##### Table of Contents



UNITED
    STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C.
    20549
    Form 10-K
  (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2006oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For 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
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
 o þ o
  Rule 12b-2 o þ
      DOCUMENTS INCORPORATED BY REFERENCE
  Form 10-K.




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##### 



FORM 10-K
  ODYSSEY HEALTHCARE, INC.
 For the Year Ended December 31, 2006
  TABLE OF CONTENTS
  
  PART IItem 1.

Business


4Item 1A.

Risk
    Factors


22Item 1B.

Unresolved Staff
    Comments


30Item 2.

Properties


31Item 3.

Legal
    Proceedings


31Item 4.

Submission of
    Matters to a Vote of Security Holders


32PART IIItem 5.

Market for
    Registrants Common Equity, Related Stockholder Matters and
    Issuer Purchases of Equity Securities


33Item 6.

Selected Financial
    Data


35Item 7.

Managements
    Discussion and Analysis of Financial Condition and Results of
    Operation


37Item 7A.

Quantitative and
    Qualitative Disclosures About Market Risk


52Item 8.

Financial
    Statements and Supplementary Data


52Item 9.

Changes in and
    Disagreements With Accountants on Accounting and Financial
    Disclosure


52Item 9A.

Controls and
    Procedures


52Item 9A(T).

Controls and
    Procedures


55Item 9B.

Other
    Information


55PART IIIItem 10.

Directors and
    Executive Officers of the Registrant


55Item 11.

Executive
    Compensation


55Item 12.

Security Ownership
    of Certain Beneficial Owners and Management and Related
    Stockholder Matters


55Item 13.

Certain
    Relationships and Related Transactions


56Item 14.

Principal
    Accountant Fees and Services


56PART IVItem 15.

Exhibits and
    Financial Statement Schedules


57Signatures


60SubsidiariesConsent of Ernst & Young LLPCertification of CEOCertification of CFOCertification of CEO & CFO   2




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FORWARD-LOOKING
    STATEMENTS
  Form 10-K
  
    general market conditions;
    adverse changes in reimbursement levels under Medicare and
    Medicaid programs;
    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;
    challenges inherent in and potential changes in our growth and
    development strategy;
    our ability to effectively implement our 2007 operations and
    development initiatives;
    our dependence on patient referral sources and potential adverse
    changes in patient referral practices of those referral sources;
    our ability to implement a new integrated billing and clinical
    management and electronic medical records system;
    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;
    changes in state or federal income, franchise or similar tax
    laws and regulations;
    adverse changes in the state and federal licensure and
    certification laws and regulations;
    adverse results of regulatory surveys;
    delays in licensure
    and/or
    certification;
    government and private party legal proceedings and
    investigations;
    cost of complying with the terms and conditions of our corporate
    integrity agreement;
    adverse changes in the competitive environment in which we
    operate;
    adverse impact of natural disasters; and
    changes in our estimate of additional compensation costs under
    FASB Statement No. 123(R).  Form 10-K
 3




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##### Table of Contents



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.    
    the provision of coordinated care and treatment;
    clear accountability for clinical outcomes and cost of services;
    and
    the potential reduction of stress and dysfunction of patients
    and their families.  and/or
 4




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Business
    Strategy
    Provide quality, responsive care:
  Grow organically and through acquisitions:
  Number ofMedicare-CertifiedHospice Programswithin this DailyPatient CensusRangeDaily Patient Census

2005


20060-50


18



2051-100


25



24101-200


31



31200+


5



6     Organic Growth:
  Growth through selectively acquiring other
    hospices:
 5




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not-for-profit
  Manage our
    length-of-stay: length-of-stay market-by-market
  Continue implementation of our new information
    system:
  Continue our penetration of the continuous care
    market: market-by-market
  Expand our inpatient unit development:
  Manage our costs more effectively: market-by-market
  Principal
    Office and State of Incorporation
  (214) 922-9711,
  Hospice
    Services and Payment
    
    Nursing care
    Medical social services
    Physician services
    Patient counseling (dietary, spiritual and other)   6




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
    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          Our CurrentReimbursement RangeLevel 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 97.0% and
    97.4% of our total days of care in 2006 and 2005, respectively.

$115.78-$185.22Continuous 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 1.2% and 0.8% of our total days of care in 2006 and 2005,
    respectively.

$675.77-$1,081.05
     (per diem equivalent) 7




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Our CurrentReimbursement RangeLevel of Care

Description of Care

(Inclusive of Wage Index)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 1.6% of our total days of care for both 2006 and
    2005.

$519.63-$807.39Respite 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 for both 2006 and 2005.

$123.07-$179.66     PercentageEffective Date of Rate Increase

IncreaseOctober 1, 2002


3.4%October 1, 2003


3.4%October 1, 2004


3.3%October 1, 2005


3.7%October 1, 2006


3.4%   Hospice
    Utilization and Market Opportunity
    Acceleration in Hospice Use:
  Length of Stay:
 8




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Aging Population in the United
    States:
  Our
    Hospice Services and Centralized Support Center
    Caregivers:
    Community Education Representatives:
  Increasing Our Patient Census:
  Where We Provide Our Care:
   9




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Medicare-Covered Care:
  Diagnoses:
  Percentage ofPatients Admittedby Primary DiagnosisPrimary Diagnosis

2004


2005


2006Cancer


33
%


31
%


32
%End-stage heart disease


21



20



18Dementia


17



19



18Debility


12



13



15Lung disease


8



8



8End-stage kidney disease


3



3



3End-stage liver disease


2



2



2Other


4



4



4Totals


100
%


100
%


100
%  10




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Hospice
    Programs, Inpatient Facilities and Support Center
  Hospice Programs and Inpatient
    Facilities:
  Alabama

Louisiana

TexasBirmingham

Baton Rouge

Amarillo (one inpatientHuntsville

Lake Charles

facility)(1)Mobile

Minden

AustinMontgomery

New Orleans (Metairie)

BaytownArizona

Michigan

BeaumontPhoenix (two inpatient

Detroit (Southfield)

Big Springfacilities)(1)

Mississippi

BrownsvilleTucson (one inpatient facility)(1)

Gulf Coast (Gulfport)

Bryan-College Station (Bryan)Arkansas

Jackson

Conroe (one inpatient facility)(1)Little Rock

Missouri

Corpus ChristiCalifornia

Kansas City

DallasBakersfield

St. Louis

East Texas (Tyler)Los Angeles (West Covina)

Nebraska

El PasoOrange County (Garden Grove)

Omaha

Fort WorthPalm Springs (Rancho Mirage)

Nevada

Houston(one inpatient facility)(1)

Las Vegas (one inpatient

LubbockSan Bernardino

facility)(1)

OdessaSan Diego

New Jersey

San AntonioSan Jose (Campbell)

New Jersey (Piscataway)

TempleSanta Ana (Garden Grove)

New Mexico

WaxahachieColorado

Albuquerque

UtahColorado Springs

Ohio

St. GeorgeDenver

Cincinnati (Blue Ash)

VirginiaDelaware

Cleveland (Mayfield Heights)

Arlington (Vienna)Wilmington

Columbus (Gahanna)

NorfolkFlorida

Toledo (Maumee)

RichmondDaytona Beach (Palm Coast)

Oklahoma

WisconsinMiami

Oklahoma City

Milwaukee (West Allis)Georgia

Tulsa(2)Athens

OregonAtlanta (one inpatient facility)(1)

Portland (Beaverton)Savannah

PennsylvaniaValdosta

AllentownIllinois

Harrisburg (Camp Hill)Chicago  South (Chicago)

Philadelphia (Blue Bell)Rockford

PittsburghIndiana

Rhode IslandIndianapolis

Providence (Warwick)Kansas

South CarolinaWichita

Charleston (North Charleston)ColumbiaTennesseeMemphisNashville     (1)
    
    We had a total of eight inpatient facilities as of
    December 31, 2006 with a total of 112 beds.(2)
    
    We sold our Tulsa program in February 2007. 11




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Support Center:
    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 policies
    and the overall operation of the hospice and for ensuring that
    all services are provided in a manner consistent with accepted
    standards of practice. The governing body must designate one
    individual who is responsible for the
    day-to-day
    administrative operations of the hospice.
    Direct Provision of Core Services.  Medicare
    limits those services for which the hospice may use individual
    independent contractors or contract agencies to provide care to
    patients. Specifically, substantially all nursing, social work
    and counseling services must be provided directly by hospice
    employees meeting specific educational and professional
    standards. During periods of peak patient loads or under
    extraordinary circumstances, the hospice may be permitted to use
    contract workers, but the hospice must agree in writing to
    maintain professional, financial and administrative
    responsibility for the services provided by those individuals or
    entities.
    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. These physicians may be
    employed by or under contract with the hospice. 12




