##### Table of Contents





UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, D.C.
    20549
  Form 10-K
  ANNUAL REPORT
 PURSUANT TO SECTIONS 13 OR
    15(d)
 OF THE SECURITIES EXCHANGE ACT
    OF 1934
  þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2007oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to   Commission file number: 0-8082
 LHC GROUP, INC.
 (Exact Name of Registrant as
    Specified in Charter)
  Delaware

71-0918189(State or Other Jurisdiction
    of

(I.R.S. EmployerIncorporation or
    Organization)

Identification
    No.)   420 West Pinhook Rd, Suite A
 Lafayette, Louisiana 70503
 (Address of principal executive
    offices)
  (337) 233-1307
 (Registrants telephone number, including area code)
 Securities registered pursuant to Section 12(b) of the
    Exchange Act:
  Common Stock, par value $.001 per share

NASDAQ Global Select Market(Title of each class)

(Name of each exchange on which registered)   Securities registered pursuant to Section 12(g) of the
    Exchange Act:
 None
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
    Large accelerated filer
    o

Accelerated filer
    þ

Non-accelerated
    filer o

Smaller reporting
    Company oDo not check if a smaller reporting company)   Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE
  Form 10-K. Form 10-K.




---



##### 





LHC
    GROUP, INC.
  TABLE OF
    CONTENTS
   
 PagePART I.Item 1.


Business


5Item 1A.


Risk Factors


27Item 1B.


Unresolved Staff Comments


39Item 2.


Properties


39Item 3.


Legal Proceedings


39Item 4.


Submission of Matters to a Vote of Security
    Holders


39PART II.Item 5.


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


39Item 6.


Selected Financial Data


41Item 7.


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


42Item 7A.


Quantitative and Qualitative Disclosures About
    Market Risk


61Item 8.


Financial Statements and Supplementary Data


61Item 9.


Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


61Item 9A.


Controls and Procedures


61Item 9B.


Other Information


65PART III.Item 10.


Directors, Executive Officers and Corporate
    Governance


65Item 11.


Executive Compensation


65Item 12.


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


65Item 13.


Certain Relationships and Related Transactions
    and Director Independence


66Item 14.


Principal Accounting Fees and Services


66PART IV.Item 15.


Exhibits, Financial Statement Schedules


67Signatures


68Exhibit Index


70EX-21.1 SUBSIDIARIES OF THE REGISTRANTEX-23.1 CONSENT OF ERNST & YOUNG LLPEX-31.1 CERTIFICATION OF KEITH G. MYERSEX-31.2 CERTIFICATION OF PETER J. ROMANEX-32.1 CERTIFICATION OF THE CEO AND CFO   2




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
    our expectations regarding financial condition or results of
    operations for periods after December 31, 2007;
    our critical accounting policies;
    our business strategies and our ability to grow our business;
    our participation in the Medicare and Medicaid programs;
    the reimbursement levels of Medicare and other third-party
    payors;
    the prompt receipt of payments from Medicare and other
    third-party payors;
    our future sources of and needs for liquidity and capital
    resources;
    our ability to obtain financing;
    our ability to make payments as they become due;
    the outcomes of various routine and non-routine governmental
    reviews, audits and investigations;
    our expansion strategy, the successful integration of recent
    acquisitions and, if necessary, the ability to relocate or
    restructure our current facilities;
    the value of our propriety technology;
    our ability to maintain a secure and current IT infrastructure;
    the impact of legal proceedings;
    our insurance coverage;
    the costs of medical supplies;
    our competitors and our competitive advantages;
    our ability to attract and retain valuable employees;
    the payment of dividends;
    the price of our stock;
    our compliance with environmental, health and safety laws and
    regulations;
    our compliance with health care laws and regulations;
    our compliance with SEC laws and regulations and Sarbanes-Oxley
    requirements;
    the impact of federal and state government regulation on our
    business; and
    the impact of changes in or future interpretations of fraud,
    anti-kickback or other laws.   3




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Form 10-K Form 10-K,
     4




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PART I  Item 1.
    Business  Overview
        (337) 233-1307
 5




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Industry
    and Market Opportunity
      
    a U.S. population that is getting older and living longer;
    patient preference for less restrictive care settings;
    incentives for general acute care hospitals to discharge
    patients into less intensive treatment settings as quickly as
    medically appropriate;
    higher incidences of chronic conditions and disease; and
    a continued movement of institutionalized people into home and
    community-based care.       6




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Business
    Strategy
    Drive internal growth in existing markets.
  Achieve margin improvement through the active management of
    costs.
  Expand into new markets.
  Pursue strategic acquisitions.
  Services
    Home-Based
    Services
  Home Nursing.
 7




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and/or
  Hospice.
  Facility-Based
    Services
  Long-term Acute Care Hospitals.
  Rehabilitation Services.
 8




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speech-language
  Operations
    Home-Based
    Services
    his/her
  on-site
  Facility-Based
    Services
  Long-Term Acute Care Hospitals.
 9




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on-site
  Rehabilitation Services. on-site
  on-site
  Joint
    Ventures
    Equity
    Joint Ventures
     10




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Agency
    Leasing Arrangements
    Management
    Services Agreements
    Competition
   11




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Compliance
    and Quality Control
    
    the appointment of a compliance officer and committee;
    adoption of codes of business conduct and ethics;
    employee education and training;
    monitoring of an internal system, including a toll-free hotline,
    for reporting concerns on a confidential, anonymous basis;
    ongoing internal compliance auditing and monitoring programs;
    means for enforcing the compliance programs
    policies; and
    a system to respond to and correct detected problems.  follow-up
    
    ongoing education of staff and quarterly continuous quality
    improvement meetings at each of our agencies and facilities and
    at our home office;
    quarterly comprehensive audits of patient charts performed by
    each of our agencies and facilities; and
    at least annually, a comprehensive audit of patient charts
    performed on each of our agencies and facilities by our home
    office staff.  follow-up
     12




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Technology
    and Intellectual Property
          Reimbursement
  Medicare
    Home Nursing.
 13




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60-day change-in-condition
    60-day
  60-day
 14




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60-day 60-day
    Hospice. 90-day 60-day
    
    Routine Home Care.  The base rate is $135.11
    per day for routine home care, adjusted by the hospice wage
    index depending on the geographic location. We are paid the
    routine home care rate for each day a patient is under our care
    and not receiving one of the other categories of hospice care.
    This rate is not adjusted for the volume or intensity of care
    provided on a given day. This rate is also paid when a patient
    is receiving hospital care for a condition unrelated to the
    terminal condition.
    General Inpatient Care.  The base rate is
    $601.02 per day for general inpatient care, adjusted by the
    hospice wage index depending on the geographic location.
    Continuous Home Care.  The base rate is $788.55
    per day for continuous home care, adjusted by the hospice wage
    index depending on the geographic location. This daily
    continuous home care rate is divided by 24 in order to arrive at
    an hourly rate. The hourly rate is paid for every hour that
    continuous home care is furnished, up to 24 hours in a
    single day. A minimum of eight hours must be provided in a
    single day to qualify for this rate.
    Respite Care.  The base rate is $139.76 per day
    for respite care, adjusted by the hospice wage index depending
    on the geographic location. Respite care is provided when the
    family or caregiver of a patient requires temporary relief from
    his or her care giving responsibilities for certain reasons. We
    can 15




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receive payment for respite care provided to a given patient for
    up to five consecutive days. Our payment for any additional days
    of respite care provided to the patient is limited to the
    routine home care rate.  80-20 12-month program-by-program
  12-month program-by-program
    Long-term Acute Care Hospitals.
     16




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15-month
     17




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Allowable Admissionsfrom Host HospitalBefore PaymentReductionCost Report Period Beginning

MSAs


Non-MSAsUntil September 30, 2005


100.0
%


100.0
%October 1, 2005  September 30, 2006


75.0
%


75.0
%October 1, 2006  September 30, 2007


50.0
%


50.0
%October 1, 2007  and thereafter


25.0
%


50.0
%           Outpatient Rehabilitation Services. speech-language
 18




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Inpatient Rehabilitation Facilities.
  Medicaid
    Non-Governmental
    Payors
   19




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Government
    Regulations
  General
    
    Medicare and Medicaid participation and reimbursement;
    the federal Anti-Kickback Statute and similar state laws;
    the federal Stark Law and similar state laws;
    false and other improper claims;
    the Health Insurance Portability and Accountability Act of 1996
    (HIPAA);
    civil monetary penalties;
    environmental health and safety laws;
    licensing; and
    certificates of need and permits of approval.    Medicare
    Participation
     20




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Anti-Kickback
    Statute
          Fraud and Abuse in Nursing Home
    Arrangements with Hospices.
    Stark
    Law
   21




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22




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False
    and Improper Claims
  and/or
  Anti-fraud
    Provisions of the HIPAA
      Administrative
    Simplification Provisions of HIPAA
   23




