UnitedHealth Group Reports First Quarter Results.* Net Earnings of $0.66 Per Share; Net Earnings of $0.74 Per Share Up 17%, Prior to 409A Charges for Stock Option Matters * Revenues up 8% to $19 Billion * Operating Margin Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: of 8.3%; Reached 9.2% Excluding 409A Charges * Reported Operating Cash Flows Operating cash flow Earnings before depreciation minus taxes. Measures the cash generated from operations, not counting capital spending or working capital requirements. of $2.6 Billion; $1.1 Billion as Adjusted for CMS (1) See content management system and color management system. (2) (Conversational Monitor System) Software that provides interactive communications for IBM's VM operating system. Payment Timing * Extended and Expanded Relationship with AARP AARP, a nonprofit, nonpartisan national organization dedicated to "enriching the experience of aging"; membership is open to people age 50 or older. Founded in 1958 by Ethel Percy Andrus as American Association of Retired Persons, AARP now has over 30 million MINNEAPOLIS -- UnitedHealth Group UnitedHealth Group Incorporated NYSE: UNH is a managed health care company. It is the parent of United Healthcare, one of the largest health insurers in the U.S. It was created in 1977, as UnitedHealthCare Corporation (it renamed itself in 1998), but traces its origin to a (NYSE NYSE See: New York Stock Exchange :UNH Unh The symbol for the element unnilhexium. ) achieved strong results in the first quarter of 2007, including favorable operating margins and continued strong cash flows. Business developments and initiatives since year-end -- including a broadened and extended relationship with AARP, the pending acquisition of Sierra Health Services health services Managed care The benefits covered under a health contract , and advancements in its banking and technology platforms -- position the Company for continuing diversified growth in the future. UnitedHealth Group [TABLE OMITTED] UnitedHealth Group Highlights * First quarter consolidated net earnings per share were $0.66. First quarter net earnings per share of $0.74, excluding 409A charges of $0.08 related to historic stock option matters1, increased $0.11 or 17 percent from $0.63 in the first quarter of 2006. * First quarter consolidated net earnings were $927 million. First quarter net earnings excluding 409A charges1 increased to $1.039 billion, up $148 million or 17 percent year-over-year. * Consolidated first quarter revenues exceeded $19 billion, increasing $1.5 billion or 8 percent year-over-year and $0.9 billion or 5 percent sequentially. * First quarter consolidated revenues include $1 million in net capital losses as compared to $7 million in net capital losses in the fourth quarter of 2006 and $26 million in net capital gains in the first quarter of 2006. * Consolidated earnings from operations in the first quarter were $1.6 billion. Earnings from operations excluding 409A charges increased to $1.8 billion in the first quarter, up $285 million or 19 percent year-over-year. * The consolidated operating margin was 8.3 percent. The consolidated operating margin of 9.2 percent, excluding 409A charges, increased 80 basis points year-over-year due to margin improvements in the Company's Health Care Services business segment. The sequential margin decrease of 170 basis points from fourth quarter 2006 reflects seasonal changes in profitability. The Company experiences comparatively higher medical costs early in the calendar year in its Part D prescription drug prescription drug Prescription medication Pharmacology An FDA-approved drug which must, by federal law or regulation, be dispensed only pursuant to a prescription–eg, finished dose form and active ingredients subject to the provisos of the Federal Food, Drug, plans, and its higher margin health informatics Health informatics or medical informatics is the intersection of information science, computer science and health care. It deals with the resources, devices and methods required to optimize the acquisition, storage, retrieval and use of information in health and biomedicine. business historically has generated its strongest sales volumes in the latter months of the year. * The consolidated medical care ratio of 82.7 percent increased 60 basis points year-over-year and 270 basis points sequentially. The year-over-year increase in this ratio reflects substantial growth in Part D prescription drug plan business, which has a comparatively higher medical care ratio, and an increase in the risk-based employer-sponsored benefit plan medical care ratio at UnitedHealthcare, partially offset by a decrease in the medical care ratio for the Ovations businesses. * During the first quarter of 2007, the Company realized favorable development of $180 million in its estimates of medical costs incurred in 2006. In the first quarter of 2006, the Company realized favorable development of $220 million in its estimates of medical costs incurred in 2005. * First quarter operating costs operating costs npl → gastos mpl operacionales were 14.0 percent of revenue. Operating costs excluding 409A charges represented 13.1 percent of revenues in the first quarter, an improvement of 130 basis points from 14.4 percent in the first quarter of 2006 and 100 basis points from the fourth quarter of 2006. Gains were driven by improved operating cost disciplines, lower marketing expense levels for Ovations business lines and operating efficiencies from recent acquisitions, offset by an increase in spending on strategic initiatives