UNITED HEALTHCARE CORP, 10-Q, 1998-11-12

UNITED HEALTHCARE CORP
10-Q, 1998-11-12
HOSPITAL & MEDICAL SERVICE PLANS

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

------------------------

FORM 10-Q
---------------

(MARK ONE)

/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO .

COMMISSION FILE NUMBER: 1-10864

------------------------

UNITED HEALTHCARE CORPORATION

State of Incorporation: MINNESOTA

I.R.S. Employer Identification No: 41-1321939

Principal Executive Offices:

300 OPUS CENTER

9900 BREN ROAD EAST

MINNETONKA MN, 55343

Telephone Number: (612) 936-1300

------------------------

Indicate by check mark (x) whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /

The number of shares of Common Stock, par value $.01 per share, outstanding on
November 10, 1998, was 186,232,870

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<PAGE>
UNITED HEALTHCARE CORPORATION
INDEX

<TABLE>
<CAPTION>
PAGE
NUMBER
-------------
<S> <C>
PART I. FINANCIAL INFORMATION.

ITEM I. FINANCIAL STATEMENTS (UNAUDITED)

Condensed Consolidated Balance Sheets at September 30, 1998 and December 31, 1997................... 3

Condensed Consolidated Statements of Operations for the three and nine month periods ended September
30, 1998 and 1997.................................................................................. 4

Condensed Consolidated Statements of Cash Flows for the nine month periods ended September 30, 1998
and 1997........................................................................................... 5

Notes to Condensed Consolidated Financial Statements................................................ 6

Report of Independent Public Accountants............................................................ 10

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS......... 11

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.................................... 19

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS............................................................................. 20

ITEM 5. OTHER INFORMATION............................................................................. 20

ITEM 6. EXHIBITS...................................................................................... 21

Signatures.............................................................................................. 22
</TABLE>

2
<PAGE>
UNITED HEALTHCARE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- -------------
<S> <C> <C>
ASSETS
Current Assets
Cash and Cash Equivalents....................... $ 1,025 $ 750
Short-Term Investments.......................... 164 506
Accounts Receivable, net (Note 6)............... 1,104 768
Assets Under Management (Note 6)................ 1,103 28
Other Current Assets............................ 127 141
------ ------
Total Current Assets.......................... 3,523 2,193
Long-Term Investments............................. 2,859 2,785
Property and Equipment, net (Note 2).............. 332 364
Goodwill and Other Intangible Assets, net (Note
2).............................................. 2,200 2,281
------ ------
TOTAL ASSETS...................................... $ 8,914 $ 7,623
------ ------
------ ------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Medical Costs Payable (Note 6).................. $ 2,646 $ 1,565
Other Policy Liabilities (Note 6)............... 598 235
Accounts Payable and Accrued Liabilities (Note
6)............................................ 614 495
Accrued Operational Realignment Charges (Note
2)............................................ 266 --
Unearned Premiums............................... 168 275
------ ------
Total Current Liabilities..................... 4,292 2,570
Long-Term Obligations............................. 22 19
Convertible Preferred Stock....................... 500 500
------ ------
Shareholders' Equity
Common Stock, $.01 par value--500,000,000 shares
authorized; 187,454,000 and 191,111,000 issued
and outstanding............................... 2 2
Additional Paid-in Capital...................... 1,263 1,398
Retained Earnings............................... 2,779 3,105
Net Unrealized Holding Gains on Investments
Available for Sale, net of income tax
effects....................................... 56 29
------ ------
Total Shareholders' Equity.................... 4,100 4,534
------ ------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........ $ 8,914 $ 7,623
------ ------
------ ------
</TABLE>

See notes to condensed consolidated financial statements

3
<PAGE>
UNITED HEALTHCARE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES
Premiums................................................................ $ 3,898 $ 2,551 $ 11,353 $ 7,496
Management Services and Fees............................................ 399 351 1,172 1,073
Investment and Other Income............................................. 63 57 185 172
--------- --------- --------- ---------
Total Revenues........................................................ 4,360 2,959 12,710 8,741
--------- --------- --------- ---------
OPERATING EXPENSES........................................................
Medical Costs (Note 2).................................................. 3,354 2,144 9,941 6,327
Selling, General and Administrative Expenses............................ 749 591 2,167 1,758
Depreciation and Amortization........................................... 43 37 133 106
Operational Realignment Charges (Note 2)................................ -- -- 725 --
--------- --------- --------- ---------
Total Operating Expenses.............................................. 4,146 2,772 12,966 8,191
--------- --------- --------- ---------
EARNINGS (LOSS) BEFORE INCOME TAXES....................................... 214 187 (256) 550
Provision for Income Taxes (Note 3)..................................... (79) (71) (42) (209)
--------- --------- --------- ---------
NET EARNINGS (LOSS)....................................................... 135 116 (298) 341
CONVERTIBLE PREFERRED STOCK DIVIDENDS..................................... (7) (7) (22) (22)
--------- --------- --------- ---------
NET EARNINGS (LOSS) APPLICABLE TO COMMON SHAREHOLDERS..................... $ 128 $ 109 $ (320) $ 319
--------- --------- --------- ---------
--------- --------- --------- ---------
BASIC NET EARNINGS (LOSS) PER COMMON SHARE................................ $ 0.67 $ 0.58 $ (1.67) $ 1.71
--------- --------- --------- ---------
--------- --------- --------- ---------
NET EARNINGS (LOSS) PER COMMON SHARE, ASSUMING DILUTION................... $ 0.66 $ 0.57 $ (1.67) $ 1.68
--------- --------- --------- ---------
--------- --------- --------- ---------
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING...................... 192 188 192 186
DILUTIVE EFFECT OF OUTSTANDING STOCK OPTIONS.............................. 2 4 -- 5
--------- --------- --------- ---------
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, ASSUMING DILUTION... 194 192 192 191
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>

See notes to condensed consolidated financial statements

4
<PAGE>
UNITED HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
(UNAUDITED)

<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net Earnings (Loss)........................................................................ $ (298) $ 341
Noncash Items:
Depreciation and Amortization............................................................ 133 106
Deferred Income Taxes.................................................................... (210) 68
Asset Impairments........................................................................ 450 --
Net Change in Other Operating Items:
Accounts Receivable and Other Current Assets............................................. (94) (159)
Medical Costs Payable.................................................................... 181 38
Accounts Payable and Other Current Liabilities........................................... 148 (117)
Accrued Operational Realignment Charges.................................................. 266 --
Unearned Premiums........................................................................ (143) (112)
--------- ---------
Cash Flows From Operating Activities................................................... 433 165
--------- ---------
INVESTING ACTIVITIES
Cash Paid for Acquisitions, net of cash assumed and other effects.......................... (125) --
Purchases of Property and Equipment and Capitalized Software, net.......................... (112) (132)
Purchases of Investments................................................................... (2,353) (5,084)
Maturities/Sales of Investments............................................................ 2,660 4,421
--------- ---------
Cash Flows From (Used for) Investing Activities........................................ 70 (795)
--------- ---------
FINANCING ACTIVITIES
Proceeds from Stock Option Exercises....................................................... 83 65
Common Stock Repurchases................................................................... (284) --
Dividends Paid............................................................................. (27) (27)
--------- ---------
Cash Flows (Used for) From Financing Activities........................................ (228) 38
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............................................. 275 (592)
CASH AND EQUIVALENTS, BEGINNING OF PERIOD.................................................... 750 1,036
--------- ---------
CASH AND EQUIVALENTS, END OF PERIOD.......................................................... $ 1,025 $ 444
--------- ---------
--------- ---------
</TABLE>

See notes to condensed consolidated financial statements

5
<PAGE>
UNITED HEALTHCARE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. BASIS OF PRESENTATION

Unless the context otherwise requires, the use of the terms the "Company," "we,"
"us," and "our" in the following refers to United HealthCare Corporation and its
subsidiaries.

