UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(MARK ONE)


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED ~~MARCH~~JUNE 3130, 2010


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)

(214) 922-9711
(Registrant’s telephone number, including area code)

N/A
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer o	Accelerated filer þ	Non-accelerated filer o	Smaller Reporting Company o
		(Do not check if a smaller reporting company)

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

~~The~~As ~~number~~ of ~~outstanding shares of the issuer’s common stock as of May~~July 323, 2010, ~~was~~there ~~as follows:~~were 33,~~563~~685,~~399~~292 outstanding shares of the issuer’s Common Stock, $0.001 par value per share.

FORM 10-Q

ODYSSEY HEALTHCARE, INC. FOR THE QUARTER ENDED ~~MARCH~~JUNE 3130, 2010 TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS			3
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			2122
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			3236
ITEM 4. CONTROLS AND PROCEDURES			3236
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS			3336
ITEM 1A. RISK FACTORS			3438
ITEM 6. EXHIBITS			3641
EX-31.1
EX-31.2
EX-32.1

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ODYSSEY HEALTHCARE, INC. AND SUBSIDIARIES ~~CONSOLIDATED BALANCE SHEETS (In thousands, except share amounts) (Unaudited)~~

	March 31,			December 31,
	2010			2009
ASSETS
Current assets:
Cash and cash equivalents	$	141,909		$	128,632
Accounts receivable from patient services, net of allowance for uncollectible accounts of $13,106 and $12,462 at March 31, 2010 and December 31, 2009, respectively		104,601			110,593
Income taxes receivable		—			352
Deferred tax assets		10,805			10,235
Prepaid expenses and other current assets		5,011			6,017
Total current assets		262,326			255,829
Property and equipment, net of accumulated depreciation		19,907			20,700
Deferred loan costs, net		2,851			3,033
Long-term investments		12,434			12,425
Intangibles, net of accumulated amortization		19,193			19,251
Goodwill		192,057			191,766
Total assets	$	508,768		$	503,004
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	3,002		$	4,016
Accrued compensation		26,090			31,729
Accrued nursing home costs		17,870			18,144
Accrued Medicare cap contractual adjustments		13,399			18,798
Income taxes payable		4,664			1,504
Other accrued expenses		43,135			42,683
Current maturities of long-term debt		41,625			38,675
Total current liabilities		149,785			155,549
Long-term debt, less current maturities		71,999			76,527
Deferred tax liability		15,028			15,171
Other liabilities		4,345			4,597
Commitments and contingencies		—			—
Equity:
Odyssey stockholders’ equity:
Common stock, $.001 par value: 75,000,000 shares authorized - 38,894,728 and 38,549,833 shares issued at March 31, 2010 and December 31, 2009, respectively.		39			39
Additional paid-in capital		128,637			125,716
Retained earnings		207,830			194,431
Accumulated other comprehensive loss, net of income taxes		(1,367	)		(1,481	)
Treasury stock, at cost, 5,347,072 shares held at March 31, 2010 and December 31, 2009		(69,954	)		(69,954	)
Total Odyssey stockholders’ equity		265,185			248,751
Noncontrolling interests		2,426			2,409
Total equity		267,611			251,160
Total liabilities and equity	$	508,768		$	503,004

CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

(Unaudited)


	June 30,			December 31,
	2010			2009
ASSETS
Current assets:
Cash and cash equivalents	$	164,501		$	128,632
Accounts receivable from patient services, net of allowance for uncollectible accounts of $11,903 and $12,462 at June 30, 2010 and December 31, 2009, respectively		102,984			110,593
Income taxes receivable		4,023			352
Deferred tax assets		10,219			10,235
Prepaid expenses and other current assets		5,770			6,017

Total current assets		287,497			255,829
Property and equipment, net of accumulated depreciation		19,064			20,700
Deferred loan costs, net		2,669			3,033
Long-term investments		—			12,425
Intangibles, net of accumulated amortization		19,155			19,251
Goodwill		192,390			191,766

Total assets	$	520,775		$	503,004

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	3,586		$	4,016
Accrued compensation		27,675			31,729
Accrued nursing home costs		17,347			18,144
Accrued Medicare cap contractual adjustments		13,690			18,798
Income taxes payable		—			1,504
Other accrued expenses		44,681			42,683
Current maturities of long-term debt		33,340			38,675

Total current liabilities		140,319			155,549
Long-term debt, less current maturities		77,128			76,527
Deferred tax liability		15,261			15,171
Other liabilities		2,687			4,597
Commitments and contingencies		—			—
Equity:
Odyssey stockholders’ equity:
Common stock, $.001 par value: 75,000,000 shares authorized - 39,032,364 and 38,549,833 shares issued at June 30, 2010 and December 31, 2009, respectively		39			39
Additional paid-in capital		131,849			125,716
Retained earnings		221,808			194,431
Accumulated other comprehensive loss, net of income taxes		(763	)		(1,481	)
Treasury stock, at cost, 5,347,072 shares held at June 30, 2010 and December 31, 2009		(69,954	)		(69,954	)

Total Odyssey stockholders’ equity		282,979			248,751
Noncontrolling interests		2,401			2,409

Total equity		285,380			251,160

Total liabilities and equity	$	520,775		$	503,004

The accompanying notes are an integral part of these financial statements.

ODYSSEY HEALTHCARE, INC. AND SUBSIDIARIES ~~CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) (Unaudited)~~

	Three Months Ended
	March 31,
	2010			2009
Net patient service revenue	$	171,496		$	167,532
Operating expenses:
Direct hospice care		96,401			98,455
General and administrative – hospice care		32,694			33,800
General and administrative – support center		15,801			15,805
Provision for uncollectible accounts		1,533			2,364
Depreciation		1,745			1,129
Amortization		58			70
Income from continuing operations before other income (expense)		23,264			15,909
Other income (expense):
Interest income		67			166
Interest expense		(1,438	)		(1,885	)
		(1,371	)		(1,719	)
Income from continuing operations before provision for income taxes		21,893			14,190
Provision for income taxes		8,115			5,283
Income from continuing operations		13,778			8,907
Loss from discontinued operations, net of income taxes		(126	)		(52	)
Net income		13,652			8,855
Less: Net income attributable to noncontrolling interests		253			136
Net income attributable to Odyssey stockholders	$	13,399		$	8,719
Income (loss) per common share:
Basic:
Continuing operations attributable to Odyssey stockholders	$	0.41		$	0.27
Discontinued operations attributable to Odyssey stockholders		(0.01	)		—
Net income attributable to Odyssey stockholders	$	0.40		$	0.27
Diluted:
Continuing operations attributable to Odyssey stockholders	$	0.40		$	0.27
Discontinued operations attributable to Odyssey stockholders		—			(0.01	)
Net income attributable to Odyssey stockholders	$	0.40		$	0.26
Weighted average shares outstanding:
Basic		33,344			32,801
Diluted		33,790			32,950
Amounts attributable to Odyssey stockholders:
Income from continuing operations, net of tax		13,525			8,771
Loss from discontinued operations, net of tax		(126	)		(52	)
Net income	$	13,399		$	8,719

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

(Unaudited)


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
Net patient service revenue	$	176,227		$	170,295		$	347,723		$	337,827
Operating expenses:
Direct hospice care		98,032			99,444			194,433			197,899
General and administrative – hospice care		31,913			34,131			64,607			67,931
General and administrative – support center		19,110			16,841			34,911			32,646
Provision for uncollectible accounts		877			2,506			2,410			4,869
Depreciation		1,673			1,731			3,418			2,860
Amortization		38			70			96			141

Income from continuing operations before other income (expense)		24,584			15,572			47,848			31,481


Other income (expense):
Interest income		103			121			170			287
Interest expense		(1,434	)		(1,606	)		(2,872	)		(3,491	)

		(1,331	)		(1,485	)		(2,702	)		(3,204	)

Income from continuing operations before provision for income taxes		23,253			14,087			45,146			28,277
Provision for income taxes		8,975			5,065			17,090			10,347

Income from continuing operations		14,278			9,022			28,056			17,930

Loss from discontinued operations, net of income taxes		(71	)		(422	)		(197	)		(475	)

Net income		14,207			8,600			27,859			17,455
Less: Net income attributable to noncontrolling interests		229			81			482			217

Net income attributable to Odyssey stockholders	$	13,978		$	8,519		$	27,377		$	17,238


Income (loss) per common share:
Basic:
Continuing operations attributable to Odyssey stockholders	$	0.42		$	0.27		$	0.82		$	0.54
Discontinued operations attributable to Odyssey stockholders		—			(0.01	)		—			(0.02	)

Net income attributable to Odyssey stockholders	$	0.42		$	0.26		$	0.82		$	0.52

Diluted:
Continuing operations attributable to Odyssey stockholders	$	0.41		$	0.27		$	0.81		$	0.54
Discontinued operations attributable to Odyssey stockholders		—			(0.01	)		(0.01	)		(0.02	)

Net income attributable to Odyssey stockholders	$	0.41		$	0.26		$	0.80		$	0.52


Weighted average shares outstanding:
Basic		33,624			32,905			33,485			32,853
Diluted		34,465			33,059			34,114			33,020
Amounts attributable to Odyssey stockholders:
Income from continuing operations, net of tax		14,049			8,941			27,574			17,713
Loss from discontinued operations, net of tax		(71	)		(422	)		(197	)		(475	)

Net income	$	13,978		$	8,519		$	27,377		$	17,238

The accompanying notes are an integral part of these financial statements.

ODYSSEY HEALTHCARE, INC. AND SUBSIDIARIES ~~CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)~~

					Additional					Accumulated Other									Total
	Common Stock				Paid-in			Retained		Comprehensive			Treasury			Noncontrolling			Stockholders’
	Shares		Amount		Capital			Earnings		Loss			Stock			Interests			Equity
								(Amounts in thousands)
Balance at December 31, 2009		38,550		39		125,716			194,431		(1,481	)		(69,954	)		2,409			251,160
Comprehensive income:
Net income		—		—		—			13,399		—			—			253			13,652
Unrealized gain on interest rate swaps, net of income taxes		—		—		—			—		106			—			—			106
Unrealized gain on auction rate securities, net of income taxes		—		—		—			—		8			—			—			8
Total comprehensive income, net of income taxes																				13,766
Transactions between Odyssey and noncontrolling interests		—		—		—			—		—			—			(236	)		(236	)
Share-based compensation		245		—		1,557			—		—			—			—			1,557
Income tax benefit on share-based compensation		—		—		2,140			—		—			—			—			2,140
Shares redeemed for employee tax withholdings		—		—		(2,018	)		—		—			—			—			(2,018	)
Exercise of stock options		100		—		1,242			—		—			—			—			1,242
Balance at March 31, 2010		38,895	$	39	$	128,637		$	207,830	$	(1,367	)	$	(69,954	)	$	2,426		$	267,611

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(Unaudited)


					Additional					Accumulated Other									Total
	Common Stock				Paid-in			Retained		Comprehensive			Treasury			Noncontrolling			Stockholders’
	Shares		Amount		Capital			Earnings		Income / (Loss)			Stock			Interests			Equity
	(Amounts in thousands)
Balance at January 1, 2010		38,550		39		125,716			194,431		(1,481	)		(69,954	)		2,409			251,160
Comprehensive income:
Net income		—		—		—			27,377		—			—			482			27,859
Unrealized gain on interest rate swaps, net of income taxes		—		—		—			—		355			—			—			355
Unrealized gain on auction rate securities, net of income taxes		—		—		—			—		363			—			—			363

Total comprehensive income, net of income taxes																				28,577
Transactions between Odyssey and noncontrolling interests		—		—		—			—		—			—			(490	)		(490	)
Share-based compensation		307		—		3,357			—		—			—			—			3,357
Income tax benefit on share-based compensation		—		—		2,438			—		—			—			—			2,438
Shares redeemed for employee tax withholdings		—		—		(2,122	)		—		—			—			—			(2,122	)
Exercise of stock options		175		—		2,460			—		—			—			—			2,460

Balance at June 30, 2010		39,032	$	39	$	131,849		$	221,808	$	(763	)	$	(69,954	)	$	2,401		$	285,380

The accompanying notes are an integral part of these financial statements.

ODYSSEY HEALTHCARE, INC. AND SUBSIDIARIES ~~CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)~~

	Three Months Ended
	March 31,
	2010			2009
Operating Activities:
Net income attributable to Odyssey stockholders	$	13,399		$	8,719
Adjustments to reconcile net income to net cash provided by operating activities and discontinued operations:
Loss from discontinued operations, net of income taxes		126			52
Net income attributable to noncontrolling interests		253			136
Loss on disposal of property and equipment		6			—
Depreciation and amortization		1,803			1,199
Amortization of deferred loan costs		182			183
Share-based compensation expense		1,557			1,093
Deferred income taxes		(777	)		3,808
Provision for uncollectible accounts		1,533			2,364
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable from patient services		4,458			(7,108	)
Prepaid expenses and other current assets		1,266			909
Accounts payable, accrued nursing home costs, accrued Medicare cap contractual adjustments and other accrued expenses		(10,898	)		(3,497	)
Net cash provided by operating activities and discontinued operations		12,908			7,858
Investing Activities:
Cash paid for acquisitions, net of cash acquired		(219	)		(205	)
Purchases of property and equipment, net		(980	)		(1,648	)
Net cash used in investing activities		(1,199	)		(1,853	)
Financing Activities:
Proceeds from exercise of stock options		1,242			26
Cash paid for partnership distributions		(236	)		(31	)
Tax benefit from share-based compensation		2,140			9
Payments on credit facility		(1,578	)		(1,598	)
Net cash provided by (used in) financing activities		1,568			(1,594	)
Net increase in cash and cash equivalents		13,277			4,411
Cash and cash equivalents, beginning of period		128,632			56,043
Cash and cash equivalents, end of period	$	141,909		$	60,454

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Six Months Ended
	June 30,
	2010			2009
Operating Activities:
Net income attributable to Odyssey stockholders	$	27,377		$	17,238
Adjustments to reconcile net income to net cash provided by operating activities and discontinued operations:
Loss from discontinued operations, net of income taxes		197			475
Net income attributable to noncontrolling interests		482			217
Loss on disposal of property and equipment		3			—
Depreciation and amortization		3,514			3,001
Amortization of deferred loan costs		364			364
Share-based compensation expense		3,357			2,455
Deferred income taxes		(321	)		3,624
Provision for uncollectible accounts		2,410			4,869
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable from patient services		5,193			(3,414	)
Prepaid expenses and other current assets		(3,590	)		692
Accounts payable, accrued nursing home costs, accrued Medicare cap contractual adjustments and other accrued expenses		(13,421	)		(7,991	)

Net cash provided by operating activities and discontinued operations		25,565			21,530

Investing Activities:
Cash paid for acquisitions, net of cash acquired		(566	)		(205	)
Sales of auction rate securities		13,000			—
Purchases of property and equipment, net		(1,804	)		(3,351	)

Net cash provided by (used in) investing activities		10,630			(3,556	)

Financing Activities:
Proceeds from exercise of stock options		2,460			43
Cash paid for partnership distributions		(490	)		(148	)
Tax benefit (expense) from share-based compensation		2,438			(8	)
Payments on credit facility		(4,734	)		(3,197	)

Net cash used in financing activities		(326	)		(3,310	)

Net increase in cash and cash equivalents		35,869			14,664
Cash and cash equivalents, beginning of period		128,632			56,043

Cash and cash equivalents, end of period	$	164,501		$	70,707

The accompanying notes are an integral part of these financial statements.

ODYSSEY HEALTHCARE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) THREE MONTHS ENDED MARCH 31, 2010 AND 2009

1. Description of Business

Odyssey HealthCare, Inc. and its subsidiaries (the “Company”) provide hospice care, with a goal of improving the quality of life of terminally ill patients and their families. Hospice services focus on palliative care for patients with life-limiting illnesses, which is care directed at managing pain and other discomforting symptoms and addressing the psychosocial and spiritual needs of patients and their families. The Company provides for all medical, psychosocial care and certain other support services related to the patient’s terminal illness.

The Company was incorporated on August 29, 1995 in the state of Delaware and, as of ~~March~~June 3130, 2010, had 92 Medicare-certified hospice providers serving patients and their families in 30 states, with significant operations in Texas, California and Arizona.

2. Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and with the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements of the Company. In the opinion of management, these financial statements reflect all adjustments of a normal recurring nature necessary for the fair presentation of ~~our~~the Company’s financial position, results of operations and cash flows for the interim periods presented in conformity with GAAP. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2009 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 10, 2010 and the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2010 filed with the SEC on May 6, 2010. Interim results are not necessarily indicative of the results that may be expected for a full year or any other interim period.

The Company’s consolidated financial statements include the accounts and operations of the Company and its subsidiaries and noncontrolling interests in which it owns more than a 50 percent interest. All material balances and transactions between the consolidated entities have been eliminated. Noncontrolling interests, previously shown as minority interests, are reported below net income under the heading “Net income attributable to noncontrolling interests” in the consolidated statements of income and shown as a component of equity in the consolidated balance sheets.

Certain amounts reported in previous years have been reclassified to conform to the 2010 presentation. These reclassifications include the presentation of “income taxes payable” in the consolidated balance sheets and the presentation of “tax benefit from share-based compensation” in the consolidated statements of cash flows. In the period that a component of an entity has been disposed of or classified as held for sale, the results of operations for current and prior periods are reclassified in a single caption titled “discontinued operations.”

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Management estimates include an allowance for uncollectible accounts, accrued compensation, accrued Medicare cap contractual allowances, other contractual allowances, accrued nursing home costs, accrued workers’ compensation, accrued patient care costs, accrued income taxes, accrued professional fees, accrued legal settlements, goodwill and intangible asset impairment and share-based compensation expense related to performance based awards. Actual results could differ from those estimates and such differences could be material.

Subsequent Events

The Company has evaluated subsequent events for recognition and disclosure in the financial statements and has determined that no additional disclosures are necessary.

3. ~~Recent~~Pending ~~Accounting Pronouncements~~Merger

InOn May ~~2009~~23, 2010, the ~~Financial~~Company ~~Accounting~~entered ~~Standards~~into ~~Board~~an ~~(“FASB”)~~Agreement ~~issued~~and aPlan ~~new~~of ~~accounting pronouncement~~Merger ~~regarding subsequent events~~ (~~formerly~~the ~~SFAS No. 165 —~~ “~~Subsequent Events~~Merger Agreement”). ~~This pronouncement,~~with ~~located~~Gentiva ~~under~~Health ~~FASB~~Services, ~~Accounting~~Inc., ~~Standards~~a ~~Codification~~Delaware corporation (“~~ASC~~Gentiva”) ~~Topic 855~~, ~~“Subsequent Events,” was issued to establish general standards of accounting for~~ and ~~disclosure of events that~~GTO ~~occur~~Acquisition ~~after~~Corp., ~~the~~a ~~balance~~Delaware ~~sheet~~corporation ~~date~~wholly-owned ~~but~~by ~~before~~Gentiva ~~financial~~(“Merger ~~statements~~Sub”). ~~are~~Upon ~~issued~~the ~~or are available to~~terms beand ~~issued.~~subject ~~This pronouncement requires entities~~ to ~~disclose~~ the ~~date~~conditions ~~through~~set ~~which~~forth ~~subsequent events~~in ~~have~~the ~~been~~Merger ~~evaluated~~Agreement, asMerger ~~well~~Sub aswill ~~whether~~merge ~~that~~with ~~date~~and into is the ~~date~~Company, with the ~~financial~~Company ~~statements~~continuing ~~were issued~~as or the ~~date~~surviving ~~the~~corporation ~~financial~~and ~~statements~~as ~~were~~a ~~available to be issued. The Company adopted this~~subsidiary ~~pronouncement~~wholly-owned onby aGentiva ~~prospective~~(the ~~basis effective beginning on April 1, 2009~~“Merger”). ~~The~~Upon ~~adoption~~consummation of ~~this pronouncement~~the ~~did~~Merger, ~~not~~each ~~have~~issued ~~any~~and outstanding ~~impact~~share onof the Company’s ~~financial~~common ~~statements. In February 2010~~stock, ~~the FASB~~par ~~amended~~value ~~its~~$0.001 ~~guidance~~per onshare, ~~subsequent~~will ~~events~~be toconverted ~~remove~~ into the ~~requirement~~right ~~for~~to ~~public~~receive ~~companies~~$27.00 ~~to disclose~~in ~~the~~cash, ~~date~~without ~~through~~interest ~~which~~and ansubject ~~entity~~to ~~has~~any ~~evaluated~~applicable ~~subsequent~~withholding ~~events~~of taxes.

InConsummation ~~June 2009,~~of the ~~FASB~~Merger ~~issued~~is asubject ~~new~~to ~~accounting~~customary ~~pronouncement~~conditions, ~~regarding~~including ~~variable~~adoption ~~interest~~of the ~~entities~~Merger ~~(formerly~~Agreement ~~SFAS~~by ~~No. 167,~~the ~~“Amendments~~Company’s tostockholders ~~FASB~~and ~~Interpretation~~the ~~No. 46(R)”).~~absence ~~This pronouncement,~~of ~~located~~legal ~~under~~restraints. ~~FASB~~Each ~~ASC~~party’s obligation ~~Topic~~to ~~810,~~consummate ~~“Consolidation,”~~the ~~was~~Merger ~~issued~~is also subject to ~~improve~~the ~~financial reporting~~accuracy byof ~~enterprises~~the ~~involved~~representations ~~with~~and warranties ~~variable~~of ~~interest~~the ~~entities~~other ~~and~~party (subject to ~~provide~~certain ~~more~~qualifications ~~relevant~~and exceptions) and the ~~reliable~~performance ~~information~~in toall ~~users~~material respects of ~~financial~~the ~~statements.~~other ~~ASC~~party’s ~~Topic~~covenants ~~810~~under ~~requires~~the anMerger ~~enterprise to~~Agreement, ~~perform~~including, anwith ~~ongoing~~respect ~~analysis~~ to ~~determine~~the ~~whether~~Company, ~~the~~customary ~~enterprise~~covenants ~~has~~regarding aoperation ~~controlling~~of ~~financial interest~~the inbusiness aof the ~~variable~~Company ~~interest~~prior ~~entity~~to closing. The ~~Company~~applicable ~~adopted~~30-day ~~this~~waiting ~~pronouncement~~period ~~effective~~under ~~beginning~~the Hart-Scott-Rodino onAntitrust ~~January 1,~~Improvement ~~2010.~~Act ~~The adoption~~ of ~~this~~1976 ~~pronouncement~~expired ~~did not have any impact~~ on ~~the~~July 6, ~~Company’s financial statements~~2010.

