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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
------------------------
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NO. 0-27506
COHR INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 95-4559155
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION)
21540 PLUMMER STREET 91311
CHATSWORTH, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (818) 773-2647
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
As of February 12, 1998, there were outstanding 6,433,189 shares of the
Registrant's Common Stock, par value $0.01.
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COHR INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
NUMBER
------
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements........................................................ 3
Consolidated Balance Sheets as of December 31, 1997 (unaudited) and March
31, 1997.................................................................... 3
Consolidated Statements of Operations for the three months ended December
31, 1997, and December 31, 1996 and the nine months ended December 31, 1997
and December 31, 1996 (unaudited)........................................... 4
Consolidated Statements of Cash Flows for the nine months ended December 31,
1997, and December 31, 1996 (unaudited)..................................... 5
Notes to Financial Statements............................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations............................................................... 8
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings........................................................... 11
Item 5. Other Information........................................................... 11
Item 6. Exhibits and Reports on Form 8-K............................................ 11
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THIS FORM 10-Q AND OTHER STATEMENTS ISSUED OR MADE FROM TIME TO TIME BY
COHR INC. OR ITS REPRESENTATIVES CONTAIN STATEMENTS WHICH MAY CONSTITUTE
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE SECURITIES ACT OF 1933
AND THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED BY THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995. 15 U.S.C.A. SECTIONS 772-2 AND 78U-5 (SUPP.1996).
THOSE STATEMENTS INCLUDE STATEMENTS REGARDING THE INTENT, BELIEF OR CURRENT
EXPECTATION OF COHR INC. AND MEMBERS OF ITS MANAGEMENT TEAM AS WELL AS THE
ASSUMPTIONS ON WHICH SUCH STATEMENTS ARE BASED. PROSPECTIVE INVESTORS ARE
CAUTIONED THAT SUCH FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE
PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES, AND THAT ACTUAL RESULTS MAY
DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS.
IMPORTANT FACTORS CURRENTLY KNOWN TO MANAGEMENT THAT COULD CAUSE ACTUAL RESULTS
TO DIFFER MATERIALLY FROM THOSE FORWARD-LOOKING STATEMENTS ARE SET FORTH IN THE
SAFE HARBOR COMPLIANCE STATEMENT FOR FORWARD-LOOKING STATEMENTS INCLUDED HEREIN
AND IN THE COMPANY'S DOCUMENTS FILED FROM TIME TO TIME WITH THE SECURITIES AND
EXCHANGE COMMISSION. THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE OR REVISE
FORWARD-LOOKING STATEMENTS TO REFLECT CHANGED ASSUMPTIONS, THE OCCURRENCE OF
UNANTICIPATED EVENTS OR CHANGES TO FUTURE OPERATING RESULTS OVER TIME.
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COHR INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)
ASSETS
DECEMBER 31, MARCH 31,
1997 1997
------------ -------------
(UNAUDITED) (AS RESTATED,
SEE NOTE 4)
CURRENT ASSETS:
Cash............................................................. $ 16,485 $22,948
Investments...................................................... 1,500 6,000
Accounts receivable -- trade, net of allowance for doubtful
accounts of $3,447 (December 31, 1997) and $1,490 (March 31,
1997)......................................................... 20,294 24,681
Other......................................................... 201 2,325
Inventory........................................................ 10,486 9,126
Prepaid expenses and other....................................... 732 1,263
Income tax refund receivable..................................... 9,256 1,348
Deferred income tax asset........................................ -- 1,124
-------- -------
Total current assets..................................... 58,954 68,815
Equipment and improvements, net.................................... 7,771 6,636
Intangible assets, net of accumulated amortization of $970
(December 31, 1997) and $280 (March 31, 1997).................... 7,116 9,237
Other assets....................................................... 1,326 391
-------- -------
TOTAL.................................................... $ 75,167 $85,079
======== =======
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable.................................................... $ 136 $ 1,342
Accounts payable -- trade........................................ 7,355 5,668
Accrued expenses................................................. 8,933 4,669
Deferred revenue................................................. 3,656 6,394
Current portion of long-term debt................................ 1,008 853
-------- -------
Total current liabilities................................ 21,088 18,926
Deferred income tax liability...................................... 499 499
Long term debt..................................................... 481 1,146
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value; 2,000,000 shares authorized; no
shares issued and outstanding
Common Stock, $.01 par value; 20,000,000 shares authorized;
6,433,000 (December 31, 1997) and 6,391,000 (March 31, 1997)
shares issued and outstanding................................. 887 887
Additional paid in capital....................................... 55,153 55,153
Retained earnings (deficit)...................................... (2,941) 8,468
-------- -------
Total stockholders' equity............................... 53,099 64,508
-------- -------
TOTAL.................................................... $ 75,167 $85,079
======== =======
See notes to consolidated financial statements.
