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 September 30, 1994
----- 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 0-16946
SEAFIELD CAPITAL CORPORATION
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(Exact name of registrant as specified in its charter)
Missouri 43-1039532
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 410949
2600 Grand Ave., Suite 500
Kansas City, Missouri 64141
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(Address of principal (Zipcode)
executive offices)
Registrant's telephone number, including area code (816) 842-7000
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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
November 8, 1994: $1 par value common - 6,361,021
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
SEAFIELD CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- - -------------------------------------------------------------------------------
September 30, December 31,
1994 1993
- - -------------------------------------------------------------------------------
(in thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 4,586 15,491
Short-term investments 71,448 80,069
Accounts and notes receivable 32,390 32,296
Current income tax receivable 2,397 1,325
Deferred income tax assets 1,389 1,621
Other current assets 10,107 8,924
Current assets of discontinued real estate
operations - net (493) 336
------------------------
Total current assets 121,824 140,062
Property, plant and equipment 25,469 27,767
Investments:
Securities 8,984 8,274
Notes receivable 1,507 1,394
Oil and gas 6,530 8,381
Intangible assets 29,853 33,178
Other assets 2,063 2,977
Non-current assets of discontinued real estate
operations - net 54,196 52,260
------------------------
$ 250,426 274,293
========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,830 6,746
Notes payable 2,565 4,571
Other current liabilities 8,886 9,552
------------------------
Total current liabilities 18,281 20,869
Notes payable 10 18
Deferred income tax liabilities (862) 723
Other liabilities 4,868 4,197
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Total liabilities 22,297 25,807
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Minority interests 21,975 22,816
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Stockholders' equity:
Preferred stock of $1 par value.
Authorized 3,000,000 shares; none issued -- --
Common stock of $1 par value.
Authorized 24,000,000 shares; issued
7,500,000 shares 7,500 7,500
Paid-in capital 1,003 1,007
Equity adjustment from foreign
currency translation (378) (350)
Retained earnings 228,809 235,583
------------------------
236,934 243,740
Less cost of 1,138,979 shares of treasury stock
(1993-766,755) 30,780 18,070
------------------------
Total stockholders' equity 206,154 225,670
------------------------
$ 250,426 274,293
========================
See accompanying notes and management's discussion and analysis of financial
statements.
SEAFIELD CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
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Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
- - -------------------------------------------------------------------------------
(in thousands except per share amounts)
REVENUES
Insurance services $ 16,039 17,708 50,247 56,442
Healthcare services 12,547 11,253 33,100 29,822
Other 2,971 4,690 8,694 10,835
---------------------- ----------------------
Total revenues 31,557 33,651 92,041 97,099
COSTS AND EXPENSES
Insurance services 8,090 8,132 24,587 25,177
Healthcare services 11,544 10,121 31,225 26,844
Other 3,319 4,601 8,923 11,492
Selling, general
and administrative 11,593 9,033 30,764 27,328
--------------------- ----------------------
Earnings (loss) from operations (2,989) 1,764 (3,458) 6,258
Investment income - net 828 2,021 3,103 3,675
Other expense (133) (197) (11) (240)
--------------------- ----------------------
Earnings (loss) before
income taxes (2,294) 3,588 (366) 9,693
Income taxes (392) 1,713 759 4,752
---------------------- ----------------------
Earnings (loss) before
minority interests (1,902) 1,875 (1,125) 4,941
Minority interests (157) 590 (75) 1,875
---------------------- ----------------------
Net earnings (loss) $ (1,745) 1,285 (1,050) 3,066
====================== ======================
Per share of common stock:
Net earnings (loss) $ (.27) .19 (.16) .45
Dividends $ .30 .30 .90 .90
Book value $ 32.41 33.53
Average shares outstanding 6,361,021 6,855,083 6,374,920 6,840,595
Shares outstanding end of period 6,361,021 6,712,932
See accompanying notes and management's discussion and analysis of financial
statements.
SEAFIELD CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
- - ------------------------------------------------------------------------------
Nine Months Ended
September 30, 1994
- - ------------------------------------------------------------------------------
(in thousands)
Common stock:
Balance, beginning of year $ 7,500
---------
Balance, end of period 7,500
---------
Paid-in capital:
Balance, beginning of year 1,007
Exercise of stock options (4)
---------
Balance, end of period 1,003
---------
Foreign currency translation:
Balance, beginning of year (350)
Net change during period (28)
---------
Balance, end of period (378)
---------
Retained earnings:
Balance, beginning of year 235,583
Net earnings (1,050)
Dividends paid (5,724)
---------
Balance, end of period 228,809
---------
Less:
Treasury stock:
Balance, beginning of year 18,070
Exercise of stock options (242)
Shares purchased (382,350 shares) 12,952
---------
Balance, end of period 30,780
---------
Stockholders' Equity $ 206,154
=========
See accompanying notes and management's discussion and analysis of
financial statements.
