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, 1999
[ ] 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 ___ No X
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 February 15, 2000, 2,069,848 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 last closing price on The Nasdaq Stock Market/Nasdaq
Small Cap as of September 17, 1999, (the date of the Company's delisting from
Nasdaq Small Cap) held by nonaffiliates of the Registrant was approximately $6.2
million.
DOCUMENTS INCORPORATED BY REFERENCE None
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PART I
ITEM 1. BUSINESS
1.1 General
UniHolding Corporation ("UniHolding") is a Delaware corporation organized in
1987. UniHolding is a holding company. At May 31, 1999, pursuant to a February
25, 1999 reorganization further described below (the "Reorganization"), its
principal asset is a non-controlling 38% interest in Unilabs Group Limited, a
British Virgin Islands corporation ("UGL"), and itself a holding company. Prior
to the Reorganization, UniHolding owned 100% of UGL. UGL is the majority
shareholder of Unilabs SA, a Switzerland corporation ("ULSA"), which supplies
clinical testing services in several European countries (the "Diagnostic
Laboratory Division"), and, until the spin-off made in February 1998, UGL was
also the sole shareholder of Global Unilabs Clinical Trials Limited, a British
Virgin Islands corporation ("GUCT") supplying clinical trials testing for the
pharmaceutical industry (the "Clinical Trials Division"). At May 31, 1999,
UniHolding's only source of income is through its 38% ownership interest in UGL.
Effective February 25, 1999, UGL reached an agreement with a major shareholder
of UniHolding, Unilabs Holdings SA, a Panama corporation ("Holdings") whereby
Holdings received approximately 2.3 million newly issued shares of common stock
of UGL in exchange for its UniHolding shares of common stock on a one-for-one
basis. At the same time, UGL reached agreements with certain other non-US
shareholders whereby such shareholders also received newly issued shares of
common stock of UGL in exchange for their approximate 0.4 million UniHolding
shares of common stock on the same one for one basis. Accordingly, effective
February 25, 1999, UGL had gained control of UniHolding. Further, during the
period from February 25 to May 31, 1999, UGL reached agreements with certain
other non-U.S. shareholders of UniHolding, whereby such shareholders also
received newly issued shares of common stock of UGL in exchange for their
approximately 0.6 million UniHolding shares of common stock also on the same
one-for-one basis. In addition, also during the same period, a further aggregate
of approximately 0.8 million UniHolding shares were acquired by UGL for a
consideration consisting of approximately 14,000 ULSA bearer shares of common
stock. As a result, as of May 31, 1999, UGL owned approximately 74% of
UniHolding, while UniHolding owned approximately 38% of UGL. While it did not
take any part in these transactions, the UniHolding Board of Directors
acknowledged the new situation and entered into discussions with the board of
UGL, with a view to primarily safeguard the interests of the remaining
UniHolding shareholders. The UniHolding Board of Directors was informed by UGL
that the primary purpose of the UGL Reorganization was for the non-U.S.
shareholders to own their equity in UGL directly through a private corporation
instead of holding shares of a publicly quoted U.S. corporation. However, as a
consequence of the Reorganization, at May 31, 1999, the remaining UniHolding
shareholders had suffered a dilution of their equity in UGL, and the UniHolding
Board of Directors expressed their strong wish to eliminate such dilution. As a
result of their discussions, the two boards came to an agreement on September 3,
1999, whereby UniHolding transferred to UGL 30,000 shares of UGL common stock,
and UGL transferred to UniHolding UGL's entire shareholding of UniHolding common
stock. Pursuant to this agreement, as of September 3, 1999, UGL did not own any
UniHolding shares, while UniHolding owns a balance of approximately 2.0 million
shares of UGL common stock, or approximately 37% of UGL's equity. The remaining
UniHolding shareholders, who owned approximately 37 % of the outstanding
UniHolding stock before the Reorganization, own 100% of the outstanding
UniHolding stock after the Reorganization and the September 3, 1999,
transaction. Accordingly, their indirect equity interest in UGL is not less than
it was before the Reorganization.
Until February 27, 1998, UGL had a wholly owned subsidiary, GUCT, which is the
majority shareholder of TBL Holdings, Inc., a Delaware corporation ("TBLH"
formerly known as UCT International, Inc.). TBLH supplies clinical testing
services dedicated to the pharmaceutical industry in the United States and in
Europe. GUCT was spun off to UniHolding's shareholders on February 27, 1998,
while UGL had retained ownership of $20 million in non-voting, non- convertible,
redeemable preferred stock of GUCT in exchange for previously existing
inter-company debt, which GUCT stock was valued at $12,164 at May 31, 1998. As a
result of the GUCT spin-off, UniHolding presently does not have any significant
operations in the U.S. As of December 30, 1998, GUCT and UGL became parties to
an agreement (the "DLJ Phoenix Agreement") with certain subsidiaries of a
first-class third party investment bank, DLJ Phoenix, regarding the operating
subsidiaries of TBLH. During the second half of calendar 1998, GUCT and UGL were
informed that TBLH's operating subsidiaries were in need of substantial new
capital to continue and satisfactorily develop their clinical trials operations,
and that GUCT was unable to obtain the necessary funding. As a result of
discussions held by GUCT with various potential partners throughout 1998, an
agreement was reached whereby DLJ
<PAGE>
Phoenix agreed to invest $7.5 million in TBLH's subsidiaries, provided, among
other conditions, that (1) DLJ Phoenix would have total management control over
the business, and (2) GUCT or UGL would invest $2.5 million. As GUCT had no
funds available for such a transaction, UGL agreed to fund such additional
investment, essentially with a view to protect its own original investment in
GUCT, in which UGL continued to own approximately $20 million of non-voting and
non-convertible preferred stock, as described above. UGL and GUCT agreed that
this additional financing of GUCT by UGL was structured such that GUCT owns the
shares newly issued by TBLH's subsidiaries, and UGL owns additional non-voting,
non-convertible, redeemable preferred stock of GUCT with a face value equal to
the amount of the additional investment, $2.5 million plus $0.5 million of extra
funding. The terms of the additional preferred stock include conditions that
will enable UGL to share the upside potential, if any, of GUCT's investment. The
DLJ Phoenix Agreement further provided that, if the operating subsidiaries met
certain business targets by June 30, 1999, an additional investment of $4.5
million and $1.5 million, respectively, would be made in the second half of
calendar 1999 by DLJ Phoenix and GUCT and/or UGL, respectively. On July 22,
1999, GUCT and UGL were informed that one of such business targets would not be
met and that the additional investment in the form provided by the DLJ Phoenix
Agreement would not be made. Instead, another form of financing was proposed and
all of TBLH, GUCT and UGL declined to participate. Subsequently, GUCT and UGL
were informed that DLJ Phoenix had decided not to provide additional financial
support to TBLH's subsidiaries, and had decided to look for alternative
solutions including a sale of operations or a liquidation. Accordingly, UGL's
management has performed a careful review of the value of the GUCT preferred
stock held as of May 31, 1999, considering the situation described above. As a
result of such review, UGL's management has concluded that there was a permanent
impairment in the value of GUCT, and that it was therefore necessary to record a
$15.2 million write-down in the aggregate value of the GUCT preferred stock, now
carried at a net amount of $0 in the accompanying balance sheet as of May 31,
1999. For the same reason, UGL has recorded a provision of $0.5 million as of
May 31, 1999, on an account receivable from one of TBLH's subsidiaries.
Since its inception in 1987, ULSA'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. ULSA also owns
majority interests in Italian and Spanish clinical laboratory operations, as
well as interests in Russian and Turkish laboratories. Until its disposition
during fiscal 1998, ULSA also provided laboratory testing services in the United
Kingdom through Unilabs Group (UK) Limited ("UGUK").
As part of UniHolding's plan to maximize shareholder values, UGL made an initial
public offering on the Swiss Exchange of ULSA's then 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 UGL of a
portion of its holding in ULSA, thereby diluting UGL'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, 1999, UGL owned a controlling
interest of approximately 48% in ULSA. In connection with the ULSA initial
public offering, UGL has agreed to significant restrictions regarding the
possible sale or listing of its investment in ULSA until April 25, 2002.
On January 29, 1998, ULSA 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. ("MDM"), a U.S. corporation, of which UniHolding
holds redeemable preferred stock convertible into common stock under certain
terms and circumstances. Such investment in MDM has been fully provided for by
UniHolding. The UGUK sale consideration was agreed upon at SFr. 19.4 million
(approximately $13.2 million), paid 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. ULSA has the ability,
through two non-executive directors whom it nominates on the board of FHL, to
veto certain actions of FHL if such actions would have the effect of
jeopardizing realization of ULSA's investment in FHL preferred stock (such as a
merger, sale or liquidation). ULSA 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, ULSA effectively transferred
control of UGUK to FHL as of June 1, 1997, and therefore ceased consolidating
UGUK as of that date. As of May 31, 1998, ULSA's investment in FHL preferred
stock was carried at a value of $10,617, after the recording of a $1,190
write-down, reflecting ULSA's appraisal of the uncertainty as to the timing and
possibility of recovery of its investment in FHL. ULSA was informed by FHL that
certain discussions were taking place with a third party, with a view to merge
UGUK with, or
<PAGE>
sell UGUK to, this third party. ULSA indicated that it would not veto a
transaction which would enable it to recover the full amount of the FHL
preferred stock currently recorded on ULSA's books, of SFr. 15.6 million
(approximately $10.4 million). On October 1, 1999, ULSA closed on an agreement
with FHL regarding the disposal of the non- voting, redeemable preferred shares
of that company. As of that date, FHL merged its UK laboratory subsidiary into
another laboratory owned by Advanced Pathology Services Ltd., England. In
connection therewith, ULSA sold its FHL preferred shares against an immediate
cash payment of 3.0 million pounds ($4.8 million), with the balance being
essentially constituted of notes due within 4 years payable by Advanced
Pathology Services.
On December 21, 1999, ULSA closed on an agreement with Advanced Pathology
Services Ltd., England, regarding the disposal of Unilabs International (UK)
Ltd., a subsidiary engaged in the marketing of pathology services in the Middle
East. The sale consideration was agreed at 0.5 million pounds ($0.9 million), in
the form of a note payable on December 21, 2003.
During the year ended May 31, 1998, ULSA acquired from third parties 100% of the
equity of Institut Bio- Analytique Medical SA, a Geneva company, together with
related companies, and Laboratoire Medical Pierre-Alain Gras SA, a Geneva
company, at an aggregate cost of $25.3 million.
During the year ended May 31, 1999, ULSA acquired 55% of Gespower (Belgium) SA,
a Belgian corporation specializing in computer services to the health care
industry at a cost of SFr. 2.6 million (approximately $1.7 million).
Summarized financial information regarding each of ULSA's business segments is
presented in the notes to UniHolding's consolidated financial statements
included in this Annual Report on Form 10-K and is not reported herein.
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. ULSA 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, ULSA 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 ULSA and its subsidiaries, represent
the remaining 20% of the market.
ULSA 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. ULSA 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, ULSA estimates that private
laboratories represent approximately 25% of the Spanish clinical testing market,
with hospitals (private and public) representing the remaining 75%. Due to
ULSA's network of laboratories in Spain, management believes the operations are
well situated to take advantage of the changing marketplace.
<PAGE>
In Russia, ULSA 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 ULSA'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
UniHolding presently does not have any operations other than its non-controlling
holding in UGL. Prior to completing the spin-off of the Clinical Trials Division
of UGL on February 27, 1998, UGL 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, UniHolding spun off the Clinical Trials Division to the UniHolding'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.
ULSA operates in Switzerland, Italy, Spain, Russia and Turkey, within a
competitive environment. ULSA 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. ULSA'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. ULSA
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. ULSA 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.
ULSA 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. ULSA's
size, economies of scale and experience in acquiring and integrating new
operations furnishes it with a clear competitive advantage. ULSA 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. ULSA 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
<PAGE>
through its own laboratories. During fiscal 1998, ULSA began operating an
agreement with a group of hospitals of the Zurich area where it created a
central laboratory and emergency laboratories. ULSA 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
ULSA's criteria.
In a rapidly evolving industry that is subject to concentration, technological
innovation and political changes, ULSA 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, ULSA 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 ULSA'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.
ULSA also offers specialized testing in histopathology and cytology in certain
dedicated laboratories.
Clients, Sales, Marketing and Client Service
ULSA'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. ULSA 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 1997,
1998 and 1999, 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. ULSA'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
<PAGE>
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.
ULSA'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.
ULSA'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,
UGL'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, ULSA 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.
Until December 1999, as described above, ULSA also provided test referral
services to overseas clients, primarily in the Middle East and Ireland, to
mostly public or private hospitals. In December 1999, such referral business was
sold to Advanced Pathology Services Limited.
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, including the latest one, whereby effective October
1, 1997, OFAS decided to further reduce by 10% the prices of the 50 most
frequent tests, ULSA's laboratories have experienced an overall average price
reduction of less than 5% per year in fiscal 1997, 1998 and 1999, which, owing
to ULSA's clientele mix, compares favorably with the loss in revenue experienced
by other Swiss private 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. ULSA believes its procedures are sufficient to protect its
employees and to comply with Swiss law. ULSA's management does not believe these
regulations will have a material effect on its ability to operate its business.
However, ULSA 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,
<PAGE>
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 ULSA 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 ULSA'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 ULSA'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. ULSA 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. ULSA is the largest
provider of clinical testing services in all of Switzerland. ULSA believes its
size, economies of scale and experience in acquiring and integrating new
operations give it competitive advantages in the marketplace.
ULSA 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 ULSA'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 ULSA can offer. The public sector is generally poorly regarded in terms of
quality and speed.
Quality Assurance
ULSA considers the accuracy and reliability of its testing services to be of
paramount importance. ULSA 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.
<PAGE>
In 1995, ULSA 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 several ULSA laboratories have now received their accreditation, a process
which continued in calendar years 1999 and 2000. As part of its quality plan,
ULSA also participates in industry proficiency testing programs as required by
the new OFAS regulations. Such programs generally require ULSA's laboratories to
perform tests, the results of which are already known, enabling verification of
the accuracy of ULSA'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, ULSA
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 ULSA'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
ULSA considers it critical to use state-of-the-art information systems to
process its laboratory tests and related results. All ULSA'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.
<PAGE>
ULSA 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, ULSA 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. ULSA is
currently contemplating engaging into the regular sale of its computerized
systems to third parties.
Most of ULSA's laboratories were faced with "Year 2000" remediation issues. Many
computer programs were written with a two digit date field and if these programs
were not made Year 2000 compliant, they would have been unable to correctly
process date information on or after the Year 2000. While these issues impacted
all of ULSA's data processing systems to some extent, they were most significant
in connection with patient-related computer programs. Moreover, remediation
efforts go beyond ULSA's internal computer systems and required coordination
with clients, suppliers and other third parties to assure that their systems and
related interfaces were compliant. Given the different computer systems operated
by ULSA's business units, the type and extent of the Year 2000 issues and the
cost of remediation varied significantly among ULSA'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 ULSA's operations, would have had a material adverse effect on
ULSA's business, operations and financial results.
In response to the Year 2000 concerns, ULSA 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 ULSA's executive management,
provides regular progress reports to executive management, and regularly meets
with executive management to discuss its reports.
ULSA's initial plans called for all critical systems to be renovated and
compliance testing underway by the end of calendar 1998. As of November 15,
1999, ULSA estimated that approximately 95 to 98% of its critical systems had
been renovated and compliance testing underway, and that the balance would be
renovated by December 1, 1999. As ULSA uses many computerized laboratory
machinery manufactured, provided and maintained by third-party vendors, it
requested each of those vendors to provide ULSA with appropriate certification
that the machinery was Year 2000 compliant. Such certification has now been
received. Acceptance testing was finalized with time frames differing by
laboratory unit. Completion of any third party interface testing was dependent
upon those third parties completing their own internal remediation. ULSA could
have been adversely affected to the extent third parties with which it
interfaces did not properly address their Year 2000 issues. As of the date
hereof, UniHolding has not been made aware of any Year 2000 compliance related
problems impacting ULSA, subsequent to the commencement of operations in
calendar 2000.