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COHR INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
-------------------------- --------------------------
1997 1996 1997 1996
-------- ------------- -------- -------------
(AS RESTATED, (AS RESTATED,
SEE NOTE 4) SEE NOTE 4)
Revenues.................................... $ 24,422 $20,153 $ 75,197 $61,823
Direct operating expenses................... 20,187 14,859 61,589 44,851
-------- ------- -------- -------
Gross margin................................ 4,235 5,294 13,608 16,972
Selling, general and administrative
expenses.................................. 13,688 4,532 24,748 13,157
-------- ------- -------- -------
Operating income (loss)..................... (9,453) 762 (11,140) 3,815
Interest income............................. 260 209 834 524
Interest expense............................ (26) (14) (63) (23)
Special charges............................. (4,115) -- (4,115) --
-------- ------- -------- -------
Income (loss) before income taxes
(benefit)................................. (13,334) 957 (14,484) 4,316
Provision (benefit) for income taxes........ (2,679) 383 (3,075) 1,745
-------- ------- -------- -------
Net income (loss)........................... (10,655) $ 574 (11,409) $ 2,571
======= ======= ======= ======
Net income (loss) per share -- basic........ $ (1.66) $ 0.11 $ (1.77) $ 0.54
======== ======= ======== =======
Net income (loss) per share -- diluted...... $ (1.66) $ 0.10 $ (1.77) $ 0.50
======== ======= ======== =======
Number of shares used to compute net income
(loss) per share -- basic................. 6,433 5,162 6,429 4,765
======== ======= ======== =======
Number of shares used to compute net income
(loss) per share -- diluted............... 6,433 5,539 6,429 5,150
======== ======= ======== =======
See notes to consolidated financial statements.
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COHR INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
NINE MONTHS ENDED
DECEMBER 31,
----------------------------
1997 1996
-------- --------------
(AS RESTATED,
SEE NOTE 4)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................................................... $(11,409) $ 2,571
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation and amortization....................................... 1,578 779
Provision for losses on accounts receivable......................... 4,328 216
Deferred income taxes payable, net.................................. 1,895 (147)
Change in assets and liabilities, net of effect of acquisition of
certain assets:
Accounts receivable:
Trade.......................................................... 59 (6,967)
Other.......................................................... 2,124 64
Inventory........................................................ (834) (1,906)
Prepaid expense and other........................................ 531 109
Income tax refund receivable..................................... (8,679) --
Other assets..................................................... 1,628 107
Accounts payable -- trade........................................ 1,687 (1,067)
Accrued expenses................................................. 4,264 (3,215)
Deferred revenue................................................. (2,738) 459
Income taxes payable............................................. -- (195)
-------- --------
Total adjustments.............................................. 5,843 (11,763)
-------- --------
Net cash used in operating activities.......................... (5,566) (9,192)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of investments................................................... 4,500 --
Capital expenditures.................................................. (1,894) (1,674)
Payment for acquisition of certain assets............................. (1,262) (2,550)
-------- --------
Net cash provided by (used in) investing activities............ 1,344 (4,224)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments and maturities on long-term debt............................. (2,241) (826)
Issuance of stock..................................................... -- 32,214
Exercise of stock options............................................. -- 472
-------- --------
Net cash provided by (used in) financing activities............ (2,241) 31,860
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................... (6,463) 18,444
CASH AND CASH EQUIVALENTS, beginning of period.......................... 22,948 19,314
-------- --------
CASH AND CASH EQUIVALENTS, end of period................................ $ 16,485 $ 37,758
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes........................................................ $ 3,720 $ 1,942
======== ========
Interest............................................................ $ 135 $ 23
======== ========
DETAILS OF BUSINESSES OR ASSETS ACQUIRED AT FAIR VALUE ARE AS FOLLOWS:
Current assets...................................................... 526 $ 2,150
Equipment........................................................... 196 837
Goodwill and other intangibles...................................... 1,065 3,490
-------- --------
1,787 6,477
-------- --------
Liabilities assumed................................................. -- 2,431
Debt issued for acquisitions........................................ 525 1,496
-------- --------
Net cash paid for acquisitions................................. 1,262 $ 2,550
======== ========
See notes to consolidated financial statements.
