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, 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
May 3, 1995: $1 par value common - 6,419,997
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
SEAFIELD CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
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March 31, December 31,
1995 1994
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(in thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 1,432 8,626
Short-term investments 71,106 67,631
Accounts and notes receivable 35,488 32,871
Current income tax receivable 2,273 2,311
Deferred income tax assets 1,270 1,766
Other current assets 8,146 10,813
Current assets of discontinued
real estate operations 994 747
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Total current assets 120,709 124,765
Property, plant and equipment 24,392 24,981
Investments:
Securities 6,496 6,725
Notes receivable 1,114 1,298
Oil and gas 5,416 5,998
Intangible assets 29,024 29,318
Deferred income tax assets 1,477 1,715
Other assets 989 1,323
Non-current assets of discontinued
real estate operations 52,098 49,264
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$ 241,715 245,387
====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8,172 7,475
Notes payable 1,315 2,823
Other current liabilities 7,594 9,513
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Total current liabilities 17,081 19,811
Notes payable 6 8
Other liabilities 2,790 3,439
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Total liabilities 19,877 23,258
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Minority interests 22,011 21,196
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Stockholders' equity:
Preferred stock of $1 par value.
Authorized 3,000,000 shares;
none issued -- --
Common stock of $1 par value.
Authorized 24,000,000 shares;
issued 7,500,000 7,500 7,500
Paid-in capital 996 1,002
Equity adjustment from foreign
currency translation (551) (561)
Retained earnings 220,677 223,169
--------------------
228,622 231,110
Less:
Cost of 1,080,862 shares of treasury stock
(1994 - 1,121,739) 28,795 30,177
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Total stockholders' equity 199,827 200,933
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$ 241,715 245,387
====================
See accompanying notes and management's discussion and analysis of financial
statements.
SEAFIELD CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Statements Of Operations
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Three months ended
March 31,
1995 1994
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(in thousands except per share amounts)
REVENUES
Insurance services $ 15,870 16,766
Healthcare services 14,363 9,770
Other 3,195 3,014
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Total revenues 33,428 29,550
COSTS AND EXPENSES
Insurance services 6,626 7,886
Healthcare services 13,621 9,643
Other 2,142 3,060
Selling, general and administrative 11,928 9,307
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Loss from operations (889) (346)
Investment income - net 1,264 1,526
Other income (expense) (49) 79
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Earnings before income taxes 326 1,259
Income taxes 198 687
---------------------
Earnings before minority interests 128 572
Minority interests 695 (76)
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NET EARNINGS (LOSS) $ (567) 648
=====================
Per share of common stock:
Net earnings (loss) $ (.09) .10
Dividends $ .30 .30
Book value $ 31.13 33.26
Average shares outstanding 6,409,565 6,543,292
Shares outstanding end of period 6,419,138 6,360,376
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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Three Months Ended
March 31, 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 (6)
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Balance, end of period 996
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Foreign currency translation:
Balance, beginning of year (561)
Net change during period 10
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Balance, end of period (551)
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Retained earnings:
Balance, beginning of year 223,169
Net loss (567)
Dividends paid (1,925)
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Balance, end of period 220,677
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Less:
Treasury stock:
Balance, beginning of year 30,177
Exercise of stock options (1,382)
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Balance, end of period 28,795
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Stockholders' Equity $ 199,827
=========
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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Three months ended March 31,
1995 1994
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OPERATING ACTIVITIES
Earnings (loss) from operations $ (567) 648
Adjustments to reconcile earnings from operations
to net cash provided by operations:
Depreciation and amortization 3,067 4,365
Earnings applicable to minority interests 695 (76)
Change in short-term trading portfolio, net 3,369 (84)
Change in accounts receivable (2,783) (1,196)
Change in accounts payable 331 740
