<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
_______________
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 2, 1995
UNITED HEALTHCARE CORPORATION
(Exact name of registrant as specified in charter)
MINNESOTA
(State or other jurisdiction of incorporation)
0-13253 41-1321939
(Commission File Number) (IRS Employer Identification No.)
300 Opus Center, 3900 Bren Road East, Minnetonka, MN 55343
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612) 936-1300
<PAGE>
This filing is an amendment to United HealthCare Corporation's ("United")
previously filed Form 8-K dated October 2, 1995 regarding United's acquisition
of The MetraHealth Companies, Inc. ("MetraHealth"). MetraHealth commenced
operations in January 1995 through the combination of the group health care
benefits businesses of Metropolitan Life Insurance Company ("MetLife") and The
Travelers Insurance Group Inc. ("Travelers")(herein collectively referred to as
"Predecessor Companies"). Effective January 1, 1995, MetLife and Travelers
contributed certain affiliates (principally Health Maintenance Organizations and
specialty companies), cash, operating assets, personnel and intellectual
property relating to their group health care benefits businesses to MetraHealth.
In addition, MetLife and Travelers agreed to contribute to MetraHealth the
economic results associated with insurance policies in-force at January 1, 1995,
either upon direct renewal or through indemnity reinsurance arrangements with
MetLife and Travelers, at the first policy renewal date after December 31, 1994.
MetraHealth also entered into separate administrative agreements with MetLife
and Travelers which transferred the economic results associated with
administrative services only contracts to MetraHealth effective January 1, 1995.
Item 7. Financial Statements and Exhibits
- ------------------------------------------
Pro Forma Financial Information (giving effect to the acquisition of MetraHealth
by United)
1. Unaudited pro forma condensed combining balance sheet as of September
30, 1995 and unaudited pro forma condensed combining statements of
operations for the nine months ended September 30, 1995 and for the year
ended December 31, 1994.
Financial Statements of Businesses Acquired
1. Audited combined financial statements of The MetraHealth Business as of
September 30, 1995 and for the nine months then ended. The MetraHealth
Business includes the assets, liabilities and results of operations of
MetraHealth, including its majority owned subsidiaries, as well as the
assets, liabilities and results of operations of the MetLife and
Travelers health care benefits businesses expected to be conveyed to
MetraHealth pursuant to agreements effected in conjunction with the
initial formation of MetraHealth.
2. Unaudited pro forma combined financial statements of The MetraHealth
Business as of December 31, 1994 and for the years ended December 31,
1994 and 1993. These pro forma financial statements combine the audited
financial statements of the Predecessor Companies on a basis consistent
with the 1995 audited combined financial statements of The MetraHealth
Business. These Predecessor Companies operated autonomously in 1994 and
1993. Accordingly, these pro forma financial statements are not
necessarily indicative of the results that would have occurred had the
Predecessor Companies been combined operationally during 1994 and 1993,
and are presented for illustrative purposes only.
3. Audited Financial Statements of Businesses of Predecessor Companies:
a. Audited combined financial statements of The Managed Care and
Employee Benefits Operations Medical Division of The Travelers
Insurance Group Inc. as of December 31, 1994 and for the years
ended December 31, 1994 and 1993.
b. Audited combined financial statements of Metropolitan Life Insurance
Company Health Care Benefit Business as of December 31, 1994 and for
the years ended December 31, 1994 and 1993.
Exhibits
Exhibit 23.1 Consent of Arthur Andersen LLP
Exhibit 23.2 Consent of KPMG Peat Marwick LLP
Exhibit 23.3 Consent of Deloitte & Touche LLP
1
<PAGE>
UNITED HEALTHCARE CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS
On October 2, 1995, United HealthCare Corporation ("United") completed its
acquisition of The MetraHealth Companies, Inc. ("MetraHealth"). MetraHealth
commenced operations in January 1995 upon the combination of the group health
care benefits businesses of Metropolitan Life Insurance Company and The
Travelers Insurance Group Inc. (collectively "Predecessor Companies"). The total
purchase price of the acquisition was $1.09 billion in cash and $500 million of
5.75% convertible preferred stock, for total consideration at closing of $1.59
billion. The 5.75% convertible preferred stock is convertible into United's
common stock at $49.48 per share, has a three-year no-call provision and a ten-
year mandatory redemption. In addition, certain former owners of MetraHealth
will be eligible to receive up to an additional $350 million if MetraHealth
achieves certain 1995 operating results, as defined. Any consideration payable
for this 1995 earnout in excess of the initial $1.59 billion may, at United's
sole discretion, be in the form of cash, convertible debt, convertible preferred
stock, or straight debt. Moreover, if United's post-acquisition combined net
earnings for 1996 and 1997 reach certain specified levels, certain of
MetraHealth's former owners will be eligible to receive up to an additional $175
million in cash for each of these two years.
The following unaudited pro forma condensed combining financial statements ("The
Pro Forma Financial Statements") present the estimated effects of the
MetraHealth acquisition on United's consolidated financial position and results
of operations. The unaudited pro forma condensed combining balance sheet has
been prepared as if the acquisition had occurred on September 30, 1995. The
unaudited pro forma condensed combining statements of operations have been
prepared as if the acquisition had occurred on January 1, 1994. The Pro Forma
Financial Statements are not necessarily indicative of the results that actually
would have occurred had this transaction been consummated on the dates indicated
above or of the future results of operations of the combined companies.
For purposes of preparing The Pro Forma Financial Statements, the carrying
values of MetraHealth's assets and liabilities were assumed to approximate their
fair values at the date of acquisition. Accordingly, the purchase price and
estimated acquisition and MetraHealth integration costs in excess of the net
assets acquired have been preliminarily allocated to certain intangible assets.
These intangible assets are being amortized in The Pro Forma Financial
Statements on a straight line basis over useful lives deemed appropriate by
United's management based on their best current judgment. The purchase price
allocation and the useful lives assigned to intangible assets may be adjusted
upon completion of the final valuations of MetraHealth's assets and liabilities
and the effect of any such adjustment could be significant.
The MetraHealth historical statements of operations included in The Pro Forma
Financial Statements include certain expenses which will not be incurred in the
future by the combined United/MetraHealth companies, such as allocated costs
attributable to certain of the Predecessor Companies' benefit plans and
severance. These expenses were approximately $33 million on a pre-tax basis in
both 1995 and 1994 and are included in the 1995 and 1994 pro forma results.
United is developing a comprehensive integration plan to achieve the potential
benefits of merging its operations with MetraHealth. The plan is expected to
result in a substantial restructuring charge primarily related to the impact of
the integration on United's operations. The Pro Forma Financial Statements do
not include the effects of the integration on United's operations or any
restructuring charge resulting from the integration. The restructuring charge
will be recorded by United in the fourth quarter of 1995.
The Pro Forma Financial Statements should be read in conjunction with United's
historical consolidated financial statements and notes thereto included in its
annual report on Form 10-K for the year ended December 31, 1994, and its
quarterly report on Form 10-Q for the nine months ended September 30, 1995. The
historical financial statements of The MetraHealth Business as of September 30,
1995 and the historical financial statements of its Predecessor Companies are
included in this Form 8-K/A and should also be read in conjunction with The
Pro Forma Financial Statements.
2
<PAGE>
UNITED HEALTHCARE CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINING BALANCE SHEET
AS OF SEPTEMBER 30, 1995
(in Millions)
<TABLE>
<CAPTION>
UNITED THE
HEALTHCARE METRAHEALTH PRO FORMA PRO FORMA
ASSETS HISTORICAL BUSINESS ADJUSTMENTS UNITED
---------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $1,308 $ 751 $(1,460)(A) $ 599
Short-term investments 276 605 881
Accounts receivable, net 253 282 535
Other 57 101 158
------ ------ ------- ------
Total current assets 1,894 1,739 (1,460) 2,173
------ ------ ------- ------
LONG-TERM INVESTMENTS 1,002 647 1,649
PROPERTY AND EQUIPMENT, net 198 74 272
INTANGIBLE ASSETS AND OTHER,
net 803 49 1,300 (B) 2,152
------ ------ ------- ------
Total assets $3,897 $2,509 $ (160) $6,246
====== ====== ======= ======
LIABILITIES AND SHAREHOLDERS'
EQUITY
CURRENT LIABILITIES
Medical costs payable $ 501 $ 589 $1,090
Other policy liabilities 479 479
Accounts payable, accrued
expenses and other liabilities 140 250 $ 227 (C) 617
Due to affiliates 186 186
Unearned premiums 95 109 204
------ ------ ------- ------
Total current liabilities 736 1,613 227 2,576
Long-term obligations 26 9 35
Minority interests 7 7
5.75% Convertible Preferred
Stock 500 (D) 500
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY/NET ASSETS
Common stock 2 2
Additional paid-in capital 780 780
Retained earnings 2,353 2,353
Net unrealized investment losses (7) (7)
Net assets 887 (887)(B) 0
------ ------ ------- ------
Total shareholders' equity/
net assets 3,128 887 (887) 3,128
------ ------ ------- ------
Total liabilities and
shareholders' equity/net
assets $3,897 $2,509 $ (160) $6,246
====== ====== ======= ======
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combining Financial Statements.
3
<PAGE>
UNITED HEALTHCARE CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
(IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
UNITED THE
HEALTHCARE METRAHEALTH PRO FORMA PRO FORMA
HISTORICAL BUSINESS ADJUSTMENTS UNITED
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
REVENUES:
Premium $ 3,153 $ 2,102 $ 5,255
Management services and fees 210 904 1,114
Investment income and other 114 85 $ (66)(E) 133
------------ ----------- ----------- ------------
Total revenues 3,477 3,091 (66) 6,502
OPERATING EXPENSES:
Medical costs 2,480 1,739 4,219
Selling, general and administrative costs 500 1,155 1,655
Depreciation and amortization 59 20 28 (F) 107
Restructuring costs 0 (G) 0
------------ ----------- ----------- ------------
Total operating expenses 3,039 2,914 28 5,981
EARNINGS FROM OPERATIONS 438 177 (94) 521
INTEREST EXPENSE (1) (1)
------------ ----------- ----------- ------------
Earnings before income taxes and minority interests 437 177 (94) 520
PROVISION FOR INCOME TAXES (162) (65) 24 (H) (203)
MINORITY INTERESTS (2) (2)
------------ ----------- ----------- ------------
NET EARNINGS 273 112 (70) 315
PREFERRED DIVIDENDS (22)(I) (22)
------------ ----------- ----------- ------------
NET EARNINGS APPLICABLE TO COMMON SHAREHOLDERS $ 273 $ 112 $ (92) $ 293
============ =========== =========== ============
NET EARNINGS PER COMMON SHARE $ 1.55 $ 1.66
============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 176,615,000 176,615,000
============ ============
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combining Financial Statements.
4
<PAGE>
UNITED HEALTHCARE CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
(IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
UNITED COMBINED
HEALTHCARE PREDECESSOR PRO FORMA PRO FORMA
HISTORICAL COMPANIES ADJUSTMENTS UNITED
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
REVENUES:
Premium $ 3,376 $ 3,030 $ 6,406
Management services and fees 275 1,204 1,479
Investment income and other 118 69 $ (88)(E) 99
------------ ----------- ----------- ------------
Total revenues 3,769 4,303 (88) 7,984
OPERATING EXPENSES:
Medical costs 2,643 2,406 5,049
Selling, general and administrative costs 556 1,657 2,213
Depreciation and amortization 64 13 37 (F) 114
Restructuring costs 0 (G) 0
------------ ----------- ----------- ------------
Total operating expenses 3,263 4,076 37 7,376
EARNINGS FROM OPERATIONS 506 227 (125) 608
INTEREST EXPENSE (2) (2)
MERGER COSTS (36) (36)
------------ ----------- ----------- ------------
Earnings before income taxes, minority interests
and extraordinary gain 468 227 (125) 570
PROVISION FOR INCOME TAXES (178) (79) 26 (H) (231)
MINORITY INTERESTS (2) (2)
------------ ----------- ----------- ------------
NET EARNINGS BEFORE EXTRAORDINARY GAIN 288 148 (99) 337
------------ ----------- ----------- ------------
PREFERRED DIVIDENDS (29)(I) (29)
------------ ----------- ----------- ------------
NET EARNINGS BEFORE EXTRAORDINARY GAIN APPLICABLE
TO COMMON SHAREHOLDERS $ 288 $ 148 $ (128) $ 308
============ =========== =========== ============
NET EARNINGS PER COMMON SHARE
BEFORE EXTRAORDINARY GAIN $ 1.64 $ 1.76
============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 175,209,000 175,209,000
============ ============
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combining Financial Statements.
5
<PAGE>
UNITED HEALTHCARE CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS
(IN MILLIONS)
The pro forma adjustments have been recorded as follows:
(A) This adjustment includes the cash portion of the purchase price paid at
closing of $1,090, the 1995 contingent consideration of $350 and
approximately $20 in cash for direct costs incurred in connection with the
acquisition.
(B) This adjustment reflects the estimated costs in excess of net assets
acquired resulting from the acquisition.
<TABLE>
<S> <C>
Purchase price consists of the following:
Cash paid at closing $1,090
1995 contingent consideration 350 (a)
1996 and 1997 additional consideration 0 (a)
5.75% convertible preferred stock 500
------
Purchase price 1,940
Acquisition and MetraHealth
integration costs 247
Less: net assets acquired (887)
------
Purchase price and
acquisition and MetraHealth integration
costs in excess of the fair value of
net assets acquired $1,300
======
</TABLE>
(a) For purposes of preparing these unaudited pro forma financial
statements, the full 1995 contingent consideration was assumed to be
paid in cash and no 1996 and 1997 additional consideration was assumed
to be paid. The actual amount of consideration attributable to 1995,
1996 and 1997, and the form in which the 1995 amount is paid (cash or
debt securities), may be different than that assumed in the unaudited
pro forma financial statements.
(C) This adjustment reflects the estimated acquisition and MetraHealth
integration costs of $247 as in (B) above, less $20 in direct costs
assumed as paid as in (A) above.
(D) This adjustment reflects the issuance of $500 of 5.75% convertible
preferred stock.
(E) This adjustment reflects the reduction in interest income as a result of
cash paid in the acquisition as in (A) above. ($1,460 at 6.00%)
(F) This adjustment reflects the amortization of costs in excess of net assets
acquired resulting from the acquisition of $1,300 as in (B) above, using
a range of estimated useful lives for identifiable and unidentifiable
intangible assets of 25 to 40 years (35 year average assumed).
(G) No adjustment has been made to give effect to the integration on United's
operations or any restructuring charge resulting from such integration.
The restructuring charge will be recorded by United in the fourth quarter
of 1995.
