Mail Stop 3-9 January 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.
Registration Statement on Form S-1
Filed November 24, 2004
File Number 333-120792
Dear Mr. Myers:
We have reviewed your filing and have the following
comments.
Where indicated, we think you should revise your document in
response
to these comments. If you disagree, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
supplemental information so we may better understand your
disclosure.
After reviewing this information, we may or may not raise
additional
comments.
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.
General
Overview, p. 1
1. We are in receipt of your proposed graphic. In your response
letter, please confirm that each star in the graphic represents a
site that is currently generating revenue for the Company. If
this
is not the case, please modify the graphic so that only revenue-
generating sites are marked with a star.
2. In prior comment 8, we had requested that you provide more
information about the services you provide. While we note your
revisions to the Overview, we could not locate any discussion of
the
specific services that constitute "post-acute healthcare
services."
Please include this information in your introduction to the
section.
Risk Factors, p. 8
"More than 80% of our net revenue...," p.8
3. We note your response to prior comments 15, 16 and 17.
However,
we believe that the possible elimination of the market basket and
the
possibility for adjustments in reimbursement should be disclosed
as
risk factors. We note that you have included other risk factors
that
have not materialized, including factors relating to regulatory
and
administrative matters. Accordingly, we are not persuaded by
your
response to the comment and believe that you should revise your
disclosure to include a discussion of each of these factors,
either
as new factors or within current risk factors that relate to the
new
disclosures.
4. Similarly, we also believe that the possible downward
adjustments
in the base episode payment and the risk to the Company`s revenues
that could arise therefrom is a material risk that should be
disclosed either as a separate risk factor or within a current
factor.
5. Please also disclose in the discussion that CMS routinely
adjusts
the wage index and reclassifies home health resource groups or
ling
term care diagnosis-related groups.
6. As we indicated in our original comment letter, risk factors
should not be generic but should be fact-specific and customized
for
the Company. Accordingly, you should include the requested
information for each of the bullet points set forth in the risk
factor.
"CMS recently adopted new regulations ...," p. 9
7. Please revise to identify the factors that will determine the
financial impact of the new rules as you have done in your
response
to previous comment 19.
"If we fail to complete the evaluation of our internal control
....,"
p. 18
8. We note your response to comment 42. Based on your response,
it
appears tht the risk factor discussion is generic in that it
applies
to all companies in all industries. Please revise to delete the
risk
factor from your registration statement.
Non-GAAP Financial Measures, page 25
9. We note your response to comment 45. We fail to see that the
arguments provided in the response present persuasive, substantive
reasons as to why management believes that these non-GAAP
financial
measures provide useful information to investors, nor has the
company
demonstrated the economic substance behind management`s decision
to
include such a measure. Additionally, within the response the
company
states that "it is important to report EBITDA because it provides
a
meaningful measure of our ability to meet our future debt service,
capital expenditures and working capital requirements." This
seems
inconsistent with what the disclosure on page 25 where it states
that
this is a performance measure. Furthermore, the company also
states
that "our business model creates an unusual circumstance that
requires us to report EBITDA less the amount of our minority
interest
and cooperative endeavor allocations." In light of the several
competitors listed in the response who treat of joint venture
activities similarly, these circumstances do not appear to be that
unusual. Please revise the filing to comply with item 10(e) of
Regulation S-K, or remove all references to these non-GAAP
measures.
Management`s Discussion and Analysis of Financial Condition and
Consolidated Results of Operations
Liquidity and Capital Resources, page 39
10. We note your revised disclosure as a result our comment 47.
However, your revision does not provide a robust discussion of the
primary factors driving the company`s current and future cash
flows,
in particular the cash outflows from operations. As such, please
revise this discussion to include a more robust analysis of the
activities that actually generate cash inflows and outflows from
operations as well as the more likely than not impact these items
will have on known trends and uncertainties.