SEAFIELD CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
- - -------------------------------------------------------------------------------
Nine months ended September 30,
1994 1993
- - -------------------------------------------------------------------------------
OPERATING ACTIVITIES
Earnings (loss) from operations $ (1,050) 3,066
Adjustments to reconcile earnings from operations
to net cash provided by operations:
Depreciation and amortization 12,528 14,457
Earnings (loss) applicable to minority interests (75) 1,875
Change in short-term trading portfolio, net 2,232 --
Change in accounts receivable 1,944 (5,728)
Change in accounts payable 251 (1,604)
Income taxes and other (2,142) (3,311)
------------------------
Net cash provided by continuing operations 13,688 8,755
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INVESTING ACTIVITIES
Purchases of investments (2,206) (9,388)
Sales or maturities of investments 1,542 9,206
Secruitization of receivables 4,800 17,000
Additions to property, plant and equipment, net (3,942) (2,781)
Oil and gas investments (773) 93
Short-term investments (1,115) (9,596)
Net cash provided (used) by discontinued
real estate operations (1,107) 6,234
Other, net (901) (1,680)
------------------------
Net cash provided (used) by investing activities (3,702) 9,088
------------------------
FINANCING ACTIVITIES
Payments under line of credit ageements, net (2,097) (818)
Payment of principal on long-term debt (42) (12,018)
Payment of capital lease (297) --
Dividends paid (5,724) (6,039)
Purchase of treasury stock (12,952) --
Issuance of common stock 238 19
------------------------
Net cash used by financing activities (20,874) (18,856)
------------------------
Effect of foreign currency translation (17) 117
------------------------
Net decrease in cash and cash equivalents (10,905) (896)
Cash and cash equivalents - beginning of period 15,491 2,246
------------------------
Cash and cash equivalents - end of period $ 4,586 1,350
========================
Cash paid during the period for:
Interest (net of amount capitalized) $ 248 472
========================
Income taxes, net $ 2,291 5,384
========================
See accompanying notes and management's discussion and analysis of financial
statements.
SEAFIELD CAPITAL CORPORATION
Notes to Consolidated Financial Statements
September 30, 1994 and 1993
(1) The financial information furnished herein, in the opinion of management,
reflects all adjustments which are necessary to fairly state the Registrant's
financial position at September 30, 1994 and December 31, 1993 and the results
of its operations and cash flows for the periods ended September 30, 1994 and
1993. 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 1993
amounts have been reclassified for comparative purposes with no effect on net
earnings. See the Registrant's Annual Report pursuant to Section 13 to the
Securities Exchange Act of 1934 (Form 10-K) for additional information not
required by this Quarter's Report (Form 10-Q).
(2) Cash and cash equivalents include demand deposits in banks and overnight
investments.
(3) A lawsuit was initiated in 1986 by the Registrant's former insurance
subsidiary against 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 costs had been incurred prior to any
discussions regarding a sale of the insurance subsidiary, Registrant negotiated
with the buyer for an assignment of the cause of action from the insurance
subsidiary. Thus, any recovery will be for the benefit of the Registrant and
all costs incurred in connection with the litigation will be paid by the
Registrant. Any ultimate recovery will be recognized as income when received
and would be subject to income taxes. In September 1993, the Missouri Court of
Appeals reversed a $5.7 million judgment granted in 1992 in favor of the
Registrant; shortly thereafter, the Appeals court informed the parties that it
would reconsider the case. On November 8, 1994, the Court of Appeals remanded
the case to the trial court for a jury trial limited to the question of whether
or not the applicable statute of limitations barred the claim. The Appeals
Court also set aside $1.7 million of the judgment originally granted in 1992;
it affirmed the judgment to the extent of $4 million, but subject to a jury's
determination, in a new trial, respecting the statute of limitations question.
In 1990, the Registrant's former insurance subsidiary was joined in an existing
lawsuit by the Federal Deposit Insurance Corporation (FDIC) as successor to
Sunbelt Service Corporation. The FDIC alleged that the insurance subsidiary was
obligated under a repurchase agreement in the approximate amount of $6 million.
Following a mediation proceeding, all claims involving the Registrant were
dismissed with prejudice by order of the court signed in February 1994.
In February 1988, a lawsuit was initiated against the Registrant's former
insurance subsidiary by its former partners in the Quail Run real estate
project in Santa Fe, New Mexico. The plaintiffs alleged that the project
partnership agreement was improperly terminated, thus denying them an ongoing
interest in the project, and that their exclusive real estate brokerage
arrangement was improperly terminated, thus denying them commissions from sales
of project units and adversely affecting their brokerage business generally.
The plaintiffs were seeking approximately $11 million in actual damages and
unspecified punitive damages based upon alleged breaches of contract and
fiduciary duty and economic compulsion, all arising out of the purchase of the
plaintiffs' interest in the project partnership. After a four-week trial in
July 1994, the jury returned a verdict absolving Registrant of any liability.
Subsequent to the trial, the judge awarded Registrant $176,000 for marketing
expenses which the plaintiffs were to have repaid. Registrant has filed
motions seeking pre-judgment interest on the $176,000 and reimbursement of
certain litigation costs.
Plaintiffs have appealed all judgments against them and have contested the
claims for pre-judgment interest and litigation costs. The appeal will likely
be heard sometime in 1995.
Because the Quail Run project was retained by Registrant in connection with the
sale of its former insurance subsidiary, Registrant defended the lawsuit under
an indemnification arrangement with the purchaser of the former insurance
subsidiary; all costs incurred and any judgments rendered in favor of the
plaintiff will be for the account of the Registrant.
In the opinion of management, after consultation with legal counsel and based
upon current available information, none of these lawsuits is expected to have
a significant impact on the consolidated financial position of the Registrant.
(4) Statement of Financial Accounting Standards No. 112 "Employer's Accounting
for Postemployment Benefits" was implemented in the first quarter of 1994. The
adoption of this standard had no significant impact on the Registrant's
financial position or results of operations.
(5) Earnings per share of common stock are based on the weighted average
number of shares of common stock outstanding and the common share equivalents
of dilutive stock options.
ITEM 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS
Selected financial data
Three months ended Nine months ended
September 30, September 30,
------------------------ ------------------------
1994 1993 1994 1993
---------- ---------- ---------- ----------
Revenues $ 31,557,000 33,651,000 92,041,000 97,099,000
Earnings (loss)
from operations $ (2,989,000) 1,764,000 (3,458,000) 6,258,000
Investment
Income - Net $ 828,000 2,021,000 3,103,000 3,675,000
Net earnings (loss) $ (1,745,000) 1,285,000 (1,050,000) 3,066,000
Per share:
Net earnings (loss) $ (.27) .19 (.16) .45
Dividends per share $ .30 .30 .90 .90
Book value per share $ 32.41 33.53
Average shares
outstanding 6,361,021 6,855,083 6,374,920 6,840,595
Shares outstanding
end of period 6,361,021 6,712,932
Insurance Services Segment
The following businesses are considered to be in the insurance services
segment: laboratory testing for the life, disability and health insurance
industries, underwriting and policy administration services and insurance
premium finance services.
