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, 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
May 6, 1994: $1 par value common - 6,360,376
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
SEAFIELD CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- - -------------------------------------------------------------------------------
March 31, December 31,
1994 1993
- - -------------------------------------------------------------------------------
(in thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 3,544 15,491
Short-term investments 78,137 80,069
Accounts and notes receivable 34,101 32,296
Current income tax receivable 611 1,325
Deferred income tax assets 1,659 1,621
Other current assets 9,523 8,924
Current assets of discontinued real estate
operations - net 112 336
------------------------
Total current assets 127,687 140,062
Property, plant and equipment 27,031 27,767
Investments:
Securities 7,163 8,274
Notes receivable 1,507 1,394
Oil and gas 7,252 8,381
Intangible assets 31,915 33,178
Other assets 2,350 2,977
Non-current assets of discontinued real estate
operations - net 53,063 52,260
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$ 257,968 274,293
========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,357 6,746
Notes payable 3,190 4,571
Other current liabilities 9,004 9,552
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Total current liabilities 19,551 20,869
Notes payable 16 18
Deferred income tax liabilities 244 723
Other liabilities 4,319 4,197
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Total liabilities 24,130 25,807
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Minority interests 22,306 22,816
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Stockholders' equity:
Preferred stock of $1 par value.
Authorized 3,000,000 shares; none issued -- --
Common stock of $1 par value.
Authorized 24,000,000 shares; issued
7,500,000 shares 7,500 7,500
Paid-in capital 1,012 1,007
Equity adjustment from foreign
currency translation (514) (350)
Retained earnings 234,323 235,583
------------------------
242,321 243,740
Less cost of 1,139,624 shares of treasury stock
(1993-766,755) 30,789 18,070
------------------------
Total stockholders' equity 211,532 225,670
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$ 257,968 274,293
========================
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 March 31,
1994 1993
- - -------------------------------------------------------------------------------
(in thousands except
per share amounts)
REVENUES
Insurance services $ 16,766 19,192
Healthcare services 9,770 8,762
Other 3,014 3,152
------------------------
Total revenues 29,550 31,106
COSTS AND EXPENSES
Insurance services 7,886 8,458
Healthcare services 9,643 7,359
Other 3,060 3,979
Selling, general and administrative 9,307 9,516
------------------------
Earnings from operations (346) 1,794
Investment income - net 1,526 1,072
Other income (expense) 79 (18)
------------------------
Earnings before income taxes 1,259 2,848
Income taxes 687 1,390
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Earnings before minority interests 572 1,458
Minority interests (76) 586
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Net earnings $ 648 872
========================
Per share of common stock:
Net earnings $ .10 .13
Dividends $ .30 .30
Book value $ 33.26 33.85
Average shares outstanding 6,543,292 6,843,312
Shares outstanding end of period 6,360,376 6,708,542
See accompanying notes and management's discussion and analysis of financial
statements.
SEAFIELD CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
- - ------------------------------------------------------------------------------
Three Months Ended
March 31, 1994
- - ------------------------------------------------------------------------------
(in thousands)
Common stock:
Balance, beginning of year $ 7,500
---------
Balance, end of period 7,500
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Paid-in capital:
Balance, beginning of year 1,007
Exercise of stock options 5
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Balance, end of period 1,012
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Foreign currency translation:
Balance, beginning of year (350)
Net change during period (164)
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Balance, end of period (514)
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Retained earnings:
Balance, beginning of year 235,583
Net earnings 648
Dividends paid (1,908)
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Balance, end of period 234,323
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Less:
Treasury stock:
Balance, beginning of year 18,070
Exercise of stock options (233)
Shares purchased (382,350 shares) 12,952
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Balance, end of period 30,789
---------
Stockholders' Equity $ 211,532
=========
See accompanying notes and management's discussion and analysis of
financial statements.
