##### 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 June 30, 2008
 or
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period fromto
 Commission file number: 0-8082
 LHC GROUP, INC.
 (Exact Name of Registrant as Specified in 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 o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



LHC GROUP, INC.
 INDEX
 PagePart I. Financial InformationItem 1. Financial Statements (Unaudited)
    
    
    3Consolidated Balance Sheets  June 30, 2008 (unaudited) and
December 31, 2007
    
    
    3Consolidated Statements of Income (unaudited)  Three and six
months ended June 30, 2008 and 2007
    
    
    4Consolidated Statements of Cash Flows (unaudited)  Six
months ended June 30, 2008 and 2007
    
    
    5Notes to Consolidated Financial Statements (unaudited)
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    18Item 3. Quantitative and Qualitative Disclosure About Market Risk
    
    
    29Item 4. Controls and Procedures
    
    
    30Part II. Other InformationItem 1. Legal Proceedings
    
    
    31Item 1A. Risk Factors
    
    
    31Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    31Item 3. Defaults Upon Senior Securities
    
    
    31Item 4. Submission of Matters to a Vote of Security Holders
    
    
    31Item 5. Other Information
    
    
    32Item 6. Exhibits
    
    
    32Signatures
    
    
    33EX-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)
 June 30,
    
    
    December 31,2008
    
    
    2007(unaudited)ASSETSCurrent assets:Cash
    
    $
    2,880
    
    
    $
    1,155Receivables:Patient account receivable, less allowance for uncollectible accounts of
$8,913 and $8,953, respectively
    
    
    59,903
    
    
    
    70,033Other receivables
    
    
    3,578
    
    
    
    2,425Amounts due from governmental entities
    
    
    1,249
    
    
    
    1,459Total receivables, net
    
    
    64,730
    
    
    
    73,917Deferred income taxes
    
    
    3,092
    
    
    
    2,946Prepaid expenses and other current assets
    
    
    4,227
    
    
    
    4,423Prepaid income taxes
    
    
    1,234
    
    
    
    Assets held for sale
    
    
    436
    
    
    
    556Total current assets
    
    
    76,599
    
    
    
    82,997Property, building and equipment, net
    
    
    14,610
    
    
    
    12,523Goodwill
    
    
    94,312
    
    
    
    62,227Intangible assets, net
    
    
    15,162
    
    
    
    14,055Other assets
    
    
    3,460
    
    
    
    3,183Total assets
    
    $
    204,143
    
    
    $
    174,985LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable and other accrued liabilities
    
    $
    9,424
    
    
    $
    6,103Salaries, wages, and benefits payable
    
    
    13,404
    
    
    
    11,303Amounts due to governmental entities
    
    
    3,162
    
    
    
    3,162Income taxes payable
    
    
    
    
    
    
    863Current portion of capital lease obligations
    
    
    102
    
    
    
    88Current portion of long-term debt
    
    
    529
    
    
    
    433Total current liabilities
    
    
    26,621
    
    
    
    21,952Deferred income taxes
    
    
    4,218
    
    
    
    3,243Revolving credit facility
    
    
    8,081
    
    
    
    Capital lease obligations, less current portion
    
    
    
    
    
    
    63Long-term debt, less current portion
    
    
    4,751
    
    
    
    2,847Minority interests subject to exchanges contract and/or put options
    
    
    59
    
    
    
    121Other minority interests
    
    
    3,371
    
    
    
    3,388Stockholders equity:Common stock  $0.01 par value; 40,000,000 shares authorized; 20,830,083 and
20,725,713 shares issued and 17,876,295 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
    
    
    83,987
    
    
    
    81,983Retained earnings
    
    
    75,815
    
    
    
    64,077Total stockholders equity
    
    
    157,042
    
    
    
    143,371Total liabilities and stockholders equity
    
    $
    204,143
    
    
    $
    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 Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net service revenue
    
    $
    90,115
    
    
    $
    70,564
    
    
    $
    173,588
    
    
    $
    139,291Cost of service revenue
    
    
    45,559
    
    
    
    36,081
    
    
    
    87,455
    
    
    
