Via Facsimile and U.S. Mail
Mail Stop 03-09
April 27, 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 letter dated April 19, 2005
to
our comment letter dated April 13, 2005. We acknowledge the
various
phone conversations held in connection with these issues
subsequent
to the receipt of this letter, and we 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
Applicability of ASR to the Beta, HTAT and St. Landry`s Contingent
Put Options
1. We note that the Beta and HTAT equity derivatives become
exercisable in the event that LHC Group LLC undertakes an initial
public offering or is "sold, merged or otherwise acquired."
Please
confirm our understanding, if true, that during the April 25, 2005
conference call you represented that a legal standpoint the
condition
"sold, merged or otherwise acquired" would be met in the event
more
than 50% of the voting power of the company is transferred.
2. We note that the St. Landry option is exercisable if LHC Group
LLC
"undertakes and initial public offering or is acquired by a
publically traded company." Please confirm our understanding, if
true, that during the April 25, 2005 conference call, you
represented
that from a legal standpoint the condition "acquired by a publicly
traded company" would be met in the event more than 50% of the
voting
power of the company is transferred.
3. If the answer to the two previous questions that a more than
50%
ownership transfer makes these options exercisable, it appears
that
these puts are mandatorily redeemable under the guidance provided
in
ASR 268 because the change of control provision is outside the
control of the company and its board. Please provide to us an
analysis of the application of ASR 268 and EITF D-98 as it relates
to
the measurement criteria for these puts through the date of the
completion of the initial public offering.
Requirement to Provide Article 11 of Regulation S-X Pro Forma
Financial Information
4. Please provide a robust discussion of the whether the company
believes that it is probable that the St. Landry`s will redeem
their
minority interest holdings upon the completion of the initial
public
offering. Please base this analysis of probability on the terms
described in Financial Reporting Codification 506.02.c.ii.
5. Refer to comment 11 of the April 19, 2005 response letter.
Based
on this response, it appears that the company evaluated the need
to
provide pro forma financial information on each step acquisition
separately. If the company determined that the St. Landry`s step
acquisition is probable, it appears that each of these step
acquisitions should be viewed as related businesses because they
will
occur based on the outcome of a single event, initial public
offering. Please provide to us an analysis that addresses whether
St. Landry`s, Beta, and HTAT should be considered related
businesses.
If the St. Landry`s step acquisition is not probable, address this
issue for the HTA and Beta step acquisitions. Specifically
address
the criteria discussed in Rule 3-05(a)(3)(iii) of Regulation S-X.
Appendix B Additional Disclosure
6. We note the proposed disclosure that the company included in
its
March 25, 2005 letter as Appendix B. Related to this disclosure,
we
have the following comments:
a) Related to the $1.1 million that the company would be required
to
pay related to the St. Landry agreement, consider disclosing the
number of shares and the stock price used to calculate this
amount.
b) Consider disclosing this amount in the table at the end of the
note instead of the $0 disclosed there.
c) The paragraph that describes the company`s accounting will need
to
be adjusted to reflect the results of its analysis based on our
discussions and the company`s analysis requested in other
comments.
d) Please clearly indicate that the put options related to the
HTAT
and Beta agreements are still outstanding related to the change of
control provision and that they are only replaced related to the
IPO
contingency. It should be clear that there are three puts and two
forwards outstanding related to these minority interests.
e) Consider disclosing the reasons for entering into these
exchange
agreements as well as a discussion of how the settlement amounts
were
determined.
f) The table indicates that the amounts disclosed in the last two
columns represent the "fair value" of these instruments. Is it
more
appropriate to disclose these as the anticipated settlement
amounts?
g) Along the same thought it seems that the put option values for
Beta and HTAT would not be "N/A" but some other amount given that
the
put options are still outstanding.
Accounting for the Exchange Agreements
7. Did the Beta and HTAT forwards issued in the respective
exchange
agreements have a fair value at the date you executed the exchange
agreement equal to the written put rights given up by the holders
of
those puts? Please fully explain your response.
We issued prior comments 5, 6 and 7 in our April 13, 2005 comment
letter in continuance of our effort to ascertain whether the Beta
and
HTAT forwards issued in the respective exchange agreements had a
fair
value at the date you executed the exchange agreement equal to the
written put rights given up by the holders of those puts. We
raised
this as a potential issue because if, as certain of your prior
responses suggested to us, the fair value at the date you executed
the exchange agreement of the forwards in fact exceeded the fair
value of the written put rights exchanged in their respective
exchange transactions, then it appeared that such excess
consideration would need to be accounted for in accordance with
its
substance. After evaluating your April 19, 2005 responses to
comments 5, 6 and 7 it remains unclear to us whether the forwards
and
written put rights exchanged had equal fair value as of the
exchange
date. As we discussed in our telephone conferences on April 25th
and
26th, we found certain of your prior responses confusing and
consequently may have misunderstood what you were trying to
convey.
In an effort to facilitate your response to our comment above, we
provide below additional questions in italics followed by our
understanding of the prior responses that prompted them. Please
address the italicized questions as part of and to the extent
necessary to comprehensively respond to the comment above.
a)
Are you asserting that the strike prices of the Beta written put
and
the fair value of the Beta shares underlying the written put are
equal at any date? Similarly, are you asserting that the strike
prices of the HTAT written put and the fair value of the HTAT
shares
underlying the written put are equal at any date? Please fully
explain your response. If the strike prices do not equal the fair
value of the underlying Beta or HTAT shares, please tell us how
you
considered the time value of the options in your analysis.
