UnitedHealth Group (UNH)

UnitedHealth Group’s consolidated second quarter revenues of $21.7 billion increased $1.4 billion or 7 percent year-over-year.

Second quarter investment income of $153 million decreased $87 million year-over-year, which reduced net earnings by $0.05 per share. While cash and invested asset balances increased 8 percent year-over-year at June 30, 2009, capital market conditions meaningfully reduced yields on the Company’s cash and short duration, high quality investment portfolio. UnitedHealth Group results included net capital gains of $3 million and $50 million in the second quarters of 2009 and 2008, respectively.

Second quarter earnings from operations were $1.4 billion and net earnings were $859 million. The operating margin of 6.6 percent decreased 60 basis points from the prior year operating margin of 7.2 percent, with 40 basis points of the change due to reduced investment income and the balance due to business mix changes driven by strong growth in comparatively lower margin government-sponsored business at AmeriChoice, Ovations and OptumHealth.

Second quarter 2009 net earnings of $0.73 per share increased $0.06 or 9 percent from $0.67 per share in the second quarter of 2008.

Second quarter 2009 premium revenues of $19.7 billion increased $1.4 billion or 8 percent year-over-year, due to strong organic growth in risk-based offerings in the public and senior markets businesses and price increases reflecting underlying medical cost increases in the health benefits businesses.

Service revenues of $1.3 billion were stable year-over-year, while product revenues of $449 million increased $58 million or 15 percent year-over-year in the second quarter, due to volume growth at Prescription Solutions.

The consolidated medical care ratio remained within the range of management expectations, increasing 40 basis points year-over-year to 83.6 percent. The increase includes the mix effect of an increased proportion of public and senior markets risk-based business year-over-year, as well as more than 20 basis points from elevated medical costs related to the H1N1 influenza virus.

During the second quarter of 2009 the Company realized $30 million in net favorable development in its estimates of medical costs incurred in the first quarter of 2009. There were no changes to its estimates of prior year medical costs. There were no net changes in the second quarter of 2008 to estimates of medical costs incurred in prior periods.

Operating costs were 14.0 percent and 14.6 percent¹ of revenues in the second quarters of 2009 and 2008, respectively.

The second quarter 2009 income tax rate of 34.0 percent included 100 basis points of benefit from the favorable resolution of various historical federal and state income tax matters. New York state-licensed HMOs are now subject to premium taxes in lieu of state income taxes, which increased operating costs and decreased the consolidated income tax rate by 100 basis points in the quarter.

There were 11 days sales outstanding in accounts receivable at the end of the second quarters of both 2009 and 2008. Cash collections remained solid despite the recessionary economic climate.

Consolidated medical costs days payable were 53 days at the end of the second quarters of both 2009 and 2008.

Second quarter cash flows from operations of $492 million were stronger than projected and brought year-to-date cash flows to $1.6 billion, an increase of 82 percent over the same period last year, reflecting strong growth in risk-based products in the public and senior markets businesses as well as the timing of income tax payments.

At June 30, 2009 the Company reduced its debt position by $1.4 billion year-over-year, and the debt to debt plus equity ratio decreased to 35.2 percent from 40.4 percent at June 30, 2008. The Company repurchased nearly 32 million shares of stock during the second quarter of 2009.

UnitedHealth Group’s consolidated first quarter revenues of $22.0 billion increased $1.7 billion or 8 percent year-over-year. The Company’s organic revenue growth rate accelerated to 6 percent in the first quarter of 2009.

First quarter investment income of $158 million decreased $121 million year-over-year, which reduced net earnings by $0.06 per share. While invested asset balances were comparable year-over-year, capital market conditions meaningfully reduced yields on the Company’s cash and short duration, high quality investment portfolio. UnitedHealth Group results included a net $3 million capital gain in the first quarter of 2009.

