-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, CvVO/IWRG4UtaQs48cFKagb7MXDQcESr+Q7o3q2hxB+cAWMagROyz11uP9PIVOms 27MyMEXBlsibWZwLQ9usdQ== 0000830158-94-000016.txt : 19941122 0000830158-94-000016.hdr.sgml : 19941122 ACCESSION NUMBER: 0000830158-94-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEAFIELD CAPITAL CORP CENTRAL INDEX KEY: 0000830158 STANDARD INDUSTRIAL CLASSIFICATION: 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: 94559975 BUSINESS ADDRESS: STREET 1: 2600 GRAND AVE STE 500 STREET 2: P O BOX 410949 CITY: KANSAS CITY STATE: MO ZIP: 64141 BUSINESS PHONE: 8168427000 MAIL ADDRESS: STREET 1: P.O. BOX 410949 STREET 2: 2600 GRAND AVENUE, SUITE 500 CITY: KANSAS CITY STATE: MO ZIP: 64141 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 10Q FOR THIRD QTR 1994 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 September 30, 1994 ----- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission file number 0-16946 SEAFIELD CAPITAL CORPORATION ------------------------------------------------------ (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 410949 2600 Grand Ave., Suite 500 Kansas City, Missouri 64141 -------------------------------- ---------------- (Address of principal (Zipcode) executive offices) Registrant's telephone number, including area code (816) 842-7000 -------------- - - ------------------------------------------------------------------------------- (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 November 8, 1994: $1 par value common - 6,361,021 PART I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS SEAFIELD CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - - ------------------------------------------------------------------------------- September 30, December 31, 1994 1993 - - ------------------------------------------------------------------------------- (in thousands) ASSETS Current assets: Cash and cash equivalents $ 4,586 15,491 Short-term investments 71,448 80,069 Accounts and notes receivable 32,390 32,296 Current income tax receivable 2,397 1,325 Deferred income tax assets 1,389 1,621 Other current assets 10,107 8,924 Current assets of discontinued real estate operations - net (493) 336 ------------------------ Total current assets 121,824 140,062 Property, plant and equipment 25,469 27,767 Investments: Securities 8,984 8,274 Notes receivable 1,507 1,394 Oil and gas 6,530 8,381 Intangible assets 29,853 33,178 Other assets 2,063 2,977 Non-current assets of discontinued real estate operations - net 54,196 52,260 ------------------------ $ 250,426 274,293 ======================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 6,830 6,746 Notes payable 2,565 4,571 Other current liabilities 8,886 9,552 ------------------------ Total current liabilities 18,281 20,869 Notes payable 10 18 Deferred income tax liabilities (862) 723 Other liabilities 4,868 4,197 ------------------------ Total liabilities 22,297 25,807 ------------------------ Minority interests 21,975 22,816 ------------------------ 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 1,003 1,007 Equity adjustment from foreign currency translation (378) (350) Retained earnings 228,809 235,583 ------------------------ 236,934 243,740 Less cost of 1,138,979 shares of treasury stock (1993-766,755) 30,780 18,070 ------------------------ Total stockholders' equity 206,154 225,670 ------------------------ $ 250,426 274,293 ======================== See accompanying notes and management's discussion and analysis of financial statements. SEAFIELD CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS - - ------------------------------------------------------------------------------- Three Months Ended Nine Months Ended September 30, September 30, 1994 1993 1994 1993 - - ------------------------------------------------------------------------------- (in thousands except per share amounts) REVENUES Insurance services $ 16,039 17,708 50,247 56,442 Healthcare services 12,547 11,253 33,100 29,822 Other 2,971 4,690 8,694 10,835 ---------------------- ---------------------- Total revenues 31,557 33,651 92,041 97,099 COSTS AND EXPENSES Insurance services 8,090 8,132 24,587 25,177 Healthcare services 11,544 10,121 31,225 26,844 Other 3,319 4,601 8,923 11,492 Selling, general and administrative 11,593 9,033 30,764 27,328 --------------------- ---------------------- Earnings (loss) from operations (2,989) 1,764 (3,458) 6,258 Investment income - net 828 2,021 3,103 3,675 Other expense (133) (197) (11) (240) --------------------- ---------------------- Earnings (loss) before income taxes (2,294) 3,588 (366) 9,693 Income taxes (392) 1,713 759 4,752 ---------------------- ---------------------- Earnings (loss) before minority interests (1,902) 1,875 (1,125) 4,941 Minority interests (157) 590 (75) 1,875 ---------------------- ---------------------- Net earnings (loss) $ (1,745) 1,285 (1,050) 3,066 ====================== ====================== Per share of common stock: Net earnings (loss) $ (.27) .19 (.16) .45 Dividends $ .30 .30 .90 .90 Book value $ 32.41 33.53 Average shares outstanding 6,361,021 6,855,083 6,374,920 6,840,595 Shares outstanding end of period 6,361,021 6,712,932 See accompanying notes and management's discussion and analysis of financial statements. SEAFIELD CAPITAL CORPORATION AND SUBSIDIARIES Consolidated Statement of Stockholders' Equity - - ------------------------------------------------------------------------------ Nine Months Ended September 30, 1994 - - ------------------------------------------------------------------------------ (in thousands) Common stock: Balance, beginning of year $ 7,500 --------- Balance, end of period 7,500 --------- Paid-in capital: Balance, beginning of year 1,007 Exercise of stock options (4) --------- Balance, end of period 1,003 --------- Foreign currency translation: Balance, beginning of year (350) Net change during period (28) --------- Balance, end of period (378) --------- Retained earnings: Balance, beginning of year 235,583 Net earnings (1,050) Dividends paid (5,724) --------- Balance, end of period 228,809 --------- Less: Treasury stock: Balance, beginning of year 18,070 Exercise of stock options (242) Shares purchased (382,350 shares) 12,952 --------- Balance, end of period 30,780 --------- Stockholders' Equity $ 206,154 ========= See accompanying notes and management's discussion and analysis of financial statements. SEAFIELD CAPITAL CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows - - ------------------------------------------------------------------------------- Nine months ended September 30, 1994 1993 - - ------------------------------------------------------------------------------- OPERATING