The accompanying unaudited condensed consolidated financial statements reflect
all adjustments, consisting solely of normal recurring adjustments, needed to
present the financial results for these interim periods fairly. These 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, integration reserves
relating to acquisitions, and liabilities and asset impairments relating to our
operational realignment activities. These estimates may be adjusted as more
current information becomes available, and any adjustment could be significant.

Following the rules and regulations of the Securities and Exchange Commission,
we have omitted footnote disclosures that would substantially duplicate the
disclosures contained in our annual audited financial statements. Read together
with the disclosures below, we believe the interim financial statements are
presented fairly. However, these unaudited condensed consolidated financial
statements should be read together with the consolidated financial statements
and the notes included in our Annual Report on Form 10-K for the year ended
December 31, 1997.

2. SPECIAL OPERATING CHARGES

OPERATIONAL REALIGNMENT CHARGES

In January 1998, we introduced a significant realignment of our operations
into six independent but strategically linked businesses, each focused on
performance, growth and shareholder value. In the months that followed, we began
to realign our resources and activities; introduce new management processes and
policies; evaluate our market positions and customer segments; and assess the
strategic fit, operational performance and contribution of our business units.
We have moved forward to establish more independent identities, brands and
market positions for each of our businesses. We have realigned significant
personnel and activities from corporate functions to more directly support the
operations of our businesses. We also have defined internal service
arrangements, systems platforms, and process requirements to support each
business's markets and products.

In conjunction with these efforts, we developed and, in the second quarter of
1998, approved a comprehensive plan (the Plan) to implement our operational
realignment. We recognized corresponding charges to operations of $725 million
in the quarter which reflect the estimated costs we will incur under the Plan.
The charges included costs associated with employee terminations, disposing or
discontinuing business units, product lines, and contracts; and consolidating
and eliminating certain processing operations and associated real estate
obligations. These activities will result in a net reduction of more than 4,000
positions impacting 7,000 people in various locations. Through September 30,
1998, we have eliminated approximately 1,700 positions pursuant to the Plan.

Our original provision for operational realignment activities was developed
based on management's best judgment and estimates at that time. As we began to
execute the Plan, we adjusted certain estimates based on current information and
reclassified certain activities and costs to more appropriate categories. In
total,

6
<PAGE>
UNITED HEALTHCARE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

2. SPECIAL OPERATING CHARGES (CONTINUED)
our original estimate of the operational realignment charges did not change. The
following table summarizes realignment activities for the nine month period
ended September 30, 1998 (in millions):

<TABLE>
<CAPTION>
CHARGES INCURRED
ORIGINAL ---------------------- ACCRUAL AT SEPTEMBER
PROVISION RECLASSIFICATIONS CASH NON-CASH 30, 1998
----------- ----------------- --------- ----------- ---------------------
<S> <C> <C> <C> <C> <C>
Provision for operational realignment:
Asset impairments............................ $ 399 $ 51 $ -- $ (450) $ --
Severance and outplacement costs............. 142 (23) (7) -- 112
Noncancellable lease obligations............. 82 (5) -- -- 77
Disposition of businesses and other costs.... 102 (23) (2) -- 77
----- --- --- ----- -----
Total provision............................ $ 725 $ -- $ (9) $ (450) $ 266
----- --- --- ----- -----
----- --- --- ----- -----
</TABLE>

The asset impairments principally relate to the write-down of intangibles and
other long-lived assets from businesses we intend to dispose of or discontinue;
or markets where we plan to curtail operations or change the nature of our
operating presence. The majority of these write-downs relate to businesses
acquired in our 1995 acquisition of The MetraHealth Companies, Inc. and certain
other under-performing health plan markets. The amount of write-downs were
primarily determined based on a forecast of expected discounted future cash
flows. In other instances, we determined the extent of the write-downs based on
a determination of the business unit's fair value.

Our accompanying financial statements include the operating results of
businesses to be disposed of or discontinued in connection with the operational
realignment. We anticipate these actions will be completed by June 30, 1999. The
losses anticipated on the disposition of these businesses, including severance,
impairment of assets, abandoned facilities, and additional exit costs, represent
approximately $220 million and are included in the $725 million of operational
realignment charges. Our accompanying consolidated statements of operations
include revenues and operating losses from these businesses as follows (in
millions):

The table above does not include operating results from the counties where we
will be withdrawing our health plan Medicare product offerings, effective
January 1, 1999. Annual revenues for 1998 from the Medicare markets we are
exiting are expected to be approximately $225 million.

The operational realignment charges do not cover certain aspects of the Plan,
including new information systems, data conversions, process re-engineering, and
employee relocation and training. These costs will be charged to expense as
incurred or capitalized, as appropriate. We expect our operational realignment
initiatives will be substantially completed by June 30, 1999.

7
<PAGE>
UNITED HEALTHCARE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

2. SPECIAL OPERATING CHARGES (CONTINUED)
MEDICAL COSTS

Medical costs reported in the second quarter of 1998 included $120 million
relating to losses in certain underperforming health plan Medicare markets. We
incurred $89 million of these Medicare losses during the second and third
quarters, which included current operating losses and increased Medicare reserve
estimates. We have reserves of $31 million as of September 30, 1998 and
management believes that these reserves are adequate to cover Medicare losses we
expect to incur in the fourth quarter of 1998. Second quarter medical costs also
included $55 million related to increasing our reserves in light of increasing
pressure on medical cost trends in certain health plan markets, including those
where we may reposition or withdraw our operating presence.

3. INCOME TAXES

The income tax provision of $42 million for the nine month period ended
September 30, 1998, included an income tax benefit of $196 million related to
our second quarter operating charges.

4. STOCK REPURCHASE PROGRAM

Under our stock repurchase program, we may purchase up to 18.7 million shares of
our outstanding common stock. Purchases may be made from time to time at
prevailing prices, subject to certain restrictions on volume, pricing, and
timing. During the nine month period ended September 30, 1998, we repurchased
7.6 million shares at an average price of $39 per share. Since inception of the
program in November 1997, we have repurchased 7.8 million shares.

