Mail Stop 0407
April 5, 2005
Via U.S. Mail and Fax (615-890-0123)
Mr. Donald K. Daniel
Vice President and Controller
National Healthcare Corporation
100 Vine Street
Murfreesboro, TN 37130
RE: National Healthcare Corporation
Form 10-K for the fiscal year ended December 31, 2004
Filed March 7, 2005
File No. 001-13489
Dear Mr. Daniel:
We have reviewed the above referenced filings and have the
following comments. We have limited our review to only the issues
addressed below and will make no further review of your documents.
As such, all persons who are responsible for the adequacy and
accuracy of the disclosure are urged to be certain that they have
included all information required pursuant to the Securities
Exchange
Act of 1934. Please address the following comments in future
filings. If you disagree, we will consider your explanation as to
why our comment is inapplicable or a future 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.
Form 10-K For the Year Ended December 31, 2004
Management`s Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
1. In future filings, please provide a more robust discussion of
your
results of operations including the drivers and factors behind the
significant changes of your income statement line items and their
impact on your earning trends. For example, you state that the
increase in net patient revenues of $41.9 million was due to the
increase in Medicare and Medicaid adjustments of $22.3 million and
additional revenues of $4.4 million from a newly opened health
care
and assisted living center. However, you did not disclose the
drivers behind the remaining difference and the impact of the
drivers
on your earning trends. Refer to Item 303(a)(3) of Regulation S-K
and
see Financial Reporting Codification Section 501.04.
Financial Statements and Notes
Note 1. Summary of Significant Accounting Policies
Net Patient Revenues
2. You state that 64% of your net patient revenues are derived
from
Medicare, Medicaid and other government programs. Please disclose,
in
future filings, your revenue recognition policy for patient
revenues
from other third party payors such as private insurance etc and
explain to us in details. Similarly revise your critical
accounting
policy to include such disclosures in MD &A.
Note 4. Relationship with National Health Corporation
Sale of Long-term Health Care Centers to and Notes Receivable from
National
3. You state that the profit of $15.7 million was deferred as a
result of your sale of assets of long term health care centers to
National. You also state that the deferred profit will be
amortized
into income beginning with the collection of the note receivable
(up
to $12 million) with the balance ($3.75 million) of the profit
being
amortized into income on a straight-line basis over the management
contract period. In MD&A, however, you also state that `The
collection (or alternatively, the offset against certain payables
to
National) of up to $12 million of notes receivable would result in
the immediate recognition of up to $12 million of pretax net
income.
Currently, the notes are due December 31, 2007.` Explain your
accounting for the deferral and amortization of the deferred
profit
and clarify your disclosures, as appropriate. Support your
accounting
with relevant accounting literature in your response.
Note 13, Contingencies and Guarantees
4. Refer to Guarantees section. It appears that the put option is
part of the note agreement of National and ESOP to their lenders,
and
that they can exercise the option effective March 31, 2005 to put
the
entire outstanding balance of the debt (estimated to be $15.1
million) to you. Note that the put option is a derivative under
SFAS
133. Advise us the accounting for the put option written (at
inception and subsequent to inception), the purpose thereof and
clarify your disclosures, as appropriate.
* * * *
Please respond to these comments within 10 business days or
tell us when you will provide us with a response. Please furnish
a
letter that keys your responses to our comments and provides any
requested supplemental information. Please file your response
letter
on EDGAR.
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.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that
* the company is responsible for the adequacy and accuracy of the
disclosure in the filings;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filings; and
* the company may not assert staff comments as a 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 our review of your filings or
in
response to our comments on your filings.
You may contact Andrew Mew, Staff Accountant, at (202) 942-
2913
or Joseph Kempf, Senior Staff Accountant, at (202) 942-1979 if you
have questions regarding comments on the financial statements and
related matters. Please contact me at (202) 942-1990 with any
other
questions.
Sincerely,
Larry Spirgel
Assistant Director
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Mr. Donald K. Daniel
National Healthcare Corporation
April 5, 2005
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