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 June 30, 1995
----- 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
August 4, 1995: $1 par value common - 6,440,503
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
SEAFIELD CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
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June 30, December 31,
1995 1994
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(in thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 3,296 8,626
Short-term investments 78,216 67,631
Accounts and notes receivable 27,131 32,871
Current income tax receivable 5,566 2,311
Deferred income tax assets 690 1,766
Other current assets 7,084 10,813
Current assets of discontinued
real estate operations 1,763 747
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Total current assets 123,746 124,765
Property, plant and equipment 23,629 24,981
Investments:
Securities 6,359 6,725
Notes receivable 1,061 1,298
Oil and gas 5,415 5,998
Intangible assets 23,950 29,318
Deferred income tax assets 1,624 1,715
Other assets 492 1,323
Non-current assets of discontinued
real estate operations 52,750 49,264
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$ 239,026 245,387
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8,119 7,475
Notes payable 297 2,823
Other current liabilities 7,164 9,513
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Total current liabilities 15,580 19,811
Notes payable 5 8
Other liabilities 2,876 3,439
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Total liabilities 18,461 23,258
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Minority interests 20,942 21,196
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Stockholders' equity:
Preferred stock of $1 par value.
Authorized 3,000,000 shares;
none issued -- --
Common stock of $1 par value.
Authorized 24,000,000 shares;
issued 7,500,000 shares 7,500 7,500
Paid-in capital 990 1,002
Equity adjustment from foreign
currency translation (471) (561)
Retained earnings 220,393 223,169
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228,412 231,110
Less:
Cost of 1,078,674 shares of treasury stock
(1994 - 1,121,739) 28,789 30,177
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Total stockholders' equity 199,623 200,933
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$ 239,026 245,387
====================
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 Six Months Ended
June 30, June 30,
1995 1994 1995 1994
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(in thousands except per share amounts)
REVENUES
Insurance services $ 15,011 17,442 30,881 34,208
Healthcare services 14,913 10,783 29,276 20,553
Other 2,840 2,709 6,035 5,723
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Total revenues 32,764 30,934 66,192 60,484
COSTS AND EXPENSES
Insurance services 6,391 8,611 13,017 16,497
Healthcare services 13,924 10,038 27,545 19,681
Other 2,761 2,544 4,903 5,604
Selling, general
and administrative 11,391 9,864 23,319 19,171
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Loss from operations (1,703) (123) (2,592) (469)
Investment income - net 2,267 749 3,531 2,275
Other income (loss) (1,434) 43 (1,483) 122
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Earnings (loss) before
income taxes (870) 669 (544) 1,928
Income taxes (benefits) (2,973) 464 (2,775) 1,151
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Earnings before
minority interests 2,103 205 2,231 777
Minority interests 460 158 1,155 82
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Net earnings $ 1,643 47 1,076 695
====================== ======================
Per share of common stock:
Net earnings $ .26 .01 .17 .11
Dividends $ .30 .30 .60 .60
Book value $ 31.09 32.96 31.09 32.96
Average shares outstanding 6,501,596 6,508,044 6,455,581 6,525,668
Shares outstanding
end of period 6,421,326 6,361,021 6,421,326 6,361,021
See accompanying notes and management's discussion and analysis of financial
statements.
SEAFIELD CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
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Six Months Ended
June 30, 1995
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(in thousands)
Common stock:
Balance, beginning of year $ 7,500
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Balance, end of period 7,500
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Paid-in capital:
Balance, beginning of year 1,002
Exercise of stock options (12)
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Balance, end of period 990
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Foreign currency translation:
Balance, beginning of year (561)
Net change during period 90
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Balance, end of period (471)
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Retained earnings:
Balance, beginning of year 223,169
Net earnings 1,076
Dividends paid (3,852)
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Balance, end of period 220,393
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Less:
Treasury stock:
Balance, beginning of year 30,177
Exercise of stock options (1,388)
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Balance, end of period 28,789
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Stockholders' Equity $ 199,623
=========
See accompanying notes and management's discussion and analysis of
financial statements.
