<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM 10-Q/A
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(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________TO_________.
COMMISSION FILE NUMBER: 1-10864
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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 August 12, 1998, was 195,331,294
<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 June 30, 1998 and December 31, 1997..................................... 3
Condensed Consolidated Statements of Operations for the three and six month periods ended June 30, 1998 and 1997. 4
Condensed Consolidated Statements of Cash Flows for the six month periods ended June 30, 1998 and 1997........... 5
Notes to Condensed Consolidated Financial Statements............................................................. 6
Report of Independent Public Accountants......................................................................... 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................... 12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK............................................... 20
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS................................................................ 21
ITEM 5. OTHER INFORMATION........................................................................................ 21
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>
JUNE 30, DECEMBER 31,
1998 1997
---- ----
ASSETS
<S> <C> <C>
Current Assets
Cash and Cash Equivalents.................................................................. $663 $750
Short-Term Investments..................................................................... 126 506
Accounts Receivable, net (Note 7).......................................................... 1,219 768
Assets Under Management (Note 7)........................................................... 1,069 28
Other Current Assets....................................................................... 178 141
------- --------
Total Current Assets.................................................................... 3,255 2,193
Long-Term Investments......................................................................... 3,280 2,785
Property and Equipment, net................................................................... 333 364
Goodwill and Other Intangible Assets, net (Note 2)............................................ 2,020 2,281
------- --------
TOTAL ASSETS.................................................................................. $8,888 $7,623
------- --------
------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Medical Costs Payable (Notes 2 and 7)...................................................... $2,817 $1,565
Other Policy Liabilities (Note 7).......................................................... 460 235
Accounts Payable and Accrued Liabilities (Note 6).......................................... 497 495
Accrued Operational Realignment and Other Charges (Note 2) ................................... 295 -
Unearned Premiums.......................................................................... 167 275
------- --------
Total Current Liabilities............................................................... 4,236 2,570
Long-Term Obligations......................................................................... 21 19
Convertible Preferred Stock................................................................... 500 500
------- --------
Shareholders' Equity
Common Stock, $.01 par value - 500,000,000 shares authorized; 193,440,000 and 191,111,000
issued and outstanding.................................................................. 2 2
Additional Paid-in Capital................................................................. 1,449 1,398
Retained Earnings.......................................................................... 2,649 3,105
Net Unrealized Holding Gains on Investments Available for Sale, net of income tax effects.. 31 29
------- --------
Total Shareholders' Equity.............................................................. 4,131 4,534
------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................................................... $8,888 $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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- ------------------
REVENUES 1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Premiums...................................................................... $3,773 $2,501 $7,455 $4,945
Management Services and Fees.................................................. 402 366 773 722
Investment and Other Income................................................... 60 64 122 115
------ ------ ------ -------
Total Revenues............................................................. 4,235 2,931 8,350 5,782
------ ------ ------ -------
OPERATING EXPENSES
Medical Costs (Note 2)........................................................ 3,435 2,119 6,587 4,183
Selling, General and Administrative Expenses.................................. 706 592 1,418 1,167
Depreciation and Amortization................................................. 48 35 90 69
Operational Realignment and Other Charges (Note 2)............................ 725 - 725 -
------ ------ ------ -------
Total Operating Expenses................................................... 4,914 2,746 8,820 5,419
------ ------ ------ -------
EARNINGS (LOSS) BEFORE INCOME TAXES.............................................. (679) 185 (470) 363
(Provision) Benefit for Income Taxes (Note 3)................................. 114 (69) 37 (138)
------ ------ ------ -------
NET EARNINGS (LOSS).............................................................. (565) 116 (433) 225
CONVERTIBLE PREFERRED STOCK DIVIDENDS............................................ (7) (7) (15) (15)
------ ------ ------ -------
NET EARNINGS (LOSS) APPLICABLE TO COMMON SHAREHOLDERS............................ $(572) $109 $(448) $210
------ ------ ------ -------
------ ------ ------ -------
BASIC NET EARNINGS (LOSS) PER COMMON SHARE....................................... $(2.96) $0.58 $(2.33) $1.13
------ ------ ------ -------
------ ------ ------ -------
NET EARNINGS (LOSS) PER COMMON SHARE, ASSUMING
DILUTION....................................................................... $(2.96) $0.57 $(2.33) $1.11
------ ------ ------ -------
------ ------ ------ -------
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING.................................................................... 193 187 192 186
DILUTIVE EFFECT OF OUTSTANDING STOCK OPTIONS..................................... - 4 - 4
------ ------ ------ -------
