10-QPeriod: Q1 FY2002

UNITEDHEALTH GROUP INC Quarterly Report for Q1 Ended Mar 31, 2002

Filed May 14, 2002For Securities:UNH

Summary

UnitedHealth Group Inc. (UNH) reported strong first-quarter 2002 financial results, demonstrating significant year-over-year growth across key metrics. Earnings per share (EPS) rose an impressive 44% to $0.92, driven by a 6% increase in consolidated revenues, which reached $6.0 billion. The company also saw a substantial 32% increase in earnings from operations. This robust performance was supported by balanced growth across all business segments, particularly in Health Care Services and Uniprise, which benefited from premium yield increases and expansion in fee-based services. Operational efficiency improvements and strategic initiatives, including targeted withdrawals from unprofitable risk-based arrangements, contributed to a lower medical care ratio. While the operating cost ratio saw a slight increase, this was attributed to investments in growth and technology, with underlying productivity gains noted. The company maintained a strong liquidity position and managed its debt-to-capital ratio within its target range, reflecting a prudent approach to financial management. Investors should note the positive impact of adopting SFAS No. 142, which streamlined financial reporting by no longer requiring amortization of goodwill and other intangible assets, positively affecting reported earnings per share and operating margins.

Key Highlights

  • 1Earnings per share (EPS) increased by 44% to $0.92 compared to Q1 2001.
  • 2Consolidated revenues grew 6% to $6.0 billion year-over-year.
  • 3Earnings from operations saw a substantial 32% increase to $482 million.
  • 4Medical care ratio improved to 84.5% from 85.4% in Q1 2001, indicating better cost management.
  • 5Service revenues, driven by Uniprise and Ovations, grew by 25% to $705 million.
  • 6The company maintained a debt-to-total-capital ratio of 28.2%, within its target range of 25-30%.
  • 7Adoption of SFAS No. 142 positively impacted reported earnings by excluding goodwill amortization.

Frequently Asked Questions

The adoption of SFAS No. 142, effective January 1, 2002, eliminated the amortization of goodwill and other indefinite-lived intangible assets. This resulted in reported earnings per share and earnings from operations being higher than they would have been under previous accounting rules. For instance, reported EPS was $0.92, an increase of 44% from $0.64 in Q1 2001, but adjusted for SFAS No. 142, the year-over-year increase was 30% from $0.71.

Consolidated revenues increased by 6% to $6.0 billion, driven by balanced growth across all segments. Premium revenues grew 4% to $5.2 billion, primarily due to a more than 13% increase in net premium yield on UnitedHealthcare's renewing commercial business. Service revenues saw a significant 25% increase to $705 million, fueled by growth in Uniprise's large employer customer base, UnitedHealthcare's fee-based business, and Ovations' Pharmacy Services.

The medical care ratio improved to 84.5% in Q1 2002 from 85.4% in Q1 2001. This improvement is attributed to pricing strategies, benefit designs, comprehensive care facilitation efforts, net premium yield increases exceeding medical cost trends, and strategic withdrawals from unprofitable risk-based arrangements in certain Medicare markets. Excluding the AARP business, the medical care ratio decreased by 90 basis points year-over-year.

UnitedHealth Group maintained a strong financial condition and liquidity. Cash flows from operations were $502 million (adjusted), a 6% increase year-over-year. Total cash and investments stood at $5.4 billion as of March 31, 2002. The company managed its debt-to-total-capital ratio at 28.2%, within its target range of 25-30%, indicating a prudent approach to leverage and financial flexibility.