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þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

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

Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

Indicate by checkmark whether the registrant is an accelerated filer (as defined in the Exchange Act Rule 12b-2). Yes þ No o

The aggregate market value of voting stock held by non-affiliates of the registrant as of June 30, 2002, was approximately $27,541,969,655 (based on the last reported sale price of $91.55 per share on June 30, 2002, on the New York Stock Exchange).*

As of March 12, 2003, 298,512,614 shares of the registrant’s Common Stock, $.01 par value per share, were issued and outstanding.

Note that in Part II of this report on Form 10-K, we “incorporate by reference” certain information from our Annual Report to Shareholders for the fiscal year ended December 31, 2002, and in Part III we “incorporate by reference” certain information from our Definitive Proxy Statement for the Annual Meeting of Shareholders to be held on May 7, 2003. These documents have been filed with the Securities and Exchange Commission (SEC). The SEC allows us to disclose important information by referring to it in that manner. Please refer to such information.


*	Only shares of common stock held beneficially by directors, executive officers and subsidiaries of the Company have been excluded in determining this number.

UnitedHealth Group is a leader in the health and well-being industry, serving more than 48 million Americans. Through our family of businesses, we combine clinical insight with consumer-friendly services and advanced technology to help people achieve optimal health and well-being through all stages of life. Our revenues are derived from premium revenues on risk-based products, fees from management, administrative and consulting services, and investment and other income. We conduct our business primarily through operating divisions in the following business segments:


	•	Uniprise;

	•	Health Care Services, which includes our UnitedHealthcare, Ovations and AmeriChoice businesses;

	•	Specialized Care Services; and

	•	Ingenix.

For a discussion of our results by segment see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

UnitedHealth Group Incorporated is a Minnesota corporation incorporated in January 1977. The terms “we,” “our” or the “Company” refer to UnitedHealth Group Incorporated and our subsidiaries. Our executive offices are located at UnitedHealth Group Center, 9900 Bren Road East, Minnetonka, Minnesota 55343; telephone (952) 936-1300. Our home page on the Internet can be accessed at www.unitedhealthgroup.com. You can learn more about us by visiting that site. You can also download and print copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q, and periodic reports on Form 8-K, along with amendments to those reports, from that site. We make periodic reports and amendments available, free of charge, as soon as reasonably practicable after we file or furnish these reports to the Securities and Exchange Commission (“SEC”).

Uniprise serves the employee benefit needs of large organizations by developing cost-effective health care access and benefit strategies and programs, technology and service-driven solutions tailored to the specific needs of each corporate customer. Uniprise offers consumers access to a wide spectrum of health and well-being products and services. Together with its affiliates, Uniprise’s core business provides comprehensive, integrated health benefit services to multi-location employers with more than 5,000 employees, specializing in large volume transaction management, large-scale benefit design, and innovative technology solutions designed to manage and control medical care costs, facilitate access to care, and transform complex administrative processes into simpler, efficient, high quality automated processes. In addition to or as part of the functions described above, Uniprise has developed Internet applications for physician inquiries and transactions, customer-specific data analysis for employers, and consumer access to personal information and service applications.

Uniprise is the business through which large employers can access not only Uniprise services, but also all of UnitedHealth Group’s network-based medical, insurance and specialty services, through a wide variety of product arrangements. As of December 31, 2002, Uniprise served over 300 clients, representing approximately 8.6 million individuals, including approximately 150 of the Fortune 500 companies.

Our Health Care Services segment consists of our UnitedHealthcare, Ovations and AmeriChoice businesses.

UnitedHealthcare coordinates health and well-being services on behalf of local employers and consumers nationwide. UnitedHealthcare’s products are primarily marketed to small and mid-size employers with up to 5,000 employees. As of December 31, 2002, this business served approximately 7.8 million individuals. With its risk-based product offerings, UnitedHealthcare assumes the risk of both medical and administrative costs for its customers in return for a monthly premium, which is typically at a fixed rate for a one-year period. UnitedHealthcare also provides administrative and other management services to customers that self-insure the medical costs of their employees and their dependents, for which UnitedHealthcare receives a fee. These customers retain the risk of financing medical benefits for their employees, and UnitedHealthcare administers the payment of customer funds to physicians and other health care providers from customer-funded bank accounts. Small employer groups are more likely to purchase risk-based products because they are generally unable or unwilling to bear a greater potential liability for health care expenditures. UnitedHealthcare offers its products through affiliates that are usually licensed as insurance companies or as health maintenance organizations, depending upon a variety of factors, including state regulations.

UnitedHealthcare arranges for discounted access to care through more than 380,000 physicians and 3,500 hospitals across the United States. The consolidated purchasing power represented by the individuals UnitedHealthcare serves makes it possible for UnitedHealthcare to contract for cost-effective access to a large number of conveniently located care providers. Directly or through UnitedHealth Group’s family of companies, UnitedHealthcare offers:


	•	A broad range of benefit plans integrating medical, ancillary and alternative care products so customers can choose benefits that are right for them;

	•	Affordability by leveraging the economic benefits of the purchasing power of millions of people;

	•	Access to broad and diverse numbers of health care providers, including by means of benefit plans that give customers direct access to specialists without obtaining referrals;

	•	Innovative programs that facilitate integrated care delivery;

	•	Convenient self-service for customer transactions, pharmacy services and health information;

	•	Clinical information that physicians can use in working with their patients; and

	•	Simplified electronic transactions for customers.

We believe that UnitedHealthcare’s innovation distinguishes its product offerings from the competition. UnitedHealthcare designs consumer-oriented health benefits and services that value individual choice and control in accessing health care. UnitedHealthcare has programs that provide health education; admission counseling before hospital stays; care advocacy to help avoid delays in patients’ stays in the hospital; support for individuals at risk of needing intensive treatment; continuous coordination for people with chronic conditions; and prescription drug management, which promotes safe use of medications. UnitedHealthcare has designed its programs to encourage consumers to be engaged and active participants in managing their own health and well-being. Further, UnitedHealthcare offers Web sites that provide access to a variety of information, including a directory of network physicians and hospitals, reports on thousands of health topics and a health profile tailored to individual interests.

Ovations provides health and well-being services for Americans age 50 and older, addressing their unique needs for preventative and acute health care services, for services dealing with chronic disease and for responding to specialized issues relating to their overall well-being. Ovations is one of few enterprises fully dedicated to this market segment, providing products and services in all 50 states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands through licensed affiliates.

In January 1998, Ovations initiated a 10-year contract with AARP, the nation’s largest organization for older Americans. Ovations offers a range of products and services to AARP members, and has expanded the scope of services and programs offered over the past several years.

Ovations operates the nation’s largest Medicare supplement business, providing Medicare supplement and hospital indemnity insurance to more than 3.6 million AARP members. Ovations’ services also include AARP Eye Health Services, which offers affordable eye exams, complimentary glaucoma screenings and discounts on eyewear to AARP members and an expanded AARP Nurse Health Line Service to cover beneficiaries of all AARP Medicare products, providing 24-hour access to health information from nurses. Ovations developed an offering with lower cost Medicare supplement coverage that provides consumers with a hospital network and 24-hour access to health care information from nurses. Ovations’ revenues from the AARP insurance offerings were approximately $3.7 billion in 2002.

Ovations addresses one of the most significant cost problems facing older Americans — prescription drug costs. Ovations offers the nation’s largest pharmacy discount program, with approximately 1.6 million users, a mail order discount drug program, and a complimentary health and well-being catalog offering. These services offer cost savings and greater access to prescription drugs and health and well-being products for older Americans.

Through its Evercare® division, Ovations is one of the nation’s leaders in offering complete, individualized care planning and care benefits for aging, vulnerable and chronically ill individuals, serving approximately 61,000 persons across the nation in nursing homes, community-based settings and private homes. Evercare offers a continuum of services through innovative programs such as EverCare Choice, EverCare Select and EverCare Connections. EverCare Choice is a Medicare product that offers enhanced medical coverage to frail, elderly and chronically ill populations in both nursing homes and community settings. These services are provided primarily through nurse practitioners, physicians’ assistants and physicians. EverCare Select is a Medicaid, long-term health care product for elderly, physically disabled and other needy individuals. EverCare Connections is a comprehensive eldercare service program providing service coordination, consultation, claim management and information and resource linkages nationwide.

Effective January 1, 2003, Ovations’ Senior and Retiree Services division began providing health care coverage for the senior market primarily through the Medicare+Choice program administered by the Centers for Medicare and Medicaid Services (CMS) (prior to January 1, 2003, these services were offered through UnitedHealthcare). Through these programs, 225,000 Medicare beneficiaries were served as of December 31, 2002. The Medicare+Choice offerings in 2002 included additional benefits such as more extensive preventative services and access to specialized support services. Ovations’ Senior & Retiree Services recently launched new preferred provider organization (“PPO”) pilot projects in eight states through an arrangement with CMS.

In September 2002, we acquired AmeriChoice Corporation, a leading health care organization engaged in facilitating health care benefits and services for state Medicaid programs and their beneficiaries. We combined AmeriChoice with our other Medicaid services businesses into a dedicated business unit of our Health Care Services segment working exclusively with selected states to address the needs of their medically vulnerable populations under their Medicaid programs. We expect that combining AmeriChoice with our existing Medicaid business will allow us to create efficiencies from the consolidation of health care provider networks, technology platforms and operations. As of December 31, 2002, these businesses

organized health care resources and benefits for more than one million beneficiaries of Medicaid and other government-sponsored health care programs in 10 states through licensed affiliates.

Specialized Care Services is a portfolio of specialized health and well-being companies, each serving a specific market need with a unique blend of benefits, provider networks, services and resources. Specialized Care Services provides comprehensive products and services that are focused on highly specialized health care needs, such as mental health and chemical dependency, employee assistance, organ transplants, vision and dental services, chiropractic services, health-related information and other health and well-being services. These offerings are sold directly to employers and consumers and indirectly through other UnitedHealth Group businesses, as well as through unrelated entities. Specialized Care Services’ products and services include both risk-based products, in which Specialized Care Services assumes financial responsibility for health care costs, and products for which Specialized Care Services receives management and administrative fees.

Through United Behavioral Health (“UBH”) and its affiliated companies, Specialized Care Services provides behavioral health care benefit services, employee assistance programs and psychiatric disability benefit services. UBH’s care management capabilities and extensive network of contracted mental health professionals represent the core of its product offerings. UBH’s services and products reach approximately 22 million individuals.

Optum® provides health information assistance, support and related services designed to improve the health and well-being of the approximately 23 million individuals it serves. Through multiple access points, including the Internet, telephone, audio tapes, print and in-person consultations, Optum helps consumers address daily living concerns, make informed health care decisions and become more effective health care consumers.

Dental Benefit Providers (“DBP”) and its affiliates provide dental benefit management and related services. Through an extensive relationship with contracted dental providers, DBP manages dental benefit offerings for approximately three million individuals. DBP’s products are distributed primarily through unaffiliated insurers to commercial, Medicare and Medicaid populations. DBP also offers its products and services, both network-based and indemnity dental care plan designs, to and through UnitedHealth Group affiliates.

United Resource Networks (“URN”) is the gateway to highly specialized critical care programs at more than 70 of the most widely recognized medical centers in the United States. URN negotiates fixed, competitive rates for high-cost, complex health care services. Access to URN’s programs and services is available to approximately 41 million individuals through over 2,200 payers.

National Benefit Resources (“NBR”) is a managing general underwriter that originates and administers medical stop loss insurance provided to employers with self-funded employee benefit plans. NBR markets stop loss coverage primarily through third party administrators (“TPAs”) located throughout the United States. NBR distributes to its customer base certain products and services of other Specialized Care Services’ businesses, including those of URN and Optum.

Spectera represents Specialized Care Services’ operating platform for the vision care market. Spectera and its licensed subsidiaries specialize in building vision care benefit partnerships with physicians, optometrists, employer groups and benefit consultants. Spectera administers vision benefits for more than seven million individuals through more than 1,900 employer groups. Spectera provides comprehensive vision care services through its national network of more than 12,000 private doctors’ offices and retail store locations.

ACN Group provides benefit administration, network management, and access to chiropractic, physical therapy and other complementary and alternative health care services through its network of contracted providers to approximately 18 million consumers.

Specialized Care Services also manages units that market the sale of group life and accident insurance to small and medium-sized employer groups.

Ingenix is a leader in the field of health care data and information, research, analysis and application. Ingenix serves multiple health care markets on a business-to-business basis, including pharmaceutical companies, health insurers and other payers, physicians and other health care providers, large employers and government agencies. Ingenix maintains two primary operating divisions: Ingenix Health Intelligence and Ingenix Pharmaceutical Services.

Ingenix Health Intelligence offers database and data management services, software products, publications and consulting services. Ingenix Health Intelligence provides a wide variety of data and software services and products, including databases for benchmarking and reimbursement methodology development, software to analyze and report costs and utilization of services, data management services, HEDIS reporting, fraud and abuse detection and prevention services, claims editing software and reimbursement systems audits. The consulting services business focuses on actuarial and financial disciplines, product development, provider contracting and medical policy and management. Ingenix Health Intelligence also publishes print and electronic media products that provide information regarding coding, reimbursement, billing, compliance and other general health care issues. As of December 31, 2002, Ingenix Health Intelligence provided expanded physician credentialing services for 100 health plans covering more than 250,000 physicians and other health care providers. In 2002, Ingenix Health Intelligence also expanded its services to include physician directory databases that enable consumers and commercial users to perform 100 million web-based searches per year. As of December 31, 2002, Ingenix Health Intelligence served more than 3,000 hospitals, 250,000 physicians, 2,000 payers and intermediaries, and 100 life science customers. Ingenix Health Intelligence provides medical benefits analyses, quality and utilization data and predictive modeling products to UnitedHealthcare, Ovations, Uniprise and their customers.

Ingenix Pharmaceutical Services offers product development and marketing-related services for pharmaceutical, biotechnology and medical device manufacturers on a global basis. Ingenix Pharmaceutical Services provides global clinical research services, including strategic planning, research protocol development, investigator identification and training, regulatory assistance, project management, data management and biostatistical analysis, quality assurance and medical writing. Ingenix Pharmaceutical Services addresses “real world” product questions through economic and outcomes research, safety and research and patient registries. Ingenix Pharmaceutical Services also provides medical education and communications through scientific publications, medical symposia and interactive web-based technologies.

We continually evaluate expansion opportunities and, in the normal course of business, often consider whether to sell certain businesses or stop offering certain products or services. Expansion opportunities may include acquiring businesses that are complementary to our existing operations. During 2002, we completed several acquisitions and ceased offering some products in certain markets, all as part of our ongoing emphasis on our strategic focus. Further, we devote significant attention to internally developing new products and services for the health and well-being sector as we have broadly defined it.

Most of our health and well-being services are regulated. This regulation can vary significantly from jurisdiction to jurisdiction. Federal and state regulatory agencies generally have discretion to issue regulations and interpret and enforce laws and rules. Changes in applicable laws and regulations are continually being considered, and the interpretation of existing laws and rules also may change periodically.

These revisions could affect our consolidated operations and financial results. Enactment of federal and state health benefit laws and regulations can also affect our businesses.

Our Health Care Services segment, which includes UnitedHealthcare, Ovations, and AmeriChoice, has Medicare+Choice contracts that are regulated by CMS. CMS has the right to audit our performance in order to determine compliance with CMS’ contracts and regulations and the quality of care being given to members. Our Health Care Services segment also has Medicaid and State Children’s Health Insurance Program contracts that are subject to federal and state regulation regarding services to be provided to Medicaid enrollees, payment for those services, and other aspects of these programs. We believe we are in compliance in all material respects with the applicable regulations; however, the significant level of regulations surrounding Medicare and Medicaid makes compliance in this product line a continuing challenge.

All of the states in which our subsidiaries offer insurance and health maintenance products regulate those products and operations. Most states require periodic financial reports from us and impose minimum capital or restricted cash reserve requirements. Many of our health plans and each of our insurance subsidiaries are regulated under state insurance holding company regulations. Such regulations generally require registration with applicable state Departments of Insurance and the filing of reports that describe capital structure, ownership, financial condition, certain inter-company transactions and general business operations. Some state insurance holding company laws and regulations require prior regulatory approval of acquisitions and material inter-company transfers of assets, as well as transactions between the regulated companies and their parent holding companies or affiliates. In addition, some of our subsidiaries or products may be subject to PPO, managed care organization (“MCO”) or TPA-related regulations and licensure requirements. These regulations differ greatly from state to state, but generally contain network, contracting, financial and reporting requirements. Many states also have enacted laws and/or adopted regulations governing utilization review and external appeals activities, and these laws may apply to some of our operations. Additionally, there are laws and regulations that set specific standards for delivery of services, prompt payment of claims, confidentiality of consumer health information and covered benefits and services. To date, these various laws and regulations have not materially affected our consolidated financial position or results of operations.

The administrative simplification provisions of the Health Insurance Portability and Accountability Act of 1996, as amended (“HIPAA”), apply to both the group and individual health insurance markets, including self-funded employee benefit plans. Federal regulations promulgated pursuant to HIPAA are now effective, with compliance required by April 2003. These regulations include minimum standards for electronic transactions and code sets, and for the privacy and security of protected health information. We are currently in compliance with these regulations. New standards for national provider and employer identifiers are currently being developed by regulators. We intend to be in compliance by the enforcement dates; however, the law is far-reaching and complex and the government’s delay in providing guidance on some aspects of the law may affect the timeliness of our compliance efforts. Additionally, different approaches to HIPAA’s provisions and varying enforcement philosophies in the different states may adversely affect our ability to standardize our products and services across state lines.

The Employee Retirement Income Security Act of 1974, as amended (“ERISA”), regulates how goods and services are provided to or through certain types of employer-sponsored health benefit plans. ERISA is a complex set of laws and regulations that is subject to periodic interpretation by the United States Department of Labor as well as the federal courts. ERISA places controls on how our business

units may do business with employers who sponsor employee benefit health plans, particularly those that maintain self-funded plans. During 2002, we processed and administered the payment of approximately $21 billion of medical claims on behalf of customers that self-insure the medical costs of their employees and their employees’ dependents. New ERISA claim regulations which became effective July 2002 require ongoing modifications to our operations. We believe that we are in compliance with the new regulations.

The regulations and contractual requirements applicable to participants in federal government health care programs such as Medicare and Medicaid are complex and changing. We continue to emphasize our regulatory compliance efforts for these programs, but ongoing vigorous law enforcement and the highly technical nature of the regulations mean that compliance efforts in this arena will continue to require significant resources. Additionally, states have begun to focus their anti-fraud efforts on insurance companies and health maintenance organizations. Some states now require filing and approval of anti-fraud plans and may monitor compliance as part of any market conduct examination.

We are regularly subject to governmental audits, investigations and enforcement actions. Any such government actions can result in assessment of damages, civil or criminal fines or penalties, or other sanctions, including loss of licensure or exclusion from participation in government programs. In addition, a state Department of Insurance or other state or federal authority (including CMS, the Office of the Inspector General and state attorneys general) may from time to time begin a special audit of one of our health plans, our insurance plans and products or one of our other operations to investigate issues such as utilization management; financial, eligibility or other data reporting; prompt claims payment; or coverage of medically necessary care, including emergency room care. We are currently involved in various governmental investigations, audits and reviews. These include routine, regular and special investigations, audits and reviews by CMS, state insurance departments and state attorneys general, the Office of Personnel Management, the Office of the Inspector General and U.S. Attorneys. We do not believe the results of any of the current investigations, audits or reviews, individually or in the aggregate, will have a material adverse effect on our consolidated financial position or results of operations.

Our Ingenix and Health Care Services segments both have limited international operations. These international operations are subject to different legal and regulatory requirements in local jurisdictions, including various tax, tariff and trade regulations, as well as employment, intellectual property and investment rules and laws.

Our marketing strategy is defined and coordinated by each business’s dedicated marketing staff. Within these businesses, primary marketing responsibility generally resides with a marketing leader and a direct sales force. In addition, several of the segments also rely upon independent insurance agents and brokers to sell some of their products. Marketing efforts also include public relations efforts and advertising programs that may use television, radio, newspapers, magazines, billboards, direct mail and telemarketing.

As a diversified health and well-being services company we operate in highly competitive markets. Our competitors include managed health care companies, insurance companies, TPAs and business services outsourcing companies, health care providers that have formed networks to directly contract with employers, specialty benefit providers, government entities, and various information and consulting

companies. New entrants into the markets in which we compete, as well as consolidation within these markets, also contribute to this competitive environment. We believe the principal competitive factors affecting us and the sales and pricing of our products and services include product innovation, consumer satisfaction, the level and quality of products and services, network capabilities, price, market share, product distribution systems, efficient administration operations, financial strength and marketplace reputation.

We believe that our competitive strengths are enhanced by our customer focus resulting from our operational alignment. Each UnitedHealth Group business represents a strategic platform from which we can penetrate more deeply into specific markets using our three core competencies: network management, knowledge and information and service infrastructure. Other strengths include the breadth and quality of our products, our geographic scope and diversity, the scope and depth of our data and information about health care costs and consumption, our effective use of proprietary tools and products to coordinate and facilitate programs designed to realize appropriately lower health care costs, our disciplined underwriting and pricing practices and staff, our significant market position in certain geographic areas, the strength of our distribution network, our financial strength, our generally large provider networks that provide more consumer choice and minimize barriers to access, our point-of-service products and our strong marketplace reputation. However, in some markets we may be at a disadvantage for a number of reasons, including competitors with more resources, longer operating histories, larger market shares, broader networks, narrower networks (which may allow greater cost control and lower prices) or more established names and reputations. These competitive factors could adversely affect our business and operating results.

As of December 31, 2002, we employed approximately 32,000 individuals. We believe our employee relations are good.

The statements contained in this Annual Report on Form 10-K, and in the Management’s Discussion and Analysis of Financial Condition and Results of Operations and other sections of our Annual Report to Shareholders incorporated by reference in this Form 10-K, include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the “PSLRA”). When used in this Annual Report on Form 10-K and in future filings by us with the Securities and Exchange Commission, in our press releases, presentations to securities analysts or investors, and in oral statements made by or with the approval of one of our executive officers, the words or phrases “believes,” “anticipates,” “intends,” “will likely result,” “estimates,” “projects” or similar expressions are intended to identify such forward-looking statements. These forward-looking statements involve risks and uncertainties that may cause our 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. Except to the extent otherwise required by federal securities laws, in making these cautionary statements, we do not undertake to address or update each factor in future filings or communications regarding our business or operating results, and do not undertake 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 our past, as well as current, forward-looking statements about future results. Any or all forward-looking statements in this Form 10-K, in the 2002 Annual Report to Shareholders, and in any other public statements we make may turn out to be wrong. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. Many factors discussed below will be important in determining future results. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially from expectations expressed in our prior communications.

We use a large portion of our premium revenues to pay the costs of health care services delivered to our customers. Accordingly, the profitability of our risk-based products depends in large part on our ability to accurately predict, price for, and effectively manage health care costs. Total health care costs are affected by the number of individual services rendered and the cost of each service. Our premium revenue is typically fixed in price for a 12-month period and is generally priced three months before contract commencement. Services are delivered and related costs are incurred when the contract commences. Although we base the premiums we charge on our estimate of future health care costs over the fixed premium period, inflation, regulations and other factors may 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, new mandated benefits or other regulatory changes, insured population characteristics and seasonal changes in the level of health care use. Relatively small differences between predicted and actual medical costs as a percentage of premium revenues can result in significant changes in our financial results because of the relatively narrow operating margins of our risk-based arrangements. In addition, the financial results we report for any particular period include estimates of costs incurred for which the underlying claims have not been received by us or for which the claims have been received but not processed. If these estimates prove too high or too low, our earnings may be adjusted later based on actual costs.

The health and well-being industries receive significant negative publicity and have been the subject of large jury verdicts. This publicity has been accompanied by litigation, legislative activity, regulation and governmental 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 our costs of doing business and adversely affecting our profitability.

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 certain markets are not substantial, so the addition of new competitors can occur relatively easily, and consumers enjoy significant flexibility in moving to competitors. Some of our customers may decide to perform for themselves functions or services we provide, which would decrease our revenues. Some of our contracted physicians and other health care 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, medical device and health information systems industries. To the extent that there is strong competition or that competition intensifies in any market, our ability to retain or increase customers or contracted physicians and other health care providers, or maintain or increase our revenue growth, pricing flexibility, control over medical cost trends and marketing expenses may be adversely affected.

Under our long-term contract with AARP, we provide Medicare Supplement and Hospital Indemnity health insurance and other products to AARP members. As of December 31, 2002, our portion of AARP’s insurance program represented approximately $3.7 billion in annual net premium revenue from approximately 3.6 million AARP members. The success of our AARP arrangement depends, in part, on our ability to service these customers, 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 AARP or one of its other business partners for its member insurance program could have an adverse effect on the success of our arrangement with AARP.

In response to medical cost increases that exceeded Medicare program reimbursement rate growth, we have withdrawn our Medicare+Choice product offerings from a number of counties and filed significant benefit adjustments in other counties. These and other actions have reduced Medicare+Choice enrollment and may result in further or complete withdrawal of Medicare+Choice product offerings, when and as permitted by our contracts with the CMS. Under current regulations, we are precluded from re-entering the counties from which we have withdrawn our Medicare+Choice product offerings until two years after the effective date of withdrawal.

The financial results of our Medicare+Choice, Medicaid and State Children’s Health Insurance Program (SCHIP) operations depend on a number of factors, including program reimbursement increases, government regulations, benefit design, physician and other health care provider contracting, state budgetary pressures (Medicaid and SCHIP) and other factors. There can be no assurance that any or all of our government program operations will be profitable in future periods.

Our business is regulated at the federal, state, local and international levels. 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 our health care and administrative costs and capital requirements, and increase our liability in federal and state courts for coverage determinations, contract interpretation and other actions. We must obtain and maintain regulatory approvals to market many of our products, to increase prices for certain regulated products and to consummate our acquisitions and dispositions. Delays in obtaining or our failure to obtain or maintain these approvals could reduce our revenue or increase our costs.

We participate in federal, state and local government health care coverage programs. These 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 increase our administrative or health care costs under such programs. Such changes have adversely affected our financial results and willingness to participate in such programs in the past and may do so in the future.

State legislatures and Congress continue to focus on health care issues. Bills and regulations at state and federal levels may affect certain aspects of our business, including contracting with physicians, hospitals and other health care professionals; physician reimbursement methods and payment rates; coverage determinations; claim payments and processing; use and maintenance of individually identifiable health information; medical malpractice litigation reform; and government-sponsored programs. We cannot predict if any of these initiatives will ultimately become binding law or regulation, or, if enacted, what their terms will be, but their enactment could increase our costs, expose us to expanded liability, require us to revise the ways in which we conduct business or put us at risk for a loss of business to new health care funding arrangements.

We are also subject to various governmental investigations, audits and reviews. Such oversight could result in our loss of licensure or our right to participate in certain programs, or the imposition of civil or criminal 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. We are currently involved in various governmental investigations, audits and reviews. These include routine, regular and special investigations, audits and reviews by the CMS, state and health insurance departments and state attorneys general, the Office of Personnel Management, the Office of the Inspector General and U.S. Attorneys. Although the results of pending matters are always uncertain, we do not believe the results of any of the current investigations, audits or reviews, individually

or in the aggregate, will have a material adverse effect on our consolidated financial position or results of operations.

Our operations are conducted through our subsidiaries. These companies are subject to state regulations that, among other things, may require the maintenance of minimum levels of statutory capital, as defined by each state, and may restrict the timing and amount of dividends and other distributions that may be paid to their respective parent companies. Generally, the amount of dividend distributions that may be paid by our regulated subsidiaries, without prior approval by state regulatory authorities, is limited based on the subsidiary’s level of statutory net income, statutory capital and surplus. We use cash generated from operations, commercial paper and debt to maintain adequate operating and financial flexibility. The agencies that assess our creditworthiness also consider statutory capital levels when establishing our debt ratings. We maintain an aggregate statutory capital level for our regulated subsidiaries that is significantly higher than the minimum level regulators require.

One of the significant techniques we use to contain health care costs and facilitate care delivery is to contract with physicians, hospitals, pharmaceutical benefit managers and pharmaceutical manufacturers, and other health care providers for favorable prices. A number of organizations are advocating for legislation that would exempt certain of these physicians and health care professionals from federal and state antitrust laws. In any particular market, these physicians and health care professionals could refuse to contract, demand higher payments, or take other actions that could result in higher health care costs, less desirable products for customers or difficulty meeting regulatory or accreditation requirements. In some markets, certain health care providers, particularly hospitals, physician/hospital organizations or multi-specialty physician groups, may have significant market positions or near monopolies that could result in diminished bargaining power on our part.

Sometimes we become a party to the types of legal actions that can affect any business, such as employment and employment discrimination-related suits, employee benefit claims, breach of contract actions, tort claims, shareholder suits, and intellectual property-related litigation. In addition, because of the nature of our businesses, we are routinely made party to a variety of legal actions related to the design, management and offerings of our services. These matters include, but are not limited to, claims related to health care benefits coverage, medical malpractice actions, contract disputes and claims related to disclosure of certain business practices. In 1999, a number of class action lawsuits were filed against us and virtually all major entities in the health benefits business. The suits are purported class actions on behalf of certain customers and physicians for alleged breaches of federal statutes, including ERISA and the Racketeer Influenced Corrupt Organization Act (“RICO”). We will incur expenses in the defense of these matters, even if they are without merit.

Recent court decisions and legislative activity may increase our exposure for any of these types of claims. In some cases, substantial non-economic, treble 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. The cost of general business insurance coverage has increased significantly following the events of September 11, 2001. As a result, we have increased the amount of risk that we self-insure, particularly with respect to routine matters incidental to our business. We record liabilities for our estimates of the probable costs resulting from self-insured matters. Although we believe the liabilities established for these risks are adequate, there can be no assurance that the level of actual losses will not exceed the liabilities recorded.

Our businesses depend significantly on effective information systems and the integrity of the data we use to run these businesses. Our ability to adequately price our products and services, provide effective and efficient service to our customers, and to accurately report our financial results depends significantly on the integrity of the data in our information systems. As a result of our acquisition activities, we have acquired additional systems. We have been taking steps to reduce the number of systems we operate and have upgraded and expanded our information systems capabilities. If the information we rely upon to run our businesses was found to be inaccurate or unreliable or if we fail to maintain effectively our information systems and data integrity, we could lose existing customers, have difficulty in attracting new customers, have problems in determining medical cost estimates and establishing appropriate pricing, have customer and physician and other health care provider disputes, have regulatory problems, have increases in operating expenses or suffer other adverse consequences. Our information systems require an ongoing commitment of significant resources to maintain and enhance existing systems and develop new systems to keep pace with continuing changes in information processing technology, evolving industry and regulatory standards, and changing customer preferences. For example, the administrative simplification provisions of HIPAA and the Department of Labor’s ERISA claim processing regulations require changes to our current systems.

We depend on independent third parties for significant portions of our systems-related support, equipment, facilities, and certain data, including data center operations, data network, voice communication services and pharmacy data processing. This dependence makes our operations vulnerable to such third parties’ failure to perform adequately under the contract, due to internal or external factors. Although there are a limited number of service organizations with the size, scale and capabilities to effectively provide certain of these services, especially with regard to pharmacy benefits processing and management, we believe that other organizations could provide similar services on comparable terms. A change in service providers, however, could result in a decline in service quality and effectiveness or less favorable contract terms which could adversely affect our operating results.

The use of individually identifiable data by our businesses is regulated at international, federal, state and local levels. These laws and rules are changed frequently by legislation or administrative interpretation. Various state laws address the use and maintenance of individually identifiable health data. Most are derived from the privacy provisions in the federal Gramm-Leach-Bliley Act and HIPAA. HIPAA also imposes guidelines on our business associates (as this term is defined in the HIPAA regulations). Even though we provide for appropriate protections through our contracts with our business associates, we still have limited control over their actions and practices. Compliance with these proposals and new regulations may result in cost increases due to necessary systems changes, the development of new administrative processes, and the effects of potential noncompliance by our business associates. They also may impose further restrictions on our use of patient identifiable data that is housed in one or more of our administrative databases.

The success of our knowledge and information-related businesses also depends significantly on our ability to maintain proprietary rights to our databases and related products. We rely on our agreements with customers, confidentiality agreements with employees, and our trade secrets, copyrights and patents to protect our proprietary rights. These legal protections and precautions may not 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 effect on the ability of our businesses to market and sell products and services and on our consolidated results of operations.

Efficient and cost-effective administration of our operations is essential to our profitability and competitive positioning. Staff-related and other operating expenses may increase from time to time due to business or product start-ups or expansions, growth or changes in business or the mix of products purchased by customers, acquisitions, regulatory requirements or other reasons. Unanticipated expense increases may adversely affect our financial 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 key employees or a number of managers or technical staff could adversely affect our ability to administer and manage our business.

We market our products and services through both employed sales people and independent sales agents. The departure of key sales employees or agents or a large subset of these individuals could impair our ability to retain existing customers. Some of our customers or potential customers consider our debt ratings, accreditation or certification by various private or governmental bodies or rating agencies necessary or important. Some 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 ratings, accreditation or certification, which could adversely affect our ability to obtain or acquire or retain business from these customers and potential customers.

We have an active ongoing acquisition and disposition program under which we may engage in transactions involving the acquisition or disposition of assets, products or businesses, some or all of which may be material. These transactions may entail risks and uncertainties and may affect ongoing business operations because of unknown liabilities, unforeseen administrative needs or the use of resources 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 and customer dissatisfaction.

The terrorist attacks launched on September 11, 2001, the war on terrorism, the threat of future acts of terrorism and the related concerns of customers and providers have negatively affected, and may continue to negatively affect, the U.S. economy in general and our industry specifically. Depending on the government’s actions and the responsiveness of public health agencies and insurance companies, future acts of terrorism and bio-terrorism could adversely affect us through, among other things, increased use of health care services including, without limitation, hospital and physician services; loss of membership in health plans we administer as a result of lay-offs or other reductions of employment; adverse effects upon the financial condition or business of employers who sponsor health care coverage for their employees; disruption of our information and payment systems; increased health care costs due to restrictions on our ability to carve out certain categories of risk, such as acts of terrorism; and disruption of the financial and insurance markets in general.

From time to time in press releases and otherwise, we may publish forecasts or other forward-looking statements regarding our future results, including estimated revenues, earnings per share and other operating and financial metrics. Any forecast of our future performance reflects various assumptions. These assumptions are subject to significant uncertainties, and any number of them may prove to be incorrect. Further, the achievement of any forecast depends on numerous factors (including those described in this discussion), many of which are beyond our control. As a result, we cannot assure that our performance will be consistent with any management forecasts or that the variation from such forecasts will not be

material and adverse. You are cautioned not to base your entire analysis of our business and prospects upon isolated predictions, but instead are encouraged to utilize the entire publicly available mix of historical and forward-looking information, as well as other available information affecting us and our services, when evaluating our prospective consolidated results of operations.

Changes in economic conditions could affect our business and results of operations. The state of the economy affects our employer group renewal prospects and our ability to increase prices in some of our businesses. Although we are continuously striving to diversify our product offerings to address the changing needs of consumers, there can be no assurance that the effects of the current or a future downturn in economic conditions will not cause our existing customers to seek health coverage alternatives that we do not offer or will not result in significant loss of customers, or decreased margins on our continuing customers.

The market prices of the securities 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, litigation and judicial decisions, legislative or regulatory actions, health care cost trends, pricing trends, competition, earnings, membership reports of particular industry participants and acquisition activity. We cannot assure the level or stability of the price of our securities at any time or the effect of the foregoing or any other factors on such prices.

Our Board of Directors elects executive officers annually. Our executive officers serve until their successors are duly elected and qualified.

Dr. McGuire is the Chairman of the Board of Directors and Chief Executive Officer of UnitedHealth Group. Dr. McGuire joined UnitedHealth Group as Executive Vice President in November 1988 and became its Chairman and Chief Executive Officer in 1991. Dr. McGuire also served as UnitedHealth Group’s Chief Operating Officer from May 1989 to June 1995 and as its President from November 1989 until May 1999.

Mr. Hemsley is the President and Chief Operating Officer of UnitedHealth Group and has been a member of the Board of Directors since February 2000. Mr. Hemsley joined UnitedHealth Group in May 1997 as Senior Executive Vice President. He became Chief Operating Officer in September 1998 and was named President in May 1999.

Mr. Erlandson joined UnitedHealth Group in 1997 as Vice President of Process, Planning, and Information Channels. He became Controller and Chief Accounting Officer in September 1998 and was named Chief Financial Officer in January 2001.

Mr. Lubben joined UnitedHealth Group in October 1996 as General Counsel and Secretary. Prior to joining UnitedHealth Group, he was a partner in the law firm of Dorsey & Whitney LLP.

Ms. Quam joined UnitedHealth Group in 1989 and became the Chief Executive Officer of Ovations in April 1998. Prior to April 1998, Ms. Quam served in various capacities including Chief Executive Officer, AARP Division; Vice President, Public Sector Services; and Director, Research.

Ms. Rivet joined UnitedHealth Group in June 1990 and became Executive Vice President of UnitedHealth Group and Chief Executive Officer of Ingenix in January 2001. Ms. Rivet was an Executive Vice President of UnitedHealthcare from October 1994 to March 1998 and served as the Chief Executive Officer of UnitedHealthcare from April 1998 to December 2000. She served as UnitedHealth Group’s Senior Vice President, Health Plan Operations from September 1993 to September 1994 and its Vice President of Health Service Operations from June 1990 to September 1993.

Mr. Sheehy joined UnitedHealth Group in 1992 and became Chief Executive Officer of UnitedHealthcare in January 2001. From April 1998 to December 2000, he was President of UnitedHealthcare. Prior to April 1998, Mr. Sheehy served in various capacities with UnitedHealth Group, including Chief Executive Officer of United HealthCare of Ohio.

Mr. Wheeler joined UnitedHealth Group in March 1995 and became Chief Executive Officer of Uniprise in May 1998. Prior to May 1998, he served in various capacities with UnitedHealth Group, including Chief Executive Officer, Northeast Health Plans.

As of December 31, 2002, we leased approximately 6.4 million and owned approximately 500,000 aggregate square feet of space in the United States and Europe. Our leases expire at various dates through May 31, 2025. Our various segments use this space exclusively for their respective business purposes and we believe these current facilities are suitable for their respective uses and are adequate for our anticipated future needs.

In September 1999, a group of plaintiffs’ trial lawyers publicly announced that they were targeting the managed care industry by way of class action litigation. Since that time, several claims against us have been alleged that generally challenge managed care practices, including cost containment mechanisms, disclosure obligations and payment methodologies. These claims are described in the following paragraph. We intend to defend vigorously all of these claims.

In Re: Managed Care Litigation: MDL No. 1334. A multi-district litigation panel has consolidated several litigation cases involving UnitedHealth Group and our affiliates in the Southern District Court of Florida, Miami division. The first of these suits was initiated in February 2000. In December 2000, the UnitedHealth Group litigation was consolidated with litigation involving other industry members for the coordination of pre-trial proceedings. The litigation has been divided into two tracks, with one track comprising consumer claims and the other health care provider claims. Generally, the claims made in this consolidated litigation allege violations of ERISA and RICO in connection with alleged undisclosed policies intended to maximize profits. The litigation also asserts breach of state prompt payment laws and breach of contract claims alleging that UnitedHealth Group affiliates fail to timely reimburse providers for medical services rendered. The consolidated suits seek injunctive, compensatory and equitable relief as well as restitution, costs, fees and interest payments. Following the Court’s initial decisions on industry members’ motions to dismiss the complaints, amended complaints were filed in both tracks. On February 20, 2002, the Court granted in part and denied in part the industry defendants’ motion to dismiss the amended complaint in the consumer track litigation. In significant part, the Court limited the RICO and ERISA claims that could be brought by the plaintiffs, and dismissed entirely the common law claims for civil conspiracy and unjust enrichment. On September 26, 2002, the trial court denied the consumer track plaintiffs’ motion for class certification while granting the health care provider track plaintiffs’

certification motion. Discovery commenced in both tracks of the litigation on September 30, 2002. The Eleventh Circuit granted the industry defendants’ petition seeking review of the district court’s certification order in the health care provider track litigation. On February 24, 2003, the United States Supreme Court heard argument in UnitedHealth Group’s and unaffiliated defendant PacifiCare’s appeal to review the Southern District Court’s decision (affirmed by the Eleventh Circuit) to limit arbitration to only certain of the health care provider track plaintiffs’ claims.

The American Medical Association et al. v. Metropolitan Life Insurance Company, United HealthCare Services, Inc. and UnitedHealth Group. This lawsuit was filed on March 15, 2000, in the Supreme Court of the State of New York, County of New York. On April 13, 2000, we removed this case to the United States District Court for the Southern District of New York. The suit alleges causes of action based on ERISA, as well as breach of contract and the implied covenant of good faith and fair dealing, deceptive acts and practices, and trade libel in connection with the calculation of reasonable and customary reimbursement rates for non-network providers. The suit seeks declaratory, injunctive and compensatory relief as well as costs, fees and interest payments. An amended complaint was filed on August 25, 2000, which alleged two classes of plaintiffs, an ERISA class and a non-ERISA class. After the Court dismissed certain ERISA claims and the claims brought by the American Medical Association, a third amended complaint was filed. On October 25, 2002, the court granted in part and denied in part our motion to dismiss the third amended complaint. We are engaged in discovery in this matter.

Because of the nature of our business, we are routinely subject to lawsuits alleging various causes of action. Some of these suits may include claims for substantial non-economic, treble or punitive damages. We record liabilities for our estimate of probable costs resulting from these matters. Although the results of pending litigation are always uncertain, we do not believe the results of any such actions, including those described above, or any other types of actions, currently threatened or pending, individually or in the aggregate, will have a material adverse effect on our consolidated financial position or results of operations.

The information contained under the heading “Investor Information” in our Annual Report to Shareholders for the fiscal year ended December 31, 2002, is incorporated herein by reference. As of March 12, 2003, we had 12,809 shareholders of record.

The information contained under the heading “Financial Highlights” in our Annual Report to Shareholders for the fiscal year ended December 31, 2002, is incorporated herein by reference.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation

The information contained under the heading “Results of Operations” in the our Annual Report to Shareholders for the fiscal year ended December 31, 2002, is incorporated herein by reference.

The information contained under the heading “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report to Shareholders for the fiscal year ended December 31, 2002, is incorporated herein by reference.

Our consolidated financial statements, together with the Independent Auditors’ Report thereon, appearing on pages 40 through 63 of our Annual Report to Shareholders for the fiscal year ended December 31, 2002, are incorporated herein by reference.

On May 15, 2002, our Board of Directors and the Audit Committee dismissed Arthur Andersen LLP as our independent public accountants, effective May 15, 2002, and engaged Deloitte & Touche LLP, effective May 16, 2002, to serve as our independent auditors for fiscal year 2002.

Arthur Andersen’s reports on our consolidated financial statements for each of the years ended 2001, 2000 and 1999 did not contain an adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles.

During the years ended December 31, 2001, 2000 and 1999 and through May 15, 2002, there were no disagreements with Arthur Andersen on any matter of accounting principle or practice, financial statement disclosure, or auditing scope or procedure which, if not resolved to Arthur Andersen’s satisfaction, would have caused them to make reference to the subject matter in connection with their report on our consolidated financial statements for such years; and there were no reportable events as defined in Item 304(a)(1)(v) of Regulation S-K.

During the years ended December 31, 2001 and 2000 and through May 15, 2002, we did not consult with Deloitte & Touche with respect to the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our consolidated financial statements, or any other matters or reportable events as set forth in Items 304(a)(2)(i) and (ii) of Regulation S-K.

We reported the change in accountants on a Current Report on Form 8-K filed with the Securities and Exchange Commission on May 16, 2002. The Form 8-K contained a letter from Arthur Andersen LLP, addressed to the SEC, stating that Arthur Andersen LLP agreed with the statements concerning Arthur Andersen LLP contained in the Form 8-K. This letter is filed as Exhibit 16 to this Form 10-K.

The information included under the headings “Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance” in our definitive proxy statement for our Annual Meeting of Shareholders to be held May 7, 2003, is incorporated herein by reference.

Pursuant to General Instruction G(3) to Form 10-K and Instruction 3 to Item 401(b) of Regulation S-K, information regarding our executive officers is provided in Item 1 of Part I of this Annual Report on Form 10-K under the caption “Executive Officers of the Registrant.”

The information included under the heading “Executive Compensation” in our definitive proxy statement for our Annual Meeting of Shareholders to be held May 7, 2003, is incorporated herein by reference.

The information included under the heading “Security Ownership of Certain Beneficial Owners and Management” in our definitive proxy statement for our Annual Meeting of Shareholders to be held May 7, 2003, is incorporated herein by reference.


(1)	Consists of the UnitedHealth Group Incorporated 2002 Stock Incentive Plan, as amended, the 1987 Supplemental Stock Option Plan (no additional options may be granted under this plan), and the 1993 Qualified Employee Stock Purchase Plan, as amended.

(2)	Excludes 240,193 shares underlying stock options assumed by us in connection with our acquisition of the companies under whose plans the options originally were granted. These options have a weighted average exercise price of $30.32 and an average remaining term of approximately 4.66 years. The options are administered pursuant to the terms of the plan under which the option originally was granted. No future options or other awards will be granted under these acquired plans.

(3)	Includes 2,994,494 shares of common stock available for future issuance under the Employee Stock Purchase Plan as of December 31, 2002, and 29,017,820 shares available under the 2002 Stock Incentive Plan as of December 31, 2002. Shares available under the 2002 Stock Incentive Plan may become the subject of future awards in the form of stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards and other stock-based awards, except that only 6,977,350 of these shares are available for future grants of awards other than stock options or stock appreciation rights.

Information regarding certain relationships and related transactions that appears under the heading “Certain Relationships and Transactions” in our definitive proxy statement for the Annual Meeting of Shareholders to be held May 7, 2003, is incorporated herein by reference.

Within the 90-day period prior to the filing of this report, an evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-14(c) under the Securities Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective. No significant changes were made in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.

The following consolidated financial statements of the Company are included in the Company’s Annual Report to Shareholders for the fiscal year ended December 31, 2002 and are incorporated herein by reference:


	Consolidated Statements of Operations for the years ended December 31, 2002, 2001 and 2000.

	Consolidated Balance Sheets as of December 31, 2002 and 2001.

	Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2002, 2001 and 2000.

	Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000.

	Notes to Consolidated Financial Statements.

	Independent Auditors’ Reports.

The following Current Reports on Form 8-K were filed during the last fiscal quarter of 2002.

8-K dated October 31, 2002, together with a press release announcing the resignation of Walter F. Mondale from the Board of Directors under Item 5 “Other Events and Regulation FD Disclosure.”

8-K dated November 20, 2002, together with a press release announcing an investor conference and confirmation of earnings under Item 9 “Regulation FD Disclosure.”

8-K dated November 26, 2002, together with a press release regarding earnings expectations under Item 9 “Regulation FD Disclosure.”

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	By	/s/ WILLIAM W. MCGUIRE, M.D.



	William W. McGuire, M.D.
	Chairman and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

I, William W. McGuire, M.D., Chairman and Chief Executive Officer of UnitedHealth Group Incorporated, certify that:

1. I have reviewed this annual report on Form 10-K of UnitedHealth Group Incorporated (the “registrant”);

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:


	a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

	b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

	c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):


	a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

	b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.


	/s/ WILLIAM W. MCGUIRE, M.D.

	William W. McGuire, M.D.
	Chairman and Chief Executive Officer

I, Patrick J. Erlandson, Chief Financial Officer of UnitedHealth Group Incorporated, certify that:

1. I have reviewed this annual report on Form 10-K of UnitedHealth Group Incorporated (the “registrant”);


	a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

	b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

	c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;


	a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

	b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and


†	Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, confidential portions of these Exhibits have been deleted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.


*	Denotes management contracts and compensation plans in which certain directors and named executive officers participate and which are being filed pursuant to Item 601(b)(10)(iii)(A) of Regulation S-K.

