SAFEGUARD SCIENTIFICS, INC.
Selected Financial Data
(in thousands except per share amounts)
1994 1993 1992 1991 1990
----------------------------------------------------------------------------------------------------------------
Net sales $1,412,026 $1,168,349 $845,018 $644,192 $449,067
Net earnings 15,740 3,853* 8,864 10,518 14,673
Earnings per share
Primary 1.54 .31 .88 1.03 1.43
Fully diluted 1.41 .21 .82 1.02 1.43
Total assets 617,155 542,824 416,299 379,955 292,742
Long-term debt 201,393 156,482 109,536 101,489 84,250
Commercial real estate debt 20,714 40,668 41,159 41,812 45,427
Shareholders' equity 110,547 88,767 91,685 84,316 74,110
The Company's strategy is to reward shareholders by direct ownership of
common stock in selected companies which are ready for public ownership.
The Company has no present intention to pay cash dividends.
Per share amounts have been retroactively restated to reflect the two-
for-one split of the Company's common shares effective September 7,
1994.
*After goodwill write-off of $6,419 or $.64 per share.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Operations Review
The 1994 operating results reflect management's continued focus on
building value in each of the operating units through the identification
and exploitation of leading market opportunities. CompuCom posted record
sales and earnings for the sixth consecutive year demonstrating the
continuing success of their strategy of providing quality products and
service to corporate customers at competitive prices. Net sales
increases of 21% and 38% in 1994 and 1993, respectively, are primarily
attributable to CompuCom's (Microcomputer Systems) 24% and 42% sales
increases for the same periods. CompuCom has continued its sales and
earnings growth and in 1994 accounted for 89% of the Company's total
sales. As a result of the relative significance of CompuCom in the
consolidated results, fluctuations in the financial results of the other
business units have tended to have a minimal impact. Increased sales at
other business units in 1994 were more than offset by the reduction in
sales as a result of the first quarter sale of Micro Decisionware and
the mid-year rights offering of Coherent stock which reduced the
Company's ownership to under 50%.
The following after-tax data reflects the components of the Company's
net earnings:
Year Ended December 31
-------------------------------------------
1994 1993 1992
-------------------------------------------
Earnings $ 4,189 $ 2,207 $ 5,986
Security gains 14,501 5,038 5,664
Minority interest (2,950) (3,392) (2,786)
-------------------------------------------
Net earnings $15,740 $ 3,853 $ 8,864
===========================================
CompuCom's 28% increase in earnings was the main contributor to the 1994
earnings improvement augmented by improved earnings at Metal Finishing
and other business units. Offsetting these increases was the Company's
share of losses at CenterCore ($10.4 million). The Company does not
anticipate that it will incur any additional significant losses as a
result of its limited future involvement with CenterCore. The 1993
earnings were negatively impacted by a $6.4 million goodwill write-off
partially offset by profit improvement at CompuCom.
Two significant transactions accounted for the vast majority of 1994
security gains. In 1994, the Company sold its 55% interest in Micro
Decisionware, Inc. to Sybase, Inc. which resulted in an after-tax gain
of $7.1 million. This gain includes the value of Sybase stock received
at the closing plus additional stock earned based on the 1994
performance of Micro Decisionware subsequent to the sale. The Company
has the potential to earn an additional $3 million net after-tax based
upon the 1995 performance of Micro Decisionware. In July 1994, the
Company and its subsidiary Coherent Communications Systems, sold 2.7
million and 800 thousand shares, respectively, of Coherent stock at $5
per share in a rights offering to the Company's shareholders. After this
sale, which resulted in a $7.8 million after-tax gain, the Company began
using the equity method of accounting for its remaining interest in
Coherent.
Gains on sales of securities for 1993 and 1992 primarily reflect the
open market sale of a portion of the Company's holdings in Novell, Inc.
and the remaining stock holdings in QVC Network, Inc. In conjunction
with the rights offering of Cambridge Technology Partners stock in 1993
the Company also recorded an after-tax gain of $2.2 million. Security
gains of varying magnitude have been realized in recent years; prior
gains are not necessarily indicative of gains which may be realized in
the future.
Most equity investment companies showed improved earnings in
1994 compared to 1993 led by Cambridge Technology Partners, Coherent
Communications Systems and Sanchez Computer Associates. Coherent
reported significantly improved operating results as sales and earnings
increased 33% and 152%, respectively, in 1994 compared to 1993. The
earnings increase excludes the impact of Coherent's 1993 goodwill write-
off. Cambridge continued its strong growth trend by recording a 96%
increase in net earnings on an 82% sales increase in 1994. During 1994
and 1993 the Company made a number of minority ownership investments in
promising businesses that are accounted for under the equity method.
Recent investments have tended to be in more mature companies than
historically has been the case. Given the increase in the number of
companies now accounted for under the equity method, a large percentage
of future operating earnings of the Company will be achieved through its
participation in the growth of these companies.
Losses from equity investments were recognized in 1993 as two
investments experienced increased losses and a new investment was made
in XL Vision, an early stage company with significant potential.
Partially offsetting these losses was improved results at Cambridge.
Segment Trends
MICROCOMPUTER SYSTEMS (CompuCom) sales increased 24% in 1994 following a
42% increase in 1993 and a 35% increase in 1992. Taking into
consideration the sale of various non-core businesses early in 1994,
sales increased 29% over 1993. The growth in sales reflects the
increased demand by corporate customers for personal computers,
particularly 486-based machines, and CompuCom's continued focus on
expanding its network and technology services at competitive prices.
Also favorably impacting CompuCom's sales increase is the weakened
financial condition of certain competitors and its strategy of
increasing service sales. Due to the relatively quick order fulfillment
cycle, CompuCom's backlog is not considered to be a meaningful indicator
of future business prospects.
Microcomputer Systems product margins as a percentage of net sales
continued to be impacted by industry wide pricing pressures created by
intense competition. The gross margin percentage was 13.6% in 1994,
14.3% in 1993 and 14.7% in 1992. Partially offsetting the negative
impact of the product margin decline was the increase in gross margin
related to the service business, which on a weighted average basis, has
become a larger percentage of gross margins when compared to 1993.
CompuCom historically has been able to offset margin decline (on a
percentage of net revenue basis) through improved efficiencies and the
control of operating expenses. Product margins in the fourth quarter
improved slightly from the first half of 1994 as a result of price
reductions by certain major manufacturers and competitors realization of
the need to increase margins to achieve an acceptable level of
profitability. CompuCom participates in certain manufacturer-sponsored
programs designed to increase sales of specific products. These
programs, excluding volume rebates, are not material to CompuCom's
overall financial results. Future margins will be influenced by
manufacturers' pricing strategies together with pressures from
competition and CompuCom's ability to continue the growth of its service
business.
