UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
----- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
----- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 0-21911
SLH CORPORATION
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(Exact name of registrant as specified in its charter)
Kansas 43-1764632
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 7568
5000 W. 95th St., Suite 260
Shawnee Mission, KS 66207
-------------------------------- ----------------
(Address of principal (Zipcode)
executive offices)
Registrant's telephone number, including area code (913) 652-1000
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- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---- ----
Number of shares outstanding of only class of Registrant's common stock as of
May 4, 1998: $.01 par value common - 10,074,721
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SLH CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
- ---------------------------------------------------------------------
(unaudited)
March 31, December 31,
1998 1997
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(In thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 2,866 20,054
Short-term investments 27,469 11,992
Accounts and notes receivable 1,397 146
Real estate under contract 2,074 1,973
Current income taxes 6,047 5,109
Other current assets 348 243
------------------------
Total current assets 40,201 39,517
Real estate held for sale 5,489 6,791
Real estate under development 1,028 2,267
Investment securities 1,545 1,530
Investment in affiliates 1,287 1,280
Property, plant and equipment 62 83
Notes receivable 1,680 1,680
Other assets 27 21
------------------------
$ 51,319 53,169
========================
LIABILITIES AND COMBINED EQUITY
Current liabilities:
Accounts payable $ 269 150
Other accrued expenses 173 --
Interest payable -- 1,479
Notes payable 21 --
Other current liabilities 180 410
------------------------
Total current liabilities 643 2,039
Notes payable -- 21
Other liabilities 111 12
------------------------
Total liabilities 754 2,072
------------------------
Minority interests 45 46
------------------------
Stockholders' Equity:
Preferred stock of $.01 par value
with $100 liquidation preference.
Authorized 1,000,000 shares;
none issued. -- --
Common stock of $.01 par value.
Authorized 30,000,000 shares;
issued 10,074,721 shares
(1997-9,902,588 shares) 101 99
Paid-in capital 42,455 45,438
Retained earnings 7,964 5,433
Accumulated other comprehensive income -- 81
------------------------
Total stockholders' equity 50,520 51,051
------------------------
$ 51,319 53,169
========================
See accompanying notes to consolidated financial statements and
management's discussion and analysis of financial condition and
results of operations.
SLH CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
- ----------------------------------------------------------------------
(unaudited)
Three Months Ended
March 31,
1998 1997
- ----------------------------------------------------------------------
(In thousands except
share amounts)
REVENUES
Real estate sales $ 3,068 4,040
Real estate rentals and other 170 174
----------------------
Total revenues 3,238 4,214
COSTS AND EXPENSES
Real Estate:
Cost of sales 2,904 4,038
Operating expenses 323 745
Provision for loss on real
estate held for sale, net -- 179
General and administrative 1,003 333
----------------------
Loss from operations (992) (1,081)
Investment and interest income - net 2,521 3,206
Interest expense (1) (44)
Equity in net earnings (loss) of affiliates 6 (232)
Equity in net earnings of
venture capital investment funds 49 58
Other income 34 266
----------------------
Earnings before income taxes 1,617 2,173
Income taxes (benefit) (913) (3)
----------------------
Earnings before minority interests 2,530 2,176
Minority interests (1) --
----------------------
NET EARNINGS $ 2,531 2,176
======================
Per share of common stock:
Basic net earnings $ .25 .22
Diluted net earnings $ .23 .21
Book value $ 5.01 4.92
Weighted average common shares 9,953,179 9,733,656
Weighted average common shares
and equivalents 11,007,268 10,221,028
Shares outstanding end of period 10,074,721 9,733,656
See accompanying notes to consolidated financial statements and
management's discussion and analysis of financial condition and
results of operations.