Earnings from operations of $1.7 billion and net earnings of $984 million were both stable year-over-year. The operating margin of 7.6 percent decreased 80 basis points from the prior year, with 50 basis points of the change due to reduced investment income and the balance due to a change in business mix driven by strong growth in comparatively lower margin government-sponsored business at AmeriChoice, OptumHealth and Ovations.

First quarter 2009 net earnings of $0.81 per share increased $0.03 or 4 percent year-over-year.

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Adjusted numbers are non-GAAP financial measures. Further explanation of these non-GAAP measures and reconciliations to the comparable GAAP measures are included in the attached reconciliation schedules.

First quarter 2009 premium revenues increased $1.7 billion or 9 percent year-over-year, principally due to strong organic growth in risk-based offerings in the public and senior markets businesses, as well as the effect of acquisitions by UnitedHealthcare and AmeriChoice during 2008.

Product revenues of $439 million increased $76 million or 21 percent year-over-year in the first quarter, due to volume growth at Prescription Solutions.

The consolidated medical care ratio of 82.4 percent was flat year-over-year, with improvements in the medical care ratio for the commercial risk business offset by higher medical care ratios for the public and senior markets businesses.

In the first quarters of both 2008 and 2009, the Company realized $200 million in favorable development in its estimates of medical costs incurred in previous years.

Operating costs were 14.2 percent and 14.3 percent of revenues in the first quarters of 2009 and 2008, respectively. First quarter 2009 operating costs included a 20 basis point year-over-year increase in retroactive and current state insurance premium assessments that partially offset year-over-year improvements in the Company’s underlying cost structure.

The first quarter 2009 income tax rate of 36.0 percent decreased 20 basis points year-over-year.

There were 9 days sales outstanding in accounts receivable at the end of the first quarter of both 2008 and 2009. Cash collection disciplines remained solid despite broader economic pressures.

Consolidated medical costs days payable were in line with management’s expectations at 50 days in the first quarter of 2009, compared to 51 days in the first quarter of 2008.

Cash flows from operations of $1.1 billion increased $832 million from $280 million in last year’s first quarter, reflecting strong growth in risk-based products in the public and senior markets businesses and the timing of income tax payments. Cash flows from operations were 113 percent of net earnings in the first quarter of 2009 compared to 28 percent of net earnings in the first quarter of 2008.

The Company reduced its debt position by $1.1 billion in the first quarter and the March 31, 2009 debt to debt plus equity ratio decreased to 35.4 percent from 40.1 percent at March 31, 2008. The Company repurchased more than 32 million shares of stock during the first quarter of 2009.

Full year revenues of $81.2 billion increased $5.8 billion or 8 percent year-over-year, with fourth quarter revenues of $20.5 billion increasing $1.7 billion or 9 percent year-over-year. UnitedHealth Group served 73 million people at year end, an increase of 1.9 million people year-over-year. The UnitedHealthcare, Ovations, AmeriChoice, OptumHealth, and Ingenix businesses each reported revenue increases in 2008.

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Full year adjusted earnings from operations were $6.35 billion and adjusted net earnings were $3.7 billion¹. Fourth quarter adjusted earnings from operations were $1.6 billion and adjusted net earnings were $941 million¹. The adjusted full year operating margin of 7.8 percent in 2008 decreased 280 basis points from the prior year. The decreases in earnings and margins were primarily driven by a reduction in gross margin in risk-based health benefit products, as well as a 100 basis point year-over-year increase in the level of operating costs as a percentage of revenue and a $373 million year-over-year reduction in investment and other income, including $6 million in net realized capital losses in 2008.

On an adjusted basis, full year net earnings were $2.95 per share and fourth quarter net earnings were $0.78 per share. Full year 2008 net earnings were $2.40 per share; fourth quarter earnings were $0.60 per share.

The 2008 consolidated medical care ratio of 82.0 percent increased 140 basis points year-over-year, as premium rates advanced more slowly than medical costs in 2008 for certain risk-based products in the commercial, senior and behavioral care markets. These factors also caused the fourth quarter 2008 medical care ratio to increase 90 basis points year-over-year to 80.8 percent.