    70,698Gross margin
    
    
    44,556
    
    
    
    34,483
    
    
    
    86,133
    
    
    
    68,593Provision for bad debt
    
    
    3,623
    
    
    
    2,137
    
    
    
    7,309
    
    
    
    3,878General and administrative expenses
    
    
    28,723
    
    
    
    23,005
    
    
    
    55,596
    
    
    
    43,932Operating income
    
    
    12,210
    
    
    
    9,341
    
    
    
    23,228
    
    
    
    20,783Interest expense
    
    
    (80
    )
    
    
    (94
    )
    
    
    (228
    )
    
    
    (176
    )Non-operating income
    
    
    407
    
    
    
    305
    
    
    
    808
    
    
    
    598Income from continuing operations before
income taxes and minority
interest allocations
    
    
    12,537
    
    
    
    9,552
    
    
    
    23,808
    
    
    
    21,205Income tax expense
    
    
    3,907
    
    
    
    3,071
    
    
    
    7,270
    
    
    
    6,865Minority interest
    
    
    2,259
    
    
    
    1,107
    
    
    
    4,698
    
    
    
    2,914Income from continuing operations
    
    
    6,371
    
    
    
    5,374
    
    
    
    11,840
    
    
    
    11,426Loss from discontinued operations (net of
income tax benefit of $24, $215, $108 and
$382, respectively)
    
    
    37
    
    
    
    336
    
    
    
    167
    
    
    
    602Net income
    
    
    6,334
    
    
    
    5,038
    
    
    
    11,673
    
    
    
    10,824Redeemable minority interests
    
    
    (36
    )
    
    
    122
    
    
    
    65
    
    
    
    156Net income available to common
stockholders
    
    $
    6,298
    
    
    $
    5,160
    
    
    $
    11,738
    
    
    $
    10,980Earnings per share  basic and diluted:Income from continuing operations
    
    $
    0.35
    
    
    $
    0.30
    
    
    $
    0.66
    
    
    $
    0.64Loss from discontinued operations, net
    
    
    
    
    
    
    (0.02
    )
    
    
    (0.01
    )
    
    
    (0.03
    )Net income
    
    
    0.35
    
    
    
    0.28
    
    
    
    0.65
    
    
    
    0.61Redeemable minority interests
    
    
    
    
    
    
    0.01
    
    
    
    0.01
    
    
    
    0.01Net income available to common stockholders
    
    $
    0.35
    
    
    $
    0.29
    
    
    $
    0.66
    
    
    $
    0.62Weighted average shares outstanding:Basic
    
    
    17,849,820
    
    
    
    17,754,632
    
    
    
    17,824,895
    
    
    
    17,751,412Diluted
    
    
    17,883,964
    
    
    
    17,798,952
    
    
    
    17,875,527
    
    
    
    17,813,395
  4




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##### Table of Contents



LHC GROUP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 ( Dollars in thousands)
  Six Months EndedJune 30,2008
    
    
    2007Operating activitiesNet income
    
    $
    11,673
    
    
    $
    10,824Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization expense
    
    
    1,757
    
    
    
    1,449Provision for bad debts
    
    
    7,663
    
    
    
    4,089Stock-based compensation expense
    
    
    816
    
    
    
    581Minority interest in earnings of subsidiaries
    
    
    4,545
    
    
    
    2,711Deferred income taxes
    
    
    829
    
    
    
    (337
    )Gain on sale of assets
    
    
    (339
    )
    
    
    Changes in operating assets and liabilities, net of acquisitions:Receivables
    
    
    1,240
    
    
    
    (13,782
    )Prepaid income taxes
    
    
    (1,234
    )
    
    
    (3,382
    )Prepaid expenses and other assets
    
    
    506
    
    
    
    (340
    )Accounts payable and accrued expenses
    
    
    4,282
    
    
    
    (1,377
    )Net amounts due governmental entities
    
    
    210
    
    
    
    (56
    )Net cash provided by operating activities
    
    
    31,948
    
    
    
    380Investing activitiesPurchases of property, building and equipment
    
    
    (6,467
    )
    
