Thursday, November 9, 2006

UnitedHealth Gets Ready to Take Its Options-Timing Hit

UnitedHealth Group Inc. has been at the center of the options-timing scandal, and the effect of the problems has forced the company to disavow its financial statements all the way back to 1994.  UnitedHealth became a publicly-traded company in 1984, so that means about half of its financial statements are no long reliable.  The company's CEO, Dr. William McGuire, announced in October that he will resign as of December 1 after a report by the law firm investigating the suspicious timing of the options pricing that found his explanations to be a bit weak on the credibility front (see earlier post here).  In announcing the latest step to address the acccounting issues, UnitedHealth's 8-K (here) states:

UnitedHealth Group Incorporated (the “Company”) has substantially completed its internal analysis of the October 15, 2006 WilmerHale report to the Independent Committee of the Board of Directors (the “Board”) on stock option programs of the Company and is working expeditiously to complete its final review of accounting adjustments based on the determination of the applicable accounting measurement dates, the impact of variable accounting treatment for certain stock options (which principally relates to stock options granted in and prior to 2000) and the resulting tax implications. As a result, the Company expects to recognize non-cash charges for stock-based compensation expense which are likely to be material for certain periods covered in the review. Although the Company is not yet able to determine the final amount of such non-cash charges and additional cash charges resulting from potential tax liabilities, the Company anticipates that it will be significantly greater than the estimate contained in its Form 10-Q for the quarter ended March 31, 2006.

Accordingly, on November 7, 2006, management of the Company concluded, and the Audit Committee of the Board (the “Audit Committee”) approved the conclusion, that due solely to the stock option matter, the Company’s financial statements for the years ended 1994 to 2005, the interim periods contained therein, the quarter ended March 31, 2006 and all earnings and press releases, including for the quarters ended June 30, 2006 and September 30, 2006 and similar communications issued by the Company for such periods, and the related reports of the Company’s independent registered public accounting firm should no longer be relied upon. The Company will review its analysis and proposed restatement adjustments with the SEC prior to completing its restatement and is working as quickly as possible to return to current filing status.

Dr. McGuire retains a significant amount of stock options in the company, still valued at over $1 billion even after they were repriced to reflect the highest stock price in the year of issuance.  According to the 8-K, "[D]iscussions are ongoing between Dr. McGuire and the Company regarding the terms of his departure and no resolution has been reached. These discussions will likely not be completed until after his departure."  The terms of his departure may be awaiting word whether the SEC or U.S. Attorney's Office plan to take any action against him. (ph)

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Fraud, Investigations, Securities | Permalink

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