________________________________________________________________________________
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number: 0-13253
UNITED HEALTHCARE CORPORATION
State of Incorporation: Minnesota
I.R.S. Employer Identification No: 41-1321939
Principal Executive Offices:
300 Opus Center
9900 Bren Road East
Minnetonka MN, 55343
Telephone Number: (612)936-1300
Indicate by check mark (x) whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No _______
The number of shares of Common Stock, par value $.01 per share, outstanding on
May 13, 1996 was 182,290,123.
________________________________________________________________________________
<PAGE>
UNITED HEALTHCARE CORPORATION
INDEX
Part I. Financial Information. Page Number
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at
March 31, 1996 and December 31, 1995 3
Condensed Consolidated Statements of Operations for the three
month periods ended March 31, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows for the
three month periods ended March 31, 1996 and 1995 5
Notes to Condensed Consolidated Financial Statements 6
Report of Independent Public Accountants 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Part II. Other Information 15
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
Signatures 17
<PAGE>
UNITED HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share & per share data)
(unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 1,040,492 $ 940,110
Short-term investments 859,341 863,815
Accounts receivable, net 611,138 550,313
Assets under management 211,649 309,170
Other 219,831 203,713
----------------------------
Total Current Assets 2,942,451 2,867,121
Goodwill, net 1,830,413 1,727,042
Long-term Investments 1,346,822 1,274,470
Property and Equipment, net 258,360 267,652
Intangible and Other Assets, net 26,345 24,701
----------------------------
TOTAL ASSETS $ 6,404,391 $ 6,160,986
============================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 75,012 $ 79,796
Accrued expenses 608,834 566,770
Medical costs payable 1,214,062 1,156,421
Other policy liabilities 433,551 457,528
Unearned premiums 103,644 173,481
----------------------------
Total Current Liabilities 2,435,103 2,433,996
Long-term Obligations and Minority Interests 36,252 38,970
Convertible Preferred Stock 500,000 500,000
----------------------------
Shareholders' Equity
Common stock, $.01 par value - 500,000,000 shares
authorized; 177,833,000 and 175,215,000 issued and
outstanding 1,778 1,752
Additional paid-in capital 975,142 822,429
Retained earnings 2,465,066 2,358,640
Net unrealized holding gains (losses) on investments
available for sale, net of income tax effects (8,950) 5,199
----------------------------
Total Shareholders' Equity 3,433,036 3,188,020
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 6,404,391 $ 6,160,986
============================
</TABLE>
See notes to condensed consolidated financial statements
<PAGE>
UNITED HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1996 1995
----------------------------
<S> <C> <C>
REVENUES
Premiums $1,914,364 $1,004,489
Management Services and Fees 357,841 65,224
Investment and Other Income 45,905 34,122
------------------------
Total Revenues 2,318,110 1,103,835
OPERATING EXPENSES
Medical Costs 1,585,369 783,501
Selling, General and
Administrative Costs 508,034 157,578
Depreciation and Amortization 31,101 19,665
------------------------
Total Operating Expenses 2,124,504 960,744
EARNINGS FROM OPERATIONS 193,606 143,091
Interest Expense (251) (180)
------------------------
EARNINGS BEFORE INCOME TAXES,
AND MINORITY INTERESTS 193,355 142,911
Provision for Income Taxes (73,475) (52,878)
Minority Interests in Net
Earnings of Consolidated
Subsidiaries (934) (601)
-----------------------
NET EARNINGS 118,946 89,432
CONVERTIBLE PREFERRED STOCK
DIVIDENDS (7,188) --
-----------------------
NET EARNINGS APPLICABLE TO
COMMON SHAREHOLDERS $ 111,758 $ 89,432
=======================
NET EARNINGS PER COMMON SHARE $ 0.62 $ 0.51
=======================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 180,470 176,403
=======================
</TABLE>
See notes to condensed consolidated financial statements
<PAGE>
UNITED HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1996 1995
<S> <C> <C>
OPERATING ACTIVITIES
Net Earnings $ 118,946 $ 89,432
Non Cash Items
Depreciation and amortization 31,101 19,665
Other (2,974) (253)
Net Change in Other Operating Items, net of effects from
acquisitions and sale of subsidiary
Accounts receivable and other current assets (61,244) (10,590)
Accounts payable (7,338) (13,390)
Accrued expenses 48,018 12,084
Medical costs payable 65,025 (7,627)
Other policy liabilities 40,169 --
Unearned premiums (69,702) 16,614
---------------------
Cash Flows from Operating Activities 162,001 105,935
INVESTING ACTIVITIES
Cash Paid for Acquisitions, net of cash assumed
and other effects -- (546,054)
Cash Assumed in Acquisition, net of cash paid
and other effects 34,788 --
Net Purchases of Property and Equipment (22,015) (25,574)
Purchases of Investments Available for Sale (794,206) (868,909)
Maturities/Sales of Investments Available for Sale 719,978 409,875
Purchases of Investments Held to Maturity (2,085) (7,183)
Maturities of Investments Held to Maturity 1,964 5,192
Other 449 (2,359)
---------------------