For full year 2008 the Company realized $230 million in net favorable development in its estimates of medical costs incurred in prior years, compared to $420 million in 2007. This includes $20 million of prior year favorable development realized in the fourth quarter of 2008, compared to $70 million in the fourth quarter of 2007.

In fourth quarter 2008 the Company also realized $150 million in favorable development in its estimates of medical costs incurred during the first nine months of the year, compared to $10 million in the fourth quarter of 2007.

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Full year adjusted operating costs of 14.8 percent¹ of revenues increased 100 basis points in 2008 from 13.8 percent¹ in 2007. The full year increase reflected changes in business mix, as well as increases in the Company’s operating cost structure in excess of business growth in the first half of 2008. Adjusted operating costs were 15.4 percent¹ and 14.4 percent of revenues in the fourth quarters of 2008 and 2007, respectively, reflecting higher seasonal cost levels. Since the first quarter of 2008, UnitedHealth Group has taken actions to reduce annual run rate operating costs by about $470 million, a portion of which has been reinvested into the business.

UnitedHealth Group realized a net capital loss of $6 million from its $21.6 billion investment portfolio in 2008. Fourth quarter 2008 results included $14 million in net realized capital losses on fixed income investments and a $50 million write-down on the Company’s approximately $200 million venture capital investment program.

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The 2008 adjusted income tax rate of 35.9 percent¹ decreased 40 basis points year-over-year, due to an increased proportion of tax-free income. The fourth quarter adjusted income tax rate was 35.7 percent¹.

Fourth quarter 2008 days sales outstanding of 9 compares to 9 days sales outstanding in the third quarter of 2008 and 8 days outstanding at the end of 2007.

Consolidated medical costs days payable of 53 days in the fourth quarter of 2008 compares to 54 days in the third quarter of 2008 and 57 days at the end of 2007. The year-over-year decrease in medical days payable was driven by an increased mix of pharmacy benefit business, which has shorter claims payment cycles, as well as the timing of certain pharmacy benefit claims payments made at year end 2008.

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Cash flows from operations of $1.6 billion increased $531 million from $1.1 billion in last year’s fourth quarter, reflecting strong cash collections in the quarter. Full year adjusted cash flows from operations¹ were 1.3 times 2008 adjusted net earnings¹.

UnitedHealth Group reduced its debt to debt plus equity ratio to 38.1 percent at December 31, 2008, down from 39.2 percent at September 30, 2008. Fourth quarter net repayments of $485 million in commercial paper obligations left only $101 million in commercial paper outstanding at the end of the year.

The Company closed the year with $865 million in unrestricted cash.

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Third quarter 2008 net earnings were $0.75 per share; adjusted third quarter net earnings were $0.73 per share¹ . Adjusted net earnings per share exclude a $0.02 per share benefit from a change in the estimate of the net costs to settle two class action lawsuits related to the Company’s historical stock option matters. Both reported and adjusted earnings per share include the absorption of $0.03 per share in estimated costs to conclude a legal matter and $0.02 per share in net capital losses on investments.

Consolidated third quarter revenues of $20.2 billion increased $1.5 billion or 8 percent year-over-year. UnitedHealth Group served 73 million people as of September 30, 2008, an increase of 1.8 million people year-over-year.

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Adjusted earnings from operations were $1.6 billion and adjusted net earnings were $895 million¹. The adjusted operating margin of 7.7 percent decreased 380 basis points from the prior year. These earnings and margin decreases were primarily driven by a reduction in gross margin in risk-based health benefit products, as well as year-over-year increases in the level of operating costs and a year-over-year reduction in investment and other income.

The consolidated medical care ratio of 81.7 percent increased 220 basis points year-over-year, as premium rates have advanced more slowly than medical costs in 2008 for certain risk-based products in the commercial, senior and behavioral care markets.

