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Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996 Commission File Number 1-5620
SAFEGUARD SCIENTIFICS, INC.
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(Exact name of Registrant as specified in its charter)
Pennsylvania 23-1609753
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
800 The Safeguard Building
435 Devon Park Drive, Wayne, PA 19087
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (610) 293-0600
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of Each Class on which registered
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Common Stock ($.10 par value) New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_____]
Aggregate market value of voting stock held by non-affiliates (based on the
closing price on the New York Stock Exchange) on March 20, 1997 was
approximately $481 million. For purposes of determining this amount only,
Registrant has defined affiliates as including (a) the executive officers
named in Part III of this 10-K report, (b) all directors of Registrant, and
(c) each shareholder that has informed Registrant by March 20, 1997 that it
is the beneficial owner of 10% or more of the outstanding common stock of
Registrant.
Indicate the number of shares outstanding of each of the Registrant's classes
of Common Stock, as of March 20, 1997:
Common Stock: 31,417,483 shares
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference in this Form 10-K:
PART I
Item 1(b) Page 33 of the Annual Report to Shareholders for the year
ended December 31, 1996, which page is filed as part of
Exhibit 13 hereto.
PART II
Items 5, 6,
7 and 8 Pages 28 to 45 of the Annual Report to Shareholders for the
year ended December 31, 1996, which pages are filed as
part of Exhibit 13 hereto.
PART III
Items 10, 11,
12 and 13 Definitive Proxy Statement relative to the May 8, 1997
annual meeting of shareholders of Registrant, to be filed
within 120 days after the end of the year covered by this
Form 10-K Report.
PART IV
Item 14(a) Pages 33 to 45 of the Annual Report to Shareholders for the
Consolidated year ended December 31, 1996, which pages are filed as
Financial part of Exhibit 13 hereto.
Statements
PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF THE BUSINESS
OVERVIEW
Safeguard Scientifics, Inc. ("Safeguard" or the "Company") is engaged
primarily in the business of identifying, acquiring interests in, and
developing partnership companies, most of which are engaged in information
technology businesses, broadly defined to include all activities related to
the acquisition, warehousing, processing and dissemination of information and
related technology to improve business and personal productivity. The most
significant of Safeguard's partnership companies are engaged in the delivery
of personal computer services, including procurement and configuration of
personal computers, application software and related products, network
integration, and technical support. In addition, partnership companies in
the information technology industry are engaged in outsourcing and the
development and sale of strategic business software and services, imaging
equipment and software and telecommunications technology. The Company also
has a division that provides specialty metal finishing.
Safeguard develops these partnership companies by providing active strategic
management, operating guidance, acquisition and disposition assistance, board
and management recruitment, and innovative financing. The Company realizes
value for its shareholders by the appreciation of the Company's Common Stock,
by taking partnership companies public (generally through an offer to
Safeguard shareholders of rights to purchase stock of the partnership company
in its initial public offering [a "rights offering"]), through the continued
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operations of partnership companies and through the sale of partnership
companies. The partnership company generally sells newly-issued shares in a
rights offering, although Safeguard sometimes sells some of its shares in the
rights offering as well. In either case, after taking a partnership company
public, Safeguard generally retains a significant ownership interest and
board representation, and continues to provide strategic, managerial, and
operational support. During the four years ended December 31, 1996,
Safeguard's shareholders were given the opportunity to participate in rights
offerings for Cambridge Technology Partners (Massachusetts), Inc., Coherent
Communications Systems Corporation, USDATA Corporation, Integrated Systems
Consulting Group, Inc., and Sanchez Computer Associates, Inc. In February
1997 a rights offering commenced for Diamond Technology Partners,
Incorporated which is expected to be completed in March 1997.
STRATEGY
Safeguard seeks to identify companies which are capable of being market
leaders in segments of the information technology industry and which are at a
stage of development that would benefit from Safeguard's business development
and management support, financing, and market knowledge. Safeguard generally
invests in companies in which it can purchase a large enough stake to enable
it to have significant influence over the management and policies of the
company and to realize a large enough return to compensate it for its
investment of management time and effort, as well as capital.
