ITEM 1. BUSINESS.
Seafield Capital Corporation (Seafield or the Registrant), a Missouri corporation, is a holding company whose subsidiaries operate primarily in the healthcare and insurance services areas. The Registrant implemented this new strategic business focus since insurance operations were discontinued during 1990. Various operating subsidiaries of Seafield provide insurance laboratory testing, insurance policy administration and underwriting services, insurance premium finance services, advanced cancer care, distribution of radiopharmaceuticals and related services for nuclear medicine. In addition, Seafield has investments in early-stage healthcare services companies. Seafield, either directly or through subsidiaries, also holds interests in real estate, energy investments, and marketable securities. See Item 7 and Note 6 of Notes to Consolidated Financial Statements for additional segment information. Seafield had 18 employees as of December 31, 1994. None of the employees is represented by a labor union and Seafield believes its relations with employees are good.
INSURANCE SERVICES
The following operating businesses are considered to be in the insurance services segment: LabOne, Inc., Agency Premium Resource, Inc. and International Underwriting Services, Inc.
LABONE, INC.
The Registrant's laboratory testing activities are conducted through LabOne, Inc. (LabOne), a subsidiary which was 82% owned by the Registrant and 18% publicly held at December 31, 1994. LabOne is a publicly-traded stock (NASDAQ- LABS). LabOne, together with its wholly-owned subsidiary Head Office Reference Laboratory Limited (hereinafter collectively referred to as LabOne), is the largest provider of laboratory testing services to the insurance industry in the United States and Canada.
LabOne provides high-quality, low-cost laboratory and substance abuse testing services to insurance companies, physicians and employers nationwide.
LabOne's Home Office Reference Laboratory division continues to operate as a provider of risk-appraisal laboratory testing services to the insurance industry. The tests performed are specifically designed to assist an insurance company in objectively evaluating the mortality and morbidity risks posed by policy applicants. The majority of the testing is performed on individual life insurance policy applicants. Testing services are also provided on individual and group medical and disability policy applicants.
LabOne's clinical testing services (formerly marketed under the Center for Laboratory Services division) are provided to the healthcare industry to aid in the diagnosing and treatment of patients. LabOne has established a network of patient service centers and affiliations with other centers in Northern California, Des Moines and the Kansas City area for the collection of specimens for testing. This network became operational during the fourth quarter of 1994. Additionally, a courier fleet is maintained to retrieve specimens for transport to the laboratory.
In May 1994, LabOne announced that it had signed an agreement with PCS Health Systems (PCS), a subsidiary of Eli Lilly, to market an integrated and fully managed system of laboratory testing and administration services for payers and health plans throughout the United States. The result of this agreement is a new program called Lab Card(trademark), which became operational in December 1994. The Lab Card program will offer both payers and the covered population substantial cost savings on high-quality laboratory testing services. The program will utilize PCS' point of service, real-time eligibility verification system. The laboratory testing will be performed at LabOne's centralized testing facility in Kansas.
LabOne is certified by the Substance Abuse and Mental Health Services Administration (SAMHSA, formerly NIDA) to perform substance of abuse testing services for federally regulated employers and is currently marketing these services throughout the country to both regulated and non-regulated employers.
Services Provided by LabOne:
I. Insurance Applicant Testing
In order to establish the appropriate level of premium payments or to determine whether to issue a policy, an insurance company requires objective means of evaluating the insurance risk posed by policy applicants. Because decisions of this type are based on statistical probabilities of mortality and morbidity, an insurance company generally requires quantitative data reflecting the applicant's general health. Standardized laboratory testing, tailored to the needs of the insurance industry and reported in a uniform format, provides an insurance company with an efficient means of evaluating the mortality and morbidity risks posed by policy applicants. The use of standardized urinalysis and blood testing has proven a cost-effective alternative to individualized physician examinations, which utilize varying testing procedures and reports.
Standardized laboratory testing can also be used to verify responses on a policy application to such questions as whether the applicant is a user of tobacco products, certain controlled substances or certain prescription drugs. Insurance companies generally offer a premium discount for nonsmokers and often rely on testing to determine whether an applicant is a user of tobacco products. Use of cocaine has been associated with increased risk of accidental death and cardiovascular disorders, and as a result of the increasing abuse in the United States and Canada, insurance companies are testing a greater number of policy applicants to detect its presence. Therapeutic drug testing also detects the presence of certain prescription drugs that are being used by an applicant to treat a life-threatening medical condition that may not be revealed by a physical examination.
LabOne's insurance testing services consist of certain specimen profiles that provide insurance companies with specific information that may indicate liver or kidney disorders, diabetes, the risk of cardiovascular disease, bacterial or viral infections and other health risks. LabOne also offers tests to detect the presence of antibodies to human immunodeficiency virus (HIV), nicotine, cocaine and certain medications associated with life-threatening medical conditions that may not be revealed by a routine physical examination.
Insurance specimens are normally collected from individual insurance applicants by independent paramedical personnel using LabOne's custom-designed collection kits and containers. These kits and containers are then delivered to LabOne's laboratory via overnight delivery services or mail, coded for identification and processed according to each client's specifications. Results are then generally transmitted to the insurance company's underwriting department that same evening.
II. Clinical Patient Testing
Clinical laboratory tests are requested generally by physicians and other health care providers to diagnose and monitor diseases and other medical conditions through the detection of substances in blood and other specimens. Laboratory testing is generally categorized as either clinical testing, which is performed on bodily fluids including blood and urine, or anatomical pathology testing, which is performed on tissue and other samples. Clinical and anatomical pathology tests are frequently performed as part of regular physical examinations and hospital admissions in connection with the diagnosis and treatment of illnesses. The most frequently requested tests include blood chemistry analyses, blood cholesterol level tests, and urinalyses, blood cell counts, PAP smears, AIDS tests and alcohol and other substance abuse tests.
Clinical specimens are collected at LabOne's network of patient service centers, at an affiliated collection center or at the physician's office. LabOne's couriers pick up the specimens and deliver them to local airports for express transport to the Kansas laboratory. Specimens are coded for identification and processed. LabOne has significantly expanded its testing menu to include the majority of tests requested by its clients. Tests not performed in-house are sent to reference laboratories for testing and results are entered into LabOne's computer system along with all other completed results. LabOne provides many of its clinical clients with the necessary equipment to directly receive testing results via electronic transmission from LabOne. Results which cannot be delivered electronically are delivered by LabOne's couriers beginning the morning after the tests are performed.
III. Substance Abuse Testing
LabOne has provided quality substance abuse testing results to the insurance industry for over 20 years. The recent certification by SAMHSA has enabled LabOne to begin offering these services to the entire market including federally regulated industries.
Substance abuse testing specimens are typically collected by independent agencies who use LabOne's forms and collection supplies. Specimens are sealed with tamper-evident tape, bar-coded and shipped overnight to LabOne. Automated systems monitor the specimens throughout the screening and confirmation process. Negative results are available immediately after testing is completed. Initial positive specimens are verified by the gas chromatography/mass spectrometry method and results are generally available within 24 hours. Results are then transmitted electronically to the client's secured computer, printer or fax machine. LabOne provides the necessary hardware and phone connections for these electronic transfers to many of its larger clients.
LabOne - Operations
The following table summarizes LabOne's revenues from laboratory testing and from other operations (primarily the sale of specimen collection kits):
Year ended December 31, 1994 1993 1992 1991 1990 - ------------------------------------------------------------------------------- (In thousands) Blood chemistry profiles $ 17,370 19,853 21,470 22,411 26,804 AIDS-related tests 12,407 14,766 16,280 17,840 18,690 Urinalyses 9,687 10,200 10,666 10,698 11,298 Controlled substance tests 10,326 12,702 14,359 13,649 13,685 Other 10,936 11,857 11,662 11,141 10,292 ----------------------------------------------------- $ 60,726 69,378 74,437 75,739 80,769 =====================================================
LabOne's operations are designed to facilitate the testing of a large number of specimens and to report the results to insurance company clients, generally within 24 hours of receipt of specimens. LabOne has an internally developed, custom-designed, laboratory processing system (the MEGA System). The MEGA System enables each client company to customize its own testing and reflex requirements by several parameters to satisfy its particular needs. It is a centralized network system that provides an automated link between LabOne's testing equipment, data processing equipment and the client's computer systems. This system offers LabOne's clients the ability to customize their testing activities to best meet their needs.
LabOne, as the result of the number of tests it has performed over the past several years, has compiled and maintains a large statistical database of test results. These summary statistics are useful to the actuarial and underwriting departments of an insurance client in comparing that client's test results to the results obtained by LabOne's entire client base. Company-specific and industry-wide reports are frequently distributed to clients on subjects such as coronary risk analysis, cholesterol and drugs of abuse. LabOne considers the confidentiality of its test results to be of primary importance and has established procedures to ensure that results of tests remain confidential as they are communicated to the client that requested the tests.
Substantially all of the reagents and materials used by LabOne in conducting its testing are commercially purchased and are readily available from multiple sources.
LabOne - Quality Assurance
The objective of the quality assurance department is to ensure that accurate and reliable test results are released to clients. This is accomplished by incorporating both internal and external quality assurance programs in each area of the laboratory. In addition, quality assurance specialists share the responsibility with all LabOne employees of an ongoing commitment to quality and safety in all laboratory operations. Internal quality and education programs are designed to identify opportunities for improvement in laboratory services and to meet all required safety training and education issues. These programs ensure reliable and confidential test results.
Procedure manuals in all areas of the laboratory help maintain uniformity and accuracy, and meet regulatory guidelines. Tests on control samples with known results are performed frequently to maintain and verify accuracy in the testing process. Complete documentation provides record keeping for employee reference and meets regulatory requirements. All employees are thoroughly trained to meet standards mandated by OSHA in order to maintain a safe work environment. Superblind(trademark) controls are used to challenge every aspect of service at LabOne. Specimens requiring special handling are evaluated and verified by control analysis personnel. A computer edit program is used to review and verify clinically abnormal results, and all positive HIV antibody and drugs of abuse records.
As an external quality assurance program, LabOne participates in a number of proficiency programs established by the College of American Pathologists, the American Association of Bioanalysts and the Centers for Disease Control.
LabOne is also involved in monthly peer-group review programs for hematology, flow cytometry and chemistry. These programs compare LabOne with laboratories across the nation that use similar reagents and instrumentation.
LabOne is accredited by the College of American Pathologists and is licensed under the Clinical Laboratory Improvement Amendments (CLIA) of 1988. LabOne has additional licenses for HIV and substance abuse testing from the State of Kansas and all other states where such licenses are required. LabOne's Drug Enforcement Agency license allows the laboratory to legally perform analytical research pertaining to drugs of abuse. LabOne is certified by SAMHSA (formerly NIDA) to perform testing to detect drugs of abuse in federal employees and in workers governed by federal regulations.
LabOne - Technology Development
Among its many responsibilities, the technology development department evaluates many new commercially available tests and technologies and compares them to competing products in order to select the most accurate laboratory procedures. Total technology development expenditures are not considered significant to LabOne as a whole.
LabOne - Sales and Marketing
LabOne's client base currently consists primarily of insurance companies in the United States and Canada. LabOne believes that its ability to provide prompt and accurate results on a cost-effective basis and its responsiveness to customer needs have been important factors in maintaining existing business.
All of LabOne's sales representatives for the Home Office Reference Laboratory division have significant business experience in the insurance industry or clinical laboratory-related fields. These representatives call on major clients several times each year, usually meeting with a medical director or vice president of underwriting. An important part of LabOne's marketing effort is directed toward providing its existing clients and prospects with information pertaining to the actuarial benefits of, and trends in, laboratory testing. LabOne's sales representatives and its senior management also attend underwriters' and medical directors' meetings sponsored by the insurance industry.
The sales representatives for the healthcare industry are experienced in that market and currently work in field locations in the geographic areas which they represent. Marketing efforts are directed at physicians, health insurance companies and other payers of health benefits. Currently, efforts are focused primarily in Northern California, Des Moines and the Kansas City area.
Substance abuse marketing efforts are directed at regulated and non-regulated employers. LabOne's strategy is to offer the highest quality services at low rates.
LabOne - Legislation and Regulation
In the past, legislation was introduced in several states that, if enacted, may restrict or ban all AIDS-related testing for insurance purposes in those states. The introduction of legislation to restrict or ban all AIDS-related testing does not ensure its passage into law. There can be no assurance, however, that such legislation will not be enacted in the future.
A few states have enacted legislation or regulations which have had the effect of reducing or eliminating the volume of laboratory tests requested by medical insurers in those states. It is likely that the trend will continue as more states enact legislation relating to health care and medical insurance.
The Food and Drug Administration (FDA) may exert broader regulatory control over LabOne's business and all testing laboratories. The areas of increased control that could impact LabOne's business include (1) whether FDA premarket approval or clearance may be required for LabOne's continued commercial distribution and use of a blood and urine specimen collection kit, and (2) a draft FDA compliance policy guide stating that certain products routinely used by laboratories may require FDA approval or clearance. During December 1994, the FDA gave premarket approval to Epitope, Inc. with respect to its OraSure(registered trademark) specimen collection device.
LabOne - Competition
LabOne believes that the insurance laboratory testing market is approximately a $100 million industry. LabOne currently controls over half the market, with three other main competitors maintaining a majority of the remaining market. The insurance laboratory testing industry continues to be increasingly competitive. Most of the competition has come from privately or insurance company-owned or controlled laboratories that are primarily focused on the insurance industry. New competition has come from national or multi-regional clinical laboratories that have historically focused their efforts on servicing hospitals, physicians and other health care providers. The primary focus of the competition has been on pricing and service. This continued competition has resulted in a decrease in LabOne's average price per test. It is anticipated that prices will continue to decline in 1995.
Although competition has dramatically increased in the past few years, LabOne has maintained its position as the market leader. LabOne believes its leading position in the insurance laboratory testing market is due in part to its focused commitment of resources to the life and health insurance industry. LabOne has continued to maintain its market leadership through the client relationships that it has developed over its 20-year history, its reputation for providing quality products and services at competitive prices, and its battery of tests which are tailored specifically to insurance companies' needs.
The clinical laboratory testing market is a $40 billion industry which is highly fragmented and very competitive. LabOne faces competition from numerous independent clinical laboratories and hospital or physician owned laboratories. Many of LabOne's competitors are significantly larger and have substantially greater financial resources than LabOne. LabOne is currently working to establish a sound client base in this environment.
LabOne's business plan is to be the premier low-cost provider of high-quality laboratory testing services to the clinical market. LabOne feels that its superior quality and centralized, low-cost operating structure should enable it to compete effectively in this market.
LabOne - Foreign Markets
In 1977, LabOne opened Head Office Reference Laboratory Limited, a subsidiary, in Toronto, Canada. During 1994, LabOne consolidated all Canadian laboratory testing into the Kansas laboratory. Head Office will continue to market insurance testing services to Canadian clients, with laboratory testing to be performed in the United States.
In 1993, LabOne opened HORL(UK), Limited, a subsidiary, near London to provide laboratory testing services to insurance companies in the United Kingdom. This subsidiary ceased operations during 1994.
LabOne - Employees
As of March 2, 1995, LabOne had 558 full-time employees, representing an increase of 50 employees from the same time in 1994. None of LabOne's employees is represented by a labor union. LabOne believes its relations with employees are good.
AGENCY PREMIUM RESOURCE, INC.