SLH CORPORATION AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity and Comprehensive Income
Three Months Ended March 31, 1998 (unaudited)
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Comprehensive Stockholders'
Income Equity
- ---------------------------------------------------------------------------
(in thousands)
Common stock:
Balance, beginning of period $ 99
Exercise of stock options 2
--------
Balance, end of period 101
--------
Paid-in capital:
Balance, beginning of period 45,438
Exercise of stock options (2,983)
--------
Balance, end of period 42,455
--------
Retained earnings:
Balance, beginning of period 5,433
Net earnings 2,531 2,531
--------
Balance, end of period 7,964
--------
Accumulated other comprehensive income
Balance, beginning of year 81
Unrealized gains on securities, net of
reclassification adjustment (81) (81)
--------
Balance, end of period -------- --
--------
Totals $ 2,450 50,520
======== ========
See accompanying notes to consolidated financial statements and
management's discussion and analysis of financial condition and results of
operations.
SLH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ----------------------------------------------------------------------
(unaudited)
Three months ended
March 31,
1998 1997
- -----------------------------------------------------------------------
(in thousands)
OPERATING ACTIVITIES
Net earnings $ 2,531 2,176
Adjustments to reconcile net earnings
to net cash provided by operations:
Depreciation and amortization 14 57
Losses applicable to minority interests (1) --
Equity in losses of affiliates (6) 232
Equity in earnings of venture capital
investment funds (49) (58)
Provision for loss on real estate held for sale -- 179
Sales of real estate 2,588 3,765
Increase in notes receivable from sales
of real estate -- (1,525)
Additions to real estate (149) (115)
Change in short-term trading portfolio, net 1,968 --
Change in accounts receivable (1,252) (84)
Change in accounts payable 191 (83)
Change in interest payable (1,479) --
Increase in deposits 50 (225)
Income taxes and other (1,122) 343
--------------------
Net cash provided by operations 3,284 4,662
--------------------
INVESTING ACTIVITIES
Distribution from venture capital
investment funds 34 --
Purchase of investments available for sale (26,067) (10,119)
Sale of investments available for sale 8,540 1,350
Additions to property, plant and equipment, net 2 (37)
--------------------
Net cash used by investing activities (17,491) (8,806)
--------------------
FINANCING ACTIVITIES
Proceeds from long-term debt -- 41
Capitalization by Lab Holdings, Inc. -- 10,000
Net issuance of stock pursuant to stock option
plan (2,981) --
--------------------
Net cash provided (used) by financing
activities (2,981) 10,041
--------------------
Net increase (decrease) in cash
and cash equivalents (17,188) 5,897
Cash and cash equivalents - beginning of period 20,054 3,925
--------------------
Cash and cash equivalents - end of period $ 2,866 9,822
====================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 1 --
====================
Income taxes, net $ 25 5
====================
See accompanying notes to consolidated financial statements and
management's discussion and analysis of financial condition and
results of operations.
SLH CORPORATION
Notes to Consolidated Financial Statements
March 31, 1998 and 1997
(1) The interim financial information furnished herein is unaudited while
the balance sheet at December 31, 1997 is derived from audited financial
statements. In the opinion of management, the financial information
reflects all adjustments which are necessary to fairly state SLH's
financial position at March 31, 1998 and December 31, 1997 and the results
of its operations and cash flows for the periods ended March 31, 1998 and
1997. All adjustments made in the interim period were of a normal
recurring nature. The financial statements have been prepared in
conformity with generally accepted accounting principles appropriate in the
circumstances, and therefore included in the financial statements are
certain amounts based on management's informed estimates and judgments. The
financial information herein is not necessarily representative of a full
year's operations because levels of sales, interest rates and other factors
fluctuate throughout the fiscal year. These same considerations apply to
all year to year comparisons. Certain 1997 amounts have been reclassified
for comparative purposes with no effect on net earnings (loss). See SLH's
Annual Report pursuant to Section 13 to the Securities Exchange Act of 1934
(Form 10-K as amended) for additional information not required by this
Quarter's Report (Form 10-Q).