5. CASH AND INVESTMENTS

As of September 30, 1998, the amortized cost, gross unrealized holding gains and
losses and fair value of cash and investments were as follows (in millions):

<TABLE>
<CAPTION>
GROSS UNREALIZED GROSS UNREALIZED
AMORTIZED COST HOLDING GAINS HOLDING LOSSES FAIR VALUE
--------------- ---------------- ---------------- ----------
<S> <C> <C> <C> <C>
Cash and Cash Equivalents......................... $ 1,025 $ -- $ -- $ 1,025
Investments Available for Sale.................... 2,852 97 (9 ) 2,940
Investments Held to Maturity...................... 83 -- -- 83
------ --- --- ----------
Total Cash and Investments...................... $ 3,960 $ 97 $ (9 ) $ 4,048
------ --- --- ----------
------ --- --- ----------
</TABLE>

6. AMERICAN ASSOCIATION OF RETIRED PERSONS CONTRACT

We began providing insurance products and services to the American Association
of Retired Persons (AARP) on January 1, 1998. Our portion of the AARP's
insurance program represents approximately $3.5 billion in annual net premium
revenue from approximately 4 million AARP members. We also are developing an
array of new products and services designed to complement the insurance
offerings under the AARP program.

Under the terms of our 10-year agreement with the AARP, we receive monthly fees
for claim administrative services and as compensation for assuming a share of
the underwriting risk associated with the program. In addition, the AARP has
separately contracted with certain vendors to provide marketing and

8
<PAGE>
UNITED HEALTHCARE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

6. AMERICAN ASSOCIATION OF RETIRED PERSONS CONTRACT (CONTINUED)
member services. We recognize premium revenues associated with the AARP program
net of the administrative fees paid to these vendors.

The following assets and liabilities were transferred from the program's
previous carrier and are included in our consolidated balance sheet (in
millions):

<TABLE>
<CAPTION>
AMOUNTS TRANSFERRED
AS OF BALANCE AS OF
DESCRIPTION JANUARY 1, 1998 SEPTEMBER 30, 1998
- ----------------------------------------------------- ------------------- -------------------
<S> <C> <C>
Assets Under Management.............................. $ 959 $ 1,075
Premiums Receivable.................................. $ 300 $ 298
Medical Costs Payable................................ $ 1,024 $ 893
Other Policy Liaibilities............................ $ 192 $ 370
Other Liabilities.................................... $ 43 $ 55
</TABLE>

7. COMPREHENSIVE INCOME

The table below presents comprehensive income, defined as changes in the equity
of our business excluding changes resulting from investments by and
distributions to our shareholders, for the nine-month periods ended September
30, 1998 and 1997 (in millions):

<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Net Earnings (Loss)........................................................... $ (298) $ 341
Change in Net Unrealized Holding Gains on Investments Available for Sale, net
of income tax effects....................................................... 27 26
--------- ---------
Comprehensive Income (Loss)................................................... $ (271) $ 367
--------- ---------
--------- ---------
</TABLE>

8. RECENTLY ISSUED ACCOUNTING STANDARDS

In the fourth quarter of 1998, we 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 is used internally to evaluate segment
performance and allocate resources to segments. This new standard will not
affect how we determine net earnings or shareholders' equity.

Effective January 1, 1998, we adopted a new accounting pronouncement on
accounting for costs of computer software developed or obtained for internal use
(SOP 98-1). This new pronouncement did not have a material impact on the our
financial position or results of operations.

In April 1998, a new pronouncement for reporting on the costs of start-up
activities (SOP 98-5) was issued. Our current accounting practices are
consistent with this new pronouncement and, accordingly, SOP 98-5 will not
change our financial position or results of operations.

In June 1998, a new standard on accounting for derivative instruments and
hedging activities (SFAS No. 133) was issued. This new standard will not
materially affect our financial results or disclosures based upon our current
investment portfolio.

9
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To United HealthCare Corporation:

We have reviewed the accompanying condensed consolidated balance sheet of United
HealthCare Corporation (a Minnesota corporation) and Subsidiaries as of
September 30, 1998 and the related condensed consolidated statements of
operations and cash flows for the three and nine month periods ended September
30, 1998 and 1997. These financial statements are the responsibility of the
Company's management.

We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.

We have previously audited, in accordance with generally accepted auditing
standards, the consolidated financial statements of United HealthCare
Corporation and Subsidiaries as of and for the year-ended December 31, 1997 (not
presented herein), and, in our report dated February 12, 1998, we expressed an
unqualified opinion on those statements. In our opinion, the information set
forth in the accompanying condensed consolidated balance sheet as of December
31, 1997, is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.

/s/ Arthur Andersen LLP

Minneapolis, Minnesota,
November 5, 1998

10
<PAGE>
UNITED HEALTHCARE CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Unless the context otherwise requires, the use of the terms the "Company," "we,"
"us," and "our" in the following refers to United HealthCare Corporation and its
subsidiaries.

On January 1, 1998, we began delivering Medicare supplement insurance and other
medical insurance coverage for the American Association of Retired Persons
(AARP) to approximately 4 million AARP members. In the second quarter of 1998,
we recorded special operating charges related to our operational realignment
activities ($725 million), Medicare loss contracts ($120 million) and certain
medical cost adjustments ($55 million). The significance of the AARP business
and the special charges affects the year-to-year comparability of our
consolidated financial position and results of operations. The Summary Operating
Information below should be read together with the narrative portions of
Management's Discussion and Analysis that more fully describe the specific
effects of the AARP business and the special charges.

The following discussion should be read together with the accompanying condensed
consolidated financial statements and notes. In addition, the following
discussion should be considered in light of a number of factors that affect the
Company, the industry in which we operate, and business generally. These factors
are described in Exhibit 99 to this Quarterly Report.

SUMMARY OPERATING INFORMATION

<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ --------------------------------
PERCENT PERCENT
OPERATING RESULTS 1998 1997 CHANGE 1998 1997 CHANGE
- -------------------------------------------------- ------ ------ ------- ----------- ------- ------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Total Revenues.................................... $4,360 $2,959 47% $ 12,710 $ 8,741 45%
Earnings (Loss) from Operations................... $ 214 $ 187 14% $ (256) $ 550 (147)%
Net Earnings (Loss)............................... $ 135 $ 116 16% $ (298) $ 341 (187)%
Net Earnings (Loss) Per Common Share, Assuming
Dilution........................................ $ 0.66 $ 0.57 16% $ (1.67) $ 1.68 (199)%
Medical Costs to Premium Revenues................. 86.0% 84.1% 87.6%(a) 84.4%
SG&A Expenses to Total Revenues................... 17.2% 20.0% 17.0% 20.1%
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER SEPTEMBER PERCENT
ENROLLMENT BY PRODUCT 30, 1998 30, 1997 CHANGE
- -------------------------------------------------------------------------------- --------- --------- ------
(IN THOUSANDS)

<S> <C> <C> <C>
Health Plan Products
Commercial.................................................................... 5,837(b) 5,237(b) 11%
Medicare...................................................................... 450 318 42%
Medicaid...................................................................... 509 526 (3)%
--------- --------- ------
Total Health Plan Products.................................................. 6,796 6,081 12%
Other Network-Based Products.................................................... 4,940(b) 4,619(b) 7%
Indemnity Products.............................................................. 1,631 2,321 (30)%
--------- --------- ------
Total Enrollment............................................................ 13,367 13,021 3%
--------- --------- ------
--------- --------- ------
</TABLE>