Safeguard gains exposure to emerging companies through its reputation as a
historically successful developer of information technology companies, its
relationship with seven venture capital and private equity funds, Radnor
Venture Partners, Technology Leaders I, Technology Leaders II, TL Ventures
III, SCP Private Equity Partners, Safeguard International Fund, and EnerTech
Capital Partners, as well as through its sponsorship of such organizations as
the Eastern Technology Council and entrepreneurial centers at Lehigh
University, Temple University and the University of Pennsylvania. Safeguard
considers its access to potential partnership companies to be good.
Emerging companies traditionally seek financing for growth from two primary
sources: independent private venture capital funds and corporate strategic
investors. Each of these sources has disadvantages for the emerging company.
Venture capital funds generally are established for a limited term and their
primary goal is to maximize their financial return within a short time frame.
A venture capital fund often seeks to liquidate its investment in the
emerging company by encouraging either an early initial public offering or a
sale. In addition, traditional venture capital funds generally have limited
resources available to provide managerial and operational support to an
emerging company.
Corporate strategic investors are typically large corporations that invest in
emerging companies to obtain access to a promising product or technology
without incurring the initial cost of development or the diversion of
managerial time and attention necessary to develop new products or
technologies. Often these investments involve both financing support to the
emerging company as well as an arrangement under which the strategic investor
obtains access to the products or technology of the emerging company. While
strategic investors are generally able to provide business development
support, the rationale behind the investment of a strategic investor may be
incompatible with the development of the emerging company. Strategic
investors often discourage the emerging company from becoming a public
company.
Safeguard believes that its relationship with its partnership companies
offers the benefits of both the venture capital model and the strategic
investor model without the related drawbacks. Safeguard has both the capital
and managerial resources to provide financing and strategic, managerial, and
operational support as needed by an emerging company. In addition, Safeguard
encourages emerging companies to achieve the superior returns on investment
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generally provided by public offerings, but only if and when it is
appropriate for the development of the business of that emerging company.
Because of Safeguard's unique process of taking partnership companies public
through "rights offerings" to Safeguard shareholders, as described below,
Safeguard continues to support its partnership companies after their initial
public offerings. This support is often crucial to help a company adjust to
the challenges imposed by the public financial markets.
Safeguard's corporate staff provides hands-on assistance to the managers of
its partnership companies in the areas of management, financial, marketing,
tax, risk management, human resources, legal and technical services.
Safeguard has assisted partnership companies by providing or locating and
structuring financing, identifying and implementing strategic initiatives,
providing marketing assistance, identifying and recruiting executives,
assisting in the development of equity incentive arrangements for executives
and employees, and providing assistance in structuring, negotiating,
documenting, financing, implementing and integrating mergers and
acquisitions. Safeguard is committed to the use of management stock ownership
and equity incentives as the principal means of aligning the interests of
management of its partnership companies with the interests of Safeguard and
its shareholders.
Safeguard also provides a supportive environment to the managers of its
partnership companies by organizing numerous opportunities for them to
interact with managers of other partnership companies to share strategies,
ideas, and insights and to forge business relationships. Twice a year
Safeguard gathers the senior managers of all of its partnership companies,
both private and public, for a "Senior Partners" conference. Safeguard also
convenes periodic "CFO Forums" for senior financial managers of the
partnership companies and occasional sessions on more specific topics.
Safeguard's goal is to maximize the value of its partnership companies for
Safeguard's shareholders, often through taking its partnership companies
public through a rights offering at the appropriate time. A rights offering
is an initial public offering of a partnership company, directed to
Safeguard's shareholders. It involves the grant to Safeguard's shareholders
of transferable rights to buy shares of the partnership company's stock at a
price established by the partnership company, Safeguard, and the underwriter.
Safeguard shareholders are able to exercise the rights, thereby
participating in initial public offerings of high-growth technology companies
which are usually reserved for large institutional investors, or they may
sell the rights at the prevailing market price. Safeguard generally retains
significant ownership in its partnership companies after taking them public.
Safeguard generally also retains significant participation on the company's
board of directors. Between Safeguard's direct continuing interest in its
public partnership companies and the strong identification in the public
financial markets of the companies as "Safeguard rights offering" companies,
Safeguard retains a substantial interest in the continuing success of the
companies after their IPOs, and substantial influence over their management
and strategic direction. Growth in the value of the public partnership
companies benefits Safeguard and also directly benefits its shareholders who
continue to hold the shares purchased in the rights offering.