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, ASSUMING DILUTION.......... 193 191 192 190
------ ------ ------ -------
------ ------ ------ -------
</TABLE>
See notes to condensed consolidated financial statements
4
<PAGE>
UNITED HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
---------------------
1998 1997
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net Earnings (Loss)................................................................................. $(433) $225
Noncash Items:
Depreciation and Amortization.................................................................... 90 69
Deferred Income Taxes............................................................................ (214) 45
Asset Impairments................................................................................ 430 -
Net Change in Other Operating Items:
Accounts Receivable and Other Current Assets..................................................... (118) (57)
Medical Costs Payable............................................................................ 200 80
Accounts Payable and Other Current Liabilities................................................... 109 (103)
Operational Realignment and Other Charges........................................................ 295 -
Unearned Premiums................................................................................ (142) (126)
------ ------
Cash Flows From Operating Activities........................................................... 217 133
------ ------
INVESTING ACTIVITIES
Cash Paid for Acquisition, net of cash assumed and other effects.................................... (86) -
Purchases of Property and Equipment and Capitalized Software, net................................... (90) (90)
Purchases of Investments............................................................................ (1,976) (3,210)
Maturities/Sales of Investments..................................................................... 1,867 2,708
------ ------
Cash Flows Used for Investing Activities....................................................... (285) (592)
FINANCING ACTIVITIES
Proceeds from Stock Option Exercises................................................................ 73 52
Common Stock Repurchases............................................................................ (72) -
Dividends Paid...................................................................................... (20) (20)
------ ------
Cash Flows (Used for) From Financing Activities................................................ (19) 32
------ ------
DECREASE IN CASH AND CASH EQUIVALENTS.................................................................. (87) (427)
CASH AND EQUIVALENTS, BEGINNING OF PERIOD.............................................................. 750 1,037
------ ------
CASH AND EQUIVALENTS, END OF PERIOD.................................................................... $663 $610
------ ------
------ ------
</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 reserves 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 the Company's 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 the Company's Annual Report on
Form 10-K for the year ended December 31, 1997.
2. SPECIAL OPERATING CHARGES
OPERATIONAL REALIGNMENT AND OTHER CHARGES
In January 1998, we introduced a significant realignment of our
operations into six independent but strategically linked business segments, 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 business units and operations,
market positions and customer segments; and assess their strategic fit,
operational performance and contribution. We have moved forward to establish
more independent identities, brands and market positions for each of these
segments. We also have realigned significant personnel and activities from
corporate functions to more directly support the operations of our business
segments, and we have defined intersegment service arrangements and system
platform and process requirements to support each segment's markets and
products.
In conjunction with these initiatives, we developed and approved a
comprehensive plan (the Plan) to implement our operational realignment in the
second quarter of 1998, and we recognized corresponding charges to operations of
$725 million. The charges include costs associated with asset impairments;
employee terminations; disposing of or discontinuing business units, product
lines, and contracts; and consolidating and eliminating certain processing
operations and associated real estate obligations. These activities will result
in a reduction of more than 4,000 positions, affecting 7,000 people in various
locations.
6
<PAGE>
The following table summarizes the components of the operational realignment and
other charges (in millions):
<TABLE>
<S> <C>
Asset impairments......................................................$ 430
Severance and outplacement costs....................................... 142
Noncancellable lease obligations....................................... 82
Disposition of businesses and other costs.............................. 71
Total provision $ 725
</TABLE>
The asset impairments consist principally of goodwill and other long-lived
assets including fixed assets, computer hardware and software and leasehold
improvements from 1) businesses we intend to dispose of or discontinue, 2)
markets where we plan to curtail our operations or change the nature of our
operating presence or 3) the final allocation of purchase price for the
acquisition of Medicode, Inc. ("Medicode").
Businesses we intend to dispose include our managed workers compensation
business, and medical and behavioral health provider clinics. Markets where we
plan to curtail or make changes to our operating presence include our small
group health insurance business and three health plan markets that are in
non-strategic locations. We prepared a forecast of expected undiscounted cash
flows, where appropriate, to determine whether asset impairments existed. We
used discounted cash flows to determine the fair value and measure the write
downs for two of the three health plans. We estimated proceeds on the sale of
the managed workers compensation, small group health insurance, clinical and
other health plan businesses in order to determine the fair value and the amount
of the asset write down for these businesses. The final allocation of purchase
price for the acquisition of Medicode was based on our valuation. The asset
impairments also consist of other operating assets written down to their
estimated net realizable value as a result of operational realignment
activities. The carrying value of the net assets held for sale or disposal is
approximately $20 million as of June 30, 1998.
