UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ---------- EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- -----------SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-16946
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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 (IRS Employer Incorporation
of organization) or Identification Number)
P. O. Box 410949
2600 Grand Blvd., Suite 500
Kansas City, Missouri 64141
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (816) 842-7000
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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None Not Applicable
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $1 per share and
common stock rights coupled therewith.
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
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Approximate aggregate market value of voting stock held by non-affiliates
of Registrant: $229,497,844 (based on closing price as of February 29,
1996)
Number of shares outstanding of only class of Registrant's common stock as
of February 29, 1996: $1 par value common - 6,464,728
Documents incorporated by reference:
Portions of Registrant's Proxy Statement for use in connection with the
Annual Meeting of Shareholders to be held on May 8, 1996, is incorporated
by reference into Part III of this report, to the extent set forth therein,
if such Proxy Statement is filed with the Securities and Exchange
Commission on or before April 30, 1996. If such Proxy Statement is not
filed by such date, the information required to be presented in Part III
will be filed as an amendment to this report. The exhibits for this Form
10-K are listed in Item 14.
PART I.
ITEM 1. BUSINESS.
Seafield Capital Corporation (Seafield or Registrant), was organized in
Missouri as BMA Properties, Inc. in 1974 as a 100% owned subsidiary of
Business Men's Assurance Company of America (which was incorporated in
1909). In 1988, BMA Properties, Inc. was renamed BMA Corporation, and on
June 1, 1988, became the parent company. Registrant changed its name in
1991 from BMA Corporation to Seafield Capital Corporation. Registrant is a
holding company whose subsidiaries operate primarily in the healthcare and
insurance services areas. Registrant implemented this new strategic
business focus after the insurance operations were sold during 1990.
Various operating subsidiaries of Registrant provide risk-appraisal
laboratory testing services to the insurance industry, clinical testing
services to the healthcare industry, and comprehensive cancer treatment
management. In addition, Seafield has investments in early-stage
healthcare services companies. Seafield, either directly or through
subsidiaries, also holds interests in energy investments, marketable
securities and real estate. Seafield had 18 employees as of December 31,
1995. None of the employees is represented by a labor union and Seafield
believes its relations with employees are good. See Item 7 and Note 6 of
Notes to Consolidated Financial Statements for additional segment
information.
* * *
The following list shows the Registrant and each subsidiary corporation of
which Registrant owns a majority interest, together with the ownership
percentage and state or country of incorporation.
SEAFIELD CAPITAL CORPORATION (Missouri)
LabOne, Inc. (Delaware) 82%
Lab One Canada Inc. (Canada) 100%
Response Oncology, Inc. (Tennessee) 56%
Pyramid Diagnostic Services, Inc. (Delaware) 74%
BMA Resources, Inc. (Missouri) 100%
Scout Development Corporation (Missouri) 100%
Scout Development Corporation of New Mexico (Missouri) 100%
Carousel Apartment Homes, Inc. (Georgia) 100%
INSURANCE SERVICES
The following businesses are considered to be in the insurance services
segment: LabOne, Inc. (insurance segment), Agency Premium Resource, Inc.
(APR), and International Underwriting Services, Inc. (IUS). APR and IUS
were sold during 1995.
LABONE, INC.
The Registrant's laboratory testing activities are conducted through
LabOne, Inc. (LabOne), a subsidiary which was 82% owned by the Registrant
and 18% publicly held at December 31, 1995. LabOne is a publicly-traded
stock (NASDAQ-LABS). LabOne, together with its wholly-owned subsidiary Lab
One Canada Inc. (hereinafter collectively referred to as LabOne), is the
largest provider of laboratory services to the insurance industry in the
United States and Canada. In 1994, LabOne expanded its testing offerings
to include the clinical and substance abuse markets. LabOne provides high-
quality laboratory services to insurance companies, physicians and
employers nationwide.
LabOne provides risk-appraisal laboratory services to the insurance
industry. 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 specimens of individual life insurance policy applicants.
LabOne also provides testing services on specimens of individuals applying
for individual and group medical and disability policies.
LabOne also provides clinical testing services to the healthcare industry
to aid in the diagnosis and treatment of patients. Additionally, LabOne is
certified by the Substance Abuse and Mental Health Services Administration
(SAMHSA) 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. See the
Healthcare Segment following for additional information regarding LabOne's
clinical and substance abuse testing services.
LabOne's Insurance Applicant Testing Services
In order to establish the appropriate level of premium payments or to
determine whether to issue a policy, an insurance company requires
objective means of evaluating the insurance risk posed by policy
applicants. Because decisions of this type are based on statistical
probabilities of mortality and morbidity, an insurance company generally
requires quantitative data reflecting the applicant's general health.
Standardized laboratory testing, tailored to the needs of the insurance
industry and reported in a uniform format, provides an insurance company
with an efficient means of evaluating the mortality and morbidity risks
posed by policy applicants. The use of standardized urinalysis and blood
testing has proven a cost-effective alternative to individualized physician
examinations, which utilize varying testing procedures and reports.
Standardized laboratory testing can also be used to verify responses on a
policy application to such questions as whether the applicant is a user of
tobacco products, certain controlled substances or certain prescription
drugs. Insurance companies generally offer a premium discount for
nonsmokers and often rely on testing to determine whether an applicant is a
user of tobacco products. Cocaine use has been associated with increased
risk of accidental death and cardiovascular disorders, and as a result of
the increasing abuse in the United States and Canada, insurance companies
are testing a greater number of policy applicants to detect its presence.
Therapeutic drug testing also detects the presence of certain prescription
drugs that are being used by an applicant to treat a life-threatening
medical condition that may not be revealed by a physical examination.
LabOne's insurance testing services consist of certain specimen profiles
that provide insurance companies with specific information that may
indicate liver or kidney disorders, diabetes, the risk of cardiovascular
disease, bacterial or viral infections and other health risks. LabOne also
offers tests to detect the presence of antibodies to human immunodeficiency
virus (HIV), nicotine, cocaine and certain medications associated with
life-threatening medical conditions that may not be revealed by a routine
physical examination.
Insurance specimens are normally collected from individual insurance
applicants by independent paramedical personnel using LabOne's custom-
designed collection kits and containers. These kits and containers are
delivered to LabOne's laboratory via overnight delivery services or mail,
coded for identification and processed according to each client's
specifications. Results are generally transmitted to the insurance
company's underwriting department that same evening.
The following table summarizes LabOne's revenues from services provided to
the insurance and healthcare (clinical and substance abuse testing)
markets:
Year ended December 31,
1995 1994 1993
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(Dollars in thousands)
Insurance $ 52,544 92% $ 60,260 99% $ 69,378 100%
Healthcare 4,485 8% 466 1% -- 0%
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Total $ 57,029 $ 60,726 $ 69,378
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LabOne - Operations
LabOne's operations are designed to facilitate the testing of a large
number of specimens and to report the results to its clients, generally
within 24 hours of receipt of specimens.
LabOne has internally developed, custom-designed laboratory and business
processing systems. These systems enable each client company to customize
its own testing and reflex requirements by several parameters to satisfy
its particular needs. It is a centralized network system that provides an
automated link between LabOne's testing equipment, data processing
equipment and the client's computer systems. This system offers LabOne's
clients the ability to customize their testing activities to best meet
their needs.
LabOne, as the result of the number of tests it has performed over the past
several years, has compiled and maintains a large statistical database of
test results. These summary statistics are useful to the actuarial and
underwriting departments of an insurance client in comparing that client's
test results to the results obtained by LabOne's entire client base.
Company-specific and industry-wide reports are frequently distributed to
clients on subjects such as coronary risk analysis, cholesterol and drugs
of abuse.
LabOne considers the confidentiality of its test results to be of primary
importance and has established procedures to ensure that results of tests
remain confidential as they are communicated to the client that requested
the tests.
Substantially all of the reagents and materials used by LabOne in
conducting its testing are commercially purchased and are readily available
from multiple sources.
LabOne - Regulatory Affairs/Quality Improvement
The objective of the Regulatory Affairs/Quality Improvement department is
to ensure that accurate and reliable test results are released to clients.
This is accomplished by incorporating both internal and external quality
assurance programs in each area of the laboratory. In addition, quality
assurance specialists share the responsibility with all LabOne employees of
an ongoing commitment to quality and safety in all laboratory operations.
Internal quality and education programs are designed to identify
opportunities for improvement in laboratory services and to meet all
required safety training and education issues. These programs ensure
reliable and confidential test results.
Procedure manuals in all areas of the laboratory help maintain uniformity
and accuracy, and meet regulatory guidelines. Tests on control samples
with known results are performed frequently to maintain and verify accuracy
in the testing process. Complete documentation provides record keeping for
employee reference and meets regulatory requirements. All employees are
thoroughly trained to meet standards mandated by OSHA in order to maintain
a safe work environment. Superblind(trademark) controls are used to
challenge every aspect of service at LabOne. Specimens requiring special
handling are evaluated and verified by control analysis personnel. A
computer edit program is used to review and verify clinically abnormal
results, and all positive HIV antibody and drugs of abuse records.
As an external quality assurance program, LabOne participates in a number
of proficiency programs established by the College of American
Pathologists, the American Association of Bioanalysts and the Centers for
Disease Control.
LabOne is accredited by the College of American Pathologists and is
licensed under the Clinical Laboratory Improvement Amendments (CLIA) of
1988. LabOne has additional licenses for HIV and substance abuse testing
from the State of Kansas and all other states where such licenses are
required. LabOne is certified by SAMHSA to perform testing to detect drugs
of abuse in federal employees and in workers governed by federal
regulations.
LabOne - Technology Development
The technology development department evaluates new commercially available
tests and technologies or develops new assays and compares them to
competing products in order to select the most accurate laboratory
procedures. Total technology development expenditures are not considered
significant to LabOne as a whole.
LabOne - Sales and Marketing
LabOne's client base currently consists primarily of insurance companies in
the United States and Canada. LabOne believes that its ability to provide
prompt and accurate results on a cost-effective basis and its
responsiveness to customer needs have been important factors in maintaining
existing business.
All of LabOne's sales representatives for the insurance market have
significant business experience in the insurance industry or clinical
laboratory-related fields. These representatives call on major clients
several times each year, usually meeting with a medical director or vice
president of underwriting. An important part of LabOne's marketing effort
is directed toward providing its existing clients and prospects with
information pertaining to the actuarial benefits of, and trends in,
laboratory testing. LabOne's sales representatives and its senior
management also attend underwriters' and medical directors' meetings
sponsored by the insurance industry.
The sales representatives for the healthcare industry are experienced in
that market and currently work in the geographic areas which they
represent. Marketing efforts are directed at insurance carriers, as well
as self-insured companies and other organizations nationwide.
Substance abuse marketing efforts are primarily directed at Fortune 1000
companies, occupational health clinics and third party administrators.
LabOne's strategy is to offer quality service at competitive prices. The
sales force focuses on the ability of LabOne to offer multiple reporting
methods, next flight out options, dedicated client service representatives
and reporting of negative results before 8:00 a.m.
LabOne - Legislation and Regulation
In the past, legislation was introduced in several states that, if enacted,
may restrict or ban all AIDS-related testing for insurance purposes in
those states. The introduction of legislation to restrict or ban all AIDS-
related testing does not ensure its passage into law. There can be no
assurance, however, that such legislation will not be enacted in the
future.
A few states have enacted legislation or regulations which have had the
effect of reducing or eliminating the volume of laboratory tests requested
by medical insurers in those states. It is likely that the trend will
continue as more states enact legislation relating to health care and
medical insurance.
The Food and Drug Administration (FDA) may exert broader regulatory control
over LabOne's business and all testing laboratories. The areas of possible
increased control that could impact LabOne's business include (1) whether
FDA premarket notification or clearance may be required for LabOne's
continued commercial distribution and use of a blood and urine specimen
collection kit, and (2) a draft FDA compliance policy guide stating that
certain products routinely used by laboratories may require FDA approval or
clearance. See Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - TRENDS.
LabOne - Competition
LabOne believes that the insurance laboratory testing market is
approximately a $100 million industry. LabOne currently controls over half
the market, with three other main competitors, Osborn Laboratories, Inc.,
Clinical Reference Laboratory and GIB Laboratories, maintaining a majority
of the remaining market. The insurance laboratory testing industry
continues to be increasingly competitive. The primary focus of the
competition has been on pricing. This continued competition has resulted
in a decrease in LabOne's average price per test. It is anticipated that
prices will continue to decline in 1996.
Although competition has dramatically increased in the past few years,
LabOne has maintained its position as the market leader. LabOne believes
its leading position in the insurance laboratory testing market is due in
part to its focused commitment of resources to the life and health
insurance industry. LabOne has continued to maintain its market leadership
through the client relationships that it has developed over its 24-year
history, its reputation for providing quality products and services at
competitive prices, and its battery of tests which are tailored
specifically to insurance companies' needs.
The clinical laboratory testing market is a $40 billion industry which is
highly fragmented and very competitive. LabOne faces competition from
numerous independent clinical laboratories and hospital or physician owned
laboratories. Many of LabOne's competitors are significantly larger and
have substantially greater financial resources than LabOne. LabOne is
currently working to establish a sound client base in this environment.
LabOne's business plan is to be the premier low-cost provider of high-
quality laboratory services to self-insured companies and insurance
companies in the healthcare market. LabOne feels that its superior quality
and centralized, low-cost operating structure enables it to compete
effectively in this market.
LabOne competes in the substance abuse testing market nationwide. LabOne's
major competitors are the three major clinical chains, LabCorp, Corning
Clinical Laboratories and Smith Kline Beecham Laboratories, who
collectively constitute approximately two-thirds of the substance abuse
testing market.
LabOne - Foreign Markets
In 1977, LabOne opened Head Office Reference Laboratory Limited, a
subsidiary, in Toronto, Canada. During 1994, LabOne consolidated all
Canadian laboratory testing into the Kansas laboratory. In 1995, the name
was changed to Lab One Canada, Inc., and LabOne continues to market
insurance testing services to Canadian clients, with laboratory testing
performed in the United States.
The following table summarizes the revenue, profit and assets applicable to
LabOne's domestic operations and its subsidiary, Lab One Canada, Inc.
Year ended December 31,
1995 1994 1993
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(In millions)
Sales:
United States $50.8 $53.0 $59.8
Canada 6.2 7.7 9.6
Operating Profit:
United States 2.1 5.8 14.1
Canada 0.3 1.1 2.6
Identifiable Assets:
United States 64.4 71.3 75.9
Canada 5.7 5.5 5.2
LabOne - Employees
As of March 1, 1996, LabOne had 509 full-time employees, representing a
decrease of 49 employees from the same time in 1995. None of LabOne's
employees is represented by a labor union. LabOne believes its relations
with employees are good.
AGENCY PREMIUM RESOURCE, INC.
Agency Premium Resource, Inc. (APR) is an insurance premium finance company
serving independent insurance agents. APR provides premium financing for
the commercial customers of these independent insurance agents. On May 31,
1995, Seafield sold APR. See Item 7 and Note 1 to Consolidated Financial
Statements for additional information.
INTERNATIONAL UNDERWRITING SERVICES, INC.
International Underwriting Services, Inc. (IUS) offers turnkey policyholder
and underwriting services. This subsidiary operates only within the life
and health insurance industry and provides some or all of the following
services to its customers: product design, underwriting of applicants,
policy issuance, policy service, premium collection and payment of
commissions. On July 17, 1995, Seafield sold IUS. See Item 7 and Note 1 to
Consolidated Financial Statements for additional information.
HEALTHCARE SERVICES
The following operating businesses are considered to be in the healthcare
services segment: Response Oncology, Inc., LabOne, Inc. (healthcare
segment) and Pyramid Diagnostic Services, Inc.
RESPONSE ONCOLOGY, INC.
The Registrant owns approximately 56% of Response Oncology, Inc.
(Response). On November 2, 1995, Response changed its name from Response
Technologies, Inc. Response's common stock trades on the NASDAQ National
Market System under the symbol ROIX.
Response is a comprehensive cancer management company. Response provides
advanced cancer treatment services under the direction of over 350
independent oncologists; manages the practices of oncologists with whom
Response has affiliated; and conducts clinical cancer research on behalf of
pharmaceutical manufacturers.
Response - Cancer Treatment Services
Response provides advanced cancer treatments and related services,
principally on an outpatient basis, through its IMPACT(registered
trademark) (IMPlementing Advanced Cancer Treatments) Centers. Each IMPACT
Center provides its Medical Directors/Cancer Specialists with a fully
integrated delivery system for implementation of advanced cancer protocols.
As of February 15, 1996, Response owned or operated in joint ventures with
hospitals, 43 IMPACT Centers in 21 states, providing advanced treatment
capabilities and facilities to over 350 medical oncologists. Commencing in
1995, Response shifted its emphasis from wholly-owned IMPACT Centers
typically located away from hospitals in close proximity to suburban
oncology practices to joint ventures with hospitals which provide the
physical facilities wherein the IMPACT Center is operated.
Each IMPACT Center is staffed by experienced oncology nurses, pharmacists,
laboratory technologists, and other support personnel to deliver outpatient
services under the direction of private practicing oncologists. IMPACT
Center services include preparation and collection of stem cells,
administration of high-dose chemotherapy, reinfusion of stem cells and
delivery of broadbased supportive care. IMPACT Center personnel extend the
support mechanism into the patient's home, further reducing the dependence
on hospitalization. The advantages of this system to the physician and
patient include (i) convenience of the local treatment facility; (ii)
specialized on-site laboratory and pharmacy services, including home
pharmacy support; (iii) access to Response's clinical trials program to
provide ongoing evaluation of current cancer treatment; (iv) specially
trained medical and technical staff; (v) patient education and support
materials through computer, video and staff consultation; and (vi)
reimbursement assistance.
Response - Oncology Practice Management Services
Response announced during the year ended December 31, 1995, its plans to
engage in physician practice management within the specialty of medical
oncology and hematology.
On January 2, 1996, Response acquired the assets of, and entered into a
long-term management services agreement with Oncology Hematology Group of
South Florida, P.A. (the Group). The Group, consisting of nine physicians,
is located on the campus of Baptist Hospital in Miami, Florida. Under the
management services agreement, Response receives a management fee to manage
the non-medical aspects of the practice and to coordinate practice
enhancement opportunities with the physicians. Improvements are expected
through a professional focus on management and managed care relationships,
economies of scale, and the addition of new services. The Group is
Response's first physician group under such a practice management
relationship.
As of February 15, 1996, Response had announced the receipt of two
additional non-binding letters of intent for physician practice management
relationships, and that it was in early negotiations with several
additional groups.
In late 1995, Response contracted with an independent physician association
of oncologists in Palm Beach, Broward, Dade and Monroe Counties in South
Florida for the purpose of marketing the services of such oncologists to
managed care organizations.
Response - Cancer Research Services
Response also utilizes its database to provide various types of data to
pharmaceutical companies regarding the use of their products. The IMPACT
Center network and Response's database make Response ideally suited to this
process. Response is currently participating in several projects with
pharmaceutical manufacturers to furnish data in connection with FDA
applications for post-FDA approval marketing studies. Revenue from these
contracts helps to underwrite Response's clinical trials expenses. Such
relationships with pharmaceutical companies may allow Response earlier
access to drugs and therapies.
Response - Competition
As a result of growing interest among oncologists and the more widely
recognized efficacy of high-dose chemotherapy treatments, the competitive
environment in the field is starting to heighten. Most community hospitals
with a commitment to cancer treatment are evaluating their need to provide
high-dose treatments, and other entities are competing with Response in
providing high-dose services similar to those offered by Response.
Such competition has long been contemplated by Response, and is indicative
of the evolution of this field. While Response believes that the demand
for high-dose chemotherapy services is sufficiently large to support
several significant providers of these services, it is subject to
increasing competitive risks from these entities.
In addition, Response is aware of at least two competitors specializing in
the management of oncology practices, and several healthcare companies with
established operating histories and significantly greater resources than
Response are also providing at least some management services to
oncologists. There are certain other companies, including hospitals, large
group practices, and outpatient care centers, that are expanding their
presence in the oncology market and may have access to greater resources
than Response. Furthermore, organizations specializing in home and
ambulatory infusion care, radiation therapy, and group practice management
compete in the oncology market.
Response's revenue depends on the continued success of its affiliated
physician groups. These physician groups face competition from several
sources, including sole practitioners, single and multi-specialty groups,
hospitals and managed care organizations.
Response - Government Regulation
Response's services are subject to federal and state licensing requirements
in each of the states in which it operates. In order to maintain such
licensure, Response must comply with applicable regulations and is subject
to periodic compliance inspections by healthcare regulators. Response is,
to the best of management's knowledge, in compliance with applicable state
and federal licensing requirements.
The law regulating healthcare providers varies among states. Accordingly,
Response approaches its network expansion on a state by state basis in
order to determine whether the institution and operation is feasible under
the laws of the target state. Healthcare regulation is a rapidly evolving
area of law. There can be no assurance that Response's ability to open or
operate its treatment facilities will not be adversely affected by changes
in applicable federal or state law (such as certificate of need laws) or by
administrative interpretation of existing law.
Some protocols which Response may desire to implement may be subject to
regulatory approval by the Food and Drug Administration (FDA) due to the
drugs or combination of drugs used in the protocols. In most instances,
such approval will be sought by manufacturers of the drugs; however,
Response may occasionally participate in such an approval process.
The majority of patients referred to the Centers are covered by a third
party insurer. Response receives very little of its revenue from Medicare
since patients eligible for Medicare generally are not medically eligible
by virtue of their age for high-dose treatment protocols.
Response believes that its method of compensating its Medical Directors
complies with the federal Medicare anti-kickback law and the Stark self-
referral law and similar state regulations. Such regulations at the
federal level prohibit any form of compensation to physicians intended to
induce the referral of Medicare or Medicaid patients and the referral of
such patients to an entity for designated health services in which the
physician has a financial relationship. Certain states have enacted
broader regulations precluding such referrals with respect to non-Medicare
and Medicaid payers. Response believes that it has structured its
compensation arrangements with its Medical Directors pursuant to federal
"safe harbor" regulations, and in compliance with applicable state
regulations. However, there can be no assurance that future government
regulations will not impact Response's compensation arrangements with its
Medical Directors. Response would attempt to restructure its Medical
Director payments in a manner which complies with any future regulation.
Response - Business History and Past Operations
Response was incorporated in Tennessee in 1984. In fiscal 1989, after
Response had suffered losses since incorporation of over $30 million,
Response adopted a plan of restructuring and reorganization of its business
operations away from patient-funded research activities to the development
and operation of outpatient cancer centers specializing in technology
advanced cancer treatment programs for oncologists.
