UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X]Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended May 31, 1998
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period to
Commission File No. 0-9833
UNIHOLDING CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 58-1443790
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification Number)
96 Spring Street, New York, New York 10012
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 219-9496
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 October 15, 1998, 6,079,151 shares of Registrant's Common Stock, par value
$0.01 per share, were outstanding. The aggregate market value of the Common
Stock, based on the closing price on The Nasdaq Stock Market/Nasdaq Small Cap as
of October 23, 1998, held by nonaffiliates of the Registrant was approximately
$12 million.
DOCUMENTS INCORPORATED BY REFERENCE
None
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PART I
ITEM 1. BUSINESS
1.1 General
UniHolding Corporation (the "Company" or "UniHolding") is a Delaware
corporation organized in 1987. The Company's principal business and operations
are in European clinical laboratory testing services (the "Diagnostic Laboratory
Division"), and, until the spin-off made in February 1998, in clinical trials
testing for the pharmaceutical industry (the "Clinical Trials Division").
The Company is a medical services holding company and, through Unilabs
Group Limited, a British Virgin Islands corporation ("UGL"), is the majority
shareholder of Unilabs SA, a Switzerland corporation ("ULSA"), which supplies
clinical testing services in several European countries. Until February 27,
1998, the Company also had a wholly owned subsidiary, Global Unilabs Clinical
Trials Limited, a British Virgin Islands corporation ("GUCT"), which is the
majority shareholder of UCT International, Inc., a Delaware corporation
("UCTI"). UCTI supplies clinical testing services dedicated to the
pharmaceutical industry in the United States and in Europe. GUCT was spun off to
the Company's shareholders on February 27, 1998, while the Company has retained
ownership of $ 20 million in non-voting, non-convertible, redeemable preferred
stock of GUCT in exchange for previously existing inter-company debt. As a
result of the GUCT spin-off, the Company presently does not have any significant
operation in the U.S.
On August 8, 1997, the Company announced its intention to merge UniHolding
into its wholly-owned subsidiary, UGL, with a view toward streamlining the
corporate structure. The proposed merger was and is subject to shareholder and
regulatory approvals. In the fourth quarter of fiscal 1998, a major shareholder,
Unilabs Holdings SA, a Panama corporation ("Holdings") reported the contribution
to UGL of approximately 3.1 million shares of UniHolding common stock in
exchange for the same number of shares of UGL common stock. However, this was
rescinded. Accordingly, at present UGL remains a wholly-owned subsidiary of
UniHolding. The Company is now continuing to examine the feasibility of the
proposed merger with UGL.
Since its inception in 1987, the Company's Swiss operations have grown into
the largest clinical laboratory group in Switzerland, with a network of
laboratories which provide a full spectrum of clinical laboratory tests that are
used in the diagnosis, monitoring and treatment of diseases and illnesses. The
Company also owns majority interests in Italian and Spanish clinical laboratory
operations. Until its disposition during fiscal 1998, the Company also provided
laboratory testing services in the United Kingdom through Unilabs Group (UK)
Limited ("UGUK").
In October 1996, the Company entered into a joint venture agreement with
the state affiliated company Medincenter of the Main Administration for Services
to the Diplomatic Corps of the Ministry of Foreign Affairs of the Russian
Federation. Pursuant to the agreement, the Company has invested $0.2 million in
cash, and owns 50% of Unimed Laboratories (a newly-established Russian close
joint stock company, "Unimed"), which has established a diagnostic laboratory in
Moscow to provide a comprehensive range of clinical laboratory tests to public
and private medical institutions, doctors and patients in Russia. The Company
also provides the venture on an on-going basis with certain scientific and
system consulting services and management supervision. The new Unimed laboratory
started operations on December 1, 1997.
In January 1997, the Company acquired, through a subsidiary, together with
a minority investor, a 70% stake of a laboratory company in Istanbul (Turkey).
Upon the acquisition of the 70% stake, which closed on May 29, 1997, the Company
had a controlling interest of 43% in the Turkish company, for an investment of
approximately $0.6 million.
On May 28, 1997, ULSA acquired the remaining shares of Pathologie-Labor
Brunnhof AG ("PLB") for $2.5 million. The Bern based laboratory specializing in
cytology and histopathology was already majority owned by ULSA.
The Company had announced on February 27, 1996 that it was considering
several alternative proposals to maximize shareholder values, including the
selling of a minority or majority stake in some of its operations, and the
floating of one or more of its subsidiaries on a major European exchange. As
part of this plan, the Company made an initial public offering on the Swiss
Exchange of ULSA's newly-issued and existing shares, which closed on April 24,
1997. The offering comprised the issuance by ULSA to the public of a further 20%
of its equity, and the sale by the Company of a portion of its holding in ULSA,
thereby diluting the Company's holding in ULSA to 60% post-initial public
offering. The shares of ULSA have been listed on the Swiss Exchange since April
25, 1997. As of May 31, 1998, the Company owned approximately 54% of ULSA. In
connection with the ULSA initial public offering, the Company has agreed to
significant restrictions regarding the possible sale or listing of its
investment in ULSA until April 25, 2002.
On January 29, 1998, the Company signed an agreement ("the UGUK Agreement")
relating to the sale of its subsidiary UGUK to FHP Holdings Limited, a Bahamas
corporation, and Focused Healthcare (Jersey) Limited, a Jersey, Channel Islands
corporation ("FHL"), a group of investors led by a British businessman, Mr.
Andrew Baker. Mr. Baker is the former Chairman and Chief Executive Officer of
Unilab Corporation, a Delaware corporation, and currently is a Director of
Medical Diagnostic Management, Inc., a U.S. corporation of which the Company
holds redeemable preferred stock convertible into common stock under certain
terms and circumstances. The sale consideration was agreed upon at SFr.19.4
million (approximately $13.2 million), payable as SFr.1.9 million (approximately
$1.3 million) in cash, and SFr.17.5 million (approximately $11.9 million)
against issuance of non-voting preferred stock of FHL, redeemable within three
years, carrying certain dividend and liquidation preferences.The Company has the
ability, through two non-executive directors whom it nominates on the board of
FHL, to veto certain actions of the new controlling shareholders if such actions
would have the effect of jeopardizing realization of the Company's investment in
FHL preferred stock (such as a merger, sale or liquidation). The Company has not
retained any management control over UGUK, of which Mr. Baker is Chairman and
Managing Director. The transfer of the UGUK shares and other consequences of the
closing of the UGUK Agreement had to be delayed until May 1998 because of
unexpected difficulties in completing the necessary documentation and local
filings. However, the Company effectively transferred control of UGUK to FHL as
of June 1, 1997, and therefore ceased consolidating UGUK as of that date.
During the year ended May 31, 1998, through the exercise of
previously-acquired pre-emptive rights, ULSA acquired from a third party 100% of
the equity of Institut Bio-Analytique Medical SA, a Geneva company, and related
companies at an aggregate cost of $21.8 million . Also during the same period,
through the exercise of a previously-acquired option, ULSA acquired from a third
party 100% of the equity of Laboratoire Medical Pierre-Alain Gras SA, a Geneva
company, at a cost of $3.5 million.
1.2 The Clinical Testing Industry in Europe
Clinical laboratory tests are used by both general practitioners and
specialists and other health care providers to diagnose, monitor and treat
illnesses, diseases and other medical conditions through the detection of
substances or abnormalities in blood, urine or other body fluids and tissue
samples. Clinical laboratory tests are primarily performed in hospitals,
physician-owned laboratories and independent laboratories.
The European clinical testing industry differs from the United States
industry as it is characterized by fragmentation and substantial cultural,
social, ethical and regulatory differences from country to country. Overall, the
European clinical testing volume is estimated to be at least $20 billion
annually. There are at least 12,000 active, independent clinical laboratory
companies in Europe. The Company presently operates its laboratory interests in
Switzerland, Italy, Spain, Russia and Turkey.
The Swiss market is an approximately $1.2 billion a year industry, for a
population of approximately 7 million people. Currently, the Company estimates
that physician-owned laboratories represent approximately 50% of the Swiss
clinical testing market, with hospitals (private and public) representing 30%,
while private clinical laboratories, including the Company and its subsidiaries
(i.e., ULSA), represent the remaining 20% of the market.
The Company estimates that the Italian market for clinical testing services
is approximately $3.2 billion. In Italy, where physicians are prohibited from
performing clinical laboratory tests, tests performed by hospitals and private
laboratories represent approximately 75% and 25% of the total volume,
respectively. There are presently approximately 2,000 private laboratories in
Italy. The Italian health care sector is undergoing radical changes, including
revisions of Social Security reimbursement practices. The Company has entered
the Italian market based on the growth potential in the market for private
laboratories, and on the potential for managing public hospitals' laboratories.
The clinical laboratory testing market in Spain is currently estimated at
$1.6 billion and comprises approximately 1,000 private laboratories, the vast
majority of which are very limited in size. Spain is experiencing rapid growth
in its private health insurance market forcing price containment and
consolidation in the industry. Currently, the Company estimates that private
laboratories represent approximately 25% of the Spanish clinical testing market,
with hospitals (private and public) representing the remaining 75%. Due to the
Company's network of laboratories in Spain, management believes the operations
are well situated to take advantage of the changing marketplace.
In Russia, the Company presently does not intend to pursue opportunities
that may be offered by the general market. It presently caters only to a niche
market comprising a particular segment of patients who can afford to pay for
services that they would not receive in laboratories of public hospitals. There
presently is no reliable data available as to the size of such market segment.
In Turkey, the market comprises a large number of private laboratories, the
majority of which focus on a limited range of routine analysis. The private
sector is expanding rapidly and investment in this sector is strongly supported
by the government. There are a number of initiatives to improve the general
quality of testing which will lead to concentrations in the sector.
In the Company's view, the European clinical testing services market will
continue to grow based on a number of factors. These include (i) rising health
care expenditures resulting from an aging population, rising standards of living
and the availability of both new and improved treatments for diseases and other
medical conditions, (ii) increasing emphasis placed by health care providers on
preventive care and the early detection of diseases, (iii) increasing
occupational testing by insurance companies and large public and private
employers, (iv) increasing testing for substance abuse, sexually transmitted
diseases and AIDS, (v) increasing numbers and types of clinical tests resulting
from an expanding base of scientific, technical and medical knowledge and (vi)
expanding development of highly automated laboratory testing equipment, leading
to increasing laboratory operating efficiencies.
1.3 Current Operations
Prior to completing the spin-off of the Clinical Trials Division of the
Company on February 27, 1998, the Company had two business segments: its core
clinical laboratory business (the Diagnostic Laboratory Division), and the
clinical trials testing business (the Clinical Trials Division). However, as
discussed elsewhere, the Company spun off the Clinical Trials Division to the
Company's shareholders as of February 27, 1998.
As European clinical laboratories are perceived as proximity services, a
successful service requires personal interaction and on-site facilities capable
of quality testing. However, these laboratories need to be supervised, networked
and centrally supported to fulfill their role and survive economically in the
changing marketplace.
On a local level, laboratory operations must be appropriately located in
the cities near hospitals, patients and physicians. Whereas, on a national
level, the operations must be complemented with access to specialized entities
which can produce high-level resources, whether human, scientific or technical
to enhance the service and productivity of each of the operations.
The Company operates in Switzerland, Italy, Spain, Russia and Turkey,
within a competitive environment. The Company believes it is the largest
independent clinical laboratory group in Switzerland and plans to capitalize on
its experience, knowledge, and solid growth to maintain its market leadership.
The Company's laboratory operations offer a wide range of tests and deliver
quality services typically within 24 hours through the use of highly advanced
testing equipment, thorough procedures and its advanced proprietary data
processing systems. The Company centralizes the development and maintenance of
such data processing systems and the scientific control and monitoring in each
country to enhance its overall services and profitability. The Company also
allows each laboratory to have a local commercial autonomy, while in the
aggregate the laboratories are supervised, coordinated and centrally supported
in order to provide for greater administrative and management efficiencies.
The Company expects to further develop its market leadership and achieve
further growth in the private health care sector through volume increases,
market share gain and improvement in its test mix, while also continuing to
optimize its operations to achieve maximum efficiencies. Increasing pressure for
cost containment and improved quality of health care are leading to
consolidation in the highly fragmented European markets where clinical testing
is performed by private laboratories. Similar pressures are leading health care
providers in both the public and private sector to contract with private
laboratories in order to achieve lower costs, greater efficiency and better
quality care. The Company's size, economies of scale and experience in acquiring
and integrating new operations furnishes it with a clear competitive advantage.
The Company believes that its experience in operating a network of laboratories
of varying sizes in diverse geographic regions, its automated testing equipment
and its sophisticated data processing (relating to both medical tests and
financial data) and communication systems make it a credible partner for
large-scale health care providers. The Company is already leading the industry
in this growth area, having signed several contracts with large public and
private hospitals to manage and operate the hospitals' laboratory and provide
other necessary clinical testing through its own laboratories. During fiscal
1998, the Company began operating an agreement with a group of hospitals of the
Zurich area where it created a central laboratory and emergency laboratories.
The Company intends to pursue other such contracts with large health care
providers in various countries.
The Italian and Spanish markets offer similar opportunities for growth due
to changes in governmental policies and funding which will be monitored and
pursued to increase the customer bases in those countries if such opportunities
meet the Company's criteria.
In a rapidly evolving industry that is subject to concentration,
technological innovation and political changes, the Company believes it is
uniquely positioned to take advantage of the opportunities for expansion and
acquisitions that are being created in the European clinical laboratory
industry.
Services
Through its network of laboratories, the Company offers a comprehensive
range of clinical tests to its clients, performing routine tests (tests which
its laboratories perform every day, irrespective of the discipline or complexity
of the test), as well as non-routine and specialized tests, for physicians,
hospitals, clinics, other health care providers and employers. The laboratories
make extensive use of automated testing equipment and data processing systems.
Examples of the broad range of clinical tests offered include (i) the
testing of blood, urine and other body fluids for the presence or absence of a
specific disease or medical condition; (ii) the cultivation, identification and
treatment of bacterial diseases in connection with the testing for general
infections and tropical parasites; (iii) the detection of viral diseases through
the study of the effects of viral infections on blood serum (including the
testing for hepatitis, many sexually transmitted and tropical diseases, AIDS and
German measles); (iv) pathological testing to detect abnormalities that are
associated with disease in the composition, form or structure of tissue; and (v)
the examination of cells (e.g., PAP smear) under a microscope to detect
abnormalities in composition, form or structure which are associated with
disease. In addition to testing for diseases, routine tests are often performed
in connection with the preparation of patient profiles that include basic
chemical and hematological screening information, such as sugar, urea,
cholesterol, blood count and coagulation levels. Examples of esoteric tests
include tests for antibodies, vitamins and metals, among other substances.
Most of the Company's laboratories process specimens on a continuous flow
basis, which means that specimens arrive from clients or from collection
stations throughout the day and are processed as soon as possible, most within
24 hours. All test results are scanned by computer to identify results that are
not within the standard ranges. Any such results are verified by a second
testing. Final test results are further reviewed by a physician, to check for
abnormalities. If, at any time in the course of the testing process, an
imminently life-threatening result is found, the referring physician is
contacted immediately. Results are delivered securely by mail or courier service
or by telefax, telephone or electronic transmission as instructed by the client.
The Company also offers specialized testing in histopathology and cytology
in certain dedicated laboratories.
In 1996, the Company entered into an agreement with a group of private and
state-run hospitals located in the Zurich area. Pursuant to the agreement, the
Company agreed to create a central laboratory and 3 emergency laboratories
within those hospitals that are not located close to the central laboratory.
Since June 1997, the central laboratory conducts all regular analyses for the
group of hospitals, while the Company's existing Zurich laboratory specializes
in handling all non-routine analyses for the group of hospitals. This is the
first agreement of its kind in Switzerland. The central laboratory and the
emergency laboratories are not owned by the Company, but are subject to an
exclusive management contract, which has an initial duration of 7 years.
Clients, Sales, Marketing and Client Service
The Company's sales strategy is tailored to the requirements of the various
cultural preferences of its clients and patients and the local markets in which
it operates. Each of the laboratories generally operates under its own name with
its own local reference. The Company was careful not to disturb the valuable
existing commercial structures upon acquiring each laboratory. It respects the
cultural diversity and aims to improve and enhance the image of the existing
business rather than promote a group or network concept.
The Swiss laboratories direct their marketing efforts to physicians,
hospital laboratories and hospital administrators. No advertising may be made
directly to patients. Their clients are primarily physicians, who, in fiscal
years 1996, 1997 and 1998, accounted for more than 90% of its consolidated net
revenues and the remaining portion of revenues were derived from hospitals,
clinics, referrals from other laboratories and other clients. No single client
represents more than 2% of ULSA's revenues. The Company's Swiss laboratories
primarily provide services to clients whose patients are covered by the private
health insurance sector.
The Italian laboratories primarily serve those medical doctors consulting
in the Turin region, as well as providing occupational medical testing to large
industrial companies. No advertising may be made directly to patients. The
laboratories have earned a first class reputation in the Turin area and cater
primarily to those patients who can afford the quality services offered by a
private diagnosis center and by a private laboratory as the patients know that,
in most cases, they will receive limited reimbursement or no reimbursement from
their insurance. This private market is estimated to represent a maximum of only
25% of the total market presently.
The Company's Spanish subsidiary, United Laboratories Espana SA ("ULSP"),
caters primarily to privately insured patients, capitalizing on the strong
growth experienced in recent years by the private mutual health insurance
sector, especially in the more developed urban areas such as Madrid and
Barcelona. ULSP is approved by all the major health insurers in Spain, which
have become its major clients. In addition, ULSP provides services to fully
private patients and to hospitals and clinics, where in certain cases ULSP
manages the on-site emergency laboratory. ULSP further undertakes certain
clinical trials for pharmaceutical firms and occupational health testing for
employee health check-up programs. No advertising may be made directly to
patients; however, being on the approved list of health insurers is a strong
marketing point for patients as this ensures that laboratory costs will be
reimbursed.
The Company's joint venture operation in Moscow, Unimed laboratories,
caters primarily to private clients. Currently, its clients are diplomats and
their families, representatives of foreign firms in Moscow as well as Russian
private citizens. Many patients are covered by private or State insurance
companies. Currently, a majority of Unimed's clients are being treated in
Medincenter's polyclinic, the Company's joint venture partner in Moscow and all
tests ordered by Medincenter's clinicians are solely to be performed by Unimed
laboratories. The marketing is oriented towards expanding the client base to
embassies and companies, as well as other private and public medical providers
in Moscow.
In Turkey, the Company provides a high quality service to private patients,
some of them being covered by private insurance companies. The marketing is
aimed at capturing a larger market share among young, well-educated doctors in
Istanbul.
The Company also provides test referral services to overseas clients,
primarily in the Middle East, but also in countries such as Nigeria, Azerbaijan
and Ireland. Clients are mostly public or private hospitals. The marketing is
handled either directly or via a local agent who is responsible for the
marketing, collection of samples and transportation to the Company's
laboratories. Agents are remunerated on the basis of a fee percentage based on
amounts effectively collected from the clients. The tests are performed by the
Company's laboratories or by third-party laboratories, depending on the
economics of the case, and the performing laboratories report results directly
to clients.
