8-K/A 1 d8ka.htm AMENDMENT TO FORM 8-K Amendment to Form 8-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 8-K/A

 


 

Current Report Pursuant to

Section 13 or 15(d) of

the Securities Exchange Act of 1934

 

Date of report (Date of earliest event reported): July 29, 2004

 


 

UNITEDHEALTH GROUP INCORPORATED

(Exact name of registrant as specified in its charter)

 


 

Minnesota   0-10864   41-1321939

(State or other jurisdiction

of incorporation)

  (Commission File Number)  

(I.R.S. Employer

Identification No.)

 

UnitedHealth Group Center, 9900 Bren Road East,

Minnetonka, Minnesota

  55343
(Address of principal executive offices)   (Zip Code)

 

Registrant’s telephone number, including area code: (952) 936-1300

 

N/A

(Former name or former address, if changed since last report.)

 



Item 7. Financial Statements and Exhibits

 

This Form 8-K/A amends the current report on Form 8-K dated July 29, 2004 to include Item 7 (a) Historical Financial Information and Item 7(b) Pro Forma Financial Information

 

  (a) Financial Statements of Businesses Acquired

 

The following historical financial statements of Oxford Health Plans, Inc. (“Oxford”) are included in this report:

 

Consolidated balance sheet as of December 31, 2003 (incorporated by reference to the Form 10-K for the year ended December 31, 2003 filed by Oxford on February 4, 2004, as amended by Amendment No. 1 thereto, filed on April 29, 2004)

 

Consolidated income statements and statements of cash flows for the year ended December 31, 2003 (incorporated by reference to the Form 10-K for the year ended December 31, 2003 filed by Oxford on February 4, 2004, as amended by Amendment No. 1 thereto, filed on April 29, 2004)

 

Consolidated balance sheets as of June 30, 2004 and December 31, 2003

 

Consolidated income statements for the three months and six months ended June 30, 2004 and 2003

 

Consolidated statements of cash flows for the six months ended June 30, 2004 and 2003

 

  (b) Pro Forma Financial Information

 

The following unaudited pro forma combined financial statements giving effect to the registrant’s acquisition of Oxford completed July 29, 2004 are included in this report:

 

Unaudited pro forma condensed combined statement of operations for the six months ended June 30, 2004

 

Unaudited pro forma condensed combined statement of operations for the year ended December 31, 2003

 

Unaudited pro forma condensed combined balance sheet as of June 30, 2004

 

Notes to unaudited pro forma condensed combined financial information

 

  (c) Exhibits

 

  23.1 Consent of Ernst & Young LLP

 


OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

June 30, 2004 and December 31, 2003

(In thousands, except share data)

 

     (Unaudited)        
     June 30,
2004
    December 31,
2003
 


Assets

                

Current assets:

                

Cash and cash equivalents

   $ 451,653     $ 536,510  

Investments – available-for-sale, at fair value

     1,562,606       1,370,535  

Premiums receivable, net

     35,738       30,505  

Other receivables

     32,432       30,082  

Prepaid expenses and other current assets

     15,692       16,785  

Deferred income taxes

     51,035       45,240  


Total current assets

     2,149,156       2,029,657  

Property and equipment, net

     36,980       31,638  

Deferred income taxes

     9,324       9,572  

Restricted cash and investments-held-to-maturity, at amortized cost

     59,787       59,738  

Goodwill and other intangible assets, net

     20,686       21,785  

Other noncurrent assets

     8,433       7,811  


Total assets

   $ 2,284,366     $ 2,160,201  


Liabilities and Shareholders’ Equity

                

Current liabilities:

                

Medical costs payable

   $ 730,716     $ 671,515  

Current portion of long-term debt

     4,000       4,000  

Trade accounts payable and accrued expenses

     117,917       138,925  

Unearned revenue

     131,555       187,751  

Income taxes payable

     5,119       30,530  

Current portion of capital lease obligations

     3,880       5,749  


Total current liabilities

     993,187       1,038,470  

Obligations under capital lease

     —         467  

Long-term debt

     392,000       394,000  

Shareholders’ equity:

                

Preferred stock, $.01 par value, authorized 2,000,000 shares; none issued and outstanding

     —         —    

Common stock, $.01 par value, authorized 400,000,000 shares; issued 107,278,261 shares in 2004 and 106,612,822 shares in 2003