Page 6
<PAGE>
(H) This adjustment reflects the estimated net tax effects of the pro forma
adjustments described herein for the respective periods using United's
consolidated effective tax rate. This adjustment assumes that the
amortization of costs in excess of net assets acquired resulting from the
transaction are not deductible.
(I) This adjustment reflects the dividends on the 5.75% convertible preferred
stock issued in connection with the acquisition. In determining earnings
per share, the preferred stock is not considered a common stock equivalent
and is antidilutive.
Page 7
<PAGE>
THE METRAHEALTH BUSINESS
COMBINED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 1995 AND
FOR THE NINE MONTHS THEN ENDED
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
We have audited the accompanying combined statement of net assets of The
MetraHealth Companies, Inc. (the Company), the group health care benefits
businesses of The Travelers Insurance Group Inc. and Metropolitan Life
Insurance Company (altogether The MetraHealth Business) as of September 30,
1995, and the related combined statements of operations, changes in net assets
and cash flows for the nine months then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined net assets of The MetraHealth Business as
of September 30, 1995, and the results of its operations and its cash flows for
the nine months then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
December 15, 1995
2
<PAGE>
THE METRAHEALTH BUSINESS
<TABLE>
<CAPTION>
COMBINED STATEMENT OF NET ASSETS
SEPTEMBER 30, 1995
(IN MILLIONS)
- ---------------------------------------------------------------------------------------
<S> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 751
Short-term investments 605
Premiums and fees receivable, net 282
Other current assets 101
----------
Total current assets 1,739
Long-term investments 647
Property and equipment, net 74
Other assets 49
----------
Total assets 2,509
----------
LIABILITIES
Current Liabilities
Medical costs payable 589
Other policy liabilities 479
Accounts payable and accrued expenses 193
Unearned revenues 109
Due to affiliates 186
Other liabilities 57
----------
Total current liabilities 1,613
----------
Long-term obligations 9
Commitments and contingencies (Note 9) --
----------
Total liabilities 1,622
----------
NET ASSETS $ 887
==========
</TABLE>
See notes to combined financial statements.
3
<PAGE>
THE METRAHEALTH BUSINESS
<TABLE>
<CAPTION>
COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
(IN MILLIONS)
- ---------------------------------------------------------------------------------------
<S> <C>
REVENUES:
Premiums $ 2,102
Fees 904
Net investment income 89
Realized investment losses, net (4)
----------
Total revenues 3,091
----------
BENEFITS AND EXPENSES:
Medical costs 1,739
Selling, general and administrative costs 1,155
Depreciation and amortization 20
----------
Total benefits and expenses 2,914
----------
INCOME BEFORE INCOME TAXES 177
Provision for income taxes 65
----------
NET INCOME $ 112
==========
</TABLE>
See notes to combined financial statements.
4
<PAGE>
THE METRAHEALTH BUSINESS
<TABLE>
<CAPTION>
COMBINED STATEMENT OF CHANGES IN NET ASSETS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
(IN MILLIONS)
- ---------------------------------------------------------------------------------------
<S> <C>
BALANCE AT JANUARY 1, 1995 $ 333
Capital contributions from Predecessor Companies (Note 8)
Cash 363
Property and equipment, net 42
Expenses paid by Predecessor Companies on behalf of MetraHealth 22
Acquisition of HealthSpring, Inc. (Note 4) 55
Dividends paid (60)
Change in net unrealized gain on investments available for
sale, net of income tax effects 20
Net income 112
----------
BALANCE AT SEPTEMBER 30, 1995 $ 887
==========
</TABLE>
See notes to combined financial statements.
5
<PAGE>
THE METRAHEALTH BUSINESS
<TABLE>
<CAPTION>
COMBINED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
(IN MILLIONS)
- ---------------------------------------------------------------------------------------
<S> <C>
OPERATING ACTIVITIES
Net income $ 112
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization 20
Realized investment losses 4
Expenses paid by Predecessor Companies
on behalf of MetraHealth 22
Deferred federal income taxes 75
Changes in operating assets and liabilities:
Premiums and fees receivable, net (39)
Other assets (26)
Medical costs payable (69)
Other policy liabilities (97)
Accounts payable and accrued expenses 49
Unearned revenues 34
Due to affiliates 55
Other liabilities 35
----------
Net cash provided by operating activities 175
----------
INVESTING ACTIVITIES
Net assets acquired from HealthSpring, Inc. 14
Proceeds from sales and maturities of long-term investments,
available for sale 734
Purchase of long-term investments, available for sale (1,109)
Net decrease in short-term investments 25
Net decrease in other investments, held to maturity 3
Net purchases of property and equipment (15)
----------
Net cash used for investing activities (348)
----------
FINANCING ACTIVITIES
Capital contributions 363
Dividends paid (60)
----------
Net cash provided by financing activities 303
----------
Increase in cash and cash equivalents 130
Cash and cash equivalents, beginning of period 621
----------
Cash and cash equivalents, end of period $ 751
==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for income taxes $ 67
==========
</TABLE>
See notes to combined financial statements.
6
<PAGE>
THE METRAHEALTH BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
1. BASIS OF PRESENTATION
During 1994, Metropolitan Life Insurance Company ("MetLife") and The
Travelers Insurance Group Inc. ("Travelers"), collectively referred to as the
"Predecessor Companies", entered into an agreement (the "Master Agreement")
to contribute their respective group health care benefits businesses and cash
in exchange for an equal interest (1.8 million shares each of common stock
($.01 par value) of the 5 million shares authorized) in a corporate joint
venture, The MetraHealth Companies, Inc. ("MetraHealth"). Effective
January 1, 1995, MetLife and Travelers contributed certain affiliates, cash,
operating assets, personnel and intellectual property relating to their group
health care benefits businesses to MetraHealth. In addition, MetLife and
Travelers agreed to contribute to MetraHealth the economic results associated
with insurance policies in-force at January 1, 1995, either upon direct
renewal or through indemnity reinsurance arrangements with MetLife and
Travelers, at the first policy renewal date after December 31, 1994.
MetraHealth also entered into separate administrative agreements with MetLife
and Travelers which transferred the economic results associated with
administrative services only contracts to MetraHealth effective
January 1, 1995.
The accompanying financial statements present the assets, liabilities and
results of operations of MetraHealth, including its majority owned
subsidiaries, as well as the assets, liabilities and results of operations of
the Predecessor Companies' health care benefit businesses expected to be
conveyed to MetraHealth pursuant to the Master Agreement ("The MetraHealth
Business"). Accordingly, the operating results related to in-force insurance
policies prior to their renewal date in 1995 recorded by the Predecessor
Companies have been reflected as a component of The MetraHealth Business in
these financial statements. The assets and liabilities contributed to
MetraHealth in the formation of the joint venture have been presented in
these financial statements at the Predecessor Companies' historical carrying
values pursuant to joint venture accounting.
Under the terms of the Master Agreement, medical costs payable related to
insurance policies for dates of service prior to the renewal date of the
contract on or after January 1, 1995 are the responsibility of the
Predecessor Companies, with any difference between such medical costs payable
and amounts ultimately paid accruing to the Predecessor Companies. The Master
Agreement also calls for other policy liabilities related to insurance
policies, retroactive rate credit reserves and customer balances to be
retained by the Predecessor Companies until the balance as of the renewal
date of the contract is determined with any difference between the initial
estimate of the liability and the amount ultimately determined accruing to
the Predecessor Companies. After the final determination of such liability,
amounts will either be paid to the customer or transferred with customer
consent, along with assets, principally cash, of equal value to MetraHealth.
All such policy liabilities, retroactive rate credit reserves and customer
balances have been included in the accompanying financial statements.
2. BUSINESS
MetraHealth finances, manages and administers health insurance plans and
delivers managed health care services for its customers. MetraHealth serves
over 10 million individuals, including nearly six million in network-based
care programs. Its managed care networks include 29 HMO licenses,
72 point-of-service networks, and managed PPOs in more than 90 markets
nationwide. In addition to its full range of both managed care and indemnity
plans, MetraHealth offers managed behavioral health, managed pharmacy, data
analysis, demand management, managed workers' compensation and third-party
administrator services.
Certain of the companies included in the combined financial statements are
subject to statutory regulations. These regulations require minimum levels of
capital and place certain limitations on the amount of net equity available
for dividends.
7
<PAGE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include highly liquid investments, comprised
principally of commercial paper and U.S. Treasury bills, with an original
maturity of three months or less.
INVESTMENTS
Investments required to be maintained by state regulatory authorities are
classified as held to maturity based on MetraHealth's ability and intent to
hold these investments to maturity. Such investments are reported at
amortized cost which totaled approximately $16 million at September 30, 1995
and are included in other current assets and other long-term assets on the
statement of net assets. All other investments are classified as available
for sale and are reported at fair values based on quoted market prices, with
unrealized gains and losses (net of income tax effects) included as a
separate component of net assets and excluded from earnings from operations.
Short-term investments are stated at amortized cost which approximates
market. Investments are adjusted for impairment in value that is deemed to be
other than temporary through a charge to operations.
PROPERTY AND EQUIPMENT
Property and equipment consists of land, buildings, furniture and fixtures,
computer equipment, software, and leasehold improvements. Equipment and
software are depreciated on the straight-line method over their estimated
remaining useful life. Leasehold improvements are amortized on a straight-
line basis over the shorter of the lease terms or their estimated useful
lives. Land and buildings are recorded at cost and are depreciated using
the straight-line method over estimated useful lives which range from 3 to 30
years. Accumulated depreciation was $117 million at September 30, 1995.
INTANGIBLE ASSETS
Intangible assets consist principally of costs in excess of net assets of
businesses acquired which are amortized on a straight-line basis over 30
years. Intangible assets are included as other long-term assets in the
statement of net assets. Management periodically evaluates whether events
and circumstances have occurred which may affect the estimated useful life or
the recoverability of the remaining balance of its costs in excess of net
assets of businesses acquired. Accumulated amortization was $1 million at
September 30, 1995.
INVESTMENT GAINS AND LOSSES
Realized investment gains and losses are recorded based upon specific
identification of the investments sold on the trade date.
RECOGNITION OF REVENUES AND EXPENSES
Premiums and fees (principally related to administrative service contracts)
are recognized as earned. The allowance for estimated uncollectible premiums
and fees receivable was $20 million at September 30, 1995. Cash received from
advance billings prior to the month earned is recorded as unearned revenue.
There were no premium deficiency reserves recorded during the nine months
ended September 30, 1995 based upon calculations performed for each line of
business.
All selling, general and administrative expenses are charged to operations as
incurred including costs of generating business.
8
<PAGE>
MEDICAL COSTS
Medical costs are charged to operations as incurred, including claims paid,
claims in the process of payment, an estimated provision for incurred but
unreported claims, provider risk sharing and interest credited to customer
balances. Incurred but unreported claims consist of estimated medical costs
provided prior to period-end. These estimates, based on historical trends and
actual experience, are reviewed periodically and, as necessary, adjustments
are reflected in current operations. There are no material amounts of third
party reinsurance.
OTHER POLICY LIABILITIES
Retrospective rate credit reserves for eligible contracts are determined
based on premiums received in excess of claims and expenses charged. Refunds
for closed policy years are based on policy period accounting for premiums,
claims and expenses while a refund liability for open years is based on
estimates of premiums, claims and expenses incurred.
Customer balances represent certain deposit accounts and premium
stabilization reserves which are available to fund future premiums or to
offset required premiums arising from the calculation of the results of
certain retrospective contracts.
FEDERAL INCOME TAXES
Deferred income taxes arise from differences in tax and financial reporting.
The future tax consequences of temporary differences between financial
reporting and tax basis of assets and liabilities are measured as of the
balance sheet date and are recorded as deferred tax assets, less any
valuation reserves, if considered appropriate, or liabilities. MetraHealth
establishes a valuation allowance to reduce the deferred tax assets when it
is more likely than not that a portion of these assets will not be realized.
ACCOUNTING STANDARDS NOT YET IMPLEMENTED
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" (FAS 121).
This Statement establishes accounting standards for the impairment of long-
lived assets, certain identifiable intangibles, and goodwill related to those
assets to be held and used and for long-lived assets and certain identifiable
intangibles to be disposed of. This Statement requires write down to fair
value when long-lived assets to be held and used are impaired. The Statement
also requires long-lived assets to be disposed of (e.g., real estate held for
sale) to be carried at the lower of cost or fair value less cost to sell and
does not allow such assets to be depreciated. This Statement will be
effective for 1996 financial statements, although earlier adoption is
permissible. MetraHealth has not yet evaluated the impact of FAS 121;
however, it is not expected to be material to its results of operations,
financial condition or liquidity.
In October, 1995, the Financial Accounting Standards Board issued Statement
of Financial Standard No. 123, "Accounting for Stock-Based Compensation" (FAS
123). This Statement establishes accounting and reporting standards for
stock-based employee compensation plans and to transactions in which an
entity issues its equity instruments to acquire goods or services from
nonemployees. FAS 123 defines a fair value based method of accounting for an
employee stock option or similar equity instrument which measures
compensation cost at the grant date based on the value of the award and
recognizes it over the service period, which is usually the vesting period.
However, FAS 123 also allows an entity to continue to measure compensation
cost for those plans using the intrinsic value based method of accounting
prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees"
(Opinion 25). Entities electing to remain with the accounting in Opinion 25
must make pro forma disclosures of net income and, if presented, earnings per
share, as if the fair value based method of accounting defined in this
Statement
9
<PAGE>
had been applied. This Statement will be effective for 1996 financial
statements, although earlier adoption is permissible. MetraHealth expects to
continue to follow the guidance in Opinion 25.
4. ACQUISITION OF HEALTHSPRING, INC.
Effective March 9, 1995, MetraHealth acquired HealthSpring, Inc., a company
providing direct delivery of medical care services. MetraHealth issued
130,570 shares of its common stock for all of the outstanding shares of
HealthSpring, Inc. and accounted for this acquisition as a purchase. The
purchase price of the acquisition was $54 million which resulted in $41
million of cost in excess of net assets of the business acquired, which is
being amortized over 30 years. Had HealthSpring been acquired as of
January 1, 1995 the combined MetraHealth results of operations would have
been $3,093 million in revenue and $109 million in net income.