across the enterprise. * The first quarter income tax rate of 36.8 percent increased 90 basis points year-over-year and 20 basis points from fourth quarter 2006. * Accounts receivable accounts receivable n. the amounts of money due or owed to a business or professional by customers or clients. Generally, accounts receivable refers to the total amount due and is considered in calculating the value of a business or the business' problems in paying , excluding the AARP division of Ovations, were at $849 million at March 31, 2007, a decrease of $36 million year-over-year and $57 million from December 31, 2006, despite significant revenue gains in the quarter. Days sales outstanding In accountancy, Days Sales Outstanding is a company's average collection period. A low figure indicates that the company collects its outstanding receivables quickly. Typically it is looked at either quarterly or yearly (90 or 365 days). was four days at March 31, 2007, a decrease of one day both year-over-year and on a sequential quarter basis. * Medical costs payable, excluding the AARP division of Ovations, increased by $380 million year-over-year and $412 million since December 31, 2006, standing at $7.5 billion at March 31, 2007. Medical costs days payable was 51 days for the quarter, a decrease of two days both year-over-year and on a sequential quarter basis. The decrease in medical costs days payable related to growth in the Part D prescription drug plan business and the related increase in medical costs recognized comparatively in the first quarter under GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). accounting. * Reported cash flows from operations of $2.59 billion included a fourth monthly payment from the Centers for Medicare & Medicaid Services (CMS) that was received at the end of March 2007. Cash flows from operations, adjusted to reflect three monthly Medicare payments Noun 1. medicare payment - a check reimbursing an aged person for the expenses of health care medicare check bank check, check, cheque - a written order directing a bank to pay money; "he paid all his bills by check" from CMS in the first quarter of 2007, were $1.07 billion for the first quarter, a decrease of $480 million or 31 percent year-over-year, principally due to growth in the Part D prescription drug plan business. On a year-over-year basis the CMS risk-share receivable under Part D GAAP accounting increased, due to the increased size of the business. In addition, first quarter 2006 cash flows benefited from the establishment of the initial balance of prescription drug costs payable. * The Company repurchased 16.5 million shares during the first quarter of 2007, representing 1.2 percent of its 1.35 billion shares outstanding at December 31, 2006. Repurchase activity commenced in mid-March, so the repurchases had virtually no effect on the diluted weighted-average share count for the first quarter. Outlook and Comment UnitedHealth Group currently foresees 2007 earnings per share in the range of $3.34 to $3.38 including $0.08 in 409A charges related to stock option matters. Excluding these 409A charges and based on strong first quarter results, the Company is increasing its 2007 outlook to a range of $3.42 to $3.46, with revenues projected to approximate $77 billion. The Company anticipates progressive gains in quarterly operating earnings Operating Earnings Profits after subtracting expenses such as marketing, cost of goods sold, administration and general operating costs from revenue. Notes: Tax and interest expenses are not subtracted - operating earnings are synonymous with EBIT (earnings before over the balance of 2007 because a number of its businesses expect seasonal increases in their profitability as the year continues. Second quarter earnings per share are anticipated in the range of $0.80 to $0.82 per share. Management is increasing its outlook for full-year cash flows from operations from a range of $6.0 billion to $6.2 billion to a target of $6.2 billion or more. Stephen J. Hemsley, president and chief executive officer of UnitedHealth Group, said, "Our first quarter results demonstrate the value of building and operating a diverse group of businesses with participation in a broad expanse of distinct end markets within health care. In that regard, we are pleased and honored to renew and expand our relationship with AARP, the pre-eminent pre·em·i·nent or pre-em·i·nent adj. Superior to or notable above all others; outstanding. See Synonyms at dominant, noted. [Middle English, from Latin prae organization serving people over age 50." UnitedHealthcare((R)) Ovations AmeriChoice Business Description -- Health Care Services The Health Care Services segment consists of the UnitedHealthcare, AmeriChoice and Ovations business units. UnitedHealthcare coordinates network-based health and well-being services on behalf of mid-sized and small employers and for consumers. AmeriChoice facilitates and manages health care services for state Medicaid programs and their beneficiaries. Ovations delivers health care services to Americans over the age of 50. [TABLE OMITTED] Key Developments for Health Care Services [TABLE OMITTED] Uniprise((R)) Business Description -- Uniprise Uniprise delivers network-based health and well-being services, business-to-business transaction processing Updating the appropriate database records as soon as a transaction (order, payment, etc.) is entered into the computer. It may also imply that confirmations are sent at the same time. Transaction processing systems are the backbone of an organization