LabOne, Inc. (LabOne), an 82% owned subsidiary of Seafield Capital Corporation
(Seafield), is a publicly-traded company (NASDAQ-LABS). LabOne currently
generates revenue primarily from laboratory testing of insurance policy
applicants for insurance companies. The tests performed by LabOne are
specifically designed to assist insurance companies in objectively evaluating
the mortality and morbidity risks posed by policy applicants. The majority of
the testing is performed on individual and group life insurance policy
applicants. LabOne also provides testing services on individual and group
medical and disability policies.
LabOne offers a core group of urine tests, controlled substance tests,
insurance-oriented blood chemistry profiles and a series of AIDS-related tests.
The following table summarizes LabOne's sales from such tests, and from other
operations (primarily the sale of specimen kits):
Three months ended Sept 30, Nine months ended Sept 30,
1994 1993 1994 1993
---------------------------- ---------------------------
Urinalyses $ 2,320,000 2,421,000 7,204,000 7,695,000
Controlled
substances 2,465,000 2,940,000 7,656,000 9,801,000
Blood chemistry
profile 4,175,000 4,669,000 12,954,000 15,017,000
AIDS-related
tests 2,950,000 3,394,000 9,250,000 11,229,000
Other 2,557,000 2,933,000 8,250,000 8,781,000
-------------------------- --------------------------
$ 14,467,000 16,357,000 45,314,000 52,523,000
========================== ==========================
LabOne's reported net earnings of $281,000 for the third quarter of 1994 on
revenues of $14.5 million, compared to the prior year's third quarter net
earnings of $2.2 million on revenues of $16.4 million. For the nine months
ended September 30, 1994, LabOne's reported net earnings of $4.2 million on
revenues of $45.3 million, compared to the prior year's nine months net
earnings of $8.3 million on revenues of $52.5 million.
LabOne's decrease in revenue of $1.9 million in the third quarter of 1994 can
be attributed to an 6% decrease in the total number of applicants tested and a
7% decline in the average revenue per applicant. Insurance industry reports
indicate that the number of policies written in 1994 is significantly less than
during the same period in 1993. The decline in the total number of applicants
tested can be attributed primarily to the reduction in the number of policy
applications written. Average revenue per applicant declined due to certain
price decreases as a result of continued competitive pressures. LabOne's
revenue decrease in the first nine months of $7.2 million or 14% can be
attributed primarily to a 9% decrease in the total number of applicants tested
and an 7% decrease in the average revenue per applicant.
LabOne's cost of sales decreased in the third quarter of 1994 by $305,000 as
compared to the prior year's third quarter. This decrease is due primarily to
specimen kit cost reductions, lower depreciation and amortization and net
freight expenses. The third quarter 1994 cost of sales included approximately
$600,000 in expenses incurred related to the expansion into clinical laboratory
testing. Cost of sales declined $1.1 million in the nine month period ended
September 30, 1994 as compared to the prior year's period. This decrease is due
primarily to the decrease in testing volume, unit cost reductions for specimen
kits, a decrease in depreciation and amortization expenses and net freight
expenses. These expense reductions were net of expenses incurred related to the
expansion into clinical laboratory testing.
LabOne's selling, general and administrative expenses increased $2.1 million in
the third quarter 1994 from the same period last year, primarily due to a one
time restructuring charge of $1.6 million. The insurance testing operations
were restructured by consolidating its Canadian laboratory testing operation
with the Lenexa, Kansas facility. It also eliminated several insurance testing
administrative positions during the third quarter. LabOne's management expects
to save approximately $1.7 million annually from the restructuring. Selling,
general and administrative expenses related to the clinical diversification
were approximately $800,000 in the third quarter. LabOne's selling, general and
administrative expenses increased $1.7 million in the first nine months of 1994
due primarily to the one time restructuring charge of $1.6 million and an
increase in payroll expenses. These increases are partially offset by lower
depreciation expense.
In October 1994, LabOne announced that it has agreed to provide clinical
laboratory testing services to several regions of the Foundation of the
California Coast. The Foundation is a coalition of preferred provider
organizations with more than 8,000 physician providers and over 450,000
eligible members. Approximately 45 percent of these members are members of
Principal Mutual Life Insurance Company, for whom LabOne agreed to provide
laboratory testing services under a contract announced in July 1994.
The diversification into the clinical testing market has resulted in
approximately $1.4 million of incremental expenses incurred during the third
quarter 1994. LabOne management expects that the incremental expenses
associated with clinical diversification for the fourth quarter 1994 will
exceed the amount spent during the third quarter 1994.
Clinical testing revenue during the third quarter was insignificant. LabOne's
management expects clinical revenue to increase during the fourth quarter 1994,
but does not expect the increase to offset the clinical expenses incurred
during the same time period.
The insurance premium finance services operations were profitable during the
third quarters and first nine months of 1994 and 1993. In first nine months of
1994, this subsidiary originated $55.8 million of new premium finance
contracts, compared to approximately $44 million for the same period in 1993.
The number of contracts processed increased 32% to 10,277 contracts in the
first nine months of 1994. During 1994's third quarter, this subsidiary
increased its securitization program to a $30 million receivables sales
facility with a bank. Receivables sold totaled $23 million at September 30,
1994.
The underwriting and policy administration services revenue increased 20% in
1994's third quarter and 53% in the first nine months as compared to the prior
year's periods. While new business development is positive, this subsidiary
incurred losses during the third quarter and first nine months. Additional
staffing costs were incurred in anticipation of production from new clients.
