United Healthcare 2005 Annual Report Download - page 31

On July 29, 2004, our Health Care Services business segment acquired Oxford. Under the terms of the purchase
agreement, Oxford shareholders received 1.2714 shares of UnitedHealth Group common stock and $16.17 in
cash for each share of Oxford common stock they owned. Total consideration issued was approximately $5.0
billion, composed of approximately 104.4 million shares of UnitedHealth Group common stock (valued at
approximately $3.4 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 April 26, 2004), approximately $1.3
billion in cash and UnitedHealth Group vested common stock options with an estimated fair value of $240
million issued in exchange for Oxford’s outstanding vested common stock options.
On February 10, 2004, our Health Care Services business segment acquired MAMSI. Under the terms of the
purchase agreement, MAMSI shareholders received 1.64 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, composed of 72.8 million shares of UnitedHealth Group common stock (valued at $1.9 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 October 27, 2003) and approximately $800 million in cash.
In November and December 2005, we issued $2.6 billion of commercial paper primarily to finance the cash
portion of the purchase price of the PacifiCare acquisition described above and to retire a portion of the
PacifiCare debt at the closing of the acquisition, as well as to refinance current maturities of long-term debt. As
of December 31, 2005, our outstanding commercial paper had interest rates ranging from 4.2% to 4.4%.
In March 2005, we issued $500 million of 4.9% fixed-rate notes due March 2015. We used the proceeds from
this borrowing for general corporate purposes including repayment of commercial paper, capital expenditures,
working capital and share repurchases.
In July 2004, we issued $1.2 billion of commercial paper to fund the cash portion of the Oxford purchase price.
In August 2004, we refinanced the commercial paper by issuing $550 million of 3.4% fixed-rate notes due
August 2007, $450 million of 4.1% fixed-rate notes due August 2009 and $500 million of 5.0% fixed-rate notes
due August 2014.
In February 2004, we issued $250 million of 3.8% fixed-rate notes due February 2009 and $250 million of 4.8%
fixed-rate notes due February 2014. We used the proceeds from the February 2004 borrowings to finance a
majority of the cash portion of the MAMSI purchase price as described above.
To more closely align interest costs with the floating interest rate received on our cash and cash equivalent
balances, we have entered into interest rate swap agreements to convert the majority of our interest rate exposure
from a fixed rate to a variable rate. These interest rate swap agreements qualify as fair value hedges. The interest
rate swap agreements have aggregate notional amounts of $3.4 billion with variable rates that are benchmarked
to the London Interbank Offered Rate (LIBOR). At December 31, 2005, the rate used to accrue interest expense
on these agreements ranged from 4.3% to 5.0%. The differential between the fixed and variable rates to be paid
or received is accrued and recognized over the life of the agreements as an adjustment to interest expense in the
Consolidated Statements of Operations.
In December 2005, we amended and restated our $1.0 billion five-year revolving credit facility supporting our
commercial paper program. We increased the capacity to $1.3 billion and extended the maturity date to
December 2010. In October 2005, we executed a $3.0 billion 364-day revolving credit facility to support a $3.0
billion increase in our commercial paper program. As of December 31, 2005, we had no amounts outstanding
under either of these credit facilities.
PacifiCare had approximately $100 million par value of 3% convertible subordinated debentures (convertible
notes) which were convertible into approximately 5.2 million shares of UnitedHealth Group’s common stock and
$102 million of cash as of December 31, 2005. In December 2005, we initiated a consent solicitation to all of the
holders of outstanding convertible notes pursuant to which we offered to compensate all holders who elected to
convert their notes in accordance with existing terms and consent to an amendment to a covenant in the indenture
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