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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED MARCH 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
COMMISSION FILE NO. 0-27506
COHR INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<TABLE>
<S> <C>
DELAWARE 95-4559155
(STATE OR OTHER JURISDICTION OF I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION IDENTIFICATION)
21540 PLUMMER ST. 91311
CHATSWORTH, CA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (818) 773-2647
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $0.01 PAR VALUE PER SHARE
(TITLE OF CLASS)
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
As of June 12, 1997 there were outstanding 6,433,189 shares of the
Registrant's Common Stock, par value $0.01 ("Common Stock"), which is the only
class of Common Stock of the Registrant. As of June 12, the aggregate market
value of the shares of Common Stock held by non-affiliates of the Registrant,
computed based on the closing sale price of $17.50 per share as reported by
Nasdaq, was approximately $112,580,808.
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III is incorporated by reference to the
definitive Proxy Statement for the 1997 Annual Meeting of Stockholders of the
Registrant which will be filed with the Securities and Exchange Commission not
later than 120 days after.
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PART I
ITEM 1. BUSINESS
GENERAL
COHR Inc. ("COHR" or the "Company") is a national outsourcing service
company, providing equipment sales and servicing, group purchasing and other
services such as electronic data interchange business systems, insurance
consultation and brokerage, security services, clinical information systems and
credentials management services to hospitals, integrated health systems and
alternate site providers. COHR was founded in 1985 by the Healthcare Association
of Southern California (HASC), a regional trade association comprised of
hospitals, health systems, nursing homes and medical groups. The Company was
incorporated in California in 1985 and reincorporated in Delaware in 1996. The
Company completed its initial public offering in February, 1996 and a secondary
public offering in November 1996. The Company has two divisions: COHR MasterPlan
and Purchase Connection. COHR MasterPlan is the Company's equipment services
division, offering a full range of equipment maintenance, repair, consulting,
refurbishment and sales services. Purchase Connection is the Company's group
purchasing division which offers access to volume discount pricing on medical,
surgical and laboratory supplies, capital equipment, pharmaceutical and dietary
supplies. It also includes the Electronic Data Interchange (EDI), Business and
Management Consulting services division of the Company.
In fiscal year 1997, the Company made a series of acquisitions in the
equipment service and group purchasing divisions. These activities have enabled
the Company to enter new markets and to increase penetration of existing
markets. In addition, these acquisitions have allowed the Company to provide new
services such as magnetic resonance imaging equipment and other advanced
technology equipment servicing, thereby generating higher equipment servicing
margins and reducing the Company's dependence on subcontracting such services.
SERVICES AND PRODUCTS
COHR MASTERPLAN
An industry research source estimates that the market for servicing
biomedical and diagnostic imaging equipment will grow to over $7.6 billion by
the end of the decade. The Company believes that cost-containment pressures
compel health-care providers to retain existing equipment longer and to
outsource an ever-increasing proportion of their service needs. Those
independent service organizations (ISOs) with a formidable market presence, that
are national in scope, that possess highly qualified service personnel and that
can maintain equipment from many manufacturers will benefit from this trend. The
Company has sought to capitalize upon these trends with COHR MasterPlan.
"One contract, one cost, one call" summarizes the MasterPlan approach.
Maintenance Masterplan, COHR MasterPlan's principal product line, is a
comprehensive equipment management plan that offers equipment services at a
fixed cost and, in the first year of the contract, guarantees savings over the
prior year's costs. The ability to maintain any high-technology equipment,
anytime, almost anywhere in the nation, and to reduce the client's expenditures
through a fixed-price contract that caps the cost of maintenance, makes COHR's
capital asset management program, a competitive alternative to programs offered
by other ISO's. In a typical situation, the Company conducts an extensive audit
of a potential client, including a review of existing service contracts,
time-and-materials expenditure histories for maintenance of their equipment
inventory, and interviews with key department managers. The data generated from
the audit is analyzed and compared to an extensive, 23-year database of
equipment maintenance records. The Company then presents the client with a
comprehensive proposal, which includes guaranteed savings for the life of the
contract and recommendations for areas of improvement. As an incentive to
increase the use of COHR service personnel over those of other vendors, the
client receives a share of the cost savings realized when actual maintenance
expenses fall below the contract's fixed price.
The Company has found that health-care facilities find it increasingly
difficult to maintain medical equipment while matching COHR's price levels
because of overhead and administrative burdens; other ISOs
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have not matched the wide range of ancillary services (such as refurbished
equipment sales, depot repair and specialized technology consulting) offered by
the Company. The Company believes that COHR MasterPlan compares favorably to
Original Equipment Manufacturers (OEM) on the basis of price, its quality
reputation, the wide range of manufacturers' products offered, and its ability
to provide the customer with unbiased technology management consulting. These
factors account for COHR MasterPlan's sustained, rapid growth, from
approximately 300 clients in 1993 to over 2,150 in 1997, with an average
contract renewal rate of over 95%. Over 650 technicians, customer service and
marketing personnel operate from 32 offices nationwide. Revenues increased from
$7 million in FY 1993 to over $68 million in FY 1997. In FY 1997, revenues
increased 42% over the previous year. A series of acquisitions -- 20 since July,
1993, 11 since April 1, 1996 -- added customers, qualified staff and revenues,
and extended the program into new areas. Through these 11 acquisitions the
Company has expanded its operations geographically and has added a new line of
business in magnetic resonance imaging equipment sales and service.
Specifically, these acquisitions have enabled the Company to expand its imaging
business in the Eastern United States. In addition, through the acquisition of a
large ISO, the Company has entered the national sterilizer service and
refurbishment market for the first time.
The Company intends to continue COHR MasterPlan's expansion during the year
ahead by acquiring other regional ISOs and opening additional sales and customer
service sites. The Company also plans to increase its share in existing markets
by soliciting an increasing proportion of the equipment maintenance in those
facilities where some items are still covered by OEM agreements. The Company
will continue to develop its ability to service high-technology diagnostic and
therapeutic equipment, which typically generates higher margins than the
maintenance of less-sophisticated items. The Company will seek to enhance its
capabilities to participate in the rapid growth of the refurbished equipment
market by purchasing, reconditioning and reselling used equipment, both
domestically and through its sales subsidiary in Asia.
PURCHASE CONNECTION
Group purchasing organizations (GPOs) derive their power from a simple
principle: the bigger the group, the larger the purchasing volume, the lower the
price. Since its inception in 1979, COHR's Purchase Connection has successfully
implemented this formula to build one of the industry's strongest business
portfolios.
Many factors have contributed to the growth of Purchase Connection in a
continually evolving health-care environment. A committed national membership of
nearly 1,600 facilities accounts for a significant annual volume of contract
purchases. Members have been attracted -- and retained -- by the bottom-line
savings generated by these purchases, by the low cost of membership, by the
strong support of an experienced professional staff, by the broad range of
product availability, and by the ease and economy of a state-of-the-art
electronic catalog that includes over 400,000 discounted line items of
medical/surgical/laboratory and dietary supplies, pharmaceuticals and capital
equipment. Purchase Connection members enjoy a unique advantage over members of
other GPOs: easy access to the extensive portfolio of value-added COHR products
and services. These include an insurance brokerage, employee benefits
consulting, facility security services, medical credentials verification
services and other information management consulting.
In FY 1998 management intends Purchase Connection to continue to grow by
adding to the Company's revenue base. To do so, the Company will seek to
increase the purchasing volume of its existing customers through its efforts to
increase customer compliance. These efforts include (i) encouraging customers to
participate in Purchase Connection's sole source contracts with vendors, (ii)
increasing customer utilization of the Company's electronic catalog, known as
Power Connection, linked to manufacturer and distributor pricing and (iii)
engaging in joint marketing efforts with participating manufacturers and
distributors. In addition, the Company plans to upgrade its information systems
to reconcile its record of customer purchases with commissions paid by vendors.
The Company plans to expand its geographic penetration of certain regional
markets, particularly in the Midwest and Southeast, by opening regional sales
and customer service sites. Finally, the Company intends to introduce a number
of new cost-effective products and services -- some developed internally, and
some acquired -- to help its members meet their constantly changing operating
challenges.
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The revolution in information management technology that affects every
aspect of business has only begun to penetrate the enormous and complex
health-care market. Most potential customers still accumulate mountains of paper
patient records and operate legacy computer systems that perform limited,
specialized functions. However, change is imminent. A changing regulatory
environment has necessitated the need to maintain quantifiable data, reduce
recordkeeping costs, speed access to information and expedite insurance
reimbursement. This has created a series of dilemmas for health-care
organizations. The Company has anticipated these changes, and has produced
electronic communications technology to supply optimal solutions to the
problems.
In 1995, the Company introduced its first proprietary software product,
COHR 835 Direct. The software found acceptance in that both Blue Cross of
California and Blue Cross/Blue Shield of New Jersey licensed 835 Direct for
distribution to their affiliates. In the previous fiscal year, the Company began
testing its new COHR Order Direct software at specific test sites. COHR Order
Direct is an interface between vendors and providers for the transmission of
catalogs and purchase orders. This software automates supply procurement and
integrates seamlessly with other existing materials management and financial
systems. Another software product, CheckPoint, stores, displays and manages
health-care professionals' credentials information, empowering a system or
facility to administer its own verification and certification process (otherwise
a very labor-intensive, repetitive task). Like all COHR proprietary products,
CheckPoint interfaces with clients' existing systems, greatly expanding the
Company's potential market.
All the Company's products, in conjunction with its proprietary software,
empower the Company to offer a wide range of state-of-the-art information
solutions for both business and clinical environments. COHR also provides
services to help clients maximize the growing potential of the Internet for
commercial transactions and customer relations.
SALES AND MARKETING
The Company markets its services and products to hospitals, integrated
health systems and alternative site providers through a force of 69 people in
sales, marketing, and customer service, allocated between COHR MasterPlan and
Purchase Connection. The Company's sales personnel use a comprehensive
consultative sales approach to leverage relationships in order to sell both
programs.
COHR MASTERPLAN. The Company employs 41 sales, marketing and customer
service personnel in its COHR MasterPlan division, who are allocated by region
and specialty.
The Company estimates that the sales cycle for the Maintenance MasterPlan
typically takes six months to complete. The Company believes that the sales
cycle for contracts other than Maintenance MasterPlan is approximately one
month. Appointments with customers, generated by a combination of print
advertising response, referrals and cold calls, involve a presentation of the
Company's services to the prospective customer.
Many customers enrolling in Maintenance Masterplan or other service
contracts for the first time are still obligated under certain OEM service
agreements covering recently purchased high technology equipment. The Company
routinely excludes such obligations from the initial Maintenance MasterPlan
agreement, and, with the data from customer equipment audits at hand,
systematically pursues their later inclusion at advantageous prices upon the
expiration of the OEM agreement.
PURCHASE CONNECTION. The Company employs 28 sales, marketing and customer
service personnel in its Purchase Connection division including regionally
located personnel to provide customers with quality service. The Company
generates leads principally through targeted direct mail campaigns to customers
of other GPOs, exhibitions at class-specific trade shows, direct sales efforts
in identified geographic regions, and cross-marketing through other Company
services.
The Company's other services and products are actively promoted through
field sales, by a specialist in the respective discipline. Targeted mailings,
advertising, word of mouth, educational programs and cross-marketing are all
employed as a means of promoting these products and services.
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COMPETITION
The Company's primary line of business operates in two separate markets,
each of which is highly competitive. In the equipment services market, the
Company's principal competitors are (i) OEMs, including G.E. Medical Systems,
Siemens Medical Systems, Inc. and Picker International, Inc., (ii) ISOs, of
which two of the largest are divisions of Steris Inc. and ServiceMaster, L.P.,
and (iii) in-house servicing departments. In the group purchasing markets, the
Company's principal competitors are several major GPOs, including Premier
Hospitals, Inc., Voluntary Hospitals of America Inc., MedEcon Services, Inc.,
AmeriNet, Inc., Health Services Corporation of America, Buy Power and University
Hospital Consortium, as well as in-house corporate purchasing departments of
large integrated systems and multi-hospital systems and various manufacturers
and regional GPOs. The Company's competitors in each of the separate markets
have sales representatives competing directly with the Company, and many are
substantially larger and have substantially greater financial resources than the
Company.
