Summary
UnitedHealth Group Inc. (UNH) has filed an 8-K report on November 7, 2006, to disclose significant accounting and financial reporting issues related to its stock option programs. The company announced that its financial statements for the years 1994-2005 and certain interim periods should no longer be relied upon due to the need to restate them. This non-reliance stems from an internal analysis of stock option grants, particularly those from 2000 and prior, which requires the recognition of material non-cash charges for stock-based compensation and potential cash charges from tax liabilities. Furthermore, UNH has identified a material weakness in its internal control over financial reporting as of December 31, 2005, specifically related to stock option plan administration and accounting. This will likely result in an adverse opinion on its internal controls for fiscal year 2005. While the company has taken significant steps to remediate this weakness, it will delay its Form 10-Q filing for the quarter ended September 30, 2006. The report also details changes in executive compensation and responsibilities, including an employment agreement for Stephen J. Hemsley as he prepares to become CEO and the appointment of G. Mike Mikan as CFO.
Key Highlights
- 1UnitedHealth Group will restate financial statements for years 1994-2005 and certain interim periods due to stock option accounting issues.
- 2Material non-cash charges for stock-based compensation are expected, potentially significantly greater than prior estimates.
- 3A material weakness in internal controls over financial reporting related to stock option administration and accounting has been identified as of December 31, 2005.
- 4The company expects an adverse opinion on its fiscal year 2005 internal control over financial reporting.
- 5The filing of the Form 10-Q for the quarter ended September 30, 2006, will be delayed.
- 6Stephen J. Hemsley has entered into a new employment agreement in anticipation of becoming CEO, with a base salary of $1.3 million and a four-year term.
- 7G. Mike Mikan has been appointed Executive Vice President and Chief Financial Officer.