SEAFIELD CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
- - -------------------------------------------------------------------------------
Three months ended March 31,
1994 1993
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OPERATING ACTIVITIES
Earnings from operations $ 648 872
Adjustments to reconcile earnings from operations
to net cash provided (used) by operations:
Depreciation and amortization 4,365 5,579
Earnings applicable to minority interests (76) 586
Change in short-term trading portfolio, net (84) --
Change in accounts receivable (1,196) (4,075)
Change in accounts payable 740 (300)
Income taxes and other (624) (3,111)
------------------------
Net cash provided (used) by continuing operations 3,773 (449)
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INVESTING ACTIVITIES
Purchases of investments (234) (8,594)
Sales or maturities of investments 87 2,229
Secruitization of receivables (200) --
Additions to property, plant and equipment, net (1,177) (1,087)
Oil and gas investments 109 (161)
Short-term investments 2,921 14,450
Net cash used by discontinued real estate operations (579) (620)
Other, net (382) (318)
------------------------
Net cash provided by investing activities 545 5,899
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FINANCING ACTIVITIES
Borrowing (payments) under line of credit
ageements, net (1,272) (581)
Proceeds from long-term debt -- 500
Payment of principal on long-term debt (108) (1,866)
Payment of capital lease (116) --
Dividends paid (1,907) (2,013)
Purchase of treasury stock (12,952) --
Issuance of common stock 238 21
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Net cash used by financing activities (16,117) (3,939)
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Effect of foreign currency translation (148) 208
------------------------
Net increase (decrease) in cash
and cash equivalents (11,947) 1,719
Cash and cash equivalents - beginning of period 15,491 2,246
------------------------
Cash and cash equivalents - end of period $ 3,544 3,965
========================
Cash paid during the period for:
Interest (net of amount capitalized) $ 83 167
========================
Income taxes, net $ 622 1,050
========================
See accompanying notes and management's discussion and analysis of financial
statements.
SEAFIELD CAPITAL CORPORATION
Notes to Consolidated Financial Statements
March 31, 1994 and 1993
(1) The financial information furnished herein, in the opinion of management,
reflects all adjustments which are necessary to fairly state the Company's
financial position at March 31, 1994 and December 31, 1993 and the results of
its operations and cash flows for the periods ended March 31, 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 Company'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 company, Registrant negotiated
with the buyer for an assignment of the cause of action from the insurance
company. 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. Trial counsel was authorized to seek a rehearing by the Court of
Appeals, and failing that, a review by the Missouri Supreme Court. The Court
of Appeals notified counsel in November 1993 that it would rehear the case
without oral arguments or further briefs.
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
Seafield were dismissed with prejudice by order of the court signed February
1, 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 case is pending in the United States
District Court for the District of New Mexico. The plaintiffs allege 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 seek 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 is set for trial in
July 1994.
Because the Quail Run project was retained by Registrant in connection with
the sale of its former insurance subsidiary, Registrant is defending 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 in connection with this litigation 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 statements of the
Registrant.
(4) Statement of Financial Accounting Standards No. 112 Employers
Accounting for Postemployment Benefits was implemented in the first quarter
of 1994. The adoption of this standard had no significant impact on the
Company's financial position or results of operations.
(5) The weighted average shares include the common stock equivalents of 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 March 31,
1994 1993
----------------------------
Revenues $ 29,550,000 31,106,000
Earnings (loss) from operations $ (346,000) 1,794,000
Investment Income - net $ 1,526,000 1,072,000
Net earnings $ 648,000 872,000
Per share:
Net earnings $ .10 .13
Dividends per share $ .30 .30
Book value per share $ 33.26 33.85
Average shares outstanding 6,543,292 6,843,312
Shares outstanding end of period 6,360,376 6,708,542
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). During the first
quarter, LabOne was engaged primarily in a single line of business, laboratory
testing of insurance policy applicants for insurance companies. The tests
performed by LabOne are specifically designed to assist an insurance company
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 March 31,
1994 1993
-----------------------------
Urinalyses $ 2,421,000 2,616,000
Controlled 2,601,000 3,460,000
Blood 4,421,000 5,167,000
AIDS 3,143,000 3,924,000
Other 2,681,000 2,784,000
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$ 15,267,000 17,951,000
=============================
LabOne's decrease in revenue of $2.7 million in the first quarter of 1994 can
be attributed primarily to a 9% decrease in the total number of applicants
tested and an 8% decline in the average revenue per applicant. The total
number of applicants tested decreased primarily due to a decline in the number
of life and medical insurance applicants tested. The number of medical
insurance applicants tested as a percentage of total applicants declined from
7% in the first quarter of 1993 to 5% in 1994. Average revenue per applicant
declined due to certain price decreases as a result of continued competitive
pressures.
LabOne's cost of sales decreased in the first quarter of 1994 by $547,000 as
compared to the prior year. This was due primarily to decreases in
depreciation and amortization expense, kit supplies and net postage expense.
Despite the decrease in applicant volume, labor costs and laboratory supplies
increased primarily due to working toward diversification into the clinical
laboratory testing market. LabOne's selling, general and administrative
expenses declined $400,000 in the first quarter of 1994 from the same period
last year, primarily due to reductions in depreciation expense and legal
expense.
The insurance premium finance services operations were profitable during the
first quarters of 1994 and 1993. In the first quarter of 1994, this
subsidiary booked $15.3 million of new business, compared to the $13.3 million
for the same quarter in 1993. The number of contracts processed also
continues to increase with 2,986 contracts during the first three months of
1994, compared to 2,278 contracts processed in 1993's first three months.
The underwriting and policy administration services business incurred losses
during the first quarters of 1994 and 1993. New business development is
positive. However, it will require a couple of quarters before production
from new clients has a positive impact on earnings and cash flow.