Response - Liability Exposure
Like all companies operating in the healthcare industry, Response faces an
inherent risk of exposure to liability claims. While Response has taken
what it believes to be appropriate precautions, there can be no assurance
that it will avoid significant liability exposure. Response has obtained
liability insurance, but there can be no assurance that it will be able to
continue to obtain coverage at affordable rates or that such coverage will
be adequate in the event of a successful liability claim. Since inception,
Response has not incurred any professional or general liability claims or
losses, and as of December 31, 1995, Response was not aware of any pending
claims.
Response - Employees
As of February 15, 1996, Response employed approximately 340 persons,
approximately 309 of whom were full-time employees. The employees are not
covered by any collective bargaining agreements. Response believes that
its labor relations are good.
LABONE, INC.
LabOne provides clinical testing services to the healthcare industry to aid
in the diagnosis and treatment of patients. LabOne has established a
network of LabOne Service Centers (LSCs) for the collection of specimens
for testing. Additionally, LabOne has contracted with hospitals, clinics,
parameds and occupational medical facilities nationwide to collect
specimens for LabOne.
LabOne is certified by the Substance Abuse and Mental Health Services
Administration (SAMHSA) 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 rapid turnaround and multiple testing options help clients reduce
downtime for affected employees and meet mandated drug screening
guidelines.
LabOne's Clinical Patient Testing
LabOne's clinical testing services are provided to the healthcare industry
to aid in the diagnosis and treatment of patients. LabOne operates only
one highly automated and centralized laboratory, which has significant
economic advantages over other conventional laboratory competitors. LabOne
markets its clinical testing services to the payers of healthcare--
insurance companies and self-insured groups through Lab Card(trademark), a
Laboratory Benefits Management (LBM) program.
The Lab Card Program provides laboratory testing at a reduced rate as
compared to traditional laboratories. It uses a unique benefit design that
shares the cost savings with the patient, creating an incentive for the
patient to help direct laboratory work to LabOne. Under the Program, the
patient incurs no out-of-pocket expense when the Lab Card is used, and the
insurance company or self-insured group receives substantial savings on its
laboratory charges.
LabOne began offering laboratory testing services to the healthcare
industry in May 1994. Clinical laboratory tests generally are requested by
physicians and other health care providers to diagnose and monitor diseases
and other medical conditions through the detection of substances in blood
and other specimens. Laboratory testing is generally categorized as either
clinical testing, which is performed on bodily fluids including blood and
urine, or anatomical pathology testing, which is performed on tissue.
Clinical and anatomical pathology tests are frequently performed as part of
regular physical examinations and hospital admissions in connection with
the diagnosis and treatment of illnesses. The most frequently requested
tests include blood chemistry analyses, blood cholesterol level tests,
urinalyses, blood cell counts, PAP smears, and AIDS-related tests.
Clinical specimens are collected at LabOne's approved network of draw sites
or at the physician's office. LabOne's couriers pick up the specimens and
deliver them to local airports for express transport to the Kansas
laboratory. Specimens are coded for identification and processed.
LabOne's testing menu includes the majority of tests requested by its
clients. Tests not performed in-house are sent to reference laboratories
for testing and results are entered into LabOne's computer system along
with all other completed results.
In 1994, LabOne signed an agreement with PCS Health Systems (PCS), a
subsidiary of Eli Lilly, to market an integrated and fully managed system
of laboratory testing and administration services for payers and health
plans throughout the United States. The result of this agreement is a
program called Lab Card, which offers both payers and the covered
population substantial cost savings on high-quality laboratory testing
services. Lab Card utilizes PCS' point of service, real-time eligibility
verification system. The laboratory testing is performed at LabOne's
centralized testing facility in Kansas.
LabOne's Substance Abuse Testing Services
LabOne has provided quality substance abuse testing results to the
insurance industry for over 20 years. Certification by SAMHSA enables
LabOne to offer these services to the entire market including federally
regulated industries. LabOne began offering substance abuse testing
services to the broader market in April 1994.
Specimens for substance abuse testing are typically collected by
independent agencies who use LabOne's forms and collection supplies.
Specimens are sealed with bar-coded, tamper-evident seals and shipped
overnight to LabOne. Automated systems monitor the specimens throughout
the screening and confirmation process. Negative results are available
immediately after testing is completed. Initial positive specimens are
verified by the gas chromatography/mass spectrometry method and results are
generally available within 24 hours. Results are then transmitted
electronically to the client's secured computer, printer or fax machine.
PYRAMID DIAGNOSTIC SERVICES, INC.
The Registrant acquired a 52% ownership position in Pyramid Diagnostic
Services, Inc. (Pyramid) in 1992. The original $4 million purchase price
included newly-issued shares, thereby providing expansion financing to
Pyramid. Pyramid ultimately expanded to nine pharmacies which distributed
radiopharmaceuticals and related services to nuclear medicine departments,
clinics and hospitals. During 1993, Registrant acquired an additional 18%
ownership position for $332,000. In 1994, Registrant's ownership increased
by 5% (ownership totaled 74%) with a $l million investment.
Pyramid entered bankruptcy proceedings in early October 1995 as a result of
an adverse $6 million judgment entered in a lawsuit against Pyramid.
Pyramid's bankruptcy proceedings are expected to be finalized in 1996. The
impact on Registrant's results of operations was the September 1995 write-
off of Registrant's investment in Pyramid by recording a pre-tax expense of
approximately $3.3 million and a corresponding tax benefit of $2.1 million
resulting in an after-tax $1.2 million charge to earnings. See Item 7 and
Note 1 of Notes to Consolidated Financial Statements for additional
information.
OTHER BUSINESSES
BMA RESOURCES, INC.
BMA Resources, Inc. (Resources) holds the Registrant's energy investments.
No new energy investments are being made, and it has been the Registrant's
intent to maximize cash flow from Resources to be deployed in healthcare
and insurance services. The investments include oil and gas working
interests, oil and gas partnerships and a stock investment in an
unconsolidated affiliate. The oil and gas primarily consists of
partnership interests in Texas gulf coast oil and gas wells and leasehold
interests. Resources has an approximate 35% equity interest in Syntroleum,
Inc. which owns a patented process to convert natural gas into heavier
hydrocarbons, including fuels and industrial waxes. With a completed proof
of concept, Syntroleum is pursuing commercialization of the process.
TENENBAUM & ASSOCIATES, INC.
Tenenbaum & Associates, Inc. (TAI) was a full service real estate, personal
property and sales and use tax consulting firm providing tax consulting
services on a contingency basis. TAI's core business was commercial real
estate.
On May 31, 1995, TAI sold certain assets to Ernst & Young U.S. LP. TAI
retained its accounts receivable as of May 31, 1995. The agreement
provides for Ernst & Young to continue the work-in-process on current
accounts (where formal or informal tax valuation protests have been filed
but not yet resolved). Ernst & Young will earn a fee for collecting the
current accounts and will participate in net cash collected on certain
accounts after third party costs and Ernst & Young's fees. During June
1995, TAI distributed its remaining assets to shareholders and filed for
dissolution.
DISCONTINUED OPERATIONS
REAL ESTATE
The Registrant holds real estate through a wholly-owned subsidiary, Scout
Development Corporation. Real estate holdings as of December 31, 1995
consisted of approximately 1,200 acres of partially developed and
undeveloped land in seven locations, three residential development
projects, a multi-story parking garage and a community shopping center.
Real estate assets are located in the following states: Florida, Kansas,
Nevada, New Mexico, Oklahoma, Texas, and Wyoming, all of which are listed
for sale.
During 1992, the Registrant's board of directors approved a plan for the
discontinuance of real estate operations. Management observed that the
overall real estate environment indicated continuing signs of weakness.
After reviewing sales activity and appraisals in 1992, the Registrant
believed it was an appropriate time to discontinue real estate operations
and sell the remaining real estate assets as soon as practicable. See Item
7 and Note 13 of the Notes to Consolidated Financial Statements for
additional information on discontinued real estate operations.
The location and use of each majority owned property is listed in Schedule
III. In addition, the Registrant has a 49.9% investment in a joint venture
that owns a shopping center in Gillette, Wyoming.
Only two properties, one of which is 100% owned and the 49.9% joint venture
referenced above, are categorized as commercial properties. Registrant's
net asset value of these two projects at December 31, 1995 was $1.9
million.
The 100% owned commercial property consists of an 850-space parking garage
located in downtown Reno, Nevada. The building contains a total of 144,500
square feet of leasable parking space. Parking revenue totaled
approximately $744,000 or $875 per space or $5.15 per square foot in 1995.
In addition, 8,258 square feet located on the ground floor of the garage is
leased to a retail tenant under a 15-year lease. Revenue from the retail
lease during 1995 was $133,800 or $16.20 per square foot. In addition to
basic rent, the retail tenant is responsible for its prorata share of real
estate taxes and insurance. During 1995, $5,200 was collected from the
retail tenant for taxes and insurance.
The joint venture commercial property consists of a retail shopping center
containing approximately 163,000 square feet of net leaseable area. At the
end of 1995, the center was 75% occupied. Rental revenue totaled $686,000
for 1995. The average annual gross rental per occupied square foot was
$6.10. In addition to rental revenue, tenants are responsible for their
share of common area maintenance (CAM). During 1995, CAM collections from
tenants totaled $77,000.
Information regarding real estate debt is summarized in Note 13 of the
Notes to Consolidated Financial Statements. The detailed information is as
follows:
Balance at
Property Description Rate Maturity 12-31-95
- --------------------------------------------------------------------------
(In thousands)
Gillette, WY shopping center IRB 7.750% 2016 $ 6,300
Olathe, KS vacant land Mortgage 8.625% 1997 1,289
------
Total $ 7,589
======
In management's opinion, the real estate properties are adequately covered
by insurance with coverages for real and personal property, commercial
general liability, commercial crime, garagekeepers legal liability,
earthquake, flood, windstorm and hail.
ITEM 2. PROPERTIES.
Properties of Registrant
Registrant has a long-term lease for approximately 13,674 square feet of
office space at 2600 Grand Boulevard in the Crown Center complex in Kansas
City, Missouri. This lease is for a ten year term which began April 1,
1992. Registrant's real estate subsidiary holds diversified types of
properties for sale or investment purposes in various geographical
locations. In certain cases, projects were developed on a joint venture
basis with one or more joint venture partners. Title to property in such
cases may be held jointly with such partners or in the name of the venture.
Rights and obligations with respect to such properties are governed by the
terms of the joint venture agreement. Registrant's real estate is
described in greater detail in Items 1, 7 and Schedule III. The Registrant
and subsidiaries lease office space, equipment, land and buildings under
various noncancelable leases that expire over the next several years. See
Note 8 of the Notes to Consolidated Financial Statements for additional
information.
ITEM 3. LEGAL PROCEEDINGS.
Seafield received a notice during 1992 of proposed adjustments from the
Internal Revenue Service (IRS) with respect to 1986-87 federal income
taxes. Later, the IRS determined to include 1988-90 as a part of its
review. In May 1995, the IRS issued a revised notice of proposed
adjustments to 1986-87 taxes in response to Seafield's protest filed in
1992. This revised notice reduced the previously proposed tax of
approximately $17 million to $13.5 million. In June 1995, the IRS issued
proposed adjustments to 1988-1989 federal income taxes. Additional
proposed taxes for these years are $182,000. Also, during 1995 the IRS
issued tentative proposed federal income tax adjustments for the 1990 year
totaling approximately $16 million. In early 1996, the IRS reduced the $16
million tentatively proposed tax adjustments for the 1990 year to
approximately $7 million. The IRS has used these proposed increases in
federal income taxes to deny Seafield a 1990 claim for refund of $7.6
million. Resolution of these matters is not expected during 1996.
Seafield believes that it has meritorious defenses to many of the
substantive issues raised by the IRS, and adequate accruals for income tax
liabilities.
In 1986, a lawsuit was initiated in the Circuit Court of Jackson County,
Missouri by Seafield's former insurance subsidiary (i.e., Business Men's
Assurance Company of America) against Skidmore, Owings & Merrill ("SOM")
which is an architectural and engineering firm, and a construction firm to
recover costs incurred to remove and replace the facade on the former home
office building. Because the removal and replacement costs had been
incurred prior to the sale of the insurance subsidiary, Seafield 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 Seafield and all
costs incurred in connection with the litigation will be paid by Seafield.
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
Seafield; 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
expected in the second quarter of 1996. The only remaining defendant is
SOM; settlement arrangements with other defendants have resulted in
payments to plaintiff which have offset legal fees and costs to date of
approximately $400,000. None of the prior or future legal fees or costs
are recoverable from the remaining defendant, even if the judgment in
plaintiff's favor is ultimately upheld. Future legal fees and costs can
not reliably be estimated.
In 1988, a lawsuit was initiated in the United States District Court for
the District of New Mexico against Seafield's former insurance subsidiary
by Lyon Development Company and Jeanne Lyon, d/b/a Lyon and Associates
Realty, 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 Seafield of any liability.
Subsequent to the trial, the judge awarded Seafield approximately $250,000
in connection with marketing expenses which the plaintiffs were to have
repaid, and approximately $64,000 in legal costs, with interest until paid.
Total legal fees and costs incurred by Seafield and its former insurance
subsidiary have aggregated approximately $3.6 million. In February 1996,
the United States Court of Appeals for the Tenth Circuit affirmed the
jury's verdict in Seafield's favor, reversed the trial judge's award for
marketing expenses, and affirmed the trial judge's award of legal costs. A
bond posted by one of the plaintiffs/counter defendants secures payment of
the legal costs awarded by the trial judge and affirmed by the Court of
Appeals. Because the Quail Run project was retained by Seafield in
connection with the sale of its former insurance subsidiary, Seafield
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 have been and will be for the
account of Seafield.
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 Seafield.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.
None.
EXECUTIVE OFFICERS OF REGISTRANT.
Following is a list of all executive officers of Registrant as of March 1,
1996, together with certain related information. There are no arrangements
or understandings among any such persons and any other persons pursuant to
which any was selected as an officer. All such persons serve at the
discretion of the board of directors.
Served as Executive
Officer with
Name Age Position with Registrant Registrant Since
- ---------------------------------------------------------------------------
S.K. Fitzwater 49 Vice President, Chief Accounting 1990
Officer and Secretary (see note 1 below)
W.T. Grant II 45 Chairman and Chief Executive Officer 1980
(see note 2 below)
P.A. Jacobs 54 President and Chief Operating Officer 1980
(see note 3 below)
J.R. Seward 43 Executive Vice President and 1989
Chief Financial Officer (see note 4 below)
J.T. Clark 39 President and Chief Executive Officer 1996
of Response Oncology, Inc.
(see note 5 below)
W.H. West, M.D. 48 Chairman of Response Oncology, Inc. 1993
(see note 6 below)
Except as noted below, each executive officer of Registrant has held the
executive position noted with Registrant or similar positions with its
former insurance subsidiary as his principal occupation for the last five
years.
1. Steven K. Fitzwater has been Vice President and Chief Accounting
Officer since August 1990. On April 1, 1993, he assumed
the additional duties of Secretary of the Registrant. Formerly,
he was Director of Financial Accounting.
2. William T. Grant II became Chairman of the Board and Chief
Executive Officer in May 1993. He had been President and Chief
Executive Officer since 1986. In October 1995, he also became the
Chairman, President and Chief Executive Officer of LabOne, Inc.
He is the son of W.D. Grant and the brother-in-law of John C.
Gamble, both of whom are Directors of Registrant.
3. P. Anthony Jacobs became President and Chief Operating Officer in
May 1993. He had been Executive Vice President and Chief
Operating Officer since 1990.
4. James R. Seward became Executive Vice President and Chief
Financial Officer in May 1993. He had been Senior Vice President
and Chief Financial Officer since August 1990.
5. Response Oncology, Inc. (Response) is 56% owned by the
Registrant. Effective February 1996, Registrant's board of
directors designated Joseph T. Clark as an Executive Officer of
Registrant because Response was determined to constitute a
principal business unit of Registrant and Mr. Clark became Chief
Executive Officer of Response in January 1996. Mr. Clark is not a
corporate officer of Registrant. Mr. Clark is President and Chief
Executive Officer of Response. Prior to 1996, Mr. Clark served as
Response's President since February 1993. Mr. Clark was formerly
the Executive Vice President and Chief Operating Officer of
Response from May 1989 to February 1993 and Secretary of Response
from September 1988 to February 1993.
6. Response Oncology, Inc. (Response) is 56% owned by the
Registrant. Effective February 1993, the Registrant's board of
directors designated Dr. William H. West as an Executive Officer
of the Registrant because Response was determined to constitute a
principal business unit of the Registrant and Dr. West was then
Response's Chief Executive Officer. Dr. West continues as
Chairman of the Board of Response, but after January 1996 is no
longer its Chief Executive Officer. Dr. West is not a corporate
officer of the Registrant. Prior to January 1993, Dr. West was
President and Chief Executive Officer of Response.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
Registrant's common stock is traded in the national over-the-counter market
and is listed in the NASDAQ National Market System maintained by the
National Association of Securities Dealers. As of February 28, 1996, the
outstanding shares were held by 1,916 stockholders of record. High and low
sales prices for each quarter of 1995 and 1994 are included in the table of
quarterly financial data in Note 14 of the Notes to Consolidated Financial
Statements. Also set forth in the table are quarterly dividends paid per
share. Registrant's payment of future dividends will be at the discretion
of its board of directors and can be expected to be dependent upon a number
of factors, including future earnings, financial condition, cash needs and
general business conditions. The dividend-paying capabilities of
subsidiaries may be restricted as to their transfer to the parent company.
ITEM 6. SELECTED FINANCIAL DATA
December 31, 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------
(In thousands except share and per share amounts)
REVENUES $ 119,544 124,278 129,867 111,332 85,240
===============================================
OPERATING EARNINGS
Earnings (loss) from
continuing operations $ (748) (1,872) 5,618 4,168 7,909
Loss from discontinued
real estate operations (6,600) (2,904) -- (7,214) (2,464)
Gain on disposal of
discontinued insurance
operations -- -- -- 4,265 --
Cumulative effect to
January 1, 1992 of
change in method of
accounting for
income taxes -- -- -- 3,352 --
-----------------------------------------------
Net earnings (loss) $ (7,348) (4,776) 5,618 4,571 5,445
===============================================
PER SHARE OF COMMON STOCK
Earnings (loss) from
continuing operations $ (.12) (.29) .82 .55 .94
Loss from discontinued
real estate operations (1.02) (.46) -- (.95) (.29)
Gain on disposal of
discontinued insurance
operations -- -- -- .56 --
Cumulative effect of
accounting change -- -- -- .44 --
-----------------------------------------------
Net earnings (loss) $ (1.14) (.75) .82 .60 .65
===============================================
Cash dividends $ 1.20 1.20 1.20 1.20 1.20
Book value $ 28.96 31.50 33.52 34.00 34.61
Average shares
outstanding 6,454,068 6,847,559 8,429,565
during the year 6,374,952 7,589,043
Shares outstanding 6,461,061 6,733,245 7,727,850
end of year 6,378,261 6,706,165
Total assets $ 222,972 245,387 273,570 280,514 317,089
Long-term debt $ -- 8 18 1,013 2,902
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Introductory remarks about results of operations
Seafield Capital Corporation (Seafield or Registrant) began a
transformation process from an insurance company to a holding company with
a new focus in late 1990. Seafield's principal assets consisted of a
majority ownership of LabOne, Inc., interests in several venture capital
investments, a significant amount of cash, and real estate investments.
The strategy of Seafield was deployment of resources into developing
businesses that provide services to the healthcare and insurance
industries. The sources of cash for these investments were the proceeds
from the sale of the insurance company, gains on securities transactions,
the discontinuance of the real estate operations and the sale of other
assets that did not support the strategic focus.
1995 Compared to 1994
Insurance Services Segment:
The following businesses are considered to be in the insurance services
segment: risk-appraisal laboratory testing for the life and health
insurance industries, underwriting and policy administration services and
insurance premium finance services.
LabOne, Inc. (LabOne), an 82% owned subsidiary of Seafield, is a publicly-
traded company (NASDAQ-LABS). LabOne changed its name from Home Office
Reference Laboratory, Inc. in February 1994. LabOne provides high-quality
laboratory and substance abuse testing services to insurance companies,
physicians and employers nationwide.
LabOne provides risk-appraisal laboratory services to the insurance
industry. 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 specimens of individual life insurance policy applicants.
Testing services are also provided on specimens of individuals applying for
individual and group medical and disability policies.
LabOne's total revenues decreased approximately 6% in 1995 to $57 million
from $60.7 million in 1994 due to decreases in insurance laboratory and kit
revenue, partially offset by increases in healthcare (clinical and
substance abuse testing) laboratory revenues. Insurance laboratory
revenues declined due to decreases in the volume and price of tests
performed. The total number of insurance applicants tested by LabOne
during 1995 decreased 10% as compared to 1994. This decline was due to
market competition, a reduction in the total number of life insurance
applications written in the industry, and regulations restricting the use
of laboratory testing for underwriting of medical insurance. Average
revenue per applicant declined 5% primarily due to a decrease in prices as
a result of continued competitive pressures. During the fourth quarter
1994, LabOne initiated a price stabilization plan. The purpose of the plan
was to increase prices by promoting service. The initial result of this
action was a slight increase in the average revenue per applicant.
However, prices subsequently declined during 1995.
LabOne's total cost of sales increased $900,000 (3%) in 1995 as compared to
the prior year. This increase is due to increases in payroll and outside
lab services related to clinical and substance abuse testing and LabOne
Service Center (LSC) expenses. LSC expenses increased due to the LSC
expansion as well as a write-off for closing non-performing locations.
These were partially offset by decreases in Lab One Canada expenses due to
closing the laboratory in 1994. Lab One Canada continues to market testing
services with laboratory testing performed in the United States.
In September 1995, LabOne reduced staff by 7% resulting in additional
expenses of $500,000. The work force reduction was considered necessary to
improve the cost structure of insurance testing operations and meet
clients' requirements for lower cost laboratory services. It is expected
the annual savings from the reduction in staff and LSC locations will
result in labor savings and reduced LSC operating expenses of $2.4 million.
LabOne's selling, general and administrative expenses decreased $100,000 in
1995 as compared to the prior year primarily due to expenses related to the
one-time restructuring charge of $1.6 million incurred in 1994. (See 1994
Compared to 1993.) Depreciation and maintenance expenses also declined in
1995. These declines were partially offset by increases in commission, bad
debt and third party billing expenses. The above factors reduced LabOne's
1995 insurance segment operating income by $1.3 million to $12.4 million.
Agency Premium Resource, Inc. (APR) is an insurance premium finance company
serving independent insurance agents in 21 states. APR provides premium
financing for the commercial customers of these independent insurance
agents. On May 31, 1995 Seafield sold APR receiving approximately $800,000
in cash and $9.2 million in US Treasury Bills that matured in June 1995.