In December 1997, we acquired 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 $127 million in exchange
for all outstanding shares of Medicode. We accounted for the acquisition using
the purchase method of accounting. The purchase price and costs associated with
the acquisition exceeded the fair value of net asset acquired by $123 million,
which was originally assigned to goodwill. During the second quarter of 1998,
the Company completed the valution of the intangible assets acquired in the
Medicode transaction. Pursuant to the findings of the independent valuation, we
expensed $68 million of the excess purchase price reprensenting purchased
in-process technology that previously had been assigned to goodwill. In
management's judgement, this amount reflects the amount we would reasonably
expect to pay an unrelated party for each project included in the technology.
The value of in process research and development of $68 million represented
approximately 48% of the purchase price and was determined by estimating the
costs to develop the purchased technology into commercially viable products,
then estimating the resulting net cash flows from each project that was
incomplete at the acquisition date, and discounting the resulting net cash flows
to their present value. The amount of research and development expended by
Medicode on these projects prior to the acquisition date totaled $8.5 million,
with an additional $1.7 million spent through June 30, 1998, and another $2.9
million expected to be spent to complete these research and development
projects. The in-process technology has not yet reached technological
feasibility and has no alternative future use. The in-process projects were
focused on the continued development and evolution of next generation medical
databases and software solutions. The $68 million charge is included as a
component of Operational Realignment and Other Charges in the accompanying
Consolidated Statements of Operations for the 6 months ended June 30, 1998.
Based on the final valuation, the remaining excess purchase price of $55 million
was assigned to existing technologies, trade names and goodwill. The pro forma
effects of the Medicode acquisition on our consolidated financial statements
were not material.
7
<PAGE>
Our accompanying financial statements include the operating results of
businesses to be disposed of or discontinued in connection with the operational
realignment. The losses anticipated on the disposition of these businesses,
including severance, impairment of assets, abandoned facilities, and additional
exit costs, total approximately $245 million and are included in the $725
million of operational realignment and other charges. Our accompanying
consolidated statements of operations include revenues and operating losses from
these businesses as follows (in millions):
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30 June 30
----------------- -----------------
<S> <C> <C> <C> <C>
1998 1997 1998 1997
---- ---- ---- ----
Revenues..............................................$240 $ 208 $475 $ 401
Operating losses before income taxes..................$ (8) $ (16) $(23) $ (23)
</TABLE>
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 counties in which we will no
longer be offering the Medicare product are expected to approximate $225
million.
The operational realignment and other 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.
MEDICAL COSTS
During the second quarter of 1998, we recorded $175 million of medical cost
charges. Of this amount, $101 million related to Medicare contract losses, $19
million related to other increases in Medicare medical costs payable estimates,
and $55 million related to increases to commercial medical costs payable
estimates.
The $101 million of contract losses were related to 13 of our 24 Medicare
markets. These plans contribute half of our annual Medicare premiums of $2.3
billion. Six of these 13 markets are generally newer markets where we have been
unable to achieve the scale of operations necessary to achieve profitability. In
numerous counties in the other seven markets, we experienced increased medical
costs which exceeded the fixed Medicare premiums that only increased 2.5% on
average. We incurred $38 million of these Medicare losses in the second quarter,
and accrued $63 million for the losses we expect to incur over the remainder of
1998.
3. INCOME TAXES
The income tax benefit associated with the second quarter special
operating charges was $196 million. This benefit resulted in an overall
effective income tax benefit rate of 17% and 8% for the three and six months
ended June 30, 1998.
4. TERMINATED ACQUISITION
In May 1998, we entered into an agreement to acquire Humana Inc.
(Humana) through the exchange of one share of Company common stock for every two
shares of Humana common stock. On August 10, 1998, the Company and Humana
mutually terminated the transaction. The costs we incurred associated with the
proposed transaction were charged against operations in the second quarter of
1998.
8
<PAGE>
5. STOCK REPURCHASE PROGRAM
Under our stock repurchase program, we may purchase up to 10% of our
outstanding common stock. Purchases may be made from time to time at prevailing
market prices, subject to certain restrictions on volume, pricing, and timing.