During the third quarter of 2008 the Company realized $120 million in favorable development to its estimates of medical costs incurred in the first half of 2008 and $10 million in favorable development related to prior years. This compares to $140 million of total favorable development in the third quarter of 2007, including $70 million from prior years.

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Adjusted operating costs were 15.0 percent¹ and 14.0 percent of revenues in the third quarters of 2008 and 2007, respectively. Adjusted third quarter 2008 operating costs included 25 basis points of cost accrued as an estimate of the costs to conclude a legal matter.

The third quarter income tax rate of 35.8 percent decreased 50 basis points year-over-year, due to an increased proportion of tax-free income to total earnings.

At September 30, 2008 more than $6 billion of the Company’s $20 billion cash and investment portfolio was classified as cash and cash equivalents, with the balance in a diversified, investment grade portfolio of U.S. Government and U.S. Government agency, state, municipal and corporate obligations.

Third quarter 2008 days sales outstanding of 9 compares to 11 days sales outstanding in the second quarter of 2008 and 7 days outstanding in the third quarter of 2007.

Consolidated medical costs days payable were 54 days in the third quarter of 2008, compared to 53 days in the second quarter of 2008 and 57 days in the third quarter of 2007.

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Adjusted cash flows from operations of $2.4 billion increased approximately $300 million from $2.1 billion¹ in last year’s third quarter, as adjusted, reflecting strong cash collections in the quarter, particularly in government-based businesses. Cash flows from operations were 191 percent of net earnings in the third quarter of 2008.

UnitedHealth Group used cash flows from operations to reduce its total debt position by $337 million in the third quarter, bringing the debt to debt plus equity ratio to 39.2 percent at September 30, 2008, down from 40.4 percent at June 30, 2008. The Company also used cash flows from operations to repurchase 16 million shares of its stock during the third quarter of 2008.

As adjusted, second quarter net earnings per share were $0.67, a decrease of 25 percent from the prior year second quarter.

Consolidated second quarter revenues of $20.3 billion increased $1.3 billion or 7 percent year-over-year. UnitedHealth Group served 73 million people as of June 30, 2008, an increase of 2 million people year-over-year.

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Adjusted earnings from operations were $1.5 billion and adjusted net earnings were $830 million¹, which represented decreases of 30 percent and 32 percent, respectively, from the prior year. The consolidated operating margin of 7.2 percent, as adjusted, decreased 370 basis points from the prior year. These decreases were primarily driven by a reduction in gross margin in UnitedHealthcare commercial risk products and certain Ovations health benefit products for seniors, as well as year-over-year increases in the level of operating costs and a year-over-year reduction in investment income.

The consolidated medical care ratio of 83.2 percent increased 290 basis points year-over-year, driven by increased medical care ratios for certain senior market products and an increase in the UnitedHealthcare medical care ratio. The Company continues to estimate the full year 2008 consolidated medical care ratio to be in the range of 82.5 percent, plus or minus 50 basis points.

During the second quarter of 2008 the Company had no net change to its estimates of medical costs incurred in 2007 or in the first quarter of 2008. This compares to a total of $110 million in favorable development of estimates of medical costs incurred realized in the second quarter of 2007, primarily from medical costs incurred in 2006.

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Second quarter 2008 operating costs were 14.6 percent¹ of revenue as adjusted, an increase of 90 basis points from the second quarter of 2007. Business mix changes, including the acquisition of Fiserv Health, added nearly 30 basis points to this ratio year-over-year in the second quarter of 2008. As previously disclosed, the Company is reducing its run-rate operating costs while maintaining commitments to service, growth and innovation.

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The second quarter income tax rate was 35.8 percent¹ as adjusted, with the year-over-year and sequential decreases due to an increased proportion of tax-free investment income to total earnings.

Consolidated medical costs days payable were 53 days for the second quarter of 2008, compared to 51 days in the first quarter of 2008 and 55 days in the second quarter of 2007. The year-over-year decrease was primarily due to an increased mix of pharmacy payables (which have shorter payment cycles), driven by growth from the new state of New York – Empire Plan Prescription Drug Program pharmacy benefit contract.