Cash Flows Used for Investing Activities (61,127) (1,035,012)
FINANCING ACTIVITIES
Net Proceeds from Stock Option Exercises 6,696 4,342
Dividends Paid on Convertible Preferred Stock (7,188) --
---------------------
Cash Flows from (Used for)Financing Activities (492) 4,342
---------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 100,382 (924,735)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 940,110 1,519,049
----------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,040,492 $ 594,314
======================
</TABLE>
See notes to condensed consolidated financial statements
<PAGE>
UNITED HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments, consisting solely
of normal recurring adjustments, necessary for a fair presentation of the
financial results for the interim periods presented. Pursuant to the rules
and regulations of the Securities and Exchange Commission, footnote
disclosures which would substantially duplicate the disclosures contained in
the audited financial statements of the Company have been omitted from these
interim financial statements. Although the Company believes that the
disclosures presented below are adequate to make the interim financial
statements presented not misleading, it is suggested that these unaudited
condensed consolidated financial statements be read in conjunction with the
consolidated financial statements and the notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
2. Acquisitions
On April 12, 1996, the Company completed its acquisition of HealthWise of
America, Inc. (HealthWise), a health care management company based in
Nashville, Tennessee. HealthWise owned or operated health plans in Maryland,
Kentucky, Tennessee and Arkansas, which served at the time of acquisition
154,000 members . The Company issued approximately 4.3 million shares of
common stock in exchange for all the outstanding shares of HealthWise. The
acquisition will be accounted for as a pooling of interests in the second
quarter; however, the historical financial results of the Company will not be
restated because the effect of this acquisition on the Company's financial
statements is not material.
On March 29, 1996, the Company completed its acquisition of PHP, Inc. (PHP), a
health plan based in Greensboro, North Carolina, which served 132,000 members
at the time of acquisition. The Company issued approximately 2.3 million
shares of common stock in exchange for all the outstanding shares of PHP. The
acquisition was accounted for using the purchase method of accounting. The
purchase price and costs associated with the acquisition exceeded the
estimated fair value of net assets acquired by $115.4 million. The pro forma
effects of the PHP acquisition on the Company's financial statements are not
material.
On October 2, 1995, the Company completed its acquisition of The MetraHealth
Companies, Inc. (MetraHealth), a managed health care coverage company and
health insurer. The total purchase price of the acquisition was $1.09 billion
in cash and $500.0 million of convertible preferred stock, for a total
consideration at closing of $1.59 billion.
In addition, the former owners of MetraHealth are eligible to receive up to an
additional $350.0 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 the Company's sole discretion, be in the
form of cash, convertible debt, convertible preferred stock, or straight debt.
The 1995 earnout is currently being determined and is not finalized at this
time. Moreover, if the Company's post-acquisition combined net earnings for
1996 and 1997 reaches certain specified levels, certain of MetraHealth's
former owners will be eligible to receive up to an additional $175.0 million
in cash for each of those years. Any additional consideration paid pursuant to
these arrangements will be reflected as additional goodwill.
<PAGE>
UNITED HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Had the MetraHealth acquisition occurred on January 1, 1995, the estimated
combined unaudited pro forma results for the three month period ended March
31, 1995 would have been: revenues - $2.04 billion; net earnings - $105.2
million and net earnings per common share - $0.56.
3. Dividends
On February 13, 1996, the Company's Board of Directors approved an annual
dividend for 1996 of $0.03 per share to holders of the Company's common stock.
Dividends of $5.3 million were paid on April 15, 1996 to shareholders of
record at the close of business on April 3, 1996.
Dividends on the Company's 5.75% Series A Convertible Preferred Stock
(Preferred Stock), are payable quarterly. Dividends related to the first
quarter of $7.2 million were paid on April 1, 1996.
4. Restructuring Charges
In connection with its acquisition of MetraHealth, the Company developed a
comprehensive plan to integrate the business activities of the combined
companies (the Plan). The Plan encompasses, among other matters, the
disposition, discontinuance and restructuring of certain businesses and
product lines, and the recognition of certain asset impairments. In the fourth
quarter of 1995, the Company recorded $153.8 million in restructuring charges
associated with the Plan. The restructuring charges include $102.3 million
for activities under the Plan which are expected to be completed through 1996
and $51.5 million for asset impairment.