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
    obtain patient authorization prior to certain uses or
    disclosures of protected health information;
    provide notice of privacy practices to patients and obtain an
    acknowledgement that the patient has received the notice;
    respond to requests from patients for access to or to obtain a
    copy of their protected health information;
    respond to patient requests for amendments of their protected
    health information;
    provide an accounting to patients of certain disclosure of their
    protected health information;
    enter into agreements with the companies business
    associates through which the business associates agree to use
    and disclose protected health information only as permitted by
    the agreement and the requirements of the privacy regulations;
    train the companies workforce in privacy compliance;
    designate a privacy officer;
    use and disclose only the minimum necessary information to
    accomplish a particular purpose; and
    establish policies and procedures with respect to uses and
    disclosures of protected health information.      
    conduct a thorough assessment of the potential risks and
    vulnerabilities to confidentiality, integrity and availability
    of electronic protected health information and to reduce the
    risks and vulnerabilities to a reasonable and appropriate level
    as required by the security regulations;
    designate a security officer;
    establish policies relating to access by the companies
    workforce to electronic protected health information;
    enter into agreements with the companies business
    associates whereby business associates agree to establish
    administrative, physical and technical safeguards for electronic
    protected health information received from or on behalf of the
    companies; 24




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
    create a disaster and contingency plan to ensure the
    availability of electronic protected health information;
    train the companies workforce in security compliance;
    establish physical controls for electronic devices and media
    containing or transmitting electronic protected health
    information;
    establish policies and procedures regarding the use of
    workstations with access to electronic protected health
    information; and
    establish technical controls for the information systems
    maintaining or transmitting electronic protected health
    information.    Civil
    Monetary Penalties
        
    for physician services that the person or entity knew or should
    have known were rendered by a person who was unlicensed, or
    misrepresented either (1) his or her qualifications in
    obtaining his or her license or (2) his or her
    certification in a medical specialty;
    for services furnished by a person who was, at the time the
    claim was made, excluded from the program to which the claim was
    made; or
    that show a pattern of medically unnecessary items or services.    Environmental
    Health and Safety Laws
   25




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Licensing
        Certificate
    of Need and Permit of Approval Laws
      Employees
   26




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Insurance
    Available
    Information
  Form 10-K, Form 10-Q, Form 8-K,
  Item 1A.
    Risk
    Factors  You should carefully consider the risks described below
    before investing in the Company. The risks and uncertainties
    described below are notthe only ones we face. Other
    risks and uncertainties that we have not predicted or assessed
    may also adversely affect us.
  If any of the following risks occurs, our earnings, financial
    condition or business could be materially harmed and the trading
    price of our common stock could decline, resulting in the loss
    of all or part of your investment.
  More
    than 80 percent of our net service revenue is derived from
    Medicare. If there are changes in Medicare rates or methods
    governing Medicare payments for our services, or if we are
    unable to control our costs, our net service revenue and net
    income could decline materially.
    
    administrative or legislative changes to the base rates under
    the applicable prospective payment systems;
    the reduction or elimination of annual rate increases;
    the imposition or increase by Medicare of mechanisms, such as
    co-payments, shifting more responsibility for a portion of
    payment to beneficiaries;
    adjustments to the relative components of the wage index used in
    determining reimbursement rates;
    changes to case mix or therapy thresholds; 27




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
    the reclassification of home health resource groups or long-term
    care diagnosis-related groups; or
    further limitations on referrals to long-term acute care
    hospitals from host hospitals.    We are
    subject to extensive government regulation. Any changes in the
    laws governing our business, or the interpretation and
    enforcement of those laws or regulations, could cause us to
    modify our operations and could negatively impact our operating
    results.
    
    agency, facility and professional licensure and certificates of
    need and permits of approval;
    conduct of operations, including financial relationships among
    health care providers, Medicare fraud and abuse and physician
    self-referral;
    maintenance and protection of records, including HIPAA;
    environmental protection, health and safety;
    certification of additional agencies or facilities by the
    Medicare program; and
    payment for services.     28




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If any
    of our agencies or facilities fail to comply with the conditions
    of participation in the Medicare program, that agency or
    facility could be terminated from Medicare, which would
    adversely affect our net service revenue and net
    income.
      CMS
    has adopted regulations that could materially and adversely
    impact the revenue and net income of our long-term acute care
    hospitals.
     29




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Legislative
    initiatives could negatively impact our operations and financial
    results.
    More
    than 50 percent of our net service revenue is currently
    generated in Louisiana, making us particularly sensitive to
    economic and other conditions in that state.
    Hurricanes
    or other adverse weather events could negatively affect our
    local economies or disrupt our operations, which could have an
    adverse effect on our business or results of
    operations.
   30




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If we
    are unable to maintain relationships with existing referral
    sources or establish new referral sources, our growth and net
    income could be adversely affected.
    Delays
    in reimbursement may cause liquidity problems.
    The
    termination of a large number of managed care contracts in the
    fourth quarter of 2007 may lead to a decrease in
    revenues.
    Our
    allowance for contractual adjustments and doubtful accounts may
    not be sufficient to cover uncollectible amounts.
   31




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
    adverse changes in our estimates as a result of changes in payor
    mix and related collection rates;
    inability to collect funds due to missed filing deadlines or
    inability to prove that timely filings were made;
    adverse changes in the economy generally exceeding our
    expectations; or
    unanticipated changes in reimbursement from Medicare, Medicaid
    and private insurance companies.    Possible
    changes in the case mix of patients, as well as payor mix and
    payment methodologies, may have a material adverse effect on our
    results of operations.
    The
    agreement governing our credit facility contains, and future
    debt agreements may contain, various covenants that limit our
    discretion in the operation of our business.
    
    incur more debt;
    redeem or repurchase stock, pay dividends or make other
    distributions;
    make certain investments;
    create liens;
    enter into transactions with affiliates;
    make unapproved acquisitions;
    merge or consolidate;
    transfer or sell assets; and
    make fundamental changes in our corporate existence and
    principal business.    If the
    structures or operations of our joint ventures are found to
    violate the law, our financial condition and consolidated
    results of operations could be materially adversely
    impacted.
   32




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
    the investment interest offered is not based upon actual or
    expected referrals by the hospital or physician;
    our joint venture partners are not required to make or influence
    referrals to the joint venture;
    at the time the joint venture is formed, each hospital or
    physician joint venture partner is required to make an actual
    capital contribution to the joint venture equal to the fair
    market value of its investment interest and is at risk to lose
    its investment;
    neither we nor the joint venture entity lends funds to or
    guarantees a loan to acquire interests in the joint venture for
    a hospital or physician; and
    distributions to our joint venture partners are based solely on
    their equity interests and not affected by referrals from the
    hospital or physician.        If we
    are required to either repurchase or sell a substantial portion
    of the equity interests in our joint ventures, our capital
    resources and financial condition could be materially, adversely
    impacted.
   33




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Shortages
    in qualified nurses and other health care professionals could
    increase our operating costs significantly or constrain our
    ability to grow.
    The
    loss of certain senior management could have a material adverse
    effect on our operations and financial
    performance.
    If we
    are subject to substantial malpractice or other similar claims,
    our net income could be materially, adversely
    impacted.
   34




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The
    application of state certificate of need and permit of approval
    regulations and compliance with federal and state licensing
    requirements could substantially limit our ability to operate
    and grow our business.
      We
    face competition, including from competitors with greater
    resources, which may make it difficult for us to compete
    effectively as a provider of post-acute health care
    services.
    If we
    are unable to protect the proprietary nature of our software
    systems and methodologies, our business and financial condition
    could be harmed.
   35




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Failure
    of, or problems with, our critical software or information
    systems could harm our business and operating
    results.
      Future
    acquisitions may be unsuccessful and could expose us to
    unforeseen liabilities.
      Our
    acquisition and internal development activity may impose strains
    on our existing resources.
    We may
    face increased competition for attractive acquisition and joint
    venture candidates.
   36




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We may
    be unable to secure the additional capital necessary to
    implement our growth strategy.
    We are
    a holding company with no operations of our own.
    Our
    executive officers and directors and their affiliates hold a
    substantial portion of our stock and could exercise significant
    influence over matters requiring stockholder approval,
    regardless of the wishes of other stockholders.
    Certain
    provisions of our charter, bylaws Delaware law and our
    stockholders rights plan may delay or prevent a change in
    control of our company.
    
    a staggered board of directors;
    limitations on persons authorized to call a special meeting of
    stockholders;
    the authorization of undesignated preferred stock, the terms of
    which may be established and shares of which may be issued
    without stockholder approval
    advance notice procedures required for stockholders to nominate
    candidates for election as directors or to bring matters before
    an annual meeting of stockholders; and
    a stockholders rights plan that includes a 20 percent
    threshold for triggering events, a three-year term for
    directors, an independent director evaluation provision
    (commonly known as a TIDE provision) and a
    stockholder redemption feature allowing stockholders to vote at
    a special meeting that would be called to consider qualified
    takeover offers. 37




