Post-McGuire era starts with apology

Contrition was the sentiment of the day as senior management at UnitedHealth Group Inc. met with Wall Street analysts for the first time since the company's stock-option scandal led to the departure of Chairman and CEO William McGuire.

In a conference call, the company's next CEO, Stephen Hemsley, apologized and acknowledged that UnitedHealth "is deeply disappointed" with the "shortcomings" of its stock-option program.

Hemsley said the company will "swiftly implement" corrective procedures to address a system that allowed top management, including Hemsley, to acquire substantial numbers of stock options at a favorable price. He also said UnitedHealth will bring in new executives "of stature and expertise" to help lead the company in the coming years.

He also provided the company's first good news of the week -- nearly 38 percent growth across all sectors of UnitedHealth's businesses for the quarter ended Sept 30.

The market liked what it heard Thursday and pushed the stock up $2.65 a share to $50.65, the first time shares exceeded $50 in more than a month.

Asked about his own tenure, Hemsley said he expected to be running the company for the foreseeable future.

At that point, Hemsley received a vote of confidence from the new chairman of the UnitedHealth board, Richard Burke, who said: "The expectation of the board was for this to be long-term." Dashing rumors that Hemsley would be a caretaker CEO, Burke said no one else was considered for the position.

Hemsley and other executives said they had been in regular contact with customers since the backdating matter first arose in March and spoke to them again after an independent investigative report was released Sunday that determined the backdating was pervasive at the top of the company. While the report pinpointed McGuire, it indicated Hemsley had little role in negotiating terms of the employment contract for him and McGuire that allowed options to be backdated.

McGuire, general counsel David Lubben and board member William Spears all left or announced their intention to leave the company after the report was made public. McGuire stepped down as chairman immediately and is to leave his CEO post by Dec. 1.

"This has no impact on our business-to-business segment, so it has been business as usual," Executive Vice President Richard Anderson said. "We expect no ripples. We are intensely focused on supporting Steve in this transition."

McGuire did not participate in the conference call, but it was not until the call was more than half over that Hemsley identified himself as the person leading the discussion. He farmed out questions to many of his executives, remarking, "I'd like the market to see the depth of our management team."

The insurer earned $1.1 billion for the quarter on revenue of $18 billion, compared with $800 million in earnings and $11.6 billion in revenue for the same period in 2005.

It increased its year-end outlook to $2.95 to $2.97 per share, up from $2.91 to $2.95. Hemsley forecast a strong start for 2007, as well. He said revenue in 2006 would reach $71 billion and projected 2007 revenue of $79 billion.

David Phelps • 612-673-7269 • dphelps@startribune.com

3rd quarter FY2006, 9/30

2006 2005 % chg.

Revenue $18,008.0 $11,601.0 +55.2

Income 1,101.0 800.0 +37.6

Earn/share 0.79 0.61 +29.5

9 months

Revenue $53,511.0 $34,153.0 +56.7

Income* 2,974.0 2,313.0 +28.6

Earn/share 2.12 1.74 +21.8

Figures in millions except for earnings per share.

* Third-quarter 2005 was restated to include impact of FAS 123R, which was adopted Jan. 1.

3rd quarter FY2006, 9/30

2006 2005 % chg.

Revenue $18,008.0 $11,601.0 +55.2

Income 1,101.0 800.0 +37.6

Earn/share 0.79 0.61 +29.5

9 months

Revenue $53,511.0 $34,153.0 +56.7

Income* 2,974.0 2,313.0 +28.6

Earn/share 2.12 1.74 +21.8

Figures in millions except for earnings per share.

* Third-quarter 2005 was restated to include impact of FAS 123R, which was adopted Jan. 1.