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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
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Commission file number: 1-10864
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UNITED HEALTHCARE CORPORATION
(Exact name of registrant as specified in its charter)
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MINNESOTA 41-1321939
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
300 OPUS CENTER
9900 BREN ROAD EAST
MINNETONKA, MINNESOTA
(Address of principal executive offices) 55343
(Zip Code)
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Registrant's telephone number, including area code: (612) 936-1300
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Securities registered pursuant to Section 12(b) of the Act:
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COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE, INC.
(Title of each class) (Name of each exchange on which
registered)
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Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES _X_ NO __
Indicate by checkmark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant as of March 2, 1998, was approximately $8,173,551,317* (based on the
last reported sale price of $61.1875 per share on March 2, 1998, on the New York
Stock Exchange).
As of March 16, 1998, 192,580,947 shares of the registrant's Common Stock,
$.01 par value per share, were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Annual Report to Shareholders of Registrant for the fiscal year ended
December 31, 1997. Certain information therein is incorporated by reference into
Part II hereof.
Proxy Statement for the Annual Meeting of Shareholders of Registrant to be
held on May 13, 1998. Certain information therein is incorporated by reference
into Part III hereof.
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*Only shares of common stock held beneficially by directors and executive
officers of the Company and persons or entities filing Schedules 13G received
by the Company have been excluded in determining this number.
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PART I
ITEM 1. BUSINESS
United HealthCare Corporation is a national leader offering health care
coverage and related services to help people achieve improved health and
well-being through all stages of life. The Company operates in all 50 states,
the District of Columbia, Puerto Rico and internationally. United HealthCare's
products and services reflect a number of core capabilities, including medical
information management, health benefit administration, care coordination, risk
assessment and pricing, health benefit design and provider contracting. With
these capabilities, United is able to provide comprehensive health care
management services through organized health systems and insurance products,
including health maintenance organizations ("HMOs"), point-of-service plans
("POS"), preferred provider organizations ("PPO") and managed indemnity
programs. The Company also offers specialized health care management services
and products such as behavioral health services, workers compensation and
disability services, utilization review services, specialized provider networks,
employee assistance programs, and knowledge and information services.
United HealthCare Corporation is a Minnesota corporation, incorporated in
January 1977. Unless the context otherwise requires, the terms "United," "United
HealthCare" or the "Company" refer to United HealthCare Corporation and its
subsidiaries. United's executive offices are located at 300 Opus Center, 9900
Bren Road East, Minnetonka, Minnesota 55343; telephone (612) 936-1300.
BUSINESS OPERATIONS
The Company operates in a single industry, the health and well-being
marketplace. In late 1997, the Company announced an internal realignment that
established functional business units for each of the Company's six key business
lines. These units include Health Plans, Insurance Services, Strategic Business
Services, Retirees and Senior Services, Specialized Care Services, and Knowledge
and Information. Although the Company's general management and various
operational aspects, including information systems and certain administrative
functions, remain interrelated, the realignment will allow each business unit to
focus fully on its specific set of customers and markets.
HEALTH PLANS
The Health Plans business unit operates organized health plans nationally
and internationally. As of December 31, 1997, United held a majority ownership
interest in health plans operating in approximately 40 markets nationwide and in
Puerto Rico. The Health Plans business unit is also engaged in a joint venture
that operates a health plan in the Republic of South Africa. The Company also
provides managed care consulting services in Germany and Hong Kong through this
business unit.
For health plans it owns, United assumes the risk for health care and
administrative costs in return for premium revenue. United's owned health plans
usually are licensed as HMOs or insurers. These plans provide comprehensive
health care coverage for a fixed fee or premium that usually does not vary with
the extent of medical services received by the member. Most of United's owned
health plans contract with independent providers of health care services to help
manage medical and hospital use, quality and costs. A few owned health plans
employ health care providers and directly deliver health care services to
members. United's health plans that employ health care providers strive for
cost-effective delivery of health care services by emphasizing appropriate use
of these services, promoting preventive health services, and encouraging the use
of clinically proven treatments and best medical practices. United also provides
administrative and other management services to a limited number of health plans
in which United has no ownership interest. United receives an administrative fee
for providing its services to these plans and generally assumes no
responsibility for health care costs.
HEALTH PLAN POINT-OF-SERVICE PRODUCTS. United HealthCare's point-of-service
products are one of the Company's most popular health plan coverage options.
Unlike some traditional HMO products which only
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cover non-emergency services received from contracted providers,
point-of-service products also provide coverage, usually at a lower level, for
services received from non-contracted providers. Sometimes, this out-of-network
coverage is offered directly by the health plan, but more often it is provided
by an insurance policy "wrapped around" the health plan benefit contract. The
insurance policy usually is provided through one of United's insurance
subsidiaries.
HEALTH PLAN SELF-FUNDED PRODUCTS. United has developed self-funded products
for employers who want the cost containment aspects of an HMO-type product while
self-insuring the health care cost risk. United uses the provider networks it
has developed for its HMO or insurance products for its self-funded products,
many of which include a point-of-service feature. The provider contracts for
these products are with individual physicians or groups of physicians as well as
health care facilities and are generally on a standard fee-for-service basis.
With self-funded products, employers and other sponsoring groups have access to
a provider network and the administrative and care coordination services
associated with an HMO product, but the sponsoring company or group generally
bears the financial costs associated with the health care.
HEALTH PLAN MEDICARE PRODUCTS. Several of United's owned health plans
contract with the federal Health Care Financing Administration ("HCFA") to
provide coverage for Medicare-eligible individuals. In addition, several more
health plans are in the process of seeking such a contract. Under these
contracts, plans receive a fixed monthly payment from HCFA for each enrolled
individual and must provide at least the benefits that would be covered under
traditional Medicare. Typically, the plans provide a significantly higher level
of coverage and may, but often do not, charge an additional premium to the
members for the additional benefits. The health plans generally use a subset of
their commercial product provider network as the provider network for the
Medicare products. Any Medicare-eligible person in a plan's service area may
enroll in the Medicare product without underwriting or health screening.
Some of United's health plans also offer these Medicare products to or
through employer groups as a way of providing retiree health care coverage. In
addition, certain health plans market Medicare Select, a modification of a
Medicare supplemental insurance program that allows individuals to seek care
through HMOs or PPOs. Individuals with Medicare Select receive additional
benefits at a lower cost while retaining their traditional Medigap-type
coverage.
HEALTH PLAN MEDICAID PRODUCTS. Several of United's health plans offer
coverage to Medicaid-eligible individuals. These plans typically contract with a
state agency to provide such coverage and receive a fixed monthly payment for
each enrolled individual. The level of benefits generally is set by contract,
and few additional benefits are offered. Enrollment usually must be offered to
all eligible individuals without underwriting or health screening. Generally,
the provider network for commercial products is used, but some providers may
refuse to participate in the Medicaid product and the network may have a
different number or set of providers for other reasons.
INSURANCE SERVICES
The Insurance Services business unit develops and sells PPO and managed
indemnity products nationwide. United's insurance subsidiaries are licensed to
sell their products in all 50 states, the District of Columbia, Puerto Rico,
Guam and the Virgin Islands. Through these insurance subsidiaries, United offers
Options PPO, a national PPO product. Options PPO combines access to United's
commercial health plan networks and certain specialty services with managed
indemnity coverage. Individuals covered under the Options PPO product have lower
out-of-pocket costs when they obtain covered services from contracted providers,
but also have the option to go outside of the network for covered services.
For customers with less than 50 employees United typically sells its
products on an insured basis for a fixed premium, with no experience adjustments
made to the premium. This type of business often has been subject to sudden and
unpredictable changes in health care costs and generally has high administrative
and
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marketing expenses. In addition, these products are subject to extensive state
regulations. For larger customers, United sells these products on both an
insured and self-funded basis. The insured products often are sold on an
experience-rated basis, and the self-funded products usually are sold on an
administrative fee basis. In some cases, United's agreement with the customer
includes penalties or rewards related to administrative service standards and/or
health care costs.
United's insurance subsidiaries also offer several health insurance products
in conjunction with health plan products. These products help employers replace
multiple health care policies and vendors with a single health care plan. These
subsidiaries also offer reinsurance and other insured products on a selective
basis to most of United's health plans and to employers and other sponsoring
groups offering self-funded health care benefit plans. Under an agreement with
Metropolitan Life Insurance Company ("MetLife"), United offers MetLife's life,
dental, accidental death and dismemberment and short-term disability products to
United customers, and MetLife offers United's health care coverage products to
MetLife customers. This agreement with MetLife also contains certain exclusivity
and non-competition provisions.
STRATEGIC BUSINESS SERVICES
Strategic Business Services focuses on United HealthCare's business with
large employers. Its core competencies include sales and account management,
benefits administration and customer services, including government-related
operations, and care management.
Strategic Business Services provides sales and account management services
to over 200 customers, approximately 50% of which are Fortune 500 companies.
United's network-based medical and insurance products and specialized care
services are available to these customers, with various types of funding
arrangements. Strategic Business Services specializes in serving the managed
health care needs of large multi-site employers, and offers long-term strategic
health care coverage planning to its customers.
The operations unit of Strategic Business Services provides benefits
administration services and customer services to United HealthCare customers in
all market segments. Benefits administration services include enrollment,
eligibility, claims processing, and billing. Customer services include
telephonic information, provider directories and identification card production,
and oversight of the government operations and care management centers
divisions.
The government operations division provides Medicare Part A services for
hospitals and nursing homes in Connecticut, New York and Michigan and Medicare
Part B services for beneficiaries and providers in Connecticut, Minnesota,
Mississippi and Virginia. This division also provides specialized claims
processing services for durable medical equipment in 10 northeastern states.
This unit serves as the national Medicare Part B carrier for the Railroad
Retirement Board. In addition, at the request of the Office of Personnel
Management and HCFA, the government operations division contracts with all
insurance carriers involved in the administration of the Federal Employee Health
Benefit Plan ("FEHBP").
The care management centers division offers customers medical management
programs designed to improve patients' clinical outcomes, reduce medical
expenses, and increase consumer satisfaction. These services include utilization
review, review of hospital-based services, and the administration of high-impact
medical programs based upon customer-specific demographic and claims data.
RETIREES AND SENIOR SERVICES
The Retiree and Senior Services business unit includes the Company's
operations that target the market segment comprised of people age 50 and older.
These operations include Medigap and Medicare supplement products, United's
EverCare-Registered Trademark- program and the Company's United/AARP Division.
UNITED/AARP DIVISION. In early 1997, the Company finalized a 10 year
agreement with the American Association of Retired Persons ("AARP") to
underwrite Medicare and hospital supplement insurance
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products effective January 1, 1998. During 1997, the Company coordinated the
transfer of the operations from AARP's existing vendor and prepared to implement
this contract. As of January 1, 1998, the Company's insurance subsidiaries
assumed the underwriting risk and claim administration associated with the
business.
EVERCARE-REGISTERED TRADEMARK-. United's EverCare-Registered Trademark-
program coordinates the provision of a broad spectrum of health care services
primarily to permanent nursing home residents through employed and contracted
physicians and nurse practitioners. EverCare is participating in a demonstration
project with HCFA to offer health care services to the elderly nursing home
residents in several separate locations throughout the country.
SPECIALIZED CARE SERVICES
United HealthCare's Specialized Care Services business unit includes several
business lines that focus on specific aspects of managing health care. For its
specialized care services, United generally receives fees for the services it
provides, which are primarily administrative in nature, and assumes no
responsibility for health care costs except for certain behavioral health
products. United assumes some responsibility for health care costs related to
providing mental health/substance abuse services.
The Company's specialized care services are sold to and through other United
business units as well as to independent entities such as HMOs, PPOs, insurers,
Blue Cross/Blue Shield plans, third-party administrators, employers, labor
unions and/or government agencies. United's specialized care services were
available to approximately 55 million participant lives at December 31, 1997,
many of whom were not enrolled in one of United's owned health plans. One person
may be covered by more than one specialty service and may be counted more than
once.
BEHAVIORAL HEALTH SERVICES. United's behavioral health services programs
manage mental health and substance abuse-related services through specialized
provider networks and behavioral health care managers. This unit's customers
include most of United's health plans, private and public sector employers and
government agencies. These services are provided by Company-employed behavioral
health care professionals and a national network of contracted providers. United
assumes the responsibility for health care costs related to some of these
services.
HEALTH INFORMATION AND PERSONAL CARE MANAGEMENT PROGRAMS. Optum-Registered
Trademark-, United's health information and personal care management program,
helps consumers make informed choices about their health and well-being by
focusing on preventive care, self-care, smart lifestyle options, and consumer
education. United's Optum-Registered Trademark- NurseLine and employee
assistance programs provide customers the opportunity to improve the quality and
reduce the cost of medical care by helping them identify medical and human risks
that could affect their health and well-being and develop problem-specific
solutions to change behavior and reduce those risks. In addition,
Optum-Registered Trademark- issues various publications to members that
emphasize health and wellness and explain how to use health care services most
effectively. In 1997, Optum-Registered Trademark- introduced Health Forums, a
customized health information service available via the Internet.
TRANSPLANT NETWORK. United's transplant network services programs offer
clients access to a network of health care facilities for transplant-related
services and transplant care management services. United negotiates fixed,
competitive rates for high-cost, low-frequency health care services such as
organ and tissue transplants.
WORKERS COMPENSATION AND DISABILITY SERVICES. United's workers compensation
and disability services tailor United's broad resources into products and
services that apply capabilities such as coordination and use of specialized
preferred provider networks, to workers compensation and casualty insurance
cases. These products and services include hospitalization and outpatient
surgery pre-certification and care management, access to provider networks,
specialized programs such as carpal tunnel and back injury case management, and
review of imaging (CAT scans and MRI) services.
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KNOWLEDGE AND INFORMATION
United's Knowledge and Information business unit builds upon the Company's
heritage of using its large database and expertise to provide knowledge and
information services to providers, drug and device manufacturers, the
government, payors, employers and other interested organizations.
Applied HealthCare Informatics, Inc. ("AHI") was formed in 1996 to combine
some of the Company's existing information-related businesses and capabilities.
AHI's operations have expanded since then as a result of several acquisitions as
well as internal growth. AHI provides products and services to United's health
plans and other businesses and to external customers in the following areas:
data collection and warehousing; data analysis and reporting; health information
publications, database products, outcomes and effectiveness research; health
services delivery evaluation and improvement; appropriateness of care programs;
and the creation of information management tools.
United's Knowledge and Information business unit also includes the Center
for Health Care Policy and Evaluation, United's longstanding health care
information and research unit; and its Global Consulting division, which
explores opportunities to sell the Company's products and services in foreign
countries.
EXPANSION AND DIVESTITURE OF OPERATIONS
United continually evaluates expansion opportunities and often considers
whether to divest or stop offering certain of its businesses or products.
Expansion opportunities may include acquiring or disposing of a specialized care
services program or of insurance and health plan operations. United also devotes
significant attention to developing new products and techniques for managing
health care costs, measuring the outcomes and efficiency of health care
delivered, and coordinating and managing health care delivery systems. As part
of its expansion efforts, in 1997 the Company earmarked $100 million from the
Company's corporate usable cash reserves to invest in and help develop small but
promising ventures.
During 1997, the Company completed several acquisitions and also sold or
terminated certain lines of business and ceased offering some products, all as
part of its ongoing emphasis on its strategic focus. In addition, United has an
ongoing extensive acquisition program. Numerous acquisitions may affect United's
ability to integrate and manage its overall business effectively. Integration
activities relating to acquisitions may increase costs, affect membership,
affect revenue and earnings growth and adversely affect United's financial
results.
GOVERNMENT REGULATION
United's primary business, offering health care coverage and health care
management services, is heavily regulated at both the federal and state level.
United believes it complies in all material respects with the various federal
and state regulations that apply to its current operations. To maintain
compliance, United or a subsidiary may make occasional changes in its services,
products, organizational or capital structure, or marketing methods.
Government regulation of health care coverage products and services is a
changing area of law that varies from jurisdiction to jurisdiction. Regulatory
agencies generally have broad discretion to issue regulations and interpret and
enforce laws and rules. Changes in applicable laws and regulations are
continually being considered, and the interpretation of existing laws and rules
also may change periodically. These regulatory revisions could affect United's
operations and financial results. Certain proposed changes in Medicare and
Medicaid programs may improve opportunities to enroll people under products
developed for the senior populations. Other proposed changes may limit available
reimbursement and increase competition in those programs, with adverse effects
on United's financial results. Also, it may be more difficult for United to
control medical costs if federal and state bodies continue to consider and enact
significant and sometimes onerous managed care laws and regulations. Examples of
such laws are medical malpractice liability laws for health plans; mandates
requiring health plans to offer point-of-service plans
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and other benefits such as direct access and formulary restrictions; limits on
contractual terms with providers, including termination provisions;
implementation of a mandatory third party review process for certain coverage
denials and other laws and limits on utilization management.
HIPPAA. The Health Insurance Portability and Accountability Act of 1996
("HIPAA") may represent the most significant federal reform of employee benefits
law since the enactment of the Employee Retirement Income Security Act ("ERISA")
in 1974. HIPAA's federal standards apply to both the group and individual health
insurance markets, including self-insured employee benefit plans. Some of
HIPAA's significant provisions include guarantees of the availability of health
insurance for certain employees and individuals; limits on the use of
preexisting condition exclusions; prohibitions against discriminating on the
basis of health status; and requirements which make it easier to continue
coverage in cases where an employee is terminated or changes employers. While
United currently believes that it is in material compliance with the
requirements of HIPAA, the law is far reaching and complex, and the federal
agencies involved in the enforcement of HIPAA's provisions have been slow to
provide guidance regarding HIPAA's requirements in the form of final rules and
regulations. Consequently, United's efforts to measure, monitor, and adjust its
business practices to comply with HIPAA are ongoing. Further, significant
enforcement responsibilities for HIPAA's provisions have been given to the
states. It is likely that United will encounter different interpretations of
HIPAA's provisions in the different states as well as varying enforcement
philosophies which may inhibit United's ability to standardize its products and
services across state lines. Ultimately, under HIPAA and other state laws, cost
control through provider contracting and coordinating care may become more
important, and United believes its experience in these areas will allow it to
compete effectively.
FRAUD AND ABUSE. Health care fraud and abuse have become a top priority for
the nation's law enforcement entities. The funding of such law enforcement
efforts has increased dramatically in the past few years and is expected to
continue. The focus of these efforts has been directed at participants in
federal government health care programs such as Medicare, Medicaid and FEHBP.
United participates extensively in these programs. The regulations and
contractual requirements applicable to participants in these programs are
extremely complex and ever changing. In light of this environment, United has
re-emphasized its regulatory compliance efforts for these programs; however, the
programs are subject to highly technical rules. When combined with law
enforcement intolerance for any level of noncompliance, these rules mean that
compliance efforts in this arena continue to be challenging.
AUDITS AND INVESTIGATIONS. United also is potentially subject to
governmental audits, investigations and enforcement actions. These include
possible government actions relating to ERISA, which regulates insured and
self-insured health coverage plans offered by employers and United's services to
such plans and employers; FEHBP; federal and state fraud and abuse laws; state
insurance or licensing laws; and laws relating to utilization management and the
delivery of health care. Any such government actions could result in assessment
of damages, civil or criminal fines or penalties, or other sanctions, including
exclusion from participation in government programs. United is currently
involved in various government investigations, audits and reviews, some of which
are under FEHBP, ERISA, and the authority of state departments of insurance.
United does not believe the results of current audits, individually or in the
aggregate, will have a material adverse effect on its financial results.
HMOS. All of the states in which United's health plans offer HMO products
regulate the activities of those health plans. Most states require periodic
financial reports from entities licensed to operate as HMOs in their states and
impose minimum capital or reserve requirements. Some of United's health plan and
insurance subsidiaries must maintain specified capital levels to support their
operations. In addition, state regulatory agencies require some United health
plans and insurance subsidiaries to maintain restricted cash reserves
represented by interest-bearing instruments, which are held by trustees or state
regulatory agencies to ensure that each subsidiary maintains adequate financial
reserves. Some state
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regulations allow agencies to review all contracts entered into by HMOs,
including management contracts and agreements between affiliates, for
reasonableness of fees charged and other provisions.
United's health plans that have Medicare risk contracts are regulated by
HCFA. HCFA has the right to audit health plans operating under Medicare risk
contracts to determine each health plan's compliance with HCFA's contracts and
regulations and the quality of care being given to the health plan's members. To
enter into Medicare risk contracts, a health plan must be either federally
qualified or considered a Competitive Medical Plan under HCFA's requirements.
Health plans that offer a Medicare risk product also must comply with
requirements established by peer review organizations ("PROs"), which are
organizations under contract with HCFA to monitor the quality of health care
Medicare beneficiaries receive. PRO requirements relate to quality assurance and
utilization review procedures. United's health plans that have Medicare cost
contracts are subject to similar regulatory requirements. In addition, these
health plans must file certain cost reimbursement reports with HCFA, which are
subject to audit and revision.
United's health plans that have Medicaid contracts are subject to federal
and state regulation regarding services to be provided to Medicaid enrollees,
payment for those services, and other aspects of the Medicaid program. Both
Medicare and Medicaid have, or have proposed, regulations relating to fraud and
abuse, physician incentive plans, and provider referrals that could affect
United's operations.
Many of United's health plans have contracts with FEHBP. These contracts are
subject to extensive regulation, including complex rules regarding premiums
charged. FEHBP is authorized to audit the rates charged retroactively and seek
premium refunds or institute other sanctions against health plans that
participate in the program, depending on the outcome of such audits.
INSURANCE REGULATION. United's insurance subsidiaries and most of the
Company's health plans are regulated by the department of insurance or
equivalent agency in each state or other jurisdiction in which the entity is
licensed. Regulatory authorities have extensive supervisory power regarding:
licensing; the amount of reserves that must be maintained; the approval of
insurance policy forms; the nature of, and limits on, insurance company
investments; periodic examination of insurance company operations; the form and
content of annual statements and other required reports on the financial
condition of insurance companies; and the capital requirements for insurance
companies. United's insurance company subsidiaries must file periodic statutory
financial statements in each jurisdiction in which they are licensed.
Additionally, these companies are periodically examined by the insurance
departments or equivalent agencies of the jurisdictions in which they are
licensed to do business.
INSURANCE HOLDING COMPANY REGULATIONS. Many of United's health plans and
each of United's insurance subsidiaries are regulated under state insurance
holding company regulations. Insurance holding company laws and regulations
generally require registration with the state department of insurance and the
filing of certain reports that describe capital structure, ownership, financial
condition, certain intercompany transactions and general business operations.
Various notice, reporting and pre-approval requirements generally apply to
transactions between companies within an insurance holding company system,
depending on the size and nature of the transactions. Some state insurance
holding company laws and regulations require prior regulatory approval or, in
certain circumstances, prior notice of acquisitions, and certain material
intercompany transfers of assets, as well as certain transactions between the
regulated companies and their parent holding companies or affiliates.
TPAS. Certain subsidiaries of United also are licensed as third-party
administrators ("TPAs") where required. TPA regulations differ greatly from
state to state, but generally contain certain required administrative
procedures, periodic reporting obligations and minimum financial requirements.
PPOS. Some United subsidiaries or products may be subject to PPO regulation
in a particular state. PPO regulations generally contain network, contracting,
financial and reporting requirements, which vary from state to state.
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UTILIZATION REVIEW REGULATIONS. Many states have enacted laws and/or
adopted regulations governing utilization review activities, and these laws may
apply to some United operations. Generally, these laws and regulations set
specific standards for delivery of services, confidentiality, staffing and
policies and procedures of private review entities, including the credentials
required of personnel.
MCOS. Many states have enacted laws that allow self-insured employers
and/or insurance carriers to use a state-certified managed care organization
("MCO") to apply medical management and other managed care techniques to the
medical benefit portion of workers' compensation. United's subsidiaries
generally have sought MCO certification in states where it is available and
where they market managed care workers compensation products. MCO laws differ
significantly from state to state, but generally address network and utilization
review activities.
ERISA. ERISA regulates how goods and services are provided to or through
certain types of employee health benefit plans. ERISA is a complex set of laws
and regulations that is subject to periodic interpretation by the United States
Department of Labor. ERISA places controls on how United's business units may do
business with employers covered by ERISA, particularly employers that maintain
self-funded plans. The Department of Labor has an ongoing ERISA enforcement
program, which may result in additional constraints on how ERISA-governed
benefit plans conduct their activities. There recently have been legislative
attempts to limit ERISA's preemptive effect on state laws. Such limitations
could increase United's liability exposure under state law-based suits relating
to employee health benefits offered by United's health plans and specialty
businesses and permit greater state regulation of other aspects of those
businesses' operations.
MANAGEMENT INFORMATION SYSTEMS
The Company's health plans, insurance, self-funded and specialty products
use computer-based management information systems for various purposes,
including claims processing, eligibility, billing, utilization management,
underwriting, marketing and sales tracking, general accounting, medical cost
trending, managed care reporting and financial planning. These systems also
support member, group and provider service functions, including online access to
membership verification, claims and referral status, and information regarding
hospital admissions and lengths of stay. In addition, these systems support
extensive analyses of cost and outcome data.
The Company continually evaluates, upgrades and enhances the computer
information systems that support its operations. System development efforts to
increase efficiency, capacity and flexibility are ongoing and often include the
integration and consolidation of multiple systems resulting from acquisition
activity. The Company's computer processing capabilities support tracking and
processing of multiple-product delivery systems, an integrated database of
information for increased reporting and research capabilities, and automated
entry and edit capabilities to speed data capture and processing. Over the past
several years, the Company has upgraded its computer systems, integrated
multiple systems, enhanced its software functionality, and migrated to various
software database environments. This approach allows the Company to preserve its
investment in existing systems. It also allows the Company to exploit new
technologies to help improve the cost effectiveness of the services provided or
introduce new product capabilities. The Company has outsourced the operations of
a substantial portion of its data center operations and support, and certain
data network and voice communication services to third parties. Simplifying and
integrating the many different systems now servicing the Company's business is
an important component of controlling administrative expenses and effectively
managing United's operations. To the extent these integration efforts are not
successful, the Company's financial results may be adversely affected.
United has an overall project plan for the Company's Year 2000 readiness
initiative that is broken into many sub-projects for administrative ease.
Sub-projects in the Year 2000 plan will identify hardware and software that are
part of the Company's mainframe, non-mainframe, telecommunications, and other
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related equipment, that need to be replaced, converted or upgraded to achieve
Year 2000 compliance. In certain instances, the hardware and/or software
replacement will be the responsibility of United HealthCare's outsource
providers. The Company's budget for its Year 2000 initiative is currently set at
approximately $40.5 million.
The Year 2000 effort is resource intensive, and United HealthCare is
managing this effort to minimize disruption of current systems development and
expansion activities. The Company has prioritized conversions by the importance
of the system to United's core business, the applicable event horizon (when the
system will encounter problems), and the adequacy of alternatives. As
appropriate, the Company will fix, retire, rewrite or replace applications that
are not compliant. A significant portion of the Company's existing software will
"sunset" or be eliminated prior to the end of 1999. The Company anticipates
substantial completion of its Year 2000 initiative by the end of 1998.