(2) Pursuant to a Distribution Agreement between SLH Corporation (SLH or
the Company) and Lab Holdings, Inc. (Lab Holdings), the former parent
company of SLH, Lab Holdings transferred certain assets (the Transfer
Assets) and liabilities (the Transfer Liabilities), including two wholly-
owned subsidiaries, Scout Development Corporation (Scout) and BMA
Resources, Inc. (Resources), to SLH on February 28, 1997. The net amount
transferred to SLH totaled approximately $48 million. The Transfer Assets
and Transfer Liabilities are reflected in SLH's financial statements at Lab
Holdings' historical cost. All stock of SLH was then distributed to the
shareholders of Lab Holdings (the Distribution) on March 3, 1997. Lab
Holdings was formerly known as Seafield Capital Corporation and changed its
name to Lab Holdings in October 1997.
The accompanying consolidated statement of operations and statement of cash
flows for the three month period ending March 31, 1997 includes the results
of operations and cash flows for January and February 1997 when the
Transfer Assets and Transfer Liabilities were owned and operated by Lab
Holdings.
(3) Cash and cash equivalents include all highly liquid investments with
an original maturity of three months or less when purchased.
(4) The components of "Other Liabilities" are as follows:
March 31, 1998 December 31, 1997
Current Noncurrent Current Noncurrent
---------------------- ----------------------
(in thousands)
Accrued property tax $ -- -- 124 --
Accrued rent expense 120 111 250 12
Deposits 60 -- 10 --
Other -- -- 26 --
---------------------- ----------------------
$ 180 111 410 12
====================== ======================
(5) Basic earnings per share is computed using the weighted average number
of common shares and diluted earnings per share is computed using the
weighted average number of common shares and dilutive stock options.
There were no adjustments to the income available to common stockholders
used in the computation of diluted earnings per share. The following table
reconciles the weighted average common shares used in the basic earnings
per share calculation and the weighted average common shares and common
share equivalents used in the diluted earnings per share calculation.
Three Months Ended
March 31,
1998 1997
-------------------------
Weighted average common shares 9,953,179 9,733,656
Stock options 1,054,089 487,372
-------------------------
Weighted average common shares and
common share equivalents 11,007,268 10,221,028
=========================
(6) The Company adopted the provisions of the Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" on January
1, 1998. Comprehensive income is defined as any change in equity from
transactions and other events originating from non-owner sources. For SLH,
those changes are composed of reported net income and changes in unrealized
holding gains and losses on marketable equity securities. The components
of comprehensive income are as follows.
March 31,
1998 1997
------------------
(in thousands)
Net earnings $ 2,531 2,176
------------------
Other comprehensive income
Unrealized gains on securities:
Unrealized holding gain arising
during the period -- 1,375
Less: reclassification adjustment
for gains included in net income (81) --
Tax expense -- --
------------------
Total other comprehensive income (81) 1,375
------------------
Total Comprehensive Income $ 2,450 3,551
==================
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Selected Financial Data
Three months ended
March 31,
-----------------------
1998 1997
---------- ----------
Revenues $ 3,238,000 4,214,000
Loss from operations $ (992,000) (1,081,000)
Investment and interest income - net $ 2,521,000 3,206,000
Net earnings $ 2,531,000 2,176,000
Per share of common stock:
Basic net earnings $ .25 .22
Diluted net earnings $ .23 .21
Book Value per share $ 5.01 4.92
Introductory remarks about results of operations
On March 3, 1997, Lab Holdings Inc. (Lab Holdings) distributed to its
shareholders all of the outstanding shares of common stock of its wholly-
owned subsidiary, SLH Corporation (SLH or the Company), on the basis of one
share of common stock of SLH for each four shares of Lab Holdings common
stock held. In connection with this distribution and pursuant to a
Distribution Agreement between Lab Holdings and SLH, Lab Holdings
transferred its real estate and energy businesses and miscellaneous assets
and liabilities, including two wholly-owned subsidiaries, Scout Development
Corporation and BMA Resources, Inc., to SLH. The net assets distributed to
SLH totaled approximately $48 million. The common stock was split three
for one on July 21, 1997 and two for one on February 9, 1998 through stock
dividends of the additional shares.