Healthcare Services Segment
The following businesses are considered to be in the healthcare services
segment: advanced cancer treatment services and radiopharmaceuticals and
related services for nuclear medicine.
Response Technologies, Inc. (Response), a 59% owned subsidiary of Seafield, is
a publicly-traded company (AMEX-RTK). Response is a leading provider of
advanced cancer treatments and related services, principally on an outpatient
basis, through treatment centers owned or managed by Response.
The corporate-owned centers, known as IMPACT(registered trademark)
(IMPlementing Advanced Cancer Treatments) Centers, are staffed by experienced
oncology nurses, laboratory technologists and other support personnel to
deliver outpatient services under the direction of private practicing
oncologists. The primary treatments provided by the Centers involve high-dose
chemotherapy coupled with support of the patient's immune system through the
use of autologous peripheral blood stem cell reinfusion. The Centers also
provide home pharmacy and outpatient infusional services for its patients.
Response is devoting significant marketing effort to the development of
additional centers based within client hospitals. Response will provide
technical and administrative services, including treatment protocols, data
management, employee training, and reimbursement. Patient care and laboratory
services will be provided by and billed to third parties by the client
hospital. This arrangement will allow a hospital to gain greater utilization
of its existing staff and facilities by offering high-dose chemotherapy
treatments without incurring additional overhead. These centers may entail a
joint ownership relationship or a management agreement.
As of September 30, 1994, Response had a network of 27 owned and 5 managed
treatment centers located in California, Colorado, Florida, Georgia, Indiana,
Louisiana, Massachusetts, Michigan, Minnesota, Missouri, New Mexico, New York,
North Carolina, Pennsylvania, South Carolina, Tennessee, Texas and Virginia.
Response anticipates continued nationwide expansion through a combination of
corporate-owned and managed centers over the next few years.
During the quarter ended September 30, 1994, Response opened an advanced cancer
treatment center in a cooperative arrangement with DeKalb Medical Center in
Atlanta, Georgia ("the Hospital"). The center represents a transition from
Response's wholly-owned and operated IMPACT (registered trademark) Center which
was established in Atlanta in December, 1991 to a cooperative center with the
Hospital.
Response previously reported that its IMPACT (registered trademark) Center in
Dayton, Ohio was being reviewed for possible noncompliance with state
certificate of need ("CON") regulations. Response had disputed the
applicability of the CON regulations to its operation in Dayton. Due to an
adverse ruling whereby applicability of the regulations were upheld, the Dayton
IMPACT (registered trademark) Center was closed during the quarter ended
September 30, 1994. Response faced similar regulations in the State of
Michigan, but received a favorable ruling whereby it was determined that
Response's operations were not in conflict with CON regulations.
Response continues to undertake significant efforts to establish provider
relationships to redirect patients to its Centers and to establish contractual
pricing arrangements. Response has been successful in establishing many
relationships with insurance plans, and the majority of its patients are now
covered by a contractual pricing arrangement.
Response reported a net loss of $138,000 for the third quarter of 1994 on
revenues of $10.8 million, compared to the prior year's third quarter net
earnings of $323,000 on revenues of $10.5 million. For the nine months ended
September 30, 1994, Response incurred a net loss of $l.7 million on revenues of
$28.6 million, compared to the prior year's nine months net earnings of
$593,000 on revenues of $27.5 million.
Response's 1994 third quarter operating expenses increased $583,000 or 7% when
compared to the quarter ended September 30, 1993. Operating expenses for the
nine months ended September 30, 1994 increased $1.8 million or 8% when compared
to the nine months ended September 30, 1993. These expenses consist of payroll
costs, pharmaceutical and laboratory expenses, rent expense and other
operational expenses. Operating expenses display a high degree of variability
in proportion to center revenue. Operating expenses as a percent of net
revenue were 81% and 78% for the quarters and 82% and 79% for the nine month
periods ended September 30, 1994 and 1993, respectively. The increase is
primarily attributable to an increase in lower margin revenue from
pharmaceutical sales to physicians.
Response's general and administrative costs for the quarter ended September 30,
1994 increased $283,000 or 37% when compared to the quarter ended September 30,
1993. These expenses increased $1.2 million or 57% for the nine months ended
September 30, 1994 when compared to the nine months ended September 30, 1993.
The increase is primarily attributable to payroll, travel and relocation costs
related to Response's actions to bolster its medical and scientific management
to support future growth, including the addition of an oncologist to serve as
scientific director. In addition, fees were paid during the nine months ended
September 30, 1994 for quality review of Response's clinical data and for
public relations. Response's increased legal expenses were related to
treatment pre-authorization appeals and the appeal of state regulatory issues
in Ohio. As a percentage of net revenue, general and administrative costs were
10% and 7% for the quarters and 11% and 7% for the nine months ended September
30, 1994 and 1993, respectively.
Response's provision for doubtful accounts decreased $126,000 or 17% and
$92,000 or 5% between the quarters and the nine months periods ended September
30, 1994 and 1993, respectively. The provision as a percentage of net revenue
was 6% and 7% for the quarters and was 7% for the nine months periods ending
September 30, 1994 and 1993. The 1993 provision benefited from significant bad
debt recoveries.
Response believes that there are significant development opportunities in the
field of oncology which are being brought about by broader acceptance and
utilization of peripheral blood stem cell-supported treatments and the demand
for more effective management by physicians of the entire spectrum of
oncological services. During the quarter, the Office of Personnel Management
of the United States Government ("the OPM") announced its plans to require
those insurance plans under its jurisdiction to provide coverage for high-dose
chemotherapy with immune system support in the treatment of breast cancer,
ovarian cancer and multiple myeloma. Response views this announcement as
further endorsement of the types of treatments which it began offering in 1989.
