United Healthcare 2007 Annual Report Download - page 65

of the outstanding equity of JDHC. The purchase price and costs associated with the acquisition exceeded the
estimated preliminary fair value of the net tangible assets acquired by approximately $376 million. Based on
management’s consideration of fair value, which included completion of a valuation analysis, we have allocated
the excess purchase price over the fair value of the net tangible assets acquired to finite-lived intangible assets of
$60 million and goodwill of $316 million. The finite-lived intangible assets consist primarily of member lists and
physician and hospital networks, with an estimated weighted-average useful life of approximately 15 years. The
acquired goodwill is deductible for income tax purposes. The results of operations and financial condition of
JDHC have been included in our Consolidated Financial Statements since the acquisition date. The pro forma
effects of the JDHC acquisition on our Consolidated Financial Statements were not material. Acquired net
tangible assets and liabilities are categorized as follows: cash and cash equivalents of $46 million; investments of
$197 million; accounts receivable and other current assets of $60 million; property, equipment and capitalized
software and other assets of $29 million; medical costs payable of $131 million and other liabilities of $62
million. JDHC has been renamed UnitedHealthcare Services Company of the River Valley, Inc.
On December 20, 2005, the Company acquired PacifiCare Health Systems, Inc. (PacifiCare). PacifiCare provides
health care and benefit services to individuals and employers, principally in markets in the western United States.
This merger significantly strengthened our resources by enhancing our capabilities on the Pacific Coast and in
other western states and broadening the scope of our product offerings for a host of specialized services. The
operations of PacifiCare reside primarily within our Health Care Services, OptumHealth and Prescription
Solutions segments. Under the terms of the agreement, PacifiCare shareholders received 1.1 shares of
UnitedHealth Group common stock and $21.50 in cash for each share of PacifiCare common stock they owned.
Total consideration issued for the transaction was approximately $8.8 billion, composed of approximately
99.2 million shares of UnitedHealth Group common stock (valued at approximately $5.3 billion based upon the
average of UnitedHealth Group’s share closing price for two days before, the day of and two days after the
acquisition announcement date of July 6, 2005), approximately $2.1 billion in cash, $960 million cash paid to
retire PacifiCare’s existing debt and UnitedHealth Group vested common stock options with an estimated fair
value of approximately $420 million issued in exchange for PacifiCare’s outstanding vested common stock
options. The purchase price and costs associated with the acquisition exceeded the estimated fair value of the net
tangible assets acquired by approximately $7.0 billion. Based on management’s consideration of fair value,
which included completion of a valuation analysis, we have allocated the excess purchase price over the fair
value of the net tangible assets acquired to finite-lived intangible assets of $954 million and associated deferred
tax liabilities of $377 million, and goodwill of approximately $6.4 billion. The finite-lived intangible assets and
related weighted-average useful lives consist of the following:
($ in millions) Fair Value
Weighted-Average
Useful Life
Customer Contracts and Membership Lists ...................... $ 744 12years
Trademarks .............................................. 157 17years
Physician and Hospital Networks ............................. 53 15years
Total Acquired Finite-Lived Intangible Assets ................... $ 954 13years
The acquired goodwill is not deductible for income tax purposes. Acquired net tangible assets and liabilities are
categorized as follows: cash and cash equivalents of $808 million; investments of $2.4 billion; accounts
receivable and other current assets of $832 million; property, equipment and capitalized software and other assets
of $454 million; medical costs payable of $1.4 billion and other liabilities of $1.1 billion.
The results of operations and financial condition of PacifiCare have been included in our Consolidated Financial
Statements since its acquisition date. The unaudited pro forma financial information presented below assumes
that the acquisition occurred as of the beginning of the period. The pro forma adjustments include the pro forma
effect of UnitedHealth Group shares issued in the acquisition, the amortization of finite-lived intangible assets
arising from the purchase price allocations, interest expense related to financing the cash portion of the purchase
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