United Healthcare 2002 Annual Report Download - page 49

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UnitedHealth Group
In June 2002, the Financial Accounting Standards Board (FASB) issued FAS No. 146, “Accounting for
Costs Associated with Exit or Disposal Activities.” FAS No. 146 requires companies to recognize a liability
for costs associated with exit or disposal activities when they are incurred, rather than at the date of a
commitment to an exit or disposal plan. FAS No. 146 is effective for exit or disposal activities initiated
after December 31, 2002. The adoption of this statement on January 1, 2003 did not have a material
impact on our consolidated financial position or results of operations.
In December 2002, the FASB issued FAS No. 148, “Accounting for Stock-Based Compensation – Transition
and Disclosure – an amendment of FASB Statement No. 123.” FAS No. 148 provides alternative transition
methods for companies that make a voluntary change to the fair-value-based method of accounting for stock-
based employee compensation. In addition, FAS No. 148 amends the disclosure requirements of FAS No. 123
to require disclosures in both annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported results. We have adopted
the disclosure provisions of FAS No. 148 in these consolidated financial statements, and its adoption had no
impact on our consolidated financial position or results of operations.
RECLASSIFICATIONS
Certain 2000 and 2001 amounts in the consolidated financial statements have been reclassified to conform
to the 2002 presentation. These reclassifications have no effect on net earnings or shareholders’ equity as
previously reported.
3ACQUISITIONS
Effective September 30, 2002, we acquired AmeriChoice Corporation (AmeriChoice), a leading organization
engaged in facilitating health care benefits and services for Medicaid beneficiaries in the states of New York,
New Jersey and Pennsylvania. We are integrating our existing Medicaid business with AmeriChoice within the
Health Care Services reporting segment, creating efficiencies from the consolidation of health care provider
networks, technology platforms and operations. We issued 5.3 million shares of our common stock with a fair
value of approximately $480 million in exchange for 93.5% of the outstanding AmeriChoice common stock. We
also issued vested stock options with a fair value of approximately $15 million in exchange for outstanding stock
options held by AmeriChoice employees and paid cash of approximately $82 million, mainly to pay off existing
AmeriChoice debt. The purchase price and costs associated with the acquisition of approximately $577 million
exceeded the preliminary estimated fair value of the net tangible assets acquired by approximately $528 million.
This has been assigned to goodwill in the amount of $472 million, and finite-lived intangible assets, primarily
customer contracts, in the amount of $56 million. The weighted-average useful life of the finite-lived intangible
assets is estimated to be approximately 11 years. We will acquire the remaining minority interest after five years at
a value based on a multiple of the earnings of the combined Medicaid business. We have the option to acquire the
minority interest at an earlier date if specific events occur, such as the termination or resignation of key
AmeriChoice employees. The results of operations for AmeriChoice since the acquisition date have been
included in our Consolidated Statements of Operations. The pro forma effects of the AmeriChoice acquisition
on our consolidated financial statements were not material.
Our preliminary estimate of the fair value of the tangible assets/(liabilities) as of the acquisition date is
as follows:
(in millions)
Cash and Cash Equivalents $32
Accounts Receivable and Other Current Assets 38
Long-Term Investments 151
Property, Equipment and Capitalized Software 21
Medical Costs Payable (129)
Other Current Liabilities (64)
Net Tangible Assets Acquired $ 49