11
<PAGE>
UNITED HEALTHCARE CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
SEPTEMBER SEPTEMBER
30, 30, PERCENT
ENROLLMENT BY FUNDING ARRANGEMENT 1998 1997 CHANGE
- -------------------------------------------------------------------------------- --------- --------- ------
(IN THOUSANDS)
Fully Insured
<S> <C> <C> <C>
Health Plan Products........................................................ 5,831 5,218 12%
Other Network-Based Products................................................ 495 489 1%
Indemnity Products.......................................................... 274 391 (30)%
--------- --------- ------
Total Fully Insured....................................................... 6,600 6,098 8%
--------- --------- ------
Self-Funded
Health Plan Products........................................................ 965 863 12%
Other Network-Based Products................................................ 4,445 4,130 8%
Indemnity Products.......................................................... 1,357 1,930 (30)%
--------- --------- ------
Total Self Funded......................................................... 6,767 6,923 (2)%
--------- --------- ------
Total Enrollment........................................................ 13,367 13,021 3%
--------- --------- ------
--------- --------- ------
</TABLE>

- ------------------------------
(a) Includes $120 million of losses related to certain Medicare markets and $55
million related to reserve strengthening associated with increasing pressure
on medical costs trends.

(b) In conjunction with the realignment of our operations, small group and
middle market point-of-service membership, previously classified as other
network based products, are now being presented with our commercial health
plan products (907,000 members at September 30, 1998 and 766,000 members at
September 30, 1997).

12
<PAGE>
RESULTS OF OPERATIONS

SPECIAL OPERATING CHARGES

OPERATIONAL REALIGNMENT In January 1998, we introduced a significant
realignment of our operations into six independent but strategically linked
businesses, each focused on performance, growth and shareholder value. In the
months that followed, we began to realign our resources and activities;
introduce new management processes and policies; evaluate our market positions
and customer segments; and assess the strategic fit, operational performance and
contribution of our business units. We have moved forward to establish more
independent identities, brands and market positions for each of our businesses.
We have realigned significant personnel and activities from corporate functions
to more directly support the operations of our businesses. We also have defined
internal service arrangements, systems platforms, and process requirements to
support each business's markets and products.

MEDICAL COSTS

Medical costs reported in the second quarter of 1998 included $120 million
relating to losses in certain underperforming health plan Medicare markets. We
incurred $89 million of these Medicare losses during the second and third
quarters, which included current operating losses and increased Medicare reserve
estimates. We have reserves of $31 million as of September 30, 1998 and
management believes that these revenues are adequate to cover Medicare losses we
expect to incur in the fourth quarter of 1998. Second quarter medical costs also
included $55 million related to increasing our reserves in light of increasing
pressure on medical cost trends in certain health plan markets, including those
where we may reposition or withdraw our operating presence.

PREMIUM REVENUES

Premium revenues in the third quarter of 1998 totaled $3.9 billion, an increase
of $1.3 billion, or 53%, over the third quarter of 1997. For the nine months
ended September 30, 1998, premium revenues of $11.4 billion increased $3.9
billion, or 51%, over the same period in 1997. On January 1, 1998, we began
delivering Medicare supplement insurance and other medical insurance coverage
for the American Association of Retired Persons (AARP) to approximately 4
million AARP members. Premium revenues from our portion of the AARP insurance
offerings during the first nine months of 1998 were $2.6 billion.

Excluding the AARP business, third quarter 1998 premium revenues totaled $3.0
billion, an increase of 19% over third quarter 1997. For the nine months ended
September 30, 1998, premium revenues excluding the AARP business were $8.7
billion, a 16% increase over the same period in 1997. This increase is primarily
the result of growth in year-over-year same-store health plan premium revenues
of $1.3 billion, or 22%, through the third quarter of 1998. Increases in the
health plan premium revenue reflect same-

13
<PAGE>
store enrollment growth of 12% and an average year-over-year premium rate
increase on renewing commercial groups exceeding 6%. Growth in our health plan
Medicare programs also contributed to the increase in premium revenues. The
total health plan same-store enrollment growth of 12% includes a year-over-year
same-store increase of 42% 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 Medicare members typically
use proportionately more medical care services.

The nine-month year-over-year increase in premium revenues from health plan
operations was partially offset by a decrease in premium revenues from fully
insured non-network-based indemnity products of $54 million. This decrease is
primarily attributable to a relationship that we discontinued 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.

MEDICAL COSTS

Our medical care ratio (the percent of premiums expensed as medical costs)
increased from 84.1% in the third quarter of 1997 to 86.0% in the third quarter
of 1998. The year-over-year increase includes the effects of the AARP business
on our medical care ratio. We report a medical care ratio of approximately 92%
related to our portion of the AARP insurance offerings, which we began
delivering on January 1, 1998. Excluding the AARP business, on a year-over-year
basis, the medical care ratio increased twenty basis points to 84.3%.

On a comparable basis for the nine-month periods ended September 30, the medical
care ratio increased from 84.4% in 1997 to 86.3% in 1998. The most significant
cause of the increase in the year-over-year medical care ratio is the $175
million of medical cost charges recorded in the second quarter of 1998. Of this
amount, $120 million related to losses we expect to incur in 13 of our 22
Medicare health plans. These plans contribute half of our annualized Medicare
premiums of $2.3 billion and are generally located in newer markets where we
have been unable to achieve the scale of operations necessary to achieve
profitability. We incurred $89 million of these Medicare losses in the second
and third quarter. We have reserves of $31 million as of September 30, 1998 and
mangement believes that these reserves are adequate to cover the Medicare losses
we expect to incur in the fourth quarter of 1998. We recorded an additional $55
million of medical costs during the second quarter to strengthen our reserves in
light of increasing pressure on medical cost trends in certain health plan
markets, including those where we may reposition or withdraw our operating
presence.

In addition to the second quarter charges, lower margins in our nine other
Medicare health plans also adversely affected the medical care ratio. While
these plans are profitable, average Medicare premium rate increases of 2.5% in
these plans were more than offset by increased medical utilization, reflected
mostly in inpatient hospital costs. Although we see improvement in our overall
commercial medical care ratio, performance in a few of our commercial health
plans lagged behind the performance of our remaining commercial health plans and
modestly contributed to the increased medical care ratio. We are addressing the
overall medical care ratio by altering benefit designs, recontracting with
providers, and aggressively increasing both contemporaneous and retrospective
claim management activities. We also are continuing to evaluate the markets we
serve and products we offer and will curtail activities or exit markets where we
believe near term prospects are unacceptable. In October 1998, we announced our
decision to withdraw Medicare product offerings from 86 of the 206 counties we
currently serve. The decision, effective January 1, 1999, will affect
approximately 60,000, or 13%, of current Medicare members. We will continue to
offer Medicare products in strong and economically viable markets. Annual
revenues for 1998 from Medicare markets we are exiting are expected to be
approximately $225 million.

MANAGEMENT SERVICES AND FEE REVENUES

Management services and fee revenues during the three months and nine months
ended September 30, 1998, totaled $399 million and $1.2 billion, representing
increases of $48 million and $99 million,

14
<PAGE>
respectively, over the same periods in 1997. 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 Specialized Care Services and Knowledge and Information
businesses.