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Our
    stock price may be volatile and your investment in our common
    stock could suffer a decline in value.
    
    our operating and financial performance;
    variances in our quarterly financial results compared to
    research analyst expectations;
    the depth and liquidity of the market for our common stock;
    future sales of our common stock or the perception that sales
    could occur;
    investor perception of our business, acquisitions and our
    prospects;
    developments relating to litigation or governmental
    investigations;
    changes or proposed changes in health care laws or regulations
    or enforcement of these laws and regulations, or announcements
    relating to these matters; or
    general economic and stock market conditions.  class-action
  We
    currently do not intend to pay dividends on our common stock
    and, consequently, your only opportunity to achieve a return on
    your investment is if the price of our common stock appreciates
    and you sell your shares.
    We
    incur costs as a result of being a public company.
   38




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If we
    identify deficiencies in our internal control over financial
    reporting, our business and our stock price could be adversely
    affected.
    Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties    Item 3.
    Legal
    Proceedings    Item 4.
    Submission
    of Matters to a Vote of Security Holders   PART II  Item 5.
    Market
    for Registrants Common Equity and Related Stockholder
    Matters and Issuer Purchases of Equity Securities  Holders
   39




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Dividend
    Policy
    Price
    Range of Common Stock
    High


Low2007Fourth Quarter

$
26.17


$
20.28Third Quarter


27.06



18.58Second Quarter


33.14



24.52First Quarter


33.00



24.15   High


Low2006Fourth Quarter

$
29.67


$
22.23Third Quarter


24.78



18.70Second Quarter


21.35



15.73First Quarter


18.39



13.70     The closing price of our common stock as reported by NASDAQ on
    March 5, 2008 was $17.01  Performance
    Graph
   40




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Item 6.
    Selected
    Financial Data    Year Ended December 31,2007


2006


2005


2004


2003(In thousands except share and per share data)Consolidated Statements of Income Data:Net service revenue

$
298,031


$
218,535


$
155,687


$
116,090


$
68,515Cost of service revenue


152,577



112,095



82,996



57,672



34,455Gross margin


145,454



106,440



72,691



58,418



34,060General and administrative expenses


106,795



71,115



46,519



35,168



23,411Impairment loss


















31Equity-based compensation expense(1)










3,856



1,788



864Operating income


38,659



35,325



22,316



21,462



9,754Interest expense


376



325



1,067



1,328



1,223Non-operating (income) loss, including gain on sale of assets


(1,073
)


(2,033
)


(574
)


13



(106
)Income from continuing operations before income taxes and
    minority interest and cooperative endeavor allocations


39,356



37,033



21,823



20,121



8,637Income tax expense


12,147



10,817



6,052



6,111



2,400Minority interest and cooperative endeavor allocations


5,984



4,795



4,545



4,158



2,837Income from continuing operations


21,225



21,421



11,226



9,852



3,400Loss from discontinued operations, net


(1,667
)


(1,464
)


(1,124
)


(851
)


(557
)Gain on sale of discontinued operations, net


31



637







312



Net income


19,589



20,594



10,102



9,313



2,843Change in the redemption value of redeemable minority interests


193



1,163



(1,476
)






Net income available to common stockholders

$
19,782


$
21,757


$
8,626


$
9,313


$
2,843Earnings per share-basic(2):Income from continuing operations

$
1.19


$
1.25


$
0.77


$
0.82


$
0.28Loss from discontinued operations


(0.09
)


(0.09
)


(0.08
)


(0.07
)


(0.04
)Gain on sale of discontinued operations, net






0.04







0.02



Net income


1.10



1.20



0.69



0.77



0.24Change in the redemption value of redeemable minority interests


0.01



0.07



(0.10
)






Net income available to common stockholders

$
1.11


$
1.27


$
0.59


$
0.77


$
0.24Earnings per share-diluted(2):Income from continuing operations

$
1.19


$
1.25


$
0.77


$
0.81


$
0.27Loss from discontinued operations


(0.09
)


(0.09
)


(0.08
)


(0.07
)


(0.04
)Gain on sale of discontinued operations, net






0.04







0.02



Net income


1.10



1.20



0.69



0.76



0.23Change in the redemption value of redeemable minority interests


0.01



0.07



(0.10
)






Net income available to common stockholders

$
1.11


$
1.27


$
0.59


$
0.76


$
0.23Weighted average shares outstanding(2):Basic


17,760,432



17,090,583



14,628,737



12,085,154



12,085,154Diluted


17,827,444



17,104,660



14,684,639



12,145,150



12,114,675Cash dividends declared per common share










.009



.039



.016   41




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As of December 31,2007


2006


2005


2004


2003(In thousands)Consolidated Balance Sheet Data:Cash

$
1,155


$
26,877


$
17,398


$
2,911


$
1,725Total assets


174,985



152,694



104,418



47,519



27,915Total debt


3,431



3,837



5,427



18,275



12,277Total stockholders equity


143,371



121,889



78,444



16,351



6,909     (1)
    
    Equity-based compensation expense is allocated as follows:  Year Ended December 31,2007

2006

2005

2004

2003(In thousands)Cost of service revenue

$



$



$
565


$
58


$
5General and administrative expenses










3,291



1,730



859Total equity-based compensation expense

$



$



$
3,856


$
1,788


$
864   (2)
    
    All references to shares and per share amounts have been
    retroactively restated to reflect our incorporation in the State
    of Delaware and to give effect to a three-for-two stock split
    with respect to our common stock as if such events occurred as
    of the beginning of the earliest period presented. See
    Note 1 to our consolidated financial statements.  Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  The following discussion and analysis contains
    forward-looking statements about our plans and expectations of
    what may happen in the future. Forward-looking statements are
    based on a number of assumptions and estimates that are
    inherently subject to significant risks and uncertainties and
    our results could differ materially from the results anticipated
    by our forward-looking statements as a result of many known or
    unknown factors, including, but not limited to, those factors
    discussed on pages 27 to 39 under the heading Risk
    Factors. Also, please read the cautionary notice regarding
    forward-looking statements set forth at the beginning of this
    annual report.
  Please read the following discussion in conjunction with our
    consolidated financial statements and the related notes
    contained elsewhere in this annual report on
    Form 10-K.
  Overview
    Segments
     42




---



##### Table of Contents



Development
    Activities
             43




---



##### Table of Contents



Long-Term Acute CareHospitals, Critical


Specialty andAccess Hospitals


OutpatientHome Nursing





and Inpatient


RehabilitationYear

Agencies


Hospices


Rehabilitation Facilities


ClinicsTotal at January 1, 2002


26



3



1



1Developed


1







2



Acquired


7



1







Total at December 31, 2002


34



4



3



1Developed


7



1



2



2Acquired


2



1



2



1











Total at December 31, 2003


43



6



7



4Developed


7







2



2Acquired


6











3Divested/Closed


(3
)


(3
)


(2
)


(2
)Total at December 31, 2004


53



3



7



7Converted














(1
)Developed


2







1



Acquired


16



1



1



2Total at December 31, 2005


71



4



9



8Developed


5











Acquired


31



2







1Divested/Closed


(1
)






(1
)


(3
)Total at December 31, 2006


106



6



8



6Developed


17











Acquired


22



3







1Divested/Closed


(1
)






(1
)


Total at December 31, 2007


144



9



7



7   Recent
    Developments
  Medicare
  Home-Based Services. 60-day
  60-day
 44




---



##### Table of Contents



60-day 60-day
    Facility-Based Services.
  15-month
  speech-language
 45




---



##### Table of Contents



Office
    of Inspector General
    Components
    of Expenses
  Cost
    of Service Revenue
    
    salaries and related benefits;
    transportation, primarily mileage reimbursement; and
    supplies and services, including payments to contract therapists.  General
    and Administrative Expenses
    
    home office, including salaries and related benefits, insurance,
    costs associated with advertising and other marketing
    activities, and rent and utilities;
    supplies and services, including accounting, legal and other
    professional services, and office supplies;
    depreciation; and
    provision for bad debts. 46