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
    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 retain
    professional management responsibility for the arranged services
    and ensure that the services are furnished in a safe and
    effective manner by qualified personnel, and in accordance with
    the patients plan of care.
    Plan of Care.  The patients attending
    physician, the medical director or designated hospice physician,
    and the interdisciplinary team must establish an individualized
    written plan of care prior to providing care to any hospice
    patient. The plan must assess the patients needs and
    identify services to be provided to meet those needs and must be
    reviewed and updated at specified intervals.
    Continuation of Care.  A hospice may not
    discontinue or reduce care provided to a Medicare beneficiary if
    the individual becomes unable to pay for that care.
    Informed Consent.  The hospice must obtain the
    informed consent of the hospice patient, or the patients
    representative, that specifies the type of care services that
    may be provided as hospice care.
    Training.  A hospice must provide ongoing
    training for its employees.
    Quality Assurance.  A hospice must conduct
    ongoing and comprehensive self-assessments of the quality and
    appropriateness of care it provides and that its contractors
    provide under arrangements to hospice patients.
    Interdisciplinary Team.  A hospice must
    designate an interdisciplinary team to provide or supervise
    hospice care services. The interdisciplinary team develops and
    updates plans of care, and establishes policies governing the
    day-to-day
    provision of hospice services. The team must include at least a
    physician, registered nurse, social worker and spiritual or
    other counselor. A registered nurse must be designated to
    coordinate the plan of care.
    Volunteers.  Hospice programs are required to
    recruit and train volunteers to provide patient care services or
    administrative services. Volunteer services must be provided in
    an amount equal to at least five percent of the total patient
    care hours provided by all paid hospice employees and contract
    staff.
    Licensure.  Each hospice and all hospice
    personnel must be licensed, certified or registered in
    accordance with applicable federal, state and local laws and
    regulations.
    Central Clinical Records.  Hospice programs
    must maintain clinical records for each hospice patient that are
    organized in such a way that they may be easily retrieved. The
    clinical records must be complete and accurate and protected
    against loss, destruction and unauthorized use.  speech-language
  Surveys.
 13




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Certificate of Need Laws and Other
    Restrictions.
    Limits on the Acquisition or Conversion of Non-Profit
    HealthCare Organizations. and/or
  Overview
    of Government Payments
      Medicare.
   14




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The Medicare Cap. program-by-program
  Dollar Amount Cap.
  Medicare Cap

MedicareYear Ending

Cap Amount2004

$
19,6362005

$
19,7782006

$
20,5852007 (estimated)

$
21,244     Accrued Medicare Cap Contractual AdjustmentsYear ending December 31,2004


2005


2006(in thousands)Beginning balance 
    accrued Medicare cap contractual adjustments

$
1,244


$
2,915


$
14,883Medicare cap contractual
    adjustments


2,018



9,554
(1)


15,423
(2)Medicare cap contractual
    adjustments  discontinued operations


72
(3)


2,414
(3)


1,041
(3)Payments to Medicare fiscal
    intermediaries


(419
)


0



(1,983
)Reclassification to accounts
    payable


0



0



(2,685
)(4)Ending balance  accrued
    Medicare cap contractual adjustments

$
2,915


$
14,883


$
26,679
(5)     (1)
    
    On August 26, 2005, the Centers for Medicare &
    Medicaid Services (CMS) issued Change Request
    Transmittal 663 publishing the final Medicare per beneficiary
    cap amount of $19,778 for the 2005 Medicare cap year ended
    October 31, 2005 and indicated that the cap amount for the
    2004 Medicare cap year ended October 31, 2004 was
    incorrectly computed. This cap amount was lower than the
    estimated cap amount that we used for 2005 due to CMSs
    error in computing the cap amount for the 2004 Medicare cap
    year. As a result, the 2005 accrued Medicare cap contractual
    adjustment of $9.6 million includes $1.0 million for
    the lower 2005 Medicare cap amount and an additional
    $1.1 million for the 2003 and 2004 Medicare cap years for
    the estimated impact of the revised cap amounts.(2)
    
    Includes additional accrual of $3.8 million related to the
    2005 Medicare cap year. 15




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(3)
    
    Medicare cap contractual adjustments reclassified to
    discontinued operations are related to the Salt Lake City
    hospice program which was sold in July 2006.(4)
    
    Amounts were reclassified from accrued Medicare cap contractual
    adjustments to accounts payable in December 2006 and were paid
    in January 2007 to the Medicare fiscal intermediary.(5)
    
    An additional $4.4 million of the accrued Medicare cap
    contractual adjustments was paid to the Medicare fiscal
    intermediary in February 2007.    
    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
    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.
   16




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Medicare Six-Month Eligibility Rule.
  fee-for-service fee-for-service fee-for-service
  Medicaid.
  Long-Term Care Facility Residents.
  Other
    Healthcare Regulations
  Fraud and Abuse Laws.
 17




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HIPAA Fraud and Abuse Provisions.
  Civil Monetary Penalties Statute.
  False Claims Act. and/or and/or
  State False Claims Laws.
 18




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and/or
  The Stark Law and State Physician Self-Referral
    Laws.
      Corporate Practice of Medicine and
    Fee-Splitting. and/or
  and/or
  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.   19




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Additional Federal and State Healthcare
    Laws.
  Surveys and Certification.
  Employment Laws and Regulations.
    Compliance
    and Continuous Quality Improvement Programs
  Compliance Program:
  
    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. 20




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follow-up
    Continuous Quality Improvement:
  
    on-going education of staff and quarterly continuous quality
    improvement meetings at each of our hospice programs and at our
    Support Center;
    quarterly comprehensive audits of patient charts performed by
    each of our hospice programs; and
    at least once a year, a comprehensive audit of patient charts
    performed on each of our hospice programs by our clinical
    compliance staff.  follow-up
    Competition
  not-for-profit
  and/or
 21




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Insurance
    Employees
    Available
    Information
  Form 10-K, Form 10-Q Form 8-K 1-800-SEC-0330.
  Form 10-K. Form 10-K, Form 10-Q Form 8-K,
  Item 1A.
    Risk
    Factors  Form 10-K.
 22




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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.
  and/or
  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.
    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.
  program-by-program
 23




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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.          Almost
    half 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.
   24




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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.  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; 25




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
    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.    not-for-profit not-for-profit not-for-profit not-for-profit
  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.
      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.
   26




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##### Table of Contents



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.
    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.   27




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##### Table of Contents



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.
    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.
   28




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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.
    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.
      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.
  Form 10-K.
  We are
    dependent on the proper functioning of our information systems
    to efficiently manage our business.
   29




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##### Table of Contents



We may
    experience difficulties in implementing a new integrated
    billing, clinical management and electronic medical records
    system which we will continue to implement in
    2007.
      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   30




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##### Table of Contents



Item 2.
    Properties     Item 3.
    Legal
    Proceedings  Rule 10b-5
  and/or
 31




---



##### Table of Contents



qui tam qui
    tam qui tam qui tam qui tam
     Item 4.
    Submission
    of Matters to a Vote of Security Holders   32




---



##### 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


Low2005First Quarter

$
14.06


$
10.38Second Quarter

$
14.86


$
10.72Third Quarter

$
18.01


$
14.22Fourth Quarter

$
20.41


$
14.902006First Quarter

$
20.62


$
16.33Second Quarter

$
18.91


$
15.65Third Quarter

$
18.25


$
13.05Fourth Quarter

$
14.67


$
11.86   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.
 33




---



##### Table of Contents



(d)(c)


ApproximateTotal Number of Shares


Dollar Value of(a)


(b)


Purchased as Part


Shares that MayTotal Number


Average


of Publicly


Yet be Purchasedof Shares


Price Paid


Announced Plans or


Under the Plans orPeriod

Purchased


per Share


Programs


ProgramsOctober 1-October 31














November 1-November 30


374,508


$
12.21



374,508


$
5,427,838December
    1-December 31


367,698


$
12.61



367,698


$
790,261Total


742,206


$
12.41



742,206  34




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##### Table of Contents



Item 6.
    Selected
    Financial Data  Form 10-K, Form 10-K.
  Form 10-K.
  three-for-two
  Year Ended December 31,2002


