COHR to sell off company as financial problems mount

Company's OEM relationships are in question

The board of independent service organization COHR announced last month that it has decided to sell off the company. The move was not surprising, given the financial problems that have surfaced at the Chatsworth, CA, firm in recent months.

COHR first announced in December that its board was pursuing "strategic alternatives" for the company that might include divestiture (SCAN 1/14/98). Although COHR has grown dramatically through acquisition over the last several years, the company has struggled with profitability. In addition, a new management team that took over the company late last year has uncovered a number of accounting irregularities that have forced the firm to restate its financial results.

COHR spokesperson Rusty Page confirmed that after a review of the company's operations, COHR's board decided that divesting the company would be in the best interest of shareholders.

"Given COHR's marketplace and the products and services it has to offer, combined with the last few quarters' performance, I think the company has decided that if it were combined with another strong company, the shareholders would have the best answer," Page said.

COHR made the divestiture announcement as it released financial results for the third quarter of fiscal 1998 (end-December) that indicated the scope of the company's problems. For the period, COHR posted revenues of $24.4 million, a pre-tax loss of $13.3 million, and a net loss of $10.7 million. The numbers compare with restated revenues of $20.2 million and net income of $574,000 in the third quarter of fiscal 1997.

The large net loss in the most recent quarter was the outcome of a review of COHR's business practices begun by the management team that took over after former chairman and CEO Paul Chopra left the company in late 1997. The review discovered that some software and equipment sales were prematurely recorded, and that some liabilities were understated, requiring COHR to restate its financial results for the first two quarters of fiscal 1998.

In connection with the review, COHR's board also said that it would be taking $12.6 million in pre-tax charges against fiscal 1998 earning for various purposes, including a write-off of good will, an increase in the allowance for doubtful accounts receivable, and nonrecurring legal and accounting costs. At the same time, COHR announced that CFO Umesh Malhotra would be leaving the company, to be replaced by Daniel Clark.

The magnitude of COHR's problems has made it increasingly difficult for the company to continue as an independent entity. The turmoil at the firm has raised questions among potential customers as to COHR's viability, never a positive factor when equipment service contracts are at stake. On the other hand, COHR has succeeded in bringing in new business over the last several months, according to Page.

COHR consists of several business units that could be divested in pieces. COHR's service operations are included in its COHR MasterPlan division, while its group purchasing activities are conducted by its Purchase Connection unit, which serves over 3500 healthcare facilities in the U.S. COHR also runs a software business, consulting service, and security arm. It's too early to tell how the company will be sold off, but ideally it would be sold in one piece, Page said.

COHR also has several OEM relationships that could be affected by the firm's divestiture. The company has an agreement with Toshiba America Medical Systems to provide multivendor service and asset management to that Tustin, CA, vendor's customers (SCAN 4/30/97). COHR also has a deal with InnerVision MRI of the U.K. to sell its Ortho 8000 extremity MRI scanner. Page believes that COHR's partnerships should continue to be in force following the sale.

"Nothing is changing at COHR, other than that it will be part of a stronger, better company," Page said. "I would think that anyone who has a contractual arrangement with COHR at this point would be even better served to know that the company will have financial strength and will have a lot more capital and resources as part of a combined team with whoever the ultimate buyer might be."

Toshiba has continued working with COHR, such as on a multivendor service agreement with University of Maryland Medical System, according to Brian Turnbull, vice president of the Toshiba's technology services business unit.

"We cannot predict the future nor comment on something that has not occurred," Turnbull said of COHR's divestiture. "However, our relationship with COHR remains strong and we maintain close communication with that organization during this period."