effective January 1, 1999.*,**
     
10.15
 
First Amendment to Chemed/Roto-Rooter Savings & Retirement Plan, effective September 6, 2000.*,**
     
10.16
 
Second Amendment to Chemed/Roto-Rooter Savings & Retirement Plan, effective January 1, 2001.*,**
     
10.17
 
Third Amendment to Chemed/Roto-Rooter Savings & Retirement Plan, effective December 12, 2001.*,**
     
10.18
 
Directors Emeriti Plan.*,**
     
10.19
 
Chemed Corporation Change in Control Severance Plan, as amended August 3, 2018.**
     
10.20
 
Chemed Corporation Senior Executive Severance Policy, as amended August 3, 2018**
     
10.21
 
Roto-Rooter Deferred Compensation Plan No. 1, as amended January 1, 1998.*,**
     
10.22
 
Roto-Rooter Deferred Compensation Plan No. 2.*,**
     
10.23
 
Form of Performance-Based Restricted Stock Units Award*,**
     
10.24
 
Form of Restricted Stock Award.*,**
     
10.25
 
Form of Stock Option Grant, pre-2013.*,**
     
10.26
 
Form of Stock Option Grant, 2013.*,**
     
10.27
 
Form of Stock Option Grant, 2015. *,**

31


10.28
 
Settlement Agreement, effective October 30, 2017 by and among the United States of America, acting through the United States Department of Justice and on behalf of the Office of the Inspector General of the Department of Health and Human Services, VITAS Hospice Services, L.L.C., VITAS Healthcare Corporation, VITAS Healthcare Corporation of California, VITAS Healthcare Corporation of Illinois, VITAS Healthcare Corporation of Florida, Vitas Healthcare Corporation of Ohio, VITAS Healthcare Corporation of Atlantic, VITAS Healthcare of Texas, L.P., VITAS Healthcare Corporation Midwest, VITAS Healthcare Corporation of Georgia, Chemed Corporation, and the various Relators named therein.
     
10.29
 
Corporate Integrity Agreement, effective October 30, 2017  between the Office of Inspector General of the Department of Health and Human Services and VITAS Hospice Services, L.L.C., VITAS Healthcare Corporation, VITAS Healthcare Corporation of California, VITAS Healthcare Corporation of Illinois, VITAS Healthcare Corporation of Florida, VITAS Healthcare Corporation of Ohio, VITAS Healthcare Corporation of Atlantic, VITAS Healthcare of Texas, L.P., VITAS Healthcare Corporation Midwest and VITAS Healthcare Corporation of Georgia.
     
10.30
 
Fourth Amended and Restated Credit Agreement by and among Chemed Corporation, JP Morgan Chase Bank NA, and other lenders as of June 30, 2018, exhibits and schedules thereto.*
     
13
 
2018 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 Michael D. Witzeman pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act of 1934.
     
32.1
 
Certification by Kevin J. McNamara pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
32.2
 
Certification by David P. Williams pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
32.3
 
Certification by Michael D. Witzeman pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
101.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.

32


Item 16. Form 10-K Summary

             Not applicable.


33


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, 2019
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/ Michael D. Witzeman
Michael D. Witzeman
Vice President and
Controller
(Principal Accounting
Officer)
 
     
February 27, 2019
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, 2019
 
/s/ Naomi C. Dallob
Date
 
Naomi C. Dallob
(Attorney-in-Fact)

34


CHEMED CORPORATION AND SUBSIDIARY COMPANIES

INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
2016, 2017 AND 2018

 
Page
(s)
Chemed Corporation Consolidated Financial
   Statements and Financial Statement Schedule
 
 
   
Report of Independent Registered Public Accounting Firm 60*
Consolidated Statements of Income 63*
Consolidated Balance Sheets 64*
Consolidated Statements of Cash Flows 65*
Consolidated Statements of Changes in Stockholders’ Equity 66*
Notes to Consolidated Financial Statements 67-92*
   
Report of Independent Registered Public Accounting Firm on
Financial Statement Schedule
S-2
Schedule II Valuation and Qualifying Accounts S-3


*            Indicates page numbers in Chemed Corporation 2018 Annual Report to Stockholders

The consolidated financial statements of Chemed Corporation listed above, appearing in the 2018 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
35


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 referred to in our report dated February 27, 2019 appearing in the 2018 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 schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 2018 appearing under Schedule II 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
Cincinnati, Ohio
February 27, 2019

S-2

36


                           
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 2018
 
$
(15,175
)
 
$
(247
)
 
$
(1,436
)
 
$
16,605
   
$
(253
)
                                         
  For the year 2017
 
$
(14,236
)
 
$
(17,376
)
 
$
(1,360
)
 
$
17,797
   
$
(15,175
)
                                         
  For the year 2016
 
$
(13,244
)
 
$
(16,420
)
 
$
(1,518
)
 
$
16,946
   
$
(14,236
)
 

(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 sheets as a reduction of accounts receivable.
 
37


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
Form 8-K
3.1
  Incorporation, dated May 15, 2006 5/16/06
       
 3.3
Form 8-K
 
  as amended February 17, 2017 2/17/17
       
10.1
Form 10-Q
10.1
  as amended August 11, 2006 8/14/06, **
       
10.2
Form 8-K
99.1
   
5/18/10, **

       
10.3
2015 Stock Incentive Plan Form S-8 4.5
   
7/15/15, **
 
       
10.4
2018 Stock Incentive Plan Form S-8 4.5
   
5/23/18, **
 
       
10.5
Form 8-K
10.01

P. Williams dated December 1, 2006 12/1/06, **  
       
10.6
Form 10-Q
10.2
  Agreement with David P. Williams
10/30/09, **

dated July 9, 2009.    
       
10.7
Form 8-K
10.02

Timothy S. O’Toole dated 5/7/07, **  

May 6, 2007.
   
       
10.8
Form 10-Q
10.3
  Agreement with Timothy S.
10/30/09, **
  O’Toole dated July 9, 2009.
 
       
10.9
Form 8-K
10.1
  Timothy S. O’Toole dated
6/8/16, **
  June 16, 2016.

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

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

 

38


10.12
Form 10-K
10.24

and amended, effective June 1, 2001 3/12/04, **  
       
10.13
Form 10-K
10.25

Plan, effective July 1, 2002 3/12/04, **
 
       
10.14
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
Form 10-K
10.25

Retirement Plan, effective 3/25/99, **
 

January 1, 1999
   
       
10.17
Form 10-K
10.22

Roto-Rooter Savings & Retirement 3/28/02, **
 

Plan effective September 6, 2000
   
       
10.18
Form 10-K
10.23

Roto-Rooter Savings & Retirement 3/28/02, **
 

Plan effective January 1, 2001
   
       
10.19
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    

Plan as amended August 3, 2018. **  
       
10.22
Senior Executive Severance **
 

Policy as amended August 3, 2018.    
       
10.23
Form 10-K
10.37

Plan No. 1, as amended January 1, 1998 3/28/01, **
 
       
10.24
Form 10-K
10.38
  Plan No. 2
3/28/01, **
       
10.25
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 10-K
10.51
    3/28/05, **

       
10.28
Form 10-K
10.35
    2/27/14, **

       
10.29
Form 10-K
10.30
    2/26/16,**


39


10.30
Form 8-K
10.01
  by and among the United States of America,
11/2/17
  acting through the United States Department of

 
  Justice and on behalf of the Office of Inspector

 
  General of the Department of Health and Human

 
  Services, VITAS Hospice Services, L.L.C., VITAS

 
  Healthcare Corporation, VITAS Healthcare Corporation

 
  Of California, VITAS Healthcare Corporation of Illinois,

 
  VITAS Healthcare Corporation of Florida, VITAS Healthcare

 
  Corporation of Ohio, VITAS Healthcare Corporation of

 
  Atlantic, VITAS Healthcare of Texas, L.P., VITAS

 
  Healthcare Corporation Midwest, VITAS Healthcare

 
  Corporation of Georgia, Chemed Corporation, and the

 
  various Relators named therin.2

 
       
10.31
Form 8-K
10.02
  October 30, 2017 between the Office of
11/2/17
  Inspector General of the Department of Health and

 
  Human Services and VITAS Hospice Services, L.L.C,

 
  VITAS Healthcare Corporation, VITAS Healthcare

 
  Corporation of California, VITAS Healthcare Corporation

 
  of Illinois, VITAS Healthcare Corporation of Florida,

 
  VITAS Healthcare Corporation of Ohio, VITAS

 
  Healthcare Corporation of Atlantic, VITAS

 
  Healthcare of Texas, L.P., VITAS Healthcare

 
  Corporation Midwest, and VITAS Healthcare Corporation

 
  of Georgia.

 
       
10.32
Form 8-K
10.1
  Agreement by and among Chemed Corporation,
6/22/18
  JP Morgan Chase Bank NA, and other lenders

 
  As of June 20, 2018 exhibits and schedules thereto.