InThe ~~January 2010,~~Merger ~~the~~Agreement ~~FASB~~included ~~issued~~a ~~Accounting Standards Update No. 2010-06,~~ “~~Fair Value Measurements and Disclosures (Topic 820) — Improving Disclosures about Fair Value Measurements.~~go-shop” ~~This~~ ~~update~~process ~~requires~~during awhich ~~number~~the ofCompany ~~new~~was ~~disclosures~~permitted ~~including disclosure of significant transfers in~~to orencourage ~~out~~and ofsolicit ~~Level~~proposals 1for ~~and~~a ~~Level~~competing 2transaction ~~and~~from ~~the~~third ~~reasons~~parties ~~for~~from ~~such transfers~~May 23, ~~an entity’s policy for~~2010 ~~determining~~through ~~when~~11:59 p.m., ~~transfers~~Central ~~between~~time, ~~levels~~on ~~are recognized~~June 22, ~~the~~2010. ~~valuation~~Odyssey ~~techniques~~conducted ~~and~~the ~~inputs~~“go-shop” ~~used in~~process ~~determining~~ with the ~~fair~~assistance ~~value~~ of ~~assets~~Goldman, orSachs ~~liabilities~~& ~~classified~~Co. as(“Goldman”), ~~Level~~the 2Company’s orfinancial ~~Level~~advisor, 3in ~~and~~connection ~~requires~~with the ~~changes~~Merger. inDuring ~~Level~~the 3“go-shop” ~~fair value measurements to be disclosed separately rather than net. In addition~~period, ~~this~~Goldman ~~update~~held ~~seeks~~discussions toon ~~improve~~behalf ~~transparency by requiring fair value measurement disclosures for each class~~ of ~~assets~~the ~~and liabilities. The~~ Company ~~adopted this pronouncement~~ ~~effective~~with ~~beginning~~potential onbuyers ~~January 1,~~but ~~2010. The adoption of this pronouncement~~ did not ~~have~~receive any ~~impact on~~alternative ~~the~~acquisition ~~Company’s financial statements as it contains only disclosure requirements~~proposals.

4 The Merger Agreement contains certain termination rights for both the Company and Gentiva. ~~Discontinued~~The right ~~Operations~~of the Company to terminate the Merger Agreement to accept a superior proposal is subject to the right of Gentiva to match any such proposal and the payment of a termination fee to Gentiva of $28.9 million.

The ~~Company~~parties ~~conducts~~have anagreed ~~ongoing~~that ~~strategic~~the ~~review~~Merger ofAgreement ~~its~~is ~~hospice~~subject ~~programs and evaluates whether~~ to ~~sell~~specific orperformance ~~close~~in ~~certain hospice programs based on this strategic review. No programs were held for~~the ~~sale~~event as of ~~March 31,~~breach ~~2010~~by orany ~~December 31, 2009~~party.

~~During~~The ~~the~~Company ~~second~~has ~~quarter~~established ofFriday, ~~2009~~July 2, ~~the~~2010 ~~Company~~as ~~recorded~~the arecord ~~pretax~~date ~~loss~~for ofdetermining stockholders ~~approximately~~entitled ~~$0.6 million,~~to ~~which~~vote ~~was~~at athe ~~result~~special meeting of ~~the~~stockholders ~~writedown~~to ofbe ~~assets~~held ~~from~~on ~~$2.1 million~~Monday, toAugust 9, $12010.~~5 million~~ ~~for~~At the ~~Oklahoma~~ ~~City~~special ~~program~~meeting, ~~including~~stockholders ~~the~~of ~~related~~record ~~inpatient~~will ~~unit.~~consider ~~The~~and ~~Company~~vote ~~completed~~upon proposal (i) to approve the ~~sale~~Merger ofand adopt the ~~Oklahoma~~ ~~City~~Merger ~~program,~~Agreement ~~including~~and ~~the~~(ii) to ~~related~~adjourn ~~inpatient~~the ~~unit~~special meeting, onif necessary ~~July 13~~or appropriate, ~~2009.~~to ~~The~~solicit ~~Oklahoma~~additional ~~City program~~proxies ~~and~~if ~~inpatient~~there ~~unit~~are ~~were~~not ~~located~~sufficient invotes at the time ~~Company’s~~of ~~South~~the ~~Central~~special ~~region.~~meeting ~~Net~~to ~~proceeds~~approve ~~from~~ the ~~sale~~Merger ~~were~~and ~~approximately~~adopt $1the Merger Agreement.~~5 million.~~ The ~~$1.5 million~~transaction is ~~received~~expected into ~~net~~close ~~proceeds~~during ~~was~~the ~~paid~~month of August, subject to the ~~Company’s~~ ~~lenders~~satisfaction asof astandard ~~mandatory~~closing conditions, ~~prepayment~~including ofapproval ~~principal~~by ~~under~~ the Company’s ~~credit agreement~~stockholders.

~~Net~~The ~~revenue~~Company ~~and~~incurred ~~losses~~approximately ~~for~~$2.1 million ~~these~~in ~~entities~~expenses ~~and~~during both the ~~write-down~~three ofand ~~assets sold were included in~~six ~~the~~month ~~consolidated~~periods ~~statement~~ended ofJune 30, ~~operations~~2010, asrelated ~~“Loss~~to ~~from~~the ~~discontinued~~proposed ~~operations~~Merger, ~~net~~which ofare ~~income~~included in “general ~~taxes,”~~and ~~for~~administrative ~~all~~– ~~periods~~support ~~presented.~~center” ~~The~~on ~~amounts~~the ~~are~~Company’s asconsolidated ~~follows~~statements ~~(in~~of ~~thousands):~~income.

	Three Months
	Ended March 31,
	2010			2009
Net patient service revenue	$	(62	)	$	1,069
Pre-tax loss from operations	$	(204	)	$	(84	)
Benefit for income taxes		78			32
Loss from discontinued operations, net of income taxes	$	(126	)	$	(52	)
Loss per diluted share	$	—		$	(0.01	)

For further information related to the Merger, see the Company’s Definitive Proxy Statement on Schedule 14A as filed with the SEC on July 9, 2010. The foregoing description of the Merger Agreement is not complete and is qualified in its entirety by reference to the Merger Agreement filed as an exhibit to the Company’s Form 8-K filing on May 24, 2010.

4. Recent Accounting Pronouncements

In June 2009, the FASB issued a new accounting pronouncement regarding variable interest entities (formerly SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)”). This pronouncement, located under FASB ASC Topic 810, “Consolidation,” was issued to improve financial reporting by enterprises involved with variable interest entities and to provide more relevant and reliable information to users of financial statements. ASC Topic 810 requires an enterprise to perform an ongoing analysis to determine whether the enterprise has a controlling financial

5interest in a variable interest entity. ~~Equity~~The ~~Incentive~~Company ~~Plans~~adopted this pronouncement effective beginning on January 1, 2010. The adoption of this pronouncement did not have any impact on the Company’s financial statements.

In January 2010, the FASB issued Accounting Standards Update No. 2010-06, “Fair Value Measurements and Disclosures (Topic 820) – Improving Disclosures about Fair Value Measurements.” This update requires a number of new disclosures including disclosure of significant transfers in or out of Level 1 and Level 2 and the reasons for such transfers, an entity’s policy for determining when transfers between levels are recognized, the valuation techniques and inputs used in determining the fair value of assets or liabilities classified as Level 2 or Level 3 and requires the changes in Level 3 fair value measurements to be disclosed separately rather than net. In addition, this update seeks to improve transparency by requiring fair value measurement disclosures for each class of assets and liabilities. The Company adopted this pronouncement effective beginning on January 1, 2010. The adoption of this pronouncement did not have any impact on the Company’s financial statements as it contains only disclosure requirements.

5. Discontinued Operations

The Company conducts an ongoing strategic review of its hospice programs and evaluates whether to sell or close certain hospice programs based on this strategic review. No programs were held for sale as of June 30, 2010 or December 31, 2009.

During the second quarter of 2009, the Company recorded a pretax loss of approximately $0.6 million, which was a result of the writedown of assets from $2.1 million to $1.5 million for the Oklahoma City program, including the related inpatient unit. The Company completed the sale of the Oklahoma City program, including the related inpatient unit, on July 13, 2009. The Oklahoma City program and inpatient unit were located in the Company’s South Central region. Net proceeds from the sale were approximately $1.5 million. The $1.5 million received in net proceeds were paid to the Company’s lenders as a mandatory prepayment of principal under the Company’s credit agreement.

Net revenue and losses for these entities and the write-down of assets sold were included in the consolidated statement of operations as “Loss from discontinued operations, net of income taxes,” for all periods presented. The amounts are as follows (in thousands):


	Three Months						Six Months
	Ended June 30,						Ended June 30,
	2010			2009			2010			2009
Net patient service revenue	$	(10	)	$	1,053		$	(72	)	$	2,122
Pre-tax loss from operations	$	(115	)	$	(684	)	$	(320	)	$	(769	)
Benefit for income taxes		44			262			123			294

Loss from discontinued operations, net of income taxes	$	(71	)	$	(422	)	$	(197	)	$	(475	)

Loss per diluted share	$	—		$	(0.01	)	$	(0.01	)	$	(0.02	)

Loss from discontinued operations (net of income taxes) for the three and six months ended June 30, 2010, represent the extinguishment of an office lease and Medicare cap contractual adjustments related to programs that were discontinued during 2008 and 2007.

6. Equity Incentive Plans

On January 4, 2010, the Company issued grants related to 106,036 time-based restricted stock units (“RSUs”) to certain employees for $1.7 million, which represents the fair value of the awards based on the closing price of the stock of $15.82 per share on the date of grant, which was January 4, 2010. This amount is being recognized as share-based compensation expense on a straight-line basis over the four-year period following the date of grant, which is based on the four-year vesting schedule applicable to the grant.

On January 4, 2010, the Company granted incentive-based RSUs to certain employees. The total number and vesting of the incentive-based RSUs eligible for each award recipient is based upon the Company attaining certain specified earnings per share (“EPS”) from continuing operations targets for 2010. Provided the award recipient remains an employee continuously from the date of grant through the applicable vesting date, one-fourth of the incentive-based RSUs eligible for vesting for each award recipient, based on the satisfaction of the applicable EPS target, will vest on the date the Compensation Committee certifies that the EPS target for 2010 has been met. The remaining three-fourths of the incentive-based RSUs eligible for vesting for each award recipient, based on the ~~satisfaction of the applicable EPS target, will vest in three equal, annual installments~~ beginning on January 4, 2012. As of March 31, 2010, the Company determined that it was probable that 318,108 of the incentive-based RSUs will be earned and eligible to vest based on a certain EPS target. The fair value of these incentive-based RSUs is $5.0 million, which represents the closing price of the stock of $15.82 per share on the date of grant, which was January 4, 2010. This amount is being recognized as share-based compensation expense on a straight-line basis over the four-year period following the date of grant, which is in accordance with the four-year vesting schedule applicable to the grant.

On February 10, 2010, the Company issued grants related to 26,550 time-based RSUs to certain employees for $0.4 million, which represents the fair value of the awards based on the closing price of the stock of $15.13 per share on the date of grant, which was February 10, 2010. This amount is being recognized as share-based compensation expense on a straight-line basis over the four-year period following the date of grant, which is based on the four-year vesting schedule applicable to the grant.

On February 10, 2010, the Company granted incentive-based RSUs to certain employees. The total number and vesting of the incentive-based RSUs eligible for each award recipient is based upon the Company attaining certain specified EPS from continuing operations targets for 2010, earnings before interest, taxes, depreciation and amortization (“EBITDA”) targets or other individual performance targets for 2010. Provided the award recipient remains an employee continuously from the date of grant through the applicable vesting date, one-fourth of the incentive-based RSUs eligible for vesting for each award recipient, based on the satisfaction of the applicable performance target, will vest on the date the Company’s Chief Executive Officer and Chief Financial Officer certify that the applicable targets for 2010 have been met. The remaining three-fourths of the incentive-based RSUs eligible for vesting for each award recipient, based on the satisfaction of the applicable performance target, will vest in three equal, annual installments beginning on February 10, 2012. As of March 31, 2010, the Company determined that it was probable that 53,100 of the incentive-based RSUs will be earned and eligible to vest based on certain performance targets. The fair value of these incentive-based RSUs is $0.8 million, which represents the closing price of the stock of $15.13 per share on the date of grant. This amount is being recognized as share-based compensation expense on a straight-line basis over the four-year period following the date of grant, which is in accordance with the four-year vesting schedule applicable to the grant.

The Company recorded $1.6 million and $1.1 million in share-based compensation expense for the three months ended March 31, 2010 and 2009, respectively.

6satisfaction of the applicable EPS target, will vest in three equal, annual installments beginning on January 4, 2012. ~~Long~~As of June 30, 2010, the Company determined that it was probable that 318,108 of the incentive-~~term~~based ~~Investments~~RSUs will be earned and eligible to vest based on a certain EPS target. The fair value of these incentive-based RSUs is $5.0 million, which represents the closing price of the stock of $15.82 per share on the date of grant, which was January 4, 2010. This amount is being recognized as share-based compensation expense on a straight-line basis over the four-year period following the date of grant, which is in accordance with the four-year vesting schedule applicable to the grant.

AsOn ~~of both March~~February 3110, 2010 ~~and December 31~~, ~~2009,~~ the Company ~~had~~issued ~~long-term~~grants ~~investments~~related ~~with~~to ~~a fair-value totaling $12.4 million~~26,550 ~~consisting~~time-based ofRSUs ~~tax~~to ~~exempt auction rate securities (“ARS”). The~~certain ~~ARS~~employees ~~held by the Company are private placement securities~~ for ~~which the interest rates are reset every 35 days~~$0. The reset dates have historically provided a liquid market for these securities as investors historically could readily sell their investments. These types of securities generally have not experienced payment defaults and are backed by student loans4 million, which ~~carry~~represents ~~guarantees as provided for under~~ the ~~Federal~~fair ~~Family~~value ~~Education Loan Program~~ of the ~~U.S.~~awards ~~Department~~based ~~of Education. All of the securities were AAA/Aaa rated at March 31, 2010. To date, the Company has collected all interest payments~~ on ~~all of its ARS when due and expects to continue to do so in~~ the ~~future. The~~closing ~~Company~~price ~~intended to liquidate all~~ of ~~its ARS prior to~~ the ~~end~~stock of ~~2009~~$15.13 ~~However,~~per ~~due~~share toon the ~~problems experienced~~date inof ~~global credit and capital markets generally and the ARS market in particular~~grant, ~~the Company’s~~which ~~ability~~was ~~to liquidate its ARS in 2009 and 2010 has been impacted. The Company successfully liquidated $4.1~~February ~~million of ARS in October 2009~~10, ~~at par~~2010. ~~The remaining principal of $13.0 million~~This ~~associated~~amount ~~with~~is ~~ARS~~being ~~will~~recognized ~~not~~as beshare-based ~~accessible~~compensation ~~until~~expense ~~successful~~on ~~ARS auctions occur,~~ a ~~buyer~~straight-line isbasis ~~found outside~~over of the four-year ~~auction~~period ~~process,~~following the ~~issuers~~date ~~establish a different form~~ of ~~financing to replace these securities~~grant, ~~issuers~~which ~~repay~~is ~~principal~~based ~~over~~on ~~time~~the ~~from~~four-year ~~cash~~vesting ~~flows prior to maturity, or final~~schedule ~~payments~~applicable ~~come due according~~ to ~~contractual maturities from 24 to 27 years. The Company expects that it will receive~~ the ~~principal associated with these ARS through one of these means~~grant. ~~The Company has~~ ~~classified these ARS as long-term investments.~~

ToOn ~~estimate~~February 10, 2010, the ~~fair~~Company ~~value~~granted incentive-based RSUs to certain employees. The total number and vesting of the ~~ARS~~incentive-based RSUs eligible for each ~~quarter~~award recipient is based upon the Company attaining certain specified EPS from continuing operations targets for 2010, earnings before interest, taxes, depreciation and amortization (“EBITDA”) targets or other individual performance targets for 2010. Provided the award recipient remains an employee continuously from the date of grant through the applicable vesting date, one-fourth of the incentive-based RSUs eligible for vesting for each award recipient, based on the satisfaction of the applicable performance target, will vest on the date the Company’s ~~prepares~~Chief aExecutive ~~discounted~~Officer ~~cash~~and Chief Financial ~~flow~~Officer ~~analysis~~certify ~~which~~that isthe applicable targets for 2010 have been met. The remaining three-fourths of the incentive-based RSUs eligible for vesting for each award recipient, based on anthe ~~income~~satisfaction of ~~approach~~the applicable performance target, will vest in three equal, annual installments beginning on February 10, 2012. As of ~~March~~June 3130, 2010, the Company ~~had~~determined ~~reduced~~that it was probable that 53,100 of the incentive-based RSUs will be earned and eligible to vest based on certain performance targets. The fair value of ~~the~~these ~~ARS~~incentive-based byRSUs is $0.68 million., ~~For~~which ~~further~~represents ~~discussion~~the onclosing ~~this~~price ~~valuation~~of the ~~methodology~~stock ~~and~~of ~~the inputs~~$15.13 ~~used,~~per ~~see~~share ~~note~~on ~~“12~~the date of grant. ~~Fair~~This ~~Value~~amount ofis ~~Financial~~being ~~Instruments.”~~recognized ~~Changes~~as inshare-based compensation ~~the~~expense ~~fair~~on ~~value~~a ofstraight-line basis over the ~~ARS~~ ~~are~~four-year ~~recognized,~~period ~~net~~following ofthe ~~tax~~date of grant, which is in ~~accumulated~~accordance ~~other~~with ~~comprehensive~~the ~~income~~four-year ~~(loss).~~vesting ~~See~~schedule ~~note~~applicable ~~“13. Comprehensive~~to ~~Income~~the grant.”

AsOn ~~of March~~April 3115, 2010, the Company ~~has~~issued ~~determined~~grants ~~that~~related ~~their~~to ~~ARS~~45,000 ~~classified~~time-based asRSUs to certain ~~available-~~employees for~~-sale~~ ~~with~~$0.9 million, ~~unrealized~~which ~~losses~~represents ~~are~~the ~~not~~fair ~~other-than-temporarily~~value ~~impaired.~~of ~~The~~the ~~Company expects~~awards tobased ~~recover~~on the ~~entire~~closing price ~~cost~~of ~~basis~~the stock of ~~their ARS~~$19.13 ~~The~~per ~~Company~~share ~~does~~on ~~not~~the ~~intend~~date toof ~~sell~~grant, ~~their ARS~~which ~~until~~was ~~market~~April 15, ~~conditions~~2010. ~~improve,~~This ~~nor~~amount is dobeing ~~they~~recognized ~~expect~~as toshare-based becompensation ~~required~~expense toon ~~sell~~a ~~their~~straight-line ~~ARS.~~basis ~~For~~over the four-year ~~three~~period ~~months~~following ~~ended~~the ~~March 31,~~date ~~2010~~of ~~and 2009~~grant, ~~respectively,~~which ~~the~~is ~~Company~~based ~~did~~on ~~not~~the ~~recognize~~four-year ~~any~~vesting ~~credit losses~~schedule ~~related~~applicable to the ~~its ARS in earnings~~grant.

IfOn ~~the~~May 7, ~~uncertainties~~2010, in the ~~credit~~Company ~~and~~issued ~~capital~~grants ~~markets~~related ~~continue~~to ~~or these markets deteriorate further~~20,800 ~~these~~time-based ~~securities~~restricted ~~may~~stock ~~not~~awards (“RSAs”) ~~provide liquidity~~ to ~~the~~its ~~Company~~non-employee ~~when~~directors ~~needed~~for or$0.4 million, ~~maintain~~which represents the fair ~~values~~ ~~estimated~~value byof the awards ~~Company.~~based Ifon the ~~Company~~closing ~~had~~price toof ~~liquidate~~the ~~any~~stock ~~ARS~~of ~~at this time, it could incur significant losses~~$18.98 ~~The~~per ~~Company~~share ~~currently~~on ~~believes~~the ~~that~~date itof ~~has~~grant, ~~sufficient~~which ~~liquidity to fund~~was ~~its~~May 7, ~~current~~2010. ~~needs~~This ~~without~~amount ~~selling~~is ~~any~~being ~~ARS~~recognized ~~and~~as ~~does~~share-based ~~not~~compensation ~~intend~~expense toon ~~liquidate~~a ~~these securities until~~straight-line ~~market~~basis ~~conditions~~over ~~improve,~~the ~~and~~one-year itperiod isfollowing ~~not “more likely than not” that~~ the ~~Company~~date ~~will be required to liquidate any ARS before recovery~~ of ~~their~~grant, ~~entire~~which ~~cost~~is ~~basis.~~based Ifon the ~~Company’s~~one-year ~~currently~~vesting ~~available~~schedule ~~resources~~applicable ~~are not sufficient for its needs and it is not able~~ to ~~liquidate any ARS on acceptable terms on a timely basis, it could have a significant adverse impact on~~ the ~~Company’s cash flows, financial condition and results of operations~~grant.

The Company recorded $1.8 million and $1.4 million in share-based compensation expense for the three months ended June 30, 2010 and 2009, respectively. Share-based compensation expense was $3.4 million and $2.5 million for the six months ended June 30, 2010 and 2009, respectively. The pending Merger had no impact on share-based compensation expense recorded during the three and six months ended June 30, 2010. Upon consummation of the Merger, all options, RSUs and RSAs would vest and be converted into the right to receive $27.00 in cash per share, without interest and subject to any applicable withholding of taxes.

7. ~~Earnings~~Long-term ~~Per Share~~Investments

During the second quarter of 2010, the Company successfully liquidated all of its tax exempt auction rate securities (“ARS”) at par for $13.0 million. At December 31, 2009, the Company had ARS with a fair-value totaling $12.4 million, which were classified as long-term investments on the Company’s consolidated balance sheet. To estimate the fair value of the ARS each quarter, the Company prepared a discounted cash flow analysis which is based on an income approach. At the liquidation date, the Company increased the value of the ARS by $0.6 million (before taxes) to bring the fair value back up to the par value. For further discussion on this valuation methodology and the inputs used, see note “13. Fair Value of Financial Instruments.” Changes in the fair value of the ARS are recognized, net of tax, in accumulated other comprehensive income (loss). See note “14. Comprehensive Income.”