5. INVESTMENTS
The amortized cost and fair value of fixed maturities and other investments by
category are as follows:
<TABLE>
<CAPTION>
Gross Unrealized
Amortized ------------------- Fair
Cost Gains Losses Value
---------- -------- -------- ----------
(In Millions)
<S> <C> <C> <C> <C>
INVESTMENTS AVAILABLE FOR SALE
U.S. Government and Agencies $ 143 $ $ 2 $ 141
Corporate 1,109 4 2 1,111
---------- -------- ------ ----------
Total $ 1,252 $ 4 $ 4 $ 1,252
========== ======== ====== ==========
INVESTMENTS HELD TO MATURITY
U.S. Government and Agencies $ 11 $ $ $ 11
Corporate 5 5
---------- -------- ------ ----------
Total $ 16 $ $ $ 16
========== ======== ====== ==========
</TABLE>
As of September 30, 1995, the contractual maturities of investments were as
follows:
<TABLE>
<CAPTION>
Amortized Estimated
Cost Fair Value
---------- -----------
(In Millions)
<S> <C> <C>
INVESTMENTS AVAILABLE FOR SALE
Due in one year or less $ 605 $ 605
Due after one year through five years 368 368
Due after five years through ten years 137 137
Due after ten years 142 142
---------- ----------
Total $ 1,252 $ 1,252
========== ==========
INVESTMENTS HELD TO MATURITY
Due in one year or less $ 7 $ 7
Due after one year through five years 9 9
---------- ----------
Total $ 16 $ 16
========== ==========
</TABLE>
Investments not due at a single maturity date have been included in the above
table in the year of final maturity. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without prepayment penalties.
10
<PAGE>
Proceeds from sales of available for sale investments for the nine months
ended September 30, 1995 totaled $1.2 billion. Gross realized gains and
losses resulting from these sales amounted to $2 million and $6 million,
respectively.
6. INCOME TAXES
Components of the provision for income taxes charged to operations for the
nine months ended September 30, 1995 are as follows:
<TABLE>
<CAPTION>
(In Millions)
<S> <C>
Current tax expense (credit):
Federal $ (14)
State 4
--------
Total current tax expense (credit) (10)
Deferred tax expense 75
--------
Total income tax expense $ 65
========
</TABLE>
The net deferred income tax asset at September 30, 1995 is comprised of the
following:
<TABLE>
<CAPTION>
(In Millions)
<S> <C>
Deferred income tax assets:
Retroactive rate credit reserves $ 43
Accrued benefits 6
Intangible amortization 6
Loss adjustment expense 4
Bond accretion 4
Discount on loss reserves 4
Unearned premiums 4
Other 16
-------
Total deferred income tax asset 87
-------
Deferred income tax liability:
Loss reserves 12
Bond Amortization 1
Other 1
-------
Total deferred income tax liability 14
-------
Net deferred income tax asset $ 73
=======
</TABLE>
Amounts are included in deferred taxes related to reserves for certain
retrospectively rated contracts, which are held on a book basis but not on a
tax basis, of certain companies taxed as life insurance companies. No amount
is included in the deferred tax asset related to similar contracts of
companies not taxed as life insurance companies.
11
<PAGE>
A reconciliation of the statutory income tax rate to the effective income tax
rate for the nine months ended September 30, 1995 is as follows:
<TABLE>
<S> <C>
Federal statutory rate 35.0%
State income taxes, net of federal
benefit 1.2
Other, net 0.5
----
Effective income tax rate 36.7%
====
</TABLE>
7. EMPLOYEE BENEFIT PLANS
Current employees who were transferred from the Predecessor Companies remain
eligible to participate in the Predecessor Companies' pension plans,
postretirement benefit plans, and savings and investment plans through
December 31, 1995. For the nine month period ended September 30, 1995,
MetraHealth did not offer similar employee benefit plans to its employees.
MetraHealth reimburses the Predecessor Companies in an amount equal to the
cost incurred by MetraHealth employees participating in the Predecessor
Companies savings and investment plans. The Predecessor Companies were not
reimbursed for the costs relating to the pension plans and other
postretirement benefits. These costs, as well as certain severance and other
compensation costs funded by the Predecessor Companies, are reflected in the
combined statement of operations with a corresponding capital contribution
recorded in net assets. Total employee benefit expense relating to these
plans was $13 million for the nine month period ended September 30, 1995.
Stock Option Plan
The stock option plan provides for the granting of options to key employees
to purchase common stock of MetraHealth. The stock option plan provides for
the option and sale in the aggregate of 400,000 shares of MetraHealth's
common stock. At September 30, 1995, there were 10,000 shares fully vested
and no shares which were exercisable.
Changes in the status of stock options are summarized as follows:
<TABLE>
<CAPTION>
Weighted
Number Average
of Shares Option Price
--------- ------------
<S> <C> <C>
Balance, beginning of period -- $ --
Issued 400,000 400
Exercised -- --
Canceled -- --
------- ---
Balance, end of period 400,000 $400
======= ====
</TABLE>
8. RELATED PARTY TRANSACTIONS
Certain functions are contracted with the Predecessor Companies, principally
data processing and certain corporate functions. Included in the statement of
operations is $102 million of expenses for services rendered by Predecessor
Companies.
MetraHealth has subleased certain facilities from the Predecessor Companies.
Included in the statement of operations is $51 million of related rent
expense.
MetraHealth has also entered into agreements with the Predecessor Companies
to administer certain components of the Predecessor Companies' non-medical
business, principally group life and long-term disability. Included in the
statement of operations is $26 million of fee income for providing such
services to the Predecessor Companies.
12
<PAGE>
Capital contributions from the Predecessor Companies included: cash of $363
million, of which $115 million was received on December 30, 1994; property
and equipment contributed at net book value of $42 million; and $22 million
of expenses paid by the Predecessor Companies on behalf of The MetraHealth
Business, as described in Note 7.
On September 29, 1995, MetraHealth declared and paid a cash dividend of
$16.08 per common share or $60 million to shareholders of record on that
date.
9. COMMITMENTS AND CONTINGENCIES
MetraHealth leases facilities and equipment under operating leases which are
noncancelable and expire on various dates through 2006. Rent expense under
all operating leases was $55 million for the nine months ended September 30,
1995. At September 30, 1995, future minimum annual lease payments under all
noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
(In Millions)
<S> <C>
12 months ended September 30,
- -----------------------------
1996 $ 58
1997 46
1998 40
1999 33
2000 14
Thereafter 15
--------
$ 206
========
</TABLE>
MetraHealth is involved in legal actions which arise in the ordinary course
of its business. Although the outcomes of any such legal actions cannot be
predicted, in the opinion of management the resolution of these actions,
after consideration of the provisions made in the accompanying financial
statements, will not have a material adverse effect upon the financial
position or results of operations of MetraHealth.
10. SUBSEQUENT EVENT - ACQUISITION OF METRAHEALTH
On October 2, 1995, United HealthCare Corporation ("United") completed its
acquisition of MetraHealth. Under the acquisition agreement terms, United
paid $1.09 billion in cash and issued $500 million of 5.75% convertible
preferred stock, for a total consideration of $1.59 billion at closing.
The acquisition agreement also provides for contingent payments up to $350
million by United if certain earnings levels of The MetraHealth Business are
achieved for 1995. Also, the agreement provides for additional contingent
payments up to $175 million per year if certain earnings levels as defined
are achieved by United during 1996 and 1997.
* * * * *
13
<PAGE>
THE METRAHEALTH BUSINESS
UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1994 AND FOR THE
YEARS ENDED DECEMBER 31, 1994 AND 1993
<PAGE>
THE METRAHEALTH BUSINESS
UNAUDITED PRO FORMA COMBINED STATEMENT OF NET ASSETS
DECEMBER 31, 1994
(IN MILLIONS)
- -----------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 621
Short-term investments 612
Premiums and fees receivable, net 243
Other current assets 125
------
Total current assets 1,601
Long-term investments 266
Property and equipment, net 25
Other assets 47
------
Total assets 1,939
------
LIABILITIES
Current Liabilities
Medical costs payable 658
Other policy liabilities 576
Accounts payable and accrued expenses 144
Unearned revenues 75
Due to affiliates 131
Other liabilities 22
------
Total current liabilities 1,606
Commitments and contingencies --
------
Total liabilities 1,606
------
Net Assets $ 333
======
</TABLE>
See note to unaudited pro forma combined financial statements.
1
<PAGE>
THE METRAHEALTH BUSINESS
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
(IN MILLIONS)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
REVENUES:
Premiums $3,030 $3,211
Fees 1,204 1,214
Net investment income 70 87
Realized investment gains (losses), net (1) 18
------ ------
Total revenues 4,303 4,530
------ ------
BENEFITS AND EXPENSES:
Medical costs 2,406 2,605
Selling, general and administrative costs 1,657 1,695
Depreciation and amortization 13 13
------ ------
Total benefits and expenses 4,076 4,313
------ ------
INCOME BEFORE INCOME TAXES 227 217
Provision for income taxes 79 65
------ ------
NET INCOME $ 148 $ 152
====== ======
</TABLE>
See note to unaudited pro forma combined financial statements.
2
<PAGE>
THE METRAHEALTH BUSINESS
UNAUDITED PRO FORMA COMBINED STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
(IN MILLIONS)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
BALANCE AT JANUARY 1 $250 $128
Dividends paid (50) (25)
Change in net unrealized loss on
investments available for sale, net of
income tax effects (15) (5)
Net income 148 152
---- ----
BALANCE AT DECEMBER 31 $333 $250
==== ====
</TABLE>
See note to unaudited pro forma combined financial statements.
3
<PAGE>
THE METRAHEALTH BUSINESS
UNAUDITED PRO FORMA COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
(IN MILLIONS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 148 $ 152
Adjustments to reconcile net income to cash provided by
(used in) operating activities:
Depreciation and amortization 13 13
Realized investment (gains) losses 1 (18)
Deferred federal income taxes (5) 5
Changes in operating assets and liabilities:
Investment income accrued 6 --
Premiums and fees receivable, net 16 96
Other assets (168) (72)
Due from affiliates (22) (173)
Medical costs payable (49) (37)
Other policy liabilities 61 (186)
Other liabilities 187 (14)
----- -----
Net cash provided by (used in) operating activities 188 (234)
----- -----
INVESTING ACTIVITIES
Proceeds from sale/maturity of fixed maturities 634 585
Proceeds from sale of equity securities 4 4
Proceeds from sale of mortgage loans 104 27
Purchases of fixed maturities (253) (269)
Purchases of equity securities -- (4)
Purchases of mortgage loans (8) (14)
Net increase in short-term investments (245) 29
Net purchases of property and equipment (36) (15)
Other increases (1) --
----- -----
Net cash provided by investing activities 199 343
----- -----
FINANCING ACTIVITIES
Dividends paid (50) (25)
----- -----
Net cash used in financing activities (50) (25)
----- -----
Increase in cash and cash equivalents 337 84
Cash and cash equivalents, beginning of year 284 200
----- -----
Cash and cash equivalents, end of year $ 621 $ 284
===== =====
</TABLE>
See note to unaudited pro forma combined financial statements.
4
<PAGE>
THE METRAHEALTH BUSINESS
NOTE TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The accompanying unaudited pro forma combined financial statements do not
include all disclosures required under generally accepted accounting principles
and have not been prepared in accordance with Article 11 of Regulation S-X.
The accompanying pro forma combined financial statements are not necessarily
indicative of the results that would have occurred had the group health care
benefits businesses of the Predecessor Companies defined below been combined
operationally during 1994 and 1993, and are presented for illustrative purposes
only.
1. Basis of Presentation
Effective January 1, 1995, Metropolitan Life Insurance Company ("MetLife")
and The Travelers Insurance Group Inc. ("Travelers"), collectively the
"Predecessor Companies", contributed certain affiliates, cash, operating
assets, personnel and intellectual property relating to their group health
care benefits businesses to a corporate joint venture, The MetraHealth
Companies Inc. ("MetraHealth"). In addition, MetLife and Travelers agreed to
contribute to MetraHealth the economic results associated with insurance
policies in-force at January 1, 1995, either upon direct renewal or through
indemnity reinsurance arrangements with MetLife and Travelers, at the first
policy renewal date after December 31, 1994. MetraHealth also entered into
separate administrative agreements with MetLife and Travelers which
transferred the economic results associated with administrative services
only contracts to MetraHealth effective January 1, 1995.
The unaudited pro forma combined financial statements have been derived from
the 1994 and 1993 audited financial statements of each of the Predecessor
Companies, as adjusted and/or reclassified to reflect the Predecessor
Companies presentation on a basis consistent with that of the business
acquired as presented in The MetraHealth Business September 30, 1995
combined financial statements and for items which were not a part of the
businesses contributed to MetraHealth effective January 1, 1995.
These adjustments, reflected herein, consist of:
- The statement of net assets has been adjusted from an unclassified basis
of presentation to a classified basis to be consistent with the 1995
presentation.
- The statement of net assets and the statements of operations, changes in
net assets, and cash flows, have been adjusted to eliminate the financial
results of two fully insured contracts included in the Predecessor
Companies audited results and to include the financial results of such
contracts as administrative services only arrangements consistent with
the contractual arrangement in effect in 1995 and forward. The impact on
net income for 1994 and 1993 was not material.
- The statement of operations for 1994 was adjusted to reflect a consistent
allocation of corporate overhead expenses with 1993. The impact of
this adjustment on 1994 net income was a reduction of $8 million.
- The exclusion from the statement of net assets of assets and liabilities
of the Predecessor Companies that were not transferred or contributed to
MetraHealth.
5
<PAGE>
THE MANAGED CARE AND EMPLOYEE BENEFITS OPERATIONS
MEDICAL DIVISION OF THE TRAVELERS INSURANCE GROUP INC.
Combined Financial Statements
for the years ended December 31, 1994 and 1993
<PAGE>
THE MANAGED CARE AND EMPLOYEE BENEFITS OPERATIONS
MEDICAL DIVISION OF THE TRAVELERS INSURANCE GROUP INC.
COMBINED FINANCIAL STATEMENTS
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report 1
Combined Financial Statements:
Combined Statement of Operations for the years ended December 31, 1994 and 1993 2
Combined Statement of Assets and Liabilities at December 31, 1994 3
Combined Statement of Cash Flows for the years ended December 31, 1994 and 1993 4
Notes to Combined Financial Statements 5-21
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholder of
The Travelers Insurance Group Inc.:
We have audited the accompanying combined statement of assets and liabilities of
The Managed Care and Employee Benefits Operations Medical Division ("Medical")
of The Travelers Insurance Group Inc. and Subsidiaries (the "Company") as of
December 31, 1994, and the related combined financial statements of operations
and cash flows for each of the years in the two-year period ended December 31,
1994 (the "combined financial statements"). These combined financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the
financial statements. We believe that our audits provide a reasonable basis for
our opinion.
The accompanying combined financial statements reflect a carve out of a line of
business from a consolidated group of companies rather than a complete legal
entity. See Note 1 to the combined financial statements for a description of
the basis of presentation.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of The Managed
Care and Employee Benefits Operations Medical Division of The Travelers
Insurance Group Inc. and Subsidiaries as of December 31, 1994, and the combined
results of operations and cash flows for each of the years in the two-year
period ended December 31, 1994, in conformity with generally accepted accounting
principles.