 
       
13
*
 
       
14
Form 10-K
14
 
2/27/14
 
       
21
*

       
23
*

  Public Accounting Firm

 
       
24
*

       
31.1
*
 

pursuant to Rule 13a-14(a)/15d-14(a)
   

of the Exchange Act of 1934.
   
       
31.2
Certification by David P. Williams
*


pursuant to Rule 13a-14(a)/15d-14(a)
   
  of the Exchange Act of 1934.

 
       
31.3
Certification by Michael D. Witzeman
*


pursuant to Rule 13a-14(a)/15d-14(a)
   

of the Exchange Act of 1934.
   
       
32.1
*

  pursuant to Section 906 of the

 
  Sarbanes-Oxley Act of 2002

 
       
32.2
*

  pursuant to Section 906 of the

 
  Sarbanes-Oxley Act of 2002

 
       
32.3
*

  pursuant to Section 906 of the

 

Sarbanes-Oxley Act of 2002
   

40


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.

41
EX-10.19 2 a51945094ex10_19.htm EXHIBIT 10.19

EXHIBIT 10.19
 
CHEMED CORPORATION
CHANGE IN CONTROL SEVERANCE PLAN
AS AMENDED AUGUST 3, 2018
 

ESTABLISHMENT AND AMENDMENT OF PLAN
 
As of the Effective Date, the Company (as such term is hereinafter defined) established the Chemed Corporation Change in Control Severance Plan, as set forth in this document.  As of the Amendment Date, the Company amended the Plan to provide that the tax gross-up provisions in Section 6.3 shall apply only to those individuals who were Participants in the Plan on the Amendment Date and not to anyone designated as a Participant following the Amendment Date (all such terms are hereinafter defined).
 

PURPOSE
 
Chemed Corporation, by means of this Change in Control Severance Plan, desires to provide Participants (as such term is hereinafter defined) with certain severance protections in the event of a Change in Control of the Company (as both terms are hereinafter defined) in order to minimize the personal financial concerns and to promote the best interests of the Company and any successor.
 

DEFINITIONS
 
As used herein, the following words and phrases shall have meanings set forth below (unless the context clearly indicates otherwise):
 
Administrative Committee” shall mean the Compensation/ Incentive Committee of the Board of Directors or such other committee as determined by the Board of Directors.
 
Affiliate” shall mean an entity directly or indirectly controlled by, controlling, or under common control with the Company.
 
Amendment Date” shall mean August 3, 2018.
 
Annual Bonus” shall mean the average of the amounts of the Participant’s bonuses under an Employer’s annual bonus plan paid or payable for the last three full fiscal years prior to the Change in Control Date, or if more favorable to the Participant, the Date of Termination.  The amount shall include any annual bonus or portion thereof which has been earned but deferred, and in the event that the Participant was not employed by an Employer for the whole of a particular fiscal year and such amount received by the Participant was reduced pro-rata to reflect this fact, the amount shall be annualized.
 
Base Salary” shall mean the amount a Participant is entitled to receive from an Employer in cash as wages or salary on an annualized basis in consideration for his or her services, including any such amounts which may have been deferred, but excluding all other elements of compensation such as, without limitation, any bonus, commissions, overtime, health benefits, perquisites, and incentive compensation.
 
Beneficiary” shall mean those designated by the Participant, or if not so designated:
 
42


with respect to a Participant who was married at the time of death, his or her surviving spouse; and
 
with respect to a Participant who was not married at the time of death, the legal representative of the Participant’s estate under the laws of the state of the Participant’s domicile at the time of death.
 
Board” shall mean the Board of Directors of the Company.
 
Cause” shall mean, with respect to a Participant’s termination of employment: (a) the willful and repeated failure of the Participant to perform substantially the Participant’s duties with an Employer (other than any such failure resulting from incapacity due to physical or mental illness); (b) the Participant’s conviction of, or plea of guilty or nolo contendere to, which through lapse of time or otherwise is not subject to appeal, a felony which is materially and demonstrably injurious to an Employer; or (c) the Participant’s engagement in willful gross misconduct or gross negligence in connection with his or her employment.
 
Change in Control” shall mean the first to occur of any of the following events after the Effective Date:
 
the direct or indirect acquisition by any person, corporation, entity, or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 (the “Exchange Act”)) (a “Person”) of the beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or more of either the then outstanding capital stock of the Company (“Outstanding Capital Stock”) or the combined voting power of the then outstanding voting securities of the Company entitled to vote in the election of members of the Board (“Outstanding Voting Securities”) in a single transaction or series of transactions; provided, however, that the following acquisitions shall not constitute a Change in Control:
 
an acquisition from the Company or an Affiliate;
 
an acquisition by the Company or an Affiliate;
 
an acquisition by an employee benefit plan or related trust sponsored or maintained by the Company or an Affiliate; or
 
an acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii), and (iii) of Subsection (c) of this Section 3.8;

Individuals who, as of the Effective Date, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board, provided, however, that any individual becoming a Board member subsequent to the Effective Date whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the Board members then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of Board members or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board;
 
the consummation of a reorganization, merger, consolidation, or similar transaction to which the Company is a party (a “Business Combination”), unless following such Business Combination: (i)  the Company is the surviving corporation of such Business Combination, (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan or related trust of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 30% or more of, respectively, the then outstanding capital stock or the combined voting power of the then outstanding voting securities entitled to vote in the election of members of the board, as the case may be, of the corporation resulting from such Business Combination, except to the extent that such ownership existed prior to such Business Combination; and (iii) individuals who were members of the Incumbent Board constitute at least a majority of the members of the board of the corporation resulting from such Business Combination;
 
43


the approval by the shareholders of the Company of a plan for the complete liquidation or dissolution of the Company or the sale of all or substantially all of the assets of the Company; or
 
any other transaction that the Administrative Committee deems to be a Change in Control, which the Administrative Committee can deem to apply to all Participants or only those Participants it selects.
 
Change in Control Date” shall mean the date on which a Change in Control occurs.
 
Company” shall mean Chemed Corporation and any successor thereto.
 
Date of Termination” shall mean the date on which a Participant’s employment with all Employers terminates.
 
“Disability” shall mean, with respect to a Participant’s termination of employment due to Disability: (a) a disability entitling the Participant to long-term disability benefits under the applicable long-term disability plan of the Company or an Affiliate or such other long-term disability plan under which the Participant is entitled to long-term disability benefits; or (b) if the Participant is not covered by such a plan, a physical or mental condition or illness that renders a Participant totally and permanently incapable of performing the Participant’s duties for the Company or an Affiliate for a total of 180 days or more during any consecutive 12-month period.
 
Effective Date” shall mean December 1, 2006.
 
Employee” shall mean any full-time employee of an Employer.
 
Employer” shall mean the Company or any of its Affiliates.
 
Good Reason” shall mean, with respect to any Participant, the occurrence of any of the following events after expiration of a 30-day cure period afforded the Company to remedy any of the following events claimed by the Participant following a Change in Control Date, or prior to a Change in Control Date if any such events can be reasonably demonstrated to have occurred in connection with, or in anticipation of, a Change in Control:
 
a material diminution in the nature and scope of the Participant’s responsibilities, authorities, powers, functions, or duties from the most significant of those responsibilities, authorities, powers, functions, or duties exercised by, and assigned to, the Participant at any time during the 120-day period prior to the Change in Control Date, other than an isolated, insubstantial, and inadvertent action not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Participant;
 
a material reduction in the Participant’s Base Salary below the Required Base Salary, other than an isolated, insubstantial, and inadvertent reduction not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Participant;
 
a material reduction in bonus under any current or subsequent annual bonus plan available to the Participant below the average of the Participant’s bonuses under an Employer’s annual bonus plan for the last three full fiscal years prior to the Change in Control Date;
 
a material reduction in equity-based or other long-term incentive compensation opportunity below that in effect for the Participant during the 120-day period prior to the Change in Control Date;
 
a material reduction in the aggregate level of employee benefits offered to the Participant in comparison to the most favorable of such employee benefit programs and arrangements in effect for the Participant during the 120-day period prior to the Change in Control Date, other than any across-the-board reduction applicable to all Employees and other than an isolated, insubstantial, and inadvertent reduction not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Participant; or
 
44


a change at the request of an Employer in the Participant’s principal work location to a work location that is more than 50 miles from any location where the Participant was based during the 120-day period prior to the Change in Control Date, or an Employer’s requiring the Participant to travel on Employer business to a substantially greater extent than required during the 120-day period prior to the Change in Control Date; or
 
receipt of notice of Company’s intention to cancel or not renew any employment agreement of a Tier 1 Participant during the first year following a Change in Control.
 
Participant” shall mean an Employee who is designated in Appendix A hereto to participate in the Plan or who may be added to such appendix from time to time by the Administrative Committee.
 
Plan” shall mean the Chemed Corporation Change in Control Severance Plan.
 
Required Base Salary” shall mean, with respect to any Participant, the higher of: (a) the Participant’s highest Base Salary as in effect during the 120-day period prior to the Change in Control Date; and (b) the Participant’s highest Base Salary in effect at any time thereafter.
 
Severance Benefits” shall mean the payments and benefits provided in accordance with Section 6.2 of the Plan.
 
