UnitedHealth's Profit Cut By $1.6 Billion Due to Options Accounting
UnitedHealth Group, the largest U.S. health insurer by market value, said on Tuesday that charges to correct accounting for backdated stock option grants reduced previously-reported profit by $1.55 billion.
However, UnitedHealth's stock rose on hopes that an end to the options scandal was in sight.
The company filed its 10-K annual report with the Securities and Exchange Commission on Tuesday that included an earnings restatement dating back to 1994, mostly to account for errors in recording stock options grants.
The restatement followed several delays in filing quarterly reports that had postponed its share buyback program and raised questions over its ability to focus on operating performance.
"Most investors will be relieved to see the company done with this," Bank of America analyst Joseph France said in a research note.
UnitedHealth, one of the largest companies caught in a national scandal over options manipulation, has been under pressure since its grants came under scrutiny a year ago.
William McGuire, the longtime chief executive, left the company in late 2006 after its independent counsel found evidence of stock options that were incorrectly dated to take advantage of share price rises.
The company still faces a formal probe by the SEC. It has been subpoenaed by federal prosecutors, while U.S. lawmakers have also requested documents over its options grants.
Ongoing investigations may cause volatility in UnitedHealth shares, but a "significant overhang" has been lifted with the company becoming current in its SEC reports, J.P. Morgan analyst William Georges said in a note.
In its report on Tuesday, UnitedHealth said it determined that the "company used incorrect measurement dates and made other errors ... in accounting for stock option grants."
UnitedHealth found in most cases it had incorrect dates for grants involving about 80 million shares given to company officers, about 260 million shares given to middle management and senior management, and about 50 million shares in connection with hiring or promoting employees.
Tax Charges Seen
UnitedHealth said under a former accounting method, the pretax effect of the errors from 1994 through the end of 2005 was a $1.53 billion overstatement in profit, in line with its estimate of $1.5 billion to $1.7 billion issued in December.
Under the company's current accounting method, the pretax effect of the errors for the period was $502 million. It previously estimated $400 million to $600 million.
The company estimated it would pay about $100 million for additional corporate income taxes and also expects a one-time cash charge of $55 million, or 4 cents a share, in the first quarter for other tax liabilities.
UnitedHealth said its 2006 profit rose to $4.16 billion, or $2.97 per share, from $3.08 billion, or $2.31 per share, in 2005. Prior to its SEC filing, the company had not reported per-share results or year-ago comparisons.
More than 170 companies have been investigated by U.S. authorities or have conducted internal inquiries into possible manipulation of stock option grant dates.
Shares of UnitedHealth rose on the news, outpacing rivals Aetna