Repurchased shares will be available for reissuance for employee stock option
and purchase plans and for other corporate purposes. During the six-month period
ended June 30, 1998, we repurchased 1.2 million shares at an average price of
$59 per share. Shares issued under our stock plans over the same period exceeded
the number of shares repurchased.
6. CASH AND INVESTMENTS
As of June 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.................. $663 $ - $ - $663
Investments Available for Sale............. 3,282 50 (2) 3,330
Investments Held to Maturity............... 76 - - 76
------------------- -------------------- -------------------- --------------
Total Cash and Investments.............. $4,021 $50 $(2) $4,069
------------------- -------------------- -------------------- --------------
------------------- -------------------- -------------------- --------------
</TABLE>
7. AMERICAN ASSOCIATION OF RETIRED PERSONS CONTRACT
On January 1, 1998, we entered into a ten-year contract to provide
insurance products and services to members of the AARP. Under the terms of the
contract, we are compensated for claims administration and other services as
well as for assuming underwriting risk. We are also engaged in product
development activities to complement the insurance offerings under this program.
The AARP has also contracted with certain other vendors to provide other member
and marketing services. We report premium revenues associated with the AARP
program net of the administrative fees paid to these vendors and an
administrative allowance we pay to the AARP.
Our underwriting results related to the AARP business are recorded as
an increase or decrease to a rate stabilization fund (RSF). The RSF is included
in other policy liabilities in the accompanying Condensed Consolidated Balance
Sheet. The primary components of our underwriting results are premium revenue,
medical costs, investment income, administrative expenses, member service
expenses, marketing expenses and premium taxes. To the extent we incur
underwriting losses that exceed the balance in the RSF, we would be required to
fund the deficit. Any deficit we fund could be covered by underwriting gains in
future periods of the contract. The RSF balance was $192 million as of January
1, 1998, and is $229 million as of June 30, 1998. We believe the RSF balance is
sufficient to cover any potential future underwriting or other risks associated
with the contract.
9
<PAGE>
We assumed the policy and other policy liabilities related to the AARP
program and received cash and premiums receivables from the previous insurance
carrier equal to the carrying value of the liabilities assumed as of January 1,
1998. The following assets and liabilities were transferred from the program's
previous carrier and are included in our Condensed Consolidated Balance Sheet
(in millions):
<TABLE>
<CAPTION>
AMOUNTS TRANSFERRED
AS OF BALANCE AS OF
DESCRIPTION JANUARY 1, 1998 JUNE 30, 1998
----------- --------------- -------------
<S> <C> <C>
Assets Under Management.................. $959 $1,041
Accounts Receivable...................... $300 $375
Medical Costs Payable.................... $1,024 $1,074
Other Policy Liabilities................. $192 $229
Other Current Liabilities................ $43 $79
</TABLE>
The effect of changes in balance sheet amounts associated with the AARP
program accrue to the AARP policyholders through the RSF balance. Accordingly we
do not include the effect of such changes in our Consolidated Statements of Cash
Flows.
8. COMPREHENSIVE INCOME
The table below presents comprehensive income, defined as changes in
the equity of our business excluding charges resulting from investments by and
distributions to our shareholders, for the six-month periods ended June 30, 1998
and 1997 (in millions):
<TABLE>
<CAPTION>
1998 1997
------ -----
<S> <C> <C>
Net Earnings (Loss)..................................................................... $(433) $225
Change in Net Unrealized Holding Gains on Investments Available for Sale, net of income
tax effects.......................................................................... 2 9
------ ------
Comprehensive Income (Loss)............................................................. $(431) $234
------ ------
</TABLE>
9. 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.
We anticipate that we will have four reportable segments under SFAS 131. Those
segments will be Healthcare Services, Uniprise, Specialized Care Services, and
Corporate and other.
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 given our current
investment portfolio and investment policies.