INFORMATION SOLUTIONS sales declined in 1994 due to the sale of Micro
Decisionware and Coherent being accounted for under the equity method of
accounting subsequent to its July 1994 rights offering. Premier
Solutions sales increased 58% reflecting growing market acceptance of
their software solutions for the global custody industry. Tangram
Enterprise Solutions' sales were essentially flat reflecting the
company's transition from a mainframe connectivity product company to a
full service provider of distributed resource management solutions
encompassing three major computer platforms (mainframe/MVS, mini/UNIX
and micro/LAN-Server).
Information Solutions operating profits were essentially flat in 1994
compared to the prior year after considering the sale and
deconsolidation of Micro Decisionware and Coherent, respectively, and
the 1993 goodwill write-off.
The WORKSTATION AND SECURITY SYSTEMS (CenterCore) sales increase of 26%
in 1994 compared to 1993 reflects the inclusion for the entire year in
1994 of the results of Maris Equipment Company. Offsetting the sales
increase related to Maris, which was acquired in September 1993, were 6%
lower furniture sales in 1994 compared to the prior year. The lower
furniture sales reflects the continued softening in government
procurements coupled with the inability to accelerate sales to commercial
customers. The sales increase in 1993 of 16% compared to the prior year
reflects the Maris acquisition offset by declines in furniture sales due
to reduced government sales.
CenterCore reported significant 1994 losses reflecting lower than
anticipated margins or losses incurred in an effort to complete many of
the major detention and other contracts in process at the time of the
September 1993 Maris acquisition. Included in these losses was the
write-off of $2.1 million of goodwill primarily related to the Maris
acquisition. As a result, CenterCore management is pursuing a strategy
of significantly downsizing the business. In addition, Safeguard is
negotiating an agreement whereby it will contribute a portion of its
CenterCore stock to CenterCore, will sell a significant portion of its
remaining interest to CenterCore management and will provide certain
advances to address current funding requirements of CenterCore.
Safeguard's participation in the 1994 after-tax, after minority interest
losses incurred by CenterCore was $10.4 million. These losses are not
anticipated to recur based on the Company's limited future involvement
with CenterCore.
CenterCore's 1993 loss was attributable to a combination of lower
domestic furniture sales, losses from foreign operations and expenses
incurred to consolidate parts of the Canadian operations into the
domestic operations.
The continued strength of automotive customers and increased cookware
sales accounted for most of the 13% and 12% sales increase at METAL
FINISHING in 1994 and 1993, respectively, compared to the prior year.
Operating profit improved 39% in 1994 compared to 1993 due to improved
plant efficiencies.
The 1993 decline in operating profit at Metal Finishing was primarily
attributable to competitive conditions which reduced margins, a less
favorable product mix and an increase in expenses incurred in
anticipation of future growth.
Occupancy levels in COMMERCIAL REAL ESTATE properties were 94% in 1994
after excluding three properties for which negotiations are proceeding
which will result in the transfer of these properties in early 1995 to
the lenders in full satisfaction of the related non-recourse debt.
Occupancy levels for all properties were 88% in 1993 and 83% in 1992. A
gain from the sale of one building accounts for the improved operating
results in 1994 compared to 1993. The business typically generates
pretax losses from operations because of mortgage interest and
depreciation, but operates on an approximate cash break-even basis.
Cost and Expenses
Gross margin as a percentage of sales was 17% in 1994 compared to 19.5%
in 1993 and 21.4% in 1992. The lower gross margin is primarily due to
the continuing increase in microcomputer sales as a percentage of total
sales. An increase in microcomputer sales tends to reduce consolidated
margins since microcomputer margins are lower than margins realized by
other operating units.
Selling expenses as a percentage of sales decreased from 10.3% in 1992
and 9.6% in 1993 to 8.8% in 1994. General and administrative expenses as
a percentage of sales decreased from 6.5% in 1992 and 5.9% in 1993 to
5.6% in 1994. The declines in 1994 compared to 1993 reflect the
elimination of expenses due to the second quarter sale of Micro
Decisionware and the deconsolidation of Coherent. On a relative basis,
these two businesses had higher selling, general and administrative
expenses than CompuCom and the remaining businesses of the Company. Also
contributing to the lower selling, general and administrative expenses
as a percentage of sales in recent years were the improved operating
efficiencies at CompuCom. General and administrative expenses at
CompuCom are reported net of reimbursements from certain manufacturers
for specific training and marketing programs. These reimbursements
offset the expenses incurred.
Depreciation and amortization decreased $1.1 million in 1994 compared to
1993 primarily due to the 1993 goodwill write-offs. The $1.5 million
increase in 1993 compared to 1992 primarily relates to CompuCom's
investments in equipment necessary to support their sales growth.
Interest expense increased in 1994, reflecting rising interest rates in
1994 and increased borrowings at CompuCom needed to support their
significant sales growth, and for investments by the Company in new
business opportunities.
Liquidity and Capital Resources
The Company and its two largest majority-owned, public company,
operating subsidiaries -- CompuCom and CenterCore -- each maintain
separate, independent bank credit facilities with several banks. The
subsidiaries' credit facilities are non-recourse to the Company, except
that the Company has provided a $2.4 million guarantee of CenterCore's
bank debt. The subsidiaries' bank debt prohibits the payment of
dividends while the credit lines remain outstanding.
In February 1995, availability under the Company's credit facility was
increased from $50 million to $75 million and the maturity was extended
to 1998. There was $44.1 million outstanding at December 31, 1994 under
the facility which bears interest at the prime rate and/or, at the
Company's option, at LIBOR plus 2.25%. The facility is secured by a
pledge of all of the Company's publicly traded equity securities,
including common stock in certain majority owned subsidiaries, which had
an aggregate market value in excess of $245 million at December 31,
1994. Proceeds from the sales of securities, borrowings under the credit
facility and cash generated from operations were used for additional
loans to and investments in existing and new partnership companies,
including the purchase of $20 million of CompuCom convertible preferred
stock, and other working capital requirements. The Company expects its
future corporate liquidity to be generated through internal cash flow,
the sale, as required, of selected minority-owned, publicly traded
securities and borrowing under the credit facility. These sources should
be sufficient to fund the Company's cash requirements through 1995.
Proceeds from the previously mentioned 1994 Coherent rights offering
netted the Company $12.6 million. The Company's continued ownership of
2.9 million shares of Coherent as well as 3.2 million shares of
Cambridge Technology Partners enables the Company to participate in the
future growth of these companies and provides the Company with
additional sources of liquidity.