because they update constantly. services, consumer connectivity, and technology support services support services Psychology Non-health care-related ancillary services–eg, transportation, financial aid, support groups, homemaker services, respite services, and other services to large employers and health plans, and provides health-related consumer and financial transaction products and services. [TABLE OMITTED] Key Developments for Uniprise * First quarter revenues of $1.4 billion increased $105 million or 8 percent year-over-year and $41 million or 3 percent over the fourth quarter of 2006. * Uniprise increased the number of consumers served through large multistate mul·ti·state adj. Of, relating to, or involving several states: a multistate environmental campaign. employers by 245,000 people in the first quarter, bringing the total number of people served in that market segment to 11.2 million. * Uniprise and UnitedHealthcare continue to grow their market leadership position in consumer-directed account-based benefit products. These businesses serve a total of 2.2 million people through these offerings as of March 31, 2007, representing growth of 555,000 consumers or 34 percent year-over-year and 290,000 consumers or 15 percent since the fourth quarter of 2006. * Assets under management Assets Under Management (AUM) is a term used by financial services companies in the mutual fund and money management or investment management business to gauge how much money they are managing. at Exante Financial Services The examples and perspective in this article or section may not represent a worldwide view of the subject. Please [ improve this article] or discuss the issue on the talk page. , the UnitedHealth Group health banking unit, exceeded $360 million at March 31, 2007, representing growth of more than $80 million or 30 percent in the first quarter alone. * Uniprise operating earnings of $215 million grew $6 million or 3 percent year-over-year and decreased $17 million or 7 percent from the fourth quarter of 2006. The Uniprise operating margin of 14.9 percent declined 80 basis points year-over-year and 170 basis points sequentially in the first quarter of 2007. Operating results included additional costs to advance service levels and investments in strategic initiatives to support future growth on an enterprise-wide basis. Specialized Care Services Business Description -- Specialized Care Services Specialized Care Services offers a comprehensive array of specialized benefits, networks, services and resources to make health care work better by connecting people to proven solutions for health and well-being. [TABLE OMITTED] Key Developments for Specialized Care Services * First quarter revenues rose to $1.1 billion, up $132 million or 13 percent year-over-year and $94 million or 9 percent from the fourth quarter of 2006, driven by strong first quarter customer growth of approximately 1.5 million new individuals served across the portfolio of Specialized Care Services companies. Specialized Care Services provided services to approximately 58 million unique consumers as of March 31, 2007, representing an increase of 5 percent or 2.5 million people year-over-year. * On April 1, 2007, Specialized Care Services together with AmeriChoice launched a large-scale behavioral health Behavioral health was first used in the 1980's to name the combination of the fields mental health and substance abuse. As an example, an organization serving both mental health and substance abuse clients might refer to its practice as behavioral health or services offering reaching approximately 175,000 people in central Tennessee on behalf of TennCare, the managed Medicaid program for the state of Tennessee. * In the first quarter, earnings from operations of $205 million increased $28 million or 16 percent year-over-year and were flat sequentially. * The Specialized Care Services business generated an operating margin of 18.4 percent in the first quarter of 2007, an increase of 40 basis points year-over-year and a decrease of 1.7 percent sequentially. Ingenix((R)) Business Description -- Ingenix Ingenix is a leader in the field of health care data, analysis and application, serving pharmaceutical companies, health insurers and other payers, physicians and other health care providers, large employers and governments. [TABLE OMITTED] Key Developments for Ingenix * Ingenix revenues increased $55 million, or 26 percent year-over-year, to $263 million in the first quarter of 2007. This gain reflects strong growth performance and provides the most meaningful comparative measure of Ingenix results, due to the markedly seasonal sales characteristics of some key product lines. * The Ingenix contract revenue backlog grew 22 percent on a year-over-year basis, standing at $1.2 billion as of March 31, 2007. First quarter bookings included strong new order production in pharmaceutical services, connectivity solutions for payers and medical professionals, and claims reimbursement Reimbursement Payment made to someone for out-of-pocket expenses has incurred. solutions for health care professionals. * Ingenix first quarter operating earnings increased $8 million or 27 percent year-over-year to $38 million, and the operating margin was consistent with the first quarter 2006 at 14.4 percent. About UnitedHealth Group UnitedHealth Group (www.unitedhealthgroup.com) is a diversified health and well-being company dedicated to making health care work better. Headquartered in Minneapolis, Minn., UnitedHealth Group offers a broad spectrum of products