ACTIVITIES Earnings (loss) from operations $ (1,050) 3,066 Adjustments to reconcile earnings from operations to net cash provided by operations: Depreciation and amortization 12,528 14,457 Earnings (loss) applicable to minority interests (75) 1,875 Change in short-term trading portfolio, net 2,232 -- Change in accounts receivable 1,944 (5,728) Change in accounts payable 251 (1,604) Income taxes and other (2,142) (3,311) ------------------------ Net cash provided by continuing operations 13,688 8,755 ------------------------ INVESTING ACTIVITIES Purchases of investments (2,206) (9,388) Sales or maturities of investments 1,542 9,206 Secruitization of receivables 4,800 17,000 Additions to property, plant and equipment, net (3,942) (2,781) Oil and gas investments (773) 93 Short-term investments (1,115) (9,596) Net cash provided (used) by discontinued real estate operations (1,107) 6,234 Other, net (901) (1,680) ------------------------ Net cash provided (used) by investing activities (3,702) 9,088 ------------------------ FINANCING ACTIVITIES Payments under line of credit ageements, net (2,097) (818) Payment of principal on long-term debt (42) (12,018) Payment of capital lease (297) -- Dividends paid (5,724) (6,039) Purchase of treasury stock (12,952) -- Issuance of common stock 238 19 ------------------------ Net cash used by financing activities (20,874) (18,856) ------------------------ Effect of foreign currency translation (17) 117 ------------------------ Net decrease in cash and cash equivalents (10,905) (896) Cash and cash equivalents - beginning of period 15,491 2,246 ------------------------ Cash and cash equivalents - end of period $ 4,586 1,350 ======================== Cash paid during the period for: Interest (net of amount capitalized) $ 248 472 ======================== Income taxes, net $ 2,291 5,384 ======================== See accompanying notes and management's discussion and analysis of financial statements. SEAFIELD CAPITAL CORPORATION Notes to Consolidated Financial Statements September 30, 1994 and 1993 (1) The financial information furnished herein, in the opinion of management, reflects all adjustments which are necessary to fairly state the Registrant's financial position at September 30, 1994 and December 31, 1993 and the results of its operations and cash flows for the periods ended September 30, 1994 and 1993. The financial statements have been prepared in conformity with generally accepted accounting principles appropriate in the circumstances, and therefore included in the financial statements are certain amounts based on management's informed estimates and judgments. The financial information herein is not necessarily representative of a full year's operations because levels of sales, interest rates and other factors fluctuate throughout the fiscal year. These same considerations apply to all year to year comparisons. Certain 1993 amounts have been reclassified for comparative purposes with no effect on net earnings. See the Registrant's Annual Report pursuant to Section 13 to the Securities Exchange Act of 1934 (Form 10-K) for additional information not required by this Quarter's Report (Form 10-Q). (2) Cash and cash equivalents include demand deposits in banks and overnight investments. (3) A lawsuit was initiated in 1986 by the Registrant's former insurance subsidiary against an architectural and engineering firm and a construction firm to recover costs incurred to remove and replace the facade on the former home office building. Because the costs had been incurred prior to any discussions regarding a sale of the insurance subsidiary, Registrant negotiated with the buyer for an assignment of the cause of action from the insurance subsidiary. Thus, any recovery will be for the benefit of the Registrant and all costs incurred in connection with the litigation will be paid by the Registrant. Any ultimate recovery will be recognized as income when received and would be subject to income taxes. In September 1993, the Missouri Court of Appeals reversed a $5.7 million judgment granted in 1992 in favor of the Registrant; shortly thereafter, the Appeals court informed the parties that it would reconsider the case. On November 8, 1994, 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; it affirmed the judgment to the extent of $4 million, but subject to a jury's determination, in a new trial, respecting the statute of limitations question. In 1990, the Registrant's former insurance subsidiary was joined in an existing lawsuit by the Federal Deposit Insurance Corporation (FDIC) as successor to Sunbelt Service Corporation. The FDIC alleged that the insurance subsidiary was obligated under a repurchase agreement in the approximate amount of $6 million. Following a mediation proceeding, all claims involving the Registrant were dismissed with prejudice by order of the court signed in February 1994. In February 1988, a lawsuit was initiated against the Registrant's former insurance subsidiary by its former partners in the Quail Run real estate project in Santa Fe, New Mexico. The plaintiffs alleged that the project partnership agreement was improperly terminated, thus denying them an ongoing interest in the project, and that their exclusive real estate brokerage arrangement was improperly terminated, thus denying them commissions from sales of project units and adversely affecting their brokerage business generally. The plaintiffs were seeking approximately $11 million in actual damages and unspecified punitive damages based upon alleged breaches of contract and fiduciary duty and economic compulsion, all arising out of the purchase of the plaintiffs' interest in the project partnership. After a four-week trial in July 1994, the jury returned a verdict absolving Registrant of any liability. Subsequent to the trial, the judge awarded Registrant $176,000 for marketing expenses which the plaintiffs were to have repaid. Registrant has filed motions seeking pre-judgment interest on the $176,000 and reimbursement of certain litigation costs. Plaintiffs have appealed all judgments against them and have contested the claims for pre-judgment interest and litigation costs. The appeal will likely be heard sometime in 1995. Because the Quail Run project was retained by Registrant in connection with the sale of its former insurance subsidiary, Registrant defended the lawsuit under an indemnification arrangement with the purchaser of the former insurance subsidiary; all costs incurred and any judgments rendered in favor of the plaintiff will be for the account of the Registrant. In the opinion of management, after