Agency Premium Resource, Inc. (APR) is an insurance premium finance company serving independent insurance agents in 21 states. APR provides premium financing for the commercial customers of these independent insurance agents. The Registrant has a 95% ownership position in this subsidiary. APR experienced growth and profitability during 1994. Approximately $75 million in new premium finance business was booked during 1994 compared to $61.5 million in 1993 and $40 million in 1992. The number of contracts processed totaled 13,409 in 1994 compared to 10,277 in 1993 and 6,465 in 1992. APR's wholly- owned subsidiary, Agency Services, Inc., is an information resource company which provides motor vehicle reports.
In July 1993, APR entered into an extendible two-year agreement whereby it can sell undivided interests in a designated pool of accounts receivable on an ongoing basis. As collections reduce accounts receivable in the pool, additional sales may be made up to the maximum. The maximum allowable amount of receivables to be sold was increased to $30 million from $22 million. APR had securitized receivables of $23 million at December 31, 1994 compared to $19 million at December 31, 1993. See Note 5 of Notes to Consolidated Financial Statements for additional information regarding securitization of receivables.
INTERNATIONAL UNDERWRITING SERVICES, INC.
International Underwriting Services, Inc. (IUS), a development-stage company, offers turnkey policyholder and underwriting services. The Registrant has an 80% ownership position in IUS. This subsidiary operates only within the life and health insurance industry and provides some or all of the following services to its customers: product design, underwriting of applicants, policy issue, policy service, premium collection and payment of commissions. These services are often referred to informally as the "back office services" of insurance companies.
This subsidiary has developed an underwriting service called Tele-Direct Underwriting. This service is a computer assisted, intelligent underwriting system where the customer deals directly by phone with the underwriter. As much of the work as possible is electronic, thus enabling IUS to be much more efficient than standard methodology allows.
HEALTHCARE SERVICES
The following operating businesses are considered to be in the healthcare services segment: Response Technologies, Inc. and Pyramid Diagnostic Services, Inc.
RESPONSE TECHNOLOGIES, INC.
The Registrant owns approximately 59% of Response Technologies, Inc. (Response). Response's common stock trades on the American Stock Exchange under the symbol RTK.
Response is a provider of advanced cancer treatments and related services, principally on an outpatient basis, through treatment centers owned or managed by Response. The owned centers are known as IMPACT (IMPlementing Advanced Cancer Treatments) Centers (IMPACT is a federally registered service mark). The IMPACT Centers are staffed by experienced oncology nurses, pharmacists, laboratory technologists, and other support personnel to deliver outpatient services under the direction of practicing oncologists. The primary treatments involve intensive levels of chemotherapy supported by a combination of autologous peripheral blood stem cell products and bone marrow growth factors to support the patient's immune system. The IMPACT Centers also provide home pharmacy services, such as pain medications, antibiotics and nutritional support; outpatient infusional services; blood banking services; and specialized nursing and laboratory services for its patients.
During 1994, Response expanded its network through the development of additional treatment centers in affiliation with community hospitals. This type of center teams existing hospital staff and facilities with Response's protocols, databasing, and expertise.
For hospital-affiliated centers, Response offers two types of business structures. The first structure entails a management relationship with the hospital whereby a management fee is paid to Response. The second structure entails a joint ownership with the hospital of a newly created entity, whereby profits from the entity accrue to Response and the hospital.
Response evaluates, adapts and develops treatment programs for various types of cancer. The treatment programs, or protocols, are developed with input from physicians associated with Response and independent physician advisors, frequently based upon the results of clinical trials performed by various university and government programs. Response does not engage in basic research.
The protocols which Response provides involve very high-doses of chemotherapy. Intensification of chemotherapy doses can result in improved survival rates for patients suffering from certain types of cancer. One of the major side affects of this treatment is damage to the patient's bone marrow which then impairs the immune system. Currently, many providers of high-dose chemotherapy treatments support the immune system through autologous bone marrow transplantation. Rather than utilize standard bone marrow transplant procedures, Response's protocols involve support with stem cells collected from the peripheral blood of the patient prior to the administration of high-dose chemotherapy. The process of stem cell support begins by administering certain chemotherapy drugs and growth factors to promote the growth of bone marrow stem cells and their release into the peripheral bloodstream. The stem cells are then harvested by leukapheresis, a process involving the use of a blood cell separating machine, and cryopreserved. After the administration of high-dose chemotherapy, the stem cells are reinfused into the patient, whereby the cells reengraft into bone marrow and restore the production of infection-fighting white blood cells.
Response believes that its use of non-surgical stem cell support of the bone marrow in place of a standard marrow transplant provides several major advantages. Response's experience indicates that patients participating in its protocols will require a shortened hospital stay compared to conventional bone marrow transplant patients. Because a significant amount of patient preparation and treatment is accomplished in an outpatient setting, Response estimates the cost of its procedure, including hospitalization, to be approximately $80,000. Most references to the cost of this procedure by other providers places the cost in the range of $95,000 to $125,000. Response also believes, based upon statistical analysis of its clinical data, that the mortality rate associated with stem cell support is lower than with standard bone marrow support. Furthermore, Response believes that patients generally favor stem cell support since the majority of the treatment is outpatient, and the procedures are less invasive than a traditional bone marrow transplant. Response has noted a trend of more providers shifting their treatment approach away from bone marrow transplantation to stem cell support.
An important aspect to Response's treatments is the maintenance of a clinical trials program. Cancer care represents an evolving area of medicine in which there are few "cures", or a consensus as to the current best treatment approach. At the same time, improvements in advanced cancer management are continuously being realized. The mechanism to achieve such improvements is the use of a clinical trials program, involving carefully planned, uniform treatment regimens administered to a statistically significant group of patients. The monitoring of side effects and outcomes of these treatments provides a rational means of improving future treatment regimens and predicting which patients are most likely to benefit from the treatments. This is the approach to cancer care advocated by the National Cancer Institute, universities, and many cancer practitioners.
Response is currently participating in several projects with leading pharmaceutical manufacturers to furnish data in connection with FDA applications or for post-FDA approval marketing studies. The benefits to Response for participation in these projects are twofold. First, revenue from these contacts will help underwrite Response's clinical trials expenses. Secondly, such relationships with pharmaceutical companies may allow earlier access to drugs and therapies, which will further Response's role as a leader in oncological developments.
Response's target population is patients with diseases proven to be chemo- sensitive. Intensification of chemotherapy doses in many instances results in dramatic improved disease response and improved health outcomes for patients. Accordingly, while Response's treatment procedures are developmental by design, they are not regarded as experimental.
Response - Customers and Markets
The science involved in the treatment of cancer is undergoing significant advances, particularly as a result of continuing pharmaceutical developments. Because of significant existing demands on the private oncologist's time, it can be difficult for a practicing oncologist to stay abreast of advanced technology and develop the necessary support services to utilize the technology in an efficient, organized treatment program. Response hopes to fulfill the needs of leading oncology groups by identifying the most promising technologies and organizing delivery systems to treat patients with these technologies through its centers.
Each oncologist who agrees to become associated with Response enters into an agreement whereby the oncologist provides medical direction to Response's employees in the center, participates in a quality assurance program, assists in credentials review of potential participating oncologists, makes rounds on patients being treated in the center, and is available "on call" during treatment episodes. Response does not employ practicing oncologists.
Response does not market its services to patients or the general public, but relies on the medical directors and payors to refer suitable patients for treatment.
Response - Current Operations
A typical IMPACT Center maintains a licensed pharmacy, laboratory, blood bank and patient treatment facilities to provide the high-dose protocols and other support services to the private practicing oncologists. The centers are equipped to prepare and administer chemotherapy; mobilize, harvest, process and cryopreserve stem cells; reinfuse stem cells; transfuse blood products and administer IV fluids; and provide home pharmacy care. The staffing of the centers consists of registered nurses and pharmacists, pharmaceutical technicians and medical laboratory technologists. Each center occupies approximately 3,000 square feet. Response also operates a central reference laboratory in Memphis which evaluates stem cell harvests by flow cytometry and other assays.
During 1994 Response expanded its network through the development of additional treatment centers in affiliation with community hospitals. This type of center teams existing hospital staff and facilities with Response's protocols, databasing, and expertise.
For hospital-affiliated centers, Response offers two types of business structures. The first structure entails a management relationship with the hospital whereby a management fee is paid to Response. The second structure entails a joint ownership with the hospital of a newly created entity, whereby profits from the entity accrue to Response and the hospital.
Response developed and opened its first IMPACT Center in November 1989 in Memphis. As of February 27, 1995, Response has twenty-eight IMPACT Centers and seven managed, or hospital-based, centers located in nineteen states. Currently, Response has not established any jointly-owned hospital centers, although it expects to complete negotiations in several sites during 1995.
Negotiations are currently in process with many community based hospitals in other cities, and Response intends to aggressively pursue growth opportunities. Such further expansion as anticipated by management is dependent upon Response's ability to attract oncologists to serve as medical directors, find suitable employees, arrange adequate financing, and obtain proper licensure.
Response - Government Regulation
Response's services are subject to federal and state licensing requirements in each of the states in which it operates. In order to maintain such licensure, Response must comply with applicable regulations and is subject to periodic compliance inspections by healthcare regulators. Response is, to the best of management's knowledge, in compliance with applicable state and federal licensing requirements.
The law regulating healthcare providers varies among states. Accordingly, Response approaches its network expansion on a state by state basis in order to determine whether the institution and operation is feasible under the laws of the target state. Healthcare regulation is a rapidly evolving area of law. There can be no assurance that Response's ability to open or operate its treatment facilities will not be adversely affected by changes in applicable federal or state law (such as certificate of need laws) or by administrative interpretation of existing law.
Response previously reported that its IMPACT Centers in Dayton, Ohio and Grand Rapids, Michigan were being reviewed for noncompliance with state certificate of need (CON) regulations. Response had disputed the applicability of the CON regulations due to a "grandfathering" clause in each state's law. Due to an adverse ruling whereby applicability of the regulations was upheld, the Dayton IMPACT Center was closed during the year ended December 31, 1994. A favorable ruling was received in the State of Michigan whereby it was determined that Response's operations were not in conflict with CON regulations.
Some protocols which Response may desire to implement may be subject to regulatory approval by the FDA due to the drugs or combination of drugs used in the protocols. In most instances, such approval will be sought by manufacturers of the drugs; however, Response may occasionally participate in such an approval process.
The majority of patients referred to the Centers are covered by a third party insurer. Response receives very little of its revenue from Medicare since patients eligible for Medicare generally are not medically eligible for high- dose treatment protocols.
Response believes that its method of compensating its Medical Directors complies with state and federal anti-kickback and similar regulations. While Response believes that it has taken appropriate precautions with respect to establishing such fees, there is no assurance that Response will not be determined to be in violation of existing or future government regulations. In the event Response is determined to be in violation of any such regulation, it would attempt to restructure its Medical Director payments in a manner which complies with the regulation.
Response - Competition
As a result of growing interest among oncologists and the more widely recognized efficacy of high-dose chemotherapy treatments, the competitive environment in the field is starting to heighten. Most community hospitals with a commitment to cancer treatment are evaluating their need to provide high-dose treatments, and other entities are competing with Response in providing high-dose services similar to those offered by Response.
Such competition has long been contemplated by Response, and is indicative of the evolution of this field. While Response believes that the demand for high- dose chemotherapy services is sufficiently large to support several significant providers of these services, it is subject to increasing competitive risks from these entities.
Response - Business History and Past Operations
Response was incorporated in Tennessee in 1984 under the name of Biotherapeutics Incorporated and began operations in 1985 performing patient- funded biotherapy research for advanced cancers. From inception through February 1989, Response developed a nationwide system of 15 laboratories which provided these biotherapy research services. During fiscal 1989, after Response had suffered losses since incorporation of over $30 million, management concluded that Response's operations would not become profitable because, among other reasons, its strategy of selling research services directly to patients was not widely accepted by physicians and other healthcare providers. As a result, management adopted a plan of restructuring and reorganization of Response's business operations. The plan of restructuring and reorganization involved a redirection of Response's efforts away from laboratory operations and patient funded research services to clinical support services for oncologists through the operation of the IMPACT Centers.
Response - Liability Exposure
Like all companies operating in the healthcare industry, Response faces an inherent risk of exposure to liability claims. While Response has taken what it believes to be appropriate precautions, there can be no assurance that it will avoid significant liability exposure. Response has obtained liability insurance, but there can be no assurance that it will be able to continue to obtain coverage at affordable rates or that such coverage will be adequate in the event of a successful liability claim. Since inception, Response has not incurred any professional or general liability claims or losses, and as of December 31, 1994, Response was not aware of any pending claims.
Response - Employees
As of February 27, 1995, Response employed 191 full-time employees. The employees are not covered by any collective bargaining agreements. Response believes that employee relations are good.
PYRAMID DIAGNOSTIC SERVICES, INC.
The Registrant acquired in 1992 its second investment in a healthcare operating subsidiary with the purchase of a majority-ownership position in Pyramid Diagnostic Services, Inc. (Pyramid). The original $4 million purchase price included newly-issued shares, thereby providing expansion financing to Pyramid. During 1993 and 1994, Seafield acquired additional ownership positions in Pyramid. Pyramid's nine pharmacies distribute radiopharmaceuticals and related services to nuclear medicine departments, clinics and hospitals. Pyramid's revenue increased 100% in 1994 reflecting a doubling in the number of pharmacies. Current plans are to concentrate on increasing revenues at existing pharmacies until profitability is achieved. Pyramid's long-term business plan is to continue to open pharmacies with a minimum objective of fifteen pharmacies. See Note 1 of Notes to Consolidated Financial Statements for additional information.
OTHER BUSINESSES
BMA RESOURCES, INC.
BMA Resources, Inc. (Resources) holds the Registrant's energy investments. No new energy investments are being made, and it has been the Registrant's intent to maximize cash flow from Resources to be deployed in healthcare and insurance services. The investments include oil and gas working interests, oil and gas partnerships and a stock investment in an unconsolidated affiliate. The oil and gas working interests primarily consist of interests in East Texas gas wells. East Texas activity will concentrate on production and development only, with no exploration activity. The partnership activity is focused on Gulf Coast offshore oil and gas exploration and development activity. Resources, through partnerships, has leasehold positions in the Gulf of Mexico, in addition to proven reserves. Resources has an approximate 30% equity interest in Syntroleum, Inc. which owns a patented process to convert natural gas into heavier hydrocarbons, including fuels and industrial waxes. With a completed proof of concept, Syntroleum is pursuing commercialization of the process.
TENENBAUM & ASSOCIATES, INC.
Tenenbaum & Associates, Inc. (TAI) is a full service real estate, personal property and sales and use tax consulting firm providing tax consulting services on a contingency basis. TAI's core business is commercial real estate. During the latter part of 1991, in an effort to offset the cyclical nature of its core business, TAI entered into joint marketing agreements to provide personal property and sales and use tax consulting services. TAI benefits from these arrangements through revenue-sharing in exchange for its national marketing services. TAI also targeted the industrial real estate market to augment sales from an ailing commercial real estate industry.
DISCONTINUED OPERATIONS
REAL ESTATE
The Registrant holds real estate through a wholly-owned subsidiary, Scout Development Corporation. Real estate holdings as of December 31, 1994 consisted of approximately 1,500 acres of partially developed and undeveloped land in nine locations, three residential development projects, a multi-story parking garage, a community shopping center and commercial buildings. Real estate assets are located in the following states: Colorado, Florida, Kansas, Missouri, Nevada, New Mexico, Oklahoma, Texas, and Wyoming, all of which are listed for sale.
