10-Q 1 unh201893010-q.htm 10-Q Document
 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________________________ 
Form 10-Q
__________________________________________________________ 
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2018
or
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______ TO _______
Commission File Number: 1-10864
__________________________________________________________ 
    uhglogo1a01a01a15.jpg
UnitedHealth Group Incorporated
(Exact name of registrant as specified in its charter)
 __________________________________________________________ 
Delaware
 
41-1321939
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
UnitedHealth Group Center
9900 Bren Road East
Minnetonka, Minnesota
 
55343
(Address of principal executive offices)
 
(Zip Code)
(952) 936-1300
(Registrant’s telephone number, including area code)
__________________________________________________________  
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act
Large accelerated filer
[X]
 
Accelerated filer
[ ]
 
Non-accelerated filer
[ ]
Smaller reporting company
[ ]
 
 
 
 
Emerging growth company
[ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes [ ] No [X]
As of October 31, 2018, there were 962,034,200 shares of the registrant’s Common Stock, $.01 par value per share, issued and outstanding.
 
 
 
 
 

UNITEDHEALTH GROUP
Table of Contents
 
 
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




PART I
ITEM 1.    FINANCIAL STATEMENTS
UnitedHealth Group
Condensed Consolidated Balance Sheets
(Unaudited)
(in millions, except per share data)
 
September 30,
2018
 
December 31,
2017
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
10,263

 
$
11,981

Short-term investments
 
3,586

 
3,509

Accounts receivable, net
 
10,992

 
9,568

Other current receivables, net
 
7,270

 
6,262

Assets under management
 
2,936

 
3,101

Prepaid expenses and other current assets
 
3,707

 
2,663

Total current assets
 
38,754

 
37,084

Long-term investments
 
31,929

 
28,341

Property, equipment and capitalized software, net
 
8,042

 
7,013

Goodwill
 
58,703

 
54,556

Other intangible assets, net
 
9,498

 
8,489

Other assets
 
4,161

 
3,575

Total assets
 
$
151,087

 
$
139,058

Liabilities, redeemable noncontrolling interests and equity
 
 
 
 
Current liabilities:
 
 
 
 
Medical costs payable
 
$
19,850

 
$
17,871

Accounts payable and accrued liabilities
 
18,991

 
15,180

Commercial paper and current maturities of long-term debt
 
1,500

 
2,857

Unearned revenues
 
2,388

 
2,269

Other current liabilities
 
13,648

 
12,286

Total current liabilities
 
56,377

 
50,463

Long-term debt, less current maturities
 
32,053

 
28,835

Deferred income taxes
 
2,434

 
2,182

Other liabilities
 
5,858

 
5,556

Total liabilities
 
96,722

 
87,036

Commitments and contingencies (Note 7)
 


 


Redeemable noncontrolling interests
 
1,769

 
2,189

Equity:
 
 
 
 
Preferred stock, $0.001 par value - 10 shares authorized; no shares issued or outstanding
 

 

Common stock, $0.01 par value - 3,000 shares authorized; 962 and 969 issued and outstanding
 
10

 
10

Additional paid-in capital
 

 
1,703

Retained earnings
 
54,386

 
48,730

Accumulated other comprehensive loss
 
(4,386
)
 
(2,667
)
Nonredeemable noncontrolling interests
 
2,586

 
2,057

Total equity
 
52,596

 
49,833

Total liabilities, redeemable noncontrolling interests and equity
 
$
151,087

 
$
139,058



1


UnitedHealth Group
Condensed Consolidated Statements of Operations
(Unaudited)
 
 
Three Months Ended September 30,
 
Nine Months Ended
September 30,
(in millions, except per share data)
 
2018
 
2017
 
2018
 
2017
Revenues:
 
 
 
 
 
 
 
 
Premiums
 
$
44,613

 
$
39,552

 
$
133,155

 
$
118,075

Products
 
7,344

 
6,665

 
21,050

 
19,209

Services
 
4,217

 
3,858

 
12,590

 
11,089

Investment and other income
 
382

 
247

 
1,035

 
725

Total revenues
 
56,556

 
50,322

 
167,830

 
149,098

Operating costs:
 
 
 
 
 
 
 
 
Medical costs
 
36,158

 
32,201

 
108,448

 
96,829

Operating costs
 
8,479

 
7,387

 
25,371

 
21,737

Cost of products sold
 
6,718

 
6,068

 
19,373

 
17,633

Depreciation and amortization
 
611

 
578

 
1,791

 
1,667

Total operating costs
 
51,966

 
46,234

 
154,983

 
137,866

Earnings from operations
 
4,590

 
4,088

 
12,847

 
11,232

Interest expense
 
(353
)
 
(294
)
 
(1,026
)
 
(878
)
Earnings before income taxes
 
4,237

 
3,794

 
11,821

 
10,354

Provision for income taxes
 
(953
)
 
(1,233
)
 
