United Healthcare 2006 Annual Report Download - page 72

Assets Under Management
We administer certain aspects of AARP’s insurance program (See Note 13). Pursuant to our agreement, AARP
assets are managed separately from our general investment portfolio and are used to pay costs associated with the
AARP program. These assets are invested at our discretion, within investment guidelines approved by AARP.
We do not guarantee any rates of return on these investments and, upon transfer of the AARP contract to another
entity, we would transfer cash equal in amount to the fair value of these investments at the date of transfer to that
entity. Because the purpose of these assets is to fund the medical costs payable, the rate stabilization fund (RSF)
liabilities and other related liabilities associated with the AARP contract, assets under management are classified
as current assets, consistent with the classification of these liabilities. Interest earnings and realized investment
gains and losses on these assets accrue to the overall benefit of the AARP policyholders through the RSF.
Accordingly, they are not included in our earnings.
Property, Equipment and Capitalized Software
Property, equipment and capitalized software are stated at cost, net of accumulated depreciation and
amortization. Capitalized software consists of certain costs incurred in the development of internal-use software,
including external direct costs of materials and services and payroll costs of employees devoted to specific
software development.
We calculate depreciation and amortization using the straight-line method over the estimated useful lives of the
assets. The useful lives for property, equipment and capitalized software are: from three to seven years for
furniture, fixtures and equipment; from 35 to 40 years for buildings; the shorter of the useful life or remaining
lease term for leasehold improvements; and from three to nine years for capitalized software. The weighted-
average useful life of property, equipment and capitalized software at December 31, 2006 was approximately five
years. The net book value of property and equipment was $966 million and $932 million as of December 31,
2006 and 2005, respectively. The net book value of capitalized software was $928 million and $715 million as of
December 31, 2006 and 2005, respectively.
Goodwill and Other Intangible Assets
Goodwill represents the amount by which the purchase price of businesses we have acquired exceeds the
estimated fair value of the net tangible assets and separately identifiable intangible assets of these businesses.
Goodwill and intangible assets with indefinite useful lives are not amortized, but are tested at least annually for
impairment. Intangible assets with discrete useful lives are amortized on a straight-line basis over their estimated
useful lives.
Long-Lived Assets
We review long-lived assets, including property, equipment, capitalized software and intangible assets, for events
or changes in circumstances that would indicate we might not recover their carrying value. We consider many
factors, including estimated future utility and cash flows associated with the assets, to make this decision. An
impairment charge is recorded for the amount by which an asset’s carrying value exceeds its estimated fair value.
We record assets held for sale at the lower of their carrying amount or fair value, less any costs for the final
settlement.
Other Policy Liabilities
Other policy liabilities include the RSF associated with the AARP program (See Note 13), deposits under the
Medicare Part D program (See Note 4), customer balances related to experience-rated insurance products and the
current portion of future policy benefits for life insurance and annuity contracts. Customer balances represent
excess customer payments and deposit accounts under experience-rated contracts. At the customer’s option, these
balances may be refunded or used to pay future premiums or claims under eligible contracts.
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