-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, T+se8k+AaZaoV2d3AIeIPEDneDM8OrorFUDqaZPQ6ltrOu+AWT5+bClZbfGkWwgA xFW1rqUUlEqZ4XsjU4nxUw== 0000830158-97-000013.txt : 19970811 0000830158-97-000013.hdr.sgml : 19970811 ACCESSION NUMBER: 0000830158-97-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970808 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEAFIELD CAPITAL CORP CENTRAL INDEX KEY: 0000830158 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MEDICAL LABORATORIES [8071] IRS NUMBER: 431039532 STATE OF INCORPORATION: MO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-16946 FILM NUMBER: 97654114 BUSINESS ADDRESS: STREET 1: 5000 W 95TH STREET SUITE 260 STREET 2: P O BOX 7568 CITY: SHAWNEE MISSION STATE: KS ZIP: 66207 BUSINESS PHONE: 9136521000 MAIL ADDRESS: STREET 1: 5000 W 95TH STREET SUITE 260 STREET 2: P O BOX 7568 CITY: SHAWNEE MISSION STATE: KS ZIP: 66207 FORMER COMPANY: FORMER CONFORMED NAME: BMA CORP /MO/ DATE OF NAME CHANGE: 19910520 FORMER COMPANY: FORMER CONFORMED NAME: SEAFIELD CAPTIAL CORP DATE OF NAME CHANGE: 19910520 FORMER COMPANY: FORMER CONFORMED NAME: BMA PROPERTIES INC DATE OF NAME CHANGE: 19880411 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE ----- SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1997 ----- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission file number 0-16946 SEAFIELD CAPITAL CORPORATION ------------------------------------------------------ (Exact name of registrant as specified in its charter) Missouri 43-1039532 ------------------------------- ------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) P.O. Box 7568 5000 W. 95th St. Suite 260 Shawnee Mission, KS 66207 -------------------------------- ---------------- (Address of principal (Zipcode) executive offices) Registrant's telephone number, including area code (913) 652-1000 -------------- P. O. Box 410949 2600 Grand Blvd. Suite 500 Kansas City, MO 64141 - ------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- Number of shares outstanding of only class of Registrant's common stock as of August 4, 1997: $1 par value common - 6,489,103 SEAFIELD CAPITAL CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets - -------------------------------------------------------------------------- June 30, December 31, 1997 1996 (unaudited) - -------------------------------------------------------------------------- (in thousands) ASSETS Current assets: Cash and cash equivalents $ 4,021 4,957 Short-term investments 23,510 55,208 Accounts and notes receivable 13,346 10,585 Current income taxes 599 (724) Deferred income taxes 694 3,059 Other current assets 4,357 3,599 --------------------- Total current assets 46,527 76,684 Property, plant and equipment 17,537 17,371 Investments: Securities 503 4,019 Oil and gas -- 1,543 Intangible assets 15,181 12,427 Deferred income taxes 821 4,622 Other assets 21 1,723 Net assets of discontinued healthcare business 51,315 48,432 Net assets of discontinued real estate operations -- 30,466 --------------------- $ 131,905 197,287 ===================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 3,420 3,736 Other current liabilities 4,433 6,805 --------------------- Total current liabilities 7,853 10,541 Other liabilities -- 1,403 --------------------- Total liabilities 7,853 11,944 --------------------- Minority interests 11,377 11,319 --------------------- 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 1,772 1,748 Equity adjustment from foreign currency translation (476) (439) Retained earnings 134,023 195,329 --------------------- 142,819 204,138 Less cost of 1,010,897 shares of treasury stock (1996-1,016,066 shares) 30,144 30,114 --------------------- Total stockholders' equity 112,675 174,024 --------------------- $ 131,905 197,287 ===================== See accompanying notes to consolidated financial statements and management's discussion and analysis of financial condition and results of operations. SEAFIELD CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS - ------------------------------------------------------------------------------ (unaudited) Three Months Ended Six Months Ended June 30, June 30, 1997 1996 1997 1996 - ------------------------------------------------------------------------------ (in thousands except share amounts) REVENUES Healthcare services $ 4,411 1,931 7,722 3,540 Insurance services 15,897 12,836 30,326 24,505 Other -- 1,070 -- 1,086 --------------------- --------------------- Total revenues 20,308 15,837 38,048 29,131 COSTS AND EXPENSES Healthcare services 3,820 2,328 7,095 4,497 Insurance services 6,816 5,556 12,991 10,864 Other -- 1,196 -- 1,241 Selling, general and administrative 10,744 7,492 19,293 14,570 --------------------- --------------------- Loss from operations (1,072) (735) (1,331) (2,041) Investment income - net 395 1,245 4,200 2,415 Other income (expense) (20) 145 195 156 --------------------- --------------------- Earnings (loss) before income taxes (697) 655 3,064 530 Income taxes 3,259 667 9,573 822 --------------------- --------------------- Loss before minority interests (3,956) (12) (6,509) (292) Minority interests 330 151 598 192 --------------------- --------------------- Loss from continuing operations (4,286) (163) (7,107) (484) Earnings (loss) from discontinued healthcare business (2,946) 349 (2,342) 556 --------------------- --------------------- Net earnings (loss) $ (7,232) 186 (9,449) 72 ===================== ===================== Per share of common stock: Loss from continuing operations $ (.67) (.02) (1.10) (.07) Earnings (loss) from discontinued healthcare business (.45) .05 (.36) .08 --------------------- --------------------- Net earnings (loss) $ (1.12) .03 (1.46) .01 ===================== ===================== Dividends $ .30 .30 .60 .60 Book value $ 17.36 28.23 17.36 28.23 Average shares outstanding 6,489,103 6,461,045 6,488,171 6,477,736 Shares outstanding end of period 6,489,103 6,482,076 6,489,103 6,482,076 See accompanying notes to consolidated financial statements and management's discussion and analysis of financial condition and results of operations. SEAFIELD CAPITAL CORPORATION AND SUBSIDIARIES Consolidated Statement of Stockholders' Equity - --------------------------------------------------------------------------- (unaudited) Six Months Ended June 30, 1997 - --------------------------------------------------------------------------- (in thousands) Common stock: Balance, beginning and end of period $ 7,500 --------- Paid-in capital: Balance, beginning of period 1,748 Exercise of stock options 24 --------- Balance, end of period 1,772 --------- Foreign currency translation: Balance, beginning of period (439) Net change during period (37) --------- Balance, end of period (476) --------- Retained earnings: Balance, beginning of period 195,329 Net loss (9,449) Dividends paid (51,857) --------- Balance, end of period 134,023 --------- Less: Treasury stock: Balance, beginning of period 30,114 Exercise of stock options 30 --------- Balance, end of period 30,144 --------- Stockholders' Equity $ 112,675 ========= See accompanying notes to consolidated financial statements and management's discussion and analysis of financial