##### 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 September 30, 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 Its Charter)
 Delaware
(State or Other Jurisdiction of 
Incorporation or Organization)
    
    71-0918189
(I.R.S. Employer Identification No.)
 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 oAccelerated
filer þNon-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company o o þ




---



##### 



LHC GROUP, INC.
 INDEX
 PagePart I. Financial Information
    
    
    3Item 1.
Condensed Consolidated Financial Statements (Unaudited)
    
    
    3Condensed Consolidated Balance Sheets  September 30, 2008
(unaudited) and December 31, 2007
    
    
    3Condensed Consolidated Statements of Income (unaudited)  Three and
nine months ended September 30, 2008 and 2007
    
    
    4Condensed Consolidated Statement of Changes in Stockholders
Equity (unaudited)
    
    
    5Condensed Consolidated Statements of Cash Flows (unaudited)  Nine
months ended September 30, 2008 and 2007
    
    
    6Notes to Condensed Consolidated Financial Statements (unaudited)
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    18Item 3. Quantitative and Qualitative Disclosure About Market Risk
    
    
    31Item 4. Controls and Procedures
    
    
    31Part II. Other Information
    
    
    32Item 1. Legal Proceedings
    
    
    32Item 1A. Risk Factors
    
    
    32Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    32Item 3. Defaults Upon Senior Securities
    
    
    32Item 4. Submission of Matters to a Vote of Security Holders
    
    
    32Item 5. Other Information
    
    
    32Item 6. Exhibits
    
    
    32Signatures
    
    
    34EX-31.1EX-31.2EX-32
  2




---



##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS.
 
 LHC GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS  (Dollars in thousands, except share data)
 September 30,
    
    
    December 31,2008
    
    
    2007(unaudited)ASSETSCurrent assets:Cash
    
    $
    11,151
    
    
    $
    1,155Receivables:Patient accounts receivable, less allowance for uncollectible accounts of
$10,819 and $8,953, respectively
    
    
    55,878
    
    
    
    70,033Other receivables
    
    
    4,488
    
    
    
    2,425Amounts due from governmental entities
    
    
    1,221
    
    
    
    1,459Total receivables, net
    
    
    61,587
    
    
    
    73,917Deferred income taxes
    
    
    4,155
    
    
    
    2,946Prepaid expenses and other current assets
    
    
    4,312
    
    
    
    4,423Assets held for sale
    
    
    436
    
    
    
    556Total current assets
    
    
    81,641
    
    
    
    82,997Property, building and equipment, net
    
    
    14,623
    
    
    
    12,523Goodwill
    
    
    95,156
    
    
    
    62,227Intangible assets, net
    
    
    18,784
    
    
    
    14,055Advance payments on acquisitions
    
    
    2,800
    
    
    
    Other assets
    
    
    3,561
    
    
    
    3,183Total assets
    
    $
    216,565
    
    
    $
    174,985LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable and other accrued liabilities
    
    $
    8,595
    
    
    $
    6,103Salaries, wages, and benefits payable
    
    
    17,491
    
    
    
    11,303Amounts due to governmental entities
    
    
    6,023
    
    
    
    3,162Income taxes payable
    
    
    4,526
    
    
    
    863Current portion of capital lease obligations
    
    
    77
    
    
    
    88Current portion of long-term debt
    
    
    531
    
    
    
    433Total current liabilities
    
    
    37,243
    
    
    
    21,952Deferred income taxes
    
    
    4,949
    
    
    
    3,243Capital lease obligations, less current portion
    
    
    
    
    
    
    63Long-term debt, less current portion
    
    
    4,579
    
    
    
    2,847Minority interests subject to exchange contracts
    
    
    85
    
    
    
    121Other minority interests
    
    
    3,967
    
    
    
    3,388Stockholders equity:Common stock  $0.01 par value; 40,000,000 shares authorized; 20,836,612 and
20,725,713 shares issued and 17,882,824 and 17,775,284 shares outstanding,
respectively
    
    
    179
    
    
    
