UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________________________________________________________ 

Form 10-Q

__________________________________________________________ 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2019

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

__________________________________________________________ 

    

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		55343
9900 Bren Road East
Minnetonka,	Minnesota
(Address of principal executive offices)		(Zip Code)

(952) 936-1300

(Registrant’s telephone number, including area code)

_________________________________________________________  

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $.01 par value	UNH	NYSE

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 ☒ 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes ☒ 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	☒	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 ☒

As of October 31, 2019, there were 947,414,929 shares of the registrant’s Common Stock, $.01 par value per share, issued and outstanding.

UNITEDHEALTH GROUP

Table of Contents

			Page
Part I. Financial Information
Item 1.	Financial Statements (unaudited)		1
	Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018		1
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2019 and 2018		2
	Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2019 and 2018		3
	Condensed Consolidated Statements of Changes in Equity for the Three and Nine Months Ended September 30, 2019 and 2018		4
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018		6
	Notes to the Condensed Consolidated Financial Statements		7
	1.	Basis of Presentation	7
	2.	Investments	8
	3.	Fair Value	10
	4.	Medical Costs Payable	11
	5.	Commercial Paper and Long-Term Debt	12
	6.	Dividends	13
	7.	Commitments and Contingencies	13
	8.	Business Combinations	14
	9.	Segment Financial Information	15
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		24
Item 4.	Controls and Procedures		24
Part II. Other Information
Item 1.	Legal Proceedings		25
Item 1A.	Risk Factors		25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		25
Item 6.	Exhibits		26
Signatures			27

PART I

ITEM 1.    FINANCIAL STATEMENTS

UnitedHealth Group

Condensed Consolidated Balance Sheets

(Unaudited)

(in millions, except per share data)	September 30, 2019			December 31, 2018
Assets
Current assets:
Cash and cash equivalents	$	12,363		$	10,866
Short-term investments	3,455			3,458
Accounts receivable, net	10,964			11,388
Other current receivables, net	10,152			6,862
Assets under management	3,051			3,032
Prepaid expenses and other current assets	3,556			3,086
Total current assets	43,541			38,692
Long-term investments	36,840			32,510
Property, equipment and capitalized software, net	8,501			8,458
Goodwill	65,205			58,910
Other intangible assets, net	10,521			9,325
Other assets	9,101			4,326
Total assets	$	173,709		$	152,221
Liabilities, redeemable noncontrolling interests and equity
Current liabilities:
Medical costs payable	$	20,939		$	19,891
Accounts payable and accrued liabilities	18,570			16,705
Commercial paper and current maturities of long-term debt	6,387			1,973
Unearned revenues	2,500			2,396
Other current liabilities	14,245			12,244
Total current liabilities	62,641			53,209
Long-term debt, less current maturities	38,507			34,581
Deferred income taxes	2,902			2,474
Other liabilities	9,912			5,730
Total liabilities	113,962			95,994
Commitments and contingencies (Note 7)
Redeemable noncontrolling interests	1,991			1,908
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; 947 and 960 issued and outstanding	9			10
Retained earnings	58,696			55,846
Accumulated other comprehensive loss	(3,709		)	(4,160		)
Nonredeemable noncontrolling interests	2,760			2,623
Total equity	57,756			54,319
Total liabilities, redeemable noncontrolling interests and equity	$	173,709		$	152,221

See Notes to the Condensed Consolidated Financial Statements

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)	2019			2018			2019			2018
Revenues:
Premiums	$	47,397		$	44,613		$	142,074		$	133,155
Products	7,546			7,344			23,971			21,050
Services	4,942			4,217			13,756			12,590
Investment and other income	466			382			1,453			1,035
Total revenues	60,351			56,556			181,254			167,830
Operating costs:
Medical costs	39,041			36,158			117,164			108,448
Operating costs	8,960			8,479			25,892			25,371
Cost of products sold	6,627			6,718			21,606			19,373
Depreciation and amortization	709			611			2,002			1,791
Total operating costs	55,337			51,966			166,664			154,983
Earnings from operations	5,014			4,590			14,590			12,847
Interest expense	(449		)	(353		)	(1,267		)	(1,026		)
Earnings before income taxes	4,565			4,237			13,323			11,821
Provision for income taxes	(936		)	(953		)	(2,752		)	(2,603		)
Net earnings	3,629			3,284			10,571			9,218
Earnings attributable to noncontrolling interests	(91		)	(96		)	(273		)	(272		)
Net earnings attributable to UnitedHealth Group common shareholders	$	3,538		$	3,188		$	10,298		$	8,946
Earnings per share attributable to UnitedHealth Group common shareholders:
Basic	$	3.73		$	3.31		$	10.82		$	9.29
Diluted	$	3.67		$	3.24		$	10.65		$	9.09
Basic weighted-average number of common shares outstanding	949			962			952			963
Dilutive effect of common share equivalents	14			21			15			21
Diluted weighted-average number of common shares outstanding	963			983			967			984
Anti-dilutive shares excluded from the calculation of dilutive effect of common share equivalents	12			7			10			7