condition and results of operations. SEAFIELD CAPITAL CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows - ------------------------------------------------------------------------------- (unaudited) Six months ended June 30, 1997 1996 - ------------------------------------------------------------------------------- OPERATING ACTIVITIES (in thousands) Loss from continuing operations $ (7,107) (484) Adjustments to reconcile loss from continuing operations to net cash provided by operations: Depreciation and amortization 2,954 4,524 Earnings applicable to minority interests 598 192 Change in trading portfolio, net 34,490 2,441 Change in accounts receivable (3,746) (70) Change in accounts payable 36 (161) Income taxes and other 6,523 1,019 ------------------------ Net cash provided by operations 33,748 7,461 ------------------------ INVESTING ACTIVITIES Sales of investments available for sale 1,350 4 Purchases of investments held to maturity (10,190) (13,355) Maturities of investments held to maturity 5,232 18,595 Additions to property, plant and equipment, net (2,391) (790) Oil and gas investments -- 87 Net decrease in note receivable -- 183 Cost in excess of fair value of assets acquired (4,128) -- Net cash used by discontinued healthcare business (1,006) (10,000) Net cash provided by discontinued real estate operations 581 4,567 Other, net (623) 147 ------------------------ Net cash used by investing activities (11,175) (562) ------------------------ FINANCING ACTIVITIES Cash portion of SLH dividend (19,590) -- Regular quarterly dividend paid (3,893) (3,884) Net issuance of treasury stock pursuant to stock options plans (7) (273) ------------------------ Net cash used by financing activities (23,490) (4,157) ------------------------ Effect of foreign currency translation (19) -- ------------------------ Net increase (decrease) in cash and cash equivalents (936) 2,742 Cash and cash equivalents - beginning of period 4,957 3,376 ------------------------ Cash and cash equivalents - end of period $ 4,021 6,118 ======================== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest (net of amount capitalized) $ -- -- ======================== Income taxes, net $ 1,417 419 ======================== Supplemental disclosures of non-cash information: Non-cash portion of SLH Dividend $ 28,373 -- ======================== See accompanying notes to consolidated financial statements and management's discussion and analysis of financial condition and results of operations. SEAFIELD CAPITAL CORPORATION Notes to Consolidated Financial Statements June 30, 1997 (1) The financial information furnished herein is unaudited; however, in the opinion of management, the financial information reflects all adjustments which are necessary to fairly state Seafield's financial position at June 30, 1997 and December 31, 1996 and the results of its operations and cash flows for the six month periods ended June 30, 1997 and 1996. All adjustments made in the interim period were of a normal recurring nature except transactions related to the discontinuance of a healthcare business. The financial statements have been prepared in conformity with generally accepted accounting principles appropriate in the circumstances, and therefore included in the financial statements are certain amounts based on management's informed estimates and judgments. The financial information herein is not necessarily representative of a full year's operations because levels of sales, interest rates and other factors fluctuate throughout the fiscal year. These same considerations apply to all year to year comparisons. Certain 1996 amounts have been reclassified for comparative purposes with no effect on net earnings (loss). See Seafield's Annual Report pursuant to Section 13 to the Securities Exchange Act of 1934 (Form 10-K) for additional information not required by this Quarter's Report (Form 10-Q). (2) On March 3, 1997, Seafield distributed to its shareholders all of the outstanding shares of common stock of its wholly-owned subsidiary, SLH Corporation, on the basis of one share of common stock of SLH for each four shares of Seafield common stock held. In connection with this distribution and pursuant to a Distribution Agreement between Seafield and SLH, Seafield transferred its real estate and energy businesses and miscellaneous assets and liabilities, including two wholly-owned subsidiaries, Scout Development Corporation and BMA Resources, Inc., to SLH. The net assets distributed to SLH totaled approximately $48 million. The spinoff was accounted for as a dividend. The following unaudited consolidated pro forma information has been prepared as if the distribution of SLH had occurred on January 1, 1997. June 30, 1997 SLH Pro Forma Historical Adjustments Results ------------------------------------- (in thousands except share amounts) Revenues $ 38,048 38,048 Expenses 39,379 253 39,126 ----------------------------------- Loss from operations (1,331) (253) (1,078) Investment income - net 4,200 3,162 1,038 Other income (expense) 195 669 (474) ----------------------------------- Earnings (loss) before income tax 3,064 3,578 (514) Income taxes 9,573 5,126 4,447 ----------------------------------- Loss before minority interests (6,509) (1,548) (4,961) Minority interests 598 598 ----------------------------------- Net loss from continuing operations $ (7,107) (1,548) (5,559) =================================== Per share of common stock: Net loss from continuing operations $ (1.10) (.86) =================================== (3) In April 1996, Seafield loaned $10 million to its subsidiary, Response Oncology, Inc., which was converted into 909,090 shares of Response common stock at the election of Seafield in August 1996. In October 1996, Seafield provided to Response a $23.5 million credit facility to finance acquisitions and for working capital. This credit facility was converted into Response common stock in February 1997, increasing Seafield's ownership to approximately 67%. On July 1, 1997, Seafield's Board of Directors declared a dividend to Seafield's shareholders of all shares of common stock of Response owned by Seafield. For each shareholder of record on July 11, 1997, 1.2447625 shares of Response common stock were distributed on July 25, 1997 for each share of Seafield common stock outstanding. The distribution of all shares of Response stock to Seafield's shareholders was effected as a dividend. The Seafield shareholders paid no consideration for any shares of Response stock received in the distribution. Seafield's investment in Response and Response's earnings are shown as a discontinued business in the accompanying financial statements at June 30, 1997. The following unaudited consolidated pro forma balance sheet has been prepared as if the distribution of Response had occurred on June 30, 1997. June 30, 1997 Dividend of Pro Forma Historical Response Results ------------------------------------- (in thousands) Assets Cash and short-term investments $ 27,531 27,531 Accounts and notes receivable 13,346 13,346 Other current assets 5,650 5,650 ---------------------------------- Total current assets 46,527 46,527 Property, plant