-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SD7D0PLr25lt4njcRp1AnpHOdyLYXoedRhOHkVXS9PLq/gXCeZd7nalcH9P0zaeQ pzj1rg01N/n3CSchHET7MA== 0001047469-98-012119.txt : 19980330 0001047469-98-012119.hdr.sgml : 19980330 ACCESSION NUMBER: 0001047469-98-012119 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980327 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED HEALTHCARE CORP CENTRAL INDEX KEY: 0000731766 STANDARD INDUSTRIAL CLASSIFICATION: HOSPITAL & MEDICAL SERVICE PLANS [6324] IRS NUMBER: 411321939 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-10864 FILM NUMBER: 98576627 BUSINESS ADDRESS: STREET 1: 300 OPUS CENTER STREET 2: 9900 BREN ROAD EAST CITY: MINNETONKA STATE: MN ZIP: 55343 BUSINESS PHONE: 6129361300 MAIL ADDRESS: STREET 1: PO BOX 1459 CITY: MINNEAPOLIS STATE: MN ZIP: 55440-1459 10-K405 1 10-K405 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
Commission file number: 1-10864 ------------------------ UNITED HEALTHCARE CORPORATION (Exact name of registrant as specified in its charter) MINNESOTA 41-1321939 (State or other jurisdiction of (I.R.S. Employer Identification incorporation or organization) No.) 300 OPUS CENTER 9900 BREN ROAD EAST MINNETONKA, MINNESOTA (Address of principal executive offices) 55343 (Zip Code)
Registrant's telephone number, including area code: (612) 936-1300 ------------------------ Securities registered pursuant to Section 12(b) of the Act: COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE, INC. (Title of each class) (Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES _X_ NO __ Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of voting stock held by non-affiliates of the registrant as of March 2, 1998, was approximately $8,173,551,317* (based on the last reported sale price of $61.1875 per share on March 2, 1998, on the New York Stock Exchange). As of March 16, 1998, 192,580,947 shares of the registrant's Common Stock, $.01 par value per share, were issued and outstanding. DOCUMENTS INCORPORATED BY REFERENCE Annual Report to Shareholders of Registrant for the fiscal year ended December 31, 1997. Certain information therein is incorporated by reference into Part II hereof. Proxy Statement for the Annual Meeting of Shareholders of Registrant to be held on May 13, 1998. Certain information therein is incorporated by reference into Part III hereof. - ------------------------ *Only shares of common stock held beneficially by directors and executive officers of the Company and persons or entities filing Schedules 13G received by the Company have been excluded in determining this number. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS United HealthCare Corporation is a national leader offering health care coverage and related services to help people achieve improved health and well-being through all stages of life. The Company operates in all 50 states, the District of Columbia, Puerto Rico and internationally. United HealthCare's products and services reflect a number of core capabilities, including medical information management, health benefit administration, care coordination, risk assessment and pricing, health benefit design and provider contracting. With these capabilities, United is able to provide comprehensive health care management services through organized health systems and insurance products, including health maintenance organizations ("HMOs"), point-of-service plans ("POS"), preferred provider organizations ("PPO") and managed indemnity programs. The Company also offers specialized health care management services and products such as behavioral health services, workers compensation and disability services, utilization review services, specialized provider networks, employee assistance programs, and knowledge and information services. United HealthCare Corporation is a Minnesota corporation, incorporated in January 1977. Unless the context otherwise requires, the terms "United," "United HealthCare" or the "Company" refer to United HealthCare Corporation and its subsidiaries. United's executive offices are located at 300 Opus Center, 9900 Bren Road East, Minnetonka, Minnesota 55343; telephone (612) 936-1300. BUSINESS OPERATIONS The Company operates in a single industry, the health and well-being marketplace. In late 1997, the Company announced an internal realignment that established functional business units for each of the Company's six key business lines. These units include Health Plans, Insurance Services, Strategic Business Services, Retirees and Senior Services, Specialized Care Services, and Knowledge and Information. Although the Company's general management and various operational aspects, including information systems and certain administrative functions, remain interrelated, the realignment will allow each business unit to focus fully on its specific set of customers and markets. HEALTH PLANS The Health Plans business unit operates organized health plans nationally and internationally. As of December 31, 1997, United held a majority ownership interest in health plans operating in approximately 40 markets nationwide and in Puerto Rico. The Health Plans business unit is also engaged in a joint venture that operates a health plan in the Republic of South Africa. The Company also provides managed care consulting services in Germany and Hong Kong through this business unit. For health plans it owns, United assumes the risk for health care and administrative costs in return for premium revenue. United's owned health plans usually are licensed as HMOs or insurers. These plans provide comprehensive health care coverage for a fixed fee or premium that usually does not vary with the extent of medical services received by the member. Most of United's owned health plans contract with independent providers of health care services to help manage medical and hospital use, quality and costs. A few owned health plans employ health care providers and directly deliver health care services to members. United's health plans that employ health care providers strive for cost-effective delivery of health care services by emphasizing appropriate use of these services, promoting preventive health services, and encouraging the use of clinically proven treatments and best medical practices. United also provides administrative and other management services to a limited number of health plans in which United has no ownership interest. United receives an administrative fee for providing its services to these plans and generally assumes no responsibility for health care costs. HEALTH PLAN POINT-OF-SERVICE PRODUCTS. United HealthCare's point-of-service products are one of the Company's most popular health plan coverage options. Unlike some traditional HMO products which only 1 cover non-emergency services received from contracted providers, point-of-service products also provide coverage, usually at a lower level, for services received from non-contracted providers. Sometimes, this out-of-network coverage is offered directly by the health plan, but more often it is provided by an insurance policy "wrapped around" the health plan benefit contract. The insurance policy usually is provided through one of United's insurance subsidiaries. HEALTH PLAN SELF-FUNDED PRODUCTS. United has developed self-funded products for employers who want the cost containment aspects of an HMO-type product while self-insuring the health care cost risk. United uses the provider networks it has developed for its HMO or insurance products for its self-funded products, many of which include a point-of-service feature. The provider contracts for these products are with individual physicians or groups of physicians as well as health care facilities and are generally on a standard fee-for-service basis. With self-funded products, employers and other sponsoring groups have access to a provider network and the administrative and care coordination services associated with an HMO product, but the sponsoring company or group generally bears the financial costs associated with the health care. HEALTH PLAN MEDICARE PRODUCTS. Several of United's owned health plans contract with the federal Health Care Financing Administration ("HCFA") to provide coverage for Medicare-eligible individuals. In addition, several more health plans are in the process of seeking such a contract. Under these contracts, plans receive a fixed monthly payment from HCFA for each enrolled individual and must provide at least the benefits that would be covered under traditional Medicare. Typically, the plans provide a significantly higher level of coverage and may, but often do not, charge an additional premium to the members for the additional benefits. The health plans generally use a subset of their commercial product provider network as the provider network for the Medicare products. Any Medicare-eligible person in a plan's service area may enroll in the Medicare product without underwriting or health screening. Some of United's health plans also offer these Medicare products to or through employer groups as a way of providing retiree health care coverage. In addition, certain health plans market Medicare Select, a modification of a Medicare supplemental insurance program that allows individuals to seek care through HMOs or PPOs. Individuals with Medicare Select receive additional benefits at a lower cost while retaining their traditional Medigap-type coverage. HEALTH PLAN MEDICAID PRODUCTS. Several of United's health plans offer coverage to Medicaid-eligible individuals. These plans typically contract with a state agency to provide such coverage and receive a fixed monthly payment for each enrolled individual. The level of benefits generally is set by contract, and few additional benefits are offered. Enrollment usually must be offered to all eligible individuals without underwriting or health screening. Generally, the provider network for commercial products is used, but some providers may refuse to participate in the Medicaid product and the network may have a different number or set of providers for other reasons. INSURANCE SERVICES The Insurance Services business unit develops and sells PPO and managed indemnity products nationwide. United's insurance subsidiaries are licensed to sell their products in all 50 states, the District of Columbia, Puerto Rico, Guam and the Virgin Islands. Through these insurance subsidiaries, United offers Options PPO, a national PPO product. Options PPO combines access to United's commercial health plan networks and certain specialty services with managed indemnity coverage. Individuals covered under the Options PPO product have lower out-of-pocket costs when they obtain covered services from contracted providers, but also have the option to go outside of the network for covered services. For customers with less than 50 employees United typically sells its products on an insured basis for a fixed premium, with no experience adjustments made to the premium. This type of business often has been subject to sudden and unpredictable changes in health care costs and generally has high administrative and 2 marketing expenses. In addition, these products are subject to extensive state regulations. For larger customers, United sells these products on both an insured and self-funded basis. The insured products often are sold on an experience-rated basis, and the self-funded products usually are sold on an administrative fee basis. In some cases, United's agreement with the customer includes penalties or rewards related to administrative service standards and/or health care costs. United's insurance subsidiaries also offer several health insurance products in conjunction with health plan products. These products help employers replace multiple health care policies and vendors with a single health care plan. These subsidiaries also offer reinsurance and other insured products on a selective basis to most of United's health plans and to employers and other sponsoring groups offering self-funded health care benefit plans. Under an agreement with Metropolitan Life Insurance Company ("MetLife"), United offers MetLife's life, dental, accidental death and dismemberment and short-term disability products to United customers, and MetLife offers United's health care coverage products to MetLife customers. This agreement with MetLife also contains certain exclusivity and non-competition provisions. STRATEGIC BUSINESS SERVICES Strategic Business Services focuses on United HealthCare's business with large employers. Its core competencies include sales and account management, benefits administration and customer services, including government-related operations, and care management. Strategic Business Services provides sales and account management services to over 200 customers, approximately 50% of which are Fortune 500 companies. United's network-based medical and insurance products and specialized care services are available to these customers, with various types of funding arrangements. Strategic Business Services specializes in serving the managed health care needs of large multi-site employers, and offers long-term strategic health care coverage planning to its customers. The operations unit of Strategic Business Services provides benefits administration services and customer services to United HealthCare customers in all market segments. Benefits administration services include enrollment, eligibility, claims processing, and billing. Customer services include telephonic information, provider directories and identification card production, and oversight of the government operations and care management centers divisions. The government operations division provides Medicare Part A services for hospitals and nursing homes in Connecticut, New York and Michigan and Medicare Part B services for beneficiaries and providers in Connecticut, Minnesota, Mississippi and Virginia. This division also provides specialized claims processing services for durable medical equipment in 10 northeastern states. This unit serves as the national Medicare Part B carrier for the Railroad Retirement Board. In addition, at the request of the Office of Personnel Management and HCFA, the government operations division contracts with all insurance carriers involved in the administration of the Federal Employee Health Benefit Plan ("FEHBP"). The care management centers division offers customers medical management programs designed to improve patients' clinical outcomes, reduce medical expenses, and increase consumer satisfaction. These services include utilization review, review of hospital-based services, and the administration of high-impact medical programs based upon customer-specific demographic and claims data. RETIREES AND SENIOR SERVICES The Retiree and Senior Services business unit includes the Company's operations that target the market segment comprised of people age 50 and older. These operations include Medigap and Medicare supplement products, United's EverCare-Registered Trademark- program and the Company's United/AARP Division. UNITED/AARP DIVISION. In early 1997, the Company finalized a 10 year agreement with the American Association of Retired Persons ("AARP") to underwrite Medicare and hospital supplement insurance 3 products effective January 1, 1998. During 1997, the Company coordinated the transfer of the operations from AARP's existing vendor and prepared to implement this contract. As of January 1, 1998, the Company's insurance subsidiaries assumed the underwriting risk and claim administration associated with the business. EVERCARE-REGISTERED TRADEMARK-. United's EverCare-Registered Trademark- program coordinates the provision of a broad spectrum of health care services primarily to permanent nursing home residents through employed and contracted physicians and nurse practitioners. EverCare is participating in a demonstration project with HCFA to offer health care services to the elderly nursing home residents in several separate locations throughout the country. SPECIALIZED CARE SERVICES United HealthCare's Specialized Care Services business unit includes several business lines that focus on specific aspects of managing health care. For its specialized care services, United generally receives fees for the services it provides, which are primarily administrative in nature, and assumes no responsibility for health care costs except for certain behavioral health products. United assumes some responsibility for health care costs related to providing mental health/substance abuse services. The Company's specialized care services are sold to and through other United business units as well as to independent entities such as HMOs, PPOs, insurers, Blue Cross/Blue Shield plans, third-party administrators, employers, labor unions and/or government agencies. United's specialized care services were available to approximately 55 million participant lives at December 31, 1997, many of whom were not enrolled in one of United's owned health plans. One person may be covered by more than one specialty service and may be counted more than once. BEHAVIORAL HEALTH SERVICES. United's behavioral health services programs manage mental health and substance abuse-related services through specialized provider networks and behavioral health care managers. This unit's customers include most of United's health plans, private and public sector employers and government agencies. These services are provided by Company-employed behavioral health care professionals and a national network of contracted providers. United assumes the responsibility for health care costs related to some of these services. HEALTH INFORMATION AND PERSONAL CARE MANAGEMENT PROGRAMS. Optum-Registered Trademark-, United's health information and personal care management program, helps consumers make informed choices about their health and well-being by focusing on preventive care, self-care, smart lifestyle options, and consumer education. United's Optum-Registered Trademark- NurseLine and employee assistance programs provide customers the opportunity to improve the quality and reduce the cost of medical care by helping them identify medical and human risks that could affect their health and well-being and develop problem-specific solutions to change behavior and reduce those risks. In addition, Optum-Registered Trademark- issues various publications to members that emphasize health and wellness and explain how to use health care services most effectively. In 1997, Optum-Registered Trademark- introduced Health Forums, a customized health information service available via the Internet. TRANSPLANT NETWORK. United's transplant network services programs offer clients access to a network of health care facilities for transplant-related services and transplant care management services. United negotiates fixed, competitive rates for high-cost, low-frequency health care services such as organ and tissue transplants. WORKERS COMPENSATION AND DISABILITY SERVICES. United's workers compensation and disability services tailor United's broad resources into products and services that apply capabilities such as coordination and use of specialized preferred provider networks, to workers compensation and casualty insurance cases. These products and services include hospitalization and outpatient surgery pre-certification and care management, access to provider networks, specialized programs such as carpal tunnel and back injury case management, and review of imaging (CAT scans and MRI) services. 4 KNOWLEDGE AND INFORMATION United's Knowledge and Information business unit builds upon the Company's heritage of using its large database and expertise to provide knowledge and information services to providers, drug and device manufacturers, the government, payors, employers and other interested organizations. Applied HealthCare Informatics, Inc. ("AHI") was formed in 1996 to combine some of the Company's existing information-related businesses and capabilities. AHI's operations have expanded since then as a result of several acquisitions as well as internal growth. AHI provides products and services to United's health plans and other businesses and to external customers in the following areas: data collection and warehousing; data analysis and reporting; health information publications, database products, outcomes and effectiveness research; health services delivery evaluation and improvement; appropriateness of care programs; and the creation of information management tools. United's Knowledge and Information business unit also includes the Center for Health Care Policy and Evaluation, United's longstanding health care information and research unit; and its Global Consulting division, which explores opportunities to sell the Company's products and services in foreign countries. EXPANSION AND DIVESTITURE OF OPERATIONS United continually evaluates expansion opportunities and often considers whether to divest or stop offering certain of its businesses or products. Expansion opportunities may include acquiring or disposing of a specialized care services program or of insurance and health plan operations. United also devotes significant attention to developing new products and techniques for managing health care costs, measuring the outcomes and efficiency of health care delivered, and coordinating and managing health care delivery systems. As part of its expansion efforts, in 1997 the Company earmarked $100 million from the Company's corporate usable cash reserves to invest in and help develop small but promising ventures. During 1997, the Company completed several acquisitions and also sold or terminated certain lines of business and ceased offering some products, all as part of its ongoing emphasis on its strategic focus. In addition, United has an ongoing extensive acquisition program. Numerous acquisitions may affect United's ability to integrate and manage its overall business effectively. Integration activities relating to acquisitions may increase costs, affect membership, affect revenue and earnings growth and adversely affect United's financial results. GOVERNMENT REGULATION United's primary business, offering health care coverage and health care management services, is heavily regulated at both the federal and state level. United believes it complies in all material respects with the various federal and state regulations that apply to its current operations. To maintain compliance, United or a subsidiary may make occasional changes in its services, products, organizational or capital structure, or marketing methods. Government regulation of health care coverage products and services is a changing area of law that varies from jurisdiction to jurisdiction. Regulatory agencies generally have broad discretion to issue regulations and interpret and enforce laws and rules. Changes in applicable laws and regulations are continually being considered, and the interpretation of existing laws and rules also may change periodically. These regulatory revisions could affect United's operations and financial results. Certain proposed changes in Medicare and Medicaid programs may improve opportunities to enroll people under products developed for the senior populations. Other proposed changes may limit available reimbursement and increase competition in those programs, with adverse effects on United's financial results. Also, it may be more difficult for United to control medical costs if federal and state bodies continue to consider and enact significant and sometimes onerous managed care laws and regulations. Examples of such laws are medical malpractice liability laws for health plans; mandates requiring health plans to offer point-of-service plans 5 and other benefits such as direct access and formulary restrictions; limits on contractual terms with providers, including termination provisions; implementation of a mandatory third party review process for certain coverage denials and other laws and limits on utilization management. HIPPAA. The Health Insurance Portability and Accountability Act of 1996 ("HIPAA") may represent the most significant federal reform of employee benefits law since the enactment of the Employee Retirement Income Security Act ("ERISA") in 1974. HIPAA's federal standards apply to both the group and individual health insurance markets, including self-insured employee benefit plans. Some of HIPAA's significant provisions include guarantees of the availability of health insurance for certain employees and individuals; limits on the use of preexisting condition exclusions; prohibitions against discriminating on the basis of health status; and requirements which make it easier to continue coverage in cases where an employee is terminated or changes employers. While United currently believes that it is in material compliance with the requirements of HIPAA, the law is far reaching and complex, and the federal agencies involved in the enforcement of HIPAA's provisions have been slow to provide guidance regarding HIPAA's requirements in the form of final rules and regulations. Consequently, United's efforts to measure, monitor, and adjust its business practices to comply with HIPAA are ongoing. Further, significant enforcement responsibilities for HIPAA's provisions have been given to the states. It is likely that United will encounter different interpretations of HIPAA's provisions in the different states as well as varying enforcement philosophies which may inhibit United's ability to standardize its products and services across state lines. Ultimately, under HIPAA and other state laws, cost control through provider contracting and coordinating care may become more important, and United believes its experience in these areas will allow it to compete effectively. FRAUD AND ABUSE. Health care fraud and abuse have become a top priority for the nation's law enforcement entities. The funding of such law enforcement efforts has increased dramatically in the past few years and is expected to continue. The focus of these efforts has been directed at participants in federal government health care programs such as Medicare, Medicaid and FEHBP. United participates extensively in these programs. The regulations and contractual requirements applicable to participants in these programs are extremely complex and ever changing. In light of this environment, United has re-emphasized its regulatory compliance efforts for these programs; however, the programs are subject to highly technical rules. When combined with law enforcement intolerance for any level of noncompliance, these rules mean that compliance efforts in this arena continue to be challenging. AUDITS AND INVESTIGATIONS. United also is potentially subject to governmental audits, investigations and enforcement actions. These include possible government actions relating to ERISA, which regulates insured and self-insured health coverage plans offered by employers and United's services to such plans and employers; FEHBP; federal and state fraud and abuse laws; state insurance or licensing laws; and laws relating to utilization management and the delivery of health care. Any such government actions could result in assessment of damages, civil or criminal fines or penalties, or other sanctions, including exclusion from participation in government programs. United is currently involved in various government investigations, audits and reviews, some of which are under FEHBP, ERISA, and the authority of state departments of insurance. United does not believe the results of current audits, individually or in the aggregate, will have a material adverse effect on its financial results. HMOS. All of the states in which United's health plans offer HMO products regulate the activities of those health plans. Most states require periodic financial reports from entities licensed to operate as HMOs in their states and impose minimum capital or reserve requirements. Some of United's health plan and insurance subsidiaries must maintain specified capital levels to support their operations. In addition, state regulatory agencies require some United health plans and insurance subsidiaries to maintain restricted cash reserves represented by interest-bearing instruments, which are held by trustees or state regulatory agencies to ensure that each subsidiary maintains adequate financial reserves. Some state 6 regulations allow agencies to review all contracts entered into by HMOs, including management contracts and agreements between affiliates, for reasonableness of fees charged and other provisions. United's health plans that have Medicare risk contracts are regulated by HCFA. HCFA has the right to audit health plans operating under Medicare risk contracts to determine each health plan's compliance with HCFA's contracts and regulations and the quality of care being given to the health plan's members. To enter into Medicare risk contracts, a health plan must be either federally qualified or considered a Competitive Medical Plan under HCFA's requirements. Health plans that offer a Medicare risk product also must comply with requirements established by peer review organizations ("PROs"), which are organizations under contract with HCFA to monitor the quality of health care Medicare beneficiaries receive. PRO requirements relate to quality assurance and utilization review procedures. United's health plans that have Medicare cost contracts are subject to similar regulatory requirements. In addition, these health plans must file certain cost reimbursement reports with HCFA, which are subject to audit and revision. United's health plans that have Medicaid contracts are subject to federal and state regulation regarding services to be provided to Medicaid enrollees, payment for those services, and other aspects of the Medicaid program. Both Medicare and Medicaid have, or have proposed, regulations relating to fraud and abuse, physician incentive plans, and provider referrals that could affect United's operations. Many of United's health plans have contracts with FEHBP. These contracts are subject to extensive regulation, including complex rules regarding premiums charged. FEHBP is authorized to audit the rates charged retroactively and seek premium refunds or institute other sanctions against health plans that participate in the program, depending on the outcome of such audits. INSURANCE REGULATION. United's insurance subsidiaries and most of the Company's health plans are regulated by the department of insurance or equivalent agency in each state or other jurisdiction in which the entity is licensed. Regulatory authorities have extensive supervisory power regarding: licensing; the amount of reserves that must be maintained; the approval of insurance policy forms; the nature of, and limits on, insurance company investments; periodic examination of insurance company operations; the form and content of annual statements and other required reports on the financial condition of insurance companies; and the capital requirements for insurance companies. United's insurance company subsidiaries must file periodic statutory financial statements in each jurisdiction in which they are licensed. Additionally, these companies are periodically examined by the insurance departments or equivalent agencies of the jurisdictions in which they are licensed to do business. INSURANCE HOLDING COMPANY REGULATIONS. Many of United's health plans and each of United's insurance subsidiaries are regulated under state insurance holding company regulations. Insurance holding company laws and regulations generally require registration with the state department of insurance and the filing of certain reports that describe capital structure, ownership, financial condition, certain intercompany transactions and general business operations. Various notice, reporting and pre-approval requirements generally apply to transactions between companies within an insurance holding company system, depending on the size and nature of the transactions. Some state insurance holding company laws and regulations require prior regulatory approval or, in certain circumstances, prior notice of acquisitions, and certain material intercompany transfers of assets, as well as certain transactions between the regulated companies and their parent holding companies or affiliates. TPAS. Certain subsidiaries of United also are licensed as third-party administrators ("TPAs") where required. TPA regulations differ greatly from state to state, but generally contain certain required administrative procedures, periodic reporting obligations and minimum financial requirements. PPOS. Some United subsidiaries or products may be subject to PPO regulation in a particular state. PPO regulations generally contain network, contracting, financial and reporting requirements, which vary from state to state. 