    
    (1,517
    )Proceeds from sale of assets
    
    
    3,090
    
    
    
    Cash paid for acquisitions, primarily goodwill and intangible assets
    
    
    (32,855
    )
    
    
    (9,477
    )Net cash used in investing activities
    
    
    (36,232
    )
    
    
    (10,994
    )Financing activitiesProceeds from line of credit
    
    
    30,057
    
    
    
    Payments on line of credit
    
    
    (21,976
    )
    
    
    Proceeds from debt issuance
    
    
    5,050
    
    
    
    Principal payments on debt
    
    
    (3,050
    )
    
    
    (69
    )Payments on capital leases
    
    
    (49
    )
    
    
    (127
    )Excess tax benefits from vesting of restricted stock
    
    
    33
    
    
    
    91Proceeds from employee stock purchase plan
    
    
    253
    
    
    
    173Minority interest distributions, net
    
    
    (4,309
    )
    
    
    (3,013
    )Net cash provided by (used in) financing activities
    
    
    6,009
    
    
    
    (2,945
    )Change in cash
    
    
    1,725
    
    
    
    (13,559
    )Cash at beginning of period
    
    
    1,155
    
    
    
    26,877Cash at end of period
    
    $
    2,880
    
    
    $
    13,318Supplemental disclosures of cash flow informationInterest paid
    
    $
    228
    
    
    $
    148Income taxes paid
    
    $
    8,485
    
    
    $
    11,336
  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 Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Wholly-owned subsidiaries
    
    
    49.2
    %
    
    
    46.9
    %
    
    
    48.0
    %
    
    
    46.2
    %Equity joint ventures
    
    
    46.9
    
    
    
    41.0
    
    
    
    48.1
    
    
    
    41.5License leasing arrangements
    
    
    2.1
    
    
    
    10.0
    
    
    
    2.1
    
    
    
    9.8Management services
    
    
    1.8
    
    
    
    2.1
    
    
    
    1.8
    
    
    
    2.5100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 Revenue Recognition
  7




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Home-based services
    
    
    84.8
    %
    
    
    82.2
    %
    
    
    83.4
    %
    
    
    81.2
    %Facility-based services
    
    
    15.2
    
    
    
    17.8
    
    
    
    16.6
    
    
    
    18.8100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Payor:Medicare
    
    
    82.9
    %
    
    
    82.0
    %
    
    
    82.7
    %
    
    
    82.0
    %Medicaid
    
    
    5.4
    
    
    
    5.6
    
    
    
    5.3
    
    
    
    5.9Other
    
    
    11.7
    
    
    
    12.4
    
    
    
    12.0
    
    
    
    12.1100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    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 Therapy Services.
 Accounts Receivable and Allowances for Uncollectible Accounts
  9




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##### Table of Contents



Other Significant Accounting Policies
 Earnings Per Share
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Weighted average number of shares
outstanding for basic per share
calculation
    
    
    17,849,820
    
    
    
    17,754,632
    
    
    
    17,824,895
    
    
    
    17,751,412Effect of dilutive potential shares:Options
    
    
    2,379
    
    
    
    7,871
    
    
    
    2,789
    
    
    
    7,856Restricted stock
    
    
    31,765
    
    
    
    36,449
    
    
    
    47,843
    
    
    
    54,127Adjusted weighted average shares
for diluted per share calculation
    
    
    17,883,964
    
    
    
    17,798,952
    
    
    
    17,875,527
    
    
    
    17,813,395
 Minority Interest Subject to Exchange Contracts
  10




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##### Table of Contents



Reclassifications
  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
 11




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##### Table of Contents



3. Acquisitions and Divestitures
  2008 Acquisitions
     Six MonthsEndedJune 30, 2008(in thousands)Home-based services segment:Balance at December 31, 2007
    
    $
    57,884Goodwill acquired during the period from acquisitions
    
    
    30,962Balance at June 30, 2008
    
    $
    88,846Facility-based services segment:Balance at December 31, 2007
    
    $
    4,343Goodwill acquired during the period from redemption of minority interest
    