and equipment 17,537 17,537 Intangible assets 15,181 15,181 Other assets 1,345 1,345 Net assets of discontinued healthcare business 51,315 (51,315) -- ---------------------------------- $ 131,905 (51,315) 80,590 ================================== Liabilities and Stockholders' Equity Current liabilities $ 7,853 7,853 Minority interests 11,377 11,377 Stockholders' Equity Preferred stock -- -- Common stock 7,500 7,500 Paid-in capital 1,772 1,772 Equity adjustment (476) (476) Retained earnings 134,023 (51,315) 82,708 ---------------------------------- 142,819 (51,315) 91,504 Less: Cost of treasury stock 30,144 30,144 ---------------------------------- Total stockholders' equity 112,675 (51,315) 61,360 ---------------------------------- $ 131,905 (51,315) 80,590 =================================== (4) Cash and cash equivalents include demand deposits in banks and overnight investments. (5) The components of "Intangible Assets" are as follows: June 30, 1997 December 31, 1996 ------------------ ----------------- (in thousands) Goodwill 14,703 11,688 Other 478 739 -------------- -------------- $ 15,181 12,427 ============== ============== Effective January 30, 1997, Seafield's 82% owned subsidiary, LabOne, Inc., acquired certain assets, inventory and customer lists of GIB Laboratories, Inc., a subsidiary of Prudential Insurance Company of America, for $4.6 million. The acquisition was accounted for using the purchase method. Accordingly, the purchase price was allocated to assets acquired based on their fair values. The total cost in excess of tangible net assets acquired was $4.1 million and is being amortized on a straight-line basis over 15 years. (6) The components of "Other Current Assets" are as follows: June 30, 1997 December 31, 1996 ------------------ ----------------- (in thousands) Inventories $ 2,240 1,360 Prepaid expenses 2,117 1,997 Other current assets -- 242 -------------- -------------- $ 4,357 3,599 ============== ============== The components of "Other Current Liabilities" are as follows: June 30, 1997 December 31, 1996 ------------------ ----------------- (in thousands) Accrued payroll and benefits $ 3,757 4,039 Accrued commissions and consulting fees -- 403 Other accrued expenses 554 1,509 Other liabilities 122 854 -------------- -------------- $ 4,433 6,805 ============== ============== (7) Earnings per share of common stock are based on the weighted average number of shares of common stock outstanding and the common share equivalents of dilutive stock options, where applicable. (8) Under the Distribution Agreement and Assignment, SLH assumed the rights and obligations of Seafield with respect to the following legal matter. 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. 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. Subsequently, the parties waived a jury trial and in July 1996, this case was retried to a judge. On January 21, 1997, the judge entered a judgment in favor of Seafield. The amount of that judgment, together with interest is approximately $5.8 million. Although the judgment has been appealed, counsel for the Company expects that it will be difficult for the defendants to cause the judgment to be reversed. The final outcome is not expected until at least 1998. Settlement arrangements with other defendants have resulted in payments to plaintiff which have substantially offset legal fees and costs to date of approximately $481,000. Future legal fees and costs can not reliably be estimated. Pursuant to the Distribution Agreement, this matter was assigned to SLH Corporation. In the opinion of management, after consultation with legal counsel and based upon current available information, this lawsuit is not expected to have a material adverse impact on the consolidated financial position or results of operations of Seafield. Pursuant to the Distribution Agreement, SLH assumed from Seafield all of the contingent tax liabilities described below and acquired all rights to refunds plus any interest related to these tax years. SLH also assumed all contingent liabilities and refunds related to any issues raised for the years 1986-1990 whose resolution may extend to tax years beyond the 1990 tax year. Seafield has received notices of proposed adjustments (Revenue Agent's Reports) from the Internal Revenue Service (IRS) with respect to 1986-1990 federal income taxes. These notices claim total federal income taxes due for the entire five year period in the approximate net amount of $13,867,000, exclusive of interest thereon. Seafield filed protests regarding the 1986-1990 notices of proposed adjustments. On May 9, 1997, Seafield received a formal agreement to the issues and the final tax computation from the IRS. The agreement provides for a tax refund of approximately $5.8 million, before interest. The Company expects to owe interest of approximately $700,000. The agreement is subject to approval by the Congressional Joint Committee on Taxation. Consideration by the Joint Committee is expected before the end of 1997. In December 1996, the California state auditor sent Seafield an audit report covering the 1987-1989 taxable years. The State of California has determined to include, as a "unitary taxpayer," all majority owned non-life insurance subsidiaries and joint ventures of Seafield. The auditor's report was forwarded to the California Franchise Tax Board for action. In June 1997, the California Franchise Tax Board sent a notice of taxes due for the 1987-1989 years of $769,213 which was paid in the same month. A billing for the interest due should be received in the third quarter and is expected to be approximately $1 million. (9) In February 1997, the Financial Accounting Standards Board issued Statement No. 128, "Earnings Per Share", which revised the calculation and presentation provisions of Accounting Principles Board Opinion 15 and related interpretations. Statement No. 128 is effective for Seafield's fiscal year ending December 31, 1997. Retroactive application will be required. Seafield believes the adoption of Statement No. 128 will not have a significant effect on its reported earnings per share. Statement of Financial Accounting Standards No. 129 "Disclosure of Information about Capital Structure" is required to be implemented for periods ending after December 15, 1997. The adoption of this standard is not expected to have any significant impact on Seafield's financial position or results of operations. In June 1997, the Financial Accounting Standards Board issued Statement No. 130, "Reporting Comprehensive Income." Statement No. 130 is effective for fiscal years beginning after December 15, 1997. Retroactive application will be required. The adoption of this standard is not expected to have any significant impact on Seafield's financial position or results of operations. In June 1997, the Financial Accounting Standards Board issued Statement No. 131, "Disclosures about Segments of an Enterprise and Related Information." Statement No. 131 is effective for fiscal years beginning after December 15, 1997. Retroactive application will be required. The adoption of this standard is not expected to have any significant impact on Seafield's financial position or results of operations. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS Selected Financial Data Three months ended Six Months Ended June 30, June 30, ----------------------- ---------------------- 1997 1996 1997 1996 ---------- ---------- ---------- --------- Revenues $20,308,000 15,837,000 38,048,000 29,131,000 Loss from operations $(1,072,000) (735,000) (1,331,000) (2,041,000) Investment income - net $ 395,000 1,245,000 4,200,000 2,415,000 Loss from continuing operations $(4,286,000) (163,000) (7,107,000) (484,000) Earnings (loss) from discontinued healthcare business $(2,946,000) 349,000 (2,342,000) 556,000 Net earnings (loss) $(7,232,000) 186,000 (9,449,000) 72,000 Per share: Loss from continuing operations $ (.67) (.02) (1.10) (.07) Earnings (loss) from discontinued healthcare business (.45) .05 (.36) .08 Net earnings (loss) $ (1.12) .03 (1.46) .01 Dividends per share $ .30 .30 .60 .60 Book value per share $ 17.36 28.23 17.36 28.23 SECOND QUARTER ANALYSIS Introductory remarks about results of operations Seafield Capital Corporation's (Seafield or Registrant) principal assets consist of a majority ownership of LabOne, Inc. (LabOne) and approximately $5 million in cash. Seafield had a majority ownership position in Response Oncology, Inc. (Response). On July 25, 1997, Seafield distributed to its shareholders all the shares of common stock of Response owned by Seafield. Response's operations are now presented as a discontinued healthcare business in Seafield's financial statements. The second quarter is the last period in which Response will significantly impact Seafield's financial results. The distribution of Response stock was effected as a taxable dividend by Seafield in which Seafield utilized tax loss carryforwards to offset the resulting $3.8 million tax liability in the financial statements. The second quarter $2.9 million loss from discontinued healthcare operations reflects a $3.8 million non-cash tax expense net of $878,000 for Seafield's share of earnings by Response during the quarter. See Notes to Consolidated Financial Statements for additional information. Response, previously 67%-owned by Seafield, is a publicly-traded company (NASDAQ-ROIX). On February 26, 1997, Seafield converted a $23.5 million Response note receivable and accrued interest into 3,020,536 shares of Response common stock. The conversion increased Seafield's ownership of Response shares outstanding from 56% at December 31, 1996 to approximately 67%. Additionally Seafield had investments in real estate, energy businesses and miscellaneous assets. On March 3, 1997, Seafield distributed to its shareholders all of the outstanding shares of common stock of its wholly- owned subsidiary, SLH Corporation (SLH). In connection with this distribution and pursuant to a Distribution Agreement between Seafield and SLH, Seafield transferred its real estate and energy businesses and miscellaneous assets and liabilities to SLH. The SLH spin-off was accounted for as a dividend. See Notes to Consolidated Financial Statements for additional information. Insurance Services Segment: The following business is considered to be in the insurance services segment: LabOne's risk-appraisal laboratory testing for the life insurance industries. LabOne, an 82% owned subsidiary of Seafield, is a publicly-traded company (NASDAQ-LABS). LabOne provides high-quality laboratory services to insurance companies, physicians and employers. See Healthcare Services Segment discussion below for clinical and substance abuse laboratory testing services. 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. Effective January 30, 1997, LabOne acquired certain assets, including customer lists, of GIB Laboratories, Inc., a subsidiary of Prudential Insurance Company of America. Concurrently, Prudential's individual insurance group agreed to use LabOne as its exclusive provider of risk assessment testing services. At the time of the purchase, GIB served approximately 5% of the insurance laboratory testing market. LabOne's total revenues for the second quarter of 1997 were $20.3 million, as compared to $14.8 million in the second quarter of 1996, a 38% increase. LabOne's insurance segment revenue increased in 1997's second quarter to $15.9 million from $12.8 million in the same quarter of 1996. The increase was due to an increase in market share and an increase in oral fluid testing on applicants applying for smaller face-amount policies. The total number of insurance applicants tested in the second quarter of 1997 increased 20% as compared to the same quarter last year. Average revenue per applicant increased 1% during the same period due to an increase in the number of tests requested per specimen. Insurance kit and container revenue increased due primarily to an increase in the number of blood and oral fluid kits sold. LabOne's total cost of sales increased $2.8 million during the second quarter due primarily to increases in supplies and payroll. Insurance kit supplies increased due to the increased volume of kits sold and the increase in cost of oral fluid kits for HIV testing. Payroll and lab supplies increased due to the increased specimen volumes tested in each segment. LabOne's gross profit for the second quarter of 1997 increased $2.8 million (40%) to $9.7 million from $6.9 million in 1996's second quarter. LabOne's insurance segment gross profit increased to $9.1 million from $7.4 million reflecting the above factors. LabOne's selling, general and administrative expenses increased $1.2 million (21%) in the second quarter of 1997 as compared to the prior year due primarily to increase in payroll expenses, travel and printing expenses. These were partially offset by a decrease in consulting and severance expenses. LabOne's operating income for the second quarter of 1997 increased to $2.6 million from $1 million in 1996's second quarter. LabOne's insurance segment operating income increased to $4.7 million from $3.2 million reflecting the above factors. Healthcare Services Segment: The following businesses are included in the healthcare services segment: the clinical and substance abuse laboratory testing services. 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 LabOne believes 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. LabOne does this through Lab Card(TM), a Laboratory Benefits Management (LBM) program. The Lab Card Program provides laboratory testing at reduced rates 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's Lab Card program covered approximately 1.3 million lives as of June 30, 1997. Additionally, LabOne had a signed backlog of approximately 450,000 additional lives to be covered by the program. 