7 UTILIZATION REVIEW REGULATIONS. Many states have enacted laws and/or adopted regulations governing utilization review activities, and these laws may apply to some United operations. Generally, these laws and regulations set specific standards for delivery of services, confidentiality, staffing and policies and procedures of private review entities, including the credentials required of personnel. MCOS. Many states have enacted laws that allow self-insured employers and/or insurance carriers to use a state-certified managed care organization ("MCO") to apply medical management and other managed care techniques to the medical benefit portion of workers' compensation. United's subsidiaries generally have sought MCO certification in states where it is available and where they market managed care workers compensation products. MCO laws differ significantly from state to state, but generally address network and utilization review activities. ERISA. ERISA regulates how goods and services are provided to or through certain types of employee health benefit plans. ERISA is a complex set of laws and regulations that is subject to periodic interpretation by the United States Department of Labor. ERISA places controls on how United's business units may do business with employers covered by ERISA, particularly employers that maintain self-funded plans. The Department of Labor has an ongoing ERISA enforcement program, which may result in additional constraints on how ERISA-governed benefit plans conduct their activities. There recently have been legislative attempts to limit ERISA's preemptive effect on state laws. Such limitations could increase United's liability exposure under state law-based suits relating to employee health benefits offered by United's health plans and specialty businesses and permit greater state regulation of other aspects of those businesses' operations. MANAGEMENT INFORMATION SYSTEMS The Company's health plans, insurance, self-funded and specialty products use computer-based management information systems for various purposes, including claims processing, eligibility, billing, utilization management, underwriting, marketing and sales tracking, general accounting, medical cost trending, managed care reporting and financial planning. These systems also support member, group and provider service functions, including online access to membership verification, claims and referral status, and information regarding hospital admissions and lengths of stay. In addition, these systems support extensive analyses of cost and outcome data. The Company continually evaluates, upgrades and enhances the computer information systems that support its operations. System development efforts to increase efficiency, capacity and flexibility are ongoing and often include the integration and consolidation of multiple systems resulting from acquisition activity. The Company's computer processing capabilities support tracking and processing of multiple-product delivery systems, an integrated database of information for increased reporting and research capabilities, and automated entry and edit capabilities to speed data capture and processing. Over the past several years, the Company has upgraded its computer systems, integrated multiple systems, enhanced its software functionality, and migrated to various software database environments. This approach allows the Company to preserve its investment in existing systems. It also allows the Company to exploit new technologies to help improve the cost effectiveness of the services provided or introduce new product capabilities. The Company has outsourced the operations of a substantial portion of its data center operations and support, and certain data network and voice communication services to third parties. Simplifying and integrating the many different systems now servicing the Company's business is an important component of controlling administrative expenses and effectively managing United's operations. To the extent these integration efforts are not successful, the Company's financial results may be adversely affected. United has an overall project plan for the Company's Year 2000 readiness initiative that is broken into many sub-projects for administrative ease. Sub-projects in the Year 2000 plan will identify hardware and software that are part of the Company's mainframe, non-mainframe, telecommunications, and other 8 related equipment, that need to be replaced, converted or upgraded to achieve Year 2000 compliance. In certain instances, the hardware and/or software replacement will be the responsibility of United HealthCare's outsource providers. The Company's budget for its Year 2000 initiative is currently set at approximately $40.5 million. The Year 2000 effort is resource intensive, and United HealthCare is managing this effort to minimize disruption of current systems development and expansion activities. The Company has prioritized conversions by the importance of the system to United's core business, the applicable event horizon (when the system will encounter problems), and the adequacy of alternatives. As appropriate, the Company will fix, retire, rewrite or replace applications that are not compliant. A significant portion of the Company's existing software will "sunset" or be eliminated prior to the end of 1999. The Company anticipates substantial completion of its Year 2000 initiative by the end of 1998. MARKETING The Company's marketing strategy is defined and coordinated by each functional business unit's dedicated marketing staff. Within these business units, primary marketing responsibility generally resides with a marketing director and a direct sales force. In addition, several of the business units rely upon independent insurance agents and brokers to sell some of the Company's health plan, insurance, self-funded and specialized care products. Marketing efforts also include public relations efforts and advertising programs that may use television, radio, newspapers, magazines, billboards, direct mail and telemarketing. COMPETITION The managed health care industry evolved primarily because of health care buyers' concerns about rising health care costs. The industry has brought greater cost effectiveness and accountability into the health care system through managed care products, including health plans, PPOs, and specialized services such as mental health or pharmacy benefit programs. The industry also has helped increase the accessibility and quality of health care services. United operates in a highly competitive environment. Significant consolidation has occurred within the managed care industry, creating stronger and more diverse competitors. At the same time, new competitors have entered the marketplace, which also may increase competitive pressures. In certain areas, current competition may limit United's ability to price its products at levels United believes appropriate. These competitive factors could adversely affect United's financial results. As managed health care penetration of the health care market and the effects of health care reforms continue to increase nationwide, the Company expects it may become increasingly difficult to obtain new contracts for its health plans with large employer and government groups. The Company also expects competition for smaller employer groups to intensify. In addition, employers increasingly may choose to self-insure the health care risk, while seeking benefit administration and utilization review services from third parties to help them control and report health care costs. The Company's health plans, insurance services, strategic business services, and specialized care services compete for group and individual membership with other health insurance plans, Blue Cross/Blue Shield plans, health plans, HMOs, PPOs, third party administrators, health care management companies, and employers or groups that elect to self-insure. The Company also faces competition from hospitals, health care facilities, and other health care providers who have formed their own networks to contract directly with employer groups and other prospective customers for the delivery of health care services. The number and strength of the Company's competitors varies for each particular business unit and geographic area. The Company believes that the principal competitive factors affecting the Company and its products include price, the level and quality of products and service, provider network capabilities, market share, the 9 offering of innovative products, product distribution systems, efficient administration operations, financial strength and marketplace reputation. The Company currently believes that its competitive strengths include the breadth of its product line, its geographic scope and diversity, the strength of its underwriting and pricing practices and staff, its significant market position in certain geographic areas, the strength of its distribution network, its financial strength, its generally large provider networks that provide more member choice, its point-of-service products and experience, and its generally favorable marketplace reputation. In some markets, however, the Company may be at a disadvantage because of competitors with larger market shares, broader networks, narrower networks (which may allow greater cost control and lower prices) or a more-established marketplace name and reputation. The Company believes its recent operational realignment will allow the individual business units to more effectively compete in their respective markets. EMPLOYEES As of December 31, 1997, the Company employed approximately 29,600 people; approximately 230 of which were represented by a union. The Company believes its employee relations are good. CAUTIONARY STATEMENTS The Business section and other sections of this Form 10-K, and the Management's Discussion and Analysis of Financial Condition and Results of Operation and other sections of the Company's annual report to shareholders incorporated by reference in this document, contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the "PSLRA"). When used in this Form 10-K and in filings by the Company with the Securities and Exchange Commission, in the Company's press releases, presentations to securities analysts or investors, and in oral statements made by or with the approval of an authorized executive officer of the Company, the words or phrases "believes," "anticipates," "intends," "will likely result," "estimates," "projects" or similar expressions are intended to identify such forward-looking statements. Any of these forward-looking statements involve risks and uncertainties that may cause the Company's actual results to differ materially from the results discussed in the forward-looking statements. The following discussion contains certain cautionary statements regarding the Company's business that investors and others should consider. This discussion is intended to take advantage of the "safe harbor" provisions of the PSLRA. In making these cautionary statements, the Company is not committed to addressing or updating each factor in future filings or communications regarding the Company's business or results, or addressing how any of these factors may have caused results to differ from discussions or information contained in previous filings or communications. In addition, any of the matters discussed below may have affected the Company's past, as well as current, forward-looking statements about future results. The Company's actual results in the future may differ materially from those expressed in prior communications. HEALTH CARE COSTS. The Company uses a large portion of its revenue to pay the costs of health care services or supplies delivered to its members. Total health care costs incurred by the Company are affected by the number of individual services rendered and the cost of each service. Much of the Company's premium revenue is priced before services are delivered and the related costs are incurred, usually on a prospective annual basis. Although the Company tries to base the premiums it charges in part on its estimate of future health care costs over the fixed premium period, competition, regulations and other circumstances may limit the Company's ability to fully base premiums on estimated costs. In addition, many factors may, and often do, cause actual health care costs to exceed what was estimated and reflected in premiums. These factors may include increased use of services, increased cost of individual services, catastrophes, epidemics, the introduction of new or costly treatments, general inflation, new mandated benefits or other regulatory changes, and insured population characteristics. In addition, the Company's 10 earnings reported for any particular quarter include estimates of covered services incurred by the Company's enrollees during that period for which claims have not been received or processed. Because these are estimates, the Company's earnings may be adjusted later to reflect the actual costs. In addition, the Company's operating results may be affected by seasonal changes in the level of health care use during the calendar year. Although there are no assurances, per member medical costs generally have been higher in the first half of each year than the second half. INDUSTRY FACTORS. The managed care industry frequently receives significant amounts of negative publicity. This publicity has contributed to increased legislative activity, regulation and review of industry practices. These factors may adversely affect the Company's ability to market its products or services, may require the Company to change its products and services, and may increase the regulatory burdens under which the Company operates, further increasing the costs of doing business and adversely affecting profitability. COMPETITION. In many of its geographic or product markets, the Company competes with a number of other entities, some of which may have certain characteristics or capabilities that give them an advantage in competing with the Company. United believes that barriers to entry in these markets are not substantial, so the addition of new competitors can occur relatively easily. Certain Company customers may decide to perform functions or services provided by United for themselves, which would decrease Company revenues. Certain Company providers may decide to market products and services to Company customers in competition with United. In addition, significant merger and acquisition activity has occurred in the industry in which the Company operates as well as in industries that act as suppliers to the Company, such as the hospital, physician, pharmaceutical and medical device industries. This activity may create stronger competitors or result in higher health care costs. To the extent that there is strong competition or that competition intensifies in any market, the Company's ability to retain or increase customers or providers, or maintain or increase its revenue growth, its pricing flexibility, its control over medical cost trends and its marketing expenses may be adversely affected. AARP CONTRACT. In early 1997, the Company finalized its contract arrangements with the American Association of Retired Persons ("AARP"). Under that long-term contract the Company provides Medicare supplemental and hospital indemnity health insurance products to AARP members. As a result of this agreement, the number of members served by the Company, products offered, and services provided has grown significantly. The success of the AARP arrangement will depend, in part, on the Company's ability to service these new members, develop additional products and services, price the products and services competitively, and respond effectively to federal and state regulatory changes. GOVERNMENT PROGRAMS AND REGULATION. The Company's business is heavily regulated on federal, state and local levels. The laws and rules governing the Company's business and interpretations of those laws and rules are subject to frequent change. Broad latitude is given to the agencies administering those regulations. Existing or future laws and rules could force the Company to change how it does business, restrict the Company's revenue and enrollment growth, increase its health care and administrative costs and capital requirements, and increase its liability for medical malpractice or other actions. The Company must obtain and maintain regulatory approvals to market many of its products and services. Delays in obtaining or failure to obtain or maintain these approvals could adversely affect the Company's revenue or the number of its members, or could increase costs. A significant portion of the Company's revenues relates to federal, state and local government health care coverage programs. These types of programs, such as the federal Medicare program and the federal and state Medicaid programs, generally are subject to frequent change, including changes that reduce the number of persons enrolled or eligible, reduce the amount of reimbursement or payment levels, or may reduce or increase the Company's administrative or health care costs under such programs. Such changes have adversely affected the Company's results and willingness to participate in such programs in the past and may also do so in the future. 11 The Company also is subject to various governmental reviews, audits and investigations. Such oversight could result in the loss of licensure or the right to participate in certain programs, or the imposition of fines, penalties and other sanctions. In addition, disclosure of any adverse investigation or audit results or sanctions could damage the Company's reputation in various markets and make it more difficult for the Company to sell its products and services. The National Association of Insurance Commissioners (the "NAIC") has proposed rules that will require certain capitalization levels for health care coverage provided by insurance companies, HMOs and other risk-bearing health care entities. The requirements would take the form of risk-based capital rules. Currently, similar risk-based capital rules apply only to insurance companies. Depending on the nature and extent of any new minimum capitalization requirements ultimately adopted, there could be an increase in the capital required for certain of the Company's subsidiaries, and there may be some potential for disparate treatment of competing products. If the NAIC fails to act, some form of federal solvency regulation of companies providing Medicare-related benefit programs may be issued. PROVIDER RELATIONS. One of the significant techniques the Company uses to manage health care costs and utilization and monitor the quality of care being delivered is contracting with physicians, hospitals and other providers. Because the Company's health plans are so geographically diverse and most of those health plans contract with a large number of providers, the Company currently believes its exposure to provider relations issues is limited. In any particular market, however, providers could refuse to contract, demand higher payments, or take other actions that could result in higher health care costs, less desirable products for customers and members, or difficulty meeting regulatory or accreditation requirements. In some markets, certain providers, particularly hospitals, physician/hospital organizations or multi-specialty physician groups, may have significant market positions or near monopolies. In addition, physician or practice management companies, which aggregate physician practices for administrative efficiency and marketing leverage, continue to expand. These providers may compete directly with the Company. If these providers refuse to contract with the Company, use their market position to negotiate favorable contracts, or place the Company at a competitive disadvantage, those activities could adversely affect the Company's ability to market products or to be profitable in those areas. LITIGATION AND INSURANCE. The Company may be a party to a variety of legal actions that affect any business, such as employment and employment discrimination-related suits, employee benefit claims, breach of contract actions, tort claims, and shareholder suits, including securities fraud and intellectual property related litigation. In addition, because of the nature of its business, the Company is subject to a variety of legal actions relating to its business operations. These could include: claims relating to the denial of health care benefits; medical malpractice actions; provider disputes over compensation and termination of provider contracts; disputes related to self-funded business, including actions alleging claim administration errors and the failure to disclose network rate discounts and other fee and rebate arrangements; disputes over copayment calculations; and claims relating to customer audits and contract performance. Recent court decisions and legislative activity may increase the Company's exposure for any of these types of claims. In some cases, substantial noneconomic or punitive damages may be sought. The Company currently has insurance coverage for some of these potential liabilities. Other potential liabilities may not be covered by insurance, insurers may dispute coverage, or the amount of insurance may not cover the damages awarded. In addition, certain types of damages, such as punitive damages, may not be covered by insurance, and insurance coverage for all or certain forms of liability may become unavailable or prohibitively expensive in the future. INFORMATION SYSTEMS. The Company's business depends significantly on effective information systems, and the Company has many different information systems for its various businesses. The Company's information systems require an ongoing commitment of resources to maintain and enhance existing systems and develop new systems in order to keep pace with continuing changes in information processing technology, evolving industry standards, and changing customer preferences. As a result of the Company's acquisition activities, the Company is reducing the number of systems and upgrading and expanding its 12 information systems capabilities. Failure to maintain effective and efficient information systems could cause loss of existing customers, difficulty in attracting new customers, customer and provider disputes, regulatory problems, increases in administrative expenses or other adverse consequences. In addition, the Company may from time to time obtain significant portions of its systems-related or other services or facilities from independent third parties, which may make the Company's operations vulnerable to such third parties' failure to perform adequately. THE YEAR 2000. The Company is in the process of modifying its computer systems to accommodate the Year 2000. The Company currently expects to complete this modification enough in advance of the Year 2000 to avoid adverse impacts on its operations. The Company is expensing the costs incurred to make these modifications. If the Company is unable to complete its Year 2000 modifications in a timely manner or other companies with which the Company does business fail to complete their Year 2000 modifications in a timely manner, such non-compliance could adversely affect the Company's operations. ADMINISTRATION AND MANAGEMENT. Efficient and cost-effective administration of the Company's operations is essential to the Company's profitability and competitive positioning. While the Company attempts to effectively manage such expenses, staff-related and other administrative expenses may rise from time to time due to business or product start-ups or expansions, growth or changes in business, acquisitions, regulatory requirements or other reasons. These expense increases are not clearly predictable and may adversely affect results. The Company believes it currently has an experienced, capable management and technical staff. The market for management and technical personnel, including information systems professionals, in the health care industry is very competitive. Loss of certain managers or a number of such managers could adversely affect the Company's ability to administer and manage its business. MARKETING. The Company markets its products and services through both employed salespeople and independent sales agents. Although the Company has many sales employees and agents, the departure of certain key sales employees or agents or a large subset of such individuals could impair the Company's ability to retain existing customers and members. In addition, certain of the Company's customers or potential customers consider rating, accreditation or certification of the Company by various private or governmental bodies or rating agencies necessary or important. Certain of the Company's health plans or other business units may not have obtained or may not desire or be able to obtain or maintain such accreditation or certification, which could adversely affect the Company's ability to obtain or retain business with these customers. ACQUISITIONS. The Company has made several large acquisitions in recent years and has an active ongoing acquisition program. These acquisitions may entail certain risks and uncertainties and may affect ongoing business operations because of unknown liabilities, unforeseen administrative needs or increased efforts to integrate the acquired operations. Failure to identify liabilities, anticipate additional administrative needs or effectively integrate acquired operations could result in reduced revenues, increased administrative and other costs, or customer confusion or dissatisfaction. DATA AND PROPRIETARY INFORMATION. Many of the products that are part of United HealthCare's knowledge and information-related business depend significantly on the integrity of the data on which they are based. If the information contained in the Company's databases were found or perceived to be inaccurate, or if such information were generally perceived to be unreliable, commercial acceptance of the Company's database-related products would be adversely and materially affected. Furthermore, the use by United HealthCare's knowledge and information-related business of patient data is regulated at federal, state and local levels. These laws and rules are changed frequently by legislation or administrative interpretation. These restrictions could adversely affect revenues from these products and, more generally, affect United HealthCare's business, financial condition and results of operations. The success of United HealthCare's knowledge and information-related business also depends significantly on its ability to maintain proprietary rights to its products. United relies on its agreements 13 with customers, confidentiality agreements with employees, trade secrets, copyrights and patents to protect its proprietary rights. United cannot assure that these legal protections and precautions will prevent misappropriation of United HealthCare's proprietary information. In addition, substantial litigation regarding intellectual property rights exists in the software industry, and United HealthCare expects software products to be increasingly subject to third-party infringement claims as the number of products and competitors in this industry segment grows. Such litigation could have an adverse effect on the ability of United HealthCare's knowledge and information-related business to market and sell its products and on United's business, financial condition and results of operations. STOCK MARKET. The market prices of the securities of the Company and certain of the publicly held companies in the industry in which the Company operates have shown volatility and sensitivity in response to many factors, including general market trends, public communications regarding managed care, legislative or regulatory actions, health care cost trends, pricing trends, competition, earnings or membership reports of particular industry participants, and acquisition activity. United HealthCare cannot assure the level or stability of the Company's share price at any time or predict the impact the foregoing or any other factors may have on the share price. 14 EXECUTIVE OFFICERS OF THE REGISTRANT
FIRST ELECTED AS NAME AGE POSITION AT 12/31/97 EXECUTIVE OFFICER - --------------------------------- --- ------------------------------------------------------ ----------------- William W. McGuire, M.D.......... 49 President, Chairman, Chief Executive Officer and 1988 Director Stephen J. Hemsley............... 45 Senior Executive Vice President 1997 James G. Carlson................. 45 President, Health Plans 1995 David P. Koppe................... 41 Chief Financial Officer 1992 David J. Lubben.................. 46 General Counsel and Secretary 1996 Thomas P. McDonough.............. 49 Chief Executive Officer, Strategic Business Services 1997 Travers H. Wills................. 54 Chief Operating Officer 1992
The Company's Board of Directors elects executive officers annually. The Company's executive officers serve until their successors are duly elected and qualified. Dr. McGuire became a director of the Company in February 1989 and the chairman of the board in May 1991. Dr. McGuire became an executive vice president of United in November 1988, was appointed the Company's chief operating officer in May 1989, the Company's president in November 1989, and the Company's chief executive officer in February 1991. Mr. Carlson became an executive vice president of United in October 1995 and President of the Company's Health Plans business unit in November 1997. From March to October 1995, Mr. Carlson was executive vice president of The MetraHealth Companies, Inc. ("MetraHealth"). Mr. Carlson was president and chief executive officer of HealthSpring, Inc., a developer of primary care physician practices, from July 1992 to March 1995. From April 1975 to July 1992, Mr. Carlson was an employee of Prudential Insurance Company. Mr. Carlson's last position with Prudential Insurance Company was vice president of Group Insurance. Mr. Hemsley joined the Company as a senior executive vice president in June 1997. Mr. Hemsley previously was managing partner, strategy and planning, for Arthur Andersen LLP. He was a member of the Andersen Worldwide and Arthur Andersen Executive Committee and Executive Council, the Chairman's Advisory Council and Partner Income Committee. In addition, Mr. Hemsley served as chief financial officer for Arthur Andersen. He had been with that firm for 23 years. Mr. Koppe became the Company's chief financial officer in December 1994. He has been employed by the Company since June 1983 and served as the Company's vice president and treasurer from May 1989 to January 1996. Mr. Koppe also served as the Company's controller from May 1989 until October 1994. Mr. Lubben became the Company's general counsel and secretary in October 1996. Prior to joining United, he was a partner in the law firm of Dorsey & Whitney LLP. Mr. Lubben first became associated with Dorsey & Whitney in 1977. Mr. McDonough became an executive vice president of the Company in February 1997 and the chief executive officer of the Strategic Business Services business unit in November 1997. From October 1995 through February 1997, he was the Company's senior vice president, Claim Services. From August 1995 to October 1995, he was employed by MetraHealth as senior vice president, Claim Services. From July 1993 through July 1995, he was the president of Harrington Services Corporation, and from February 1988 to July 1993, he was the chief operating officer of Jardine Group Services Corporation. Mr. McDonough has resigned from the Company effective April 1, 1998. 15 Mr. Wills has been employed by the Company since November 1992. From November 1992 until October 1995, he served as United's senior vice president, Specialty Operations. He has served as the Company's chief operating officer since October 1995, as a senior executive vice president since June 1997, and the chief executive officer of the Company's Health Plans business unit since November 1997. From 1968 to 1992, Mr. Wills was employed by CIGNA Corporation, a multi-line insurance company, in various capacities, most recently as president of MCC Companies, a mental health/substance abuse subsidiary of CIGNA. 16 ITEM 2. PROPERTIES As of December 31, 1997, the Company leased approximately 1.2 million aggregate square feet of space for its principal administrative offices in Hartford, Connecticut and the greater Minneapolis/St. Paul, Minnesota area. Outside of the Minneapolis/St. Paul, Minnesota and Hartford, Connecticut areas, as of December 31, 1997, the Company leased approximately 5.6 million aggregate square feet for office space or space for computer facilities and claims processing centers nationwide and approximately 15,000 aggregate square feet outside of the United States. Such space accommodates health plans, managed care services, specialty programs or satellite administrative offices. The Company's leases expire at various dates through January 31, 2008. As of December 31, 1997, the Company owned approximately 670,000 aggregate square feet of space for administrative offices in various states and its staff model clinic operations in Florida. ITEM 3. LEGAL PROCEEDINGS Because of the nature of its business, United is subject to suits relating to the failure to provide or pay for health care or other benefits, poor outcomes for care delivered or arranged under United's programs, nonacceptance or termination of providers, failure to return withheld amounts from provider compensation, failure of a self-funded plan serviced by United to pay benefits, improper copayment calculations and other forms of legal actions. Some of these suits may include claims for substantial non-economic or punitive damages. United does not believe that any such actions, or any other types of actions, currently threatened or pending will, individually or in the aggregate, have a material adverse effect on United's financial position or results of operations. However, the likelihood or outcome of current or future suits cannot be accurately predicted, and they could adversely affect United's financial results. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information contained under the heading "Investor Information" in the Company's Annual Report to Shareholders for the fiscal year ended December 31, 1997, is incorporated herein by reference. ITEM. 6. SELECTED FINANCIAL DATA The information contained under the heading "Financial Highlights" in the Company's Annual Report to Shareholders for the fiscal year ended December 31, 1997, is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION The information contained under the heading "Financial Review" in the Company's Annual Report to Shareholders for the fiscal year ended December 31, 1997, is incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Of the $4.0 billion of cash and investments held by the Company at December 31, 1997, approximately $750 million were cash and cash equivalents and $65 million were securities that were being held to maturity. The remaining $3.2 billion available for sale (non-trading) securities represent investment grade, fixed income securities, substantially all from domestic issuers. 17 Because of the Company's investment policies, the primary market risk associated with the Company's non-trading portfolio is interest rate risk. With respect to this risk, a reasonably possible near-term rise in interest rates could negatively affect the fair value of the Company's non-trading portfolio; however, because the Company considers it unlikely that the Company would need or choose to substantially liquidate its non-trading portfolio, the Company believes that such an increase in interest rates would not have a material impact on future earnings or cash flows. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Company's consolidated financial statements together with the Report of Independent Public Accountants thereon appearing on pages 20 through 34 of the Company's Annual Report to Shareholders for the fiscal year ended December 31, 1997, are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information included under the headings "Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held May 13, 1998, is incorporated herein by reference. Pursuant to General Instruction G(3) to Form 10-K and Instruction 3 to Item 401(b) of Regulation S-K, information regarding executive officers of the Company is provided in Part I of this Form 10-K under separate caption. ITEM 11. EXECUTIVE COMPENSATION The information included under the heading "Executive Compensation" in the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held May 13, 1998, is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information included under the heading "Security Ownership of Certain Beneficial Owners and Management" in the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held May 13, 1998, is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information regarding certain relationships and related transactions that appears under the heading "Certain Relationships and Transactions" in the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held May 13, 1998, is incorporated herein by reference. 18 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. FINANCIAL STATEMENTS The following consolidated financial statements of the Company are included in the Company's Annual Report to Shareholders for the fiscal year ended December 31, 1997 and are incorporated herein by reference: Consolidated Statements of Operations for the three years ended December 31, 1997. Consolidated Balance Sheets as of December 31, 1997 and 1996. Consolidated Statements of Changes in Shareholders' Equity as of December 31, 1997, 1996, 1995 and 1994. Consolidated Statements of Cash Flows for the Three Years Ended December 31, 1997. Notes to Consolidated Financial Statements. Report of Independent Public Accountants. (a) 2. FINANCIAL STATEMENT SCHEDULES None (a) 3. EXHIBITS 3(a) Copy of the Company's Second Restated Articles of Incorporation. (Incorporated by reference to Exhibit 3(a) to the Company's Annual Report on Form 10-K for the year ended December 31, 1996.) 3(b) Copy of the Company's Restated Bylaws, as amended. 4 Certificate of Designation for 5.75% Series A Convertible Preferred Stock. (See Exhibit 3(a).) *10(a) Employment Agreement dated as of January 6, 1996, between United HealthCare Corporation and William W. McGuire, M.D. (Incorporated by reference to Exhibit 10(b) to the Company's Annual Report on Form 10-K for the year ended December 31, 1995.) *10(b) United HealthCare Corporation 1987 Supplemental Stock Option Plan. (Incorporated by reference to Exhibit 10(d) to the Company's Annual Report on Form 10-K for the year ended December 31, 1993.) *10(c) United HealthCare Corporation 1988 Stock Option Plan, as amended. (Incorporated by reference to Exhibit 10(e) to the Company's Annual Report on Form 10-K for the year ended December 31, 1992.) *10(d) United HealthCare Corporation 1990 Stock and Incentive Plan, as amended. (Incorporated by reference to Exhibit 10(f) to the Company's Annual Report on Form 10-K for the year ended December 31, 1992.) *10(e) United HealthCare Corporation Amended and Restated 1991 Stock and Incentive Plan, Amended and Restated Effective May 14, 1997. (Incorporated by reference to Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997.) *10(f) Employment Agreement, dated as of November 1, 1994, between United HealthCare Corporation and Jeannine Rivet. (Incorporated by reference to Exhibit 10(k) to the Company's Annual Report on Form 10-K for the year-ended December 31, 1994.)