     1,073       1,066  

Additional paid-in capital

     793,621       750,919  

Retained earnings

     944,251       780,856  

Accumulated other comprehensive income (loss), net of tax

     (8,171 )     10,622  

Treasury stock, at cost

     (816,199 )     (816,199 )

Unearned restricted stock unit compensation

     (15,396 )     —    


Total shareholders’ equity

     899,179       727,264  


Total liabilities and shareholders’ equity

   $ 2,284,366     $ 2,160,201  



OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES

Consolidated Income Statements

Three Months and Six Months Ended June 30, 2004 and 2003

(In thousands, except per share data)

(Unaudited)

 

    

Three Months

Ended June 30,


  

Six Months

Ended June 30,


     2004    2003    2004    2003

Revenues:                            

Premiums earned

   $ 1,388,588    $ 1,331,330    $ 2,772,836    $ 2,641,790

Third-party administration, net

     2,778      2,995      5,666      6,112

Investment and other income, net

     21,547      26,600      45,656      58,155

Total revenues

     1,412,913      1,360,925      2,824,158      2,706,057

Expenses:

                           

Health care services

     1,123,175      1,088,302      2,241,632      2,122,411

Marketing, general and administrative

     141,672      144,710      285,947      286,960

Merger related transaction fees

     4,953      —        7,953      —  

Litigation charge for settlement, net

     —        —        —        45,000

Interest and other financing costs

     4,133      7,215      8,727      9,443

Total expenses

     1,273,933      1,240,227      2,544,259      2,463,814

Income before income taxes

     138,980      120,698      279,899      242,243

Income tax expense

     54,098      48,222      108,352      96,842

Net income

   $ 84,882    $ 72,476    $ 171,547    $ 145,401

Earnings per common and common equivalent share:

                           

Basic

   $ 1.04    $ 0.87    $ 2.10    $ 1.74

Diluted

   $ 0.99    $ 0.85    $ 2.02    $ 1.71

Dividends declared per common share

   $ —      $ —      $ 0.10    $ —  

Weighted-average common shares outstanding-basic

     81,750      83,115      81,558      83,439

Effect of dilutive securities:

                           

Stock options

     3,815      2,080      3,488      1,748

Weighted-average common shares outstanding-diluted

     85,565      85,195      85,046      85,187


OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Six Months Ended June 30, 2004 and 2003

 

(In thousands)    (Unaudited)  
     2004     2003  


Cash flows from operating activities:                 

Net income

   $ 171,547     $ 145,401  

Adjustments to reconcile net income to net cash provided by operating activities:

                

Depreciation and amortization

     15,125       13,075  

Non-cash income

     (8,292 )     (8,292 )

Non-cash charges

     1,099       1,713  

Deferred income taxes

     11,738       76,739  

Realized gain on sale of investments

     (7,042 )     (23,285 )

Changes in assets and liabilities:

                

Premiums receivable

     (5,233 )     (5,177 )

Other receivables

     (2,350 )     6,076  

Prepaid expenses and other current assets

     1,093       (83,989 )

Medical costs payable

     59,201       78,115  

Trade accounts payable and accrued expenses

     (24,392 )     (34,327 )

Litigation settlement reserve

     —         (161,300 )

Unearned revenue

     (47,904 )     (47,476 )

Income tax payable

     (25,411 )     (2,418 )

Other, net

     38       450  


Net cash provided (used) by operating activities

     139,217       (44,695 )


Cash flows from investing activities:

                

Capital expenditures

     (15,226 )     (8,164 )

Purchases of available-for-sale investments

     (934,155 )     (787,450 )

Sales and maturities of available-for-sale investments

     725,167       743,854  

Other, net

     (27 )     (62 )


Net cash used by investing activities

     (224,241 )     (51,822 )


Cash flows from financing activities:

                

Proceeds from exercise of stock options

     20,782       12,876  

Cash dividends paid

     (16,279 )     —    

Proceeds from notes payable, net

     —         391,371  

Repayment of notes payable

     (2,000 )     (126,875 )

Payment of withholding tax on option exercises

     —         (382 )

Purchase of treasury shares

     —         (46,193 )

Payments under capital leases

     (2,336 )     (2,702 )