consultation with legal counsel and based upon current available information, none of these lawsuits is expected to have a significant impact on the consolidated financial position of the Registrant. (4) Statement of Financial Accounting Standards No. 112 "Employer's Accounting for Postemployment Benefits" was implemented in the first quarter of 1994. The adoption of this standard had no significant impact on the Registrant's financial position or results of operations. (5) 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. ITEM 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS Selected financial data Three months ended Nine months ended September 30, September 30, ------------------------ ------------------------ 1994 1993 1994 1993 ---------- ---------- ---------- ---------- Revenues $ 31,557,000 33,651,000 92,041,000 97,099,000 Earnings (loss) from operations $ (2,989,000) 1,764,000 (3,458,000) 6,258,000 Investment Income - Net $ 828,000 2,021,000 3,103,000 3,675,000 Net earnings (loss) $ (1,745,000) 1,285,000 (1,050,000) 3,066,000 Per share: Net earnings (loss) $ (.27) .19 (.16) .45 Dividends per share $ .30 .30 .90 .90 Book value per share $ 32.41 33.53 Average shares outstanding 6,361,021 6,855,083 6,374,920 6,840,595 Shares outstanding end of period 6,361,021 6,712,932 Insurance Services Segment The following businesses are considered to be in the insurance services segment: laboratory testing for the life, disability and health insurance industries, underwriting and policy administration services and insurance premium finance services. LabOne, Inc. (LabOne), an 82% owned subsidiary of Seafield Capital Corporation (Seafield), is a publicly-traded company (NASDAQ-LABS). LabOne currently generates revenue primarily from laboratory testing of insurance policy applicants for insurance companies. The tests performed by LabOne are specifically designed to assist insurance companies in objectively evaluating the mortality and morbidity risks posed by policy applicants. The majority of the testing is performed on individual and group life insurance policy applicants. LabOne also provides testing services on individual and group medical and disability policies. LabOne offers a core group of urine tests, controlled substance tests, insurance-oriented blood chemistry profiles and a series of AIDS-related tests. The following table summarizes LabOne's sales from such tests, and from other operations (primarily the sale of specimen kits): Three months ended Sept 30, Nine months ended Sept 30, 1994 1993 1994 1993 ---------------------------- --------------------------- Urinalyses $ 2,320,000 2,421,000 7,204,000 7,695,000 Controlled substances 2,465,000 2,940,000 7,656,000 9,801,000 Blood chemistry profile 4,175,000 4,669,000 12,954,000 15,017,000 AIDS-related tests 2,950,000 3,394,000 9,250,000 11,229,000 Other 2,557,000 2,933,000 8,250,000 8,781,000 -------------------------- -------------------------- $ 14,467,000 16,357,000 45,314,000 52,523,000 ========================== ========================== LabOne's reported net earnings of $281,000 for the third quarter of 1994 on revenues of $14.5 million, compared to the prior year's third quarter net earnings of $2.2 million on revenues of $16.4 million. For the nine months ended September 30, 1994, LabOne's reported net earnings of $4.2 million on revenues of $45.3 million, compared to the prior year's nine months net earnings of $8.3 million on revenues of $52.5 million. LabOne's decrease in revenue of $1.9 million in the third quarter of 1994 can be attributed to an 6% decrease in the total number of applicants tested and a 7% decline in the average revenue per applicant. Insurance industry reports indicate that the number of policies written in 1994 is significantly less than during the same period in 1993. The decline in the total number of applicants tested can be attributed primarily to the reduction in the number of policy applications written. Average revenue per applicant declined due to certain price decreases as a result of continued competitive pressures. LabOne's revenue decrease in the first nine months of $7.2 million or 14% can be attributed primarily to a 9% decrease in the total number of applicants tested and an 7% decrease in the average revenue per applicant. LabOne's cost of sales decreased in the third quarter of 1994 by $305,000 as compared to the prior year's third quarter. This decrease is due primarily to specimen kit cost reductions, lower depreciation and amortization and net freight expenses. The third quarter 1994 cost of sales included approximately $600,000 in expenses incurred related to the expansion into clinical laboratory testing. Cost of sales declined $1.1 million in the nine month period ended September 30, 1994 as compared to the prior year's period. This decrease is due primarily to the decrease in testing volume, unit cost reductions for specimen kits, a decrease in depreciation and amortization expenses and net freight expenses. These expense reductions were net of expenses incurred related to the expansion into clinical laboratory testing. LabOne's selling, general and administrative expenses increased $2.1 million in the third quarter 1994 from the same period last year, primarily due to a one time restructuring charge of $1.6 million. The insurance testing operations were restructured by consolidating its Canadian laboratory testing operation with the Lenexa, Kansas facility. It also eliminated several insurance testing administrative positions during the third quarter. LabOne's management expects to save approximately $1.7 million annually from the restructuring. Selling, general and administrative expenses related to the clinical diversification were approximately $800,000 in the third quarter. LabOne's selling, general and administrative expenses increased $1.7 million in the first nine months of 1994 due primarily to the one time restructuring charge of $1.6 million and an increase in payroll expenses. These increases are partially offset by lower depreciation expense. In October 1994, LabOne announced that it has agreed to provide clinical laboratory testing services to several regions of the Foundation of the California Coast. The Foundation is a coalition of preferred provider organizations with more than 8,000 physician providers and over 450,000 eligible members. Approximately 45 percent of these members are members of Principal Mutual Life Insurance Company, for whom LabOne agreed to provide laboratory testing services under a contract announced in July 1994. The diversification into the clinical testing market has resulted in