SEAFIELD CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
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Six months ended June 30,
1995 1994
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OPERATING ACTIVITIES
Earnings from operations $ 1,076 695
Adjustments to reconcile earnings from operations
to net cash provided by operations:
Depreciation and amortization 7,078 7,494
Earnings applicable to minority interests 1,155 82
Change in short-term trading portfolio, net (4,425) 762
Change in accounts receivable (2,709) 939
Change in accounts payable 1,231 1,222
Income taxes and other 1,874 (604)
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Net cash provided by operations 5,280 10,590
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INVESTING ACTIVITIES
Purchases of investments (2) (2,207)
Sales or maturities of investments 150 242
Secruitization of receivables 1,500 2,300
Additions to property, plant and equipment, net (2,083) (2,683)
Oil and gas investments (323) (666)
Short-term investments (9,362) 957
Proceeds from sale of subsidiaries 9,849 --
Net cash used by discontinued real estate operations (4,502) 27
Other, net (726) (604)
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Net cash provided (used) by investing activities (5,499) (2,634)
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FINANCING ACTIVITIES
Payments under line of credit agreements, net (2,469) (1,870)
Payment of principal on long-term debt (72) (57)
Payment of capital lease (112) (210)
Dividends paid (3,852) (3,816)
Purchase of treasury stock -- (12,952)
Issuance of common stock 1,376 238
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Net cash used by financing activities (5,129) (18,667)
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Effect of foreign currency translation 18 (146)
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Net decrease in cash and cash equivalents (5,330) (10,857)
Cash and cash equivalents - beginning of period 8,626 15,491
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Cash and cash equivalents - end of period $ 3,296 4,634
========================
Cash paid during the period for:
Interest (net of amount capitalized) $ 100 160
========================
Income taxes, net $ (545) 583
========================
See accompanying notes and management's discussion and analysis of financial
statements.
SEAFIELD CAPITAL CORPORATION
Notes to Consolidated Financial Statements
June 30, 1995 and 1994
(1) The financial information furnished herein is unaudited; however, in the
opinion of management, the financial information reflects all adjustments
which are necessary to fairly state the Registrant's financial position at
June 30, 1995 and December 31, 1994 and the results of its operations and cash
flows for the periods ended June 30, 1995 and 1994. 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 1994 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; the Court of Appeals set aside $1.7 million of the
judgment and remanded the balance of 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 retrial is expected to occur in the first
quarter of 1996.
In 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 the loss of their exclusive real estate brokerage
arrangement. 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. After a trial in July
1994, the jury returned a verdict absolving Registrant of any liability.
Subsequent to the trial, the judge awarded Registrant approximately $250,000
in connection with marketing expenses which the plaintiffs were to have
repaid. In April 1995, the court awarded Registrant approximately $64,000 in
costs with interest until paid. Plaintiffs have appealed all judgments
against them. The appeal will likely be considered by the court in the fourth
quarter of 1995, with a ruling expected in the first half of 1996. 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 material adverse impact on the consolidated financial position or results of
operations of the Registrant.
During 1992, the Registrant received proposed adjustments from the Internal
Revenue Service (IRS) with respect to 1986-87 federal income taxes. The
Registrant protested these adjustments during 1992. Later, the IRS determined
to include the 1988-90 tax periods as part of its review. The original amount
of additional taxes proposed by the IRS was approximately $17 million for the
1986-87 period. In May 1995, the IRS issued a revised 1986-87 adjustment
report reducing the original amount of proposed taxes to $13.5 million. This
new report will be protested.
In June 1995, the IRS issued its 1988-89 report which includes reversals of
some additional taxes in the 1986-87 report. The amount of additional
proposed taxes for 1988-89 is $182,000. The IRS has said it plans to issue its
proposed tax adjustments for 1990 by the third quarter 1995. The IRS has sent
one proposed adjustment for 1990 totaling $9.1 million in additional taxes.
