##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 Form 10-K
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2009
 or
 o
    
    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 000-33267
 
 Odyssey HealthCare, Inc.
 (Exact name of registrant as specified in its charter)
 Delaware(State or other jurisdiction of 
incorporation or organization)
    
    43-1723043(IRS Employer
Identification Number)717 N. Harwood, Suite 1500
Dallas, Texas(Address of principal executive offices)
    
    75201(Zip Code)
 Registrants telephone number, including area code:
(214) 922-9711
 Securities registered pursuant to Section 12(b) of the Act:
 Title of Each Class
    
    Name of Each Exchange on Which RegisteredCommon Stock, par value $0.001 per share
    
    The NASDAQ Stock Market LLC
 Securities registered pursuant to Section 12(g) of the Act:
None
 o þ
 o þ
 þ o
 o o
 þ
  Large accelerated filer o
Accelerated filer þ
Non-accelerated filer o(Do not check if a smaller reporting company)
Smaller reporting company o
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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##### 



FORM 10-K
 ODYSSEY HEALTHCARE, INC.
For the Year Ended December 31, 2009
 TABLE OF CONTENTS
 PART IItem 1.
    
    Business
    
    
    4Item 1A.
    
    Risk Factors
    
    
    24Item 1B.
    
    Unresolved Staff Comments
    
    
    36Item 2.
    
    Properties
    
    
    36Item 3.
    
    Legal Proceedings
    
    
    37Item 4.
    
    (Removed and Reserved)
    
    
    38PART IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    39Item 6.
    
    Selected Financial Data
    
    
    41Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    44Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    63Item 8.
    
    Financial Statements and Supplementary Data
    
    
    63Item 9.
    
    Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
    
    
    63Item 9A.
    
    Controls and Procedures
    
    
    64Item 9A(T).
    
    Controls and Procedures
    
    
    66Item 9B.
    
    Other Information
    
    
    66PART IIIItem 10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    66Item 11.
    
    Executive Compensation
    
    
    66Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    66Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    67Item 14.
    
    Principal Accountant Fees and Services
    
    
    67PART IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    
    67Signatures
    
    
    71EX-10.10.4EX-10.11.2EX-21EX-23.1EX-31.1EX-31.2EX-32
  2




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FORWARD-LOOKING STATEMENTS
  
    
    general market conditions;
    
    adverse changes in reimbursement levels under Medicare and Medicaid programs;
    
    government and private party legal proceedings and investigations;
    
    adverse changes in the Medicare payment cap limits and increases in our estimated
Medicare cap contractual adjustments;
    
    decline in patient census growth;
    
    increases in inflation including inflationary increases in patient care costs;
    
    our ability to effectively implement our 2010 operations and development strategies;
    
    our dependence on patient referral sources and potential adverse changes in patient
referral practices of those referral sources;
    
    our ability to successfully integrate and operate acquired hospice programs;
    
    our ability to attract and retain healthcare professionals;
    
    increases in our bad debt expense due to various factors, including an increase in the
volume of pre-payment reviews by Medicare fiscal intermediaries;
    
    adverse changes in the state and federal licensure and certification laws and
regulations;
    
    adverse results of regulatory surveys;
    
    delays in licensure and/or certification of hospice programs and inpatient units;
    
    cost of complying with the terms and conditions of our corporate integrity agreement;
    
    adverse changes in the competitive environment in which we operate;
    
    changes in state or federal income, franchise or similar tax laws and regulations;
    
    adverse impact of natural disasters; and
    
    changes in our estimate of additional share-based compensation expense.
  3




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PART I
 
 Item 1. Business
 Overview and Business Strategy
 Overview
     
    
    a physician;
    
    a patient care manager;
    
    one or more registered nurses;
    
    one or more certified home health aides;
    
    a medical social worker;
    
    a chaplain;
    
    a homemaker; and
    
    one or more specially trained volunteers.
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
    
    the provision of coordinated care and treatment;
    
    clear accountability for clinical outcomes and cost of services; and
    
    the potential reduction of stress and dysfunction on patients and their families.
  Business Strategy
  Improve our organic growth:
 Number ofMedicare-CertifiedHospice Programsfor the QuarterEnded December 31,Average Daily Patient Census
    
    2009
    
    20080-50
    
    
    11
    
    
    
    751-100
    
    
    23
    
    
    
    28101-200
    
    
    39
    
    
    
    41200+
    
    
    17
    
    
    
    18
 Growth through selectively acquiring other hospices and other development activities:
 5




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Increase our efficiencies:
 Revenues and Industry Segments
  Principal Office and State of Incorporation
  Hospice Services and Payment
  
    
    Nursing care
    
    Medical social services
    
    Physician services
    
    Patient counseling (dietary, spiritual and other)
    
    General inpatient care
    
    Medical supplies and equipment
    
    Drugs for pain control and symptom management
    
    Home health aide services
    
    Homemaker services
    
    Therapy (physical, occupational and speech)
    
    Respite inpatient care
    
    Family bereavement counseling
  6




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Reimbursement Range as ofDecember 31, 2009Level of Care
    
    Description of Care
    
    (Inclusive of Wage Index)Routine Home Care
    
    Hospice services provided in the
patients home or other residence.
Accounted for 97.4% and 97.5% of our
total days of care in 2009 and 2008,
respectively.
    
    
    $120.74-$215.00Continuous Home Care
    
    Continuous care provided in the
patients home or other residence
during a period of crisis to manage
acute pain or other medical symptoms
for a minimum of eight hours per day,
with nursing care accounting for at
least half of the care provided. Paid
on an hourly basis. Accounted for 0.6%
of our total days of care in both 2009 and 2008.
    
    
    $704.68-$1,254.88(per diem equivalent)General Inpatient Care
    
    Care provided in a hospital or other
inpatient facility to manage acute
pain and other medical symptoms that
cannot be managed effectively in a
home setting. Accounted for 1.8% and
1.7% of our total days of care in 2009
and 2008, respectively.
    
    
    $542.95-$934.52Respite Inpatient Care
    
    Care provided for up to five days in a
hospital or other inpatient facility
to relieve the patients family or
other caregivers. Accounted for 0.2%
of our total days of care in both 2009
and 2008.
    
    
    $129.12-$206.58
  PercentageEffective Date of Rate Increase
    
    IncreaseOctober 1, 2005
    
    
    3.7
    %October 1, 2006
    
    
    3.4
    %October 1, 2007
    
    
    3.3
    %October 1, 2008
    
    
    3.6
    %October 1, 2009
    
    
    2.1
    %
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Hospice Utilization and Market Opportunity
  Increase in Hospice Use:
 Length of Stay:
 Aging Population in the United States:
 Our Hospice Services and Centralized Support Center
  Caregivers:
  Community Education Representatives:
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Increasing Our Patient Census:
 Where We Provide Our Care:
  Medicare-Covered Care:
 Diagnoses:
 Percentage ofPatients Admittedby Primary DiagnosisPrimary Diagnosis
    
    2009
    
    2008
    
    2007Cancer
    
    
    30
    %
    
    
    31
    %
    
    
    31
    %End-stage heart disease
    
    
    18
    
    
    
    17
    
    
    
    18Dementia
    
    
    13
    
    
    
    14
    
    
    
    17Debility
    
    
    9
    
    
    
    12
    
    
    
    9Lung disease
    
    
    9
    
    
    
    9
    
    
    
    8End-stage kidney disease
    
    
    3
    
    
    
    3
    
    
    
    3End-stage liver disease
    
    
    3
    
    
    
    2
    
    
    
    2Other
    
    
    15
    
    
    
    12
    
    
    
    12Totals
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 9




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Hospice Programs, Inpatient Facilities and Support Center
 Hospice Programs and Inpatient Facilities:
 Alabama
    
    Indiana
    
    Rhode IslandBirmingham
    
    Evansville
    
    Providence (Warwick)Mobile
    
    Indianapolis
    
    South CarolinaPhenix City
    
    New Albany
    
    Charleston (North Charleston)Arizona
    
    Terre Haute
    
    GreenvillePhoenix (two inpatient facilities)(1)
    
    Louisiana
    
    TennesseeTucson (one inpatient facility)(1)
    
    Lake Charles
    
    MemphisArkansas
    
    New Orleans (Metairie)
    
    NashvilleLittle Rock
    
    Shreveport
    
    TexasCalifornia
    
    Massachusetts
    
    Amarillo (one inpatient facility)(1)Bakersfield
    
    Boston
    
    Austin(2)Los Angeles (West Covina)
    
    Michigan
    
    BaytownOrange County (Garden Grove)
    
    Detroit (Southfield) (one inpatient
    
    BeaumontPalm Springs (Rancho Mirage) (one
    
    facility)(1)
    
    Brownsvilleinpatient facility)(1)
    
    Flint (one inpatient facility)(1)
    
    Conroe (one inpatient facility)(1)San Bernardino
    
    Mississippi
    
    Corpus Christi (one inpatientSan Diego
    
    Gulf Coast (Gulfport)
    
    facility)(1)(2)San Jose (Campbell)
    
    Jackson
    
    Dallas(2)Colorado
    
    Missouri
    
    East Texas (Tyler)Colorado Springs
    
    Kansas City
    
    El PasoDenver
    
    St. Louis
    
    Fort Worth (one inpatient facility)(1)Delaware
    
    Nebraska
    
    GreenvilleWilmington
    
    Omaha
    
    Houston (one inpatient facility)(1)Florida
    
    Nevada
    
    Houston North (one inpatientMiami
    
    Las Vegas (one inpatient facility)(1)
    
    facility)(1)Georgia
    
    Reno (Sparks)
    
    Lubbock (one inpatient facility)(1)(2)Athens (2)
    
    New Jersey
    
    San AngeloAtlanta (two inpatient facilities)(1)(2)
    
    New Jersey (Piscataway)
    
    San Antonio (one inpatientAugusta
    
    New Mexico
    
    facility)(1)(2)Columbus (one inpatient facility)(1)
    
    Albuquerque (one inpatient
    
    TempleMacon
    
    facility)(1)(2)
    
    WaxahachieSavannah
    
    Hobbs
    
    UtahIllinois
    
    Ohio
    
    OgdenChicago  South (Chicago)
    
    Cleveland (Mayfield Heights)
    
    Salt Lake CityWestchester
    
    Columbus (one inpatient facility)(1)
    
    VirginiaToledo (Maumee)
    
    Arlington (Vienna)Oregon
    
    NorfolkPortland (Beaverton)
    
    RichmondPennsylvania
    
    WisconsinHarrisburg (Camp Hill)
    
    Milwaukee (West Allis)PhiladelphiaPittsburgh
 
 (1)
    
    We had a total of 20 inpatient facilities as of December 31, 2009 with a total of 283 beds.(2)
    
    Both Odyssey and VistaCare have a hospice program that is Medicare certified in the
respective location. Support Center:
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Government Regulation and Payment Structure
    What are Medicare and Medicaid?
 Medicare Conditions of Participation.
  
    
    Governing Body. Each hospice must have a governing body that assumes full
responsibility for the overall management and operations of a 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
administrative operations of the hospice. The designated individual must be a hospice
employee and must possess the education and experience required by the governing body.
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
    
    Direct Provision of Core Services.Medicare limits those services for which a 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.
    
    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. When the medical director is not available, a physician designated by the hospice
assumes the same responsibilities and obligations as the medical director. The medical
director may be employed by or under contract with the hospice.
    
    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, then the hospice must do so through a written
agreement, and must retain administrative and financial management and supervision over
staff and services to ensure the provision of quality hospice care. Written agreements for
arranged services must require that all services be authorized by hospice, furnished in a
safe and effective manner by qualified personnel, and delivered in accordance with the
patients plan of care.
    
    Plan of Care. The hospices interdisciplinary group must establish an individualized
written plan of care for each hospice patient in collaboration with the patients attending
physician, the medical director or designated hospice physician, the patient or
representative and the primary caregiver. The plan of care must be established prior to
providing care to any hospice patient. The plan must assess the patients needs and specify
the hospice care and services to be provided to meet those needs and also must be reviewed
and updated at specified intervals.
    
    Continuation of Care. A hospice may not discontinue or reduce care provided to a
Medicare or Medicaid beneficiary if the individual becomes unable to pay for that care.
    
    Admission to Hospice Care.A hospice shall admit a patient only on the recommendation
of the medical director in consultation with, or with input from, the patients attending
physician (if any).
    
    Election of Hospice Benefit. An individual who meets the eligibility requirements for
hospice care must file an election statement with the particular hospice that will provide
care to the individual. If the individual is physically or mentally incapacitated, his or
her representative must file the election statement. An individual or the individuals
representative may revoke the individuals election of hospice care at any time.
    
    Training.A hospice must provide orientation and ongoing training for its employees and
contracted staff who have patient and family contact. A hospice must assess the skills and
competency of all individuals furnishing care, including volunteers furnishing services,
and provide in-service training and education programs where required. The hospice must
have written policies and procedures describing its methods of assessment of competency and
maintain a written description of the in-service training provided during the previous 12
months.
    
    Quality Assessment and Performance Improvement. A hospice must develop, implement and
maintain a hospice-wide quality assessment and performance improvement program involving
all hospice services, including services provided under arrangement or contract.
    
    Interdisciplinary Group. A hospice must designate an interdisciplinary group to provide
or supervise hospice care services. The interdisciplinary group develops and updates plans
of care, and establishes policies governing the day-to-day provision of hospice services.
The interdisciplinary group 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 and to ensure continuous assessment of each hospice patients
and familys needs.
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
    
    Volunteers. Hospice programs are required to recruit and train volunteers to provide
patient care services or administrative services. Volunteer services must comprise 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. The clinical records must be retained for 6 years after the death or
discharge of the patient, unless state law stipulates a longer period of time.
    