Net cash provided by financing activities

     167       228,095  


Net increase (decrease) in cash and cash equivalents

     (84,857 )     131,578  

Cash and cash equivalents at beginning of period

     536,510       321,627  


Cash and cash equivalents at end of period

   $ 451,653       453,205  


Supplemental cash flow information:

                

Cash payments for income taxes, net

   $ 122,025     $ 103,176  

Cash payments for interest

     7,898       4,130  

Supplemental schedule of non-cash investing and financing activities:

                

Unrealized appreciation (depreciation) of investments

     (31,988 )     (3,032 )

Tax benefit realized on exercise of stock options

     5,430       2,422  

Cost of treasury shares associated with option exercise

     —         641  

Dividend declared on common shares

     8,152       —    


UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

On July 29, 2004, UnitedHealth Group acquired Oxford Health Plans, Inc. (Oxford). Under the terms of the agreement, Oxford shareholders received 0.6357 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, comprised of approximately 52.2 million shares of UnitedHealth Group common stock (valued at approximately $3.4 billion based upon the average of UnitedHealth Group’s share closing prices 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, UnitedHealth Group acquired Mid Atlantic Medical Services, Inc. (MAMSI). Under the terms of the agreement, MAMSI stockholders 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 approximately $1.9 billion based on the average of the closing prices of UnitedHealth Group common stock 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 results of operations and financial condition of MAMSI have been included in the UnitedHealth Group historical financial statements since the February 10, 2004 acquisition date.

 

The unaudited pro forma condensed combined financial information gives effect to the acquisitions of Oxford and MAMSI by UnitedHealth Group as if the acquisitions had occurred on January 1, 2003 for purposes of the pro forma condensed combined statements of operations. The unaudited pro forma condensed combined financial information gives effect to the acquisition of Oxford by UnitedHealth Group as if the acquisition had occurred on June 30, 2004 for purposes of the pro forma condensed combined balance sheet as of June 30, 2004.

 

Under the purchase method of accounting, the total purchase price is allocated to the net tangible and intangible assets of an acquired entity based on their estimated fair values as of the completion of the transaction. A final determination of these fair values will include management’s consideration of a valuation prepared by an independent valuation specialist. This valuation will be based on the actual net tangible and intangible assets of the acquired entity that exist as of the closing date of the transaction.

 

Because this unaudited pro forma condensed combined financial information has been prepared based on preliminary estimates of fair values, the actual amounts recorded as of the completion of the transaction may differ materially from the information presented in this unaudited pro forma condensed combined financial information. In addition to the independent valuation, the impact of any integration activities could cause material differences from the information presented below.

 

The unaudited pro forma condensed combined financial information should be read in conjunction with the historical consolidated financial statements and accompanying notes of UnitedHealth Group and Oxford. The unaudited pro forma condensed combined financial information is not intended to represent or be indicative of the consolidated results of operations or financial condition of UnitedHealth Group that would have been reported had the transactions been completed as of the dates presented, and should not be taken as representative of the future consolidated results of operations or financial condition of UnitedHealth Group.


Pro Forma Condensed Combined Statement of Operations

Six Months Ended June 30, 2004

(Unaudited)

(In millions, except per share amounts)

 

     Historical

                   
     (b)
UnitedHealth
Group


    MAMSI
January 1 to
February 10, 2004


    Oxford

    (a)
Reclassification
Adjustments


    Pro Forma
Adjustments


    Pro Forma
Combined


 

Revenues

                                                

Premiums

   $ 15,065     $ 303     $ 2,773     $ (23 )   $ —       $ 18,118  

Services

     1,602       8       6       2       —         1,618  

Investment and Other Income

     181       2       45               (4 )(l)     224  
    


 


 


 


 


 


Total Revenues

     16,848       313       2,824       (21 )     (4 )     19,960  
    


 


 


 


 


 


Medical and Operating Costs

                                                

Medical Costs

     12,195       235 (r)     2,242       (24 )     —         14,648  

Operating Costs

     2,663       36       278       3       (8 )(f)     2,972  

Depreciation and Amortization

     169       1       15               2 (d)     212  
                                       25 (e)        
    


 


 


 


 


 


Total Medical and Operating Costs

     15,027       272       2,535       (21 )     19       17,832  
    


 


 


 


 


 


Earnings From Operations

     1,821       41 (r)     289       —         (23 )     2,128  

Interest expense

     (52 )     —         (9 )     —         9 (l)     (86 )
                                       (33 )(k)        
                                       (1 )(m)        
    