In recent years, Safeguard has leveraged its financial resources to increase
the number and size of its partnership companies by acquiring substantial
minority ownership interests rather than majority interests in many of its
partnership companies. In many of these cases, Safeguard, either alone or in
conjunction with its associated venture funds, is the largest single
shareholder, and exercises significant influence over the company. Safeguard
also generally obtains significant board representation in these companies.
Safeguard accounts for these companies under the equity method of accounting,
recording its share of the company's net earnings or losses under the caption
"Income from equity investments" in the consolidated statements of operations.
Safeguard's equity investee companies have become increasingly important to
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Safeguard's operations and success in recent years relative to its
consolidated subsidiaries.
RECENT DEVELOPMENTS
Consolidated net sales for 1996 were $2.1 billion, a 36% increase over 1995.
The increase was primarily due to the growth of CompuCom Systems, Inc., the
Company's largest business unit. CompuCom's share of the Company's
consolidated net sales has risen steadily from 76% in 1990 to 97% in 1996.
CompuCom is a leading provider of distributed desktop computer products and
network integration services to large- and medium-sized businesses throughout
the United States. The Company took CompuCom public through a rights
offering in 1985, and currently owns approximately 50% of the common stock
and up to 60% of the voting interests in CompuCom.
In 1996, Safeguard acquired interests in six new partnership companies.
Safeguard intends to continue its strategy, begun in 1996, to seek to
establish new relationships each year with only a select number of larger,
later stage partnership companies and to acquire and retain a larger
ownership percentage in the companies.
The Company successfully completed rights offerings in 1996 for Integrated
Systems Consulting Group, Inc., a leading provider of custom software
development and systems integration services to the pharmaceutical industry,
and for Sanchez Computer Associates, Inc., a leading provider of electronic
banking software products, including PROFILE-Registered Trademark-/Anyware,
an electronic platform for direct banking services.
In February 1997, the Company commenced a rights offering for Diamond
Technology Partners, Inc., a provider of business consulting services based
on information technology.
In February 1996, Safeguard completed the private placement of $115 million
of 6% Convertible Subordinated Notes ("Notes") due February 1, 2006 to J.P.
Morgan Securities, Inc. J.P. Morgan resold the Notes to institutional buyers
and in offshore transactions. The Notes are convertible into Safeguard
Common Stock at $28.985 per share. As of March 1997, approximately $24
million of the Notes had been converted into approximately 832 thousand
shares of common stock.
Four new venture capital and private equity funds associated with the Company
were formed in 1996, raising a total of $500 million of committed capital.
In addition, Safeguard organized Internet Capital Group LLC to focus
exclusively on investment opportunities in the Internet.
During 1996, CompuCom increased the capacity under its bank credit facilities
from $175 million to $325 million, extended the maturity date generally to
September 1999, and negotiated reductions in the effective interest rate of
the facilities.
In 1996, Safeguard also extended its $100 million credit facility to May
2000. The Company anticipates increasing the availability under the credit
facility in 1997.
The Company completed the sale of its commercial real estate operations to
Brandywine Operating Partnership ("BOP"), a subsidiary of Brandywine Realty
Trust (the "REIT"). The Company received common stock and warrants in the
REIT and units in BOP which are convertible into common stock of the REIT.
Nichols' real estate management operations were also merged into an affiliate
of the REIT. The REIT's Common Stock is publicly traded on the American
Stock Exchange.
A number of partnership companies completed mergers and acquisitions to
further their growth and achieve critical mass, including: the merger of
MicroDynamics Ltd. into FormMaker Software, Inc., which is currently in the
process of
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completing a merger with Information Sciences, Inc. to create a powerful
document automation solutions provider to be known as DocuCorp International;
the merger of Value Sourcing Group into Sentry Technology Group to achieve
synergies between VSG's consulting services and Sentry's publishing and
market research capabilities; Intellisource's acquisition of Supply Chain
Solution; and Cambridge's acquisition of Ramos & Associates and NatSoft.