In fiscal 1998, ULSA spent approximately $0.5 million on its Year 2000
remediation efforts. ULSA anticipated expenditures for Year 2000 remediation
efforts and testing in the range of approximately $0.6 million to $1.0 million
in fiscal 1999, out of which approximately $0.6 million were spent in the nine
months ended February 28, 1999, and $0.2 million in the 3 months ended May 31,
1999. Further, ULSA anticipates expenditures for Year 2000 remediation efforts
and testing of approximately $0.2 million in fiscal 2000. Approximately $0.5
million were spent for computer equipment that was not compliant and had to be
replaced, and substantially all of the balance of expenditures made are related
to internal payroll and external consultants. All Year 2000 expenditures of ULSA
are expensed as incurred. As of the date hereof, UniHolding has not received
from ULSA any information that would substantially modify UniHolding's
assessment of the costs associated with Year 2000 compliance.
Employees
As of May 31, 1999, ULSA employed approximately 770 people, as computed on a
full-time equivalent basis. ULSA has never experienced any work stoppages,
slow-downs, or other material labor problems and believes its relations with its
employees are satisfactory.
Seasonality
ULSA, 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, ULSA's, UGL's and therefore UniHolding's results for a particular
quarter may not be indicative of results in future quarters.
<PAGE>
ITEM 2. PROPERTIES
UniHolding and UGL do not own or rent any property. ULSA owns or leases property
as described below. All of ULSA's 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. ULSA
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 (10,000 square feet) and
Barcelona, while regional laboratories are located in Valencia and Murcia. 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, ULSA's joint venture is located on the 3rd floor of the Medincenter
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.
ITEM 3. LEGAL PROCEEDINGS
In the normal course of business, ULSA, UGL and UniHolding may be a party to
various litigation. As of May 31, 1999, none of them was 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 UniHolding's previous involvement in the
apparel industry, prior to 1994, UniHolding 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 UniHolding is
presently unable to determine the likely amount of any future award in
UniHolding's favor. Given the uncertainty of the outcome and the high costs of
continuing such litigation, UniHolding and UGL have agreed subsequent to May 31,
1999, that any proceeds deriving from such litigation will be for UGL's benefit,
provided that UGL undertakes to pay the relevant legal costs.
In 1990 and 1991, UniHolding was the majority shareholder of Americanino Capital
Corporation, a Delaware corporation ("ACC") which held interests in the Italian
apparel goods industry. In 1993, UniHolding divested itself of such interest as
the business did not meet UniHolding's expectations. It therefore concluded an
Asset Purchase Agreement and a Sharing Agreement (the "ACC Sale Agreement") with
Linford Enterprises Inc., a British Virgin
<PAGE>
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. UGL 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 arbitration (now
dismissed) and the litigation (still pending) 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 then
remained : 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 was filed by ACC on June 30, 1998. The Defendants
filed their final briefs on September 30, 1998. Oral pleadings took place on
December 3, 1998. The award on the merits was rendered on October 18, 1999, and
the sentence dismissed all of ACC's claims. ACC advised UniHolding of the
Arbitral Award in December 1999 and a copy of the Award was furnished at the end
of January 2000. ACC had previously informed UniHolding 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.
The Arbitral Tribunal expressly observed that its decision does not address, or
affect, the claims now pending against the Banque Paribas units for breaches of
their obligations to their client, ACC. Any possible proceeds from this suit
would flow to UGL following the same formula and limitations as described above
in regard to the arbitration.
While, to the best of UniHolding'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 UGL. Any estimate of recovery is still subject to
many factors beyond UGL's control. Realization of any amount is entirely
dependent upon a favorable award and the collection thereof, if any, from the
Defendants. UGL's management will continuously monitor the progress of the Paris
suit and related proceedings.
In connection with its prior involvement in the Italian apparel goods industry,
UniHolding had guaranteed certain bank loans, and had, as security, received
from third parties notes totaling Lit. 7.6 billion in favor of UniHolding,
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,
1999. Because the principals who had underwritten the notes have defaulted on
their commitment to compensate UniHolding for the execution of the guarantees,
UniHolding has instituted legal proceedings in Italy to foreclose upon the CORA
Buildings. UniHolding has begun selling the CORA Buildings as market conditions
permit; however, UniHolding cannot determine when such proceedings will be
completed, nor when any final sale will take place. The management of UniHolding
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,
UniHolding 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 UniHolding, and were
directly or indirectly Defendants in the aforementioned arbitration proceedings.
UniHolding 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,
<PAGE>
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. In view of the dismissal of all claims in the
ACC arbitration, and in view of other claims and potential claims against the
Defendants, counsel for UniHolding is now evaluating the appropriate procedure
in this case. 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,
UniHolding filed an adverse claim with its transfer agent estopping the further
transfer of such shares. Since such time, UniHolding 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. As in the New Jersey case, UniHolding
counsel is now evaluating the appropriate procedure in the Colorado case.
In April 1999, two shareholders with significant holdings filed a Complaint in
the Delaware Court of Chancery seeking a court order to direct UniHolding to
permit the plaintiffs to inspect UniHolding's books and records. The plaintiffs
alleged that the purpose in seeking to inspect UniHolding's books and records
was to communicate with other stockholders and to investigate alleged corporate
mismanagement and waste. UniHolding's Answer and Defenses to the Complaint,
filed on June 3, 1999, asserted as Affirmative Defenses that the plaintiffs have
demanded inspection of materials beyond the scope of the inspection permitted
under the applicable Delaware law and that certain of such materials are not in
UniHolding's possession or control and/or already in plaintiffs' possession and
control. As additional Affirmative Defenses UniHolding asserted that the
plaintiffs have not been damaged by any of UniHolding's actions, that UniHolding
has sought shareholder approval for all corporate actions when such approval was
required and that UniHolding was not engaged in any corporate waste or
mismanagement. The Complaint was amended on July 19, 1999 as a result of the
withdrawal of one of the plaintiffs from the action. On January 12, 2000, the
Complaint was further amended to add another plaintiff and to state claims of
breaches of fiduciary duties by directors and further asserting corporate waste
and mismanagement. UniHolding intends to vigorously contest all substantive
allegations contained in the Complaint as amended.
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, 1999.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS
MATTERS
Until September 17, 1999, the UniHolding Common Stock was traded on the National
Association of Securities Dealers Automated Quotation System Small Cap Market
("NASDAQ/Small Cap") under the symbol UHLD. As of that date, NASDAQ delisted the
UniHolding Common Stock because UniHolding had failed to file its annual report
on Form 10- K within the prescribed deadline. UniHolding intends to look for a
listing on the OTC Bulletin Board as soon as it becomes current in its public
filings.
The following table sets forth the high and low ask and bid prices for
UniHolding's common stock by fiscal quarters, as reported by NASDAQ for the
preceding two years through May 1999. The prices represent prices between
dealers, without retail mark-up, mark-down or commission and may not reflect
actual transactions.
Year ended May 31, 1999
Quarter Ended High Low
August 31, 1998 $6.75 $3.50
November 30, 1998 $6.00 $3.125
February 28, 1999 $4.75 $3.00
May 31, 1999 $4.75 $1.00
<PAGE>
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
The last closing sale price on September 13, 1999 (the last day of an actual
trade before the date of the Company's delisting from Nasdaq Small Cap) was
$3.675. As of November 15, 1999, 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, 1999, which
have been derived from financial statements appearing elsewhere herein that have
been audited by independent auditors, and from the financial statements of
UniHolding for the years ended May 31, 1995 and 1996 (not appearing herein). The
data has been retroactively adjusted to reflect the spin-off of UGL'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,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Revenue (2) $71,953 $83,503 $92,635 $92,634 $79,003
Operating earnings before Interest,
Taxes, Depreciation and 10,493 12,900 17,716 17,128 17,419
Amortization (2)
Operating Income (loss) (2) 5,953 7,191 (22,296) 10,270 10,031
Income (loss) from Continuing
Operations (2) (1,290) 5,884 (10,273) 1,255 2,773
Income (loss) from discontinued
operations - (2,820) (3,033) (1,555) -
Net Income (loss) (2) (3) (1,290) 3,064 (13,306) (300) 2,539
Net Income (loss) per common
share from Continuing
Operations (2) (3) ($0.21) $0.79 ($1.46) $0.21 $0.48
Net Income (loss) per common
share from Discontinued
Operations - ($0.38) ($0.44) ($0.26) -
Net Income (loss) per common
share (2) (3) ($0.21) $0.41 ($1.90) ($0.05) $0.44
Total Assets (1) 50,736 112,971 86,641 121,052 133,558
Long-term debt, net of current
portion - 30,269 14,555 38,354 34,048
Stockholders' Equity 43,692 42,206 48,345 34,242 37,877
</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 1 of Notes to
Financial Statements.
2. For the year ended May 31, 1999, represents the consolidated results of
operations for the nine months period ended February 28, 1999 of UniHolding,
including its then wholly owned subsidiary UGL, and UniHolding's share of UGL's
net income for the period February 25, 1999 to May 31, 1999.
3. Includes UniHolding's share of UGL's $15,710 impairment write-down of UGL's
investment in GUCT redeemable preferred stock recorded in the fourth quarter of
fiscal 1999.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations for the Three Years Ended May 31, 1999
Twelve months ended May 31, 1999 compared with the twelve months ended May 31,
1998
Pursuant to the reorganization of ownership (the "Reorganization") that occurred
effective February 25, 1999, whereby UniHolding ceased to have management
control over UGL, UniHolding stopped consolidating the results of UGL and ULSA
on a full consolidation basis, and started consolidating on an equity basis as
of that date. Accordingly, consolidated revenue and expenses of UniHolding
reflect nine months of UGL's consolidated revenue and expenses, and UniHolding's
proportionate share of UGL's earnings for the three months ended May 31, 1999.
The complete consolidated financial statements of UGL have been included in the
Form 10-K, and a separate discussion of financial condition and results of
operations of UGL has been included as a separate section of this item. At May
31, 1999, UniHolding's only source of income is through its 38% ownership
interest in UGL.
Consolidated revenue was $72.0 million for the twelve months ended May 31, 1999,
representing a decrease of $11.6 million (including the effect of the change in
the US dollar exchange rate of $1.0 million) from the comparable prior year
period, as restated for the spin-off of the clinical trials operations. Such
decline is due to the effects of consolidating only 9 months of UGL's revenue in
the current year as a result of the Reorganization, as opposed to the full
consolidation in the prior year.
Operating income for the twelve months ended May 31, 1999, was $6.0 million,
versus $8.4 million in the comparable prior year period excluding the
non-recurring charge of $1,190 and as restated for the spin-off of clinical
trials operations. Again, such decrease of $2.4 million was primarily due to the
effects of the Reorganization.
During the twelve months ended May 31, 1999, UniHolding itself did not have any
outstanding borrowings. The interest expense reflected in UniHolding's statement
of operations for the twelve months ended May 31, 1999 relates to interest
expense incurred by UGL and its subsidiaries for the period until the
Reorganization. Interest expense, net, increased $1.3 million to $1.5 million
during the twelve months ended May 31, 1999, as compared to the prior year,
primarily due to higher average borrowing levels resulting from the Swiss
acquisitions completed during fiscal 1998 and due to the UK debt incurred as a
result of the acquisition of the UK building.
With effect from February 25, 1999, UniHolding recorded its proportionate share
of UGL's consolidated loss, which did not exist in the prior year. As further
described below, during the last quarter of fiscal 1999, UGL recorded a $15.7
million charge to reflect management's current assessment of the collectability
of the GUCT preferred shares.
Sales of part of the investment held by UGL in ULSA resulted in a gain of $0.3
million versus a gain of $6.0 million in the comparable prior year period. Other
income of $0.3 million for the twelve months ended May 31, 1999 comprises $0.4
million of rental income from the period Bewlay House was owned and leased to
its tenants by UGL through the date of Bewlay House's disposal and approximately
$0.4 million relating to the reversal of the provision established in fiscal
1998 relating to the expected loss on disposal of certain information technology
equipment, as ULSA management determined such equipment can now be used by ULSA
in current operations. Offsetting these gains were foreign exchange losses of
approximately $0.5 million. Other expense of $1.2 million for the twelve months
ended May 31, 1998, consists primarily of $0.4 million of Swiss withholding
taxes, $0.5 million relating to the expected loss on disposal of certain
information technology equipment, which were reversed in the fourth quarter of
fiscal 1999 as described above, and $0.2 million of foreign exchange losses.
Provision for income taxes on continuing operations in the twelve months ended
May 31, 1999, was $2.7 million, as compared to $4.6 million in the prior year
comparable period, primarily due to the effects of the Reorganization and also
as a result of $1.2 million of US income taxes relating to dividends paid to
UniHolding in 1998 by subsidiaries, which were not repeated in 1999.
Minority interests in income of continuing operations in the twelve months ended
May 31, 1999, were $1.9 million as compared to $2.5 million in the prior year
comparable period. The decrease was effected by the Reorganization, which more
than offset the impact of the increased profitability of ULSA combined with a
decrease in the percentage of equity in ULSA owned by UGL, and certain income
not subject to minority interest in the prior year.
<PAGE>
Significant equity investee - Unilabs Group Limited - Twelve months ended May
31, 1999 compared with the twelve months ended May 31, 1998
Consolidated revenue was $98.6 million for the twelve months ended May 31, 1999,
representing an increase of $15.1 million (including the effect of the change in
the US dollar exchange rate of $1.0 million) from the comparable prior year
period, as restated for the spin-off of the clinical trials operations. Revenue
generated by the Swiss operations for the twelve months was up by 17% in local
currency as a result of (i) a 2.4% increase in sales of the existing
laboratories and (ii) the contribution made by the new operations acquired
during fiscal 1998. The Spanish operations increased revenues during the twelve
month period to $8.5 million, as compared to $6.7 million in the comparable
prior year period representing a 24% increase in local currency.
Operating income for the twelve months ended May 31, 1999, excluding the
non-recurring impairment charge of $15,710 was $13.4 million, versus $9.0
million in the comparable prior year period, excluding the non-recurring charge
of $1,190 and as restated for the spin-off of clinical trials operations. Such
increase of $4.4 million was primarily due to the Swiss operations, which
increased operating income by $2.4 million, plus the net change in other
operating income items as described immediately below.
Other income of $.5 million for the twelve months ended May 31, 1999 comprised
$0.4 million of rental income from the period Bewlay House was owned and leased
to its tenants by UGL through the date of Bewlay House's disposal and
approximately $0.4 million relating to contingencies relating to the sale of
Unilabs Group UK Limited ("UGUK") established in fiscal 1998, which were
subsequently not required and were reversed during the fourth quarter of fiscal
1999 concurrent with the completion of the sale of Bewlay House and related
contingencies. Also during the last quarter of fiscal 1999, UGL reversed
approximately $0.4 million of the provision established in fiscal 1998 relating
to the expected loss on disposal of certain information technology equipment, as
ULSA management determined such equipment can now be used by ULSA in current
operations. Offsetting these gains were foreign exchange losses of approximately
$0.8 million. Other expense of $1.0 million for the twelve months ended May 31,
1998, consisted primarily of $0.4 million of Swiss withholding taxes, $0.5
million relating to the expected loss on disposal of certain information
technology equipment, which were subsequently reversed in 1999, as described
above, offset in part by the gain on disposal of UGUK of $0.1 million.
Interest expense, net, increased $1.8 million to $2.0 million during the twelve
months ended May 31, 1999, as compared to the prior year, primarily due to
higher average borrowing levels resulting from the Swiss acquisitions completed
during fiscal 1998 and due to the UK debt incurred as a result of the
acquisition of the UK building.
Gains on sale of part of the investment held by UGL in ULSA resulted in income
of $3.8 million versus $6.0 million in the comparable prior year period.
During the fourth quarter of fiscal 1999, UGL recorded an impairment write-down
of $15,710 relating to its investment in and advances to GUCT and its
affiliates. Such write-down arose due to a lack of available financing for the
operating companies in which GUCT has an ownership interest. As a result of such
lack of available financing, GUCT and UGL were informed that the controlling
shareholders of the operating companies had decided to look for alternative
solutions including a sale of operations or a liquidation. Accordingly, UGL's
management performed a careful review of the value of the GUCT preferred stock
held as of May 31, 1999, considering the situation described above. As a result
of such review, UGL's management concluded that there was a permanent impairment
in the value of GUCT and related advances, and that it was therefore necessary
to record a 100% write-down of the aggregate value of the GUCT preferred stock
and advances to GUCT affiliates at May 31, 1999, now carried at a net amount of
$0.0 million in UGL's financial statements as of May 31, 1999.