Cash flows from operations were $600 million versus $1.7 billion in the second quarter of 2007. The decrease in cash flows from operations primarily reflects a change in the timing of approximately $700 million in income tax payments between years and the return of $170 million in retained deposits to a customer in the second quarter of 2008, as well as the year-over-year decrease in net earnings.

Second quarter consolidated revenues included approximately $50 million in realized net capital gains, as expected. These gains were more than offset by lower investment yields and decreased investment balances year-over-year.

UnitedHealth Group strengthened its competitive position in the second quarter through the acquisition of Unison, a leading participant in the state Medicaid market, and a minority investment in Sedgwick Claims Management Services, a leader in integrated claims and productivity management services for large employers.

The Company repurchased 17 million shares during the second quarter of 2008, bringing year to date share repurchase to 48 million shares or 4 percent of the shares outstanding at December 31, 2007.

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First quarter consolidated net earnings per share were $0.78, an increase of 5 percent over the prior year¹.

UnitedHealth Group served 73 million people through its diverse set of businesses as of March 31, 2008, an increase of 2 million people year-over-year.

Consolidated first quarter revenues of $20.3 billion increased $1.3 billion or 7 percent year-over-year.

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Consolidated first quarter earnings from operations were $1.7 billion and net earnings were $994 million, representing decreases of 3 percent and 4 percent, respectively, from the prior year¹, while the consolidated operating margin of 8.4 percent decreased 80 basis points from the prior year¹. These decreases were primarily due to business mix changes and a margin decline in the Company’s Health Care Services business, which was affected by unusually high influenza costs.

The consolidated medical care ratio of 82.4 percent improved 30 basis points year-over-year, driven by improved ratios in the Medicaid and Medicare Advantage businesses which offset increased medical care ratios for Part D prescription drug plans and at Evercare, due to higher sales of comparatively lower margin Special Needs Plans, as well as an increase in the Commercial Markets Group medical care ratio related to shortfalls in planned premium yield increases.

During the first quarter of 2008, the Company realized net favorable development of $200 million in its estimates of medical costs incurred in 2007. This compares to $180 million in favorable development of estimates of medical costs incurred in 2006 that was realized in the first quarter of 2007.

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First quarter 2008 operating costs were 14.3 percent of revenue, an increase of 120 basis points from the first quarter of 2007¹, and a decrease of 10 basis points from the fourth quarter of 2007. First quarter operating costs include those incurred to support anticipated revenue growth which has not fully materialized; accordingly, the Company is selectively reducing its run-rate operating costs to more appropriately align with business levels for the balance of 2008 without compromising its commitments to service, growth and innovation. The acquisition of Fiserv Health added approximately 20 basis points to this ratio in the first quarter.

The first quarter income tax rate of 36.2 percent decreased 60 basis points year-over-year, but increased 70 basis points from fourth quarter 2007, due to state tax matters.

Consolidated medical costs days payable were 51 days for the first quarter of 2008, compared to 53 days in the first quarter of 2007. The year-over-year decrease of 2 days was primarily due to an increased mix of pharmacy payables (which have shorter payment cycles), driven by growth from the new state of New York – Empire Plan Prescription Drug Program pharmacy benefit contract, and the timing of payments to the Company’s external pharmacy benefit fulfillment partner.

Cash flows from operations were $280 million versus $1.07 billion in the first quarter of 2007, as adjusted for CMS payment timing. The Company projects full year 2008 cash flows from operations to approach $6 billion or 1.3 times its revised net income outlook. Factors driving the year-over-year decrease in first quarter cash flows included the effects of decreases in consumers served through commercial and Part D risk-based arrangements and timing-related items such as federal program receipts and payments to the Company’s external pharmacy benefit fulfillment partner, that are expected to reverse over the course of the year.