11. Refer to your response to comment 48. The revised disclosure
does not seem to adequately address the dependence on these
payments
from subsidiaries to meet the liquidity needs of the parent
company
under this holding company structure. Please revise this section
of
the document to include the potential impact that such an
inability
by the subsidiaries to make payments would have on the ability of
the
parent to meet its debt obligations.
Critical Accounting Policies, pages 42-45
12. Refer to your response to comment 49. Please revise your
critical accounting policies to incorporate the additional
information discussed in your letter regarding contractual and
payment adjustments in the revenue recognition discussion
including
the impact of any RAP adjustments. Also include a more robust
discussion that the impact that the decision to consolidate or not
consolidate an entity would have on earnings in addition to the
current discussion of revenues.
Accounts Receivable and Allowances for Uncollectible Accounts,
page
44
13. Please consider expanding your disclosures include the
following
disclosures:
a. For each period presented, quantify and disclose the amount of
changes in estimates of prior period contractual adjustments that
you
recorded during the current period. For example for 2003, this
amount
would represent the amount of the difference between estimates of
contractual adjustments for services provided in 2002 and the
amount
of the new estimate or settlement amount that was recorded during
2003.
b. Quantify and disclose the reasonably possible effects that a
change in estimate of unsettled amounts from 3rd party payors as
of
the latest balance sheet date could have on financial position and
operations.
c. Disclose in a comparative tabular format, the payor mix
concentrations and related aging of accounts receivable. The
aging
schedule may be based on management`s own reporting criteria (i.e.
unbilled, less than 30 days, 30 to 60 days etc.) or some other
reasonable presentation. At a minimum, the disclosure should
indicate the past due amounts and a breakdown by payor
classification
(i.e. Medicare, Medicaid, Managed care and other, and Self-pay).
We
would expect Self-pay to be separately classified from any other
grouping. If your billing system does not have the capacity to
provide an aging schedule of your receivables, disclose that fact
and
clarify how this affects your ability to estimate your allowance
for
bad debts.
d. If you have amounts that are pending approval from third party
payors (i.e. Medicaid Pending), please disclose the balances of
such
amounts, where they have been classified in your aging buckets,
and
what payor classification they have been grouped with. If amounts
are classified outside of self-pay, tell us why this
classification
is appropriate, and disclose the historical percentage of amounts
that get reclassified into self-pay.
Business, page 46
14. We note your response to comments 52 and 57. Please provide
us
with a supplemental analysis supporting your conclusions that you
are
not substantially dependent on any of these agreements. You may
provide an analysis as to each type of agreement, as opposed to
each
individual agreement.
Selling Security Holders, page 83
15. Please provide a brief description of the private transactions
that you refer to in your response.
16. We note your response to comment 64. However, we were unable
to
locate the name of the natural person(s) with voting and
investment
control of the shares owned by The Catalyst Funds.
Underwriting, page 94
17. We note your response to comment 66. Please tell us when your
procedures were approved and confirm that there have been no
changes
in the procedures subsequent to that date.
Notes to the Consolidated Financial Statements
2. Significant Accounting Policies
Principles of Consolidation, pages F-8
18. We note your revised disclosure to our comment 73. We feel
that
this disclosure could be better improved by elaborating on the
specific components of the authoritative literature that
correlates
with your accounting treatment. With respect to each of the
following items, please provide us a sufficiently detailed
explanation to us that references the applicable literature and
revise your consolidation policy so that your basis for
consolidating
the partnership investments is wholly transparent to investors.
a. Explain your basis under GAAP for consolidating these entities.
b. Tell us what your ownership interest is in each of the
entity/agreement that is being consolidated.
c. Identify the minority partners and describe in detail their
rights. Tell us if the minority partners have substantive rights
under the agreements or under law that may preclude consolidation
of
these entities.
d. Specifically address the partnerships where the equity partner
has
a majority of the management committee votes as described on page
53.