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COHR INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS AND THE NINE MONTHS ENDED
DECEMBER 31, 1997
(UNAUDITED)
1. BASIS OF PRESENTATION
In the opinion of management, the accompanying consolidated financial
statements include all adjustments necessary for a fair presentation of the
financial position of COHR Inc. ("COHR") and subsidiaries (collectively, the
"Company"), and the results of its operations and its cash flows for the interim
periods presented. Although COHR believes that the disclosures in these
consolidated financial statements are adequate to make the information presented
not misleading, certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. Results of operations for
the interim periods are not necessarily indicative of results to be expected for
any other interim period or for the full year.
The consolidated financial statements for the three-month and nine-month
periods ended December 31, 1997 and December 31, 1996 (restated) are unaudited
and should be read in conjunction with the consolidated financial statements and
notes thereto included in COHR's Annual Report on Form 10-K for the year ended
March 31, 1997.
Consolidation of Subsidiaries -- The Company's financial statements include
the activity of all of its wholly owned subsidiaries over which the Company has
direct or indirect or indirect unilateral and perpetual control. All
intercompany transactions have been eliminated in consolidation.
Net Income (Loss) Per Common Share -- Basic loss per share for the
three-month and nine-month periods ended December 31, 1997 has been calculated
in accordance with the Financial Accounting Standards Board's Statement of
Financial Accounting Standard No. 128 (SFAS No. 128) "Earnings Per Share." The
calculation of earnings per share for earlier periods has been restated in
accordance with SFAS No. 128. The calculation of fully diluted loss per share is
not presented as such amounts would be antidilutive.
2. SUBSEQUENT EVENT
Subsequent to December 31, 1997, the Company acquired certain assets of a
business with operations similar to those of the Company. The purchase price was
$750,000, subject to certain future adjustments, with $300,000 payable on
February 1, 1998, which was paid by the Company. The remaining balance is
payable in varying annual installments through February 1, 2002.
3. SPECIAL CHARGES
Special charges consist of a write-off of approximately $2.6 million of
goodwill dated to the acquisition of one of its operating units in accordance
with Statement of Financial Accounting Standards No. 121 and legal, audit and
related costs resulting from the special review conducted at the direction of
the Board of Directors.
4. RESTATEMENT
Subsequent to the issuance of the Company's fiscal 1997 consolidated
financial statements, the Company's management determined that certain equipment
and software sales were prematurely recorded and that certain liabilities were
understated. As a result, the accompanying consolidated balance sheet as of
March 31, 1997 and the statements of operations and cash flows for the three and
nine months ended December 31, 1996 have been restated from the amounts
previously reported to reverse these sales and to record the appropriate
liabilities.
