Via Facsimile and U.S. Mail
Mail Stop 6010
June 20, 2005
Mr. Lawrence R. Hoffman
Executive Vice President and Chief Financial Officer
Covalent Group Inc.
One Glenharde Corporate Center
Wayne, PA 19087
Re: Covalent Group Inc
Form 10-K for the fiscal year ended December 31, 2004
Filed on March 31, 2005
File No. 000-21145
Dear Mr. Hoffman:
We have reviewed your filing and have the following
comments.
We have limited our review of your filing to those issues we have
addressed in our comments. In our comments, we may ask you to
provide us with information so we may better understand your
disclosure. We may have additional comments after reviewing your
responses to our 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 any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
Item 7. Management`s Discussion and Analysis of Results of
Operations and Financial Condition, page 19
Critical Accounting Policies and Estimates, page 20
Revenue Recognition, page 20
1. The discussion of your revenue recognition disclosure provides
little quantitative analysis of the material implications and
uncertainties underlying the proportional-performance method. We
note in your discussion on page 23 that revenue decreased due to
increases in the estimate of costs for several projects and that
changes in your estimate had a significant impact on your
operations.
Consistent with Financial Reporting Release 72, Commission
Guidance
Regarding Management`s Discussion and Analysis of Financial
Condition
and Results of Operations, please provide us the following:
a. For each period presented the dollar amount of the effect of
the
change from the previous period`s estimate and the reason for the
change.
b. The amount of the reasonably likely change that your December
31,
2004 estimate may have on your future operations, financial
position
and cash flows. This may be in form of an analysis that shows the
sensitivity to changes based on a range or other outcomes that are
reasonably likely to occur and would have a material effect.
Please
supplement your analysis, as necessary, with a discussion that
will
help us understand your analysis.
c. An explanation as to why you have not provided the information
in
a. and b. in your disclosure.
Consolidated Financial Statements, page F-1
Notes to Consolidated Financial Statements, page F-7
2. Summary of Significant Accounting Policies, F-7
Revenue Recognition, page F-8
2. Please tell us why recognizing revenue based on actual direct
costs incurred to estimated total contract costs where the costs
relate to labor hours, an input-based model, complies with SAB 104
as
an appropriate method for recognizing revenue as the service is
performed rather than using an output-based model. In your
response
tell us the contracts` billing and payment terms and the interim
deliverables or milestones called for by the contracts.
3. Please tell us:
a. Your accounting policy for recognizing revenue for changes in
scope and how your policy complies with GAAP.
b. Your accounting policy for recognizing revenue for terminated
projects and how your policy complies with GAAP. Clarify for us
what
you mean in the first paragraph of page F-8 by "frequently" you
are
entitled to receive "all fees earned by us up to the time of the
termination" as it relates to your policy.
c. Why you have not disclosed the policies in a. and b. in your
financial statement note.
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 provide the
requested information. Detailed letters greatly facilitate our
review. Please file your letter on EDGAR under the form type
label
CORRESP.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing to be certain that the
filing includes all information required under the Securities
Exchange Act of 1934 and that they have provided all information
investors require for an informed investment 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 your letter, a statement from the company acknowledging that:
* the company is responsible for the adequacy and accuracy of the
disclosure in the filing;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; 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 filing or in
response to our comments on your filing.
You may contact Tabatha Akins, Staff Accountant, at (202)
551-
3658 or James Atkinson, Accounting Branch Chief, at (202) 551-3674
if
you have questions regarding comments on the financial statements
and
related matters. Please contact me at (202) 551-3679 with any
other
questions.
Sincerely,
Jim B. Rosenberg
Senior Assistant Chief
Accountant
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Lawrence R. Hoffman
Covalent Group Inc.
June 20, 2005
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