(2,603
)
 
(3,252
)
Net earnings
 
3,284

 
2,561

 
9,218

 
7,102

Earnings attributable to noncontrolling interests
 
(96
)
 
(76
)
 
(272
)
 
(161
)
Net earnings attributable to UnitedHealth Group common shareholders
 
$
3,188

 
$
2,485

 
$
8,946

 
$
6,941

Earnings per share attributable to UnitedHealth Group common shareholders:
 
 
 
 
 
 
 
 
Basic
 
$
3.31

 
$
2.57

 
$
9.29

 
$
7.22

Diluted
 
$
3.24

 
$
2.51

 
$
9.09

 
$
7.06

Basic weighted-average number of common shares outstanding
 
962

 
968

 
963

 
962

Dilutive effect of common share equivalents
 
21

 
21

 
21

 
21

Diluted weighted-average number of common shares outstanding
 
983

 
989

 
984

 
983

Anti-dilutive shares excluded from the calculation of dilutive effect of common share equivalents
 
7

 
1

 
7

 
6



2



UnitedHealth Group
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)

 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in millions)
 
2018
 
2017
 
2018
 
2017
Net earnings
 
$
3,284

 
$
2,561

 
$
9,218

 
$
7,102

Other comprehensive (loss) income:
 
 
 
 
 
 
 
 
Gross unrealized (losses) gains on investment securities during the period
 
(91
)
 
44

 
(512
)
 
313

Income tax effect
 
21

 
(17
)
 
117

 
(111
)
Total unrealized (losses) gains, net of tax
 
(70
)
 
27

 
(395
)
 
202

Gross reclassification adjustment for net realized gains included in net earnings
 
(3
)
 
(10
)
 
(58
)
 
(51
)
Income tax effect
 

 
4

 
13

 
19

Total reclassification adjustment, net of tax
 
(3
)
 
(6
)
 
(45
)
 
(32
)
Total foreign currency translation (losses) gains
 
(233
)
 
217

 
(1,303
)
 
158

Other comprehensive (loss) income
 
(306
)
 
238

 
(1,743
)
 
328

Comprehensive income
 
2,978

 
2,799

 
7,475

 
7,430

Comprehensive income attributable to noncontrolling interests
 
(96
)
 
(76
)
 
(272
)
 
(161
)
Comprehensive income attributable to UnitedHealth Group common shareholders
 
$
2,882

 
$
2,723

 
$
7,203

 
$
7,269



3


UnitedHealth Group
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
 
 
Common Stock
 
Additional Paid-In Capital
 
Retained Earnings
 
Accumulated Other Comprehensive (Loss)
Income
 
Nonredeemable Noncontrolling Interests
 
Total
Equity
(in millions)
 
Shares
 
Amount
 
 
 
Net Unrealized (Losses) Gains on Investments
 
Foreign Currency Translation (Losses) Gains
 
 
Balance at January 1, 2018
 
969

 
$
10

 
$
1,703

 
$
48,730

 
$
(13
)
 
$
(2,654
)
 
$
2,057

 
$
49,833

Adjustment to adopt ASU 2016-01
 
 
 
 
 
 
 
(24
)
 
24

 
 
 
 
 

Net earnings
 
 
 
 
 
 
 
8,946

 
 
 
 
 
183

 
9,129

Other comprehensive loss
 
 
 
 
 
 
 
 
 
(440
)
 
(1,303
)
 
 
 
(1,743
)
Issuances of common stock,
and related tax effects
 
9

 

 
761

 
 
 
 
 
 
 
 
 
761

Share-based compensation
 
 
 
 
 
493

 
 
 
 
 
 
 
 
 
493

Common share repurchases
 
(16
)
 

 
(2,838
)
 
(812
)
 
 
 
 
 
 
 
(3,650
)
Cash dividends paid on common shares ($2.55 per share)
 
 
 
 
 
 
 
(2,454
)
 
 
 
 
 
 
 
(2,454
)
Redeemable noncontrolling interests fair value and other adjustments
 
 
 
 
 
(119
)
 
 
 
 
 
 
 
 
 
(119
)
Acquisition of nonredeemable noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
 
518

 
518

Distribution to nonredeemable noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
 
(172
)
 
(172
)
Balance at September 30, 2018
 
962

 
$
10

 
$

 
$
54,386

 
$
(429
)
 
$
(3,957
)
 
$
2,586

 
$
52,596

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2017
 
952

 
$
10

 
$

 
$
40,945

 
$
(97
)
 
$
(2,584
)
 
$
(97
)
 
$
38,177

Net earnings
 
 
 
 
 
 
 
6,941

 
 
 
 
 
120

 
7,061

Other comprehensive income
 
 
 
 
 
 
 
 
 
170

 
158

 
 
 
328

Issuances of common stock, and related tax effects
 
24

 

 
2,156

 
 
 
 
 
 
 
 