Severance Period” shall mean a period beginning on the Date of Termination with a duration in years equal to the severance multiple the Participant is entitled to receive under Section 6.2(a).
 

ADMINISTRATION
 
Administration.  Subject to the express provisions of the Plan, the Administrative Committee shall have the authority to interpret the Plan, to prescribe, amend, and rescind rules and regulations relating to it, and to make all other determinations deemed necessary or advisable for the administration of the Plan.  The determinations of the Administrative Committee pursuant to its authority under the Plan shall be conclusive and binding.
 

DURATION OF PARTICIPATION
 
Duration of Participation.  A Participant shall cease to be a Participant in the Plan when he or she no longer is an Employee of any Employer.  Notwithstanding the foregoing, a Participant who is entitled, as a result of ceasing to be an Employee of an Employer, to receipt of Severance Benefits or any other amounts under the Plan shall remain a Participant in the Plan until the full amount of the Severance Benefits and any other amounts payable under the Plan have been paid to the Participant.
 

SEVERANCE BENEFITS
 
Right to Severance Benefits.
 
Terminations Which Give Rise to Severance Benefits.  A Participant shall be entitled to receive Severance Benefits as provided in Section 6.2, if a Change in Control has occurred and the Participant’s employment with an Employer is terminated under the following circumstances:  (i) by action of the Employer, unless the termination is for Cause; or (ii) by action of the Participant within 90 days after the occurrence of an event constituting Good Reason; provided, in either event, that (x) such termination occurs after such Change in Control and on or before the second anniversary thereof, or (y) the termination described in clause (i) above or the event constituting Good Reason giving rise to the termination described in clause (ii) above, as applicable, occurs before such Change in Control but the Participant can reasonably demonstrate that such termination or event, as applicable, occurred in connection with, or in anticipation of, a Change in Control.  Severance Benefits or any other amounts otherwise payable to a Participant under the Plan shall be conditioned upon execution of a general release of claims in favor of the Company in a form satisfactory to the Company’s counsel.
 
45


Terminations Which Do Not Give Rise to Severance Benefits.  If a Participant’s employment is terminated: (i) by an Employer for Cause; (ii) due to the Participant’s death or Disability; or (iii) by the Participant other than for Good Reason, the Participant shall not be entitled to the Severance Benefits under the Plan, regardless of the occurrence of a Change in Control.
 
Severance Benefits.
 
In General.  If a Participant’s employment is terminated in circumstances entitling him or her to Severance Benefits as provided in Section 6.1(a), the Company shall pay such Participant (or in the event of a Participant’s death following entitlement to Severance Benefits, his or her Beneficiary), an amount equal to three times for Tier 1 Participants and two times for Tier 2 Participants, the sum of the Participant’s: (i) Required Base Salary; and (ii) Annual Bonus.  In addition, Participant shall receive an amount equal to the product of the Participant’s: (x) Annual Bonus; and (ii) a fraction, the numerator of which is the number of days in the fiscal year through the Date of Termination and the denominator of which is 365, if such termination occurs in a fiscal year other than the fiscal year of the Change in Control.  All such payments shall be made in a lump sum in cash within 10 days after the Date of Termination, but in no event later than the following March 15.  Regardless of termination, a Participant shall receive an amount equal to the Participant’s Annual Bonus within 10 days after the Change in Control Date.
 
Payment shall be made in a lump sum in cash.
 
Welfare Benefits; Retirement Plans; Perquisites.  In addition, a Participant entitled to Severance Benefits pursuant to Section 6.1(a) will continue to be provided with health insurance, life insurance, long-term care insurance and long-term disability benefits comparable to the benefits provided to the Participant immediately prior to the Date of Termination, or if more favorable to the Participant, the Change in Control, for the duration of the Severance Period, with no increase in the Employee’s contribution rate on the Date of Termination (without giving effect to any rate increase after the Change in Control which constitutes or may constitute Good Reason); provided that if the Participant is precluded from continuing his or her participation in any applicable plan, program, or arrangement, the Participant shall be provided with the after-tax cost of continuation of such coverage, including premiums under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, (“COBRA Premiums”), for the Participant with respect to the benefits provided under such plan, program, or arrangement, paid as a lump sum payment within 10 days after Termination, but in no event later than the following March 15.  Any benefits so provided shall not be considered a continuation of coverage as provided under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended.  A Participant entitled to Severance Benefits pursuant to Section 6.1(a) shall also receive a lump sum payment in cash within 10 days after the Change in Control but in no event later than the following March 15, equal to the Employer contributions that would have been made on the Participant’s behalf pursuant to the Company’s qualified and non-qualified defined contribution retirement plans, assuming continued participation on the same basis as immediately prior to the Date of Termination, or if more favorable to the Participant, the Change in Control, which the Participant would have received if the Participant’s employment had continued during the Severance Period, assuming that the Participant’s compensation for each year during such period is as in effect immediately prior to the Date of Termination, or if more favorable to the Participant, the Change in Control, and that the Employer contributions are determined pursuant to the applicable plans as in effect immediately prior to the Date of Termination, or if more favorable to the Participant, the Change in Control.  A Participant entitled to Severance Benefits pursuant to Section 6.1(a) will continue to be provided with a cash payment equal to the value to the Participant of perquisites comparable to those provided to the Participant immediately prior to the Date of Termination, or if more favorable to the Participant, the Change in Control, for the duration of the Severance Period.  Such cash payment shall be paid in a lump sum within 10 days of Termination, but in no event later than the following March 15.  If the Participant becomes reemployed with another employer and is eligible to receive health insurance, life insurance, long-term care insurance or long-term disability coverage under another employer-provided plan (regardless of whether the Participant elects such coverage), the health insurance, life insurance, and long-term disability benefits provided pursuant to this section shall be secondary to those provided under such other plan during the applicable period of eligibility.  Long-term care insurance vests by its terms upon a Change in Control.
 
46


Equity Vesting.  In the event of a Change in Control (whether or not a Participant’s employment terminates): (i) any unvested portions of stock awards or options granted under the Company’s equity-based plans shall become fully vested upon the Change in Control; and (ii) any shares then unallocated under the Company’s equity-based plans shall then be allocated and distributed to such plan’s participants by the Compensation/Incentive Committee of the Company’s Board of Directors upon the Change in Control.
 
Outplacement.  A Participant entitled to Severance Benefits under Section 6.1(a) shall be entitled to receive outplacement assistance at an agency of his or her choice, in an amount not to exceed $25,000.00.  Such outplacement services must be used no later than December 31 of the second year following the year in which the Date of Termination occurred.
 
Certain Additional Payments by the Company to Grandfathered Participants.  This Section 6.3 shall apply only to those individuals who were Participants in the Plan on the Amendment Date and not to anyone designated as a Participant following the Amendment Date, other than with respect to defined terms that are used in Section 6.4.
 
In the event that any payment or benefit to the Participant or for the Participant’s benefit paid or payable or distributed or distributable pursuant to the terms of this Plan or otherwise in connection with, or arising out of, the Participant’s employment with an Employer or a change in ownership or effective control of the Company or of a substantial portion of its assets (a “Payment”), would be subject to the excise tax imposed by Section 4999 of the Code or any tax imposed by Section 409A of the Code, or any interest or penalties are incurred by the Participant with respect to such tax (such tax, together with any such interest and penalties, are hereinafter collectively referred to herein as the “Excise Tax”), then the Participant will be entitled to receive an additional payment (a “Gross-Up Payment”) in an amount such that after payment by the Participant of all taxes (including any income, payroll, interest or penalties imposed with respect to such taxes and the Excise Tax, other than interest and penalties imposed by reason of the Participant’s failure to file timely a tax return or pay taxes shown due on the Participant’s return, and including any Excise Tax imposed upon the Gross-Up Payment), the Participant retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.

An initial determination as to whether a Gross-Up Payment is required pursuant to this Plan and the amount of such Gross-Up Payment will be made at the Company’s expense by an accounting firm of recognized national standing selected by the Company (the “Accounting Firm”). The Accounting Firm will provide its determination (the “Determination”), together with detailed supporting calculations and documentation, to the Company and the Participant within five days prior to a Change in Control, or such other time as requested by the Company or by the Participant (provided the Participant reasonably believes that any of the Payments may be subject to the Excise Tax). If the Accounting Firm determines that no Excise Tax is payable by the Participant with respect to a Payment or Payments, it will furnish the Participant with an opinion reasonably acceptable to the Participant that no Excise Tax will be imposed with respect to any such Payment or Payments. Within 10 days of the delivery of the Determination to the Participant, the Participant will have the right to dispute the Determination (the “Dispute”). The Gross-Up Payment, if any, as determined pursuant to this Section 6.3(b) will be paid by the Company to the Participant within 5 days of the receipt of the Determination. The existence of the Dispute will not in any way affect the Participant’s right to receive the Gross-Up Payment in accordance with the Determination. If there is no Dispute, the Determination will be binding, final and conclusive upon the Company and the Participant, subject to the application of Section 6.3(c).
 