 


 


 


 


 


Earnings Before Income Taxes

     1,769       41 (r)     280       —         (48 )     2,042  
    


 


 


 


 


 


Provision for Income Taxes

     (619 )     (14 )     (108 )     —         17 (n)     (724 )
    


 


 


 


 


 


Net Earnings

   $ 1,150     $  27 (r)   $ 172     $ —       $ (31 )   $ 1,318  
    


 


 


 


 


 


Basic Net Earnings Per Common Share

   $ 1.90                                     $ 1.98  
    


                                 


Diluted Net Earnings Per Common Share

   $ 1.81                                     $ 1.89  
    


                                 


Basic Weighted-Average Number of Common Shares Outstanding

     606.0                               36.4 (o)     666.2  
    


                         


 


                                       (28.4 )(o)        
                                    


       
                                       52.2 (p)        
                                    


       

Diluted Weighted-Average Number of Common Shares Outstanding

     635.0                               36.4 (o)     697.6  
    


                         


 


                                       (28.4 )(o)        
                                    


       
                                       52.2 (p)        
                                    


       
                                       2.4 (q)        
                                    


       


Pro Forma Condensed Combined Statement of Operations

Year Ended December 31, 2003

(Unaudited)

(In millions, except per share amounts)

 

     Historical

                   
    

UnitedHealth

Group


    MAMSI

    Oxford

    (a)
Reclassification
Adjustments


    Pro Forma
Adjustments


    Pro Forma
Combined


 

Revenues

                                                

Premiums

   $ 25,448     $ 2,624     $ 5,339     $ (169 )   $ —       $ 33,242  

Services

     3,118       47       12       23       —         3,200  

Investment and Other Income

     257       17       101       —         (8 )(l)     367  
    


 


 


 


 


 


Total Revenues

     28,823       2,688       5,452       (146 )     (8 )     36,809  
    


 


 


 


 


 


Medical and Operating Costs

                                                

Medical Costs

     20,714       2,117       4,242       (171 )     —         26,902  

Operating Costs

     4,875       302       577       25       —         5,779  

Depreciation and Amortization

     299       12       29       —         19 (d)     409  
                                       50 (e)        
    


 


 


 


 


 


Total Medical and Operating Costs

     25,888       2,431       4,848       (146 )     69       33,090  
    


 


 


 


 


 


Earnings From Operations

     2,935       257       604       —         (77 )     3,719  

Interest expense

     (95 )     (1 )     (20 )     —         20 (l)     (172 )
                                       (66 )(k)        
                                       (10 )(m)        
    


 


 


 


 


 


Earnings Before Income Taxes

     2,840       256       584       —         (133 )     3,547  

Provision for Income Taxes

     (1,015 )     (90 )     (232 )     —         47 (n)     (1,290 )
    


 


 


 


 


 


Net Earnings

   $ 1,825     $ 166     $ 352     $ —       $ (86 )   $ 2,257  
    


 


 


 


 


 


Basic Net Earnings Per Common Share

   $ 3.10                                     $ 3.33  
    


                                 


Diluted Net Earnings Per Common Share

   $ 2.96                                     $ 3.19  
    


                                 


Basic Weighted-Average Number of Common Shares Outstanding

     589.0                               36.4 (o)     677.6  
    


                         


 


                                       52.2 (p)        
                                    


       

Diluted Weighted-Average Number of Common Shares Outstanding

     617.0                               36.4 (o)     708.0  
    


                         


 


                                       52.2 (p)        
                                    


       
                                       2.4 (q)        
                                    


       


Pro Forma Condensed Combined Balance Sheet

As of June 30, 2004

(Unaudited)

(In millions)

 

    Historical

   

Pro Forma

Adjustments


   

Pro Forma

Combined


 

(b)

UnitedHealth

Group


  Oxford

     

Assets

                           

Current Assets

                           

Cash and Cash Equivalents

  $ 3,100   $ 452     $ (396 )(l)   $ 3,156

Short-Term Investments

    409     133 (s)     —         542

Accounts Receivable, net

    836     36       —         872

Assets Under Management

    1,932     —         —         1,932

Deferred Income Taxes and Other

    751     99       —         850
   

 


 


 

Total Current Assets

    7,028     720       (396 )     7,352
   

 


 


 