Income taxes and other 1,421 (624)
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Net cash provided by operations 5,533 3,773
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INVESTING ACTIVITIES
Purchases of investments (2) (259)
Sales or maturities of investments 44 87
Secruitization of receivables 1,000 --
Additions to property, plant and equipment, net (1,124) (1,177)
Oil and gas investments 209 109
Short-term investments (7,295) 2,921
Net cash used by discontinued real estate operations (3,081) (579)
Other, net (401) (557)
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Net cash provided (used) by investing activities (10,650) 545
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FINANCING ACTIVITIES
Borrowing (payments) under line of credit
ageements, net (1,462) (1,272)
Payment of principal on long-term debt -- (108)
Payment of capital lease (62) (116)
Dividends paid (1,926) (1,907)
Purchase of treasury stock -- (12,952)
Issuance of common stock 1,376 238
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Net cash used by financing activities (2,074) (16,117)
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Effect of foreign currency translation (3) (148)
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Net decrease in cash and cash equivalents (7,194) (11,947)
Cash and cash equivalents - beginning of period 8,626 15,491
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Cash and cash equivalents - end of period $ 1,432 3,544
========================
Cash paid during the period for:
Interest (net of amount capitalized) $ 80 83
========================
Income taxes, net $ (986) 622
========================
See accompanying notes and management's discussion and analysis of financial
statements.
SEAFIELD CAPITAL CORPORATION
Notes to Consolidated Financial Statements
March 31, 1995 and 1994
(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 March 31, 1995 and December 31, 1994 and the results of
its operations and cash flows for the periods ended March 31, 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 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. A new trial is not expected before
late 1995.
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. Plaintiffs have
appealed all judgments against them. The appeal will likely be heard by the
third quarter of 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.
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. The
IRS has said that it will soon issue a revised set of proposed adjustments for
1986-87 taking into account Seafield's protest. In addition, during the 1988-
89 closing conference, the IRS agreed in principle to reverse some of the
proposed adjustments made for the 1986-87 years by way of proposed adjustments
during the 1988-89 years. The IRS has said that it expects to complete its
examination and issue final proposed adjustments for the entire 1986-1990
period by the third quarter of 1995. Seafield will then protest those
adjustments it deems improper. Subsequent to the ending of the first quarter
of 1995, Seafield received notice that the IRS has denied Seafield's 1990
refund claim of $7.6 million, due to tentative proposed adjustments that the
IRS expects to make for 1990. Seafield believes that it has meritorious
defenses to many of the issues raised by the IRS, and adequate accruals for
income tax liabilities.
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.
(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) 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.
(6) 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 March 31,
----------------------------
1995 1994
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Revenues $ 33,428,000 29,550,000
Loss from operations $ (889,000) (346,000)
Investment income - net $ 1,264,000 1,526,000
Net earnings (loss) $ (567,000) 648,000
Per share:
Net earnings (loss) $ (.09) .10
Dividends per share $ .30 .30
Book value per share $ 31.13 33.26
Average shares outstanding 6,409,565 6,543,292
Shares outstanding end of period 6,419,138 6,360,376
Insurance Services Segment
The following businesses are considered to be in the insurance services
segment: laboratory testing for 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
provides high-quality, low-cost laboratory 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 revenues in the first quarter 1995 were $14.7 million as compared
to $15.3 million in the same period last year. The 4% decrease can be
attributed primarily to decreases in insurance laboratory revenue of $1.1
million. The total number of applicants tested in the first quarter 1995
decreased by 6% as compared to the same quarter last year. Average revenue
per applicant declined 3% during the first quarter 1995 as compared to
1994's first quarter.
LabOne's cost of sales for insurance testing services decreased in the
first quarter of 1995 compared to the prior year's first quarter. This was
due primarily to decreases in depreciation and specimen collection kit
expenses.
During December 1994, the FDA gave premarket approval to Epitope, Inc. with
respect to its OraSure (registered trademark) specimen collection kit for
oral fluid HIV-1 antibody testing. This approval enables LabOne to resume
oral fluid HIV-1 antibody testing in the United States.