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As a result of uncertainty in the application of Sections 280G, 409A, and 4999 of the Code, it is possible that a Gross-Up Payment (or a portion thereof) will be paid which should not be paid (an “Excess Payment”) or that a Gross-Up Payment (or a portion thereof) which should be paid will not be paid (an “Underpayment”). An Underpayment will be deemed to have occurred (i) upon notice (formal or informal) to the Participant from any governmental taxing authority that the Participant’s tax liability (whether in respect of the Participant’s current taxable year or in respect of any prior taxable year) may be increased by reason of the imposition of the Excise Tax on a Payment or Payments with respect to which the Company has failed to make a sufficient Gross-Up Payment, (ii) upon a determination by a court, (iii) by reason of a determination by the Company (which will include the position taken by the Company on its federal income tax return) or (iv) upon the resolution of the Dispute to the Participant’s satisfaction. If an Underpayment occurs, the Participant will promptly notify the Company and the Company will promptly, but in any event at least 5 days prior to the date on which the applicable government taxing authority has requested payment, pay to the Participant an additional Gross-Up Payment equal to the amount of the Underpayment plus any interest and penalties (other than interest and penalties imposed by reason of the Participant’s failure to file timely a tax return or pay taxes shown due on the Participant’s return) imposed on the Underpayment. An Excess Payment will be deemed to have occurred upon a Final Determination (as hereinafter defined) that the Excise Tax will not be imposed upon a Payment or Payments (or portion thereof) with respect to which the Participant had previously received a Gross-Up Payment. A “Final Determination” will be deemed to have occurred when the Participant has received from the applicable government taxing authority a refund of taxes or other reduction in the Participant’s tax liability by reason of the Excise Payment and upon either (x) the date a determination is made by, or an agreement is entered into with, the applicable governmental taxing authority which finally and conclusively binds the Participant and such taxing authority, or in the event that a claim is brought before a court of competent jurisdiction, the date upon which a final determination has been made by such court and either all appeals have been taken and finally resolved or the time for all appeals has expired or (y) the statute of limitations with respect to the Participant’s applicable tax return has expired. If an Excess Payment is determined to have been made, the Participant will pay to the Company (but not less than 10 days after the determination of such Excess Payment and written notice has been delivered to the Participant) the amount of the Excess Payment plus interest at an annual rate equal to the Applicable Federal Rate provided for in Section 1274(d) of the Code from the date the Gross-Up Payment (to which the Excess Payment relates) was paid to the Participant until the date of repayment to the Company. The Participant will use reasonable cooperative efforts at the request of the Company to assist in the determination of the amount of any Excess Payment or Underpayment made to the Participant pursuant to this Plan.
 
All Payments are intended by Company and Participant to meet the requirements of Section 409A of the Code.  Consistent with the foregoing, all Gross-Up Payments payable pursuant to this Section 6.3 and any other amounts payable to any Participant pursuant to this Plan in respect of taxes shall be paid to the Participant as soon as practicable after the amount of the relevant tax has been determined and, in any event, no later than December 31 of the year immediately following the year in which the Participant remits the relevant taxes.

Certain Terms Applicable to Non-Grandfathered Participants.  This Section 6.4 shall apply only to those individuals who are designated as a Participant following the Amendment Date and not to anyone who was a Participant on the Amendment Date.
 
In the event it is determined by the Accounting Firm that part or all of any Payment to a Participant is subject to the Excise Tax, the amounts constituting “parachute payments” (within the meaning of Section 280G of the Code) which would otherwise be payable to the Participant or for the Participant’s benefit shall be reduced to the maximum amount that would not be subject to the Excise Tax (the “Reduced Amount”); provided that such amounts shall not be so reduced if the Accounting Firm determines that without such reduction, the Participant would be entitled to receive and retain, on a net after-tax basis (including, without limitation, any Excise Tax), an amount which is greater than the amount, on a net after-tax basis, that the Participant would be entitled to retain upon receipt of the Reduced Amount.  In connection with making determinations under this Section 6.3(a), the Accounting Firm shall take into account any positions to mitigate any Excise Tax, such as the value of any reasonable compensation for services to be rendered by the Participant before or after the Change in Control.
 
An initial determination by the Accounting Firm as to whether an Excise Tax would otherwise be payable and whether a Reduced Amount is applicable is required pursuant to this Plan.  The Accounting Firm will provide its Determination, together with detailed supporting calculations and documentation, to the Company and the Participant within five days prior to the Change in Control, or such other time as requested by the Company or by the Participant (provided the Company or the Participant reasonably believes that any of the Payments may be subject to the Excise Tax).  Within 10 days of the delivery of any Determination to the Participant, the Participant will have the right to Dispute.  If there is no Dispute, the Determination will be binding, final and conclusive upon the Company and the Participant, subject to the application of Section 6.4(d).
 
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If the Determination results in a reduction of the Payments that would otherwise be paid to the Participant, such reduction shall be first applied to reduce any cash Payments that the Participant would otherwise be entitled to receive (whether pursuant to this Plan or otherwise) and shall thereafter be applied to reduce other Payments (including benefits), in each case, in reverse order beginning with the Payments that are to be paid the furthest in time from the date of such Determination, unless, to the extent permitted by Section 409A of the Code, the Participant elects to have the reduction in Payments applied in a different order; provided that, in no event may such Payments be reduced in a manner that would result in subjecting the Participant to additional taxation under Section 409A of the Code.  Within ten business days following such Determination (or, if applicable, within ten business days following resolution of any Dispute pursuant to Section 6.4(b)), the Company shall pay or distribute to the Participant or for the Participant's benefit such amounts as are then due to the Participant under this Plan or otherwise and shall promptly pay or distribute to the Participant or for the Participant's benefit in the future such amounts as become due to the Participant under this Plan or otherwise.
 
As a result of the uncertainty in the application of Sections 280G and 4999 of the Code at the time of a Determination, it is possible that an Excess Payment or Underpayment may occur, in each case, consistent with the calculation of the Reduced Amount (if applicable) hereunder.  In the event that the Accounting Firm, based upon the assertion of a deficiency by the Internal Revenue Service against either the Company or the Participant which the Accounting Firm believes has a high probability of success, determines that an Excess Payment has been made, any such Excess Payment paid or distributed by the Company to or for the Participant’s benefit shall be repaid by the Participant to the Company together with interest at the applicable federal rate provided for in Section 1274(d) of the Code; provided, however, that no such repayment shall be required if and to the extent such deemed repayment would not either reduce the amount on which the Participant is subject to tax under Sections 1 and 4999 of the Code or generate a refund of such taxes.  In the event that the Accounting Firm, based on controlling precedent or substantial authority, determines that an Underpayment has occurred, any such Underpayment shall be promptly paid by the Company to or for the Participant's benefit together with interest at the applicable federal rate provided for in Section 1274(d) of the Code.  The Participant will use reasonable cooperative efforts at the request of the Company to assist in the determination of the amount of any Excess Payment or Underpayment made to the Participant pursuant to this Plan.

Other Benefits Payable.  The Severance Benefits provided pursuant to Section 6.2 above shall be provided in addition to, and not in lieu of, all other accrued or vested or earned but deferred compensation, rights, stock options, or other benefits which may be owed to a Participant by an Employer, with the exception of payments to be made under (a) the Chemed Corporation Senior Executive Severance Policy and (b) employment agreements for Tier 1 Participants.
 
Payment Obligations Absolute.  The obligations of the Company to pay the Severance Benefits described in Section 6.2 shall be absolute and unconditional and shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense, or other right which the Company or any Affiliate may have against any Participant.  In no event shall a Participant be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to a Participant under any of the provisions of this Plan, nor shall the amount of any payment hereunder be reduced by any compensation earned by a Participant as a result of employment by another employer, except with respect to the welfare benefits as provided under Section 6.2(c).
 

SUCCESSOR TO COMPANY
 
This Plan shall bind any successor of the Company, its assets, or its businesses (whether direct or indirect, by purchase, merger, consolidation, or otherwise), in the same manner and to the same extent that the Company would be obligated under this Plan if no succession had taken place.  In the case of any transaction in which a successor would not, by the foregoing provision or by operation of law, be bound by this Plan, the Company shall require such successor expressly and unconditionally to assume and agree to perform the Company’s obligations under this Plan, in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.  The term “Company,” as used in this Plan, shall mean the Company as hereinbefore defined and any successor or assignee to the business or assets which by reason hereof becomes bound by this Plan.
 
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AMENDMENT AND TERMINATION
 
Amendment and Termination.  The Plan may be terminated or amended in any respect by resolution adopted by a majority of the Administrative Committee, unless a Change in Control has previously occurred.  However, after the Administrative Committee has knowledge of a transaction or event that, if consummated, would constitute a Change in Control, this Plan may not be terminated or amended in any manner which would adversely affect the rights or potential rights of Participants, unless and until the Administrative Committee has determined that such potential Change in Control has been abandoned and will not be consummated, and the Administrative Committee does not have knowledge of another transaction or event that, if consummated, would constitute a Change in Control.  If a Change in Control occurs, the Plan shall no longer be subject to amendment or termination in any respect which adversely affects the rights of Participants.
 