Concurrently, growing data has helped Response refine patient selection
criteria so that patients who are not likely to benefit by a particular high-
dose chemotherapy regimen may be directed to an alternate high-dose regimen or
to palliative care. The year's revenue growth has been slowed, in part, by
such redirection of patients. Response also believes that it is crucial to
continue to build the appropriate infrastructure to be able to benefit from the
opportunities in cancer care. While slower revenue growth and increasing costs
have resulted in losses from operations during the year, Response believes that
it is appropriately positioned for longer term profitability and a commanding
national presence in the field of oncology.
Seafield's second healthcare operating subsidiary, Pyramid Diagnostic Services,
Inc. (Pyramid), reported a small loss in the third quarter and first nine
months of 1994. Start-up costs associated with new pharmacy openings
negatively impacted operating results during 1994. Currently, five pharmacies
distribute radiopharmaceuticals and related services to nuclear medicine
departments in hospitals and clinics. Pyramid anticipates opening three new
pharmacies during 1994's fourth quarter.
Other Operating Results
Seafield's oil and gas subsidiary produced a small profit in the third quarter
and first nine months of 1994, compared to losses during 1993's periods.
Seafield's pre-tax cash flow from oil and gas investments in the first nine
months of 1994 totaled approximately $2 million. On January 1, 1993, Seafield
increased its ownership position from 50% to 79% in a real estate, personal
property, sales and use taxes consulting firm. Other revenues in 1994's third
quarter included $1.7 million from the tax consulting firm, compared to $3.1
million in 1993's third quarter.
Other investments impacting earnings include venture capital and liquidity
investments. The return on short-term investments is included in the investment
income line in the consolidated statements of earnings. Investment income
totaled $828,000 in 1994's third quarter compared to $2 million in last year's
third quarter. Investment income in 1994 was impacted by price fluctuations on
marketable securities. In 1994, the consolidated effective tax rate reflects
non-deductible goodwill and subsidiary losses not subject to tax benefits.
Seafield has investments in two majority-owned entities that are publicly
traded. At September 30, 1994, based on the market prices of publicly-traded
shares of these two subsidiaries, pretax unrealized gains of approximately $169
million on these investments were not reflected in either Seafield's book value
or stockholders' equity.
Real Estate-discontinued operations
In 1992, Seafield's board of directors approved a plan for the discontinuance
of real estate operations. After reviewing sales activity and appraisals in
1992, Seafield believed it was an appropriate time to discontinue real estate
operations and sell the remaining real estate assets as soon as practicable.
Seafield holds real estate through a wholly-owned subsidiary, Scout Development
Corporation. The real estate holdings are diverse in location and include
residential land, undeveloped land, single-family housing, and commercial
structures.
As a result of the decision to discontinue real estate, a $6 million after-tax
provision was established for estimated write-downs and costs through final
disposition. Real estate revenues were $7.8 million during 1994's first nine
months compared to $13.9 million in last year's first nine months. The 1994
sales include 2 residential lots in Texas and 35 residential lots and units in
Florida and New Mexico. Real estate sales in 1993's first nine months
consisted of 19 residential lots in Texas and 51 residential units in Florida
and New Mexico.
LIQUIDITY AND CAPITAL RESOURCES
On September 30, 1994 at the holding company level, Seafield had available for
operations approximately $33.4 million in cash, cash equivalents and marketable
common stocks with an additional $6.4 million in long-term securities. On a
consolidated basis, Seafield and its subsidiaries had $76 million (primarily
LabOne with $40.1 million) in cash and short-term investments and $9 million in
long-term securities. Current assets totaled $121.8 million while current
liabilities totaled $18.3 million. Net cash provided by consolidated
operations in 1994's first nine months was $13.7 million compared to net cash
provided of $8.8 million in last year's first nine months which resulted
primarily from changes in accounts receivable, accounts payable and income
taxes.
In August 1990, Seafield's board of directors authorized $70 million for the
acquisition of Seafield and LabOne common stock. Up to $20 million of this
authorization could be utilized to purchase LabOne stock. At December 31,
1993, Seafield had $4.6 million remaining of the $50 million authorization for
Seafield common stock. In January 1994, Seafield's board of directors approved
an additional $8.4 million authorization necessary to complete an acquisition
of 382,350 Seafield shares for approximately $13 million. This completed
Seafield's treasury share repurchase program. During 1994's first nine months,
10,126 Seafield shares were issued for exercised options.
Additionally, Seafield has acquired a total of 1,418,000 shares of LabOne's
stock under the board authorization at a cost of $16.6 million. In 1993,
Seafield's board of directors approved an additional $5 million for the
purchase of LabOne's stock resulting in a remaining aggregate authorization of
$8.4 million at September 30, 1994. During the first nine months of 1994,
Seafield did not purchase any LabOne stock.
Seafield is primarily a holding company. Sources of cash are investment income
and sales (including real estate), borrowings and dividends from subsidiaries.
The dividend-paying capabilities of subsidiaries may be restricted. The
primary uses of cash for Seafield are investments, stock purchases and
dividends to shareholders.
Seafield received a notice during 1992 of proposed adjustments from the
Internal Revenue Service (IRS) with respect to 1986-87 federal income taxes.
The amount of additional taxes proposed by the IRS was approximately $17
million. Seafield filed a protest of the adjustments in 1992. The IRS has not
yet responded to this protest. Seafield has also informally received proposed
adjustments for 1988-1989 from the IRS. The amount of additional taxes
proposed for these years is approximately $6 million. Seafield filed a
carryback claim for 1990 taxable losses with the IRS. These losses were
carried back to 1987, and the tax refund generated by this carryback is
approximately $7.6 million. The refund, however, will not be acted on by the
IRS until the IRS completes its review of the 1990 federal income taxes. This
review began in late 1993, and will likely not be completed until 1995.
Seafield believes it has meritorious defenses to many of the issues raised by
the IRS and adequate accruals for income tax liabilities.
