Via Facsimile and U.S. Mail
Mail Stop 03-09
April 13, 2005
Keith G. Myers
President and Chief Executive Officer
LHC Group, LLC
420 West Pinhook, Rd.
Suite A
Lafayette, Louisiana 70503
Re: LHC Group, LLC
Supplemental Response to Form S-1/A
Filed April 7, 2005
File Number 333-120792
Dear Mr. Myers
We have reviewed your response letters dated March 25, 2005
and
April 7, 2005 to our verbal comments and have the following
comments.
In our comments, we ask you to provide us with supplemental
information so we may better understand your disclosure. Please
provide us the supplemental information requested within 10
business
days of the date of this letter or tell us when you will provide a
response prior to the expiration of the 10-day period. Please
furnish a letter with your supplemental responses that keys your
responses to our comments. Detailed letters greatly facilitate
our
review. You should file the letter on EDGAR under the form type
label CORRESP. Please understand that we may have additional
comments after reviewing your responses to our comment.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
Form S-1/A filed February 16, 2005
Beta, HTAT and St. Landry`s Contingent Put Options
1. In your March 25, 2005 response, you express your belief that
the
reference to "freestanding financial instrument" in EITF 00-6
would
encompass an equity derivative on shares of a subsidiary even if
the
equity derivative did not meet the SFAS 150 definition of
"freestanding financial instrument." In support of this belief
you
indicate that, if the SFAS 150 definition of freestanding
financial
instrument applied to EITF 00-6, EITF 00-6 would essentially
address
a "null set" of instruments. We are continuing to evaluate the
company`s conclusions. In order to facilitate our evaluation,
please
address the following:
a) Please tell us how the company would account for the subsidiary
stock held by the minority shareholders if the terms of the equity
derivatives in question were in fact terms of and thus embedded in
the subsidiary stock held by the minority shareholders.
b) Please help us understand what you meant when you stated that
EITF
00-6 would address a "null set" of financial instruments if the
definition of SFAS 150 definition of "freestanding financial
instrument" applied to EITF 00-6. For example, are you asserting
that EITF 00-6 would not apply to forward contracts to sell common
shares of a subsidiary?
c) Please provide any additional insight that you believe would
help
us understand the views you expressed.
2. Refer to April 7, 2005 response 1. In order to help us
evaluate
whether the Beta, HTAT, St. Landry equity derivatives, both
written
puts and forwards, meet the "legally detachable" criteria in the
SFAS
150 definition of "freestanding financial instrument," please
address
the following:
a) Please tell us what you mean when you assert that the exchange
agreements are "specifically tied" to the put rights.
b) Please clarify for us why the operating agreements were not
amended to remove the written puts and what if any ramification
from
a legal standpoint the existence of the written puts in the
operating
agreements has on the company`s analysis of the legally detachable
criteria.
c) Please confirm, if true, that these forwards would transfer
with
the minority interest in all circumstances if the interests were
transferred.
d) Please confirm, if true, our understanding that the company
believes that neither the written puts nor the forward contracts
related to Beta, HTAT and St. Landry are legally detachable as
that
term is used in SFAS 150.
3. Refer to April 7, 2005 response 2. In order to help us
evaluate
whether the Beta, HTAT, and St. Landry equity derivatives meet the
"separately exercisable" criteria in the SFAS 150 definition of
"freestanding financial instrument," please briefly describe the
nature of the transfer restrictions and help us understand their
relevance to your analysis of the separately exercisable criteria.
4.
In your March 25, 2005 response, you indicate the Beta and HTAT
put
options included in the operating agreement become exercisable if
the
company "undertakes" an initial public offering while the St.
Landry
put option becomes exercisable "upon" an initial public offering.
Please tell us from a legal standpoint whether there is a
distinction
between these exercise provisions. If there is no distinction
from a
legal standpoint, please tell us when the holders` right to
exercise
is no longer contingent. For example, is exercise contingent
until
the successful completion of an initial public offering by the
company or does the initiation of that process cause the exercise
right to be unconditional?
5. Refer to your response to question 3 of the letter dated April
7,
2005. The company asserts that the put options embodied in the
operating agreement are fair value puts. This response provides
little insight into the basis for the company`s belief. Please
provide a more robust analysis that is responsive to prior comment
3.
In this analysis, please also address the following:
a) Please explain and demonstrate why in all circumstances 5 times
EBITDA for the preceding 12 months will always equal fair value.