    
    1,123Balance at June 30, 2008
    
    $
    5,466
   4. Credit Arrangements
 Long-Term Debt
 12




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##### Table of Contents



June 30,
    
    
    December 31,2008
    
    
    2007(in thousands)Notes payable:Due in monthly installments of $28,056 through February 2015 at
LIBOR
plus 1.90% (5.06% at June 30, 2008)
    
    $
    4,938
    
    
    $
    Due in monthly installments of $12,500 through November 2009 at 5.78%
    
    
    192
    
    
    
    260Due 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)
    
    
    
    
    
    
    2,8705,280
    
    
    
    3,280Less current portion of long-term debt
    
    
    529
    
    
    
    433$
    4,751
    
    
    $
    2,847
    Credit Facilities
   5. Income Taxes
  13




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##### Table of Contents



6. Stockholders Equity
  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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,673
    
    
    
    11,673Issuance 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    816
    
    
    
    
    
    
    
    816Issuance of non-vested
restricted stock
    
    
    
    
    
    
    39,659
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Treasury shares redeemed to
pay income tax
    
    
    
    
    
    
    
    
    
    
    (73
    )
    
    
    3,359
    
    
    
    
    
    
    
    
    
    
    
    (73
    )Excess tax benefits from
issuance of nonvested stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (97
    )
    
    
    
    
    
    
    (97
    )Issuance of common stock
under Employee Stock
Purchase Plan
    
    
    1
    
    
    
    12,975
    
    
    
    
    
    
    
    
    
    
    
    252
    
    
    
    
    
    
    
    253Recording minority interest
in joint venture at
redemption
value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    65
    
    
    
    65Balances at June 30, 2008
    
    $
    179
    
    
    
    20,830,083
    
    
    $
    (2,939
    )
    
    
    2,953,788
    
    
    $
    83,987
    
    
    $
    75,815
    
    
    $
    157,042
 Issuance of Common Stock
  Share Based Compensation
   Stock Options
  Nonvested Stock
 14




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##### Table of Contents



WeightedaverageNumber of
    
    grant dateShares
    
    fair valueNonvested shares outstanding at December 31, 2007
    
    
    218,832
    
    
    $
    24.83Granted
    
    
    140,628
    
    
    $
    17.00Vested
    
    
    (39,659
    )
    
    $
    26.22Forfeited
    
    
    (19,572
    )
    
    $
    22.38Nonvested shares outstanding at June 30, 2008
    
    
    300,229
    
    
    $
    22.10
  Employee Stock Purchase Plan
  7. Commitments and Contingencies
 Contingencies
   Compliance
 15




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##### Table of Contents



8. Segment Information
  Three Months Ended June 30, 2008Home-Based
    
    Facility-BasedServices
    
    Services
    
    Total(in thousands)Net service revenue
    
    $
    76,419
    
    
    $
    13,696
    
    
    $
    90,115Cost of service revenue
    
    
    37,443
    
    
    
    8,116
    
    
    
    45,559Provision for bad debts
    
    
    3,085
    
    
    
    538
    
    
    
    3,623General and administrative expenses
    
    
    25,058
    
    
    
    3,665
    
    
    
    28,723Operating income
    
    
    10,833
    
    
    
    1,377
    
    
    
    12,210Interest expense
    
    
    (62
    )
    
    
    (18
    )
    
    
    (80
    )Non-operating income
    
    
    360
    
    
    
    47
    
    
    
    407Income from continuing operations before income
taxes and minority interest
    
    
    11,131
    
    
    
    1,406
    
    
    
    12,537Minority interest
    
    
    1,978
    
    
    
    281
    
    
    
    2,259Income from continuing operations before income taxes
    
    
    9,153
    
    
    
    1,125
    
    
    
    10,278Total assets
    
    $
    181,362
    
    
    $
    22,781
    
    
    $
    204,143
 16




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##### Table of Contents



Three Months Ended June 30, 2007Home-Based
    
    Facility-BasedServices
    
    Services
    
    Total(in thousands)Net service revenue
    
    $
    57,992
    
    
    $
    12,572
    
    
    $
    70,564Cost of service revenue
    
    
    27,711
    
    
    