Government and Industry Regulation
The Swiss clinical testing industry is currently subject to limited
government regulation. In Switzerland, prices are regulated by the Office
Federal des Assurances Sociales ("OFAS"), which publishes detailed maximum price
lists for all types of clinical testing that are applicable to private
laboratories and on which such laboratories base their billing. As a result of
price reductions imposed by OFAS since 1994, the Company's laboratories have
experienced an overall average price reduction of less than 5% per year in
fiscal 1996, 1997 and 1998, which, owing to the Company's clientele mix,
compares favorably with the loss in revenue experienced by other Swiss private
laboratories. Effective October 1, 1997, OFAS decided to further reduce by 10%
the prices of the 50 most frequent tests. Given the Company's test mix and cost
basis, as well as the prices already offered by the Company on most tests
concerned, the impact of this price reduction was contained within insignificant
limits. Further, the Company believes that such reduction may provide
opportunities for growth at the expense of smaller or less efficient
laboratories. Physician-owned laboratories, which represent approximately 50% of
the Swiss clinical testing market, are permitted to invoice customers at prices
based on cantonal guidelines, which now typically approximate 20% to 30% higher
than the published OFAS prices. While such cantonal prices have not been
affected by the OFAS price change, discussions are currently being held in a
number of cantons between Medical Associations, health authorities and health
care insurance federations to adjust cantonal price lists to the OFAS price
list, although the timing of such adjustments, if any, are uncertain. In
addition, the current OFAS price list requires all clinical testing laboratories
to participate satisfactorily in specified quality control programs.
Laboratories which fail to maintain adequate quality standards are subject to a
25% price reduction. In Switzerland, new clinical testing laboratories must be
inspected to receive certification to perform testing. In addition, new
laboratories must be authorized by the government of the canton in which the
laboratory is located. Swiss regulations also require that all laboratory
supervisors be Swiss citizens. Yet, there are currently no ongoing verification
or inspection processes. In addition, Switzerland regulates the disposal of
radioactive waste and has adopted a law with respect to infectious waste
disposal. The Company believes its procedures are sufficient to protect its
employees and to comply with Swiss law. The Company's management does not
believe these regulations will have a material effect on its ability to operate
its business. However, the Company cannot predict the potential effect of any
future regulations that may be imposed on its operations.
In Italy, where physicians are prohibited from performing clinical
laboratory tests, tests performed by hospitals and private laboratories
represent approximately 75% and 25% of the total volume, respectively. Expected
changes in laboratory regulations will likely allow private laboratories to
cover a greater geographical area, since, for example, restrictions on the
transportation of blood are being abolished. Both trends are expected to lead to
a needed consolidation among Italy's almost 2,000 private laboratories. While
the reforms have been long-awaited and necessary because of the growing
inability of the public sector to serve patients in an acceptable manner at
acceptable costs, the timing of these reforms has been delayed by political
instability through the recent years. However, it now appears that the reform is
beginning to take place, albeit slowly. The reforms should also increase the
potential for private companies to manage laboratories of public hospitals, a
segment the Company will be interested and well positioned to develop.
In Spain, like Italy, physicians are prohibited from performing
clinical laboratory tests so tests are performed by hospitals and private
laboratories. The Spanish health care sector is also undergoing fundamental
changes, such as the rapid growth of private health insurers and the need to
revise the Social Security system. Pricing in the private laboratory sector is
set freely by laboratories, except for private insurers, which issue their own
price lists. In addition to exerting downwards pressure or containment on test
prices, private insurers have raised quality requirements in order to reduce the
number of approved laboratories capable of providing reliable testing. As a
result, the private sector is undergoing a growing consolidation. In addition to
price and quality, the ability to offer a national service through a network of
laboratories is an important competitive advantage of the Company's
subsidiaries.
In Russia, a laboratory has to be registered and licensed with the
relevant authorities. Special approvals are required for specific types of
activities or tests. There is no current pricing restriction that would affect
the Company's joint venture.
In Turkey, there is a requirement for the laboratory to employ a
qualified laboratory scientist with an appropriate diploma. There is also a
minimum price list for clinical tests and medical services. The price list is
issued and revised twice a year by the Medical Chamber of Turkey.
Competition
The Swiss clinical testing industry is highly fragmented, with
approximately 150 independent private laboratories. Competition is based
primarily on the accuracy, reliability and timeliness of results, variety and
quality of service, and price. The Company currently competes effectively in all
of its markets, although certain of its local competitors are larger in
particular localities and may be willing to devote greater resources in such
localities. The Company is the largest provider of clinical testing services in
all of Switzerland. The Company believes its size, economies of scale and
experience in acquiring and integrating new operations give it competitive
advantages in the marketplace.
The Company believes its Italian and Spanish laboratories are the
leading private laboratories in their operating regions. It is estimated that
the Italian laboratories compete with approximately 10 local laboratories, while
the Spanish laboratories compete with approximately 50 local competitors in each
city of operations.
In Russia, there is little competition for the Company's joint venture
at present. Several private medical clinics have their own laboratory but with a
limited range of tests to offer. There are several scientific institutes
performing specialized clinical tests in Moscow but usually they are difficult
to access and with a slow response time.
In Turkey, there are several hundreds of small laboratories performing
a limited range of routine tests and only few providing a range of assays
comparable to what the Company can offer. The public sector is generally poorly
regarded in terms of quality and speed.
Quality Assurance
The Company considers the accuracy and reliability of its testing
services to be of paramount importance. The Company has established its own
comprehensive and rigorous quality control program. This program includes
control testing, regular review of test data by laboratory technicians and
medical personnel and repetitive testing for abnormal results.
Each laboratory is supervised by a medical director, who is a physician
and who is assisted in most cases by a technical director and other qualified
medical professionals. A primary role of laboratory professionals is to ensure
the accuracy of test results. Each laboratory is equipped with sophisticated
testing equipment, which is routinely checked in accordance with a regular
maintenance program.
In 1995, the Company's Swiss subsidiary applied to the Swiss Federal
Accreditation Service for accreditation of all its Swiss laboratories under the
European Standard EN 45001 ("General criteria for the operation of testing
laboratories"). Accreditation is awarded based on an external audit of the
laboratory's ability to provide testing services of a high quality, certifying
the laboratory's competence and its compliance with international standards and
good laboratory practices. The process comprises two stages: first, laboratories
assess themselves against the EN 45001 standards, indicating compliance with or
exemption from such standards; and second, an on-site assessment is conducted by
the accrediting body to verify the laboratory's claims. Once accredited,
laboratories are subject to periodic re-inspection. The accreditation process is
progressing according to schedule, and the Company currently expects the
accreditation to be completed within 1999. As part of its quality plan, the
Company also participates in industry proficiency testing programs as required
by the new OFAS regulations. Such programs generally require the Company's
laboratories to perform tests, the results of which are already known, enabling
verification of the accuracy of the Company's test procedures. These programs
are conducted by groups such as the Swiss Center for Clinical Testing Quality
Control or the German Clinical Chemistry Association and other industry
organizations. To date, the Company has met all the requirements for accuracy in
all such programs in which it has participated.
The Italian and Spanish laboratories adhere to the same strict quality
control procedures as instituted throughout the laboratory group. Regular
quality control tests are performed under the supervision of the scientific
directors. Accreditation is awarded by local authorities based on an external
audit of each laboratory's ability to provide testing services of a high quality
certifying the laboratory's competence and its compliance with international
standards and good laboratory practices. These standards cover a set of defined
conditions used throughout laboratories and covering all aspects of an
investigation, including specimen collection and reporting.
In Russia, quality assurance under foreign management is of importance
to all patients. For this reason, it is an essential component of the Company's
joint venture strategy to emphasize quality assurance and to seek international
accreditation as soon as practicable.
In Turkey, there are some efforts to promote quality assurance, which
effort is driven in particular by private medical insurance companies.
Information technology services and Year 2000 remediation
The Company considers it critical to use state-of-the-art information
systems to process its laboratory tests and related results. All the Company's
laboratories use computer software packages specifically tailored to the needs
of their local market, which are comprehensive laboratory information and
management software, generally running on IBM AS/400 or UNIX-based computers.
Such systems handle all stages of a clinical sample laboratory processing :
- Operational Planning and Monitoring : generating bar-coded labels and
work schedules; supporting bi-directional connections to laboratory
instrumentation; providing process monitoring, interactive entry, automated
controls and computer-assisted test validation through on-screen consultation
and reports.
- Data Retrieval and Reporting : downloading test requests and
retrieving test results, on-line.
- Test Prescription : transmission of test prescription to the
reference laboratory, avoiding duplication of specimen collection and test
data entry between laboratories
- Request Validation and Control.
- Transmission of Results : routing and dispatching, videotext access,
secure electronic fax service and downloading to the prescriber's computer
or hospital ward stations.
- Administrative Management : handling test and result archiving,
inventory management and operational statistics.
- Marketing : enabling easy client monitoring and provides such
marketing tools as mail merging and videotext services.
- Financial Control : invoicing, debtors accounting and receivables
collection management.
The Company believes that the efficient and secure handling of
information by a clinical laboratory is a critical factor in providing proper
client service and in achieving success over the competition. Therefore, the
Company places a high degree of priority on the appropriate evolution of its
management information systems, and is investing considerable amounts of money
each year in this area. The Company is currently contemplating engaging into the
regular sale of its computerized systems to third parties.
Most of the Company's laboratories are faced with "Year 2000"
remediation issues. Many computer programs were written with a two digit date
field and if these programs are not made Year 2000 compliant, they will be
unable to correctly process date information on or after the Year 2000. While
these issues impact all of the Company's data processing systems to some extent,
they are most significant in connection with patient-related computer programs.
Moreover, remediation efforts go beyond the Company's internal computer systems
and require coordination with clients, suppliers and other third parties to
assure that their systems and related interfaces are compliant. Given the
different computer systems operated by the Company's business units, the type
and extent of the Year 2000 issues and the cost of remediation vary
significantly among the Company's laboratories. Failure to achieve timely
remediation of computer systems that process client information and
transactions, and of all other systems with embedded technologies that are
critical to the Company's operations, would have a material adverse effect on
the Company's business, operations and financial results.
In response to the Year 2000 concerns, the Company created a Year 2000
Task Force to coordinate and monitor the laboratories' progress in their Year
2000 remediation efforts. The Task Force reports directly to the Company's
executive management, provides regular progress reports to executive management,
and regularly meets with executive management to discuss its reports.
The Company's plans call for all critical systems to be renovated and
compliance testing underway by the end of calendar 1998. As the Company uses
many computerized laboratory machinery manufactured, provided and maintained by
third-party vendors, it has requested each of those vendors to provide the
Company with appropriate certification that the machinery is Year 2000
compliant. Such certification has yet to be received. Acceptance testing is
scheduled to take place between late 1998 and mid-1999 with time frames
differing by laboratory unit. Completion of any third party interface testing is
dependent upon those third parties completing their own internal remediation.
The Company could be adversely affected to the extent third parties with which
it interfaces have not properly addressed their Year 2000 issues.
In fiscal 1998, the Company spent approximately $0.5 million on its
Year 2000 remediation efforts. The Company currently anticipates expenditures
for Year 2000 remediation efforts and testing in the range of $0.5 million to
$1.0 million in fiscal 1999 and of approximately $0.2 million in fiscal 2000.
The costs of the project and the date on which the Company
believes it will complete the Year 2000 modifications are based on management's
best estimates, which were derived utilizing numerous assumptions of future
events, including the continued availability of certain resources and other
factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those anticipated.
Employees
As of May 31, 1998, the Company employed approximately 770 people, as
computed on a full-time equivalent basis. The Company has never experienced any
work stoppages, slow-downs, or other material labor problems and believes its
relations with its employees are satisfactory.
Seasonality
The Company, like most clinical laboratory companies, is affected by
certain seasonal trends. Testing volumes tend to be lower during the holiday
seasons, which vary throughout the year according to the cultural and regional
influences. Therefore, the Company's results for a particular quarter may not be
indicative of results in future quarters.
ITEM 2 PROPERTIES
All of the laboratory facilities have been improved and adapted for the
sole purpose of providing clinical testing services. Accordingly, the facilities
are suitable and adequate and utilized solely for such services. Following are
the descriptions of each regional facility.
Switzerland
ULSA leases laboratory space and other service sites and facilities at
various locations at market rates. ULSA's executive management is located in
Geneva, Switzerland. Its principal laboratories are located in Geneva (30,000
square feet), Bern (7,500 square feet), Zurich (5,000 square feet) and St.
Gallen (27,500 square feet), and regional or specialized laboratories are
located in Baden, Bern, Lausanne, Neuchatel, and Montreux. ULSA believes that
such laboratory spaces, service sites and facilities are fully suitable and
adequate for its business. The leases expire at various dates through May 31,
2001. Upon expiration of any lease, ULSA could find alternative space at
competitive market rates and relocate its operations.
Italy
Italian operations occupy two floors of a building located in the heart
of Turin. The total surface area is 6,500 square feet, out of which 5,000 square
feet are owned, and 1,500 square feet are leased under a long-term lease. The
Company believes that such laboratory space and facilities are fully suitable
and adequate for its business.
Spain
ULSP's executive management is located in Madrid, Spain. ULSP leases
laboratory space and other service sites and facilities at various locations at
market rates. Its principal laboratories are located in Madrid and Barcelona,
while regional laboratories are located in Valencia and Murcia. During fiscal
1996, ULSP completed a move to new Madrid facilities of approximately 10,000
square feet. ULSP believes that such laboratory spaces, service sites and
facilities are fully suitable and adequate for its business. Upon expiration of
any lease, ULSP could find alternative space at competitive market rates and
relocate its operations.
Russia
In Moscow, the Company's joint venture is located on the 3rd floor of
the Medicenter building. Unimed leases a surface area of approximately 6,500
square feet from Medincenter.
Turkey
In Istanbul, the laboratory leases a surface area of 2,500 square feet
on the second floor of a modern office building.
Other Property
In September 1988, a company which presently is a subsidiary of UGUK
acquired a freehold site at Camden Lock, London NW1, where it constructed a new
building on the site to provide laboratory and office space. The building,
completed in 1991, provides approximately 54,000 square feet of usable space. In
connection with the sale of UGUK, the Company agreed to purchase that building.
Such purchase was completed in July 1998. The building is currently rented to
the Company's former United Kingdom subsidiaries at market rates. While the
Company believes that such building is suitable and adequate for its purpose,
the Company had previously made a decision to sell it, provided it found a
prospective buyer at a suitable price. As a result of this decision, the Company
recorded in fiscal 1997 a one-time charge of approximately $5.8 million to
adjust the building's carrying value to its estimated market value.
ITEM 3 LEGAL PROCEEDINGS
In the normal course of its business, the Company may be a party to
various litigation. As of May 31, 1998, the Company was not a party to any
litigation which management believes may have a material impact on its financial
position and results of operations.
Because of circumstances related to the Company's previous involvement
in the apparel industry, prior to 1994, the Company may benefit from the outcome
of certain pending litigation where it is not a defendant, as described below.
Such legal proceedings have been ongoing for several years and the Company is
presently unable to determine the likely amount of any future award in the
Company's favor.
In 1990 and 1991, the Company was the majority shareholder of
Americanino Capital Corporation, a Delaware corporation ("ACC") which held
interests in the Italian apparel goods industry. In 1993, the Company divested
itself of such interest as the business did not meet the Company's expectations.
It therefore concluded an Asset Purchase Agreement and a Sharing Agreement (the
"ACC Sale Agreement") with Linford Enterprises Inc., a British Virgin Islands
corporation ("Linford") for an aggregate consideration consisting, among other
things, of $50,000 in cash and approximately 80% of the value of the net
appreciation of the shares of ACC arising from any subsequent sale by Linford of
all or a portion of such shares of ACC. In addition, the ACC Sale Agreement
provided that ACC would use its best efforts to pursue legal action against
certain parties involved in the purchase by ACC of the various Italian apparel
businesses, based on certain management actions and misrepresentations made to
ACC and others at the time of such purchase. The Company is thus entitled to 80%
of the net recovery (less legal fees and costs), limited to the amount of
approximately $15 million, of any settlement or successful resolution of the
pending arbitration instituted by ACC and described below.
In February 1993, ACC instituted arbitration proceedings before an
Arbitral Tribunal of three qualified arbitrators (the "Arbitral Tribunal"),
under the auspices of the International Court of Arbitration, against Mr.
Eugenio Schiena, Mr. Raffaele Palma, Mr. Tonino Manzali, FIBRA S.p.A., GEFAPI
S.r.l., "S.G.F." SOCIETE GENERALE COMMERCIALE ET FINANCIERE S.A., PARIBAS
FINANZIARIA S.p.A., BANQUE PARIBAS (Milan, Italy), and BANQUE PARIBAS (Paris,
France) (hereinafter collectively referred to as the "Defendants") for
misrepresentations and fraudulent conduct in the negotiation, consummation and
performance under an agreement by and between the above mentioned parties. From
1994 through 1996, nothing of substance was debated on the merits, as certain
Defendants contested the competence of the Arbitral Tribunal. In 1996, ACC
agreed to withdraw its claim against BANQUE PARIBAS (Italy), and BANQUE PARIBAS
(France). PARIBAS FINANZIARIA continued to contest the competence of the
Arbitral Tribunal over itself. A decision on jurisdiction was rendered by the
Arbitral Tribunal on September 10, 1997, primarily stating that FIBRA and
PARIBAS FINANZIARIA were not subject to the Arbitral Tribunal's jurisdiction. As
a result of such decision, the parties subject to the Arbitral Tribunal's
jurisdiction remain : Mr. Eugenio Schiena, Mr. Raffaele Palma, Mr. Tonino
Manzali, GEFAPI S.r.l., and "S.G.F." SOCIETE GENERALE COMMERCIALE ET FINANCIERE
S.A. (a holding company member of the PARIBAS group of companies). Hearings of
the parties and of witnesses presented by ACC were held in December 1997 and
February 1998. A final brief on the merits has been filed by ACC on June 30,
1998. The Defendants filed their final briefs on September 30, 1998. The
Arbitral Tribunal has ordered oral pleadings to take place on December 3, 1998.
Accordingly, the award on the merits is expected during the first months of
1999.
ACC had previously informed the Company that, independently from the
arbitration, it filed suit against BANQUE PARIBAS (France), BANQUE PARIBAS
(Suisse) and BANQUE PARIBAS (Milan) before the Commercial Court of Paris
(France), which suit is currently in its initial phase of depositing evidence.
Any possible proceeds from this suit would inure to the Company following the
same formula and limitations as proceeds from the arbitration.
While, to the best of the Company's knowledge, the Claimant appears to
have a legitimate claim, there can be no assurance that any award will be
rendered in ACC's favor and thus benefit the Company as provided under the terms
of the ACC Sale Agreement. The Company believes that any estimate of recovery is
still subject to many factors beyond the Company's control. Pending developments
in the arbitration proceedings, and in absence of other criteria, the Company
recorded its rights in 1994 at a nominal market value, which was then estimated
to be the amount an unrelated party might pay to acquire all such rights arising
from the ACC Sale Agreement. Realization of any amount is entirely dependent
upon a favorable award and the collection thereof, if any, from the Defendants.
The Company's management will continuously monitor and report the progress of
the proceedings.
Also in connection with its prior involvement in the Italian apparel
goods industry, the Company had guaranteed certain bank loans, and had, as
security, received from third parties notes totaling Lit. 7.6 billion in favor
of the Company, secured by mortgages on buildings owned by an Italian
corporation (the "CORA Buildings"). Such receivable had a carrying value of $0.8
million as of May 31, 1998. Because the principals who had underwritten the
notes have defaulted on their commitment to compensate the Company for the
execution of the guarantees, the Company has instituted legal proceedings in
Italy to foreclose upon the CORA Buildings. The Company has begun selling the
CORA Buildings as market conditions permit; however, the Company cannot
determine when such proceedings will be completed, nor when any final sale will
take place. The management of the Company believes the proceeds from the sale of
the CORA Buildings will be sufficient to cover the present carrying value of the
notes receivable.