In March 1995, LabOne and Epitope entered into a new supply and
distribution agreement to market OraSure kits. LabOne maintains the non-
exclusive right to purchase kits and use them for purposes of risk
assessment of applicants in connection with the underwriting of insurance.
LabOne no longer retains the exclusive rights for insurance testing
services in Canada. In addition, LabOne no longer retains first refusal
rights for exclusive insurance testing services in other foreign countries.
Due to the lower collection expense associated with the OraSure kit, the
potential exists for a significant expansion of the testing market.
Conversely, the device also has the potential to cannibalize part of the
existing blood and urine testing market. The net impact of the approval of
the OraSure device cannot be determined at this time.
The insurance premium finance services operations were profitable during
the first quarters of 1995 and 1994. New premium contracts financed in
1995's first quarter totaled $17.5 million, compared to $15.3 million in
1994's first quarter. The number of contracts written in 1995 increased
25% to 3,745 contracts. This subsidiary has a $30 million receivable sales
facility with a bank. Net receivables were $7.5 million with $22 million
securitized.
The underwriting and policy administration services business revenues
increased 50% in 1995's first quarter compared to 1994's first quarter
revenues. Losses continue to be incurred by this subsidiary with 1995's
first quarter loss approximating 1994's first quarter loss.
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,
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.
As of March 31, 1995, Response had 28 IMPACT Centers and seven managed
centers located in 19 states. Subsequent to quarter-end, Response
announced the establishment of its first jointly-owned center. Response
anticipates continued nationwide expansion over the next few years,
primarily through the establishment of additional jointly-owned centers.
Response reported net earnings of $828,000 for the quarter ended March 31,
1995 on revenues of $11.2 million, compared to the prior year's first
quarter net loss of $972,000 on revenues of $8.5 million. Response's
increase in revenue is primarily attributable to increased patient
referrals. Revenue for the current quarter also included approximately
$270,000 related to efforts to begin conducting pharmaceutical contract
research in parallel with clinical trials data management activities.
Response's operating expenses increased $938,000 or 13% between the
quarters ended March 31, 1995 and 1994. These expenses consist of payroll
costs, pharmaceutical and laboratory expenses, medical director fees, rent
expense and other operational expenses, and display a high degree of
variability in proportion to patient services revenue. Operating expenses
as a percent of net revenue were 73% in 1995's first quarter compared to
86% for the same period of 1994. This decrease is 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 increased $207,000 or 20%
between the quarters ended March 31, 1995 and 1994. This increase is
primarily attributable to increases in administrative payroll and related
costs. As a percentage of net revenue, general and administrative costs
were 11% in 1995's first quarter compared to 12% for the same period of
1994. Response's depreciation and amortization expense decreased $140,000
or 25%. This decrease is primarily attributable to startup costs of many
centers being fully amortized after a two-year operational period.
Response's provision for doubtful accounts decreased $55,000 or 9% between
the quarters ended March 31, 1995 and 1994. The provision as a percentage
of net revenue was 5% for the quarter ending March 31, 1995, compared to 7%
in 1994's first quarter. The decrease is attributable to a higher
proportion of contracted 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 established a network of Patient Service Centers (PSCs) and
affiliations with other centers in Northern California, Des Moines and the
Kansas City area for the collection of specimens for testing. This network
became operational during the fourth quarter of 1994. Additionally, LabOne
maintains its own courier fleet to retrieve specimens for transport to the
laboratory.
LabOne is certified by the Substance Abuse and Mental Health Services
Administration (SAMHSA, formerly NIDA) to perform substance abuse testing
services for federally regulated employers and is currently marketing these
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.
LabOne's clinical and substance abuse testing revenues were $666,000 in
1995's first quarter. Cost of sales for clinical and substance abuse
testing were $2.1 million in 1995 first quarter while associated general
and administrative expenses were approximately $800,000.
