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EXHIBIT 99 T3E-11
SAN JACINTO HOLDINGS INC. AND SUBSIDIARY
CONSOLIDATED QUARTERLY FINANCIAL STATEMENTS
THREE MONTH PERIOD ENDED MARCH 31, 1997
[LOGO]
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SAN JACINTO HOLDINGS INC. AND SUBSIDIARY
CONSOLIDATED QUARTERLY FINANCIAL STATEMENTS
THREE MONTH PERIOD ENDED MARCH 31, 1997
TABLE OF CONTENTS
Page
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Chairman's Letter 1 - 2
Safeguard Business Systems, Inc.'s
Chief Executive Officer and Chief Financial Officer's Letter 3 - 5
Attachment to Executives Letter 6 - 7
Financial Statements 8 - 13
The accompanying unaudited interim consolidated financial statements were
prepared on a consistent basis utilizing the accounting policies described
in the Summary of Significant Accounting Policies included in the notes to
the consolidated financial statements of the Company for the years ended
December 31, 1996 and 1995. These policies and the Notes to Consolidated
Financial Statements should be read in conjunction with the accompanying
statements. These interim statements have been drawn from unaudited internal
data and include all adjustments which the Company believes necessary to a
fair presentation of the statements. The interim operating results are not
necessarily indicative of the results expected for the full year.
Management's Discussion and Analysis of Financial, Condition 14 - 16
and Results of Operations
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SAN JACINTO HOLDINGS INC. LETTERHEAD
May 15, 1997
TO ALL STOCKHOLDERS AND BONDHOLDERS:
Enclosed are unaudited consolidated financial statements for the
quarter ended March 31, 1997. As has been done in previous reports, an
operational summary from the senior management of Safeguard Business Systems,
Inc. is also enclosed.
If you have not done so, I recommend that you review the 1996 Annual
Report which was mailed in March. That report discussed a number of important
developments that occurred in 1996 and which continue to impact the Company's
operations in 1997, as was expected. A major transition is underway in the
Company and that strategy was presented and reviewed fully in both 1995 and
1996.
CHANGE IN DISTRIBUTION CHANNEL
Safeguard announced this quarter a significant addition to its
distribution channel with the introduction of a franchise system for the future.
Please refer to management's comments and the enclosed information for further
discussion of this important development. This action was unanimously approved
by the Board of Directors in early 1997 following extensive reviews and due
diligence by management and the Company's external advisors.
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INVESTOR CONFERENCE TELEPHONE CALLS
To improve the Company's communications with shareholders and
bondholders, we will initiate in August or early September quarterly conference
telephone calls at which time management will review operating results and
respond to questions. Following distribution of the quarterly report for the
period ending June 30, 1997, a date and time will be announced for the first
such call. We hope this will be a beneficial addition to the communications
process and overall relationship with the Company's investors.
CHANGE IN FISCAL YEAR
As was discussed in the 1996 Annual Report, the Company's Board of
Directors has approved moving to a June 30 Fiscal Year effective June 30, 1997.
This change will better accommodate the Company's overall operations and flow of
business activities. Please note management's further discussion of this
subject.
Many thanks for your continued interest in San Jacinto Holdings and
Safeguard. We look forward to communicating with you in future periods.
Sincerely,
/s/Elvis L. Mason
Elvis L. Mason
Chairman
Enclosure
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[SAFEGUARD LETTERHEAD]
May 15, 1997
TO ALL STOCKHOLDERS AND BONDHOLDERS:
Enclosed are the consolidated financial statements of San Jacinto Holdings Inc.
and its operating subsidiary, Safeguard Business Systems, Inc. ("Safeguard") for
the three month periods ended March 31, 1997 and 1996.
FINANCIAL AND OPERATING HIGHLIGHTS
Net sales for the first quarter of 1997 are $51.5 million, reflecting a decline
of $0.5 million or 0.9% from the same quarter in 1996. The first quarter of 1997
includes two less work days resulting in less time for plant production than in
the same period in 1996. In addition, as discussed below, had the order
processing backlog remained at its December 31, 1996 level, net sales for the
first quarter 1997 would have been $52.9 million, an increase of 1.7% in
comparison to the first quarter of 1996. The sales results reflect growth in
sales of computer forms (4.2%), sourced products (20.3%) and filing systems
(13.2%). This growth is off-set by a 8.1% decline in manual form sales. The
changes in sales trends from manual forms to computer forms, and sourced
products continues to be addressed strategically and operationally throughout
the Company.
