UnitedHealth Might Restate Earnings
UnitedHealth Group on Thursday disclosed that a "significant deficiency" in company practices used to administer and account for stock options issued to top officials could require the restatement of financial results for at least three years, the Wall Street Journal reports. UnitedHealth made the disclosure based on an internal investigation conducted by the company board with help from outside attorneys and accountants (Bandler/Forelle, Wall Street Journal, 5/12).
In addition, UnitedHealth officials said that the Securities and Exchange Commission has launched a formal inquiry into whether the company issued backdated stock options (Freed, AP/Columbia State, 5/11).
UnitedHealth officials previously disclosed that the company had received a telephone call from SEC about the issue. A federal civil lawsuit filed last month alleges that UnitedHealth CEO William McGuire, Chief Operating Officer Stephen Hemsley and several board members received backdated stock options (California Healthline, 5/3).
The disclosure by UnitedHealth on Thursday marked the "strongest acknowledgement yet that there may be problems with the way it handled stock options," the AP/State reports. UnitedHealth previously said that company practices related to stock options were "appropriate" (AP/Columbia State, 5/11).
According to UnitedHealth, the problems might require accounting adjustments for "stock-based compensation expense," which could decrease earnings by as much as a $286 million and operating earnings by as much as $393 million for the last three years (Wall Street Journal, 5/12). The adjustments could include as much as a $150 million, or 4.5%, decease in 2005 earnings, as well as 3% decreases in 2003 and 2004 earnings (AP/Columbia State, 5/11).
UnitedHealth officials said that the company might "be required to pay additional taxes and interest" to account for improper tax deductions related to stock options and might lose potentially larger tax deductions in the future (Wall Street Journal, 5/11). UnitedHealth officials also said that the company "will not be able to finalize its assessment of this matter until" the board completes the internal investigation (AP/Columbia State, 5/11).
According to the Journal, UnitedHealth "said nothing about options dating, who was responsible for the accounting problems or what its outside accountants were told" (Wall Street Journal, 5/11).