Summit Health Ltd., a publicly traded operator of 24 hospitals and 20 nursing homes, reported Monday that it lost $10.2 million in the fourth quarter ended June 30. That, in turn, resulted in a $6.6-million net loss for the full year, in contrast with a profit of $7.9 million a year earlier.
The Los Angeles-based company attributed the 1988 results in large measure to a $17.1-million pretax charge on the sale and closure of unprofitable operations.
During the fiscal year, Summit closed a 76-bed hospital in Lubbock, Tex., and signed an agreement to sell a 78-bed hospital in Levelland, Tex. Summit also sold its Brea-based pharmaceutical company, Mediscript Inc., last month.
Judd Oster, Summit’s vice president for legal affairs, said in response to a question that in fiscal 1988 the company paid a federal fine of $200,000 when it pleaded guilty to mail fraud in U.S. District Court in Atlanta. Summit had set up a reserve in the previous year to cover the fine. Oster said he did not think the company had publicly reported the fine, observing that the amount “wouldn’t be material.”
According to an inspector for the California Board of Pharmacy, the case involved reselling medicine that was bought at “below average wholesale price” for the company’s hospitals. The inspector, Ken Sain, said the reselling was through a Summit pharmacy set up to service its nursing homes.
Summit said its operating income for fiscal 1988 dropped to $6.8 million from $17.2 million a year earlier. The company explained the decline by saying that government and contractual reimbursements “lagged behind” increases in nurses’ salaries and other costs. Revenue declined to $358.9 million for fiscal 1988 from $375.3 million in the previous year.
Last June, the company announced a new contract to operate three additional hospitals in Saudi Arabia, bringing the number it runs there to 10. The new contract is worth $68 million over three years, Summit said. The company also manages hospitals in California and four other states.
Summit went public in 1983 at $7 a share in an offering handled by the investment firm Drexel Burnham Lambert. Although its stock traded at a peak of $14 in 1985, it closed Monday at $1.50 a share, down 12.5 cents, in the over-the-counter market. The latest earnings were released after the close of the market.
According to publicly reported financial data, the company’s founder and chairman, Don Freeberg, controls about 55% of the firm’s stock.
The company has $129 million of long-term debt. On Feb. 29, Moody’s Investor’s Service lowered its rating on $50 million of Summit’s bonds to B-2 from Ba-2. Moody’s said the downgrade reflects Summit’s “substantial reduction in profits,” which “could deteriorate further,” and the “limited prospects for a reduction of Summit’s high financial leverage.”
Summit also reported Monday that it completed this year a new six-year revolving credit agreement with five major banks, covering a “current borrowing limit of $54 million.” Summit said it recently pledged its subsidiaries’ stock as security for the credit line in case it defaults on a bank requirement that it maintain a specified level of cash flow.