The IRS has used this proposed adjustment to deny the Registrant's 1990 net
operating and net capital loss carryback claim for refund of $7.6 million.
The effect is to propose additional net taxes of $1.5 million for 1990. These
proposed adjustments will be protested as well. The Registrant believes that
it has meritorious defenses to many of the issues raised by the IRS, and
adequate accruals for income tax liabilities.
(4) In February 1995, Registrant retained Alex. Brown and Sons Incorporated
as financial advisor to assist the Registrant in considering strategic
alternatives to maximize shareholder value. One alternative that the
Registrant expects to pursue is a cash-option merger of the Registrant into
LabOne. The board of directors will consider other business combination
proposals that are presented to it. There can be no assurances that either a
merger with LabOne or any other business combination will occur.
(5) Registrant sold its 80.1% owned subsidiary, Agency Premium Resource,
Inc., during the second quarter. The sale generated an after-tax gain of $1.4
million with sale proceeds totaling $9.6 million.
The Registrant also completed an asset sale by Tenenbaum & Associates, Inc., a
79% owned subsidiary. The earnings effect of this sale and liquidation of the
subsidiary is approximately break-even with after-tax proceeds equaling book
value.
(6) Statement of Financial Accounting Standards No. 114 "Accounting by
Creditors for Impairment of a Loan" is required to be implemented for the year
ending December 31, 1995. The adoption of this standard is not expected to
have any significant impact on the Registrant's financial position or results
of operations.
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
is required to be implemented for fiscal years beginning after December 15,
1995. The Registrant has not ascertained the impact, if any, on its financial
position or results of operations.
(7) 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, where applicable.
ITEM 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS
Selected financial data
Three months ended Six Months Ended
June 30, June 30,
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1995 1994 1995 1994
---------- ---------- ---------- ----------
Revenues $ 32,764,000 30,934,000 66,192 000 60,484,000
Loss from operations $ (1,703,000) (123,000) (2,592,000) (469,000)
Investment income - net $ 2,267,000 749,000 3,531,000 2,275,000
Net earnings $ 1,643,000 47,000 1,076,000 695,000
Per share:
Net earnings $ .26 .01 .17 .11
Dividends per share $ .30 .30 .60 .60
Book value per share $ 31.09 32.96 31.09 32.96
Average shares
outstanding 6,501,596 6,508,044 6,455,581 6,525,668
Shares outstanding
end of period 6,421,326 6,361,021 6,421,326 6,361,021
Insurance Services Segment
The following businesses are considered to be in the insurance services
segment: laboratory testing for insurance industries, insurance premium
finance services and underwriting and policy administration services. On May
31, 1995, the insurance premium finance services subsidiary was sold. During
1995's third quarter, the underwriting and policy administration services
subsidiary was sold.
LabOne, Inc. (LabOne), an 82% owned subsidiary of Seafield Capital
Corporation (Seafield), is a publicly-traded company (NASDAQ-LABS). LabOne
provides risk appraisal, clinical and substance-abuse testing services to
insurance companies, physicians and employers.
LabOne provides risk-appraisal laboratory testing services to the insurance
industries in the United States and Canada. The tests performed 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 life insurance policy
applicants. LabOne also provides testing services on individual and group
medical and disability policy applicants.
LabOne's reported net earnings of $1 million for the second quarter of 1995
compared to the prior year's second quarter net earnings of $1.9 million.
For the six months ended June 30, 1995, LabOne's reported net earnings of
$2.2 million on revenues of $29.3 million, compared to the prior year's six
months net earnings of $3.9 million on revenues of $30.8 million.
LabOne's revenues in the second quarter 1995 were $14.6 million as compared
to $15.6 million in the same period last year. The 6% decrease can be
attributed to decreases in insurance laboratory revenue of $1.9 million. The
total number of applicants tested in the second quarter 1995 decreased by 9%
as compared to the same quarter last year primarily due to a national decline
in the number of life insurance policies written. Average revenue per
insurance applicant declined 7% during the second quarter 1995 as compared to
1994's second quarter due to continued competitive pressures.
