SecProbe.io

CORRESP
1
filename1.htm

corresp

August 5, 2005

VIA EDGAR & FACSIMILE

Jim B. Rosenberg

Senior Assistant Chief

Division of Corporation Finance

United States Securities and Exchange Commission

100 First Street, N.E.

Washington, D.C. 20549

    Re:

    American HomePatient, Inc. (the “Registrant”)

    Form 10-K for the Fiscal Year Ended December 31, 2004

    Filed March 31, 2005

    File No. 000-19532

Dear Mr. Rosenberg:

     This letter is in response to the comments of the Staff (the “Staff”) of the Securities and
Exchange Commission (the “SEC”) set out in your July 22, 2005 letter. The numbers below correspond
to the comment numbers set forth in your letter.

Form 10-K for the Fiscal Year Ended December 31, 2004

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,
page 30

Critical Accounting Policies and Estimates, page 35

Revenue Recognition and Allowance for Doubtful Accounts, page 35

    1.

    Please provide us the following information in disclosure-type format to help us evaluate the
adequacy of your disclosure.

    a.

    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, the information should 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. Include whether or not your billing system has the capacity
to provide an aging schedule of your receivables, and if not, clarify how this affects
your ability to estimate your allowance for bad debts.

Jim B. Rosenberg

Page 2

August 5, 2005

Response:

Rather than comparing payor mix concentrations and related aging of accounts receivable, the
Registrant uses a general aging of billed and unbilled accounts receivable to analyze the required
allowance for doubtful accounts. Each category so analyzed contains a blend of payors, which blend
has not materially changed during the past four years. The factors used for determining the
allowance requirement for each aging category were established based upon historical performance of
the receivables portfolio. These factors have not been changed during the past four years as there
have been no significant changes to the facts and circumstances upon which the factors were based.

The table attached hereto as Exhibit I sets forth the Registrant’s accounts receivable
aging as of the end of the periods presented on Schedule II of the Registrant’s Form 10-K.
Exhibit I demonstrates that the reduction in the allowance for doubtful accounts relates to
the combination of a write-off of older receivables that were highly reserved (as discussed in more
detail in the Registrant’s response to item 1.c. below) and a general improvement in the
Registrant’s receivable aging.

    b.

    If you have amounts that are pending approval from third party payors (i.e.
Medicaid Pending), provide the balances of such amounts, where they have been
classified in your aging buckets, and what payor classification they have been grouped
with. If amounts are classified outside of self-pay, provide why this classification
is appropriate, and disclose the historical percentage of amounts that get reclassified
into self-pay.

Response:

The Registrant includes receivables that are pending approval from a third party (i.e., Medicaid
Pending) in the “open order” category along with receivables for which the Registrant is awaiting
information that substantiates the medical need based on payor coverage criteria or verification of
the patient insurance coverage. The total amount in the “open order” category is shown in
Exhibit I. Receivables in the “open order” category are more heavily reserved than
similarly aged billed and unbilled revenue.

Accounts receivable amounts that are pending approval from third party payors such as state
Medicaid programs are not classified within a self-pay category. The Registrant’s accounts
receivable systems are not able to provide the historical percentages of pending amounts that
eventually become self-pay. The Registrant’s experience, however, indicates that an insignificant
amount of Medicaid Pending accounts receivable become self-pay. As explained in more detail in the
Registrant’s response to item 1.a. above, the Registrant uses general aging categories to analyze
its allowance requirements.

Jim B. Rosenberg

Page 3

August 5, 2005

    c.

    Provide the changes in the estimate for bad debt expense for each of the income
statement periods presented. We note in the schedule on page S-2 that the write-offs
for certain periods have significantly exceeded the amounts previously recorded as bad
debt expense. Explain why the significant reductions in this allowance are
appropriate.

Response:

During the income statement periods presented there have been no changes in the allowance
percentages used to establish the allowance for each aging category. There have been no
significant changes in the Registrant’s business that would require a change in the allowance
percentages of each aging category.

Exhibit I discloses the Registrant’s receivables aging for each of the fiscal years 2001,
2002, 2003, and 2004. The Registrant has not changed its methodology for estimating bad debt
expense and allowance requirements during the periods presented. As receivables are determined to
be uncollectible they are written off to bad debt expense. At the end of each accounting period,
the allowance level for uncollectible accounts is determined by applying a percentage to each aging
category addressed in item 1.a. above. The adjustment to bring the allowance to the required
level, based upon current agings, is also recorded with an offsetting debit or credit to bad debt
expense.