    Criminal Background Checks.Hospice programs must obtain a criminal background check on
all hospice employees who have direct patient contact or access to patient records. Hospice
contracts must require that all contracted entities obtain criminal background checks on
contracted employees who have direct patient contact or access to patient records.
  Surveys.
 Certificate of Need Laws and Other Restrictions.
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Limits on the Acquisition or Conversion of Non-Profit HealthCare Organizations.
 State Licensure of Hospice.
 Overview of Government Payments
    
    
    have relatively higher payments per day at the beginning of a patients hospice
care and relatively lower payments per day as the duration of the hospice patients stay
increases,
    
    include relatively higher payments for the costs associated with patient death at
the end of the hospice patients stay, and
    
    implement the payment system changes in 2013, with a brief transitional period.
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Medicare.
  The Medicare Cap.
 Dollar Amount Cap.
 15




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Medicare Cap Year Ending October 31,
    
    Medicare Cap Amount2007
    
    $
    21,4102008
    
    $
    22,3862009
    
    $
    23,0142010 (estimated)
    
    $
    23,600
  Accrued Medicare Cap Contractual AdjustmentsYear Ending December 31,2007
    
    
    2008
    
    
    2009(in thousands)Beginning balance  accrued Medicare
cap contractual adjustments
    
    $
    26,679
    
    
    $
    21,682
    
    
    $
    23,719Medicare cap contractual adjustments
    
    
    5,039
    (1)
    
    
    6,852
    (2)
    
    
    4,565
    (3)Medicare cap contractual adjustments 
discontinued operations
    
    
    2,651
    (4)
    
    
    (27
    )(4)
    
    
    (79
    )(4)Payments to Medicare fiscal intermediaries
    
    
    (12,687
    )
    
    
    (12,996
    )
    
    
    (9,407
    )Balances acquired from VistaCare
    
    
    
    
    
    
    8,208
    
    
    
    Ending balance  accrued Medicare cap
contractual adjustments
    
    $
    21,682
    
    
    $
    23,719
    
    
    $
    18,798
 
 (1)
    
    Includes additional accrual of $0.9 million related to the 2006 Medicare cap year.(2)
    
    Includes additional accrual of $1.5 million related to the 2006 Medicare cap year.(3)
    
    Includes an accrual reversal of $1.1 million related to the 2007 Medicare cap year.(4)
    
    Medicare cap contractual adjustments reclassified to discontinued operations are related to
all programs that were discontinued and sold during 2007, 2008 and 2009.  
    
    the actual number of Medicare beneficiary patient admissions and discharges and the
dates of occurrence of each;
    
    changes in the average length of stay at our hospice programs;
    
    fluctuations in admissions and discharges at our hospice programs;
    
    possible enrollment of beneficiaries in our hospice programs who may have previously
elected Medicare hospice coverage through another hospice program and whose Medicare cap
amount is prorated for the days of service for the previous hospice admission;
    
    possible enrollment of beneficiaries with another hospice program who had been on
previous hospice service with one of our own hospice programs and discharged from our
hospice program and whose Medicare cap amount is prorated between the programs for the days
of service for the subsequent hospice admission;
    
    fiscal intermediary disallowances of certain beneficiaries and changes in calculation
methodology;
    
    uncertainty surrounding length of patient stay in various patient groups, particularly
with respect to non-cancer patients; and
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
    
    the fact that we are not advised of the Medicare cap amount that will be used by
Medicare to calculate our Medicare cap contractual adjustment until the latter part of the
Medicare cap year, requiring us to use an estimate of that amount throughout the year.
  Inpatient Care Cap.
 Fiscal Intermediary Reviews and other Billing Audits.
   Medicare Six-Month Eligibility Rule and Waiver of Other Medicare Benefits.
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Medicaid.
 Long-Term Care Facility Residents.
 Other Healthcare Regulations
 Fraud and Abuse Laws and Anti-Kickback Statute.
   18




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HIPAA Fraud and Abuse Provisions.
 Civil Monetary Penalties Statute.
 False Claims Act. qui tam
 State False Claims Laws.
 19




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The Stark Law and State Physician Self-Referral Laws.
   Prohibition on Employing or Contracting with Excluded Providers.
 Corporate Practice of Medicine and Fee-Splitting.
  20




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Regulation Governing the Privacy and Transmission of Healthcare Information
  
    
    standardization of certain electronic patient health, administrative and financial
data;
    
    privacy standards protecting the privacy of individually identifiable health
information; and
    
    security standards protecting the confidentiality and integrity of electronically held
individually identifiable health information.
    Additional Federal and State Healthcare Laws.
 Surveys and Certification.
 21




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Employment Laws and Regulations.
 Compliance with Health Regulatory Laws.
 Compliance and Quality Assessment and Performance Improvement Programs
  
    
    a compliance officer and committee;
    
    a corporate code of business conduct and ethics and standards of conduct;
    
    employee education and training;
    
    an internal system for reporting concerns on a confidential, anonymous basis;
    
    ongoing internal auditing and monitoring programs; and
    
    a means for enforcing the compliance program policies.
    
    
    on-going education of staff and quarterly quality assessment and performance
improvement meetings at each of our hospice programs and at our Support Center;
    
    quarterly comprehensive audits of patient charts and site operations performed by each
of our hospice programs; and
    
    at least once a year, a comprehensive audit of patient charts and site operations
performed on each of our hospice programs by our clinical compliance staff.
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Competition
   Insurance
  Employees
  Available Information
  23




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Item 1A. Risk Factors
  If we fail to comply with the terms of our Corporate Integrity Agreement, we could be subject to
substantial monetary penalties or suspension or termination from participation in the Medicare and
Medicaid programs.
  We are highly dependent on payments from Medicare and Medicaid. If there are changes in the rates
or methods governing these payments for our services, our net patient service revenue and profits
could materially decline.
  24




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
    
    have relatively higher payments per day at the beginning of a patients hospice
care and relatively lower payments per day as the length of the duration of the hospice
patients stay increases,
    
    include relatively higher payments for the costs associated with patient death at
the end of the hospice patients stay, and
    
    implement the payment system changes in 2013, with a brief transitional period.
     We are subject to a Medicare cap amount which is calculated by Medicare. Our net patient service
revenue and profitability could be adversely affected by limitations on Medicare payments.
  25




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We operate in an industry that is subject to extensive federal, state and local regulation, and
changes in law and regulatory interpretations could reduce our net patient service revenue and
profitability.
  
    
    payment for services;
    
    conduct of operations, including fraud and abuse, anti-kickback prohibitions, physician
self-referral prohibitions and false claims;
    
    privacy and security of medical records;
    
    employment practices; and
    
    facility and professional licensure, including certificates of need, surveys,
certification and recertification requirements, and corporate practice of medicine
prohibitions.
     26




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qui tam qui tam qui tam qui tam
     27




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Approximately 35% of our hospice patients reside in nursing homes. Changes in the laws and
regulations regarding payments for hospice services and room and board provided to our hospice
patients residing in nursing homes could reduce our net patient service revenue and profitability.
    If we are unable to maintain relationships with existing patient referral sources or to establish
new referral sources, our growth and profitability could be adversely affected.
  Our growth strategy to develop new hospice programs in new and existing markets may not be
successful, which could adversely impact our growth and profitability.
  
    
    identify markets that meet our selection criteria for new hospice programs;
    
    hire and retain a qualified management team to operate each of our new hospice
programs;
    
    manage a large and geographically diverse group of hospice programs;
    
    become Medicare and Medicaid certified in new markets;
    
    generate sufficient hospice admissions in new markets to operate profitably in these
new markets; or
    
    compete effectively with existing programs in new markets.
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Our growth strategy to acquire other hospices may not be successful and the integration of future
acquisitions may be difficult and disruptive to our ongoing business.
  
    
    our ability to identify suitable acquisition candidates;
    
    our ability to negotiate favorable acquisition terms, including purchase price, which
may be adversely affected due to increased competition with other buyers;
    
    the availability of financing on terms favorable to us, or at all;
    
    our ability to integrate effectively the systems and operations of acquired hospices;
    
    our ability to retain key personnel of acquired hospices; and
    
    our ability to obtain required regulatory approvals.
   Our loss of key senior management personnel or our inability to hire and retain skilled employees
at a reasonable cost could adversely affect our business and our ability to increase patient
referrals.
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A nationwide shortage of qualified nurses could adversely affect our profitability and our ability
to grow and continue to provide quality, responsive hospice services to our patients as nursing
wages and benefits increase.
  Medical reviews and audits by governmental and private payors could result in material payment
recoupments and payment denials, which could negatively impact our business.
   If any of our hospice programs fails to comply with the Medicare conditions of participation, that
program could be terminated from the Medicare program, thereby adversely affecting our net patient
service revenue and profitability.
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Many states have certificate of need laws or other regulatory provisions that may adversely impact
our ability to expand into new markets and thereby limit our ability to grow and to increase our
net patient service revenue.
  We may not be able to compete successfully against other hospice providers, and competitive
pressures may limit our ability to maintain or increase our market position and adversely affect
our profitability.
  
    
    community-based hospice providers;
    
    national and regional companies;
    
    hospital-based hospice and palliative care programs;
    
    nursing homes; and
    
    home health agencies.
  If our costs were to increase more rapidly than the fixed payment adjustments we receive for our
hospice services from Medicare and Medicaid, our profitability could be negatively impacted.
   31




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Federal and state legislative and regulatory initiatives relating to patient privacy could require
us to expend substantial sums on acquiring and implementing new information systems.
   Our net patient service revenue and profitability may be constrained by cost containment
initiatives undertaken by insurers and managed care companies.
  32




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##### Table of Contents



A significant reduction in the carrying value of our goodwill could have a material adverse effect
on our profitability.
 th
 Professional and general liability claims and hired and non-owned auto liability claims may have
an adverse effect on us either because our insurance coverage may be inadequate to cover the
losses or because claims against us, regardless of merit or eventual outcome, may adversely affect
our reputation, our ability to obtain patient referrals or our ability to expand our business.
   An adverse ruling against us in certain litigation could have an adverse effect on our financial
condition and results of operations.
   33




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##### Table of Contents



Because of conditions in the credit markets we may not be able to access our funds that are
currently invested in auction rate securities without incurring a substantial loss on the
disposition of such securities.
   We may need additional capital to fund our operations and finance our growth, and we may not be
able to obtain it on terms acceptable to us, or at all.
  The Credit Agreement contains, and future debt agreements may contain, various covenants that
limit our discretion in the operation of our business.
  
    
    incur more debt;
 34




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##### Table of Contents




    
    redeem or repurchase stock, pay dividends or make other distributions;
    
    make certain investments;
    
    create liens;
    
    enter into transactions with affiliates;
    
    make certain acquisitions;
    
    merge or consolidate; and
    
    transfer or sell assets.
  We are dependent on the proper functioning of our information systems to efficiently manage our
business.
  Our inability to effectively integrate, manage and keep secure our information systems could
disrupt our operations.
    35




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##### Table of Contents



Provisions in our charter documents, under Delaware law, and in our stockholder rights plan could
discourage a takeover that stockholders may consider favorable.
  
    
    authorize the issuance by the board of directors of preferred stock without the
requirement of stockholder approval, which could make it more difficult for a third party
to acquire a majority of our outstanding voting stock;
    
    provide for a classified board of directors with staggered, three-year terms;
    
    prohibit cumulative voting in the election of directors;
    
    prohibit our stockholders from acting by written consent;
    
    limit the persons who may call special meetings of stockholders;
    
    prohibit our stockholders from amending our bylaws unless the amendment is approved by
the holders of at least 80% of our shares of common stock; and
    
    establish advance notice requirements for nominations for election to the board of
directors or for proposing matters to be approved by stockholders at stockholder meetings.
     
 Item 1B. Unresolved Staff Comments
  
 Item 2. Properties
  36




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##### Table of Contents



Item 3. Legal Proceedings
  qui
tam qui tam qui tam qui tam qui tam
    37




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##### Table of Contents



Item 4. ( Removed and Reserved)
 38




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##### Table of Contents



PART II
 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
 Market for Common Stock.
 High
    
    Low2008First Quarter
    
    $
    11.15
    
    
    $
    8.27Second Quarter
    
    $
    11.28
    
    
    $
    8.57Third Quarter
    
    $
    10.99
    
    
    $
    8.38Fourth Quarter
    
    $
    10.47
    
    
    $
    6.762009First Quarter
    
    $
    12.27
    
    
    $
    8.49Second Quarter
    
    $
    11.50
    
    
    $
    8.11Third Quarter
    
    $
    13.52
    
    
    $
    9.58Fourth Quarter
    
    $
    15.98
    
    
    $
    11.69
 Dividends.
  
    
    any applicable contractual restrictions limiting our ability to pay dividends;
    
    our earnings;
    
    our financial condition;
    
    our ability to fund capital requirements; and
    
    other factors our board of directors deems relevant.
 Recent Sales of Unregistered Securities.
 Repurchases of Common Stock.
 39




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##### Table of Contents



Common Stock Performance Graph.
  COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
 
 
 *
    
    $100 invested on 12/31/04 in stock or index, including reinvestment of dividends. Fiscal year
ending December 31. 40




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##### Table of Contents



Odyssey
    
    Peer Group
    
    NASDAQ CompositeHealthCare, Inc.
    