Also in relation to the same facts and circumstances, on April 6, 1995,
the Company presented a Complaint, a Memorandum of Law in Support of a Motion
for a Writ or Order of Attachment and an Affidavit in Support of Motion for
Attachment with an Order to Show Cause to the United States District Court in
Newark, New Jersey against Tonino Manzali, Alessandra Sichirollo, Claudio
Barozzi, Frederica Sichirollo, Marco Martinolli, Giuseppe Mortellaro, Giampaolo
Pattarello, Giorgio Pezzolato, Brigida Russo and Anna Zinetti (known as the
"Manzali Group"), who are all shareholders of record of the Company, and are
directly or indirectly Defendants in the aforementioned arbitration proceedings.
The Company presented therewith the Motion for Attachment against two of the
above shareholders, Tonino Manzali and Alessandra Sichirollo, who have taken the
necessary steps to dissipate some of their assets (their UniHolding shares)
during the pendency of the arbitration proceeding. On April 17, 1995, the Court
awarded and ordered the Attachment against Defendants Manzali and Sichirollo. On
February 13, 1996, the Court placed the attachment proceeding on its suspense
docket until such time as the parties re-open the proceedings for good cause
shown for the entry of any stipulation or order, or for any other purpose
required to obtain a final determination of the litigation. The Company will
re-open the proceedings upon a decision being rendered in the above arbitration.
On March 22, 1996, upon notice of a request for transfer of additional shares of
the Manzali Group held in the name of Antonio Sichirollo, the Company filed an
adverse claim with its transfer agent estopping the further transfer of such
shares. Since such time, the Company has proceeded with an attachment claim in
the State of Colorado based on the same facts and circumstances as the
attachment claim made in the United States District Court of New Jersey. On July
26, 1996, the Colorado Court placed the proceeding on its suspense docket until
such time as the parties re-open the proceedings for good cause shown or entry
of any order or for any other purpose required to obtain final determination of
the litigation.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were presented to the shareholders for a vote in the quarter
ended May 31, 1998.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS
MATTERS
The UniHolding Common Stock is currently traded on the National Association
of Securities Dealers Automated Quotation System Small Cap Market ("NASDAQ/Small
Cap") under the symbol UHLD.
The following table sets forth the high and low ask and bid prices for the
Company's common stock by fiscal quarters, as reported by NASDAQ for the
preceding two years through May 1998. The prices represent prices between
dealers, without retail mark-up, mark-down or commission and may not reflect
actual transactions.
Year ended May 31, 1998
Quarter Ended High Low
August 31, 1997 $ 9.50 $ 3.50
November 30, 1997 $ 10.00 $ 4.50
February 28, 1998 $ 8.50 $ 5.50
May 31, 1998 $ 7.50 $ 4.50
Year ended May 31, 1997
Quarter Ended High Low
August 31, 1996 $ 16.75 $ 15.00
November 30, 1996 $ 16.25 $ 13.75
February 28, 1997 $ 14.75 $ 6.75
May 31, 1997 $ 11.50 $ 7.25
The closing sale price on October 6, 1998 was $3.75. As of October 16,
1998, the number of holders of record of the UniHolding Common Stock was
approximately 400. Other than in connection with the spin-off of the GUCT shares
as of February 27, 1998, UniHolding has not paid, and does not for the
foreseeable future expect to pay, dividends with respect to the UniHolding
Common Stock.
Recent Sales of Unregistered Securities
None
ITEM 6. SELECTED FINANCIAL DATA
Historical Selected Financial Information
The following table presents selected historical consolidated financial
data of UniHolding for each of the three years in the period ended May 31, 1998,
which have been derived from financial statements appearing elsewhere herein
that have been audited by independent auditors, and from the financial
statements of the Company for the year ended May 31, 1994 and 1995 (not
appearing herein). The data has been retroactively adjusted to reflect the
spin-off of the Company's former Clinical Trials Division as of February 28,
1998. The data should be read in conjunction with consolidated financial
statements and the notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations", which are included elsewhere
herein (in thousands, except per share data):
<TABLE>
<CAPTION>
Years Ended May 31,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Revenue $ 83,503 $ 92,635 $ 92,634 $ 79,003 $ 63,926
Earnings before Interest, Taxes,
Depreciation and Amortization
15,305 17,208 18,011 17,222 15,800
Operating Income (loss) 9,596 (22,804) 10,270 10,031 10,474
Income (loss) from Continuing
Operations 5,884 (10,273) 1,255 2,773 3,078
Income (loss) from discontinued
operations (2,820) (3,033) (1,555) - -
Net Income (loss) 3,064 (13,306) (300) 2,539 3,078
Net Income (loss) per common share
from Continuing Operations
$0.79 ($1.46) $0.21 $0.48 $0.86
Net Income (loss) per common share
from Discontinued Operations
($0.38) ($0.44) ($0.26) - -
Net Income (loss) per common share
$0.41 ($1.90) ($0.05) $0.44 $0.86
Total Assets (1) 112,971 86,641 121,052 133,558 99,099
Long-term debt, net of current
portion 30,269 14,555 38,354 34,048 37,182
Stockholders' Equity 42,206 48,345 34,242 37,877 12,612
</TABLE>
(1) Restated to reflect the results of operations and net assets of the Clinical
Trials Division as a discontinued operation. On February 27, 1998, UniHolding
completed the spin-off of the Clinical Trials Division. See Note 1of Notes to
Financial Statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations for the Three Years Ended May 31, 1998 Twelve months
ended May 31, 1998 compared with the twelve months ended May 31, 1997
The Company's results of operations for the year ended May 31, 1998,
include the operations of the Company's core business (the "Diagnostic
Laboratory Division"). As a result of the Company's decision to spin off the
Clinical Trials Division to the Company's shareholders, which was completed on
February 27, 1998, the loss of the respective subsidiaries has been shown
separately in the accompanying statement of operations for the year ended May
31, 1998, and the consolidated net asset value of the Clinical Trials Division
has been shown as a separate item in the accompanying balance sheet as of May
31, 1997. Certain amounts in prior periods financial statements have been
reclassified to conform with the current presentation.
Consolidated revenue was $83.5 million for the year ended May 31, 1998,
representing a decrease of $9.1 million from the comparable prior year period
as restated to reflect the spin-off of the Clinical Trials Division. The
decrease was primarily due to the sale of the UK operations of the Diagnostic
Laboratory Division, which in fiscal 1997 had revenues of approximately $27.1
million. Such decrease was however partially compensated by organic growth and
an acquisition in Switzerland. Revenue generated by the Swiss operations for the
year, as expressed in local currency, increased by 5% as a result of an increase
in specimen volume and test mix, all excluding the effect of newly-acquired
operations which contributed to an increase in revenues of approximately 22%.
Spanish operations increased revenues to $6.7 million, representing a 13%
increase in local currency.
Operating income for the year ended May 31, 1998 was $9.6 million, compared
to an operating loss of $22.8 million in the comparable prior year period. The
prior year losses were largely attributable to write-downs of goodwill in UK
subsidiaries, a write-down in the carrying value of the UK property, and to an
adjustment of accumulated amortization of goodwill. Excluding the effect of such
items, the operating income generated by the Diagnostic Laboratory Division
decreased by a net amount of $2.5 million versus the comparable prior year
period. The major contributing operating factors providing such variance in
operating income principally were due to a slightly lower contribution from our
Swiss operations resulting from the continued growth, expanded marketing and
accelerated computer developments. Those higher costs were largely offset by the
positive contribution generated by newly acquired laboratories. Spanish
operations showed slightly lower operating income, as continued price pressure
in Spain kept operating margins low. Further, new operations in emerging markets
like Turkey and Russia showed low margins during their first year of operation.
Earnings before interest, taxes, depreciation and amortization (EBITDA),
which we believe is a good indicator of profitability owing to the high service
content of our business, was stable from last year's result excluding the UK
operations.
Interest expense, net, decreased $2.8 million during the year ended May 31,
1998, as compared to the prior year period, primarily due to lower average
borrowing levels resulting from the initial public offering of our Swiss
subsidiary in April 1997, the sale of the UK operations, and slightly lower
interest rates in Switzerland.
Other income and expense included primarily a gain of $6.0 million realized
upon the sale of ULSA shares to two third party investors, offset by a $1.1
million provision recorded to reflect management's expectation as to the timing
and recovery of its investment in the preferred stock of FHL received in
connection with the sale of UK operations, and by other adjustments resulting
from foreign currency transactions and changes in foreign currency positions.
This compared principally to an income of $16.2 million in the prior year
comparable period due essentially to sales of the Swiss subsidiary stock made in
preparation for the initial public offering of our Swiss subsidiary in April
1997.
Provision for income taxes was $4.6 million, as compared to $0.8 million in
the prior year, then a low charge primarily linked to the fiscal 1997
write-downs.
Minority interests in income of continuing operations in the year ended May
31, 1998, were $2.5 million as compared to $0.4 million in the prior year. The
current year's figure resulted primarily from an increased percentage of
minority interests in net income as a result of the Swiss subsidiary's initial
public offering in April 1997, and from the sale of the UK operations. The prior
year figure resulted primarily from the attribution to minority interests of the
write-downs and write-offs made during the year ended May 31, 1997.
In connection with the sale of its UK operations, the Company recorded
during the year ended May 31, 1998,a net gain of $0.1 million, net of minority
interests, resulting from the reversal of a cumulative translation adjustment
and other adjustments relating to the UK operations of $1.5 million, offset by
costs of disposal of $1.4.
While they are no longer part of the Company's consolidated revenues,
revenues of the Clinical Trials Division were $9.0 million for the period
through February 27, 1998, being the date of the spin-off of such division,
representing an increase of $2.0 million from the prior full year period ended
May 31, 1997. The results for the Clinical Trials Division for the same period
were a loss of $2.8 million, compared to a loss for the full year period ended
May 31, 1997 of $3.03 million.
Twelve months ended May 31, 1997 compared with the twelve months ended May
31, 1996
Consolidated revenue was $92.6 million for the year ended May 31, 1997,
stable with the prior year revenues (including the effect of the change in the
US dollar exchange rate of $11.9 million). Revenue generated by the Diagnostic
Laboratory Division increased by 10.2% in local currency terms, including a 4.4%
revenue increase for the Swiss operations only, as a result of additional
specimen volume of 3.9% and an increase attributable to test mix of 0.5%.
Revenue generated by the UK Diagnostic Laboratory Division also increased due to
additional revenue primarily resulting from an existing Government contract.
Spanish operations almost doubled their revenues due to an increased market
share.
Operating income for the year ended May 31, 1997 decreased by $33.1 million
(including the effect of the change in the US dollar exchange rate of $2.7
million) primarily as a result of the write-down of certain tangible and
intangible assets pertaining to the now disposed of UK operations. Excluding the
effect of the above items, the Diagnostic Laboratory Division increased
operating income by 6.7% in local currency terms, whereas in dollar terms
operating income increased by $0.8 million despite the effect of the
fluctuation of the dollar ($1.2 million) with respect to other currencies. The
improvement in local currency terms was the result of improved profitability in
several countries, primarily Switzerland, the United Kingdom and Spain. Italian
operations continued to maintain a small positive contribution to operating
income. In local currency terms, the cumulative operating loss of Spain for the
year was approximately 20% of that of the prior year due to substantial
operating profits being made in the second half of this fiscal year, confirming
a positive trend of returning to profitability.
Interest expense, net, was stable in dollar terms during the year ended May
31, 1997, as compared to the prior year, as a result of lower interest rates
offsetting the Company's increased borrowing levels.
Other income of $16.5 million was recorded during the year, resulting
primarily from a capital gain in connection with ULSA's initial public offering,
and from foreign currency transactions, changes in foreign currency positions,
as compared to income of $0.9 million in the prior year.
Provision for income taxes for the year ended May 31, 1997 was $0.8
million.
Minority interests in income decreased by $0.5 million as compared to the
prior year, resulting from (a) the decrease in the minority interests in income
due to the acquisition of the 40% minority interest in UGL as of June 30, 1995,
offset by the reduction in the holding in ULSA as a result of its initial public
offering, and to the variance in operating income of the respective
subsidiaries, and (b) the increase in losses of the Clinical Trials Division
attributable to minority shareholders.
The Clinical Trials Division increased its revenues to $7.0 million (a 58%
increase) due to the development of a new client base.
The variance in operating results of the Clinical Trials Division reflects
fixed expenses which are not matched with income to be recorded in the future
from a backlog of contracts, due to lead-time of up to six months from the
signing of a contract to the actual start of a study. These increased losses
were partly offset by the related tax benefit.
Liquidity and Capital Resources
Net cash provided by operating activities for the year ended May 31, 1998
amounted to $11.2 million, an improvement of $6.3 million from the prior year.
Net cash provided by financing activities for the year ended May 31, 1998
was $20.6 million, primarily due to cash proceeds of new long-term debt
arrangements made in connection with the acquisition of new operations in
Switzerland, offset by a dividend paid by ULSA to all its shareholders ($3.7
million), and by cash used to purchase the Company's treasury stock ($2.9
million).During 1998 the Company acquired approximately 0.8 million shares of
treasury stock in exchange for satisfaction of debt due from Unilabs Holdings SA
in the approximate amount of $5.1 million. In the prior year period, net cash of
$2.7 million had been used by financing activities, primarily for the repayment
of long-term debt partly offset by cash proceeds from the issuance of share
capital.
Net cash used in investing activities for the year ended May 31, 1998
was $24.0 million, comparing to $2.0 million provided in the prior year period.
The change is primarily due to capital expenditures incurred in connection with
the expansion of laboratory operations in Switzerland.
In connection with the sale of UGUK, ULSA has agreed to purchase from
UGUK the London building which houses most of UGUK's operations ("Bewlay
House"). On July 8, 1998, the Company completed this transaction and acquired a
999-year leasehold in Bewlay House for a purchase price of $12.1 million. This
consideration was paid by (i) the assumption of UGUK's existing debt of $10.7
million with a bank and a finance institution; (ii) compensation of an
intercompany account of $0.6 million; and (iii) $0.8 million in cash. The
company simultaneously entered into rental agreements with the tenants of the
building. The bank facility reduced to $6.9 million after the closing, has a
three-year maturity and is subject to quarterly repayments of $0.1 million. The
financial institution's facility of $1.5 million is subject to monthly
repayments up to January 2003 when it matures. The Company is actively seeking
to sell the building. Upon such a sale, if and when it occurs, the Company
intends to prepay the debts to the bank and finance institution. Accordingly, as
of October 16 1998, the Company's bank facilities provide for a total of
approximately $59.6 million, including secured senior revolving facilities
consisting of term loans, working capital loans and/or guarantees. As of October
16, 1998, the Company had approximately $14.4 million of availability under the
aggregate credit facilities.
The Company believes that the liquidity provided by the cash flow from
operations, the existing cash balances and the borrowing arrangements described
above will be sufficient to meet the Company's capital requirements including
anticipated operating expenses arising from the Company's recent expansion into
the Spanish and Italian markets, as well as debt repayments. The Clinical Trials
Division was spun off to the Company's shareholders as of February 27, 1998.
Accordingly, the Company does not make any further investment in or advances to
the Clinical Trials Division.
On July 23, 1996, the Company issued 333,333 new shares of its common
stock to a U.S. institutional investor at $15.00 per share.
During the year ended May 31, 1997, the Company sold an aggregate of
94,000 shares (or 39.2% on a fully-diluted basis) of ULSA's common stock to
financial institutions and to the public for a total consideration of SFr.62.7
million (approximately $44.5 million) through an initial public offering of
ULSA's newly-issued and existing shares. As of April 24, 1997, such initial
public offering closed. Such offering, which was made at the price of SFr.675
per share, comprised the issuance by ULSA to the public of a further 20% of its
equity, and the sale by the Company of a portion of its holding in ULSA, thereby
diluting the Company's holding in ULSA to approximately 60% post-initial public
offering. The shares of ULSA are listed on the Swiss Exchange since April 25,
1997. The proceeds were used to reduce existing bank debt in the amount of
approximately SFr.17.5 million (approximately $12.5 million), and the balance
was being used principally for acquisitions and financing the development of the
then Clinical Trials Division.
In addition, the Company has outstanding obligations and commitments
under capital leases, which mature over the next five to ten years.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
The preceding "Business" and Management's Discussion and Analysis contains
various "forward looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, which represent the Company's expectations or beliefs
concerning the Company's operations, economic performance and financial
condition, including, in particular, forward-looking statements regarding the
Company's expectation of future performance following implementation of its new
business strategy. Such statements are subject to various risks and
uncertainties. Accordingly, the Company hereby identifies the following
important factors that could cause the Company's actual financial results to
differ materially from those projected, forecast, estimated, or budgeted by the
Company in such forward-looking statements. The Company undertakes no obligation
to revise or update forward-looking statements to reflect changes in
assumptions, the occurrence of unanticipated events, or changes to projections
over time.
(a) Heightened competition, including the intensification of price competition.
(b) Impact of changes in tests and payer mix.
(c) Adverse actions by governmental or other third-party payers, including
unilateral reduction of fee schedules payable to the Company.
(d) Failure to obtain new customers, retain existing customers or reduction in
tests ordered or specimens submitted by existing customers.
(e) Adverse results in significant litigation matters, if any.
(f) Denial of certification or licensure of any of the Company's clinical
laboratories by governmental agencies.
(g) Adverse publicity and news coverage about the Company or the clinical
laboratory industry.
(h) Inability to carry out marketing and sales plans.
(i) Inability to successfully integrate the operations of or fully realize costs
savings expected from the consolidation of certain operations and the
elimination of duplicative expenses or risk that declining revenues or increases
in other expenses will offset such savings.
(j) Ability of the Company to attract and retain experienced and qualified
personnel.
(k) Changes in interest rates causing an increase in the Company's effective
borrowing rate, and changes in exchange rates causing variances in consolidated
income and expenses reported in dollars.
(l) The effect of the Company's effort to improve account profitability by
selectively repricing or discontinuing business which perform below Company
expectations.
(m) Inability of the former Company's Clinical Trials operations to successfully
develop.
(n) Failure to timely complete the Company's Year 2000 remediation plans.
Other Information
The Company's operating results will continue to be affected by the
volume, mix and timing of test orders received during a period and by conditions
in the industry (including pricing regulations) and in the economies in which
the Company operates, such as recessionary periods, political instability, and
fluctuations in interest or currency exchange rates.
The Company further experiences both increases and decreases in its
volume of testing due to seasonality shifts. All laboratories experience a slow
down during the holiday seasons, primarily in summer. This may lead to quarterly
information which is not indicative of the trend of the Company's business.
Inflation was not a material factor in either revenue or operating
expenses during the years presented, and is not expected to be in the current
year.
IMPACT OF YEAR 2000
Most of the Company's laboratories are faced with "Year 2000"
remediation issues. Many computer programs were written with a two digit date
field and if these programs are not made Year 2000 compliant, they will be
unable to correctly process date information on or after the Year 2000. While
these issues impact all of the Company's data processing systems to some extent,
they are most significant in connection with patient-related computer programs.
Moreover, remediation efforts go beyond the Company's internal computer systems
and require coordination with clients, suppliers and other third parties to
assure that their systems and related interfaces are compliant. Given the
different computer systems operated by the Company's business units, the type
and extent of the Year 2000 issues and the cost of remediation vary
significantly among the Company's laboratories. Failure to achieve timely
remediation of computer systems that process client information and
transactions, and of all other systems with embedded technologies that are
critical to the Company's operations, would have a material adverse effect on
the Company's business, operations and financial results.
In response to the Year 2000 concerns, the Company created a Year 2000
Task Force to coordinate and monitor the laboratories' progress in their Year
2000 remediation efforts. The Task Force reports directly to the Company's
executive management, provides regular progress reports to executive management,
and regularly meets with executive management to discuss its reports.