As discussed in Note 2 to the combined financial statements, Medical adopted the
provisions of Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities" in 1994.
KPMG Peat Marwick LLP
Hartford, Connecticut
May 31, 1995, except as to Notes 1, 5, and 11,
which are as of December 8, 1995.
1
<PAGE>
THE MANAGED CARE AND EMPLOYEE BENEFITS OPERATIONS
MEDICAL DIVISION OF THE TRAVELERS INSURANCE GROUP INC.
COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
(for the year ended December 31, in millions) 1994 | 1993
- --------------------------------------------- ------- | -------
<S> <C> <C>
REVENUES |
Premiums $2,022 | $2,180
Fees 589 | 575
Net investment income 48 | 71
Realized investment gains (losses) (1) | 18
Other 5 | 13
- ----------------------------------------------- ------ | ------
Total revenues 2,663 | 2,857
- ----------------------------------------------- ------ | ------
|
BENEFITS AND EXPENSES |
Current and future insurance benefits 1,668 | 1,851
Claim settlement expenses 175 | 221
Commission expenses 105 | 89
General and administrative expenses 574 | 565
- ----------------------------------------------- ------ | ------
Total benefits and expenses 2,522 | 2,726
- ----------------------------------------------- ------ | ------
|
Income before federal income taxes 141 | 131
- ----------------------------------------------- ------ | ------
|
Federal income taxes: |
Current 57 | 39
Deferred (7) | (2)
- ----------------------------------------------- ------ | ------
Total federal income taxes 50 | 37
- ----------------------------------------------- ------ | ------
|
Net income $ 91 | $ 94
=============================================== ====== | ======
</TABLE>
See notes to combined financial statements.
2
<PAGE>
THE MANAGED CARE AND EMPLOYEE BENEFITS OPERATIONS
MEDICAL DIVISION OF THE TRAVELERS INSURANCE GROUP INC.
COMBINED STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
(at December 31, in millions) 1994
- --------------------------------------------------------------------- -------
<S> <C>
ASSETS
Fixed maturities, available for sale, at market (cost, $554) $ 531
Mortgage loans 4
Cash and cash equivalents 14
Short-term securities 447
- --------------------------------------------------------------------- ------
Total investments 996
- --------------------------------------------------------------------- ------
Investment income accrued 8
Premium and fees receivable, net 119
Deferred federal income taxes 172
Due from other MCEBO division 84
Other assets 140
- --------------------------------------------------------------------- ------
Total assets $1,519
===================================================================== ======
LIABILITIES
Future policy benefits $ 856
Unearned premium reserve 42
Other liabilities 495
- --------------------------------------------------------------------- ------
Total liabilities $1,393
===================================================================== ======
</TABLE>
See notes to combined financial statements.
3
<PAGE>
THE MANAGED CARE AND EMPLOYEE BENEFITS OPERATIONS
MEDICAL DIVISION OF THE TRAVELERS INSURANCE GROUP INC.
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
(for the year ended December 31, in millions) 1994 | 1993
- ------------------------------------------------------------- ------ | ------
<S> <C> <C>
Cash Flows From Operating Activities |
Net Income $ 91 | $ 94
Adjustments to reconcile net income to cash provided |
by (used in) operating activities: |
Depreciation and amortization 9 | 9
Realized investment (gains) losses 1 | (18)
Deferred federal income taxes (7) | (2)
Changes in operating assets and liabilities: |
Investment income accrued 5 | -
Premium and fees receivable, net (10) | 13
Other assets (82) | (86)
Due from other MCEBO division 3 | (87)
Future policy benefits 12 | (208)
Unearned premium reserve (13) | (8)
Other liabilities 110 | (3)
----- | -----
Net cash provided by (used in) operating activities 119 | (296)
----- | -----
|
Cash Flows From Investing Activities |
Proceeds from sale of fixed maturities within the Company 535 | 223
Proceeds from sale of fixed maturities outside the Company 21 | 217
Proceeds from sale of equity securities 4 | 4
Proceeds from sale of mortgage loans 99 | 2
Proceeds from maturities of fixed maturities 78 | 126
Proceeds from maturities of mortgage loans 5 | 25
Purchase of fixed maturities (526) | (269)
Purchase of equity securities - | (4)
Purchase of mortgage loans (8) | (14)
Net increase in short-term investments (368) | (44)
Net purchases of property and equipment (13) | (11)
----- | -----
Net cash provided by (used in) investing activities (173) | 255
----- | -----
|
Decrease in cash and cash equivalents (54) | (41)
|
Cash and cash equivalents, beginning of year 68 | 109
----- | -----
Cash and cash equivalents, end of year $ 14 $ 68
===== =====
Supplemental disclosure of cash flow information
Income taxes paid $ 60 $ 41
===== =====
</TABLE>
See notes to combined financial statements.
4
<PAGE>
THE MANAGED CARE AND EMPLOYEE BENEFITS OPERATIONS
MEDICAL DIVISION OF THE TRAVELERS INSURANCE GROUP INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The combined financial statements and accompanying notes have been prepared
in accordance with generally accepted accounting principles to reflect the
operations of The Managed Care and Employee Benefits Operations (MCEBO)
Medical Division (Medical) of The Travelers Insurance Group Inc. and
Subsidiaries (the Company). Medical is a subset of MCEBO's Health business
and is not a legal entity but conducts managed care and indemnity medical
insurance business through The Travelers Insurance Company (TIC) and The
MetraHealth Insurance Company (Metra) (formerly The Travelers Insurance
Company of Illinois). Medical conducts noninsurance business through The
Travelers Employee Benefits Company and its subsidiaries (TEBCO).
The following is a brief business description of TEBCO's significant
subsidiaries:
. ConServCo, Inc. provides utilization review, case management, vocational
rehabilitation, hospital bill audit, and computerized medical bill review
services.
. U.S. Behavioral Health provides managed mental health and substance abuse
programs and employee assistance programs to employers, associations and
government entities.
. The Center for Corporate Health, Inc. is a provider of health
communication materials and health counseling services.
. The Travelers Health Network, Inc. owns and operates health maintenance
organizations (HMOs) in several states.
. The Travelers Plan Administrators, Inc. is a national network of third
party administrators.
. The Travelers Telebrokerage, Inc. markets and sells MCEBO's small group
products nationally through general agents and a network of brokers.
. ProAmerica Managed Care, Inc. is a preferred provider organization.
These combined financial statements reflect assets and liabilities related
to Medical. The Medical combined financial statements do not include the
capital accounts of TIC and Metra that are required to write insurance
business or the related earnings on the net assets that support such capital
accounts. In addition, these combined financial statements do not include
certain corporate expenses that are unrelated to the operation of the
Medical business, such as corporate advertising. Therefore, the Medical
combined financial statements reflect a "carve out" of a line of business
from the consolidated group of companies rather than a complete legal
entity.
In December 1992, Primerica Corporation (Primerica) acquired approximately
27% of the common stock of the Company's parent (The Travelers Corporation)
(the Acquisition).
5
<PAGE>
THE MANAGED CARE AND EMPLOYEE BENEFITS OPERATIONS
MEDICAL DIVISION OF THE TRAVELERS INSURANCE GROUP INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Basis of Presentation, continued
Effective December 31, 1993, Primerica acquired the approximately 73% of The
Travelers Corporation common stock which it did not already own, and The
Travelers Corporation was merged into Primerica, which was renamed Travelers
Group Inc. (the Merger).
The Acquisition and the Merger are being accounted for as a "step
acquisition". The step acquisition method of purchase accounting requires
that the assets and liabilities of Medical be recorded at the fair values
determined at each acquisition date (i.e., 27% of values at December 31,
1992 as carried forward and 73% of the values at December 31, 1993).
Evaluation and appraisal of assets and liabilities, including investments,
other insurance assets and liabilities and related deferred income taxes
were completed during 1994.
The combined statement of operations, the combined statement of cash flows
and the related accompanying notes for the year ended December 31, 1994,
which are presented on a purchase accounting basis, are separated from the
corresponding 1993 information, which is presented on a historical
accounting basis, to indicate the difference in valuation bases.
Certain prior year amounts have been reclassified to conform with the 1994
presentation.
MetraHealth Transaction
On January 3, 1995, the Company, Metropolitan Life Insurance Company, and
their affiliates completed the formation of The MetraHealth Companies, Inc.
(MetraHealth), a joint venture of their medical businesses, by contributing
their group medical businesses to MetraHealth, in exchange for shares of
common stock of MetraHealth. The assets transferred included cash, fixed
assets, customer lists, books and records, certain trademarks and other
assets used exclusively or primarily in the medical businesses. The Company
also contributed all of the capital stock of Metra and TEBCO to MetraHealth.
In connection with the formation of the joint venture, the transfer of the
fee based medical business (Administrative Services Only) and other
noninsurance business to MetraHealth was completed on January 3, 1995. As
the medical insurance business of the Company comes due for renewal, the
risks will be transferred to MetraHealth. In the interim, the related
operating results for this medical insurance business will be reported by
the Company.
The accompanying combined financial statements of Medical portray the assets
and liabilities at December 31, 1994 and the revenues and expenses for the
years ended December 31, 1994 and 1993, irrespective of whether the assets
or liabilities giving rise to such revenues and expenses were transferred to
MetraHealth.
6
<PAGE>
THE MANAGED CARE AND EMPLOYEE BENEFITS OPERATIONS
MEDICAL DIVISION OF THE TRAVELERS INSURANCE GROUP INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Basis of Presentation, continued
Operations
MCEBO provides a variety of life and health products, such as group life and
accident and health insurance, managed health care, and administrative
services associated with employee benefit plans. Medical represents a
substantial portion of the Health business (Health) of MCEBO. MCEBO's
products are sold through group contracts to employers, employee
associations and trusts and other organizations ranging in size from small
local employers to very large multinational corporations. Insurance
contracts can be either prospectively rated or retrospectively experience
rated. Additionally, the customer is offered fully funded or alternatively
funded payment options. In many cases, such life and health coverages are
provided for in one contractual relationship with the customer, and the
experience across all defined products and services impacts the setting of
the rates and the determination of the total amount of premiums to be
charged or refunded. Since MCEBO's total contractual agreement with a
customer determines the total ultimate revenue, results of operations on a
product basis are impacted by the methodology utilized to allocate the
aggregate retrospective rate credit reserve (retro reserve) to individual
products. Allocations to individual products are determined as a function of
the ratio of estimated current year margin contribution by product to the
total estimated margin prior to the determination of the actual aggregate
retro reserve. This allocation methodology does not specifically measure the
margins that would be attributable to the individual products if they had
been written on a stand alone basis. Medical's businesses share with other
of the Company's businesses certain functions and facilities and jointly
market certain products and services. Accordingly, the combined financial
statements include allocations for the cost of shared services and
facilities as described below.
Allocation Methodologies
Generally, MCEBO maintains product level financial information for its Life
and Health products and its noninsurance subsidiaries. In preparing
Medical's combined financial statements, management performed a detailed
review of all Health financial information and developed methodologies,
through specific identification and allocations, as well as actuarial
models, to determine financial information for Medical and each of the Non-
medical products. The Non-medical portion of Health is comprised of dental,
weekly indemnity, accidental death and dismemberment, long-term care, long-
term disability (LTD) and vision.
Premiums and paid insurance benefits were specifically identified for
Medical and Non-medical. Future insurance benefit reserves were established
by developing aggregate Health reserves and then excluding the Non-medical
portion. Retro reserves were determined by individual product as a function
of the ratio of estimated current year margin contribution by product to the
total estimated margin prior to the determination of the actual aggregate
retro reserve. If specific product level historical data was available with
respect to the portion of the reserve pertaining to prior years experience,
it is possible this allocation may have been different. However, management
believes any difference would likely be immaterial. Claim settlement
expenses and general and administrative expenses, as well as related
liabilities, were allocated to Medical based on a review of product specific
headcount, direct departmental expense and overall expense levels as they
relate to the actuarial
7
<PAGE>
THE MANAGED CARE AND EMPLOYEE BENEFITS OPERATIONS
MEDICAL DIVISION OF THE TRAVELERS INSURANCE GROUP INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Basis of Presentation, continued
assumptions made in pricing the products. Commission expenses and related
liabilities were allocated based on premiums. Premium balances receivable,
net of allowances for uncollectible amounts, and reinsurance recoverables
were determined based on policy and product specific detail.
Invested assets related to certain Non-medical products, primarily LTD
coverages, are specifically identifiable. Invested assets related to other
Non-medical and Medical products were allocated based on the proportion of
the future insurance benefit reserves (claim, unearned premium and retro
reserves) less the applicable premium balances receivable for those
products, to the total for Health, excluding those invested assets
specifically identifiable to Medical and Non-medical businesses. Cash and
short-term securities were allocated based on the proportion of the invested
assets of Medical to total invested assets of Health. Cash flows from
investing activities in the Combined Statement of Cash Flows were derived
using the same methodology as described above. Investment income accrued
was allocated based on the proportion of the fixed maturities of Medical to
the total fixed maturities of Health, except for that specifically
identified for LTD. Net investment income and realized and unrealized
investment gains and losses, excluding LTD, were allocated based on the
proportion of average invested assets of Medical using the beginning and end
of year balances (allocated as described above) to total average invested
assets of Health.
Fees on Modified Minimum Premium (MMP) contracts were allocated to Medical
and Non-medical based on policy and product specific detail. Fees on
Administrative Services Only (ASO) contracts were allocated to Medical and
Non-medical based on the results of a study that included policy specific
analyses and estimates based on historical experience. A sample of policies
was reviewed to determine product related revenue characteristics. Those
revenue characteristics were related to actual claims paid by product to
derive Medical and Non-medical allocations of ASO fees. Fees receivable were
allocated in proportion to fee revenues.
Health and the other operations of the Company share various common
corporate systems and support functions, with the related costs and
associated liabilities being charged to the respective units on specific
allocation methods. These functions include human resources, investments,
payroll, treasury, accounts payable and other processing and administrative
services. Beginning in 1994, concurrent with the Acquisition and the Merger,
certain administrative functions became direct responsibilities of the
operating units and the Company changed or ceased the allocation of the
costs of certain other administrative functions. The application in 1994 of
the allocation methods used in 1993 would have increased Medical's 1994
expenses by approximately $12 million on a pre-tax basis. The total amounts
allocated to Medical were approximately $24 million and $40 million during
1994 and 1993, respectively, which are included in general and
administrative expenses. These allocations would not necessarily represent
the amounts that would have been incurred on a separate company basis.