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COHR INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS AND THE NINE MONTHS ENDED
DECEMBER 31, 1997
(UNAUDITED)
A summary of the significant effects of the restatement is as follows:
AS PREVIOUSLY AS
REPORTED(1) RESTATED
------------- -------
At March 31, 1997:
Accounts receivable........................................... $25,439 $24,681
Accounts payable -- trade..................................... 4,040 5,668
Accrued expenses.............................................. 2,618 4,669
Retained earnings............................................. 10,961 8,468
For the three months ended December 31, 1996:
Revenues...................................................... $23,451 $20,153
Direct operating expenses..................................... 16,952 14,859
Selling, general and administrative expenses.................. 4,532 4,532
Income before taxes........................................... 2,162 957
Net income.................................................... 1,297 574
Net income per share - basic.................................. .25 .11
For the nine months ended December 31, 1996:
Revenues...................................................... $65,121 $61,823
Direct operating expenses..................................... 46,944 44,851
Selling, general and administrative expenses.................. 13,157 13,157
Income before taxes........................................... 5,521 4,316
Net income.................................................... 3,292 2,571
Net income per share - basic.................................. .69 .54
- ---------------
(1) Except net income per share -- basic amounts which have been recalculated in
accordance with SFAS No. 128.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company is a leading national outsourcing service organization
providing equipment servicing, group purchasing and other services to hospitals,
integrated health systems and alternate site providers.
RESTATEMENT OF PRIOR PERIOD FINANCIAL STATEMENTS
The Company has concluded that a restatement of previously reported
financial statements for the first two quarters of fiscal year 1998 and for
fiscal year 1997 is appropriate based upon management's determination that
certain equipment and software sales were prematurely recorded and that certain
liabilities were understated. Please see Note 4 to the Consolidated Financial
Statements for the Three and Nine Months Ended December 31, 1997.
RESULTS OF OPERATIONS
NINE MONTHS ENDED DECEMBER 31, 1997 VERSUS NINE MONTHS ENDED DECEMBER 31,
1996 AS RESTATED
Revenues -- The Company's revenues for the nine months ended December 31,
1997 totaled $75.2 million, an increase of $13.4 million or 21.7% over revenues
of $61.8 million for the nine months ended December 31, 1996. Of the $13.4
million increase in revenues, $13.0 million is primarily the result of
internally generated growth in COHR MasterPlan.
Direct Operating Expenses -- The Company's direct expenses for the nine
months ended December 31, 1997 totaled $61.6 million which represented an
increase of $16.8 million or 37.5% over the nine months ended December 31, 1996
total of $44.8 million. Direct operating expenses as a percentage of revenues
for the nine months ended December 31, 1997 increased to 81.9% from 72.5% for
the nine months ended December 31, 1996. Factors contributing to the increase
include growth in the number of sales and service employees and related employee
costs, the outsourcing of a greater number of services provided to customers,
and an increase in customer rebate accruals.
Gross Margin. The Company's gross margin for the nine months ended December
31, 1997 totaled $13.6 million, a decrease of $3.4 million or 20.0% over the
nine months ended December 31, 1996 total of $17.0 million. Gross margin as a
percentage of revenues decreased to 18.1% for the nine months ended December 31,
1997 from 27.5% for the nine months ended December 31, 1996. Factors
contributing to the decrease in gross margin include the increased expenses
identified in the discussion of divested operating expenses above.
Selling, General and Administrative Expenses. The Company's selling,
general and administrative expenses for the nine months ended December 31, 1997
totaled $24.8 million, an increase of $11.6 million or 87.9% over the nine
months ended December 31, 1996 total of $13.2 million. As a percentage of
revenues, selling, general and administrative expenses increased during the nine
months ended December 31, 1997 to 33.0% from 21.4% during the nine months ended
December 31, 1996. Included within the increase in selling, general and
administrative expenses is a $4.3 million increase in the allowance for doubtful
accounts. Other factors contributing to the increase include increases in the
number of support personnel, facility expenses and other expenses incurred to
generate new business.