2003


2004


2005


2006(In thousands, except per share amounts)Statements of Operations Data:Net patient service revenue

$
194,459


$
270,181


$
340,180


$
378,073


$
409,831Operating expenses:Direct hospice care


99,919



141,160



182,147



213,655



244,782General and administrative(1)


56,124



72,501



92,248



110,480



125,111Government settlement














13,000



Provision for uncollectible
    accounts


2,952



4,015



7,747



4,222



4,685Depreciation and amortization


1,509



2,505



3,951



4,433



5,551Total operating expenses


160,504



220,181



286,093



345,790



380,129Income from operations


33,955



50,000



54,087



32,283



29,702Other income (expense):Minority interest


50















Interest income


544



390



359



1,341



2,576Interest expense


(269
)


(140
)


(118
)


(198
)


(187
)325



250



241



1,143



2,389Income from continuing operations
    before provision for income taxes


34,280



50,250



54,328



33,426



32,091Provision for income taxes


13,140



19,529



20,575



13,810



11,360Income from continuing operations


21,140



30,721



33,753



19,616



20,731Income (loss) from discontinued
    operations, net of income taxes(2)






486



1,243



(1,060
)


(1,002
)Net income

$
21,140


$
31,207


$
34,996


$
18,556


$
19,729Income (loss) per common share:Basic:Continuing operations

$
0.61


$
0.85


$
0.93


$
0.57


$
0.61Discontinued operations

$



$
0.02


$
0.03


$
(0.03
)

$
(0.03
)Net income

$
0.61


$
0.87


$
0.96


$
0.54


$
0.58Diluted:Continuing operations

$
0.58


$
0.82


$
0.90


$
0.56


$
0.60Discontinued operations

$



$
0.02


$
0.03


$
(0.03
)

$
(0.03
)Net income

$
0.58


$
0.84


$
0.93


$
0.53


$
0.57Weighted average shares
    outstanding:Basic


34,782



35,945



36,445



34,384



34,145Diluted


36,691



37,256



37,551



34,935



34,529  35




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##### Table of Contents



Year Ended December 31,2002


2003


2004


2005


2006(Unaudited)(Dollars in thousands)Operating Data:Number of Medicare-certified
    hospice programs(3)


50



65



73



78



81Admissions(4)


22,062



26,602



30,614



33,024



34,056Days of care(5)


1,608,556



2,166,659



2,702,095



2,886,138



3,047,716Average daily census(6)


4,407



5,936



7,383



7,907



8,350Cash flows provided by operating
    activities

$
18,732


$
27,605


$
47,124


$
58,644


$
34,886Cash flows used in investing
    activities

$
(975
)

$
(27,255
)

$
(41,170
)

$
(53,318
)

$
(29,444
)Cash flows provided by (used in)
    financing activities

$
(2,724
)

$
4,983


$
(19,387
)

$
(14,994
)

$
(13,053
)   As of December 31,2002


2003


2004


2005


2006(Dollars in thousands)Balance Sheet Data:Working capital

$
51,498


$
72,806


$
63,259


$
61,647


$
69,798Total assets


125,414



180,802



204,091



244,967



269,986Total long-term debt, including
    current portion


274



17



14



9



3Stockholders equity


100,933



144,725



162,080



167,298



179,596     (1)
    
    Includes stock-based compensation of $685, $409, $287, $721 and
    $5,616 for the years ended December 31, 2002, 2003, 2004,
    2005 and 2006, respectively.(2)
    
    Income (loss) from discontinued operations, net of income taxes,
    is related to the sale of the Salt Lake City hospice program in
    July of 2006.(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. 36




---



##### Table of Contents



Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operation  Form 10-K.
  Overview
          Developed
    Hospices
      not-for-profit
  not-for-profit
 37




---



##### Table of Contents



Discontinued
    Operations
        Acquisitions
               38




---



##### Table of Contents



Patient Census onHospice

Date of Acquisition2004Amarillo, Texas


204Conroe, Texas


221Tulsa, Oklahoma(1)


792005Huntsville, Alabama


50Santa Ana, California


502006Douglas, Georgia(2)


12     (1)
    
    Operations of our Tulsa, Oklahoma hospice program acquired in
    2004 were integrated into our existing Tulsa, Oklahoma program.
    The Tulsa, Oklahoma hospice program was sold in February 2007.(2)
    
    Operations of the acquired hospice program were integrated into
    our existing Valdosta, Georgia program.  Net
    Patient Service Revenue
         39




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##### Table of Contents



Expenses
          Year Ended December 31,2004


2005


2006Direct hospice care expenses:Salaries, benefits and payroll
    taxes


32.7
%


36.1
%


39.7
%Pharmaceuticals


6.6



5.6



5.5Medical equipment and supplies


5.8



5.6



5.4Inpatient costs


2.6



3.0



2.5Other (including nursing home
    costs, net, mileage, medical director fees and contracted
    services)


5.8



6.2



6.6Total


53.5
%


56.5
%


59.7
%General and administrative
    expenses:Salaries, benefits and payroll
    taxes


16.5
%


17.8
%


18.3
%Stock-based compensation


0.1



0.2



1.4Leases


2.6



2.9



3.1Legal and accounting fees


0.7



1.4



1.2Other (including insurance,
    recruiting, travel, telephone and printing)


7.2



6.9



6.6Total


27.1
%


29.2
%


30.6
%  40




---



##### Table of Contents



Stock-Based
    Compensation Charges
  period-to-period Form 10-K.
        Provision
    for Income Taxes
  Form 10-K.
  Critical
    Accounting Policies
  Form 10-K. Form 10-K
 41




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##### Table of Contents



Net
    Patient Service Revenue and Allowance for Uncollectible
    Accounts
      Medicare
    Regulation
  The Medicare Cap. program-by-program
  Dollar Amount Cap.
    Accrued Medicare Cap Contractual AdjustmentsYear ending December 31,2004


2005


2006(in thousands)Beginning balance 
    accrued Medicare cap contractual adjustments

$
1,244


$
2,915


$
14,883Medicare cap contractual
    adjustments


2,018



9,554
(1)


15,423
(2)Medicare cap contractual
    adjustments  discontinued operations


72
(3)


2,414
(3)


1,041
(3)Payments to Medicare fiscal
    intermediaries


(419
)


0



(1,983
)Reclassification to accounts
    payable


0



0



(2,685
)(4)Ending balance  accrued
    Medicare cap contractual adjustments

$
2,915


$
14,883


$
26,679
(5)     (1)
    
    On August 26, 2005, the Centers for Medicare &
    Medicaid Services (CMS) issued Change Request
    Transmittal 663 publishing the final Medicare per beneficiary
    cap amount of $19,778 for the 2005 Medicare cap year ended
    October 31, 2005 and indicated that the cap amount for the
    2004 Medicare cap year ended 42




---



##### Table of Contents



October 31, 2004 was incorrectly computed. This cap amount
    was lower than the estimated cap amount that we used for 2005
    due to CMSs error in computing the cap amount for the 2004
    Medicare cap year. As a result, the 2005 accrued Medicare cap
    contractual adjustment of $9.6 million includes
    $1.0 million for the lower 2005 Medicare cap amount and an
    additional $1.1 million for the 2003 and 2004 Medicare cap
    years for the estimated impact of the revised cap amounts.(2)
    
    Includes additional accrual of $3.8 million related to the
    2005 Medicare cap year. 42.1




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##### Table of Contents



(3)
    
    Medicare cap contractual adjustments reclassified to
    discontinued operations are related to the Salt Lake City
    hospice program which was sold in July 2006.(4)
    
    Amounts were reclassified from accrued Medicare cap contractual
    adjustments to accounts payable in December 2006 and were paid
    in January 2007 to the Medicare fiscal intermediary.(5)
    
    An additional $4.4 million of the accrued Medicare cap
    contractual adjustments was paid to the Medicare fiscal
    intermediary in February 2007.    Insurance
    Risks
    Goodwill
   43




---



##### Table of Contents



Results
    of Operations
    Year Ended December 31,2004


2005


2006Net patient service revenue


100
%


100
%


100
%Operating expenses:Direct hospice care


53.5



56.5



59.7General and administrative


27.1



29.2



30.6Government settlement






3.4



Provision for uncollectible
    accounts


2.3



1.1



1.1Depreciation and amortization


1.2



1.2



1.484.1



91.4



92.8Income from continuing operations
    before other income (expense)