    177Treasury
stock  2,953,788 and 2,950,429 shares at cost, respectively
    
    
    (2,939
    )
    
    
    (2,866
    )Additional paid-in capital
    
    
    84,684
    
    
    
    81,983Retained earnings
    
    
    83,818
    
    
    
    64,077Total stockholders equity
    
    
    165,742
    
    
    
    143,371Total liabilities and stockholders equity
    
    $
    216,565
    
    
    $
    174,985
  3




---



##### Table of Contents



LHC GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME  (Dollars in thousands, except share and per share data)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net service revenue
    
    $
    98,166
    
    
    $
    77,495
    
    
    $
    271,755
    
    
    $
    216,786Cost of service revenue
    
    
    47,977
    
    
    
    39,979
    
    
    
    135,432
    
    
    
    110,676Gross margin
    
    
    50,189
    
    
    
    37,516
    
    
    
    136,323
    
    
    
    106,110Provision for bad debts
    
    
    3,158
    
    
    
    2,230
    
    
    
    10,467
    
    
    
    6,109General and administrative expenses
    
    
    30,687
    
    
    
    24,518
    
    
    
    86,283
    
    
    
    68,449Operating income
    
    
    16,344
    
    
    
    10,768
    
    
    
    39,573
    
    
    
    31,552Interest expense
    
    
    (128
    )
    
    
    (96
    )
    
    
    (356
    )
    
    
    (273
    )Non-operating income
    
    
    74
    
    
    
    358
    
    
    
    882
    
    
    
    955Income from continuing operations before income taxes and minority
interest allocations
    
    
    16,290
    
    
    
    11,030
    
    
    
    40,099
    
    
    
    32,234Income tax expense
    
    
    5,243
    
    
    
    3,377
    
    
    
    12,513
    
    
    
    10,246Minority interest
    
    
    3,012
    
    
    
    1,413
    
    
    
    7,710
    
    
    
    4,327Income from continuing operations
    
    
    8,035
    
    
    
    6,240
    
    
    
    19,876
    
    
    
    17,661Loss from discontinued operations (net of income tax benefit of $2,
$157, $110 and $539, respectively)
    
    
    (3
    )
    
    
    (246
    )
    
    
    (171
    )
    
    
    (843
    )Gain on sale of discontinued operations (net of income taxes of $20)
    
    
    

    
    
    
    31
    
    
    
    
    
    
    
    31Net income
    
    
    8,032
    
    
    
    6,025
    
    
    
    19,705
    
    
    
    16,849Redeemable minority interests
    
    
    (29
    )
    
    
    57
    
    
    
    36
    
    
    
    213Net income available to common stockholders
    
    $
    8,003
    
    
    $
    6,082
    
    
    $
    19,741
    
    
    $
    17,062Earnings per
share  basic and diluted:Income from continuing operations
    
    $
    0.45
    
    
    $
    0.35
    
    
    $
    1.11
    
    
    $
    0.99Loss from discontinued operations, net
    
    
    
    
    
    
    (0.01
    )
    
    
    (0.01
    )
    
    
    (0.05
    )Net income
    
    
    0.45
    
    
    
    0.34
    
    
    
    1.10
    
    
    
    0.94Redeemable minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.01Net income available to common stockholders
    
    $
    0.45
    
    
    $
    0.34
    
    
    $
    1.10
    
    
    $
    0.95Weighted average shares outstanding:Basic
    
    
    17,881,228
    
    
    
    17,766,612
    
    
    
    17,843,869
    
    
    
    17,756,537Diluted
    
    
    17,976,305
    
    
    
    17,794,072
    
    
    
    17,967,488
    
    
    
    17,823,237
  4




---



##### Table of Contents



LHC GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY  (Dollars in thousands except share data)
 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,705
    
    
    
    19,705Issuance of common stock to
joint venture partners in
exchange for a portion of
their minority ownership
    
    
    1
    
    
    
    51,736
    
    
    
    
    
    
    
    
    
    
    
    1,033
    
    
    
    
    
    
    
