##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    Quarterly report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
 For the quarterly period ended March 31, 2008
 or
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from  to
 Commission file number: 0-8082
 LHC GROUP, INC.
 (Exact Name of Registrant as Specified in Charter)
 Delaware
    
    71-0918189(State or Other Jurisdiction of
    
    (I.R.S. Employer Identification No.)Incorporation or Organization)
 420 West Pinhook Rd, Suite A
Lafayette, LA 70503
(Address of principal executive offices including zip code)
 (337) 233-1307
(Registrants telephone number, including area code)
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller Reporting Company o
 o þ




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##### 



LHC GROUP, INC.
 INDEX
 PagePart I. Financial Information
    
    
    3Item 1.
    

Financial Statements (unaudited)
    
    
    3Consolidated Balance Sheets  March 31, 2008 (unaudited)
and December 31, 2007
    
    
    3Consolidated Statements of Income (unaudited)  Three months
ended March 31, 2008 and 2007
    
    
    4Consolidated Statements of Cash Flows (unaudited)  Three
months ended March 31, 2008 and 2007
    
    
    5Notes to Consolidated Financial Statements (unaudited)
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    17Item 3.
    
    Quantitative and Qualitative Disclosure About Market Risk
    
    
    27Item 4.
    
    Controls and Procedures
    
    
    28Part II. Other Information
    
    
    29Item 1.
    
    Legal Proceedings
    
    
    29Item 1A.
    
    Risk Factors
    
    
    29Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    29Item 3.
    
    Defaults Upon Senior Securities
    
    
    29Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    29Item 5.
    
    Other Information
    
    
    29Item 6.
    
    Exhibits
    
    
    29Signatures
    
    
    31EX-3.2 BYLAWS OF LHC GROUP,INC. AS AMENDED ON DECEMBER 31,2007EX-31.1 SECTION 302 CERTIFICATION OF CEOEX-31.2 SECTION 302 CERTIFICATION OF CFOEX-32 SECTION 906 CERTIFICATION OF CEO AND CFO
  2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS.
 LHC GROUP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS  (Dollars in thousands, except share data)
 March 31,
    
    
    December 31,2008
    
    
    2007(unaudited)ASSETSCurrent assets:Cash
    
    $
    1,072
    
    
    $
    1,155Receivables:Patient accounts receivable, less allowance for uncollectible accounts of
$7,027 and $8,953, respectively
    
    
    68,165
    
    
    
    70,033Other receivables
    
    
    2,998
    
    
    
    2,425Amounts due from governmental entities
    
    
    1,249
    
    
    
    1,459Total Receivables, net
    
    
    72,412
    
    
    
    73,917Deferred income taxes
    
    
    2,331
    
    
    
    2,946Prepaid expenses and other current assets
    
    
    3,830
    
    
    
    4,423Assets held for sale
    
    
    556
    
    
    
    556Total current assets
    
    
    80,201
    
    
    
    82,997Property, building and equipment, net
    
    
    14,440
    
    
    
    12,523Goodwill
    
    
    66,985
    
    
    
    62,227Intangible assets, net
    
    
    14,167
    
    
    
    14,055Advance payments on acquisitions
    
    
    8,300
    
    
    
    Other assets
    
    
    4,067
    
    
    
    3,183Total assets
    
    $
    188,160
    
    
    $
    174,985LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable and other accrued liabilities
    
    $
    7,938
    
    
    $
    6,103Salaries, wages, and benefits payable
    
    
    14,085
    
    
    
    11,303Amounts due to governmental entities
    
    
    3,162
    
    
    
    3,162Income taxes payable
    
    
    1,691
    
    
    
    863Current portion of capital lease obligations
    
    
    105
    
    
    
    88Current portion of long-term debt
    
    
    527
    
    
    
    433Total current liabilities
    
    
    27,508
    
    
    
    21,952Deferred income taxes, less current portion
    
    
    3,284
    
    
    