The Company believes that the broad mix of products and services and the
favorable pricing structure that it offers its customers enables it to
differentiate itself from many of its competitors. The Company is unaware of any
other company that offers the combination of equipment services, group
purchasing services and other outsourcing services offered by the Company.
REGULATORY MATTERS
The health care industry is highly regulated and there can be no assurance
that the regulatory environment in which the Company and its customers operate
will not change significantly in the future. The Company is also subject to laws
and regulations relating to business corporations in general. The Company
believes its operations are in material compliance with applicable laws.
Nevertheless, there can be no assurance that a review of the Company's business
or its customers' businesses by courts or regulatory authorities will not result
in a determination that could adversely affect the operations of the Company or
that the health care regulatory environment will not change so as to restrict
the Company's business.
Federal Health Care Program Fraud and Abuse. The federal anti-kickback
statute prohibits the offer, payment solicitation or receipt of any form of
remuneration in return for, or in order to induce, (i) the referral of a person
for the furnishing or arranging for the furnishing of goods, facilities, items
or services reimbursable under most federal health care programs, including
Medicare and Medicaid programs or (ii) the purchase, lease or order or arranging
or recommending purchasing, leasing or ordering of any item or service
reimbursable under most federal health care programs, including Medicare or
Medicaid programs. The Company is not a separate provider of Medicare or state
health program reimbursed services; however, if the Company is deemed to be
receiving prohibited remuneration under the group purchasing agreements, the
financial arrangements under these agreements could be subject to scrutiny and
prosecution under the federal anti-kickback statute, resulting in civil and
criminal penalties. Many states have adopted similar prohibitions against
payments intended to induce referrals of Medicaid or other third party payor
patients or covered services.
The federal government has published regulations that provide, among other
things, "safe harbors" from the federal anti-kickback statute relating to GPOs
serving as a purchasing agent for entities who are furnishing services for which
payment may be made under most federal health care programs, including Medicare
or a state health care program. The group purchasing safe harbor provides that
remuneration prohibited by the anti-kickback statute does not include any
payment by a vendor of goods or services to entities authorized to act as a GPO,
if (i) the GPO has a written agreement with each entity for which items or
services are furnished which provides that the fee paid by the vendor will be 3%
or less of the purchase price of the goods or services provided by that vendor,
and if the fee is not fixed at 3% or less, the agreement specifies the amount
the GPO will be paid by each vendor and (ii) the GPO disclosed in writing to the
health care provider the amount received from each vendor with respect to
purchases made by or on behalf of the entity. Although the Company does not fall
within the safe harbor, the Company believes that it is not receiving prohibited
remuneration because it discloses in agreements with its customers that it may
collect an administrative fee (commission) from vendors, its commissions
collected from vendors do not exceed 3% of the purchase price
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and it makes available upon request of a provider the amounts it receives from
vendors with respect to purchases made by or on behalf of the entity.
Antitrust Laws. Antitrust Laws. In certain circumstances, the federal
Robinson-Patman Act prohibits discriminatory pricing by vendors (i.e., a
differential in the net price to customers) with respect to the sale of
commodities, where the discrimination is likely to adversely affect competition.
It also prohibits the payment of "brokerage" by a vendor to an agent of the
purchaser. Certain states have adopted similar prohibitions against
discriminatory pricing and payment of brokerage or commissions.
While the company is not a vendor of commodities, it may be viewed as the
agent for its group purchasing customers authorized to negotiate discounted
pricing with vendors. The Robinson-Patman Act provides for buyer liability where
a vendor engages in prohibited discriminatory pricing and they buyer knowingly
induces or receives the discriminatory price. As a consequence, if the discounts
negotiated are deemed to be improper, as a participant in the arrangement, the
Company may be subject to civil damages or injunctive relief under the statue.
The Company believes that the pricing and commission policies of its
vendors comply with applicable statutory standards, but there can be no
assurance that future interpretations of antitrust laws by regulatory
authorities or courts will not require a restructuring of some or all of the
Company's group purchasing relationships with its vendors or result in a
determination that could adversely affect the Company.
The Company does not believe that the commissions it receives from vendors
are prohibited by the statues because it provides services in exchange for the
commissions.
Although exclusive dealing agreements generally are found to be lawful
business arrangements, where such agreements result in a significant degree of
foreclosure of the market place and effectively exclude competitors from a
market, they may be found to be unlawful under the federal Sherman Act or
Clayton Act or similar state laws. The Company does not believe that its sole
source contracts (which may be viewed as exclusive dealing agreements) violate
the Sherman Act, the Clayton Act, or similar state laws. However, there is no
assurance that the review of these contracts by courts or regulatory authorities
will not result in a determination that would adversely affect the operations of
the Company. For example, if the contracts were found to be unlawful and,
therefore, unenforceable, the Company would lose the benefits anticipated to be
derived from them.
Because the Company's group purchasing customers remain separate legal
entities, distinct from each other and from the Company, concerted action
through the GPO such as collective refusals to deal, improper sharing of price
information or other coordinated conduct may lead to allegations of prohibited
anticompetitive conduct. The Company believes that it complies with such state
and federal laws (including the Sherman Act) as may affect group purchasing
organizations, but there is no assurance that the review of the Company's
business by courts or regulatory authorities will not result in a determination
that could adversely affect the operations of the Company.
Insurance Laws and Regulations. Laws in all states regulate the business of
selling and marketing insurance products, such as life and health insurance,
fire and casualty insurance and variable annuities. The Company believes it is
in material compliance with applicable laws in the states in which it conducts
such business as are applicable to the Company's insurance products but there
can be no assurance that future interpretations of insurance laws by regulatory
authorities in these states or in the states into which the Company may expand
will not require licensure or a restructuring of some or all of the Company's
insurance operations. In October 1996, the Company became aware that following
its reincorporation in Delaware in January 1996 and until October 1996, it had
operated its insurance brokerage business in California without the requisite
license. The Company's predecessor was licensed to conduct the insurance
brokerage business in California until January 1996 and the Company received its
own license in October 1996. The Company disclosed to the California Department
of Insurance that it had operated an insurance brokerage business in California
without the requisite license from January 1996 to October 1996 and the facts
relating thereto. The Company was advised that the Department of Insurance would
open an investigation file in accordance with its standard procedures, the
Company believes, based on discussions with regulatory officials, that no
material
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enforcement action will be taken against the Company. To date, there has been no
action taken by the Department of Insurance. There is no assurance that the
Company may not be subject to penalties or sanctions. Following it
reincorporation and prior to receipt of its own license, the Company had
received aggregate brokerage commissions with respect to policy renewals
totaling $138,455. Under the California Insurance Code, the Company could be
required to disgorge all such commissions. In addition, the California
Department of Insurance could fine the Company an amount up to 30 percent of
such commissions or place restrictions or limitations upon the Company's
license, such as a requirement for filing periodic reports on the Company's
insurance brokerage business for a fixed period of time. The disgorgement of
commissions or assessment of penalties, or the imposition of limitations upon
its insurance brokerage license in California, either individually or in the
aggregate, could have a material adverse effect on the Company's business.
Other Regulations. The Company is subject to various federal, state, and
local laws and regulations. Various state and federal regulatory agencies, such
as OSHA and the Environmental Protection Agency, have jurisdiction over the
facilities of the Company and its customers, including worker safety, community
"right to know" laws, and laws regarding clean air and water. Under various
federal, state, and local laws, ordinances and regulations, an owner or lessee
of real estate may also be liable for the costs of removal or remediation of
certain hazardous or toxic substances located on or in, or emanating from, such
property, as well as related costs of investigation and property damage. Such
laws often impose such liability without regard to whether the owner or lessee
knew of, or was responsible for the presence of, such hazardous or toxic
substances. Furthermore, legislative or regulatory changes may cause future
increases in the Company's operating costs or otherwise negatively affect
operations. Although the Company believes it has been and is currently in
substantial compliance with the applicable standards pursuant to such laws and
regulations, there can be no assurance that the Company will not be materially
adversely affected by existing or future requirements or incur materially
increased operating costs in complying therewith.
The Company believes that it is in substantial compliance with all of the
foregoing federal and state laws and the regulations promulgated thereunder and
possesses all material permits and licenses for the conduct of its business.
BUSINESS SEGMENTS
Refer to note 13 in Financial Statements.
EMPLOYEES
As of March 31, 1997, the Company employed a total of 804 persons,
consisting of 69 in sales, marketing and customer service, 355 equipment
technicians, 107 other technical specialists, 145 security guards and 128 in
finance, administrative and research and development. None of its employees is
represented by a labor organization, and the Company considers its relations
with its employees to be good.
The Company believes that it has had much success in attracting and
retaining a high quality equipment technician staff. The Company uses an
in-house training program in order to maintain its high quality service level.
Many of the Company's technicians have been employed by the Company for over
five years.
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EXECUTIVE OFFICERS
The names, titles and ages of the executive officers of the Company are as
follows:
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<CAPTION>
NAME AGE POSITION
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<S> <C> <C>
Paul Chopra 49 Chairman of the Board, Chief Executive Officer and Director
Sandy D. Morford 42 President and Chief Operating Officer
Umesh Malhotra 38 Chief Financial Officer, Treasurer and Assistant Secretary
David Manigault 38 Executive Vice President, Chief Information Officer and
Secretary
David E. Langness 47 Senior Vice President of Corporate Communications
Haresh S. Satiani 42 Senior Vice President of Operations, COHR MasterPlan
Aviva Truesdell 50 Senior Vice President of Business Services
David Roesler 44 Senior Vice President of Operations, Purchase Connection
E. Bernard Bartoszek 45 Senior Vice President of Sales and Marketing, COHR MasterPlan
Edward L. Gravell 42 Senior Vice President of Sales and Customer Service, Purchase
Connection
Joe E. Strange 48 Senior Vice President of Management Consulting Services
Lisa Sokol 40 Executive Vice President, Purchase Connection, Resigned in
1997
William J. Greenhouse 45 Senior Vice President, Corporate Development, Resigned in
1996
</TABLE>
MR. CHOPRA has served as Chairman of the Board since 1996, has served as
Chief Executive Officer of the Company since 1993 and has served as a director
since 1984. Since 1994, Mr. Chopra has served as a director of HASC. From 1987
to December 31, 1995, he served as the Chief Financial Officer of HASC. From
1991 to 1993, he served as Chief Operating Officer and from 1991 to 1996, he
served as President. From 1987 to 1991 he served as its Executive Vice President
and Chief Operating Officer. From 1983 to 1987, he served in various finance
related positions with the Company. From 1981 to 1983, Mr. Chopra served as a
management consultant with Cambridge Capital Consultants. From 1977 to 1980, Mr.
Chopra served as Controller for Centronics Data Computer Corporation and from
1975 to 1977 Financial Planning Manager for PepsiCola, Inc. Mr. Chopra is a
director of SharePlan, a for-profit subsidiary of Hospital Council of Northern
and Central California, which provides fee-for-service programs for hospitals
and health care facilities.
MR. MORFORD has served as President and Chief Operating Officer of the
company since November 1996. From 1994 to 1996, he served as an Executive Vice
President of the Company. From 1989 to 1994, he served as a Senior Vice
President of the Company.
MR. MALHOTRA has served as Chief Financial Officer and Assistant Secretary
since 1995 and Treasurer of the Company since 1996. From 1991 to 1995, he served
as the Company's Controller and Vice President of Finance. From 1987 to 1990,
Mr. Malhotra served as an auditor for Deloitte & Touche LLP in Los Angeles and
from 1984 to 1986 served as a Chartered Accountant with Price Waterhouse in
Great Britain.
MR. MANIGAULT has served as Executive Vice President of the Company since
November 1995, its Chief Information Officer since 1984, and its Secretary since
November 1996. He has served as Past Chairman since 1996 and Chairman in 1995 to
1996 of the Healthcare EDI Coalition, a trade group that establishes EDI
pathways based on ANSI X-12 standards.
MR. LANGNESS has served as Senior Vice President of Corporate
Communications since February 1996. From April 1986 to January 1996, Mr.
Langness served as Vice President, Communications for HASC.
MR. SATIANI has served as Senior Vice president of Operations, COHR
MasterPlan since April 1994. From November 1991 to March 1994, Mr. Satiani
served as Vice President of Operations, COHR MasterPlan. From September 1989 to
October 1991, Mr. Satiani served as Director, Special Projects and Maintenance
MasterPlan.