---



##### Table of Contents



2007 and
    2006 Operational Data
    Three Months


Three Months


Three Months


Three MonthsEnded


Ended


Ended


Ended


Year EndedMarch 31, 2007


June 30, 2007


September 30, 2007


December 31, 2007


December 31, 2007Home-Based Services Data:Average census


15,712



16,283



16,862



17,914



16,635Average Medicare census


11,642



12,222



12,767



13,734



12,560Admissions


10,615



10,825



11,216



11,080



43,736Medicare admissions


7,333



7,500



7,819



8,099



30,751Facility-Based Services Data:Patient days


11,674



11,453



11,202



11,489



45,818Outpatient visits


2,617



2,301



2,684



2,518



10,120   Three Months


Three Months


Three Months


Three MonthsEnded


Ended


Ended


Ended


Year EndedMarch 31, 2006


June 30, 2006


September 30, 2006


December 31, 2006


December 31, 2006Home-Based Services Data:Average census


9,138



9,807



13,029



14,073



12,982Average Medicare census


7,251



7,944



9,537



10,429



9,573Admissions


5,570



5,852



7,377



8,173



26,972Medicare admissions


4,018



4,210



5,225



5,685



19,138Facility-Based Services Data:Patient days


11,699



11,110



11,674



10,978



45,461Outpatient visits


8,775



5,157



4,287



2,907



21,126  47




---



##### Table of Contents



Consolidated
    Results of Operations
    Year Ended December 31,2007


2006


2005Net service revenue


100.0
%


100.0
%


100.0
%Cost of service revenue


51.2



51.3



53.3Gross margin


48.8



48.7



46.7General and administrative expenses


35.8



32.5



29.9Equity-based compensation expense










2.5Operating income


13.0



16.2



14.3Interest expense


0.1



0.2



0.7Non-operating income, including gain on sales of assets


(0.3
)


(0.9
)


(0.4
)Income tax expense


4.1



4.9



3.9Minority interest and cooperative endeavor allocations


2.0



2.2



2.9Income from continuing operations


7.1
%


9.8
%


7.2
%     Year Ended December 31,2007


2006


2005(In thousands, except for admissions, patient day and
    outpatient visit data)Home-Based Services Data:Net service revenue

$
244,107


$
164,701


$
105,588Cost of service revenue


118,451



79,070



51,255General and administrative expenses


88,532



55,700



33,650Equity-based compensation expense










2,699Operating income


37,124



29,931



17,984Average census


16,635



12,982



7,515Average Medicare census


12,560



9,573



6,177Total admissions


43,736



26,972



16,954Total Medicare admissions


30,751



19,138



12,645Facility-Based Services Data:Net service revenue

$
53,924


$
53,834


$
50,099Cost of service revenue


34,126



33,025



31,741General and administrative expenses


18,263



15,415



12,869Equity-based compensation expense










1,157Operating income


1,535



5,394



4,332Patient days


45,818



45,461



44,685Outpatient visits


10,120



21,126



41,877  48




---



##### Table of Contents



Year
    Ended December 31, 2007 Compared to Year Ended
    December 31, 2006
  Net
    Service Revenue
    Home-Based Services.
  2007


Organic


2007


2007


2007


2007


TotalOrganic(1)


Growth %


Same Store(2)


De Novo(3)


Acquired(4)


Total


Growth %Revenue

$
223,828



35.9
%

$
221,154


$
2,674


$
20,280


$
244,107



48.2
%Average Census


14,582



12.3
%


14,285



297



2,053



16,635



28.1
%Average Medicare Census


10,869



13.5
%


10,645



224



1,691



12,560



31.2
%Admissions


37,187



37.9
%


36,490



697



6,549



43,736



62.2
%Medicare Admissions


25,901



35.3
%


25,378



523



4,850



30,751



60.7
%Episodes


75,790



43.5
%


75,305



485



3,872



79,662



50.8
%     (1)
    
    Organic  combination of same store and de novo.(2)
    
    Same store  location that has been in service with
    the Company for at greater than 12 months.(3)
    
    De Novo  internally developed location that has been
    in service with the Company for 12 months or less.(4)
    
    Acquired  purchased location that has been in service
    with the Company for 12 months or less.  Facility-Based Services.
  Cost
    of Service Revenue
    Home-Based Services.
 49




---



##### Table of Contents



Facility-Based Services.
    General
    and Administrative Expenses
    Home-Based Services.
    Facility-Based Services.
    Non-operating
    income
   50




---



##### Table of Contents



Income
    Tax Expense
    Minority
    Interest and Cooperative Endeavor Allocations
    Discontinued
    Operations
    Year
    Ended December 31, 2006 Compared to Year Ended
    December 31, 2005
  Net
    Service Revenue
    Home-Based Services.
  51




---



##### Table of Contents



2006


Organic


2006


2006


2006


2006


TotalOrganic(1)


Growth %


Same Store(2)


De Novo(3)


Acquired(4)


Total


Growth %Revenue

$
136,508



29.3
%

$
131,945


$
4,563


$
28,193


$
164,701



56.0
%Average Census


9,497



26.4
%


9,248



249



3,485



12,982



72.7
%Average Medicare Census


7,386



19.6
%


7,176



210



2,187



9,573



55.0
%Admissions


18,755



10.6
%


17,765



990



8,217



26,972



59.1
%Medicare Admissions


14,089



11.4
%


13,364



725



5,049



19,138



51.3
%Episodes


46,969



24.2
%


45,589



1,380



5,844



52,813



39.7
%     (1)
    
    Organic  combination of same store and de novo.(2)
    
    Same store  location that has been in service with
    the Company for greater than 12 months.(3)
    
    De Novo  internally developed location that has been
    in service with the Company for 12 months or less.(4)
    
    Acquired  purchased location that has been in service
    with the Company for 12 months or less.  Facility-Based Services.
  Cost
    of Service Revenue
    Home-Based Services.
    Facility-Based Services.
 52




---



##### Table of Contents



General
    and Administrative Expenses
    Home-Based Services.
    Facility-Based Services.
    Equity-Based
    Compensation Expense
    Non-operating
    income
    Income
    Tax Expense
   53




---



##### Table of Contents



Minority
    Interest and Cooperative Endeavor Allocations
    Liquidity
    and Capital Resources
    
    Operating Results Our net income has a
    significant impact on our operating cash flows. Any significant
    increase or decrease in our net income could have a material
    impact on our operating cash flows.
    Start Up Costs Following the completion of an
    acquisition, we suspend billing Medicare and Medicaid claims
    until we receive the change of ownership and electronic funds
    transfer approvals. We also generally incur substantial start up
    costs in order to implement our business strategy. There is
    generally a delay between our expenditure of these start up
    costs and the increase in net service revenue and subsequent
    cash collections, which adversely affects our cash flows from
    operating activities.
    Timing of Payroll Our employees are paid
    bi-weekly on Fridays; therefore, operating cash flows decline in
    reporting periods that end on a Friday. Conversely, for those
    reporting periods ending on a day other than Friday, our cash
    flows are higher because we have not yet paid our payroll.
    Medical Insurance Plan Funding We are
    self-funded for medical insurance purposes. Any significant
    changes in the amount of insurance claims submitted could have a
    direct impact on our operating cash flows.
    Medical Supplies A significant expense
    associated with our business is the cost of medical supplies.
    Any increase in the cost of medical supplies, or in the use of
    medical supplies by our patients, could have a material impact
    on our operating cash flows.         54




---



##### Table of Contents



Indebtedness
        Eurodollar


Base RateLeverage Ratio

Margin


Margin< 1.00:1.00


1.75
%


(0.25
)%31.00:1.00
    < 1.50:100


2.00
%


0
%31.50:1.00
    < 2.00:1.00


2.25
%


0
%32.00:1.00


2.50
%


0
%      55




---



##### Table of Contents



Contingent
    Convertible Minority Interests
        and/or
  Commitments
    Payment due by periodLess Than








More ThanContractual Cash Obligation

Total


1 Year


1-3 Years


3-5 Years


5 Years(In thousands)Long-term debt (includes line of credit)

$
3,280


$
433


$
717


$
494


$
1,636Capital lease obligations


151



88



63







Operating leases


15,634



6,519



5,425



2,074



1,616Total contractual cash obligations

$
19,065


$
7,040


$
6,205


$
2,568


$
3,252    56




---



##### Table of Contents



Off-Balance
    Sheet Arrangements
    Critical
    Accounting Policies
    Principles
    of Consolidation
          2007


2006


2005Wholly owned subsidiaries


46.4
%


41.7
%


36.0
%Equity joint ventures


43.7



46.3



49.7License leasing arrangements


7.8



9.5



11.3Management services


2.1



2.5



3.0100.0
%


100.0
%


100.0
%     Equity
    Joint Ventures
   57




---



##### Table of Contents



License
    Leasing Arrangements
    Management
    Services
    Revenue
    Recognition
           58




---



##### Table of Contents



Accounts
    Receivable and Allowances for Uncollectible
    Accounts
         59