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 non-regulated employers. LabOne's rapid turnaround times and multiple testing options help clients reduce downtime for affected employees and meet mandated drug screening guidelines. Clinical (diagnostic) laboratory revenues increased 134% to $2.1 million in 1997's second quarter from $900,000 in the second quarter of 1996 due to an 88% increase in testing volumes and a 25% increase in average revenue per patient. Substance abuse testing (SAT) revenues increased 123% to $2.3 million in 1997's second quarter from $1 million in the second quarter of 1996 primarily due to increased testing volumes. Clinical cost of sales expenses were $2 million in 1997's second quarter, compared with $1.6 million in the second quarter of 1996 and SAT cost of sales were $1.7 million in 1997's second quarter, compared with $800,000 in the second quarter of 1996 primarily due to increased payroll and lab supplies for increased testing volumes. Clinical gross profit increased to $39,000 in 1997's second quarter from a loss of $700,000 in the second quarter of 1996 while SAT gross profit increased to $600,000 in 1997's second quarter from $200,000 in 1996's second quarter. Clinical selling, general and administrative expenses, including allocations, were $1.9 million as compared to $1.2 million in 1996. SAT expenses, including allocations, were $700,000 compared to $500,000 in 1996. The overhead allocations to clinical and SAT testing segments were $800,000 in 1997's second quarter compared to allocations of $500,000 in 1996. The clinical segment operating loss of $1.9 million in 1997's second quarter was approximately the same as in 1996's second quarter. The SAT segment operating loss improved from $300,000 in 1996's second quarter to $200,000 in 1997's second quarter. Other: Seafield's oil and gas investments were distributed to the SLH on March 3, 1997. In 1996's second quarter, revenue of $1.1 million and expenses of $1.2 million were recorded. During 1997's second quarter, Seafield significantly reduced its corporate structure and overhead cost as the SLH and Response distributions were finalized. The increase in general and administrative expenses to $10.7 million in 1997's second quarter from $7.5 million in 1996's second quarter reflects both LabOne's increased costs associated with increased testing volumes discussed above and one-time costs related to Seafield's corporate structure reductions including position eliminations and related severance. 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 $395,000 in 1997's first quarter, compared to $1.2 million in the second quarter of 1996, primarily reflecting decreased funds available for investments resulting from the SLH asset distribution in March 1997. Miscellaneous Items: The other income/(loss) line includes LabOne gains and losses on equipment disposals and other items. Taxes: LabOne's effective tax rate declined from 47% in 1996's second quarter to 41% in the second quarter of 1997 due to exit taxes on an intercompany dividend from LabOne's Canadian subsidiary in 1996. During 1997's second quarter, approximately $3.2 million of unused deferred income tax assets not utilized in the Response distribution were written off. Seafield has approximately $5 million of tax capital loss carryforwards available for future usage. The combined effect of the above factors resulted in the second quarter 1997 loss from continuing operations of $4.3 million, compared with a $163,000 loss in the second quarter of 1996. Discontinued Operations: Healthcare Business: On July 25, 1997, Seafield distributed to its shareholders all the shares of common stock of Response owned by Seafield. Response's operations are now presented as a discontinued healthcare business in Seafield's financial statements. The second quarter is the last period in which Response will significantly impact Seafield's financial results. The distribution of Response stock was effected as a taxable dividend by Seafield in which Seafield utilized tax loss carryforwards to offset the resulting $3.8 million tax liability in the financial statements. The second quarter $2.9 million loss from discontinued healthcare operations reflects a $3.8 million non-cash tax expense net of $878,000 for Seafield's share of earnings by Response during the quarter. On February 26, 1997, Seafield converted its Response note receivable and accrued interest into Response common stock. The conversion increased Seafield's ownership of Response shares outstanding from 56% at December 31, 1996 to approximately 67%. For the second quarter of 1997, Response's revenues were $25.6 million, a 70% increase, as compared to $15.1 million for the second quarter of 1996. Net earnings for the quarter were $1.2 million, a 123% increase over net earnings of $544,000 for the comparable quarter in 1996. Response's second quarter 1997 included an income tax provision of $744,000, as compared to none recorded in the second quarter of 1996, consequent to a net operating loss carryforward. EBITDA (earnings before interest, taxes, depreciation and amortization) for the second quarter of 1997 was $3.9 million, a 122% increase over EBITDA of $1.8 million in the second quarter of 1996. Growth in Response's revenues in the second quarter of 1997 was largely driven by an increase in revenue from the Practice Management Division which began operating in January 1996. This division owns the nonmedical assets and manages the business aspects of oncology practices. The number of physicians in practice management relationships with Response increased from 12 on June 30, 1996 to 40 on June 30, 1997. YEAR TO DATE ANALYSIS Insurance Services Segment: LabOne's total revenues for the first six months of 1997 were $38 million, as compared to $28 million in the first six months of 1996. The increase of $10 million is due to increases in insurance laboratory revenue of $3.8 million, clinical laboratory revenue of $2 million, SAT revenue of $2.1 million and kit revenue of $2 million. See Healthcare Segment below for clinical and SAT revenue discussion. LabOne's total number of insurance applicants tested in the six-month period increased by 21% as compared with last year's first six months, while average revenue per applicant declined 1%. Kit and container revenue increased due primarily to an increase in the number of full blood and oral fluid kits sold and the increased price of oral fluid kits for HIV testing. LabOne's total cost of sales increased $4.7 million during the first six months due primarily to increases in payroll, laboratory supplies and kit expenses. Payroll increased 21% and lab supplies increased 32% due to larger volume of all specimen types processed. Insurance kit expense increased due to the higher volume of kits sold and the increase in cost of oral fluid kits for HIV testing. LabOne's gross profit for the first six months of 1997 increased to $18 million from $12.7 million in 1996's first six months. LabOne's insurance segment gross profit increased to $17.4 million from $13.7 million reflecting the above factors. LabOne's selling, general and administrative expenses increased $1.9 million (16%) in the first six months of 1997, as compared to the prior year's first six months due primarily to increases in payroll expenses, travel and printing expenses. Payroll expense increased due to bonus accruals and a 13% increase in headcount. LabOne's operating income for the first six months of 1997 increased to $4.4 million from $1 million in 1996's first six months. LabOne's insurance segment operating income increased to $3.5 million reflecting the above factors. Healthcare