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UNH » Topics » Provides Update on Accounting for Past Option Grants

This excerpt taken from the UNH 8-K filed Nov 8, 2006.

Provides Update on Accounting for Past Option Grants

MINNEAPOLIS (Nov. 8, 2006) — UnitedHealth Group today announced a series of steps taken by its Board of Directors as it continues to take action following the report by the Independent Committee and its independent counsel on October 15.

Among its actions, the Board:

 

  •   Entered into a new, four-year employment agreement with Stephen J. Hemsley, currently president and chief operating officer of UnitedHealth Group, effective when he becomes chief executive officer on or before December 1, 2006;

 

  •   Welcomed Mr. Hemsley’s actions to voluntarily remove all personal benefit from any past option grants to him questioned in the WilmerHale report. This will be achieved by repricing options granted to him through 2002 and his commitment to relinquish the value of the grants that were suspended and then reinstituted in August 2000. These actions will reduce the current value of Mr. Hemsley’s past equity compensation by approximately $190 million;

 

  •   Elected G. Mike Mikan as executive vice president, chief financial officer;

 

  •   Designated Forrest Burke as acting general counsel;

 

  •   Received voluntary written agreements from senior Company executives, to ensure that there is no potential for financial gain from the misdating of any option, by resetting the exercise prices of all applicable exercised and unexercised options with recorded grant dates between 1994 and 2002;

 

  •   Received voluntary written agreement from William W. McGuire, M.D., chief executive officer, to have the exercise prices of all of his options with recorded

grant dates between 1994 and 2002, reset to the highest share price during the recorded grant year for each particular option. For options suspended in 1999 and reinstituted in 2000, the exercise prices will be reset to the highest share price in 2000;

 

  •   Strengthened director independence requirements to exceed the standards of the SEC and the New York Stock Exchange;

 

  •   Formed a Nominating Advisory Committee to provide the Board with recommendations and input into its search for new directors. The Committee will be composed of representatives from the shareholder and medical communities; and

 

  •   Retained the firm Heidrick & Struggles to assist its search for new directors and retained the firm Russell Reynolds Associates to assist its search for executives for several new positions. Additional firms may be engaged as the Company proceeds to strengthen its administrative capabilities.

The Company has substantially completed its internal analysis of the WilmerHale report findings and is working expeditiously to complete its final review of accounting adjustments based on the determination of the applicable accounting measurement dates, the impact of variable accounting treatment for certain stock options (which principally relates to stock options granted in and prior to 2000) and the resulting tax implications. As a result, the Company expects to recognize non-cash charges for stock-based compensation expense that are likely to be material for certain periods covered in the review. Although the Company is not yet able to determine the final amount of the non-cash compensation charges and additional cash charges resulting from potential tax liabilities, the Company anticipates that it will be significantly greater than the estimate contained in its Form 10-Q for the quarter ended March 31, 2006. Accordingly, the Company has concluded that, due solely to the stock option matter, its financial statements and similar communications for the years ended 1994 to 2005 and the interim quarters through September 30, 2006, should no longer be relied upon and the Company will delay filing its Form 10-Q for third quarter 2006. The Company will review its analysis and proposed restatement adjustments with the SEC prior to completing its restatement and is working as quickly as possible to return to current filing status.

Additionally, the Company announced that it has substantially remediated a material weakness in its internal controls relating to stock option plan administration that it has now concluded existed as of December 31, 2005.

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