Several partnership companies released innovative new products, including
Sanchez Computer Associates, which released Profile-Registered
Trademark-/Anyware, an electronic banking software product; Tangram
Enterprise Solutions, which released Asset Insight-TM-, an asset tracking and
management software product; and USDATA, which released its new
FactoryLink-Registered Trademark- Enterprise Control System-TM- on both
Windows and UNIX platforms.
Pioneer Metal Finishing acquired land and obtained tax-exempt financing to
begin construction on a new metal finishing facility in Monroe, Michigan.
XL Vision completed a spin-out of its MicroVision Medical Systems division
into a new subsidiary, which then completed a private placement to XL
Vision's shareholders to raise equity financing. As a result of this
innovative transaction, MicroVision is now an independent company with a
strong management team focused on pursuing its exciting market opportunities
in medical diagnostics and research.
The Company helped complete a debt workout for RMS Technologies involving a
transfer of its principal business assets to a new entity, RMS Information
Systems, with a substantially strengthened balance sheet, and an exit from
RMS' money-losing business. The transaction enables RMS to pursue growth in
the commercial outsourcing, integration and facilities management markets.
In March 1997, the Company announced that it has signed a letter of intent to
sell a majority of the assets of Premier Solutions Ltd.
ITEM 1 (b). FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Information on net sales, operating profit, depreciation and amortization,
capital expenditures and assets employed for each segment of the Company's
business for the three-year period ended December 31, 1996 is contained under
the caption "Financial Information--Industry Segments" on page 33 of the
Company's Annual Report to Shareholders for the year ended December 31, 1996,
which page is filed as part of Exhibit 13 hereto and is incorporated herein
by reference.
ITEM 1 (c). NARRATIVE DESCRIPTION OF BUSINESS
OVERVIEW OF BUSINESS SEGMENTS
Safeguard and its majority owned subsidiaries have operations in two industry
segments: Information Technology and Metal Finishing. During 1996 the Company
sold its Commercial Real Estate operations. Over 98% of the Company's sales
in 1996 were in the Information Technology segment, which consists of:
Microcomputer Systems and Services (the delivery of personal computer
services, including procurement and configuration of personal computers,
application software and related products, network integration, and technical
support); and Information Solutions (the design, development and sale of
systems software solutions for strategic business applications). In
Microcomputer Systems and Services, the Company operates through its
majority-owned subsidiary, CompuCom Systems, Inc. and its subsidiaries
("CompuCom"). In Information Solutions, the Company operates through its
majority owned subsidiaries, Premier Solutions Ltd. and its subsidiaries
("Premier"), and Tangram Enterprise Solutions, Inc. ("Tangram"). CompuCom and
Tangram are both publicly held companies, while Premier is privately held.
The Company also actively participates in numerous additional private and
public information technology companies in which it holds significant
minority ownership interests.
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The Company's Metal Finishing segment provides specialty metal finishing
services to a variety of industries. The Company also provides venture
capital management services.
INFORMATION TECHNOLOGY SEGMENT
Microcomputer Systems and Services
CompuCom is a leading provider of distributed desktop computer products and
network integration services to large- and medium-sized businesses throughout
the United States. CompuCom helps its customers, which include primarily
Fortune 1000 companies and other large businesses, manage information
technology to achieve their business goals by providing a wide range of
services in provisioning, support, and technology management. Products and
services are sold by a direct sales force to over 5,000 business customers
through approximately 40 sales and service centers located in and serving
large metropolitan areas nationwide.
CompuCom is an authorized dealer of major distributed desktop computer
products for a number of manufacturers, including Compaq Computer Corporation
("Compaq"), International Business Machines Corporation ("IBM"),
Hewlett-Packard Company ("HP"), Toshiba America Information Systems, and
Apple Computer Corporation. CompuCom also offers a broad selection of
networking and related products, computer-related peripheral equipment and a
range of computer equipment and software from a number of vendors, including
3Com Corporation, Digital Equipment Corporation, Intel Corporation, Kingston
Technology Corporation, Lotus Development Corporation, Microsoft Corporation,
NEC Technologies, Inc., and Novell, Inc. To further meet the needs of its
customers, CompuCom provides a variety of services including LAN/WAN project
services, consulting, network management, help desk, field engineering, and
configuration and product procurement utilizing network applications such as
Novell Netware, Windows NT Server, Windows and Windows 95, IBM's OS/2 Warp
and LAN Server.