19 *10(g) Restated Employment Agreement dated as of May 27, 1994, between United HealthCare Corporation and Travers H. Wills. (Incorporated by reference to Exhibit 99.1 to the Company's Interim Report on Form 8-K dated May 27, 1994.) *10(h) Employment Agreement dated as of December 18, 1997, between United HealthCare Corporation and Travers H. Wills. *10(i) Employment Agreement dated as of November 1, 1994, between United HealthCare Corporation and Michael Mooney. (Incorporated by reference to Exhibit 10(m) to the Company's Annual Report on Form 10-K for the year ended December 31, 1996.) *10(j) Employment Agreement dated as of December 1, 1994, between United HealthCare Corporation and David P. Koppe. (Incorporated be reference to Exhibit 10(q) to the Company's Annual Report on Form 10-K for the year ended December 31, 1994.) *10(k) Employment Agreement dated as of November 1, 1994, between United HealthCare Corporation and Sheila T. Leatherman. (Incorporated by reference to Exhibit 10(r) to the Company's Annual Report on Form 10-K for the year ended December 31, 1994.) *10(l) Employment Agreement dated as of November 1, 1994, between United HealthCare Corporation and James Conto. (Incorporated by reference to Exhibit 10(s) to the Company's Annual Report on Form 10-K for the year ended December 31, 1994.) *10(m) Employment Agreement effective as of October 2, 1995 between United HealthCare Corporation and James G. Carlson. (Incorporated by reference to Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995.) *10(n) Employment Agreement effective as of October 2, 1995, between United HealthCare Corporation and David A. George. (Incorporated by reference to Exhibit 10(n) to the Company's Annual Report on Form 10-K for the year ended December 31, 1996.) +10(o) Information Technology Services Agreement between The MetraHealth Companies, Inc. and Integrated Systems Solutions Corporation dated as of November 1, 1995. (Incorporated by reference to Exhibit 10(t) to the Company's Annual Report on Form 10-K for the year ended December 31, 1995.) +10(p) AARP Health Insurance Agreement by and among American Association of Retired Persons, Trustees of the AARP Insurance Plan and United HealthCare Insurance Company dated as of February 26, 1997. (Incorporated by reference to Exhibit 10(p) to the Company's Annual Report on Form 10-K/A for the period ended December 31, 1996.) *10(q) United HealthCare Corporation Non-employee Director Stock Option Plan. (Incorporated by reference to Exhibit 10(x) to the Company's Annual Report on Form 10-K for the year ended December 31, 1994.) *10(r) Letter Agreement between The MetraHealth Companies, Inc. and Kennett L. Simmons dated as of October 2, 1995. (Incorporated by reference to Exhibit 10(w) to the Company's Annual Report on Form 10-K for the year ended December 31, 1995.) *10(s) Consulting Agreement between The MetraHealth Companies, Inc. and Kennett L. Simmons dated as of October 2, 1995. (Incorporated by reference to Exhibit 10(x) to the Company's Annual Report on Form 10-K for the year ended December 31, 1995.) *10(t) United HealthCare Corporation 1997 Long-Term Incentive Plan. (Incorporated by reference to Exhibit 10(c) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997.) *10(u) United HealthCare Corporation 1997 Management Incentive Program.
20 *10(v) United HealthCare Corporation 1997 Executive Savings Plan. 11 Statement regarding computation of per share earnings. (See Exhibit 13.) 13 Information contained under the headings "Investor Information," "Financial Highlights," "Financial Review" and the Company's Consolidated Financial Statements together with the Report of Independent Public Accountants thereon, for the fiscal year ended December 31, 1997, as required by Rule 601(b) (13) (ii). (E.D.G.A.R. version only) 21 Subsidiaries of the Registrant. 23 Consent of Independent Public Accountants. 24 Powers of Attorney. 27 Financial Data Schedule. (E.D.G.A.R. version only)
- ------------------------ + Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, confidential portions of these Exhibits have been deleted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment. * Denotes management contracts and compensation plans in which certain directors and named executive officers participate and which are being filed pursuant to Item 601(b)(10)(iii)(A) of Regulation S-K. (b) REPORTS ON FORM 8-K No reports on Form 8-K were filed during the quarter ended December 31, 1997. (c) See Exhibits listed in Item 14 hereof and the Exhibits attached as a separate section of this Report. 21 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: March 20, 1998
UNITED HEALTHCARE CORPORATION By: /s/ WILLIAM W. MCGUIRE, M.D. ------------------------------ William W. McGuire, M.D. 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.
SIGNATURE TITLE DATE - ------------------------------------ ------------------------------ -------------- /s/ WILLIAM W. MCGUIRE, M.D. Director, Chief Executive March 20, 1998 ------------------------------ Officer (principal executive William W. McGuire, M.D. officer) /s/ DAVID P. KOPPE Chief Financial Officer March 20, 1998 ------------------------------ (principal financial and David P. Koppe accounting officer) * Director March 20, 1998 ------------------------------ William C. Ballard, Jr. * Director March 20, 1998 ------------------------------ Richard T. Burke * Director March 20, 1998 ------------------------------ James A. Johnson * Director March 20, 1998 ------------------------------ Thomas H. Kean * Director March 20, 1998 ------------------------------ Douglas W. Leatherdale * Director March 20, 1998 ------------------------------ Walter F. Mondale * Director March 20, 1998 ------------------------------ Mary O. Mundinger
22
SIGNATURE TITLE DATE - ------------------------------------ ------------------------------ -------------- * Director March 20, 1998 ------------------------------ Robert L. Ryan * Director March 20, 1998 ------------------------------ William G. Spears * Director March 20, 1998 ------------------------------ Kennett L. Simmons * Director March 20, 1998 ------------------------------ Gail R. Wilensky *By /s/ WILLIAM W. MCGUIRE, M.D. March 20, 1998 ------------------------------ William W. McGuire, M.D. AS ATTORNEY-IN-FACT
23 EXHIBITS INDEX
Copy of the Company's Second Restated Articles of Incorporation. (Incorporated by reference to Exhibit 3(a) to the Company's Annual Report on Form 10-K for the year ended December 31, 1996.). ........................................ 3(a) Copy of the Company's Restated Bylaws, as amended. ........................... 3(b) Certificate of Designation for 5.75% Series A Convertible Preferred Stock (See Exhibit 3(a).). ............................................................ 4 Employment Agreement dated as of January 6, 1996, between United HealthCare Corporation and William W. McGuire, M.D. (Incorporated by reference to Exhibit 10(b) to the Company's Annual Report on Form 10-K for the year ended December 31, 1995.). ....................................................... 10(a) United HealthCare Corporation 1987 Supplemental Stock Option Plan. (Incorporated by reference to Exhibit 10(d) to the Company's Annual Report on Form 10-K for the year ended December 31, 1993.). ....................... 10(b) United HealthCare Corporation 1988 Stock Option Plan, as amended. (Incorporated by reference to Exhibit 10(e) to the Company's Annual Report on Form 10-K for the year ended December 31, 1992.). ....................... 10(c) United HealthCare Corporation 1990 Stock and Incentive Plan, as amended. (Incorporated by reference to Exhibit 10(f) to the Company's Annual Report on Form 10-K for the year ended December 31, 1992.). ....................... 10(d) United HealthCare Corporation Amended and Restated 1991 Stock and Incentive Plan, Amended and Restated Effective May 14, 1997. (Incorporated by reference to Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997.). ..................................... 10(e) Employment Agreement, dated as of November 1, 1994, between United HealthCare Corporation and Jeannine Rivet. (Incorporated by reference to Exhibit 10(k) to the Company's Annual Report on Form 10-K for the year-ended December 31, 1994.). .................................................................... 10(f) Restated Employment Agreement dated as of May 27, 1994, between United HealthCare Corporation and Travers H. Wills. (Incorporated by reference to Exhibit 99.1 to the Company's Interim Report on Form 8-K dated May 27, 1994.)...................................................................... 10(g) Employment Agreement dated as of December 18, 1997, between United HealthCare Corporation and Travers H. Wills. .......................................... 10(h) Employment Agreement dated as of November 1, 1994, between United HealthCare Corporation and Michael Mooney. (Incorporated by reference to Exhibit 10(m) to the Company's Annual Report on Form 10-K for the year ended December 31, 1996.). .................................................................... 10(i) Employment Agreement dated as of December 1, 1994, between United HealthCare Corporation and David P. Koppe. (Incorporated by reference to Exhibit 10(q) to the Company's Annual Report on Form 10-K for the year ended December 31, 1994.). .................................................................... 10(j) Employment Agreement dated as of November 1, 1994, between United HealthCare Corporation and Sheila T. Leatherman. (Incorporated by reference to Exhibit 10(r) to the Company's Annual Report on Form 10-K for the year ended December 31, 1994.). .................................................................... 10(k) Employment Agreement dated as of November 1, 1994, between United HealthCare Corporation and James Conto. (Incorporated by reference to Exhibit 10(s) to the Company's Annual Report on Form 10-K for the year ended December 31, 1994.). .................................................................... 10(l)
24 Employment Agreement effective as of October 2, 1995 between United HealthCare Corporation and James G. Carlson. (Incorporated by reference to Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995.). .................................................................... 10(m) Employment Agreement effective as of October 2, 1995, between United HealthCare Corporation and David A. George. (Incorporated by reference to Exhibit 10(n) to the Company's Annual Report on Form 10-K for the year ended December 31, 1996.). ....................................................... 10(n) Information Technology Services Agreement between The MetraHealth Companies, Inc. and Integrated Systems Solutions Corporation dated as of November 1, 1995. (Incorporated by reference to Exhibit 10(t) to the Company's Annual Report on Form 10-K for the year ended December 31, 1995.). ................ 10(o) AARP Health Insurance Agreement by and among American Association of Retired Persons, Trustees of the AARP Insurance Plan and United HealthCare Insurance Company dated as of February 26, 1997. (Incorporated by reference to Exhibit 10(p) to the Company's Annual Report on Form 10-K/A for the period ended December 31, 1996.). ....................................................... 10(p) United HealthCare Corporation Non-employee Director Stock Option Plan. (Incorporated by reference to Exhibit 10(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997.). ................. 10(q) Letter Agreement between The MetraHealth Companies, Inc. and Kennett L. Simmons dated as of October 2, 1995. (Incorporated by reference to Exhibit 10(w) to the Company's Annual Report on Form 10-K for the year ended December 31, 1995.). ....................................................... 10(r) Consulting Agreement between The MetraHealth Companies, Inc. and Kennett L. Simmons dated as of October 2, 1995. (Incorporated by reference to Exhibit 10(x) to the Company's Annual Report on Form 10-K for the year ended December 31, 1995.). ....................................................... 10(s) United HealthCare Corporation 1997 Long-Term Incentive Plan. (Incorporated by reference to Exhibit 10(c) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997.). ..................................... 10(t) United HealthCare Corporation 1997 Management Incentive Program. ............. 10(u) United HealthCare Corporation 1997 Executive Savings Plan. ................... 10(v) Statement regarding computation of per share earnings (see Exhibit 13). ...... 11 Information contained under the headings Investor Information, Financial Highlights, Financial Review and the Company's Consolidated Financial Statements together with the Report of Independent Public Accountants thereon, for the fiscal year ended December 31, 1996, as required by Rule 601(b) (13) (ii). (E.D.G.A.R. version only)................................. 13 Subsidiaries of the Registrant................................................ 21 Consent of Independent Public Accountants..................................... 23 Powers of Attorney............................................................ 24 Financial Data Schedule. (E.D.G.A.R. version only)............................ 27
25 EX-3.(B) 2 EXHIBIT 3(B) AS MOST RECENTLY AMENDED AUGUST 7, 1991 AMENDED AND RESTATED BYLAWS OF UNITED HEALTHCARE CORPORATION ARTICLE I OFFICES, CORPORATE SEAL Section 1.01. REGISTERED OFFICE. The registered office of the corporation in Minnesota shall be that set forth in the Restated Articles of Incorporation or in the most recent amendment of the Articles of Incorporation or resolution of the directors filed with the Secretary of State of Minnesota changing the registered office. Section 1.02. OTHER OFFICES. The corporation may have such other offices, within or without the State of Minnesota, as the directors shall, from time to time, determine. Section 1.03. CORPORATE SEAL. The corporation shall have no seal. ARTICLE II MEETING OF SHAREHOLDERS Section 2.01. PLACE AND TIME OF MEETINGS. Except as provided otherwise by Minnesota Statutes, Chapter 302A, meetings of the shareholders may be held at any place, within or without the State of Minnesota, as may from time to time be designated by the directors and, in the absence of such designation, shall be held at the registered office of the corporation in the State of Minnesota. The directors shall designate the time of day for each meeting and, in the absence of such designation, every meeting of shareholders shall be held at ten o'clock a.m. Section 2.02. REGULAR MEETINGS. (a) A regular meeting of the shareholders shall be held on such date as the Board of Directors shall by resolution establish. (b) At a regular meeting of the shareholders, voting as provided in the Articles of Incorporation and these Bylaws, shall elect qualified successors for directors who serve for an indefinite term or whose terms have expired or are due to expire within six months after the date of the meeting and shall transact such other business as may properly come before them. Section 2.03. SPECIAL MEETINGS. Special meetings of the shareholders may be held at any time and for any purpose and may be called by the Chief Executive Officer, the Chairman of the Board, the Chief Financial Officer, any two directors, or by a shareholder or shareholders holding ten percent (10%) or more of the shares entitled to vote on the matters to be presented to the meeting, except that a special meeting of shareholders called for the purpose of considering any action to directly or indirectly facilitate or effect a business combination (as defined by Minnesota Law), including any action to change or otherwise affect the composition of the Board of Directors for that purpose, may not be called by less than twenty-five percent (25%) of the shares entitled to vote on the matters to be presented at the meeting. Section 2.04. QUORUM, ADJOURNED MEETINGS. The holder of a majority of the shares entitled to vote shall constitute a quorum for the transaction of business at any regular or special meeting. In case a quorum shall not be present at a meeting, those present may adjourn the meeting to such day as they shall, by majority vote, agree upon, and a notice of such adjournment and the date and time at which such meeting shall be reconvened shall be mailed to each shareholder entitled to vote at least 5 days before such adjourned meeting. If a quorum is present, a meeting may be adjourned from time to time without notice other than announcement at the meeting. At adjourned meetings at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally noticed. If a quorum is present, the shareholders may continue to transact business until adjournment notwithstanding the withdrawal of enough shareholders to leave less than a quorum. Section 2.05. VOTING. At each meeting of the shareholders every shareholder having the right to vote shall be entitled to vote either in person or by proxy. Each shareholder, unless the Articles of Incorporation or statute provide otherwise, shall have one vote for each share having voting power registered in such shareholder's name on the books of the corporation. Jointly owned shares may be voted by any joint owner unless the corporation receives written notice from any one of them denying the authority of that person to vote those shares. Upon the demand of any shareholder, the vote upon any question before the meeting shall be by ballot. All questions shall be decided by a majority vote of the number of shares entitled to vote and represented at the meeting at the time of the vote except if otherwise required by statute, the Articles of Incorporation, or these Bylaws. Section 2.06. CLOSING OF BOOKS. The Board of Directors may fix a time, not exceeding 60 days preceding the date of any meeting of shareholders, as a record date for the determination of the shareholders entitled to notice of, and to vote at, such meeting, notwithstanding any transfer of shares on the books of the 2 corporation after any record date so fixed. The Board of Directors may close the books of the corporation against the transfer of shares during the whole or any part of such period. If the Board of Directors fails to fix a record date for determination of the shareholders entitled to notice of, and to vote at, any meeting of shareholders, the record date shall be the 20th day preceding the date of such meeting. Section 2.07. NOTICE OF MEETINGS. There shall be mailed to each shareholder, shown by the books of the corporation to be a holder of record of voting shares, at his address as shown by the books of the corporation, a notice setting out the time and place of each regular meeting and each special meeting, except where the meeting is an adjourned meeting and the date, time and place of the meeting were announced at the time of adjournment, which notice shall be mailed at least five days prior thereto; except that notice of a meeting at which an agreement of merger or exchange is to be considered shall be mailed to all shareholders of record, whether entitled to vote or not, at least fourteen days prior thereto. Every notice of any special meeting called pursuant to Section 2.03 hereof shall state the purpose or purposes for which the meeting has been called, and the business transacted at all special meetings shall be confined to the purpose stated in the notice. Section 2.08. WAIVER OF NOTICE. Notice of any regular or special meeting may be waived by any shareholder either before, at or after such meeting orally or in a writing signed by such shareholder or a representative entitled to vote the shares of such shareholder. A shareholder, by his attendance at any meeting of shareholders, shall be deemed to have waived notice of such meeting, except where the shareholder objects at the beginning of the meeting to the transaction of business because the item may not lawfully be considered at that meeting and does not participate in the consideration of the item at that meeting. Section 2.09. WRITTEN ACTION. Any action which might be taken at a meeting of the shareholders may be taken without a meeting if done in writing and signed by all of the shareholders entitled to vote on that action. Section 2.10. BUSINESS TO BE BROUGHT BEFORE THE MEETING. A shareholder must provide notice of any proposal to be submitted at an annual meeting to be delivered to the Secretary of the Company not less than 60 days nor more than 90 days prior to the date of an annual meeting, unless notice or public disclosure of the date of the meeting occurs less than 70 days prior to the date of the meeting, in which event shareholders must deliver such notice not later than the tenth day following the earlier of the day on which notice of the annual meeting was mailed or public disclosure of the meeting date was made. 3 ARTICLE III DIRECTORS Section 3.01. GENERAL POWERS. The business and affairs of the corporation shall be managed by or under the direction of the Board of Directors, except as otherwise permitted by statute. Section 3.02. NUMBER, ELECTION AND TERM OF OFFICE. (a) The Board of Directors shall consist of one or more members, and the number of Directors may be increased or decreased from time to time by resolution of a majority of the entire Board of Directors or the holders of at least 66 2/3% of the capital stock of the corporation entitled to vote, considered for this purpose as one class. As used herein, "entire Board of Directors" means the total number of directors which this corporation would have if there were no vacancies. Except as otherwise provided by law or by these bylaws, the directors of the corporation shall be elected at the Annual Meeting of Stockholders in each year. Each of the directors shall hold office until the expiration of his term, as specified herein, and until such director's successor shall have been elected and shall qualify, or until the earlier death, resignation, removal, or disqualification of such director. (b) The Board of Directors of this corporation shall be divided into three classes, Class I, Class II, and Class III, as nearly equal in number as possible, with the term of office of Class I expiring at the Annual Meeting of Stockholders of this corporation in 1984, of Class II expiring at the Annual Meeting of Stockholders in 1985 and of Class III expiring at the Annual Meeting of Stockholders in 1986. At each Annual Meeting of Stockholders, directors chosen to succeed those whose term is then expired, shall be elected for a term of office expiring at the third succeeding Annual Meeting of Stockholders after their election. In the case of any increase or decrease in the number of directors, the increase or decrease shall be distributed among the several classes as nearly equal as possible, as shall be determined by the affirmative vote of a majority of the whole Board or by the holders of at least 66 2/3% of the capital stock of the corporation entitled to vote, considered as one class. Section 3.03. NOMINATION OF DIRECTOR CANDIDATES. Nomination of candidates for election to the Board of Directors of the corporation at any annual meeting of the shareholders may be made only by or at the direction of the Board of Directors or by a shareholder entitled to vote at such annual meeting. All such 4 nominations, except those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the secretary of the corporation. to be timely, any such notice must be received at the principal executive offices of the corporation not less than sixty days prior to the date of such annual meeting and must set forth (i) the name, age, business address, residence address and the principal occupation or employment of each nominee proposed in such notice; (ii) the name and address of the shareholder giving the notice as the same appears in the corporation's stock register; (iii) the number of shares of capital stock of the corporation which are beneficially owned by each such nominee and by such shareholder; and (iv) such other information concerning each such nominee as would be required soliciting proxies for the election of such nominee. Such notice must also include a signed consent of each such nominee to serve as a director of the corporation, if elected. If the officer of the corporation presiding at an annual meeting of the shareholders determines that a director nomination was not made in accordance with the foregoing procedures, such nomination shall be void and shall be disregarded for all purposes. Section 3.04. DETERMINATION OF CONTESTED ELECTIONS. In the event that there are more candidates for election to the Board of Directors at a meeting of the shareholders than there are directors to be elected at such meeting (a "Contested Election"), the vote for election of directors shall be by ballot and the officer of the corporation presiding at the meeting shall appoint two persons, who need not be shareholders, to act as Inspectors of Election at such meeting. The Inspectors so appointed, before entering on the discharge of their duties, shall take and subscribe on oath or affirmation faithfully to execute the duties of Inspectors at such meeting with strict impartiality and according to the best of their ability, and thereupon the Inspectors shall take charge of the polls and after the balloting shall canvas the votes and determine in accordance with law and make a certificate to the corporation of the results of the vote taken. No director or candidate for the office of director shall be appointed an Inspector. The nominees for election to the Board of Directors in a Contested Election who are certified by the Inspectors as having been elected shall be deemed to be duly elected and qualified upon the expiration of three business days following the date of such certification; provided that, in the event any court proceedings are commenced which challenge the results of such Contested Election, such nominees shall not be deemed to be duly elected and qualified until all such court proceedings, including appeals, shall have been finally concluded. 5 Section 3.05. CHAIRMAN OF THE BOARD. The Board of Directors may elect from their number, a Chairman of the Board, who shall not be deemed an officer of the Corporation as a result of such title. The Chairman of the Board, if one is elected, shall preside at all meetings of the directors and shall have such other duties as may be prescribed, from time to time, by the Board of Directors. Section 3.06. BOARD MEETINGS. Meetings of the Board of Directors may be held from time to time at such time and place within or without the State of Minnesota as may be designated in the notice of such meeting. Section 3.07. CALLING MEETINGS; NOTICE. Meetings of the Board of Directors may be called by the Chairman of the Board by giving at least twenty-four hours' notice, or by any other director by giving at least five days' notice, of the date, time and place thereof to each director by mail, telephone, telegram or in person. Section 3.08. WAIVER OF NOTICE. Notice of any meeting of the Board of Directors may be waived by any director either before, at, or after such meeting orally or in a writing signed by such director. A director, by his attendance at any meeting of the Board of Directors, shall be deemed to have waived notice of such meeting, except where the director objects at the beginning of the meeting to the transaction of business because the meeting is not lawfully called or convened and does not participate thereafter in the meeting. Section 3.09. QUORUM. A majority of the directors holding office immediately prior to a meeting of the Board of Directors shall constitute a quorum for the transaction of business at such meeting. Section 3.10. ABSENT DIRECTORS. A director may give advance written consent or opposition to a proposal to be acted on at a meeting of the Board of Directors. If such director is not present at the meeting, consent or opposition to a proposal does not constitute presence for purposes of determining the existence of a quorum, but consent or opposition shall be counted as a vote in favor of or against the proposal and shall be entered in the minutes or other record of action at the meeting, if the proposal acted on at the meeting is substantially the same or has substantially the same effect as the proposal to which the director has consented or objected. Section 3.11. CONFERENCE COMMUNICATIONS. Any or all directors may participate in any meeting of the Board of Directors, or of any duly constituted committee thereof, by any means of communication through which the directors may simultaneously hear each other during such meeting. For the purposes of establishing a quorum and taking any action at the meeting, such directors participating pursuant to this Section 3.10 shall be deemed present in person at 6 the meeting, and the place of the meeting shall be the place or origination of the conference communication. Section 3.12. VACANCIES; NEWLY CREATED DIRECTORSHIPS. Vacancies in the Board of Directors of this corporation occurring by reason of death, resignation, removal or disqualification shall be filled for the unexpired term by a majority of the remaining directors of the Board although less than a quorum; newly created directorships resulting from an increase in the authorized number of directors by action of the Board of Directors as permitted by Section 3.02 may be filled by a two-thirds vote of the directors serving at the time of such increase. Section 3.13. REMOVAL. Any or all of the directors may be removed from office at any time, with or without cause, by the affirmative vote of the shareholders holding 66 2/3 percent of the shares entitled to vote at an election of directors or the affirmative vote of 67 percent of the directors in office at the time such vote is taken. In the event that the entire Board or any one or more directors be so removed, new directors shall be elected at the same meeting. Section 3.14. COMMITTEES. A resolution approved by the affirmative vote of a majority of the Board of Directors may establish committees having the authority of the board in the management of the business of the corporation to the extent provided in the resolution. A committee shall consist of one or more persons, who need not be directors, appointed by affirmative vote of a majority of the directors present. Committees are subject to the direction and control of, and vacancies in the membership thereof shall be filled by, the Board of Directors, except as provided by Minnesota Statutes, Section 302A.243. A majority of the members of the committee present at a meeting is a quorum for the transaction of business, unless a larger or smaller proportion or number is provided in a resolution approved by the affirmative vote of a majority of the directors present. Section 3.15. WRITTEN ACTION. Any action which might be taken at a meeting of the Board of Directors, or any duly constituted committee thereof, may be taken without a meeting if done in writing and signed by all of the directors or committee members, unless the Articles provide otherwise and the action need not be approved by the shareholders. Section 3.16. COMPENSATION. Directors who are not salaried officers of this corporation shall receive such fixed sum per meeting attended or such fixed annual sum as shall be determined, from time to time, by resolution of the Board of Directors. The Board of Directors may, by resolution, provide that all directors shall receive their expenses, if any, of attendance at meetings of the Board of Directors or any committee thereof. Nothing herein 7 contained shall be construed to preclude any director from serving this corporation in any other capacity and receiving proper compensation therefor. ARTICLE IV OFFICERS Section 4.01. NUMBER AND DESIGNATION. The corporation shall have one or more natural persons exercising the functions of the offices of Chief Executive Officer and Chief Financial Officer. The Board of Directors may elect or appoint such other officers or agents as it deems necessary for the operation and management of the corporation, with such powers, rights, duties, and responsibilities as may be determined by the Board of Directors, including, without limitation, a President, one or more Vice Presidents, a Secretary, a Treasurer, and such assistant officers or other officers as may from time to time be elected or appointed by the Board of Directors. Each such officer shall have the powers, rights, duties and responsibilities set forth in these Bylaws unless