 
2,156

Share-based compensation
 
 
 
 
 
447

 
 
 
 
 
 
 
 
 
447

Common share repurchases
 
(7
)
 

 
(1,173
)
 


 
 
 
 
 
 
 
(1,173
)
Cash dividends paid on common shares ($2.125 per share)
 
 
 
 
 
 
 
(2,046
)
 
 
 
 
 
 
 
(2,046
)
Redeemable noncontrolling interests fair value and other adjustments
 
 
 
 
 
371

 
 
 
 
 
 
 
 
 
371

Acquisition of nonredeemable noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
 
2,111

 
2,111

Distribution to nonredeemable noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
 
(122
)
 
(122
)
Balance at September 30, 2017
 
969

 
$
10

 
$
1,801

 
$
45,840

 
$
73

 
$
(2,426
)
 
$
2,012

 
$
47,310




4


UnitedHealth Group
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
 
Nine Months Ended September 30,
(in millions)
 
2018
 
2017
Operating activities
 
 
 
 
Net earnings
 
$
9,218

 
$
7,102

Noncash items:
 
 
 
 
Depreciation and amortization
 
1,791

 
1,667

Deferred income taxes
 
9

 
(459
)
Share-based compensation
 
512

 
456

Other, net
 
(136
)
 
168

Net change in other operating items, net of effects from acquisitions and changes in AARP balances:
 
 
 
 
Accounts receivable
 
(984
)
 
(244
)
Other assets
 
(1,641
)
 
(763
)
Medical costs payable
 
1,745

 
1,305

Accounts payable and other liabilities
 
2,783

 
2,283

Unearned revenues
 
20

 
4,658

Cash flows from operating activities
 
13,317

 
16,173

Investing activities
 
 
 
 
Purchases of investments
 
(11,316
)
 
(10,626
)
Sales of investments
 
2,872

 
2,809

Maturities of investments
 
4,715

 
4,251

Cash paid for acquisitions, net of cash assumed
 
(5,824
)
 
(908
)
Purchases of property, equipment and capitalized software
 
(1,505
)
 
(1,391
)
Other, net
 
(187
)
 
(30
)
Cash flows used for investing activities
 
(11,245
)
 
(5,895
)
Financing activities
 
 
 
 
Common share repurchases
 
(3,650
)
 
(1,173
)
Cash dividends paid
 
(2,454
)
 
(2,046
)
Proceeds from common stock issuances
 
745

 
604

Repayments of long-term debt
 
(2,600
)
 
(2,867
)
Repayments of commercial paper, net
 
(164
)
 
(3,352
)
Proceeds from issuance of long-term debt
 
3,964

 
1,342

Customer funds administered
 
1,552

 
3,659

Other, net
 
(1,086
)
 
(624
)
Cash flows used for financing activities
 
(3,693
)
 
(4,457
)
Effect of exchange rate changes on cash and cash equivalents
 
(97
)
 
18

(Decrease) increase in cash and cash equivalents
 
(1,718
)
 
5,839

Cash and cash equivalents, beginning of period
 
11,981

 
10,430

Cash and cash equivalents, end of period
 
$
10,263

 
$
16,269

 
 
 
 
 
Supplemental schedule of noncash investing activities
 
 
 