Form of Amendment.  The form of any amendment or termination of the Plan shall be a written instrument signed by a duly authorized officer or officers of the Company, certifying that the amendment or termination has been approved by the Administrative Committee.  An amendment of the Plan in accordance with the terms hereof shall automatically effect a corresponding amendment to all Participants’ rights hereunder.  A termination of the Plan, subject to the terms hereof, shall automatically effect a termination of all Participants’ rights and benefits hereunder.
 

MISCELLANEOUS
 
Legal Fees and Expenses, Arbitration.  Each party shall pay their own legal fees incurred in connection with any enforcement of rights under this Plan.  Disputes arising under this Plan shall be subject to arbitration according to the rules of the American Arbitration Association.  The Company and Participant shall share equally any third party costs of such arbitration.
 
Employment Status.  This Plan does not constitute a contract of employment or impose on a Participant’s Employer any obligation to retain the Participant as an Employee, to change the status of the Participant’s employment, or to change the Company’s policies or those of its Affiliates regarding termination of employment.
 
Validity and Severability.  The invalidity or unenforceability of any provision of the Plan shall not affect the validity or enforceability of any other provision of the Plan, which shall remain in full force and effect, and any prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
 
Waiver.  The Company’s or a Participant’s failure to insist upon strict compliance with any provision of this Plan or the failure to assert any right the Company or a Participant may have hereunder shall not be deemed to be a waiver of such provision or right or any other provision or right of this Plan.
 
Governing Law.  The validity, interpretation, construction, and performance of the Plan shall in all respects be governed by the laws of the State of Ohio, without reference to its principles of conflict of law.
 
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Claims Procedure.  If an Employee or former Employee makes a written request alleging a right to receive benefits under the Plan or alleging a right to receive an adjustment in benefits being paid under the Plan, the Company shall treat it as a claim for benefits.  All claims for Severance Benefits under the Plan shall be sent to the Legal Department of the Company and must be received within 30 days after the Date of Termination.  If the Company determines that any individual who has claimed a right to receive Severance Benefits under the Plan is not entitled to receive all or any part of the benefits claimed, it will inform the claimant in writing of its determination and the reasons therefor in terms calculated to be understood by the claimant.  The notice will be sent within 30 days of the written request, unless the Company determines additional time, not exceeding 45 days, is needed.  The notice shall make specific reference to the pertinent Plan provisions on which the denial is based, and describe any additional material or information that is necessary.  Such notice shall, in addition, inform the claimant what procedure the claimant should follow to take advantage of the review procedures set forth below in the event the claimant desires to contest the denial of the claim.  The claimant may, within 90 days thereafter, submit in writing to the Company a notice that the claimant contests the denial of his or her claim by the Company and desires a further review.  The Company shall, within 30 days thereafter, review the claim and authorize the claimant to appear personally and review pertinent documents and submit issues and comments relating to the claim to the persons responsible for making the determination on behalf of the Company.  The Company will render its final decision with specific reasons therefor in writing and will transmit it to the claimant within 30 days of the written request for review, unless the Company determines additional time, not exceeding 45 days, is needed, and so notifies the Participant.  If the Company fails to respond to a claim filed in accordance with the foregoing within 30 days or any such extended period, the Company shall be deemed to have denied the claim.
 
Indemnification of Administrative Committee.  No member or agent of the Administrative Committee shall be personally liable for any action, determination, or interpretation made with respect to the Plan, and each member of the Administrative Committee shall be indemnified by the Company to the fullest extent permitted by applicable law and the governing instruments of the Company.
 
Unfunded Plan Status.  This Plan is intended to be an unfunded plan.  All payments pursuant to the Plan shall be made from the general funds of the Company, and no special or separate fund shall be established or other segregation of assets made to assure payment.  No Participant or other person shall have under any circumstances any interest in any particular property or assets of the Company as a result of participating in the Plan.  Notwithstanding the foregoing, the Company may (but shall not be obligated to) create one or more grantor trusts, the assets of which are subject to the claims of the Company’s creditors, to assist it in accumulating funds to pay its obligations under the Plan.

Tax Withholding.  Any payment provided for hereunder shall be paid net of any applicable tax withholding required under federal, state, local, or foreign law.
 
Nonalienation of Benefits.  Except as otherwise specifically provided herein, amounts payable under the Plan shall not be subject to any manner of anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution, or levy of any kind, either voluntary or involuntary, including any liability which is for alimony or other payments for the support of a spouse or former spouse, or for any other relative of a Participant, prior to actually being received by the person entitled to payment under the terms of the Plan.  Any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge, garnish, execute, or levy upon, otherwise dispose of any right to amounts payable hereunder, shall be null and void.
 
Facility of Payment.
 
If a Participant is declared an incompetent, and a conservator, guardian, or other person legally charged with his or her care has been appointed, any Severance Benefits to which such Participant is entitled may be paid to such conservator, guardian, or other person legally charged with his or her care;
 
If a Participant is declared an incompetent and a conservator, guardian, or other person charged with his or her care has not been appointed, the Administrative Committee may:  (i) require the appointment of a conservator or guardian; (ii) distribute any Severance Benefits to which such Participant is entitled to his or her spouse, with respect to a Participant who is married, or to such other relative of an unmarried Participant for the benefit of such Participant; or (iii) distribute any Severance Benefits to which such Participant is entitled directly to or for the benefit of such Participant.
 
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Gender and Number.  Except when the context indicates to the contrary, when used herein masculine terms shall be deemed to include the feminine, and the plural shall be deemed to include the singular.
 
Headings.  The headings of Articles and Sections are included solely for convenience of reference and are not to be used in the interpretation of the provisions of the Plan.
 
Equity-Based Plans.  No provision hereunder is intended to restrict acceleration of any interests granted under equity-based plans of the Company, in accordance with the terms of said plans.
 
Section 409A Matters.
 
The payments and benefits under this Plan are intended to be exempt from, or comply with, Section 409A of the Code, and to the maximum extent permitted this Plan shall be limited, construed and interpreted in accordance with such intent. Except as specifically set forth in Section 6.3 in respect of individuals who were Participants as of the Amendment Date, in no event whatsoever shall the Company or its Affiliates or their respective officers, directors, employees or agents be liable for any additional tax, interest or penalties that may be imposed on a Participant or damages for failing to comply with Section 409A of the Code under this Plan.
 
Notwithstanding any other provision of this Plan to the contrary, to the extent that any reimbursement of expenses constitutes nonqualified deferred compensation subject to Section 409A of the Code, such reimbursement shall be provided no later than December 31 of the year following the year in which the expense was incurred (or, where applicable, no later than such earlier time required by this Plan). To the extent required by Section 409A of the Code, (i) the amount of expenses reimbursed in one year shall not affect the amount eligible for reimbursement in any subsequent year, (ii) the amount of any in-kind benefits provided in one year shall not affect the amount of in-kind benefits provided in any other year and (iii) any right to such reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit.
 
For purposes of Section 409A of the Code (including, without limitation, for purposes of Treasury Regulation Section 1.409A-2(b)(2)(iii)), the right to receive payments in the form of installment payments shall be treated as a right to receive a series of separate payments and, accordingly, each installment payment shall at all times be considered a separate and distinct payment.
 
Notwithstanding any other provision of this Plan to the contrary, if, at the time of a Participant's separation from service (as defined in Section 409A of the Code), the Participant is a “Specified Employee”, then the Company will defer the payment or commencement of any nonqualified deferred compensation subject to Section 409A of the Code payable upon separation from service (without any reduction in such payments or benefits ultimately paid or provided to the Participant) until the date that is six months following separation from service or, if earlier, the earliest other date as is permitted under Section 409A of the Code (and any amounts that otherwise would have been paid during this deferral period will be paid in a lump sum on the day after the expiration of the six-month period or such shorter period, if applicable).
 
Notwithstanding anything in this Plan or elsewhere to the contrary, a termination of employment shall not be deemed to have occurred for purposes of any provision of this Plan providing for the payment of any amounts or benefits that constitute nonqualified deferred compensation subject to Section 409A of the Code upon or following a termination of the Participant's employment unless such termination is also a “separation from service” within the meaning of Section 409A of the Code and, for purposes of any such provision of this Plan, references to a “termination,” “termination of employment” or like terms shall mean “separation from service” and the date of such separation from service shall be the date of termination for purposes of any such payment or benefits.
 