Provision for income taxes in the twelve months ended May 31, 1999, was $4.0
million, as compared to $2.6 million in the prior year comparable period, which
increase is primarily a result of a decrease in the earnings in the 0% tax
jurisdictions in which UGL operates, primarily the British Virgin Islands.
Minority interests in income of continuing operations in the twelve months ended
May 31, 1999, were $4.7 million as compared to $2.5 million in the prior year
comparable period, essentially due to the increased profitability of ULSA
combined with a decrease in the percentage of equity in ULSA owned by UGL, and
certain income not subject to minority interest in the prior year.
<PAGE>
Twelve months ended May 31, 1998 compared with the twelve months ended May 31,
1997
UniHolding's results of operations for the year ended May 31, 1998, include the
operations of UGL's core business (the "Diagnostic Laboratory Division"). As a
result of UniHolding's decision to spin off the Clinical Trials Division to
UniHolding'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 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 $21.3 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, excluding the non-recurring
impairment charge of $1,190 relating to 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, was $8.4 million, compared to an
operating loss of $20.8 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.
Other expense of $1.2 million for the twelve months ended May 31, 1998, consists
primarily of $0.4 million of Swiss withholding taxes, $0.5 million relating to
the expected loss on disposal of certain information technology equipment, which
were reversed in the fourth quarter of fiscal 1999, as described above and $0.2
million of foreign exchange losses.
Gains on sale of part of the investment held by UGL in ULSA resulted in income
of $6.0 million versus $16.2 million in the comparable prior year period.
Interest expense, net, decreased $2.7 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.
Provision for income taxes was $4.6 million, as compared to $0.8 million in the
prior year period, 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 period.
The 1998 increase 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, UGL 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 UniHolding'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
<PAGE>
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.
Liquidity and Capital Resources
Net cash provided by operating activities for the twelve months ended May 31,
1999 amounted to $6.5 million, a decrease of $4.7 million from the prior year
period primarily due to the lower net income for the period and reduced cash
inflows from operating assets and liabilities offset by an increase in the
aggregate non-cash income items.
Net cash provided by operating activities for the year ended May 31, 1998
amounted to $11.2 million, an improvement of $0.3 million from the prior year.
Net cash used in financing activities for the twelve months ended May 31, 1999
was $0.0 million, a change of $21.8 million from the prior year period, due to
the accounting effects of the Reorganization.
Net cash provided by financing activities for the year ended May 31, 1998 was
$21.8 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 UniHolding's treasury stock ($1.7 million). During 1998
UniHolding 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.
Net cash provided by investing activities for the twelve months ended May 31,
1999 was $0.6 million, compared to net cash used of $25.2 million in the prior
year comparable period. Again, the change is primarily due to the accounting
effects of the Reorganization.
Net cash used in investing activities for the year ended May 31, 1998 was $25.2
million, compared 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.
The effect of changing from the consolidation to the equity method of accounting
for UniHolding's investment in UGL was to decrease net cash flows by
approximately $16.4 million.
As of November 15, 1999, UniHolding's bank facility provide for a total of
approximately $0.5 million. As of December 15, 1999, UniHolding had
approximately $0.3 million of availability under its credit facility.
UniHolding believes that the liquidity provided to ULSA and UGL by the cash flow
from operations, the existing cash balances and the borrowing arrangements
described above will be sufficient to meet UGL's capital requirements including
anticipated operating expenses arising from UGL's expansion into several new
markets, as well as debt repayments.
On July 23, 1996, UniHolding issued 333,333 new shares of its common stock to a
U.S. institutional investor at $15.00 per share.
Significant equity investee - Unilabs Group Limited - Liquidity and capital
resources
Net cash provided by operating activities for the twelve months ended May 31,
1999 amounted to $9.9 million, a decrease of $3.3 million from the prior year
primarily due to a decrease in income from continuing operations and increased
outflows from working capital items, offset in part by increased non-cash income
items in the 1999 period.
Net cash provided by operating activities for the year ended May 31, 1998
amounted to $13.2 million, an improvement of $0.9 million from the prior year.
Net cash used in financing activities for the twelve months ended May 31, 1999
was $9.0 million, a change of $30.8 million from the prior year, due to
repayment of long term debt in the current year and to lower proceeds from new
long term debt as compared to the prior year.
<PAGE>
Net cash provided by financing activities for the year ended May 31, 1998 was
$21.8 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 UniHolding's treasury stock ($1.7 million).
Net cash used in investing activities for the twelve months ended May 31, 1999
was $4.0 million, compared to $27.2 million in the prior year. The change was
primarily due to lower payments for acquisition of shares in subsidiaries and
property, plant and equipment and lower advances to affiliates, offset by
proceeds of $12.4 primarily related to the sale of the UK building.
Net cash used in investing activities for the year ended May 31, 1998 was $27.2
million, as compared to $5.6 million provided in the prior year, primarily
resulting from an increased proceeds from the sale of ULSA shares and lower
payments for purchases of businesses in 1997.
As of December 15, 1999, UGL's bank facilities provide for a total of
approximately $45 million. As of December 15, 1999, UGL had approximately $14
million of availability under its credit facilities.
UGL believes that the liquidity provided to ULSA and UGL by the cash flow from
operations, the existing cash balances and the borrowing arrangements described
above will be sufficient to meet UGL's capital requirements including
anticipated operating expenses arising from UGL's expansion into several new
markets, as well as debt repayments.
During the year ended May 31, 1997, UGL 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
UGL of a portion of its holding in ULSA, thereby diluting UGL'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 to the above described matters, ULSA 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 UniHolding's expectations or beliefs
concerning UGL's operations, economic performance and financial condition,
including, in particular, forward-looking statements regarding UniHolding's
expectation of future performance following implementation of its new business
strategy. Such statements are subject to various risks and uncertainties.
Accordingly, UniHolding hereby identifies the following important factors that
could cause UGL's and UniHolding's actual financial results to differ materially
from those projected, forecast, estimated, or budgeted by UniHolding in such
forward-looking statements. UniHolding 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 ULSA.
<PAGE>
(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 ULSA's clinical laboratories
by governmental agencies.
(g) Adverse publicity and news coverage about ULSA 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 ULSA to attract and retain experienced and qualified personnel.
(k) Changes in interest rates causing an increase in ULSA's effective borrowing
rate, and changes in exchange rates causing variances in consolidated income and
expenses reported in dollars.
(l) The effect of ULSA's effort to improve account profitability by selectively
repricing or discontinuing business which perform below ULSA expectations.
Other Information
ULSA '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 UGL and ULSA
operate, such as recessionary periods, political instability, and fluctuations
in interest or currency exchange rates.
ULSA 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 for
ULSA and therefore UniHolding, which is not indicative of the trend of ULSA and
UniHolding's businesses.
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 ULSA's laboratories were faced with "Year 2000" remediation issues. Many
computer programs were written with a two digit date field and if these programs
were not made Year 2000 compliant, they would have been unable to correctly
process date information on or after the Year 2000. While these issues impacted
all of ULSA's data processing systems to some extent, they were most significant
in connection with patient-related computer programs. Moreover, remediation
efforts go beyond ULSA's internal computer systems and required coordination
with clients, suppliers and other third parties to assure that their systems and
related interfaces were compliant. Given the different computer systems operated
by ULSA's business units, the type and extent of the Year 2000 issues and the
cost of remediation varied significantly among ULSA'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 ULSA's operations, would have had a material adverse effect on
ULSA's business, operations and financial results.
In response to the Year 2000 concerns, ULSA 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 ULSA's executive management,
provides regular progress reports to executive management, and regularly meets
with executive management to discuss its reports.
ULSA's initial plans called for all critical systems to be renovated and
compliance testing underway by the end of calendar 1998. As of November 15,
1999, ULSA estimated that approximately 95 to 98% of its critical systems had
been renovated and compliance testing underway, and that the balance would be
renovated by December 1, 1999. As ULSA uses many computerized laboratory
machinery manufactured, provided and maintained by third-party vendors, it
<PAGE>
requested each of those vendors to provide ULSA with appropriate certification
that the machinery was Year 2000 compliant. Such certification has now been
received. Acceptance testing was finalized with time frames differing by
laboratory unit. Completion of any third party interface testing was dependent
upon those third parties completing their own internal remediation. ULSA could
have been adversely affected to the extent third parties with which it
interfaces did not properly address their Year 2000 issues. As of the date
hereof, UniHolding has not been made aware of any Year 2000 compliance related
problems impacting ULSA, subsequent to the commencement of operations in
calendar 2000.
In fiscal 1998, ULSA spent approximately $0.5 million on its Year 2000
remediation efforts. ULSA anticipated expenditures for Year 2000 remediation
efforts and testing in the range of approximately $0.6 million to $1.0 million
in fiscal 1999, out of which approximately $0.6 million were spent in the nine
months ended February 28, 1999, and $0.2 million in the 3 months ended May 31,
1999. Further, ULSA anticipates expenditures for Year 2000 remediation efforts
and testing of approximately $0.2 million in fiscal 2000. Approximately $0.5
million were spent for computer equipment that was not compliant and had to be
replaced, and substantially all of the balance of expenditures made are related
to internal payroll and external consultants. All Year 2000 expenditures of ULSA
are expensed as incurred. As of the date hereof, UniHolding has not received
from ULSA any information that would substantially modify UniHolding's
assessment of the costs associated with Year 2000 compliance.
<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, 1999, and 1998..............................II-F-3
UniHolding Corporation and Subsidiaries Consolidated
Statements of Operations for the Years Ended
May 31, 1999, 1998 and 1997..............................................II-F-5
UniHolding Corporation and Subsidiaries Consolidated
Statements of Stockholders' Equity for the Years Ended
May 31, 1999, 1998 and 1997..............................................II-F-6
UniHolding Corporation and Subsidiaries Consolidated
Statements of Cash Flows for the Years Ended
May 31, 1999, 1998 and 1997..............................................II-F-8
UniHolding Corporation and Subsidiaries Notes to
Consolidated Financial Statements for the Years
Ended May 31, 1999, 1998 and 1997........................................II-F-10
<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, 1999 and 1998 and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended May 31, 1999. Our audits
also included the financial statement schedule listed in the Index at Item
14(a). These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
UniHolding Corporation and subsidiaries at May 31, 1999 and 1998 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended May 31, 1999, in conformity with accounting
principles generally accepted in the United States of America. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
Geneva, Switzerland,
December 17, 1999 ATAG ERNST & YOUNG
/s/ C. PICCI /s/S. REID
----------------- --------------
C. Picci S. Reid
ATAG ERNST & YOUNG SA: offices in
Basel, Aarau, Berne/Thun, Bienne, Brig, Chur, Fribourg, Geneva, Kreuzlingen,
Lausanne, Lucerne, Neuchatel/La Chaux-de-Fonds, St. Gallen/Buchs, Sion,
Solothurn, Winterthur, Zurich
Member of the Swiss Chamber of Auditors
<PAGE>
UNIHOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
May 31
ASSETS 1999 1998
CURRENT ASSETS:
Cash and cash equivalents 227 $9,186
Accounts receivable, net of allowance for doubtful
accounts of $444 in 1999 and $2,940 in 1998 104 19,464
Due from related companies - 1,587
Due from Unilabs Group Limited 919 -
Inventories - 1,849
Prepaid expenses - 3,090
Other current assets 9 411
---------- ----------
Total current assets 1,259 35,587
---------- ----------
NON-CURRENT ASSETS:
Long-term notes receivable 818 818
Intangible assets, net - 44,344
Property, plant and equipment, net - 8,828
Investment in Unilabs Group Limited 48,658 -
Investment in equity affiliates - 481
Long-term investments - 22,781
Other assets, net - 132
---------- ----------
Total non-current assets 49,476 77,384
---------- ----------
$50,736 $112,971
======= ==========
See notes to financial statements
<PAGE>
UNIHOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
May 31
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
CURRENT LIABILITIES:
Bank overdrafts - $4,010
Current portion of lease payable - 809
Payable to related parties 362 100
Trade payables 527 6,911
Accrued liabilities - 6,018
Current portion of long-term debt - 5,727
Taxes payable 6,155 6,459
Deferred taxes - 769
---------- ----------
Total current liabilities 7,044 30,803
---------- ----------
NON-CURRENT LIABILITIES:
Lease payable - 725
Long-term debt - 29,544
Taxes payable - 74
Deferred taxes - 179
---------- ----------
Total non-current liabilities - 30,522
---------- ----------
Total liabilities 7,044 61,325
---------- ----------
MINORITY INTERESTS - 9,440
---------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value;
Voting; authorized 18,000,000 shares;
issued 7,926,120 and 7,627,736 at
May 31, 1999 and 1998, respectively 79 76
Non-Voting; authorized 2,000,000
shares; issued and outstanding 0
and 298,384 at May 31, 1999 and 1998,
respectively - 3
Additional paid-in capital 49,832 49,832
Accumulated other comprehensive loss (1,792) (2,074)
Retained earnings 6,333 7,623
---------- ----------
54,452 55,460
Less - cost of 1,237,865 (including
349,101 deemed treasury shares)and
1,602,569 shares of Common Stock held in
treasury at May 31, 1999 and May 31, 1998,
respectively (see Note 2) (10,760) (13,254)
--------- ----------
Total stockholders' equity 43,692 42,206
--------- ----------
$50,736 $112,971
========= =========
See notes to financial statements
<PAGE>
UNIHOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Years ended May 31
1999 1998 1997
<S> <C> <C> <C>
REVENUE $71,953 $83,503 $92,635
Operating expenses:
Salaries and related charges 29,960 32,618 37,431
Supplies 12,704 12,937 15,545
Other operating expenses 19,077 22,643 22,451
Depreciation and amortization of tangible assets 2,152 3,071 5,118
Impairment of investment - 1,190 -
Adjustment of carrying value of building - - 5,805
Amortization of intangible assets 2,388 2,638 5,367
Adjustment of carrying value of goodwill in
subsidiary - - 23,722
Other, net (281) 1,215 (508)
---------- --------- ---------
OPERATING INCOME (LOSS) 5,953 7,191 (22,296)
Interest expense, net of interest income of $192,
$891 and $268 in 1999, 1998 and 1997 (1,546) (238) (2,965)
Gain (loss) on sale of subsidiary shares 328 6,007 16,164
Share of loss from Unilabs Group Limited (1,255) - -
--------- --------- ---------
Income (loss) before taxes and minority interests 3,480 12,960 (9,097)
Tax benefit (provision) (2,722) (4,585) (814)
--------- --------- ---------
Income (loss) from continuing operations before
minority interests 758 8,375 (9,911)
Minority interests in income of continuing
operations (2,048) (2,491) (362)
--------- --------- ---------
Income (loss) from continuing operations (1,290) 5,884 (10,273)
Loss from discontinued operations, net of tax
benefit of $-0-, $2,505 and $4,402 in 1999, 1998 and
1997 and minority interests - (2,820) (3,033)
--------- --------- ---------
NET INCOME (LOSS) $(1,290) $3,064 ($13,306)
======== ========= =========
Weighted average common shares outstanding 6,150,612 7,466,565 7,015,943
Basic and diluted earnings per share of common stock
Net income (loss) from continuing operations ($0.21) $0.79 ($1.46)
Loss from discontinued operations - ($0.38) ($0.44)
Net income (loss) ($0.21) $0.41 ($1.90)
</TABLE>
See notes to financial statements
<PAGE>
UNIHOLDING CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Other
Voting Non-voting Paid-in Comprehensive
Shares Amount Shares Amount Capital Income (Loss)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, May 31, 1996 5,823,785 $58 298,384 $3 $32,429 ($239)
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
Net loss
Cumulative translation