 
Common stock issued for acquisition
 
$

 
$
2,164



5


UnitedHealth Group
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
1.    Basis of Presentation
UnitedHealth Group Incorporated (individually and together with its subsidiaries, “UnitedHealth Group” and the “Company”) is a diversified health care company dedicated to helping people live healthier lives and helping make the health system work better for everyone. Through its diversified family of businesses, the Company leverages core competencies in data and health information; advanced technology; and clinical expertise to help meet the demands of the health system. These core competencies are deployed within two distinct, but strategically aligned, business platforms: health benefits operating under UnitedHealthcare and health services operating under Optum.
The Company has prepared the Condensed Consolidated Financial Statements according to U.S. Generally Accepted Accounting Principles (GAAP) and has included the accounts of UnitedHealth Group and its subsidiaries. The year-end condensed consolidated balance sheet was derived from audited financial statements, but does not include all disclosures required by GAAP. In accordance with the rules and regulations of the U.S. Securities and Exchange Commission (SEC), the Company has omitted certain footnote disclosures that would substantially duplicate the disclosures contained in its annual audited Consolidated Financial Statements. Therefore, these Condensed Consolidated Financial Statements should be read together with the Consolidated Financial Statements and the Notes included in Part II, Item 8, “Financial Statements” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 as filed with the SEC (2017 10-K). The accompanying Condensed Consolidated Financial Statements include all normal recurring adjustments necessary to present the interim financial statements fairly.
Use of Estimates
These Condensed Consolidated Financial Statements include certain amounts based on the Company’s best estimates and judgments. The Company’s most significant estimates relate to medical costs payable, revenues, and goodwill and other intangible assets. Certain of these estimates require the application of complex assumptions and judgments, often because they involve matters that are inherently uncertain and will likely change in subsequent periods. The impact of any change in estimates is included in earnings in the period in which the estimate is adjusted.
Recently Issued Accounting Standards
In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) No. 2016-02, “Leases (Topic 842)”, as modified by ASUs 2018-01, 2018-10 and 2018-11 (collectively, ASU 2016-02). Under ASU 2016-02, an entity will be required to recognize assets and liabilities for the rights and obligations created by leases on the entity’s balance sheet for both finance and operating leases. For leases with a term of 12 months or less, an entity can elect to not recognize lease assets and lease liabilities and expense the lease over a straight-line basis for the term of the lease. ASU 2016-02 will require new disclosures that depict the amount, timing and uncertainty of cash flows pertaining to an entity’s leases. Companies may adopt the new standard using a modified retrospective approach or a cumulative effect upon adoption approach for the annual and interim periods beginning after December 15, 2018. Early adoption of ASU 2016-02 is permitted. When adopted, ASU 2016-02 will not have a material impact on the Company’s balance sheet, results of operations, equity or cash flows.
Recently Adopted Accounting Standards
In January 2016, the FASB issued ASU 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” (ASU 2016-01). Most notably, the new guidance requires that equity investments, with certain exemptions, be measured at fair value with changes in fair value recognized in net income as opposed to other comprehensive income. The Company adopted ASU 2016-01 on a prospective basis effective January 1, 2018, as required, and reclassified $24 million from accumulated other comprehensive income to retained earnings.
The Company has determined that there have been no other recently adopted or issued accounting standards that had, or will have, a material impact on its Condensed Consolidated Financial Statements.

6


2.    Investments
A summary of debt securities by major security type is as follows:
(in millions)
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
September 30, 2018
 
 
 
 
 
 
 
 
Debt securities - available-for-sale:
 
 
 
 
 
 
 
 
U.S. government and agency obligations
 
$
3,291

 
$

 
$
(76
)
 
$
3,215

State and municipal obligations
 
6,962

 
30

 
(112
)
 
6,880

Corporate obligations
 
15,561

 
10

 
(208
)
 
15,363

U.S. agency mortgage-backed securities
 
4,846

 
1

 
(171
)
 
4,676

Non-U.S. agency mortgage-backed securities
 
1,329

 

 
(30
)
 
1,299

Total debt securities - available-for-sale
 
31,989

 
41

 
(597
)
 
31,433

Debt securities - held-to-maturity:
 
 
 
 
 
 
 
 
U.S. government and agency obligations
 
246

 
1

 
(3
)
 
244

State and municipal obligations
 
11

 

 

 
11

Corporate obligations
 
342

 

 

 
342

Total debt securities - held-to-maturity
 
599

 
1

 
(3
)
 
597

Total debt securities
 
$
32,588

 
$
42

 
$
(600
)
 
$
32,030

December 31, 2017
 
 
 
 
 
 
 
 
Debt securities - available-for-sale:
 
 
 
 
 
 
 
 
U.S. government and agency obligations
 
$
2,673

 
$
1

 
$
(30
)
 
$
2,644

State and municipal obligations
 
7,596

 
99

 
(35
)
 
7,660

Corporate obligations
 
13,181

 
57

 
(44
)
 
13,194

U.S. agency mortgage-backed securities
 
3,942

 
7

 
(38
)
 
3,911

Non-U.S. agency mortgage-backed securities
 
1,018

 
3

 
(6
)
 
1,015

Total debt securities - available-for-sale
 
28,410

 
167

 
(153
)
 
28,424

Debt securities - held-to-maturity:
 
 
 
 
 
 
 
 
U.S. government and agency obligations
 
254

 
1

 
(1
)
 
254

State and municipal obligations
 
2

 

 

 
2

Corporate obligations
 
280

 

 

 
280

Total debt securities - held-to-maturity
 
536

 
1

 
(1
)
 
536

Total debt securities
 
$
28,946

 
$
168

 
$
(154
)
 
$
28,960

The Company held $2.0 billion of equity securities as of September 30, 2018 and December 31, 2017. The Company’s investments in equity securities primarily consist of investments in Brazilian real denominated fixed-income funds, employee savings plan related investments and dividend paying stocks, with readily determinable fair values.
Additionally, the Company’s investments included $1.5 billion and $0.9 billion of equity method investments in operating businesses in the health care sector as of September 30, 2018 and December 31, 2017, respectively.