LabOne's cost of sales for insurance testing services decreased 19% in the
second quarter of 1995 compared to the prior year's second quarter. This was
due to decreases in Canadian expenses, depreciation expense and net postage.
LabOne consolidated its Canadian laboratory testing with the Lenexa, Kansas
facility during the third quarter of 1994 resulting in a decrease in costs of
sales. Depreciation expense decreased due to certain equipment being fully
depreciated.
The insurance premium finance services operations were profitable during 1995
and 1994. On May 31, 1995, this subsidiary, Agency Premium Resource, Inc.,
was sold. Seafield generated proceeds of $9.6 million and an after-tax gain
of $1.4 million on the sale.
The underwriting and policy administration services business incurred losses
in the first six months of 1995 approximating 1994's comparative period
losses. On July 17, 1995, this subsidiary, International Underwriting
Services, Inc., was sold. Seafield generated proceeds of $2.1 million and an
after-tax gain of approximately $1 million in 1995's third quarter.
Healthcare Services Segment
The following businesses are considered to be in the healthcare services
segment: advanced cancer treatment services, laboratory testing for
physicians and employers, substance abuse laboratory testing, 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 owned
centers, known as IMPACT(registered trademark) (IMPlementing Advanced Cancer
Treatments) Centers, are staffed by experienced oncology nurses, pharmacists,
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 their patients.
Beginning in 1994, Response began expanding its network of centers to include
hospital-affiliated centers. These centers may entail a management agreement
(managed centers) or a jointly-owned entity (jointly-owned centers). For
managed centers, Response provides technical and administrative services,
including treatment protocols and data management, employee training and
reimbursement support. Patient care and laboratory services are provided and
billed to third parties by the host hospital, with a management fee paid to
Response.
For jointly-owned centers, Response and the host hospital contribute cash and
other forms of capital to establish an entity to provide outpatient and
inpatient services to its patients. These entities will purchase services
from the hospital to deliver and manage complex cancer treatments. Response
contemplates that it will maintain management control of these jointly-owned
programs, and accordingly, plans to include the results of operations on a
consolidated basis.
As of June 30, 1995, Response had 28 IMPACT Centers, seven managed centers
and one jointly-owned center located in 19 states. Subsequent to quarter-
end, Response announced the establishment of two additional jointly-owned
centers. Response anticipates continued nationwide expansion over the next
few years, primarily through the establishment of jointly-owned centers.
Response reported net earnings of $729,000 and $1.6 million for the quarter
and six months ended June 30, 1995 compared to net losses of $546,000 and
$1.5 million for the same periods last year. Revenues for the quarter ended
June 30, 1995 of $11.4 million increased $2.1 million or 22% when compared to
the quarter ended June 30, 1994. Revenues for the six months ended June 30,
1995 of $22.6 million increased $4.8 million or 27% when compared to the six
months ended June 30, 1994. Revenues for the quarter and six months ended
June 30, 1995 also included approximately $297,000 and $567,000,
respectively, related to efforts to begin conducting pharmaceutical contract
research in parallel with clinical trials data management activities.
Response's operating expenses for 1995's second quarter increased $736,000 or
10% when compared to 1994's second quarter. Operating expenses for 1995's
first six months increased $1.7 million or 11% when compared to 1994's first
six months. These expenses consist of payroll costs, pharmaceutical and
laboratory expenses, rent expense and other expenses. Operating expenses
display a high degree of variability in proportion to patient services
revenue. Operating expenses as a percent of revenue decreased to 73% during
1995's second quarter from 81% in the 1994's second quarter. Similarly,
operating expenses as a percent of revenue during the first six months of
1995 decreased to 73% from 83% in 1994's first six months. These decreases
are primarily attributable to operating efficiencies at higher levels of
center activity and certain fixed operating expenses being spread over a
larger revenue base.