During the first quarter, the Company began repositioning a portion of its investment portfolio to improve its future returns and to take advantage of strong market demand for high quality debt securities that it currently owns. First quarter consolidated revenues included $53 million in realized net capital gains. These gains were partially offset by lower investment yields on cash and cash equivalents.

UnitedHealth Group strengthened a number of its lines of business and its geographic profile in the first quarter through the acquisitions of Fiserv Health, specializing in customized benefits for self-funded organizations, and Sierra Health Services (Sierra), the leading managed care organization in the Nevada marketplace.

During the first quarter AmeriChoice announced an agreement to acquire Unison Health Plans, a leading provider of health benefit services to states and state program beneficiaries. AmeriChoice expects the acquisition will close by the end of the second quarter, at which point AmeriChoice will provide services to more than 2 million people in 21 states.

The Company repurchased 31 million shares during the first quarter of 2008, representing 2 1/2 percent of its shares outstanding at December 31, 2007.

First quarter 2008 return on equity increased 2 percentage points from the first quarter of 2007 to 20 percent.

UnitedHealth Group and Medco Health Solutions have extended their pharmacy benefit fulfillment contract through December 31, 2012. Under the extended and aligned agreement, UnitedHealth Group will in-source customer service and benefit set-up, creating a more integrated and seamless experience for customers.

Consolidated revenues for full year 2007 increased $3.9 billion or 5 percent to $75.4 billion. Revenues for every reporting segment increased in 2007, with particularly notable growth in Prescription Solutions, Ingenix and AmeriChoice in Health Care Services. Fourth quarter revenues of $18.7 billion increased $577 million or 3 percent year-over-year and were stable sequentially.

Full year adjusted earnings from operations of $8.0 billion advanced 15 percent over 2006 results. Each reporting segment increased its operating earnings by a double-digit percentage in 2007, led by Prescription Solutions, up 94 percent, and Ingenix, up 51 percent. Earnings from operations increased to $2.0 billion in the fourth quarter, up $57 million or 3 percent over the prior year, and down $117 million or 5 percent sequentially. This decline was entirely due to the seasonal decrease in Health Care Services fourth quarter results.

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Full year adjusted net earnings advanced to $4.766 billion¹, up $607 million or 15 percent over 2006 results. Fourth quarter consolidated net earnings increased to $1.216 billion, up $41 million or 3 percent year-over-year, and decreased $67 million or 5 percent on a sequential quarter basis, as expected.

The full year adjusted operating margin of 10.6 percent improved 80 basis points from 9.8 percent in 2006, driven by gains in both the medical care ratio and operating cost ratio. The consolidated fourth quarter operating margin of 10.9 percent was stable with the fourth quarter of 2006.

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Full year adjusted earnings of $3.50 per share¹ increased 18 percent from $2.97 per share in 2006 driven by 15 percent growth in adjusted earnings from operations and a 3 percent reduction in diluted weighted average shares outstanding. Fourth quarter earnings per share of $0.92 increased 10 percent from $0.84 in the fourth quarter of 2006, and decreased 3 cents or 3 percent from the third quarter of 2007, as expected.

Cash flows from operations were 126 percent of net earnings or $5.88 billion for the year, including $1.07 billion for the fourth quarter. The timing of state Medicaid program receivables collections, income tax payments and federal program payments affected fourth quarter cash flows.

The 2007 consolidated medical care ratio of 80.6 percent decreased 60 basis points from 81.2 percent in 2006 due largely to improvements in public and senior markets businesses. The fourth quarter medical care ratio of 79.9 percent was stable compared with 80.0 percent in the fourth quarter of 2006.

Full year favorable development of prior year medical cost estimates of $420 million in 2007 compares to $430 million in 2006 and $400 million in 2005. During the fourth quarter, the Company realized favorable development of $70 million in its estimates of medical costs incurred in 2006. The Company also realized $10 million in favorable development in the fourth quarter related to estimates of medical costs incurred in the first nine months of 2007, with no effect on full year results.