8. Earnings Per Share

The following table presents the calculation of basic and diluted net income attributable to Odyssey stockholders per common share:

	Three Months Ended						Six Months Ended
	March 31,
	June 30,						June 30,
	2010			2009			2010			2009
	(in thousands, except per share
Numerator:
	amounts)
Numerator for net income per share
Numerator:
Income from continuing operations	$	14,278		$	9,022		$	28,056		$	17,930
Numerator for net income per share
Loss from discontinued operations, net of income taxes		(71	)		(422	)		(197	)		(475	)
Income from continuing operations	$	13,778		$	8,907
Less: net income attributable to noncontrolling interests		229			81			482			217
Loss from discontinued operations, net of income taxes		(126	)		(52	)
Net income attributable to Odyssey stockholders	$	13,978		$	8,519		$	27,377		$	17,238
Less: net income attributable to noncontrolling interests		253			136
Denominator:
Net income attributable to Odyssey stockholders	$	13,399		$	8,719
Weighted average common shares outstanding – basic		33,624			32,905			33,485			32,853
Denominator:
Effect of dilutive securities:
Weighted average common shares outstanding — basic		33,344			32,801
Employee stock options and unvested restricted stock awards		841			154			629			167
Effect of dilutive securities:
Weighted average common shares outstanding – diluted		34,465			33,059			34,114			33,020
Employee stock options and unvested restricted stock awards		446			149
Income (loss) per common share:
Weighted average common shares outstanding — diluted		33,790			32,950
Basic:
Income (loss) per common share:
Continuing operations attributable to Odyssey stockholders	$	0.42		$	0.27		$	0.82		$	0.54
Basic:
Discontinued operations attributable to Odyssey stockholders		—			(0.01	)		—			(0.02	)
Continuing operations attributable to Odyssey stockholders	$	0.41		$	0.27
Net income attributable to Odyssey stockholders	$	0.42		$	0.26		$	0.82		$	0.52
Discontinued operations attributable to Odyssey stockholders		(0.01	)		—
Diluted:
Net income attributable to Odyssey stockholders	$	0.40		$	0.27
Continuing operations attributable to Odyssey stockholders	$	0.41		$	0.27		$	0.81		$	0.54
Diluted:
Discontinued operations attributable to Odyssey stockholders		—			(0.01	)		(0.01	)		(0.02	)
Continuing operations attributable to Odyssey stockholders	$	0.40		$	0.27
Net income attributable to Odyssey stockholders	$	0.41		$	0.26		$	0.80		$	0.52
Discontinued operations attributable to Odyssey stockholders		—			(0.01	)
Net income attributable to Odyssey stockholders	$	0.40		$	0.26

For the three months ended ~~March~~June 3130, 2010 and 2009, options outstanding of ~~576~~125,~~388~~248 and 1,~~567~~580,~~197~~485 were not included in the computation of diluted earnings per share because either the exercise prices of the options were greater than the average market price of the common stock or the total assumed proceeds under the treasury stock method resulted in negative incremental shares, and thus the inclusion would have been anti-dilutive. InFor ~~addition~~the six months ended June 30, ~~there~~2010 and 2009 anti-dilutive options outstanding were 5264,~~295~~184 and ~~764~~1,~~628~~580,485, respectively. In addition, there were 153,310 anti-dilutive shares relating to restricted stock awards that were not included in the ~~computation~~ computation of diluted earnings per share for the three and six months ended ~~March~~June 3130, ~~2010~~2009. There were no anti-dilutive shares relating to restricted stock awards for the three and ~~2009~~six months ended June 30, ~~respectively~~2010.

8. Goodwill and Intangible Assets

The table below sets forth the changes in the carrying amount of goodwill by segment for the three months ended March 31, 2010 (in thousands):

					South
	Northeast		Southeast		Central		Midwest		Texas		Mountain			West		South			Southwest		Total
January 1, 2010	$	9,370	$	8,910	$	24,572	$	22,598	$	37,567	$	44,888		$	7,630	$	12,913		$	23,318	$	191,766
Acquisitions		—		—		—		291		—		—			—		—			—		291
Transfers		—		6,091		6,822		—		—		(44,888	)		36,552		(12,913	)		8,336		—
March 31, 2010	$	9,370	$	15,001	$	31,394	$	22,889	$	37,567	$	—		$	44,182	$	—		$	31,654	$	192,057

During the first quarter of 2010, the Company reorganized its operating segments to better align its hospice programs. As a result, the Company reallocated goodwill within its segments based on the relative fair value the hospice programs that make up the segment. In determining the fair value of a hospice program, the Company used multiples of EBITDA, which the Company believes correlates with what a market participant would be willing to pay for that program in the current market. Goodwill was then transferred from the old segment to the new segment based on the relative fair value of the hospice program transferred.

~~Intangible~~9. ~~assets~~Goodwill ~~as of March 31, 2010~~ and ~~December 31,~~Intangible ~~2009 consisted of the following:~~Assets

	March 31, 2010				December 31, 2009
	Gross				Gross
	Carrying		Accumulated		Carrying		Accumulated
	Amount		Amortization		Amount		Amortization
Non-competition agreements	$	2,305	$	2,207	$	2,305	$	2,185
Licenses		11,195		—		11,195		—
Trademarks		7,235		—		7,235		—
Other		1,188		523		1,188		487
Totals	$	21,923	$	2,730	$	21,923	$	2,672

The table below sets forth the changes in the carrying amount of goodwill by segment for the six months ended June 30, 2010 (in thousands):

Intangible assets amortization expense was $0.1 million for both the three months ended March 31, 2010 and 2009. Estimated intangible assets amortization expense is $0.1 million for 2010, 2011, 2012, 2013, and 2014. Actual future amortization expense could differ from these estimated amounts as a result of future acquisitions and other factors.


					South
	Northeast		Southeast		Central		Midwest		Texas		Mountain			West		South			Southwest		Total
January 1, 2010	$	9,370	$	8,910	$	24,572	$	22,598	$	37,567	$	44,888		$	7,630	$	12,913		$	23,318	$	191,766
Acquisitions		—		—		—		624		—		—			—		—			—		624
Transfers		—		6,091		6,822		—		—		(44,888	)		36,552		(12,913	)		8,336		—

June 30, 2010	$	9,370	$	15,001	$	31,394	$	23,222	$	37,567	$	—		$	44,182	$	—		$	31,654	$	192,390

9 During the first quarter of 2010, the Company reorganized its operating segments to better align its hospice programs. ~~Other~~As ~~Accrued~~a ~~Expenses~~result, the Company reallocated goodwill within its segments based on the relative fair value the hospice programs that make up the segment. In determining the fair value of a hospice program, the Company used multiples of EBITDA, which the Company believes correlates with what a market participant would be willing to pay for that program in the current market. Goodwill was then transferred from the old segment to the new segment based on the relative fair value of the hospice program transferred.

~~Other~~Intangible ~~accrued~~assets ~~expenses~~as atof ~~March~~June 3130, 2010 and December 31, 2009 ~~are~~consisted asof ~~follows~~the following:

	March 31,		December 31,
	June 30, 2010				December 31, 2009
	2010		2009
	Gross				Gross
	(in thousands)
	Carrying		Accumulated		Carrying		Accumulated
Workers’ compensation	$	10,589	$	10,172
	Amount		Amortization		Amount		Amortization
Inpatient		6,583		6,705
Non-competition agreements	$	2,305	$	2,214	$	2,305	$	2,185
Deferred rent		5,554		5,821
Licenses		11,195		—		11,195		—
Pharmacy		1,424		851
Trademarks		7,235		—		7,235		—
Medical supplies and durable medical equipment		3,377		3,691
Other		1,188		554		1,188		487
Property taxes		312		357
Totals	$	21,923	$	2,768	$	21,923	$	2,672
Medical director fees		765		671
Professional fees		3,847		3,721
Interest		1,105		1,123
Accounts receivable credit balances		2,539		2,338
Other		7,040		7,233
	$	43,135	$	42,683

10 Intangible assets amortization expense was approximately $38,000 and $70,000 for the three months ended June 30, 2010 and 2009, respectively, and approximately $0.1 million ~~Borrowings~~for both the six months ended June 30, 2010 and 2009. Estimated intangible assets amortization expense is $0.1 million for 2010, 2011, 2012, 2013, and 2014. Actual future amortization expense could differ from these estimated amounts as a result of future acquisitions and other factors.

~~At March 31, 2010, the Company had a credit agreement with General Electric Capital Corporation and various other lenders that provides the Company with a $130~~10.~~0 million~~ ~~term~~Other ~~loan (the~~Accrued ~~“Term Loan”) and a $30.0 million revolving line of credit. The Term Loan was primarily used to~~Expenses pay a portion of the purchase price and costs incurred with respect to the acquisition of VistaCare, Inc. (“VistaCare”). The revolving line of credit may be used to fund future acquisitions, working capital, capital expenditures and for general corporate purposes. The borrowing capacity under the revolving line of credit is reduced by any outstanding letters of credit. At March 31, 2010, outstanding letters of credit totaled $8.4 million and are used as collateral for the Company’s self-insured insurance policies. As of March 31, 2010, the borrowing capacity under the revolving line of credit was $21.6 million, of which no amounts were drawn.

~~Borrowings~~Other ~~under~~accrued ~~the~~expenses ~~Term Loan and revolving line of credit bear interest~~ at ~~an applicable margin above an Index Rate (based on the higher of the prime rate or 50 basis points over the federal funds rate) or above LIBOR. At both March~~June 3130, 2010 and December 31, 2009, ~~the applicable term loan margin and the applicable revolver margin for LIBOR loans~~ were ~~2.50%~~as ~~and for Index Rate~~follows: ~~loans were 1.50%. These margins are based on the Company’s leverage ratio and can vary from 2.50% to 3.25% for LIBOR loans and 1.50% to 2.25% for Index Rate loans.~~

In April 2008, the Company entered into two interest rate swap agreements described in note “11. Derivative Instruments and Hedging Activity” that effectively convert a notional amount of $60.0 million of floating rate borrowings to fixed rate borrowings.


	June 30,		December 31,
	2010		2009
	(in thousands)
Workers’ compensation	$	11,207	$	10,172
Inpatient		6,902		6,705
Deferred rent		5,624		5,821
Pharmacy		799		851
Medical supplies and durable medical equipment		2,983		3,691
Property taxes		474		357
Medical director fees		770		671
Professional fees		4,179		3,721
Interest		1,096		1,123
Interest rate swap liabilities		1,177		—
Accounts receivable credit balances		4,509		2,338
Other		4,961		7,233

	$	44,681	$	42,683

~~Borrowings outstanding at March 31, 2010 were $113~~11.~~6 million~~ ~~and carried a weighted-average~~Borrowings interest rate of 4.3%, including the effect of the interest rate swaps. At March 31, 2010, $50.4 million of the Term Loan carried interest at LIBOR plus 2.50% (ranging from 2.73% to 2.75%) while $40.0 million of the Term Loan carried interest at a fixed rate of 5.45% and $20.0 million of the Term Loan carried interest at a fixed rate of 5.92% as a result of interest rate swap agreements. The remaining $3.2 million of the Term Loan carried interest at the Index Rate plus 1.50% (4.75%).

At June 30, 2010, the Company had a credit agreement with General Electric Capital Corporation and various other lenders that provides the Company with a $130.0 million term loan (the “Term Loan”) and a $30.0 million revolving line of credit. The Term Loan was primarily used to pay a portion of the purchase price and costs incurred with respect to the acquisition of VistaCare, Inc. (“VistaCare”). The revolving line of credit may be used to fund future acquisitions, working capital, capital expenditures and for general corporate purposes. The borrowing capacity under the revolving line of credit is reduced by any outstanding letters of credit. At June 30, 2010, outstanding letters of credit totaled $9.9 million and are used as collateral for the Company’s self-insured insurance policies. As of June 30, 2010, the borrowing capacity under the revolving line of credit was $20.1 million, of which no amounts were drawn.

Borrowings under the Term Loan and revolving line of credit bear interest at an applicable margin above an Index Rate (based on the higher of the prime rate or 50 basis points over the federal funds rate) or above LIBOR. At both June 30, 2010 and December 31, 2009, the applicable term loan margin and the applicable revolver margin for LIBOR loans were 2.50% and for Index Rate loans were 1.50%. These margins are based on the Company’s leverage ratio and can vary from 2.50% to 3.25% for LIBOR loans and 1.50% to 2.25% for Index Rate loans.

In April 2008, the Company entered into two interest rate swap agreements described in note “12. Derivative Instruments and Hedging Activity” that effectively convert a notional amount of $60.0 million of floating rate borrowings to fixed rate borrowings.

Borrowings outstanding at June 30, 2010 were $110.5 million and carried a weighted-average interest rate of 4.4%, including the effect of the interest rate swaps. At June 30, 2010, $47.3 million of the Term Loan carried interest at LIBOR plus 2.50% (2.85%) while $40.0 million of the Term Loan carried interest at a fixed rate of 5.45% and $20.0 million of the Term Loan carried interest at a fixed rate of 5.92% as a result of interest rate swap agreements. The remaining $3.2 million of the Term Loan carried interest at the Index Rate plus 1.50% (4.75%).

Borrowings outstanding at December 31, 2009 were $115.2 million and carried a weighted-average interest rate of 4.3%, including the effect of the interest rate swaps. At December 31, 2009, $53.6 million of the Term Loan carried interest at LIBOR plus 2.50% (2.73%) while $40.0 million of the Term Loan carried interest at a fixed rate of 5.45% and $20.0 million of the Term Loan carried interest at a fixed rate of 5.92% as a result of interest rate swap agreements. The remaining $1.6 million of the Term Loan carried interest at the Index Rate plus 1.50% (4.75%).

The final installment of the Term Loan will be due on February 28, 2014 and the revolving line of credit will expire on February 28, 2013. The revolving line of credit has an unused facility fee of 0.25% per annum. In connection with the acquisition of VistaCare, all of the subsidiaries of VistaCare (together with the Company, and certain of the Company’s subsidiaries, including VistaCare, the “Odyssey Obligors”) have become guarantors of the obligations under the credit agreement and have granted security interests in substantially all of their existing and after-acquired personal property. The Term Loan and the revolving line of credit are secured by substantially all of the Odyssey Obligors’ existing and after-acquired personal property, including the stock of certain subsidiaries owned by the Odyssey Obligors but not party to the credit agreement. The Odyssey Obligors are subject to affirmative and negative covenants under the credit agreement, including financial covenants consisting of a maximum leverage ratio and a minimum fixed charge coverage ratio. At both ~~March~~June 3130, 2010 and December 31, 2009, the Company was in compliance with its financial covenants. The Company is subject to mandatory prepayments of principal based on cash proceeds received from the sale of partnership interests and property. During the third quarter of 2009, the Company paid $1.5 million related to mandatory prepayments of principal, which were based on cash proceeds received from the sale of the Oklahoma City program. In addition, the Company is subject to an annual excess cash flow requirement, which may result in the Company having to make additional principal payments on its Term Loan. This amount is calculated and payable at the end of each year based on full year financial results. Based on current and projected financial performance, the Company anticipates having to make an excess cash flow payment of approximately $2920.07 million for the year ending December 31, 2010, which has been classified as a current liability on the Company’s consolidated balance sheet as of ~~March~~June 3130, 2010. For the year ended December 31, 2009, the Company was obligated to make an excess cash flow payment of $29.3 million. During the first quarter of 2010, the Company’s lenders agreed to waive the required 2009 excess cash flow payment. This waiver allowed the Company to keep $29.3 million of excess cash on hand to fund its growth. There is no assurance such waiver can be obtained in the future. In the future, the Company may be required to make additional mandatory prepayments of principal which could be significant.

11. Derivative Instruments and Hedging Activity

The Company entered into an interest rate swap agreement during April 2008, which effectively converts a notional amount of $40.0 million of floating rate borrowings to fixed rate borrowings. The term of the interest rate swap expires in April 2011. Under the terms of the interest rate swap agreement, the Company receives from the counterparty interest on the $40.0 million notional amount based on three-month LIBOR and pays to the counterparty a fixed rate of 2.95%. The Company entered into a second interest rate swap agreement in April 2008, which effectively converts a notional amount of $20.0 million of floating rate borrowings to fixed rate borrowings. The term of the second interest rate swap also expires in April 2011. Under the terms of the interest rate swap agreement, the Company receives from the counterparty interest on the $20.0 million notional amount based on three-month LIBOR and pays to the counterparty a fixed rate of 3.42%. The Company accounts for the interest rate swaps as a cash flow hedge. These swaps effectively converted $60.0 million of the Company’s variable-rate borrowings to fixed-rate borrowings beginning in April 2008 and through April 2011. The Company believes the interest rate swaps will be highly effective in achieving the Company’s goal of minimizing the volatility of cash flows associated with changes in interest rates on its variable debt.

~~recorded as a component of other comprehensive income or loss (“OCI”) to the extent of effectiveness~~12. ~~The~~Derivative ~~ineffective~~Instruments ~~portion~~and ofHedging ~~the change in fair value of the derivative instrument is~~Activity ~~recognized in interest expense.~~

The Company isentered ~~exposed~~into an interest rate swap agreement during April 2008, which effectively converts a notional amount of $40.0 million of floating rate borrowings to ~~credit~~fixed ~~losses~~rate borrowings. The term of the interest rate swap expires in April 2011. Under the ~~event~~terms of ~~nonperformance~~the byinterest rate swap agreement, the ~~counterparties~~Company receives from the counterparty interest on the $40.0 million notional amount based on three-month LIBOR and pays to the ~~two~~counterparty a fixed rate of 2.95%. The Company entered into a second interest rate swap ~~agreements~~agreement in April 2008, which effectively converts a notional amount of $20.0 million ~~Management~~of ~~believes~~floating ~~that~~rate borrowings to fixed rate borrowings. The term of the second ~~counterparties~~interest ~~are~~rate swap also expires in April 2011. Under the terms of the interest rate swap ~~creditworthy~~agreement, ~~and~~the ~~anticipates~~Company ~~that~~receives from the ~~counterparties~~counterparty interest on the $20.0 million notional amount based on three-month LIBOR and pays to the ~~Company~~counterparty ~~will~~a ~~satisfy~~fixed ~~all~~rate ~~obligations~~of 3.42%. The Company accounts ~~under~~for the ~~contracts~~interest rate swaps as a cash flow hedge. AsThese swaps effectively converted $60.0 million of ~~March~~the Company’s variable-rate borrowings to fixed-rate borrowings beginning in April ~~31,~~2008 ~~2010,~~and through ~~the~~April 2011. The Company ~~does~~believes ~~not~~the ~~expect~~interest ~~any~~rate ~~amounts~~swaps towill be ~~reclassified~~ ~~within~~highly effective in achieving the ~~next~~Company’s ~~twelve~~goal ~~months~~of tominimizing ~~earnings~~the ~~from~~volatility ~~accumulated~~of ~~other~~cash ~~comprehensive~~flows ~~loss~~associated with changes in ~~related~~interest torates ~~these~~on ~~cash~~its ~~flow~~variable ~~hedges~~debt.

FASB ASC Topic 815, “Derivatives and Hedging” (formerly SFAS No. 133 — “Accounting for Derivative Instruments and Hedging Activities”), requires companies to recognize all derivative instruments as either assets or liabilities at fair value on the balance sheet. In accordance with ASC Topic 815, the Company has designated this derivative instrument as a cash flow hedge. As such, changes in the fair value of the derivative instrument are recorded as a component of other comprehensive income or loss (“OCI”) to the extent of effectiveness. The ineffective portion of the change in fair value of the derivative instrument is recognized in interest expense.

The Company is exposed to credit losses in the event of nonperformance by the counterparties to the two interest rate swap agreements. Management believes that the counterparties are creditworthy and anticipates that the counterparties and the Company will satisfy all obligations under the contracts. As of June 30, 2010, the Company does not expect any amounts to be reclassified within the next twelve months to earnings from accumulated other comprehensive loss related to these cash flow hedges, however, if the pending Merger is completed all amounts due under the Company’s existing credit facility will be paid in full and the interest rate swaps will be terminated. In the event of an early termination of the interest rate swaps, a payment equal to the mark-to-market liability on the date of termination and any accrued interest will be owed by the Company. The termination would require the Company to reclassify any amounts relating to these cash flow hedges from accumulated other comprehensive loss to earnings.

The fair values of the Company’s interest rate swap agreements as presented in the consolidated balance sheets are as follows (in thousands):

Liability Derivatives

March 31, 2010

December 31, 2009

June 30, 2010

December 31, 2009

Balance Sheet

Location

Fair Value

Location

Fair Value

Derivatives designated as hedging instruments:

Other Long Term

Interest rate swap agreements

Other Accrued Expenses

1,177

Other Liabilities

1,747

Interest rate swap agreements

Liabilities

1,578

Liabilities

1,747

The effect of the interest rate swap agreements on the Company’s consolidated comprehensive loss, net of related taxes, for the three months ended ~~March~~June 3130, is as follows (in thousands):

	Amount of Income/(Loss)
	Recognized					Income/(Loss) Reclassified from
	in Other Comprehensive					Accumulated Other Comprehensive
	Income/(Loss)					Loss to Earnings (effective portion)
	2010		2009			2010		2009
Derivatives designated as cash flow hedges:
Interest rate swap agreements	$	~~106~~249	$	~~(53~~165	)	$	—	$	—

~~12. Fair Value of Financial Instruments~~14

The effect of the interest rate swap agreements on the Company’s consolidated comprehensive loss, net of related taxes, for the six months ended June 30, is as follows (in thousands):

Amount of Income/(Loss)

Recognized

Income/(Loss) Reclassified from

in Other Comprehensive

Accumulated Other Comprehensive

Income/(Loss)

Loss to Earnings (effective portion)

2010

2009

2010

2009

Derivatives designated as cash flow hedges:

Interest rate swap agreements

355

112

—

13. Fair Value of Financial Instruments

The fair value of financial instruments is the amount at which the instrument could be exchanged in a current transaction between willing parties. The fair values of the long-term debt are estimated using discounted cash flow analysis, based on the Company’s incremental borrowing rates for similar types of borrowing arrangements. Management estimates that the carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, long-term debt and certain other assets are not materially different from their fair values.

The Company categorizes its assets and liabilities recorded at fair value based upon the following fair value hierarchy established by the FASB:

	•		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.

14 The table below sets forth our fair value hierarchy for our interest rate swaps measured at fair value as of June 30, 2010 (in thousands):

Quoted Prices

in Active

Significant

Markets for

Other

Significant

Identical

Observable

Unobservable

Assets

Inputs

(Level 1)

(Level 2)

(Level 3)

Total

Liabilities:

Interest rate swaps

—

1,177

The table below sets forth our fair value hierarchy for our ARS and interest rate swaps measured at fair value as of March 31, 2010 (in thousands):

	Quoted Prices
	in Active		Significant
	Markets for		Other		Significant
	Identical		Observable		Unobservable
	Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
Asset:
Auction rate securities	$	—	$	—	$	12,434	$	12,434
Liabilities:
Interest rate swaps	$	—	$	—	$	1,578	$	1,578

The table below sets forth our fair value hierarchy for our ARS and interest rate swaps measured at fair value as of December 31, 2009 (in thousands):


	Quoted Prices
	in Active		Significant
	Markets for		Other		Significant
	Identical		Observable		Unobservable
	Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
Asset:
Auction rate securities	$	—	$	—	$	12,425	$	12,425
Liabilities:
Interest rate swaps	$	—	$	—	$	1,747	$	1,747

To estimate the fair value of the ARS each quarter, the Company ~~prepares~~prepared a discounted cash flow analysis which is based on an income approach. The significant inputs used in the analysis include the following: par value of the ARS, maturity period, coupon rate, discount rate and liquidity risk premium rate. The Company used a maturity period of one year, which is when the Company ~~estimates~~estimated it ~~will~~would be able to liquidate these ARS at par. The coupon rate represents the interest rate being earned on the ARS as of ~~March 31,~~the ~~2010~~end of the most recent quarter. The discount rate is a combination of the coupon rate and liquidity risk premium rate and iswas used to reflect the current reduced liquidity of these ARS. The liquidity risk premium rate was calculated based on the U.S. treasury yields applicable to the ARS maturity dates as of ~~March 31,~~the ~~2010.~~end ~~During~~of the ~~three~~most ~~months ended~~recent ~~March 31,~~quarter. ~~2010,~~Changes ~~the~~in ~~Company increased~~ the fair value of the ARS bywere ~~an immaterial amount based on this analysis. During the three months ended March 31~~recognized, ~~2009,~~net ~~the~~of ~~Company~~tax ~~reduced~~in ~~the~~accumulated ~~fair value of~~other ~~the~~comprehensive ~~ARS~~income ~~by $0.1 million~~ (~~before taxes~~loss). ~~based~~The onARS ~~this~~were ~~analysis.~~liquidated ~~Changes~~at inpar during the ~~fair~~second ~~value~~quarter of ~~the~~2010. ~~ARS~~See ~~are~~note ~~recognized,~~“14. ~~net~~Comprehensive ~~of tax in accumulated other comprehensive income (loss)~~Income.”

