UnitedHealth Group Incorporated (UNH)

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Unitedhealth Group (UNH)

Q4 2011 Earnings Call

January 19, 2012 8:45 am ET

Executives

Dirk McMahon -

John S. Penshorn - Senior Vice President

Larry C. Renfro - Executive Vice President and Chief Executive officer of Optum

Stephen J. Hemsley - Chief Executive Officer and Executive Director

Dawn M. Owens - Chief Executive Officer

Gail K. Boudreaux - Executive Vice President and Chief Executive Officer of United Healthcare

Dan Schumacher -

Jack Larsen -

Analysts

Carl R. McDonald - Citigroup Inc, Research Division

Charles Andrew Boorady - Crédit Suisse AG, Research Division

Peter H. Costa - Wells Fargo Securities, LLC, Research Division

Matthew Borsch - Goldman Sachs Group Inc., Research Division

Doug Simpson - Morgan Stanley, Research Division

Justin Lake - UBS Investment Bank, Research Division

Christine Arnold - Cowen and Company, LLC, Research Division

Thomas A. Carroll - Stifel, Nicolaus & Co., Inc., Research Division

Joshua R. Raskin - Barclays Capital, Research Division

Sarah James - Wedbush Securities Inc., Research Division

John F. Rex - JP Morgan Chase & Co, Research Division

Presentation

Operator

Good morning. I will be your conference facilitator today. Welcome to the UnitedHealth Group Fourth Quarter and Full Year 2011 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded.

Here is some important introductory information. This call contains forward-looking statements under U.S. Federal Security (sic) [Securities Laws]. These statements are subject to risks and uncertainties that could cause actual results to differ materially from historical experience or present expectations. A description of some of the risks and uncertainties can be found in the reports that we filed with the Securities and Exchange Commission, including the cautionary statements included in our current and periodic filings.

This call will also reference non-GAAP amounts. A reconciliation of the non-GAAP to GAAP amount is available on the financial reports and SEC filings section of the company's Investors page at www.unitedhealthgroup.com.

Information presented on this call is contained in the earnings release we issued this morning and in our Form 8-K dated January 19, 2012, which may be accessed from the Investors page of the company's website.

I would now like to turn the conference over to the President and Chief Executive Officer of UnitedHealth Group, Stephen Hemsley.

Stephen J. Hemsley

Good morning, and thank you for joining us as we wrap up 2011 and discuss the potential we see to better serve our customers and markets in 2012. We're committed to continuing to elevate our performance this year as we outlined in our Investor Conference just about a month ago.

2011 was a strong year across a wide range of performance factors. Continued focus on fundamental execution improved service and value for our customers. Financial performance was driven by revenue growth across all of our businesses, including from new business relationships and strong retention of our established clients. Relentless cost management and continued business simplification were prevailing themes in 2011, and innovation and development activities for new markets advanced steadily throughout the year, as we strengthened key capabilities to respond to emerging growth opportunities.

For many years now, we have focused on the combination of fundamental execution and practical innovation to yield value and performance from our assets for the benefit of those we serve. We concentrate our efforts on 2 market-facing business platforms: UnitedHealthcare for health benefits and Optum for health services. Both leverage our common competencies. This enterprise-wide focuses enabled us to steadily advance year after year, compounding our gains over time. Today, UnitedHealth Group is more capable and considerably more nimble than just 5 years ago. This enables us to better respond to the pace of change required to lead in serving the core needs of the healthcare market. Our commitment remains for this enterprise to adapt and grow at a market-leading pace and deliver consistently superior performance to customers.

We will begin with some 2011 highlights and then turn to a more detailed review of UnitedHealthcare and Optum's recent progress and growth. UnitedHealth Group earned $4.73 per share in 2011, an improvement of 15% year-over-year. Cash flows from operations of $7 billion were once again more than 1.3x full year net earnings. Revenues approached $102 billion, up nearly $8 billion from 2010. Full year revenues grew 8%, with revenues growing 7% at UnitedHealthcare and increasing by 21% for the Optum businesses.

The 2011 operating margin of 8.3% was stronger than when -- than we are -- we originally expected and close to the level achieved in 2010. Our 2011 operating cost ratio increased 10 basis points to 15.3% due to an overall increase in regulatory readiness and compliance costs and to the rapidly growing level of fee-based and service revenues.

Fourth quarter adjusted operating cash flows of $2 billion brought full year cash flows from operations to $7 billion, an increase of $700 million or 11% over 2010. Total dividends paid increased 45% year-over-year in 2011. And we repurchased $3 billion in shares, $500 million more than the upper end of our plan for the year.

We completed a fourth quarter debt offering at the lowest net interest rates in the history of our company. And we ended the year with a ratio of debt to debt plus equity of 29%, a 1-percentage point reduction from 2010. At year end, we held a strong available cash position of $1.6 billion.

Let's review how these results were driven by our complimentary business platforms.

UnitedHealthcare's growth performance has been distinctive in the marketplace. Over the past 2 years, we have grown to serve 2.6 million more people, with at least 6-figure advances in individuals served in every product category over that time. Fee-based commercial actually saw a 7-figure growth. Fourth quarter 2011 growth was well balanced, with increases of 70,000 people served for Employer & Individual, 40,000 people for UnitedHealthcare Community & State, 65,000 people for UnitedHealthcare Medicare & Retirement and 25,000 people in stand-alone Part D.

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