    1,034Nonvested stock compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,380
    
    
    
    
    
    
    
    1,380Issuance of vested
restricted stock
    
    
    
    
    
    
    40,159
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Treasury shares redeemed to
pay income tax
    
    
    
    
    
    
    
    
    
    
    (73
    )
    
    
    3,359
    
    
    
    
    
    
    
    
    
    
    
    (73
    )Excess tax benefits from
issuance of vested stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (96
    )
    
    
    
    
    
    
    (96
    )Issuance of common stock
under Employee Stock
Purchase Plan
    
    
    1
    
    
    
    19,004
    
    
    
    
    
    
    
    
    
    
    
    384
    
    
    
    
    
    
    
    385Recording minority interest
in joint venture at
redemption
value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36
    
    
    
    36Balances at September 30, 2008
    
    $
    179
    
    
    
    20,836,612
    
    
    $
    (2,939
    )
    
    
    2,953,788
    
    
    $
    84,684
    
    
    $
    83,818
    
    
    $
    165,742
 5




---



##### Table of Contents



LHC GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  (Dollars in thousands)
 Nine Months EndedSeptember 30,2008
    
    
    2007Operating activitiesNet income
    
    $
    19,705
    
    
    $
    16,849Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization expense
    
    
    2,730
    
    
    
    2,201Provision for bad debts
    
    
    10,820
    
    
    
    7,291Stock-based compensation expense
    
    
    1,380
    
    
    
    758Minority interest in earnings of subsidiaries
    
    
    7,469
    
    
    
    3,932Deferred income taxes
    
    
    497
    
    
    
    (678
    )Gain on sale of assets
    
    
    (343
    )
    
    
    Changes in operating assets and liabilities, net of acquisitions:Receivables
    
    
    1,272
    
    
    
    (17,390
    )Prepaid income taxes
    
    
    
    
    
    
    (519
    )Income taxes payable
    
    
    3,590
    
    
    
    Prepaid expenses and other assets
    
    
    859
    
    
    
    (318
    )Accounts payable and accrued expenses
    
    
    8,356
    
    
    
    2,890Net amounts due governmental entities
    
    
    3,099
    
    
    
    (61
    )Net cash provided by operating activities
    
    
    59,434
    
    
    
    14,955Investing activitiesPurchases of property, building and equipment
    
    
    (7,351
    )
    
    
    (2,634
    )Purchase of certificate of deposit
    
    
    (522
    )
    
    
    Proceeds from sale of assets
    
    
    3,094
    
    
    
    Cash paid for acquisitions, primarily goodwill, intangible assets and advance
payments on acquisitions
    
    
    (40,039
    )
    
    
    (22,376
    )Net cash used in investing activities
    
    
    (44,818
    )
    
    
    (25,010
    )Financing activitiesProceeds from line of credit
    
    
    32,851
    
    
    
    Payments on line of credit
    
    
    (32,851
    )
    
    
    Proceeds from debt issuance
    
    
    5,050
    
    
    
    Principal payments on debt
    
    
    (3,220
    )
    
    
    (159
    )Payment of deferred financing fees
    
    
    (71
    )
    
    
    Payments on capital leases
    
    
    (74
    )
    
    
    (175
    )Excess tax benefits from vesting of restricted stock
    
    
    34
    
    
    
    89Proceeds from employee stock purchase plan
    
    
    385
    
    
    
    303Minority interest distributions, net
    
    
    (6,724
    )
    
    
    (4,021
    )Net cash used in financing activities
    
    
    (4,620
    )
    
    
    (3,963
    )Change in cash
    
    
    9,996
    
    
    
    (14,018
    )Cash at beginning of period
    
    
    1,155
    
    
    
    26,877Cash at end of period
    
    $
    11,151
    
    
    $
    12,859Supplemental disclosures of cash flow informationInterest paid
    
    $
    356
    
    
    $
    272Income taxes paid
    
    $
    8,553
    
    
    $
    12,052
  6




---



##### Table of Contents



LHC GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 1. Organization
  Unaudited Interim Financial Information
   2. Significant Accounting Policies
 Use of Estimates
  Critical Accounting Policies
  Principles of Consolidation
  7