MS. TRUESDELL has served as Senior Vice President of Business Services
since October 1991. From January 1986 to September 1991, Ms. Truesdell served as
Vice President of Administration Services. From November 1984 to December 1985,
Ms. Truesdell served as Director, Administration Services.
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MR. ROESLER has served as Senior Vice President of Operations, Purchase
Connection since April 1997. From February 1996 to March 1997, Mr. Roesler
served as Senior Vice President, Medical/Surgical/Laboratory and Capital
Equipment programs of Purchase Connection. From 1980 to January 1996, Mr.
Roesler served as Director and Vice President of National Accounts at the
Eastman Kodak Company.
MR. BARTOSZEK has served as Senior Vice President of Sales and Marketing,
COHR MasterPlan since April 1996. From December 1995 to March 1996, Mr.
Bartoszek served as Senior Vice President of Sales and Operations, COHR
MasterPlan. From May 1995 to November 1995, Mr. Bartoszek served as Vice
President of Sales and Operations, COHR MasterPlan. From November 1993 to April
1995, Mr. Bartoszek served as Executive Vice President at Kinetic Biomedical
Services. From 1987 to October 1993, Mr. Bartoszek served in various capacities
at AMSCO and served as Vice President in 1993.
MR. GRAVELL has served as Senior Vice President of Sales and Customer
Service, Purchase Connection since July 1995. From March 1993 to June 1995, Mr.
Gravell served as Vice President in the Medical/Surgical/Laboratory program of
Purchase Connection. From November 1990 to February 1993, Mr. Gravell served as
Director of Laboratory Services at Little Company of Mary Hospital.
MR. STRANGE has served as Senior Vice President of Management Consulting
Services since June 1996. From April 1993 to May 1996, Mr. Strange served as
Vice president of Management Consulting Services. From August 1992 to March
1993, Mr. Strange served as Director, Regulatory Consulting Services.
MS. SOKOL served as Executive Vice President, Purchase Connection from 1995
to 1997. Ms. Sokol served as Vice President, Purchase Connection from 1989 to
1995. Ms. Sokol resigned from the Company in February 1997.
MR. GREENHOUSE served as Senior Vice President, Corporate Development from
1992 to 1996. Mr. Greenhouse resigned from the Company in August 1996.
ITEM 2. PROPERTIES
The Company's principal executive offices are located in Chatsworth,
California and consist of approximately 76,000 square feet of leased office,
warehouse and workshop space. This facility houses all of the Company's senior
management, as well as management information systems, finance and human
resources, its Purchase Connection division and the Company's principal
equipment service facility. This lease expires in February 2009 and includes two
options to extend the term of the lease for consecutive periods of sixty months
each.
The Company also leases service and sales sites in Brea, Murrieta,
Stockton, Pleasanton, Fresno and Ontario, California; Cuyahoga Falls, Ohio;
Erie, Pennsylvania; Arlington, Washington; Islandia, New York; Apopka, Florida;
Ft. Lauderdale, Florida; Charleston, West Virginia; Fredricksburg, Virginia;
Richmond, Virginia; Fenton, Missouri; Windsor, Connecticut; and San Antonio,
Texas.
ITEM 3. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's stockholders during
the fourth quarter of the fiscal year covered by this report.
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PART II
ITEM 5. MARKET FOR THE REGISTRANTS COMMON STOCK AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's common stock began trading on NASDAQ on February 16, 1996
under the symbol "CHRI". The initial public offering price was $9.00 per share.
The Company issued 1,739,000 new shares, pursuant to a secondary offering on
November 21, 1996 at an offering price of $20.00 per share. The high and low
closing sales prices (excluding retail markup, markdowns and commissions) for
the period February 16, 1996 to March 31, 1997, by quarter, are as follows:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Fourth Quarter -- February 16, 1996 to March 31, 1996.......... 16 1/4 11 3/4
First Quarter -- April 1, 1996 to June 30, 1996................ 30 1/2 15 1/2
Second Quarter -- July 1, 1996 to September 30, 1996........... 28 16 1/2
Third Quarter -- October 1, 1996 to December 31, 1996.......... 29 19 1/4
Fourth Quarter -- January 1, 1997 to March 31, 1997............ 28 1/2 22 3/8
</TABLE>
As of June 12, 1997, there are approximately 83 stockholders of record and
approximately 2,200 beneficial holders of the Company's common stock. The
Company's stock price may be subject to significant volatility, particularly on
a quarterly basis. Any shortfall in revenue or earnings from levels expected by
securities analysts could have an immediate and significant adverse effect on
the trading price of the Company's common stock in any given period.
Additionally, the Company may not learn of, or be able to confirm, revenue or
earnings variations from estimates until late in the fiscal quarter which could
result in an even more immediate and adverse effect on the trading price of the
Company's common stock. Finally, the Company participates in a highly dynamic
industry, which often results in significant volatility of the Company's common
stock price.
DIVIDEND POLICY
At the present time the Company intends to retain all earnings for use in
the operation and development of its business and does not expect to declare or
pay any cash dividends on its Common Stock in the foreseeable future. The
Company's bank line of credit places certain limitations on the payment of
dividends by the Company.
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<PAGE> 11
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected financial data of the Company which
have been derived from the audited consolidated financial statements of the
Company. The selected financial data below should be read in conjunction with
the financial statements and the notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this report.
SELECTED FINANCIAL AND SUPPLEMENTAL DATA
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-------------------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
COHR MasterPlan........................ $68,284 $48,160 $28,042 $12,617 $ 8,203
Purchase Connection.................... 22,240 18,094 15,618 13,026 12,678
------- ------- ------- ------- -------
Total............................... 90,524 66,254 43,660 25,643 20,881
Gross margin............................. 25,005 18,059 13,561 8,773 7,732
Selling, general & administrative
expenses............................... 17,766 14,559 11,523 7,309 6,370
Operating income......................... 7,239 3,500 2,038 1,464 1,362
Net income............................... $ 4,819 $ 2,142 $ 1,368 $ 946 $ 917
======= ======= ======= ======= =======
Net income per common share.............. $ 0.88 $ 0.89 $ 0.65 $ 0.45 $ 0.43
Weighted Average Shares Outstanding...... 5,498.. 2,402 2,112 2,112 2,112
BALANCE SHEET DATA:
Working capital.......................... $52,244 $23,470 $ 4,127 $ 4,626 $ 5,374
Equipment and improvements, net.......... 6,943 3,718 2,727 2,611 2,245
Intangible assets, net................... 9,237 2,530 1,967 216
Total assets............................. 84,184.. 44,472 21,613 15,836 13,973
Total long-term debt..................... 1,146 276 528
Total shareholders' equity............... 67,001 29,115 7,270 6,138 5,419
SUPPLEMENTAL DATA:
Regional service and sales sites:
COHR MasterPlan........................ 31 18 14 7 5
Purchase Connection.................... 8 7 6 2 1
------- ------- ------- ------- -------
Total............................... 39 25 20 9 6
Total employees.......................... 804 558 428 339 254
Gross margin percentage.................. 27.6% 27.3% 31.1% 34.2% 37.0%
Selling, general & administrative
expenses margin........................ 19.7% 22.0% 26.4% 28.5% 30.5%
Operating income margin.................. 8.0% 5.3% 4.7% 5.7% 6.5%
Average days in receivables.............. 76 57 54 57 62
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD LOOKING STATEMENTS
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contains forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act
of 1933, which are subject to the "safe-harbor" created by these sections. The
Company's actual future results could differ materially from historical results
and from those set forth in the forward-looking statements. Some factors which
could cause future actual results to differ materially from the Company's recent
results and those set forth in the forward-looking statements are described in
this
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<PAGE> 12
section. Refer to "Factors Affecting Operating Results." The Company assumes no
obligation to update the forward-looking statements or such factors.
GENERAL
The Company is a national outsourcing service organization providing
equipment servicing, group purchasing and other services to hospitals,
integrated health systems and alternate site providers. The Company operates 31
regional service and sales sites to support its equipment services operations
and eight regional sales and customer service sites to support its group
purchasing activities.
Additional Revenues From New and Existing Customers -- The Company
aggressively markets a full range of equipment services in its existing markets,
the highest sales priority being Maintenance MasterPlan (comprehensive equipment
management) sales. The Company has also developed the ability to service new,
high technology equipment to grow its business with, and increase revenues from,
its existing customer base.
Gross Margins -- During the past five years, COHR MasterPlan has grown at a
more rapid rate than Purchase Connection. Accordingly, although gross margin
percentages in each of the Company's segments have remained generally stable,
the Company's gross margin percentages have decreased during this time. Further,
gross margin percentages have fluctuated in each segment as a result of the
timing of acquisitions and the costs incurred to assimilate these acquisitions.
In addition, in order to increase market share, the Company has not increased
billing rates to its COHR MasterPlan customers as its labor costs have
increased.
Operating Income -- Operating income has increased significantly in each of
the three years ended March 31, 1997. As a percentage of revenues, operating
income tends to fluctuate by year. These fluctuations have been caused by
changes in the Company's business mix toward more equipment service business,
the impact of new sites and acquisitions and the level of selling, general and
administrative expenses. While selling, general and administrative expenses have
grown in absolute dollars, they have declined as a percentage of sales, as the
Company has been able to achieve its growth in revenues without a proportionate
increase in corporate overhead. Development expenses for new products and the
COHR 835 Direct software package amounted to $1.1 million (1997) and $1.0
million (1996). During the fiscal year ended March 31, 1997, development
expenses on new products continued but decreased as a percentage of total
revenues from prior years.
RESULTS OF OPERATIONS
FISCAL YEAR ENDED MARCH 31, 1997 VERSUS FISCAL YEAR ENDED MARCH 31, 1996
Revenues. The Company's revenues for the fiscal year ended March 31, 1997
totaled $90.5 million, an increase of $24.2 million or 36.5% over revenues of
$66.3 million for the fiscal year ended March 31, 1996. Of the $24.2 million
increase in revenues, $20.2 million was due to revenue growth related to COHR
MasterPlan. During the fiscal year ended March 31, 1997, COHR MasterPlan
acquired nine smaller service maintenance companies (12 sites) and opened nine
new sites. The remaining revenue increase was due to internal growth and the
opening of new sites for Purchase Connection. During the fiscal year 1997, the
Company opened or acquired a total of 23 new sales and customer service sites.
As a result of these acquisitions, revenues increased by $9.0 million.
Direct Operating Expenses. The Company's direct operating expenses for the
fiscal year ended March 31, 1997 totaled $65.5 million which was an increase of
$17.3 million or 35.9% over the fiscal year ended March 31, 1996 total of $48.2
million. Direct operating expenses as a percentage of revenues decreased to
72.4% in fiscal year ended March 31, 1997 from 72.7%. The decrease was primarily
the result of economies of scale being achieved in the COHR MasterPlan division
and improved profitability from sites acquired in previous periods. COHR
MasterPlan has higher direct operating expenses as a percentage of revenues than
Purchase Connection. COHR MasterPlan is a more labor intensive business than
Purchase Connection which results in lower gross margins than those realized by
Purchase Connection.
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<PAGE> 13
Gross Margin. The Company's gross margin for the year ended March 31, 1997
totaled $25.0 million, an increase of $6.9 million or 38.1% over the year ended
March 31, 1996 total of $18.1 million. Gross margin as a percentage of revenues
increased to 27.6% for the year ended March 31, 1997 from 27.3% for the year
ended March 31, 1996. The increase in gross margin percentage was achieved in
spite of a larger increase in the percentage of the Company's revenues derived
from the lower margin COHR MasterPlan. Gross margin percentages in each of the
divisions increased slightly.
Selling, General and Administrative Expense. The Company's selling, general
and administrative expenses for the year ended March 31, 1997 totaled $17.8
million, an increase of $3.2 million or 21.9% over the year ended March 31, 1996
total of $14.6 million. As a percentage of revenues, selling, general and
administrative expenses decreased during the year ended March 31, 1997 to 19.7%
from 22.0% during the year ended March 31, 1996. The actual increase in expenses
reflected the increase in costs necessary to support the Company's rapid growth
through its acquisition program. The decrease in selling, general and
administrative expenses as a percentage of revenues reflected the growth of
revenues without a corresponding increase in administrative costs or head count
as well as other cost savings achieved through the consolidation of regional
sales and customer service sites.