Operating Income (Loss). The Company's operating loss for the nine months
ended December 31, 1997 totaled $11.1 million, a decrease of $14.9 million over
the nine months ended December 31, 1996 operating income of $3.8 million. The
operating loss as a percentage of revenues for the nine months ended December
31, 1997 decreased to a 14.8% charge as compared to a 6.1% return for the nine
months ended December 31, 1996. The operating loss can be attributed to the
adjustments and other expenses identified in the discussion of direct operating
expenses and selling, general and administrative expenses above.
Special Charges. The Company recorded special charges of $4.1 million
before taxes for the nine months ended December 31, 1997. The entirety of these
charges were recorded in the third quarter. Of this total, $2.6 million was a
write-off of goodwill related to the acquisition of one of the Company's
operating
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divisions in accordance with SFAS 121, and $1.5 million was for accrual of
certain other expenses, including non-recurring costs associated with the
Board's special review and other items. See Note 4 to the Consolidated Financial
Statements for the Three and Nine Months Ended December 31, 1997.
Provision for Income Taxes (Benefit). The Company's income tax benefit for
the nine months ended December 31, 1997 totaled $3.1 million, a decrease of $4.8
million in tax over the nine months ended December 31, 1996 provision for income
taxes of $1.7 million, due to the decrease in pre-tax income for the period. The
Company's effective tax (benefit) rate was (21.2%) for the nine months ended
December 31, 1997 and 40.0% for the nine months ended December 31, 1996. The
effective benefit rate for the nine months ended December 31, 1997 was lower
than it would have otherwise been due to the fact that the Company is unable to
utilize a tax benefit of $1.9 million due to limitations on the carryback of net
operating losses.
Net Income (Loss). The Company's net loss for the nine months ended
December 31, 1997 totaled $11.4 million, a decrease of $14.0 million over the
nine months ended December 31, 1996 net income of $2.6 million. As a percentage
of revenues, net income (loss) decreased to a 15.2% charge in the nine months
ended December 31, 1997 from a 4.2% return in the nine months ended December 31,
1996.
THREE MONTHS ENDED DECEMBER 31, 1997 VERSUS THREE MONTHS ENDED DECEMBER 31,
1996 AS RESTATED
Revenues -- The Company's revenues for the three months ended December 31,
1997 totaled $24.4 million, an increase of $4.2 million or 20.8% over revenues
of $20.2 million for the three months ended December 31, 1996. Of the $4.3
million increase in revenues, $4.2 million is primarily the result of internally
generated growth in COHR MasterPlan.
Direct Operating Expenses -- The Company's direct expenses for the three
months ended December 31, 1997 totaled $20.2 million which represented an
increase of $5.3 million or 35.6% over the three months ended December 31, 1996
total of $14.9 million. Direct operating expenses as a percentage of revenues
for the three months ended December 31, 1997 increased to 82.8% from 73.8% for
the three months ended December 31, 1996. The primary factors contributing to
the increase include growth in the number of sales and service employees and
related employee costs and the outsourcing of a greater number of services
provided to customers.
Gross Margin. The Company's gross margin for the three months ended
December 31, 1997 totaled $4.2 million, a decrease of $1.1 million or 20.8% over
the three months ended December 31, 1996 total of $5.3 million. Gross margin as
a percentage of revenues decreased to 17.2% for the three months ended December
31, 1997 from 26.2% for the three months ended December 31, 1996.
Selling, General and Administrative Expenses. The Company's selling,
general and administrative expenses for the three months ended December 31, 1997
totaled $13.7 million, an increase of $9.2 million or 204.4% over the three
months ended December 31, 1996 total of $4.5 million. As a percentage of
revenues, selling, general and administrative expenses increased during the
three months ended December 31, 1997 to 56.1% from 22.4% during the three months
ended December 31, 1996. Included within the increase in selling, general and
administrative expenses is a $3.9 million increase in the allowance for doubtful
accounts. Other factors contributing to the increase include increases in the
number of support personnel, facility expenses and other expenses incurred to
generate new business.