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Appendix A

Chemed Corporation
Change in Control Severance Plan

Participant Designation

Tier 1

 
 
K. J. McNamara
President and Chief Executive Officer
 
D. P. Williams
Executive VP and Chief Financial Officer
     
     
     
Tier 2

 
 
N. C. Dallob
VP, Secretary and Chief Legal Officer
 
M. D. Witzeman
VP and Controller
 
T. C. Hutton
Vice President
 
T. J. Reilly
Vice President
 
L. A. Reinhard
VP and Chief Administrative Officer
 
J. W. Painter
Assistant VP and Senior Counsel
 
G. A. Zarick
Assistant VP and Director of Planning
 
N. M. Westfall
Vitas Chief Executive Officer
 
D. A. Wester
Vitas President and Chief Financial Officer
 
P. Hale
Vitas Executive VP and Chief Information Officer
 
J. Wherley
Vitas Executive VP and Chief Operating Officer
 
P. Husted
Vitas Executive VP Operations
 
R. C. Miller
Vitas Senior VP and Chief Compliance Officer
 
S. S. Lee
Roto-Rooter Chief Executive Officer
 
R. L. Arquilla
Roto-Rooter President and Chief Operating Officer
 
R. P. Goldschmidt
Roto-Rooter Executive VP - Development
 
M. A. Conners
Roto-Rooter Executive VP - Contractors
 
K. M. Aielli
Roto-Rooter Vice President - Finance


53
EX-10.20 3 a51945094ex10_20.htm EXHIBIT 10.20

EXHIBIT 10.20
 
CHEMED CORPORATION
SENIOR EXECUTIVE SEVERANCE POLICY
AS AMENDED AUGUST 3, 2018
 
As of December 1, 2006, Chemed Corporation established the Chemed Corporation Senior Executive Severance Policy (“the Policy”).  As of August 3, 2018 (the "Amendment Date"), the Company amended the Policy to provide that the tax gross-up provisions in Section 3.1 shall apply only to those individuals who were Participants in the Policy on the Amendment Date and not to anyone designated as a Participant following the Amendment Date.
 

 PARTICIPATION
 
Participants in the Policy shall consist of those officers designated from time to time on Attachment A to this Policy by the Compensation/Incentive Committee of the Board of Directors, as may be approved by the Board of Directors.  The Compensation/Incentive Committee and/or the Board shall have the ability to add or remove Participants at its discretion.
 


TERMINATION OF EMPLOYMENT
 
Termination of Employment.  The employment of a Participant shall terminate upon the occurrence of any of the following:
 
The death of the Participant;
 
The termination of the Participant's employment due to the Participant's disability pursuant to §2.2;
 
The termination by the Company of the Participant's employment for Cause pursuant to §2.3;
 
The retirement of the Participant under a retirement plan of the Company; or
 
The resignation of the Participant.
 
The termination by the Company of the Participant's employment for any reason other than those specified in this §2.1 shall hereinafter be referred to as a termination "Without Cause".
 
Disability.  If, by reason of physical or mental disability, the Participant is unable to carry out his or her duties pursuant to this Policy for four (4) consecutive months, the Participant’s may be terminated by the Company upon two (2) months' written notice to be given to the Participant at any time after the period of four (4) continuous months of disability and while such disability continues.  If, prior to the expiration of the two (2) months after the giving of such notice, the Participant shall recover from such disability and return to the active discharge of his or her duties, then such notice shall be of no further force and effect and the Participant's employment shall continue as if such disability had not occurred. If the Participant shall not so recover from his or her disability and return to his or her duties, then the Participant’s services shall terminate at the expiration date of such two (2) months' notice.  In the event a dispute arises between the Participant and the Company concerning the Participant's physical or mental ability to continue or return to the performance of his or her duties as aforesaid, the Participant shall submit to examination by a competent physician mutually agreeable to both parties, and such physician's opinion as to the Participant's ability to so perform will be final and binding.
 
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For Cause.  The Company may, at any time by written notice to the Participant, terminate his or her services for Cause.  Such notice shall specify the event or events and the actions or failure to act constituting Cause.  “Cause” shall mean, with respect to a Participant’s termination of employment: (a) the willful and repeated failure of the Participant  to perform substantially the Participant’s duties with Company (other than any such failure resulting from incapacity due to physical or mental illness); (b) the Participant’s conviction of, or plea of guilty or nolo contendere to, which through lapse of time or otherwise is not subject to appeal, a felony which is materially and demonstrably injurious to Company; or (c) the Participant’s engagement in willful gross misconduct or gross negligence in connection with his or her employment.
 
If the basis for discharge is pursuant to paragraph (c) above, the Participant shall have thirty (30) days from receipt of the notice of termination for Cause to cure, if curable, the actions or failure to act specified in such notice and, in the event of any such cure within such period, such conduct shall not constitute Cause hereunder.
 
Consequences of Termination.
 
If the Participant's employment shall terminate pursuant to any of the provisions of this Article 2, the Participant’s base salary and all incentive compensation shall cease to accrue forthwith.
 
If the Company shall terminate the Participant's employment Without Cause, the Company shall pay the Participant within 10 days of termination but in no event later than the following March 15 a lump sum amount in cash equal to one and one-half times the Participant’s then annual base salary plus a lump sum amount in cash equal to the product of: (i) the average amount of the Participant’s annual incentives under the Company’s annual incentive plan paid or payable for the last three full fiscal years prior to termination; and (ii) a fraction, the numerator of which is the number of days in the fiscal year through the date of termination and the denominator of which is 365.  The Participant shall also be eligible to participate in the Company’s welfare benefits plans such as health insurance, life insurance, long-term care insurance, and long-term disability benefits plans for twelve months following termination, at the then current employee contribution rates; provided that if the Participant is precluded from continuing his or her participation in any applicable plan, program, or arrangement, the Participant shall be provided with the after-tax cost of continuation of such coverage, including premiums under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, (“COBRA Premiums”), for the Participant with respect to the benefits provided under such plan, program, or arrangement, paid as a lump sum within 10 days of termination, but in no event later than the following March 15.  If the Participant becomes reemployed with another employer and is eligible to receive health insurance, life insurance, long-term care insurance or long-term disability coverage under another employer-provided plan (regardless of whether the Participant elects such coverage), the welfare benefits provided pursuant to this Policy shall be secondary to those provided under such other plan.
 
In the event that the Participant’s employment shall terminate pursuant to any of the provisions of this Article 2, the rights of the Participant under any incentive compensation plan of the Company, under any executive or employee benefit plans or arrangements, or otherwise shall be determined, subject to this Article 2, in accordance with the terms and provisions of such plans, arrangements and options applicable to an employee whose employment has terminated in the manner that occurred, except that a termination Without Cause shall be treated as a retirement under a retirement plan of the Company for the purposes of the Company stock incentive plans.
 
If the Participant’s employment shall terminate pursuant to §2.1(a), (b), or (d), the Company shall pay the Participant, during the period from the  183rd to the 190th day following termination, in lieu of any amounts that may be due and payable under the Company’s annual incentive plan for the fiscal year of termination a lump sum amount in cash equal to the product of: (i) the average amount of the Participant’s annual incentives under the Company’s annual incentive plan paid or payable for the last three full fiscal years prior to termination; and (ii) a fraction, the numerator of which is the number of days in the fiscal year through the date of termination and the denominator of which is 365.
 
If the Participant’s employment shall terminate pursuant to §2.1(e) or if the Company shall terminate Participant’s employment with Cause pursuant to §2.1(c), Participant’s annual incentive bonus shall then be forfeited.

55

 
Participant shall not be required to offset against amounts due from the Company under this Article 2 for any salary, bonus or other benefits (other than welfare benefits described above) received by the Participant from a third-party, and the Participant shall be under no duty to mitigate by seeking or accepting another position.
 
Any amounts paid or benefits received under this Policy are conditioned upon execution of a waiver of liability in favor of the Company executed by the Participant, in the form approved by the Company’s counsel.
 
Any amounts paid or benefits received under this Policy are also conditioned, other than a termination under Section 2.1(a), upon execution of the following in a form approved by the Company’s counsel: (i) an agreement prohibiting directly or indirectly publishing or disclosing any confidential information of the Company or any of its affiliates, or using such confidential information for the Participant’s own use or making it available to others; (ii) a one-year post termination non-compete agreement under which the Participant will not directly or indirectly engage in or become interested in any business providing or arranging for any products or services that directly or indirectly are in competition with the Company or any of its subsidiaries; and (iii) an agreement prohibiting solicitation during such one-year period of the employment of any employees or other personnel providing services to the Company or any of its subsidiaries or soliciting the business of any customer of the Company or any of its subsidiaries.
 

 APPLICATION OF SECTION 409A OF THE INTERNAL REVENUE CODE.
 
This Section 3.1 shall apply only to those individuals who were Participants in the Policy on the Amendment Date and not to anyone designated as a Participant following the Amendment Date.
 