approximately $1.4 million of incremental expenses incurred during the third quarter 1994. LabOne management expects that the incremental expenses associated with clinical diversification for the fourth quarter 1994 will exceed the amount spent during the third quarter 1994. Clinical testing revenue during the third quarter was insignificant. LabOne's management expects clinical revenue to increase during the fourth quarter 1994, but does not expect the increase to offset the clinical expenses incurred during the same time period. The insurance premium finance services operations were profitable during the third quarters and first nine months of 1994 and 1993. In first nine months of 1994, this subsidiary originated $55.8 million of new premium finance contracts, compared to approximately $44 million for the same period in 1993. The number of contracts processed increased 32% to 10,277 contracts in the first nine months of 1994. During 1994's third quarter, this subsidiary increased its securitization program to a $30 million receivables sales facility with a bank. Receivables sold totaled $23 million at September 30, 1994. The underwriting and policy administration services revenue increased 20% in 1994's third quarter and 53% in the first nine months as compared to the prior year's periods. While new business development is positive, this subsidiary incurred losses during the third quarter and first nine months. Additional staffing costs were incurred in anticipation of production from new clients. Healthcare Services Segment The following businesses are considered to be in the healthcare services segment: advanced cancer treatment services and radiopharmaceuticals and related services for nuclear medicine. Response Technologies, Inc. (Response), a 59% owned subsidiary of Seafield, is a publicly-traded company (AMEX-RTK). Response is a leading provider of advanced cancer treatments and related services, principally on an outpatient basis, through treatment centers owned or managed by Response. The corporate-owned centers, known as IMPACT(registered trademark) (IMPlementing Advanced Cancer Treatments) Centers, are staffed by experienced oncology nurses, laboratory technologists and other support personnel to deliver outpatient services under the direction of private practicing oncologists. The primary treatments provided by the Centers involve high-dose chemotherapy coupled with support of the patient's immune system through the use of autologous peripheral blood stem cell reinfusion. The Centers also provide home pharmacy and outpatient infusional services for its patients. Response is devoting significant marketing effort to the development of additional centers based within client hospitals. Response will provide technical and administrative services, including treatment protocols, data management, employee training, and reimbursement. Patient care and laboratory services will be provided by and billed to third parties by the client hospital. This arrangement will allow a hospital to gain greater utilization of its existing staff and facilities by offering high-dose chemotherapy treatments without incurring additional overhead. These centers may entail a joint ownership relationship or a management agreement. As of September 30, 1994, Response had a network of 27 owned and 5 managed treatment centers located in California, Colorado, Florida, Georgia, Indiana, Louisiana, Massachusetts, Michigan, Minnesota, Missouri, New Mexico, New York, North Carolina, Pennsylvania, South Carolina, Tennessee, Texas and Virginia. Response anticipates continued nationwide expansion through a combination of corporate-owned and managed centers over the next few years. During the quarter ended September 30, 1994, Response opened an advanced cancer treatment center in a cooperative arrangement with DeKalb Medical Center in Atlanta, Georgia ("the Hospital"). The center represents a transition from Response's wholly-owned and operated IMPACT (registered trademark) Center which was established in Atlanta in December, 1991 to a cooperative center with the Hospital. Response previously reported that its IMPACT (registered trademark) Center in Dayton, Ohio was being reviewed for possible noncompliance with state certificate of need ("CON") regulations. Response had disputed the applicability of the CON regulations to its operation in Dayton. Due to an adverse ruling whereby applicability of the regulations were upheld, the Dayton IMPACT (registered trademark) Center was closed during the quarter ended September 30, 1994. Response faced similar regulations in the State of Michigan, but received a favorable ruling whereby it was determined that Response's operations were not in conflict with CON regulations. Response continues to undertake significant efforts to establish provider relationships to redirect patients to its Centers and to establish contractual pricing arrangements. Response has been successful in establishing many relationships with insurance plans, and the majority of its patients are now covered by a contractual pricing arrangement. Response reported a net loss of $138,000 for the third quarter of 1994 on revenues of $10.8 million, compared to the prior year's third quarter net earnings of $323,000 on revenues of $10.5 million. For the nine months ended September 30, 1994, Response incurred a net loss of $l.7 million on revenues of $28.6 million, compared to the prior year's nine months net earnings of $593,000 on revenues of $27.5 million. Response's 1994 third quarter operating expenses increased $583,000 or 7% when compared to the quarter ended September 30, 1993. Operating expenses for the nine months ended September 30, 1994 increased $1.8 million or 8% when compared to the nine months ended September 30, 1993. These expenses consist of payroll costs, pharmaceutical and laboratory expenses, rent expense and other operational expenses. Operating expenses display a high degree of variability in proportion to center revenue. Operating expenses as a percent of net revenue were 81% and 78% for the quarters and 82% and 79% for the nine month periods ended September 30, 1994 and 1993, respectively. The increase is primarily attributable to an increase in lower margin revenue from pharmaceutical sales to physicians. Response's general and administrative costs for the quarter ended September 30, 1994 increased $283,000 or 37% when compared to the quarter ended September 30, 1993. These expenses increased $1.2 million or 57% for the nine months ended September 30, 1994 when compared to the nine months ended September 30, 1993. The increase is primarily attributable