Also, at ~~March~~June 3130, 2010, the Company had liabilities related to its interest rate swaps of approximately $1.62 million, before income taxes, that were measured at fair value on a recurring basis using the Level 3 valuation methodology. The fair value of the interest rate swaps were derived using a valuation model based on an income approach that calculates the present value of the anticipated future cash flows for both the floating and fixed legs of the swaps utilizing the contractual terms of the swap agreements and observable market-based inputs. The significant contractual inputs used in the valuation model include the following: period to maturity, amortization schedule and the fixed payment rate. The significant market-based inputs used in the valuation model include the following: interest rate curve, risk premium, implied volatility rate and spread for credit risks to evaluate the likelihood of default by the Company or its counterparties.

There were no significant transfers between ~~levels~~Levels 1 and 2 during the ~~first~~six ~~quarter~~months ofended June 30, 2010. In the event of a transfer, the Company’s policy is to recognize the transfer on the actual date of the event or change in circumstances that caused the transfer. The Company’s cash and cash equivalents are measured at fair value using the Level 1 valuation methodology.

15 The following table presents the changes in fair value of the Company’s Level 3 assets and liabilities for the three months ended June 30, 2010 (in thousands):


	Significant Unobservable
	Inputs
	(Level 3)
				Interest
	ARS			Rate Swaps
Balance at April 1, 2010	$	12,434		$	(1,578	)
Unrealized gain included in other comprehensive income (loss), before tax		566			401
Sales of ARS		(13,000	)		—

Balance at June 30, 2010	$	—		$	(1,177	)

The following table presents the changes in fair value of the Company’s Level 3 assets and liabilities for the ~~three~~six months ended ~~March~~June 3130, 2010 (in thousands):

	Significant
	Significant Unobservable
	Unobservable
	Inputs
	(Level 3)
				Interest
	ARS			Rate Swaps
Balance at January 1, 2010	$	12,425		$	(1,747	)
Unrealized gain included in other comprehensive loss (before tax)		9			169
Unrealized gain included in other comprehensive income (loss), before tax		575			570
Balance at March 31, 2010	$	12,434		$	(1,578	)
Sales of ARS (transfer to Level 1)		(13,000	)		—
Balance at June 30, 2010	$	—		$	(1,177	)

1314. Comprehensive Income

The FASB established guidelines for reporting changes in equity during a period from transactions and other events and circumstances from non-owner sources. Comprehensive income attributable to Odyssey stockholders includes the net change in the fair value of ARS and interest rate swaps, net of income tax, and is included as a component of Odyssey stockholders’ equity.

The components of comprehensive income, net of income tax, are as follows (in thousands):

	For the three months ended
	Three Months Ended					Six Months Ended
	March 31,
	June 30,					June 30,
	2010		2009			2010		2009
Net income	$	1314,~~652~~207	$	8,~~855~~600		$	27,859	$	17,455
Other comprehensive income (loss), net of tax:
Unrealized income (loss) on interest rate swaps(1)		106		(53	)
Unrealized gain on interest rate swaps(1)		249		165			355		112
Unrealized income (loss) on ARS(2)		8		(79	)
Unrealized gain (loss) on ARS(2)		355		(74	)		363		(153	)
Total other comprehensive income (loss), net of tax		~~114~~604		~~(132~~91	)		718		(41	)
Comprehensive income		1314,~~766~~811		8,~~723~~691			28,577		17,414
Less: comprehensive income attributable to noncontrolling interests		~~253~~229		~~136~~81			482		217
Comprehensive income attributable to Odyssey stockholders	$	1314,~~513~~582	$	8,~~587~~610		$	28,095	$	17,197

(1)		Unrealized ~~income~~gain ~~(loss)~~ on interest rate swaps is recorded net of tax expense ~~(benefit)~~ of $0.12 million ~~and $(29,694)~~ for both the three and six months ended ~~March~~June 3130, 2010 and ~~2009~~$0.1 million for both the three and six months ended June 30, ~~respectively~~2009.
(2)		Unrealized gain (loss) on ARS is recorded net of tax expense (benefit) of $~~214~~0.2 ~~and~~million ~~$(43,492)~~ for both the three and six months ended ~~March~~June 3130, 2010 and ~~2009~~$(0.1) million for both the three and six months ended June 30, ~~respectively~~2009.

The components of accumulated other comprehensive income (loss), net of income taxes, are as ~~follows~~ follows (in thousands):

	As of			As of
	March 31,			December 31,
	June 30,			December 31,
	2010			2009
Unrealized loss on interest rate swaps	$	(~~1,012~~763	)	$	(1,118	)
Unrealized loss on ARS		~~(355~~—	)		(363	)
Accumulated other comprehensive loss	$	(~~1,367~~763	)	$	(1,481	)

1415. Effective Income Tax Rate

The Company’s provision for income taxes consists of current and deferred federal and state income tax expenses. The Company’s effective tax rate for the three months ended ~~March~~June 3130, 2010 and 2009 was 3739.50% and 3736.62%, respectively. The Company’s effective tax rate for the six months ended June 30, 2010 and 2009 was 38.3% and 36.9%, respectively. The increase in the effective tax rate is related to a higher percentage of taxable earnings due to the Company’s increasing income before taxes and a decrease in employment related federal tax credits. The Company estimates that its effective tax rate for 2010 will be in the range of 3738.50% to 38.05%.

1617

The total provision for income taxes remains unchanged; however, the Company’s effective tax rate as calculated from the balances shown on the consolidated statements of income have changed as net income attributable to noncontrolling interests is no longer included as a deduction in the determination of income from continuing operations. The reconciliation of the effective income tax rate is as follows for the periods presented.

	Three Months
	Three Months Ended						Six Months Ended
	Ended March 31,
	June 30,						June 30,
	2010			2009			2010			2009
Statutory state and federal income tax rate		3739.50	%		3736.62	%		38.3	%		36.9	%
Less: net income attributable to noncontrolling interests		(0.4	)		(0.43	)		0.4			0.3
Effective income tax rate for controlling interest		3738.16	%		3735.29	%		37.9	%		36.6	%

1516. Contingencies

On February 14, 2008, the Company received a letter from the Medicaid Fraud Control Unit of the Texas Attorney General’s office notifying the Company that it is conducting an investigation concerning Medicaid hospice services provided by the Company, including the Company’s practices with respect to patient admission and retention, and requesting medical records of approximately 50 patients served by the Company’s programs in the State of Texas. Based on the preliminary stage of this investigation and the limited information that the Company has at this time, the Company cannot predict the outcome of this investigation, the Texas Attorney General’s views of the issues being investigated, any actions that the Texas Attorney General may take or the impact, if any, that the investigation may have on the Company’s business, results of operations, liquidity or capital resources. The Company believes that it is in material compliance with the rules and regulations applicable to the Texas Medicaid hospice program.

On May 5, 2008, the Company received a letter from the United States Department of Justice (“DOJ”) notifying the Company that it is conducting an investigation of VistaCare and requesting that the Company provide certain information and documents related to its investigation of claims submitted by VistaCare to Medicare, Medicaid and TRICARE from January 1, 2003 through March 6, 2008, the date the Company completed the acquisition of VistaCare. The Company was informed that the DOJ and the Medicaid Fraud Control Unit of the Texas Attorney General’s Office are reviewing allegations that VistaCare may have billed the federal Medicare, Medicaid and TRICARE programs for hospice services that were not reasonably or medically necessary or performed as claimed. The ~~basis~~ basis of the investigation is a qui tam lawsuit filed in the United States District Court for the Northern District of Texas by a former employee of VistaCare. The lawsuit was unsealed on October 5, 2009 and an amended ~~compliant~~complaint was served on the Company on January 28, 2010. The unsealed amended ~~complaint~~compliant also contained allegations regarding alleged violations of State laws in the ~~States~~ States of Indiana, Massachusetts, Nevada, and New Mexico. In connection with the unsealing of the complaint, the DOJ filed a notice with the court declining to intervene in the qui tam action at this time. The Texas Attorney General also filed a notice of non-intervention with the court. ~~While~~ While these actions should not be viewed as a final assessment by the DOJ or the Texas Attorney ~~General~~ General of the merits of this qui tam action, the Company considers them to be positive developments. The Company continues to cooperate with the DOJ and the Texas Attorney General in their investigation of ~~the Company~~VistaCare. Based on the limited information that the Company has at this time, it cannot predict the outcome of the qui tam lawsuit or the related investigation, the DOJ’s or the Texas Attorney General’s views of the issues being investigated other than the DOJ’s and the Texas ~~Attorney~~ Attorney General’s notice declining to intervene in the qui tam action at this time, any actions that the DOJ or the Texas Attorney General may take or the impact, if any, that the investigation may have on the Company’s business, results of operations, liquidity or capital resources.

On January 5, 2009, the Company received a letter from the Georgia State Health Care Fraud Control Unit notifying the Company that it is conducting an investigation concerning Medicaid hospice services provided by VistaCare from 2003 through 2007, including VistaCare’s practices of providing or making available services related to patients’ terminal illnesses, and requesting certain documents. The Company is cooperating with the Georgia State Health Care Fraud Control Unit and has complied with the document request. Based on the preliminary stage of this investigation and the limited information that the Company has at this time, the Company cannot predict the outcome of the investigation, the Georgia State Health Care Fraud Control Unit’s views of the issues being investigated, any actions that the Georgia State Health Care Fraud Control Unit may take or the impact, if any, that the investigation may have on the Company’s business, results of operations, liquidity or capital resources.

On February 2, 2009, the Company received a subpoena from the HHS Office of Inspector General (“OIG”) requesting certain documents related to the United States Department of Justice’s (“DOJ”) and the OIG’s investigation of the Company’s provision of continuous care services to Medicare patients from January 1, 2004 through February 2, 2009. On September 9, 2009, the Company received a second subpoena from the OIG requesting medical records for certain Medicare patients who had been provided continuous care services by the Company during the same time period. The Company is cooperating with the DOJ and OIG and is in the process of complying with the

subpoena requests. Based on the preliminary stage of this investigation and the limited information that the Company has at this time the Company cannot predict the outcome of the investigation, the OIG’s views of the issues being investigated, any actions that the OIG may take or the impact, if any, that the investigation may have on the Company’s business, results of operations, liquidity or capital resources.

On March 5, 2009, the Company received a notice submitted on behalf of Ronaldo Ramos to the California Labor & Workforce Development Agency regarding his intent to file a claim for penalties pursuant to the California Private Attorney General Act for alleged violations of the California Labor Code. Ramos is a former employee of the Company and alleges that he and others similarly situated were improperly paid for on-call hours. His notice indicates that he intends to seek to recover unpaid wages, overtime, penalties, punitive damages, interest, and attorney’s fees. The Company is not aware of him filing a lawsuit. The Company believes that it has complied with all regulations at issue, and it intends to vigorously defend against the claims asserted. Because the matter is in its early stage, the Company cannot at this time estimate an amount or range of potential loss in the event of an unfavorable outcome.

The Company has been named in a class action lawsuit filed on January 25, 2010, in the United States District Court Southern District of Texas Houston Division by Bobby Blevins, a former employee, alleging failure to pay overtime to a purported class of similarly situated hourly-paid current and former nurse employees. The plaintiff seeks to recover unpaid overtime compensation, damages and attorney fees. The Company believes that it has complied with all regulations at issue, and intends to vigorously defend against the claims asserted. Because of the early stage of this suit, the Company cannot at this time estimate an amount or range of potential loss in the event of an unfavorable outcome.

On February 23, 2010, the Company received an administrative subpoena for records from the OIG requesting various documents and certain patient records of one its hospice programs relating to services performed from January 1, 2006 through December 31, 2009. The Company is cooperating with the OIG and has completed its subpoena production. Because of the preliminary stage of this investigation and the limited information that the Company has at this time the Company cannot predict the outcome of the investigation, the OIG’s views of the issues being investigated, any actions that the OIG may take or the impact, if any, that the investigation may have on the Company’s business, results of operations, liquidity or capital resources.

From time to time, the Company may be involved in other litigation matters relating to claims that arise in the ordinary course of its business. Although the ultimate liability for these matters cannot be determined, based on the information currently available to the Company, the Company does not believe that the resolution of these other litigation matters to which the Company is currently a party will have a material adverse effect on the Company’s business, results of operations or liquidity.

16 On February 2, 2009, the Company received a subpoena from the United States Department of Health and Human Services Office of Inspector General (“OIG”) requesting certain documents related to the United States Department of Justice’s (“DOJ”) and the OIG’s investigation of the Company’s provision of continuous care services to Medicare patients from January 1, 2004 through February 2, 2009. ~~Segment~~On ~~Information~~September 9, 2009, the Company received a second subpoena from the OIG requesting medical records for certain Medicare patients who had been provided continuous care services by the Company during the same time period. The Company is cooperating with the DOJ and OIG and is in the process of complying with the subpoena requests. Based on the preliminary stage of this investigation and the limited information that the Company has at this time the Company cannot predict the outcome of the investigation, the OIG’s views of the issues being investigated, any actions that the OIG may take or the impact, if any, that the investigation may have on the Company’s business, results of operations, liquidity or capital resources.

~~The~~On ~~Company~~March 5, ~~currently~~2009, ~~evaluates~~the ~~performance~~Company ~~and~~received ~~allocates~~a ~~resources~~notice ~~primarily~~submitted on ~~the~~behalf ~~basis~~ of ~~cost~~ ~~per~~Ronaldo ~~day~~Ramos ofto ~~care~~the California ~~and~~Labor ~~income~~& ~~from~~Workforce ~~continuing~~Development ~~operations.~~Agency ~~From~~regarding ~~time~~his intent to ~~time,~~file ~~the~~a ~~Company~~claim ~~may~~for penalties ~~reorganize~~pursuant ~~its~~to ~~operating~~the ~~segments~~California toPrivate ~~better~~Attorney ~~align~~General ~~its~~Act ~~hospice~~for ~~programs.~~alleged ~~During~~violations of the ~~first~~California Labor ~~quarter~~Code. Ramos is a former employee of ~~2010,~~ the Company ~~reorganized~~and ~~the~~alleges ~~regions~~that he and ~~restated~~others ~~the~~similarly situated ~~financial~~were ~~information~~improperly ~~presented~~paid ~~below~~ for ~~current~~on-call ~~and~~hours. ~~prior~~His ~~periods.~~notice ~~Prior~~indicates ~~periods~~that ~~have~~he ~~also~~intends ~~been~~to ~~restated~~seek ~~for~~to recover ~~the~~unpaid ~~reclassification~~wages, ~~of discontinued~~overtime, ~~programs~~penalties, topunitive ~~discontinued~~damages, ~~operations~~interest, and attorney’s fees. The Company ~~distribution~~is bynot ~~regions~~aware of ~~the~~him filing a lawsuit. The Company’s ~~net~~believes that it has complied with all ~~patient~~regulations ~~service~~at ~~revenue~~issue, ~~direct~~and ~~hospice~~it ~~care~~intends ~~expenses,~~to ~~income~~vigorously ~~(loss) from~~defend ~~continuing~~against ~~operations before~~the ~~other~~claims ~~income~~asserted. ~~(expense)~~Because ~~(which~~the matter is ~~used~~in byits ~~management~~early ~~for~~stage, ~~operating~~the ~~performance~~Company ~~review), average~~cannot ~~daily~~at ~~census~~this ~~and~~time ~~total~~estimate ~~assets~~an ~~are~~amount ~~summarized~~or range of potential loss in the ~~following~~event ~~tables:~~of an unfavorable outcome.

	Three Months Ended
	March 31,
	2010		2009
	(in thousands)
Net patient service revenue:
Northeast	$	15,168	$	15,409
Southeast		18,346		17,136
Southwest		18,043		19,785
South Central		28,029		26,519
Texas		32,044		30,654
Midwest		28,258		25,498
West		31,500		32,547
Support Center		108		(16	)
	$	171,496	$	167,532

The Company has been named in a collective action lawsuit filed on January 25, 2010, in the United States District Court Southern District of Texas Houston Division by Bobby Blevins, a former employee, alleging failure to pay overtime to a purported class of similarly situated hourly-paid current and former nurse employees. The plaintiff seeks to recover unpaid overtime compensation, damages and attorney fees. The Company believes that it has complied with all regulations at issue, and intends to vigorously defend against the claims asserted. Because of the early stage of this suit, the Company cannot at this time estimate an amount or range of potential loss in the event of an unfavorable outcome.

	Three Months Ended
	March 31,
	2010			2009
	(in thousands)
Direct hospice care expenses:
Northeast	$	8,106		$	8,618
Southeast		10,592			10,137
Southwest		10,252			11,442
South Central		16,668			16,448
Texas		19,187			19,323
Midwest		15,498			15,027
West		16,420			17,415
Support Center		(322	)		45
	$	96,401		$	98,455

On February 23, 2010, the Company received an administrative subpoena for records from the OIG requesting various documents and certain patient records of one of its hospice programs relating to services performed from January 1, 2006 through December 31, 2009. The Company is cooperating with the OIG and has completed its subpoena production. Because of the preliminary stage of this investigation and the limited information that the Company has at this time the Company cannot predict the outcome of the investigation, the OIG’s views of the issues being investigated, any actions that the OIG may take or the impact, if any, that the investigation may have on the Company’s business, results of operations, liquidity or capital resources.

	Three Months Ended
	March 31,
	2010			2009
	(in thousands)
Income from continuing operations before other income (expense):
Northeast	$	4,026		$	3,568
Southeast		3,966			2,883
Southwest		4,166			4,135
South Central		4,730			3,554
Texas		6,514			4,325
Midwest		7,223			4,455
West		9,220			8,634
Support Center		(16,581	)		(15,645	)
	$	23,264		$	15,909

Three lawsuits have been filed in connection with the Merger. The first, filed on May 27, 2010, is captioned Pompano Beach Police & Firefighters’ Retirement System v. Odyssey Healthcare, Inc., et al., Cause No. CC-10-03561-E in the County Court at Law No. 5 in Dallas County, Texas. The second, filed on June 9, 2010, is captioned Eric Hemminger, et al. v. Richard Burnham, et al., Cause No. DC-10-06982, in the 14th Judicial District Court, Dallas County, Texas. The third, filed on July 7, 2010, is captioned Hansen v. Odyssey Healthcare, Inc., et al., Case 3:10-cv-01305-G in the United States District Court for the Northern District of Texas. All three suits name the Company, the members of the Company’s board of directors, Gentiva, and Merger Sub as defendants. All three lawsuits are brought by purported stockholders of the Company, both individually and on behalf of a putative class of stockholders, alleging that the Company’s board of directors breached its fiduciary duties in connection with the Merger by failing to maximize stockholder value, and that the Company and Gentiva aided and abetted the purported breaches. The Pompano Beach Police and Firefighters suit seeks additional proxy disclosures regarding the Merger. The petitions each seek equitable relief, including, among other things, to enjoin consummation of the Merger, rescission of the Merger Agreement, and an award of all costs of the action, including reasonable attorneys’ fees. The Company believes none of the suits have merit.

From time to time, the Company may be involved in other litigation and regulatory matters relating to claims that arise in the ordinary course of its business. Although the ultimate liability for these matters cannot be determined, based on the information currently available to the Company, the Company does not believe that the resolution of these other litigation and regulatory matters to which the Company is currently a party will have a material adverse effect on the Company’s business, results of operations or liquidity.

	Three Months Ended
	March 31,
	2010		2009
Average Daily Census:
Northeast		1,124		1,152
Southeast		1,442		1,357
Southwest		1,331		1,475
South Central		2,021		1,900
Texas		2,371		2,348
Midwest		2,025		1,891
West		2,009		2,063
		12,323		12,186

17. Segment Information

	As of		As of
	March 31,		December 31,
	2010		2009
	(in thousands)
Total Assets:
Northeast	$	20,314	$	20,800
Southeast		27,935		28,995
Southwest		50,012		53,865
South Central		59,030		59,041
Texas		64,055		66,128
Midwest		54,041		54,033
West		64,965		63,233
Support Center		168,416		156,909
	$	508,768	$	503,004

The Company currently evaluates performance and allocates resources primarily on the basis of cost per day of care and income from continuing operations. From time to time, the Company may reorganize its operating segments to better align its hospice programs. During the first quarter of 2010, the Company reorganized the regions and restated the financial information presented below for current and prior periods. Prior periods have also been restated for the reclassification of discontinued programs to discontinued operations. The distribution by regions of the Company’s net patient service revenue, direct hospice care expenses, income (loss) from continuing operations before other income (expense) (which is used by management for operating performance review), average daily census and total assets are summarized in the following tables:


	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2010			2009		2010			2009
	(in thousands)					(in thousands)
Net patient service revenue:
Northeast	$	16,094		$	15,434	$	31,263		$	30,843
Southeast		19,215			17,334		37,562			34,470
Southwest		18,359			19,182		36,402			38,967
South Central		29,852			27,621		57,881			54,140
Texas		32,473			31,866		64,516			62,520
Midwest		28,660			26,646		56,918			52,144
West		31,818			31,635		63,318			64,182
Support Center		(244	)		577		(137	)		561

	$	176,227		$	170,295	$	347,723		$	337,827


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
	(in thousands)						(in thousands)
Direct hospice care expenses:
Northeast	$	8,183		$	8,766		$	16,289		$	17,384
Southeast		10,902			10,508			21,494			20,645
Southwest		10,130			11,584			20,382			23,026
South Central		18,128			17,250			34,796			33,698
Texas		19,190			19,627			38,377			38,951
Midwest		15,823			14,731			31,321			29,758
West		16,467			17,078			32,887			34,493
Support Center		(791	)		(100	)		(1,113	)		(56	)

	$	98,032		$	99,444		$	194,433		$	197,899


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
	(in thousands)						(in thousands)
Income from continuing operations before other income (expense):
Northeast	$	4,903		$	3,297		$	8,929		$	6,865
Southeast		4,864			2,846			8,859			5,757
Southwest		4,932			3,400			9,098			7,534
South Central		5,539			4,013			10,362			7,662
Texas		7,134			5,082			13,736			9,488
Midwest		7,798			6,909			15,161			11,479
West		9,516			7,959			18,736			16,592
Support Center		(20,102	)		(17,934	)		(37,033	)		(33,896	)

	$	24,584		$	15,572		$	47,848		$	31,481


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2010		2009		2010		2009
	(in thousands)				(in thousands)
Average Daily Census:
Northeast		1,168		1,134		1,146		1,143
Southeast		1,500		1,392		1,471		1,375
Southwest		1,340		1,462		1,335		1,468
South Central		2,111		1,955		2,066		1,928
Texas		2,366		2,377		2,370		2,361
Midwest		2,047		1,894		2,036		1,893
West		2,056		2,054		2,032		2,059

		12,588		12,268		12,456		12,227


	As of		As of
	June		December
	30, 2010		31, 2009
	(in thousands)
Total Assets:
Northeast	$	20,689	$	20,800
Southeast		27,019		28,995
Southwest		49,555		53,865
South Central		57,159		59,041
Texas		63,918		66,128
Midwest		54,345		54,033
West		64,342		63,233
Support Center		183,748		156,909

	$	520,775	$	503,004

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

Certain statements used in the following discussion and elsewhere in this Quarterly Report on Form 10-Q, including statements regarding our future financial position and results of operations, business strategy and plans and objectives of management for future operations and statements containing the words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect” and similar expressions, as they relate to us, are forward-looking statements within the meaning of the federal securities laws. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions, which may cause our actual results, performance or achievements to differ materially from those anticipated or implied by the forward-looking statements. Such risks, uncertainties and assumptions include, but are not limited to the following:

	•		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 ability to successfully integrate and operate acquired hospice programs;

	•		our dependence on patient referral sources and potential adverse changes in patient referral practices of those referral sources;

	•		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.