    8,370
    
    
    
    36,081Provision for bad debts
    
    
    1,422
    
    
    
    715
    
    
    
    2,137General and administrative expenses
    
    
    19,375
    
    
    
    3,630
    
    
    
    23,005Operating
income (loss)
    
    
    9,484
    
    
    
    (143
    )
    
    
    9,341Interest expense
    
    
    (63
    )
    
    
    (31
    )
    
    
    (94
    )Non-operating income
    
    
    213
    
    
    
    92
    
    
    
    305Income (loss) from continuing operations before income
taxes and minority interest
    
    
    9,634
    
    
    
    (82
    )
    
    
    9,552Minority interest
    
    
    987
    
    
    
    120
    
    
    
    1,107Income (loss) from continuing operations before income taxes
    
    
    8,647
    
    
    
    (202
    )
    
    
    8,445Total assets
    
    $
    129,856
    
    
    $
    33,205
    
    
    $
    163,061
 Six Months Ended June 30, 2008Home-Based
    
    Facility-BasedServices
    
    Services
    
    Total(in thousands)Net service revenue
    
    $
    144,782
    
    
    $
    28,806
    
    
    $
    173,588Cost of service revenue
    
    
    70,822
    
    
    
    16,633
    
    
    
    87,455Provision for bad debts
    
    
    6,331
    
    
    
    978
    
    
    
    7,309General and administrative expenses
    
    
    48,219
    
    
    
    7,377
    
    
    
    55,596Operating income
    
    
    19,410
    
    
    
    3,818
    
    
    
    23,228Interest expense
    
    
    (163
    )
    
    
    (65
    )
    
    
    (228
    )Non-operating income
    
    
    645
    
    
    
    163
    
    
    
    808Income from continuing operations before income
taxes and minority interest
    
    
    19,892
    
    
    
    3,916
    
    
    
    23,808Minority interest
    
    
    3,717
    
    
    
    981
    
    
    
    4,698Income from continuing operations before income taxes
    
    
    16,175
    
    
    
    2,935
    
    
    
    19,110Total assets
    
    $
    181,362
    
    
    $
    22,781
    
    
    $
    204,143
 Six Months Ended June 30, 2007Home-Based
    
    Facility-BasedServices
    
    Services
    
    Total(in thousands)Net service revenue
    
    $
    113,058
    
    
    $
    26,233
    
    
    $
    139,291Cost of service revenue
    
    
    53,739
    
    
    
    16,959
    
    
    
    70,698Provision for bad debts
    
    
    2,646
    
    
    
    1,232
    
    
    
    3,878General and administrative expenses
    
    
    35,986
    
    
    
    7,946
    
    
    
    43,932Operating income
    
    
    20,687
    
    
    
    96
    
    
    
    20,783Interest expense
    
    
    (116
    )
    
    
    (60
    )
    
    
    (176
    )Non-operating income
    
    
    416
    
    
    
    182
    
    
    
    598Income from continuing operations before income
taxes and minority interest
    
    
    20,987
    
    
    
    218
    
    
    
    21,205Minority interest
    
    
    2,408
    
    
    
    506
    
    
    
    2,914Income (loss) from continuing operations before income taxes
    
    
    18,579
    
    
    
    (288
    )
    
    
    18,291Total assets
    
    $
    129,856
    
    
    $
    33,205
    
    
    $
    163,061
 17




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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 June 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;§
    
    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;§
    
    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 Security and Exchange Commission laws and regulations and
Sarbanes-Oxley requirements;
 18




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##### Table of Contents



§
    
    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.
      Overview
  Segments
   19




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##### Table of Contents



Recent Developments
 Medicare
 Home-Based Services.
     20




---



##### Table of Contents



Facility-Based Services.
         21




---



##### Table of Contents



Office of Inspector General
  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
    
    $
    20,662
    
    
    $
    1,042
    
    
    $
    3,354
    
    
    $
    3,170
    
    
    $
    2,746
    
    
    $
    2,952
    
    
    $
    1,174
    
    
    $
    7,986
    
    
    $
    43,086Medicaid
    
    
    2,667
    
    
    