The charges included $24.0 million for severance and outplacement costs which
are based on the projected impact of the Plan on employment levels. The
Company expects approximately 800 positions to be eliminated over the next 12
months under the restructuring efforts. During the first quarter of 1996 52
positions were eliminated which resulted in severance and outplacement
payments of $1.2 million.
Also included in the restructuring charges is a $58.1 million provision
representing costs associated with the termination of certain contracts and
the elimination of certain products, networks and systems related to changes
in strategies resulting from the MetraHealth acquisition. Expenditures related
to these activities of $4.2 million were incurred during the first quarter of
1996
The restructuring charges also included a $20.2 million provision for property
and lease discontinuances at certain office locations, resulting primarily
from various exit strategies and payment of portions of non-cancelable lease
obligations. During the first quarter of 1996, the Company paid $1.5 million
related to the closing of three office locations.
<PAGE>
UNITED HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
5. Cash and Investments
As of March 31, 1996, the amortized cost, gross unrealized holding gains and
losses and fair value of the Company's cash and investments were as follows
(in thousands):
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized
Amortized Holding Holding Fair
Cost Gains Losses Value
-------------------------------------------------
<S> <C> <C> <C> <C>
Cash and Cash Equivalents $1,040,492 $ -- $ -- $1,040,492
Investments Available for Sale 2,172,965 9,046 (23,483) 2,158,528
Investments Held to Maturity 47,635 279 (149) 47,765
-------------------------------------------------
Total Cash and Investments $3,261,092 $ 9,325 $ (23,632) $3,246,785
=================================================
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To United HealthCare Corporation:
We have reviewed the accompanying condensed consolidated balance sheet of
United HealthCare Corporation (a Minnesota corporation) and Subsidiaries as of
March 31, 1996, and the related condensed consolidated statements of
operations and cash flows for the three month periods ended March 31, 1996 and
1995. These financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of United HealthCare Corporation and
Subsidiaries as of December 31, 1995 (not presented herein), and, in our
report dated February 29, 1996, we expressed an unqualified opinion on that
statement. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of December 31, 1995, is fairly
stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
Arthur Andersen LLP
Minneapolis, Minnesota,
May 7, 1996
<PAGE>
UNITED HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The consolidated financial results and related comparisons presented in this
discussion include two transactions which affect the year-to-year
comparability of the Company's consolidated financial position and results of
operations. On February 28, 1995, the Company acquired Group Sales and
Services of Puerto Rico, Inc. (Group Sales), a health plan based in San Juan,
Puerto Rico, serving 135,000 members at the time of acquisition. On October 2,
1995, the Company acquired The MetraHealth Companies, Inc. (MetraHealth).
MetraHealth was formed in January 1995 by combining the group health care
operations of Metropolitan Life Insurance Company and The Travelers Insurance
Group. At the time of acquisition, MetraHealth served over 10 million
individuals, including 5.9 million in network-based care programs, 469,000 of
whom were health plan members. Each of these acquisitions was accounted for as
a purchase transaction. Accordingly, only the post-acquisition results of
Group Sales and MetraHealth are included in the Company's consolidated
financial results.
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the accompanying
condensed consolidated financial statements and notes thereto.
Summary of Operating Information (in thousands)
<TABLE>
<CAPTION>
March 31, 1996 March 31, 1995
-----------------------------------------
Amount or Percent Amount or
Percent Increase Percent
----------------------------------------
<S> <C> <C> <C>
Total Revenues $2,318,110 110% $1,103,835
Net Operating Earnings $ 193,606 35% $ 143,091
----------------------------------------
Medical Costs to Premium
Revenue 82.8% 78.0%
SG&A Expenses to Total
Revenues 21.9% 14.3%
Total Operating Margin 8.4% 13.0%
---------------------------------------
Enrollment (at period end)
Health Plan Products
Commercial 3,425<F1><F2> 2,291,<F1>
Medicaid 365 297
Medicare 164 114
--------------------------------------
Total 3,954 2,702
Other Network-Based Products 5,675<F1> 278<F1>
Indemnity Products 3,950<F1> --
--------------------------------------
Total Enrollment 13,579 2,980
======================================
<FN>
<F1> Amounts include both fully insured and self-funded enrollment. Period
end self-funded enrollment was as follows: Commercial Health Plan Products -
294,000 in 1996 and 197,000 in 1995; Other Network-Based Products - 4,936,000
in 1996 and 278,000 in 1995; Indemnity Products - 3,091,000 in 1996.
<F2> Includes PHP, Inc. (North Carolina) acquired on March 29, 1996. PHP,
Inc. had 132,000 members as of March 1996. Consistent with purchase
accounting, no prior period restatement was made.