In ~~light~~addition ofto ~~these~~the risks, uncertainties and assumptions ~~and~~listed ~~the~~above, ~~other~~we face risks ~~discussed~~associated with in our ~~Annual~~ ~~Report~~pending onmerger ~~Form~~with ~~10-K~~Gentiva ~~for~~Health ~~the~~Services, ~~fiscal~~Inc. ~~year~~Such ~~ended December 31~~risks, ~~2009,~~uncertainties ~~the forward-looking events~~ and assumptions ~~circumstances~~include, ~~discussed~~but inare ~~this~~not ~~Quarterly~~limited ~~Report~~to, onthe ~~Form~~ability ~~10-Q~~to ~~may~~obtain ~~not~~regulatory ~~occur~~approval ~~and~~for ~~actual results~~the ~~could~~transaction; ~~differ~~the ~~materially~~expected ~~from~~timing ~~those~~of ~~anticipated~~the orcompletion ~~implied~~of in the ~~forward-looking~~transaction; ~~statements.~~management ~~Many~~plans regarding ofthe ~~these~~transaction; ~~factors~~the ~~are~~inability ~~beyond~~to ~~our~~complete ~~ability~~the transaction due to ~~control~~the orfailure ~~predict.~~to ~~Given~~satisfy the

2122

~~these~~conditions ~~uncertainties,~~required ~~readers are cautioned not~~ to ~~place~~complete ~~undue~~the ~~reliance~~transaction; onthe ~~such~~risk ~~forward-looking statements,~~that ~~which~~the ~~reflect~~businesses ~~management’s views only as~~ of ~~the~~ours ~~date~~and Gentiva ~~hereof.~~will Wenot ~~undertake~~be nointegrated ~~obligation to~~successfully, ~~revise~~ or ~~update~~will ~~any~~take oflonger ~~the~~than ~~forward-looking~~anticipated; ~~statements~~the orrisk ~~publicly announce any updates or~~that ~~revisions~~expected tocost ~~any~~savings offrom the ~~forward-looking~~transaction ~~statements~~will ~~contained~~not ~~herein~~be toachieved ~~reflect~~or ~~any~~unexpected ~~change~~costs inwill ~~our~~be ~~expectations~~incurred; ~~with regard thereto or~~ any ~~change in events, conditions, circumstances or assumptions underlying such~~ statements. ~~Reference~~of ~~is hereby made to~~ the ~~disclosures~~plan, ~~contained~~strategies ~~under the heading “Government Regulation~~ and ~~Payment~~objectives ~~Structure”~~of inmanagement ~~“Item 1.~~for ~~Business” and in “ITEM 1A. RISK FACTORS”~~future ~~included~~operations; inthe ~~this~~risk ~~Quarterly~~that ~~Report~~disruptions onfrom ~~Form~~the ~~10-Q~~transaction aswill ~~well~~harm asrelationships ~~the~~with ~~disclosures contained under the~~employees, ~~heading~~referral ~~“Item 1A.~~sources, ~~Risk~~patients ~~Factors”~~and insuppliers; ~~our~~and ~~2009~~the ~~Annual~~outcome ~~Report~~of onlitigation ~~Form~~and ~~10-K~~regulatory ~~filed with the Securities~~proceedings ~~and~~to ~~Exchange~~which ~~Commission~~we ~~(the~~may ~~“SEC”)~~be ona ~~March 10, 2010~~party.

In light of these risks, uncertainties and assumptions and the other risks discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009, the forward-looking events and circumstances discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially from those anticipated or implied in the forward-looking statements. Many of these factors are beyond our ability to control or predict. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements, which reflect management’s views only as of the date hereof. We undertake no obligation to revise or update any of the forward-looking statements or publicly announce any updates or revisions to any of the forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions, circumstances or assumptions underlying such statements. Reference is hereby made to the disclosures contained under the heading “Government Regulation and Payment Structure” in “Item 1. Business” and in “ITEM 1A. RISK FACTORS” included in this Quarterly Report on Form 10-Q as well as the disclosures contained under the heading “Item 1A. Risk Factors” in our 2009 Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 10, 2010.

The following discussion of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and the related notes thereto included in Item 1 of this Quarterly Report on Form 10-Q.

OVERVIEW

We are one of the largest providers of hospice care in the United States in terms of both average daily patient census and number of Medicare-certified hospice programs. As of ~~March~~June 3130, 2010, we operated 92 Medicare-certified hospice programs, serving patients and their families in 30 states. We operate all of our hospice programs through our operating subsidiaries. During the ~~three~~six months ended ~~March~~June 3130, 2010, our average daily census was 12,~~323~~456 patients, which represents a 1.19% increase over our average daily census of 12,~~186~~227 patients for the ~~three~~six months ended ~~March~~June 3130, 2009. Our net patient service revenue of $~~171~~347.57 million for the ~~three~~six months ended ~~March~~June 3130, 2010 ~~represents~~ represents an increase of 2.49% over our net patient service revenue of $~~167~~337.58 million for the ~~three~~ six months ended ~~March~~ June 3130, 2009. We reported net income attributable to Odyssey stockholders of $1327.4 million, or $0.4080 per diluted share, for the ~~three~~six months ended ~~March~~June 3130, 2010, which represents an increase of 53 58.78% from our net income attributable to Odyssey stockholders of $817.72 million, or $0.2652 per diluted share, ~~for~~which includes a $0.5 million loss from discontinued operations, net of taxes, for the ~~three~~six months ended ~~March~~June 3130, 2009.

PENDING MERGER

On May 23, 2010, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Gentiva Health Services, Inc., a Delaware corporation (“Gentiva”), and GTO Acquisition Corp., a Delaware corporation wholly-owned by Gentiva (“Merger Sub”). Upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into us, with us continuing as the surviving corporation and as a subsidiary wholly-owned by Gentiva (the “Merger”). Upon consummation of the Merger, each issued and outstanding share of our common stock, par value $0.001 per share, will be converted into the right to receive $27.00 in cash, without interest and subject to any applicable withholding of taxes.

Consummation of the Merger is subject to customary conditions, including adoption of the Merger Agreement by our stockholders and the absence of legal restraints. Each party’s obligation to consummate the Merger is also subject to the accuracy of the representations and warranties of the other party (subject to certain qualifications and exceptions) and the performance in all material respects of the other party’s covenants under the Merger Agreement, including, with respect to us, customary covenants regarding operation of our business prior to closing. The applicable 30-day waiting period under the Hart-Scott-Rodino Antitrust Improvement Act of 1976 expired on July 6, 2010.

The Merger Agreement included a “go-shop” process during which we were permitted to encourage and solicit proposals for a competing transaction from third parties from May 23, 2010 through 11:59 p.m., Central time, on

June 22, 2010. We conducted the “go-shop” process with the assistance of Goldman, Sachs & Co. (“Goldman”), our financial advisor, in connection with the Merger. During the “go-shop” period, Goldman held discussions on our behalf with potential buyers but did not receive any alternative acquisition proposals.

The Merger Agreement contains certain termination rights for both us and Gentiva. Our right to terminate the Merger Agreement to accept a superior proposal is subject to the right of Gentiva to match any such proposal and the payment of a termination fee to Gentiva of $28.9 million.

The parties have agreed that the Merger Agreement is subject to specific performance in the event of breach by any party.

We established Friday, July 2, 2010 as the record date for determining stockholders entitled to vote at the special meeting of stockholders to be held on Monday, August 9, 2010. At the special meeting, stockholders of record will consider and vote upon proposal (i) to approve the Merger and adopt the Merger Agreement and (ii) to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the special meeting to approve the Merger and adopt the Merger Agreement. The transaction is expected to close during the month of August, subject to the satisfaction of standard closing conditions, including approval by our stockholders.

We incurred approximately $2.1 million in expenses during both the three and six month periods ended June 30, 2010, related to the proposed Merger, which are included in “general and administrative – support center” on our consolidated statements of income.

For further information related to the Merger, see our Definitive Proxy Statement on Schedule 14A as filed with the SEC on July 9, 2010. The foregoing description of the Merger Agreement is not complete and is qualified in its entirety by reference to the Merger Agreement filed as an exhibit to our Form 8-K filing on May 24, 2010.

DEVELOPED HOSPICES

We have developed the following hospice programs since January 1, 2009:

During the first quarter of 2010, we received Medicare certification for our Alameda, California and Salem, Oregon hospice programs.

Once a hospice becomes Medicare certified, the process is started to obtain Medicaid certification. This process takes approximately six months and varies from state to state.

ACQUISITIONS

We have completed the following acquisitions with operations commencing since January 1, 2009:

On December 31, 2008, we acquired a hospice program in Flint, Michigan for approximately $0.5 million whose results of operations have been included within our Midwest segment since January 1, 2009.

On December 31, 2009, we acquired a hospice program in Westchester, Illinois for approximately $3.2 million whose results of operations have been included within our Midwest segment since January 1, 2010.

On January 26, 2010, we acquired a hospice program in Overland Park, Kansas for approximately $0.3 million whose results of operations have been included within our Midwest segment since that date.

As part of our ongoing acquisition strategy, we are continually evaluating other potential acquisition opportunities.

DISCONTINUED OPERATIONS

We conduct ongoing strategic reviews of our hospice programs and evaluate whether to sell or close certain hospice programs based on these reviews. No programs were held for sale as of ~~March~~June 3130, 2010 or December 31, 2009.

2224

During the second quarter of 2009, the Company recorded a pretax loss of approximately $0.6 million, which was a result of the writedown of assets from $2.1 million to $1.5 million for the Oklahoma City program, including the related inpatient unit. The Company completed the sale of the Oklahoma City program, including the related inpatient unit, on July 13, 2009. The Oklahoma City program and inpatient unit were located in the Company’s South Central region. Net proceeds from the sale were approximately $1.5 million. The $1.5 million received in net proceeds was paid to the Company’s lenders as a mandatory prepayment of principal under our credit agreement.

Our results of operations and statistics for prior periods have been restated to reflect the reclassification of ~~these~~discontinued programs to discontinued operations. Loss from discontinued operations (net of income taxes) for the three and six months ended June 30, 2010, represent the extinguishment of an office lease and Medicare cap contractual adjustments related to programs that were discontinued during 2008 and 2007.

NET PATIENT SERVICE REVENUE

Net patient service revenue is the estimated net realizable revenue from Medicare, Medicaid, commercial insurance, managed care payors, patients and others for services rendered to our patients. To determine net patient service revenue, we adjust gross patient service revenue for estimated contractual adjustments based on historical experience and estimated Medicare cap contractual adjustments. Net patient service revenue does not include charity care or the Medicaid room and board payments. We recognize net patient service revenue in the month in which our services are delivered. Services provided under the Medicare program represented ~~approximately~~ 92.89% and 9293.90% of our net patient service revenue for both the three and six months ended ~~March~~June 3130, 2010 and 2009, respectively. Services provided under Medicaid programs represented ~~approximately~~ 4.0% and 3.9% of our net patient service revenue for the three months ended June 30, 2010 and 2009, respectively, and represented 4.0% of our net patient service revenue for both the ~~three~~six months ended ~~March~~June 3130, 2010 and 2009, respectively. The payments we receive from Medicare and Medicaid are calculated using daily or hourly rates for each of the four levels of care we deliver and are adjusted based on geographic location.

The four main levels of care we provide are routine home care, general inpatient care, continuous home care and inpatient respite care. We also receive reimbursement for physician services, self-pay and non-governmental room and board. Routine home care is the largest component of our gross patient service revenue, representing 88.46% and 89.06% of gross patient service revenue for the three months ended ~~March~~June 3130, 2010 and 2009, respectively, and 88.5% ~~General~~and 89.3% of gross patient service revenue for the six months ended June 30, 2010 and 2009, respectively. General inpatient care represented 87.08% and 7.72% of gross patient service revenue for the three months ended ~~March~~June 3130, 2010 and 2009, respectively, and 7.9% and 7.4% of gross patient service revenue for the six months ended June 30, 2010 and 2009, respectively. Continuous home care represented 2.3% and 2.21% of gross patient service revenue for the three months ended ~~March~~June 3130, 2010 and 2009, respectively, and 2.3% and 2.2% of gross patient service revenue for the six months ended June 30, 2010 and 2009, respectively. Inpatient respite care and reimbursement for physician services, self-pay and non-governmental room and board represented the remaining 1.3% and 1.1% of gross patient service revenue for the three months ended ~~March~~ June 3130, 2010 and 2009, respectively and 1.3% and 1.1% of gross patient service revenue for the six months ended June 30, 2010 and 2009, respectively.

The principal factors that impact net patient service revenue are our average daily census, levels of care, annual changes in Medicare and Medicaid payment rates due to adjustments for inflation and estimated Medicare cap and commercial contractual adjustments. Average daily census is affected by the number of patients referred and admitted into our hospice programs and the average length of stay of those patients once admitted. Average length of stay is impacted by patients’ decisions of when to enroll in hospice care after diagnoses of terminal illnesses and, once enrolled, the length of the terminal illnesses. Our average length of stay was 8780 days and 8379 days for the three months ended ~~March~~June 3130, 2010 and 2009, respectively, and 84 days and 81 days for the six months ended June 30, 2010 and 2009, respectively.

Base payment rates for hospice services under the Medicare and Medicaid programs are indexed for inflation annually; however, these increases have historically been less than actual inflation. These rates are further adjusted geographically by the hospice wage index. On October 1, 2009 and 2008, the base Medicare payment rates for hospice care increased by approximately 2.1% and 3.6%, respectively, over the base rates previously in effect. On July 31, 2008, the Centers for Medicare and Medicaid Services (“CMS”) published the final rule that modified the hospice wage index by phasing out over a three year period the budget neutrality adjustment factor (“BNAF”). According to the final rule, the phase out would occur over a three year period beginning on October 1, 2008, with ~~25% of the phase-out becoming effective on October 1, 2008, 50% becoming effective on October~~ 1, 2009 and the balance on October 1, 2010. As part of the American Recovery and Reinvestment Act of 2009, the implementation of the phase-out of the BNAF was delayed until October 1, 2009. CMS began paying providers the estimated 1.1% increase in hospice rates from October 1, 2008 in the middle of 2009. This increase resulted in additional revenues for 2009 from Medicare of $1.4 million related to services performed from October 1, 2008 through December 31, 2008. On July 30, 2009, CMS issued a final rule to update the Medicare hospice wage index and to re-implement the phase-out of the BNAF beginning on October 1, 2009. The phase-out of the BNAF will now occur over a seven year period, 10% in the first year and an additional 15% in each of the following six years. On October 1, 2009,

2325

~~payments~~25% of the phase-out becoming effective on October 1, 2008, 50% becoming effective on October 1, 2009 and the balance on October 1, 2010. As part of the American Recovery and Reinvestment Act of 2009, the implementation of the phase-out of the BNAF was delayed until October 1, 2009. CMS began paying providers the estimated 1.1% increase in hospice rates from October 1, 2008 in the middle of 2009. This increase resulted in additional revenues for 2009 from Medicare of $1.4 million related to services performed from October 1, 2008 through December 31, 2008. On July 30, 2009, CMS issued a final rule to update the Medicare hospice wage index and to re-implement the phase-out of the BNAF beginning on October 1, 2009. The phase-out of the BNAF will now occur over a seven year period, 10% in the first year and an additional 15% in each of the following six years. On July 22, 2010 CMS announced that effective October 1, 2010, base payment rates to Medicare participating hospices ~~increased~~will increase by approximately 1.48%. This increase includes the effect of the ~~first~~second year phase-out of the BNAF used in computing the hospice wage index.

MEDICARE REGULATION

The Medicare Cap. Various provisions were included in the legislation creating the Medicare hospice benefit to manage the cost to the Medicare program for hospice, including the patient’s waiver of curative care requirement, the six-month terminal prognosis requirement and the Medicare payment caps. The Medicare hospice benefit includes two fixed annual caps on payment, both of which are assessed on a program-by-program basis. One cap is an absolute dollar amount; the other limits the number of days of inpatient care. The caps are calculated from November 1 through October 31 of each year.

Dollar Amount Cap. The Medicare revenue paid to a hospice program from November 1 to October 31 of the following year may not exceed the annual cap amount, which is calculated by using the following formula: the product of the number of admissions to the program by patients who are electing to receive their Medicare hospice benefit for the first time, multiplied by the Medicare cap amount, which for the November 1, 2008 through October 31, 2009 Medicare fiscal year was $23,014. The Medicare cap amount is reduced proportionately for patients who transferred in or out of our hospice programs. The Medicare cap amount is annually adjusted for inflation, but is not adjusted for geographic differences in wage levels, although hospice per diem payment rates are wage indexed. WeOn ~~currently~~July 23, ~~estimate~~2010 CMS announced that the Medicare cap amount tois ~~be approximately~~ $23,875 for the ~~2010~~ 2010 cap year which is from November 1, 2009 through October 31, 2010.

Inpatient Care Cap. A hospice program’s inpatient care days, either general inpatient or respite inpatient care and regardless of setting, may not exceed 20% of the program’s total patient care days in the Medicare cap year. None of our hospice programs exceeded the payment limits on general inpatient care services during the ~~three months ended March 31, 2010 or the~~ year ended December 31, 2009.

The following table shows the amounts accrued and paid for the Medicare cap contractual adjustments for the ~~three~~six months ended ~~March~~June 3130, 2010 and for the year ended December 31, 2009, respectively:

	Accrued Medicare Cap Contractual
	Adjustments
	Three Months
	Six Months Ended			Year Ended
	Ended			Year Ended
	June 30,			December 31,
	March 31,			December 31,
	2010			2009
Beginning balance — accrued Medicare cap contractual adjustments	$	18,798		$	23,719
Beginning balance – accrued Medicare cap contractual adjustments	$	18,798		$	23,719
Medicare cap contractual adjustments		12,~~228~~860	(1)		4,565	(2)
Medicare cap contractual adjustments — discontinued operations		72	(3)		(79	)(3)
Medicare cap contractual adjustments – discontinued operations		79	(3)		(79	)(3)
Payments to Medicare fiscal intermediaries		(6,699	)		(9,407	)
Balances acquired from acquisition		39			—
Ending balance — accrued Medicare cap contractual adjustments	$	13,399		$	18,798
Payments to Medicare fiscal intermediaries		(8,086	)		(9,407	)
Ending balance – accrued Medicare cap contractual adjustments	$	13,690		$	18,798


(1)		Includes additional accrual of $0.3 million and $0.2 million related to the 2008 and 2007 Medicare cap year, respectively.

(2)		Includes an accrual reversal of $1.1 million related to the 2007 Medicare cap year.

(3)		Medicare cap contractual adjustments reclassified to discontinued operations are related to programs we have discontinued and/or sold.

Laws and regulations governing the Medicare and Medicaid programs are complex and subject to interpretation. We believe that we are in compliance with all applicable laws and regulations. Compliance with laws and regulations can be subject to future government review and interpretation as well as significant regulatory action, including fines, penalties and exclusion from the Medicare and Medicaid programs.

EXPENSES

Because payments for hospice services are primarily paid on a per diem basis, our profitability is largely dependent on our ability to manage the expenses of providing hospice services. We recognize expenses as incurred and classify expenses as either direct hospice care expenses or general and administrative expenses. Direct hospice care expenses primarily include direct patient care salaries, payroll taxes, employee benefits, pharmaceuticals, medical equipment and supplies, inpatient costs and reimbursement of mileage for our patient caregivers. Length of stay impacts our direct hospice care expenses as a percentage of net patient service revenue because, if lengths of stay decline, direct hospice care expenses, which are often highest during the earliest and latter days of care for a patient, are spread against fewer days of care. Expenses are generally higher during the earliest days because of increased labor expense to evaluate the patient and determine the medical and social services needs of the family. Expenses are also normally higher during the last days of care because patients generally require greater hospice services including drugs, medical equipment and nursing care at that time due to their deteriorating medical condition. In addition, cost pressures resulting from the use of more expensive forms of palliative care, including drugs and drug delivery systems, and increasing direct patient care salaries and employee benefit costs will negatively impact our profitability.

medical equipment and supplies, inpatient costs and reimbursement of mileage for our patient caregivers. Length of stay impacts our direct hospice care expenses as a percentage of net patient service revenue because, if lengths of stay decline, direct hospice care expenses, which are often highest during the earliest and latter days of care for a patient, are spread against fewer days of care. Expenses are generally higher during the earliest days because of increased labor expense to evaluate the patient and determine the medical and social services needs of the family. Expenses are also normally higher during the last days of care because patients generally require greater hospice services including drugs, medical equipment and nursing care at that time due to their deteriorating medical condition. In addition, cost pressures resulting from the use of more expensive forms of palliative care, including drugs and drug delivery systems, and increasing direct patient care salaries and employee benefit costs will negatively impact our profitability.

For our patients receiving nursing home care under a state Medicaid program who elect hospice care under Medicare or Medicaid, we contract with nursing homes for room and board services. The state must pay us, in addition to the applicable Medicare or Medicaid hospice daily or hourly rate, an amount equal to at least 95% of the Medicaid daily nursing home rate for room and board furnished to the patient by the nursing home. Under our standard nursing home contracts, we pay the nursing home for these room and board services at 100% of the Medicaid daily nursing home rate. We refer to these costs, net of Medicaid payments, as “nursing home costs, net.”

General and administrative expenses for hospice care primarily include non-patient care salaries (including salaries for our executive directors, directors of patient services, patient care managers, community education representatives and other non-patient care staff), payroll taxes, employee benefits for our employees at our hospice programs, office leases, and other operating costs.

General and administrative expenses for our support center primarily include salaries, payroll taxes and employee benefits for employees located at our support center. These expenses also include our share-based compensation, office lease, professional fees, ~~and~~Merger related costs and other operating costs.