---



##### Table of Contents



Equity Joint Ventures
  License Leasing Arrangements
  Management Services
   Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2008
    
    2007
    
    2008
    
    2007Wholly-owned subsidiaries
    
    
    48.5
    %
    
    
    45.5
    %
    
    
    48.2
    %
    
    
    45.9
    %Equity joint ventures
    
    
    47.2
    
    
    
    42.2
    
    
    
    47.8
    
    
    
    41.8License leasing arrangements
    
    
    2.0
    
    
    
    10.4
    
    
    
    2.0
    
    
    
    10.0Management services
    
    
    2.3
    
    
    
    1.9
    
    
    
    2.0
    
    
    
    2.3100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 Revenue Recognition
  8




---



##### Table of Contents



Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2008
    
    2007
    
    2008
    
    2007Home-based services
    
    
    86.1
    %
    
    
    81.6
    %
    
    
    84.4
    %
    
    
    81.3
    %Facility-based services
    
    
    13.9
    
    
    
    18.4
    
    
    
    15.6
    
    
    
    18.7100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2008
    
    2007
    
    2008
    
    2007Payor:Medicare
    
    
    83.2
    %
    
    
    82.0
    %
    
    
    82.9
    %
    
    
    82.0
    %Medicaid
    
    
    4.3
    
    
    
    5.0
    
    
    
    4.9
    
    
    
    5.6Other
    
    
    12.5
    
    
    
    13.0
    
    
    
    12.2
    
    
    
    12.4100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 Home-Based Services
 Home Nursing Services.
 9




---



##### Table of Contents



Hospice Services.
 Facility-Based Services
 Long-Term Acute Care Services.
 Outpatient Therapy Services.
 Accounts Receivable and Allowances for Uncollectible Accounts
  10




---



##### Table of Contents



Other Significant Accounting Policies
 Earnings Per Share
   Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2008
    
    2007
    
    2008
    
    2007Weighted average number of shares
outstanding for basic per share
calculation
    
    
    17,881,228
    
    
    
    17,766,612
    
    
    
    17,843,869
    
    
    
    17,756,537Effect of dilutive potential shares:Options
    
    
    6,256
    
    
    
    4,799
    
    
    
    5,111
    
    
    
    6,895Restricted stock
    
    
    88,821
    
    
    
    22,661
    
    
    
    118,508
    
    
    
    59,805Adjusted weighted average shares
for diluted per share calculation
    
    
    17,976,305
    
    
    
    17,794,072
    
    
    
    17,967,488
    
    
    
    17,823,237
 Minority Interest Subject to Exchange Contracts
  11




---



##### Table of Contents



Immaterial Correction of an Error
  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
 12




---



##### Table of Contents



3. Acquisitions
  2008 Acquisitions
      Nine MonthsEndedSeptember 30,2008(in thousands)Home-based services segment:Balance at December 31, 2007
    
    $
    57,884Goodwill acquired during the period from acquisitions
    
    
    31,806Balance at September 30, 2008
    
    $
    89,690Facility-based services segment:Balance at December 31, 2007
    
    $
    4,343Goodwill
acquired during the period from redemption of minority interest
    
    
    1,123Balance at September 30, 2008
    
    $
    5,466
   13




---



##### Table of Contents



4. Credit Arrangements
 Long-Term Debt
  September 30,
    
    
    December
    
    31,2008
    
    
    2007(in thousands)Notes payable:Due in monthly installments of $28,056 through February 2015 at
LIBOR
plus 1.90% (4.38% at September 30, 2008) plus a balloon payment
of $930,000
    
    $
    4,853
    
    
    $
    Due in monthly installments of $12,500 through November 2009 at 5.78%
    
    
    157
    
    
    
    260Due in yearly installments of $50,000 through August 2010 at 6.25%
    
    
    100
    
    
    