EX-3.(D) 3 c74996exv3wxdy.txt EX-3(D) SECOND AMENDED AND RESTATED BYLAWS EXHIBIT 3(d) SECOND AMENDED AND RESTATED BYLAWS OF UNITEDHEALTH GROUP INCORPORATED (Effective as of February 11, 2003) ARTICLE I OFFICES, CORPORATE SEAL Section 1.01. Registered Office. The registered office of the corporation in Minnesota shall be that set forth in the Restated Articles of Incorporation or in the most recent amendment of the Articles of Incorporation or resolution of the directors filed with the Secretary of State of Minnesota changing the registered office. Section 1.02. Other Offices. The corporation may have such other offices, within or without the State of Minnesota, as the directors shall, from time to time, determine. Section 1.03. Corporate Seal. The corporation shall have no seal. ARTICLE II MEETING OF SHAREHOLDERS Section 2.01. Place and Time of Meetings. Except as provided otherwise by Minnesota Statutes, Chapter 302A, meetings of the shareholders may be held at any place, within or without the State of Minnesota, or solely by remote communication (as defined in Section 301A.011(61) of the Minnesota Statutes) ("Remote Communication"), as may from time to time be designated by the directors and, in the absence of such designation, shall be held at the registered office of the corporation in the State of Minnesota. The directors shall designate the time of day for each meeting and, in the absence of such designation, every meeting of shareholders shall be held at ten o'clock a.m. Section 2.02. Regular Meetings. (a) A regular meeting of the shareholders shall be held on such date as the Board of Directors shall by resolution establish. (b) At a regular meeting of the shareholders, voting as provided in the Articles of Incorporation and these Bylaws, shall elect qualified successors for directors who serve for an indefinite term or whose terms have expired or are due to expire within six months after the date of the meeting and shall transact such other business as may properly come before them. Section 2.03. Special Meetings. Special meetings of the shareholders may be held at any time and for any purpose and may be called by the Chief Executive Officer, the Chairman of the Board, the Chief Financial Officer, any two directors, or by a shareholder or shareholders holding ten percent (10%) or more of the shares entitled to vote on the matters to be presented to the meeting, except that a special meeting of shareholders called for the purpose of considering any action to directly or indirectly facilitate or effect a business combination (as defined by Minnesota Law), including any action to change or otherwise affect the composition of the Board of Directors for that purpose, may not be called by less than twenty-five percent (25%) of the shares entitled to vote on the matters to be presented at the meeting. The Board of Directors may designate that the special meeting is to be held solely by Remote Communication. Section 2.04. Quorum, Adjourned Meetings. The holder of a majority of the shares entitled to vote shall constitute a quorum for the transaction of business at any regular or special meeting. In case a quorum shall not be present at a meeting, those present may adjourn the meeting to such day as they shall, by majority vote, agree upon, and a notice of such adjournment and the date and time at which such meeting shall be reconvened shall be mailed to each shareholder entitled to vote at least 5 days before such adjourned meeting. If a quorum is present, a meeting may be adjourned from time to time without notice other than announcement at the meeting. At adjourned meetings at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally noticed. If a quorum is present, the shareholders may continue to transact business until adjournment notwithstanding the withdrawal of enough shareholders to leave less than a quorum. Section 2.05. Voting. At each meeting of the shareholders, every shareholder having the right to vote shall be entitled to vote either in person or by proxy. Each shareholder, unless the Articles of Incorporation or statute provide otherwise, shall have one vote for each share having voting power registered in such shareholder's name on the books of the corporation. Jointly owned shares may be voted by any joint owner unless the corporation receives written notice from any one of them denying the authority of that person to vote those shares. Upon the demand of any shareholder, the vote upon any question before the meeting shall be by ballot. All questions shall be decided by the affirmative vote of the holders of a majority of the power of the shares present and entitled to vote on that item of business, except if otherwise required by statute, the Articles of the Incorporation, or these Bylaws. Section 2.06. Closing of Books. The Board of Directors may fix a time, not exceeding 60 days preceding the date of any meeting of shareholders, as a record date for the determination of the shareholders entitled to notice of, and to vote at, such meeting, notwithstanding any transfer of shares on the books of the corporation after any record date so fixed. The Board of Directors may close the books of the corporation against the transfer of shares during the whole or any part of such period. If the Board of Directors fails to fix a record date for determination of the shareholders entitled to notice of, and to vote at, any meeting of shareholders, the record date shall be the 20th day preceding the date of such meeting. Section 2.07. Notice of Meetings. There shall be mailed to each shareholder, shown by the books of the corporation to be a holder of record of voting shares, a notice setting out the time and place or information regarding Remote Communication, if applicable, of each regular and each special meeting, except where the meeting is an adjourned meeting and the date, time and place of the meeting were announced at the time of adjournment, which notice shall be mailed at least five days prior thereto; except that notice of a meeting at which an agreement of merger or exchange is to be considered shall be mailed to all shareholders of record, whether entitled to vote or not, at least fourteen days prior thereto. Every notice of any special meeting called pursuant to Section 2.03 hereof shall state the purpose or purposes for which the meeting has been called, and the business transacted at all special meetings shall be confined to the purpose stated in the notice. Notice may be given by means of mail, or if consented to by the shareholder in a manner that complies with the federal securities laws, facsimile, electronic mail, electronic posting, or any other form of electronic communication to which the shareholder has consented. 2 Section 2.08. Waiver of Notice. Notice of any regular or special meeting may be waived by any shareholder either before, at or after such meeting orally, by "authenticated" "electronic communication" (as defined under Sections 302A.011(62) and 302A.011(60), respectively, of the Minnesota Statutes), or in a writing signed by such shareholder or a representative entitled to vote the shares of such shareholder. A shareholder, by his attendance at any meeting of shareholders or by his participation by means of Remote Communication, shall be deemed to have waived notice of such meeting, except where the shareholder objects at the beginning of the meeting to the transaction of business because the item may not lawfully be considered at that meeting and does not participate in the consideration of the item at that meeting. Section 2.09. Written Action. Any action which might be taken at a meeting of the shareholders may be taken without a meeting if done in writing and signed, or consented to by "authenticated" "electronic communication" (as defined under Sections 302A.011(62) and 302A.011(60), respectively, of the Minnesota Statutes) by all of the shareholders entitled to vote on that action. Section 2.10. Business to be Brought Before the Meeting. A shareholder must provide 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 2.11. Remote Communication. To the extent authorized by the Board, a shareholder, not physically present in person or by means of proxy, may, by any means of Remote Communication, participate in a meeting of shareholders held at a designated place. Participation by a shareholder by that means constitutes presence at the meeting. ARTICLE III DIRECTORS Section 3.01. General Powers. The business and affairs of the corporation shall be managed by or under the direction of the Board of Directors, except as otherwise permitted by statute. 3 Section 3.02. Number, Election and Term of Office. a) The Board of Directors shall consist of one or more member, and the number of directors may be increased or decreased from time to time by the affirmative vote of a majority of directors present at a duly held meeting at the time the action is taken or the affirmative vote of the holders of a majority of the voting power of the shares present and entitled to vote on that item of business, considered for this purpose as one class. Except as otherwise provided by law or by these bylaws, the directors of the corporation shall be elected at the Annual Meeting of Shareholders in each year. Each of the directors shall hold office until the expiration of his term, as specified herein, and until such director's successor shall have been elected and shall qualify, or until the earlier death, resignation, or disqualification of such order. b) The Board of Directors of this corporation shall be divided into three classes, Class I, Class II, Class III, as nearly equal in number as possible. At each Annual Meeting of Shareholders, directors chosen to succeed those whose term is then expired, shall be elected for a term of office expiring at the third succeeding Annual Meeting of Shareholders after their election. In case of any increase or decrease in the number of directors, the increase or decrease shall be distributed among the several classes as nearly equal as possible, as shall be determined by the affirmative vote of a majority of directors present at a duly held meeting at the time the action is taken or by the affirmative vote of the holders of a majority of the voting power of the shares present and entitled to vote on that item of business. 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 capital stock of the corporation which are beneficially owned by each such nominee and by such shareholder; and (iv) such other information concerning each such nominee as would be required soliciting proxies for the election of such nominee. Such notice must also include a signed consent of each such nominee to serve as a director of the corporation, if elected. If the officer of the corporation presiding at an annual meeting of the shareholders determines that a director nomination was not made in accordance with the foregoing procedures, such nomination shall be void and shall be disregarded for all purposes. Section 3.04. Determination of Contested Elections. In the event that there are more candidates for election to the Board of Directors at a meeting of the shareholders than there are directors to be elected at such meeting (a "Contested Election"), the vote for election of directors shall be by ballot and the officer of the corporation presiding at the meeting shall appoint two persons, who need not be shareholders, to act as Inspectors of Election at such meeting. 4 The Inspectors so appointed, before entering on the discharge of their duties, shall take and subscribe on oath or affirmation faithfully to execute the duties of Inspectors at such meeting with strict impartiality and according to the best of their ability, and thereupon the Inspectors shall take charge of the polls and after the balloting shall canvas the votes and determine in accordance with law and make a certificate to the corporation of the results of the vote taken. No director or candidate for the office of director shall be appointed an Inspector. The nominees for election to the Board of Directors in a Contested Election who are certified by the Inspectors as having been elected shall be deemed to be duly elected and qualified upon the expiration of three business days following the date of such certification; provided that, in the event any court proceedings are commenced which challenge the results of such Contested Election, such nominees shall not be deemed to be duly elected and qualified until all such court proceedings, including appeals, shall have been finally concluded. Section 3.05. Chairman of the Board. The Board of Directors may elect from their number, a Chairman of the Board, who shall not be deemed an officer of the Corporation as a result of such title. The Chairman of the Board, if one is elected, shall preside at all meetings of the directors and shall have such other duties as may be prescribed, from time to time, by the Board of Directors. Section 3.06. Board Meetings. Meetings of the Board of Directors may be held from time to time at such time and place within or without the State of Minnesota or solely by Remote Communication as may be designated in the notice of such meeting. Section 3.07. Calling Meetings; Notice. Meetings of the Board of Directors may be called by the Chairman of the Board by giving at least twenty-four hours' notice, or by any other director by giving at least five days' notice, of the date, time and place or information regarding Remote Communication, if applicable, to each director in person or by mail, telephone, facsimile, electronic mail, electronic posting, or any other form of electronic communication. Section 3.08. Waiver of Notice. Notice of any meeting of the Board of Directors may be waived by any director either before, at, or after such meeting orally or in a writing signed by such director. A director, by his attendance at any meeting of the Board of Directors, shall be deemed to have waived notice of such meeting, except where the director objects at the beginning of the meeting to the transaction of business because the meeting is not lawfully called or convened and does not participate thereafter in the meeting. Section 3.09. Quorum. A majority of the directors holding office immediately prior to a meeting of the Board of Directors shall constitute a quorum for the transaction of business at such meeting. Section 3.10. Absent Directors. A director may give advance written or "authenticated" "electronic" (as defined under Sections 302A.011(62) and 302A.011(60), respectively, of the Minnesota Statutes) consent or opposition to a proposal to be acted on at a meeting of the Board of Directors. If such director is not present at the meeting, consent or opposition to a proposal does not constitute presence for purposes of determining the existence of a quorum, but consent or opposition shall be counted as a vote in favor of or against the proposal and shall be entered in the minutes or other record of action at the meeting, if the proposal acted on at the meeting is substantially the same or has substantially the same effect as the proposal to which the director has consented or objected. 5 Section 3.11. Remote Communication. Any or all directors may participate in any meeting of the Board of Directors, or of any duly constituted committee thereof, by means of telephone conference or, if authorized by the Board, by such other means of Remote Communication through which the directors may simultaneously participate with each other during such meeting. For the purposes of establishing a quorum and taking any action at the meeting, such directors participating pursuant to this Section 3.11 shall be deemed present in person at the meeting. Section 3.12. Vacancies: Newly Created Directorships. Vacancies in the Board of Directors of this corporation occurring by reason of death, resignation, removal or disqualification shall be filled for the unexpired term by a majority of the remaining directors of the Board although less than a quorum; newly created directorships resulting from an increase in the authorized number of directors by action of the Board of Directors as permitted by Section 3.02 may be filled by the affirmative vote of a majority of directors present at a duly held meeting at the time the action is taken. Section 3.13. Removal. Any or all of the directors may be removed from office at any time, with or without cause, by the affirmative vote of the holders of not less than 66-2/3 percent of the outstanding shares of Common Stock of the corporation or by the affirmative vote of 66-2/3 percent of the directors in office at the time the vote is taken. In the event that the entire Board or any one or more directors be so removed, new directors shall be elected at the same meeting. Section 3.14 Committees. A resolution approved by the affirmative vote of a majority of the Board of Directors may establish committees having the authority of the Board in the management of the business of the corporation to the extent provided in the resolution. A committee shall consist of one or more persons, who need not be directors, appointed by affirmative vote of a majority of the directors present. Committees are subject to the direction and control of the Board of Directors, except for special litigation committees, and vacancies in the membership thereof shall be filed by the Board of Directors. A majority of the members of the committee present at a meeting is a quorum for the transaction of business, unless a larger or smaller proportion or number is provided in a resolution approved by the affirmative vote of a majority of directors present. Section 3.15. Written Action. Any action which might be taken at a meeting of the Board of Directors, or any duly constituted committee thereof, may be taken without a meeting if done in writing and signed or consented to by "authenticated" "electronic communication" (as defined under Sections 302A.011(62) and 302A.011(60), respectively, of the Minnesota Statutes) by all of the directors or committee members, unless the Articles provide otherwise and the action need not be approved by the shareholders. Section 3.16. Compensation. Directors who are not salaried officers of this corporation shall receive such fixed sum per meeting attended or such fixed annual sum as shall be determined, from time to time, by resolution of the Board of Directors. The Board of Directors may, by resolution, provide that all directors shall receive their expenses, if any, of attendance at meetings of the Board of Directors or any committee thereof. Nothing herein contained shall be construed to preclude any director from serving this corporation in any other capacity and receiving proper compensation therefor. 6 ARTICLE IV OFFICERS Section 4.01. Number and Designation. The corporation shall have one or more natural persons exercising the functions of the offices of Chief Executive Officer and Chief Financial Officer. The Board of Directors may elect or appoint such other officers or agents as it deems necessary for the operation and management of the corporation, with such powers, rights, duties, and responsibilities as may be determined by the Board of Directors, including, without limitation, a President, one or more Vice Presidents, a Secretary, a Treasurer, and such assistant officers or other officers as may from time to time be elected or appointed by the Board of Directors. Each such officer shall have the powers, rights, duties and responsibilities set forth in these Bylaws unless otherwise determined by the Board of Directors. Any number of offices may be held by the same person. Section 4.02. Chief Executive Officer. Unless provided otherwise by a resolution adopted by the Board of Directors, the Chief Executive Officer: (a) shall have general active management of the business of the corporation; (b) shall, when present, preside at all meetings of the stockholders; (c) shall see that all orders and resolutions of the Board of Directors are carried into effect; (d) shall sign and deliver in the name of the corporation any deeds, mortgages, bonds, contracts or other instruments pertaining to the business of the corporation, except in cases in which the authority to sign and deliver is required by law to be exercised by another person or is expressly delegated by these Bylaws or the Board of Directors to some other officer or agent of the corporation; and (e) shall perform such other duties as from time to time may be assigned by the Board of Directors. Section 4.03. Chief Financial Officer. Unless provided otherwise by a resolution adopted by the Board of Directors, the Chief Financial Officer: (a) shall cause to be kept accurate financial records for the corporation; (b) shall cause to be deposited all monies, drafts, and checks in the name of and to the credit of the corporation in such banks and depositories as the Board of Directors shall designate from time to time; (c) shall cause to be endorsed for deposit all notes, checks and drafts received by the corporation as ordered by the Board of Directors, making proper vouchers therefor; (d) shall cause to be disbursed corporate funds and shall cause to be issued checks and drafts in the name of the corporation, as ordered by the Board of Directors; (e) shall render to the Chief Executive Officer and the Board of Directors, whenever requested, an account of all the transactions as Chief Financial Officer and of the financial condition of the corporation; and (f) shall perform such other duties as may be prescribed by the Board of Directors or the Chief Executive Officer from time to time. Section 4.04. President. Unless otherwise determined by the Board of Directors, the President shall be the Chief Executive Officer of the corporation. If an officer other than the President is designated Chief Executive Officer, the President shall perform such duties as may from time to time be assigned by the Board of Directors. Section 4.05. Vice President. Each Vice President shall perform such duties as may be prescribed from time to time by these Bylaws or by the Board of Directors. Section 4.06. Secretary. Unless provided otherwise by a resolution adopted by the Board of Directors, the Secretary: (a) shall attend all meetings of the stockholders and Board of Directors, and shall record all the proceedings of such meetings in the minute book of the corporation; (b) shall give proper notice of meetings of stockholders and Board of Directors and other notices required by law or these Bylaws; and (c) shall perform such other duties as from time to time may be assigned by the Board of Directors. 7 Section 4.07. Treasurer. The Treasurer shall perform such duties as may from time to time be assigned by the Chief Financial Officer or by the Board of Directors. Section 4.08. Authority and Duties. In addition to the foregoing authority and duties, all officers of the corporation shall respectively have such authority and perform such duties in the management of the business of the corporation as may be determined from time to time by the Board of Directors. Unless prohibited by a resolution of the Board of Directors, an officer elected or appointed by the Board of Directors may, without specific approval of the Board of Directors, delegate some or all of the duties and powers of an office to other persons. Section 4.09. Removal and Vacancies. The Board of Directors may remove any officer from office at any time, with or without cause, by a resolution approved by the affirmative vote of a majority of the directors present. Such removal, however, shall be without prejudice to the contract rights of the person so removed. A vacancy in an office of the corporation by reason of death, resignation, removal, disqualification, or otherwise may, or in the case of a vacancy in the office of the Chief Executive Officer or Chief Financial Officer shall, be filled for the unexpired term by the Board of Directors. Section 4.10. Compensation. The officers of this corporation shall receive such compensation for their services as may be determined by or in accordance with resolutions of the Board of Directors or by one or more committees to the extent so authorized from time to time by the Board of Directors. ARTICLE V SHARES AND THEIR TRANSFER Section 5.01. Certificates for Shares. The Board of Directors may authorize the issuance of stock either in certificated or uncertificated form. If shares are issued in uncertificated form, each stockholder shall be entitled upon written request to a stock certificate or certificates, representing and certifying the number and kind of full shares held, signed as provided in this Section 5.01. Certificates for shares of stock shall be in such form as the Board of Directors may from time to time prescribe. The certificates for such shares shall be numbered in the order in which they shall be issued and shall be signed, in the name of the corporation, by the Chief Executive Officer or the President and by the Secretary or an Assistant Secretary or by such officers as the Board of Directors may designate. If the certificate is signed by a transfer agent or registrar, such signatures of the corporate officers may be by facsimile if authorized by the Board of Directors. A certificate representing shares of this corporation shall contain on its face the information required by Minnesota Statutes, Section 302A.417, Subd. 4. A certificate representing shares issued by this corporation, if it is authorized to issue shares of more than one class or series, shall set forth upon the face or back of the certificate, or shall state that the corporation will furnish to any shareholder upon request and without charge, a full statement of the designations, preferences, limitations, and relative rights of the shares of each class or series authorized to be issued so far as they have been determined, and the authority of the Board of Directors to determine relative rights and preferences of subsequent classes or series. Every certificate surrendered to the corporation for exchange or transfer shall be canceled, and no new certificate or certificates shall be issued in exchange for any existing certificate until such existing certificate shall have been so canceled, except in cases provided for in Section 5.04. 8 Section 5.02. Issuance of Shares. The Board of Directors is authorized to cause to be issued shares of the corporation up to the full amount authorized by the Articles of Incorporation in such amounts as may be determined by the Board of Directors and as may be permitted by law. No shares shall be allotted except in consideration of cash or other property, tangible or intangible, received or to be received by the corporation under a written agreement, of services rendered or to be rendered to the corporation under a written agreement, or of an amount transferred from surplus to stated capital upon a share dividend. At the time of such allotment of shares, the Board of Directors making such allotments shall state, by resolution, their determination of the fair value to the corporation in monetary terms of any consideration other than cash for which shares are allotted. Section 5.03. Transfer of Shares. The shares of stock of the corporation shall be transferable on the books of the corporation by the holder thereof in person or by his or her attorney upon surrender for cancellation of a certificate or certificates for the same number of shares, or other evidence of ownership if no certificates shall have been issued, with an assignment and power of transfer endorsed thereon or attached thereto, duly executed, and with such proof of the validity of the signature as the corporation or its agents may reasonably require. The corporation may treat as the absolute owner of shares of the corporation, the person or persons in whose name shares are registered on the books of the corporation. The Board of Directors may appoint one or more transfer agents and registrars to maintain the share records of the corporation and to effect share transfers on its behalf. Section 5.04. Loss of Certificates. Except as otherwise provided by Minnesota Statutes, Section 302A.419, any shareholder claiming a certificate for shares to be lost, stolen or destroyed shall make an affidavit of that fact in such form as the Board of Directors shall require and shall, if the Board of Directors so requires, give the corporation a bond of indemnity in form, in an amount, and with one or more sureties satisfactory to the Board of Directors, to indemnify the corporation against any claim which may be made against it on account of the reissue of such certificate, whereupon a new certificate may be issued in the same tenor and for the same number of shares as the one alleged to have been lost, stolen or destroyed. ARTICLE VI DIVIDENDS, RECORD DATE Section 6.01. Dividends. Subject to the provisions of the Articles of Incorporation, of these Bylaws, and of law, the Board of Directors may declare dividends whenever, and in such amounts as, in its opinion, are deemed advisable. Section 6.02. Record Date. Subject to any provisions of the Articles of Incorporation, the Board of Directors may fix a date not exceeding 120 days preceding the date fixed for the payment of any dividend as the record date for the determination of the shareholders entitled to receive payment of the dividend and, in such case, only shareholders of record on the date so fixed shall be entitled to receive payment of such dividend notwithstanding any transfer of shares on the books of the corporation after the record date. If no record date is fixed, the record date shall be at the close of business on the day on which the Board of Directors adopts the resolution authorizing the payment of such dividend. 9 ARTICLE VII BOOKS AND RECORDS, FISCAL YEAR Section 7.01 Share Register. The Board of Directors of the corporation shall cause to be kept at its principal executive office, or at another place or places within the United States determined by the board: (1) a share register not more than one year old, containing the names and addresses of the shareholders and the number and classes of shares held by each shareholder; and (2) a record of the dates on which certificates or transaction statements representing shares were issued. Section 7.02. Other Books and Records. The Board of Directors shall cause to be kept at its principal executive office, or, if its principal executive office is not in Minnesota, shall make available at its registered office within ten days after receipt by an officer of the corporation of a written demand for them made by a shareholder or other person authorized by Minnesota Statutes Section 302A.461, originals or copies of: (1) records of all proceedings of shareholders for the last three years; (2) records of all proceedings of the board for the last three years; (3) its articles and all amendments currently in effect; (4) its bylaws and all amendments currently in effect; (5) financial statements required by Minnesota Statutes, Section 302A.463, and the financial statement for the most recent interim period prepared in the course of the operation of the corporation for distribution to the shareholders or to a governmental agency as a matter of public record; (6) reports made to shareholders generally within the last three years; (7) a statement of the names and usual business addresses of its directors and principal officers; (8) voting trust agreements described in Section 302A.453; and (9) shareholder control agreements described in Section 302A.457. Section 7.03. Fiscal Year. The fiscal year of the corporation shall be determined by the Board of Directors. 10 ARTICLE VIII LOANS, GUARANTEES, SURETYSHIP Section 8.01. The corporation may lend money to, guarantee an obligation of, become a surety for, or otherwise financially assist a person if the transaction, or a class of transactions to which the transaction belongs, is approved by the affirmative vote of a majority of the directors present and: (1) is in the usual and regular course of business of the corporation; (2) is with, or for the benefit of, a related corporation, an organization in which the corporation has a financial interest, an organization with which the corporation has a business relationship, or an organization to which the corporation has the power to make donations; (3) is with, or for the benefit of, an officer or other employee of the corporation or a subsidiary, including an officer or employee who is a director of the corporation or a subsidiary, and may reasonably be expected, in the judgement of the board, to benefit the corporation; or (4) whether or not any separate consideration has been paid or promised to the corporation, has been approved by (a) the holders of two-thirds of the voting power of the shares entitled to vote that are owned by persons other than the interested person or persons, or (b) the unanimous affirmative vote of the holders of all outstanding shares, whether or not entitled to vote. The loan, guarantee, surety contract or other financial assistance may be with or without interest, and may be unsecured, or may be secured in the manner as a majority of the directors approve, including, without limitation, a pledge of or other security interest in shares of the corporation. Nothing in this section shall be deemed to deny, limit, or restrict the powers of guaranty or warranty of the corporation at common law or under a statute of the State of Minnesota. ARTICLE IX INDEMNIFICATION OF CERTAIN PERSONS Section 9.01. The corporation shall indemnify such persons, for such expenses and liabilities, in such manner, under such circumstances, and to such extent as permitted by Minnesota Statutes, Section 302A.521, as now enacted or hereafter amended. ARTICLE X AMENDMENTS Section 10.01. These Bylaws may be amended or altered by the affirmative vote of a majority of directors present at a duly held meeting provided that notice of such proposed amendment shall have been given in the notice given to the directors of such meeting. Such authority in the Board of Directors is subject to the power of the shareholders to change or repeal such Bylaws by the affirmative vote of the holders of a majority of the voting power of the shares present and entitled to vote at any regular or special meeting of shareholders called for such purpose, and the Board of Directors shall not make or alter any Bylaws fixing a quorum for meetings of shareholders, prescribing procedures for removing directors or filling vacancies in the Board of Directors, or fixing the number of directors or their classifications, qualifications, or terms of office, except that the Board of Directors may adopt or amend any Bylaw to increase their number. 11 ARTICLE XI SECURITIES OF OTHER CORPORATIONS Section 11.01. Voting Securities Held by the Corporation. Unless otherwise ordered by the Board of Directors, the Chief Executive Officer shall have full power and authority on behalf of the corporation (a) to attend any meeting of security holders of other corporations in which the corporation may hold securities and to vote such securities on behalf of this corporation; (b) to execute any proxy for such meeting on behalf of the corporation; or (c) to execute a written action in lieu of a meeting of such other corporation on behalf of this corporation. At such meeting, the Chief Executive officer shall possess and may exercise any and all rights and powers incident to the ownership of such securities that the corporation possesses. The Board of Directors or the Chief Executive Officer may, from time to time, grant such power and authority to one or more other persons. Section 11.02. Purchase and Sale of Securities. Unless otherwise ordered by the Board of Directors, the Chief Executive Officer shall have full power and authority on behalf of the corporation to purchase, sell, transfer or encumber any and all securities of any other corporation owned by the corporation, and may execute and deliver such documents as may be necessary to effectuate such purchase, sale, transfer or encumbrance. The Board of Directors or the Chief Executive Officer may, from time to time, confer like powers upon any other person or persons. ARTICLE XII CERTAIN BUSINESS COMBINATIONS WITH INTERESTED SHAREHOLDERS Section 12.01. Pursuant to the authority provided by Section 302A.673, Subd. 3(b)(2), of the Minnesota Business Corporation Act, this corporation elects not to be subject to Section 302A.673 of said Act. 12 EX-10.(A) 4 c74996exv10wxay.txt EX-10(A) 2002 STOCK INCENTIVE PLAN EXHIBIT 10(a) UNITEDHEALTH GROUP INCORPORATED 2002 STOCK INCENTIVE PLAN (Amended and Restated May 15, 2002) SECTION 1. PURPOSE; ADOPTION; EFFECT ON PRIOR PLANS. (a) Purpose. The purpose of the UnitedHealth Group Incorporated 2002 Stock Incentive Plan (the "Plan") is to aid in attracting and retaining employees, management personnel and other personnel and members of the Board of Directors who are not also employees ("Non-Employee Directors") of UnitedHealth Group Incorporated (the "Company") capable of assuring the future success of the Company, to offer such personnel and Non-Employee Directors incentives to put forth maximum efforts for the success of the Company's business and to afford such personnel and Non-Employee Directors an opportunity to acquire a proprietary interest in the Company. (b) Adoption. The Company hereby adopts the Plan, subject to approval by the shareholders of the Company. As so established and approved, the Plan shall be known as the "2002 Stock Incentive Plan." (c) Effect on Prior Plans. On the effective date of the Plan determined in accordance with Section 10 of the Plan (the "Effective Date"), for purposes of administration and share accounting pursuant to Sections 3 and 4 of the Plan, the following plans of the Company, each as previously amended (collectively, the "Prior Plans"), shall be considered to be incorporated in the Plan: (i) United HealthCare Corporation 1991 Stock and Incentive Plan; (ii) United HealthCare Corporation 1998 Broad-Based Stock Incentive Plan; and (iii) UnitedHealth Group Incorporated Nonemployee Director Stock Option Plan. All outstanding options, restricted stock and other awards issued under the Prior Plans shall remain subject to the terms and conditions of the plans under which they were issued, but shares of stock relating to outstanding options, restricted stock or other awards issued under the Prior Plans are considered shares of stock subject to the Plan under Section 4 of the Plan. From and after the Effective Date of the Plan, no further awards shall be made under the Prior Plans. SECTION 2. DEFINITIONS. As used in the Plan, the following terms shall have the meanings set forth below: (a) "Affiliate" shall mean (i) any entity that, directly or indirectly through one or more intermediaries, is controlled by the Company and (ii) any entity in which the Company has a significant equity interest, as determined by the Committee. (b) "Award" shall mean any Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, Performance Award or Other Stock-Based Award granted under the Plan. (c) "Award Agreement" shall mean any written certificate, agreement, contract or other instrument or document evidencing any Award granted under the Plan. -1- (d) "Change in Control" shall have the meaning ascribed to such term in any Award Agreement. (e) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, and any regulations promulgated thereunder. (f) "Committee" shall mean a committee of the Board of Directors of the Company designated by such Board to administer the Plan and composed of not less than two directors. To the extent required by Section 162(m) of the Code, the Committee shall be composed solely of two or more "outside directors" within the meaning of Section 162(m) of the Code. (g) "Eligible Person" shall mean any employee, officer, director (including any Non-Employee Director), consultant (including, without limitation, any Affiliate) or independent contractor providing services to the Company or any Affiliate who the Committee determines to be an Eligible Person. (h) "Fair Market Value" shall mean, with respect to any property (including, without limitation, any Shares or other securities), the fair market value of such property determined by such methods or procedures as shall be established from time to time by the Committee. Notwithstanding the foregoing, for purposes of the Plan, the Fair Market Value of Shares on a given date shall be, if the Shares are then traded on the New York Stock Exchange, the closing price of the Shares as reported on the New York Stock Exchange on such date or, if the New York Stock Exchange is not open for trading on that date, on the most recent preceding date when the New York Stock Exchange was open for trading. (i) "Incentive Stock Option" shall mean an option granted under Section 6(a) of the Plan that is intended to meet the requirements of Section 422 of the Code or any successor provision. (j) "Non-Qualified Stock Option" shall mean an option granted under Section 6(a) of the Plan that is not an Incentive Stock Option. (k) "Option" shall mean an Incentive Stock Option or a Non-Qualified Stock Option. (l) "Other Stock-Based Award" shall mean any right granted under Section 6(e) of the Plan. (m) "Participant" shall mean an Eligible Person designated to be granted an Award under the Plan. (n) "Performance Award" shall mean any right granted under Section 6(d) of the Plan. (o) "Person" shall mean any individual, corporation, limited liability company, partnership, association or trust. -2- (p) "Qualifying Termination" shall mean a termination of employment under circumstances that, in the judgment of the Committee, warrant acceleration of the exercisability of Options or the lapse of restrictions relating to Restricted Stock or Restricted Stock Units. (q) "Restricted Stock" shall mean any Share granted under Section 6(c) of the Plan. (r) "Restricted Stock Unit" shall mean any unit granted under Section 6(c) of the Plan evidencing the right to receive a Share (or a cash payment equal to the Fair Market Value of a Share) at some future date. (s) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934. (t) "Shares" shall mean shares of Common Stock, $.01 par value, of the Company or such other securities or property as may become subject to Awards pursuant to an adjustment made under Section 7(c) of the Plan. (u) "Stock Appreciation Right" shall mean any right granted under Section 6(b) of the Plan. SECTION 3. ADMINISTRATION. (a) Power and Authority of the Committee. The Plan shall be administered by the Committee. Subject to the terms of the Plan and applicable law, the Committee shall have full power and authority to: (i) designate Participants; (ii) determine the type or types of Awards to be granted to each Participant under the Plan; (iii) determine the number of Shares to be covered by (or with respect to which payments, rights or other matters are to be calculated in connection with) each Award; (iv) determine the terms and conditions of any Award or Award Agreement; (v) amend the terms and conditions of any Award or Award Agreement and accelerate the exercisability of Options or the lapse of restrictions relating to Restricted Stock or Restricted Stock Units; provided, however, that any such acceleration of exercisability or lapse of restrictions shall be limited to accelerations relating to a Change in Control, a Qualifying Termination, death or disability; (vi) determine whether, to what extent and under what circumstances Awards may be exercised in cash, Shares, other securities, other Awards or other property, or canceled, forfeited or suspended; (vii) determine whether, to what extent and under what circumstances cash, Shares, other securities, other Awards, other property and other amounts payable with respect to an Award under the Plan shall be deferred either automatically or at the election of the holder thereof or the Committee; (viii) interpret and administer the Plan and any instrument or agreement relating to, or Award made under, the Plan; (ix) establish, amend, suspend or waive such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the Plan; and (x) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan. Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations and other decisions under or with respect to the Plan or any Award shall be within the sole discretion of the Committee, may be made at any time and shall be final, conclusive and binding upon any Participant, any holder or beneficiary of any Award and any employee of the Company or any Affiliate. -3- (b) Delegation. The Committee may delegate to one or more officers of the Company or any Affiliate, or a committee of such officers, the authority, subject to such terms and limitations as the Committee shall determine, to grant Awards to Eligible Persons who are not officers or directors of the Company for purposes of Section 16 of the Securities Exchange Act of 1934, as amended. The Committee shall not delegate its powers and duties under the Plan in any manner that would cause the Plan not to comply with the requirements of Section 162(m) of the Code. SECTION 4. SHARES AVAILABLE FOR AWARDS. (a) Shares Available. Subject to adjustment as provided in Sections 4(b), 4(c) and 7(c), the total number of Shares available for granting Awards under the Plan shall be 74,766,734 (41,573,050 of which were previously authorized and subject to outstanding Awards under the Prior Plans, and 33,193,684 of which were previously authorized and available for grant under the Prior Plans); provided, however, that the total number of Shares authorized under the Plan shall be deemed to be reduced automatically, as of the Effective Date of the Plan, by that number of Shares that were subject to outstanding awards under the Prior Plans, as of April 1, 2002, that are no longer subject to outstanding awards as of the Effective Date of the Plan. Not more than 7,000,000 of such Shares, subject to adjustment as provided in Section 7(c) of the Plan, will be available for granting any types of Awards other than Awards of Options or Stock Appreciation Rights; provided, however, that any Shares covered by an Award that is not an Option or Stock Appreciation Rights that are forfeited shall again be available for purposes of the foregoing limitation. If any Shares covered by an Award or to which an Award relates are not purchased or are forfeited, or if an Award otherwise terminates without delivery of any Shares, then the number of Shares counted against the aggregate number of Shares available under the Plan with respect to such Award, to the extent of any such forfeiture or termination, shall again be available for granting Awards under the Plan. In addition, if any Shares are used by a Participant as full or partial payment to the Company of the purchase price relating to an Award, whether by actual delivery or attestation, or in connection with satisfaction of tax obligations relating to an Award, whether by actual delivery, attestation or having shares withheld from the Award, only the number of Shares issued net of the Shares tendered or withheld shall be deemed delivered for purposes of determining the maximum number of Shares available for granting of Awards under the Plan. For purposes of the previous two sentences, the term "Award" shall explicitly include any awards outstanding under the Prior Plans as of the Effective Date of the Plan. (b) Adjustment of Shares Available in Event of Certain Acquisitions. If the Company issues Shares as consideration for a business acquisition by it or any of its subsidiaries, the number of shares available for granting Awards under the Plan as set forth in the first sentence of Section 4(a) shall be increased by a number of Shares determined pursuant to the following formula: Increase = 74,766,734 x (a/b), -4- where: a = the number of Shares issued as consideration for such business acquisition, and b = the number of Shares outstanding immediately before such business acquisition. Notwithstanding the foregoing, the adjustment provided for in this Section 4(b) shall not be made unless the Company determines, at or before the time such business acquisition is consummated, that options or other stock-based awards will not continue to be granted, following such business acquisition, under any plan of the acquired business which is assumed by the Company by contract or by operation of law. (c) Accounting for Awards. For purposes of this Section 4, if an Award entitles the holder thereof to receive or purchase Shares, the number of Shares covered by such Award or to which such Award relates shall be counted on the date of grant of such Award against the aggregate number of Shares available for granting Awards under the Plan. Such Shares may again become available for granting Awards under the Plan pursuant to the provisions of Section 4(a) of the Plan, subject to the limitations set forth in Section 4(e) of the Plan. (d) Incentive Stock Options. Notwithstanding the foregoing, the number of Shares available for granting Incentive Stock Options under the Plan shall not exceed 33,000,000, subject to adjustment as provided in Section 7(c) of the Plan and Sections 422 or 424 of the Code or any successor provisions. (e) Award Limitations Under the Plan. No Eligible Person may be granted any Award or Awards, the value of which Awards are based solely on an increase in the value of the Shares after the date of grant of such Awards, for more than 5,000,000 Shares (subject to adjustment as provided in Section 7(c) of the Plan), in the aggregate, in any calendar year beginning with the year commencing January 1, 2002. The foregoing limitation specifically includes the grant of any "qualified performance-based" Awards within the meaning of Section 162(m) of the Code. SECTION 5. ELIGIBILITY. Any Eligible Person, including any Eligible Person who is an officer or director of the Company or any Affiliate, shall be eligible to be designated a Participant; provided, however, that an Incentive Stock Option may be granted only to full-time or part-time employees (which term as used herein includes, without limitation, officers and directors who are also employees), and an Incentive Stock Option shall not be granted to an employee of an Affiliate unless the Affiliate is also a "subsidiary corporation" of the Company within the meaning of Section 424(f) of the Code or any successor provision. SECTION 6. AWARDS. (a) Options. The Committee is hereby authorized to grant Options to Participants with the following terms and conditions and with such additional terms and conditions not inconsistent with the provisions of the Plan as the Committee shall determine: -5- (i) Exercise Price. The purchase price per Share purchasable under an Option shall be determined by the Committee; provided, however, that such purchase price shall not be less than 100% of the Fair Market Value of a Share on the date of grant of such Option. (ii) Option Term. The term of each Option shall be fixed by the Committee at the time of grant but in no event shall any Option have a term of more than 10 years. (iii) Time and Method of Exercise. The Committee shall determine the time or times at which an Option may be exercised in whole or in part and the method or methods by which, and the form or forms (including, without limitation, cash, loans, Shares previously owned by the Participant, other securities, other Awards or other property, or any combination thereof, having a Fair Market Value on the exercise date equal to the relevant exercise price) in which, payment of the exercise price with respect thereto may be made or deemed to have been made. Any Shares previously owned by a Participant referred to in the preceding sentence must have been owned by the Participant for no less than six months prior to the date of exercise of the Option if such Shares were acquired upon the exercise of another Option or upon the vesting of Restricted Stock or Restricted Stock Units. (iv) Reload Options. The Committee may grant "reload" Options, separately or together with another Option, pursuant to which, subject to the terms and conditions established by the Committee and any applicable requirements of Rule 16b-3 or any other applicable law or regulation, the Participant would be granted a new Option when the payment of the exercise price of a previously granted Option is made by the delivery or attestation of shares of the Company's Common Stock owned by the Participant pursuant to Section 6(a)(iii) hereof or the relevant provisions of another plan of the Company, and/or when shares of the Company's Common Stock are tendered, attested or forfeited as payment of the amount to be withheld under applicable tax laws in connection with the exercise of an option, which new Option would be an option to purchase the number of Shares not exceeding the sum of (A) the number of shares of the Company's Common Stock provided as consideration upon the exercise of the previously granted Option to which such "reload" Option relates and (B) the number of shares of the Company's Common Stock tendered, attested or forfeited as payment of the amount to be withheld under applicable tax laws in connection with the exercise of the Option to which such "reload" Option relates. "Reload" Options may be granted with respect to Options granted under this Plan or any other stock option plan of the Company or any of its Affiliates (which shall explicitly include plans assumed by the Company in connection with mergers, combinations and similar transactions). Such "reload" Options shall have a term that shall not extend beyond the term of the previously granted Option to which the "reload" Option relates and shall have a per share exercise price equal to the Fair Market Value as of the date of grant of the new Option. Any such "reload" Options shall be subject to the availability of sufficient shares for grant under the Plan. (v) Elective Deferral. The Committee may from time to time establish procedures pursuant to which a Participant may elect to defer, until a time or times later than the exercise of an Option, receipt of all or a portion of the Shares subject to such -6- Option, all on such terms and conditions as the Committee shall determine. If any such deferrals are permitted, then a Participant who elects such deferral shall not have any rights as a shareholder with respect to such deferred Shares unless and until Shares actually are delivered to the Participant with respect thereto, except to the extent otherwise determined by the Committee. (b) Stock Appreciation Rights. The Committee is hereby authorized to grant Stock Appreciation Rights to Participants subject to the terms of the Plan and any applicable Award Agreement. A Stock Appreciation Right granted under the Plan shall confer on the holder thereof a right to receive upon exercise thereof the excess of (i) the Fair Market Value of one Share on the date of exercise (or, if the Committee shall so determine, at any time during a specified period before or after the date of exercise) over (ii) the grant price of the Stock Appreciation Right as specified by the Committee, which price shall not be less than 100% of the Fair Market Value of one Share on the date of grant of the Stock Appreciation Right. Subject to the terms of the Plan and any applicable Award Agreement, the grant price, term, methods of exercise, dates of exercise, methods of settlement and any other terms and conditions of any Stock Appreciation Right shall be as determined by the Committee. The Committee may impose such conditions or restrictions on the exercise of any Stock Appreciation Right as it may deem appropriate. (c) Restricted Stock and Restricted Stock Units. The Committee is hereby authorized to grant Awards of Restricted Stock and Restricted Stock Units to Participants with the following terms and conditions and with such additional terms and conditions not inconsistent with the provisions of the Plan as the Committee shall determine: (i) Restrictions. Shares of Restricted Stock and Restricted Stock Units shall be subject to such restrictions as the Committee may impose (including, without limitation, any limitation on the right to vote a Share of Restricted Stock or the right to receive any dividend or other right or property with respect thereto), which restrictions may lapse separately or in combination at such time or times, in such installments or otherwise as the Committee may deem appropriate. Except as otherwise provided herein, Awards of Restricted Stock and Restricted Stock Units shall contain restrictions that lapse no sooner than three years following the date of grant or, in the case of Awards with performance-based vesting provisions, no sooner than one year following the date of grant; provided, however, that restrictions may lapse sooner than such dates as to portions of such Awards so long as restrictions as to the total number of Shares covered by such Awards do not lapse sooner than such dates; and provided, further, that such limitations shall not apply to Awards granted to new employees as part of initial terms of employment or Awards granted to new or existing employees in connection with the acquisition of businesses or assets by the Company. (ii) Forfeiture; Delivery of Shares. Except as otherwise determined by the Committee, upon termination of employment (as determined under criteria established by the Committee) during the applicable restriction period, all Shares of Restricted Stock and all Restricted Stock Units at such time subject to restriction shall be forfeited and reacquired by the Company; provided, however, that the Committee may, when it finds that a waiver would be in the best interest of the Company, including, without limitation, -7- in connection with Changes in Control, Qualifying Terminations, death or disability, waive in whole or in part any or all remaining restrictions with respect to Shares of Restricted Stock or Restricted Stock Units. In the case of Restricted Stock, Shares shall be issued at the time such Awards are granted and may be certificated or uncertificated. Shares representing Restricted Stock that is no longer subject to restrictions shall be delivered to the holder thereof promptly after the applicable restrictions lapse or are waived. In the case of Restricted Stock Units, no Shares shall be issued at the time such Awards are granted. Upon the lapse or waiver of restrictions and the restricted period relating to Restricted Stock Units evidencing the right to receive Shares, such Shares shall be issued and delivered to the holders of the Restricted Stock Units. The Committee may from time to time establish procedures pursuant to which a Participant may elect to defer, until a time or times later than the end of the restricted period relating to Restricted Stock Units, receipt of all or a portion of the Shares subject to such Restricted Stock Units, all on such terms and conditions as the Committee shall determine. (d) Performance Awards. The Committee is hereby authorized to grant Performance Awards to Eligible Persons subject to the terms of the Plan and any applicable Award Agreement. A Performance Award granted under the Plan (i) may be denominated or payable in cash, Shares (including, without limitation, Restricted Stock or Restricted Stock Units), other securities, other Awards or other property and (ii) shall confer on the holder thereof the right to receive payments, in whole or in part, upon the achievement of such performance goals during such performance periods as the Committee shall establish. Subject to the terms of the Plan and any applicable Award Agreement, the performance goals to be achieved during any performance period, the length of any performance period, the amount of any Performance Award granted, the amount of any payment or transfer to be made pursuant to any Performance Award and any other terms and conditions of any Performance Award shall be determined by the Committee. Notwithstanding the immediately preceding sentence, the length of a performance period shall not be less than one (1) year. (e) Other Stock-Based Awards. The Committee is hereby authorized to grant to Participants such other Awards that are denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to, Shares (including, without limitation, securities convertible into Shares), as are deemed by the Committee to be consistent with the purpose of the Plan; provided, however, that such grants must comply with applicable law. Subject to the terms of the Plan and any applicable Award Agreement, the Committee shall determine the terms and conditions of such Awards; provided, however, that any Awards granted pursuant to this Section either (i) shall be granted at no less than 100% of the Fair Market Value on the date of grant, or (ii) shall not exceed 5% of the aggregate number of Shares available for grant under the Plan. Shares or other securities delivered pursuant to a purchase right granted under this Section 6(e) shall be purchased for such consideration, which may be paid by such method or methods and in such form or forms (including without limitation, cash, loans, Shares, other securities, other Awards or other property or any combination thereof), as the Committee shall determine, the value of which consideration, as established by the Committee, shall not be less than 100% of the Fair Market Value of such Shares or other securities as of the date such purchase right is granted. -8- (f) General. (i) Consideration for Awards. Awards may be granted for no cash consideration or for any cash or other consideration as may be determined by the Committee or required by applicable law. (ii) Awards May Be Granted Separately or Together. Awards may, in the discretion of the Committee, be granted either alone or in addition to, in tandem with or in substitution for any other Award or any award granted under any plan of the Company or any Affiliate other than the Plan. Awards granted in addition to or in tandem with other Awards or in addition to or in tandem with awards granted under any such other plan of the Company or any Affiliate may be granted either at the same time as or at a different time from the grant of such other Awards or awards. (iii) Forms of Payment Under Awards. Subject to the terms of the Plan and of any applicable Award Agreement, payments or transfers to be made by the Company or an Affiliate upon the grant, exercise or payment of an Award may be made in such form or forms as the Committee shall determine (including, without limitation, cash, Shares, other securities, other Awards or other property or any combination thereof), and may be made in a single payment or transfer, in installments or on a deferred basis, in each case in accordance with rules and procedures established by the Committee. Such rules and procedures may include, without limitation, provisions for the payment or crediting of reasonable interest on installment or deferred payments. (iv) Limits on Transfer of Awards. No Award and no right under any such Award shall be transferable by a Participant otherwise than by will or by the laws of descent and distribution or pursuant to a qualified domestic relations order as defined by the Code or Title I of the Employee Retirement Income Security Act or the rules promulgated thereunder; provided, however, that, if so determined by the Committee, a Participant may, in the manner established by the Committee, designate a beneficiary or beneficiaries to exercise the rights of the Participant and receive any property distributable with respect to any Award upon the death of the Participant; and provided, further, that except in the case of an Incentive Stock Option, Awards may be transferable as specifically provided in any applicable Award Agreement or amendment thereto pursuant to terms determined by the Committee. Except as otherwise provided in any applicable Award Agreement or amendment thereto (other than an Award Agreement relating to an Incentive Stock Option), pursuant to terms determined by the Committee, each Award or right under any Award shall be exercisable during the Participant's lifetime only by the Participant or, if permissible under applicable law, by the Participant's guardian or legal representative. Any Award which is transferred pursuant to a qualified domestic relations order or as otherwise permitted by the Plan and the applicable Award Agreement shall remain subject to the terms and conditions set forth in the Award Agreement and the Plan. Except as otherwise provided in any applicable Award Agreement or amendment thereto (other than an Award Agreement relating to an Incentive Stock Option), no Award or right under any such Award may be pledged, alienated, attached or otherwise encumbered, and any purported pledge, alienation, -9- attachment or encumbrance thereof shall be void and unenforceable against the Company or any Affiliate. (v) Term of Awards. The term of each Award shall be for such period as may be determined by the Committee at the time of grant but in no event shall any Award have a term of more than 10 years. (vi) Restrictions; Securities Exchange Listing. All certificates for Shares or other securities delivered under the Plan pursuant to any Award or the exercise thereof shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan or the rules, regulations and other requirements of the Securities and Exchange Commission and any applicable federal or state securities laws, and the Committee may cause a legend or legends to be placed on any such certificates to make appropriate reference to such restrictions. If the Shares or other securities are traded on a securities exchange, the Company shall not be required to deliver any Shares or other securities covered by an Award unless and until such Shares or other securities have been admitted for trading on such securities exchange. SECTION 7. AMENDMENT AND TERMINATION; ADJUSTMENTS. Except to the extent prohibited by applicable law and unless otherwise expressly provided in an Award Agreement or in the Plan: (a) Amendments to the Plan. The Board of Directors of the Company may amend, alter, suspend, discontinue or terminate the Plan at any time and from time to time; provided, however, that, notwithstanding any other provision of the Plan or any Award Agreement, without the approval of the shareholders of the Company, no such amendment, alteration, suspension, discontinuation or termination shall be made that, absent such approval, would violate any rules or regulations of the New York Stock Exchange, any other securities exchange or the National Association of Securities Dealers, Inc. that are applicable to the Company. Furthermore, shareholder approval shall be required for any amendments to the Plan which would (i) materially increase the benefits accruing to Participants; (ii) materially increase the number of securities which may be issued under the Plan; or (iii) materially modify the requirements for participation under the Plan. (b) Amendments to Awards. Except as otherwise explicitly provided herein, the Committee may waive any conditions of or rights of the Company under any outstanding Award, prospectively or retroactively. The Committee may not amend, alter, suspend, discontinue or terminate any outstanding Award, prospectively or retroactively, without the consent of the Participant or holder or beneficiary thereof, except as otherwise herein provided. Except as provided in Section 7(c) hereof, no Option may be amended to reduce its initial exercise price, and no Option shall be canceled and replaced with an Option or Options having a lower exercise price, without the approval of the shareholders of the Company. -10- (c) Adjustments. In the event that any dividend or other distribution (whether in the form of cash, Shares, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of Shares or other securities of the Company or other similar corporate transaction or event affecting the Shares would be reasonably likely to result in the diminution or enlargement of any of the benefits or potential benefits intended to be made available under the Plan or under an Award (including, without limitation, the benefits or potential benefits of provisions relating to the term, vesting or exercisability of any Option, the availability of any tandem Stock Appreciation Rights or "reload" Option rights, if any, contained in any Option Award, and any Change in Control or similar provisions of any Award), the Committee shall, in such manner as it shall deem equitable or appropriate in order to prevent such diminution or enlargement of any such benefits or potential benefits, adjust any or all of (i) the number and type of Shares (or other securities or other property) which thereafter may be made the subject of Awards, (ii) the number and type of Shares (or other securities or other property) subject to outstanding Awards and (iii) the purchase or exercise price with respect to any Award; provided, however, that the number of Shares covered by any Award or to which such Award relates shall always be a whole number. (d) Correction of Defects, Omissions and Inconsistencies. The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award in the manner and to the extent it shall deem desirable to carry the Plan into effect. SECTION 8. INCOME TAX WITHHOLDING. In order to comply with all applicable federal, state or local income tax laws or regulations, the Company may take such action as it deems appropriate to ensure that all applicable federal, state or local payroll, withholding, income or other taxes, which are the sole and absolute responsibility of a Participant, are withheld or collected from such Participant. In order to assist a Participant in paying all federal and state taxes to be withheld or collected upon exercise or receipt of (or the lapse of restrictions relating to) an Award, the Committee, in its discretion and subject to such additional terms and conditions as it may adopt, may permit the Participant to satisfy such tax obligation by (i) electing to have the Company withhold a portion of the Shares otherwise to be delivered upon exercise or receipt of (or the lapse of restrictions relating to) such Award with a Fair Market Value equal to the amount of such taxes (but only to the extent of the minimum amount required to be withheld under applicable laws or regulations) or (ii) delivering to the Company Shares other than Shares issuable upon exercise or receipt of (or the lapse of restrictions relating to) such Award with a Fair Market Value equal to the amount of such taxes (but only to the extent of the minimum amount required to be withheld under applicable laws or regulations). The election, if any, must be made on or before the date that the amount of tax to be withheld is determined. In addition, the Committee, in its discretion and subject to such additional terms and conditions as it may adopt, may permit a Participant to satisfy any additional tax that the Participant elects to have the Company withhold by delivering or attesting to Shares previously owned by the Participant with a Fair Market Value equal to the amount of such additional tax, which Shares, if acquired pursuant to another Award, shall have been owned by the Participant for no less than six months. -11- SECTION 9. GENERAL PROVISIONS. (a) No Rights to Awards. No Eligible Person, Participant or other Person shall have any claim to be granted any Award under the Plan, and there is no obligation for uniformity of treatment of Eligible Persons, Participants or holders or beneficiaries of Awards under the Plan. The terms and conditions of Awards need not be the same with respect to different Participants. (b) Award Agreements. No Participant will have rights under an Award granted to such Participant unless and until an Award Agreement shall have been duly executed on behalf of the Company. (c) No Limit on Other Compensation Arrangements. Nothing contained in the Plan shall prevent the Company or any Affiliate from adopting or continuing in effect other or additional compensation arrangements, and such arrangements may be either generally applicable or applicable only in specific cases. (d) No Right to Employment, etc. The grant of an Award shall not be construed as giving a Participant the right to be retained in the employ, or as giving a Non-Employee Director the right to continue as a director, of the Company or any Affiliate. In addition, the Company or an Affiliate may at any time dismiss a Participant from employment, or terminate the term of a Non-Employee Director, free from any liability or any claim under the Plan, unless otherwise expressly provided in the Plan or in any Award Agreement. (e) Governing Law. The validity, construction and effect of the Plan and any rules and regulations relating to the Plan shall be determined in accordance with the laws of the State of Minnesota. (f) Severability. If any provision of the Plan or any Award is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Committee, materially altering the purpose or intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction or Award, and the remainder of the Plan or any such Award shall remain in full force and effect. (g) No Trust or Fund Created. Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Affiliate and a Participant or any other Person. To the extent that any Person acquires a right to receive payments from the Company or any Affiliate pursuant to an Award, such right shall be no greater than the right of any unsecured general creditor of the Company or any Affiliate. (h) No Fractional Shares. No fractional Shares shall be issued or delivered pursuant to the Plan or any Award, and the Committee shall determine whether cash shall be paid in lieu of any fractional Shares or whether such fractional Shares or any rights thereto shall be canceled, terminated or otherwise eliminated. -12- (i) Headings. Headings are given to the Sections and subsections of the Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Plan or any provision thereof. (j) Section 16 Compliance. The Plan is intended to comply in all respects with Rule 16b-3 or any successor provision, as in effect from time to time, and in all events the Plan shall be construed in accordance with the requirements of Rule 16b-3. If any Plan provision does not comply with Rule 16b-3 as hereafter amended or interpreted, the provision shall be deemed inoperative. The Board of Directors, in its absolute discretion, may bifurcate the Plan so as to restrict, limit or condition the use of any provision of the Plan with respect to persons who are officers or directors subject to Section 16 of the Securities Exchange Act of 1934, as amended, without so restricting, limiting or conditioning the Plan with respect to other Participants. SECTION 10. EFFECTIVE DATE OF THE PLAN. The Plan shall be effective as of the date of approval by the shareholders of the Company in accordance with applicable law. SECTION 11. TERM OF THE PLAN. New Awards shall be granted under the Plan only during a 10-year period beginning on the Effective Date of the Plan. However, unless otherwise expressly provided in the Plan or in an applicable Award Agreement, any Award theretofore granted may extend beyond the end of such 10-year period, and the authority of the Committee provided for hereunder with respect to the Plan and any Awards, and the authority of the Board of Directors of the Company to amend the Plan, shall extend beyond the end of such period. -13- EX-10.(B) 5 c74996exv10wxby.txt EX-10(B) EXECUTIVE INCENTIVE PLAN EXHIBIT 10(b) UNITEDHEALTH GROUP INCORPORATED EXECUTIVE INCENTIVE PLAN SECTION 1. ESTABLISHMENT. On February 12, 2002, the Board of Directors of UnitedHealth Group Incorporated, upon recommendation by the Compensation and Human Resources Committee of the Board of Directors, approved an executive incentive plan for executives as described herein, which plan shall be known as the "UnitedHealth Group Executive Incentive Plan." This Plan shall be submitted for approval by the shareholders of UnitedHealth Group Incorporated at the 2002 Annual Meeting of Shareholders. This Plan shall be effective as of January 1, 2002, subject to its approval by the shareholders, and no benefits shall be issued pursuant thereto until after this Plan has been approved by the shareholders. SECTION 2. PURPOSE. The purpose of this Plan is to advance the interests of the Company and its shareholders by attracting and retaining key employees, and by stimulating the efforts of such employees to contribute to the continued success and growth of the business of the Company. SECTION 3. DEFINITIONS. When the following terms are used herein with initial capital letters, they shall have the following meanings: (a) "Annual Incentive Award" shall have the meaning set forth in Section 5 hereof. (b) "Base Salary" shall mean a Participant's annualized base salary, as determined by the Committee, as of the last day of September of a Performance Period. (c) "Code" shall mean the Internal Revenue Code of 1986, as it may be amended from time to time, and any proposed, temporary or final Treasury Regulations promulgated thereunder. (d) "Committee" shall mean the Compensation and Human Resources Committee of the Board of Directors of the Company designated by such Board to administer the Plan which shall consist of members appointed from time to time by the Board of Directors. Each member of the Committee shall be an "outside director" within the meaning of Section 162(m) of the Code. (e) "Company" shall mean UnitedHealth Group Incorporated, a Minnesota corporation, and any of its subsidiaries or affiliates, whether now or hereafter established. (f) "Earnings" shall mean the Company's net earnings computed in accordance with generally accepted accounting principles as reported in the Company's consolidated financial statements for the applicable Performance Period, adjusted to eliminate (1) the cumulative effect of changes in generally accepted accounting principles; (2) gains and losses from discontinued operations; (3) extraordinary gains or losses; and (4) any other unusual or nonrecurring losses which are separately identified and quantified in the Company's financial statements, including merger related charges. (g) "Earnings Per Share" or "EPS" shall mean the Company's earnings per share computed in accordance with generally accepted accounting principles, as in effect from time to time, as reported in the Company's consolidated financial statements for the applicable Performance Period, adjusted in the same fashion that Earnings are to be adjusted as provided in Section 3(f) hereof. (h) "Maximum Annual Incentive Award" shall mean a dollar amount equal to one percent (1.00%) of the Company's Earnings for the Performance Period. (i) "Participant" shall mean any executive officer of the Company who is designated by the Committee, as provided for herein, to participate with respect to a Performance Period as a Participant in this Plan. Directors of the Company who are not also employees of the Company are not eligible to participate in the Plan. (j) "Performance Award" shall have the meaning set forth in Section 6 hereof. (k) "Performance Period" shall mean (i) for an Annual Incentive Award, each consecutive twelve-month period commencing on January 1 of each year during the term of this Plan and coinciding with the Company's fiscal year; and (ii) for a Performance Award, such period or periods as shall be specified from time to time by the Committee. (l) "Performance Threshold" shall, with respect to Annual Incentive Awards, mean one or more pre-established, objective performance goals selected by the Committee with respect to each Performance Period and which shall be based solely on Earnings Per Share. (m) "Plan" shall mean this UnitedHealth Group Executive Incentive Plan. (n) "Return on Equity" shall mean the Company's return on equity computed in accordance with generally accepted accounting principles, as in effect from time to time, as reported in the Company's consolidated financial statements for the applicable Performance Period, adjusted in the same fashion that Earnings are to be adjusted as provided in Section 3(f) hereof. (o) "Target Award" shall mean a percentage, which may be greater or less than 100%, as determined by the Committee with respect to each Performance Period. 2 SECTION 4. ADMINISTRATION. (a) Power and Authority of Committee. The Plan shall be administered by the Committee. The Committee shall have full power and authority, subject to all the applicable provisions of the Plan and applicable law, to (i) establish, amend, suspend or waive such rules and regulations and appoint such agents as it deems necessary or advisable for the proper administration of the Plan, (ii) construe, interpret and administer the Plan and any instrument or agreement relating to the Plan, and (iii) make all other determinations and take all other actions necessary or advisable for the administration of the Plan. Unless otherwise expressly provided in the Plan, each determination made and each action taken by the Committee pursuant to the Plan or any instrument or agreement relating to the Plan (x) shall be within the sole discretion of the Committee, (y) may be made at any time and (z) shall be final, binding and conclusive for all purposes on all persons, including, but not limited to, Participants and their legal representatives and beneficiaries, and employees of the Company. (b) Determinations Made Prior to Each Performance Period. At any time ending on or before the 90th calendar day of each Performance Period, the Committee shall: (i) with respect to Annual Incentive Awards, (A) designate all Participants and their Target Awards for such Performance Period, and (B) establish one or more Performance Thresholds, based solely on EPS; and (ii) with respect to Performance Awards, (A) designate all Participants, their target and maximum awards for such Performance Period, and (B) establish the objective performance factors for each Participant for that Performance Period on the basis of one or more of the criteria set forth in Section 6(a) below. (c) Certification. Following the close of each Performance Period and prior to payment of any amount to any Participant under the Plan, the Committee must certify in writing: (i) with respect to Annual Incentive Awards, (A) the Company's Earnings and EPS for that Performance Period and (B) as to the attainment of all other factors upon which any payments to a Participant for that Performance Period are to be based; and (ii) with respect to Performance Awards, as to the attainment of all factors (including the performance factors for a Participant) upon which any payments to a Participant for that Performance Period are to be based. SECTION 5. ANNUAL INCENTIVE AWARDS. From time to time, the Committee may grant annual incentive awards under the Plan payable to Participants in cash (an "Annual Incentive Award"). Annual Incentive Awards shall be granted in accordance with the following provisions: (a) Formula. In the event that the Company's EPS for a Performance Period is equal to or exceeds a designated Performance Threshold for that Performance Period, then each Participant shall receive an Annual Incentive Award for that Performance Period in an amount not greater than 3 (i) the Participant's Base Salary for the Performance Period, multiplied by (ii) the Participant's Target Award for the Performance Period; provided, however, that in the event that the Company's EPS for a Performance Period exceeds the highest designated Performance Threshold for that Performance Period, then each Participant shall receive an Annual Incentive Award for that Performance Period in an amount not greater than the Maximum Annual Incentive Award for that Performance Period. (b) Limitations. (i) Discretionary Reduction. The Committee shall retain sole and full discretion to reduce by any amount the Annual Incentive Award otherwise payable to any Participant under this Plan. (ii) Continued Employment. No Annual Incentive Award shall be paid to a Participant who is not actively employed by the Company at the time the Annual Incentive Award otherwise would be paid except in the case of retirement, death or permanent disability. If a Participant retires before the end of a Performance Period or after the end of a Performance Period but before an Annual Incentive Award is paid, the Committee may, in its discretion, determine that the Participant shall be paid a pro rated portion of the Annual Incentive Award that the Participant would have received but for such retirement. If a Participant dies or becomes permanently and totally disabled before the end of a Performance Period or after the end of a Performance Period but before an Annual Incentive Award is paid, the Committee may, in its discretion, determine that the Participant (or, in the case of death, the Participant's estate) shall be paid a pro rated portion of the Annual Incentive Award that the Participant would have received but for such death or disability. The Committee shall determine the Participant's date of disability in a manner consistent with Company practices. (iii) Maximum Payments. No Participant shall receive an Annual Incentive Award under this Plan for any Performance Period in excess of the Maximum Annual Incentive Award for that Performance Period. (c) Payment of Annual Incentive Award. Subject to any deferred compensation election pursuant to any such plans of the Company applicable hereto, benefits shall be paid to the Participant in cash as soon as administratively feasible upon the completion of a Performance Period, after the Committee has certified that the Performance Threshold has been attained, determined the Maximum Annual Incentive Award for that Performance Period and made the other certifications provided for in Section 4(c)(i) hereof. SECTION 6. PERFORMANCE AWARDS. From time to time, the Committee may grant Performance Awards under the Plan payable in cash or in shares of the Company, other securities or other property (a "Performance Award"). Performance Awards that are payable in shares of the Company, other securities or other property shall be payable pursuant to the UnitedHealth Group Incorporated 2002 Stock Incentive Plan. Performance Awards shall be "qualified performance-based compensation" 4 within the meaning of Section 162(m) of the Code. Notwithstanding any other provision of this Plan to the contrary, the following additional requirements shall apply to all Performance Awards made to any Participant under this Plan: (a) Business Criteria. The business criteria to be used for purposes of establishing performance goals for Performance Awards, the attainment of which may determine the amount and/or vesting with respect to Performance Awards, will be selected from the following alternatives (unless and until the Committee proposes for shareholder approval and the Company's shareholders approve a change in such criteria), each of which may be based on absolute standards or comparisons versus specified companies or groups of companies and may be applied at individual or various organizational levels (for example, the Company as a whole or identified business units, segments or the like): revenue growth, Return on Equity, operating cash flows, Earnings per Share, and operating margin. In the event that Code Section 162(m) or applicable tax and/or securities laws change to permit Committee discretion to alter the governing performance measures without disclosing to shareholders and obtaining shareholder approval of such changes and without thereby exposing the Company to potentially adverse tax or other legal consequences, the Committee shall have the sole discretion to make such changes without obtaining shareholder approval. (b) Target and Range; Maximum Performance Award. The target and range of a Participant's possible Performance Awards established by the Committee shall be between zero and 300% of the Participant's average base compensation. For this purpose, average base compensation shall be the Participant's total salary earned during the applicable Performance Period (or such lower amount as determined by the Committee) divided by the number of years in the Performance Period. The maximum bonus which may be paid to any Participant pursuant to any Performance Award with respect to any Performance Period shall not exceed $10,000,000. (c) Payment of Performance Awards. Performance Awards shall be paid no later than three months following the conclusion of the applicable Performance Period. The Committee may, in its discretion, reduce the amount of a payout otherwise to be made in connection with a Performance Award, but may not exercise discretion to increase such amount. If permitted by applicable law, payments of Performance Awards may be deferred into the Company's Executive Savings Plan in accordance with rules established by the Committee. (d) Certain Events. No Performance Award shall be paid to a Participant who is not actively employed by the Company at the time the Performance Award otherwise would be paid except in the case of retirement as provided for in (e) below, death or disability as provided for in (f) below, or in the event of a Change in Control as provided for in (g) below. (e) If a Participant retires before the end of a Performance Period or after the end of a Performance Period but before a Performance Award is paid, the Committee may, in its discretion, determine that the Participant shall be paid a pro rated portion of the Performance Award that the Participant would have received but for such retirement. In such event, (i) the pro rationing shall be based on the portion of such Performance Period prior to the Participant's retirement, and (ii) the measurement of Company and Participant performance shall be based on 5 performance through the end of the fiscal year of the Company which ends closest to the Participant's date of retirement. The Committee shall determine the Participant's date of retirement in a manner consistent with Company practices. Any such pro rated Performance Award shall be paid at the same time as other Performance Awards with respect to the applicable Performance Period. (f) If a Participant dies or becomes permanently and totally disabled before the end of a Performance Period or after the end of a Performance Period but before a Performance Award is paid, the Committee may, in its discretion, determine that the Participant (or, in the case of death, the Participant's estate) shall be paid a pro rated portion of the Performance Award that the Participant would have received but for such death or disability. In such event, (i) the pro rationing shall be based on the portion of such Performance Period prior to the Participant's date of death or disability, and (ii) the measurement of Company and Participant performance shall be based on performance through the end of the fiscal year of the Company which ends closest to such date. The Committee shall determine the Participant's date of disability in a manner consistent with Company practices. Any such pro rated Performance Award shall be paid at the same time as other Performance Awards with respect to the applicable Performance Period. (g) If a Change in Control (as defined below) occurs during a Performance Period or after the end of a Performance Period but before a Performance Award is paid, the Company or its successor shall pay each Participant a pro rated portion of the maximum Performance Award for which such Participant is eligible with respect to each such Performance Period. Such pro rationing shall be based on the proportion of each such Performance Period through the date of such Change in Control. Any such Performance Awards shall be paid within 90 days of the occurrence of the event constituting such Change in Control, or, if a timely deferral election is then in effect, shall be deferred into the Company's Executive Savings Plan. Any such Performance Award shall be paid regardless of whether the Participant is actively employed by the Company at the time the Performance Award is to be paid. "Change in Control" means the occurrence of any of the following events: (i) The acquisition by any person, entity or "group," within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, other than the Company or any of its affiliates, or any employee benefit plan of the Company and/or one or more of its affiliates, of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act of 1934) of 20% or more of either the then outstanding shares of the Company's Common Stock or the combined voting power of the Company's then outstanding voting securities in a transaction or series of transactions not approved in advance by a vote of at least three-quarters of the Continuing Directors (as hereinafter defined). (ii) Individuals who, as of January 1, 2002 constitute the Board of Directors of the Company (generally the "Directors" and, as of January 1, 2002, the "Continuing Directors") cease for any reason to constitute at least a majority thereof (provided that any person becoming a Director subsequent to January 1, 2002 whose nomination for 6 election was approved in advance by a vote of at least three-quarters of the Continuing Directors (other than a nomination of an individual whose initial assumption of office is in connection with an actual or threatened solicitation with respect to the election or removal of the Directors of the Company, as such terms are used in Rule 14a-11 of Regulation 14A under the Securities Exchange Act of 1934) shall be deemed to be a Continuing Director). (iii) The approval by the shareholders of the Company of a reorganization, merger, consolidation, liquidation or dissolution of the Company or of the sale (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company other than a reorganization, merger, consolidation, liquidation, dissolution or sale approved in advance by a vote of at least three-quarters of the Continuing Directors. (iv) The first purchase under any tender offer or exchange offer (other than an offer by the Company or any of its affiliates) pursuant to which shares of the Company's Common Stock are purchased. (v) At least a majority of the Continuing Directors determine in their sole discretion that there has been a change in control of the Company. SECTION 7. AMENDMENT AND TERMINATION; ADJUSTMENTS. Except to the extent prohibited by applicable law and unless otherwise expressly provided in the Plan: (a) Amendments to the Plan. The Committee may amend this Plan prospectively at any time and for any reason deemed sufficient by it without notice to any person affected by this Plan and may likewise terminate or curtail the benefits of this Plan both with regard to persons expecting to receive benefits hereunder in the future and persons already receiving benefits at the time of such action, provided, however, that Section 6(g) of this Plan shall not be amended, or its benefits terminated or curtailed, with respect to any Performance Period during which a Change in Control occurs, occurred, or is anticipated to occur. (b) Correction of Defects, Omissions and Inconsistencies. The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan in the manner and to the extent it shall deem desirable to carry the Plan into effect. SECTION 8. NONTRANSFERABILITY. Participants and beneficiaries shall not have the right to assign, encumber or otherwise anticipate the payments to be made under this Plan, and the benefits provided hereunder shall not be subject to seizure for payment of any debts or judgments against any Participant or any beneficiary. Section 9. TAX WITHHOLDING. In order to comply with all applicable federal or state income, social security, payroll, withholding or other tax laws or regulations, the Committee may establish such policy or policies 7 as it deems appropriate with respect to such laws and regulations, including without limitation, the establishment of policies to ensure that all applicable federal or state income, social security, payroll, withholding or other taxes, which are the sole and absolute responsibility of the Participant, are withheld or collected from such Participant. SECTION 10. SHAREHOLDER APPROVAL. The material terms of this Plan shall be disclosed to and approved by shareholders of the Company in accordance with Section 162(m) of the Code. No amount shall be paid to any Participant under this Plan unless such shareholder approval has been obtained. No award under this Plan shall be granted more than five years after the Company's 2002 annual meeting of shareholders unless shareholders have re-approved the Plan to the extent required by Section 162(m) of the Code. Section 11. MISCELLANEOUS. (a) Effective Date. This Plan shall be deemed effective, subject to shareholder approval, as of January 1, 2002. (b) Headings. Headings are given to the Sections and subsections of the Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Plan or any provision thereof. (c) Applicability to Successors. This Plan shall be binding upon and inure to the benefit of the Company and each Participant, the successors and assigns of the Company, and the beneficiaries, personal representatives and heirs of each Participant. If the Company becomes a party to any merger, consolidation or reorganization, this Plan shall remain in full force and effect as an obligation of the Company or its successors in interest. (d) Employment Rights and Other Benefit Programs. The provisions of this Plan shall not give any Participant any right to be retained in the employment of the Company. In the absence of any specific agreement to the contrary, this Plan shall not affect any right of the Company, or of any affiliate of the Company, to terminate, with or without cause, any Participant's employment at any time. This Plan shall not replace any contract of employment, whether oral or written, between the Company and any Participant, but shall be considered a supplement thereto. This Plan is in addition to, and not in lieu of, any other employee benefit plan or program in which any Participant may be or become eligible to participate by reason of employment with the Company. No compensation or benefit awarded to or realized by any Participant under the Plan shall be included for the purpose of computing such Participant's compensation under any compensation-based retirement, disability, or similar plan of the Company unless required by law or otherwise provided by such other plan. (e) No Trust or Fund Created. This Plan shall not create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any affiliate and a Participant or any other person. To the extent that any person acquires a right to receive payments from the Company or any affiliate pursuant to this Plan, such right shall be no greater than the right of any unsecured general creditor of the Company or of any affiliate. 8 (f) Governing Law. The validity, construction and effect of the Plan or any incentive payment payable under the Plan shall be determined in accordance with the laws of the State of Minnesota. (g) Severability. If any provision of the Plan is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction, such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Committee, materially altering the purpose or intent of the Plan, such provision shall be stricken as to such jurisdiction, and the remainder of the Plan shall remain in full force and effect. (h) Qualified Performance-Based Compensation. All of the terms and conditions of the Plan shall be interpreted in such a fashion as to qualify all compensation paid hereunder as "qualified performance-based compensation" within the meaning of Section 162(m) of the Code. 9 EX-10.(D) 6 c74996exv10wxdy.txt EX-10(D) 2002 DIRECTORS' COMPENSATION PLAN Exhibit 10(d) UNITEDHEALTH GROUP DIRECTORS' COMPENSATION DEFERRAL PLAN (2002 STATEMENT) UNITEDHEALTH GROUP DIRECTORS' COMPENSATION DEFERRAL PLAN (2002 STATEMENT) TABLE OF CONTENTS

