UnitedHealth Group (UNH)

Derivative Instruments and Hedging Activities

In January 2009, the Company terminated interest rate swap contracts with $4.9 billion in notional value to lock-in the benefit of low market interest rates. The cumulative adjustment to the carrying value of the Company’s debt of $513 million is being amortized as a reduction to interest expense over the remaining life of the related debt, resulting in a weighted average interest rate of 3.3%. As of March 31, 2009, the Company had no outstanding interest rate swap contracts. As of December 31, 2008, the fair values of the interest rate swaps were $622 million with $7 million classified in Other Current Assets and $615 million classified in Other Assets.

Derivative Instruments and Hedging Activities

To more closely align interest expense with interest income received on the Company’s cash equivalent and investment balances, the Company has entered into interest rate swap agreements to convert the majority of its interest rate exposure from fixed rates to floating rates. The interest rate swap agreements have aggregate notional amounts of $5.1 billion and $5.6 billion at December 31, 2008 and December 31, 2007, respectively. The floating rates are benchmarked to LIBOR. The swaps are designated as fair value hedges of the fixed-rate debt under the short-cut method of FAS 133, and are reported at fair market value in the Company’s Consolidated Balance Sheets with the carrying value of the debt adjusted by an offsetting amount, with no changes in market value recognized through the Company’s Consolidated Statements of Operations.

In January 2009 the Company terminated $4.9 billion notional of interest rate swap contracts with financial institutions to lock-in the benefit of current low market interest rates. The cumulative adjustment to the carrying value of the Company’s debt was $513 million and will be amortized as a reduction to interest expense over the remaining life of the related debt, resulting in a weighted average interest rate of 3.3%.

76

Table of Contents

UNITEDHEALTH GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Derivative Instruments and Hedging Activities

To more closely align interest expense with interest income received on the Company’s cash equivalent and investment balances, the Company has entered into interest rate swap agreements to convert the majority of its interest rate exposure from fixed rates to floating rates. The interest rate swap agreements have aggregate notional amounts of $5.7 billion and $5.6 billion at September 30, 2008 and December 31, 2007, respectively. The floating rates are benchmarked to LIBOR. These interest rate swap agreements qualify as fair value hedges and are accounted for using the short-cut method under FAS 133, whereby the hedges are reported in the Company’s Condensed Consolidated Balance Sheets at fair value, and the carrying value of debt is adjusted for an offsetting amount representing changes in fair value of these instruments attributable to the hedged risk. There have been no net gains or losses recognized in the Company’s Condensed Consolidated Statements of Operations. At September 30, 2008, the fair values of the interest rate swaps were $162 million with $2 million classified in Other Current Assets and $160 million classified in Other Assets. At December 31, 2007, the entire fair value of the interest rate swaps of $151 million was in an asset position and classified within debt in the Company’s Condensed Consolidated Balance Sheets. At September 30, 2008, the rates on these instruments ranged from 2.7% to 4.0%.

Derivative Instruments and Hedging Activities

To more closely align interest expense with interest rates received on the Company’s cash equivalent and investment balances, the Company has entered into interest rate swap agreements to convert the majority of its interest rate exposure from fixed rates to variable rates. The interest rate swap agreements have aggregate notional amounts of $6.8 billion and $5.6 billion at June 30, 2008 and December 31, 2007, respectively. The variable rates are benchmarked to LIBOR. These interest rate swap agreements qualify as fair value hedges and are accounted for using the short-cut method under FAS 133, whereby the hedges are reported in the Company’s Condensed Consolidated Balance Sheets at fair value, and the carrying value of debt is adjusted for an offsetting amount representing changes in fair value of these instruments attributable to the hedged risk. Since these amounts completely offset, there have been no net gains or losses recognized in the Company’s Condensed Consolidated Statements of Operations. At June 30, 2008, the fair value of the interest rate swaps asset was $70 million with $1 million classified in Other Current Assets and $69 million classified in Other Assets. In addition, the Company had $5 million of interest rate swaps classified in Other Liabilities in its Condensed Consolidated Balance Sheets. At December 31, 2007, the entire fair value of the interest rate swaps of $151 million was in an asset position and classified within debt in the Company’s Condensed Consolidated Balance Sheets. At June 30, 2008, the rates on these instruments ranged from 2.6% to 4.3%.

Derivative Instruments and Hedging Activities

To more closely align interest costs with floating interest rates received on our cash equivalent and investment balances, we have entered into interest rate swap agreements to convert the majority of our interest rate exposure from fixed rates to variable rates. The interest rate swap agreements have aggregate notional amounts of $6.8 billion and $5.6 billion as of March 31, 2008 and December 31, 2007, respectively. The variable rates are benchmarked to the LIBOR. As of March 31, 2008 and December 31, 2007, the aggregate asset, recorded at fair value, for all existing interest rate swaps was approximately $347 million and $151 million, respectively. These interest rate swap agreements qualify as fair value hedges and are accounted for using the short-cut method under Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (FAS 133), whereby the hedges are reported in our Condensed Consolidated Balance Sheets at fair value, and the carrying value of debt is adjusted for an offsetting amount representing changes in fair value of these instruments attributable to the hedged risk. Since these amounts completely offset, there have been no net gains or losses recognized in our Condensed Consolidated Statements of Operations. As of December 31, 2007, the total fair value of the interest rate swaps of $151 million was classified with debt in our Condensed Consolidated Balance Sheets. As of March 31, 2008, the total fair value of the interest rate swaps of $347 million was classified in assets, with $3 million in Other Current Assets and $344 million in Other Assets in our Condensed Consolidated Balance Sheets. At March 31, 2008, the rates on these instruments ranged from 2.2% to 4.6%.