    3,243Capital lease obligations, less current portion
    
    
    23
    
    
    
    63Long-term debt, less current portion
    
    
    4,871
    
    
    
    2,847Minority interests subject to exchange contracts and/or put options
    
    
    20
    
    
    
    121Other minority interests
    
    
    3,288
    
    
    
    3,388Stockholders equity:Common stock  $0.01 par value: 40,000,000 shares authorized;
20,770,254 and 20,725,713 shares issued and 17,816,466 and 17,775,284
shares outstanding,
respectively
    
    
    178
    
    
    
    177Treasury stock  2,953,788 and 2,950,429 shares at cost, respectively
    
    
    (2,939
    )
    
    
    (2,866
    )Additional paid-in capital
    
    
    82,411
    
    
    
    81,983Retained earnings
    
    
    69,516
    
    
    
    64,077Total stockholders equity
    
    
    149,166
    
    
    
    143,371Total liabilities and stockholders equity
    
    $
    188,160
    
    
    $
    174,985
  3




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##### Table of Contents



LHC GROUP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF INCOME  (Dollars in thousands, except share and per share data)
 Three Months EndedMarch 31,2008
    
    
    2007Net service revenue
    
    $
    83,473
    
    
    $
    68,727Cost of service revenue
    
    
    41,896
    
    
    
    34,617Gross margin
    
    
    41,577
    
    
    
    34,110Provision for bad debts
    
    
    3,686
    
    
    
    1,741General and administrative expenses
    
    
    26,873
    
    
    
    20,927Operating income
    
    
    11,018
    
    
    
    11,442Interest expense
    
    
    148
    
    
    
    83Non-operating income, including gain on sales of assets
    
    
    (402
    )
    
    
    (293
    )Income from continuing operations before income taxes
and minority interest allocations
    
    
    11,272
    
    
    
    11,652Income tax expense
    
    
    3,363
    
    
    
    3,794Minority interest
    
    
    2,440
    
    
    
    1,807Income from continuing operations
    
    
    5,469
    
    
    
    6,051Loss from discontinued operations (net of income tax
benefit of $84 and $162, respectively)
    
    
    (131
    )
    
    
    (266
    )Net income
    
    
    5,338
    
    
    
    5,785Redeemable minority interests
    
    
    101
    
    
    
    35Net income available to common stockholders
    
    $
    5,439
    
    
    $
    5,820Earnings per share  basic and diluted:Income from continuing operations
    
    $
    0.31
    
    
    $
    0.34Loss from discontinued operations, net
    
    
    (0.01
    )
    
    
    (0.01
    )Net income
    
    
    0.30
    
    
    
    0.33Redeemable minority interests
    
    
    0.01
    
    
    
    Net income available to common shareholders
    
    $
    0.31
    
    
    $
    0.33Weighted average shares outstanding:Basic
    
    
    17,800,066
    
    
    
    17,748,369Diluted
    
    
    17,813,967
    
    
    
    17,807,338
  4




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##### Table of Contents



LHC GROUP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
( Dollars in thousands)
 Three Months EndedMarch 31,2008
    
    
    2007Operating activitiesNet income
    
    $
    5,338
    
    
    $
    5,785Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization expense
    
    
    877
    
    
    
    710Provision for bad debts
    
    
    4,040
    
    
    
    1,816Stock-based compensation expense
    
    
    385
    
    
    
    227Minority interest in earnings of subsidiaries
    
    
    2,330
    
    
    
    1,756Deferred income taxes
    
    
    (86
    )
    
    
    (596
    )Gain on sale of assets
    
    
    (346
    )
    
    
    Changes in operating assets and liabilities, net of acquisitions:Receivables
    
    
    (2,817
    )
    
    
    (12,801
    )Prepaid
expenses and other assets
    
    
    472
    
    
    
    526Accounts payable and accrued expenses
    
    
    6,112
    
    
    
    4,573Net amounts due governmental entities
    
    
    210
    
    
    
