View:
March 1, 2019
Daniel H. Walker
Chief Executive Officer and President
Pennant Group, Inc.
1675 East Riverside Drive
Suite 150
Eagle, Idaho 83616
Re: Pennant Group, Inc.
Registration Statement on Form 10 DRS
Filed February 12, 2019
File No. 377-02503
Dear Mr. Walker:
We have reviewed your filing and have the following comments. In some of
our
comments, we may ask you to provide us with information so we may better
understand your
disclosure.
Please respond to these comments within ten business days by providing
the requested
information or advise us as soon as possible when you will respond. If you do
not believe our
comments apply to your facts and circumstances, please tell us why in your
response.
After reviewing your response to these comments, we may have additional
comments.
Form 10 DRS filed February 12, 2019
Summary of the Spin-Off, page 18
1. We note that the internal reorganization will include substantially all
of Ensign's senior
living business. We also note that Ensign will continue to operate
assisted and
independent living facilities based on disclosure in Exhibit 99.1 and
page 102. Please
expand the disclosure to clarify any differences between senior living
facilities contributed
to Pennant and assisted and independent living facilities retained by
Ensign. Please also
clarify any methodology used by Ensign to allocate facilities to either
Ensign or Pennant
in the internal reorganization.
Risk Factors
Our amended and restated certificate of incorporation will designate. . . ,
page 64
2. We note your statement that your certificate of incorporation will
include a forum
Daniel H. Walker
FirstName LastNameDaniel H. Walker
Pennant Group, Inc.
Comapany NamePennant Group, Inc.
March 1, 2019
March 1, 2019 Page 2
Page 2
FirstName LastName
selection provision identifying the Court of Chancery of the State of
Delaware as the sole
and exclusive forum for litigation, including any "derivative action."
Please disclose
whether this provision applies solely to state law claims. If it does
not apply solely to
state law claims, then please note that that Section 27 of the
Exchange Act creates
exclusive federal jurisdiction over all suits brought to enforce any
duty or liability created
by the Exchange Act or the rules and regulations thereunder, and
Section 22 of the
Securities Act creates concurrent jurisdiction for federal and state
courts over all suits
brought to enforce any duty or liability created by the Securities Act
or the rules and
regulations thereunder. If this provision is intended to apply solely
to state law claims,
please also ensure that the exclusive forum provision in the amended
and restated
bylaws states this clearly.
Unaudited Pro Forma Combined Financial Statements, page 81
3. Please expand Note (1) to include the terms of the financing
transactions, such as interest
rates, maturity dates and any material covenants, when available.
Also, it appears a pro
forma income statement adjustment may be necessary to give effect to
the cost of any
additional debt.
4. Refer to disclosure regarding Ensign equity awards and bonuses on page
72. Please
expand Note (2) to include the amount and methodology for determining
the Ensign
equity awards and bonuses granted in connection with the spin-off.
Please separately
disclose any ongoing impact of equity awards and bonuses from any
one-time expense for
these awards and bonuses, if material.
5. Please expand the disclosure in Note (5) to include the changes in
lease terms from the
intercompany terms and the terms of the newly executed Ensign Leases.
Please also
expand MD&A disclosure on page 109 accordingly. To the extent that the
Ensign Lease
terms are materially different from previous intercompany leases,
please tell us how these
changes impacted your impairment analysis for Goodwill and Other
indefinite-lived
intangibles.
6. It appears a separate pro forma adjustment may be necessary to give
effect to the income
tax effects of your pro forma income statement adjustments, calculated
based upon the
statutory rate.
Our Business, page 85
7. We note that you place considerable emphasis on your "innovative
operating model" and
"independent operating subsidiaries." Please revise your discussion to
clarify how your
operating model is innovative. In particular, provide a more robust
discussion of the basis
of your belief that your operations have become the "employer of
choice" in the
communities they serve, and how that degree of success is linked to
your business model.
Please also explain how you organized your operating subsidiaries, and
whether this
structure is different than how you operated these businesses prior to
the spin-off.
Daniel H. Walker
FirstName LastNameDaniel H. Walker
Pennant Group, Inc.
Comapany NamePennant Group, Inc.
March 1, 2019
March 1, 2019 Page 3
Page 3
FirstName LastName
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations, page 119
8. Refer to disclosure on page 5 regarding regulations and reimbursement
changes effective
January 2018. Please expand the discussion of results of operations to
quantify the impact
on revenue and how these changes impact the comparability of revenues
from 2017 to
2018, if material.
Liquidity and Capital Resources, page 126
9. Please expand the disclosure to reflect any financing transactions
completed prior to the
distribution. If financing is not obtained prior to the distribution,
please revise the
disclosure on page 126 to detail the basis for your belief that you
will have sufficient cash
to fund your operations without any additional financing funds.
Financial Statements, page F-1
10. Please provide three years of audited financial statements for New
Ventures required for
Exchange Act registration statements of Emerging Growth Companies that
are not also
Smaller Reporting Companies.
Note 2. Basis of Presentation and Summary of Significant Accounting Policies
Cost Allocation, page F-8
11. Refer to disclosure on page 6 that you operate industry-specific
Service Centers. Please
tell us whether the industry-specific Service Center expenses of
Ensign for industries
transferred to Pennant in the internal reorganization were allocated
to New Ventures.
Also, tell us whether there were separate Service Centers for the
Senior Living segment in
New Ventures and the Assisted and Independent Living segment for
Ensign. If not, tell us
how you allocated the Service Center expenses for the Senior Living
segment.
12. Refer to the disclosure of equity-based incentive plans on page F-8.
Please expand the
disclosure to address how costs related to Ensign Subsidiaries'
employees that participate
in the Ensign Plans are allocated Please revise the disclosure on page
114 accordingly.
13. Refer to the disclosure of Goodwill on page F-11. Please expand the
disclosure of cost
allocation to address the methodology used to allocate goodwill and
other intangible
assets.
Revenue Recognition, page F-9
14. Refer to your Risk Factor disclosure on page 36 regarding the loss of
revenue while some
Daniel H. Walker
Pennant Group, Inc.
March 1, 2019
Page 4
affiliated operations have been in denial of payment status due to
findings of continued
regulatory deficiencies. Please tell us whether the loss of revenues was
material to any of
the periods presented. If so, please expand the accounting policy to
explain how this loss
of revenue was recognized during the periods presented. Please expand
MD&A
discussion of revenue sources on page 112 accordingly.
Leases and Leasehold Improvements, page F-11
15. We note that your leases include renewals based on disclosure on page
F-27. Please
expand the accounting policy disclosure to explain whether you include
lease renewals in
the lease term used to accrue rent expense.
We remind you that the company and its management are responsible for
the accuracy
and adequacy of their disclosures, notwithstanding any review, comments, action
or absence of
action by the staff.
You may contact Claire DeLabar, Staff Accountant, at (202) 551-3349 or
Robert S.
Littlepage, Accountant Branch Chief, at (202) 551-3361 if you have questions
regarding
comments on the financial statements and related matters. Please contact
Gregory Dundas,
Attorney-Advisor, at (202) 551-3436 or Larry Spirgel, Assistant Director, at
(202) 551-
3810 with any other questions.
Sincerely,
FirstName LastNameDaniel H. Walker
Division of
Corporation Finance
Comapany NamePennant Group, Inc.
Office of
Telecommunications
March 1, 2019 Page 4
cc: Christian O. Nagler
FirstName LastName