United Healthcare 2003 Annual Report Download - page 50

48 UnitedHealth Group
recognize a liability for the fair value of the obligation assumed under the guarantee; 4) Interpretation
No. 46, “Consolidation of Variable Interest Entities — an Interpretation of ARB No. 51,” which requires
an enterprise to consolidate a variable interest entity if that enterprise has a variable interest that will
absorb a majority of the entity’s expected losses, receive a majority of the entity’s expected residual
returns, or both; 5) FAS No. 149, “Amendment of Statement 133 on Derivative Instruments and
Hedging Activities,” which amends and clarifies accounting for derivative instruments and hedging
activities under FAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” and 6)
FAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and
Equity,” which establishes standards for classifying and measuring as liabilities certain freestanding
financial instruments that represent obligations of the issuer and have characteristics of both liabilities
and equity.
Reclassifications
Certain 2001 and 2002 amounts in the consolidated financial statements have been reclassified to
conform to the 2003 presentation. These reclassifications have no effect on net earnings or
shareholders’ equity as previously reported.
3 ACQUISITIONS
On February 10, 2004, our Health Care Services business segment acquired Mid Atlantic Medical
Services, Inc. (MAMSI). MAMSI offers a broad range of health care coverage and related administrative
services for individuals and employers in the mid-Atlantic region of the United States. This merger
significantly strengthens UnitedHealthcare’s market position in the mid-Atlantic region and provides
substantial distribution opportunities for other UnitedHealth Group businesses. Under the terms of the
purchase agreement, MAMSI shareholders received 0.82 shares of UnitedHealth Group common stock
and $18 in cash for each share of MAMSI common stock they owned. Total consideration issued was
approximately $2.7 billion, comprised of 36.4 million shares of UnitedHealth Group common stock
(valued at $1.9 billion based on 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 October 27, 2003) and
$800 million in cash. The purchase price and costs associated with the acquisition exceeded the
preliminary estimated fair value of the net tangible assets acquired by approximately $2.1 billion.
We have preliminarily allocated the excess purchase price over the fair value of the net tangible assets
acquired to finite-lived intangible assets of $360 million and associated deferred tax liabilities of
$126 million, and goodwill of approximately $1.9 billion. The finite-lived intangible assets consist
primarily of member lists and health care physician and hospital networks, with an estimated weighted-
average useful life of 19 years. The acquired goodwill is not deductible for income tax purposes. Our
preliminary estimate of the fair value of the tangible assets/(liabilities) as of the acquisition date, which
is subject to further refinement, is as follows:
(in millions - unaudited)
Cash, Cash Equivalents and Investments $736
Accounts Receivable and Other Current Assets 252
Property, Equipment, Capitalized Software and Other Assets 91
Medical Costs Payable (292)
Other Current Liabilities (132)
Net Tangible Assets Acquired $ 655