to payroll, travel and relocation costs related to Response's actions to bolster its medical and scientific management to support future growth, including the addition of an oncologist to serve as scientific director. In addition, fees were paid during the nine months ended September 30, 1994 for quality review of Response's clinical data and for public relations. Response's increased legal expenses were related to treatment pre-authorization appeals and the appeal of state regulatory issues in Ohio. As a percentage of net revenue, general and administrative costs were 10% and 7% for the quarters and 11% and 7% for the nine months ended September 30, 1994 and 1993, respectively. Response's provision for doubtful accounts decreased $126,000 or 17% and $92,000 or 5% between the quarters and the nine months periods ended September 30, 1994 and 1993, respectively. The provision as a percentage of net revenue was 6% and 7% for the quarters and was 7% for the nine months periods ending September 30, 1994 and 1993. The 1993 provision benefited from significant bad debt recoveries. Response believes that there are significant development opportunities in the field of oncology which are being brought about by broader acceptance and utilization of peripheral blood stem cell-supported treatments and the demand for more effective management by physicians of the entire spectrum of oncological services. During the quarter, the Office of Personnel Management of the United States Government ("the OPM") announced its plans to require those insurance plans under its jurisdiction to provide coverage for high-dose chemotherapy with immune system support in the treatment of breast cancer, ovarian cancer and multiple myeloma. Response views this announcement as further endorsement of the types of treatments which it began offering in 1989. Concurrently, growing data has helped Response refine patient selection criteria so that patients who are not likely to benefit by a particular high- dose chemotherapy regimen may be directed to an alternate high-dose regimen or to palliative care. The year's revenue growth has been slowed, in part, by such redirection of patients. Response also believes that it is crucial to continue to build the appropriate infrastructure to be able to benefit from the opportunities in cancer care. While slower revenue growth and increasing costs have resulted in losses from operations during the year, Response believes that it is appropriately positioned for longer term profitability and a commanding national presence in the field of oncology. Seafield's second healthcare operating subsidiary, Pyramid Diagnostic Services, Inc. (Pyramid), reported a small loss in the third quarter and first nine months of 1994. Start-up costs associated with new pharmacy openings negatively impacted operating results during 1994. Currently, five pharmacies distribute radiopharmaceuticals and related services to nuclear medicine departments in hospitals and clinics. Pyramid anticipates opening three new pharmacies during 1994's fourth quarter. Other Operating Results Seafield's oil and gas subsidiary produced a small profit in the third quarter and first nine months of 1994, compared to losses during 1993's periods. Seafield's pre-tax cash flow from oil and gas investments in the first nine months of 1994 totaled approximately $2 million. On January 1, 1993, Seafield increased its ownership position from 50% to 79% in a real estate, personal property, sales and use taxes consulting firm. Other revenues in 1994's third quarter included $1.7 million from the tax consulting firm, compared to $3.1 million in 1993's third quarter. Other investments impacting earnings include venture capital and liquidity investments. The return on short-term investments is included in the investment income line in the consolidated statements of earnings. Investment income totaled $828,000 in 1994's third quarter compared to $2 million in last year's third quarter. Investment income in 1994 was impacted by price fluctuations on marketable securities. In 1994, the consolidated effective tax rate reflects non-deductible goodwill and subsidiary losses not subject to tax benefits. Seafield has investments in two majority-owned entities that are publicly traded. At September 30, 1994, based on the market prices of publicly-traded shares of these two subsidiaries, pretax unrealized gains of approximately $169 million on these investments were not reflected in either Seafield's book value or stockholders' equity. Real Estate-discontinued operations In 1992, Seafield's board of directors approved a plan for the discontinuance of real estate operations. After reviewing sales activity and appraisals in 1992, Seafield believed it was an appropriate time to discontinue real estate operations and sell the remaining real estate assets as soon as practicable. Seafield holds real estate through a wholly-owned subsidiary, Scout Development Corporation. The real estate holdings are diverse in location and include residential land, undeveloped land, single-family housing, and commercial structures. As a result of the decision to discontinue real estate, a $6 million after-tax provision was established for estimated write-downs and costs through final disposition. Real estate revenues were $7.8 million during 1994's first nine months compared to $13.9 million in last year's first nine months. The 1994 sales include 2 residential lots in Texas and 35 residential lots and units in Florida and New Mexico. Real estate sales in 1993's first nine months consisted of 19 residential lots in Texas and 51 residential units in Florida and New Mexico. LIQUIDITY AND CAPITAL RESOURCES On September 30, 1994 at the holding company level, Seafield had available for operations approximately $33.4 million in cash, cash equivalents and marketable common stocks with an additional $6.4 million in long-term securities. On a consolidated basis, Seafield and its subsidiaries had $76 million (primarily LabOne with $40.1 million) in cash and short-term investments and $9 million in long-term securities. Current assets totaled $121.8 million while current liabilities totaled $18.3 million. Net cash provided by consolidated operations in 1994's first nine months was $13.7 million compared to net cash provided of $8.8 million in last year's first nine months which resulted primarily from changes in accounts receivable, accounts payable and income taxes. In August 1990, Seafield's board of directors authorized $70 million for the acquisition of Seafield and LabOne common stock. Up to $20 million of this authorization could be utilized to