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Consolidated net operating revenues were $431.6 million for the thirdquarter of 2007 compared to $413.5 million for the third quarter of 2006. Netoperating revenues from our inpatient hospitals were $383.5 million,representing a 5.1% increase over the same quarter of 2006. This increase wasprimarily attributable to an increase in our patient case mix index andcontinued compliant case growth, both of which increased our revenue perdischarge, offset by slightly lower discharges quarter over quarter dueprimarily to nine hospitals that moved from a 60% compliance threshold to a65% compliance threshold under the 75% Rule on July 1, 2007.
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Total operating expenses increased by 0.7% while salaries and benefitsincreased by 3.8% in the third quarter of 2007 compared to the third quarterof 2006. This increase represents our continued investment in our mostvaluable resource, our employees, and was lower than the 5.5% increase weexperienced in the second quarter of 2007 over the comparable period of 2006primarily due to lower contract labor utilization. The third quarter of 2006included a $35.0 million recovery of incentive bonuses from our formerchairman and chief executive officer, Richard M. Scrushy. Excluding thisrecovery, operating expenses decreased by 7.7% quarter over quarter dueprimarily to continued reductions in our general and administrative expenses,professional fees, and amounts recorded as government, class action, andrelated settlements expense. General and administrative expenses decreased dueprimarily to the divestiture of our surgery centers, outpatient, anddiagnostic divisions in the second and third quarters of 2007, though somecosts related to the divested divisions remained in the third quarter.
Operating earnings (see supplemental information attached to this pressrelease for calculation) were $43.3 million for the third quarter of 2007compared to operating earnings of $28.7 million for the third quarter of 2006.
"We saw good progress in the current quarter as both revenues andoperating earnings improved over prior year," said Jay Grinney, President andChief Executive Officer of HealthSouth. "Inpatient hospital revenues were up5.1% and salaries and benefits improved as a percent of net operatingrevenues. In addition, based on industry data published through the UniformData System for Medical Rehabilitation for the second quarter of 2007, ourhospitals continued to grow their market share of compliant cases. Thisindustry information, as reported on a quarter lag, showed a 6.7% compliantcase growth by HealthSouth during the second quarter of 2007 compared to anaverage 1.8% decline for non-HealthSouth rehabilitation sites, whichreinforces our role as the nation's preeminent provider of inpatientrehabilitative services."
The Company reported a pre-tax loss from continuing operations of $31.1million, or $0.40 per share (basic and diluted), for the third quarter of 2007compared to its pre-tax loss from continuing operations of $56.0 million, or$0.70 per share (basic and diluted), for the third quarter of 2006. Our pre-tax loss from continuing operations for the third quarter of 2007 included an$8.6 million gain related to the sale of our remaining investment in SourceMedical Solutions, Inc.
Net income available to common shareholders was $281.1 million, or $3.58per basic share ($3.13 per diluted share), for the third quarter of 2007compared to a net loss available to common shareholders of $82.6 million, or$1.04 per share (basic and diluted), for the third quarter of 2006. Our netincome in the third quarter of 2007 included approximately $40.4 million ofpost-tax gains associated with our divestures. Net income for the quarter alsoincluded a $281.1 millio