The following table sets forth the percentage of net patient service revenue represented by the items included in direct hospice care expenses and general and administrative expenses for hospice care for the three and six months ended ~~March~~June 3130, 2010 and 2009, respectively:

	Three Months Ended						Six Months Ended
	March 31,
	June 30,						June 30,
	2010			2009			2010			2009
Direct hospice care expenses:
Salaries, benefits and payroll taxes		3736.21	%		38.90	%		36.7	%		38.4	%
Pharmaceuticals		4.8			4.78			4.8			4.8
Medical equipment and supplies		54.18			5.54			5.0			5.4
Inpatient costs		2.12			2.01			2.2			2.1
Other (including nursing home costs, net, mileage, medical director fees and contracted services)		7.07			78.71			7.2			7.9
Total		5655.26	%		58.84	%		55.9	%		58.6	%
General and administrative expenses — hospice care:
General and administrative expenses – hospice care:
Salaries, benefits and payroll taxes		12.83	%		13.45	%		12.6	%		13.5	%
Leases		2.65			2.87			2.6			2.7
Other (including insurance, recruiting, travel, telephone and printing )		3.7			4.0
Other (including insurance, recruiting, travel, telephone and printing)		3.3			3.8			3.4			3.9
Total		1918.1	%		20.20	%		18.6	%		20.1	%

2527

The following table sets forth the cost per day of care represented by the items included in direct hospice care expenses and general and administrative expenses for hospice care for the three and six months ended ~~March~~June 3130, 2010 and 2009, respectively:

	Three Months Ended				Six Months Ended
	March 31,
	June 30,				June 30,
	2010		2009		2010		2009
Direct hospice care expenses:
Salaries, benefits and payroll taxes	$	5755.5857	$	5958.3702	$	56.56	$	58.69
Pharmaceuticals		7.3735		7.1838		7.36		7.28
Medical equipment and supplies		7.9345		8.3825		7.69		8.32
Inpatient costs		3.2738		3.1315		3.32		3.14
Other (including nursing home costs, net, mileage, medical director fees and contracted services)		1011.7783		1112.7128		11.31		11.99
Total	$	8685.9258	$	89.7708	$	86.24	$	89.42
General and administrative expenses — hospice care:
General and administrative expenses – hospice care:
Salaries, benefits and payroll taxes	$	1918.8197	$	20.5366	$	19.38	$	20.60
Leases		43.0091		4.2909		3.95		4.19
Other (including insurance, recruiting, travel, telephone and printing )		54.6798		65.0082		5.33		5.90
Total	$	2927.4886	$	30.8257	$	28.66	$	30.69

PROVISION FOR INCOME TAXES

Our provision for income taxes consists of current and deferred federal and state income tax expenses. Our effective tax rate for the three months ended ~~March~~June 3130, 2010 and 2009 was 3739.50% and 3736.62%, respectively. Our effective tax rate for the six months ended June 30, 2010 and 2009 was 38.3% and 36.9%, respectively. The increase in the effective tax rate is related to a higher percentage of taxable earnings due to our increasing income before taxes and a decrease in employment related federal tax credits. We estimate that our effective tax rate for 2010 will be in the range of 3738.50% to 38.05%.

RESULTS OF OPERATIONS

The following table sets forth selected consolidated financial information as a percentage of net patient service revenue for the three and six months ended ~~March~~June 3130, 2010 and 2009, respectively.

	Three Months Ended						Six Months Ended
	March 31,
	June 30,						June 30,
	2010			2009			2010			2009
Net patient service revenue		100.0	%		100.0	%		100.0	%		100.0	%
Operating expenses:
Direct hospice care		5655.26			58.84			55.9			58.6
General and administrative — hospice care		19.1			20.2
General and administrative – hospice care		18.1			20.0			18.6			20.1
General and administrative — support center		9.2			9.4
General and administrative – support center		10.8			9.9			10.0			9.7
Provision for uncollectible accounts		0.95			1.45			0.7			1.4
Depreciation and amortization		1.0			01.71			1.0			0.9
Income from continuing operations before other income (expense)		1314.60			9.51			13.8			9.3
Other income (expense), net		(0.8	)		(1.0.9	)		(0.8	)		(0.9	)
Income from continuing operations before provision for income taxes		1213.82			8.52			13.0			8.4
Provision for income taxes		45.81			3.20			4.9			3.1
Income from continuing operations		8.01			5.32			8.1			5.3
Loss from discontinued operations, net of income taxes		—			—(0.2	)		(0.1	)		(0.1	)
Net income		8.01	%		5.30	%		8.0	%		5.2	%
Less: net income attributable to noncontrolling interests		0.2			0.10			0.1			0.1
Net income attributable to Odyssey Stockholders		7.89	%		5.20	%		7.9	%		5.1	%

2628

Three Months Ended ~~March~~June 3130, 2010 Compared to Three Months Ended ~~March~~June 3130, 2009

The following table summarizes and compares our results of operations for the three months ended ~~March~~June 3130, 2010 and 2009, respectively:

	Three Months Ended
	March 31,
	June 30,
	2010			2009			$ Change			% Change
	(in thousands, except % change)
Net patient service revenue	$	~~171~~176,~~496~~227		$	~~167~~170,~~532~~295		$	35,~~964~~932			23.45	%
Operating expenses:
Direct hospice care		9698,~~401~~032			9899,~~455~~444			(21,~~054~~412	)		(2.1.4	)%
General and administrative — hospice care		32,694			33,800			(1,106	)		(3.3	)%
General and administrative – hospice care		31,913			34,131			(2,218	)		(6.5	)%
General and administrative — support center		15,801			15,805			(4	)		(0.0	)%
General and administrative – support center		19,110			16,841			2,269			13.5	%
Provision for uncollectible accounts		~~1,533~~877			2,~~364~~506			(~~831~~1,629	)		(3565.20	)%
Depreciation and amortization		1,~~803~~711			1,~~199~~801			~~604~~(90	)		50(5.40	)%
Income from continuing operations before other income (expense)		2324,~~264~~584			15,~~909~~572			79,~~355~~012			4657.29	%
Other income (expense), net		(1,~~371~~331	)		(1,~~719~~485	)		~~348~~(154	)		20(10.24	)%
Income from continuing operations before provision for income taxes		2123,~~893~~253			14,~~190~~087			79,~~703~~166			5465.31	%
Provision for income taxes		8,~~115~~975			5,~~283~~065			23,~~832~~910			5377.62	%
Income from continuing operations		1314,~~778~~278			89,~~907~~022			45,~~871~~256			5458.73	%
Loss from discontinued operations, net of income taxes		(~~126~~71	)		(52422	)		(74351	)		(~~142~~83.32	)%
Net income		1314,~~652~~207			8,~~855~~600			45,~~797~~607			5465.2	%
Less: Net income attributable to noncontrolling interests		~~253~~229			~~136~~81			~~117~~148			86182.07	%
Net income attributable to Odyssey Stockholders	$	13,~~399~~978		$	8,~~719~~519		$	45,~~680~~459			5364.71	%

Net Patient Service Revenue

Net patient service revenue increased $45.09 million, or 23.45%, to $~~171~~176.52 million for the three months ended ~~March~~June 3130, 2010 from $~~167~~170.53 million for the three months ended ~~March~~June 3130, 2009, ~~primarily~~ primarily due to an increase in the net patient service revenue per day along with an increase in the average daily census (“ADC”). Net patient service revenue per day of care was $~~154~~153.6384 and $152.7554 for the three months ended ~~March~~June 3130, 2010 and 2009, respectively, which was an increase of $1.8830, or 10.29%. This increase was primarily due to overall increases in Medicare payment rates for our hospice services of approximately 1.4% effective on October 1, 2009, which was inclusive of the ~~Medicare~~ Medicare hospice wage index adjustment. ADC was 12,~~323~~588 and 12,~~186~~268 for the three months ended ~~March 31~~June 30, 2010 and 2009, respectively, which was an increase of ~~137~~320, or 12.16%. The Medicare cap ~~contractual~~ contractual adjustment ~~decreased~~was $0.1 ~~million, or 7~~.~~8%, to $1.2~~6 million for the three months ended ~~March~~ June 3130, 2010 ~~from~~as compared to a credit balance of $1.31 million for the three months ended ~~March~~June 3130, 2009. Medicare revenues ~~represented~~ represented 92.89% and 9293.90% of our net patient service revenue for the three months ended ~~March~~June 3130, 2010 and 2009, respectively. Medicaid revenues represented 4.0% and 3.9% of our net patient service revenue for ~~both~~ the three months ended ~~March~~June 3130, 2010 and 2009, respectively.

Direct Hospice Care Expenses

Direct hospice care expenses decreased $2.1.4 million, or 2.1.4%, to $9698.40 million for the three months ended ~~March~~June 3130, 2010 from $9899.54 million for the three months ended ~~March~~June 3130, 2009, primarily due to a decrease in salaries, benefits and payroll tax expense related to sites that have been consolidated since January 1, 2009, as well as lower health insurance costs. Salaries, benefits and payroll tax expense decreased $1.21 million, or 1.97%, to $63.97 million for the three months ended ~~March~~June 3130, 2010 from $6564.18 million for the three months ended ~~March~~June 3130, 2009. On a per patient day basis, we experienced a decrease of $23.8550, or 3.29%, to $8685.9258 per patient day for the three months ended ~~March~~June 3130, 2010 from $89.7708 per patient day for the three months ended ~~March~~June 3130, 2009. As a percentage of net patient service revenue, our direct hospice care expenses were 5655.26% and 58.84% for the three months ended ~~March~~June 3130, 2010 and 2009, respectively.

General and Administrative Expenses —– Hospice Care

General and administrative expenses —– hospice care decreased $12.12 million, or 36.35%, to $3231.79 million for the three months ended ~~March~~June 3130, 2010 from $3334.81 million for the three months ended June ~~March 31~~30, 2009. Of the $2.2 million decrease, $1.4 million was due to lower employee compensation and benefits costs for non-patient care employees

2729

~~$1.1 million~~related ~~decrease, $0.6 million was due~~ to ~~lower~~sites ~~employee~~that ~~compensation~~have ~~and~~been ~~benefits~~consolidated ~~costs for~~since ~~non-patient~~January 1, ~~care employees~~2009, as well as lower health insurance costs. ~~In addition, approximately $0.3 million of the $1.1 million decrease was related to a lease abandonment charge incurred during the first quarter of 2009 as a result of a site consolidation.~~ On a per patient day basis, we experienced a decrease of $12.3471, or 48.39%, to $2927.48 86 per patient day for the three months ended ~~March~~ June 3130, 2010 from $30.8257 per patient day for the three months ended ~~March~~June 3130, 2009. As a percentage of net patient service revenue, our general and administrative expenses – hospice care were 1918.1% and 20.20% for the three months ended ~~March~~June 3130, 2010 and 2009, respectively.

General and Administrative Expenses – Support Center

General and administrative expenses – support center ~~remained~~increased ~~steady~~$2.3 million, ator 13.5%, to $1519.81 million for the three months ended ~~March~~June 3130, 2010 ~~and~~from $16.8 million for the three months ended June 30, 2009, ~~respectively~~primarily due to $2.1 million in transaction costs incurred in connection with the Merger. As a percentage of net patient service revenue, our general and administrative expenses – support center were 910.28% and 9.49% for the three months ended ~~March~~June 3130, 2010 and 2009, respectively.

Provision for Uncollectible Accounts

Our provision for uncollectible accounts decreased $01.96 million, or 3565.20%, to $10.59 million for the three months ended ~~March~~June 3130, 2010 from $2.45 million for the three months ended ~~March~~June 3130, 2009. This decrease was primarily ~~due~~related to ~~the~~provisions ~~continued~~for ~~significant~~VistaCare ~~cash~~prepayment ~~collections~~reviews werecorded ~~received related~~during to the ~~pre-payment~~second ~~reviews~~quarter ~~from our fiscal intermediaries for long length~~ of ~~stay patients~~2009. As a percentage of net patient service revenue, our provision for uncollectible accounts was 0.95% and 1.45% for the three months ended ~~March~~June 3130, 2010 and 2009, respectively.

Depreciation and Amortization Expense

Depreciation and amortization expense ~~increased~~decreased $0.61 million, or 505.40%, to $1.87 million for ~~the~~ the three months ended ~~March~~June 3130, 2010 from $1.28 million for the three months ended ~~March~~June 3130, 2009. This decrease ~~increase~~ was primarily due to ancertain ~~adjustment~~assets ofbecoming ~~depreciation~~fully ~~expense~~depreciated ~~of $0.6 million~~ during the ~~first~~ quarter ~~of 2009, related to capitalized computer software costs~~. As a percentage of net patient service revenue, depreciation and amortization expense was 1.0% and 01.71% for the three months ended ~~March~~June 3130, 2010 and 2009, respectively.

Other Expense

Other expense decreased $0.32 million, or 2010.24%, to $1.43 million for the three months ended ~~March~~June 3130, 2010 from $1.75 million for the three months ended ~~March~~June 3130, 2009. ~~The~~This ~~$0.3 million~~ decrease was primarily due to a ~~$0.4 million~~ decrease in interest expense, ~~partially~~which ~~offset by a $0.1 million decrease in interest income. The decrease in interest expense~~ was attributable to a decline in interest rates and lower levels of borrowings during the ~~first~~second quarter of 2010. ~~The~~ ~~decrease in interest income was attributable to a decline in the interest rates being earned on our money market accounts and auction rates securities.~~

Provision for Income Taxes

Our provision for income taxes increased $23.89 million, or 5377.62%, to $89.10 million for the three months ended ~~March~~June 3130, 2010 from $5.31 million for the three months ended ~~March~~June 3130, 2009 due to ~~higher~~ higher income from continuing operations before the provision for income taxes. We had an effective ~~income~~ income tax rate of 3739.50% and 3736.62% for the three months ended ~~March~~June 3130, 2010 and 2009, respectively. The increase in the effective tax rate is related to a higher percentage of taxable earnings due to our increasing income before taxes and a decrease in employment related federal tax credits.

~~LIQUIDITY AND CAPITAL RESOURCES~~30

Cash and cash equivalents increased $13.3 million, to $141.9 million at March 31, 2010 from $128.6 million at December 31, 2009. As of March 31, 2010, we had working capital of $112.5 million. Our principal liquidity requirements are for debt service, Medicare cap contractual adjustments, working capital, hospice acquisitions, new hospice program and inpatient development, and other capital expenditures. We finance these requirements primarily with existing funds, cash flows from operating activities, borrowings under our credit facility, operating leases and normal trade credit terms.

Six Months Ended June 30, 2010 Compared to Six Months Ended June 30, 2009

The following table summarizes and compares our results of operations for the six months ended June 30, 2010 and 2009, respectively:


	Six Months Ended
	June 30,
	2010			2009			$ Change			% Change
	(in thousands, except % change)
Net patient service revenue	$	347,723		$	337,827		$	9,896			2.9	%
Operating expenses:
Direct hospice care		194,433			197,899			(3,466	)		(1.8	)%
General and administrative – hospice care		64,607			67,931			(3,324	)		(4.9	)%
General and administrative – support center		34,911			32,646			2,265			6.9	%
Provision for uncollectible accounts		2,410			4,869			(2,459	)		(50.5	)%
Depreciation and amortization		3,514			3,001			513			17.1	%

Income from continuing operations before other income (expense)		47,848			31,481			16,367			52.0	%
Other income (expense), net		(2,702	)		(3,204	)		(502	)		(15.7	)%

Income from continuing operations before provision for income taxes		45,146			28,277			16,869			59.7	%
Provision for income taxes		17,090			10,347			6,743			65.2	%

Income from continuing operations		28,056			17,930			10,126			56.5	%
Loss from discontinued operations, net of income taxes		(197	)		(475	)		(278	)		(58.5	)%

Net income		27,859			17,455			10,404			59.6	%
Less: Net income attributable to noncontrolling interests		482			217			265			122.1	%

Net income attributable to Odyssey Stockholders	$	27,377		$	17,238		$	10,139			58.8	%

Net Patient Service Revenue

Net patient service revenue increased $9.9 million, or 2.9%, to $347.7 million for the six months ended June 30, 2010 from $337.8 million for the six months ended June 30, 2009, primarily due to an increase in the net patient service revenue per day along with an increase in the ADC. Net patient service revenue per day of care was $154.23 and $152.65 for the six months ended June 30, 2010 and 2009, respectively, which was an increase of $1.58, or 1.0%. This increase was primarily due to overall increases in Medicare payment rates for our hospice services of approximately 1.4% effective on October 1, 2009, which was inclusive of the Medicare hospice wage index adjustment. ADC was 12,456 and 12,227 for the six months ended June 30, 2010 and 2009, respectively, which was an increase of 229, or 1.9%. The Medicare cap contractual adjustment increased $2.6 million to $2.9 million for the six months ended June 30, 2010 from $0.3 million for the six months ended June 30, 2009. During the first half of 2009, we recorded a positive adjustment of approximately $0.5 million to the Medicare cap contractual related to the 2007 Medicare cap year. In addition, during the first half of 2010, we had a $0.5 million increase in Medicare cap expense relating to the 2008 and 2007 Medicare cap years. Medicare revenues represented 92.9% and 93.0% of our net patient service revenue for the six months ended June 30, 2010 and 2009, respectively. Medicaid revenues represented 4.0% of our net patient service revenue for both the six months ended June 30, 2010 and 2009, respectively.

Direct Hospice Care Expenses

Direct hospice care expenses decreased $3.5 million, or 1.8%, to $194.4 million for the six months ended June 30, 2010 from $197.9 million for the six months ended June 30, 2009, primarily due to a decrease in salaries, benefits and payroll tax expense related to sites that have been consolidated since January 1, 2009, as well as lower health insurance costs. Salaries, benefits and payroll tax expense decreased $2.4 million, or 1.8%, to $127.5 million for the six months ended June 30, 2010 from $129.9 million for the six months ended June 30, 2009. On a per patient day basis, we experienced a decrease of $3.18, or 3.6%, to $86.24 per patient day for the six months ended June 30, 2010 from $89.42 per patient day for the six months ended June 30, 2009. As a percentage of net patient service revenue, our direct hospice care expenses were 55.9% and 58.6% for the six months ended June 30, 2010 and 2009, respectively.

General and Administrative Expenses – Hospice Care

General and administrative expenses – hospice care decreased $3.3 million, or 4.9%, to $64.6 million for the six months ended June 30, 2010 from $67.9 million for the six months ended June 30, 2009. Of the $3.3 million decrease, $2.0 million was due to lower employee compensation and benefits costs for non-patient care employees related to sites that have been consolidated since January 1, 2009, as well as lower health insurance costs. In addition, approximately $0.4 million was related to a lease abandonment charge incurred during the first quarter of 2009 as a result of a site consolidation. On a per patient day basis, we experienced a decrease of $2.03, or 6.6%, to $28.66 per patient day for the six months ended June 30, 2010 from $30.69 per patient day for the six months ended June 30, 2009. As a percentage of net patient service revenue, our general and administrative expenses – hospice care were 18.6% and 20.1% for the six months ended June 30, 2010 and 2009, respectively.

General and Administrative Expenses – Support Center

General and administrative expenses – support center increased $2.3 million, or 6.9%, to $34.9 million for the six months ended June 30, 2010 from $32.6 million for the six months ended June 30, 2009, primarily due to $2.1 million in transaction costs incurred in connection with the Merger. As a percentage of net patient service revenue, our general and administrative expenses – support center were 10.0% and 9.7% for the six months ended June 30, 2010 and 2009, respectively.

Provision for Uncollectible Accounts

Our provision for uncollectible accounts decreased $2.5 million, or 50.5%, to $2.4 million for the six months ended June 30, 2010 from $4.9 million for the six months ended June 30, 2009. This decrease was primarily related to provisions for Odyssey prepayment reviews recorded during the first quarter of 2009 and VistaCare prepayment reviews recorded during the second quarter of 2009. In addition, the decrease is attributable to significant cash collections during the fourth quarter of 2009. As a percentage of net patient service revenue, our provision for uncollectible accounts was 0.7% and 1.4% for the six months ended June 30, 2010 and 2009, respectively.

Depreciation and Amortization Expense

Depreciation and amortization expense increased $0.5 million, or 17.1%, to $3.5 million for the six months ended June 30, 2010 from $3.0 million for the six months ended June 30, 2009. This increase was primarily due to an adjustment of depreciation expense of $0.6 million during the first quarter of 2009, related to capitalized computer software costs, partially offset by certain assets becoming fully depreciated. As a percentage of net patient service revenue, depreciation and amortization expense was 1.0% and 0.9% for the six months ended June 30, 2010 and 2009, respectively.

Other Expense

Other expense decreased $0.5 million, or 15.7%, to $2.7 million for the six months ended June 30, 2010 from $3.2 million for the six months ended June 30, 2009. The $0.5 million decrease was primarily due to a $0.6 million decrease in interest expense, partially offset by a $0.1 million decrease in interest income. The decrease in interest expense was attributable to a decline in interest rates and lower levels of borrowings during the first half of 2010. The decrease in interest income was attributable to a decline in the interest rates being earned on our money market accounts and auction rates securities.

Provision for Income Taxes

Our provision for income taxes increased $6.8 million, or 65.2%, to $17.1 million for the six months ended June 30, 2010 from $10.3 million for the six months ended June 30, 2009 due to higher income from continuing operations before the provision for income taxes. We had an effective income tax rate of 38.3% and 36.9% for the six months ended June 30, 2010 and 2009, respectively. The increase in the effective tax rate is related to a higher percentage of taxable earnings due to our increasing income before taxes and a decrease in employment related federal tax credits.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents increased $35.9 million, to $164.5 million at June 30, 2010 from $128.6 million at December 31, 2009. As of June 30, 2010, we had working capital of $147.2 million. Our principal liquidity requirements are for debt service, Medicare cap contractual adjustments, working capital, hospice acquisitions, new hospice program and inpatient development, and other capital expenditures. We finance these requirements primarily with existing funds, cash flows from operating activities, borrowings under our credit facility, operating leases and normal trade credit terms.

Operating Activities

Cash flows provided by operating activities and discontinued operations was $1225.96 million and $721.95 million for the ~~three~~six months ended ~~March~~June 3130, 2010 and 2009, respectively, and represented net income attributable to Odyssey stockholders, non-cash charges related to depreciation, amortization, share-based compensation and changes in our working capital. The increase in cash provided by operations during the first ~~quarter~~half of 2010 was attributable to an increase in net ~~income~~ income attributable to Odyssey stockholders and us collecting cash on our receivables more quickly ~~during~~ during the first ~~quarter~~half of 2010 as compared to the first ~~quarter~~half of 2009. Our days sales outstanding, which is a measure of the average number of days that we take to collect our receivables, decreased to 46 45 days as of ~~March~~June 3130, 2010 compared to 5957 days as of ~~March~~June 3130, 2009. Cash used for operations during the first ~~quarter~~half of 2010 primarily consisted of cash payments for bonuses, payroll and related benefits that were accrued for at December 31, 2009. ~~In addition, we~~ ~~paid $6.7 million for Medicare cap contractual adjustments during the three months ended March 31, 2010 compared to $4.3 million for the same period last year.~~

Investing Activities

Cash ~~used~~provided inby investing activities was $110.26 million for the ~~three~~six months ended ~~March~~June 3130, 2010 ~~and~~compared to cash used in investing activities of $13.96 million for the same period last year. During the second quarter of 2010, we successfully liquidated all of our ARS at par for $13.0 million. The use of cash in the first ~~quarters~~half of 2010 and 2009 primarily consisted of purchases of property and equipment and cash paid for acquisitions.

Financing Activities

Cash ~~provided~~used byin financing activities was $10.63 million and $3.3 million for the ~~three~~six months ended ~~March~~ June 3130, 2010, ~~compared~~and to2009, ~~cash~~respectively. Cash used in financing activities primarily consisted of payments on our credit facility which totaled $14.67 million and $3.2 million for the ~~same~~six ~~period~~months ended ~~last~~June 30, ~~year~~2010 and 2009, respectively. Cash provided by financing activities ~~was~~during ~~primarily~~the ~~due~~first half toof a2010 ~~$2.1 million~~was ~~income~~due ~~tax benefit relating~~ to ~~share-based compensation and~~ $1.2.5 million in proceeds from the exercise of stock options. ~~In both the first quarter of 2010~~ and ~~2009,~~a we$2.4 million ~~made~~income ~~payments~~tax ofbenefit ~~$1.6 million~~relating onto ~~our~~share-based ~~credit facility~~compensation.