---



##### Table of Contents



Payor

0-30


31-60


61-90


91-120


121-150


151-180


181-240


241+


TotalMedicare

$
20,326


$
4,904


$
4,678


$
3,751


$
2,915


$
3,722


$
861


$
3,629


$
44,786Medicaid


7,292



1,111



938



840



958



1,040



309



3,083



15,571Other


3,228



2,799



2,321



1,012



1,151



1,113



1,051



5,954



18,629Total

$
30,846


$
8,814


$
7,937


$
5,603


$
5,024


$
5,875


$
2,221


$
12,666


$
78,986   Goodwill
    and Intangible Assets
      and/or
    Recently
    Issued Accounting Pronouncements
  Fair Value
    Measurements
  The
    Fair Value Option for Financial Assets and Financial
    Liabilities, Including an Amendment to SFAS 115 instrument-by-instrument
  Business Combinations
 60




---



##### Table of Contents



Noncontrolling Interests in Consolidated Financial
    Statements  An Amendment of ARB No. 51
  Item 7A.
    Quantitative
    and Qualitative Disclosures about Market Risk      Item 8.
    Financial
    Statements and Supplementary Data    Item 9.
    Changes
    In and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  Evaluation
    of Disclosure Control and Procedures
  Form 10-Q
   61




---



##### Table of Contents



Rule 13a-15(e)
  Managements
    Report on Internal Control Over Financial Reporting
  Rule 13a-15(f). Internal Control  Integrated Framework
      Form 10-K.
  Changes
    in Internal Control Over Financial Reporting
  Rule 13a-15(f)
 62




---



##### Table of Contents



63




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  
    INTERNAL CONTROL OVER FINANCIAL REPORTING
     Internal Control 
    Integrated Framework
               64




---



##### Table of Contents



Item 9B.
    Other
    Information   PART III  Item 10.
    Directors,
    Executive Officers and Corporate Governance  Executive
    Officers and Directors
    Compliance
    with Section 16(a) of the Exchange Act
    Code of
    Conduct and Ethics
    Item 11.
    Executive
    Compensation    Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters    Equity
    Compensation Plan Information
  (a)


(b)


(c)Number of SharesNumber of Shares to





Remaining Availablebe Issued Upon


Weighted-Average


for Future IssuanceExercise of


Exercise Price of


Under EquityOutstanding


Outstanding Price


Compensation PlansOptions, Warrants,


of Outstanding


(Excluding SecuritiesPlan Category

and Rights


Rights


Reflected in Column(a))Equity compensation plans approved by Stockholders:


19,000


$
17.20



933,910
(1)Equity compensation plans not approved by Stockholders:










Total


19,000


$
17.20



933,910  65




---



##### Table of Contents



(1)
    
    707,899 of these shares are reserved under the LHC Group, Inc.
    2005 Long-Term Incentive Plan and are available for issuance
    pursuant to the exercise or grant of stock options, stock
    appreciation rights, restricted stock, restricted stock units,
    performance shares or unrestricted stock. 226,011 of these
    shares are reserved and available for issuance under the 2006
    LHC Group, Inc. Employee Stock Purchase Plan.  Item 13.
    Certain
    Relationships and Related Transactions, and Director
    Independence    Item 14.
    Principal
    Accounting Fees and Services   66




---



##### 



PART IV  Item 15.
    Exhibits,
    Financial Statement Schedules  Form 10-K:
     
 Report of Independent Registered Public
    Accounting Firm


F-1Consolidated Balance Sheets as of
    December 31, 2007 and 2006


F-2For each of the three years in the period ended
    December 31, 2007, 2006 and 2005:Consolidated Statements of Income


F-3Consolidated Statements of Changes in
    Stockholders Equity


F-4Consolidated Statements of Cash Flows


F-5Notes to the Consolidated Financial Statements


F-6          Regulation S-K
 67




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM          Accounting for Uncertainty
    in Income Taxes  an Interpretation of FASB Statement
    No. 109 Share-Based Payment
  Internal Control-Integrated
    Framework
      F-1




---



##### Table of Contents



LHC
    GROUP, INC. AND SUBSIDIARIES
 CONSOLIDATED
    BALANCE SHEETS(Amounts
    in thousands, except share data)  As of December 31,2007


2006ASSETSCurrent assets:Cash

$
1,155


$
26,877Receivables:Patient accounts receivable, less allowance for uncollectible
    accounts of $8,953 and $5,769 at December 31, 2007 and
    2006, respectively


70,033



50,029Other receivables


2,425



3,401Amounts due from governmental entities


1,459



2,51873,917



55,948Deferred income taxes


2,946



1,935Prepaid expenses and other current assets


4,423



4,120Assets held for sale


556



1,171Total current assets


82,997



90,051Property, building and equipment, net


12,523



11,705Goodwill


62,227



39,681Intangible assets, net


14,055



8,262Other assets


3,183



2,995Total assets

$
174,985


$
152,694LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable and other accrued liabilities

$
6,103


$
5,903Salaries, wages and benefits payable


11,303



10,572Amounts due to governmental entities


3,162



3,223Income taxes payable


863



1,219Current portion of capital lease obligations


88



211Current portion of long-term debt


433



428Total current liabilities


21,952



21,556Deferred income taxes


3,243



2,104Capital lease obligations, less current portion


63



147Long-term debt, less current portion


2,847



3,051Minority interests subject to exchange contracts and/or put
    options


121



317Other minority interests


3,388



3,630Stockholders equity:Common stock  $0.01 par value:
    40,000,000 shares authorized; 20,725,713 and
    20,682,317 shares issued and 17,775,284 and
    17,732,258 shares outstanding at December 31, 2007 and
    2006, respectively


177



177Treasury stock  2,950,429 and 2,950,059 shares
    at cost at December 31, 2007 and 2006, respectively


(2,866
)


(2,856
)Additional paid-in capital


81,983



80,273Retained earnings


64,077



44,295Total stockholders equity


143,371



121,889Total liabilities and stockholders equity

$
174,985


$
152,694    F-2




---



##### Table of Contents



LHC
    GROUP, INC. AND SUBSIDIARIES
 CONSOLIDATED
    STATEMENTS OF INCOME

(Amounts in thousands, except share and per share data)  For the Year Ended December 31,2007


2006


2005Net service revenue

$
298,031


$
218,535


$
155,687Cost of service revenue


152,577



112,095



82,996Gross margin


145,454



106,440



72,691General and administrative expenses


106,795



71,115



46,519Equity-based compensation expense(1)










3,856Operating income


38,659



35,325



22,316Interest expense


376



325



1,067Non-operating (income) loss, including gain or loss on sales of
    assets


(1,073
)


(2,033
)


(574
)Income from continuing operations before income taxes and
    minority interest and cooperative endeavor allocations


39,356



37,033



21,823Income tax expense


12,147



10,817



6,052Minority interest and cooperative endeavor allocations


5,984



4,795



4,545Income from continuing operations


21,225



21,421



11,226Loss from discontinued operations (net of income tax benefit of
    $239, $897 and $688 in 2007, 2006 and 2005, respectively)


(1,667
)


(1,464
)


(1,124
)Gain on sale of discontinued operations (net of income taxes of
    $20 and $390 in 2007 and 2006, respectively)


31



637



Net income


19,589



20,594



10,102Change in the redemption value of redeemable minority interests


193



1,163



(1,476
)Net income available to common stockholders

$
19,782


$
21,757


$
8,626Earnings per share  basic:Income from continuing operations

$
1.19


$
1.25


$
0.77Loss from discontinued operations, net


(0.09
)


(0.09
)


(0.08
)Gain on sale of discontinued operations, net






0.04



Net income


1.10



1.20



0.69Change in the redemption value of redeemable minority interests


0.01



0.07



(0.10
)Net income available to common shareholders

$
1.11


$
1.27


$
0.59Earnings per share  diluted:Income from continuing operations

$
1.19


$
1.25


$
0.77Loss from discontinued operations, net


(0.09
)


(0.09
)


(0.08
)Gain on sale of discontinued operations, net






0.04



Net income


1.10



1.20



0.69Change in the redemption value of redeemable minority interests


0.01



0.07



(0.10
)Net income available to common shareholders

$
1.11


$
1.27


$
0.59Weighted average shares outstanding:Basic


17,760,432



17,090,583



14,628,737Diluted


17,827,444



17,104,660



14,684,639     (1)
    
    Equity-based compensation is allocated as follows:  2007

2006

2005Cost of service revenue

$



$



$
565General and administrative expenses










3,291Total equity-based compensation expense

$



$



$
3,856    F-3




---



##### Table of Contents



LHC
    GROUP, INC. AND SUBSIDIARIES
 CONSOLIDATED
    STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
    (Amounts in thousands, except share and per share
    data)  Common Stock


AdditionalIssued


Treasury


Paid-In


RetainedAmount


Shares


Amount


Shares


Capital


Earnings


TotalBalances at January 1, 2005

$
121



15,000,004


$
(2,242
)


2,914,850


$
4,421


$
14,051


$
16,351Net income






















10,102



10,102Dividends to stockholders ($0.009 per share)






















(139
)


(139
)Sale of 3,500,000 shares of common stock at the initial
    public offering price of $14 per share, net of underwriting
    discount and offering costs of $7,393