    (61
    )Net cash provided by operating activities
    
    
    16,515
    
    
    
    1,935Investing activitiesPurchases of property, building and equipment
    
    
    (5,527
    )
    
    
    (716
    )Proceeds from sale of assets
    
    
    3,081
    
    
    
    Cash paid for acquisitions, primarily goodwill, intangible assets and advance
payments on acquisitions
    
    
    (14,031
    )
    
    
    (5,865
    )Net cash used in investing activities
    
    
    (16,477
    )
    
    
    (6,581
    )Financing activitiesProceeds from line of credit
    
    
    5,442
    
    
    
    Payments on line of credit
    
    
    (5,442
    )
    
    
    Proceeds on debt issuance
    
    
    5,050
    
    
    
    Principal payments on debt
    
    
    (2,932
    )
    
    
    (39
    )Payments on capital leases
    
    
    (23
    )
    
    
    (66
    )Excess tax benefits from vesting of restricted stock
    
    
    33
    
    
    
    46Proceeds from employee stock purchase plan
    
    
    134
    
    
    
    88Minority interest distributions, net
    
    
    (2,383
    )
    
    
    (1,404
    )Net cash used in financing activities
    
    
    (121
    )
    
    
    (1,375
    )Change in cash
    
    
    (83
    )
    
    
    (6,021
    )Cash at beginning of period
    
    
    1,155
    
    
    
    26,877Cash at end of period
    
    $
    1,072
    
    
    $
    20,856Supplemental disclosures of cash flow informationInterest paid
    
    $
    148
    
    
    $
    83Income taxes paid
    
    $
    1,885
    
    
    $
    1,240
  5




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##### Table of Contents



LHC GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 1. Organization
  Unaudited Interim Financial Information
   2. Significant Accounting Policies
 Use of Estimates
  Critical Accounting Policies
  Principles of Consolidation
  6




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##### Table of Contents



Equity Joint Ventures
  License Leasing Arrangements
  Management Services
   Three MonthsEnded March 31,2008
    
    2007Wholly-owned subsidiaries
    
    
    46.7
    %
    
    
    45.4
    %Equity joint ventures
    
    
    49.4
    
    
    
    42.1License leasing arrangements
    
    
    2.0
    
    
    
    9.7Management services
    
    
    1.9
    
    
    
    2.8100.0
    %
    
    
    100.0
    %
 Revenue Recognition
  7




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##### Table of Contents



Three MonthsEnded March 31,2008
    
    2007Home-based services
    
    
    81.9
    %
    
    
    80.1
    %Facility-based services
    
    
    18.1
    
    
    
    19.9100.0
    %
    
    
    100.0
    %
  Three MonthsEnded March 31,2008
    
    2007Payor:Medicare
    
    
    82.4
    %
    
    
    81.9
    %Medicaid
    
    
    5.2
    
    
    
    6.2Other
    
    
    12.4
    
    
    
    11.9100.0
    %
    
    
    100.0
    %
 Home-Based Services
 Home Nursing Services.
 8




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##### Table of Contents



Hospice Services.
 Facility-Based Services
 Long-Term Acute Care Services.
 Outpatient Rehabilitation Services.
 Accounts Receivable and Allowances for Uncollectible Accounts
  9




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##### Table of Contents



Other Significant Accounting Policies
 Earnings Per Share
   Three MonthsEnded March 31,2008
    
    
    2007Weighted average number of shares outstanding for basic per share
calculation
    
    
    17,800,066
    
    
    
    17,748,369Effect of dilutive potential shares:Options
    
    
    3,291
    
    
    
    4,789Restricted stock
    
    
    10,610
    
    
    
    54,180Adjusted weighted average shares for diluted per share calculation
    
    
    17,813,967
    
    
    
    17,807,338
 Discontinued Operations
  Reclassifications
 10




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##### Table of Contents



Recently Issued Accounting Pronouncements
 Business Combinations
 Noncontrolling Interests in Consolidated
Financial Statements  An Amendment of ARB No. 51
 Adoption of New Accounting Standards
 Fair Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities
 3. Acquisitions and Divestitures
  11