otherwise determined by the Board of Directors. Any number of offices may be held by the same person. Section 4.02. CHIEF EXECUTIVE OFFICER. Unless provided otherwise by a resolution adopted by the Board of Directors, the Chief Executive Officer: (a) shall have general active management of the business of the corporation; (b) shall, when present, preside at all meetings of the stockholders; (c) shall see that all orders and resolutions of the Board of Directors are carried into effect; (d) shall sign and deliver in the name of the corporation any deeds, mortgages, bonds, contracts or other instruments pertaining to the business of the corporation, except in cases in which the authority to sign and deliver is required by law to be exercised by another person or is expressly delegated by these Bylaws or the Board of Directors to some other officer or agent of the corporation; and (e) shall perform such other duties as from time to time may be assigned by the Board of Directors. Section 4.03. CHIEF FINANCIAL OFFICER. Unless provided otherwise by a resolution adopted by the Board of Directors, the Chief Financial Officer: (a) shall cause to be kept accurate financial records for the corporation; (b) shall cause to be deposited all monies, drafts, and checks in the name of and to the credit of the corporation in such banks and depositories as the Board of Directors shall designate from time to time; (c) shall cause to be endorsed for deposit all notes, checks and drafts received by the corporation as ordered by the Board of Directors, making proper vouchers therefor; (d) shall cause to be disbursed corporate funds and shall cause to be issued checks and drafts in the name of the corporation, as ordered by the Board of Directors; (e) shall render to the Chief Executive Officer and the Board of Directors, whenever requested, an account of all the transactions as Chief Financial Officer and of the financial condition of the corporation; and (f) 8 shall perform such other duties as may be prescribed by the Board of Directors or the Chief Executive Officer from time to time. Section 4.04. PRESIDENT. Unless otherwise determined by the Board of Directors, the President shall be the Chief Executive Officer of the corporation. If an officer other than the President is designated Chief Executive Officer, the President shall perform such duties as may from time to time be assigned by the Board of Directors. Section 4.05. VICE PRESIDENT. Each Vice President shall perform such duties as may be prescribed from time to time by these Bylaws or by the Board of Directors. Section 4.06. SECRETARY. Unless provided otherwise by a resolution adopted by the Board of Directors, the Secretary: (a) shall attend all meetings of the stockholders and Board of Directors, and shall record all the proceedings of such meetings in the minute book of the corporation; (b) shall give proper notice of meetings of stockholders and Board of Directors and other notices required by law or these Bylaws; and (c) shall perform such other duties as from time to time may be assigned by the Board of Directors. Section 4.07. TREASURER. The Treasurer shall perform such duties as may from time to time be assigned by the Chief Financial Officer or by the Board of Directors. Section 4.08. AUTHORITY AND DUTIES. In addition to the foregoing authority and duties, all officers of the corporation shall respectively have such authority and perform such duties in the management of the business of the corporation as may be determined from time to time by the Board of Directors. Unless prohibited by a resolution of the Board of Directors, an officer elected or appointed by the Board of Directors may, without specific approval of the Board of Directors, delegate some or all of the duties and powers of an office to other persons. Section 4.09. REMOVAL AND VACANCIES. The Board of Directors may remove any officer from office at any time, with or without cause, by a resolution approved by the affirmative vote of a majority of the directors present. Such removal, however, shall be without prejudice to the contract rights of the person so removed. A vacancy in an office of the corporation by reason of death, resignation, removal, disqualification, or otherwise may, or in the case of a vacancy in the office of the Chief Executive Officer or Chief Financial Officer shall, be filled for the unexpired term by the Board of Directors. Section 4.10. COMPENSATION. The officers of this corporation shall receive such compensation for their services as may be determined by or in accordance with resolutions of the Board of 9 Directors or by one or more committees to the extent so authorized from time to time by the Board of Directors. ARTICLE V SHARES AND THEIR TRANSFER Section 5.01. CERTIFICATES FOR SHARES. All shares of the corporation shall be certificated shares. Every owner of shares of the corporation shall be entitled to a certificate, to be in such form as shall be prescribed by the Board of Directors, certifying the number of shares of the corporation owned by such shareholder. The certificates for such shares shall be numbered in the order in which they shall be issued and shall be signed, in the name of the corporation, by the Chief Executive Officer or the President and by the Secretary or an Assistant Secretary or by such officers as the Board of Directors may designate. If the certificate is signed by a transfer agent or registrar, such signatures of the corporate officers may be by facsimile if authorized by the Board of Directors. A certificate representing shares of this corporation shall contain on its face the information required by Minnesota Statutes, Section 302A.417, Subd. 4. A certificate representing shares issued by this corporation, if it is authorized to issue shares of more than one class or series, shall set forth upon the face or back of the certificate, or shall state that the corporation will furnish to any shareholder upon request and without charge, a full statement of the designations, preferences, limitations, and relative rights of the shares of each class or series authorized to be issued so far as they have been determined, and the authority of the Board of Directors to determine relative rights and preferences of subsequent classes or series. Every certificate surrendered to the corporation for exchange or transfer shall be canceled, and no new certificate or certificates shall be issued in exchange for any existing certificate until such existing certificate shall have been so canceled, except in cases provided for in Section 5.04. Section 5.02. ISSUANCE OF SHARES. The Board of Directors is authorized to cause to be issued shares of the corporation up to the full amount authorized by the Articles of Incorporation in such amounts as may be determined by the Board of Directors and as may be permitted by law. No shares shall be allotted except in consideration of cash or other property, tangible or intangible, received or to be received by the corporation under a written agreement, of services rendered or to be rendered to the corporation under a written agreement, or of an amount transferred from surplus to stated capital upon a share dividend. At the time of such allotment of shares, the Board of Directors making such allotments shall state, by resolution, their determination of the fair value to the corporation in monetary terms of any consideration other than cash for which shares are allotted. 10 Section 5.03. TRANSFER OF SHARES. Transfer of shares on the books of the corporation may be authorized only by the shareholder named in the certificate, or the shareholder's legal representative, or the shareholder's duly authorized attorney-in-fact, and upon surrender of the certificate or the certificates for such shares. The corporation may treat as the absolute owner of shares of the corporation, the person or persons in whose name shares are registered on the books of the corporation. The Board of Directors may appoint one or more transfer agents and registrars to maintain the share records of the corporation and to effect share transfers on its behalf. Section 5.04. LOSS OF CERTIFICATES. Except as otherwise provided by Minnesota Statutes, Section 302A.419, any shareholder claiming a certificate for shares to be lost, stolen or destroyed shall make an affidavit of that fact in such form as the Board of Directors shall require and shall, if the Board of Directors so requires, give the corporation a bond of indemnity in form, in an amount, and with one or more sureties satisfactory to the Board of Directors, to indemnify the corporation against any claim which may be made against it on account of the reissue of such certificate, whereupon a new certificate may be issued in the same tenor and for the same number of shares as the one alleged to have been lost, stolen or destroyed. ARTICLE VI DIVIDENDS, RECORD DATE Section 6.01. DIVIDENDS. Subject to the provisions of the Articles of Incorporation, of these Bylaws, and of law, the Board of Directors may declare dividends whenever, and in such amounts as, in its opinion, are deemed advisable. Section 6.02. RECORD DATE. Subject to any provisions of the Articles of Incorporation, the Board of Directors may fix a date not exceeding 120 days preceding the date fixed for the payment of any dividend as the record date for the determination of the shareholders entitled to receive payment of the dividend and, in such case, only shareholders of record on the date so fixed shall be entitled to receive payment of such dividend notwithstanding any transfer of shares on the books of the corporation after the record date. If no record date is fixed, the record date shall be at the close of business on the day on which the Board of Directors adopts the resolution authorizing the payment of such dividend. ARTICLE VII BOOKS AND RECORDS, FISCAL YEAR Section 7.01 SHARE REGISTER. The Board of Directors of the corporation shall cause to be kept at its principal executive office, or at another place or places within the United States determined by the board: 11 (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. 12 ARTICLE VIII LOANS, GUARANTEES, SURETYSHIP Section 8.01. The corporation may lend money to, guarantee an obligation of, become a surety for, or otherwise financially assist a person if the transaction, or a class of transactions to which the transaction belongs, is approved by the affirmative vote of a majority of the directors present and: (1) is in the usual and regular course of business of the corporation; (2) is with, or for the benefit of, a related corporation, an organization in which the corporation has a financial interest, an organization with which the corporation has a business relationship, or an organization to which the corporation has the power to make donations; (3) is with, or for the benefit of, an officer or other employee of the corporation or a subsidiary, including an officer or employee who is a director of the corporation or a subsidiary, and may reasonably be expected, in the judgment of the board, to benefit the corporation; or (4) has been approved by the affirmative vote of the holders of two-thirds of the outstanding shares. The loan, guarantee, surety contract or other financial assistance may be with or without interest, and may be unsecured, or may be secured in the manner as a majority of the directors approve, including, without limitation, a pledge of or other security interest in shares of the corporation. Nothing in this section shall be deemed to deny, limit, or restrict the powers of guaranty or warranty of the corporation at common law or under a statute of the State of Minnesota. ARTICLE IX INDEMNIFICATION OF CERTAIN PERSONS Section 9.01. The corporation shall indemnify such persons, for such expenses and liabilities, in such manner, under such circumstances, and to such extent as permitted by Minnesota Statutes, Section 302A.521, as now enacted or hereafter amended. ARTICLE X AMENDMENTS Section 10.01. These Bylaws may be amended or altered by a vote of the majority of the whole Board of Directors at any meeting provided that notice of such proposed amendment shall have been given in the notice given to the directors of such meeting. Such 13 authority in the Board of Directors is subject to the power of the shareholders to change or repeal such Bylaws by a majority vote of the shareholders present or represented at any regular or special meeting of shareholders called for such purpose, and the Board of Directors shall not make or alter any Bylaws fixing a quorum for meetings of shareholders, prescribing procedures for removing directors or filling vacancies in the Board of Directors, or fixing the number of directors or their classifications, qualifications, or terms of office, except that the Board of Directors may adopt or amend any Bylaw to increase their number. ARTICLE XI SECURITIES OF OTHER CORPORATIONS Section 11.01. VOTING SECURITIES HELD BY THE CORPORATION. Unless otherwise ordered by the Board of Directors, the Chief Executive Officer shall have full power and authority on behalf of the corporation (a) to attend any meeting of security holders of other corporations in which the corporation may hold securities and to vote such securities on behalf of this corporation; (b) to execute any proxy for such meeting on behalf of the corporation; or (c) to execute a written action in lieu of a meeting of such other corporation on behalf of this corporation. At such meeting, the Chief Executive officer shall possess and may exercise any and all rights and powers incident to the ownership of such securities that the corporation possesses. The Board of Directors or the Chief Executive Officer may, from time to time, grant such power and authority to one or more other persons. Section 11.02. PURCHASE AND SALE OF SECURITIES. Unless otherwise ordered by the Board of Directors, the Chief Executive Officer shall have full power and authority on behalf of the corporation to purchase, sell, transfer or encumber any and all securities of any other corporation owned by the corporation, and may execute and deliver such documents as may be necessary to effectuate such purchase, sale, transfer or encumbrance. The Board of Directors or the Chief Executive Officer may, from time to time, confer like powers upon any other person or persons. ARTICLE XII CERTAIN BUSINESS COMBINATIONS WITH INTERESTED SHAREHOLDERS Section 12.01. Pursuant to the authority provided by Section 302A.673, Subd. 3(b)(2), of the Minnesota Business Corporation Act, this corporation elects not to be subject to Section 302A.673 of said Act. 14 EX-10.(H) 3 EXHIBIT 10(H) EMPLOYMENT AGREEMENT This Agreement is made by and between Travers H. Wills ("Executive") and United HealthCare Corporation, ("United HealthCare") for the purpose of setting forth certain terms and conditions of Executive's employment by United HealthCare and to protect United HealthCare's knowledge, expertise, customer relationships and the confidential information United HealthCare has developed about its customers, products, operations and services. As of the Effective Date, this Agreement supersedes any prior employment-related agreement or agreements between Executive and United HealthCare or any subsidiary or affiliate of United HealthCare. 1. EMPLOYMENT AND DUTIES. A. EMPLOYMENT. United HealthCare hereby directly or through its subsidiaries employs Executive. Executive accepts such employment on the terms and conditions set forth in this Agreement and, except as specifically superseded by this Agreement, subject to all of United HealthCare's policies and procedures in regard to its employees. B. DUTIES. Executive shall serve in a senior management capacity, reporting directly to United HealthCare's Chief Executive Officer and shall have such responsibilities as are appropriate for a company's most senior executive officers and as are established by United HealthCare's Chief Executive Officer. As part of his duties initially, Executive shall serve as the head of the health plans division of United HealthCare and, as such, shall perform such duties as are commonly associated with such position or as are reasonably assigned to Executive by the Chief Executive Officer from time to time. Executive's responsibilities as head of the health plan division shall include oversight of the health plan operations and leadership development. Executive shall also participate in any Senior Executive Management Committee that United HealthCare has from time to time. Executive agrees to devote substantially all of his business time and energy to the performance of his duties in a diligent and proper manner. C. RESIDENCE. Notwithstanding Section 1B, United HealthCare acknowledges that Executive has advised United HealthCare that Executive is, and intends to remain, a resident of the State of Florida. As such, Executive will work out of Florida, devoting such time in Minnesota as his position reasonably necessitates. United HealthCare agrees that such residence and arrangement, of itself, is not inconsistent with Executive's performance of his obligations under Section 1B. 2. COMPENSATION. A. BASE SALARY. Executive shall initially be paid a base annual salary in the amount of $525,000 payable bi-weekly, less all applicable withholdings and deductions. Executive shall receive a periodic performance review from his supervisor and consideration for an increase of such base salary. B. BONUS AND STOCK PLANS. Executive shall be eligible to participate in United HealthCare's incentive compensation plans and its stock option and grant plans, in accordance with the terms and conditions of those plans and applicable laws and regulations. C. EMPLOYEE BENEFITS. The Executive shall be eligible to participate in United HealthCare's other employee benefit plans, including without limitation, any life, health, dental, short-term and long-term disability insurance coverages and any retirement plans, in accordance with the terms and conditions of those plans and applicable laws and regulations. D. VACATION; ILLNESS. Executive shall be entitled to paid vacation and sick leave each year in accordance with United HealthCare's then-current policies. 3. TERM AND TERMINATION. A. TERM. The term of this Agreement shall begin on January 1, 1998 (the "Effective Date") and shall continue until December 31, 1998 unless earlier terminated as set forth in Section 3B. This Agreement shall automatically renew for succeeding one-year periods, unless either Executive or United HealthCare notifies the other of his or its intention not to renew this Agreement at least thirty days prior to December 31, 1998 or any succeeding December 31. B. TERMINATION OF AGREEMENT AND/OR EMPLOYMENT. 1. This Agreement may be terminated at any time by the mutual written agreement of the parties. 2. United HealthCare may terminate Executive's employment or terminate this Agreement by giving written notice of termination which is received by Executive at least 30 days before the effective date of termination of employment or of this Agreement, as the case may be. 3. Executive may terminate his employment by giving written notice of termination of employment which is received by United HealthCare at least 30 days before the effective date of termination of employment. 2 4. This Agreement shall automatically terminate on the effective date of the termination of Executive's employment or on the date of Executive's death, retirement or permanent and total disability which renders Executive incapable of performing Executive's duties. United HealthCare has the sole discretion to determine whether Executive is permanently or totally disabled with the meaning of this Section 3B4. C. SEVERANCE EVENTS AND COMPENSATION. In the event (i) Executive's employment with United HealthCare is terminated by United HealthCare pursuant to Section 3B2 and without Cause, (ii) a Change in Employment occurs which Executive elects to treat as a termination of Executive's employment under Section 3B2, or (iii) this Agreement does not renew (whether by notice from United HealthCare, Executive, or otherwise) ((i), (ii), and (iii) are collectively referred to as the "Severance Events"), then: 1. For 12 months following the effective date of the termination of Executive's employment ("Severance Period"), Executive shall receive biweekly payments equal to 1/26 of (a) the greater of Executive's annualized base salary at the effective date of termination or Executive's average annualized base salary during the two years preceding the effective date of termination, less all applicable withholdings or deductions required by law or Executive's elections under any employee benefit plans which Executive continues to participate in under Section 3C2, plus (b) one-half of the total of any bonus or incentive compensation (but not including any special or one-time bonus or incentive compensation payments) paid or payable with respect to Executive's performance for 1997 and 1998 or, if this Agreement is renewed beyond December 31, 1998, paid or payable with respect to Executive's performance for the two years most immediately preceding the effective date of the termination ((a) and (b) are collectively referred to as the "Severance Compensation"). 2. Until the later of such time as Executive or Executive's spouse becomes eligible for Medicare, United HealthCare shall make health care coverage available to Executive at United HealthCare's group rates. Executive shall be responsible for the premiums payable with respect to such health care coverage. 3. Any unvested stock options or grants awarded Executive under any of United HealthCare's stock option or grant plans shall continue to vest for the Severance Period. Such options or grants shall vest (a) for options or grants made before July 1, 1996, at a rate of at least 20% of the total number of shares covered by each such option or grant on the anniversary date of the option or grant and (b) for options or grants made after July 1, 1996, at a rate of at least 25% of the total number of shares covered by each such option or grant on the anniversary date of the option or grant. 3 The payments and benefits to Executive under this Section 3C shall be the sole liability of United HealthCare to Executive in the event of a Severance Event and shall replace and be in lieu of any payments or benefits which otherwise might be owed by United HealthCare under any other severance plan or program and such payments and benefits may be conditioned by United HealthCare upon receipt of a release of claims from Executive. Solely for purposes of stock options and grants, the date of termination of employment shall be the last day of the Severance Period. Executive shall have three years from his last date of employment to exercise then vested options and, in regard to options which vest under Section 3C3, three years to exercise those options after the date they vest. D. DEFINITIONS AND PROCEDURE. 1. For purposes of this Agreement, "Cause" shall mean the (a) the repeated material failure or refusal of Executive to follow the reasonable directions of United HealthCare's Board of Directors or Executive's supervisor or to perform any duties reasonably required by United HealthCare, (b) a repeated material failure to adequately meet reasonable performance expectations, (c) material violations of United HealthCare's Code of Conduct or (d) the commission of any criminal act or act of fraud or dishonesty by Executive in connection with Executive's employment by United HealthCare. In the event that United HealthCare terminates Executive's employment under subsections (a) or (b) of this Cause definition, United HealthCare shall specify in the notice of termination the basis for Cause. If the Cause described in the notice is cured to United HealthCare's reasonable satisfaction prior to the end of the 30 day notice period, the notice of termination of employment shall be withdrawn. 2. For purposes of this Agreement a "Change in Employment" shall be deemed to have occurred (a) if (i) Executive's duties are materially adversely changed without Executive's prior consent or (ii) Executive's salary or benefits are reduced other than as a general reduction of salaries and benefits by United HealthCare or (iii) the location of performance of most of Executive's duties is moved from the general geographic location in which Executive performed such duties prior to the move; (iv) Executive's reporting relationship is changed to other than United HealthCare's Chief Executive Officer or (v) without terminating Executive's employment this Agreement is terminated by United HealthCare pursuant to Section 3B2, and (b) if in each case under subsections (a) (i), (ii), (iii), (iv) and (v) in the period beginning 60 days before the time the Change in Employment occurs, Cause does not exist or if Cause does exist United HealthCare has not given Executive written notice that Cause exists. Executive may elect to treat a Change in Employment as a termination of employment by United HealthCare. To do so Executive shall send written notice of such election 4 to United HealthCare within 60 days after the date Executive receives notice from United HealthCare or otherwise is definitively informed of the events constituting the Change in Employment. No Change in Employment shall be deemed to have occurred if Executive fails to send the notice of election within the 60 day period. Executive's failure to treat a particular Change in Employment as a termination of employment shall not preclude Executive from treating a subsequent Change in Employment as a termination of employment. The effective date of a Change in Employment termination shall be the date 30 days after United HealthCare receives the written notice of election. 4. PROPERTY RIGHTS, CONFIDENTIALITY, NON-SOLICIT AND NON-COMPETE PROVISIONS. A. UNITED HEALTHCARE'S PROPERTY. 1. Executive shall promptly disclose to United HealthCare in writing all inventions, discoveries and works of authorship, whether or not patentable or copyrightable, which are conceived, made, discovered, written or created by Executive alone or jointly with another person, group or entity, whether during the normal hours of employment at United HealthCare or on Executive's own time, during the term of this Agreement. Executive assigns all rights to all such inventions and works of authorship to United HealthCare. Executive shall give United HealthCare any the assistance it reasonably requires in order for United HealthCare to perfect, protect, and use its rights to inventions and works of authorship. This provision shall not apply to an invention for which no equipment, supplies, facility or trade secret information of United HealthCare was used and which was developed entirely on the Executive's own time and which (1) does not relate to the business of United HealthCare or to United HealthCare's anticipated research or development, or (2) does not result from any work performed by the Executive for United HealthCare. 2. Executive shall not remove any records, documents, or any other tangible items (excluding Executive's personal property) from the premises of United HealthCare in either original or duplicate form, except as is needed in the ordinary course of conducting business for United HealthCare. 3. Executive shall immediately deliver to United HealthCare, upon termination of employment with United HealthCare, or at any other time upon United HealthCare's request, any property, records, documents, and other tangible items (excluding Executive's personal property) in Executive's possession or control, including data incorporated in word processing, computer and other data storage media, and all copies of such 5 records, documents and information, including all Confidential Information, as defined below. B. CONFIDENTIAL INFORMATION. During the course of his employment Executive has and will develop, become aware of and accumulate expertise, knowledge and information regarding United HealthCare's organization, strategies, business and operations and United HealthCare's past, current or potential customers and suppliers. United HealthCare considers such expertise, knowledge and information to be valuable, confidential and proprietary and it shall be considered Confidential Information for purposes of this Agreement. During this Agreement and at all times thereafter Executive shall not use such Confidential Information or disclose it to other persons or entities except as is necessary for the performance of Executive's duties for United HealthCare or as has been expressly permitted in writing by United HealthCare. C. NON-SOLICITATION. During (i) the term of this Agreement, (ii) any period for which Executive is receiving payments under Section 3C of this Agreement, (iii) any period following the termination or expiration of this Agreement during which Executive remains employed by United HealthCare and (iv) for a period of one year after the last day of the latest of any period described in (i), (ii) or (iii), Executive shall not (y) directly or indirectly attempt to hire away any then-current employee of United HealthCare or a subsidiary of United HealthCare or to persuade any such employee to leave employment with United HealthCare, or (z) directly or indirectly solicit, divert, or take away, or attempt to solicit, divert, or take away, the business of any person, partnership, company or corporation with whom United HealthCare (including any subsidiary or affiliated company in which United HealthCare has a more than 20% equity interest) has established or is actively seeking to establish a business or customer relationship. D. NON-COMPETITION. During (i) the term of this Agreement, (ii) any period for which Executive is receiving payments under Section 3C of this Agreement, and (iii) any period following the termination or expiration of this Agreement during which Executive remains employed by United HealthCare, Executive shall not, without United HealthCare's prior written consent, engage or participate, either individually or as an employee, consultant or principal, partner, agent, trustee, officer or director of a corporation, partnership or other business entity, in any business in which United HealthCare (including any subsidiary or affiliated company in which United HealthCare has a more than 20% equity interest) is engaged. In the event that Executive elects to terminate Executive's employment pursuant to Section 3B3, United HealthCare may elect to have the provisions of this Section 4D be in effect for one year following the effective date of such resignation if during that one year period United HealthCare pays Executive biweekly payments equal to 1/26 of the Severance Compensation and if United HealthCare agrees to continue to vest Executive's Uunvested stock options in accordance with Section 3C3 hereof. United 6 HealthCare must send written notice of such election within 10 days after it receives written notice of the termination of employment. 