The overall increase in management services and fee revenues is primarily the
result of acquisitions by our Knowledge and Information business during 1997 and
1998. Additionally, our Specialized Care Services business, most notably in
United Behavioral Health and Optum-Registered Trademark-, our telephone- and
Internet-based health information and personal care management business,
continues to increase the number of individuals it serves.

OPERATING EXPENSES

Selling, general and administrative expenses as a percent of total revenues (the
SG&A ratio) decreased from 20.0% during the third quarter of 1997 to 17.2%
during the third quarter of 1998. The improvement in the year-over-year SG&A
ratio reflects the operating leverage we gained with the addition of the AARP
business. On a sequential basis, selling, general and administrative expenses
increased by $43 million, or 6%, from the second quarter of 1998. This increase
is primarily attributable to our efforts to convert and integrate members onto
our two core operating platforms, expenses related to initiation of enrollment,
set up and support costs for over 500,000 new members that we will begin
servicing in January 1999, and incremental Year 2000 compliance costs. For the
nine months ended September 30, 1998, selling, general and administrative
expenses increased $409 million, or 23%, over the comparable period in 1997.
This increase reflects the additional costs to support the corresponding $4.0
billion, or 45%, increase in revenues, as well as our additional investment in
future growth platforms.

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 affects 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.
Significant provisions of HIPAA include guaranteeing the availability of health
insurance for certain employees, limiting the use of preexisting condition
exclusions, prohibiting discrimination on the basis of health status, and making
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, which have 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.

15
<PAGE>
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 currently are 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

Cash and investments at September 30, 1998, were $4.0 billion, comparable to
December 31, 1997 balances. Through the third quarter of 1998, we generated cash
from operations of $433 million and realized proceeds from stock option
exercises and the sale of property and equipment of $115 million. In the same
period, we used $580 million in cash for capital expenditures, acquisitions,
common stock repurchases, and dividends.

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 $665
million in cash and investments available for general corporate use at September
30, 1998.

The National Association of Insurance Commissioners has adopted rules which, to
the extent that they are implemented by the states, will set new minimum
capitalization requirements for insurance companies, Health Maintenance
Organizations (HMO's), and other entities bearing risk for health care coverage.
The requirements take the form of risk-based capital rules. The change in rules
for insurance companies is effective December 31, 1998. The new HMO rules are
subject to state-by-state adoption, but it appears that very few states will
adopt the rules by the end of 1998. The HMO rules, if adopted by the states in
their proposed form, would significantly increase the capital required for
certain of our subsidiaries. Although some reallocation of capital among our
regulated entities will be necessary, we do not anticipate a significant impact
on financial resources available for general corporate purposes. We have
initiated a plan to redeploy capital among our regulated entities to minimize
the need for incremental capital investments of general corporate financial
resources into regulated subsidiaries.

16
<PAGE>
7.6 million shares at an average price of $39 per share. Since inception of the
program in November of 1997, we have repurchased 7.8 million shares.

Effective October 1, 1998, we have the right to redeem in whole or in part the
500,000 outstanding shares of our 5.75% Series A Convertible Preferred Stock
(the Preferred Stock) at certain defined redemption rates. The initial aggregate
redemption price of the Preferred Stock would be $520 million, or $1,040 per
share.

On October 1, 1998, we completed our acquisition of Health Partners of Arizona,
a 501,000 member health plan, for $235 million in cash.

In the second quarter of 1998, we recognized special charges to operations of
$725 million associated with the implementation of our operational realignment
and certain medical cost adjustments of $175 million. We believe our after tax
cash outlay associated with these charges will be in the range of $275 million
to $325 million over the next twelve months.

In January 1998, we filed a shelf registration statement with the Securities and
Exchange Commission (SEC) to sell up to $200 million of debt securities and
preferred or common shares. The shelf filing registered 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. In October 1998, we filed another shelf registration statement to
sell up to $1.05 billion of debt securities, preferred stock, common stock,
depository shares, warrants and trust preferred securities. This registration
statement has not yet been approved by the SEC and, accordingly, these
securities may not be sold until their approval is received.

We expect our available cash resources and operating cash flows 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. In the fourth
quarter of 1998, we expect to obtain additional financing through one or more of
the following financing alternatives; a revolving credit facility; a commercial
paper program; fixed and floating rate notes pursuant to a Rule 144A offering.
Proceeds received from our financing activities may be used to redeem
outstanding preferred stock, repurchase common stock, or for other general
corporate purposes, including financing possible future acquisitions.

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.

YEAR 2000 ACTIVITIES

Our business depends significantly on effective information systems, and we have
many different information systems for our various businesses. Our information
systems require on-going enhancements to keep pace with the continuing changes
in information technology, evolving industry standards, and customer
preferences. We are currently modifying our computer systems to accommodate the
"Year 2000". The "Year 2000" problem exists throughout the global marketplace as
many computer systems and applications were developed to recognize the year as a
two-digit number, with the digits "00" being recognized as the year 1900 as a
common business practice. Starting in 1995, our formal Year 2000 Project Office
began implementing a remediation plan to ensure that critical information
systems applications, end-user developed application tools, and critical
business interfaces remain intact, and can function properly through the century
change. We are on schedule to complete, test, and certify our Year 2000
remediation efforts by September 30, 1999. A more detailed description and
current status of our Year 2000 activities follows.

17
<PAGE>
TECHNICAL INFRASTRUCTURE

MAINFRAME TECHNOLOGY In conjunction with our two vendors that provide
support for our data center operations, we have completed 96% or more of our
hardware, operating system, and supporting software remediation efforts on our
two primary mainframe computer systems. In addition, we are in the process of
reviewing some of our smaller mainframe systems and making modifications as
necessary. We expect to be 100% complete with all mainframe hardware and
software technology Year 2000 modifications by December 31, 1998. We have also
installed separate test environments (both mainframe and distributed) to test
our business applications in a simulated Year 2000 environment.

DESKTOP HARDWARE & SOFTWARE We have recently inventoried all of our desktop
hardware and software-- over 40,000 computing devices of multiple makes and
models. All non-compliant desktop hardware and software have been identified and
will be modified or replaced with compliant systems by September 30, 1999. In
addition, all of our UNIX client server installations are compliant at September
30, 1998.

TELECOMMUNICATIONS We have inventoried all of our telecommunication
systems--over 28,000 telecommunication devices, including traffic routers and
phone switches. We are using two outside vendors to assist us in modifying or
replacing non-compliant telecommunication systems. As of September 30, 1998, we
are approximately 50% Year 2000 compliant with our data and voice networks. We
expect all our telecommunication networks and devices will be Year 2000
compliant by September 30, 1999.

BUSINESS APPLICATIONS

SOFTWARE APPLICATIONS We use 475 different software applications that
include over 80 million lines of computer code. We have surveyed our software
applications and have identified systems that will not be used after December
31, 1999, and those systems that will be modified for Year 2000 compliance. We
have determined that 37% of our software applications will not be used after
December 31, 1999 due to conversions, consolidations and software replacements.
Of the remaining applications, over 75% have been made Year 2000 compliant,
tested and certified or are scheduled to be certified for compliance, with the
balance yet to be tested. We expect all Year 2000 software modifications to be
completed by March 31, 1999, with further testing and certification during 1999.