Another healthcare subsidiary, Pyramid Diagnostic Services, Inc. (Pyramid),
reported a slight loss in the first quarters of 1995 and 1994. Currently,
nine pharmacies distribute radiopharmaceuticals and related services to
nuclear medicine departments, clinics and hospitals. Current plans are to
concentrate on increasing revenues at existing pharmacies until
profitability is achieved. Pyramid's long-term business plan is to
continue to open pharmacies with a minimum objective of fifteen pharmacies.
Other Operating Results
In 1995's first quarter, Seafield's long-term compensation program was
reviewed. Seafield's Compensation Committee decided to time vest two
tranches of restricted stock awards which were already price vested. Time
vesting of one of the tranches would have occurred in October 1995 and the
other in October 1996. The first quarter 1995 earnings impact was a non-
recurring charge of approximately $800,000 after tax benefits.
Other revenues in 1995's first quarter included $3.2 million by a real
estate, personal property, sales and use tax consulting subsidiary,
compared to $2 million in 1994'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 operations.
Investment income totaled $1.3 million in 1995's first quarter compared to
$1.5 million in last year's first quarter. In 1995, the consolidated
effective tax rate was primarily impacted by non-deductible goodwill
amortization, losses not available for state tax benefits and utilization
of subsidiary prior years' losses.
Seafield has investments in two majority-owned entities that are publicly
traded, LabOne and Response. At March 31, 1995, based on the market prices
of publicly-traded shares of these two subsidiaries, pretax unrealized
gains of approximately $101 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 for a
sales contract signed in January 1995 on approximately 800 acres of Texas
land. This contract was recently canceled. Negotiations are currently in
progress with a different buyer for this Texas land.
Real estate revenues were $1.4 million during 1995's first quarter compared
to $1.8 million in last year's first quarter. The 1995 sales include 1
commercial parcel in Kansas, 1 commercial parcel in Texas and 2 residential
lots and units in Florida and New Mexico. The 1994 sales include 2
residential lots in Texas and 7 residential lots and units in Florida and
New Mexico.
LIQUIDITY AND CAPITAL RESOURCES
On March 31, 1995, at the holding company level, Seafield had available for
operations approximately $26.5 million in cash and short-term investments
with an additional $6 million in long-term securities. On a consolidated
basis, Seafield and its subsidiaries (primarily LabOne with $40.7 million)
had $72.5 million in cash and short-term investments at March 31, 1995.
Current assets totaled approximately $120.7 million while current
liabilities totaled $17.1 million. Net cash provided by continuing
operations totaled $5.5 million in 1995's first quarter compared to $3.8
million in last year's first quarter. The 46% increase primarily reflects
a change in the short-term trading portfolio.
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.
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 $13 million. During 1995's first quarter, treasury
stock issued for exercised options totaled 40,877 shares.
In 1993, Seafield's board of directors approved an additional $5 million
for the purchase of LabOne's stock. In 1995, Seafield did not acquire any
shares of LabOne stock. At March 31, 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. The IRS has said that it will soon
issue a revised set of proposed adjustments for 1986-87 taking into account
Seafield's protest. In addition, during the 1988-89 closing conference,
the IRS agreed in principle to reverse some of the proposed adjustments
made for the 1986-87 years by way of proposed adjustments during the 1988-
89 years. The IRS has said that it expects to complete its examination and
issue final proposed adjustments for the entire 1986-1990 period by the
third quarter of 1995. Seafield will then protest those adjustments it
deems improper. Subsequent to the ending of the first quarter of 1995,
Seafield received notice that the IRS has denied Seafield's 1990 refund
claim of $7.6 million, due to tentative proposed adjustments that the IRS
expects to make for 1990. 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 March 31, 1995, LabOne had acquired 2,099,235
shares at a total cost of $22.7 million. There were no shares purchased
during the first quarter of 1995.