5. MISCELLANEOUS. A. ASSIGNMENT. This Agreement shall be binding upon and shall inure to the benefit of the parties and their successors and assigns, but may not be assigned by either party without the prior written consent of the other party, except that United HealthCare in its sole discretion may assign this Agreement to an entity controlled by United HealthCare at the time of the assignment. If United HealthCare subsequently loses or gives up control of the entity to which this Agreement is assigned, such entity shall become United HealthCare for all purposes under this Agreement, beginning on the date on which United HealthCare loses or gives up control of the entity. Any successor to United HealthCare shall be deemed to be United HealthCare for all purposes of this Agreement. B. NOTICES. All notices under this Agreement shall be in writing and shall be deemed to have been duly given if delivered by hand or mailed by registered or certified mail, return receipt requested, postage prepaid, to the party to receive the same at the address set forth below or at such other address as may have been furnished by proper notice. United HealthCare: 300 Opus Center 9900 Bren Road East Minnetonka, MN 55343 Attn: Vice President Human Resources Executive: Travers H. Wills 9801 Blandford Road Orlando, FL 32827 C. ENTIRE AGREEMENT. This Agreement contains the entire understanding of the parties with respect to its subject matter and may be amended or modified only by a subsequent written amendment executed by the parties. This Agreement replaces and supersedes any and all prior employment or employment related agreements and understandings, including any letters or memos which may have been construed as agreements, between the Executive and United HealthCare or any of its subsidiaries and affiliated companies. D. CHOICE OF LAW. This Agreement shall be construed and interpreted under the applicable laws and decisions of the State of Minnesota. E. WAIVERS. No failure on the part of either party to exercise, and no delay in exercising, any right or remedy under this Agreement shall operate as a waiver; 7 nor shall any single or partial exercise of any right or remedy preclude any other or further exercise of any right or remedy. F. ADEQUACY OF CONSIDERATION. Executive acknowledges and agrees that he/she has received adequate consideration from United HealthCare to enter into this Agreement. G. DISPUTE RESOLUTION AND REMEDIES. Any dispute arising between the parties relating to this Agreement or to Executive's employment by United HealthCare shall be resolved by binding arbitration pursuant to the Rules of the American Arbitration Association. In no event may the arbitration be initiated more than one year after the date one party first gave written notice of the dispute to the other party. The arbitrators shall not ignore or vary the terms of this Agreement and shall be bound by and apply controlling law, but may not in any case award any punitive or exemplary damages. The parties acknowledge that Executive's failure to comply with the Confidentiality, Non-Solicit and Non-Compete provisions of this Agreement will cause immediate and irreparable injury to United HealthCare and that therefore the arbitrators, or a court of competent jurisdiction if an arbitration panel cannot be immediately convened, will be empowered to provide injunctive relief, including temporary or preliminary relief, to restrain any such failure to comply. H. NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer or be deemed or construed to confer any rights or benefits upon any person other than the parties. THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION THAT MAY BE ENFORCED BY THE PARTIES. UNITED HEALTHCARE CORPORATION By /s/ William W. McGuire /s/ Travers H. Wills ------------------------- -------------------------- Executive Date December 18, 1997 Date /s/ December 18, 1997 ----------------- --------------------- 8 EX-10.(U) 4 EXHIBIT 10(U) 1997 Management Incentive Plan - ------------------------------------------------------------------------------- UNITEDhealthcare -SM- - ------------------------------------------------------------------------------- 1997 Management Incentive Plan - ------------------------------------------------------------------------------- As a national leader in health care management, United HealthCare is committed to rewarding - and keeping - the professionals who have helped us accomplish our successes. In 1997 we again will be challenged to attain even higher levels of performance to maintain our leadership position. Overall, we believe our company will continue to provide tremendous opportunities for all of us who work to make United HealthCare successful. In our endeavors in this year and beyond, we will stress tightly managed operational execution and excellence in service. Specific goals include excellent growth and strong financial performance; enhanced responsiveness through better organizational structures and processes; continued leadership gains in each of our business units; improved products and services for all of our customers; and successful integration of business through merger and acquisition activity. As always, we must remain focused on continued improvements in appropriate health care delivery, SG&A, and medical cost trends. The information presented in this brochure describes United HealthCare's Management Incentive Plan. Incentive programs and performance management are inherent to our corporate culture, a culture that rewards leaders who strive for excellence and continuous improvement. This plan also represents a significant step toward unifying all United HealthCare leaders under a single system to recognize our accomplishments as we work toward common goals. As leaders at United HealthCare, we all are responsible and accountable for maintaining the standards of excellence that will move our company forward successfully as we work to improve the health and well-being of the people we serve. /s/ William W. McGuire, M.D. William W. McGuire, M.D. Chief Executive Officer, President and Chairman - ------------------------------------------------------------------------------- 1 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 2 1997 Management Incentive Plan - ------------------------------------------------------------------------------- OVERVIEW Annual management incentive plan funding and payout amounts are determined by the following performance factors: 1) The OVERALL PERFORMANCE OF UNITED HEALTHCARE, measured by accomplishment of strategic initiatives, deployment of capital and resources, market valuation, merger and acquisition activity, public image and recognition, as well as financial goals in the following categories: earnings, revenue, SG&A, medical cost ratio, growth and membership. United HealthCare's performance, by design, affects every manager's incentive to some degree. 2) The OVERALL PERFORMANCE OF YOUR BUSINESS UNIT, SUPPORT UNIT OR CORPORATE DIVISION. If you're part of a United HealthCare business unit, your goals will be developed jointly by your Senior Executive, CEO or Senior Manager and the person to whom he or she reports. If you're part of a United HealthCare business support or corporate division, your goals will be established by the appropriate Senior Executive and the person to whom he or she reports. 3) YOUR INDIVIDUAL PERFORMANCE, based on your overall performance in your position and accomplishment of established goals and objectives. All three performance measures are used to determine the incentive pool and incentive awards. We believe that our collective success must grow out of a synergy of effort. This blend of performance measurement helps ensure all of United HealthCare works together toward common goals - and therefore allows us the greatest opportunities for success, both professionally and personally. INCENTIVE TARGETS Incentive targets are defined as a percent of eligible base earnings paid during the current fiscal year. The incentive target percents are based on grade level and overall position responsibility. Your senior executive will communicate this year's corporate and business unit or corporate division goals. - ------------------------------------------------------------------------------- 3 - ------------------------------------------------------------------------------- PAYMENT DETERMINATION STEP 1 - ESTABLISHMENT OF TOTAL INCENTIVE POOL At the end of United HealthCare's fiscal year, the Compensation and Stock Option Committee of the Board of Directors will determine overall United HealthCare company performance and the total amount available in the company incentive pool. The total company incentive pool reflects United HealthCare's total performance on its strategic initiatives, merger and acquisition activity, and the collective results of all United HealthCare operations. It is NOT the average result of United HealthCare operations but the overarching performance of the entire company. The Compensation and Stock Option Committee will approve an incentive pool amount based on an assessment ranging from 50% of total incentive targets to 200% of total incentive targets. Generally, no pool amount of less than 50% will be established. STEP 2 - ESTABLISHMENT OF BUSINESS UNIT, SUPPORT UNIT AND CORPORATE DIVISION POOLS Following a determination of the total amount available in the United HealthCare incentive pool, United HealthCare Senior Management determines the performance and incentive pools specific to the business units, business unit support areas and United HealthCare corporate divisions. Business support areas will be evaluated based on the primary business areas they support and their specific unit performance. The business unit, business support division or corporate division pool is established by creating a pool of available dollars from 50% of target to 200% of targets. Generally, no pool amount of less than 50% will be established for any business unit, support area, or corporate division. STEP 3 - ESTABLISHMENT OF INDIVIDUAL INCENTIVE PAYMENTS After business unit, support division and United HealthCare corporate division incentive pools are established, the respective Health Plan CEOs, Subsidiary Business Presidents and Corporate Senior Managers determine individual incentive payments for their eligible managers. Health Plan CEOs, Corporate Executives or Specialty Business Presidents' incentives are determined by their management. For those receiving an award, payments generally range from 50% of incentive target to 200% of incentive target. - ------------------------------------------------------------------------------- 4 1997 Management Incentive Plan - ------------------------------------------------------------------------------- ELIGIBILITY Generally, full-time regular employees grade 28 and above are eligible for MIP awards. It is at this level that positions are directly accountable for meeting key division or business unit objectives and generally also manage staff, and determine and manage financial resources and budgets. Certain positions are not eligible for MIP due to participation in other incentive plans, even if they meet the eligibility criteria. - - If you were hired or promoted during the year to an MIP-eligible position, your participation will be prorated for the time you serve as an eligible employee. New hires or promotions in the fourth quarter of 1997 are not eligible to participate in the 1997 plan. Employees who were eligible for the performance incentive plan or business incentive plan prior to promotion in the fourth quarter may still be eligible for a year-end PIP or BIP award in lieu of an MIP award for that year. - - If you are promoted to a position that carries a higher management incentive potential, any incentive paid to you would be based on a combination of your existing and new incentive targets. The targets would be weighted according to the time you held each position. - - If you are on leave for part of the year, pay that you receive while on leave (except vacation and sick leave) will not be included as base earnings in the calculation of the management incentive payment. - - TO BE ELIGIBLE FOR A MANAGEMENT INCENTIVE PAYMENT, YOU MUST BE AN ACTIVE EMPLOYEE AT THE TIME SUCH PAYMENTS ARE MADE. EMPLOYEES WHO TERMINATE EMPLOYMENT PRIOR TO THE DATE INCENTIVE AWARDS ARE MADE ARE NOT ELIGIBLE FOR ANY INCENTIVE AWARDS. IF YOU ARE ON A LEAVE OF ABSENCE AT THE TIME OF PAYMENT, YOU WILL BECOME ELIGIBLE FOR AN INCENTIVE PAYMENT AT THE TIME OF YOUR RETURN TO WORK. EMPLOYEES WHO DO NOT RETURN TO WORK FROM LEAVE ARE NOT ELIGIBLE FOR AN INCENTIVE AWARD. - - EMPLOYEES ON FORMAL DISCIPLINARY ACTION ARE NOT ELIGIBLE FOR AN INCENTIVE PAYMENT. The senior vice president of Human Resources will determine any exceptions to eligibility guidelines. 401(k) PLAN AND ESOP CONTRIBUTIONS Management Incentive Plan payments are considered compensation under the 401(k) and Employee Stock Ownership (ESOP) Plans. Management incentive payments are not eligible for the Employee Stock Purchase Plan (ESPP). PAYMENTS Management Incentive Plan payments generally are made following the close of the corporate and operating unit books for the 1997 operating year, generally occurring during the first quarter of the following year. If you have any questions about the Management Incentive Plan, contact your supervisor or the head of your operating unit. - ------------------------------------------------------------------------------- 5 - ------------------------------------------------------------------------------- EXAMPLES EXAMPLE 1 - BUSINESS UNIT (E.G., HEALTH PLAN) STEP 1: United HealthCare Compensation & Stock Option Committee determines overall MIP pool. STEP 2: Senior Management determines each unit's pool. As an example, assume this unit is: Business Unit Pool = 130% of target for that business 6 ELIGIBLE EMPLOYEES INCENTIVE TARGETS 2 at 15% at $60,000 Eligible Base Earnings $18,000 2 at 10% at $50,000 Eligible Base Earnings $10,000 2 at 10% at $40,000 Eligible Base Earnings $ 8,000 ------- TOTAL INCENTIVE TARGET EQUALS $36,000
POOL IS CALCULATED: 130% (Unit Pool) x $36,000 (Incentive Target) = Incentive Pool of $46,800 STEP 3: Business Unit Senior Manager evaluates individual performance of each eligible employee and determines incentive payments. Management incentive payments are either 0% or from 50% to 200% of targets. The amount of the pool for this Senior Manager to distribute is $46,800; total payments cannot exceed the pool total. EXAMPLE 2 - CORPORATE DIVISION (E.G., CORPORATE FINANCE DEPARTMENT) STEP 1: United HealthCare Compensation & Stock Option Committee determines overall MIP pool. STEP 2: Senior Management determines each unit's pool. As an example, assume this unit is: Corporate Division Rating = 90% of target 5 ELIGIBLE EMPLOYEES INCENTIVE TARGETS 1 at 20% at $70,000 Eligible Base Earnings $14,000 2 at 15% at $50,000 Eligible Base Earnings $15,000 2 at 10% at $45,000 Eligible Base Earnings $ 9,000 ------- TOTAL INCENTIVE TARGET EQUALS $38,000
POOL IS CALCULATED: 90% (Overall Rating) x $38,000 (Incentive Target) = Incentive Pool of $34,200 STEP 3: Corporate Division Head evaluates individual performance of each eligible employee and determines incentive payments. Management incentive payments are either 0% or can range from 50% to 200% of targets. The amount of the pool for this Division Head is $34,200; total payments cannot exceed the pool total. - ------------------------------------------------------------------------------- 6 1997 Management Incentive Plan - ------------------------------------------------------------------------------- EXAMPLE 3 - BUSINESS SUPPORT UNIT (E.G., SPECIALTY BUSINESS AREA) STEP 1: United HealthCare Compensation & Stock Option Committee determines over all MIP pool. STEP 2: Senior Management determines each unit's pool. As an example, assume this unit is: Support Unit Pool = 100% 4 ELIGIBLE EMPLOYEES INCENTIVE TARGETS 1 at 15% at $60,000 Eligible Base Earnings $ 9,000 2 at 10% at $45,000 Eligible Base Earnings $ 9,000 1 at 10% at $40,000 Eligible Base Earnings $ 4,000 ------- TOTAL INCENTIVE TARGET EQUALS $22,000
POOL IS CALCULATED: 100% (Overall Rating) x $22,000 (Incentive Target) = Incentive Pool of $22,000 STEP 3: Business Support Unit Senior Manager evaluates individual performance of each eligible employee and determines incentive payments. Management incentive payments are either 0% or can range from 50% to 200% of targets. The amount of the pool for this Senior Manager to distribute is $22,000; total payments cannot exceed the pool total. THERE IS NO GUARANTEE THAT ANY MANAGEMENT INCENTIVE PLAN PAYOUTS WILL BE MADE. UNITED HEALTHCARE HAS THE EXCLUSIVE AND BINDING DISCRETION TO AMEND, TERMINATE OR INTERPRET THE TERMS OR CONDITIONS OF THIS MANAGEMENT INCENTIVE PLAN AT ANY TIME AND WITHOUT NOTICE. CHANGES TO THIS PLAN MUST BE IN WRITING MADE BY THE SENIOR VICE PRESIDENT OF HUMAN RESOURCES OR THE CHIEF EXECUTIVE OFFICER OF THE COMPANY. UNITED HEALTHCARE ALSO HAS DISCRETION TO UNILATERALLY MAKE LEGAL AND FACTUAL DETERMINATIONS REGARDING THE PLAN. THIS MANAGEMENT INCENTIVE PLAN IS NOT AND SHALL NOT BE DEEMED TO BE AN ENFORCEABLE CONTRACT OR AN EMPLOYEE BENEFIT PLAN WITHIN THE MEANING OF ERISA. - ------------------------------------------------------------------------------- 7 EX-10.(V) 5 EXHIBIT 10(V) Exhibit 10(v) EXECUTIVE SAVINGS PLANS INTRODUCTION At United HealthCare, we are committed to providing you opportunities that help you prepare for a financially secure future. The 401(k) Savings Plan, Employee Stock Purchase Plan, and Employee Stock Ownership Plan offer all eligible employees options for accumulating savings and retirement assets. However, these plans are subject to restrictive tax legislation. Recognizing that this legislation limits the amount you can defer into the plans, United HealthCare created the Executive Savings Plans. These non-qualified deferred compensation plans allow you to defer virtually as much of your compensation as you wish through means that leverage the current tax environment. The non-qualified plans are not subject to the same restrictions placed upon qualified plans, such as the annual 401(k) dollar deferral limit. The non-qualified plans are unfunded plans, which means that funds or contributions are not set aside in a trust and are subject to general creditors of United HealthCare. Participating in the non-qualified plans reduces your current take-home pay by deferring your salary to a future point in time. Before deciding whether or not to enroll in the non-qualified plans for 1997, be sure to consider your own tax and financial needs. You may want to consult your personal tax or financial advisor to weigh how these plans might fit into your long-term financial goals. WHAT IS ELIGIBLE COMPENSATION? Your Part I and II contributions to the non-qualified plans are based on eligible compensation. For the purposes of the plans, eligible compensation generally means the same compensation as that used to determine the amount of elective deferrals under the United HealthCare 401(k) Savings Plan. PLAN ELIGIBILITY REQUIREMENTS To participate in the Executive Savings Plans, you must meet certain eligibility requirements. 1. For all three Parts under the Plans, you must be an employee with at least two months of service in an eligible class at United HealthCare. 2. Participation under Part II or Part II is available the first day of the calendar month following completion of the two-month eligibility requirement. 3. To participate in Part I, you also must participate in the 401(k) Savings Plan and reach one of the following IRS limits during 1997: - Earn $160,000 in eligible compensation (increased from $150,000 in 1996) - Make 401(k) deferrals that reach the 1997 IRS annual limit of $9,500 4. You may only enroll in Part I or Part II during the December 1996 enrollment period or when you become newly eligible during the year. HOW THE PLANS WORK PART I -- 401(k) KEEP WHOLE As long as you participate in the 401(k) Savings Plan, you may participate in Executive Savings Plan Part I. Part I: - - Enables you to defer from 1 percent to 15 percent of your eligible compensation on a pre-tax basis after you 401(k) elective deferrals reach the 1997 IRS dollar limit of $9,500 or you earn $160,000 in eligible compensation; and - - Provides a United HealthCare matching contribution of 50 cents for each dollar you defer into your Part I account, up to the first 6 percent of your eligible compensation. These matching contributions receive the same investment credits that you elect for your own contributions. When you reach one of the IRS 401(k) annual limits (listed on previous page), your Part I deferrals begin as follows: - - If you reach the limit during a Management Incentive Plan (MIP) Bonus payout or other similar bonus payout that is declared to be equivalent to MIP, your contributions begin in that same pay period, OR - - If you reach the limit during a regular payroll, your contributions begin in the following pay period. PART II -- STRAIGHT SALARY DEFERRAL Under Part II provisions, you can defer from 1 percent to 100 percent of all unearned, 1997 eligible compensation, including bonus payments. Part II contributions begin with your first eligible pay period in 1997. PART III -- LIMITED BONUS DEFERRAL Part III of the Executive Savings Plans is available only to those United HealthCare executives who are eligible for special bonus amounts that are declared by United HealthCare's Board of Directors or Compensation Committee or their designee as being eligible for deferral under Part III of the Plans. If you are eligible to make deferrals of special bonuses under Part III, you will be notified in advance. At that time, you will receive a Part III enrollment form. You can defer from 1 percent to 100 percent of 1997 special bonuses before they are earned. INVESTMENTS You may elect to have your deferrals and matching United HealthCare contributions credited with investment earnings from one or more of the three investment credit funds offered under the plans. Your elections are subject to investment risk. As with any investment if the returns on the funds you choose are positive, your account balance will have positive credits. If the returns are negative, your account balance will decline. Please review the fund information provided with your enrollment materials before making your decision. You may change your investment credit choices once each calendar quarter on any business day during that quarter. To make a change, you must complete and submit a form to the Plan Administrator. If the form is received by the Plan Administrator by noon Central time, the change will be effective the following business day. You may elect to have your future contributions credited differently from your existing account balance for investment return purposes. When you make your investment election for 1997, your past and future account will be credited with investment performance in the same manner. YOUR INVESTMENT CREDIT CHOICES You can elect to have your account credited with the investment performance of one or any combination of the following three funds: - - LOOMIS SAYLES BOND FUND. The Fund's investment objective is high total investment return through a combination of current income and capital appreciation. The Fund seeks to attain its objective by normally investing substantially all of its assets in debt securities (including convertibles), although up to 20% of its assets may be invested in preferred stocks. At least 65% of the Fund's total assets may be invested in bonds. The Fund may invest any portion of its assets in securities of Canadian issuers, and a limited portion of its assets insecurities of other foreign issuers. The Fund will also invest less than 35% of its assets in securities of below investment grade quality. - - FIRST AMERICAN EQUITY INDEX FUND. This fund seeks to provide investment results that correspond to the performance of the Standard and Poor's 500 Composite Stock Price Index (S&P 500). The fund invests at least 65 percent of its assets in common stocks included in the S&P 500. - - PBHG GROWTH FUND. The fund seeks capital appreciation and invests primarily in common stocks of small and medium capitalization companies believed to have an outlook for strong earnings growth and the potential for strong earnings growth and the potential for significant capital appreciation. The average market capitalizations or annual revenues of holdings in the portfolio may fluctuate over time as a result of market valuation levels and the availability of specific investment opportunities. You may elect to have your accounts credited with investment performance in any combination of the investment credit funds in one percent increments as long as your investment percentage totals 100 percent. Remember, however, that as unfunded plans, the investment credit funds are only measuring tools to determine the value of your account under the plans, and Untied HealthCare is not required to purchase such investments. ACCOUNT INFORMATION You will receive a quarterly statement showing the status of your account credits in the plans. In addition, beginning April 1, 1997 you will have daily access to information about your account. VESTING Vesting under the Executive Savings Plans Part I is based on your years of service with United HealthCare beginning with your date of hire. You are always 100 percent vested in your own deferrals, as well as the investment earnings or losses on them. Eligible participants who are hired on or after January 1, 1997, will become vested in the United HealthCare matching contribution after completing two years of service with United HealthCare. Active and former participants prior to January 1, 1997 are 100% vested in deferrals, matching contributions and the investment earnings and losses on them. DISTRIBUTIONS FROM THE PLANS TIMING We all know that life is full of changes. That's why each year when you elect to participate in the Executive Savings Plans, you should consider your personal financial goals and needs. For 1997, active and former participants will elect a single distribution option for all three parts of the Executive savings Plans for all past and future account credits. If you are an active or former participant and have already elected to receive a distribution to be paid out in February 1997, your request will be honored. All other prior distribution requests are void unless currently in a payout status. Distributions after February 1997, will be available only upon termination, permanent total disability or death. You can expect to receive your lump sum or installment distribution beginning the February following the end of the calendar year in which the distribution event occurs. DISTRIBUTION OPTIONS You have three distribution options to choose from. The option you choose will be used for all parts of the Plans. - - LUMP SUM: For example, if you terminate employment on January 12, 1997, your lump sum distributions date will be in February 1998. - - THREE-YEAR INSTALLMENTS: The three installments are paid annually beginning the February following the end of the calendar year in which your distribution event occurs. For example, if you terminate employment on November 1, 1997, your installments will be paid in February 1998, February 1999 and February 2000. - - FIVE-YEAR INSTALLMENTS: The five installments are paid annually beginning the February following the end of the calendar year in which your distribution event occurs. For example, if you terminate employment on April 25, 1997 your installments will be paid in February 1998, February 1999, February 2000, February 2001 and February 2002. Keep in mind: once you have chosen a distribution option, you cannot change it. Be sure to choose carefully. TAXATION For all parts under the plans, your distribution is made in either a single lump sum payment or in three or five installments and is immediately taxable on receipt. No special tax treatments or early withdrawal penalties apply, as the Executive Savings Plans are non-qualified plans. SEQUENCE OF DEDUCTIONS Your deductions are taken from your paycheck in the following order: - - First, 401(k) Savings Plan contributions (if applicable) - - Next, Part I deferrals - - Then, Part III deferrals - - Finally Part II deferrals Note: The actual deferral percentage is based on your entire compensation and bonus amount. If the amount you elected to have deducted exceeds your paycheck, deductions will be taken until your paycheck is depleted. In that case, all of your elections for that pay period will not be fulfilled. Once your deferral election is made, it is irrevocable. However, you may stop your deferral during the year under Part I and/or II. Once the deferrals are suspended, they may not be resumed until the following calendar year. If you wish to stop your payroll deductions, call the Plan Administrator at (612)936-1605 to obtain the appropriate Executive Savings Plans cancellation form. THE EXECUTIVE SAVINGS PLANS AT A GLANCE WHAT TO DO NEXT Decide if participating in Part I and/or Part II is right for you. You may find it helpful to consult with a tax or financial advisor. Then, if you decide to enroll, complete and return the Executive Savings Plans Part I and/or Part II enrollment and election forms included in your packet. If you do not designate a beneficiary, your benefits will be paid in accordance with the Plan's provisions in the event of your death. As an important component of United HealthCare's competitive benefits program, the Executive Savings Plan Part I and Executive Savings Plan Parts II and III offer you a tremendous opportunity to save for your future. The plans also enable you to defer taxes associated with your deferred compensation until termination, total permanent disability or death. For purposes of obtaining favorable state tax treatment for eligible distributions, the Executive Savings Plan has been separated into two separate plans beginning in 1997, the Executive Savings Plan Part I and the Executive Savings Plan Parts II and III. However, the Plan Administrator and election procedures are the same for both plans. As a result, these communications collectively refer to both plans as the "Executive Savings Plans" or "Plans." There are three separate parts to the Executive Savings Plans, allowing you to design a deferral strategy that meets your needs: PART 1 -- 401(k) KEEP WHOLE - - Allows you to defer, on a pre-tax basis, from 1 percent to 15 percent of your eligible compensation after you reach one of the IRS 401(k) limits. - - Provides a United HealthCare matching contribution of 50 percent of the first 6 percent of your deferral. PART II -- STRAIGHT SALARY DEFERRAL - - Lets you defer all or a portion of your unearned, eligible compensation. PART III -- LIMITED BONUS DEFERRAL - - Enables you to defer all of or a portion of special bonuses to a future point in time. EX-13.1 6 EXHIBIT 13.1 FINANCIAL HIGHLIGHTS UNITED HEALTHCARE FOR THE YEAR ENDED DECEMBER 31, (IN MILLIONS, EXCEPT PER SHARE DATA) 1997 1996 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------------------- CONSOLIDATED OPERATING RESULTS Revenues $11,794 $ 10,074 $ 5,671 $ 3,769 $ 3,115 Earnings From Operations $ 742 $ 596 (1) $ 461 (2) $ 506 $ 336 - ------------------------------------------------------------------------------------------------------------------------------- Net Earnings Before Extraordinary Gain $ 460 $ 356 (1) $ 286 (2) $ 288 (3) $ 212 Extraordinary Gain on Sale of Subsidiary, net - - - 1,377 (4) - - ------------------------------------------------------------------------------------------------------------------------------- Net Earnings $ 460 $ 356 (1) $ 286 (2) $ 1,665 $ 212 Convertible Preferred Stock Dividends (29) (29) (7) - - - ------------------------------------------------------------------------------------------------------------------------------- Net Earnings Applicable to Common Shareholders $ 431 $ 327 $ 279 $ 1,665 $ 212 - ------------------------------------------------------------------------------------------------------------------------------- Basic Net Earnings per Common Share Basic Net Earnings per Common Share Before Extraordinary Gain $ 2.30 $ 1.80 $ 1.61 $ 1.69 $ 1.25 Extraordinary Gain - - - 8.06 (4) - - ------------------------------------------------------------------------------------------------------------------------------- Basic Net Earnings per Common Share $ 2.30 $ 1.80 $ 1.61 $ 9.75 $ 1.25 - ------------------------------------------------------------------------------------------------------------------------------- Diluted Net Earnings per Common Share Diluted Net Earnings per Common Share Before Extraordinary Gain $ 2.26 $ 1.76 (1) $ 1.57 (2) $ 1.64 (3) $ 1.23 Extraordinary Gain - - - 7.86 (4) - - ------------------------------------------------------------------------------------------------------------------------------- Diluted Net Earnings per Common Share $ 2.26 $ 1.76 (1) $ 1.57 (2) $ 9.50 $ 1.23 - ------------------------------------------------------------------------------------------------------------------------------- Basic Weighted-Average Number of Common Shares Outstanding 187 182 174 171 170 Weighted-Average Number of Common Shares Outstanding, Assuming Dilution 191 186 177 175 172 - ------------------------------------------------------------------------------------------------------------------------------- Dividends Per Share Common Stock $ 0.03 $ 0.03 $ 0.03 $ 0.03 $ 0.015 Convertible Preferred Stock $ 57.50 $ 57.50 $ 14.38 $ - $ - - ------------------------------------------------------------------------------------------------------------------------------- CONSOLIDATED FINANCIAL CONDITION (AS OF DECEMBER 31) Cash and Investments $ 4,041 $ 3,453 $ 3,078 $ 2,769 $ 1,169 Total Assets $ 7,623 $ 6,997 $ 6,161 $ 3,489 $ 1,787 Shareholders' Equity $ 4,534 $ 3,823 $ 3,188 $ 2,795 $ 1,085 - -------------------------------------------------------------------------------------------------------------------------------