Operating Income. The Company's operating income for the year ended March
31, 1997 totaled $7.2 million, an increase of $3.7 million or 105.7%, over the
year ended March 31, 1996 total of $3.5 million. Operating income for the year
ended March 31, 1997 as a percentage of revenues increased to 8.0% from 5.3% for
the year ended March 31, 1996. This was primarily the result of a decrease in
Selling, General and Administrative expenses as a percentage of revenues.
Provision for Income Taxes. The Company's provision for income taxes for
the year ended March 31, 1997 totaled $3.2 million, an increase of $1.7 million
or 113.3% over the year ended March 31, 1996 total of $1.5 million, due to the
increase in pre-tax income for the year ended March 31, 1997. The Company's
effective tax rate of 40.0% was lower than the prior year's rate of 40.9% due to
interest income being earned free of income taxes in the fiscal year ended March
31, 1997 compared to taxable interest being earned in the fiscal year ended
March 31, 1996.
Net Income. The Company's net income for the year ended March 31, 1997
totaled $4.8 million, an increase of $2.7 million or 128.6% over the year ended
March 31, 1996 total of $2.1 million. As a percentage of revenues, net income
increased to 5.3% in fiscal year 1997 from 3.2% in fiscal 1996, primarily due to
the increase in gross margin as a percentage of sales and by reduced selling,
general and administrative expenses as a percentage of revenues and a lower
effective tax rate. Net income per share decreased from $0.89 cents in 1996 to
$0.88 cents in 1997 as a result of the issuance of 2,450,000 new shares of
common stock in February 1996 and 1,764,000 new shares of common stock in a
secondary offering in November 1996.
FISCAL YEAR ENDED MARCH 31, 1996 VERSUS FISCAL YEAR ENDED MARCH 31, 1995
Revenues. The Company's revenues for the fiscal year ended March 31, 1996
totaled $66.3 million, an increase of $22.6 million or 51.7% over revenues of
$43.7 million for the fiscal year ended March 31, 1995. Of the $22.6 million
increase in revenues, $20.1 million resulted from growth in COHR MasterPlan. The
$20.1 million was primarily from increases in revenues from sites acquired or
opened in previous periods. The Company acquired or opened 14 new service and
sales sites in fiscal 1995 and six new service and sales sites in fiscal 1996.
Direct Operating Expenses. The Company's direct expenses for the fiscal
year ended March 31, 1996 totaled $48.2 million which is an increase of $18.1
million or 60.1% over the fiscal year ended March 31, 1995 total of $30.1
million. Direct operating expenses as a percentage of revenues for the fiscal
year ended March 31, 1996 increased to 72.7% from 68.9% for the fiscal year
ended March 31, 1995. This increase resulted primarily from the fact that the
Company derived a greater percentage of revenues from COHR MasterPlan, which has
higher direct operating expenses as a percentage of revenues than Purchase
Connection. COHR MasterPlan is a more labor intensive business than Purchase
Connection which results in lower gross margins than those realized by Purchase
Connection.
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<PAGE> 14
Gross Margin. The Company's gross margin for the fiscal year ended March
31, 1996 totaled $18.1 million, an increase of $4.5 million or 33.1% over the
fiscal year ended March 31, 1995 total of $13.6 million. Gross margin as a
percentage of revenues decreased to 27.3% for the fiscal year ended March 31,
1996 from 31.1% for the fiscal year ended March 31, 1995. The decrease in gross
margin percentage was principally the result of the increase in the percentage
of the Company's revenues derived from the lower margin COHR MasterPlan.
Selling, General and Administrative Expenses. The Company's selling,
general and administrative expenses for the fiscal year ended March 31, 1996
totaled $14.6 million, an increase of $3.1 million or 27.0% over the fiscal year
ended March 31, 1995 total of $11.5 million. As a percentage of revenues,
selling, general and administrative expenses decreased during the fiscal year
ended March 31, 1996 to 22.0% from 26.4% during the fiscal year ended March 31,
1995. The actual increase in expenses reflected the increase in costs necessary
to support the Company's expanded operations. The decrease in selling, general
and administrative expenses as a percentage of revenues reflected the growth of
revenues without a corresponding increase in administrative costs, as well as
other cost savings achieved through the consolidation of regional sales and
customer service sites.
Operating Income. The Company's operating income for the fiscal year ended
March 31, 1996 totaled $3.5 million, an increase of $1.5 million or 75.0% over
the fiscal year ended March 31 ,1995 total of $2.0 million. Operating income as
a percentage of revenues for the fiscal year ended March 31, 1996 increased to
5.3% as compared to 4.7% for the fiscal year ended March 31, 1995.
Provision for Income Taxes. The Company's provision for income taxes for
the fiscal year ended March 31, 1996 totaled $1,483,000, an increase of $718,000
or 93.9% over the fiscal year ended March 31, 1995 total of $765,000, due to the
increase in pre-tax income for the fiscal year ended March 31, 1996. The
Company's effective tax rate for the fiscal year ended March 31, 1996 was 40.9%
as compared to 35.9% for the fiscal year ended March 31, 1995.
Net Income. The Company's net income for the fiscal year ended March 31,
1996 totaled $2,142,000, an increase of $774,000 or 56.6% over the fiscal year
ended March 31, 1995 total of $1,368,000. As a percentage of revenues, net
income increased to 3.2% in the fiscal year ended March 31, 1996 from 3.1% in
the fiscal year ended March 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
In November, 1996, the Company sold 1,500,000 shares of its common stock,
$0.01 par value, at $20.00 per share pursuant to a secondary public offering,
realizing $27.7 million in net proceeds after fees and other selling expenses.
In December, 1996, the Company realized $4.6 million, net of fees, from certain
options exercised by the Underwriters granted under the Underwriting Agreement
pursuant to which the secondary offering was effected and certain options
exercised by selling shareholders under the 1995 Stock Option Plan. In fiscal
year 1997, the Company utilized $8.3 million for the 10 companies it acquired.
Subsequent to year end, the Company has utilized $.8 million to acquire two
companies.
The Company had working capital of $52.2 million, $23.5 million and $4.1
million as of March 31, 1997, March 31, 1996 and March 31, 1995 respectively.
The Company had cash and cash equivalents of $22.9 million, $19.3 million and
$4.5 million for the same respective periods. The Company had investments of
$6.0 million as of March 31, 1997.
Net cash provided by (used in) operating activities was $(11.3) million,
$(1.9) million and $1.5 million for fiscal years 1997, 1996 and 1995,
respectively. The fluctuations in cash provided or used in operations is due
primarily to changes in accounts receivable, accounts payable and current income
tax liabilities. A significant portion of the Company's growth has been funded
internally through effective working capital management. The increase in average
days in receivables from 57 in fiscal year 1996 to 76 in fiscal year 1997 is
primarily due to an increase in business in the Northeast where payment is
traditionally slower.
Net cash used in investing activities was $16.9 million, $2.8 million and
$1.8 million, for fiscal years 1997, 1996 and 1995, respectively. The principal
uses of this cash were for the purchase of businesses, customer lists
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<PAGE> 15
and related assets. Capital expenditures during these periods amounted to $2.6
million, $1.4 million and $.5 million respectively.
Cash flows provided by financing activities was from issuance of new stock,
$33.1 million (1997) and $20.0 million (1996). Cash flows used in financing
activities were principally for the repayment of notes payable and long-term
debt of $1.3 million and $.1 million for the years ended March 31, 1997 and
1996, respectively, and payment of dividends to its stockholders of
approximately $.2 million and $.2 million for the years ended March 31, 1996 and
1995, respectively, and the repayment of a $.2 million note assumed in an
acquisition. The Company has not paid dividends since its initial public
offering in February 1996.
FACTORS AFFECTING OPERATING RESULTS
The Company is subject to a number of risks and uncertainties which could
affect operating results and liquidity, including the following among others:
Risks Associated with Acquisition Strategy and Anticipated Expansion
A principal component of the Company's business strategy, particularly in
its equipment services division, is to continue to grow by acquiring or opening
new sites to augment its presence in markets it currently serves and in new
geographic markets. See "Business -- Services and Products -- COHR MasterPlan."
The sites acquired by the Company to date have typically operated at a break
even or small loss basis prior to acquisition, and there can be no assurance
that the Company's efforts to improve profitability of the acquired businesses
by increasing revenues and eliminating duplicative administrative costs will be
successful. Further, there can be no assurance that, in the future, the Company
will be able to sustain the level of growth through acquisition and opening new
sites experienced to date. The Company's future growth and financial success
will be dependent upon a number of factors including, among others, the
Company's ability to identify acceptable acquisition candidates, consummate the
acquisition of such businesses on terms which are favorable to the Company,
promptly and profitably integrate the acquired operations into the Company,
retain key personnel and key vendor arrangements of the acquired businesses and
attain customer retention levels at acquired businesses that are advantageous to
the Company. There can be no assurance that the Company will be successful with
respect to any of these factors.
Competition
The marketing of equipment services and group purchasing services to health
care institutions is highly competitive. See "Business -- Competition." Many of
the Company's competitors are larger and have greater financial and marketing
resources than the Company. Some of the Company's competitors are nonprofit
cooperatives that enjoy tax advantages unavailable to the Company. The Company
could encounter additional competition because many of the services and products
it sells are easily obtainable by others from various sources of supply and such
competitors could consolidate into regional or national networks. Significant
increases in competition encountered by the Company in the future may limit the
Company's ability to expand its business, or maintain its current customer base,
which would have a material adverse effect on the Company's business.
Risks of Reduced Customer Base Associated with Consolidation of the Health
Care Industry
As consolidation among health care institutions, particularly hospitals and
integrated health systems, continues, the Company's customer base may be reduced
either because customers may be consolidated with or acquired by other entities
or because purchasing decisions for products and services may shift to
individuals with whom the Company has not had prior selling relationships. There
can be no assurance that the Company will be able to maintain relationships with
its customers following such an acquisition or consolidation. Any significant
reduction in the Company's customer base would have a material adverse effect on
the Company's business.
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<PAGE> 16
Costs Associated with Regulation of the Health Care Industry
The Company focuses its business on providing services to health care
institutions, particularly hospitals. The health care industry is subject to
extensive government regulation, licensure and prescribed operating procedures.
The acceptance of the Company's services and products by its customers will
depend, to a very significant degree, upon whether such services and products
will be in compliance with applicable regulations or will assist health care
institutions in complying with such regulations. While the Company monitors such
regulations and designs its services and products accordingly, a substantial
change in the level of regulation or the substance of particular regulations
could have a material adverse effect on the Company's business. See
"Business -- Regulatory Matters."
Liability Risks Associated with Governmental Regulations and Environmental
Hazards
The health care industry is highly regulated and there are numerous federal
and state laws which regulate the relationships between health care providers
and the persons or entities which sell goods or services to health care
providers. These laws include the fraud and abuse provisions of the Medicare and
Medicaid statutes, certain federal antitrust laws as the Robinson-Patman Act,
the Sherman Act an the Clayton Act, regulations regarding the sale and marketing
of insurance products, such as life and health insurance, fire and casualty
insurance and variable annuities, and laws and regulations regarding worker
safety, community "right to know" and clean air and water. Although the Company
believes it has been and is currently in substantial compliance with the
applicable standards pursuant to such laws and regulations, there can be no
assurance that the Company will not be materially adversely affected by existing
or future requirements or incur materially increased operating costs complying
therewith.
In 1994, Congress passed the Federal Acquisition Streamlining Act ("FASA")
to improve governmental access to commercial technologies and reduce
administrative overhead costs involved in the governmental acquisition process.