In June 1992, the Registrant's board of directors approved a plan for the discontinuance of real estate operations. During 1990, Seafield indicated that it planned to substantially decrease its commitments in real estate development activities. Since then, management had observed that the overall real estate environment indicated continuing signs of weakness. After reviewing sales activity and appraisals in 1992, the Registrant believed it was an appropriate time to discontinue real estate operations and sell the remaining real estate assets as soon as practicable. See Item 7 and Note 13 of the Notes to Consolidated Financial Statements for additional information on discontinued real estate operations.
INSURANCE
Individual insurance, group insurance and reinsurance operations were discontinued in 1990, when the Registrant sold 95% of the issued and outstanding shares of common stock of the Registrant's wholly-owned life insurance subsidiary. A $32.2 million after-tax gain was recorded during 1990 on the sale of insurance operations.
The Registrant finalized the sale of the remaining 5% interest in its former insurance subsidiary to an affiliate of the purchaser in 1992. The Registrant received $12.8 million cash resulting in a 1992 after-tax gain of $4.3 million which is included in the consolidated financial statements as gain on disposal of discontinued insurance operations. The sale of the remaining interest consisted of shares which had been pledged to serve as collateral under a mortgage guaranty provision contained in the 1990 Sales Agreement. Concurrent with the sale of the final 5% interest, the Registrant was released from mortgage guarantees which originally totaled approximately $16 million. See Item 7 and Note 13 of Notes to Consolidated Financial Statements for additional information on discontinued insurance operations.
* * *
The following list shows the Registrant and each subsidiary corporation of which the Registrant owns a majority interest, together with the ownership percentage and state or country of incorporation.
SEAFIELD CAPITAL CORPORATION (Missouri) LabOne, Inc. (Delaware) 82% Head Office Reference Laboratory, Ltd. (Canada) 100% Response Technologies, Inc. (Tennessee) 59% Agency Premium Resource, Inc. (Kansas) 95% Agency Services, Inc. (Kansas) 100% International Underwriting Services, Inc. (Illinois) 80% Pyramid Diagnostic Services, Inc. (Delaware) 74% BMA Resources, Inc. (Missouri) 100% Tenenbaum & Associates, Inc. (Missouri) 79% Scout Development Corporation (Missouri) 100% Scout Development Corporation of New Mexico (Missouri) 100% Carousel Apartment Homes, Inc. (Georgia) 100%
ITEM 2.
ITEM 2. PROPERTIES.
Properties of Registrant
Registrant has a long-term lease for approximately 13,674 square feet of office space at 2600 Grand at the Crown Center complex in Kansas City, Missouri. This lease is for a ten year term which began April 1, 1992. Registrant's real estate subsidiary holds diversified types of properties for sale or investment purposes in various geographical locations. In certain cases projects are developed on a joint venture basis with one or more joint venture partners. Title to property in such cases may be held jointly with such partners or in the name of the venture. Rights and obligations with respect to such properties are governed by the terms of the joint venture agreement. Registrant's real estate is described in greater detail in Item 1 and Schedule III. The Registrant and subsidiaries lease office space, equipment, land and buildings under various noncancelable leases that expire over the next several years. See Note 8 of the Notes to Consolidated Financial Statements for additional information.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
Seafield received a notice during 1992 of proposed adjustments from the Internal Revenue Service (IRS) with respect to 1986-87 federal income taxes. Later, the IRS determined to include 1988-90 as a part of its review. The original amount of additional taxes proposed by the IRS was approximately $17 million for the period 1986-87. In addition, during the 1988-89 closing conference, the IRS agreed to reverse some of the taxes for the 1986-87 years by way of adjustments to 1988-89 years. Based upon conference with the IRS, Seafield believes that the net amount of additional taxes to be assessed may be less than $17 million for the four-year period under audit. Resolution of these matters is not expected in 1995. The IRS has notified Seafield that a 1990 refund claim in the amount of $7.6 million will not be acted upon until all years currently under examination are closed. Seafield believes it has meritorious defenses to many of the issues raised by the IRS and adequate accruals for income tax liabilities.
A lawsuit was initiated in 1986 by Seafield'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, Seafield negotiated with the buyer for an assignment of the cause of action from the insurance subsidiary. Thus, any recovery will be for the benefit of Seafield and all costs incurred in connection with the litigation will be paid by Seafield. Any ultimate recovery will be recognized as income when received and would be subject to income taxes. In September 1993, the Missouri Court of Appeals reversed a $5.7 million judgment granted in 1992 in favor of Seafield; the Court of Appeals remanded the case to the trial court for a jury trial limited to the question of whether or not the applicable statute of limitations barred the claim. The Appeals Court also set aside $1.7 million of the judgment originally granted in 1992. A new trial is not expected before late 1995.
In 1988, a lawsuit was initiated against Seafield's former insurance subsidiary by its former partners in the Quail Run real estate project in Santa Fe, New Mexico. The plaintiffs alleged that the project partnership agreement was improperly terminated, thus denying them an ongoing interest in the project, and the loss of their exclusive real estate brokerage arrangement. The plaintiffs were seeking approximately $11 million in actual damages and unspecified punitive damages based upon alleged breaches of contract and fiduciary duty and economic compulsion. After a trial in July 1994, the jury returned a verdict absolving Seafield of any liability. Subsequent to the trial, the judge awarded Seafield approximately $250,000 in connection with marketing expenses which the plaintiffs were to have repaid. Plaintiffs have appealed all judgments against them. The appeal will likely be heard by mid- 1995. Because the Quail Run project was retained by Seafield in connection with the sale of its former insurance subsidiary, Seafield defended the lawsuit under an indemnification arrangement with the purchaser of the former insurance subsidiary; all costs incurred and any judgments rendered in favor of the plaintiff will be for the account of Seafield.
In 1990, Seafield'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 Seafield were dismissed with prejudice by order of the court signed in February 1994.
In the opinion of management, after consultation with legal counsel and based upon current available information, none of these lawsuits is expected to have a material adverse impact on the consolidated financial position or results of operations of Seafield.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.
None.
EXECUTIVE OFFICERS OF REGISTRANT.
Following is a list of all executive officers of Registrant as of March 1, 1995, together with certain related information. There are no arrangements or understandings among any such persons and any other persons pursuant to which any was selected as an officer. All such persons serve at the discretion of the board of directors. Served as Executive Officer with Name Age Position with Registrant Registrant Since - ------------------------------------------------------------------------------- S.K. Fitzwater 48 Vice President, Chief Accounting 1990 Officer and Secretary (see note 1 below)
W.T. Grant II 44 Chairman and Chief Executive Officer 1980 (see note 2 below)
P.A. Jacobs 53 President and Chief Operating Officer 1980 (see note 3 below)
J.R. Seward 42 Executive Vice President and 1989 Chief Financial Officer (see note 4 below)
B. H. Hood 49 Chairman, President and 1993 Chief Executive Officer of LabOne, Inc. (see note 5 below)
W.H. West, M.D. 47 Chairman and Chief Executive Officer 1993 of Response Technologies, Inc. (see note 6 below)
Except as noted below, each executive officer of Registrant has held the executive position noted with Registrant or similar positions with its former insurance subsidiary as his principal occupation for the last five years.
1. Steven K. Fitzwater has been Vice President and Chief Accounting Officer since August 1990. Effective April 1, 1993, he assumed the additional duties of Secretary of the Registrant. Formerly he was Director of Financial Accounting.
2. William T. Grant II became Chairman of the Board and Chief Executive Officer in May 1993. He had been President and Chief Executive Officer since 1986.
3. P. Anthony Jacobs became President and Chief Operating Officer in May 1993. He had been Executive Vice President and Chief Operating Officer since 1990 and was Executive Vice President-Investments from 1988-90.
4. James R. Seward became Executive Vice President and Chief Financial Officer in May 1993. He had been Senior Vice President and Chief Financial Officer since August 1990. He was Vice President - Special Equities from October 1988 until July 1990 and Manager of Special Equities from July 1984 to October 1988.
5. LabOne, Inc. is 82% owned by the Registrant. The Registrant's board of directors has designated Mr. Hood as an Executive Officer of the Registrant because LabOne was determined to constitute a principal business unit of the Registrant. Mr. Hood is not a corporate officer of the Registrant. Mr. Hood has held his LabOne position since 1993. Mr. Hood was an independent consultant to major clinical testing laboratories from June 1992 to August 1993. From May 1990 to May 1992, Mr. Hood was President and Chief Executive Officer of Unilab Corporation d/b/a/ MetWest, Inc. From 1974 to 1988, Mr. Hood served in various management positions for International Clinical Laboratories (ICL), becoming a regional officer in 1980, a corporate officer in 1984, and a member of its board of directors in 1986.
6. Response Technologies, Inc. (Response) is 59% owned by the Registrant. Effective February 1993, the Registrant's board of directors designated Dr. West as an Executive Officer of the Registrant because Response was determined to constitute a principal business unit of the Registrant. Dr. West is not a corporate officer of the Registrant. Prior to January 1993, Dr. West was President and Chief Executive Officer of Response.
PART II.
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Registrant's common stock is traded in the national over-the-counter market and is listed in the NASDAQ National Market System maintained by the National Association of Securities Dealers. As of February 10, 1995, the outstanding shares were held by 2,032 stockholders of record. High and low sales prices for each quarter of 1994 and 1993 are included in the table of quarterly financial data in Note 14 of the Notes to Consolidated Financial Statements. Also set forth in the table are quarterly dividends paid per share. Registrant's payment of future dividends will be at the discretion of its board of directors and can be expected to be dependent upon a number of factors, including future earnings, financial condition, cash needs and general business conditions. The dividend-paying capabilities of subsidiaries may be restricted as to their transfer to the parent company.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
December 31, 1994 1993 1992 1991 1990 - ------------------------------------------------------------------------------- (In thousands except share amounts)
REVENUES $ 124,278 129,867 111,332 85,240 85,009 ================================================
OPERATING EARNINGS Earnings (loss) from continuing operations $ (1,872) 5,618 4,168 7,909 6,657 Discontinued operations (net of taxes): Earnings (loss) from discontinued operations: Real estate (2,904) -- (7,214) (2,464) (27,946) Insurance -- -- -- -- 11,872 Gain on disposal of discontinued operations: Television -- -- -- -- 6,262 Insurance -- -- 4,265 -- 32,220 Cumulative effect to January 1, 1992 of change in method of accounting for income taxes -- -- 3,352 -- -- ------------------------------------------------ Net earnings (loss) $ (4,776) 5,618 4,571 5,445 29,065 ================================================
PER SHARE OF COMMON STOCK Earnings (loss) from continuing operations $ (.29) .82 .55 .94 .71 Discontinued operations (net of taxes): Earnings (loss) from discontinued operations: Real estate (.46) -- (.95) (.29) (2.96) Insurance -- -- -- -- 1.26 Gain on disposal of discontinued operations: Television -- -- -- -- .66 Insurance -- -- .56 -- 3.41 Cumulative effect of accounting change -- -- .44 -- -- ------------------------------------------------ Net earnings $ (.75) .82 .60 .65 3.08 ================================================ Cash dividends $ 1.20 1.20 1.20 1.20 4.90 Book value $ 31.50 33.52 34.00 34.61 33.72
Average shares outstanding 6,374,952 7,589,043 9,443,438 during the year 6,847,559 8,429,565
Shares outstanding 6,378,261 6,706,165 8,909,546 end of year 6,733,245 7,727,850
Total assets $ 245,387 273,570 280,514 317,089 340,864 Long-term debt $ 8 18 1,013 2,902 1,054
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Introductory remarks about results of operations
Seafield Capital Corporation (Seafield or the Registrant) began a transformation process from an insurance company to a holding company with a new focus in late 1990. Seafield's principal assets consisted of a significant amount of cash, a holdover portfolio of real estate investments which could not be sold with the insurance company, interests in several venture capital investments, and a majority ownership of LabOne, Inc. The strategy of Seafield was deployment of resources into developing businesses that provide services to the healthcare and insurance industries. The sources of cash for these investments were the proceeds from the sale of the insurance company, gains on securities transactions, the discontinuance of the real estate operations and the sale of other assets that do not support the strategic focus.
Insurance - discontinued operations
Individual insurance, group insurance and reinsurance operations were discontinued in 1990, when Seafield sold 95% of the issued and outstanding shares of common stock of Seafield's wholly-owned life insurance subsidiary. Seafield finalized the sale of the remaining 5% interest in the former insurance subsidiary to an affiliate of the purchaser in 1992. Seafield received $12.8 million cash resulting in a 1992 after-tax gain of $4.3 million which was included in the consolidated financial statements as gain on disposal of discontinued insurance operations.
Real Estate - discontinued operations
In June 1992, Seafield's board of directors approved a plan for the discontinuance of real estate operations. During 1990, Seafield indicated that it planned to substantially decrease its commitments in real estate development activities. Since then, management had observed that the overall real estate environment indicated continuing signs of weakness. After reviewing sales activity and appraisals in 1992, Seafield believed it was an appropriate time to discontinue real estate operations and sell the remaining real estate assets as soon as practicable.
As a result of the decision to discontinue real estate, a $6 million after-tax provision for estimated write-downs and costs through final disposition was included in the 1992 financial statements as a loss from discontinued real estate operations. An additional $2.9 million after-tax loss provision was recorded in the fourth quarter of 1994 for a sales contract signed in January 1995 on 822 acres of Texas land. Real estate's net assets have decreased from approximately $80 million at discontinuance to $50 million at December 31, 1994. Net cash proceeds of approximately $27 million have been generated from real estate since its discontinuance at June 30, 1992. See Note 13 of Notes to Consolidated Financial Statements for additional information concerning discontinued real estate operations.
In 1994, real estate sales included the sale of: 47 residential units or lots in Florida, New Mexico, and Texas ($10.4 million), and land in California ($500,000). In 1993, real estate sales included the sale of: 84 residential units or lots in Florida, New Mexico, and Texas ($15.9 million), land in Tennessee ($360,000) and a partnership interest in an apartment complex in Georgia ($850,000). In 1992, real estate sales included the sale of: 30 acres of Texas land ($484,000), one commercial lot in Wyoming ($589,000), an interest in three acres of Hawaii land ($10.1 million), 122 residential units or lots in Florida, New Mexico, and Texas ($16.6 million) and three lots, one model home and one partially completed home at the ocean front property in Florida ($5.9 million).
Remaining real estate holdings include residential land, undeveloped land, single-family housing, and commercial structures located in the following states: Colorado, Florida, Kansas, Missouri, Nevada, New Mexico, Oklahoma, Texas and Wyoming, all of which are listed for sale.
Insurance Services Segment
The following businesses are considered to be in the insurance services segment: laboratory testing for the life and health insurance industries, underwriting and policy administration services and insurance premium finance services.
LabOne, Inc. (LabOne), an 82% owned subsidiary of Seafield, is a publicly- traded company (NASDAQ-LABS). In 1993, LabOne announced its intentions to expand into the clinical laboratory testing market. LabOne changed its name from Home Office Reference Laboratory, Inc. in February 1994. LabOne provides high-quality, low-cost laboratory and substance abuse testing services to insurance companies, physicians and employers nationwide.
LabOne's Home Office Reference Laboratory division continues to operate as a provider of risk-appraisal laboratory testing services to the insurance industry. The tests performed are specifically designed to assist an insurance company in objectively evaluating the mortality and morbidity risks posed by policy applicants. The majority of the testing is performed on individual life insurance policy applicants. Testing services are also provided on individual and group medical and disability policy applicants.