MARKETING
The Company's marketing strategy is defined and coordinated by each
functional business unit's dedicated marketing staff. Within these business
units, primary marketing responsibility generally resides with a marketing
director and a direct sales force. In addition, several of the business units
rely upon independent insurance agents and brokers to sell some of the Company's
health plan, insurance, self-funded and specialized care products. Marketing
efforts also include public relations efforts and advertising programs that may
use television, radio, newspapers, magazines, billboards, direct mail and
telemarketing.
COMPETITION
The managed health care industry evolved primarily because of health care
buyers' concerns about rising health care costs. The industry has brought
greater cost effectiveness and accountability into the health care system
through managed care products, including health plans, PPOs, and specialized
services such as mental health or pharmacy benefit programs. The industry also
has helped increase the accessibility and quality of health care services.
United operates in a highly competitive environment. Significant
consolidation has occurred within the managed care industry, creating stronger
and more diverse competitors. At the same time, new competitors have entered the
marketplace, which also may increase competitive pressures. In certain areas,
current competition may limit United's ability to price its products at levels
United believes appropriate. These competitive factors could adversely affect
United's financial results.
As managed health care penetration of the health care market and the effects
of health care reforms continue to increase nationwide, the Company expects it
may become increasingly difficult to obtain new contracts for its health plans
with large employer and government groups. The Company also expects competition
for smaller employer groups to intensify. In addition, employers increasingly
may choose to self-insure the health care risk, while seeking benefit
administration and utilization review services from third parties to help them
control and report health care costs.
The Company's health plans, insurance services, strategic business services,
and specialized care services compete for group and individual membership with
other health insurance plans, Blue Cross/Blue Shield plans, health plans, HMOs,
PPOs, third party administrators, health care management companies, and
employers or groups that elect to self-insure. The Company also faces
competition from hospitals, health care facilities, and other health care
providers who have formed their own networks to contract directly with employer
groups and other prospective customers for the delivery of health care services.
The number and strength of the Company's competitors varies for each particular
business unit and geographic area. The Company believes that the principal
competitive factors affecting the Company and its products include price, the
level and quality of products and service, provider network capabilities, market
share, the
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offering of innovative products, product distribution systems, efficient
administration operations, financial strength and marketplace reputation.
The Company currently believes that its competitive strengths include the
breadth of its product line, its geographic scope and diversity, the strength of
its underwriting and pricing practices and staff, its significant market
position in certain geographic areas, the strength of its distribution network,
its financial strength, its generally large provider networks that provide more
member choice, its point-of-service products and experience, and its generally
favorable marketplace reputation. In some markets, however, the Company may be
at a disadvantage because of competitors with larger market shares, broader
networks, narrower networks (which may allow greater cost control and lower
prices) or a more-established marketplace name and reputation. The Company
believes its recent operational realignment will allow the individual business
units to more effectively compete in their respective markets.
EMPLOYEES
As of December 31, 1997, the Company employed approximately 29,600 people;
approximately 230 of which were represented by a union. The Company believes its
employee relations are good.
CAUTIONARY STATEMENTS
The Business section and other sections of this Form 10-K, and the
Management's Discussion and Analysis of Financial Condition and Results of
Operation and other sections of the Company's annual report to shareholders
incorporated by reference in this document, contain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 (the
"PSLRA"). When used in this Form 10-K and in filings by the Company with the
Securities and Exchange Commission, in the Company's press releases,
presentations to securities analysts or investors, and in oral statements made
by or with the approval of an authorized executive officer of the Company, the
words or phrases "believes," "anticipates," "intends," "will likely result,"
"estimates," "projects" or similar expressions are intended to identify such
forward-looking statements. Any of these forward-looking statements involve
risks and uncertainties that may cause the Company's actual results to differ
materially from the results discussed in the forward-looking statements.
The following discussion contains certain cautionary statements regarding
the Company's business that investors and others should consider. This
discussion is intended to take advantage of the "safe harbor" provisions of the
PSLRA. In making these cautionary statements, the Company is not committed to
addressing or updating each factor in future filings or communications regarding
the Company's business or results, or addressing how any of these factors may
have caused results to differ from discussions or information contained in
previous filings or communications. In addition, any of the matters discussed
below may have affected the Company's past, as well as current, forward-looking
statements about future results. The Company's actual results in the future may
differ materially from those expressed in prior communications.
HEALTH CARE COSTS. The Company uses a large portion of its revenue to pay
the costs of health care services or supplies delivered to its members. Total
health care costs incurred by the Company are affected by the number of
individual services rendered and the cost of each service. Much of the Company's
premium revenue is priced before services are delivered and the related costs
are incurred, usually on a prospective annual basis. Although the Company tries
to base the premiums it charges in part on its estimate of future health care
costs over the fixed premium period, competition, regulations and other
circumstances may limit the Company's ability to fully base premiums on
estimated costs. In addition, many factors may, and often do, cause actual
health care costs to exceed what was estimated and reflected in premiums. These
factors may include increased use of services, increased cost of individual
services, catastrophes, epidemics, the introduction of new or costly treatments,
general inflation, new mandated benefits or other regulatory changes, and
insured population characteristics. In addition, the Company's
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earnings reported for any particular quarter include estimates of covered
services incurred by the Company's enrollees during that period for which claims
have not been received or processed. Because these are estimates, the Company's
earnings may be adjusted later to reflect the actual costs.
In addition, the Company's operating results may be affected by seasonal
changes in the level of health care use during the calendar year. Although there
are no assurances, per member medical costs generally have been higher in the
first half of each year than the second half.
INDUSTRY FACTORS. The managed care industry frequently receives significant
amounts of negative publicity. This publicity has contributed to increased
legislative activity, regulation and review of industry practices. These factors
may adversely affect the Company's ability to market its products or services,
may require the Company to change its products and services, and may increase
the regulatory burdens under which the Company operates, further increasing the
costs of doing business and adversely affecting profitability.
COMPETITION. In many of its geographic or product markets, the Company
competes with a number of other entities, some of which may have certain
characteristics or capabilities that give them an advantage in competing with
the Company. United believes that barriers to entry in these markets are not
substantial, so the addition of new competitors can occur relatively easily.
Certain Company customers may decide to perform functions or services provided
by United for themselves, which would decrease Company revenues. Certain Company
providers may decide to market products and services to Company customers in
competition with United. In addition, significant merger and acquisition
activity has occurred in the industry in which the Company operates as well as
in industries that act as suppliers to the Company, such as the hospital,
physician, pharmaceutical and medical device industries. This activity may
create stronger competitors 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 or providers, or maintain
or increase its revenue growth, its pricing flexibility, its control over
medical cost trends and its marketing expenses may be adversely affected.
AARP CONTRACT. In early 1997, the Company finalized its contract
arrangements with the American Association of Retired Persons ("AARP"). Under
that long-term contract the Company provides Medicare supplemental and hospital
indemnity health insurance products to AARP members. As a result of this
agreement, the number of members served by the Company, products offered, and
services provided has grown significantly. The success of the AARP arrangement
will depend, in part, on the Company's ability to service these new members,
develop additional products and services, price the products and services
competitively, and respond effectively to federal and state regulatory changes.
GOVERNMENT PROGRAMS AND REGULATION. The Company's business is heavily
regulated on federal, state and local levels. The laws and rules governing the
Company's business and interpretations of those laws and rules are subject to
frequent change. Broad latitude is given to the agencies administering those
regulations. Existing or future laws and rules could force the Company to change
how it does business, restrict the Company's revenue and enrollment growth,
increase its health care and administrative costs and capital requirements, and
increase its liability for medical malpractice or other actions. The Company
must obtain and maintain regulatory approvals to market many of its products and
services. Delays in obtaining or failure to obtain or maintain these approvals
could adversely affect the Company's revenue or the number of its members, or
could increase costs. A significant portion of the Company's revenues relates 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 programs, generally are subject to frequent change, including changes
that reduce the number of persons enrolled or eligible, reduce the amount of
reimbursement or payment levels, or may reduce or increase the Company's
administrative or health care costs under such programs. Such changes have
adversely affected the Company's results and willingness to participate in such
programs in the past and may also do so in the future.
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The Company also is subject to various governmental reviews, audits and
investigations. Such oversight 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 damage the Company's reputation in various
markets and make it more difficult for the Company to sell its products and
services. The National Association of Insurance Commissioners (the "NAIC") has
proposed rules that will require certain capitalization levels for health care
coverage provided by insurance companies, HMOs and other risk-bearing health
care entities. The requirements would take the form of risk-based capital rules.
Currently, similar risk-based capital rules apply only to insurance companies.
Depending on the nature and extent of any new minimum capitalization
requirements ultimately adopted, there could be an increase in the capital
required for certain of the Company's subsidiaries, and there may be some
potential for disparate treatment of competing products. If the NAIC fails to
act, some form of federal solvency regulation of companies providing
Medicare-related benefit programs may be issued.
PROVIDER RELATIONS. One of the significant techniques the Company 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
the Company's health plans are so geographically diverse and most of those
health plans contract with a large number of providers, the Company currently
believes its exposure to provider relations issues is limited. In any particular
market, however, providers could refuse to contract, demand higher payments, or
take other actions that 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 near monopolies. In addition, physician
or practice management companies, which aggregate physician practices for
administrative efficiency and marketing leverage, continue to expand. These
providers may compete directly with the Company. If these providers refuse to
contract with the Company, use their market position to negotiate favorable
contracts, or place the Company at a competitive disadvantage, those activities
could adversely affect the Company's ability to market products or to be
profitable in those areas.
LITIGATION AND INSURANCE. The Company may be a party to a variety of legal
actions that affect any business, such as employment and employment
discrimination-related suits, employee benefit claims, breach of contract
actions, tort claims, and shareholder suits, including securities fraud and
intellectual property related litigation. In addition, because of the nature of
its business, the Company is subject to a variety of legal actions relating to
its business operations. These could include: claims relating to the denial of
health care benefits; medical malpractice actions; provider disputes over
compensation and termination of provider contracts; disputes related to
self-funded business, including actions alleging claim administration errors and
the failure to disclose network rate discounts and other fee and rebate
arrangements; disputes over copayment calculations; and claims relating to
customer audits and contract performance. Recent court decisions and legislative
activity may increase the Company's exposure for any of these types of claims.
In some cases, substantial noneconomic or punitive damages may be sought. The
Company currently has insurance coverage for some of these potential
liabilities. Other potential liabilities may not be covered by insurance,
insurers may dispute coverage, or the amount of insurance may not 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.
INFORMATION SYSTEMS. The Company's business depends significantly on
effective information systems, and the Company has many different information
systems for its various businesses. The Company's information systems require an
ongoing commitment of resources to maintain and enhance existing systems and
develop new systems in order to keep pace with continuing changes in information
processing technology, evolving industry standards, and changing customer
preferences. As a result of the Company's acquisition activities, the Company is
reducing the number of systems and upgrading and expanding its
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information systems capabilities. Failure to maintain effective and efficient
information systems could cause loss of existing customers, 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 parties'
failure to perform adequately.
THE YEAR 2000. The Company is in the process of modifying its computer
systems to accommodate the Year 2000. The Company currently expects to complete
this modification enough in advance of the Year 2000 to avoid adverse impacts on
its operations. The Company is expensing the costs incurred to make these
modifications. If the Company is unable to complete its Year 2000 modifications
in a timely manner or other companies with which the Company does business fail
to complete their Year 2000 modifications in a timely manner, such
non-compliance could adversely affect the Company's operations.
ADMINISTRATION AND MANAGEMENT. Efficient and cost-effective administration
of the Company's operations is essential to the Company's profitability and
competitive positioning. While the Company attempts to effectively manage such
expenses, staff-related and other administrative expenses may rise from time to
time due to business or product start-ups or expansions, growth or changes in
business, acquisitions, regulatory requirements or other reasons. These expense
increases are not clearly predictable and may adversely affect results. The
Company believes it currently has an experienced, capable management and
technical staff. The market for management and technical personnel, including
information systems professionals, in the health care industry is very
competitive. Loss of certain managers or a number of such managers could
adversely affect the Company's ability to administer and manage its business.
MARKETING. The Company markets its products and services through both
employed salespeople and independent sales agents. Although the Company has many
sales employees and agents, the departure of certain key sales employees or
agents or a large subset of such individuals could impair the Company's ability
to retain existing customers and members. 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 these customers.
ACQUISITIONS. The Company has made several large acquisitions in recent
years and has an active ongoing acquisition program. These acquisitions may
entail certain risks and uncertainties and may affect ongoing business
operations because of unknown liabilities, unforeseen administrative needs or
increased efforts to integrate the acquired operations. Failure to identify
liabilities, anticipate additional administrative needs or effectively integrate
acquired operations could result in reduced revenues, increased administrative
and other costs, or customer confusion or dissatisfaction.
DATA AND PROPRIETARY INFORMATION. Many of the products that are part of
United HealthCare's knowledge and information-related business depend
significantly on the integrity of the data on which they are based. If the
information contained in the Company's databases were found or perceived to be
inaccurate, or if such information were generally perceived to be unreliable,
commercial acceptance of the Company's database-related products would be
adversely and materially affected. Furthermore, the use by United HealthCare's
knowledge and information-related business of patient data is regulated at
federal, state and local levels. These laws and rules are changed frequently by
legislation or administrative interpretation. These restrictions could adversely
affect revenues from these products and, more generally, affect United
HealthCare's business, financial condition and results of operations.
The success of United HealthCare's knowledge and information-related
business also depends significantly on its ability to maintain proprietary
rights to its products. United relies on its agreements
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with customers, confidentiality agreements with employees, trade secrets,
copyrights and patents to protect its proprietary rights. United cannot assure
that these legal protections and precautions will prevent misappropriation of
United HealthCare's proprietary information. In addition, substantial litigation
regarding intellectual property rights exists in the software industry, and
United HealthCare expects software products to be increasingly subject to
third-party infringement claims as the number of products and competitors in
this industry segment grows. Such litigation could have an adverse effect on the
ability of United HealthCare's knowledge and information-related business to
market and sell its products and on United's business, financial condition and
results of operations.
STOCK MARKET. The market prices of the securities of the Company and
certain of the publicly held companies in the industry in which the Company
operates have shown volatility and sensitivity in response to many factors,
including general market trends, public communications 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. United HealthCare cannot assure the level or stability
of the Company's share price at any time or predict the impact the foregoing or
any other factors may have on the share price.
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EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
FIRST ELECTED AS
NAME AGE POSITION AT 12/31/97 EXECUTIVE OFFICER
- --------------------------------- --- ------------------------------------------------------ -----------------
<S> <C> <C> <C>
William W. McGuire, M.D.......... 49 President, Chairman, Chief Executive Officer and 1988
Director
Stephen J. Hemsley............... 45 Senior Executive Vice President 1997
James G. Carlson................. 45 President, Health Plans 1995
David P. Koppe................... 41 Chief Financial Officer 1992
David J. Lubben.................. 46 General Counsel and Secretary 1996
Thomas P. McDonough.............. 49 Chief Executive Officer, Strategic Business Services 1997
Travers H. Wills................. 54 Chief Operating Officer 1992
</TABLE>
The Company's Board of Directors elects executive officers annually. The
Company's executive officers serve until their successors are duly elected and
qualified.
Dr. McGuire became a director of the Company in February 1989 and the
chairman of the board in May 1991. Dr. McGuire became an executive vice
president of United in November 1988, was appointed the Company's chief
operating officer in May 1989, the Company's president in November 1989, and the
Company's chief executive officer in February 1991.
Mr. Carlson became an executive vice president of United in October 1995 and
President of the Company's Health Plans business unit in November 1997. From
March to October 1995, Mr. Carlson was executive vice president of The
MetraHealth Companies, Inc. ("MetraHealth"). Mr. Carlson was president and chief
executive officer of HealthSpring, Inc., a developer of primary care physician
practices, from July 1992 to March 1995. From April 1975 to July 1992, Mr.
Carlson was an employee of Prudential Insurance Company. Mr. Carlson's last
position with Prudential Insurance Company was vice president of Group
Insurance.
Mr. Hemsley joined the Company as a senior executive vice president in June
1997. Mr. Hemsley previously was managing partner, strategy and planning, for
Arthur Andersen LLP. He was a member of the Andersen Worldwide and Arthur
Andersen Executive Committee and Executive Council, the Chairman's Advisory
Council and Partner Income Committee. In addition, Mr. Hemsley served as chief
financial officer for Arthur Andersen. He had been with that firm for 23 years.
Mr. Koppe became the Company's chief financial officer in December 1994. He
has been employed by the Company since June 1983 and served as the Company's
vice president and treasurer from May 1989 to January 1996. Mr. Koppe also
served as the Company's controller from May 1989 until October 1994.
Mr. Lubben became the Company's general counsel and secretary in October
1996. Prior to joining United, he was a partner in the law firm of Dorsey &
Whitney LLP. Mr. Lubben first became associated with Dorsey & Whitney in 1977.
Mr. McDonough became an executive vice president of the Company in February
1997 and the chief executive officer of the Strategic Business Services business
unit in November 1997. From October 1995 through February 1997, he was the
Company's senior vice president, Claim Services. From August 1995 to October
1995, he was employed by MetraHealth as senior vice president, Claim Services.
From July 1993 through July 1995, he was the president of Harrington Services
Corporation, and from February 1988 to July 1993, he was the chief operating
officer of Jardine Group Services Corporation. Mr. McDonough has resigned from
the Company effective April 1, 1998.
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Mr. Wills has been employed by the Company since November 1992. From
November 1992 until October 1995, he served as United's senior vice president,
Specialty Operations. He has served as the Company's chief operating officer
since October 1995, as a senior executive vice president since June 1997, and
the chief executive officer of the Company's Health Plans business unit since
November 1997. From 1968 to 1992, Mr. Wills was employed by CIGNA Corporation, a
multi-line insurance company, in various capacities, most recently as president
of MCC Companies, a mental health/substance abuse subsidiary of CIGNA.
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ITEM 2. PROPERTIES
As of December 31, 1997, the Company leased approximately 1.2 million
aggregate square feet of space for its principal administrative offices in
Hartford, Connecticut and the greater Minneapolis/St. Paul, Minnesota area.
Outside of the Minneapolis/St. Paul, Minnesota and Hartford, Connecticut areas,
as of December 31, 1997, the Company leased approximately 5.6 million aggregate
square feet for office space or space for computer facilities and claims
processing centers nationwide and approximately 15,000 aggregate square feet
outside of the United States. Such space accommodates health plans, managed care
services, specialty programs or satellite administrative offices. The Company's
leases expire at various dates through January 31, 2008. As of December 31,
1997, the Company owned approximately 670,000 aggregate square feet of space for
administrative offices in various states and its staff model clinic operations
in Florida.
ITEM 3. LEGAL PROCEEDINGS
Because of the nature of its business, United is subject to suits relating
to the failure to provide or pay for health care or other benefits, poor
outcomes for care delivered or arranged under United's programs, nonacceptance
or termination of providers, failure to return withheld amounts from provider
compensation, failure of a self-funded plan serviced by United to pay benefits,
improper copayment calculations and other forms of legal actions. Some of these
suits may include claims for substantial non-economic or punitive damages.
United does not believe that any such actions, or any other types of actions,
currently threatened or pending will, individually or in the aggregate, have a
material adverse effect on United's financial position or results of operations.
However, the likelihood or outcome of current or future suits cannot be
accurately predicted, and they could adversely affect United's financial
results.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information contained under the heading "Investor Information" in the
Company's Annual Report to Shareholders for the fiscal year ended December 31,
1997, is incorporated herein by reference.
ITEM. 6. SELECTED FINANCIAL DATA
The information contained under the heading "Financial Highlights" in the
Company's Annual Report to Shareholders for the fiscal year ended December 31,
1997, is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
The information contained under the heading "Financial Review" in the
Company's Annual Report to Shareholders for the fiscal year ended December 31,
1997, is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Of the $4.0 billion of cash and investments held by the Company at December
31, 1997, approximately $750 million were cash and cash equivalents and $65
million were securities that were being held to maturity. The remaining $3.2
billion available for sale (non-trading) securities represent investment grade,
fixed income securities, substantially all from domestic issuers.
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Because of the Company's investment policies, the primary market risk
associated with the Company's non-trading portfolio is interest rate risk. With
respect to this risk, a reasonably possible near-term rise in interest rates
could negatively affect the fair value of the Company's non-trading portfolio;
however, because the Company considers it unlikely that the Company would need
or choose to substantially liquidate its non-trading portfolio, the Company
believes that such an increase in interest rates would not have a material
impact on future earnings or cash flows.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements together with the Report of
Independent Public Accountants thereon appearing on pages 20 through 34 of the
Company's Annual Report to Shareholders for the fiscal year ended December 31,
1997, are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information included under the headings "Election of Directors" and
"Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's
definitive Proxy Statement for the Annual Meeting of Shareholders to be held May
13, 1998, is incorporated herein by reference.
Pursuant to General Instruction G(3) to Form 10-K and Instruction 3 to Item
401(b) of Regulation S-K, information regarding executive officers of the
Company is provided in Part I of this Form 10-K under separate caption.
ITEM 11. EXECUTIVE COMPENSATION
The information included under the heading "Executive Compensation" in the
Company's definitive Proxy Statement for the Annual Meeting of Shareholders to
be held May 13, 1998, is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information included under the heading "Security Ownership of Certain
Beneficial Owners and Management" in the Company's definitive Proxy Statement
for the Annual Meeting of Shareholders to be held May 13, 1998, is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions that
appears under the heading "Certain Relationships and Transactions" in the
Company's definitive Proxy Statement for the Annual Meeting of Shareholders to
be held May 13, 1998, is incorporated herein by reference.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
The following consolidated financial statements of the Company are included
in the Company's Annual Report to Shareholders for the fiscal year ended
December 31, 1997 and are incorporated herein by reference:
Consolidated Statements of Operations for the three years ended December
31, 1997.
Consolidated Balance Sheets as of December 31, 1997 and 1996.
Consolidated Statements of Changes in Shareholders' Equity as of December
31, 1997, 1996, 1995 and 1994.
Consolidated Statements of Cash Flows for the Three Years Ended December
31, 1997.
Notes to Consolidated Financial Statements.
Report of Independent Public Accountants.
(a) 2. FINANCIAL STATEMENT SCHEDULES
None
(a) 3. EXHIBITS
<TABLE>
<S> <C>
3(a) Copy of the Company's Second Restated Articles of Incorporation.
(Incorporated by reference to Exhibit 3(a) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1996.)
3(b) Copy of the Company's Restated Bylaws, as amended.
4 Certificate of Designation for 5.75% Series A Convertible Preferred Stock.
(See Exhibit 3(a).)
*10(a) Employment Agreement dated as of January 6, 1996, between United HealthCare
Corporation and William W. McGuire, M.D. (Incorporated by reference to
Exhibit 10(b) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1995.)
*10(b) United HealthCare Corporation 1987 Supplemental Stock Option Plan.
(Incorporated by reference to Exhibit 10(d) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1993.)
*10(c) United HealthCare Corporation 1988 Stock Option Plan, as amended.
(Incorporated by reference to Exhibit 10(e) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1992.)
*10(d) United HealthCare Corporation 1990 Stock and Incentive Plan, as amended.
(Incorporated by reference to Exhibit 10(f) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1992.)
*10(e) United HealthCare Corporation Amended and Restated 1991 Stock and Incentive
Plan, Amended and Restated Effective May 14, 1997. (Incorporated by
reference to Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997.)
*10(f) Employment Agreement, dated as of November 1, 1994, between United HealthCare
Corporation and Jeannine Rivet. (Incorporated by reference to Exhibit 10(k)
to the Company's Annual Report on Form 10-K for the year-ended December 31,
1994.)
</TABLE>
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<TABLE>
<S> <C>
*10(g) Restated Employment Agreement dated as of May 27, 1994, between United
HealthCare Corporation and Travers H. Wills. (Incorporated by reference to
Exhibit 99.1 to the Company's Interim Report on Form 8-K dated May 27,
1994.)
*10(h) Employment Agreement dated as of December 18, 1997, between United HealthCare
Corporation and Travers H. Wills.
*10(i) Employment Agreement dated as of November 1, 1994, between United HealthCare
Corporation and Michael Mooney. (Incorporated by reference to Exhibit 10(m)
to the Company's Annual Report on Form 10-K for the year ended December 31,
1996.)
*10(j) Employment Agreement dated as of December 1, 1994, between United HealthCare
Corporation and David P. Koppe. (Incorporated be reference to Exhibit 10(q)
to the Company's Annual Report on Form 10-K for the year ended December 31,
1994.)
*10(k) Employment Agreement dated as of November 1, 1994, between United HealthCare
Corporation and Sheila T. Leatherman. (Incorporated by reference to Exhibit
10(r) to the Company's Annual Report on Form 10-K for the year ended
December 31, 1994.)
*10(l) Employment Agreement dated as of November 1, 1994, between United HealthCare
Corporation and James Conto. (Incorporated by reference to Exhibit 10(s) to
the Company's Annual Report on Form 10-K for the year ended December 31,
1994.)
*10(m) Employment Agreement effective as of October 2, 1995 between United
HealthCare Corporation and James G. Carlson. (Incorporated by reference to
Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1995.)
*10(n) Employment Agreement effective as of October 2, 1995, between United
HealthCare Corporation and David A. George. (Incorporated by reference to
Exhibit 10(n) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996.)
+10(o) Information Technology Services Agreement between The MetraHealth Companies,
Inc. and Integrated Systems Solutions Corporation dated as of November 1,
1995. (Incorporated by reference to Exhibit 10(t) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.)
+10(p) AARP Health Insurance Agreement by and among American Association of Retired
Persons, Trustees of the AARP Insurance Plan and United HealthCare
Insurance Company dated as of February 26, 1997. (Incorporated by reference
to Exhibit 10(p) to the Company's Annual Report on Form 10-K/A for the
period ended December 31, 1996.)
*10(q) United HealthCare Corporation Non-employee Director Stock Option Plan.
(Incorporated by reference to Exhibit 10(x) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1994.)
*10(r) Letter Agreement between The MetraHealth Companies, Inc. and Kennett L.
Simmons dated as of October 2, 1995. (Incorporated by reference to Exhibit
10(w) to the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.)
*10(s) Consulting Agreement between The MetraHealth Companies, Inc. and Kennett L.
Simmons dated as of October 2, 1995. (Incorporated by reference to Exhibit
10(x) to the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.)
*10(t) United HealthCare Corporation 1997 Long-Term Incentive Plan. (Incorporated by
reference to Exhibit 10(c) to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997.)
*10(u) United HealthCare Corporation 1997 Management Incentive Program.
</TABLE>
20
<PAGE>
<TABLE>
<S> <C>
*10(v) United HealthCare Corporation 1997 Executive Savings Plan.