Under FASA's cooperative purchasing provision (Section 1555 of FASA), the
General Services Administration is allowed to extend the federal procurement
process by opening all of the Federal Supply Schedules (and the prices contained
therein) to any state and local government and any other public entity. These
non-federal governmental and public entities which, according to an industry
source, constitute over one-third of the market, currently use private sector
purchasing techniques to negotiate discounts with pharmaceutical, medical and
surgical equipment manufacturers. The effective date of the cooperative
purchasing provisions of FASA has been delayed until October 31, 1997 or the
closing date of the current Congressional Session, whichever occurs later,
pending further Congressional review as to the potential effect of the
legislation. If the cooperative purchasing provisions of FASA are ultimately
implemented and the Federal Supply Schedules become available to a significantly
larger number of hospitals and other health care providers, the Company believes
that FASA might limit the Company's ability to obtain the pricing discounts
currently received by the Company from many its vendors. In addition, it is
possible that many products now purchased under standard rates required under
group purchasing contracts would be purchased under FASA. If the Company were
unable to obtain such pricing discounts on its purchases, or if its customer
base declined because of FASA, the Company's Purchase Connection business would
be adversely affected.
There can be no assurance that review of the Company's business by courts
or regulatory authorities will not result in a determination that could
adversely affect the Company's business or that the health care regulatory
environment will not change so as to restrict the Company's existing operations
or their expansion.
Dependence Upon Relationships with Third Party Vendors
The Company offers equipment servicing and group purchasing services for
over 400,000 different products distributed or manufactured by approximately
5,558 vendors and is dependent on these vendors for the manufacture and supply
of product. Presently, the Company relies on vendors for (i) technical and
selling support, (ii) favorable purchasing and delivery terms, (iii) promotional
materials, and (iv) replacement parts. The Company's dependence on third party
suppliers includes several potential risks, including limited control over
pricing, product and service availability and quality, and delivery schedules.
The Company's inability to
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<PAGE> 17
maintain good relations with these vendors could have a material adverse effect
on the Company's business. See "Business -- Services and Products."
Impact of Inaccurate Reporting of Purchasing Volume
In fiscal 1997, commissions from manufacturers and distributors, together
with access fees from customers, accounted for approximately two-thirds of the
revenues of Purchase Connection. Commissions are received from manufacturers and
distributors in exchange for delivering volume purchases to those manufacturers
and distributors. In the group purchasing industry, it is difficult for GPOs to
determine accurately the volume of purchases made by their customers from
manufacturers and distributors because orders are placed directly by customers
with manufacturers and distributors. Accordingly, it is difficult for GPOs to
verify that the amount of commissions received from manufacturers and
distributors accurately reflects purchases made by the GPOs' customers. In order
to verify the amount of commissions to which it is entitled, the Company
currently relies on manufacturers and distributors to report accurately
purchases made by the Company's customers, and the Company's ability to audit
such information based upon customer records. Although the Company has developed
Power Connection , an on-line or stand-alone electronic catalog that will enable
the Company to better monitor manufacturer and distributor reporting, few of the
Company's group purchasing customers currently use Power Connection , and there
can be no assurance that the Company will be successful in making Power
Connection available to all of its customers on a cost-effective basis. Lost
commissions to the Company due to inaccurate reporting of volume purchases made
by its customers could have a material adverse effect on the Company's business.
See "Business -- Services and Products."
Management of Growth
The Company is currently experiencing a period of rapid growth and
expansion which could place a significant strain on the Company's personnel and
resources. The Company's growth has resulted in an increase in the level of
responsibility for both existing and new management. Many members of the
Company's management team have had limited or no experience in managing
companies as large as the Company. To manage its expansion, the Company
continuously evaluates the adequacy of its existing systems and procedures,
including, among others, its financial reporting and control systems, data
processing systems and management structure. There can be no assurance that the
Company will adequately anticipate all of the changing demands its growth will
impose on such systems, procedures and structure. Any failure to adequately
anticipate and respond to such changing demands could have a material adverse
effect on the Company's business.
Need for Additional Financing
The Company expects that the net proceeds of its November 1996 offering,
cash flow from its operations and its ability to borrow from its existing credit
facility will be sufficient to carry out its operations through the first
quarter of fiscal 1999. The Company may accelerate the expenditure of its
available funds for acquisitions or other business opportunities. As a result,
the Company may seek to raise additional funds through the sale of equity
securities, the incurrence of additional indebtedness or other means. However,
there can be no assurance that such financing, if and when required, will be
available on terms acceptable to the Company, or at all.
Dependence on Key Personnel
The Company 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. The Company has an employment agreement with Mr. Chopra. Such agreement
does not necessarily ensure the continued employment of Mr. Chopra. The loss of
any key employee, including Mr. Chopra, could have a material adverse effect on
the Company's business. The Company believes that its future success will depend
in part on its ability to attract and retain skilled technical, financial,
managerial and marketing personnel. Competition for such personnel is intense,
and there can be no assurance that the Company will be successful in attracting
and retaining such personnel.
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<PAGE> 18
Risks Related to Fixed Price Contracts
In the Company's equipment servicing business, the Company offers contracts
for services at a fixed price. In the event that the cost to the Company of
performing services under a fixed price contract exceeds the quoted fixed price,
the Company would bear any such excess cost. In the event that the Company's
costs of performing services exceeds the fixed price it is to receive under a
significant number of fixed price contracts, the Company's business may be
materially adversely affected. See "Business -- Services and Products -- COHR
MasterPlan ."
Liability Risks; Limited Insurance Coverage; Self-Insurance
Although the Company is not a manufacturer, the servicing, maintenance and
sale of medical equipment entails risks of product liability. Additionally, the
Company may be subject to lawsuits alleging negligence or related legal theories
in connection with its security services and consulting services, including
environmental, safety and professional consulting services. The Company
maintains liability insurance coverage for certain contracts and such insurance
coverage is expensive, difficult to obtain, and may be unobtainable in the
future on acceptable terms, if at all. The Company has elected to self-insure
for all contracts renewed or obtained on or after April 1, 1996. There can be no
assurance that claims or judgments in excess of the Company's coverage limits,
where applicable, will not have a material adverse effect upon the Company's
business. Claims against the Company, regardless of their merit or eventual
outcome, may also have a material adverse effect upon the Company's ability to
attract customers or expand its business and would require management to devote
time to matters unrelated to the operation of the Company's business.
Dependence on Third Party Reimbursement
The cost of a significant portion of medical care in the United States is
funded by government and private insurance programs, such as Medicare, Medicaid
and corporate health insurance plans. In recent years, government-imposed limits
on reimbursement of hospitals and other health care providers have significantly
impacted spending budgets in certain markets within the medical supply and
equipment industry. Private third-party reimbursement plans are also developing
increasingly sophisticated methods of controlling health care costs through
redesign of benefits and exploration of more cost-effective methods of
delivering health care. Accordingly, there can be no assurance that the
Company's customers will continue to have sufficient spendable funds for
purchase and use of the Company's services and products. A material reduction in
the purchasing of such services and products could adversely affect the
Company's business.
Reliance on Data Processing
The Company's business is dependent upon its ongoing ability to obtain,
process, analyze and manage data and to maintain and upgrade its data processing
capabilities. Interruption of data processing capabilities for any extended
length of time, the failure to upgrade data services, difficulties in converting
data and information systems after acquisitions, loss of stored data,
programming errors or other computer programs could have a material adverse
effect on the Company's business.
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information with respect to this item is set forth in the "Index to
Consolidated Financial Statements," at page 20.
18
<PAGE> 19
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to this item is incorporated by reference from the
Company's definitive Proxy Statement, under the caption "Election of
Directors -- Current Board of Directors", to be filed with the Commission within
120 days after the close of the Company's fiscal year. Information regarding
executive officers of the Company is set forth under the caption "Executive
Officers" in Item 1 hereof.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to this item is incorporated by reference from the
Company's definitive Proxy Statement, under the caption "Remuneration", to be
filed with the Commission within 120 days after the close of the Company's
fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to this item is incorporated by reference from the
Company's definitive Proxy Statement, under the caption "Voting Securities" and
"Election of Directors", to be filed with the Commission within 120 days after
the close of the Company's fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to this item is incorporated by reference from the
Company's definitive Proxy Statement, under the caption "Election of
Directors -- Certain Relationships and Related Transactions", to be filed with
the Commission within 120 days after the close of the Company's fiscal year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
(A) 1. FINANCIAL STATEMENTS
The documents described in the "Index to Consolidated Financial
Statements and Financial Statement Schedule" are included in this report
starting at page 21.
2. FINANCIAL STATEMENT SCHEDULE
The financial statement schedule described in the "Index to Consolidated
Financial Statements and Financial Statement Schedule" are included in
this report starting on page 37.
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and
therefore have been omitted.
3. EXHIBITS
Exhibits included or incorporated herein:
See Exhibit Index
(B) REPORTS ON FORM 8-K
Not applicable
19
<PAGE> 20
COHR INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL
STATEMENT SCHEDULE
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT AUDITORS' REPORT.......................................................... 21
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets at March 31, 1997 and 1996.............................. 22
Consolidated Statements of Income for Each of the Years Ended
March 31, 1997, 1996 and 1995.................................................... 23
Consolidated Statements of Changes in Shareholders' Equity for Each of the Years
Ended
March 31, 1997, 1996 and 1995.................................................... 24
Consolidated Statements of Cash Flows for Each of the Years Ended
March 31, 1997, 1996 and 1995.................................................... 25
Notes to Consolidated Financial Statements.......................................... 26
Schedule V -- Valuation and Qualifying Accounts for Each of the Years Ended March
31, 1997, 1996 and 1995.......................................................... 37
</TABLE>
20
<PAGE> 21
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders of
COHR Inc.
Chatsworth, California:
We have audited the accompanying consolidated balance sheets of COHR Inc.
and subsidiaries (the "Company") as of March 31, 1997 and 1996, and the related
consolidated statements of income, changes in shareholders' equity, and cash
flows for each of the three years in the period ended March 31, 1997. Our audits
also included the financial statement schedule listed in the Index at Item 14.
These consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Company as of March 31, 1997 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
March 31, 1997 in conformity with generally accepted accounting principles. Also
in our opinion, the financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
Deloitte & Touche LLP
Los Angeles, California
May 30, 1997
21
<PAGE> 22
COHR INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 AND 1996
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)
ASSETS (Note 8)
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.............................................. $22,948 $19,314
Investments............................................................ 6,000
Accounts receivable -- Trade, net of allowance for doubtful
accounts of $1,490 (1997) and $835 (1996)........................... 25,439 12,644
Other.................................................................. 2,325 1,233
Inventory.............................................................. 8,535 3,486
Prepaid expenses and other............................................. 1,263 620
Deferred income tax asset (Note 5)..................................... 1,143 806
------- -------
Total current assets........................................... 67,653 38,103
EQUIPMENT AND IMPROVEMENTS, Net (Notes 1 and 3).......................... 6,943 3,718
INTANGIBLE ASSETS, Net of accumulated amortization of
$665 (1997) and $280 (1996) (Notes 1 and 4)............................ 9,237 2,530
OTHER ASSETS............................................................. 351 121
------- -------
TOTAL.......................................................... $84,184 $44,472
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable (Note 6)................................................. $ 1,342
Accounts payable -- trade and other.................................... 4,040 $ 6,590
Accrued expenses....................................................... 2,618 3,372
Deferred revenue....................................................... 6,394 4,586
Income tax payable (Note 5)............................................ 162
Current portion of long-term debt (Note 7)............................. 853 85
------- -------
Total current liabilities...................................... 15,409 14,633
LONG-TERM DEBT (Note 7).................................................. 1,146 276
DEFERRED INCOME TAX LIABILITY (Note 5)................................... 628 448
COMMITMENTS AND CONTINGENCIES (Note 8)
SHAREHOLDERS' EQUITY (Notes 10 and 11)
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; 6,391,000
(1997) and 4,562,000 (1996) shares issued and outstanding........... 887 869
Additional paid in capital............................................. 55,153 22,104
Retained earnings...................................................... 10,961 6,142
------- -------
Total shareholders' equity..................................... 67,001 29,115
------- -------
TOTAL.......................................................... $84,184 $44,472
======= =======
</TABLE>
See notes to consolidated financial statements
22
<PAGE> 23
COHR INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR EACH OF THE THREE YEARS ENDED MARCH 31, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
REVENUES...................................................... $90,524 $66,254 $43,660
DIRECT OPERATING EXPENSES..................................... 65,519 48,195 30,099
------- ------- -------
GROSS MARGIN.................................................. 25,005 18,059 13,561
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES (Note 2)........................................... 17,766 14,559 11,523
------- ------- -------
OPERATING INCOME.............................................. 7,239 3,500 2,038
INTEREST INCOME............................................... 889 155 137
INTEREST EXPENSE.............................................. (95) (30) (42)
------- ------- -------
INCOME BEFORE INCOME TAXES.................................... 8,033 3,625 2,133
PROVISION FOR INCOME TAXES (Note 5)........................... 3,214 1,483 765
------- ------- -------
NET INCOME.................................................... $ 4,819 $ 2,142 $ 1,368
======= ======= =======
NET INCOME PER SHARE.......................................... $ 0.88 $ 0.89 $ 0.65
======= ======= =======
WEIGHTED AVERAGE NUMBER OF COMMON STOCK AND COMMON STOCK
EQUIVALENTS OUTSTANDING
DURING THE PERIOD........................................... 5,498 2,402 2,112
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
23
<PAGE> 24
COHR INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR EACH OF THE THREE YEARS ENDED MARCH 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT NUMBER OF SHARES AND DIVIDENDS PER SHARE)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------ PAID-IN RETAINED SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- ------ ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, APRIL 1, 1994................................. 2,112,000 $844 $ 2,179 $ 3,115 $ 6,138
Dividend paid to Shareholders (Pre-IPO).............. (236) (236)
Net income........................................... 1,368 1,368
--------- ---- ------- ------- -------
BALANCE, MARCH 31, 1995................................ 2,112,000 844 2,179 4,247 7,270
Net proceeds from sale of common stock through
an initial public offering (Note 10).............. 2,450,000 25 19,925 19,950
Dividend paid to Shareholders (Pre-IPO).............. (247) (247)
Net income........................................... 2,142 2,142
--------- ---- ------- ------- -------
BALANCE, MARCH 31, 1996................................ 4,562,000 869 22,104 6,142 29,115
Net proceeds from sale of common stock through a
secondary public offering (Note 10)............... 1,739,000 17 32,240 32,257
Stock options exercised.............................. 90,000 1 809 810
Net income........................................... 4,819 4,819
--------- ---- ------- ------- -------
BALANCE, MARCH 31, 1997................................ 6,391,000 $887 $ 55,153 $ 10,961 $67,001
========= ==== ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
24
<PAGE> 25
COHR INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS ENDED MARCH 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- ------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income........................................................................ $ 4,819 $ 2,142 $1,368
------- ------- ------
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization................................................. 1,057 838 691
Provision for losses on accounts receivable................................... 587 62 31
Provision for deferred income taxes........................................... (157) 49 (181)
Deferred rent................................................................. (180) (592) (369)
Change in assets and liabilities, net of effect of acquisition of certain
assets:
Accounts receivable........................................................ (12,020) (4,747) (3,374)
Inventory.................................................................. (2,040) (1,078) (695)
Prepaid expense and other.................................................. (379) (174) 93
Other assets............................................................... (144) (41) (20)
Accounts payable -- trade and other........................................ (3,262) 589 1,280
Accrued expenses........................................................... (1,508) 1,234 (128)
Deferred revenue........................................................... 1,808 344 3,465
Income taxes payable....................................................... 162 (360) (735)
Deferred compensation...................................................... -- (169) 89
------- ------- ------
Total Adjustments........................................................ (16,076) (4,045) 147
------- ------- ------
Net cash (used in) provided by operating activities...................... (11,257) (1,903) 1,515
------- ------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.............................................................. (2,557) (1,427) (465)
Payment for acquisition of businesses............................................. (8,298) (1,387) (1,293)
Purchases of investments, net..................................................... (6,000) 0 --
------- ------- ------
Net cash used in investing activities.................................... (16,855) (2,814) (1,758)
------- ------- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends to shareholders.............................................. -- (247) (236)
Repayment of loan payable......................................................... -- -- (221)
Repayment of notes payable and long-term debt..................................... (1,321) (125) (21)
Issuance of stock................................................................. 32,257 19,950 --
Exercise of stock options......................................................... 810 --
------- ------- ------
Net cash provided by (used in) financing activities...................... 31,746 19,578 (478)
------- ------- ------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................................ 3,634 14,861 (721)
CASH AND CASH EQUIVALENTS, beginning of period...................................... 19,314 4,453 5,174
------- ------- ------
CASH AND CASH EQUIVALENTS, end of period............................................ $22,948 $19,314 $4,453
======= ======= ======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION --
Cash paid during the period for:
Income taxes.................................................................... $ 3,054 $ 1,843 $1,680
======= ======= ======
Interest........................................................................ $ 25 $ 37 $ 5
======= ======= ======
DETAILS OF BUSINESSES OR ASSETS ACQUIRED AT
FAIR VALUE ARE AS FOLLOWS:
Current assets.................................................................. $ 5,727 $ 409 $ 475
Equipment....................................................................... 1,426 235 228
Goodwill and other intangibles.................................................. 7,092 893 1,865
------- ------- ------
14,245 1,537 2,568
------- ------- ------
Liabilities assumed............................................................. 3,288 -- 600
Debt issued for acquisitions.................................................... 2,659 150 675
------- ------- ------
Net cash paid for acquisitions........................................... $ 8,298 $ 1,387 $1,293
======= ======= ======
</TABLE>
See notes to consolidated financial statements.
25
<PAGE> 26
COHR INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE YEARS ENDED MARCH 31, 1997, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Description -- COHR Inc. and subsidiaries ("Company") provides
fee-for-service products and services to hospitals and other health care
providers (see Note 13 for information relating to the Company's business
segments).
The Company was formerly a majority owned subsidiary of Healthcare
Association of Southern California ("HASC"). Effective February 16, 1996, the
Company became a publicly held company at which time HASC became a minority
shareholder (see Note 10).
Basis of Presentation -- The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. All intercompany
accounts and transactions have been eliminated.
Use of Estimates -- The preparation of the consolidated financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts in the
consolidated financial statements and accompanying notes. Actual results could
differ from the estimates.
Cash and cash Equivalents -- The Company considers all highly liquid
investments purchased with initial maturities of three months or less to be cash
and cash equivalents. The Company actively evaluates the creditworthiness of the
financial institutions with which it invests.
Investments -- Investment securities consist of certificates of deposits
with original maturities of 90 to 180 days. Due to the short maturity period,
cost approximates market.
Inventory -- Inventory, consisting primarily of medical equipment repair
parts, is stated at the lower of cost or market, cost being determined on the
first-in, first-out basis.
Equipment and Improvements -- Equipment and improvements are stated at
cost, net of accumulated depreciation and amortization. Depreciation of
furniture and equipment and amortization of improvements is provided for using
the straight-line method over the estimated useful lives of the respective
assets, as follows:
<TABLE>
<S> <C>
Computer equipment and software........................... 5 years
Office furniture and equipment, automobile................ 3 to 7 years
Technical equipment....................................... 5 to 10 years
Leasehold improvements.................................... Shorter of lease
term or useful life
</TABLE>
Intangible Assets -- Goodwill and other purchased intangible assets are
stated at amortized cost and amortized on a straight-line basis over 15 years.
The projection of undiscounted future cash flows of the operations are evaluated
at each reporting period in assessing the recoverability of goodwill and other
purchased intangibles.
Revenue Recognition -- The COHR MasterPlan is a program whereby the Company
contracts with hospitals on an annual basis to manage the hospitals' equipment
maintenance and repairs. The Company bills the hospitals in advance, and
revenues on those contracts are recognized over the contract period. Losses, if
any, on maintenance contracts are recorded when known. Purchase Connection
revenue is recognized in the period earned.
Income Taxes -- The asset and liability approach is applied in accounting
for income taxes in accordance with Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income Taxes." Under this method, deferred tax
assets and liabilities are recorded to reflect the future tax consequences of
events that have been recognized in the Company's financial statements but have
not yet been recognized for tax purposes. Such deferred income tax asset and
liability computations are based on enacted tax laws and
26
<PAGE> 27
COHR INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH OF THE YEARS ENDED MARCH 31, 1997, 1996 AND 1995
rates applicable to years in which the differences are expected to affect
taxable income. A valuation allowance is established, when necessary, to reduce
deferred income tax assets to the amount expected to be realized. The provision
for income taxes is the tax payable or refundable for the year adjusted for the
change during the year in deferred income taxes.
Stock Option Plans -- Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," encourages, but does not require
companies to record compensation cost for stock-based employee compensation
plans at fair value. The Company has chosen to continue to account for stock-
based compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
related Interpretations. Accordingly, compensation cost for stock options is
measured as the excess, if any, of the quoted market price of the Company's
stock at the date of the grant over the amount an employee must pay to acquire
the stock.
Fair Value of Financial Instruments -- The fair values of cash and cash
equivalents approximate their carrying values due to the short-term nature of
such instruments. The fair values of other financial instruments including
accounts receivable, notes payable and accounts payable, are deemed not to be
materially different from the carrying values.
Impairment of Long-Lived Assets -- The Company regularly reviews long-lived
assets and intangible assets for impairment whenever events or changes in
circumstances indicate that the carrying amount to the asset may not be
recoverable. No impairment losses were required for the year ended March 31,
1997.
Current Accounting Pronouncements -- The Financial Accounting Standards
Board has issued SFAS No. 128, "Earnings Per Share," which specifies the
computation, presentation and disclosure requirements for earnings per share
(EPS). The accounting and disclosure requirements of this statement are
effective for financial statements for interim and annual periods ending after
December 15, 1997, earlier adoption is not permitted. The basic EPS for the year
ended March 31, 1997, under SFAS No. 128 would have been $0.93.
Concentration of Credit Risk -- Financial instruments that potentially
subject the Company to significant concentrations of credit risk consist
principally of cash investments and trade accounts receivable.
The Company provides services to hospitals and other health care providers
throughout the United States. The Company's trade accounts receivable are
exposed to credit risk; however, such risk is limited due to the large numbers
and geographic dispersion of the customer base. The Company monitors the
creditworthiness of its customers and provides allowances for doubtful accounts
where appropriate.
The Company maintains cash and cash equivalents and investments of $15.6
million (1997) and $13.9 million (1996) with a single financial institution.
Other financial institutions are located in many different geographies
throughout the country. The Company performs periodic evaluations of the
relative credit standing of these financial institutions, which are considered
the Company's investment strategy. The Company has $3.0 million (1997) and $5.0
million (1996) in variable preferred stock of a publicly traded company. At
March 31, 1997, the Company had cash equivalents totaling $10.0 million, of
which $5.5 million are in preferred municipal funds and $4.5 million are in
municipal bonds maturing within 60 days of purchase.
Research and Development -- Research and development costs for all
Electronic Data Interchange products in Purchase Connection are expensed as
incurred. Such costs amounted to $1,059 (1997), $990 (1996) and $940 (1995).
Net Income per Share -- Net income per common share is computed using the
weighted average number of common stock and common stock equivalents outstanding
during the year.
Reclassifications -- Certain reclassifications have been made to the prior
periods consolidated financial statements to conform them to the current
period's presentation.
27
<PAGE> 28
COHR INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH OF THE YEARS ENDED MARCH 31, 1997, 1996 AND 1995
2. RELATED-PARTY TRANSACTIONS
The Company had related-party transactions resulting from the allocation of
expenses (including rent and insurance) from HASC of $218 (1997), $2,427 (1996)
and $1,975 (1995), and expenses incurred by the Company (including accounting,
payroll and personnel costs) of $1,840 (1997), $2,448 (1996), $2,625 (1995) on
behalf of HASC and an affiliate, National Health Foundation. Expenses allocated
to the Company from HASC are included in selling, general and administrative
expenses in the accompanying statements of income. Occupancy costs are allocated
based upon square footage utilized by the respective entities. Accounting,
payroll and personnel costs are allocated based upon the identification of tasks
performed for the individual companies.
At March 31, 1997 and 1996, the Company had approximately $3.2 million and
$5.2 million respectively, held at a financial institution, of which a member of
the Board of Directors of the Company is a partner.