</FN>
</TABLE>
<PAGE>
UNITED HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
The Company again achieved record operating results for the quarter ended
March 31, 1996. Net operating earnings were $193.6 million in the first
quarter of 1996 and $143.1 million in the first quarter of 1995. Total
revenues of $2.32 billion in the first quarter of 1996 were also a record, up
from $1.10 billion in the first quarter of 1995.
Revenues
Premium revenues of $1.91 billion in the first quarter of 1996 increased
$909.9 million, or 91%, compared to the first quarter of 1995. Excluding the
effects of the Company's 1995 acquisitions of Group Sales and MetraHealth, the
increase in first quarter 1996 premium revenues over the first quarter of 1995
was 24%, primarily reflecting year-over-year total health plan enrollment
growth of 22% and an average premium rate increase on renewing commercial
groups of approximately 1% to 2%.
New and renewal commercial health plan premium rates are generally established
by the Company based on anticipated health care costs. Over the past several
years and continuing into the first quarter of 1996, the Company has been able
to effectively manage health care costs and maintain the effective rate at
which its health care costs have grown within the commercial health plan line
of business to low single-digit percentage increases. However, competition
for commercial enrollment in certain of the Company's health plan markets has
increased in recent years, particularly within calendar 1995 and the January
1996 renewal period. As a result of these competitive conditions, the Company
saw a small rise in its health plan medical expense ratio in the first quarter
of 1996 as compared to the fourth quarter of 1995. The Company currently
believes that the competitive premium environment for post January 1996
commercial business has somewhat improved. Depending on the level of future
competition or other external factors beyond the Company's control, there can
be no assurance that the Company's recent enrollment growth trends will
continue or that the Company will be able to price consistent with health care
cost trends.
As a result of its acquisition of MetraHealth, the Company had approximately
859,000 enrollees at March 31, 1996, in fully insured non-network-based
indemnity products, primarily from small group employers. These products do
not utilize similar health care cost containment measures as the Company's
network-based products and, accordingly, are priced differently. In response
to increased medical costs associated with these products in early 1995, the
Company began instituting rate increases ranging from 15% to 25% during the
second half of 1995 and into 1996. As a result, the Company expects enrollment
in the non-network based indemnity products to continue to decrease during
1996. To the extent practicable, the Company will attempt to convert these
enrollees to its network-based managed care products. While these recent rate
increases were based on the Company's estimate of health care cost trends
within the non-network-based products, there can be no assurance that these
rate increases will be consistent with the related future health care cost
experience.
Management services and fees revenue of $357.8 million in the first quarter of
1996 were four times more than the comparable first quarter 1995 revenues.
<PAGE>
UNITED HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Prior to the MetraHealth acquisition, these revenues were primarily comprised
of administrative fees relating to services performed on behalf of the
Company's managed health plans and fees generated by the Company's specialty
managed care services.
The Company had approximately 8,321,000 enrollees in self-funded products at
March 31, 1996, most of which related to the former MetraHealth business.
Under these funding arrangements, the Company receives a fee for the provision
of administrative services and generally assumes no financial responsibility
for health care costs associated with these products. The Company recorded
$206.7 million in management services and fees revenue in the first quarter of
1996 related to the former MetraHealth self-funded products.
Operating Expenses
The combination of the Company's pricing strategy and its medical management
efforts are reflected in its medical cost ratio (the percent of premium
revenues expensed as medical costs). The medical cost ratio increased from
78.0% in the first quarter of 1995 to 82.8% in the first quarter of 1996. This
year-over-year increase in the ratio is primarily attributable to the former
MetraHealth products which have a higher medical cost ratio as compared to the
Company's previous products. In addition this increase in the medical cost
ratio is a reflection of competitive commercial pricing conditions and
declines in Medicaid premium rates in certain markets.
The SG&A ratio (selling, general and administrative expenses as a percent of
total revenues)increased from 14.3% in the first quarter of 1995 to 21.9% in
the first quarter of 1996. The MetraHealth acquisition had a significant
impact on selling, general and administrative expenses (in total dollars as
well as a percentage of revenue) because a greater proportion of the former
MetraHealth business consists of fee-based, self-funded products rather than
products which generate full premium revenue. Since the MetraHealth
acquisition at the beginning of the fourth quarter of 1995, the Company has
achieved selling, general and administrative efficiencies resulting in a
decrease in the SG&A ratio from 24.2% in the fourth quarter of 1995 to 21.9%
in the first quarter of 1996.