11 Statement regarding computation of per share earnings. (See Exhibit 13.)
13 Information contained under the headings "Investor Information," "Financial
Highlights," "Financial Review" and the Company's Consolidated Financial
Statements together with the Report of Independent Public Accountants
thereon, for the fiscal year ended December 31, 1997, as required by Rule
601(b) (13) (ii). (E.D.G.A.R. version only)
21 Subsidiaries of the Registrant.
23 Consent of Independent Public Accountants.
24 Powers of Attorney.
27 Financial Data Schedule. (E.D.G.A.R. version only)
</TABLE>
- ------------------------
+ Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended,
confidential portions of these Exhibits have been deleted and filed
separately with the Securities and Exchange Commission pursuant to a request
for confidential treatment.
* Denotes management contracts and compensation plans in which certain
directors and named executive officers participate and which are being filed
pursuant to Item 601(b)(10)(iii)(A) of Regulation S-K.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended December 31,
1997.
(c) See Exhibits listed in Item 14 hereof and the Exhibits attached as a
separate section of this Report.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: March 20, 1998
<TABLE>
<CAPTION>
UNITED HEALTHCARE CORPORATION
<S> <C> <C>
By: /s/ WILLIAM W. MCGUIRE, M.D.
------------------------------
William W. McGuire, M.D.
CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------ ------------------------------ --------------
<C> <C> <C>
/s/ WILLIAM W. MCGUIRE, M.D. Director, Chief Executive March 20, 1998
------------------------------ Officer (principal executive
William W. McGuire, M.D. officer)
/s/ DAVID P. KOPPE Chief Financial Officer March 20, 1998
------------------------------ (principal financial and
David P. Koppe accounting officer)
* Director March 20, 1998
------------------------------
William C. Ballard, Jr.
* Director March 20, 1998
------------------------------
Richard T. Burke
* Director March 20, 1998
------------------------------
James A. Johnson
* Director March 20, 1998
------------------------------
Thomas H. Kean
* Director March 20, 1998
------------------------------
Douglas W. Leatherdale
* Director March 20, 1998
------------------------------
Walter F. Mondale
* Director March 20, 1998
------------------------------
Mary O. Mundinger
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------ ------------------------------ --------------
<C> <C> <C>
* Director March 20, 1998
------------------------------
Robert L. Ryan
* Director March 20, 1998
------------------------------
William G. Spears
* Director March 20, 1998
------------------------------
Kennett L. Simmons
* Director March 20, 1998
------------------------------
Gail R. Wilensky
*By /s/ WILLIAM W. MCGUIRE, M.D. March 20, 1998
------------------------------
William W. McGuire, M.D.
AS ATTORNEY-IN-FACT
</TABLE>
23
<PAGE>
EXHIBITS INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
Copy of the Company's Second Restated Articles of Incorporation. (Incorporated
by reference to Exhibit 3(a) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996.). ........................................
3(a)
Copy of the Company's Restated Bylaws, as amended. ...........................
3(b)
Certificate of Designation for 5.75% Series A Convertible Preferred Stock (See
Exhibit 3(a).). ............................................................
4
Employment Agreement dated as of January 6, 1996, between United HealthCare
Corporation and William W. McGuire, M.D. (Incorporated by reference to
Exhibit 10(b) to the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.). .......................................................
10(a)
United HealthCare Corporation 1987 Supplemental Stock Option Plan.
(Incorporated by reference to Exhibit 10(d) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1993.). .......................
10(b)
United HealthCare Corporation 1988 Stock Option Plan, as amended.
(Incorporated by reference to Exhibit 10(e) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1992.). .......................
10(c)
United HealthCare Corporation 1990 Stock and Incentive Plan, as amended.
(Incorporated by reference to Exhibit 10(f) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1992.). .......................
10(d)
United HealthCare Corporation Amended and Restated 1991 Stock and Incentive
Plan, Amended and Restated Effective May 14, 1997. (Incorporated by
reference to Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997.). .....................................
10(e)
Employment Agreement, dated as of November 1, 1994, between United HealthCare
Corporation and Jeannine Rivet. (Incorporated by reference to Exhibit 10(k)
to the Company's Annual Report on Form 10-K for the year-ended December 31,
1994.). ....................................................................
10(f)
Restated Employment Agreement dated as of May 27, 1994, between United
HealthCare Corporation and Travers H. Wills. (Incorporated by reference to
Exhibit 99.1 to the Company's Interim Report on Form 8-K dated May 27,
1994.)......................................................................
10(g)
Employment Agreement dated as of December 18, 1997, between United HealthCare
Corporation and Travers H. Wills. ..........................................
10(h)
Employment Agreement dated as of November 1, 1994, between United HealthCare
Corporation and Michael Mooney. (Incorporated by reference to Exhibit 10(m)
to the Company's Annual Report on Form 10-K for the year ended December 31,
1996.). ....................................................................
10(i)
Employment Agreement dated as of December 1, 1994, between United HealthCare
Corporation and David P. Koppe. (Incorporated by reference to Exhibit 10(q)
to the Company's Annual Report on Form 10-K for the year ended December 31,
1994.). ....................................................................
10(j)
Employment Agreement dated as of November 1, 1994, between United HealthCare
Corporation and Sheila T. Leatherman. (Incorporated by reference to Exhibit
10(r) to the Company's Annual Report on Form 10-K for the year ended
December 31,
1994.). ....................................................................
10(k)
Employment Agreement dated as of November 1, 1994, between United HealthCare
Corporation and James Conto. (Incorporated by reference to Exhibit 10(s) to
the Company's Annual Report on Form 10-K for the year ended December 31,
1994.). ....................................................................
10(l)
</TABLE>
24
<PAGE>
<TABLE>
<S> <C> <C>
Employment Agreement effective as of October 2, 1995 between United HealthCare
Corporation and James G. Carlson. (Incorporated by reference to Exhibit
10(a) to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30,
1995.). ....................................................................
10(m)
Employment Agreement effective as of October 2, 1995, between United
HealthCare Corporation and David A. George. (Incorporated by reference to
Exhibit 10(n) to the Company's Annual Report on Form 10-K for the year ended
December 31, 1996.). .......................................................
10(n)
Information Technology Services Agreement between The MetraHealth Companies,
Inc. and Integrated Systems Solutions Corporation dated as of November 1,
1995. (Incorporated by reference to Exhibit 10(t) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.). ................
10(o)
AARP Health Insurance Agreement by and among American Association of Retired
Persons, Trustees of the AARP Insurance Plan and United HealthCare Insurance
Company dated as of February 26, 1997. (Incorporated by reference to Exhibit
10(p) to the Company's Annual Report on Form 10-K/A for the period ended
December 31, 1996.). .......................................................
10(p)
United HealthCare Corporation Non-employee Director Stock Option Plan.
(Incorporated by reference to Exhibit 10(b) to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997.). .................
10(q)
Letter Agreement between The MetraHealth Companies, Inc. and Kennett L.
Simmons dated as of October 2, 1995. (Incorporated by reference to Exhibit
10(w) to the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.). .......................................................
10(r)
Consulting Agreement between The MetraHealth Companies, Inc. and Kennett L.
Simmons dated as of October 2, 1995. (Incorporated by reference to Exhibit
10(x) to the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.). .......................................................
10(s)
United HealthCare Corporation 1997 Long-Term Incentive Plan. (Incorporated by
reference to Exhibit 10(c) to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997.). .....................................
10(t)
United HealthCare Corporation 1997 Management Incentive Program. .............
10(u)
United HealthCare Corporation 1997 Executive Savings Plan. ...................
10(v)
Statement regarding computation of per share earnings (see Exhibit 13). ......
11
Information contained under the headings Investor Information, Financial
Highlights, Financial Review and the Company's Consolidated Financial
Statements together with the Report of Independent Public Accountants
thereon, for the fiscal year ended December 31, 1996, as required by Rule
601(b) (13) (ii). (E.D.G.A.R. version only).................................
13
Subsidiaries of the Registrant................................................
21
Consent of Independent Public Accountants.....................................
23
Powers of Attorney............................................................
24
Financial Data Schedule. (E.D.G.A.R. version only)............................
27
</TABLE>
25
<PAGE>
AS MOST RECENTLY AMENDED AUGUST 7, 1991
AMENDED AND
RESTATED BYLAWS
OF
UNITED HEALTHCARE CORPORATION
ARTICLE I
OFFICES, CORPORATE SEAL
Section 1.01. REGISTERED OFFICE. The registered office of the corporation in
Minnesota shall be that set forth in the Restated Articles of Incorporation or
in the most recent amendment of the Articles of Incorporation or resolution of
the directors filed with the Secretary of State of Minnesota changing the
registered office.
Section 1.02. OTHER OFFICES. The corporation may have such other offices, within
or without the State of Minnesota, as the directors shall, from time to time,
determine.
Section 1.03. CORPORATE SEAL. The corporation shall have no seal.
ARTICLE II
MEETING OF SHAREHOLDERS
Section 2.01. PLACE AND TIME OF MEETINGS. Except as provided otherwise by
Minnesota Statutes, Chapter 302A, meetings of the shareholders may be held at
any place, within or without the State of Minnesota, as may from time to time be
designated by the directors and, in the absence of such designation, shall be
held at the registered office of the corporation in the State of Minnesota. The
directors shall designate the time of day for each meeting and, in the absence
of such designation, every meeting of shareholders shall be held at ten o'clock
a.m.
Section 2.02. REGULAR MEETINGS.
(a) A regular meeting of the shareholders shall be held on such date as
the Board of Directors shall by resolution establish.
(b) At a regular meeting of the shareholders, voting as provided in the
Articles of Incorporation and these Bylaws, shall elect qualified
successors for directors who serve for an indefinite term or whose
terms have expired or are due to expire within six months after the
date of the meeting and shall transact such other business as may
properly come before them.
<PAGE>
Section 2.03. SPECIAL MEETINGS. Special meetings of the shareholders may be held
at any time and for any purpose and may be called by the Chief Executive
Officer, the Chairman of the Board, the Chief Financial Officer, any two
directors, or by a shareholder or shareholders holding ten percent (10%) or more
of the shares entitled to vote on the matters to be presented to the meeting,
except that a special meeting of shareholders called for the purpose of
considering any action to directly or indirectly facilitate or effect a business
combination (as defined by Minnesota Law), including any action to change or
otherwise affect the composition of the Board of Directors for that purpose, may
not be called by less than twenty-five percent (25%) of the shares entitled to
vote on the matters to be presented at the meeting.
Section 2.04. QUORUM, ADJOURNED MEETINGS. The holder of a majority of the shares
entitled to vote shall constitute a quorum for the transaction of business at
any regular or special meeting. In case a quorum shall not be present at a
meeting, those present may adjourn the meeting to such day as they shall, by
majority vote, agree upon, and a notice of such adjournment and the date and
time at which such meeting shall be reconvened shall be mailed to each
shareholder entitled to vote at least 5 days before such adjourned meeting. If a
quorum is present, a meeting may be adjourned from time to time without notice
other than announcement at the meeting. At adjourned meetings at which a quorum
is present, any business may be transacted which might have been transacted at
the meeting as originally noticed. If a quorum is present, the shareholders may
continue to transact business until adjournment notwithstanding the withdrawal
of enough shareholders to leave less than a quorum.
Section 2.05. VOTING. At each meeting of the shareholders every shareholder
having the right to vote shall be entitled to vote either in person or by proxy.
Each shareholder, unless the Articles of Incorporation or statute provide
otherwise, shall have one vote for each share having voting power registered in
such shareholder's name on the books of the corporation. Jointly owned shares
may be voted by any joint owner unless the corporation receives written notice
from any one of them denying the authority of that person to vote those shares.
Upon the demand of any shareholder, the vote upon any question before the
meeting shall be by ballot. All questions shall be decided by a majority vote of
the number of shares entitled to vote and represented at the meeting at the time
of the vote except if otherwise required by statute, the Articles of
Incorporation, or these Bylaws.
Section 2.06. CLOSING OF BOOKS. The Board of Directors may fix a time, not
exceeding 60 days preceding the date of any meeting of shareholders, as a record
date for the determination of the shareholders entitled to notice of, and to
vote at, such meeting, notwithstanding any transfer of shares on the books of
the
2
<PAGE>
corporation after any record date so fixed. The Board of Directors may close the
books of the corporation against the transfer of shares during the whole or any
part of such period.
If the Board of Directors fails to fix a record date for determination of the
shareholders entitled to notice of, and to vote at, any meeting of shareholders,
the record date shall be the 20th day preceding the date of such meeting.
Section 2.07. NOTICE OF MEETINGS. There shall be mailed to each shareholder,
shown by the books of the corporation to be a holder of record of voting shares,
at his address as shown by the books of the corporation, a notice setting out
the time and place of each regular meeting and each special meeting, except
where the meeting is an adjourned meeting and the date, time and place of the
meeting were announced at the time of adjournment, which notice shall be mailed
at least five days prior thereto; except that notice of a meeting at which an
agreement of merger or exchange is to be considered shall be mailed to all
shareholders of record, whether entitled to vote or not, at least fourteen days
prior thereto. Every notice of any special meeting called pursuant to Section
2.03 hereof shall state the purpose or purposes for which the meeting has been
called, and the business transacted at all special meetings shall be confined to
the purpose stated in the notice.
Section 2.08. WAIVER OF NOTICE. Notice of any regular or special meeting may be
waived by any shareholder either before, at or after such meeting orally or in a
writing signed by such shareholder or a representative entitled to vote the
shares of such shareholder. A shareholder, by his attendance at any meeting of
shareholders, shall be deemed to have waived notice of such meeting, except
where the shareholder objects at the beginning of the meeting to the transaction
of business because the item may not lawfully be considered at that meeting and
does not participate in the consideration of the item at that meeting.
Section 2.09. WRITTEN ACTION. Any action which might be taken at a meeting of
the shareholders may be taken without a meeting if done in writing and signed by
all of the shareholders entitled to vote on that action.
Section 2.10. BUSINESS TO BE BROUGHT BEFORE THE MEETING. A shareholder must
provide notice of any proposal to be submitted at an annual meeting to be
delivered to the Secretary of the Company not less than 60 days nor more than 90
days prior to the date of an annual meeting, unless notice or public disclosure
of the date of the meeting occurs less than 70 days prior to the date of the
meeting, in which event shareholders must deliver such notice not later than the
tenth day following the earlier of the day on which notice of the annual meeting
was mailed or public disclosure of the meeting date was made.
3
<PAGE>
ARTICLE III
DIRECTORS
Section 3.01. GENERAL POWERS. The business and affairs of the corporation shall
be managed by or under the direction of the Board of Directors, except as
otherwise permitted by statute.
Section 3.02. NUMBER, ELECTION AND TERM OF OFFICE.
(a) The Board of Directors shall consist of one or more members, and the
number of Directors may be increased or decreased from time to time by
resolution of a majority of the entire Board of Directors or the
holders of at least 66 2/3% of the capital stock of the corporation
entitled to vote, considered for this purpose as one class. As used
herein, "entire Board of Directors" means the total number of
directors which this corporation would have if there were no
vacancies. Except as otherwise provided by law or by these bylaws, the
directors of the corporation shall be elected at the Annual Meeting of
Stockholders in each year. Each of the directors shall hold office
until the expiration of his term, as specified herein, and until such
director's successor shall have been elected and shall qualify, or
until the earlier death, resignation, removal, or disqualification of
such director.
(b) The Board of Directors of this corporation shall be divided into three
classes, Class I, Class II, and Class III, as nearly equal in number
as possible, with the term of office of Class I expiring at the Annual
Meeting of Stockholders of this corporation in 1984, of Class II
expiring at the Annual Meeting of Stockholders in 1985 and of Class
III expiring at the Annual Meeting of Stockholders in 1986. At each
Annual Meeting of Stockholders, directors chosen to succeed those
whose term is then expired, shall be elected for a term of office
expiring at the third succeeding Annual Meeting of Stockholders after
their election. In the case of any increase or decrease in the number
of directors, the increase or decrease shall be distributed among the
several classes as nearly equal as possible, as shall be determined by
the affirmative vote of a majority of the whole Board or by the
holders of at least 66 2/3% of the capital stock of the corporation
entitled to vote, considered as one class.
Section 3.03. NOMINATION OF DIRECTOR CANDIDATES. Nomination of candidates for
election to the Board of Directors of the corporation at any annual meeting of
the shareholders may be made only by or at the direction of the Board of
Directors or by a shareholder entitled to vote at such annual meeting. All such
4
<PAGE>
nominations, except those made by or at the direction of the Board of Directors,
shall be made pursuant to timely notice in writing to the secretary of the
corporation. to be timely, any such notice must be received at the principal
executive offices of the corporation not less than sixty days prior to the date
of such annual meeting and must set forth (i) the name, age, business address,
residence address and the principal occupation or employment of each nominee
proposed in such notice; (ii) the name and address of the shareholder giving the
notice as the same appears in the corporation's stock register; (iii) the number
of shares of capital stock of the corporation which are beneficially owned by
each such nominee and by such shareholder; and (iv) such other information
concerning each such nominee as would be required soliciting proxies for the
election of such nominee. Such notice must also include a signed consent of each
such nominee to serve as a director of the corporation, if elected.
If the officer of the corporation presiding at an annual meeting of the
shareholders determines that a director nomination was not made in accordance
with the foregoing procedures, such nomination shall be void and shall be
disregarded for all purposes.
Section 3.04. DETERMINATION OF CONTESTED ELECTIONS. In the event that there are
more candidates for election to the Board of Directors at a meeting of the
shareholders than there are directors to be elected at such meeting (a
"Contested Election"), the vote for election of directors shall be by ballot and
the officer of the corporation presiding at the meeting shall appoint two
persons, who need not be shareholders, to act as Inspectors of Election at such
meeting.
The Inspectors so appointed, before entering on the discharge of their duties,
shall take and subscribe on oath or affirmation faithfully to execute the duties
of Inspectors at such meeting with strict impartiality and according to the best
of their ability, and thereupon the Inspectors shall take charge of the polls
and after the balloting shall canvas the votes and determine in accordance with
law and make a certificate to the corporation of the results of the vote taken.
No director or candidate for the office of director shall be appointed an
Inspector.
The nominees for election to the Board of Directors in a Contested Election who
are certified by the Inspectors as having been elected shall be deemed to be
duly elected and qualified upon the expiration of three business days following
the date of such certification; provided that, in the event any court
proceedings are commenced which challenge the results of such Contested
Election, such nominees shall not be deemed to be duly elected and qualified
until all such court proceedings, including appeals, shall have been finally
concluded.
5
<PAGE>
Section 3.05. CHAIRMAN OF THE BOARD. The Board of Directors may elect from their
number, a Chairman of the Board, who shall not be deemed an officer of the
Corporation as a result of such title. The Chairman of the Board, if one is
elected, shall preside at all meetings of the directors and shall have such
other duties as may be prescribed, from time to time, by the Board of Directors.
Section 3.06. BOARD MEETINGS. Meetings of the Board of Directors may be held
from time to time at such time and place within or without the State of
Minnesota as may be designated in the notice of such meeting.
Section 3.07. CALLING MEETINGS; NOTICE. Meetings of the Board of Directors may
be called by the Chairman of the Board by giving at least twenty-four hours'
notice, or by any other director by giving at least five days' notice, of the
date, time and place thereof to each director by mail, telephone, telegram or in
person.
Section 3.08. WAIVER OF NOTICE. Notice of any meeting of the Board of Directors
may be waived by any director either before, at, or after such meeting orally or
in a writing signed by such director. A director, by his attendance at any
meeting of the Board of Directors, shall be deemed to have waived notice of such
meeting, except where the director objects at the beginning of the meeting to
the transaction of business because the meeting is not lawfully called or
convened and does not participate thereafter in the meeting.
Section 3.09. QUORUM. A majority of the directors holding office immediately
prior to a meeting of the Board of Directors shall constitute a quorum for the
transaction of business at such meeting.
Section 3.10. ABSENT DIRECTORS. A director may give advance written consent or
opposition to a proposal to be acted on at a meeting of the Board of Directors.
If such director is not present at the meeting, consent or opposition to a
proposal does not constitute presence for purposes of determining the existence
of a quorum, but consent or opposition shall be counted as a vote in favor of or
against the proposal and shall be entered in the minutes or other record of
action at the meeting, if the proposal acted on at the meeting is substantially
the same or has substantially the same effect as the proposal to which the
director has consented or objected.
Section 3.11. CONFERENCE COMMUNICATIONS. Any or all directors may participate in
any meeting of the Board of Directors, or of any duly constituted committee
thereof, by any means of communication through which the directors may
simultaneously hear each other during such meeting. For the purposes of
establishing a quorum and taking any action at the meeting, such directors
participating pursuant to this Section 3.10 shall be deemed present in person at
6
<PAGE>
the meeting, and the place of the meeting shall be the place or origination of
the conference communication.
Section 3.12. VACANCIES; NEWLY CREATED DIRECTORSHIPS. Vacancies in the Board of
Directors of this corporation occurring by reason of death, resignation, removal
or disqualification shall be filled for the unexpired term by a majority of the
remaining directors of the Board although less than a quorum; newly created
directorships resulting from an increase in the authorized number of directors
by action of the Board of Directors as permitted by Section 3.02 may be filled
by a two-thirds vote of the directors serving at the time of such increase.
Section 3.13. REMOVAL. Any or all of the directors may be removed from office
at any time, with or without cause, by the affirmative vote of the shareholders
holding 66 2/3 percent of the shares entitled to vote at an election of
directors or the affirmative vote of 67 percent of the directors in office at
the time such vote is taken. In the event that the entire Board or any one or
more directors be so removed, new directors shall be elected at the same
meeting.
Section 3.14. COMMITTEES. A resolution approved by the affirmative vote of a
majority of the Board of Directors may establish committees having the authority
of the board in the management of the business of the corporation to the extent
provided in the resolution. A committee shall consist of one or more persons,
who need not be directors, appointed by affirmative vote of a majority of the
directors present. Committees are subject to the direction and control of, and
vacancies in the membership thereof shall be filled by, the Board of Directors,
except as provided by Minnesota Statutes, Section 302A.243.
A majority of the members of the committee present at a meeting is a quorum for
the transaction of business, unless a larger or smaller proportion or number is
provided in a resolution approved by the affirmative vote of a majority of the
directors present.
Section 3.15. WRITTEN ACTION. Any action which might be taken at a meeting of
the Board of Directors, or any duly constituted committee thereof, may be taken
without a meeting if done in writing and signed by all of the directors or
committee members, unless the Articles provide otherwise and the action need not
be approved by the shareholders.
Section 3.16. COMPENSATION. Directors who are not salaried officers of this
corporation shall receive such fixed sum per meeting attended or such fixed
annual sum as shall be determined, from time to time, by resolution of the Board
of Directors. The Board of Directors may, by resolution, provide that all
directors shall receive their expenses, if any, of attendance at meetings of the
Board of Directors or any committee thereof. Nothing herein
7
<PAGE>
contained shall be construed to preclude any director from serving this
corporation in any other capacity and receiving proper compensation therefor.
ARTICLE IV
OFFICERS
Section 4.01. NUMBER AND DESIGNATION. The corporation shall have one or more
natural persons exercising the functions of the offices of Chief Executive
Officer and Chief Financial Officer. The Board of Directors may elect or appoint
such other officers or agents as it deems necessary for the operation and
management of the corporation, with such powers, rights, duties, and
responsibilities as may be determined by the Board of Directors, including,
without limitation, a President, one or more Vice Presidents, a Secretary, a
Treasurer, and such assistant officers or other officers as may from time to
time be elected or appointed by the Board of Directors. Each such officer shall
have the powers, rights, duties and responsibilities set forth in these Bylaws
unless otherwise determined by the Board of Directors. Any number of offices may
be held by the same person.
Section 4.02. CHIEF EXECUTIVE OFFICER. Unless provided otherwise by a resolution
adopted by the Board of Directors, the Chief Executive Officer: (a) shall have
general active management of the business of the corporation; (b) shall, when
present, preside at all meetings of the stockholders; (c) shall see that all
orders and resolutions of the Board of Directors are carried into effect; (d)
shall sign and deliver in the name of the corporation any deeds, mortgages,
bonds, contracts or other instruments pertaining to the business of the
corporation, except in cases in which the authority to sign and deliver is
required by law to be exercised by another person or is expressly delegated by
these Bylaws or the Board of Directors to some other officer or agent of the
corporation; and (e) shall perform such other duties as from time to time may be
assigned by the Board of Directors.
Section 4.03. CHIEF FINANCIAL OFFICER. Unless provided otherwise by a resolution
adopted by the Board of Directors, the Chief Financial Officer: (a) shall cause
to be kept accurate financial records for the corporation; (b) shall cause to
be deposited all monies, drafts, and checks in the name of and to the credit of
the corporation in such banks and depositories as the Board of Directors shall
designate from time to time; (c) shall cause to be endorsed for deposit all
notes, checks and drafts received by the corporation as ordered by the Board of
Directors, making proper vouchers therefor; (d) shall cause to be disbursed
corporate funds and shall cause to be issued checks and drafts in the name of
the corporation, as ordered by the Board of Directors; (e) shall render to the
Chief Executive Officer and the Board of Directors, whenever requested, an
account of all the transactions as Chief Financial Officer and of the financial
condition of the corporation; and (f)
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shall perform such other duties as may be prescribed by the Board of Directors
or the Chief Executive Officer from time to time.
Section 4.04. PRESIDENT. Unless otherwise determined by the Board of Directors,
the President shall be the Chief Executive Officer of the corporation. If an
officer other than the President is designated Chief Executive Officer, the
President shall perform such duties as may from time to time be assigned by the
Board of Directors.
Section 4.05. VICE PRESIDENT. Each Vice President shall perform such duties as
may be prescribed from time to time by these Bylaws or by the Board of
Directors.
Section 4.06. SECRETARY. Unless provided otherwise by a resolution adopted by
the Board of Directors, the Secretary: (a) shall attend all meetings of the
stockholders and Board of Directors, and shall record all the proceedings of
such meetings in the minute book of the corporation; (b) shall give proper
notice of meetings of stockholders and Board of Directors and other notices
required by law or these Bylaws; and (c) shall perform such other duties as from
time to time may be assigned by the Board of Directors.
Section 4.07. TREASURER. The Treasurer shall perform such duties as may from
time to time be assigned by the Chief Financial Officer or by the Board of
Directors.
Section 4.08. AUTHORITY AND DUTIES. In addition to the foregoing authority and
duties, all officers of the corporation shall respectively have such authority
and perform such duties in the management of the business of the corporation as
may be determined from time to time by the Board of Directors. Unless prohibited
by a resolution of the Board of Directors, an officer elected or appointed by
the Board of Directors may, without specific approval of the Board of Directors,
delegate some or all of the duties and powers of an office to other persons.