3. EQUIPMENT AND IMPROVEMENTS
Equipment and improvements consist of:
<TABLE>
<CAPTION>
MARCH 31,
-----------------
1997 1996
------ ------
(IN THOUSANDS)
<S> <C> <C>
Computer equipment and software............................ $3,857 $2,648
Office furniture and equipment............................. 2,794 1,395
Technical equipment........................................ 3,213 2,378
Leasehold improvements..................................... 836 403
Automobiles................................................ 40 29
------ ------
10,740 6,853
Less accumulated depreciation and amortization............. 3,797 3,135
------ ------
$6,943 $3,718
====== ======
</TABLE>
28
<PAGE> 29
COHR INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH OF THE YEARS ENDED MARCH 31, 1997, 1996 AND 1995
4. ACQUISITIONS
During fiscal 1997 and 1996, the Company acquired the businesses of several
entities similar to that of the Company through purchases of certain assets and
service contract rights and assumption of certain liabilities. In addition, the
Company assumed the operating leases on the facilities of some of these
entities. Following is a summary of the assets acquired and liabilities assumed
at estimated fair market value:
<TABLE>
<CAPTION>
MARCH 31,
-------------------
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accounts receivable...................................... $ 2,454
Inventory................................................ 3,009 $ 409
Prepaid expenses and other............................... 350
Equipment and improvements............................... 1,340 235
Goodwill................................................. 7,092 893
------- ------
14,245 1,537
------- ------
Accounts payable and accrued liabilities................. (1,693)
Loan payable............................................. (229)
Long-term debt........................................... (1,366)
------- ------
(3,288) 0
------- ------
Net assets of businesses acquired........................ $10,957 $ 1,537
======= ======
</TABLE>
The purchases of these businesses and intangible assets were made through
the cash payments of approximately $8,298 (1997) and $1,387 (1996), the issuance
of $2,659 (1997) and $150 (1996) notes payable. In connection with certain
acquisitions, the Company issued notes to sellers which are payable over 12
months. Interest on these notes range from 0% to prime plus 1%. The imputed
interest on the notes bearing no interest is not material to the financial
statements.
5. INCOME TAXES
The provision for income taxes includes the following:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------
1997 1996 1995
------ ------- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal.......................................... $2,539 $ 1,117 $ 717
State............................................ 832 317 229
------ ------ -----
3,371 1,434 946
------ ------ -----
Deferred:
Federal.......................................... (109) 25 (122)
State............................................ (48) 24 (59)
------ ------ -----
(157) 49 (181)
------ ------ -----
Total provision for income......................... $3,214 $ 1,483 $ 765
====== ====== =====
</TABLE>
29
<PAGE> 30
COHR INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH OF THE YEARS ENDED MARCH 31, 1997, 1996 AND 1995
Deferred income taxes for fiscal 1997 and 1996 reflect the impact of
temporary differences between the financial statement and tax bases of assets
and liabilities. The tax effects of the temporary differences that create
deferred tax assets and liabilities at March 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
MARCH 31,
---------------
1997 1996
----- -----
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets -- current:
Compensation related accruals.............................. $ 431 $ 354
Balance sheet reserves..................................... 579 314
State income taxes......................................... 212 108
Deferred compensation...................................... 95
Prepaid expenses........................................... (79) (65)
----- -----
Gross deferred tax asset..................................... 1,143 806
----- -----
Deferred tax liabilities -- noncurrent:
Depreciation............................................... (628) (448)
----- -----
Gross deferred tax liabilities............................... (628) (448)
----- -----
Net deferred tax assets...................................... $ 515 $ 358
===== =====
</TABLE>
The differences between federal income tax computed at the statutory rate
and the actual tax provisions are shown as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Provision at statutory rate............................. 34.0% 34.0% 34.0%
State income tax, net of federal benefit................ 5.3 6.6 6.2
Adjustment for prior year provision..................... (4.9)
Permanent differences................................... 0.7 0.3 0.6
---- ---- ----
Effective tax rate...................................... 40.0% 40.9% 35.9%
==== ==== ====
</TABLE>
6. NOTES PAYABLE
Notes payable comprise of amounts due for acquisition of certain companies
and notes acquired as a result of acquisitions. The notes bear interest ranging
from 0% to prime plus 1% and are all payable within one year from date of issue.
The imputed interest on the notes bearing no interest is not material to the
financial statements.
30
<PAGE> 31
COHR INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH OF THE YEARS ENDED MARCH 31, 1997, 1996 AND 1995
7. LONG-TERM DEBT
Long-term debt at March 31, 1997 and 1996 consists of (in thousands):
<TABLE>
<CAPTION>
1997 1996
------ ----
<S> <C> <C>
Noninterest bearing note payable with original terms of $750
due in five annual installments of $150 each starting in
July 1995. The balance of the note payable is net of
imputed interest of $65 (effective rate of 6.95%) at March
31, 1997. The decrease in the fair value of the note
reduced goodwill of the acquired business................. $ 252 $322
Note payable bearing interest at 7%, due in two equal
installments of $500 each at May 1, 1997 and May 1,
1998...................................................... 1,000
Noninterest bearing note payable, due in five installments
of $30 commencing July 27, 1997........................... 150
Capital lease obligations are at ranging from 11.9% to 16.0%
and are payable over 42 months from the start of the
lease..................................................... 597
Other....................................................... 39
------ ----
1,999 361
Less current portion........................................ 853 85
------ ----
$1,146 $276
====== ====
</TABLE>
Principal, plus imputed interest, paid in 1997 was approximately $318.
The expected future installments under the long-term debt (including
imputed interest), for the years ending March 31, are as follows (in thousands):
<TABLE>
<S> <C>
1998................................................ $ 853
1999................................................ 837
2000................................................ 302
2001................................................ 42
2002................................................ 30
------
$2,064
======
</TABLE>
8. COMMITMENTS AND CONTINGENCIES
The Company leases its facilities and certain equipment under noncancelable
operating leases. Certain of these leases include renewal provisions at the
option of the Company. Rent expense amounted to $1,515 (1997), $1,052 (1996) and
$1,000 (1995).
Aggregate minimum lease commitments under noncancelable operating lease
agreements, exclusive of adjustments for taxes and other expenses, for the years
ending March 31, are as follows (in thousands):
<TABLE>
<S> <C>
1998............................................... $ 1,571
1999............................................... 1,105
2000............................................... 915
2001............................................... 831
2002............................................... 747
Thereafter......................................... 5,043
-------
$10,212
=======
</TABLE>
31
<PAGE> 32
COHR INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH OF THE YEARS ENDED MARCH 31, 1997, 1996 AND 1995
A lease for the Company's new facility, commencing August 1996 and expiring
in January 2009 was signed in April 1996. The lease is for a combined 76,000
square foot facility in Chatsworth, California, which houses the corporate
offices, operations for Purchase Connection and some operations for the COHR
MasterPlan divisions. The other leases contain renewal options, and management
expects that, in the normal course of business, such leases will be renewed or
replaced by other leases upon expiration.
In December 1995, the Company signed a $2,000,000 revolving line of credit
agreement with a bank bearing an initial variable interest rate indexed at the
bank's Reference Rate. The line was increased to $5,000,000, effective November
14, 1996. This line is collateralized by the Company's tangible and intangible
assets and expires on June 30, 1997. No amounts have been borrowed against this
line of credit during the years ended March 31, 1997 and 1996.
In the normal course of business, the Company is involved in various
litigation. Based upon communication with legal counsel, in the opinion of
management, the disposition of all pending litigation will not have a material
adverse effect on the Company's financial position, results of its operations or
liquidity.
9. PENSION AND PROFIT SHARING PLANS
The Company maintains profit sharing and salary deferral plans qualified
under Sections 401(a) and 401(k), respectively, of the Internal Revenue Code. As
of January 1, 1996, the employees of the Company were transferred from the
multi-employer plans to new plans, which are solely for the benefit of the
employees of the Company. These plans cover all employees who meet the
requirements of the plans. The total expenses charged to operations relating to
these plans were $1,004 (1997), $627 (1996) and $414 (1995).
10. SHAREHOLDERS' EQUITY
Preferred Stock -- On January 16, 1996, the Company was reincorporated in
the state of Delaware and, in connection therewith, the shareholders and the
Board of Directors of the Company adopted and approved the authorization of
2,000,000 shares of preferred stock at a par value of $0.01 per share.
Common Stock -- In November 1995, the Company increased the number of
shares of common stock from 1,000 to 20,000,000 and effected a 20,000-for-1
split in the form of a common stock dividend. All share and per share data have
been restated to reflect the stock split.
On February 16, 1996, the Company closed its initial public offering of its
common stock. Of the 3,000,000 shares sold at nine dollars per share in the
offering, 2,000,000 were sold by the Company, and 1,000,000 were sold by HASC
and Hospital Council Coordinated Programs, Inc. (the "Selling Shareholders").
The Company did not receive any proceeds from the sale of shares by the Selling
Shareholders. On March 6, 1996, the underwriters purchased 450,000 common shares
at nine dollars per share to cover over allotment. The proceeds to the Company
from the sale of 2,450,000 shares amounted to $19,950 which was net of
underwriters discounts and offering expenses of approximately $2,100.
On November 27, 1996, the Company completed a secondary offering of its
common stock. Of the 1,760,000 shares sold at twenty dollars per share in the
offering, 1,500,000 were sold by the Company and 260,000 were sold by HASC and
Hospital Council Coordinated Programs, Inc. (The "Selling Shareholders"). The
Company did not receive any proceeds from the sale of shares by the Selling
Shareholders. The remaining 852,000 shares held by the Selling Shareholders at
the date of the secondary are not eligible for sale until February 16, 1998
without prior written consent of the Company. On December 18, 1996, the
Underwriters purchased 239,000 common shares at twenty dollars per share to
cover over-allotment. Certain officers sold a total of 25,000 stock options at
the same time. The Company received nine dollars per share. The proceeds to the
Company from the sale of 1,764,000 shares amounted to $32,521 which was net of
underwriters discounts and offering expenses of approximately $2,700.
32
<PAGE> 33
COHR INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH OF THE YEARS ENDED MARCH 31, 1997, 1996 AND 1995
11. STOCK OPTION PLANS
1995 STOCK OPTION PLAN
The Board of Directors and shareholders of the Company have adopted and
approved the 1995 Stock Option Plan (the "1995 Plan"), pursuant to which,
certain officers, directors and other key employees of the Company are eligible
to receive non-qualified options to purchase the Company's Common Stock. The
1995 Plan is administered by the Compensation Committee of the Board (the
"Committee"). The maximum number of shares of Common Stock that may be issued
pursuant to options granted under the 1995 Plan is 600,000. As of March 31,
1997, there were outstanding options to purchase 492,500 shares of Common Stock
(net of cancellations and sales by optionees). The weighted average exercise
price of the foregoing options is at $12.15 per share, which represents the fair
market value on the date of the grant.
Under the 1995 Plan, key employees are eligible to be granted options under
the 1995 Plan if so selected by the Committee in its absolute discretion. The
number of shares subject to an option and the term and conditions, including the
purchase price per share of Common Stock subject to each option, shall be set by
the Committee; provided, however, that the exercise price shall not be less than
the fair market value of the Common Stock as of the date the option is granted.
No options granted under the 1995 Plan may be exercised after the expiration of
ten years from the date it was granted. Options granted to key employees vest in
accordance with the following schedule: (i) 25% upon the date of grant, (ii) 50%
upon the first anniversary of the date of grant (iii) 75% upon the second
anniversary of the date of the grant, and (iv) 100% upon the third anniversary
of the date of the grant.
Options granted under the 1995 Plan are generally non-transferable. In the
event of any merger, consolidation, sale of all or substantially all of the
assets of the Company or a liquidation involving the Company, all granted or
awarded options will immediately vest in the optionee. At the time of the
Secondary offering in November 1996, each option holder was automatically vested
in 50% of the nonvested portion of any options previously awarded. The 1995 Plan
may be terminated at any time by the Board.
At March 31, 1997 and 1996, 377,813 and 142,500 options were exercisable
under the 1995 Plan.
1996 STOCK OPTION PLAN
On November 7, 1996 the Board of Directors of the Company adopted the 1996
Stock Option Plan (the "1996 Plan"), pursuant to which certain officers,
non-employee directors and other key employees of the Company are eligible to
receive nonqualified options to purchase the Company's Common Stock. The 1996
Plan is administered by the Board of Directors; however, either a committee of
the Board composed solely of two or more non-employee directors (the
"Committee") or the Board of Directors may approve the grant options. The
maximum number of shares of Common Stock that may be issued pursuant to options
granted under the 1996 Plan is 300,000.