35



3,500,000











41,572







41,607Issuance of common stock to two joint venture partners upon
    conversion of their equity interests into shares of common stock


5



518,036











7,247







7,252Issuance of common stock upon conversion of outstanding KEEP
    units


5



481,680











5,239







5,244Issuance of nonvested stock






8,167











117







117Treasury shares redeemed for payment of income taxes










(614
)


35,209











(614
)Recording minority interest in joint venture at redemption value






















(1,476
)


(1,476
)Balances at December 31, 2005


166



19,507,887



(2,856
)


2,950,059



58,596



22,538



78,444Net income






















20,594



20,594Sale of 1,150,000 shares of common stock at $19.25 per
    share, net of underwriting discount and offering costs of $1,403


11



1,150,000











20,711







20,722Stock option compensation


















128







128Exercise of stock options






8,000











165







165Nonvested stock compensation


















484







484Issuance of nonvested stock






1,167











23







23Issuance of nonvested stock






8,167



















Issuance of common stock under Employee Stock Purchase Plan






7,096











166







166Change in redemption value of redeemable minority interest






















1,163



1,163Balances at December 31, 2006


177



20,682,317



(2,856
)


2,950,059



80,273



44,295



121,889Net income






















19,589



19,589Exercise of stock options






527



















Nonvested stock compensation


















1,125







1,125Issuance of nonvested stock






25,976











62







62Treasury shares redeemed to pay income tax










(10
)


370











(10
)Excess tax benefit  vesting of nonvested stock


















104







104Issuance of common stock under Employee Stock Purchase Plan






16,893











419







419Change in redemption value of redeemable minority interest






















193



193Balances at December 31, 2007

$
177



20,725,713


$
(2,866
)


2,950,429


$
81,983


$
64,077


$
143,371    F-4




---



##### Table of Contents



LHC
    GROUP, INC. AND SUBSIDIARIES
 CONSOLIDATED
    STATEMENTS OF CASH FLOWS
    (Amounts in thousands)  For the Year Ended December 31,2007


2006


2005Operating activitiesNet income

$
19,589


$
20,594


$
10,102Adjustments to reconcile net income to net cash provided by
    operating activities:Depreciation and amortization expense


3,026



2,427



1,751Provision for bad debts


13,817



4,778



3,188Equity based compensation expense










3,856Stock based compensation expense


1,187



635



177Minority interest in earnings of subsidiaries


5,312



4,471



4,527Deferred income taxes


127



(1,253
)


673Gain on divestitures and sale of assets






(979
)


(211
)Changes in operating assets and liabilities, net of acquisitions:Receivables


(31,786
)


(15,625
)


(14,478
)Prepaid expenses, other assets


(772
)


(1,466
)


(196
)Accounts payable and accrued expenses


1,676



6,036



(2,509
)Net amounts due governmental entities


(61
)


2,144



(105
)Net cash provided by operating activities


12,115



21,762



6,775Investing activitiesPurchases of property, building and equipment


(3,346
)


(3,938
)


(2,134
)Proceeds from sale of property and equipment






7



Proceeds from sale of entities






1,440



730Cost of acquisitions, primarily goodwill, intangible assets and
    patient accounts receivable


(28,935
)


(25,009
)


(11,137
)Net cash used in investing activities


(32,281
)


(27,500
)


(12,541
)Financing activitiesIssuance of common stock, net of underwriting discounts of
    $1,104 in 2006 and $3,430 in 2005






21,033



45,570Dividends paid










(227
)Principal payments on debt


(199
)


(1,201
)


(2,937
)Payments on capital leases


(207
)


(389
)


(1,105
)Proceeds from issuance of debt










24Net (payments) proceeds from lines of credit and revolving debt
    arrangements










(14,288
)Offering costs incurred






(311
)


(2,224
)Proceeds from exercise of stock options






135



Proceeds from issuance of common stock under ESPP


419



140



Minority interest contributions, net of (distributions)


(5,572
)


(4,190
)


(4,560
)Net cash provided by (used in) financing activities


(5,559
)


15,217



20,253Change in cash


(25,722
)


9,479



14,487Cash at beginning of period


26,877



17,398



2,911Cash at end of period

$
1,155


$
26,877


$
17,398Supplemental disclosures of cash flow informationInterest paid

$
376


$
342


$
1,068Income taxes paid

$
12,052


$
9,370


$
5,821   Supplemental
    disclosure of non-cash transactions:
    
   F-5




---



##### Table of Contents



LHC
    GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  1.
    Organization        Plan
    of Merger and Recapitalization
  three-for-two. three-for-two
    Initial
    Public Offering
    2.
    Significant
    Accounting Policies  Use of
    Estimates
   F-6




---



##### Table of Contents



LHC
    GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Critical
    Accounting Policies
    Principles
    of Consolidation
        Equity
    Joint Ventures
    License
    Leasing Arrangements
    Management
    Services
   F-7




---



##### Table of Contents



LHC
    GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2007


2006


2005Wholly owned subsidiaries


46.4
%


41.7
%


36.0
%Equity joint ventures


43.7



46.3



49.7License leasing arrangements


7.8



9.5



11.3Management services


2.1



2.5



3.0100.0
%


100.0
%


100.0
%     Revenue
    Recognition
  60-day
         F-8




---



##### Table of Contents



LHC
    GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      2007


2006


2005Home-based services


81.9
%


75.4
%


67.8
%Facility-based services


18.1



24.6



32.2100.0
%


100.0
%


100.0
%     2007


2006


2005Payor:Medicare


81.7
%


82.6
%


86.4
%Medicaid


5.5



5.7



4.9Other


12.8



11.7



8.7100.0
%


100.0
%


100.0
%   Home-Based
    Services
  Home Nursing Services.
    change-in-condition
  Hospice Services. annually-updated
 F-9




---



##### Table of Contents



LHC
    GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  12-month program-by-program
  Facility-Based
    Services
  Long-Term Acute Care Services.
  Outpatient Rehabilitation Services.
  Accounts
    Receivable and Allowances for Uncollectible
    Accounts
       F-10




---



##### Table of Contents



LHC
    GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Goodwill
    and Intangible Assets
        and/or
  Other
    Significant Accounting Policies
  Due
    to/from Governmental Entities
    Property,
    Building and Equipment
     F-11




---



##### Table of Contents



LHC
    GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Long-Lived
    Assets
    Income
    Taxes
    Accounting for Uncertainty in Income Taxes  an
    Interpretation of FASB Statement No. 109
  Minority
    Interest
        Minority
    Interest Subject to Exchange Contracts and/or Put
    Options
   F-12




---



##### Table of Contents



LHC
    GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      mark-to-market and/or
  Equity-Based
    Compensation Expense
        Stock-based
    Compensation
  Share-Based
    Payment Accounting
    for Stock-Based Compensation
 F-13




---



##### Table of Contents



LHC
    GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Accounting for Stock Issued to Employees
  Black-Scholes
  2005Net income, as reported

$
10,102Redeemable minority interests


(1,476
)Net income available to common stockholders, as reported


8,626Adjustments:Stock-based compensation expense included in reported net income


Stock-based compensation expense determined under fair value
    method


(53
)Pro forma income available to common stockholders

$
8,573Net income per common share:As reported:Basic

$
0.69Diluted

$
0.69Pro Forma:Basic

$
0.69Diluted

$
0.68Net income available to common stockholders per common share:As reported:Basic

$
0.59Diluted

$
0.59Pro Forma:Basic

$
0.59Diluted

$
0.58     December 31,2005Risk free interest rate


3.72-4.54
%Expected life (years)


5Volatility


41.62-43.50Expected annual dividend yield


  F-14




---



##### Table of Contents



LHC
    GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Earnings
    Per Share
      2007


2006


2005Weighted average number of shares outstanding for basic per
    share calculation


17,760,432



17,090,583



14,628,737Effect of dilutive potential shares:Options


6,461



2,399



790Restricted stock


60,551



11,678



1,112KEEP Units










54,000Adjusted weighted average shares for diluted per share
    calculation


17,827,444



17,104,660



14,684,639   Recently
    Issued Accounting Pronouncements
  Fair Value Measurements
  The
    Fair Value Option for Financial Assets and Financial
    Liabilities, Including an Amendment to SFAS 115 instrument-by-instrument
  Business Combinations
  Noncontrolling Interests in Consolidated Financial
    Statements  an Amendment of ARB No. 51
 F-15




---



##### Table of Contents



LHC
    GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  3.
    Acquisitions
    and Divestitures    2007
    Acquisitions
    2007
    Divestitures
      2006
    Acquisitions
      2006
    Divestitures
   F-16




---



##### Table of Contents



LHC
    GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2005
    Acquisitions
        2005
    Divestitures
        2007