    474
    
    
    
    745
    
    
    
    540
    
    
    
    535
    
    
    
    976
    
    
    
    519
    
    
    
    3,405
    
    
    
    9,861Other
    
    
    6,429
    
    
    
    1,092
    
    
    
    1,355
    
    
    
    985
    
    
    
    972
    
    
    
    1,450
    
    
    
    406
    
    
    
    3,180
    
    
    
    15,869Total
    
    $
    29,758
    
    
    $
    2,608
    
    
    $
    5,454
    
    
    $
    4,695
    
    
    $
    4,253
    
    
    $
    5,378
    
    
    $
    2,099
    
    
    $
    14,571
    
    
    $
    68,816Allowance as a
percentage of
receivable
    
    
    4.9
    %
    
    
    9.9
    %
    
    
    6.4
    %
    
    
    5.7
    %
    
    
    6.6
    %
    
    
    17.1
    %
    
    
    25.3
    %
    
    
    33.2
    %
    
    
    13.0
    %
  Consolidated Net Service Revenues:
   Home-Based Services.
 22




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##### Table of Contents



Organic Growth
   Three Months Ended June 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
    
    $
    62,093
    
    
    $
    2,291
    
    
    $
    64,384
    
    
    
    11.0
    %
    
    $
    65,901
    
    
    
    13.6
    %
    
    $
    12,035
    
    
    $
    76,419
    
    
    
    31.7
    %Revenue Medicare
    
    $
    51,171
    
    
    $
    1,936
    
    
    $
    53,107
    
    
    
    13.1
    %
    
    $
    54,551
    
    
    
    16.1
    %
    
    $
    10,345
    
    
    $
    63,452
    
    
    
    35.1
    %Average Census
    
    
    16,044
    
    
    
    627
    
    
    
    16,671
    
    
    
    2.4
    %
    
    
    17,369
    
    
    
    6.7
    %
    
    
    3,798
    
    
    
    20,469
    
    
    
    25.7
    %Average Medicare Census
    
    
    12,757
    
    
    
    508
    
    
    
    13,265
    
    
    
    8.5
    %
    
    
    13,852
    
    
    
    13.3
    %
    
    
    3,279
    
    
    
    16,544
    
    
    
    35.4
    %Episodes
    
    
    23,416
    
    
    
    747
    
    
    
    24,163
    
    
    
    24.2
    %
    
    
    25,608
    
    
    
    31.6
    %
    
    
    4,762
    
    
    
    28,925
    
    
    
    48.7
    %
 
 (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. Six Months Ended June 30, 2008 (in thousands except census and episode data)
 Same
    
    
    
    
    
    
    
    
    
    Organic
    
    Internal
    
    Organic & IAG
    
    
    
    
    
    Total
    
    TotalStore(1)
    
    De Novo(2)
    
    Organic(3)
    
    Growth %
    
    Growth(4)
    
    Growth %
    
    Acquired(5)
    
    Growth
    
    Growth %Revenue
    
    $
    119,997
    
    
    $
    3,233
    
    
    $
    123,230
    
    
    
    9.0
    %
    
    $
    126,072
    
    
    
    11.5
    %
    
    $
    21,552
    
    
    $
    144,782
    
    
    
    28.0
    %Revenue Medicare
    
    $
    98,881
    
    
    $
    2,731
    
    
    $
    101,612
    
    
    
    10.9
    %
    
    $
    104,607
    
    
    
    14.1
    %
    
    $
    18,600
    
    
    $
    120,212
    
    
    
    31.2
    %Average Census
    
    
    15,516
    
    
    
    542
    
    
    
    16,058
    
    
    
    0.3
    %
    
    
    16,614
    
    
    
    3.8
    %
    
    
    3,656
    
    
    
    19,714
    
    
    
    23.1
    %Average Medicare Census
    
    
    12,160
    
    
    
    440
    
    
    
    12,600
    
    
    
    5.5
    %
    
    
    13,018
    
    
    
    9.0
    %
    
    
    3,110
    
    
    