We understood from your March 25, 2005 submission that the Beta
and
HTAT written puts, prior to the exchange agreement, had two strike
prices - the "conversion share" formula and the "purchase price"
formula. Upon exercise, the holder had the right to choose which
strike price to apply. In your April 7, 2005 response 3 you state
that "both formulas result in a fair value price in all possible
scenarios." We read this response to imply that (A) the fair
value
of the Beta or HTAT shares underlying each put option equaled both
strike prices of each put option and (B) that this relationship
existed on any date. We continue to question how "both formulas
result in a fair value price in all possible scenarios."
In your April 19, 2005 response 5a) and b) you state that the
"purchase price" formula "appears to be non-substantive." It is
unclear to us what evidence supports this assertion. For example,
are you asserting that the "purchase price" formula was not a
substantive, bargained for provision of the put right?
In response 5c) you state that "in all possible scenarios both the
redemption ["purchase price"] and the conversion formula would
result
in a price that is either equal to or less than fair value." You
also state that "HTAT has a fair value in excess of zero based on
the
future prospects of the business." It is unclear to us whether
this
means that you believe the strike prices of the Beta and HTAT
written
puts do not equal the fair value of the underlying shares.
b) Please tell us what the $0 and $680,000 amounts that you refer
to
for the HTAT written put represent and how you determined them.
Similarly, please tell us what the $7.4 million and $6.0 million
amounts you refer to for the Beta written put represent and how
you
determined them.
Your April 7, 2005 response 4 appeared to be inconsistent with
your
April 7, 2005 response 3. Response 4 appeared to indicate that
the
strike prices (and thus fair value of the underlying Beta and HTAT
shares based on our understanding of April 7, 2005 response 3) of
the
HTAT and Beta put options was $0 and $7.4 million, respectively.
It
is unclear to us why the fair value of the HTAT shares would equal
$0. It is also unclear to us from this response why the Beta
holders
would be willing to accept an amount less than the $7.4 million
and
why you would be willing to give the HTAT holders consideration in
excess of $0 if both of these amounts represent the respective
fair
values of the Beta and HTAT shares held by the minority interest
holders.
c) Please consider whether it would be helpful to reconcile the
settlement date fair value of each of the Beta and HTAT forwards
to
(A) the exchange date fair value of the Beta and HTAT written
puts,
respectively and (B) the expected IPO exercise date fair value of
the
Beta and HTAT written puts, respectively.
In your March 25, 2005 letter, you indicate that upon settlement
of
the Beta forward, the holders will receive 450,000 common shares
of
LHC Group, Inc. and cash equal to the IPO estimated offering price
for 153,772 shares. You have also indicated that the estimated
offering price was $10 per share. This implies that the expected
settlement date fair value of the Beta forward approximated $6.0
million. Please tell us if our understanding is correct.
Similarly,
in your March 25, 2005 letter, you indicate that upon settlement
of
the HTAT forward, the holders will receive 68,036 common shares of
LHC Group, Inc. This implies an expected settlement date fair
value
of the HTAT forward of approximately $680,360.
In a telephone conference on April 25, 2005, you indicated that
upon
an IPO, the original terms of the Beta and HTAT written puts
required
the respective holders to exercise within 20 days and 40 days
respectively. You also represented that the time value associated
with these periods was de minimus. This appears to suggest that
the
settlement date intrinsic value of the forward equals, in all
material respects, the IPO exercise date intrinsic value of the
put
option.
d) Please more fully explain the application of the methodology
you
describe in your April 19, 2005 response 6 to both the Beta and
HTAT
put options.
In your April 19, 2005 response 6, you indicate that you compared
the
forward price to the fair value of the minority interest shares,
discounting them back from the assumed exercise date, and then
including a probability factor related to the resolution of the
IPO
contingencies. It is unclear which amounts resulted from the
application of this methodology and what discount rate and
probability factor were used. It is also unclear what the status
of
your IPO considerations was at the date you executed each exchange
agreement.
e) Please clarify for us whether the amounts agreed to in the
exchange agreement were based in any way on the conversion formula
used to calculate the settlement value of the put option. Provide
a
more detailed discussion of exactly how the exchange agreement
amounts were determined.
At one point, we were under the impression that the value agreed
to
on the exchange date was based one the conversion formula used to
calculate the settlement of the put options. To this point the
company in its April 19, 2005 letter made statements that seem to
indicate the ultimate amounts were in some way based on this
conversion formula. For instance in response 6 the company states
that "estimates were developed to determine an expected fair value
price under the put option based on estimated measures (that is,
on a
pro forma basis)" related to the HTAT agreement. In response 7,
the
company states that "Beta was projected to contribute a smaller
portion of LHC Group`s EBITDA in the future." Both of these
comments
seem to indicate that the company may have been looking to the
conversion formula in part to determine these amounts. If our
understanding of this is correct, it is unclear whether the
purchase
price formula would have generated a different amount.
You may contact Tabatha Akins, Staff Accountant, at (202)
824-
5547 or James Atkinson, Accounting Branch Chief, 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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