10-QPeriod: Q1 FY2006

UNITEDHEALTH GROUP INC Quarterly Report for Q1 Ended Mar 31, 2006

Filed May 10, 2006For Securities:UNH

Summary

UnitedHealth Group Inc. (UNH) reported strong financial performance for the first quarter ended March 31, 2006. Total revenues surged by 58% to $17.6 billion, driven by a combination of organic growth and strategic acquisitions, notably the significant PacifiCare acquisition completed in December 2005. The company also benefited from the successful launch of the Medicare Part D prescription drug program, which significantly boosted premium revenues and contributed to an overall increase in individuals served. Despite the impact of integrating acquisitions and the initial costs associated with the Medicare Part D program, earnings from operations increased by 24% to $1.5 billion, and diluted net earnings per common share rose by 15% to $0.63. The company highlighted strong cash flow from operations, increasing by 154% to $2.9 billion, bolstered by an early CMS payment for Medicare Part D. Management remains focused on integrating recent acquisitions, managing healthcare costs, and navigating the evolving regulatory landscape, including ongoing reviews of its stock option granting practices.

Key Highlights

  • 1Total revenues increased by 58% to $17.6 billion, significantly driven by the acquisition of PacifiCare and the launch of Medicare Part D.
  • 2Diluted net earnings per common share grew by 15% to $0.63, demonstrating strong profitability despite integration efforts.
  • 3Cash flow from operations dramatically increased by 154% to $2.9 billion, supported by strong earnings and an early Medicare Part D payment.
  • 4The Medicare Part D program contributed $1.6 billion in revenue and began impacting medical costs, with an estimated full-year medical care ratio of 87-88%.
  • 5The company repurchased approximately $1.8 billion of its common stock in the quarter, reflecting a commitment to shareholder returns and capital optimization.
  • 6Goodwill and other intangible assets increased to $16.6 billion and $2.0 billion respectively, largely due to recent acquisitions, representing a significant portion of total assets.
  • 7Ongoing reviews of stock option granting practices are underway, with potential for material adjustments to historical stock-based compensation expenses, though not expected to materially impact the current quarter's results.

Frequently Asked Questions

Revenue growth was primarily driven by the acquisition of PacifiCare Health Systems in December 2005, the successful launch of the Medicare Part D prescription drug program, and organic growth from rate increases and an expanding member base across various segments.

The Medicare Part D program significantly contributed to premium revenues, generating $1.6 billion in the first quarter. It also led to higher medical costs, with a medical care ratio of 97% for the quarter, and necessitated a $347 million receivable from CMS due to the uneven timing of costs within the year. Management estimates the full-year medical care ratio for Medicare Part D to be between 87% and 88%.

UnitedHealth Group initiated internal and independent reviews of its stock option granting practices. While these reviews are ongoing and could lead to material adjustments to historical stock-based compensation expenses and potential tax implications, management does not currently believe they will have a material impact on the Q1 2006 results. The SEC is also conducting an informal inquiry.

The company maintains strong liquidity through significant cash flows from operations, supplemented by debt financing. They actively manage their cash and investments, with $17.6 billion in cash and investments at the end of the quarter. The company also continued its share repurchase program, buying back $1.8 billion in stock during the quarter.