Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from Darren Lehrich from Deutsche Bank.
Darren Lehrich – Deutsche Bank
Regarding the $1.6 million in ramp-up that you’ve outlined here. How much of the annualized ramp-up expense does that represent, and maybe you can just give us kind of a rough number?
Dirk Allison
Yes, Darren. Clearly, we are about 4 months into the ramp-up that has been planned for lasting about 9 months, towards the end of the year. So, while I would say we’re probably close to that percentage in ramping up our cost. It may not be totally linear, but we still have additional ramp-up expenses we have to add as we phase out the people that still remain over in the Phoenix location.
Darren Lehrich – Deutsche Bank
Bob, you referenced, I think it was $1.1 million of consulting and some other miscellaneous expenses. Where would we see that expense, and can you just talk a little bit more about how we should think about that level and where it might go in the third quarter?
Bob Lefton
Yes. The biggest portion of that were retention bonuses and severance which will run through the SG&A line that we broke out in the press release, and again, we still have some folks over there and some positions remaining in Phoenix. As they are no longer with us, Darren, we will see additional one-time expenses roll through the P&L.
Darren Lehrich – Deutsche Bank
Okay, so that was part of the $4 million pre-tax, I guess, is what you’re telling me?
Bob Lefton
That’s correct. We had $2.9 million pretax of what we term as ramp-down which is their actual expenses, salary, the cost of running the Phoenix office. As people leave us or as retention bonuses are earned, then that’s the additional $1.1 million pre-tax.
Darren Lehrich – Deutsche Bank
The other question just relates to labor productivity, and really the question is now that we know what the CMS updates are and we get a bit of a squeeze related to the budget neutrality adjustment factor, will you take any further actions to preserve margins? In other words, with this $0.20 impact in ’09 which is kind of an ?as if’ number, might you take some actions to offset that?
Dirk Allison
Labor productivity isn’t a one-time thing. Labor productivity, if you’re going to be effective about it is a day to day chore that you have to stay on top of. So, yes, we’ll continue to be monitoring our labor and taking actions to be as efficient as possible.
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