10
<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 June 30, 1998 and the related condensed consolidated statements of operations
and cash flows for the three and six month periods ended June 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,
August 6, 1998
11
<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 more than 4 million AARP members. In the second quarter of
1998, we recorded special operating charges related to our operational
realignment activities ($725 million) and certain medical cost items. 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 SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------------------------- ----------------------------------
OPERATING RESULTS PERCENT PERCENT
- ----------------- 1998 1997 CHANGE 1998 1997 CHANGE
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
(IN MILLIONS, EXCEPT PER SHARE DATA)
Total Revenues........................................... $4,235 $ 2,931 44% $ 8,350 $ 5,782 44%
Earnings (Loss) from Operations.......................... $ (679) $185 (467)% $ (470) $363 (229)%
Net Earnings (Loss)...................................... $ (565) $116 (587)% $ (433) $225 (292)%
Net Earnings (Loss) Per Common Share, Assuming Dilution.. $(2.96) $0.57 (619)% $ (2.33) $1.11 (310)%
Medical Costs to Premium Revenues........................ 91.0%(a) 84.7% 88.4%(a) 84.6%
SG&A Expenses to Total Revenues.......................... 16.7% 20.2% 17.0% 20.2%
<CAPTION>
ENROLLMENT BY PRODUCT PERCENT
- --------------------- JUNE 30, 1998 JUNE 30, 1997 CHANGE
------------- ------------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Health Plan Products Commercial........................................................... 5,719(b) 5,139(b) 11%
Medicare............................................................................... 427 286 49%
Medicaid............................................................................... 511 483 6%
------------- ------------- -------
Total Health Plan Products.......................................................... 6,657 5,908 13%
Other Network-Based Products.............................................................. 4,906(b) 4,594(b) 7%
Indemnity Products........................................................................ 1,639 2,492 (34)%
------------- ------------- -------
Total Enrollment.................................................................... 13,202 12,994 2%
------------- ------------- -------
------------- ------------- -------
</TABLE>
12
<PAGE>
UNITED HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
PERCENT
ENROLLMENT BY FUNDING ARRANGEMENT JUNE 30, 1998 JUNE 30, 1997 CHANGE
- --------------------------------- ------------- ------------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Fully Insured
Health Plan Products................................................................ 5,693 5,042 13%
Other Network-Based Products........................................................ 503 496 1%
Indemnity Products.................................................................. 319 492 (35)%
------------ --------- --------
Total Fully Insured............................................................... 6,515 6,030 8%
------------ --------- --------
Self-Funded
Health Plan Products................................................................ 964 866 11%
Other Network-Based Products........................................................ 4,403 4,098 7%
Indemnity Products.................................................................. 1,320 2,000 (34)%
------------ --------- --------
Total Self Funded................................................................. 6,687 6,964 (4)%
------------ --------- --------
Total Enrollment............................................................... 13,202 12,994 2%
------------ --------- --------
------------ --------- --------
</TABLE>
- -----------
(a) Includes $120 million related to certain Medicare markets and $55
million related to reserve strengthening associated with increasing
pressure on medical cost 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 (867,000 members at June 30, 1998 and
756,000 members at June 30, 1997).
13
<PAGE>
RESULTS OF OPERATIONS
SPECIAL OPERATING CHARGES
OPERATIONAL REALIGNMENT AND OTHER CHARGES In November 1997, we embarked
on a course to realign our business operationally. Many factors, both strategic
and operational, drove this decision. Among them was a recognition that we have
grown significantly over the last several years and, as a result, have redundant
systems, offices and enterprises that are no longer core to our future strategy.
We concluded that an operational realignment would be required to improve our
customer support and reduce our cost structure.
In January 1998, we introduced a significant realignment of our
operations into six independent but strategically linked business segments, 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 business units and operations,
market positions and customer segments; and assess their strategic fit,
operational performance and contribution. We have moved forward in establishing
more independent identities, brands and market positions for each of these
segments. We also have realigned significant personnel and activities from
corporate functions to more directly support the operations of our business
segments, and have defined intersegment service arrangements and system platform
and process requirements to support each segment's markets and products.
In conjunction with our operational realignment efforts, we developed
and introduced a comprehensive plan (the Plan) to implement our operational
realignment in the second quarter of 1998, and we recognized corresponding
charges to operations of $725 million. The charges reflect the estimated costs
we will incur principally over the next twelve months under the Plan, including
charges associated with disposing or discontinuing business units, product
lines, and contracts; transitioning from and eliminating non-core system
platforms; and consolidating and eliminating certain processing operations and
associated real estate obligations. These activities are anticipated to result
in a reduction of more than 4,000 positions potentially affecting approximately
7,000 people in various locations.
Businesses we intend to dispose of include our managed workers'
compensation business, and medical and behavioral health provider clinics.
Markets where we plan to curtail or make changes to our operating presence
include our small group health insurance business and three health plan markets
that are in non-strategic locations.