Net sales for CompuCom have grown at a compounded rate of 29% over the past
five years, while net earnings have grown by 43% compounded annually over the
same period. Excluding an after-tax, non-recurring, securities-related gain of
$5.2 million in 1996, net earnings over that period have grown at a
compounded rate of 37%. CompuCom's strong sales and net earnings performance
is a result of its continued focus on customer satisfaction, along with the
enhancement of its product and services capabilities created by a strategy of
growth through existing operations and strategic acquisitions. CompuCom's
target customers are becoming increasingly dependent on information
technology to compete effectively in today's markets. As a result, the
decision making process that organizations face when planning, selecting and
implementing technology solutions is becoming more complex and requires many
of these organizations to outsource the management and support of their
technology needs.
CompuCom markets its product procurement, configuration, field engineering,
network management, help desk services, and technology management services
primarily through its direct sales force and service personnel, operating
through approximately 40 sales and service centers. CompuCom focuses on
meeting the business objectives of large corporate businesses, which
accounted for the majority of CompuCom's net sales in 1996. However, no one
customer accounted for in excess of 10% of such sales.
CompuCom provides support to its customers primarily through its customer
center, located in Dallas, Texas. Customer center personnel, called inside
sales representatives ("ISRs"), may be assigned to specific customers or
geographic areas and are knowledgeable about computer technology. Each ISR
works closely with the customer and the CompuCom sales representative to keep
up to date on the business needs of that customer, and to provide the
customer with information about product availability, services, pricing,
shipping and invoicing via a toll-free telephone number. The primary goal of
the customer center is to provide greater support to CompuCom's customers
while allowing
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CompuCom's direct sales force to focus on soliciting new business and
providing the necessary support for the customer's more complex service
needs. As of December 31, 1996, CompuCom employed 240 full-time direct sales
representatives and 450 customer center personnel, of whom approximately 325
worked at the customer center in Dallas and approximately 125 worked on-site
at certain customer locations.
During 1996, services net sales increased 68% due to CompuCom's continued
efforts to focus on increased sales of services to meet customer needs and to
improve profitability. These on-going efforts included: additional training
was provided for system engineers; management provided greater support to the
services group; additional corporate resources were allocated to support the
services group; and the compensation plan of branch general managers and
sales representatives placed greater emphasis on sales of services. In
addition, CompuCom emphasized the hiring of quality services personnel,
increasing the number of its services employees from approximately 1,200 at
the end of 1995 to almost 2,000 by year-end 1996. To further enhance its
service growth, CompuCom began in mid-1996 a campus recruiting campaign
whereby CompuCom hired approximately 120 technology college graduates and
placed them in a six-month engineering training program. CompuCom's sales
from its services business currently represent 9% of its total sales. The
services business is an integral part of CompuCom's strategy to provide
customers with the value-added service solutions to meet their technology
needs.
To further enhance the quality and efficiency of its information systems,
CompuCom has developed a state-of-the-art data warehouse, which increases the
ease with which CompuCom personnel can access historical information and
create customized customer and vendor reports. During 1996, CompuCom made
significant enhancements to its data warehouse by implementing Internet-based
capabilities, which give its customers the ability to directly access order
status and shipment history. This electronic commerce tool, which won a Best
Practices award from the Data Warehouse Institute, also gives customers the
ability to create custom-priced quotations for new orders from an
Internet-based catalog of products, and gives CompuCom's principal vendors
access to product sales history and inventory levels. CompuCom plans to
extend its Internet capabilities during 1997 by implementing Internet-based
order placement and purchased asset lookup. Plans also include improved
product sales information reporting for principal vendors, real time open
call status reporting for service customers, and implementation of a customer
management and event tracking system to be used by customer center personnel.
CompuCom's two distribution centers are highly automated and employ advanced
inventory management and order processing technologies that allow CompuCom to
configure desktop computer products and receive, process and ship customer
orders accurately and efficiently. During 1996, CompuCom tripled its
configuration capacity by relocating its Eastern distribution center to a
300,000 square foot facility in Paulsboro, New Jersey.