Consolidated medical costs days payable were 57 days for the fourth quarter of 2007, as compared to 56 days for the fourth quarter of 2006. Excluding the AARP division of Ovations, medical costs days payable were 54 days for the fourth quarter of 2007 and 53 days for the fourth quarter of 2006.

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The full year adjusted operating cost ratio of 13.8 percent¹ improved 20 basis points from 14.0 percent in 2006 reflecting effective operating cost management. Operating costs represented 14.4 percent of revenues in the fourth quarter, including about 30 basis points of incremental advertising and related market launch expenses for the AARP-branded Medicare Advantage offerings. Excluding these expenses, the fourth quarter 2007 operating cost ratio was stable with fourth quarter 2006.

The income tax rate of 36.3 percent was consistent for full year 2007 and 2006. The fourth quarter 2007 income tax rate of 35.5 percent decreased 80 basis points sequentially primarily due to the mix of profitability among state tax jurisdictions.

UnitedHealth Group repurchased 125 million shares in 2007 for $6.6 billion, including 40 million shares in the fourth quarter for $2.2 billion.

Full year 2007 return on equity exceeded 22 percent, with fourth quarter 2007 annualized return on equity at 24 percent. Strong returns on equity were driven by double digit operating margins and an increasingly efficient capital structure.

Consolidated third quarter revenues were $18.7 billion, increasing $0.7 billion or 4 percent year-over-year. Revenues decreased sequentially, as business growth in the quarter was more than offset by the timing of revenue recognition for Medicare products.

Consolidated earnings from operations in the third quarter were $2.2 billion, up $292 million or 16 percent year-over-year.

The consolidated operating margin of 11.5 percent expanded 110 basis points year-over-year, due to margin gains in the Health Care Services business segment. The consolidated operating margin increased 60 basis points sequentially, with margins stable or improved across every business segment.

Third quarter consolidated net earnings of $1.3 billion grew $171 million or 15 percent year-over-year and $55 million or 4 percent from second quarter 2007.

Third quarter cash flows from operations of $2.1 billion grew 14 percent year-over-year, after adjusting reported cash flows from operations of $516 million to appropriately align monthly payment receipts from the Centers for Medicare and Medicaid Services.

Third quarter consolidated net earnings per share were $0.95, an increase of 19 percent from $0.80 per share in the third quarter of 2006.

The consolidated medical care ratio of 79.5 percent improved 160 basis points year-over-year and 80 basis points sequentially. The sequential quarterly gain was the result of a stable or improved ratio in every business segment.

During the third quarter of 2007, the Company realized favorable development of $70 million in its estimates of medical costs incurred in 2006. The Company also realized an additional $70 million of favorable development in its estimates of medical costs incurred in the first half of 2007. These compare to $80 million of total favorable reserve development in the third quarter of 2006, including $10 million from 2005. Year-to-date in 2007 there has been $350 million in prior year favorable reserve development, as compared to $380 million in prior year favorable development through the first nine months of 2006.

Medical costs days payable excluding the AARP division was 54 days for the quarter, an increase of two days from second quarter 2007 and in the range of recent quarters’ results.

Third quarter operating costs were 14.0 percent of revenue, an increase of 50 basis points from 13.5 percent in the third quarter of 2006, due to the effect of business mix change as higher margin, fee-based businesses such as Ingenix increase their size and impact, increased investment in technology, service and product enhancements that benefit consumers and care providers, and preparation for the Medicare Advantage marketing season. Operating costs increased by only $11 million sequentially on a $2.6 billion quarterly operating cost base. The operating cost ratio increased 30 basis points from the second quarter of 2007 due to the effect of the timing of Medicare revenue recognition under GAAP on this calculation.

The third quarter income tax rate of 36.3 percent was in the range of recent quarters’ rates.

Fully diluted weighted average common shares outstanding decreased sequentially by 29 million shares in the third quarter to 1.35 billion. The Company repurchased 41 million shares during the quarter for approximately $2 billion.

Third quarter return on equity exceeded 24 percent.