7


The amortized cost and fair value of debt securities as of September 30, 2018, by contractual maturity, were as follows:
 
 
Available-for-Sale
 
Held-to-Maturity
(in millions)
 
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
Due in one year or less
 
$
3,683

 
$
3,675

 
$
145

 
$
145

Due after one year through five years
 
12,362

 
12,197

 
180

 
178

Due after five years through ten years
 
7,194

 
7,041

 
102

 
101

Due after ten years
 
2,575

 
2,545

 
172

 
173

U.S. agency mortgage-backed securities
 
4,846

 
4,676

 

 

Non-U.S. agency mortgage-backed securities
 
1,329

 
1,299

 

 

Total debt securities
 
$
31,989

 
$
31,433

 
$
599

 
$
597

The fair value of available-for-sale debt securities with gross unrealized losses by security type and length of time that individual securities have been in a continuous unrealized loss position were as follows:
 
 
Less Than 12 Months
 
12 Months or Greater
 
 Total
(in millions)
 
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
Debt securities - available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency obligations
 
$
2,025

 
$
(33
)
 
$
1,068

 
$
(43
)
 
$
3,093

 
$
(76
)
State and municipal obligations
 
3,471

 
(54
)
 
1,596

 
(58
)
 
5,067

 
(112
)
Corporate obligations
 
9,933

 
(136
)
 
2,334

 
(72
)
 
12,267

 
(208
)
U.S. agency mortgage-backed securities
 
2,762

 
(74
)
 
1,811

 
(97
)
 
4,573

 
(171
)
Non-U.S. agency mortgage-backed securities
 
956

 
(19
)
 
265

 
(11
)
 
1,221

 
(30
)
Total debt securities - available-for-sale
 
$
19,147

 
$
(316
)
 
$
7,074

 
$
(281
)
 
$
26,221

 
$
(597
)
December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
Debt securities - available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency obligations
 
$
1,249

 
$
(8
)
 
$
1,027

 
$
(22
)
 
$
2,276

 
$
(30
)
State and municipal obligations
 
2,599

 
(21
)
 
866

 
(14
)
 
3,465

 
(35
)
Corporate obligations
 
5,901

 
(23
)
 
1,242

 
(21
)
 
7,143

 
(44
)
U.S. agency mortgage-backed securities
 
1,657

 
(12
)
 
1,162

 
(26
)
 
2,819

 
(38
)
Non-U.S. agency mortgage-backed securities
 
411

 
(3
)
 
144

 
(3
)
 
555

 
(6
)
Total debt securities - available-for-sale
 
$
11,817

 
$
(67
)
 
$
4,441

 
$
(86
)
 
$
16,258

 
$
(153
)
The Company’s unrealized losses from debt securities as of September 30, 2018 were generated from 20,000 positions out of a total of 29,000 positions. The Company believes that it will collect the principal and interest due on its debt securities that have an amortized cost in excess of fair value. The unrealized losses were primarily caused by interest rate increases and not by unfavorable changes in the credit quality associated with these securities. At each reporting period, the Company evaluates securities for impairment when the fair value of the investment is less than its amortized cost. The Company evaluated the underlying credit quality and credit ratings of the issuers, noting no significant deterioration since purchase. As of September 30, 2018, the Company did not have the intent to sell any of the securities in an unrealized loss position. Therefore, the Company believes these losses to be temporary.
3.    Fair Value
Certain assets and liabilities are measured at fair value in the Condensed Consolidated Financial Statements or have fair values disclosed in the Notes to the Condensed Consolidated Financial Statements. These assets and liabilities are classified into one of three levels of a hierarchy defined by GAAP.

8


For a description of the methods and assumptions that are used to estimate the fair value and determine the fair value hierarchy classification of each class of financial instrument, see Note 4 of Notes to the Consolidated Financial Statements in Part II, Item 8, “Financial Statements” in the 2017 10-K.
The following table presents a summary of fair value measurements by level and carrying values for items measured at fair value on a recurring basis in the Condensed Consolidated Balance Sheets:
(in millions)
 
Quoted Prices
in Active
Markets
(Level 1)
 
Other
Observable
Inputs
(Level 2)
 
Unobservable
Inputs
(Level 3)
 
Total
Fair and Carrying
Value
September 30, 2018
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
10,220

 
$
43

 
$

 
$
10,263

Debt securities - available-for-sale:
 
 
 
 
 
 
 
 
U.S. government and agency obligations
 
2,928

 
287

 

 
3,215

State and municipal obligations
 

 
6,880

 

 
6,880

Corporate obligations
 
41

 
15,163

 
159

 
15,363

U.S. agency mortgage-backed securities
 

 
4,676

 

 
4,676

Non-U.S. agency mortgage-backed securities
 

 
1,299

 

 
1,299

Total debt securities - available-for-sale
 
2,969

 
28,305

 
159

 
31,433

Equity securities
 
1,885

 
13

 
100

 
1,998

Assets under management
 
993

 
1,939

 
4

 
2,936

Total assets at fair value

$
16,067

 
$
30,300

 
$
263

 
$
46,630

Percentage of total assets at fair value
 
34
%
 
65
%
 
1
%
 
100
%
December 31, 2017
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
11,718

 
$
263

 
$

 
$
11,981

Debt securities - available-for-sale:
 