The Company's plans call for all critical systems to be renovated and
compliance testing underway by the end of calendar 1998. As the Company uses
many computerized laboratory machinery manufactured, provided and maintained by
third-party vendors, it has requested each of those vendors to provide the
Company with appropriate certification that the machinery is Year 2000
compliant. Such certification has yet to be received. Acceptance testing is
scheduled to take place between late 1998 and mid-1999 with time frames
differing by laboratory unit. Completion of any third party interface testing is
dependent upon those third parties completing their own internal remediation.
The Company could be adversely affected to the extent third parties with which
it interfaces have not properly addressed their Year 2000 issues.
In fiscal 1998, the Company spent approximately $0.5 million on its
Year 2000 remediation efforts. The Company currently anticipates expenditures
for Year 2000 remediation efforts and testing in the range of $0.5 million to
$1.0 million in fiscal 1999 and of approximately $0.2 million in fiscal 2000.
The costs of the project and the date on which the Company
believes it will complete the Year 2000 modifications are based on management's
best estimates, which were derived utilizing numerous assumptions of future
events, including the continued availability of certain resources and other
factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those anticipated.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information ("SFAS 131"). SFAS 131 establishes standards
for the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports. It also establishes standards for related disclosures about products
and services, geographic areas and major customers. SFAS 131 is effective for
financial statements for fiscal years beginning after December 15, 1997, and
therefore the Company will adopt the new requirements retroactively in 1998.
Financial statement disclosures for prior periods are required to be restated.
The Company is in the process of evaluating the disclosure requirements. This
Statement, by its nature, will not impact the Company's consolidated results of
operations, financial position or cash flows.
<PAGE>
ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page Number
Reports of Independent Auditors..........................................II-F-2
UniHolding Corporation and Subsidiaries Consolidated
Balance Sheets as of May 31, 1998, and 1997..............................II-F-4
UniHolding Corporation and Subsidiaries Consolidated
Statements of Operations for the Years Ended
May 31, 1998, 1997 and 1996..............................................II-F-6
UniHolding Corporation and Subsidiaries Consolidated
Statements of Stockholders' Equity for the Years Ended
May 31, 1998, 1997 and 1996..............................................II-F-7
UniHolding Corporation and Subsidiaries Consolidated
Statements of Cash Flows for the Years Ended
May 31, 1998, 1997 and 1996..............................................II-F-9
UniHolding Corporation and Subsidiaries Notes to
Consolidated Financial Statements for the Years Ended
May 31, 1998, 1997 and 1996..............................................II-F-11
<PAGE>
ATAG ERNST & YOUNG
6, rue d'italie Telephone: ++41 22 318 06 18
P.O. Box 3270 Telefax: ++41 22 312 01 70
CH-1211 Geneva 3
Switzerland
REPORT OF INDEPENDENT AUDITORS
to the Board of Directors and Shareholders of
UNIHOLDING CORPORATION, Delaware, USA
We have audited the accompanying consolidated balance sheets of UniHolding
Corporation and subsidiaries (the "Company") as of May 31, 1998 and 1997 and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the two years in the period ended May 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. The consolidated statements of operations, stockholders equity and
cash flows for the year ended May 31, 1996, were audited by other auditors whose
report dated September 26, 1996, expressed an unqualified opinion on those
statements.
We conducted our audits in accordance with generally accepted auditing standards
in the United States of America. 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, the 1998 and 1997 financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
UniHolding Corporation and subsidiaries at May 31, 1998 and 1997 and the
consolidated results of their operations and their cash flows for each of the
two years in the period ended May 31, 1998, in conformity with accounting
principles generally accepted in the United States of America.
Geneva, Switzerland,
October 26, 1998 ATAG ERNST & YOUNG SA
/s/ C. PICCI /s/S. REID
--------------------- ---------------------
C. Picci S. Reid
Expert-comptable diplome
(Auditor in charge)
ATAG ERNST & YOUNG: offices in
Basel, Aarau, Berne/Thun,
Bienne, Brig, Chur, Fribourg,
Geneva, Kreuzlingen, Lausanne,
Lucerne, Neuchatel/La
Chaux-de-Fonds, St.
Gallen/Buchs, Sion, Sointhurn,
Winterthur, Zurich
Member of the Swiss Chamber of Auditors
II-F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
UniHolding Corporation
New York, New York
We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of UniHolding Corporation and subsidiaries
(the "Company") for the year ended May 31, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provide a reasonable basis for our opinion.
In our opinion, the financial statements of Uniholding Corporation and
subsidiaries referred to above present fairly, in all material respects, the
results of their operations and their cash flows for the year ended May 31, 1996
in conformity with generally accepted accounting principles.
As more fully described in Note 11, during the year ended May 31, 1996, the
Company invested $3 million in a newly formed company accounted for by the
equity method, which in turn, used the funds to acquire know-how, software and
marketing plans. The equity investee's loss was charged to earnings in the year
ended May 31, 1996.
/s/Richard A. Eisner & Company, LLP
New York, New York
September 26, 1996
With respect to Note 1
February 27, 1998
II-F-3
<PAGE>
UNIHOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
May 31
ASSETS 1998 1997
CURRENT ASSETS:
Cash and cash equivalents $9,186 $4,925
Accounts receivable, net of allowance for doubtful
accounts of $2,940 in 1998 and $1,201 in 1997 19,464 18,786
Due from related companies 1,587 3,573
Inventories 1,849 2,052
Prepaid expenses 3,090 1,811
Other current assets 411 753
Net current assets of discontinued operations - 3,111
----------- -----------
Total current assets 35,587 35,011
----------- -----------
NON-CURRENT ASSETS:
Long-term notes receivable 818 818
Intangible assets, net 44,344 25,025
Property, plant and equipment, net 8,828 26,951
Investment in equity affiliates 481 1,480
Long-term investments 22,781 -
Other assets, net 132 467
Net noncurrent assets of discontinued operations - 12,473
----------- -----------
Total non-current assets 77,384 67,214
----------- -----------
$112,971 $102,225
======= =======
See notes to financial statements
II-F-4
<PAGE>
UNIHOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
May 31
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
CURRENT LIABILITIES:
Bank overdrafts $4,010 $5,889
Lease payable 809 1,435
Payable to related parties 100 150
Trade payables 6,911 7,288
Accrued liabilities 6,018 3,985
Long-term debt 5,727 4,741
Taxes payable 6,459 4,707
Deferred taxes 769 -
----------- -----------
Total current liabilities 30,803 28,195
----------- -----------
NON-CURRENT LIABILITIES:
Lease payable 725 2,446
Long-term debt 29,544 12,109
Taxes payable 74 155
Deferred taxes 179 631
----------- -----------
Total non-current liabilities 30,522 15,341
----------- -----------
Total liabilities 61,325 43,536
----------- -----------
MINORITY INTERESTS 9,440 10,344
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value;
Voting; authorized 18,000,000 shares;
issued 7,627,736 at May 31, 1998 and 1997 76 76
Non-Voting; authorized 2,000,000 shares; issued
and outstanding 298,384 at May 31, 1998 and 1997 3 3
Additional paid-in capital 49,832 49,832
Cumulative translation adjustment (2,074) (3,050)
Retained earnings 7,623 5,559
----------- -----------
55,460 52,420
Less - cost of 1,602,569 and 293,150 shares of
Common Stock held in treasury at May 31, 1998
and May 31, 1997, respectively (13,254) (4,075)
----------- -----------
Total stockholders' equity 42,206 48,345
----------- -----------
$112,971 $102,225
======= =======
See notes to financial statements
II-F-5
<PAGE>
UNIHOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Years ended May 31
1998 1997 1996
<S> <C> <C> <C>
REVENUE $83,503 $92,635 $92,634
Operating expenses:
Salaries and related charges 32,618 37,431 38,569
Supplies 12,937 15,545 15,083
Other operating expenses 22,643 22,451 20,971
Depreciation and amortization of tangible assets 3,071 5,118 5,387
Adjustment of carrying value of building - 5,805 -
Amortization of intangible assets 2,638 5,367 2,354
Adjustment of carrying value of goodwill in subsidiary - 23,722 -
-------- ----------- -----------
OPERATING INCOME (LOSS) 9,596 (22,804) 10,270
Interest expense, net of interest income of
$891, $268 and $664 in 1998, 1997 and 1996 (238) (2,965) (2,935)
Impairment of investment (1,190) - (3,005)
Gain on sale of subsidiary shares 6,007 16,164 (37)
Other, net (1,215) 508 883
---------- ----------- -----------
Income (loss) before taxes and minority interests 12,960 (9,097) 5,176
Tax (provision) (4,585) (814) (2,979)
---------- ----------- -----------
Income (loss) from continuing operations
before minority interests 8,375 (9,911) 2,197
Minority interests in income of continuing operations (2,491) (362) (942)
---------- ----------- -----------
Income (loss) from continuing operations 5,884 (10,273) 1,255
Loss from discontinued operations, net of tax benefit
of $2,505, $4,402 and $624 in 1998, 1997 and 1996 and
minority interests (2,820) (3,033) (1,555)
---------- ----------- -----------
NET INCOME (LOSS) $3,064 ($13,306) ($300)
======= ======= =======
Weighted average common shares outstanding 7,466,565 7,015,943 6,005,643
Earnings per share of common stock
Net income (loss) from continuing operations $0.79 ($1.46) $0.21
Loss from discontinued operations ($0.38) ($0.44) ($0.26)
Net income (loss) $0.41 ($1.90) ($0.05)
</TABLE>
See notes to financial statements
II-F-6
<PAGE>
UNIHOLDING CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
Common Stock Additional Cumulative
Voting Non-Voting Paid-in Translation
Shares Amount Shares Amount Capital Adjustment
<S> <C> <C> <C> <C> <C> <C>
Balances, May 31, 1995 6,060,182 $60 - - $31,190 $1,174
Net loss
Adjustment for 4-to-1 reverse split (513)
Issuance and exchange of Non-Voting Common
Stock for Voting Common Stock (298,384) (3) 298,384 3
Issuance of common stock for cash, net of
expenses of $113 62,500 1 1,239
Cost of Common Stock held in treasury
Cumulative translation adjustment (1,413)
---------- --------- --------- -------- --------- --------
Balances, May 31, 1996 5,823,785 58 298,384 3 32,429 (239)
Net loss
Issuance of common stock for cash 333,333 3 4,997
Issuance of common stock for no additional
consideration, pursuant to antidilutive provisions 75,655 1 (1)
Issuance of common stock for repayment of note
and accrued interest due to former UGL stockholder 1,394,963 14 15,736
Excess of purchase price of subsidiaries over predecessor
cost (3,329)
Issuance of shares at a premium by ULSA
Cost of Common Stock held in treasury
Cumulative translation adjustment (2,811)
----------- --------- --------- ----------- ---------- ---------
Balances, May 31, 1997 7,627,736 76 298,384 3 49,832 (3,050)
Net income
Cost of Common Stock held in treasury
Distribution of GUCT
Cumulative translation adjustment 976
--------- ------- --------- ---------- --------- ----------
Balances, May 31, 1998 7,627,736 $76 298,384 $3 $49,832 ($2,074)
======== ====== ======== ====== ====== ======
</TABLE>
(continued)
II-F-7
<PAGE>
UNIHOLDING CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
(continued)
<TABLE>
<CAPTION>
Total
Retained Treasury Stockholders'
Earnings Stock Equity
<S> <C> <C> <C>
Balances, May 31, 1995 $5,453 - $37,877
Net loss (300) (300)
Adjustment for 4-to-1 reverse split -
Issuance and exchange of Non-Voting Common
Stock for Voting Common Stock -
Issuance of common stock for cash, net of
expenses of $113 1,240
Cost of Common Stock held in treasury (3,162) (3,162)
Cumulative translation adjustment (1,413)
---------- ----------- -----------
Balances, May 31, 1996 5,153 (3,162) 34,242
Net loss (13,306) (13,306)
Issuance of common stock for cash 5,000
Issuance of common stock for no additional
consideration, pursuant to antidilutive provisions -
Issuance of common stock for repayment of note
and accrued interest due to former UGL stockholder 15,750
Excess of purchase price of subsidiaries over predecessor
cost (3,329)
Issuance of shares at a premium by ULSA 13,712 13,712
Cost of Common Stock held in treasury (913) (913)
Cumulative translation adjustment (2,811)
---------- ----------- -----------
Balances, May 31, 1997 5,559 (4,075) 48,345
Net income 3,064 3,064
Cost of Common Stock held in treasury (9,179) (9,179)
Distribution of GUCT (1,000) (1,000)
Cumulative translation adjustment 976
--------- ----------- -----------
Balances, May 31, 1998 $7,623 ($13,254) $42,206
====== ====== ======
</TABLE>
See notes to financial statements
II-F-8
<PAGE>
UNIHOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Years ended May 31
1998 1997 1996
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) from continuing operations $ 5,984 ($10,273) $1,255
Adjustments to reconcile net income to net cash provided by operations:
Impairment of investment 1,190 0 3,005
Minority interests in income 2,491 362 942
Deferred taxes 1,082 (3,188) (197)
Depreciation and amortization of tangible assets 3,071 10,923 5,387
Amortization of intangible assets 2,638 29,089 2,354
Gain on sale of subsidiary shares (6,007) (16,164) 0
Other non-cash (income) expenses (620) (1,292) (78)
Net changes in assets and liabilities, net of acquisitions: 0
Accounts receivable (2,066) (1,441) (1,860)
Inventories (227) (276) (164)
Prepaid expenses (1,757) 591 193
Other current assets 2,179 266 (428)
Trade payables 61 837 2,205
Accrued liabilities 1,530 (383) (114)
Taxes payable 1,754 1,870 675
----------- ----------- -----------
Net cash provided by operating activities 11,203 10,921 13,175
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash proceeds from issuance of share capital, net of expenses (87) 21,152 1,240
Repayment of long-term debt (168) (20,115) (1,156)
Cash proceeds from long-term debt 25,204 0 4,560
Proceeds (reimbursement) from (of) bank overdrafts 2,868 (1,131) 171
Dividend paid to minority shareholders (3,662) (209) (331)
Repayment of lease debt (620) (1,697) (1,796)
Payment for purchase of treasury stock (2,949) (696) (3,162)
----------- ----------- -----------
Net cash provided by (used in) financing activities 20,586 (2,696) (474)
----------- ----------- -----------
</TABLE>
(continued)
II-F-9
<PAGE>
UNIHOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(continued)
<TABLE>
<CAPTION>
Years ended May 31
1998 1997 1996
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for purchases of property and equipment (2,661) (3,641) (3,357)
Loans and advances (to) from affiliates and 0
related companies, net (1,213) (5,719) (6,196)
Payment for businesses acquired net of cash acquired (27,323) (15,403) (16,418)
Payment for purchase of intangible assets (842) (59) (139)
Proceeds from sale of subsidiary shares 8,084 26,842 481
--------- ----------- -----------
Net cash provided by (used in) investing activities (23,955) 2,020 (25,629)
--------- ----------- -----------
Effect of exchange rate changes on cash (244) 131 (123)
Net increase (decrease) in cash and cash equivalents
from continuing operations 7,590 13,598 (13,051)
Net cash flows (used) by discontinued operations (3,329) (6,984) (2,355)
Cash and cash equivalents, beginning of year 4,925 1,533 16,939
-------- ----------- -----------
Cash and cash equivalents, end of year $9,186 $4,925 $1,533
======= ======= =======
</TABLE>
See notes to financial statements
II-F-10
<PAGE>
UNIHOLDING CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Monetary amounts in 000's, except per share data)
1. Description of the Company and Basis of Presentation
UniHolding Corporation and its subsidiaries (collectively the "Company"
or the "Group") provide clinical laboratory testing services to physicians,
managed care organizations, hospitals and other health care providers through
laboratories in Switzerland, Italy, Spain, Russia and Turkey. Until February 27,
1998, the Company also performed testing in relation to clinical tests for the
pharmaceutical industry through its Clinical Trials Division.
UniHolding acquired control of the Group in March 1994, when it acquired
from Unilabs Holdings SA, a Panama corporation ("Holdings"), 60% of the equity
of Unilabs Group Limited, a British Virgin Islands corporation ("UGL"). UGL then
had as principal operating subsidiaries Unilabs SA, a Swiss corporation
("ULSA"), and Unilabs Group (UK) Limited, a United Kingdom corporation ("UGUK").
As of June 30, 1995, the Company acquired from Unilab Corporation, a Delaware
corporation ("Unilab") the remaining outstanding common stock of UGL for a total
consideration of $30,000. The consideration was paid $13,000 in cash, $2,000
through the assumption of a debt from Unilab to a Group subsidiary, and $15,000
in the form of a one-year, interest-bearing promissory note. The excess of the
purchase price over the fair value of the assets acquired, $3,301, was allocated
to goodwill. The $15,000 promissory note, together with accrued but unpaid
interest of $750 converted as of December 31, 1996, into 1,394,963 newly-issued
shares of Common Stock.
Recent acquisitions and dispositions
Clinical Trials Spin-off
As of February 27, 1998, the Company spun off its wholly owned investment
in the common stock of Global Unilabs Clinical Trials Ltd, a British Virgin
Islands corporation ("GUCT") to the Company' shareholders. GUCT represented the
Company's Clinical Trials Division and had been established pursuant to a series
of transactions commencing in March 1995. In connection therewith, the Company
received $20,000 in non-voting, non-convertible, redeemable preferred stock of
GUCT in exchange for previously existing inter-company debt. The redeemable
preferred stock is entitled to non-cumulative dividends in the form of
additional redeemable preferred stock for a period of five years, and to cash
dividends thereafter. The preferred stock is redeemable at GUCT's option at any
time during the first five years at a redemption price equal to its then face
value. At the time of the spin-off of GUCT's common stock to the Company's
shareholders, the Company's net investment in GUCT amounted to $12,164 being the
aggregate of $9,000 of common stock, plus advances of $10,979, less accumulated
losses incurred of $7,815. The Company valued the $20,000 of GUCT preferred
shares received at this net investment value, which valuation reflected the
uncertainty as to the timing and the possibility of recovery of the investment.
Accordingly, at May 31, 1998, the GUCT preferred stock is carried at a value of
$12,164 and is included under "Long-term investments" in the accompanying
balance sheet.
Prior years' financial statements have been restated to reflect the
spin-off of GUCT. Accordingly, the net current and long term assets of GUCT have
been segregated in the May 31, 1997 consolidated balance sheet and are
summarized below:
Current assets 6,095
Current liabilities (2,984)
-------
Net current assets 3,111
=======
Deferred tax assets 5,199
Intangible assets, net 4,994
Property, plant and
equipment, net 1,659
Other assets, net 621
-------
12,473
=======
The operations of GUCT are now considered discontinued
operations.
Other Acquisitions and Dispositions
In October 1996, the Company entered into a joint venture agreement with
the state-affiliated company Medincenter of the Main Administration for Services
to the Diplomatic Corps of the Ministry of Foreign Affairs of the Russian
Federation. Pursuant to the agreement, the Company has invested $ 240 in cash,
and owns 50% of Unimed Laboratories (a newly-established Russian close joint
stock company, "Unimed"), which has established a diagnostic laboratory in
Moscow to provide a comprehensive range of clinical laboratory tests to public
and private medical institutions, doctors and patients in Russia. The Company
also provides the venture on an on-going basis with certain scientific and
system consulting services and management supervision. The new Unimed laboratory
started operations on December 1, 1997.
In January 1997, the Company acquired, through a subsidiary, together with
a minority investor, a 70% stake of a laboratory company in Istanbul (Turkey).
Upon the acquisition of the 70% stake, which closed on May 29, 1997, the Company
had a controlling interest of 43% in the Turkish company, for an investment of
approximately $600.