In the 1990’s the Registrant engaged in an aggressive acquisition program, pursuant to which it
acquired numerous small companies. In 2000, under new management, the Registrant began the process
of better integrating these prior acquisitions. From 2001 to 2004, the Registrant improved its
accounting systems and analyzed its older accounts receivable to attempt further collection action
or, where appropriate, write-off such accounts as uncollectible. Such older aged accounts
previously had been fully or heavily reserved against, and as such accounts were written off as
uncollectible during the fiscal years in question the associated allowances were eliminated. In
summary, Exhibit I demonstrates that the reduction of the allowance level during the
periods presented is the direct result of reducing the level of older fully reserved accounts as
well as an overall improvement in managing the receivables portfolio.

Contractual Obligations and Commercial Commitments, page 48

    2.

    Please explain to us why you did not include the estimated interest payments in your
contractual obligations table, since these payments appear to represent material future
obligations based on your statement of cash flows. The amounts that should be disclosed here
is not only the interest accrual as of the end of the period presented but an estimable
interest through the repayment of the underlying obligations. Refer to Financial Reporting
Release 72.

Jim B. Rosenberg

Page 4

August 5, 2005

Response:

The Registrant will include the estimated interest payments in its contractual obligations table in
its Form 10-Q, due August 14, 2005, as well as in subsequent Form 10-Q and Form 10-K filings.

Financial Statements, page F-55

12. Income Taxes, page F-94

    3.

    Please provide us an analysis of how you have considered paragraphs 21 through 24 of SAFS 109
in providing a full valuation allowance for your deferred tax assets while earning a steady
stream of taxable income. If you have determined that a full valuation allowance is
necessary, based on your analysis, please also provide us in a disclosure-type format a
discussion of the negative evidences that resulted in your determination that it is more
likely than not that all of the deferred tax assets will not be realized and the reasonably
likely effect of this known trend on your future operations, cash flows and financial
position.

Response:

As of December 31, 2004, the Registrant had net deferred tax assets totaling $71.5 million.
Pursuant to SFAS 109, at the end of fiscal year 2004 the Registrant analyzed and made the
determination to continue to fully offset the deferred tax asset with a valuation allowance as it
concluded that is was “more likely than not” that all of the deferred tax assets will not be
realized.

In making this determination, the Registrant noted that, consistent with paragraph 21 of SFAS 109,
the Registrant does not have significant sources of taxable income. The Registrant reported a
pre-tax loss of $12,442,000 in fiscal year 2001 and pre-tax earnings of $5,419,000, $14,425,000 and
$13,281,000, respectively, for the fiscal years 2002 through 2004. However, if interest expense
not recorded during the Registrant’s Chapter 11 bankruptcy proceedings is considered for 2002 and
2003, and Chapter 11 reorganization costs are excluded, pre-tax income (loss) on a pro-rata basis
would have been ($1,920,000) and $5,997,000 in 2002 and 2003 respectively. The Registrant’s
taxable losses for the fiscal years 2001, 2002, 2003, and 2004 were $33,877,944, $23,746,135,
$12,697,346, and $10,500,000 (estimated), respectively.

Consistent with paragraph 22 of SFAS 109, the Registrant also considered whether any tax planning
strategies were available that would affect the amount of the valuation allowance. The Registrant
concluded that no material tax planning strategies were available and, accordingly, did not make an
adjustment to its valuation allowance.

Jim B. Rosenberg

Page 5

August 5, 2005

As required by paragraphs 23 and 24 of SFAS 109, at the time of preparing its fiscal year 2004
financial statements the Registrant’s analysis considered certain negative evidence, and the lack
of positive evidence, including the following:

    (i)

    the Registrant operates in a highly regulated industry and its revenue streams
are largely determined by federal and state agencies;

    (ii)

    there are significant industry changes relative to medical reimbursement that
have occurred effective in 2004 and in 2005 that may eliminate or significantly reduce
the Registrant’s profitability for its fiscal year 2005 (as evidenced by the
reimbursement cuts from Medicare and Medicaid programs that the Registrant has
experienced in 2004 and 2005, which cuts appear likely to continue in 2006);

    (iii)

    the Registrant’s stockholder’s deficit as of December 31, 2004 was
$20,961,000;

    (iv)

    the Registrant has no significant prospective sales contracts or sales
backlogs;

    (v)

    the Registrant has no significant assets with fair values in excess of tax
basis that might indicate net built-in gains;

    (vi)

    the Registrant is highly leveraged and has no current source of additional
financing that might provide revenue growth through business acquisitions;

    (vii)

    the Registrant’s taxable losses for the fiscal years 2001, 2002, 2003, and
2004 were $33,877,944, $23,746,135, $12,697,346, and $10,500,000 (estimated),
respectively; and

    (viii)

    the Registrant expected to continue to have taxable losses for the foreseeable
future.