Operating Income (Loss). The Company's operating loss for the three months
ended December 31, 1997 totaled $9.5 million, a decrease of $10.2 million over
the three months ended December 31, 1996 operating income of $762,000. The
operating loss as a percentage of revenues for the three months ended December
31, 1997 decreased to a 38.7% charge as compared to a 3.8% return for the three
months ended December 31, 1996. The operating loss can be attributed to the
adjustments and other expenses identified in the discussion of Direct Operating
Expenses and Selling, General and Administrative Expenses above.
Special Charges. The Company recorded special charges of $4.1 million
before taxes for the three months ended December 31, 1997. Of this total, $2.6
million was a write-off of goodwill related to the acquisition of one of the
Company's operating divisions in accordance with SFAS 121 and $1.5 million was
for accrual of other expenses, including non-recurring costs associated with the
Board's special review and other
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items. See Note 4 to the Consolidated Financial Statements for the Three and
Nine Months Ended December 31, 1997.
Provision for Income Taxes (Benefit). The Company's income tax benefit for
the three months ended December 31, 1997 totaled $2.7 million, a decrease of
$3.1 million over the three months ended December 31, 1995 provision for income
taxes of $383,000, due to the decrease in pre-tax income for the period. The
Company's effective tax (benefit) rate was (20.1%) for the three months ended
December 31, 1997 and 40.0% for the three months ended December 31, 1996. The
effective benefit rate for the three months ended December 31, 1997 was lower
than it would have otherwise been due to the fact that the Company is unable to
utilize a tax benefit of $1.9 million due to limitations on the carryback of net
operating losses.
Net Income (Loss). The Company's net loss for the three months ended
December 31, 1997 totaled $10.7 million, a decrease of $11.2 million over the
three months ended December 31, 1996 net income of $574,000. As a percentage of
revenues, net income (loss) was a 43.6% charge in the three months ended
December 31, 1997 compared to a 2.8% return in the three months ended December
31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $37.9 million and $49.9 million as of
December 31, 1997 and March 31, 1997 respectively. The Company had cash, cash
equivalents and short-term investments of $18.0 million as of December 31, 1997
as compared to $28.9 million as of March 31, 1997. The decrease in the amount of
cash, cash equivalents and short term investments during the first nine months
of fiscal year 1998 was primarily attributable to a net operating loss of $11.4
million (offset in part by noncash charges for depreciation, amortization and
provision for losses on accounts receivable of $5.9 million), capital
expenditures and payment for acquired assets of businesses of $3.2 million and a
repayment of long-term debt of $2.2 million.
The Company allowed its revolving credit line to expire and has not sought
a renewal thereof. The Company has not paid dividends since its initial public
offering in February of 1996.
INFLATION
The Company believes that its operations have not been materially adversely
affected by inflation. The Company expects that salary and wage increases for
its skilled staff will continue to be higher than average wage increases, as is
common in the Company's industry.
ADDITIONAL FACTORS AFFECTING OPERATING RESULTS
In addition to the Factors Affecting Operating Results set forth in the
Company's latest Form 10-K Annual Report for the Year Ended March 31, 1997,
please note the following:
1. Restatement of Financial Statements. The Company will restate its
financial statements for the fiscal year ended March 31, 1997 and the first
two quarters of the current fiscal year. This restatement relates primarily
to management's determination that certain equipment and software sales
were prematurely recorded and that certain liabilities and reserves were
understated. Management is not able to predict what effects the restatement
may have on the future operations, relationships with customers or on the
market price of the Company's common stock.
2. Dependence on Key Personnel. In its Form 10-K for the fiscal year
ended March 31, 1997, the Company disclosed that it will depend in large
part on the performance of a number of key employees, including Paul
Chopra, its Chairman of the Board and Chief Executive Officer (CEO). The
Company replaced Mr. Chopra in November of 1997 and, effective February 17,
1998, replaced its Chief Financial Officer (CFO). The Company believes that
it has secured qualified replacements but both individuals are not as
familiar with the operations of the Company as their predecessors. The
Company's success continues to depend to a certain significant degree upon
continued contributions of its key management, sales and operational
personnel and the Company's ability to retain and continue to attract
highly skilled personnel. In light of the change in the CEO and CFO, the
restatement of certain of its financial
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statements and the possibility of a sale of the Company, there can be no
assurance that other key employees may not want to seek employment
elsewhere. The failure of the Company to attract and retain key personnel
would have a material adverse affect on the Company's business, operating
results and financial condition.