See Notes to the Condensed Consolidated Financial Statements

2

UnitedHealth Group

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
(in millions)	2019			2018			2019			2018
Net earnings	$	3,629		$	3,284		$	10,571		$	9,218
Other comprehensive (loss) income:
Gross unrealized gains (losses) on investment securities during the period	230			(91		)	1,243			(512		)
Income tax effect	(53		)	21			(285		)	117
Total unrealized gains (losses), net of tax	177			(70		)	958			(395		)
Gross reclassification adjustment for net realized gains included in net earnings	(69		)	(3		)	(70		)	(58		)
Income tax effect	16			—			16			13
Total reclassification adjustment, net of tax	(53		)	(3		)	(54		)	(45		)
Total foreign currency translation losses	(560		)	(233		)	(453		)	(1,303		)
Other comprehensive (loss) income	(436		)	(306		)	451			(1,743		)
Comprehensive income	3,193			2,978			11,022			7,475
Comprehensive income attributable to noncontrolling interests	(91		)	(96		)	(273		)	(272		)
Comprehensive income attributable to UnitedHealth Group common shareholders	$	3,102		$	2,882		$	10,749		$	7,203

See Notes to the Condensed Consolidated Financial Statements

3

UnitedHealth Group

Condensed Consolidated Statements of Changes in Equity

(Unaudited)

	Common Stock				Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)						Nonredeemable Noncontrolling Interests			Total Equity
Three months ended September 30, (in millions)	Shares		Amount								Net Unrealized Gains (Losses) on Investments			Foreign Currency Translation Losses
Balance at June 30, 2019	948		$	9	$	—		$	56,367		$	516		$	(3,789	)	$	2,751		$	55,854
Net earnings								3,538									82			3,620
Other comprehensive income (loss)											124			(560		)				(436		)
Issuances of common stock, and related tax effects	2		—		277															277
Share-based compensation					130															130
Common share repurchases	(3	)	—		(415		)	(185		)										(600		)
Cash dividends paid on common shares ($1.08 per share)								(1,024		)										(1,024		)
Redeemable noncontrolling interests fair value and other adjustments					8															8
Acquisition and other adjustments of nonredeemable noncontrolling interests																	(7		)	(7		)
Distribution to nonredeemable noncontrolling interests																	(66		)	(66		)
Balance at September 30, 2019	947		$	9	$	—		$	58,696		$	640		$	(4,349	)	$	2,760		$	57,756
Balance at June 30, 2018	962		$	10	$	—		$	52,363		$	(356	)	$	(3,724	)	$	2,490		$	50,783
Net earnings								3,188									71			3,259
Other comprehensive loss											(73		)	(233		)				(306		)
Issuances of common stock, and related tax effects	2		—		239															239
Share-based compensation					146															146
Common share repurchases	(2	)	—		(201		)	(299		)										(500		)
Cash dividends paid on common shares ($0.90 per share)								(866		)										(866		)
Redeemable noncontrolling interests fair value and other adjustments					(184		)													(184		)
Acquisition and other adjustments of nonredeemable noncontrolling interests																	102			102
Distribution to nonredeemable noncontrolling interests																	(77		)	(77		)
Balance at September 30, 2018	962		$	10	$	—		$	54,386		$	(429	)	$	(3,957	)	$	2,586		$	52,596

See Notes to the Condensed Consolidated Financial Statements

4

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
Nine months ended September 30, (in millions)	Shares		Amount									Net Unrealized (Losses) Gains on Investments			Foreign Currency Translation Losses
Balance at January 1, 2019	960		$	10		$	—		$	55,846		$	(264	)	$	(3,896	)	$	2,623		$	54,319
Adjustment to adopt ASU 2016-02									(13		)							(5		)	(18		)
Net earnings									10,298									196			10,494
Other comprehensive income (loss)												904			(453		)				451
Issuances of common stock, and related tax effects	8		—			438															438
Share-based compensation						521															521
Common share repurchases	(21	)	(1		)	(573		)	(4,527		)										(5,101		)
Cash dividends paid on common shares ($3.06 per share)									(2,908		)										(2,908		)
Redeemable noncontrolling interests fair value and other adjustments						(277		)													(277		)
Acquisition and other adjustments of nonredeemable noncontrolling interests						(109		)										157			48
Distribution to nonredeemable noncontrolling interests																		(211		)	(211		)
Balance at September 30, 2019	947		$	9		$	—		$	58,696		$	640		$	(4,349	)	$	2,760		$	57,756
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 and other adjustments 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