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 operated by Response. The Centers, known as
IMPACT(registered trademark) (IMPlementing Advanced Cancer Treatments)
Centers, are staffed by experienced oncology nurses, laboratory technologists,
pharmacists and other support personnel to deliver outpatient services under
the direction of private practicing oncologists. The primary therapies
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 (PBSC) reinfusion. The Centers also provide home pharmacy and
outpatient infusional services for its patients.
As of March 31, 1994, Response had 29 IMPACT(registered trademark) Centers
located in California, Colorado, Florida, Georgia, Indiana, Michigan,
Minnesota, Missouri, New Mexico, North Carolina, Ohio, Pennsylvania, South
Carolina, Tennessee, Texas and Virginia. Response anticipates continued
nation-wide expansion over the next few years.
Response also intends to devote significant marketing effort to develop a new
type of center based within client hospitals. Response will provide turnkey
assistance to the hospital including protocols, data collection and analysis,
employee training, reimbursement support and a nurse coordinator to manage the
program. The hospital will bill insurers directly for patient services, with
a per-patient management fee paid to Response. 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.
Response reported a net loss of $972,000 for the quarter ended March 31, 1994
on revenues of $8.5 million, compared to the prior year's first quarter net
earnings of $221,000 on revenues of $8 million. Response's increase in
revenue is attributable to the establishment of new IMPACT(registered
trademark) Centers and the maturation of operations of the existing Centers.
A reduction in referrals of certain advanced breast cancer patients resulted
in a decrease in net revenue from the fourth quarter of 1993. Response's
maturing data indicated a subset of patients who would likely benefit from
more aggressive treatment than Response's existing regimens, and the
transition to new treatment plans for these patients contributed to a decrease
in patient referrals and flattened revenues. Response believes that its
introduction of a new, more aggressive treatment protocol during the quarter
will result in a resumption of referrals for this subset of patients.
Response remains pleased with its positioning for the longer term.
Response's operating expenses increased $1.1 million or 17% between the
quarters ended March 31, 1994 and 1993. These expenses consist of payroll
costs, pharmaceutical and laboratory expenses, medical director fees, rent
expense and other operational expenses. Operating expenses display a high
degree of variability in proportion to IMPACT(registered trademark) Center
revenue. The increase in operating expenses is attributable to the opening of
additional Centers and maturation of the existing Centers. Operating expenses
as a percent of net revenue were 86% in 1994's first quarter compared to 78%
for the same period of 1993. This is primarily attributable to lower than
expected revenues for the quarter.
Response's general and administrative costs increased $418,000 or 68% between
the quarters ended March 31, 1994 and 1993. This increase is primarily
attributable to increases in administrative payroll and related costs. As a
percentage of net revenue, general and administrative costs were 12% in 1994's
first quarter compared to 8% for the same period of 1993. Most of the
increased payroll costs are attributable 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.
Response's provision for doubtful accounts increased $77,000 or 15% between
the quarters ended March 31, 1994 and 1993. The increase is attributable to
the increase in net revenue over the comparable prior year period. The
provision as a percentage of net revenue was 7% for the quarters ending March
31, 1994 and 1993. Pre-approval procedures have improved the provision
compared to prior years by providing important clarification of reimbursement
expectations. The provision for the first quarter of 1993 benefited from
significant bad debt recoveries.
Response's increases in operating and general and administrative costs
attributable to rapid growth over the past several years makes Response's
operations very sensitive to revenue shortfalls. Response's management
expects a return to profitability as revenues return to expected levels.
Seafield's second healthcare operating subsidiary, Pyramid Diagnostic
Services, Inc. (Pyramid), reported a slight loss in the first quarter of 1994
compared to a small profit in last year's first quarter. Start-up costs
associated with two new pharmacies, which opened in late 1993, negatively
impacted operating results during 1994's first quarter. Pyramid has also
added staffing at the corporate level to offer clinical trials and healthcare
physics services to its customers. Currently, four pharmacies distribute
radiopharmaceuticals and related services to nuclear medicine departments.
Pyramid anticipates opening approximately four new pharmacies annually.
Other Operating Results
Seafield's oil and gas subsidiary contributed revenues of $1 million in the
first three months of 1994, compared to $1.8 million in 1993's first three
months. The revenue decrease reflects a reduction in oil and gas prices.
Operating losses for this subsidiary resulted from oil and gas expense
amortizations exceeding revenues. Seafield's cash flow from oil and gas
investments in the first quarter of 1994 totaled approximately $500,000. 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 first quarter included $1.9 million from the tax consulting
firm, compared to $1.3 million in 1993's first quarter.
