Back in black: Summit Health is profitable again.

Back in black: Summit Health is profitable again

After a couple red-ink-stained years in a tough health care market, Burbank-based Summit Health Ltd., the $375.3 million-in-revenues hospital and nursing home operator, is showing steady profits.

Summit runs 12 hospitals with 1,648 beds, 17 nursing homes with 2,230 beds, 15 medical office buildings, four retirement centers with 469 beds, as well as other medical businesses.

The debt-burdened company lost money in fiscal 1987 and 1988 ended June 30, driving the company's stock as low as $1 a share in over-the-counter trading, after trading as high as $14 in 1986.

But in fiscal 1990, Summit more or less broke even, showing small profits in three of four quarters. Lately, the stock has rallied, nearly reaching $3 a share.

In its fiscal first quarter 1991 ended Sept. 30, the hospital company reported a net of $1.64 million on revenues of $92.8 million, up 64 percent compared with a net of $1.0 million on revenues of $93.3 million in the year-earlier period.

Donald Amaral, president and chief operating officer, last week said that general fat-cutting and increased use of Summit operating facilities by surgeons is resulting in the black ink. "We have downsized our overhead structure, controlled costs, and opened up evening and weekend hours in our operating rooms to attract surgeons," said Amaral.

The night and weekend hours appeal to busy surgeons; operations in Summit's hospitals have increased by 17 percent this year compared to last year, while outpatient surgery has jumped by 31 percent.

Too, Summit Health has been paying down debt. Where the company carried $142.3 million in long-term corporate IOUs in 1988 - causing credit analysts to issue warnings - now debt has been pared back to $111.4 million.

Not helping Summit's image: $86.3 million in long-term subordinated bonds were issued by Drexel Burnham Lambert, the now-defunct investment banking firm.

By whacking down the debt load, "we are saving a tremendous amount of money on interest payments," said Amaral. "We are also collecting our receivables, on average, 15 days faster this year than in past years."

In the complicated billing procedures of the hospital industry, collections often run, on average, as much as 75 days behind when services were provided.

Summit borrowed to buy hospitals and nursing homes in the mid-1980s, but the late 1980s turned out to be the medical industry's toughest hour, with the federal government and private insurers sharply constricting their payments to health care providers.

Many hospitals have closed in recent years, others run chronic losses, and one major health maintenance organization, Los Angeles-based Maxicare Health Plans Inc., declared Chapter 11 in 1989. (Maxicare emerged from bankruptcy two weeks ago.)

In February 1988, Moody's, the New York-based credit rating agency, lowered its rating of Summit Health's debt to B2 from Ba2, a change from "predominantly speculative" to "speculative, low-grade." The rating has been unchanged since. Summit's 14 percent bonds, due 2005, are trading for about 70 percent of face value, for a current yield of about 20 percent.

Bond traders take note: Summit plans to meet with credit analysts in late January, after second-quarter earnings are posted. Amaral said last week he expects the earnings to be good, meaning that Summit will have posted profits in five out their last six quarters.

In reaction to the loss years 1987 and 1988, Summit Health went through a management change in October 1989, with Amaral becoming president, replacing 13-year president and chief financial officer William Pierpoint, who had been with the company since it was founded in 1977. Randolph Speer replaced Darrel Neuenschwander, senior vice president and chief financial officer for five years.

Don Freeberg, owner of 56.2 percent of Summit, remains chairman. Los Angeles investor and benefactor John Anderson owns 7.8 percent of the company, but no longer has a board seat.

Summit Health's money-losing years wiped out its analyst coverage on Wall Street; where seven analysts from major brokerage houses used to report on Summit three years ago, today none do, according to Nelson's Directory, the industry bible of analyst coverage. (Of two remaining analysts at the start of 1990, one worked for Drexel Burnham Lambert, the now-defunct firm, and the other has quit his job).

But last week President Amaral said Summit has received feelers from two analysts from major brokerage houses, and he expects some positive reports to come out soon.