adjustment (2,811)
Comprehensive (loss)
------------ --- ---------- --- ---------- ----------
Balances, May 31, 1997 7,627,736 76 298,384 3 49,832 (3,050)
Cost of Common Stock held in
treasury
Distribution of GUCT
Net income
Cumulative translation
adjustment 976
Comprehensive income
------------ --- ---------- --- ---------- ----------
Balances, May 31, 1998 7,627,736 76 298,384 3 49,832 (2,074)
Change in voting rights of
Common Stock 298,384 3 (298,384) (3)
Cost of Common Stock held in
treasury
Adjustment to cost of Common
Stock held in treasury, resulting
from change in accounting
method for Unilabs Group
Limited (see Note 2)
Net income
Cumulative translation
adjustment 282
Comprehensive income
------------ --- ---------- --- ---------- ----------
Balances, May 31, 1999 7,926,120 $79 - $- $49,832 ($1,792)
========= === ========== === ========== ==========
</TABLE>
(continued)
<PAGE>
UNIHOLDING CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
(continued)
<TABLE>
<CAPTION>
Total
Retained Treasury Stockholder's
Earnings Stock Equity
<S> <C> <C> <C> <C> <C>
Balances, May 31, 1996 $5,153 ($3,162) $34,242
Issuance of common stock for 5,000
cash
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)
Net loss (13,306) (13,306)
Cumulative translation adjustment (2,811)
Comprehensive (loss) (16,117)
------------ ----------- ------------
Balances, May 31, 1997 5,559 (4,075) 48,345
Cost of Common Stock held in
treasury (9,179) (9,179)
Distribution of GUCT (1,000) (1,000)
Net income 3,064 3,064
Cumulative translation adjustment 976
Comprehensive income 4,040
---------- ---------- -----------
Balances, May 31, 1998 $7,623 ($13,254) $42,206
Change in voting rights of
Common Stock -
Cost of Common Stock held in
treasury (2,556) ( 2,556)
Adjustment to cost of common
stock held in treasury, resulting
from change in accounting
method for Unilabs Group
Limited (see Note 2) 5,050 5,184
Net income (1,290) (1,290)
Cumulative translation adjustment 282
Comprehensive income (1,008)
----------- --------- ----------
Balances, May 31, 1999 $6,333 ($10,760) $43,692
=========== ========= ==========
</TABLE>
See notes to financial statements
<PAGE>
UNIHOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Years ended May 31
1999 1998 1997
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) from continuing operations ($1,290) $5,884 ($10,273)
Adjustments to reconcile net income to net cash provided
by operations:
Loss from equity investee 1,255 - -
Impairment of investment - 1,190 -
Minority interests in income 2,048 2,491 362
Deferred taxes 1,082 (3,188)
Depreciation and amortization of tangible assets 2,152 3,071 5,118
Amortization of intangible assets 2,388 2,638 5,367
(Gain)/loss on sale of subsidiary shares (328) (6,007) (16,164)
Adjustment of carrying value of building - - 5,805
Adjustment of carrying value of goodwill in subsidiary - - 23,722
Other non-cash (income) expenses - (620) (1,292)
Net changes in assets and liabilities, net of acquisitions:
Accounts receivable - (2,066) (1,441)
Inventories - (227) (276)
Prepaid expenses 1 (1,757) 591
Other current assets - 2,179 266
Trade payables 272 61 837
Accrued liabilities - 1,530 (383)
Taxes payable 1,754 1,870
--------- --------- ---------
Net cash provided by operating activities 6,498 11,203 10,921
--------- --------- ---------
Cash proceeds from issuance of share capital, net
of expenses - (87) 21,152
Repayment of long-term debt - (168) (20,115)
Cash proceeds from long-term debt - 25,204 -
Proceeds (reimbursement) from (of) bank overdrafts - 2,868 (1,131)
Dividend paid to minority shareholders - (3,662) (209)
Repayment of lease debt - (620) (1,697)
Payment for purchase of treasury stock from third parties - (1,726) (696)
--------- --------- ---------
Net cash provided by (used in) financing activities - 21,809 (2,696)
--------- --------- ---------
</TABLE>
(continued)
<PAGE>
UNIHOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(continued)
<TABLE>
<CAPTION>
Years ended May 31
1999 1998 1997
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for purchases of property and equipment - (2,661) (3,641)
Changes in loans and advances to/from affiliates and
related companies, net 557 (2,436) (5,719)
Payment for businesses acquired
net of cash acquired (27,323) (15,403)
Payment for purchase of intangible assets - (842) (59)
Proceeds from sale of subsidiary shares - 8,084 26,842
------- --------- ---------
Net cash provided by (used in) investing activities 557 (25,178) 2,020
------- --------- ---------
Effect of exchange rate changes on cash - (244) 131
Impact on consolidated assets and liabilities from (16,014)
change in accounting method for Unilabs Group
Limited - -
Net increase (decrease) in cash and cash equivalents
from continuing operations (8,959) 7,590 10,376
Net cash flows (used) by discontinued operations - (3,329) (6,984)
Cash and cash equivalents, beginning of year 9,186 4,925 1,533
------- --------- ---------
Cash and cash equivalents, end of year $227 $9,186 $4,925
======= ========= =========
</TABLE>
See notes to financial statements
<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 ("UniHolding") is a holding company which, pursuant to a
reorganization (the "Reorganization") further described below, owns as of May
31, 1999, a 38% interest in Unilabs Group Limited, a British Virgin Islands
corporation ("UGL"), itself a holding company. Prior to the Reorganization,
which took effect on February 25, 1999, UniHolding owned 100% of UGL. UGL is the
majority shareholder of Unilabs SA, a Switzerland corporation ("ULSA"), which
supplies clinical testing services in several European countries (the
"Diagnostic Laboratory Division"), and, until the spin-off made in February
1998, UGL was also the sole shareholder of Global Unilabs Clinical Trials
Limited, a British Virgin Islands corporation ("GUCT") supplying clinical trials
testing for the pharmaceutical industry (the "Clinical Trials Division"). At May
31, 1999, UniHolding has no operations other than its indirect investment in
ULSA. Accordingly, the accompanying financial statements reflect the full
consolidation of UGL and its subsidiaries up to February 25, 1999. Subsequent to
February 25, 1999, the financial statements reflect UniHolding's cost of
investment in UGL, plus UniHolding's equity in undistributed earnings or losses
of UGL and its subsidiaries since that date.
UniHolding acquired control of UGL and its subsidiaries in March 1994, when it
acquired from Unilabs Holdings SA, a Panama corporation ("Holdings"), 60% of the
equity of UGL. UGL then had as principal operating subsidiaries ULSA and Unilabs
Group (UK) Limited, a United Kingdom corporation ("UGUK"). As of June 30, 1995,
UGL 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 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 of
UniHolding and was accounted for by UniHolding as an additional investment in
UGL of $15,750.
The Reorganization
Until February 25, 1999, UGL was a wholly-owned subsidiary of UniHolding.
Effective February 25, 1999, UGL reached an agreement with Holdings, then a
major shareholder of UniHolding, whereby Holdings received approximately 2.3
million newly issued shares of common stock of UGL in exchange for its
UniHolding shares of common stock on a one-for-one basis. At the same time, UGL
reached agreements with certain other non-US shareholders whereby such
shareholders also received newly issued shares of common stock of UGL in
exchange for their approximate 0.4 million UniHolding shares of common stock on
the same one for one basis. Accordingly, effective February 25, 1999, UGL had
gained control of UniHolding. Further, during the period from February 25 to May
31, 1999, UGL reached agreements with certain other non-U.S. shareholders of
UniHolding, whereby such shareholders also received newly issued shares of
common stock of UGL in exchange for their approximately 0.6 million UniHolding
shares of common stock, also on the same one-for-one basis. In addition, also
during the same period, a further aggregate of approximately 0.8 million
UniHolding shares was acquired by UGL for a consideration consisting of
approximately 14,000 bearer shares of ULSA common stock. As a result, as of May
31, 1999, UGL owned approximately 74% of UniHolding, while UniHolding owned
approximately 38% of UGL. As more fully described in Note 12, UGL subsequently
exchanged its shares of UniHolding common stock for 30,000 shares of UGL common
stock held by UniHolding.
<PAGE>
Acquisitions and disposals prior to the Reorganization
Clinical Trials Spin-off
As of February 27, 1998, UniHolding spun off its wholly owned investment in the
common stock of GUCT to UniHolding's shareholders. In connection therewith, UGL
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 held by UGL 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 UniHolding's
shareholders, UGL'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. UGL 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 was carried at a value of $12,164 and
is included under 'Long-term investments' in the accompanying 1998 balance
sheet. Revenues of the Clinical Trials Division were $9,000 for the period
through February 27, 1998, being the date of the spin-off of such division and
$7,000 and $4,400 for the years ended May 31, 1998 and 1997, respectively.
During the fourth quarter of fiscal 1999, UGL recorded an impairment write-down
of $15,710 relating to its investment in GUCT. Such write-down arose due to a
lack of available financing for the operating companies in which GUCT has an
ownership interest. As a result of such lack of available financing, GUCT and
UGL were informed that the controlling shareholders of the operating companies
had decided to look for alternative solutions including a sale of operations or
a liquidation. Accordingly, UGL's management performed a careful review of the
value of the GUCT preferred stock held as of May 31, 1999, considering the
situation described above. As a result of such review, UGL's management
concluded that there was a permanent impairment in the value of GUCT, and that
it was therefore necessary to record a 100% write-down of the aggregate value of
the GUCT preferred stock at May 31, 1999.
Other Acquisitions and Disposals
During the year ended May 31, 1998, ULSA acquired from third parties 100% of the
equity of Institut Bio-Analytique Medical SA, a Geneva company, and related
companies and 100% of the equity of Laboratoire Medical Pierre-Alain Gras SA, a
Geneva company, at an aggregate cost of $25,260. Those acquisitions were
accounted for as purchases 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 by ULSA 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 ULSA entered into certain
other agreements during prior periods not presented herein. 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, ULSA recorded a net gain on disposal of $116. Subsequently however, ULSA
recorded a write-down of approximately $1,190, which reflects ULSA's appraisal
of the uncertainty as to the timing and the possibility of recovery of its
investment in FHL. Such amount of preferred shares was therefore carried at a
value of $10,617 as of May 31, 1998, and is included under "Long-Term
investments" in the accompanying 1998 balance sheet. ULSA has been informed by
FHL that certain discussions are currently taking place with a third party, with
a view to merge UGUK with, or sell UGUK to, this third party. ULSA has indicated
that it will not veto a transaction which will enable it to recover the full
amount of the FHL preferred stock currently recorded on ULSA's books, of SFr.
15,600 (approximately $10,300). See Note 12.
In connection with the sale of UGUK, ULSA agreed to purchase from the latter the
London building which housed most of UGUK's operations ("Bewlay House"), through
its subsidiary Placelite Ltd. On July 8, 1998, ULSA completed this transaction
and acquired a 999-year leasehold in Bewlay House for a purchase price of
$12,322. On February 25, 1999, ULSA closed on definitive agreements to sell the
building to a third party for cash consideration of approximately $12,000, net
of all related costs and expenses. No significant gain or loss, other than
resulting from currency changes, was made as compared to the carrying value of
the building.
<PAGE>
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 significant 20 to 50%-owned affiliates or in which UniHolding
otherwise exercises significant influence are accounted for by the equity method
of accounting, whereby the investment is carried at cost of acquisition, plus
the proportionate equity in undistributed earnings or losses since acquisition.
As a result of UniHolding's decrease in ownership of UGL, the method used to
account for the investment in UGL has changed from the consolidation method to
the equity method. Valuation allowances are provided where management determines
that the investment or equity in earnings is not realizable. As of May 31, 1999,
UGL owns approximately 5 million shares of UniHolding common stock and
UniHolding owns 2 million shares of UGL common stock. UniHolding has utilized
the treasury stock method in accounting for this reciprocal shareholding between
itself and UGL. The shares deemed treasury stock represents the ownership
interest UniHolding has in itself through its investment in UGL.
The Company's policy as regards the accounting treatment of gains or losses
arising from the issuance by any of the Company's former subsidiaries, of such
former subsidiaries stock, was to record such gain or loss presently in income.
Such aggregate gain or loss was classified in the income statement
classification "Gain on sale of subsidiary shares".
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, ULSA 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), which is included in the
income statement classification "Amortization of intangible assets".
<PAGE>
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
UniHolding 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.
UniHolding provided income taxes on the earnings of foreign subsidiaries to the
extent they were 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 UniHolding
could not recover, but may be creditable against U.S. Federal income tax.
Foreign Currency Translation
UniHolding's principal operations, including its current investment in UGL, are
located in Switzerland and various other countries. As a result, a significant
part of net assets, revenues and expenses are denominated in the currency of
those countries, while UniHolding presents its consolidated financial statements
in US dollars. Assets and liabilities denominated in foreign currencies are
translated at the exchange rates in effect at the balance sheet date. Revenues
and expenses denominated in foreign currencies 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 exchange losses of $528, $206, and $248 in fiscal 1999, 1998 and
1997, respectively.
Income (Loss) Per Common Share
Effective December 1997, UniHolding 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 UniHolding'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, 1999, 1998 and 1997 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
UniHolding considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
<PAGE>
Fair Value of Financial Instruments
The carrying amount reported in the consolidated balance sheets for cash and
cash equivalents, 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. UniHolding 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
UniHolding maintains cash and cash equivalents, and investment securities with
various financial institutions. UniHolding limits its concentration of these
financial instruments with any one institution, and periodically reviews the
credit standings of these institutions. ULSA has a large and diverse customer
base, thereby minimizing the credit risk of any one customer to accounts
receivable amounts. In addition, whenever applicable, each ULSA business unit
performs 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 UniHolding's results of
operations or financial position. See Note 6.
3.Property, Plant and Equipment, net, and Intangible Assets
Property, plant and equipment, net consists of the following:
May 31, 1999 May 31,
1998
Land and buildings - $942
Long-term leasehold and improvements - 9,007
Furniture and fittings - 3,213
Laboratory and office equipment - 20,544
Capitalized data processing software - 1,862
---------- ----------
- $35,568
Less: Accumulated depreciation - (26,740)
---------- ----------
$ - $8,828
Amounts charged to expense for depreciation of tangible assets, including assets
under capital lease, was $2,152, $3,071, and $10,923 in the years ended May 31,
1999, 1998 and 1997, respectively. During the year ended May 31, 1997, as a
result of its decision to sell a building used by its UK operations, ULSA
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 $0 and $106 as of May
31, 1999 and 1998 respectively. The amount of assets under capital leases is $0
($0 net of accumulated depreciation) and $4,476 ($1,725 net of accumulated
depreciation) as of May 31, 1999 and 1998 respectively.
<PAGE>
Intangible assets consist of:
May 31, 1999 May 31, 1998
-
Goodwill - $50,577
Customer lists - 6,938
Other - 694
---------- ----------
- 58,209
Less : Accumulated amortization - (13,865)
---------- ----------
$ - $44,344
Amortization of intangible assets was $2,388, $2,638, and $29,089 in the years
ended May 31, 1999, 1998 and 1997. During the year ended May 31, 1997, ULSA
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 ULSA'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 management's criteria, and in view of the then
present and estimated future profitability of such operations, ULSA 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, 1999 May 31, 1998
Senior secured debt :
ULSA Credit Facilities - $34,644
Other debt - 627
Capital leases, net of interest - 1,534
component
---------- ----------
- $36,805
Less: current portion (6,536)
---------- ----------
- $30,269
Senior Secured Debt
Senior secured debt consisted of credit facilities granted by banks in Swiss
francs to UGL and its subsidiaries. Such debt was secured by a pledge of the
common stock of substantially all of ULSA's subsidiaries, and contained
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 was generally at market rates plus a margin, and
depended upon actual utilization of the facilities and the maturity of the debt
instruments. At May 31, 1998, the effective average interest rate was
approximately 3.25% per annum.
Subsequent to May 31, 1999, UniHolding obtained a $500 credit facility from a
financial institution. Such credit facility will be utilized to fund the ongoing
general and administrative expenses of UniHolding and is secured by a pledge of
320,000 UGL shares of common stock.