Section 4.09. REMOVAL AND VACANCIES. The Board of Directors may remove any
officer from office at any time, with or without cause, by a resolution approved
by the affirmative vote of a majority of the directors present. Such removal,
however, shall be without prejudice to the contract rights of the person so
removed. A vacancy in an office of the corporation by reason of death,
resignation, removal, disqualification, or otherwise may, or in the case of a
vacancy in the office of the Chief Executive Officer or Chief Financial Officer
shall, be filled for the unexpired term by the Board of Directors.
Section 4.10. COMPENSATION. The officers of this corporation shall receive such
compensation for their services as may be determined by or in accordance with
resolutions of the Board of
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Directors or by one or more committees to the extent so authorized from time to
time by the Board of Directors.
ARTICLE V
SHARES AND THEIR TRANSFER
Section 5.01. CERTIFICATES FOR SHARES. All shares of the corporation shall be
certificated shares. Every owner of shares of the corporation shall be entitled
to a certificate, to be in such form as shall be prescribed by the Board of
Directors, certifying the number of shares of the corporation owned by such
shareholder. The certificates for such shares shall be numbered in the order in
which they shall be issued and shall be signed, in the name of the corporation,
by the Chief Executive Officer or the President and by the Secretary or an
Assistant Secretary or by such officers as the Board of Directors may designate.
If the certificate is signed by a transfer agent or registrar, such signatures
of the corporate officers may be by facsimile if authorized by the Board of
Directors. A certificate representing shares of this corporation shall contain
on its face the information required by Minnesota Statutes, Section 302A.417,
Subd. 4. A certificate representing shares issued by this corporation, if it is
authorized to issue shares of more than one class or series, shall set forth
upon the face or back of the certificate, or shall state that the corporation
will furnish to any shareholder upon request and without charge, a full
statement of the designations, preferences, limitations, and relative rights of
the shares of each class or series authorized to be issued so far as they have
been determined, and the authority of the Board of Directors to determine
relative rights and preferences of subsequent classes or series. Every
certificate surrendered to the corporation for exchange or transfer shall be
canceled, and no new certificate or certificates shall be issued in exchange for
any existing certificate until such existing certificate shall have been so
canceled, except in cases provided for in Section 5.04.
Section 5.02. ISSUANCE OF SHARES. The Board of Directors is authorized to cause
to be issued shares of the corporation up to the full amount authorized by the
Articles of Incorporation in such amounts as may be determined by the Board of
Directors and as may be permitted by law. No shares shall be allotted except in
consideration of cash or other property, tangible or intangible, received or to
be received by the corporation under a written agreement, of services rendered
or to be rendered to the corporation under a written agreement, or of an amount
transferred from surplus to stated capital upon a share dividend. At the time of
such allotment of shares, the Board of Directors making such allotments shall
state, by resolution, their determination of the fair value to the corporation
in monetary terms of any consideration other than cash for which shares are
allotted.
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Section 5.03. TRANSFER OF SHARES. Transfer of shares on the books of the
corporation may be authorized only by the shareholder named in the certificate,
or the shareholder's legal representative, or the shareholder's duly authorized
attorney-in-fact, and upon surrender of the certificate or the certificates for
such shares. The corporation may treat as the absolute owner of shares of the
corporation, the person or persons in whose name shares are registered on the
books of the corporation. The Board of Directors may appoint one or more
transfer agents and registrars to maintain the share records of the corporation
and to effect share transfers on its behalf.
Section 5.04. LOSS OF CERTIFICATES. Except as otherwise provided by Minnesota
Statutes, Section 302A.419, any shareholder claiming a certificate for shares to
be lost, stolen or destroyed shall make an affidavit of that fact in such form
as the Board of Directors shall require and shall, if the Board of Directors so
requires, give the corporation a bond of indemnity in form, in an amount, and
with one or more sureties satisfactory to the Board of Directors, to indemnify
the corporation against any claim which may be made against it on account of the
reissue of such certificate, whereupon a new certificate may be issued in the
same tenor and for the same number of shares as the one alleged to have been
lost, stolen or destroyed.
ARTICLE VI
DIVIDENDS, RECORD DATE
Section 6.01. DIVIDENDS. Subject to the provisions of the Articles of
Incorporation, of these Bylaws, and of law, the Board of Directors may declare
dividends whenever, and in such amounts as, in its opinion, are deemed
advisable.
Section 6.02. RECORD DATE. Subject to any provisions of the Articles of
Incorporation, the Board of Directors may fix a date not exceeding 120 days
preceding the date fixed for the payment of any dividend as the record date for
the determination of the shareholders entitled to receive payment of the
dividend and, in such case, only shareholders of record on the date so fixed
shall be entitled to receive payment of such dividend notwithstanding any
transfer of shares on the books of the corporation after the record date. If no
record date is fixed, the record date shall be at the close of business on the
day on which the Board of Directors adopts the resolution authorizing the
payment of such dividend.
ARTICLE VII
BOOKS AND RECORDS, FISCAL YEAR
Section 7.01 SHARE REGISTER. The Board of Directors of the corporation shall
cause to be kept at its principal executive office, or at another place or
places within the United States determined by the board:
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(1) a share register not more than one year old, containing the names and
addresses of the shareholders and the number and classes of shares
held by each shareholder; and
(2) a record of the dates on which certificates or transaction statements
representing shares were issued.
Section 7.02. OTHER BOOKS AND RECORDS. The Board of Directors shall cause to be
kept at its principal executive office, or, if its principal executive office is
not in Minnesota, shall make available at its registered office within ten days
after receipt by an officer of the corporation of a written demand for them made
by a shareholder or other person authorized by Minnesota Statutes Section
302A.461, originals or copies of:
(1) records of all proceedings of shareholders for the last three years;
(2) records of all proceedings of the board for the last three years;
(3) its articles and all amendments currently in effect;
(4) its bylaws and all amendments currently in effect;
(5) financial statements required by Minnesota Statutes, Section
302A.463, and the financial statement for the most recent interim
period prepared in the course of the operation of the corporation for
distribution to the shareholders or to a governmental agency as a
matter of public record;
(6) reports made to shareholders generally within the last three years;
(7) a statement of the names and usual business addresses of its directors
and principal officers;
(8) voting trust agreements described in Section 302A.453; and
(9) shareholder control agreements described in Section 302A.457.
Section 7.03. FISCAL Year. The fiscal year of the corporation shall be
determined by the Board of Directors.
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ARTICLE VIII
LOANS, GUARANTEES, SURETYSHIP
Section 8.01. The corporation may lend money to, guarantee an obligation of,
become a surety for, or otherwise financially assist a person if the
transaction, or a class of transactions to which the transaction belongs, is
approved by the affirmative vote of a majority of the directors present and:
(1) is in the usual and regular course of business of the corporation;
(2) is with, or for the benefit of, a related corporation, an organization
in which the corporation has a financial interest, an organization
with which the corporation has a business relationship, or an
organization to which the corporation has the power to make donations;
(3) is with, or for the benefit of, an officer or other employee of the
corporation or a subsidiary, including an officer or employee who is a
director of the corporation or a subsidiary, and may reasonably be
expected, in the judgment of the board, to benefit the corporation; or
(4) has been approved by the affirmative vote of the holders of two-thirds
of the outstanding shares.
The loan, guarantee, surety contract or other financial assistance may be with
or without interest, and may be unsecured, or may be secured in the manner as a
majority of the directors approve, including, without limitation, a pledge of or
other security interest in shares of the corporation. Nothing in this section
shall be deemed to deny, limit, or restrict the powers of guaranty or warranty
of the corporation at common law or under a statute of the State of Minnesota.
ARTICLE IX
INDEMNIFICATION OF CERTAIN PERSONS
Section 9.01. The corporation shall indemnify such persons, for such expenses
and liabilities, in such manner, under such circumstances, and to such extent as
permitted by Minnesota Statutes, Section 302A.521, as now enacted or hereafter
amended.
ARTICLE X
AMENDMENTS
Section 10.01. These Bylaws may be amended or altered by a vote of the majority
of the whole Board of Directors at any meeting provided that notice of such
proposed amendment shall have been given in the notice given to the directors of
such meeting. Such
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authority in the Board of Directors is subject to the power of the
shareholders to change or repeal such Bylaws by a majority vote of the
shareholders present or represented at any regular or special meeting of
shareholders called for such purpose, and the Board of Directors shall not
make or alter any Bylaws fixing a quorum for meetings of shareholders,
prescribing procedures for removing directors or filling vacancies in the
Board of Directors, or fixing the number of directors or their
classifications, qualifications, or terms of office, except that the Board of
Directors may adopt or amend any Bylaw to increase their number.
ARTICLE XI
SECURITIES OF OTHER CORPORATIONS
Section 11.01. VOTING SECURITIES HELD BY THE CORPORATION. Unless otherwise
ordered by the Board of Directors, the Chief Executive Officer shall have full
power and authority on behalf of the corporation (a) to attend any meeting of
security holders of other corporations in which the corporation may hold
securities and to vote such securities on behalf of this corporation; (b) to
execute any proxy for such meeting on behalf of the corporation; or (c) to
execute a written action in lieu of a meeting of such other corporation on
behalf of this corporation. At such meeting, the Chief Executive officer shall
possess and may exercise any and all rights and powers incident to the ownership
of such securities that the corporation possesses. The Board of Directors or the
Chief Executive Officer may, from time to time, grant such power and authority
to one or more other persons.
Section 11.02. PURCHASE AND SALE OF SECURITIES. Unless otherwise ordered by the
Board of Directors, the Chief Executive Officer shall have full power and
authority on behalf of the corporation to purchase, sell, transfer or encumber
any and all securities of any other corporation owned by the corporation, and
may execute and deliver such documents as may be necessary to effectuate such
purchase, sale, transfer or encumbrance. The Board of Directors or the Chief
Executive Officer may, from time to time, confer like powers upon any other
person or persons.
ARTICLE XII
CERTAIN BUSINESS COMBINATIONS WITH INTERESTED SHAREHOLDERS
Section 12.01. Pursuant to the authority provided by Section 302A.673, Subd.
3(b)(2), of the Minnesota Business Corporation Act, this corporation elects
not to be subject to Section 302A.673 of said Act.
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EMPLOYMENT AGREEMENT
This Agreement is made by and between Travers H. Wills ("Executive") and
United HealthCare Corporation, ("United HealthCare") for the purpose of
setting forth certain terms and conditions of Executive's employment by
United HealthCare and to protect United HealthCare's knowledge, expertise,
customer relationships and the confidential information United HealthCare has
developed about its customers, products, operations and services. As of the
Effective Date, this Agreement supersedes any prior employment-related
agreement or agreements between Executive and United HealthCare or any
subsidiary or affiliate of United HealthCare.
1. EMPLOYMENT AND DUTIES.
A. EMPLOYMENT. United HealthCare hereby directly or through its
subsidiaries employs Executive. Executive accepts such employment on
the terms and conditions set forth in this Agreement and, except as
specifically superseded by this Agreement, subject to all of United
HealthCare's policies and procedures in regard to its employees.
B. DUTIES. Executive shall serve in a senior management capacity,
reporting directly to United HealthCare's Chief Executive Officer and
shall have such responsibilities as are appropriate for a company's most
senior executive officers and as are established by United HealthCare's
Chief Executive Officer. As part of his duties initially, Executive
shall serve as the head of the health plans division of United
HealthCare and, as such, shall perform such duties as are commonly
associated with such position or as are reasonably assigned to Executive
by the Chief Executive Officer from time to time. Executive's
responsibilities as head of the health plan division shall include
oversight of the health plan operations and leadership development.
Executive shall also participate in any Senior Executive Management
Committee that United HealthCare has from time to time. Executive
agrees to devote substantially all of his business time and energy to
the performance of his duties in a diligent and proper manner.
C. RESIDENCE. Notwithstanding Section 1B, United HealthCare
acknowledges that Executive has advised United HealthCare that
Executive is, and intends to remain, a resident of the State of
Florida. As such, Executive will work out of Florida, devoting
such time in Minnesota as his position reasonably necessitates.
United HealthCare agrees that such residence and arrangement, of
itself, is not inconsistent with Executive's performance of his
obligations under Section 1B.
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2. COMPENSATION.
A. BASE SALARY. Executive shall initially be paid a base annual
salary in the amount of $525,000 payable bi-weekly, less all applicable
withholdings and deductions. Executive shall receive a periodic
performance review from his supervisor and consideration for an increase
of such base salary.
B. BONUS AND STOCK PLANS. Executive shall be eligible to participate in
United HealthCare's incentive compensation plans and its stock option and
grant plans, in accordance with the terms and conditions of those plans and
applicable laws and regulations.
C. EMPLOYEE BENEFITS. The Executive shall be eligible to participate in
United HealthCare's other employee benefit plans, including without
limitation, any life, health, dental, short-term and long-term disability
insurance coverages and any retirement plans, in accordance with the terms
and conditions of those plans and applicable laws and regulations.
D. VACATION; ILLNESS. Executive shall be entitled to paid vacation and
sick leave each year in accordance with United HealthCare's then-current
policies.
3. TERM AND TERMINATION.
A. TERM. The term of this Agreement shall begin on January 1, 1998 (the
"Effective Date") and shall continue until December 31, 1998 unless earlier
terminated as set forth in Section 3B. This Agreement shall automatically
renew for succeeding one-year periods, unless either Executive or United
HealthCare notifies the other of his or its intention not to renew this
Agreement at least thirty days prior to December 31, 1998 or any succeeding
December 31.
B. TERMINATION OF AGREEMENT AND/OR EMPLOYMENT.
1. This Agreement may be terminated at any time by the mutual
written agreement of the parties.
2. United HealthCare may terminate Executive's employment or
terminate this Agreement by giving written notice of termination which
is received by Executive at least 30 days before the effective date of
termination of employment or of this Agreement, as the case may be.
3. Executive may terminate his employment by giving written notice
of termination of employment which is received by United HealthCare at
least 30 days before the effective date of termination of employment.
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4. This Agreement shall automatically terminate on the effective
date of the termination of Executive's employment or on the date of
Executive's death, retirement or permanent and total disability which
renders Executive incapable of performing Executive's duties. United
HealthCare has the sole discretion to determine whether Executive is
permanently or totally disabled with the meaning of this Section 3B4.
C. SEVERANCE EVENTS AND COMPENSATION. In the event (i) Executive's
employment with United HealthCare is terminated by United HealthCare
pursuant to Section 3B2 and without Cause, (ii) a Change in Employment
occurs which Executive elects to treat as a termination of Executive's
employment under Section 3B2, or (iii) this Agreement does not renew
(whether by notice from United HealthCare, Executive, or otherwise) ((i),
(ii), and (iii) are collectively referred to as the "Severance Events"),
then:
1. For 12 months following the effective date of the termination
of Executive's employment ("Severance Period"), Executive shall
receive biweekly payments equal to 1/26 of (a) the greater of
Executive's annualized base salary at the effective date of
termination or Executive's average annualized base salary during
the two years preceding the effective date of termination, less all
applicable withholdings or deductions required by law or
Executive's elections under any employee benefit plans which
Executive continues to participate in under Section 3C2, plus (b)
one-half of the total of any bonus or incentive compensation (but
not including any special or one-time bonus or incentive
compensation payments) paid or payable with respect to Executive's
performance for 1997 and 1998 or, if this Agreement is renewed
beyond December 31, 1998, paid or payable with respect to
Executive's performance for the two years most immediately
preceding the effective date of the termination ((a) and (b) are
collectively referred to as the "Severance Compensation").
2. Until the later of such time as Executive or Executive's
spouse becomes eligible for Medicare, United HealthCare shall make
health care coverage available to Executive at United HealthCare's
group rates. Executive shall be responsible for the premiums
payable with respect to such health care coverage.
3. Any unvested stock options or grants awarded Executive under any
of United HealthCare's stock option or grant plans shall continue to
vest for the Severance Period. Such options or grants shall vest (a)
for options or grants made before July 1, 1996, at a rate of at least
20% of the total number of shares covered by each such option or grant
on the anniversary date of the option or grant and (b) for options or
grants made after July 1, 1996, at a rate of at least 25% of the total
number of shares covered by each such option or grant on the
anniversary date of the option or grant.
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The payments and benefits to Executive under this Section 3C shall be
the sole liability of United HealthCare to Executive in the event of a
Severance Event and shall replace and be in lieu of any payments or
benefits which otherwise might be owed by United HealthCare under any
other severance plan or program and such payments and benefits may be
conditioned by United HealthCare upon receipt of a release of claims
from Executive. Solely for purposes of stock options and grants, the
date of termination of employment shall be the last day of the
Severance Period. Executive shall have three years from his last date
of employment to exercise then vested options and, in regard to options
which vest under Section 3C3, three years to exercise those options
after the date they vest.
D. DEFINITIONS AND PROCEDURE.
1. For purposes of this Agreement, "Cause" shall mean the (a) the
repeated material failure or refusal of Executive to follow the
reasonable directions of United HealthCare's Board of Directors or
Executive's supervisor or to perform any duties reasonably required
by United HealthCare, (b) a repeated material failure to adequately
meet reasonable performance expectations, (c) material violations
of United HealthCare's Code of Conduct or (d) the commission of any
criminal act or act of fraud or dishonesty by Executive in
connection with Executive's employment by United HealthCare. In
the event that United HealthCare terminates Executive's employment
under subsections (a) or (b) of this Cause definition, United
HealthCare shall specify in the notice of termination the basis for
Cause. If the Cause described in the notice is cured to United
HealthCare's reasonable satisfaction prior to the end of the 30 day
notice period, the notice of termination of employment shall be
withdrawn.
2. For purposes of this Agreement a "Change in Employment" shall
be deemed to have occurred (a) if (i) Executive's duties are
materially adversely changed without Executive's prior consent or
(ii) Executive's salary or benefits are reduced other than as a
general reduction of salaries and benefits by United HealthCare or
(iii) the location of performance of most of Executive's duties is
moved from the general geographic location in which Executive
performed such duties prior to the move; (iv) Executive's reporting
relationship is changed to other than United HealthCare's Chief
Executive Officer or (v) without terminating Executive's employment
this Agreement is terminated by United HealthCare pursuant to
Section 3B2, and (b) if in each case under subsections (a) (i),
(ii), (iii), (iv) and (v) in the period beginning 60 days before
the time the Change in Employment occurs, Cause does not exist or
if Cause does exist United HealthCare has not given Executive
written notice that Cause exists. Executive may elect to treat a
Change in Employment as a termination of employment by United
HealthCare. To do so Executive shall send written notice of such
election
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to United HealthCare within 60 days after the date Executive
receives notice from United HealthCare or otherwise is definitively
informed of the events constituting the Change in Employment. No
Change in Employment shall be deemed to have occurred if Executive
fails to send the notice of election within the 60 day period.
Executive's failure to treat a particular Change in Employment as a
termination of employment shall not preclude Executive from treating
a subsequent Change in Employment as a termination of employment.
The effective date of a Change in Employment termination shall be
the date 30 days after United HealthCare receives the written notice
of election.
4. PROPERTY RIGHTS, CONFIDENTIALITY, NON-SOLICIT AND NON-COMPETE PROVISIONS.
A. UNITED HEALTHCARE'S PROPERTY.
1. Executive shall promptly disclose to United HealthCare in
writing all inventions, discoveries and works of authorship,
whether or not patentable or copyrightable, which are conceived,
made, discovered, written or created by Executive alone or jointly
with another person, group or entity, whether during the normal
hours of employment at United HealthCare or on Executive's own
time, during the term of this Agreement. Executive assigns all
rights to all such inventions and works of authorship to United
HealthCare. Executive shall give United HealthCare any the
assistance it reasonably requires in order for United HealthCare to
perfect, protect, and use its rights to inventions and works of
authorship.
This provision shall not apply to an invention for which no equipment,
supplies, facility or trade secret information of United HealthCare
was used and which was developed entirely on the Executive's own
time and which (1) does not relate to the business of United
HealthCare or to United HealthCare's anticipated research or
development, or (2) does not result from any work performed by the
Executive for United HealthCare.
2. Executive shall not remove any records, documents, or any other
tangible items (excluding Executive's personal property) from the
premises of United HealthCare in either original or duplicate form,
except as is needed in the ordinary course of conducting business for
United HealthCare.
3. Executive shall immediately deliver to United HealthCare, upon
termination of employment with United HealthCare, or at any other
time upon United HealthCare's request, any property, records,
documents, and other tangible items (excluding Executive's personal
property) in Executive's possession or control, including data
incorporated in word processing, computer and other data storage
media, and all copies of such
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records, documents and information, including all Confidential
Information, as defined below.
B. CONFIDENTIAL INFORMATION. During the course of his
employment Executive has and will develop, become aware of and
accumulate expertise, knowledge and information regarding United
HealthCare's organization, strategies, business and operations and
United HealthCare's past, current or potential customers and
suppliers. United HealthCare considers such expertise, knowledge
and information to be valuable, confidential and proprietary and it
shall be considered Confidential Information for purposes of this
Agreement. During this Agreement and at all times thereafter
Executive shall not use such Confidential Information or disclose
it to other persons or entities except as is necessary for the
performance of Executive's duties for United HealthCare or as has
been expressly permitted in writing by United HealthCare.
C. NON-SOLICITATION. During (i) the term of this Agreement, (ii)
any period for which Executive is receiving payments under Section
3C of this Agreement, (iii) any period following the termination or
expiration of this Agreement during which Executive remains
employed by United HealthCare and (iv) for a period of one year
after the last day of the latest of any period described in (i),
(ii) or (iii), Executive shall not (y) directly or indirectly
attempt to hire away any then-current employee of United HealthCare
or a subsidiary of United HealthCare or to persuade any such
employee to leave employment with United HealthCare, or (z)
directly or indirectly solicit, divert, or take away, or attempt to
solicit, divert, or take away, the business of any person,
partnership, company or corporation with whom United HealthCare
(including any subsidiary or affiliated company in which United
HealthCare has a more than 20% equity interest) has established or
is actively seeking to establish a business or customer
relationship.
D. NON-COMPETITION. During (i) the term of this Agreement, (ii) any
period for which Executive is receiving payments under Section 3C
of this Agreement, and (iii) any period following the termination
or expiration of this Agreement during which Executive remains
employed by United HealthCare, Executive shall not, without United
HealthCare's prior written consent, engage or participate, either
individually or as an employee, consultant or principal, partner,
agent, trustee, officer or director of a corporation, partnership
or other business entity, in any business in which United
HealthCare (including any subsidiary or affiliated company in which
United HealthCare has a more than 20% equity interest) is engaged.
In the event that Executive elects to terminate Executive's
employment pursuant to Section 3B3, United HealthCare may elect to
have the provisions of this Section 4D be in effect for one year
following the effective date of such resignation if during that one
year period United HealthCare pays Executive biweekly payments
equal to 1/26 of the Severance Compensation and if United
HealthCare agrees to continue to vest Executive's Uunvested stock
options in accordance with Section 3C3 hereof. United
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HealthCare must send written notice of such election within 10 days
after it receives written notice of the termination of employment.
5. MISCELLANEOUS.
A. ASSIGNMENT. This Agreement shall be binding upon and shall inure to
the benefit of the parties and their successors and assigns, but may not be
assigned by either party without the prior written consent of the other
party, except that United HealthCare in its sole discretion may assign this
Agreement to an entity controlled by United HealthCare at the time of the
assignment. If United HealthCare subsequently loses or gives up control of
the entity to which this Agreement is assigned, such entity shall become
United HealthCare for all purposes under this Agreement, beginning on the
date on which United HealthCare loses or gives up control of the entity.
Any successor to United HealthCare shall be deemed to be United HealthCare
for all purposes of this Agreement.
B. NOTICES. All notices under this Agreement shall be in writing and
shall be deemed to have been duly given if delivered by hand or mailed
by registered or certified mail, return receipt requested, postage
prepaid, to the party to receive the same at the address set forth below
or at such other address as may have been furnished by proper notice.
United HealthCare: 300 Opus Center
9900 Bren Road East
Minnetonka, MN 55343
Attn: Vice President Human Resources
Executive: Travers H. Wills
9801 Blandford Road
Orlando, FL 32827
C. ENTIRE AGREEMENT. This Agreement contains the entire understanding
of the parties with respect to its subject matter and may be amended or
modified only by a subsequent written amendment executed by the parties.
This Agreement replaces and supersedes any and all prior employment or
employment related agreements and understandings, including any letters
or memos which may have been construed as agreements, between the
Executive and United HealthCare or any of its subsidiaries and
affiliated companies.
D. CHOICE OF LAW. This Agreement shall be construed and interpreted
under the applicable laws and decisions of the State of Minnesota.
E. WAIVERS. No failure on the part of either party to exercise, and no
delay in exercising, any right or remedy under this Agreement shall operate
as a waiver;
7
<PAGE>
nor shall any single or partial exercise of any right or remedy preclude
any other or further exercise of any right or remedy.
F. ADEQUACY OF CONSIDERATION. Executive acknowledges and agrees that
he/she has received adequate consideration from United HealthCare to enter
into this Agreement.
G. DISPUTE RESOLUTION AND REMEDIES. Any dispute arising between the
parties relating to this Agreement or to Executive's employment by
United HealthCare shall be resolved by binding arbitration pursuant to
the Rules of the American Arbitration Association. In no event may the
arbitration be initiated more than one year after the date one party
first gave written notice of the dispute to the other party. The
arbitrators shall not ignore or vary the terms of this Agreement and
shall be bound by and apply controlling law, but may not in any case
award any punitive or exemplary damages. The parties acknowledge that
Executive's failure to comply with the Confidentiality, Non-Solicit and
Non-Compete provisions of this Agreement will cause immediate and
irreparable injury to United HealthCare and that therefore the
arbitrators, or a court of competent jurisdiction if an arbitration
panel cannot be immediately convened, will be empowered to provide
injunctive relief, including temporary or preliminary relief, to
restrain any such failure to comply.
H. NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer or be
deemed or construed to confer any rights or benefits upon any person other
than the parties.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION THAT MAY BE
ENFORCED BY THE PARTIES.
UNITED HEALTHCARE CORPORATION
By /s/ William W. McGuire /s/ Travers H. Wills
------------------------- --------------------------
Executive
Date December 18, 1997 Date /s/ December 18, 1997
----------------- ---------------------
8
<PAGE>
1997
Management
Incentive Plan
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UNITEDhealthcare -SM-
- -------------------------------------------------------------------------------
<PAGE>
1997
Management Incentive Plan
- -------------------------------------------------------------------------------
As a national leader in health care management, United HealthCare is
committed to rewarding - and keeping - the professionals who have helped us
accomplish our successes. In 1997 we again will be challenged to attain even
higher levels of performance to maintain our leadership position. Overall, we
believe our company will continue to provide tremendous opportunities for all of
us who work to make United HealthCare successful.
In our endeavors in this year and beyond, we will stress tightly managed
operational execution and excellence in service. Specific goals include
excellent growth and strong financial performance; enhanced responsiveness
through better organizational structures and processes; continued leadership
gains in each of our business units; improved products and services for all of
our customers; and successful integration of business through merger and
acquisition activity. As always, we must remain focused on continued
improvements in appropriate health care delivery, SG&A, and medical cost trends.