Other assets and other liabilities related to employee benefits were
allocated to Medical and Non-medical based on the proportion of salary
expense allocated to these products to total salary expense for Health.
An income tax provision has been allocated as if Medical filed on a separate
return basis (see note 8).
8
<PAGE>
THE MANAGED CARE AND EMPLOYEE BENEFITS OPERATIONS
MEDICAL DIVISION OF THE TRAVELERS INSURANCE GROUP INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Investments
Fixed maturities include bonds and redeemable preferred stocks. Fixed
maturities are valued based upon quoted market prices, or if quoted market
prices are not available, discounted expected cash flows using market rates
commensurate with the credit quality and maturity of the investment.
Securities are classified as "available for sale" and are reported at fair
value (see note 2). As of December 31, 1993, in conjunction with the
Merger, all fixed maturities were classified as "available for sale" and
recorded at the lower of aggregate cost or market value. Prior to the
Merger, the majority of the fixed maturities were carried at amortized cost,
since Medical had the ability and intent to hold these securities (excluding
trading portfolio securities) on a long-term basis. Trading portfolio
securities, consisting of fixed maturities that were likely to be sold prior
to maturity, were carried at current market value. Transfers of securities
from the amortized cost portfolio to the trading portfolio resulted in
adjustments to unrealized investment gains or losses.
Equity securities, which include common and nonredeemable preferred stocks,
are available for sale and carried at fair value based primarily on quoted
market prices.
Mortgage loans are carried at amortized cost.
Cash and short-term securities are carried at cost.
Gains or losses arising from future contracts used to hedge investments are
treated as basis adjustments and are recognized in income over the life of
the hedged investment.
Gains or losses arising from forward contracts used to hedge foreign
investments in Medical's U.S. portfolios are a component of realized
investment gains and losses.
Accrual of income is suspended on fixed maturities or mortgage loans that
are in default, or on which it is likely that future interest payments will
not be made as scheduled. Interest income on investments in default is
recognized only as payment is received.
Investment Gains and Losses
Realized investment gains and losses are included as a component of pretax
revenues based upon specific identification of the investments sold on the
trade date and, prior to the Merger, included adjustments to investment
valuation reserves. These adjustments reflected changes considered to be
other than temporary in the net realizable value of investments. Also
included are gains and losses arising from the translation of the local
currency value of foreign investments to U.S. dollars, the functional
currency of Medical.
Due From Other MCEBO Division
Due from other MCEBO division represents the assets, including accrued
interest earned thereon, which support customers' premium deposit fund
balances which are included in the liability for future policy benefits.
9
<PAGE>
THE MANAGED CARE AND EMPLOYEE BENEFITS OPERATIONS
MEDICAL DIVISION OF THE TRAVELERS INSURANCE GROUP INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Cash and Cash Equivalents
Cash and cash equivalents are highly liquid investments with an original
maturity of three months or less when purchased which are invested in a
money market liquidity pool.
Premiums
Premiums are recognized as revenues when due. Unearned premium reserves are
established for the portion of premiums that will be earned in future
periods. The reserve for estimated uncollectible amounts at December 31,
1994 was $19 million.
Fees
Fees are recognized as revenues when due and represent fees on ASO and MMP
contracts, and fees charged by noninsurance subsidiaries.
Other Revenues
Other revenues include gains and losses on dispositions of assets other than
realized investment gains and losses, and revenues, other than fees, of
noninsurance subsidiaries.
Future Policy Benefits
Policy and contract benefits, principally related to accident and health
insurance policies, are based on reported losses and estimates of incurred
but not reported losses, both of which are regularly adjusted based on
historical experience and the latest available information. These
adjustments are recorded currently.
Retro reserves for eligible contracts are determined based on premiums
received in excess of claims and expenses incurred. Refunds for closed
policy years are based on actual reported claims and expenses while a refund
liability for open years is based on estimates of claims and expenses
incurred.
Federal Income Taxes
The provision for federal income taxes is comprised of two components,
current income taxes and deferred income taxes. The provision for deferred
federal income taxes arises from changes in Medical's deferred federal
income tax asset during the year. The deferred federal income tax asset is
recognized to the extent that future realization of the tax benefit is more
likely than not, with a valuation allowance for the portion that is not
likely to be recognized.
10
<PAGE>
THE MANAGED CARE AND EMPLOYEE BENEFITS OPERATIONS
MEDICAL DIVISION OF THE TRAVELERS INSURANCE GROUP INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Accounting Standards Not Yet Adopted
Statement of Financial Accounting Standards No. 114, "Accounting by
Creditors for Impairment of a Loan," and Statement of Financial Accounting
Standards No. 118, "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures," describe how impaired loans should be
measured when determining the amount of a loan loss accrual. These
statements also amend existing guidance on the measurement of restructured
loans in a troubled debt restructuring involving a modification of terms.
The adoption of these statements, effective January 1, 1995, will not have a
material effect on the combined statement of assets and liabilities or the
combined statement of operations.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (FAS 123). This statement addresses alternative accounting
treatments for stock-based compensation, such as stock options and
restricted stock. FAS 123 permits either expensing the value of stock-based
compensation over the period earned or disclosing in the financial statement
footnotes the pro forma impact to net income as if the value of stock-based
compensation awards had been expensed. The value of awards would be measured
at the grant date based upon estimated fair value, using option pricing
models. The requirements of this statement will be effective for 1996
financial statements, although earlier adoption is permissible if any entity
elects to expense the cost of stock-based compensation. Medical along with
affiliated companies participates in stock option and incentive plans
sponsored by the parent. Medical is currently evaluating the disclosure
requirements and expense recognition alternatives addressed by this
statement.
2. CHANGES IN ACCOUNTING PRINCIPLES
Accounting for Certain Debt and Equity Securities
Effective January 1, 1994, Medical adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" (FAS 115), which addresses accounting and reporting of
investments in equity securities that have a readily determinable fair value
and for all debt securities. Investment securities have been classified as
"available for sale" and are reported at fair value. See note 10 for
additional disclosure.
Accounting and Reporting for Reinsurance Contracts
In the first quarter of 1993, Medical implemented Statement of Financial
Accounting Standards No. 113, "Accounting and Reporting for Reinsurance of
Short-Duration and Long-Duration Contracts" (FAS 113). FAS 113 requires the
reporting of reinsurance receivables and prepaid reinsurance premiums as
assets and precludes the immediate recognition of gains for all reinsurance
contracts unless the liability to the policyholder has been extinguished.
Implementation of FAS 113 did not have an impact on Medical's earnings,
however, assets and liabilities increased by like amounts. See note 3 for
additional reinsurance disclosures.
11
<PAGE>
THE MANAGED CARE AND EMPLOYEE BENEFITS OPERATIONS
MEDICAL DIVISION OF THE TRAVELERS INSURANCE GROUP INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
3. REINSURANCE
Medical participates in reinsurance at the direction of its customers to
effect business sharing arrangements with other insurance companies.
Medical remains primarily liable as the direct insurer on all risks
reinsured.
Additionally, The Travelers Health Network, Inc. (THN) participates in a
reinsurance agreement which provides excess loss coverage for its HMOs.
Under the terms of the reinsurance agreement, THN is reimbursed 90% and 80%
of covered expenses for per diem and non-per diem hospitals, respectively,
with a limit of $1,750 per day for in-service area confinements, once a
$250,000 deductible per plan member is satisfied. For out-of-area emergency
confinements, THN is reimbursed 80% of covered hospital expenses with a
limit of $2,500 per day, once a $10,000 deductible per plan member is
satisfied. This agreement limits the liabilities of the reinsurer to
$1,000,000 per plan member per contract year with a $2,000,000 lifetime
maximum benefit per plan member.
Reinsurance recoverables were $9 million at December 31, 1994, and are
included in other assets.
4. DISCLOSURE ABOUT DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF
FINANCIAL INSTRUMENTS
Medical has, as part of its investing activity, provided fixed rate loan
commitments and commitments to partnerships. Also, Medical uses forward
contracts as a means of prudently hedging exposure to foreign currency rate
risk on existing assets. Medical does not hold or issue derivative
instruments for trading purposes.
These derivative financial instruments have off-balance-sheet risk.
Financial instruments with off-balance-sheet risk involve, to varying
degrees, elements of credit and market risk in excess of the amount
recognized in the combined statement of assets and liabilities. The
contract or notional amounts of these instruments reflect the extent of
involvement Medical has in a particular class of financial instrument.
However, the maximum credit loss or cash flow associated with these
instruments can be less than these amounts. For unfunded commitments,
credit exposure is the contractual amount of the unfunded commitments.
Medical monitors creditworthiness of counterparties to these financial
instruments by using criteria of acceptable risk that are consistent with
on-balance-sheet financial instruments. The controls include credit
approvals, limits and other monitoring procedures. Many transactions
include the use of collateral to minimize credit risk and lower the
effective cost to the borrower.
Medical has outstanding at any given time commitments to fund partnerships.
Generally these are forward commitments for investment purposes.
The off-balance-sheet risks of forward contracts and commitments were not
significant at December 31, 1994.
12
<PAGE>
THE MANAGED CARE AND EMPLOYEE BENEFITS OPERATIONS
MEDICAL DIVISION OF THE TRAVELERS INSURANCE GROUP INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
4. DISCLOSURE ABOUT DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF
FINANCIAL INSTRUMENTS, continued
Fair Value of Certain Financial Instruments
Medical uses various financial instruments in the normal course of its
business. Fair values of financial instruments which are considered
insurance contracts are not required to be disclosed and are not included in
the amounts discussed.
At December 31, 1994, investments in fixed maturities have a fair value of
$531 million. See note 10.
At December 31, 1994, mortgage loans have a carrying value of $4 million,
which approximates fair value. In estimating fair value, Medical used a
discounted cash flow approach using interest rates reflecting the higher
returns required in the current real estate financing market.
The carrying value of $28 million of financial instruments classified as
other assets approximates their fair value at December 31, 1994. The
carrying value of $150 million of financial instruments classified as other
liabilities also approximates their fair value at December 31, 1994. Fair
value is determined using various methods including discounted cash flows
and carrying value, as appropriate for the various financial instruments.
The carrying values of cash and short-term securities, due from other MCEBO
division and investment income accrued approximate their fair values.
5. COMMITMENTS AND CONTINGENCIES
Financial Instruments with Off-Balance-Sheet Risk
See Note 4 for a discussion of financial instruments with off-balance-sheet
risk.
Contingencies
The increase in the number of insurance companies under regulatory
supervision is expected to result in an increase in assessments by state
guaranty funds to cover losses to policyholders of insolvent or
rehabilitated companies. Mandatory assessments may be partially recovered
through a reduction in future premium taxes in some states. Medical
recognizes such costs upon assessment.
Litigation
Listed below are certain matters pertaining to the operations of Medical.
In December 1993, TIC and National Medical Enterprises, Inc. (NME) executed
an agreement in principal to settle lawsuits brought by both parties arising
out of alleged fraudulent practices by NME during the years 1988 through
1992. TIC received the settlement, including interest, in 1994. Most of the
proceeds were distributed back to TIC's customers.
13
<PAGE>
THE MANAGED CARE AND EMPLOYEE BENEFITS OPERATIONS
MEDICAL DIVISION OF THE TRAVELERS INSURANCE GROUP INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
5. COMMITMENTS AND CONTINGENCIES, continued
Litigation, continued
In April 1989 a lawsuit was filed on behalf of the Federal government
alleging TIC improperly handled health benefit claims for individuals who are
actively employed and eligible for Medicare Coverage. In 1993 Medical
recorded a provision of $10 million for this litigation. In September 1995,
TIC reached a settlement with respect to this action. The agreement resolves
all claims against Travelers Group Inc. and certain of its subsidiaries. TIC
anticipates that the action will be dismissed in accordance with the
settlement agreement before year end 1995. This settlement did not have a
material effect on Medical's financial condition.
The Company is a defendant or codefendant in various litigation matters.
Although there can be no assurances, as of December 31, 1994, the Company
believes, based on information currently available, that the ultimate
resolution of these legal proceedings would not be likely to have a material
adverse effect on Medical's results of operations, financial condition or
liquidity.
6. BENEFIT PLANS
Pension Plans
Medical participates in a retirement plan sponsored by the Company. The plan
is a noncontributory defined benefit pension plan covering the majority of
Medical's U.S. employees. Benefits for the plan are based on an account
balance formula. Under this formula, each employee's accrued benefit can be
expressed as an account that is credited with amounts based upon the
employee's pay, length of service and a specified interest rate, all subject
to a minimum benefit level. This plan is funded in accordance with the
Employee Retirement Income Security Act of 1974 and the Internal Revenue
Code. Medical's share of net pension expense was $3 million for both 1994
and 1993 and was allocated as described in note 1.
Other Benefit Plans
In addition to pension benefits, Medical provides certain health care and
life insurance benefits for retired employees through a plan sponsored by the
Company. Covered employees may become eligible for these benefits if they
reach retirement age while working for Medical. These retirees may elect
certain prepaid health care benefit plans. Life insurance benefits generally
are set at a fixed amount. The cost recognized by Medical of approximately
$10 million and $11 million for these benefits in 1994 and 1993,
respectively, represents its allocated share of the total costs of the plan,
net of employee contributions and was allocated as described in note 1.
Included within other liabilities is $152 million pertaining to the liability
for postretirement benefits at December 31, 1994, which was allocated to
Medical based upon census data.
The Merger resulted in a change in control of The Travelers Corporation as
defined in the applicable plans, and provisions of some employee benefit
plans secured existing compensation and benefit entitlements earned prior to
the change in control, and provided a salary and benefit continuation floor
for employees whose employment was affected. The costs related to these
changes have been assumed by the Company.
14
<PAGE>
THE MANAGED CARE AND EMPLOYEE BENEFITS OPERATIONS
MEDICAL DIVISION OF THE TRAVELERS INSURANCE GROUP INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
6. BENEFIT PLANS, continued
Savings, Investment and Stock Ownership Plans
Under the savings, investment and stock ownership plan available to
substantially all employees of the Company, Medical matches a portion of
employee contributions. Effective April 1, 1993, the match decreased from
100% to 50% of an employee's first 5% contribution and a variable match based
on the Company's profitability was added. Medical's matching obligation was
approximately $5 million and $7 million in 1994 and 1993, respectively, and
was allocated as described in note 1.
The Travelers Plan Administrators, Inc. and U.S. Behavioral Health each
sponsor a defined contribution 401(k) plan which covers substantially all
their employees. The Travelers Telebrokerage, Inc. sponsors a profit-sharing
plan for qualified employees.