In the event that any payment or benefit to the Participant or for the Participant’s benefit paid or payable or distributed or distributable under this Policy (“Payment”), would be subject to the excise tax imposed by Section 409A of the Internal Revenue Code (“Code”), or any interest or penalties are incurred by the Participant with respect to such excise tax (collectively, “Excise Tax”), the Participant will be entitled to receive an additional payment (“Gross-Up Payment”) in an amount such that after payment by the Participant of all taxes (including any income or payroll tax, interest or penalties imposed with respect to such taxes and the Excise Tax, other than interest and penalties imposed by reason of the Participant’s failure to file timely a tax return or pay taxes shown due on the Participant’s return, and including any Excise Tax imposed upon the Gross-Up Payment), the Participant retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
 
An initial determination as to whether and in what amount a Gross-Up Payment is required will be made at the Company’s expense by an accounting firm of recognized national standing selected by the Company (“Accounting Firm”).  The Accounting Firm will provide its determination (“Determination”), together with detailed supporting calculations and documentation, to the Company and the Participant within five days of the date of termination, if applicable, or such other time as requested by the Company or by the Participant (provided the Participant reasonably believes that any of the Payments may be subject to the Excise Tax).  If the Accounting Firm determines that no Excise Tax is payable by the Participant with respect to a Payment or Payments, it will furnish the Participant an opinion reasonably acceptable to the Participant that no Excise Tax will be imposed.  Within 10 days of the delivery of the Determination, the Participant will have the right to dispute the Determination (the “Dispute”).  The Gross-Up Payment, if any, as determined pursuant to this Section will be paid by the Company to the Participant within 5 days of the receipt of the Determination.  The existence of the Dispute will not in any way affect the Participant’s right to receive the Gross-Up Payment in accordance with the Determination.  If there is no Dispute, the Determination will be binding upon the Company and the Participant, subject to the following paragraph.
 
56


As a result of uncertainty in the application of Section 409A of the Code, it is possible that a Gross-Up Payment will be paid which should not be paid (“Excess Payment”) or that a Gross-Up Payment which should be paid will not be paid (“Underpayment”).  An Underpayment will be deemed to have occurred (i) upon notice to the Participant from any governmental taxing authority that the Participant’s tax liability (whether in respect of the Participant’s current taxable year or in respect of any prior taxable year) may be increased by reason of the imposition of the Excise Tax on a Payment or Payments with respect to which the Company has failed to make a sufficient Gross-Up Payment, (ii) upon a determination by a court, (iii) by reason of a determination by the Company (which will include the position taken by the Company on its federal income tax return) or (iv) upon the resolution of the Dispute to the Participant’s satisfaction. If an Underpayment occurs, the Participant will promptly notify the Company and the Company will promptly, but in any event at least 5 days prior to the date on which the applicable government taxing authority has requested payment, pay to the Participant an additional Gross-Up Payment equal to the amount of the Underpayment plus any interest and penalties (other than interest and penalties imposed by reason of the Participant’s failure to file timely a tax return or pay taxes shown due on the Participant’s return) imposed on the Underpayment.
 
An Excess Payment will be deemed to have occurred upon a Final Determination (as hereinafter defined) that the Excise Tax will not be imposed upon a Payment or Payments (or portion thereof) with respect to which the Participant had previously received a Gross-Up Payment.  A “Final Determination” will be deemed to have occurred when the Participant has received from the applicable government taxing authority a refund of taxes or other reduction in the Participant’s tax liability by reason of the Excise Payment and upon either (x) the date a determination is made by, or an agreement is entered into with, the applicable governmental taxing authority which finally binds the Participant and such taxing authority, or if a claim is brought before a court, the date a final determination has been made by such court and either all appeals have been finally resolved or the time for all appeals has expired or (y) the statute of limitations with respect to the Participant’s applicable tax return has expired.  If an Excess Payment is determined to have been made, the Participant will pay to the Company (but not less than 10 days after the determination of such Excess Payment and written notice has been delivered to the Participant) the amount of the Excess Payment plus interest at an annual rate equal to the Applicable Federal Rate provided for in Section 1274(d) of the Code from the date the Gross-Up Payment was paid until the date of repayment.  The Participant will use reasonable cooperative efforts at the request of the Company to assist in the determination of the amount of any Excess Payment or Underpayment made to the Participant pursuant to this Policy.
 
All Gross-Up Payments payable pursuant to this Section 3.1 and any other amounts payable to any Participant pursuant to this Policy in respect of taxes shall be paid to the Participant as soon as practicable after the amount of the relevant tax has been determined and, in any event, no later than December 31 of the year immediately following the year in which the Participant remits the relevant taxes.
 
The payments and benefits under this Policy are intended to be exempt from, or comply with, Section 409A of the Code, and to the maximum extent permitted this Policy shall be limited, construed and interpreted in accordance with such intent. Except as specifically set forth in Section 3.1 in respect of individuals who were Participants as of the Amendment Date, in no event whatsoever shall the Company or its Affiliates or their respective officers, directors, employees or agents be liable for any additional tax, interest or penalties that may be imposed on a Participant or damages for failing to comply with Section 409A of the Code under this Policy.
 
57


Notwithstanding any other provision of this Policy to the contrary, to the extent that any reimbursement of expenses constitutes nonqualified deferred compensation subject to Section 409A of the Code, such reimbursement shall be provided no later than December 31 of the year following the year in which the expense was incurred (or, where applicable, no later than such earlier time required by this Policy). To the extent required by Section 409A of the Code, (i) the amount of expenses reimbursed in one year shall not affect the amount eligible for reimbursement in any subsequent year, (ii) the amount of any in-kind benefits provided in one year shall not affect the amount of in-kind benefits provided in any other year and (iii) any right to such reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit.
 
For purposes of Section 409A of the Code (including, without limitation, for purposes of Treasury Regulation Section 1.409A-2(b)(2)(iii)), the right to receive payments in the form of installment payments shall be treated as a right to receive a series of separate payments and, accordingly, each installment payment shall at all times be considered a separate and distinct payment.
 
Notwithstanding any other provision of this Policy to the contrary, if, at the time of a Participant's separation from service (as defined in Section 409A of the Code), the Participant is a “Specified Employee”, then the Company will defer the payment or commencement of any nonqualified deferred compensation subject to Section 409A of the Code payable upon separation from service (without any reduction in such payments or benefits ultimately paid or provided to the Participant) until the date that is six months following separation from service or, if earlier, the earliest other date as is permitted under Section 409A of the Code (and any amounts that otherwise would have been paid during this deferral period will be paid in a lump sum on the day after the expiration of the six-month period or such shorter period, if applicable).
 
Notwithstanding anything in this Policy or elsewhere to the contrary, a termination of employment shall not be deemed to have occurred for purposes of any provision of this Policy providing for the payment of any amounts or benefits that constitute nonqualified deferred compensation subject to Section 409A of the Code upon or following a termination of the Participant's employment unless such termination is also a “separation from service” within the meaning of Section 409A of the Code and, for purposes of any such provision of this Policy, references to a “termination,” “termination of employment” or like terms shall mean “separation from service” and the date of such separation from service shall be the date of termination for purposes of any such payment or benefits.
 

 LEGAL FEES AND EXPENSES, ARBITRATION.
 
Each party shall pay their own legal fees incurred in connection with any enforcement of rights under this Policy.  All disputes arising hereunder shall be subject to arbitration according to the rules of the American Arbitration Association.  The Company and the Participant shall share equally in any third party costs of such arbitration.
 

 GOVERNING LAW.
 
This Policy, the rights and obligations hereunder, and any related claims shall be governed by and construed in accordance with the laws of the State of Ohio.
 
58


Attachment A


Chemed Corporation
Senior Executive Severance Plan

Participant Designation

Chemed Headquarters  
 
N. C. Dallob
VP, Secretary and Chief Legal Officer
 
T. C. Hutton
Vice President
 
T. J. Reilly
Vice President
 
L. A. Reinhard
VP and Chief Administrative Officer
 
M. D. Witzeman
VP and Controller
 
J. W. Painter
Assistant VP and Senior Counsel
 
G. A. Zarick
Assistant VP and Director of Planning
     
     
Vitas Headquarters  
 
N. M. Westfall
Chief Executive Officer
 
D. A. Wester
President and Chief Financial Officer
 
P. Hale
Executive VP and Chief Information Officer
 
J. Wherley
Executive VP and Chief Operating Officer
 
P. Husted
Executive VP Operations
 
R. C. Miller
Senior VP and Chief Compliance Officer
     
     
Roto-Rooter Headquarters  
 
S. S. Lee
Chief Executive Officer
 
R. L. Arquilla
President and Chief Operating Officer
 
R. P. Goldschmidt
Executive VP - Development
 
M. A. Conners
Executive VP - Contractors
 
K. M. Aielli
Vice President - Finance


59
EX-13 4 a51945094ex13.htm EXHIBIT 13

EXHIBIT 13

Financial Review

Contents  
     
 
Report of Independent Registered Public Accounting Firm
61
 
Consolidated Statements of Income
63
 
Consolidated Balance Sheets
64
 
Consolidated Statements of Cash Flows
65
 
Consolidated Statements of Changes in Stockholders’ Equity
66
 
Notes to Consolidated Financial Statements
67
 
Unaudited Summary of Quarterly Results
93
 
Selected Financial Data
95
 
Unaudited Consolidating Statements of Income
96

Management’s Discussion and Analysis of Financial Conditions and Results of Operations 99


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, 2018, 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, 2018, 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, 2018, as stated in their report which appears on pages 61 and 62.

60


Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Chemed Corporation

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Chemed Corporation and its subsidiaries (the “Company”) as of December 31, 2018 and 2017, and the related consolidated statements of income, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2018, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018 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, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for revenues from contracts with customers in 2018.