The information presented in this brochure describes United HealthCare's
Management Incentive Plan. Incentive programs and performance management are
inherent to our corporate culture, a culture that rewards leaders who strive for
excellence and continuous improvement. This plan also represents a significant
step toward unifying all United HealthCare leaders under a single system to
recognize our accomplishments as we work toward common goals.
As leaders at United HealthCare, we all are responsible and accountable for
maintaining the standards of excellence that will move our company forward
successfully as we work to improve the health and well-being of the people we
serve.
/s/ William W. McGuire, M.D.
William W. McGuire, M.D.
Chief Executive Officer,
President and Chairman
- -------------------------------------------------------------------------------
1
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2
<PAGE>
1997
Management Incentive Plan
- -------------------------------------------------------------------------------
OVERVIEW
Annual management incentive plan funding and payout amounts are determined
by the following performance factors:
1) The OVERALL PERFORMANCE OF UNITED HEALTHCARE, measured by accomplishment of
strategic initiatives, deployment of capital and resources, market
valuation, merger and acquisition activity, public image and recognition,
as well as financial goals in the following categories: earnings, revenue,
SG&A, medical cost ratio, growth and membership. United HealthCare's
performance, by design, affects every manager's incentive to some degree.
2) The OVERALL PERFORMANCE OF YOUR BUSINESS UNIT, SUPPORT UNIT OR CORPORATE
DIVISION. If you're part of a United HealthCare business unit, your goals
will be developed jointly by your Senior Executive, CEO or Senior Manager
and the person to whom he or she reports. If you're part of a United
HealthCare business support or corporate division, your goals will be
established by the appropriate Senior Executive and the person to whom he
or she reports.
3) YOUR INDIVIDUAL PERFORMANCE, based on your overall performance in your
position and accomplishment of established goals and objectives.
All three performance measures are used to determine the incentive pool and
incentive awards. We believe that our collective success must grow out of a
synergy of effort. This blend of performance measurement helps ensure all
of United HealthCare works together toward common goals - and therefore
allows us the greatest opportunities for success, both professionally and
personally.
INCENTIVE TARGETS
Incentive targets are defined as a percent of eligible base earnings paid
during the current fiscal year. The incentive target percents are based on grade
level and overall position responsibility.
Your senior executive will communicate this year's corporate and business
unit or corporate division goals.
- -------------------------------------------------------------------------------
3
<PAGE>
- -------------------------------------------------------------------------------
PAYMENT DETERMINATION
STEP 1 - ESTABLISHMENT OF TOTAL INCENTIVE POOL
At the end of United HealthCare's fiscal year, the Compensation
and Stock Option Committee of the Board of Directors will determine
overall United HealthCare company performance and the total amount
available in the company incentive pool. The total company
incentive pool reflects United HealthCare's total performance on
its strategic initiatives, merger and acquisition activity, and the
collective results of all United HealthCare operations. It is NOT
the average result of United HealthCare operations but the
overarching performance of the entire company.
The Compensation and Stock Option Committee will approve an incentive
pool amount based on an assessment ranging from 50% of total incentive
targets to 200% of total incentive targets. Generally, no pool amount of less
than 50% will be established.
STEP 2 - ESTABLISHMENT OF BUSINESS UNIT, SUPPORT UNIT AND CORPORATE DIVISION
POOLS
Following a determination of the total amount available in the United
HealthCare incentive pool, United HealthCare Senior Management determines the
performance and incentive pools specific to the business units, business unit
support areas and United HealthCare corporate divisions. Business support areas
will be evaluated based on the primary business areas they support and their
specific unit performance. The business unit, business support division or
corporate division pool is established by creating a pool of available dollars
from 50% of target to 200% of targets. Generally, no pool amount of less than
50% will be established for any business unit, support area, or corporate
division.
STEP 3 - ESTABLISHMENT OF INDIVIDUAL INCENTIVE PAYMENTS
After business unit, support division and United HealthCare corporate
division incentive pools are established, the respective Health Plan CEOs,
Subsidiary Business Presidents and Corporate Senior Managers determine
individual incentive payments for their eligible managers. Health Plan CEOs,
Corporate Executives or Specialty Business Presidents' incentives are determined
by their management.
For those receiving an award, payments generally range from 50% of
incentive target to 200% of incentive target.
- -------------------------------------------------------------------------------
4
<PAGE>
1997
Management Incentive Plan
- -------------------------------------------------------------------------------
ELIGIBILITY
Generally, full-time regular employees grade 28 and above are eligible for
MIP awards. It is at this level that positions are directly accountable for
meeting key division or business unit objectives and generally also manage
staff, and determine and manage financial resources and budgets. Certain
positions are not eligible for MIP due to participation in other incentive
plans, even if they meet the eligibility criteria.
- - If you were hired or promoted during the year to an MIP-eligible position,
your participation will be prorated for the time you serve as an eligible
employee. New hires or promotions in the fourth quarter of 1997 are not
eligible to participate in the 1997 plan. Employees who were eligible for
the performance incentive plan or business incentive plan prior to
promotion in the fourth quarter may still be eligible for a year-end PIP or
BIP award in lieu of an MIP award for that year.
- - If you are promoted to a position that carries a higher management
incentive potential, any incentive paid to you would be based on a
combination of your existing and new incentive targets. The targets would
be weighted according to the time you held each position.
- - If you are on leave for part of the year, pay that you receive while on
leave (except vacation and sick leave) will not be included as base
earnings in the calculation of the management incentive payment.
- - TO BE ELIGIBLE FOR A MANAGEMENT INCENTIVE PAYMENT, YOU MUST BE AN ACTIVE
EMPLOYEE AT THE TIME SUCH PAYMENTS ARE MADE. EMPLOYEES WHO TERMINATE
EMPLOYMENT PRIOR TO THE DATE INCENTIVE AWARDS ARE MADE ARE NOT ELIGIBLE FOR
ANY INCENTIVE AWARDS. IF YOU ARE ON A LEAVE OF ABSENCE AT THE TIME OF
PAYMENT, YOU WILL BECOME ELIGIBLE FOR AN INCENTIVE PAYMENT AT THE TIME OF
YOUR RETURN TO WORK. EMPLOYEES WHO DO NOT RETURN TO WORK FROM LEAVE ARE NOT
ELIGIBLE FOR AN INCENTIVE AWARD.
- - EMPLOYEES ON FORMAL DISCIPLINARY ACTION ARE NOT ELIGIBLE FOR AN INCENTIVE
PAYMENT.
The senior vice president of Human Resources will determine any exceptions
to eligibility guidelines.
401(k) PLAN AND ESOP CONTRIBUTIONS
Management Incentive Plan payments are considered compensation under the
401(k) and Employee Stock Ownership (ESOP) Plans. Management incentive payments
are not eligible for the Employee Stock Purchase Plan (ESPP).
PAYMENTS
Management Incentive Plan payments generally are made following the close
of the corporate and operating unit books for the 1997 operating year, generally
occurring during the first quarter of the following year.
If you have any questions about the Management Incentive Plan, contact your
supervisor or the head of your operating unit.
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5
<PAGE>
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EXAMPLES
EXAMPLE 1 - BUSINESS UNIT (E.G., HEALTH PLAN)
STEP 1: United HealthCare Compensation & Stock Option Committee determines
overall MIP pool.
STEP 2: Senior Management determines each unit's pool.
As an example, assume this unit is:
Business Unit Pool = 130% of target for that business
<TABLE>
6 ELIGIBLE EMPLOYEES INCENTIVE TARGETS
<S> <C>
2 at 15% at $60,000 Eligible Base Earnings $18,000
2 at 10% at $50,000 Eligible Base Earnings $10,000
2 at 10% at $40,000 Eligible Base Earnings $ 8,000
-------
TOTAL INCENTIVE TARGET EQUALS $36,000
</TABLE>
POOL IS
CALCULATED: 130% (Unit Pool) x $36,000 (Incentive Target) = Incentive Pool of
$46,800
STEP 3: Business Unit Senior Manager evaluates individual performance of
each eligible employee and determines incentive payments. Management
incentive payments are either 0% or from 50% to 200% of targets.
The amount of the pool for this Senior Manager to distribute is
$46,800; total payments cannot exceed the pool total.
EXAMPLE 2 - CORPORATE DIVISION (E.G., CORPORATE FINANCE DEPARTMENT)
STEP 1: United HealthCare Compensation & Stock Option Committee determines
overall MIP pool.
STEP 2: Senior Management determines each unit's pool.
As an example, assume this unit is:
Corporate Division Rating = 90% of target
<TABLE>
5 ELIGIBLE EMPLOYEES INCENTIVE TARGETS
<S> <C>
1 at 20% at $70,000 Eligible Base Earnings $14,000
2 at 15% at $50,000 Eligible Base Earnings $15,000
2 at 10% at $45,000 Eligible Base Earnings $ 9,000
-------
TOTAL INCENTIVE TARGET EQUALS $38,000
</TABLE>
POOL IS
CALCULATED: 90% (Overall Rating) x $38,000 (Incentive Target) = Incentive Pool
of $34,200
STEP 3: Corporate Division Head evaluates individual performance of each
eligible employee and determines incentive payments. Management
incentive payments are either 0% or can range from 50% to 200% of
targets. The amount of the pool for this Division Head is $34,200;
total payments cannot exceed the pool total.
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6
<PAGE>
1997
Management Incentive Plan
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EXAMPLE 3 - BUSINESS SUPPORT UNIT (E.G., SPECIALTY BUSINESS AREA)
STEP 1: United HealthCare Compensation & Stock Option Committee determines
over all MIP pool.
STEP 2: Senior Management determines each unit's pool.
As an example, assume this unit is:
Support Unit Pool = 100%
<TABLE>
4 ELIGIBLE EMPLOYEES INCENTIVE TARGETS
<S> <C>
1 at 15% at $60,000 Eligible Base Earnings $ 9,000
2 at 10% at $45,000 Eligible Base Earnings $ 9,000
1 at 10% at $40,000 Eligible Base Earnings $ 4,000
-------
TOTAL INCENTIVE TARGET EQUALS $22,000
</TABLE>
POOL IS
CALCULATED: 100% (Overall Rating) x $22,000 (Incentive Target) =
Incentive Pool of $22,000
STEP 3: Business Support Unit Senior Manager evaluates individual
performance of each eligible employee and determines incentive
payments. Management incentive payments are either 0% or can range
from 50% to 200% of targets. The amount of the pool for this Senior
Manager to distribute is $22,000; total payments cannot exceed the
pool total.
THERE IS NO GUARANTEE THAT ANY MANAGEMENT INCENTIVE PLAN PAYOUTS WILL BE
MADE. UNITED HEALTHCARE HAS THE EXCLUSIVE AND BINDING DISCRETION TO AMEND,
TERMINATE OR INTERPRET THE TERMS OR CONDITIONS OF THIS MANAGEMENT INCENTIVE PLAN
AT ANY TIME AND WITHOUT NOTICE. CHANGES TO THIS PLAN MUST BE IN WRITING MADE BY
THE SENIOR VICE PRESIDENT OF HUMAN RESOURCES OR THE CHIEF EXECUTIVE OFFICER OF
THE COMPANY. UNITED HEALTHCARE ALSO HAS DISCRETION TO UNILATERALLY MAKE LEGAL
AND FACTUAL DETERMINATIONS REGARDING THE PLAN. THIS MANAGEMENT INCENTIVE PLAN IS
NOT AND SHALL NOT BE DEEMED TO BE AN ENFORCEABLE CONTRACT OR AN EMPLOYEE BENEFIT
PLAN WITHIN THE MEANING OF ERISA.
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7
<PAGE>
Exhibit 10(v)
EXECUTIVE SAVINGS PLANS
<PAGE>
INTRODUCTION
At United HealthCare, we are committed to providing you opportunities that
help you prepare for a financially secure future. The 401(k) Savings Plan,
Employee Stock Purchase Plan, and Employee Stock Ownership Plan offer all
eligible employees options for accumulating savings and retirement assets.
However, these plans are subject to restrictive tax legislation. Recognizing
that this legislation limits the amount you can defer into the plans, United
HealthCare created the Executive Savings Plans. These non-qualified deferred
compensation plans allow you to defer virtually as much of your compensation
as you wish through means that leverage the current tax environment.
The non-qualified plans are not subject to the same restrictions placed upon
qualified plans, such as the annual 401(k) dollar deferral limit. The
non-qualified plans are unfunded plans, which means that funds or
contributions are not set aside in a trust and are subject to general
creditors of United HealthCare.
Participating in the non-qualified plans reduces your current take-home pay
by deferring your salary to a future point in time. Before deciding whether
or not to enroll in the non-qualified plans for 1997, be sure to consider
your own tax and financial needs. You may want to consult your personal tax
or financial advisor to weigh how these plans might fit into your long-term
financial goals.
WHAT IS ELIGIBLE COMPENSATION?
Your Part I and II contributions to the non-qualified plans are based on
eligible compensation. For the purposes of the plans, eligible compensation
generally means the same compensation as that used to determine the amount of
elective deferrals under the United HealthCare 401(k) Savings Plan.
PLAN ELIGIBILITY REQUIREMENTS
To participate in the Executive Savings Plans, you must meet certain
eligibility requirements.
1. For all three Parts under the Plans, you must be an employee with at least
two months of service in an eligible class at United HealthCare.
2. Participation under Part II or Part II is available the first day of the
calendar month following completion of the two-month eligibility
requirement.
<PAGE>
3. To participate in Part I, you also must participate in the 401(k) Savings
Plan and reach one of the following IRS limits during 1997:
- Earn $160,000 in eligible compensation (increased from $150,000 in
1996)
- Make 401(k) deferrals that reach the 1997 IRS annual limit of $9,500
4. You may only enroll in Part I or Part II during the December 1996
enrollment period or when you become newly eligible during the year.
HOW THE PLANS WORK
PART I -- 401(k) KEEP WHOLE
As long as you participate in the 401(k) Savings Plan, you may participate in
Executive Savings Plan Part I. Part I:
- - Enables you to defer from 1 percent to 15 percent of your eligible
compensation on a pre-tax basis after you 401(k) elective deferrals reach
the 1997 IRS dollar limit of $9,500 or you earn $160,000 in eligible
compensation; and
- - Provides a United HealthCare matching contribution of 50 cents for each
dollar you defer into your Part I account, up to the first 6 percent of
your eligible compensation. These matching contributions receive the same
investment credits that you elect for your own contributions.
When you reach one of the IRS 401(k) annual limits (listed on previous page),
your Part I deferrals begin as follows:
- - If you reach the limit during a Management Incentive Plan (MIP) Bonus
payout or other similar bonus payout that is declared to be equivalent to
MIP, your contributions begin in that same pay period,
OR
- - If you reach the limit during a regular payroll, your contributions begin
in the following pay period.
PART II -- STRAIGHT SALARY DEFERRAL
Under Part II provisions, you can defer from 1 percent to 100 percent of all
unearned, 1997 eligible compensation, including bonus payments. Part II
contributions begin with your first eligible pay period in 1997.
<PAGE>
PART III -- LIMITED BONUS DEFERRAL
Part III of the Executive Savings Plans is available only to those United
HealthCare executives who are eligible for special bonus amounts that are
declared by United HealthCare's Board of Directors or Compensation Committee
or their designee as being eligible for deferral under Part III of the Plans.
If you are eligible to make deferrals of special bonuses under Part III, you
will be notified in advance. At that time, you will receive a Part III
enrollment form. You can defer from 1 percent to 100 percent of 1997 special
bonuses before they are earned.
INVESTMENTS
You may elect to have your deferrals and matching United HealthCare
contributions credited with investment earnings from one or more of the three
investment credit funds offered under the plans.
Your elections are subject to investment risk. As with any investment if the
returns on the funds you choose are positive, your account balance will have
positive credits. If the returns are negative, your account balance will
decline. Please review the fund information provided with your enrollment
materials before making your decision.
You may change your investment credit choices once each calendar quarter on
any business day during that quarter. To make a change, you must complete
and submit a form to the Plan Administrator. If the form is received by the
Plan Administrator by noon Central time, the change will be effective the
following business day. You may elect to have your future contributions
credited differently from your existing account balance for investment return
purposes. When you make your investment election for 1997, your past and
future account will be credited with investment performance in the same
manner.
YOUR INVESTMENT CREDIT CHOICES
You can elect to have your account credited with the investment performance
of one or any combination of the following three funds:
- - LOOMIS SAYLES BOND FUND. The Fund's investment objective is high total
investment return through a combination of current income and capital
appreciation. The Fund seeks to attain its objective by normally investing
substantially all of its assets in debt securities (including
convertibles), although up to 20% of its assets may be invested in
preferred stocks. At least 65% of the Fund's total assets may be invested
in bonds. The Fund may invest any portion
<PAGE>
of its assets in securities of Canadian issuers, and a limited portion
of its assets insecurities of other foreign issuers. The Fund will also
invest less than 35% of its assets in securities of below investment
grade quality.
- - FIRST AMERICAN EQUITY INDEX FUND. This fund seeks to provide investment
results that correspond to the performance of the Standard and Poor's 500
Composite Stock Price Index (S&P 500). The fund invests at least 65
percent of its assets in common stocks included in the S&P 500.
- - PBHG GROWTH FUND. The fund seeks capital appreciation and invests
primarily in common stocks of small and medium capitalization companies
believed to have an outlook for strong earnings growth and the potential
for strong earnings growth and the potential for significant capital
appreciation. The average market capitalizations or annual revenues of
holdings in the portfolio may fluctuate over time as a result of market
valuation levels and the availability of specific investment opportunities.
You may elect to have your accounts credited with investment performance in
any combination of the investment credit funds in one percent increments as
long as your investment percentage totals 100 percent. Remember, however,
that as unfunded plans, the investment credit funds are only measuring tools
to determine the value of your account under the plans, and Untied HealthCare
is not required to purchase such investments.
ACCOUNT INFORMATION
You will receive a quarterly statement showing the status of your account
credits in the plans.
In addition, beginning April 1, 1997 you will have daily access to
information about your account.
VESTING
Vesting under the Executive Savings Plans Part I is based on your years of
service with United HealthCare beginning with your date of hire. You are
always 100 percent vested in your own deferrals, as well as the investment
earnings or losses on them. Eligible participants who are hired on or after
January 1, 1997, will become vested in the United HealthCare matching
contribution after completing two years of service with United HealthCare.
Active and former participants prior to January 1, 1997 are 100% vested in
deferrals, matching contributions and the investment earnings and losses on
them.
<PAGE>
DISTRIBUTIONS FROM THE PLANS
TIMING
We all know that life is full of changes. That's why each year when you
elect to participate in the Executive Savings Plans, you should consider your
personal financial goals and needs.
For 1997, active and former participants will elect a single distribution
option for all three parts of the Executive savings Plans for all past and
future account credits. If you are an active or former participant and have
already elected to receive a distribution to be paid out in February 1997,
your request will be honored. All other prior distribution requests are void
unless currently in a payout status. Distributions after February 1997, will
be available only upon termination, permanent total disability or death. You
can expect to receive your lump sum or installment distribution beginning the
February following the end of the calendar year in which the distribution
event occurs.
DISTRIBUTION OPTIONS
You have three distribution options to choose from. The option you choose
will be used for all parts of the Plans.
- - LUMP SUM: For example, if you terminate employment on January 12, 1997,
your lump sum distributions date will be in February 1998.
- - THREE-YEAR INSTALLMENTS: The three installments are paid annually
beginning the February following the end of the calendar year in which your
distribution event occurs. For example, if you terminate employment on
November 1, 1997, your installments will be paid in February 1998, February
1999 and February 2000.
- - FIVE-YEAR INSTALLMENTS: The five installments are paid annually beginning
the February following the end of the calendar year in which your
distribution event occurs. For example, if you terminate employment on
April 25, 1997 your installments will be paid in February 1998, February
1999, February 2000, February 2001 and February 2002.
Keep in mind: once you have chosen a distribution option, you cannot change
it. Be sure to choose carefully.
TAXATION
For all parts under the plans, your distribution is made in either a single
lump sum payment or in three or five installments and is immediately taxable
on receipt. No
<PAGE>
special tax treatments or early withdrawal penalties apply, as the Executive
Savings Plans are non-qualified plans.
SEQUENCE OF DEDUCTIONS
Your deductions are taken from your paycheck in the following order:
- - First, 401(k) Savings Plan contributions (if applicable)
- - Next, Part I deferrals
- - Then, Part III deferrals
- - Finally Part II deferrals
Note: The actual deferral percentage is based on your entire compensation
and bonus amount. If the amount you elected to have deducted exceeds your
paycheck, deductions will be taken until your paycheck is depleted. In that
case, all of your elections for that pay period will not be fulfilled.
Once your deferral election is made, it is irrevocable. However, you may
stop your deferral during the year under Part I and/or II. Once the
deferrals are suspended, they may not be resumed until the following calendar
year.
If you wish to stop your payroll deductions, call the Plan Administrator at
(612)936-1605 to obtain the appropriate Executive Savings Plans cancellation
form.
<PAGE>
THE EXECUTIVE SAVINGS PLANS AT A GLANCE
WHAT TO DO NEXT
Decide if participating in Part I and/or Part II is right for you. You may
find it helpful to consult with a tax or financial advisor. Then, if you
decide to enroll, complete and return the Executive Savings Plans Part I
and/or Part II enrollment and election forms included in your packet. If you
do not designate a beneficiary, your benefits will be paid in accordance with
the Plan's provisions in the event of your death.
As an important component of United HealthCare's competitive benefits
program, the Executive Savings Plan Part I and Executive Savings Plan Parts
II and III offer you a tremendous opportunity to save for your future. The
plans also enable you to defer taxes associated with your deferred
compensation until termination, total permanent disability or death. For
purposes of obtaining favorable state tax treatment for eligible
distributions, the Executive Savings Plan has been separated into two
separate plans beginning in 1997, the Executive Savings Plan Part I and the
Executive Savings Plan Parts II and III. However, the Plan Administrator and
election procedures are the same for both plans. As a result, these
communications collectively refer to both plans as the "Executive Savings
Plans" or "Plans."
There are three separate parts to the Executive Savings Plans, allowing you
to design a deferral strategy that meets your needs:
PART 1 -- 401(k) KEEP WHOLE
- - Allows you to defer, on a pre-tax basis, from 1 percent to 15 percent of
your eligible compensation after you reach one of the IRS 401(k) limits.
- - Provides a United HealthCare matching contribution of 50 percent of the
first 6 percent of your deferral.
PART II -- STRAIGHT SALARY DEFERRAL
- - Lets you defer all or a portion of your unearned, eligible compensation.
PART III -- LIMITED BONUS DEFERRAL
- - Enables you to defer all of or a portion of special bonuses to a future
point in time.
<PAGE>
FINANCIAL HIGHLIGHTS
UNITED HEALTHCARE
<TABLE>
FOR THE YEAR ENDED DECEMBER 31,
(IN MILLIONS, EXCEPT PER SHARE DATA) 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED OPERATING RESULTS
Revenues $11,794 $ 10,074 $ 5,671 $ 3,769 $ 3,115
Earnings From Operations $ 742 $ 596 (1) $ 461 (2) $ 506 $ 336
- -------------------------------------------------------------------------------------------------------------------------------
Net Earnings Before Extraordinary Gain $ 460 $ 356 (1) $ 286 (2) $ 288 (3) $ 212
Extraordinary Gain on Sale of
Subsidiary, net - - - 1,377 (4) -
- -------------------------------------------------------------------------------------------------------------------------------
Net Earnings $ 460 $ 356 (1) $ 286 (2) $ 1,665 $ 212
Convertible Preferred Stock Dividends (29) (29) (7) - -
- -------------------------------------------------------------------------------------------------------------------------------
Net Earnings Applicable to
Common Shareholders $ 431 $ 327 $ 279 $ 1,665 $ 212
- -------------------------------------------------------------------------------------------------------------------------------
Basic Net Earnings per Common Share
Basic Net Earnings per Common
Share Before Extraordinary Gain $ 2.30 $ 1.80 $ 1.61 $ 1.69 $ 1.25
Extraordinary Gain - - - 8.06 (4) -
- -------------------------------------------------------------------------------------------------------------------------------
Basic Net Earnings per Common Share $ 2.30 $ 1.80 $ 1.61 $ 9.75 $ 1.25
- -------------------------------------------------------------------------------------------------------------------------------
Diluted Net Earnings per Common Share
Diluted Net Earnings per Common
Share Before Extraordinary Gain $ 2.26 $ 1.76 (1) $ 1.57 (2) $ 1.64 (3) $ 1.23
Extraordinary Gain - - - 7.86 (4) -
- -------------------------------------------------------------------------------------------------------------------------------
Diluted Net Earnings per
Common Share $ 2.26 $ 1.76 (1) $ 1.57 (2) $ 9.50 $ 1.23
- -------------------------------------------------------------------------------------------------------------------------------
Basic Weighted-Average Number of
Common Shares Outstanding 187 182 174 171 170
Weighted-Average Number of Common
Shares Outstanding, Assuming Dilution 191 186 177 175 172
- -------------------------------------------------------------------------------------------------------------------------------
Dividends Per Share
Common Stock $ 0.03 $ 0.03 $ 0.03 $ 0.03 $ 0.015
Convertible Preferred Stock $ 57.50 $ 57.50 $ 14.38 $ - $ -
- -------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED FINANCIAL CONDITION
(AS OF DECEMBER 31)
Cash and Investments $ 4,041 $ 3,453 $ 3,078 $ 2,769 $ 1,169
Total Assets $ 7,623 $ 6,997 $ 6,161 $ 3,489 $ 1,787
Shareholders' Equity $ 4,534 $ 3,823 $ 3,188 $ 2,795 $ 1,085
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Financial Highlights should be read together with the accompanying Financial
Review and Consolidated Financial Statements and notes.
(1) Excluding the nonoperating merger costs associated with the acquisition of
HealthWise of America, Inc. of $15 million ($9 million after tax, or $0.05
diluted net earnings per common share) and the provision for future losses on
two large multiyear contracts of $45 million ($27 million after tax, or $0.15
diluted net earnings per common share), 1996 earnings from operations and net
earnings would have been $641 million and $392 million, or $1.96 diluted net
earnings per common share.
(2) Excluding restructuring charges associated with the acquisition of The
MetraHealth Companies, Inc., of $154 million ($97 million after tax, or $0.55
diluted net earnings per common share), 1995 earnings from operations and net
earnings would have been $615 million and $383 million, or $2.12 diluted net
earnings per common share.
(3) Excluding the nonoperating merger costs associated with the acquisitions
of Complete Health Services, Inc. and Ramsay-HMO, Inc., of $36 million ($22
million after tax, or $0.13 diluted net earnings per common share), 1994 net
earnings before extraordinary gain would have been $310 million, or $1.77
diluted net earnings per common share.
(4) In May 1994, the Company sold Diversified Pharmaceutical Services, Inc.
for $2.3 billion in cash and recognized an extraordinary gain after
transaction costs and income tax effects of $1.4 billion, or $7.86 diluted
net earnings per common share.