    15,710
    
    
    
    31.5
    %Episodes
    
    
    45,555
    
    
    
    1,095
    
    
    
    46,650
    
    
    
    26.7
    %
    
    
    49,292
    
    
    
    33.9
    %
    
    
    7,690
    
    
    
    54,340
    
    
    
    47.6
    %
 
 (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. 23




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##### Table of Contents



(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
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Salaries, wages and benefits
    
    $
    32,128
    
    
    $
    23,352
    
    
    $
    60,764
    
    
    $
    45,987Transportation
    
    
    2,866
    
    
    
    2,221
    
    
    
    5,072
    
    
    
    3,976Supplies and services
    
    
    2,449
    
    
    
    2,138
    
    
    
    4,986
    
    
    
    3,776Total
    
    $
    37,443
    
    
    $
    27,711
    
    
    $
    70,822
    
    
    $
    53,739Percentage of net service revenue
    
    
    49.0
    %
    
    
    47.8
    %
    
    
    48.9
    %
    
    
    47.5
    %
   24




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##### Table of Contents



Facility-Based Services.
 Three Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Salaries, wages and benefits
    
    $
    5,102
    
    
    $
    5,034
    
    
    $
    10,637
    
    
    $
    10,412Transportation
    
    
    98
    
    
    
    84
    
    
    
    174
    
    
    
    140Supplies and services
    
    
    2,916
    
    
    
    3,252
    
    
    
    5,822
    
    
    
    6,407Total
    
    $
    8,116
    
    
    $
    8,370
    
    
    $
    16,633
    
    
    $
    16,959Percentage of net service revenue
    
    
    59.3
    %
    
    
    66.6
    %
    
    
    57.7
    %
    
    
    64.6
    %
  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;
    
    recruitment;
    
    field office rent; and
    
    taxes.
 25




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##### Table of Contents



Home-Based Services.
  Facility-Based Services.
   Income Tax Expense
   Minority Interest
   Discontinued Operations
 26




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##### Table of Contents



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.
  Six MonthsEnded June 30,2008
    
    
    2007Cash provided by operating activities
    
    $
    31,948
    
    
    $
    380Cash used in investing activities
    
    
    (36,232
    )
    
    
    (10,994
    )Cash provided (used in) financing activities
    
    
    6,009
    
    
    
    (2,945
    )Change in cash
    
    
    1,725
    
    
    
    (13,559
    )Cash and cash equivalents at beginning of
period
    
    
    1,155
    
    
    
    26,877Cash and cash equivalents at end of period
    
    $
    2,880
    
    
    $
    13,318
 27




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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
    %
 28




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##### Table of Contents



Contingencies
  Off-Balance Sheet Arrangements
  Critical Accounting Policies
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  29




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##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
    Changes in Internal Controls
  30




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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.
  Election of Directors
 Name of Director
    
    Votes For
    
    Votes WithheldTed W. Hoyt
    
    
    15,352,442
    
    
    
    1,484,319George A. Lewis
    
    
    15,537,373
    
    
    
    1,299,388Keith G. Myers
    
    
    15,728,185
    
    
    
    1,108,576
  Ratification of Stockholder Protection Rights Agreement.
 Votes For
    
    Votes Against
    
    Abstentions
    
    Non Votes13,116,677
    
    
    1,770,430
    
    
    
    82,968
    
    
    
    1,866,686
 Ratification of Appointment of Independent Auditors.
 31




---



##### Table of Contents



Votes For
    
    Votes Against
    
    Abstentions16,756,210
    
    
    71,461
    
    
    
    9,090
 
 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 (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, 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 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).10.2
    
    Amended and Restated Credit Agreement by and between LHC Group, Inc.,
Capital One, National Association, First Tennessee Bank, N.A., Branch
Banking and Trust Company dated June 12, 2008 (previously filed as
Exhibit 10.1 to Form 8-K on June 17, 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. 32




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##### Table of Contents



SIGNATURES
  LHC GROUP, INC.Date August 7, 2008
    /s/  Peter J. RomanPeter J. RomanSenior Vice President and Chief Financial Officer 33