The distribution, configuration, and product services departments completed
ISO 9002 certification in 1995. During 1996, CompuCom's returned merchandise
center completed ISO 9002 certification. ISO 9002 is part of the ISO 9000
set of standards developed by the International Organization of
Standardization ("ISO"), which represent common international business
quality standards designed to help demonstrate the capability of a supplier
to control the processes that determine the acceptability of the product
being delivered.
A major portion of CompuCom's sales are derived from sales of distributed
desktop computer products. During 1996, CompuCom's principal suppliers were
Compaq, IBM and HP. CompuCom's agreements with these vendors contain
provisions providing for periodic renewals and permitting termination by the
vendor without cause, generally upon 30 to 90 days written notice, depending
upon the vendor. Since 1987, Compaq, IBM and HP have regularly renewed their
respective dealer agreements with CompuCom, although there can be no
assurance that the regular renewals of CompuCom's dealer agreements will
continue. The
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termination, or non-renewal, of CompuCom's Compaq, IBM, or HP dealer
agreements, or all, would materially adversely affect CompuCom's business.
CompuCom, however, is not aware of any reason for the termination, or
non-renewal, of any of those dealer agreements and believes that its
relationships with Compaq, IBM and HP are satisfactory.
CompuCom purchases products from Compaq, IBM and HP at pricing levels which
CompuCom believes are the lowest prices available to those vendors'
respective dealers with the exception of special bid pricing for specific
large customer accounts. All of CompuCom's principal suppliers require that
CompuCom purchase certain minimum volumes of products in a specified period
to maintain favorable pricing levels. CompuCom also obtains favorable terms
from Compaq, IBM and HP by participating in certain vendor programs offered
by those suppliers. CompuCom has certain selling, promotional and related
expenses reimbursed by vendors under dealer programs offered by those and
other suppliers. However, there can be no assurance that any of these
programs will continue in 1997 or that CompuCom will continue to participate
in any of these programs at the same level as in 1996.
Sales of Compaq, IBM and HP products accounted for approximately 30%, 15% and
11%, respectively, of 1996 net sales in the Information Technology segment
compared to 27%, 15% and 10%, respectively, in 1995 and 24%, 18% and 10%,
respectively, in 1994.
Due to the rapid delivery requirements of its customers and to assure itself
of continuous allotment of products from suppliers, CompuCom maintains
adequate levels of inventory funded through its credit facilities and vendor
credit. Its major suppliers at times provide price protection programs to
CompuCom that are intended to reduce the risk of inventory devaluation by
absorbing temporary price reductions and long-term price declines associated
with aging product life cycles. CompuCom also has the option of returning a
certain percentage of its current product inventories each quarter to these
principal suppliers as it assesses each product's current and forecasted
demand schedule. If such returns exceed certain specified levels, CompuCom
may be charged restocking fees of up to 5%. CompuCom did not incur any
significant restocking fees in 1996.
CompuCom is dependent upon the continued supply of products from its
suppliers, particularly Compaq, IBM and HP. Historically, certain suppliers
occasionally experience shortages of select products that render components
unavailable or necessitate product allocations among resellers. While
certain shortages existed throughout 1996, CompuCom believes the product
availability issues are a result of the present dynamics of the desktop
computer industry as a whole, which include high customer product demand,
shortened product life cycles and increased frequency of new product
introductions into the marketplace. While there can be no assurance that
product unavailability or product allocations, or both, will not increase in
1997, the impact of such an interruption is not expected to be unduly
troublesome due to the breadth of alternative product lines available to
CompuCom and CompuCom's established programs to accelerate configuration and
delivery times when such events occur.
CompuCom is engaged in fields within the desktop computer industry which are
characterized by a high level of competition. Many established desktop
computer manufacturers (including some of CompuCom's own vendors), systems
integrators and other resellers of distributed desktop computer or networking
products, including Entex Corporation, InaCom Corp., Microage, Inc. and
Vanstar Corporation, compete with CompuCom in the configuration and
distribution of computer systems and equipment. In addition, the desktop
computer reseller industry is characterized by intense competition, primarily
in the areas of price, product availability and breadth of product line. In
the highly fragmented computer services area, CompuCom competes with several
larger competitors, other corporate resellers pursuing high-end services
opportunities, as well as several smaller computer services companies. Some
of CompuCom's competitors have financial, technical, manufacturing, sales,
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marketing and other resources that are substantially greater than those of
CompuCom. Although CompuCom believes it currently competes favorably within
the desktop computer reseller industry, there can be no assurance that
CompuCom will be able to continue to compete successfully with new or
existing competition.