The table below summarizes realignment activities as of June 30, 1998 (in
millions):
<TABLE>
<CAPTION>
Charges Incurred
Original ---------------------- Accrual at
Provision Cash Non-cash June 30, 1998
------------------------------------------------------------
<S> <C> <C> <C> <C>
Provision for operational
realignment and other charges:
Asset impairments........................... $430 $ ---- $(430) $ ----
Severance and outplacement costs............ 142 ---- ---- 142
Noncancelable lease obligations............. 82 ---- ---- 82
Disposition of businesses and other costs... 71 ---- ---- 71
------ ------- ------- ------
Total provision $725 $(----) $(430) $295
------ ------- ------- ------
</TABLE>
14
<PAGE>
We have included in asset impairments the write-off of $68 million of purchased
in-process research and development associated with the acquisition of Medicode.
The in-process projects were focused on the continued development and evolution
of next-generation medical databases and software solutions, including clinical
editing software, benchmarking databases and technologies. These technologies,
upon completion, will enable both health care payers and providers to use the
same data generated in the treatment documentation process to be then used in
the financial transaction process, which involves provider compensation, care
utilization review, trend analysis and management reporting. Through June 30,
1998, we had expended an additional $1.7 million on these projects and we
estimate that it will be necessary to dedicate an additional $2.9 million in
order to successfully complete these projects.
Details of the asset impairments are as follows (in millions):
<TABLE>
<CAPTION>
TRIGGERING EVENT EXPECTED DISPOSAL DISPOSAL DATE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Intangibles and operating assets of A decision to exit Operating assets The carrying value of the
certain health plan and small group or reconfigure will be abandoned or assets will be depreciated
health insurance markets $270 these businesses, disposed upon exit over the estimated remaining
markets and or reconfiguration life with physical disposal
Specialized Care Services intangibles 39 products. of the market, during either the fourth
and operating assets business, or quarter of 1998 or the first
products. six months of 1999.
- -----------------------------------------------------------------------------------------------------------------------------
Ingenix purchased in-process research The acquisition of Not applicable. Written down during second
and development 68 Medicode, Inc. quarter 1998.
occurred on
December 31, 1997.
The final
allocation of
purchase price and
valuation was
completed in June
1998.
- -----------------------------------------------------------------------------------------------------------------------------
Corporate and other business segment 53 Realignment Operating assets The carrying value of the
operating assets initiatives have been or will be assets will be depreciated
resulted in written off, over the estimated remaining
operating assets to abandoned or life with physical disposal
be abandoned or disposed upon exit during either the fourth
disposed. of certain quarter of 1998 or the first
businesses or as a six months of 1999.
result of other
realignment
initiatives.
- -----------------------------------------------------------------------------------------------------------------------------
Total $430
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
We believe the aggregate reduction in our overall cost structure from our
realignment activities will approximate $300 million. We expect to realize $75
million of these reductions by the end of 1999. 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.
PREMIUM REVENUES
Premium revenues in the second quarter of 1998 totaled $3.8 billion, an increase
of $1.3 billion, or 51%, over the second quarter of 1997. For the six months
ended June 30, 1998, premium revenues of $7.5 billion increased $2.5 billion, or
51% over the same period in 1997. On January 1, 1998, we began delivering
Medicare supplement
15
<PAGE>
insurance and other medical insurance coverage for the American Association of
Retired Persons (AARP) to more than 4 million AARP members. Premium revenues
from our portion of the AARP insurance offerings during the first six months of
1998 were $1.8 billion.
Excluding the AARP business, second quarter 1998 premium revenues
totaled $2.9 billion, an increase of 16% over second quarter 1997. For the six
months ended June 30, 1998, premium revenues excluding the AARP business were
$5.7 billion, an increase of 15% 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 $898 million, or 22%, through the second quarter of 1998. Increases
in the health plan premium revenue reflect same-store enrollment growth of 13%
and an average year-over-year premium rate increase on renewing commercial
groups exceeding 6%. Growth in our Medicare programs also contributed to the
increase in premium revenues. The total health plan same-store enrollment growth
of 13% includes a year-over-year same-store increase of 49% 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 six-month 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 $82 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 rate
increases averaging 10% to 20% in 1997 and into 1998, 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 members to our network-based managed care products.
MEDICAL COSTS
During the second quarter of 1998, we recorded $175 million of medical
cost charges. Of this amount, $101 million related to Medicare contract losses,
$19 million related to other increases in Medicare medical costs payable
estimates, and $55 million related to increases to commercial medical costs
payable estimates.