Other investments contributing 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 $1.5 million in 1994's first quarter compared to $1.1 million
in last year's first quarter. The increase during 1994 in investment income
resulted from gains on marketable securities exceeding decreases in values of
marketable securities held. In 1994, the consolidated effective tax rate
increased primarily on the percentage relationship of non-deductible goodwill
to pre-tax earnings.
Seafield has investments in two majority-owned entities that are publicly
traded. At March 31, 1994, based on the market prices of publicly-traded
shares of these two subsidiaries, pretax unrealized gains of approximately
$167 million on these investments were not reflected in either Seafield's book
value or stockholders' equity.
Real Estate-discontinued operations
In June 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, multi-family housing and commercial structures.
As a result of the decision to discontinue real estate, a $6 million after-tax
provision for estimated write-downs and costs through final disposition was
included in 1992's financial statements. Real estate revenues were $1.8
million during 1994's first quarter compared to $2.9 million in last year's
first quarter. The 1994 sales include 2 residential lots in Texas and 7
residential lots and units in Florida and New Mexico. Real estate sales in
1993's first quarter consisted of 6 residential lots in Texas and 13
residential units in Florida and New Mexico.
LIQUIDITY AND CAPITAL RESOURCES
On March 31, 1994 at the holding company level, Seafield had available for
operations approximately $34.4 million in cash and short-term investments with
an additional $6.7 million in long-term securities. On a consolidated basis,
Seafield and its subsidiaries (primarily LabOne with $43.1 million) had $81.7
million in cash and short-term investments and $7.2 million in long-term
securities. Current assets totaled approximately $127.7 million while current
liabilities totaled $19.6 million. Net cash provided by consolidated
operations in 1994's first quarter was $3.8 million compared to net cash used
of $449,000 in last year's first quarter which resulted primarily from
increases in accounts receivable at both LabOne and the insurance premium
finance services subsidiary.
In August 1990, Seafield's board of directors rescinded a previous
authorization and passed a new authorization of up to $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 shares for approximately $13 million.
During 1994's first quarter, 9,481 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 March 31, 1994. During the first quarter 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 as to their transfer to the parent company. 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 March 31, 1994, LabOne had acquired 2,099,235 shares at a
total cost of $22.7 million. There were no shares purchased during 1994.
LabOne's first quarterly dividend was paid on December 30, 1991 with
subsequent quarterly dividends paid since then. As an 82% owner, Seafield
received $1.9 million as a cash dividend from LabOne during the first quarter
of 1994. LabOne's working capital position increased to $49.8 million at
March 31, 1994 from $48.6 million at December 31, 1993. This increase is the
result of cash provided by operations exceeding the amount LabOne invested in
capital asset additions and dividends paid. 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 first quarter, LabOne invested $700,000 in additional property,
plant, and equipment while 1993's first quarter investment totaled $500,000.
Of the $700,000 spent in 1994, approximately $200,000 was for the
diversification into the clinical testing market.
Response's working capital at March 31, 1994 was $12.6 million with current
assets of $18.8 million and current liabilities of $6.2 million. Cash and
cash equivalents and short-term investments represent $1.9 million of
Response's current assets. Response has a $5 million revolving bank line of
credit secured by accounts receivable with $1.3 million borrowed under this
line of credit at March 31, 1994.
Response's management believes that their cash and capital resources, together
with available credit facilities, will be sufficient to finance current
operations and expansion of the network of IMPACT(registered trademark)
Centers.
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 company, Registrant negotiated
with the buyer for an assignment of the cause of action from the insurance
company. 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. Trial counsel was authorized to seek a rehearing by the Court of
Appeals, and failing that, a review by the Missouri Supreme Court. The Court
of Appeals notified counsel in November 1993 that it would rehear the case
without oral arguments or further briefs.
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
Seafield were dismissed with prejudice by order of the court signed February
1, 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 case is pending in the United States
District Court for the District of New Mexico. The plaintiffs allege 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 seek 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 is set for trial in
July 1994.
Because the Quail Run project was retained by Registrant in connection with
the sale of its former insurance subsidiary, Registrant is defending 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 in connection with this litigation 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 statements 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 March
31, 1994 the net assets of Seafield Capital Corporation exceeded its stated
capital by $204,032,000.
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: None
(b) Reports on Form 8-K
A current report on Form 8-K was filed with the Commission on
January 13, 1994. This Form 8-K reported the purchase of 382,350 shares of
the Registrant's common stock at a price of $33.875 per share from an
institutional shareholder in a single transaction. The total amount of the
purchase was $12,952,106.25.
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 May 13, 1994 By /s/ James R. Seward
----------------------------
James R. Seward
Executive Vice President
and Chief Financial Officer
Date May 13, 1994 By /s/ Steven K. Fitzwater
----------------------------
Steven K. Fitzwater
Vice President, Chief Accounting
Officer and Secretary