This Management's Discussion and Analysis of Financial Condition and
Results of Operations covers periods when SLH's assets were owned by Lab
Holdings and operated as part of Lab Holdings. It should be read in
conjunction with the Notes to Consolidated Financial Statements.
Prior to October 20, 1997, Lab Holdings was named Seafield Capital
Corporation (Seafield). Seafield changed its name to Lab Holdings for
better identification with its primary asset, an 82% ownership of LabOne,
Inc.
FIRST QUARTER ANALYSIS
Real estate revenues in 1998's first quarter were $3.2 million as compared
with $4.2 million in 1997's first quarter. The real estate sales revenues
in 1998 include the sale of 5 residential units in New Mexico totaling $2.2
million, and approximately 3 acres of undeveloped land zoned for retail use
in Kansas for $800,000. In 1997, the real estate sales revenue included
the sale of 10 residential units in Florida, New Mexico and Texas totaling
$1.8 million and 547 acres of undeveloped land in Texas for $2.2 million.
Real estate rental and other revenues were approximately the same in both
the first quarters of 1998 and 1997.
At March 31, 1998, real estate holdings include undeveloped commercial and
residential land, single-family housing, and commercial structures (all of
which are listed for sale, except for the Houston Project which is being
developed) located in the following states: Kansas, Nevada, New Mexico,
Texas and Wyoming. The total acreage consisted of approximately 400 acres
and approximately 35 lots or units for sale. Real estate operations have
been influenced from period to period by several factors including seasonal
sales cycles for projects in Florida and New Mexico. The recent
substantial reduction in inventory will influence future period to period
comparisons.
Cost of the real estate sales in 1998's first quarter totaled $2.9 million,
compared with a cost of approximately $4 million in 1997's first quarter,
reflecting the mix of real estate sold during each period as discussed
above in the revenue analysis. Real estate operating expenses totaled
$323,000 in 1998, compared with $745,000 in 1997. The decrease is
attributable to a reduction in expenses associated with the completion of
the residential projects and the inventory reductions.
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," was implemented effective January 1,
1996. A net impairment loss of $179,000 in 1997's first quarter was
recorded on real estate held for sale. The impairment loss resulted from
changes in estimated expected future cash flows and sales prices on certain
properties based on appraisals and other current market conditions.
General and administrative expenses totaled $1 million in 1998's first
quarter as compared to $333,000 in 1997's first quarter. General and
administrative expenses in 1997's statements of operations included a
$250,000 estimated allocation of Lab Holdings' actual costs. The increase
in general and administrative expenses during 1998 primarily reflects costs
associated with the proposed merger of SLH with Syntroleum, expenses of
executive bonuses and slightly increased expenses as a stand alone company
in 1998.
The above factors produced a loss from operations of $992,000 in 1998 and
$1.1 million 1997.
Investment and interest income in 1998's first quarter totaled $2.5
million, as compared with $3.2 million in 1997's first quarter. The first
quarter of 1998 included a gain of approximately $1 million on the sale of
shares of a public company (Watson Pharmaceuticals, Inc.) received as the
result of a merger with one of SLH's venture capital investments.
Additionally in 1998, interest of $856,000 on the federal income tax
refunds was recognized resulting from the IRS finalizing interest
calculations. In 1997's first quarter, investment income consisted
primarily of the sale of shares in the same venture investment for a gain
of approximately $3 million.
Interest expense decreased to $1,000 in 1998's first quarter from $44,000
in the same period of 1997 primarily due to interest costs last year
associated with state tax issues and the fourth quarter 1997 payment of a
real estate mortgage.
Equity in affiliates' operations produced earnings of $6,000 in 1998,
compared with a loss of $232,000 in 1997's first quarter. During 1997, the
oil and gas partnership interests were sold. SLH's share of these
partnerships' first quarter 1997 losses totaled $248,000. The real estate
joint venture had earnings of $11,000 in 1998 compared to earnings of
$16,000 in 1997.
Equity in earnings of venture capital investment funds totaled $49,000 in
1998 and $58,000 in 1997. These funds invested in development stage
companies which may cause earnings to be subject to significant variations.