15.9



8.6



7.2Other income (expense), net


0.1



0.3



0.6Income from continuing operations
    before provision for income taxes


16.0



8.9



7.8Provision for income taxes


6.1



3.7



2.8Income from continuing operations


9.9



5.2



5.0Income (loss) from discontinued
    operations, net of income taxes


0.4



(0.3
)


(0.2
)Net income


10.3
%


4.9
%


4.8
%   Year
    Ended December 31, 2006 Compared to Year Ended
    December 31, 2005
    Year Ended December 31,2005


2006


$ Change


% Change(In thousands, except % change)Net patient service revenue

$
378,073


$
409,831


$
31,758



8.4
%Operating expenses:Direct hospice care


213,655



244,782



31,127



14.6
%General and administrative


110,480



125,111



14,631



13.2
%Government settlement


13,000







(13,000
)


Provision for uncollectible
    accounts


4,222



4,685



463



11.0
%Depreciation and amortization


4,433



5,551



1,118



25.2
%345,790



380,129



34,339



9.9
%Income from continuing operations
    before other income (expense)


32,283



29,702



(2,581
)


(8.0
)%Other income (expense)


1,143



2,389



1,246



109.0
%Income from continuing operations
    before provision for income taxes


33,426



32,091



(1,335
)


(4.0
)%Provision for income taxes


13,810



11,360



(2,450
)


(17.7
)%Income from continuing operations


19,616



20,731



1,115



5.7
%Loss from discontinued operations,
    net of income taxes


(1,060
)


(1,002
)


58



5.5
%Net income

$
18,556


$
19,729


$
1,173



6.3
%  44




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##### Table of Contents



Net
    Patient Service Revenue
    Direct
    Hospice Care Expenses
    General
    and Administrative Expenses
   45




---



##### Table of Contents



Government
    Settlement
    Provision
    for Uncollectible Accounts
    Depreciation
    and Amortization Expense
    Other
    Income (Expense)
    Provision
    for Income Taxes
   46




---



##### Table of Contents



Year
    Ended December 31, 2005 Compared to Year Ended
    December 31, 2004
    Year Ended December 31,2004


2005


$ Change


% Change(In thousands, except % change)Net patient service revenue

$
340,180


$
378,073


$
37,893



11.1
%Operating expenses:Direct hospice care


182,147



213,655



31,508



17.3
%General and administrative


92,248



110,480



18,232



19.8
%Government settlement






13,000



13,000



Provision for uncollectible
    accounts


7,747



4,222



(3,525
)


(45.5
)%Depreciation and amortization


3,951



4,433



482



12.2
%286,093



345,790



59,697



20.9
%Income from continuing operations
    before other income (expense)


54,087



32,283



(21,804
)


(40.3
)%Other income (expense)


241



1,143



902



374.3
%Income from continuing operations
    before provision for income taxes


54,328



33,426



(20,902
)


(38.5
)%Provision for income taxes


20,575



13,810



(6,765
)


(32.9
)%Income from continuing operations


33,753



19,616



(14,137
)


(41.9
)%Income (loss) from discontinued
    operations, net of income taxes


1,243



(1,060
)


(2,303
)


(185.3
)%Net income

$
34,996


$
18,556


$
(16,440
)


(47.0
)%   Net
    Patient Service Revenue
   47




---



##### Table of Contents



Direct
    Hospice Care Expenses
    General
    and Administrative Expenses
    Government
    Settlement
   48




---



##### Table of Contents



Provision
    for Uncollectible Accounts
    Depreciation
    and Amortization Expense
    Other
    Income (Expense)
    Provision
    for Income Taxes
    Liquidity
    and Capital Resources
     49




---



##### Table of Contents



Form 10-K.
 50




---



##### Table of Contents



Contractual
    Obligations
    Payments Due by PeriodLess Than








AfterTotal


1 Year


1-3 Years


4-5 Years


5 Years(In thousands)Long-Term Debt

$
3


$
2


$
1


$



$
Software License Fees


1,087



723



364







New Billing System


2,283



2,283











Building Construction Projects


3,053



3,053











Operating Leases


35,810



10,184



13,648



6,915



5,063Total Contractual Obligations

$
42,236


$
16,245


$
14,013


$
6,915


$
5,063   Off-Balance
    Sheet Arrangements
    Interest
    Rate and Foreign Exchange Risk
  Interest Rate Risk.
  Foreign Exchange.
  Recent
    Accounting Pronouncements
    ,
 51




---



##### Table of Contents



Payment,
    Legislative and Regulatory Changes
    Inflation
    Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk    Item 8.
    Financial
    Statements and Supplementary Data  page F-1 Form 10-K
  Item 9.
    Changes
    in and Disagreements With Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  Rules 13a-15(e) 15d-15(e) Rules 13a-15(f) 15a-15(f)
  Managements
    Report on Internal Control over Financial Reporting.
  Rule 13a-15(f)
   52




---



##### Table of Contents



Internal
    Control Integrated Framework.
   53




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm
                 
    54




---



##### Table of Contents



Item 9A(T).
    Controls
    and Procedures  .
  Item 9B.
    Other
    Information  Form 8-K Form 8-K.
 PART III  Item 10.
    Directors
    and Executive Officers of the Registrant    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
  (a)





(c)Number of Securities





Number of Securitiesto be Issued


(b)


Remaining AvailableUpon Exercise of


Weighted-Average


for Future IssuanceOutstanding Options,


Exercise Price of


Under Equity CompensationWarrants, Awards


Outstanding Options,


Plans (Excluding SecuritiesPlan Category

and Rights


Warrants, and Rights


Reflected in Column(a))(In thousands, except average exercise price)Equity Compensation Plans Approved
    by Stockholders


4,130
(1)

$
16.79



1,080Equity Compensation Plans Not
    Approved by Stockholders










Total


4,130


$
16.79



1,080  55




---



##### Table of Contents



(1)
    
    Includes 87,500 unvested restricted stock awards granted to
    certain executive officers on November 18, 2004, 72,000
    unvested restricted stock awards granted to certain employees on
    October 4, 2005 and 118,130 unvested restricted stock units
    awarded to certain executive officers on December 20, 2006.
    Restricted stock awards and restricted stock units are not
    included in the calculation of the weighted-average exercise
    price since there is no exercise price attached to the award.  Item 13.
    Certain
    Relationships and Related Transactions    Item 14.
    Principal
    Accountant Fees and Services   56




---



##### Table of Contents



PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules  Form 10-K:
  10-K page F-1 Form 10-K.
    Form 10-K:
  ExhibitNumber



Description3
.1



Fifth Amended and Restated
    Certificate of Incorporation (incorporated by reference to
    Exhibit 3.1 to Odyssey HealthCare, Incs (the
    Company) Amendment No. 2 to Registration
    Statement on
    Form S-1
    (Registration
    No. 333-51522)
    as filed with the Securities and Exchange Commission (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)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



Second Amended and Restated
    Registration Rights Agreement, dated July 1, 1998, by and
    among Odyssey HealthCare, Inc. and the security holders named
    therein (incorporated by reference to Exhibit 4.3 to the
    Companys Registration Statement on
    Form S-1
    (Registration
    No. 333-51522)
    as filed with the Commission on December 8, 2000)4
.3



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
.4



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



Credit Agreement, dated
    May 14, 2004, among Odyssey HealthCare Operating A, LP,
    Odyssey HealthCare Operating B, LP and Hospice of the Palm
    Coast, Inc. as borrowers, Odyssey HealthCare Inc. as a credit
    party and the other credit parties signatory thereto, General
    Electric Capital Corporation as agent and lender, and the other
    lenders signatory thereto from to time (incorporated by
    reference to Exhibit 2.1 to the Companys Current
    Report on
    Form 8-K
    as filed with the Commission on May 26, 2004)10
.1.2



Consent and Amendment No. 1
    to Credit Agreement dated November 1, 2004. (incorporated
    by reference to Exhibit 10.1 to the Companys
    Quarterly Report on
    Form 10-Q
    as filed with the Commission on November 9, 2004)10
.1.3