For
example, why will the multiple always be "5" and the multiplier
always be EBITDA for the preceding 12 months.
b) Please explain and demonstrate why the share settlement formula
will in all circumstances equal fair value. For example, how are
(1)
the percentage of common stock of the joint venture held by the
minority shareholders related or correlated to (2) the percentage
of
total outstanding shares of common stock of LHC and/or (3) the
joint
venture`s proportionate contribution to consolidated LHC EBITDA?
c) Please help us understand how you reconcile your response 3 to
your response 4. For example, are you asserting in response 4
that
the company decided to issue to the HTAT minority shareholders a
contingent forward agreement with a fair value of $680,000 in
exchange for the cancellation of the HTAT written put which had a
fair value, as determined by the option formula, of $0?
6. Your April 7, 2005 response to question 4 suggests that
incremental value was given to the holders of the minority
interests.
However, in your response and in subsequent discussions with the
company, it appears that the company did not apply any accounting
to
the exchange of the put options for the forward contracts. Please
provide an accounting analysis that supports this lack of
accounting
treatment. Please consider at least two perspectives in your
analysis: why no accounting treatment is required if the written
puts
are considered freestanding and thus marked to fair value through
the
income statement pursuant to EITF 00-6, and why no accounting
treatment would be required if the written put options are not
considered to be freestanding financial instruments and thus are
not
evaluated separate and apart from the subsidiary shares.
7. See your April 7, 2005 response 4 related to the November 2004
exchange transaction related to the Beta written put option.
Please
address the following:
a) Please tell us what you mean when you state that the $7.4
million
was calculated based on the intent of the parties involved.
b) Please tell us the payment that would result from strict
application of the written put option formula included in the Beta
operating agreement.
c) You appear to suggest that the minority shareholders may have
accepted consideration less than the fair value of the written put
they gave up. Is our understanding correct? If it is, please
explain the economic and business reasons for such a decision.
8. Refer to response your April 7, 2005 response 6. In order to
help
us understand whether the change in control provisions of the
Beta,
HTAT and St. Landry written put options and the Beta and HTAT
forward
contracts are within the control of the company for purposes of
ASR
268, please provide to us a more detailed discussion of the
composition of the board of directors of the company. Include
specifically the following items, as well as any additional
information or analysis in the context of EITF D-98 that may be
helpful in determining whether the company has control over the
ability to cause the put to become exercisable through a change in
control:
a) Whether a change in control can be effected without the consent
or
approval of the board.
b) What the size of the Board is and how it is determined. For
example, can the minority shareholders appoint a majority of the
Board? Please consider the preferred security holder example in
EITF
D-98 in crafting your response.
c) The number of members on the board who are appointed by
management.
d) The number of members on the Board appointed by the minority
shareholder.
9. Please clarify for us your analysis under ASR 268 of the St.
Landry conversion rights upon successful completion of an initial
public offering by the company. For example, are you asserting
that
the conversion right is within the company`s control because
notwithstanding the terms of the option, which provides for
exercise
of the conversion right upon a successful completion of an initial
public offering by the company, the company can control the amount
of
its stockholder`s equity and therefore prevent exercise of the
conversion right through the federal Stark law? Alternatively,
are
you suggesting that the conversion right is not within the
company`s
control but subsequent accretion is not required because
redemption
is contingent on meeting the requirements of the federal Stark law
and you believe that it is not probable that such requirements
will
be met? Consider the need for revised disclosure.
10. We note that the St. Landry written put option grants the
minority interest holders the right to require the company to
redeem
their minority interest holdings in cash at any time 30 days after
the company`s initial public offering. It appears that upon the
company`s initial public offering, the redemption of the St.
Landry`s
shares will be within the control of the minority shareholders.
Please tell us if our understanding is correct. If it is, please
give us an analysis of the application of ASR 268 and EITF D-98 to
the St. Landry written put upon successful completion of an
initial
public offering. Please explicitly address the classification and
measurement guidance in EITF D-98. Also please tell us whether
the
written option has an expiration date. Consider the need for
revised
disclosure for all points addressed here.
11.
We note that the settlement of the Beta and HTAT forward
agreements
will represent the acquisition of minority interest. Please
provide
to us the company`s assessment of the need to provide Article 11
of
Regulation S-X pro forma financial information related to the
acquisition of the minority interests triggered by the completion
of
the initial public offering or that will become probable as a
result
of the offering.
12. Please update your financial statements to comply with Rule
3-12
of Regulation S-X.
You may contact Tabatha Akins at (202) 824-5547 or James
Atkinson, at (202) 942-2826 if you have questions regarding
comments
on the financial statements and related matters. In this regard,
do
not hesitate to contact me, at (202) 942-1803.
Sincerely,
Jeff Riedler
Assistant Director
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Mr. Keith Myers
LHC Group, Inc.
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