14
<PAGE>
FINANCIAL REVIEW
UNITED HEALTHCARE
United HealthCare ("we," "us," "our") has completed several transactions
affecting the year-to-year comparisons of our consolidated financial position
and results of operations. The most significant transaction was our October 2,
1995, acquisition of The MetraHealth Companies, Inc. (MetraHealth). MetraHealth
was formed in January 1995, when the group health care operations of
Metropolitan Life Insurance Company and The Travelers Insurance Group were
combined. At the time of acquisition, MetraHealth served over 10 million
people, including 5.9 million in network-based care programs, 469,000 of whom
were health plan members.
We acquired two other companies with health plan operations during 1996.
- - On April 12, 1996, we acquired HealthWise of America, Inc. (HealthWise), a
health care management company that owned or operated health plans in Maryland,
Kentucky, Tennessee and Arkansas. HealthWise served 154,000 members at the time
of acquisition.
- - On March 29, 1996, we acquired PHP, Inc. (PHP), a North Carolina-based
health plan. PHP served 132,000 members at the time of acquisition.
We accounted for the acquisition of HealthWise as a pooling of interests;
however, we did not restate our consolidated financial results because the
effects of the acquisition on our consolidated financial statements were not
material. We accounted for the MetraHealth and PHP acquisitions as purchase
transactions and, accordingly, only the post-acquisition results of these
companies are included in our consolidated financial statements.
This Financial Review should be read together with the accompanying
Consolidated Financial Statements and notes.
SUMMARY OPERATING INFORMATION
<TABLE>
1997 1996(1) 1995(3)
---------------------------------------------------------------------------
AMOUNT OR PERCENT AMOUNT OR PERCENT AMOUNT OR
PERCENT INCREASE (DECREASE) PERCENT INCREASE (DECREASE) PERCENT
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues (IN MILLIONS) $ 11,794 17% $ 10,074 78% $ 5,671
Net Earnings (IN MILLIONS) $ 460 17% $ 392 2% $ 383
- ---------------------------------------------------------------------------------------------------------------------------------
Medical Costs to Premium Revenues 84.3% 84.0% 79.7%
SG&A Expenses to Total Revenues 20.0% 21.5% 18.2%
- ---------------------------------------------------------------------------------------------------------------------------------
Enrollment by Product (IN THOUSANDS AS OF DECEMBER 31)
Health Plan Products
Commercial 4,600 12% 4,100 36% 3,005
Medicare 352 53% 230 55% 148
Medicaid 526 0% 525 49% 352
- ---------------------------------------------------------------------------------------------------------------------------------
Total Health Plan Products 5,478 13% 4,855 39% 3,505
Other Network-Based Products 5,556 2% 5,462 (2) (3%) 5,628 (2)
Indemnity Products 2,030 (27%) 2,795 (2) (27%) 3,803 (2)
- ---------------------------------------------------------------------------------------------------------------------------------
Total Enrollment 13,064 0% 13,112 1% 12,936
- ---------------------------------------------------------------------------------------------------------------------------------
Enrollment by Funding Arrangement
(IN THOUSANDS AS OF DECEMBER 31)
Fully Insured
Health Plan Products 5,172 14% 4,542 39% 3,262
Other Network-Based Products 687 (4%) 719 3% 700
Indemnity Products 370 (37%) 585 (40%) 982
- ---------------------------------------------------------------------------------------------------------------------------------
Total Fully Insured 6,229 7% 5,846 18% 4,944
- ---------------------------------------------------------------------------------------------------------------------------------
Self-Funded
Health Plan Products 306 (2%) 313 29% 243
Other Network-Based Products 4,869 3% 4,743 (2) (4%) 4,928 (2)
Indemnity Products 1,660 (25%) 2,210 (2) (22%) 2,821 (2)
- ---------------------------------------------------------------------------------------------------------------------------------
Total Self-Funded 6,835 (6%) 7,266 (9%) 7,992
- ---------------------------------------------------------------------------------------------------------------------------------
Total Enrollment 13,064 0% 13,112 1% 12,936
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Amounts and percents include post-acquisition operating results of
HealthWise and PHP. For comparability purposes, amounts and percents exclude
merger costs associated with the acquisition of HealthWise of $15 million ($9
million after tax) and the provision for future losses on two large multiyear
contracts of $45 million ($27 million after tax).
(2) For comparability purposes, amounts and percents exclude the self-funded
other network-based and indemnity lives served by United HealthCare
Administrators, Inc., of 666,000 in 1996 and 674,000 in 1995. We sold United
HealthCare Administrators, Inc. on June 30, 1997.
(3) Amounts and percents include post-acquisition operating results of
MetraHealth. For comparability purposes, amounts and percents exclude
restructuring charges of $154 million ($97 million after tax) associated with
the MetraHealth acquisition.
15
<PAGE>
RESULTS OF OPERATIONS
PREMIUM REVENUES
Premium revenues in 1997 totaled $10.1 billion. This represents an increase of
$1.6 billion, or 19%, compared to 1996 premium revenues. Excluding the effects
of the HealthWise and PHP acquisitions, premium revenues in 1997 increased by
17% over 1996.
The increase in premium revenues primarily is due to growth in year-over-year
same-store health plan premium revenues of $1.5 billion, or 25%, in 1997. The
increase in health plan premium revenues reflects same-store enrollment growth
of 13% and an average year-over-year premium rate increase on renewing
commercial groups exceeding 5%. Growth in our Medicare programs also
contributed to the increase in premium revenues. Included in the total health
plan same-store enrollment growth of 13% is a year-over-year same-store
increase of 53% in Medicare enrollment. Significant growth in Medicare
enrollment affects year-over-year comparability of premium revenues. The
Medicare product generally has per member premium rates three to four times
higher than average commercial premium rates because this population uses
proportionately more medical care services.
The year-over-year increase in premium revenues from health plan operations
was partially offset by an expected decrease in premium revenues from fully
insured non-network-based indemnity products of $218 million. Nearly $60
million of this decrease is because we discontinued our relationship with a
broker who sold and administered small group indemnity business on our behalf,
which led to the loss of 30,000 indemnity members effective July 1, 1997. The
remaining decrease is from declining enrollment in these products, due to
average 10% to 20% rate increases that started in 1996 and continued into 1997,
as well as other business factors. We expect enrollment in the non-network-
based indemnity products will continue to decline through 1998. To the extent
possible, we will try to convert these enrollees to our network-based managed
care products.
Premium revenues in 1996 totaled $8.5 billion. This was an increase of $3.6
billion, or 72%, over 1995 premium revenues. Excluding the effects of the
MetraHealth, HealthWise and PHP acquisitions, the increase in 1996 premium
revenues over 1995 was 28%. Total same-store health plan enrollment grew 30%,
and year-over-year premium rate increases on renewing commercial groups were 1%
to 2% on average.
Because of changes in our customer mix, we did not realize the full effect of
same-store enrollment growth and average year-over-year premium rate increases
in the percentage increase in 1996 premium revenues. This is because much of
the enrollment growth in 1996 had been in health plan small group products,
which generally have lower benefits (and therefore lower premiums) than other
commercial health plan products.
MEDICAL COSTS
The combination of our pricing strategy and medical management efforts is
reflected in the medical care ratio (the percent of premium revenues expensed
as medical costs). We generally set new and renewal commercial health plan
premium rates based on anticipated health care costs. Our health care cost
trend was in the 3% to 4% range throughout 1996 and 1997, an increase over our
1995 trend of 1% to 2%. We have been increasing premium rates in excess of 5%
on average for new and existing commercial health plan business beginning in
the second half of 1996, throughout 1997 and into 1998.
The medical care ratio increased from 84.0% in 1996 (before nonrecurring
charges) to 84.3% in 1997. The increase in the medical care ratio is the result
of several factors.
- - A few health plan markets had medical care ratios substantially higher
than our other health plans in the aggregate. The reasons varied from plan to
plan, but generally, medical cost controls and provider contracting initiatives
were not being fully implemented and commercial premium yields were
insufficient compared to corresponding medical costs. We expect performance
will improve in these markets; however, we believe these health plans will
continue to moderate our overall results through 1998.
- - Several markets had recently introduced Medicare products, which have been
well received and are growing rapidly. We generally experience higher medical
care ratios during the early stage of Medicare product introductions.
- - Medicaid premiums did not increase and, in fact, decreased in several
markets. Further Medicaid premium reductions are possible in certain markets in
1998, which may inhibit our ability to improve the overall medical care ratio
in the near term.
The medical care ratio increased from 79.7% in 1995 to 84.0% in 1996
(before nonrecurring charges). A portion of the increase in the medical care
ratio was because of former MetraHealth products (included in the 1996
results, but only in one quarter of 1995), which historically have had a
higher
16
<PAGE>
medical care ratio when compared to our other products. Had the MetraHealth
products been included in our financial results for all of 1995, the medical
care ratio would have been approximately 81.0%. The 1996 medical care ratio
also reflects the increasing health care cost trend of 3% to 4% as previously
discussed. In addition, in the second quarter of 1996, we recorded a provision
of $45 million to cover estimated losses we expect to incur through the
remaining terms of two large multiyear contracts in our St. Louis health plan.
Including the contract loss provision, the 1996 medical care ratio was 84.6%.
MANAGEMENT SERVICES AND FEE REVENUES
Management services and fee revenues in 1997 totaled $1.4 billion. This
represents an increase of $30 million, or 2%, over management services and fee
revenues in 1996. These revenues are primarily generated from self-funded
products where we receive a fee for administrative services and generally
assume no financial responsibility for health care costs associated with these
products. In addition, we generate fee revenues from administrative services we
perform on behalf of managed health plans and for services provided by our
specialty businesses.
The overall increase in management services and fee revenues is attributable
to enrollment growth within the managed health plans and an increase in
individuals served by our specialty services operations, most notably in United
Behavioral Health and Optum-Registered Trademark-, our telephone- and Internet-
based health information and personal care management business. Offsetting
these increases, fee revenues from self-funded products decreased $15 million
because of declining enrollment in these products. In addition, the June 30,
1997, sale of our subsidiary, United HealthCare Administrators, Inc., resulted
in a $24 million decrease in these revenues in 1997 compared to 1996.
Management services and fee revenues in 1996 of $1.4 billion were two times
greater than the comparable 1995 revenues. Excluding the effect of the
MetraHealth, HealthWise and PHP acquisitions, we generated management services
and fee revenues in 1996 of $409 million, a 42% increase over 1995. Managed
health plans, United Behavioral Health and Optum-Registered Trademark- again
accounted for the most notable increases.
OTHER OPERATING EXPENSES
Selling, general and administrative expenses as a percent of total revenues
(the SG&A ratio) increased from 18.2% in 1995 to 21.5% in 1996. As expected,
the MetraHealth acquisition had a significant impact on SG&A expenses (in total
dollars as well as a percentage of revenue) because a greater proportion of the
former MetraHealth business consisted of fee-based, self-funded products rather
than products that generate full premium revenue. Since the MetraHealth
acquisition, we have decreased the SG&A ratio from 24.2% in the fourth quarter
of 1995 to 20.0% in 1997.
The improvement in the SG&A ratio reflects ongoing operating efficiencies as
well as our diligence in managing these expenses. On an absolute dollar basis,
selling, general and administrative costs increased $199 million in 1997, or
9%, over 1996. This increase reflects the additional infrastructure needed to
support the corresponding $1.6 billion increase in premium-based business, as
well as the additional investment in new Medicare markets and increased support
for our growing specialty businesses.
Depreciation and amortization was $146 million in 1997, $133 million in 1996,
and $94 million in 1995. Depreciation and amortization increased each year
because of higher levels of capital expenditures to support business growth and
amortization of goodwill and other intangible assets related to recent
acquisitions.
With the MetraHealth acquisition, we developed a comprehensive plan to
integrate the business activities of the combined companies. The plan included,
among other things, the disposition, discontinuance and restructuring of
certain businesses and product lines, and the recognition of certain asset
impairments. In the fourth quarter of 1995, we recorded $154 million in
restructuring charges associated with the plan. The restructuring charges did
not cover all integration costs. Such things as new information systems,
anticipated operating losses from businesses to be discontinued, employee
relocation, and training were not included. These costs are being recognized as
they are incurred.
MERGER COSTS
In connection with the April 1996 acquisition of HealthWise, we recorded
nonoperating merger costs of
$15 million, consisting primarily of professional fees and other direct costs
associated with the acquisition.
17
<PAGE>
GOVERNMENT REGULATION
Our primary business, offering health care coverage and health care management
services, is heavily regulated at the federal and state levels. We strive to
comply in all respects with applicable regulations and may need to make changes
from time to time in our services, products, marketing methods or
organizational or capital structure.
Regulatory agencies generally have broad discretion to issue regulations and
interpret and enforce laws and rules. Changes in applicable laws and
regulations are continually being considered, and the interpretation of
existing laws and rules also may change from time to time. These changes could
affect our operations and financial results.
Certain proposed changes in Medicare and Medicaid programs may improve
opportunities to enroll people under products developed for these populations.
Other proposed changes could limit available reimbursement and increase
competition in those programs, with adverse effects on our financial results.
Also, it could be more difficult for us to control medical costs if federal and
state bodies continue to consider and enact significant and onerous managed
care laws and regulations.
The Health Insurance Portability and Accountability Act of 1996 (HIPAA) may
represent the most significant federal reform of employee benefit law since the
enactment of the Employee Retirement Income Security Act (ERISA) in 1974. Some
of HIPAA's significant provisions include guaranteeing the availability of
health insurance for certain employees and individuals, limits on the use of
preexisting condition exclusions, prohibitions against discriminating on a
basis of health status, and requirements which make it easier to continue
coverage in cases where a person is terminated or changes employers. Under
HIPAA and other similar state laws, medical cost control through amended
provider contracts and improved preventive and chronic care management may
become more important. We believe our experience in these areas will allow us
to compete effectively.
Health care fraud and abuse has become a top priority for the nation's law
enforcement entities and has focused on participants in federal government
health care programs such as Medicare, Medicaid and the Federal Employees
Health Benefits Program (FEHBP). We participate extensively in these programs.
We also are subject to governmental investigations and enforcement actions.
Included are actions relating to ERISA, which regulates insured and self-
insured health coverage plans offered by employers; the FEHBP; federal and
state fraud and abuse laws; and laws relating to care management and health
care delivery. Government actions could result in assessment of damages, civil
or criminal fines or penalties, or other sanctions, including exclusion from
participation in government programs. We are currently involved in various
government investigations and audits, but we do not believe the results will
have a material adverse effect on our financial position or results of
operations.
INFLATION
Although the general rate of inflation has remained relatively stable and
health care cost inflation has stabilized in recent years, the national health
care cost inflation rate still exceeds the general inflation rate. We use
various strategies to mitigate the negative effects of health care cost
inflation, including setting commercial premiums based on anticipated health
care costs, risk-sharing arrangements with various health care providers, and
other health care cost containment measures. Specifically, health plans try to
control medical and hospital costs through contracts with independent providers
of health care services. Through these contracted care providers, our health
plans emphasize preventive health care and appropriate use of specialty and
hospital services.
While we currently believe our strategies to mitigate health care cost
inflation will continue to be successful, competitive pressures, new health
care product introductions, demands from health care providers and customers,
applicable regulations or other factors may affect our ability to control the
impact of health care cost increases. In addition, certain non-network-based
products do not have health care cost containment measures similar to those in
place for network-based products. As a result, there is added health care cost
inflation risk with these products.
FINANCIAL CONDITION AND LIQUIDITY
Our cash and investments increased from $3.5 billion at December 31, 1996, to
$4.0 billion at December 31, 1997. The increase in cash and investments is
primarily the result of cash generated from operations of $683 million, offset
by purchases of property and equipment and capitalized software of $187
million.
Under applicable government regulations, several subsidiaries are required to
maintain specific capital levels to support their operations. After taking
these regulations and certain business considerations into account, we had $960
million in cash and investments available for general corporate use at December
31, 1997. From these cash reserves, we recently established a $100 million
capital fund designated for strategic investments in new and promising
businesses.
18
<PAGE>
The National Association of Insurance Commissioners has an effort underway
that would require new minimum capitalization limits for health care coverage
provided by insurance companies, HMOs and other risk-bearing health care
entities. The requirements would take the form of risk-based capital rules.
Depending on the nature and extent of the new minimum capitalization
requirements ultimately adopted, there could be an increase in the capital
required for certain of our subsidiaries. Any increase would be funded from our
corporate usable cash reserves. The new requirements are expected to be
effective December 31, 1998.
We continue to focus on expanding health care programs to the Medicare
population. In the past 12 months, the number of sites offering a Medicare
health plan product increased from 18 to 27 sites. Over the same period, health
plan Medicare enrollment grew 53%. We continue to invest in new markets and
expect to have 39 sites offering Medicare programs by year-end 1998.
Significant expenses are associated with introducing a Medicare health plan
product. Start-up expenses include a lengthy and detailed regulatory approval
process, product-specific provider contracting and network configuration, high
up-front sales and marketing costs, and staffing of service areas in advance of
product sales. We expect to incur operating losses from Medicare products in
start-up markets, usually for the first 12 to 18 months. Once Medicare
enrollment targets are met, we expect corresponding administrative costs to be
covered.
In November 1997, we announced a significant realignment of our operations,
designed to take full advantage of opportunities to grow and succeed as we
expand into the broad health and well-being marketplace. We have aligned our
operations into six independent but strategically linked businesses, each
focused on performance, growth and shareholder value.
The realignment is dramatically changing the way we manage our business. We
are realigning our resources and activities to more directly support the
operations of our businesses. We are assessing the effectiveness of our core
management processes and transaction processing systems. We are also evaluating
each of our businesses for strategic fit, growth potential and operating
performance and will be taking actions on business units that do not fit our
new direction.
Our realignment efforts will take several months to complete. Despite the
vast undertaking, we do not expect our realignment efforts to negatively affect
our product offerings, provider relations, billing and collection disciplines,
and claims processing and payment activities. These efforts, however, may make
it appropriate for us to absorb certain restructuring charges. While we
anticipate such efforts could be significant, we cannot yet estimate the size
of any restructuring charges.
We are in the process of modifying our computer systems to accommodate the
year 2000. We currently expect these modifications to be completed well in
advance of the year 2000 with no adverse effect on our operations. We expect to
incur associated expenses of approximately $20 million in 1998 and $15 million
in 1999 to complete this effort. Our inability to complete year 2000
modifications on a timely basis or the inability of other companies with which
we do business to complete their year 2000 modifications on a timely basis
could adversely affect our operations.
In February 1997, we completed a contract to deliver Medicare and hospital
supplement insurance and develop an array of new products for the American
Association of Retired Persons (AARP) beginning in January 1998. Under the
terms of the 10-year contract, our portion of the AARP insurance offerings
represents over $3.5 billion in anticipated annual premium revenue from over 4
million enrolled members.
In November 1997, the board of directors authorized a stock repurchase
program. Up to 10% of our outstanding common stock may be repurchased under the
program. Purchases may be made from time to time at prevailing prices in the
open market, subject to certain restrictions relating to volume, pricing and
timing. The repurchased shares will be available for reissuance through
employee stock option and purchase plans and for other corporate purposes.
Repurchase activity in 1997 was not significant.
In January 1998, we filed a shelf registration statement with the Securities
and Exchange Commission to sell as much as $200 million of debt securities,
preferred or common shares. The shelf filing registers the securities and
allows us to sell them from time to time in the event we need financing.
Proceeds from sales of these securities may be used for a variety of general
corporate purposes, including working capital, securities repurchases and
acquisitions.
We expect our available cash resources will be sufficient to meet our current
operating requirements and internal development and realignment initiatives. In
addition, based on our current financial condition and results of operations,
we should be able to finance additional cash requirements in the public or
private markets, if necessary.
Currently, we do not have any other material definitive commitments that
require cash resources; however, we continually evaluate opportunities to
expand our operations. This includes internal development of new products and
programs and may include acquisitions.
19
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
UNITED HEALTHCARE
<TABLE>
FOR THE YEAR ENDED DECEMBER 31,
(IN MILLIONS, EXCEPT PER SHARE DATA) 1997 1996 1995
<S> <C> <C> <C>
REVENUES
Premiums $ 10,135 $ 8,491 $ 4,931
Management Services and Fees 1,428 1,398 580
Investment and Other Income 231 185 160
- -----------------------------------------------------------------------------------------------
Total Revenues 11,794 10,074 5,671
- -----------------------------------------------------------------------------------------------
OPERATING EXPENSES
Medical Costs 8,542 7,180 3,931
Selling, General and Administrative Expenses 2,364 2,165 1,031
Depreciation and Amortization 146 133 94
Restructuring Charges - - 154
- -----------------------------------------------------------------------------------------------
Total Operating Expenses 11,052 9,478 5,210
- -----------------------------------------------------------------------------------------------
EARNINGS FROM OPERATIONS 742 596 461
Merger Costs - (15) -
- -----------------------------------------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES 742 581 461
Provision for Income Taxes (282) (225) (175)
- -----------------------------------------------------------------------------------------------
NET EARNINGS 460 356 286
CONVERTIBLE PREFERRED STOCK DIVIDENDS (29) (29) (7)
- -----------------------------------------------------------------------------------------------
NET EARNINGS APPLICABLE TO COMMON SHAREHOLDERS $ 431 $ 327 $ 279
- -----------------------------------------------------------------------------------------------
BASIC NET EARNINGS PER COMMON SHARE $ 2.30 $ 1.80 $ 1.61
- -----------------------------------------------------------------------------------------------
DILUTED NET EARNINGS PER COMMON SHARE $ 2.26 $ 1.76 $ 1.57
- -----------------------------------------------------------------------------------------------
BASIC WEIGHTED-AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 187 182 174
DILUTIVE EFFECT OF OUTSTANDING STOCK OPTIONS 4 4 3
- -----------------------------------------------------------------------------------------------
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING, ASSUMING DILUTION 191 186 177
- -----------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
20
<PAGE>
CONSOLIDATED BALANCE SHEETS
UNITED HEALTHCARE
<TABLE>
AS OF DECEMBER 31,
(IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA) 1997 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash and Cash Equivalents $ 750 $ 1,037
Short-Term Investments 506 611
Accounts Receivable, net of allowances of $45 and $46 768 606
Assets Under Management 28 155
Other Current Assets 141 331
- -----------------------------------------------------------------------------------------------
Total Current Assets 2,193 2,740
Long-Term Investments 2,785 1,805
Property and Equipment, net of accumulated depreciation of
$350 and $275 364 313
Goodwill and Other Intangible Assets, net of accumulated
amortization of $205 and $136 2,281 2,139
- -----------------------------------------------------------------------------------------------
Total Assets $7,623 $ 6,997
- -----------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Medical Costs Payable $1,565 $ 1,516
Other Policy Liabilities 235 334
Accounts Payable and Accrued Liabilities 495 565
Unearned Premiums 275 228
- -----------------------------------------------------------------------------------------------
Total Current Liabilities 2,570 2,643
Long-Term Obligations 19 31
Convertible Preferred Stock 500 500
Commitments and Contingencies (Note 10)
- -----------------------------------------------------------------------------------------------
Shareholders' Equity
Common Stock, $.01 par value - 500,000,000 shares authorized;
191,111,000 and 184,865,000 issued and outstanding 2 2
Additional Paid-in Capital 1,398 1,148
Retained Earnings 3,105 2,680
Net Unrealized Holding Gains (Losses) on Investments Available for
Sale, net of income tax effects 29 (7)
- -----------------------------------------------------------------------------------------------
Total Shareholders' Equity 4,534 3,823
- -----------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $7,623 $ 6,997
- -----------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
21
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
UNITED HEALTHCARE
<TABLE>
NET UNREALIZED
HOLDING GAINS (LOSSES)
COMMON STOCK ADDITIONAL ON INVESTMENTS
------------------ PAID-IN RETAINED AVAILABLE FOR
(IN MILLIONS, EXCEPT PER SHARE DATA) SHARES AMOUNT CAPITAL EARNINGS SALE TOTAL
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994 173 $ 2 $ 752 $ 2,085 $ (44) $ 2,795
Issuance of Common Stock
Stock Plans and Related Tax Benefits 2 - 70 - - 70
Change in Net Unrealized Holding
Gains (Losses) on Investments Available
for Sale, net of Income Tax Effects - - - - 49 49
Cash Dividends
Common Stock ($0.03 per share) - - - (5) - (5)
Convertible Preferred Stock ($14.38 per share) - - - (7) - (7)
Net Earnings - - - 286 - 286
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995 175 2 822 2,359 5 3,188
Issuance of Common Stock
Stock Plans and Related Tax Benefits 2 - 56 - - 56
Acquisitions 8 - 270 - - 270
Change in Net Unrealized Holding
Gains (Losses) on Investments Available
for Sale, net of Income Tax Effects - - - - (12) (12)
Cash Dividends
Common Stock ($0.03 per share) - - - (6) - (6)
Convertible Preferred Stock
($57.50 per share) - - - (29) - (29)
Net Earnings - - - 356 - 356
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 185 2 1,148 2,680 (7) 3,823
Issuance of Common Stock
Stock Plans and Related Tax Benefits 3 - 116 - - 116
Acquisitions 3 - 144 - - 144
Stock Repurchases - - (10) - - (10)
Change in Net Unrealized Holding
Gains (Losses) on Investments Available
for Sale, net of Income Tax Effects - - - - 36 36
Cash Dividends
Common Stock ($0.03 per share) - - - (6) - (6)
Convertible Preferred Stock
($57.50 per share) - - - (29) - (29)
NET EARNINGS - - - 460 - 460
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 191 $ 2 $1,398 $ 3,105 $ 29 $ 4,534
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
22
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNITED HEALTHCARE
<TABLE>
FOR THE YEAR ENDED DECEMBER 31,
(IN MILLIONS) 1997 1996 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Earnings $ 460 $ 356 $ 286
Noncash Items
Depreciation and Amortization 146 133 94
Deferred Income Taxes 91 48 (34)
Noncash Restructuring Charges - - 141
Provision for Future Losses - 45 -
Other - (8) (4)
Net Change in Other Operating Items, net of effects
from acquisitions and sales of subsidiaries
Accounts Receivable and Other Current Assets (84) (185) 9
Medical Costs Payable 53 321 143
Accounts Payable and Other Current Liabilities (30) (202) (215)
Unearned Premiums 47 54 15
- -----------------------------------------------------------------------------------------------
Cash Flows from Operating Activities 683 562 435
- -----------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Cash Paid for Acquisitions, net of cash assumed
and other effects - (52) (969)
Purchases of Property and Equipment and
Capitalized Software (187) (165) (109)
Purchases of Investments (6,706) (5,010) (3,290)
Maturities/Sales of Investments 5,889 4,755 3,322
- -----------------------------------------------------------------------------------------------
Cash Flows Used for Investing Activities (1,004) (472) (1,046)
- -----------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from Stock Option Exercises 79 42 37
Stock Repurchases (10) - -
Dividends Paid
Convertible Preferred Stock (29) (29) -
Common Stock (6) (6) (5)
- -----------------------------------------------------------------------------------------------
Cash Flows from Financing Activities 34 7 32
- -----------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (287) 97 (579)
- -----------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 1,037 940 1,519
- -----------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 750 $ 1,037 $ 940
- -----------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNITED HEALTHCARE
(1) DESCRIPTION OF BUSINESS
United HealthCare Corporation (United HealthCare, or "we," "us," "our") is a
national leader in offering health care coverage and related services to help
people achieve improved health and well-being through all stages of life. We
provide a broad spectrum of products and services and operate in all 50 states,
the District of Columbia and Puerto Rico, as well as internationally. Our
products and services reflect a number of core capabilities, including medical
information management, health benefit administration, risk assessment and
pricing, health benefit design, and provider contracting and risk sharing. With
these capabilities, we provide comprehensive health care management services
through organized health systems and insurance products, including health
maintenance organizations (HMOs), point-of-service plans (POS), preferred
provider organizations (PPOs) and managed indemnity programs. We also offer
specialized health care management services and products such as behavioral
health services, workers' compensation and disability services, utilization
review services, specialized provider networks, employee assistance programs,
knowledge and information services, and administrative services.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION
We have prepared the consolidated financial statements according to generally
accepted accounting principles and have included the accounts of United
HealthCare and its subsidiaries. We have eliminated all significant inter-
company accounts and transactions.
