United Healthcare 2005 Annual Report Download - page 52

recognized over the life of the agreements as an adjustment to interest expense in the Consolidated Statements of
Operations. Our existing interest rate swap agreements convert a majority of our interest rate exposure from a
fixed to a variable rate and are accounted for as fair value hedges. Additional information on our existing interest
rate swap agreements is included in Note 7.
Recently Issued Accounting Standards
In November 2005, the FASB issued Staff Position No. 115-1, “The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments” (FSP 115-1). FSP 115-1 provides accounting guidance
for evaluating and recording other-than-temporary impairment losses on certain debt and equity investments.
FSP 115-1 nullifies certain provisions of Emerging Issues Task Force Issue No. 03-1 while retaining its
disclosure requirements, which had already been adopted. The Company has adopted FSP 115-1 and its adoption
did not have any impact on our consolidated financial position or results of operations.
In June 2005, the FASB issued an exposure draft of a proposed standard entitled “Business Combinations — a
replacement of FASB Statement No. 141.” The proposed standard, if adopted, would provide new guidance for
evaluating and recording business combinations and would be effective on a prospective basis for business
combinations whose acquisition dates are on or after January 1, 2007. Upon issuance of a final standard, the
Company will evaluate the impact of this new standard and its effect on the process for recording business
combinations.
3. Acquisitions and Divestitures
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 and Specialized Care Services
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 preliminary estimated fair value of the net
tangible assets acquired by approximately $7.1 billion. Pending completion of an independent valuation analysis,
we have preliminarily allocated the excess purchase price over the fair value of the net tangible assets acquired to
finite-lived intangible assets of $1.0 billion and associated deferred tax liabilities of $392 million, and goodwill
of approximately $6.5 billion. The finite-lived intangible assets consist primarily of member lists, health care
physician and hospital networks and trademarks, with an estimated weighted-average useful life of 13 years. The
acquired goodwill is not deductible for income tax purposes. Our preliminary estimate of acquired net tangible
assets and liabilities are categorized as follows: cash and cash equivalents of $810 million; investments of $2.4
billion; accounts receivable and other current assets of $750 million; property, equipment and capitalized
software and other assets of $380 million; medical costs payable of $1.4 billion and other liabilities of $1.2
billion.
On February 24, 2006, our Health Care Services business segment acquired John Deere Health Care, Inc. (John
Deere Health). John Deere Health serves employers primarily in central and eastern Iowa, western Illinois,
eastern Tennessee and southwestern Virginia. This acquisition will strengthen our market position in these areas.
We paid approximately $500 million in cash in exchange for all of the outstanding equity of John Deere Health.
Due to the timing of the acquisition, management is still in the process of estimating the acquired net tangible
assets, intangible assets and goodwill resulting from this acquisition.
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