Accounts Receivable and Allowances for Uncollectible Accounts,
page
F-10
19. We noted your response to our comment 75. Your response does
not
appear to provide adequate justification for recording amounts
billed
and received in advance of actual services performed as amounts
due
to the Medicare program and offset those amounts against the
accounts
receivable from Medicare. Please provide to us a more robust
discussion that cites the specific paragraphs within the
applicable
authoritative literature, which supports this accounting
treatment.
Additionally, please substantiate any legally enforceable right to
offset that the Company is entitled to.
Minority Interest and Cooperative Endeavor Agreements, page F-12
20. We considered your response to our comment 76. Please provide
a
discussion that references the applicable authoritative accounting
literature upon which the company relied in classifying these
amounts
as operating revenue/expense, or aggregating the amounts together.
Please revise the financial statements to separately present any
"minority interest" below income before income tax.
3. Acquisitions and Divestitures, page F-14
21. Please revise the discussion of the amount assigned to
goodwill
related to the acquisitions to indicate that the company included
the
value of the licenses within the amounts assigned to goodwill
along
with a brief description of why this is appropriate.
22. We have considered your response to our comment 79. The
analysis
the company provided related to the materiality of these disposals
appears to focus solely on the quantitative factors. Please
provide
a more details materiality analysis that focuses on the
qualitative
factors. Include specifically a discussion of the amount of
income
before taxes related to these operations for each period presented
and the impact on the trends that this disclosure would have.
11. Commitments and Contingencies
Contingencies, pages F-22 - F-23
23. Refer to your response to comment 81. We note that the
amounts
disclosed in note 15 based on the mid-point of the disclosed price
range appear to be significantly higher than the contingent amount
disclosed at the top of page F-23. Please explain to us the
differences in these amounts. Also provide to us the company`s
analysis with references to the specific paragraphs within the
authoritative literature upon which it relied the accounting
treatment applied to these transactions.
24. Refer to your response to comment 82. We note the added
disclosure related to these obligations. Please provide to us a
more
robust analysis of the accounting treatment applied to these
agreements. Include references to the specific paragraphs within
the
authoritative literature that supports this accounting treatment.
As appropriate, please amend your filing in response to
these
comments. You may wish to provide us with marked copies of the
amendment to expedite our review. Please furnish a cover letter
with
your amendment that keys your responses to our comments and
provides
any requested supplemental information. Detailed cover letters
greatly facilitate our review. Please file your cover letter on
EDGAR under the form type label CORRESP. Please understand that we
may have additional comments after reviewing your amendment and
responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
Notwithstanding our comments, in the event the company
requests
acceleration of the effective date of the pending registration
statement, it should furnish a letter, at the time of such
request,
acknowledging that
* should the Commission or the staff, acting pursuant to delegated
authority, declare the filing effective, it does not foreclose the
Commission from taking any action with respect to the filing;
* the action of the Commission or the staff, acting pursuant to
delegated authority, in declaring the filing effective, does not
relieve the company from its full responsibility for the adequacy
and
accuracy of the disclosure in the filing; and
* the company may not assert this action as defense in any
proceeding
initiated by the Commission or any person under the federal
securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in connection with our review of
your
filing or in response to our comments on your filing.
We will consider a written request for acceleration of the
effective date of the registration statement as a confirmation of
the
fact that those requesting acceleration are aware of their
respective
responsibilities under the Securities Act of 1933 and the
Securities
Exchange Act of 1934 as they relate to the proposed public
offering
of the securities specified in the above registration statement.
We
will act on the request and, pursuant to delegated authority,
grant
acceleration of the effective date.
We direct your attention to Rules 460 and 461 regarding
requesting acceleration of a registration statement. Please allow
adequate time after the filing of any amendment for further review
before submitting a request for acceleration. Please provide this
request at least two business days in advance of the requested
effective date.
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. Please contact
Zafar
Hasan at (202) 942-7381or me at (202) 942-1840 with any other
questions.
Sincerely,
Jeffrey Riedler
Assistant Director
cc: Steven Pottle
Alston & Bird
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
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LHC Group, LLC.
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