CompuCom has been able to satisfy cash requirements through the
combination of a satisfactory relationship with several banks, proceeds
from the sales of securities, internally generated funds and
subordinated debt. In March 1994, CompuCom increased its separate bank
revolving credit facility from $125 million to $150 million and extended
the maturity to March 1997. Borrowings as of December 31, 1994 under
this facility were $115 million. In addition, during 1994 the Company
purchased $20 million of CompuCom convertible preferred stock.
Negotiations are currently underway to increase CompuCom's bank credit
facility to support its projected 1995 growth.
As a result of significant operating difficulties, CenterCore has a
severe liquidity problem. CenterCore is in default of its revolving loan
facility ($8.3 million at December 31, 1994) and its term note payable
($3.6 million at December 31, 1994) to the former owners of Maris. It
has turned to its bonding companies to assume and complete certain
construction contracts and has extended its payables to vendors.
CenterCore has withdrawn from the detention security business and is
undertaking to significantly downsize its business, which may include
the sale of some or all of CenterCore's business units. Proceeds from
the sale of assets as well as an anticipated federal tax refund of $1.6
million will be used to reduce outstanding bank debt. In anticipation of
these events, the bank continues to extend credit to CenterCore under
the existing borrowing base formula. CenterCore also is negotiating with
EMCOR Group, Inc. (successor of JWP Inc.) from whom it acquired Maris to
significantly restructure the original transaction. Except for a $2.4
million guarantee of bank debt, the Company is not contractually
obligated to satisfy any of CenterCore's obligations.
CenterCore is negotiating for a release of its obligations to the
bonding companies in exchange for a nominal amount of CenterCore stock.
Pending satisfactory resolution in all of the above negotiations, the
Company is negotiating an arrangement whereby it will contribute a
portion of its CenterCore stock to CenterCore, will sell a significant
portion of its CenterCore stock to CenterCore management and will
provide certain advances to CenterCore to address current funding
requirements of the downsized business. Should CenterCore be
unsuccessful in its multiple negotiations, its ability to continue
operations will be difficult to sustain. Nevertheless, given its limited
future involvement, the Company does not expect that such events will
have a material adverse effect on the Company's liquidity or capital
resources.
The Company's operations are not capital intensive. Capital expenditures
were $11.8 million in 1994 and $17.1 million in 1993. Capital additions
are generally funded through internally generated funds or other
financing sources. There were no material asset purchase commitments at
December 31, 1994.
Financial Information -- Industry Segments
(in thousands)
------------------------------------------------------------------------------------------------------------------
1994 1993 1992
------------------------------------------------------------------------------------------------------------------
Net Sales
Information Technology
Microcomputer Systems $1,255,813 $1,015,482 $713,035
Information Solutions 53,962 67,320 56,933
Workstation and Security Systems 67,227 53,167 45,639
----------------------------------------------------------
1,377,002 1,135,969 815,607
Metal Finishing 31,135 27,650 24,654
Commercial Real Estate 3,889 4,730 4,757
----------------------------------------------------------
$1,412,026 $1,168,349 $845,018
==========================================================
Operating Profit (Loss)
Information Technology
Microcomputer Systems $ 34,702 $ 27,163 $ 18,787
Information Solutions 3,353 (1,946)* 2,640
Workstation and Security Systems (16,049) (395) 2,309
----------------------------------------------------------
22,006 24,822 23,736
Metal Finishing 2,688 1,937 2,559
Commercial Real Estate 2,565 2,237 2,413
----------------------------------------------------------
27,259 28,996 28,708
Gains on sales of securities, net 21,789 9,574 10,214
Income (loss) from equity investments 2,669 (818) (345)
Interest expense (17,468) (13,701) (13,099)
General corporate expense, net (6,171) (4,190) (4,446)
Minority interest (4,428) (6,523) (5,030)
----------------------------------------------------------
Earnings before taxes on income $ 23,650 $ 13,338 $ 16,002
==========================================================
Depreciation & Amortization
Information Technology
Microcomputer Systems $ 5,221 $ 4,640 $ 3,346
Information Solutions 6,129 8,060 8,085
Workstation and Security Systems 1,577 1,427 1,368
----------------------------------------------------------
12,927 14,127 12,799
Metal Finishing 2,044 1,837 1,578
Commercial Real Estate 1,699 1,892 1,879
General Corporate 640 566 617
----------------------------------------------------------
$ 17,310 $ 18,422 $ 16,873
==========================================================
Capital Expenditures
Information Technology
Microcomputer Systems $ 5,018 $ 6,584 $ 7,408
Information Solutions 4,066 3,354 1,872
Workstation and Security Systems 376 555 1,074
----------------------------------------------------------
9,460 10,493 10,354
Metal Finishing 1,428 4,623 3,474
Commercial Real Estate 130 468
General Corporate . 947 1,874 606
----------------------------------------------------------
$ 11,835 $ 17,120 $ 14,902
==========================================================
Assets Employed
Information Technology
Microcomputer Systems $ 434,545 $ 370,651 $259,542
Information Solutions 28,828 40,339 39,773
Workstation and Security Systems 26,413 42,371 24,058
----------------------------------------------------------
489,786 453,361 323,373
Metal Finishing 18,091 18,404 15,328
Commercial Real Estate 21,124 36,183 38,413
General Corporate 88,154 34,876 39,185
----------------------------------------------------------
$ 617,155 $ 542,824 $416,299
==========================================================
Information Technology distributes personal computers, application
software and related products and services; and designs, develops and
sells strategic business applications systems software solutions, office
furnishings and air filtration systems and provides integration and
installation of advanced electronic security systems.
Metal Finishing provides specialty metal finishing services.
Commercial Real Estate engages in the ownership, leasing and management
of commercial real estate properties. Operating profit is before
interest expense of $2,998 in 1994, $3,451 in 1993 and $4,074 in 1992.
*After a goodwill write-off of $6,419.