In 1988, LabOne's board of directors authorized up to $25 million to enter the
market from time to time for the purpose of acquiring shares of LabOne's common
stock. As of September 30, 1994, LabOne had acquired 2,099,235 shares at a
total cost of $22.7 million. There were no shares purchased during 1994.
LabOne began paying quarterly dividends in December 1991. As an 82% owner,
Seafield received $5.8 million as a cash dividend from LabOne during the first
nine months of 1994. LabOne's working capital position decreased slightly to
$46.5 million at September 30, 1994 from $48.6 million at December 31, 1993.
This decrease is the result of capital additions, dividends paid and increases
in long-term investments exceeding cash provided by operations after changes in
working capital. LabOne expects to fund working capital needs, capital
additions, dividend payments and further treasury stock purchases, if any, from
a combination of cash reserves, cash flow from operations and short-term
borrowings. LabOne has had no short-term borrowings during 1994 and did not
utilize an unsecured $1 million line of credit that is available for general
corporate purposes. During 1994's third quarter, LabOne invested $800,000 in
additional property, plant, and equipment while 1993's third quarter investment
totaled $500,000.
Response's working capital at September 30, 1994 was $12.8 million with current
assets of $17.3 million and current liabilities of $4.5 million. Cash and cash
equivalents and short-term investments represent $1.7 million of Response's
current assets. Response maintains a $5 million revolving bank line of credit,
secured by accounts receivable. There were no borrowings under this line of
credit at September 30, 1994.
Response's management believes that their cash and capital resources, together
with available credit facilities, will be sufficient to finance current
operations and anticipated expansion.
NEW ACCOUNTING STANDARDS
Seafield plans to adopt Financial Accounting Standards Board Statement No. 118
- - - "Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures (an amendment of FASB Statement No. 114)" in the first quarter of
1995. The adoption of Statement No. 118 is not expected to have any
significant impact on Seafield's financial position or results of operations.
Seafield plans to adopt Financial Accounting Standards Board Statement No. 119
- - - "Disclosure about Derivative Financial Instruments and Fair Value of
Financial Instruments" for the fiscal year ending December 31, 1994. The
adoption of Statement No. 119 is not expected to have any significant impact on
Seafield's financial position or results of operations.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
A lawsuit was initiated in 1986 by the Registrant's former insurance subsidiary
against 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 costs had been incurred prior to any discussions
regarding a sale of the insurance subsidiary, Registrant negotiated with the
buyer for an assignment of the cause of action from the insurance subsidiary.
Thus, any recovery will be for the benefit of the Registrant and all costs
incurred in connection with the litigation will be paid by the Registrant. Any
ultimate recovery will be recognized as income when received and would be
subject to income taxes. In September 1993, the Missouri Court of Appeals
reversed a $5.7 million judgment granted in 1992 in favor of the Registrant;
shortly thereafter, the Appeals court informed the parties that it would
reconsider the case. On November 8, 1994, the Court of Appeals remanded the
case to the trial court for a jury trial limited to the question of whether or
not the applicable statute of limitations barred the claim. The Appeals Court
also set aside $1.7 million of the judgment originally granted in 1992; it
affirmed the judgment to the extent of $4 million, but subject to a jury's
determination, in a new trial, respecting the statute of limitations question.
In 1990, the Registrant's former insurance subsidiary was joined in an existing
lawsuit by the Federal Deposit Insurance Corporation (FDIC) as successor to
Sunbelt Service Corporation. The FDIC alleged that the insurance subsidiary was
obligated under a repurchase agreement in the approximate amount of $6 million.
Following a mediation proceeding, all claims involving the Registrant were
dismissed with prejudice by order of the court signed in February 1994.
In February 1988, a lawsuit was initiated against the Registrant's former
insurance subsidiary by its former partners in the Quail Run real estate
project in Santa Fe, New Mexico. The plaintiffs alleged that the project
partnership agreement was improperly terminated, thus denying them an ongoing
interest in the project, and that their exclusive real estate brokerage
arrangement was improperly terminated, thus denying them commissions from sales
of project units and adversely affecting their brokerage business generally.
The plaintiffs were seeking approximately $11 million in actual damages and
unspecified punitive damages based upon alleged breaches of contract and
fiduciary duty and economic compulsion, all arising out of the purchase of the
plaintiffs' interest in the project partnership. The case was heard in the
United States District Court for the District of New Mexico. After a four-week
trial in July 1994, the jury returned a verdict absolving Registrant of any
liability. Subsequent to the trial, the judge awarded Registrant $176,000 for
marketing expenses which the plaintiffs were to have repaid. Registrant has
filed motions seeking pre-judgment interest on the $176,000 and reimbursement
of certain litigation costs.
The plaintiffs have appealed all judgments against them and have contested the
claims for pre-judgment interest and litigation costs. The appeal will likely
be heard sometime in 1995.
Because the Quail Run project was retained by Registrant in connection with the
sale of its former insurance subsidiary, Registrant defended the lawsuit under
an indemnification arrangement with the purchaser of the former insurance
subsidiary; all costs incurred and any judgments rendered in favor of the
plaintiff will be for the account of the Registrant.
In the opinion of management, after consultation with legal counsel and based
upon current available information, none of these lawsuits is expected to have
a significant impact on the consolidated financial position of the Registrant.
Item 2. Changes in Securities
(a) Changes in Securities: None
(b) Under the Missouri General Corporation Law, no dividends to
stockholders may be declared or paid at a time when the net assets of the
corporation are less than its stated capital or when the payment thereof would
reduce the net assets of the corporation below its stated capital. At
September 30, 1994 the net assets of Seafield Capital Corporation exceeded its
stated capital by $198,654,000.