    Index
    
    Index12/31/05
    
    $
    136.26
    
    
    $
    107.28
    
    
    $
    101.3312/31/06
    
    
    96.93
    
    
    
    100.54
    
    
    
    114.0112/31/07
    
    
    80.85
    
    
    
    107.51
    
    
    
    123.7112/31/08
    
    
    67.62
    
    
    
    90.82
    
    
    
    73.1112/31/09
    
    
    113.96
    
    
    
    111.08
    
    
    
    105.61
  
 Item 6. Selected Financial Data
   41




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##### Table of Contents



Year Ended December 31,2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005(In thousands, except per share amounts)Statements of Operations Data:Net patient service revenue
    
    $
    686,438
    
    
    $
    616,050
    
    
    $
    398,232
    
    
    $
    379,218
    
    
    $
    348,592Operating expenses:Direct hospice care
    
    
    396,774
    
    
    
    361,445
    
    
    
    233,664
    
    
    
    222,496
    
    
    
    193,823General and administrative(1)
    
    
    199,069
    
    
    
    199,292
    
    
    
    131,788
    
    
    
    115,771
    
    
    
    102,980Government settlement
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,000Provision for uncollectible accounts
    
    
    11,490
    
    
    
    10,907
    
    
    
    5,344
    
    
    
    4,007
    
    
    
    4,023Depreciation and amortization
    
    
    6,725
    
    
    
    7,868
    
    
    
    5,723
    
    
    
    5,080
    
    
    
    4,002Total operating expenses
    
    
    614,058
    
    
    
    579,512
    
    
    
    376,519
    
    
    
    347,354
    
    
    
    317,828Income from continuing operations before other
income (expense)
    
    
    72,380
    
    
    
    36,538
    
    
    
    21,713
    
    
    
    31,864
    
    
    
    30,764Other income (expense):Interest income
    
    
    479
    
    
    
    1,968
    
    
    
    2,509
    
    
    
    2,576
    
    
    
    1,341Interest expense
    
    
    (6,574
    )
    
    
    (7,430
    )
    
    
    (208
    )
    
    
    (188
    )
    
    
    (198
    )(6,095
    )
    
    
    (5,462
    )
    
    
    2,301
    
    
    
    2,388
    
    
    
    1,143Income from continuing operations before
provision for income taxes
    
    
    66,285
    
    
    
    31,076
    
    
    
    24,014
    
    
    
    34,252
    
    
    
    31,907Provision for income taxes
    
    
    24,583
    
    
    
    11,141
    
    
    
    8,001
    
    
    
    12,124
    
    
    
    13,263Income from continuing operations
    
    
    41,702
    
    
    
    19,935
    
    
    
    16,013
    
    
    
    22,128
    
    
    
    18,644Loss from discontinued operations, net of
income taxes(2)
    
    
    (498
    )
    
    
    (5,252
    )
    
    
    (3,888
    )
    
    
    (2,399
    )
    
    
    (88
    )Net income
    
    
    41,204
    
    
    
    14,683
    
    
    
    12,125
    
    
    
    19,729
    
    
    
    18,556Less: Net income attributable to
noncontrolling interests
    
    
    613
    
    
    
    257
    
    
    
    14
    
    
    
    
    
    
    
    Net income attributable to Odyssey stockholders
    
    $
    40,591
    
    
    $
    14,426
    
    
    $
    12,111
    
    
    $
    19,729
    
    
    $
    18,556Income (loss) per common share:Basic:Continuing operations attributable to
Odyssey stockholders
    
    $
    1.25
    
    
    $
    0.60
    
    
    $
    0.48
    
    
    $
    0.65
    
    
    $
    0.54Discontinued operations attributable to
Odyssey stockholders
    
    $
    (0.02
    )
    
    $
    (0.16
    )
    
    $
    (0.12
    )
    
    $
    (0.07
    )
    
    $
    0.00Net income attributable to Odyssey
stocholders
    
    $
    1.23
    
    
    $
    0.44
    
    
    $
    0.36
    
    
    $
    0.58
    
    
    $
    0.54Diluted:Continuing operations attributable to
Odyssey stockholders
    
    $
    1.24
    
    
    $
    0.59
    
    
    $
    0.48
    
    
    $
    0.64
    
    
    $
    0.53Discontinued operations attributable to
Odyssey stockholders
    
    $
    (0.02
    )
    
    $
    (0.16
    )
    
    $
    (0.12
    )
    
    $
    (0.07
    )
    
    $
    0.00Net income attributable to Odyssey
stocholders
    
    $
    1.22
    
    
    $
    0.43
    
    
    $
    0.36
    
    
    $
    0.57
    
    
    $
    0.53Weighted average shares outstanding:Basic
    
    
    32,935
    
    
    
    32,674
    
    
    
    33,029
    
    
    
    34,145
    
    
    
    34,384Diluted
    
    
    33,225
    
    
    
    33,188
    
    
    
    33,188
    
    
    
    34,529
    
    
    
    34,935
 42




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##### Table of Contents



Year Ended December 31,2009
    
    2008
    
    2007
    
    2006
    
    2005(Unaudited)(Dollars in thousands)Operating Data:Number of
Medicare-certified
hospice programs(3)
    
    
    90
    
    
    
    94
    
    
    
    67
    
    
    
    66
    
    
    
    63Admissions(4)
    
    
    49,513
    
    
    
    46,772
    
    
    
    32,246
    
    
    
    32,001
    
    
    
    30,972Days of care(5)
    
    
    4,518,617
    
    
    
    4,212,771
    
    
    
    2,791,780
    
    
    
    2,747,888
    
    
    
    2,607,854Average daily census(6)
    
    
    12,380
    
    
    
    11,510
    
    
    
    7,649
    
    
    
    7,528
    
    
    
    7,145Cash flows provided by
operating activities
    
    $
    81,650
    
    
    $
    21,049
    
    
    $
    12,814
    
    
    $
    32,623
    
    
    $
    58,171Cash flows (used in)
provided by investing
activities
    
    $
    (4,083
    )
    
    $
    (97,187
    )
    
    $
    4,391
    
    
    $
    (27,183
    )
    
    $
    (52,845
    )Cash flows (used in)
provided by financing
activities
    
    $
    (4,978
    )
    
    $
    119,795
    
    
    $
    (12,391
    )
    
    $
    (13,051
    )
    
    $
    (14,994
    )
 As of December 31,2009
    
    2008
    
    2007
    
    2006
    
    2005(Dollars in thousands)Balance Sheet Data:Working capital
    
    $
    100,280
    
    
    $
    82,429
    
    
    $
    75,275
    
    
    $
    70,555
    
    
    $
    62,639Total assets
    
    $
    503,004
    
    
    $
    460,951
    
    
    $
    275,209
    
    
    $
    269,986
    
    
    $
    244,967Total long-term debt, including current portion
    
    $
    115,202
    
    
    $
    123,075
    
    
    $
    1
    
    
    $
    3
    
    
    $
    9Total Odyssey stockholders equity
    
    $
    248,751
    
    
    $
    200,071
    
    
    $
    182,837
    
    
    $
    179,596
    
    
    $
    167,298
 
 (1)
    
    Includes share-based compensation of $5.1 million, $4.3 million, $3.8 million, $5.6 million
and $0.7 million for the years ended December 31, 2009, 2008, 2007, 2006 and 2005,
respectively. Also, general and administrative expenses include expenses for hospice care and
support center.(2)
    
    See the notes to our consolidated financial statements included elsewhere in this Annual
Report on Form 10-K for a discussion of loss from discontinued operations, net of income
taxes.(3)
    
    Number of Medicare-certified hospice programs at end of each respective year.(4)
    
    Represents the total number of patients admitted into our hospice programs during the period.(5)
    
    Represents the total days of care provided to our patients during the period.(6)
    
    Represents the average number of patients for whom we provided hospice care each day during
the period and is computed by dividing days of care by the number of days during the period. 43




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##### Table of Contents



Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Overview
      Developed Hospices
     44




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Acquisitions
     Discontinued Operations
       45




---



##### Table of Contents



Net Patient Service Revenue
     46




---



##### Table of Contents



Expenses
     47




---



##### Table of Contents



Year Ended December 31,2009
    
    
    2008
    
    
    2007Direct hospice care expenses:Salaries, benefits and payroll taxes
    
    
    38.0
    %
    
    
    38.3
    %
    
    
    39.1
    %Pharmaceuticals
    
    
    4.8
    
    
    
    4.8
    
    
    
    5.2Medical equipment and supplies
    
    
    5.4
    
    
    
    5.8
    
    
    
    5.3Inpatient costs
    
    
    1.9
    
    
    
    2.2
    
    
    
    2.2Other (including medical director fees, contracted patient care
services, nursing home costs and mileage)
    
    
    7.7
    
    
    
    7.6
    
    
    
    6.9Total
    
    
    57.8
    %
    
    
    58.7
    %
    
    
    58.7
    %General and administrative expenses  hospice care:Salaries, benefits and payroll taxes
    
    
    13.1
    %
    
    
    14.0
    %
    
    
    14.5
    %Leases
    
    
    2.7
    
    
    
    2.8
    
    
    
    2.9Other (including insurance, recruiting, travel, telephone and printing)
    
    
    3.8
    
    
    
    4.1
    
    
    
    4.0Total
    
    
    19.6
    %
    
    
    20.9
    %
    
    
    21.4
    %General and administrative expenses  support center:Salaries, benefits and payroll taxes
    
    
    4.8
    %
    
    
    5.9
    %
    
    
    4.6
    %Share-based compensation
    
    
    0.7
    
    
    
    0.7
    
    
    
    1.0Leases
    
    
    0.3
    
    
    
    0.4
    
    
    
    0.4Legal and accounting fees
    
    
    1.1
    
    
    
    1.1
    
    
    
    1.9Other (including insurance, recruiting, travel, telephone and printing)
    
    
    2.5
    
    
    
    3.4
    
    
    
    3.8Total
    
    
    9.4
    %
    
    
    11.5
    %
    
    
    11.7
    %
  Year Ended December 31,2009
    
    
    2008
    
    
    2007Direct hospice care expenses:Salaries, benefits and payroll taxes
    
    $
    57.68
    
    
    $
    56.06
    
    
    $
    55.76Pharmaceuticals
    
    
    7.27
    
    
    
    7.05
    
    
    
    7.43Medical equipment and supplies
    
    
    8.23
    
    
    
    8.44
    
    
    
    7.53Inpatient costs
    
    
    2.95
    
    
    
    3.18
    
    
    
    3.09Other (including medical director fees, contracted patient care
services, nursing home costs and mileage)
    
    
    11.68
    
    
    
    11.07
    
    
    
    9.89Total
    
    $
    87.81
    
    
    $
    85.80
    
    
    $
    83.70General and administrative expenses  hospice care:Salaries, benefits and payroll taxes
    
    $
    19.92
    
    
    $
    20.52
    
    
    $
    20.69Leases
    
    
    4.10
    
    
    
    4.04
    
    
    
    4.14Other (including insurance, recruiting, travel, telephone and printing)
    
    
    5.71
    
    
    
    5.99
    
    
    
    5.73Total
    
    $
    29.73
    
    
    $
    30.55
    
    
    $
    30.56
 48




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##### Table of Contents



Share-based Compensation Charges
   Provision for Income Taxes
  Critical Accounting Policies
  Net Patient Service Revenue and Allowance for Uncollectible Accounts
   49




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Medicare Regulation and Contractual Adjustments
 The Medicare Cap.
 Dollar Amount Cap.
 Inpatient Care Cap
  Accrued Medicare Cap Contractual AdjustmentsYear Ending December 31,2007
    
    
    2008
    
    
    2009(in thousands)Beginning balance  accrued Medicare
cap contractual adjustments
    
    $
    26,679
    
    
    $
    21,682
    
    
    $
    23,719Medicare cap contractual adjustments
    
    
    5,039
    (1)
    
    
    6,852
    (2)
    
    
    4,565
    (3)Medicare cap contractual adjustments 
discontinued operations
    
    
    2,651
    (4)
    
    
    (27
    )(4)
    
    
    (79
    )(4)Payments to Medicare fiscal intermediaries
    
    
    (12,687
    )
    
    
    (12,996
    )
    
    
    (9,407
    )Balances acquired from VistaCare
    
    
    
    
    
    
    8,208
    
    
    
    Ending balance  accrued Medicare cap
contractual adjustments
    
    $
    21,682
    
    
    $
    23,719
    
    
    $
    18,798
 
 (1)
    
    Includes additional accrual of $0.9 million related to the 2006 Medicare cap year.(2)
    
    Includes additional accrual of $1.5 million related to the 2006 Medicare cap year.(3)
    
    Includes an accrual reversal of $1.1 million related to the 2007 Medicare cap year.(4)
    
    Medicare cap contractual adjustments reclassified to discontinued operations are related to
all programs that were discontinued and sold during 2007, 2008 and 2009.  50




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Insurance Risks
  Goodwill and Indefinite-lived Intangible Assets
    51




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Income Taxes
   Results of Operations
  Year Ended December 31,2009
    
    2008
    
    2007Net patient service revenue
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %Operating expenses:Direct hospice care
    
    
    57.8
    
    
    
    58.7
    
    
    
    58.7General and administrative  hospice care
    
    
    19.6
    
    
    
    20.9
    
    
    
    21.4General and administrative  support center
    
    
    9.4
    
    
    
    11.5
    
    
    
    11.7Provision for uncollectible accounts
    
    
    1.7
    
    
    
    1.8
    
    
    
    1.3Depreciation and amortization
    
    
    1.0
    
    
    
    1.2
    
    
    
    1.489.5
    
    
    
    94.1
    
    
    
    94.5Income from continuing operations before other income (expense)
    
    
    10.5
    
    
    
    5.9
    
    
    
    5.5Other income (expense), net
    
    
    (0.8
    )
    