On February 17, 1997 Safeguard converted its order management, accounts
receivable and the associated systems to a new software and a new computer
platform. The design, development and testing of the software is a major project
that started in 1994, which provides the technological advances necessary to
rapidly response to small business marketplace's changing needs. The short-term
impact of this conversion has resulted in a delay in shipment of products
resulting in an increase in the number of orders in process. As of March 31,
1997, Safeguard's in process orders were $1.4 million higher than at December
31, 1996. Accelerated production schedules were implemented to reduce this
increase in the order processing backlog to an optimal level.
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Earnings from operations before amortization, depreciation, interest and income
taxes (EBITDA) in 1997 are $4.9 million compared to $5.0 million in 1996,
reflecting a slight (0.7%) decline. The decline in earnings is attributable to a
2.1%, as a percentage of net sales, decline in gross profit partially off-set by
administrative expense reductions. The reduction in gross profit is a result of
increased overhead costs associated with equipment costs in support of
technological advances in the Company's computer systems.
The Company's operations in Europe remain strong. Net sales in the first quarter
of 1997 are 5.5% above 1996 levels. This growth is in both manual and computer
form sales. Earnings from operations are $0.5 million, which approximates
earnings in the first quarter of 1996.
The Company's net loss before extraordinary item is $5.5 million in the first
quarter of 1997 compared to $4.5 million for the same period in 1996. The
decline in operating results is attributable to a decline in gross profit and an
increase in interest expenses, partially off-set by a reduction in
administrative costs. The increase in interest expense is due to a rise in the
Company's outstanding borrowings and an increase in the effective interest rate
from 8% to 12% in late January 1996. These losses include amortization
(non-cash) charges of $4.8 million for the first quarters of 1997 and 1996.
The transformation of the Distributor organization to a more dynamic channel to
the customer is progressing with the creation of Safeguard Franchise Systems,
Inc. ("SFS") in March 1997, a wholly owned subsidiary of Safeguard. As announced
on the attached press release, SFS will began offering franchises first to its
existing distributors, and then to new franchisees, upon completion of its
offering documents and registration in applicable states. SFS is the natural
evolution of Safeguard's conversion from a manufacturing-driven, distributor
organization, to a sophisticated, market-driven organization capable of
responding to the rapidly changing needs of the small business marketplace.
Safeguard developed this new company to create greater opportunities for its
distributors, and to better align the company with the needs of its target
market. Safeguard's experienced network will provide personalized consulting to
develop customized business solutions for each customer. The network is
supported by a corporate infrastructure that utilizes state-of-the-art
technology to link them to the Company's Communications Center in Dallas, Texas
which will be placing and tracking orders, accessing and processing leads, and
other key operational functions. This Communications Center will enable
franchisees to maximize the time available for sales and sales management
activities.
As announced in December 1996, the Company began the consolidation of the
Addison, Illinois manufacturing plant with the East Coast facilities in April
1997. The plant consolidation is expected to be completed by October 1997. The
anticipated costs associated with the consolidation were expensed in 1996.
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CHANGE IN FISCAL YEAR
The Company's business cycle has historically begun in the third calendar
quarter. This is a result of Accountants, a major referral source, visiting
their clients and referring new customers and repeat business to the Company. To
properly kickoff this cycle and in recognition of a stronger emphasis on sales
and marketing, the Company will change its year end to June 30, effective June
30, 1997.
The Company has celebrated 40 years of leadership in the small business arena
serving the marketplace as an information systems company with a total service
approach. Safeguard's management and employees are dedicated to maintaining and
expanding this preeminent position in the small business marketplace in the
coming years. We appreciate your continuing support.
Sincerely,
/s/ G. Douglas Reiter /s/ James R. Braun
G. Douglas Reiter James R. Braun
Vice Chairman and Executive Vice President
Chief Executive Officer Chief Financial Officer
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[SAFEGUARD LETTERHEAD]
FOR IMMEDIATE RELEASE
April 15, 1997
SAFEGUARD BUSINESS SYSTEMS, INC. ANNOUNCES THE
CREATION OF SAFEGUARD FRANCHISE SYSTEMS, INC.
