United Healthcare 2005 Annual Report Download - page 54

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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, comprised of
72.8 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 approximately $800 million in cash. The purchase price and costs
associated with the acquisition exceeded the estimated fair value of the net tangible assets acquired by
approximately $2.1 billion. Based on management’s consideration of fair value, which included an independent
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 approximately $280 million and associated deferred tax liabilities of
approximately $100 million, and goodwill of approximately $1.9 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 17 years. The acquired goodwill is not deductible for income tax purposes.
Acquired net tangible assets and liabilities are categorized as follows: cash, cash equivalents and investments of
$736 million; accounts receivable and other current assets of $228 million; property, equipment and capitalized
software and other assets of $57 million; medical costs payable of $283 million and other current liabilities of
$140 million.
The results of operations and financial condition of PacifiCare, Oxford and MAMSI have been included in our
consolidated financial statements since the respective acquisition dates. The unaudited pro forma financial
information presented below assumes that the acquisitions occurred as of the beginning of the respective periods.
The pro forma adjustments include the pro forma effect of UnitedHealth Group shares issued in the acquisitions,
the amortization of finite-lived intangible assets arising from the purchase price allocations, interest expense
related to financing the cash portion of the purchase price and the associated income tax effects of the pro forma
adjustments. The following unaudited pro forma results have been prepared for comparative purposes only and
do not purport to be indicative of the results of operations that would have occurred had the acquisitions been
consummated at the beginning of the periods presented.
For the
Year Ended
December 31, 2005
For the
Year Ended
December 31, 2004
(in millions, except per share data) Pro forma - unaudited
Revenues ..................................................... $59,426 $53,051
NetEarnings .................................................. $ 3,568 $ 3,012
Earnings Per Share:
Basic .................................................... $ 2.62 $ 2.12
Diluted ................................................... $ 2.48 $ 2.02
In October 2005, we sold the life insurance and annuity business within Golden Rule to OneAmerica Financial
Partners, Inc. (OneAmerica) through an indemnity reinsurance arrangement. Under the arrangement,
OneAmerica assumes the risks associated with the future policy benefits for the life and annuity contracts. We
remain liable for claims if OneAmerica fails to meet its obligations to policy holders. Because we remain
primarily liable to the policy holders, the liabilities and obligations associated with the reinsured contracts remain
on our Consolidated Balance Sheet with a corresponding reinsurance receivable from OneAmerica, which is
classified in other noncurrent assets and totaled approximately $1.8 billion as of December 31, 2005. We
transferred approximately $1.3 billion of investments and $363 million in cash to OneAmerica in conjunuction
with the arrangement. We realized a small gain on the sale which has been deferred and is being amortized over
the estimated remaining life of the reinsured contracts.
For the years ended December 31, 2005, 2004 and 2003, aggregate consideration paid or issued for smaller
acquisitions accounted for under the purchase method was $196 million, $158 million and $127 million,
respectively. These acquisitions were not material to our consolidated financial statements.
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