Consolidated Statements of Operations
(in thousands except per share amounts)
-------------------------------------------------------------------------------------------------------------
Year ended December 31
1994 1993 1992
-------------------------------------------------------------------------------------------------------------
Revenues
Net sales $1,412,026 $1,168,349 $845,018
Gains on sales of securities, net 21,789 9,574 10,214
Other income 4,616 2,698 2,430
--------------------------------------------------------
Total revenues 1,438,431 1,180,621 857,662
Costs and Expenses
Cost of sales 1,172,625 940,900 664,211
Selling 123,795 111,870 87,170
General and administrative 79,718 68,630 54,932
Depreciation and amortization 17,310 18,422 16,873
Interest 17,468 13,701 13,099
(Income) loss from equity investments (2,669) 818 345
Goodwill write-off 2,106 6,419
--------------------------------------------------------
Total costs and expenses 1,410,353 1,160,760 836,630
--------------------------------------------------------
Earnings Before Minority Interest and Taxes 28,078 19,861 21,032
Minority interest (4,428) (6,523) (5,030)
--------------------------------------------------------
Earnings Before Taxes On Income 23,650 13,338 16,002
Provision for taxes on income 7,910 9,485 7,138
--------------------------------------------------------
Net Earnings $15,740 $3,853 $8,864
========================================================
Earnings Per Share
Primary $1.54 $.31 $.88
Fully diluted $1.41 $.21 $.82
Average Common Shares Outstanding
Primary 9,813 10,046 10,100
Fully diluted 9,893 10,136 10,202
See notes to consolidated financial statements.
Consolidated Balance Sheets
(in thousands except share and per share amounts)
---------------------------------------------------------------------------------------------------
December 31
Assets 1994 1993
---------------------------------------------------------------------------------------------------
Current Assets
Cash $ 7,860 $ 9,796
Receivables less allowances ($6,466-1994; $5,480-1993) 276,034 258,734
Inventories 160,380 131,263
Other current assets 5,832 4,377
-------------------------------
Total current assets 450,106 404,170
Property, Plant and Equipment
Land 788 788
Buildings and improvements 24,183 23,689
Equipment and machinery 54,598 55,312
-------------------------------
79,569 79,789
Less accumulated depreciation and amortization 36,014 33,429
-------------------------------
43,555 46,360
Commercial Real Estate 25,538 47,460
Less accumulated depreciation 7,105 11,037
-------------------------------
18,433 36,423
Other Assets
Investments 66,310 16,663
Notes and other receivables 5,554 3,329
Excess of cost over net assets of businesses acquired 22,187 25,434
Other 11,010 10,445
-------------------------------
105,061 55,871
-------------------------------
$617,155 $542,824
===============================
See notes to consolidated financial statements.
---------------------------------------------------------------------------------------------------------------------
December 31
Liabilities and Shareholders' Equity 1994 1993
---------------------------------------------------------------------------------------------------------------------
Current Liabilities
Current commercial real estate debt $ 3,120 $ 11,038
Current debt obligations 14,041 5,461
Accounts payable 168,431 168,836
Accrued expenses 63,284 50,261
Taxes on income 374 3,078
----------------------------------
Total current liabilities 249,250 238,674
Long Term Debt 201,393 156,482
Commercial Real Estate Debt 17,594 29,630
Deferred Taxes 7,336 2,141
Other Liabilities 969 1,305
Minority Interest 30,066 25,825
Shareholders' Equity
Common stock, par value $.10 a share
Authorized 20,000,000 shares; Issued 10,933,114 shares 1,093 1,093
Additional paid-in capital 25,669 25,631
Retained earnings 91,780 76,040
Treasury stock, at cost (1994-1,449,596 shares; 1993-1,590,696 shares) (13,228) (13,997)
Net unrealized appreciation on investments 5,233
----------------------------------
110,547 88,767
----------------------------------
$617,155 $542,824
==================================
See notes to consolidated financial statements.
Consolidated Statements of Cash Flows
(in thousands)
------------------------------------------------------------------------------------------------------------------------------
Year ended December 31
1994 1993 1992
------------------------------------------------------------------------------------------------------------------------------
Operating Activities
Net earnings $ 15,740 $ 3,853 $ 8,864
Adjustments to reconcile net earnings to cash from operating activities
Depreciation and amortization 17,310 18,422 16,873
Deferred income taxes 2,500 2,598 6,670
(Income) loss from equity investments (2,669) 818 345
Gains on sales of securities, net (21,789) (9,574) (10,214)
Minority interest, net 1,536 3,933 3,057
Write-off of goodwill 2,106 6,419
------------------------------------------
14,734 26,469 25,595
Cash provided (used) by changes in working capital items
Receivables (30,828) (80,842) (18,362)
Inventories (34,350) (26,241) 586
Other current assets (555) (41) (943)
Accounts payable and accrued expenses 16,035 59,020 6,067
Taxes on income (3,280) 2,776 (1,451)
------------------------------------------
(52,978) (45,328) (14,103)
------------------------------------------
Cash provided (used) by operating activities (38,244) (18,859) 11,492
Proceeds from sales of securities, net 16,953 20,129 18,689
------------------------------------------
Cash provided (used) by operating activities and sales of securities, net (21,291) 1,270 30,181
Other Investing Activities
Business acquisitions, net of cash acquired (442) (2,202) (457)
Investments and notes acquired (19,379) (8,013) (11,059)
Expenditures for property, plant and equipment (11,835) (14,648) (14,434)
Commercial real estate costs (130) (468)
Other, net (5,719) (5,071) (4,537)
------------------------------------------
Cash (used) by other investing activities (37,375) (30,064) (30,955)
Financing Activities
Net borrowings (repayments) on revolving credit facilities 32,898 40,535 (11,682)
Net borrowings (repayments) on term debt 20,040 (4,077) 1,140
Issuance of subordinated debt, net 13,664
Repurchase of common stock (551) (8,000) (1,506)
Subsidiary repurchase of stock (1,625)
Stock options exercised 1,358 1,229 11
Stock issued by subsidiary 2,985
------------------------------------------
Cash provided by financing activities 56,730 29,687 2
------------------------------------------
Increase (Decrease) in Cash (1,936) 893 (772)
Cash -- beginning of year 9,796 8,903 9,675
------------------------------------------
Cash -- End of Year $ 7,860 $ 9,796 $ 8,903
==========================================
See notes to consolidated financial statements.
Consolidated Statements of Shareholders' Equity
(in thousands except share amounts)
-------------------------------------------------------------------------------------------------------------------------------
Net
Unrealized
Common Stock Additional Treasury Stock Appreciation
------------------- Paide-in Retained -------------------- on
Shares Amount Capital Earnings Shares Amount Investments
-------------------------------------------------------------------------------------------------------------------------------
Balance -- December 31, 1991 10,933,114 $1,093 $25,698 $63,323 747,778 $ (5,798)
Net earnings 8,864
Stock options exercised (2,000) 11
Repurchase of common stock 241,000 (1,506)
--------------------------------------------------------------------------------------------
Balance -- December 31, 1992 10,933,114 1,093 25,698 72,187 986,778 (7,293)
Net earnings 3,853
Stock options exercised (67) (196,082) 1,296
Repurchase of common stock 800,000 (8,000)
--------------------------------------------------------------------------------------------
Balance -- December 31, 1993 10,933,114 1,093 25,631 76,040 1,590,696 (13,997)
Net earnings 15,740
Stock options exercised 38 (183,100) 1,320
Repurchase of common stock 42,000 (551)
Net unrealized appreciation
on investments $5,233
--------------------------------------------------------------------------------------------
Balance -- December 31, 1994 10,933,114 $1,093 $25,669 $91,780 1,449,596 $(13,228) $5,233
============================================================================================
See notes to consolidated financial statements.