DALLAS -- In March, 1997, Safeguard Business Systems, Inc. (SBS), a leading
supplier of forms and business systems to small businesses in the US and Canada,
created Safeguard Franchise Systems, Inc. (SFS). SFS will begin offering
franchises first to its existing distributors, and then to new franchisees, upon
completion of its offering documents and registration in applicable states. The
new system will go into effect in July of this year.
SFS is the natural evolution of Safeguard's conversion from a
manufacturing- driven, distributor organization, to a sophisticated,
market-driven organization capable of responding to the rapidly changing needs
of the small business marketplace. After successfully marketing its products and
services through a network of approximately 700 independent distributors and
their sales associates, Safeguard developed this new company to create greater
opportunities for its distributors, and to better align the company with the
needs of its target market.
This new organization uses strategic alliances with other industry
leaders to offer a broad menu of products and services, including, payroll and
tax filing services, filing systems, software, printed solutions and a myriad of
other solutions to small businesses. Safeguard's experienced network will
provide personalized consulting to develop customized business solutions for
each customer. The network is supported by a corporate infrastructure that
utilizes state-of-the-art technology to link them to a Communications Center for
placing and tracking orders, accessing and processing leads, and other key
operational functions. This Communications Center will enable franchisees to
maximize the time available for sales and sales management activities.
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"Safeguard Franchise Systems is the opportunity of a lifetime for the
aggressive sales management executive with an entrepreneurial drive," explains
Safeguard Vice Chairman and CEO Doug Reiter. "Safeguard's unique mix of
available products and services and the support that we offer our franchisees
will ensure that we have satisfied customers and that business executives have
what they need to manage their sales organizations successfully."
The Company's broad menu of products and services will be driven by
customer needs and furnished by Safeguard manufacturing, and a consortium of key
strategic alliances within the forms and business services industry. SFS'
state-of-the-art Communications Center links customers and franchisees to the
Company's vast resources via fax, e-mail, Internet, toll free 800 lines, and
catalogs seven days a week, 24 hours a day. By calling one number, franchisees
will be able to complete a complex set of business transactions on time, real
time.
Franchisees will be independent and have increased earning
opportunities, with access to quality leads and referrals, and the capability to
conduct business wherever necessary with Safeguard's high technology virtual
office package. Safeguard is one of the first to capitalize on the concept of
the virtual office by linking the company and its franchisees to both the
marketplace and a world-class supply of products and services. Franchise
opportunities are available at three levels: Premier Provider, Premier
Specialist and Master Franchise. Franchisees at all levels have access to
top-rate training, business planning, and marketing and referral leads programs
to increase their effectiveness. Franchise requirements include, but are not
limited to: five years successful sales or sales management experience, $15,000
in working capital, 18 months living expenses for start-up, and a $35,000
franchise fee. The franchise business format is currently only available in the
United States, and an evaluation for the Canadian market is currently under way.
Safeguard Franchise Systems, Inc. is a wholly owned subsidiary of
Safeguard Business Systems, Inc., a $210 million company whose 40 year history
of serving the small business market can be traced to pioneering the one-write
accounting system. SBS has 1500 employees, and 13 manufacturing plants and
facilities throughout North America and the UK. Safeguard's current customer
base is approximately one million, concentrated heavily in the small business
market. For more information about Safeguard Franchise Systems, Inc., contact
Charles Bradshaw at 800/338-0636.