These consolidated financial statements include some amounts that are based
on our best estimates and judgments. The most significant estimates relate to
medical costs payable and other policy liabilities, intangible asset valuations
and integration reserves relating to recent acquisitions. These estimates may
be adjusted as more accurate information becomes available, and any adjustment
could be significant.
REVENUE RECOGNITION
Premium revenues are recognized in the period enrolled members are entitled to
receive health care services. Premium payments received from our customers
prior to such period are recorded as unearned premiums. Management services and
fee revenues are recognized in the period the related services are performed.
Premium revenues related to Medicare and Medicaid programs as a percentage of
total premium revenues were 22% in 1997, 19% in 1996, and 22% in 1995.
MEDICAL COSTS
Medical costs include claims paid, claims in process and pending, and estimated
unreported claims. Medical costs also include per member charges by physicians,
hospitals and other health care providers for services provided to enrolled
members during the period. Medical cost adjustments to prior period estimates
are reflected in the current period.
CASH AND CASH EQUIVALENTS AND INVESTMENTS
Cash and cash equivalents are highly liquid investments with an original
maturity of three months or less. The fair value of cash and cash equivalents
approximates carrying value because of the short maturity of the instruments.
Investments with a maturity of less than one year are classified as short-term.
Investments held by trustees or agencies according to state regulatory
requirements are classified as held to maturity based on our ability and intent
to hold these investments to maturity. Such investments are reported at
amortized cost. All other investments are classified as available for sale and
are reported at fair value based on quoted market prices. Unrealized gains and
losses on investments available for sale are excluded from earnings and
reported as a separate component of shareholders' equity, net of income tax
effects. To calculate realized gains and losses on the sale of investments
available for sale, we use the amortized cost of each investment sold. We have
no investments classified as trading securities.
24
<PAGE>
ASSETS UNDER MANAGEMENT
In connection with the 1995 acquisition of The MetraHealth Companies, Inc.
(MetraHealth) (see Note 3), we are administering certain aspects of the health
care operations of MetraHealth's predecessor companies related to business we
expect to be transferred to United HealthCare according to agreements made
during the initial formation of MetraHealth. As this business transfers to
United HealthCare, associated assets are invested in marketable securities
according to our investment policy.
OTHER POLICY LIABILITIES
Other policy liabilities principally relate to experience-rated indemnity
products and primarily include retrospective rate credit reserves and customer
balances.
Retrospective rate credit reserves represent premiums we received in excess
of claims and expenses charged under eligible contracts. Reserves established
for closed policy years are based on actual experience, while reserves for open
years are based on estimates of premiums, claims and expenses incurred.
Customer balances consist principally of deposit accounts and reserves that
have accumulated under certain experience-rated contracts. At the customer's
option, these balances may be returned to the customer or may be used to pay
future premiums or claims under eligible contracts.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is calculated using the
straight-line method over the estimated useful life of the respective assets,
ranging from 3 years to 30 years.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents the purchase price and transaction costs associated with
businesses we acquired in excess of the estimated fair value of the net assets
of these businesses. To the extent possible, a portion of the excess purchase
price and transaction costs is assigned to certain identifiable intangible
assets, primarily employer group contracts. Goodwill and other intangible
assets are being amortized on a straight-line basis over useful lives ranging
from 3 years to 40 years.
The useful lives of goodwill and other intangible assets have been assigned
based on our best judgment. We periodically evaluate whether certain
circumstances may affect the estimated useful lives or the recoverability of
the unamortized balance of goodwill or other intangible assets.
The most significant components of goodwill and other intangible assets are
comprised of goodwill of $1.2 billion in 1997 and $1.1 billion in 1996, and
employer group contracts of $900 million in 1997 and $939 million in 1996, net
of accumulated amortization.
LONG-LIVED ASSETS
We review long-lived assets for events or changes in circumstances that would
indicate we may not recover their carrying value. We consider a number of
factors, including estimated future undiscounted cash flows associated with the
long-lived asset, to make this decision. We record assets held for sale at the
lower of the carrying amount or fair value, less any costs associated with the
final settlement.
INCOME TAXES
Deferred income tax assets and liabilities are recognized for the differences
between the financial and income tax reporting bases of assets and liabilities
based on enacted tax rates and laws. The deferred income tax provision or
benefit generally reflects the net change in deferred income tax assets and
liabilities during the year. The current income tax provision reflects the tax
consequences of revenues and expenses currently taxable or deductible on
various income tax returns for the year reported.
STOCK-BASED COMPENSATION
We use the intrinsic value method for determining stock-based compensation
expenses. Under the intrinsic value method, we do not recognize compensation
expense when the exercise price of an employee stock option equals or exceeds
the fair market value of the stock on the date the option is granted.
Information on what our stock-based compensation expenses would have been had
we calculated those expenses using fair market values of outstanding stock
options is included in Note 8.
25
<PAGE>
NET EARNINGS PER COMMON SHARE
In 1997, we adopted a new accounting standard that changes the way we determine
earnings per share (SFAS No. 128). Under this new standard, basic net earnings
per common share is computed by dividing net earnings applicable to common
shareholders by the weighted-average number of common shares outstanding during
the period. Diluted net earnings per common share is determined using the
weighted-average number of common shares outstanding during the period,
adjusted for the dilutive effect of outstanding stock options. We do not
consider convertible preferred stock a common stock equivalent when calculating
diluted net earnings per share because the result would be anti-dilutive.
RECLASSIFICATIONS
Certain 1996 and 1995 amounts in the consolidated financial statements have
been reclassified to conform with the 1997 presentation. These
reclassifications have no effect on net earnings or shareholders' equity as
previously reported.
(3) ACQUISITIONS
On December 31, 1997, we acquired Medicode, Inc. (Medicode), a leading provider
of health care information products. We issued 2.4 million shares of common
stock and 507,000 common stock options with a total fair value of $140 million
in exchange for all outstanding shares of Medicode. We accounted for the
acquisition using the purchase method of accounting, which means the purchase
price was allocated to assets and liabilities based on estimated fair values at
the date of acquisition. The purchase price and costs associated with the
acquisition exceeded the estimated fair value of net assets acquired by $135
million and have been assigned to goodwill. The pro forma effects of the
Medicode acquisition on our consolidated financial statements were not
material.
On April 12, 1996, we completed the acquisition of HealthWise of America,
Inc. (HealthWise). HealthWise owned or operated health plans in Maryland,
Kentucky, Tennessee and Arkansas that served 154,000 members at the time of
acquisition. We issued 4.3 million shares of common stock in exchange for all
outstanding shares of HealthWise. We accounted for the acquisition as a pooling
of interests; however, we did not restate our historical consolidated financial
results because the effects of this acquisition on our consolidated financial
statements were not material. In connection with the HealthWise acquisition, we
incurred nonoperating merger costs of $15 million.
On March 29, 1996, we completed the acquisition of PHP, Inc. (PHP), a North
Carolina-based health plan that served 132,000 members at the time of
acquisition. We issued 2.3 million shares of common stock, with a fair value of
$140 million, in exchange for all outstanding shares of PHP. We accounted for
the acquisition 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 million and have been assigned to goodwill. The pro
forma effects of the PHP acquisition on our consolidated financial statements
were not material.
We acquired MetraHealth on October 2, 1995. 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. We accounted for the acquisition using the purchase method of
accounting. Based on estimates made at the date of acquisition, the purchase
price and costs associated with the acquisition exceeded the estimated fair
value of net assets acquired by $992 million.
26
<PAGE>
The total purchase price of the acquisition was $1.1 billion in cash and $500
million of convertible preferred stock, for a total amount at closing of $1.6
billion. In addition, the former owners of MetraHealth were eligible to receive
up to an additional $350 million if MetraHealth achieved certain 1995 operating
results, as defined. In 1996, we paid $105 million in cash, including interest,
as full settlement of the 1995 earnout. This earnout payment has been reflected
in the accompanying consolidated financial statements as additional goodwill.
With the settlement of the 1995 earnout and certain revisions to estimates made
in connection with the acquisition, goodwill and other intangible assets
associated with the MetraHealth acquisition totaled $1.2 billion.
In addition, certain of MetraHealth's former owners were eligible to receive
up to an additional $175 million in cash for each of 1996 and 1997 if our post-
acquisition combined net earnings for each of those years reached certain
specified levels. Based on combined operating results for those years, no
payment related to these earnouts was required.
Had the MetraHealth acquisition occurred on January 1, 1995, combined
unaudited pro forma results for the year ended December 31, 1995, would have
been: revenues-$8.7 billion; net earnings before restructuring charges- $450
million; and net earnings per common share before restructuring charges-$2.53.
After considering 1995 restructuring charges, net earnings would have been $353
million in 1995 ($1.98 per common share).
(4) RESTRUCTURING CHARGES
In connection with our acquisition of MetraHealth, we developed a comprehensive
plan to integrate the business activities of the combined companies (the Plan).
The Plan included, among other things, the disposition, discontinuance and
restructuring of certain businesses and product lines, and the recognition of
certain asset impairments. In the fourth quarter of 1995, we recorded $154
million in restructuring charges associated with the Plan.
In conjunction with ongoing integration efforts, we modified the Plan during
1996. The restructuring reserves established with the original Plan were an
accurate estimation of the costs incurred; however, we needed to reallocate the
reserve estimates among the associated activities as the original Plan evolved.
A reconciliation of restructuring activities during 1997, 1996 and 1995 is as
follows (in millions):
<TABLE>
1997 1996 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 28 $ 141 $ -
Provision for restructuring costs:
Severance and Outplacement - (10) 24
Contract Terminations - 3 58
Noncancelable Lease Obligations - 7 20
Asset Impairments - - 52
Cash Payments:
Severance and Outplacement (3) (9) (2)
Contract Terminations (9) (39) (9)
Noncancelable Lease Obligations (5) (13) (2)
Noncash Activities:
Property, equipment and
software writedowns - (52) -
- -----------------------------------------------------------------------------------------------
Balance at end of year $ 11 $ 28 $141
- -----------------------------------------------------------------------------------------------
</TABLE>
(5) PROVISION FOR FUTURE LOSSES
In the second quarter of 1996, we recorded a provision to medical costs of $45
million to cover estimated losses we expect to incur through the remaining
terms of two large multiyear contracts in our St. Louis health plan. Through
December 31, 1997, losses under these contracts of $26 million have been
applied against the established reserve. We believe the remaining balance in
the reserve will be sufficient to cover any future losses from these contracts.
27
<PAGE>
(6) CASH AND INVESTMENTS
As of December 31, 1997 and 1996, the amortized cost, gross unrealized holding
gains and losses, and fair value of cash and investments were as follows (in
millions):
<TABLE>
GROSS UNREALIZED GROSS UNREALIZED
1997 AMORTIZED COST HOLDING GAINS HOLDING LOSSES FAIR VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and Cash Equivalents $ 750 $ - $ - $ 750
- -------------------------------------------------------------------------------------------------------------------
Investments Available for Sale
U.S. Government and Agencies 685 9 (3) 691
State and State Agencies 775 17 - 792
Municipalities and Local Agencies 845 18 - 863
Corporate 439 6 - 445
Other 435 - - 435
- -------------------------------------------------------------------------------------------------------------------
Total Investments Available for Sale 3,179 50 (3) 3,226
- -------------------------------------------------------------------------------------------------------------------
Investments Held to Maturity
U.S. Government and Agencies 38 - - 38
State and State Agencies 2 - - 2
Municipalities and Local Agencies 1 - - 1
Corporate 18 - - 18
Other 6 - - 6
- -------------------------------------------------------------------------------------------------------------------
Total Investments Held to Maturity 65 - - 65
- -------------------------------------------------------------------------------------------------------------------
Total Cash and Investments $ 3,994 $ 50 $ (3) $ 4,041
- -------------------------------------------------------------------------------------------------------------------
1996
- -------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents $ 1,037 $ - $ - $ 1,037
- -------------------------------------------------------------------------------------------------------------------
Investments Available for Sale
U.S. Government and Agencies 825 1 (14) 812
State and State Agencies 471 2 - 473
Municipalities and Local Agencies 474 3 (1) 476
Corporate 416 1 (3) 414
Other 179 - - 179
- -------------------------------------------------------------------------------------------------------------------
Total Investments Available for Sale 2,365 7 (18) 2,354
- -------------------------------------------------------------------------------------------------------------------
Investments Held to Maturity
U.S. Government and Agencies 36 - - 36
State and State Agencies 5 - - 5
Municipalities and Local Agencies 1 - - 1
Corporate 17 - - 17
Other 3 - - 3
- -------------------------------------------------------------------------------------------------------------------
Total Investments Held to Maturity 62 - - 62
- -------------------------------------------------------------------------------------------------------------------
Total Cash and Investments $ 3,464 $ 7 $ (18) $ 3,453
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
As of December 31, 1997, the contractual maturities of cash and cash
equivalents and investments were as follows (in millions):
<TABLE>
LESS THAN ONE TO OVER FIVE TO OVER TEN
YEARS TO MATURITY ONE YEAR FIVE YEARS TEN YEARS YEARS
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
At Amortized Cost:
Cash and Cash Equivalents $ 750 $ - $ - $ -
Investments Available for Sale 506 1,191 678 804
Investments Held to Maturity 36 29 - -
- ---------------------------------------------------------------------------------------------------------------
Total Cash and Investments $ 1,292 $ 1,220 $ 678 $ 804
- ---------------------------------------------------------------------------------------------------------------
At Fair Value:
Cash and Cash Equivalents $ 750 $ - $ - $ -
Investments Available for Sale 506 1,202 695 823
Investments Held to Maturity 36 29 - -
- ---------------------------------------------------------------------------------------------------------------
Total Cash and Investments $ 1,292 $ 1,231 $ 695 $ 823
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Mortgage-backed securities that do not have a single maturity date have been
presented in the above tables based on their estimated maturity dates.
28
<PAGE>
Under applicable government regulations, several United HealthCare
subsidiaries are required to maintain specific capital levels to support their
operations. In addition, at December 31, 1997, trustees or state regulatory
agencies held investments of $65 million to ensure adequate financial reserves
exist as required by state regulatory agencies. After taking these regulations
and certain business considerations into account, we had $960 million in cash
and investments available for general corporate use at December 31, 1997.
Investment income earned on all investments accrues to United HealthCare.
(7) CONVERTIBLE PREFERRED STOCK
We have 10 million shares of $0.001 par value preferred stock authorized for
issuance. With our acquisition of MetraHealth, we designated a series of
500,000 shares as 5.75% Series A Convertible Preferred Stock (Preferred Stock).
This Preferred Stock was issued to certain former shareholders of MetraHealth
as a portion of the total consideration of the MetraHealth acquisition (see
Note 3).
Preferred Stock dividends are fully cumulative and payable quarterly at the
rate of 5.75% annually from available funds.
At the option of the Preferred shareholders, each share of Preferred Stock
may be converted into 20.21 shares of United HealthCare common stock. At our
option, we may redeem the Preferred Stock, in whole or in part, anytime after
October 1, 1998, at certain defined redemption rates. The Preferred Stock must
be redeemed no later than October 1, 2005. Holders of Preferred Stock do not
have voting rights, but do have preference upon liquidation or dissolution of
United HealthCare.
(8) SHAREHOLDERS' EQUITY
STOCK REPURCHASE PROGRAM
In November 1997, the board of directors authorized a stock repurchase program
under which up to 10% of our outstanding common stock may be repurchased. These
repurchases may be made from time to time at prevailing prices in the open
market, subject to certain restrictions on volume, pricing and timing. The
repurchased shares will be available for reissuance for the employee stock
option and purchase plans and for other corporate purposes. Repurchase activity
in 1997 was not significant.
DIVIDENDS
On February 10, 1998, the board of directors approved an annual dividend for
1998 of $0.03 per share to holders of common stock. Dividends will be paid on
April 15, 1998, to shareholders of record at the close of business on April 1,
1998.
REGULATORY REQUIREMENTS
Regulated United HealthCare subsidiaries must comply with certain minimum
capital or tangible net equity requirements in each of the states in which they
operate. As of December 31, 1997, all regulated subsidiaries were in compliance
in all material respects with these requirements.
STOCK-BASED COMPENSATION PLANS
We have stock and incentive plans (Stock Plans) for the benefit of eligible
employees. As of December 31, 1997, the Stock Plans allowed for the future
granting of up to 1,033,000 shares as incentive or non-qualified stock options,
stock appreciation rights, restricted stock awards, and performance awards to
employees.
In 1995, we adopted the Non-employee Director Stock Option Plan (the 1995
Plan) to benefit members of the board of directors who are not employees. Up to
350,000 shares of common stock may be issued under the terms of the 1995 Plan.
As of December 31, 1997, 74,000 shares were available for future grants of non-
qualified stock options under the 1995 Plan.
Options generally are granted at an exercise price not less than the fair
market value of the common stock at the date of grant. They may be exercised
over varying periods up to 10 years from the date of grant.
29
<PAGE>
A summary of the activity under our Stock Plans and the 1995 Plan during
1997, 1996 and 1995 is presented in the table below (shares in thousands):
<TABLE>
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 16,894 $ 29 14,927 $ 28 11,509 $ 22
Granted 4,366 $ 44 4,125 $ 33 6,792 $ 35
Issued in acquisition 507 $ 4 - $ - - $ -
Exercised (3,095) $ 20 (1,336) $ 19 (2,168) $ 16
Forfeited (1,559) $ 35 (822) $ 33 (1,206) $ 31
- -------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 17,113 $ 34 16,894 $ 29 14,927 $ 28
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Exercisable at end of year 6,702 $ 28 6,914 $ 23 4,542 $ 23
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1997 (shares in thousands):
<TABLE>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------------------------------------------------------
NUMBER WEIGHTED-AVERAGE NUMBER
OUTSTANDING REMAINING WEIGHTED-AVERAGE EXERCISABLE WEIGHTED-AVERAGE
RANGE OF EXERCISE PRICES AT DECEMBER 31, 1997 OPTION TERM (YEARS) EXERCISE PRICE AT DECEMBER 31, 1997 EXERCISE PRICE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 0 - $22 3,643 4.5 $ 14 2,534 $ 13
$23 - $35 5,144 7.7 $ 33 1,849 $ 31
$36 - $46 6,416 8.3 $ 42 1,705 $ 40
$47 - $55 1,910 8.3 $ 49 614 $ 50
- -----------------------------------------------------------------------------------------------------------------------------
$ 0 - $55 17,113 7.4 $ 34 6,702 $ 28
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
We increased additional paid-in capital $37 million in 1997, $15 million in
1996, and $29 million in 1995 to reflect the tax benefit we received upon the
exercise of non-qualified stock options.
We do not recognize compensation expense in connection with stock option
grants related to the Stock Plans and the 1995 Plan because we grant stock
options at exercise prices that equal or exceed the fair market value of the
stock at the time options are granted. If we had determined compensation
expense using fair market values for the stock, net earnings and diluted net
earnings per common share would have been reduced to the following pro forma
amounts:
<TABLE>
1997 1996 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Earnings (in millions)
As reported $ 460 $ 356 $ 286
Pro Forma $ 430 $ 332 $ 266
- -----------------------------------------------------------------------------------------------
Diluted Net Earnings Per
Common Share
As reported $ 2.26 $ 1.76 $ 1.57
Pro Forma $ 2.10 $ 1.63 $ 1.46
- -----------------------------------------------------------------------------------------------
Weighted-Average
Fair Value of Options Granted $ 25 $ 23 $ 24
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
To determine compensation cost under the fair value method, the fair value of
each option grant is estimated on the date of grant using the Black-Scholes
option-pricing model.
Principal assumptions used in applying the Black-Scholes model were as
follows:
<TABLE>
1997 1996 1995
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Risk-free interest rate 6.0% 6.6% 6.4%
Expected volatility 56% 57% 55%
Expected dividend yield 0% 0% 0%
Expected life in years 5.6 5.0 5.2
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
</TABLE>
Because we did not apply the fair value method of accounting to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of what can be expected in future years.
30
<PAGE>
EMPLOYEE STOCK OWNERSHIP PLAN
We have an unleveraged Employee Stock Ownership Plan (ESOP) for the benefit of
all eligible employees. Company contributions to the ESOP are made at the
discretion of the board of directors. We made contributions to the ESOP of $4
million in 1997, $3 million in 1996, and $1 million in 1995.
EMPLOYEE STOCK PURCHASE PLAN
The Employee Stock Purchase Plan (ESPP) allows all eligible employees to
purchase shares of common stock on semiannual offering dates at a price that is
the lesser of 85% of the fair market value of the shares on the first day or
the last day of the semiannual period. Employee contributions to the ESPP were
$17 million for 1997, $16 million for 1996, and $7 million for 1995. Through
the ESPP, we issued employees 422,000 shares in 1997, 392,000 shares in 1996,
and 216,000 shares in 1995. As of December 31, 1997, 3.2 million shares were
available for future issue.
(9) INCOME TAXES
Components of the Provision for Income Taxes
<TABLE>
YEAR ENDED DECEMBER 31, (IN MILLIONS) 1997 1996 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $ 171 $ 159 $ 182
State 20 18 27
- -----------------------------------------------------------------------------------------------
Total Current 191 177 209
Deferred 91 48 (34)
- -----------------------------------------------------------------------------------------------
Total Provision $ 282 $ 225 $ 175
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
Reconciliation of Statutory to Effective Income Tax Rate
<TABLE>
YEAR ENDED DECEMBER 31, 1997 1996 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal Statutory Rate 35.0% 35.0% 34.9%
State Income Taxes,
net of federal benefit 2.8 2.4 3.0
Tax-exempt Investment Income (2.9) (2.0) (2.6)
Intangible Amortization 2.8 3.1 2.0
Other, net 0.3 0.2 0.7
- ----------------------------------------------------------------------------------------------
Effective Income Tax Rate 38.0% 38.7% 38.0%
- ----------------------------------------------------------------------------------------------
</TABLE>
Components of Deferred Income Tax Assets and Liabilities
<TABLE>
DECEMBER 31, 1997 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred Income Tax Assets:
Medical Costs Payable and Other
Accrued Liabilities $ 22 $ 39
Facility Consolidation Reserves 18 24
Loss Reserve Discounting 10 21
Severance and Deferred Compensation - 19
Unearned Premiums 19 12
Bad Debt Allowance 9 10
Other Restructuring Reserves 1 10
Impaired Assets Reserves 4 9
Intangible Amortization 3 6
Unrealized Losses on Investments
Available for Sale - 4
Other 2 9
- ---------------------------------------------------------------------------------------------
Total Deferred Income Tax Assets 88 163
- ---------------------------------------------------------------------------------------------
Deferred Income Tax Liabilities:
Capitalized Software Development (19) (8)
Unrealized Gains on Investments
Available for Sale (18) -
Other (10) (1)
- ---------------------------------------------------------------------------------------------
Total Deferred Income Tax Liabilities (47) (9)
- ---------------------------------------------------------------------------------------------
Net Deferred Income Tax Assets $ 41 $ 154
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
</TABLE>
We paid income taxes of $124 million in 1997, $96 million in 1996, and $190
million in 1995.
Consolidated income tax returns for fiscal years 1995 and 1994 are being
examined by the Internal Revenue Service. We do not believe any adjustments
that may result will have a significant impact on consolidated operating
results or financial position.
31
<PAGE>
(10) COMMITMENTS AND CONTINGENCIES LEASES
We lease facilities, computer hardware and other equipment under long-term
operating leases that are non-cancelable and expire on various dates through
2011. Rent expense under all operating leases was $104 million in 1997, $114
million in 1996, and $61 million in 1995.
At December 31, 1997, future minimum annual lease payments under all
noncancelable operating leases were as follows (in millions):
<TABLE>
1998 1999 2000 2001 2002 THEREAFTER
- ------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 103 $ 86 $ 62 $ 42 $ 25 $ 64
- ------------------------------------------------
</TABLE>
SERVICE AGREEMENTS
On June 1, 1996, and November 16, 1995, we entered into separate 10-year
contracts with nonaffiliated third parties for information technology services.
Under the terms of the contracts, the third parties assumed responsibility for
certain data center operations and support. On September 19, 1996, we entered
into a 10-year contract with a third party for certain data network and voice
communication services. Future payments under all of these contracts are
estimated to be $1.5 billion; however, the actual timing and amount of payments
will vary based on usage. Expenses incurred in connection with these agreements
were $125 million in 1997, $70 million in 1996, and $6 million in 1995.
LEGAL PROCEEDINGS
We are involved in legal actions that arise in the ordinary course of business.
Although we cannot predict the outcomes of legal actions, it is our opinion
that the resolution of any currently pending or threatened actions will not
have an adverse effect on our consolidated financial position or results of
operations.
BUSINESS RISKS
Certain factors relating to the health care industry and our business should be
carefully considered. Companies offering health care coverage and health care
management services are heavily regulated at federal and state levels. While we
cannot predict regulatory changes or their impact, it is possible that
operations and financial results could be negatively affected.
After several years of moderate increases in health care costs and
utilization, the industry experienced a pronounced increase during 1996.
Although these increases appear to have stabilized, there is no assurance that
health care costs and utilization will not continue to increase at a more rapid
pace. If they do, we may not be able to meet our objective of maintaining price
increases at least sufficient to cover health care cost increases.
Additionally, the health care industry is highly competitive and has seen
significant consolidation over the past few years. The current competitive
markets in certain areas may limit our ability to price products at appropriate
levels. These competitive factors may adversely affect the consolidated
financial results.