</Table
Notes to Consolidated Financial Statements
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION--The consolidated financial statements
include the accounts of the Company and its subsidiaries. Investments in
companies owned 50% or less, in which significant influence is
exercised, are accounted for on the equity method of accounting. In
1994, the Company adopted Statement of Financial Accounting Standard No.
115 (SFAS No. 115), "Accounting for Certain Investments in Debt and
Equity Securities." Certain investments accounted for under the cost
method of accounting are classified as available-for-sale and recorded
at fair value with net unrealized appreciation of $5,233,000 recorded as
a separate component of shareholders' equity, net of taxes of
$2,695,000, at December 31, 1994. All other investments are stated at
the lower of cost or net realizable value. All material intercompany
accounts and transactions have been eliminated.
INVENTORIES, primarily finished goods, are stated at the lower of
average cost or market.
PROPERTY, PLANT AND EQUIPMENT are carried at cost less accumulated
depreciation and amortization. Provision for depreciation and
amortization is based on the estimated useful lives of the assets
(buildings and improvements--3 to 33 years; equipment and machinery--3
to 12 years) and is computed primarily on the straight-line method.
COMMERCIAL REAL ESTATE construction costs and tenant required
improvements are capitalized. These costs are depreciated on the
straight-line method over a 10 or 30-year estimated useful life. Costs
incurred in connection with obtaining financing and tenant leases are
deferred and amortized over the term of the related financing or the
related lease.
EXCESS OF COST OVER NET ASSETS OF BUSINESS ACQUIRED is amortized on a
straight-line basis primarily over 10 years. Accumulated amortization at
December 31, 1994 and 1993 was $10.1 million and $8.2 million,
respectively. Assessment of the carrying amount of goodwill is made when
changing facts and circumstances suggest that the carrying value of
goodwill or other assets may be impaired using the forecasted
undiscounted cash flow from the related business activity (including
possible proceeds from a sale of the business).
TAXES ON INCOME are reduced by allowable tax credits. Deferred taxes are
accounted for using the asset and liability method of accounting for
income taxes. Under this method, deferred taxes are recognized for the
tax consequences of "temporary differences" by applying enacted
statutory tax rates applicable to future years to differences between
the financial statement carrying amounts and the tax basis of existing
assets and liabilities. The effect on deferred taxes of a change in tax
rates is recognized in income in the period the change occurs.
THRIFT PLANS are contributory and cover eligible employees of the
Company and certain subsidiaries. The Company and its subsidiaries
generally match from 50% to 75% of the first 4% of employee
contributions to the thrift plans. Annual contributions to a non-
contributory defined contribution pension plan are based on 4.5% of a
participant's eligible compensation. Amounts expensed relating to these
plans were $1,753,000, $1,491,000 and $1,529,000 in 1994, 1993 and 1992,
respectively.
EARNINGS PER SHARE of common stock are computed on adjusted net earnings
using the weighted-average number of common shares outstanding during
each year, including common stock equivalents (unless anti-dilutive)
which would arise from the exercise of stock options. Net earnings are
adjusted for the dilutive effect of common stock equivalents (primary)
and convertible securities (fully diluted) issued by the Company's
public subsidiaries.
VENDOR PROGRAMS--CompuCom receives volume rebates from manufacturers
related to sales of certain products which are recorded when earned as a
reduction of cost of goods sold. CompuCom also receives manufacturer
reimbursements for certain training and marketing activities, which are
recorded as earned as a reduction of general and administrative expense.
These reimbursements offset expenses incurred.
STOCK SPLIT--All share and per share data have been retroactively
adjusted to reflect the two-for-one split of the Company's common shares
effective September 7, 1994.
NOTE 2 - INVESTMENTS
In the following summary of investments, market value reflects the price
of minority-owned publicly-traded securities at the close of business on
December 31 of each year. In addition, unrealized appreciation primarily
reflects the net increase in the carrying value of Sybase, Inc., Novell,
Inc. and National Media Corporation as a result of the 1994 adoption of
SFAS No. 115.
1994 1993
---------------------------------------
Carrying Market Carrying Market
Value Value Value Value
---------------------------------------
($000 omitted)
Cambridge Technology Partners
(Massachusetts), Inc. $ 6,599 $75,029 $ 3,452 $50,978
Coherent Communications
Systems Corporation 4,479 47,713
Sybase, Inc. 14,923 16,340
Novell, Inc. 243 5,994 312 9,338
National Media
Corporation 2,018 3,197
Other companies 30,120 12,899
Unrealized appreciation 7,928
--------- -------
$66,310 $16,663
========= =======
The Company owns approximately 24% and 43% of Cambridge Technology
Partners and Coherent Communications Systems Corporation, respectively.
The Company's equity investees operate primarily in the information
technology industry segment. For the year ended December 31, 1994,
equity investees had aggregate net sales and net income of $219.8
million and $10 million, respectively.
Average cost is generally used to compute security gains. Security gains
are net of related costs, charges incurred in the disposition of the
investments and provisions for diminution in value of other investments.
The following summarizes significant pre-tax gains from security
transactions (in millions):
1994 1993 1992
-----------------------------------
Coherent Communications $11.7
Micro Decisionware 10.7
Cambridge Technology $ 4.2
Novell 1.6 5.4 $ 3.8
QVC Network 3.2 6.9
Other 2.9 .4
-----------------------------------
$26.9 $13.2 $10.7
===================================
In July 1994, the Company sold 2.7 million shares of Coherent common
stock at $5 per share in a rights offering to the Company's shareholders
which resulted in a pre-tax net gain of $11.7 million.
In April 1994, the Company sold its controlling interest in Micro
Decisionware, Inc. to Sybase, Inc. The transaction, including amounts
earned based on the performance of Micro Decisionware subsequent to the
sale, resulted in a pre-tax net gain of $10.7 million.
Offsetting these gains were pre-tax provisions for the diminution in
value of investments and notes of $5.1 million, $3.6 million and $.5
million in 1994, 1993 and 1992, respectively.
In connection with certain investments, the Company is contingently
obligated for approximately $9 million in bank loan and other guarantees
and $7.5 million for possible future investments.