Product margins declined in the second half of the year, compared to the
first half, primarily due to pricing to win new business and increased
pricing pressures from competition. CompuCom believes that gross margins
will continue to be reactive to industry-wide changes. Future profitability
will depend on the ability to retain and hire quality service personnel while
effectively managing the utilization of such personnel, competition,
increased focus on providing technical service and support to customers,
manufacturers' pricing strategies, and product availability, as well as
CompuCom's control of operating expenses and effective utilization of vendor
programs.
Information Solutions
The Company has two majority owned subsidiaries in the Information Solutions
field at December 31, 1996: Tangram and Premier. In March 1997, the Company
entered into a letter of intent to sell the majority of Premier's assets to
Sungard Data Systems, Inc. ("Sungard"), subject to the satisfaction of
certain conditions.
Tangram develops and markets asset tracking and management software and
software distribution solutions that enable automated enterprise-wide
information system management. Tangram markets to Fortune 1000 companies and
foreign equivalents and to government agencies that are managing
heterogeneous enterprises and mission critical applications.
Tangram launched its newest product, Asset Insight-TM-, in mid-1996 in response
to the widespread demand by large enterprises for an automated comprehensive
means for tracking and managing computer hardware and software assets
throughout the enterprise. The Asset Insight Internet Subsystem was also
introduced in 1996 to track and manage Internet usage throughout the enterprise.
Tangram's other offerings include the AM:PM-Registered Trademark- product
line, which provides automatic software distribution, data distribution and
collection, and software management throughout the enterprise; and its
Arbiter-Registered Trademark- and Open Advantage-Registered Trademark- product
lines, which provide enterprise-wide connectivity and interoperability
between LAN-resident desktop computers and IBM mainframe computers.
In order to maximize the market penetration of Asset Insight, Tangram
restructured its operations into two divisions: Enterprise Solutions, focused
on marketing Asset Insight; and Consulting Solutions, focused on implementing
customized solutions incorporating its AM:PM, Arbiter and Open Advantage
products.
The Enterprise Solutions division markets and intends to market Asset Insight
through value added resellers, systems integrators and information technology
consultants. Tangram adopted this approach in order to leverage its sales and
marketing resources to address the perceived widespread demand for Asset
Insight as rapidly as possible. CompuCom was the first reseller for the
Enterprise Solutions division. The division has since signed up additional
resellers, including Vanstar Corporation, which is a competitor of CompuCom,
and RMS Information Systems, which is a Safeguard partnership company. The
Consulting Solutions division markets and sells its products and services
directly to its customers in North America and through a network of
independent distributors internationally.
Tangram believes that no product directly competitive with Asset Insight is
currently available in the market. Tangram anticipates that competitive
products eventually will be developed, and it is expending significant
amounts
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to continue to develop and improve Asset Insight and to develop its
distribution channels in order to establish and maintain a market leadership
position. In the broader market for asset management products and services,
competition is intense, and many of Tangram's actual and potential
competitors have substantially greater resources than Tangram. The software
and solutions markets are subject to rapid change in technology, customer
requirements, and the strategic direction of computer hardware manufacturers
and operating system providers. Tangram's future success will depend on its
ability to establish a strong market for Asset Insight before competitive
products are introduced, and to enhance its product line over time and adapt
to changing market conditions in order to maintain a leadership position in
the market for asset tracking and management solutions.
At March 10, 1997, Safeguard owns approximately 67% of Tangram's outstanding
common stock.
Premier develops and markets sophisticated asset management systems solutions
and professional services to the financial services industry worldwide.
Premier's GLOBAL-PLUS-Registered Trademark- software provides complete
multi-currency accounting and global custody processing capabilities, two of
the demanding functions required by international asset management
organizations. Premier's MAXIMIS-Registered Trademark- software provides a
wide range of asset management and investment accounting solutions on
multiple platforms and is targeted at investment advisors, insurance
companies and pension funds. Premier's NIDS division provides software
products and solutions to the investment management industry. Premier's
CogniSource division, started in 1996, provides professional consulting
services. Premier incurred significant losses in 1996, principally in the
MAXIMIS product line.