In connection with the disposal of the UK operation by ULSA, all of the debt
related to that operation was disposed of. See Note 1 regarding disposal of UK
operations
<PAGE>
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 operations are taxed. Income (loss) before income
taxes and minority interests of domestic and foreign corporations is as follows:
Years ended May 31
1999 1998 1997
Domestic ($878) $2,149 $(3,052)
Foreign 4,358 10,811 (6,045)
----------- ----------- -----------
Total $3,480 $12,960 ($9,097)
The provision (benefit) for income taxes is as follows :
Years ended May 31
1999 1998 1997
Current:
Foreign $1,746 $3,037 $864
U.S. 1,155 2,000 3,000
Deferred:
Foreign (179) (452) (3,050)
-------- ----------- -----------
Total $2,722 $4,585 $814
======== =========== ===========
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, 1999, are as follows :
Assets Liabilities
Operating loss carryforwards $1,023
Investment in UGL 16,608 -
--------- ---------
17,631 -
Valuation allowance (17,631) -
-------- ---------
- -
Management of the Company has determined, based on UniHolding's history of
operating earnings and its expected income, that operating income will not more
likely than not be sufficient to utilize this deferred tax asset and accordingly
has provided for it in full.
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 1,328 -
1,328 336
Valuation allowance (1,171) -
-------- ---------
$157 $336
===== ====
<PAGE>
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
1999 1998 1997
==== ==== ====
Computed income taxes at rate of
34% $1,183 $4,406 ($3,093)
Impact of difference between
statutory and US tax rates (328) (2,028) (3,799)
Non-deductible goodwill 729
US income taxes on dividends and
interest paid to UniHolding from
subsidiaries - 1,200
Withholding tax on dividend from
ULSA to UGL - 769 -
Penalties and interest on US tax
liability 1,155 800 -
US income taxes on deemed
dividends relating to sales of
subsidiary shares - 3,000
Effect of change in accounting
estimates relating to write-down in
carrying value UK building - - (1,916)
Effect of change in accounting
estimates relating to change in
amortization period of goodwill - (510)
Effect of adjustment of carrying
value of goodwill in subsidiary 4,383
Change in valuation reserves on
deferred tax assets (148) (697) 2,441
Other 131 135 308
---------- ---------- --------
2,722 $4,585 $814
======== ========== =======
Certain of UniHolding's former subsidiaries incurred losses, which could 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 of such former subsidiaries amounted to approximately $6,400.
Management reviewed the probability of realization of the tax benefits that may
have arisen from these losses being carried forward. Based on the estimated
realization, UniHolding reserved for the tax benefits in all cases where it had
not been satisfied that it was more likely than not that the benefits would be
realized. Therefore, UniHolding recognized deferred tax assets of $157 at May
31, 1998. The major portion of such underlying net operating loss carry forwards
was expected to expire starting in 2004.
At May 31, 1998, taxes were not provided on approximately $8,400 of accumulated
foreign unremitted earnings because those earnings were expected to remain
invested indefinitely and accordingly, no U.S. taxes were provided on such
unremitted earnings. It was 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
<PAGE>
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.
At May 31, 1999, no deferred income taxes were provided on approximately $3,129
of accumulated foreign unrequited earnings, due to the fact US tax credits for
foreign taxes paid on the remitted undistributed earnings would more than offset
any US tax liability from the remittance of such undistributed earnings.
6. Stockholders' Equity
Treasury Stock
During the period June 1, 1998 to February 25, 1999 UniHolding, through its then
subsidiary UGL, acquired 422,071 shares of UniHolding at a cost of approximately
$2,600. During the year ended May 31, 1998, UniHolding, and its then subsidiary
UGL, acquired 1,309,419 shares of UniHolding common stock at a cost of
approximately $9,200. Approximately $5,100 of this total was obtained through
forgiveness of amounts owed by its principal shareholder. Of the remaining
$4,100, $2,400 was attributable to purchases from its principal shareholder and
$1,700 to purchases from third parties. During the year ended May 31, 1997, UGL
acquired 125,150 of UniHolding common stock on the market for $913.
Stock Options
As of June 28, 1994, UniHolding's Board of Directors adopted a Stock Option Plan
whereby options can be granted to directors, key officers or management
personnel of UniHolding 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. 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, UniHolding will be able to grant
3.0 million options in addition to those already granted.
On August 17, 1995, a total of 131,250 options were granted. These options are
all exercisable on or after February 17, 1997, at $22 per share for 31,250
options and at $24 per share for 100,000 options, and expire on June 28, 2004.
During the year ended May 31, 1998, 31,250 options priced at $22 per share were
forfeited. None of the remaining options have been exercised to date.
On July 9, 1996, a total of 304,642 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. None of the options have been exercised to date.
On August 25, 1997, a total of 304,642 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. None of the options have been exercised to date.
The following tables summarize information about options outstanding at May 31,
1999:
Outstanding Options
-------------------------------------------------------
Weighted-Average
Range of Exercise Shares Outstanding Remaining Contractual Weighted-Average
Prices at May 31, 1999 Life Exercise Price
$24.00 100,000 5.08 $24.00
$16.00 304,642 5.08 $16.00
$10.00 304,642 5.08 $10.00
-----------
709,284 5.08 $14.55
===========
<PAGE>
Options Exercisable
-----------------------------------------------------------------
Range of Exercise Shares Exercisable at Weighted-Average
Prices May 31, 1999 Exercise Price
- ----------------- --------------------- ----------------
$24.00 100,000 $24.00
$16.00 304,642 $16.00
$10.00 304,642 $10.00
--------
709,284 $14.55
========
All options outstanding as of May 31, 1999, 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 UniHolding had
accounted for its employee stock options granted subsequent to May 31, 1995,
under the fair value method of that statement. The fair value of these options
was estimated at the date of the grant using a Black-Scholes option pricing
model with the following weighted-average assumptions applied to all years:
risk-free interest rate of 6.00 percent, dividend yield of 0.00 percent,
volatility factors of the expected market price of UniHolding's common stock of
0.157 and a weighted average expected life of the options of 8 years. The
weighted average fair value of options was $3.99 for options granted in 1997.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the option's vesting period. Pro-forma net income
(loss) for 1999, 1998 and 1997 would be $1,257, $2,121 and ($15,010); pro forma
basis and diluted earnings (loss) per common share would be $0.20, $0.28 and
($2.14), respectively.
At May 31, 1999, 709,284 vested options are outstanding. All of these options
vested during the years ended May 31, 1997, 1998 and 1999.
Capital Stock of Former Subsidiary and Initial Public Offering by Former
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 UniHolding's then 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. The excess of the purchase price over the
predecessor cost ($3,329) was debited to paid-in capital. According to the
related purchase contracts, the purchase price was subject to an adjustment
whereby UGL 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 UGL to Holdings and
was paid through a partial set-off of advances previously made.
During the year ended May 31, 1997, in conformity with UniHolding's plans to
maximize shareholder values, UGL organized an initial public offering of ULSA's
newly-issued and existing shares. In anticipation thereof, UGL sold an aggregate
of 30,000 shares (or 15.0% of ULSA's then 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, UGL 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 UGL of a portion of its holding in
ULSA, thereby diluting UGL'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. UGL recorded an aggregate gain of $16,164 from the sales of ULSA stock
during the year ended May 31, 1997.
<PAGE>
During the year ended May 31, 1998, UGL 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 and recorded an aggregate
gain from such sales of $6,007. During the year ended May 31, 1999, UGL and ULSA
purchased 28,840 shares of ULSA stock, and sold 34,756 shares of ULSA stock,
either on the market, or in private transactions at prices substantially equal
to market. Aggregate gains from sales made prior to the Reorganization on
February 25, 1999 was $328.
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, 1997, ULSA entered into a management services
contract with a company in which the Chairman of UniHolding's Board of Directors
is a director. Under this contract, a subsidiary of UGL paid SFr. 720 ($610 at
the then average exchange rate), SFr. 720 ($492 at the then average exchange
rate) and SFr. 835 ($581 at the then average exchange rate) during the years
ended May 31, 1997, 1998 and 1999.
During the years ended May 31, 1997, 1998, and 1999, a subsidiary of ULSA paid
SFr. 720 ($610 at the then average exchange rate), SFr.720 ($492 at the then
average exchange rate), and SFr. 835 ($581 at the then average exchange rate)
for consultancy services to a company affiliated with a Director of UniHolding.
8. Retained Earnings
Retained earnings of UGL's Swiss subsidiaries are partially restricted by law as
to distribution. Restricted amounts (including temporary restrictions) were
approximately $20,557 and $17,997 at May 31, 1999 and 1998.
9. Retirement plans
All of ULSA'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 ULSA. This contribution is
expensed in the period that the cost is incurred.
Total benefit plans expenses was approximately $1,128, $1,247, and $1,336 for
the years ended May 31, 1999, 1998 and 1997 respectively.
ULSA does not maintain any plans for other post-employment or post-retirement
employee benefits.
10. Commitments and Contingencies
Operating lease expenses, which relate to the rental of buildings, office
furniture and equipment of UGL's subsidiaries, were approximately $3,027,
$3,984, and $3,220 for the years ended May 31, 1999, 1998 and 1997 respectively.
Certain key officers of ULSA have employment agreements that provide for
aggregate annual salaries of approximately $1,500 and which include
non-competition clauses. In the event that ULSA invokes such clauses after
termination of the employment agreements, ULSA may be obligated, under certain
circumstances, to compensate these individuals for differences in salary between
the compensation paid to them by ULSA 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, UniHolding, UGL, ULSA, as well as certain of their 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
<PAGE>
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 their business, UniHolding, UGL and ULSA may be a party
to certain litigation. As of May 31, 1999, ULSA 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 of ULSA, UGL or UniHolding.
11. Investment in Equity Affiliates
Pursuant to the Reorganization as described in Note 1, at May 31, 1999,
UniHolding owned a non-controlling 38% interest in UGL, which it accounts for
using the equity method of accounting. A summary of consolidated financial
information of UGL as of, and for the year ended, May 31, 1999, is as follows:
Balance Sheet
Total current assets 33,089
------
Investments 10,775
Cost of investment in UniHolding 36,741
Intangible assets 43,905
Other long-term assets 7,714
------
Total long-term assets 99,135
-------
Total assets 132,224
=======
Short-term borrowings $10,201
Other current liabilities 14,908
------
Total current liabilities 25,109
------
Long-term borrowings 30,560
Other long-term liabilities 236
------
Total long-term liabilities 30,796
------
Minority interests 12,168
Statement of Income
Revenues $98,619
Operating loss (2,270)
Loss from operations (503)
Net loss (9,247)
12. Subsequent Events
On September 3, 1999, pursuant to separate board of director resolutions of the
UniHolding and UGL board of directors, which resulted from discussions between
the boards of directors of UniHolding and UGL, UniHolding transferred to UGL
30,000 shares of UGL common stock, and UGL transferred to UniHolding its entire
shareholding of UniHolding common stock. Pursuant to this agreement, as of
September 3, 1999, UGL did not own any UniHolding shares, while UniHolding owns
a balance of approximately 2.0 million shares of UGL common stock, or
approximately 37% of UGL's equity. The remaining UniHolding shareholders, who
owned approximately 37% of the outstanding UniHolding stock before the
Reorganization, own 100% of the outstanding UniHolding stock after the
Reorganization and the September 3, 1999, transaction. Accordingly, their
indirect equity interest in UGL is not less than it was before the
Reorganization.
On October 1, 1999, ULSA closed on an agreement with FHL regarding the disposal
of the non-voting, redeemable preferred shares of that company. As of that date,
FHL merged its UK laboratory subsidiary into another laboratory owned by
Advanced Pathology Services Ltd., England. In connection therewith, ULSA sold
its FHL preferred shares against an immediate cash payment of (pound)3,000
($4,800), with the balance being essentially constituted of notes due within 4
years payable by Advanced Pathology Services.
<PAGE>
On December 21, 1999, ULSA closed on an agreement with Advanced Pathology
Services Ltd., England, regarding the disposal of Unilabs International (UK)
Ltd., a subsidiary engaged in the marketing of pathology services in the Middle
East. The sale consideration was agreed at (pound)538 ($860), in the form of a
note payable on December 21, 2003.
13. Supplemental Disclosures of Cash Flow Information (in thousands)
Years ended May 31
1999 1998 1997
Cash paid during the
year for:
Interest 1,426 $1,039 $2,003
Income taxes 1,460 2,179 2,129
Capital lease obligations of $465, $955 and $1,904 were incurred during the
years ended May 31, 1999, 1998 and 1997, respectively.
14. Quarterly Financial Data (unaudited)
Summarized unaudited quarterly financial data for the years ended May 31, 1999
and 1998 is as follows (in thousands, except per share data)(note that
discontinued operations have been reclassified):
Year ended May 31, 1999
First Second Third Fourth
Quarter Quarter Quarter Quarter
(a) (b),(c)
Revenue $20,542 $26,942 $24,469 -
Operating income (loss) 764 3,757 1,431 1
Net income (loss) (86) 961 1,001 (3,166)
Per share data :
Net income (loss) ($0.01) $0.16 $0.02 ($0.48)
Price range:
High $6.75 $6.00 $4.75 $4.75
Low $3.50 $3.125 $3.00 $1.00
a. As per the amendment to Form 10-Q filed concurrently with UniHolding's Annual
Report on Form 10-K for the year ended May 31, 1999.
b. Pursuant to the Reorganization, effective February 25, 1999, UniHolding
ceased consolidating the results of UGL and ULSA on a full consolidation basis
and instead has applied equity accounting to its investment in UGL. Accordingly,
the results for the fourth quarter reflect only UniHolding's revenues and
expenses, and UniHolding's share of net loss from UGL of $1,255.
c. Includes tax charge of $1,155 relating to late filing penalties and interest
on UniHolding US income tax obligations.
Year ended May 31, 1998
<TABLE>
<CAPTION>
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) 848 4,638 6,538 (4,833)
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>
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
UniHolding adopted SFAS No. 131 'Disclosures about Segments of an Enterprise and
Related Information' as of May 31, 1999. SFAS No. 131 requires certain
disclosures about operating segments in a manner that is consistent with how
management evaluates the performance of the segment. Prior years' presentations
are restated to conform to current year presentations.
UniHolding, through its indirect investment in ULSA (a supplier of clinical
testing services in several European countries), has identified the following
business segments based on their country location, which each operate in the
filed of clinical laboratory services: Switzerland, the United Kingdom, Spain,
and "All Other".
During the year ended May 31, 1997, UniHolding performed testing in relation to
clinical trials for the pharmaceutical industry and therefore distinguished its
Diagnostic Laboratory Division from its Clinical Trials Division. As of February
27, 1998, the Clinical Trials Division was spun off to UniHolding's
shareholders.
Information related to UniHolding's reportable segments is shown below.
Year Ended May 31
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Revenues from unaffiliated
customers:
Switzerland 60,766 70,076 60,810
United Kingdom - - 21,334
Spain 6,070 6,721 6,523
Other 5,117 6,706 3,968
Operating Profit or Loss:
Switzerland 8,103 8,820 10,738
United Kingdom - (1,395) (32,083)
Spain (417) (191) (202)
Other (1,733) (43) (749)
Identifiable Assets:
Switzerland - 74,350 44,233
United Kingdom - 10,617 36,360
Spain - 5,706 5,382
Other 50,736 22,298 666
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS, EXECUTIVE OFFICERS AND KEY MANAGEMENT PERSONNEL
The following table sets forth certain information as of September 6, 1999,
regarding the directors, executive officers and key management personnel of
UniHolding and its subsidiaries.
Directors and Executive Officers of UniHolding
Name Age Position
Edgard Zwirn 53 Chairman of The Board and Director,
Chief Executive Officer and member of Audit
Committee
Alessandra van Gemerden 27 Director
Tobias Fenster 53 Director, Chief Executive Officer -
Spanish Operations
Daniel Regolatti 68 Director and member of Audit Committee
Pierre-Alain Blum 53 Director and member of Audit Committee
Bruno Adam 50 Chief Financial Officer and Secretary
Key Executive and Managerial Officers of Subsidiaries
Name Age Position
Blaise Mentha 40 Chief Executive Officer - Swiss
Operations
Eric Wavre 47 Executive Vice President, Treasurer and
Chief Administrative Officer
Miguel Payro 35 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, "Holdings", which is
UGL's largest shareholder) since 1993, ULSA since 1989, UGL since inception in
October 1993, UIL, GUCT and TBLH 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 UGL, 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 UK
operations of ULSA.