Long-Term Investments

    6,684     1,489 (s)     —         8,173

Property, Equipment, Capitalized Software and Other Assets, net

    1,162     54       —         1,216

Goodwill

    5,479     14       (14 )(i)     9,126
                    3,647 (c)(e)      

Intangible Assets, net

    530     7       (7 )(i)     1,265
                    735 (c)(e)      
   

 


 


 

Total Assets

  $ 20,883   $ 2,284     $ 3,965     $ 27,132
   

 


 


 

Liabilities and Shareholders’ Equity

                           

Current Liabilities

                           

Medical Costs Payable

  $ 4,806   $ 731     $ —       $ 5,537

Accounts Payable and Accrued Liabilities

    1,863     126       50 (f)     2,039

Other Policy Liabilities

    1,942     —         —         1,942

Short-Term Debt and Current Maturities of Long-Term Debt

    150     4       (4 )(l)     150

Unearned Premiums

    611     132       —         743
   

 


 


 

Total Current Liabilities

    9,372     993       46       10,411
   

 


 


 

Long-Term Debt, less current maturities

    2,250     392       (392 )(l)     3,579
                    1,329 (c)(g)      

Future Policy Benefits for Life and Annuity Contracts

    1,614     —         —         1,614

Deferred Income Taxes and Other Liabilities

    529     —         257 (c)(h)     786
   

 


 


 

Shareholders’ Equity

                           

Common Stock

    6     1       (1 )(i)     6

Additional Paid-In Capital

    1,029     794       (794 )(i)     4,653
                    3,624 (c)(j)      

Treasury Stock

    —       (816 )     816 (i)     —  

Unearned Restricted Stock Unit Compensation

          (16 )     16 (i)     —  

Retained Earnings

    6,046     944       (944 )(i)     6,046

Accumulated Other Comprehensive Income:

                           

Net Unrealized Gains on Investments, net of tax effects

    37     (8 )     8 (i)     37
   

 


 


 

Total Shareholders’ Equity

    7,118     899       2,725       10,742
   

 


 


 

Total Liabilities and Shareholders’ Equity

  $ 20,883   $ 2,284     $ 3,965     $ 27,132
   

 


 


 


Notes to Unaudited Pro Forma Condensed Combined Financial Information

 

(a) Reflects the reclassification of certain historical MAMSI amounts to conform to financial reporting being used prospectively by the combined company. While we have conducted preliminary reviews of accounting and financial reporting policy differences relating to Oxford, this review is ongoing and will continue throughout the merger process. As such, additional reclassifications or pro forma adjustments may be identified.
(b) The MAMSI acquisition closed on February 10, 2004. The unaudited pro forma condensed combined balance sheet as of June 30, 2004 includes the effects of the MAMSI acquisition in the UnitedHealth Group historical information. The unaudited pro forma condensed combined statement of operations for the six months ended June 30, 2004 includes MAMSI’s results of operations from February 11, 2004 to June 30, 2004 in the UnitedHealth Group historical information. This acquisition resulted in the issuance of UnitedHealth Group common stock and cash based upon the exchange ratio of 0.82 share of UnitedHealth Group common stock and $18 of cash for each outstanding share of MAMSI common stock. The average market price per share of UnitedHealth Group common stock of $53.05 was based upon the average of the closing prices for a range of trading days (October 23, 2003 through October 29, 2003) around the announcement date (October 27, 2003) of the transaction. This resulted in an estimated purchase price of $2,745 million ($1,932 million in stock, $800 million in cash and $13 million of estimated transaction costs) as follows (in millions, except per share amounts):

 

Stock Consideration

             

UnitedHealth Group average market price per share

   $ 53.05       

Exchange ratio

     0.82       
    

      

Equivalent per share consideration

   $ 43.50       

Outstanding shares of MAMSI

     44.41       
    

      

Fair value of UnitedHealth Group shares issued

          $ 1,932

Cash Consideration

             
               

Per share cash consideration

   $ 18.00       

Outstanding shares of MAMSI

     44.41       
    

      

Cash paid

          $ 800

Transaction costs

            13
           

Purchase price

          $ 2,745
           

 

The MAMSI purchase price of $2,745 million has been preliminarily allocated to acquired tangible assets and liabilities based upon their estimated fair values as of the acquisition date. The estimated excess purchase price has been preliminarily allocated as detailed below (in millions):