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SAN JACINTO HOLDINGS INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
($000 omitted)
(Unaudited)
March 31 December 31,
1997 1996
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 486 $ 482
Receivables less allowances 29,264 27,912
Inventories 8,226 8,678
Other current assets 2,776 2,480
--------- ---------
Total current assets 40,752 39,552
Property, machinery and equipment - net 21,374 20,855
Excess purchase price over net assets acquired 42,863 43,225
Customer list 12,955 17,273
Other assets 3,061 2,813
--------- ---------
Total assets $ 121,005 $ 123,718
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Current debt obligations $ 9,242 $ 8,708
Accounts payable 14,716 14,476
Accrued expenses 15,813 16,572
--------- ---------
Total current liabilities 39,771 39,756
Long-term debt 113,277 110,017
Other liabilities 7,116 7,631
Stockholders' equity (deficiency):
Preferred stock:
$5.00 Junior Preferred Stock, par value $.01 a share Authorized
1,000,000 shares, $5 cumulative No shares issued and outstanding
Common stock, par value $.01 a share:
Authorized 2,000,000 shares,
Issued and outstanding 1,052,384 shares 11 11
Additional paid-in capital 94,143 94,143
Deficit (132,416) (126,880)
Foreign currency translation adjustment (897) (960)
--------- ---------
Total stockholders' equity (deficiency) (39,159) (33,686)
--------- ---------
Total liabilities and stockholders' equity (deficiency) $ 121,005 $ 123,718
========= =========
See notes to consolidated financial statements.
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SAN JACINTO HOLDINGS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
($000 omitted)
(Unaudited)
Three Months Ended March 31,
1997 1996
---- ----
Net sales $ 51,459 $ 51,952
Cost of sales 25,018 24,173
-------- --------
Gross profit 26,441 27,779
Selling expense 19,845 19,993
General & administrative expense 4,064 4,689
Other income - cash received greater than
carrying value of distributor receivables (472) (550)
Amortization expense 4,812 4,757
Interest expense 3,640 3,334
-------- --------
Loss from operations before income taxes
and extraordinary item (5,448) (4,444)
Income tax provision 88 75
-------- --------
Loss before extraordinary item (5,536) (4,519)
Extraordinary item:
Gain on early extinguishment of debt -- 2,401
-------- --------
Net loss $ (5,536) $ (2,118)
======== ========
See notes to consolidated financial statements.
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SAN JACINTO HOLDINGS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
PERIOD FROM JANUARY 1, 1996
TO MARCH 31, 1997
($000 omitted)
(Unaudited)
Foreign
Additional Currency
Preferred Stock Common Stock Paid In Translation
Shares Amount Shares Amount Capital Deficit Adjustment
------ ------ ------ ------ ------- ------- ----------
Balance -
January 1, 1996 - $ 999,960 $10 $94,143 $(104,591) $(1,292)
-
Net loss (22,289)
Issuance of common
stock in conjunction
with exchange offer 52,424 1
Unrealized gain on
foreign currency
translation 332
---- -------- --------- --- ------- --------- -------
Balance -
December 31, 1996 - - 1,052,834 11 94,143 (126,880) (960)
Net loss (5,536)
Unrealized gain on
foreign currency
translation - - - - - - 63
---- -------- --------- --- ------- --------- -------
Balance -
March 31, 1997 - $- 1,052,384 $11 $94,143 ($132,416) ($897)
==== ======== ========= === ======= ========= =======
See notes to consolidated financial statements.
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SAN JACINTO HOLDINGS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
($000 omitted)
(Unaudited)
Three Months Ended March 31,
1997 1996
---- ----
Cash Flows from Operating Activities:
Net loss $(5,536) $ (2,118)
Adjustments to reconcile net loss to cash
provided by operating activities:
Extraordinary Item -- (2,401)
Amortization 4,812 4,757
Depreciation 1,933 1,325
Unrealized exchange gain (loss) 63 (164)
(Increase) decrease in operating assets:
Receivables (1,352) 1,792
Inventories 452 1,056
Other assets (675) 417
Increase (decrease) in operating liabilities:
Accounts payable 240 866
Accrued expense and other liabilities (1,274) (253)
------- --------
Net cash provided by (used in) operating activities (1,338) 5,277
Cash Flows from Investing Activities:
Purchase of property, machinery and equipment (2,233) (1,871)
Adjustment due to currency fluctuations
and foreign purchase price adjustments 433 177
------- --------
Net cash used in investing activities (1,800) (1,694)
------- --------
Cash Flows from Financing Activities:
Repayment of long-term debt and capital lease obligations (1,719) (17,557)
Borrowings from revolving loans 4,836 14,047
Net proceeds from foreign obligations 25 788
Deferred financing costs -- (1,219)
------- --------
Net cash provided by used in financing activities 3,142 (3,941)
------- --------
Decrease in cash and cash equivalents 4 (358)
Cash and cash equivalents at beginning of period 482 2,802
------- --------
Cash and cash equivalents at end of period $ 486 $ 2,444
======= ========
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SAN JACINTO HOLDINGS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTH PERIOD ENDED MARCH 31, 1997
($000 omitted)
(Unaudited)
(Continued)
Supplemental disclosure of noncash investing and financing activities:
Capital lease obligations of $652 and $304 were entered into during the
first nine months of 1996 and 1995 respectively, to acquire certain
machinery and equipment.