During the year ended May 31, 1997, ULSA acquired 49.8% of Pathologie-Labor
Brunnhof, a Swiss corporation of which it already owned 50.2%, at a cost of
$2,500. The excess of the purchase price over the fair value of the assets
acquired, $2,200, was allocated to goodwill.
Also during the year ended May 31, 1997, in conformity with the Company's
plans to maximize shareholder values, the Company organized an initial public
offering of ULSA's newly-issued and existing shares, which closed on April 24,
1997. The offering comprised the sale by ULSA to the public of newly issued
shares of common stock corresponding to 20% of its equity, and the sale by UGL
of a portion of its holding in ULSA, thereby diluting the Company's holding in
ULSA to 60% post-initial public offering. The shares of ULSA have been listed on
the Swiss Exchange since April 25, 1997.
During the year ended May 31, 1998, through the exercise of previously
acquired pre-emptive rights, ULSA acquired from a third party 100% of the equity
of Institut Bio-Analytique Medical SA, a Geneva company, and related companies
at an aggregate cost of $21,791 . Also during the same period, through the
exercise of a previously acquired option, ULSA acquired from a third party 100%
of the equity of Laboratoire Medical Pierre-Alain Gras SA, a Geneva company, at
a cost of $3,469. Those acquisitions were accounted for as a purchase and the
excess of the assets contributed over the fair value of the assets acquired,
$20,042, was allocated to goodwill and is being amortized over a period of 20
years.
Also during the year ended May 31, 1998, ULSA sold UGUK to a third party
for $13,119, consisting of a $1,312 payment in cash and the balance in
non-voting, redeemable preferred shares of the purchaser, Focused Healthcare
(Jersey) Ltd. ("FHL"), a Jersey investment company. FHL is controlled by a
former director of Unilab Corporation, who is also affiliated to Health
Strategies Limited, a Jersey Channel Island corporation ("HSL") with which the
Company entered into certain other agreements as described in Note 11. The
agreement with FHL called for a disposal price equal to the net book value of
UGUK at May 31, 1997. After reversal of cumulative translation and other
adjustments of $1,550 related to UGUK, reduced by legal and other costs related
to the disposal of $1,434, the Company recorded a net gain on disposal of $116.
Subsequently however, the Company recorded a write-down of approximately $1,190,
which reflects the Company's appraisal of the uncertainty as to the timing and
the possibility of recovery of its investment in FHL. Such amount of preferred
shares is therefore carried at a value of $10,617 as of May 31, 1998, and is
included under "Long-Term investments" in the accompanying balance sheet.
2. Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements have been prepared in accordance
with United States generally accepted accounting principles and include the
accounts of UniHolding and its majority-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated. Investments in
equity affiliates are accounted for under the equity method and are included in
"Investments in equity affiliates" on the accompanying consolidated balance
sheet. Certain prior year amounts have been reclassified to conform to the
current year presentation.
Use of estimates
The preparation of financial statements in conformity with United
States generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. Actual results may differ from
these estimates.
Inventories
Inventories, which consist principally of purchased clinical laboratory
supplies, are valued at the lower of cost (first-in, first-out method) or
market.
Revenue Recognition
Revenue from performing laboratory testing services is recognized at
the time service is provided and is based on the amount billed or billable.
Property and Equipment
Property and equipment are stated at cost and depreciated using the
straight-line method over the estimated useful lives of the related assets,
which range from 3 to 33 years. Property and equipment includes items acquired
under finance leases, which are capitalized, and the related equipment is
amortized over its useful life. Leasehold properties are depreciated over the
lease period, which may range from 1 to 10 years and leasehold improvements are
depreciated using the straight-line method over the remaining term of the
related lease or their useful life, whichever is shorter. Purchased data
processing software costs which is considered to have a useful life of over one
year is amortized over periods not exceeding 5 years.
Goodwill
Goodwill represents the excess of cost over the fair value of net
tangible and identifiable intangible assets acquired and is amortized using the
straight-line method. Goodwill is evaluated periodically based on undiscounted
expected future cash flows and adjusted if necessary, if events and
circumstances indicate that a permanent decline in value below the current
unamortized historical cost has occurred. During the year ended May 31, 1997,
the Company revised its estimate of the useful life of existing goodwill from 40
to 20 years. The net effect of such change was a charge of $3,025 (or $0.43 per
share).
Other Intangible Assets
Customer lists are recorded at cost and amortized utilizing the
straight-line method over periods determined by the relative circumstances but
not exceeding 15 years. The value of the customer lists is reviewed and
evaluated periodically by management and adjusted, if necessary, if events and
circumstances indicate that a permanent decline in value below the current
unamortized historical cost has occurred.
Income Taxes
The Company accounts for income taxes utilizing the liability method
requiring the recognition of deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between the basis of
assets and liabilities for financial reporting purposes and tax purposes.
The Company currently provides income taxes on the earnings of foreign
subsidiaries to the extent they are taxable or expected to be remitted.
Any dividend received from subsidiaries by UniHolding, through UGL,
would be subject to the withholding taxes at a maximum rate of 35%, which the
Company could not recover, but may be creditable against U.S. Federal income
tax.
Foreign Currency Translation
The Company's principal operations during the fiscal years 1998, 1997
and 1996 were located in Switzerland and various other countries. A significant
part of net assets, revenues and expenses are denominated in the currency of
those countries, while the Company presents its consolidated financial
statements in US dollars. Assets and liabilities are translated at the exchange
rates in effect at the balance sheet date. Revenues and expenses are translated
at the weighted average exchange rates for the period. Net gains and losses
arising upon translation of local currency financial statements to US dollars
are accumulated in a separate component of Stockholders' Equity, the Cumulative
Translation Adjustment account.
Foreign Currency Transactions
Gains and losses resulting from foreign currency transactions and
changes in foreign currency positions are included in income or expense
currently. Other income includes an exchange gain (loss) of ($206), ($248) and
$696 in fiscal 1998, 1997 and 1996, respectively.
Income (Loss) Per Common Share
Effective December 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"), which changes
the method used to compute earnings per share This Statement specifies the
computation, presentation and disclosure requirements for earnings per share
("EPS") for entities with publicly held common stock. SFAS 128 replaces the
presentation of primary EPS with a presentation of basic EPS, and for entities
with a complex capital structure requires the additional presentation of diluted
EPS on the face of the income statement. Basic EPS is computed by dividing net
income available to common stockholders by the weighted average number of shares
outstanding during the period. The computation of diluted EPS is similar to the
computation of basic EPS, except that the denominator is increased to include
the number of additional common shares that would have been outstanding if any
dilutive potential common shares had been issued.
The adoption of this standard did not impact the Company's reported EPS, as
no dilutive securities were outstanding during the periods presented, because
all outstanding options were and are out of the money. Accordingly, for the
years ended May 31, 1998, 1997 and 1996 income or loss per common share was
computed by dividing net income or net loss by the weighted average number of
voting and non-voting shares outstanding during the year.
Cash and Cash Equivalents
The Company considers cash and all highly liquid investments purchased with
an original maturity of three months or less to be cash equivalents.
Fair Value of Financial Instruments
The carrying amount reported in the consolidated balance sheets for cash,
accounts receivable and accounts payable approximates fair value because of the
immediate or short-term maturity of these financial instruments. The carrying
amount reported for outstanding bank indebtedness approximates fair value
because the debt is generally at a variable rate that reprices frequently. The
Company believes that its non-bank indebtedness approximates fair value based on
current yields for debt instruments of similar quality and terms.
Concentration of credit risk
The Company maintains cash and cash equivalents, and investment
securities with various financial institutions. The Company limits its
concentration of these financial instruments with any one institution, and
periodically reviews the credit standings of these institutions. The Company has
a large and diverse customer base, thereby minimizing the credit risk of any one
customer to the Company's accounts receivable amounts. In addition, whenever
applicable, each of the Company's business units perform ongoing credit
evaluations of their customers' financial condition.
Stock Based Compensation Plans
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock Based Compensation" ("SFAS 123"), establishes accounting and reporting
standards for stock based employee compensation plans. As permitted by the
standard, UniHolding continues to account for such arrangements under APB
Opinion No. 25, "Accounting for Stock Issued to Employees", and related
interpretations. Accordingly, adoption of the standard has not affected the
Company's results of operations or financial position. See Note 6.
Recently Issued Accounting Pronouncements
In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive
Income ("SFAS 130"). This Statement establishes standards for reporting and
display of comprehensive income and its components in the financial statements.
This Statement is effective for financial statements for periods beginning after
December 15, 1997. Reclassification of financial statements for earlier periods
presented for comparative purposes is required. The Company is in the process of
evaluating the disclosure requirements. This Statement, by its nature, will not
impact the Company's consolidated results of operations, financial position or
cash flows.
Also in June 1997, the FASB issued Statement No. 131, Disclosures about
Segments of an Enterprise and Related Information ("SFAS 131"). This Statement
establishes standards for the way that public business enterprises report
information about operating segments in annual and interim financial statements.
It also establishes standards for related disclosures about products and
services, geographic areas and major customers. This Statement is effective for
financial statements for fiscal years beginning after December 15, 1997.
Financial statement disclosures for prior periods are required to be restated.
The Company is in the process of evaluating the disclosure requirements. This
Statement, by its nature, will not impact the Company's consolidated results of
operations, financial position or cash flows.
3. Property, Plant and Equipment, net, and Intangible Assets
Property, plant and equipment, net consists of the following :
May 31, 1998 May 31, 1997
Land and buildings $ 942 $ 15,277
Long-term leasehold and improvements 9,007 8,936
Furniture and fittings 3,213 5,062
Laboratory and office equipment 20,544 27,501
Capitalized data processing software 1,862 3,599
----------- -----------
$ 35,568 $ 60,375
Less: Accumulated depreciation (26,740) (33,424)
----------- -----------
$ 8,828 $ 26,951
Amounts charged to expense for depreciation of tangible assets, including
assets under capital lease, was $3,071, $10,923, and $5,387 in the years ended
May 31, 1998, 1997 and 1996, respectively. During the year ended May 31, 1997,
as a result of its decision to sell a building used by its UK operations, the
Company reconsidered the carrying value of such building, and recorded a
one-time charge of $5,805 (the equivalent of (pound)4,000) to adjust such
carrying value to its then currently estimated market value.
The net amount of capitalized data processing software is $106 and $1,997
as of May 31, 1998 and 1997 respectively. The amount of assets under capital
leases is $4,476 ($1,725 net of accumulated depreciation) and $7,533 ($ 3,887
net of accumulated depreciation) as of May 31, 1998 and 1997 respectively.
Intangible assets consist of :
May 31, 1998 May 31, 1997
Goodwill $ 50,577 $ 58,299
Customer lists 6,938 10,494
Other 694 668
----------- -----------
58,209 69,461
Less : Accumulated amortization (13,865) (44,436)
----------- -----------
$ 44,344 $ 25,025
Amortization of intangible assets was $2,638, $29,089, and $2,354 in the
years ended May 31, 1998, 1997 and 1996. During the year ended May 31, 1997, the
Company revised its estimate of the useful life of existing goodwill from 40 to
20 years. The net effect of such change was a charge before tax effect of $3,025
(or $0.43 per share).
Further, during the year ended May 31, 1997, management performed its
periodic evaluation of the Company's goodwill, based on undiscounted expected
future cash flows. As a result thereof, in view of unexpected delays in
returning UK operations to a level of profitability meeting the Company's
criteria, and in view of the then present and estimated future profitability of
such operations, the Company recorded a charge before tax effect of $23,722 (or
$3.38 per share) to adjust such goodwill.
4. Long Term Debt
Long term debt consists of the following :
May 31, 1998 May 31, 1997
Senior secured debt :
ULSA Credit Facilities $ 34,644 $ 10,461
Debt of former UK subsidiaries - 5,928
Other debt 627 461
Capital leases, net of interest component 1,534 3,881
---------- -----------
$ 36,805 $ 20,731
Less: current portion (6,536) (6,176)
---------- -----------
$ 30,269 $ 14,555
Senior Secured Debt
Senior secured debt consists of credit facilities granted by banks in
Swiss francs. Such debt is secured by a pledge of the common stock of
substantially all of ULSA's subsidiaries, and contains covenants of a customary
nature, including restriction of the use of $2,740 of cash and cash equivalents
only for future acquisitions or capital expenditures.
Interest on long term debt is generally at market rates plus a margin,
and depends upon actual utilization of the facilities and the maturity of the
debt instruments. As part of the ULSA credit facility, the Company has an
agreement with a bank under which the interest may only fluctuate between 3.25%
and 5.25%, irrespective of effective market rates. At May 31, 1998, the
effective average interest rate was approximately 3.25% per annum, as compared
to 4.25% per annum as of May 31, 1997.
As of May 31, 1998, the Company has a total of $6,800 available and
unused under its credit facilities.
In connection with acquisitions completed during the year, the Company
increased its senior secured debt by $24,349.
In connection with the disposal of the UK operation, all of the debt
related to that operation was disposed of.See Note 1 regarding disposal of UK
operations
Maturities
At May 31, 1998, future scheduled principal payments of long-term debt
and capital lease obligations were as follows :
Net obligation
1999 $ 6,536
2000 5,999
2001 5,294
2002 4,115
2003 14,644
thereafter 217
-----------
$ 36,805
5. Income Taxes
Deferred income tax assets and liabilities are provided for temporary
differences between financial statement income and the amounts currently taxable
in the jurisdictions in which the Company operates. Income (loss) before income
taxes and minority interests of domestic and foreign corporations is as follows:
Years ended May 31
1998 1997 1996
Domestic $ 2,149 $ (3,052) $ 118
Foreign 10,811 (6,045) 5,058
----------- ----------- -----------
Total $ 12,960 ($ 9,097) $ 5,176
=========== =========== ===========
The provision (benefit) for income taxes is as follows :
Years ended May 31
1998 1997 1996
Current:
Foreign $ 1,560 $ 864 $ 3,468
U.S. 2,000 3,000 -
Deferred:
Foreign 1,025 (3,050) (489)
----------- ----------- -----------
Total $ 4,585 $ 814 $ 2,979
=========== =========== ===========
Deferred taxes are provided principally in relation to temporary
differences in the amortization of intangibles and to different book and tax
rates of depreciation of tangible assets.
The deferred tax assets and liabilities as of May 31, 1998, are as
follows :
Assets Liabilities
Depreciation of tangible assets $ - $ 33
Amortization of intangibles - 303
Operating loss carry forwards 1,030 -
Dividend distribution - 769
----------- -----------
1,030 1,105
Valuation allowance (873) -
----------- -----------
$ 157 $ 1,105
The deferred tax assets and liabilities as of May 31, 1997, are as
follows :
Assets Liabilities
Depreciation of tangible assets $ - $ 699
Amortization of intangibles - 26
Operating loss carry forward 2,535 -
----------- -----------
2,535 725
Valuation allowance (2,441) -
----------- -----------
$ 94 $ 725
=========== ===========
The net change in the valuation allowance for deferred tax assets related
to utilization of tax loss carry forwards and disposition and distribution of
subsidiaries during the year ended May 31, 1998.
During the year ended May 31, 1996, the Company decided to merge two of its
principal Swiss subsidiaries. This had the effect of decreasing the effective
tax rate of Swiss operations to approximately 24%, but caused a non-recurring
charge of $1,092.
A reconciliation between the actual income tax expense (benefit) and
income taxes computed by applying the US Federal income tax rate of 34% to
earnings before taxes and minority interests is as follows (in thousands) :
Years ended May 31
1998 1997 1996
Computed income taxes
at rate of 34% $3,448 ($ 3,421) $ 1,760
Impact of difference between
statutory and US tax rates 1,532 (634) (647)
Effect of change in accounting
estimates 698 (2,510) -
Permanent differences (1,251) 4,383 175
Temporary differences 775 - -
Impact of change
in effective Swiss tax rate - - (730)
Impact of merger
of certain Swiss subsidiaries - - 1,092
Change in valuation reserves
on deferred tax assets (634) 2,570 173
Impact of equity
in loss of affiliates - - 1,021
Effect of operating loss
carry forward acquired (30) - -
Other 47 426 135
----------- ----------- -----------
$ 4,585 $ 814 $ 2,979
=========== =========== ===========
Certain of the Company's subsidiaries have incurred losses, which can
be used to offset their taxable income for up to seven years after incurring the
losses, depending on the applicable tax legislation. Total net operating loss
carry forwards amount to approximately $31,000 . Management has reviewed the
probability of realization of the tax benefits that may arise from these losses
being carried forward. Based on the estimated realization, the Company has
reserved for the tax benefits in all cases where it has not been satisfied that
it is more likely than not that the benefits will be realized. Therefore, the
Company has recognized deferred tax assets of $157. The major portion of
underlying net operating loss carry forwards is expected to expire starting in
2004.
Taxes have not been provided on approximately $8,400 of accumulated
foreign unremitted earnings because those earnings are expected to remain
invested indefinitely. It is not practical to estimate the amount of additional
tax that might be payable if such accumulated earnings were remitted.
Additionally, if such accumulated earnings were remitted, certain countries
impose withholding taxes that, subject to certain limitations, are available for
use as a tax credit against any Federal income tax liability arising from such
remittance.
6. Stockholders' Equity
On July 22, 1996, UniHolding issued 333,333 new shares of common stock
to an investor, at a price of $15 per share. The investor received certain
antidilution and preemptive subscription rights. The antidilution provisions
provided that if the Company issued its Common Stock to repay the $15,000 note
owed to Unilab in connection with the acquisition of 40% of UGL, it would
transfer to the investor additional shares of Common Stock so that the
percentage of ownership of the investor would remain substantially unchanged.
The preemptive right provisions provide that the Company and its affiliates will
not sell, pledge, encumber or otherwise transfer any shares of Common Stock at a
value below market without first offering the same shares to the investor on the
same conditions.
As of December 31, 1996, the $15,000 note due Unilab was unpaid, and
accordingly, together with accrued but unpaid interest of $750 as of December
31, 1996, converted into 1,394,963 newly-issued shares of Common Stock. As a
result thereof, the Company issued to the above mentioned investor 75,655
newly-issued shares of Common Stock for no additional consideration.
In February, 1996, UniHolding amended its Certificate of Incorporation
and designated 2,000,000 of its authorized shares as Non-Voting Common Stock.
The Non-Voting shares have identical rights and privileges as the Voting shares,
other than the vote. The Non-Voting shares are convertible into an equal number
of Voting shares at the holder's option, except in certain circumstances.
Also in February 1996, UniHolding issued to SBC Equity Partners, a Swiss
corporation then a subsidiary of Swiss Bank Corporation, 298,384 shares of
Non-Voting Common Stock, together with 298,384 shares of Common Stock for 10% of
the common stock of ULSA. In compliance with certain U.S. regulations on banks,
the exchange agreement provides that the Non-Voting shares are not convertible
into Voting Shares as long as they are held by such subsidiary of a major Swiss
bank.
Treasury Stock
During the year ended May 31, 1996, UniHolding acquired 155,000 shares of
UniHolding's common stock from Holdings for $2,900, the fair market value of
such shares which was less than the cost of such shares to Holdings. Further,
during the year ended May 31, 1996, the Company acquired 13,000 of its own
shares on the market for $262.
During the year ended May 31, 1997, the Company acquired 125,150 of its own
shares on the market for $913.
During the year ended May 31, 1998, the Company acquired 1,309,419 shares
of its own common stock at a cost of approximately $9.2 million. Approximately
$6.3 million of this total was obtained through forgiveness of amounts owed to
the Company by its principal shareholder. Of the remaining $2.9 million, $1.2
million was attributable to purchases from its principal shareholder and $1.7
million to purchases from third parties.
Stock Options
As of June 28, 1994, UniHolding's Board of Directors adopted a Stock
Option Plan for the Company whereby options can be granted to directors, key
officers or management personnel of the Company or any of its subsidiaries or
affiliates by the Administrator of the Plan, acting in agreement with the Board.