At ~~March~~June 3130, 2010, we had a credit agreement with General Electric Capital Corporation and various other lenders that provides us with a $130.0 million term loan (the “Term Loan”) and a $30.0 million revolving line of credit. The Term Loan was primarily used to pay a portion of the purchase price and costs incurred with respect to the acquisition of VistaCare, Inc. (“VistaCare”). The revolving line of credit may be used to fund future acquisitions, working capital, capital expenditures and for general corporate purposes. The borrowing capacity under the revolving line of credit is reduced by any outstanding letters of credit. At ~~March~~June 3130, 2010, outstanding letters of credit totaled $89.49 million and are used as collateral for our self-insured insurance policies. As of ~~March~~June 3130, 2010, the borrowing capacity under the revolving line of credit was $2120.61 million, of which no amounts were drawn.

Borrowings under the Term Loan and revolving line of credit bear interest at an applicable margin above an Index Rate (based on the higher of the prime rate or 50 basis points over the federal funds rate) or above LIBOR. At both ~~March~~June 3130, 2010 and December 31, 2009, the applicable term loan margin and the applicable revolver margin for LIBOR loans were 2.50% and for Index Rate loans were 1.50%. These margins are based on our leverage ratio and can vary from 2.50% to 3.25% for LIBOR loans and 1.50% to 2.25% for Index Rate loans.

In April 2008, we entered into two interest rate swap agreements that effectively convert a notional amount of $60.0 million of floating rate borrowings to fixed rate borrowings.

Borrowings outstanding at ~~March~~June 3130, 2010 were $~~113~~110.65 million and carried a weighted-average interest rate of 4.34%, including the effect of the interest rate swaps. At ~~March~~June 3130, 2010, $5047.43 million of the Term Loan carried interest at LIBOR plus 2.50% (~~ranging from~~ 2.7385% ~~to 2.75%~~) while $40.0 million of the Term Loan carried interest at a fixed rate of 5.45% and $20.0 million of the Term Loan carried interest at a fixed rate of 5.92% as a result of interest rate swap agreements. The remaining $3.2 million of the Term Loan carried interest at the Index Rate plus 1.50% (4.75%).

~~Borrowings outstanding at December 31, 2009 were $115.2 million and carried a weighted-average~~33 interest rate of 4.3%, including the effect of the interest rate swaps. At December 31, 2009, $53.6 million of the Term Loan carried interest at LIBOR plus 2.50% (2.73%) while $40.0 million of the Term Loan carried interest at a fixed rate of 5.45% and $20.0 million of the Term Loan carried interest at a fixed rate of 5.92% as a result of interest rate swap agreements. The remaining $1.6 million of the Term Loan carried interest at the Index Rate plus 1.50% (4.75%).

~~The~~Borrowings ~~final~~outstanding ~~installment~~at ~~of the Term Loan will be due on February~~December 2831, ~~2014~~2009 ~~and~~were ~~the revolving line of credit will expire on February~~$115.2 ~~28,~~million ~~2013. The revolving line of credit has an unused facility fee of 0.25% per annum. In connection with the acquisition of VistaCare, all of the subsidiaries of VistaCare (together with us,~~ and ~~certain~~carried ofa our subsidiaries, including VistaCare, the “Odyssey Obligors”) have become guarantors of the obligations under the credit agreement and have granted security interests in substantially all of their existing and afterweighted-~~acquired personal property. The~~average ~~Term~~interest ~~Loan~~rate ~~and the revolving line~~ of ~~credit are secured by substantially all of the Odyssey Obligors’ existing and after-acquired personal property~~4.3%, including the ~~stock~~effect of ~~certain subsidiaries owned by~~ the ~~Odyssey~~interest ~~Obligors~~rate ~~but not party to the credit agreement~~swaps. The Odyssey Obligors are subject to affirmative and negative covenants under the credit agreement, including financial covenants consisting of a maximum leverage ratio and a minimum fixed charge coverage ratio. At ~~both March 31, 2010 and~~ December 31, 2009, ~~we were in compliance with our financial covenants~~$53.6 million ~~We are subject to mandatory prepayments~~ of ~~principal~~the ~~based~~Term onLoan ~~cash~~carried ~~proceeds~~interest ~~received from~~at ~~the~~LIBOR ~~sale~~plus of2.50% ~~partnership interests and property~~(2.73%) ~~During~~while ~~the third quarter of 2009, we paid~~ $140.50 million ~~related to mandatory prepayments~~ of ~~principal, which were based on cash proceeds received from~~ the ~~sale of the Oklahoma City program. In addition, we are subject to an annual~~ ~~excess cash flow requirement, which may result in us having to make additional principal payments on our~~ Term Loan. ~~This~~carried ~~amount~~interest ~~is calculated and payable~~ at ~~the~~a ~~end~~fixed rate of ~~each year based on full year financial results~~5.45% ~~Based on current~~ and ~~projected financial performance, we anticipate having to make an excess cash flow payment of approximately~~ $2920.0 million ~~for~~of the ~~year~~Term ~~ending~~Loan ~~December 31,~~carried ~~2010,~~interest ~~which~~at ~~has been classified as~~ a ~~current~~fixed ~~liability~~rate ~~on our consolidated balance sheet as~~ of ~~March 31,~~ ~~2010~~5.92% ~~For~~as ~~the~~a ~~year~~result ~~ended December 31, 2009, we were obligated to make an excess cash flow payment~~ of ~~$29.3 million.~~interest ~~During~~rate ~~the~~swap ~~first quarter of 2010, our lenders agreed to waive our required 2009 excess cash flow payment~~agreements. ~~This~~The ~~waiver~~remaining ~~allowed us to keep~~ $291.3 6 million of ~~excess~~ ~~cash~~the onTerm ~~hand~~Loan tocarried ~~fund~~interest ~~our~~at ~~growth.~~the ~~There~~Index isRate noplus ~~assurance such waiver can be obtained in the future~~1.50% ~~In the future, we may be required to make additional mandatory prepayments of principal which could be significant~~(4.75%).

~~Auction~~ The ~~Rate~~final ~~Securities~~installment of the Term Loan will be due on February 28, 2014 and the revolving line of credit will expire on February 28, 2013. The revolving line of credit has an unused facility fee of 0.25% per annum. In connection with the acquisition of VistaCare, all of the subsidiaries of VistaCare (together with us, and certain of our subsidiaries, including VistaCare, the “Odyssey Obligors”) have become guarantors of the obligations under the credit agreement and have granted security interests in substantially all of their existing and after-acquired personal property. The Term Loan and the revolving line of credit are secured by substantially all of the Odyssey Obligors’ existing and after-acquired personal property, including the stock of certain subsidiaries owned by the Odyssey Obligors but not party to the credit agreement. The Odyssey Obligors are subject to affirmative and negative covenants under the credit agreement, including financial covenants consisting of a maximum leverage ratio and a minimum fixed charge coverage ratio. At both June 30, 2010 and December 31, 2009, we were in compliance with our financial covenants. We are subject to mandatory prepayments of principal based on cash proceeds received from the sale of partnership interests and property. During the third quarter of 2009, we paid $1.5 million related to mandatory prepayments of principal, which were based on cash proceeds received from the sale of the Oklahoma City program. In addition, we are subject to an annual excess cash flow requirement, which may result in us having to make additional principal payments on our Term Loan. This amount is calculated and payable at the end of each year based on full year financial results. Based on current and projected financial performance, we anticipate having to make an excess cash flow payment of approximately $20.7 million for the year ending December 31, 2010, which has been classified as a current liability on our consolidated balance sheet as of June 30, 2010. For the year ended December 31, 2009, we were obligated to make an excess cash flow payment of $29.3 million. During the first quarter of 2010, our lenders agreed to waive our required 2009 excess cash flow payment. This waiver allowed us to keep $29.3 million of excess cash on hand to fund our growth. There is no assurance such waiver can be obtained in the future. In the future, we may be required to make additional mandatory prepayments of principal which could be significant.

As of both March 31, 2010 and December 31, 2009, we had long-term investments with a fair-value totaling $12.4 million, consisting of tax exempt auction rate securities (“ARS”). These ARS are private placement securities for which the interest rates are reset every 35 days. The reset dates have historically provided a liquid market for these securities as investors historically could readily sell their investments. These types of securities generally have not experienced payment defaults and are backed by student loans, which carry guarantees as provided for under the Federal Family Education Loan Program of the U.S. Department of Education. All of the securities were AAA/Aaa rated at March 31, 2010. To date, we have collected all interest payments on all of our ARS when due and expect to continue to do so in the future. We intended to liquidate all of our ARS prior to the end of 2009. However, due to the problems experienced in global credit and capital markets generally and the ARS market in particular, our ability to liquidate our ARS in 2009 and 2010 has been impacted. We successfully liquidated $4.1 million of ARS in October 2009, at par. The remaining principal of $13.0 million associated with ARS will not be accessible until successful ARS auctions occur, a buyer is found outside of the auction process, the issuers establish a different form of financing to replace these securities, issuers repay principal over time from cash flows prior to maturity, or final payments come due according to contractual maturities from 24 to 27 years. We expect to receive the principal associated with these ARS through one of these means. We have classified these ARS as long-term investments.

As of March 31, 2010, we have determined that our ARS classified as available-for-sale with unrealized losses are not other-than-temporarily impaired. We expect to recover the entire cost basis of our ARS. We do not intend to sell our ARS until market conditions improve, nor do we expect to be required to sell our ARS. For the three months ended March 31, 2010 and 2009, respectively, we did not recognize any credit losses related to our ARS in earnings.

If the uncertainties in the credit and capital markets continue or these markets deteriorate further, these securities may not provide liquidity to us when needed or maintain the fair values estimated by us. If we had to liquidate any ARS at this time, we could incur significant losses. We currently believe we have sufficient liquidity to fund our current needs without selling any ARS and do not intend to liquidate these securities until market conditions improve, and it is not “more likely than not” that we will be required to liquidate any ARS before recovery of our entire cost basis. If our currently available resources are not sufficient for our needs and we are not able to liquidate any ARS on acceptable terms on a timely basis, this could have a significant adverse impact on our cash flows, financial condition and results of operations.

Future Needs

We expect that our principal liquidity requirements will be for debt service, Medicare cap contractual adjustments, working capital, hospice acquisitions, new hospice program development, and other capital expenditures. We expect that our existing funds, cash flows from operating activities, operating leases, normal trade credit terms and our existing revolving line of credit under our credit facility will be sufficient to fund our principal liquidity requirements for at least 12 months following the date of this Quarterly Report on Form 10-Q. Our future liquidity requirements and the adequacy of our available funds will depend on many factors, including receipt of payments for our services, government and private party legal proceedings and investigations, changes in the Medicare per beneficiary cap amount, changes in Medicare payment rates, regulatory changes and compliance with new regulations, expense levels, capital expenditures, development of new hospices and acquisitions and our ability to enter into a new credit agreement on terms satisfactory to us. We do not depend on cash flows from discontinued operations to provide for future liquidity.

expenditures. We expect that our existing funds, cash flows from operating activities, operating leases, normal trade credit terms and our existing revolving line of credit under our credit facility will be sufficient to fund our principal liquidity requirements for at least 12 months following the date of this Quarterly Report on Form 10-Q. Our future liquidity requirements and the adequacy of our available funds will depend on many factors, including receipt of payments for our services, government and private party legal proceedings and investigations, changes in the Medicare per beneficiary cap amount, changes in Medicare payment rates, regulatory changes and compliance with new regulations, expense levels, capital expenditures, development of new hospices and acquisitions and our ability to enter into a new credit agreement on terms satisfactory to us. We do not depend on cash flows from discontinued operations to provide for future liquidity.

OFF-BALANCE SHEET ARRANGEMENTS

As of ~~March~~June 3130, 2010, we did not have any off-balance sheet arrangements.

RECENT ACCOUNTING PRONOUNCEMENTS

See note “34. Recent Accounting Pronouncements” included elsewhere in this Quarterly Report on Form 10-Q.

PAYMENT, LEGISLATIVE AND REGULATORY CHANGES

We are highly dependent on payments from the Medicare and Medicaid programs. ~~Approximately~~ 96.~~8% and 96.~~9% of our net patient service revenue for both the three and six months ended ~~March~~June 3130, 2010 and 2009, ~~respectively,~~ consisted of payments, paid primarily on a per diem basis, from the Medicare and Medicaid programs. These programs are subject to statutory and regulatory changes, possible retroactive and prospective rate adjustments, administrative rulings, rate freezes ~~and funding~~ reductions. Reductions in amounts paid by these programs for our services or changes in regulations or other program requirements governing payments or delivery of care for our services could materially adversely affect our net patient service revenue and profitability. Payment rates under the Medicare and Medicaid programs are indexed for inflation annually; however, the increases have historically been less than actual inflation. On October 1, 2009 and 2008, the base Medicare payment rates for hospice care increased by approximately 2.1% and 3.6%, respectively, over the base rates previously in effect. These rates were further adjusted geographically by the hospice wage index. On July 31, 2008, CMS published the final rule that modified the hospice wage index by phasing out over a three year period the BNAF used in computing the hospice wage index. According to the final rule, the phase-out would occur over a three year period beginning on October 1, 2008, with 25% of the phase-out becoming effective on October 1, 2008, 50% becoming effective on October 1, 2009 and the balance on October 1, 2010. As part of the American Recovery and Reinvestment Act of 2009, the implementation of the phase-out of the BNAF was delayed until October 1, 2009. CMS began paying providers the estimated 1.1% increase in hospice rates from October 1, 2008 in the middle of 2009. On July 30, 2009, CMS issued a final rule to update the Medicare hospice wage index and to re-implement the phase-out of the BNAF beginning on October 1, 2009. The phase-out of the BNAF will now occur over a seven year period, 10% in the first year and an additional 15% in each of the following six years. On October 1, 2009, payments to Medicare participating hospices increased by approximately 1.4%. This increase includes the effect of the first year phase-out of the BNAF used in computing the hospice wage index.

and funding reductions. Reductions in amounts paid by these programs for our services or changes in regulations or other program requirements governing payments or delivery of care for our services could materially adversely affect our net patient service revenue and profitability. Payment rates under the Medicare and Medicaid programs are indexed for inflation annually; however, the increases have historically been less than actual inflation. On October 1, 2009 and 2008, the base Medicare payment rates for hospice care increased by approximately 2.1% and 3.6%, respectively, over the base rates previously in effect. These rates were further adjusted geographically by the hospice wage index. On July 31, 2008, CMS published the final rule that modified the hospice wage index by phasing out over a three year period the BNAF used in computing the hospice wage index. According to the final rule, the phase-out would occur over a three year period beginning on October 1, 2008, with 25% of the phase-out becoming effective on October 1, 2008, 50% becoming effective on October 1, 2009 and the balance on October 1, 2010. As part of the American Recovery and Reinvestment Act of 2009, the implementation of the phase-out of the BNAF was delayed until October 1, 2009. CMS began paying providers the estimated 1.1% increase in hospice rates from October 1, 2008 in the middle of 2009. On July 30, 2009, CMS issued a final rule to update the Medicare hospice wage index and to re-implement the phase-out of the BNAF beginning on October 1, 2009. The phase-out of the BNAF will now occur over a seven year period, 10% in the first year and an additional 15% in each of the following six years. On July 22, 2010 CMS announced that effective October 1, 2010 base payment rates to Medicare participating hospices will increase by approximately 1.8%. This increase includes the effect of the second year phase-out of the BNAF used in computing the hospice wage index. On July 23, 2010 CMS also announced that the Medicare cap amount is $23,875 for the 2010 cap year which is from November 1, 2009 through October 31, 2010.

In March of 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, “PPACA”) was signed into law. The PPACA dramatically alters the United States health care system and is intended to decrease the number of uninsured Americans and reduce overall health care costs, in part through an overall reduction in Medicare and Medicaid program spending. The PPACA also contains a number of measures that are intended to reduce fraud and abuse in the Medicare and Medicaid programs, such as requiring the use of recovery audit contractors in the Medicaid program and the expansion of False Claims Act liability for the knowing failure to report and return an overpayment within 60 days of identifying the overpayment or by the date a corresponding cost report is due, whichever is later.

The PPACA includes a number of provisions that will affect providers of hospice services such as us. The provisions included in the PPACA that directly affect hospices are described below:

	•		Beginning on October 1, 2012 the annual market basket rate increase for hospice providers will be reduced by the sum of (i) 0.3% and (ii) a productivity adjustment.
	•		Beginning on or before January 1, 2011, the Secretary of the Department of Health and Human Services must collect various data and update Medicare hospice claims forms and cost reports, which

	•		Beginning on October 1, 2012 the annual market basket rate increase for hospice providers will be reduced by the sum of (i) 0.3% and (ii) a productivity adjustment.

	•		Beginning on or before January 1, 2011, the Secretary of the Department of Health and Human Services must collect various data and update Medicare hospice claims forms and cost reports, which data and information are to be used to implement revisions to the methodology to determine, in regulation, Medicare hospice payment rates for routine home care and other services included in hospice care no earlier than October 1, 2013.

	•		Beginning on or after January 1, 2011, a hospice physician or nurse practitioner must have and attest to a face-to-face encounter with each hospice patient to determine continued eligibility for Medicare hospice services prior to the 180^th day recertification date and each subsequent 60 day recertification date.

	•		Beginning on or after January 1, 2011, the Secretary shall establish a medical review procedure for hospice patients who have received hospice services from a hospice program for more than 180 days if the aggregate number of such long length of stay cases for a particular program exceeds a certain percentage as will be determined by the Secretary.

	•		Beginning October 1, 2013, hospice providers will be required to report quality measures. The failure to report such measures would result in a 2% reduction in the annual market basket rate increase for the following year.

31 Many of the above hospice provisions will require significant regulatory and other Medicare and Medicaid program actions to implement. For many of the PPACA provisions, we cannot determine the impact of these changes on our operations and profitability until the implementing regulations are issued. We believe that the reduction in the annual market basket rate increase could negatively affect our margins if corresponding cost savings

~~data~~on ~~and~~our ~~information~~operations are tonot berealized. ~~used~~Additionally, ~~to implement revisions to~~ the ~~methodology~~changes toafter ~~determine~~October 1, in2013 ~~regulation,~~to the Medicare ~~hospice~~ payment ~~rates~~methodology for routine home care and other services ~~included~~may result in ~~hospice~~lower reimbursement ~~care no earlier than October 1~~rates, ~~2013.~~but •we ~~Beginning~~cannot onpredict or after January 1, 2011, a hospice physician or nurse practitioner must have and attest to a face-to-face encounter with each hospice patient to determine continued eligibility for Medicare hospice services prior to the ~~180th~~materiality ~~day recertification date and each subsequent 60 day recertification date. • Beginning on~~ or ~~after~~effect ~~January 1, 2011, the Secretary shall establish a medical review procedure for hospice patients who have received hospice services from a hospice program for more than 180 days if the aggregate number~~ of ~~such~~those ~~long~~changes ~~length~~at ofthis ~~stay cases for a particular program exceeds a certain percentage as will be determined by the Secretary~~time. • Beginning October 1, 2013, hospice providers will be required to report quality measures. The failure to report such measures would result in a 2% reduction in the annual market basket rate increase for the following year.

Many of the above hospice provisions will require significant regulatory and other Medicare and Medicaid program actions to implement. For many of the PPACA provisions, we cannot determine the impact of these changes on our operations and profitability until the implementing regulations are issued. We believe that the reduction in the annual market basket rate increase could negatively affect our margins if corresponding cost savings on our operations are not realized. Additionally, the changes after October 1, 2013 to the Medicare payment methodology for routine home care and other services may result in lower reimbursement rates, but we cannot predict the materiality or effect of those changes at this time.

We cannot predict at this time whether any additional healthcare reform initiatives will be implemented or whether other changes in the administration of governmental healthcare programs, including the potential elimination of Medicaid hospice benefits in some states, or interpretations of governmental policies or other changes affecting the healthcare system will occur. Reductions in amounts paid by government programs for our services or changes in regulations or other Medicare or Medicaid requirements governing payments or delivery of care could cause our net patient service revenue and profits to materially decline.

In addition, we expect to incur administrative costs in monitoring changes resulting from the healthcare reform legislation, determining the appropriate actions to be taken in response to those changes, and implementing the required action to meet the new requirements and minimize the repercussions of the changes to our organization, reimbursement rates and costs.

INFLATION

The healthcare industry is labor intensive. Wages and other expenses increase during periods of inflation and when labor shortages occur in the marketplace. In addition, suppliers pass along rising costs to us in the form of higher prices. We have implemented cost control measures designed to curb increases in operating expenses. However, if our operating expenses increase more rapidly due to inflationary pressures than our rate increases and growth in patient census, this could put pressure on our operating margins. We cannot predict our ability to cover or offset future cost increases.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

~~Changes~~We inare ~~interest~~exposed ~~rates~~to ~~would~~market ~~affect~~risks ~~the~~primarily ~~fair~~from ~~value~~changes ofin ~~our~~interest ~~fixed rate debt instruments, but would not have an impact on our earnings or cash flow~~rates. We currently have $~~113~~110.65 million of debt instruments, of which $60.0 million are fixed rate debt instruments. A fluctuation of 100 basis points in interest rates on our variable rate debt instruments, which are tied to the LIBOR, would affect our earnings and cash flows by $0.5 million (pre-tax) per year~~, but would not affect the fair value of the variable rate debt~~.

ITEM 4. CONTROLS AND PROCEDURES

As required by Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we have evaluated, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2010. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Based upon the evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of June 30, 2010 at the reasonable assurance level.

32 There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15a-15(f) under the Exchange Act) that occurred during the quarter ended June 30, 2010, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2010. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Based upon the evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of March 31, 2010 at the reasonable assurance level.

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15a-15(f) under the Securities Exchange Act of 1934) that occurred during the quarter ended March 31, 2010, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On February 14, 2008, we received a letter from the Medicaid Fraud Control Unit of the Texas Attorney General’s office notifying us that it is conducting an investigation concerning Medicaid hospice services provided by us, including our practices with respect to patient admission and retention, and requesting medical records of approximately 50 patients served by our programs in the State of Texas. Based on the preliminary stage of this investigation and the limited information that we have at this time, we cannot predict the outcome of this investigation, the Texas Attorney General’s views of the issues being investigated, any actions that the Texas Attorney General may take or the impact, if any, that the investigation may have on our business, results of operations, liquidity or capital resources. We believe that we are in material compliance with the rules and regulations applicable to the Texas Medicaid hospice program.