Response's general and administrative costs in 1995's second quarter
increased $249,000 or 22% when compared to 1994's second quarter. These
expenses increased $455,000 or 21% for the six months ended June 30, 1995
when compared to 1994's first six months. These increases are primarily
attributable to increases in administrative payroll and related costs. As a
percentage of revenue, general and administrative costs were 12% for all
periods reported. Response's depreciation and amortization expense decreased
$73,000 or 14% during the second quarter and decreased $213,000 or 20% in the
first six months of 1995. These decreases are primarily attributable to
startup costs of many centers being fully amortized.
Response's provision for doubtful accounts decreased 9% during the quarter
and first six months ended June 30, 1995. The provisions as a percentage of
revenue were 5% in both the second quarter and first six months ended June
30, 1995 compared to 7% in 1994's second quarter and first six months. The
decreases are attributable to a higher proportion of contract patient
accounts, improved collections performance and an increase in revenues from
physician sales, hospital management fees, and contract research for which
collection is more certain.
LabOne's clinical laboratory testing services are provided to the health-care
industry to aid in the diagnosing and treatment of patients. LabOne has
entered into contracts with several professional organizations to serve as
LabOne approved service centers for the collection of specimens for testing.
LabOne plans to continue to increase the number of these sites beyond the
base of over 200 sites in more than 30 metropolitan areas. Additionally,
LabOne maintains its own courier fleet or coordinates the retrieval of
specimens for transport to the laboratory.
LabOne is certified by the Substance Abuse and Mental Health Services
Administration (SAMHSA) to perform substance-abuse testing services for
federally regulated employers. LabOne markets substance-abuse testing
services throughout the country to both regulated and nonregulated employers.
LabOne's 24 to 48 hour turnaround and multiple testing options help clients
reduce down time for affected employees and meet mandated drug screening
guidelines.
In July 1995, LabOne announced that it and PCS Health Systems had signed an
agreement with The Guardian Life Insurance Company of American (The Guardian)
to provide the Lab Card laboratory benefit management (LBM) program to
certain Guardian plan holders. Initially, laboratory testing services will
be offered in Northern California, involving more than 30,000 covered lives.
It is anticipated that services under this agreement will begin during the
third quarter of 1995. Subsequent to service in Northern California, LabOne
anticipates that its services may be offered to The Guardian's customer base
throughout the nation. The Guardian provides health coverage to over
1,500,000 people in the United States.
Beginning the third quarter 1995, the Lab Card Program will be offered
nationwide through an active sales and marketing effort to insurance
carriers, as well as to self-insured and partially-insured companies and
other organizations. Through its LBM program, LabOne has developed Lab Card
to reduce the total cost of outpatient laboratory testing by as much as 50
percent. By using Lab Card, patients incur no out-of-pocket expenses for
outpatient lab work, and their employers save substantially against their
current lab expenditures. The Lab Card Program does not have the incidental
administrative costs associated with many benefit programs and is offered as
an optional benefit used at the discretion of the individual patient.
Agreements signed as of July 1, 1995, including The Guardian, bring the total
of lives covered under the Lab Card Program to more than 225,000.
LabOne's clinical and substance-abuse testing revenues were $1.1 million in
1995's second quarter. Cost of sales for clinical and substance abuse
testing were $2 million in 1995's second quarter while associated general and
administrative expenses were approximately $1 million.
Another healthcare subsidiary, Pyramid Diagnostic Services, Inc. (Pyramid),
reported losses in the second quarters and first six months of 1995 and 1994.
Currently, nine pharmacies distribute radiopharmaceuticals and related
services to nuclear medicine departments, clinics and hospitals. This
subsidiary is currently being marketed for sale. There are no assurances
that proceeds from a sale of this subsidiary would equal Seafield's book
value of $3.3 million.