Financial Highlights should be read together with the accompanying Financial Review and Consolidated Financial Statements and notes. (1) Excluding the nonoperating merger costs associated with the acquisition of HealthWise of America, Inc. of $15 million ($9 million after tax, or $0.05 diluted net earnings per common share) and the provision for future losses on two large multiyear contracts of $45 million ($27 million after tax, or $0.15 diluted net earnings per common share), 1996 earnings from operations and net earnings would have been $641 million and $392 million, or $1.96 diluted net earnings per common share. (2) Excluding restructuring charges associated with the acquisition of The MetraHealth Companies, Inc., of $154 million ($97 million after tax, or $0.55 diluted net earnings per common share), 1995 earnings from operations and net earnings would have been $615 million and $383 million, or $2.12 diluted net earnings per common share. (3) Excluding the nonoperating merger costs associated with the acquisitions of Complete Health Services, Inc. and Ramsay-HMO, Inc., of $36 million ($22 million after tax, or $0.13 diluted net earnings per common share), 1994 net earnings before extraordinary gain would have been $310 million, or $1.77 diluted net earnings per common share. (4) In May 1994, the Company sold Diversified Pharmaceutical Services, Inc. for $2.3 billion in cash and recognized an extraordinary gain after transaction costs and income tax effects of $1.4 billion, or $7.86 diluted net earnings per common share. 14 FINANCIAL REVIEW UNITED HEALTHCARE United HealthCare ("we," "us," "our") has completed several transactions affecting the year-to-year comparisons of our consolidated financial position and results of operations. The most significant transaction was our October 2, 1995, acquisition of The MetraHealth Companies, Inc. (MetraHealth). MetraHealth was formed in January 1995, when the group health care operations of Metropolitan Life Insurance Company and The Travelers Insurance Group were combined. At the time of acquisition, MetraHealth served over 10 million people, including 5.9 million in network-based care programs, 469,000 of whom were health plan members. We acquired two other companies with health plan operations during 1996. - - On April 12, 1996, we acquired HealthWise of America, Inc. (HealthWise), a health care management company that owned or operated health plans in Maryland, Kentucky, Tennessee and Arkansas. HealthWise served 154,000 members at the time of acquisition. - - On March 29, 1996, we acquired PHP, Inc. (PHP), a North Carolina-based health plan. PHP served 132,000 members at the time of acquisition. We accounted for the acquisition of HealthWise as a pooling of interests; however, we did not restate our consolidated financial results because the effects of the acquisition on our consolidated financial statements were not material. We accounted for the MetraHealth and PHP acquisitions as purchase transactions and, accordingly, only the post-acquisition results of these companies are included in our consolidated financial statements. This Financial Review should be read together with the accompanying Consolidated Financial Statements and notes. SUMMARY OPERATING INFORMATION 1997 1996(1) 1995(3) --------------------------------------------------------------------------- AMOUNT OR PERCENT AMOUNT OR PERCENT AMOUNT OR PERCENT INCREASE (DECREASE) PERCENT INCREASE (DECREASE) PERCENT - ----------------------------------------------------------------------------------------------------------------------------------- Revenues (IN MILLIONS) $ 11,794 17% $ 10,074 78% $ 5,671 Net Earnings (IN MILLIONS) $ 460 17% $ 392 2% $ 383 - --------------------------------------------------------------------------------------------------------------------------------- Medical Costs to Premium Revenues 84.3% 84.0% 79.7% SG&A Expenses to Total Revenues 20.0% 21.5% 18.2% - --------------------------------------------------------------------------------------------------------------------------------- Enrollment by Product (IN THOUSANDS AS OF DECEMBER 31) Health Plan Products Commercial 4,600 12% 4,100 36% 3,005 Medicare 352 53% 230 55% 148 Medicaid 526 0% 525 49% 352 - --------------------------------------------------------------------------------------------------------------------------------- Total Health Plan Products 5,478 13% 4,855 39% 3,505 Other Network-Based Products 5,556 2% 5,462 (2) (3%) 5,628 (2) Indemnity Products 2,030 (27%) 2,795 (2) (27%) 3,803 (2) - --------------------------------------------------------------------------------------------------------------------------------- Total Enrollment 13,064 0% 13,112 1% 12,936 - --------------------------------------------------------------------------------------------------------------------------------- Enrollment by Funding Arrangement (IN THOUSANDS AS OF DECEMBER 31) Fully Insured Health Plan Products 5,172 14% 4,542 39% 3,262 Other Network-Based Products 687 (4%) 719 3% 700 Indemnity Products 370 (37%) 585 (40%) 982 - --------------------------------------------------------------------------------------------------------------------------------- Total Fully Insured 6,229 7% 5,846 18% 4,944 - --------------------------------------------------------------------------------------------------------------------------------- Self-Funded Health Plan Products 306 (2%) 313 29% 243 Other Network-Based Products 4,869 3% 4,743 (2) (4%) 4,928 (2) Indemnity Products 1,660 (25%) 2,210 (2) (22%) 2,821 (2) - --------------------------------------------------------------------------------------------------------------------------------- Total Self-Funded 6,835 (6%) 7,266 (9%) 7,992 - --------------------------------------------------------------------------------------------------------------------------------- Total Enrollment 13,064 0% 13,112 1% 12,936 - ---------------------------------------------------------------------------------------------------------------------------------
(1) Amounts and percents include post-acquisition operating results of HealthWise and PHP. For comparability purposes, amounts and percents exclude merger costs associated with the acquisition of HealthWise of $15 million ($9 million after tax) and the provision for future losses on two large multiyear contracts of $45 million ($27 million after tax). (2) For comparability purposes, amounts and percents exclude the self-funded other network-based and indemnity lives served by United HealthCare Administrators, Inc., of 666,000 in 1996 and 674,000 in 1995. We sold United HealthCare Administrators, Inc. on June 30, 1997. (3) Amounts and percents include post-acquisition operating results of MetraHealth. For comparability purposes, amounts and percents exclude restructuring charges of $154 million ($97 million after tax) associated with the MetraHealth acquisition. 15 RESULTS OF OPERATIONS PREMIUM REVENUES Premium revenues in 1997 totaled $10.1 billion. This represents an increase of $1.6 billion, or 19%, compared to 1996 premium revenues. Excluding the effects of the HealthWise and PHP acquisitions, premium revenues in 1997 increased by 17% over 1996. The increase in premium revenues primarily is due to growth in year-over-year same-store health plan premium revenues of $1.5 billion, or 25%, in 1997. The increase in health plan premium revenues reflects same-store enrollment growth of 13% and an average year-over-year premium rate increase on renewing commercial groups exceeding 5%. Growth in our Medicare programs also contributed to the increase in premium revenues. Included in the total health plan same-store enrollment growth of 13% is a year-over-year same-store increase of 53% in Medicare enrollment. Significant growth in Medicare enrollment affects year-over-year comparability of premium revenues. The Medicare product generally has per member premium rates three to four times higher than average commercial premium rates because this population uses proportionately more medical care services. The year-over-year increase in premium revenues from health plan operations was partially offset by an expected decrease in premium revenues from fully insured non-network-based indemnity products of $218 million. Nearly $60 million of this decrease is because we discontinued our relationship with a broker who sold and administered small group indemnity business on our behalf, which led to the loss of 30,000 indemnity members effective July 1, 1997. The remaining decrease is from declining enrollment in these products, due to average 10% to 20% rate increases that started in 1996 and continued into 1997, as well as other business factors. We expect enrollment in the non-network- based indemnity products will continue to decline through 1998. To the extent possible, we will try to convert these enrollees to our network-based managed care products. Premium revenues in 1996 totaled $8.5 billion. This was an increase of $3.6 billion, or 72%, over 1995 premium revenues. Excluding the effects of the MetraHealth, HealthWise and PHP acquisitions, the increase in 1996 premium revenues over 1995 was 28%. Total same-store health plan enrollment grew 30%, and year-over-year premium rate increases on renewing commercial groups were 1% to 2% on average. Because of changes in our customer mix, we did not realize the full effect of same-store enrollment growth and average year-over-year premium rate increases in the percentage increase in 1996 premium revenues. This is because much of the enrollment growth in 1996 had been in health plan small group products, which generally have lower benefits (and therefore lower premiums) than other commercial health plan products. MEDICAL COSTS The combination of our pricing strategy and medical management efforts is reflected in the medical care ratio (the percent of premium revenues expensed as medical costs). We generally set new and renewal commercial health plan premium rates based on anticipated health care costs. Our health care cost trend was in the 3% to 4% range throughout 1996 and 1997, an increase over our 1995 trend of 1% to 2%. We have been increasing premium rates in excess of 5% on average for new and existing commercial health plan business beginning in the second half of 1996, throughout 1997 and into 1998. The medical care ratio increased from 84.0% in 1996 (before nonrecurring charges) to 84.3% in 1997. The increase in the medical care ratio is the result of several factors. - - A few health plan markets had medical care ratios substantially higher than our other health plans in the aggregate. The reasons varied from plan to plan, but generally, medical cost controls and provider contracting initiatives were not being fully implemented and commercial premium yields were insufficient compared to corresponding medical costs. We expect performance will improve in these markets; however, we believe these health plans will continue to moderate our overall results through 1998. - - Several markets had recently introduced Medicare products, which have been well received and are growing rapidly. We generally experience higher medical care ratios during the early stage of Medicare product introductions. - - Medicaid premiums did not increase and, in fact, decreased in several markets. Further Medicaid premium reductions are possible in certain markets in 1998, which may inhibit our ability to improve the overall medical care ratio in the near term. The medical care ratio increased from 79.7% in 1995 to 84.0% in 1996 (before nonrecurring charges). A portion of the increase in the medical care ratio was because of former MetraHealth products (included in the 1996 results, but only in one quarter of 1995), which historically have had a higher 16 medical care ratio when compared to our other products. Had the MetraHealth products been included in our financial results for all of 1995, the medical care ratio would have been approximately 81.0%. The 1996 medical care ratio also reflects the increasing health care cost trend of 3% to 4% as previously discussed. In addition, in the second quarter of 1996, we recorded a provision of $45 million to cover estimated losses we expect to incur through the remaining terms of two large multiyear contracts in our St. Louis health plan. Including the contract loss provision, the 1996 medical care ratio was 84.6%. MANAGEMENT SERVICES AND FEE REVENUES Management services and fee revenues in 1997 totaled $1.4 billion. This represents an increase of $30 million, or 2%, over management services and fee revenues in 1996. These revenues are primarily generated from self-funded products where we receive a fee for administrative services and generally assume no financial responsibility for health care costs associated with these products. In addition, we generate fee revenues from administrative services we perform on behalf of managed health plans and for services provided by our specialty businesses. The overall increase in management services and fee revenues is attributable to enrollment growth within the managed health plans and an increase in individuals served by our specialty services operations, most notably in United Behavioral Health and Optum-Registered Trademark-, our telephone- and Internet- based health information and personal care management business. Offsetting these increases, fee revenues from self-funded products decreased $15 million because of declining enrollment in these products. In addition, the June 30, 1997, sale of our subsidiary, United HealthCare Administrators, Inc., resulted in a $24 million decrease in these revenues in 1997 compared to 1996. Management services and fee revenues in 1996 of $1.4 billion were two times greater than the comparable 1995 revenues. Excluding the effect of the MetraHealth, HealthWise and PHP acquisitions, we generated management services and fee revenues in 1996 of $409 million, a 42% increase over 1995. Managed health plans, United Behavioral Health and Optum-Registered Trademark- again accounted for the most notable increases. OTHER OPERATING EXPENSES Selling, general and administrative expenses as a percent of total revenues (the SG&A ratio) increased from 18.2% in 1995 to 21.5% in 1996. As expected, the MetraHealth acquisition had a significant impact on SG&A expenses (in total dollars as well as a percentage of revenue) because a greater proportion of the former MetraHealth business consisted of fee-based, self-funded products rather than products that generate full premium revenue. Since the MetraHealth acquisition, we have decreased the SG&A ratio from 24.2% in the fourth quarter of 1995 to 20.0% in 1997. The improvement in the SG&A ratio reflects ongoing operating efficiencies as well as our diligence in managing these expenses. On an absolute dollar basis, selling, general and administrative costs increased $199 million in 1997, or 9%, over 1996. This increase reflects the additional infrastructure needed to support the corresponding $1.6 billion increase in premium-based business, as well as the additional investment in new Medicare markets and increased support for our growing specialty businesses. Depreciation and amortization was $146 million in 1997, $133 million in 1996, and $94 million in 1995. Depreciation and amortization increased each year because of higher levels of capital expenditures to support business growth and amortization of goodwill and other intangible assets related to recent acquisitions. With the MetraHealth acquisition, we developed a comprehensive plan to integrate the business activities of the combined companies. The plan included, among other things, the disposition, discontinuance and restructuring of certain businesses and product lines, and the recognition of certain asset impairments. In the fourth quarter of 1995, we recorded $154 million in restructuring charges associated with the plan. The restructuring charges did not cover all integration costs. Such things as new information systems, anticipated operating losses from businesses to be discontinued, employee relocation, and training were not included. These costs are being recognized as they are incurred. MERGER COSTS In connection with the April 1996 acquisition of HealthWise, we recorded nonoperating merger costs of $15 million, consisting primarily of professional fees and other direct costs associated with the acquisition. 17 GOVERNMENT REGULATION Our primary business, offering health care coverage and health care management services, is heavily regulated at the federal and state levels. We strive to comply in all respects with applicable regulations and may need to make changes from time to time in our services, products, marketing methods or organizational or capital structure. Regulatory agencies generally have broad discretion to issue regulations and interpret and enforce laws and rules. Changes in applicable laws and regulations are continually being considered, and the interpretation of existing laws and rules also may change from time to time. These changes could affect our operations and financial results. Certain proposed changes in Medicare and Medicaid programs may improve opportunities to enroll people under products developed for these populations. Other proposed changes could limit available reimbursement and increase competition in those programs, with adverse effects on our financial results. Also, it could be more difficult for us to control medical costs if federal and state bodies continue to consider and enact significant and onerous managed care laws and regulations. The Health Insurance Portability and Accountability Act of 1996 (HIPAA) may represent the most significant federal reform of employee benefit law since the enactment of the Employee Retirement Income Security Act (ERISA) in 1974. Some of HIPAA's significant provisions include guaranteeing the availability of health insurance for certain employees and individuals, limits on the use of preexisting condition exclusions, prohibitions against discriminating on a basis of health status, and requirements which make it easier to continue coverage in cases where a person is terminated or changes employers. Under HIPAA and other similar state laws, medical cost control through amended provider contracts and improved preventive and chronic care management may become more important. We believe our experience in these areas will allow us to compete effectively. Health care fraud and abuse has become a top priority for the nation's law enforcement entities and has focused on participants in federal government health care programs such as Medicare, Medicaid and the Federal Employees Health Benefits Program (FEHBP). We participate extensively in these programs. We also are subject to governmental investigations and enforcement actions. Included are actions relating to ERISA, which regulates insured and self- insured health coverage plans offered by employers; the FEHBP; federal and state fraud and abuse laws; and laws relating to care management and health care delivery. Government actions could result in assessment of damages, civil or criminal fines or penalties, or other sanctions, including exclusion from participation in government programs. We are currently involved in various government investigations and audits, but we do not believe the results will have a material adverse effect on our financial position or results of operations. INFLATION Although the general rate of inflation has remained relatively stable and health care cost inflation has stabilized in recent years, the national health care cost inflation rate still exceeds the general inflation rate. We use various strategies to mitigate the negative effects of health care cost inflation, including setting commercial premiums based on anticipated health care costs, risk-sharing arrangements with various health care providers, and other health care cost containment measures. Specifically, health plans try to control medical and hospital costs through contracts with independent providers of health care services. Through these contracted care providers, our health plans emphasize preventive health care and appropriate use of specialty and hospital services. While we currently believe our strategies to mitigate health care cost inflation will continue to be successful, competitive pressures, new health care product introductions, demands from health care providers and customers, applicable regulations or other factors may affect our ability to control the impact of health care cost increases. In addition, certain non-network-based products do not have health care cost containment measures similar to those in place for network-based products. As a result, there is added health care cost inflation risk with these products. FINANCIAL CONDITION AND LIQUIDITY Our cash and investments increased from $3.5 billion at December 31, 1996, to $4.0 billion at December 31, 1997. The increase in cash and investments is primarily the result of cash generated from operations of $683 million, offset by purchases of property and equipment and capitalized software of $187 million. Under applicable government regulations, several subsidiaries are required to maintain specific capital levels to support their operations. After taking these regulations and certain business considerations into account, we had $960 million in cash and investments available for general corporate use at December 31, 1997. From these cash reserves, we recently established a $100 million capital fund designated for strategic investments in new and promising businesses. 18 The National Association of Insurance Commissioners has an effort underway that would require new minimum capitalization limits for health care coverage provided by insurance companies, HMOs and other risk-bearing health care entities. The requirements would take the form of risk-based capital rules. Depending on the nature and extent of the new minimum capitalization requirements ultimately adopted, there could be an increase in the capital required for certain of our subsidiaries. Any increase would be funded from our corporate usable cash reserves. The new requirements are expected to be effective December 31, 1998. We continue to focus on expanding health care programs to the Medicare population. In the past 12 months, the number of sites offering a Medicare health plan product increased from 18 to 27 sites. Over the same period, health plan Medicare enrollment grew 53%. We continue to invest in new markets and expect to have 39 sites offering Medicare programs by year-end 1998. Significant expenses are associated with introducing a Medicare health plan product. Start-up expenses include a lengthy and detailed regulatory approval process, product-specific provider contracting and network configuration, high up-front sales and marketing costs, and staffing of service areas in advance of product sales. We expect to incur operating losses from Medicare products in start-up markets, usually for the first 12 to 18 months. Once Medicare enrollment targets are met, we expect corresponding administrative costs to be covered. In November 1997, we announced a significant realignment of our operations, designed to take full advantage of opportunities to grow and succeed as we expand into the broad health and well-being marketplace. We have aligned our operations into six independent but strategically linked businesses, each focused on performance, growth and shareholder value. The realignment is dramatically changing the way we manage our business. We are realigning our resources and activities to more directly support the operations of our businesses. We are assessing the effectiveness of our core management processes and transaction processing systems. We are also evaluating each of our businesses for strategic fit, growth potential and operating performance and will be taking actions on business units that do not fit our new direction. Our realignment efforts will take several months to complete. Despite the vast undertaking, we do not expect our realignment efforts to negatively affect our product offerings, provider relations, billing and collection disciplines, and claims processing and payment activities. These efforts, however, may make it appropriate for us to absorb certain restructuring charges. While we anticipate such efforts could be significant, we cannot yet estimate the size of any restructuring charges. We are in the process of modifying our computer systems to accommodate the year 2000. We currently expect these modifications to be completed well in advance of the year 2000 with no adverse effect on our operations. We expect to incur associated expenses of approximately $20 million in 1998 and $15 million in 1999 to complete this effort. Our inability to complete year 2000 modifications on a timely basis or the inability of other companies with which we do business to complete their year 2000 modifications on a timely basis could adversely affect our operations. In February 1997, we completed a contract to deliver Medicare and hospital supplement insurance and develop an array of new products for the American Association of Retired Persons (AARP) beginning in January 1998. Under the terms of the 10-year contract, our portion of the AARP insurance offerings represents over $3.5 billion in anticipated annual premium revenue from over 4 million enrolled members. In November 1997, the board of directors authorized a stock repurchase program. Up to 10% of our outstanding common stock may be repurchased under the program. Purchases may be made from time to time at prevailing prices in the open market, subject to certain restrictions relating to volume, pricing and timing. The repurchased shares will be available for reissuance through employee stock option and purchase plans and for other corporate purposes. Repurchase activity in 1997 was not significant. In January 1998, we filed a shelf registration statement with the Securities and Exchange Commission to sell as much as $200 million of debt securities, preferred or common shares. The shelf filing registers the securities and allows us to sell them from time to time in the event we need financing. Proceeds from sales of these securities may be used for a variety of general corporate purposes, including working capital, securities repurchases and acquisitions. We expect our available cash resources will be sufficient to meet our current operating requirements and internal development and realignment initiatives. In addition, based on our current financial condition and results of operations, we should be able to finance additional cash requirements in the public or private markets, if necessary. Currently, we do not have any other material definitive commitments that require cash resources; however, we continually evaluate opportunities to expand our operations. This includes internal development of new products and programs and may include acquisitions. 19 CONSOLIDATED STATEMENTS OF OPERATIONS UNITED HEALTHCARE FOR THE YEAR ENDED DECEMBER 31, (IN MILLIONS, EXCEPT PER SHARE DATA) 1997 1996 1995 REVENUES Premiums $ 10,135 $ 8,491 $ 4,931 Management Services and Fees 1,428 1,398 580 Investment and Other Income 231 185 160 - ----------------------------------------------------------------------------------------------- Total Revenues 11,794 10,074 5,671 - ----------------------------------------------------------------------------------------------- OPERATING EXPENSES Medical Costs 8,542 7,180 3,931 Selling, General and Administrative Expenses 2,364 2,165 1,031 Depreciation and Amortization 146 133 94 Restructuring Charges - - 154 - ----------------------------------------------------------------------------------------------- Total Operating Expenses 11,052 9,478 5,210 - ----------------------------------------------------------------------------------------------- EARNINGS FROM OPERATIONS 742 596 461 Merger Costs - (15) - - ----------------------------------------------------------------------------------------------- EARNINGS BEFORE INCOME TAXES 742 581 461 Provision for Income Taxes (282) (225) (175) - ----------------------------------------------------------------------------------------------- NET EARNINGS 460 356 286 CONVERTIBLE PREFERRED STOCK DIVIDENDS (29) (29) (7) - ----------------------------------------------------------------------------------------------- NET EARNINGS APPLICABLE TO COMMON SHAREHOLDERS $ 431 $ 327 $ 279 - ----------------------------------------------------------------------------------------------- BASIC NET EARNINGS PER COMMON SHARE $ 2.30 $ 1.80 $ 1.61 - ----------------------------------------------------------------------------------------------- DILUTED NET EARNINGS PER COMMON SHARE $ 2.26 $ 1.76 $ 1.57 - ----------------------------------------------------------------------------------------------- BASIC WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 187 182 174 DILUTIVE EFFECT OF OUTSTANDING STOCK OPTIONS 4 4 3 - ----------------------------------------------------------------------------------------------- WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, ASSUMING DILUTION 191 186 177 - -----------------------------------------------------------------------------------------------
See notes to consolidated financial statements. 20 CONSOLIDATED BALANCE SHEETS UNITED HEALTHCARE AS OF DECEMBER 31, (IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA) 1997 1996 - ----------------------------------------------------------------------------------------------- ASSETS Current Assets Cash and Cash Equivalents $ 750 $ 1,037 Short-Term Investments 506 611 Accounts Receivable, net of allowances of $45 and $46 768 606 Assets Under Management 28 155 Other Current Assets 141 331 - ----------------------------------------------------------------------------------------------- Total Current Assets 2,193 2,740 Long-Term Investments 2,785 1,805 Property and Equipment, net of accumulated depreciation of $350 and $275 364 313 Goodwill and Other Intangible Assets, net of accumulated amortization of $205 and $136 2,281 2,139 - ----------------------------------------------------------------------------------------------- Total Assets $7,623 $ 6,997 - ----------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Medical Costs Payable $1,565 $ 1,516 Other Policy Liabilities 235 334 Accounts Payable and Accrued Liabilities 495 565 Unearned Premiums 275 228 - ----------------------------------------------------------------------------------------------- Total Current Liabilities 2,570 2,643 Long-Term Obligations 19 31 Convertible Preferred Stock 500 500 Commitments and Contingencies (Note 10) - ----------------------------------------------------------------------------------------------- Shareholders' Equity Common Stock, $.01 par value - 500,000,000 shares authorized; 191,111,000 and 184,865,000 issued and outstanding 2 2 Additional Paid-in Capital 1,398 1,148 Retained Earnings 3,105 2,680 Net Unrealized Holding Gains (Losses) on Investments Available for Sale, net of income tax effects 29 (7) - ----------------------------------------------------------------------------------------------- Total Shareholders' Equity 4,534 3,823 - ----------------------------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity $7,623 $ 6,997 - -----------------------------------------------------------------------------------------------
