Aetna 2006 Annual Report Download - page 59

Page 57
3. Acquisitions
During 2006 and 2005, we spent approximately $161 million and $1.2 billion, respectively, on the following
transactions, which we believe will enhance our existing product capabilities and future growth opportunities. All
acquisitions were funded with available cash.
• Broadspire Disability operates as a third party administrator, offering absence management services,
including short and long-term disability administration and leave management, to employers. We acquired
Broadspire Disability from Broadspire Services, Inc. and Broadspire Management Services, Inc. for
approximately $161 million in March 2006. A portion of the purchase price was placed in escrow pending the
outcome of certain future events, of which approximately $10 million has not been reflected in our purchase
accounting at December 31, 2006 as we cannot currently determine the outcome of the contingency.
• Aetna Behavioral Health – In December 2005, we purchased the assets and operations of Magellan Health
Services, Inc. (“Magellan”) that had previously been used to provide behavioral health care services to our
members. The transaction is a result of an agreement we negotiated with Magellan in March 2003. The
purchase price was not material to our financial condition.
• Aetna Specialty Pharmacy, LLC (“ASP”) was launched as a joint venture with Priority Health Care
Corporation (“PHCC”) in 2004 to better serve our members with conditions that required specialty
pharmaceuticals. As a result of a change in control in PHCC, in December 2005 we exercised our option to
purchase the remaining interest in ASP from PHCC. The purchase price was not material to our financial
condition.
• HMS Healthcare, Inc. (“HMS”) is a regional health care network with operations in Michigan, Colorado
and other states that we acquired in July 2005 for approximately $394 million.
• Active Health Management, Inc. (“ActiveHealth”) is a health management and health care data analytics
company that we acquired in May 2005 for approximately $405 million.
• Strategic Resource Company (“SRC”) administers group limited benefit products for part-time and hourly
workers. In January 2005, we acquired 100% of the stock of SRC and reinsured the contracts administered by
SRC for approximately $248 million. A portion of the purchase price was placed in escrow pending the
outcome of certain future events, of which approximately $22 million has not been reflected in our purchase
accounting at December 31, 2006 as we cannot currently determine the outcome of the contingency.
Goodwill recognized in these transactions amounted to approximately $80 million and $835 million in 2006 and
2005, respectively, of which approximately $485 million is expected to be fully deductible for tax purposes.
Approximately $99 million of goodwill related to our acquisition of Broadspire Disability in 2006 was assigned to
our Group Insurance segment. All other goodwill recorded in 2006 and 2005 was assigned to our Health Care
segment. Refer to Note 7 beginning on page 59 for additional information.
4. Earnings Per Common Share
Basic earnings per share (“EPS”) is computed by dividing income available to common shareholders (i.e., the
numerator) by the weighted average number of common shares outstanding (i.e., the denominator) during the
period. Diluted EPS is computed in a manner similar to basic EPS, except that the weighted average number of
common shares outstanding are adjusted for the dilutive effects of stock options, stock appreciation rights and other
dilutive financial instruments, but only in the periods in which such effect is dilutive.