7. RELATED PARTY TRANSACTIONS
The principal banking functions for certain subsidiaries and affiliates of
the Company, and salaries and expenses for the Company and its insurance
subsidiaries, are handled by TIC. Settlements for these banking and expense
processing functions between TIC and its affiliates are made regularly. TIC
provides various insurance coverages, principally life and health, to certain
subsidiaries of the Company. The premiums for these coverages were charged
in accordance with normal cost allocation procedures. In addition,
investment advisory and management services, data processing services and
claims processing services are provided by affiliated companies.
The Company maintains short-term investment pools in which Medical
participates. The positions of each company participating in the pools are
calculated and adjusted daily. At December 31, 1994, the pool totaled
approximately $1.5 billion. Medical had a $54 million overdraft from the
pool at December 31, 1994. These amounts are included in short-term
securities in the combined statement of assets and liabilities.
15
<PAGE>
THE MANAGED CARE AND EMPLOYEE BENEFITS OPERATIONS
MEDICAL DIVISION OF THE TRAVELERS INSURANCE GROUP INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
8. FEDERAL INCOME TAXES
<TABLE>
<CAPTION>
(in millions) 1994 | 1993
- ---------------------------------------------------------- ------ | ------
<S> <C> | <C>
|
Effective tax rate |
- ---------------------------------------------------------- |
|
Income before federal income taxes $ 141 | $ 131
- ---------------------------------------------------------- ----- | -----
Statutory tax rate 35% | 35%
- ---------------------------------------------------------- ----- | -----
|
Expected federal income taxes $ 49 | $ 46
Tax effect of: |
Nontaxable investment income - | (1)
Adjustment to deferred tax asset for |
enacted change in tax rates from 34% to 35% - | (5)
Other 1 | (3)
- ---------------------------------------------------------- ----- | -----
Federal income taxes $ 50 | $ 37
- ---------------------------------------------------------- ----- | -----
|
Effective tax rate 35% | 28%
- ---------------------------------------------------------- ----- | -----
|
Composition of federal income taxes |
- ---------------------------------------------------------- |
|
Current: |
United States $ 57 | $ 39
|
Deferred: |
United States (7) | (2)
- ---------------------------------------------------------- ----- | -----
Federal income taxes $ 50 | $ 37
- ---------------------------------------------------------- ----- | -----
</TABLE>
16
<PAGE>
THE MANAGED CARE AND EMPLOYEE BENEFITS OPERATIONS
MEDICAL DIVISION OF THE TRAVELERS INSURANCE GROUP INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
8. FEDERAL INCOME TAXES, continued
The net deferred tax asset at December 31, 1994 was comprised of the tax
effects of the temporary differences related to the following assets and
liabilities:
<TABLE>
<CAPTION>
(in millions) 1994
- ------------------------------------------------------ ------
<S> <C>
Deferred tax assets:
Future policy benefits $ 96
Other employee benefits 16
Reserve for postretirement benefits 53
Investments 7
Other 12
- ------------------------------------------------------ -----
Total 184
- ------------------------------------------------------ -----
Deferred tax liabilities:
Prepaid pension expense 9
- ------------------------------------------------------ -----
Net deferred tax asset before valuation allowance 175
Valuation allowance for deferred tax assets (3)
- ------------------------------------------------------ -----
Net deferred tax asset after valuation allowance $ 172
- ------------------------------------------------------ -----
</TABLE>
Medical is included in three tax return groups in 1994. Starting in 1994 and
continuing for at least five years, TIC and its life insurance subsidiaries
file a consolidated federal income tax return. Also starting in 1994, the
Company's property casualty companies are included in a consolidated federal
income tax return with Travelers Group Inc. and its nonlife insurance
subsidiaries. TEBCO files a separate consolidated federal income tax return
with its subsidiaries starting in 1994.
Federal income taxes for each of the returns are allocated to individual
members of each consolidated return on a separate return basis adjusted for
credits and other amounts required by the consolidation process. Any
resulting liability is paid currently to the common parent of each return.
Medical has no receivable for unreimbursed credits from its previous
allocation agreement with the Company.
A net deferred tax asset valuation allowance of $3 million has been
established to reduce the net deferred tax asset on investment losses to the
amount that, based upon available evidence, is more likely than not to be
realized. Reversal of the valuation allowance is contingent upon the
recognition of future taxable income in TIC's consolidated life insurance
company federal income tax return through 1998, and the consolidated federal
income tax return of Travelers Group Inc. commencing in 1999 or a change in
circumstances which causes the recognition of the benefits to become more
likely than not. There was no net change in the valuation allowance during
1994.
In management's judgment, the $172 million net deferred tax asset after
valuation allowance as of December 31, 1994 is fully recoverable against
expected future years' taxable ordinary income and capital gains. At
December 31, 1994, Medical has no ordinary or capital loss carryforwards.
17
<PAGE>
THE MANAGED CARE AND EMPLOYEE BENEFITS OPERATIONS
MEDICAL DIVISION OF THE TRAVELERS INSURANCE GROUP INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
9. NET INVESTMENT INCOME
<TABLE>
<CAPTION>
(For the year ended December 31, in millions) 1994 | 1993
- -------------------------------------------------------------- ----- | -----
<S> <C> | <C>
|
Gross investment income |
- -------------------------------------------------------------- |
Fixed maturities $ 41 | $ 56
Mortgage loans 6 | 12
Other 2 | 4
- -------------------------------------------------------------- ----- | -----
49 | 72
----- | -----
|
Investment expenses 1 | 1
- -------------------------------------------------------------- ----- | -----
Net investment income $ 48 | $ 71
- -------------------------------------------------------------- ----- | -----
</TABLE>
10. INVESTMENTS AND INVESTMENT GAINS (LOSSES)
Realized investment gains (losses) for the periods were as follows:
<TABLE>
<CAPTION>
(For the year ended December 31, in millions) 1994 | 1993
- ------------------------------------------------------------------------- ----- | -----
<S> <C> | <C>
Realized |
- ------------------------------------------------------------------------- |
|
Fixed maturities $ (1) | $ 12
Mortgage loans - | 6
- ------------------------------------------------------------------------- ----- | -----
Realized investment gains (losses) $ (1) | $ 18
- ------------------------------------------------------------------------- ----- | -----
Changes in net unrealized investment gains (losses) were as follows:
(For the year ended December 31, in millions) 1994
- ------------------------------------------------------------------------- -----
Unrealized
- -------------------------------------------------------------------------
Fixed maturities $ (23)
Related taxes (8)
- ------------------------------------------------------------------------- -----
Net unrealized investment losses $ (15)
- ------------------------------------------------------------------------- -----
</TABLE>
Fixed Maturities
Proceeds from sales of fixed maturities classified as available for sale were
$21 million in 1994 (excluding intercompany transactions), resulting in
negligible gross realized gains and gross realized losses. There were no
sales of fixed maturities classified as available for sale in 1993 as, in
conjunction with the Merger, fixed maturities were first classified as
"available for sale" effective December 31, 1993.
Prior to December 31, 1993, fixed maturities that were intended to be held to
maturity were recorded at amortized cost and classified as held for
investment. Sales from the amortized cost portfolios have been made
periodically. Such sales were $9 million in 1993. Gross gains of $1 million
and negligible gross losses in 1993 were realized on those sales.
18
<PAGE>
THE MANAGED CARE AND EMPLOYEE BENEFITS OPERATIONS
MEDICAL DIVISION OF THE TRAVELERS INSURANCE GROUP INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
10. INVESTMENTS AND INVESTMENT GAINS (LOSSES), continued
Fixed Maturities, continued
Prior to December 31, 1993, the carrying values of the trading portfolio
fixed maturities were adjusted to market value as it was likely they would
be sold prior to maturity. Sales of trading portfolio fixed maturities were
$217 million in 1993 (excluding intercompany transactions). Gross gains of
$11 million and negligible gross losses in 1993 were realized on those
sales.
<TABLE>
<CAPTION>
Fixed maturities by investment type
- --------------------------------------------------------------------------------
(in millions) Gross Gross
Amortized unrealized unrealized Market
At December 31, 1994 cost gains losses value
- ------------------------------------- --------- ---------- ---------- ------
<S> <C> <C> <C> <C>
Available for sale:
Mortgage-backed securities -
CMOs and pass through
securities $ 94 $ - $ 6 $ 88
U.S. Treasury securities
and obligations of U.S.
Government and
government agencies
and authorities 191 - 7 184
Obligations of states,
municipalities and
political subdivisions 14 - 1 13
Debt securities issued by
foreign governments 14 - - 14
All other corporate bonds 241 - 9 232
- ------------------------------------- ---- ---------- --- ----
Total $554 $ - $23 $531
- ------------------------------------- ---- ---------- --- ----
</TABLE>
The amortized cost and market value of fixed maturities at December 31, 1994,
by contractual maturity, are shown below. Actual maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Maturity Amortized Market
(in millions) cost value
- --------------------------------------- --------- ------
<S> <C> <C>
Due in one year or less $263 $259
Due after 1 year through 5 years 129 122
Due after 5 years through 10 years 55 50
Due after 10 years 13 12
- --------------------------------------- ---- ----
460 443
Mortgage-backed securities 94 88
- --------------------------------------- ---- ----
$554 $531
---- ----
</TABLE>
Proceeds from sales of equity securities were $1 million in 1994, resulting
in negligible gross realized gains and gross realized losses.
19
<PAGE>
THE MANAGED CARE AND EMPLOYEE BENEFITS OPERATIONS
MEDICAL DIVISION OF THE TRAVELERS INSURANCE GROUP INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
10. INVESTMENTS AND INVESTMENT GAINS (LOSSES), continued
Mortgage loans
--------------
At December 31, 1994, mortgage loan investments totaled $4 million.
Aggregate annual maturities on mortgage loans at December 31, 1994, are as
follows:
<TABLE>
<CAPTION>
(in millions)
- -------------
<S> <C>
1999 $3
Thereafter 1
- --------------- --
$4
--
</TABLE>
Concentrations
At December 31, 1994, Medical had a significant concentration of credit risk
in Exxon Asset Management Company short-term bonds of $130 million.
Medical participates in two short-term investment pools maintained by the
Company. These pools are discussed in note 7.
Included in fixed maturities are below investment grade assets totaling $14
million at December 31, 1994. Medical defines its below investment grade
assets as those securities rated "Ba1" or below by external rating agencies,
or the equivalent by internal analysts when a public rating does not exist.
Such assets include publicly traded below investment grade bonds, highly
leveraged transactions and certain other privately issued bonds that are
classified as below investment grade loans.
Medical also has significant concentrations of credit risk in the following
industries:
<TABLE>
<CAPTION>
(in millions) 1994
- ----------------------------------------------------- -----
<S> <C>
Oil and gas $ 184
Food processing 58
Telecommunications 57
Credit card receivables 53
Electric utilities 50
- ----------------------------------------------------- -----
</TABLE>
Below investment grade assets included in the totals above are as follows:
<TABLE>
<S> <C>
(in millions) 1994
- ------------------------------------------------------- -----
Food processing $ 5
Electric utilities 4
- ------------------------------------------------------- -----
</TABLE>
20
<PAGE>
THE MANAGED CARE AND EMPLOYEE BENEFITS OPERATIONS
MEDICAL DIVISION OF THE TRAVELERS INSURANCE GROUP INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
10. INVESTMENTS AND INVESTMENT GAINS (LOSSES), continued
At December 31, 1994, Medical had no significant concentrations of mortgage
loans.
Medical monitors creditworthiness of counterparties to all financial
instruments by using controls that include credit approvals, limits and
other monitoring procedures. Collateral for fixed maturities often includes
pledges of assets, including stock and other assets, guarantees and letters
of credit. Medical's underwriting standards with respect to new mortgage
loans generally require loan to value ratios of 75% or less at the time of
mortgage origination.
Investment Valuation Reserves
There were no investment valuation reserves at December 31, 1994.
11. SUBSEQUENT EVENT
On October 2, 1995, the Company completed the sale of its ownership in
MetraHealth to United HealthCare Corporation. Gross proceeds to the Company
were $831 million in cash, and could increase by as much as $169 million if
a contingency payment based on 1995 results is made. The gain to the
Company, not including the contingency payment, will be approximately $100
million after-tax and will be recognized in the fourth quarter of 1995.
21
<PAGE>
METROPOLITAN LIFE INSURANCE COMPANY
HEALTH CARE BENEFIT BUSINESS
Combined Financial Statements
For the Years Ended December 31, 1994 and 1993
<PAGE>
INDEPENDENT AUDITORS' REPORT
Metropolitan Life Insurance Company:
We have audited the accompanying combined balance sheet of Metropolitan Life
Insurance Company Health Care Benefit Business (MetLife Health Care Business) as
of December 31, 1994 and the related combined statements of income, changes in
equity and cash flows for the years ended December 31, 1994 and 1993. These
financial statements are the responsibility of Metropolitan Life Insurance
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
Descriptions of the MetLife Health Care Business and the basis of presentation
of these financial statements appear in Note 1.
In our opinion, the combined balance sheet referred to above presents fairly, in
all material respects, the combined financial position of MetLife Health Care
Business at December 31, 1994, and its combined results of operations, changes
in equity and cash flows for the years ended December 31, 1994 and 1993 in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
New York, New York
March 17, 1995, except for note 10 as to which the date is October 2, 1995
<PAGE>
METROPOLITAN LIFE INSURANCE COMPANY
HEALTH CARE BENEFIT BUSINESS
COMBINED BALANCE SHEET
DECEMBER 31, 1994 (In Millions)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Notes 1994
----- ----
<S> <C> <C>
ASSETS
Bonds 2 $ 75
Cash and cash equivalents 8 133
Short-term investments 5 151
Receivable from MetLife 1,8 405
Premiums receivable 166
Regulatory deposits and restricted assets 5 13
Income tax receivable from MetLife 6,8 4
Deferred income tax asset - net 6 20
Other assets 25
Separate account assets 8 181
------
Total Assets $1,173
======
LIABILITIES AND EQUITY
Liabilities
Reserves for medical insurance benefits $ 210
Amounts held for deferred benefits 8 254
Policy and contract claims payable 137
Experience rating credits payable 149
Other liabilities 30
Separate account liabilities 8 181
------
Total Liabilities 961
------
Equity 212
------
Total Liabilities and Equity $1,173
======
</TABLE>
See accompanying notes to combined financial statements.
