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This excerpt taken from the LHCG 10-K filed Mar 31, 2006. Year
Ended December 31, 2005 Compared to Year Ended
December 31, 2004
Net
Service Revenue
Net service revenue for the year ended December 31, 2005
was $162.5 million, an increase of $39.5 million, or
32.1%, from $123.0 million in 2004. This increase is net of
an approximate $500,000 loss in revenue from Hurricanes Katrina
and Rita, which was primarily concentrated in our Home-Based
Services segment. For the years ended December 31, 2005 and
2004, 85.1% and 84.6%, respectively, of our net service revenue
was derived from Medicare.
Home-Based Services. Net service revenue for
the year ended December 31, 2005 was $107.4 million,
an increase of $22.9 million, or 27.1%, from
$84.5 million for the year ended December 31, 2004.
The increase in net service revenue resulted in part from a 9.3%
increase in total admissions from 15,968 in the year ended
December 31, 2004 to 17,461 in the year ended December 31,
2005. Improvements in case mix and payor mix and an increase in
therapy utilization within our home health episodes also
contributed to the increase. Approximately $5.8 million of
this increase was attributable to net service revenue generated
from acquisition or internal development activity during 2004.
An additional $7.4 million increase in net service revenue
was attributable to acquisition or internal development activity
during 2005. The remaining increase of approximately
$9.7 million reflects our internal growth. The increases
are net of an approximate $500,000 loss in revenue due to
Hurricanes Katrina and Rita. Collectively, these hurricanes
accounted for an approximate temporary decrease in our census of
1,400. We are currently at or above pre-storm census in all of
our locations except for our New Orleans location.
Facility-Based Services. Net service revenue
for the year ended December 31, 2005 was
$55.2 million, an increase of $16.7 million, or 43.4%,
from $38.5 million for the year ended December 31,
2004. The increase in net service revenue resulted in part from
a 24.8% increase in the aggregate number of licensed beds at our
long-term acute care hospitals and inpatient rehabilitation
facilities from 137 beds at December 31, 2004 to 171 beds
at December 31, 2005. Additionally, patient days increased
39.5% from 32,023 in the year
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ended December 31, 2004 to 44,685 in the year ended
December 31, 2005. Approximately $14.6 million of this
increase was attributable to net service revenue generated from
acquisition activity during 2004. An additional $900,000
increase in net service revenue was attributable to acquisition
or internal development activity during 2005. The remaining
increase of approximately $1.2 million reflects our
internal growth.
Cost
of Service Revenue
Cost of service revenue for the year ended December 31,
2005 was $88.3 million, an increase of $25.1 million,
or 39.7%, from $63.2 million for the year ended
December 31, 2004. Cost of service revenue represented
approximately 54.3% and 51.4% of our net service revenue for the
years ended December 31, 2005 and 2004, respectively.
Home-Based Services. Cost of service revenue
for the year ended December 31, 2005 was
$52.6 million, an increase of $11.3 million, or 27.4%,
from $41.3 million for the year ended December 31,
2004. Approximately $8.9 million of this increase resulted
from an increase in salaries and benefits, of which
$2.5 million was incurred as a result of acquisition or
development activity during 2004. The increase in salaries and
benefits expense due to internal growth accounted for
approximately $1.6 million of the increase in this
category. The remaining increase in salaries and benefits
expense was attributable to 2005 acquisitions of
$4.8 million. Supplies and services expense and
transportation expense contributed $1.1 million and
$1.3 million, respectively, to the increase in cost of
service revenue. Cost of service revenue for the year ended
December 31, 2005 represented 49.0% of our net service
revenue compared to 48.8% during the year ended
December 31, 2004.
Facility-Based Services. Cost of service
revenue for the year ended December 31, 2005 was
$35.7 million, an increase of $13.7 million, or 62.3%,
from $22.0 million for the year ended December 31,
2004. Approximately $9.1 million of this increase resulted
from an increase in salaries and benefits. Of this increase in
salaries and benefits, $6.8 million was incurred as a
result of acquisition and internal development activity during
2004 and $300,000 from acquisition and internal development
activity in 2005. The increase in salaries and benefits expense
from internal growth within our facility-based services segment
amounted to $2.0 million. Supplies and services expense
contributed approximately $4.9 million of the increase in
cost of service revenue which was offset by a $300,000 decrease
in transportation expense. Cost of service revenue for the year
ended December 31, 2005 represented 64.7% of our net
service revenue compared to 57.1% during the year ended
December 31, 2004.
General
and Administrative Expenses
General and administrative expenses for the year ended
December 31, 2005 were $49.9 million, an increase of
$12.0 million, or 31.7%, from $37.9 million for the
year ended December 31, 2004.
Home-Based Services. General and
administrative expenses for the year ended December 31,
2005 were $34.7 million, an increase of $8.5 million,
or 32.4%, from $26.2 million for the year ended
December 31, 2004. Approximately $2.2 million of this
increase was attributable to acquisition or internal development
activity during 2004. Internal growth accounted for
approximately $3.4 million and the remaining
$2.9 million of the increase in general and administrative
expense was due to acquisition and internal development activity
during the 2005 period. Included in these increases is an
increase to bad debt expense of $1.2 million to provide for
receivables that aged during our billing system conversion.
Facility-Based Services. General and
administrative expenses for the year ended December 31,
2005 were $15.1 million, an increase of $3.4 million,
or 29.1%, from $11.7 million for the year ended
December 31, 2004. The majority, or $4.7 million, of
the increase was attributable to the increased acquisition and
internal development activity during the 2004 period.
Acquisition and internal development activity during the 2005
period accounted for $500,000 of the increase. These increases
were offset by a decrease in internal growth of
$1.8 million due to cost cutting measures.
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Equity-Based
Compensation Expense
Equity-based compensation expense for the year ended
December 31, 2005 was $3.9 million, an increase of
approximately $2.1 million from $1.8 million for the
year ended December 31, 2004. This increase was related to
the
mark-to-market
valuation adjustment for the KEEP Units in conjunction with the
initial public offering. Of the $3.9 million expense we
incurred in the year ended December 31, 2005, approximately
$565,000 was attributable to cost of service revenue and
$3.3 million attributable to general and administrative
expenses.
Income
Tax Expense
The effective tax rates for the years ended December 31,
2005 and 2004 were 34.7% and 38.3%, respectively. The effective
tax rate for the year ended December 31, 2005 decreased due
to the Company recording an income tax benefit of $342,000
related to a $900,000 equity-based compensation charge stemming
from shares issued by one of the Company’s principal
shareholders to an officer of the Company in 2001. At the time,
the Company did not believe it would be able to deduct the
equity-based compensation charge for income tax purposes. In
conjunction with the initial public offering, the Company
determined that it would be able to deduct the $900,000
equity-based compensation charge and as a result, has recognized
an income tax benefit associated with that charge of $342,000.
Minority
Interest and Cooperative Endeavor Allocations
The minority interest and cooperative endeavor allocations
expense for the year ended December 31, 2005 was
$4.5 million, an increase of $500,000, compared to
$4.0 million for the year ended December 31, 2004.
Minority interest and cooperative endeavor expense varies
depending on the operations of each joint venture.
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