Human Capital & Careers

Options Timing May Waylay UnitedHealth

Company may restate $286 million in earnings; SEC opens informal inquiry.
Stephen TaubMay 11, 2006

UnitedHealth has disclosed that it may need to restate earnings by as much as $286 million over the past three years.

The health insurer also announced that the Securities and Exchange Commission is conducting an informal inquiry into its stock-option practices. In addition, the company’s board has named a special committee and counsel to look into the matter internally.

As a result, the company warned, it could be subject to regulatory fines or penalties or other contingent liabilities.

The SEC has been looking into the timing of stock option grants at a number of companies — specifically, to determine whether they had been backdated to a point shortly before the company announced good news, so option holders could capitalize on a lower market value. Although the practice has often been criticized, Reuters observed that is not prohibited under SEC regulations if it is disclosed in regulatory filings and allowed by the company’s own policies, and provided that the accounting is proper.

Discussing its possible restatement, UnitedHealth elaborated that if any noncash adjustments were deemed necessary, compensation related to certain exercised stock options may no longer be deductible. As a result, the company added, it may need to pay additional taxes and interest associated with previous deductions and may lose additional deductions in future periods.

The company added that the amount of any lost tax deductions will likely not be material to its consolidated results of operations or financial position, and that it does not foresee any material impact on financial results for the first quarter of 2006.

In related news, Affiliated Computer Services warned in a regulatory filing that it will record a noncash charge of as much as $40 million to rectify its accounting related to previous stock grants. ACS acknowledged that it issued executive stock options that carried effective dates that preceding the written approval of the grants, The Wall Street Journal pointed out.