2006


2005(In thousands)Net service revenue

$
2,979


$
5,261


$
6,863Costs, expenses and minority interest and cooperative endeavor
    allocations


4,885



7,622



8,675Loss from discontinued operations before income taxes


(1,906
)


(2,361
)


(1,812
)Income taxes


239



897



688Loss from discontinued operations

$
(1,667
)

$
(1,464
)

$
(1,124
)  F-17




---



##### Table of Contents



LHC
    GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2007


2006(In thousands)Home-based services segment:Balances at beginning of period

$
35,740


$
21,692Goodwill acquired during the period from acquisitions


22,192



13,603Goodwill retired during the period


(48
)


(50
)Goodwill acquired during the period from purchase of minority
    interest






495Balance at end of period

$
57,884


$
35,740Facility-based services segment:Balance at beginning of period

$
3,941


$
4,411Goodwill retired during the period






(1,046
)Goodwill classified (to) from held for sale during the period


402



(402
)Goodwill acquired during the period from redemption of minority
    interest






978Balance at end of period

$
4,343


$
3,941     4.
    Income
    taxes    2007


2006(In thousands)Deferred tax liabilities:Amortization of intangible assets

$
(2,166
)

$
(842
)Tax in excess of book depreciation


(1,563
)


(1,407
)Prepaid expenses


(1,095
)


(931
)Non-accrual experience accounting method


(861
)


(633
)Conversion from cash basis accounting


(11
)


(61
)Deferred tax liabilities


(5,696
)


(3,874
)Deferred tax assets:Allowance for uncollectible accounts


3,392



2,045Accrued employee benefits


1,005



791Stock compensation


495



181NOL carry forward


505



Accrued self-insurance


508



688Valuation allowance


(505
)


Deferred tax assets


5,400



3,705Net deferred tax liability

$
(296
)

$
(169
)  F-18




---



##### Table of Contents



LHC
    GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2007


2006


2005(In thousands)Current:Federal

$
10,542


$
10,139


$
4,604State


1,478



1,931



77512,020



12,070



5,379Deferred:Federal


111



(1,053
)


580State


16



(200
)


93127



(1,253
)


673Total provision for income taxes

$
12,147


$
10,817


$
6,052     2007


2006


2005(In thousands)Income taxes computed at federal statutory tax rate

$
11,680


$
11,283


$
6,047State income taxes, net of federal benefit


1,001



967



516Gulf Opportunity Act tax credit


(662
)


(1,027
)


(164
)Nondeductible expenses


128



54



73Tax exempt proceeds from life insurance






(380
)


Tax exempt interest income






(80
)


(78
)Tax benefit on compensation charge










(342
)Total provision for income taxes

$
12,147


$
10,817


$
6,052   5.
    Credit
    Arrangements  Long-Term
    Debt
    December 31,2007


2006(In thousands)Notes payable:Due in yearly installments of $50,000 through August 2010 at
    6.25%


150



190Due in monthly installments of $20,565 through October 2015 at
    LIBOR plus 2.25% (6.71% at December 31, 2007)


2,870



2,898Due in monthly installments of $12,500 through November 2009 at
    3.08%


260



3913,280



3,479Less current portion of long-term debt


433



428$
2,847


$
3,051  F-19




---



##### Table of Contents



LHC
    GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  A-1 (A-1) A-1.
          2008

$
4332009


4202010


2972011


2472012


247Thereafter


1,636$
3,280   Other
    Credit Arrangements
    sub-limit
 F-20




---



##### Table of Contents



LHC
    GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Eurodollar


Base RateLeverage Ratio

Margin


Margin< 1.00:1.00


1.75
%


(0.25
)%3
    1.00:1.00 < 1.50:100


2.00
%


0
%3
    1.50:1.00 < 2.00:1.00


2.25
%


0
%3
    2.00:1.00


2.50
%


0
%   6.
    Stockholders
    Equity  Public
    Offering
    Share
    Based Compensation
         F-21




---



##### Table of Contents



LHC
    GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Stock
    Options
    Year EndedDecember 31, 2006Risk free interest rate


5.03
%Expected life (years)


5Expected volatility


38.39Expected annual dividend yield


     Weighted


Weighted AverageNumber of


Average Exercise


Remaining


AggregateShares


Price


Contractual Term


Intrinsic ValueOptions exercisable at January 1, 2007


21,000



17.44Options granted






Options exercised


2,000



19.75Options forfeited or expired






Options outstanding at December 31, 2007


19,000



17.20



8.0 yearsOptions exercisable at December 31, 2007


19,000



17.20



8.0 years


$
147,895     Nonvested
    Stock
   F-22




---



##### Table of Contents



LHC
    GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    WeightedNumber of


Average GrantShares


Date Fair ValueNonvested shares outstanding at December 31, 2006


86,719



18.29Granted


197,171



27.83Vested


(25,607
)


18.03Forfeited


(39,951
)


27.35Nonvested shares outstanding at December 31, 2007


218,332



24.03     Employee
    Stock Purchase Plan
    Treasury
    Stock
    7.
    Related
    Party Transactions  Employee
    Receivables
    8.
    Leases   F-23




---



##### Table of Contents



LHC
    GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          2008

$
6,5192009


3,5232010


1,9022011


1,1192012


955Thereafter


1,616$
15,634     2008

$
882009


632010


2011


2012


Thereafter


Total minimum lease payments


151Current portion of capital lease obligations


88Capital lease obligations, long-term

$
63     9.
    Employee
    Benefit Plan   F-24




---



##### Table of Contents



LHC
    GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  10.
    Commitments
    and Contingencies  Contingencies
      Compliance
        episode-of-care
 F-25




---



##### Table of Contents



LHC
    GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    11.
    Concentration
    of Risk    12.
    Segment
    Information    Year Ended December 31, 2007Home-Based


Facility-BasedServices


Services


Total(In thousands)Net service revenue

$
244,107


$
53,924


$
298,031Cost of service revenue


118,451



34,126



152,577General and administrative expenses


88,532



18,263



106,795Operating income


37,124



1,535



38,659Interest expense


250



126



376Non operating (income) loss, including gain on sale of assets


(746
)


(327
)


(1,073
)Income from continuing operations before income taxes and
    minority interest and cooperative endeavor allocations


37,620



1,736



39,356Minority interest and cooperative endeavor allocations


5,177



807



5,984Income from continuing operations before income taxes


32,443



929



33,372Total assets


151,540



23,445



174,985   F-26




---



##### Table of Contents



LHC
    GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Year Ended December 31, 2006Home-Based


Facility-BasedServices


Services


Total(In thousands)Net service revenue

$
164,701


$
53,834


$
218,535Cost of service revenue


79,070



33,025



112,095General and administrative expenses


55,700



15,415



71,115Operating income


29,931



5,394



35,325Interest expense


210



115



325Non operating (income) loss, including gain on sale of assets


(1,404
)


(629
)


(2,033
)Income from continuing operations before income taxes and
    minority interest and cooperative endeavor allocations


31,125



5,908



37,033Minority interest and cooperative endeavor allocations


3,075



1,720



4,795Income from continuing operations before income taxes


28,050



4,188



32,238Total assets


117,585



35,109



152,694   Year Ended December 31, 2005Home-Based


Facility-BasedServices


Services


Total(In thousands)Net service revenue

$
105,588


$
50,099


$
155,687Cost of service revenue


51,255



31,741



82,996General and administrative expenses


33,650



12,869



46,519Equity-based compensation expense


2,699



1,157



3,856Operating income


17,984



4,332



22,316Interest expense


690



377



1,067Non operating (income) loss, including gain on sale of assets


(132
)


(442
)


(574
)Income from continuing operations before income taxes and
    minority interest and cooperative endeavor allocations


17,426



4,397



21,823Minority interest and cooperative endeavor allocations


3,142



1,403



4,545Income from continuing operations before income taxes


14,284



2,994



17,278Total assets


70,889



33,729



104,618   13.
    Fair
    Value of Financial Instruments     F-27




---



##### Table of Contents



LHC
    GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  14.
    Allowance
    for Uncollectible Accounts and Property, Building and
    Equipment    Beginning








End ofof Year


Additions and





YearBalance


Expenses


Deductions


Balance(In thousands)Year ended December 31:2007

$
5,769


$
13,817


$
10,633


$
8,9532006


2,544



4,778



1,553



5,7692005


1,168



3,188



1,812



2,544     December 31,2007


2006(In thousands)Land

$
135


$
135Building and improvements


3,079



2,891Transportation equipment


3,434



3,480Furniture and other equipment


13,661



10,32120,309



16,827Less accumulated depreciation and amortization


7,786



5,122$
12,523


$
11,705   15.
    Unaudited
    Summarized Quarterly Financial Information  First Quarter