Waiver and Amendment No. 2
    Credit Agreement, dated February 22, 2006, among Odyssey
    HealthCare, Inc. as a credit party, General Electric Capital
    Corporation as agent and lender (incorporated by Reference to
    Exhibit 10.1 to the companys Current Report on
    Form 8-K
    as filed with the Commission on February 27, 2006)10
.1.4



Consent, Waiver and Amendment
    No. 3 to Credit Agreement, Dated September 29, 2006,
    by and among General Electric Capital Corporation, a Delaware
    corporation, individually as sole Lender And as Agent for the
    Lenders, 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 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 October 4, 2006) 57




---



##### Table of Contents



ExhibitNumber



Description10
.1.5



Consent and Amendment No. 4
    to Credit Agreement, dated October 19, 2006, by and among
    General Electric Capital Corporation, a Delaware (incorporated
    by reference to Exhibit 10.1 to the Companys Current
    Report on
    Form 8-K
    as filed with the Commission on October 25, 2006)10
.2



Employment Agreement, dated as of
    October 11, 2005, by and between Odyssey HealthCare, Inc.
    and Robert A. Lefton (incorporated by reference to
    Exhibit 10.1 to the Companys Current Report on
    Form 8-K
    as filed with the Commission on October 12, 2005)10
.3



Employment Agreement, dated as of
    August 1, 2005, by and between Odyssey HealthCare, Inc. and
    Brenda A. Belger (incorporated by reference to Exhibit 10.2
    to the Companys Quarterly Report on
    Form 10-Q
    as filed with the Commission on November 9, 2005)10
.4



Employment Agreement, dated as of
    August 1, 2005, by and between Odyssey HealthCare, Inc. and
    W. Bradley Bickham (incorporated by reference to
    Exhibit 10.3 to the Companys Quarterly Report on
    Form 10-Q
    as filed with the Commission on November 9, 2005)10
.5



Second Amended and Restated
    Employment Agreement, dated as of August 1, 2005, by and
    between Odyssey HealthCare, Inc. and Douglas B. Cannon
    (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, 2005)10
.6



Employment Agreement, dated as of
    August 1, 2005, by and between Odyssey HealthCare, Inc. and
    Deborah A. Hoffpauir (incorporated by reference to
    Exhibit 10.5 to the Companys Quarterly Report on
    Form 10-Q
    as filed with the Commission on November 9, 2005)10
.7



Employment Agreement, dated as of
    August 1, 2005, by and between Odyssey HealthCare, Inc. and
    Kathleen A. Ventre (incorporated by reference to
    Exhibit 10.6 to the Companys Quarterly Report on
    Form 10-Q
    as filed with the Commission on November 9, 2005)10
.8



Employment Agreement, dated as of
    January 16, 2006, by and Between Odyssey HealthCare, Inc.
    and Woodrin Grossman (incorporated by reference to
    Exhibit 10.1 to the Companys Current Report on
    Form 8-K
    as filed with the Commission on January 20, 2006)10
.9



Employment Agreement by and
    between Odyssey HealthCare, Inc. And R. Dirk Allison, dated
    October 30, 2006 (incorporated by reference to
    Exhibit 10.1 to the Companys Current Report on
    Form 8-K
    as filed with the Commission on October 30, 2006)10
.10



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
.11.1



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
.11.2



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
.12.1



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
.12.2



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
.12.3



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
.12.4



Form of Restricted Stock Award
    Agreement pursuant to the 2001 Equity  Based
    Compensation Plan Management Stock Option Agreement
    (incorporated by reference to Exhibit 10.1 to the
    Companys Current Report on
    Form 8-K
    as filed with the Commission on January 12, 2005)10
.12.5



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) 58




---



##### Table of Contents



ExhibitNumber



Description10
.12.6



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
.12.7



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
.13.1



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
.13.2



First Amendment to Employee Stock
    Purchase Plan, dated March 6, 2002 (incorporated by
    reference to Exhibit 10.7.2 to the Companys Annual
    Report on
    Form 10-K
    as filed with the Commission on March 20, 2002)10
.14



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)10
.15.1



Promissory Note and Warrant
    Purchase Agreement, dated May 22, 1998, by and among
    Odyssey HealthCare, Inc. and the other parties thereto
    (incorporated by reference to Exhibit 10.10.1 to the
    Companys Registration Statement on
    Form S-1
    (Registration
    No. 333-51522)
    as filed with the Commission on December 8, 2000)10
.15.2



Form of Warrant, dated
    May 22, 1998 (incorporated by reference to
    Exhibit 10.10.2 to the Companys Registration
    Statement on
    Form S-1
    (Registration
    No. 333-51522)
    as filed with the Commission on December 8, 2000)10
.15.3



First Amendment to Warrants, dated
    December 6, 2000 (incorporated by reference to
    Exhibit 10.10.3 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)10
.16



Separation Agreement and Release,
    dated January 19, 2005, between David C. Gasmire and
    Odyssey HealthCare, Inc. (incorporated by reference to
    Exhibit 10.2 to the Companys Quarterly Report on
    Form 10-Q
    as filed with the Commission on May 9, 2005)10
.17



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
.18



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 9, 2007, by Robert A. Lefton, Chief Executive
    Officer*31
.2



Certification required by
    Rule 13a-14(a),
    dated March 9, 2007, by R. Dirk Allison, Chief Financial
    Officer*32




Certification required by
    Rule 13a-14(b),
    dated March 9, 2007, 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. 59




---



##### Table of Contents



SIGNATURES      By:
    /s/  ROBERT
    A. LEFTON  President and Chief Executive Officer
      Signature

Title

Date/s/  ROBERT
    A. LEFTONRobert
    A. Lefton

President, Chief Executive
    Officer,
    and Director

March 9, 2007/s/  R.
    DIRK ALLISONR.
    Dirk Allison

Senior Vice President, Chief
    Financial Officer, Assistant Secretary and Treasurer (Principal
    Financial and Accounting Officer)

March 9, 2007/s/  RICHARD
    R. BURNHAMRichard
    R. Burnham

Chairman of the Board

March 9, 2007/s/  JAMES
    E. BUNCHERJames
    E. Buncher

Director

March 9, 2007/s/  JOHN
    K. CARLYLEJohn
    K. Carlyle

Director

March 9, 2007/s/  DAVID
    W. CROSSDavid
    W. Cross

Director

March 9, 2007/s/  PAUL
    J. FELDSTEINPaul
    J. Feldstein

Director

March 9, 2007/s/  ROBERT
    A. ORTENZIORobert
    A. Ortenzio

Director

March 9, 2007/s/  SHAWN
    S. SCHABELShawn
    S. Schabel

Director

March 9, 2007/s/  DAVID
    L. STEFFYDavid
    L. Steffy

Director

March 9, 2007  60




---



##### 



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, 2005 and 2006


F-3Consolidated
    Statements of Operations for the years ended December 31,
    2004, 2005 and 2006


F-4Consolidated
    Statements of Stockholders Equity for the years ended
    December 31, 2004, 2005 and 2006


F-5Consolidated
    Statements of Cash Flows for the years ended December 31,
    2004, 2005 and 2006


F-6Notes to
    Consolidated Financial Statements


F-7   F-1




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm              
    F-2




---



##### Table of Contents



ODYSSEY
    HEALTHCARE, INC. AND SUBSIDIARIES
 CONSOLIDATED
    BALANCE SHEETS December 31,2005


2006(In thousands, except share and per share amounts)ASSETSCurrent assets:Cash and cash equivalents

$
15,183


$
7,572Short-term investments


48,286



62,390Accounts receivable from patient
    services, net of allowance for uncollectible accounts of $2,029
    and $2,501 at December 31, 2005 and 2006, respectively


59,911



64,007Deferred tax assets


2,707



Income taxes receivable






6,134Prepaid expenses and other current
    assets


4,232



5,826Assets of discontinued operations


49



Total current assets


130,368



145,929Property and equipment, net of
    accumulated depreciation


11,599



20,881Goodwill


98,163



98,179Intangibles, net of accumulated
    amortization


4,837



4,997Total assets

$
244,967


$
269,986LIABILITIES AND
    STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
2,989


$
7,171Accrued compensation


12,100



14,089Accrued nursing home costs


11,581



11,584Accrued Medicare cap contractual
    adjustments


14,883



26,679Accrued government settlement


13,000



Other accrued expenses


14,163



16,397Deferred tax liability






209Current maturities of long-term
    debt


5



2Total current liabilities


68,721



76,131Long-term debt, less current
    maturities


4



1Deferred tax liability


8,355



13,720Other liabilities


589



538Commitments and contingencies






Stockholders equity:Common stock, $.001 par value:Authorized shares 
    75,000,000Issued shares 
    37,410,750 at December 31, 2005 and37,870,373 at December 31,
    2006