-i- 4.3. Operational Rules for Measuring Investments 4.4. Measuring Investments and Rules to be Identical to Executive Savings Plan SECTION 5. OPERATIONAL RULES........................................................................... 5 5.1. Operational Rules for Deferrals 5.2. Establishment of Accounts 5.3. Accounting Rules SECTION 6. VESTING OF ACCOUNTS......................................................................... 5 SECTION 7. SPENDTHRIFT PROVISION....................................................................... 5 SECTION 8. DISTRIBUTIONS............................................................................... 6 8.1. Time of Distribution to Participant 8.1.1. General Rule 8.1.2. No Application for Distribution Required 8.2. Form of Distribution 8.3. Election of Form of Distribution by Participant 8.3.1. Election at Initial Enrollment 8.3.2. Default Election of Form of Distribution 8.3.3. Periodic Re-Election 8.4. Payment to Beneficiary Upon Death of Participant 8.4.1. Payment to Beneficiary When Death Occurs Before Termination of Directorship 8.4.2. Payment to Beneficiary When Death Occurs After Termination of Directorship 8.4.3. Beneficiary Must Apply for Distribution 8.4.4. Election of Measuring Investments by Beneficiaries 8.5. Designation of Beneficiaries 8.5.1. Right to Designate 8.5.2. Failure of Designation 8.5.3. Disclaimers by Beneficiaries 8.5.4. Definitions 8.5.5. Special Rules 8.6. Death Prior to Full Distribution 8.7. Facility of Payment 8.8. In-Service Distributions 8.8.1. Pre-Selected In-Service Distributions 8.8.2. On Demand In-Service Distributions 8.8.3. In-Service Distribution for Financial Hardship 8.9. Distributions in Cash

-ii- SECTION 9. FUNDING OF PLAN............................................................................. 15 9.1. Unfunded Plan 9.2. Corporate Obligation SECTION 10. AMENDMENT AND TERMINATION................................................................... 15 10.1. Amendment and Termination 10.2. No Oral Amendments 10.3. Plan Binding on Successors SECTION 11. DETERMINATIONS -- RULES AND REGULATIONS..................................................... 16 11.1. Determinations 11.2. Rules and Regulations 11.3. Method of Executing Instruments 11.4. Claims Procedure 11.4.1. Original Claim 11.4.2. Review of Denied Claim 11.4.3. General Rules 11.5. Limitations and Exhaustion 11.5.1. Limitations 11.5.2. Exhaustion Required SECTION 12. PLAN ADMINISTRATION......................................................................... 19 12.1. Officers 12.2. Chief Executive Officer 12.3. Board of Directors 12.4. Committee 12.5. Delegation 12.6. Conflict of Interest 12.7. Service of Process 12.8. Expenses 12.9. Certifications 12.10. Errors in Computations SECTION 13. CONSTRUCTION................................................................................ 21 13.1. Applicable Laws 13.1.1. ERISA Status 13.1.2. IRC Status 13.1.3. References to Laws 13.2. Effect on Other Plans 13.3. Disqualification

-iii- 13.4. Rules of Document Construction 13.5. Choice of Law SCHEDULE I - MEASURING INVESTMENTS....................................................................... SI-1