The $101 million of contract losses were incurred in 13 of our 24
Medicare markets. These plans contribute half of our annual Medicare premiums of
$2.3 billion. Six of these 13 markets are generally newer markets where we have
been unable to achieve the scale of operations necessary to achieve
profitability. In numerous counties in the other seven markets, we experienced
increased medical costs which exceeded the fixed Medicare premiums that only
increased 2.5% on average. We incurred $38 million of these Medicare losses in
the second quarter, and accrued $63 million for the losses we expect to incur
over the remainder of 1998.
Our medical care ratio (the percent of premiums expensed as medical
costs) increased from 84.7% in the second quarter of 1997, and 85.6% in the
first quarter of 1998, to 91.0% in the second 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 nearly 92% related to our portion
of the AARP insurance offerings, which we began delivering on January 1, 1998.
The increase in the medical care ratio over the first quarter reflects the
medical cost adjustments discussed above. Lower margins in our nine other
Medicare health plans also adversely affected the medical core 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. 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 medical cost trend by altering benefit designs,
recontracting with providers and
16
<PAGE>
further enhancing disease specific and local medical management programs. We are
also accelerating and intensifying the contemporaneous and retrospective claim
management activities that we have in place. We 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. We believe these
efforts will help us to maintain an aggregate medical cost trend in the 3.5% to
4.5% range in the face of a rising national cost trend that could exceed 5.0% in
1999. We have considered known and anticipated medical inflation in our product
pricing for 1998 and 1999.
MANAGEMENT SERVICES AND FEE REVENUES
Management services and fee revenues during the three months and six months
ended June 30, 1998, totaled $402 million and $773 million, which represented
increases of $36 million and $51 million, respectively, over management services
and fee revenues for 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.
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 due
to enrollment growth within our 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.
These increases are partially offset by the effects of our June 30, 1997 sale
of our subsidiary, United HealthCare Administrators, Inc., which resulted in
a $24 million decrease in these revenues for the first six months of 1998,
compared to 1997.
OPERATING EXPENSES
Selling, general and administrative expenses as a percent of total revenues (the
SG&A ratio) decreased from 20.2% during the second quarter of 1997 to 17.3%
during the first quarter of 1998, and decreased again to 16.7% during the second
quarter of 1998. The improvement in the SG&A ratio reflects the operating
leverage we gained with the addition of the AARP business, as well as our
diligence in managing these expenses. On an absolute dollar basis, selling,
general and administrative costs through the first half of 1998 increased $251
million, or 22%, over the comparable period in 1997. This increase reflects the
additional costs to support the corresponding $2.6 billion 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.
17
<PAGE>
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 that 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, 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.
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 June 30, 1998, were $4.1 billion, a $28 million increase
from December 31, 1997 and a $71 million increase from March 31, 1998. Through
the second quarter of 1998, we generated cash from operations of $217 million
and realized proceeds from stock option exercises and the sale of property and
equipment of $103 million. In the same period, we used nearly $300 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 $856 million in cash and investments available for general corporate use at
June 30, 1998.
18
<PAGE>
The National Association of Insurance Commissioners is expected to
adopt rules which, if implemented by the states, 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. We do not
expect a significant increase in the overall capital required by our regulated
entities. Any increase would be funded from our corporate usable cash reserves.
The new requirements are expected to be effective December 31, 1998.
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.
Under our stock repurchase program, we may purchase up to 10% of our
outstanding common stock. Purchases may be made from time to time at prevailing
market prices, 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. During the
first six months of 1998, we repurchased 1.2 million shares at an average price
of $59 per share. Shares issued under our stock plans over the same period have
exceeded the number of shares repurchased.
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, and preferred shares 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.
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.
In June 1998, we agreed to acquire HealthPartners of Arizona, Inc. for
$235 million in cash, subject to regulatory approvals. We expect the transaction
will close in the third quarter of 1998.
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 $225
million to $275 million over the next twelve months.
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>
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 March 31, 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. The Company does not believe that its risk of a
loss in future earnings, fair values or cash flow attributable to such
investments is material.
20
<PAGE>
UNITED HEALTHCARE CORPORATION
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Company exchanged 210,675 shares of its common stock for all of the
outstanding capital stock of Insite Clinical Trials, LLC in a transaction that
closed on May 1, 1998. The Company issued these shares in reliance on Section
4(2) of the Securities Act of 1933. The Company made inquiries of the recipients
of securities in this transaction and obtained representations from such persons
to establish that such issuance qualified for an exemption from the registration
requirements.