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##### Table of Contents



2008 Acquisitions
    Three MonthsEndedMarch 31,2008(in thousands)Home-based services segment:Balance at December 31, 2007
    
    $
    57,884Goodwill acquired during the period from acquisitions
    
    
    4,669Balance at March 31, 2008
    
    $
    62,553Facility-based services segment:Balance at December 31, 2007
    
    $
    4,343Goodwill
acquired during the period from redemption of minority interest
    
    
    89Balance at March 31, 2008
    
    $
    4,432
   4. Credit Arrangements
 Long-Term Debt
  March 31,
    
    
    December 31,2008
    
    
    2007(in thousands)Notes payable:Due in yearly installments of $50,000 through August 2010 at 6.25%
    
    $
    150
    
    
    $
    150Due in monthly installments of $20,565 through October 2015 at LIBOR
plus 2.25% (6.71% at December 31, 2007)
    
    
    
    
    
    
    2,870Due in monthly installments of $28,056 through February 2015 at
LIBOR
plus 1.90% (4.61% at March 31, 2008)
    
    
    5,022
    
    
    
    Due in monthly installments of $12,500 through November 2009 at 5.78%
    
    
    226
    
    
    
    2605,398
    
    
    
    3,280Less current portion of long-term debt
    
    
    527
    
    
    
    433$
    4,871
    
    
    $
    2,847
 12




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##### Table of Contents



Other Credit Arrangements
   5. Income Taxes
   6. Stockholders Equity
  13




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##### Table of Contents



Common Stock
    
    
    AdditionalIssued
    
    
    Treasury
    
    
    Paid-In
    
    
    RetainedAmount
    
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    Capital
    
    
    Earnings
    
    
    TotalBalances at December 31, 2007
    
    $
    177
    
    
    
    20,725,713
    
    
    $
    (2,866
    )
    
    
    2,950,429
    
    
    $
    81,983
    
    
    $
    64,077
    
    
    $
    143,371Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,338
    
    
    
    5,338Nonvested stock compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    385
    
    
    
    
    
    
    
    385Issuance of non-vested
restricted stock
    
    
    
    
    
    
    38,883
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Treasury shares redeemed to
pay income tax
    
    
    
    
    
    
    
    
    
    
    (73
    )
    
    
    3,359
    
    
    
    
    
    
    
    
    
    
    
    (73
    )Excess tax benefits from
issuance of nonvested stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (91
    )
    
    
    
    
    
    
    (91
    )Issuance of common stock
under Employee Stock
Purchase Plan
    
    
    1
    
    
    
    5,658
    
    
    
    
    
    
    
    
    
    
    
    134
    
    
    
    
    
    
    
    135Recording minority interest
in joint venture at
redemption value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    101
    
    
    
    101Balances at March 31, 2008
    
    $
    178
    
    
    
    20,770,254
    
    
    $
    (2,939
    )
    
    
    2,953,788
    
    
    $
    82,411
    
    
    $
    69,516
    
    
    $
    149,166
 Share Based Compensation
   Stock Options
  Nonvested Stock
   WeightedaverageNumber of
    
    grant dateShares
    
    fair valueNonvested shares outstanding at December 31, 2007
    
    
    218,832
    
    
    $
    24.03Granted
    
    
    138,050
    
    
    $
    17.00Vested
    
    
    (38,883
    )
    
    $
    26.08Forfeited
    
    
    (6,708
    )
    
    $
    22.74Nonvested shares outstanding at March 31, 2008
    
    
    311,291
    
    
    $
    22.12
  14




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##### Table of Contents



Employee Stock Purchase Plan
  7. Commitments and Contingencies
 Contingencies
   Compliance
    15