Supplemental disclosure of cash flow information:
Cash paid during the period for:
1997 1996
---- ----
Interest $1,587 $2,025
See notes to consolidated financial statements
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SAN JACINTO HOLDINGS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTH PERIOD ENDED MARCH 31, 1997
(Unaudited)
NOTE A. UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS:
Basis of presentation - The accompanying interim financial statements
have been prepared by the Company without audit. These statements
include all adjustments which management believes necessary for a fair
presentation of the statements and have been prepared on a consistent
basis using the accounting policies described in the Summary of
Significant Accounting Policies in the notes to the consolidated
financial statements included in the Company's 1996 audited financial
statements. These policies and notes to consolidated financial
statements should be read in conjunction with the accompanying interim
financial statements. The interim operating results are not necessarily
indicative of the operating results expected for the full year. The
accompanying financial statements as of and for the year ended December
31, 1996 are derived from the Company's audited financial statements as
of that date.
NOTE B. INVENTORIES:
Inventories consist of the following:
March 31, 1997 December 31, 1996
-------------- -----------------
($000 omitted)
Raw Material $4,695 $5,327
Work-in-process 412 352
Finished Goods 3,119 2,999
------ ------
$8,226 $8,678
====== ======
NOTE C. LONG-TERM DEBT:
March 31, 1997 December 31, 1996
-------------- ----------------
($000 omitted)
New Revolving Loan $ 22,362 $ 17,525
New Term Loan 6,417 6,500
Amended Exchange Loan 21,698 22,633
12% Senior Subordinated Notes 65,878 65,878
8% Senior Subordinated Notes 3 3
8% Subordinated Debentures 321 321
Capital lease obligations 2,470 2,519
Foreign obligations 3,370 3,346
--------- ---------
122,519 118,725
Less current debt obligations (9,242) (8,708)
--------- ---------
Total $ 113,277 $ 110,017
========= =========
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SAN JACINTO HOLDINGS INC. AND SUBSIDIARY
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED MARCH 31, 1997
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected financial
data as a percentage of net sales.
Three Month Period
Ended March 31,
1997 1996
----- -----
Net sales 100.0 % 100.0 %
Cost of sales 48.6 46.5
----- -----
Gross profit 51.4 53.5
Selling expense 38.6 38.5
General & administrative expense 7.9 9.0
Other income - distributor receivables (0.9) (1.0)
Amortization expense 9.3 9.2
Interest expense 7.1 6.4
----- -----
Loss from operations before income taxes
and extraordinary item (10.6) (8.6)
Income tax provision 0.2 0.1
----- -----
Loss before extraordinary item (10.8) (8.7)
Extraordinary item -- 4.6
----- -----
Net loss (10.8)% (4.1)%
===== =====
COMPARISON OF THE THREE MONTH PERIOD ENDED MARCH 31, 1997 TO THE THREE MONTH
PERIOD ENDED MARCH 31, 1996.
NET SALES. Net sales for the first quarter of 1997 are $51.5 million compared to
$52.0 million for the same period in 1996, representing a sales decline of 0.9%.
The first quarter of 1997 includes two less work days resulting in less time for
plant production than in the same period in 1996. The sales decline during the
first three months reflects a 4.2% growth in computer forms and a 20.3% growth
in sourced product sales partially off-set by a 8.1% decline in manual forms
sales. Approximately 70% of the growth in computer and laser forms is related to
volume increases, with the remainder attributable to price increases. The
decline in manual forms sales is off-set in part by a 3.5% average price
increase.
On February 17, 1997 Safeguard converted its order management, accounts
receivable and the associated systems to a new software and a new computer
platform. The design, development and testing of the software is a major project
that started in 1994, which provides the technological advances necessary to
rapidly response to small business marketplace's changing needs. The short-term
impact of this conversion has resulted in a delay in shipment of products
resulting in an increase in the number of orders in process. As of March 31,
1997, Safeguard's in process orders were $1.4 million higher than at December
31, 1996. Accelerated production schedules were implemented to reduce this
increase in the order processing backlog to an optimal level.