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 from April 30, 1996, until fiscal
1998, and a Director of UIL, GUCT and TBLH since their respective inception in
1996. Ms. van Gemerden holds directorships in various non-U.S. corporations
involved in the asset management business.
<PAGE>
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
from April 30, 1996, until fiscal 1998, and a Director of UIL, GUCT and TBLH
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 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. Mr. Adam has been 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 was appointed as a director of TBLH (now a subsidiary of GUCT) in
September 1998. Mr. Adam was appointed Secretary of the UniHolding's board of
directors in July 1999.
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.
Blaise Mentha was appointed Chief Executive Officer Swiss Operations of ULSA 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
ULSA, Mr. 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 ULSA during the 1998 fiscal
year.
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 UniHolding'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 UGL, which failed to file
timely Forms 4 for the acquisitions of common stock reported elsewhere herein.
See Item 1, Business and Item 13, Certain Relationships And Transactions With
Related Persons and Consolidated Statements of Stockholders' Equity.
ITEM 11. EXECUTIVE COMPENSATION
During the year ended May 31, 1999, each Director of UniHolding received a
compensation of $10,000 for his/her services to UniHolding in such capacity.
During the prior years, no such compensation was paid.
The following table sets forth the annual and long-term compensation paid or
accrued by UniHolding for services rendered in all capacities to UniHolding and
its subsidiaries during the last three years of those persons who were at May
31, 1999, (i) the Chief Executive Officer of UniHolding and (ii) the other three
executive officers of UniHolding, UGL and ULSA whose total annual salary and
bonus for the year ended May 31, 1998 exceeded $100,000.
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE (1)
Long Term Compensation Awards
Annual Compensation
Name and Principal Position Year Salary and Bonus ($) Options (#) (3)
<S> <C> <C> <C>
Edgard Zwirn
Chairman of the Board 1999 (2)
1998 (2)
1997 (2) 112,821
Eric Wavre,
Treasurer, Chief
Administrative Officer 1999 $320,000
1998 $328,000 -
1997 $357,000 25,000
Bruno Adam,
Chief Financial Officer 1999 $320,000
1998 $308,000 -
1997 $335,000 30,000
Blaise Mentha,
Chief Operating Officer -
ULSA (5) 1999 $320,000
1998 $91,000 -
1997 -
Paul Hokfelt,
Chief Operating Officer (4)
1999 0
1998 $203,000 -
1997 $411,000 15,000
</TABLE>
(1) Until May of 1999 and the date hereof, UniHolding did not compensate any of
its Directors or Executive Officers, except for a flat fee of $10,000 paid to
each UniHolding Director. All Directors and Executive Officers are compensated
by UGL subsidiaries.
(2) Mr. Zwirn is not an employee of UniHolding, UGL or ULSA. Since the fiscal
year 1994 Mr. Edgard Zwirn is compensated by ULSA through a management
consulting agreement with a company in which Mr. Zwirn is a director. Such
agreement currently provides for a management fee of SFr. 996,000 annually
(approximately $693,000 in fiscal 1999). Mr. Zwirn disclaims having personally
received any of the aforementioned management fee except approximately SFr.
450,000 (approximately $313,000).
<PAGE>
(3) UniHolding 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 UniHolding and UGL as
of January 31, 1998, to become the full-time President and Chief Executive
Officer of TBLH, an entity in which GUCT has an ownership interest. 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 February 1, 1998.
Pension Benefits
Other than Mr. Edgard Zwirn, who is employed by a consulting company through a
management contract, 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 employer and paid to the social security system and
to such employee's account in a fund managed by an independent insurance
company, while the employer contributes like amounts. In addition to the legally
required plans, UGL offers to its executive officers and other employees
supplemental retirement programs, based upon a defined contribution system.
During the year ended May 31, 1998, UGL'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, UGL 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 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 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 performance or results.
The board of directors of ULSA determines all executive compensation, and may
award bonuses or incentive pay to employees at their discretion.
During the years ended May 31, 1999, 1998 and 1997 respectively, a subsidiary of
ULSA made payments of SFr. 835,000 (approximately $581,000), SFr. 720,000
(approximately $492,000) and SFr. 720,000 (then approximately $610,000) for
consultancy services to a company which may be deemed to be affiliated with Mr.
Enrico Gherardi, a Director of UniHolding who resigned as of May 31, 1999, and
with Ms. Alessandra Van Gemerden a Director of UniHolding.
Stock Options
UniHolding amended its Stock Option Plan dated June 28, 1994 whereby options may
be granted to directors, key officers or management personnel of UniHolding or
any of its subsidiaries or affiliates. The aggregate number of shares available
for issuance under such Plan is 500,000 shares of UniHolding'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.
<PAGE>
On August 17, 1995, UniHolding 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.
None of these options have been exercised to date.
On July 9, 1996, a total of 357,142 additional options were granted. These
options are all exercisable beginning in January 1998. None of these options
have been exercised to date.
On August 22, 1997, a total of 352,142 additional options were granted. These
options are all exercisable beginning in February 1999. None of these options
have been exercised to date.
No options were granted by UniHolding to its executive officers named in the
Summary Compensation Table for the years ended May 31, 1998, and May 31,1999.
The aggregate number of options granted to date by UniHolding to the above named
persons are as follows:
<TABLE>
<CAPTION>
Executive Name Fiscal Year 1995 Fiscal Year 1996 Fiscal Year 1997 Fiscal Year 1998 Fiscal Year 1999 Aggregate
Options
<S> <C> <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 have 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 February 15, 2000, there were issued 7,926,120 shares of Voting Common
Stock, the only class of voting securities of UniHolding, including 298,384
shares of Non-voting Common Stock which converted to Voting Common Stock upon
sale to UGL by their previous owner. Each share of Voting Common Stock entitles
its holder to one vote, with the exception of 5,856,272 shares of Voting Common
Stock held in treasury by UniHolding. There are accordingly 2,069,848 shares of
Voting Common Stock presently with voting rights.
The following table sets forth, as of February 15, 2000, the name and address of
each person known to UniHolding 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.
<PAGE>
<TABLE>
<CAPTION>
Title of Class Name and Address of Amount and Nature of Percent of Class (1)
Beneficial Owner Beneficial Ownership
<S> <C> <C> <C>
Voting Common Stock
" Grace Brothers, Ltd. 444,587 21.48%
1560 Sherman Avenue, Suite
900 Evanston, IL 60201 (2)
" Morgan Stanley & Co. 428,309 20.69%
Incorporated
1585 Broadway New York, NY
10036 (4)
" BankAmerica 232,494 11.23%
[address] (3)
" All Directors and
Executive Officers as a -
group
</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 UniHolding.
(2) Grace Brothers, Ltd. ("Grace Brothers") 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 "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.
(3) BankAmerica purchased from DLJ a subparticipation interest in a 100%
participation interest in the Unilab Note purchased by DLJ from Unilab
Corporation (the "BankAmerica Subparticipation Interest"). The Unilab Note
converted as of January 1, 1997 into 1,394,963 shares of UniHolding Common
Stock. BankAmerica obtained beneficial ownership of 232,494 shares of UniHolding
Common Stock by means of the BankAmerica Subparticipation Interest.
(4) 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 May 7, 1999, Morgan Stanley held as market maker
19,321 shares of UniHolding Common Stock.
Pursuant to the terms of a Stock Purchase Agreement, dated June 30, 1995, by and
between UniHolding and UGL, UniHolding acquired 20% 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 UniHolding, in particular, the relationship
between Mr. Zwirn and Mr. Adam as executive officers and directors of
UniHolding, of Unilabs Holdings SA, a Swiss corporation ("Swiss Holdings"), and
of Unilabs Holdings SA, a Panamanian corporation ("Holdings").
<PAGE>
The acquisition of March 31, 1994, whereby UniHolding 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 UniHolding 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 UniHolding determined that it would
be in the best interest of UniHolding to accelerate the payment of the $18
million Promissory note (the "Note") to Holdings with shares of UniHolding'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 UniHolding'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 UniHolding's common
stock). Accordingly, UniHolding issued 3,310,455 (prior to the reverse split of
UniHolding'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, UniHolding 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. UniHolding also billed Holdings
$387,000 relating to laboratory management and consulting services in fiscal
1994. The management fees paid to Holdings by UniHolding provided for, among
other things, the services of Mr. Bruno Adam up to May 31, 1994.
In December 1993, UniHolding extended a loan of approximately $2.9 million to
Holdings bearing interest at an annual rate of 3.375% which was subsequently
canceled by UniHolding on March 31, 1994, in partial consideration for the
acquisition of the European clinical testing companies. Edgard Zwirn, as CEO of
UniHolding, 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 required in the year ended May 31, 1999, an annual
payment of SFr 835,000 (approximately $581,000).
During the year ended May 31, 1995, UniHolding entered into a management
services contract with a company which may be deemed to be affiliated with Mr.
Enrico Gherardi, a Director of UniHolding who resigned on May 31, 1999.
UniHolding 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, 1999, 1998, 1997 and 1996
respectively, a subsidiary of ULSA made payments of SFr. 835,000 (approximately
$581,000), SFr. 720,000 (then approximately $492,000), 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, a Director of UniHolding.
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. UniHolding
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 UniHolding in full and final settlement
of Holding's debt to UniHolding (approximately $5,050,000). In addition, during
1998 UniHolding purchased 266,848 shares of UniHolding common stock from
Holdings for approximately $2,400,000.
<PAGE>
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 UGL 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
UGL to Holdings and was paid through a partial set-off of advances previously
made.
During the year ended May 31, 1999, UGL acquired approximately 2.3 million
shares of UniHolding from Holdings in exchange for UGL shares on a one-for-one
basis. See Item 1, Business.
Following are entities affiliated with UniHolding, UGL and ULSA:
Holdings. Swiss Holdings owns 100% of Holdings. Edgard Zwirn is Chairman.
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
FINANCIAL STATEMENTS AND SCHEDULES:
1. Financial Statements - See Index to Financial Statements at ITEM 8
2. Financial Statement Schedule
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 March 12, 1999 Reporting on Item 2
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)
<PAGE>
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
99 Financial Statements Unilabs Group Limited
- ---------------
(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: 2-15-00 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: 2-15-00
Edgard Zwirn
CEO and Director
By: /s/ Bruno Adam Date: 2-15-00
Bruno Adam
CFO and Secretary
By: /s/ Alessandra Van Gemerden Date: 2-15-00
Alessandra Van Gemerden Director
By: /s/ Tobias Fenster Date: 2-15-00
Tobias Fenster Director
By: /s/ Daniel Regolatti Date: 2-15-00
Daniel Regolatti Director
By: /s/ Pierre-Alain Blum Date: 2-15-00
Pierre-Alain Blum Director
EXHIBIT 21
LIST OF SUBSIDIARY COMPANIES
Unilabs Group Limited (BVI) - 38%
Unilabs SA (Swiss) - 48%
Institut Bio-Analytique Medical SA (Swiss) - 100% Unilabs Medizin. Labor. AG
(Swiss) - 100% Laboratorie Riotton 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% Laboratoire Medical Pierre-Alain Gras SA (Swiss) - 100%
Laboratoire Riotton SR SA (Swiss) - 100% Vivagen Diagnostics AG (Swiss) - 100%
Biomedical SA (Swiss) - 100% Biomedilab-Microbion (Swiss) - 100% Exabio (Swiss)
- - 100% Gespower New Technologies SA (Swiss) - 55% Gespower (Belgium) SA - 55%
Praxilab Gem. Prakt. Aerzte AG (Swiss) - 65% Brunnhof Institut fur Pathologie
und medizinische Analytik (Swiss) - 100% Istituto Medico Di Torino SpA (Italy) -
100% Medil Srl (Italy) - 81% United Laboratories Espa"a SA (Spain) - 92% 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) - 100%
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS AT MAY 31, 1999 AND THE CONSOLIDATED STATEMENTS OF
OPERATIONS AT MAY 31, 1999, 1998 AND 1997 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-31-1999
<PERIOD-START> Jun-01-1998
<PERIOD-END> May-31-1999
<EXCHANGE-RATE> 1
<CASH> 227
<SECURITIES> 0
<RECEIVABLES> 104
<ALLOWANCES> 444
<INVENTORY> 0
<CURRENT-ASSETS> 1,259
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 50,736
<CURRENT-LIABILITIES> 7,044
<BONDS> 0
0
0
<COMMON> 79
<OTHER-SE> 43,613
<TOTAL-LIABILITY-AND-EQUITY> 50,736
<SALES> 0
<TOTAL-REVENUES> 71,953
<CGS> 0
<TOTAL-COSTS> 63,893
<OTHER-EXPENSES> 2,107
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,546
<INCOME-PRETAX> 3,480
<INCOME-TAX> (2,722)
<INCOME-CONTINUING> 758
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,290)
<EPS-BASIC> (.21)
<EPS-DILUTED> (.21)
</TABLE>
Page Number
Reports of Independent Auditors..........................................II-F-2
Unilabs Group Limited and Subsidiaries Consolidated
Balance Sheets as of May 31, 1999, and 1998..............................II-F-3
Unilabs Group Limited and Subsidiaries Consolidated
Statements of Operations for the Years Ended
May 31, 1999, 1998 and 1997..............................................II-F-5
Unilabs Group Limited and Subsidiaries Consolidated
Statements of Stockholders' Equity for the Years
Ended May 31, 1999, 1998 and 1997........................................II-F-6
Unilabs Group Limited and Subsidiaries Consolidated
Statements of Cash Flows for the Years
Ended May 31, 1999, 1998 and 1997........................................II-F-8
Unilabs Group Limited and Subsidiaries Notes to
Consolidated Financial Statements for the Years
Ended May 31, 1999, 1998 and 1997........................................II-F-10
<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
UNILABS GROUP LIMITED, Tortola, British Virgin Islands
We have audited the accompanying consolidated balance sheets of Unilabs Group
Limited and subsidiaries as of May 31, 1999 and 1998 and the consolidated
statements of operations, stockholders' equity and cash flows for the year ended
May 31, 1999. Our audits also included the financial statement schedule listed
in the Index at Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Unilabs
Group Limited and subsidiaries at May 31, 1999 and 1998 and the consolidated
results of their operations and their cash flows for the year ended May 31,
1999, in conformity with accounting principles generally accepted in the United
States of America. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
Geneva, Switzerland,
December 17, 1999 ATAG ERNST & YOUNG
/s/ C. PICCI /s/S. REID
---------------- -----------------
C. Picci S. Reid
ATAG ERNST & YOUNG SA: offices in
Basel, Aarau, Berne/Thun, Bienne, Brig, Chur, Fribourg, Geneva,
Kreuzlingen, Lausanne, Lucerne, Neuchatel/La Chaux-de-Fonds,
St. Gallen/Buchs, Sion, Solothurn, Winterthur, Zurich
Member of the Swiss Chamber of Auditors
<PAGE>
UNILABS GROUP LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
May 31
ASSETS 1999 1998
CURRENT ASSETS:
Cash and cash equivalents $5,752 $8,919
Accounts receivable, net of allowance for doubtful
accounts of $3,072 in 1999 and $2,940 in 1998 18,797 19,359
Due from related companies 829 1,587
Inventories 2,128 1,849
Prepaid expenses 3,384 3,080
Other current assets 2,199 411
---------- ----------
Total current assets 33,089 35,205
---------- ----------
NON-CURRENT ASSETS:
Intangible assets, net 43,905 44,344
Property, plant and equipment, net 7,677 8,812
Investments in equity affiliates 506 481
Long-term investments 10,269 22,781
Investment in UniHolding Corporation 36,741 5,812
Other assets, net 37 130
---------- ----------
Total non-current assets 99,135 82,360
---------- ----------
$132,224 $117,565
======== ==========
See notes to financial statements
