Valley Health owner’s stock tumbles

Friday, Feb. 14, 2003 | 10:53 a.m.

SUN STAFF AND WIRE REPORTS

Shares of Universal Health Services Inc., the biggest U.S. operator of psychiatric hospitals and owner of Valley Health System in Las Vegas, tumbled as much as 24 percent this morning after the company replaced Chief Financial Officer Kirk Gorman.

Gorman told investors on a company conference call that auditor KPMG LLP went to Universal Health's board after a disagreement with Gorman over "technical accounting expertise" and the board agreed the CFO should leave. He said there are no questions about the company's financial statements.

Chief Executive Alan Miller said Universal Health opted for a change in management because it didn't want to risk switching auditors. "There would be a cloud over the company and its financials," Miller said on the conference call. Companies are being extra cautious after accounting scandals such as the one that engulfed failed energy trader Enron Corp., analysts said.

"What this says is that power has shifted away from management and in favor of auditors when it comes to accounting issues," said J. Edward Ketz, an accounting professor at Pennsylvania State University's Smeal College of Business.

Gorman called the disagreement "philosophical" and said he would have signed off on the company's fourth-quarter and full-year statements. He also said he expects the 2002 audit to be "clean."

"Sometimes when a CFO leaves a company, people jump to the conclusion that something is wrong with the company," Gorman said. "In this case, nothing could be further from the truth."

Universal Health's stock declined $8.40 to $33.55 as of 12:14 p.m. in New York Stock Exchange composite trading. Before today, the shares were little changed in the past 12 months and traded as high as $57.50 in October last year.

KPMG replaced Arthur Andersen as Universal's auditor in June and "may have ruffled some feathers from a procedural point of view," Lehman Brothers Inc. analyst Adam Feinstein said in a note to clients.

"Kirk may have expressed some dissatisfaction which led to a showdown with the board," Feinstein said.

Gorman said KPMG asked him to certify accounting advice that he said came from the auditor initially. "Perhaps in another time, I wouldn't have been so confused," he said. Gorman said he wasn't sure it was proper to have a CFO "certifying advice that came from somebody else in the first place."

The stock was cut to "neutral" from "buy" by Merrill Lynch analyst Albert Rice.

Universal is based in King of Prussia, Pa. In Las Vegas, the company owns the Valley Health system consisting of Valley, Summerlin and Desert Springs hospitals and a fourth hospital under construction in the western suburbs.