3. Future Operating Results. The Company has suffered certain setbacks
during the past six months, including replacement of its CEO and CFO, the
restatement of the 1997 financial statements and interim 1998 financial
statements, and a drop in the price of its common stock. The Company also
continues to face certain challenges more specific to its operations
including (1) shifting its strategic focus from acquiring compatible
business to running its existing business sufficiently and profitably; (2)
managing existing customers' perceptions of the Company's continued
viability and refocusing on the high levels of customer service required to
develop new customers and retain existing customers; (3) combating employee
turnover, particularly in light of declines in the market value of the
Company's common stock (the value of which often plays a role in
compensation of employees); and (4) reducing costs and increasing
efficiencies. There can be no assurance that the Company will successfully
meet these or other operating challenges or that the Company's operating
plans ultimately will be successful. A failure with respect to the
foregoing could have a material adverse effect on the Company.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved from time to time in various legal proceedings
incidental to its business. In the opinion of the Company's management, no such
pending litigation is likely to have a material adverse effect on the Company's
business.
ITEM 5. OTHER INFORMATION
On February 10, 1998, the Company's Board of Directors named Daniel F.
Clark as Executive Vice President of Finance and Chief Financial Officer
replacing Umesh Malhotra. This change is to be effective as of February 17,
1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits included or incorporated herein:
See Index to Exhibits.
(b) Reports on Form 8-K
See the Company's Form 8-K, Current Report, disclosing the engagement of
Lehman Brothers as its financial advisor and the expectation that its financial
results will include special charges which may impact prior periods, which
report was filed on January 5, 1998.
11
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COHR INC.
(Registrant)
Date: February 17, 1998 /s/ STEPHEN W. GAMBLE
--------------------------------------
Stephen W. Gamble
President and Chief Executive Officer
(Principal Executive Officer)
Date: February 17, 1998 /s/ DANIEL F. CLARK
--------------------------------------
Daniel F. Clark
Executive Vice President and Chief
Financial Officer
(Principal Financial Officer)
12
13
COHR INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
ITEM (6)
(a) EXHIBITS
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ---------- --------------------------------------------------------------------- ------------
3.1* Certificate of Incorporation of Registrant...........................
3.2* By-laws of Registrant................................................
4.1* Form of Warrant to be issued to the Representatives of the
Underwriters.........................................................
4.2* Form of Registration Rights Agreement between Registrant, Healthcare
Association of Southern California ("HASC") and Hospital Council
Coordinated Programs, Inc............................................
4.3* Specimen Stock Certificate...........................................
10.1* Form of Indemnity Agreement entered into between Registrant and each
of its executive officers and directors..............................
10.2* Employment Agreement between Registrant and Paul Chopra, effective
January 1, 1996......................................................
10.4* Form of 1995 Stock Option Plan of Registrant and Form of Nonstatutory
Option Grant Under the Plan..........................................
10.8** Office Lease between TCEP II properties and Registrant dated May 8,
1996.................................................................
10.9*** 1996 Stock Option Plan of Registrant, as amended and restated on June
17, 1997.............................................................
11 Computation of Per Share Earnings....................................
99.1 Press Release of February 17, 1998...................................
- ---------------
* Incorporated by reference from Registrant's Statement on Form S-1,
Registration No. 33-80635.
** Incorporated by reference from Registrant's Annual Report for the fiscal
year ended March 31, 1996 on Form 10-K.
*** Incorporated by reference from Registrant's Quarterly Report for the fiscal
quarter ended June 30, 1997 on Form 10-Q.