Other Operating Results
Other revenues include revenues by a real estate, personal property, sales
and use tax consulting subsidiary. On May 31, 1995, this subsidiary,
Tenenbaum & Associates, Inc., completed an asset sales agreement. The
earnings effect of the sale and liquidation of this subsidiary is
approximately break-even for Seafield with after-tax proceeds anticipated to
equal book value.
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 $2.3 million in 1995's second quarter compared to
$749,000 in last year's second quarter. As a holding company, Seafield's
quarterly earnings can be significantly affected by fluctuations in security
prices. In 1995, the consolidated effective tax rate was primarily impacted
by non-deductible goodwill amortization, utilization of subsidiary prior
years' losses and tax benefits generated on the sale of subsidiary companies.
Seafield has investments in two majority-owned entities that are publicly
traded, LabOne and Response. At June 30, 1995, based on the market prices of
publicly-traded shares of these two subsidiaries, pretax unrealized gains of
approximately $113 million on these investments were not reflected in either
Seafield's book value or stockholders' equity.
Real Estate-discontinued 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 for estimated write-downs and costs through final disposition
was included in 1992's financial statements. An additional $2.9 million
after-tax loss provision was recorded in the fourth quarter of 1994.
Real estate revenues were $4.3 million during 1995's second quarter compared
to $2.8 million in last year's second quarter. Revenues during 1995's first
six months were $5.6 compared to $4.4 million in 1994's first six months.
The 1995 sales include 2 commercial parcels in Kansas, 1 commercial parcel in
Texas, 1 commercial parcel in Missouri, and 11 residential lots and units in
Florida and New Mexico. The 1994 sales included 2 residential lots in Texas
and 15 residential lots and units in Florida and New Mexico.
LIQUIDITY AND CAPITAL RESOURCES
On June 30, 1995, at the holding company level, Seafield had available for
operations approximately $36.2 million in cash and short-term investments
with an additional $5.8 million in long-term securities. On a consolidated
basis, Seafield and its subsidiaries (primarily LabOne with $40.5 million)
had $81.5 million in cash and short-term investments at June 30, 1995.
Current assets totaled approximately $123.7 million while current liabilities
totaled $15.6 million. Net cash provided by operations totaled $5.3 million
in 1995's first six months compared to $10.6 million in last year's first six
months. The decrease primarily reflects a change in the short-term trading
portfolio and accounts receivable.
In 1994, Seafield acquired 382,350 Seafield shares for $13 million. At June
30, 1995, the company had no remaining authorization for the purchase of
Seafield shares. During 1995, treasury stock issued for exercised options
has totaled 43,065 shares.
In 1990, Seafield's board of directors authorized up to $20 million for the
acquisition of LabOne common stock. In 1993, Seafield's board of directors
approved an additional $5 million for the purchase of LabOne stock. In 1995,
Seafield did not acquire any shares of LabOne stock. At June 30, 1995, the
remaining aggregate authorization totals $7.7 million.
Seafield is primarily a holding company. Sources of cash are investment
income and sales, 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,
subsidiary stock purchases and dividends to shareholders.
During 1992, Seafield received proposed adjustments from the Internal Revenue
Service (IRS) with respect to 1986-87 federal income taxes. Seafield
protested these adjustments during 1992. Later, the IRS determined to
include the 1988-90 tax periods as part of its review. The original amount
of additional taxes proposed by the IRS was approximately $17 million for the
1986-87 period. On May 12, 1995, the IRS issued a revised 1986-87 adjustment
report. This report reduced the original amount of proposed taxes to $13.5
million. This new report will be protested.
On June 5, 1995, the IRS issued its 1988-89 report. This report included
reversals of some additional taxes made in the 1986-87 report. The amount of
additional proposed taxes for 1988-89 is $182,000. The IRS has said it plans
to issue its proposed tax adjustments for 1990 by the third quarter 1995.
The IRS has sent one proposed adjustment for 1990 totaling $9.1 million in
additional taxes. The IRS has used this proposed adjustment to deny
Seafield's 1990 net operating and net capital loss carryback claim for refund
of $7.6 million. The effect is to propose additional net taxes of $1.5
million for 1990. These proposed adjustments will be protested as well.