 
 
 
 
 
 
 
U.S. government and agency obligations
 
2,428

 
216

 

 
2,644

State and municipal obligations
 

 
7,660

 

 
7,660

Corporate obligations
 
65

 
12,989

 
140

 
13,194

U.S. agency mortgage-backed securities
 

 
3,911

 

 
3,911

Non-U.S. agency mortgage-backed securities
 

 
1,015

 

 
1,015

Total debt securities - available-for-sale
 
2,493

 
25,791

 
140

 
28,424

Equity securities
 
1,784

 
14

 
194

 
1,992

Assets under management
 
1,117

 
1,984

 

 
3,101

Total assets at fair value
 
$
17,112

 
$
28,052

 
$
334

 
$
45,498

Percentage of total assets at fair value
 
38
%
 
61
%
 
1
%
 
100
%
Transfers between levels, if any, are recorded as of the beginning of the reporting period in which the transfer occurs; there were no transfers between Levels 1, 2 or 3 of any financial assets during the nine months ended September 30, 2018 or 2017.

9


The following table presents a summary of fair value measurements by level and carrying values for certain financial instruments not measured at fair value on a recurring basis in the Condensed Consolidated Balance Sheets:
(in millions)
 
Quoted Prices
in Active
Markets
(Level 1)
 
Other
Observable
Inputs
(Level 2)
 
Unobservable
Inputs
(Level 3)
 
Total
Fair
Value
 
Total Carrying Value
September 30, 2018
 
 
 
 
 
 
 
 
 
 
Debt securities - held-to-maturity
 
$
257

 
$
71

 
$
269

 
$
597

 
$
599

Long-term debt and other financing obligations
 
$

 
$
34,908

 
$

 
$
34,908

 
$
33,533

December 31, 2017
 
 
 
 
 
 
 
 
 
 
Debt securities - held-to-maturity
 
$
267

 
$
4

 
$
265

 
$
536

 
$
536

Long-term debt and other financing obligations
 
$

 
$
34,504

 
$

 
$
34,504

 
$
31,542

Nonfinancial assets and liabilities or financial assets and liabilities that are measured at fair value on a nonrecurring basis are subject to fair value adjustments only in certain circumstances, such as when the Company records an impairment. There were no significant fair value adjustments for these assets and liabilities recorded during the nine months ended September 30, 2018 or 2017.
4.    Medical Costs Payable
The following table shows the components of the change in medical costs payable for the nine months ended September 30:
(in millions)
 
2018
 
2017
Medical costs payable, beginning of period
 
$
17,871

 
$
16,391

Acquisitions
 
333

 
76

Reported medical costs:
 
 
 
 
Current year
 
108,658

 
97,519

Prior years
 
(210
)
 
(690
)
Total reported medical costs
 
108,448

 
96,829

Medical payments:
 
 
 
 
Payments for current year
 
(90,348
)
 
(81,237
)
Payments for prior years
 
(16,454
)
 
(14,096
)
Total medical payments
 
(106,802
)
 
(95,333
)
Medical costs payable, end of period
 
$
19,850

 
$
17,963

For the nine months ended September 30, 2018, the medical cost reserve development included no individual factors that were significant. For the nine months ended September 30, 2017, the medical cost reserve development was primarily driven by lower than expected health system utilization levels. Medical costs payable included reserves for claims incurred by insured customers but not yet reported to the Company of $13.8 billion and $12.3 billion at September 30, 2018 and December 31, 2017, respectively.

10


5.    Commercial Paper and Long-Term Debt
Commercial paper and senior unsecured long-term debt consisted of the following:
 
 
September 30, 2018
 
December 31, 2017
(in millions, except percentages)
 
Par
Value
 
Carrying
Value
 
Fair
Value
 
Par
Value
 
Carrying
Value
 
Fair
Value
Commercial paper
 
$
20

 
$
20

 
$
20

 
$
150

 
$
150

 
$
150

6.000% notes due February 2018
 

 

 

 
1,100

 
1,101

 
1,106

1.900% notes due July 2018
 

 

 

 
1,500

 
1,499

 
1,501

1.700% notes due February 2019
 
750

 
750

 
747

 
750

 
749

 
747

1.625% notes due March 2019
 
500

 
500

 
498

 
500

 
501

 
497

2.300% notes due December 2019
 
500

 
492

 
496

 
500

 
495

 
501

2.700% notes due July 2020
 
1,500

 
1,497

 
1,491

 
1,500

 
1,496

 
1,517

Floating rate notes due October 2020
 
300

 
299

 
300

 
300

 
299

 
300

3.875% notes due October 2020
 
450

 
439

 
456

 
450

 
446

 
467

1.950% notes due October 2020
 
900

 
897

 
881

 
900

 
895

 
892

4.700% notes due February 2021
 
400

 
395

 
412

 
400

 
403

 
425

2.125% notes due March 2021
 
750

 
747

 
732

 
750

 
746

 
744

Floating rate notes due June 2021
 
350

 
349

 
350

 