Second Quarter


Third Quarter


Fourth Quarter2007


2007


2007


2007(In thousands)Net service revenue

$
68,727


$
70,564


$
77,495


$
81,245Gross margin


34,111



34,483



37,516



39,344Net income


5,786



5,038



6,025



2,740Net income available to common stockholders


5,820



5,160



6,082



2,720Basic earnings per shareNet income

$
0.33


$
0.28


$
0.34


$
0.15Net income available to common shareholders

$
0.33


$
0.29


$
0.34


$
0.15Diluted earnings per shareNet income

$
0.33


$
0.28


$
0.34


$
0.15Net income available to common shareholders

$
0.33


$
0.29


$
0.34


$
0.15Weighted average shares outstandingBasic


17,748,369



17,754,632



17,766,612



17,773,116Diluted


17,807,338



17,798,952



17,794,072



17,817,777  F-28




---



##### Table of Contents



LHC
    GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    First Quarter


Second Quarter


Third Quarter


Fourth Quarter2006


2006


2006


2006(In thousands)Net service revenue

$
45,281


$
49,968


$
58,626


$
64,660Gross margin


21,264



24,870



28,458



31,848Net income


4,136



4,256



5,271



6,931Net income available to common stockholders


4,979



4,428



5,199



7,151Basic earnings per shareNet income

$
0.26


$
0.26


$
0.30


$
0.39Net income available to common shareholders

$
0.31


$
0.27


$
0.30


$
0.40Diluted earnings per shareNet income

$
0.26


$
0.26


$
0.30


$
0.39Net income available to common shareholders

$
0.31


$
0.27


$
0.30


$
0.40Weighted average shares outstandingBasic


16,557,828



16,561,398



17,557,576



17,730,698Diluted


16,563,368



16,576,068



17,574,541



17,751,390  F-29




---



##### Table of Contents



SIGNATURES    LHC GROUP, INC.
  /s/  Keith
    G. Myers       Form 10-K
    Signature

Title

Date/s/  Keith
    G. MyersKeith
    G. Myers

Chief Executive Officer and Chairman
    of the Board of Directors

March 14, 2008/s/  Peter
    J. RomanPeter
    J. Roman

Senior Vice President, Chief Financial Officer

March 14, 2008/s/  John
    L. IndestJohn
    L. Indest

President, Chief Operating Officer
    Secretary and Director

March 14, 2008/s/  Dan
    S. WilfordDan
    S. Wilford

Director

March 14, 2008/s/  Ronald
    T. NixonRonald
    T. Nixon

Director

March 14, 2008/s/  Ted
    W. HoytTed
    W. Hoyt

Director

March 14, 2008/s/  George
    A. LewisGeorge
    A. Lewis

Director

March 14, 2008 68




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##### Table of Contents



Signature

Title

Date/s/  John
    B. BreauxJohn
    B. Breaux

Director

March 14, 2008/s/  Monica
    AzareMonica
    Azare

Director

March 14, 2008/s/  W.J.
    Billy TauzinW.J.
    Billy Tauzin

Director

March 14, 2008  69




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##### Table of Contents



EXHIBIT INDEX  ExhibitNumber

Description of Exhibits2
.1

Asset purchase Agreement, dated June 19, 2006, by and among
    the Registrant, The Lifeline Health Group, Inc. and various
    subsidiaries of The Lifeline Health Group, Inc. (previously
    filed as Exhibit 2.1 to the
    Form 8-K
    on June 19, 2006).3
.1

Certificate of Incorporation of LHC Group, Inc. (previously
    filed as an exhibit to the
    Form S-1/A
    (File
    No. 333-120792)
    on February 14, 2005).3
.2

Bylaws of LHC Group, Inc. (previously filed as an exhibit to the
    Form S-1/A (File No. 333-120792) on February 14,
    2005).3
.3

Amendment to LHC Group, Inc. Bylaws (previously filed as
    Exhibit 3.1 to Form 8-K filed January 4, 2008).3
.4

Certificate of Designations (previously filed as Exhibit B
    to Exhibit 4.1 to the
    Form 8-A12B
    on March 11, 2008).4
.1

Specimen Stock Certificate of LHCs Common Stock, par value
    $0.01 per share (previously filed as an exhibit to the
    Form S-1/A
    (File
    No. 333-120792)
    on February 14, 2005).4
.2

Reference is made to Exhibits 3.1 and 3.2 (previously filed
    as an exhibit to the
    Form S-1/A
    (File
    No. 333-120792)
    on February 14, 2005 and May 9, 2005, respectively).4
.3

Stockholder Protection Rights Agreement by and between LHC
    Group, Inc. and Computershare Trust Company, N.A., as
    rights agent (previously filed as Exhibit 4.1 to the
    Form 8-A12B
    on March 11, 2008).10
.1

LHC 2003 Key Employee Equity Participation Plan (previously
    filed as an exhibit to the
    Form S-1/A
    (File
    No. 333-120792)
    on November 26, 2004).10
.2

LHC Group, Inc. 2005 Long-Term Incentive Plan (previously filed
    as an exhibit to the
    Form S-1/A
    (File
    No. 333-120792)
    on February 14, 2005).10
.3

Form of Award under LHC Group, Inc. 2005 Director
    Compensation Plan. (previously filed as an exhibit to the
    Form S-1/A
    (File
    No. 333-120792)
    on February 14, 2005).10
.4

Form of Indemnity Agreement between LHC Group and directors and
    certain officers (previously filed as an exhibit to the
    Form S-1/A
    (File
    No. 333-120792)
    on February 14, 2005).10
.5

LHC Group, Inc. 2005 Director Compensation Plan (previously
    filed as an exhibit to the
    Form S-1/A
    (File
    No. 333-120792)
    on February 14, 2005).10
.6

Amendment to LHC Group, Inc. 2005 Director Compensation
    Plan (previously filed as Exhibit 99.1 to the
    Form 8-K
    on June 12, 2006).10
.7

LHC Group, Inc. 2006 Employee Stock Purchase Plan (previously
    filed as Exhibit 99.2 to the
    Form 8-K
    on June 12, 2006).10
.8

Severance and Consulting Agreement by and between LHC Group,
    Inc. and Barry E. Stewart, dated August 15, 2007
    (previously filed as Exhibit 10.1 to the
    Form 8-K
    on August 15, 2007).10
.9

Employment Agreement by and between LHC Group, Inc. and Don
    Stelly, dated October 22, 2007 (previously filed as Exhibit
    10.1 to the
    Form 8-K
    on October 30, 2007).10
.10

Employment Agreement between LHC Group, Inc. and Keith G. Myers
    dated January 1, 2008 (previously filed as
    Exhibit 10.1 to the
    Form 8-K
    on January 4, 2008).10
.11

Employment Agreement between LHC Group, Inc. and John L. Indest
    dated January 1, 2008 (previously filed as
    Exhibit 10.2 to the
    Form 8-K
    on January 4, 2008).10
.12

Employment Agreement by and between LHC Group, Inc. and Peter
    Roman, dated January 1, 2008 (previously filed as
    Exhibit 10.3 to the
    Form 8-K
    on January 4, 2008).10
.13

Employment Agreement between LHC Group, Inc. and Daryl Doise
    dated January 1, 2008 (previously filed as
    Exhibit 10.4 to the
    Form 8-K
    on January 4, 2008).10
.14

Loan Agreement by and between LHC Group, Inc., Palmetto Express,
    L.L.C. and Capital One, National Association dated
    February 6, 2008 (previously filed as Exhibit 10.1 to
    the
    Form 8-K
    on February 13, 2008). 70




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##### Table of Contents



ExhibitNumber

Description of Exhibits10
.15

Credit Agreement by and between LHC Group, Inc. and Capital One,
    National Association dated February 20, 2008 (previously
    filed as Exhibit 10.1 to the
    Form 8-K
    dated February 20, 2008 on February 25, 2008).10
.16

First Amendment to Credit Agreement by and between LHC Group,
    Inc., Capital One, National Association and First Tennessee
    Bank, N.A. dated March 6, 2008 (previously filed as
    Exhibit 10.1 to the
    Form 8-K
    on March 10, 2008).21
.1

Subsidiaries of the Registrant.23
.1

Consent of Ernst & Young LLP.31
.1

Certification of Keith G. Myers, Chief Executive Officer
    pursuant to
    Rule 13a-
    14(a)/15d-14(a), as adopted pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002.31
.2

Certification of Peter J. Roman, Chief Financial Officer
    pursuant to
    Rule 13a-
    14(a)/15d-14(a), as adopted pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002.32
.1*

Certification of the Chief Executive Officer and Chief Financial
    Officer pursuant to 18 U.S.C. Section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.     *
    
    This exhibit is furnished to the SEC as an accompanying document
    and is not deemed to be filed for purposes of
    Section 18 of the Securities Exchange Act of 1934 or
    otherwise subject to the liabilities of that Section, and the
    document will not be deemed incorporated by reference into any
    filing under the Securities Act of 1933. 71