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##### Table of Contents



8. Segment Information
  Three Months Ended March 31, 2008Home-Based
    
    Facility-BasedServices
    
    Services
    
    Total(in thousands)Net service revenue
    
    $
    68,363
    
    
    $
    15,110
    
    
    $
    83,473Cost of service revenue
    
    
    33,379
    
    
    
    8,517
    
    
    
    41,896Provision for bad debts
    
    
    3,246
    
    
    
    440
    
    
    
    3,686General and administrative expenses
    
    
    23,161
    
    
    
    3,712
    
    
    
    26,873Operating income
    
    
    8,577
    
    
    
    2,441
    
    
    
    11,018Interest expense
    
    
    101
    
    
    
    47
    
    
    
    148Non-operating income, including gain on sale of assets
    
    
    (285
    )
    
    
    (117
    )
    
    
    (402
    )Income from continuing operations before income
taxes and minority interest
    
    
    8,761
    
    
    
    2,511
    
    
    
    11,272Minority interest
    
    
    1,740
    
    
    
    700
    
    
    
    2,440Income from continuing
operations before income taxes
    
    
    7,021
    
    
    
    1,811
    
    
    
    8,832Total assets
    
    $
    161,891
    
    
    $
    26,269
    
    
    $
    188,160
 Three Months Ended March 31, 2007Home-Based
    
    Facility-BasedServices
    
    Services
    
    Total(in thousands)Net service revenue
    
    $
    55,066
    
    
    $
    13,661
    
    
    $
    68,727Cost of service revenue
    
    
    26,028
    
    
    
    8,589
    
    
    
    34,617Provision for bad debts
    
    
    1,224
    
    
    
    517
    
    
    
    1,741General and administrative expenses
    
    
    16,612
    
    
    
    4,315
    
    
    
    20,927Operating income
    
    
    11,202
    
    
    
    240
    
    
    
    11,442Interest expense
    
    
    54
    
    
    
    29
    
    
    
    83Non-operating income, including gain on sale of assets
    
    
    (204
    )
    
    
    (89
    )
    
    
    (293
    )Income from continuing operations before income taxes
and minority interest
    
    
    11,352
    
    
    
    300
    
    
    
    11,652Minority interest
    
    
    1,421
    
    
    
    386
    
    
    
    1,807Income from continuing
operations before income taxes
    
    
    9,931
    
    
    
    (86
    )
    
    
    9,845Total assets
    
    $
    128,165
    
    
    $
    35,856
    
    
    $
    164,021
 16




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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
 CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
  
    
    our expectations regarding financial condition or results of operations for periods
after March 31, 2008;
    
    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 proprietary technology;
    
    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;
 17




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##### Table of Contents




    
    the impact of federal and state government regulation on our business;
    
    the impact of changes in our future interpretations of fraud, anti-kickbacks or other
laws.
      Overview
  Segments
   18




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##### Table of Contents



Recent Developments
 Medicare
 Home-Based Services.
     19




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##### Table of Contents



Facility-Based Services.
      20




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##### Table of Contents



Office of Inspector General
  Results of Operations
 Three Months Ended March 31, 2008 Compared to Three Months Ended March 31, 2007
 Accounts Receivable and Allowance for Uncollectible Accounts
   Payor
    
    0-30
    
    
    31-60
    
    
    61-90
    
    
    91-120
    
    
    121-150
    
    
    151-180
    
    
    181-240
    
    
    241+
    
    
    Total(in thousands)Medicare
    
    $
    23,288
    
    
    $
    7,101
    
    
    $
    2,116
    
    
    $
    3,187
    
    
    $
    3,093
    
    
    $
    6,761
    
    
    $
    1,784
    
    
    $
    4,481
    
    
    $
    51,811Medicaid
    
    
    551
    
    
    
    1,463
    
    
    
    233
    
    
    
    790
    
    
    
    676
    
    
    
    1,239
    
    
    
    714
    
    
    
    4,115
    
    
    
    9,781Other
    
    
    2,055
    
    
    
    2,945
    
    
    
    588
    
    
    
    988
    
    
    
    1,379
    
    
    