 

 

3.150% notes due June 2021
 
400

 
398

 
399

 

 

 

3.375% notes due November 2021
 
500

 
481

 
502

 
500

 
493

 
516

2.875% notes due December 2021
 
750

 
724

 
741

 
750

 
741

 
760

2.875% notes due March 2022
 
1,100

 
1,031

 
1,083

 
1,100

 
1,054

 
1,114

3.350% notes due July 2022
 
1,000

 
997

 
999

 
1,000

 
996

 
1,033

2.375% notes due October 2022
 
900

 
894

 
863

 
900

 
893

 
891

0.000% notes due November 2022
 
15

 
12

 
12

 
15

 
12

 
12

2.750% notes due February 2023
 
625

 
588

 
606

 
625

 
606

 
626

2.875% notes due March 2023
 
750

 
734

 
731

 
750

 
762

 
759

3.500% notes due June 2023
 
750

 
746

 
752

 

 

 

3.750% notes due July 2025
 
2,000

 
1,989

 
2,010

 
2,000

 
1,987

 
2,108

3.100% notes due March 2026
 
1,000

 
995

 
961

 
1,000

 
995

 
1,007

3.450% notes due January 2027
 
750

 
745

 
734

 
750

 
745

 
776

3.375% notes due April 2027
 
625

 
619

 
607

 
625

 
618

 
642

2.950% notes due October 2027
 
950

 
938

 
890

 
950

 
937

 
947

3.850% notes due June 2028
 
1,150

 
1,142

 
1,153

 

 

 

4.625% notes due July 2035
 
1,000

 
991

 
1,064

 
1,000

 
991

 
1,165

5.800% notes due March 2036
 
850

 
838

 
1,013

 
850

 
837

 
1,105

6.500% notes due June 2037
 
500

 
492

 
640

 
500

 
491

 
698

6.625% notes due November 2037
 
650

 
641

 
844

 
650

 
641

 
923

6.875% notes due February 2038
 
1,100

 
1,076

 
1,467

 
1,100

 
1,075

 
1,596

5.700% notes due October 2040
 
300

 
296

 
358

 
300

 
296

 
389

5.950% notes due February 2041
 
350

 
345

 
428

 
350

 
345

 
466

4.625% notes due November 2041
 
600

 
588

 
630

 
600

 
588

 
685

4.375% notes due March 2042
 
502

 
484

 
510

 
502

 
483

 
555

3.950% notes due October 2042
 
625

 
607

 
596

 
625

 
607

 
650

4.250% notes due March 2043
 
750

 
734

 
749

 
750

 
734

 
822

4.750% notes due July 2045
 
2,000

 
1,972

 
2,140

 
2,000

 
1,972

 
2,362

4.200% notes due January 2047
 
750

 
738

 
743

 
750

 
738

 
808

4.250% notes due April 2047
 
725

 
717

 
728

 
725

 
717

 
798

3.750% notes due October 2047
 
950

 
933

 
883

 
950

 
933

 
969

4.250% notes due June 2048
 
1,350

 
1,329

 
1,355

 

 

 

Total commercial paper and long-term debt
 
$
32,687

 
$
32,199

 
$
33,574

 
$
31,417

 
$
31,067

 
$
34,029

The Company’s long-term debt obligations included $1.4 billion and $625 million of other financing obligations, of which $230 million and $107 million were classified as current as of September 30, 2018 and December 31, 2017, respectively.

11


Commercial Paper and Bank Credit Facilities
Commercial paper consists of short-duration, senior unsecured debt privately placed on a discount basis through broker-dealers. As of September 30, 2018, the Company’s outstanding commercial paper had a weighted average annual interest rate of 2.1%.
The Company has $3.0 billion five-year, $3.0 billion three-year and $4.0 billion 364-day revolving bank credit facilities with 26 banks, which mature in December 2022, December 2020 and December 2018, respectively. These facilities provide liquidity support for the Company’s commercial paper program and are available for general corporate purposes. As of September 30, 2018, no amounts had been drawn on any of the bank credit facilities. The annual interest rates, which are variable based on term, are calculated based on the London Interbank Offered Rate (LIBOR) plus a credit spread based on the Company’s senior unsecured credit ratings. If amounts had been drawn on the bank credit facilities as of September 30, 2018, annual interest rates would have ranged from 3.1% to 3.4%.
Debt Covenants
The Company’s bank credit facilities contain various covenants, including covenants requiring the Company to maintain a defined debt to debt-plus-shareholders’ equity ratio of not more than 55%. The Company was in compliance with its debt covenants as of September 30, 2018.
6.    Shareholders' Equity
Share Repurchase Program
In June 2018, the Company’s Board of Directors renewed the Company’s share repurchase program with an authorization to repurchase up to 100 million shares of the Company’s common stock. The following table provides details of the Company’s share repurchase activity for the nine months ended September 30, 2018:
(in millions, except per share data)
 