    150Due in monthly installments of $20,565 through October 2015 at LIBOR
plus 2.25% (6.71% at December 31, 2007)
    
    
    
    
    
    
    2,8705,110
    
    
    
    3,280Less current portion of long-term debt
    
    
    531
    
    
    
    433$
    4,579
    
    
    $
    2,847
    Credit Facilities
   14




---



##### Table of Contents



5. Stockholders Equity
 Issuance of Common Stock
  Share Based Compensation
   Stock Options
  Nonvested Stock
   Weightedaveragegrant dateNumber of
    
    fairShares
    
    valueNonvested shares outstanding at December 31, 2007
    
    
    218,832
    
    
    $
    24.83Granted
    
    
    164,195
    
    
    $
    18.57Vested
    
    
    (40,159
    )
    
    $
    26.16Forfeited
    
    
    (21,997
    )
    
    $
    21.97Nonvested shares outstanding at September 30, 2008
    
    
    320,871
    
    
    $
    22.42
  15




---



##### Table of Contents



Employee Stock Purchase Plan
  6. Commitments and Contingencies
 Contingencies
   Compliance
    16




---



##### Table of Contents



7. Segment Information
  Three Months Ended September 30, 2008Home-Based
    
    Facility-BasedServices
    
    Services
    
    Total(in thousands)Net service revenue
    
    $
    84,514
    
    
    $
    13,652
    
    
    $
    98,166Cost of service revenue
    
    
    39,916
    
    
    
    8,061
    
    
    
    47,977Provision for bad debts
    
    
    2,759
    
    
    
    399
    
    
    
    3,158General and administrative expenses
    
    
    27,696
    
    
    
    2,991
    
    
    
    30,687Operating income
    
    
    14,143
    
    
    
    2,201
    
    
    
    16,344Interest expense
    
    
    (113
    )
    
    
    (15
    )
    
    
    (128
    )Non-operating income
    
    
    58
    
    
    
    16
    
    
    
    74Income from continuing operations before income
taxes and minority interest
    
    
    14,088
    
    
    
    2,202
    
    
    
    16,290Minority interest
    
    
    2,754
    
    
    
    258
    
    
    
    3,012Income from continuing operations before income taxes
    
    
    11,334
    
    
    
    1,944
    
    
    
    13,278Total assets
    
    $
    194,672
    
    
    $
    21,893
    
    
    $
    216,565
 Three Months Ended September 30, 2007Home-Based
    
    Facility-BasedServices
    
    Services
    
    Total(in thousands)Net service revenue
    
    $
    63,217
    
    
    $
    14,278
    
    
    $
    77,495Cost of service revenue
    
    
    31,135
    
    
    
    8,844
    
    
    
    39,979Provision for bad debts
    
    
    1,390
    
    
    
    840
    
    
    
    2,230General and administrative expenses
    
    
    20,717
    
    
    
    3,801
    
    
    
    24,518Operating income (loss)
    
    
    9,975
    
    
    
    793
    
    
    
    10,768Interest expense
    
    
    (64
    )
    
    
    (32
    )
    
    
    (96
    )Non-operating income
    
    
    246
    
    
    
    112
    
    
    
    358Income from continuing operations before income
taxes and minority interest
    
    
    10,157
    
    
    
    873
    
    
    
    11,030Minority interest
    
    
    1,264
    
    
    
    149
    
    
    
    1,413Income from continuing operations before income taxes
    
    
    8,893
    
    
    
    724
    
    
    
    9,617Total assets
    
    $
    148,909
    
    
    $
    28,771
    
    
    $
    177,680
 17




---



##### Table of Contents



Nine Months Ended September 30, 2008Home-Based
    
    Facility-BasedServices
    
    Services
    
    Total(in thousands)Net service revenue
    
    $
    229,296
    
    
    $
    42,459
    
    
    $
    271,755Cost of service revenue
    
    
    110,738
    
    
    
    24,694
    
    
    
    135,432Provision for bad debts
    
    
    9,090
    
    
    
    1,377
    
    
    
    10,467General and administrative expenses
    
    
    75,915
    
    
    