LabOne's clinical testing services (formerly marketed under the Center for Laboratory Services division) are provided to the healthcare industry to aid in the diagnosing and treatment of patients. LabOne has established a network of patient service centers and affiliations with other centers in Northern California, Des Moines and the Kansas City area for the collection of specimens for testing. This network became operational during the fourth quarter of 1994. Additionally, a courier fleet is maintained to retrieve specimens for transport to the laboratory.
LabOne offers a core group of urine tests, controlled substance tests, insurance-oriented blood chemistry profiles, and a series of AIDS-related tests. LabOne's revenues decreased approximately 12% in 1994 to $60.7 million from $69.4 million in 1993 due to an 8% decrease in the number of applicants tested and a 7% decrease in the average revenue per applicant. Average revenue per applicant was lower primarily due to a decrease in prices as a result of continued competitive pressures. The total volume of applicants tested decreased primarily due to a decline in the number of life insurance applications written in the industry. Clinical and substance abuse laboratory testing generated revenues of approximately $500,000 during 1994.
LabOne's testing revenues were 7% lower in 1993 as the result of a 4% decrease in the number of applicants tested and a 5% decrease in the average revenue per applicant. Average revenue per applicant was lower primarily due to a decrease in prices as a result of continued competitive pressures. The total volume of applicants tested decreased primarily due to a decline in the number of medical insurance applicants tested. The number of medical insurance applicants tested as a percentage of total applicants tested declined from 9% in 1992 to 6% in 1993.
LabOne's cost of sales decreased 3% or $900,000 in 1994 from the prior year. This is primarily due to decreases in insurance kit expenses, depreciation and amortization expense, and net postage expense. Insurance kit expenses decreased due to the lower sales volumes. These decreases were partially offset by increases in payroll expenses and clinical expansion expenses. Cost of sales expenses related to the clinical expansion were $2.6 million during 1994.
LabOne's cost of sales decreased 5% in 1993. This is primarily due to lower depreciation, materials and supplies and product licensing expenses. Materials and supplies expense decreased as a result of fewer tests performed, lower costs of certain test supplies and fewer specimen collection kits sold. Selling, general and administrative expenses in 1993 were slightly lower than 1992.
Selling, general and administrative expenses for LabOne increased $2.1 million (9%) in 1994 due primarily to expenses related to the third quarter restructuring charge of $1.6 million, which includes charges for consolidating Canadian laboratory operations into the Kansas facility and for severance payments resulting from elimination of several insurance testing administrative positions. Selling, general and administrative expenses related to the clinical expansion were $2.3 million in 1994.
The insurance premium finance services operation experienced continued growth in both profitability and volume of premiums financed. New premium contracts financed totaled $74.8 million in 1994, $61.5 million in 1993 and $40 million in 1992. The number of contracts written in 1994 was 13,409 compared to 10,277 and 6,465 in 1993 and 1992, respectively. In July 1993, Seafield's 95% owned subsidiary entered into an extendible two-year agreement whereby it can sell undivided interests in a designated pool of accounts receivable on an ongoing basis. As collections reduce accounts receivable in the pool, additional sales may be made up to the maximum. During 1994, the maximum allowable amount of receivables to be sold was increased to $30 million from $22 million. At December 31, 1994, receivables sold totaled $23 million compared to $19 million at December 31, 1993. See Note 5 of Notes to Consolidated Financial Statements for additional information regarding securitization of receivables.
The underwriting and policy administration subsidiary's revenues increased by 63% in 1994. While new business development was positive, this subsidiary's 1994 loss approximated its 1993 loss. Additional staffing costs were incurred for business that did not develop as anticipated.
Healthcare Services Segment
Two businesses are included in the healthcare services segment. One provides advanced cancer treatment services, and the other distributes radiopharmaceuticals and performs related nuclear medicine services.
Response Technologies, Inc. (Response), a 59%-owned subsidiary of Seafield, is a publicly-traded company (AMEX-RTK). Response is a provider of advanced cancer treatments and related services, principally on an outpatient basis, through treatment centers owned or managed by Response. The owned centers, known as IMPACT (IMPlementing Advanced Cancer Treatments) Centers, are staffed by experienced oncology nurses, pharmacists, laboratory technologists and other support personnel to deliver outpatient services under the direction of private practicing oncologists. The primary treatments provided by the centers involve high-dose chemotherapy coupled with support of the patient's immune system through the use of autologous peripheral blood stem cell reinfusion. The centers also provide home pharmacy and out-patient infusional services for its patients. During 1994, Response expanded its network through the development of additional treatment centers in affiliation with community hospitals. This type of center teams existing hospital staff and facilities with Response's protocols, databasing, and expertise.
For hospital-affiliated centers, Response offers two types of business structures. The first structure entails a management relationship with the hospital whereby a management fee is paid to Response. The second structure entails a joint ownership with the hospital of a newly created entity, whereby profits from the entity accrue to Response and the hospital.
As of December 31, 1994, Response had twenty-seven IMPACT Centers and six managed, or hospital-based, centers located in nineteen states. Currently, Response has not established any jointly-owned hospital centers, although it expects to complete negotiations in several sites during 1995.
Response recorded net earnings (loss) of ($2,346,000), $700,000 and $591,000 for the years ended December 31, 1994, 1993 and 1992, respectively. Several specific factors contributed to Response's loss from operations in 1994. Response treated fewer candidates with metastatic breast cancer, many of whose clinical profiles indicated that they were not likely to sufficiently benefit from high-dose treatment. Metastatic breast cancer patients have historically comprised a significant portion of Response's patient base. Response believes that the use of its data to restrict high-dose treatments from these poor risk patients is unprecedented in the field and will lead to more favorable relationships with third party payors.
One of Response's most active centers experienced a temporary downturn in utilization during the first half of the year. Such undulations in activity among cancer practices are not uncommon, and the affected center's operations returned to normal levels during the latter part of the year.
Response also experienced losses from special situations at several centers which are not expected to recur. The IMPACT Center in Dayton, Ohio ceased operations due to an unfavorable Certificate of Need ruling by the state. The Dayton Center had a net loss from operations of approximately $280,000 during 1994. The IMPACT Center of Atlanta, Georgia was converted to a hospital managed center during 1994. The operating loss from this center was approximately $126,000 in 1994. Response also realized a loss of $168,000 during the development stage of a center in Seattle, Washington which will not be opened. The loss primarily related to payroll costs for a nurse coordinator and an operating lease for space. Newer centers which are expected to show profitable operations in 1995 yielded total losses of $91,000.
Response's revenues increased $555,000, or 1%, in 1994 and $9.8 million, or 35%, in 1993. Patient referrals in 1994 failed to increase in line with center capacity due to Response's decision to discontinue treatment for certain metastatic breast cancer patients, resulting in a marginal increase in revenue. The increase in revenues during 1993 was attributed to the establishment of new IMPACT Centers during 1993 and the maturation of operations of existing centers.
Response's operating expenses increased $2 million, or 7%, during 1994 and $9.5 million, or 47%, during 1993. Operating expenses consist primarily of payroll costs, pharmaceutical and laboratory expenses, medical director fees, rent expense and other operational costs. These expenses are expected to display a high degree of variability in proportion to IMPACT Center revenue. Operating expenses, as a percentage of Response's revenue, increased to 83% in 1994 from 79% in 1993 and 73% in 1992. Increases in 1994 and 1993 are primarily attributable to increases in pharmaceutical sales to physicians. Response provides a wholesaler service to physicians; therefore, revenue from these sales has a lower margin than IMPACT Center revenue. Physician sales were $6.5 million, $4.3 million and $2.1 million for the years ended December 31, 1994, 1993 and 1992, respectively. In 1993, operating expenses incurred by newer centers increased without a corresponding increase in net revenues as patient referrals at these centers were beginning to develop.
Response's laboratory and pharmacy expense, which represents the largest component of operating expenses, increased $1.8 million, or 12%, in 1994 and $5 million, or 48%, in 1993. The increases are primarily due to pharmaceutical supply expense related to physician sales in 1994 and 1993 and revenue growth through new maturing centers in 1993. In addition, increases in salaries and benefits from the hiring of center coordinators at hospital affiliate programs and other operational personnel also contributed to the increase in operating expenses in 1994. During 1993, expansion and maturation of the treatment network resulted in increased salaries and benefits, medical director fees and rent expense of approximately $4 million.
Response's general and administrative costs increased 48% in 1994 and 9% in 1993. Salaries and benefits represent the largest component of general and administrative expenses. General and administrative costs as a percentage of Response's revenues were 11% in 1994, 8% in 1993 and 9% in 1992. The increase in 1994 is due to greater investments in the corporate infrastructure, primarily medical and scientific management, during a period of minimal revenue growth. The decrease in 1993 was the result of fixed expenses being spread over a larger revenue base. Response believes that it has materially completed its enhancements to corporate infrastructure and that general and administrative costs as a percentage of net revenues will stabilize in 1995 and begin to decline as more centers are opened.
Response's provision for doubtful accounts increased $58,000 in 1994 but decreased $1.1 million during 1993. The provision as a percentage of net revenue was 7% for 1994 and 1993 and 13% for 1992. The 1993 decrease is attributable to insurance pre-approval procedures implemented during the fourth quarter of 1992. This change provides important clarification of reimbursement expectations for most patients prior to commencing their treatment. Significant bad debt recoveries were also experienced during 1993. Response's collection experience in 1994 and 1993 may not be maintainable in future periods.
In 1992, Seafield acquired its second investment in a healthcare operating subsidiary with the December purchase of a majority-ownership position in Pyramid Diagnostic Services, Inc. (Pyramid). The original $4 million purchase price included newly-issued shares, thereby providing expansion financing to Pyramid. During 1993 and 1994, Seafield acquired additional ownership positions in Pyramid. Pyramid's nine pharmacies distribute radiopharmaceuticals and related services to nuclear medicine departments, clinics and hospitals. Pyramid's revenue increased 100% in 1994 reflecting a doubling in the number of pharmacies. Current plans are to concentrate on increasing revenues at existing pharmacies until profitability is achieved. Pyramid's long-term business plan is to continue to open pharmacies with a minimum objective of fifteen pharmacies. See Note 1 of Notes to Consolidated Financial Statements for additional information.
Other Segments
Seafield's oil and gas subsidiary contributed revenues of $3.1 million in 1994, as compared to $4.7 million in 1993 and $3.4 million in 1992. After debt retirements in 1993, Seafield's cash flow from oil and gas investments was $800,000 in 1993 and $1.7 million in 1994. On January 1, 1993, Seafield increased its ownership position from 50% to 79% in a real estate, personal property, sales and use taxes consulting firm. Other revenues in 1994 included $8.9 million by the tax consulting firm. Prior to 1993, this subsidiary was accounted for by the equity method. See Note 1 of Notes to Consolidated Financial Statements for additional information.
Other investments contributing earnings include venture capital and liquidity investments. The return on short-term investments is included in the investment income line in the consolidated statements of earnings. Investment income totaled $2.9 million in 1994, $10.2 million in 1993 and $3.4 million in 1992. Investment income was lower in 1994 as a result of substantial, nonrecurring capital gains recorded in 1993 on investment sales, and losses recorded in 1994 on investments that were impacted by interest rate changes. See Notes 1 and 9 of Notes to Consolidated Financial Statements for additional investment information. The consolidated effective tax rates were primarily impacted by tax benefits not available for subsidiary losses and goodwill amortization.
Seafield has investments in two majority-owned entities that are publicly- traded, LabOne and Response. At December 31, 1994, based on the market prices of publicly-traded shares of these two subsidiaries, pretax unrealized gains of approximately $116 million on these investments were not reflected in either Seafield's book value or stockholders' equity.
LIQUIDITY AND CAPITAL RESOURCES
On December 31, 1994 at the holding company level, Seafield had available for operations approximately $29.8 million in cash and short-term investments with an additional $6.2 million in long-term securities. Seafield utilized $13 million of its cash in January 1994 with the acquisition of 382,350 shares of Seafield common stock as treasury stock. On a consolidated basis, Seafield and its subsidiaries (primarily LabOne with $41 million) had $76.3 million in cash and short-term investments at December 31, 1994. Current assets totaled approximately $124.8 million while current liabilities totaled $19.8 million. Net cash provided by continuing operations totaled $18.2 million in 1994, $18.9 million in 1993 and $22.9 million in 1992. The decreases primarily reflect the reductions in LabOne's insurance testing revenues, as previously discussed.
During 1992, Seafield conducted a "Dutch Auction" tender offer to purchase up to two million shares of Seafield stock. A total of 1,068,062 shares, about 14% of Seafield's stock outstanding prior to the tender offer, were purchased and retired. Cash totaling $35.1 million was utilized to acquire the shares at a cost of $32.90 per share including expenses of the transaction.
In August 1990, Seafield's board of directors rescinded a previous authorization and passed a new authorization of up to $70 million for the acquisition of Seafield and LabOne common stock. Up to $20 million of this authorization could be utilized to purchase LabOne stock.
In January 1994, Seafield's board of directors approved an additional $8.4 million authorization necessary to complete an acquisition of 382,350 Seafield shares for $13 million. During 1994, treasury stock issued for exercised options totaled 56,998 shares. During 1993, Seafield retired 1,304,420 shares being held as treasury shares.
In 1993, Seafield's board of directors approved an additional $5 million for the purchase of LabOne's stock. In 1994, Seafield expended $722,000 to acquire 44,200 shares of LabOne stock resulting in a total of 1,462,200 shares of LabOne's stock acquired under the board authorizations at a cost of $17.3 million. At December 31, 1994, the remaining aggregate authorization totals $7.7 million.
Seafield is primarily a holding company. Sources of cash are investment income and sales, borrowings and dividends from subsidiaries. The dividend paying capabilities of subsidiaries may be restricted as to their transfer to the parent company. The primary uses of cash for Seafield are investments, subsidiary stock purchases and dividends to shareholders.
Seafield received a notice during 1992 of proposed adjustments from the Internal Revenue Service (IRS) with respect to 1986-87 federal income taxes. Later, the IRS determined to include 1988-90 as a part of its review. The original amount of additional taxes proposed by the IRS was approximately $17 million for the period 1986-87. In addition, during the 1988-89 closing conference, the IRS agreed to reverse some of the taxes for the 1986-87 years by way of adjustments to 1988-89 years. Based upon conference with the IRS, Seafield believes that the net amount of additional taxes to be assessed may be less than $17 million for the four-year period under audit. Resolution of these matters is not expected in 1995. The IRS has notified Seafield that a 1990 refund claim in the amount of $7.6 million will not be acted upon until all years currently under examination are closed. 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 December 31, 1994, LabOne had acquired 2,099,235 shares at a total cost of $22.7 million. There were no shares purchased during 1994.
LabOne paid quarterly dividends during 1994, 1993 and 1992. As an 82% owner, Seafield received $7.7 million of cash as dividends from LabOne in 1994. LabOne's working capital position remained steady at $48.6 million at year end 1994 and 1993. LabOne's cash and investments totaled $41 million at December 31, 1994 and 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 and short-term borrowings. LabOne had no short-term borrowings during 1994 and an unsecured $1 million line of credit available for general corporate purposes with no debt restrictions.
During 1994, LabOne invested $3.4 million in additional property, plant, and equipment while 1993's investment totaled $3.7 million. Of the $3.4 million spent in 1994, approximately $1.8 million was for the diversification into the clinical testing market. Additional investments in property, plant and equipment in 1995 for general operating purposes and diversification into the clinical testing market are not expected to exceed the amount spent in 1994.