The $34,000 of other income in 1998 primarily consists of gain on sale of
miscellaneous assets and Lab Holdings' services agreement fees, while
1997's other income of $266,000 reflects $508,000 in receipts on
receivables accounted for on the cost recovery method and $300,000 for
costs associated with the move of SLH to a new location in 1997.
During the first quarter of 1998, income tax benefits of $913,000 were
recognized after filing amended state income tax returns reflecting the IRS
settlement last year. In 1997's first quarter, tax benefits of $3,000 were
recorded as valuation allowances were provided on the federal tax benefits
because utilization within the group was not expected.
The net earnings in 1998's first quarter of $2.5 million and $2.2 million
in 1997 reflect the above results of operations.
Liquidity and Capital Resources
Prior to September 30, 1996, SLH's liquidity was provided by Lab Holdings.
However, as provided in the Distribution Agreement, Lab Holdings
transferred to SLH on March 3, 1997, cash of $6.9 million and approximately
$3.1 million of short-term investments (consisting of a U.S. Treasury Note
which is pledged to a bank for a real estate letter of credit).
Additionally, cash generated from operations and the sale of SLH's assets
from October 1, 1996 to March 3, 1997 totaling $9.6 million, was
transferred to SLH as provided in the Distribution Agreement.
At March 31, 1998, SLH had available $30.3 million in cash and short-term
investments. SLH received a federal income tax net refund of approximately
$5.9 million in May 1998 for the 1986 to 1989 tax years. SLH has been
informed that a federal tax refund of approximately $436,000 for the 1990
tax year is being processed by the IRS. Current assets totaled
approximately $40.2 million while current liabilities totaled $643,000.
Changes in assets and liabilities on the balance sheet include reductions
in the real estate portfolio, the payment of interest on a state income tax
liability and the federal income tax refunds.
Cash provided by operations in 1998 totaled $3.3 million, as compared to
$4.7 million in 1997. During 1998, the net cash provided by operations
included $2.5 million of net earnings, $2.6 million of real estate sales, a
decrease in trading portfolios of $2 million, a $1.3 million decrease in
accounts receivable, a $1.5 million decrease in interest payable and a $1.1
million change in taxes and other items. During 1997, the net cash
provided by operations included $2.2 million of net earnings, $3.8 million
of real estate sales and a $1.5 million increase in notes receivable from
sales of real estate.
Cash used by investing activities was $17.5 million in 1998's first quarter
reflecting purchases of investments available for sale exceeding sales of
investments by $17.5 million, while the 1997 cash used by investing
activities also reflected purchases of investments available for sale
exceeding sales of investments.
Cash used by financing activities in 1998's first quarter reflects the net
issuance of SLH's common stock pursuant to SLH's stock option plan, while
in 1997's first quarter the cash provided by financing activities
represented the capitalization of SLH by Lab Holdings.
Debt associated with real estate totaled $21,000 at both March 31, 1998 and
December 31, 1997. SLH is obligated under recourse debt (with an unpaid
balance of $6.1 million) of an affiliate which is accounted for on the
equity method. SLH's obligation on this recourse debt is secured by a $3
million U.S. Treasury Note. A $1.4 million note receivable was prepaid
during 1998's second quarter, therefore the associated debt of $21,000 was
also prepaid during 1998's second quarter.
In January 1998, Congress' Joint Committee on Taxation approved the tax
refund issues included in SLH's negotiated tax settlement with the Internal
Revenue Service relating to tax years 1986 through 1990. SLH received a
federal refund of approximately $5.6 million which had been accrued at
December 31, 1997 (plus interest of $300,000) in May 1998 for the tax years
1986-1989. An additional check for the 1990 tax year is still pending.
The settlement required the filing of amended state income tax returns
during 1998 for the tax years 1986 through 1990.
Management anticipates that future additions to property, plant and
equipment will be minimal. SLH estimates that construction and disposal
costs to complete real estate projects in development will be approximately
$2 million. SLH is actively addressing Year 2000 computer concerns and is
upgrading one computer system. Management expects that the total cost for
Year 2000 compliance should be approximately $15,000.