-iv- UNITEDHEALTH GROUP DIRECTORS' COMPENSATION DEFERRAL PLAN (2002 STATEMENT) SECTION 1 INTRODUCTION AND DEFINITIONS 1.1. ESTABLISHMENT OF PLAN. Effective January 1, 2002, UNITEDHEALTH GROUP INCORPORATED, a Minnesota corporation (hereinafter sometimes referred to as "UnitedHealth Group"), as plan sponsor, hereby establishes a nonqualified, unfunded, deferred compensation plan for the benefit of certain members of its Board of Directors. 1.2. DEFINITIONS. When the following terms are used herein with initial capital letters, they shall have the following meanings: 1.2.1. ACCOUNT -- the separate bookkeeping account established for each Participant which represents the separate unfunded and unsecured general obligation of UnitedHealth Group established with respect to each person who is a Participant in this Plan in accordance with Section 2 and to which are credited the dollar amounts specified in Sections 3 and 4 and from which are subtracted payments made pursuant to Section 8. 1.2.2. ANNUAL VALUATION DATE -- each December 31. 1.2.3. BENEFICIARY -- a person designated by a Participant (or automatically by operation of the Plan Statement) to receive all or a part of the Participant's Account in the event of the Participant's death prior to full distribution thereof. A person so designated shall not be considered a Beneficiary until the death of the Participant. 1.2.4. BOARD COMPENSATION -- Board retainer fees, Board meeting fees and Board committee fees but not stock options or other stock-based compensation. The Committee may designate prospectively that other pay is included in Board Compensation. 1.2.5. BOARD OF DIRECTORS or BOARD -- the Board of Directors of UnitedHealth Group or its successor, and any properly authorized committee of the Board of Directors. 1.2.6. CODE -- the Internal Revenue Code of 1986, as amended. 1.2.7. COMMITTEE -- the Compensation and Human Resources Committee of the Board of Directors (also known as the "Compensation Committee"). 1.2.8. EFFECTIVE DATE -- January 1, 2002. 1.2.9. PARTICIPANT -- a member of the Board of Directors of UnitedHealth Group who has elected to defer compensation under Section 3. A director who has become a Participant shall continue to be a Participant in this Plan until the date of the Participant's death or, if earlier, the date when the Participant has received a distribution of the Participant's entire Account. 1.2.10. PLAN -- the nonqualified, unfunded, deferred compensation program maintained by UnitedHealth Group for the benefit of Participants eligible to participate therein, as set forth in this Plan Statement. (As used herein, "Plan" does not refer to the document pursuant to which the Plan is maintained. That document is referred to herein as the "Plan Statement".) The Plan shall be referred to as the "UnitedHealth Group Directors' Compensation Deferral Plan." 1.2.11. PLAN STATEMENT -- this document entitled "UnitedHealth Group Directors' Compensation Deferral Plan (2002 Statement)" as adopted by the Board of Directors and generally effective as of January 1, 2002, as the same may be amended from time to time thereafter. 1.2.12. PLAN YEAR -- the twelve (12) consecutive month period ending on any Annual Valuation Date. 1.2.13. TERMINATION OF DIRECTORSHIP -- a complete severance of a Participant's membership on the Board of Directors of UnitedHealth Group for any reason other than the Participant's death. 1.2.14. UNITEDHEALTH GROUP OR UHG -- UNITEDHEALTH GROUP INCORPORATED, a Minnesota corporation, or any successor thereto. 1.2.15. VALUATION DATE -- any day that the U.S. securities markets are open and conducting business. SECTION 2 ELIGIBILITY TO PARTICIPATE Each member of the Board of Directors of UnitedHealth Group as of the initial adoption of this Plan who is not an employee of UnitedHealth Group or any affiliate shall be eligible to become a Participant in this Plan as of January 1, 2002. Each person who later becomes a member of the Board and is not then an employee of UnitedHealth Group or any affiliate shall be eligible to become a Participant in this Plan as of such member's election to the Board. Each person (a) who is both a member of the Board and an employee of UnitedHealth Group or any affiliate, and (b) who later ceases to be so employed but continues as a member of the Board, shall be eligible to become a Participant in this Plan as of such cessation of employment. -2- SECTION 3 COMPENSATION DEFERRAL OPTION 3.1. OPTION TO DEFER BOARD COMPENSATION. 3.1.1. AMOUNT OF DEFERRALS. Through a voice response system (or other written or electronic means) approved by the Committee, a Participant may elect to defer between (and including) 1% and 100% of such Participant's Board Compensation for Board services for a Plan Year. The Committee may establish prospectively other percentage limits. To be effective for a Plan Year, the deferral election must be received by the Committee by the December 15 preceding the first day of such Plan Year (or such other date before the first day of such Plan Year as the Committee may designate). For a newly eligible Participant, however, the deferral election must be received by the Committee within 30 days after the first day of such eligibility, and, if so received, deferral shall be effective as of the first day of the month following such receipt with respect to the remainder of the Plan Year. Such deferral election shall be irrevocable for the Plan Year with respect to which it is made, once it has been received by the Committee. 3.1.2. CREDITING TO ACCOUNTS. The Committee shall cause to be credited to the Account of each Participant the amount, if any, of such Participant's voluntary deferrals of Board Compensation under Section 3.1.1. Such amount shall be credited as soon as administratively feasible following the time such Board Compensation would otherwise have been paid to the Participant. 3.1.3. NO MATCHING CREDITS. No matching amounts shall be credited for deferrals of Board Compensation under Section 3.1.1. 3.2. DISCRETIONARY SUPPLEMENTS FROM UNITEDHEALTH GROUP. Upon written notice to one or more Participants and to the Committee, the Board of Directors may (but is not required to) determine that additional amounts shall be credited to the Accounts of such Participants. Such notice shall also specify the date of such crediting. Notwithstanding Section 6, such notice may also establish vesting rules for such amounts, in which case separate Accounts shall be established for such amounts for such Participants. 3.3. CREDITS LIMITED TO OUTSIDE DIRECTORS. No Participant who becomes an employee of UnitedHealth Group or any affiliate shall be eligible to receive credits under this Section 3 while such an employee. -3- SECTION 4 CREDITS FROM MEASURING INVESTMENTS 4.1. DESIGNATION OF MEASURING INVESTMENTS. Through a voice response system (or other written or electronic means) approved by the Committee, each Participant shall designate the following "Measuring Investments," which shall be used to determine the value of such Participant's Account (until changed as provided herein): (a) One or more Measuring Investments for the current Account balance, and (b) One or more Measuring Investments for amounts that are credited to the Account in the future. The Accounts and such Measuring Investments are specified solely as a device for computing the amount of benefits to be paid by UnitedHealth Group under the Plan, and UnitedHealth Group is not required to purchase such investments. The Measuring Investments as of January 1, 2002 are listed in Schedule I to the Plan Statement. Schedule I to the Plan Statement may be revised and amended by the Committee, in its discretion, from time to time. 4.2. UNITEDHEALTH GROUP STOCK AS MEASURING INVESTMENT. The Board of Directors may (but shall not be required to) determine that the Measuring Investments available for election by Participants will include deemed (but not actual) investment in the common stock of UnitedHealth Group, valued at the closing price of the common stock of UnitedHealth Group as reported on the New York Stock Exchange composite tape on the applicable Valuation Date. 4.3. OPERATIONAL RULES FOR MEASURING INVESTMENTS. The Committee may adopt rules specifying the Measuring Investments, the circumstances under which a particular Measuring Investment may be elected, or shall be automatically utilized, the minimum or maximum amount or percentage of an Account which may be allocated to a Measuring Investment, the procedures for making or changing Measuring Investment elections, the extent (if any) to which Beneficiaries of deceased Participants may make Measuring Investment elections and the effect of a Participant's or Beneficiary's failure to make an effective Measuring Investment election with respect to all or any portion of an Account. 4.4. MEASURING INVESTMENTS AND RULES TO BE IDENTICAL TO EXECUTIVE SAVINGS PLAN. Unless the Committee specifies otherwise, the Measuring Investments and operational rules for this Plan shall be identical to those under the UnitedHealth Group Executive Savings Plan and any change to the Measuring Investments or operational rules under the Executive Savings Plan shall automatically apply to this Plan. -4- SECTION 5 OPERATIONAL RULES 5.1. OPERATIONAL RULES FOR DEFERRALS. A Participant's election to defer Board Compensation under Section 3 shall be "evergreen" and shall remain in effect until changed by the Participant for a future Plan Year as specified in Section 3.1.1. 5.2. ESTABLISHMENT OF ACCOUNTS. There shall be established for each Participant an unfunded, bookkeeping Account which shall be adjusted each Valuation Date. 5.3. ACCOUNTING RULES. The Committee may adopt (and revise) accounting rules for the Accounts. SECTION 6 VESTING OF ACCOUNTS The Account of each Participant shall be fully (100%) vested and nonforfeitable at all times (except for any special vesting rules that apply to discretionary supplements of UnitedHealth Group under Section 3.2 and any early distribution penalties that may apply under Section 8). SECTION 7 SPENDTHRIFT PROVISION Participants and Beneficiaries shall have no power to transfer any interest in an Account nor shall any Participant or Beneficiary have any power to anticipate, alienate, dispose of, pledge or encumber the same while it is in the possession or control of UnitedHealth Group, nor shall the Committee recognize any assignment thereof, either in whole or in part, nor shall the Account be subject to attachment, garnishment, execution following judgment or other legal process (including without limitation any domestic relations order, whether or not a "qualified domestic relations order" under section 414(p) of the Code) before the Account is distributed to the Participant or Beneficiary. The power to designate Beneficiaries to receive the Account of a Participant in the event of such Participant's death shall not permit or be construed to permit such power or right to be exercised by the Participant so as thereby to anticipate, pledge, mortgage or encumber such Participant's Account or any part thereof. Any attempt by a Participant to so exercise said power in violation of this provision shall be of no force and effect and shall be disregarded by the Committee. -5- SECTION 8 DISTRIBUTIONS 8.1. TIME OF DISTRIBUTION TO PARTICIPANT. 8.1.1. GENERAL RULE. A Participant's Account shall be distributable upon the Termination of Directorship of the Participant. 8.1.2. NO APPLICATION FOR DISTRIBUTION REQUIRED. A Participant's Account shall be distributed automatically following the Participant's Termination of Directorship. A Participant shall not be required to apply for distribution. 8.2. FORM OF DISTRIBUTION. As determined under the rules of Section 8.3, distribution of the Participant's Account shall be made in one of the following forms: (a) IMMEDIATE LUMP SUM. In the form of a single lump sum. The amount of such distribution shall be determined as of the January 31 immediately following the Plan Year in which occurs the Participant's Termination of Directorship and shall be actually paid to the Participant as soon as practicable after such determination (but not later than the last day of the following February). (b) INSTALLMENTS. In the form of a series of 5 or 10 annual installments, subject to the following rules: (i) GENERAL RULE. The amount of the first installment will be determined as of the January 31 immediately following the Plan Year in which occurs the Participant's Termination of Directorship and the amount of future installments will be determined as of each following January 31. The amount of each installment shall be determined by dividing the Account balance as of the January 31 as of which the installment is being paid by the number of remaining installment payments to be made (including the payment being determined). Such installments shall be actually paid as soon as practicable after each such determination (but not later than the last day of the following February). (ii) IMMEDIATE ACCELERATED PAYMENT. A Participant who has elected the installment option may, after Termination of Directorship, elect through a voice response system (or other written or electronic means) approved by the Committee to receive a cash lump sum payment of the total remaining balance of the Account (but not part thereof) for any reason; provided, however, that the Account balance will be reduced by a penalty of 10%, and the Participant -6- will receive 90% of the Account balance. The penalty of 10% of the Account balance will be forfeited to UnitedHealth Group to be used as the Committee determines in its discretion. The amount of such distribution will be determined as of the Valuation Date coincident with or next following receipt of the request by the Committee and shall be actually paid to the Participant as soon as practicable after such determination. (c) DELAYED LUMP SUM. In the form of a single lump sum following the tenth (10th) anniversary of the Participant's Termination of Directorship, subject to the following rules: (i) GENERAL RULE. The amount of such distribution shall be determined as of the January 31 immediately following the calendar year in which occurs the tenth (10th) anniversary of the Participant's Termination of Directorship. Actual distribution shall be made as soon as administratively practicable after such January 31. (ii) IMMEDIATE ACCELERATED PAYMENT. A Participant who has elected the delayed lump sum distribution option may, after Termination of Directorship, elect through a voice response system (or other written or electronic means) approved by the Committee to receive a lump sum distribution of the Account before the tenth (10th) anniversary of the Participant's Termination of Directorship; provided, however, that the Account balance will be reduced by a penalty of 10%, and the Participant will receive 90% of the Account balance. The penalty of 10% of the Account balance will be forfeited to UnitedHealth Group to be used as the Committee determines in its discretion. (iii) DELAYED ACCELERATED PAYMENT. A Participant who has elected the delayed lump sum distribution option may, after Termination of Directorship, make a one-time election through a voice response system (or other written or electronic means), approved by the Committee to receive either a lump sum distribution of the Account before the tenth (10th) anniversary of the Participant's Termination of Directorship, or five (5) annual installments, subject to the following rules: (A) Any election to receive a lump sum payment before the tenth (10th) anniversary of the Participant's Termination of Directorship must be received by the Committee no later than the December 31 of the calendar year in which occurs -7- the eighth (8th) anniversary of the Participant's Termination of Directorship. (B) Any election to receive five (5) annual installments must be received by the Committee no later than the December 31 the calendar year in which occurs the fourth (4th) anniversary of the Participant's Termination of Directorship. (C) Any election to receive either a lump sum distribution of the Participant's Account before the tenth (10th) anniversary of the Participant's Termination of Directorship or five (5) annual installments shall not be effective until twelve (12) months after it is received by the Committee (if the Participant dies before the end of such 12-month period, such election shall not be effective). 8.3. ELECTION OF FORM OF DISTRIBUTION BY PARTICIPANT. 8.3.1. ELECTION AT INITIAL ENROLLMENT. Through a voice response system (or other written or electronic means) approved by the Committee, each Participant shall elect at the time of initial enrollment in the Plan whether distribution shall be made (as described in Section 8.2) in either (i) an immediate lump sum, (ii) 5 or 10 annual installments, or (iii) a delayed lump sum following the tenth (10th) anniversary of the Participant's Termination of Directorship. 8.3.2. DEFAULT ELECTION OF FORM OF DISTRIBUTION. If a Participant fails to elect a form of distribution, such Participant shall be deemed to have elected that distribution be made in an immediate lump sum as described in Section 8.2(a). 8.3.3. PERIODIC RE-ELECTION. Through a voice response system (or other written or electronic means) approved by the Committee, initial and default distribution elections may be changed by the Participant, provided that: (a) no change shall be effective until twelve (12) months after it is received by the Committee (if the Participant dies before the end of such 12-month period, such change shall not be effective), and (b) no change may be filed within twelve (12) months after the initial election (or, if one or more prior changes has been filed, within twelve (12) months after the latest of such changes was filed). No spouse, former spouse, Beneficiary or other person shall have any right to participate in the Participant's decision to revise distribution elections. -8- 8.4. PAYMENT TO BENEFICIARY UPON DEATH OF PARTICIPANT. 8.4.1. PAYMENT TO BENEFICIARY WHEN DEATH OCCURS BEFORE TERMINATION OF DIRECTORSHIP. If a Participant dies before Termination of Directorship, such Participant's Beneficiary will receive payment of the Participant's Account at the same time and in the same form the Participant would have received if the Participant had experienced a Termination of Directorship on the date of death. 8.4.2. PAYMENT TO BENEFICIARY WHEN DEATH OCCURS AFTER TERMINATION OF DIRECTORSHIP. If a Participant dies after a Termination of Directorship, the Participant's Beneficiary shall receive distribution of the Participant's Account at the same time and in the same form the Participant would have received if the Participant had survived. 8.4.3. BENEFICIARY MUST APPLY FOR DISTRIBUTION. Distribution shall not be made to any Beneficiary until such Beneficiary shall have filed a written application for benefits in a form acceptable to the Committee and such application shall have been approved by the Committee. 8.4.4. ELECTION OF MEASURING INVESTMENTS BY BENEFICIARIES. A Beneficiary of a deceased Participant shall generally have the same rights to designate Measuring Investments for the Participant's Account that Participants have under Section 4. The Committee may adopt (and revise) rules to govern designations of Measuring Investments by Beneficiaries. Unless changed by the Committee, the following rules shall apply: (a) The Measuring Investments for the Account of a deceased Participant shall not be changed until the Beneficiary so determines. (b) If a deceased Participant has more than one Beneficiary, the unanimous consent of all Beneficiaries shall be required to change Measuring Investments for such Participant's Account. 8.5. DESIGNATION OF BENEFICIARIES. 8.5.1. RIGHT TO DESIGNATE. Each Participant may designate, upon forms to be furnished by and filed with the Committee (or through other means approved by the Committee), one or more primary Beneficiaries or alternative Beneficiaries to receive all or a specified part of such Participant's Account in the event of such Participant's death. The Participant may change or revoke any such designation from time to time without notice to or consent from any Beneficiary. No such designation, change or revocation shall be effective unless executed by the Participant and received by the Committee during the Participant's lifetime. 8.5.2. FAILURE OF DESIGNATION. If a Participant: (a) fails to designate a Beneficiary, -9- (a) designates a Beneficiary and thereafter revokes such designation without naming another Beneficiary, or (c) designates one or more Beneficiaries and all such Beneficiaries so designated fail to survive the Participant, such Participant's Account, or the part thereof as to which such Participant's designation fails, as the case may be, shall be payable to the first class of the following classes of automatic Beneficiaries in which a member survives the Participant and (except in the case of surviving issue) in equal shares if there is more than one member in such class surviving the Participant: (i) Participant's surviving spouse; (ii) Participant's surviving issue per stirpes and not per capita; (iii) Participant's surviving parents; (iv) Participant's surviving brothers and sisters; and (v) Representative of Participant's estate. 8.5.3. DISCLAIMERS BY BENEFICIARIES. A Beneficiary entitled to a distribution of all or a portion of a deceased Participant's Account may disclaim an interest therein subject to the following requirements. To be eligible to disclaim, a Beneficiary must be a natural person, must not have received a distribution of all or any portion of the Account at the time such disclaimer is executed and delivered, and must have attained at least age twenty-one (21) years as of the date of the Participant's death. Any disclaimer must be in writing and must be executed personally by the Beneficiary before a notary public. A disclaimer shall state that the Beneficiary's entire interest in the undistributed Account is disclaimed or shall specify what portion thereof is disclaimed. To be effective, duplicate original executed copies of the disclaimer must be both executed and actually delivered to the Committee after the date of the Participant's death but not later than nine (9) months after the date of the Participant's death. A disclaimer shall be irrevocable when delivered to the Committee. A disclaimer shall be considered to be delivered to the Committee only when actually received by the Committee. The Committee shall be the sole judge of the content, interpretation and validity of a purported disclaimer. Upon the filing of a valid disclaimer, the Beneficiary shall be considered not to have survived the Participant as to the interest disclaimed. A disclaimer by a Beneficiary shall not be considered to be a transfer of an interest in violation of any other provisions under this Plan. No other form of attempted disclaimer shall be recognized by the Committee. 8.5.4. DEFINITIONS. When used herein and, unless the Participant has otherwise specified in the Participant's Beneficiary designation, when used in a Beneficiary designation, "issue" means all persons who are lineal descendants of the person whose issue are referred to, subject to the following: (a) a legally adopted child and the adopted child's lineal descendants always shall be lineal descendants of each adoptive parent (and of each adoptive parent's lineal ancestors); -10- (b) a legally adopted child and the adopted child's lineal descendants never shall be lineal descendants of any former parent whose parental rights were terminated by the adoption (or of that former parent's lineal ancestors); except that if, after a child's parent has died, the child is legally adopted by a stepparent who is the spouse of the child's surviving parent, the child and the child's lineal descendants shall remain lineal descendants of the deceased parent (and the deceased parent's lineal ancestors); (c) if the person (or a lineal descendant of the person) whose issue are referred to is the parent of a child (or is treated as such under applicable law) but never received the child into that parent's home and never openly held out the child as that parent's child (unless doing so was precluded solely by death), then neither the child nor the child's lineal descendants shall be issue of the person. "Child" means an issue of the first generation; "per stirpes" means in equal shares among living children of the person whose issue are referred to and the issue (taken collectively) of each deceased child of such person, with such issue taking by right of representation of such deceased child; and "survive" and "surviving" mean living after the death of the Participant. 8.5.5. SPECIAL RULES. Unless the Participant has otherwise specified in the Participant's Beneficiary designation, the following rules shall apply: (a) If there is not sufficient evidence that a Beneficiary was living at the time of the death of the Participant, it shall be deemed that the Beneficiary was not living at the time of the death of the Participant. (b) The automatic Beneficiaries specified in Section 8.5.2 and the Beneficiaries designated by the Participant shall become fixed at the time of the Participant's death so that, if a Beneficiary survives the Participant but dies before the receipt of all payments due such Beneficiary hereunder, such remaining payments shall be payable to the representative of such Beneficiary's estate. (c) If the Participant designates as a Beneficiary the person who is the Participant's spouse on the date of the designation, either by name or by relationship, or both, the dissolution, annulment or other legal termination of the marriage between the Participant and such person shall automatically revoke such designation. (The foregoing shall not prevent the Participant from designating a former spouse as a Beneficiary on a form executed by the Participant and received by the Committee after the date of the legal termination of the marriage between the Participant and such former spouse, and during the Participant's lifetime.) -11- (d) Any designation of a nonspouse Beneficiary by name that is accompanied by a description of relationship to the Participant shall be given effect without regard to whether the relationship to the Participant exists either then or at the Participant's death. (e) Any designation of a Beneficiary only by statement of relationship to the Participant shall be effective only to designate the person or persons standing in such relationship to the Participant at the Participant's death. The Committee shall be the sole judge of the content, interpretation and validity of a purported Beneficiary designation. 8.6. DEATH PRIOR TO FULL DISTRIBUTION. If, at the death of the Participant, any payment to the Participant was due or otherwise pending but not actually paid, the amount of such payment shall be included in the Account which is payable to the Beneficiary (and shall not be paid to the Participant's estate). 8.7. FACILITY OF PAYMENT. In case of minority, incapacity or legal disability of a Participant or Beneficiary entitled to receive any distribution under this Plan, payment shall be made, if the Committee shall be advised of the existence of such condition: (a) to the court-appointed guardian or conservator of such Participant or Beneficiary, or (b) if there is no court-appointed guardian or conservator, to the lawfully authorized representative of the Participant or Beneficiary (and the Committee, in its sole discretion, shall determine whether a person is a lawfully authorized representative for this purpose), or (c) to an institution entrusted with the care or maintenance of the incapacitated or disabled Participant or Beneficiary, provided such institution has satisfied the Committee, in its sole discretion, that the payment will be used for the best interest and assist in the care of such Participant or Beneficiary, and provided further, that no prior claim for said payment has been made by a person described in (a) or (b) above. Any payment made in accordance with the foregoing provisions of this section shall constitute a complete discharge of any liability or obligation of UnitedHealth Group therefor. 8.8. IN-SERVICE DISTRIBUTIONS. 8.8.1. PRE-SELECTED IN-SERVICE DISTRIBUTIONS. Each Participant has a one-time opportunity, when initially enrolling in the Plan, to elect that distribution be made to such Participant on one or more in-service distribution dates prior to Termination of Directorship or death under the following rules: -12- (a) Through a voice response system (or other written or electronic means) approved by the Committee, the Participant may request a pre-selected in-service distribution. (b) No such distribution will be made before January 1 of the year that follows the third full Plan Year after the Participant first enrolled. (c) Only one such in-service distribution will be made in any Plan Year. (d) Through a voice response system (or other written or electronic means) approved by the Committee, the Participant may request only once that any pre-selected distribution date be extended. The Participant must file the extension request with the Committee at least twelve (12) months before the scheduled date of distribution. (e) Through a voice response system (or other written or electronic means) approved by the Committee, the Participant may request that any pre-selected distribution date be cancelled (whether or not previously extended). The Participant must file the cancellation request with the Committee at least twelve (12) months before the scheduled date of distribution. (f) The distribution amount shall be determined as of the Valuation Date coincident with or next following the pre-selected distribution date and shall be actually paid as soon as practicable after such determination. (g) If the Participant dies or experiences a Termination of Directorship before the scheduled pre-selected in-service distribution date, no distribution shall be made on such date. 8.8.2. ON DEMAND IN-SERVICE DISTRIBUTIONS. (a) ELECTION. Through a voice response system (or other written or electronic means) approved by the Committee, a Participant may elect to receive all or a portion of such Participant's Account prior to Termination of Directorship for any reason; provided, however, that the requested distribution amount will be reduced by a penalty equal to 10% of the requested amount, and the Participant will receive 90% of the requested amount. The penalty of 10% of the requested amount will be forfeited to UnitedHealth Group to be used as the Committee determines in its discretion. (b) DISTRIBUTION AMOUNT. The amount of such distribution shall be determined as of the Valuation Date coincident with or next following receipt of the request by the Committee and shall be actually paid to the Participant as soon as practicable after such determination. -13- (c) SUSPENSION RULE. If a Participant receives such a distribution, the Participant's deferrals under Section 3 will cease as soon as administratively practicable following the date such distribution is made. The Participant may not again elect to defer compensation under this Plan until the enrollment period for the Plan Year that begins at least six (6) months after such distribution. 8.8.3. IN-SERVICE DISTRIBUTION FOR FINANCIAL HARDSHIP. (a) ELECTION. A Participant may elect in writing to receive all or part of the Participant's Account prior to Termination of Directorship to alleviate a Financial Hardship. A Beneficiary of a deceased Participant may also request an early distribution for Financial Hardship. (b) FINANCIAL HARDSHIP DEFINED. For purposes of this Plan, "Financial Hardship" means a severe financial hardship to the Participant resulting from a sudden and unexpected illness or accident of the Participant or a dependent (as defined in section 152(a) of the Code), loss of the Participant's property due to casualty, or other similar extraordinary and unforeseeable emergency circumstances arising as a result of events beyond the control of the Participant. If a hardship is or may be relieved either (i) through reimbursement or compensation by insurance or otherwise, (ii) by liquidation of the Participant's assets (to the extent the liquidation of such assets would not itself cause severe financial hardship), or (iii) by cessation of deferrals under this Plan or any 401(k) plan, then the hardship shall not constitute a Financial Hardship for purposes of this Plan. If a Beneficiary of a deceased Participant requests an early distribution for Financial Hardship, then the references in this definition to "Participant" shall be deemed to be references to such Beneficiary. (c) DISTRIBUTION AMOUNT. The amount of such distribution shall be determined as of the Valuation Date next preceding approval of the request by the Committee and shall be actually paid as soon as practicable after such approval. (d) SUSPENSION RULE. If a Participant receives a distribution due to Financial Hardship, the Participant's deferrals under Section 3 will cease as soon as administratively practicable following the date such distribution is made. The Participant may not again elect to defer compensation under this Plan until the enrollment period for the Plan Year that begins at least six (6) months after such distribution. -14- 8.9. DISTRIBUTIONS IN CASH. All distributions from this Plan shall be made in cash. SECTION 9 FUNDING OF PLAN 9.1. UNFUNDED PLAN. The obligation of UnitedHealth Group to make payments under the Plan constitutes only the unsecured (but legally enforceable) promises of UnitedHealth Group to make such payments. No Participant shall have any lien, prior claim or other security interest in any property of UnitedHealth Group. UnitedHealth Group shall have no obligation to establish or maintain any fund, trust or account (other than a bookkeeping account) for the purpose of funding or paying the benefits promised under the Plan. If such a fund, trust or account is established, the property therein shall remain the sole and exclusive property of UnitedHealth Group. UnitedHealth Group shall be obligated to pay the cost of the Plan out of its general assets. All references to accounts, accruals, gains, losses, income, expenses, payments, custodial funds and the like are included merely for the purpose of measuring the obligation of UnitedHealth Group to Participants in the Plan and shall not be construed to impose on UnitedHealth Group the obligation to create any separate fund for purposes of the Plan. 9.2. CORPORATE OBLIGATION. Neither any officer of UnitedHealth Group nor any member of the Committee in any way secures or guarantees the payment of any benefit or amount which may become due and payable hereunder to or with respect to any Participant. Each Participant and other person entitled at any time to payments hereunder shall look solely to the assets of UnitedHealth Group for such payments as an unsecured, general creditor. After benefits have been paid to or with respect to a Participant and such payment purports to cover in full the benefit hereunder, such former Participant or other person or persons, as the case may be, shall have no further right or interest in any other Plan assets. No person shall be under any liability or responsibility for failure to effect any of the objectives or purposes of this Plan by reason of the insolvency of UnitedHealth Group. SECTION 10 AMENDMENT AND TERMINATION 10.1. AMENDMENT AND TERMINATION. The Committee may unilaterally amend the Plan Statement prospectively, retroactively or both, at any time and for any reason deemed sufficient by it without notice to any person affected by this Plan, and the Board of Directors may terminate this Plan both with regard to persons receiving benefits and persons expecting to receive benefits in the future; provided, however, that: -15- (a) NO REDUCTION OR DELAY. The benefit, if any, payable to or with respect to a Participant, whether or not the Participant has had a Termination of Directorship as of the effective date of such amendment, shall not be, without the written consent of the Participant, diminished or delayed by such amendment. (b) CASH LUMP SUM PAYMENT. If the Board of Directors terminates the Plan completely, all Accounts under the Plan shall be automatically and immediately distributed in single lump sum payments. 10.2. NO ORAL AMENDMENTS. No oral representation concerning the interpretation or effect of the Plan Statement shall be effective to amend the Plan Statement. No amendment of the Plan Statement shall be effective unless it is in writing and signed on behalf of the Committee by a person authorized to execute such writing. No termination of the Plan shall be effective unless it is in writing and signed on behalf of the Board of Directors by a person authorized to execute such writing. 10.3. PLAN BINDING ON SUCCESSORS. UnitedHealth Group shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise of all or substantially all of the business and/or assets of UnitedHealth Group), by agreement, to expressly assume and agree to perform this Plan Statement in the same manner and to the same extent that UnitedHealth Group would be required to perform it if no such succession had taken place. SECTION 11 DETERMINATIONS -- RULES AND REGULATIONS 11.1. DETERMINATIONS. The Committee shall make such determinations as may be required from time to time in the administration of the Plan. The Committee shall have the discretionary authority and responsibility to interpret and construe the Plan Statement and to determine all factual and legal questions under the Plan, including but not limited to the entitlement of Participants and Beneficiaries, and the amounts of their respective interests. Each interested party may act and rely upon all information reported to them hereunder and need not inquire into the accuracy thereof, nor be charged with any notice to the contrary. 11.2. RULES AND REGULATIONS. Any rule not in conflict or at variance with the provisions hereof may be adopted by the Committee. 11.3. METHOD OF EXECUTING INSTRUMENTS. Information to be supplied or written notices to be made or consents to be given by the Committee pursuant to any provision of the Plan Statement may be signed in the name of the Committee by any officer who has been authorized to make such certification or to give such notices or consents. -16- 11.4. CLAIMS PROCEDURE. The claims procedure set forth in this Section 11.4 shall be the exclusive administrative procedure for the disposition of claims for benefits arising under the Plan. 11.4.1. ORIGINAL CLAIM. Any person may, if he or she so desires, file with the Committee a written claim for benefits under the Plan. Within ninety (90) days after the filing of such a claim, the Committee shall notify the claimant in writing whether the claim is upheld or denied in whole or in part or shall furnish the claimant a written notice describing specific special circumstances requiring a specified amount of additional time (but not more than one hundred eighty (180) days from the date the claim was filed) to reach a decision on the claim. If the claim is denied in whole or in part, the Committee shall state in writing: (a) the specific reasons for the denial; (b) the specific references to the pertinent provisions of the Plan Statement on which the denial is based; (c) a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and (d) an explanation of the claims review procedure set forth in this section. 11.4.2. REVIEW OF DENIED CLAIM. Within sixty (60) days after receipt of notice that the claim has been denied in whole or in part, the claimant may file with the Committee a written request for a review and may, in conjunction therewith, submit written issues and comments. Within sixty (60) days after the filing of such a request for review, the Committee shall notify the claimant in writing whether, upon review, the claim was upheld or denied in whole or in part or shall furnish the claimant a written notice describing specific special circumstances requiring a specified amount of additional time (but not more than one hundred twenty (120) days from the date the request for review was filed) to reach a decision on the request for review. If the claimant wishes to seek further review of the Committee's decision upon review, the claimant shall submit the claim (or dispute or complaint) to binding arbitration pursuant to the rules of the American Arbitration Association. This is the only right a complainant has for further consideration. The matter must be submitted to binding arbitration within one (1) year of receipt of notice of the Committee's final decision upon review. The arbitrators shall have no power to award any punitive or exemplary damages or to vary or ignore the provisions of the Plan Statement and shall be bound by controlling law. 11.4.3. GENERAL RULES. (a) No inquiry or question shall be deemed to be a claim or a request for a review of a denied claim unless made in accordance with the claims procedure. The Committee may require that any claim for benefits and any request for a review of a denied claim be filed on forms to be furnished by the Committee upon request. -17- (b) All decisions on original claims and all decisions on requests for a review of denied claims shall be made by the Committee. (c) The Committee may, in its discretion, hold one or more hearings on a claim or a request for a review of a denied claim. (d) A claimant may be represented by a lawyer or other representative (at the claimant's own expense), but the Committee reserves the right to require the claimant to furnish written authorization. A claimant's representative shall be entitled, upon request, to copies of all notices given to the claimant. (e) The decision of the Committee on a claim and a decision of the Committee on a request for a review of a denied claim shall be served on the claimant in writing. If a decision or notice is not received by a claimant within the time specified, the claim or request for a review of a denied claim shall be deemed to have been denied. (f) Prior to filing a claim or a request for a review of a denied claim, the claimant or his or her representative shall have a reasonable opportunity to review a copy of the Plan Statement and all other pertinent documents in the possession of the Committee. (g) The Committee may permanently or temporarily delegate its responsibilities under this claims procedure to an individual or a committee of individuals. 11.5. LIMITATIONS AND EXHAUSTION. 11.5.1. LIMITATIONS. No claim shall be considered under these administrative procedures unless it is filed with the Committee within one (1) year after the claimant knew (or reasonably should have known) of the principal facts on which the claim is based. Every untimely claim shall be denied by the Committee without regard to the merits of the claim. No legal action (whether arising under any statute or non-statutory law) may be brought by any claimant on any matter pertaining to the Plan unless the legal action is commenced in the proper forum before the earlier of: (a) two (2) years after the claimant knew (or reasonably should have known) of the principal facts on which the claim is based, or (b) ninety (90) days after the claimant has exhausted these administrative procedures. Knowledge of all facts that a Participant knew (or reasonably should have known) shall be imputed to each claimant who is or claims to be a Beneficiary of the Participant (or otherwise -18- claims to derive an entitlement by reference to a Participant) for the purpose of applying the one (1) year and two (2) year periods. 11.5.2. EXHAUSTION REQUIRED. The exhaustion of these administrative procedures is mandatory for resolving every claim and dispute arising under the Plan. As to such claims and disputes: (a) no claimant shall be permitted to commence any legal action relating to any such claim or dispute (whether arising under any statute or non-statutory law) unless a timely claim has been filed under these administrative procedures and these administrative procedures have been exhausted; and (b) in any such legal action all explicit and implicit determinations by the Committee (including, but not limited to, determinations as to whether the claim was timely filed) shall be afforded the maximum deference permitted by law. SECTION 12 PLAN ADMINISTRATION 12.1. OFFICERS. Except as hereinafter provided, functions generally assigned to UnitedHealth Group shall be discharged by its officers or delegated and allocated as provided herein. 12.2. CHIEF EXECUTIVE OFFICER. Except as hereinafter provided, the Chief Executive Officer of UnitedHealth Group may delegate or redelegate and allocate and reallocate to one or more persons or to a committee of persons jointly or severally, and whether or not such persons are directors, officers or employees, such functions assigned to UnitedHealth Group generally hereunder as he or she may from time to time deem advisable. 12.3. BOARD OF DIRECTORS. Notwithstanding the foregoing, the Board of Directors shall have the sole authority to terminate the Plan. 12.4. COMMITTEE. The Committee shall: (a) keep a record of all its proceedings and acts and keep all books of account, records and other data as may be necessary for the proper administration of the Plan; notify UnitedHealth Group of any action taken by the Committee and, when required, notify any other interested person or persons; (b) determine from the records of UnitedHealth Group the compensation, status and other facts regarding Participants; -19- (c) prescribe forms to be used for distributions, notifications, etc., as may be required in the administration of the Plan; (d) set up such rules, applicable to all Participants similarly situated, as are deemed necessary to carry out the terms of this Plan Statement; (e) perform all other acts reasonably necessary for administering the Plan and carrying out the provisions of this Plan Statement and performing the duties imposed on it by the Board of Directors; (f) resolve all questions of administration of the Plan not specifically referred to in this section; (g) provide adequate notice in writing to any claimant whose claim for benefits under the Plan has been denied, setting forth the specific reasons for such denial, written in a manner calculated to be understood by the claimant; and (h) delegate or redelegate to one or more persons, jointly or severally, and whether or not such persons are members of the Committee or employees of UnitedHealth Group, such functions assigned to the Committee hereunder as it may from time to time deem advisable. If there shall at any time be three (3) or more members of the Committee serving hereunder who are qualified to perform a particular act, the same may be performed, on behalf of all, by a majority of those qualified, with or without the concurrence of the minority. No person who failed to join or concur in such act shall be held liable for the consequences thereof. 12.5. DELEGATION. The Board of Directors and the members of the Committee shall not be liable for an act or omission of another person with regard to a responsibility that has been allocated to or delegated to such other person pursuant to the terms of the Plan Statement or pursuant to procedures set forth in the Plan Statement. 12.6. CONFLICT OF INTEREST. If any individual to whom authority has been delegated or redelegated hereunder shall also be a Participant in the Plan, such Participant shall have no authority with respect to any matter specially affecting such Participant's individual rights hereunder (as distinguished from the rights of all Participants and Beneficiaries or a broad class of Participants and Beneficiaries), all such authority being reserved exclusively to other individuals as the case may be, to the exclusion of such Participant, and such Participant shall act only in such Participant's individual capacity in connection with any such matter. 12.7. SERVICE OF PROCESS. In the absence of any designation to the contrary by the Committee, the General Counsel of UnitedHealth Group is designated as the appropriate and exclusive agent for the receipt of process directed to this Plan in any legal proceeding, including arbitration, involving the Plan. -20- 12.8. EXPENSES. The expenses of administering this Plan shall be payable out of the trust fund, if any, established for this Plan except to the extent that UnitedHealth Group, in its discretion, directly pays the expenses. If no such trust fund exists, UnitedHealth Group shall pay such expenses. 12.9. CERTIFICATIONS. Information to be supplied or written notices to be made or consents to be given by the Committee pursuant to any provision of this Plan Statement may be signed in the name of the Committee by any officer who has been authorized to make such certification or to give such notices or consents. 12.10. ERRORS IN COMPUTATIONS. UnitedHealth Group shall not be liable or responsible for any error in the computation of the Account or the determination of any benefit payable to or with respect to any Participant resulting from any misstatement of fact made by the Participant or by or on behalf of any survivor to whom such benefit shall be payable, directly or indirectly, to UnitedHealth Group and used by the Committee in determining the benefit. The Committee shall not be obligated or required to increase the benefit payable to or with respect to such Participant which, on discovery of the misstatement, is found to be understated as a result of such misstatement of the Participant. However, the benefit of any Participant which is overstated by reason of any such misstatement or any other reason shall be reduced to the amount appropriate in view of the truth (and to recover any prior overpayment). SECTION 13 CONSTRUCTION 13.1. APPLICABLE LAWS. 13.1.1. ERISA STATUS. Since no employee of UnitedHealth Group or any affiliate may actively participate in this Plan (see Sections 2 and 3.3), this Plan is not subject to regulation under the Employee Retirement Income Security Act of 1974 ("ERISA"). 13.1.2. IRC STATUS. The Plan is intended to be a nonqualified, unfunded, deferred compensation arrangement. 13.1.3. REFERENCES TO LAWS. Any reference in the Plan Statement to a statute or regulation shall be considered also to mean and refer to any subsequent amendment or replacement of that statute or regulation. 13.2. EFFECT ON OTHER PLANS. This Plan Statement shall not alter, enlarge or diminish any person's rights or obligations under any other benefit plan for members of the Board of Directors. -21- 13.3. DISQUALIFICATION. Notwithstanding any other provision of the Plan Statement or any election or designation made under the Plan, any potential Beneficiary who feloniously and intentionally kills a Participant shall be deemed for all purposes of the Plan and all elections and designations made under the Plan to have died before such Participant. A final judgment of conviction of felonious and intentional killing is conclusive for this purpose. In the absence of a conviction of felonious and intentional killing, the Committee shall determine whether the killing was felonious and intentional for this purpose. 13.4. RULES OF DOCUMENT CONSTRUCTION. (a) Whenever appropriate, words used herein in the singular may be read in the plural, or words used herein in the plural may be read in the singular; the masculine may include the feminine; and the words "hereof," "herein" or "hereunder" or other similar compounds of the word "here" shall mean and refer to the entire Plan Statement and not to any particular paragraph or Section of the Plan Statement unless the context clearly indicates to the contrary. (b) The titles given to the various Sections of the Plan Statement are inserted for convenience of reference only and are not part of the Plan Statement, and they shall not be considered in determining the purpose, meaning or intent of any provision hereof. (c) Notwithstanding any thing apparently to the contrary contained in the Plan Statement, the Plan Statement shall be construed and administered to prevent the duplication of benefits provided under the Plan and any other plan maintained in whole or in part by UnitedHealth Group. 13.5. CHOICE OF LAW. This instrument has been executed and delivered in the State of Minnesota and has been drawn in conformity to the laws of that State and shall be construed and enforced in accordance with the laws of the State of Minnesota. This Plan Statement was approved by the Board of Directors on October 30, 2001. UNITEDHEALTH GROUP INCORPORATED By:_______________________________________ David J. Lubben, General Counsel and Secretary -22- EX-10.(S) 7 c74996exv10wxsy.txt EX-10(S) AMENDMENTS TO AARP HEALTH INSURANCE EXHIBIT 10(s) Amendment and Assignment United HealthCare Insurance Company American Association of Retired Persons Trustees of the AARP Insurance Plan AARP Services, Inc. This ASSIGNMENT is made and entered into as of the 28th day of December, 1999, by and between the American Association of Retired Persons ("AARP"), the Trustees of the AARP Insurance Plan ("AARP Trust"), United HealthCare Insurance Company ("United"), and AARP Services, Inc. ("Services"). WITNESSETH WHEREAS, AARP has made available to its members a group Medicare supplement, hospital indemnity and certain other medical insurance coverages and other products from United (the "Program"); and WHEREAS, the Program is presently being made available pursuant to an Agreement between the parties dated as of February 26, 1997 (the "United Agreement"); and WHEREAS, AARP is desirous of restructuring its operational structure whereby certain activities formerly conducted by AARP, including performance of quality control operations, monitoring of service providers, and granting third parties use of the AARP Mailing List, will in the future be conducted by Services and no longer be conducted by AARP; and WHEREAS, AARP and United desire to assign certain of their respective rights and obligations relating to quality control, monitoring and the AARP Membership Information as set out in the United Agreement to Services, a wholly-owned subsidiary of AARP, which subsidiary will carry out these activities formerly carried out by AARP. NOW THEREFORE, IT IS AGREED: 1) Attached hereto as Exhibit A is a copy of the United Agreement between AARP, the AARP Trust, and United effective as of February 26, 1997. By this Assignment, AARP assigns all of its rights, title and interests in such Agreement as they relate to quality control, monitoring and the AARP Membership Information, to Services, saving and excepting to itself those rights, title and interests contained in the Agreement relating to the exclusive right of AARP to its name, symbol, mark, logos, and acronym (the "AARP Marks") and the right of AARP to receive a royalty for the use of the AARP Marks. The Definitions as set out in Article 2 of the United Agreement are incorporated herein by reference to the extent that such Definitions are applicable. All other provisions of the United Agreement not assigned shall remain as set out in the United Agreement and shall control to the extent consistent with the terms of this Assignment. 2) The allowances determined in accordance with Section 6.1 of the United Agreement and payable in accordance with Section 6.7 of the United Agreement shall be payable under the same terms and conditions by United to AARP. 3) AARP hereby assigns and transfers to Services: a) All of its rights, title and interests in the United Agreement as they relate to quality control and monitoring of the use by United of the AARP Marks. (b) A license to use and sublicense the AARP names, addresses, and member identification number(s) (the "Membership Information"). -2- c) Nothing herein shall be interpreted as AARP assigning those rights, title and interests contained in the United Agreement relating to the exclusive right of AARP to the AARP Marks and the right of AARP to receive a royalty for the use of the AARP Marks. d) All rights, title and interests not assigned by this Assignment shall remain as set out in the United Agreement and shall control to the extent consistent with the terms of this Assignment. 4) It is intent of the parties hereto that the payment made by United to AARP pursuant to the United Agreement and referred to as an allowance is a royalty and pursuant to this Assignment and the agreement referred to in this paragraph, the royalty is to be bifurcated into a payment to AARP Services for Quality Control and monitoring and to AARP for use of the AARP Marks. AARP shall grant United an exclusive license to use the AARP Marks by separate agreement. Such separate agreement shall obligate United to compensate AARP for the use of its intangible property by the payment of a royalty. A copy of such separate agreement is attached hereto as Exhibit B. 5) The quality control, monitoring and AARP Membership Information rights and obligations set out in the United Agreement which are hereby transferred to Services are as follows: a) Quality Control: Services shall be responsible for ensuring that United maintains all of the standards and meets all of the requirements set out in the United Agreement. Services shall be subject to the obligations of AARP contained therein. All reports required of United formerly to have been provided to AARP shall be provided by United to Services. -3- b) Monitoring: An activity of Quality Control consisting of the overseeing of operations as called for in the United Agreement. c) Any and all rights of United to the AARP Membership Information are hereby transferred from AARP to Services. AARP has licensed the use of its member mailing list and Membership Information to Services by separate agreement with the right of Services to sublicense such information. Services hereby grants to United all rights to the Membership Information formerly granted to United by AARP pursuant to the United Agreement. Any and all approvals required of AARP as to the use of the Membership Information pursuant to the United Agreement shall be requested by United from Services. d) All rights of United as to the Membership Information remain as they are set out in the United Agreement, with such rights to be provided by Services. United acknowledges Services as the successor to AARP for all purposes relating to Membership Information. Nothing in this Assignment Agreement shall grant to Services or United any rights whatsoever as to the AARP Marks. 6) United shall pay to Services the sum of the following amounts as compensation: a) For Membership Information, during the term of this Assignment, United shall pay to Services an amount equal to eight percent (8%) of the amount computed pursuant to Article 6 of the United Agreement. b) For Quality Control services, United shall pay to Services an amount equal to Services' costs to perform such services, plus ten percent (10%). Services shall bill United for these services and payment shall be made within thirty (30) days. -4- 7) Notices required or appropriate to be given under this Agreement shall be given as set out in the United Agreement, with a copy of all such notices: To Services: AARP Services, Inc. 601 E Street, N.W. Washington, D.C. 20049 FACSIMILE NUMBER: (202) 434-2339 Attention: Steven Zaleznick, President 8) All representations, warranties and indemnifications made by the parties to the Agreement being amended are hereby incorporated by reference with modifications as necessary to result in Services assuming those representations, warranties and indemnifications of AARP to the extent they relate to the subject matter of this Amendment and Assignment, and Services being the beneficiary of those representations, warranties and indemnifications of the service provider to the extent they relate to the subject matter of the Amendment and Assignment. 9) This Agreement shall be binding upon and shall inure to the benefit of each of the parties hereto and their respective successors and assigns. -5- 10) This Agreement may be executed in counterparts, each of which shall be deemed to be an original. IN WITNESS WHEREOF, the parties have executed this Agreement this 28th day of December, 1999. American Association of Retired Persons By: /s/ Horace B. Deets ------------------------------------------ Horace B. Deets, Executive Director Trustees of the AARP Insurance Plan By: /s/ Illegible ------------------------------------------ United HealthCare Insurance Company By: /s/ Illegible ------------------------------------------ AARP Services, Inc. By: /s/ Steven Zaleznick ------------------------------------------ Steven Zaleznick -6- ROYALTY AGREEMENT United HealthCare Insurance Company American Association of Retired Persons Trustees of the AARP Insurance Plan This AGREEMENT is made and entered into as of the 28th day of December, 1999, by and between the American Association of Retired Persons ("AARP"), the Trustees of the AARP Insurance Plan ("AARP Trust"), and the United HealthCare Insurance Company ("Provider"). WITNESSETH WHEREAS, AARP, the AARP Trust, and Provider are parties to an agreement dated as of February 26, 1997 ("Agreement") under which AARP licenses its name, symbol, mark, logos, service marks and acronym ("AARP Marks") to Provider, and under which the Provider makes available services to AARP members. AARP receives an allowance as compensation for such licenses under the Agreement. WHEREAS, AARP and the Provider have determined that the allowance for the licenses is in fact a royalty. WHEREAS, AARP Services, Inc. ("Services") is a wholly-owned subsidiary of AARP that is governed and operated separately and independently from AARP. WHEREAS, AARP, the AARP Trust, and the Provider have entered into an assignment ("Assignment") with Services, under which AARP and the Provider have assigned to Services certain of their rights, title and interests in the Agreement, and, pursuant to such Assignment, AARP has reserved unto itself all of its right, title and interest in the AARP Marks. WHEREAS, AARP has entered into an agreement with Services ("AARP-Services Agreement"), under which Services will fulfill all of the rights and obligations of AARP as set out in the Agreement. WHEREAS, AARP and the AARP Trust wish to enter into this royalty agreement ("Royalty Agreement") with Provider, under which AARP solely licenses the AARP Marks to Provider, and receives in return royalties solely for the use of its intangible property. WHEREFORE, IT IS AGREED: 1) To the extent that this Royalty Agreement modifies provisions of the Agreement, this Royalty Agreement replaces and supersedes such provisions in the Agreement relating to AARP's license to Provider of the AARP Marks, and the right of AARP to receive a royalty for such license. All other provisions of the Agreement shall remain in full force and effect. Should any provision of this Royalty Agreement conflict with a provision of the Agreement and such provision not relate to the license of the AARP Mark or payment therefore, the provision of the Agreement shall control. 2) AARP hereby grants and licenses to Provider the exclusive right to use the AARP Marks, in connection with Provider's operation of the program carried on by Provider as set forth in the Agreement. 3) The license described in par. 2 above shall be for the time period as set out in the Agreement. 4) As payment for the use of the intangible rights described in Par. 2 above, Provider shall pay AARP a royalty fee of the amount as set out in Article 6 of the Agreement as an allowance, modified as follows: a) During the term of this Royalty Agreement, there shall be deducted by Provider from the amount due to AARP pursuant to Article 6 of the Agreement an amount equal to eight percent (8%) of such amount, plus any amount paid to AARP Services for its quality control activities carried on to enable it to comply with its rights and obligations set out in the Assignment. b) It is the intent of the parties to this Royalty Agreement that the amounts due to AARP under this Royalty Agreement plus the amounts paid by Provider to AARP Services to enable it to fulfill its rights and obligations under the Assignment shall equal the amount which would have been paid to AARP under the Agreement. 5) The foregoing royalty constitutes the sole and entire payment AARP is entitled to receive hereunder or otherwise from Provider for the license granted hereunder. 6) Provider shall comply with the provisions of the Assignment; shall furnish all necessary information to Services on a timely basis; and shall pay Services for Service's activities in assisting Provider to comply with the provisions of the Assignment. 7) Should the Agreement be terminated pursuant to its terms, this Royalty Agreement shall terminate at the same time. 8) Any dispute arising out of or relating to this Royalty Agreement, including, but not limited to, interpretation, validity, or breach of this Royalty Agreement shall be resolved as if this Royalty Agreement was part of the Agreement and the provisions of Article 11 of the Agreement applied. 9) Neither AARP nor Provider are now, nor shall they become or be considered as, either principal or agent of the other in connection with the program as set out in the Agreement, nor shall AARP and Provider be joint venturers or partners either in carrying out their respective duties and obligations under this Royalty Agreement or for any other purpose. AARP is not will it become or be considered, as having an ownership interest in the program as set out in the Agreement, nor in Provider (except AARP is the sole and exclusive owner of all proprietary and other property rights in interests in and to the AARP Marks) and AARP shall not be liable or responsible in any such capacity or capacities. Accordingly, Provider shall at no time and in no medium or manner state or imply that the AARP has any such interest in or connection with, Provider or the program as set out in the Agreement except that Provider may, in promotional materials, describe or provide information about the license granted hereunder. 10) This Agreement constitutes the entire agreement among the parties with respect to the matters treated herein and supersedes and replaces any prior Agreement between the parties. Modifications or amendments to this Agreement shall be effective only if in writing and signed by the parties. 11) The parties shall keep each other reasonably informed about legal or any other developments affecting the Program, shall cooperate with one another to carry out and implement the terms and objectives of this Agreement and shall perform such further acts, execute such further documents, and enter into such further agreements as may be necessary or appropriate to these ends. Without limiting the foregoing, each shall permit the other party (and its authorized representatives) reasonable access to its files and records and shall make available to the other party (and its authorized representatives)for consultation responsible officials for the purpose of more fully carrying out the terms and objectives of this Agreement, provided that the same be requested during normal business hours and upon reasonable notice 12) Provider may from time to time propose to AARP, for its approval, additional products to include within the program. 13) Notices required or appropriate to be given under this Agreement shall be given as set out in the Agreement. 14) Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid, but if any provision of this Agreement shall be held to be prohibited or invalid, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. No failure on the part of any party to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right hereunder by any party preclude any other or further exercise of any other right and no waiver whatever shall be valid unless in a signed writing, and then only to the extent specifically set forth in such writing. No waiver of any right hereunder shall operate as a waiver of any other or of the same or similar right on another occasion. 15) The Article and Section headings contained in this Agreement are not part of this Agreement, are for the convenience of reference only and shall not affect the meaning, construction or interpretation of this Agreement. 16) This Agreement shall be binding upon and shall inure to the benefit of each of the parties hereto and their respective successors and assigns. 17) This Agreement may be executed in counterparts, each of which shall be deemed to be an original. IN WITNESS WHEREOF, the parties have executed this Agreement this 28th day of December, 1999. American Association of Retired Persons Trustees of the AARP Insurance Plan By: /s/ Horace B. Deets By: /s/ Illegible ------------------------------------- ---------------------------- Horace B. Deets, Executive Director Illegible United HealthCare Insurance Company By:/s/ Illegible ------------------------------------- Illegible FOURTH AMENDMENT TO THE AARP HEALTH INSURANCE AGREEMENT This Fourth Amendment to the AARP Health Insurance Agreement (this "Amendment"), dated as of December 18, 2001 (the "Effective Date"), is made by and between AARP Services, Inc., a Delaware corporation ("ASI") and United HealthCare Insurance Company, a Delaware corporation ("United"). The parties hereto shall collectively be referred to as the "Parties." RECITALS A. The AARP, the Trustees of the AARP Insurance Plan, and United are parties to a certain AARP Health Insurance Agreement dated as of February 26, 1997 (the "Original Agreement"). B. The Original Agreement was first amended effective January 1, 1998, to address the Medicare Select product (the "First Amendment"). C. The Original Agreement was also amended effective January 1, 1998, to address the Health Care Options Pharmacy Service offered to SHIP Pharmacy Insureds (the "Second Amendment"). D. By subsequent amendment and assignment on December 28, 1999, AARP, AARP Trust and United agreed to the assignment to and assumption by ASI of certain rights and obligations (the "Third Amendment"). E. The Original Agreement and its subsequent amendments shall hereinafter collectively be referred to as the "Agreement." Capitalized terms not defined in this Amendment but defined in the Agreement shall have the meanings set out therein. F. Since the execution of the Agreement, United, ASI and its consultants have worked together to develop certain Developed Systems to support the administration of the SHIP 1 Plans and the provision of Services, the costs of which were approved by ASI and charged to the SHIP. The Developed Systems are set forth in more detail on Exhibit 7.7.2 hereto. G. Section 7.7.2 of the Agreement provides that the Developed Systems are to be owned as agreed among the Parties. In accordance with Section 7.7.2, the Parties desire to provide a clear delineation of the rights of the Parties with respect to the Developed Systems, as more fully set forth in this Amendment. Now, therefore, the Parties agree as follows: A. Article 7 of the Agreement is amended by the addition of the following subsections 7.7.2.1 through 7.7.2.5: 7.7.2.1. Approval. United shall not, alone or in conjunction with any other person or entity, license, sell or otherwise utilize the Developed Systems for the purpose of enabling or facilitating the provision of any service or product other than in connection with the SHIP without the prior written approval of ASI, such approval not to be unreasonably withheld. 7.7.2.2. Use of Developed Systems involving a Directly Competitive Service or Product Prohibited. United shall not, alone or in conjunction with any other person or entity, license, sell or otherwise utilize the Developed Systems for the purpose of enabling or facilitating the provision of any Directly Competitive Service or Product, unless the Parties mutually agree otherwise. A "Directly Competitive Service or Product" means the following services and products offered to or through any other 2 group (other than AARP and its subsidiaries): Medicare supplement insurance, supplemental medical insurance, supplemental hospital indemnity insurance, long term care insurance, dental insurance, pharmacy services, vision services and any other services or products upon which the Parties mutually agree. 7.7.2.3. Compensation. The Parties hereby agree that a licensing fee shall be paid for any use, sale or license of the Developed Systems that is approved by ASI. The licensing fee shall be reimbursed to the SHIP in consideration of its capital investment in the Developed Systems. The amount of the licensing fee shall be as the Parties mutually agree and may take into account the following criteria: (a) utilization of hardware capacity (e.g., servers, computer systems, and network hardware) comprising the Developed Systems, (b) utilization of software capacity (e.g., database management systems, and modeling algorithms) comprising the Developed Systems, (c) direct expense of engineering resources comprising the Developed Systems, (d) direct expense of design resources comprising the Developed Systems and (e) consideration of the size or scope of the project involving the Developed Systems. 7.7.2.4. Budgetary Considerations. All costs, fees, and future funding provided with respect to the development of the Developed Systems shall be governed by ASI's budget and approval process for the SHIP; provided, however, that any such costs, fees, and funding which are required for the SHIP due to an Event of Force Majeure shall not be withheld. 3 7.7.2.5. Future Development. United may at any time independently develop systems, notwithstanding any prior exposure by its engineering team to the Developed Systems. However, unless approved by ASI pursuant to subsection 7.7.2.1 above, United may not utilize the proprietary customized source code and object code, hardware, custom software, copyrighted material and/or patented technology comprising the Developed Systems, except for the know-how, processes, and other intellectual property, including patentable or copyrightable materials developed, owned or possessed by United's contractors and embedded in, underlying or constituting a part of the Developed Systems, the right, title and interest of which did not pass to United. B. Exhibit 7.7.2 is revised to read as set forth in the attached Exhibit 7.7.2, which is hereby incorporated by reference as the new Exhibit 7.7.2. C. This Amendment shall survive termination of the Agreement; however, this Amendment does not supercede the termination provisions of Article 10. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their duly authorized officers as of the date first set forth above. AARP SERVICES, INC. By: _______________________________________ Print Name: _________________________________ 4 Print Title: _________________________________ UNITED HEALTHCARE INSURANCE COMPANY By: __________________________________________ Print Name: _________________________________ Print Title: _________________________________ 5 EXHIBIT 7.7.2 I. Developed Systems Developed Systems are comprised of: A. The new SHIP policy administration system, which includes all portions of the new SHIP policy administration system and any future enhancements, augmentation or modifications made thereto, including hardware (servers, desktop machines, and network infrastructure), systems software, and applications software, developed, licensed or purchased by United, to date or in the future, as replacement for the current SHIP ADMIN Policy Administration System, and funded out of the SHIP ("COMPAS"). COMPAS supports or will support four functional SHIP areas; member enrollment and maintenance; customer service level II; fulfillment; and billing and collection (including plan and rate structure, billing and premium calculation, and accounts receivable). B. All portions of the SHIP Claims system developed by United and funded out of the SHIP. C. Other Business Transition-Related Systems -- All systems developed or licensed to support the transition of non-Core SHIP business functions from the Member Services Vendor to United, and funded by the SHIP. 6 FIFTH AMENDMENT TO THE AARP HEALTH INSURANCE AGREEMENT AARP Services, Inc. ("ASI") and United HealthCare Insurance Company ("United") hereby agree to this Fifth Amendment of the AARP Health Insurance Agreement entered into and dated as of February 26, 1997, and subsequently amended, as set forth below: A. Article 2 of the Agreement is amended by the addition of the following Sections 2.126, 2.127 and 2.128: "2.126. AARP HealthLine Services means the services offered by United to SHIP Medicare Supplement Insureds as described in subsection 3.2.2(i) and Exhibit 3.2.2(i) of the Agreement. 2.127. AARP HealthLine Claim Savings means the savings, expressed in dollars, derived from SHIP Medicare Supplement Insureds' utilization of AARP HealthLine Services. This is calculated using a model described in Exhibit 2.127 hereto that is based on differences in level of service between an individual's intention regarding care before calling to the care that the individual actually received after calling, as verified through aggregate reporting to ASI. 2.128. SHIP Medicare Supplement Insured means an individual who is insured under any SHIP Plan that is a Medicare supplement insurance plan, including prestandardized and standardized Medicare Supplement insurance and Medicare Select." B. Subsection 3.2.2(g) of the Agreement is deleted in its entirety and replaced with the following: "3.2.2(g). Reserved." C. Subsection 3.2.2 of the Agreement is amended by the addition of new subparagraph (i) to read as follows: "(i) United shall make available to all SHIP Medicare Supplement Insureds access to the AARP HealthLine Services. The AARP HealthLine Services are set forth in Exhibit 3.2.2(i) which is attached hereto and made a part of the Agreement. Additionally, United agrees to the following: (1) Performance Standards. United shall meet or exceed the performance standards and measurements set forth in Exhibit 3.2.2(i)(1) in performing its obligations under this subsection. 1 D. (2) Program Performance Evaluation. United shall conduct a program performance evaluation beginning at 18 months following the effective date of the Fifth Amendment. The performance evaluation will measure the following program components: utilization of service, including overall utilization and ratio of new users to repeat users; customer service, including average speed of answer, call abandonment rate, member satisfaction and retention, and complaint resolution; projected return on investment based on program usage by SHIP Medicare Supplement Insureds; cross referrals into other AARP Health Care Options products; and clinical call mix. The Parties agree that the results of such evaluation may necessitate changes to the program, which may be made upon mutual agreement except as set forth in subsection 10.2.3 below. (3) Training. United shall develop and implement, to the satisfaction of ASI, training for employees supporting the AARP HealthLine Services, which shall address the operation and provision of AARP HealthLine Services and areas of special concern when dealing with senior sensitivity and mature customers. (4) Reports. United shall provide monthly and quarterly reports to ASI, at intervals and in a format and medium to be agreed to by the Parties, to monitor and evaluate program performance. These reports shall include, but are not limited to reports on utilization of service, customer service, satisfaction, marketing results and analysis, and an aggregate report that verifies the elements of the AARP HealthLine Claim Savings Model. (5) Marketing Communications. United shall develop an annual AARP HealthLine Services marketing plan which shall be submitted to ASI for its review and approval. United shall communicate the availability and benefits of the AARP HealthLine Services in existing AARP member communications. United shall adhere to the then-current AARP Health Care Options review and approval process for all written or scripted oral marketing, promotional, member and all other communications which shall be disseminated to SHIP Medicare Supplement Insureds or the general AARP membership describing the AARP HealthLine Services ("Promotional Materials"). United shall use the product name designated by ASI when providing AARP HealthLine Services under this Agreement. (6) Additional Promotional Materials. In addition to the communications described in subsection 3.2.2(i)(5) above, United shall communicate in writing the availability and benefits of the AARP HealthLine Services at least two (2) times per year through the following Promotional Materials ("Additional Promotional Materials"): welcome packet and reminder postcards or other mailings. United shall receive *** for each active SHIP Medicare Supplement Insured per month for the term of this Amendment to produce and mail the Additional Promotional Materials. This charge is in addition to the compensation set forth in section 6.11." (7) Subcontract. Certain of the AARP HealthLine Services shall be provided by Optum pursuant to an agreement between United and Optum, an executed copy of which shall be provided to ASI ("Optum Services Agreement"). ASI shall have the right to review and approve any proposed changes to the Optum Services Agreement. *** Represents text deleted pursuant to a confidentiality treatment request filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. 2 E. Section 6.10 of the Agreement is amended by deletion of the reference to "care coordination programs." F. Article 6 of the Agreement is amended by the deletion of subsection 6.10.2. G. Article 6 of the Agreement is further amended by the addition of the following new section 6.11, inclusive of subsections 6.11.1 through 6.11.4: "6.11 AARP HealthLine Services. Compensation for the AARP HealthLine Services shall be paid as follows: 6.11.1 For the first year that the Fifth Amendment is in effect ("Year One"), United shall be paid *** for each active SHIP Medicare Supplement Insured per month. If, at the end of Year One, the AARP HealthLine Claim Savings total *** or more, United shall be paid an additional *** for each active SHIP Medicare Supplement Insured per month for Year One. United's compensation under this subsection shall be treated as a Pass-Through Expense. Refer to Exhibit 6.11 for a table that displays United's compensation under this subsection. 6.11.2 For the second year that the Fifth Amendment is in effect ("Year Two"), United shall be paid *** for each active SHIP Medicare Supplement Insured per month. If, at the end of Year Two, the AARP HealthLine Claim Savings total *** or more for Year Two, United shall be paid an additional *** for each active SHIP Medicare Supplement Insured per month for Year Two. United's compensation under this subsection shall be treated as a Pass-Through Expense. Refer to Exhibit 6.11 for a table that displays United's compensation under this subsection. 6.11.3 Utilization. The projected annual utilization rate of the AARP HealthLine Services is *** of the total number of SHIP Medicare Supplement Insureds. In the event that the actual utilization rate for Year Two or any subsequent year is above *** but below ***, United's compensation shall be reduced by *** per active SHIP Medicare Supplement Insured per month for the applicable year. In the event that the actual utilization rate for Year Two or any subsequent year is *** or below, United's compensation shall be reduced by *** per active SHIP Medicare Supplement Insured per month for the applicable year. 6.11.4 Compensation to ASI. In consideration of the services that ASI performs, including administration and oversight responsibilities relating to member communications, marketing and operations, ASI shall be paid as follows: $200,000 per year if there are less than 2,200,000 SHIP Medicare Supplement Insureds eligible for AARP HealthLine Services; $250,000 per year if there are between 2,200,000 and 2,600,000 eligible SHIP Medicare Supplement Insureds; or $300,000 per year if there are 2,600,000 or more eligible SHIP Medicare Supplement Insureds. ASI will be paid one-twelfth of its projected annual compensation by the 15th of each calendar month. Within sixty (60) days after the end of each calendar year, a reconciliation of the prior year's payments will be made. ASI's compensation shall be treated as a Pass- *** Represents text deleted pursuant to a confidentiality treatment request filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. 3 H. Through Expense." I. Article 10 of the Agreement is amended by the addition of the following subsection 10.1.1: "10.1.1 The provisions of the Fifth Amendment shall become effective on January 1, 2002, shall remain in effect until December 31, 2003." J. Article 10 of the Agreement is further amended by the addition of the following subsections 10.2.1 and 10.2.2: "10.2.1 Termination for Breach. Any party may terminate the Fifth Amendment upon sixty (60) days prior written notice in the event of a material breach by another party, provided that such breach has not been cured to the non-breaching party's reasonable satisfaction within that sixty (60) day period. United's failure to meet or exceed the performance standards and measurements set forth in Exhibit 3.2.2(i)(1) for three (3) consecutive months or for three (3) months within any twelve (12) month period shall be considered a material breach. 10.2.2 Termination in the event of Change in Law. The parties shall renegotiate the Fifth Amendment of this Agreement if any party would be materially adversely affected by continued performance as a result of (i) a change in law or regulation or (ii) a compliance requirement imposed by a governmental authority. The affected party must promptly notify the other parties of the change or compliance requirement, the material adverse affect, and its desire to renegotiate. If a new amendment is not executed within 60 days of the receipt of the renegotiation notice, the party materially adversely affected shall have the right to terminate the Fifth Amendment upon thirty (30) days prior written notice to the other parties. Any such notice of termination must be given within fifteen (15) days of the end of the sixty (60) day renegotiation period. 10.2.3 Termination after Program Performance Evaluation. If the results of the Program Performance Evaluation described in subsection 3.2.2(i)(2) are not satisfactory to ASI, ASI may discontinue the AARP HealthLine Services and terminate this amendment effective upon the expiration of the initial two-year term. ASI shall provide United written notice of this decision at least three (3) months prior to the expiration of the initial term." 4 IN WITNESS WHEREOF, the parties have caused this Amendment of the Agreement to be executed by their duly authorized officers. AARP SERVICES, INC. By:_________________________________ Print Name:_________________________ Print Title:________________________ UNITED HEALTHCARE INSURANCE COMPANY By:_________________________________ Print Name:_________________________ Print Title:________________________ 5 EXHIBIT 2.127 CONFIDENTIAL AND PROPRIETARY INFORMATION OF OPTUM AARP HealthLine Services OPTUM RETURN ON INVESTMENT (ROI) ESTIMATION MODEL A comprehensive and yet conservative approach is used to estimate a financial return on investment for purchasers of Optum services. This approach creates a dynamic computer-based actuarial model in spreadsheet format. The model uses both default parameters derived from market segmented analysis of Optum's book of business and customized parameters based upon the specific purchaser's experience. The model's methodology is based on several years of research development including empirical claims, clinical process, and survey studies. Independent industry consultants have favorably reviewed this methodology. WHAT DOES THE ROI MODEL MEASURE? There are two principal components of economic return in the model that are relevant to AARP HealthLine Services. These are "Care-path methodology" (referred to as care-path) claims associated outcomes and service intervention values. 1. Care-path Claims Associated Outcomes This component of the model recognizes that symptom-based triage callers sort into three basic clinical paths as a result of their interaction with Optum. Care-path outcomes are measured using a two part longitudinal methodology. *** *** *** *** 2. Optum Service Intervention Value This component addresses the value of Optum services that fall outside of claims-associated savings. It is derived from conservative estimates of the cost to provide these services if the customer were to build or buy a capability equivalent to Optum. Types of services include health information nurse, clinical updates, audio library, and administrative assistance and member referrals. How Valid is the ROI Estimate? This is an estimation model used as a standardized tool for reporting ROI. Comprehensive investigation of a population's actual health care claims experience is very costly and difficult. Thus, it is not feasible to conduct full-scale empirical investigations of the ROI factors on a routine basis for customers. As an alternative, we use an empirical research base to guide the assumptions underlying ROI estimates. Additionally, most variables in the model can accept customer specific input values. Most importantly, the customer's actual Optum utilization experience and Optum program costs are factored into this ROI estimate. ROI DATA SOURCES *** *** *** *** *** *** *** *** *** *** *** ***Represents text deleted pursuant to a confidentiality treatment request filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. 1 EXHIBIT 3.3.2(i) AARP HealthLine Services United offers AARP HealthLine Services to SHIP Medicare Supplement Insureds, as described below. United partners with Optum, a division of United HealthCare Services, Inc., to provide the AARP HealthLine Services. Optum shall make Optum staff available to ASI should ASI have any concerns or questions regarding the services. AARP HealthLine Services exclude the provision of SHIP Plan information, including by way of example SHIP Plan eligibility requirements and insurance benefit information. Callers who inquire about SHIP Plan information will be given the AARP Health Care Options toll-free telephone number. I. AARP HEALTHLINE PRODUCT DESCRIPTION NURSE ACCESS FEATURES: o "Live answer", toll-free telephone access to registered nurses, 24 hours a day, 365 days a year o "Live answer", toll-free access to registered nurses who speak Spanish o Calls are handled by qualified nurses with RN certification and ongoing training o Help for emergencies, injuries and minor illnesses including immediate guidance and education o Wellness tip to all SHIP Medicare Supplement Insureds o General medical information for all types of health and medical questions o Decision support for certain high-cost, high-practice variation conditions o Self-care recommendations and education o Approximately 550 clinical guidelines approved by the Medical Director and the Medical Review Panel o National relay center for the hearing impaired o Computerized record system with online, clinical, administrative and resource data o Full-time medical director on staff o Comprehensive medical library and medical librarian o Language Line with access to over 120 languages o Ongoing quality management o Quarterly reports measuring utilization, impact and satisfaction of services o Information about prescription and over-the-counter medication usage, drug interactions, dosage and precautions HEALTH INFORMATION LIBRARY FEATURES: o Over 1,000 recorded health messages o Over 700 topics which are of interest to seniors 7 o Available 24 hours a day, 365 days a year o Toll-free 1-800 service o Easy access from any telephone nationwide o Ability to listen to an important or a complex topic multiple times o Ability to transfer to nurse from the library o Access to 500 health messages recorded in Spanish AARP HEALTHLINE QUALITY STANDARDS o Frequent staff training on health and well-being issues specific to older callers o Ongoing development of medical triage & health information guidelines for age 50+ callers o Internal publication on health topics which relate to older Americans which is routed to all nurses so they are kept abreast of the latest news o Consulting geriatrician for guidelines and programs o AARP Quality Plan which tracks and reports AARP HealthLine program quality 8 EXHIBIT 3.2.2(i)(1) QUALITY ASSURANCE PROGRAM PERFORMANCE STANDARDS AND MEASUREMENTS In performing United's obligations relating to AARP HealthLine Services, United shall meet or exceed the following standards:
CUSTOMER SERVICE STANDARD MEASUREMENT - ---------------- -------- ----------- Average speed of answer 30 seconds or less Call Center System % Calls answered within 30 seconds greater than 90% Call Center System Abandonment rate 5% or less Call Center System COMPLAINT RESOLUTION Member Complaints Complaint Resolution % resolved within 10 business days Greater than 90% Database SATISFACTION % Satisfied Measured Quarterly At least 95% Member Survey
9 EXHIBIT 6.11 COMPENSATION TO UNITED UNDER SUBSECTIONS 6.11.1 AND 6.11.2 YEAR AGGREGATE AARP COMPENSATION TO UNITED** COMPENSATION TO UNITED** HEALTHLINE CLAIM IF AGGREGATE IS MET IF AGGREGATE IS NOT MET SAVINGS ("AGGREGATE"*) Year One *** *** *** Year Two *** *** *** * Aggregate is defined as the total AARP HealthLine Claim Savings derived from the total Net Avoided Visits calculated in accordance with the model described in Exhibit 2.127. ** Compensation shown is on a "per active SHIP Medicare Supplement Insured per month" basis. *** Represents text deleted pursuant to a confidentiality treatment request filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. 10 SIXTH AMENDMENT TO THE AARP HEALTH INSURANCE AGREEMENT This Sixth Amendment to the AARP Health Insurance Agreement (this "Amendment"), dated as of December 23, 2002 (the "Effective Date"), is made by and between AARP Services, Inc., a Delaware corporation ("ASI") and United HealthCare Insurance Company, a Delaware corporation ("United"). The parties hereto shall collectively be referred to as the "Parties". RECITALS WHEREAS, the AARP, the Trustees of the AARP Insurance Plan, and United are parties to a certain AARP Health Insurance Agreement dated as of February 26, 1997 (the "Original Agreement"). WHEREAS, by subsequent amendment and assignment on December 28, 1999, AARP, AARP Trust and United agreed to the assignment to and assumption by ASI of certain rights and obligations (the "Third Amendment") and, further, United, AARP and AARP Trust executed a Royalty Agreement dated December 28, 1999 granting United a license to the AARP Marks defined therein and the amended and assigned agreement is a part thereof. WHEREAS, in addition to the Third Amendment, four other amendments have been made to the Original Agreement (collectively, the "Agreement"). WHEREAS, due to changes in the marketplace and to more adequately reflect the value of the AARP Marks, thereby creating greater royalty return to AARP to support its social mission and strategic initiatives for all members, the Parties now wish to amend the terms of the Agreement to reflect the agreement of the Parties regarding AARP royalty compensation. NOW, THEREFORE, the Parties agree as follows: 1. Subsection 6.1 of the Agreement is amended by deleting this subsection in its entirety and replacing it with following: 6.1 AARP Royalty. AARP shall be entitled to receive a royalty for AARP's sponsorship of the SHIP and the license to use the AARP Marks in connection therewith. This royalty shall be 3.25% of Member Contribution for Policy Year 2002 and 3.75% of Member Contributions for Policy Year 2003. For Policy Years 2004 through 2007, the royalty shall be 4% of Member Contribution, with a review of the increased royalty amount on rates and competitive position prior to implementation. 2. The Parties agree to execute, no later than February 28, 2003, a Seventh Amendment to the Original Agreement to reflect the recent agreement of the Parties regarding United compensation. 3. Except as amended hereby, all other terms and conditions of the Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the Parties have executed this Sixth Amendment as of the date and year first above written. - ---------------------------- --------------------------- AARP Services, Inc. United HealthCare Insurance Company SEVENTH AMENDMENT TO THE AARP HEALTH INSURANCE AGREEMENT This Seventh Amendment to the AARP Health Insurance Agreement (this "Amendment"), effective as of December 23, 2002 (the "Effective Date"), is made by and between AARP Services, Inc., a Delaware corporation ("ASI") and United HealthCare Insurance Company, a Delaware corporation ("United"). The parties hereto shall collectively be referred to as the "Parties". RECITALS WHEREAS, the AARP, the Trustees of the AARP Insurance Plan, and United are parties to a certain AARP Health Insurance Agreement dated as of February 26, 1997 (the "Original Agreement"). WHEREAS, by subsequent amendment and assignment on December 28, 1999, AARP, AARP Trust and United agreed to the assignment to and assumption by ASI of certain rights and obligations (the "Third Amendment") and, further, United, AARP and AARP Trust executed a Royalty Agreement dated December 28, 1999 granting United a license to the AARP Marks defined therein and the amended and assigned agreement was made a part thereof. WHEREAS, by amendment dated December 23, 2002, ASI and United have agreed to modify the AARP royalty and to execute a subsequent amendment reflecting the agreement of the Parties regarding United compensation (the "Sixth Amendment"). WHEREAS, in addition to the Third Amendment and Sixth Amendment, four other amendments have been made to the Original Agreement (collectively, the "Agreement"). WHEREAS, to bring United's risk and profit in line with the marketplace to reflect and to continue the superior resources and talent United has brought to the SHIP and to ensure that the SHIP is competitively positioned, the Parties now wish to amend the terms of the Agreement to reflect the agreement of the Parties regarding United compensation. NOW, THEREFORE, the Parties agree as follows: 1. The first paragraph of section 6.3 is amended by deleting this paragraph in its entirety and replacing it with the following: 6.3 United Risk and Profit Charges. United shall be entitled to receive compensation for assuming the risk associated with the SHIP. Such risk and profit compensation payable to United for Policy Year 2002 shall be *** of Member Contributions for such Policy Year. For Policy Year 2003, the compensation shall be *** of Member Contributions for such Policy Year. 2. Subsection 6.3.1 is amended by deleting the subsection in its entirety and replacing it with the following: 6.3.1 Reserved. 3. Subsection 6.3.2 is amended by deleting the subsection in its entirety and replacing it with the following: 6.3.2 Incentive Percentage. The parties agree that, beginning with Policy Year 2003, *** of United's Risk and Profit Charge for each Policy Year shall be tied to performance standards set forth in Exhibit 3.2.5, which *** Represents text deleted pursuant to a confidentiality treatment request filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. shall be revised by ASI and United by March 31, 2003 to reflect the parties' mutual understanding of the applicable performance standards and allocated percentages at risk based on performance. The parties agree that *** of the *** at risk annually shall be tied to achieving the pricing standard of maintaining an average rate increase of less than ***. The Incentive Percentage applicable at any time during a Policy Year shall be determined by reference to United's best estimate of the year-to-date performance. 4. By June 30, 2003, the parties shall (1) review the impact of the increase in AARP royalty and United risk and profit compensation on rates and competitive position and (2) reach agreement on a recommendation to the AARP Trust regarding United risk and profit compensation for Policy Years 2004 through 2007 with a target in the range of *** to *** of Member Contributions for each such Policy Year, depending on the treatment of the risk and profit component of the Administrative Service Fee. By November 30, 2003, the parties shall complete their review of the impact of the increase in AARP royalty and United risk and profit compensation on rates and competitive position and agree on implementation. 5. Except as amended hereby, all other terms and conditions of the Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the Parties have executed this Seventh Amendment as of the date and year first above written. - -------------------------- ----------------------------------- AARP Services, Inc. United HealthCare Insurance Company *** Represents text deleted pursuant to a confidentiality treatment request filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. EX-10.(U) 8 c74996exv10wxuy.txt EX-10(U) AMENDMENT TO INFO. TECHNOLOGY AGREEMENT EXHIBIT 10(u) AMENDMENT NUMBER 1 TO INFORMATION TECHNOLOGY SERVICES AGREEMENT This is Amendment Number 1, dated as of September 15, 1997 to the Information Technology Services Agreement (the "Agreement") dated as of June 1, 1996 between UNISYS CORPORATION ("Unisys") and UNITED HEALTHCARE SERVICES, INC. ("UHS"). Section 3.18 of the Agreement provides that the Parties will jointly develop and implement a revised charge process in accordance with Exhibit 31 of the Agreement which will result in charges based on the usage of computing resources ACCORDINGLY, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Unisys and UHS hereby agree to amend Exhibit 31 of the Agreement to incorporate the following additional provisions: 1. Rate Card. Attached hereto as Exhibit 31-1 is the rate card which sets forth the methodology by which UHS will be assessed charges for Services provided by Unisys pursuant to the Agreement. 2. UNIX charges by system. Attached hereto as Exhibit 31-2 are schedules containing the charges for the initial systems and systems added during 1996. The initial systems listed by serial number in Exhibit 2 of this contract amendment replace those listed in Exhibit 6 of the Agreement. 3. Methodology. Attached hereto as Exhibit 31-3 is the methodology and description forming the basis for the application of the Rate Card. 4. Effective Date. The rate card is effective January 1, 1997. Within 30 days of execution of this Amendment Number 1, Unisys will provide to UHS retro-active rate card based invoices and credits to reverse prior Interim Agreement charges. 5. IBM consumption based charges. Consumption based charges will be developed including prime and off-prime rates. The rate card for these charges will have a structure similar to the Unisys rate card. The goal is to have these charges be effective October 1, 1997. Should the rate card not be finalized by October 1, Unisys will continue charges based on capacity, with the understanding that these charges will be reversed and replaced by consumption based charges retro-active to October 1, 1997. Page 1 of 2 AMENDMENT NUMBER 1 TO INFORMATION TECHNOLOGY SERVICES AGREEMENT 6. UNIT/NT consumption based charges. The Account Executives will review the possibility of converting UNIX/NT to consumption based charges. A feasibility study will be submitted to UHS by January 1, 1998. Effective in 1998, a report on the status of this conversion will be prepared by the Account Executives and submitted to UHS on a quarterly basis. Key to making this conversion will be the proliferation of large capacity servers with the ability to consolidate servers and support consumption measurement software. 7. Prime and off-prime for Unisys. Effective with the 4th quarter of 1997, the Account Executives will review this issue on a quarterly basis. The Account Executives will consider modifying the rate card for prime and off-prime rates, add-hoc requests and/or monthly cyclical rates. A joint Unisys/UHS feasibility study will be generated at the request of the Account Executives 8. Per member per month. The Account Executives will consider modifying the rate card to per member per month rates. With mutual agreement, a joint Unisys/UHS feasibility study will be generated at the request of the Account Executives. 9. Other Terms. Except as herein specifically amended, all of the terms of the Agreement remain in full force and effect and are hereby ratified and confirmed. To the extent the terms of this Amendment Number 1 conflict with the existing Exhibit 31 or other terms of the Agreement, the provisions set forth in this amendment shall control. IN WITNESS WHEREOF, Unisys and UHS have executed this Amendment Number 1, effective as of the date first above written. UNISYS CORPORATION UNITED HEALTHCARE SERVICES, INC. By: /s/ Illegible By: /s/ Illegible ------------------- ---------------------- Its: Director, Finance Its: Vice President ------------------- ----------------------- Page 2 of 2 EXHIBIT 31-1 UNISYS OUTSOURCING RATE CARD PROPOSAL BASE VOLUMES AND RATES
METRIC 1997 1998 1999 2000 2001 2002 2003 2004 2005 UNISYS CPU USAGE* BASE VOLUME 5,368.81 5,368.81 5,368.81 5,368.81 5,368.81 5,368.81 5,368.81 5,368.81 5,368.81 (HOURS) BASE RATE *** *** *** *** *** *** *** *** *** RATE REDUCTION *** *** *** *** *** *** *** *** UNISYS DISK USAGE BASE VOLUME 677.11 677.11 677.11 677.11 677.11 677.11 677.11 677.11 677.11 (GB) BASE RATE *** *** *** *** *** *** *** *** *** RATE REDUCTION *** *** *** *** *** *** *** *** UNISYS TAPE USAGE BASE VOLUME 35,553.00 35,553.00 35,553.00 35,553.00 35,553.00 35,553.00 35,553.00 35,553.00 35,553.00 (MOUNTS) BASE RATE *** *** *** *** *** *** *** *** *** RATE REDUCTION *** *** *** *** *** *** *** *** IBM MIPS BASE VOLUME 231.00 231.00 231.00 231.00 231.00 231.00 231.00 231.00 231.00 (MIPS) BASE RATE *** *** *** *** *** *** *** *** *** RATE REDUCTION *** *** *** *** *** *** *** *** IBM DISK USAGE BASE VOLUME 1,300.00 1,300.00 1,300.00 1,300.00 1,300.00 1,300.00 1,300.00 1,300.00 1,300.00 (GB) BASE RATE *** *** *** *** *** *** *** *** *** RATE REDUCTION *** *** *** *** *** *** *** *** IBM TAPE MOUNTS BASE VOLUME 33,000.00 33,000.00 33,000.00 33,000.00 33,000.00 33,000.00 33,000.00 33,000.00 33,000.00 (MOUNTS) BASE RATE *** *** *** *** *** *** *** *** *** RATE REDUCTION *** *** *** *** *** *** *** *** COLA *** *** *** *** *** *** *** *** CREDIT % ON BASE RATE FOR UNUSED UNITS *** *** *** *** *** *** *** *** ***