END USER DEVELOPED APPLICATIONS End-user developed applications are analysis
tools that have been internally developed by individual employees or operating
segments primarily running on personal computers or client servers. The Year
2000 Project Office has continuously communicated with all employees explaining
the risks of non-compliant applications and provided tools and techniques to
make them compliant. We are currently identifying, tracking, and assessing Year
2000 compliance issues with respect to all potentially critical end-user
applications.

OTHER YEAR 2000 MATTERS

NON-INFORMATION TECHNOLOGY SYSTEMS We have approximately 300 owned or
leased facilities throughout the world. We have contacted all of our facility
managers regarding Year 2000 compliance issues. In addition, we have contracted
with a real estate management company to assist in our Year 2000 compliance
efforts. All facilities are scheduled to be Year 2000 compliant by September 1,
1999.

DEPENDENCE ON THIRD PARTIES We use approximately 300,000 different medical
providers and over 92,000 vendors. Approximately 2,000 vendors have been
identified as critical business partners and suppliers. We are currently in
communication with these critical business partners to analyze their Year 2000
compliance efforts. We expect to complete our analysis of critical vendor
readiness and identification of alternative vendors, where necessary, by July
31, 1999. We will not be contacting all of the 300,000 medical providers we
conduct business with regarding Year 2000 compliance issues. However, we will be
testing and verifying the electronic collection of data with these providers
through our EDI (electronic data interface) clearinghouse vendors.

18
<PAGE>
COSTS OF YEAR 2000 COMPLIANCE The projected costs of our Year 2000 compliance
efforts and the date on which we plan to complete the necessary Year 2000
remediation efforts are based on management's best estimates, which were derived
utilizing various assumptions of future events. However, there can be no
guarantee that these estimates will be achieved and actual results could differ
significantly from our current plans. Specific factors that might cause
significant differences include, but are not limited to, the availability and
cost of personnel trained in this area, the ability to locate and correct the
relevant computer codes, the ability of our significant vendors, providers,
customers and others with which we conduct business to identify and resolve
their own Year 2000 issues.

Costs associated with modifying internal use software for Year 2000 compliance
are charged to expense as incurred. Purchases of hardware or software that
replace existing hardware or software that is not Year 2000 compliant are
capitalized and amortized over their useful lives. As of September 30, 1998, our
historical and projected costs to complete our Year 2000 remediation plan is as
follows (amounts in millions):

<TABLE>
<CAPTION>
COSTS INCURRED TO DATE PROJECTED COSTS
------------------------- -------------------------
YEAR RESOURCES AMORTIZATION RESOURCES AMORTIZATION TOTAL
- -------------------------------------------------- ---------- ------------- ---------- ------------- ------
<S> <C> <C> <C> <C> <C>
1996.............................................. $ 1 $ -- $ -- $ -- $ 1
1997.............................................. 12 -- -- -- 12
1998.............................................. 12 -- 5 *1 18
1999.............................................. -- -- 17 *8 25
2000.............................................. -- -- 3 *9 12
2001.............................................. -- -- -- *9 9
2002.............................................. -- -- -- *2 2
--- ----- ----- ----- ------
$ 25 $ -- $ 25 $ 29 $ 79
--- ----- ----- ----- ------
--- ----- ----- ----- ------
</TABLE>

- ------------------------

* Equipment expense assumes a three year useful life for $29 million in
purchased hardware and software.

BUSINESS RISKS OF NON-COMPLIANT SYSTEMS Although we are committed to completing
and testing our remediation plan well in advance of the Year 2000, there are
risks if we do not meet our objectives by December 31, 1999. Operationally, the
most severe risk is business interruption. Specific examples of situations that
could cause business interruption include, but are not limited to 1) computer
hardware or application software processing errors or failures, 2) facilities or
infrastructure failures, or 3) outside providers, suppliers, or customers who
may not be Year 2000 compliant. Depending on the extent and duration of business
interruption resulting from non-compliant Year 2000 systems, such interruption
may have a material adverse effect on our results of operations, liquidity, and
financial condition.

CONTINGENCY PLANS Each area of our Year 2000 compliance effort is currently
developing contingency plans in the event we are unable to complete remediation
efforts by December 31, 1999. These contingency plans are expected to be
developed by the end of the first quarter of 1999.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Since the date of the Company's Quarterly Report filed on Form 10-Q for the
quarter ended June 30, 1998, no material changes have occurred in the Company's
exposure to market risk associated with the Company's investments in market risk
sensitive financial instruments. We do not believe that our risk of a loss in
future earnings or a decline in fair values or cash flow attributable to such
investments is material.

19
<PAGE>
UNITED HEALTHCARE CORPORATION

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Six suits assert claims under the United States securities laws against the
Company and certain of its officers and directors. The plantiffs are individual
stockholders of the Company who purport to sue on behalf of a class of
purchasers of common shares of the Company during the period February 12, 1998
through August 5, 1998 (the Class Period). In substance, the complaints allege
that the Company made materially false or misleading statements about the
profitability and performance of the Company's Medicare business during the
Class Period. Two of the complaints also allege that the statements were made
with the intention of deceiving members of the investing public and with the
intention that the price of United HealthCare Corporation's shares would rise,
making it possible for insiders at the Company to profit by selling shares at a
time when they knew the Company's true financial condition, but the investing
public did not. The complaints seek compensatory damages in unspecified amounts.
We do not expect that the ultimate resolution of these matters will have a
material adverse effect on the results of operations and financial position of
the Company.

ITEM 5. OTHER INFORMATION

The Company on November 4, 1998 amended its Amended and Restated Bylaws (the
Bylaws) to extend the advance notice provisions for business to be brought by a
shareholder at an annual meeting and for director(s) to be nominated by a
shareholder at an annual meeting. The Company must now receive notice of such
shareholder proposals within 120 days before the date of the prior year's proxy
materials. For the 1999 Annual Meeting, to be held on May 12, 1999, the Company
must receive advance notice of business to be brought by a shareholder and for
director(s) to be nominated by a shareholder no later than December 1, 1998. The
foregoing is qualified in its entirety by reference to the full text of the
Bylaws, as amended, filed as Exhibit 3.1 hereto and incorporated herein by
reference.

20
<PAGE>
ITEM 6. EXHIBITS

(a) The following exhibits are filed in response to Item 601 of Regulation S-K.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------------- ------------------------------------------------------------
<S> <C> <C>
Exhibit 3.1 -- Amended and Restated Bylaws of United HealthCare
Corporation, as amended

Exhibit 15 -- Letter Re Unaudited Interim Financial Information

Exhibit 99 -- Cautionary Statements
</TABLE>

(b) No reports on Form 8-K were filed during the three month period ended
September 30, 1998.