See notes to consolidated financial statements. 21 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY UNITED HEALTHCARE NET UNREALIZED HOLDING GAINS (LOSSES) COMMON STOCK ADDITIONAL ON INVESTMENTS ------------------ PAID-IN RETAINED AVAILABLE FOR (IN MILLIONS, EXCEPT PER SHARE DATA) SHARES AMOUNT CAPITAL EARNINGS SALE TOTAL - --------------------------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1994 173 $ 2 $ 752 $ 2,085 $ (44) $ 2,795 Issuance of Common Stock Stock Plans and Related Tax Benefits 2 - 70 - - 70 Change in Net Unrealized Holding Gains (Losses) on Investments Available for Sale, net of Income Tax Effects - - - - 49 49 Cash Dividends Common Stock ($0.03 per share) - - - (5) - (5) Convertible Preferred Stock ($14.38 per share) - - - (7) - (7) Net Earnings - - - 286 - 286 - --------------------------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1995 175 2 822 2,359 5 3,188 Issuance of Common Stock Stock Plans and Related Tax Benefits 2 - 56 - - 56 Acquisitions 8 - 270 - - 270 Change in Net Unrealized Holding Gains (Losses) on Investments Available for Sale, net of Income Tax Effects - - - - (12) (12) Cash Dividends Common Stock ($0.03 per share) - - - (6) - (6) Convertible Preferred Stock ($57.50 per share) - - - (29) - (29) Net Earnings - - - 356 - 356 - --------------------------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1996 185 2 1,148 2,680 (7) 3,823 Issuance of Common Stock Stock Plans and Related Tax Benefits 3 - 116 - - 116 Acquisitions 3 - 144 - - 144 Stock Repurchases - - (10) - - (10) Change in Net Unrealized Holding Gains (Losses) on Investments Available for Sale, net of Income Tax Effects - - - - 36 36 Cash Dividends Common Stock ($0.03 per share) - - - (6) - (6) Convertible Preferred Stock ($57.50 per share) - - - (29) - (29) NET EARNINGS - - - 460 - 460 - --------------------------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1997 191 $ 2 $1,398 $ 3,105 $ 29 $ 4,534 - ---------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. 22 CONSOLIDATED STATEMENTS OF CASH FLOWS UNITED HEALTHCARE FOR THE YEAR ENDED DECEMBER 31, (IN MILLIONS) 1997 1996 1995 - ----------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net Earnings $ 460 $ 356 $ 286 Noncash Items Depreciation and Amortization 146 133 94 Deferred Income Taxes 91 48 (34) Noncash Restructuring Charges - - 141 Provision for Future Losses - 45 - Other - (8) (4) Net Change in Other Operating Items, net of effects from acquisitions and sales of subsidiaries Accounts Receivable and Other Current Assets (84) (185) 9 Medical Costs Payable 53 321 143 Accounts Payable and Other Current Liabilities (30) (202) (215) Unearned Premiums 47 54 15 - ----------------------------------------------------------------------------------------------- Cash Flows from Operating Activities 683 562 435 - ----------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Cash Paid for Acquisitions, net of cash assumed and other effects - (52) (969) Purchases of Property and Equipment and Capitalized Software (187) (165) (109) Purchases of Investments (6,706) (5,010) (3,290) Maturities/Sales of Investments 5,889 4,755 3,322 - ----------------------------------------------------------------------------------------------- Cash Flows Used for Investing Activities (1,004) (472) (1,046) - ----------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Proceeds from Stock Option Exercises 79 42 37 Stock Repurchases (10) - - Dividends Paid Convertible Preferred Stock (29) (29) - Common Stock (6) (6) (5) - ----------------------------------------------------------------------------------------------- Cash Flows from Financing Activities 34 7 32 - ----------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (287) 97 (579) - ----------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,037 940 1,519 - ----------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 750 $ 1,037 $ 940 - -----------------------------------------------------------------------------------------------
See notes to consolidated financial statements. 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNITED HEALTHCARE (1) DESCRIPTION OF BUSINESS United HealthCare Corporation (United HealthCare, or "we," "us," "our") is a national leader in offering health care coverage and related services to help people achieve improved health and well-being through all stages of life. We provide a broad spectrum of products and services and operate in all 50 states, the District of Columbia and Puerto Rico, as well as internationally. Our products and services reflect a number of core capabilities, including medical information management, health benefit administration, risk assessment and pricing, health benefit design, and provider contracting and risk sharing. With these capabilities, we provide comprehensive health care management services through organized health systems and insurance products, including health maintenance organizations (HMOs), point-of-service plans (POS), preferred provider organizations (PPOs) and managed indemnity programs. We also offer specialized health care management services and products such as behavioral health services, workers' compensation and disability services, utilization review services, specialized provider networks, employee assistance programs, knowledge and information services, and administrative services. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION We have prepared the consolidated financial statements according to generally accepted accounting principles and have included the accounts of United HealthCare and its subsidiaries. We have eliminated all significant inter- company accounts and transactions. These consolidated financial statements include some amounts that are based on our best estimates and judgments. The most significant estimates relate to medical costs payable and other policy liabilities, intangible asset valuations and integration reserves relating to recent acquisitions. These estimates may be adjusted as more accurate information becomes available, and any adjustment could be significant. REVENUE RECOGNITION Premium revenues are recognized in the period enrolled members are entitled to receive health care services. Premium payments received from our customers prior to such period are recorded as unearned premiums. Management services and fee revenues are recognized in the period the related services are performed. Premium revenues related to Medicare and Medicaid programs as a percentage of total premium revenues were 22% in 1997, 19% in 1996, and 22% in 1995. MEDICAL COSTS Medical costs include claims paid, claims in process and pending, and estimated unreported claims. Medical costs also include per member charges by physicians, hospitals and other health care providers for services provided to enrolled members during the period. Medical cost adjustments to prior period estimates are reflected in the current period. CASH AND CASH EQUIVALENTS AND INVESTMENTS Cash and cash equivalents are highly liquid investments with an original maturity of three months or less. The fair value of cash and cash equivalents approximates carrying value because of the short maturity of the instruments. Investments with a maturity of less than one year are classified as short-term. Investments held by trustees or agencies according to state regulatory requirements are classified as held to maturity based on our ability and intent to hold these investments to maturity. Such investments are reported at amortized cost. All other investments are classified as available for sale and are reported at fair value based on quoted market prices. Unrealized gains and losses on investments available for sale are excluded from earnings and reported as a separate component of shareholders' equity, net of income tax effects. To calculate realized gains and losses on the sale of investments available for sale, we use the amortized cost of each investment sold. We have no investments classified as trading securities. 24 ASSETS UNDER MANAGEMENT In connection with the 1995 acquisition of The MetraHealth Companies, Inc. (MetraHealth) (see Note 3), we are administering certain aspects of the health care operations of MetraHealth's predecessor companies related to business we expect to be transferred to United HealthCare according to agreements made during the initial formation of MetraHealth. As this business transfers to United HealthCare, associated assets are invested in marketable securities according to our investment policy. OTHER POLICY LIABILITIES Other policy liabilities principally relate to experience-rated indemnity products and primarily include retrospective rate credit reserves and customer balances. Retrospective rate credit reserves represent premiums we received in excess of claims and expenses charged under eligible contracts. Reserves established for closed policy years are based on actual experience, while reserves for open years are based on estimates of premiums, claims and expenses incurred. Customer balances consist principally of deposit accounts and reserves that have accumulated under certain experience-rated contracts. At the customer's option, these balances may be returned to the customer or may be used to pay future premiums or claims under eligible contracts. PROPERTY AND EQUIPMENT Property and equipment is stated at cost. Depreciation is calculated using the straight-line method over the estimated useful life of the respective assets, ranging from 3 years to 30 years. GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill represents the purchase price and transaction costs associated with businesses we acquired in excess of the estimated fair value of the net assets of these businesses. To the extent possible, a portion of the excess purchase price and transaction costs is assigned to certain identifiable intangible assets, primarily employer group contracts. Goodwill and other intangible assets are being amortized on a straight-line basis over useful lives ranging from 3 years to 40 years. The useful lives of goodwill and other intangible assets have been assigned based on our best judgment. We periodically evaluate whether certain circumstances may affect the estimated useful lives or the recoverability of the unamortized balance of goodwill or other intangible assets. The most significant components of goodwill and other intangible assets are comprised of goodwill of $1.2 billion in 1997 and $1.1 billion in 1996, and employer group contracts of $900 million in 1997 and $939 million in 1996, net of accumulated amortization. LONG-LIVED ASSETS We review long-lived assets for events or changes in circumstances that would indicate we may not recover their carrying value. We consider a number of factors, including estimated future undiscounted cash flows associated with the long-lived asset, to make this decision. We record assets held for sale at the lower of the carrying amount or fair value, less any costs associated with the final settlement. INCOME TAXES Deferred income tax assets and liabilities are recognized for the differences between the financial and income tax reporting bases of assets and liabilities based on enacted tax rates and laws. The deferred income tax provision or benefit generally reflects the net change in deferred income tax assets and liabilities during the year. The current income tax provision reflects the tax consequences of revenues and expenses currently taxable or deductible on various income tax returns for the year reported. STOCK-BASED COMPENSATION We use the intrinsic value method for determining stock-based compensation expenses. Under the intrinsic value method, we do not recognize compensation expense when the exercise price of an employee stock option equals or exceeds the fair market value of the stock on the date the option is granted. Information on what our stock-based compensation expenses would have been had we calculated those expenses using fair market values of outstanding stock options is included in Note 8. 25 NET EARNINGS PER COMMON SHARE In 1997, we adopted a new accounting standard that changes the way we determine earnings per share (SFAS No. 128). Under this new standard, basic net earnings per common share is computed by dividing net earnings applicable to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted net earnings per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of outstanding stock options. We do not consider convertible preferred stock a common stock equivalent when calculating diluted net earnings per share because the result would be anti-dilutive. RECLASSIFICATIONS Certain 1996 and 1995 amounts in the consolidated financial statements have been reclassified to conform with the 1997 presentation. These reclassifications have no effect on net earnings or shareholders' equity as previously reported. (3) ACQUISITIONS On December 31, 1997, we acquired Medicode, Inc. (Medicode), a leading provider of health care information products. We issued 2.4 million shares of common stock and 507,000 common stock options with a total fair value of $140 million in exchange for all outstanding shares of Medicode. We accounted for the acquisition using the purchase method of accounting, which means the purchase price was allocated to assets and liabilities based on estimated fair values at the date of acquisition. The purchase price and costs associated with the acquisition exceeded the estimated fair value of net assets acquired by $135 million and have been assigned to goodwill. The pro forma effects of the Medicode acquisition on our consolidated financial statements were not material. On April 12, 1996, we completed the acquisition of HealthWise of America, Inc. (HealthWise). HealthWise owned or operated health plans in Maryland, Kentucky, Tennessee and Arkansas that served 154,000 members at the time of acquisition. We issued 4.3 million shares of common stock in exchange for all outstanding shares of HealthWise. We accounted for the acquisition as a pooling of interests; however, we did not restate our historical consolidated financial results because the effects of this acquisition on our consolidated financial statements were not material. In connection with the HealthWise acquisition, we incurred nonoperating merger costs of $15 million. On March 29, 1996, we completed the acquisition of PHP, Inc. (PHP), a North Carolina-based health plan that served 132,000 members at the time of acquisition. We issued 2.3 million shares of common stock, with a fair value of $140 million, in exchange for all outstanding shares of PHP. We accounted for the acquisition using the purchase method of accounting. The purchase price and costs associated with the acquisition exceeded the estimated fair value of net assets acquired by $115 million and have been assigned to goodwill. The pro forma effects of the PHP acquisition on our consolidated financial statements were not material. We acquired MetraHealth on October 2, 1995. MetraHealth was formed in January 1995 by combining the group health care operations of Metropolitan Life Insurance Company and The Travelers Insurance Group. At the time of acquisition, MetraHealth served over 10 million individuals, including 5.9 million in network-based care programs, 469,000 of whom were health plan members. We accounted for the acquisition using the purchase method of accounting. Based on estimates made at the date of acquisition, the purchase price and costs associated with the acquisition exceeded the estimated fair value of net assets acquired by $992 million. 26 The total purchase price of the acquisition was $1.1 billion in cash and $500 million of convertible preferred stock, for a total amount at closing of $1.6 billion. In addition, the former owners of MetraHealth were eligible to receive up to an additional $350 million if MetraHealth achieved certain 1995 operating results, as defined. In 1996, we paid $105 million in cash, including interest, as full settlement of the 1995 earnout. This earnout payment has been reflected in the accompanying consolidated financial statements as additional goodwill. With the settlement of the 1995 earnout and certain revisions to estimates made in connection with the acquisition, goodwill and other intangible assets associated with the MetraHealth acquisition totaled $1.2 billion. In addition, certain of MetraHealth's former owners were eligible to receive up to an additional $175 million in cash for each of 1996 and 1997 if our post- acquisition combined net earnings for each of those years reached certain specified levels. Based on combined operating results for those years, no payment related to these earnouts was required. Had the MetraHealth acquisition occurred on January 1, 1995, combined unaudited pro forma results for the year ended December 31, 1995, would have been: revenues-$8.7 billion; net earnings before restructuring charges- $450 million; and net earnings per common share before restructuring charges-$2.53. After considering 1995 restructuring charges, net earnings would have been $353 million in 1995 ($1.98 per common share). (4) RESTRUCTURING CHARGES In connection with our acquisition of MetraHealth, we developed a comprehensive plan to integrate the business activities of the combined companies (the Plan). The Plan included, among other things, the disposition, discontinuance and restructuring of certain businesses and product lines, and the recognition of certain asset impairments. In the fourth quarter of 1995, we recorded $154 million in restructuring charges associated with the Plan. In conjunction with ongoing integration efforts, we modified the Plan during 1996. The restructuring reserves established with the original Plan were an accurate estimation of the costs incurred; however, we needed to reallocate the reserve estimates among the associated activities as the original Plan evolved. A reconciliation of restructuring activities during 1997, 1996 and 1995 is as follows (in millions): 1997 1996 1995 - ----------------------------------------------------------------------------------------------- Balance at beginning of year $ 28 $ 141 $ - Provision for restructuring costs: Severance and Outplacement - (10) 24 Contract Terminations - 3 58 Noncancelable Lease Obligations - 7 20 Asset Impairments - - 52 Cash Payments: Severance and Outplacement (3) (9) (2) Contract Terminations (9) (39) (9) Noncancelable Lease Obligations (5) (13) (2) Noncash Activities: Property, equipment and software writedowns - (52) - - ----------------------------------------------------------------------------------------------- Balance at end of year $ 11 $ 28 $141 - -----------------------------------------------------------------------------------------------
(5) PROVISION FOR FUTURE LOSSES In the second quarter of 1996, we recorded a provision to medical costs of $45 million to cover estimated losses we expect to incur through the remaining terms of two large multiyear contracts in our St. Louis health plan. Through December 31, 1997, losses under these contracts of $26 million have been applied against the established reserve. We believe the remaining balance in the reserve will be sufficient to cover any future losses from these contracts. 27 (6) CASH AND INVESTMENTS As of December 31, 1997 and 1996, the amortized cost, gross unrealized holding gains and losses, and fair value of cash and investments were as follows (in millions): GROSS UNREALIZED GROSS UNREALIZED 1997 AMORTIZED COST HOLDING GAINS HOLDING LOSSES FAIR VALUE - ------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents $ 750 $ - $ - $ 750 - ------------------------------------------------------------------------------------------------------------------- Investments Available for Sale U.S. Government and Agencies 685 9 (3) 691 State and State Agencies 775 17 - 792 Municipalities and Local Agencies 845 18 - 863 Corporate 439 6 - 445 Other 435 - - 435 - ------------------------------------------------------------------------------------------------------------------- Total Investments Available for Sale 3,179 50 (3) 3,226 - ------------------------------------------------------------------------------------------------------------------- Investments Held to Maturity U.S. Government and Agencies 38 - - 38 State and State Agencies 2 - - 2 Municipalities and Local Agencies 1 - - 1 Corporate 18 - - 18 Other 6 - - 6 - ------------------------------------------------------------------------------------------------------------------- Total Investments Held to Maturity 65 - - 65 - ------------------------------------------------------------------------------------------------------------------- Total Cash and Investments $ 3,994 $ 50 $ (3) $ 4,041 - ------------------------------------------------------------------------------------------------------------------- 1996 - ------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents $ 1,037 $ - $ - $ 1,037 - ------------------------------------------------------------------------------------------------------------------- Investments Available for Sale U.S. Government and Agencies 825 1 (14) 812 State and State Agencies 471 2 - 473 Municipalities and Local Agencies 474 3 (1) 476 Corporate 416 1 (3) 414 Other 179 - - 179 - ------------------------------------------------------------------------------------------------------------------- Total Investments Available for Sale 2,365 7 (18) 2,354 - ------------------------------------------------------------------------------------------------------------------- Investments Held to Maturity U.S. Government and Agencies 36 - - 36 State and State Agencies 5 - - 5 Municipalities and Local Agencies 1 - - 1 Corporate 17 - - 17 Other 3 - - 3 - ------------------------------------------------------------------------------------------------------------------- Total Investments Held to Maturity 62 - - 62 - ------------------------------------------------------------------------------------------------------------------- Total Cash and Investments $ 3,464 $ 7 $ (18) $ 3,453 - -------------------------------------------------------------------------------------------------------------------
As of December 31, 1997, the contractual maturities of cash and cash equivalents and investments were as follows (in millions): LESS THAN ONE TO OVER FIVE TO OVER TEN YEARS TO MATURITY ONE YEAR FIVE YEARS TEN YEARS YEARS - --------------------------------------------------------------------------------------------------------------- At Amortized Cost: Cash and Cash Equivalents $ 750 $ - $ - $ - Investments Available for Sale 506 1,191 678 804 Investments Held to Maturity 36 29 - - - --------------------------------------------------------------------------------------------------------------- Total Cash and Investments $ 1,292 $ 1,220 $ 678 $ 804 - --------------------------------------------------------------------------------------------------------------- At Fair Value: Cash and Cash Equivalents $ 750 $ - $ - $ - Investments Available for Sale 506 1,202 695 823 Investments Held to Maturity 36 29 - - - --------------------------------------------------------------------------------------------------------------- Total Cash and Investments $ 1,292 $ 1,231 $ 695 $ 823 - ---------------------------------------------------------------------------------------------------------------
Mortgage-backed securities that do not have a single maturity date have been presented in the above tables based on their estimated maturity dates. 28 Under applicable government regulations, several United HealthCare subsidiaries are required to maintain specific capital levels to support their operations. In addition, at December 31, 1997, trustees or state regulatory agencies held investments of $65 million to ensure adequate financial reserves exist as required by state regulatory agencies. After taking these regulations and certain business considerations into account, we had $960 million in cash and investments available for general corporate use at December 31, 1997. Investment income earned on all investments accrues to United HealthCare. (7) CONVERTIBLE PREFERRED STOCK We have 10 million shares of $0.001 par value preferred stock authorized for issuance. With our acquisition of MetraHealth, we designated a series of 500,000 shares as 5.75% Series A Convertible Preferred Stock (Preferred Stock). This Preferred Stock was issued to certain former shareholders of MetraHealth as a portion of the total consideration of the MetraHealth acquisition (see Note 3). Preferred Stock dividends are fully cumulative and payable quarterly at the rate of 5.75% annually from available funds. At the option of the Preferred shareholders, each share of Preferred Stock may be converted into 20.21 shares of United HealthCare common stock. At our option, we may redeem the Preferred Stock, in whole or in part, anytime after October 1, 1998, at certain defined redemption rates. The Preferred Stock must be redeemed no later than October 1, 2005. Holders of Preferred Stock do not have voting rights, but do have preference upon liquidation or dissolution of United HealthCare. (8) SHAREHOLDERS' EQUITY STOCK REPURCHASE PROGRAM In November 1997, the board of directors authorized a stock repurchase program under which up to 10% of our outstanding common stock may be repurchased. These repurchases may be made from time to time at prevailing prices in the open market, subject to certain restrictions on volume, pricing and timing. The repurchased shares will be available for reissuance for the employee stock option and purchase plans and for other corporate purposes. Repurchase activity in 1997 was not significant. DIVIDENDS On February 10, 1998, the board of directors approved an annual dividend for 1998 of $0.03 per share to holders of common stock. Dividends will be paid on April 15, 1998, to shareholders of record at the close of business on April 1, 1998. REGULATORY REQUIREMENTS Regulated United HealthCare subsidiaries must comply with certain minimum capital or tangible net equity requirements in each of the states in which they operate. As of December 31, 1997, all regulated subsidiaries were in compliance in all material respects with these requirements. STOCK-BASED COMPENSATION PLANS We have stock and incentive plans (Stock Plans) for the benefit of eligible employees. As of December 31, 1997, the Stock Plans allowed for the future granting of up to 1,033,000 shares as incentive or non-qualified stock options, stock appreciation rights, restricted stock awards, and performance awards to employees. In 1995, we adopted the Non-employee Director Stock Option Plan (the 1995 Plan) to benefit members of the board of directors who are not employees. Up to 350,000 shares of common stock may be issued under the terms of the 1995 Plan. As of December 31, 1997, 74,000 shares were available for future grants of non- qualified stock options under the 1995 Plan. Options generally are granted at an exercise price not less than the fair market value of the common stock at the date of grant. They may be exercised over varying periods up to 10 years from the date of grant. 29 A summary of the activity under our Stock Plans and the 1995 Plan during 1997, 1996 and 1995 is presented in the table below (shares in thousands): 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------- WEIGHTED- WEIGHTED- WEIGHTED- AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE - ------------------------------------------------------------------------------------------------------------------------- Outstanding at beginning of year 16,894 $ 29 14,927 $ 28 11,509 $ 22 Granted 4,366 $ 44 4,125 $ 33 6,792 $ 35 Issued in acquisition 507 $ 4 - $ - - $ - Exercised (3,095) $ 20 (1,336) $ 19 (2,168) $ 16 Forfeited (1,559) $ 35 (822) $ 33 (1,206) $ 31 - ------------------------------------------------------------------------------------------------------------------------- Outstanding at end of year 17,113 $ 34 16,894 $ 29 14,927 $ 28 - ------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------- Exercisable at end of year 6,702 $ 28 6,914 $ 23 4,542 $ 23 - -------------------------------------------------------------------------------------------------------------------------
The following table summarizes information about stock options outstanding at December 31, 1997 (shares in thousands): OPTIONS OUTSTANDING OPTIONS EXERCISABLE --------------------------------------------------------------------------------------------------- NUMBER WEIGHTED-AVERAGE NUMBER OUTSTANDING REMAINING WEIGHTED-AVERAGE EXERCISABLE WEIGHTED-AVERAGE RANGE OF EXERCISE PRICES AT DECEMBER 31, 1997 OPTION TERM (YEARS) EXERCISE PRICE AT DECEMBER 31, 1997 EXERCISE PRICE - ----------------------------------------------------------------------------------------------------------------------------- $ 0 - $22 3,643 4.5 $ 14 2,534 $ 13 $23 - $35 5,144 7.7 $ 33 1,849 $ 31 $36 - $46 6,416 8.3 $ 42 1,705 $ 40 $47 - $55 1,910 8.3 $ 49 614 $ 50 - ----------------------------------------------------------------------------------------------------------------------------- $ 0 - $55 17,113 7.4 $ 34 6,702 $ 28 - -----------------------------------------------------------------------------------------------------------------------------
We increased additional paid-in capital $37 million in 1997, $15 million in 1996, and $29 million in 1995 to reflect the tax benefit we received upon the exercise of non-qualified stock options. We do not recognize compensation expense in connection with stock option grants related to the Stock Plans and the 1995 Plan because we grant stock options at exercise prices that equal or exceed the fair market value of the stock at the time options are granted. If we had determined compensation expense using fair market values for the stock, net earnings and diluted net earnings per common share would have been reduced to the following pro forma amounts: 1997 1996 1995 - ----------------------------------------------------------------------------------------------- Net Earnings (in millions) As reported $ 460 $ 356 $ 286 Pro Forma $ 430 $ 332 $ 266 - ----------------------------------------------------------------------------------------------- Diluted Net Earnings Per Common Share As reported $ 2.26 $ 1.76 $ 1.57 Pro Forma $ 2.10 $ 1.63 $ 1.46 - ----------------------------------------------------------------------------------------------- Weighted-Average Fair Value of Options Granted $ 25 $ 23 $ 24 - ----------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------
To determine compensation cost under the fair value method, the fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model. Principal assumptions used in applying the Black-Scholes model were as follows: 1997 1996 1995 - ----------------------------------------------------------------------- Risk-free interest rate 6.0% 6.6% 6.4% Expected volatility 56% 57% 55% Expected dividend yield 0% 0% 0% Expected life in years 5.6 5.0 5.2 - ----------------------------------------------------------------------- - -----------------------------------------------------------------------
Because we did not apply the fair value method of accounting to options granted prior to January 1, 1995, the resulting pro forma compensation cost may not be representative of what can be expected in future years. 30 EMPLOYEE STOCK OWNERSHIP PLAN We have an unleveraged Employee Stock Ownership Plan (ESOP) for the benefit of all eligible employees. Company contributions to the ESOP are made at the discretion of the board of directors. We made contributions to the ESOP of $4 million in 1997, $3 million in 1996, and $1 million in 1995. EMPLOYEE STOCK PURCHASE PLAN The Employee Stock Purchase Plan (ESPP) allows all eligible employees to purchase shares of common stock on semiannual offering dates at a price that is the lesser of 85% of the fair market value of the shares on the first day or the last day of the semiannual period. Employee contributions to the ESPP were $17 million for 1997, $16 million for 1996, and $7 million for 1995. Through the ESPP, we issued employees 422,000 shares in 1997, 392,000 shares in 1996, and 216,000 shares in 1995. As of December 31, 1997, 3.2 million shares were available for future issue. (9) INCOME TAXES Components of the Provision for Income Taxes YEAR ENDED DECEMBER 31, (IN MILLIONS) 1997 1996 1995 - ----------------------------------------------------------------------------------------------- Current Federal $ 171 $ 159 $ 182 State 20 18 27 - ----------------------------------------------------------------------------------------------- Total Current 191 177 209 Deferred 91 48 (34) - ----------------------------------------------------------------------------------------------- Total Provision $ 282 $ 225 $ 175 - ----------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------
Reconciliation of Statutory to Effective Income Tax Rate YEAR ENDED DECEMBER 31, 1997 1996 1995 - ---------------------------------------------------------------------------------------------- Federal Statutory Rate 35.0% 35.0% 34.9% State Income Taxes, net of federal benefit 2.8 2.4 3.0 Tax-exempt Investment Income (2.9) (2.0) (2.6) Intangible Amortization 2.8 3.1 2.0 Other, net 0.3 0.2 0.7 - ---------------------------------------------------------------------------------------------- Effective Income Tax Rate 38.0% 38.7% 38.0% - ----------------------------------------------------------------------------------------------