NOTE 3 - DEBT
1994 1993
----------------------------
($000 omitted)
Revolving credit facility
and term note payable $ 44,100 $ 10,200
CompuCom secured
revolving credit facility 115,227 103,320
CompuCom 9% subordinated
obligations 18,214 17,880
CompuCom 8.10% mortgage note;
payable monthly through 2003 3,120 3,542
CenterCore secured revolving
credit facility 8,265 5,200
CenterCore secured term note
payable through 1996 3,607 3,714
Premier subordinated debentures 2,500 4,500
9.75% mortgage note;
payable monthly through 2002 3,543 3,568
Industrial Development Revenue Bonds,
due in installments through 2002 2,550 2,890
Demand notes payable to
equity investee companies 6,975
Capital lease obligations 2,296 2,648
Other 5,037 4,481
----------------------------
215,434 161,943
Current debt obligations (14,041) (5,461)
----------------------------
Long-term debt $201,393 $156,482
============================
In 1994, availability under the Company's revolving credit facility was
increased to $50 million. During 1994 and 1993, the Company borrowed a
maximum of $48.1 million and $10.9 million, respectively. The stock of
certain subsidiaries and investments is pledged as collateral for the
loan. The facility bears interest at the prime rate and/or, at the
Company's option, at the London Interbank Offered Rate ("LIBOR") plus
2.25%. The weighted average interest rate was approximately 7.1% in 1994
and 6% in 1993. In February 1995, the facility was renegotiated to
increase the availability to $75 million and extend the maturity to
January 1998.
In 1994, availability under CompuCom's bank revolving credit facility
was increased from $125 million to $150 million to fund the company's
working capital requirements associated with its continued growth. The
facility provides for a fixed rate of interest of 7.18% on up to $60
million of outstanding borrowings with an option to elect LIBOR plus
2.75% per annum, subject to certain limitations, and/or an interest rate
of .5% above the prime rate per annum for the remainder of the
outstanding borrowings. The facility matures in March 1997. During 1994
and 1993 CompuCom borrowed a maximum of $132 million and $114.6 million,
respectively, and the weighted average interest rates were 7.3% and
7.2%, respectively. The CompuCom credit facility is non-recourse to the
Company.
In 1992, CompuCom issued $18.5 million of 9% convertible subordinated
notes due September 2002. The notes are convertible into common stock at
$2.20 per share and if not converted require payments in five equal
annual installments of $3.7 million beginning in 1998. Under certain
conditions, CompuCom may prepay all or any part of the notes on or after
September 15, 1995 without prepayment penalties.
In 1994, CenterCore negotiated a new bank credit facility which matures
in May 1996. The maximum availability under the new facility is $10
million and the interest rate is prime plus 1.75%. During 1994 and 1993,
maximum borrowings under CenterCore's bank credit facility were $8.8
million and $5.7 million, respectively. The weighted average interest
rates were 8.1% in 1994 and 6.1% in 1993.
CenterCore is not in compliance with certain financial covenants under
its bank credit facility, therefore the entire balance at December 31,
1994, except for $2.4 million that is guaranteed by the Company, has
been reflected as a current obligation as the bank has the ability to
request immediate loan repayment. In addition, CenterCore has not made
the December 1994 principal and interest payment on its term loan and,
therefore, is in default on the note; accordingly, the entire balance is
due immediately and has been classified as current debt.
The credit facilities generally require some or all of the following:
the maintenance of specified levels of tangible net worth, debt to
tangible net worth and net earnings; specified interest and debt service
coverage ratios; and limitations on the amount available for dividends,
capital expenditures, investments and third party guarantees. The
aggregate net assets of subsidiaries which are restricted and
unavailable for dividends at December 31, 1994 is $57.2 million. The
credit facilities are secured by substantially all the assets of the
applicable borrower.
Premier non-interest bearing subordinated debentures of $2.5 million are
convertible into Premier common stock and are due in 1999.
The Company's variable rate Industrial Development Revenue Bonds require
sinking fund installments of $85,000 a quarter. The debentures provide a
one time option, at any time, to convert to a fixed rate of interest.
The effective interest rate in 1994 and 1993 was 5.4% and 5.2%,
respectively.
As of December 31, 1994, the Company has aggregate indebtedness of $7
million to two equity investee companies which is payable on demand.
Interest on the notes varies with prime, with a weighted average
interest rate at December 31, 1994 of 7.2%. The Company has the intent
and ability, if necessary, to repay these notes with proceeds from the
revolving credit facility; accordingly, they are classified as long
term.
Aggregate maturities of long-term debt during future years are as
follows: $14,041,000--1995; $5,523,000--1996; $116,853,000--1997;
$55,818,000--1998; $6,987,000--1999 and $16,212,000 thereafter.
Interest paid in 1994, 1993 and 1992 was $16.8 million, $14.0 million
and $13.3 million, respectively, of which $2.7 million, $3.5 million and
$4.1 million in 1994, 1993 and 1992, respectively, related to commercial
real estate debt.
NOTE 4 - COMMERCIAL REAL ESTATE DEBT
The Company has entered into loan agreements to provide financing for
its commercial real estate properties. All debt is secured by the
related property and $19.0 million of the debt at December 31, 1994 is
non-recourse financing. The following summarizes the loans as of
December 31:
1994 1993
---------------------
($000 omitted)
Permanent mortgage financing,
interest ranging from 9% to 10.5% $ 7,012 $26,823
Cash flow participation permanent
mortgage financing, interest at 7.125% 13,702 13,845
---------------------
20,714 40,668
Current real estate debt (3,120) (11,038)
---------------------
Long-term real estate debt $17,594 $29,630
=====================
Principal payments are due in future years as follows: $3,120,000--1995;
$234,000--1996; $1,686,000--1997; $170,000--1998; $13,048,000--1999 and
$2,456,000 thereafter.
The cash flow participation financing provides that the lender will
receive additional interest through participation in future cash flow of
the related property. Additional interest expense incurred was $201,000
in 1994, $78,000 in 1993 and $313,000 in 1992.
It is management's estimate that since these obligations are
substantially non-recourse the carrying value of the obligation
approximates the market value of the related properties.
In 1995 the Company has agreed to transfer three properties to the
mortgage holders in full satisfaction of the related non-recourse debt.
As a result, the carrying value of the properties and the related
mortgage debt have been offset, with the $1.6 million net credit
included in accrued expenses.
NOTE 5 - COMMERCIAL REAL ESTATE LEASES
The Company leases space in its Commercial Real Estate properties to
tenants under operating leases with terms ranging from one to ten years.
Minimum future rentals expected to be received under non-cancellable
leases are as follows: $2,070,000--1995; $1,203,000--1996; $580,000--
1997; $219,000--1998 and $176,000--1999.