21
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

<TABLE>
<S> <C> <C>
UNITED HEALTHCARE CORPORATION
</TABLE>

<TABLE>
<C> <S> <C>
/s/ STEPHEN J. HEMSLEY
- ------------------------------ Chief Operating Officer Dated: November 6, 1998
Stephen J. Hemsley

/s/ ARNOLD H. KAPLAN
- ------------------------------ Chief Financial Dated: November 6, 1998
Arnold H. Kaplan Officer
</TABLE>

22
<PAGE>
UNITED HEALTHCARE CORPORATION
EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------ ----------------------------------------------------------------------------------------------
<S> <C> <C>
Exhibit 3.1 -- Amended and Restated Bylaws of United HealthCare Corporation, as amended

Exhibit 15 -- Letter Re Unaudited Interim Financial Information

Exhibit 99 -- Cautionary Statements
</TABLE>

<PAGE>

AMENDMENT
TO THE AMENDED AND RESTATED BYLAWS
OF UNITED HEALTHCARE CORPORATION
AS APPROVED AT A REGULAR MEETING OF THE BOARD OF DIRECTORS ON
NOVEMBER 4, 1998

Section 2.10. BUSINESS TO BE BROUGHT BEFORE THE MEETING. A shareholder must
provide written notice of any proposal to be submitted at an annual meeting and
such notice must be delivered to the Secretary of the corporation so as to be
received at the principal executive offices of the corporation not less than 120
days in advance of the date of the corporation's proxy statement released to
shareholders in connection with the previous year's annual meeting of
shareholders, except that is no annual meeting was held in the previous year or
the date of the annual meeting has been changed by more than 30 days from the
date contemplated at the time of the previous year's proxy statement, such
notice must be so received a reasonable time before the solicitation is made.
Each such notice shall set forth as to each matter the shareholder proposes to
bring before the annual meeting (a) a brief description of the business desired
to be brought before the annual meeting and the reasons for conducting such
business at the annual meeting; (b) the name and address of the shareholder
proposing such business; (c) the class and number of share of the corporation
which are beneficially owned by the shareholder; (d) any material interest of
the shareholder in such business; and (e) such other information regarding such
business as would be required to be included in a proxy statement filed pursuant
to the proxy rules of the Securities and Exchange Commission had the matter been
proposed by the Board of Directors. Notwithstanding anything in these Bylaws to
the contrary, no business shall be considered properly brought before an annual
meeting by a shareholder unless it is brought in accordance with the procedures
set forth in this Section 2.10.

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
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 120 days in advance of the
date of the corporation's proxy statement released to shareholders in connection
with the previous year's annual meeting of shareholders, except that if no
annual meeting was held in the previous year or the date of the annual meeting
has been changed by more than 30 days from the date contemplated at the time of
the previous year's proxy statement, such notice must be so received a
reasonable time before the solicitation is made, 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

<PAGE>

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.

<PAGE>
EXHIBIT 15

LETTER RE UNAUDITED INTERIM FINANCIAL INFORMATION

November 5, 1998

To United HealthCare Corporation:

We are aware that United HealthCare Corporation and Subsidiaries has
incorporated by reference in its Registration Statements No. 33-3558, 2-95342,
33-22310, 33-27208, 33-36579, 33-50282, 33-67918, 33-68300, 33-75846, 33-79632,
33-79634, 33-79636, 33-59083, 33-59623, 33-63885, 333-05717, 333-02525,
333-04875, 333-04401, 333-06533, 33-01517, 333-01915, 333-25923, 333-05291,
333-44569, 333-44613, 333-45319, 333-41661, 333-45289, 333-50461 and 333-55777,
its form 10-Q for the quarter ended September 30, 1998, which includes our
report dated November 5, 1998, covering the unaudited interim condensed
consolidated financial information contained therein. Pursuant to Regulation C
of the Securities Act of 1933, that report is not considered a part of the
registration statement prepared or certified by our firm or a report prepared or
certified by our firm within the meaning of Sections 7 and 11 of the Act.

Very truly yours, /s/
Arthur Andersen LLP

<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C> <C>
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<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> JUL-01-1998 JAN-01-1998
<PERIOD-END> SEP-30-1998 SEP-30-1998
<CASH> 1,025 1,025
<SECURITIES> 3,023 3,023
<RECEIVABLES> 1,174 1,174
<ALLOWANCES> (70) (70)
<INVENTORY> 0 0
<CURRENT-ASSETS> 127 127
<PP&E> 751 751
<DEPRECIATION> 419 419
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<BONDS> 0 0
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500 500
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<PAGE>

EXHIBIT 99

CAUTIONARY STATEMENTS

The statements contained in this Form 10-Q include forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995
(the "PSLRA"). When used in this Form 10-Q and in future 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 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 our
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, we are not undertaking to address or
update each factor in future filings or communications regarding our business
or results, and are not undertaking to address 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. We use a large portion of our revenue to pay the costs of
health care services or supplies delivered to our members. Total health care
costs we incur are affected by the number of individual services rendered and
the cost of each service. Much of our premium revenue is priced before
services are delivered and the related costs are incurred, usually on a
prospective annual basis. Although we try to base the premiums we charge in
part on our estimate of future health care costs over the fixed premium
period, competition, and regulations and other circumstances may limit our
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 earnings we report for any particular quarter include
estimates of covered services incurred by our enrollees during that period
for claims that have not been received or processed. Because these are
estimates, our earnings may be adjusted later to reflect the actual costs.
Relatively insignificant changes in the medical care ratio, because of the
narrow margins of our health plan business, can create significant changes in
our earnings.

Our medical care ratio has generally increased over the past several fiscal
periods. We are addressing the medical care ratio by altering benefit
designs, recontracting with providers, and aggressively increasing both our
contemporaneous and retrospective claim management activities. Our inability
to implement these changes successfully could lead to further increases in
our medical care ratio.

In addition, our operating results may be affected by the 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 than in the second half of each year.

INDUSTRY FACTORS. The managed care industry receives significant negative
publicity. This publicity has been accompanied by increased legislative
activity, regulation and review of industry practices. These factors may
adversely affect our ability to market our products or services, may require
us to change our products and services, and may increase the regulatory
burdens under which we operate, further increasing the costs of doing
business and adversely affecting profitability.

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COMPETITION. In many of our geographic or product markets, we compete with a
number of other entities, some of which may have certain characteristics or
capabilities that give them a competitive advantage. We believe the barriers
to entry in these markets are not substantial, so the addition of new
competitors can occur relatively easily, and consumers enjoy significant
flexibility in moving to new managed care providers. Certain Company
customers may decide to perform functions or services we provide for
themselves, which would decrease our revenues. Certain Company providers may
decide to market products and services to our customers in competition with
us. In addition, significant merger and acquisition activity has occurred in
the industry in which we operate as well as in industries that act as
suppliers to us, such as the hospital, physician, pharmaceutical and medical
device industries. To the extent that there is strong competition or that
competition intensifies in any market, our ability to retain or increase
customers or providers, or maintain or increase our revenue growth, pricing
flexibility, control over medical cost trends and our marketing expenses may
be adversely affected.