    1,268
    
    
    
    371
    
    
    
    4,006
    
    
    
    13,600Total
    
    $
    25,894
    
    
    $
    11,509
    
    
    $
    2,937
    
    
    $
    4,965
    
    
    $
    5,148
    
    
    $
    9,268
    
    
    $
    2,869
    
    
    $
    12,602
    
    
    $
    75,192Allowance as
a percentage of receivables
    
    
    3.2
    %
    
    
    4.3
    %
    
    
    1.4
    %
    
    
    4.4
    %
    
    
    3.1
    %
    
    
    9.0
    %
    
    
    9.0
    %
    
    
    33.3
    %
    
    
    9.3
    %
 21




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##### Table of Contents



Consolidated Net Service Revenues:
  Home-Based Services
  Organic Growth
   Same
    
    
    
    
    
    
    
    
    
    Organic
    
    Organic &
    
    Organic & IAG
    
    
    
    
    
    Total
    
    TotalStore(1)
    
    De Novo(2)
    
    Organic(3)
    
    Growth %
    
    IAG
    
    Growth %
    
    Acquired(4)
    
    Growth
    
    Growth %Revenue
    
    $
    57,424
    
    
    $
    1,425
    
    
    $
    58,849
    
    
    
    6.9
    %
    
    $
    60,316
    
    
    
    9.5
    %
    
    $
    9,514
    
    
    $
    68,363
    
    
    
    24.1
    %Revenue Medicare
    
    $
    47,286
    
    
    $
    1,219
    
    
    $
    48,505
    
    
    
    8.6
    %
    
    $
    49,928
    
    
    
    11.7
    %
    
    $
    8,255
    
    
    $
    56,760
    
    
    
    27.0
    %Average Census
    
    
    16,143
    
    
    
    646
    
    
    
    16,789
    
    
    
    6.9
    %
    
    
    17,374
    
    
    
    10.6
    %
    
    
    2,169
    
    
    
    18,958
    
    
    
    20.7
    %Average Medicare
Census
    
    
    12,537
    
    
    
    509
    
    
    
    13,046
    
    
    
    12.1
    %
    
    
    13,553
    
    
    
    16.4
    %
    
    
    1,830
    
    
    
    14,876
    
    
    
    27.8
    %Episodes
    
    
    21,504
    
    
    
    658
    
    
    
    22,162
    
    
    
    27.6
    %
    
    
    23,537
    
    
    
    35.5
    %
    
    
    3,253
    
    
    
    25,415
    
    
    
    46.4
    %
 
 (1)
    
    Same store  location that has been in service with the Company for at greater than 12 months.(2)
    
    De Novo  internally developed location that has been in service with the Company for 12 months or less.(3)
    
    Organic  combination of same store and de novo.(4)
    
    Acquired  purchased location that has been in service with the Company for 12 months or less. Facility-Based Services.
  22




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##### Table of Contents



Cost of Service Revenue
  Home-Based Services.
 Three MonthsEnded March 31,2008
    
    
    2007Salaries, wages and benefits
    
    $
    28,636
    
    
    $
    22,635Transportation
    
    
    2,206
    
    
    
    1,755Supplies and services
    
    
    2,537
    
    
    
    1,638Total
    
    $
    33,379
    
    
    $
    26,028
  Facility-Based Services.
 Three MonthsEnded March 31,2008
    
    
    2007Salaries, wages and benefits
    
    $
    5,534
    
    
    $
    5,378Transportation
    
    
    76
    
    
    
    56Supplies and services
    
    
    2,907
    
    
    
    3,155Total
    
    $
    8,517
    
    
    $
    8,589
  Provision for Bad Debts
  23




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##### Table of Contents



General and Administrative Expenses
  
    
    Home office:
 
    
    salaries and related benefits;
    
    insurance;
    
    costs associated with advertising and other marketing activities; and
    
    rent and utilities;
 
    
    Supplies and services:
 
    
    accounting, legal and other professional services; and
    
    office supplies;
 
    
    Depreciation; and
    
    Other:
 
    
    advertising and marketing expenses;
    
    recruitment;
    
    field office rent; and
    
    taxes.
  Home-Based Services.
 Facility-Based Services.
 Income Tax Expense
  Minority Interest
  24




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##### Table of Contents



Discontinued Operations
   Liquidity and Capital Resources
  
    
    Operating Results Our net income has a significant effect on our operating cash
flows. Any significant increase or decrease in our net income could have a material effect
on our operating cash flows.
    