    
    (0.9
    )
    
    
    0.5Income from continuing operations before provision for income taxes
    
    
    9.7
    
    
    
    5.0
    
    
    
    6.0Provision for income taxes
    
    
    (3.6
    )
    
    
    (1.8
    )
    
    
    (2.0
    )Income from continuing operations
    
    
    6.1
    
    
    
    3.2
    
    
    
    4.0Loss from discontinued operations, net of income taxes
    
    
    (0.1
    )
    
    
    (0.8
    )
    
    
    (1.0
    )Net income
    
    
    6.0
    
    
    
    2.4
    
    
    
    3.0Less: Net income attributable to noncontrolling interests
    
    
    (0.1
    )
    
    
    (0.1
    )
    
    
    0.0Net income attributable to Odyssey stockholders
    
    
    5.9
    %
    
    
    2.3
    %
    
    
    3.0
    %
 52




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##### Table of Contents



Year Ended December 31, 2009 Compared to Year Ended December 31, 2008
  Year Ended December 31,2009
    
    
    2008
    
    
    $ Change
    
    
    % Change(In thousands, except % change)Net patient service revenue
    
    $
    686,438
    
    
    $
    616,050
    
    
    $
    70,388
    
    
    
    11.4
    %Operating expenses:Direct hospice care
    
    
    396,774
    
    
    
    361,445
    
    
    
    35,329
    
    
    
    9.8General and administrative  hospice care
    
    
    134,335
    
    
    
    128,718
    
    
    
    5,617
    
    
    
    4.4General and administrative  support center
    
    
    64,734
    
    
    
    70,574
    
    
    
    (5,840
    )
    
    
    (8.3
    )Provision for uncollectible accounts
    
    
    11,490
    
    
    
    10,907
    
    
    
    583
    
    
    
    5.3Depreciation and amortization
    
    
    6,725
    
    
    
    7,868
    
    
    
    (1,143
    )
    
    
    (14.5
    )614,058
    
    
    
    579,512
    
    
    
    34,546
    
    
    
    6.0Income from continuing operations before other income
(expense)
    
    
    72,380
    
    
    
    36,538
    
    
    
    35,842
    
    
    
    98.1Other expense
    
    
    (6,095
    )
    
    
    (5,462
    )
    
    
    (633
    )
    
    
    (11.6
    )Income from continuing operations before provision for
income taxes
    
    
    66,285
    
    
    
    31,076
    
    
    
    35,209
    
    
    
    113.3Provision for income taxes
    
    
    24,583
    
    
    
    11,141
    
    
    
    13,442
    
    
    
    120.7Income from continuing operations
    
    
    41,702
    
    
    
    19,935
    
    
    
    21,767
    
    
    
    109.2Loss from discontinued operations, net of income taxes
    
    
    (498
    )
    
    
    (5,252
    )
    
    
    4,754
    
    
    
    90.5Net income
    
    
    41,204
    
    
    
    14,683
    
    
    
    26,521
    
    
    
    180.6Less: Net income attributable to noncontrolling interests
    
    
    613
    
    
    
    257
    
    
    
    356
    
    
    
    138.5Net income attributable to Odyssey stockholders
    
    $
    40,591
    
    
    $
    14,426
    
    
    $
    26,165
    
    
    
    181.4
    %
 Net Patient Service Revenue
  Direct Hospice Care Expenses
  53




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General and Administrative Expenses  Hospice Care
  General and Administrative Expenses  Support Center
  Provision for Uncollectible Accounts
  Depreciation and Amortization Expense
  Other Expense
  54




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##### Table of Contents



Provision for Income Taxes
  Year Ended December 31, 2008 Compared to Year Ended December 31, 2007
  Year Ended December 31,2008
    
    
    2007
    
    
    $ Change
    
    
    % Change(In thousands, except % change)Net patient service revenue
    
    $
    616,050
    
    
    $
    398,232
    
    
    $
    217,818
    
    
    
    54.7
    %Operating expenses:Direct hospice care
    
    
    361,445
    
    
    
    233,664
    
    
    
    127,781
    
    
    
    54.7General and administrative  hospice care
    
    
    128,718
    
    
    
    85,304
    
    
    
    43,414
    
    
    
    50.9General and administrative  support center
    
    
    70,574
    
    
    
    46,484
    
    
    
    24,090
    
    
    
    51.8Provision for uncollectible accounts
    
    
    10,907
    
    
    
    5,344
    
    
    
    5,563
    
    
    
    104.1Depreciation and amortization
    
    
    7,868
    
    
    
    5,723
    
    
    
    2,145
    
    
    
    37.5579,512
    
    
    
    376,519
    
    
    
    202,993
    
    
    
    53.9Income from continuing operations before other income
(expense)
    
    
    36,538
    
    
    
    21,713
    
    
    
    14,825
    
    
    
    68.3Other income (expense)
    
    
    (5,462
    )
    
    
    2,301
    
    
    
    (7,763
    )
    
    
    (337.4
    )Income from continuing operations before provision for
income taxes
    
    
    31,076
    
    
    
    24,014
    
    
    
    7,062
    
    
    
    29.4Provision for income taxes
    
    
    11,141
    
    
    
    8,001
    
    
    
    3,140
    
    
    
    39.2Income from continuing operations
    
    
    19,935
    
    
    
    16,013
    
    
    
    3,922
    
    
    
    24.5Loss from discontinued operations, net of income taxes
    
    
    (5,252
    )
    
    
    (3,888
    )
    
    
    1,364
    
    
    
    35.1Net income
    
    
    14,683
    
    
    
    12,125
    
    
    
    2,558
    
    
    
    21.1
    %Less: Net income attributable to noncontrolling interests
    
    
    257
    
    
    
    14
    
    
    
    243
    
    
    
    1,735.7Net income attributable to Odyssey stockholders
    
    $
    14,426
    
    
    $
    12,111
    
    
    $
    2,315
    
    
    
    19.1
    %
 Net Patient Service Revenue
  55




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Direct Hospice Care Expenses
  General and Administrative Expenses  Hospice Care
  General and Administrative Expenses  Support Center
  Provision for Uncollectible Accounts
  Depreciation and Amortization Expense
  56




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Other Income (Expense)
  Provision for Income Taxes
  Liquidity and Capital Resources
      57




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58




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59




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Contractual Obligations
  Payments Due by PeriodLess Than
    
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 Years(In thousands)Long-Term Debt
    
    $
    115,202
    
    
    $
    38,675
    
    
    $
    20,291
    
    
    $
    56,236
    
    
    $
    Operating Leases
    
    
    64,420
    
    
    
    17,931
    
    
    
    26,114
    
    
    
    15,865
    
    
    
    4,510Total Contractual Obligations
    
    $
    179,622
    
    
    $
    56,606
    
    
    $
    46,405
    
    
    $
    72,101
    
    
    $
    4,510
 Off-Balance Sheet Arrangements
  Interest Rate and Foreign Exchange Risk
 Interest Rate Risk.
 Foreign Exchange.
 60




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Recent Accounting Pronouncements
     61




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62




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Payment, Legislative and Regulatory Changes
  Inflation
  
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 8. Financial Statements and Supplementary Data
  
 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
  63




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Item 9A.
    Controls and Procedures
   Managements Report on Internal Control over Financial Reporting.
   Internal Control Integrated Framework.
  64




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Report of Ernst & Young LLP, Independent Registered Public Accounting Firm
 The Board of Directors and Shareholders of Odyssey HealthCare, Inc.
       /s/ Ernst & Young LLP   65




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##### Table of Contents



Item 9A(T). Controls and Procedures
 .
 
 Item 9B. Other Information
  
 PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance
  
 Item 11. Executive Compensation
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
  Equity-Based Compensation Plans.
 EQUITY COMPENSATION PLAN INFORMATION
 (c)(a)
    
    
    
    
    
    
    Number of SecuritiesNumber of Securities
    
    
    
    
    
    
    Remaining Availableto be Issued
    
    
    (b)
    
    
    for Future IssuanceUpon Exercise of
    
    
    Weighted-Average
    
    
    Under Equity CompensationOutstanding Options,
    
    
    Exercise Price of
    
    
    Plans (ExcludingWarrants, Awards
    
    
    Outstanding Options,
    
    
    SecuritiesPlan Category
    
    and Rights
    
    
    Warrants, and Rights
    
    
    Reflected in Column(a))(In thousands, except weighted average exercise price)Equity
Compensation Plans
Approved by
Stockholders
    
    
    2,826
    (1)
    
    $
    16.01
    
    
    
    1,473Equity Compensation
Plans Not Approved
by Stockholders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    2,826
    
    
    $
    16.01
    
    
    
    1,473
 66




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##### Table of Contents



(1)
    
    Includes 1,433,726 options outstanding and 1,392,202 unvested restricted stock awards and
units at December 31, 2009. Restricted stock awards and units are not included in the
calculation of the weighted-average exercise price since there is no exercise price associated
with the award. 
 Item 13. Certain Relationships and Related Transactions, and Director Independence
  
 Item 14. Principal Accountant Fees and Services
  
 PART IV
 
 Item 15. Exhibits and Financial Statement Schedules
     ExhibitNumber
    
    Description2.1 
    
    Agreement and Plan of Merger, dated January 15, 2008, among Odyssey
HealthCare Holding Company, OHC Investment, Inc. and VistaCare, Inc.
(incorporated by reference to Exhibit 2.1 to Odyssey HealthCare,
Incs (the Company) Current Report on Form 8-K as filed with the
Securities and Exchange Commission (the Commission) on January 15,
2008)(1)2.2 
    
    Form of Stockholder Agreement, dated January 15, 2008, among Odyssey
HealthCare Holding Company, OHC Investment, Inc. and each of the
following directors and executive officers of VistaCare, Inc.: Richard R. Slager, John Crisci, Stephen Lewis, Roseanne Berry, Henry
Hirvela, James T. Robinson, James C. Crews, Jon M. Donnell, Jack A.
Henry, Geneva B. Johnson, Pete A. Klisares and Brian S. Tyler
(incorporated by reference to Exhibit 2.2 to the Companys Current
Report on Form 8-K as filed with the Commission on January 15, 2008)3.1 
    
    Fifth Amended and Restated Certificate of Incorporation
(incorporated by reference to Exhibit 3.1 to the Companys Amendment
No. 2 to Registration Statement on Form S-1 (Registration No.
333-51522) as filed with the Commission on September 13, 2001)3.2 
    
    Second Amended and Restated Bylaws (incorporated by reference to
Exhibit 3.2 to the Companys Registration Statement on Form S-1
(Registration No. 333-51522) as filed with the Commission on
December 8, 2000)3.3 
    
    First Amendment to the Second Amended and Restated Bylaws of Odyssey
HealthCare, Inc., effective as of December 20, 2007 (incorporated by
reference to Exhibit 3.2 to the Companys Current Report on Form 8-K
as filed with the Commission on December 21, 2007)3.4 
    
    Second Amendment to the Second Amended and Restated Bylaws of
Odyssey HealthCare, Inc., effective as of May 20, 2008 (incorporated
by reference to Exhibit 3.1 to the Companys Current
 67




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ExhibitNumber
    
    DescriptionReport on Form
8-K as filed with the Commission on May 20, 2008)4.1 
    
    Form of Common Stock Certificate (incorporated by reference to
Exhibit 4.1 to the Companys Amendment No. 1 to Registration
Statement on Form S-1 (Registration No. 333-51522) as filed with the
Commission on August 2, 2001)4.2 
    
    Rights Agreement (the Rights Agreement) dated November 5, 2001,
between Odyssey HealthCare, Inc. and Rights Agent (incorporated by
reference to Exhibit 4.1 to the Companys Registration Statement on
Form 8-A as filed with the Commission on December 8, 2001)4.3 
    
    Form of Certificate of Designation of Series A Junior Participating
Preferred Stock (included as Exhibit A to the Rights Agreement
(Exhibit 4.3 hereto))10.1.1 
    
    Second Amended and Restated Credit Agreement, dated February 28,
2008, by and among General Electric Capital Corporation, a Delaware
corporation, individually as Lender and as Agent for the Lenders,
the other Lenders signatory thereto, Odyssey HealthCare Operating A,
LP, a Delaware limited partnership, Odyssey HealthCare Operating B,
LP, a Delaware limited partnership, Hospice of the Palm Coast, Inc.,
a Florida not for profit corporation, OHC Investment Inc., a
Delaware corporation, and the other Credit Parties signatory thereto
(incorporated by reference to Exhibit 10.1 to the Companys Current
Report on Form 8-K as filed with the Commission on March 4, 2008)10.1.2 
    
    Amendment No. 1 to Second Amended and Restated Credit Agreement,
dated November 7, 2008, by and among General Electric Capital
Corporation, a Delaware corporation, individually as Lender and as
Agent for the Lenders, the other Lenders signatory thereto, Odyssey
HealthCare Operating A, LP, a Delaware limited partnership, Odyssey
HealthCare Operating B, LP, a Delaware limited partnership, Hospice
of the Palm Coast, Inc., a Florida not for profit corporation, and
VistaCare, Inc., a Delaware corporation (incorporated by reference
to Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q as
filed with the Commission on November 10, 2008)10.2 
    
    Amended and Restated Employment Agreement, by and between Odyssey
HealthCare, Inc. and Robert A. Lefton, effective as of October 11,
2005 (unless otherwise specified therein) (incorporated by reference
to Exhibit 10.1 to the Companys Current Report on Form 8-K as filed
with the Commission on December 24, 2008)10.3 
    