Response's working capital at December 31, 1994 was $12.3 million with current assets of $16.8 million and current liabilities of $4.5 million. Cash and cash equivalents and short-term investments represent $3 million of Response's current assets. As of December 31, 1994, Response has a $5 million revolving bank line of credit secured by eligible accounts receivable. Primarily as a result of enhanced collection of receivables, Response had no borrowings under its line of credit as of December 31, 1994. The maximum outstanding during 1994 was $3.6 million.
On June 12, 1993, Response issued 2,117,887 shares of common stock pursuant to a rights offering to its shareholders of record on March 12, 1993. Each shareholder as of that date was issued a nontransferable right to purchase one share of common stock for every ten shares owned. The purchase price was $2.75 per right, which was equal to 90% of the average closing price of the common stock for the ten trading days immediately prior to the record date. Seafield exercised 1,873,500 rights, its proportionate share. In addition, officers and directors of Response exercised approximately 108,000 rights. Net proceeds to Response amounted to $5.8 million.
Response had no material commitments for capital expenditures at December 31, 1994. Capital expenditures of $586,000 during the year ended December 31, 1994 were primarily associated with the expansion of Response's network of IMPACT and hospital based centers. Response is committed to future minimum lease payments under operating leases totaling $4.3 million for administrative and operational facilities.
TRENDS
The following is LabOne's analysis of certain existing trends that have been identified as potentially affecting future financial results. Due to the potential for a rapid rate of change in any number of factors associated with the insurance and clinical laboratory testing industries, it is difficult to quantify with any degree of certainty LabOne's future volumes, sales or net earnings.
In the last several years there has been a decline in the number of life insurance policies issued. Additionally, a few states have enacted legislation or regulations that have had the effect of reducing or eliminating the volume of laboratory tests requested by medical insurers in those states. It is likely that the trend will continue as more states enact legislation relating to health care and medical insurance. If these trends continue, management anticipates a decline in the number of insurance applicants tested by LabOne in 1995 as compared to 1994.
The insurance laboratory testing industry continues to be increasingly competitive. The primary focus of the competition has been on pricing and service. LabOne continues to maintain its market leadership by providing quality products and services as competitive prices. During the fourth quarter 1994, LabOne initiated a price stabilization plan. The initial result of this action was a slight increase in the average revenue per applicant. However, management expects that prices may continue to decline during 1995 due to competitive pressures.
During December 1994, the FDA gave premarket approval to Epitope, Inc., with respect to its OraSure(registered trademark) specimen collection kit for oral fluid HIV-1 antibody testing, as to which device LabOne has a supply and distribution agreement with Epitope. This approval enables LabOne to resume oral fluid HIV-1 antibody testing. Due to the lower collection expense associated with the OraSure device, the potential exists for an expansion of the testing market. Conversely, the device also has the potential to cannibalize part of the existing blood and urine testing market. The net impact of the approval of the OraSure device cannot be determined at this time.
LabOne entered the clinical and SAMHSA-certified substance-abuse testing markets during 1994. LabOne continues to add new customers in both fields. A significant amount of resources has been committed to this expansion. During 1994 LabOne opened 42 Patient Service Centers (PSC), which resulted in additional operating expenses of approximately $0.8 million. Annual expenses for these PSCs are estimated to be approximately $2.5 million. Expenditures related to these fields are expected to increase during 1995. The expected increase in revenue to be generated from these PSCs cannot be determined at this time.
RECENT DEVELOPMENTS
Seafield announced on February 10, 1995 that it had retained Alex. Brown and Sons Incorporated as financial advisor to assist the Company in considering strategic alternatives to maximize shareholder value.
One alternative that the Company expects to pursue is a cash-option merger of Seafield into LabOne. In this regard, the Company has made an initial presentation to LabOne's board of directors. In such a merger, Seafield shareholders may have the option of receiving cash as well as shares of LabOne. Such a merger would likely be preceded by Seafield's distribution to shareholders, or other disposition by Seafield, of its Response stock and other assets. If a definitive agreement with LabOne is reached, it is anticipated that such a merger would not occur until the early part of 1996 because of the time required to complete anticipated asset sales as well as shareholder and other approvals.
Seafield's board of directors also will consider other business combination proposals that are presented to it. Seafield cautioned that there can be no assurances that either a merger with LabOne or any other business combination will occur.
NEW ACCOUNTING STANDARDS
Seafield adopted Financial Accounting Standards Board Statement No. 112 - "Employer's Accounting for Postemployment Benefits" in the first quarter of 1994. The adoption of Statement No. 112 had no significant impact on Seafield's financial position or results of operations.
Statement of Financial Accounting Standards No. 114 "Accounting by Creditors for Impairment of a Loan" is required to be implemented for the year ending December 31, 1995. The adoption of this standard is not expected to have any significant impact on Seafield's financial position or results of operations.
Statement of Financial Accounting Standards No. 119 "Disclosure About Derivative Financial Instruments and Fair Value of Financial Instruments" was implemented as of December 31, 1994 with no 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.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Item 14(a).
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
Part III
ITEM 10.
Item 10. Directors and Executive Proxy Statement relating to Annual Meeting of Officers of the Company Shareholders to be held May 17, 1995, under the caption "Election of Directors - Nominees and Directors whose terms expire in 1996 and 1997."
Item 11.
Item 11. Executive Compensation Proxy Statement relating to Annual Meeting of Shareholders to be held May 17, 1995, under the captions "Election of Directors - Compensation of Executive Officers."
Item 12.
Item 12. Security Ownership of Proxy Statement relating to Annual Meeting of Certain Beneficial Shareholders to be held May 17, 1995, under Owners and Management the captions "Election of Directors - Security Ownership of Management and Security Ownership of Certain Beneficial Owners."
Item 13.
Item 13. Certain Relationships Proxy Statement relating to Annual Meeting of and Related Shareholders to be held May 17, 1995, under Transactions the caption "Election of Directors - Certain Transactions."
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements Independent Auditors' Report Consolidated Balance Sheets - December 31, 1994 and 1993 Consolidated Statements of Operations - Years ended December 31, 1994, 1993 and 1992 Consolidated Statements of Stockholders' Equity - Years ended December 31, 1994, 1993 and 1992 Consolidated Statements of Cash Flows - Years ended December 31, 1994, 1993 and 1992 Notes to Consolidated Financial Statements
(2) Financial Statement Schedules* II. Valuation and Qualifying Accounts and Reserves - Years ended December 31, 1994, 1993 and 1992 III. Real Estate and Accumulated Depreciation - December 31, 1994
All other schedules are omitted because they are not applicable or the information is given in the financial statements or notes thereto.
* Portions of Registrant's Proxy Statement for use in connection with the Annual Meeting of Shareholders to be held on May 17, 1995 are incorporated by reference into Part III of this report, if such Proxy Statement is filed with the Securities and Exchange Commission on or before April 30, 1995. If such Proxy Statement is not filed by such date, the information required to be presented in Part III will be filed as an amendment to this report.
(3) Exhibits required by Item 601 of Regulation S-K (see Index to Exhibits in paragraph (c) infra.)
(b) Reports on Form 8-K. A Form 8-K current report dated December 30, 1994 was filed with the Commission reporting under Other Events a news release regarding the Registrant's announcement that LabOne was notified by Epitope, Inc. that the FDA had approved the OraSure(registered trademark) oral specimen collection device for use in detecting HIV-1 antibodies.
(c) Index to Exhibits (Exhibits follow the Schedules); 3.1 Registrant's Articles of Incorporation, as amended (filed as Exhibit 3.1 to Amendment No. 1 to Registrant's Registration Statement on Form S-4, filed April 8, 1988 (File No. 33-20298) and incorporated herein by reference).
3.2 Amendment to Registrant's Articles of Incorporation, effective May 15, 1991, (filed as Exhibit 3(b) to Registrant's Annual Report on Form 10-K for the year ended December 31, 1991 (File No. 0-16946) and incorporated herein by reference).
3.3 Registrant's Bylaws, as amended (filed as Exhibit 3(c) to Registrant's Annual Report on Form 10-K for the year ended December 31, 1992 (File No. 0-16946) and incorporated herein by reference).
4.1 Form of Rights Agreement dated April 5, 1988, between Registrant and Morgan Shareholder Services Trust Company, as Rights Agent (filed as Exhibit 4.1 to Amendment No. 1 to Registrant's Registration Statement on Form S-4, filed April 8, 1988 (File No. 33-20298) and incorporated herein by reference).
4.2 Form of Certificate of Serial Designation of Series A Preferred Stock (filed as Exhibit 4.2 to Amendment No. 1 to Registrant's Registration Statement on Form S-4, filed April 8, 1988, (File No. 33-20298) and incorporated herein by reference).
4.3 Amendment No. 1 to the Rights Agreement, dated November 14, 1988, between Registrant and Morgan Shareholder Services Trust Company, as Rights Agent (filed as Exhibit 1 to the Registrant's current report on Form 8-K filed November 18, 1988 (File No. 0-16946) and incorporated herein by reference).
4.4 Amendment No. 2 to the Rights Agreement, dated May 15, 1991, between Registrant and First Chicago Trust Company of New York, as Rights Agent (filed as Exhibit 4(d) to Registrant's Annual Report on Form 10-K for the year ended December 31, 1991 (File No. 0- 16946) and incorporated herein by reference).
4.5 Notice and Agreement Respecting Removal of Rights Agent and Appointment of Successor Rights Agent (filed as Exhibit 4(e) to Registrant's Annual Report on Form 10-K for the year ended December 31, 1991 (File No. 0-16946) and incorporated herein by reference).
10.1 Registrant's 1984 Stock Option Incentive Plan, as amended (filed as Exhibit 10(b) to Registrant's Annual Report on Form 10-K for the year ended December 31, 1990 (File No. 0-16946) and incorporated herein by reference).**
10.2 Amendment to Registrant's 1984 Stock Option Incentive Plan, effective August 17, 1992 (filed as Exhibit 10(b) to Registrant's Annual Report on Form 10-K for the year ended December 31, 1992 (File No. 0-16946) and incorporated herein by reference).**
10.3 Registrant's 1989 Stock Option and Incentive Plan (filed as Exhibit 28 to Registrant's Registration Statement on Form S-8 filed April 17, 1989 (File No. 33-28150) and incorporated herein by reference).**
10.4 Amendment to Registrant's 1989 Stock Option and Incentive Plan, effective February 20, 1991 (filed as Exhibit 10(d) to Registrant's Annual Report on Form 10-K for the year ended December 31, 1990 (File No. 0-16946) and incorporated herein by reference).**
10.5 * Amendment to Registrant's 1989 Stock Option and Incentive Plan, effective January 20, 1995.**
10.6 Registrant's 1991 Non-Employee Directors' Stock Option Plan and form of Stock Option Agreement, effective May 15, 1991 (filed as Exhibit 10(e) to Registrant's Annual Report on Form 10-K for the year ended December 31, 1991 (File No. 0-16946) and incorporated herein by reference).***
10.7 Amendment No. 1 to Registrant's 1991 Non-Employee Directors' Stock Option Plan, dated November 10, 1993 (filed as Exhibit 10.6 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 File No. 0-16946) and incorporated herein by reference).***
10.8 Registrant's Stock Purchase Plan, as amended (filed as Exhibit 10(e) to Registrant's Annual Report on Form 10-K for the year ended December 31, 1990 (File No. 0-16946) and incorporated herein by reference).***
10.9 Amendment to Registrant's Stock Purchase Plan, effective May 15, 1991 (filed as Exhibit 10(g) to Registrant's Annual Report on Form 10-K for the year ended December 31, 1991 (File No. 0-16946) and incorporated herein by reference).***
10.10 Amendment to Registrant's Stock Purchase Plan effective August 17, 1992 (filed as Exhibit 10(h) to Registrant's Annual Report on Form 10-K for the year ended December 31, 1992 (File No. 0-16946) and incorporated herein by reference).***
10.11 Supplemental Retirement Agreement between the Registrant and P. Anthony Jacobs, President of Registrant (filed as Exhibit 10(i) to Registrant's Annual Report on Form 10-K for the year ended December 31, 1992 (File No. 0-16946) and incorporated herein by reference).**
10.12 Consulting Agreement, dated as of August 1, 1990, First Amendment to Consulting Agreement, dated as of January 1, 1992, and Second Amendment to Consulting Agreement, dated as of January 1, 1993, each between the Registrant and W.D. Grant, director of the Registrant (filed as Exhibit 10(j) to Registrant's Annual Report on Form 10-K for the year ended December 31, 1992 (File No. 0-16946) and incorporated herein by reference).***
10.13 Form of Supplemental Retirement Agreement between the Registrant and senior executive officers (filed as Exhibit 10(k) to Registrant's Annual Report on Form 10-K for the year ended December 31, 1992 (File No. 0-16946) and incorporated herein by reference).**
10.14 Nonrecourse Promissory Note from William H. West, M.D., an executive officer of Registrant, to Registrant and related Stock Pledge Agreement, both dated July 21, 1992 (filed as Exhibit 10(l) to Registrant's Annual Report on Form 10-K for the year ended December 31, 1992 (File No. 0-16946) and incorporated herein by reference).
10.15 Form of Termination Compensation Agreement between the Registrant and senior executive officers (filed as Exhibit 10(g) to Registrant's Annual Report on Form 10-K for the year ended December 31, 1990 (File No. 0-16946) and incorporated herein by reference).**
10.16 * Form of Amendment No. 1 to Termination Compensation Agreement, dated January 20, 1995, between the Registrant and senior executive officers.**
10.17 Form of Indemnification Agreement between Registrant and its directors and executive officers (filed as Exhibit 10(i) to Registrant's Annual Report on Form 10-K for the year ended December 31, 1989 (File No. 0-16946) and incorporated herein by reference).
10.18 Services Agreement, dated January 1, 1993, among Registrant and LabOne, Inc., relating to services and other matters among the parties (filed as Exhibit 10.17 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 (File No. 0-16946) and incorporated herein by reference).
10.19 1985 Stock Option Plan of Response Technologies, Inc., as amended (filed as Exhibit 10(q) to Registrant's Annual Report on Form 10-K for the year ended December 31, 1992 (File No. 0-16946) and incorporated herein by reference).**
10.20 1990 Non-Qualified Stock Option Plan of Response Technologies, Inc. (filed as Exhibit 10(r) to Registrant's Annual Report on Form 10-K for the year ended December 31, 1992 (File No. 0-16946) and incorporated herein by reference).**
10.21 Employment Agreement between Response Technologies, Inc. and William H. West, MD, dated January 1, 1992 (filed as Exhibit 10(s) to Registrant's Annual Report on Form 10-K for the year ended December 31, 1992 (File No. 0-16946) and incorporated herein by reference).**
10.22 Long-Term Incentive Plan of LabOne, Inc., approved May 16, 1991 with amendments adopted May 21, 1993 and November 9, 1993 (filed as Exhibit 10.21 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 (File No. 0-16946) and incorporated herein by reference).**
10.23 * LabOne's Stock Plan for non-employee directors.***
10.24 * LabOne's Annual Incentive Plan.**
10.25 Employment Agreement between LabOne, Inc. and Bert H. Hood, dated August 5, 1993 and amended November 9, 1993 (filed as Exhibit 10.22 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 (File No. 0-16946) and incorporated herein by reference).**
10.26 Promissory Note Agreement between LabOne, Inc. and Bert H. Hood dated September 7, 1994 (filed as Exhibit 10.2 to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994 (File No. 0-16946) and incorporated herein by reference).