VOLUME DISCOUNT RATES --------------------------- * A SERIES, CLEARPATH FAMILY GREATER OF % OF EQUAL TO LESS THAN DISCOUNT -------- --------- -------- 0% 100% *** 100% 105% *** 105% 110% *** 110% 115% *** 115% 120% *** 120% 125% *** 125% AND OVER ***
*** Indicates the omission of confidential information filed separately with the Securities and Exchange Commission in connection with a confidential treatment request made pursuant to Rule 24-b(2) of the Securities and Exchange Act of 1934, as amended. EXHIBIT 31-2 LEASE/DEPRECIATION CHARGES
UNIX PROCESSORS: STYLE SERIAL 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 TOTAL - ---------------- -------- --------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----- ABACUS 7013-J30 2652250 *** *** *** *** -- -- -- -- -- -- *** BAMBAM 7013-39H 2687366 *** *** *** *** -- -- -- -- -- -- *** BHDATA1 7013-59H 2648757 *** *** *** *** -- -- -- -- -- -- *** BHDATA2 7013-59H 2651771 *** *** *** *** -- -- -- -- -- -- *** BAMBAM 7013-39H 2687366 *** *** *** *** -- -- -- -- -- -- *** BHFUNC1 7013-580 2639063 *** *** *** *** -- -- -- -- -- -- *** BIS1 7013-590 2646076 *** *** *** *** -- -- -- -- -- -- *** BIS3 7013-J30 2654414 *** *** *** *** -- -- -- -- -- -- *** CALVIN 7013-591 2641001 *** *** *** *** -- -- -- -- -- -- *** CEREBUS 7012-G30 2687935 *** *** *** *** -- -- -- -- -- -- *** BAMBAM 7013-39H 2687366 *** *** *** *** -- -- -- -- -- -- *** BAMBAM 7013-39H 2687366 *** *** *** *** -- -- -- -- -- -- *** GAR 7013-690 2646104 *** *** *** *** -- -- -- -- -- -- *** HOBBES 7013-590 2643186 *** *** *** *** -- -- -- -- -- -- *** KAZOO 7013-J40 2646969 *** *** *** *** -- -- -- -- -- -- *** KESTREL U6000/65 414171439 *** *** *** *** -- -- -- -- -- -- *** ORION 7013-59H 2650200 *** *** *** *** -- -- -- -- -- -- *** OSPRAY U6000/65 414171652 *** *** *** *** -- -- -- -- -- -- *** PEGASUS 7013-J30 2650254 *** *** *** *** -- -- -- -- -- -- *** PIRANHA 7013-550 2621567 *** *** *** *** -- -- -- -- -- -- *** POLARIS 7013-590 2650490 *** *** *** *** -- -- -- -- -- -- *** STARFISH 7013-J30 2653745 *** *** *** *** -- -- -- -- -- -- *** BAMBAM 7013-39H 2687366 *** *** *** *** -- -- -- -- -- -- *** ROHCS1 7013-580 2639286 *** *** *** *** -- -- -- -- -- -- *** SUSIE 7013-59H 2649667 *** *** *** *** -- -- -- -- -- -- *** TOKAY 7013-59H 2648268 *** *** *** *** -- -- -- -- -- -- *** DUKE 7013-590 1640842 *** *** *** *** -- -- -- -- -- -- *** TOPGUN 7013-590 2640841 *** *** *** *** -- -- -- -- -- -- *** UHC16A5 7013-59H 2648392 *** *** *** *** -- -- -- -- -- -- *** VIPER 7013-590 2641251 *** *** *** *** -- -- -- -- -- -- *** ZUHL 7013-590 264373 *** *** *** *** -- -- -- -- -- -- *** S/T BASE SYSTEMS *** *** *** *** -- -- -- -- -- -- *** PIKE 7013-J40 2655199 *** *** *** *** *** -- -- -- -- -- *** VIPER2 7013-J40 2656294 *** *** *** *** *** -- -- -- -- -- *** TOMCAT 7013-J40 2656295 *** *** *** *** *** -- -- -- -- -- *** POSEIDON 7013-J30 2653583 *** *** *** *** *** -- -- -- -- -- *** S/T 1996 GROWTH SYSTEMS *** *** *** *** *** -- -- -- -- -- *** TOTAL UNIX *** *** *** *** *** -- -- -- -- -- ***
*** Indicates the omission of confidential information filed separately with the Securities and Exchange Commission in connection with a confidential treatment request made pursuant to Rule 24-b(2) of the Securities and Exchange Act of 1934, as amended. EXHIBIT 31-2
UNIX TOTAL CHARGES - ---- PROCESSORS: STYLE SERIAL JAN-97 FEB-97 MAR-97 APR-97 MAY-97 JUN-97 JUL-97 AUG-97 SEP-97 OCT-97 NOV-97 DEC-97 - ---------- ----- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ABACUS 7013-J30 2652250 *** *** *** *** *** *** *** *** *** *** *** *** BAMBAM 7013-39H 2687366 *** *** *** *** *** *** *** *** *** *** *** *** BHDATA1 7013-59H 2648757 *** *** *** *** *** *** *** *** *** *** *** *** BHDATA2 7013-59H 2651771 *** *** *** *** *** *** *** *** *** *** *** *** BHFUNC1 7013-580 2639063 *** *** *** *** *** *** *** *** *** *** *** *** BIS1 7013-590 2646076 *** *** *** *** *** *** *** *** *** *** *** *** BIS3 7013-J30 2654414 *** *** *** *** *** *** *** *** *** *** *** *** CALVIN 7013-591 2641001 *** *** *** *** *** *** *** *** *** *** *** *** CEREBUS 7012-G30 2687935 *** *** *** *** *** *** *** *** *** *** *** *** FILLET 7013-59H 2649881 *** *** *** *** *** *** *** *** *** *** *** *** GAR 7013-690 2646104 *** *** *** *** *** *** *** *** *** *** *** *** HOBBES 7013-590 2643186 *** *** *** *** *** *** *** *** *** *** *** *** KAZOO 7013-J40 2646969 *** *** *** *** *** *** *** *** *** *** *** *** KESTREL U6000/65 414171439 *** *** *** *** *** *** *** *** *** *** *** *** ORION 7013-59H 2650200 *** *** *** *** *** *** *** *** *** *** *** *** OSPRAY U6000/65 414171652 *** *** *** *** *** *** *** *** *** *** *** *** PEGASUS 7013-J30 2650254 *** *** *** *** *** *** *** *** *** *** *** *** PIRANHA 7013-550 2621567 *** *** *** *** *** *** *** *** *** *** *** *** POLARIS 7013-590 2650490 *** *** *** *** *** *** *** *** *** *** *** *** STARFISH 7013-J30 2653745 *** *** *** *** *** *** *** *** *** *** *** *** ROHCS1 7013-580 2639286 *** *** *** *** *** *** *** *** *** *** *** *** SUSIE 7013-59H 2649667 *** *** *** *** *** *** *** *** *** *** *** *** TOKAY 7013-59H 2648268 *** *** *** *** *** *** *** *** *** *** *** *** DUKE 7013-590 1640842 *** *** *** *** *** *** *** *** *** *** *** *** TOPGUN 7013-590 2640841 *** *** *** *** *** *** *** *** *** *** *** *** UHC16A5 7013-59H 2648392 *** *** *** *** *** *** *** *** *** *** *** *** VIPER 7013-590 2641252 *** *** *** *** *** *** *** *** *** *** *** *** ZUHL 7013-590 2643731 *** *** *** *** *** *** *** *** *** *** *** *** S/T BASE SYSTEMS *** *** *** *** *** *** *** *** *** *** *** *** PIKE 7013-J40 2655199 *** *** *** *** *** *** *** *** *** *** *** *** VIPER2 7013-J40 2656294 *** *** *** *** *** *** *** *** *** *** *** *** TOMCAT 7013-J40 2656295 *** *** *** *** *** *** *** *** *** *** *** *** POSEIDON 7013-J30 2653583 *** *** *** *** *** *** *** *** *** *** *** *** S/T 1996 GROWTH SYSTEMS *** *** *** *** *** *** *** *** *** *** *** *** TOTAL UNIX *** *** *** *** *** *** *** *** *** *** *** ***
*** Indicates the omission of confidential information filed separately with the Securities and Exchange Commission in connection with a confidential treatment request made pursuant to Rule 24-b(2) of the Securities and Exchange Act of 1934, as amended. PAGE 1 OF 1 EXHIBIT 31-2
UNIX LEASE & DEPRECIATION RECOVERY - ---- ----------------------------- PROCESSORS: STYLE SERIAL JAN-97 FEB-97 MAR-97 APR-97 MAY-97 JUN-97 JUL-97 AUG-97 SEP-97 OCT-97 NOV-97 DEC-97 - ---------- ----- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ABACUS 7013-J30 2652250 *** *** *** *** *** *** *** *** *** *** *** *** BAMBAM 7013-39H 2687366 *** *** *** *** *** *** *** *** *** *** *** *** BHDATA1 7013-59H 2648757 *** *** *** *** *** *** *** *** *** *** *** *** BHDATA2 7013-59H 2651771 *** *** *** *** *** *** *** *** *** *** *** *** BHFUNC1 7013-580 2639063 *** *** *** *** *** *** *** *** *** *** *** *** BIS1 7013-590 2646076 *** *** *** *** *** *** *** *** *** *** *** *** BIS3 7013-J30 2654414 *** *** *** *** *** *** *** *** *** *** *** *** CALVIN 7013-591 2641001 *** *** *** *** *** *** *** *** *** *** *** *** CEREBUS 7012-G30 2687935 *** *** *** *** *** *** *** *** *** *** *** *** FILLET 7013-59H 2649881 *** *** *** *** *** *** *** *** *** *** *** *** GAR 7013-690 2646104 *** *** *** *** *** *** *** *** *** *** *** *** HOBBES 7013-590 2643186 *** *** *** *** *** *** *** *** *** *** *** *** KAZOO 7013-J40 2646969 *** *** *** *** *** *** *** *** *** *** *** *** KESTREL U6000/65 414171439 *** *** *** *** *** *** *** *** *** *** *** *** ORION 7013-59H 2650200 *** *** *** *** *** *** *** *** *** *** *** *** OSPRAY U6000/65 414171652 *** *** *** *** *** *** *** *** *** *** *** *** PEGASUS 7013-J30 2650254 *** *** *** *** *** *** *** *** *** *** *** *** PIRANHA 7013-550 2621567 *** *** *** *** *** *** *** *** *** *** *** *** POLARIS 7013-590 2650490 *** *** *** *** *** *** *** *** *** *** *** *** STARFISH 7013-J30 2653745 *** *** *** *** *** *** *** *** *** *** *** *** ROHCS1 7013-580 2639286 *** *** *** *** *** *** *** *** *** *** *** *** SUSIE 7013-59H 2649667 *** *** *** *** *** *** *** *** *** *** *** *** TOKAY 7013-59H 2648268 *** *** *** *** *** *** *** *** *** *** *** *** DUKE 7013-590 1640842 *** *** *** *** *** *** *** *** *** *** *** *** TOPGUN 7013-590 2640841 *** *** *** *** *** *** *** *** *** *** *** *** UHC16A5 7013-59H 2648392 *** *** *** *** *** *** *** *** *** *** *** *** VIPER 7013-590 2641252 *** *** *** *** *** *** *** *** *** *** *** *** ZUHL 7013-590 2643731 *** *** *** *** *** *** *** *** *** *** *** *** S/T BASE SYSTEMS *** *** *** *** *** *** *** *** *** *** *** *** PIKE 7013-J40 2655199` *** *** *** *** *** *** *** *** *** *** *** *** VIPER2 7013-J40 2656294 *** *** *** *** *** *** *** *** *** *** *** *** TOMCAT 7013-J40 2656295 *** *** *** *** *** *** *** *** *** *** *** *** POSEIDON 7013-J30 2653583 *** *** *** *** *** *** *** *** *** *** *** *** S/T 1996 GROWTH SYSTEMS *** *** *** *** *** *** *** *** *** *** *** *** TOTAL UNIX *** *** *** *** *** *** *** *** *** *** *** ***
*** Indicates the omission of confidential information filed separately with the Securities and Exchange Commission in connection with a confidential treatment request made pursuant to Rule 24-b(2) of the Securities and Exchange Act of 1934, as amended. PAGE 1 OF 1 EXHIBIT 31-2
TOTAL CHARGES UNIX PROCESSORS: STYLE SERIAL 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 TOTAL - ---------------- -------- --------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----- ABACUS 7013-J30 2652250 *** *** *** *** -- -- -- -- -- -- *** BAMBAM 7013-39H 2687366 *** *** *** *** -- -- -- -- -- -- *** BHDATA1 7013-59H 2648757 *** *** *** *** -- -- -- -- -- -- *** BHDATA2 7013-59H 2651771 *** *** *** *** -- -- -- -- -- -- *** BHFUNC1 7013-580 2639063 *** *** *** *** -- -- -- -- -- -- *** BIS1 7013-590 2646076 *** *** *** *** -- -- -- -- -- -- *** BIS3 7013-J30 2654414 *** *** *** *** -- -- -- -- -- -- *** CALVIN 7013-591 2641001 *** *** *** *** -- -- -- -- -- -- *** CEREBUS 7012-G30 2687935 *** *** *** *** -- -- -- -- -- -- *** FILLET 7013-59H 2649881 *** *** *** *** -- -- -- -- -- -- *** GAR 7013-690 2646104 *** *** *** *** -- -- -- -- -- -- *** HOBBES 7013-590 2643186 *** *** *** *** -- -- -- -- -- -- *** KAZOO 7013-J40 2646969 *** *** *** *** -- -- -- -- -- -- *** KESTREL U6000/65 414171439 *** *** *** *** -- -- -- -- -- -- *** ORION 7013-59H 2650200 *** *** *** *** -- -- -- -- -- -- *** OSPRAY U6000/65 414171652 *** *** *** *** -- -- -- -- -- -- *** PEGASUS 7013-J30 2650254 *** *** *** *** -- -- -- -- -- -- *** PIRANHA 7013-550 2621567 *** *** *** *** -- -- -- -- -- -- *** POLARIS 7013-590 2650490 *** *** *** *** -- -- -- -- -- -- *** STARFISH 7013-J30 2653745 *** *** *** *** -- -- -- -- -- -- *** ROHCS1 7013-580 2639286 *** *** *** *** -- -- -- -- -- -- *** SUSIE 7013-59H 2649667 *** *** *** *** -- -- -- -- -- -- *** TOKAY 7013-59H 2648268 *** *** *** *** -- -- -- -- -- -- *** DUKE 7013-590 1640842 *** *** *** *** -- -- -- -- -- -- *** TOPGUN 7013-590 2640841 *** *** *** *** -- -- -- -- -- -- *** UHC16A5 7013-59H 2648392 *** *** *** *** -- -- -- -- -- -- *** VIPER 7013-590 2641251 *** *** *** *** -- -- -- -- -- -- *** ZUHL 7013-590 264373 *** *** *** *** -- -- -- -- -- -- *** S/T BASE SYSTEMS *** *** *** *** -- -- -- -- -- -- *** PIKE 7013-J40 2655199 *** *** *** *** *** -- -- -- -- -- *** VIPER2 7013-J40 2656294 *** *** *** *** *** -- -- -- -- -- *** TOMCAT 7013-J40 2656295 *** *** *** *** *** -- -- -- -- -- *** POSEIDON 7013-J30 2653583 *** *** *** *** *** -- -- -- -- -- *** S/T 1996 GROWTH SYSTEMS *** *** *** *** *** -- -- -- -- -- *** TOTAL UNIX *** *** *** *** *** -- -- -- -- -- ***
*** Indicates the omission of confidential information filed separately with the Securities and Exchange Commission in connection with a confidential treatment request made pursuant to Rule 24-b(2) of the Securities and Exchange Act of 1934, as amended. PAGE 1 OF 1 EXHIBIT 31-3 BASE CHANGES - VOLUME AND RATE If the actual unit volume consumed for a specific category exceeds or falls below the base by 40% or more for three consecutive months, the Account Executives shall negotiate an adjustment to the base volume and base rate. The principles underlying this adjustment would be that the adjusted base volume would not exceed the prior 90 day average volume and the adjusted base rate would not exceed the prior 90 day unit average. If the actual unit volume for three consecutive months is 0 and the forecast for the next 3 months is also 0, the base volume for that particular metric will be set at 0. VOLUME DISCOUNT RATES The volume discount percentages apply only to the units in the range for that particular percentage. For example, if the actual volume is 114% of the base, the units below 100% receive no discount, the units between 100 - 105% receive 6%, the units between 105 - 110% receive 10% and the units between 100 - 115% receive 15%. CREDITS FOR UNUSED UNITS BELOW BASE VOLUME Credits for unused units below the base volume will be granted only for unused units that have been forecasted. No credits be given for unused units below the forecast. For example, if the forecasted volume is 75% of the base and the actual volume is 65% of the base, then credits for the unused units between 75% and 100% of the base volume will be granted per the schedule. No credits will be given for units between 65% and 75%. However, if in the same example the actual volume is 80%, credits are granted for the units between 80% and 100%. If the volume consumed for a category falls below the base, then the amount billed will equal the base units times the base rate for that period with a credit for each unused unit below the base, providing the forecasted volume was below the actual volume. The amount of the credit is a percentage of the base rate to be determined according to the rate card schedule. MINIMUM CHARGES ALL PERIODS If the base volume falls below 60% of the initial base volume for a particular category, for example "Unisys CPU Hour" and the UHS volume forecast for that category is flat or projecting continued decline, the Account Executives for Unisys and UHS will jointly agree on a revised rate card for that category as well as a one-time charge for the reduced capacity requirement, or if UHS reassigns the volume of one product family (IBM, Unisys, UNIX) to other product families supported by Unisys, the Account Executives for Unisys and UHS will jointly agree on an appropriate one-time charge for the eliminated capacity requirement. This charge will be supported by Unisys and limited to the remaining Unisys book value of capitalized assets as of the month of termination less any remaining fair market value of associated equipment, early termination penalties and/or notice period requirements on hardware and software maintenance contracts and redeployment costs of affected human resources. INITIAL 48 MONTHS Rate Card based charges (Total of Unisys, IBM and UNIX/NT) will not fall below the "contract to date" values contained in Exhibit 11 of the Agreement. AFTER MONTH 48 Rate Card based charges (Total of Unisys, IBM and UNIX/NT) will not fall below the "contract to date" values contained in Exhibit 11 of the agreement. Page 1 of 12 EXHIBIT 31-3 If UHS reassigns the volume of one product family (IBM, Unisys, UNIX) to another vendor, the Account Executives for Unisys and UHS will jointly agree on an appropriate one-time charge for the eliminated capacity requirement. This charge will be supported by Unisys and limited to the remaining Unisys book value of capitalized assets as of the month of termination less any remaining fair market value of associated equipment, early termination penalties and/or notice period requirements on hardware and software maintenance contracts and redeployment costs of affected human resources. The one-time charge referenced above replaces the product family (IBM, Unisys, UNIX) termination charges contained in Exhibit 17 of the Agreement. If UHS reassigns the volume of all product families (IBM, Unisys, UNIX/NT) to another vendor, the Termination Charges from Exhibit 17 of the Agreement are applicable. Unisys and UHS agree that the standard depreciation schedule for calculation of Unisys book value for capitalized assets will be 4 years. Exceptions will be authorized if both parties agree in advance. UNIX END OF TERM: BASE SYSTEMS Effective with January, 1998, Unisys will provide a 90 day notice UHS on systems reaching the end of their initial term. The initial notification will include all systems which were fully depreciated by December, 1997. UHS has the option to terminate, replace, or extend systems at the end of their initial term. If the system is terminated, Unisys will discontinue charges after the initial term. If the system is replaced, Unisys will discontinue all capital costs effective with the end of initial term and discontinue the remaining charges with deinstallation of the system. If the system is to be extended as configured, Unisys will submit a new quote for the system without capital costs. GROWTH SYSTEMS At 90 days prior to the end of their term as defined in the ASR document, Unisys will notify UHS of the end of the initial agreement. UHS has the option to terminate, replace or extend systems after their individual term. If the system is terminated, Unisys will discontinue all future charges after the initial term. If the system is replaced, Unisys will discontinue all capital costs effective with the first month after the initial term and discontinue the remaining charges with deinstallation of the system. If the system is to be extended as configured, Unisys will submit a new quote for the system without capital costs. EARLY TERMINATION With a 90 day notice, UHS will be allowed to terminate UNIX systems prior to the end of their term by paying Unisys an "Early Termination Charge" equal to the remaining Unisys book value as of the month of termination less any remaining fair market value. VOLUME FORECAST United HealthCare Services will provide Unisys with a 12 month consumption forecast for all mainframe metrics on a quarterly basis. That forecast will be delivered on the 15th of the final month of each quarter (March, June, September and December). Page 2 of 12 EXHIBIT 31-3 UHS FORECASTING AND BILLING METRICS The following metrics will be used for forecasting and Billing Consumption. A SERIES/CLEARPATH MACHINES A SERIES/CLEARPATH DISK FORECASTING/BILLING METRICS FORECASTING AND MEASURING Metrics to be used 1. Average gigabytes allocated (total for each system)(1) 2. Maximum gigabytes allocated any time within a month (total for each system)(1) Unit of Measure Gigabytes of Fault tolerant disk How computed Viewpoint will monitor disk usage by taking snapshots of the disk usage each minute. These minutely samples are automatically consolidated into summary records by Viewpoint (e.g., 15 minute, hourly and daily records). On a monthly basis, the average disk allocated and the maximum disk allocated for each pack family at any point during that month will be reported from data in the daily summary records. What forecasted Concept: all non-system related disk requirements will be forecasted by UHS. (System related disk requirements will be a computed factor and not forecasted by UHS). Specific pack families that need to be included in UHS forecast number: PRODUCTION SYSTEMS: - All database families - ARCPK - DSSPK - LAGPK - RAMPK - DBPACK - CODEPACK - PRTBKUP - FLATPACK - SORTPACK - WFMPACK DEVELOPMENT SYSTEMS - DISK - DEVPACK - DEVDBPK Page 3 of 12 EXHIBIT 31-3 - SRCPACK - PACK - GENPK - AUDIT1 - LOGPACK Missing Viewpoint Data In the event that Viewpoint data is missing or corrupted for any given time period (minute, 15 minute, hour, day, etc.), Unisys will average the data from the previous good time period with the following good time period. For example, if 14 minutes of data are missing, Unisys would average the previous 15 minute sample with the next 15 minute sample to compute an average for the missing period. If 23 hours of data was missing, the previous and next daily samples would be used to compute an average. Unisys would clearly report exactly what method and samples it used in computing metrics for any lost period. (1) This will be computed from the A Series statistic "sectors in use." The formula to convert to Gigabytes Allocated = sectors in use * *** BILLING UNITS The billing metric will be the sum of the maximum gigabytes allocated (as defined above) for each forecasted pack family, for each system, within each month. *** Indicates the omission of confidential information filed separately with the Securities and Exchange Commission in connection with a confidential treatment request made pursuant to Rule 24-b(2) of the Securities and Exchange Act of 1934, as amended. Page 4 of 12 EXHIBIT 31-3 A SERIES/CLEARPATH PROCESSOR FORECASTING/BILLING METRICS Forecasting and Measuring Forecasting metric to be used Total Application CPU Hours/Month/Workgroup (database) forecasted on machine that the database is running on.(1) Unit of Measure Viewpoint will capture processor utilization statistics for the various workgroups. The utilization statistics for multi-processor A18's need to be converted into a common metric (A18- 1x Application CPU hours) for that class of machine.(2) Different processor classes (e.g., A19) will require a conversion factor to produce compatible hourly projections. The Relative Performance Measure (RPM) as reported by Unisys product specifications will be used to make this conversion. How forecasted and measured Computed and tracked via Viewpoint CPU USER PERCENT samples When computed Viewpoint will monitor processor usage by taking snapshots of the usage each minute. These minutely samples are automatically consolidated into summary records by Viewpoint (e.g., 15 minutes, hourly and daily records). The daily records will be used in computing total monthly usage. What forecasted/measured A workgroup will be defined for each database. For the production machines, one total will be forecasted for each database plus one total for "OTHER." OTHER will contain programs that aren't easily broken out by database even though their time may be attributable to a particular database.(3) For the development machines, one monthly total for everything will be provided. What programs are included/ Since UHS has several thousand programs excluded from forecast running in production on the various machines under various usercodes, and the list of programs change on a frequent basis, an inclusive list of all programs would be unmanageable. Excluded programs are: SYSTEM/A=, A TO A Routers SYSTEM/U=, U to A Routers SYSTEM/CO=, SYSTEM/COMS SYSTEM/CA=, SYSTEM/CANDE SYSTEM/CC=, Application to Appl calls (PROD)SYSTEM/=. A to A, U to A (PROD)CCF/=, -o- Missing Viewpoint Data In the event that Viewpoint data is missing or corrupted for any given time period (minute, 15 minute, hour, day, etc.), Unisys will average the data from the previous good time period with the following good time period. For example, if 4 minutes of data are missing, Unisys Page 5 of 12 EXHIBIT 31-3 would average the previous 15 minute sample with the next 15 minute sample to compute an average for the missing period. If 23 hours of data are missing, the previous and next daily samples would be used to compute an average. Unisys would clearly report exactly what method and samples it used in computing metrics for any lost period. (1) - When available, the forecast should include a breakout by div within a database (2) - The formula for computing the daily Application CPU hours will be: Processor Utilization Percentage * hours/day * # of processors. For example, if a A18-3x has *** (3) - OTHER will be defined in Viewpoint as all programs not included in the database workgroups except for the programs specifically excluded from the forecast (as noted above). BILLING UNITS Total application CPU hours per month for all A Series machines MACHINE/RESOURCE UTILIZATION In general, for an on-line oriented machine, as the machine utilization approaches saturation, technical support requirements increase exponentially. Efficient and cost effective computer operations requires executing the hardware resources at the highest level possible that doesn't require oppressive human intervention. The billing rates will be based on a best fir of machine utilization and technical resource utilization. Conversation Factor Since a variety of processor speeds/models are in use by UHS and it is expected that new processor speeds/models will be used, a conversion must be done to convert application CPU hours on all machines to a common metric. The conversation factor is the multiplier that will be applied to convert that machine to A18 - 1x Application CPU hours (the base metric). For example, *** Machine Style Conversion Factor A18 - all models *** A16-82L *** A19 - all models *** NX4801 *** BILLING REPORTING Unisys and UHS have defined workgroups into which the Viewpoint data will be defined. The hours in these workgroups will be converted to a common metric and summed monthly to provide the total Application CPU hours used. One workgroup exists for each A Series database plus one workgroup for all applications ("OTHER") that don't easily fit into a database workgroup. Unisys will provide billing detail at the summarized workgroup level. *** Indicates the omission of confidential information filed separately with the Securities and Exchange Commission in connection with a confidential treatment request made pursuant to Rule 24-b(2) of the Securities and Exchange Act of 1934, as amended. Page 6 of 12 EXHIBIT 31-3 A SERIES/CLEARPATH MEDIA MOUNTS FORECASTING/BILLING METRICS The total of all media mounts (tape, CD-ROMS, etc.) will be forecast. Actual numbers will be calculated using OPCON statistics. Page 7 of 12 EXHIBIT 31-3 IBM ES9000 MACHINE - CURRENTLY IN EFFECT DISK FORECASTING/BILLING METRICS Metric to be used Total disk available on system Unit of Measure Gigabytes of non-fault tolerant disk How computed Total gigabytes of all the disk connected to the system. When computed Each time additional disk is added to system. What forecasted The available disk will be forecasted into the following categories: - System Requirements - Financial Production and Test - Dental Systems - Center Files - DPS Files - Other: Infopac, Other Prd, Temp, Work, ML1 - DSS Production and Management - Available BILLING UNITS The forecasted disk usage number will assume all disk is non-fault tolerant. Any other type of disk purchase requested by UHS will be handled as an exception to Variable Pricing. The billing metric will be the total disk space available on the system. IBM PROCESSOR FORECASTING/BILLING METRICS FORECASTING AND MEASURING Forecasting metric to be used Maximum MIPS available on system Unit of Measure MIPS as defined by IBM product specifications What forecasted/measured Entire system What programs are excluded from forecast None BILLING UNITS Maximum MIPS available on machine IBM MEDIA MOUNTS FORECASTING/BILLING METRICS The total of all media mounts (tape, CD-ROMS, etc.) will be forecast. Actual numbers will be calculated using OPCON statistics. Page 8 of 12 EXHIBIT 31-3 IBM ES9000 MACHINE - DRAFT PROPOSAL DISK FORECASTING/BILLING METRICS Metric to be used Maximum GB used within month Unit of Measure Gigabytes of fault tolerant disk(1) How computed The DCOLLECT tool will run multiple times per day capturing the maximum disk used in each of the disk pools plus the SPOOL and Migration volumes.(2) At the end of the month, the maximum GB of disk for the month will be computed using this formula: Max GB consumed - max (SPOOL/Migration) + max (pool 1) + max (pool 2) + xxx + (pool n) where the "max" will be the highest value recorded for that pool at any time within the month and "n" will be the last pool being forecasted. For example: if 2 pools are being used in the computation: Pool 1:6/1@ 12:00 = 90 GB ... Pool 1:6/12@ 12:00 = 100 GB Pool 1:6/12@ 18:00 = 110 GB ... Pool 1:6/30@ 18:00 = 95 GB Pool 2:6/1@ 12:00 = 190 GB ... Pool 2:6/15@ 12:00 = 200 GB ... Pool 2:6/1@ 12:00 = 1095GB The maximum for pool 1 = 110 GB and the maximum for pool 2 = 200 GB. The Max Disk Consumed metric reported for the month would be 310 GB. DCOLLECT Run Frequency To be run as needed.(3) Page 9 of 12 EXHIBIT 31-3 Pools forecasted/Used in Computation POOLS: CENTER1 CENTER2 HEDIS DBDSST DBDSSP DBTECH DENTAL DPSCENTR DSSPROD DSSTEST EPIS FINPROD FINTEST INFOPAC PROD TEMP TEST UMWA OTHER VOLUMES: All volumes associate with SPOOL and Migration (currently MLxxxxpqcks). Missing Data In the event that data is missing or corrupted for any given time, Unisys will average the data from the previous good time period with the following good time period. For example, if a 4 hour collection period is used and if 4 hours of data are missing, Unisys would average the previous 4 hour sample with the next 4 hour sample to compute an average for the missing period. Unisys would clearly report exactly what method and samples it used in computing metrics for any lost period. Data Retention The summarized daily information will be kept for one year. (1) - BILLING UNITS The forecasted disk usage number will assume all disk is fault tolerant. Any other type of disk purchase requested by UHS may be handled as an exception to Variable Pricing by Unisys. (2) - SPOOL AND MIGRATION VOLUMES Although the SPOOL and Migration volumes are not true "pools," the amount of space consumed on these packs is directly related to the retention setting requested by UHS> (3) - DCOLLECT Frequency Unisys will initially run this tool once per hour. Since the CPU consumption for this product is chargeable to Unisys, Unisys may change the schedule of its use to optimize machine resources. Page 10 of 12 EXHIBIT 31-3 IBM PROCESSOR FORECASTING/BILLING METRICS FORECASTING AND MEASURING Forecasting Metric to be used Total CPU consumed within selected account codes by Prime and Off-Prime shifts. Unit of Measure ES9021-340 (1 processor) CPU Hours What forecasted/measured All CPU time for the following Account Codes will be excluded from the consumption totals: 3400 - Unisys Scheduling 3420 - Unisys Operations Analysts 3440 - Unisys Operations, Technical Staff All CPU time for other account codes will be included. Prime/Off-Prime Shifts All Reporting will be done by prime and off-prime periods using an Interval Accounting method.(1) Prime Shift Period: 8AM - 5 PM Central Time, Monday through Friday except Holidays. Off-Prime Shift Period: 5:01PM - 7:59AM Weekdays plus weekends and holidays. How forecasted and measured Extract the SMF Type 30 Subtypes 2, 3, and 5 records. These records will be used to calculate CPU times using TCB, SRB, HPT and IO. All the data will be contained in a monthly file, and retained for one year. This file will be kept at the detailed level not summarized at any level, allowing the smallest base of raw data anyone could work from. Missing Data In the event that data is missing or corrupted for any given time, Unisys will average the data from the previous good time period with the following good time period. For example, if a 4 hour collection period is used and if 4 hours of data are missing, Unisys would average the previous 4 hour sample with the next 4 hour sample to compute an average for the missing period. Unisys would clearly report exactly what method and samples it used in computing metrics for any lost period. Data Retention The summarized daily information will be kept for one year. (1) - Interval Accounting: The actual time a job executes within prime shift and off-prime shift will be accounted for separately. For example, assuming prime shift is 8AM to 5PM, and a job runs from 7 AM to 9AM (regardless of when it was submitted), it will accumulate 1 hour of off-prime shift time and 1 hour of prime shift time. Conversion Factor Since it is expected that new processor speeds/models will be used, a conversation must be done to convert application CPU hours on all machines to a common metric. The conversation factor is the multiplier that will be applied to convert that machine to ES9021-340 CPU hours (the base metric). Page 11 of 12 EXHIBIT 31-3 Machine Style Conversion Factor(2) ES9021-340 1 ES9021-711 2.66 ES9021-962 2.66 (2) - Based on Cheryl Watson's Tuning Letter Information BILLING REPORTING From the SMF data, Unisys will sum all CPU hours for all appropriate account codes (see prior list). The hours in these Account Codes will be converted to a common metric and summed monthly to provide the total CPU hours consumed. Unisys will provide two monthly metrics; one metric for total prime shift CPU hours and one metric for off-prime shift CPU hours. Unisys will also provide an EXCEL spreadsheet that contains the detail used to create this report. IBM MEDIA MOUNTS FORECASTING /BILLING METRICS Forecasting metric to be used Total media mounts consumed within selected account codes. Unit of Measure Count as supplied by SMF records What forecasted/measured All media mounts for the following Account Codes will be excluded from the consumption totals: 3400 - Unisys Scheduling 3420 - Unisys Operations Analysts 3440 - Unisys Operations, Technical Staff All media mounts for other account codes will be included. How forecasted and measured Extract the SMF Type 30 Subtypes 2, 3, and 5 records. These records will be used to calculate CPU times using TCB, SRB, HPT and IO. All the data will be contained in a monthly file, and retained for one year. This file will be kept at the detailed level not summarized at any level, allowing the smallest base of raw data anyone could work from. Missing Data In the event that data is missing or corrupted for any given time, Unisys will average the data from the previous good time period with the following good time period. For example, if a 4 hour collection period is used and if 4 hours of data are missing, Unisys would average the previous 4 hour sample with the next 4 hour sample to compute an average for the missing period. Unisys would clearly report exactly what method and samples it used in computing metrics for any lost period. Data Retention The summarized daily information will be kept for one year. Page 12 of 12 AMENDMENT NUMBER 2 TO INFORMATION TECHNOLOGY SERVICES AGREEMENT This is Amendment Number 2, dated as of June 30, 1999, to the Information Technology Services Agreement dated as of June l, 1996 between UNISYS CORPORATION ("Unisys") and UNITED HEALTHCARE SERVICES, INC, ("UHS"), as amended September 15, 1997 (the Agreement"). The Agreement sets forth the parties' obligations relating to (i) ownership of certain Unisys Machines and System Software, (ii) Termination Charges and (iii) pricing adjustments in the event of the occurrence of certain base volume changes. Unisys has requested such provisions be amended in certain respects and UHS has agreed to amend such provisions in accordance with this Amendment Number 2. Terms not otherwise defined herein shall have the meaning given them in the Agreement. ACCORDINGLY, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Unisys and UHS hereby agree to amend the Agreement to incorporate the following additional provisions and modify certain clauses as follows: 1. Notwithstanding anything to the contrary contained in the Agreement or any exhibits thereto, upon the termination, in whole or in part only with respect to the A-Series and Clearpath Unisys Machines, of the Agreement for any reason prior to its expiration, UHS shall, upon request of Unisys, only with respect to (i) any A Series and Clearpath Unisys Machines and related peripherals described on Exhibit A attached hereto and (ii) Unisys proprietary System Software described on Exhibit A attached hereto, be obligated to (i) purchase such A-Series and Clearpath Unisys Machines and related peripherals and (ii) license such Unisys proprietary Systems Software for the remaining term of the Agreement, solely for an amount equal to the amount set forth on Exhibit B attached hereto. Upon the sale of any Unisys Machines and related peripherals to UHS under this Amendment Number 2, Unisys will represent and warrant that it has the full right, title and interest in such Unisys Machines and related peripherals free and clear of any liens, claims or encumbrances and that such Unisys Machines and related peripherals are in good working order and eligible for Unisys maintenance services in accordance with Unisys then existing maintenance agreements. It is understood and agreed by the parties that, in the event UHS terminates the Agreement in full or only with respect to one or more of the A-Series and Clearpath Unisys Machines, and Unisys requests that UHS purchase the A-Series and Clearpath Unisys Machines and related peripherals described on Exhibit A attached hereto and license the Unisys proprietary System Software described on Exhibit A attached hereto, UHS will only be obligated to pay (i) those fees then due and payable under the Agreement at the time of termination and (ii) the amount set forth on Exhibit B attached hereto. Notwithstanding the foregoing, in the event that UHS terminates the Agreement pursuant to Section 24.05 of the Agreement, UHS shall not be obligated to pay the applicable amount set for on Exhibit B attached hereto for such A-Series and Clearpath Unisys Machines and related peripherals if UHS has not received the full right title and interest in such Unisys Machines and related peripherals free and clear of any liens, claims or encumbrances. No other fees or charges of any kind shall apply. For clarification purposes only, termination solely with respect to one or more IBM or Unix machines shall be in accordance with the terms and conditions of the Agreement (specifically including Amendment 1). 2. Upon mutual agreement of the parties, which agreement will be in the sole discretion of the parties, Exhibit A attached hereto will be amended, from time to time, as the A-Series and Clearpath Unisys Machines and Unisys proprietary System Software subject to this Amendment Number 2 are substituted by Unisys. Exhibit B attached hereto will not be amended or modified as a result of any such amendment of Exhibit A attached hereto. The intent of the parties is that Exhibit A attached hereto reflects all of the hardware and Unisys proprietary System Software required to process the UHS workload as of the date of this Amendment Number 2. Unisys hereby represents that Exhibit A attached hereto includes a complete and accurate list of all the A-Series and Clearpath Unisys Machines and Unisys proprietary System Software required to process the Unisys related UHS workload as of the date of this Amendment. 3. Section 33.01(1) of the Agreement is hereby amended by adding the following sentence to the end of the paragraph: "Notwithstanding the above, Unisys may assign its right to receive payments under this Agreement; provided, however, that any such assignment (a) will not increase the number of payments or amounts due from UHS, (b) will be subject to any claims and offset rights as well as UHS's right to receive payment for unused credits of UHS and (c) will not affect any of UHS's rights or remedies under the Agreement." 4. The first paragraph under the title "BASE CHANGES - VOLUME AND RATE" on page 1 of Exhibit 31-3 of Amendment Number 1 to the Agreement is hereby amended by adding the following sentence to the end of such paragraph: "It is understood and agreed and it is the intent of the parties hereto that, with respect to A-Series and Clearpath Unisys Machines only, in the event that an adjustment to the base rate is made as a result of a reduction in the actual unit volume consumed for a specific category, the parties will negotiate in good faith an appropriate adjustment to the base rate to reflect the capacity reductions and volume changes. Adjustments to the base rate pursuant to this paragraph will not in any way affect, reduce, amend or alter the parties rights or obligations under Article 9 of the Agreement." 2 5. The first sentence of the paragraph titled "ALL PERIODS" on page 1 of Exhibit 31-3 of Amendment Number 1 to the Agreement is hereby amended to read in its entirety as follows: "If the base volume for a particular category falls below either 60% of the base volume existing as of the date of this Amendment Number 2 for the Unisys category, or 60% of the initial base volume for the IBM categories, the Account Executives for Unisys and UHS will jointly agree on a revised rate card for that category. The Account Executives will also agree on a one-time charge for the reduced capacity requirement, or if UHS re-assigns the volume of one product family (IBM, Unisys) to the other product families supported by Unisys, the Account Executives for Unisys and UHS will jointly agree on an appropriate one-time charge for the eliminated capacity requirement." 6. Section 30.01 of the Agreement is hereby amended to read in its entirety as follows: 30.01(a) Direct Damages. Each of UHS and Unisys shall be liable to the other Party for any direct damages arising out of or relating to a breach of its obligations under this Agreement. The following shall be considered direct damages and Unisys shall not assert that they are indirect, incidental, special, or consequential damages or lost profits to the extent they result from Unisys failure to provide the Services in accordance with this Agreement: (1) reasonable costs of recreating (if possible) or reloading any of UHS' or its Affiliates' information that is lost or damaged; (2) reasonable costs of implementing a work around in respect of a failure to provide all or a portion of the Services or any part thereof; (3) reasonable costs of replacing lost or damaged equipment software and materials; (4) reasonable costs and expenses incurred by UHS or its Affiliates to return Systems Software to manufacturer specifications; (5) reasonable costs and expenses incurred by UHS or its Affiliates to procure the Services from an alternate source, to the extent in excess of Unisys charges under this Agreement, and provided that such costs and expenses shall not continue beyond the Term; (6) reasonable straight time, overtime or related expenses incurred by UHS or its Affiliates, including overhead allocations of UHS or its Affiliates for their employees, wages and salaries of additional employees, travel expenses, overtime expenses, telecommunication charges and similar charges, due to the failure of Unisys or its Agents to provide all or a portion of the Services incurred in connection with (1) through (5) above; (7) specific damages incurred pursuant to contractual provisions including, without limitation, liquidated damages, performance guarantees and fee reductions incurred by UHS or its Affiliates pursuant to customer or provider contracts; and 3 (8) the amount of any payment or penalty imposed on a Party by a regulatory agency arising out of the other Party's breach of this Agreement. 30.01(b) Limitation on Liability. The liability of either Party for actual, direct damages resulting from performance or nonperformance under this Agreement, regardless of the form of action, and whether in contract, tort (including, without limitation, negligence), warranty or other legal or equitable grounds, will be limited as follows: l. With respect to UHS, liability for actual, direct damages resulting from performance or nonperformance under this Agreement, regardless of the form of action, and whether in contract, tort (including, without limitation, negligence), warranty or other legal or equitable grounds, will be limited in the aggregate for the Term to the greater of (i) $6,000,000 and (ii) the charges paid to Unisys by UHS during the twelve month period immediately prior to the date the amount of damages was established (the "UHS Damages Cap"). In addition, the liability of UHS for actual, direct damages specified in subsections 30.01(7) and (8) resulting from performance or nonperformance under this Agreement, regardless of the form of action, and whether in contract, tort (including, without limitation, negligence), warranty or other legal or equitable grounds, will be limited in the aggregate for the Term to ten percent (10%) of the charges paid to Unisys by UHS during the twelve month period immediately prior to the date the amount of damages was established. 2. With respect to Unisys, liability for actual, direct damages resulting from performance or nonperformance under this Agreement, regardless of the form of action, and whether in contract, tort (including, without limitation, negligence), warranty or other legal or equitable grounds, will be limited in the aggregate for the Term to the greater of (i) $6,000,000 and (ii) the actual direct damages incurred by UHS up to a limit of an amount equal to the charges paid to Unisys by UHS during the twelve (12) month period immediately prior to the date the amount of damages was established (the "Unisys Direct Damages Cap"). In addition, the liability of Unisys for actual, direct damages specified in subsections 30.01(7) and (8) resulting from performance or nonperformance under this Agreement, regardless of the form of action, and whether in contract, tort (including, without limitation, negligence), warranty or other legal or equitable grounds, will be limited in the aggregate for the Term to ten percent (10%) of the charges paid to Unisys by UHS during the twelve month period immediately prior to the date the amount of damages was established. Notwithstanding the preceding two sentences, in the event that UHS terminates this Agreement in accordance with Section 24.02, 24.03, 24.05 or 24.06, Unisys will pay to UHS an amount equal to the charges paid to Unisys by UHS during the four (4) month period immediately prior to the date of such termination and Unisys liability with respect to such direct damages sustained as a 4 result of such termination will be limited to an amount equal to the charges paid to Unisys by UHS during the eight (8) month period immediately prior to the date of such termination. 3. The limitations in Subsections 30.01(b)(1) and (2) above will not apply to (a) losses by either Party for bodily injury or damage to real property or tangible personal property, (b) either Party's obligations to indemnify the other pursuant to Section 29.01(1), Section 29.01(7), Section 29.02(1) and Section 29.02(7), (c) any breach of confidentiality obligations contained in this Agreement or the improper disclosure of UHS Data, or (d) liability resulting from the willful misconduct of a Party. 7. It is the intent of the parties that Exhibit 17 of the Agreement is superseded in its entirety by Amendment Number 1 and this Amendment Number 2. 8. Other Terms Except as herein specifically amended, all of the terms of the Agreement remain in full force and effect and are hereby ratified and confirmed. To the extent the terms of this Amendment Number 2 conflict with other terms of the Agreement or any exhibits thereto, the provisions set forth in this Amendment Number 2 shall control. IN WITNESS WHEREOF, Unisys and UHS have executed this Amendment Number 2, effective as of the date first above written. UNISYS CORPORATION UNITED HEALTHCARE SERVICES, INC. By: Illegible By: Illegible ----------- ----------- Its: Illegible Its: Illegible ----------- ----------- 5 EXHIBIT A AMENDMENT 2 INFORMATION TECHNOLOGY SERVICES AGREEMENT
06/30/99 EXTENDED *** H/W NET REMAINING START DESCRIPTION LIST PRICE DISCOUNT LIST BOOK VALUE DATE - ----------- ---------- -------- ---- ---------- ---- INITIAL ASSET TFSR - 3430 H/W $ *** $ - $ *** $ *** Jun-96 INITIAL ASSET TFSR - 3430 S/W $ *** $ - $ *** $ *** Jun-96 (Extended List Price = Asset Transfer Value from the initial Agreement) (3430 was the A Series org # for UHG at time of contract) INCREMENTAL HARDWARE Al8-4x-6x $ *** $ *** $ *** $ *** Aug 96 A19 Components $ *** $ *** $ *** $ *** Oct-96 A Series Disk USE3600II $ *** $ *** $ *** $ *** Oct-96 A Series Disk Growth $ *** $ *** $ *** $ *** Mar-97 A168 $ *** $ *** $ *** $ *** May-97 Initial Clearpath $ *** $ *** $ *** $ *** May-97 A Series $ *** $ *** $ *** $ *** Sep-97 CP2013-V35 LMV Card $ *** $ *** $ *** $ *** Sep-97 Opcon Unix $ *** $ *** $ *** $ *** Sep-97 MAG TAPE $ *** $ *** $ *** $ *** Sep-97 A Series Disk $ *** $ *** $ *** $ *** Oct-97 CLRPTH 3x $ *** $ *** $ *** $ *** Oct-97 Clearpath 3x-5x $ *** $ *** $ *** $ *** Nov-97 A Series Disk $ *** $ *** $ *** $ *** Nov-97 A Series Disk $ *** $ *** $ *** $ *** Nov-97 Clearpath 3x Hardware $ *** $ *** $ *** $ *** Jan-98 Disk for Prod C & F $ *** $ *** $ *** $ *** Mar-98 CLRPTH UPG $ *** $ *** $ *** $ *** May-98 2x5800 ClrPth $ *** $ *** $ *** $ *** Oct-98 4O98 A Series Disk $ *** $ *** $ *** $ *** Oct-98 A Series Cache Disk memory $ *** $ *** $ *** $ *** Dec-98 OR801-RPW $ *** $ *** $ *** $ *** Dec-98 TAB40-048 $ *** $ *** $ *** $ *** Jan-99 GVPRODF 3x-4x $ *** $ *** $ *** $ *** Jan-99 GVPRODC 4x-5x $ *** $ *** $ *** $ *** Jan-99 GVPRODF 4x-5x $ *** $ *** $ *** $ *** Jan-99 A Series Disk $ *** $ *** $ *** $ *** Apr-99 SUB TOTAL $ *** $ *** $ *** $ ***
*** Indicates the omission of confidential information filed separately with the Securities and Exchange Commission in connection with a confidential treatment request made pursuant to Rule 24-b(2) of the Securities Exchange Act of 1934, as amended. EXHIBIT A AMENDMENT 2 INFORMATION TECHNOLOGY SERVICES AGREEMENT
06/30/99 EXTENDED *** H/W NET REMAINING START DESCRIPTION LIST PRICE DISCOUNT LIST BOOK VALUE DATE - ----------- ---------- -------- ---- ---------- ---- INCREMENTAL SOFTWARE A18-4x-6x $ *** $ - $ *** $ *** Aug-96 Disk-260GB USE36000II $ *** $ - $ *** $ *** Aug-96 Disk Software $ *** $ - $ *** $ *** Oct-96 Disk Software $ *** $ - $ *** $ *** Oct-96 Disk Software $ *** $ - $ *** $ *** Mar-97 A18 2x-3x ETP $ *** $ - $ *** $ *** Mar-97 Disk Software $ *** $ - $ *** $ *** May-97 CLRPTH $ *** $ - $ *** $ *** May-97 Disk Software $ *** $ - $ *** $ *** Jun-97 A19 S/W License Renewal $ *** $ - $ *** $ *** Jul-97 UN6000 UNIX Software $ *** $ - $ *** $ *** Sep-97 3x Clearpath $ *** $ - $ *** $ *** Sep-97 Clearpath 3x-5x $ *** $ - $ *** $ *** Nov-97 Clearpath 3x Software $ *** $ - $ *** $ *** Jan-98 4x Clearpath $ *** $ - $ *** $ *** May-98 A19 S/W License Renewal $ *** $ - $ *** $ *** Jun-98 2x5800 ClearPath $ *** $ - $ *** $ *** Oct-98 GVPRODF 3x-4x $ *** $ - $ *** $ *** Jan-99 GVPRODC 4x-5x $ *** $ - $ *** $ *** Jan-99 GVPRODF 4x-5x $ *** $ - $ *** $ *** Jan-99 SUB TOTAL $ *** $ - $ *** $ *** GRAND TOTAL $ *** $ *** $ *** $ ***
*** Indicates the omission of confidential information filed separately with the Securities and Exchange Commission in connection with a confidential treatment request made pursuant to Rule 24-b(2) of the Securities Exchange Act of 1934, as amended. EXHIBIT B TERMINATION CHARGES (***'S)
Year Month Unisys Only and All Platforms 38 *** 39 *** 40 *** 41 *** 42 *** 43 *** 44 *** 45 *** 46 *** 47 *** 48 *** 5 49 *** 50 *** 51 *** 52 *** 53 *** 54 *** 55 *** 56 *** 57 *** 58 *** 59 *** 60 *** 6 61 *** 62 *** 63 *** 64 *** 65 *** 66 *** 67 *** 68 *** 69 *** 70 *** 71 *** 72 *** 7 73 *** 74 *** 75 *** 76 *** 77 *** 78 *** 79 *** 80 *** 81 *** 82 *** 83 *** 84 *** 8 85 ***
*** Indicates the omission of confidential information filed separately with the Securities and Exchange Commission in connection with a confidential treatment request made pursuant to Rule 24-b(2) of the Securities Exchange Act of 1934, as amended. Page 1 of 2 EXHIBIT B TERMINATION CHARGES (***'S)
Year Month Unisys Only and All Platforms 86 *** 87 *** 88 *** 89 *** 90 *** 91 *** 92 *** 93 *** 94 *** 95 *** 96 *** 9 97 *** 98 *** 99 *** 100 *** 101 *** 102 *** 103 *** 104 *** 105 *** 106 *** 107 *** 108 *** 10 109 *** 110 *** 111 *** 112 *** 113 ***
*** Indicates the omission of confidential information filed separately with the Securities and Exchange Commission in connection with a confidential treatment request made pursuant to Rule 24-b(2) of the Securities Exchange Act of 1934, as amended. Page 2 of 2 AMENDMENT NUMBER 3 TO INFORMATION TECHNOLOGY SERVICES AGREEMENT This is Amendment No. 3, dated as of May 1, 2002, to the Information Technology Services Agreement dated as of June 1, 1996 between Unisys Corporation ("Unisys") and United HealthCare Services, Inc., ("UHS"), as amended (the "Agreement"). NOW, THEREFORE, in consideration of the premises and mutual promises herein contained, it is agreed that the Agreement is hereby amended as follows: WHEREAS, the Parties wish to amend the Agreement and/or Additional Service Requisitions there under in order to modify certain sections and exhibits of the Agreement and/or Additional Service Requisitions there under, and add additional terms. NOW, THEREFORE, for good and valuable consideration, the receipt of which is acknowledged, the Parties agree as follows: 1. All capitalized terms not defined herein shall have the same meaning ascribed to such terms in the Agreement. 2. Additional Service Requisition 0157 (AARP/Compass) is hereby amended to include the following information in a new subsection under Section 7(a) as outlined in Exhibit A attached hereto. 3. Additional Service Requisition 01102 (Physician Portal) is hereby amended to include the following information in a new subsection under Section 7 as outlined in Exhibit B attached hereto. 4. Exhibit 15 (Subcontractors) is hereby amended to delete the subcontractors chart in its entirety and replace it with the following chart shown in Exhibit C attached hereto. 5. Article 33 (Miscellaneous Provisions) of the Agreement shall be modified as to add a new Section 33.18 titled "External Access", as outlined in Exhibit D attached hereto. 6. Article 33 (Miscellaneous Provisions), Section 33.02 (Notices) is hereby updated with the following revised contact information as outlined in Exhibit E attached hereto. 7. Article 22 (Confidentiality), Section 22.01 (Confidential Information) will be amended to include the following as outlined in Exhibit F attached hereto. 1 In the event of inconsistencies between the Agreement and this Amendment, the terms and conditions of this Amendment shall be controlling. Unless specifically modified or changed by the terms of this Amendment, all terms and conditions of the Agreement shall remain in effect and shall apply fully as described and set forth in the Agreement. Accepted by: Accepted by: Unisys Corporation United HealthCare Services, Inc. By: /s/ Kenneth W. Hadzinski By: /s/ Darrell Brooks --------------------------------- ---------------------------- Name: Kenneth W. Hadzinski Name: Darrell Brooks --------------------------------- ---------------------------- Contracts Manager Title: Unisys Corporation Title: VP, Service Management --------------------------------- ---------------------------- Date: 9/10/02 Date: 08-30-2002 --------------------------------- ---------------------------- 2 EXHIBIT A ADDITIONAL SERVICE REQUISITION 0157 (AARP/COMPASS) AMENDMENT "7. Problem Resolution Time Unisys shall resolve all problems categorized below within the times listed below from the time that the Unisys Service Center problem ticket is opened until the problem is resolved.
Severity Characteristics Resolution Time 1- Major Business Impact Major impact on business. The site is unavailable or any of the 8 hours major functions (i.e. transactions or content) of the site are completely or partially unavailable or the site is experiencing significant response time issues (i.e. not meeting performance metrics). A system or component is down causing a business function to halt. The critical situation procedure is followed to resolve the problem. 3 - Minor Business Impact Minor impact on business. Any issue affecting the functionality 96 hours (I.e. transaction, content or performance) or availability of the site for a single user. This does not have critical impact on the business, but does restrict functions to some users and can impact normal operations.
3 EXHIBIT B ADDITIONAL SERVICE REQUISITION 01102 (PHYSICIAN PORTAL) AMENDMENT "G. Problem Resolution Time Unisys shall resolve all problems categorized below within the times listed below from the time that the Unisys Service Center problem ticket is opened until the problem is resolved.
Severity Characteristics Resolution Time 1- Major Business Impact Major impact on business. The site is unavailable or any of the 8 hours major functions (i.e. transactions or content) of the site are completely or partially unavailable or the site is experiencing significant response time issues (i.e. not meeting performance metrics). A system or component is down causing a business function to halt The critical situation procedure is followed to resolve the problem. 3 - Minor Business Impact Minor impact on business. Any issue affecting the functionality 96 hours (I.e. transaction, content or performance) or availability of the site for a single user. This does not have critical impact on the business, but does restrict functions to some users and can impact normal operations.
4 EXHIBIT C EXHIBIT 15 (REVISED) SUBCONTRACTORS
VENDOR USER Burns Security Facilities Honeywell Eagan Service Center Hunt Electric Facilities Iron Mountain Eagan Service Center Quicksilver Eagan Service Center
5 EXHIBIT D ADDITION TO ARTICLE 33 MISCELLANEOUS PROVISIONS 33.18 External Access. This section establishes the terms and conditions and procedures of Unisys access to certain of UHS' Systems noted on the Security Form ("United IS"). (1). Method of Access. Unisys shall have access to United IS by the following methods: - - At a UHS Site using UHS owned or leased equipment. - - As otherwise mutually agreed to by the Parties. (2). System Users. As part of the Agreement, UNISYS shall identify to UHS the UNISYS employees UNISYS believes will need to have access to United IS under the Agreement ("SYSTEM USERS"). UHS will provide each System User with a hard copy of the UHS customer administration request form that is used by UHS to process adds, changes and deletes regarding access to the United IS, which is located in the UHS Lotus Notes database (the "SECURITY FORM"). The UHS designated contact will forward the completed Security Form to the UHS security group for processing. UNISYS shall provide UHS the information regarding each System User reasonably required by UHS, including, but not limited to, the United IS each System User will access and the method of each System User's access to United IS. UNISYS will not provide social security numbers or other UNISYS or personal confidential information to UHS. UNISYS shall promptly notify UHS of any System Users who cease to require access to United IS as a result of a change of responsibilities and/or leaving UNISYS employment. UHS may terminate any System User's access to United IS in the event UHS has good faith reason to believe such access is not authorized, or access must be terminated in order to prevent damage to UHS. UNISYS is responsible for a System User's non-compliance with the terms of this Agreement. UNISYS subcontractors shall be deemed System Users under the terms of the Agreement. In the event UHS terminates an UNISYS System User's access to the United IS for any reason other than (1) a material breach of the Agreement or (2) a force majeure event, and such access is necessary for UNISYS to perform the Services, the Parties will mutually agree to either (1) develop an alternative means to access the data on the United IS that is necessary for UNISYS to perform the Services or (2) delay the delivery of any deliverables under the Agreement, with no contractual penalty being assessed against UNISYS. 6 (3). Limitations on UNISYS Use of Access to United IS. UNISYS shall not use its access to United IS for any purposes not authorized by an Agreement. (4). No Software License Granted and Ownership. The access to United IS granted to UNISYS under the Agreement is limited to granting UNISYS access to the United IS and does not and shall not be construed as granting UNISYS a license for the use of the software programs contained in the United IS. Any license to the software programs contained in United IS shall be pursuant to a separate license agreement between the Parties. UNISYS shall not and shall not attempt to reverse engineer or otherwise obtain copies of the software programs contained in United IS or the source code of the software programs contained in United IS. UHS represents and warrants to UNISYS that it either owns and/or has rights to the United IS and it owns or has rights to allow UNISYS to access and use the software and applications on the United IS solely for the purposes set forth in the Agreement. This section to the Agreement does not transfer title to or ownership to rights to United IS or to rights in patents, copyrights, trademarks and trade secrets encompassed in the United IS to UNISYS. (5). Security. UNISYS shall use reasonable physical and software-based measures, commonly used in the electronic data interchange field as such are provided by UHS to UNISYS or that UNISYS uses in its normal course of business, to protect data contained in United IS from unauthorized access. UNISYS shall comply with and shall not attempt to circumvent or bypass UHS's security procedures for the United IS that are required by UHS and provided to UNISYS during the performance of the SOW. UNISYS shall advise UHS if conformance with such requirements will result in additional burdens on UNISYS, and if such burdens will affect UNISYS ability to deliver the Services and/or increase UNISYS costs to perform the Services. Notwithstanding the foregoing, any such Changes to the Agreement will be processed by the Parties in accordance with the terms and conditions of the Agreement. 7 EXHIBIT E SECTION 33.02 NOTICES In the case of UHS: United HealthCare Services, Inc. 9900 Bren Road East Minnetonka, Minnesota 55343 Attn: James Hudak, CEO, UnitedHealth Technologies FAX: 952.936.7430 For default or termination, with a copy to: United HealthCare Services, Inc. 9900 Bren Road East Minnetonka, Minnesota 55343 Attn: David Lubben, General Counsel FAX: 952.936.0044 And to United HealthCare Services, Inc. 9900 Bren Road East Minnetonka, Minnesota 55343 Attn: Colleen Schmid, Associate General Counsel FAX: 952.936.1745 In the case of Unisys: Unisys Corporation 3900 Paramount Parkway Suite 250 South Morrisville, North Carolina 27560 Attn: Ken Hadzinski 8 EXHIBIT F ADDITIONAL NEW PARAGRAPH IN SECTION 22.01 CONFIDENTIAL INFORMATION "While it is not contemplated under this Agreement that Unisys will have a need to use or disclose Protected Health Information or Personal Information (as those terms are defined below), in connection with providing services to UHS, in the event Unisys does, this section shall apply. In addition to its obligations of confidentiality under this Agreement, Unisys understands and acknowledges that it may receive from or create or receive on behalf of UHS Protected Health Information, as defined under the privacy regulations issued pursuant to the Health Insurance Portability and Accountability Act of 1996 ("HIPAA"), and/or nonpublic personal information, as defined under the Gramm-Leach-Bliley Act and implementing regulations ("GLB"), during the performance of its obligations under this Agreement. Unisys agrees to comply with any information privacy and security policies and standards of UHS that are disclosed by UHS to Unisys in writing and that are applicable to the aforementioned information. Except as otherwise specified herein, Unisys may use or disclosure Protected Health Information received from or created or received on behalf of UHS ("PHI") and nonpublic personal information received from or created or received on behalf of UHS ("Personal Information") solely to perform functions, activities, or services for, or on behalf of, UHS as specified in this Agreement. With regard to its use and/or disclosure of PHI or Personal Information, Unisys hereby agrees and represents and warrants to UHS that Unisys shall: (a) Not use or further disclose any PHI or Personal Information other than as permitted by this Agreement. (b) At all times maintain and use appropriate safeguards to prevent uses or disclosures of any PHI or Personal Information other than as permitted by this Agreement; (c) Ensure that any subcontractor or agent to whom it provides any PHI or Personal Information agrees in writing to the same conditions and restrictions that apply to Unisys with regard to the PHI or Personal Information, including, without limitation, all of the requirements of this Section 22. With regard to its use and/or disclosure of PHI, Unisys hereby agrees and represents and warrants to UHS that Unisys shall: (a) Report promptly to UHS any use or disclosure of any PHI of which it becomes aware that is not permitted by this Agreement; (b) Mitigate, to the extent practicable, any harmful effect that is known to Unisys of a use or disclosure of PHI by Unisys in violation of the requirements of this Agreement; (c) In the time and manner designated by UHS, make available PHI in a Designated Record Set, to UHS, or as directed by UHS, to an individual, in order for UHS to respond to individuals' request for access to information about them in accordance with the HIPAA privacy regulation; 9 (d) In the time and manner designated by UHS, make any amendments or corrections to the PHI in a Designated Record Set that UHS directs in accordance with the HIPAA privacy regulation; (e) In the time and manner designated by UHS, document such disclosures of PHI and information related to such disclosures as would be required for UHS to respond to a request by an individual for an accounting of disclosures of PHI in accordance with the HIPAA privacy regulations; (f) In the time and manner designated by UHS, make available to UHS, or as directed by UHS, to an individual, the information documented in accordance with subsection (e) above, to permit UHS to respond to a request by an individual for an accounting of disclosures, in accordance with the HIPAA privacy regulations; (g) In the time and manner designated by UHS or the Secretary of HHS, make its internal practices, books and records relating to the use and disclosure of PHI available to UHS and to the Secretary of HHS for purposes of determining UHS's compliance with the HIPAA privacy regulations. Unisys agrees that this Agreement may be terminated by UHS upon written notice to Unisys in the event that UHS determines that Unisys has violated any material term of this section. Alternatively, UHS may choose to provide Unisys with written notice of the existence of an alleged material breach of this section and afford Unisys an opportunity to cure said breach upon mutually agreeable terms. Failure to cure, or a determination by UHS that cure is not practicable or possible, shall be grounds for the immediate termination of this Agreement. Unisys agrees to defend, indemnify and hold harmless UHS against any and all claims, liabilities, judgments or damages asserted against, imposed upon or incurred by UHS that arise out of any violation of this section. Upon the termination of this Agreement for any reason, Unisys shall return to UHS or destroy all PHI and/or Personal Information, and retain no copies in any form whatsoever. This provision shall apply to PHI and/or Personal Information that is in the possession of subcontractors, vendors or agents of Unisys. Unless otherwise specified in this Agreement, all capitalized terms in this section not otherwise defined have the meaning established for purposes of Title 45 parts 160 and 164 of the UHS States Code of Federal Regulations, as amended from time to time. The Parties agree to take such action as is necessary to amend this Agreement from time to time as is necessary for UHS to comply with the requirements of HIPAA, the HIPAA privacy regulations, GLB and other federal and state privacy and consumer rights laws and regulations applicable to UHS. Unisys agrees to cooperate with and assist UHS in order for UHS to meet its obligations under applicable privacy laws and regulations. This section shall survive any termination of this Agreement. The terms and conditions of this section required by HIPAA shall be construed in light of any applicable interpretation of and/or guidance on the HIPAA privacy regulation issued by HHS 10 from time to time. Any ambiguity in this section shall be resolved in favor of a meaning that permits UHS to comply with applicable laws and regulations. Notwithstanding anything to the contrary contained in this Section 22.01, UHS acknowledges and agrees that Unisys has no independent knowledge of the requirements of HIPAA or GLB or any regulations promulgated pursuant thereto. As a result, to the extent that any of the obligations of Unisys with regard to PHI or Personal Information are determined by, relate or refer to the provisions of HTAA, GLB or any regulations relating thereto, Unisys shall be bound by any such obligation only if and to the extent that Unisys has been informed by UHS, in writing, (via policies and procedures or otherwise) of the requirements of such provision and the procedures that Unisys must follow in order to comply with such obligations. If and to the extent that, when so informed, Unisys determines that compliance with such obligations would be commercially unreasonable or unduly burdensome, Unisys shall so notify UHS and the parties shall work together in good faith to develop a mutually acceptable solution, including, without limitation, restricting Unisys's access to the applicable PHI or Personal Information, if practicable." 11 EX-10.(W) 9 c74996exv10wxwy.txt EX-10(W) AMENDMENT TO PHARMACY BENEFIT AGREEMENT EXHIBIT 10(W) AMENDMENT TO UNITED HEALTHCARE SERVICES, INC. AND UNITEDHEALTH NETWORKS, INC. PHARMACY BENEFIT MANAGEMENT AGREEMENT This Amendment is made to the agreement ("Agreement") between United HealthCare Services, Inc. and UnitedHealth Networks, Inc., collectively referred to as "United", and the entity named below ("MMMC"). The Agreement currently sets forth the terms and conditions under which MMMC or an affiliate shall provide or arrange for the provision of health care services to individuals covered by a United's affiliated Health Plan pursuant to its Medicare contract with the Health Care Financing Administration ("HCFA"). The parties understand and agree that the Balanced Budget Act of 1997 ("BBA") established a new program known as Medicare+Choice, which replaced Health Plan's existing Medicare risk program. The purpose of this Amendment is to incorporate all provisions necessary to meet the HCFA requirements for Medicare+Choice. This Amendment is effective on August 1, 1999. 1. The Agreement shall be amended by the addition of the attached Health Plan Medicare+Choice Requirements Addendum. 2. All other provisions of the Agreement shall remain in full force and effect. UNITED HEALTHCARE SERVICES, INC. MERCK MEDCO MANAGED CARE, L.L.C. Signature Illegible Signature Illegible -------------------- ------------------------ Title President Title Senior Vice President- ----------------------- Regulatory and Managed Care Programs --------------------------- Date 1/29/01 Date 1/24/01 ------------------------ ---------------------------- UNITEDHEALTH NETWORKS, INC. Signature /s/ Illegible -------------------- Title Secretary ------------------------ Date 1/26/01 ------------------------ HEALTH PLAN MEDICARE+CHOICE REQUIREMENTS ADDENDUM In addition to PBM's obligations under the Agreement, PBM agrees, and shall require PBM Contracting Providers to agree, as participating providers under a United affiliated Health Plan's contract with HCFA to be a Medicare+Choice managed care organization (hereafter the "M divided by C Contract"), to abide by all applicable provisions of the M+C Contract and to fulfill PBM's and PBM Contracting Provider's obligations under the Agreement in a manner consistent with a United affiliated Health Plan's (hereafter the "Health Plan") obligations under the M divided by C Contract. For purposes of this Addendum, "Medicare Member" means a Health Plan's Member who is enrolled in a Medicare+Choice plan through Health Plan. PBM and PBM Contracting Provider compliance with the M+C Contract specifically includes, but is not limited to, the following requirements: 1. Prompt Payment. Health Plan shall pay "clean" claims for Covered Services within forty-five (45) days of receipt and approve or deny all claims that are not "clean" claims within sixty (60) days from the date of the request. 2. Medicare Compliance. PBM shall, and shall require PBM Contracting Providers to, comply with all applicable Medicare laws and regulations and HCFA instructions. 3. Audits and Information. In addition to PBM's and PBM Contracting Provider's obligations under Section 5.3.2, PBM shall, and shall require PBM Contracting Providers to, permit audits and inspection by HCFA and/or its designees, and cooperate, assist and provide information to HCFA and/or its designees as requested from time to time. This provision shall survive termination of the Agreement. 4. Maintenance of Records. In addition to PBM's and PBM Contracting Providers' obligations under Section 5.3.2, PBM shall, and shall require PBM Contracting Providers to, retain books, contracts, documents, papers and records, including without limitation, medical records, patient care documentation, and other records that pertain to any aspect of services performed, financial solvency, reconciliation of benefit liabilities and determination of amounts payable under Health Plan's M divided by C Contract for a minimum of six (6) years from the end of the applicable one-year contract period in the M divided by C Contract or the completion of an audit, or in certain instances described in applicable Medicare+Choice regulations, for periods in excess of six (6) years, if appropriate. PBM shall, and shall require PBM Contracting Providers to, maintain such records accurately and update them on a regular basis. PBM and PBM's employees and agents shall, and shall require PBM Contracting Providers to, maintain the confidentiality of all Medicare Member records in accordance with the applicable laws and regulations, and shall safeguard Medicare Members' privacy. This provision shall survive termination of the Agreement. 5. Data Collection. PBM shall submit to Health Plan, upon request, all data necessary for Health Plan to fulfill its reporting obligations pursuant to 42 C.F.R.SS.422.516. PBM must submit to Health Plan all data, including medical records, necessary to characterize the content and purpose of each encounter with a Medicare Member. PBM must certify (based 1 on best knowledge, information and belief) the accuracy, completeness and truthfulness of such data on certification forms provided by Health Plan. PBM shall hold harmless and indemnify Health Plan for any fines or penalties it may incur due to PBM's submission of inaccurate or incomplete data. 6. Accountability. PBM acknowledges, and shall require PBM Contracting Providers to acknowledge, that Health Plan oversees and is responsible to HCFA for any functions or responsibilities provided or performed by PBM or PBM Contracting Providers pursuant to the M+C Contract, as applicable. 7. Delegation. If any service or activity to be performed by PBM under this Agreement is delegated, to the extent permitted by and in accordance with this Agreement, to a downstream entity, such entity shall enter into a contract with PBM obligating such entity to perform such service or activity consistent with and in compliance with the terms of this Agreement and the M+C Contract. 8. Continued Care. In addition to PBM's and PBM Contracting Providers' obligations pursuant to Section 3.8 of the Agreement, PBM shall, and shall require PBM Contracting Providers to, provide Covered Services to Medicare Members (i) for all Medicare Members, for the duration of the M+C Contract period for which HCFA payments have been made; and (ii) for Medicare Members who are hospitalized on the date the M+C Contract terminates or in the event of Health Plan's or PBM's insolvency, through discharge. This provision shall survive termination of the Agreement. 9. Compliance with Pharmacy Services Manual. PBM shall require PBM Contracting Providers to comply with PMB's Pharmacy Services Manual, including, without limitation, the Medicare Plus Choice Requirements addendum (the "Pharmacy Attachment"). PBM shall comply with those requirements of the Pharmacy Attachment applicable to the performance of PBM's obligations under this Agreement, including, without limitation, where an obligation is placed upon PBM Contracting Providers but such obligation may be performed or could be violated by PBM. In the event of a conflict between any provision in this ADDENDUM and the Pharmacy Attachment, this ADDENDUM shall govern. 2 AMENDMENT TO UNITED HEALTHCARE SERVICES, INC. PHARMACY BENEFIT MANAGEMENT AGREEMENT This Amendment is made to the Pharmacy Benefit Management Agreement ("Agreement") between United HealthCare Services, Inc., UnitedHealth Networks, Inc. (collectively "United") and Merck-Medco Managed Care, L.L.C. ("PBM") dated November 11, 1998. WHEREAS, the Agreement sets forth the obligations of the parties in order for United to make available pharmacy benefit management and related services to Health Plans and other non-Health Plan business and PBM agreed to provide such services; and WHEREAS, the parties desire to amend the Agreement in order to add PAID Prescriptions, L.L.C. ("PAID") as a signatory to the Agreement. NOW THEREFORE, in consideration of the terms and conditions set forth in this Addendum, the parties agree as follows: 1. PAID is a subsidiary of PBM and acts as a Third Party Administrator ("TPA") for PBM on behalf of United. PAID is licensed in certain states as a TPA as required by applicable law. 2. The parties agree that PAID is added as a signatory to the Agreement shall perform the TPA functions in the Agreement. 3. All other provisions of the Agreement shall remain in full force and effect. United HealthCare Services, Inc. Marck-Medco Managed Care, L.L.C. Signature: Illegible Signature: Illegible -------------------- -------------------- Title: COO Title: Vice President ------------------------ ----------------------- Date: 3/28/01 Date: 4/12/01 ------------------------- ----------------------- United HealthNetworks, Inc. PAID Prescriptions, L.L.C. Signature: Illegible Signature: Illegible -------------------- -------------------- Title: Vice President Title: Vice President ------------------------ ----------------------- Date: 3/28/01 Date: 4/12/01 ------------------------- ----------------------- AMENDMENT TO PHARMACY BENEFIT MANAGEMENT AGREEMENT BETWEEN UNITED HEALTHCARE SERVICES, INC. AND MERCK-MEDCO MANAGED CARE, LLC, excerpted from Letter Agreement dated June 29, 2001, between United HealthCare Services, Inc. and Merck-Medco Managed Care, LLC Rebate Contracting (a) PBM agrees to work with United Healthcare to negotiate new or amended rebate agreements with drug manufacturers by June 30, 2002 that will result in United HealthCare earning *** *** Represents text deleted pursuant to a confidentiality treatment request filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. AMENDMENT United HealthCare Services, Inc., on behalf of itself and its affiliates from time to time (collectively, "United HealthCare") and Merck-Medco Managed Care, LLC ("PBM") hereby agree to make the following changes to the Pharmacy Benefit Management Agreement between United HealthCare and PBM that was executed by United HealthCare on November 11, 1998 (the "Agreement"): 1. Section 4.6 of the Agreement is hereby revised to read as follows: "4.6 MINIMUM PDL ENROLLMENT. Effective as of December 11, 2001 and continuing throughout the term of this Agreement, United HealthCare agrees that it shall maintain a minimum of *** Covered Persons (including, as a subset thereof, at least *** non-Health Plan Covered Persons) receiving services under this Agreement including participating in United HealthCare's PDL.*** 2. Section 3.15 is hereby deleted from the Agreement. 3. Except as otherwise defined in this Amendment, capitalized terms shall have the meanings set forth in the Agreement. Except as specifically modified by this Amendment, the Agreement as heretofore amended shall remain in effect. ACCEPTED AND AGREED as of the 19th day of December 2001. United HealthCare Services, Inc. Merck-Medco Managed Care, LLC By: /s/ William A. Munsell By: /s/ Glenn Taylor ----------------------- ------------------------ Name: William A. Munsell Name: Glenn Taylor --------------------- ---------------------- Title: Vice President Title: Sr. Vice President -------------------- --------------------- *** Represents text deleted pursuant to a confidentiality treatment request filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. EX-13 10 c74996exv13.txt EX-13 PORTIONS OF ANNUAL REPORT TO SHAREHOLDERS . . . EXHIBIT 13 FINANCIAL HIGHLIGHTS
For the Year Ended December 31, (in millions, except per share data) 2002 2001 2000 1999 1998 -------- -------- -------- -------- -------- CONSOLIDATED OPERATING RESULTS Revenues $ 25,020 $ 23,454 $ 21,122 $ 19,562 $ 17,355 -------- -------- -------- -------- -------- Earnings (Loss) From Operations $ 2,186 $ 1,566 $ 1,200 $ 943 $ (42)(3) Net Earnings (Loss) $ 1,352 $ 913 $ 736(1) $ 568(2) $ (166) Net Earnings (Loss) Applicable to Common Shareholders $ 1,352 $ 913 $ 736 $ 568 $ (214)(3) Return on Shareholders' Equity 33.0% 24.5% 19.8%(1) 14.1% na(3) -------- -------- -------- -------- -------- Basic Net Earnings (Loss) per Common Share $ 4.46 $ 2.92 $ 2.27 $ 1.63 $ (0.56) Diluted Net Earnings (Loss) per Common Share $ 4.25 $ 2.79 $ 2.19(1) $ 1.60(2) $ (0.56)(3) -------- -------- -------- -------- -------- Common Stock Dividends per Share $ 0.03 $ 0.03 $ 0.02 $ 0.02 $ 0.02 -------- -------- -------- -------- -------- CONSOLIDATED CASH FLOWS FROM OPERATING ACTIVITIES $ 2,423 $ 1,844 $ 1,521 $ 1,189 $ 1,071 -------- -------- -------- -------- -------- CONSOLIDATED FINANCIAL CONDITION (As of December 31) Cash and Investments $ 6,329 $ 5,698 $ 5,053 $ 4,719 $ 4,424 Total Assets $ 14,164 $ 12,486 $ 11,053 $ 10,273 $ 9,675 Debt $ 1,761 $ 1,584 $ 1,209 $ 991 $ 708 Shareholders' Equity $ 4,428 $ 3,891 $ 3,688 $ 3,863 $ 4,038 Debt-to-Total-Capital Ratio 28.5% 28.9% 24.7% 20.4% 14.9%
na - not applicable Financial Highlights and Results of Operations should be read together with the accompanying Consolidated Financial Statements and Notes. (1) 2000 results include a $14 million net permanent tax benefit related to the contribution of UnitedHealth Capital investments to the United Health Foundation and a $27 million gain ($17 million after tax) related to a separate disposition of UnitedHealth Capital investments. Excluding these items, 2000 net earnings and diluted net earnings per common share were $705 million and $2.10 per share, and return on shareholders' equity was 19.0%. (2) 1999 results include a net permanent tax benefit primarily related to the contribution of UnitedHealth Capital investments to the United Health Foundation. Excluding this benefit, net earnings and diluted net earnings per common share were $563 million and $1.59 per share. (3) Excluding the operational realignment and other charges of $725 million, $175 million of charges related to contract losses associated with certain Medicare markets and other increases to commercial and Medicare medical costs payable estimates, and the $20 million convertible preferred stock redemption premium from 1998 results, earnings from operations and net earnings applicable to common shareholders would have been $858 million and $509 million, or $1.31 diluted net earnings per common share, and return on shareholders' equity would have been 11.9%. 19 UnitedHealth Group RESULTS OF OPERATIONS 2002 FINANCIAL PERFORMANCE HIGHLIGHTS 2002 was a record year for UnitedHealth Group as the company continued strong diversified growth across its business segments and realized diluted net earnings per common share of $4.25, up 52% over 2001 on a reported basis and up 38% on a FAS No. 142 comparable reporting basis(1). Other financial performance highlights include: > Revenues of $25.0 billion, a 7% increase over 2001. > Operating earnings of $2.2 billion, up 40% over 2001 on a reported basis and up 32% on a FAS No. 142 comparable reporting basis. > Net earnings of nearly $1.4 billion, a 48% increase over 2001 on a reported basis and a 35% increase on a FAS No. 142 comparable reporting basis. > Operating cash flows of more than $2.4 billion, an increase of 31% over 2001. > Consolidated operating margin of 8.7%, up from 6.7% in 2001 on a reported basis and up from 7.1% on a FAS No. 142 comparable reporting basis, driven by operational and productivity improvements, improved margins on risk-based products, and a product mix shift from risk-based products to higher-margin, fee-based products. > Return on shareholders' equity of 33.0%, up from 24.5% in 2001 on a reported basis and up from 26.8% on a FAS No. 142 comparable reporting basis. 2002 RESULTS COMPARED TO 2001 RESULTS CONSOLIDATED FINANCIAL RESULTS Revenues Revenues are comprised of premium revenues from risk-based products; service revenues, which primarily include fees for management, administrative and consulting services; and investment and other income. Premium revenues are derived from risk-based arrangements in which the premium is fixed, typically for a one-year period, and we assume the economic risk of funding health care services and related administrative costs. Service revenues consist primarily of fees derived from services performed for customers that self-insure the medical costs of their employees and their dependents. For both premium risk-based and fee-based customer arrangements, we provide coordination and facilitation of medical services, transaction processing, customer, consumer and care provider services, and access to contracted networks of physicians, hospitals and other health care professionals. Consolidated revenues increased by approximately $1.6 billion, or 7%, in 2002 to $25.0 billion. Strong growth across our business segments was partially offset by the impact of targeted withdrawals from unprofitable risk-based arrangements with customers using multiple health benefit carriers, and withdrawals and benefit design changes in our Medicare+Choice product offering in certain markets. (1) On January 1, 2002, UnitedHealth Group adopted Statement of Financial Accounting Standards (FAS) No. 142, "Goodwill and Other Intangible Assets," which eliminated the amortization of goodwill. To enhance analysis, the FAS No. 142 comparable reporting basis excludes $93 million ($89 million after tax effect) of goodwill amortization from 2001 results. {20} UnitedHealth Group Following is a discussion of 2002 consolidated revenue trends for each revenue component. Premium Revenues Consolidated premium revenues in 2002 totaled $21.9 billion, an increase of $1.2 billion, or 6%, compared with 2001. Premium revenues from UnitedHealthcare's commercial risk-based products increased by approximately $1.2 billion, or 10%, to $12.9 billion in 2002. Average net premium rate increases exceeded 13% on UnitedHealthcare's renewing commercial risk-based business. This increase was partially offset by the effects of targeted withdrawals from unprofitable risk-based arrangements with customers using multiple health benefit carriers and a shift in product mix from risk-based to fee-based products. During 2002, the number of individuals served by UnitedHealthcare commercial risk-based products decreased by 180,000, or 3%. Premium revenues from state-sponsored Medicaid and federally sponsored Medicare+Choice programs decreased by $400 million, or 11%, to $3.2 billion in 2002. Premium revenues from Medicare+Choice programs decreased by $850 million to $1.6 billion because of planned withdrawals and benefit design changes in certain markets, undertaken in response to insufficient Medicare program reimbursement rates. Premium revenues from Medicaid programs increased by $450 million to $1.6 billion in 2002. More than half of this increase, $240 million, related to the acquisition of AmeriChoice on September 30, 2002. The balance of premium revenue growth in 2002 included a $240 million increase in Health Care Services' premium revenues driven by an increase in the number of individuals served by both Ovations' Medicare supplement products provided to AARP members and by its Evercare business. In addition, Specialized Care Services realized a $140 million increase in premium revenues in 2002. Service Revenues Service revenues in 2002 totaled $2.9 billion, an increase of $404 million, or 16%, over 2001. The increase in service revenues was driven primarily by aggregate growth of 11% in individuals served by Uniprise and UnitedHealthcare under fee-based arrangements. Uniprise and UnitedHealthcare service revenues grew by an aggregate of $230 million during 2002. Additionally, revenues from Ovations' Pharmacy Services business, established in June 2001, increased by approximately $110 million as it was in operation for the full year in 2002. Investment and Other Income Investment and other income in 2002 totaled $220 million, a decrease of $61 million, or 22%, from 2001. Interest income decreased by $32 million due to lower interest yields on investments in 2002 compared with 2001, partially offset by the impact of increased levels of cash and fixed-income investments. Net realized capital losses in 2002 were $18 million, compared to net realized capital gains of $11 million in 2001. The 2002 net realized capital losses were mainly due to sales of investments in debt securities of certain companies in the telecommunications industry and impairments recorded on certain UnitedHealth Capital equity investments. The losses were partially offset by capital gains on sales of investments in other debt securities. {21} UnitedHealth Group Medical Costs The combination of pricing, benefit designs, consumer health care utilization and comprehensive care facilitation efforts is reflected in the medical care ratio (medical costs as a percentage of premium revenues). The consolidated medical care ratio decreased from 85.3% in 2001 to 83.0% in 2002. Excluding the AARP business(1), the medical care ratio decreased by 250 basis points from 83.9% in 2001 to 81.4% in 2002. Approximately 90 basis points of the medical care ratio decrease resulted from targeted withdrawals from unprofitable risk-based arrangements with commercial customers using multiple health benefit carriers and a shift in commercial customer mix, with a larger percentage of premium revenues derived from our small business customers. These employer groups typically have a lower medical care ratio, but carry higher operating costs than larger customers. Additionally, the impact of withdrawals and benefit design changes in certain Medicare markets pertaining to our Medicare+Choice offering improved the medical care ratio by approximately 90 basis points. The balance of the decrease in the medical care ratio was primarily driven by changes in product and business mix, care management activities and net premium rate increases that exceeded overall medical benefit cost increases. On an absolute dollar basis, consolidated medical costs increased by $548 million, or 3%, over 2001. This increase principally resulted from a rise in medical costs of approximately 12%, or $2.1 billion, driven by the combination of medical cost inflation and increased health care consumption. Partially offsetting this increase, medical costs decreased by approximately $1.4 billion resulting from net reductions in the number of people receiving benefits under our Medicare and commercial risk-based products. The balance of the decrease in medical costs was driven primarily by changes in benefit designs in certain Medicare markets. Operating Costs The operating cost ratio (operating costs as a percentage of total revenues) was 17.5% in 2002, compared with 17.0% in 2001. Changes in productivity and revenue mix affect the operating cost ratio. Our fee-based products and services, which are growing at a faster rate than our premium-based products, have much higher operating cost ratios than our premium-based products. In addition, our Medicare business, which has relatively low operating costs as a percentage of revenues, has decreased in size relative to our overall operations. Using a revenue mix comparable to 2001, the 2002 operating cost ratio would have decreased by approximately 20 basis points, representing the equivalent of a $50 million year-over-year reduction in operating costs. This decrease was principally driven by operating cost efficiencies derived from process improvements, technology deployment and cost management initiatives, primarily in the form of reduced labor and occupancy costs supporting our transaction processing and customer service, billing and enrollment functions. The impact of these efficiencies was partially offset by the incremental costs associated with the development, deployment, adoption and maintenance of new technology releases as well as increased business self-insurance costs during 2002. On an absolute dollar basis, operating costs increased by $408 million, or 10%, over 2001. This increase was driven by a 7% increase in total individuals served by Health Care Services and Uniprise during 2002, general operating cost inflation and the additional costs associated with acquired businesses. (1) Premium revenues and medical costs from the AARP business were $3.7 billion and $3.4 billion, respectively, in 2002 and $3.6 billion and $3.3 billion, respectively, in 2001. Underwriting gains or losses related to the AARP business are recorded as an increase or decrease to a rate stabilization fund as described in Note 4 to the Consolidated Financial Statements. {22} UnitedHealth Group Depreciation and Amortization Depreciation and amortization was $255 million in 2002 and $265 million in 2001. This decrease was due to $93 million of amortization expense in 2001 recorded for goodwill, which is no longer amortized in 2002 pursuant to FAS No. 142. This decrease was largely offset by $83 million of additional depreciation and amortization resulting from higher levels of equipment and capitalized software as a result of technology enhancements and business growth. Income Taxes Our effective income tax rate was 35.5% in 2002 and 38.0% in 2001. The decrease was primarily due to the impact of non-tax-deductible goodwill amortization that is no longer amortized for financial reporting purposes, as required by FAS No. 142. Assuming FAS No. 142 was effective during 2001, the effective tax rate would have been approximately 36.0% during 2001. BUSINESS SEGMENTS The following summarizes the operating results of our business segments for the years ended December 31 (in millions):
REVENUES Percent 2002 2001 Change ------------ ------------ ------------ Health Care Services $ 21,644 $ 20,494 6% Uniprise 2,713 2,462 10% Specialized Care Services 1,509 1,254 20% Ingenix 491 447 10% Corporate and Eliminations (1,337) (1,203) nm ------------ ------------ ------------ Consolidated Revenues $ 25,020 $ 23,454 7% ------------ ------------ ------------