    Amended and Restated Employment Agreement, by and between Odyssey
HealthCare, Inc. and Brenda A. Belger, effective as of August 1,
2005 (unless otherwise specified therein) (incorporated by reference
to Exhibit 10.4 to the Companys Current Report on Form 8-K as filed
with the Commission on December 24, 2008)10.4 
    
    Amended and Restated Employment Agreement, by and between Odyssey
HealthCare, Inc. and W. Bradley Bickham, effective as of August 1,
2005 (unless otherwise specified therein) (incorporated by reference
to Exhibit 10.3 to the Companys Current Report on Form 8-K as filed
with the Commission on December 24, 2008)
 68




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ExhibitNumber
    
    Description10.5 
    
    Amended and Restated Employment Agreement, by and between Odyssey
HealthCare, Inc. and R. Dirk Allison, effective as of October 30,
2006 (unless otherwise specified therein) (incorporated by reference
to Exhibit 10.2 to the Companys Current Report on Form 8-K as filed
with the Commission on December 24, 2008)10.6.1 
    
    Amended and Restated Employment Agreement, by and between Odyssey
HealthCare, Inc. and Craig P. Goguen, effective as of August 20,
2007 (unless otherwise specified therein) (incorporated by reference
to Exhibit 10.5 to the Companys Current Report on Form 8-K as filed
with the Commission on December 24, 2008)10.7 
    
    Employment Agreement, by and between Odyssey HealthCare, Inc. and
Frank Anastasio, dated March 17, 2008 (incorporated by reference to
Exhibit 10.1 to the Companys Current Report on Form 8-K as filed
with the Commission on March 21, 2008)10.8 
    
    Agreement by and among Odyssey HealthCare, Inc. and Richard R.
Burnham, effective as of January 1, 2007 (incorporated by reference
to Exhibit 10.1 to the Companys Current Report on Form 8-K as filed
with the Commission on January 5, 2007)10.9.1 
    
    Odyssey HealthCare, Inc. Stock Option Plan (the Stock Option Plan)
(incorporated by reference to Exhibit 10.5 to the Companys
Registration Statement on Form S-1 (Registration No. 333-51522) as
filed with the Commission on December 8, 2000)10.9.2 
    
    First Amendment to the Stock Option Plan, dated January 31, 2001
(incorporated by reference to Exhibit 10.5.2 to the Companys
Amendment No. 2 to Registration Statement on Form S-1 (Registration
No. 333-51522) as filed with the Commission on September 13, 2001)10.10.1 
    
    2001 Equity-Based Compensation Plan (incorporated by reference to
Exhibit 10.6 to the Companys Amendment No. 2 to Registration
Statement on Form S-1 (Registration No. 333-51522) as filed with the
Commission on September 13, 2001)10.10.2 
    
    First Amendment to the 2001 Equity-Based Compensation Plan, dated
May 5, 2005 (incorporated by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K as filed with the Commission On
May 5, 2005)10.10.3 
    
    Second Amendment to the 2001 Equity-Based Compensation Plan, dated
May 5, 2005 (incorporated by reference to Exhibit 10.2 to the
Companys Quarterly Report on Form 10-Q as filed with the Commission
on August 8, 2005)10.10.4 
    
    Form of Restricted Stock Award Agreement pursuant to the 2001 Equity
 Based Compensation Plan Management Stock Option Agreement*10.10.5 
    
    Odyssey HealthCare, Inc. Equity-Based Compensation Plan Management
Stock Option Agreement, dated October 11, 2005, by and between
Odyssey HealthCare, Inc. and Robert A. Lefton (incorporated by
reference to Exhibit 10.2 to the Companys Current Report on Form
8-K as filed with the Commission on October 12, 2005)10.10.6 
    
    Form of Restricted Stock Unit Award Agreement under the Odyssey
HealthCare Inc. 2001 Equity Based Compensation Plan  Time Based RSU
Award (incorporated by reference to Exhibit 10.1 to the Companys
Current Report on Form 8-K as filed with the Commission on February
26, 2007)10.10.7 
    
    Form Restricted Stock Unit Award Agreement under the Odyssey
HealthCare Inc. 2001 Equity Based Compensation Plan  Additional
Incentive Based RSU Award (incorporated by reference to Exhibit 10.1
to the Companys Current Report on Form 8-K as filed with the
Commission on February 26, 2007)10.10.8 
    
    Form of Restricted Stock Award Agreement under the Odyssey
HealthCare, Inc. 2001 Equity-Based Compensation Plan  Non-Employee
Director Award (incorporated by reference to Exhibit 10.4 to the
Companys Quarterly Report on Form 10-Q as filed with the Commission
on November 9, 2007)10.11.1 
    
    Employee Stock Purchase Plan (incorporated by reference to Exhibit
10.7 to the Companys Amendment No. 2 to Registration Statement on
Form S-1 (Registration No. 333-51522) as filed with the Commission
on September 13, 2001)10.11.2 
    
    First Amendment to Employee Stock Purchase Plan, dated March 6, 2002*10.12 
    
    Form of Indemnification Agreement between Odyssey HealthCare, Inc.
and its directors and officers (incorporated by reference to Exhibit
10.8 to the Companys Registration Statement on Form S-1
(Registration No. 333-51522) as filed with the Commission on
December 8, 2000)
 69




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ExhibitNumber
    
    Description10.13 
    
    Settlement Agreement, dated July 6, 2006, among the United States of
America acting through the entities named therein, JoAnn Russell and
Odyssey HealthCare, Inc. (incorporated by reference to Exhibit 10.1
to the Companys Current Report on Form 8-K as filed with the
Commission on July 12, 2006)10.14 
    
    Corporate Integrity Agreement, dated July 6, 2006, between the
Office of Inspector General of the Department of Health and Human
Services and Odyssey HealthCare, Inc. (incorporated by Reference to
Exhibit 10.2 to the Companys Current Report on Form 8-K as filed
with the Commission on July 12, 2006)21 
    
    Subsidiaries of Odyssey HealthCare, Inc.*23.1 
    
    Consent of Ernst & Young LLP*31.1 
    
    Certification required by Rule 13a-14(a), dated March 10, 2010, by
Robert A. Lefton, Chief Executive Officer*31.2 
    
    Certification required by Rule 13a-14(a), dated March 10, 2010, by
R. Dirk Allison, Chief Financial Officer*32 
    
    Certification required by Rule 13a-14(b), dated March 10, 2010, by
Robert A. Lefton, Chief Executive Officer, and R. Dirk Allison,
Chief Financial Officer**
 
 
    
    Management contract or compensatory plan or arrangement.*
    
    Filed herewith.**
    
    Furnished herewith.(1)
    
    The schedules and exhibits to the Agreement and Plan of Merger have been omitted from this
filing pursuant to Item 601(b)(2) of Regulation S-K. The Company will furnish copies of any
such schedules and exhibits to the SEC upon request. 70




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SIGNATURES
  ODYSSEY HEALTHCARE, INC.By:
    /s/ ROBERT A. LEFTONRobert A. LeftonPresident and Chief Executive Officer   Signature
    
    Title
    
    Date/s/ ROBERT A. LEFTON

Robert A. Lefton
    
    President, Chief Executive Officer, and Director
(Principal Executive Officer)
    
    March 10, 2010/s/ R. DIRK ALLISON

R. Dirk Allison
    
    Senior Vice President, Chief Financial Officer, Assistant
Secretary and Treasurer (Principal 
Financial and Accounting Officer)
    
    March 10, 2010/s/ RICHARD R. BURNHAM

Richard R. Burnham
    
    Chairman of the Board
    
    March 10, 2010/s/ JAMES E. BUNCHER

James E. Buncher
    
    Director
    
    March 10, 2010/s/ JOHN K. CARLYLE

John K. Carlyle
    
    Director
    
    March 10, 2010/s/ DAVID W. CROSS

David W. Cross
    
    Director
    
    March 10, 2010/s/ PAUL J. FELDSTEIN

Paul J. Feldstein
    
    Director
    
    March 10, 2010/s/ ROBERT A. ORTENZIO

Robert A. Ortenzio
    
    Director
    
    March 10, 2010/s/ SHAWN S. SCHABEL

Shawn S. Schabel
    
    Director
    
    March 10, 2010/s/ DAVID L. STEFFY

David L. Steffy
    
    Director
    
    March 10, 2010
 71




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ODYSSEY HEALTHCARE, INC. AND SUBSIDIARIES
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 PageOdyssey HealthCare, Inc.Report of Ernst & Young LLP, Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Balance Sheets as of December 31, 2009 and 2008
    
    
    F-3Consolidated Statements of Income for the years ended December 31, 2009, 2008 and 2007
    
    
    F-4Consolidated Statements of Stockholders Equity for the years ended December 31, 2009, 2008 and 2007
    
    
    F-5Consolidated Statements of Cash Flows for the years ended December 31, 2009, 2008 and 2007
    
    
    F-6Notes to Consolidated Financial Statements for the years ended December 31, 2009, 2008 and 2007
    
    
    F-7
 F-1




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Report of Ernst & Young LLP, Independent Registered Public Accounting Firm
 The Board of Directors and Shareholders of Odyssey HealthCare, Inc.
      /s/ Ernst & Young LLP   F-2




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ODYSSEY HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 December 31,2009
    
    
    2008(In thousands, exceptshare and per share amounts)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    128,632
    
    
    $
    56,043Accounts receivable from patient services, net of
allowance for uncollectible accounts of $12,462 and
$9,789 at December 31, 2009 and 2008, respectively
    
    
    110,593
    
    
    
    127,922Income taxes receivable
    
    
    352
    
    
    
    66Deferred tax assets
    
    
    10,235
    
    
    
    13,319Prepaid expenses and other current assets
    
    
    6,017
    
    
    
    7,906Assets of discontinued operations
    
    
    
    
    
    
    2,067Total current assets
    
    
    255,829
    
    
    
    207,323Property and equipment, net of accumulated depreciation
    
    
    20,700
    
    
    
    22,816Deferred loan costs, net
    
    
    3,033
    
    
    
    3,761Long-term investments
    
    
    12,425
    
    
    
    16,659Intangibles, net of accumulated amortization
    
    
    19,251
    
    
    
    19,644Goodwill
    
    
    191,766
    
    
    
    189,521Other assets
    
    
    
    
    
    
    1,227Total assets
    
    $
    503,004
    
    
    $
    460,951LIABILITIES AND EQUITYCurrent liabilities:Accounts payable
    
    $
    4,016
    
    
    $
    4,906Accrued compensation
    
    
    31,729
    
    
    
    27,493Accrued nursing home costs
    
    
    18,144
    
    
    
    16,478Accrued Medicare cap contractual adjustments
    
    
    18,798
    
    
    
    23,719Other accrued expenses
    
    
    44,187
    
    
    
    45,904Current maturities of long-term debt
    
    
    38,675
    
    
    
    6,394Total current liabilities
    
    
    155,549
    
    
    
    124,894Long-term debt, less current maturities
    
    
    76,527
    
    
    
    116,681Deferred tax liabilities
    
    
    15,171
    
    
    
    13,610Other liabilities
    
    
    4,597
    
    
    
    3,233Commitments and contingencies
    
    
    
    
    
    
    Equity:Odyssey stockholders equity:Common stock, $.001 par value: 75,000,000
shares authorized  38,549,833 and
38,137,834 shares issued at December 31, 2009 and
2008, respectively
    
    
    39
    
    
    
    38Additional paid-in capital
    
    
    125,716
    
    
    
    117,732Retained earnings
    
    
    194,431
    
    
    
    153,840Accumulated other comprehensive loss, net of income taxes
    
    
    (1,481
    )
    
    
    (1,585
    )Treasury stock, at cost, 5,347,072 shares held at
December 31, 2009 and 2008, respectively
    
    
    (69,954
    )
    
    
    (69,954
    )Total Odyssey stockholders equity
    
    
    248,751
    
    
    
    200,071Noncontrolling interests
    
    
    2,409
    
    
    
    2,462Total equity
    
    
    251,160
    
    
    
    202,533Total liabilities and equity
    
    $
    503,004
    
    
    $
    460,951
 F-3




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ODYSSEY HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
 Year Ended December 31,2009
    
    
    2008
    
    
    2007(In thousands, except per share amounts)Net patient service revenue
    
    $
    686,438
    
    
    $
    616,050
    
    
    $
    398,232Operating expenses:Direct hospice care
    
    
    396,774
    
    
    
    361,445
    
    
    
    233,664General and administrative  hospice care
    
    
    134,335
    
    
    
    128,718
    
    
    
    85,304General and administrative  support center
    
    
    64,734
    
    
    
    70,574
    
    
    
    46,484Provision for uncollectible accounts
    
    
    11,490
    
    
    
    10,907
    
    
    
    5,344Depreciation
    
    
    6,333
    
    
    
    7,437
    
    
    
    5,480Amortization
    
    
    392
    
    
    
    431
    
    
    
    243614,058
    
    
    
    579,512
    
    
    
    376,519Income from continuing operations before other income (expense)
    
    
    72,380
    
    
    
    36,538
    
    
    
    21,713Other income (expense):Interest income
    
    
    479
    
    
    
    1,968
    
    
    
    2,509Interest expense
    
    
    (6,574
    )
    
    
    (7,430
    )
    
    
    (208
    )(6,095
    )
    
    
    (5,462
    )
    
    
    2,301Income from continuing operations before provision for income taxes
    
    
    66,285
    
    
    
    31,076
    
    
    
    24,014Provision for income taxes
    
    
    24,583
    
    
    
    11,141
    
    
    
    8,001Income from continuing operations
    
    
    41,702
    
    
    
    19,935
    
    
    
    16,013Loss from discontinued operations, net of income taxes
    
    
    (498
    )
    