500,000 shares of UniHolding's common stock can be so reserved each year for
issuance pursuant to the Plan, as amended. Options are granted with an exercise
price at no less than 100% of the fair market value of UniHolding's common stock
on the date of the grant or the book value on the date of the most recent
financial statements. Options vest 18 months after the date of grant, and shares
subscribed by Option grantees cannot be sold prior to two years from the date of
grant. The Plan will expire on June 28, 2004. Accordingly, the Company will be
able to grant 3.5 million options in addition to those already granted.
On August 17, 1995, a total of 163,750 options were granted. These
options are all exercisable on or after February 17, 1997, at $22 per share for
63,750 options and at $ 24 per share for 100,000 options, and expire on June 28,
2004.
On July 9, 1996, a total of 357,142 additional options were granted.
These options are all exercisable on or after January 9, 1998, at $16 per share,
and expire on June 28, 2004.
On August 25, 1997, a total of 352,142 additional options were granted.
These options are all exercisable on or after February 25, 1999, at $10 per
share, and expire on June 28, 2004.
The following tables summarize information about options outstanding at
May 31, 1998 :
<TABLE>
<CAPTION>
Outstanding Options
----------------------------------------------------------------------------
Weighted-Average
Shares Outstanding Remaining Weighted-Average
Range of Exercise Prices at May 31, 1998 Contractual Life Exercise Price
- ----------------------------- ---------------------- ------------------------ -------------------------
<S> <C> <C> <C> <C>
$24.00 100,000 6.08 $24.00
$22.00 63,750 6.08 $22.00
$16.00 357,142 6.08 $16.00
$10.00 352,142 6.08 $10.00
------------------------------------------------- -------------------------
873,034 6.08 $14.93
</TABLE>
<TABLE>
<CAPTION>
Options Exercisable
------------------------------------------------
Shares Exercisable Weighted-Average
Range of Exercise Prices at May 31, 1998 Exercise Price
- ---------------------------- ------------------------ -----------------------
<S> <C> <C> <C>
$24.00 100,000 $24.00
$22.00 63,750 $22.00
$16.00 357,142 $16.00
------------------------ -----------------------
520,892 $18.27
</TABLE>
All options outstanding as of May 31, 1998, expire on June 28, 2004.
Pro forma information:
Pro forma information regarding net loss and loss per share is required by
SFAS 123. This information is required to be determined as if the Company had
accounted for its employee stock options granted subsequent to May 31, 1995,
under the fair value method of that statement. All option grants to date have
been made with an exercise price greater than the fair market value on the grant
date. For purposes of pro forma disclosures, the estimated fair value of the
options, if any, is recognized in expense on the option vesting date. At May 31,
1998, 520,892 vested options are outstanding. All of these options vested during
the years ended May 31, 1997 and May 31, 1998. For the years ended May 31, 1997,
and 1998, there is no pro-forma effect to net loss and loss per share. Since pro
forma compensation cost relates to all periods over which the options vest, the
initial impact on pro forma results may not be representative of option expense
in subsequent years, when the effect of the amortization of multiple awards
would be reflected.
Capital Stock of Subsidiary and Initial Public Offering by Subsidiary
During the year ended May 31, 1997, ULSA acquired 3,750 bearer shares (or
1.9%) of its own common stock from unaffiliated investors in ULSA for a total
consideration of SFr.2,010 ($1,550), all of which was paid during the period.
In February 1997, ULSA acquired 10,000 bearer shares (or 5.0%) of its
own common stock from the Company's controlling shareholder, Unilabs Holdings
SA, for a total consideration of SFr. 6,500 ($5,000), which was paid through a
partial set-off of advances previously made. In March, ULSA acquired a further
10,000 bearer shares (or 5.0%) of its own common stock from Holdings, for a
total consideration of SFr. 6,500 ($5,000), which was paid through a partial
set-off of advances previously made. According to the related purchase
contracts, the purchase price was subject to an adjustment whereby the Company
and Holdings would share on an equal basis any difference between the purchase
price initially set and the price per share on the first day of trading of the
ULSA shares on the Swiss Exchange after the ULSA initial public offering
discussed below. Based upon the last price paid on April 25, 1997 (the first day
of trading of the ULSA shares on the Swiss Exchange), of SFr. 705 per new ULSA
bearer share, an amount of SFr. 550 became due by the Company to Holdings and
was paid through a partial set-off of advances previously made. The excess of
the purchase price over the predecessor cost ($3,329) was debited to paid-in
capital.
During the year ended May 31, 1997, in conformity with the Company's
plans to maximize shareholder values, the Company organized an initial public
offering of ULSA's newly-issued and existing shares. In anticipation thereof,
the Company sold an aggregate of 30,000 shares (or 15.0% of the then ULSA's
equity) of ULSA's common stock to three financial institutions for a total
consideration of SFr. 19,500 (approximately $15,000). As a result of this series
of transactions, the Company owned approximately 84% of ULSA as of March 31,
1997. As of April 24, 1997, the initial public offering closed. The offering was
made at the price of SFr. 675 per bearer share. The offering comprised the
issuance by ULSA to the public of a further 20% of its equity, and the sale by
the Company of a portion of its holding in ULSA, thereby diluting the Company's
equity holding in ULSA to 60% post-initial public offering. The shares of ULSA
have been listed on the Swiss Exchange since April 25, 1997.
During the year ended May 31, 1998, the Company purchased 3,260 shares
of ULSA stock, and sold 18,150 shares of ULSA stock, either on the market, or in
private transactions at prices substantially equal to market.
7. Related Party Transactions
Advances to and from related companies bear an interest rate based on
the 3 months LIBOR plus 2% per annum. These advances are unsecured.
During the year ended May 31, 1994, the Company entered into a
management services contract with a company owned by the Chairman of
UniHolding's Board of Directors. The contract provided for an annual payment of
SFr.600 for a term of 5 years. Under this contract the Company paid SFr.600
($507 at then average exchange rate) during the year ended May 31, 1996, after
which such contract was canceled and replaced by a management contract under
which a subsidiary paid SFr.720 ($610 at then average exchange rate) and SFr.720
($492 at average exchange rate) during the years ended May 31, 1997 and 1998 to
a company in which the Chairman is a director. During 1997 and 1998, pursuant to
a management consulting agreement, GUCT paid $300 per annum to a company in
which the Chairman is a director.
During the year ended May 31, 1996 the Company made payments of SFr.600
($507 at then average exchange rate) for consultancy services to a company
affiliated with a Director of the Company. During the years ended May 31, 1997,
and 1998, a subsidiary paid SFr.720 ($610 at then average exchange rate) and
SFr.720 ($492 at then average exchange rate) for consultancy services to a
company affiliated with two Directors of the Company. During 1997 and 1998,
pursuant to a management consulting agreement, GUCT paid $300 per annum to a
company affiliated with those two Directors of the Company.
8. Retained Earnings
Retained earnings of Swiss subsidiaries are partially restricted by law
as to distribution. Restricted amounts (including temporary restrictions) were
approximately $17,997 and $17,982 at May 31, 1998 and 1997.
9. Retirement plans
All of the Company's employees participate in the pension or retirement
plans legally required in their place of work. All of such plans are defined
contribution plans. Under all such plans, which are administered by third
parties, contributions are made by the employees and by the Company. This
contribution is expensed in the period that the cost is incurred.
Total benefit plans expenses was approximately $1,247, $1,336, and $1,424
for the years ended May 31, 1998, 1997 and 1996 respectively.
The Company does not maintain any plans for other post-employment or
post-retirement employee benefits.
10. Commitments and Contingencies
The Company is obligated under capital and operating leases for
laboratory premises, offices and equipment expiring at various times through
2003. Minimum lease payments for leases that have initial or remaining
noncancellable terms in excess of one year approximate :
Operating leases Capital leases
1998/99 $ 2,818 $ 875
1999/2000 1,701 511
2000/01 919 248
2001/02 329 79
2002/03 66 -
-----------
Minimum lease payments 1,713
Less : amount representing interest (179)
Present value of net minimum -----------
lease payments $ 1,534
Operating lease expenses, which primarily relate to the rental of
buildings, office furniture and equipment, were approximately $3,984, $3,220,
and $3,476 for the years ended May 31, 1998, 1997 and 1996 respectively.
Certain key officers have employment agreements that provide for
aggregate annual salaries of approximately $1,500 and which include
non-competition clauses. In the event that the Company invokes such clauses
after termination of the employment agreements, the Company may be obligated,
under certain circumstances, to compensate these individuals for differences in
salary between the compensation paid to them by the Company on the date of the
expiration of the employment agreements and their new annual salaries.
In connection with the initial public offering of ULSA's bearer shares
on April 25, 1997, the Company, as well as certain of the Company's direct and
indirect shareholders, have agreed for a certain period of time to respect
certain restrictions regarding the transfer and listing of ULSA's shares held by
them and the maintenance of the existing shareholder control. The restrictions
are summarized as follows: (a) no sale or other transfer of ULSA's bearer shares
and/or registered shares until April 25, 1999, without the prior written consent
of the lead manager of the initial public offering; (b) no listing of ULSA's
registered shares on any securities exchange for a period of five years from
April 25, 1997; and (c) maintenance of existing majority ownership and effective
control of ULSA until April 25, 1999.
In the normal conduct of its business, the Company may be a party to
certain litigation. As of May 31, 1998, the Company is a party to a litigation
in connection with a clinical test. While the proceedings are still at an early
stage, in the opinion of management and as confirmed by legal counsel, the
resolution of this matter should have no material effect, if any, on the
financial position or results of operations.
11. Investment in Equity Affiliates
Medical Diagnostic Management Inc.
In 1995, UGL entered into an agreement with HSL, whereby a new company,
MISE S.A., a British Virgin Islands corporation ("MISE") was formed. The Company
invested $3,005 in MISE for 33.3% of the voting rights and 66.6% of the equity
of MISE. HSL owned the remaining voting and equity interests in MISE for which
it contributed a nominal amount of cash and its agreement to obtain for MISE
certain know-how and related software and services. MISE acquired for $1,500
certain know-how and computer software from HSL, which know-how and software
were simultaneously acquired for $250 by HSL from Medical Diagnostic Management
Inc., a U.S. corporation ("MDM"), and MISE paid HSL a total of $1,500 for
certain plans for marketing the know-how and software in several European
countries. HSL at the time might be deemed to be related to the Company because
of its apparent affiliation with a then director of Unilab Corporation, who
presently serves as Chairman and Managing Director of FHL and of UGUK as a
result of UGUK's disposal discussed in Note 1. HSL granted to MISE a perpetual
license for the use of the MDM know-how and related computer software for use in
Western Europe. In addition, HSL agreed to provide marketing and support
services for a three-year period at no further cost to MISE. United States
generally accepted accounting principles require that purchased know-how and
marketing plans be expensed as incurred. Accordingly, during the year ended May
31, 1996, the Company expensed its investment in MISE. As a result of
operational difficulties in implementing the original plan, and after having
considered several alternatives to achieve their goals, HSL, MDM and the Company
agreed to restructure their relationship. As of May 31, 1997, (i) the Company
sold its MISE shares to HSL, (ii) HSL caused MISE to assign back to MDM all of
its rights related to the MDM know-how and computer software and (iii) MDM
issued $3,000 of preferred stock of MDM to the Company. Such preferred stock is
redeemable at MDM's option, in whole or in part at a total price of $3,000 in
1998, escalating to $3,600 in 2002. Should MDM offer any of its common stock in
an initial public offering, all outstanding shares of preferred stock owned by
the Company will be converted into common stock representing the lesser of (a)
15% of the MDM equity on a fully-diluted basis after the public offering, or (b)
$5,000 valued at the offering price. Further, as part of the agreement, MDM is
obligated to use its best efforts to introduce and implement its business in
Europe and to pay the Company a commission of 5% on its net sales in Europe for
a period of seven years. As a result of the write-off of the initial investment
in MISE and of the above reorganization, the Company's investment in MDM is
fully provided for.
12. Subsequent Events
In connection with the sale of UGUK, ULSA has agreed to purchase from the
latter the London building which houses most of UGUK's operations ("Bewlay
House").
On July 8, 1998, the Company completed this transaction and acquired a
999-year leasehold in Bewlay House for a purchase price of $12,150. This
consideration was paid by (i) the assumption of UGUK's existing debt of $10,692
with a bank and a finance institution; (ii) compensation of an intercompany
account of $648; and (iii) $810 in cash. The company simultaneously entered into
rental agreements with the tenants of the building. The bank facility reduced to
$6,966 after the closing, has a three-year maturity and is subject to quarterly
repayments of $162. The financial institution's facility of $1,458 is subject to
monthly repayments increasing from $19 presently to $32 in January 2003 when it
matures. The Company is actively looking to sell the building. Upon such a sale,
if and when it occurs, the Company intends to prepay the debts to the bank and
finance institution.
13. Supplemental Disclosures of Cash Flow Information
(in thousands) Years ended May 31
1998 1997 1996
Cash paid during the year for:
Interest $2,852 $2,003 $3,048
Income taxes 2,179 2,129 2,756
Capital lease obligations of $955, $1,904, and $3,581 were incurred
during the years ended May 31, 1998, 1997 and 1996, respectively.
14. Quarterly Financial Data (unaudited)
Summarized unaudited quarterly financial data for the years ended May 31,
1998 and 1997 is as follows (in thousands, except per share data)(note that
discontinued operations have been reclassified) :
<TABLE>
<CAPTION>
Year ended May 31, 1998
First Second Third Fourth
Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
Revenue $ 19,774 $ 18,074 $ 26,585 $ 19,070
Operating income (loss) 541 2,037 2,126 4,892
Income (loss) from continuing operations 156 3,303 5,555 (3,130)
Income (loss) from discontinued
operations (1,120) (1,379) (321) -
Net income (loss) (964) 1,924 5,234 (3,130)
Per share data :
Net income (loss)
from continuing operations $0.02 $0.44 $0.77 ($0.44)
Loss from discontinued operations ($0.14) ($0.18) ($0.04) -
Net income (loss) ($ 0.12) $0.25 $ 0.73 ($ 0.44)
Price range:
High $ 9.50 $ 10.00 $ 8.50 $ 7.50
Low $ 3.50 $ 4.50 $ 5.50 $ 4.50
</TABLE>
<TABLE>
<CAPTION>
Year ended May 31, 1997
First Second Third Fourth
Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
Revenue $ 21,627 $ 25,169 $ 22,271 $ 23,568
Operating income (loss) 1,320 3,233 (31,074) 3,717
Income (loss) from continuing operations (795) 1,539 (18,726) 7,709
Income (loss) from discontinued
operations (700) (892) (489) (952)
Net income (loss) (1,495) 647 (19,215) 6,757
Per share data :
Net income (loss)
from continuing operations ($0.13) $0.24 ($2.52) $0.97
Loss from discontinued operations ($0.11) ($0.14) ($0.07) ($0.12)
Net income (loss) ($ 0.24) $ 0.10 ($ 2.59) $ 0.85
Price range :
High $ 16.75 $ 16.25 $ 14.75 $ 11.50
Low $ 15.00 $ 13.75 $ 6.75 $ 7.25
</TABLE>
Earnings per share are computed independently for each of the quarters
presented. Therefore, the sum of the quarterly earnings per share for a year
does not equal the total computed for the year due to stock transactions that
occurred during the periods.
15. Segment Information
During the years ended May 31, 1997 and 1996, the Company performed testing
in relation to clinical trials for the pharmaceutical industry and therefore
distinguished its core clinical laboratory business (the "Diagnostic Laboratory
Division") from its clinical trials testing business (the "Clinical Trials
Division"). As of February 27, 1998, the Company's Clinical Trials Division was
spun off to the Company's shareholders.
Following are the key financial data of the Company for purposes of
geographical information.
Year Ended May 31
1998 1997 1996
Revenues from unaffiliated customers:
U.S. - $ - $ -
Switzerland 70,076 60,810 66,427
United Kingdom - 21,334 19,596
Spain 6,721 6,523 3,754
Other 6,706 3,968 2,857
Operating Profit or Loss:
U.S. - - -
Switzerland 9,830 10,738 10,261
United Kingdom - (32,083) 925
Spain (191) (202) (808)
Other (43) (1,257) (108)
Identifiable Assets:
U.S. - - -
Switzerland 74,350 44,233 54,722
United Kingdom 10,617 36,360 60,851
Spain 5,706 5,382 4,480
Other 22,298 666 999
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
(a) Effective May 31, 1997, the Board of Directors by unanimous written consent
elected to change the principal accountants, and elected to engage ATAG Ernst &
Young SA, member of Ernst & Young International, to audit the registrant's
financial statements for the year ending May 31, 1997 and to replace Richard A.
Eisner & Company, LLP as the principal accountants.
(b) This change of principal accountants was recommended by the Audit Committee
of the Board of Directors, which recommendation was adopted by the Audit
Committee at a meeting on May 26, 1997. The unanimous written consent was
completed by the directors on May 30, 1997. On the same date the former
accountant was notified of the change of accountants.
(c) The reports of Richard A. Eisner & Company, LLP on the registrant's
financial statements for the years ended May 31, 1996 and May 31, 1995 contained
no adverse opinion or disclaimer of opinion and were not qualified or modified
as to uncertainty, audit scope, or accounting principles.
(d) During the registrant's two fiscal years ended May 31, 1996 and during the
subsequent interim period through May 30, 1997, except as described in section
(e) below, there were no disagreements with Richard A. Eisner & Company, LLP on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope and procedures, which disagreements, if not
resolved to the satisfaction of Richard A. Eisner & Company, LLP would have
caused Richard A. Eisner & Company, LLP to make reference to the subject matter
of the disagreements in connection with its report.
(e) (i) During fiscal year 1996 the registrant invested approximately $3 million
for a 1/3 voting interest (and 2/3 of the equity) in MISE S.A. The MISE
transaction is described in detail in Note 11 to the 1996 financial statements
and other sections of the 1996 Form 10-K. The registrant initially capitalized
the investment and reflected the $3 million as an asset in the balance sheet of
interim financial statements included in Forms 10-Q for fiscal 1996 and
initially misdescribed certain aspects of the investment. The former accountant
advised the registrant of the need to expand significantly the scope of its
audit in connection with the MISE transaction. As a result of the expanded
inquiries, the former accountant believed that U.S. generally accepted
accounting principles required the $3 million to be expensed and the registrant
accordingly agreed and expensed the $3 million as reported in its 1996 Form
10-K.
(ii) The Board of Directors discussed in detail the MISE transaction which
was the subject of a disagreement in the view of the former accountant. However,
the Board did not discuss the matter with the former accountant because the
registrant had agreed with the former accountant, thereby resolving the matter.
(iii) The registrant authorized the former accountant to respond fully to
the inquiries of the successor accountant concerning the MISE transaction and
any other transactions.
(f) During the registrant's two fiscal years ended May 31, 1996 and during the
subsequent interim period through May 30, 1997, except as described in section
(g) below, there were no other reportable events (as defined in Item
304(a)(1)(v)).
(g) The former accountant advised the registrant that information had come to
the accountant's attention concerning current tax provisions/benefits and
deferred tax asset and liability accounts and accounting treatment of a recent
segment recapitalization and recent writedowns of real estate and goodwill that,
if further investigated, may materially impact the fairness or reliability of
the financial statements issued covering the fiscal period ending February 28,
1997 (i.e., subsequent to the date of the most recent audited financial
statements), and due to the change of accountants the former accountant did not
conduct such further investigation.