Seafield believes that it has meritorious defenses to many of the issues
raised by the IRS, and adequate accruals for income tax.
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 June 30, 1995, LabOne had acquired 2,099,235 shares at a
total cost of $22.7 million. There were no treasury stock purchased during
1995.
LabOne paid quarterly dividends during 1994 and the first and second quarter
of 1995. As an 82% owner, Seafield received $3.8 million of cash as
dividends from LabOne in 1995. LabOne's working capital position decreased
by $1.1 million to $47.5 million at June 30, 1995. LabOne expects to fund
operations, capital additions and future dividend payments from a combination
of cash reserves, cash flow and short-term borrowings.
LabOne had no short-term borrowings during 1995 and an unsecured $1 million
line of credit available for general corporate purposes. During 1995's
second quarter, LabOne invested $600,000 in additional property, plant, and
equipment.
Response's working capital at June 30, 1995 was $13.9 million with current
assets of $19.8 million and current liabilities of $5.9 million. Cash and
cash equivalents and short-term investments represent $3.4 million of
Response's current assets. At June 30, 1995, Response had a $2.5 million
revolving bank line of credit secured by eligible accounts receivable. The
line, which expires April 1, 1996, is expected to be renewed for one-year
terms. Response had no borrowings under its line of credit as of June 30,
1995.
Response had no material commitments for capital expenditures at June 30,
1995. Response believes that its cash and capital resources, together with
available credit facilities, will be sufficient to finance current operations
and anticipated expansion of its network of IMPACT Centers.
In February 1995, Seafield retained Alex. Brown and Sons Incorporated as
financial advisor to assist Seafield in considering strategic alternatives to
maximize shareholder value. One alternative that Seafield expects to pursue
is a cash-option merger of Seafield into LabOne. The board of directors will
consider other business combination proposals that are presented to it.
There can be no assurances that either a merger with LabOne or any other
business combination will occur.
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 114 "Accounting by Creditors
for Impairment of a Loan" is required to be implemented for the year ending
December 31, 1995. The adoption of this standard is not expected to have any
significant impact on Seafield's financial position or results of operations.
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of"
is required to be implemented for fiscal years beginning after December 15,
1995. Seafield has not ascertained the impact, if any, on its financial
position or results of operations.
No other recently issued accounting standards presently exist which will
require adoption in future periods.
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; the Court of Appeals set aside $1.7 million of
the judgment and remanded the balance of 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 retrial is expected to occur in the
first quarter of 1996.
In 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 the loss of their exclusive real estate brokerage
arrangement. 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. After a trial in
July 1994, the jury returned a verdict absolving Registrant of any
liability. Subsequent to the trial, the judge awarded Registrant
approximately $250,000 in connection with marketing expenses which the
plaintiffs were to have repaid. In April 1995, the court awarded Registrant
approximately $64,000 in costs with interest until paid. Plaintiffs have
appealed all judgments against them. The appeal will likely be considered
by the court in the fourth quarter of 1995, with a ruling expected in the
first half of 1996. 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 material adverse impact on the consolidated financial position or
results of operations 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
June 30, 1995 the net assets of Seafield Capital Corporation exceeded its
stated capital by $192,123,000.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Securities Holders
(a) The annual meeting of shareholders was held on May 17, 1995
for the purpose of electing a board of directors and approving the
appointment of auditors. Proxies for the meeting were solicited and there
was no solicitation in opposition to management's solicitations. Holders of
6,419,138 shares were eligible to vote and 5,068,374 shares were represented
at the meeting either in person or by proxy.