 

Purchase price

   $ 2,745  

Net tangible assets at acquisition date

     (638 )
    


Total excess purchase price

     2,107  

Estimated finite-lived intangibles

     (360 )

Deferred tax liability for finite-lived intangibles

     126  
    


Estimated goodwill

   $ 1,873  
    


 

(c) The Oxford acquisition closed on July 29, 2004. The unaudited pro forma condensed combined financial information gives effect to the Oxford acquisition. This acquisition gives effect to the issuance of UnitedHealth Group common stock and cash based upon the exchange ratio of 0.6357 share of UnitedHealth Group common stock and $16.17 of cash for each outstanding share of Oxford common stock. The average market price per share of UnitedHealth Group common stock of $64.78 is based upon the average of the closing prices for a range of trading days (April 22, 2004 through April 28, 2004) around the announcement date (April 26, 2004) of the transaction. This resulted in an estimated purchase price of $4,990 million ($3,384 million in stock, $1,329 million in cash, $240 million for the estimated fair value of UnitedHealth Group vested stock options issued in exchange for outstanding Oxford stock options and $37 million of estimated transaction costs) as follows (in millions, except per share amounts):

 

Stock Consideration

             

UnitedHealth Group average market price per share

   $ 64.78       

Exchange ratio

     0.6357       
    

      

Equivalent per share consideration

   $ 41.18       

Outstanding shares of Oxford

     82.18       
    

      

Fair value of UnitedHealth Group shares issued

          $ 3,384

Converted Stock Options

             

UnitedHealth Group vested stock options issued

     7.5       

Estimated fair value of stock options issued

   $ 32       
    

      

Estimated fair value of stock options issued

            240
           

Total estimated fair value of equity instruments issued

            3,624

Cash Consideration

             

Per share cash consideration

   $ 16.17       

Outstanding shares of Oxford

     82.18       
    

      

Cash paid

            1,329

Estimated transaction costs

            37
           

Estimated purchase price

          $ 4,990
           


The estimated Oxford purchase price of $4,990 million has been preliminarily allocated to acquired tangible assets and liabilities based upon their estimated fair values as of June 30, 2004. The estimated excess purchase price has been preliminarily allocated as detailed below (in millions):

 

Estimated purchase price

   $ 4,990  

Net tangible assets - Oxford June 30, 2004 balance sheet

     (878 )

Oxford employment agreements liability due to change in control

     13  
    


Total excess purchase price

     4,125  

Estimated finite-lived intangibles

     (735 )

Deferred tax liability for finite-lived intangibles

     257  
    


Estimated goodwill

   $ 3,647  
    


 