In 1995, APR's revenues consolidated by Seafield decreased to $1.6 million
from $3.7 million in 1994, reflecting the May 1995 sale of this subsidiary.
Correspondingly, consolidated costs and expenses decreased to approximately
$500,000 from $1.3 million in 1994. Prior to the sale, APR had increased
its securitized receivables by $1.5 million in 1995 compared with $4
million in 1994. See Notes 1 and 5 of Consolidated Financial Statements
for additional information.
International Underwriting Services, Inc. (IUS), offers turnkey
policyholder and underwriting services. This subsidiary operated only
within the life and health insurance industry and provided some or all of
the following services to its customers: product design, underwriting of
applicants, policy issuance, policy service, premium collection and payment
of commissions. On July 17, 1995, Seafield sold IUS receiving approximately
$2.1 million in cash. In 1995, IUS's revenues consolidated by Seafield
decreased to $1.8 million from $3.3 million in 1994, reflecting the July
1995 sale of this subsidiary. Correspondingly, consolidated costs and
expenses decreased to approximately $1.6 million from $3.2 million in 1994.
See Note 1 to Consolidated Financial Statements for additional information.
Healthcare Services Segment:
The following businesses are included in the healthcare services segment:
an integrated cancer management company, clinical and substance abuse
laboratory testing services, and radiopharmaceuticals and related nuclear
medicine services.
Response Oncology, Inc. (Response), a 56%-owned subsidiary of Seafield, is
a publicly-traded company (NASDAQ-ROIX). Response is an integrated cancer
management company that offers patients a complete network of cancer care
resources from the time of initial diagnosis. Response positioned itself
as a beneficiary of healthcare reform by (i) emphasizing cost-effective
cancer treatments, primarily through the use of outpatient facilities and
incorporation of the most recent technological advancements, and (ii) being
a national healthcare provider focused on uniform delivery of complex
cancer technologies in the management of potentially curable cancers.
Response's commitment to its clinical trials program provides a mechanism
to monitor treatment outcomes, improve future treatment regimens, and
provide a means of objectively selecting patients most likely to benefit
from such treatments. Finally, Response's expanding national network of
Centers facilitates relationships with the insurance industry to manage
these intensive and complex therapies in a cost-effective manner.
At December 31, 1995, Response's network consisted of 27 wholly owned
IMPACT Centers. While fully staffed and equipped stand-alone IMPACT
Centers are appropriate for many medical centers, other communities have
hospitals with existing capacity in their outpatient cancer treatment
centers, providing an alternative to the stand-alone IMPACT Center. By
joining the hospital's staff and facilities with Response's protocols,
databasing and expertise, Response and such hospitals are able to jointly
market and provide high-dose therapies. At December 31, 1995, there were
14 such hospital affiliate programs. For hospital-affiliated Centers,
Response offers two types of business structures. The first structure
entails a management relationship with the hospital whereby a management
fee is paid to Response. The second structure entails a joint ownership
with the hospital of a newly created entity, whereby profits from the
entity accrue to Response and the hospital. Response anticipates that
additional hospital-affiliate centers will become operational in 1996.
Response recorded net earnings of $2.3 million compared to a loss of $2.3
million for the year ended December 31, 1994. The significant improvement
in operations in 1995 compared to 1994 is attributable to increased
revenues from the increased referrals of high-dose chemotherapy patients,
including the establishment of additional IMPACT Centers, principally in
joint venture with hospitals, and the further development of physician
investigator studies for the pharmaceutical industry. Revenues increased
$6 million, or 16%, from 1994 to 1995. In addition to an approximate $2
million increase in net revenues from services to patients to $33.6 million
in 1995, sales of pharmaceuticals to physicians increased by $3.3 million
to $9.8 million, and revenues from physician investigator studies in 1995,
the first year of significant revenues generated from this source, amounted
to $665,000.
Response's operating expenses increased $1.1 million or 4% from 1994 to
1995. Operating expenses consist primarily of payroll costs,
pharmaceutical and laboratory expenses, medical director fees, rent expense
and other operational costs. These expenses are expected to display a high
degree of variability in proportion to Center revenues. Operating expenses
as a percentage of net revenue were 74% and 83% for the years ended 1995
and 1994, respectively. 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 lab and pharmacy expense, which represents the largest component
of operating expenses, increased $1.7 million or 10% from 1994 to 1995.
The increase is primarily due to an increase in patient referrals and
pharmaceutical supply expense related to sales to physicians. A reduction
in medical director fees and other operating expenses of $528,000 was
realized during 1995.
Response's general and administrative costs increased $1.2 million or 29%
from 1994 to 1995. Salaries and benefits, which represent the largest
component of general and administrative expenses, were $3.3 million in 1995
and $2.2 million in 1994. The increase is primarily due to management
incentive compensation relative to significant improvement in operations
and general increases in salaries and benefits. General and administrative
costs as a percentage of net revenue were 12% and 11% in 1995 and 1994,
respectively.
Response's depreciation expense decreased $140,000 from 1994 to 1995. The
decrease is primarily attributable to many prior capital expenditures
becoming fully depreciated. Amortization expense decreased $249,000 from
1994 to 1995 due to the startup costs of many Centers being fully amortized
after a two year operational period. The provision for doubtful accounts
decreased $422,000 from 1994 to 1995. The provision as a percentage of net
revenue was 5% and 7% for 1995 and 1994, respectively. 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. Collection experience in 1995 and 1994 may not be
indicative of future periods.
LabOne expanded into the clinical laboratory testing market in May 1994.
LabOne's clinical testing services are provided to the healthcare industry
to aid in the diagnosis and treatment of patients.
LabOne's clinical and substance abuse laboratory testing revenues were $4.5
million during 1995, as compared to $500,000 in 1994. LabOne's total cost
of sales for all services increased $900,000 (3%) in 1995 as compared to
1994. This increase is due to increases in payroll, outside lab services
related to clinical and substance abuse testing and LabOne Service Center
(LSC) expenses. LSC expenses increased due to the LSC expansion as well as
a write-off for closing non-performing locations. Healthcare cost of sales
was $8.6 million during 1995, as compared to $4 million in 1994. Healthcare
overhead expenses were $5.8 million during 1995, as compared to $3.1
million in 1994. LabOne's 1995 healthcare segment operating loss increased
by $3.3 million to $9.9 million.
Another healthcare subsidiary, Pyramid Diagnostic Services, Inc. (Pyramid),
incurred a loss of $768,000 for the first nine months of 1995 compared to a
loss of $572,000 for the twelve months of 1994. Pyramid entered bankruptcy
proceedings in early October 1995 as a result of an adverse $6 million
judgment entered in a lawsuit against Pyramid. Pyramid's bankruptcy
proceedings are expected to be finalized in 1996. The impact on Seafield's
results of operations was the September 1995 write-off of Seafield's
investment in Pyramid by recording a pre-tax expense of approximately $3.3
million and a corresponding tax benefit of $2.1 million resulting in an
after-tax $1.2 million charge to earnings. Included with the Pyramid
write-off was $2.3 million of goodwill. Seafield consolidated Pyramid's
nine months 1995 revenues of $7.6 million compared to $6.4 million of
revenues in 1994. Expenses consolidated in 1995 were $7.7 million compared
to $6.2 million in 1994. See Note 1 of Notes to Consolidated Financial
Statements for additional information.
Other Segment:
Seafield's oil and gas subsidiary contributed revenues of $2 million in
1995 as compared to $3.1 million in 1994. Variances in the oil and gas
prices nationally impact operating results. Additionally, various oil and
gas partnerships production decreased in 1995.
The other segment's revenues and expenses in 1995 and 1994 included the
operating results of a real estate, personal property, sales and use taxes
consulting subsidiary--Tenenbaum and Associates, Inc. (TAI). On May 31,
1995, TAI sold certain assets to Ernst & Young U.S. LP. TAI retained its
accounts receivable as of May 31, 1995. The agreement provides for Ernst &
Young to continue the work-in-process on current accounts (where formal or
informal protests have been filed but not yet resolved). Ernst & Young
will earn a fee for collecting the current accounts and will participate in
net cash collected on certain accounts after third party costs and Ernst &
Young's fees. During June 1995, TAI distributed its remaining assets to
shareholders and filed for dissolution.
Consolidated revenues in 1995 for TAI were $5.3 million compared to $8.9
million in 1994 while TAI expenses consolidated in 1995 were $4.1 million
compared to $9.2 million in 1994. The decreases primarily reflect five
months of operation in 1995 compared with twelve months in 1994. See Note
1 of Notes to Consolidated Financial Statements for additional information.
Investment Income - Net:
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 $4.4 million in 1995 and $2.9 million in 1994.
Investment income was lower in 1994 primarily resulting from approximately
$2.2 million of unrealized holding losses recorded on trading securities
that were impacted by interest rate changes. See Notes 1 and 9 of Notes to
Consolidated Financial Statements for additional investment information.
Taxes:
The consolidated effective tax rates were primarily impacted by tax
benefits on subsidiary dispositions and non-deductibility of goodwill
amortization. See Note 10 of Notes to Consolidated Financial Statements for
additional tax information.
Other Income/(Loss):
The major components of other income/(loss) in 1995 included $1.1 million
of losses on subsidiary dispositions and a $3.4 million provision for
Pyramid's bankruptcy compared to $67,000 of other income in 1994.
Consolidated Results:
The combined effect of the above factors resulted in a 1995 net loss from
continuing operations of $748,000 compared with a $1.9 million net loss
from continuing operations in 1994.
1994 Compared to 1993
Insurance Services Segment:
LabOne's total revenues decreased approximately 12% in 1994 to $60.7
million from $69.4 million in 1993, primarily due to a decrease in
laboratory revenue. Laboratory testing revenue decreased as the result of
an 8% decrease in the number of applicants tested and a 7% decrease in the
average revenue per applicant. Average revenue per applicant decreased
primarily due to a decrease in prices as a result of continued competitive
pressures. The total volume of applicants tested decreased primarily due
to a decline in the number of life insurance applications written in the
industry. Insurance kit revenue decreased $900,000 due to lower sales
volumes.
LabOne's total cost of sales decreased 3%, or $900,000 in 1994 from the
prior year. This is primarily due to decreases in insurance kit expenses,
depreciation and amortization expense, and net postage expense. Insurance
kit expenses decreased due to the lower sales volumes. These decreases
were partially offset by increases in payroll and healthcare expansion
expenses.
LabOne's total selling, general and administrative expenses increased $2.1
million (9%) in 1994 due primarily to expenses related to the third quarter
restructuring charge of $1.6 million, which includes charges for
consolidating Canadian laboratory operations into the Kansas facility and
for severance payments resulting from elimination of several insurance
testing administrative positions. These changes resulted in future annual
cost savings of $1.7 million due to elimination of Canadian laboratory
payroll and a reduction in depreciation and U.S. administrative payroll
expenses. The above factors reduced LabOne's 1994 insurance segment
operating income by $3.2 million to $13.7 million.
APR's insurance premium finance services operations experienced continued
growth in both profitability and volume of premiums financed in 1994. New
premium contracts financed totaled $74.8 million in 1994, a 22% increase
from the $61.5 million financed in 1993. The number of contracts written
in 1994 was 13,409 compared to 10,277 in 1993. In 1994, APR's revenues
consolidated by Seafield increased to $3.7 million from $3.4 million in
1993. Consolidated APR costs and expenses in 1994 approximated 1993's
$1.3 million. In July 1993, APR entered into an extendible two-year
agreement whereby it can sell undivided interests in a designated pool of
accounts receivable on an ongoing basis. As collections reduce accounts
receivable in the pool, additional sales may be made up to the maximum.
During 1994, the maximum allowable amount of receivables to be sold was
increased to $30 million from $22 million. At December 31, 1994,
receivables sold totaled $23 million compared to $19 million at December
31, 1993. See Notes 1 and 5 of Notes to Consolidated Financial Statements
for additional information regarding securitization of receivables.
IUS's underwriting and policy administration operating revenues increased
by 63% in 1994. IUS's 1994 revenues consolidated by Seafield increased to
$3.2 million from $2 million in 1993. Consolidated IUS costs and expenses
increased to approximately $3.2 million from $2.6 million in 1993. While
new business development was positive, this subsidiary's 1994 loss
approximated its 1993 loss. Additional staffing costs were incurred for
business that did not develop as anticipated. See Note 1 of Notes to
Consolidated Financial Statements for additional information.
Healthcare Services Segment:
Response reported a net loss of $2.3 million in 1994 compared to net
earnings of $700,000 in 1993. Several specific factors contributed to the
loss in 1994. Response treated fewer candidates with metastatic breast
cancer, many of whose clinical profiles indicated that they were not likely
to sufficiently benefit from high-dose treatment. Metastatic breast cancer
patients have historically comprised a significant portion of Response's
patient base. Response believes that the use of its data to redirect poor
risk patients from high-dose treatments is unprecedented in the field and
will lead to more favorable relationships with third party payors.
One of Response's most active centers experienced a temporary downturn in
utilization during the first half of the year. Such undulations in
activity among cancer practices are not uncommon, and the affected Center's
operations returned to normal levels during the latter part of the year.
Response also experienced losses from special situations at several Centers
which are not expected to recur. The IMPACT Center in Dayton, Ohio ceased
operations due to an unfavorable Certificate of Need ruling by the state.
The Dayton Center had a net loss from operations of approximately $280,000
during 1994. The IMPACT Center of Atlanta, Georgia was converted to a
hospital managed Center during 1994. The operating loss from this Center
was approximately $126,000 in 1994. Response also realized a loss of
$168,000 during the development stage of a Center in Seattle, Washington
which did not open. The loss primarily related to payroll costs for a
nurse coordinator and an operating lease for space. Newer Centers yielded
total losses of $91,000 in 1994.
Response's revenues increased $555,000 or 1% from 1993 to 1994. Patient
referrals in 1994 failed to increase in line with Response's Center
capacity due to Response's decision to discontinue treatment for certain
metastatic breast cancer patients, resulting in a marginal increase in
revenue.
Response's operating expenses increased $2 million or 7% from 1993 to 1994.
Operating expenses as a percentage of revenues were 83% in 1994 and 79% in
1993. The increase in 1994 is primarily attributable to increases in
pharmaceutical sales to physicians. Response provides a wholesaler service
to physicians; therefore, revenue from these sales has a lower margin than
IMPACT Center revenue. Physician sales were $6.5 million in 1994 and $4.3
million in 1993. Lab and pharmacy expense, which represents the largest
component of operating expenses, increased $1.8 million or 12% from 1993 to
1994. The increase is primarily due to pharmaceutical supply expense
related to sales to physicians. In addition, increases in salaries and
benefits from the hiring of Center coordinators at hospital affiliate
programs and other operational personnel also contributed to the increase
in operating expenses in 1994.
Response's general and administrative costs increased $1.4 million or 48%
from 1993 to 1994. Salaries and benefits, which represent the largest
component of general and administrative expenses, were $2.2 million in 1994
and $1.6 million in 1993. General and administrative costs as a percentage
of revenues were 11% in 1994 and 8% in 1993. The increase in 1994 is due
to greater investments in the corporate infrastructure, primarily medical
and scientific management, during a period of minimal revenue growth.
Response's depreciation expense increased $371,000 from 1993 to 1994. The
increase is primarily attributable to capital expenditures related to the
establishment of new Centers. Amortization expense decreased $163,000 from
1993 to 1994 due to the startup costs of many Centers being fully amortized
after a two year operational period. The provision for doubtful accounts
increased $58,000 from 1993 to 1994. The provision as a percentage of net
revenue was 7% for both periods. Significant bad debt recoveries were also
experienced during 1993. Response's collection experience in 1994 and 1993
may not be indicative of future periods.
LabOne announced in 1993 its intentions to expand into the clinical
laboratory testing market. LabOne's clinical testing services are provided
to the healthcare industry to aid in the diagnosis and treatment of
patients.
LabOne's healthcare laboratory testing generated revenue of $500,000 during
1994. Cost of sales expenses related to the healthcare expansion were $4
million in 1994. Selling, general and administrative expenses related to
the healthcare expansion were $3.1 million in 1994. LabOne's healthcare
segment incurred an operating loss in 1994 of $6.7 million--the startup
year of clinical and substance abuse testing operations.
Pyramid's nine pharmacies distributed radiopharmaceuticals and related
services to nuclear medicine departments, clinics and hospitals. Pyramid's
revenues and expenses both increased approximately 100% in 1994 reflecting
a doubling in the number of pharmacies. Revenues were $6.3 million in 1994
and $3.2 million in 1993 while expenses were $6.2 million in 1994 and $3.1
million in 1993. See Note 1 of Notes to Consolidated Financial Statements
for additional information.
Other Segment:
Seafield's oil and gas subsidiary contributed revenues of $3.1 million in
1994 as compared to $4.7 million in 1993. After debt retirements in 1993,
Seafield's cash flow from oil and gas investments was $800,000 in 1993 and
$1.7 million in 1994. 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 and 1993 included $8.9
million and $9.5 million, respectively, by the tax consulting firm. Prior
to 1993, this subsidiary was accounted for by the equity method. See Note
1 of Notes to Consolidated Financial Statements for additional information.
Investment Income - Net:
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 $2.9 million in 1994, a decrease from $10.2
million in 1993. Investment income decreased as a result of $4.4 million
in realized gains in 1993 when Seafield liquidated its position in a
trading portfolio and approximately $2.2 million of unrealized holding
losses recorded in 1994 on trading securities that were impacted by
interest rate changes. See Notes 1 and 9 of Notes to Consolidated
Financial Statements for additional investment information.
Taxes:
The consolidated effective tax rates in 1994 were primarily impacted by tax
benefits not available for subsidiary losses and goodwill amortization. See
Note 10 of Notes to Consolidated Financial Statements for additional tax
information.
Other Income/(Loss):
The other income in 1994 was $67,000 which compared with a $2.4 million
loss in 1993. The 1993 loss primarily consisted of a $1.5 million
provision for expected litigation costs.
Consolidated Results:
The combined effect of the above factors resulted in a 1994 net loss from
continuing operations of $1.9 million compared with earnings of $5.6
million from continuing operations in 1993.
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.
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 the 1992 financial statements as a loss from discontinued
real estate operations. An additional $2.9 million after-tax loss
provision was recorded in 1994 for a sales contract signed in January 1995.
During 1995's fourth quarter, an additional $6.6 million valuation
allowance was recorded. The increased allowance reflects values based on
recent sales transactions of undeveloped land parcels in Texas and sales
activities at a residential project in New Mexico. Real estate's net
assets have decreased from approximately $80 million at discontinuance to
$42 million at December 31, 1995. Net cash proceeds of approximately $28
million have been generated from real estate since its discontinuance in
1992. See Item 1 and Note 13 of Notes to Consolidated Financial Statements
for additional information concerning discontinued real estate operations.
In 1995, real estate sales included the sale of: 27 residential units or
lots in Florida, New Mexico and Texas ($7.8 million), 304 acres of land in
Kansas, Missouri and Texas ($2.7 million), and the sale of a partnership
interest in a commercial building located in Colorado ($425,000). In 1994,
real estate sales included the sale of: 47 residential units or lots in
Florida, New Mexico, and Texas ($10.4 million), and land in California
($500,000). In 1993, real estate sales included the sale of: 84
residential units or lots in Florida, New Mexico, and Texas ($15.9
million), land in Tennessee ($360,000) and a partnership interest in an
apartment complex in Georgia ($850,000).
Remaining real estate holdings include residential land, undeveloped land,
single-family housing, and commercial structures located in the following
states: Florida, Kansas, Nevada, New Mexico, Oklahoma, Texas and Wyoming,
all of which are listed for sale.
Listed below is the status of the discontinued real estate operations as of
December 31, 1995:
Land:
North Ft. Worth, TX 297 acres sold, 554 acres listed for sale
West Ft. Worth, TX 212 acres listed for sale
Houston, TX 1 acre sold, 30 lots sold, 370 acres and 37
lots listed for sale
Olathe, KS 4 acres sold, 17.5 acres listed for sale
Tulsa, OK 12 acres listed for sale
Land Lease:
Honolulu, HI sold
San Diego, CA sold
Nashville, TN sold
Commercial:
Reno, NV contract expired, relisted for sale
Denver, CO sold
Gillette, WY listed for sale
Residential:
Juno Beach, FL last 2 units substantially complete, listed
for sale
Juno Beach, FL last unit complete and 8 marina slips,
listed for sale
Santa Fe, NM last 23 units substantially complete,
listed for sale with 12 of 59 units under
contract
Mazatlan, Mexico final sales remittance received in 1995
The net real estate asset amounts are influenced from period to period by
several factors including seasonal sales cycles for projects in Florida and
New Mexico, a decision at the end of 1993 to accelerate the build-out of
the New Mexico project and construction on the final three houses in
Florida. The accelerated build-out is substantially completed.
Publicly-Traded Subsidiaries
Seafield has investments in two majority-owned entities that are publicly-
traded, LabOne and Response. At December 31, 1995, based on the market
prices of publicly-traded shares of these two subsidiaries, pretax
unrealized gains of approximately $130 million on these investments were
not reflected in either Seafield's book value or stockholders' equity.
LIQUIDITY AND CAPITAL RESOURCES
On December 31, 1995 at the holding company level, Seafield had available
for operations approximately $39.9 million in cash and short-term
investments with an additional $5.1 million in long-term securities.
Primarily as a result of asset dispositions, Seafield's working capital
increased $13 million during 1995 to $46 million at December 1995.
On a consolidated basis, Seafield and its subsidiaries (primarily LabOne
with $37.1 million) had $83.2 million in cash and short-term investments at
December 31, 1995. Current assets totaled approximately $121.6 million
while current liabilities totaled $12.2 million. Net cash used by
continuing operations totaled $911,000 in 1995 compared with $16.5 million
cash provided in 1994. The decrease primarily reflects an $11.8 million
net increase during 1995 (funds used) in trading portfolios while 1994's
decrease in these trading portfolios provided $2 million in funds.
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, treasury stock issued for
exercised options totaled 82,800 shares. During 1993, Seafield retired
1,304,420 shares being held as treasury shares.
In 1993, Seafield's board of directors approved an additional $5 million
for the purchase of LabOne's stock. In 1994, Seafield expended $722,000 to
acquire 44,200 shares of LabOne stock resulting in a total of 1,462,200
shares of LabOne's stock acquired under the board authorizations at a cost
of $17.3 million. No acquisitions of LabOne stock were made during 1995.
At December 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.
