Mail Stop 6010
Via Facsimile and U.S. Mail
July 21, 2005
Mr. Richard Hunt
Chief Financial Officer
Neighborcare, Inc.
601 East Pratt Street, 3rd Floor
Baltimore, Maryland 21202
Re: Neighborcare, Inc.
Form 10-K for the fiscal year ended September 30, 2004
Filed January 21, 2005
File No. 000-33217
Dear Mr. Hunt:
We have limited our review of your filing to those issues
addressed in our comments. In our comments, we ask you to provide
us
with information so we may better understand your disclosure.
After
reviewing this information, we may 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 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 September 30, 2004
Item 1: Business
1. We believe your disclosures regarding "Revenue Sources" could
be
improved as it relates to collecting co-payments. Please tell us
your policy for collecting co-payments.
Item 7: Management`s Discussion and Analysis of Operations and
Financial Condition
Results of Operations
Reasons for Non-GAAP Financial Disclosure, page 44
2. Please refer to your disclosure of the non-GAAP financial
measures
EBITDA and EBITDA as a % of net revenue in Selected Financial Data
and EBITDA in your discussion of Segment Results. The elimination
of
recurring items from the most comparable GAAP measure appears to
have
the effect of smoothing earnings. While the acceptability of a
non-
GAAP financial measure that eliminates recurring items from the
most
comparable GAAP measure depends on all facts and circumstances, we
do
not believe that a non-GAAP measure that has the effect of
smoothing
earnings is appropriate. In addition, we note that the items you
exclude have the following attributes.
? there is a past pattern of these items occurring in each
reporting period;
? the financial impact of these items will not disappear or
become
immaterial in the future; and,
? there is no unusual reason that the company can substantiate
to
identify the special nature of these items.
These attributes raise significant questions about management`s
assertions as to the usefulness of this measure for investors and
the
appropriateness of its presentation in accordance with Item 10(e)
of
Regulation S-K. Please refer to Questions 8 and 9 of "Frequently
Asked Questions Regarding the Use of Non-GAAP Financial Measures"
on
our website at www.sec.gov/divisions/corpfin/faqs/nongaapfaq.htm
that
we issued on June 13, 2003. Please explain to us how your
disclosure
complies with Item 10(e) of Regulation S-K.
3. Further, you disclose that you use EBITDA as a financial
measure
to assess the performance of your business and operating segments.
Please tell us why EBITDA is disclosed as an operating segment
financial measure in MD&A and not in Note 19, Segment Information.
Please explain to us how you plan to correct this inconsistency.
Liquidity and Capital Resources, page 51
4. Please provide us information in disclosure-type format to help
us
evaluate the adequacy of your disclosure of the steps you take in
collecting accounts receivable, when a receivable is recorded as
a
bad debt and when a write off is recorded including the threshold
(amount and age) for account balance write-offs.
Consolidated Financial Statements, page F-1
Notes to Consolidated Financial Statements
Significant Accounting Policies
Revenue Recognition/Contractual Allowances, page 55
5. We believe that your disclosures as it relates to contractual
adjustments and receivables could be improved. Please provide us
the
following information in disclosure-type format to help us
evaluate
the adequacy of your disclosure:
a) For each period presented, provide the amount of changes in
estimates of prior period contractual adjustments that you
recorded
during the current period. For example for the fiscal year ended
2004, this amount would represent the amount of the difference
between the 2003 estimates of contractual adjustments recorded for
unsettled amounts and the actual settlement amount (or new
estimate
if not settled) recorded during 2004.
b) Please quantify the reasonably possible effects that a change
in
estimate of contractual adjustments on unsettled amounts as of the
latest balance sheet date could have on financial position and
operations.
c) Provide 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, 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, 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) that are classified outside of
self-
pay, explain why this classification is appropriate. In addition,
please explain the balances of such amounts, where they have been
classified in your aging buckets (by age and payor
classification),
and the historical percentage of amounts that get reclassified
into
self-pay.
* * * *
Please respond to these comments within 10 business days or
tell us when you will provide us with a response. Your letter
should
key your responses to our comments. 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 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 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 Jason Lawson, Staff Accountant, at (202)
551-
3166 or Donald Abbott, Senior Staff Accountant, at (202) 551-3608
if
you have questions regarding the comments. Please contact me at
(202)
551-3679 with any other questions.
Sincerely,
Jim B. Rosenberg
Senior Assistant Chief
Accountant
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Mr. Richard Hunt
Neighborcare, Inc.
July 21, 2005
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