purchase LabOne stock. At December 31, 1993, Seafield had $4.6 million remaining of the $50 million authorization for Seafield common stock. In January 1994, Seafield's board of directors approved an additional $8.4 million authorization necessary to complete an acquisition of 382,350 Seafield shares for approximately $13 million. This completed Seafield's treasury share repurchase program. During 1994's first nine months, 10,126 Seafield shares were issued for exercised options. Additionally, Seafield has acquired a total of 1,418,000 shares of LabOne's stock under the board authorization at a cost of $16.6 million. In 1993, Seafield's board of directors approved an additional $5 million for the purchase of LabOne's stock resulting in a remaining aggregate authorization of $8.4 million at September 30, 1994. During the first nine months of 1994, Seafield did not purchase any LabOne stock. Seafield is primarily a holding company. Sources of cash are investment income and sales (including real estate), borrowings and dividends from subsidiaries. The dividend-paying capabilities of subsidiaries may be restricted. The primary uses of cash for Seafield are investments, stock purchases and dividends to shareholders. Seafield received a notice during 1992 of proposed adjustments from the Internal Revenue Service (IRS) with respect to 1986-87 federal income taxes. The amount of additional taxes proposed by the IRS was approximately $17 million. Seafield filed a protest of the adjustments in 1992. The IRS has not yet responded to this protest. Seafield has also informally received proposed adjustments for 1988-1989 from the IRS. The amount of additional taxes proposed for these years is approximately $6 million. Seafield filed a carryback claim for 1990 taxable losses with the IRS. These losses were carried back to 1987, and the tax refund generated by this carryback is approximately $7.6 million. The refund, however, will not be acted on by the IRS until the IRS completes its review of the 1990 federal income taxes. This review began in late 1993, and will likely not be completed until 1995. Seafield believes it has meritorious defenses to many of the issues raised by the IRS and adequate accruals for income tax liabilities. In 1988, LabOne's board of directors authorized up to $25 million to enter the market from time to time for the purpose of acquiring shares of LabOne's common stock. As of September 30, 1994, LabOne had acquired 2,099,235 shares at a total cost of $22.7 million. There were no shares purchased during 1994. LabOne began paying quarterly dividends in December 1991. As an 82% owner, Seafield received $5.8 million as a cash dividend from LabOne during the first nine months of 1994. LabOne's working capital position decreased slightly to $46.5 million at September 30, 1994 from $48.6 million at December 31, 1993. This decrease is the result of capital additions, dividends paid and increases in long-term investments exceeding cash provided by operations after changes in working capital. LabOne expects to fund working capital needs, capital additions, dividend payments and further treasury stock purchases, if any, from a combination of cash reserves, cash flow from operations and short-term borrowings. LabOne has had no short-term borrowings during 1994 and did not utilize an unsecured $1 million line of credit that is available for general corporate purposes. During 1994's third quarter, LabOne invested $800,000 in additional property, plant, and equipment while 1993's third quarter investment totaled $500,000. Response's working capital at September 30, 1994 was $12.8 million with current assets of $17.3 million and current liabilities of $4.5 million. Cash and cash equivalents and short-term investments represent $1.7 million of Response's current assets. Response maintains a $5 million revolving bank line of credit, secured by accounts receivable. There were no borrowings under this line of credit at September 30, 1994. Response's management believes that their cash and capital resources, together with available credit facilities, will be sufficient to finance current operations and anticipated expansion. NEW ACCOUNTING STANDARDS Seafield plans to adopt Financial Accounting Standards Board Statement No. 118 - - - "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures (an amendment of FASB Statement No. 114)" in the first quarter of 1995. The adoption of Statement No. 118 is not expected to have any significant impact on Seafield's financial position or results of operations. Seafield plans to adopt Financial Accounting Standards Board Statement No. 119 - - - "Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments" for the fiscal year ending December 31, 1994. The adoption of Statement No. 119 is not expected to have any significant impact on Seafield's financial position or results of operations. PART II. OTHER INFORMATION Item 1. Legal Proceedings A lawsuit was initiated in 1986 by the Registrant's former insurance subsidiary against an architectural and engineering firm and a construction firm to recover costs incurred to remove and replace the facade on the former home office building. Because the costs had been incurred prior to any discussions regarding a sale of the insurance subsidiary, Registrant negotiated with the buyer for an assignment of the cause of action from the insurance subsidiary. Thus, any recovery will be for the benefit of the Registrant and all costs incurred in connection with the litigation will be paid by the Registrant. Any ultimate recovery will be recognized as income when received and would be subject to income taxes. In September 1993, the Missouri Court of Appeals reversed a $5.7 million judgment granted in 1992 in favor of the Registrant; shortly thereafter, the Appeals court informed the parties that it would reconsider the case. On November 8, 1994, 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; it affirmed the judgment to the extent of $4 million, but subject to a jury's determination, in a new trial, respecting the statute of limitations question. In 1990, the Registrant's former insurance subsidiary was joined in an existing lawsuit by the Federal Deposit Insurance Corporation (FDIC) as successor to Sunbelt Service Corporation. The FDIC alleged that the insurance subsidiary was obligated under a repurchase agreement in the approximate amount of $6 million. Following a mediation proceeding, all claims involving the Registrant were dismissed with prejudice by order of the court signed in February 1994. In February 1988, a lawsuit was initiated against the Registrant's former insurance