SLH's Board of Directors declared a two for one split of SLH's common stock
effective February 9, 1998. As a result of the split, which was effected
as a stock dividend, each stockholder of record on February 2, 1998
received one additional share of common stock for each share of common
stock held of record on that date.
On March 31, 1998, SLH Corporation and Syntroleum Corporation announced a
definitive agreement to merge the two companies. SLH currently owns
approximately 31% of the outstanding capital stock of Syntroleum. The
merger has been approved by the Boards of Directors of both companies and
is expected to be consummated near the end of the second quarter of 1998.
Pursuant to terms of the merger agreement, Syntroleum will merge into SLH
and SLH will change its name to Syntroleum Corporation. The consummation
of the merger is subject to stockholder approval and customary closing
conditions. Stockholder meetings to vote on the proposed merger will be
scheduled as soon as a registration statement becomes effective with the
Securities and Exchange Commission and proxy materials are finalized.
Recently Issued Accounting Standards
No recently issued accounting standards presently exist which will require
adoption in future periods.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Under the Distribution Agreement and Related Assignment, the
Company has assumed the rights and obligations of Lab Holdings with respect
to the legal matters described below.
(a) Claim Against Skidmore, Owings & Merrill, et al. In 1986, a
lawsuit was initiated in the Circuit Court of Jackson County, Missouri by
Lab Holdings' former insurance subsidiary (i.e., Business Men's Assurance
Company of America) against Skidmore, Owings & Merrill (SOM) which is an
architectural and engineering firm, and a construction firm to recover
costs incurred to remove and replace the facade on the former home office
building. Because the removal and replacement costs had been incurred
prior to the sale of the insurance subsidiary, Lab Holdings negotiated with
the buyer for an assignment of the cause of action from the insurance
subsidiary. Under the Distribution Agreement, Lab Holdings has assigned to
the Company all of its rights to any recoveries and the Company has assumed
all costs relating to the prosecution of the claims. Thus any recovery
will be for the benefit of the Company and all costs incurred in connection
with the litigation will be paid by the Company. Any ultimate recovery
will be recognized as income when received. In September 1993, the
Missouri Court of Appeals reversed a $5.7 million judgment which was
granted in 1992 in favor of Lab Holdings; the Court of Appeals remanded the
case to the trial court for a retrial limited to the question of whether or
not the applicable statute of limitations barred the claim. The Missouri
Court of Appeals also set aside $1.7 million of the judgment originally
granted in 1992. In July 1996, the case was retried to a judge. On
January 21, 1997, the judge entered a judgment in favor of Lab Holdings for
the benefit of the Company. The amount of that judgment, together with
interest is approximately $5.7 million. In 1997, the defendants appealed
the judgment to the Missouri Court of Appeals, Kansas City Division, and
posted an appeal bond to stay collection of the judgment pending the
outcome of the appeal. The Company expects the appeal to be heard during
the second quarter of 1998, with a final decision by the end of 1998.
(b) Claim Against Scout. On January 30, 1997, Scout Development
Corporation was served with a complaint filed in the District Court of
Tarrant County, Texas by the parents of a 36 week old fetus who did not
survive an automobile accident at an intersection in Fort Worth, Texas, the
view of which is alleged to have been obstructed by weeds growing on
property that is alleged to have been owned by Scout. The claim was
settled in the first quarter 1998 with payment of the settlement being made
by the Company's insurance carrier.
Scout has pending against it warranty claims by the purchasers of a home in
Florida and the purchasers of a home in the Quail Run development in Santa
Fe, New Mexico, neither of which are deemed material to the financial
condition of the Company. During 1997, the Company entered into a global
settlement of claims by the homeowners' association of the Company's real
estate development in Quail Run. Pursuant to that settlement, the Company
was released from future claims with respect to the common elements and
limited common elements of the development.