    
    (5,252
    )
    
    
    (3,888
    )Net income
    
    
    41,204
    
    
    
    14,683
    
    
    
    12,125Less: Net income attributable to noncontrolling interests
    
    
    613
    
    
    
    257
    
    
    
    14Net income attributable to Odyssey stockholders
    
    $
    40,591
    
    
    $
    14,426
    
    
    $
    12,111Income (loss) per common share:Basic:Continuing operations attributable to Odyssey stockholders
    
    $
    1.25
    
    
    $
    0.60
    
    
    $
    0.48Discontinued operations attributable to Odyssey stockholders
    
    
    (0.02
    )
    
    
    (0.16
    )
    
    
    (0.12
    )Net income attributable to Odyssey stockholders
    
    $
    1.23
    
    
    $
    0.44
    
    
    $
    0.36Diluted:Continuing operations attributable to Odyssey stockholders
    
    $
    1.24
    
    
    $
    0.59
    
    
    $
    0.48Discontinued operations attributable to Odyssey stockholders
    
    
    (0.02
    )
    
    
    (0.16
    )
    
    
    (0.12
    )Net income attributable to Odyssey stockholders
    
    $
    1.22
    
    
    $
    0.43
    
    
    $
    0.36Weighted average shares outstanding:Basic
    
    
    32,935
    
    
    
    32,674
    
    
    
    33,029Diluted
    
    
    33,225
    
    
    
    33,188
    
    
    
    33,188
 F-4




---



##### Table of Contents



ODYSSEY HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 Additional
    
    
    
    
    
    
    Accumulated Other
    
    
    
    
    
    
    
    
    
    
    TotalCommon Stock
    
    
    Paid-in
    
    
    Retained
    
    
    Comprehensive
    
    
    Treasury
    
    
    Noncontrolling
    
    
    StockholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Earnings
    
    
    Loss
    
    
    Stock
    
    
    Interests
    
    
    Equity(Amounts in thousands)Balance at January 1, 2007
    
    
    37,870
    
    
    $
    38
    
    
    $
    108,682
    
    
    $
    126,921
    
    
    $
    
    
    
    $
    (56,045
    )
    
    $
    
    
    
    $
    179,596Share-based compensation
    
    
    9
    
    
    
    
    
    
    
    3,829
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,829Income tax benefit on
share-based compensation
    
    
    
    
    
    
    
    
    
    
    119
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    119Exercise of stock options
    
    
    161
    
    
    
    
    
    
    
    472
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    472Issuance of shares under
Employee Stock Purchase Plan
    
    
    23
    
    
    
    
    
    
    
    237
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    237Purchase of treasury stock,
at cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,909
    )
    
    
    
    
    
    
    (13,909
    )Cumulative effect of change
in accounting for
uncertainties in income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    382
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    382Transactions between Odyssey
and noncontrolling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    881
    
    
    
    881Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,111
    
    
    
    
    
    
    
    
    
    
    
    14
    
    
    
    12,125Balance at December 31, 2007
    
    
    38,063
    
    
    
    38
    
    
    
    113,339
    
    
    
    139,414
    
    
    
    
    
    
    
    (69,954
    )
    
    
    895
    
    
    
    183,732Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,426
    
    
    
    
    
    
    
    
    
    
    
    257
    
    
    
    14,683Unrealized loss on interest
rate swaps, net of income
taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,303
    )
    
    
    
    
    
    
    
    
    
    
    (1,303
    )Unrealized loss on auction
rate securities, net of
income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (282
    )
    
    
    
    
    
    
    
    
    
    
    (282
    )Total comprehensive income,
net of income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,098Transactions between Odyssey
and noncontrolling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,310
    
    
    
    1,310Share-based compensation
    
    
    80
    
    
    
    
    
    
    
    4,347
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,347Income tax benefit on
share-based compensation
    
    
    
    
    
    
    
    
    
    
    150
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    150Shares redeemed for employee
tax withholdings
    
    
    (35
    )
    
    
    
    
    
    
    (336
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (336
    )Exercise of stock options
    
    
    11
    
    
    
    
    
    
    
    50
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50Issuance of shares under
Employee Stock Purchase Plan
    
    
    19
    
    
    
    
    
    
    
    182
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    182Balance at December 31, 2008
    
    
    38,138
    
    
    
    38
    
    
    
    117,732
    
    
    
    153,840
    
    
    
    (1,585
    )
    
    
    (69,954
    )
    
    
    2,462
    
    
    
    202,533Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,591
    
    
    
    
    
    
    
    
    
    
    
    613
    
    
    
    41,204Unrealized gain on interest
rate swaps, net of income
taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    185
    
    
    
    
    
    
    
    
    
    
    
    185Unrealized loss on auction
rate securities, net of
income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (81
    )
    
    
    
    
    
    
    
    
    
    
    (81
    )Total comprehensive income,
net of income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41,308Transactions between Odyssey
and noncontrolling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (666
    )
    
    
    (666
    )Share-based compensation
    
    
    138
    
    
    
    
    
    
    
    5,083
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,083Income tax benefit on
share-based compensation
    
    
    
    
    
    
    
    
    
    
    1,345
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,345Shares redeemed for employee
tax withholdings
    
    
    
    
    
    
    
    
    
    
    (658
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (658
    )Exercise of stock options
    
    
    274
    
    
    
    1
    
    
    
    2,214
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,215Balance at December 31, 2009
    
    
    38,550
    
    
    $
    39
    
    
    $
    125,716
    
    
    $
    194,431
    
    
    $
    (1,481
    )
    
    $
    (69,954
    )
    
    $
    2,409
    
    
    $
    251,160
 F-5




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##### Table of Contents



ODYSSEY HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 Year Ended December 31,2009
    
    
    2008
    
    
    2007(In thousands)Operating Activities:Net income attributable to Odyssey stockholders
    
    $
    40,591
    
    
    $
    14,426
    
    
    $
    12,111Adjustments to reconcile net income to net cash provided by
operating activities and discontinued operations:Loss from discontinued operations, net of taxes
    
    
    498
    
    
    
    5,252
    
    
    
    3,888Net income attributable to noncontrolling interests
    
    
    613
    
    
    
    257
    
    
    
    14Loss on disposal of property and equipment
    
    
    410
    
    
    
    150
    
    
    
    211Depreciation and amortization
    
    
    6,725
    
    
    
    7,868
    
    
    
    5,723Amortization of deferred loan costs
    
    
    728
    
    
    
    892
    
    
    
    113Share-based compensation expense
    
    
    5,083
    
    
    
    4,347
    
    
    
    3,829Deferred income taxes
    
    
    4,588
    
    
    
    (2,233
    )
    
    
    (1,408
    )Provision for uncollectible accounts
    
    
    11,490
    
    
    
    10,907
    
    
    
    5,344Changes in operating assets and liabilities, net of acquisitions:Accounts receivable from patient services
    
    
    7,240
    
    
    
    (21,980
    )
    
    
    (18,770
    )Prepaid expenses and other current assets
    
    
    2,919
    
    
    
    3,108
    
    
    
    458Accounts payable, accrued nursing home costs, accrued
Medicare cap contractual adjustments and other accrued
expenses
    
    
    765
    
    
    
    (1,945
    )
    
    
    1,301Net cash provided by operating activities
    
    
    81,650
    
    
    
    21,049
    
    
    
    12,814Investing Activities:Cash paid for acquisitions, net of cash acquired
    
    
    (3,035
    )
    
    
    (126,796
    )
    
    
    724Cash received from the sale of hospice programs and property
    
    
    1,490
    
    
    
    1,344
    
    
    
    698Purchases of short-term and long-term investments
    
    
    
    
    
    
    (9,000
    )
    
    
    (49,053
    )Sales of short-term and long-term investments
    
    
    4,100
    
    
    
    41,693
    
    
    
    61,650Purchases of property and equipment, net
    
    
    (6,638
    )
    
    
    (4,428
    )
    
    
    (9,628
    )Net cash (used in) provided by investing activities
    
    
    (4,083
    )
    
    
    (97,187
    )
    
    
    4,391Financing Activities:Proceeds from exercise of stock options
    
    
    2,215
    
    
    
    46
    
    
    
    877Cash (paid) received from sale of partnership interests and
partnership distributions
    
    
    (665
    )
    
    
    893
    
    
    
    881Tax benefit from share-based compensation
    
    
    1,345
    
    
    
    150
    
    
    
    119Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    (13,909
    )Payments of debt issue costs
    
    
    
    
    
    
    (4,368
    )
    
    
    (357
    )Proceeds from borrowings under credit facility
    
    
    
    
    
    
    130,000
    
    
    
    Payments on credit facility
    
    
    (7,873
    )
    
    
    (6,926
    )
    
    
    (2
    )Net cash (used in) provided by financing activities
    
    
    (4,978
    )
    
    
    119,795
    
    
    
    (12,391
    )Net increase in cash and cash equivalents
    
    
    72,589
    
    
    
    43,657
    
    
    
    4,814Cash and cash equivalents, beginning of year
    
    
    56,043
    
    
    
    12,386
    
    
    
    7,572Cash and cash equivalents, end of year
    
    $
    128,632
    
    
    $
    56,043
    
    
    $
    12,386Supplemental cash flow information:Cash interest paid
    
    $
    5,875
    
    
    $
    5,529
    
    
    $
    95Income taxes paid
    
    $
    20,363
    
    
    $
    1,754
    
    
    $
    5,389
 F-6




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##### Table of Contents



ODYSSEY HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2009, 2008 and 2007
 1. Description of Business
     2. Summary of Significant Accounting Policies
 Basis of Presentation and Principles of Consolidation
   Use of Estimates
  F-7




---



##### Table of Contents



Cash and Cash Equivalents
  Long-term Investments
    Fair Value of Financial Instruments
  F-8




---



##### Table of Contents



Accounts Receivable
   Goodwill and Indefinite-lived Intangible Assets
    F-9




---



##### Table of Contents



Net Patient Service Revenue
    F-10




---



##### Table of Contents



Accrued Medicare Cap Contractual AdjustmentsYear Ending December 31,2007
    
    
    2008
    
    
    2009(in thousands)Beginning balance  accrued Medicare
cap contractual adjustments
    
    $
    26,679
    
    
    $
    21,682
    
    
    $
    23,719Medicare cap contractual adjustments
    
    
    5,039
    (1)
    
    
    6,852
    (2)
    
    
    4,565
    (3)Medicare cap contractual adjustments 
discontinued operations
    
    
    2,651
    (4)
    
    
    (27
    )(4)
    
    
    (79
    )(4)Payments to Medicare fiscal intermediaries
    
    
    (12,687
    )
    
    
    (12,996
    )
    
    
    (9,407
    )Balances acquired from VistaCare
    
    
    
    
    
    
    8,208
    
    
    
    Ending balance  accrued Medicare cap
contractual adjustments
    
    $
    21,682
    
    
    $
    23,719
    
    
    $
    18,798
 
 (1)
    
    Includes additional accrual of $0.9 million related to the 2006 Medicare cap year.(2)
    
    Includes additional accrual of $1.5 million related to the 2006 Medicare cap year.(3)
    
    Includes an accrual reversal of $1.1 million related to the 2007 Medicare cap year.(4)
    
    Medicare cap contractual adjustments reclassified to discontinued operations are related to
all programs that were discontinued and sold during 2007, 2008 and 2009.   Charity Care
   Direct Hospice Care Expenses
  F-11




---



##### Table of Contents



Property and Equipment and Other Intangible Assets
    Share-Based Compensation
  Net Income Per Common Share
  Discontinued Operations
  Income Taxes
  F-12




---



##### Table of Contents



Self-Insured Liability Insurance
  Nursing Home Costs
  Advertising Costs
  Deferred Rent Liability
  Subsequent Events
  F-13




---



##### Table of Contents



Recent Accounting Pronouncements
     F-14




---



##### Table of Contents



F-15




---



##### Table of Contents



3. Acquisitions
   Cash
    
    $
    22,617Other current assets
    
    
    46,390Property and equipment
    
    
    4,959Other assets
    
    
    13,056Licenses
    
    
    8,982Trademarks
    
    
    7,235Other intangible assets
    
    
    456Goodwill
    
    
    90,980Total assets acquired
    
    
    194,675Current liabilities
    
    
    44,024Other liabilities
    
    
    1,155Net assets acquired
    
    $
    149,496
     F-16




---



##### Table of Contents



For the yearsended December 31,2008
    
    2007(in millions, except per share data)Revenues
    
    $
    660.4
    
    
    $
    647.0Income from continuing operations
    
    
    14.3
    
    
    
    15.7Net income
    
    
    9.5
    
    
    
    12.1Income per common share:Basic:Continuing operations
    
    $
    0.44
    
    
    $
    0.48Net
    
    
    0.29
    
    
    
    0.37Diluted:Continuing operations
    
    $
    0.43
    
    
    $
    0.47Net
    
    
    0.29
    
    
    
    0.36
 4. Goodwill and Intangible Assets
  South
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    VistaCare
    
    
    VistaCare
    
    
    VistaCareNortheast
    
    
    Southeast
    
    
    Central
    
    
    Midwest
    
    
    Texas
    
    
    Mountain
    
    
    West
    
    
    South
    
    
    Southwest
    
    
    South
    
    
    Central
    
    
    West/North
    
    
    TotalJanuary 1, 2008
    
    $
    3,397
    
    
    $
    12,314
    
    
    $
    17,346
    
    
    $
    3,734
    
    
    $
    21,775
    
    
    $
    31,983
    
    
    $
    7,630
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    98,179Acquisition
    
    
    
    
    
    
    
    
    
    
    50
    
    
    