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SAN JACINTO HOLDINGS INC. AND SUBSIDIARY
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED MARCH 31, 1997
RESULTS OF OPERATIONS - Continued
GROSS PROFIT. Gross profit margin is 51.4% of net sales for the first quarter of
1997 and 53.5% in 1996. This decline in gross profit margin is attributable to a
result of the change in the Company's product mix from manual forms sales to
computer forms and sourced products. Computer forms and sourced products, high
growth product lines, carry greater material, direct labor and overhead costs
(as a percentage of sales) resulting in lower gross profit margin than for
manual forms. Overhead costs have also increased in 1997 as a result of
additional equipment costs in support of technological advances in the computer
systems.
SELLING EXPENSE. Selling expenses are $19.8 million in the first quarter of 1997
compared to $20 million for the same period in 1996, representing 38.6% and
38.5% of net sales in each period. The slight reduction in selling costs in the
first quarter, is attributable to the postponement of certain marketing
programs. Commissions to independent distributors account for approximately 80%
of total selling costs and, as a percent of total sales, has remained constant.
GENERAL AND ADMINISTRATIVE. General and administrative expenses are $4.1 million
for the first quarter of 1997 compared to $4.7 million in 1996. The decrease in
costs during the first quarter is due to legal and administrative cost
reductions.
OTHER INCOME - Distributor Receivables. Other income (cash received greater than
carrying value of Distributor receivables) is $0.5 million for the first quarter
1997 and 1996, representing 0.9% of net sales in 1997 and 1.0% in 1996. In
connection with the Company's purchase price allocation for the acquisition of
Safeguard in December 1986, the value assigned to distributor receivables
associated with loans and advances previously made by Safeguard to facilitate
the purchase of account protection rights by distributors was $4.8 million, net
of deferred interest income of approximately $7.8 million. This value was
primarily based on an independent valuation of the distributor receivables which
aggregated approximately $26.0 million as of December 31, 1986. Due to the
effect of collection and distributor advance policies instituted in 1988, the
net distributor receivables balance was reduced to zero by early 1992. Cash
collection of this distributor receivable are expected to continue in amounts
approximating $2.0 million through the year 2000.
AMORTIZATION EXPENSE. Amortization expense is $4.8 million for the first
quarters of 1997 and 1996. The expense consists primarily of the amortization of
intangible assets, including the customer list, excess purchase price over net
assets acquired and deferred financing costs.
INTEREST EXPENSE. Interest expense is $3.6 million for the first quarter of 1997
and $3.3 million for the same period in 1996. The increase in interest expense
in 1997 is attributable to the rise in the Company's average outstanding
borrowings and a rise in the Company's effective interest rate from 8% to 12%
beginning at the end of January 1996.
INCOME TAX PROVISION. The Company's provision for income tax is related to its
operations in the United Kingdom. No tax liability is incurred in the United
States as a result of net losses from operations.
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SAN JACINTO HOLDINGS INC. AND SUBSIDIARY
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED MARCH 31, 1997
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are cash flows generated from
operations, cash on hand and borrowing capacity under the revolving loans. The
Company's cash flows from operating activities is a use of funds of $1.3 million
in the first three months of 1997. As of March 31, 1997, the Company had $0.5
million in cash and cash equivalents, $2.0 million in availability under the
revolving loans and the equivalent of $0.9 million available through a line of
credit maintained by Safeguard's subsidiary in the United Kingdom. At that date,
the Company had working capital of $1.0 million and a ratio of current assets to
current liabilities of 1.02:1.
The Company's ongoing liquidity requirements arise primarily from capital
expenditures, working capital needs and debt service. The Company's capital
expenditures for the first three months of 1997 are $2.9 million in equipment
and software development. The Company anticipates total capital expenditures in
1997 of $6.0 million, which will include the completion of the installation of
an integrated computerized order entry system, the installation of sales force
automation system, and the upgrade of existing manufacturing production
equipment. These expenditures will be funded through additional capital lease
obligations and cash flow from operations.
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