Services Segment: Clinical laboratory revenues increased to $3.7 million in 1997's first six months from $1.7 million in the first six months of 1996 due to increased testing volumes and higher revenue per patient. SAT revenues increased to $4.1 million in 1997's first six months from $1.9 million in the first six months of 1996 primarily due to a 121% increase in testing volumes. Clinical cost of sales expenses were $4 million in 1997's first six months, as compared with $3.1 million in the first six months of 1996. SAT cost of sales were $3.1 million in 1997's first six months, as compared to $1.5 million in the first six months of 1996. Clinical gross profit improved from a loss of $1.4 million in the first six months of 1996 to a loss of $300,000 in 1997's first six months. SAT gross profit increased to $900,000 in 1997's first six months from $400,000 in 1996's first six months. Clinical selling, general and administrative expenses were $3.7 million as compared to $2.5 million in 1996's first six months. SAT expenses were $1.5 million as compared to $1 million. The overhead allocations to clinical and SAT testing segments were $1.5 million in 1997's first six months, as compared to allocations of $900,000 in 1996's first six months. The clinical segment operating loss increased slightly to $4 million in 1997's first six months from $3.8 million in 1996's first six months due to increased corporate overhead allocations offsetting operating improvements over 1996. The SAT segment improved from an operating loss of $600,000 in 1996's first six months to $500,000 in 1997's first six months. Other: Seafield's oil and gas investments were distributed to the SLH on March 3, 1997. In 1996's first six months, revenue of $1.1 million and expenses of $1.2 million were recorded. During 1997, Seafield significantly reduced its corporate structure and overhead cost as the SLH and Response distributions were finalized. The increase in general and administrative expenses to $19.3 million in 1997's first six months from $14.6 million in 1996's first six months reflects both LabOne's increased costs associated with increased testing volumes discussed above and costs related to Seafield's corporate structure reductions including position eliminations and related severance. 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, which increased to $4.2 million in 1997's first six months from $2.4 million in the first six months of 1996, primarily reflects a $3 million gain on the sale of marketable common stock which was received when a Seafield venture capital investment merged with a public company. Miscellaneous Items: LabOne's gain on equipment disposals is included as a component of other income/(loss). Taxes: Tax expense increased approximately $1.2 million due to the growth in taxes on LabOne's significantly improved earnings, a write off of approximately $5 million of the deferred income tax assets related to assets spun off in the SLH distribution and a write off of approximately $3.2 million of unused deferred income tax assets not utilized in the Response distribution. Seafield has approximately $5 million of tax capital loss carryforwards available for future usage. Consolidated Results: The combined effect of the above factors resulted in 1997's first six months loss from continuing operations of $7.1 million, as compared with a $484,000 loss in the first six months of 1996. Discontinued Operations: Healthcare Business: On July 25, 1997, Seafield distributed to its shareholders all the shares of common stock of Response owned by Seafield. Response's operations are now presented as a discontinued healthcare business in Seafield's financial statements. The second quarter is the last period in which Response will significantly impact Seafield's financial results. The distribution of Response stock was effected as a taxable dividend by Seafield in which Seafield utilized tax loss carryforwards to offset the resulting $3.8 million tax liability in the financial statements. The second quarter $2.9 million loss from discontinued healthcare operations reflects a $3.8 million non-cash tax expense net of $878,000 for Seafield's share of earnings by Response during the quarter. On February 26, 1997, Seafield converted its Response note receivable and accrued interest into Response common stock. The conversion increased Seafield's ownership of Response shares outstanding from 56% at December 31, 1996 to approximately 67%. For the first six months of 1997, Response's revenues were $50 million, a 76% increase over revenues of $28.4 million for the first six months of 1996. Net earnings for the first six months were $2.1 million, a 96% increase over net earnings of $1.1 million for the comparable period in 1996. Response's first six months included an income tax provision of $1.3 million, versus none for the comparable period in fiscal 1996, consequent to a net operating loss carryforward. EBITDA for the first six months of 1997 was $7.7 million, a 154% increase over the $3 million reported for the comparable period in 1996. Growth in Response's revenues for the first six months of 1997 was largely driven by an increase in revenue from the Practice Management Division which began operating in January 1996. This division owns the nonmedical assets and manages the business aspects of oncology practices. The number of physicians in practice management relationships with Response increased from 12 on June 30, 1996 to 40 on June 30, 1997. Real Estate: The real estate assets were distributed pursuant to the SLH Distribution Agreement. Real estate operations are presented as discontinued operations in Seafield's 1996 financial statements. Net real estate assets distributed on March 3, 1997 were $23 million. Real estate revenues were $3.6 million in 1997's first two months prior to distribution, compared with $8.6 million in 1996's six months. The real estate sales revenues in 1997 include the sale of 2 residential units in Florida and New Mexico ($1.2 million); 547 acres of land in Texas ($2.3 million); and 7 residential lots in Texas ($38,000). The real estate sales revenues in 1996 include the sale of 23 residential units in New Mexico and Florida ($7.6 million) and 1.5 acres of land in Kansas ($580,000). Cost of the real estate sales in 1997 prior to distribution totaled $3.5 million, compared with a cost of approximately $8.2 million in 1996's first six months, reflecting the mix of real estate sold during each period as discussed above in the revenue analysis. Publicly-Traded Subsidiary Seafield's majority-owned entity, LabOne, is publicly-traded. At June 30, 1997, based on the market prices of publicly-traded shares of this subsidiary, pretax unrealized gains of approximately $140 million on this investment were not reflected in either Seafield's book value or stockholders' equity. LIQUIDITY AND CAPITAL RESOURCES On June 30, 1997, at the holding company level, Seafield had available for operations approximately $5.1 million in cash and short-term investments. Primarily as a result the distribution of SLH in March 1997 and corporate structure cost reductions, Seafield's working capital decreased $18.3 