<PAGE>
UNILABS GROUP LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
May 31
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
CURRENT LIABILITIES:
Bank overdrafts $3,062 $4,010
Current portion of lease payable 605 809
Payable to related parties 14 100
Payable to UniHolding Corporation 919 1,115
Trade payables 6,633 6,656
Accrued liabilities 4,253 6,017
Current portion of long-term debt 6,534 5,727
Taxes payable 3,089 2,228
---------- ----------
Total current liabilities 25,109 26,662
---------- ----------
NON-CURRENT LIABILITIES:
Lease payable 493 725
Long-term debt 30,067 29,544
Taxes payable 16 74
Deferred taxes 220 179
---------- ----------
Total non-current liabilities 30,796 30,522
---------- ----------
Total liabilities 55,905 57,184
---------- ----------
MINORITY INTERESTS 12,168 9,440
---------- ----------
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value;
Voting; authorized 18,000,000 shares; issued
5,763,050 at May 31, 1999 and 2,500,000
at May 31, 1998
Non-Voting; authorized 2,000,000 shares; issued
and outstanding -0- at May 31, 1999
and 1998 58 25
Additional Paid-in capital 75,929 53,064
Accumulated other comprehensive loss (2,515) (2,074)
Retained earnings 5,679 14,926
---------- ----------
79,151 65,941
Less - cost of 500,000 shares of Common Stock
held in treasury at May 31, 1999 and 1998 (15,000) (15,000)
---------- ----------
Total stockholders' equity 64,151 50,941
---------- ----------
$132,224 $117,565
========= ==========
See notes to financial statements
<PAGE>
UNILABS GROUP LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
<TABLE>
<CAPTION>
Years ended May 31
1999 1998 1997
(Unaudited) (Unaudited)
<S> <C> <C> <C>
REVENUE $98,619 $83,503 $92,635
Operating expenses:
Salaries and related charges 39,306 32,618 37,431
Supplies 17,042 12,937 15,545
Other operating expenses 23,304 22,220 21,526
Depreciation and amortization of tangible assets 2,909 3,065 5,112
Impairment of investment 15,710 1,190 -
Adjustment of carrying value of building - - 5,805
Amortization of intangible assets 3,154 2,638 5,367
Adjustment of carrying value of goodwill in
subsidiary - - 23,722
Other, net (536) 1,005 (1,025)
--------- --------- ---------
OPERATING INCOME (LOSS) (2,270) 7,830 (20,848)
Interest expense, net of interest income of $134,
$891 and $268 in 1999, 1998 and 1997 (1,994) (238) (2,965)
Gain on sale of subsidiary shares 3,761 6,007 16,164
--------- --------- ---------
Income (loss) before taxes and minority interests (503) 13,599 (7,649)
Tax (provision) benefit (4,019) (2,585) 2,186
--------- --------- ---------
Income (loss) from continuing operations before
minority interests (4,522) 11,014 (5,463)
Minority interests in income of continuing operations
(4,725) (2,491) (362)
--------- --------- ---------
Income (loss) from continuing operations (9,247) 8,523 (5,825)
Loss from discontinued operations, net of tax
benefit of $-0-, $2,505 and $4,402 in 1999, 1998
and 1997 and minority interests - (2,820) (3,033)
--------- --------- ---------
NET INCOME (LOSS) ($9,247) $5,703 ($8,858)
======== ========= =========
</TABLE>
See notes to financial statements
<PAGE>
UNILABS GROUP LIMITED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
Paid-in Retained
Shares Par Value Capital Earnings
<S> <C> <C> <C> <C>
Balances, May 31, 1996 1,000 $1 $56,676 $19,081
(unaudited)
Excess of purchase price of
subsidiaries over (3,588)
predecessor
Net loss (8,858)
Cumulative translation
adjustment
Comprehensive loss
------------ --------- --------- ----------
Balances, May 31, 1997 1,000 1 53,088 10,223
(unaudited)
Cancellation of shares with
old par value (1,000) (1)
Issuance of shares with new
par value 2,500,000 25 (24)
Distribution of GUCT (1,000)
Net income 5,703
Cumulative translation
adjustment
Comprehensive income
----------- ---------- -------- ---------
Balances, May 31, 1998 2,500,000 25 53,064 14,926
Issuance of common stock 3,263,050 33 22,865
Net loss (9,247)
Cumulative translation
adjustment
Comprehensive loss
----------- ---------- -------- ---------
Balances, May 31, 1999 5,763,050 $58 $75,929 $5,679
=========== ========== ======== =========
</TABLE>
(continued)
<PAGE>
UNILABS GROUP LIMITED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
(continued)
<TABLE>
<CAPTION>
Accumulated Total
Other Treasury Stockholders'
Comprehensive Stock Equity
Income/(Loss)
<S> <C> <C> <C>
Balances, May 31, 1996 ($239) ($15,000) $60,519
(unaudited)
Excess of purchase price of
subsidiaries over (3,588)
predecessor
Net loss (8,858)
Cumulative translation
adjustment (2,811) (2,811)
Comprehensive loss (11,669)
---------- ---------- ----------
Balances, May 31, 1997 (3,050) (15,000) 45,262
(unaudited)
Cancellation of shares with
old par value (1)
Issuance of shares with new
par value 1
Distribution of GUCT (1,000)
Net income 5,703
Cumulative translation
adjustment 976 976
Comprehensive income 6,679
---------- ---------- ----------
Balances, May 31, 1998 (2,074) (15,000) 50,941
Issuance of common stock 22,898
Net loss (9,247)
Cumulative translation
adjustment (441) (441)
Comprehensive loss (9,688)
---------- ---------- ----------
Balances, May 31, 1999 ($2,515) ($15,000) $ 64,151
======== ========= ========
</TABLE>
See notes to financial statements
<PAGE>
UNILABS GROUP LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Years ended May 31
1999 1998 1997
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income (loss) from continuing operations ($9,247) $8,523 ($5,825)
Adjustments to reconcile net income to net cash
provided by operations:
Impairment of investment 15,710 1,190 -
Minority interests in income 4,725 2,491 362
Deferred taxes 41 1,082 (3,188)
Depreciation and amortization of tangible assets 2,909 3,065 5,112
Amortization of intangible assets 3,154 2,638 5,367
Gain on sale of subsidiary shares (3,761) (6,007) (16,164)
Adjustment of carrying value of building - - 5,805
Adjustment of carrying value of goodwill in
subsidiary - - 23,722
Other non-cash (income) expenses (16) 774 (1,236)
Net changes in assets and liabilities, net of
acquisitions:
Accounts receivable 387 (2,066) (1,450)
Inventories (364) (227) (276)
Prepaid expenses (425) (1,762) 591
Other current assets (1,827) 2,179 215
Trade payables (228) 31 795
Accrued liabilities (1,651) 1,530 (383)
Taxes payable 495 (246) (1,130)
--------- -------- ---------
Net cash provided by operating activities 9,902 13,195 12,317
--------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash proceeds from issuance of ULSA share
capital, net of expenses - (87) 16,152
Repayment of long-term debt (12,676) (168) (20,115)
Cash proceeds from long-term debt 5,397 25,204 -
Proceeds (reimbursement) from (of) bank overdrafts 1,981 2,868 (1,131)
Dividend paid to minority shareholders (1,820) (3,662) (209)
Repayment of lease debt (896) (620) (1,697)
Payment for purchase of UniHolding stock (936) (1,726) (696)
--------- -------- ---------
Net cash provided by (used in) financing activities (8,950) 21,809 (7,696)
--------- -------- ---------
</TABLE>
(continued)
<PAGE>
UNILABS GROUP LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(continued)
<TABLE>
<CAPTION>
Years ended May 31
1999 1998 1997
(unaudited) (unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for purchases of property and equipment (6,942) (2,661) (3,629)
Change in amounts due to/from affiliates and
related companies, net (37) (4,477) (2,111)
Payment for acquisition of shares in subsidiaries (12,578) (27,323) (15,403)
Payment for acquisition of shares of preferred
stock in GUCT (2,865) - -
Payment for purchase of intangible assets (994) (842) (59)
Proceeds from sale of subsid iary shares 7,035 8,085 26,842
Proceeds from sale of assets 12,379 - -
--------- --------- ---------
Net cash provided by (used in) investing activities (4,002) (27,218) 5,640
--------- --------- ---------
Effect of exchange rate changes on cash (117) (244) 131
Net increase (decrease) in cash and cash
equivalents from continuing operations (3,167) 7,542 10,392
Net cash flows (used) by discontinued operations - (3,329) (6,984)
Cash and cash equivalents, beginning of year 8,919 4,706 1,298
--------- --------- ---------
Cash and cash equivalents, end of year $5,752 $8,919 $4,706
======== ========= =========
</TABLE>
See notes to financial statements
<PAGE>
UNILABS GROUP LIMITED AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Monetary amounts in 000's, except per share data)
1. Description of the Company and Basis of Presentation
Unilabs Group Limited, a British Virgin Islands corporation ("UGL" or the
"Company"), is a holding company. UGL is the majority shareholder of Unilabs SA,
a Switzerland corporation ("ULSA"), which supplies clinical testing services in
several European countries (the "Diagnostic Laboratory Division"), and, until
the spin-off made in February 1998, UGL was also the sole shareholder of Global
Unilabs Clinical Trials Limited, a British Virgin Islands corporation ("GUCT")
supplying clinical trials testing for the pharmaceutical industry (the "Clinical
Trials Division"). Prior to a February 25, 1999 reorganization (the
"Reorganization") further described below, UGL was a wholly-owned subsidiary of
UniHolding Corporation, a Delaware corporation ("UniHolding"). Although at May
31, 1999, UGL owned a controlling interest in UniHolding, due to the temporary
nature of such ownership interest, UGL's investment in UniHolding is reflected
in the accompanying consolidated balance sheet at historical cost. See Note 11.
UGL was formed in November 1993, when it acquired from Unilabs Holdings SA, a
Panama corporation ("Holdings"), 70% of the equity of ULSA, and from Unilab
Corporation, a Delaware corporation ("Unilab"), 100% of the equity of the
predecessor to Unilabs Group (UK) Limited, a United Kingdom corporation
("UGUK"). On March 31, 1994, Holdings exchanged its 60% stake in UGL with
UniHolding. Accordingly, as of May 31, 1995, UGL was 60%-owned by UniHolding and
40%-owned by Unilab. As of June 30, 1995, UGL acquired from Unilab 40% of UGL's
common stock 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 UGUK,
and $15,000 in the form of a one-year, interest-bearing promissory note. The
$15,000 promissory note, together with accrued but unpaid interest of $750, was
subsequently converted into 1,394,963 newly- issued shares of UniHolding common
stock on January 1, 1997. As consideration for settling the note due to Unilab,
UniHolding received 20% of UGL's common stock which was held in treasury by UGL
at that time.
The Reorganization
Until February 25, 1999, UGL was a wholly-owned subsidiary of UniHolding. As of
February 25, 1999, UGL reached an agreement with Holdings, then a major
shareholder of UniHolding, whereby Holdings received approximately 2.3 million
newly issued shares of common stock of UGL in exchange for its UniHolding shares
of common stock on a one-for-one basis. At the same time, UGL reached agreements
with certain other non-US shareholders whereby such shareholders also received
newly issued shares of common stock of UGL in exchange for their approximate 0.4
million UniHolding shares of common stock on the same one for one basis.
Accordingly, effective February 25, 1999, UGL had gained control of UniHolding.
Further, during the period from February 25 to May 31, 1999, UGL reached
agreements with certain other non-U.S. shareholders of UniHolding, whereby such
shareholders also received newly issued shares of common stock of UGL in
exchange for their approximately 0.6 million UniHolding shares of common stock,
also on the same one-for-one basis. In addition, also during the same period, a
further aggregate of approximately 0.8 million UniHolding shares was acquired by
UGL for a consideration consisting of approximately 14,000 bearer shares of ULSA
common stock. As a result, as of May 31, 1999, UGL owned approximately 74% of
UniHolding, while UniHolding owned approximately 38% of UGL. As more fully
described in Note 11, UGL subsequently exchanged its shares of UniHolding common
stock for 30,000 shares of UGL common stock held by UniHolding.
<PAGE>
Acquisitions and disposals prior to the Reorganization
Clinical Trials Spin-off
As of February 27, 1998, UGL spun off its wholly owned investment in the common
stock of GUCT to the shareholders of UniHolding, then UGL's sole shareholder.
GUCT is the majority shareholder of TBL Holdings, Inc., a Delaware corporation
("TBLH" formerly known as UCT International, Inc.). TBLH supplies clinical
testing services dedicated to the pharmaceutical industry in the United States
and in Europe. In connection with the spin-off, UGL 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 UniHolding shareholders, UGL'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 was carried at a value of $12,164 and is included under
"Long-term investments" in the accompanying balance sheet. Revenues of the
Clinical Trials Division were $9,000 for the period through February 27, 1998,
being the date of the spin-off of such division and $7,000 and $4,400 for the
years ended May 31, 1998 and 1997, respectively.
During the second half of calendar 1998, GUCT and UGL were informed that TBLH's
operating subsidiaries were in need of substantial new capital to continue and
satisfactorily develop their clinical trials operations, and that GUCT was
unable to obtain the necessary funding. As a result of discussions held by GUCT
with various potential partners throughout 1998, an agreement (the "DLJ Phoenix
Agreement") was reached as of December 30, 1998, whereby a first-class third
party investment bank, DLJ Phoenix, agreed to invest $7,500 in TBLH's
subsidiaries, provided, among other conditions, that (1) DLJ Phoenix would have
total management control over the business, and (2) GUCT or UGL would invest
$2,500. As GUCT had no funds available for such a transaction, UGL agreed to
fund such additional investment, essentially with a view to protect its own
original investment in GUCT, in which UGL continued to own approximately $20,000
of non-voting and non-convertible preferred stock, as described above. UGL and
GUCT agreed that this additional financing of GUCT by UGL was structured such
that GUCT owns the shares newly issued by TBLH's subsidiaries, and UGL owns
additional non-voting, non- convertible, redeemable preferred stock of GUCT with
a face value equal to the amount of the additional investment, $2,500 plus $500
of extra funding. The terms of the additional preferred stock include conditions
that will enable UGL to share the upside potential, if any, of the GUCT
investment. The DLJ Phoenix Agreement further provided that, if the operating
subsidiaries met certain business targets by June 30, 1999, an additional
investment of $4,500 and $1,500, respectively, would be made in the second half
of calendar 1999 by DLJ Phoenix and GUCT and/or UGL, respectively. On July 22,
1999, GUCT and UGL were informed that one of such business targets would not be
met and that the additional investment, in the form provided by the DLJ Phoenix
Agreement would not be made. Instead, another form of financing was proposed,
which all of TBLH, GUCT and UGL declined to participate into. Subsequently, GUCT
and UGL were informed that DLJ Phoenix had decided not to provide additional
financial support to TBLH's subsidiaries, and had decided to look for
alternative solutions including a sale of operations or a liquidation.
Accordingly, UGL's management has performed a careful review of the value of the
GUCT preferred stock held as of May 31, 1999, considering the situation
described above. As a result of such review, UGL's management has concluded that
there was a permanent impairment in the value of GUCT, and that it was therefore
necessary to record a $15,197 write-down in the aggregate value of the GUCT
preferred stock, now carried at a net amount of $0 in the accompanying balance
sheet as of May 31, 1999.
For the same reason, UGL has recorded a provision of $513 as of May 31, 1999, on
an account receivable from one of TBLH's subsidiaries.
<PAGE>
Other Acquisitions and Disposals
During the year ended May 31, 1998, ULSA acquired from third parties 100% of the
equity of Institut Bio- Analytique Medical SA, a Geneva company, and related
companies and 100% of the equity of Laboratoire Medical Pierre-Alain Gras SA, a
Geneva company, at an aggregate cost of $25,260. Those acquisitions were
accounted for as purchases 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 by ULSA 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 ULSA entered into certain
other agreements during prior periods not presented herein. 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, ULSA recorded a net gain on disposal of $116. Subsequently during fiscal
1998, ULSA recorded a write-down of approximately $1,190, which reflects ULSA's
appraisal of the uncertainty as to the timing and the possibility of recovery of
its investment in FHL. Such amount of preferred shares are therefore carried at
a value of $10,269 and $10,617 as of May 31, 1999 and 1998, respectively, and is
included under "Long-Term investments" in the accompanying balance sheet. UGL
has been informed by FHL that certain discussions are currently taking place
with a third party, with a view to merge UGUK with, or sell UGUK to, this third
party. UGL has indicated that it will not veto a transaction which will enable
it to recover the amount of the FHL preferred stock currently recorded on ULSA's
books. See also Note 11.