Seafield received a notice during 1992 of proposed adjustments from the
Internal Revenue Service (IRS) with respect to 1986-87 federal income
taxes. Later, the IRS determined to include 1988-90 as a part of its
review. In May 1995, the IRS issued a revised notice of proposed
adjustments to 1986-87 taxes in response to Seafield's protest filed in
1992. This revised notice reduced the previously proposed tax of
approximately $17 million to $13.5 million. In June 1995, the IRS issued
proposed adjustments to 1988-1989 federal income taxes. Additional
proposed taxes for these years are $182,000. Also, during 1995 the IRS
issued tentative proposed federal income tax adjustments for the 1990 year
totaling approximately $16 million. In early 1996, the IRS reduced the $16
million tentatively proposed tax adjustments for the 1990 year to
approximately $7 million. The IRS has used these proposed increases in
federal income taxes to deny Seafield a 1990 claim for refund of $7.6
million. Resolution of these matters is not expected during 1996.
Seafield believes that it has meritorious defenses to many of the
substantive issues raised by the IRS, and adequate accruals for income tax
liabilities.
In 1988, LabOne's board of directors authorized LabOne to enter the market
from time to time for the purpose of acquiring shares of LabOne's common
stock in an amount not to exceed $25 million. As of December 31, 1995,
LabOne had acquired 2,099,235 shares of LabOne as treasury stock at a total
cost of $22.7 million, leaving $2.3 million for potential future stock
purchases. No shares have been purchased since 1990.
LabOne paid quarterly dividends during 1995, 1994 and 1993. As an 82%
owner, Seafield received $7.7 million of cash as dividends from LabOne in
1995. LabOne's working capital position declined from $48.6 million at
December 31, 1994 to $44.2 million at December 31, 1995. This decrease is
the result of dividends paid and capital additions exceeding cash provided
by operations and net maturities of long-term investments. LabOne's cash
and investments totaled $37.6 million at December 31, 1995 and LabOne
expects to fund operations, capital asset additions, treasury stock
purchases, if any, and future dividend payments from a combination of cash
flow, cash reserves and short-term borrowings. LabOne had no short-term
borrowings during 1995 and an unsecured $5 million line of credit available
for general corporate purposes with no debt restrictions. LabOne's line of
credit has a stated rate equivalent to the prime rate which was 8.5% at
December 31, 1995.
Response's working capital at December 31, 1995 was $15.7 million with
current assets of $20.6 million and current liabilities of $4.9 million.
Cash and cash equivalents and short-term investments represent $4.6 million
of Response's current assets. As of December 31, 1995, Response has a $2.5
million revolving bank line of credit secured by eligible accounts
receivable, bearing interest at the bank's prime rate plus one percent, or
9.5% at December 31, 1995. Primarily as a result of positive cash flow
from operating activities, Response had no borrowings under its line of
credit as of December 31, 1995. The maximum outstanding during 1995 was
$828,000 at a rate of 10%.
Response had no material commitments for capital expenditures at December
31, 1995. Capital expenditures of $1.3 million during the year ended
December 31, 1995 were primarily associated with the expansion of
Response's network of IMPACT and hospital-based centers. The capital
expenditures were funded with cash from operations. Response is committed
to future minimum lease payments under operating leases totaling $5.1
million for administrative and operational facilities.
Response announced during the year ended December 31, 1995, its plans to
engage in physician practice management within the specialty of medical
oncology and hematology.
On January 2, 1996, Response acquired the assets of, and entered into a
long-term management services agreement with Oncology Hematology Group of
South Florida, P.A. (the Group). The total consideration was approximately
$12.1 million, approximately $5.3 million of which was paid in cash,
approximately $6 million paid in the form of Response's long-term unsecured
interest-bearing amortizing promissory note and the balance being paid over
16 calendar quarters at the rate of $50,000 per quarter. The Group,
consisting of nine physicians, is located on the campus of Baptist Hospital
in Miami, Florida. Under the management services agreement, Response
receives a management fee to manage the non-medical aspects of the practice
and to coordinate practice enhancement opportunities with the physicians.
Improvements are expected through a professional focus on management and
managed care relationships, economies of scale, and the addition of new
services. The Group is Response's first physician group under such a
practice management relationship.
As of February 15, 1996, Response had announced the receipt of two
additional non-binding letters of intent for physician practice management
relationships, and that it was in early negotiations with several
additional groups.
Response is currently evaluating means of optimally financing the
anticipated acquisitions, and it is contemplated that such acquisitions
will be financed through combinations of debt and equity.
TRENDS
The following is LabOne's analysis of certain existing trends that have
been identified as potentially affecting future financial results of
LabOne. Due to the potential for a rapid rate of change in any number of
factors associated with the insurance and healthcare laboratory testing
industries, it is difficult to quantify with any degree of certainty
LabOne's future volumes, sales or net earnings.
In the last several years there has been a decline in the number of life
insurance applications written in the industry. In addition, the insurance
laboratory testing industry continues to be highly competitive. The primary
focus of the competition has been on pricing. LabOne continues to maintain
its market leadership by providing quality products and services at
competitive prices. Management expects that prices and volume may continue
to decline during 1996 due to competitive pressures and a reduction in the
number of life insurance applications written. These trends may have a
continuing material impact on earnings from operations.
During December 1994, the FDA gave premarket approval to Epitope, Inc. with
respect to its specimen collection kit for oral fluid HIV-1 antibody
testing. In December 1995, Epitope announced that the FDA had issued a
letter stating that the oral fluid Western Blot test was approvable as a
confirmation for the oral fluid HIV-1 antibody test. If approved, this may
allow for the initial screen and the Western Blot confirmation test to be
performed on the same specimen. Due to the lower collection expense
associated with oral fluid collection devices, the potential exists for an
expansion of the testing market. Currently, there are approximately 13.5
million individual life insurance policies sold in the United States
annually. However, laboratory services are provided on only approximately
4.5 million of these policy applicants. The non-invasive nature of oral
specimen collection allows for low-cost agent collection, making testing
much more affordable on smaller face value insurance policies. Conversely,
the device also has the potential to cannibalize part of the existing blood
and urine testing market. The net impact of oral fluid testing cannot be
determined at this time.
There are companies currently developing and seeking FDA approval for home
HIV test products. If approved, these products would allow individuals to
confidentially determine their HIV status prior to applying for insurance.
To avoid accepting these high-risk policies, the insurance company may
elect to lower the threshold at which laboratory tests are requested to
prevent writing policies on HIV positive applicants. Most insurance
laboratory testing is performed on policies of $100,000 or greater,
representing about one-third of all policy applicants. The $25,000 to
$99,999 range represents approximately one-quarter of current insurance
policy applicants. If the FDA does approve any home testing kit for HIV,
the potential exists for a significant expansion of laboratory testing for
lower policy amounts.
LabOne entered the clinical and SAMHSA-certified substance-abuse testing
markets during 1994. LabOne continues to add new customers in both fields.
LabOne's Lab Card program covered approximately 280,000 lives at December
31, 1995, including The Guardian Life Insurance Company of America (The
Guardian) and Principal Healthcare of Kansas City (Principal). The
Guardian has stated its intention to roll out the Lab Card program in 16
states covering approximately 500,000 additional lives starting in the
second or third quarter 1996.
RECENTLY ISSUED ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 114 "Accounting by
Creditors for Impairment of a Loan" and No. 118 "Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosures" have been
implemented for the year ending December 31, 1995. The adoption of these
standards has had no 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" has been implemented for the year ending December 31, 1995. The
adoption of this standard has had no significant impact on Seafield's
financial position or results of operations.
Statement of Financial Accounting Standards No. 123 "Accounting for Stock-
Based Compensation" is required to be implemented for fiscal years
beginning after December 15, 1995. Seafield does not plan to adopt an
optional accounting treatment based on the estimated fair value of employee
stock options allowed by Statement No. 123. However, presentation of pro
forma disclosures of net earnings and earnings per share as if the optional
accounting method had been utilized will be required.
No other recently issued accounting standards presently exist which will
require adoption in future periods.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Item 14(a).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
Part III
ITEM 10. DIRECTORS OF THE REGISTRANT.
See Cross Reference Sheet, "Documents Incorporated by Reference."
ITEM 11. EXECUTIVE COMPENSATION.
See Cross Reference Sheet, "Documents Incorporated by Reference."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
See Cross Reference Sheet, "Documents Incorporated by Reference."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
See Cross Reference Sheet, "Documents Incorporated by Reference."
Cross Reference Sheet To Documents Incorporated By Reference PART III
Item 10. Directors and Executive Proxy Statement relating to Annual
Officers of the Company Meeting of Shareholders to be held
May 8, 1996, under the caption
"Election of Directors - Nominees
and Directors whose terms expire in
1997 and 1998."
Item 11. Executive Compensation Proxy Statement relating to Annual
Meeting of Shareholders to be held
May 8, 1996, under the captions
"Election of Directors -
Compensation of Executive
Officers."
Item 12. Security Ownership of Proxy Statement relating to Annual
Certain Beneficial Meeting of Shareholders to be held
Owners and Management May 8, 1996, under the captions
"Election of Directors - Security
Ownership of Management and
Security Ownership of Certain
Beneficial Owners."
Item 13. Certain Relationships Proxy Statement relating to Annual
and Related Meeting of Shareholders to be held
Transactions May 8, 1996, under the caption
"Election of Directors - Certain
Transactions."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements
Independent Auditors' Report
Consolidated Balance Sheets - December 31, 1995 and 1994
Consolidated Statements of Operations -
Years ended December 31, 1995, 1994 and 1993
Consolidated Statements of Stockholders' Equity -
Years ended December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows -
Years ended December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
II. Valuation and Qualifying Accounts and Reserves -
Years ended December 31, 1995, 1994 and 1993
III. Real Estate and Accumulated Depreciation - December 31, 1995
All other schedules are omitted because they are not applicable or the
information is given in the financial statements or notes thereto.
Portions of Registrant's Proxy Statement for use in connection with the
Annual Meeting of Shareholders to be held on May 8, 1996 are
incorporated by reference into Part III of this report, if such Proxy
Statement is filed with the Securities and Exchange Commission on or
before April 30, 1996. If such Proxy Statement is not filed by such
date, the information required to be presented in Part III will be filed
as an amendment to this report.
(3) Exhibits required by Item 601 of Regulation S-K (see Index to
Exhibits in paragraph (c) infra.)
(b) Reports on Form 8-K.
A Form 8-K current report dated October 30, 1995 was filed with the
Commission reporting under Other Events a news release regarding the
Registrant's announcement that Registrant's subsidiary, Response
Technologies, Inc., announced plans to effect a one-for-five reverse
stock split of its common stock; delist its common stock from the
American Stock Exchange (Amex:RTK) and begin trading on the NASDAQ
National Market System under the symbol ROIX starting Thursday,
October 26, 1995; and change its name from "Response Technologies,
Inc." to "Response Oncology, Inc." In addition, Response announced
that it retained Smith Barney Inc. to assist in the development of a
physician practice acquisition and management strategy, including the
development of financing alternatives for such contemplated
acquisitions.
Additionally, in the October 30, 1995 Form 8-K under Other Events,
Registrant's subsidiary, LabOne, Inc., announced that Bert Hood
resigned his position as Chairman, President and Chief Executive
Officer of LabOne, and that W. Thomas Grant II, Chairman of the Board
and Chief Executive Officer of Registrant, would fill the vacancies
left by Hood.
(c) Index to Exhibits (Exhibits follow the Schedules);
2.1 Stock Purchase Agreement between Response Oncology, Inc. and
stockholders of Oncology Hematology Group of South Florida
(filed as Exhibit 99.1 to Registrant's Form 8-K/A filed
January 17, 1996 (File No. 0-16946) and incorporated herein by
reference).
3.1 Registrant's Articles of Incorporation, as amended (filed as
Exhibit 3.1 to Amendment No. 1 to Registrant's Registration
Statement on Form S-4, filed April 8, 1988 (File No. 33-20298)
and incorporated herein by reference).
3.2 Amendment to Registrant's Articles of Incorporation, effective
May 15, 1991, (filed as Exhibit 3(b) to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1991 (File
No. 0-16946) and incorporated herein by reference).
3.3 Registrant's Bylaws, as amended (filed as Exhibit 3(c) to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1992 (File No. 0-16946) and incorporated herein by
reference).
4.1 Form of Rights Agreement dated April 5, 1988, between
Registrant and Morgan Shareholder Services Trust Company, as
Rights Agent (filed as Exhibit 4.1 to Amendment No. 1 to
Registrant's Registration Statement on Form S-4, filed April 8,
1988 (File No. 33-20298) and incorporated herein by reference).
4.2 Form of Certificate of Serial Designation of Series A Preferred
Stock (filed as Exhibit 4.2 to Amendment No. 1 to Registrant's
Registration Statement on Form S-4, filed April 8, 1988, (File
No. 33-20298) and incorporated herein by reference).
4.3 Amendment No. 1 to the Rights Agreement, dated November 14,
1988, between Registrant and Morgan Shareholder Services Trust
Company, as Rights Agent (filed as Exhibit 1 to the
Registrant's current report on Form 8-K filed November 18, 1988
(File No. 0-16946) and incorporated herein by reference).
4.4 Amendment No. 2 to the Rights Agreement, dated May 15, 1991,
between Registrant and First Chicago Trust Company of New York,
as Rights Agent (filed as Exhibit 4(d) to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1991 (File
No. 0-16946) and incorporated herein by reference).
4.5 Notice and Agreement Respecting Removal of Rights Agent and
Appointment of Successor Rights Agent (filed as Exhibit 4(e) to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1991 (File No. 0-16946) and incorporated herein by
reference).
10.1 Registrant's 1984 Stock Option Incentive Plan, as amended
(filed as Exhibit 10(b) to Registrant's Annual Report on Form
10-K for the year ended December 31, 1990 (File No. 0-16946)
and incorporated herein by reference).**
10.2 Amendment to Registrant's 1984 Stock Option Incentive Plan,
effective August 17, 1992 (filed as Exhibit 10(b) to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1992 (File No. 0-16946) and incorporated herein by
reference).**
10.3 * Amendment to Registrant's 1984 Stock Option Incentive Plan,
effective August 2, 1995.**
10.4 Registrant's 1989 Stock Option and Incentive Plan (filed as
Exhibit 28 to Registrant's Registration Statement on Form S-8
filed April 17, 1989 (File No. 33-28150) and incorporated
herein by reference).**
10.5 Amendment to Registrant's 1989 Stock Option and Incentive Plan,
effective February 20, 1991 (filed as Exhibit 10(d) to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1990 (File No. 0-16946) and incorporated herein by
reference).**
10.6 Amendment to Registrant's 1989 Stock Option and Incentive Plan,
effective January 20, 1995 (filed as Exhibit 10.5 to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994 (File No. 0-16946) and incorporated herein by
reference).**
10.7 * Amendment to Registrant's 1989 Stock Option and Incentive Plan,
effective August 2, 1995.**
10.8 Registrant's 1991 Non-Employee Directors' Stock Option Plan and
form of Stock Option Agreement, effective May 15, 1991 (filed
as Exhibit 10(e) to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1991 (File No. 0-16946) and
incorporated herein by reference).***
10.9 Amendment No. 1 to Registrant's 1991 Non-Employee Directors'
Stock Option Plan, dated November 10, 1993 (filed as Exhibit
10.6 to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1993 (File No. 0-16946) and incorporated
herein by reference).***
10.10 * Amendment to Registrant's 1991 Non-Employee Directors'
Stock Option Plan, effective August 2, 1995.***
10.11 Registrant's Stock Purchase Plan, as amended (filed as Exhibit
10(e) to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1990 (File No. 0-16946) and incorporated
herein by reference).***
10.12 Amendment to Registrant's Stock Purchase Plan, effective May
15, 1991 (filed as Exhibit 10(g) to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1991 (File No.
0-16946) and incorporated herein by reference).***
10.13 Amendment to Registrant's Stock Purchase Plan effective August
17, 1992 (filed as Exhibit 10(h) to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1992 (File No.
0-16946) and incorporated herein by reference).***
10.14 * Amendment to Registrant's Stock Purchase Plan effective August
2, 1995.***
10.15 Supplemental Retirement Agreement between the Registrant and P.
Anthony Jacobs, President of Registrant (filed as Exhibit 10(i)
to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1992 (File No. 0-16946) and incorporated herein by
reference).**
10.16 Consulting Agreement, dated as of August 1, 1990, First
Amendment to Consulting Agreement, dated as of January 1, 1992,
and Second Amendment to Consulting Agreement, dated as of
January 1, 1993, each between the Registrant and W.D. Grant,
director of the Registrant (filed as Exhibit 10(j) to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1992 (File No. 0-16946) and incorporated herein by
reference).***
10.17 Form of Supplemental Retirement Agreement between the
Registrant and certain corporate/executive officers (filed as
Exhibit 10(k) to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1992 (File No. 0-16946) and
incorporated herein by reference).**
10.18 Nonrecourse Promissory Note from William H. West, M.D., an
executive officer of Registrant, to Registrant and related
Stock Pledge Agreement, both dated July 21, 1992 (filed as
Exhibit 10(l) to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1992 (File No. 0-16946) and
incorporated herein by reference).
10.19 Form of Termination Compensation Agreement between the
Registrant and corporate/executive officers (filed as Exhibit
10(g) to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1990 (File No. 0-16946) and incorporated
herein by reference).**
10.20 Form of Amendment No. 1 to Termination Compensation Agreement,
dated January 20, 1995, between the Registrant and corporate/
executive officers (filed as Exhibit 10.16 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1994
(File No. 0-16946) and incorporated herein by reference).**
10.21 * Form of Amendment No. 2 to Termination Compensation Agreement,
dated February 14, 1996, between the Registrant and corporate/
executive officers.**
10.22 Form of Indemnification Agreement between Registrant and its
directors and corporate/executive officers (filed as Exhibit
10(i) to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1989 (File No. 0-16946) and incorporated
herein by reference).
10.23 * Form of Severance Agreement, dated February 14, 1996, between
the Registrant and corporate/executive officers.**
10.24 Services Agreement, dated January 1, 1993, among Registrant and
LabOne, Inc., relating to services and other matters among the
parties (filed as Exhibit 10.17 to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1993 (File No.
0-16946) and incorporated herein by reference).
10.25 1985 Stock Option Plan of Response Oncology, Inc., as
amended (filed as Exhibit 10(q) to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1992 (File No.
0-16946) and incorporated herein by reference).**
10.26 1990 Non-Qualified Stock Option Plan of Response Oncology,
Inc., as amended through December 31, 1992 (filed as Exhibit
10(r) to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1992 (File No. 0-16946) and incorporated
herein by reference).**
10.27 * Amendment No. 2 to 1990 Non-Qualified Stock Option Plan of
Response Oncology, Inc., effective April 1995.**
10.28 Employment Agreement between Response Technologies, Inc. and
William H. West, MD, dated January 1, 1992 (filed as Exhibit
10(s) to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1992 (File No. 0-16946) and incorporated
herein by reference).**
10.29 * Employment Agreement effective July 1, 1995 between Response
Oncology, Inc. and Joseph T. Clark, an executive officer of
Registrant.**
10.30 Long-Term Incentive Plan of LabOne, Inc., approved May 16, 1991
with amendments adopted May 21, 1993 and November 9, 1993
(filed as Exhibit 10.21 to Registrant's Annual Report on Form
10-K for the year ended December 31, 1993 (File No. 0-16946)
and incorporated herein by reference).**
10.31 * Amendment to LabOne's Long Term Incentive Plan, effective
February 10, 1995.**
10.32 LabOne's Stock Plan for non-employee directors (filed as
Exhibit 10.23 to Registrant's Annual Report on Form
10-K for the year ended December 31, 1994 (File No. 0-16946)
and incorporated herein by reference). ***
10.33 * LabOne's Annual Incentive Plan.**
10.34 Employment Agreement between LabOne, Inc. and Bert H. Hood,
dated August 5, 1993 and amended November 9, 1993 (filed as
Exhibit 10.22 to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1993 (File No. 0-16946) and
incorporated herein by reference).**
10.35 Amendment to Employment Agreement between LabOne, Inc. and
Bert H. Hood, dated December 31, 1994 (filed as Exhibit 10.27
to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994 (File No. 0-16946) and incorporated herein by
reference).**
10.36 Promissory Note Agreement between LabOne, Inc. and Bert H. Hood
dated September 7, 1994 (filed as Exhibit 10.2 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended September
30, 1994 (File No. 0-16946) and incorporated herein by
reference).
10.37 * Promissory Note Agreement between LabOne, Inc. and Bert H. Hood
dated September 7, 1995.
11 Statement regarding computation of per share earnings - see
Note l of Notes to Consolidated Financial Statements, "Earnings
Per Share."
13 Annual Report to Shareholders for the year ended December 31,
1995 - To be furnished.
21 Subsidiaries of Registrant (reference is made to Item 1
hereof).
23 * Consents of KPMG Peat Marwick LLP with respect to Forms S-8.
27 Financial Data Schedule - as filed electronically by the
Registrant in conjunction with this 1995 Form 10-K.
99 Proxy Statement for Annual Shareholders meeting to be held May
8, 1996 - To be furnished.
* These documents may be obtained by stockholders of Registrant upon
written request to: Seafield Capital Corporation, P.0. Box 410949,
Kansas City, Missouri 64141.
** Management Compensatory Plan
*** Non-Management Director Compensatory Plan
(d) Not Applicable.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
SEAFIELD CAPITAL CORPORATION
By: /s/ W. Thomas Grant II
-----------------------------
W. Thomas Grant II
Title: Chairman, Chief Executive
Officer and Director
Date: March 15, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons who serve Registrant
in the capacities and on the dates indicated.