 
Common share repurchases, shares
 
16

Common share repurchases, average price per share
 
$
232.61

Common share repurchases, aggregate cost
 
$
3,650

Board authorized shares remaining
 
98

Dividends
In June 2018, the Company’s Board of Directors increased the Company’s quarterly cash dividend to shareholders to an annual dividend rate of $3.60 per share from $3.00 per share, which the Company had paid since June 2017. Declaration and payment of future quarterly dividends is at the discretion of the Board and may be adjusted as business needs or market conditions change.
The following table provides details of the Company’s 2018 dividend payments:
Payment Date
 
Amount per Share
 
Total Amount Paid
 
 
 
 
(in millions)
March 20
 
$
0.75

 
$
722

June 26
 
0.90

 
866

September 18
 
0.90

 
866

7.    Commitments and Contingencies
Legal Matters
Because of the nature of its businesses, the Company is frequently made party to a variety of legal actions and regulatory inquiries, including class actions and suits brought by members, care providers, consumer advocacy organizations, customers and regulators, relating to the Company’s businesses, including management and administration of health benefit plans and other services. These matters include medical malpractice, employment, intellectual property, antitrust, privacy and contract claims and claims related to health care benefits coverage and other business practices.
The Company records liabilities for its estimates of probable costs resulting from these matters where appropriate. Estimates of costs resulting from legal and regulatory matters involving the Company are inherently difficult to predict, particularly where the matters: involve indeterminate claims for monetary damages or may involve fines, penalties or punitive damages; present novel legal theories or represent a shift in regulatory policy; involve a large number of claimants or regulatory bodies; are in the

12


early stages of the proceedings; or could result in a change in business practices. Accordingly, the Company is often unable to estimate the losses or ranges of losses for those matters where there is a reasonable possibility or it is probable that a loss may be incurred.
Government Investigations, Audits and Reviews
The Company has been involved or is currently involved in various governmental investigations, audits and reviews. These include routine, regular and special investigations, audits and reviews by the Centers for Medicare and Medicaid Services (CMS), state insurance and health and welfare departments, the Brazilian national regulatory agency for private health insurance and plans (the Agência Nacional de Saúde Suplementar), state attorneys general, the Office of the Inspector General, the Office of Personnel Management, the Office of Civil Rights, the Government Accountability Office, the Federal Trade Commission, U.S. Congressional committees, the U.S. Department of Justice, the SEC, the Internal Revenue Service, the U.S. Drug Enforcement Administration, the Brazilian federal revenue service (the Secretaria da Receita Federal), the U.S. Department of Labor, the Federal Deposit Insurance Corporation, the Defense Contract Audit Agency and other governmental authorities. Certain of the Company’s businesses have been reviewed or are currently under review, including for, among other matters, compliance with coding and other requirements under the Medicare risk-adjustment model. CMS has selected certain of the Company’s local plans for risk adjustment data validation (RADV) audits to validate the coding practices of and supporting documentation maintained by health care providers and such audits may result in retrospective adjustments to payments made to the Company’s health plans.
On February 14, 2017, the Department of Justice (DOJ) announced its decision to pursue certain claims within a lawsuit initially asserted against the Company and filed under seal by a whistleblower in 2011. The whistleblower’s complaint, which was unsealed on February 15, 2017, alleges that the Company made improper risk adjustment submissions and violated the False Claims Act. On February 12, 2018, the court granted in part and denied in part the Company’s motion to dismiss. In May 2018, DOJ moved to dismiss the Company’s counterclaims, which were filed in March 2018, and moved for partial summary judgment. Those motions were argued in September 2018. The Company cannot reasonably estimate the outcome that may result from this matter given its procedural status.

13


8.    Segment Financial Information
The Company’s four reportable segments are UnitedHealthcare, OptumHealth, OptumInsight and OptumRx. For more information on the Company’s segments see Part I, Item I, “Business” and Note 13 of Notes to the Consolidated Financial Statements in Part II, Item 8, “Financial Statements” in the 2017 10-K.
The following tables present reportable segment financial information:
 
 
 
 
Optum
 
 
 
 
(in millions)
 
UnitedHealthcare
 
OptumHealth
 
OptumInsight
 
OptumRx
 
Optum Eliminations
 
Optum
 
Corporate and
Eliminations
 
Consolidated
Three Months Ended September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues - unaffiliated customers:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Premiums
 
$
43,628

 
$
985

 
$

 
$

 
$

 
$
985

 
$

 
$
44,613

Products
 

 
13

 
29

 
7,302

 

 
7,344

 

 
7,344

Services
 
2,067

 
1,196

 
790

 
164

 

 
2,150

 

 
4,217

Total revenues - unaffiliated customers
 
45,695

 
2,194