Aetna 2006 Annual Report Download - page 60

The computations for basic and diluted EPS from continuing operations for 2006, 2005 and 2004 were as follows:
(Millions, except per common share data) 2006 2005 2004
Income from continuing operations 1,685.6$ 1,573.3$ 1,124.8$
Weighted average shares used to compute basic EPS 546.2 579.0 605.6
Dilutive effect of stock options, stock appreciation rights and other (1) 22.9 27.0 23.1
Weighted average shares used to compute diluted EPS 569.1 606.0 628.7
Basic EPS 3.09$ 2.72$ 1.86$
Diluted EPS 2.96$ 2.60$ 1.79$
(1) Approximately 5.3 million stock appreciation rights (with exercise prices ranging from $38.43 to $52.11) were not included in the
calculation of diluted earnings per common share for 2006 as their exercise prices were greater than the average market price during
2006.
5. Operating Expenses
For 2006, 2005 and 2004, selling expenses (which include broker commissions, the variable component of our
internal sales force compensation and premium taxes) and general and administrative expenses were as follows:
(Millions) 2006 2005 2004
Selling expenses 952.7$ 843.5$ 700.0$
General and administrative expenses:
Salaries and related benefits 2,305.3 (1) 2,247.2 2,155.4 (2)
Other general and administrative expenses 1,562.6 1,362.0 1,312.3
Total general and administrative expenses 3,867.9 3,609.2 3,467.7
Total operating expenses 4,820.6$ 4,452.7$ 4,167.7$
(1) Salaries and related benefits for 2006 include a severance charge of $27.1 million related to ongoing initiatives to streamline our
organization, align our resources and reduce general and administrative expenses.
(2) Salaries and related benefits for 2004 include a curtailment benefit of $31.8 million related to the elimination of the dental subsidy
for all retirees.
6. Health Care Costs Payable
The following table shows the components of the change in health care costs payable in 2006, 2005 and 2004:
(Millions) 2006 2005 2004
Health care costs payable, beginning of the period 1,817.0$ 1,927.1$ 1,888.7$
Less: Reinsurance recoverables 5.5 5.6 6.5
Health care costs payable, beginning of the period - net 1,811.5 1,921.5 1,882.2
Acquisition of businesses - 18.6 -
Add: Components of incurred health care costs
Current year 15,495.4 13,534.6 11,925.9
Prior years
(1)
(194.4)
(2)
(426.7)
(2)
(288.2)
(2)
Total incurred health care costs 15,301.0 13,107.9 11,637.7
Less: Claims paid
Current year 13,761.9 11,745.8 10,097.2
Prior years 1,426.8 1,490.7 1,501.2
Total claims paid 15,188.7 13,236.5 11,598.4
Health care costs payable, end of period - net 1,923.8 1,811.5 1,921.5
Add: Reinsurance recoverables 3.7 5.5 5.6
Health care costs payable, end of the period 1,927.5$ 1,817.0$ 1,927.1$
(1) In 2006, the components of incurred health care costs (current year and prior years) for the years 2005 and 2004 were conformed
to the 2006 presentation. Total incurred health care costs in 2005 and 2004 did not change from amounts previously reported.
Negative amounts reported for incurred health care costs related to prior years results from claims being settled for amounts less
than originally estimated.
(2) Includes $18 million for 2006, $250 million for 2005 (including $103 million related to the release of reserves related to the New
York Market Stabilization Pool (refer to Note 18 beginning on page 79 for additional information)) and $90 million for 2004 of
favorable development of prior period health care cost estimates that affected results of operations. The favorable development
of prior period health care cost estimates in 2006 was primarily a result of lower than expected health care cost trends (the rate of
increase in per member health care costs). In 2005 and 2004, the favorable development of prior period health care cost estimates
was primarily the result of the actual claim submission time being shorter than we anticipated as well as lower than expected
health care cost trends.
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