    10,368
    
    
    
    86,283Operating income
    
    
    33,553
    
    
    
    6,020
    
    
    
    39,573Interest expense
    
    
    (276
    )
    
    
    (80
    )
    
    
    (356
    )Non-operating income
    
    
    703
    
    
    
    179
    
    
    
    882Income from continuing operations before income
taxes and minority interest
    
    
    33,980
    
    
    
    6,119
    
    
    
    40,099Minority interest
    
    
    6,471
    
    
    
    1,239
    
    
    
    7,710Income from continuing operations before income taxes
    
    
    27,509
    
    
    
    4,880
    
    
    
    32,389Total assets
    
    $
    194,672
    
    
    $
    21,893
    
    
    $
    216,565
 Nine Months Ended September 30, 2007Home-Based
    
    Facility-BasedServices
    
    Services
    
    Total(in thousands)Net service revenue
    
    $
    176,275
    
    
    $
    40,511
    
    
    $
    216,786Cost of service revenue
    
    
    84,874
    
    
    
    25,802
    
    
    
    110,676Provision for bad debts
    
    
    4,036
    
    
    
    2,073
    
    
    
    6,109General and administrative expenses
    
    
    56,703
    
    
    
    11,746
    
    
    
    68,449Operating income
    
    
    30,662
    
    
    
    890
    
    
    
    31,552Interest expense
    
    
    (180
    )
    
    
    (93
    )
    
    
    (273
    )Non-operating income
    
    
    661
    
    
    
    294
    
    
    
    955Income from continuing operations before income
taxes and minority interest
    
    
    31,143
    
    
    
    1,091
    
    
    
    32,234Minority interest
    
    
    3,673
    
    
    
    654
    
    
    
    4,327Income from continuing operations before income taxes
    
    
    27,470
    
    
    
    437
    
    
    
    27,907Total assets
    
    $
    148,909
    
    
    $
    28,771
    
    
    $
    177,680
 
 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 September 30, 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;
 18




---



##### Table of Contents




    
    our future sources of and needs for liquidity and capital resources;
    
    the value of our investments;
    
    the effect of any changes in market rates on our operations and cash flows;
    
    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;
    
    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 Securities and Exchange Commission laws and regulations and
Sarbanes-Oxley requirements;
    
    the impact of federal and state government regulation on our business; and
    
    the impact of changes in our future interpretations of fraud, anti-kickbacks or other
laws.
    19




---



##### Table of Contents



Overview
  Segments
    Recent Developments
 Medicare
 Home-Based Services.
 20




---



##### Table of Contents



Facility-Based Services.
    21




---



##### Table of Contents



Office of Inspector General
  22




---



##### Table of Contents



Results of Operations
 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
    
    $
    31,335
    
    
    $
    2,101
    
    
    $
    1,900
    
    
    $
    1,187
    
    
    $
    1,904
    
    
    $
    2,325
    
    
    $
    1,051
    
    
    $
    4,711
    
    
    $
    46,514Medicaid
    
    
    2,100
    
    
    
    324
    
    
    
    694
    
    
    
    625
    
    
    
    550
    
    
    
    934
    
    
    
    482
    
    
    
    3,010
    
    
    
    8,719Other
    
    
    3,845
    
    
    
    505
    
    
    
    897
    
    
    
    677
    
    
    
    1,060
    
    
    
    1,227
    
    
    
    158
    
    
    
    3,095
    
    
    