INFLATION
Although the general rate of inflation has remained relatively stable and
health care cost inflation has declined in recent years, the total health care
cost inflation rate still exceeds the general inflation rate. The Company uses
various strategies to mitigate the negative effects of health care cost
inflation, including setting commercial premiums based on its anticipated
health care costs, risk-sharing arrangements with the Company's various health
care providers, and other health care cost containment measures. Specifically,
the Company's health plans attempt to control medical and hospital costs
through contractual arrangements primarily with independent providers of
health care services. Cost-effective delivery of health care services by such
health care providers is achieved by the reduction of unnecessary
hospitalizations, appropriate use of specialty referral services, and
emphasizing preventive health services. While the Company currently believes
its strategies to mitigate health care cost inflation will continue to be
successful, competitive pressures, demands from providers and customers,
<PAGE>
UNITED HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
applicable regulations or other factors may adversely affect the Company's
ability to control the impact of health care cost increases. In addition,
certain non-network-based products of the former MetraHealth business do not
have similar health care cost containment measures as the Company's
network-based managed care products. As a result, the Company is subject to
more health care cost inflation risk with these products.
FINANCIAL CONDITION AND LIQUIDITY
The Company's cash and investments increased from $3.08 billion at December
31, 1995, to $3.25 billion at March 31, 1996. The increase of $168.3 million
during the first quarter of 1996 primarily reflects cash generated from
operations.
The Company generally invests a large portion of its cash resources in high
quality, long-term investments. At March 31, 1996, the Company had working
capital of $507.3 million, a current ratio of 1.2, which is reflective of its
longer-term investment strategy. At December 31, 1995 the Company had working
capital of $433.1 million and a current ratio of 1.2.
Under applicable state regulations, certain of the Company's subsidiaries are
required to retain cash generated from their operations. After giving effect
to these restrictions, the Company had approximately $770 million in cash and
investments available for general corporate use at March 31, 1996.
In connection with the Company's acquisition of MetraHealth, the former owners
of MetraHealth are eligible to receive up to an additional $350.0 million if
MetraHealth achieves certain 1995 operating results, as defined. Any
consideration payable for this 1995 earnout may, at the Company's sole
discretion, be in the form of cash, convertible debt, convertible preferred
stock, or straight debt. The 1995 earnout is currently being determined and
is not finalized at this time. Moreover, if the Company's post-acquisition
combined net earnings for 1996 and 1997 reaches certain specified levels,
certain of MetraHealth's former owners will be eligible to receive up to an
additional $175.0 million in cash for each of those years.
As described more fully in Note 2 to the condensed consolidated financial
statements, the Company has acquired, in separate transactions, PHP on March
29, 1996 and HealthWise on April 12, 1996. These transactions were completed
through the exchange of shares of the Company's common stock for all the
outstanding shares of PHP and HealthWise and, with the exception of
transaction costs, did not require the use of cash.
The Company currently believes its available cash resources will be sufficient
to meet its current operating requirements and internal development and
integration initiatives. There currently are no other material definitive
commitments for future use of the Company's available cash resources; however,
management continually evaluates opportunities to expand its operations, which
includes internal development of new products and programs and may include
additional acquisitions.
<PAGE>
UNITED HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
CAUTIONARY STATEMENTS
A number of factors should be considered in conjunction with any discussion of
operations or results by the Company or its representatives, including any
forward-looking discussion, as well as comments contained in press releases,
presentations to securities analysts or investors, or communications by the
Company. These factors are set forth in Exhibit 99 to this Quarterly Report.
<PAGE>
UNITED HEALTHCARE CORPORATION
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
At the Registrant's annual meeting of shareholders held on May 8, 1996, the
Registrant's shareholders elected three directors, ratified the appointment of
Arthur Andersen LLP. as independent public accountants for the Registrant and
approved proposals to amend the United HealthCare Corporation 1993 Employee
Stock Purchase Plan and the United HealthCare Corporation Amended and Restated
1991 Stock and Incentive Plan.
Three directors whose terms expire in 1999 (Class I) were elected: Thomas H.
Kean with 150,060,592.638 votes cast for his election and 3,144,980.279 votes
withheld; William G. Spears with 150,069,952.903 votes cast for his election
and 3,135,620.014 votes withheld; and Gail R. Wilensky, with 150,009,170.218
votes cast for her election and 3,196,402.699 votes withheld.
The appointment of Arthur Andersen LLP. as independent public accountants for
the Registrant for the year ending December 31, 1996 was ratified with
152,923,012.516 votes cast for ratification, 114,613.616 votes cast against
ratification and 167,946.785 abstaining votes cast. There were 0 broker
nonvotes on this matter.
Regarding the proposal to adopt the United HealthCare Corporation 1993
Employee Stock Purchase Plan, a total of 149,432,876.037 affirmative votes,
3,334,743.508 negative votes and 437,953.372 abstaining votes were cast with
respect to this proposal. There were 0 broker nonvotes on this matter.