EARNINGS FROM OPERATIONS 2001 Percent 2002 Reported Adjusted(1) Change(1) ---------- ---------- ----------- ---------- Health Care Services $ 1,336 $ 944 $ 982 36% Uniprise 509 374 402 27% Specialized Care Services 286 214 220 30% Ingenix 55 48 69 (20%) ---------- ---------- ---------- ---------- Total Operating Segments 2,186 1,580 1,673 31% Corporate -- (14) (14) nm ---------- ---------- ---------- ---------- Consolidated Earnings From Operations $ 2,186 $ 1,566 $ 1,659 32% ---------- ---------- ---------- ----------
nm -- not meaningful (1) Adjusted to exclude $93 million of amortization expense associated with goodwill. Pursuant to FAS No. 142, which we adopted effective January 1, 2002, goodwill is no longer amortized. Where applicable, the percent change is calculated comparing the 2002 results to the 2001 "Adjusted" results. {23} UnitedHealth Group Health Care Services The Health Care Services segment consists of the UnitedHealthcare, Ovations and AmeriChoice businesses. UnitedHealthcare coordinates network-based health and well-being services on behalf of local employers and consumers. Ovations delivers health and well-being services for Americans age 50 and older. AmeriChoice facilitates and manages health care services for state Medicaid programs and their beneficiaries. Health Care Services posted record revenues of $21.6 billion in 2002, an increase of approximately $1.2 billion, or 6%, over 2001. The increase in revenues primarily resulted from an increase of approximately $1.2 billion in UnitedHealthcare's commercial premium revenues. This was driven by average net premium rate increases in excess of 13% on renewing commercial risk-based business, partially offset by the effects of targeted withdrawals from unprofitable risk-based arrangements with commercial customers using multiple health benefit carriers. Premium revenues from Medicaid programs increased by $450 million in 2002, of which $240 million related to the acquisition of AmeriChoice on September 30, 2002. Offsetting these increases, Medicare+Choice premium revenues decreased by $850 million as a result of planned withdrawals and benefit design changes in certain markets in response to insufficient Medicare program reimbursement rates. The balance of Health Care Services' revenue growth in 2002 includes a $240 million increase in Ovations' revenues driven by an increase in individuals served by both its Medicare supplement products provided to AARP members and its Evercare business, and a $140 million increase in revenues from its Pharmacy Services business, established in June 2001. Health Care Services realized earnings from operations of $1.3 billion in 2002, an increase of $392 million, or 42%, over 2001 on a reported basis, and an increase of $354 million, or 36%, over 2001 on a FAS No. 142 comparable reporting basis. This increase primarily resulted from improved gross margins on UnitedHealthcare's commercial risk-based products, revenue growth and operating cost efficiencies derived from process improvements, technology deployment and cost management initiatives, principally in the form of reduced labor and occupancy costs supporting transaction processing and customer service, billing and enrollment functions. Health Care Services' operating margin increased to 6.2% in 2002 from 4.6% on a reported basis and from 4.8% on a FAS No. 142 comparable reporting basis in 2001. This increase was driven by a combination of an improved medical care ratio, productivity improvements and a shift in product mix from risk-based products to higher-margin, fee-based products. UnitedHealthcare's commercial medical care ratio decreased by 230 basis points from 84.1% in 2001 to 81.8% in 2002. Approximately 130 basis points of the commercial medical care ratio decrease resulted from targeted withdrawals from unprofitable risk-based arrangements with commercial customers using multiple carriers and a shift in commercial customer mix, with a larger percentage of premium revenues derived from small business customers. These employer groups typically have a lower medical care ratio, but carry higher operating costs than larger customers. The balance of the decrease in the commercial medical care ratio was primarily driven by changes in product mix, care management activities and net premium rate increases that exceeded overall medical benefit cost increases. {24} UnitedHealth Group The number of individuals served by UnitedHealthcare's commercial products increased by 230,000, or 3%, during 2002. This included an increase of 410,000, or 18%, in the number of individuals served with fee-based products, driven by new customer relationships and customers converting from risk-based products during 2002. This increase was partially offset by a decrease of 180,000, or 3%, in individuals served by risk-based products, driven by customers converting to self-funded, fee-based arrangements and UnitedHealthcare's targeted withdrawal of risk-based product offerings from unprofitable arrangements with customers using multiple health benefit carriers. UnitedHealthcare's year-over-year Medicare enrollment decreased 35% because of market withdrawals and benefit design changes. These actions were taken in response to insufficient Medicare program reimbursement rates in specific counties and were intended to preserve profit margins and better position the Medicare program for long-term success. UnitedHealthcare will continue to evaluate Medicare markets and, where necessary, take actions that may result in further withdrawals of Medicare product offerings or reductions in enrollment, when and as permitted by its contracts with CMS (Centers for Medicare and Medicaid Services). UnitedHealthcare's year-over-year Medicaid enrollment increased by 390,000, largely due to the acquisition of AmeriChoice on September 30, 2002, which served approximately 360,000 individuals as of the acquisition date. The following table summarizes individuals served, by major market segment and funding arrangement, as of December 31(1):
(in thousands) 2002 2001 ------------ ------------ Commercial Risk-Based 5,070 5,250 Fee-Based 2,715 2,305 ------------ ------------ Total Commercial 7,785 7,555 ------------ ------------ Medicare 225 345 Medicaid 1,030 640 ------------ ------------ Total Government Programs 1,255 985 ------------ ------------ Total 9,040 8,540 ------------ ------------
(1) Excludes individuals served by Ovations' Medicare supplement products provided to AARP members. Uniprise Uniprise provides health and well-being access and services, business-to-business transaction processing services, consumer connectivity and technology support services to large employers and health plans. Uniprise revenues were $2.7 billion in 2002, up $251 million, or 10%, over 2001. This increase was driven primarily by an 8% increase in Uniprise's customer base. Uniprise served 8.6 million individuals as of December 31, 2002, and 8.0 million individuals as of December 31, 2001. Uniprise earnings from operations grew by $135 million, or 36%, over 2001 on a reported basis, and by $107 million, or 27%, over 2001 on a FAS No. 142 comparable reporting basis. Operating margin improved to 18.8% in 2002 from 15.2% on a reported basis and from 16.3% on a FAS No. 142 comparable reporting basis in 2001. Uniprise has expanded its operating margin through operating cost efficiencies derived from process improvements, technology deployment and cost management initiatives, primarily in the form of reduced labor and occupancy costs supporting its transaction processing and customer service, billing and enrollment functions. Additionally, Uniprise's infrastructure can be scaled efficiently, allowing its business to grow revenues at a proportionately higher rate than the associated growth in operating expenses. {25} UnitedHealth Group Specialized Care Services Specialized Care Services is a portfolio of health and well-being businesses, each serving a specialized market need with a unique blend of benefits, networks, services and resources. Specialized Care Services had revenues of $1.5 billion in 2002, an increase of $255 million, or 20%, over 2001. This increase was principally driven by $140 million of revenue growth from Spectera, its vision care benefits business acquired in October 2001, and an increase in the number of individuals served by United Behavioral Health, its mental health benefits business, and Dental Benefit Providers, its dental services business. Earnings from operations reached $286 million in 2002, an increase over 2001 of $72 million, or 34%, on a reported basis and $66 million, or 30%, on a FAS No. 142 comparable reporting basis. Specialized Care Services' operating margin increased to 19.0% in 2002, up from 17.1% on a reported basis and from 17.5% on a FAS No. 142 comparable reporting basis in 2001. This increase was driven by operational and productivity improvements, partially offset by a shifting business mix toward higher revenue, lower margin products. With the continuing growth of this segment, we have begun consolidating production and service operations to a segment-wide service and production infrastructure to improve service quality and consistency and enhance productivity and efficiency. Ingenix Ingenix is an international leader in the field of health care data analysis and application, serving pharmaceutical companies, health insurers and other payers, health care providers, large employers and governments. Revenues were $491 million in 2002, an increase of $44 million, or 10%, over 2001. This was the result of strong new business growth in the health information business and revenues from acquired businesses, partially offset by reduced revenues in the pharmaceutical services business. Earnings from operations were $55 million, up $7 million, or 15%, over 2001 on a reported basis, and down $14 million, or 20%, from 2001 on a FAS No. 142 comparable reporting basis. Operating margin was 11.2% in 2002, up from 10.7% in 2001 on a reported basis, and down from 15.4% on a FAS No. 142 comparable reporting basis. The reduction in earnings from operations and operating margin on a FAS No. 142 comparable reporting basis was due to cancellations and delays of certain clinical research trials by pharmaceutical clients, which have been affected by weak industry-specific conditions. This reduction was partially offset by strong business growth and slightly expanding margins in the health information business. Corporate Corporate includes costs for certain company-wide process improvement initiatives, net expenses from charitable contributions to the United Health Foundation and eliminations of intersegment transactions. The decrease in corporate expenses of $14 million from 2001 to 2002 reflects the completion during 2001 of certain company-wide process improvement initiatives. {26} UnitedHealth Group 2001 RESULTS COMPARED TO 2000 RESULTS CONSOLIDATED FINANCIAL RESULTS Revenues Consolidated revenues increased by 11% in 2001 to $23.5 billion. Strong and balanced growth across all business segments was partially offset by the impact of planned exits in 2000 from UnitedHealthcare's commercial businesses in the Pacific Coast region, the withdrawal of its Medicare+Choice product offering from targeted counties and the closure of Uniprise's Medicare fiscal intermediary operations. Following is a discussion of 2001 consolidated revenue trends for each revenue component. Premium Revenues Consolidated premium revenues in 2001 totaled $20.7 billion, an increase of $1.8 billion, or 9%, compared with 2000. This increase was primarily driven by average net premium rate increases in excess of 13% on UnitedHealthcare's renewing commercial risk-based business, partially offset by the impact of business and market exits. Service Revenues Service revenues in 2001 totaled $2.5 billion, an increase of $526 million, or 27%, over 2000. The overall increase in service revenues was primarily the result of 20% growth in Uniprise's customer base, growth in UnitedHealthcare's fee-based business, and establishment of the Ovations Pharmacy Services business in June 2001. Investment and Other Income Investment and other income in 2001 totaled $281 million, an increase of $49 million over 2000. Lower interest yields on investments in 2001 compared with 2000 were substantially offset by the impact of increased levels of cash and fixed-income investments in 2001. Net realized capital gains in 2001 were $11 million, compared to net realized capital losses of $34 million in 2000. Medical Costs The consolidated medical care ratio decreased from 85.4% in 2000 to 85.3% in 2001. Excluding the AARP business, the medical care ratio was 83.9% in both 2000 and 2001, as net premium rate increases were generally well matched with increases in medical benefit costs. On an absolute dollar basis, medical costs increased $1.5 billion, or 9%, over 2000. The increase was driven by medical cost inflation, increased health care consumption patterns, benefit changes and product mix changes. {27} UnitedHealth Group OPERATING COSTS The operating cost ratio was 17.0% in 2001, compared with 16.7% in 2000. Changes in productivity and revenue mix affect the operating cost ratio. For many of our faster-growing businesses, most direct costs of revenue are included in operating costs, not medical costs. Using a revenue mix comparable to 2000, the 2001 operating cost ratio would have decreased by approximately 70 basis points. This decrease was principally driven by operating cost efficiencies derived from process improvements, technology deployment and cost management initiatives, primarily in the form of reduced labor and occupancy costs supporting our transaction processing and customer service, billing and enrollment functions. Additionally, because our infrastructure can be scaled efficiently, we have been able to grow revenues at a proportionately higher rate than associated expenses. On an absolute dollar basis, operating costs increased by $459 million, or 13%, over 2000. This increase reflected additional costs to support product and technology development initiatives, general operating cost inflation and the 10% increase in individuals served by Health Care Services and Uniprise in 2001. These increases were partially offset by productivity and technology improvements discussed above. Depreciation and Amortization Depreciation and amortization was $265 million in 2001 and $247 million in 2000. This increase resulted primarily from higher levels of capital expenditures to support business growth and technology enhancements, as well as the amortization of goodwill and other intangible assets related to acquisitions. Income Taxes The 2000 income tax provision includes nonrecurring tax benefits primarily related to the contribution of UnitedHealth Capital investments to the United Health Foundation. Excluding nonrecurring tax benefits, our effective income tax rate was 38.0% in 2001 and 37.5% in 2000. BUSINESS SEGMENTS The following summarizes the operating results of our business segments for the years ended December 31 (in millions):
REVENUES Percent 2001 2000 Change ------------ ------------ ------------ Health Care Services $ 20,494 $ 18,696 10% Uniprise 2,462 2,140 15% Specialized Care Services 1,254 974 29% Ingenix 447 375 19% Corporate and Eliminations (1,203) (1,063) nm ------------ ------------ ------------ Consolidated Revenues $ 23,454 $ 21,122 11% ------------ ------------ ------------