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:
10.1 Severance Agreement between LabOne, Inc. and Kenneth
A. Stelzer dated August 25, 1994
10.2 Promissory Note Agreement between LabOne, Inc. and
Bert H. Hood dated September 7, 1994
27 Financial Data Schedule
(b) Reports on Form 8-K:
None
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.
Seafield Capital Corporation
Date November 14, 1994 By /s/ James R. Seward
----------------------------
James R. Seward
Executive Vice President
and Chief Financial Officer
Date November 14, 1994 By /s/ Steven K. Fitzwater
----------------------------
Steven K. Fitzwater
Vice President, Chief Accounting
Officer and Secretary
EXHIBIT 10.1
SEVERANCE AGREEMENT
This Severance Agreement ("Agreement"), made and entered into
on this 25th day of August, 1994, by and between LABONE, INC.
("LabOne") and KENNETH A. STELZER ("Employee");
WITNESSETH:
WHEREAS, LabOne (formerly known as Home Office Reference
Laboratory, Inc.) and Employee entered into an Employment
Agreement, dated August 19, 1993, as amended November 12, 1993
("Employment Agreement"); and
WHEREAS, LabOne and Employee have agreed to the termination of
Employee's employment; and
WHEREAS, LabOne and Employee desire to enter into agreements
with respect to such termination and to their relationship after
Employee's termination;
NOW, THEREFORE, in consideration of the promises herein
contained, the parties hereto agree as follows:
1. The effective date of Employee's termination shall be
midnight, August 25, 1994 ("Termination Date").
2. Employee hereby resigns all offices held by Employee with
LabOne and resigns as a member of the Board of Directors and as a
member of all committees of the Board of Directors of LabOne. Such
resignations shall be effective as of the Termination Date.
3. Employee acknowledges his obligations pursuant to Section
5 of the Employment Agreement and agrees to fulfill the
requirements of said Section 5 of the Employment Agreement for a
period of two (2) years following the Termination Date.
4. Employee acknowledges his continuing obligations pursuant
to Sections 6 and 11 of the Employment Agreement and agrees to
continue hereafter to fulfill the requirements of said Sections 6
and 11 of the Employment Agreement.
5. For a period of two (2) years after the Termination Date,
Employee agrees that he will perform such consulting or other
services as may reasonably be requested by LabOne, provided that
such services do not unreasonably interfere with any other
employment engaged in by Employee.
6. Employee agrees that he shall not hereafter say, write or
do anything which has an adverse effect on the business, affairs,
reputation or interests of LabOne. Employee acknowledges that he
has been privy to attorney-client communications concerning
LabOne's business and legal affairs. Employee agrees never to
disclose to anyone any advice, recommendation or work product of
any of LabOne's attorneys without having first received a writing
from LabOne authorizing any such disclosure, unless Employee gives
LabOne prompt written notice in order to permit LabOne to seek
injunctive relief to protect its interests in the event of any
attempt by a third party to require any such disclosure by Employee
and such disclosure by Employee is subsequently required by a final
order of a court of competent jurisdiction.
7. Employee hereby represents and warrants that he has to
his best knowledge and belief disclosed to LabOne all technology,
inventions, discoveries, improvements, processes, formulae (secret
or otherwise), ideas, know-how, methods, compositions, research
projects, computer software programs and developments (collectively
"Developments"), whether or not such Developments are patentable or
copyrightable, which Employee by himself or in conjunction with
other persons has conceived, made, developed or acquired during his
employment by LabOne. Employee hereby assigns, transfers and
conveys all of his right, title and interest in and to any and all
such Developments to LabOne, which Developments shall become and
remain the sole and exclusive property of LabOne. All files of
Employee pertaining to any business of LabOne shall be and are the
property of LabOne and Employee represents that he has delivered to
LabOne all of such files.
8. This Agreement shall not alter any right Employee has as
a terminated employee under LabOne's Long-Term Incentive Plan,
Profit Sharing 401(K) Plan, Employees' Money Purchase Pension Plan
and Medical Benefits Plan.
9. Except as otherwise provided herein, the Employment
Agreement is hereby terminated and is of no further force or
effect.
10. Employee hereby releases and discharges LabOne and its
subsidiaries, Seafield Capital Corporation and its subsidiaries,
and their respective officers, directors, agents, employees,
representatives, successors and assigns, from and against any and
all demands, claims, causes of actions, sums due (except for those
provided herein), damages, costs and expenses, related to or
arising out of the Employment Agreement, or related to or arising
out of any act or omission of LabOne or its subsidiaries, Seafield
or its subsidiaries, or their respective officers, directors,
agents, employees or representatives, from the beginning of time
through the date hereof, whether such demands, claims or causes of
action are presently known or unknown. LabOne hereby releases and
discharges Employee from and against any and all demands, claims,
causes of actions, sums due, damages, costs and expenses (except
for those arising out of any breach by Employee of his obligations
under this Agreement), related to or arising out of the Employment
Agreement, or related to or arising out of any act or omission of
Employee from the beginning of time through the date hereof,
whether such demands, claims or causes of action are presently
known or unknown.
11. LabOne agrees to pay to Employee in cash on the following
dates as severance payments the sums set forth below, provided that
Employee has not violated any provision set forth in this Agreement
as of each of such dates:
Dates Severance Payments
- - ----- ------------------
Date of execution of this
Agreement $15,000
Monthly on the first day of $6,000 per month
each month for a period of
twenty-four (24) consecutive
months, commencing on the
first day of the month
following the Termination Date.
January 3, 1995 The sum of (a) the
product of 10,973
multiplied by the amount
by which the average of
the high and low sales
prices per share for the
common stock of LabOne,
as reported on the
National Association of
Securities Dealers
Automated Quotations
System ("NASDAQ") on
December 30, 1994,
exceeds $9.875, plus (b)
the product of 2,000
multiplied by the amount
by which the average of
the high and low sales
prices per share for the
common stock of LabOne,
as reported on the NASDAQ
on December 30, 1994,
exceeds $14.75
March 1, 1995 The product of 9,028
multiplied by the amount
by which the average of
the high and low sales
prices per share for the
common stock of LabOne,
as reported on the NASDAQ
on February 28, 1995,
exceeds $11.125
First day of the twenty-fifth $40,366 final payment
(25) month following the
Termination Date.