million during 1997 to $5.7 million at June 30, 1997. On a consolidated basis, Seafield had $27.5 million in cash and short-term investments at June 30, 1997. Current assets totaled approximately $46.5 million while current liabilities totaled $7.9 million. Changes in assets and liabilities on the balance sheet resulted primarily from the SLH and Response stock distributions. Net cash provided by operations totaled $33.7 million in 1997's first six months compared with net funds provided of $7.5 million in 1996's first six months. During 1997, funds provided by changes in trading portfolios were $34.5 million while 1996's changes in these trading portfolios provided $2.4 million in funds. The increase in funds provided by the change in trading portfolios included the $19.6 million cash portion of the SLH dividend to Seafield shareholders. The change in accounts receivable during 1997 reflects increased sales by LabOne. Net cash used by investing activities totaled $11 million in 1997 representing LabOne's purchase of the assets and customer list of GIB Laboratories, Inc. and purchases of investments. Net cash used by investing activities in 1996 totaled $562,000 reflecting Response's usage of $10 million for its acquisition of physician practices, $5 million provided by the discontinued real estate operations and a net increase in long-term investments of $5.2 million. Net cash used by financing activities totaled $23.5 million in 1997 primarily due to the $19.6 million cash portion of the SLH dividend to Seafield shareholders. The 1996 net cash used by financing activities was $4.1 million. Seafield paid a $3.9 million regular cash dividend to its shareholders in both 1997's and 1996's first six months. In 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. By 1994, Seafield had acquired 1,462,200 shares of LabOne's stock under the board authorization at a cost of $17.3 million. No acquisitions of LabOne stock have been made since 1994. At June 30, 1997, the remaining aggregate authorization totals $7.7 million. In 1994, Seafield's board of directors approved an additional $8.4 million authorization necessary to complete an acquisition of Seafield shares. During 1997, treasury stock issued for exercised options totaled 5,169 shares. No Seafield options are currently outstanding. Seafield is currently primarily a shell holding company. Sources of cash are investment income and sales, borrowings and dividends from subsidiaries. There are currently no restrictions that would limit LabOne's ability to make future dividend payments. The primary uses of cash for Seafield are investments and dividends to shareholders. Seafield has received notices of proposed adjustments (Revenue Agent's Reports) from the Internal Revenue Service (IRS) with respect to 1986-1990 federal income taxes. These notices claim total federal income taxes due for the entire five year period in the approximate net amount of $13,867,000, exclusive of interest thereon. Seafield filed protests regarding the 1986-1990 notices of proposed adjustments. On May 9, 1997, Seafield received a formal agreement to the issues and the final tax computation from the IRS. The agreement provides for a net tax refund of approximately $5.8 million, before interest. The Company expects to owe interest of approximately $700,000. The agreement is subject to approval by the Congressional Joint Committee on Taxation. Consideration by the Joint Committee is expected before the end of 1997. In December 1996, the California state auditor sent Seafield an audit report covering the 1987-1989 taxable years. The State of California has determined to include, as a "unitary taxpayer," all majority owned non-life insurance subsidiaries and joint ventures of Seafield. The auditor's report was forwarded to the California Franchise Tax Board for action. In June 1997, the California Franchise Tax Board sent a notice of taxes due for the 1987-1989 years of $769,213 which was paid in the same month. A billing for the interest due should be received in the third quarter and is expected to be approximately $1 million. Pursuant to the Distribution Agreement, SLH assumed from Seafield all of the contingent tax liabilities described above and acquired all rights to refunds, plus any interest related to these tax years. SLH Corporation also assumed all contingent liabilities and refunds related to any issues raised for the years 1986-1990 whose resolution may extend to tax years beyond the 1990 tax year. LabOne has paid regular quarterly dividends in 1997. As an 82% owner, Seafield has received $3.9 million of cash as dividends from LabOne in 1997. LabOne's working capital position declined from $38.8 million at December 31, 1996, to $33 million at June 30, 1997. This decrease is primarily due to dividends paid, and the purchase of GIB laboratory assets and customer lists. Net trade accounts receivable increased 39% over the balance at December 31, 1996, primarily due to increasing sales in all three division in 1997. LabOne's cash and investments totaled $23 million at June 30, 1997, and LabOne expects to fund operations and future dividend payments from a combination of cash flow from operations and cash reserves. LabOne had no borrowings during 1997. In April 1996, Response obtained an unsecured $10 million loan from Seafield bearing interest at the rate of prime plus 1%, which after August 1, 1996, became convertible at the election of Seafield into shares of Response's common stock. Proceeds of the loan were used to finance a practice management affiliation. The loan was exchanged for 909,090 shares of common stock during August 1996. In October 1996, Response procured a $23.5 million credit facility from Seafield to finance acquisitions and for working capital. On February 26, 1997, the $23.5 million loan and accrued interest of $664,000 was converted into 3,020,536 shares of Response's common stock at a rate of $8 per share. On July 25, 1997, Seafield distributed to its shareholders, as a dividend, all 8,077,392 shares of common stock of Response owned by Seafield. RECENTLY ISSUED ACCOUNTING STANDARDS In February 1997, the Financial Accounting Standards Board issued Statement No. 128, "Earnings Per Share", which revised the calculation and presentation provisions of Accounting Principles Board Opinion 15 and related interpretations. Statement No. 128 is effective for Seafield's fiscal year ending December 31, 1997. Retroactive application will be required. Seafield believes the adoption of Statement No. 128 will not have a significant effect on its reported earnings per share. Statement of Financial Accounting Standards No. 129 "Disclosure of Information about Capital Structure" is required to be implemented for periods ending after December 15, 1997. The adoption of this standard is not expected to have any significant impact on Seafield's financial position or results of operations. In June 1997, the Financial Accounting Standards Board issued Statement No. 130, "Reporting Comprehensive Income." Statement No. 130 is effective for fiscal years beginning after December 15, 1997. Retroactive application will be required. The adoption of this standard is not expected to have any significant impact on Seafield's financial position or results of operations. In June 1997, the Financial Accounting Standards Board issued Statement No. 131, "Disclosures about Segments of an Enterprise and Related Information." Statement No. 131 is effective for fiscal years beginning after December 15, 1997. Retroactive application will be required. The adoption of this standard is not expected to have any significant impact on Seafield's financial position or results of operations. No other recently issued accounting standards presently exist which will require adoption in future periods. PART II. OTHER INFORMATION Item 1. Legal Proceedings 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. 