37



38Additional paid-in capital


98,624



108,682Retained earnings


107,192



126,921Treasury stock, at cost, 3,002,934
    and 4,230,972 shares held atDecember 31, 2005 and 2006,
    respectively


(38,555
)


(56,045
)Total stockholders equity


167,298



179,596Total liabilities and
    stockholders equity

$
244,967


$
269,986    F-3




---



##### Table of Contents



ODYSSEY
    HEALTHCARE, INC. AND SUBSIDIARIES
 CONSOLIDATED
    STATEMENTS OF OPERATIONS Year Ended December 31,2004


2005


2006(In thousands, except per share amounts)Net patient service revenue

$
340,180


$
378,073


$
409,831Operating expenses:Direct hospice care


182,147



213,655



244,782General and administrative
    (inclusive of stock-based compensation of $287, $721 and $5,616
    for the years ended December 31, 2004, 2005 and 2006,
    respectively)


92,248



110,480



125,111Government settlement






13,000



Provision for uncollectible
    accounts


7,747



4,222



4,685Depreciation


3,328



3,936



5,169Amortization


623



497



382286,093



345,790



380,129Income from continuing operations
    before other income (expense)


54,087



32,283



29,702Other income (expense):Interest income


359



1,341



2,576Interest expense


(118
)


(198
)


(187
)241



1,143



2,389Income from continuing operations
    before provision for income taxes


54,328



33,426



32,091Provision for income taxes


20,575



13,810



11,360Income from continuing operations


33,753



19,616



20,731Income (loss) from discontinued
    operations, net of income taxes


1,243



(1,060
)


(1,002
)Net income

$
34,996


$
18,556


$
19,729Income (loss) per common share:Basic:Continuing operations

$
0.93


$
0.57


$
0.61Discontinued operations

$
0.03


$
(0.03
)

$
(0.03
)Net income

$
0.96


$
0.54


$
0.58Diluted:Continuing operations

$
0.90


$
0.56


$
0.60Discontinued operations

$
0.03


$
(0.03
)

$
(0.03
)Net income

$
0.93


$
0.53


$
0.57Weighted average shares
    outstanding:Basic


36,445



34,384



34,145Diluted


37,551



34,935



34,529    F-4




---



##### Table of Contents



ODYSSEY
    HEALTHCARE, INC. AND SUBSIDIARIES
 CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY Additional








TotalCommon Stock


Paid-in


Retained


Treasury


StockholdersShares


Amount


Capital


Earnings


Stock


Equity(Amounts in thousands)Balance at January 1, 2004


36,547


$
37


$
91,048


$
53,640


$



$
144,725Stock-based compensation










287











287Tax benefit related to stock
    option exercises










1,129











1,129Exercise of stock options


159







608











608Employee Stock Purchase Plan


45







602











602Purchase of treasury stock, at cost


















(20,267
)


(20,267
)Net income














34,996







34,996Balance at December 31, 2004


36,751



37



93,674



88,636



(20,267
)


162,080Stock-based compensation


164







721











721Tax benefit related to stock
    option exercises










930











930Exercise of stock options


455







2,810











2,810Employee Stock Purchase Plan


41







489











489Purchase of treasury stock, at cost


















(18,288
)


(18,288
)Net income














18,556







18,556Balance at December 31, 2005


37,411


$
37


$
98,624


$
107,192


$
(38,555
)

$
167,298Stock-based compensation


60







5,616











5,616Tax benefit related to stock
    option exercises










958











958Exercise of stock options


361



1



2,992











2,993Employee Stock Purchase Plan


38







492











492Purchase of treasury stock, at cost


















(17,490
)


(17,490
)Net income














19,729







19,729Balance at December 31, 2006


37,870


$
38


$
108,682


$
126,921


$
(56,045
)

$
179,596    F-5




---



##### Table of Contents



ODYSSEY
    HEALTHCARE, INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  Year Ended December 31,2004


2005


2006(In thousands)Operating Activities:Net income

$
34,996


$
18,556


$
19,729Adjustments to reconcile net
    income to net cash provided by operating activities:(Income) loss from discontinued
    operations, net of taxes


(1,243
)


1,060



1,002Depreciation and amortization


3,951



4,433



5,551Amortization of deferred charges
    and debt discount


68



109



109Stock-based compensation


287



721



5,616Deferred tax (benefit) expense


3,949



(1,417
)


8,373Tax benefit related to stock
    option exercises


1,129



930



(958
)Provision for uncollectible
    accounts


7,747



4,222



4,685Changes in operating assets and
    liabilities, net of acquisitions:Accounts receivable from patient
    services


(8,228
)


(4,757
)


(8,781
)Other current assets


29



1,441



(7,718
)Accrued government settlement






13,000



(13,000
)Accounts payable, accrued nursing
    home costs, accrued Medicare cap contractual adjustments and
    other accrued expenses


4,439



20,346



20,278Net cash provided by operating
    activities


47,124



58,644



34,886Investing Activities:Cash paid for acquisitions,
    procurement of licenses and certificates of need


(29,106
)


(5,365
)


(867
)Cash received from the sale of a
    hospice program










59Purchases of short-term investments


(7,717
)


(79,669
)


(109,469
)Sales of short-term investments






39,790



95,365Purchases of property and equipment


(4,347
)


(8,074
)


(14,532
)Net cash used in investing
    activities


(41,170
)


(53,318
)


(29,444
)Financing Activities:Proceeds from issuance of common
    stock


1,210



3,299



3,485Tax benefit related to stock
    option exercises










958Purchase of treasury stock


(20,267
)


(18,288
)


(17,490
)Payments of debt issue costs


(327
)






Payments on debt


(3
)


(5
)


(6
)Net cash used in financing
    activities


(19,387
)


(14,994
)


(13,053
)Net decrease in cash and cash
    equivalents


(13,433
)


(9,668
)


(7,611
)Cash and cash equivalents,
    beginning of period


38,284



24,851



15,183Cash and cash equivalents, end of
    period

$
24,851


$
15,183


$
7,572Supplemental cash flow informationCash interest paid

$
34


$
89


$
79Income taxes paid

$
15,976


$
11,248


$
8,521    F-6




---



##### Table of Contents



ODYSSEY
    HEALTHCARE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 Years
    Ended December 31, 2004, 2005 and 2006
  1.
    Organization
    and Summary of Significant Accounting Policies  Organization
      Principles
    of Consolidation
    Cash
    and Cash Equivalents and Short-Term Investments
    Fair
    Value of Financial Instruments
    Accounts
    Receivable
     F-7




---



##### Table of Contents



ODYSSEY
    HEALTHCARE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Goodwill
    and Other
    Non-Amortizable
    Assets
    Net
    Patient Service Revenue
         F-8




---



##### Table of Contents



ODYSSEY
    HEALTHCARE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Accrued Medicare Cap Contractual AdjustmentsYear ending December 31,2004


2005


2006(in thousands)Beginning balance 
    accrued Medicare cap contractual adjustments

$
1,244


$
2,915


$
14,883Medicare cap contractual
    adjustments


2,018



9,554
(1)


15,423
(2)Medicare cap contractual
    adjustments  discontinued operations


72
(3)


2,414
(3)


1,041
(3)Payments to Medicare fiscal
    intermediaries


(419
)


0



(1,983
)Reclassification to accounts
    payable


0



0



(2,685
)(4)Ending balance  accrued
    Medicare cap contractual adjustments

$
2,915


$
14,883


$
26,679
(5)     (1)
    
    On August 26, 2005, the Centers for Medicare &
    Medicaid Services (CMS) issued Change Request
    Transmittal 663 publishing the final Medicare per beneficiary
    cap amount of $19,778 for the 2005 Medicare cap year ended
    October 31, 2005 and indicated that the cap amount for the
    2004 Medicare cap year ended October 31, 2004 was
    incorrectly computed. This cap amount was lower than the
    estimated cap amount that we used for 2005 due to CMSs
    error in computing the cap amount for the 2004 Medicare cap
    year. As a result, the 2005 accrued Medicare cap contractual
    adjustment of $9.6 million includes $1.0 million for
    the lower 2005 Medicare cap amount and an additional
    $1.1 million for the 2003 and 2004 Medicare cap years for
    the estimated impact of the revised cap amounts.(2)
    