subsidiary by its former partners in the Quail Run real estate project in Santa Fe, New Mexico. The plaintiffs alleged that the project partnership agreement was improperly terminated, thus denying them an ongoing interest in the project, and that their exclusive real estate brokerage arrangement was improperly terminated, thus denying them commissions from sales of project units and adversely affecting their brokerage business generally. The plaintiffs were seeking approximately $11 million in actual damages and unspecified punitive damages based upon alleged breaches of contract and fiduciary duty and economic compulsion, all arising out of the purchase of the plaintiffs' interest in the project partnership. The case was heard in the United States District Court for the District of New Mexico. After a four-week trial in July 1994, the jury returned a verdict absolving Registrant of any liability. Subsequent to the trial, the judge awarded Registrant $176,000 for marketing expenses which the plaintiffs were to have repaid. Registrant has filed motions seeking pre-judgment interest on the $176,000 and reimbursement of certain litigation costs. The plaintiffs have appealed all judgments against them and have contested the claims for pre-judgment interest and litigation costs. The appeal will likely be heard sometime in 1995. Because the Quail Run project was retained by Registrant in connection with the sale of its former insurance subsidiary, Registrant defended the lawsuit under an indemnification arrangement with the purchaser of the former insurance subsidiary; all costs incurred and any judgments rendered in favor of the plaintiff will be for the account of the Registrant. In the opinion of management, after consultation with legal counsel and based upon current available information, none of these lawsuits is expected to have a significant impact on the consolidated financial position of the Registrant. Item 2. Changes in Securities (a) Changes in Securities: None (b) Under the Missouri General Corporation Law, no dividends to stockholders may be declared or paid at a time when the net assets of the corporation are less than its stated capital or when the payment thereof would reduce the net assets of the corporation below its stated capital. At September 30, 1994 the net assets of Seafield Capital Corporation exceeded its stated capital by $198,654,000. Item 3. Defaults Upon Senior Securities None. Item 4. Submission of Matters to a Vote of Securities Holders None. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 10.1 Severance Agreement between LabOne, Inc. and Kenneth A. Stelzer dated August 25, 1994 10.2 Promissory Note Agreement between LabOne, Inc. and Bert H. Hood dated September 7, 1994 27 Financial Data Schedule (b) Reports on Form 8-K: None 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 November 14, 1994 By /s/ James R. Seward ---------------------------- James R. Seward Executive Vice President and Chief Financial Officer Date November 14, 1994 By /s/ Steven K. Fitzwater ---------------------------- Steven K. Fitzwater Vice President, Chief Accounting Officer and Secretary EX-10.1 2 SEVERANCE AGREEMENT EXHIBIT 10.1 SEVERANCE AGREEMENT This Severance Agreement ("Agreement"), made and entered into on this 25th day of August, 1994, by and between LABONE, INC. ("LabOne") and KENNETH A. STELZER ("Employee"); WITNESSETH: WHEREAS, LabOne (formerly known as Home Office Reference Laboratory, Inc.) and Employee entered into an Employment Agreement, dated August 19, 1993, as amended November 12, 1993 ("Employment Agreement"); and WHEREAS, LabOne and Employee have agreed to the termination of Employee's employment; and WHEREAS, LabOne and Employee desire to enter into agreements with respect to such termination and to their relationship after Employee's termination; NOW, THEREFORE, in consideration of the promises herein contained, the parties hereto agree as follows: 1. The effective date of Employee's termination shall be midnight, August 25, 1994 ("Termination Date"). 2. Employee hereby resigns all offices held by Employee with LabOne and resigns as a member of the Board of Directors and as a member of all committees of the Board of Directors of LabOne. Such resignations shall be effective as of the Termination Date. 3. Employee acknowledges his obligations pursuant to Section 5 of the Employment Agreement and agrees to fulfill the requirements of said Section 5 of the Employment Agreement for a period of two (2) years following the Termination Date. 4. Employee acknowledges his continuing obligations pursuant to Sections 6 and 11 of the Employment Agreement and agrees to continue hereafter to fulfill the requirements of said Sections 6 and 11 of the Employment Agreement. 5. For a period of two (2) years after the Termination Date, Employee agrees that he will perform such consulting or other services as may reasonably be requested by LabOne, provided that such services do not unreasonably interfere with any other employment engaged in by Employee. 6. Employee agrees that he shall not hereafter say, write or do anything which has an adverse effect on the business, affairs, reputation or interests of LabOne. Employee acknowledges that he has been privy to attorney-client communications concerning LabOne's business and legal affairs. Employee agrees never to disclose to anyone any advice, recommendation or work product of any of LabOne's attorneys without having first received a writing from LabOne authorizing any such disclosure, unless Employee gives LabOne prompt written notice in order to permit LabOne to seek injunctive relief to protect its interests in the event of any attempt by a third party to require any such disclosure by Employee and such disclosure by Employee is subsequently required by a final order of a court of competent jurisdiction. 7. Employee hereby represents and warrants that he has to his best knowledge and belief disclosed to LabOne all technology, inventions, discoveries, improvements, processes, formulae (secret or otherwise), ideas, know-how, methods, compositions, research projects, computer software programs and developments (collectively "Developments"), whether or not such Developments are patentable or copyrightable, which Employee by himself or in conjunction with other persons has conceived, made, developed or acquired during his employment by LabOne. Employee hereby assigns, transfers and conveys all of his right, title and interest in and to any and all such Developments to LabOne, which Developments shall become and remain the sole and exclusive property of LabOne. All files of Employee pertaining to any business of LabOne shall be and are the property of LabOne and Employee represents that he has delivered to LabOne all of such files. 