EARNINGS FROM OPERATIONS Percent 2001 2000 Change ------------ ------------ ------------ Health Care Services $ 944 $ 739 28% Uniprise 374 289 29% Specialized Care Services 214 174 23% Ingenix 48 32 50% ------------ ------------ ------------ Total Operating Segments 1,580 1,234 28% Corporate (14) (34) nm ------------ ------------ ------------ Consolidated Earnings From Operations $ 1,566 $ 1,200 31% ------------ ------------ ------------
nm -- not meaningful {28} UnitedHealth Group Health Care Services The Health Care Services segment posted revenues of $20.5 billion in 2001, an increase of $1.8 billion, or 10%, over 2000. This increase resulted from average net premium rate increases in excess of 13% on UnitedHealthcare's renewing commercial risk-based business, partially offset by the impact of UnitedHealthcare's targeted exits in 2000 from its commercial businesses in the Pacific Coast region and the withdrawal of its Medicare+Choice product offering from certain counties. Health Care Services had earnings from operations of $944 million in 2001, an increase of $205 million, or 28%, over 2000. This increase resulted from revenue growth and stable gross margins on UnitedHealthcare's commercial business and operating cost efficiencies from process improvement, technology deployment and cost management initiatives. Health Care Services' operating margin increased to 4.6% in 2001 from 4.0% in 2000, driven by the productivity improvements described above and a shift in product mix from risk-based products to higher-margin, fee-based products. UnitedHealthcare's commercial medical care ratio remained flat compared with 2000 at 84.1%, as net premium rate increases were generally well matched with increases in overall medical benefit costs. The number of individuals served by UnitedHealthcare commercial products increased by 135,000, or 2%, during 2001. This included an increase of 380,000 in the number of individuals served with fee-based products as a result of customers converting from risk-based products and new customer relationships established in 2001. This increase was partially offset by a 245,000 decrease in individuals served by risk-based products, driven by customers converting to self-funded, fee-based arrangements and UnitedHealthcare's targeted withdrawal of its risk-based product offerings from unprofitable arrangements with customers using multiple health benefit carriers. UnitedHealthcare's year-over-year Medicare enrollment decreased by 15% in 2001 because of targeted market withdrawals and benefit design changes in response to insufficient Medicare program reimbursement rates. The following table summarizes individuals served, by major market segment and funding arrangement, as of December 31(1):
(in thousands) 2001 2000 ------------ ------------ Commercial Risk-Based 5,250 5,495 Fee-Based 2,305 1,925 ------------ ------------ Total Commercial 7,555 7,420 ------------ ------------ Medicare 345 405 Medicaid 640 550 ------------ ------------ Total Government Programs 985 955 ------------ ------------ Total 8,540 8,375 ------------ ------------
(1) Excludes individuals served by Ovations' Medicare supplement products provided to AARP members. Uniprise Uniprise revenues were $2.5 billion in 2001, up $322 million, or 15%, over 2000. This increase was driven primarily by continued growth in Uniprise's customer base, which had a 20% increase in the number of individuals served. Uniprise served 8.0 million individuals as of December 31, 2001, and 6.7 million individuals as of December 31, 2000. Uniprise's earnings from operations grew by $85 million, or 29%, over 2000 as a result of the increased revenues. The operating margin improved to 15.2% in 2001 from 13.5% in 2000. As revenues have increased, Uniprise has expanded its operating margin by improving productivity through process improvement initiatives and deployment of technology. Additionally, Uniprise's infrastructure can be scaled efficiently, allowing its business to grow revenues at a proportionately higher rate than the associated growth in operating expenses. {29} UnitedHealth Group Specialized Care Services Specialized Care Services had revenues of $1.3 billion in 2001, an increase of $280 million, or 29%, over 2000. This increase was driven primarily by an increase in the number of individuals served by United Behavioral Health, and an increase in specialized services purchased by customers of Uniprise and UnitedHealthcare. Earnings from operations reached $214 million in 2001, an increase of 23% over 2000. Specialized Care Services' operating margin decreased from 17.9% in 2000 to 17.1% in 2001. The decrease in operating margin was the result of a shifting product mix, with a larger percentage of revenues coming from businesses with higher revenues per individual served and lower percentage operating margins. Ingenix Revenues were $447 million in 2001, an increase of $72 million, or 19%, over 2000. This increase reflected growth in both the health information and pharmaceutical services businesses. Earnings from operations were $48 million, up 50% over 2000. Operating margin increased to 10.7% in 2001 from 8.5% in 2000, principally as a result of revenue growth and improved productivity. Corporate The decrease of $20 million in 2001 corporate expenses reflected lower company-wide process improvement expenses in 2001 compared to 2000, as certain process improvement initiatives were completed in 2001. FINANCIAL CONDITION AND LIQUIDITY AT DECEMBER 31, 2002 LIQUIDITY We manage our cash, investments and capital structure so we are able to meet the short- and long-term obligations of our business while maintaining financial flexibility and liquidity. We forecast, analyze and monitor our cash flows to enable prudent investment and financing within the confines of our financial strategy, such as our self-imposed limit of 30% on our debt-to-total-capital ratio (calculated as the sum of commercial paper and debt divided by the sum of commercial paper, debt and shareholders' equity). A majority of the assets held by our regulated subsidiaries are in the form of cash, cash equivalents and investments. After considering expected cash flows from operating activities, we generally invest monies of regulated subsidiaries that exceed our near-term obligations in longer term, investment grade marketable debt securities, to improve our overall investment return. Factors we consider in making these investment decisions include our board of directors' approved investment policy, regulatory limitations, return objectives, tax implications, risk tolerance and maturity dates. Our long-term investments are also available for sale to meet short-term liquidity and other needs. Monies in excess of the capital needs of our regulated entities are paid to their non-regulated parent companies, typically in the form of dividends, for general corporate use, when and as permitted by applicable regulations. Our non-regulated businesses also generate significant cash from operations. Also, we issue long-term debt and commercial paper with staggered maturity dates and have available credit facilities. These additional sources of liquidity allow us to maintain further operating and financial flexibility. Because of this flexibility, we typically maintain low cash and investment balances in our non-regulated companies. Cash in these entities is generally used to reinvest in our businesses in the form of capital expenditures, to expand the depth and breadth of our services through business acquisitions, and to repurchase shares of our common stock, depending on market conditions. {30} UnitedHealth Group Cash generated from operating activities, our primary source of liquidity, is principally from net earnings, excluding depreciation and amortization. As a result, any future decline in our profitability may have a negative impact on our liquidity. The availability of financing in the form of debt or equity is influenced by many factors, including our profitability, operating cash flows, debt levels, debt ratings, contractual restrictions, regulatory requirements and market conditions. We believe that our strategies and actions toward maintaining financial flexibility mitigate much of this risk. CASH AND INVESTMENTS During 2002, we generated cash from operations of more than $2.4 billion, an increase of $579 million, or 31%, over 2001. The increase in operating cash flows primarily resulted from an increase of $429 million in net earnings excluding depreciation and amortization expense. We maintained a strong financial condition and liquidity position, with cash and investments of $6.3 billion at December 31, 2002. Total cash and investments increased by $631 million since December 31, 2001, primarily resulting from strong cash flows from operations and acquisitions requiring maintenance of incremental regulated capital, partially offset by common stock repurchases, capital expenditures and business acquisitions. As further described under "Regulatory Capital and Dividend Restrictions," many of our subsidiaries are subject to various government regulations that restrict the timing and amount of dividends and other distributions that may be paid to their parent companies. At December 31, 2002, approximately $280 million of our $6.3 billion of cash and investments was held by non-regulated subsidiaries. Of this amount, approximately $130 million was available for general corporate use, including acquisitions and share repurchases. The remaining $150 million consists primarily of public and non-public equity securities held by UnitedHealth Capital, our investment capital business. FINANCING AND INVESTING ACTIVITIES We use commercial paper and debt to maintain adequate operating and financial flexibility. As of December 31, 2002 and 2001, we had commercial paper and debt outstanding of $1.8 billion and $1.6 billion, respectively. Our debt-to-total-capital ratio was 28.5% and 28.9% as of December 31, 2002 and 2001, respectively. We expect to maintain our debt-to-total-capital ratio between 25% and 30%. Within this range, we believe our cost of capital and return on shareholders' equity are optimized, while maintaining a prudent level of leverage and liquidity. In January 2002, we issued $400 million of 5.2% fixed-rate notes due January 2007. We used proceeds from this borrowing to repay commercial paper and for general corporate purposes, including working capital, capital expenditures, business acquisitions and share repurchases. When we issued these notes, we entered into short-term LIBOR-based (London Interbank Offered Rate) variable interest rate swap agreements for $200 million of the above notes. At December 31, 2002, the rate used to accrue interest expense on these swaps was approximately 1.4%. As of December 31, 2002, we had outstanding commercial paper of $461 million and current maturities of long-term debt of $350 million. We intend to issue new term debt during the first half of 2003, subject to favorable market conditions, and commercial paper, as necessary during 2003, to finance the repayment of these obligations. As noted below, we believe that we have sufficient flexibility to obtain additional financing in the public or private markets. {31} UnitedHealth Group We have credit arrangements for $900 million that support our commercial paper program. These credit arrangements include a $450 million revolving facility that expires in July 2005, and a $450 million, 364-day facility that expires in July 2003. We also have the capacity to issue approximately $200 million of extendible commercial notes (ECNs). As of December 31, 2002 and 2001, we had no amounts outstanding under our credit facilities or ECNs. Our debt arrangements and credit facilities contain various covenants, the most restrictive of which require us to maintain a debt-to-total-capital ratio below 45% and to exceed specified minimum interest coverage levels. We are in compliance with the requirements of all debt covenants. Our senior debt is rated "A" by Standard & Poor's (S&P) and Fitch, and "A3" by Moody's. Our commercial paper and ECN programs are rated "A-1" by S&P, "F-1" by Fitch, and "P-2" by Moody's. Consistent with our intention of maintaining our senior debt ratings in the "A" range, we intend to maintain our debt-to-total-capital ratio at 30% or less. A significant downgrade in our debt and commercial paper ratings would likely adversely affect our borrowing capacity and costs. The remaining issuing capacity of all securities covered by our S-3 shelf registration statement (for common stock, preferred stock, debt securities and other securities) is $450 million. We may publicly offer such securities from time to time at prices and terms to be determined at the time of offering. We also have an S-4 acquisition shelf registration statement under which we have remaining issuing capacity of approximately 5.6 million shares of our common stock in connection with acquisition activities. During 2002 and 2001, we invested $419 million and $425 million, respectively, in property, equipment, capitalized software and information technology hardware. These investments were made to support business growth, operational and cost efficiencies, service improvements and technology enhancements. Effective September 30, 2002, we acquired AmeriChoice Corporation (AmeriChoice), a leading organization engaged in facilitating health care benefits and services for Medicaid beneficiaries in the states of New York, New Jersey and Pennsylvania. We are integrating our existing Medicaid business with AmeriChoice, creating efficiencies from the consolidation of health care provider networks, technology platforms and operations. We issued 5.3 million shares of our common stock with a fair value of approximately $480 million in exchange for 93.5% of the outstanding AmeriChoice common stock. We issued vested stock options with a fair value of approximately $15 million in exchange for outstanding stock options held by AmeriChoice employees, and we paid cash of approximately $82 million, mainly to pay off existing AmeriChoice debt. We will acquire the remaining minority interest after five years at a value based on a multiple of the earnings of the combined Medicaid business. We have the option to acquire the minority interest at an earlier date if specific events occur, such as the termination or resignation of key AmeriChoice employees. {32} UnitedHealth Group Under our board of directors' authorization, we maintain a common stock repurchase program. Repurchases may be made from time to time at prevailing prices, subject to certain restrictions on volume, pricing and timing. During 2002, we repurchased 22.3 million shares at an aggregate cost of approximately $1.8 billion. As of December 31, 2002, we had board of directors' authorization to purchase up to an additional 16.5 million shares of our common stock. As a limited part of our share repurchase activities, we had entered into purchase agreements with an independent third party to purchase shares of our common stock at various times and prices. In May 2002, the share purchase agreements were terminated, and we elected to receive shares of our common stock from the third party as settlement consideration. The favorable settlement amount was not material and was recorded through additional paid-in capital. We currently have no outstanding purchase agreements with respect to our common stock. On February 11, 2003, the board of directors approved an annual dividend for 2003 of $0.03 per share. The dividend will be paid on April 17, 2003, to shareholders of record at the close of business on April 1, 2003. CONTRACTUAL OBLIGATIONS AND COMMITMENTS The following table summarizes future obligations due by period as of December 31, 2002, under our debt agreements, lease obligations and other commercial commitments (in millions):
2003 2004 to 2005 2006 to 2007 Thereafter Total ------------ ------------ ------------ ------------ ------------ Debt and Commercial Paper(1) $ 811 $ 550 $ 400 $ -- $ 1,761 Operating Leases 109 179 142 190 620 Unconditional Purchase Obligations(2) 40 44 17 -- 101 ------------ ------------ ------------ ------------ ------------ Total Contractual Obligations $ 960 $ 773 $ 559 $ 190 $ 2,482 ------------ ------------ ------------ ------------ ------------
(1) Debt payments could be accelerated upon violation of debt covenants. We believe the likelihood of a debt covenant violation is remote. (2) Amounts represent minimum purchase commitments under existing service agreements. 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, programs and technology applications and may include acquisitions. AARP In January 1998, we initiated a 10-year contract to provide insurance products and services to members of AARP. Under the terms of the contract, we are compensated for transaction processing 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. Premium revenues from our portion of the AARP insurance offerings were approximately $3.7 billion in 2002, $3.6 billion in 2001 and $3.5 billion in 2000. The underwriting gains or losses related to the AARP business are recorded as an increase or decrease to a rate stabilization fund (RSF), which is reported in Other Policy Liabilities in the accompanying Consolidated Balance Sheets. The company is at risk for underwriting losses to the extent cumulative net losses exceed the balance in the RSF. We may recover RSF deficits, if any, from gains in future contract periods. To date, we have not been required to fund any underwriting deficits. We believe the RSF balance is sufficient to cover potential future underwriting or other risks associated with the contract. The effects of changes in balance sheet amounts associated with the AARP program accrue to AARP policyholders through the RSF balance. Accordingly, we do not include the effect of such changes in our Consolidated Statements of Cash Flows. {33} UnitedHealth Group REGULATORY CAPITAL AND DIVIDEND RESTRICTIONS We conduct a significant portion of our operations through companies that are subject to standards established by the National Association of Insurance Commissioners (NAIC). These standards, among other things, require these subsidiaries to maintain specified levels of statutory capital, as defined by each state, and restrict the timing and amount of dividends and other distributions that may be paid to their parent companies. Generally, the amount of dividend distributions that may be paid by a regulated subsidiary, without prior approval by state regulatory authorities, is limited based on the entity's level of statutory net income and statutory capital and surplus. The agencies that assess our creditworthiness also consider capital adequacy levels when establishing our debt ratings. Consistent with our intent to maintain our senior debt ratings in the "A" range, we maintain an aggregate statutory capital level for our regulated subsidiaries that is significantly higher than the minimum level regulators require. As of December 31, 2002, our regulated subsidiaries had aggregate statutory capital of approximately $2.5 billion, which is significantly more than the aggregate minimum regulatory requirements. CRITICAL ACCOUNTING POLICIES AND ESTIMATES Critical accounting policies are those policies that require management to make the most challenging, subjective or complex judgments, often because they must estimate the effects of matters that are inherently uncertain and may change in subsequent periods. Critical accounting policies involve judgments and uncertainties that are sufficiently sensitive to result in materially different results under different assumptions and conditions. We believe our most critical accounting policies are those described below. For a detailed discussion of these and other accounting policies, see Note 2 to the Consolidated Financial Statements. REVENUES Revenues are principally derived from health care insurance premiums. We recognize premium revenues in the period eligible individuals are entitled to receive health care services. Customers are typically billed monthly at a contracted rate per eligible person multiplied by the total number of people eligible to receive services, as recorded in our records. Employer groups generally provide us with changes to their eligible population one month in arrears. Each billing includes an adjustment for prior month changes in eligibility status that were not reflected in our previous billing. We estimate and adjust the current period's revenues and accounts receivable accordingly. Our estimates are based on historical trends, premiums billed, the level of contract renewal activity and other relevant information. We also estimate the amount of uncollectible receivables each period and record valuation allowances based on historical collection rates, the age of unpaid amounts, and information about the creditworthiness of the customers. We revise estimates of revenue adjustments and uncollectible accounts receivable each period, and record changes in the period they become known. {34} UnitedHealth Group MEDICAL COSTS A substantial portion of our medical costs payable is based on estimates, which include estimates for the costs of health care services eligible individuals have received under risk-based arrangements but for which claims have not yet been submitted, and estimates for the costs of claims we have received but have not yet processed. We develop medical costs payable estimates using consistently applied actuarial methods based on historical claim submission and payment data, cost trends, utilization of health care services, contracted service rates, customer and product mix, and other relevant factors. Over time, as actual claim costs and more current information become available, our estimated liability for medical costs payable develops either favorably, with revised payable estimates less than originally reported medical costs payable, or unfavorably, with revised payable estimates more than originally reported medical costs payable. We include the impacts of changes in estimates in the operating results of the period in which we identify the changes. Each period, our operating results include the effects of revisions in estimates related to all prior periods, based on actual claims processed and paid. Changes in estimates may relate to the prior fiscal year or to prior quarterly reporting periods within the same fiscal year. Changes in estimates for prior quarterly reporting periods within the same fiscal year have no impact on total medical costs reported for that fiscal year. In contrast, changes in medical costs payable estimates for prior fiscal years that are identified in the current year affect total medical costs reported for the current fiscal year. Our medical costs payable estimates as of December 31, 2001, 2000 and 1999 each developed favorably in the subsequent fiscal year by approximately $70 million, $30 million and $15 million, respectively, representing earnings from operations of 3.2% in 2002, 1.9% in 2001 and 1.3% in 2000. Favorable development of prior year medical costs payable estimates represented 0.5%, 0.2%, and 0.1% of medical costs in 2002, 2001 and 2000, respectively, and 2.7%, 1.2%, and 0.7% of medical costs payable as of December 31, 2001, 2000, and 1999, respectively. Management does not believe the changes in medical costs payable estimates described above were significant in relation to earnings from operations, medical costs or medical costs payable. Amounts related to the AARP business were excluded from these calculations since the underwriting gains and losses associated with this business are recorded as an increase or decrease to a rate stabilization fund. For additional information regarding the components of the change in medical costs payable for the years ended December 31, 2002, 2001 and 2000, see Note 7 of the consolidated financial statements. Our estimate of medical costs payable represents management's best estimate of the company's liability for unpaid medical costs as of December 31, 2002, developed using consistently applied actuarial methods. Management believes the amount of medical costs payable is reasonable and adequate to cover the company's liability for unpaid claims as of December 31, 2002; however, actual claim payments may differ from established estimates. Assuming a hypothetical 1% difference between our December 31, 2002 estimates of medical costs payable and actual costs payable, excluding the AARP business, 2002 earnings from operations would increase or decrease by approximately $28 million and basic and diluted net earnings per common share would increase or decrease by approximately $0.06 per share. {35} UnitedHealth Group INVESTMENTS As of December 31, 2002, we had approximately $5.2 billion of investments, primarily held in marketable debt securities. Our investments are principally classified as available for sale and are recorded at fair value. We exclude unrealized investment gains and losses from earnings and report them together as a separate component in shareholders' equity. We continually monitor the difference between the cost and fair value of our investments. If any of our investments experience a decline in fair value that is determined to be other than temporary, based on analysis of relevant factors, we record a realized loss in our Consolidated Statement of Operations. Management judgment is involved in evaluating whether a decline in an investment's fair value is other than temporary. New information and the passage of time can change these judgments. We revise impairment judgments when new information becomes known, and record any resulting impairment charges at that time. We manage our investment portfolio to limit our exposure to any one issuer or industry, and largely limit our investments to U.S. Government and Agency securities, state and municipal securities, and corporate debt obligations that are investment grade. LONG-LIVED ASSETS As of December 31, 2002 and 2001, we had long-lived assets, including goodwill, other intangible assets, and property, equipment and capitalized software, of $4.4 billion and $3.6 billion, respectively. We review these assets for events and changes in circumstances that would indicate we might not recover their carrying value. In assessing the recoverability of our long-lived assets, we must make assumptions regarding estimated future utility and cash flows and other internal and external factors to determine the fair value of the respective assets. If these estimates or their related assumptions change in the future, we may be required to record impairment charges for these assets. CONTINGENT LIABILITIES Because of the nature of our businesses, we are routinely involved in various disputes, legal proceedings and governmental audits and investigations. We record liabilities for our estimates of the probable costs resulting from these matters. Our estimates are developed in consultation with outside legal counsel and are based upon an analysis of potential results, assuming a combination of litigation and settlement strategies and considering our insurance coverages, if any, for such matters. We do not believe any matters currently threatened or pending will have a material adverse effect on our consolidated financial position or results of operations. It is possible, however, that future results of operations for any particular quarterly or annual period could be materially affected by changes in our estimates or assumptions. {36} UnitedHealth Group INFLATION The current national health care cost inflation rate significantly exceeds the general inflation rate. We use various strategies to lessen the effects of health care cost inflation. This includes setting commercial premiums based on anticipated health care costs and coordinating care with physicians and other health care providers. Through contracts with physicians and other health care providers, we emphasize preventive health care, appropriate use of health care services consistent with clinical performance standards, education and closing gaps in care. We believe our strategies to mitigate the impact of health care cost inflation on our operating results have been and will continue to be successful. However, other factors including competitive pressures, new health care and pharmaceutical product introductions, demands from physicians and other health care providers and consumers, major epidemics, and applicable regulations may affect our ability to control the impact of health care cost inflation. Because of the narrow operating margins of our risk-based products, changes in medical cost trends that were not anticipated in establishing premium rates can create significant changes in our financial results. LEGAL MATTERS Because of the nature of our businesses, we are routinely party to a variety of legal actions related to the design, management and offerings of our services. We record liabilities for our estimates of probable costs resulting from these matters. These matters include, but are not limited to: claims relating to health care benefits coverage; medical malpractice actions; contract disputes; and claims related to disclosure of certain business practices. Following the events of September 11, 2001, the cost of business insurance coverage increased significantly. As a result, we have increased the amount of risk that we self-insure, particularly with respect to routine matters incidental to our business. In 1999, a number of class action lawsuits were filed against us and virtually all major entities in the health benefits business. The suits are purported class actions on behalf of certain customers and physicians for alleged breaches of federal statutes, including the Employee Retirement Income Security Act of 1974, as amended (ERISA), and the Racketeer Influenced Corrupt Organization Act (RICO). Although the results of pending litigation are always uncertain, we do not believe the results of any such actions, currently threatened or pending, including those described above, will, individually or in aggregate, have a material adverse effect on our consolidated financial position or results of operations. {37} UnitedHealth Group QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk represents the risk of changes in value of a financial instrument caused by changes in interest rates and equity prices. Approximately $6.2 billion of our cash and investments at December 31, 2002 was invested in fixed income securities. We manage our investment portfolio within risk parameters approved by our board of directors; however, our fixed income securities are subject to the effects of market fluctuations in interest rates. Assuming a hypothetical and immediate 1% increase or decrease in interest rates applicable to our fixed income portfolio at December 31, 2002, the fair value of our fixed income investments would decrease or increase by approximately $205 million. At December 31, 2002, our UnitedHealth Capital business had approximately $150 million of equity investments primarily in various public and non-public companies concentrated in the areas of health care delivery and related information technologies. Market conditions that affect the value of health care or technology stocks will likewise impact the value of our equity portfolio. CONCENTRATIONS OF CREDIT RISK Investments in financial instruments such as marketable securities and accounts receivable may subject UnitedHealth Group to concentrations of credit risk. Our investments in marketable securities are managed under an investment policy authorized by our board of directors. This policy limits the amounts that may be invested in any one issuer and generally limits our investments to U.S. Government and Agency securities, state and municipal securities and corporate debt obligations that are investment grade. Concentrations of credit risk with respect to accounts receivable are limited due to the large number of employer groups that constitute our customer base. As of December 31, 2002, there were no significant concentrations of credit risk. {38} UnitedHealth Group CAUTIONARY STATEMENT REGARDING "FORWARD-LOOKING" STATEMENTS The statements contained in Results of Operations and other sections of this annual report to shareholders include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (PSLRA). When used in this report, the words and phrases "believes," "anticipates," "intends," "will likely result," "estimates," "projects" and 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. Statements that are not strictly historical are "forward-looking" and known and unknown risks may cause actual results and corporate developments to differ materially from those expected. Except to the extent otherwise required by federal securities laws, we do not undertake to address or update each statement in future filings or communications regarding our business or results, and do not undertake 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 in this annual report may have affected our past as well as current forward-looking statements about future results. Any or all forward-looking statements in this report and in any other public statements we make may turn out to be inaccurate or false. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. Many factors discussed below will be important in determining future results. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially from those expressed in our prior communications. Factors that could cause results and developments to differ materially from expectations include, without limitation, (a) increases in medical costs that are higher than we anticipated in establishing our premium rates, including increased consumption of or costs of medical services; (b) increases in costs associated with increased litigation, legislative activity and government regulation and review of our industry, including costs associated with compliance with proposed legislation related to the Patients' Bill of Rights, e-commerce activities and consumer privacy issues; (c) heightened competition as a result of new entrants into our market, mergers and acquisitions of health care companies and suppliers, and expansion of physician or practice management companies; (d) failure to maintain effective and efficient information systems, which could result in the loss of existing customers, difficulties in attracting new customers, difficulties in determining medical costs estimates and establishing appropriate pricing, customer and physician and health care provider disputes, regulatory violations, increases in operating costs or other adverse consequences; (e) events that may negatively affect our contract with AARP, including any failure on our part to service AARP customers in an effective manner and any adverse events that directly affect AARP or its business partners; (f) medical cost increases or benefit changes associated with our remaining Medicare+Choice operations; (g) significant deterioration in customer retention; (h) violations of debt covenants or a significant downgrade in our debt ratings; (i) our ability to execute contracts on favorable terms with physicians, hospitals and other service providers, and (j) significant deterioration in economic conditions, including the effects of acts of terrorism, particularly bioterrorism, or major epidemics. A further list and description of these risks, uncertainties and other matters can be found in our annual report on Form 10-K for the year ended December 31, 2002, and in our periodic reports on Forms 10-Q and 8-K. {39} UnitedHealth Group CONSOLIDATED STATEMENTS OF OPERATIONS
For the Year Ended December 31, (in millions, except per share data) 2002 2001 2000 - ------------------------------------ ---------- ---------- ---------- REVENUES Premiums $ 21,906 $ 20,683 $ 18,926 Services 2,894 2,490 1,964 Investment and Other Income 220 281 232 ---------- ---------- ---------- Total Revenues 25,020 23,454 21,122 ---------- ---------- ---------- MEDICAL AND OPERATING COSTS Medical Costs 18,192 17,644 16,155 Operating Costs 4,387 3,979 3,520 Depreciation and Amortization 255 265 247 ---------- ---------- ---------- Total Medical and Operating Costs 22,834 21,888 19,922 ---------- ---------- ---------- EARNINGS FROM OPERATIONS 2,186 1,566 1,200 Gain on Disposition of UnitedHealth Capital Investments -- -- 27 Interest Expense (90) (94) (72) ---------- ---------- ---------- EARNINGS BEFORE INCOME TAXES 2,096 1,472 1,155 Provision for Income Taxes (744) (559) (419) ---------- ---------- ---------- NET EARNINGS $ 1,352 $ 913 $ 736 ---------- ---------- ---------- BASIC NET EARNINGS PER COMMON SHARE $ 4.46 $ 2.92 $ 2.27 ---------- ---------- ---------- DILUTED NET EARNINGS PER COMMON SHARE $ 4.25 $ 2.79 $ 2.19 ---------- ---------- ---------- BASIC WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 303.4 312.4 324.2 DILUTIVE EFFECT OF OUTSTANDING STOCK OPTIONS 14.7 14.4 12.3 ---------- ---------- ---------- WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING ASSUMING DILUTION 318.1 326.8 336.5 ---------- ---------- ----------
See notes to consolidated financial statements. {40} UnitedHealth Group CONSOLIDATED BALANCE SHEETS
As of December 31, (in millions, except share and per share data) 2002 2001 - ---------------------------------------------- ------------ ------------ ASSETS CURRENT ASSETS Cash and Cash Equivalents $ 1,130 $ 1,540 Short-Term Investments 701 270 Accounts Receivable, net of allowances of $132 and $127 835 856 Assets Under Management 2,069 1,903 Deferred Income Taxes 389 316 Other Current Assets 50 61 ------------ ------------ Total Current Assets 5,174 4,946 Long-Term Investments 4,498 3,888 Property, Equipment and Capitalized Software, net of accumulated depreciation and amortization of $456 and $314 955 847 Goodwill 3,363 2,723 Other Intangible Assets, net of accumulated amortization of $31 and $23 122 27 Other Assets 52 55 ------------ ------------ TOTAL ASSETS $ 14,164 $ 12,486 ------------ ------------ LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Medical Costs Payable $ 3,741 $ 3,460 Accounts Payable and Accrued Liabilities 1,459 1,209 Other Policy Liabilities 1,781 1,595 Commercial Paper and Current Maturities of Long-Term Debt 811 684 Unearned Premiums 587 543 ------------ ------------ Total Current Liabilities 8,379 7,491 Long-Term Debt, less current maturities 950 900 Deferred Income Taxes and Other Liabilities 407 204 Commitments and Contingencies (Note 12) ------------ ------------ Shareholders' Equity Common Stock, $0.01 par value - 1,500,000,000 shares authorized; 299,458,000 and 308,626,000 shares outstanding 3 3 Additional Paid-In Capital 173 39 Retained Earnings 4,104 3,805 Accumulated Other Comprehensive Income: Net Unrealized Gains on Investments, net of tax effects 148 44 ------------ ------------ TOTAL SHAREHOLDERS' EQUITY 4,428 3,891 ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 14,164 $ 12,486 ------------ ------------
See notes to consolidated financial statements. {41} UnitedHealth Group CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Net Common Stock Additional Unrealized Total --------------- Paid-In Retained Gains on Shareholders' Comprehensive (in millions) Shares Amount Capital Earnings Investments Equity Income - ------------- ------ ------ ---------- -------- ----------- ------------- ------------- BALANCE AT DECEMBER 31, 1999 335 $ 3 $ 250 $ 3,445 $ 165 $ 3,863 Issuances of Common Stock, and related tax benefits 13 -- 349 -- -- 349 Common Stock Repurchases (31) -- (599) (581) -- (1,180) Comprehensive Income Net Earnings -- -- -- 736 -- 736 $ 736 Other Comprehensive Income Adjustments Change in Net Unrealized Gains on Investments, net of tax effects -- -- -- -- (75) (75) (75) ------------ Comprehensive Income $ 661 ------------ Common Stock Dividend -- -- -- (5) -- (5) ------ ------ -------- -------- ----------- ------------ ------------ BALANCE AT DECEMBER 31, 2000 317 3 -- 3,595 90 3,688 Issuances of Common Stock, and related tax benefits 11 -- 474 -- -- 474 Common Stock Repurchases (19) -- (435) (694) -- (1,129) Comprehensive Income Net Earnings -- -- -- 913 -- 913 $ 913 Other Comprehensive Income Adjustments Change in Net Unrealized Gains on Investments, net of tax effects -- -- -- -- (46) (46) (46) ------------ Comprehensive Income $ 867 ------------ Common Stock Dividend -- -- -- (9) -- (9) ------ ------ -------- -------- ----------- ------------ ------------ BALANCE AT DECEMBER 31, 2001 309 3 39 3,805 44 3,891 Issuances of Common Stock, and related tax benefits 12 -- 905 -- -- 905 Common Stock Repurchases (22) -- (771) (1,044) -- (1,815) Comprehensive Income Net Earnings -- -- -- 1,352 -- 1,352 $ 1,352 Other Comprehensive Income Adjustments Change in Net Unrealized Gains on Investments, net of tax effects -- -- -- -- 104 104 104 ------------ Comprehensive Income $ 1,456 ------------ Common Stock Dividend -- -- -- (9) -- (9) ------ ------ -------- -------- ----------- ------------ ------------ BALANCE AT DECEMBER 31, 2002 299 $ 3 $ 173 $ 4,104 $ 148 $ 4,428 ------ ------ -------- -------- ----------- ------------ ------------
See notes to consolidated financial statements. {42} UnitedHealth Group CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended December 31, (in millions) 2002 2001 2000 - ------------- -------- -------- -------- OPERATING ACTIVITIES Net Earnings $ 1,352 $ 913 $ 736 Noncash Items Depreciation and Amortization 255 265 247 Deferred Income Taxes and Other 154 40 73 Net Change in Other Operating Items, net of effects from acquisitions, sales of subsidiaries and changes in AARP balances Accounts Receivable and Other Current Assets 83 7 26 Medical Costs Payable 74 156 288 Accounts Payable and Accrued Liabilities 423 280 75 Other Policy Liabilities 70 131 87 Unearned Premiums 12 52 (11) -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES 2,423 1,844 1,521 -------- -------- -------- INVESTING ACTIVITIES Cash Paid for Acquisitions, net of cash assumed and other effects (302) (92) (76) Purchases of Property, Equipment and Capitalized Software (419) (425) (245) Purchases of Investments (3,246) (2,088) (3,022) Maturities and Sales of Investments 2,576 1,467 2,375 -------- -------- -------- CASH FLOWS USED FOR INVESTING ACTIVITIES (1,391) (1,138) (968) -------- -------- -------- FINANCING ACTIVITIES Proceeds from Common Stock Issuances 205 178 228 Proceeds from (Payments of) Commercial Paper, net (223) 275 (182) Proceeds from Issuance of Long-Term Debt 400 250 400 Payments for Retirement of Long-Term Debt -- (150) -- Common Stock Repurchases (1,815) (1,129) (1,180) Dividends Paid (9) (9) (5) -------- -------- -------- CASH FLOWS USED FOR FINANCING ACTIVITIES (1,442) (585) (739) -------- -------- -------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (410) 121 (186) -------- -------- -------- CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,540 1,419 1,605 -------- -------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,130 $ 1,540 $ 1,419 -------- -------- -------- SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES Common Stock Issued for Acquisitions $ 567 $ 163 $ -- -------- -------- --------
See notes to consolidated financial statements. {43} UnitedHealth Group NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1 DESCRIPTION OF BUSINESS UnitedHealth Group Incorporated (also referred to as "UnitedHealth Group," "the company," "we," "us," and "our") is a national leader in forming and operating orderly, efficient markets for the exchange of high quality health and well-being services. Through strategically aligned, market-defined businesses, we offer health care access, benefits and related administrative, technology and information services designed to enable, facilitate and advance optimal health care. 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION We have prepared the consolidated financial statements according to accounting principles generally accepted in the United States of America and have included the accounts of UnitedHealth Group and its subsidiaries. We have eliminated all significant intercompany balances and transactions. USE OF ESTIMATES These consolidated financial statements include certain amounts that are based on our best estimates and judgments. These estimates require us to apply complex assumptions and judgments, often because we must make estimates about the effects of matters that are inherently uncertain and will change in subsequent periods. The most significant estimates relate to medical costs, medical costs payable, revenues, contingent liabilities and asset valuations, allowances and impairments. We adjust these estimates each period, as more current information becomes available. The impact of any changes in estimates is included in the determination of earnings in the period in which the estimate is adjusted. REVENUES Premium revenues are derived from risk-based arrangements in which the premium is fixed, typically for a one-year period, and we assume the economic risk of funding health care services and related administrative costs. We recognize premium revenues in the period in which eligible individuals are entitled to receive health care services. We record premium payments we receive from our customers prior to such period as unearned premiums. Service revenues are primarily derived from services performed for customers that self-insure the medical costs of their employees and their dependents. Under service fee contracts, we recognize revenue in the period the related services are performed based upon the fee charged to the customer. The customers retain the risk of financing medical benefits for their employees and their employees' dependents, and we administer the payment of customer funds to physicians and other health care providers from customer-funded bank accounts. Because we do not have the obligation for funding the medical expenses, nor do we have responsibility for delivering the medical care, we do not recognize gross revenue and medical costs for these contracts in our consolidated financial statements. MEDICAL COSTS AND MEDICAL COSTS PAYABLE Medical costs include claims paid, claims processed but not yet paid, estimates for claims received but not yet processed, and estimates for the costs of health care services eligible individuals have received under risk-based arrangements, but for which claims have not yet been submitted. We develop our estimates of medical costs payable using actuarial methods based upon historical claim submission and payment data, cost trends, utilization of health care services, contracted service rates, customer and product mix, and other relevant factors. The estimates may change as actuarial methods change or as underlying historical data upon which estimates are based are revised with more current information. We did not change actuarial methods during 2002, 2001 and 2000. {44} UnitedHealth Group We reflect adjustments to medical costs payable estimates in the operating results of the period in which we identify the changes in estimates. Each period, our operating results reflect revisions in estimates related to all prior periods, based on actual claims processed and paid. Management believes the amount of medical costs payable is reasonable and adequate to cover the company's liability for unpaid claims as of December 31, 2002; however, actual claim payments may differ from established estimates. CASH, CASH EQUIVALENTS AND INVESTMENTS Cash and cash equivalents are highly liquid investments with an original maturity of three months or less. The fair value of cash and cash equivalents approximates their carrying value because of the short maturity of the instruments. Investments with a maturity of less than one year are classified as short-term. We may sell investments classified as long-term before their maturity to fund working capital or for other purposes. Because of regulatory requirements, certain investments are included in long-term investments regardless of their maturity date. We classify these investments as held to maturity and report them at amortized cost. All other investments are classified as available for sale and reported at fair value based on quoted market prices. We exclude unrealized gains and losses on investments available for sale from earnings and report it as a separate component of shareholders' equity, net of income tax effects. We continually monitor the difference between the cost and estimated fair value of our investments. If any of our investments experiences a decline in value that is determined to be other than temporary, based on analysis of relevant factors, we record a realized loss in Investment and Other Income in our Consolidated Statement of Operations. To calculate realized gains and losses on the sale of investments, we use the specific cost of each investment sold. ASSETS UNDER MANAGEMENT We administer certain aspects of AARP's insurance program (see Note 4). Pursuant to our agreement, AARP assets are managed separately from our general investment portfolio and are used to pay costs associated with the AARP program. These assets are invested at our discretion, within investment guidelines approved by AARP. At December 31, 2002, the assets were invested in marketable debt securities. We do not guarantee any rates of investment return on these investments and, upon transfer of the AARP contract to another entity, we would transfer cash equal in amount to the fair value of these investments at the date of transfer to that entity. Because the purpose of these assets is to fund the medical costs payable, the rate stabilization fund liabilities and other related liabilities associated with the AARP contract, assets under management are classified as current assets, consistent with the classification of these liabilities. Interest earnings and realized investment gains and losses on these assets accrue to AARP policyholders through the rate stabilization fund. As such, they are not included in our earnings. Interest income and realized gains and losses related to assets under management are recorded as an increase to the AARP rate stabilization fund and were $102 million and $113 million in 2002 and 2001, respectively. Assets under management are reported at their fair market value, and unrealized gains and losses are included directly in the rate stabilization fund associated with the AARP program. As of December 31, 2002 and 2001, the AARP investment portfolio and rate stabilization fund included net unrealized gains of $117 million and $56 million, respectively. PROPERTY, EQUIPMENT AND CAPITALIZED SOFTWARE Property, equipment and capitalized software is stated at cost, net of accumulated depreciation and amortization. Capitalized software consists of certain costs incurred in the development of internal-use software, including external direct costs of materials and services and payroll costs of employees devoted to specific software development. {45} UnitedHealth Group We calculate depreciation and amortization using the straight-line method over the estimated useful lives of the assets. The useful lives for property, equipment and capitalized software are: from three to seven years for furniture, fixtures and equipment; from 35 to 40 years for buildings; the shorter of the useful life or remaining lease term for leasehold improvements; and from three to nine years for capitalized software. The weighted-average useful life of property, equipment and capitalized software at December 31, 2002, was approximately five years. The net book value of property and equipment was $490 million and $421 million as of December 31, 2002 and 2001, respectively. The net book value of capitalized software was $465 million and $426 million as of December 31, 2002 and 2001, respectively. GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill represents the amount by which the purchase price and transaction costs of businesses we have acquired exceed the estimated fair value of the net tangible assets and separately identifiable intangible assets of these businesses. We adopted FAS No. 142, "Goodwill and Other Intangible Assets," on January 1, 2002. Under FAS No. 142, goodwill and intangible assets with indefinite useful lives are not amortized, but are tested at least annually for impairment. Intangible assets with discrete useful lives are amortized on a straight-line basis over their estimated useful lives. LONG-LIVED ASSETS We review long-lived assets, including property, equipment, capitalized software and intangible assets, for events or changes in circumstances that would indicate we might not recover their carrying value. We consider many factors, including estimated future utility and cash flows associated with the assets, to make this decision. An impairment charge is recorded for the amount by which the asset carrying value exceeds the estimated fair value. We record assets held for sale at the lower of their carrying amount, or fair value, less any costs for the final settlement. OTHER POLICY LIABILITIES Other policy liabilities include the rate stabilization fund associated with the AARP program (see Note 4) and customer balances related to experience-rated insurance products. Customer balances represent excess customer payments and deposit accounts under experience-rated contracts. At the customer's option, these balances may be refunded or used to pay future premiums or claims under eligible contracts. INCOME TAXES Deferred income tax assets and liabilities are recognized for the differences between the financial and income tax reporting bases of assets and liabilities based on enacted tax rates and laws. The deferred income tax provision or benefit generally reflects the net change in deferred income tax assets and liabilities during the year, excluding any deferred income tax assets and liabilities of acquired businesses. The current income tax provision reflects the tax consequences of revenues and expenses currently taxable or deductible on various income tax returns for the year reported. CUSTOMER ACQUISITION COSTS Costs related to the acquisition and renewal of customer contracts, including sales commissions, enrollment materials and customer set-up costs, are charged to expense as incurred. Our insurance contracts typically have a one-year term and may be cancelled upon 30 days notice by either the company or the customer. {46} UnitedHealth Group STOCK-BASED COMPENSATION We account for activity under our stock-based employee compensation plans under the recognition and measurement principles of APB (Accounting Principles Board) Opinion No. 25, "Accounting for Stock Issued to Employees." Accordingly, we do not recognize compensation expense in connection with employee stock option grants because we grant stock options at exercise prices not less than the fair value of our common stock on the date of grant. The following table shows the effect on net earnings and earnings per share had we applied the fair value expense recognition provisions of FAS No. 123, "Accounting for Stock-Based Compensation," to stock-based employee compensation.
For the Year Ended December 31, (in millions, except per share data) 2002 2001 2000 - ------------------------------------ ------------ ------------ ------------ NET EARNINGS As Reported $ 1,352 $ 913 $ 736 Compensation Expense, net of tax effect (101) (82) (76) ------------ ------------ ------------ Pro Forma $ 1,251 $ 831 $ 660 ------------ ------------ ------------ BASIC NET EARNINGS PER COMMON SHARE As Reported $ 4.46 $ 2.92 $ 2.27 Pro Forma $ 4.12 $ 2.66 $ 2.04 ------------ ------------ ------------ DILUTED NET EARNINGS PER COMMON SHARE As Reported $ 4.25 $ 2.79 $ 2.19 Pro Forma $ 3.93 $ 2.54 $ 1.96 ------------ ------------ ------------ WEIGHTED-AVERAGE FAIR VALUE PER SHARE OF OPTIONS GRANTED $ 28 $ 23 $ 14 ------------ ------------ ------------
Information on our stock-based compensation plans and data used to calculate compensation expense in the table above are described in more detail in Note 10. NET EARNINGS PER COMMON SHARE We compute basic net earnings per common share by dividing net earnings by the weighted-average number of common shares outstanding during the period. We determine diluted net earnings per common share using the weighted-average number of common shares outstanding during the period, adjusted for potentially dilutive shares that might be issued upon exercise of common stock options. DERIVATIVE FINANCIAL INSTRUMENTS As part of our risk management strategy, we enter into interest rate swap agreements to manage our exposure to interest rate risk. The differential between fixed and variable rates to be paid or received is accrued and recognized over the life of the agreements as an adjustment to interest expense in the Consolidated Statements of Operations. Our existing interest rate swap agreements convert a portion of our interest rate exposure from a fixed to a variable rate and are accounted for as fair value hedges. Additional information on our existing interest rate swap agreements is included in Note 8. RECENTLY ISSUED ACCOUNTING STANDARDS On January 1, 2003, we adopted FAS No. 143, "Accounting for Asset Retirement Obligations," which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. Its adoption did not have a material impact on our consolidated financial position or results of operations. {47} UnitedHealth Group In June 2002, the Financial Accounting Standards Board (FASB) issued FAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." FAS No. 146 requires companies to recognize a liability for costs associated with exit or disposal activities when they are incurred, rather than at the date of a commitment to an exit or disposal plan. FAS No. 146 is effective for exit or disposal activities initiated after December 31, 2002. The adoption of this statement on January 1, 2003 did not have a material impact on our consolidated financial position or results of operations. In December 2002, the FASB issued FAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure - an amendment of FASB Statement No. 123." FAS No. 148 provides alternative transition methods for companies that make a voluntary change to the fair-value-based method of accounting for stock-based employee compensation. In addition, FAS No. 148 amends the disclosure requirements of FAS No. 123 to require disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. We have adopted the disclosure provisions of FAS No. 148 in these consolidated financial statements, and its adoption had no impact on our consolidated financial position or results of operations. RECLASSIFICATIONS Certain 2000 and 2001 amounts in the consolidated financial statements have been reclassified to conform to the 2002 presentation. These reclassifications have no effect on net earnings or shareholders' equity as previously reported. 3 ACQUISITIONS Effective September 30, 2002, we acquired AmeriChoice Corporation (AmeriChoice), a leading organization engaged in facilitating health care benefits and services for Medicaid beneficiaries in the states of New York, New Jersey and Pennsylvania. We are integrating our existing Medicaid business with AmeriChoice within the Health Care Services reporting segment, creating efficiencies from the consolidation of health care provider networks, technology platforms and operations. We issued 5.3 million shares of our common stock with a fair value of approximately $480 million in exchange for 93.5% of the outstanding AmeriChoice common stock. We also issued vested stock options with a fair value of approximately $15 million in exchange for outstanding stock options held by AmeriChoice employees and paid cash of approximately $82 million, mainly to pay off existing AmeriChoice debt. The purchase price and costs associated with the acquisition of approximately $577 million exceeded the preliminary estimated fair value of the net tangible assets acquired by approximately $528 million. This has been assigned to goodwill in the amount of $472 million, and finite-lived intangible assets, primarily customer contracts, in the amount of $56 million. The weighted-average useful life of the finite-lived intangible assets is estimated to be approximately 11 years. We will acquire the remaining minority interest after five years at a value based on a multiple of the earnings of the combined Medicaid business. We have the option to acquire the minority interest at an earlier date if specific events occur, such as the termination or resignation of key AmeriChoice employees. The results of operations for AmeriChoice since the acquisition date have been included in our Consolidated Statements of Operations. The pro forma effects of the AmeriChoice acquisition on our consolidated financial statements were not material. Our preliminary estimate of the fair value of the tangible assets/(liabilities) as of the acquisition date is as follows:
(in millions) - ------------- Cash and Cash Equivalents $ 32 Accounts Receivable and Other Current Assets 38 Long-Term Investments 151 Property, Equipment and Capitalized Software 21 Medical Costs Payable (129) Other Current Liabilities (64) ------------ Net Tangible Assets Acquired $ 49 ------------
{48} UnitedHealth Group In October 2001, our Specialized Care Services business segment acquired Spectera, Inc. (Spectera), a leading vision care benefits company in the United States, to expand the breadth of service offerings we extend to our customers. We paid $37 million in cash, and issued 1.5 million shares of common stock with a fair value of $106 million in exchange for all outstanding shares of Spectera. The purchase price and related acquisition costs of approximately $146 million exceeded the estimated fair value of net assets acquired by $126 million. Under the purchase method of accounting, we assigned this amount to goodwill. The results of operations for Spectera since the acquisition date are included in our Consolidated Statements of Operations. The pro forma effects of the Spectera acquisition on our consolidated financial statements were not material. For the years ended December 31, 2002, 2001 and 2000, aggregate consideration paid or issued for smaller acquisitions accounted for under the purchase method was $267 million, $134 million and $76 million, respectively. These acquisitions were not material to our consolidated financial statements. 4 AARP In January 1998, we initiated a 10-year contract to provide insurance products and services to members of AARP. Under the terms of the contract, we are compensated for transaction processing 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. Premium revenues from our portion of the AARP insurance offerings were approximately $3.7 billion in 2002, $3.6 billion in 2001 and $3.5 billion in 2000. The underwriting gains or losses related to the AARP business are directly recorded as an increase or decrease to a rate stabilization fund (RSF). The primary components of the underwriting results are premium revenue, medical costs, investment income, administrative expenses, member service expenses, marketing expenses and premium taxes. Underwriting gains and losses are recorded as an increase or decrease to the RSF and accrue to AARP policyholders, unless cumulative net losses were to exceed the balance in the RSF. To the extent underwriting losses exceed the balance in the RSF, we would have to fund the deficit. Any deficit we fund could be recovered by underwriting gains in future periods of the contract. To date, we have not been required to fund any underwriting deficits. The RSF balance is reported in Other Policy Liabilities in the accompanying Consolidated Balance Sheets. We believe the RSF balance is sufficient to cover potential future underwriting or other risks associated with the contract. The following AARP program-related assets and liabilities are included in our Consolidated Balance Sheets:
Balance as of December 31, (in millions) 2002 2001 - ------------- ---------- ---------- Assets Under Management $ 2,045 $ 1,882 Accounts Receivable $ 294 $ 281 Medical Costs Payable $ 893 $ 867 Other Policy Liabilities $ 1,299 $ 1,180 Accounts Payable and Accrued Liabilities $ 147 $ 116 ---------- ----------
The effects of changes in balance sheet amounts associated with the AARP program accrue to AARP policyholders through the RSF balance. Accordingly, we do not include the effect of such changes in our Consolidated Statements of Cash Flows. {49} UnitedHealth Group 5 CASH, CASH EQUIVALENTS AND INVESTMENTS As of December 31, the amortized cost, gross unrealized gains and losses, and fair value of cash, cash equivalents and investments were as follows (in millions):
Gross Gross Amortized Unrealized Unrealized Fair 2002 Cost Gains Losses Value - ---- ------------ ------------ ------------ ------------ Cash and Cash Equivalents $ 1,130 $ -- $ -- $ 1,130 Debt Securities -- Available for Sale 4,742 238 (8) 4,972 Equity Securities -- Available for Sale 150 5 (5) 150 Debt Securities -- Held to Maturity 77 -- -- 77 ------------ ------------ ------------ ------------ Total Cash and Investments $ 6,099 $ 243 $ (13) $ 6,329 ------------ ------------ ------------ ------------ 2001 - ---- Cash and Cash Equivalents $ 1,540 $ -- $ -- $ 1,540 Debt Securities -- Available for Sale 3,806 121 (20) 3,907 Equity Securities -- Available for Sale 201 16 (46) 171 Debt Securities -- Held to Maturity 80 -- -- 80 ------------ ------------ ------------ ------------ Total Cash and Investments $ 5,627 $ 137 $ (66) $ 5,698 ------------ ------------ ------------ ------------
As of December 31, 2002 and 2001, respectively, debt securities consisted of $1,439 million and $1,073 million in U.S. Government and Agency obligations, $2,475 million and $1,684 million in state and municipal obligations, and $1,135 million and $1,230 million in corporate obligations. At December 31, 2002, we held $677 million in debt securities with maturities of less than one year, $1,442 million in debt securities maturing in one to five years, and $2,930 million in debt securities with maturities of more than five years. During 2001 and 2000, respectively, we contributed UnitedHealth Capital investments valued at approximately $22 million and $52 million to the United Health Foundation, a non-consolidated, not-for-profit organization. The realized gains of approximately $18 million in 2001 and $51 million in 2000 were offset by related contribution expenses of $22 million in 2001 and $52 million in 2000. The net expenses of $4 million in 2001 and $1 million in 2000 are included in Investment and Other Income in the accompanying Consolidated Statements of Operations. In a separate disposition of UnitedHealth Capital investments during 2000, we realized a gain of $27 million. We recorded realized gains and losses on sales of investments, excluding the UnitedHealth Capital dispositions described above, as follows:
For the Year Ended December 31, (in millions) 2002 2001 2000 - ------------- ---------- ---------- ---------- Gross Realized Gains $ 57 $ 30 $ 12 Gross Realized Losses (75) (19) (46) ---------- ---------- ---------- Net Realized Gains (Losses) $ (18) $ 11 $ (34) ---------- ---------- ----------
{50} UnitedHealth Group 6 GOODWILL AND OTHER INTANGIBLE ASSETS We adopted FAS No. 142, "Goodwill and Other Intangible Assets," on January 1, 2002. Under FAS No. 142, goodwill and intangible assets with indefinite useful lives are not amortized. The following table shows net earnings and earnings per common share adjusted to reflect the adoption of the non-amortization provision of FAS No. 142 as of the beginning of the respective periods:
For the Year Ended December 31, (in millions, except per share data) 2002 2001 2000 - ------------------------------------ ------------ ------------ ------------ NET EARNINGS Reported Net Earnings $ 1,352 $ 913 $ 736 Goodwill Amortization, net of tax effects -- 89 85 ------------ ------------ ------------ Adjusted Net Earnings $ 1,352 $ 1,002 $ 821 ------------ ------------ ------------ BASIC NET EARNINGS PER COMMON SHARE Reported Basic Net Earnings per Share $ 4.46 $ 2.92 $ 2.27 Goodwill Amortization, net of tax effects -- 0.29 0.26 ------------ ------------ ------------ Adjusted Basic Net Earnings per Share $ 4.46 $ 3.21 $ 2.53 ------------ ------------ ------------ DILUTED NET EARNINGS PER COMMON SHARE Reported Diluted Net Earnings per Share $ 4.25 $ 2.79 $ 2.19 Goodwill Amortization, net of tax effects -- 0.28 0.25 ------------ ------------ ------------ Adjusted Diluted Net Earnings per Share $ 4.25 $ 3.07 $ 2.44 ------------ ------------ ------------
Changes in the carrying amount of goodwill, by operating segment, during the year ended December 31, 2002, were as follows:
Health Care Specialized Consolidated (in millions) Services Uniprise Care Services Ingenix Total - ------------- ------------ ------------ ------------- ------------ ------------ Balance at January 1, 2002 $ 1,166 $ 698 $ 322 $ 537 $ 2,723 Acquisitions and Subsequent Payments 527 -- 41 75 643 Dispositions -- -- -- (3) (3) ------------ ------------ ------------ ------------ ------------ Balance at December 31, 2002 $ 1,693 $ 698 $ 363 $ 609 $ 3,363 ------------ ------------ ------------ ------------ ------------
The weighted-average useful life, gross carrying value, accumulated amortization and net carrying value of other intangible assets as of December 31, 2002 and 2001 were as follows:
December 31, 2002 December 31, 2001 --------------------------------------- --------------------------------------- Weighted- Gross Net Gross Net Average Carrying Accumulated Carrying Carrying Accumulated Carrying (in millions) Useful Life Value Amortization Value Value Amortization Value - ------------- ------------ ---------- ------------ --------- ---------- ------------ --------- Customer Contracts and Membership Lists 14 years $ 64 $ (1) $ 63 $ -- $ -- $ -- Patents, Trademarks and Technology 10 years 58 (24) 34 28 (19) 9 Non-compete Agreements and Other 7 years 31 (6) 25 22 (4) 18 ------------ ---------- ------------ --------- ---------- ------------ --------- Total 10 years $ 153 $ (31) $ 122 $ 50 $ (23) $ 27 ------------ ---------- ------------ --------- ---------- ------------ ---------
Amortization expense relating to other intangible assets was $9 million in 2002. Estimated future amortization expense relating to other intangible assets for the years ending December 31 are as follows:
(in millions) 2003 2004 2005 2006 2007 - ------------- -------- -------- ------- -------- -------- ~~$ 15 $ 14 $ 14 $ 12 $ 12~~
{51} UnitedHealth Group 7 MEDICAL COSTS PAYABLE The following table shows the components of the change in medical costs payable for the years ended December 31, excluding amounts related to the AARP business:
For the Year Ended December 31, (in millions) 2002 2001 2000 - ------------- --------- --------- --------- MEDICAL COSTS PAYABLE, BEGINNING OF PERIOD $ 2,593 $ 2,411 $ 2,124 ACQUISITIONS(1) 180 17 -- REPORTED MEDICAL COSTS Current Year 14,860 14,367 12,996 Prior Years (70) (30) (15) --------- --------- --------- Total Reported Medical Costs 14,790 14,337 12,981 --------- --------- --------- CLAIM PAYMENTS Payments for Current Year (12,435) (11,933) (10,711) Payments for Prior Years (2,280) (2,239) (1,983) --------- --------- --------- Total Claim Payments (14,715) (14,172) (12,694) --------- --------- --------- MEDICAL COSTS PAYABLE, END OF PERIOD $ 2,848 $ 2,593 $ 2,411 --------- --------- ---------
(1) Represents the medical costs payable balance as of the applicable acquisition date. Subsequent changes in estimates related to acquired medical costs payable are recorded as adjustments to Goodwill. Amounts relating to the AARP business have been excluded since the underwriting gains or losses related to this contract are recorded as an increase or decrease to a rate stabilization fund, which is more fully described in Note 4. Medical costs payable balances relating to the AARP business were $893 million, $867 million, $855 million and $791 million as of December 31, 2002, 2001, 2000 and 1999, respectively. Medical costs relating to the AARP business were $3,402 million, $3,307 million and $3,174 million for the years ended December 31, 2002, 2001 and 2000, respectively. {52} UnitedHealth Group 8 COMMERCIAL PAPER AND DEBT Commercial paper and debt consisted of the following as of December 31 (in millions):
2002 2001 ------------------------ ------------------------- Carrying Fair Carrying Fair (in millions) Value Value Value Value ---------- --------- ---------- ---------- Commercial Paper $ 461 $ 461 $ 684 $ 684 Floating-Rate Notes due November 2003 100 100 100 100 6.6% Senior Unsecured Notes due December 2003 250 260 250 266 Floating-Rate Notes due November 2004 150 150 150 150 7.5% Senior Unsecured Notes due November 2005 400 450 400 433 5.2% Senior Unsecured Notes due January 2007 400 423 -- -- --------- --------- --------- --------- Total Commercial Paper and Debt 1,761 1,844 1,584 1,633 Less Current Maturities (811) (821) (684) (684) --------- --------- --------- --------- Long-Term Debt, less current maturities $ 950 $ 1,023 $ 900 $ 949 --------- --------- --------- ---------
As of December 31, 2002, our outstanding commercial paper had interest rates ranging from 1.4% to 1.5%. The interest rates on the floating-rate notes are reset quarterly to the three-month LIBOR plus 0.3% for the notes due November 2003 and to the three-month LIBOR plus 0.6% for the notes due November 2004. As of December 31, 2002, the applicable rates on the notes were 1.7% and 2.0%, respectively. In January 2002, we issued $400 million of 5.2% fixed-rate notes due January 2007. We used proceeds from this borrowing to repay commercial paper and for general corporate purposes including working capital, capital expenditures, business acquisitions and share repurchases. When we issued these notes, we entered into interest rate swap agreements that qualify as fair value hedges to convert a portion of our interest rate exposure from a fixed to a variable rate. The interest rate swap agreements have an aggregate notional amount of $200 million maturing January 2007. The variable rates approximate the six-month LIBOR and are reset on a semiannual basis in arrears. At December 31, 2002, the rate used to accrue interest expense on these swaps was approximately 1.4%. We have credit arrangements for $900 million that support our commercial paper program. These credit arrangements include a $450 million revolving facility that expires in July 2005, and a $450 million, 364-day facility that expires in July 2003. We also have the capacity to issue approximately $200 million of extendible commercial notes (ECNs). As of December 31, 2002 and 2001, we had no amounts outstanding under our credit facilities or ECNs. Our debt agreements and credit facilities contain various covenants, the most restrictive of which require us to maintain a debt-to-total-capital ratio below 45% and to exceed specified minimum interest coverage levels. We are in compliance with the requirements of all debt covenants. Maturities of commercial paper and debt for the years ending December 31 are as follows:
(in millions) 2003 2004 2005 2006 2007 - ------------- ------ ------ ------ ------ ------ ~~$ 811 $ 150 $ 400 $ -- $ 400~~
We made cash payments for interest of $86 million, $91 million and $68 million in 2002, 2001 and 2000, respectively. {53} UnitedHealth Group 9 SHAREHOLDERS' EQUITY REGULATORY CAPITAL AND DIVIDEND RESTRICTIONS We conduct a significant portion of our operations through companies that are subject to standards established by the National Association of Insurance Commissioners (NAIC). These standards, among other things, require these subsidiaries to maintain specified levels of statutory capital, as defined by each state, and restrict the timing and amount of dividends and other distributions that may be paid to their parent companies. Generally, the amount of dividend distributions that may be paid by a regulated subsidiary, without prior approval by state regulatory authorities, is limited based on the entity's level of statutory net income and statutory capital and surplus. At December 31, 2002, approximately $280 million of our $6.3 billion of cash and investments was held by non-regulated subsidiaries. Of this amount, approximately $130 million was available for general corporate use, including acquisitions and share repurchases. The remaining $150 million consists primarily of public and non-public equity securities held by UnitedHealth Capital, our investment capital business. The agencies that assess our creditworthiness also consider capital adequacy levels when establishing our debt ratings. Consistent with our intent to maintain our senior debt ratings in the "A" range, we maintain an aggregate statutory capital and surplus level for our regulated subsidiaries that is significantly higher than the minimum level regulators require. As of December 31, 2002, our regulated subsidiaries had aggregate statutory capital and surplus of approximately $2.5 billion, which is significantly more than the aggregate minimum regulatory requirements. STOCK REPURCHASE PROGRAM Under our board of directors' authorization, we maintain a common stock repurchase program. Repurchases may be made from time to time at prevailing prices, subject to restrictions on volume, pricing and timing. During 2002, we repurchased 22.3 million shares for an aggregate of $1.8 billion. As of December 31, 2002, we had board of directors' authorization to purchase up to an additional 16.5 million shares of our common stock. As a limited part of our share repurchase activities, we had entered into purchase agreements with an independent third party to purchase shares of our common stock at various times and prices. In May 2002, the share purchase agreements were terminated, and we elected to receive shares of our common stock from the third party as settlement consideration. The favorable settlement amount was not material and was recorded through additional paid-in capital. We currently have no outstanding purchase agreements with respect to our common stock. PREFERRED STOCK At December 31, 2002, we had 10 million shares of $0.001 par value preferred stock authorized for issuance, and no preferred shares issued and outstanding. {54} UnitedHealth Group 10 STOCK-BASED COMPENSATION PLANS During 2002, our shareholders voted to consolidate our three primary stock-based compensation plans into one new plan. As of December 31, 2002, 29.0 million shares remained available under that plan for future grants of stock-based awards including, but not limited to, incentive or non-qualified stock options, stock appreciation rights and restricted stock. No shares are available for grants from our other plans. Stock options are granted at an exercise price not less than the fair value of our common stock on the date of grant. They generally vest ratably over four years and may be exercised up to 10 years from the date of grant. Activity under our stock plans is summarized in the table below (shares in thousands):
2002 2001 2000 ----------------------------- --------------------------- -------------------------- Weighted-Average Weighted-Average Weighted-Average Shares Exercise Price Shares Exercise Price Shares Exercise Price -------- ---------------- -------- ---------------- -------- ---------------- Outstanding at Beginning of Year 38,337 $ 29 38,810 $ 22 44,080 $ 19 Granted 12,517 $ 75 8,139 $ 53 8,516 $ 30 Assumed in Acquisitions 457 $ 60 194 $ 19 -- $ -- Exercised (6,614) $ 27 (7,716) $ 20 (12,331) $ 17 Forfeited (1,496) $ 40 (1,090) $ 25 (1,455) $ 20 -------- ------- -------- ------- ------- ------- Outstanding at End of Year 43,201 $ 42 38,337 $ 29 38,810 $ 22 -------- ------- -------- ------- ------- ------- Exercisable at End of Year 20,696 $ 24 19,585 $ 21 17,367 $ 20 -------- ------- -------- ------- ------- ------- As of December 31, 2002 Options Outstanding Options Exercisable ------------------------------------------------------- ---------------------------------- Weighted-Average Number Remaining Weighted-Average Number Weighted-Average Range of Exercise Prices Outstanding Option Term (years) Exercise Price Exercisable Exercise Price - ------------------------ ----------- -------------------- ---------------- ------------- ------------------ $ 0 - $20 4,358 4.5 $ 17 4,219 $ 18 $21 - $40 19,597 6.3 $ 24 14,724 $ 23 $41 - $70 13,833 8.5 $ 61 1,631 $ 54 $71 - $100 5,413 9.6 $ 83 122 $ 83 ------- ---- ------- ------- ------ $ 0 - $100 43,201 7.3 $ 42 20,696 $ 24 ------- ---- ------- ------- ------
To determine compensation expense under the fair value method, the fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The principal assumptions we used in applying the Black-Scholes model were as follows:
2002 2001 2000 ------ ------ ------ Risk-Free Interest Rate 2.5% 3.7% 5.0% Expected Volatility 40.2% 45.9% 49.0% Expected Dividend Yield 0.1% 0.1% 0.1% Expected Life in Years 4.5 4.8 4.5
Information regarding the effect on net earnings and net earnings per common share had we applied the fair value expense recognition provisions of FAS No. 123 is included in Note 2. Effective August 1, 2002, our employee stock ownership plan was merged into our existing 401(k) plan. We also maintain an employee stock purchase plan. Activity related to these plans was not significant in relation to our consolidated financial results in 2002, 2001 and 2000. {55} UnitedHealth Group 11 INCOME TAXES The components of the provision (benefit) for income taxes are as follows:
Year Ended December 31, (in millions) 2002 2001 2000 - -------------------------------------- ------ ------ ------ Current Provision Federal $ 675 $ 524 $ 330 State and Local 57 45 38 ------ ------ ------ Total Current Provision 732 569 368 Deferred Provision (Benefit) 12 (10) 51 ------ ------ ------ Total Provision for Income Taxes $ 744 $ 559 $ 419 ------ ------ ------
The reconciliation of the tax provision at the U.S. Federal Statutory Rate to the provision for income taxes is as follows:
Year Ended December 31, (in millions) 2002 2001 2000 - ------------------------------------- ------ ------ ------ Tax Provision at the U.S. Federal Statutory Rate $ 734 $ 515 $ 404 State Income Taxes, net of federal benefit 33 29 29 Tax-Exempt Investment Income (26) (21) (17) Non-deductible Amortization -- 29 27 Charitable Contributions -- -- (18) Other, net 3 7 (6) ------ ------ ------ Provision for Income Taxes $ 744 $ 559 $ 419 ------ ------ ------
The components of deferred income tax assets and liabilities are as follows:
As of December 31, (in millions) 2002 2001 - -------------------------------- ------ ------ Deferred Income Tax Assets Accrued Expenses and Allowances $ 252 $ 206 Unearned Premiums 47 65 Medical Costs Payable and Other Policy Liabilities 60 84 Net Operating Loss Carryforwards 61 39 Other 30 30 ------ ------ Subtotal 450 424 Less: Valuation Allowances (39) (39) ------ ------ Total Deferred Income Tax Assets 411 385 ------ ------ Deferred Income Tax Liabilities Capitalized Software Development (176) (150) Net Unrealized Gains on Investments (82) (31) Depreciation & Amortization (54) (22) ------ ------ Total Deferred Income Tax Liabilities (312) (203) ------ ------ Net Deferred Income Tax Assets $ 99 $ 182 ------ ------
Valuation allowances are provided when it is considered more likely than not that deferred tax assets will not be realized. The valuation allowances relate to future tax benefits on certain federal, state and foreign net operating loss carryforwards. Federal net operating loss carryforwards expire beginning in 2017 through 2022, and state net operating loss carryforwards expire beginning in 2005 through 2022. {56} UnitedHealth Group We made cash payments for income taxes of $458 million in 2002, $384 million in 2001 and $352 million in 2000. We increased additional paid-in capital and reduced income taxes payable by $133 million in both 2002 and 2001, and by $116 million in 2000 to reflect the tax benefit we received upon the exercise of non-qualified stock options. The company, together with its wholly-owned subsidiaries, files a consolidated federal income tax return. Internal Revenue Service examinations for the 1999 and 1998 tax years have been completed and did not have a significant impact on our consolidated operating results or financial position. 12 COMMITMENTS AND CONTINGENCIES LEASES We lease facilities, computer hardware and other equipment under long-term operating leases that are noncancelable and expire on various dates through 2025. Rent expense under all operating leases was $132 million in 2002, $135 million in 2001 and $132 million in 2000. At December 31, 2002, future minimum annual lease payments, net of sublease income, under all noncancelable operating leases were as follows:
(in millions) 2003 2004 2005 2006 2007 Thereafter ----------- ---- ---- ---- ---- ---- ---------- ~~$109 $ 94 $ 85 $ 75 $ 67 $ 190~~
SERVICE AGREEMENTS We have three separate contracts for certain data center operations and support, and network and voice communication services, which expire in 2005 and 2006. Expenses incurred in connection with these agreements were $201 million in 2002, $196 million in 2001 and $182 million in 2000. LEGAL MATTERS Because of the nature of our businesses, we are routinely party to a variety of legal actions related to the design, management and offerings of our services. We record liabilities for our estimate of probable costs resulting from these matters. These matters include, but are not limited to: claims relating to health care benefits coverage; medical malpractice actions; contract disputes; and claims related to disclosure of certain business practices. Following the events of September 11, 2001, the cost of business insurance coverage increased significantly. As a result, we have increased the amount of risk that we self-insure, particularly with respect to routine matters incidental to our business. In 1999, a number of class action lawsuits were filed against us and virtually all major entities in the health benefits business. The suits are purported class actions on behalf of certain customers and physicians for alleged breaches of federal statutes, including the Employee Retirement Income Security Act of 1974, as amended (ERISA), and the Racketeer Influenced Corrupt Organization Act (RICO). Although the results of pending litigation are always uncertain, we do not believe the results of any such actions currently threatened or pending, including those described above, will, individually or in aggregate, have a material adverse effect on our consolidated financial position or results of operations. {57} UnitedHealth Group GOVERNMENT REGULATION Our business is regulated at federal, state, local and international levels. The laws and rules governing our business are subject to frequent change, and agencies have broad latitude to administer those regulations. State legislatures and Congress continue to focus on health care issues as the subject of proposed legislation. Existing or future laws and rules could force us to change how we do business, restrict revenue and enrollment growth, increase our health care and administrative costs and capital requirements, and increase our liability related to coverage interpretations or other actions. Further, we must obtain and maintain regulatory approvals to market many of our products. We are also subject to various ongoing governmental investigations, audits and reviews, and we record liabilities for our estimate of probable costs resulting from these matters. Although the results of pending matters are always uncertain, we do not believe the results of any of the current investigations, audits or reviews, individually or in the aggregate, will have a material adverse effect on our consolidated financial position or results of operations. 13 SEGMENT FINANCIAL INFORMATION Factors used in determining our reportable business segments include the nature of operating activities, existence of separate senior management teams, and the type of information presented to the company's chief operating decision-maker to evaluate our results of operations. Our accounting policies for business segment operations are the same as those described in the Summary of Significant Accounting Policies (see Note 2). Transactions between business segments principally consist of customer service and transaction processing services that Uniprise provides to UnitedHealthcare and Ovations, certain product offerings sold to Uniprise and UnitedHealthcare customers by Specialized Care Services, and sales of medical benefits cost, quality and utilization data and predictive modeling to UnitedHealthcare, Ovations and Uniprise by Ingenix. These transactions are recorded at management's best estimate of fair value, as if the services were purchased from or sold to third parties. All intersegment transactions are eliminated in consolidation. Assets and liabilities that are jointly used are assigned to each segment using estimates of pro-rata usage. Cash and investments are assigned such that each segment has minimum specified levels of regulatory capital or working capital for non-regulated businesses. The "Corporate and Eliminations" column includes costs associated with company-wide process improvement initiatives, net expenses from charitable contributions to the United Health Foundation and eliminations of intersegment transactions. In accordance with accounting principles generally accepted in the United States of America, segments with similar economic characteristics may be combined. The financial results of UnitedHealthcare, Ovations and AmeriChoice have been combined in the Health Care Services segment column in the tables presented on the next page because these businesses have similar economic characteristics and have similar products and services, types of customers, distribution methods and operational processes, and operate in a similar regulatory environment, typically within the same legal entity. Substantially all of our operations are conducted in the United States. {58} UnitedHealth Group The following tables present segment financial information as of and for the years ended December 31, 2002, 2001 and 2000 (in millions):
Health Care Specialized Corporate 2002 Services Uniprise Care Services Ingenix and Eliminations Consolidated - ---- ----------- -------- ------------- ------- ---------------- ------------ Revenues -- External Customers $ 21,465 $ 2,083 $ 897 $ 355 $ -- $ 24,800 Revenues -- Intersegment -- 603 598 136 (1,337) -- Investment and Other Income 179 27 14 -- -- 220 ----------- -------- ------------- ------- ---------------- ------------ Total Revenues $ 21,644 $ 2,713 $ 1,509 $ 491 $ (1,337) $ 25,020 ----------- -------- ------------- ------- ---------------- ------------ Earnings From Operations $ 1,336 $ 509 $ 286 $ 55 $ -- $ 2,186 Total Assets(1) $ 10,522 $ 1,914 $ 974 $ 902 $ (537) $ 13,775 Net Assets(1) $ 4,379 $ 1,097 $ 602 $ 763 $ (517) $ 6,324 Purchases of Property, Equipment and Capitalized Software $ 129 $ 159 $ 59 $ 72 $ -- $ 419 Depreciation and Amortization $ 102 $ 69 $ 36 $ 48 $ -- $ 255 ----------- -------- ------------- ------- ---------------- ------------ 2001 Revenues -- External Customers $ 20,259 $ 1,841 $ 734 $ 339 $ -- $ 23,173 Revenues -- Intersegment -- 587 504 108 (1,199) -- Investment and Other Income 235 34 16 -- (4) 281 ----------- -------- ------------- ------- ---------------- ------------ Total Revenues $ 20,494 $ 2,462 $ 1,254 $ 447 $ (1,203) $ 23,454 ----------- -------- ------------- ------- ---------------- ------------ Earnings From Operations $ 944 $ 374 $ 214 $ 48 $ (14) $ 1,566 Total Assets(1) $ 9,014 $ 1,737 $ 848 $ 771 $ (200) $ 12,170 Net Assets(1) $ 3,408 $ 1,020 $ 514 $ 646 $ (158) $ 5,430 Purchases of Property, Equipment and Capitalized Software $ 152 $ 171 $ 33 $ 69 $ -- $ 425 Depreciation and Amortization $ 101 $ 81 $ 33 $ 50 $ -- $ 265 ----------- -------- ------------- ------- ---------------- ------------ 2000 Revenues -- External Customers $ 18,502 $ 1,595 $ 503 $ 290 $ -- $ 20,890 Revenues -- Intersegment -- 520 461 85 (1,066) -- Investment and Other Income 194 25 10 -- 3 232 ----------- -------- ------------- ------- ---------------- ------------ Total Revenues $ 18,696 $ 2,140 $ 974 $ 375 $ (1,063) $ 21,122 ----------- -------- ------------- ------- ---------------- ------------ Earnings From Operations $ 739 $ 289 $ 174 $ 32 $ (34) $ 1,200 Total Assets(1) $ 8,118 $ 1,578 $ 525 $ 730 $ (133) $ 10,818 Net Assets(1) $ 3,085 $ 978 $ 276 $ 617 $ (113) $ 4,843 Purchases of Property, Equipment and Capitalized Software $ 88 $ 94 $ 28 $ 35 $ -- $ 245 Depreciation and Amortization $ 100 $ 75 $ 25 $ 47 $ -- $ 247 ----------- -------- ------------- ------- ---------------- ------------
(1) Total Assets and Net Assets exclude, where applicable, debt and accrued interest of $1,775 million, $1,603 million and $1,222 million, income tax-related assets of $389 million, $316 million and $235 million, and income tax-related liabilities of $510 million, $252 million and $168 million as of December 31, 2002, 2001 and 2000, respectively. {59} UnitedHealth Group 14 QUARTERLY FINANCIAL DATA (UNAUDITED)
For the Quarter Ended --------------------------------------------------- (in millions, except per share data) March 31 June 30 September 30 December 31 -------- ------- ------------ ----------- 2002 Revenues $6,013 $ 6,078 $6,247 $6,682 Medical and Operating Expenses $5,531 $ 5,555 $5,675 $6,073(1) Earnings From Operations $ 482 $ 523 $ 572 $ 609(1) Net Earnings $ 295 $ 325 $ 353 $ 379(1) Basic Net Earnings per Common Share $ 0.96 $ 1.07 $ 1.17 $ 1.26(1) Diluted Net Earnings per Common Share $ 0.92 $ 1.01 $ 1.12 $ 1.20(1) -------- ------- ------------ ----------- 2001 Revenues $5,680 $ 5,813 $5,941 $6,020 Medical and Operating Expenses $5,315 $ 5,429 $5,545 $5,599 Earnings From Operations $ 365 $ 384 $ 396 $ 421 Net Earnings $ 212 $ 223 $ 231 $ 247 Basic Net Earnings per Common Share $ 0.67 $ 0.71 $ 0.75 $ 0.79 Diluted Net Earnings per Common Share $ 0.64 $ 0.68 $ 0.71 $ 0.76 -------- ------- ------------ -----------
(1) Includes an estimated $40 million ($26 million after tax effect), or $0.08 diluted net earnings per common share, of favorable medical costs estimate development from prior periods. {60} UnitedHealth Group REPORT OF MANAGEMENT The management of UnitedHealth Group is responsible for the integrity and objectivity of the consolidated financial information contained in this annual report. The consolidated financial statements and related information were prepared according to accounting principles generally accepted in the United States of America and include some amounts that are based on management's best estimates and judgments. To meet its responsibility, management depends on its accounting systems and related internal accounting controls. These systems are designed to provide reasonable assurance, at an appropriate cost, that financial records are reliable for use in preparing financial statements and that assets are safeguarded. Qualified personnel throughout the organization maintain and monitor these internal accounting controls on an ongoing basis. The Audit Committee of the board of directors, composed entirely of directors who are not employees of the company, meets periodically and privately with the company's independent auditors and management to review accounting, auditing, internal control, financial reporting and other matters. WILLIAM W. MCGUIRE, MD Chairman and Chief Executive Officer STEPHEN J. HEMSLEY President and Chief Operating Officer PATRICK J. ERLANDSON Chief Financial Officer {61} UnitedHealth Group INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of UnitedHealth Group Incorporated: We have audited the accompanying consolidated balance sheet of UnitedHealth Group Incorporated and Subsidiaries as of December 31, 2002, and the related statements of operations, changes in shareholders' equity, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. The consolidated financial statements of UnitedHealth Group Incorporated and Subsidiaries as of December 31, 2001, and for each of the two years in the period ended December 31, 2001, were audited by other auditors who have ceased operations. Those auditors expressed an unqualified opinion on those consolidated financial statements in their report dated January 24, 2002. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2002, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 2 to the consolidated financial statements, effective January 1, 2002, the Company changed its method of accounting for goodwill and other intangible assets. As discussed above, the consolidated financial statements of UnitedHealth Group Incorporated as of December 31, 2001 and 2000, and for each of the two years in the period ended December 31, 2001, were audited by other auditors who have ceased operations. As described in Notes 6 and 7, these consolidated financial statements have been revised to (i) include the transitional disclosures required by Statement of Financial Accounting Standards (Statement) No. 142, Goodwill and Other Intangible Assets, which, as described in Note 2, was adopted by the Company as of January 1, 2002, and (ii) include disclosure of the components of the change in medical costs payable consistent with Statement of Position 94-5, Disclosures of Certain Matters in the Financial Statements of Insurance Enterprises. Our audit procedures with respect to the disclosures in Note 6 with respect to 2001 and 2000 included (i) agreeing the previously reported net income to the previously issued consolidated financial statements and the adjustments to reported net income representing amortization expense (including any related tax effects) recognized in those periods related to goodwill, intangible assets that are no longer being amortized, deferred credits related to an excess over cost, equity method goodwill, and changes in amortization periods for intangible assets that will continue to be amortized as a result of initially applying Statement No. 142 (including any related tax effects) to the Company's underlying records obtained from management, and (ii) testing the mathematical accuracy of the reconciliation of adjusted net income to reported net income, and the related earnings-per-share amounts. Our audit procedures with respect to the disclosures in Note 7 with respect to 2001 and 2000 included (i) agreeing the previously reported beginning and end of year medical costs payable to the previously issued consolidated financial statements, (ii) agreeing the previously reported medical costs to the previously issued consolidated financial statements (iii) agreeing paid claims payments and prior years medical costs change in medical costs payable to supporting documentation of claims payment detail and (iv) testing the mathematical accuracy of the components of the change in medical costs payable. In our opinion, the disclosures for 2001 and 2000 in Notes 6 and 7 are appropriate. However, we were not engaged to audit, review, or apply any procedures to the 2001 and 2000 consolidated financial statements of the Company other than with respect to such disclosures and, accordingly, we do not express an opinion or any other form of assurance on the 2001 and 2000 consolidated financial statements taken as a whole. DELOITTE & TOUCHE LLP Minneapolis, Minnesota January 23, 2003 {62} UnitedHealth Group INDEPENDENT AUDITORS' REPORT The following audit report of Arthur Andersen LLP, our former independent auditors, is a copy of the original report dated January 24, 2002, rendered by Arthur Andersen LLP on our consolidated financial statements included in our Annual Report on Form 10-K filed on April 1, 2002, and has not been reissued by Arthur Andersen LLP since that date. To the Shareholders and Directors of UnitedHealth Group Incorporated: We have audited the accompanying consolidated balance sheets of UnitedHealth Group Incorporated (a Minnesota Corporation) and Subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of operations, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of UnitedHealth Group Incorporated and its Subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States. ARTHUR ANDERSEN LLP Minneapolis, Minnesota January 24, 2002 {63} UnitedHealth Group CORPORATE AND BOARD OF DIRECTORS BUSINESS LEADERS UnitedHealth Group WILLIAM C. BALLARD, JR. DONNA E. SHALALA, PHD Of Counsel President WILLIAM W. MCGUIRE, MD Greenebaum, Doll & McDonald University of Miami Chairman and Chief Executive Officer Louisville, Kentucky, law firm Director since 2001. Director since 1993. STEPHEN J. HEMSLEY WILLIAM G. SPEARS President and Chief Operating Officer RICHARD T. BURKE Managing Partner Former Chief Executive Officer Spears Grisanti & Brown LLC PATRICK J. ERLANDSON and Governor New York City-based investment Chief Financial Officer Phoenix Coyotes counseling and management firm National Hockey League team Director since 1991. DAVID J. LUBBEN Director since 1977. General Counsel GAIL R. WILENSKY, PHD STEPHEN J. HEMSLEY Senior Fellow JAMES B. HUDAK President and Project HOPE Chief Executive Officer Chief Operating Officer International health foundation UnitedHealth Technologies UnitedHealth Group Director since 1993. Director since 2000. REED V. TUCKSON, MD Audit Committee Senior Vice President JAMES A. JOHNSON WILLIAM C. BALLARD, JR. Consumer Health and Vice Chairman JAMES A. JOHNSON Medical Care Advancement Perseus, LLC DOUGLAS W. LEATHERDALE Private merchant banking ROBERT L. RYAN L. ROBERT DAPPER and investment firm Senior Vice President Director since 1993. Compensation and Human Capital Human Resources Committee THOMAS H. KEAN TRACY L. BAHL President THOMAS H. KEAN Senior Vice President Drew University MARY O. MUNDINGER Chief Marketing Officer Director since 1993. WILLIAM G. SPEARS JOHN S. PENSHORN DOUGLAS W. LEATHERDALE Compliance and Director of Capital Markets Former Chairman and Government Affairs Committee Communications and Strategy Chief Executive Officer The St. Paul Companies, Inc. RICHARD T. BURKE UnitedHealthcare Insurance and related services DONNA E. SHALALA Director since 1983. GAIL R. WILENSKY ROBERT J. SHEEHY Chief Executive Officer WILLIAM W. MCGUIRE, MD Executive Committee Chairman and Ovations Chief Executive Officer WILLIAM C. BALLARD, JR. UnitedHealth Group DOUGLAS W. LEATHERDALE LOIS QUAM Director since 1989. WILLIAM W. MCGUIRE Chief Executive Officer WILLIAM G. SPEARS MARY O. MUNDINGER, RN, DRPH Uniprise Dean and Centennial Professor in Nominating Committee Health Policy, School of Nursing, and R. CHANNING WHEELER Associate Dean, Faculty of Medicine WILLIAM C. BALLARD, JR. Chief Executive Officer Columbia University THOMAS H. KEAN Director since 1997. DOUGLAS W. LEATHERDALE Specialized Care Services WILLIAM G. SPEARS ROBERT L. RYAN RONALD B. COLBY Senior Vice President and Chief Executive Officer Chief Financial Officer Medtronic, Inc. Ingenix Medical technology company Director since 1996. JEANNINE M. RIVET Executive Vice President UnitedHealth Group and Chief Executive Officer Ingenix AmeriChoice ANTHONY WELTERS Chief Executive Officer