Basis for Opinions

The Company's management is responsible for these consolidated 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 the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. 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.

Definition and Limitations of Internal Control over Financial Reporting

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.

61


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.


/s/PricewaterhouseCoopersLLP
Cincinnati, Ohio
February 27, 2019

We have served as the Company’s auditor since 1971.

62


CONSOLIDATED STATEMENTS OF INCOME
 
                   
Chemed Corporation and Subsidiary Companies
                 
(in thousands, except per share data)
                 
For the Years Ended December 31,
 
2018
   
2017
   
2016
 
                   
Service revenues and sales (Note 2)
 
$
1,782,648
   
$
1,666,724
   
$
1,576,881
 
Cost of services provided and goods sold (excluding depreciation)
   
1,228,644
     
1,150,532
     
1,115,431
 
Selling, general and administrative expenses
   
270,209
     
276,652
     
243,572
 
Depreciation
   
38,464
     
35,488
     
34,279
 
Amortization
   
399
     
137
     
359
 
Other operating expenses (Note 20)
   
1,300
     
90,880
     
4,491
 
Total costs and expenses
   
1,539,016
     
1,553,689
     
1,398,132
 
Income from operations
   
243,632
     
113,035
     
178,749
 
Interest expense
   
(4,990
)
   
(4,272
)
   
(3,715
)
Other income--net (Note 10)
   
958
     
8,154
     
2,020
 
Income before income taxes
   
239,600
     
116,917
     
177,054
 
Income taxes (Note 11)
   
(34,056
)
   
(18,740
)
   
(68,311
)
Net Income
 
$
205,544
   
$
98,177
   
$
108,743
 
                         
Earnings Per Share (Note 15)
                       
Net Income
 
$
12.80
   
$
6.11
   
$
6.64
 
Average number of shares outstanding
   
16,059
     
16,057
     
16,383
 
Diluted Earnings Per Share (Note 15)
                       
Net Income
 
$
12.23
   
$
5.86
   
$
6.48
 
Average number of shares outstanding
   
16,803
     
16,742
     
16,789
 

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

63


CONSOLIDATED BALANCE SHEETS
 
       
Chemed Corporation and Subsidiary Companies
           
(in thousands, except shares and per share data)
           
December 31,
 
2018
   
2017
 
Assets
           
     Current assets
           
          Cash and cash equivalents (Note 9)
 
$
4,831
   
$
11,121
 
          Accounts receivable less allowances of $15,175 for 2017
   
119,504
     
113,651
 
          Inventories
   
5,705
     
5,334
 
          Prepaid income taxes
   
10,646
     
29,848
 
          Prepaid expenses
   
19,154
     
16,092
 
Total current assets
   
159,840
     
176,046
 
     Investments of deferred compensation plans held in trust (Notes 14 and 16)
   
65,624
     
62,067
 
     Properties and equipment, at cost, less accumulated depreciation (Note 12)
   
162,033
     
143,034
 
     Identifiable intangible assets less accumulated amortization of  $33,283 (2017 - $32,887) (Note 6)
   
68,253
     
54,865
 
     Goodwill
   
510,570
     
476,887
 
     Other assets
   
9,209
     
7,127
 
Total Assets
 
$
975,529
   
$
920,026
 
                 
Liabilities
               
     Current liabilities
               
          Accounts payable
 
$
50,150
   
$
48,372
 
          Current portion of long-term debt (Note 3)
   
-
     
10,000
 
          Accrued insurance
   
46,095
     
46,968
 
          Accrued compensation
   
63,329
     
62,933
 
          Accrued legal
   
1,857
     
1,786
 
          Other current liabilities
   
30,239
     
23,463
 
               Total current liabilities
   
191,670
     
193,522
 
     Deferred income taxes (Note 11)
   
21,598
     
16,640
 
     Long-term debt (Note 3)
   
89,200
     
91,200
 
     Deferred compensation liabilities (Note 14)
   
64,616
     
61,800
 
     Other liabilities
   
17,111
     
16,510
 
Total Liabilities
   
384,195
     
379,672
 
     Commitments and contingencies (Notes 13 and 17)
               
Stockholders' Equity
               
     Capital stock - authorized 80,000,000 shares $1 par; issued 35,311,418 shares
               
          (2017 - 34,732,192 shares)
   
35,311
     
34,732
 
     Paid-in capital
   
774,358
     
695,797
 
     Retained earnings
   
1,225,617
     
1,038,955
 
     Treasury stock - 19,438,358 shares (2017 - 18,694,047 shares), at cost
   
(1,446,296
)
   
(1,231,332
)
     Deferred compensation payable in Company stock (Note 14)
   
2,344
     
2,202
 
Total Stockholders' Equity
   
591,334
     
540,354
 
Total Liabilities and Stockholders' Equity
 
$
975,529
   
$
920,026
 

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

64

 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Chemed Corporation and Subsidiary Companies
                 
(in thousands)
                 
For the Years Ended December 31,
 
2018
   
2017
   
2016
 
Cash Flows from Operating Activities
                 
     Net income
 
$
205,544
   
$
98,177
   
$
108,743
 
     Adjustments to reconcile net income to net cash provided by operations:
                       
          Depreciation and amortization
   
38,863
     
35,625
     
34,638
 
          Stock option expense
   
12,611
     
10,485
     
8,330
 
          Noncash portion of long-term incentive compensation
   
5,405
     
3,774
     
1,301
 
          Provision/(benefit) for deferred income taxes (Note 11)
   
5,187
     
2,407
     
(6,707
)
          Noncash directors' compensation
   
766
     
766
     
541
 
          Amortization of restricted stock awards
   
446
     
1,231
     
1,855
 
          Amortization of debt issuance costs
   
441
     
516
     
519
 
          Provision for uncollectible accounts receivable
   
-
     
17,306
     
16,319
 
          Loss on sale of transportation equipment (Note 20)
   
-
     
5,266
     
-
 
          Noncash early retirement expense (Note 20)
   
-
     
-
     
1,747
 
          Changes in operating assets and liabilities, excluding amounts acquired in business combinations:
                       
                    Decrease/(increase) in accounts receivable
   
(5,570
)
   
1,072
     
(42,142
)
                    Decrease/(increase) in inventories
   
(351
)
   
421
     
559
 
                    Increase in prepaid expenses
   
(2,665
)
   
(2,987
)
   
(253
)
                    Increase in accounts payable and other current liabilities
   
8,935
     
12,890
     
891
 
                    (Decrease)/increase in income taxes
   
18,898
     
(26,104
)
   
13,886
 
                    Increase in other assets
   
(5,544
)
   
(8,330
)
   
(5,224
)
                    Increase in other liabilities
   
3,451
     
8,561
     
7,105
 
         Excess tax benefit on stock-based compensation
   
-
     
-
     
(7,195
)
          Other sources
   
721
     
1,419
     
480
 
               Net cash provided by operating activities
   
287,138
     
162,495
     
135,393
 
Cash Flows from Investing Activities
                       
     Capital expenditures
   
(52,872
)
   
(64,300
)
   
(39,772
)
     Business combinations, net of cash acquired (Note 7)
   
(53,177
)
   
(4,725
)
   
-
 
     Other sources/(uses)
   
824
     
1,417
     
(90
)
               Net cash used by investing activities
   
(105,225
)
   
(67,608
)
   
(39,862
)
Cash Flows from Financing Activities
                       
     Proceeds from revolving line of credit
   
469,550
     
212,350
     
127,050
 
     Payments on revolving line of credit
   
(406,550
)
   
(211,150
)
   
(102,050
)
     Purchases of treasury stock
   
(158,884
)
   
(94,640
)
   
(102,313
)
     Payments on other long-term debt
   
(75,000
)
   
(8,750
)
   
(7,500
)
     Proceeds from exercise of stock options (Note 4)
   
32,412
     
27,092
     
8,421
 
     Capital stock surrendered to pay taxes on stock-based compensation
   
(27,548
)
   
(14,223
)
   
(8,772
)
     Dividends paid
   
(18,662
)
   
(17,371
)
   
(16,439
)
     Change in cash overdraft payable
   
(1,531
)
   
6,700
     
(736
)
    Debt issuance costs
   
(1,052
)
   
-
     
-
 
    Excess tax benefit on stock-based compensation
   
-
     
-
     
7,195
 
     Other sources/(uses)
   
(938
)
   
916
     
196
 
               Net cash used by financing activities
   
(188,203
)
   
(99,076
)
   
(94,948
)
Increase/(decrease) in cash and cash equivalents
   
(6,290
)
   
(4,189
)
   
583
 
Cash and cash equivalents at beginning of year
   
11,121
     
15,310
     
14,727
 
Cash and cash equivalents at end of year
 
$
4,831
   
$
11,121
   
$
15,310
 

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

65


CONSOLIDATED STATEMENTS 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, 2015
 
$
33,985
   
$
603,006
   
$
865,845
   
$
(991,978
)
 
$
2,395
   
$
513,253
 
Net income
   
-
     
-