10.27 * Amendment to Employment Agreement between LabOne, Inc. and Bert H. Hood, dated December 31, 1994.**
11 Statement regarding computation of per share earnings - see Note l of Notes to Consolidated Financial Statements, "Earnings Per Share."
13 Annual Report to Shareholders for the year ended December 31, 1994 - To be furnished.
21 Subsidiaries of Registrant (reference is made to Item 1 hereof).
23 * Consents of KPMG Peat Marwick LLP with respect to Forms S-8.
27 Financial Data Schedule - as filed electronically by the Registrant in conjunction with this 1994 Form 10-K.
99 Proxy Statement for Annual Shareholders meeting to be held May 17, 1995 - To be furnished.
* These documents may be obtained by stockholders of Registrant upon written request to: Seafield Capital Corporation, P.0. Box 410949, Kansas City, Missouri 64141.
** Management Compensatory Plan
*** Non-Management Director Compensatory Plan
(d) Not Applicable.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SEAFIELD CAPITAL CORPORATION By: /s/ W. Thomas Grant II ----------------------------- W. Thomas Grant II Title: Chairman, Chief Executive Officer and Director Date: March 17, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons who serve Registrant in the capacities and on the dates indicated.
By: /s/ P. Anthony Jacobs By: /s/ James R. Seward ----------------------------- ----------------------------- P. Anthony Jacobs James R. Seward Title: President, Chief Title: Executive Vice President, Operating Officer Chief Financial Officer and Director and Director Date: March 17, 1995 Date: March 17, 1995
By: /s/ Steven K. Fitzwater By: /s/ Michael E. Herman ----------------------------- ----------------------------- Steven K. Fitzwater Michael E. Herman Title: Vice President, Chief Title: Director Accounting Officer and Secretary Date: March 17, 1995 Date: March 17, 1995
By: /s/ David Kemper By: /s/ W. D. Grant ----------------------------- ----------------------------- David Kemper W. D. Grant Title: Director Title: Director Date: March 17, 1995 Date: March 17, 1995
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders Seafield Capital Corporation:
We have audited the consolidated financial statements of Seafield Capital Corporation and subsidiaries as listed in Item 14(a)(1). In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedules as listed in Item 14(a)(2). These consolidated financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules based on our audits. We did not audit the 1992 financial statements of Response Technologies, Inc., a 59% owned subsidiary, which statements reflect revenues constituting 25% of Seafield's 1992 consolidated revenues.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audit and the report of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Seafield Capital Corporation and subsidiaries at December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the years in the three year period ended December 31, 1994, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
As discussed in Note 10 to the consolidated financial statements, the Company adopted the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" in 1992.
KPMG Peat Marwick LLP
Kansas City, Missouri February 17, 1995
SEAFIELD CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - ------------------------------------------------------------------------------ December 31, 1994 1993 - ------------------------------------------------------------------------------ (in thousands) ASSETS Current assets: Cash and cash equivalents $ 8,626 15,491 Short-term investments 67,631 80,069 Accounts and notes receivable 32,871 32,296 Current income tax receivable 2,311 1,325 Deferred income taxes 1,766 1,621 Other current assets 10,813 8,924 Current assets of discontinued real estate operations 747 336 --------------------- Total current assets 124,765 140,062 Property, plant and equipment 24,981 27,767 Investments: Securities 6,725 8,274 Notes receivable 1,298 1,394 Oil and gas 5,998 8,381 Intangible assets 29,318 33,178 Deferred income taxes 1,715 (723) Other assets 1,323 2,977 Non-current assets of discontinued real estate operations 49,264 52,260 --------------------- $ 245,387 273,570 ===================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 7,475 6,746 Notes payable 2,823 4,571 Other current liabilities 9,513 9,552 --------------------- Total current liabilities 19,811 20,869 Notes payable 8 18 Other liabilities 3,439 4,197 --------------------- Total liabilities 23,258 25,084 --------------------- Minority interests 21,196 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 1,002 1,007 Equity adjustment from foreign currency translation (561) (350) Retained earnings 223,169 235,583 --------------------- 231,110 243,740 Less cost of 1,121,739 shares of treasury stock (1993-766,755) 30,177 18,070 --------------------- Total stockholders' equity 200,933 225,670 --------------------- Commitments and contingencies --------------------- $ 245,387 273,570 =====================
See accompanying notes to consolidated financial statements.
SEAFIELD CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS - ------------------------------------------------------------------------------ Year ended December 31, 1994 1993 1992 - ------------------------------------------------------------------------------ (in thousands except per share amounts) REVENUES Insurance services $ 67,199 74,803 80,034 Healthcare services 45,134 40,882 27,870 Other 11,945 14,182 3,428 ---------------------------------- Total revenues 124,278 129,867 111,332
COSTS AND EXPENSES Insurance services 30,951 33,728 38,422 Healthcare services 45,073 37,203 23,902 Other 11,780 14,882 3,766 Selling, general and administrative 40,767 36,923 36,252 ---------------------------------- Earnings (loss) from operations (4,293) 7,131 8,990 Investment income - net 2,889 10,197 3,358 Other income (expense) 67 (2,388) 192 ---------------------------------- Earnings (loss) before income taxes (1,337) 14,940 12,540 ---------------------------------- Taxes on income (benefits): Current 2,486 9,373 6,708 Deferred (1,806) (2,382) (1,217) ---------------------------------- Total 680 6,991 5,491 ---------------------------------- Earnings (loss) before minority interests (2,017) 7,949 7,049 Minority interests (145) 2,331 2,881 ---------------------------------- Earnings (loss) from continuing operations (1,872) 5,618 4,168 Loss from discontinued real estate operations (2,904) -- (7,214) Gain on disposal of discontinued insurance operations -- -- 4,265 Cumulative effect to January 1, 1992 of change in method of accounting for income taxes -- -- 3,352 ---------------------------------- NET EARNINGS (LOSS) $ (4,776) 5,618 4,571 ==================================
Per share of common stock: Earnings (loss) from continuing operations $ (.29) .82 .55 Loss from discontinued real estate operations (.46) -- (.95) Gain on disposal of discontinued insurance operations -- -- .56 Cumulative effect of accounting change -- -- .44 ---------------------------------- NET EARNINGS (LOSS) $ (.75) .82 .60 ==================================
See accompanying notes to consolidated financial statements.
SEAFIELD CAPITAL CORPORATION AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity - ------------------------------------------------------------------------------ Year ended December 31, 1994 1993 1992 - ------------------------------------------------------------------------------ (in thousands) Common stock: Balance, beginning of year $ 7,500 8,804 9,872 Retirement of stock -- (1,304) (1,068) ---------------------------------- Balance, end of year 7,500 7,500 8,804 ---------------------------------- Paid-in capital: Balance, beginning of year 1,007 644 438 Exercise of stock options (5) 363 206 ---------------------------------- Balance, end of year 1,002 1,007 644 ---------------------------------- Foreign currency translation: Balance, beginning of year (350) (438) 172 Net change during year (211) 88 (610) ---------------------------------- Balance, end of year (561) (350) (438) ---------------------------------- Retained earnings: Balance, beginning of year 235,583 275,944 314,407 Net earnings (loss) (4,776) 5,618 4,571 Dividends declared* (7,638) (8,059) (8,965) Retirement of stock -- (37,920) (34,069) ---------------------------------- Balance, end of year 223,169 235,583 275,944 ---------------------------------- Less treasury stock: Balance, beginning of year 18,070 56,948 57,406 Shares purchased (1994-411,982; 1993-80,537; 1992-1,235,925) 14,047 2,998 40,460 Shares issued (1994-56,998; 1993-107,617; 1992-214,240) (1,940) (2,652) (5,781) Shares retired (1993-1,304,420; 1992-1,068,062) -- (39,224) (35,137) ---------------------------------- Balance, end of year 30,177 18,070 56,948 ---------------------------------- STOCKHOLDERS' EQUITY $ 200,933 225,670 228,006 ==================================
*Dividends per share amounted to $1.20 in 1994, 1993 and 1992.
See accompanying notes to consolidated financial statements.
SEAFIELD CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - ------------------------------------------------------------------------------- Year Ended December 31, 1994 1993 1992 - ------------------------------------------------------------------------------- (in thousands) OPERATING ACTIVITIES Earnings (loss) from continuing operations $ (1,872) 5,618 4,168 Adjustments to reconcile earnings (loss) from continuing operations to net cash provided by continuing operations: Depreciation and amortization 15,099 19,621 18,325 Earnings applicable to minority interests (145) 2,331 2,881 Change in short-term trading portfolio, net 3,714 -- -- Change in accounts receivable 1,856 (7,912) (2,699) Change in accounts payable 1,643 1,250 1,066 Income taxes and other, net (2,126) (1,959) (839) ----------------------------- Net cash provided by continuing operations 18,169 18,949 22,902 ----------------------------- INVESTING ACTIVITIES Purchases of investments (2,206) (17,604) (13,799) Sales or maturities of investments 4,913 20,599 13,216 Proceeds of securitization 4,000 19,000 -- Additions to property, plant and equipment, net (5,445) (5,689) (6,959) Oil and gas investments (914) (55) (2,007) Short-term investments 515 (11,025) (3,737) Purchase of stock in consolidated subsidiaries (722) (2,365) (3,350) Net cash provided (used) by discontinued real estate operations (2,023) 10,520 22,029 Net proceeds from discontinued insurance operations -- -- 12,800 Other, net (1,085) (642) (2,151) ----------------------------- Net cash provided (used) by investing activities (2,967) 12,739 16,042 ----------------------------- FINANCING ACTIVITIES Borrowings (payments) under line of credit agreements, net (1,725) (6,891) 5,615 Proceeds from long-term debt 59 168 -- Payment of principal on long-term debt (98) (3,843) (2,262) Payment of capital lease (367) -- -- Dividends paid (7,638) (8,059) (8,965) Purchase of treasury stock/tender offer (12,952) -- (35,137) Issuance of common stock 840 17 664 ----------------------------- Net cash used by financing activities (21,881) (18,608) (40,085) ----------------------------- Effect of foreign currency translation (186) 165 (570) ----------------------------- Net increase (decrease) in cash and cash equivalents (6,865) 13,245 (1,711) Cash and cash equivalents at beginning of year 15,491 2,246 3,957 ----------------------------- Cash and cash equivalents at end of year $ 8,626 15,491 2,246 ============================= Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 273 539 685 ============================= Income taxes, net $ 1,965 5,726 6,274 =============================
SEAFIELD CAPITAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 1994, 1993 and 1992
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION The accompanying consolidated financial statements include the accounts of Seafield Capital Corporation (Seafield or the Company) and all majority-owned subsidiaries and joint ventures. Investments with ownerships of 20% to 50% are accounted for by the equity method.
Two publicly-traded subsidiaries are included in the consolidated financial statements of Seafield. LabOne, Inc. (LabOne) was formerly Home Office Reference Laboratory, Inc. and is 82% owned. Response Technologies, Inc. (Response) is 59% owned.
All significant intercompany transactions have been eliminated in consolidation. Certain 1993 and 1992 amounts have been reclassified for comparative purposes with no effect on net earnings.
In 1992, Seafield's board of directors approved a plan for the discontinuance of real estate operations. In 1994, an additional after-tax loss of $2.9 million was recorded for a sales contract signed in January 1995. See Note 13 for additional information on discontinued real estate operations.
In 1992, Seafield finalized the sale of the remaining interest in its former insurance subsidiary. Insurance operations have been presented separately as discontinued operations in the consolidated financial statements. See Note 13 for additional information on discontinued insurance operations.
CASH AND CASH EQUIVALENTS Cash and cash equivalents include demand deposits in banks and overnight investments that are stated at cost which approximates market value.
INVESTMENT SECURITIES Investment securities consist of certificates of deposit, equity securities, debt securities and debt obligations of the U. S. government and state and political subdivisions. Short-term investments are securities with maturities of less than one year.
The classification of debt and equity securities as trading, available for sale or held to maturity is made at the time of purchase. Trading securities are stated at fair value and unrealized holding gains and losses are included in income. Securities which are classified as available for sale are stated at market value. Securities which the Company has the intent and ability to hold to maturity are stated at cost.
The Company calculates the fair value of financial instruments using appropriate market information and valuation methodologies. The additional fair value information is included in the notes to the financial statements when it is different than the stated value of those financial instruments. When the fair value approximates the stated value, no additional disclosure is made.
PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is recorded at cost with depreciation provided over its useful life. Upon sale or retirement, the costs and related accumulated depreciation are eliminated from the accounts. Any resulting gains or losses are included in the determination of net earnings. See Note 4 for additional information on depreciation.
OIL AND GAS INVESTMENTS The Company's oil and gas investments are accounted for using the full cost method. All costs incurred in acquisition and development are capitalized. Depletion is computed on the units of production method based on all proved reserves. All general operating costs are expensed as incurred.
INTANGIBLE ASSETS Patents, antibodies, antigens and nicotine screening processes are recorded as intangible assets at their acquisition cost. These assets are amortized on a straight-line basis over their estimated remaining lives, except for patents which are amortized over 184 months at date of acquisition.
Goodwill is recorded at acquisition as the excess of cost over fair value of net assets acquired and is being amortized on a straight-line basis over appropriate periods up to twenty years. The amortization may be accelerated if it becomes reasonably evident that the cost of the goodwill will not be fully recovered.
ACQUISITIONS In December 1992, the Company acquired 51% of a radiopharmaceutical company. The balance sheet of this subsidiary was included in the Company's Consolidated Balance Sheet at December 31, 1992. On January 1, 1993, the Company increased its ownership of a property tax consulting subsidiary from 50% to 79%. Prior to 1993, this subsidiary was accounted for by the equity method. The proforma consolidated revenues, including these two subsidiaries, would have been $122 million for 1992. The results of operations for these subsidiaries are not material in relation to the Company's consolidated financial statements and additional proforma financial information has therefore not been presented.
FEDERAL INCOME TAXES Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" required a change from the deferred method of accounting for income taxes of APB Opinion 11 to the asset and liability method of accounting for income taxes. Under the asset and liability method of Statement 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under Statement 109, the effect on deferred tax assets and liabilities of a change in tax rates was recognized in income in the period that includes the enactment date.
Effective January 1, 1992, the Company adopted Statement 109 and recognized the cumulative effect of the change in accounting method of $3.4 million as income in the Consolidated Statement of Operations.
RECENTLY ISSUED ACCOUNTING STANDARDS Statement of Financial Accounting Standards No. 112 "Employer's Accounting for Postemployment Benefits" was implemented in 1994. The adoption of this standard had no significant impact on the Company's financial position or results of operations.
Statement of Financial Accounting Standards No. 114 "Accounting by Creditors for Impairment of a Loan" is required to be implemented for the year ending December 31, 1995. The adoption of this standard is not expected to have any significant impact on the Company's financial position or results of operations.
Statement of Financial Accounting Standards No. 119 "Disclosure About Derivative Financial Instruments and Fair Value of Financial Instruments" was implemented as of December 31, 1994 with no significant impact on the Company's financial position or results of operations.
EARNINGS PER SHARE Earnings per share of common stock are based on the weighted average number of shares of common stock outstanding and the common share equivalents of dilutive stock options: 1994 - 6,374,952, 1993 - 6,847,559, and 1992 - 7,589,043.
NOTE 2 - BENEFIT PLANS
Effective January 1, 1991, Seafield and certain subsidiaries established a savings plan qualifying under Section 401(k) of the Internal Revenue Code and a money purchase pension plan. All full-time employees who have worked 500 hours within the first six months of employment are eligible to participate in the plans. After the first 12-month period, eligibility is measured on a plan-year basis.