(d) Finite-lived intangible assets relating to the MAMSI acquisition have been initially recorded in the UnitedHealth Group historical information at $360 million and consist mainly of membership lists, provider networks and non-compete agreements. The estimated weighted average useful life is approximately 19 years and the estimated annual amortization expense is approximately $19 million. For the June 30, 2004 pro forma condensed combined statement of operations, the estimated amortization expense is for the period January 1, 2004 to February 10, 2004 since amortization expense post-acquisition date is reflected in the UnitedHealth Group historical information.
(e) Finite-lived intangible assets relating to the Oxford acquisition have been preliminarily estimated at approximately $735 million, consisting mainly of membership lists, provider networks and non-compete agreements. The estimated weighted average useful life is approximately 15 years and the estimated annual amortization expense is approximately $50 million.
(f) Represents an accrual of $37 million for transaction costs as a result of the Oxford merger and $13 million for additional liabilities to be settled under Oxford employment agreements as a result of the acquisition. Additionally, Oxford recorded transaction expenses of $8 million in their historical six months ended June 30, 2004 statement of operations which has been eliminated from the unaudited pro forma condensed combined statement of operations since these costs were incurred prior to the consummation of the acquisition and were directly related to the transaction.
(g) Represents the borrowing of the cash to be paid as consideration in the Oxford transaction as detailed in note (c).
(h) Represents the deferred tax liability established for the book and tax basis difference of finite-lived intangible assets, which are amortizable for book purposes but not for tax.
(i) Represents the elimination of Oxford’s equity accounts and goodwill and intangible asset accounts.
(j) Represents the issuance of UnitedHealth Group stock and stock options as consideration paid in the Oxford transaction as detailed in note (c).
(k) Represents the estimated interest expense associated with borrowing the $1,329 million cash to be paid as consideration in the Oxford transaction. The interest rate is based on the issuance of three- to ten-year fixed-rate debt and an estimated weighted-average borrowing rate of approximately 5% for such debt.
(l) Represents the payoff of the Oxford debt of $396 million at closing and the corresponding estimated reduction in interest expense and interest income. The effective interest rate used for the investment interest income was 2.0% based upon estimated current interest rates on Oxford’s short term investments.
(m) Represents the estimated interest expense associated with borrowing the $800 million cash paid as consideration in the MAMSI transaction. The interest expense is based on the issuance of $500 million of five- to ten-year floating-rate debt and $300 million of commercial paper at an estimated weighted average interest rate of approximately 1.3%. The impact on interest expense of a 1/8% change in interest rates would be $1 million. For the June 30, 2004 pro forma condensed combined statement of operations, the estimated interest expense is for the period January 1, 2004 to February 10, 2004 since interest expense post-acquisition date is reflected in the UnitedHealth Group historical information.
(n) Represents the pro forma tax effect of the MAMSI and Oxford pro forma adjustments based upon the statutory federal income tax rate of 35%.
(o) Represents the increase in weighted average shares outstanding from the MAMSI acquisition based on the issuance of 36.4 million shares of UnitedHealth Group common stock at the beginning of the period presented. In the June 30, 2004 pro forma condensed combined statement of operations, this is partially offset by 28.4 million in weighted average shares outstanding that are already included in the UnitedHealth Group historical information since the 36.4 million shares were issued during the six month period ended June 30, 2004.
(p) Represents the increase in weighted average shares outstanding from the Oxford acquisition based on the issuance of 52.2 million shares of UnitedHealth Group common stock at the beginning of the period presented. The share issuance is based upon the 82.2 million outstanding shares of Oxford stock at the acquisition date multiplied by the 0.6357 exchange ratio as detailed in note (c).
(q) Represents the estimated common stock equivalents related to the issuance of 7.5 million vested options to purchase shares of UnitedHealth Group common stock in exchange for the outstanding options to purchase shares of Oxford common stock as detailed in note (c). This was calculated using the “Treasury Stock” method under FAS No. 128 using a $34 per share average exercise price and a $64 per share average common stock fair value.
(r) Includes favorable development of the December 31, 2003 medical cost payable estimates of approximately $7 million ($5 million net of tax).
(s) For comparison purposes, investments available for sale at fair value have been reclassified between short and long term investments based upon final maturities.


COMPARATIVE PER SHARE INFORMATION

 

    

As of or For the

Year Ended

December 31,

2003


  

As of or For the Six

Months Ended

June 30,

2004


UnitedHealth Group Historical Per Common Share:

             

Basic Net Earnings Per Common Share

   $ 3.10    $ 1.90

Diluted Net Earnings Per Common Share

   $ 2.96    $ 1.81

Book Value Per Common Share

   $ 8.80    $ 11.73

Cash Dividends Per Common Share

   $ 0.015    $ 0.03

Oxford Historical Per Common Share:

             

Basic Net Earnings Per Common Share

   $ 4.26    $ 2.10

Diluted Net Earnings Per Common Share

   $ 4.15    $ 2.02

Book Value Per Common Share

   $ 8.95    $ 10.97

Cash Dividends Per Common Share

   $ 0.10    $ 0.10

Pro Forma Combined Per UnitedHealth Group Common Share:

             

Basic Net Earnings Per Common Share

   $ 3.33    $ 1.98

Diluted Net Earnings Per Common Share

   $ 3.19    $ 1.89

Book Value Per Common Share

     n/a    $ 16.30

Cash Dividends Per Common Share

     n/a    $ 0.03

Pro Forma Combined Per Oxford Equivalent Common Share:

             

Basic Net Earnings Per Common Share

   $ 2.12    $ 1.26

Diluted Net Earnings Per Common Share

   $ 2.03    $ 1.20

Book Value Per Common Share

     n/a    $ 10.36

Cash Dividends Per Common Share

     n/a    $ 0.019


Signatures

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

Date: August 9, 2004

 

UNITEDHEALTH GROUP INCORPORATED
By:  

/S/    DAVID J. LUBBEN


    David J. Lubben
    General Counsel & Secretary