NU Online News Service, Jan. 2, 7:21 p.m. – PacifiCare Health Systems Inc., Santa Ana, Calif., says it will take a $60 million charge for the fourth quarter of 2001 to restructure its operations and cut 1,300 jobs, or 15% of its work force.
PacifiCare says the charge will lead to a net loss for the quarter, but the managed care company is not saying how big the quarterly loss will be, or what full 2001 earnings will be.
PacifiCare has reported $45 million in net income for the first three quarters of 2001 on $9 billion in revenue, compared with $149 million in net income on $8.6 billion in revenue for the first three quarters of 2000.
PacifiCare has a 5-year-old, $800 million “senior credit facility” from a group of lenders led by Bank of America Corp., Charlotte, N.C.
The projected fourth-quarter loss should be small enough that PacifiCare will continue to be meet the terms of the senior credit facility, PacifiCare says.
But, because the $60 million charge will create a loss, “it is desirable though not necessary to obtain approval from a majority of the company’s bank syndicate to waive a requirement that PacifiCare retain a financial consultant,” PacifiCare says.
PacifiCare hoped to sell notes in 2001 to pay off the revolving debt in the senior credit facility by the original Jan. 1, 2002, expiration date. The syndicate ended up postponing the expiration date to Jan. 2, 2003, because PacifiCare had trouble completing the note offering, according to reports PacifiCare filed last summer with the U.S. Securities and Exchange Commission.
The facility now includes $150 million in revolving debt and a $650 million term loan.
PacifiCare says it intends to improve its finances by cutting more than $80 million a year in costs. The companies wants to bring about some savings through layoffs and attrition, and additional savings by paying $1.2 billion over the next 10 years to IBM Corp., Armonk, N.Y., and Keane Inc., Boston, to take over information technology operations and software maintenance services.
Meanwhile, PacifiCare has been trying to increase sales by shifting toward flexible preferred provider organization plans, away from dependence on tightly managed health maintenance organization plans.
PacifiCare says it will spend $20 million this year to advertise the shift in its product mix.
The company is also setting up a new “Secure Horizons Senior Solutions” unit to market Medicare supplement insurance, Medicare health maintenance organization plans, and other products aimed at older customers.