(c) All of management's nominees for directors as listed in the
proxy statement were elected with the following vote:
Director Shares Voted For Shares Withheld Shares Not Voted
-------- ---------------- --------------- ----------------
J. C. Gamble 5,052,194 16,180 0
M. E. Herman 5,052,198 16,176 0
J.R. Seward 5,052,198 16,176 0
The shareholders approved the appointment of KPMG Peat Marwick
LLP as independent auditors for the year ending December 31, 1995 by the
following vote:
Shares Voted Shares Voted Shares Shares Not
For Against Abstaining Voted
------------ ------------ ---------- ----------
5,043,775 10,606 4,742 9,251
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 Financial Data Schedule - as filed electronically by
the Registrant in conjunction with this Form 10-Q.
(b) Reports on Form 8-K:
(1) A current report on Form 8-K was filed with the
Commission on May 23, 1995. This Form 8-K reported that the Registrant
issued a news release on May 23, 1995. The text of the news release is as
follows: "Seafield Capital Corporation (Seafield) announced the signing of
definitive agreements to sell all of its stock in Agency Premium Resource,
Inc. (APR) to Anuhco, Inc., a public company headquartered in Overland Park,
Kansas. Seafield owns 80.1% of APR on a fully-diluted basis. Anuhco will
also be acquiring the remaining APR stock from APR management, thereby
acquiring 100% of APR.
APR is a financial services company providing short-term collateralized
installment loans to fund the payment of premiums by insureds for the
purchase of commercial insurance.
Seafield Capital Corporation expects to consummate this transaction by the
end of May, 1995."
(2) A current report on Form 8-K was filed with the Commission
on June 5, 1995. This Form 8-K reported that the Registrant issued a news
release on June 1, 1995. The text of the news release is as follows:
"Seafield Capital Corporation (Seafield) announced the closing of the sale of
its 80.1% stock position in Agency Premium Resource, Inc. (APR) to Anuhco,
Inc. Anuhco also acquired the remaining 19.9% of APR from APR management.
The sales price for 100% of APR was $11.5 million. Seafield generated an
after-tax gain of approximately $1.2 million on the sale of its stock.
Seafield also announced the completion of an asset purchase agreement of
Tenenbaum Associates, Inc. to Ernst and Young. The earnings effect of this
sale is approximately break-even for Seafield, with after-tax proceeds
equaling book value."
(3) A current report on Form 8-K was filed with the
Commission on July 31, 1995. This Form 8-K reported that the Registrant
issued a news release on July 18, 1995. The text of the news release is as
follows: "Seafield Capital Corporation announced today the closing of the
sale of its 80% stock position in International Underwriting Services, Inc.
(IUS) to Genelco Incorporated, a wholly-owned subsidiary of General American
Life Insurance Company. Seafield will generate after-tax proceeds of $2.6
million, for an after-tax gain of approximately $1 million."
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 August 9, 1995 By /s/ James R. Seward
----------------------------
James R. Seward
Executive Vice President
and Chief Financial Officer
Date August 9, 1995 By /s/ Steven K. Fitzwater
----------------------------
Steven K. Fitzwater
Vice President, Chief Accounting
Officer and Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Form 10Q for the period ending June 30, 1995 and is qualified in its
entirety by reference to such 10Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 3,296
<SECURITIES> 78,216
<RECEIVABLES> 0<F1>
<ALLOWANCES> 0<F1>
<INVENTORY> 0
<CURRENT-ASSETS> 123,746
<PP&E> 0<F1>
<DEPRECIATION> 0<F1>
<TOTAL-ASSETS> 239,026
<CURRENT-LIABILITIES> 15,580
<BONDS> 0
<COMMON> 7,500
0
0
<OTHER-SE> 192,123
<TOTAL-LIABILITY-AND-EQUITY> 239,026
<SALES> 0
<TOTAL-REVENUES> 66,192
<CGS> 0
<TOTAL-COSTS> 68,784
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (544)
<INCOME-TAX> (2,775)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,076
<EPS-PRIMARY> .17
<EPS-DILUTED> 0<F2>
<FN>
<F1>Disclosure not required on interim financial statements.
<F2>Computation not applicable.
</FN>
</TABLE>