LabOne paid quarterly dividends during 1994 and the first quarter of 1995.
As an 82% owner, Seafield received $1.9 million of cash as dividends from
LabOne in 1995. LabOne's working capital position decreased by $500,000 to
$48.1 million at March 31, 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
first quarter, LabOne invested $700,000 in additional property, plant, and
equipment.
Response's working capital at March 31, 1995 was $13.1 million with current
assets of $18.2 million and current liabilities of $5.1 million. Cash and
cash equivalents and short-term investments represent $3.3 million of
Response's current assets. At March 31, 1995, Response had a $5 million
revolving bank line of credit secured by eligible accounts receivable. The
line expired April 1, 1995 and was renewed at $2.5 million for a one-year
term. Response had no borrowings under its line of credit as of March 31,
1995.
Response had no material commitments for capital expenditures at March 31,
1995. Response believes that its cash and capital resources, together with
available credit facilities, will be sufficient to finance current
operations and expansion of its network of IMPACT Centers.
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 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. A new trial is not expected before late
1995.
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. Plaintiffs have
appealed all judgments against them. The appeal will likely be heard by the
third quarter of 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 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 March
31, 1995 the net assets of Seafield Capital Corporation exceeded its stated
capital by $192,327,000.
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:
27 Financial Data Schedule
(b) Reports on Form 8-K:
A current report on Form 8-K was filed with the Commission on
February 14, 1995. This Form 8-K reported that the Registrant issued a news
release on February 10, 1995. The text of the news release is as follows:
"Seafield Capital Corporation (Seafield) announced today that it has retained
Alex. Brown and Sons Incorporated as financial advisor to assist the Company in
considering strategic alternatives to maximize shareholder value. Seafield is
a holding company that owns 82% of LabOne, Inc. (NASDAQ - "LABS") and 59% of
Response Technologies, Inc. (ASE - "RTK") as well as a number of other
investments and cash equivalents. LabOne, Inc. is the nation's leading
insurance laboratory testing company and Response Technologies, Inc. is a
prominent cancer treatment company with over 30 treatment centers.
One alternative that the Company expects to pursue is a cash-option merger of
Seafield into LabOne. In this regard, the Company has made an initial
presentation to LabOne's Board of Directors. In such a merger, Seafield
shareholders may have the option of receiving cash as well as shares of LabOne.
Such a merger would likely be preceded by Seafield's distribution to
shareholders, or other disposition by Seafield, of its Response stock and other
assets. If a definitive agreement with LabOne is reached, it is anticipated
that such a merger would not occur until the early part of 1996 because of the
time required to complete anticipated asset sales as well as shareholder and
other approvals.
Seafield's Board also will consider other business combination proposals that
are presented to it. Seafield cautioned that there can be no assurances that
either a merger with LabOne or any other business combination will occur."
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 11, 1995 By /s/ James R. Seward
----------------------------
James R. Seward
Executive Vice President
and Chief Financial Officer
Date May 11, 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 March 31, 1995 and is qualified in its
entirety by reference to such 10Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 1,432
<SECURITIES> 71,106
<RECEIVABLES> 0<F1>
<ALLOWANCES> 0<F1>
<INVENTORY> 0
<CURRENT-ASSETS> 120,709
<PP&E> 0<F1>
<DEPRECIATION> 0<F1>
<TOTAL-ASSETS> 241,715
<CURRENT-LIABILITIES> 17,081
<BONDS> 0
<COMMON> 7,500
0
0
<OTHER-SE> 192,327
<TOTAL-LIABILITY-AND-EQUITY> 241,715
<SALES> 0
<TOTAL-REVENUES> 33,428
<CGS> 0
<TOTAL-COSTS> 34,317
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 326
<INCOME-TAX> 198
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (567)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> 0<F2>
<FN>
<F1>Disclosure not required on interim financial statements.
<F2>Computation not applicable.
</FN>
</TABLE>