Regarding the proposal to adopt the United HealthCare Corporation 1993
Amended and Restated 1991 Stock and Incentive Plan, a total of 118,994,730.674
affirmative votes, 32,459,178.906 negative votes and 1,751,663.337 abstaining
votes were cast with respect to this proposal. There were 0 broker nonvotes
on this matter.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
The following exhibits are filed in response to Item 601 of Regulation
S-K.
Exhibit No. Exhibit
Exhibit 11 - Statements Re Computation of Per Share Earnings.
Exhibit 15 - Letter Re Unaudited Interim Financial Information.
Exhibit 27 - Financial Data Schedule
Exhibit 99 - Cautionary Statements
(b) Reports on Form 8-K.
During the quarter for which this report is filed, the Registrant filed
Form 8-K Current Reports with the Securities and Exchange Commission as
follows:
1. Form 8-K Current Report Dated February 1, 1996. The items reported
on this Form 8-K were items 5 and 7 concerning the Registrant's
announcement of the execution of an Agreement and Plan of Merger
with HealthWise of America, Inc.
<PAGE>
UNITED HEALTHCARE CORPORATION
2. Form 8-K Current Report Dated February 29, 1996. The items
reported on this Form 8-K were Items 5 and 7 concerning the
Registrant's announcement of its financial results for the
year ended December 31, 1995.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED HEALTHCARE CORPORATION
Dated: May 13, 1996 By /s/ William W. McGuire, M.D.
William W. McGuire, M.D.
President and Chief Executive Officer
Dated: May 13, 1996 By /s/ David P. Koppe
David P. Koppe
Chief Financial Officer
<PAGE>
UNITED HEALTHCARE CORPORATION
Exhibit Index
Exhibit Number Description Page
11 Statements Re Computation of Per 19
Share Earnings
15 Letter Re Unaudited Interim Financial 20
Information
99 Cautionary Statements 21
27 Financial Data Schedule 24
<PAGE>
EXHIBIT 11
UNITED HEALTHCARE CORPORATION
STATEMENTS RE COMPUTATION OF PER SHARE EARNINGS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three
Months Ended March 31,
1996 1995
-----------------------
<S> <C> <C>
PRIMARY:
NET EARNINGS $ 118,946 $ 89,432
LESS CONVERTIBLE PREFERRED
STOCK DIVIDENDS 7,188 --
----------------------
NET EARNINGS APPLICABLE TO
COMMON SHAREHOLDERS $ 111,758 $ 89,432
======================
Weighted average number of
common shares outstanding 175,540 172,909
Additional equivalent shares
issuable from assumed exercise
of common stock options
and warrants 4,930 3,494
----------------------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 180,470 176,403
======================
NET EARNINGS PER COMMON
SHARE $ 0.62 $ 0.51
======================
FULLY DILUTED:
NET EARNINGS APPLICABLE TO
COMMON SHAREHOLDERS $ 118,946 $ 89,432
======================
Weighted average number of
common shares outstanding 175,540 172,909
Additional equivalent shares
issuable from assumed exercise
of common stock options
and warrants 4,930 3,612
Assumed conversion of convertible
preferred stock 10,106 --
----------------------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 190,576 176,521
======================
NET EARNINGS PER COMMON
SHARE $ 0.62<F1> $ 0.51<F2>
======================
<FN>
<F1> This calculation is submitted in accordance with Regulation S-K item 601(b)(11) although it
is contrary to paragraph 40 of APB Opinion No. 15 because it produces an anti-dilutive
result.
<F2> This calculation is submitted in accordance with Regulation S-K item 601(b)(11) although not
required by footnote 2 to paragraph 14 of APB Opinion No. 15 because it results in dilution of
less than 3%.
</FN>
</TABLE>
<PAGE>
EXHIBIT 15
LETTER RE UNAUDITED INTERIM FINANCIAL INFORMATION
May 7, 1996
To United HealthCare Corporation:
We are aware that United HealthCare Corporation and Subsidiaries has
incorporated by reference in its Registration Statements No. 33-3558, 2-95342,
33-22310, 33-27208, 33-36579, 33-50282, 33-67918, 33-68300, 33-75846, 33-
79632, 33-79634, 33-79636, 33-79638, 33-59083, 33-59623, 33-63885, 333-01517,
333-01915 and 333-02525 its Form 10-Q for the quarter ended March 31, 1996,
which includes our report dated May 7, 1996, covering the unaudited interim
condensed consolidated financial information contained therein. Pursuant to
Regulation C of the Securities Act of 1933, that report is not considered a
part of the registration statement prepared or certified by our firm or a
report prepared or certified by our firm within the meaning of Sections 7 and
11 of the Act.