The above amounts do not include additional rent from leases which
provide for pass-through of operating expenses or escalation based upon
increases in the consumer price index.
NOTE 6 - LEASES
The Company conducts a portion of its operations in leased facilities
and leases machinery and equipment under leases expiring at various
dates to 2013.
Future minimum lease payments under non-cancellable operating leases
with initial or remaining terms of one year or more at December 31, 1994
are: $7,929,000--1995; $6,787,000--1996; $5,421,000--1997; $4,096,000--
1998; $2,885,000--1999 and $5,257,000 thereafter. Total rental expense
under operating leases was $9,303,000 in 1994, $9,504,000 in 1993 and
$9,022,000 in 1992.
NOTE 7 - INCOME TAXES
The provision for income taxes at December 31 is comprised of:
1994 1993 1992
------------------------------
($000 omitted)
Currently payable $5,410 $6,694 $1,855
Tax credits (77) (197)
------------------------------
5,410 6,887 1,658
Deferred 2,500 2,598 5,480
------------------------------
$7,910 $9,485 $7,138
==============================
State taxes on income
included above $1,025 $1,378 $ 933
A reconciliation of the effective tax rate to the federal
statutory rate is as follows:
1994 1993 1992
------------------------------
($000 omitted)
Statutory tax provision $8,278 $4,668 $5,441
Increase (decrease) in
taxes resulting from:
Tax credits (77) (197)
Non-deductible goodwill
amortization/write-off 1,187 4,042 1,669
Book/tax basis difference
on securities sold (2,552)
State taxes, net of federal
tax benefit 666 896 616
Income taxed at rates other
than statutory rate 331 (44) (391)
------------------------------
$7,910 $9,485 $7,138
==============================
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1994 and 1993 are presented below.
1994 1993
-----------------------------
($000 omitted)
Deferred tax assets:
Tax loss carryforwards of subsidiaries $ 33 $ 4,183
Subsidiary/investee losses
not currently deductible 7,571 6,247
Accounts receivable allowances 716 1,220
Inventories, reserves and tax
capitalized costs 3,483 3,173
Other 817 1,062
-----------------------------
Total gross deferred tax assets 12,620 15,885
Less valuation allowance (1,935) (2,221)
-----------------------------
Deferred tax assets 10,685 13,664
-----------------------------
Deferred tax liabilities:
Accelerated depreciation (5,583) (6,396)
Tax net operating loss in
excess of book (8,116) (6,812)
Unrealized appreciation on investments (2,695)
Other (1,627) (2,597)
-----------------------------
Deferred tax liabilities (18,021) (15,805)
-----------------------------
Net deferred tax liabilities $ (7,336) $ (2,141)
=============================
The net change in the valuation allowance for the year ended December
31, 1994 was a decrease of $286,000.
Subsequently recognized tax benefits relating to the valuation allowance
for deferred tax assets as of December 31, 1994 will be reported as an
income tax benefit in the consolidated statement of operations.
Income taxes paid were $11,242,000, $5,475,000 and $3,638,000 in 1994,
1993 and 1992 respectively.
NOTE 8 - COMMON STOCK
Options may be granted to key employees under various employee stock
option plans. Generally, outstanding options vest over periods not
exceeding four years after the date of grant and expire eight years
after the date of grant. To the extent allowable, all grants are
incentive stock options. All options granted under the plans to date
have been at prices which have been equal to the fair market value at
the date of grant.
A summary of employee stock options is as follows:
1994 1993
---------------------------
Shares under option beginning of year 802,694 906,800
Options granted 195,000 114,100
Options exercised (200,968) (208,356)
Options cancelled (8,035) (9,850)
---------------------------
Shares under option end of year 788,691 802,694
===========================
Options exercisable 310,397 301,204
Shares available for future grant 498,685 685,650
Average price of shares under option $9.46 $8.36
Average price of shares exercised $7.62 $6.84
Under the Non-Employee Directors Plan, 258,000 shares are reserved for
issuance. Options to non-employee directors are required to be granted
at fair market value with an initial 20,000 share grant upon election to
the Board. Subsequent service grants and incentive grants are awarded to
all non-employee directors in accordance with formulas based upon years
of service and compensation. During 1994, 48,000 options were granted at
prices ranging from $15.75 to $17.25 and 26,000 options were exercised
at prices ranging from $13.41 to $16.22. Under this plan, 166,000
options are outstanding at option prices ranging from $4.75 to $17.25
per share, of which 70,000 were exercisable at December 31, 1994. The
options vest either 25% or 50% per year beginning on the first
anniversary of the grant and expire after eight years.
In addition, each non-employee director elected to the Board prior to
the 1989 adoption of the Non-Employee Directors Plan was granted a non-
qualified stock option to purchase 20,000 shares of the Company's common
stock at option prices ranging from $7 to $7.63 a share, which was the
fair market value of the stock at the dates of grant. There are 80,000
outstanding and exercisable options at December 31, 1994 which expire
not later than 1996.
At December 31, 1994, the Company reserved 1,625,376 shares of common
stock for possible future issuance under all stock option plans and
grants. Several subsidiaries also maintain stock option plans for their
employees and directors.
In 1988, the Board of Directors adopted a Shareholders' Rights Plan and
declared a dividend of one right for each share of the Company's common
stock held of record on April 11, 1988. If a person or group acquires or
commences a tender offer for 20% or more of the outstanding common
stock, each right will become exercisable until April 11, 1996, subject
to certain exceptions, and will entitle each holder (other than the
acquiring person or group) to buy one share of common stock of the
Company at an exercise price of $30 per share. If any person or group
acquires 20% or more of the common stock and the Board does not redeem
the rights within 20 days thereafter, a holder of the right (other than
the acquiring person or group) will be able to buy, for the exercise
price, the number of shares of common stock which have an aggregate
market value of twice the exercise price. Similarly, if the Company is
involved in certain mergers or major sales of its assets, a holder of
the right will be able to purchase, for the exercise price, the number
of shares of the acquiring company's common stock which has an aggregate
value of twice the exercise price of the right.
NOTE 9 - PREFERRED STOCK
Shares of preferred stock, par value $10 a share, are voting and are
issuable in one or more series with rights and preferences as to
dividends, redemption, liquidation, sinking funds and conversion
determined by the Board of Directors. At December 31, 1994, there were
55,423 shares authorized and none outstanding.