and services through six operating businesses: UnitedHealthcare, Ovations, AmeriChoice, Uniprise, Specialized Care Services and Ingenix. Through its family of businesses, UnitedHealth Group serves approximately 70 million individuals nationwide. Forward-Looking Statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. This news release may contain statements, estimates, projections, guidance or outlook that constitute "forward-looking" statements as defined under U.S. federal securities laws. Generally the words "believe," "expect," "intend," "estimate," "anticipate," "plan," "project," "will" and similar expressions, identify forward-looking statements, which generally are not historical in nature. These statements may contain information about financial prospects, economic conditions, trends and unknown certainties. We caution that actual results could differ materially from those that management expects, depending on the outcome of certain factors. These forward-looking statements involve risks and uncertainties that may cause UnitedHealth Group's actual results to differ materially from the results discussed in the forward-looking statements. Some factors that could cause results to differ materially from the forward-looking statements include: the potential consequences of the findings announced on October 15, 2006 of the investigation by an Independent Committee of directors of our historic stock option practices, the consequences of the restatement Restatement A revision in a company's earlier financial statements. Notes: The need for restating financial figures can result from fraud, misrepresentation, or a simple clerical error. of our previous financial statements, related governmental reviews, including a formal investigation by the SEC, and review by the IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. , U.S. Congressional committees, U.S. Attorney for the Southern District of New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of and Minnesota Attorney General, a related review by the Special Litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. Committee of the Company, and related shareholder derivative actions A lawsuit brought by a shareholder of a corporation on its behalf to enforce or defend a legal right or claim, which the corporation has failed to do. A derivative action, more popularly known as a Stockholder's Derivative Suit, is derived from the primary right of the , shareholder demands and purported securities and Employee Retirement Income Security Act The Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C.A. § 1001 et seq. (1974), is a federal law that sets minimum standards for most voluntarily established Pension and health plans in private industry to provide protection for individuals enrolled in these plans. (ERISA See Employee Retirement Income Security Act. ERISA See Employee Retirement Income Security Act (ERISA). ) class actions, the resolution of matters currently subject to an injunction issued by the United States District Court for the District of Minnesota The United States District Court for the District of Minnesota is the Federal district court whose jurisdiction is the state of Minnesota. It was established by an act of Congress on March 17, 1849. , a purported notice of acceleration with respect to certain of the Company's debt securities based upon an alleged event of default under the indenture An agreement declaring the benefits and obligations of two or more parties, often applicable in the context of Bankruptcy and bond trading. The term indenture primarily describes secured contracts and has several applications in U.S. law. governing such securities, and recent management and director changes, and the potential impact of each of these matters on our business, credit ratings and debt; increases in health care costs that are higher than we anticipated in establishing our premium rates, including increased consumption of or costs of medical services; heightened competition as a result of new entrants into our market, and consolidation of health care companies and suppliers; events that may negatively affect our contract with AARP; uncertainties regarding changes in Medicare, including coordination of information systems and accuracy of certain assumptions; funding risks Funding risk The risk associated with the impact on a project's cash flow from higher funding costs or lack of availability of funds. See: interest rate risk. with respect to revenues received from Medicare and Medicaid Medicare and Medicaid U.S. government programs in effect since 1966. Medicare covers most people 65 or older and those with long-term disabilities. Part A, a hospital insurance plan, also pays for home health visits and hospice care. programs; increases in costs and other liabilities other liabilities Small and relatively insignificant liabilities. For financial reporting purposes, firms often combine small liabilities into this single category rather than listing each liability separately. associated with increased litigation, legislative activity and government regulation and review of our industry; our ability to execute contracts on competitive terms with physicians, hospitals and other service providers; regulatory and other risks associated with the pharmacy benefits management industry; failure to maintain effective and efficient information systems, which could result in the loss of existing customers, difficulties in attracting new customers, difficulties in determining medical costs estimates and appropriate pricing, customer and