- --------------------------------------------------------------------------------
2
<PAGE>
METROPOLITAN LIFE INSURANCE COMPANY
HEALTH CARE BENEFIT BUSINESS
COMBINED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993 (In Millions)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Notes 1994 1993
----- ---- ----
<S> <C> <C> <C>
REVENUES
Premiums 8 $1,999 $2,031
Administrative service fees 507 518
Investment income 3,8 38 31
Other 17 22
------ ------
Total revenues 2,561 2,602
------ ------
EXPENSES
Insurance benefits and claims 8 1,139 1,184
Medical service costs 4 344 348
Experience rating credits 8 161 137
Operating costs and expenses 8 819 847
------ ------
Total expenses 2,463 2,516
------ ------
Income before income tax expense 98 86
Income tax expense 6 33 28
------ ------
Net Income $ 65 $ 58
====== ======
</TABLE>
See accompanying notes to combined financial statements.
- --------------------------------------------------------------------------------
3
<PAGE>
METROPOLITAN LIFE INSURANCE COMPANY
HEALTH CARE BENEFIT BUSINESS
COMBINED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993 (In Millions)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Note 1994 1993
---- ---- ----
<S> <C> <C> <C>
Balances at January 1 $ 197 $ 164
Net Income 65 58
Transfer to receivable from MetLife 1 (50) (25)
----- -----
Balance at December 31 $ 212 $ 197
===== =====
</TABLE>
See accompanying notes to combined financial statements.
- --------------------------------------------------------------------------------
4
<PAGE>
METROPOLITAN LIFE INSURANCE COMPANY
HEALTH CARE BENEFIT BUSINESS
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993 (In Millions)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
- -------------------------------------
Net income $ 65 $ 58
Adjustments to reconcile net income to net cash
provided by operating activities:
Decrease in deferred taxes 2 7
Operating costs and expenses 1 3
Changes in operating assets and liabilties:
Receivable from MetLife (3) (72)
Premiums and other receivables 37 21
Other assets - 14
Reserves for medical insurance benefits (37) (23)
Amounts held for deferred benefits 49 46
Policy and contract claims payable 4 (9)
Income tax receiveable from MetLife (5) 1
Other liabilities (11) 15
----- -----
Net cash provided by operating activities 102 61
----- -----
Cash flows from investing activities
- ------------------------------------
Net (increase) decrease in short-term investments (28) 14
Net increase in regulatory deposits (3) (12)
Proceeds from sales/maturity of bonds 41 16
Purchases of bonds (73) -
Other increases (1) -
----- -----
Net cash provided by (used in) investing activities (64) 18
----- -----
Cash flows from financing activities
- ------------------------------------
Dividends paid (50) (25)
----- -----
Net (decrease) increase in cash and equivalents (12) 54
Cash and cash equivalents at beginning of year 145 91
----- -----
Cash and cash equivalents at end of year $ 133 $ 145
===== =====
</TABLE>
See accompanying notes to combined financial statements.
- --------------------------------------------------------------------------------
5
<PAGE>
METROPOLITAN LIFE INSURANCE COMPANY
HEALTH CARE BENEFIT BUSINESS
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
- ----------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
As of September 1, 1994, Metropolitan Life Insurance Company ("MetLife") and
The Travelers Insurance Company ("Travelers") entered into an agreement (the
"Master Agreement") to contribute their respective health care benefits
businesses to a corporate joint venture, The MetraHealth Companies, Inc.
("MetraHealth"). Effective January 1, 1995, MetLife contributed operating
assets and personnel relating to its group health care benefits business.
The Master Agreement provides that MetLife will use its best efforts to
persuade holders to the insurance policies and administrative services only
("ASO") contracts that are part of its health care benefits business to
purchase policies and contracts from MetraHealth at the policy or contract
renewal date. MetLife also entered into administrative agreements and
indemnity reinsurance agreements with the insurance subsidiaries of
MetraHealth.
The MetLife Health Care Benefit Business is comprised of group managed care,
medical indemnity and related business of MetLife, other than that related
to the employees of MetLife, and certain MetLife non-insurance affiliates.
Those non-insurance affiliates are MetLife HealthCare Management Corporation
("MHMC"), MHMC's fifteen subsidiary health maintenance organizations
("HMO's") operating in sixteen states, Corporate Health Strategies, Inc.
("CHS") and MetLife Group Administrator, Inc. ("MLGA") (collectively, the
Non-Insurance Affiliates"). MetLife Health Care Business products sold in
the United States and covered by the Master Agreement include indemnity
medical insurance, HMO, point-of-service ("POS"), preferred provider
organization ("PPO") products, and administrative services only ("ASO")
products which allow covered individuals to utilize provider networks
contracted by MetLife and certain of the HMOs.
Basis of Presentation
The accompanying financial statements combine the group managed care,
medical indemnity and related businesses conducted by MetLife ("MLIC
Business") and the Non-Insurance Affiliates. Significant inter-company
transactions and balances have been eliminated. Certain operating assets
owned by MetLife and used by MetraHealth, such as facilities and equipment,
are not reflected in these combined financial statements. These financial
statements reflect insurance contracts, including medical indemnity and
managed care contracts, for MetLife employees. According to the terms of the
Master Agreement, the medical indemnity portion of these contracts is not
being transferred to MetraHealth. Although MetLife will retain the insurance
risk relative to the medical indemnity portion of these contracts in the
future, MetraHealth will service such contracts under the terms of an
administrative service agreement with MetLife. Amounts included in the
combined statements of income related to the managed care and medical
indemnity contracts for MetLife employees are disclosed in Note 8.
6
<PAGE>
MetLife is a mutual life insurance company and prepares its financial
statements in conformity with accounting practices prescribed or permitted
by insurance regulatory authorities. The financial information of the MLIC
Business included in these combined financial statements has been adjusted
to present the financial information in conformity with generally accepted
accounting principles for stock companies. The financial information
relating to the Non-Insurance Affiliates has been prepared in accordance
with generally accepted accounting principles for such entities.
Major Customers
The MetLife Health Care Benefit Business has a major contract with the State
of New York. Amounts included in the combined statements of earnings related
to this contract are $789 million in premiums, $636 million in insurance
benefits and claims, and $65 million in experience rating credits in 1994
and $773 million in premiums, $631 million in insurance benefits and claims,
and $59 million in experience rating credits in 1993.
As stated above, the MetLife Health Care Benefit Business includes insurance
contracts for MetLife employees. Select financial information related to the
contracts is included in Note 8 (Related Party Transactions).
Investments
Statement of Financial Accounting Standards No. 115 Accounting for Certain
Investments in Debt and Equity Securities (SFAS No. 115) establishes
standards of financial reporting for all investments in bonds. Under SFAS
No. 115, held-to-maturity bonds are reported at amortized cost, trading
securities are stated at fair value with holdings gains and losses included
in earnings from operations, and available for sale bonds are reported at
fair values with unrealized gains and losses (net of income tax effects)
included as a separate component of net equity and excluded from earnings
from operations.
Adoption of SFAS No. 115 was required for fiscal years beginning after
December 15, 1993 for stock life insurance companies. The accompanying
financial statements do not reflect the effect of SFAS No. 115. However,
management does not believe that the adoption of SFAS No. 115 in 1994 would
have a material impact on the financial statements.
Bonds and short-term investments are stated at amortized cost. Cash and
short-term investments at December 31, 1994 include approximately $36
million invested in the Metropolitan Money Market Pool, which is a
partnership of MetLife affiliates. These funds are carried at cost which
approximates market value. Investment income is recognized as earned.
Other Assets
Equipment, which is utilized by Non-Insurance Affiliates, and included in
other assets, consists of furniture and fixtures, computer equipment, and
leasehold improvements with a cost of $15 million at December 31, 1994
reduced by accumulated depreciation of $12 million. Equipment is depreciated
on the straight-line method over its estimated useful life ranging from
three to five years. Leasehold improvements are amortized on a straight-line
basis over the shorter of the lease terms or their estimated
7
<PAGE>
useful lives. Costs relating to the use by the MLIC Business of MetLife
equipment and leasehold improvements are allocated to the MLIC Business.
Other assets also include Non-Insurance Affiliate identifiable intangible
assets with a cost aggregating $17 million at December 31, 1994 reduced by
accumulated amortization of $15 million at December 31, 1994. Such
intangible assets are generally amortized on a straight-line basis over an
estimated life of seven years or less.
Recognition of Revenues and Insurance Benefits and Claims Expenses
Premiums from medical indemnity and managed care business (other than the
HMO business) and ASO fees are recognized as earned. HMO premium revenue is
recognized as earned in the month the enrollees are eligible for membership.
Cash received from advance billings prior to the month earned is recorded as
unearned premium revenue. In addition, a reserve has been established to
recognize the future consequences of returned premiums for terminations not
yet reported. Insurance benefits and claims are charged to operations as
incurred. The reserve for estimated uncollectible amounts at December 31,
1994 was $17 million.
ASO fees are allocated to the MLIC Business based on the proportionate share
of claims paid under ASO contracts weighted to reflect the pricing of such
services.
Recognition of Medical Service Costs
Medical service costs represent fees paid to physicians and physician groups
and charges by hospitals and other health care providers for health care
services rendered to enrollees. These costs include claims paid, claims in
the process of payment and an estimated provision for incurred but
unreported claims and provider risk sharing. Incurred but unreported claims
consist of estimated costs for medical services provided prior to year-end.
The estimates are reviewed periodically and, as adjustments to the liability
become necessary, such adjustments are reflected in current operations.
Reinsurance premiums are recorded as medical service costs and reinsurance
recoveries, if any, are recorded as a reduction of medical service costs.
Reserves for Medical Insurance Benefits
Reserves for individual and group medical insurance are computed on the
basis of morbidity and expenses, including a margin for adverse deviation.
Morbidity assumptions are based on the experience of the MetLife Health Care
Business and are periodically reviewed against industry standards and
experience and, as adjustments to the liability become necessary, such
adjustments are reflected in current operations.
Experience Rating Credits
Experience rating credits accrue to contractholders based on contractual
agreements and the expectations of group policyholders and management. The
timing of experience rating credits are based on the expectations of
contractholders. The aggregate amount of experience rating credits is
related to actual morbidity and expense experience for the year.
8
<PAGE>
Amounts Held for Deferred Benefits
Amounts held for deferred benefits represent contractholder experience
rating credits on deposit with the MLIC Business and are available to offset
future contractholder premiums.
Operating Costs and Expenses
MetLife Health Care Business operating costs and expenses consist of direct
costs, allocated MetLife Group Insurance Line of Business (Group) costs, and
allocated corporate overhead. Such costs and expenses do not necessarily
represent those that would have been incurred by the MetLife Health Care
Business had it operated as a stand-alone entity.
MetLife corporate overhead expenses are allocated to Group using cost center
prorates or general prorates calculated using a combination of the following
depending on the nature of the expense: a ratio of assets, expenses and
weighted average inforce split between insurance and investment income to
total income for each MetLife line of business; a weighted average cost
center prorate using employee head count; and specific identification, where
applicable. Group operating costs and expenses are allocated to the MLIC
Business based upon either a direct product determination or on the relative
premium and premium equivalent distribution.
Federal Income Taxes
MetLife and MetLife's includible affiliates file a consolidated federal
income tax return. The consolidated entities have executed a tax allocation
agreement. Under this agreement, the federal income tax provision is
computed on a separate return basis. The agreement provides that each
consolidated entity receives reimbursement to the extent that its losses and
other credits result in a reduction of the consolidated tax liability or
makes a payment to the extent its income results in an increase to the
consolidated tax liability. The MLIC Business has been treated as a separate
tax division of a mutual life insurance company for the determination of the
tax provision. The equity tax has not been included in the tax provision.
The future tax consequences of temporary differences between financial
reporting and tax basis of assets and liabilities are measured as of the
balance sheet date and are recorded as deferred tax assets or liabilities.
Separate Account Operations
The assets and liabilities of the Separate Account relate to a
postemployment benefit plan insurance contract for MetLife employees. The
Separate Account is established in conformity with the state insurance laws
and is generally not chargeable with liabilities that arise from any other
business of MetLife or its affiliates. Separate Account assets are subject
to general account claims of MetLife only to the extent the value of such
assets exceed the Separate Account liabilities.
Investments held in the Separate Account (stated at market value) and
liabilities of the Separate Account (including the participant's
corresponding equity in the Separate Account) are reported separately as
assets and liabilities in the accompanying combined balance sheets. Deposits
to the
9
<PAGE>
Separate Account are reported as increases in Separate Account liabilities
and are not reported in revenues.
Receivable from MetLife
The MLIC Business generally does not have specifically identifiable cash,
investments or other operating assets and liabilities. The receivable from
MetLife in the combined balance sheet represent the difference between MLIC
Business assets and liabilities. Interest has been computed on the net
receivable.
The transfer to receivable from MetLife in the combined statement of changes
in equity represents the net income of the MLIC Business. The effect of this
presentation is that the MetLife Health Care Benefit Business' equity at
year end is comprised of the combined equity of the Non-Insurance
Affiliates.
Fair Value Information
The estimated fair value amounts of financial instruments included herein
have been determined by management using market information available as of
the balance sheet date and appropriate valuation methodologies. However,
considerable judgment is necessarily required to interpret market data to
develop the estimates of fair value for financial instruments for which
there are no available market value quotations.
The estimated fair value amounts presented herein are not necessarily
indicative of the amounts that could be realized in a current market
exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value
amounts.
2. BONDS
The carrying value, gross unrealized loss and estimated fair value of bonds,
by category, as of December 31, 1994 are shown below. For publicly traded
bonds, estimated fair value was obtained from an independent market pricing
service. Publicly traded bonds represented approximately 73 percent of the
carrying value and 72 percent of the estimated fair value of the total bonds
as of December 31, 1994. For all other bonds, estimated fair value was
determined by management, based on interest rates, maturity, credit quality
and average life.
<TABLE>
<CAPTION>
Gross
Carrying Unrealized Estimated
Value Loss Fair Value
----- ---- ----------
(In Millions)
<S> <C> <C> <C>
U. S. Treasury Securities and
obligations of U. S. government
corporations and agencies $13 $(1) $12
Corporate 62 (1) 61
--- --- ---
Total Bonds $75 $(2) $73
=== === ===
</TABLE>
10
<PAGE>
The estimated fair value and carrying value of bonds by contractual maturity
at December 31, 1994 are shown below.
<TABLE>
<CAPTION>
Carrying Estimated
Value Fair Value
----- ----------
(In Millions)
<S> <C> <C>
Due in one year or less $10 $10
Due after one year through five years 59 57
Due after five years through ten years 5 5
Due after ten years 1 1
--- ---
Total Bonds $75 $73
=== ===
</TABLE>
Bonds not due at a single maturity date have been included in the above
tables in the year of final maturity. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without prepayment penalties.