    11,464Total
    
    $
    37,280
    
    
    $
    2,930
    
    
    $
    3,491
    
    
    $
    2,489
    
    
    $
    3,514
    
    
    $
    4,486
    
    
    $
    1,691
    
    
    $
    10,816
    
    
    $
    66,697Allowance as a
percentage of
receivable
    
    
    4.6
    %
    
    
    4.9
    %
    
    
    7.6
    %
    
    
    11.9
    %
    
    
    8.6
    %
    
    
    18.5
    %
    
    
    26.4
    %
    
    
    62.9
    %
    
    
    16.2
    %
   Payor
    
    0-30
    
    
    31-60
    
    
    61-90
    
    
    91-120
    
    
    121-150
    
    
    151-180
    
    
    181-240
    
    
    241+
    
    
    Total(in thousands)Medicare
    
    $
    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
    
    
    $
    78,986Allowance as a
percentage of
receivable
    
    
    4.6
    %
    
    
    5.1
    %
    
    
    5.4
    %
    
    
    4.7
    %
    
    
    6.2
    %
    
    
    11.7
    %
    
    
    23.9
    %
    
    
    38.3
    %
    
    
    11.3
    %
 Consolidated Net Service Revenues:
   Home-Based Services.
 23




---



##### Table of Contents



Organic Growth
   Three Months Ended September 30, 2008 (in thousands except census and episode data)
 Same
    
    
    
    
    
    
    
    
    
    Organic
    
    Internal
    
    Internal
    
    
    
    
    
    Total
    
    TotalStore(1)
    
    De Novo(2)
    
    Organic(3)
    
    Growth %
    
    Growth (4)
    
    Growth %
    
    Acquired(5)
    
    Growth
    
    Growth %Revenue
    
    $
    68,943
    
    
    $
    2,138
    
    
    $
    71,081
    
    
    
    12.4
    %
    
    $
    73,826
    
    
    
    16.8
    %
    
    $
    13,433
    
    
    $
    84,514
    
    
    
    33.7
    %Revenue Medicare
    
    $
    58,110
    
    
    $
    1,841
    
    
    $
    59,951
    
    
    
    16.8
    %
    
    $
    62,177
    
    
    
    21.1
    %
    
    $
    11,272
    
    
    $
    71,223
    
    
    
    38.7
    %Average Census
    
    
    18,164
    
    
    
    641
    
    
    
    18,805
    
    
    
    11.5
    %
    
    
    19,071
    
    
    
    13.1
    %
    
    
    2,928
    
    
    
    21,733
    
    
    
    28.9
    %Average
Medicare Census
    
    
    14,713
    
    
    
    529
    
    
    
    15,242
    
    
    
    19.4
    %
    
    
    15,517
    
    
    
    21.5
    %
    
    
    2,568
    
    
    
    17,810
    
    
    
    39.5
    %Episodes
    
    
    25,414
    
    
    
    678
    
    
    
    26,092
    
    
    
    27.3
    %
    
    
    27,010
    
    
    
    31.7
    %
    
    
    3,611
    
    
    
    29,703
    
    
    
    44.9
    %
 
 (1)
    
    Same store  location that has been in service with the Company for 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)
    
    Internal  organic plus IAG.(5)
    
    Acquired  purchased location that has been in service with the Company for 12 months or less. Nine Months Ended September 30, 2008 (in thousands except census and episode data)
 Same
    
    
    
    
    
    
    
    
    
    Organic
    
    Internal
    
    Internal
    
    
    
    
    
    Total
    
    TotalStore(1)
    
    De Novo(2)
    
    Organic(3)
    
    Growth %
    
    Growth (4)
    
    Growth %
    
    Acquired(5)
    
    Growth
    
    Growth %Revenue
    
    $
    197,966
    
    
    $
    4,413
    
    
    $
    202,379
    
    
    
    14.8
    %
    
    $
    206,474
    
    
    
    17.1
    %
    
    $
    26,917
    
    
    $
    229,296
    
    
    
    30.1
    %Revenue Medicare
    
    $
    164,916
    
    
    $
    3,795
    
    
    $
    168,711
    
    
    
    18.0
    %
    
    $
    172,329
    
    
    
    20.5
    %
    
    $
    22,724
    
    
    $
    191,435
    
    
    
    33.9
    %Average Census
    
    
    16,953
    
    
    
    582
    
    
    
    17,535
    
    
    
    8.2
    %
    
    
    17,724
    
    
    
    9.4
    %
    
    
    2,851
    
    
    
    20,386
    
    
    