~~On May 5, 2008, we received a letter from the United States Department of Justice (“DOJ”)~~36 notifying us that it is conducting an investigation of VistaCare and requesting that we provide certain information and documents related to its investigation of claims submitted by VistaCare to Medicare, Medicaid and TRICARE from January 1, 2003 through March 6, 2008, the date we completed the acquisition of VistaCare. We were informed that the DOJ and the Medicaid Fraud Control Unit of the Texas Attorney General’s Office are reviewing allegations that VistaCare may have billed the federal Medicare, Medicaid and TRICARE programs for hospice services that were not reasonably or medically necessary or performed as claimed. The basis of the investigation is a qui tam lawsuit filed in the United States District Court for the Northern District of Texas by a former employee of VistaCare. The lawsuit was unsealed on October 5, 2009 and an amended compliant was served to us on January 28, 2010. The unsealed amended complaint also contained allegations regarding alleged violations of State laws in the States of Indiana, Massachusetts, Nevada, and New Mexico. In connection with the unsealing of the complaint, the DOJ filed a notice with the court declining to intervene in the qui tam action at this time. The Texas Attorney General also filed a notice of non-intervention with the court. While these actions should not be viewed as a final assessment by the DOJ or the Texas Attorney General of the merits of this qui tam action, we consider them to be positive developments. We continue to cooperate with the DOJ and the Texas Attorney General in their investigation of us. Based on the limited information that we have at this time, we cannot predict the outcome of the qui tam lawsuit or the related investigation, the DOJ’s or Texas Attorney General’s views of the issues being investigated other than the DOJ’s and Texas Attorney General’s notice declining to intervene in the qui tam action at this time, any actions that the DOJ or the Texas Attorney General may take or the impact, if any, that the investigation may have on our business, results of operations, liquidity or capital resources.

On January 5, 2009, we received a letter from the Georgia State Health Care Fraud Control Unit notifying us that it is conducting an investigation concerning Medicaid hospice services provided by VistaCare from 2003 through 2007, including VistaCare’s practices of providing or making available services related to patients’ terminal illnesses, and requesting certain documents. We are cooperating with the Georgia State Health Care Fraud Control Unit and have complied with the document request. Based on the preliminary stage of this investigation and the limited information that we have at this time, we cannot predict the outcome of the investigation, the Georgia State Health Care Fraud Control Unit’s views of the issues being investigated, any actions that the Georgia State Health Care Fraud Control Unit may take or the impact, if any, that the investigation may have on our business, results of operations, liquidity or capital resources.

On February 2, 2009, we received a subpoena from the HHS Office of Inspector General (“OIG”) requesting certain documents related to the United States Department of Justice’s (“DOJ”) and the OIG’s investigation of our provision of continuous care services to Medicare patients from January 1, 2004 through February 2, 2009. On September 9, 2009, we received a second subpoena from the OIG requesting medical records for certain Medicare patients who had been provided continuous care services by us during the same time period. We are cooperating

~~with~~Attorney ~~the DOJ~~General ~~and~~may ~~OIG~~take ~~and~~or ~~have complied with~~ the ~~subpoena~~impact, ~~requests.~~if ~~Based~~any, onthat the ~~preliminary stage of this~~ investigation ~~and~~may ~~the limited information that we~~ have aton ~~this time we cannot predict the~~our ~~outcome of the investigation~~business, ~~the~~results ~~OIG’s views~~ of ~~the issues being investigated~~operations, ~~any~~liquidity ~~actions~~or ~~that the~~capital ~~OIG~~resources. ~~may~~We ~~take~~believe orthat ~~the~~we ~~impact,~~are ifin ~~any,~~material compliance ~~that~~with the ~~investigation~~rules ~~may~~and ~~have~~regulations onapplicable ~~our~~to ~~business,~~the ~~results~~Texas ~~of operations,~~Medicaid ~~liquidity~~hospice ~~or capital resources~~program.

On May 5, 2008, we received a letter from the United States Department of Justice (“DOJ”) notifying us that it is conducting an investigation of VistaCare and requesting that we provide certain information and documents related to its investigation of claims submitted by VistaCare to Medicare, Medicaid and TRICARE from January 1, 2003 through March 6, 2008, the date we completed the acquisition of VistaCare. We were informed that the DOJ and the Medicaid Fraud Control Unit of the Texas Attorney General’s Office are reviewing allegations that VistaCare may have billed the federal Medicare, Medicaid and TRICARE programs for hospice services that were not reasonably or medically necessary or performed as claimed. The basis of the investigation is a qui tam lawsuit filed in the United States District Court for the Northern District of Texas by a former employee of VistaCare. The lawsuit was unsealed on October 5, 2009 and an amended complaint was served to us on January 28, 2010. The unsealed amended complaint also contained allegations regarding alleged violations of State laws in the Sates of Indiana, Massachusetts, Nevada, and New Mexico. In connection with the unsealing of the complaint, the DOJ filed a notice with the court declining to intervene in the qui tam action at this time. The Texas Attorney General also filed a notice of non-intervention with the court. While these actions should not be viewed as a final assessment by the DOJ or the Texas Attorney General of the merits of this qui tam action, we consider them to be positive developments. We continue to cooperate with the DOJ and the Texas Attorney General in their investigation of VistaCare. Based on the limited information that we have at this time, we cannot predict the outcome of the qui tam lawsuit or the related investigation, the DOJ’s or the Texas Attorney General’s views of the issues being investigated other than the DOJ’s and the Texas Attorney General’s notice declining to intervene in the qui tam action at this time, any actions that the DOJ or the Texas Attorney General may take or the impact, if any, that the investigation may have on our business, results of operations, liquidity or capital resources.

On February 2, 2009, we received a subpoena from the United States Department of Health and Human Services Office of Inspector General (“OIG”) requesting certain documents related to the United States Department of Justice’s (“DOJ”) and the OIG’s investigation of our provision of continuous care services to Medicare patients from January 1, 2004 through February 2, 2009. On September 9, 2009, we received a second subpoena from the OIG requesting medical records for certain Medicare patients who had been provided continuous care services by us during the same time period. We are cooperating with the DOJ and OIG and have complied with the subpoena requests. Based on the preliminary stage of this investigation and the limited information that we have at this time we cannot predict the outcome of the investigation, the OIG’s views of the issues being investigated, any actions that the OIG may take or the impact, if any, that the investigation may have on our business, results of operations, liquidity or capital resources.

On March 5, 2009, we received a notice submitted on behalf of Ronaldo Ramos to the California Labor & Workforce Development Agency regarding his intent to file a claim for penalties pursuant to the California Private Attorney General Act for alleged violations of the California Labor Code. Ramos is a former employee of ours and alleges that he and others similarly situated were improperly paid for on-call hours. His notice indicates that he intends to seek to recover unpaid wages, overtime, penalties, punitive damages, interest, and attorney’s fees. We are not aware of him filing a lawsuit. We believe that we have complied with all regulations at issue, and intend to vigorously defend against the claims asserted. Because the matter is in its early stage, we cannot at this time estimate an amount or range of potential loss in the event of an unfavorable outcome.

We have been named in a ~~class~~collective action lawsuit filed on January 25, 2010, in the United ~~States~~ States District Court Southern District of Texas Houston Division by Bobby Blevins, a former employee, alleging failure to pay overtime to a purported class of similarly situated hourly-paid current and former nurse employees. The plaintiff seeks to recover unpaid overtime compensation, damages and attorney fees. We believe that we have complied with all ~~regulations at issue, and intend to~~ ~~vigorously defend against the claims asserted. Because of the early stage of this suit, we cannot at this time estimate an amount or range of potential loss in the event of an unfavorable outcome.~~

~~On February 23, 2010, we received an administrative subpoena for records from the OIG~~37 requesting various documents and certain patient records of one our hospice programs relating to services performed from January 1, 2006 through December 31, 2009. We are cooperating with the OIG and have completed our subpoena production. Because of the preliminary stage of this investigation and the limited information that we have at this time we cannot predict the outcome of the investigation, the OIG’s views of the issues being investigated, any actions that the OIG may take or the impact, if any, that the investigation may have on our business, results of operations, liquidity or capital resources.

FromTable time to time, we may be involved in other litigation matters relating to claims that arise in the ordinary course of its business. Although the ultimate liability for these matters cannot be determined, based on the information currently available to us, we do not believe that the resolution of these other litigation matters to which we are currently a party will have a material adverse effect on our business, results of operations or liquidity. Contents

regulations at issue, and intend to vigorously defend against the claims asserted. Because of the early stage of this suit, we cannot at this time estimate an amount or range of potential loss in the event of an unfavorable outcome.

On February 23, 2010, we received an administrative subpoena for records from the OIG requesting various documents and certain patient records of one of our hospice programs relating to services performed from January 1, 2006 through December 31, 2009. We are cooperating with the OIG and have completed our subpoena production. Because of the preliminary stage of this investigation and the limited information that we have at this time we cannot predict the outcome of the investigation, the OIG’s views of the issues being investigated, any actions that the OIG may take or the impact, if any, that the investigation may have on our business, results of operations, liquidity or capital resources.

Three lawsuits have been filed in connection with the Merger. The first, filed on May 27, 2010, is captioned Pompano Beach Police & Firefighters’ Retirement System v. Odyssey Healthcare, Inc., et al., Cause No. CC-10-03561-E in the County Court at Law No. 5 in Dallas County, Texas. The second, filed on June 9, 2010, is captioned Eric Hemminger, et al. v. Richard Burnham, et al., Cause No. DC-10-06982, in the 14th Judicial District Court, Dallas County, Texas. The third, filed on July 7, 2010, is captioned Hansen v. Odyssey Healthcare, Inc., et al., Case 3:10-cv-01305-G in the United States District Court for the Northern District of Texas. All three suits name us, the members of our board of directors, Gentiva, and Merger Sub as defendants. All three lawsuits are brought by purported stockholders of ours, both individually and on behalf of a putative class of stockholders, alleging that our board of directors breached its fiduciary duties in connection with the Merger by failing to maximize stockholder value, and that we and Gentiva aided and abetted the purported breaches. The Pompano Beach Police and Firefighters suit seeks additional proxy disclosures regarding the Merger. The petitions each seek equitable relief, including, among other things, to enjoin consummation of the Merger, rescission of the Merger Agreement, and an award of all costs of the action, including reasonable attorneys’ fees. We believe none of the suits has merit.

From time to time, we may be involved in other litigation and regulatory matters relating to claims that arise in the ordinary course of its business. Although the ultimate liability for these matters cannot be determined, based on the information currently available to us, we do not believe that the resolution of these other litigation and regulatory matters to which we are currently a party will have a material adverse effect on our business, results of operations or liquidity.

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2009, which could materially affect our business, financial condition or future results. Except as set forth below, we are currently unaware of any material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009; however, additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

We cannot predict the effect that health care reform and other changes in government programs may have on our business, financial condition, results of operations or cash flows.

In March of 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, “PPACA”) was signed into law. The PPACA dramatically alters the United States health care system and is intended to decrease the number of uninsured Americans and reduce overall health care costs, in part through an overall reduction in Medicare and Medicaid program spending. The PPACA contains a number of provisions designed to significantly reduce Medicare and Medicaid program spending, including reductions in Medicare market basket updates for hospice providers that are scheduled to take effect on October 1, 2012. The PPACA also contains a number of measures that are intended to reduce fraud and abuse in the Medicare and Medicaid programs, such as requiring the use of recovery audit contractors in the Medicaid program and the expansion of False Claims Act liability for the knowing failure to report and return an overpayment within 60 days of identifying the overpayment or by the date a corresponding cost report is due, whichever is later.

34 It is difficult to predict the full impact of the PPACA due to the law’s complexity and current lack of implementing regulations or interpretive guidance. Furthermore, many of the provisions of the PPACA will not become effective until October 1, 2012 or later and could be delayed or even blocked due to court challenges. Additionally, there may be efforts to repeal or amend the law. Because over 95% of our revenues are derived from

It is difficult to predict the full impact of the PPACA due to the law’s complexity and current lack of implementing regulations or interpretive guidance. Furthermore, many of the provisions of the PPACA will not become effective until October 1, 2012 or later and could be delayed or even blocked due to court challenges. Additionally, there may be efforts to repeal or amend the law. Because over 95% of our revenues are derived from government health care programs, principally Medicare and Medicaid, reductions in amounts paid by government programs for our services or changes in regulations or other Medicare or Medicaid requirements governing payments or delivery of care could cause our net patient service revenue and profits to materially decline. See “ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – PAYMENT, REGULATORY AND LEGISLATIVE CHANGES”

35 Risks Related to the Pending Merger with Gentiva

Completion of the Merger is subject to various conditions, and the Merger may not occur even if we obtain stockholder approval.

Consummation of the Merger is subject to customary conditions, including adoption of the Merger Agreement by the Company’s stockholders, the absence of legal restraints and the receipt of requisite antitrust approval. Each party’s obligation to consummate the Merger is also subject to the accuracy of the representations and warranties of the other party (subject to certain qualifications and exceptions) and the performance in all material respects of the other party’s covenants under the Merger Agreement, including, with respect to the Company, customary covenants regarding operation of the business of the Company and its subsidiaries prior to closing.

As a result of these conditions, and although we have received antitrust approval for the Merger, we cannot assure you that the Merger will be completed even if we obtain stockholder approval. If our stockholders do not approve the adoption of the Merger Agreement or if the Merger is not completed for any other reason, we expect that our current management, under the direction of our Board of Directors, will continue to manage the Company.

The Merger process could adversely affect our business.

Our efforts to complete the Merger could cause substantial disruptions in our business, which could have an adverse effect on our financial results. Among other things, uncertainty as to whether a transaction will be completed with Gentiva may affect our ability to recruit prospective employees or to retain and motivate existing employees. Employee retention may be particularly challenging while the merger is pending, because employees may experience uncertainty about their future roles with Gentiva.

Uncertainty as to the Company’s future could adversely affect our business and our relationship with vendors. For example, suppliers, customers and others that deal with the Company could defer decisions concerning the Company, or seek to change existing business relationships with the Company. Further, a substantial amount of the attention of management and employees is being directed toward the completion of the Merger and thus is being diverted from our day-to-day operations because matters related to the Merger (including integration planning) require substantial commitments of time and resources.

The failure to complete the Merger could adversely affect our business.

We cannot assure you that the Merger will occur by the October 29, 2010 deadline set forth in the Merger Agreement, or at all. For example, an injunction could be granted in any of the pending stockholder lawsuits against the Company (as described elsewhere in this Form 10-Q) preventing the proposed Merger from closing, or the requisite number of holders of our common stock may not approve the proposed Merger at the special meeting of our stockholders.

If the proposed Merger is not completed, the share price of our common stock will likely fall to the extent that the current market price of our common stock reflects an assumption that a transaction will be completed. In addition, under circumstances described in the Merger Agreement, we may be required to pay a termination fee of up to $28.9 million if the Merger Agreement is terminated. Further, the failure of the proposed Merger to be completed may result in negative publicity and/or a negative impression of us in the investment community and may affect our relationship with employees, vendors and other partners in the business community.

While the Merger Agreement is in effect, we are subject to restrictions on our business activities.

While the Merger Agreement is in effect, we are subject to restrictions on our business activities and must generally operate our business in the ordinary course consistent with past practice (subject to certain exceptions). These restrictions could prevent us from pursuing attractive business opportunities that arise prior to the completion

of the Merger and are generally outside the ordinary course of business, and otherwise have a material adverse effect on our future results of operations or financial condition.

We are subject to litigation related to the pending Merger.

While we believe that the claims made in these lawsuits are without merit and intend to defend such claims vigorously, there can be no assurance that we will prevail in their defense. Further, it is possible that additional claims beyond those that have already been filed will be brought by the current plaintiffs or by others in an effort to enjoin the proposed Merger or seek monetary relief from us. An unfavorable resolution of any such litigation surrounding the proposed Merger could delay or prevent the consummation of the proposed Merger. In addition, the cost to us of defending the litigation, even if resolved in our favor, could be substantial. Such litigation could also substantially divert the attention of our management and our resources in general.

ITEM 6. EXHIBITS

EXHIBIT
NUMBER		DESCRIPTION
2.1		Agreement and Plan of Merger, dated ~~January~~as 15of May 23, ~~2008~~2010, among Odyssey HealthCare, ~~Holding~~Inc. (the “Company”), ~~OHC~~Gentiva ~~Investment~~Health Services, Inc. and ~~VistaCare,~~GTO ~~Inc~~Acquisition Corp. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K as filed with the Securities and Exchange Commission (the “SEC”) on ~~January~~May 1524, ~~2008~~2010)(1)
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 SEC 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 SEC 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 SEC 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 Report on Form 8-K as filed with the SEC 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 SEC on August 2, 2001)
4.2		~~Second Amended and Restated Registration~~ Rights Agreement, dated ~~July~~November 15, ~~1998~~2001, bybetween ~~and among~~ Odyssey HealthCare, Inc. and ~~the~~Rights ~~security~~Agent ~~holders named therein~~ (incorporated by reference to Exhibit 4.31 to the Company’s Registration Statement on Form S8-1A ~~(Registration No. 333-51522)~~ as filed with the SEC on December 8, ~~2000~~2001)
4.3		~~Rights~~Form ~~Agreement~~of ~~dated~~Certificate ~~November~~of 5,Designation ~~2001,~~of ~~between~~Series ~~Odyssey~~A ~~HealthCare,~~Junior ~~Inc.~~Participating ~~and~~Preferred ~~Rights~~Stock ~~Agent~~ (~~incorporated~~included byas ~~reference to~~ Exhibit ~~4.1~~A to the ~~Company’s~~Rights ~~Registration~~Agreement ~~Statement~~(Exhibit on4.2 ~~Form 8-A as filed with the SEC on December 8, 2001~~hereto))
4.4		~~Form~~First ofAmendment ~~Certificate~~to ofthe ~~Designation~~Rights ofAgreement ~~Series~~dated ANovember ~~Junior~~5, ~~Participating~~2001, ~~Preferred~~between ~~Stock~~Odyssey ~~(included~~HealthCare, asInc. ~~Exhibit~~and ARights toAgent, ~~the~~dated ~~Rights~~May ~~Agreement~~23, 2010 (incorporated by reference to Exhibit 4.31 ~~hereto~~to the Company’s Current Report on Form 8-K as filed with the SEC on May 24, 2010))
31.1*		Certification required by Rule 13a-14(a), dated May 6, 2010, by Robert A. Lefton, Chief Executive Officer
10.1†		Third Amendment to Odyssey HealthCare, Inc. 2001 Equity-Based Compensation Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K as filed with the SEC) on May 11, 2010)
31.2*		Certification required by Rule 13a-14(a), dated May 6, 2010, by R. Dirk Allison, Chief Financial Officer
31.1*		Certification required by Rule 13a-14(a), dated July 28, 2010, by Robert A. Lefton, Chief Executive Officer
32.1**		Certification required by Rule 13a-14(b), dated May 6, 2010, by Robert A. Lefton, Chief Executive Officer, and R. Dirk Allison, Chief Financial Officer
31.2*		Certification required by Rule 13a-14(a), dated July 28, 2010, by R. Dirk Allison, Chief Financial Officer

* Filed herewith. ** Furnished herewith.41


EXHIBIT
NUMBER		DESCRIPTION

32.1**		Certification required by Rule 13a-14(b), dated July 28, 2010, by Robert A. Lefton, Chief Executive Officer, and R. Dirk Allison, Chief Financial Officer


*		Filed herewith.

**		Furnished herewith.

†		Management contract or compensatory plan or arrangement.

(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.

SIGNATURES

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

	ODYSSEY HEALTHCARE, INC.
Date: May 6, 2010	By:	/s/ Robert A. Lefton
Date: July 28, 2010	By:	/s/ Robert A. Lefton
		Robert A. Lefton
		President and Chief Executive Officer
Date: May 6, 2010	By:	/s/ R. Dirk Allison
Date: July 28, 2010	By:	/s/ R. Dirk Allison
		R. Dirk Allison
		Senior Vice President, Chief Financial Officer, Treasurer and Assistant Secretary (Principal Financial and Chief Accounting Officer)

3743

EXHIBIT INDEX

EXHIBIT
NUMBER		DESCRIPTION
2.1		Agreement and Plan of Merger, dated ~~January~~as 15of May 23, ~~2008~~2010, among Odyssey HealthCare, ~~Holding~~Inc. (the “Company”), ~~OHC~~Gentiva ~~Investment~~Health Services, Inc. and ~~VistaCare,~~GTO ~~Inc~~Acquisition Corp. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K as filed with the Securities and Exchange Commission (the “SEC”) on ~~January~~May 1524, ~~2008~~2010)(1)
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 SEC 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 SEC 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 SEC 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 Report on Form 8-K as filed with the SEC 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 SEC on August 2, 2001)
4.2		~~Second Amended and Restated Registration~~ Rights Agreement, dated ~~July~~November 15, ~~1998~~2001, bybetween ~~and among~~ Odyssey HealthCare, Inc. and ~~the~~Rights ~~security~~Agent ~~holders named therein~~ (incorporated by reference to Exhibit 4.31 to the Company’s Registration Statement on Form S8-1A ~~(Registration No. 333-51522)~~ as filed with the SEC on December 8, ~~2000~~2001)
4.3		~~Rights~~Form ~~Agreement~~of ~~dated~~Certificate ~~November~~of 5,Designation ~~2001,~~of ~~between~~Series ~~Odyssey~~A ~~HealthCare,~~Junior ~~Inc.~~Participating ~~and~~Preferred ~~Rights~~Stock ~~Agent~~ (~~incorporated~~included byas ~~reference to~~ Exhibit ~~4.1~~A to the ~~Company’s~~Rights ~~Registration~~Agreement ~~Statement~~(Exhibit on4.2 ~~Form 8-A as filed with the SEC on December 8, 2001~~hereto))
4.4		~~Form~~First ofAmendment ~~Certificate~~to ofthe ~~Designation~~Rights ofAgreement ~~Series~~dated ANovember ~~Junior~~5, ~~Participating~~2001, ~~Preferred~~between ~~Stock~~Odyssey ~~(included~~HealthCare, asInc. ~~Exhibit~~and ARights toAgent, ~~the~~dated ~~Rights~~May ~~Agreement~~23, 2010 (incorporated by reference to Exhibit 4.31 ~~hereto~~to the Company’s Current Report on Form 8-K as filed with the SEC on May 24, 2010))
31.1*		Certification required by Rule 13a-14(a), dated May 6, 2010, by Robert A. Lefton, Chief Executive Officer
10.1†		Third Amendment to Odyssey HealthCare, Inc. 2001 Equity-Based Compensation Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K as filed with the SEC) on May 11, 2010)
31.2*		Certification required by Rule 13a-14(a), dated May 6, 2010, by R. Dirk Allison, Chief Financial Officer
31.1*		Certification required by Rule 13a-14(a), dated July 28, 2010, by Robert A. Lefton, Chief Executive Officer
32.1**		Certification required by Rule 13a-14(b), dated May 6, 2010, by Robert A. Lefton, Chief Executive Officer, and R. Dirk Allison, Chief Financial Officer
31.2*		Certification required by Rule 13a-14(a), dated July 28, 2010, by R. Dirk Allison, Chief Financial Officer

* Filed herewith. ** Furnished herewith.44

38 Table of Contents


EXHIBIT
NUMBER		DESCRIPTION

32.1**		Certification required by Rule 13a-14(b), dated July 28, 2010, by Robert A. Lefton, Chief Executive Officer, and R. Dirk Allison, Chief Financial Officer


*		Filed herewith.

**		Furnished herewith.

†		Management contract or compensatory plan or arrangement.

(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.

Filing Compare · ODYSSEY HEALTHCARE INC