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. Subsequently, the parties waived a jury trial and in July 1996, this case was retried to a judge. On January 21, 1997, the judge entered a judgment in favor of Seafield. The amount of that judgment, together with interest is approximately $5.8 million. Although the judgment has been appealed, counsel for the Company expects that it will be difficult for the defendants to cause the judgment to be reversed. The final outcome is not expected until at least 1998. Settlement arrangements with other defendants have resulted in payments to plaintiff which have substantially offset legal fees and costs to date of approximately $481,000. Future legal fees and costs can not reliably be estimated. Pursuant to the Distribution Agreement, this matter was assigned to SLH Corporation. In the opinion of management, after consultation with legal counsel and based upon current available information, this lawsuit is not expected to have a material adverse impact on the consolidated financial position or results of operations of Seafield. Seafield has received notices of proposed adjustments (Revenue Agent's Reports) from the Internal Revenue Service (IRS) with respect to 1986-1990 federal income taxes. These notices claim total federal income taxes due for the entire five year period in the approximate net amount of $13,867,000, exclusive of interest thereon. Seafield filed protests regarding the 1986-1990 notices of proposed adjustments. On May 9, 1997, Seafield received a formal agreement to the issues and the final tax computation from the IRS. The agreement provides for a tax refund of approximately $5.8 million, before interest. The Company expects to owe interest of approximately $700,000. The agreement is subject to approval by the Congressional Joint Committee on Taxation. Consideration by the Joint Committee is expected before the end of 1997. In December 1996, the California state auditor sent Seafield an audit report covering the 1987-1989 taxable years. The State of California has determined to include, as a "unitary taxpayer," all majority owned non-life insurance subsidiaries and joint ventures of Seafield. The auditor's report was forwarded to the California Franchise Tax Board for action. In June 1997, the California Franchise Tax Board sent a notice of taxes due for the 1987-1989 years of $769,213 which was paid in the same month. A billing for the interest due should be received in the third quarter and is expected to be approximately $1 million. Pursuant to the Distribution Agreement, SLH Corporation assumed from Seafield all of the contingent tax liabilities described above and acquired all rights to refunds plus any interest related to these tax years. SLH Corporation also assumed all contingent liabilities and refunds related to any issues raised for the years 1986-1990 whose resolution may extend to tax years beyond the 1990 tax year. Seafield believes that adequate accruals for these income tax liabilities have been made in the accompanying consolidated financial statements. Item 2. Changes in Securities (a) Changes in Securities: None (b) Under the Missouri General Corporation Law, no dividends to stockholders may be declared or paid at a time when the net assets of the corporation are less than its stated capital or when the payment thereof would reduce the net assets of the corporation below its stated capital. At June 30, 1997 the net assets of Seafield Capital Corporation exceeded its stated capital by $105,175,000. Item 3. Defaults Upon Senior Securities None. Item 4. Submission of Matters to a Vote of Securities Holders (a) The annual meeting of shareholders was held on May 14, 1997 for the purpose of electing a board of directors and approving the appointment of auditors. Proxies for the meeting were solicited and there was no solicitation in opposition to management's solicitations. Holders of 6,489,103 shares were eligible to vote and 4,878,279 shares were represented at the meeting either in person or by proxy. (c) All of management's nominees for directors as listed in the proxy statement were elected with the following vote: Director Shares Voted Shares Shares Not For Withheld Voted -------- ------------ -------- ---------- W. T. Grant II 4,847,289 30,990 0 P. Anthony Jacobs 4,849,290 28,989 0 David W. Kemper 4,849,290 28,989 0 Dennis R. Stephen 4,849,290 28,989 0 The shareholders approved the appointment of KPMG Peat Marwick LLP as independent auditors for the year ending December 31, 1997 by the following vote: Shares Voted Shares Voted Shares Shares Not For Against Abstaining Voted ------------ ------------ ---------- ---------- 4,866,236 210 11,831 2 Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 27 Financial Data Schedule - as filed electronically by the Registrant in conjunction with this Form 10-Q. (b) Reports on Form 8-K: A current report on Form 8-K dated June 4, 1997 was filed to report that Seafield's 67% owned subsidiary, Response Oncology, Inc. (Response), had converted a previously filed Form S-2 to a Form S-3 covering 8,752,546 outstanding shares of its common stock to facilitate a sale or other distribution of such shares by Response shareholders. It was also reported that Seafield intends to distribute all shares of Response owned by Seafield to its shareholders as a dividend. A current report on Form 8-K dated July 1, 1997 was filed to report that discussions between Seafield and its 82% owned subsidiary, LabOne, Inc., regarding a possible merger between the two companies had been terminated. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Seafield Capital Corporation Date August 8, 1997 By /s/ James R. Seward ---------------------------- James R. Seward Executive Vice President and Chief Financial Officer Date August 8, 1997 By /s/ Steven K. Fitzwater ---------------------------- Steven K. Fitzwater Vice President, Chief Accounting Officer and Secretary EX-27 2
5 This schedule contains summary financial information extracted from the Form 10-Q for the period ending June 30, 1997 and is qualified in its entirety by reference to such 10-Q. 1,000 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 4,021 23,510 0 0 0 46,527 0 0 131,905 7,853 0 0 0 7,500 105,175 131,905 0 38,048 0 39,379 0 0 0 3,064 9,573 (7,107) (2,342) 0 0 (9,449) (1.46) 0 Disclosure not required on interim financial statements Computation not applicable
-----END PRIVACY-ENHANCED MESSAGE-----