01—Abstract
Summary
Summary of the 10-K/A filed April 2, 2001. Cited figures are marked; the original filing is the authoritative source.
UnitedHealth Group (UNH) closed 2000 as its strongest year on record, with revenues of $21.1 billiona (up 8% reported, roughly 12% in continuing markets), operating earnings of $1.2 billion (up 27%), and diluted EPS of $2.19 as reported, or $2.10 excluding nonrecurring tax benefits and a gain on UnitedHealth Capital dispositions.
Return on shareholders' equity rose to 19.0% from 14.1%, and operating cash flow exceeded $1.5 billionb, up 28%. Margin improvement drove the gains: the consolidated medical care ratio fell to 85.4% from 85.7%, and the operating cost ratio fell to 16.7% from 17.1%. Health Care Services, the largest segment, grew earnings 28%, while Uniprise, Specialized Care Services and Ingenix also posted strong growth.
The company remained highly cash-generative while returning capital to shareholders. It repurchased 31.0 million shares for $1.2 billionc in 2000, leaving authorization for 28.4 million more shares, and executed a two-for-one stock split in December 2000. Total cash and investments were $5.1 billion, and senior debt was rated A by S&P and Fitch and A3 by Moody's.
Total debt rose to $1.2 billiond after a $400 million 7.5% note issuance. Management expects the 2001 operational realignment to be completed and cites its existing liquidity as sufficient for current needs. Investors should weigh the concentration of AARP Medicare Supplement business, which contributed about $3.5 billion in premiums, and the 7% decline in UnitedHealthcare's Medicare enrollment as the company exited unprofitable counties.
Forward-looking risks include state and federal regulation, the effects of acquisitions and divestitures, and the realignment charges still being absorbed. At the March 12, 2001 market price of $59.66, the share price implied a market capitalization near $19 billion for non-affiliate shares.
02—Key points
Key Highlights
- Record 2000 revenues of $21.1 billion, with about 12% growth in continuing markets, and record operating earnings of $1.2 billion, up 27%
- Diluted EPS of $2.19 as reported ($2.10 excluding nonrecurring items); return on shareholders' equity improved to 19.0% from 14.1%
- Consolidated medical care ratio improved to 85.4% from 85.7%; operating cost ratio fell to 16.7% from 17.1%
- Operating cash flow of $1.52 billion, up 28% year over year
- Repurchased 31.0 million shares for $1.2 billion in 2000 and executed a two-for-one stock split in December 2000
- Health Care Services earnings rose 28% to $739 million; Uniprise, Specialized Care Services, and Ingenix all grew earnings in the 28% to 36% range
- Senior debt rated A (S&P, Fitch) and A3 (Moody's); total debt of $1.2 billion after $400 million of 7.5% senior notes issued in 2000
03—Questions
Frequently Asked Questions
What drove UnitedHealth's 2000 earnings growth?
Growth came mainly from premium yield increases on UnitedHealthcare's commercial insured business and lower operating costs as a percentage of revenue, driven by process improvement and technology. The commercial medical care ratio improved to 84.1% from 84.6%. Excluding nonrecurring items, net earnings were $705 million.
How much did the company spend on share buybacks, and how much authorization remains?
The company repurchased 31.0 million shares for $1.2 billion in 2000, and cumulative repurchases since November 1997 total 92.9 million shares for $2.6 billion. As of December 31, 2000, the board had authorized up to 28.4 million additional shares.
Is UnitedHealth's balance sheet and liquidity sound?
Yes. Cash and investments totaled $5.1 billion at year-end, and the company had $900 million in commercial paper backup facilities. Only $409 million of commercial paper was outstanding, and the company reported compliance with all debt covenants. About $4.7 billion of the cash and investments sits in regulated subsidiaries, which limits how much can be moved to the parent.
What are the main risks flagged in the filing?
Key risks include state and federal regulation that could restrict revenue growth or raise costs, the AARP contract (about $3.5 billion in annual premiums with an RSF that the company must fund if underwriting losses exceed it), Medicare market withdrawals that reduced enrollment 7%, and the completion of realignment activities through 2001. Management says none of the pending litigation is expected to have a material adverse effect.
What is the outlook for 2001 capital returns?
The board approved a 2001 annual dividend of $0.03 per share, payable April 18, 2001. Management expects its cash, operating cash flows and financing capacity to meet current requirements and development initiatives, and it continues to evaluate acquisitions and internal product development.
04—Continue