AARP CONTRACT. Under our long-term contract with the American Association of
Retired Persons ("AARP"), we provide Medicare supplemental, hospital
indemnity health insurance and other products to AARP members. As a result
of the agreement, the number of members we serve, products we offer, and
services we provide has grown significantly. Our portion of the AARP's
insurance program represents approximately $3.5 billion in annual net premium
revenue from approximately 4 million AARP members. The success of the AARP
arrangement will depend, in part, on our 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. Additionally, events that adversely affect the AARP
could have an adverse effect on the success of our arrangement with the AARP.

MEDICARE OPERATIONS. In the second quarter of 1998, we experienced a
significant rise in the medical care ratio for our Medicare operations. The
increase in medical costs was primarily due to the business growth in new
markets with higher and more volatile medical cost trends, coupled with lower
reimbursement rates. In response, we announced in October 1998 our decision
to withdraw Medicare product offerings from 86 of the 206 counties we
currently serve. The decision, effective January 1, 1999, will affect
approximately 60,000, or 13%, of current Medicare members. As a consequence
of this withdrawal, we are precluded from re-entering these counties with
Medicare product offerings until 5 years after the effective date.

We will continue to offer Medicare products in strong and economically viable
markets. However, our ability to improve the financial results of all of our
Medicare operations will depend on a number of factors, including future
premium increases, growth in markets where we have achieved sufficient size
to operate efficiently, benefit design, provider contracting, and other
factors. There can be no assurance that we will be able to successfully
prevent future losses on our Medicare operations.

REALIGNMENT OF OPERATIONS. As previously indicated would be necessary, we
recognized a charge in the second quarter of 1998 to earnings for our
realignment. In January 1998, we initiated a significant realignment of our
operations into six businesses. As part of the realignment, we are shifting
resources and activities to more directly support the operations of our
businesses. Although we do not expect our realignment efforts to negatively
affect our product offerings, provider relations, billing and collection
disciplines, claims processing and payment activities, or other business
functions, there can be no assurance that such negative effects may not
occur. Our second quarter charge to earnings for costs associated with the
realignment was $725 million. Although we believe such charges are adequate,
there can be no assurance that the costs associated with our realignment
efforts will not exceed the charges we have taken for such costs.

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GOVERNMENT PROGRAMS AND REGULATION. Our business is heavily regulated on a
federal, state and local level. The laws and rules governing our 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 us to change how we do
business, restrict revenue and enrollment growth, increase its health care
and administrative costs and capital requirements, and increase our liability
for medical malpractice or other actions. We must obtain and maintain
regulatory approvals to market many of our products. Delays in obtaining or
failure to obtain or maintain these approvals could adversely affect our
revenue or the number of our members, or could increase our costs. A
significant portion of our revenues relate to federal, state and local
government health care coverage programs. These types of programs, such as
the federal Medicare program and the federal and state Medicaid programs,
generally are subject to frequent change, including changes that may reduce
the number of persons enrolled or eligible, reduce the amount of
reimbursement or payment levels, or may reduce or increase our administrative
or health care costs under such programs. Such changes have adversely
affected our results and willingness to participate in such programs in the
past and may also do so in the future.

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 our reputation in
various markets and make it more difficult for us to sell our products and
services. The National Association of Insurance Commissioners (the "NAIC")
is expected to adopt rules which, if implemented by the states, 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 generally to insurance companies.
Depending on the nature and extent of the new minimum capitalization
requirements ultimately implemented, there could be an increase in the
capital required for certain of our subsidiaries and there may be some
potential for disparate treatment of competing products. Federal solvency
regulation of companies providing Medicare-related benefit programs may also
be applied.

PROVIDER RELATIONS. One of the significant techniques we use to manage
health care costs and utilization and monitor the quality of care being
delivered is contracting with physicians, hospitals and other providers.
Because our health plans are geographically diverse and most of those health
plans contract with a large number of providers, we currently believe our
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 customer 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 us. If these
providers refuse to contract with us, use their market position to negotiate
favorable contracts, or place us at a competitive disadvantage those
activities could adversely affect our ability to market products or to be
profitable in those areas.

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LITIGATION AND INSURANCE. We 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, shareholder suits, including securities fraud, and
intellectual property related litigation. In addition, because of the nature
of our business, we are subject to a variety of legal actions relating to our
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 our exposure for any of these types of
claims. In some cases, substantial non-economic or punitive damages may be
sought. We currently have 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 be enough
to cover the damages awarded. In addition, certain types of damages, such as
punitive damages, may not be covered by insurance and insurance coverage for
all or certain forms of liability may become unavailable or prohibitively
expensive in the future.

INFORMATION SYSTEMS. Our business depends significantly on effective
information systems, and we have many different information systems for its
various businesses. Our 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.
In addition, we may from time to time obtain significant portions of our
systems-related or other services or facilities from independent third
parties, which may make our operations vulnerable to such third parties'
failure to perform adequately. As a result of our acquisition activities, we
have acquired additional systems and have been taking steps to reduce the
number of systems and have upgraded and expanded our 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.

THE YEAR 2000. We are in the process of modifying our computer systems to
accommodate the Year 2000. We currently expect to complete this modification
enough in advance of the Year 2000 to avoid adverse impacts on our
operations. We are expensing the costs incurred to make these modifications.
Our operations could be adversely affected if we were unable to complete our
Year 2000 modifications in a timely manner or if other companies with which
we do business fail to complete their Year 2000 modifications in a timely
manner.

ADMINISTRATIVE AND MANAGEMENT. Efficient and cost-effective administration
of our operations is essential to our profitability and competitive
positioning. While we attempt 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. We believe we currently have 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 or
technical staff could adversely affect our ability to administer and manage
our business.

<PAGE>

MARKETING. We market our products and services through both employed sales
people and independent sales agents. Although we have many sales employees
and agents, the departure of certain key sales employees or agents or a large
subset of such individuals could impair our ability to retain existing
customers and members. In addition, certain of our 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 our health plans or other business units may not have
obtained or maintained, or may not desire or be able to obtain or maintain,
such rating accreditation or certification, which could adversely affect our
ability to obtain or retain business with these customers.

ACQUISITIONS AND DISPOSITIONS. The Company has made several large
acquisitions in recent years and has an active ongoing acquisition and
disposition program under which it may engage in transactions involving the
acquisition or disposition of assets, products or businesses, some or all of
which may be material. 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 our
knowledge and information-related business depend significantly on the
integrity of the data on which they are based. If the information contained
in our databases were found or perceived to be inaccurate, or if such
information were generally perceived to be unreliable, commercial acceptance
of our database-related products would be adversely and materially affected.
Furthermore, the use by our 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 our business, financial condition
and results of operations.

The success of our knowledge and information-related business also depends
significantly on our ability to maintain proprietary rights to our products.
We rely on our agreements with customers, confidentiality agreements with
employees, and our trade secrets, copyrights and patents to protect our
proprietary rights. We cannot assure that these legal protections and
precautions will prevent misappropriation of our proprietary information. In
addition, substantial litigation regarding intellectual property rights
exists in the software industry, and we expect 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 affect on the ability of our knowledge and
information-related business to market and sell its products and on our
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 we operate 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. We cannot assure the level or stability of our share
price at any time, or the impact of the foregoing or any other factors may
have on our share price.