physician and health care provider disputes, regulatory violations, increases in operating costs, or other adverse consequences; possible impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. of the value of our intangible assets Intangible Asset An asset that is not physical in nature. Notes: Examples are things like copyrights, patents, intellectual property, and goodwill. These are the opposite of tangible assets. if future results do not adequately support goodwill and intangible assets recorded for businesses that we acquire; potential noncompliance noncompliance failure of the owner to follow instructions, particularly in administering medication as prescribed; a cause of a less than expected response to treatment. noncompliance by our business associates with patient privacy data; misappropriation misappropriation n. the intentional, illegal use of the property or funds of another person for one's own use or other unauthorized purpose, particularly by a public official, a trustee of a trust, an executor or administrator of a dead person's estate, or by any of our proprietary technology; and anticipated benefits of acquisitions that may not be realized. This list of important factors is not intended to be exhaustive. A further list and description of some of these risks and uncertainties can be found in our reports filed with the Securities and Exchange Commission from time to time, including annual reports on Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. , quarterly reports on Form 10-Q Form 10-Q See 10-Q. and current reports on Form 8-K Form 8-K The form required by the SEC when a publicly held company incurs any event that might affect its financial situation or the share value of its stock. Form 8-K See 8-K. . Any or all forward-looking statements we make may turn out to be wrong. You should not place undue reliance on forward-looking statements, which speak only as of the date they are made. Except to the extent otherwise required by federal securities laws, we do not undertake to publicly update or revise any forward-looking statements. Earnings Conference Call As previously announced, UnitedHealth Group will discuss the Company's results, strategy and future outlook on a conference call with investors at 8:45 a.m. Eastern time today. UnitedHealth Group will host a live webcast of this conference call from the Investor Information page of the Company's Web site (www.unitedhealthgroup.com). The webcast replay of the call will be available on the same site for one week following the live call. The conference call replay can also be accessed by dialing 1-800-642-1687, conference ID #3052569. This earnings release and the Form 8-K dated April 19, 2007, which may also be accessed in the Investor Information section of the Company's Web site, include a reconciliation of non-GAAP financial measures. 1 Excluding 409A charges is a non-GAAP measure that removes certain costs related to stock option matters. Management believes that removing these costs improves the comparability of the Company's results between periods. A table quantifying results with and without these charges is included in the Earnings Release Schedules and Supplementary Information. The Company has determined that certain stock options granted to nonexecutive officer employees were granted with an exercise price that was lower than the closing price of the Company's common stock on the applicable accounting measurement date and, as a result, these individuals may be subject to additional tax under Section 409A of the Internal Revenue Code The Internal Revenue Code is the body of law that codifies all federal tax laws, including income, estate, gift, excise, alcohol, tobacco, and employment taxes. These laws constitute title 26 of the U.S. Code (26 U.S.C.A. § 1 et seq. . The Company has decided to pay these individuals' additional tax costs tax costs n. a motion to contest a claim for court costs submitted by a prevailing party in a lawsuit. It is called a "Motion to Tax Costs" and asks the judge to deny or reduce claimed costs. under Section 409A for such stock options exercised in 2006. For any such stock options remaining outstanding that were granted under its 2002 Stock Incentive Plan to nonexecutive officers, the Company increased the exercise price and will make cash payments beginning in 2008 to these holders for vested options equal to the difference between the original stock option price and the revised increased stock option price. As previously disclosed, on December 29, 2006, the Company entered into agreements to increase the exercise price of outstanding stock options to avoid additional tax under Section 409A with all individuals who were executive officers of the Company at the time of grant of an applicable stock option. No compensation was payable to any of those individuals. The Company's first quarter results include a $55 million charge, net of tax benefit ($87 million pre-tax) for the stock options exercised in 2006 and a $57 million modification charge, net of tax benefit ($89 million pre-tax) for increasing the exercise price of stock options granted to nonexecutive officers that are not yet exercised. These amounts have been recorded as corporate expenses and not allocated to individual business segments. When the modified stock options are subsequently exercised, the Company will recover cash payments from exercise proceeds at the revised increased stock option prices. [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] |
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