(c) Internal Revenue Service Audits. Prior to the Distribution, Lab
Holdings had received notices of proposed adjustments (the Revenue Agent's
Reports) from the Internal Revenue Service (the IRS) with respect to its
1986-1990 federal income taxes. In connection with the Distribution, the
Company assumed from Lab Holdings all its contingent tax liabilities to the
IRS and acquired all of its related rights to refunds as well as any
interest thereon related to the Lab Holdings' 1986-1990 tax years. During
1997, the Company settled all of the claims and disputes between Lab
Holdings and the IRS for the 1986-1990 years. In May 1998, the Company
received a refund in the amount of $5,966,000, including interest, for the
1986-1989 years. A refund of approximately $436,000 is being processed by
the IRS for the 1990 year.
(d) California Tax Issues. The Company also assumed Lab Holdings'
rights and liabilities with respect to an audit being conducted by the
State of California for Lab Holdings' 1987-1989 taxable years which the
Company settled in the first quarter 1998.
Although the Company has settled potential liabilities to the IRS and
California for the tax years in question, the settlement made it necessary
for the Company to file amended tax returns in certain states to reflect
the results of the settlement. Approximately $20,000 was paid with the
amended state returns and a $170,000 delayed state tax refund is now
expected.
Item 2. Changes in Securities
(a) Changes in Securities: None
(b) Under the Kansas General Corporation Code, dividends may be
paid out of the Corporation's surplus, or if there is no surplus, out of
the Corporation's net profits for the fiscal year in which the dividend is
declared or the preceding fiscal year. At March 31, 1998, the
Corporation's surplus (as defined under the Kansas General Corporation
Code) was approximately $50,419,000. However, in connection with the
distribution by Lab Holdings, Inc. of all shares of SLH Corporation common
stock to Lab Holdings shareholders, effected March 3, 1997, the Corporation
agreed that it will not, for a period of two years following the
distribution, pay any dividends in cash or property or redeem any of its
shares of capital stock, without the consent of Lab Holdings.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Securities Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 Financial Data Schedule - as filed electronically by
the Registrant in conjunction with this Form 10-Q.
(b) Reports on Form 8-K:
A current report on Form 8-K was filed on January 27, 1998 to
report that the Registrant's board of directors declared a two for one
split of the Registrant's shares of common stock. As a result of the
split, which was effected as a stock dividend, each stockholder of record
on February 2, 1998 received one additional share of common stock for each
share of common stock held. Certificates for the additional shares were
mailed to stockholders on February 9, 1998.
A current report on Form 8-K was filed on March 31, 1998 to
report that the Registrant and Syntroleum Corporation have signed a
definitive agreement to merge the two companies. The Registrant owns
approximately 31% of the outstanding capital stock of Syntroleum. The
merger has been approved by the Boards of Directors of both companies and
is expected to be consummated near the end of the second quarter 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SLH Corporation
Date May 12, 1998 By /s/ James R. Seward
----------------------------
James R. Seward
President and Chief
Executive Officer
Date May 12, 1998 By /s/ Steven K. Fitzwater
----------------------------
Steven K. Fitzwater
Vice President, Chief Financial and
Accounting Officer and Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Form 10-Q for the period ending March 31, 1998 and is qualified in its
entirety by reference to such 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,866
<SECURITIES> 27,469
<RECEIVABLES> 1,397
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 40,201
<PP&E> 0<F1>
<DEPRECIATION> 0<F1>
<TOTAL-ASSETS> 51,319
<CURRENT-LIABILITIES> 643
<BONDS> 0
0
0
<COMMON> 101
<OTHER-SE> 50,419
<TOTAL-LIABILITY-AND-EQUITY> 51,319
<SALES> 3,068
<TOTAL-REVENUES> 3,238
<CGS> 2,904
<TOTAL-COSTS> 3,227
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1
<INCOME-PRETAX> 1,617
<INCOME-TAX> (913)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,531
<EPS-PRIMARY> .25
<EPS-DILUTED> .23
<FN>
<F1>Disclosure not required on interim financial statements.
</FN>
</TABLE>