Based on the above analysis, the Registrant determined that it was more likely than not that the
benefit relating to the net deferred tax assets will not be realized and that a full valuation
allowance was appropriate at December 31, 2004. The reasonably likely effect of the trends
evidenced by this negative evidence is discussed in the Liquidity and Capital Resources section of
the Registrant’s Form 10-K. The Registrant would also note the disclosure regarding ongoing
appeals by its lenders regarding the outcome of its Chapter 11 bankruptcy proceedings that, if
successful, could have a materially negative effect on the Registrant’s interest expense and,
consequently, its taxable net income.

The Registrant, however, continues to evaluate the need for a valuation allowance relative to the
factors identified in SFAS 109 and the results of its ongoing operations.

Jim B. Rosenberg

Page 6

August 5, 2005

The Registrant acknowledges that:

    (i)

    the Registrant is responsible for the adequacy and accuracy of the disclosure in the
filings;

    (ii)

    staff comments or changes to disclosure in response to staff comments do not foreclose
the SEC from taking any action with respect to the filing; and

    (iii)

    the Registrant 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.

American HomePatient, Inc. is committed to fully complying with the SEC disclosure requirements.
After you have had the opportunity to review this letter, please call me at (615) 221-8548 to
confirm that the responses in this letter satisfactorily address your comments or to raise any
additional questions or comments you may have.

Sincerely,

/s/ Stephen L. Clanton

Stephen L. Clanton

Chief Financial Officer

Exhibit I

American HomePatient, Inc.

Patient Accounts Receivable Aging Summary

For Y/E 2001 — Y/E 2004

(In Thousands)

Billed A/R Aging:

    Unapplied

    Total

    Current

    31-60

    61-90

    91-120

    121-180

    181-360

    >360

    Cash *

    12/31/2001

    72,662

    26,511

    10,525

    6,346

    3,890

    5,877

    11,946

    8,445

    (878
    )

    12/31/2002

    61,852

    27,506

    8,936

    5,058

    2,934

    5,221

    7,953

    4,832

    (588
    )

    12/31/2003

    60,559

    28,989

    8,901

    5,247

    3,189

    3,625

    7,100

    3,899

    (391
    )

    12/31/2004

    53,026

    26,050

    7,730

    4,292

    3,000

    3,524

    6,549

    2,395

    (514
    )

Unbilled A/R:

    Unapplied

    Total

    0-90

    91-180

    181-360

    >360

    Cash *

    12/31/2001

    16,727

    10,310

    3,606

    2,161

    650

    n/a

    12/31/2002

    13,089

    8,413

    2,665

    1,622

    389

    n/a

    12/31/2003

    11,959

    8,340

    2,071

    1,199

    349

    n/a

    12/31/2004

    12,298

    8,321

    2,240

    1,366

    371

    n/a

Open Orders:

    Unapplied

    Total

    0-90

    91-180

    181-360

    >360

    Cash *

    12/31/2001

    2,880

    2,880

    —

    —

    —

    n/a

    12/31/2002

    2,233

    2,233

    —

    —

    —

    n/a

    12/31/2003

    1,908

    1,908

    —

    —

    —

    n/a

    12/31/2004

    2,439

    2,439

    —

    —

    —

    n/a

Total Patient Accounts Receivable (Gross):

    Unbilled &

    10-K

    Open Orders

    Unbilled

    Unapplied

    Ref. Pg.

    Total

    Current

    0-90

    31-60

    61-90

    91-120

    121-180

    91-180

    181-360

    >360

    Cash *

    12/31/2001

    F-71

    92,269

    26,511

    13,190

    10,525

    6,346

    3,890

    5,877

    3,606

    14,107

    9,095

    (878
    )

    12/31/2002

    F-93

    77,174

    27,506

    10,646

    8,936

    5,058

    2,934

    5,221

    2,665

    9,575

    5,221

    (588
    )

    12/31/2003

    F-82

    74,426

    28,989

    10,248

    8,901

    5,247

    3,189

    3,625

    2,071

    8,299

    4,248

    (391
    )

    12/31/2004

    F-79

    67,763

    26,050

    10,760

    7,730

    4,292

    3,000

    3,524

    2,240

    7,915

    2,766

    (514
    )

     • Aging for Unapplied Cash cannot be determined.