(h) The registrant requested Richard A. Eisner & Company, LLP to furnish it with
a letter addressed to the Securities and Exchange Commission stating whether it
agrees with the above statements. The letter from Richard A. Eisner & Company,
LLP is an Exhibit to this Form 10-K.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS, EXECUTIVE OFFICERS AND KEY MANAGEMENT PERSONNEL
The following table sets forth certain information as of October 15,
1998, regarding the directors, executive officers and key management personnel
of the Company and its subsidiaries.
Directors and Executive Officers of the Company
Name Age Position
Edgard Zwirn 52 Chairman of The Board and Director, Chief
Executive Officer and member of Audit
Committee
Enrico Gherardi 49 Director and Secretary
Alessandra van Gemerden 26 Director
Tobias Fenster 52 Director, Chief Executive Officer - Spanish
Operations
Daniel Regolatti 67 Director and member of Audit Committee
Pierre-Alain Blum 52 Director and member of Audit Committee
Bruno Adam 49 Chief Financial Officer
Eric Wavre 46 Executive Vice President, Treasurer and Chief
Administrative Officer
Key Executive and Managerial Officers of Subsidiaries
Name Age Position
Blaise Mentha 39 Chief Executive Officer - Swiss Operations
Joseph Schuler 46 Executive Vice President and Chief Scientific
Officer - Swiss Operations, Head of Hospital
Laboratory Projects
Frederic Herren 41 President and Chief Operating Officer - International
Division
Miguel Payro 34 Executive Vice President, Head of Financial Planning
and Business Development, Head of Investor Relations
Edgard Zwirn has been Chairman and a member of UniHolding's board of
directors since April 28, 1994. Edgard Zwirn was appointed as Chief Executive
Officer of UniHolding on April 26, 1994. Edgard Zwirn has been the Chairman of
the board of directors of Unilabs Holdings SA (a Panama corporation,
<PAGE>
III - 1
"Holdings", which is the Company's largest shareholder) since 1993, ULSA since
1989, UGL since inception in October 1993, UIL, GUCT and UCTI since their
respective inception in 1996. He has been Chairman of the board, President and
Chief Executive Officer of Unilabs Holdings SA (a Swiss corporation which is the
parent company of Holdings, "Swiss Holdings") since 1987. He has been President
of UGL since October of 1993. Edgard Zwirn has been a member of Unilab
Corporation's board of directors from November 1993 to June 1995 after having
served as a member of the board of directors of the predecessor of Unilab
Corporation from its formation in November 1988 until November 1993. Edgard
Zwirn has also been Chairman of the board of directors of several UK
subsidiaries of the Company, including UGUK, until their disposal in fiscal
1998. He currently is a non-executive director of Focused Health (Jersey)
Limited, a company which acquired the former Company's UK operations.
Enrico Gherardi has been a Management and Financial Consultant and
continues to act as a consultant for various companies in Europe on both
management and marketing related issues. Enrico Gherardi has been a Director of
the Company since June 20, 1994. He has been a Director of Team International,
Inc., a Massachusetts corporation, since its inception in April 1993. He became
Chairman of the board of directors of Team International in November 1993.
Enrico Gherardi was a Director of UGUK since April 30, 1996, until fiscal 1998,
and a Director of ULSA since November 28, 1995. Mr. Enrico Gherardi was
appointed Secretary of UniHolding in April 1996.
Alessandra van Gemerden has been a member of UniHolding's board of
directors since July 1996. She holds degrees in Management and Psychology and
has had prior experience in public relations and management of investment
portfolios. Alessandra van Gemerden was a Director of UGUK since April 30, 1996,
until fiscal 1998, and a Director of UIL, GUCT and UCTI since their respective
inception in 1996. Ms. van Gemerden holds directorships in various non-U.S.
corporations involved in the asset management business. She is the niece of Mr.
Enrico Gherardi.
Tobias Fenster has been a member of UniHolding's board of directors since
July 1996. He holds degrees in Industrial Engineering and Business
Administration from Stanford University. His previous work experience includes
consulting services with Booz Allen & Hamilton and management of closely-held
enterprises in the wood industry and in the computer distribution industry.
Tobias Fenster currently is Chef Executive Officer of ULSP. Mr. Fenster was a
Director of UGUK since April 30, 1996, until fiscal 1998, and a Director of UIL,
GUCT and UCTI since their respective inception in 1996. Mr. Fenster is Mr.
Zwirn's brother-in-law.
Daniel Regolatti has been a member of UniHolding's board of directors and
of the Audit Committee since October 1996. From 1957 to 1992, Mr. Regolatti held
various positions with the Nestle group of companies, including his last
position as Director of Finance at the Nestle world headquarters. He is
currently an independent consultant in management and finance. Mr. Regolatti is
a director of Julius Baer Holding and Bank Julius Baer, Zurich. He currently
also is a director of ULSA. Mr. Regolatti is also a Member of the International
Council for the Verwaltungs und Privat-Bank, Vaduz, Liechtenstein and a Member
of the Advisory Council for the MBA Program of the University of Rochester
N.Y./Berne, Switzerland.
Pierre-Alain Blum has been a member of UniHolding's board of directors and
of the Audit Committee since October 1996. Mr. Blum was the founder of the EBEL
Swiss watch manufacturing group in 1970. He left EBEL in 1996. He currently is
an independent consultant in management. Mr. Blum is a director of several
companies in various countries. He currently also is a director of ULSA.
Bruno Adam was a member of UniHolding's board of directors from April 1994
to October 1996. Mr. Adam has been the Chief Financial Officer of UniHolding
since May 1994. He has been the Chief Financial Officer and an Executive Vice
President of Swiss Holdings since 1988. Mr. Adam has been a Director of Holdings
since 1993, Chief Financial Officer of ULSA from 1988 to 1993, and again since
1997, and a Director of UGL from November of 1993 to July 1996. Mr. Adam has
been appointed as a director of UCTI (now a subsidiary of GUCT) in September
1998.
Eric Wavre was appointed Executive Vice President and Chief Financial and
Administrative Officer-European Affairs of UniHolding as of June 1, 1995. Mr.
Wavre has been Executive Vice President and Chief Financial and Administrative
Officer of UGL from January 1994 to July 1996. He was a Director of UGL from
April 1994 to July 1996.
Mr. Blaise Mentha has been appointed as Chief Executive Officer Swiss
Operations as of October 1, 1998. From February 1998 to September 1998, he was
Chief Operating Officer Swiss Operations French-speaking Region. Prior to his
appointment by the Company, Mr. Blaise Mentha was since 1987 a self-employed
consultant active in the health care industry. Mr. Mentha also was a director of
several companies engaged in this business. From 1993 to January 1998, Mr.
Mentha served as executive vice president of a Swiss laboratory group acquired
by the Company during the 1998 fiscal year.
Joseph Schuler was Executive Vice President and Chief Operating Officer of
ULSA from June 1994 to September 1998. Since October 1998, Dr. Schuler has been
appointed as Head of the Hospital Laboratory Division of ULSA. From 1989 to
1994, Dr. Joseph Schuler was Executive Vice President of Enzymlabor Dr. H. Weber
AG, a laboratory owned by ULSA.
Frederic Herren joined ULSA in November 1995 and was appointed Chief
Operating Officer of UIL in October 1996. From 1987 to 1995, he was a Vice
President of Economic Affairs at SGS Societe Generale de Surveillance in Geneva,
where his activities included business development in Asia and Eastern Europe.
Miguel Payro has been a Vice President and financial controller of ULSA
since 1994. From October 1996 to October 1997, he also served Chief Financial
Officer of UCT and of the South Europe Region.
Section 16(a) Beneficial Reporting Compliance
Based solely upon the Company's review of the Forms 3 and 4, and any
amendments thereto, furnished to it during its most recent fiscal year and the
written representations from each of the persons or entities required to file
such forms, no person was required to file a Form 5 except Unilabs Holdings SA,
the Panama corporation, which failed to file timely Forms 4 for the sales of
common stock to the Company reported elsewhere herein. See Item 13, Certain
Relationships And Transactions With Related Persons and Consolidated Statements
of Stockholders' Equity.
ITEM 11. EXECUTIVE COMPENSATION
At present, no Director of the Company is compensated for his services
to the Company in such capacity.
The following table sets forth the annual and long-term compensation
paid or accrued by the Company for services rendered in all capacities to
UniHolding and its subsidiaries during the last three years of those persons who
were at May 31, 1998, (i) the Chief Executive Officer of the Company and (ii)
the other three executive officers of the Company whose total annual salary and
bonus for the year ended May 31, 1998 exceeded $100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE (1)
Long Term Compensation Awards
Annual Compensation
Name and Principal Position
Year Salary and Bonus ($) Options (#) (3)
<S> <C> <C> <C>
Edgard Zwirn (2),
Chairman of the Board 1998 $ 490,000 -
1997 $ 841,000 112,821
1996 $ 475,000 112,821
Eric Wavre,
Treasurer, Chief Administrative
Officer 1998 $ 328,000 -
1997 $ 357,000 25,000
1996 $ 406,000 20,000
Bruno Adam,
Chief Financial Officer 1998 $ 308,000 -
1997 $ 335,000 30,000
1996 $ 380,000 20,000
Blaise Mentha,
Chief Executive Officer - ULSA
(5) 1998 $ 91,000 -
1997 - -
1996 - -
Paul Hokfelt,
Chief Operating Officer (4)
1998 $ 203,000 -
1997 $ 411,000 15,000
1996 $ 481,000 30,000
</TABLE>
(1) Until May of 1998 and the date hereof, UniHolding did not
compensate any of its Directors or Executive Officers. All Directors and
Executive Officers are compensated by Company subsidiaries.
(2) Since the fiscal year 1994 Mr. Edgard Zwirn is compensated by the
Company's subsidiary, ULSA, through a management consulting agreement
currently providing for a management fee of SFr 720,000 annually
(approximately $490,000 in fiscal 1998), paid to a company in which Mr.
Zwirn is a director.
(3) The Company has granted such Options to such individuals on July
9, 1996, and August 22, 1997.
(4) Mr. Paul Hokfelt resigned from all of his duties with the Company
as of January 31, 1998, to become the full-time President and Chief
Executive Officer of UCTI, a subsidiary of GUCT. In connection with such
resignation, he received a severance payment included in the above amount.
(5) Mr. Blaise Mentha was appointed by ULSA as of February1, 1998.
Pension Benefits
Other than Mr. Edgard Zwirn, who is compensated through a management
contract with a consulting company, all of the named executive officers have
retirement benefits pursuant to mandatory provisions of Swiss law. Under the
Swiss system, amounts ranging from 9% to 15% of each employee's compensation,
depending on age and sex, is deducted by the Company and paid to the social
security system and to such employee's account in a fund managed by an
independent insurance company, while the Company contributes like amounts. In
addition to the legally required plans, the Company offers to its executive
officers and other employees supplemental retirement programs, based upon a
defined contribution system. During the year ended May 31, 1998, the Company's
contribution to the supplemental retirement programs of the named executive
officers averaged approximately $30,000 for each. Upon termination of employment
contracts, the total employer contribution may be transferred to new pension
plans. Relative to its executive officers, the Company has no other pension or
retirement liability and has no unfunded liability.
Employment Agreements
Mr. Bruno Adam's employment agreement does not contain any special clause
other than a notice period of 12 months by either party, with or without cause.
His agreement does not contain any provisions of mandatory bonus or additional
compensation based upon Company performance or results.
Mr. Eric Wavre's employment agreement does not contain any special clause
other than a notice period of 6 months by either party, with or without cause.
His agreement does not contain any provisions of mandatory bonus or additional
compensation based upon Company performance or results.
Mr. Blaise Mentha's employment agreement does not contain any special
clause other than a notice period of 6 months by either party, with or without
cause. His agreement does not contain any provisions of mandatory bonus or
additional compensation based upon Company performance or results.
Mr. Josef Schuler's employment agreement does not contain any special
clause other than a notice period of 6 months by either party, with or without
cause. His agreement does not contain any provisions of mandatory bonus or
additional compensation based upon Company performance or results.
The board of directors of the Company determines all executive
compensation, and may award bonuses or incentive pay to employees at their
discretion.
During the years ended May 31, 1998, 1997 and 1996 respectively, a
subsidiary of ULSA made payments of SFr.720,000 (approximately $490,000), SFr.
720,000 (then approximately $610,000) and SFr. 600,000 (then approximately
$475,000) for consultancy services to a company which may be deemed to be
affiliated with Mr. Enrico Gherardi and with Ms. Alessandra Van Gemerden, both
Directors of the Company.
Stock Options
The Company amended its Stock Option Plan dated June 28, 1994 whereby
options may be granted to directors, key officers or management personnel of the
Company or any of its subsidiaries or affiliates. The aggregate number of shares
available for issuance under such Plan is 500,000 shares of the Company's common
stock each year. The Administrator, acting in agreement with a majority of the
board of directors, determines the number of shares which shall be subject to
each Option, the time or times when such Option(s) shall be granted, the
exercise date(s) of such Option(s), and the exercise price of each option, but
not less than 100% of the fair market value of the common stock on the date of
granting such Option. This Plan will expire as of June 28, 2004.
On August 17, 1995, the Company implemented its amended Stock Option Plan
with the grant of options for 163,750 shares of common stock to certain of its
personnel. The options so granted are exercisable beginning in February 1997.
On July 9, 1996, a total of 357,142 additional options were granted. These
options are all exercisable beginning in January 1998.
On August 22, 1997, a total of 352,142 additional options were granted.
These options are all exercisable beginning in February 1999.
No options were granted by the Company to its executive officers named in
the Summary Compensation Table for the year ended May 31, 1998.
The aggregate number of options granted to date by the Company to the above
named persons are as follows:
<TABLE>
<CAPTION>
Executive Name Fiscal Year 1995 Fiscal Year 1996 Fiscal Year 1997 Fiscal Year 1998 Aggregate
Options
<S> <C> <C> <C> <C> <C>
Edgard Zwirn 50,000 112,821 112,821 - 275,642
Bruno Adam 10,000 20,000 30,000 - 60,000
Eric Wavre 2,500 20,000 25,000 - 47,500
Enrico Gherardi 50,000 112,821 112,821 - 275,642
Tobias Fenster - 12,000 12,000 - 24,000
</TABLE>
The options granted in fiscal year 1995 have become exercisable on February
17, 1997, while those issued in fiscal year 1996 have become exercisable on
January 9, 1998 and those issued in fiscal year 1997 will become exercisable on
February 22, 1999. None of the options granted are in the money.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
DIRECTORS
As of October 16, 1998, there were issued 7,627,736 shares of Voting
Common Stock, the only class of voting securities of the Company. Each share of
Voting Common Stock entitles its holder to one vote, with the exception of
1,846,969 shares of Voting Common Stock held in treasury by the Company. There
are accordingly 5,780,767 shares of Voting Common Stock presently with voting
rights.
The following table sets forth, as of October 16, 1998, the name and
address of each person known to the Company to be the beneficial owner of more
than 5% of the Voting Common Stock, the total number of shares of Voting Common
Stock owned by each such person and the percentage of the class owned by each
such person. Except as otherwise noted, each such person has full voting and
investment power with respect to the shares so owned. <TABLE> <CAPTION>
Amount and Nature of
Title of Class Beneficial Ownership Percent of
Name and Address of Beneficial Owner Class (1)
<S> <C> <C>
Voting Common Unilabs Holdings SA 2,173,731 37.60%
Stock 53rd Street
Urbanizacion ObarrioTorre Swiss Bank
Sixteenth Floor
Panama
" Edgard Zwirn 2,890,018 49.99%
207-208 Neptune House
Marina Bay
Gibraltar (2)
" Franklin MutualAdvisers, Inc. 702,481 12.15%
51 John F. KennedyParkway
Short Hills,
NJ 07078 (3)
Mutual European Fund 576,585 9.97%
51 John F. KennedyParkway
" Short Hills,
NJ 07078 (4)
Grace Brothers, Ltd. 464,987 8.04%
1560 Sherman Avenue, Suite 900
Evanston, IL 60201 (5)
"
" Alessandra van Gemerden 490,125 8.48%
c/o Unilabs S.A.
12 place de Cornavin
CH 1211 Geneva,
Switzerland (6)
" Morgan Stanley & Co. Incorporated 457,049 7.91%
1585 Broadway
New York, NY 10036 (7)
" SBC Equity Partners 298,384 5.16%
1, Europastrasse
8152 Opfikon, Switzerland
" All Directors and Executive Officers as a group (8) 3,647,701 63.10%
Non-Voting SBC Equity Partners 298,384 100.00%
Common Stock, 1, Europastrasse
par value 8152 Opfikon, Switzerland
$0.01 per
share
</TABLE>
(1) Percent of Class is calculated by dividing the number of currently
issued and outstanding shares held by such beneficial owner by the total number
of currently issued and outstanding shares of the Company.
(2) Edgard Zwirn may be deemed to be the beneficial owner of 2,433,579
shares by virtue of his position as Chairman of the Board of Unilabs Holdings
SA, a Switzerland corporation ("Swiss Holdings") which is the parent of Unilabs
Holdings SA (Panama). However, Mr. Zwirn disclaims beneficial ownership of such
shares except for 22.3% thereof, his proportionate ownership of Swiss Holdings
or 542,688 shares. Further, he is deemed to beneficially own 580,000 shares by
virtue of his position of director in companies which own such shares; Mr. Zwirn
disclaims beneficial ownership of all such shares. He directly owns 136,287
shares of the Common Stock of the Company. Mr. Zwirn has the right to acquire an
additional 50,000 shares of Common Stock pursuant to an option granted by the
Company on August 17, 1995 and exercisable since February 1997, 112,821 shares
of Common Stock pursuant to an option granted by the Company on July 9, 1996 and
exercisable since January 1998, and 112,821 shares of Common Stock pursuant to
an option granted by the Company on August 22, 1997 and exercisable starting
February 1999.
(3) Franklin Mutual Advisers, Inc. ("FMAI") is an investment adviser
registered under the Investment Advisers Act of 1940. Two of FMAI's advisory
clients (the "Advisory Clients"), one of which is Mutual European Fund, the
beneficial owner of 576,585 shares of UniHolding common Stock (see 4), are the
beneficial owners, in the aggregate, of 702,481 shares of UniHolding Common
Stock (per Schedule 13G filed February 10, 1998). Pursuant to investment
advisory agreements with the Advisory Clients, FMAI has sole investment
discretion and voting authority with respect to the UniHolding Common Stock
beneficially owned by the Advisory Clients. On behalf of the Advisory Clients,
FMAI purchased from Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ")
a subparticipation interest in a 100% participation interest in the Unilab Note
purchased by DLJ from Unilab Corporation (the "FMAI Subparticipation Interest").
The Unilab Note converted as of January 1, 1997 into 1,394,963 shares of
UniHolding Common Stock. The Advisory Clients obtained beneficial ownership of
697,482 shares of UniHolding Common Stock by means of the FMAI Subparticipation
Interest. FMAI is a wholly owned subsidiary of Franklin Resources, Inc. ("FRI"),
a diversified financial services organization. Charles B. Johnson and Rupert H.
Johnson, Jr. (the "Principal Shareholders") each own in excess of 10% of the
outstanding common stock of FRI and are the principal shareholders of FRI. FMAI,
FRI and the Principal Shareholders may be deemed to be, for purposes of Rule
13d-3 under the Securities Exchange Act of 1934, the beneficial owners of the
UniHolding Common Stock owned by the Advisory Clients. FMAI, FRI and the
Principal Shareholders have no interest in dividends or proceeds from the sale
of UniHolding Common Stock and disclaim beneficial ownership of all UniHolding
Common Stock owned by the Advisory Clients.
(4) Mutual European Fund is one of five portfolios comprising Franklin
Mutual Series Fund Inc., an open-end management investment company registered
under the Investment Company Act of 1940. Pursuant to an investment advisory
agreement with FMAI, FMAI has sole investment discretion and voting authority
with respect to the shares of UniHolding Common Stock owned by Mutual European
Fund. Mutual European Fund obtained beneficial ownership of 576,585 shares of
UniHolding Common Stock by means of the FMAI Subparticipation Interest.
