United delays quarterly filing, but earnings up

The insurer says it's conducting a review of its stock options program.

By Jonathan G. Bethely — Posted Sept. 4, 2006

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UnitedHealth Group, like most health plans, appears to be financially healthy. But storm clouds from an investigation into the company's stock-option practices are rolling in.

On Aug. 10, the company announced it would delay filing its second-quarter 2006 report with the Securities and Exchange Commission, because of various investigations over whether the company improperly backdated stock options awarded to top executives.

Currently, investigations by the SEC, the U.S. Dept. of Justice, the Internal Revenue Service, and the attorney general in United's home state of Minnesota are all looking into irregularities in the stock options program.

Calls to United by AMNews weren't returned at press time. The company released a statement saying it needs to determine whether it will have to restate results because of inappropriate options accounting.

United did release earnings results for the second quarter, which ended June 30. Earnings were up 26% over the like period in 2005, earnings per share were up 21% and revenues were up 57%.

Such financial good news for the company -- which has been criticized by physicians for its recent aggressive acquisition strategy, among other things -- is tempered by the looming investigations.

United's troubles started when The Wall Street Journal revealed earlier this year that the insurer engaged in so-called "backdating" of its stock options. The practice allowed top executives to receive options to buy stock at the lowest price of the previous 52 weeks. United executives, including chair and CEO William McGuire, MD, built up stock options valued at $1.6 billion.

In March, United started its own independent review of its stock option program, covering the period from 1994 to the present. The review should be "substantially" complete before the company's third-quarter filing is due sometime this fall. The company said it might restate past earnings by nearly $286 million. United also has announced it has stopped its stock-option rewards program for top executives.

Backdating options is not necessarily illegal. Analysts say such a program has some legal protection as long as it has been outlined to shareholders in public documents and has received their approval.

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Going strong

Financial results for the second quarter of 2006, compared with the same period last year.

2005 2006 Change
UnitedHealth Group
Revenue $11.4 billion $17.9 billion 57%
Earnings $770 million $974 million 26%
Earnings per share $0.58 $0.70 21%
Revenue $5.5 billion $6.3 billion 14%
Earnings $394.9 million $389.5 million -1%
Earnings per share $0.65 $0.67 3%
Revenue $4.1 billion $4 billion -2%
Earnings $720 million* $273 million -62%
Earnings per share $5.48 $2.33 -57%
Revenue $3.5 billion $5.4 billion 52%
Earnings $81.4 million $89.5 million 10%
Earnings per share $0.50 $0.55 10%
Revenue $11.2 billion $14.2 billion 27%
Earnings $559 million $751 million 34%
Earnings per share $0.90 $1.17 30%

Note: 2005 quarter included $349 million of income from discontinued operations and $110 million of benefits stemming from completion of a federal tax audit and from an accounting treatment of the sale of Cigna's retirement services business in 2004.

Source: 10-Q reports filed with the Securities and Exchange Commission

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