By: /s/ P. Anthony Jacobs By: /s/ James R. Seward
----------------------------- -----------------------------
P. Anthony Jacobs James R. Seward
Title: President, Chief Title: Executive Vice President,
Operating Officer Chief Financial Officer
and Director and Director
Date: March 15, 1996 Date: March 15, 1996
By: /s/ Steven K. Fitzwater By: /s/ W. D. Grant
----------------------------- -----------------------------
Steven K. Fitzwater W. D. Grant
Title: Vice President, Chief Title: Director
Accounting Officer and
Secretary
Date: March 15, 1996 Date: March 15, 1996
By: /s/ Lan C. Bentsen By: /s/ John C. Gamble
----------------------------- -----------------------------
Lan C. Bentsen John C. Gamble
Title: Director Title: Director
Date: March 15, 1996 Date: March 15, 1996
By: /s/ Michael E. Herman By: /s/ David W. Kemper
----------------------------- -----------------------------
Michael E. Herman David W. Kemper
Title: Director Title: Director
Date: March 15, 1996 Date: March 15, 1996
By: /s/ John H. Robinson, Jr. By: /s/ Dennis R. Stephen
----------------------------- -----------------------------
John H. Robinson, Jr. Dennis R. Stephen
Title: Director Title: Director
Date: March 15, 1996 Date: March 15, 1996
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Seafield Capital Corporation:
We have audited the consolidated financial statements of Seafield Capital
Corporation and subsidiaries as listed in Item 14(a)(1). In connection with
our audits of the consolidated financial statements, we also have audited
the financial statement schedules as listed in Item 14(a)(2). These
consolidated financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits and
the report of other auditors provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Seafield Capital Corporation and subsidiaries at December 31, 1995 and
1994, and the results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 1995, in conformity
with generally accepted accounting principles. Also in our opinion, the
related financial statement schedules, when considered in relation to the
basic consolidated financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Kansas City, Missouri
February 1, 1996
SEAFIELD CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
- --------------------------------------------------------------------------
December 31, 1995 1994
- --------------------------------------------------------------------------
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 7,581 8,626
Short-term investments 75,632 67,631
Accounts and notes receivable 23,565 32,871
Current income tax receivable 4,457 2,311
Deferred income taxes 1,540 1,766
Other current assets 8,850 10,813
---------------------
Total current assets 121,625 124,018
Property, plant and equipment 21,604 24,981
Investments:
Securities 5,647 6,725
Oil and gas 4,247 5,998
Intangible assets 19,477 29,318
Deferred income taxes 6,999 1,715
Other assets 1,158 2,621
Net assets of discontinued real estate operations 42,215 50,011
---------------------
$ 222,972 245,387
=====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,370 7,475
Notes payable -- 2,823
Other current liabilities 5,859 9,513
---------------------
Total current liabilities 12,229 19,811
Notes payable -- 8
Other liabilities 2,653 3,439
---------------------
Total liabilities 14,882 23,258
---------------------
Minority interests 21,006 21,196
---------------------
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 1,747 1,002
Equity adjustment from foreign currency translation (447) (561)
Retained earnings 208,098 223,169
---------------------
216,898 231,110
Less cost of 1,038,939 shares of treasury stock
(1994-1,121,739 shares) 29,814 30,177
---------------------
Total stockholders' equity 187,084 200,933
---------------------
Commitments and contingencies
---------------------
$ 222,972 245,387
=====================
See accompanying notes to consolidated financial statements.
SEAFIELD CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
- --------------------------------------------------------------------------
Year Ended December 31, 1995 1994 1993
- --------------------------------------------------------------------------
(In thousands except
per share amounts)
REVENUES
Healthcare services $ 56,410 45,134 40,882
Insurance services 55,862 67,199 74,803
Other 7,272 11,945 14,182
----------------------------------
Total revenues 119,544 124,278 129,867
COSTS AND EXPENSES
Healthcare services 52,838 45,073 37,203
Insurance services 23,598 30,951 33,728
Other 6,357 11,780 14,882
Selling, general and administrative 42,300 40,767 36,923
----------------------------------
Earnings (loss) from operations (5,549) (4,293) 7,131
Investment income - net 4,401 2,889 10,197
Other income (loss) (4,688) 67 (2,388)
----------------------------------
Earnings (loss) before income taxes (5,836) (1,337) 14,940
----------------------------------
Taxes on income (benefits):
Current (1,429) 2,486 9,373
Deferred (5,134) (1,806) (2,382)
----------------------------------
Total (6,563) 680 6,991
----------------------------------
Earnings (loss) before minority interests 727 (2,017) 7,949
Minority interests 1,475 (145) 2,331
----------------------------------
Earnings (loss) from
continuing operations (748) (1,872) 5,618
Loss from discontinued real
estate operations (6,600) (2,904) --
----------------------------------
NET EARNINGS (LOSS) $ (7,348) (4,776) 5,618
==================================
Per share of common stock:
Earnings (loss) from
continuing operations $ (.12) (.29) .82
Loss from discontinued real
estate operations (1.02) (.46) --
----------------------------------
NET EARNINGS (LOSS) $ (1.14) (.75) .82
==================================
See accompanying notes to consolidated financial statements.
SEAFIELD CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
- --------------------------------------------------------------------------
Year Ended December 31, 1995 1994 1993
- --------------------------------------------------------------------------
(In thousands)
Common stock:
Balance, beginning of year $ 7,500 7,500 8,804
Retirement of stock -- -- (1,304)
----------------------------------
Balance, end of year 7,500 7,500 7,500
----------------------------------
Paid-in capital:
Balance, beginning of year 1,002 1,007 644
Exercise of stock options 745 (5) 363
----------------------------------
Balance, end of year 1,747 1,002 1,007
----------------------------------
Foreign currency translation:
Balance, beginning of year (561) (350) (438)
Net change during year 114 (211) 88
----------------------------------
Balance, end of year (447) (561) (350)
----------------------------------
Retained earnings:
Balance, beginning of year 223,169 235,583 275,944
Net earnings (loss) (7,348) (4,776) 5,618
Dividends declared* (7,723) (7,638) (8,059)
Retirement of stock -- -- (37,920)
----------------------------------
Balance, end of year 208,098 223,169 235,583
----------------------------------
Less treasury stock:
Balance, beginning of year 30,177 18,070 56,948
Net issuance pursuant to stock
option plans (1995-82,800;
1994-27,366; 1993-27,080) (363) (845) 346
Shares purchased (1994-382,350) -- 12,952 --
Shares retired (1993-1,304,420) -- -- (39,224)
----------------------------------
Balance, end of year 29,814 30,177 18,070
----------------------------------
STOCKHOLDERS' EQUITY $ 187,084 200,933 225,670
==================================
*Dividends per share amounted to $1.20 in 1995, 1994 and 1993.
See accompanying notes to consolidated financial statements.
SEAFIELD CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
- ---------------------------------------------------------------------------
Year Ended December 31, 1995 1994 1993
- ---------------------------------------------------------------------------
(In thousands)
OPERATING ACTIVITIES
Earnings (loss) from continuing operations $ (748) (1,872) 5,618
Adjustments to reconcile earnings (loss) from
continuing operations to net cash provided
(used) by continuing operations:
Depreciation and amortization 12,210 15,099 19,621
Earnings applicable to minority interests 1,475 (145) 2,331
Change in trading portfolio, net (11,766) 2,019 --
Change in accounts receivable 2,902 1,856 (7,912)
Change in accounts payable (10) 1,643 1,250
Income taxes and other, net (4,974) (2,126) (1,959)
-----------------------------
Net cash provided (used)
by continuing operations (911) 16,474 18,949
-----------------------------
INVESTING ACTIVITIES
Sales of investments available for sale 83 -- --
Purchases of investments held to maturity (65,569) (79,502) --
Maturities of investments held to maturity 69,459 90,602 --
Purchases of investments -- -- (17,604)
Sales or maturities of investments -- -- 20,599
Short-term investments -- -- (8,763)
Proceeds of securitization 1,500 4,000 19,000
Additions to property, plant
and equipment, net (4,370) (5,445) (5,689)
Oil and gas investments (391) (914) (55)
Net increase in notes receivable (2,507) (6,456) (2,213)
Purchase of stock in consolidated subsidiaries -- (722) (2,365)
Proceeds from sale of subsidiaries, net 12,054 -- --
Net cash provided (used) by discontinued
real estate operations 1,196 (2,023) 10,520
Other, net (1,995) (812) (691)
-----------------------------
Net cash provided (used) by
investing activities 9,460 (1,272) 12,739
-----------------------------
FINANCING ACTIVITIES
Payments under line of credit agreements, net (2,831) (1,725) (6,891)
Proceeds from long-term debt -- 59 168
Payment of principal on long-term debt -- (98) (3,843)
Payment of capital lease (169) (367) --
Dividends paid (7,723) (7,638) (8,059)
Purchase of treasury stock -- (12,952) --
Issuance of common stock 1,108 840 17
-----------------------------
Net cash used by financing activities (9,615) (21,881) (18,608)
-----------------------------
Effect of foreign currency translation 21 (186) 165
-----------------------------
Net increase (decrease) in cash and
cash equivalents (1,045) (6,865) 13,245
Cash and cash equivalents at beginning of year 8,626 15,491 2,246
-----------------------------
Cash and cash equivalents at end of year $ 7,581 8,626 15,491
=============================
Supplemental disclosures of cash flow information:
Cash paid (received) during the year for:
Interest $ 140 273 539
=============================
Income taxes, net $ (1,693) 1,965 5,726
=============================
See accompanying notes to consolidated financial statements.
SEAFIELD CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Seafield Capital Corporation (Seafield or the Company) and all majority-
owned subsidiaries and joint ventures. Investments with ownerships of 20%
to 50% are accounted for by the equity method.
Two publicly-traded subsidiaries are included in the consolidated financial
statements of Seafield. LabOne, Inc. (LabOne) was formerly Home Office
Reference Laboratory, Inc. and is 82% owned. Response Oncology, Inc.
(Response) was formerly Response Technologies, Inc. and is 56% owned.
All significant intercompany transactions have been eliminated in
consolidation. Certain 1994 and 1993 amounts have been reclassified for
comparative purposes with no effect on net earnings.
In 1992, Seafield's board of directors approved a plan for the
discontinuance of real estate operations. During 1995's fourth quarter,
Seafield recorded an additional valuation allowance of $6.6 million. The
increased allowance reflects values based on recent sales transactions of
undeveloped land parcels and sales activity at the residential project in
New Mexico. In 1994, an after-tax loss of $2.9 million was recorded for a
sales contract signed in January 1995. See Note 13 for additional
information on discontinued real estate operations.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include demand deposits in banks and overnight
investments that are stated at cost which approximates market value.
INVESTMENT SECURITIES
Investment securities consist of certificates of deposit, equity
securities, debt securities and debt obligations of the United States
government and state and political subdivisions. Short-term investments
are securities with maturities of less than one year.
The classification of debt and equity securities as trading, available for
sale or held to maturity is made at the time of purchase. Trading
securities are stated at fair value and unrealized holding gains and losses
are included in income. Securities which are classified as available for
sale are stated at market value. Securities which the Company has the
intent and ability to hold to maturity are stated at cost.
The Company calculates the fair value of financial instruments using
appropriate market information and valuation methodologies. The additional
fair value information is included in the notes to the financial statements
when it is different than the stated value of those financial instruments.
When the fair value approximates the stated value, no additional disclosure
is made.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost with depreciation
provided over the useful lives. Upon sale or retirement, the costs and
related accumulated depreciation are eliminated from the accounts. Any
resulting gains or losses are included in the determination of net
earnings. See Note 4 for additional information on depreciation.
OIL AND GAS INVESTMENTS
The Company's oil and gas investments are accounted for using the full cost
method. All costs incurred in acquisition and development are capitalized.
Depletion is computed on the units of production method based on all proved
reserves. All general operating costs are expensed as incurred.
INTANGIBLE ASSETS
The patent process utilized in coating the plates on which blood and urine
testing is performed is recorded at its acquisition cost and is being
amortized on a straight-line basis over its remaining life (184 months at
date of acquisition).
Goodwill is recorded at acquisition as the excess of cost over fair value
of net assets acquired and is being amortized on a straight-line basis over
appropriate periods up to twenty years.
IMPAIRMENT OF LONG-LIVED ASSETS
When facts and circumstances indicate potential impairment, the Company
evaluates the recoverability of carrying values of long-lived assets using
estimates of undiscounted future cash flows over remaining asset lives.
When impairment is indicated, any impairment loss is measured by the excess
of carrying values over fair values.
DISPOSITIONS
The Company sold its 80.1% owned insurance premium finance subsidiary,
Agency Premium Resource, Inc., during the second quarter of 1995. The sale
generated an after-tax gain of $1.5 million.
The Company completed an asset sale by its 79% owned real estate, personal
property and sales and use tax consulting subsidiary, Tenenbaum and
Associates, Inc., during the second quarter of 1995. This subsidiary then
distributed its assets to shareholders and filed for dissolution. The
effect of the sale, distribution and dissolution was an after-tax gain of
$500,000.
The Company sold its 80% owned underwriting and policy administration
services subsidiary, International Underwriting Services, Inc., during the
third quarter of 1995. The sale generated an after-tax gain of $1 million.
The Company's 74% owned radiopharmaceuticals subsidiary, Pyramid Diagnostic
Services, Inc. (Pyramid), entered voluntary bankruptcy in the fourth
quarter of 1995 as a result of an adverse judgment in a lawsuit. The
Company fully reserved its investment in this subsidiary and recorded an
after-tax loss of $1.2 million. The Company expects the Pyramid bankruptcy
to be finalized in 1996 with no further financial consequences to the
Company.
FEDERAL INCOME TAXES
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes" required a change from the deferred method of accounting for income
taxes of APB Opinion 11 to the asset and liability method of accounting for
income taxes. Under the asset and liability method of Statement 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under
Statement 109, the effect on deferred tax assets and liabilities of a
change in tax rates was recognized in income in the period that includes
the enactment date.
OTHER LIABILITIES
The components of "Other Liabilities" on the Consolidated Balance Sheets
are as follows:
December 31, 1995 December 31, 1994
Current Noncurrent Current Noncurrent
-----------------------------------------
(In thousands)
Accrued payroll and benefits $ 2,230 1,514 2,191 1,622
Accrued commissions and
consulting fees 1,135 41 2,552 184
Other accrued expenses 1,982 -- 3,454 --
Other liabilities 512 1,098 1,316 1,633
----------------------------------------
$ 5,859 2,653 9,513 3,439
========================================
OTHER INCOME/(LOSS)
The components of "Other Income/(Loss)" on the Consolidated Statements of
Operations are as follows:
Year ended December 31, 1995 1994 1993
- ---------------------------------------------------------------------------
(In thousands)
Gain/(loss) on dispositions of subsidiaries $ (1,068) -- --
Provision for subsidiary bankruptcy (3,382) -- --
Provision for litigation costs -- -- (1,500)
Other (238) 67 (888)
---------------------------
$ (4,688) 67 (2,388)
===========================
RECENTLY ISSUED ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 114 "Accounting by
Creditors for Impairment of a Loan" and No. 118 "Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosures" have been
implemented for the year ending December 31, 1995. The adoption of these
standards has had no significant impact on the Company'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" has been implemented for the year ending December 31, 1995. The
adoption of this standard has had no significant impact on the Company's
financial position or results of operations.
Statement of Financial Accounting Standards No. 123 "Accounting for Stock-
Based Compensation" is required to be implemented for fiscal years
beginning after December 15, 1995. The Company does not plan to adopt an
optional accounting treatment based on the estimated fair value of employee
stock options allowed by Statement No. 123. However, presentation of pro
forma disclosures of net earnings and earnings per share as if the optional
accounting method had been utilized will be required.
EARNINGS PER SHARE
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: 1995 - 6,454,068, 1994 -
6,374,952, and 1993 - 6,847,559.
NOTE 2 - BENEFIT PLANS
Effective January 1, 1991, Seafield and certain subsidiaries established a
savings plan qualifying under Section 401(k) of the Internal Revenue Code
and a money purchase pension plan. All salaried employees who have worked
500 hours within the first six months of employment are eligible to
participate in the plans. After the first 12-month period, eligibility is
measured on a plan-year basis.
Participants in the 401(k) plan may contribute 2% to 10% of annual
compensation. Seafield and the participating subsidiaries contribute for
each participant an amount equal to 50% of the participant's contribution.
A participant is immediately fully vested with respect to the participant's
contributions. A participant is 100% vested with respect to the companies'
contributions after five years of service. Both the participants' and the
companies' contributions are invested by the trustees of the plan at the
direction of the participants in any one or more of six investment funds,
one of which is a Seafield Stock Fund. The matching contributions made by
Seafield and the participating subsidiaries amounted to $109,000 for 1995,
$91,000 for 1994 and $87,000 for 1993.
The money purchase pension plan is a defined contribution plan under which
Seafield and the participating subsidiaries contribute a percentage of a
participant's annual compensation. The companies contribute an amount
equal to 7% of base compensation up to the maximum social security wage
base ($61,200 in 1995, $60,600 in 1994 and $57,600 in 1993) and 12.7% of
earnings in excess of this amount up to an annual limit ($150,000 in 1995
and 1994 and $235,840 in 1993). Participants become 100% vested after five
years of service, normal retirement at age 65, or in the event of
disability or death while employed by the companies. Contributions to this
plan by Seafield and the participating subsidiaries were $143,000 for 1995,
$202,000 for 1994 and $225,000 for 1993.
Seafield has a stock purchase plan which is open to all non-employee
directors of the Company and employees of the Company and participating
subsidiaries who are designated by the chairman of the board. The
directors may contribute an amount equal to all or part of their directors'
compensation. The designated employees may contribute the lesser of 10% of
their salary or $30,000. The Company matches each participant's
contribution at a rate of 50%. Seafield common stock is purchased on the
open market each month and each participant receives as many shares as the
participant's contribution, plus the Company's matching contribution, will
purchase. No employees are presently designated to participate. The
matching contributions made by Seafield amounted to $39,000, $40,000 and
$44,000 for the years ended December 31, 1995, 1994 and 1993, respectively.
LabOne, Response and certain other subsidiaries maintain profit sharing
plans qualifying under Section 401(k) of the Internal Revenue Code. LabOne
also has a defined contribution plan. These subsidiaries contributed
$1,774,000, $1,666,000 and $1,702,000 to the plans for the years ended
December 31, 1995, 1994 and 1993, respectively.
NOTE 3 - COMMITMENTS AND CONTINGENCIES
Seafield received a notice during 1992 of proposed adjustments from the
Internal Revenue Service (IRS) with respect to 1986-87 federal income
taxes. Later, the IRS determined to include 1988-90 as a part of its
review. In May 1995, the IRS issued a revised notice of proposed
adjustments to 1986-87 taxes in response to Seafield's protest filed in
1992. This revised notice reduced the previously proposed tax of
approximately $17 million to $13.5 million. In June 1995, the IRS issued
proposed adjustments to 1988-1989 federal income taxes. Additional
proposed taxes for these years are $182,000. Also, during 1995 the IRS
issued tentative proposed federal income tax adjustments for the 1990 year
totaling approximately $16 million. In early 1996, the IRS reduced the $16
million tentatively proposed tax adjustments for the 1990 year to
approximately $7 million. The IRS has used these proposed increases in
federal income taxes to deny Seafield a 1990 claim for refund of $7.6
million. Resolution of these matters is not expected during 1996.
Seafield believes that it has meritorious defenses to many of the
substantive issues raised by the IRS, and adequate accruals for income tax
liabilities.
In 1986, a lawsuit was initiated in the Circuit Court of Jackson County,
Missouri by Seafield's former insurance subsidiary (i.e., Business Men's
Assurance Company of America) against Skidmore, Owings & Merrill ("SOM")
which is an architectural and engineering firm, and a construction firm to
recover costs incurred to remove and replace the facade on the former home
office building. Because the removal and replacement costs had been
incurred prior to the sale of the insurance subsidiary, Seafield 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 Seafield and all
costs incurred in connection with the litigation will be paid by Seafield.
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
Seafield; 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
expected in the second quarter of 1996. The only remaining defendant is
SOM; settlement arrangements with other defendants have resulted in
payments to plaintiff which have offset legal fees and costs to date of
approximately $400,000. None of the prior or future legal fees or costs
are recoverable from the remaining defendant, even if the judgment in
plaintiff's favor is ultimately upheld. Future legal fees and costs can
not reliably be estimated.
In 1988, a lawsuit was initiated in the United States District Court for
the District of New Mexico against Seafield's former insurance subsidiary
by Lyon Development Company and Jeanne Lyon, d/b/a Lyon and Associates
Realty, 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 Seafield of any liability.
Subsequent to the trial, the judge awarded Seafield approximately $250,000
in connection with marketing expenses which the plaintiffs were to have
repaid, and approximately $64,000 in legal costs, with interest until paid.
Total legal fees and costs incurred by Seafield and its former insurance
subsidiary have aggregated approximately $3.6 million. In February 1996,
the United States Court of Appeals for the Tenth Circuit affirmed the
jury's verdict in Seafield's favor, reversed the trial judge's award for
marketing expenses, and affirmed the trial judge's award of legal costs. A
bond posted by one of the plaintiffs/counter defendants secures payment of
the legal costs awarded by the trial judge and affirmed by the Court of
Appeals. Because the Quail Run project was retained by Seafield in
connection with the sale of its former insurance subsidiary, Seafield
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 have been and will be for the
account of Seafield.
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 Seafield.
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT AND ACCOUNTS AND NOTES RECEIVABLE
A summary of property, plant and equipment is as follows:
Rate of December 31,
Depreciation 1995 1994
------------------------------------
(In thousands)
Property, plant and equipment 5% - 33% $ 65,681 67,930
Less accumulated depreciation 44,077 42,949
-----------------
$ 21,604 24,981
=================
A summary of accounts and notes receivable is as follows:
December 31,
1995 1994
-----------------
(In thousands)
Accounts receivable $ 26,146 37,228
Notes receivable 1,083 1,578
Allowance for doubtful accounts (3,314) (4,637)
-----------------
23,915 34,169
Less current portion 23,565 32,871
-----------------
$ 350 1,298
=================
Interest rates on notes receivable were 5% to 9% in 1995 and 1994.
Included in notes receivable is a loan to an officer of a subsidiary
aggregating $500,000 at December 31, 1995. The note, with an interest rate
of 6.74%, is due in 1996.
NOTE 5 - SECURITIZATION OF RECEIVABLES
In July 1993, a subsidiary of Seafield entered into an extendable two-year
agreement whereby it can sell undivided interests in a designated pool of
accounts receivable on an ongoing basis. The maximum allowable amount of
receivables to be sold was increased by amendment in August 1994 from $22
million to $30 million, subject to voluntary reduction by the seller to a
minimum of $12 million. As collections reduce accounts receivable in the
pool, the purchaser permits the subsidiary to apply such collections to
additional purchases up to the maximum. The subsidiary had securitized
receivables of $23 million at December 31, 1994. The net cash proceeds
were reported as an investing activity in the accompanying Consolidated
Statements of Cash Flows. The securitized receivables were reflected as a
reduction of accounts receivable in the accompanying Consolidated Balance
Sheet at December 31, 1994.
The subsidiary did not record a gain or loss on the sales as the costs of
receivables sold approximated the proceeds. Receivables of $2.8 million at
December 31, 1994 were subordinated to undivided interests sold in the
event of defaults or delinquencies with respect to the underlying
receivables. A default reserve is required for the greater of 12% of the
accounts receivable sold or an amount set forth by a formula based on
preceding months' default ratios.
The subsidiary was sold in May 1995.