    
    
    
    
    312
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,988
    
    
    
    19,432
    
    
    
    58,560
    
    
    
    91,342December 31, 2008
    
    
    3,397
    
    
    
    12,314
    
    
    
    17,396
    
    
    
    3,734
    
    
    
    22,087
    
    
    
    31,983
    
    
    
    7,630
    
    
    
    
    
    
    
    
    
    
    
    12,988
    
    
    
    19,432
    
    
    
    58,560
    
    
    
    189,521Acquisition
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,245
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,245Transfers
    
    
    5,973
    
    
    
    (3,404
    )
    
    
    7,176
    
    
    
    16,619
    
    
    
    15,480
    
    
    
    12,905
    
    
    
    
    
    
    
    12,913
    
    
    
    23,318
    
    
    
    (12,988
    )
    
    
    (19,432
    )
    
    
    (58,560
    )
    
    
    December 31, 2009
    
    $
    9,370
    
    
    $
    8,910
    
    
    $
    24,572
    
    
    $
    22,598
    
    
    $
    37,567
    
    
    $
    44,888
    
    
    $
    7,630
    
    
    $
    12,913
    
    
    $
    23,318
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    191,766
   December 31, 2009
    
    
    December 31, 2008Gross
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Amount
    
    
    AmortizationNon-competition agreements
    
    $
    2,305
    
    
    $
    2,185
    
    
    $
    2,305
    
    
    $
    2,072Licenses
    
    
    11,195
    
    
    
    
    
    
    
    11,295
    
    
    
    Trademarks
    
    
    7,235
    
    
    
    
    
    
    
    7,235
    
    
    
    Other
    
    
    1,188
    
    
    
    487
    
    
    
    1,188
    
    
    
    307Totals
    
    $
    21,923
    
    
    $
    2,672
    
    
    $
    22,023
    
    
    $
    2,379
 F-17




---



##### Table of Contents



5. Repurchases of Common Stock
    6. Stock Options and Restricted Stock Awards
   F-18




---



##### Table of Contents



Weighted-AverageRemainingWeighted-
    
    Contractual
    
    AggregateOutstanding
    
    Average
    
    Term
    
    IntrinsicRange of exercise prices
    
    Options
    
    Exercise Price
    
    (in years)
    
    Value$1.38 to $9.93
    
    
    242,614
    
    
    $
    9.50
    
    
    
    7.39
    
    
    
    1,477,967$9.94 to $15.53
    
    
    612,724
    
    
    $
    13.36
    
    
    
    4.35
    
    
    
    1,369,530$15.54 to $19.72
    
    
    313,204
    
    
    $
    17.98
    
    
    
    5.57
    
    
    
    $19.73 to $22.33
    
    
    139,936
    
    
    $
    22.22
    
    
    
    3.55
    
    
    
    $22.34 to $30.64
    
    
    125,248
    
    
    $
    29.76
    
    
    
    3.98
    
    
    
    Totals
    
    
    1,433,726
    
    
    $
    16.01
    
    
    
    5.02
    
    
    $
    2,847,497
      2007
    
    2008Risk-free interest rate
    
    
    4.57
    %
    
    
    2.84
    %Expected life
    
    5 years
    
    5 yearsExpected volatility
    
    
    0.496
    
    
    
    0.495Expected dividend yield
    
    
    
    
    
    
    
 F-19




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##### Table of Contents



Weighted-AverageRemainingWeighted-
    
    Contractual
    
    AggregateAverage
    
    Term
    
    IntrinsicOptions
    
    Exercise Price
    
    (in years)
    
    ValueOutstanding at January 1, 2009
    
    
    2,252,766
    
    
    $
    16.12Granted
    
    
    
    
    
    $
    Exercised
    
    
    (274,346
    )
    
    $
    8.07Cancelled
    
    
    (544,694
    )
    
    $
    20.46Outstanding at December 31, 2009
    
    
    1,433,726
    
    
    $
    16.01
    
    
    
    5.02
    
    
    $
    2,847,497Exercisable at December 31, 2009
    
    
    1,252,676
    
    
    $
    16.72
    
    
    
    4.67
    
    
    $
    1,996,408
   Compensation PlanWeighted-AverageGrant-DateShares
    
    FairValueNon-vested at January 1, 2009
    
    
    744,449
    
    
    $
    9.42Granted
    
    
    925,368
    
    
    $
    10.49Vested
    
    
    (234,415
    )
    
    $
    9.51Cancelled
    
    
    (43,200
    )
    
    $
    8.93Non-vested at December 31, 2009
    
    
    1,392,202
    
    
    $
    10.12
   F-20




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##### Table of Contents



7. Earnings Per Share
  Year Ended December 31,2009
    
    
    2008
    
    
    2007(In thousands, except per share amounts)Numerator:Numerator for net income per shareIncome from continuing operations
    
    $
    41,702
    
    
    $
    19,935
    
    
    $
    16,013Loss from discontinued operations, net of tax
    
    
    (498
    )
    
    
    (5,252
    )
    
    
    (3,888
    )Less: net income (loss) attributable to noncontrolling interests
    
    
    613
    
    
    
    257
    
    
    
    14Net income attributable to Odyssey stockholders
    
    $
    40,591
    
    
    $
    14,426
    
    
    $
    12,111Denominator:Denominator for basic net income per share  weighted average shares
    
    
    32,935
    
    
    
    32,674
    
    
    
    33,029Effect of dilutive securities:Employee stock options and restricted stock awards
    
    
    290
    
    
    
    512
    
    
    
    157Series B Preferred Stock Warrants convertible to common stock
    
    
    
    
    
    
    2
    
    
    
    2Denominator for diluted net income per share  adjusted weighted
average shares and assumed or actual conversions
    
    
    33,225
    
    
    
    33,188
    
    
    
    33,188Income (loss) per common share:Basic:Continuing operations attributable to Odyssey stockholders
    
    $
    1.25
    
    
    $
    0.60
    
    
    $
    0.48Discontinued operations attributable to Odyssey stockholders
    
    
    (0.02
    )
    
    
    (0.16
    )
    
    
    (0.12
    )Net income attributable to Odyssey stockholders
    
    $
    1.23
    
    
    $
    0.44
    
    
    $
    0.36Diluted:Continuing operations attributable to Odyssey stockholders
    
    $
    1.24
    
    
    $
    0.59
    
    
    $
    0.48Discontinued operations attributable to Odyssey stockholders
    
    
    (0.02
    )
    
    
    (0.16
    )
    
    
    (0.12
    )Net income attributable to Odyssey stockholders
    
    $
    1.22
    
    
    $
    0.43
    
    
    $
    0.36
  8. Discontinued Operations
    F-21




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##### Table of Contents



December 31,
    
    
    December 31,2009
    
    
    2008(In thousands)
    
    
    (In thousands)Prepaid expenses and other current assets
    
    $
    
    
    
    $
    15Property and equipment, net
    
    
    
    
    
    
    2,052Total assets of discontinued operations
    
    $
    
    
    
    $
    2,067
 F-22




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##### Table of Contents



Year Ended December 31,2009
    
    
    2008
    
    
    2007Net patient service revenue
    
    $
    2,230
    
    
    $
    6,200
    
    
    $
    22,766Pre-tax loss from operations
    
    $
    (230
    )
    
    $
    (8,031
    )
    
    $
    (5,960
    )Benefit for income taxes
    
    
    88
    
    
    
    3,072
    
    
    
    1,988Loss from discontinued operations
    
    $
    (142
    )
    
    $
    (4,959
    )
    
    $
    (3,972
    )Gain (loss) on sale of assets, net of income taxes
    
    
    (356
    )
    
    
    (293
    )
    
    
    84Loss from discontinued operations, net of income taxes
    
    $
    (498
    )
    
    $
    (5,252
    )
    
    $
    (3,888
    )Loss per diluted share
    
    $
    (0.02
    )
    
    $
    (0.16
    )
    
    $
    (0.12
    )
 9. Allowance for Uncollectible Accounts
  Balance at
    
    Provision for
    
    Write-Offs,
    
    Balance atBeginning of
    
    Uncollectible
    
    Net of
    
    End ofYear
    
    Accounts
    
    Recoveries
    
    Year(In thousands)Year ended December 31, 2007
    
    $
    2,501
    
    
    $
    5,344
    
    
    $
    (3,482
    )
    
    $
    4,363Year ended December 31, 2008
    
    $
    4,363
    
    
    $
    10,907
    
    
    $
    (5,481
    )
    
    $
    9,789Year ended December 31, 2009
    
    $
    9,789
    
    
    $
    10,842
    
    
    $
    (8,169
    )
    
    $
    12,462
 10. Property and Equipment
  December 31,2009
    
    
    2008(In thousands)Office furniture
    
    $
    10,015
    
    
    $
    9,676Computer hardware
    
    
    6,604
    
    
    
    6,870Computer software
    
    
    11,467
    
    
    
    12,676Equipment
    
    
    2,998
    
    
    
    3,640Motor vehicles
    
    
    369
    
    
    
    369Land
    
    
    1,098
    
    
    
    1,098Buildings
    
    
    4,529
    
    
    
    4,534Leasehold improvements
    
    
    13,958
    
    
    
    11,288Construction in progress
    
    
    509
    
    
    
    393Property and equipment
    
    
    51,547
    
    
    
    50,544Less accumulated depreciation and amortization
    
    
    (30,847
    )
    
    
    (27,728
    )Property and equipment, net
    
    $
    20,700
    
    
    $
    22,816
  F-23




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##### Table of Contents



11. Other Accrued Expenses
  December 31,2009
    
    
    2008(In thousands)Workers compensation
    
    $
    10,172
    
    
    $
    8,895Inpatient
    
    
    6,705
    
    
    
    7,432Deferred rent
    
    
    5,821
    
    
    
    6,581Pharmacy
    
    
    851
    
    
    
    728Medical supplies and durable medical equipment
    
    
    3,691
    
    
    
    3,507Property taxes
    
    
    357
    
    
    
    487Medical director fees
    
    
    671
    
    
    
    661Professional fees
    
    
    3,721
    
    
    
    3,144New billing system
    
    
    
    
    
    
    2,024Interest
    
    
    1,123
    
    
    
    1,195Federal taxes payable
    
    
    1,504
    
    
    
    3,285Accounts receivable credit balances
    
    
    2,338
    
    
    
    1,813Other
    
    
    7,233
    
    
    
    6,152$
    44,187
    
    
    $
    45,904
 12. Borrowings
  December 31,2009
    
    
    2008(In thousands)Term loan due between 2008 and 2014
    
    $
    115,202
    
    
    $
    123,075Less current maturities
    
    
    38,675
    
    
    
    6,394Long-term debt, less current maturities
    
    $
    76,527
    
    
    $
    116,681
    F-24




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##### Table of Contents



2010
    
    $
    38,6752011
    
    
    9,2762012
    
    
    11,0152013
    
    
    13,3342014
    
    
    42,902Thereafter
    
    
    Total
    
    $
    115,202
   F-25




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##### Table of Contents



13. Derivative Instrument and Hedging Activity
     Liability DerivativesDecember 31, 2009
    
    
    December 31, 2008Balance Sheet
    
    
    
    
    
    
    Balance SheetLocation
    
    
    Fair Value
    
    
    Location
    
    
    Fair ValueDerivatives designated as
hedging instruments:Other Long Term
    
    
    
    
    
    Other Long TermInterest rate swap agreements
    
    Liabilities
    
    $
    1,747
    
    
    Liabilities
    
    $
    2,042
  Amount of Income/(Loss)Recognized
    
    
    Income/(Loss) Reclassified fromin Other Comprehensive
    
    
    Accumulated Other ComprehensiveIncome/(Loss)
    
    
    Loss to Earnings (effective portion)2009
    
    
    2008
    
    
    2009
    
    
    2008Derivatives designated as cash flow hedges:Interest rate swap agreements
    
    $
    185
    
    
    $
    (1,303
    )
    
    $
    
    
    
    $
    
 F-26




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##### Table of Contents



14. Fair Value of Financial Instruments
   
    
    Level 1 valuations use quoted prices in active markets for identical assets or
liabilities that are accessible at the measurement date. An active market is a market in
which transactions for the asset or liability occur with sufficient frequency and volume to
provide pricing information on an ongoing basis.
    
    Level 2 valuations use inputs other than actively quoted market prices included within
Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 2 inputs include: (a) quoted prices for similar assets or liabilities in active
markets, (b) quoted prices for identical or similar assets or liabilities in markets that
are not active, (c) inputs other than quoted prices that are observable for the asset or
liability such as interest rates and yield curves observable at commonly quoted intervals
and (d) inputs that are derived principally from or corroborated by observable market data
by correlation or other means.
    