12. LabOne agrees to pay to an outplacement services firm
selected by Employee such firm's reasonable charges for services in
assisting Employee with his search for new employment, in an amount
not to exceed $20,000.
13. LabOne agrees to furnish Employee with the reasonable use
of a LabOne secretary to provide Employee with stenographic
services in his search for new employment, for a period not to
exceed two (2) years. LabOne agrees to extend to Employee call-
forwarding privileges to forward all incoming calls to Employee to
a telephone number designated by Employee.
14. LabOne agrees to transfer into Employee's name four (4)
University of Kansas basketball tickets for the 1994-1995 season.
15. LabOne agrees to assign to Employee as of the Termination
Date the title to the LabOne automobile which is currently being
provided to Employee.
16. LabOne will continue to provide Employee with membership
privileges on LabOne's corporate membership in the Milburn Country
Club ("Club") for a period of two (2) years after the Termination
Date. During such period LabOne will pay the regular base dues of
$266.26 per month for Employee membership in the Club and Employee
will pay all other charges assessed for Employee's use of the Club.
17. LabOne and Employee agree that in the event that Employee
violates any provision set forth in this Agreement, or in the event
that any court enters a finding or order holding that any provision
of this Agreement is void, unenforceable or constitutes an
unreasonable restriction against Employee, Employee shall repay to
LabOne all sums paid to him hereunder by LabOne, together with
interest thereon at the prime rate established by Commerce
Bank of Kansas City, N.A. LabOne and Employee further agree that
in the event Employee violates paragraphs 3, 4 or 6 hereof, LabOne
is reasonably likely to suffer irreparable damages which may be
difficult or impossible to value in monetary damages.
18. The parties hereto agree that the obligations contained
in paragraphs 4 and 6 hereof shall survive and continue after the
expiration of the two (2) year period referred to in paragraph 3
hereof.
19. This Agreement sets forth the entire understanding of the
parties with respect to the subject matter hereof. Any previous
agreements or understandings between the parties regarding the
subject matter hereof are merged into and are superseded by this
Agreement. This Agreement may not be amended without the written
consent of the parties hereto.
20. This Agreement is not assignable by Employee. This
Agreement shall bind any successor of LabOne.
IN WITNESS WHEREOF, this Agreement has been executed and
entered into as of the date and year first above written.
LABONE, INC.
By: /s/ Gregg R. Sadler
-------------------------
/s/ Kenneth A. Stelzer
-----------------------------
EXHIBIT 10.2
PROMISSORY NOTE
$150,000 September 7, 1994
Lenexa, Kansas
FOR VALUE RECEIVED, BERT H. HOOD ("maker") promises to pay
to the order of LABONE, INC., a Delaware corporation ("payee"),
at 10310 W. 84th Terrace, Lenexa, Kansas, or at such other
place as payee may from time to time designate in writing, the
principal sum of One Hundred Fifty Thousand Dollars ($150,000),
with interest accruing on the unpaid balance of the principal
sum from the date hereof until paid at a rate of seven and
three-quarter percent (7.75%) per annum.
The principal sum of this Promissory Note shall be paid in
full on the earlier of (a) September 7, 1995, or (b) the date
of the termination of employment of maker pursuant to the terms
of the Employment Agreement between maker and payee, dated
August 5, 1993, as amended as of November 9, 1993 ("Employment
Agreement"), the terms and provisions of which are incorporated
herein by reference. The principal sum of this Promissory Note
may be prepaid in whole or in part at any time, without
penalty, at the option of maker.
Interest on this Promissory Note shall be payable
quarterly on December 1, March 1, June 1 and September 1, and
on the day that the unpaid balance of the principal sum is paid
in full. Maker agrees that any sums due payee by maker under
this Promissory Note may, at the option of payee, be set off
and applied against any sums due maker by payee under the
Employment Agreement or otherwise.
Maker waives presentment for payment, demand, protest and
notice of demand, protest and nonpayment. In the event that it
should become necessary in the opinion of payee to employ
counsel to collect or enforce this Promissory Note, maker
agrees to pay all costs, charges, disbursements and reasonable
attorney's fees incurred by payee in collecting or enforcing
payment of this Promissory Note. The failure of payee to
exercise any option or right to which payee may be entitled
shall not constitute a waiver of the right to exercise such
option or right at a subsequent time. This Promissory Note has
been executed and delivered in, and is to be construed and
enforced according to and governed by, the laws of the State of
Kansas.
/s/ BERT H. HOOD
--------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Form 10Q
for the period ending September 30, 1994 and is qualified in its entirety by
reference to such 10Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 4,586
<SECURITIES> 71,448
<RECEIVABLES> 0<F1>
<ALLOWANCES> 0<F1>
<INVENTORY> 0
<CURRENT-ASSETS> 121,824
<PP&E> 0<F1>
<DEPRECIATION> 0<F1>
<TOTAL-ASSETS> 250,426
<CURRENT-LIABILITIES> 18,281
<BONDS> 0
<COMMON> 7,500
0
0
<OTHER-SE> 198,654
<TOTAL-LIABILITY-AND-EQUITY> 250,426
<SALES> 0
<TOTAL-REVENUES> 92,041
<CGS> 0
<TOTAL-COSTS> 95,499
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (366)
<INCOME-TAX> 759
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,050)
<EPS-PRIMARY> (.16)
<EPS-DILUTED> 0<F2>
<FN>
<F1>Disclosure not required on interim financial statements.
<F2>Computation not applicable.
</FN>
</TABLE>