    Receipt of payments from Centers for Medicare & Medicaid Services (CMS)- Operating cash
flows are
dependent upon our collections from CMS. Process lags within the CMS system affect our
operating cash
flows.
    
    Start-Up Costs Following the completion of an acquisition, we 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
effect on our operating cash flows.
    
    Medical Supplies The cost of medical supplies is a significant expense associated
with our business. Any increase in the cost of medical supplies, or in the use of medical
supplies by our patients, could have a material effect on our operating cash flows.
  Three MonthsEnded March 31,2008
    
    
    2007Cash provided by operating activities
    
    $
    16,515
    
    
    $
    1,935Cash used in investing activities
    
    
    (16,477
    )
    
    
    (6,581
    )Cash used in financing activities
    
    
    (121
    )
    
    
    (1,375
    )Change in cash
    
    
    (83
    )
    
    
    (6,021
    )Cash and cash equivalents at beginning of period
    
    
    1,155
    
    
    
    26,877Cash and cash equivalents at end of period
    
    $
    1,072
    
    
    $
    20,856
  25




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##### Table of Contents



Indebtedness
     Eurodollar
    
    Base RateLeverage Ratio
    
    Margin
    
    Margin<1.00:1.00
    
    
    1.75
    %
    
    
    (0.25
    )%31.00:1.00<1.50:1.00
    
    
    2.00
    %
    
    
    0
    %31.50:1.00<2.00:1.00
    
    
    2.25
    %
    
    
    0
    %32.00:1.00
    
    
    2.50
    %
    
    
    0
    %
 26




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##### Table of Contents



Contingencies
  Off-Balance Sheet Arrangements
  Critical Accounting Policies
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   27




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##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
    Changes in Internal Controls
  28




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##### Table of Contents



PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS.
  
 ITEM 1A. RISK FACTORS.
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
  
 ITEM 5. OTHER INFORMATION.
  
 ITEM 6. EXHIBITS.
 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. as amended on December 31, 2007.4.1
    
    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
    
    Form of Stockholder Protection Rights Agreement, between LHC Group,
Inc. and Computershare Trust Company, N.A., as Rights Agent
(previously filed as Exhibit 4.1 to the Form 8-K on March 11, 2008).10.1
    
    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).10.2
    
    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).10.3
    
    Employment Agreement by and between LHC Group, Inc. and Peter J.
Roman, dated January 1, 2008 (previously filed as Exhibit 10.3 to the
Form 8-K on January 4, 2008).
 29




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##### Table of Contents



10.4
    
    Employment Agreement between LHC Group, Inc. and Daryl J. Doise dated
January 1, 2008, to be effective June 1, 2008 (previously filed as
Exhibit 10.4 to the Form 8-K on January 4, 2008).10.5
    
    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).10.6
    
    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 on February 25, 2008).10.7
    
    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).10.8
    
    Second Amendment to Credit Agreement by and between LHC Group, Inc.,
Capital One, National Association and First Tennessee Bank, N.A. dated
March 31, 2008 (previously filed as Exhibit 10.1 to the Form 8-K on
April 2, 2008).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*
    
    Certification of Chief Executive Officer and Chief Financial Officer
of LHC Group, Inc. 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. 30




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##### Table of Contents



SIGNATURES
  LHC GROUP, INC.Date May 9, 2008
    
    /s/ Peter J. RomanPeter J. RomanSenior Vice President and Chief Financial Officer