Components of Deferred Income Tax Assets and Liabilities DECEMBER 31, 1997 1996 - --------------------------------------------------------------------------------------------- Deferred Income Tax Assets: Medical Costs Payable and Other Accrued Liabilities $ 22 $ 39 Facility Consolidation Reserves 18 24 Loss Reserve Discounting 10 21 Severance and Deferred Compensation - 19 Unearned Premiums 19 12 Bad Debt Allowance 9 10 Other Restructuring Reserves 1 10 Impaired Assets Reserves 4 9 Intangible Amortization 3 6 Unrealized Losses on Investments Available for Sale - 4 Other 2 9 - --------------------------------------------------------------------------------------------- Total Deferred Income Tax Assets 88 163 - --------------------------------------------------------------------------------------------- Deferred Income Tax Liabilities: Capitalized Software Development (19) (8) Unrealized Gains on Investments Available for Sale (18) - Other (10) (1) - --------------------------------------------------------------------------------------------- Total Deferred Income Tax Liabilities (47) (9) - --------------------------------------------------------------------------------------------- Net Deferred Income Tax Assets $ 41 $ 154 - --------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------
We paid income taxes of $124 million in 1997, $96 million in 1996, and $190 million in 1995. Consolidated income tax returns for fiscal years 1995 and 1994 are being examined by the Internal Revenue Service. We do not believe any adjustments that may result will have a significant impact on consolidated operating results or financial position. 31 (10) COMMITMENTS AND CONTINGENCIES LEASES We lease facilities, computer hardware and other equipment under long-term operating leases that are non-cancelable and expire on various dates through 2011. Rent expense under all operating leases was $104 million in 1997, $114 million in 1996, and $61 million in 1995. At December 31, 1997, future minimum annual lease payments under all noncancelable operating leases were as follows (in millions): 1998 1999 2000 2001 2002 THEREAFTER - ------------------------------------------------ $ 103 $ 86 $ 62 $ 42 $ 25 $ 64 - ------------------------------------------------
SERVICE AGREEMENTS On June 1, 1996, and November 16, 1995, we entered into separate 10-year contracts with nonaffiliated third parties for information technology services. Under the terms of the contracts, the third parties assumed responsibility for certain data center operations and support. On September 19, 1996, we entered into a 10-year contract with a third party for certain data network and voice communication services. Future payments under all of these contracts are estimated to be $1.5 billion; however, the actual timing and amount of payments will vary based on usage. Expenses incurred in connection with these agreements were $125 million in 1997, $70 million in 1996, and $6 million in 1995. LEGAL PROCEEDINGS We are involved in legal actions that arise in the ordinary course of business. Although we cannot predict the outcomes of legal actions, it is our opinion that the resolution of any currently pending or threatened actions will not have an adverse effect on our consolidated financial position or results of operations. BUSINESS RISKS Certain factors relating to the health care industry and our business should be carefully considered. Companies offering health care coverage and health care management services are heavily regulated at federal and state levels. While we cannot predict regulatory changes or their impact, it is possible that operations and financial results could be negatively affected. After several years of moderate increases in health care costs and utilization, the industry experienced a pronounced increase during 1996. Although these increases appear to have stabilized, there is no assurance that health care costs and utilization will not continue to increase at a more rapid pace. If they do, we may not be able to meet our objective of maintaining price increases at least sufficient to cover health care cost increases. Additionally, the health care industry is highly competitive and has seen significant consolidation over the past few years. The current competitive markets in certain areas may limit our ability to price products at appropriate levels. These competitive factors may adversely affect the consolidated financial results. CONCENTRATIONS OF CREDIT RISK Investments in financial instruments such as marketable securities and commercial premiums receivable may subject United HealthCare to concentrations of credit risk. Our investments in marketable securities are managed by professional investment managers within guidelines established by the board of directors. As a matter of policy, these guidelines limit the amounts that may be invested in any one issuer. Concentrations of credit risk with respect to commercial premiums receivable are limited due to the large number of employer groups that comprise our customer base. As of December 31, 1997, there were no significant concentrations of credit risk. 32 (11) RECENTLY ISSUED ACCOUNTING STANDARDS In 1998, we will adopt a new accounting standard (SFAS No. 130) that will require us to report comprehensive income and its components, defined in the standard as changes in the equity of our business during a reporting period excluding changes resulting from investments by and distributions to our shareholders. This new standard will not affect net earnings or shareholders' equity as previously reported. In 1998, we also will adopt a new accounting standard (SFAS No. 131) that will require us to report financial and descriptive information about our reportable operating segments. Generally, financial information will be required to be reported on the basis that it is used internally to evaluate segment performance and to allocate resources to segments. This new standard will only affect financial statement disclosures and will not affect how we determine net earnings or shareholders' equity. (12) QUARTERLY FINANCIAL DATA (UNAUDITED) The following is a summary of unaudited quarterly results of operations for the years ended December 31, 1997 and 1996 (in millions, except per share data): QUARTERS ENDED ------------------------------------------------------- MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 - ---------------------------------------------------------------------------------------------------------------- 1997 Revenues $ 2,851 $ 2,931 $ 2,958 $ 3,054 Operating Expenses $ 2,673 $ 2,746 $ 2,771 $ 2,862 Net Earnings $ 109 $ 116 $ 116 $ 119 Net Earnings Applicable to Common Shareholders $ 102 $ 108 $ 109 $ 112 Basic Net Earnings per Common Share $ 0.55 $ 0.58 $ 0.58 $ 0.59 Diluted Net Earnings per Common Share $ 0.54 $ 0.57 $ 0.57 $ 0.58 - ---------------------------------------------------------------------------------------------------------------- 1996 Revenues $ 2,318 $ 2,492 $ 2,587 $ 2,677 Operating Expenses $ 2,125 $ 2,395 $ 2,438 $ 2,520 Net Earnings $ 119 $ 51 $ 91 $ 95 Net Earnings Applicable to Common Shareholders $ 112 $ 43 $ 84 $ 88 Basic Net Earnings per Common Share $ 0.64 $ 0.24 $ 0.46 $ 0.48 Diluted Net Earnings per Common Share $ 0.62 $ 0.23 $ 0.45 $ 0.47 - ----------------------------------------------------------------------------------------------------------------
33 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO THE SHAREHOLDERS AND DIRECTORS OF UNITED HEALTHCARE CORPORATION: We have audited the accompanying consolidated balance sheets of United HealthCare Corporation (a Minnesota Corporation) and Subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of operations, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of United HealthCare Corporation and Subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Minneapolis, Minnesota, February 12, 1998 REPORT OF MANAGEMENT The management of United HealthCare Corporation is responsible for the integrity and objectivity of the consolidated financial statements and other financial information contained in this annual report. The consolidated financial statements and related information were prepared according to generally accepted accounting principles and include some amounts that are based on management's best estimates and judgements. To meet its responsibility, management depends on its accounting systems and related internal accounting controls. These systems are designed to provide reasonable assurance, at an appropriate cost, that financial records are reliable for use in preparing financial statements and that assets are safeguarded. Qualified personnel throughout the organization maintain and monitor these internal accounting controls on an ongoing basis. Internal auditors review the accounting practices, systems of internal control, and compliance with these practices and controls. The Audit Committee of the Board of Directors, composed entirely of directors who are not employees of the Company, meets periodically and privately with the Company's independent public accountants and its internal auditors, as well as management, to review accounting, auditing, internal control, financial reporting and other matters. William W. McGuire, M.D. President, Chairman and Chief Executive Officer David P. Koppe Chief Financial Officer 34 CORPORATE AND BUSINESS SEGMENT LEADERS OFFICE OF THE CHAIRMAN - ---------------------- WILLIAM W. MCGUIRE, M.D. President, Chairman and Chief Executive Officer TRAVERS H. WILLS Chief Operating Officer and Chief Executive Officer, Health Plans STEPHEN J. HEMSLEY Senior Executive Vice President HEALTH PLANS - ------------ JAMES G. CARLSON President JEANNINE M. RIVET Chief Operating Officer LEE N. NEWCOMER, M.D. Chief Medical Officer WILLIAM A. MUNSELL Chief Financial Officer DAVID G. DEVEREAUX Western Coach FRED C. DUNLAP Florida and Puerto Rico Coach HENRY R. LOUBET Pacific Coach MARSHALL V. ROZZI North Central Coach ROBERT J. SHEEHY Midwest Coach BARBARA A. WAHLROBE Sales and Marketing R. CHANNING WHEELER Northeast Coach JOHN A. WICKENS Southeast Coach RICHARD C. ZORETIC Mid-Atlantic Coach INSURANCE SERVICES - ------------------ RONALD B. COLBY United HealthCare Insurance Company STEPHEN H. MATHESON Developing Markets Group STRATEGIC BUSINESS SERVICE - -------------------------- THOMAS P. MCDONOUGH Chief Executive Officer JAMES E. MCGARRY Chief Operating Officer RETIREE & SENIOR SERVICES - ------------------------- LOIS QUAM AARP Division LEONARD A. FARR AARP Division MARCIA E. SMITH EverCare-Registered Trademark- SPECIALIZED CARE SERVICES - ------------------------- SAUL FELDMAN, D.P.A. United Behavioral Health R. EDWARD BERGMARK, PH.D. Optum-Registered Trademark- DAVID J. MCLEAN, PH.D. United Resource Networks JAMES T. BRAUN Activ!-SM- NANCY I. CONNAWAY ProAmerica KNOWLEDGE & INFORMATION - ----------------------- SHEILA T. LEATHERMAN Center for Health Care Policy and Evaluation KEVIN H. ROCHE Applied HealthCare Informatics SIDNEY W. STOLZ Global Consulting CORPORATE FUNCTION LEADERS - -------------------------- ROBERT J. BACKES Human Resources DAVID P. KOPPE Chief Financial Officer PAUL F. LEFORT Chief Information Officer DAVID J. LUBBEN Corporate Secretary and General Counsel ELIZABETH A. MALKERSON Communications BERNARD F. MCDONAGH Investor Relations JOSEPH D. SAVONA Corporate Audit 35 BOARD OF DIRECTORS WILLIAM C. BALLARD, JR. Of Counsel, Greenbaum, Doll & McDonald Louisville, Kentucky, law firm RICHARD T. BURKE Chief Executive Officer and Governor Phoenix Coyotes National Hockey League Team JAMES A. JOHNSON Chairman and Chief Executive Officer Fannie Mae Diversified financial services company THOMAS H. KEAN President, Drew University DOUGLAS W. LEATHERDALE Chairman and Chief Executive Officer The Saint Paul Companies, Inc. Insurance and related services WALTER F. MONDALE Partner, Dorsey & Whitney LLP Minneapolis, Minnesota, law firm WILLIAM W. MCGUIRE, M.D. President, Chairman and Chief Executive Officer United HealthCare Corporation MARY O. MUNDINGER Dean and Professor, School of Nursing, and Associate Dean, Faculty of Medicine Columbia University ROBERT L. RYAN Senior Vice President and Chief Financial Officer Medtronic, Inc. Medical devices company KENNETT L. SIMMONS Retired WILLIAM G. SPEARS Chairman of the Board Spears, Benzak, Salomon & Farrell, Inc. New York City-based investment counseling and management firm GAIL R. WILENSKY Senior Fellow Project HOPE International health foundation AUDIT COMMITTEE - --------------- JAMES A. JOHNSON DOUGLAS W. LEATHERDALE WALTER F. MONDALE GAIL R. WILENSKY COMPENSATION AND STOCK OPTION COMMITTEE - --------------------------------------- WILLIAM C. BALLARD, JR. THOMAS H. KEAN MARY O. MUNDINGER ROBERT L. RYAN WILLIAM G. SPEARS EXECUTIVE COMMITTEE - ------------------- WILLIAM C. BALLARD, JR. DOUGLAS W. LEATHERDALE WILLIAM W. MCGUIRE, M.D. KENNETT L. SIMMONS WILLIAM G. SPEARS NOMINATING COMMITTEE - -------------------- WILLIAM C. BALLARD, JR. DOUGLAS W. LEATHERDALE WILLIAM W. MCGUIRE, M.D. WILLIAM G. SPEARS 36 CORPORATE PROFILE United HealthCare Corporation is a diversified health care management company that provides a broad spectrum of resources and services to help people achieve improved health and well-being through all stages of life. United HealthCare is organized into six business segments: Health Plans, Retiree and Senior Services, Strategic Business Services, Insurance Services, Specialized Care Services, and Knowledge and Information Services. United HealthCare operates in all 50 states, the District of Columbia and Puerto Rico, as well as internationally. The Company offers organized health systems, including HMOs, point-of-service plans, PPOs and managed indemnity programs. The Company also offers a variety of related health care management services and products such as Medicare supplemental insurance programs, managed Medicaid services, behavioral health services, workers' compensation and disability services, utilization review services, disease management programs and specialized provider networks, health information and employee assistance programs, knowledge and information services and administrative services. INVESTOR INFORMATION CORPORATE HEADQUARTERS United HealthCare Corporation 300 Opus Center 9900 Bren Road East Minnetonka, Minnesota 55343 (612) 936-1300 INDEPENDENT PUBLIC ACCOUNTANTS Arthur Andersen LLP Minneapolis, Minnesota CORPORATE COUNSEL Dorsey & Whitney LLP Minneapolis, Minnesota TRANSFER AGENT & REGISTRAR Norwest Bank Minnesota, N.A. Minneapolis, Minnesota FORM 10-K The Company has filed an annual report with the Securities and Exchange Commission on Form 10-K. Shareholders may obtain a copy of this report, without charge, by writing: Investor Relations United HealthCare P.O. Box 1459, Route MN008-W213 Minneapolis, Minnesota 55440-1459 ANNUAL MEETING The annual meeting of shareholders will be held at the Lutheran Brotherhood Building, 625 Fourth Avenue South, Minneapolis, Minnesota, on Wednesday, May 13, 1998, at 10 a.m. STOCK LISTING United HealthCare's common stock is traded on the New York Stock Exchange under the symbol UNH. The following table shows the range of high and low sales prices for the Company stock as reported on the New York Stock Exchange Composite Tape for the calendar periods indicated through February 28, 1998. These prices do not include commissions or fees associated with the purchase or sale of this security. HIGH LOW - ------------------------------------------------------------------------------------- 1998 First Quarter 1998 through February 28, 1998 $ 61.3125 $ 46.5625 - ------------------------------------------------------------------------------------- 1997 First Quarter $ 55.25 $ 42.625 Second Quarter 56.75 43.75 Third Quarter 60.125 47.875 Fourth Quarter 54.75 42.4375 - ------------------------------------------------------------------------------------- 1996 First Quarter $ 69.00 $ 56.125 Second Quarter 64.25 47.875 Third Quarter 51.125 30.00 Fourth Quarter 49.00 35.125 - -------------------------------------------------------------------------------------
As of February 28, 1998, the Company had 13,660 shareholders of record. DIVIDEND POLICY The Company's dividend policy, established by its board of directors in August 1990, requires the board to review the Company's audited consolidated financial statements following the end of each fiscal year and make a determination as to the advisability of declaring a dividend on the corporation's outstanding shares of common stock. Shareholders of record on April 3, 1996, received an annual dividend for 1996 of $0.03 per share, and shareholders of record on April 3, 1997, received an annual dividend for 1997 of $0.03 per share. On February 10, 1998, the Company's board of directors approved an annual dividend for 1998 of $0.03 per share to holders of the Company's common stock. This dividend will be paid on April 15, 1998, to shareholders of record at the close of business on April 1, 1998. INTERNET ADDRESS To access information about United HealthCare, including news releases and product and service information, visit our homepage via the Internet. Our address is www.unitedhealthcare.com. 38 EX-21 7 EXHIBIT 21 EXHIBIT 21 ---------- SUBSIDIARIES OF REGISTRANT --------------------------
STATE OF INCORPORATION SUBSIDIARIES OF UNITED HEALTHCARE CORPORATION OR ORGANIZATION - --------------------------------------------- --------------- United HealthCare Services, Inc.(1) Minnesota United HealthCare of Illinois, Inc.(2) Delaware United HealthCare of the Midlands, Inc.(3) Nebraska United HealthCare of Georgia, Inc. Georgia United HealthCare of Utah Utah PrimeCare Health Plan, Inc. Wisconsin United HealthCare of the Midwest, Inc. Missouri GenCare Dental Plan, Inc. Missouri United Behavioral Systems, Inc.(4) Iowa United HealthCare of New England, Inc.(5) Rhode Island United HealthCare of Ohio, Inc. Ohio United HealthCare Insurance Company of Ohio Ohio United HealthCare Insurance Company of Illinois Illinois United HealthCare of Alabama, Inc. Alabama United HealthCare of Alabama-FQ, Inc. Alabama United HealthCare Network, Inc. Alabama United HealthCare of Arkansas, Inc. Alabama United HealthCare of Mississippi, Inc. Mississippi United HealthCare of Tennessee, Inc. Tennessee UHC Brown Acquisition, Inc. Minnesota United HealthCare of Louisiana, Inc., Louisiana United HealthCare of Florida, Inc. Florida CAC Medical Centers, Inc. Florida United HealthCare Plans of Puerto Rico, Inc. Puerto Rico United HealthCare of North Carolina, Inc. North Carolina United HealthCare Insurance Company Connecticut United HealthCare Service Corp. New York MetraHealth Care Management Corporation Delaware United HealthCare Insurance Company of New York New York The MetraHealth Employee Benefits Company, Inc. Connecticut United HealthCare of Arizona, Inc. Arizona United HealthCare of California, Inc. California United HealthCare of Colorado, Inc. Colorado United HealthCare of New Jersey, Inc. New Jersey United HealthCare Plan of New York, Inc. New York ProAmerica Managed Care, Inc. Texas The MetraHealth Care Network, Inc. Delaware MetraComp, Inc.(6) Connecticut United Behavioral Health California United HealthCare of Upstate New York, Inc. New York United HealthCare of Texas, Inc. Texas U.S. Behavioral Health Plan, California California Behavioral Health Administrators California UHC Overseas R.S.A., Inc. Delaware UHC International Holdings, Inc. Delaware UHC Holdings R.S.A., L.L.C. Delaware Metra Realty, Inc. Connecticut United HealthCare (Deutschland) GmbH Germany HealthWise of America, Inc. Delaware HealthWise of Arkansas, Inc. Tennessee STATE OF INCORPORATION SUBSIDIARIES OF UNITED HEALTHCARE CORPORATION OR ORGANIZATION - --------------------------------------------- --------------- United HealthCare of Kentucky, Ltd. Kentucky United HealthCare of the Mid-Atlantic, Inc. Maryland Arkansas Managed Care Organization Arkansas HealthWise of Arkansas, Ltd. Arkansas Applied HealthCare Informatics, Inc. Delaware O'Pin Systems, Inc. Minnesota Cambridge Health Economics Group, Inc. Massachusetts Certitude, Inc. Delaware Medicode (Delaware), Inc. Delaware UHC Gold Acquisition, Inc. Louisiana Integrity Plus Services, Inc. Minnesota
- ------------------------- (1) Also doing business as "United HealthCare Services of Minnesota, Inc.;" "UHC Management Company, Inc.;" "United HealthCare Corporation;" "Healthmarc;" "EverCare;" "United HealthCare;" "United HealthCare Management Company, Inc.;" "UHC Management & Administrators;" "United Resource Networks;" "Health Pro;" "GenCare PPO; and Charter HealthCare Inc." (2) Also doing business as "Chicago HMO Ltd." and "United HealthCare of Indiana, Inc." (3) Also doing business as "West Center Internal Medicine;" "Family Practice Clinic;" "Share Health Plan of Nebraska, Inc.;" "Northwest Clinic;" "Benson Medical Center;" "Midlands Internal Medicine;" "HealthSpring;" "SHARE;" and "SHARE HealthPlan." (4) Also doing business as "UBS Illinois." (5) Also doing business as "United Health Plan of New England, Inc." (6) Also doing business as "Conservco Service Corporation." EX-23 8 EXHIBIT 23 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report dated February 12, 1998 incorporated by reference in this Form 10-K, into the Company's previously filed Registration Statement Nos. 2-95342, 33-3558, 33-22310, 33-27208, 33-36579, 33-50282, 33-67918, 33-68300, 33-75846, 33-79632, 33-79634, 33-79636, 33-59083, 33-59623, 33-63885, 333-01517, 333-01915, 333-02525, 333-04875, 333-04401, 333-05717, 333-05291, 333-06533, 333-25923, 333-27277, 333-44569, 333-44613, 333-45319, 333-41661 and 333-45289. /s/ ARTHUR ANDERSEN LLP Minneapolis, Minnesota, March 25, 1998 EX-24 9 EXHIBIT 24 EXHIBIT 24 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS that each person whose signature appears below constitutes and appoints each of William W. McGuire, M.D. and David J. Lubben, each with full power to act without the other, his or her true and lawful attorney-in-fact and agent with full power of substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended December 31, 1997 of United HealthCare Corporation, and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto each such attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that each such attorney-in-fact and agent, or his or her substitute, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, this Power of Attorney has been signed on this 10th day of March, 1998, by the following person. /s/ Thomas H. Kean - ------------------------- Thomas H. Kean EXHIBIT 24 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS that each person whose signature appears below constitutes and appoints each of David P. Koppe and David J. Lubben, each with full power to act without the other, his or her true and lawful attorney-in-fact and agent with full power of substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended December 31, 1997 of United HealthCare Corporation, and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto each such attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that each such attorney-in-fact and agent, or his or her substitute, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, this Power of Attorney has been signed on this 16th day of March, 1998, by the following person. /s/ William W. McGuire, M.D. - ------------------------------ William W. McGuire, M.D. EXHIBIT 24 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS that each person whose signature appears below constitutes and appoints each of William W. McGuire, M.D. and David J. Lubben, each with full power to act without the other, his or her true and lawful attorney-in-fact and agent with full power of substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended December 31, 1997 of United HealthCare Corporation, and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto each such attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that each such attorney-in-fact and agent, or his or her substitute, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, this Power of Attorney has been signed on this 13th day of March, 1998, by the following person. /s/ Douglas W. Leatherdale - ------------------------------ Douglas W. Leatherdale EXHIBIT 24 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS that each person whose signature appears below constitutes and appoints each of William W. McGuire, M.D. and David J. Lubben, each with full power to act without the other, his or her true and lawful attorney-in-fact and agent with full power of substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended December 31, 1997 of United HealthCare Corporation, and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto each such attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that each such attorney-in-fact and agent, or his or her substitute, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, this Power of Attorney has been signed on this 17th day of March, 1998, by the following person. /s/ William C. Ballard, Jr. - ------------------------------ William C. Ballard, Jr. EXHIBIT 24 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS that each person whose signature appears below constitutes and appoints each of William W. McGuire, M.D. and David J. Lubben, each with full power to act without the other, his or her true and lawful attorney-in-fact and agent with full power of substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended December 31, 1997 of United HealthCare Corporation, and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto each such attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that each such attorney-in-fact and agent, or his or her substitute, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, this Power of Attorney has been signed on this 10th day of March, 1998, by the following person. /s/ Walter F. Mondale - ------------------------- Walter F. Mondale EXHIBIT 24 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS that each person whose signature appears below constitutes and appoints each of William W. McGuire, M.D. and David J. Lubben, each with full power to act without the other, his or her true and lawful attorney-in-fact and agent with full power of substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended December 31, 1997 of United HealthCare Corporation, and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto each such attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that each such attorney-in-fact and agent, or his or her substitute, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, this Power of Attorney has been signed on this 17th day of March, 1998, by the following person. /s/ Richard T. Burke - ------------------------------ Richard T. Burke EXHIBIT 24 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS that each person whose signature appears below constitutes and appoints each of William W. McGuire, M.D. and David J. Lubben, each with full power to act without the other, his or her true and lawful attorney-in-fact and agent with full power of substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended December 31, 1997 of United HealthCare Corporation, and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto each such attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that each such attorney-in-fact and agent, or his or her substitute, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, this Power of Attorney has been signed on this 13th day of March, 1998, by the following person. /s/ Robert L. Ryan - ------------------------- Robert L. Ryan EXHIBIT 24 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS that each person whose signature appears below constitutes and appoints each of William W. McGuire, M.D. and David J. Lubben, each with full power to act without the other, his or her true and lawful attorney-in-fact and agent with full power of substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended December 31, 1997 of United HealthCare Corporation, and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto each such attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that each such attorney-in-fact and agent, or his or her substitute, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, this Power of Attorney has been signed on this 10th day of March, 1998, by the following person. /s/ Kennett L. Simmons - ------------------------- Kennett L. Simmons EXHIBIT 24 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS that each person whose signature appears below constitutes and appoints each of William W. McGuire, M.D. and David J. Lubben, each with full power to act without the other, his or her true and lawful attorney-in-fact and agent with full power of substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended December 31, 1997 of United HealthCare Corporation, and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto each such attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that each such attorney-in-fact and agent, or his or her substitute, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, this Power of Attorney has been signed on this 17th day of March, 1998, by the following person. /s/ William G. Spears - ------------------------- William G. Spears EXHIBIT 24 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS that each person whose signature appears below constitutes and appoints each of William W. McGuire, M.D. and David J. Lubben, each with full power to act without the other, his or her true and lawful attorney-in-fact and agent with full power of substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended December 31, 1997 of United HealthCare Corporation, and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto each such attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that each such attorney-in-fact and agent, or his or her substitute, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, this Power of Attorney has been signed on this 13th day of March, 1998, by the following person. /s/ James A. Johnson - ------------------------- James A. Johnson EXHIBIT 24 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS that each person whose signature appears below constitutes and appoints each of William W. McGuire, M.D. and David J. Lubben, each with full power to act without the other, his or her true and lawful attorney-in-fact and agent with full power of substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended December 31, 1997 of United HealthCare Corporation, and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto each such attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that each such attorney-in-fact and agent, or his or her substitute, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, this Power of Attorney has been signed on this 13th day of March, 1998, by the following person. /s/ Gail R. Wilensky - ------------------------- Gail R. Wilensky EXHIBIT 24 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS that each person whose signature appears below constitutes and appoints each of William W. McGuire, M.D. and David J. Lubben, each with full power to act without the other, his or her true and lawful attorney-in-fact and agent with full power of substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended December 31, 1997 of United HealthCare Corporation, and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto each such attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that each such attorney-in-fact and agent, or his or her substitute, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, this Power of Attorney has been signed on this 16th day of March, 1998, by the following person. /s/ Mary O. Mundinger - ------------------------- Mary O. Mundinger EX-27.1 10 EXHIBIT 27.1
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNITED HEALTHCARE CORPORATION FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 750 3,291 813 45 0 2,193 714 350 7,623 2,570 0 500 0 2 4,532 7,623 11,563 11,794 10,906 11,052 146 0 0 742 282 460 0 0 0 460 2.30 2.26
EX-27.2 11 EXHIBIT 27.2
5 1,000,000 YEAR YEAR DEC-31-1996 DEC-31-1995 JAN-01-1996 JAN-01-1995 DEC-31-1996 DEC-31-1995 1,037 940 2,416 2,138 652 577 46 27 0 0 2,739 2,867 588 417 275 150 6,997 6,161 2,643 2,434 0 0 500 500 0 0 2 2 3,821 3,186 6,997 6,161 9,889 5,511 10,074 5,671 9,344 4,962 9,477 5,210 133 248 0 0 0 0 581 461 225 175 356 286 0 0 0 0 0 0 356 286 1.80 1.61 1.76 1.57
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