    Includes additional accrual of $3.8 million related to the
    2005 Medicare cap year.(3)
    
    Medicare cap contractual adjustments reclassified to
    discontinued operations are related to the Salt Lake City
    hospice program which was sold in July 2006.(4)
    
    Amounts were reclassified from accrued Medicare cap contractual
    adjustments to accounts payable in December 2006 and were paid
    in January 2007 to the Medicare fiscal intermediary.(5)
    
    An additional $4.4 million of the accrued Medicare cap
    contractual adjustments was paid to the Medicare fiscal
    intermediary in February 2007.      Charity
    Care
     F-9




---



##### Table of Contents



ODYSSEY
    HEALTHCARE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Direct
    Hospice Care Expenses
    Property
    and Equipment and Other Intangible Assets
    98-1 (SOP 98-1). SOP 98-1,
  not-for-profit
    Stock-Based
    Compensation
    gross-up
 F-10




---



##### Table of Contents



ODYSSEY
    HEALTHCARE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Net
    Income Per Common Share
    Discontinued
    Operations
    Income
    Taxes
    General
    and Professional Liability Insurance
    Nursing
    Home Costs
   F-11




---



##### Table of Contents



ODYSSEY
    HEALTHCARE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Advertising
    Costs
    Deferred
    Rent Liability
    Use of
    Estimates
    Recent
    Accounting Pronouncements
     F-12




---



##### Table of Contents



ODYSSEY
    HEALTHCARE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  2.
    Goodwill
    and Intangible Assets    Northeast


Southeast


Central


South


Midwest


Texas


Mountain


West


Corp


TotalJanuary 1, 2005

$
2,695


$
1,904


$
21,818


$
14,800


$
2,590


$
24,674


$
20,128


$
5,324


$



$
93,933Acquisitions














1,924















2,306







4,230December 31, 2005


2,695



1,904



21,818



16,724



2,590



24,674



20,128



7,630







98,163Acquisition














16























16December 31, 2006

$
2,695


$
1,904


$
21,818


$
16,740


$
2,590


$
24,674


$
20,128


$
7,630


$



$
98,179             3.
    Repurchase
    of Common Stock     F-13




---



##### Table of Contents



ODYSSEY
    HEALTHCARE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      4.
    Series B
    Convertible Preferred Stock Warrants    5.
    Stock
    Options and Restricted Stock Awards     F-14




---



##### Table of Contents



ODYSSEY
    HEALTHCARE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year EndedDecember 31, 2006(Amounts in thousands,except per share amounts)Income from continuing operations
    before provision for income taxes

$
(4, 679
)Income from continuing operations

$
(3,023
)Net income

$
(3,023
)Basic income from continuing
    operations per share

$
(0.09
)Basic net income per share

$
(0.09
)Diluted income from continuing
    operations per share

$
(0.09
)Diluted net income per share

$
(0.09
)            F-15




---



##### Table of Contents



ODYSSEY
    HEALTHCARE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
              F-16




---



##### Table of Contents



ODYSSEY
    HEALTHCARE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended


Year EndedDecember 31,


December 31,2004


2005Income from continuing operations,
    as reported

$
33,753


$
19,616Add: Stock-based employee
    compensation expense recorded, net of tax


178



421Deduct: Fair value stock-based
    employee compensation expense, net of tax


(4,238
)


(8,897
)Pro forma income from continuing
    operations

$
29,693


$
11,140Net income, as reported

$
34,996


$
18,556Add: Stock-based employee
    compensation expense recorded, net of tax


178



421Deduct: Fair value stock-based
    employee compensation expense, net of tax


(4,238
)


(8,897
)Pro forma net income

$
30,936


$
10,080Earnings per share:Basic income per share:Income from continuing operations
    per share  as reported

$
0.93


$
0.57Add: Stock-based employee
    compensation expense recorded, net of tax


0.01



0.01Deduct: Fair value stock-based
    employee compensation expense, net of tax


(0.12
)


(0.26
)Pro forma income from continuing
    operations per share

$
0.82


$
0.32Net income per share 
    as reported

$
0.96


$
0.54Add: Stock-based employee
    compensation expense recorded, net of tax


0.01



0.01Deduct: Fair value stock-based
    employee compensation expense, net of tax


(0.12
)


(0.26
)Pro forma net income per share

$
0.85


$
0.29Diluted income per share:Income from continuing operations
    per share  as reported

$
0.90


$
0.56Add: Stock-based employee
    compensation expense recorded, net of tax


0.00



0.01Deduct: Fair value stock-based
    employee compensation expense, net of tax


(0.11
)


(0.25
)Pro forma income from continuing
    operations per share

$
0.79


$
0.32Net income per share 
    as reported

$
0.93


$
0.53Add: Stock-based employee
    compensation expense recorded, net of tax


0.00



0.01Deduct: Fair value stock-based
    employee compensation expense, net of tax


(0.11
)


(0.25
)Pro forma net income per share

$
0.82


$
0.29     2004

2005

2006Risk-free interest rate

3.44%

4.26%

4.58%Expected life

5 years

5 years

5 yearsExpected volatility

0.603

0.347

0.376Expected dividend yield





  F-17




---



##### Table of Contents



ODYSSEY
    HEALTHCARE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Weighted-AverageRemainingWeighted-


Contractual


AggregateAverage


Term


IntrinsicOptions


Exercise Price


(in years)


ValueOutstanding at January 1, 2006


3,976,276


$
16.67Granted


626,002


$
16.83Exercised


(347,037
)

$
9.00Cancelled


(402,521
)

$
22.03Outstanding at December 31,
    2006


3,852,720


$
16.79



7.44


$
7,789,419Exercisable at December 31,
    2006


2,251,023


$
17.20



6.40


$
6,126,679       Compensation Plan


Stock Option PlanWeighted-





Weighted-Average





AverageGrant-Date





Grant-DateShares


FairValue


Shares


Fair ValueNon-vested at January 1, 2006


2,064,830


$
7.02



30,612


$
1.41Granted


744,132


$
7.68







Vested


(729,257
)

$
6.70



30,612


$
1.28Cancelled


(200,378
)

$
6.53







Non-vested at December 31,
    2006


1,879,327


$
7.46







      F-18




---



##### Table of Contents



ODYSSEY
    HEALTHCARE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  6.
    Net
    Income Per Common Share    Year Ended December 31,2004


2005


2006(In thousands, except per share amounts)Numerator:Numerator for net income per
    share Income from continuing operations

$
33,753


$
19,616


$
20,731Income (loss) from discontinued
    operations

$
1,243


$
(1,060
)

$
(1,002
)Net income

$
34,996


$
18,556


$
19,729Denominator:Denominator for basic net income
    per share  weighted average shares


36,445



34,384



34,145Effect of dilutive securities:Employee stock options


1,076



522



382Series B Preferred Stock
    Warrants convertible to common stock


30



29



2Denominator for diluted net income
    per share  adjusted weighted average shares and
    assumed or actual conversions


37,551



34,935



34,529Income (loss) per common share:Basic:Continuing operations

$
0.93


$
0.57


$
0.61Discontinued operations

$
0.03


$
(0.03
)

$
(0.03
)Net income

$
0.96


$
0.54


$
0.58Diluted:Continuing operations

$
0.90


$
0.56


$
0.60Discontinued operations

$
0.03


$
(0.03
)

$
(0.03
)Net income

$
0.93


$
0.53


$
0.57     7.
    Discontinued
    Operations   F-19




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##### Table of Contents



ODYSSEY
    HEALTHCARE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      As ofDecember 31,2005(In thousands)Prepaid expenses and other current
    assets

$
19Property and equipment, net of
    accumulated depreciation


30Total assets of discontinued
    operations

$
49     Year Ended December 31,2004


2005


2006(In thousands, except per share amounts)Net patient service revenue

$
10,096


$
3,575


$
510Pre-tax income (loss) from
    operations


2,001



(1,671
)


(1,292
)(Provision) benefit for income
    taxes


(758
)


611



454Income (loss) from SLC operations

$
1,243


$
(1,060
)

$
(838
)Write-down of certain assets to be
    sold, net of income taxes










(164
)Income (loss) from discontinued
    operations, net of income taxes

$
1,243


$
(1,060
)

