ALSTON&BIRD LLP
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
404-881-7000
Fax: 404-881-7777
www.alston.com
PETER C. NOVEMBER DIRECT DIAL: 404-881-7872 E-MAIL: PNOVEMBER@ALSTON.COM
February 17, 2005
Mr. Jeffrey Riedler
Assistant Director
United States Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0306
Re: LHC Group, Inc.
Registration Statement on Form S-1
Filed November 24, 2004, as amended
File Number 333-120792
Dear Mr. Riedler:
On February 14, 2005 our client, LHC Group, Inc. (the "Company"),
filed, via EDGAR, Amendment No. 2 to the above-referenced Registration Statement
on Form S-1 ("Amendment No. 2"). In connection with the filing of Amendment No.
2, the Company filed with the Staff a response letter, dated February 14, 2005
(the "Response Letter"), that was responsive to the Staff's comment letter dated
January 27, 2005.
As referenced in the Response Letter, the Company agreed to provide the
Staff the supplemental information requested by the Staff in subsections (c) and
(d) of question 18 included in the Staff's January 27, 2005 letter. Set forth
below in this letter is the supplemental information requested by the Staff.
Unless the context requires otherwise, references to we, our, us, LHC
or the Company in this letter refer to LHC Group, Inc.
Bank of America Plaza 90 Park Avenue 3201 Beechleaf Court, Suite 600 601 Pennsylvania Avenue, N.W.
101 South Tryon Street, Suite 4000 New York, NY 10016 Raleigh, NC 27604-1062 North Building, 10th Floor
Charlotte, NC 28280-4000 212-210-9400 919-862-2200 Washington, DC 20004-2601
704-444-1000 Fax: 212-210-9444 Fax: 919-862-2260 202-756-3300
Fax: 704-444-1111 Fax: 202-756-3333
Mr. Jeffrey Riedler
February 17, 2005
Page 2
Notes to the Consolidated Financial Statements
2. Significant Accounting Policies
Principles of Consolidation, pages F-8
COMMENT
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.
RESPONSE
a. We provided a response to this subsection in the Response
Letter.
b. We provided a response to this subsection in the Response
Letter.
c. Each of our 21 joint venture arrangements involve the split of
ownership between us and a minority partner. The equity interest of our minority
partners in each of these ventures ranges from 5% to 49%. The overwhelming
majority of these minority partners in our joint ventures are hospitals, with
the exception of a few being individual physicians, physician groups or other
related healthcare provider organizations. Typically, our joint venture
arrangements are structured as limited liability companies, or LLCs, and each
member is a party to an operating agreement which governs the day-to-day
management and operations of the LLC. Under these operating agreements, the
management of the joint venture is governed by a management committee, which is
comparable to a board of directors for the joint venture. Typically, we serve as
the manager for each of these LLCs, possess a majority of the votes allocated to
the management committee (our share ranging generally from 51 to 67 votes out of
an aggregate of 100 votes allocated to the management committee) and matters are
decided by a majority vote of the members. However, there are several instances
in which actions
Mr. Jeffrey Riedler
February 17, 2005
Page 3
require the approval of a super-majority of the management committee, either by
requiring unanimous approval or some percentage in excess of those votes
(typically 75%) which we alone possess. Decisions requiring approval by a
super-majority of the management committee include:
- Dissolution, liquidation or wind-up of the business of the joint
venture;
- Sale, exchange, lease, mortgage, pledge, encumbrance, or grant of
a security interest in, or otherwise transfer of the assets, other
than inventory in the ordinary course of business, and other than
granting and perfecting a security interest in the joint venture's
accounts;
- Merger or consolidation of the joint venture with or into any other
entity;
- The incurrence of indebtedness in excess of a particular dollar
threshold (typically anywhere from $10,000 to $25,000) in any one
transaction, or in excess of $100,000 in the aggregate;
- The alienation, lease or encumbrance of any immovable property
belonging to the joint venture;
- Confession to judgment against the joint venture;
- Admission of new members to the joint venture;
- Filing of voluntary bankruptcy proceedings;
- Amendment of the Articles or the Operating Agreement of the joint
venture; or
- Making distributions to a member or members of the joint venture.
With respect to all other matters not presented to the management
committee, but rather decided by the total membership of the joint venture, we
possess a majority of the votes, as determined in accordance with our ownership
percentage.
d. In three of our joint ventures, where we have partnered with
not-for-profit hospitals, our minority partner controls a majority of the total
votes available to be cast by the members of the management committee. In the
first of these instances, except for actions requiring the unanimous or a
supermajority consent or approval of the members, a 60% majority of the votes is
required in order to decide any matter brought before the members. As a result,
although our minority partner possesses a majority of the votes, its holdings
alone are not enough to effect operational changes with regard to the joint
venture; the only exception to the aforementioned rule being that any matter
affecting the tax exempt status of the not-for-profit hospital shall require
only a simple majority
In the remaining two ventures in which we do not possess a majority of
the management committee, we have been appointed manager under the terms of the
operating agreement and therefore have the power (without the need for a vote of
the management committee) to effect virtually all actions effecting the
day-to-day management and operation of the joint venture, with the exception of
those mentioned in comment 18(c) above. With respect to all other matters not
presented to the management committee, but rather decided by the total
membership of the joint venture, we possess a majority of the votes, as
determined in accordance with our ownership percentage. In all
Mr. Jeffrey Riedler
February 17, 2005
Page 4
three of these joint ventures we own more than 50% of the outstanding equity
interests. Accordingly, we are at risk for more than 50% of the losses and
receive more than 50% of the profits from each of these three joint ventures.
If you have questions or comments about the matters discussed herein,
please call the undersigned at (404) 881-7872 or Steve Pottle at (404) 881-7554.
Sincerely,
/s/ Peter C. November
Peter C. November
cc: Zafar Hasan
Tabatha Akins
James Atkinson
Keith G. Myers
R. Barr Brown
Steven L. Pottle
Nilene R. Evans