See Notes to the Condensed Consolidated Financial Statements

5

UnitedHealth Group

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Nine Months Ended September 30,
(in millions)	2019			2018
Operating activities
Net earnings	$	10,571		$	9,218
Noncash items:
Depreciation and amortization	2,002			1,791
Deferred income taxes	177			9
Share-based compensation	525			512
Other, net	(181		)	(136		)
Net change in other operating items, net of effects from acquisitions and changes in AARP balances:
Accounts receivable	957			(984		)
Other assets	(2,181		)	(1,641		)
Medical costs payable	223			1,745
Accounts payable and other liabilities	105			2,783
Unearned revenues	60			20
Cash flows from operating activities	12,258			13,317
Investing activities
Purchases of investments	(13,386		)	(11,316		)
Sales of investments	6,198			2,872
Maturities of investments	5,160			4,715
Cash paid for acquisitions, net of cash assumed	(8,200		)	(5,824		)
Purchases of property, equipment and capitalized software	(1,421		)	(1,505		)
Other, net	338			(187		)
Cash flows used for investing activities	(11,311		)	(11,245		)
Financing activities
Common share repurchases	(5,101		)	(3,650		)
Cash dividends paid	(2,908		)	(2,454		)
Proceeds from common stock issuances	740			745
Repayments of long-term debt	(1,250		)	(2,600		)
Proceeds from (repayments of) commercial paper, net	3,998			(164		)
Proceeds from issuance of long-term debt	5,444			3,964
Customer funds administered	420			1,552
Other, net	(756		)	(1,086		)
Cash flows from (used for) financing activities	587			(3,693		)
Effect of exchange rate changes on cash and cash equivalents	(37		)	(97		)
Increase (decrease) in cash and cash equivalents	1,497			(1,718		)
Cash and cash equivalents, beginning of period	10,866			11,981
Cash and cash equivalents, end of period	$	12,363		$	10,263

See Notes to the Condensed Consolidated Financial Statements

6

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. 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 and Supplementary Data” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 as filed with the SEC (2018 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 include medical costs payable and goodwill. 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 Adopted 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, 2018-11, 2018-20 and 2019-01 (collectively, ASU 2016-02). Under ASU 2016-02, an entity is 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. The Company adopted ASU 2016-02 using a cumulative-effect upon adoption approach as of January 1, 2019. Upon adoption, the Company recognized $3.3 billion of lease right-of-use (ROU) assets and liabilities for operating leases on its Condensed Consolidated Balance Sheet, of which, $668 million were classified as current liabilities. The adoption of ASU 2016-02 was immaterial to the Company’s consolidated results of operations, equity and cash flows. The Company has included the disclosures required by ASU 2016-02 below and in Note 7, “Commitments and Contingencies.”

The Company leases facilities and equipment under long-term operating leases that are non-cancelable and expire on various dates. At the lease commencement date, lease ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term, which includes all fixed obligations arising from the lease contract. If an interest rate is not implicit in a lease, the Company utilizes its incremental borrowing rate for a period that closely matches the lease term.

The Company’s ROU assets are included in other assets, and lease liabilities are included in other current liabilities and other liabilities in the Company’s Condensed Consolidated Balance Sheet.

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.

7

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, 2019
Debt securities - available-for-sale:
U.S. government and agency obligations	$	3,591	$	83	$	(2	)	$	3,672
State and municipal obligations	5,657		256		(3		)	5,910
Corporate obligations	17,824		352		(9		)	18,167
U.S. agency mortgage-backed securities	6,361		113		(6		)	6,468
Non-U.S. agency mortgage-backed securities	1,685		48		(1		)	1,732
Total debt securities - available-for-sale	35,118		852		(21		)	35,949
Debt securities - held-to-maturity:
U.S. government and agency obligations	272		2		—			274
State and municipal obligations	32		1		—			33
Corporate obligations	547		—		—			547
Total debt securities - held-to-maturity	851		3		—			854
Total debt securities	$	35,969	$	855	$	(21	)	$	36,803
December 31, 2018
Debt securities - available-for-sale:
U.S. government and agency obligations	$	3,434	$	13	$	(42	)	$	3,405
State and municipal obligations	7,117		61		(57		)	7,121
Corporate obligations	15,366		14		(218		)	15,162
U.S. agency mortgage-backed securities	4,947		11		(106		)	4,852
Non-U.S. agency mortgage-backed securities