Participants in the 401(k) plan may contribute 2% to 10% of annual compensation. Seafield and the participating subsidiaries contribute for each participant an amount equal to 50% of the participant's contribution. A participant is immediately fully vested with respect to the participant's contributions. A participant is 100% vested with respect to the companies' contributions after five years of service. Both the participants' and the companies' contributions are invested by the trustees of the plan at the direction of the participants in any one or more of six investment funds, one of which is a Seafield Stock Fund. The matching contributions made by Seafield and the participating subsidiaries amounted to $91,000 for 1994, $87,000 for 1993 and $71,000 for 1992.
The money purchase pension plan is a defined contribution plan under which Seafield and the participating subsidiaries contribute a percentage of a participant's annual compensation. The companies contribute an amount equal to 7% of base compensation up to the maximum social security wage base ($60,600 in 1994, $57,600 in 1993 and $55,500 in 1992) and 12.7% of earnings in excess of this amount up to an annual limit ($150,000 in 1994, $235,840 in 1993 and $228,860 in 1992). Participants become 100% vested after five years of service, normal retirement at age 65, or in the event of disability or death while employed by the companies. Contributions to this plan by Seafield and the participating subsidiaries are estimated to be $252,000 for 1994, and were $225,000 for 1993 and $139,000 for 1992.
Seafield has a stock purchase plan which is open to all non-employee directors of the Company, employees of the Company and participating subsidiaries who are designated by the chairman of the board. The directors may contribute an amount equal to all or part of their directors' compensation. The designated employees may contribute the lesser of 10% of their salary or $30,000. The Company matches each participant's contribution at a rate of 50%. Seafield common stock is purchased on the open market each month and each participant receives as many shares as the participant's contribution, plus the Company's matching contribution, will purchase. No employees are presently designated to participate. The matching contributions made by Seafield amounted to $40,000, $44,000 and $51,000 for the years ended December 31, 1994, 1993 and 1992, respectively.
LabOne, Response and certain other subsidiaries maintain profit sharing plans qualifying under Section 401(k) of the Internal Revenue Code. LabOne also has a defined contribution plan. These subsidiaries contributed $1,666,000, $1,702,000 and $1,444,000 to the plans for the years ended December 31, 1994, 1993 and 1992, respectively.
NOTE 3 - COMMITMENTS AND CONTINGENCIES
Seafield received a notice during 1992 of proposed adjustments from the Internal Revenue Service (IRS) with respect to 1986-87 federal income taxes. Later, the IRS determined to include 1988-90 as a part of its review. The original amount of additional taxes proposed by the IRS was approximately $17 million for the period 1986-87. In addition, during the 1988-89 closing conference, the IRS agreed to reverse some of the taxes for the 1986-87 years by way of adjustments to 1988-89 years. Based upon conference with the IRS, Seafield believes that the net amount of additional taxes to be assessed may be less than $17 million for the four-year period under audit. Resolution of these matters is not expected in 1995. The IRS has notified Seafield that a 1990 refund claim in the amount of $7.6 million will not be acted upon until all years currently under examination are closed. Seafield believes it has meritorious defenses to many of the issues raised by the IRS and adequate accruals for income tax liabilities.
A lawsuit was initiated in 1986 by Seafield'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, Seafield negotiated with the buyer for an assignment of the cause of action from the insurance subsidiary. Thus, any recovery will be for the benefit of Seafield and all costs incurred in connection with the litigation will be paid by Seafield. Any ultimate recovery will be recognized as income when received and would be subject to income taxes. In September 1993, the Missouri Court of Appeals reversed a $5.7 million judgment granted in 1992 in favor of Seafield; the Court of Appeals remanded the case to the trial court for a jury trial limited to the question of whether or not the applicable statute of limitations barred the claim. The Appeals Court also set aside $1.7 million of the judgment originally granted in 1992. A new trial is not expected before late 1995.
In 1988, a lawsuit was initiated against Seafield's former insurance subsidiary by its former partners in the Quail Run real estate project in Santa Fe, New Mexico. The plaintiffs alleged that the project partnership agreement was improperly terminated, thus denying them an ongoing interest in the project, and the loss of their exclusive real estate brokerage arrangement. The plaintiffs were seeking approximately $11 million in actual damages and unspecified punitive damages based upon alleged breaches of contract and fiduciary duty and economic compulsion. After a trial in July 1994, the jury returned a verdict absolving Seafield of any liability. Subsequent to the trial, the judge awarded Seafield approximately $250,000 in connection with marketing expenses which the plaintiffs were to have repaid. Plaintiffs have appealed all judgments against them. The appeal will likely be heard by mid- 1995. Because the Quail Run project was retained by Seafield in connection with the sale of its former insurance subsidiary, Seafield defended the lawsuit under an indemnification arrangement with the purchaser of the former insurance subsidiary; all costs incurred and any judgments rendered in favor of the plaintiff will be for the account of Seafield.
In 1990, Seafield'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 Seafield were dismissed with prejudice by order of the court signed in February 1994.
In the opinion of management, after consultation with legal counsel and based upon current available information, none of these lawsuits is expected to have a material adverse impact on the consolidated financial position or results of operations of Seafield.
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT AND ACCOUNTS AND NOTES RECEIVABLE
A summary of property, plant and equipment is as follows: Rate of December 31, Depreciation 1994 1993 ------------------------------------ (In thousands) Property, plant and equipment 5% - 33% $ 67,930 65,083 Less accumulated depreciation 42,949 37,316 ----------------- $ 24,981 27,767 =================
A summary of accounts and notes receivable is as follows: December 31, 1994 1993 ----------------- (In thousands) Accounts receivable $ 37,228 36,694 Notes receivable 1,578 1,585 Allowance for doubtful accounts (4,637) (4,589) ----------------- 34,169 33,690 Less current portion 32,871 32,296 ----------------- $ 1,298 1,394 =================
Interest rates on notes receivable were 5% to 9% in 1994 and 1993. Included in notes receivable are loans to officers of subsidiaries aggregating $650,000 at December 31, 1994. The notes, with interest rates of 6.74% and 7.75%, are due in 1995 and 1996.
NOTE 5 - SECURITIZATION OF RECEIVABLES
In July 1993, a 95% owned subsidiary of Seafield entered into an extendable two-year agreement whereby it can sell undivided interests in a designated pool of accounts receivable on an ongoing basis. The maximum allowable amount of receivables to be sold was increased by amendment in August 1994 from $22 million to $30 million, subject to voluntary reduction by the seller to a minimum of $12 million. As collections reduce accounts receivable in the pool, the purchaser permits the subsidiary to apply such collections to additional purchases up to the maximum. The subsidiary had securitized receivables of $23 million at December 31, 1994 and $19 million at December 31, 1993. The net cash proceeds are reported as an investing activity in the accompanying Consolidated Statements of Cash Flows. The securitized receivables are reflected as a reduction of accounts receivable in the accompanying Consolidated Balance Sheets. The proceeds from the initial sale of receivable interests were used to retire bank debt and subordinated debts to Seafield and the subsidiary's chief executive officer.
The subsidiary did not record a gain or loss on the sales as the costs of receivables sold approximated the proceeds. Receivables of $2.8 million and $2.3 million at December 31, 1994 and 1993, respectively, are subordinated to undivided interests sold in the event of defaults or delinquencies with respect to the underlying receivables. A default reserve is required for the greater of 12% of the accounts receivable sold or an amount set forth by a formula based on preceding months' default ratios. The subsidiary continues to service the securitized receivables for which it receives a servicing fee.
NOTE 6 - SEGMENT DATA
The following table shows segment information from continuing operations:
Year ended December 31, 1994 1993 1992 - ------------------------------------------------------------------------------ (In thousands) REVENUES: Insurance services $ 67,199 74,803 80,034 Healthcare services 45,134 40,882 27,870 Other 11,945 14,182 3,428 ---------------------------------- Total revenues $ 124,278 129,867 111,332 ================================== OPERATING EARNINGS (LOSS): Insurance services $ 8,966 15,441 17,844 Healthcare services (5,272) 158 255 Other (1,041) (3,145) (1,505) Investment and miscellaneous income 1,594 8,470 1,803 Corporate expense (5,284) (5,738) (5,643) Interest expense (300) (246) (214) ---------------------------------- Earnings (loss) before income taxes and minority interests (1,337) 14,940 12,540 Income taxes (680) (6,991) (5,491) Minority interests 145 (2,331) (2,881) ---------------------------------- Earnings (loss) from continuing operations $ (1,872) 5,618 4,168 ==================================
IDENTIFIABLE ASSETS: Insurance services $ 99,301 101,945 114,591 Healthcare services 35,683 41,067 28,418 Net assets of discontinued operations 50,011 52,596 65,128 Other 60,392 77,962 72,377 ---------------------------------- Total identifiable assets $ 245,387 273,570 280,514 ==================================
Operating earnings are revenues less expenses other than corporate and interest expense, net of intersegment transactions. Depreciation and amortization amounts for 1994, 1993 and 1992 were $11,836,000, $16,474,000 and $15,484,000, respectively. Goodwill amortization for 1994, 1993 and 1992 was $3,263,000, $3,147,000 and $2,841,000, respectively. In January 1994, approximately $13 million of the $78 million other identifiable assets was used to purchase 382,350 shares of Seafield common stock from an institutional shareholder in a single transaction. Capital expenditures and depreciation and amortization expense for the significant segments are as follows:
1994 1993 1992 ---------------------------------- (In thousands) Insurance services: Capital expenditures $ 2,030 1,877 3,243 ================================== Depreciation and amortization $ 6,547 9,255 9,899 ================================== Healthcare services: Capital expenditures $ 3,194 3,606 2,477 =================================== Depreciation and amortization $ 2,761 2,014 1,118 ===================================
NOTE 7 - INCENTIVE STOCK OPTION PLAN
Seafield has three Stock Option Plans which provide for Qualified and Nonqualified Stock Options, Stock Appreciation Rights (SAR's) and restricted stock awards to key employees and directors. The plans entitle the grantee to purchase shares at prices ranging from 75% to 110% of the fair market value at date of grant during terms up to ten years. SAR's may be issued in tandem with stock options and entitle the holder to elect to receive the appreciated value in cash. Restricted stock awards are rights to receive or retain shares in payment of compensation earned or to be earned. During 1994, restricted stock awards of 41,998 shares became vested and were issued. Restricted stock awards totaled 60,604 shares at December 31, 1994. The following presents a summary of stock options activity for the three years ended December 31, 1994:
Number of Option Shares Price - ------------------------------------------------------------------------------ Outstanding December 31, 1991 1,084,953 $ 21.500 - 43.250 Granted 4,500 29.000 - 29.000 Exercised 324,240 21.500 - 31.000 Terminated or forfeited 11,500 21.500 - 31.000 ----------------------------------- Outstanding December 31, 1992 753,713 21.500 - 43.250 Granted 33,500 32.000 - 34.875 Exercised 107,617 21.500 - 31.000 Terminated or forfeited 46,335 21.500 - 43.250 ----------------------------------- Outstanding December 31, 1993 633,261 21.500 - 34.875 Exercised 56,998 28.000 - 31.000 Terminated or forfeited 1,000 31.000 - 31.000 ----------------------------------- Outstanding December 31, 1994 575,263 21.500 - 34.875 ===================================
Options for 552,422 shares were exercisable at December 31, 1994 and 130,000 shares were available to be awarded. The difference between the per share exercise price and the average cost per share of the treasury stock issued for stock options exercised decreased paid-in capital by $5,000 in 1994 and increased paid in capital by $363,000 in 1993. Additionally, Seafield maintains a Stock Purchase Plan under which each participant's contribution is matched at a rate of 50%. Seafield common stock is purchased on the open market each month. Of the 100,000 shares registered under this plan, 69,528 shares were eligible for issuance at December 31, 1994.
NOTE 8 - LEASE COMMITMENTS
Seafield and subsidiaries lease office space, equipment, land and buildings under various, noncancelable leases that expire over the next several years. Rental expense for these leases during 1994, 1993 and 1992 amounted to $3,868,000, $3,038,000 and $1,985,000, respectively.
Future minimum lease payments under these agreements as of December 31, 1994 are as follows:
Year Amount ----------------------- 1995 $ 3,366,000 1996 2,925,000 1997 2,192,000 1998 1,191,000 1999 702,000 Thereafter 910,000
NOTE 9 - INVESTMENT SECURITIES
A summary of investment securities information relating to quoted market values and holding gains and losses at December 31, 1994 and 1993 is in the following table. At December 31, 1994, securities totaling $67.7 million will mature within one year and securities totaling $6.7 million will mature between one and five years.
Amount at Which Amortized Market Shown in Cost Value Balance Holding Holding Sheet Gains Losses - ------------------------------------------------------------------------------- (In thousands) December 31, 1994 - ----------------- Trading - ------- U.S. treasury securities fund $ 15,488 15,273 15,273 -- (215) Obligations of states and political subdivisions 10,259 10,181 10,181 -- (78) Common stock 14,625 13,317 13,317 -- (1,308) Corporate bonds 1,063 963 963 -- (100) Money market instruments 14,061 14,061 14,061 -- -- -------------------------------------------------------- $ 55,496 53,795 53,795 -- (1,701) ========================================================
Available for Sale - ------------------ Common stock $ 2,701 3,861 2,701 1,160 -- Preferred stock 3,515 3,515 3,515 -- -- -------------------------------------------------------- $ 6,216 7,376 6,216 1,160 -- ========================================================
Held to Maturity - ---------------- U.S. treasury securities $ 3,031 3,069 3,031 38 -- Obligations of states and political subdivisions 7,888 7,916 7,888 35 (7) Canadian government notes 3,326 3,326 3,326 -- -- Certificate of deposit 100 100 100 -- -- -------------------------------------------------------- $ 14,345 14,411 14,345 73 (7) ========================================================
December 31, 1993 - ----------------- Trading - ------- U.S. treasury securities fund $ 13,643 13,644 13,644 29 (28) Common stock 8,188 8,650 8,650 462 -- Money market instruments 26,839 26,839 26,839 -- -- -------------------------------------------------------- $ 48,670 49,133 49,133 491 (28) ========================================================
Available for Sale - ------------------ Common stock $ 3,243 4,614 3,243 1,567 (196) Preferred stock 3,515 3,515 3,515 -- -- -------------------------------------------------------- $ 6,758 8,129 6,758 1,567 (196) ========================================================
Held to Maturity - ---------------- U.S. treasury securities $ 17,237 17,235 17,237 -- (2) Obligations of states and political subdivisions 12,885 12,980 12,885 95 -- Canadian government notes 2,230 2,230 2,230 -- -- Certificate of deposit 100 100 100 -- -- -------------------------------------------------------- $ 32,452 32,545 32,452 95 (2) ========================================================
Seafield has investments in two majority-owned entities that are publicly- traded. At December 31, 1994, based on the market prices of publicly traded shares of these two subsidiaries, pretax unrealized gains of approximately $116 million ($18.12 per share) on these investments were not reflected in either Seafield's book value or stockholders' equity.
NOTE 10 - INCOME TAXES
Seafield and those subsidiaries which are eligible file a consolidated U.S. federal income tax return. Prior to consolidation in Seafield's federal income tax return, various subsidiaries generated taxable losses of approximately $6.5 million. These net operating loss carryforwards could only be utilized against future taxable income of the corporation which generated the loss. However, in 1992, $4.1 million of these losses were reattributed to Seafield upon the disposition of the stock of the former employee benefits consulting services subsidiary. In 1994 and 1993, Seafield utilized approximately $1.1 million and $1.6 million of these reattributed losses, thereby reducing income tax expense by $389,000 and $534,000, respectively. The remainder of these net operating loss carryforwards will begin to expire in the year 2006.