(5) Grace Brothers, Ltd. ("Grace Brothers") purchased from DLJ a
subparticipation interest in a 100% participation interest in the Unilab Note
purchased by DLJ from Unilab Corporation (the "Grace Brothers Subparticipation
Interest"). The Unilab Note converted as of January 1, 1997 into 1,394,963
shares of UniHolding Common Stock. Grace Brothers obtained beneficial ownership
of 464,987 shares of UniHolding Common Stock by means of the Grace Brothers
Subparticipation Interest.
(6) Alessandra van Gemerden, a Director, is deemed to beneficially own
490,125 shares of the Company's Common Stock; however, Ms. van Gemerden
disclaims beneficial ownership of such shares except for 90,125 thereof.
(7) Morgan Stanley holds 408,988 shares that were acquired pursuant to the
Morgan Stanley Agreement, including 75,655 that were acquired pursuant to
antidilution rights related to the conversion of the Unilab Note. In addition,
as per Schedule 13 G/A filed February 13, 1998, Morgan Stanley held as market
maker 48,061 shares of UniHolding Common Stock.
(8) Of the officers and directors as a group, Edgard Zwirn may be deemed to
beneficially own 3,149,866 shares of the Company's Common Stock. Enrico
Gherardi, a Director, is deemed to beneficially own 249,875 shares of the
Company's Common Stock. Mr. Enrico Gherardi has the right to acquire 50,000
shares of common stock of the Company pursuant to an option granted by the
Company on August 17, 1995 and exercisable since February 1997, 112,821 shares
of common stock pursuant to an option granted by the Company on July 9, 1996 and
exercisable since January 1998, and 112,821 shares of common stock pursuant to
an option granted by the Company on August 22, 1997 and exercisable in February
1999. On August 17, 1995, the Company granted options to its other executive
officers totaling 27,500 shares of common stock of the Company exercisable in
February of 1997. On July 9, 1996, the Company granted options to its other
executive officers totaling 70,000 shares of common stock of the Company
exercisable since January of 1998. On August 22, 1997, the Company granted
options to its other executive officers totaling 70,000 shares of common stock
of the Company exercisable in February of 1999.
Three Swiss pension funds, Retraites Populaires, Caisse de Pensions de
l'Etat de Vaud and Caisse Intercommunale de Pensions, acquired 579,038 shares,
or approximately then 9.97% of the Company's common stock in 1994. However, no
one fund owns over 5% individually and each pension fund maintains its own
voting power and control.
Pursuant to the terms of a Stock Purchase Agreement, dated June 30, 1995,
by and between the Company and UGL, the Company acquired 40% of the common stock
of UGL in exchange for the Unilab Note in the principal amount of $15,000,000
and certain other consideration. The principal amount of the Unilab Note was due
as of June 30, 1996. Pursuant to the terms of the Unilab Note, the Unilab Note
was converted as of January 1, 1997 into 1,394,963 shares of UniHolding Common
Stock.
ITEM 13. CERTAIN RELATIONSHIPS AND TRANSACTIONS WITH RELATED PERSONS
The following sets forth certain relationships among beneficial
shareholders, executive officers and directors of the Company, in particular,
the relationship between Mr. Zwirn and Mr. Adam as executive officers and
directors of the Company, of Unilabs Holdings SA, a Swiss corporation ("Swiss
Holdings"), and of Unilabs Holdings SA, a Panamanian corporation ("Holdings").
The acquisition of March 31, 1994, whereby the Company acquired 60% of UGL
and 100% of UCLE from Holdings with an option to purchase Holdings' majority
interests in its Italian and Spanish operating subsidiaries is considered a
related party transaction. Pursuant to the Acquisition Agreement, Holdings
assigned to the Company its rights and obligations under the Stockholders'
Agreement with Unilab Corporation concerning UGL. In connection with the
acquisition of 40% of UGL from Unilab Corporation on June 30, 1995, such
Stockholders' Agreement was terminated.
During fiscal 1994, UGL acquired some of the minority interests in ULSA
from Holdings through an offset of receivables from Holdings (aggregating
approximately $10 million) against payables to Holdings. UGL thereafter owned
86% of ULSA.
On June 22, 1994, the board of directors of the Company determined that it
would be in the best interest of the Company to accelerate the payment of the
$18 million Promissory note (the "Note") to Holdings with shares of the
Company's common stock in lieu of cash. The terms of the Note required payment
of principal and interest (accruing at 5% per annum), in cash or shares, over
five years with the first installment being due March 31, 1995. Holdings
accepted early payment of the Note in shares of the Company's common stock in
lieu of cash. Further, Holdings agreed that such payment would be calculated on
the basis of $5.50 per share (prior to the reverse split of the Company's common
stock). Accordingly, the Company issued 3,310,455 (prior to the reverse split of
the Company's common stock) shares of common stock valued at $5.50 per share
(unadjusted) to Holdings (equivalent to the principal and accrued interest of
$18,207,500 as of June 22, 1994) in consideration for the cancellation of the
Note.
During the year ended May 31, 1995, the Company acquired from Holdings (a)
186 additional shares of ULSA for a consideration of $1,800,000 paid in cash,
and (b) the Italian and Spanish laboratory operations for a consideration of
$7,342,000 represented by two promissory notes subsequently offset against
advances.
ULSA previously entered into a Cooperation Agreement dated March 25, 1992
with Holdings covering (i) the use of the Unilabs logo and provision of
financial and market research advisory services to ULSA ("General Services") and
(ii) mergers and acquisitions advisory services. The agreement, which expired on
May 31, 1996, provided for an annual general services fee of $238,000 payable by
ULSA. The Cooperation Agreement was assigned to and assumed by UniHolding
pursuant to the Acquisition Agreement. Holdings also billed ULSA an additional
$355,000 for general and administrative expenses and $282,000 as a finder's fee
in relation to an acquisition during fiscal year 1994. The Company also billed
Holdings $387,000 relating to laboratory management and consulting services in
fiscal 1994. The management fees paid to Holdings by the Company provided for,
among other things, the services of Mr. Bruno Adam up to May 31, 1994.
In December 1993, the Company extended a loan of approximately $2.9 million
to Holdings bearing interest at an annual rate of 3.375% which was subsequently
canceled by the Company on March 31, 1994, in partial consideration for the
acquisition of the European clinical testing companies. Edgard Zwirn, as CEO of
the Company, is compensated for his services through and pursuant to a
management consulting agreement between a subsidiary of ULSA and a company in
which he is a director. The agreement requires an annual payment of SFr 720,000
(approximately $490,000).
During the year ended May 31, 1995, the Company entered into a management
services contract with a company which may be deemed to be affiliated with Mr.
Enrico Gherardi, a Director of the Company. The Company paid SFr. 600,000 (then
approximately $470,000) under this contract during the year ended May 31, 1995.
As of May 31, 1995, the contract was terminated. During the years ended May 31,
1998, 1997 and 1996 respectively, a subsidiary of ULSA made payments of SFr.
720,000 (approximately $490,000) SFr. 720,000 (then approximately $610,000) and
SFr. 600,000 (then approximately $500,000) for consultancy services to a company
which may be deemed to be affiliated with Mr. Enrico Gherardi and with Ms.
Alessandra Van Gemerden, both Directors of the Company.
During the year ended May 31, 1996, UniHolding acquired 155,000 shares of
UniHolding's common stock from Holdings for $2,900,000, the then market value of
such shares which was less than the cost of such shares to Holdings. The Company
also purchased 13,000 shares of UniHolding's common stock for $217,000. As of
May 31, 1998, shareholders and affiliates of Holdings transferred 841,698 shares
of UniHolding's common stock to the Company in full and final settlement of
Holding's debt to the Company (approximately $5,050,000). In addition, during
1998 the Company purchased 266,848 shares of UniHolding common stock from
Holdings for approximately $2,400,000.
During the year ended May 31, 1997, UGL acquired 20,000 bearer shares of
ULSA's common stock from Holdings for SFr. 13.5 million (approximately $9.6
million), the fair market value of such shares which approximated the cost of
such shares to Holdings. Half of such shares were resold by UGL to third party
investors prior to ULSA's initial public offering at a value which was higher
than the price paid by UGL to Holdings. The other half of such shares were
resold by UGL in ULSA's initial public offering at a value which was higher than
the price paid by UGL. According to the related purchase contracts, the purchase
price was subject to an adjustment whereby the Company and Holdings would share
on an equal basis any difference between the purchase price initially set and
the price per share on the first day of trading of the ULSA shares on the Swiss
Exchange after the ULSA initial public offering discussed below. Based upon the
last price paid on April 25, 1997 (the first day of trading of the ULSA shares
on the Swiss Exchange) of SFr.705 per new ULSA bearer share, an amount (included
in the above mentioned value) of SFr. 550,000 (approximately $390,000) became
due by the Company to Holdings and was paid through a partial set-off of
advances previously made.
In 1995, UGL entered into an agreement with Health Strategies Limited, a
Jersey, Channel Islands, corporation ("HSL"), whereby a new company, MISE S.A.,
a British Virgin Islands corporation ("MISE") was formed. UGL invested
$3,005,000 in MISE for 33.3% of the voting rights and 66.6% of the equity of
MISE. HSL owned the remaining voting and equity interests in MISE for which it
contributed a nominal amount of cash and its agreement to obtain for MISE
certain know-how and related software and services. MISE acquired for $1,500,000
certain know-how and computer software from HSL, which know-how and software
were simultaneously acquired for $250,000 by HSL from Medical Diagnostic
Management Inc., a U.S. corporation ("MDM"), and MISE committed to pay HSL a
total of $1,500,000 for certain plans for marketing the know-how and software in
several European countries. HSL at the time might be deemed to be related to the
Company because of its apparent affiliation with a then director of Unilab
Corporation, who presently serves as Chairman and Managing Director of FHL and
of UGUK as a result of UGUK's disposal. The investment was made so that it
provided the Company access to certain know-how developed by MDM, a company
organized in 1989 active in the industry of health information services in the
U.S., which is focusing on organizing and managing access to discounted provider
networks for ambulatory diagnostic services (radiology, other imaging
techniques, and laboratory). HSL granted to MISE a perpetual license for the use
of the MDM know-how and related computer software for use in Western Europe. In
addition, HSL agreed to provide marketing and support services for a three-year
period at no further cost to MISE. The Company, through MISE, intended to market
the concept, including the computerized information system, to health insurance
companies throughout Europe, a concept expected to be particularly useful and
applicable in the context of the ongoing deregulation of the health care system
and to provide a useful tool to achieve substantial savings in health care costs
in several European countries. As a result of operational difficulties in
implementing the original plan, and after having considered several alternatives
to achieve their goals, HSL, MDM and UGL agreed to restructure their
relationship. As of May 31, 1997, (i) UGL sold its MISE shares to HSL, (ii) HSL
caused MISE to assign back to MDM all of its rights related to the MDM know-how
and computer software and (iii) MDM issued certain preferred stock of MDM. Such
preferred stock is redeemable at MDM's option, in whole or in part at a total
price of $3,000,000 in 1998, escalating to $3,600,000 in 2002. Should MDM offer
any of its common stock in an initial public offering, all outstanding shares of
preferred stock owned by UGL will be converted into common stock representing
the lesser of (a) 15% of the MDM equity on a fully-diluted basis after the
public offering, or (b) $5,000,000 valued at the offering price. Further, as
part of the agreement, MDM is obligated to use its best efforts to introduce and
implement its business in Europe and to pay UGL a commission of 5% on its net
sales in Europe for a period of seven years. United States generally accepted
accounting principles require that purchased know-how and marketing plans be
expensed as incurred. Accordingly, during the year ended May 31, 1996, the
Company recognized a loss from its equity investee of $3,000,000. As a result
thereof and of the above reorganization, the Company's investment in MDM is
fully provided for.
Following are entities affiliated with the Company:
Holdings. Swiss Holdings owns 100% of Holdings. Edgard Zwirn is Chairman.
Bruno Adam is a Director of Holdings.
Swiss Holdings. Edgard Zwirn is Chairman of the board of directors of Swiss
Holdings and, together with certain members of his immediate family, he owns
23.3% of the voting and equity interests in Swiss Holdings. Bruno Adam is
Executive Vice President of Swiss Holdings.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
Page No.
FINANCIAL STATEMENTS AND SCHEDULES:
1. Financial Statements - See Index to Financial Statements at ITEM 8.....
2. Financial Statement Schedule ..........................................
The information required pursuant to Item 601
of Regulation S-K is incorporated by
reference to the Exhibit Index of this Report ..............
EXHIBITS:
The information required pursuant to Item 601 of Regulation S-K is
incorporated by reference to the Exhibit Index of this report ............
REPORTS ON FORM 8-K:
1. Current Report on Form 8-K dated April 1, 1998
Reporting on Item 5
2. Current Report on Form 8-K dated dated May 11, 1998 Reporting on Item 2
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
2.1 Share Purchase Agreement between Unilabs
Management Company, Ltd. as Seller, and EIBA
"Eidgenoessische Bank" Beteiligungs und
Finanzgesellschaft as Purchaser, dated January 17,
1997 (1)
2.2 Share Purchase Agreement between Unilabs
Group Limited and Unilabs Management
Company Ltd. and Banque Cantonale de Geneve,
dated February 6, 1997 (1)
2.3 Share Purchase Agreement between Unilabs
Group Limited and KK Trust AG., dated February
17, 1997 (1)
2.4 Share Purchase Agreement between Unilabs
Group Limited and Unilabs Holdings SA, dated
February 18, 1997(2)
2.5 Share Purchase Agreement between Unilabs
Group Limited and Unilabs Holdings SA, dated
March 13, 1997(2)
2.6 Underwriting Agreement between Unilabs SA and Union
Bank of Switzerland, dated April 24, 1997(2)
2.7 Master Combination Agreement by and among
NDA Clinical Trials Services, Inc. ("NDA"),
certain NDA stockholders and Global Unilabs
Clinical Trials, Ltd., dated as of January 31, 1997
(3)
2.8 Stock Purchase Agreement, dated as of July 23,
1996, between Morgan Stanley & Co.,
Incorporated and UniHolding Corporation (4)
2.9 Agreement by and among Unilabs Group Limited,
Health Strategies Limited and Medical Diagnostic
Management, Inc., dated as of May 23, 1997(2)
3.1 Amended Certificate of Incorporation of
UniHolding Corporation (5)
3.2 Bylaws of UniHolding Corporation(2)
10.1 Memorandum of Agreement between Health
Strategies Ltd. and Unilabs Group Ltd. (6)
10.2 Amended Stock Option Plan (6)
10.3 Lock-Up Agreement between Edgard Zwirn, Unilabs
Holdings SA, UniHolding Corp., Unilabs Group Ltd.,
Unilabs SA and Union Bank of Switzerland, dated
April 14, 1997(2)
16 Letter from Richard A. Eisner & Company, LLP, dated
June 16, 1997 (7)
21 Subsidiaries of Registrant
27 Financial Data Schedule
- - ----------
(1) Incorporated by reference to Current Report on Form 8-K dated February 20,
1997.
(2) Incorporated by reference to Annual Report on Form 10-K for the Fiscal Year
ended May 31, 1997.
(3) Incorporated by reference to Current Report on Form 8-K dated January 31,
1997.
(4) Incorporated by reference to Quarterly Report on Form 10-Q for the period
ended August 31, 1996
(5) Incorporated by reference to Quarterly Report on Form 10-Q for the period
ended November 30, 1996.
(6) Incorporated by reference to Annual Report on Form 10-K for the Fiscal Year
ended May 31, 1996.
(7) Incorporated by reference to Amended Current Report on Form 8-K/A dated May
30, 1997
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
UniHolding Corporation
Date: 10-26-98 By: /s/ Bruno Adam
Bruno Adam
Treasurer/CFO
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 and on the dates indicated.
By: /s/ Edgard Zwirn Date: 10-26-98
Edgard Zwirn
CEO and Director
By: /s/ Bruno Adam Date: 10-26-98
Bruno Adam
CFO and Treasurer
By: /s/ Enrico Gherardi Date: 10-26-98
Enrico Gherardi
Director and Secretary
By: /s/ Alessandra Van Gemerden Date: 10-20-98
Director
By: /s/ Tobias Fenster Date: 10-20-98
Director
By: /s/ Daniel Regolatti Date: 10-20-98
Director
By: /s/ Pierre-Alain Blum Date: 10-20-98
Director
Exhibit 21
Subsidiaries of Registrant
<PAGE>
EXHIBIT 21
LIST OF SUBSIDIARY COMPANIES
Unilabs Group Limited (BVI) - 100%
Unilabs SA (Swiss) - 54%
Institut Bio-Analytique Medical SA (Swiss) - 100%
Unilabs Medizin. Labor. AG (Swiss) - 100%
Laboratorie Ritton SA (Swiss) - 100%
Enzym-Labor Dr. H. Weber AG (Swiss) - 100%
Diagnostica, Lab. AG (Swiss) - 100%
SQ-Lab Aerztelabor AG (Swiss) - 100%
Medizin. Labor Baden AG (Swiss) - 100%
Medizin.Labor Dr. H.R. Ebersold AG (Swiss) - 100%
Laboritoire Medical Pierre-Alain Gras SA (Swiss) - 100%
Laboratoire Riotton SR SA (Swiss) - 100%
Vivagen Diagnostics AG (Swiss) - 100%
Biomedical SA (Swiss) - 100%
MS Chimie SA (Swiss) - 100%
Praxilab Gem. Prakt. Aerzte AG (Swiss) - 65%
Pathologie-Labor Brunnhof AG (Swiss) - 100%
Instituto Medico Di Torino SpA (Italy) - 100%
Medil Srl (Italy) - 50%
United Laboratories Espana SA (Spain) - 98%
Unilabs Management Company Limited (Gibraltar) - 100%
Unilabs International Limited (BVI)
Unimed Laboratories (Russia) - 50%
Swisslab N.V. (Netherlands Antilles) - 61.5%
Swisslab B.V. (Netherlands) - 61.5%
Buyuk Swisslab Laboratuari (Turkey) - 43.1%
Uni Clinical Laboratories UCL Engineering SA
(Swiss) (Dormant) - 100%
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS AT MAY 31, 1998 AND THE CONSOLIDATED STATEMENTS OF
OPERATIONS AT MAY 31, 1998, 1997 AND 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> May-31-1998
<PERIOD-START> Jun-01-1997
<PERIOD-END> May-31-1998
<EXCHANGE-RATE> 1
<CASH> 9,186
<SECURITIES> 0
<RECEIVABLES> 19,464
<ALLOWANCES> 2,940
<INVENTORY> 1,849
<CURRENT-ASSETS> 35,587
<PP&E> 8,828
<DEPRECIATION> 3,071
<TOTAL-ASSETS> 113,128
<CURRENT-LIABILITIES> 30,803
<BONDS> 0
0
0
<COMMON> 76
<OTHER-SE> 42,130
<TOTAL-LIABILITY-AND-EQUITY> 113,128
<SALES> 0
<TOTAL-REVENUES> 83,503
<CGS> 0
<TOTAL-COSTS> 68,198
<OTHER-EXPENSES> 10,843
<LOSS-PROVISION> 2,820
<INTEREST-EXPENSE> (238)
<INCOME-PRETAX> 12,960
<INCOME-TAX> (4,585)
<INCOME-CONTINUING> 5,884
<DISCONTINUED> (2,820)
<EXTRAORDINARY> 6,007
<CHANGES> 0
<NET-INCOME> 3,064
<EPS-PRIMARY> 0.41
<EPS-DILUTED> 0.41
</TABLE>
