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PacifiCare Report Hits Stock

Health care: Share price falls 17% after release of more financial details raises some concerns.


PacifiCare Health Systems' stock slumped 17% on Wednesday after financial details released in a regulatory report surprised Wall Street and raised concerns about the company's recent performance.

Two weeks ago, the Santa Ana managed-care company said third-quarter profit more than tripled to $17 million, or 50 cents a share, handily beating Wall Street's expectations. The stock surged nearly 40% in the week after the earnings announcement.

But in a quarterly financial report filed this week with the Securities and Exchange Commission, PacifiCare disclosed $33 million in one-time gains and $34 million in special charges. Although they virtually offset each other, the failure to detail the gains and charges in the quarterly earnings announcement raised investors' hackles.

The stock dropped $3.58 a share to $16.92 on Nasdaq, as nearly 4.7 million shares changed hands.

The gains included rebates from pharmaceutical companies and money from contract settlements with other providers and vendors; charges stemmed largely from the bankruptcies of two of the company's medical groups in Texas.

John Szabo, an analyst at CIBC World Markets, said the charges relating to the Texas insolvencies were higher than anticipated, but called the stock's drop an "overreaction." Even so, he said, differences in the company's earnings release and regulatory filing were more pronounced than is typical for most companies.

PacifiCare spokeswoman Suzanne Shirley said the company disclosed the most important issues in its earnings release and addressed questions about the Texas problems the next day in a call with analysts. She said the difference between the charges and credits was immaterial.

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