During 1993 and 1992, Response utilized approximately $1,374,000 and $1,156,000 of available federal net operating loss carryforwards resulting in a tax benefit of $522,000 and $439,000, respectively. Response is not included in Seafield's consolidated federal income tax return. Response has remaining federal net operating loss carryforwards of approximately $5.4 million which are limited by the Internal Revenue Code and are available to offset only $475,000 of taxable income per year. These limited federal net operating losses are available annually until 2005. Response also has approximately $2,421,000 of federal net operating loss carryforwards which are not limited as to their utilization. These begin to expire in 2005.
The components of the provision (benefit) for income taxes on income from continuing operations are as follows:
- ------------------------------------------------------------------------------ Year ended December 31, 1994 1993 1992 - ------------------------------------------------------------------------------ (In thousands) Current: Federal $ 1,244 6,638 4,388 State 473 1,424 1,350 Foreign 769 1,311 970 ---------------------------------- 2,486 9,373 6,708 ---------------------------------- Deferred: Federal (1,674) (1,867) (944) State 73 (426) (180) Foreign (205) (89) (93) ---------------------------------- (1,806) (2,382) (1,217) ---------------------------------- $ 680 6,991 5,491 ==================================
Earnings (loss) before income taxes: Domestic $ (2,440) 12,281 10,410 Foreign 1,103 2,659 2,130 ---------------------------------- $ (1,337) 14,940 12,540 ==================================
The reconciliation of income tax attributable to continuing operations computed at federal statutory tax rates to income tax expense is as follows:
- ------------------------------------------------------------------------------ Year ended December 31, 1994 1993 1992 - ------------------------------------------------------------------------------ (In thousands) Computed expected tax expense $ (454) 5,079 4,264 State income taxes, net of federal benefit 348 806 772 Goodwill amortization 1,087 1,070 987 Tax exempt interest and dividends (302) (201) (503) Tax benefits not available for subsidiary losses 1,063 156 282 Other, net (799) 530 (262) Utilization of federal net operating loss (389) (768) (201) Foreign tax in excess of U.S. rate 126 319 152 ---------------------------------- Actual income tax expense $ 680 6,991 5,491 ==================================
Effective rate (51)% 47% 44%
The significant components of deferred income tax assets and liabilities as of December 31, 1994, 1993 and 1992 are as follows:
- ------------------------------------------------------------------------------ Year ended December 31, 1994 1993 1992 - ------------------------------------------------------------------------------ (In thousands) Current deferred income tax assets (liabilities): Valuation allowance on stock investments $ 661 255 -- Allowance on accounts receivable 1,008 994 715 Excess book expense accruals 877 629 402 Excess book accrued legal fees -- 572 -- Excess book partnership expenses -- 57 109 Other 35 (164) -- Federal net operating loss carryforwards 43 -- -- State net operating loss carryforwards 8 80 70 ---------------------------------- Gross current deferred income tax assets 2,632 2,423 1,296 Current valuation allowance (866) (802) (616) ---------------------------------- Net current income tax assets 1,766 1,621 680 ----------------------------------
Non-current deferred tax assets (liabilities): Valuation allowances on investments 19 19 531 Excess book (tax) expense accruals 321 326 185 Excess book (tax) accrued legal fees -- 27 -- Excess book (tax)partnership expenses 244 (37) (256) Excess book (tax) oil and gas expenses 449 210 (1,273) Excess book (tax) depreciation and amortization 900 (51) (797) Alternative minimum tax credit 188 127 -- Other (90) (1,216) (4,837) Federal net operating loss carryforwards 4,102 3,868 5,284 State net operating loss carryforwards 1,304 1,062 463 ---------------------------------- Gross non-current deferred income tax assets 7,437 4,335 (700) Valuation allowance for non-current deferred income tax assets (5,722) (5,058) (5,714) ---------------------------------- Net non-current deferred income tax assets (liabilities) 1,715 (723) (6,414) ---------------------------------- Net deferred income tax assets (liabilities) $ 3,481 898 (5,734) ==================================
The valuation allowance as of January 1, 1992 was approximately $7,255,000. The valuation allowance increased during 1994 by approximately $728,000 and decreased by $470,000 and $925,000 during 1993 and 1992, respectively.
NOTE 11 - INTANGIBLE ASSETS
The cost and accumulated amortization of intangible assets are as follows:
December 31, 1994 1993 - ------------------------------------------------------------------------------- (In thousands) Goodwill - excess of cost over fair value of net assets acquired $ 43,571 43,191 Less accumulated amortization 16,297 13,034 -------------------- 27,274 30,157 -------------------- Laboratory patent, antibodies, antigens, and nicotine screens 11,845 11,845 Less accumulated amortization 10,062 9,541 -------------------- 1,783 2,304 --------------------
Other intangible assets 1,300 2,328 Less accumulated amortization 1,039 1,611 -------------------- 261 717 -------------------- Intangible assets, net of accumulated amortization $ 29,318 33,178 ====================
Any excess of the cost over the fair value of the net assets purchased is being amortized on a straight line basis over 5 to 20 years. The laboratory patent process is being amortized over 184 months from date of acquisition while antibodies, antigens, and nicotine screens are being amortized over their estimated remaining useful lives.
NOTE 12 - NOTES PAYABLE
Notes payable are as follows:
December 31, 1994 1993 - ------------------------------------------------------------------------------- Maturities Maturities Maturities Maturities Due Within Due After Due Within Due After One Year One Year One Year One Year ---------------------------------------------- (In thousands) Prime + 1% line of credit, secured by accounts receivable of $12,400,000 $ -- -- 2,420 -- Prime line of credit, secured by accounts receivable of $1,964,000 2,475 -- 2,030 -- Prime + 1 1/2% line of credit secured by accounts receivable of $1,241,000 268 -- -- -- Other 80 8 121 18 --------------------------------------------- $ 2,823 8 4,571 18 =============================================
Maturities of notes and mortgages payable at December 31, 1994, aggregate $2,823,000 in 1995 and $8,000 thereafter. Line of credit agreements totaled $11 million at December 31, 1994 and expire in 1995. Available borrowings under these agreements amounted to $8,257,000. Affiliates' debt at December 31, 1994 totaled $701,000, of which $208,000 was nonrecourse and $493,000 arose under lines of credit. The Consolidated Statements of Operations include interest expense totaling $309,000, $527,000, and $587,000 in 1994, 1993 and 1992, respectively. The weighted average interest rate on borrowings outstanding for 1994, 1993 and 1992 was 8.82%, 6.57% and 6.35%, respectively.
NOTE 13 - DISCONTINUED OPERATIONS
Operations of Discontinued Real Estate Segment
In 1992, Seafield's board of directors approved a plan to discontinue real estate operations. As a result of this decision, a $6 million after-tax loss provision for estimated write-downs and costs through final disposition was included in the discontinued real estate's 1992 loss. An additional after-tax loss of $2.9 million was recorded in the fourth quarter of 1994 to reflect the signing of a contract for the sale of Texas land. The remaining real estate assets will be sold as soon as practicable.
A summary of discontinued real estate operations follows:
Year ended December 31, 1994 1993 1992 - ------------------------------------------------------------------------------ (In thousands)
Revenues $ 11,991 18,320 34,768 =================================== Loss $ (4,400) -- (10,808) Income tax benefits (1,496) -- (3,594) ----------------------------------- Net loss $ (2,904) -- (7,214) ===================================
Net Assets of Discontinued Real Estate Segment
A summary of the net assets of the discontinued real estate operations follows:
December 31, 1994 1993 - ------------------------------------------------------------------------------ (In thousands) Assets Current assets $ 956 953 Real estate 38,584 38,053 Other non-current assets 13,555 15,360 -------------------- Total assets 53,095 54,366 -------------------
Liabilities Current liabilities 209 617 Non-current liabilities 2,875 1,153 -------------------- Total liabilities 3,084 1,770 -------------------- Net Assets $ 50,011 52,596 ====================
At December 31, 1994, real estate debt totaled $9.9 million, of which $6.4 million was recourse debt.
Operations of Discontinued Insurance Segment
Seafield finalized the sale of its remaining 5% interest in a former insurance subsidiary in June 1992 and received $12.8 million resulting in an after-tax gain of $4.3 million. The shares representing the 5% interest had been pledged to serve as collateral under the mortgage guaranty provision contained in a 1990 sales agreement for 95% of the subsidiary. Concurrent with the sale of the final 5% interest, Seafield was released from mortgage guarantees which originally totaled approximately $16 million.
NOTE 14 - QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized 1994 quarterly financial data is as follows:
Mar. 31, Jun. 30, Sep. 30, Dec. 31, Quarter Ended 1994 1994 1994 1994 - ------------------------------------------------------------------------------- (In thousands except per share amounts)
Revenues $ 29,550 30,934 31,557 32,237 ========================================
Earnings (loss) from continuing operations $ 648 47 (1,745) (822) Loss from discontinued real estate operations -- -- -- (2,904) ---------------------------------------- Net earnings (loss) $ 648 47 (1,745) (3,726) ========================================
Per share: Earnings (loss) from continuing operations $ .10 .01 (.27) (.12) Loss from discontinued real estate operations -- -- -- (.46) ---------------------------------------- Net earnings (loss) $ .10 .01 (.27) (.58) ========================================
Dividends paid per share $ .30 .30 .30 .30 ======================================== Stock prices: High $ 41 1/4 40 1/2 38 1/4 37 1/4 Low $ 33 1/2 38 1/2 35 1/2 30 3/4
Summarized 1993 quarterly financial data is as follows:
Mar. 31, Jun. 30, Sep. 30, Dec. 31, Quarter Ended 1993 1993 1993 1993 - ------------------------------------------------------------------------------- (In thousands except per share amounts)
Revenues $ 31,106 32,342 33,651 32,768 ========================================
Net earnings $ 872 909 1,285 2,552 ========================================
Net earnings per share $ .13 .13 .19 .37 ========================================
Dividends paid per share $ .30 .30 .30 .30 ======================================== Stock prices: High $ 35 3/4 31 1/2 35 1/4 39 1/2 Low $ 29 29 3/4 30 1/2 33
See Note 13 of Notes to Consolidated Financial Statements for a description of discontinued operations which affected the results of operations for the quarters shown above. Quarterly earnings per share amounts may not add to the annual earnings per share amounts due to the effect of common stock equivalents and the timing of treasury stock purchases and net earnings.
SEAFIELD CAPITAL CORPORATION AND SUBSIDIARIES Schedule II Valuation and Qualifying Accounts and Reserves
- ------------------------------------------------------------------------------- Additions ----------------- Charged Charged Balance at to Costs to Other Balance at Beginning and Accounts- End of Description of Year Expenses Describe Deductions* Year - ------------------------------------------------------------------------------- (In thousands) Year ended December 31, 1994 Accounts and notes receivable - allowance for doubtful accounts $ 4,589 2,671 -- 2,623 4,637
Year ended December 31, 1993 Accounts and notes receivable - allowance for doubtful accounts 2,385 3,068 -- 864 4,589
Year ended December 31, 1992 Accounts and notes receivable - allowance for doubtful accounts 1,493 3,695 -- 2,803 2,385
* Uncollectible accounts written-off
SEAFIELD CAPITAL CORPORATION AND SUBSIDIARIES Schedule III Real Estate and Accumulated Depreciation December 31, 1994 (Page 1 of 2)
Costs Capitalized Gross Amount Initial Cost Subsequent At Which Carried to Company to Acquisition at December 31, 1994 ----------------- ----------------- ---------------------- Buildings & Buildings & Improve- Improve- Carrying Improve- Description Land ments ments Costs Land ments Total - ----------------------------------- ----------------- ---------------------- (In thousands) Land Investments/ Developments: Houston, TX $ 6,158 49 983 1,553 4,608 -- 4,608 Tulsa, OK 754 -- -- 754 754 Ft Worth, TX 11,501 -- 91 -- 11,587 -- 11,587 Ft Worth, TX 3,886 -- -- -- 3,886 -- 3,886 Ft Worth, TX 2,770 -- -- 42 2,812 -- 2,812 Ft Worth, TX 4,633 -- -- -- 4,633 -- 4,633 Ft Worth, TX 1,000 -- -- -- 1,000 -- 1,000 Olathe, KS 3,292 -- -- -- 3,292 -- 3,292
Parking: Reno, NV -- 5,277 19 -- -- 5,296 5,296
Residential: Juno Beach, FL 8,400 -- 23,997 2,240 640 3,541 4,181 Juno Beach, FL 5,340 -- 6,402 418 582 853 1,435 Santa Fe, NM 4,576 -- 55,607 15,614 1,705 23,664 25,369 -------------------------------------------------------------- $ 52,310 5,326 87,099 19,867 35,499 33,354 68,853 ======================================================
Reserves (29,188) ------- Net real estate before depreciation 39,665 Accumulated depreciation (1,081) ------- Net real estate $ 38,584 =======
SEAFIELD CAPITAL CORPORATION AND SUBSIDIARIES Schedule III Real Estate and Accumulated Depreciation December 31, 1994 (Page 2 of 2)
Date Accum. Tax of Date Depr. Description Reserves Depr. Basis Constr. Acquired Life - ------------------------------------------------------------------------------ (In thousands) Land Investments/ Developments Houston, TX 890 -- 4,386 -- 1974 -- Tulsa, OK 272 -- 754 -- 1980 -- Ft Worth, TX 6,281 -- 11,249 -- 1986 -- Ft Worth, TX 3,402 -- 3,886 -- 1986 -- Ft Worth, TX 2,412 -- 1,932 -- 1984 -- Ft Worth, TX 3,913 -- 2,203 -- 1989 -- Ft Worth, TX 750 -- 1,000 -- 1986 -- Olathe, KS -- -- 3,103 -- 1991 --
Parking: Reno, NV 1,500 1,081 4,752 -- 1989 20 years
Residential: Juno Beach, FL 4,100 -- 1,262 1985 1983 -- Juno Beach, FL -- -- 2,081 1989 1983 -- Santa Fe, NM 5,668 -- 19,519 1987 1985 -- ----------------------- 29,188 1,081 56,127 =======================
SEAFIELD CAPITAL CORPORATION AND SUBSIDIARIES Schedule III Real Estate and Accumulated Depreciation Reconciliation Between Years
A) Reconciliations of total real estate carrying value for the three years ended December 31, 1994 are as follows:
1994 1993 1992 - ------------------------------------------------------------------------------ (in thousands) Balance at beginning of year $ 38,921 46,346 79,151
Additions during year: Improvements 11,689 7,014 4,444 Consolidate joint venture 3,292 -- -- ---------------------------------- 53,902 53,360 83,595
Deductions during year: Value of real estate sold 9,837 14,439 28,249 Provision for loss on sale of real estate 4,400 -- 9,000 ---------------------------------- 14,237 14,439 37,249 ---------------------------------- Balance at end of year $ 39,665 38,921 46,346 ==================================
B) Reconciliations of accumulated depreciation for the three years ended December 31, 1994 are as follows:
1994 1993 1992 - ------------------------------------------------------------------------------ Balance at beginning of year $ 868 655 1,115
Additions during year - depreciation 213 213 257 ---------------------------------- 1,081 868 1,372
Deductions during year - accumulated depreciation of real estate sold -- -- 717 ---------------------------------- Balance at end of year $ 1,081 868 655 ==================================