The 1996 Plan is subject to approval by the stockholders on or before
November 7, 1997. The Board of Directors will not grant any options under the
1996 Plan unless and until the 1996 Plan is approved by the stockholders.
Under the 1996 Plan, officers and other managerial employees ("Key
Employees") are eligible to be granted options if so selected by the Committee
or the Board of Directors in its absolute discretion. The number of shares
subject to an option and the term and conditions, including the purchase price
per share of Common Stock subject to each option, shall be set by the Committee;
provided, however, that the exercise price shall not be less than the fair
market value of the Common Stock as of the date the option is granted. Unless
otherwise determined by the Committee options issued to Key Employees vest 25%
upon the date of grant and on each of the first, second and third anniversary
dates of the grant. Unless otherwise determined by
33
<PAGE> 34
COHR INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH OF THE YEARS ENDED MARCH 31, 1997, 1996 AND 1995
the Committee options issued to non-employee directors vest on the date of
issuance. No option granted under the 1996 Plan may be exercised after the
expiration of ten years from the date it was granted.
Options granted under the 1996 Plan would be generally non-transferable. In
the event of any merger, consolidation, sale of all or substantially all of the
assets of the Company or liquidation involving the Company, all granted options
will immediately vest in the optionee. The 1996 Plan may be terminated at any
time by the Board.
Information regarding these option plans for the years ended March 31, 1997
and 1996 is as follows:
<TABLE>
<CAPTION>
1997
---------------------------- 1996
WEIGHTED-AVERAGE -------
SHARES EXERCISE PRICE SHARES
------- ---------------- -------
<S> <C> <C> <C>
Option outstanding, Beginning of year... 465,000 9.00
Options Granted......................... 125,000 21.43 465,000
Options Exercised....................... (90,000) 9.00
Options Forfeited....................... (7,500) 9.00
------- -------
Options outstanding, End of year........ 492,500 12.15 465,000
======= ======== =======
Option price range at end of year....... $9.00 to $ 9.00
$ 26.00
Option price range for exercised
shares................................ $ 9.00
Option price range for forfeited
shares................................ $ 9.00
Options available for grant at end of
year............................... 17,500 135,000
======= =======
Weighted-average fair value of options,
granted during the year............... $ 24.56
</TABLE>
The fair value of options at date of grant was estimated using the
Black-Scholes model with the following weighted average assumptions:
The following table summarizes information about fixed-price stock options
outstanding at March 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------ OPTIONS EXERCISABLE
WEIGHTED ----------------------
AVERAGE WEIGHTED
NUMBER REMAINING WEIGHTED NUMBER AVERAGE
OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
RANGE OF EXERCISE PRICES AT 3/31/97 LIFE PRICE AT 3/31/97 PRICE
- -------------------------------------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
9.00........................................ 367,500 9 years 9.00 284,375 9.00
9.00 to 26.00............................... 125,000 10 years 21.43 69,688 21.43
</TABLE>
The fair value at date of grant for stock options granted during the years
ended March 31, 1997 and 1996 was $12.54 and $18.23 respectively.
<TABLE>
<CAPTION>
MARCH 31,
-----------------
1997 1996
------ ------
<S> <C> <C>
Expected life years....................................... 10 10
Interest rate............................................. 6.85% 6.25%
Volatility................................................ 25.50% 26.00%
</TABLE>
34
<PAGE> 35
COHR INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH OF THE YEARS ENDED MARCH 31, 1997, 1996 AND 1995
Stock-based compensation costs reduced pre-tax income by $248 ($149 after
tax or $0.03 per share) and $429 ($258 after tax or $0.11 per share) in years
ended March 31, 1997 and 1996, respectively.
12. SUBSEQUENT EVENTS
Subsequent to March 31, 1997, the Company acquired the businesses of two
companies similar to that of COHR Inc. The acquisitions included the purchase of
certain assets including inventory, equipment, and other assets, for a combined
purchase price of $1,207, of which $930 was paid in cash, with a short term note
issued for the remainder.
13. BUSINESS SEGMENTS
The Company currently provides services to the health care industry through
two principal business segments. The COHR MasterPlan provides equipment
maintenance and repairs to hospitals and other health care providers. The
Purchase Connection is a group purchasing organization that negotiates pricing
for its membership with manufacturers. General corporate expenses are classified
as "Corporate and Other." Identifiable assets are those used in the Company's
operations in each segment as estimated by management based upon factors such as
revenue generated, number of personnel and space occupied by each segment.
Information concerning the Company's business segments in fiscal 1997, 1996 and
1995 is as follows:
<TABLE>
<CAPTION>
EQUIPMENT PURCHASING CORPORATE
SERVICE SERVICE AND OTHER TOTAL
--------- ---------- --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
1997
Revenues.................................... $68,284 $ 22,240 $ 0 $90,524
Operating income (expense).................. 4,780 8,896 (6,437) 7,239
Identifiable assets......................... 45,123 5,305 33,756 84,184
Depreciation and amortization............... 679 252 126 1,057
Capital expenditures........................ 1,698 214 645 2,557
1996
Revenues.................................... $48,160 $ 18,094 $ 0 $66,254
Operating income (expense).................. 2,409 6,941 (5,850) 3,500
Identifiable assets......................... 19,523 3,771 21,178 44,472
Depreciation and amortization............... 558 214 66 838
Capital expenditures........................ 1,182 193 52 1,427
1995
Revenues.................................... $28,042 $ 15,618 $ 0 $43,660
Operating income (expense).................. 1,498 5,559 (5,019) 2,038
Identifiable assets......................... 11,975 3,683 5,955 21,613
Depreciation and amortization............... 315 215 161 691
Capital expenditures........................ 200 135 130 465
</TABLE>
35
<PAGE> 36
COHR INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH OF THE YEARS ENDED MARCH 31, 1997, 1996 AND 1995
14. QUARTERLY INFORMATION 1997 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED FISCAL YEAR 1997
---------------------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1996 1996 1996 1997
-------- ------------- ------------ ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net revenues.................. $20,465 $21,205 $ 23,451 $25,403
Gross margin.................. 5,745 5,933 6,499 6,828
Operating income.............. 1,328 1,725 1,967 2,219
Net income.................... $ 931 $ 1,064 $ 1,297 $ 1,527
======= ======= ======= =======
Net income per share.......... $ 0.20 $ 0.22 $ 0.23 $ 0.23
======= ======= ======= =======
Weighted average number of
common stock outstanding.... 4,735 4,832 5,545 6,709
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED FISCAL YEAR 1996
---------------------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1995 1995 1995 1996
-------- ------------- ------------ ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net revenues.................. $15,369 $15,465 $ 16,667 $18,753
Gross margin.................. 4,294 4,229 4,481 5,055
Operating income.............. 734 838 815 1,113
Net income.................... $ 457 $ 514 $ 478 $ 693
======= ======= ======= =======
Net income per share.......... $ 0.22 $ 0.24 $ 0.23 $ 0.20
======= ======= ======= =======
Weighted average number of
common stock outstanding.... 2,112 2,112 2,112 3,270
</TABLE>
36
<PAGE> 37
SCHEDULE V
COHR INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS(1) OF PERIOD
- ---------------------------------- ---------- ---------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Year Ended March 31, 1995......... $ (742) $ (155) $ 0 $ 124 $ (773)
Year Ended March 31, 1996......... $ (773) $ (205) $ 0 $ 143 $ (835)
Year Ended March 31, 1997......... $ (835) $ (600) $(68) $ 13 $ (1,490)
</TABLE>
- ---------------
(1) Represents accounts receivable written off against the allowance for
doubtful accounts.
37
<PAGE> 38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, who is thereunto duly authorized.
Dated: June 30, 1997
By: /s/ PAUL CHOPRA
------------------------------------
Chairman of the Board of Directors
and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------------------- ------------------------------ --------------
<C> <S> <C>
/s/ PAUL CHOPRA Chairman of the Board of June 30, 1997
- ----------------------------------------------- Directors, Chief Executive
Paul Chopra Officer and Director
(Principal Executive Officer)
/s/ UMESH MALHOTRA Chief Financial Officer June 30, 1997
- ----------------------------------------------- (Principal Accounting and
Umesh Malhotra Financial Officer)
/s/ LYNN P. REITNOUER Director June 30, 1997
- -----------------------------------------------
Lynn P. Reitnouer
/s/ STEPHEN W. GAMBLE Director June 30, 1997
- -----------------------------------------------
Stephen W. Gamble
/s/ RONNIE J. MESSENGER Director June 30, 1997
- -----------------------------------------------
Ronnie J. Messenger
/s/ FREDERICK C. MEYER Director June 30, 1997
- -----------------------------------------------
Frederick C. Meyer
/s/ JAMES D. BARBER Director June 30, 1997
- -----------------------------------------------
James D. Barber
</TABLE>
<PAGE> 39
COHR, INC.
INDEX TO EXHIBITS
ITEM 14(A)3
(a) EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------------------------------------------------------------- ------------
<C> <S> <C>
1.1* Form of Underwriting Agreement...................................
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........................................
10.3* Executive Long-Term Incentive Plan of Registrant.................
10.4* Form of 1995 Stock Option Plan of Registrant and Form of
Nonstatutory Option Grant Under the Plan.........................
10.5*** Revolving Credit Agreement between Registrant and 1st Business
Bank, dated June 11, 1996, together with Promissory Note, General
Security Agreement and Continuing Guarantee......................
10.8* Consulting Agreement between Registrant and Stephen W. Gamble dba
Gamble's Victory Marine, dated August 1, 1994....................
10.9* Administrative Services Agreement between Registrant and
Healthcare Association of Southern California, dated January 1,
1996.............................................................
10.10** Office Lease between TCEP II properties and Registrant dated May
8, 1996..........................................................
10.11**** Amendment dated November 14, 1996 to Revolving Credit Agreement
between Registrant and 1st Business Bank dated June 11, 1996, and
Promissory Note dated November 20, 1996..........................
11 Computation of Per Share Earnings................................
21.1*** Subsidiaries of Registrant.......................................
27 Financial Data Schedule..........................................
</TABLE>
- ---------------
* Previously filed as exhibits to Registrant's Registration Statement on Form
S-1, Registration No. 33-80635.
** Previously filed as exhibit to Registrant's Annual Report on Form 10-K for
the fiscal year ended March 31, 1996, Commission File No. 0-27506.
*** Previously filed as exhibit to Registrant's Registration Statement on Form
S-1, Registration No. 333-14979.
**** Previously filed as exhibit to Registrant's Quarterly Report on Form 10-Q
for the quarterly period ended December 31, 1996, Commission File No.
0-27506
(b) FINANCIAL SCHEDULE
Schedule V -- Valuation and Qualifying Accounts.
<PAGE> 1
EXHIBIT 11
COHR INC.
COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
NET INCOME ATTRIBUTABLE TO COMMON STOCK.......................... $4,819 $2,142 $1,368
====== ====== ======
PRIMARY AND FULLY DILUTED EARNINGS PER SHARE:
Weighted average number of common shares outstanding........... 5,165 2,391 2,112
Dilutive effect of stock options and warrants after application
of treasury stock method.................................... 333 11
------ ------ ------
Number of shares used to compute primary earnings per share.... 5,498 2,402 2,112
Primary and fully diluted earnings per share..................... $ 0.88 $ 0.89 $ 0.65
====== ====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 22,948
<SECURITIES> 6,000
<RECEIVABLES> 26,929
<ALLOWANCES> 1,490
<INVENTORY> 8,535
<CURRENT-ASSETS> 67,653
<PP&E> 10,740
<DEPRECIATION> 3,797
<TOTAL-ASSETS> 84,184
<CURRENT-LIABILITIES> 15,409
<BONDS> 0
0
0
<COMMON> 887
<OTHER-SE> 66,114
<TOTAL-LIABILITY-AND-EQUITY> 84,184
<SALES> 90,524
<TOTAL-REVENUES> 90,524
<CGS> 65,519
<TOTAL-COSTS> 65,519
<OTHER-EXPENSES> 17,766
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 95
<INCOME-PRETAX> 8,033
<INCOME-TAX> 3,214
<INCOME-CONTINUING> 4,819
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,819
<EPS-PRIMARY> 0.88
<EPS-DILUTED> 0.88
</TABLE>