3. INVESTMENT INCOME
The sources of investment income for the years ended December 31, 1994 and
1993 are as follows (in millions):
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Bonds $ 5 $ 5
Cash and short-term investments 13 6
Receivable from MetLife 20 20
----- -----
Investment income $ 38 $ 31
===== =====
</TABLE>
4. REINSURANCE AND OTHER INSURANCE TRANSACTIONS
Three HMOs maintained stop-loss reinsurance with a non-related party to
limit exposure on medical service claims. Under the terms of the reinsurance
agreements, depending on the type of medical services rendered, the HMOs
were reimbursed on a per diem rate as defined in the agreements or 50
percent to 90 percent of the medical services rendered for each member's
annual medical services in excess of a deductible not exceeding $50,000.
Under the reinsurance agreements, the HMOs were not relieved of their
primary obligation to the member. Reinsurance premium expenses were
approximately $1 million and reinsurance recoveries were approximately $1
million during 1993. At various times subsequent to January 1, 1994, those
stop loss reinsurance agreements were terminated and replaced by reinsurance
agreements with the MLIC Business.
11
<PAGE>
5. REGULATORY MATTERS
Certain of the HMOs are required to maintain funds on deposit with state
regulatory agencies. At December 31, 1994, the regulatory deposits totaled
approximately $6 million and are included in cash and short-term
investments.
In order to maintain HMO licenses for seven of the HMOs, MetLife has agreed
to make funds available to assure the ability of the HMOs to pay debts in
the normal course of business. For five of these HMOs, MetLife's total
commitment is $11 million. For two other HMOs, MetLife's financial
commitment is not limited to a specific amount.
Due to the short-term nature of the financial instruments that are held on
deposit, the carrying values of each are considered to be a reasonable
estimate of fair value.
6. FEDERAL INCOME TAXES
Federal income tax expense has been calculated in accordance with the
provisions of the Internal Revenue Code, as amended (the Code) and the tax
allocation agreement.
In prior years, certain includible subsidiaries of MHMC incurred net
operating losses for federal income tax purposes. A portion of these net
operating losses were utilized by MetLife's includible affiliates in filing
consolidated federal income tax returns. As a result of utilizing a portion
of MHMC's net operating losses on a consolidated basis, MHMC was allocated
tax benefits of $7 million and $1 million for 1994 and 1993, respectively.
In 1994 and 1993, certain includible subsidiaries of MHMC incurred income
for federal income tax purposes and did not have net operating loss
carryforwards available to reduce taxes payable. A portion of the net
operating losses of MetLife's other includible affiliates were utilized by
these subsidiaries in filing consolidated federal income tax returns. As a
result of utilizing a portion of MetLife's includible affiliate's net
operating losses on a consolidated basis, MHMC was allocated tax expense of
$7 million and $7 million for 1994 and 1993, respectively.
MHMC and its includible subsidiaries and CHS have approximately $28 million
of federal and $101 million of state net operating loss carryforwards
remaining at December 31, 1994 which gave rise to deferred income tax
assets. Of the $28 million, MHMC and its includible subsidiaries and CHS
have approximately $21 million of federal tax net operating loss
carryforwards available at December 31, 1994 of which $20 million can only
be utilized by non-life subsidiaries of MetLife to reduce federal income
taxes. The remaining $1 million of net operating loss carryforwards can be
utilized by both the life and non-life subsidiaries. In addition, certain of
MHMC's includible subsidiaries at December 31, 1994 have approximately $7
million of net operating loss carryforwards, generated prior to being
includible subsidiaries, which can be utilized only to the extent the same
subsidiary generates future taxable income. The federal and state net
operating loss carryforwards expire from 2001 to 2007 and from 2000 to 2007,
respectively.
MetLife will be eligible to utilize certain of the MetLife Contributed
Entities' operating loss carryforwards in 1995 to the extent MetLife and its
includible subsidiaries generate taxable income in 1995. In accordance with
a tax agreement among MetLife, Travelers and MetraHealth, to the extent that
MetraHealth or its affiliates benefit from the use of any remaining federal,
state or local net operating loss carryforwards of the MetLife Contributed
Entities attributable to periods ending on or prior to January 3, 1995,
MetraHealth or its affiliates will convey such benefit to MetLife.
12
<PAGE>
Management has assessed, based on the character and originating jurisdiction
of the losses, whether the utilization of the net operating loss
carryforwards to offset future taxable income within the carryforward period
under existing tax laws and regulations is more likely than not. Valuation
allowances have been recorded against the deferred income tax assets as of
December 31, 1994 where such utilization was not considered more likely than
not.
The components of the provision for income taxes charged to operations for
the years ended December 31, 1994 and 1993 are as follows (in millions):
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Current tax expense:
Federal $ 30 $ 51
State 2 1
----- -----
Total current tax expense 32 52
----- -----
Deferred tax expense (benefit):
Utilization of net operating loss carryforward:
Federal 8 11
State - 2
Changes in federal tax rate - (1)
Changes in valuation allowance:
Federal (1) (3)
State 1 (2)
Other:
Federal (6) (29)
State (1) (2)
----- -----
Total deferred tax expense 1 (24)
(benefit) ----- -----
Total income tax expense $ 33 $ 28
===== =====
</TABLE>
The deferred income tax asset-net is comprised of the following at December
31, 1994 (in millions):
<TABLE>
<CAPTION>
1994
----
<S> <C>
Deferred income tax asset:
Federal $ 21
State 9
Valuation allowance:
Federal (3)
State (7)
-----
Deferred income tax asset - net $ 20
=====
</TABLE>
The significant temporary differences giving rise to net deferred tax assets
are comprised of unearned premium income recognized for tax purposes, the
excess of book over tax depreciation, and the allowance for doubtful accounts
expense and contingent liabilities recognized for financial statement
purposes.
13
<PAGE>
The provision for income taxes for the year ended December 31, 1994
differs from the amount of income tax determined by applying the 35
percent U.S. statutory federal income tax rate to pretax income as the
result of the reduction in the deferred income tax asset valuation
allowance resulting from utilization of net operating loss carryforwards,
the increase in the federal income tax rate and state income taxes.
7. EMPLOYEE BENEFIT PLANS
MetLife is the administrator for pension, savings and investment, and
postretirement benefit plans covering all of its employees and those
eligible employees of the Non-Insurance Affiliates. MetLife has determined
pension costs under the provisions of Statement of Financial Accounting
Standards No. 87 Employers' Accounting for Pensions using an
implementation date of January 1, 1993 and postretirement benefit costs
under the provisions of Statement of Financial Accounting Standards No.
106 Employers' Accounting for Postretirement Benefits Other Than Pension
(SFAS No. 106) using an implementation date of January 1, 1992. The
cumulative effect of the implementation of SFAS No. 106 was recognized
prior to 1993. Through December 31, 1993, substantially all operations of
MetLife Health Care Benefit Business were performed by employees of
MetLife. Effective January 1, 1994, approximately 1,700 employees of
MetLife were transferred to MHMC. During 1994, employees continued to
participate in MetLife's pension and postretirement benefit plans and MHMC
employee benefit costs have been allocated to the MetLife Health Care
Benefit Business in accordance with MetLife's procedures for allocating
operating costs and expenses. The MetLife Health Care Benefit Business'
share of net pension and postretirement benefits' expense (credit) was $3
million and $17 million, respectively, for the year ended December 31,
1994 and $(4) million and $18 million, respectively, for the year ended
December 31, 1993.
8. RELATED PARTY TRANSACTIONS
MetLife provides management, occupancy and administrative services for
the MLIC Business and the Non-Insurance Affiliates. Charges for
administrative services to the Non-Insurance Affiliates are in accordance
with management service agreements and consistent with MetLife's
procedures for allocating operating costs and expenses among its lines of
business. A summary of the related party transactions (other than those
relating to the insurance contracts for MetLife employees) as of December
31, 1994 and for the years ended December 31, 1994 and 1993 is provided
below (in millions):
<TABLE>
<CAPTION>
At December 31: 1994
----
<S> <C>
Receivable from MetLife $ 405
Investment in Metropolitan Money Market Pool 36
Income tax (receivable from) payable to MetLife (4)
</TABLE>
<TABLE>
<CAPTION>
For the year ended December 31: 1994 1993
---- ----
<S> <C> <C>
Interest income on receivable from MetLife at an
average rate of 4.9 and 4.8 percent per annum $ 20 $ 20
Investment income from Metropolitan Money Market Pool 2 2
</TABLE>
14
<PAGE>
A summary of the related party transactions as they relate to insurance
contracts for MetLife employees as of December 31, 1994 and for the years
ended December 31, 1994 and 1993 is provided below (in millions):
<TABLE>
<CAPTION>
At December 31: 1994
----
<S> <C>
Reserves for medical insurance benefits $ 49
Amounts held for deferred benefits 202
Separate Account assets and liabilities 181
</TABLE>
<TABLE>
<CAPTION>
For the year ended December 31: 1994 1993
---- ----
<S> <C> <C>
Premiums $ 241 $ 263
Insurance benefits and claims 185 201
Experience rating credits 53 48
</TABLE>
9. CONTINGENCIES
Various litigation, claims and assessments against MetLife, MHMC and/or the
HMOs, in addition to those otherwise provided for in the accompanying
financial statements, have arisen in the ordinary course of business. In
certain of these matters, including actions with multiple plaintiffs, very
large and/or indeterminate amounts, including punitive damages, are sought.
While it is not feasible to predict or determine the ultimate outcome of
these matters, it is the opinion of management that their outcome, after
consideration of the provisions made in the accompanying financial
statements, is not likely to have a material adverse effect on MetLife
Health Care Benefit Business' financial position.
10. SUBSEQUENT EVENT
On October 2, 1995 all outstanding shares of MetraHealth were acquired by a
wholly-owned subsidiary of United HealthCare Corporation, a health care
management services company unaffiliated with MetLife or Travelers.
15
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report included in this Form 8-K/A dated December 15, 1995 in
the United HealthCare Corporation's previously filed Registration Statement File
No. 2-95342, No. 33-3558, No. 33-22310, No. 33-27208, No. 33-36579, No.33-50282,
No. 33-67918, No. 33-68300, No. 33-75846, No. 33-79632, No. 33-79634, No.
33-79636, No. 33-79638, No. 33-59083, No. 33-59623 and No. 33-63885.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
December 18, 1995
<PAGE>
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the following registration
statements of United HealthCare Corporation, of our report dated May 31, 1995,
except as to Notes 1, 5 and 11, which are as of December 8, 1995, with respect
to the combined statements of assets and liabilities of The Managed Care and
Employee Benefits Operations Medical Division of The Travelers Insurance Group
Inc. as of December 31, 1994, and the related combined financial statements of
operations and cash flows for each of the years in the two-year period ended
December 31, 1994, which report appears in this Form 8-K/A of United HealthCare
Corporation dated December 18, 1995:
Number Document
- ------ --------
2-95342 Registration Statement on Forms S-3 and S-8 for 1983 Plan
33-3558 Registration Statement on Forms S-3 and S-8 for 1983, 1985
Restricted Stock Plan and 1984 SDC Plans
33-22310 Registration Statement on Form S-8 for 1987 Supplemental Stock
Option Plan
33-27208 Registration Statement on Form S-8 for 1988 Stock Option Plan
33-36579 Registration Statement on Form S-8 for 1990 Stock and Incentive
Plan
33-50282 Registration Statement on Form S-8 for 1991 Stock and Incentive
Plan
33-67918 Registration Statement on Form S-8 for Amended and Restated
1991 Stock and Incentive Plan (Filed 8/26/93)
33-68300 Registration Statement on Form S-8 re HMO America, Inc. Amended
and Restated 1984 Stock Option Plan (Filed 9/1/93)
33-75846 Registration Statement on Form S-8 re Amended and Restated 1991
Stock Incentive Plan (Filed 2/28/94)
33-79632 Registration Statement on Form S-8 for Amended and Restated
Complete Health Services, Inc. 1992 Executive Stock Incentive
Plan
33-79638 Registration Statement on Form S-8 for Ramsay-HMO, Inc. 1991
Stock Option Plan
33-79636 Registration Statement on Form S-8 for Ramsay-HMO, Inc. 1992
Stock Option Plan
33-79634 Registration Statement on Form S-8 for Ramsay-HMO, Inc. 1993
Stock Option Plan
33-59083 Registration Statement on Form S-8 for Amended and Restated
1991 Stock and Incentive Plan
33-59623 Registration Statement on Form S-8 for Nonemployee Director
Stock Option Plan
33-63885 Registration Statement on Form S-8 for MetraHealth Employee
Savings Plan
KPMG Peat Marwick LLP
Hartford, Connecticut
December 18, 1995
<PAGE>
Exhibit 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the following Registration
Statements of United HealthCare Corporation of our report dated March 17, 1995
(except for note 10 as to which the date is October 2, 1995), with respect to
the combined financial statements of the Metropolitan Life Insurance Company
Health Care Benefit Business as of December 31, 1994 and for the years ended
December 31, 1994 and 1993 included in the Current Report on Form 8-K/A of
United HealthCare Corporation, dated December 18, 1995:
Number Document
- ------ --------
2-95342 Registration Statement on Forms S-3 and S-8 for the 1983 Plan
33-3558 Registration Statement on Forms S-3 and S-8 for the 1983, 1985
Restricted Stock Plan and 1984 SDC Plans
33-22310 Registration Statement on Form S-8 for 1987 Supplemental Stock
Option Plan
33-27208 Registration Statement on Form S-8 for 1988 Stock Option Plan
33-36579 Registration Statement on Form S-8, dated August 27, 1990, for
1990 Stock and Incentive Plan
33-50282 Registration Statement on Form S-8, dated July 31, 1992, for
1991 Stock and Incentive Plan
33-67918 Registration Statement on Form S-8, dated August 25, 1993, for
Amended and Restated 1991 Stock and Incentive Plan
33-68300 Registration Statement on Form S-8, dated August 31, 1993, for
HMO America, Inc. Amended and Restated 1984 Stock Option Plan
33-75846 Registration Statement on Form S-8, dated February 25, 1994,
for Amended and Restated 1991 Stock Incentive Plan
33-79632 Registration Statement on Form S-8 for Amended and Restated
Complete Health Services, Inc. 1992 Executive Stock Incentive
Plan
33-79638 Registration Statement on Form S-8 for Ramsay-HMO, Inc. 1991
Stock Option Plan
33-79636 Registration Statement on Form S-8 for Ramsay-HMO,Inc. 1992
Stock Option Plan
33-79634 Registration Statement on Form S-8 for Ramsay-HMO, Inc. 1993
Stock Option Plan
33-59083 Registration Statement on Form S-8 for Amended and Restated
1991 Stock and Incentive Plan
33-59623 Registration Statement on Form S-8 for Nonemployee Director
Stock Option Plan
33-63885 Registration Statement on Form S-8 for MetraHealth Employee
Savings Plan
DELOITTE & TOUCHE LLP
New York, New York
December 18, 1995