Very truly yours,
Arthur Andersen LLP
<PAGE>
CAUTIONARY STATEMENTS EXHIBIT 99
The following discussion contains certain cautionary statements regarding
United's business and results of operations which should be considered by
investors and others. These statements discuss matters which may in part be
discussed elsewhere in this report and which may have been discussed in other
documents prepared by the Company pursuant to federal or state securities
laws. This discussion is intended to take advantage of the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995. The
following factors should be considered in conjunction with any discussion of
operations or results by the Company or its representatives, including any
forward-looking discussion, as well as comments contained in press releases,
presentations to securities analysts or investors, or other communications by
the Company.
In making these statements, the Company is not undertaking to address or
update each factor in future filings or communications regarding the Company's
business or results, and is not undertaking to address how any of these
factors may have caused changes to discussions or information contained in
previous filings or communications. In addition, any of the matters discussed
below may have affected United's past results and may affect future results,
so that the Company's actual results for first quarter 1996 and beyond may
differ materially from those expressed in prior communications.
Health Care Costs. A large portion of the revenue received by United is
expended to pay the costs of health care services or supplies delivered to its
members. The total health care costs incurred by United are affected by the
number of individual services rendered and the cost of each service. Much of
the Company's premium revenue is set in advance of the actual delivery of
services and the related incurring of the cost, usually on a prospective
annual basis. While United attempts to base the premiums it charges at least
in part on its estimate of expected health care costs over the fixed premium
period, competition, regulations and other circumstances may limit United's
ability to fully base premiums on estimated costs. In addition, many factors
may and often do cause actual health care costs to exceed that estimated and
reflected in premiums. These factors may include increased utilization of
services, increased cost of individual services, catastrophes, epidemics,
seasonality, general inflation, new mandated benefits or other regulatory
changes and insured population characteristics.
Marketing. The Company markets its products and services through both
employed sales people and independent sales agents. Although the Company has
a number of such sales employees and agents, if certain key sales employees or
agents or a large subset of such individuals were to leave the Company, its
ability to retain existing customers and members could be impaired. In
addition, certain of the Company's customers or potential customers consider
rating, accreditation or certification of the Company by various private or
governmental bodies or rating agencies necessary or important. Certain of the
Company's health plans or other business units may not have obtained or may
not desire or be able to obtain or maintain such accreditation or
certification which could adversely affect the Company's ability to obtain or
retain business with such customers.
The managed care industry has recently received significant amounts of
negative publicity. Such general publicity, or any negative publicity
regarding United in particular, could adversely affect the Company's ability
to sell its products or services or could create regulatory problems for the
Company.
<PAGE>
Competition. In any of its geographic or product markets the Company competes
with a number of other entities, some of which may have certain
characteristics or capabilities which give them an advantage in competing with
the Company. The Company believes there are few barriers to entry in these
markets, so that the addition of new competitors can occur relatively easily.
Certain of the Company's customers may decide to perform for themselves
functions or services formerly provided by the Company, which would result in
a decrease in the Company's revenues. Certain of the Company's providers may
decide to market products and services to Company customers in competition
with the Company. In addition, significant merger and acquisition activity has
occurred in the industry in which the Company operates as well as in
industries which act as suppliers to the Company such as the hospital,
physician, pharmaceutical and medical device industries. This activity may
create stronger competitors and/or result in higher health care costs. To the
extent that there is strong competition or that competition intensifies in any
market, the Company's ability to retain or increase customers, its revenue
growth, its pricing flexibility, its control over medical cost trends and its
marketing expenses may all be adversely affected.
Provider Relations. One of the significant techniques United uses to manage
health care costs and utilization and monitor the quality of care being
delivered is contracting with physicians, hospitals and other providers.
Because of the geographic diversity of its health plans and the large number
of providers with which most of those health plans contract, United currently
believes it has a limited exposure to provider relations issues. In any
particular market, however, providers could refuse to contract with United,
demand higher payments or take other actions which could result in higher
health care costs, less desirable products for customers and members or
difficulty meeting regulatory or accreditation requirements.
In some markets, certain providers, particularly hospitals, physician/hospital
organizations or multi-specialty physician groups, may have significant market
positions or even monopolies. Many of these providers may compete directly
with the Company. If such providers refuse to contract with United or utilize
their market position to negotiate favorable contracts or place United at a
competitive disadvantage, United's ability to market products or to be
profitable in those areas could be adversely affected.
Administration and Management. The level of administrative expense is a
partial determinant of United's profitability. While United attempts to
effectively manage such expenses, increases in staff-related and other
administrative expenses may occur from time-to-time due to business or product
start-ups or expansions, growth or changes in business, acquisitions,
regulatory requirements or other reasons. Such expense increases are not
clearly predictable and increases in administrative expenses may adversely
affect results.