NOTE 10 - ACQUISITIONS
On September 22, 1993, CenterCore purchased substantially all of the
assets and certain liabilities of Maris Equipment Company (Maris), a
wholly owned subsidiary of EMCOR. The purchase price was a fixed amount
of $4.3 million plus a contingent payment based on Maris' earnings
through June 1997 and the possible recovery of certain contract related
amounts reserved against the acquired assets. The fixed portion was
funded by a note payable to EMCOR for $3.95 million and $350,000 in cash
at closing. The acquisition was accounted for by the purchase method of
accounting, and accordingly, the purchase price was allocated to the
assets acquired and the liabilities assumed based on the estimated fair
values at the date of acquisition. The excess of cost over net assets of
businesses acquired increased $1,955,000 as a result of the acquisition.
NOTE 11 - GOODWILL WRITE-OFF
The Company acquired a majority interest in Premier Solutions Ltd. in
1990. In 1993, it became apparent that technological advances in
computer design, the rapidly accelerating movement toward client/server
computing and the development cost associated with re-engineering its
product impeded the ability of the existing product to generate adequate
future earnings to recover the unamortized goodwill. These changes
caused the Company to write-off the remaining intangible asset of $5.3
million in 1993.
The Company acquired a majority interest in Coherent Communications
System Corporation in 1981. In 1993, the Company identified a clear
deterioration of the analog business originally acquired in 1981. This
deterioration caused the Company to write-off the remaining intangible
asset of $1.1 million in 1993.
Due to the significant losses incurred at CenterCore in 1994, it became
apparent that prospective undiscounted cash flows would not be
sufficient to recover unamortized goodwill related to prior year
CenterCore acquisitions, primarily the September 1993 acquisition of
Maris. Accordingly, CenterCore wrote-off goodwill of $2.1 million in the
fourth quarter of 1994.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
Safeguard is negotiating an agreement whereby it will contribute a
portion of its ownership in CenterCore to the company, sell a
significant portion of its remaining interest in CenterCore to its
management and provide certain advances to address current funding
requirements of CenterCore.
The Company and its subsidiaries are involved in various claims and
legal actions arising in the ordinary course of business. In the opinion
of management, the ultimate disposition of these matters will not have a
material adverse effect on the Company's consolidated financial
position.
Independent Auditors' Report
The Board of Directors and Shareholders
Safeguard Scientifics, Inc.
Wayne, Pennsylvania
Logo of KMPG in Italic in front of 4 boxes followed by Peat Marwick LLP
We have audited the accompanying consolidated balance sheets of
Safeguard Scientifics, Inc. and subsidiaries as of December 31, 1994 and
1993, and the related consolidated statements of operations, cash flows
and shareholders' equity for each of the years in the three-year period
ended December 31, 1994. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Safeguard Scientifics, Inc. 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.
As discussed in note 1, the Company changed its method of accounting for
investments by adopting the provisions of Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" as of January 1, 1994.
/s/ KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
February 16, 1995
Statement of Management's Financial Responsibility
Logo of Eagle followed by Safeguard Scientifics, Inc.
Management has prepared and is responsible for the integrity and
objectivity of the consolidated financial statements and related
financial information in this Annual Report. The statements are prepared
in conformity with generally accepted accounting principles. The
financial statements reflect management's informed judgment and
estimation as to the effect of events and transactions that are
accounted for or disclosed.
Management maintains a system of internal control at each business unit.
This system, which undergoes continual evaluation, is designed to
provide reasonable assurance that assets are safeguarded and records are
adequate for the preparation of reliable financial data. In determining
the extent of the system of internal control, management recognizes that
the cost should not exceed the benefits derived. The evaluation of these
factors requires estimates and judgment by management.
KPMG Peat Marwick LLP is engaged to render an opinion as to whether
management's financial statements present fairly, in all mate-rial
respects, Safeguard Scientifics' financial condition and operating
results in accordance with generally accepted accounting principles. The
scope of their engagement included a review of the internal control
system, tests of the accounting records and other auditing procedures to
the extent deemed necessary to render their opinion on the financial
statements. Their report is presented above.
The Audit Committee of the Board of Directors meets with the independent
auditors and management to satisfy itself that they are properly
discharging their responsibilities. The auditors have direct access to
the Audit Committee.
Safeguard Scientifics, Inc.
/s/ Gerald M. Wilk
Gerald M. Wilk
Vice President-Finance
Quarterly Financial Data
(in thousands except per share data)
In the opinion of the Company, the following unaudited quarterly data
includes all adjustments (consisting of only normal recurring
adjustments) necessary for a fair presentation of operations for such
periods.
Quarter Ended
---------------------------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
---------------------------------------------------------------
1994
Net Sales $324,646 $346,198 $343,366 $397,816
After-tax Operating Earnings (Loss)* 2,749 1,896 2,436 (2,892)
After-tax Security Gains 1,338 2,712 6,287 4,164
Net Earnings 3,283 3,808 7,569 1,080
Earnings Per Share
Primary .32 .37 .76 .09
Fully Diluted .30 .35 .73 .04
1993
Net Sales $232,343 $271,937 $291,083 $372,986
After-tax Operating Earnings (Loss)* 1,220 1,544 1,960 (2,517)
After-tax Security Gains 2,604 2,047 387
Net Earnings (Loss) 3,336 2,842 1,643 (3,968)
Earnings (Loss) Per Share
Primary .31 .26 .15 (.46)
Fully Diluted .30 .24 .12 (.50)
*Before security gains and minority interest.
Included in the fourth quarter of 1994 are after tax, after minority
interest losses of approximately $7 million related to CenterCore which
are not expected to recur based on the Company's expected limited future
involvement with CenterCore.
Included in the fourth quarter of 1993 is a $6,419 goodwill write-off.
Net security gains of varying magnitude have been realized in recent
years; prior gains are not necessarily indicative of gains which might
be realized in the future.
Earnings per share calculations for each of the quarters are based on
the weighted average number of shares outstanding in each period and
adjust net earnings (loss) for the dilutive effect of public subsidiary
common stock equivalents (primary) and convertible securities (fully
diluted). Therefore, the sum of the quarters does not necessarily equal
the year-to-date earnings per share.
Sales are typically higher in the fourth quarter of each year,
reflecting the historically stronger fourth quarter results at CompuCom,
the Company's largest subsidiary.
Common Stock Data
Safeguard Scientifics, Inc.
Common Stock Listed on New York Stock Exchange
Symbol SFE
1994 1993
-----------------------------------------------------------
High Low High Low
-----------------------------------------------------------
First Quarter 15 11 7/16 11 3/4 8 13/16
Second Quarter 17 1/2 12 11/16 11 3/16 8 1/2
Third Quarter 15 3/8 12 11/16 11 8 5/8
Fourth Quarter 17 7/8 13 3/8 13 10 5/8
There are approximately 5,500 holders of the Company's common stock.