$
(1,002
)   8.
    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, 2004

$
3,913


$
7,747


$
(7,798
)

$
3,862Year ended December 31, 2005

$
3,862


$
4,222


$
(6,055
)

$
2,029Year ended December 31, 2006

$
2,029


$
4,685


$
(4,213
)

$
2,501  F-20




---



##### Table of Contents



ODYSSEY
    HEALTHCARE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  9.
    Property
    and Equipment    December 31,2005


2006(In thousands)Office furniture

$
5,166


$
6,152Computer hardware


4,733



5,564Computer software


6,411



10,490Equipment


1,147



1,605Motor vehicles


106



412Land


396



1,516Buildings






1,345Leasehold improvements


5,525



8,598Construction in progress
    (estimated costs to complete of $3.1 million)






2,06723,484



37,749Less accumulated depreciation and
    amortization


11,885



16,868$
11,599


$
20,881     10.
    Other
    Accrued Expenses    December 31,2005


2006(In thousands)Workers compensation

$
3,063


$
2,846Inpatient


3,388



3,956Rent


1,482



1,667Pharmacy


1,047



1,052Medical supplies and durable
    medical equipment


1,288



1,582Property taxes


312



345Medical director fees


295



234Professional fees


520



1,135Income taxes payable


526



New billing system and computer
    software


1,649



3,006Other


593



574$
14,163


$
16,397  F-21




---



##### Table of Contents



ODYSSEY
    HEALTHCARE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  11.
    Line of
    Credit and Long-Term Debt    December 31,2005


2006(In thousands)Leasehold improvement loans due
    between 2005 and 2008; interest at 6.50% and 10.37%

$
9


$
3Less current maturities


5



2$
4


$
1     PrincipalRepaymentYear

Amount2007

$
2,0002008


1,000$
3,000    F-22




---



##### Table of Contents



ODYSSEY
    HEALTHCARE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   12.
    Income
    Taxes    December 31,2005


2006(In thousands)Deferred tax assets:Accounts receivable

$
(2,292
)

$
(1,902
)Insurance


(487
)


(434
)Accrued compensation


872



1,018Workers compensation


1,172



1,089Government settlement


3,442



Other






2292,707



Deferred tax liabilities:Deferred compensation


64



1,805Government settlement






(1,530
)Amortizable and depreciable assets


(8,257
)


(14,123
)Other


(162
)


(81
)(8,355
)


(13,929
)Net deferred tax liabilities

$
(5,648
)

$
(13,929
)     Year Ended December 31,2004


2005


2006(In thousands)Current:Federal

$
14,317


$
13,631


$
5,418State


2,309



1,596



60216,626



15,227



6,020Deferred:Federal


3,357



(1,238
)


4,748State


592



(179
)


5923,949



(1,417
)


5,340$
20,575


$
13,810


$
11,360  F-23




---



##### Table of Contents



ODYSSEY
    HEALTHCARE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31,2004


2005


2006Amount


Percent


Amount


Percent


Amount


Percent(Dollars in thousands)Tax at federal statutory rate

$
19,015



35
%

$
11,699



35
%

$
11,232



35
%State income tax, net of federal
    benefit


1,955



3



973



4



739



2Non-deductible portion of
    government settlement










1,400



4







Other non-deductible expenses and
    other


(395
)






(262
)


(1
)


(611
)


(2
)$
20,575



38
%

$
13,810



42
%

$
11,360



35
%   13.
    Retirement
    Plan    14.
    Commitments
    and Contingencies  Leases
      2007

$
10,1842008


7,8322009


5,8162010


4,2532011


2,662Thereafter


5,063$
35,810   Contingencies
    and Government Settlement
  Rule 10b-5
 F-24




---



##### Table of Contents



ODYSSEY
    HEALTHCARE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    and/or
   F-25




---



##### Table of Contents



ODYSSEY
    HEALTHCARE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      qui tam qui tam qui tam qui tam qui tam
   F-26




---



##### Table of Contents



ODYSSEY
    HEALTHCARE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  15.
    Segment
    Reporting    Year Ended December 31,2004


2005


2006(In thousands)Net patient service revenue:Northeast

$
16,885


$
23,711


$
31,064Southeast


27,168



29,088



33,717Central


44,050



45,473



47,481South


39,040



43,177



50,331Midwest


34,111



38,630



45,767Texas


68,185



69,303



78,208Mountain


63,697



71,192



67,251West


47,059



58,774



60,587Corporate


(15
)


(1,275
)


(4,575
)$
340,180


$
378,073


$
409,831Direct hospice care expenses:Northeast

$
9,795


$
14,199


$
18,192Southeast


13,553



16,591



20,740Central


25,485



27,477



30,425South


20,368



24,606



30,803Midwest


16,953



19,991



25,000Texas


38,278



41,178



48,956Mountain


33,637



38,856



36,852West


24,054



30,757



33,814Corporate


24







$
182,147


$
213,655


$
244,782Income (loss) from continuing
    operations before other income (expense):Northeast

$
1,648


$
2,307


$
3,946Southeast


6,881



5,771



4,705Central


9,230



7,835



5,796South


10,423



8,942



8,173Midwest


9,521



9,657



11,075Texas


17,239



13,739



12,023Mountain


18,262



19,268



17,095West


13,522



17,188



13,620Corporate


(32,639
)


(52,424
)


(46,731
)$
54,087


$
32,283


$
29,702   F-27




---



##### Table of Contents



ODYSSEY
    HEALTHCARE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Year Ended December 31,2004


2005


2006Average Daily Census:Northeast


362



484



620Southeast


602



628



681Central


1,060



1,071



1,148South


950



1,019



1,187Midwest


733



806



884Texas


1,529



1,471



1,555Mountain


1,270



1,395



1,251West


877



1,033



1,0247,383



7,907



8,350   Year Ended December 31,2005


2006(In thousands)Total Assets:Northeast

$
6,984


$
7,697Southeast


8,236



7,893Central


30,072



32,939South


24,962



25,703Midwest


11,556



11,800Texas


37,784



44,865Mountain


31,082



29,646West


18,667



19,357Corporate


75,624



90,086$
244,967


$
269,986   16.
    Fair
    Values of Financial Instruments    Cash
    and Cash Equivalents and Short-term Investments
   F-28




---



##### Table of Contents



ODYSSEY
    HEALTHCARE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Line
    of Credit and Long-term Debt (Including Current
    Maturities)
      2005


2006Carrying


Fair


Carrying


FairAmount


Value


Amount


Value(In thousands)Cash and cash equivalents

$
15,183


$
15,183


$
7,572


$
7,572Short-term investments

$
48,286


$
48,286


$
62,390


$
62,390Long-term debt (including current
    maturities)

$
9


$
9


$
3


$
3   17.
    Unaudited
    Quarterly Financial Information    2006 Calendar QuartersFirst


Second


Third


Fourth(In thousands, except per share amounts)Total net revenues

$
102,987


$
104,443


$
102,904


$
99,497
(a)Net income

$
5,837


$
6,493


$
5,613


$
1,786Net income per share 
    Basic

$
0.17


$
0.19


$
0.16


$
0.05Net income per share 
    Diluted

$
0.17


$
0.19


$
0.16


$
0.05Weighted average shares
    outstanding  Basic


34,299



34,202



34,120



33,964Weighted average shares
    outstanding  Diluted


34,844



34,676



34,589



34,273   2005 Calendar QuartersFirst


Second


Third


Fourth(In thousands, except per share amounts)Total net revenues

$
86,597


$
92,319


$
97,922


$
101,235Net income (loss)

$
5,343


$
7,257


$
7,747


$
(1,791
)(b)Net income (loss) per
    share  Basic

$
0.15


$
0.21


$
0.23


$
(0.05
)Net income (loss) per
    share  Diluted

$
0.15


$
0.21


$
0.22


$
(0.05
)Weighted average shares
    outstanding  Basic


34,854



34,343



34,218



34,129Weighted average shares
    outstanding  Diluted


35,376



34,935



35,074



34,129     (a)
    
    Net revenue for the fourth quarter 2006 was reduced as a result
    of a $3.8 million additional accrual for Medicare cap
    contractual adjustments.(b)
    
    Net loss for the fourth quarter 2005 includes a
    $13.0 million, $9.6 million net of taxes, accrual for
    the government settlement.  18.
    Subsequent
    Event   F-29