United's business is significantly dependent on effective information systems.
United has many different information systems for its various businesses.
United is in the process of attempting to reduce the number of systems and
also upgrade and expand its information systems capabilities. Failure to
maintain an effective and efficient information system could result in loss of
existing customers and difficulty in attracting new customers, customer and
provider disputes, regulatory problems, increases in administrative expenses
or other adverse consequences. In addition, the Company may, from time-
to-time, obtain significant portions of its systems-related or other services
or facilities from independent third parties which may make the Company's
operations vulnerable to such third party's failure to perform adequately.
<PAGE>
United currently believes it has a relatively experienced, capable management
staff. Loss of certain managers or a number of such managers could adversely
affect United's ability to administer and manage its business. The Company has
made several large acquisitions in recent years, and has an active ongoing
acquisition program. Failure to effectively integrate acquired operations
could result in increased administrative costs or customer confusion or
dissatisfaction.
Government Programs and Regulation. The Company's business is heavily
regulated. The laws and rules governing the Company's business and
interpretations of those laws and rules are subject to frequent change.
Existing or future laws and rules could force United to change how it does
business and may restrict United's revenue and/or enrollment growth and/or
increase its health care and administrative costs. Regulatory approvals must
be obtained and maintained to market many of United's products and services.
Delays in obtaining or failure to obtain or maintain such approvals could
adversely affect United's revenue or the number of its members, or could
increase costs.
A significant portion of United's revenues relate to federal, state and local
government health care coverage programs. These types of programs, such as
the federal Medicare program and the federal and state Medicaid program, are
generally subject to frequent change including changes which may reduce the
number of persons enrolled or eligible, reduce the revenue received by United
or increase the Company's administrative or health care costs under such
programs. Such changes have in the past and may in the future adversely affect
United's results and its willingness to participate in such programs.
The Company is also subject to various governmental audits and investigations.
Such activities could result in the loss of licensure or the right to
participate in certain programs, or the imposition of fines, penalties and
other sanctions. In addition, disclosure of any adverse investigation or
audit results or sanctions could negatively affect the Company's reputation in
various markets and make it more difficult for the Company to sell its
products and services.
Litigation and Insurance. United is subject to a variety of legal actions to
which any corporation may be subject, including employment and employment
discrimination-related suits, employee benefit claims, breach of contract
actions, tort claims, shareholder suits, including for securities fraud, and
intellectual property related litigation. In addition, because of the nature
of its business, United incurs and likely will continue to incur potential
liability for claims related to its business, such as failure to pay for or
provide health care, poor outcomes for care delivered or arranged, provider
disputes, including disputes over withheld compensation, claims related to
self- funded business and improper copayment calculations. In some cases,
substantial non-economic or punitive damages may be sought. While United
currently has insurance coverage for some of these potential liabilities,
others may not be covered by insurance, the insurers may dispute coverage or
the amount of insurance may not be enough to cover the damages awarded. In
addition, certain types of damages, such as punitive damages, may not be
covered by insurance and insurance coverage for all or certain forms of
liability may become unavailable or prohibitively expensive in the future.
Stock Market. Recently, the market price of the securities of the publicly-
held compannies in the industry in which United operates have shown volatility
and sensitivity in response to many factors, including public communicaitons
regarding managed care, legislative or regulatory actions, health care cost
trends, pricing trends, competition, earnings or membership reports of
particular industry participants, and acquisition activity. There can be no
assurance regarding the level or stability of United's share price at any time
or of the impact of these or any other factors on the share price.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000731766
<NAME> UNITED HEALTHCARE CORPORATION
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,040,492
<SECURITIES> 2,206,163
<RECEIVABLES> 641,130
<ALLOWANCES> 29,992
<INVENTORY> 0
<CURRENT-ASSETS> 2,942,451
<PP&E> 540,491
<DEPRECIATION> 282,131
<TOTAL-ASSETS> 6,404,391
<CURRENT-LIABILITIES> 2,435,103
<BONDS> 0
500,000
0
<COMMON> 1,778
<OTHER-SE> 3,431,258
<TOTAL-LIABILITY-AND-EQUITY> 6,404,391
<SALES> 2,272,205
<TOTAL-REVENUES> 2,318,110
<CGS> 2,093,403
<TOTAL-COSTS> 2,124,504
<OTHER-EXPENSES> 31,101
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 251
<INCOME-PRETAX> 193,355
<INCOME-TAX> 73,475
<INCOME-CONTINUING> 118,946
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 118,946
<EPS-PRIMARY> 0.62
<EPS-DILUTED> 0.62
</TABLE>