NOTE 6 - SEGMENT DATA
The following table shows segment information from continuing operations:
Year ended December 31, 1995 1994 1993
- --------------------------------------------------------------------------
(In thousands)
REVENUES:
Healthcare services $ 56,410 45,134 40,882
Insurance services 55,862 67,199 74,803
Other 7,272 11,945 14,182
----------------------------------
Total revenues $ 119,544 124,278 129,867
==================================
OPERATING EARNINGS (LOSS):
Healthcare services $ (3,687) (5,272) 158
Insurance services 7,179 8,966 15,441
Other (3,858) (1,041) (3,145)
Corporate investment and other income 1,522 1,594 8,470
Corporate expense (6,868) (5,284) (5,738)
Interest expense (124) (300) (246)
----------------------------------
Earnings (loss) before income taxes
and minority interests (5,836) (1,337) 14,940
Income taxes 6,563 (680) (6,991)
Minority interests (1,475) 145 (2,331)
----------------------------------
Earnings (loss) from continuing
operations $ (748) (1,872) 5,618
==================================
IDENTIFIABLE ASSETS:
Healthcare services $ 39,035 35,683 41,067
Insurance services 74,817 99,301 101,945
Net assets of discontinued operations 42,215 50,011 52,596
Other 66,905 60,392 77,962
----------------------------------
Total identifiable assets $ 222,972 245,387 273,570
==================================
Operating earnings (loss) are revenues less expenses other than corporate
and interest expense, net of intersegment transactions. Depreciation and
amortization amounts for 1995, 1994 and 1993 were $8,590,000, $11,836,000
and $16,474,000, respectively. Goodwill amortization for 1995, 1994 and
1993 was $3,620,000, $3,263,000 and $3,147,000, respectively. In January
1994, approximately $13 million of the $78 million other identifiable
assets was used to purchase 382,350 shares of Seafield common stock from an
institutional shareholder in a single transaction. Capital expenditures
and depreciation and amortization expense for the significant segments are
as follows:
1995 1994 1993
----------------------------------
(In thousands)
Healthcare services:
Capital expenditures $ 3,032 3,194 3,606
==================================
Depreciation and amortization $ 3,381 2,761 2,014
==================================
Insurance services:
Capital expenditures $ 1,437 2,030 1,877
==================================
Depreciation and amortization $ 3,326 6,547 9,255
==================================
NOTE 7 - INCENTIVE STOCK OPTION PLAN
Seafield has three Stock Option Plans which provide for Qualified and
Nonqualified Stock Options, Stock Appreciation Rights (SAR's) and
restricted stock awards to key employees and directors. The plans entitle
the grantee to purchase shares at prices ranging from 75% to 110% of the
fair market value at date of grant during terms up to ten years. All
options have been awarded at 100% of fair market value. SAR's may be
issued in tandem with stock options and entitle the holder to elect to
receive the appreciated value in cash. Restricted stock awards were rights
to receive or retain shares in payment of compensation earned or to be
earned. During 1995, restricted stock awards of 60,604 shares became
vested and were issued. As of December 31, 1995, there were no restricted
stock awards outstanding. The following presents a summary of stock
options activity for the three years ended December 31, 1995:
Number of Option
Shares Price
- --------------------------------------------------------------------------
Outstanding December 31, 1992 753,713 $ 21.500 - 43.250
Granted 33,500 32.000 - 34.875
Exercised 107,617 21.500 - 31.000
Terminated or forfeited 46,335 21.500 - 43.250
-----------------------------------
Outstanding December 31, 1993 633,261 21.500 - 34.875
Exercised 56,998 28.000 - 31.000
Terminated or forfeited 1,000 31.000 - 31.000
-----------------------------------
Outstanding December 31, 1994 575,263 21.500 - 34.875
Exercised 392,263 21.500 - 31.000
-----------------------------------
Outstanding December 31, 1995 183,000 $ 21.500 - 34.875
===================================
Options for 173,665 shares were exercisable at December 31, 1995 and
130,000 shares were available to be awarded. The difference between the
per share exercise price and the cost per share of the treasury stock
issued for stock options exercised increased paid-in capital by $745,000 in
1995 and decreased paid in capital by $5,000 in 1994. Additionally,
Seafield maintains a Stock Purchase Plan under which each participant's
contribution is matched at a rate of 50%. Seafield common stock is
purchased on the open market each month. Of the 100,000 shares registered
under this plan, 66,345 shares were eligible for issuance at December 31,
1995.
NOTE 8 - LEASE COMMITMENTS
Seafield and subsidiaries lease office space, equipment, land and buildings
under various, noncancelable leases that expire over the next several
years. Rental expense for these leases during 1995, 1994 and 1993 amounted
to $3,302,000, $3,868,000 and $3,038,000, respectively.
Future minimum lease payments under these agreements as of December 31,
1995 are as follows:
Year Amount
-------------------------
(In thousands)
1996 $ 2,724
1997 2,098
1998 1,338
1999 898
2000 599
Thereafter 1,092
NOTE 9 - INVESTMENT SECURITIES
A summary of investment securities information relating to quoted market
values and holding gains and losses at December 31, 1995 and 1994 is in the
following table.
Amount at
Which
Amortized Market Shown in
Cost Value Balance Holding Holding
Sheet Gains Losses
- ---------------------------------------------------------------------------
(In thousands)
December 31, 1995
- -----------------
Available for Sale
- ------------------
Common stock $ 4 4 4 -- --
Preferred stock 3,515 3,515 3,515 -- --
--------------------------------------------------------
$ 3,519 3,519 3,519 -- --
========================================================
Held to Maturity
- ----------------
Obligations of states
and political
subdivisions $ 6,848 6,840 6,848 3 (11)
Canadian
government notes 3,955 3,955 3,955 -- --
Certificate of
deposit 362 362 362 -- --
Notes receivable 183 183 183 -- --
--------------------------------------------------------
$ 11,348 11,340 11,348 3 (11)
========================================================
December 31, 1994
- -----------------
Available for Sale
- ------------------
Common stock $ 56 88 56 32 --
Preferred stock 3,515 3,515 3,515 -- --
--------------------------------------------------------
$ 3,571 3,603 3,571 32 --
========================================================
Held to Maturity
- ----------------
U.S. treasury
securities $ 3,031 3,069 3,031 38 --
Obligations of states
and political
subdivisions 7,888 7,916 7,888 35 (7)
Canadian
government notes 3,326 3,326 3,326 -- --
Certificate of
deposit 100 100 100 -- --
Notes receivable 326 326 326 -- --
--------------------------------------------------------
$ 14,671 14,737 14,671 73 (7)
========================================================
At December 31, 1995, debt securities will mature as follows:
Within Between 1
1 Year and 5 Years
--------------------------
(In thousands)
Available for sale $ -- 3,515
==========================
Held to Maturity 10,480 506
$ ==========================
The proceeds from sales of available for sale securities and the gross
realized gains and losses on those sales are in the following table. Cost
is determined by specific identification for computing realized gains and
losses.
Year ended December 31, 1995 1994 1993
- ---------------------------------------------------------------------------
(In thousands)
Proceeds $ 83 -- --
==================================
Gross realized gains $ 34 -- --
==================================
Gross realized losses (3) -- --
$ ==================================
Trading securities primarily include United States treasury securities,
common stock, money market funds and obligations of states and political
subdivisions and totaled $65 million and $54 million at December 31, 1995
and 1994, respectively. The changes in net unrealized holding gains and
losses on trading securities that have been included in earnings are losses
of $485,000 and $2.2 million for the years ended December 31, 1995 and
1994, respectively, and a gain of $463,000 for the year ended December 31,
1993.
Seafield has investments in two majority-owned entities that are publicly-
traded. At December 31, 1995, based on the market prices of publicly
traded shares of these two subsidiaries, pretax unrealized gains of
approximately $130 million ($20.11 per share) on these investments were not
reflected in either Seafield's book value or stockholders' equity.
NOTE 10 - INCOME TAXES
Seafield and those subsidiaries that are eligible file a consolidated U.S.
federal income tax return. Prior to consolidation in Seafield's federal
income tax return, various subsidiaries generated taxable losses of
approximately $6.5 million. These net operating loss carryforwards are
usable only against future taxable income of the corporation that generated
the losses. Upon the disposition of the stock, in 1992, of the former
employee benefits consulting services subsidiary, $4.1 million of net
operating loss carryforwards were reattributed to Seafield. In 1994 and
1993, Seafield utilized approximately $1.1 million and $1.6 million of
these reattributed losses, thereby reducing income tax expense by $389,000
and $534,000, respectively. The remainder of these net operating loss
carryforwards will begin to expire in the year 2006.
During 1995, Seafield generated approximately $6.6 million in current
capital losses that exceeded capital gains. These losses are carried
forward through the year 2000. Also, deferred capital losses of $5.7
million were generated on the write-off of Seafield's radiopharmaceutical
subsidiary. Deferred income tax assets have been generated by these
losses. Future realization of these tax assets or any existing deductible
temporary differences or carryforwards ultimately depends on the existence
of sufficient taxable income of the appropriate character within the
carryover period. When it becomes more likely than not that a deferred tax
asset will not be realized, a valuation allowance is accrued against that
deferred tax asset.
During 1995 and 1993, Response utilized approximately $1,710,000 and
$1,374,000 of available federal net operating loss carryforwards resulting
in tax benefits of $667,000 and $522,000, respectively. Response is not
included in Seafield's consolidated federal income tax return. Response has
remaining federal net operating loss carryforwards of approximately $4.9
million that are limited by the Internal Revenue Code and are available to
offset only $475,000 of taxable income per year. These limited federal net
operating losses are available annually until 2005. Response also has
approximately $1,345,000 of federal net operating loss carryforwards which
are not limited as to their utilization. These begin to expire in 2005.
The components of the provision (benefit) for income taxes on income from
continuing operations are as follows:
Year Ended December 31, 1995 1994 1993
- --------------------------------------------------------------------------
(In thousands)
Current:
Federal $ (1,785) 1,244 6,638
State 186 473 1,424
Foreign 170 769 1,311
----------------------------------
(1,429) 2,486 9,373
----------------------------------
Deferred:
Federal (4,203) (1,674) (1,867)
State (1,025) 73 (426)
Foreign 94 (205) (89)
----------------------------------
(5,134) (1,806) (2,382)
----------------------------------
$ (6,563) 680 6,991
==================================
Earnings (loss) before income taxes:
Domestic $ (6,410) (2,440) 12,281
Foreign 574 1,103 2,659
----------------------------------
$ (5,836) (1,337) 14,940
==================================
The reconciliation of income tax attributable to continuing operations
computed at federal statutory tax rates to income tax expense is as
follows:
Year Ended December 31, 1995 1994 1993
- --------------------------------------------------------------------------
(In thousands)
Computed expected tax expense(benefit) $ (1,984) (454) 5,079
State income taxes, net of federal benefit (564) 348 806
Goodwill amortization 1,214 1,087 1,070
Tax exempt interest and dividends (152) (302) (201)
Tax benefits not available for
subsidiary losses 261 1,063 156
Losses on sale of subsidiaries (4,239) -- --
Deferred tax on unremitted earnings of
foreign subsidiaries 175 -- --
Other, net (456) (799) 530
Utilization of federal net operating loss (902) (389) (768)
Foreign tax in excess of U.S. rate 84 126 319
----------------------------------
Actual income tax expense (benefit) $ (6,563) 680 6,991
==================================
Effective rate 112% (51%) 47%
The significant components of deferred income tax assets and liabilities
are as follows:
December 31, 1995 1994 1993
- --------------------------------------------------------------------------
(In thousands)
Current deferred income tax assets (liabilities):
Valuation allowance on stock
investments $ 269 661 255
Allowance on accounts receivable 703 1,008 994
Excess book expense accruals 718 877 629
Excess book accrued legal fees -- -- 572
Excess book partnership expenses -- -- 57
Other (22) 35 (164)
Federal net operating loss carryforwards 151 43 --
State net operating loss carryforwards 923 8 80
----------------------------------
Gross current deferred income tax assets 2,742 2,632 2,423
Current valuation allowance (1,202) (866) (802)
----------------------------------
Net current deferred income tax assets 1,540 1,766 1,621
----------------------------------
Non-current deferred income tax assets (liabilities):
Valuation allowances on investments 2,151 19 19
Excess book (tax) expense accruals 392 321 326
Excess book (tax) accrued legal fees -- -- 27
Excess book (tax)partnership expenses 123 244 (37)
Excess book (tax) oil and gas expenses 842 449 210
Excess book (tax) depreciation and
amortization 1,048 900 (51)
Alternative minimum tax credit 233 188 127
Other (150) (90) (1,216)
Capital loss carryforwards 2,888 -- --
Federal net operating loss carryforwards 2,360 4,102 3,868
State net operating loss carryforwards 602 1,304 1,062
----------------------------------
Gross non-current deferred
income tax assets 10,489 7,437 4,335
Valuation allowance for non-current
deferred income tax assets (3,490) (5,722) (5,058)
----------------------------------
Net non-current deferred
income tax assets (liabilities) 6,999 1,715 (723)
----------------------------------
Net deferred income tax
assets (liabilities) $ 8,539 3,481 898
==================================
The valuation allowance as of January 1, 1993 was approximately $6,330,000.
The valuation allowance decreased during 1995 by approximately $1,896,000,
increased by $728,000 during 1994 and decreased by $470,000 during 1993.
NOTE 11 - INTANGIBLE ASSETS
The cost and accumulated amortization of intangible assets are as follows:
December 31, 1995 1994
- ---------------------------------------------------------------------------
(In thousands)
Goodwill - excess of cost over fair value
of net assets acquired $ 29,804 43,571
Less accumulated amortization 11,774 16,297
--------------------
18,030 27,274
--------------------
Laboratory patent, antibodies, antigens,
and nicotine screens 8,000 11,845
Less accumulated amortization 6,739 10,062
--------------------
1,261 1,783
--------------------
Other intangible assets 252 1,300
Less accumulated amortization 66 1,039
--------------------
186 261
--------------------
Intangible assets, net of accumulated amortization $ 19,477 29,318
====================
Any excess of the cost over the fair value of the net assets purchased is
being amortized on a straight line basis over 5 to 20 years. The laboratory
patent process is being amortized over 184 months from date of acquisition
while antibodies, antigens, and nicotine screens are being amortized over
their estimated remaining useful lives.
NOTE 12 - NOTES PAYABLE
Notes payable are as follows:
December 31, 1995 1994
- ---------------------------------------------------------------------------
Maturities Maturities Maturities Maturities
Due Within Due After Due Within Due After
One Year One Year One Year One Year
----------------------------------------------
(In thousands)
Prime line of credit, secured
by accounts receivable
of $1,964,000 -- -- 2,475 --
Prime + 1 1/2% line of credit
secured by accounts receivable
of $1,241,000 -- -- 268 --
Other -- -- 80 8
---------------------------------------------
$ -- -- 2,823 8
=============================================
Line of credit agreements totaled $7.5 million at December 31, 1995 and
expire in 1996. Available borrowings under these agreements amounted to
$7,500,000. Affiliates' debt at December 31, 1995 totaled $493,000 which
arose under lines of credit. The Consolidated Statements of Operations
include interest expense totaling $124,000, $309,000, and $527,000 in 1995,
1994 and 1993, respectively. The weighted average interest rates on
borrowings outstanding for 1995 and 1994 were 8.82% and 6.57%,
respectively.
NOTE 13 - DISCONTINUED OPERATIONS
Operations of Discontinued Real Estate Segment
In 1992, Seafield's board of directors approved a plan to discontinue real
estate operations. As a result of this decision, a $6 million after-tax
loss provision for estimated write-downs and costs through final
disposition was included in the discontinued real estate's 1992 loss.
Additional after-tax losses of $2.9 million and $6.6 million were recorded
in 1994 and 1995, respectively. The 1994 loss was recorded for a sales
contract signed in January 1995. The 1995 increase in the valuation
allowance reflects values based on recent sales transactions of undeveloped
land parcels and sales activity at the residential project in New Mexico.
The remaining real estate assets will be sold as soon as practicable.
A summary of discontinued real estate operations follows:
Year Ended December 31, 1995 1994 1993
- --------------------------------------------------------------------------
(In thousands)
Revenues $ 11,912 11,991 18,320
===================================
Loss $ (10,000) (4,400) --
Income tax benefits (3,400) (1,496) --
-----------------------------------
Net loss $ (6,600) (2,904) --
===================================
Net Assets of Discontinued Real Estate Segment
A summary of the net assets of the discontinued real estate operations
follows:
December 31, 1995 1994
- --------------------------------------------------------------------------
(In thousands)
Assets
Current assets $ 281 956
Real estate 35,021 38,584
Other non-current assets 8,979 13,555
--------------------
Total assets 44,281 53,095
-------------------
Liabilities
Current liabilities 777 209
Non-current liabilities 1,289 2,875
--------------------
Total liabilities 2,066 3,084
--------------------
Net Assets $ 42,215 50,011
====================
At December 31, 1995, real estate debt totaled $7.6 million, of which $6.3
million was recourse debt.
NOTE 14 - QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized 1995 quarterly financial data is as follows:
Mar. 31, Jun. 30, Sep. 30, Dec. 31,
Quarter Ended 1995 1995 1995 1995
- ---------------------------------------------------------------------------
(In thousands except per share amounts)
Revenues $ 33,428 32,764 28,226 25,126
========================================
Earnings (loss) from
continuing operations $ (567) 1,643 (1,591) (233)
Loss from discontinued real
estate operations -- -- -- (6,600)
----------------------------------------
Net earnings (loss) $ (567) 1,643 (1,591) (6,833)
========================================
Per share:
Earnings (loss) from
continuing operations $ (.09) .26 (.25) (.04)
Loss from discontinued real
estate operations -- -- -- (1.02)
----------------------------------------
Net earnings (loss) $ (.09) .26 (.25) (1.06)
========================================
Dividends paid per share $ .30 .30 .30 .30
========================================
Stock prices:
High $ 38 3/4 40 5/8 38 37 1/2
Low $ 32 1/8 34 33 33 1/4
Summarized 1994 quarterly financial data is as follows:
Mar. 31, Jun. 30, Sep. 30, Dec. 31,
Quarter Ended 1994 1994 1994 1994
- ---------------------------------------------------------------------------
(In thousands except per share amounts)
Revenues $ 29,550 30,934 31,557 32,237
========================================
Earnings (loss) from
continuing operations $ 648 47 (1,745) (822)
Loss from discontinued real
estate operations -- -- -- (2,904)
----------------------------------------
Net earnings (loss) $ 648 47 (1,745) (3,726)
========================================
Per share:
Earnings (loss) from
continuing operations $ .10 .01 (.27) (.12)
Loss from discontinued real
estate operations -- -- -- (.46)
----------------------------------------
Net earnings (loss) $ .10 .01 (.27) (.58)
========================================
Dividends paid per share $ .30 .30 .30 .30
========================================
Stock prices:
High $ 41 1/4 40 1/2 38 1/4 37 1/4
Low $ 33 1/2 38 1/2 35 1/2 30 3/4
See Note 13 of Notes to Consolidated Financial Statements for a description
of discontinued operations which affected the results of operations for the
quarters shown above. Quarterly earnings per share amounts may not add to
the annual earnings per share amounts due to the effect of common stock
equivalents and the timing of treasury stock purchases and net earnings.
SEAFIELD CAPITAL CORPORATION AND SUBSIDIARIES
Schedule II
Valuation and Qualifying Accounts and Reserves
- ---------------------------------------------------------------------------
Additions
-----------------
Charged Charged
Balance at to Costs to Other Balance at
Beginning and Accounts- End of
Description of Year Expenses Describe Deductions* Year
- ---------------------------------------------------------------------------
(In thousands)
Year ended December 31, 1995
Accounts and notes receivable -
allowance for
doubtful accounts $ 4,637 2,935 -- 4,258 3,314
Year ended December 31, 1994
Accounts and notes receivable -
allowance for
doubtful accounts 4,589 2,671 -- 2,623 4,637
Year ended December 31, 1993
Accounts and notes receivable -
allowance for
doubtful accounts 2,385 3,068 -- 864 4,589
* Uncollectible accounts written-off
SEAFIELD CAPITAL CORPORATION AND SUBSIDIARIES
Schedule III
Real Estate and Accumulated Depreciation
December 31, 1995
(Page 1 of 2)
Costs Capitalized Gross Amount
Initial Cost Subsequent At Which Carried
to Company to Acquisition at December 31, 1995
----------------- ----------------- ----------------------
Buildings & Buildings &
Improve- Improve- Carrying Improve-
Description Land ments ments Costs Land ments Total
- ------------------------------- ----------------- ----------------------
(In thousands)
Land Investments/
Developments:
Houston, TX $ 6,158 49 1,014 1,553 4,321 -- 4,321
Tulsa, OK 754 -- -- 754 -- 754
Ft Worth, TX 11,501 -- 91 -- 7,720 -- 7,720
Ft Worth, TX 3,886 -- -- -- 3,886 -- 3,886
Ft Worth, TX 2,770 -- -- 42 2,812 -- 2,812
Ft Worth, TX 4,633 -- -- -- 4,633 -- 4,633
Ft Worth, TX 1,000 -- -- -- 665 -- 665
Olathe, KS 3,292 -- 46 -- 2,484 -- 2,484
Parking:
Reno, NV -- 5,277 19 -- -- 5,296 5,296
Residential:
Juno Beach, FL 8,400 -- 24,343 2,246 223 3,783 4,006
Juno Beach, FL 5,340 -- 8,626 443 1,105 2,580 3,685
Santa Fe, NM 4,576 -- 65,122 17,054 1,369 27,711 29,080
--------------------------------------------------------------
$ 52,310 5,326 99,261 21,338 29,972 39,370 69,342
==================================================
Reserves (33,028)
-------
Net real estate before depreciation 36,314
Accumulated depreciation (1,293)
-------
Net real estate $ 35,021
=======
SEAFIELD CAPITAL CORPORATION AND SUBSIDIARIES
Schedule III
Real Estate and Accumulated Depreciation
December 31, 1995
(Page 2 of 2)
Date
Accum. Tax Constr. Date Depr.