{64} UnitedHealth Group Financial performance at a glance
GROWTH & PROFITS -- CONSOLIDATED(1) (in millions, except per share data) 2002 2001 2000 - ----------------------------------- ---------- ---------- ---------- Revenues $ 25,020 $ 23,454 $ 21,122 Earnings From Operations $ 2,186 $ 1,566 $ 1,200 Operating Margin 8.7% 6.7% 5.7% Return on Net Assets 37.5% 30.7% 25.5% Net Earnings $ 1,352 $ 913 $ 705 Net Margin 5.4% 3.9% 3.3% Diluted Net Earnings per Share $ 4.25 $ 2.79 $ 2.10

GROWTH & PROFITS -- BY SEGMENT (in millions) 2002 2001 2000 - ------------------------------ ---------- ---------- ---------- HEALTH CARE SERVICES Revenues $ 21,644 $ 20,494 $ 18,696 Earnings From Operations $ 1,336 $ 944 $ 739 Operating Margin 6.2% 4.6% 4.0% Return on Net Assets 35.7% 29.2% 24.6% UNIPRISE Revenues $ 2,713 $ 2,462 $ 2,140 Earnings From Operations $ 509 $ 374 $ 289 Operating Margin 18.8% 15.2% 13.5% Return on Net Assets 47.9% 37.2% 30.6% SPECIALIZED CARE SERVICES Revenues $ 1,509 $ 1,254 $ 974 Earnings From Operations $ 286 $ 214 $ 174 Operating Margin 19.0% 17.1% 17.9% Return on Net Assets 50.7% 59.1% 68.8% INGENIX Revenues $ 491 $ 447 $ 375 Earnings From Operations $ 55 $ 48 $ 32 Operating Margin 11.2% 10.7% 8.5% Return on Net Assets 7.6% 7.5% 5.2%

CAPITAL ITEMS(1) (in millions, except per share data) 2002 2001 2000 - ----------------------------------- -------- -------- -------- Cash Flows From Operating Activities $ 2,423 $ 1,844 $ 1,521 Capital Expenditures $ 419 $ 425 $ 245 Consideration Paid or Issued for Acquisitions $ 869 $ 255 $ 76 Debt-to-Total-Capital Ratio 28.5% 28.9% 24.7% Return on Shareholders' Equity 33.0% 24.5% 19.0% Year-End Market Capitalization $ 25,005 $ 21,841 $ 19,470 Year-End Common Share Price $ 83.50 $ 70.77 $ 61.38 -------- -------- --------
(1) Excludes nonrecurring items in 2000, as described in footnote 1 at the bottom of page 19. {65} UnitedHealth Group INVESTOR INFORMATION Market Price of Common Stock The following table shows the range of high and low sales prices for the company's stock as reported on the New York Stock Exchange for the calendar periods shown through February 28, 2003. These prices do not include commissions or fees associated with purchasing or selling this security.
High Low -------- ------- 2003 First Quarter Through February 28, 2003 $ 88.75 $ 78.40 -------- ------- 2002 First Quarter $ 76.80 $ 67.85 Second Quarter $ 97.89 $ 75.13 Third Quarter $ 96.30 $ 81.48 Fourth Quarter $ 101.00 $ 75.04 -------- ------- 2001 First Quarter $ 64.36 $ 50.50 Second Quarter $ 67.40 $ 52.50 Third Quarter $ 70.00 $ 58.80 Fourth Quarter $ 72.80 $ 62.42 -------- -------
As of February 28, 2003, the company had 12,811 shareholders of record. Account Questions Our transfer agent, Wells Fargo, can help you with a variety of shareholder-related services, including: Change of address Lost stock certificates Transfer of stock to another person Additional administrative services You can call our transfer agent at (800) 468-9716 or locally at (651) 450-4064. You can write them at: Wells Fargo Shareowner Services P.O. Box 64854 Saint Paul, Minnesota 55164-0854 Or you can e-mail our transfer agent at: stocktransfer@wellsfargo.com Investor Relations You can contact UnitedHealth Group Investor Relations any time to order, without charge, financial documents, such as the annual report and Form 10-K. You can write to us at: Investor Relations, MN008-T930 UnitedHealth Group P.O. Box 1459 Minneapolis, Minnesota 55440-1459 Annual Meeting We invite UnitedHealth Group shareholders to attend our annual meeting, which will be held on Wednesday, May 7, 2003, at 10 a.m., at UnitedHealth Group Center, 9900 Bren Road East, Minnetonka, Minnesota. Dividend Policy UnitedHealth Group's board of directors established the company's dividend policy in August 1990. The policy requires the board to review the company's audited financial statements following the end of each fiscal year and decide whether it is advisable to declare a dividend on the outstanding shares of common stock. Shareholders of record on April 2, 2001, received an annual dividend for 2001 of $0.03 per share. Shareholders of record on April 1, 2002, received an annual dividend for 2002 of $0.03 per share. On February 11, 2003, the board of directors approved an annual dividend for 2003 of $0.03 per share. The dividend will be paid on April 17, 2003, to shareholders of record at the close of business on April 1, 2003. We expect to continue paying comparable cash dividends in the future. Stock Listing The company's common stock is traded on the New York Stock Exchange under the symbol UNH. Information Online You can view our annual report and obtain more information about UnitedHealth Group and its businesses via the Internet at: www.unitedhealthgroup.com {66} UnitedHealth Group EX-21 11 c74996exv21.txt EX-21 SUBSIDIARIES . . . EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT
=============================================================== ================== ================================================= STATE OF NAME OF ENTITY INCORPORATION SUBSIDIARY OF WHAT ENTITY =============================================================== ================== ================================================= - --------------------------------------------------------------- ------------------ ------------------------------------------------- United Healthcare Services, Inc. Minnesota UnitedHealth Group Incorporated - --------------------------------------------------------------- ------------------ ------------------------------------------------- UnitedHealthcare, Inc. Delaware United HealthCare Services, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- United HealthCare of Alabama, Inc. Alabama UnitedHealthcare, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- United HealthCare of Arizona, Inc. Arizona UnitedHealthcare, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- Arizona Physicians IPA, Inc. Arizona United HealthCare of Arizona, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- United HealthCare of Arkansas, Inc. Arkansas UnitedHealthcare, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- United HealthCare of Colorado, Inc. Colorado UnitedHealthcare, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- United HealthCare of Florida, Inc. Florida UnitedHealthcare, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- United HealthCare of Georgia, Inc. Georgia UnitedHealthcare, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- UnitedHealthcare of Illinois, Inc. Illinois UnitedHealthcare, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- United HealthCare of Louisiana, Inc. Louisiana UnitedHealthcare, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- UnitedHealthcare of the Mid-Atlantic, Inc. Maryland UnitedHealthcare, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- United HealthCare of the Midlands, Inc. Nebraska UnitedHealthcare, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- United HealthCare of the Midwest, Inc. Missouri UnitedHealthcare, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- United HealthCare of Mississippi, Inc. Mississippi UnitedHealthcare, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- United HealthCare of Nevada, Inc. Nevada UnitedHealthcare, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- UnitedHealthcare of New Jersey, Inc. New Jersey UnitedHealthcare, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- UnitedHealthcare of New York, Inc. New York UnitedHealthcare, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- UnitedHealthcare of North Carolina, Inc. North Carolina UnitedHealthcare, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- United HealthCare of Tennessee, Inc. Tennessee UnitedHealthcare, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- United HealthCare of Texas, Inc. Texas UnitedHealthcare, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- United HealthCare of Utah Utah UnitedHealthcare, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- UnitedHealthcare of Wisconsin, Inc. Wisconsin UnitedHealthcare, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- Midwest Security Holding, Inc. Wisconsin UnitedHealthcare, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- Midwest Security Administrators, Inc. Wisconsin Midwest Security Holding, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- Midwest Security Life Insurance Company Wisconsin Midwest Security Holding, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- Midwest Security Care, Inc. Wisconsin Midwest Security Holding, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- - --------------------------------------------------------------- ------------------ ------------------------------------------------- Unified Limited United Kingdom United HealthCare Services, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- UnitedHealthcare of New England, Inc. Rhode Island United HealthCare Services, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- United HealthCare of Ohio, Inc. Ohio United HealthCare Services, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- United HealthCare of Oregon, Inc. Oregon United HealthCare Services, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- United HealthCare Plans of Puerto Rico, Inc. Puerto Rico United HealthCare Services, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- UnitedHealth Advantage LLC Delaware United HealthCare Services, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- UnitedHealth Networks, Inc. Delaware United HealthCare Services, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- UnitedHealth Capital, LLC Delaware United HealthCare Services, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- Commonwealth Physicians Services Corporation Kentucky United HealthCare Services, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- United HealthCare of Washington, Inc. Washington United HealthCare Services, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- UnitedHealth Financial Services, Inc. Delaware United HealthCare Services, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- Exante Bank, Inc. Utah UnitedHealth Financial Services, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- United HealthCare of Kentucky, Ltd. Kentucky United HealthCare Services, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- - --------------------------------------------------------------- ------------------ ------------------------------------------------- Specialized Care Services, Inc. Delaware United HealthCare Services, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- Optum Group, LLC Delaware Specialized Care Services, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- Coordinated Vision Care, Inc. Delaware Specialized Care Services, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- Coordinated Vision Care of New York, IPA, Inc. New York Coordinated Vision Care, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- Unimerica Insurance Company Wisconsin Specialized Care Services, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- United Resource Networks, Inc. Delaware Specialized Care Services, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- Specialty Resource Services, Inc. Delaware United Resource Networks, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- National Benefit Resources, Inc. Minnesota Specialized Care Services, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- Stop-Loss Life Reinsurance Company Arizona National Benefit Resources, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- Spectera, Inc. Maryland Specialized Care Services, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- Spectera Vision Services of California, Inc. California Spectera, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- Spectera Vision Services of Florida, Inc. Florida Spectera, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- Spectera Insurance Company Maryland Spectera, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- Spectera Eyecare of North Carolina, Inc. North Carolina Spectera, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- Spectera Insurance Company, Inc. Texas Spectera, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- Spectera Vision, Inc. Virginia Spectera, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- Group Vision Associates, Inc. Pennsylvania Spectera, Inc. - --------------------------------------------------------------- ------------------ -------------------------------------------------

=============================================================== ================== ================================================= STATE OF NAME OF ENTITY INCORPORATION SUBSIDIARY OF WHAT ENTITY =============================================================== ================== ================================================= ACN Group, Inc. Minnesota United HealthCare Services, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- Managed Physical Network, Inc. New York ACN Group, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- ACN Group IPA of New York, Inc. New York ACN Group, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- ACN Group of California, Inc. California ACN Group, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- Preferred Chiropractors of California California ACN Group of California, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- Sierra Chiropractic, Inc. California ACN Group of California, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- - --------------------------------------------------------------- ------------------ ------------------------------------------------- Dental Benefit Providers, Inc. Delaware United HealthCare Services, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- Dental Benefit Providers of California, Inc. California Dental Benefit Providers, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- Dental Benefit Providers of Illinois, Inc. Illinois Dental Benefit Providers, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- Dental Benefit Providers of New Jersey, Inc. New Jersey Dental Benefit Providers, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- Dental Insurance Company of America New York Dental Benefit Providers, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- DBP-KAI, Inc. New York Dental Benefit Providers, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- Dental Benefit Providers of Maryland, Inc. Maryland Dental Benefit Providers, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- - --------------------------------------------------------------- ------------------ ------------------------------------------------- United Behavioral Health California United HealthCare Services, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- U.S. Behavioral Health Plan, California California United Behavioral Health - --------------------------------------------------------------- ------------------ ------------------------------------------------- Behavioral Health Administrators California United Behavioral Health - --------------------------------------------------------------- ------------------ ------------------------------------------------- United Behavioral Health of New York, I.P.A., Inc. New York United Behavioral Health - --------------------------------------------------------------- ------------------ ------------------------------------------------- Working Solutions, Inc. Oregon United Behavioral Health - --------------------------------------------------------------- ------------------ ------------------------------------------------- - --------------------------------------------------------------- ------------------ ------------------------------------------------- Unimerica, Inc. Delaware United HealthCare Services, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- United HealthCare Insurance Company Connecticut Unimerica, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- Clarite, LLC Delaware United HealthCare Insurance Company - --------------------------------------------------------------- ------------------ ------------------------------------------------- United HealthCare Insurance Company of Illinois Illinois United HealthCare Insurance Company - --------------------------------------------------------------- ------------------ ------------------------------------------------- United HealthCare Insurance Company of New York New York United HealthCare Insurance Company - --------------------------------------------------------------- ------------------ ------------------------------------------------- United HealthCare Insurance Company of Ohio Ohio United HealthCare Insurance Company - --------------------------------------------------------------- ------------------ ------------------------------------------------- United HealthCare Life Insurance Company of New York New York United HealthCare Insurance Company - --------------------------------------------------------------- ------------------ ------------------------------------------------- United HealthCare Products, LLC Delaware United HealthCare Insurance Company - --------------------------------------------------------------- ------------------ ------------------------------------------------- United HealthCare Service LLC Delaware United HealthCare Insurance Company - --------------------------------------------------------------- ------------------ ------------------------------------------------- United HealthCare Alliance LLC Delaware United HealthCare Insurance Company - --------------------------------------------------------------- ------------------ ------------------------------------------------- - --------------------------------------------------------------- ------------------ ------------------------------------------------- Uniprise, Inc. Delaware United HealthCare Services, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- United HealthCare (Ireland) Limited Ireland Uniprise, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- Charter Oak HealthCare Services, Inc. Delaware Uniprise, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- - --------------------------------------------------------------- ------------------ ------------------------------------------------- Ovations, Inc. Delaware United HealthCare Services, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- EverCare of New York, IPA, Inc. New York Ovations, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- Optage, LLC Delaware Ovations, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- Lifemark Corporation Delaware Ovations, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- Arizona Health Concepts, Inc. Arizona Lifemark Corporation - --------------------------------------------------------------- ------------------ ------------------------------------------------- Evercare at Home, Inc. Arizona Lifemark Corporation - --------------------------------------------------------------- ------------------ ------------------------------------------------- Evercare of Arizona, Inc. Arizona Lifemark Corporation - --------------------------------------------------------------- ------------------ ------------------------------------------------- Evercare Connections, Inc. Delaware Lifemark Corporation - --------------------------------------------------------------- ------------------ ------------------------------------------------- Collaborative Solutions, Inc. Delaware Lifemark Corporation - --------------------------------------------------------------- ------------------ ------------------------------------------------- Lifemark Government Services, LLC Indiana Collaborative Solutions, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- Lifemark New York, Inc. Delaware Lifemark Corporation - --------------------------------------------------------------- ------------------ ------------------------------------------------- Lifemark at Home NY, Inc. New York Lifemark Corporation - --------------------------------------------------------------- ------------------ ------------------------------------------------- MCS HP New York, LLC New York Lifemark Corporation - --------------------------------------------------------------- ------------------ ------------------------------------------------- Evercare of Texas, L.L.C. Texas Lifemark Corporation - --------------------------------------------------------------- ------------------ ------------------------------------------------- Lifemark Healthplans of Delaware, Inc. Delaware Lifemark Corporation - --------------------------------------------------------------- ------------------ ------------------------------------------------- - --------------------------------------------------------------- ------------------ ------------------------------------------------- AmeriChoice Corporation Delaware UnitedHealth Group Incorporated - --------------------------------------------------------------- ------------------ ------------------------------------------------- AmeriChoice Health Services, Inc. Delaware AmeriChoice Corporation - --------------------------------------------------------------- ------------------ ------------------------------------------------- AmeriChoice Alliance, Inc. Nevada AmeriChoice Health Services, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- AmeriChoice of New Jersey, Inc. New Jersey AmeriChoice Corporation - --------------------------------------------------------------- ------------------ ------------------------------------------------- AmeriChoice of New York, Inc. New York AmeriChoice Corporation - --------------------------------------------------------------- ------------------ ------------------------------------------------- AmeriChoice of Pennsylvania, Inc. Pennsylvania AmeriChoice Corporation - --------------------------------------------------------------- ------------------ ------------------------------------------------- Information Network Corporation Arizona AmeriChoice Corporation - --------------------------------------------------------------- ------------------ ------------------------------------------------- Revolution Health Systems, Inc. Pennsylvania Information Network Corporation - --------------------------------------------------------------- ------------------ -------------------------------------------------
Page 2 of 3
=============================================================== ================== ================================================= STATE OF NAME OF ENTITY INCORPORATION SUBSIDIARY OF WHAT ENTITY =============================================================== ================== ================================================= Ingenix, Inc. Delaware UnitedHealth Group Incorporated - --------------------------------------------------------------- ------------------ ------------------------------------------------- Aperture Credentialing Holdings, Inc. Delaware Ingenix, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- Aperture Credentialing, Inc. Delaware Aperture Credentialing Holdings, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- Ingenix Pharmaceutical Services, Inc. Delaware Ingenix, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- Ingenix International (Canada), Inc. Canada Ingenix Pharmaceutical Services, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- Ingenix Services, Inc. Delaware Ingenix Pharmaceutical Services, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- Ingenix Pharmaceutical Services (Deutschland) GmbH Germany Ingenix Pharmaceutical Services, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- Ingenix International (Hong Kong) Limited Hong Kong Ingenix Pharmaceutical Services, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- Ingenix Pharmaceutical Services d.o.o. Croatia Ingenix Pharmaceutical Services, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- Ingenix Pharmaceutical Services Holdings, Inc. Delaware Ingenix Pharmaceutical Services, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- ClinPharm International Limited United Kingdom Ingenix Pharmaceutical Services Holdings, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- Ingenix Pharmaceutical Services (UK) Limited United Kingdom ClinPharm International Limited - --------------------------------------------------------------- ------------------ ------------------------------------------------- Ingenix Pharmaceutical Services (Spain) SL Spain Ingenix Pharmaceutical Services (UK) Limited - --------------------------------------------------------------- ------------------ ------------------------------------------------- Ingenix Pharmaceutical Services (Australia) Pty Ltd Australia Ingenix Pharmaceutical Services (UK) Limited - --------------------------------------------------------------- ------------------ ------------------------------------------------- Ingenix International (Italy) S.r.l. Italy Ingenix Pharmaceutical Services (UK) Limited - --------------------------------------------------------------- ------------------ ------------------------------------------------- Ingenix Pharmaceutical Services (France) SARL France Ingenix Pharmaceutical Services (UK) Limited - --------------------------------------------------------------- ------------------ ------------------------------------------------- CT Management, Inc. California Ingenix Pharmaceutical Services Holdings, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- ICT (UK) Limited United Kingdom Ingenix Pharmaceutical Services Holdings, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- Ingenix International (Netherlands) BV Netherlands Ingenix Pharmaceutical Services Holdings, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- Ingenix Pharmaceutical Services (Sweden) AB Sweden Ingenix Pharmaceutical Services Holdings, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- Ingenix Pharmaceutical Services de Argentina S.R.L. Argentina Ingenix Pharmaceutical Services Holdings, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- Ingenix Pharmaceutical Services, LLC Delaware Ingenix Pharmaceutical Services Holdings, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- Ingenix International (Czech Republic), s.r.o. Czechoslovakia Ingenix Pharmaceutical Services Holdings, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- Worldwide Clinical Trials, SL Spain Ingenix Pharmaceutical Services Holdings, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- Ingenix International (Hungary) Ltd. Hungary Ingenix Pharmaceutical Services Holdings, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- Ingenix Pharmaceutical Services (RSA) Proprietary Limited South Africa Ingenix Pharmaceutical Services Holdings, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- Ingenix International (Finland) Oy Finland Ingenix Pharmaceutical Services Holdings, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- Ingenix International (UK) Limited United Kingdom Ingenix Pharmaceutical Services Holdings, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- Reden & Anders, Ltd. Minnesota Ingenix, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- Subrogation Advantage, Ltd. Minnesota Ingenix, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- GeoAccess, Inc. Kansas Ingenix, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- Ingenix Publishing, Inc. Delaware Ingenix, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- Ingenix Health Intelligence, LLC Delaware Ingenix Publishing, Inc. - --------------------------------------------------------------- ------------------ ------------------------------------------------- - --------------------------------------------------------------- ------------------ ------------------------------------------------- UnitedHealthcare International Asia, LLC Delaware UnitedHealth Group Incorporated - --------------------------------------------------------------- ------------------ ------------------------------------------------- UnitedHealthcare International Malaysia Sdn. Bhd. Malaysia UnitedHealthcare International Asia, LLC - --------------------------------------------------------------- ------------------ ------------------------------------------------- UnitedHealthcare Asia Limited Hong Kong UnitedHealthcare International Asia, LLC - --------------------------------------------------------------- ------------------ ------------------------------------------------- Philam Care Health Systems, Inc. Philippines UnitedHealth Group Incorporated - --------------------------------------------------------------- ------------------ ------------------------------------------------- AIG United HealthCare LLC Delaware UnitedHealth Group Incorporated - --------------------------------------------------------------- ------------------ ------------------------------------------------- AIA United HealthCare Limited Hong Kong AIG United HealthCare LLC - --------------------------------------------------------------- ------------------ ------------------------------------------------- H&W Indemnity, Ltd. Caymans UnitedHealth Group Incorporated - --------------------------------------------------------------- ------------------ ------------------------------------------------- UHC International Holdings, Inc. Delaware UnitedHealth Group Incorporated - --------------------------------------------------------------- ------------------ ------------------------------------------------- UHC International Services, Inc. Delaware UnitedHealth Group Incorporated - --------------------------------------------------------------- ------------------ ------------------------------------------------- UnitedHealthcare International, Inc. Delaware UnitedHealth Group Incorporated - --------------------------------------------------------------- ------------------ ------------------------------------------------- United Healthcare International Mauritius Limited Mauritius UnitedHealth Group Incorporated - --------------------------------------------------------------- ------------------ ------------------------------------------------- United Healthcare India (Private) Limited India United Healthcare International Mauritius Limited - --------------------------------------------------------------- ------------------ ------------------------------------------------- Aspire Global Support Services Private Limited India United Healthcare International Mauritius Limited - --------------------------------------------------------------- ------------------ ------------------------------------------------- UnitedHealth Group Finance Company, Inc. Delaware UnitedHealth Group Incorporated - --------------------------------------------------------------- ------------------ ------------------------------------------------- UnitedHealth Group International, LLC Delaware UnitedHealth Group Finance Company, Inc. - --------------------------------------------------------------- ------------------ -------------------------------------------------
Page 3 of 3 EX-23 12 c74996exv23.txt EX-23 INDEPENDENT AUDITORS' CONSENT EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement File Nos. 33-22310, 33-50282, 33-59083, 33-59623, 33-63885, 33-67918, 33-68300, 33-75846, 333-02525, 333-04875, 333-25923, 333-44613, 333-45289, 333-50461, 333-66013, 333-71007, 333-81337, 333-87243, 333-88506 333-90247, 333-46284, 333-55666 and 333-100027 of UnitedHealth Group Incorporated of our report dated January 23, 2003, relating to the consolidated financial statements of UnitedHealth Group Incorporated and Subsidiaries as of and for the year ended December 31, 2002 (which report expresses an unqualified opinion and includes explanatory paragraphs relating to (i) the adoption of a new accounting principle and (ii) the application of procedures relating to certain other disclosures and reclassifications of financial statement amounts related to the 2001 and 2000 consolidated financial statements that were audited by other auditors who have ceased operations and for which we have expressed no opinion or other form of assurance other than with respect to such disclosures and reclassifications) incorporated by reference in this Annual Report on Form 10-K of UnitedHealth Group, Inc. for the year ended December 31, 2002. /s/ Deloitte & Touche LLP Minneapolis, Minnesota March 19, 2003 EX-24 13 c74996exv24.txt EX-24 POWERS OF ATTORNEY EXHIBIT 24 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints William W. McGuire, M.D., Stephen J. Hemsley, and David J. Lubben, and each of them, his or her true and lawful attorneys-in-fact and agents, each acting alone, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign an Annual Report on Form 10-K for the year ended December 31, 2002 for UnitedHealth Group Incorporated, and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, each acting alone, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: February 11, 2003 /s/ William C. Ballard, Jr. /s/ Mary O'Neil Mundinger - ------------------------------- ------------------------------- William C. Ballard, Jr. Mary O'Neil Mundinger /s/ Richard T. Burke, Sr. /s/ Robert L. Ryan - ------------------------------- ------------------------------- Richard T. Burke, Sr. Robert L. Ryan /s/ Stephen J. Hemsley /s/ Donna E. Shalala - ------------------------------- ------------------------------- Stephen J. Hemsley Donna E. Shalala /s/ James A. Johnson /s/ William G. Spears - ------------------------------- ------------------------------- James A. Johnson William G. Spears /s/ Thomas H. Kean /s/ Gail R. Wilensky - ------------------------------- ------------------------------- Thomas H. Kean Gail R. Wilensky /s/ Douglas W. Leatherdale - ------------------------------- Douglas W. Leatherdale /s/ William W. McGuire, M.D. - ------------------------------- William W. McGuire, M.D. EX-99 14 c74996exv99.txt EX-99 CERTIFICATIONS PURSUANT TO SECTION 906 EXHIBIT 99 CERTIFICATIONS PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Certification of Principal Executive Officer In connection with the Annual Report of UnitedHealth Group Incorporated (the "Company") on Form 10-K for the year ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, William W. McGuire, M.D., Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ William W. McGuire, M.D. ------------------------------------ William W. McGuire, M.D. Chairman and Chief Executive Officer March 19, 2003 Certification of Principal Financial Officer In connection with the Annual Report of UnitedHealth Group Incorporated (the "Company") on Form 10-K for the year ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Patrick J. Erlandson, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Patrick J. Erlandson ------------------------------------ Patrick J. Erlandson Chief Financial Officer March 19, 2003 -----END PRIVACY-ENHANCED MESSAGE-----


Minnesota (State or other jurisdiction of incorporation or organization)		41-1321939 (I.R.S. Employer Identification No.)

UnitedHealth Group Center 9900 Bren Road East Minnetonka, Minnesota (Address of principal executive offices)		55343 (Zip Code)


(Title of each class)		(Name of each exchange on which registered)

Common Stock, $.01 Par Value		New York Stock Exchange, Inc.


TABLE OF CONTENTS
PART I
	Item 1. Business
		INTRODUCTION
		DESCRIPTION OF BUSINESS SEGMENTS
		EXPANSION AND DIVESTITURE OF OPERATIONS
		GOVERNMENT REGULATION
		MARKETING
		COMPETITION
		EMPLOYEES
		CAUTIONARY STATEMENTS
		EXECUTIVE OFFICERS OF THE REGISTRANT
	Item 2. Properties
	Item 3. Legal Proceedings
	Item 4. Submission of Matters to a Vote of Security Holders
PART II
	Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters
	Item 6. Selected Financial Data
	Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation
	Item 7A. Quantitative and Qualitative Disclosures About Market Risk
	Item 8. Financial Statements and Supplementary Data
	Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
PART III
	Item 10. Directors and Executive Officers of the Registrant
	Item 11. Executive Compensation
	Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
	Item 13. Certain Relationships and Related Transactions
	Item 14. Controls and Procedures
PART IV
	Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
SIGNATURES
CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT INDEX
EX-3(d) Second Amended and Restated Bylaws
EX-10(a) 2002 Stock Incentive Plan
EX-10(b) Executive Incentive Plan
EX-10(d) 2002 Directors' Compensation Plan
EX-10(s) Amendments to AARP Health Insurance
EX-10(u) Amendment to Info. Technology Agreement
EX-10(w) Amendment to Pharmacy Benefit Agreement
EX-13 Portions of Annual Report to Shareholders
EX-21 Subsidiaries
EX-23 Independent Auditors' Consent
EX-24 Powers of Attorney
EX-99 Certifications Pursuant to Section 906


		Page

PART I
Item 1.	Business
	Introduction		1
	Description of Business Segments		1
	Expansion and Divestiture of Operations		5
	Government Regulation		5
	Marketing		7
	Competition		7
	Employees		8
	Cautionary Statements		8
	Executive Officers of the Registrant		14
Item 2.	Properties		15
Item 3.	Legal Proceedings		15
Item 4.	Submission of Matters to a Vote of Security Holders		16
PART II
Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters		16
Item 6.	Selected Financial Data		16
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		16
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk		16
Item 8.	Financial Statements and Supplementary Data		17
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		17
PART III
Item 10.	Directors and Executive Officers of the Registrant		17
Item 11.	Executive Compensation		17
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		18
Item 13.	Certain Relationships and Related Transactions		18
Item 14.	Controls and Procedures		18
PART IV
Item 15.	Exhibits, Financial Statement Schedules and Reports on Form 8-K		19
Signatures
Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit Index


3(a)		Articles of Amendment to Second Restated Articles of Incorporation of the Company (incorporated by reference to Exhibit 3(a) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2001)
3(b)		Articles of Merger amending the Articles of Incorporation of the Company (incorporated by reference to Exhibit 3(a) to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999)
3(c)		Second Restated Articles of Incorporation of the Company (incorporated by reference to Exhibit 3(a) to the Company’s Annual Report on Form 10-K for the year ended December 31, 1996)
3(d)		Second Amended and Restated Bylaws of the Company
4(a)		Senior Indenture, dated as of November 15, 1998, between the Company and The Bank of New York (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-3 (SEC File No. 333-44569))
4(b)		Amendment, dated as of November 6, 2000, to Senior Indenture, dated as of November 15, 1998, between the Company and The Bank of New York (incorporated by reference to Exhibit 4.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001)
4(c)		Pursuant to Item 601(b)(4)(iii) of Regulation S-K, copies of instruments defining the rights of certain holders of long-term debt are not filed. The Company agrees to furnish copies thereof to the Securities and Exchange Commission upon request.
*10(a)		UnitedHealth Group Incorporated 2002 Stock Incentive Plan, Amended and Restated Effective May 15, 2002
*10(b)		UnitedHealth Group Incorporated Executive Incentive Plan
*10(c)		UnitedHealth Group Executive Savings Plans (1998 Statement)(incorporated by reference to Exhibit 10(e) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2001)
*10(d)		UnitedHealth Group Directors’ Compensation Deferral Plan (2002 Statement)
*10(e)		Employment Agreement, dated as of October 13, 1999, between United HealthCare Corporation and William W. McGuire, M.D. (incorporated by reference to Exhibit 10(f) to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999)

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				First Elected as
Name	Age		Position	Executive Officer

William W. McGuire, M.D.		54	Chairman, Chief Executive Officer and Director		1988
Stephen J. Hemsley		50	President, Chief Operating Officer and Director		1997
Patrick J. Erlandson		43	Chief Financial Officer		2001
David J. Lubben		51	General Counsel and Secretary		1996
Lois E. Quam		41	Chief Executive Officer, Ovations		1998
Jeannine M. Rivet		54	Executive Vice President and Chief Executive Officer, Ingenix		1998
Robert J. Sheehy		45	Chief Executive Officer, UnitedHealthcare		2001
R. Channing Wheeler		51	Chief Executive Officer, Uniprise		1998


Item 5.	*Market for Registrant’s Common Equity and Related Stockholder Matters*


Item 8.	*Financial Statements and Supplementary Data*


Item 9.	*Changes in and Disagreements with Accountants on Accounting and Financial Disclosure*


Item 10.	*Directors and Executive Officers of the Registrant*


Item 12.	*Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters*


Item 13.	*Certain Relationships and Related Transactions*


Item 15.	*Exhibits, Financial Statement Schedules and Reports on Form 8-K*


*10(f)		Letter to William W. McGuire, M.D., dated as of February 13, 2001, regarding Employment Agreement (incorporated by reference to Exhibit 10(h) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000)
*10(g)		Employment Agreement dated as of October 13, 1999, between United HealthCare Corporation and Stephen J. Hemsley (incorporated by reference to Exhibit 10(g) to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999)
*10(h)		Letter to Stephen J. Hemsley, dated as of February 13, 2001, regarding Employment Agreement (incorporated by reference to Exhibit 10(j) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000)
*10(i)		Employment Agreement, dated as of October 16, 1998, between United HealthCare Services, Inc. and Robert J. Sheehy, as amended (incorporated by reference to Exhibit 10(l) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2001)
*10(j)		Employment Agreement, dated as of October 16, 1998, between United HealthCare Services, Inc. and Lois E. Quam, as amended, and Memorandum of Understanding, effective as of October 11, 1999, between Lois E. Quam and United HealthCare Services, Inc. (incorporated by reference to Exhibit 10(l) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000)
*10(k)		Employment Agreement, dated as of October 1, 1998, between United HealthCare Services, Inc. and Patrick J. Erlandson (incorporated by reference to Exhibit 10(m) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000)
*10(l)		Employment Agreement, dated as of October 16, 1998, between United HealthCare Services, Inc. and Jeannine Rivet (incorporated by reference to Exhibit 10(h) to the Company’s Annual Report on Form 10-K for the year ended December 31, 1998)
*10(m)		Employment Agreement, dated as of May 20, 1998, between United HealthCare Services, Inc. and R. Channing Wheeler (incorporated by reference to Exhibit 10(c) to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1998)
*10(n)		Employment Agreement, dated as of October 16, 1998, between United HealthCare Services, Inc. and David J. Lubben, as amended (incorporated by reference to Exhibit 10(p) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000)
†10(o)		Information Technology Services Agreement between The MetraHealth Companies, Inc. and Integrated Systems Solutions Corporation dated as of November 1, 1995 (incorporated by reference to Exhibit 10(t) to the Company’s Annual Report on Form 10-K for the year ended December 31, 1995)
†10(p)		AARP Health Insurance Agreement by and among American Association of Retired Persons, Trustees of the AARP Insurance Plan and United HealthCare Insurance Company dated as of February 26, 1997 (incorporated by reference to Exhibit 10(p) to the Company’s Annual Report on Form 10-K/A for the year ended December 31, 1996)
†10(q)		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 (incorporated by reference to Exhibit 10(a) to the Company’s Quarterly Report on Form 10-Q for the quarter period ended June 30, 1998)
†10(r)		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 (incorporated by reference to Exhibit 10(b) to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1998)
†10(s)		Amendments 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
†10(t)		Information Technology Services Agreement between United HealthCare Services, Inc. and Unisys Corporation dated June 1, 1996 (incorporated by reference to Exhibit 10 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1998)
†10(u)		Amendments to the Information Technology Services Agreement between United HealthCare Services, Inc. and Unisys Corporation


†10(v)		Pharmacy Benefit Management Agreement between United HealthCare Services, Inc. and Merck Medco Managed Care, L.L.C. dated November 10, 1998 (incorporated by reference to Exhibit 10(v) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000)
†10(w)		Amendments to Pharmacy Benefit Management Agreement between United HealthCare Services, Inc. and Merck Medco Managed Care, LLC
11		Statement regarding computation of per share earnings (incorporated by reference to the information contained under the heading “Net Earnings Per Common Share” in Note 2 to the Notes to Consolidated Financial Statements included in the Company’s Annual Report to Shareholders for the fiscal year ended December 31, 2002 and which is included as part of Exhibit 13 hereto)
13		Portions of the Company’s Annual Report to Shareholders for the fiscal year ended December 31, 2002
16		Letter from Arthur Andersen LLP to the Securities and Exchange Commission dated May 17, 2002 (incorporated by reference to Exhibit 16 to the Company’s Current Report on Form 8-K/A filed on May 17, 2002)
21		Subsidiaries of the Company
23		Independent Auditors’ Consent
24		Powers of Attorney
99		Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
†		Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, confidential portions of these Exhibits have been deleted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.
*		Denotes management contracts and compensation plans in which certain directors and named executive officers participate and which are being filed pursuant to Item 601(b)(10)(iii)(A) of Regulation S-K.


	*UnitedHealthcare*


	*Ovations*


	*AmeriChoice*


Item 2.	*Properties*



Signature	Title	Date


* William W. McGuire, M.D.	Chairman and Chief Executive Officer (principal executive officer)	March 19, 2003

* Patrick J. Erlandson	Chief Financial Officer (principal financial and accounting officer)	March 19, 2003

* William C. Ballard, Jr.	Director	March 19, 2003

* Richard T. Burke	Director	March 19, 2003

* Stephen J. Hemsley	Director	March 19, 2003

* James A. Johnson	Director	March 19, 2003

* Thomas H. Kean	Director	March 19, 2003

* Douglas W. Leatherdale	Director	March 19, 2003

* Mary O. Mundinger	Director	March 19, 2003

* Robert L. Ryan	Director	March 19, 2003


	/s/ PATRICK J. ERLANDSON

	Patrick J. Erlandson
	Chief Financial Officer


Number			Description

	3(a	)	Articles of Amendment to Second Restated Articles of Incorporation of the Company (incorporated by reference to Exhibit 3(a) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2001)
	3(b	)	Articles of Merger amending the Articles of Incorporation of the Company (incorporated by reference to Exhibit 3(a) to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999)
	3(c	)	Second Restated Articles of Incorporation of the Company (incorporated by reference to Exhibit 3(a) to the Company’s Annual Report on Form 10-K for the year ended December 31, 1996)
	3(d	)	Second Amended and Restated Bylaws of the Company
	4(a	)	Senior Indenture, dated as of November 15, 1998, between the Company and The Bank of New York (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-3 (SEC File No. 333-44569))
	4(b	)	Amendment, dated as of November 6, 2000, to Senior Indenture, dated as of November 15, 1998, between the Company and The Bank of New York (incorporated by reference to Exhibit 4.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001)
	4(c	)	Pursuant to Item 601(b)(4)(iii) of Regulation S-K, copies of instruments defining the rights of certain holders of long-term debt are not filed. The Company agrees to furnish copies thereof to the Securities and Exchange Commission upon request.
	*10(a	)	UnitedHealth Group Incorporated 2002 Stock Incentive Plan, Amended and Restated Effective May 15, 2002
	*10(b	)	UnitedHealth Group Incorporated Executive Incentive Plan
	*10(c	)	UnitedHealth Group Executive Savings Plans (1998 Statement)(incorporated by reference to Exhibit 10(e) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2001)
	*10(d	)	UnitedHealth Group Directors’ Compensation Deferral Plan (2002 Statement)
	*10(e	)	Employment Agreement, dated as of October 13, 1999, between United HealthCare Corporation and William W. McGuire, M.D. (incorporated by reference to Exhibit 10(f) to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999)
	*10(f	)	Letter to William W. McGuire, M.D., dated as of February 13, 2001, regarding Employment Agreement (incorporated by reference to Exhibit 10(h) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000)
	*10(g	)	Employment Agreement dated as of October 13, 1999, between United HealthCare Corporation and Stephen J. Hemsley (incorporated by reference to Exhibit 10(g) to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999)
	*10(h	)	Letter to Stephen J. Hemsley, dated as of February 13, 2001, regarding Employment Agreement (incorporated by reference to Exhibit 10(j) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000)
	*10(i	)	Employment Agreement, dated as of October 16, 1998, between United HealthCare Services, Inc. and Robert J. Sheehy, as amended (incorporated by reference to Exhibit 10(l) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2001)
	*10(j	)	Employment Agreement, dated as of October 16, 1998, between United HealthCare Services, Inc. and Lois E. Quam, as amended, and Memorandum of Understanding, effective as of October 11, 1999, between Lois E. Quam and United HealthCare Services, Inc. (incorporated by reference to Exhibit 10(l) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000)
	*10(k	)	Employment Agreement, dated as of October 1, 1998, between United HealthCare Services, Inc. and Patrick J. Erlandson (incorporated by reference to Exhibit 10(m) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000)


Number			Description

	*10(l	)	Employment Agreement, dated as of October 16, 1998, between United HealthCare Services, Inc. and Jeannine Rivet (incorporated by reference to Exhibit 10(h) to the Company’s Annual Report on Form 10-K for the year ended December 31, 1998)
	*10(m	)	Employment Agreement, dated as of May 20, 1998, between United HealthCare Services, Inc. and R. Channing Wheeler (incorporated by reference to Exhibit 10(c) to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1998)
	*10(n	)	Employment Agreement, dated as of October 16, 1998, between United HealthCare Services, Inc. and David J. Lubben, as amended (incorporated by reference to Exhibit 10(p) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000)
	†10(o	)	Information Technology Services Agreement between The MetraHealth Companies, Inc. and Integrated Systems Solutions Corporation dated as of November 1, 1995 (incorporated by reference to Exhibit 10(t) to the Company’s Annual Report on Form 10-K for the year ended December 31, 1995)
	†10(p	)	AARP Health Insurance Agreement by and among American Association of Retired Persons, Trustees of the AARP Insurance Plan and United HealthCare Insurance Company dated as of February 26, 1997 (incorporated by reference to Exhibit 10(p) to the Company’s Annual Report on Form 10-K/A for the year ended December 31, 1996)
	†10(q	)	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 (incorporated by reference to Exhibit 10(a) to the Company’s Quarterly Report on Form 10-Q for the quarter period ended June 30, 1998)
	†10(r	)	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 (incorporated by reference to Exhibit 10(b) to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1998)
	†10(s	)	Amendments 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
	†10(t	)	Information Technology Services Agreement between United HealthCare Services, Inc. and Unisys Corporation dated June 1, 1996 (incorporated by reference to Exhibit 10 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1998)
	†10(u	)	Amendments to the Information Technology Services Agreement between United HealthCare Services, Inc. and Unisys Corporation
	†10(v	)	Pharmacy Benefit Management Agreement between United HealthCare Services, Inc. and Merck Medco Managed Care, L.L.C. dated November 10, 1998 (incorporated by reference to Exhibit 10(v) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000)
	†10(w	)	Amendments to Pharmacy Benefit Management Agreement between United HealthCare Services, Inc. and Merck Medco Managed Care, LLC
	11		Statement regarding computation of per share earnings (incorporated by reference to the information contained under the heading “Net Earnings Per Common Share” in Note 2 to the Notes to Consolidated Financial Statements included in the Company’s Annual Report to Shareholders for the fiscal year ended December 31, 2002 and which is included as part of Exhibit 13 hereto)
	13		Portions of the Company’s Annual Report to Shareholders for the fiscal year ended December 31, 2002
	16		Letter from Arthur Andersen LLP to the Securities and Exchange Commission dated May 17, 2002 (incorporated by reference to Exhibit 16 to the Company’s Current Report on Form 8-K/A filed on May 17, 2002)