CONCENTRATIONS OF CREDIT RISK
Investments in financial instruments such as marketable securities and
commercial premiums receivable may subject United HealthCare to concentrations
of credit risk. Our investments in marketable securities are managed by
professional investment managers within guidelines established by the board of
directors. As a matter of policy, these guidelines limit the amounts that may
be invested in any one issuer. Concentrations of credit risk with respect to
commercial premiums receivable are limited due to the large number of employer
groups that comprise our customer base. As of December 31, 1997, there were no
significant concentrations of credit risk.
32
<PAGE>
(11) RECENTLY ISSUED ACCOUNTING STANDARDS
In 1998, we will adopt a new accounting standard (SFAS No. 130) that will
require us to report comprehensive income and its components, defined in the
standard as changes in the equity of our business during a reporting period
excluding changes resulting from investments by and distributions to our
shareholders. This new standard will not affect net earnings or shareholders'
equity as previously reported.
In 1998, we also will adopt a new accounting standard (SFAS No. 131) that
will require us to report financial and descriptive information about our
reportable operating segments. Generally, financial information will be
required to be reported on the basis that it is used internally to evaluate
segment performance and to allocate resources to segments. This new standard
will only affect financial statement disclosures and will not affect how we
determine net earnings or shareholders' equity.
(12) QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of unaudited quarterly results of operations for the
years ended December 31, 1997 and 1996 (in millions, except per share data):
<TABLE>
QUARTERS ENDED
-------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997
Revenues $ 2,851 $ 2,931 $ 2,958 $ 3,054
Operating Expenses $ 2,673 $ 2,746 $ 2,771 $ 2,862
Net Earnings $ 109 $ 116 $ 116 $ 119
Net Earnings Applicable to Common Shareholders $ 102 $ 108 $ 109 $ 112
Basic Net Earnings per Common Share $ 0.55 $ 0.58 $ 0.58 $ 0.59
Diluted Net Earnings per Common Share $ 0.54 $ 0.57 $ 0.57 $ 0.58
- ----------------------------------------------------------------------------------------------------------------
1996
Revenues $ 2,318 $ 2,492 $ 2,587 $ 2,677
Operating Expenses $ 2,125 $ 2,395 $ 2,438 $ 2,520
Net Earnings $ 119 $ 51 $ 91 $ 95
Net Earnings Applicable to Common Shareholders $ 112 $ 43 $ 84 $ 88
Basic Net Earnings per Common Share $ 0.64 $ 0.24 $ 0.46 $ 0.48
Diluted Net Earnings per Common Share $ 0.62 $ 0.23 $ 0.45 $ 0.47
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
33
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE SHAREHOLDERS AND DIRECTORS OF UNITED HEALTHCARE CORPORATION:
We have audited the accompanying consolidated balance sheets of United
HealthCare Corporation (a Minnesota Corporation) and Subsidiaries as of
December 31, 1997 and 1996, and the related consolidated statements of
operations, changes in shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1997. 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 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.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of United HealthCare Corporation
and Subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
February 12, 1998
REPORT OF MANAGEMENT
The management of United HealthCare Corporation is responsible for the
integrity and objectivity of the consolidated financial statements and other
financial information contained in this annual report. The consolidated
financial statements and related information were prepared according to
generally accepted accounting principles and include some amounts that are
based on management's best estimates and judgements.
To meet its responsibility, management depends on its accounting systems and
related internal accounting controls. These systems are designed to provide
reasonable assurance, at an appropriate cost, that financial records are
reliable for use in preparing financial statements and that assets are
safeguarded. Qualified personnel throughout the organization maintain and
monitor these internal accounting controls on an ongoing basis. Internal
auditors review the accounting practices, systems of internal control, and
compliance with these practices and controls.
The Audit Committee of the Board of Directors, composed entirely of directors
who are not employees of the Company, meets periodically and privately with the
Company's independent public accountants and its internal auditors, as well as
management, to review accounting, auditing, internal control, financial
reporting and other matters.
William W. McGuire, M.D.
President, Chairman and Chief Executive Officer
David P. Koppe
Chief Financial Officer
34
<PAGE>
CORPORATE AND BUSINESS SEGMENT LEADERS
OFFICE OF THE CHAIRMAN
- ----------------------
WILLIAM W. MCGUIRE, M.D.
President, Chairman and Chief Executive Officer
TRAVERS H. WILLS
Chief Operating Officer and Chief Executive Officer, Health Plans
STEPHEN J. HEMSLEY
Senior Executive Vice President
HEALTH PLANS
- ------------
JAMES G. CARLSON
President
JEANNINE M. RIVET
Chief Operating Officer
LEE N. NEWCOMER, M.D.
Chief Medical Officer
WILLIAM A. MUNSELL
Chief Financial Officer
DAVID G. DEVEREAUX
Western Coach
FRED C. DUNLAP
Florida and Puerto Rico Coach
HENRY R. LOUBET
Pacific Coach
MARSHALL V. ROZZI
North Central Coach
ROBERT J. SHEEHY
Midwest Coach
BARBARA A. WAHLROBE
Sales and Marketing
R. CHANNING WHEELER
Northeast Coach
JOHN A. WICKENS
Southeast Coach
RICHARD C. ZORETIC
Mid-Atlantic Coach
INSURANCE SERVICES
- ------------------
RONALD B. COLBY
United HealthCare Insurance Company
STEPHEN H. MATHESON
Developing Markets Group
STRATEGIC BUSINESS SERVICE
- --------------------------
THOMAS P. MCDONOUGH
Chief Executive Officer
JAMES E. MCGARRY
Chief Operating Officer
RETIREE & SENIOR SERVICES
- -------------------------
LOIS QUAM
AARP Division
LEONARD A. FARR
AARP Division
MARCIA E. SMITH
EverCare-Registered Trademark-
SPECIALIZED CARE SERVICES
- -------------------------
SAUL FELDMAN, D.P.A.
United Behavioral Health
R. EDWARD BERGMARK, PH.D.
Optum-Registered Trademark-
DAVID J. MCLEAN, PH.D.
United Resource Networks
JAMES T. BRAUN
Activ!-SM-
NANCY I. CONNAWAY
ProAmerica
KNOWLEDGE & INFORMATION
- -----------------------
SHEILA T. LEATHERMAN
Center for Health Care Policy and Evaluation
KEVIN H. ROCHE
Applied HealthCare Informatics
SIDNEY W. STOLZ
Global Consulting
CORPORATE FUNCTION LEADERS
- --------------------------
ROBERT J. BACKES
Human Resources
DAVID P. KOPPE
Chief Financial Officer
PAUL F. LEFORT
Chief Information Officer
DAVID J. LUBBEN
Corporate Secretary and General Counsel
ELIZABETH A. MALKERSON
Communications
BERNARD F. MCDONAGH
Investor Relations
JOSEPH D. SAVONA
Corporate Audit
35
<PAGE>
BOARD OF DIRECTORS
WILLIAM C. BALLARD, JR.
Of Counsel, Greenbaum, Doll & McDonald
Louisville, Kentucky, law firm
RICHARD T. BURKE
Chief Executive Officer and Governor Phoenix Coyotes
National Hockey League Team
JAMES A. JOHNSON
Chairman and Chief Executive Officer Fannie Mae
Diversified financial services company
THOMAS H. KEAN
President, Drew University
DOUGLAS W. LEATHERDALE
Chairman and Chief Executive Officer
The Saint Paul Companies, Inc.
Insurance and related services
WALTER F. MONDALE
Partner, Dorsey & Whitney LLP
Minneapolis, Minnesota, law firm
WILLIAM W. MCGUIRE, M.D.
President, Chairman and Chief Executive Officer
United HealthCare Corporation
MARY O. MUNDINGER
Dean and Professor, School of Nursing, and Associate Dean, Faculty of Medicine
Columbia University
ROBERT L. RYAN
Senior Vice President and Chief Financial Officer
Medtronic, Inc.
Medical devices company
KENNETT L. SIMMONS
Retired
WILLIAM G. SPEARS
Chairman of the Board
Spears, Benzak, Salomon & Farrell, Inc.
New York City-based investment counseling and management firm
GAIL R. WILENSKY
Senior Fellow
Project HOPE
International health foundation
AUDIT COMMITTEE
- ---------------
JAMES A. JOHNSON
DOUGLAS W. LEATHERDALE
WALTER F. MONDALE
GAIL R. WILENSKY
COMPENSATION AND STOCK OPTION COMMITTEE
- ---------------------------------------
WILLIAM C. BALLARD, JR.
THOMAS H. KEAN
MARY O. MUNDINGER
ROBERT L. RYAN
WILLIAM G. SPEARS
EXECUTIVE COMMITTEE
- -------------------
WILLIAM C. BALLARD, JR.
DOUGLAS W. LEATHERDALE
WILLIAM W. MCGUIRE, M.D.
KENNETT L. SIMMONS
WILLIAM G. SPEARS
NOMINATING COMMITTEE
- --------------------
WILLIAM C. BALLARD, JR.
DOUGLAS W. LEATHERDALE
WILLIAM W. MCGUIRE, M.D.
WILLIAM G. SPEARS
36
<PAGE>
CORPORATE PROFILE
United HealthCare Corporation is a diversified health care management company
that provides a broad spectrum of resources and services to help people achieve
improved health and well-being through all stages of life. United HealthCare
is organized into six business segments: Health Plans, Retiree and Senior
Services, Strategic Business Services, Insurance Services, Specialized Care
Services, and Knowledge and Information Services.
United HealthCare operates in all 50 states, the District of Columbia and
Puerto Rico, as well as internationally. The Company offers organized health
systems, including HMOs, point-of-service plans, PPOs and managed indemnity
programs. The Company also offers a variety of related health care management
services and products such as Medicare supplemental insurance programs, managed
Medicaid services, behavioral health services, workers' compensation and
disability services, utilization review services, disease management programs
and specialized provider networks, health information and employee assistance
programs, knowledge and information services and administrative services.
INVESTOR INFORMATION
CORPORATE HEADQUARTERS
United HealthCare Corporation
300 Opus Center
9900 Bren Road East
Minnetonka, Minnesota 55343
(612) 936-1300
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
Minneapolis, Minnesota
CORPORATE COUNSEL
Dorsey & Whitney LLP
Minneapolis, Minnesota
TRANSFER AGENT & REGISTRAR
Norwest Bank Minnesota, N.A.
Minneapolis, Minnesota
FORM 10-K
The Company has filed an annual report with the Securities and Exchange
Commission on Form 10-K. Shareholders may obtain a copy of this report, without
charge, by writing:
Investor Relations
United HealthCare
P.O. Box 1459, Route MN008-W213
Minneapolis, Minnesota 55440-1459
ANNUAL MEETING
The annual meeting of shareholders will be held at the Lutheran Brotherhood
Building, 625 Fourth Avenue South, Minneapolis, Minnesota, on Wednesday,
May 13, 1998, at 10 a.m.
STOCK LISTING
United HealthCare's common stock is traded on the New York Stock Exchange under
the symbol UNH.
The following table shows the range of high and low sales prices for the
Company stock as reported on the New York Stock Exchange Composite Tape for the
calendar periods indicated through February 28, 1998. These prices do not
include commissions or fees associated with the purchase or sale of this
security.
<TABLE>
HIGH LOW
- -------------------------------------------------------------------------------------
<S> <C> <C>
1998
First Quarter 1998
through February 28, 1998 $ 61.3125 $ 46.5625
- -------------------------------------------------------------------------------------
1997
First Quarter $ 55.25 $ 42.625
Second Quarter 56.75 43.75
Third Quarter 60.125 47.875
Fourth Quarter 54.75 42.4375
- -------------------------------------------------------------------------------------
1996
First Quarter $ 69.00 $ 56.125
Second Quarter 64.25 47.875
Third Quarter 51.125 30.00
Fourth Quarter 49.00 35.125
- -------------------------------------------------------------------------------------
</TABLE>
As of February 28, 1998, the Company had 13,660 shareholders of record.
DIVIDEND POLICY
The Company's dividend policy, established by its board of directors in August
1990, requires the board to review the Company's audited consolidated financial
statements following the end of each fiscal year and make a determination as to
the advisability of declaring a dividend on the corporation's outstanding
shares of common stock.
Shareholders of record on April 3, 1996, received an annual dividend for 1996
of $0.03 per share, and shareholders of record on April 3, 1997, received an
annual dividend for 1997 of $0.03 per share. On February 10, 1998, the
Company's board of directors approved an annual dividend for 1998 of $0.03 per
share to holders of the Company's common stock. This dividend will be paid on
April 15, 1998, to shareholders of record at the close of business on April 1,
1998.
INTERNET ADDRESS
To access information about United HealthCare, including news releases and
product and service information, visit our homepage via the Internet. Our
address is www.unitedhealthcare.com.
38
<PAGE>
EXHIBIT 21
----------
SUBSIDIARIES OF REGISTRANT
--------------------------
<TABLE>
<CAPTION>
STATE OF
INCORPORATION
SUBSIDIARIES OF UNITED HEALTHCARE CORPORATION OR ORGANIZATION
- --------------------------------------------- ---------------
<S> <C>
United HealthCare Services, Inc.(1) Minnesota
United HealthCare of Illinois, Inc.(2) Delaware
United HealthCare of the Midlands, Inc.(3) Nebraska
United HealthCare of Georgia, Inc. Georgia
United HealthCare of Utah Utah
PrimeCare Health Plan, Inc. Wisconsin
United HealthCare of the Midwest, Inc. Missouri
GenCare Dental Plan, Inc. Missouri
United Behavioral Systems, Inc.(4) Iowa
United HealthCare of New England, Inc.(5) Rhode Island
United HealthCare of Ohio, Inc. Ohio
United HealthCare Insurance Company of Ohio Ohio
United HealthCare Insurance Company of Illinois Illinois
United HealthCare of Alabama, Inc. Alabama
United HealthCare of Alabama-FQ, Inc. Alabama
United HealthCare Network, Inc. Alabama
United HealthCare of Arkansas, Inc. Alabama
United HealthCare of Mississippi, Inc. Mississippi
United HealthCare of Tennessee, Inc. Tennessee
UHC Brown Acquisition, Inc. Minnesota
United HealthCare of Louisiana, Inc., Louisiana
United HealthCare of Florida, Inc. Florida
CAC Medical Centers, Inc. Florida
United HealthCare Plans of Puerto Rico, Inc. Puerto Rico
United HealthCare of North Carolina, Inc. North Carolina
United HealthCare Insurance Company Connecticut
United HealthCare Service Corp. New York
MetraHealth Care Management Corporation Delaware
United HealthCare Insurance Company of New York New York
The MetraHealth Employee Benefits Company, Inc. Connecticut
United HealthCare of Arizona, Inc. Arizona
United HealthCare of California, Inc. California
United HealthCare of Colorado, Inc. Colorado
United HealthCare of New Jersey, Inc. New Jersey
United HealthCare Plan of New York, Inc. New York
ProAmerica Managed Care, Inc. Texas
The MetraHealth Care Network, Inc. Delaware
MetraComp, Inc.(6) Connecticut
United Behavioral Health California
United HealthCare of Upstate New York, Inc. New York
United HealthCare of Texas, Inc. Texas
U.S. Behavioral Health Plan, California California
Behavioral Health Administrators California
UHC Overseas R.S.A., Inc. Delaware
UHC International Holdings, Inc. Delaware
UHC Holdings R.S.A., L.L.C. Delaware
Metra Realty, Inc. Connecticut
United HealthCare (Deutschland) GmbH Germany
HealthWise of America, Inc. Delaware
HealthWise of Arkansas, Inc. Tennessee
<PAGE>
STATE OF
INCORPORATION
SUBSIDIARIES OF UNITED HEALTHCARE CORPORATION OR ORGANIZATION
- --------------------------------------------- ---------------
United HealthCare of Kentucky, Ltd. Kentucky
United HealthCare of the Mid-Atlantic, Inc. Maryland
Arkansas Managed Care Organization Arkansas
HealthWise of Arkansas, Ltd. Arkansas
Applied HealthCare Informatics, Inc. Delaware
O'Pin Systems, Inc. Minnesota
Cambridge Health Economics Group, Inc. Massachusetts
Certitude, Inc. Delaware
Medicode (Delaware), Inc. Delaware
UHC Gold Acquisition, Inc. Louisiana
Integrity Plus Services, Inc. Minnesota
</TABLE>
- -------------------------
(1) Also doing business as "United HealthCare Services of Minnesota, Inc.;"
"UHC Management Company, Inc.;" "United HealthCare Corporation;" "Healthmarc;"
"EverCare;" "United HealthCare;" "United HealthCare Management Company, Inc.;"
"UHC Management & Administrators;" "United Resource Networks;" "Health Pro;"
"GenCare PPO; and Charter HealthCare Inc."
(2) Also doing business as "Chicago HMO Ltd." and "United HealthCare of
Indiana, Inc."
(3) Also doing business as "West Center Internal Medicine;" "Family Practice
Clinic;" "Share Health Plan of Nebraska, Inc.;" "Northwest Clinic;" "Benson
Medical Center;" "Midlands Internal Medicine;" "HealthSpring;" "SHARE;" and
"SHARE HealthPlan."
(4) Also doing business as "UBS Illinois."
(5) Also doing business as "United Health Plan of New England, Inc."
(6) Also doing business as "Conservco Service Corporation."
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report dated February 12, 1998 incorporated by reference in this Form
10-K, into the Company's previously filed Registration Statement Nos.
2-95342, 33-3558, 33-22310, 33-27208, 33-36579, 33-50282, 33-67918, 33-68300,
33-75846, 33-79632, 33-79634, 33-79636, 33-59083, 33-59623, 33-63885,
333-01517, 333-01915, 333-02525, 333-04875, 333-04401, 333-05717, 333-05291,
333-06533, 333-25923, 333-27277, 333-44569, 333-44613, 333-45319, 333-41661
and 333-45289.
/s/ ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
March 25, 1998
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS that each person whose signature appears below
constitutes and appoints each of William W. McGuire, M.D. and David J. Lubben,
each with full power to act without the other, his or her true and lawful
attorney-in-fact and agent with full power of substitution, for him or her and
in his or her name, place and stead, in any and all capacities, to sign the
Annual Report on Form 10-K for the fiscal year ended December 31, 1997 of United
HealthCare Corporation, and any and all amendments thereto, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto each such
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that each such attorney-in-fact
and agent, or his or her substitute, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, this Power of Attorney has been signed on this 10th day
of March, 1998, by the following person.
/s/ Thomas H. Kean
- -------------------------
Thomas H. Kean
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints each of David P. Koppe and David J. Lubben,
each with full power to act without the other, his or her true and lawful
attorney-in-fact and agent with full power of substitution, for him or her
and in his or her name, place and stead, in any and all capacities, to sign
the Annual Report on Form 10-K for the fiscal year ended December 31, 1997 of
United HealthCare Corporation, and any and all amendments thereto, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto each
such attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about
the premises, as fully to all intents and purposes as he or she might or
could do in person, hereby ratifying and confirming all that each such
attorney-in-fact and agent, or his or her substitute, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, this Power of Attorney has been signed on this 16th day
of March, 1998, by the following person.
/s/ William W. McGuire, M.D.
- ------------------------------
William W. McGuire, M.D.
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints each of William W. McGuire, M.D. and David J.
Lubben, each with full power to act without the other, his or her true and
lawful attorney-in-fact and agent with full power of substitution, for him or
her and in his or her name, place and stead, in any and all capacities, to
sign the Annual Report on Form 10-K for the fiscal year ended December 31,
1997 of United HealthCare Corporation, and any and all amendments thereto,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto each such attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all that each
such attorney-in-fact and agent, or his or her substitute, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, this Power of Attorney has been signed on this 13th day
of March, 1998, by the following person.
/s/ Douglas W. Leatherdale
- ------------------------------
Douglas W. Leatherdale
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints each of William W. McGuire, M.D. and David J.
Lubben, each with full power to act without the other, his or her true and
lawful attorney-in-fact and agent with full power of substitution, for him or
her and in his or her name, place and stead, in any and all capacities, to
sign the Annual Report on Form 10-K for the fiscal year ended December 31,
1997 of United HealthCare Corporation, and any and all amendments thereto,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto each such attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all that each
such attorney-in-fact and agent, or his or her substitute, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, this Power of Attorney has been signed on this 17th day
of March, 1998, by the following person.
/s/ William C. Ballard, Jr.
- ------------------------------
William C. Ballard, Jr.
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints each of William W. McGuire, M.D. and David J.
Lubben, each with full power to act without the other, his or her true and
lawful attorney-in-fact and agent with full power of substitution, for him or
her and in his or her name, place and stead, in any and all capacities, to
sign the Annual Report on Form 10-K for the fiscal year ended December 31,
1997 of United HealthCare Corporation, and any and all amendments thereto,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto each such attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all that each
such attorney-in-fact and agent, or his or her substitute, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, this Power of Attorney has been signed on this 10th day
of March, 1998, by the following person.
/s/ Walter F. Mondale
- -------------------------
Walter F. Mondale
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints each of William W. McGuire, M.D. and David J.
Lubben, each with full power to act without the other, his or her true and
lawful attorney-in-fact and agent with full power of substitution, for him or
her and in his or her name, place and stead, in any and all capacities, to
sign the Annual Report on Form 10-K for the fiscal year ended December 31,
1997 of United HealthCare Corporation, and any and all amendments thereto,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto each such attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all that each
such attorney-in-fact and agent, or his or her substitute, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, this Power of Attorney has been signed on this 17th day
of March, 1998, by the following person.
/s/ Richard T. Burke
- ------------------------------
Richard T. Burke
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints each of William W. McGuire, M.D. and David J.
Lubben, each with full power to act without the other, his or her true and
lawful attorney-in-fact and agent with full power of substitution, for him or
her and in his or her name, place and stead, in any and all capacities, to
sign the Annual Report on Form 10-K for the fiscal year ended December 31,
1997 of United HealthCare Corporation, and any and all amendments thereto,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto each such attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all that each
such attorney-in-fact and agent, or his or her substitute, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, this Power of Attorney has been signed on this 13th day
of March, 1998, by the following person.
/s/ Robert L. Ryan
- -------------------------
Robert L. Ryan
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints each of William W. McGuire, M.D. and David J.
Lubben, each with full power to act without the other, his or her true and
lawful attorney-in-fact and agent with full power of substitution, for him or
her and in his or her name, place and stead, in any and all capacities, to
sign the Annual Report on Form 10-K for the fiscal year ended December 31,
1997 of United HealthCare Corporation, and any and all amendments thereto,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto each such attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all that each
such attorney-in-fact and agent, or his or her substitute, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, this Power of Attorney has been signed on this 10th day
of March, 1998, by the following person.
/s/ Kennett L. Simmons
- -------------------------
Kennett L. Simmons
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints each of William W. McGuire, M.D. and David J.
Lubben, each with full power to act without the other, his or her true and
lawful attorney-in-fact and agent with full power of substitution, for him or
her and in his or her name, place and stead, in any and all capacities, to
sign the Annual Report on Form 10-K for the fiscal year ended December 31,
1997 of United HealthCare Corporation, and any and all amendments thereto,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto each such attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all that each
such attorney-in-fact and agent, or his or her substitute, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, this Power of Attorney has been signed on this 17th day
of March, 1998, by the following person.
/s/ William G. Spears
- -------------------------
William G. Spears
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints each of William W. McGuire, M.D. and David J.
Lubben, each with full power to act without the other, his or her true and
lawful attorney-in-fact and agent with full power of substitution, for him or
her and in his or her name, place and stead, in any and all capacities, to
sign the Annual Report on Form 10-K for the fiscal year ended December 31,
1997 of United HealthCare Corporation, and any and all amendments thereto,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto each such attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all that each
such attorney-in-fact and agent, or his or her substitute, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, this Power of Attorney has been signed on this 13th day
of March, 1998, by the following person.
/s/ James A. Johnson
- -------------------------
James A. Johnson
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints each of William W. McGuire, M.D. and David J.
Lubben, each with full power to act without the other, his or her true and
lawful attorney-in-fact and agent with full power of substitution, for him or
her and in his or her name, place and stead, in any and all capacities, to
sign the Annual Report on Form 10-K for the fiscal year ended December 31,
1997 of United HealthCare Corporation, and any and all amendments thereto,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto each such attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all that each
such attorney-in-fact and agent, or his or her substitute, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, this Power of Attorney has been signed on this 13th day
of March, 1998, by the following person.
/s/ Gail R. Wilensky
- -------------------------
Gail R. Wilensky
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints each of William W. McGuire, M.D. and David J.
Lubben, each with full power to act without the other, his or her true and
lawful attorney-in-fact and agent with full power of substitution, for him or
her and in his or her name, place and stead, in any and all capacities, to
sign the Annual Report on Form 10-K for the fiscal year ended December 31,
1997 of United HealthCare Corporation, and any and all amendments thereto,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto each such attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all that each
such attorney-in-fact and agent, or his or her substitute, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, this Power of Attorney has been signed on this 16th day
of March, 1998, by the following person.
/s/ Mary O. Mundinger
- -------------------------
Mary O. Mundinger
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNITED
HEALTHCARE CORPORATION FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 750
<SECURITIES> 3,291
<RECEIVABLES> 813
<ALLOWANCES> 45
<INVENTORY> 0
<CURRENT-ASSETS> 2,193
<PP&E> 714
<DEPRECIATION> 350
<TOTAL-ASSETS> 7,623
<CURRENT-LIABILITIES> 2,570
<BONDS> 0
500
0
<COMMON> 2
<OTHER-SE> 4,532
<TOTAL-LIABILITY-AND-EQUITY> 7,623
<SALES> 11,563
<TOTAL-REVENUES> 11,794
<CGS> 10,906
<TOTAL-COSTS> 11,052
<OTHER-EXPENSES> 146
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 742
<INCOME-TAX> 282
<INCOME-CONTINUING> 460
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 460
<EPS-PRIMARY> 2.30
<EPS-DILUTED> 2.26
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> DEC-31-1996 DEC-31-1995
<CASH> 1,037 940
<SECURITIES> 2,416 2,138
<RECEIVABLES> 652 577
<ALLOWANCES> 46 27
<INVENTORY> 0 0
<CURRENT-ASSETS> 2,739 2,867
<PP&E> 588 417
<DEPRECIATION> 275 150
<TOTAL-ASSETS> 6,997 6,161
<CURRENT-LIABILITIES> 2,643 2,434
<BONDS> 0 0
500 500
0 0
<COMMON> 2 2
<OTHER-SE> 3,821 3,186
<TOTAL-LIABILITY-AND-EQUITY> 6,997 6,161
<SALES> 9,889 5,511
<TOTAL-REVENUES> 10,074 5,671
<CGS> 9,344 4,962
<TOTAL-COSTS> 9,477 5,210
<OTHER-EXPENSES> 133 248
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 581 461
<INCOME-TAX> 225 175
<INCOME-CONTINUING> 356 286
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 356 286
<EPS-PRIMARY> 1.80 1.61
<EPS-DILUTED> 1.76 1.57
</TABLE>