Description Reserves Depr. Basis Began Acquired Life
- ---------------------------------------------------------------------------
(In thousands)
Land Investments/
Developments
Houston, TX 890 -- 4,615 -- 1974 --
Tulsa, OK 579 -- 754 -- 1980 --
Ft Worth, TX 5,404 -- 7,495 -- 1986 --
Ft Worth, TX 3,487 -- 3,886 -- 1986 --
Ft Worth, TX 2,642 -- 1,932 -- 1984 --
Ft Worth, TX 4,327 -- 2,203 -- 1989 --
Ft Worth, TX 629 -- 665 -- 1986 --
Olathe, KS -- -- 2,681 -- 1991 --
Parking:
Reno, NV 1,500 1,293 4,572 -- 1989 20 yrs
Residential:
Juno Beach, FL 4,100 -- 1,043 1985 1983 --
Juno Beach, FL -- -- 4,297 1989 1983 --
Santa Fe, NM 9,470 -- 23,044 1987 1985 --
------------------------
33,028 1,293 57,187
=========================
SEAFIELD CAPITAL CORPORATION AND SUBSIDIARIES
Schedule III
Real Estate and Accumulated Depreciation
Reconciliation Between Years
A) Reconciliations of total real estate carrying value for the three years
ended December 31, 1995 are as follows:
1995 1994 1993
- ---------------------------------------------------------------------------
(In thousands)
Balance at beginning of year $ 39,665 38,921 46,346
Additions during year:
Improvements 16,539 11,689 7,014
Consolidate joint venture -- 3,292 --
----------------------------------
56,204 53,902 53,360
Deductions during year:
Value of real estate sold 9,890 9,837 14,439
Provision for loss on sale of
real estate 10,000 4,400 --
----------------------------------
19,890 14,237 14,439
----------------------------------
Balance at end of year $ 36,314 39,665 38,921
==================================
B) Reconciliations of accumulated depreciation for the three years ended
December 31, 1995 are as follows:
1995 1994 1993
- ---------------------------------------------------------------------------
(In thousands)
Balance at beginning of year $ 1,081 868 655
Additions during year - depreciation 212 213 213
----------------------------------
1,293 1,081 868
Deductions during year - accumulated
depreciation of real estate sold -- -- --
----------------------------------
Balance at end of year $ 1,293 1,081 868
==================================
Exhibit 10.3
AMENDMENT TO
1984 STOCK OPTION INCENTIVE PLAN
EFFECTIVE AUGUST 2, 1995
FURTHER RESOLVED, that Section 7.1 of the 1984 Plan shall be amended to
be and read in its entirety as follows:
7.1 The Committee may, in its discretion, grant a SAR to the
holder of an Option, either at the time the Option is granted or by amending
the instrument evidencing the grant of the Option at any time after the
Option is granted, so long as the grant is made during the period in which
grants of SARs may be made under the Plan and, if made to a person subject to
Section 16(b) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), is made more than six months prior to the end of the Term
of the Option.
; and
FURTHER RESOLVED, that Section 7.2 of the 1984 Plan shall be amended to
be and read in its entirety as follows:
7.2. Each SAR shall be for such Term, and shall be subject to
such other terms and conditions, as the Committee shall impose. The terms
and conditions may include Committee approval of the exercise of the SAR,
limitations on the amount of appreciation which may be recognized with regard
to such SAR, and specification of what portion, if any, of the amount payable
to the Grantee upon his exercise of a SAR shall be paid in cash and what
portion, if any, shall be payable in Shares. If the Committee does not
determine the form in which payment of a SAR will be made, each Award made to
a person subject to Section 16(b) of the Exchange Act, which may be payable
in cash shall reserve to the Committee the right to withhold its consent to
the Grantee's election to receive cash in settlement of the SAR. If and to
the extent that Shares are issued in satisfaction of amounts payable upon
exercise of a SAR, the Shares shall be valued at their Fair Market Value on
the date of exercise.
; and
FURTHER RESOLVED, that Section 13.4 of the 1984 Plan shall be amended to
be and read in its entirety as follows:
13.4 The notice of exercise of a SAR shall be in writing. For
Grantees subject to the provisions of Section 16(b) of the Exchange Act, a
SAR exercisable for cash may be exercised only during a period beginning on
the third business day following the date of release for publication of the
Company's quarterly or annual summary statements of sales and earnings and
ending on the twelfth business day following such date or on a date at least
six months after the date on which such Grantee makes an irrevocable election
to exercise a SAR for cash.
FURTHER RESOLVED, that Section 13.8 and Section 13.9, as follow,
shall be added to the 1984 Plan:
13.8. In no event may any employee who is granted an Award under
the Plan hold such derivative security for less than six months prior to
disposition of the derivative security or its underlying equity securities.
13.9. A Grantee who is subject to Section 16(b) of the Exchange
Act may avail himself of the alternative methods of payment set forth in
Section 13.3 of this Plan only if such Grantee (i) makes an irrevocable
election to use such payment method at least six months prior to the
effective date of the transaction or (ii) if such transaction is effected
during a period beginning on the third business day following the date of
release for publication of the Company's quarterly or annual summary
statements of sales and earnings and ending on the twelfth business day
following such date.
Exhibit 10.7
AMENDMENT TO
1989 STOCK OPTION AND INCENTIVE PLAN
EFFECTIVE AUGUST 2, 1995
FURTHER RESOLVED, that the following sentence shall be added to the 1989
Plan at the end of Section 13.5:
Grantees subject to the "insider trading" provisions of
Section 16(b) of the Exchange Act may also elect to exercise a SAR for cash
settlement if such cash settlement is made pursuant to an irrevocable
election made by the Grantee at least six months in advance of the effective
date of such cash settlement.
; and
FURTHER RESOLVED, that Section 13.8 and Section 13.9, as follow, shall
be added to the 1989 Plan:
13.8. In no event may any employee who is granted an Award under
the Plan hold such derivative security for less than six months prior to
disposition of the derivative security or its underlying equity securities.
13.9. A Grantee who is subject to Section 16(b) of the Exchange
Act may avail himself of the alternative methods of payment set forth in
Section 13.3 and Section 13.4 of this Plan only if such Grantee (i) makes an
irrevocable election to use such payment method at least six months prior to
the effective date of the transaction or (ii) if such transaction is effected
during a period beginning on the third business day following the date of
release for publication of the Company's quarterly or annual summary
statements of sales and earnings and ending on the twelfth business day
following such date.
Exhibit 10.10
AMENDMENT TO
1991 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
EFFECTIVE AUGUST 2, 1995
FURTHER RESOLVED, that the definition of "Date of Entitlement" in the
Directors' Plan is amended to be and read in its entirety as follows:
"Date of Entitlement" means the date as of which as director
becomes entitled to receive an Option under this Plan, as determined in
paragraph 5 hereof, which date shall be deemed to be the date of the grant of
such Option.
; and
FURTHER RESOLVED, that Section 6(d)(iii), as follows, shall be added to
the Directors' Plan:
(iii) A Director who is subject to Section 16(b) of the Exchange
Act may avail himself of the alternative methods of payment set forth in
Section 6(d)(i) and Section 6(d)(ii) this Plan only if such Director (i)
makes an irrevocable election to use such payment method at least six months
prior to the effective date of the transaction or (ii) if such transaction is
effected during a period beginning on the third business day following the
date of release for publication of the Company's quarterly or annual summary
statements of sales and earnings and ending on the twelfth business day
following such date.
Exhibit 10.14
AMENDMENT TO
STOCK PURCHASE PLAN
EFFECTIVE AUGUST 2, 1995
NOW, THEREFORE, BE IT RESOLVED, that Articles IV, V and VI of the Stock
Purchase Plan are hereby amended to be and read in their entirety as follows:
ARTICLE IV
Participation
Participation in the Plan shall be voluntary for Eligible Employees
of a participating Company and for Non-Employee Directors of the Corporation
who are employed, appointed or elected to serve prior to September 1, 1995.
All non-employees who become directors of the Corporation on or after
September 1, 1995 shall participate in the Plan. Participation shall become
effective with regard to each Non-Employee Director as of the date of such
Non-Employee Director's appointment or election as a Director of the
Corporation.
ARTICLE V
Participants' Contributions
Each Non-Employee Director who is a Participant in the Plan prior
to September 1, 1995, shall continue to contribute an amount equal to that
being contributed by such Non-Employee Director as of September 1, 1995.
Each Non-Employee Director who becomes eligible to participate in the Plan on
or after September 1, 1995 shall contribute to the Plan the full amount of
all director's fees paid by the Corporation to such Non-Employee Director.
No Non-Employee Director shall be permitted to revoke or otherwise modify his
election to participate in the Plan.
ARTICLE VI
Company's Contributions
1. In the case of Eligible Employees, each participating Company,
on the Purchase Date of each month, during each year of the Plan, shall pay
into the Plan, to be credited to the account of each Participant, an amount
equal to 50% of the amount contributed by each Participant.
In the case of Non-Employee Directors, the Corporation, on or
before the Purchase Date following the date of the meeting of the Board of
Directors (or a committee thereof) at which a Non-Employee Director is
appointed or elected and for which directors' fees are paid, shall pay to the
Plan, to be credited to the account of each such Non-Employee Director, an
amount equal to 50% of the Directors' Fees contributed by such Non-Employee
Director. The percentage contribution by the Corporation shall not be
subject to modification while the Plan is in effect.
All taxes subject to being withheld which are payable with respect
to the Company's contributions on behalf of Eligible Employees will be
deducted from the balance of such Eligible Employee's salary or manager's
compensation during the pay period in which such contribution by the Company
is made, and will not reduce the amount of the Company's contribution.
2. All contributions to the Plan by the Company are subject to
existing laws, governmental orders and regulations, if any, applicable to
wage increases.
Exhibit 10.21
AMENDMENT NO. 2
TO
TERMINATION COMPENSATION AGREEMENT
This Amendment is made the 14th day of February, 1996, among Seafield
Capital Corporation (formerly named BMA Corporation), a Missouri corporation
(the "Corporation") and the Corporation officer whose name is set forth at
the end of this Amendment (the "Officer").
WHEREAS, the Corporation and the Officer are parties to a Termination
Compensation Agreement, dated June 27, 1990, as amended on January 20, 1995,
the (the "Agreement") providing for certain severance compensation and
benefits to the Officer in the event his employment with the Corporation is
terminated under specified circumstances within three years after a "change
in control" as defined in the Agreement; and
WHEREAS, the Nominating and Compensation Committee of the Corporation's
Board of Directors (the "Committee") waived the time vesting requirements for
portions of a certain restricted stock award (the "Restricted Stock Award")
granted to the officer on August 9, 1991, thereby accelerating the dates upon
which such portions of the Restricted Stock Award time vest from the date
determined by reference to the instrument evidencing such Award (i.e.,
October 12, 1995 and October 12, 1996) to January 20, 1995, subject to
certain conditions; and
WHEREAS, one condition to such acceleration was that the Agreement be
amended to prevent the payment pursuant to the Agreement of any "excess
parachute payment" as defined in Section 280G of the Internal Revenue Code of
1986 (the "Code"); and
WHEREAS, the Agreement was amended on January 20, 1995 ("Amendment No.
1");
NOW, THEREFORE, in order to fulfill the aforementioned condition
established by the Committee, the parties to the Agreement hereby agree to
further amend the Agreement and to restate Amendment No. 1 as follows:
1. The first full paragraph on page 2 of the Agreement, as amended by
Amendment No. 1, is further amended to read as follows:
"Lump Sum Compensation. The lump sum compensation payable hereunder
shall be equal to 2.999 times the average annual compensation includable in
your gross income (without regard to the exclusion of any elective
contribution or elective deferral under any plan qualified under Section
401(k) of the Code) for your most recent five taxable years ending before the
date of such change in control; provided:
a. that there shall be excluded from your gross income for 1995 one
half of the value of the shares of restricted stock that became time vested
on January 20, 1995 as a result of action by the Nominating and Compensation
Committee of the Corporation's Board of Directors (the "Committee") to
accelerate the vesting of such shares to such date (the "Accelerated
Shares"), and (b) there shall be added to your gross income for 1996 one half
of the value of the Accelerated Shares (for purposes of this proviso, the
"value" of the Accelerated Shares shall be the amount includable in your
gross income for 1995, determined without regard to this subparagraph 1., as
a result of the Committee's acceleration of the time vesting for such
shares);
b. that the amount of the lump sum payment shall be reduced by the
aggregate amount of dividends paid or declared during the Acceleration Period
on the Accelerated Shares (for purposes of this proviso, the term
"Acceleration Period" shall mean the period commencing on January 20, 1995
and ending, as to one half of the Accelerated Shares, on October 12, 1995,
and as to the other one half of the Accelerated Shares, on October 12, 1996);
and
c. that the amount of the lump sum payment shall be reduced by the
amount of any payment to you under any other plan or agreement of the
Corporation to the extent that such payment is treated as a parachute payment
under Section 280G of the Code."
2. The second paragraph on page 4 (beginning with the phrase "In
addition, . . ." on page 4 and ending at the end of subparagraph 5. on page 5
with the phrase ". . . appropriate out-placement services.") of the Agreement
is amended to read as follows:
"Vested Rights Under Other Plans. Your vested rights to any
termination distributions under any retirement plan(s) adopted by the
Corporation shall be governed by the terms of those plans."
Except as amended, restated, modified or changed pursuant to the
provisions of this Amendment, all terms and provisions of the Agreement shall
remain in full force and effect.
IN WITNESS WHEREOF, the Amendment is signed by or on behalf of the
parties hereto on the date first above written.
SEAFIELD CAPITAL CORPORATION
(formerly named BMA Corporation)
By:
-----------------------------
W. Thomas Grant, II
Chairman of the Board and
Chief Executive Officer
OFFICER
-----------------------------
Exhibit 10.23
SEVERANCE AGREEMENT
This Severance Agreement is made as of the 14th day of February, 1996,
between Seafield Capital Corporation (the "Company") and
____________________________ ("Executive").
WHEREAS, the Company and the Executive are parties to that certain
Termination Compensation Agreement, dated June 27, 1990, as amended by
Amendment No. 1 and Amendment No. 2 to Termination Compensation Agreement
(as amended, the "Termination Agreement"), which provides for a severance
benefit in the event the Executive's employment with the Company is
terminated following a change of control, but does not provide for a
severance benefit if his employment is terminated under other
circumstances; and
WHEREAS, under the provisions of the Termination Agreement, a merger
or consolidation involving the Company does not constitute a change of
control if another party to the transaction either controls or is
controlled by the Company immediately prior to the consummation of the
transaction; and
WHEREAS, the Company has announced that it may consider a merger into
a majority owned subsidiary (such subsidiary being the "merger partner"),
with the subsidiary being the surviving corporation (such merger being the
"Contemplated Merger"); and
WHEREAS, as a result of the Contemplated Merger, the Executive's
employment with the Company is likely to terminate; and
WHEREAS, the Contemplated Merger or any similar transaction is
expected to be preceded by numerous transactions involving most of the
assets of the Company, other than the merger partner; and
WHEREAS, the Company desires to insure that the Executive devotes his
full time, attention, talents and expertise to assisting the Company with
all transactions preliminary to the Contemplated Merger and with such
merger itself, or with respect to any other transaction or series of
transactions which either would constitute a "change of control" under the
Termination Agreement but for the fact that another party to the
transaction(s) either controls or is controlled by the Company, or would
result in a fundamental change in the Company, in any event without the
distractions which otherwise could be expected to be associated with the
related uncertainties of the Executive's near term employment and income
requirements;
NOW, THEREFORE, in consideration of the premises and the continued
devotion by the Executive to his duties with the Company, the Company
agrees with the Executive as follows:
1. Severance Benefit. If either (a) pursuant to the terms of a
transaction, both a Fundamental Change in the Company occurs and the
Executive's employment with the Company terminates or (b) within one year
after a Fundamental Change in the Company, the Executive's employment with
the Company is terminated (actually or constructively) by the Company,
other than by reason of death, normal retirement or permanent disability,
and in connection with a termination of employment under the circumstances
referred to in clauses (a) or (b) of this Section 1 the Executive is not
offered employment with a Kansas City based affiliate of the Company which
includes substantially the same responsibilities and provides for
substantially the same compensation as those associated with the
Executive's current position with the Company, the Company will pay the
Executive as severance compensation an amount equal to 250% of the
Executive's then annual base compensation; provided that the amount of the
severance compensation shall be reduced by the aggregate amount of
dividends paid or declared during the Acceleration Period on those shares
of Company stock (the "Accelerated Shares") issued to the Executive on or
about January 20, 1995 as a result of action taken by the Nominating and
Compensation Committee of the Company's Board of Directors to accelerate
the vesting of certain restricted stock to such date (for purposes of this
provision, the term "Acceleration Period" shall mean the period commencing
on January 20, 1995 and ending as to one half of the Accelerated Shares, on
October 12, 1995, and as to the other one half of the Accelerated Shares,
on October 12, 1996). For purposes of clause (b) above, a substantial
change by the Company in the nature of the Executive's responsibilities or
a substantial reduction by the Company in the Executive's compensation
shall constitute a constructive termination by the Company of the
Executive's employment with the Company. The severance payment due under
this Severance Agreement shall not be considered compensation for purposes
of entitling the Executive to any other employee benefit from the Company.
2. Fundamental Change in the Company. For purposes of this Severance
Agreement, a Fundamental Change in the Company will be deemed to have
occurred if either (a) an event occurs or a transaction is consummated
which would result in a "change of control" for purposes of the Termination
Agreement, but for the provisions of clause (ii) (the "exception clause")
of Section 1 of the paragraph of the Termination Agreement captioned
"Change in Control," or (b) the Contemplated Merger is consummated, or
(c) following an event or series of related events or consummation of a
transaction or a series of related transactions, the assets of the Company,
other than the Company's shares of stock of LabOne, Inc., (the "Non LabOne
Assets") consist primarily of cash, cash equivalents or marketable
securities, or a combination thereof, and the Company shall not have
announced an intention to reinvest a substantial portion of such assets in
operating assets or securities representing control of companies with
active trades or businesses, or (d) the Company's Board of Directors and
shareholders shall have adopted or approved a plan of complete liquidation
and dissolution of the Company, or (e) the Company shall distribute to its
shareholders substantially all of the Company's assets; provided that any
transaction or event or series of related transactions or events which
results in a "change of control" of the Company for purposes of the
Termination Agreement shall not constitute a Fundamental Change in the
Company for purposes of this Severance Agreement.
3. Parachute Payment Provision. If the amount payable hereunder
would constitute a "parachute payment" under Section 280G of the Internal
Revenue Code of 1986, as amended, and the regulations promulgated
thereunder (collectively, "Section 280G"), then notwithstanding anything to
the contrary in section 1 above, the amount of the severance compensation
which the Company shall be obligated to pay pursuant to this Severance
Agreement will not exceed an amount which, when aggregated with all other
payments in the nature of compensation to (or for the benefit of) the
Executive which are contingent on a change in the ownership or effective
control of the Company or in the ownership of a substantial portion of the
assets of the Company (all within the meaning of Section 280G), would be
$1.00 less than three times the "base amount" for the Executive, within the
meaning of Section 280G.
4. Exclusive Benefit. Under the circumstances wherein severance
compensation is owing to the Executive hereunder, payment of such
compensation shall constitute the entire amount due to the Executive with
respect to his termination of employment. The Executive hereby agrees to
accept the terms of the severance arrangement contained herein and further
agrees to release and forever discharge the Company, its successors,
assigns, agents, officers, directors and employees from any and all
actions, claims or demands whatsoever, including but not limited to, any
claim for wrongful discharge or any claim under Title VII of the Civil
Rights Act of 1964, as amended, 42 U.S.C. Section 2000, et. seq., the Equal
Pay Act, as amended, 29 U.S.C. Section 206(d), the Age Discrimination and
Employment Act, as amended, 29 U.S.C. Section 621 et. seq., or the Employee
Retirement Income Security Act, as amended, 29 U.S.C. Section 1001 et.
seq., which he has or may hereafter have on account of or which may arise
from or are related to a termination of his employment in connection with
or following a Fundamental Change in the Company or his employment with the
Company prior thereto. The Executive further agrees that in the event of a
Fundamental Change in the Company this Section 4 will constitute a full and
complete settlement of any and all claims whatsoever, now and hereafter
forever, with no reservation of any rights, either stated or implied, other
than the Company's obligations to pay (a) the severance compensation
specified in Section 1 above and (b) amounts which would be due to the
Executive if his termination of employment were unrelated to or more than
three years after a Fundamental Change in the Company, such as amounts for
accrued vacation, unreimbursed Company expenses, amounts due under the
Company's Money Purchase Pension Plan or 401(k) Savings Plan and Trust and
amounts due under any supplemental retirement plan.
5. Waiver. The Company's obligation to pay any severance
compensation provided for in this Severance Agreement shall be conditional
upon the Company's receipt of a Waiver, signed by the Executive after the
right to the severance payment hereunder shall have matured, containing
provisions for release and discharge substantially similar to those
contained in Section 4 above, and the passage of at least seven (7) days
thereafter during which the Company shall not have received notification
from the Executive that he has revoked such Waiver. The Executive hereby
acknowledges that he has been advised and encouraged by the Company to
consult with his own attorney regarding this Severance Agreement, the
provisions of Section 4 above respecting release and discharge and any
Waiver granted by him pursuant to this Section 5.
IN WITNESS WHEREOF, the parties hereto have signed this Severance
Agreement as of the date first above written.
In the event of a Fundamental Change in the Company and the Company's
payment of the severance compensation specified in Section 1 above, this is
a complete and final release of all my claims against Seafield Capital
Corporation.
EXECUTIVE
__________________________________
SEAFIELD CAPITAL CORPORATION
By: _______________________________
David W. Kemper, Chairman of the
Nominating and Compensation
Committee of the Board of
Directors
STATE OF MISSOURI )
) ss.
COUNTY OF JACKSON )
On this ____ day of ________________ in the year 1996, before me, a
Notary Public in and for said state, personally appeared
_______________________________, known to me to be the person who executed
the within instrument and acknowledged to me that he executed the same for
the purposes therein stated.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal at my office in ___________________, the day and year last
above written.
______________________________
Notary Public in and for
Said County and State
My Commission Expires:
______________________
Exhibit 10.27
AMENDMENT NO. 2 TO THE
RESPONSE TECHNOLOGIES, INC.
1990 NON-QUALIFIED STOCK OPTION PLAN
This amendment to the 1990 Non-Qualified Stock Option Plan (the "Plan") of
Response Technologies, Inc. (the "Corporation") was adopted by the
Corporation's Board of Directors on April ___, 1995, subject to approval by
the shareholders of the Corporation at the Corporation's annual meeting to
be held on May 26, 1995. All capitalized terms used in this amendment shall
have the meanings ascribed to such terms in the Plan.
1. Section 2 of the Plan is hereby amended by adding as subsection (d) the
definition of "Change in Control" as follows:
"Change in Control" means any transaction pursuant to which (i) the
Corporation merges with another corporation, limited partnership, limited
liability company or other business entity and is not the surviving entity;
(ii) substantially all of the Corporation's assets are sold to persons or
entities not affiliated with the Corporation; (iii) shares of Common Stock
are issued to or acquired by persons (as defined in Section 13(d)(3) under
the Securities Exchange Act of 1934), their Affiliates and associates (as
defined in Rule 12b-2 under the Securities Exchange Act of 1934) not
affiliated with the Corporation who, immediately after such issuance or
acquisition, own Common Stock comprising more than 20% of the number of
shares of Common Stock issued and outstanding immediately after such
issuance or acquisition; or (iv) any other transaction of a nature similar
to the foregoing.
The remaining subsections of Section 2 are renumbered to account for the
foregoing addition.
1. Section 3 of the Plan is hereby amended by deleting the number
"3,300,000" in the first sentence of section 3 and inserting the number
"4,300,000" in its place.