    25.8
    %Average
Medicare Census
    
    
    13,464
    
    
    
    477
    
    
    
    13,941
    
    
    
    14.6
    %
    
    
    14,117
    
    
    
    16.0
    %
    
    
    2,469
    
    
    
    16,410
    
    
    
    34.9
    %Episodes
    
    
    73,931
    
    
    
    1,416
    
    
    
    75,347
    
    
    
    31.4
    %
    
    
    78,513
    
    
    
    37.0
    %
    
    
    8,696
    
    
    
    84,043
    
    
    
    46.6
    %
 24




---



##### Table of Contents



(1)
    
    Same store  location that has been in service with the Company for 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)
    
    Internal Growth  organic plus IAG.(5)
    
    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.
 Three Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Salaries, wages and benefits
    
    $
    33,917
    
    
    $
    26,794
    
    
    $
    94,682
    
    
    $
    72,780Transportation
    
    
    2,961
    
    
    
    2,096
    
    
    
    8,033
    
    
    
    6,072Supplies and services
    
    
    3,038
    
    
    
    2,245
    
    
    
    8,023
    
    
    
    6,022Total
    
    $
    39,916
    
    
    $
    31,135
    
    
    $
    110,738
    
    
    $
    84,874Percentage of Home-Based net service revenue
    
    
    47.2
    %
    
    
    49.3
    %
    
    
    48.3
    %
    
    
    48.1
    %
  Facility-Based Services.
 25




---



##### Table of Contents



Three Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Salaries, wages and benefits
    
    $
    5,265
    
    
    $
    5,637
    
    
    $
    15,902
    
    
    $
    16,049Transportation
    
    
    48
    
    
    
    96
    
    
    
    222
    
    
    
    236Supplies and services
    
    
    2,748
    
    
    
    3,111
    
    
    
    8,570
    
    
    
    9,517Total
    
    $
    8,061
    
    
    $
    8,844
    
    
    $
    24,694
    
    
    $
    25,802Percentage of Facility-Based net service revenue
    
    
    59.0
    %
    
    
    61.9
    %
    
    
    58.2
    %
    
    
    63.7
    %
   Provision for Bad Debts
    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;
 26




---



##### Table of Contents




    
    recruitment;
    
    field office rent; and
    
    taxes.
   Home-Based Services.
  Facility-Based Services.
  Income Tax Expense
    Minority Interest
 27




---



##### Table of Contents



Discontinued Operations
    Liquidity and Capital Resources
 Impact
of Current Credit and Capital Markets
  Liquidity
  
    
    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 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.
 28




---



##### Table of Contents



Nine MonthsEnded September 30,2008
    
    
    2007Cash provided by operating activities
    
    $
    59,434
    
    
    $
    14,955Cash used in investing activities
    
    
    (44,818
    )
    
    
    (25,010
    )Cash used in financing activities
    
    
    (4,620
    )
    
    
    (3,963
    )Change in cash
    
    
    9,996
    
    
    
    (14,018
    )Cash and cash equivalents at beginning of period
    
    
    1,155
    
    
    
    26,877Cash and cash equivalents at end of period
    
    $
    11,151
    
    
    $
    12,859
      Indebtedness
   29




---



##### Table of Contents



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
    %
      Contingencies
  Off-Balance Sheet Arrangements
  Critical Accounting Policies
 30




---



##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
   31




---



##### Table of Contents



Changes in Internal Controls
  
 PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS.
  
 ITEM 1A. RISK FACTORS.
 The
adverse changes in the capital and credit markets may negatively affect our
ability to access financing and without such financing we may be
unable to achieve our objectives for strategic acquisitions and
internal growth.
  
 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.
 32




---



##### Table of Contents



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 (previously
filed as Exhibit 3.1 to the Form 8-K on January 4, 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 and to the form 8-K on January 4, 2008, 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).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. 33




---



##### Table of Contents



SIGNATURES
  LHC GROUP, INC.Date November 10, 2008
    /s/  Peter J. RomanPeter J. RomanSenior Vice President and Chief Financial Officer 34