    Level 3 valuations use unobservable inputs for the asset or liability. Unobservable
inputs are used to the extent observable inputs are not available, thereby allowing for
situations in which there is little, if any, market activity for the asset or liability at
the measurement date.
  Quoted Pricesin Active
    
    SignificantMarkets for
    
    Other
    
    SignificantIdentical
    
    Observable
    
    UnobservableAssets
    
    Inputs
    
    Inputs(Level 1)
    
    (Level 2)
    
    (Level 3)
    
    TotalAsset:Auction rate securities
    
    $
    
    
    
    $
    
    
    
    $
    12,425
    
    
    $
    12,425Liabilities:Interest rate swaps
    
    $
    
    
    
    $
    
    
    
    $
    1,747
    
    
    $
    1,747
  Quoted Pricesin Active
    
    SignificantMarkets for
    
    Other
    
    SignificantIdentical
    
    Observable
    
    UnobservableAssets
    
    Inputs
    
    Inputs(Level 1)
    
    (Level 2)
    
    (Level 3)
    
    TotalAsset:Auction rate securities
    
    $
    
    
    
    $
    
    
    
    $
    16,659
    
    
    $
    16,659Liabilities:Interest rate swaps
    
    $
    
    
    
    $
    
    
    
    $
    2,042
    
    
    $
    2,042
 F-27




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##### Table of Contents



Significant UnobservableInputs(Level 3)InterestARS
    
    
    Rate SwapsBalance at January 1, 2008
    
    $
    
    
    
    $
    Transfers from Level 1
    
    
    41,450
    
    
    
    Transfers to Level 1
    
    
    (24,350
    )Unrealized loss included in other comprehensive loss (before tax)
    
    
    (441
    )
    
    
    (2,042
    )Balance at December 31, 2008
    
    
    16,659
    
    
    
    (2,042
    )Transfers to Level 1
    
    
    (4,100
    )
    
    
    Unrealized income (loss) included in other comprehensive loss (before tax)
    
    
    (134
    )
    
    
    295Balance at December 31, 2009
    
    $
    12,425
    
    
    $
    (1,747
    )
 15. Comprehensive Income
   For the years ended December 31,2009
    
    
    2008
    
    
    2007Net income
    
    $
    41,204
    
    
    $
    14,683
    
    
    $
    12,125Other comprehensive income (loss), net of tax:Unrealized income (loss) on interest rate swaps(1)
    
    
    185
    
    
    
    (1,303
    )
    
    
    Unrealized loss on ARS(2)
    
    
    (81
    )
    
    
    (282
    )
    
    
    Total other comprehensive income (loss), net of tax
    
    
    104
    
    
    
    (1,585
    )
    
    
    Comprehensive income
    
    
    41,308
    
    
    
    13,098
    
    
    
    12,125Less: comprehensive income attributable to noncontrolling interests
    
    
    613
    
    
    
    257
    
    
    
    14Comprehensive income attributable to Odyssey stockholders
    
    $
    40,695
    
    
    $
    12,841
    
    
    $
    12,111
 
 (1)
    
    Unrealized income (loss) on interest rate swaps is recorded net of tax expense
(benefit) of $0.1 million and $(0.7) million for the years ended December 31, 2009 and
2008, respectively.(2)
    
    Unrealized loss on ARS is recorded net of tax (benefit) of $(0.1) million and $(0.2)
million for the years ended December 31, 2009 and 2008, respectively. F-28




---



##### Table of Contents



As of December 31,2009
    
    
    2008Unrealized loss on interest rate swaps
    
    $
    (1,118
    )
    
    $
    (1,303
    )Unrealized loss on ARS
    
    
    (363
    )
    
    
    (282
    )Accumulated other comprehensive
    
    $
    (1,481
    )
    
    $
    (1,585
    )
 16. Income Taxes
  December 31,2009
    
    
    2008(In thousands)Current deferred tax assets:Accounts receivable
    
    $
    2,954
    
    
    $
    2,919Insurance
    
    
    441
    
    
    
    255Accrued compensation
    
    
    2,081
    
    
    
    1,930Workers compensation
    
    
    4,020
    
    
    
    3,402Accrued Medicare cap contractual adjustments
    
    
    452
    
    
    
    4,491Other
    
    
    287
    
    
    
    32210,235
    
    
    
    13,319Non-current deferred tax assets and liabilities:Deferred compensation
    
    
    5,949
    
    
    
    4,314Federal net operating loss
    
    
    168
    
    
    
    3,211Accrued rent
    
    
    2,485
    
    
    
    1,519Amortizable and depreciable assets
    
    
    (25,335
    )
    
    
    (24,254
    )Interest rate swaps and ARS
    
    
    841
    
    
    
    897Other
    
    
    721
    
    
    
    703(15,171
    )
    
    
    (13,610
    )Net deferred tax liabilities
    
    $
    (4,936
    )
    
    $
    (291
    )
  Year Ended December 31,2009
    
    
    2008
    
    
    2007(In thousands)Current:Federal
    
    $
    16,025
    
    
    $
    12,268
    
    
    $
    6,416State
    
    
    3,219
    
    
    
    1,683
    
    
    
    1,06719,244
    
    
    
    13,951
    
    
    
    7,483Deferred:Federal
    
    
    5,192
    
    
    
    (2,011
    )
    
    
    466State
    
    
    147
    
    
    
    (799
    )
    
    
    525,339
    
    
    
    (2,810
    )
    
    
    518$
    24,583
    
    
    $
    11,141
    
    
    $
    8,001
 F-29




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##### Table of Contents



Year Ended December 31,2009
    
    
    2008
    
    
    2007Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent(Dollars in thousands)Tax at federal statutory rate
    
    $
    22,985
    
    
    
    35
    %
    
    $
    10,787
    
    
    
    35
    %
    
    $
    8,342
    
    
    
    35
    %State income tax, net of federal benefit
    
    
    2,213
    
    
    
    3
    
    
    
    852
    
    
    
    3
    
    
    
    727
    
    
    
    4Municipal interest income not included
in taxable income
    
    
    (149
    )
    
    
    
    
    
    
    (567
    )
    
    
    (2
    )
    
    
    (739
    )
    
    
    (4
    )Income tax credits
    
    
    (307
    )
    
    
    (1
    )
    
    
    (279
    )
    
    
    (1
    )
    
    
    (313
    )
    
    
    (2
    )Other non-deductible expenses and other
    
    
    (159
    )
    
    
    
    
    
    
    348
    
    
    
    1
    
    
    
    (16
    )
    
    
    $
    24,583
    
    
    
    37
    %
    
    $
    11,141
    
    
    
    36
    %
    
    $
    8,001
    
    
    
    33
    %
   Balance January 1, 2008
    
    $
    1,322Accrual of interest
    
    
    81Balance December 31, 2008
    
    
    1,403Accrual of interest
    
    
    46Balance December 31, 2009
    
    $
    1,449
   17. Retirement Plan
  F-30




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##### Table of Contents



18. Commitments and Contingencies
 Leases
   2010
    
    $
    17,9312011
    
    
    14,3962012
    
    
    11,7182013
    
    
    9,4092014
    
    
    6,456Thereafter
    
    
    4,510$
    64,420
 Contingencies
  qui tam qui
tam qui tam qui tam qui tam
  F-31




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##### Table of Contents



F-32




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##### Table of Contents



F-33




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##### Table of Contents



19. Segment Information
  Year Ended December 31,2009
    
    
    2008
    
    
    2007(In thousands)Net patient service revenue:Northeast
    
    $
    62,474
    
    
    $
    56,987
    
    
    $
    38,869Southeast
    
    
    56,860
    
    
    
    53,098
    
    
    
    48,340South Central
    
    
    69,286
    
    
    
    59,098
    
    
    
    47,911Midwest
    
    
    105,766
    
    
    
    87,263
    
    
    
    56,302Texas
    
    
    127,855
    
    
    
    114,278
    
    
    
    62,716Mountain
    
    
    74,607
    
    
    
    79,261
    
    
    
    58,389West
    
    
    75,183
    
    
    
    70,984
    
    
    
    60,708South
    
    
    56,264
    
    
    
    48,267
    
    
    
    13,042Southwest
    
    
    57,495
    
    
    
    47,591
    
    
    
    12,816Odyssey Support Center
    
    
    648
    
    
    
    (777
    )
    
    
    (861
    )$
    686,438
    
    
    $
    616,050
    
    
    $
    398,232Direct hospice care expenses:Northeast
    
    $
    34,577
    
    
    $
    32,687
    
    
    $
    21,511Southeast
    
    
    34,370
    
    
    
    32,021
    
    
    
    30,912South Central
    
    
    42,817
    
    
    
    38,254
    
    
    
    30,057Midwest
    
    
    60,585
    
    
    
    51,395
    
    
    
    32,551Texas
    
    
    77,914
    
    
    
    71,400
    
    
    
    39,677Mountain
    
    
    41,788
    
    
    
    43,704
    
    
    
    32,434West
    
    
    38,640
    
    
    
    35,791
    
    
    
    31,481South
    
    
    33,462
    
    
    
    28,856
    
    
    
    8,183Southwest
    
    
    33,494
    
    
    
    28,261
    
    
    
    6,986Odyssey Support Center
    
    
    (873
    )
    
    
    (924
    )
    
    
    (128
    )$
    396,774
    
    
    $
    361,445
    
    
    $
    233,664Income (loss) from continuing operations before other income (expense):Northeast
    
    $
    15,433
    
    
    $
    11,617
    
    
    $
    8,233Southeast
    
    
    9,871
    
    
    
    7,799
    
    
    
    5,745South Central
    
    
    11,702
    
    
    
    6,175
    
    
    
    6,981Midwest
    
    
    23,798
    
    
    
    16,277
    
    
    
    10,837Texas
    
    
    22,100
    
    
    
    17,397
    
    
    
    7,400Mountain
    
    
    18,626
    
    
    
    19,982
    
    
    
    14,243West
    
    
    21,144
    
    
    
    20,273
    
    
    
    15,056South
    
    
    8,251
    
    
    
    6,218
    
    
    
    1,218Southwest
    
    
    12,292
    
    
    
    9,273
    
    
    
    2,231VistaCare Support Center
    
    
    752
    
    
    
    (12,522
    )
    
    
    Odyssey Support Center
    
    
    (71,589
    )
    
    
    (65,951
    )
    
    
    (50,231
    )$
    72,380
    
    
    $
    36,538
    
    
    $
    21,713
 F-34




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##### Table of Contents



Year Ended December 31,2009
    
    2008
    
    2007Average Daily Census (unaudited):Northeast
    
    
    1,149
    
    
    
    1,084
    
    
    
    768Southeast
    
    
    1,117
    
    
    
    1,064
    
    
    
    1,067South Central
    
    
    1,228
    
    
    
    1,125
    
    
    
    949Midwest
    
    
    1,938
    
    
    
    1,689
    
    
    
    1,104Texas
    
    
    2,389
    
    
    
    2,188
    
    
    
    1,227Mountain
    
    
    1,257
    
    
    
    1,366
    
    
    
    1,031West
    
    
    1,166
    
    
    
    1,124
    
    
    
    991South
    
    
    1,039
    
    
    
    926
    
    
    
    236Southwest
    
    
    1,097
    
    
    
    944
    
    
    
    27612,380
    
    
    
    11,510
    
    
    
    7,649
 December 31,2009
    
    
    2008(In thousands)Total Assets:Northeast
    
    $
    20,800
    
    
    $
    20,954Southeast
    
    
    20,199
    
    
    
    32,935South Central
    
    
    40,484
    
    
    
    32,369Midwest
    
    
    54,033
    
    
    
    46,016Texas
    
    
    66,128
    
    
    
    72,181Mountain
    
    
    59,609
    
    
    
    58,591West
    
    
    19,196
    
    
    
    21,305South
    
    
    27,353
    
    
    
    25,648Southwest
    
    
    38,293
    
    
    
    35,769Odyssey Support Center
    
    
    156,909
    
    
    
    115,183$
    503,004
    
    
    $
    460,951
 20. Unaudited Quarterly Financial Information
  2009 Calendar QuartersFirst
    
    
    Second
    
    
    Third
    
    
    Fourth(In thousands, except per share amounts)Total net revenues
    
    $
    167,532
    
    
    $
    170,295
    
    
    $
    175,234
    
    
    $
    173,377Net income
    
    
    8,855
    
    
    
    8,600
    
    
    
    11,780
    
    
    
    11,967Less: Net income attributable to noncontrolling interests
    
    
    136
    
    
    
    81
    
    
    
    199
    
    
    
    196Net income attributable to Odyssey stockholders
    
    $
    8,719
    
    
    $
    8,519
    
    
    $
    11,581
    
    
    $
    11,771Net income attributable to Odyssey stockholders per share:Basic
    
    $
    0.27
    
    
    $
    0.26
    
    
    $
    0.35
    
    
    $
    0.36Diluted
    
    $
    0.26
    
    
    $
    0.26
    
    
    $
    0.35
    
    
    $
    0.35Weighted average shares outstanding  Basic
    
    
    32,801
    
    
    
    32,905
    
    
    
    32,932
    
    
    
    33,098Weighted average shares outstanding  Diluted
    
    
    32,950
    
    
    
    33,059
    
    
    
    33,332
    
    
    
    33,647
 F-35




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##### Table of Contents



2008 Calendar QuartersFirst
    
    
    Second
    
    
    Third
    
    
    Fourth(In thousands, except per share amounts)Total net revenues
    
    $
    122,808
    
    
    $
    160,716
    
    
    $
    165,241
    
    
    $
    167,284Net income
    
    
    1,499
    
    
    
    1,666
    
    
    
    6,022
    
    
    
    5,496Less: Net (loss) income attributable to noncontrolling
interests
    
    
    (33
    )
    
    
    13
    
    
    
    135
    
    
    
    142Net income attributable to Odyssey stockholders
    
    $
    1,532
    
    
    $
    1,653
    
    
    $
    5,887
    
    
    $
    5,354Net income attributable to Odyssey stockholders per share:Basic
    
    $
    0.05
    
    
    $
    0.05
    
    
    $
    0.18
    
    
    $
    0.16Diluted
    
    $
    0.05
    
    
    $
    0.05
    
    
    $
    0.18
    
    
    $
    0.16Weighted average shares outstanding  Basic
    
    
    32,639
    
    
    
    32,660
    
    
    
    32,670
    
    
    
    32,724Weighted average shares outstanding  Diluted
    
    
    32,802
    
    
    
    32,872
    
    
    
    33,052
    
    
    
    32,936
 F-36