8. This Agreement shall not alter any right Employee has as a terminated employee under LabOne's Long-Term Incentive Plan, Profit Sharing 401(K) Plan, Employees' Money Purchase Pension Plan and Medical Benefits Plan. 9. Except as otherwise provided herein, the Employment Agreement is hereby terminated and is of no further force or effect. 10. Employee hereby releases and discharges LabOne and its subsidiaries, Seafield Capital Corporation and its subsidiaries, and their respective officers, directors, agents, employees, representatives, successors and assigns, from and against any and all demands, claims, causes of actions, sums due (except for those provided herein), damages, costs and expenses, related to or arising out of the Employment Agreement, or related to or arising out of any act or omission of LabOne or its subsidiaries, Seafield or its subsidiaries, or their respective officers, directors, agents, employees or representatives, from the beginning of time through the date hereof, whether such demands, claims or causes of action are presently known or unknown. LabOne hereby releases and discharges Employee from and against any and all demands, claims, causes of actions, sums due, damages, costs and expenses (except for those arising out of any breach by Employee of his obligations under this Agreement), related to or arising out of the Employment Agreement, or related to or arising out of any act or omission of Employee from the beginning of time through the date hereof, whether such demands, claims or causes of action are presently known or unknown. 11. LabOne agrees to pay to Employee in cash on the following dates as severance payments the sums set forth below, provided that Employee has not violated any provision set forth in this Agreement as of each of such dates: Dates Severance Payments - - ----- ------------------ Date of execution of this Agreement $15,000 Monthly on the first day of $6,000 per month each month for a period of twenty-four (24) consecutive months, commencing on the first day of the month following the Termination Date. January 3, 1995 The sum of (a) the product of 10,973 multiplied by the amount by which the average of the high and low sales prices per share for the common stock of LabOne, as reported on the National Association of Securities Dealers Automated Quotations System ("NASDAQ") on December 30, 1994, exceeds $9.875, plus (b) the product of 2,000 multiplied by the amount by which the average of the high and low sales prices per share for the common stock of LabOne, as reported on the NASDAQ on December 30, 1994, exceeds $14.75 March 1, 1995 The product of 9,028 multiplied by the amount by which the average of the high and low sales prices per share for the common stock of LabOne, as reported on the NASDAQ on February 28, 1995, exceeds $11.125 First day of the twenty-fifth $40,366 final payment (25) month following the Termination Date. 12. LabOne agrees to pay to an outplacement services firm selected by Employee such firm's reasonable charges for services in assisting Employee with his search for new employment, in an amount not to exceed $20,000. 13. LabOne agrees to furnish Employee with the reasonable use of a LabOne secretary to provide Employee with stenographic services in his search for new employment, for a period not to exceed two (2) years. LabOne agrees to extend to Employee call- forwarding privileges to forward all incoming calls to Employee to a telephone number designated by Employee. 14. LabOne agrees to transfer into Employee's name four (4) University of Kansas basketball tickets for the 1994-1995 season. 15. LabOne agrees to assign to Employee as of the Termination Date the title to the LabOne automobile which is currently being provided to Employee. 16. LabOne will continue to provide Employee with membership privileges on LabOne's corporate membership in the Milburn Country Club ("Club") for a period of two (2) years after the Termination Date. During such period LabOne will pay the regular base dues of $266.26 per month for Employee membership in the Club and Employee will pay all other charges assessed for Employee's use of the Club. 17. LabOne and Employee agree that in the event that Employee violates any provision set forth in this Agreement, or in the event that any court enters a finding or order holding that any provision of this Agreement is void, unenforceable or constitutes an unreasonable restriction against Employee, Employee shall repay to LabOne all sums paid to him hereunder by LabOne, together with interest thereon at the prime rate established by Commerce Bank of Kansas City, N.A. LabOne and Employee further agree that in the event Employee violates paragraphs 3, 4 or 6 hereof, LabOne is reasonably likely to suffer irreparable damages which may be difficult or impossible to value in monetary damages. 18. The parties hereto agree that the obligations contained in paragraphs 4 and 6 hereof shall survive and continue after the expiration of the two (2) year period referred to in paragraph 3 hereof. 19. This Agreement sets forth the entire understanding of the parties with respect to the subject matter hereof. Any previous agreements or understandings between the parties regarding the subject matter hereof are merged into and are superseded by this Agreement. This Agreement may not be amended without the written consent of the parties hereto. 20. This Agreement is not assignable by Employee. This Agreement shall bind any successor of LabOne. IN WITNESS WHEREOF, this Agreement has been executed and entered into as of the date and year first above written. LABONE, INC. By: /s/ Gregg R. Sadler ------------------------- /s/ Kenneth A. Stelzer ----------------------------- EX-10.2 3 PROMISSORY NOTE EXHIBIT 10.2 PROMISSORY NOTE $150,000 September 7, 1994 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 7, 1995, 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 September 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 -------------------- EX-27 4 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Form 10Q for the period ending September 30, 1994 and is qualified in its entirety by reference to such 10Q. 1,000 9-MOS DEC-31-1994 JAN-01-1994 SEP-30-1994 4,586 71,448 0 0 0 121,824 0 0 250,426 18,281 0 7,500 0 0 198,654 250,426 0 92,041 0 95,499 0 0 0 (366) 759 0 0 0 0 (1,050) (.16) 0 Disclosure not required on interim financial statements. Computation not applicable.
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