2. Section 8(g) of the Plan is hereby amended as follows;
The fourth sentence of Section 8(g) is amended to read as follows: "A
dissolution or liquidation of the Corporation will cause each outstanding
Option to terminate, except for Options as to which another company assumes
or substitutes another Option in a transaction to which Section 425(a) of
the Code is applicable; provided, however, that, as to any Options which so
terminate, each holder will have the right immediately prior to such
dissolution or liquidation to exercise his Options in whole or in part
without regard to any provisions deferring exercise contained herein."
3. New Section 8(j) entitled "Accelerated Vesting on Change in Control"
is hereby added to read as follows:
Notwithstanding any other provision of this Plan or in any Option
Agreement, all Options granted pursuant hereto shall vest and become
immediately exercisable as of the time of occurrence of a Change in Control
of the Company; provided, however, that if the Change in Control occurs in
a transaction that affects the rights of any shareholder of the Corporation
(i.e. a merger, share exchange, tender offer or sale of substantially all
of the Corporation's assets) each Option holder shall be deemed to have
exercised his or her Options immediately prior to the Change in Control
with the effect that such Option holder shall be entitled to participate in
such transaction. In such event, no consideration payable to shareholders
of the Corporation by reason of such transaction shall be delivered to an
Option holder unless and until the Option holder shall have paid the full
exercise price for the shares of Common Stock with respect to which such
exercise relates.
Exhibit 10.29
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made January 31, 1996, effective as of July 1, 1995, by
and between RESPONSE ONCOLOGY, INC., a Tennessee corporation (the
"Company"), and JOSEPH T. CLARK (the "Executive").
WHEREAS, the Company is engaged in the business of providing advanced
cancer treatment services; and
WHEREAS, the Company desires to employ the Executive to devote full time to
the business of the Company and to continue as the President and Chief
Operating Officer of the Company; and
WHEREAS, the Executive desires to be employed on the terms and subject to
the conditions hereinafter stated.
NOW, THEREFORE, in consideration of the mutual covenants contained in this
Employment Agreement, the parties hereby agree as follows:
1
POSITION AND RESPONSIBILITIES
During the Term of this Employment Agreement, the Executive shall perform
such duties for such compensation and subject to such terms and conditions
as are hereinafter set forth.
2
TERM AND DUTIES
2.1 Term; Extension. The term of this Employment Agreement (the "Term of
this Employment Agreement") will commence as of July 1, 1995, and shall
continue through December 31, 1997. On the first and each successive
anniversary of the effective date of this Employment Agreement, the Term of
this Employment Agreement shall be extended for an additional one (1) year
period, unless either party gives notice no later than such anniversary
date of such party's intent not to extend the Term of this Employment
Agreement. Termination of the Executive's employment pursuant to this
Employment Agreement shall be governed by Sections 4 and 5.
2.2 Duties. The Executive shall devote substantially all of his time and
attention and best efforts during normal business hours to the Company's
affairs. The Executive shall have such duties and responsibilities as are
assigned to him from time to time by the Board of Directors. As of the
effective date of this Employment Agreement, the Executive shall continue
to possess and assume senior operating authority and responsibility as
Chief Executive Officer of the Company, consistent with directions from the
Board of Directors of the Company.
2.3 Location. The duties of the Executive shall be performed at such
locations and places as may be directed by the Board of Directors.
3
COMPENSATION AND BENEFITS
3.1 Base Compensation. The Company shall pay the Executive a base salary
("Base Salary") of $200,000 per annum, subject to applicable withholdings.
Base Salary shall be payable according to the customary payroll practices
of the Company but in no event less frequently than once each month. The
Base Salary shall be reviewed annually and shall be subject to increase or
decrease according to the policies and practices adopted by the Board of
Directors from time to time; provided, however, that in no event shall the
Base Salary for any year be decreased by more than five percent (5%) from
the immediately preceding year's Base Salary as a result of any such annual
review.
3.2 Annual Incentive Awards. The Company will pay the Executive annual
incentive compensation of up to 100% of his Base Salary, in accordance with
policies and based on performance targets established annually by the
Compensation Committee of the Board of Directors.
3.3 Additional Benefits. The Executive will be entitled to participate in
all employee benefit plans or programs and receive all benefits and
perquisites to which any salaried employees are eligible under any existing
or future plans or programs established by the Company for salaried
employees. The Executive will participate to the extent permissible under
the terms and provisions of such plans or programs in accordance with
program provisions. These may include group hospitalization, health, dental
care, life or other insurance, tax qualified pension, car allowance,
savings, thrift and profit sharing plans, termination pay programs, sick
leave plans, travel or accident insurance, disability insurance, and
contingent compensation plans, including capital accumulation programs,
restricted stock programs, stock purchase programs and stock options plans.
Nothing in this Agreement will preclude the Company from amending or
terminating any of the plans or programs applicable to salaried employees
or senior executives. The Executive will be entitled to an annual paid
vacation as established by the Board of Directors.
3.4 Business Expenses. The Company will reimburse the Executive for all
reasonable travel and other expenses incurred by the Executive in
connection with the performance of his duties and obligations under this
Employment Agreement.
3.5 Withholding. The Company may directly or indirectly withhold from any
payments under this Employment Agreement all federal, state, city or other
taxes that shall be required pursuant to any law or governmental
regulation.
4
DEATH BENEFIT; DISABILITY COMPENSATION; KEY MAN INSURANCE
4.1 Payment in Event of Death. In the event of the death of the Executive
during the Term of this Employment Agreement, the Company's obligation to
make payments under this Employment Agreement shall cease as of the date of
death, except for earned but unpaid Base Salary and incentive compensation
which will be paid on a pro-rated basis for that year. The Executive's
designated beneficiary will be entitled to receive the proceeds of any life
or other insurance or other death benefit programs provided or referred to
in this Employment Agreement, other than "key man" life insurance benefits.
4.2 Disability Compensation. Notwithstanding the disability of the
Executive, the Company will continue to pay the Executive pursuant to
Section 3 hereof during the Term of this Employment Agreement, unless the
Executive's employment is earlier terminated in accordance with this
Employment Agreement. In the event the disability continues for a period of
three (3) months, the Company may thereafter terminate this Employment
Agreement and the Executive's employment. Following such termination, the
Company will pay the Executive amounts equal to his regular installments of
Base Salary, as of the time of termination, for a period of six (6) months.
All other compensation will cease except for earned but unpaid incentive
compensation awards which would be payable on a pro-rated basis for the
year in which the disability occurred, through the date of termination.
4.3 Responsibilities in the Event of Disability. During the period the
Executive is receiving payments following his disability and as long as he
is physically and mentally able to do so, the Executive will furnish
information and assistance to the Company and from time to time will make
himself available to the Company to undertake assignments consistent with
his position or prior position with the Company and his physical and mental
health. If the Company fails to make a payment or provide a benefit
required as part of this Employment Agreement, the Executive's obligation
to provide information and assistance will end.
4.4 Definition of Disability. For purposes of this Employment Agreement,
the term "disability" will have the same meaning as is attributed to such
term, or any substantially similar term, in the Company's long term income
disability plan as in effect from time to time.
4.5 Key-Man Life Insurance. Upon request by the Company, the Executive
agrees to cooperate with the Company in obtaining "key man" life insurance
on the life of the Executive, with death benefits payable to the Company.
Such cooperation shall include the submission by the Executive to a medical
examination and his response to inquiries regarding his medical history.
5
TERMINATION OF EMPLOYMENT
Notwithstanding anything herein to the contrary, this Employment Agreement
and the Executive's employment with the Company may be terminated by the
Company at any time, subject to the terms and provisions of this Section 5.
5.1 Termination Without Cause.
(a) Without a Change in Control. If the Executive suffers a Termination
Without Cause (hereinafter defined) and a Change in Control (hereinafter
defined) shall not have occurred within one (1) year prior thereto, the
Company will continue to pay the Executive amounts equal to his Base
Salary, as in effect at the time of the Termination Without Cause, for the
remaining Term of this Employment Agreement; provided, however, if the
Executive shall give the notice referred to in Section 6.3(c), the
Executive shall not be entitled to any amounts for periods after the
effective date of such notice. Earned but unpaid Base Salary through the
date of termination will be paid in a lump sum at such time, and pro-rated
incentive compensation, if any, for the year of termination, to the date of
termination, will be paid to the Executive in accordance with the Company's
customary practice for payment of incentive compensation. For six (6)
months following such Termination Without Cause, the Company shall
reimburse the Executive for the cost of the Executive's major medical
health insurance as in effect at the date of termination; provided that
reimbursement for the costs of such medical insurance shall cease upon the
effective date of a notice given by the Executive pursuant to Section
6.3(c). The exercisability of stock options granted to the Executive shall
be governed by any applicable stock option agreements and the terms of the
respective stock option plans.
(b) Upon a Change in Control. If the Executive suffers a Termination
Without Cause within one (1) year following a Change in Control, the
Company will pay to the Executive in a lump sum upon such termination an
amount equal to the lesser of (i) 300% of the Executive's Base Salary as in
effect at the time of the termination and (ii) the maximum amount which
could be paid and not result in such amount or any other payment in the
nature of compensation (within the meaning of Section 280G of the Internal
Revenue Code of 1986, as amended, and the regulations promulgated
thereunder ("Section 280G")) to or for the benefit of the Executive, or any
part of such amount or other payment, constituting a "parachute payment"
within the meaning of Section 280G. Earned but unpaid Base Salary through
the date of termination will be paid in a lump sum at such time and pro
rated incentive compensation, if any, for the year of termination, to the
date of termination, will be paid to the Executive in accordance with the
Company's customary practice for payment of incentive compensation.
5.2 Termination With Cause; Voluntary Termination. If the Executive suffers
a Termination with Cause or the Executive terminates his employment with
the Company (a "Voluntary Termination"), then, whether or not there has
been a Change in Control, the Company will not be obligated to pay the
Executive any amounts of compensation or benefits following the date of
termination. However, earned but unpaid Base Salary through the date of
termination will be paid in a lump sum at such time, and incentive
compensation, if any, for the year during which such termination occurs
will be pro rated for the portion of the year prior to the date of
termination and paid in accordance with the Company's customary practice
for payment of incentive compensation.
5.3 Definitions. For purposes of this Employment Agreement, the following
terms have the following meanings:
(a) A "Change in Control" shall occur if an event or series of events
occurs after the effective date of this Employment Agreement which would
constitute either a change in ownership of the Company, within the meaning
of Section 280G or a change in the ownership of a substantial portion of
the Company's assets, within the meaning of Section 280G, but for purposes
of this definition, the fair market value threshold for determining
"substantial portion of the Company's assets" shall be "greater than 50%;"
provided that neither a distribution of shares of Company stock by Seafield
Capital Corporation ("Seafield") to its shareholders nor a sale (including
a sale by Seafield) of shares of Company stock in a public offering shall
constitute a change in control for purposes of this Employment Agreement.
(b) "Termination With Cause" means termination of the Executive's
employment by the Company, acting in good faith, by written notice to the
Executive specifying the event relied upon for such termination, due to the
Executive's conviction for a felony, the Executive's perpetration of a
fraud, embezzlement or other act of dishonesty or the Executive's breach of
a trust or fiduciary duty which materially adversely affects the Company or
its shareholders.
(c) "Termination Without Cause" means termination of the Executive's
employment by the Company other than due to the Executive's death or
disability or Termination With Cause.
6
OTHER DUTIES OF THE EXECUTIVE DURING
AND AFTER THE TERM OF THIS EMPLOYMENT AGREEMENT
6.1 Additional Information. The Executive will, upon reasonable notice,
during or after the Term of this Employment Agreement, furnish information
as may be in his possession and cooperate with the Company as may
reasonably be requested in connection with any claims or legal actions in
which the Company is or may become a party. The Executive shall receive
reasonable compensation for the time expended by him pursuant to this
Section 6.1.
6.2 Confidentiality. The Executive recognizes and acknowledges that all
information pertaining to the affairs, business, clients, customers or
other relationships of the Company, as hereinafter defined, is confidential
and is a unique and valuable asset of the Company. Access to and knowledge
of this information are essential to the performance of the Executive's
duties under this Employment Agreement. The Executive will not during the
Term of this Employment Agreement or thereafter, except to the extent
reasonably necessary in the performance of his duties under this Agreement,
give to any person, firm, association, corporation or governmental agency
any information concerning the affairs, business, clients, customers or
other relationships of the Company except as required by law. The Executive
will not make use of this type of information for his own purposes or for
the benefit of any person or organization other than the Company. The
Executive will also use his best efforts to prevent the disclosure of this
information by others. All records, memoranda, etc. relating to the
business of the Company whether made by the Executive or otherwise coming
into his possession are confidential and will remain the property of the
Company.
6.3 Noncompetition.
(a) During the Term of Employment. The Executive will not Compete with the
Company (as defined in subsection (d) hereafter) at any time while he is
employed by the Company or receiving payments from the Company.
(b) Voluntary Termination; Termination With Cause. In the event of a
Voluntary Termination or a Termination With Cause, the Executive will not
Compete with the Company for a period consisting of the longer of (i) the
remaining Term of this Employment Agreement and (ii) one (1) year; provided
that if a Voluntary Termination follows a notice by the Company under
Section 2.1 that the Term of this Employment Agreement will not be
automatically extended, there will be no restriction on the Executive's
right to Compete with the Company after the date his employment terminates.
(c) Termination Without Cause. In the event of a Termination Without Cause,
the Executive will not Compete with the Company for the then remaining Term
of this Employment Agreement; provided that if such Termination Without
Cause occurs within one (1) year after a Change in Control, there will be
no restriction on the Executive's rights to Compete with the Company after
the date his employment terminates and if the Executive gives written
notice to the Company that the Executive will forego payment of all amounts
otherwise due to him following the effective date of such notice as a
result of a Termination Without Cause, there will be no restriction on the
Executive's rights to Compete with the Company following such effective
date.
(d) Definition of "Compete" with the Company. For the purposes of this
Section 6, the term "Compete with the Company" means action by the
Executive, direct or indirect, for his own account or for the account of
others, either as an officer, director, stockholder, owner, partner,
member, promoter, employee, consultant, advisor, agent, manager, creditor
or in any other capacity, resulting in the Executive having any pecuniary
interest, legal or equitable ownership, or other financial or non-financial
interest in, or employment, association or affiliation with, any
corporation, business trust, partnership, limited liability company,
proprietorship or other business or professional enterprise that provides
oncology services or management services to any oncology or hematology
practice within a fifty mile radius of any location where the Company or
any subsidiary or affiliate of the Company performs such services at the
date of a termination of the Executive's employment or has performed such
services within one year prior to such termination of employment; provided,
however, that the term "Compete with the Company" shall not include
ownership (without any more extensive relationship) of a less than a 5%
interest in any publicly-held corporation or other business entity.
(e) Reasonableness of Scope and Duration; Remedies. The Executive
acknowledges that the covenants contained herein are reasonable as to
geographic and temporal scope. The Executive acknowledges that his breach
or threatened or attempted breach of any provision of Section 6 would cause
irreparable harm to the Company not compensable in monetary damages and
that the Company shall be entitled, in addition to all other applicable
remedies, to a temporary and permanent injunction and a decree for specific
performance of the terms of Section 6 without being required to prove
damages or furnish any bond or other security.
7
CONSOLIDATION, MERGER OR SALE OF ASSETS
Nothing in this Employment Agreement shall preclude the Company from
consolidating or merging into or with, or transferring all or substantially
all of its assets to, another corporation or organization which assumes
this Employment Agreement and all obligations and undertakings of the
Company hereunder. Upon such a consolidation, merger or sale of assets, the
term "the Company" as used herein will mean or include the other
corporation or organization and this Employment Agreement shall continue in
full force and effect. This Section 7 is not intended to modify or limit
the rights of the Executive hereunder.
8
MISCELLANEOUS
8.1 Entire Agreement. This Employment Agreement contains the entire
understanding between the Company and the Executive with respect to the
subject matter and supersedes any prior employment or severance agreements
between the Company and its affiliates, and the Executive.
8.2 Amendment; Waiver. This Employment Agreement may not be modified or
amended except in writing signed by the parties. No term or condition of
this Employment Agreement will be deemed to have been waived except in
writing by the party charged with waiver. A waiver shall operate only as to
the specific term or condition waived and will not constitute a waiver for
the future or act on anything other than that which is specifically waived.
8.3 Severability: Modification of Covenant. Should any part of this
Employment Agreement be declared invalid for any reason, such invalidity
shall not affect the validity of any remaining portion hereof and such
remaining portion shall continue in full force and effect as if this
Employment Agreement had been originally executed without including the
invalid part. Should any covenant of this Employment Agreement be
unenforceable because of its geographic scope or term, its geographic scope
or term shall be modified to such extent as may be necessary to render such
covenant enforceable.
8.4 Effect of Captions. Titles and captions in no way define, limit, extend
or describe the scope of this Employment Agreement nor the intent of any
provision thereof.
8.5 Counterpart Execution. This Employment Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
8.6 Governing Law; Arbitration. This Employment Agreement has been executed
and delivered in the State of Tennessee and its validity, interpretation,
performance and enforcement shall be governed by the laws of that state.
Any dispute among the parties hereto shall be settled by arbitration in
Memphis, Tennessee, in accordance with the rules then obtaining of the
American Arbitration Association and judgment upon the award rendered may
be entered in any court having jurisdiction thereof. All provisions hereof
are for the protection and are intended to be for the benefit of the
parties hereto and enforceable directly by and binding upon each party.
Each party hereto agrees that the remedy at law of the other for any actual
or threatened breach of this Employment Agreement would be inadequate and
that the other party shall be entitled to specific performance hereof or
injunctive relief or both, by temporary or permanent injunction or such
other appropriate judicial remedy, writ or orders as may be decided by a
court of competent jurisdiction in addition to any damages which the
complaining party may be legally entitled to recover together with
reasonable expenses of litigation, including attorney's fees incurred in
connection therewith, as may be approved by such court.
8.7 Notices. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been made when
delivered or mailed first-class postage prepaid by registered mail, return
receipt requested, or when delivered if by hand, overnight delivery service
or confirmed facsimile transmission, to the following:
(i) If to the Company, at 1775 Moriah Woods Boulevard, Memphis, Tennessee
38117, Attention: Chairman of the Compensation Committee, or at such other
address as may have been furnished to the Executive by the Company in
writing; or
(ii) If to the Executive, at ____________________________________________
or such other address as may have been furnished to the Company by the
Executive in writing.
8.8 Binding Agreements. This Employment Agreement shall be binding on the
parties' successors, heirs and assigns.
IN WITNESS WHEREOF, the undersigned have executed this Employment Agreement
as of the date first above written.
RESPONSE ONCOLOGY, INC.
By: /s/ Frank M. Bumstead
----------------------
Frank M. Bumstead
Vice Chairman
EXECUTIVE:
/s/ Joseph T. Clark
-------------------------
Joseph T. Clark
Exhibit 10.31
Amendment to LabOne's Long-Term Incentive Plan
Adopted February 10, 1995
RESOLVED, that the first sentence of numerical paragraph 3 of the LabOne,
Inc. Long-Term Incentive Plan (the "Plan") is hereby amended to increase
the maximum number of shares which may be issued under the Plan from
"1,800,000" shares of common stock of the corporation to "2,150,000" shares
of common stock of the corporation;
Exhibit 10.33
LabOne Annual Incentive Plan
The Annual Incentive Plan is designed to motivate and reward the
accomplishment of targeted operating results. Prior to the beginning of
each fiscal year, the Committee establishes an earnings per share goal
under the Plan based upon the Committee's judgment of reasonable earnings
per share growth over the previous fiscal year. No incentive payments are
made if the minimum net earnings threshold is not met. The size of the
incentive pool increases pursuant to a formula established by the Committee
as net earnings increase over the minimum threshold. The incentive pool is
distributed in cash ratably to designated officers and managers at year end
according to a pre-established weighting. The weighting is based upon
senior management's subjective evaluations of each individual's potential
contribution to the Company's financial and strategic goals for the year,
and is reviewed and approved by the Committee.
Exhibit 10.37
PROMISSORY NOTE
$150,000 September 7, 1995
Lenexa, Kansas
FOR VALUE RECEIVED, BERT H. HOOD ("maker") promises to pay to the order of
LABONE, INC., a Delaware corporation ("payee"), at 10310 W. 84th Terrace,
Lenexa, Kansas, or at such other place as payee may from time to time
designate in writing, the principal sum of One Hundred Fifty Thousand
Dollars ($150,000), with interest accruing on the unpaid balance of the
principal sum from the date hereof until paid at a rate of seven and three-
quarter percent (7.75%) per annum.
The principal sum of this Promissory Note shall be paid in full on the
earlier of (a) September 2, 1996, or (b) the date of the termination of
employment of maker pursuant to the terms of the Employment Agreement
between maker and payee, dated August 5, 1993, as amended as of November 9,
1993 ("Employment Agreement"), the terms and provisions of which are
incorporated herein by reference. The principal sum of this Promissory Note
may be prepaid in whole or in part at any time, without penalty, at the
option of maker.
Interest on this Promissory Note shall be payable quarterly on December 1,
March 1, June 1 and on the day that the unpaid balance of the principal sum
is paid in full. Maker agrees that any sums due payee by maker under this
Promissory Note may, at the option of payee, be set off and applied against
any sums due maker by payee under the Employment Agreement or otherwise.
Maker waives presentment for payment, demand, protest and notice of demand,
protest and nonpayment. In the event that it should become necessary in the
opinion of payee to employ counsel to collect or enforce this Promissory
Note, maker agrees to pay all costs, charges, disbursements and reasonable
attorney's fees incurred by payee in collecting or enforcing payment of
this Promissory Note. The failure of payee to exercise any option or right
to which payee may be entitled shall not constitute a waiver of the right
to exercise such option or right at a subsequent time. This Promissory Note
has been executed and delivered in, and is to be construed and enforced
according to and governed by, the laws of the State of Kansas.
/s/ Bert H. Hood
--------------------------
BERT H. HOOD
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors Seafield Capital Corporation
We consent to incorporation by reference in the Registration Statements
(Nos.33-20298 and 33-28150) on Form S-8 of Seafield Capital Corporation of
our report dated February 1, 1996 relating to the consolidated balance
sheets of Seafield Capital Corporation and subsidiaries as of December 31,
1995 and 1994, and the related consolidated statements of operations,
stockholders' equity and cash flows and related schedules for each of the
years in the three-year period ended December 31, 1995, which report
appears in the December 31, 1995 annual report on Form 10-K of Seafield
Capital Corporation.
KPMG Peat Marwick LLP
Kansas City, Missouri
March 25, 1996
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<LEGEND>
This schedule contains summary financial information extracted from the
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</LEGEND>
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<FISCAL-YEAR-END> DEC-31-1995
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<COMMON> 7,500
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<INCOME-PRETAX> (5,836)
<INCOME-TAX> (6,563)
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