In connection with the sale of UGUK, ULSA agreed to purchase from the latter the
London building which housed most of UGUK's operations ("Bewlay House"), through
its subsidiary Placelite Ltd. On July 8, 1998, ULSA completed this transaction
and acquired a 999-year leasehold in Bewlay House for a purchase price of GBP
7,500 ($12,322). The Company simultaneously entered into rental agreements with
the tenants of the building. On February 25, 1999, the Company closed on
definitive agreements to sell the building to a third party for cash
consideration of approximately GBP 7,461 ($12,000), net of all related costs and
expenses. No significant gain or loss, other than resulting from currency
changes, was made as compared to the carrying value of the building.
On May 20, 1999, ULSA acquired from a third party, 55% of the equity of Gespower
(Belgium) SA ("Gespower"), at a cost of CHF 2,555 ($1,675). Gespower is a
company involved in information technology services, mainly with clients active
in the health care industry. The acquisition of Gespower was accounted for as a
purchase and the excess of the assets contributed over the fair value of the
assets acquired, $1,665, was allocated to goodwill and is being amortized by
ULSA over a period of 20 years.
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 UGL and its majority-owned subsidiaries except for UniHolding. Although at
May 31, 1999, UGL owned a controlling interest in UniHolding, due to the
temporary nature of such ownership interest, UGL's investment in UniHolding is
reflected in the accompanying consolidated balance sheet at historical cost and
not by consolidation accounting. See Note 11. All significant intercompany
accounts and transactions have been eliminated. See "The Reorganization" above.
Investments in significant 20 to 50%-owned affiliates or in which the Company
otherwise exercises significant influence are accounted for by the equity method
of accounting, whereby the investment is
<PAGE>
carried at cost of acquisition, plus the proportionate equity in undistributed
earnings or losses since acquisition. Valuation allowances are provided where
management determines that the investment or equity in earnings is not
realizable.
The Company's policy as regards the accounting treatment of gains or losses
arising from the issuance by any of the Company's subsidiaries, of such
subsidiaries stock, is to record such gain or loss presently in income. Such
aggregate gain or loss is classified in the income statement classification
"Gain on sale of subsidiary shares".
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, ULSA 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, which is included in the income statement
classification "Amortization of intangible assets".
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.
<PAGE>
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. The
Company is registered in the British Virgin Islands as an International Business
Corporation, and is therefore not subject to any tax in the British Virgin
Islands for any income realized by and from its subsidiaries outside of such
jurisdiction.
Foreign Currency Translation
The Company's principal operations are located in Switzerland and various other
countries. As a result, a significant part of net assets, revenues and expenses
are denominated in the currency of those countries, while the accompanying
consolidated financial statements of UGL are presented in US dollars. Assets and
liabilities denominated in foreign currencies are translated at the exchange
rates in effect at the balance sheet date. Revenues and expenses denominated in
foreign currencies 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 exchange losses of $823, $5, and $248 in fiscal 1999, 1998 and
1997, respectively.
Cash and Cash Equivalents
The Company considers 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 and
cash equivalents, 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's subsidiary ULSA has a
large and diverse customer base, thereby minimizing the credit risk of any one
customer to accounts receivable amounts. In addition, whenever applicable, each
ULSA business unit performs ongoing credit evaluations of their customers'
financial condition.
<PAGE>
3. Property, Plant and Equipment, net, and Intangible Assets
Property, plant and equipment, net consists of the following:
May 31, 1999 May 31, 1998
Land and buildings $ 218 $ 942
Long-term leasehold and improvements 8,948 9,007
Furniture and fittings 3,535 3,170
Laboratory and office equipment 21,461 20,544
Capitalized data processing software 1,824 1,862
---------- ----------
35,986 $ 35,525
Less: Accumulated depreciation (28,309) (26,713)
---------- ----------
$ 7,677 $ 8,812
======= =======
Amounts charged to expense for depreciation of tangible assets, including assets
under capital lease, was $2,909, $3,065, and $10,917 in the years ended May 31,
1999, 1998 and 1997, respectively. During the year ended May 31, 1997, as a
result of its decision to sell a building used by its UK operations, ULSA
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 $31 and $106 as of May
31, 1999 and 1998 respectively. The amount of assets under capital leases is
$4,725 ($1,516 net of accumulated depreciation) and $4,476 ($1,725 net of
accumulated depreciation) as of May 31, 1999 and 1998 respectively.
Intangible assets consist of:
May 31, 1999 May 31, 1998
Goodwill $ 55,119 $ 50,577
Customer lists 7,105 6,938
Other 841 694
---------- ----------
63,065 58,209
Less : Accumulated amortization (19,160) (13,865)
---------- ----------
$ 43,905 $ 44,344
======== ========
Amortization of intangible assets was $3,154, $2,638, and $29,089 in the years
ended May 31, 1999, 1998 and 1997. During the year ended May 31, 1997, ULSA
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,
which is included in the income statement classification "Amortization of
intangible assets".
Further, during the year ended May 31, 1997, management performed its periodic
evaluation of ULSA'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 management's criteria, and in view of the then
present and estimated future profitability of such operations, ULSA recorded a
charge before tax effect of $23,722 to adjust such goodwill.
<PAGE>
4. Long Term Debt
Long term debt consists of the following:
May 31, 1999 May 31, 1998
Senior secured debt :
ULSA Credit Facilities $ 29,902 $ 34,644
Other debt 6,699 627
Capital leases, net of interest
component 1,098 1,534
---------- ----------
37,699 36,805
Less: current portion (7,139) (6,536)
---------- ----------
$ 30,560 $ 30,269
======== ========
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. In addition, one facility of CHF
12,500 is secured by the pledge of 48,000 ULSA bearer shares.
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. At May 31, 1999, the effective average interest rate is
approximately 3.25% per annum, with the exception of the CHF 12,500 facility for
which the effective interest rate is approximately 5.25% per annum.
In connection with the disposal of the UK operation by ULSA, all of the debt
related to that operation was disposed of. See Note 1 regarding disposal of UK
operations.
As of May 31, 1999, the Company has a total of CHF 8,400 (approximately $5,500
at the May 31, 1999 rate of exchange) available and unused under its credit
facilities.
Maturities
At May 31, 1999, future scheduled principal payments of long-term debt and
capital lease obligations are as follows:
Fiscal year Net obligation
1999/2000 $ 7,139
2000/01 10,341
2001/02 4,087
2002/03 16,132
----------
$37,699
Current maturities (7,139)
----------
$30,560
==========
5. Income Taxes
The Company currently provides income taxes on the earnings of foreign
subsidiaries to the extent they are taxable or expected to be remitted. The
Company is registered in the British Virgin Islands as an International Business
Corporation, and is therefore not subject to any tax in the British Virgin
Islands for any income realized by and from its subsidiaries outside of such
jurisdiction.
<PAGE>
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 operations are taxed. Income (loss) before income
taxes and minority interests of domestic and foreign corporations is as follows:
Years ended May 31
1999 1998 1997
(unaudited) (unaudited)
U.S. $ - $ - $ -
Foreign (503) 13,599 (7,649)
--------- ----------- -----------
Total ($ 503) $ 13,599 ($ 7,649)
=======
The provision (benefit) for income taxes is as follows :
Years ended May 31
1999 1998 1997
(unaudited) (unaudited)
Current:
Foreign $ 3,978 $ 3,037 $ 864
Deferred:
Foreign 41 (452) (3,050)
--------- ----------- -----------
Total $ 4,019 $ 2,585 ($ 2,186)
======== =========== ===========
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
1999 1998 1997
Computed income taxes at rate of
34% ($171) $4,624 ($2,601)
Impact of difference between
statutory and US tax rates 2,959 (2,028) (3,799)
Non-deductible goodwill 972 - -
Withholding tax on dividend from
ULSA to UGL 909 769 -
Effect of adjustment of carrying
value of building - - (1,916)
Effect of change in amortization
period for goodwill (510)
Effect of adjustment of carrying - 4,383
value of goodwill in subsidiary
Change in valuation reserves on
deferred tax assets (559) (697) 2,143
Other (91) (83) 113
---------- ---------- ----------
$4,019 $2,585 ($2,186)
<PAGE>
The deferred tax assets and liabilities as of May 31, 1999, are as follows :
Assets Liabilities
Depreciation of tangible assets $ - 72
Amortization of intangibles 300
Operating loss carry forwards 466 $ -
--------- ---------
466 372
Valuation allowance (314) -
--------- ---------
$ 152 $ 372
= ======== ========
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 -
--------- ---------
1,030 336
Valuation allowance (873) -
-------- ---------
$ 157 $ 336
===== =====
The net change in the valuation allowance for deferred tax assets relates to
utilization of tax loss carry forwards which were previously not thought to be
realizable, but were realized or became realizable during the current period.
Certain 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 $1,400 ($6,400 at May 31, 1998). 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 $152 ($157 at May 31, 1998). The
major portion of underlying net operating loss carry forwards is expected to
expire starting in 2002.
<PAGE>
6. Stockholders' Equity
As of May 31, 1997, UGL had one class of common stock, comprised of 1,000 bearer
shares of $1.00 par value each. In April 1998, the Memorandum of Association was
amended, and the share capital was divided into 18,000,000 authorized shares of
voting common stock of $0.01 par value each and 2,000,000 authorized shares of
non-voting common stock of $0.01 par value each. UniHolding's then ownership
interest of 800 bearer shares of $1.00 par value each were converted into
2,000,000 shares of voting common stock, representing at that time 100% of UGL's
outstanding shares of common stock, while UGL's 200 bearer shares of $1.00 par
value held in treasury were converted to 500,000 shares of voting common stock.
ULSA Stock Purchase Plan
In January 1999, ULSA's Board of Directors adopted a Stock Purchase Plan whereby
certain bearer shares of ULSA common stock held by ULSA as treasury stock can be
purchased by directors and key officers of ULSA, its subsidiaries and
affiliates, in quantities at the discretion of the ULSA Board of Directors.
7,500 bearer shares of ULSA's common stock were so offered in January 1999, at
prices lower than the last quoted sale price on the date of the subscription,
which difference aggregated $680, reflecting certain restrictions for resale
attached to such shares, and has been expensed. All such shares offered were
purchased.
The Company does not have a stock option plan.
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 UniHolding's then 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 1997, 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. The excess of the purchase price over the
predecessor cost ($3,329) was debited to paid-in capital. According to the
related purchase contracts, the purchase price was subject to an adjustment
whereby UGL 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 UGL to Holdings and
was paid through a partial set-off of advances previously made.
During the year ended May 31, 1997, in conformity with UniHolding's plans to
maximize shareholder values, UGL organized an initial public offering of ULSA's
newly-issued and existing shares. In anticipation thereof, UGL sold an aggregate
of 30,000 shares (or 15.0% of ULSA's then 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, UGL 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 UGL of a portion of its holding in
ULSA, thereby diluting UGL'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. UGL recorded an aggregate gain of $16,164 from the sales of ULSA stock
during the year ended May 31, 1997.
<PAGE>
During the year ended May 31, 1998, UGL and ULSA 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 and recorded an aggregate
gain from such sales of $6,007.
During the year ended May 31, 1999, UGL and ULSA purchased 28,840 shares of ULSA
stock, and sold 34,756 shares of ULSA stock, either on the market, or in private
transactions at prices substantially equal to market and recorded an aggregate
gain from such sales of $3,761.
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, 1997, ULSA entered into a management services
contract with a company in which the Chairman of UGL's Board of Directors is a
director. Under this contract, a subsidiary paid SFr. 720 ($610 at the then
average exchange rate), SFr.720 ($492 at the then average exchange rate) and
SFr.835 ($581 at the then average exchange rate) during the years ended May 31,
1997, 1998 and 1999.
During the years ended May 31, 1997, 1998, and 1999, a subsidiary of ULSA paid
SFr. 720 ($610 at the then average exchange rate), SFr.720 ($492 at the then
average exchange rate), and SFr.835 ($581 at the then average exchange rate) for
consultancy services to a company affiliated with a Director of UGL.
During the years ended May 31, 1998 and 1999, pursuant to a management
consulting agreement, GUCT paid $300 per annum to a company affiliated with
these two directors of the Company.
8. Retained Earnings
Retained earnings of UGL's Swiss subsidiaries are partially restricted by law as
to distribution. Restricted amounts (including temporary restrictions) were
approximately $20,557 and $17,997 at May 31, 1999 and 1998, respectively.
9. Retirement plans
All of ULSA'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 ULSA. This contribution is
expensed in the period that the cost is incurred.
Total benefit plans expenses were approximately $1,504, $1,247, and $1,336 for
the years ended May 31, 1999, 1998 and 1997 respectively.
ULSA does not maintain any plans for other post-employment or post-retirement
employee benefits.
10. Commitments and Contingencies
The Company is obliged under capital and operating leases for laboratory
premises, offices and equipment expiring at various times through 2005. Minimum
lease payments for leases that have initial or remaining noncancellable terms in
excess of one year approximate:
<PAGE>
Capital
Fiscal year Operating leases leases
1999/2000 $ 2,946 $ 641
2000/01 2,313 337
2001/02 1,377 164
2002/03 934 21
2003/04 597 -
2004/05 246 -
--------
Minimum lease payments 1,163
Amount representing interest (65)
--------
Present value of net minimum lease $1,098
payments ========
Operating lease expenses, which relate to the rental of buildings, office
furniture and equipment of UGL's subsidiaries, were approximately $4,036,
$3,984, and $3,220 for the years ended May 31, 1999, 1998 and 1997 respectively.
Certain key officers of ULSA have employment agreements that provide for
aggregate annual salaries of approximately $1,500 and which include
non-competition clauses. In the event that ULSA invokes such clauses after
termination of the employment agreements, ULSA may be obligated, under certain
circumstances, to compensate these individuals for differences in salary between
the compensation paid to them by ULSA 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, UniHolding, UGL, ULSA, as well as certain of their 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 their business, UGL and ULSA may be a party to certain
litigation. As of May 31, 1999, ULSA 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 ULSA's legal counsel, the resolution of this matter
should have no material effect, if any, on the financial position or results of
operations of ULSA or UGL.
The Company's assets as of May 31, 1999 are located in the following countries
(amounts shown are percentages of the Company's total assets and reflect the
underlying location of the investment in the case of the Company's long-term
investments): Switzerland - 47%; United States and British Virgin Islands - 35%;
United Kingdom - 8%; Spain - 5% and Other - 5%. The Company's revenues for the
year ended May 31, 1999 were generated in the following geographic locations
countries (amounts shown are percentages of the Company's total revenues for the
year ended May 31, 1999): Switzerland - 84%; Spain - 9% and Other - 7%.
<PAGE>
11. Subsequent Events
On September 3, 1999, pursuant to separate board of director resolutions of the
UniHolding and UGL board of directors, which resulted from discussions between
the boards of directors of UniHolding and UGL, UniHolding agreed to transfer to
UGL 30,000 shares of UGL common stock, and UGL agreed to transfer to UniHolding,
UGL's entire shareholding of UniHolding common stock. Pursuant to these
resolutions, as of September 3, 1999, UGL did not own any UniHolding shares,
while UniHolding owned a balance of approximately 2.0 million shares of UGL
common stock, or approximately 37% of UGL's equity.
On October 1, 1999, ULSA closed on an agreement with FHL regarding the disposal
of the non-voting, redeemable preferred shares of that company. As of that date,
FHL merged its UK laboratory subsidiary into another laboratory owned by
Advanced Pathology Services Ltd., England. In connection therewith, ULSA sold
its FHL preferred shares against an immediate cash payment of (pound)3,000
($4,800), with the balance being essentially constituted of notes due within 4
years payable by Advanced Pathology Services.
On December 21, 1999, ULSA closed on an agreement with Advanced Pathology
Services Ltd., England, regarding the disposal of Unilabs International (UK)
Ltd., a subsidiary engaged in the marketing of pathology services in the Middle
East. The sale consideration was agreed at (pound)538 ($860), in the form of a
note payable on December 21, 2003.
12. Supplemental Disclosures of Cash Flow Information
(in thousands)
Years ended May 31
1999 1998 1997
(unaudited) (unaudited)
Cash paid during the
year for:
Interest $1,914 $1,039 $2,003
Income taxes 2,438 2,179 2,102
Capital lease obligations of $465, $955 and $1,904 were incurred during the
years ended May 31, 1999, 1998 and 1997, respectively.