ITEM 5. OTHER INFORMATION
The Company and Humana Inc. ("Humana") announced on August 10, 1998 the mutual
agreement to terminate the previously announced merger of the two companies. The
termination of the merger was approved by the boards of directors of the Company
and Humana. The Termination Agreement, dated August 9, 1998, by and among the
Company, UH-1 Inc., a wholly owned subsidiary of the Company, and Humana, is
included as Exhibit 10e to this Form 10-Q.
ITEM 6. EXHIBITS
(a) The following exhibits are filed in response to Item 601 of Regulation S-K.
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
NUMBER -----------
----------
<S> <C>
(1) 10(a) - First Amendment to the AARP Health Insurance Agreement by and among American Association of Retired Persons,
Trustees of the AARP Insurance Plan and United HealthCare Insurance Company effective January 1, 1998.*
(1) 10(b) - Second Amendment to the AARP Health Insurance Agreement by and among American Association of Retired Persons,
Trustees of the AARP Insurance Plan and United HealthCare Insurance Company effective January 1, 1998.*
(1) 10(c) - Employment Agreement, dated as of May 20, 1998, between United HealthCare Services, Inc. and R. Channing Wheeler.
(1) 10(d) - Employment Agreement, dated as of May 19, 1998, between United HealthCare Services, Inc. and Arnold H. Kaplan.
(1) 10(e) - Termination Agreement, dated August 9, 1998, by and among the Company, UH-1 Inc., a wholly owned subsidiary of the
Company, and Humana.
(2) 15 - Letter Re Unaudited Interim Financial Information
(1) 99 - Cautionary Statements.
</TABLE>
- ----------
(1) Previously filed.
(2) Filed herewith.
* Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended, portions of these amendments have been omitted and filed
separately with the Securities and Exchange Commission in connection
with a confidential treatment request.
(b) The Company filed the following reports on Form 8-K during the three
month period ended June 30, 1998.
1. Form 8-K Dated May 29, 1998. The items reported were items 5
and 7 concerning the announcement of the Agreement and Plan of
Merger entered into by and among the Company, Humana Inc. and
UH-1 Inc., a wholly owned subsidiary of the Company.
2. Form 8-K Dated June 11, 1998. The items reported were items 5
and 7 concerning the announcement of the agreement entered
into between the Company and HealthPartners of Arizona, Inc.,
pursuant to which the Company will acquire HealthPartners.
21
<PAGE>
UNITED HEALTHCARE CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED HEALTHCARE CORPORATION
/s/ DAVID J. LUBBEN
- -------------------------
David J. Lubben General Counsel and Secretary Dated: April 22, 1999
22
<PAGE>
UNITED HEALTHCARE CORPORATION
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
NUMBER ---------------
--------------
<S> <C>
(1) 10(a) - First Amendment to the AARP Health Insurance Agreement by and among American Association of Retired Persons,
Trustees of the AARP Insurance Plan and United HealthCare Insurance Company effective January 1, 1998.*
(1) 10(b) - Second Amendment to the AARP Health Insurance Agreement by and among American Association of Retired
Persons, Trustees of the AARP Insurance Plan and United HealthCare Insurance Company effective January 1,
1998.*
(1) 10(c) - Employment Agreement, dated as of May 20, 1998, between United HealthCare Services, Inc. and R. Channing
Wheeler.
(1) 10(d) - Employment Agreement, dated as of May 19, 1998, between United HealthCare Services, Inc. and Arnold H.
Kaplan.
(1) 10(e) - Termination Agreement, dated August 9, 1998, by and among the Company, UH-1 Inc., a wholly owned subsidiary
of the Company, and Humana.
(2) 15 - Letter Re Unaudited Interim Financial Information
(1) 99 - Cautionary Statements.
</TABLE>
- -----------
(1) Previously filed.
(2) Filed herewith.
* Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended, portions of these amendments have been omitted and filed
separately with the Securities and Exchange Commission in connection
with a confidential treatment request.
23
<PAGE>
EXHIBIT 15
LETTER RE UNAUDITED FINANCIAL INFORMATION
April 22, 1999
To United HealthCare Corporation:
We are aware that United HealthCare Corporation and Subsidiaries has
incorporated by reference in its Registration Statements File 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, 33-79638, 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,
333-45289, 333-50461 and 333-55777, its Form 10-Q/A for the quarter ended June
30, 1998, which includes our report dated August 6, 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