A significant portion of Premier's 1996 sales were in Canada. Target
industries are major financial institutions, including traditional trust
organizations, investment advisory firms, domestic and global custodians,
international asset management organizations, insurance companies and large
pension funds.
In March 1997, Safeguard entered into a letter of intent to sell Premier's
assets, excluding the MAXIMIS business, to Sungard. Completion of the sale is
subject to the execution of a definitive agreement and federal antitrust
clearance. Premier is also exploring the sale of its MAXIMIS business
separately.
At March 10, 1997, Safeguard owns approximately 94% of Premier's outstanding
common stock, and 85% of the outstanding voting stock.
Product Development Expenses
For Information Solutions, the Company spent $8.2 million, or approximately
22% of Information Solutions net sales, for product development in 1996 (made
up of $3.4 million by Tangram and $4.8 million by Premier), compared to $10.0
million or approximately 25% of net sales in 1995 and $10.3 million or 19% of
net sales in 1994. The 1994 amount includes $2 million expended by Coherent
for the first six months of the year before its rights offering, after which
the Company ceased consolidating Coherent's results. Only an immaterial
amount of product development expenditures were customer-sponsored.
Other Segment Information
Export sales in the Information Technology segment for the three-year period
ended December 31, 1996 were less than 5% of the segment's total sales in
each of those years. Backlog for this segment, most of which was accounted
for at year-end by CompuCom, is not considered to be a meaningful indication
of
11
future business prospects due to CompuCom's relatively short order
fulfillment cycle.
METAL FINISHING SEGMENT
Pioneer Metal Finishing is engaged in the finishing of aluminum and other
metal parts through operations conducted in Minneapolis, Minnesota and Green
Bay, Wisconsin. During 1996, Pioneer sold its Phoenix, Arizona facility,
which generally had been unprofitable for Pioneer. Major technical processes
include sulfuric, hardcoat and R-5 bright dip anodizing, chromate conversion,
electroless nickel and the application of other specialty coatings. Pioneer
provides insulation, heat dispersal, decoration and protection to a wide
range of metal parts, including highly sophisticated equipment and small
parts with precision tolerance requirements for the computer, ordnance,
automotive, cookware and recreational industries, electronic components and
other applications.
Metal finishing services are sold to a wide range of customers and industries
by a direct sales force and independent representatives. Finishing is usually
performed on customer-owned material. Because of transportation costs, most
customers are located within a 200-300 mile radius of the finishing
facilities. In order to better serve and expand its customer base in the
Midwest, Pioneer began construction in the fourth quarter of 1996 on a new
metal finishing plant in Monroe, Michigan. The plant is being financed with
$8 million of tax exempt bonds, and is expected to be completed in the third
quarter of 1997.
Pioneer competes with many other metal finishers serving its geographical
areas, but Pioneer has established itself as a reputable industry leader and
quality metal finisher. Prompt service, quality of work performed and
geographic location are the most important competitive factors.
Backlog is not considered material to this business as work is generally
processed in a one- to two-week period.
The Company believes that all facilities comply with existing environmental
pollution control regulations, compliance with which in recent years has been
an important competitive factor in the industry.
Safeguard owns 100% of Pioneer Metal Finishing.
COMMERCIAL REAL ESTATE SEGMENT
In 1996, Safeguard sold its commercial real estate operations to a
partnership controlled by a publicly traded REIT in exchange for common stock
and warrants in the REIT and units in the partnership which are convertible
into common stock of the REIT. Safeguard recognized an after-tax gain of $1.3
million from the sale. See "RECENT DEVELOPMENTS" above.
The operations of the Company and its partnership companies, particularly the
Metal Finishing segment, are subject to environmental laws and regulations.
The Company does not believe that expenditures relating to those laws and
regulations will have a material adverse effect on the business, financial
condition or results of operations of the Company.
12
OTHER PARTNERSHIP COMPANIES
Public Companies
Safeguard uses the equity method of accounting for companies in which it owns
less than a majority of the outstanding voting securities but exercises
significant influence. Public partnership companies accounted for on the
equity method in 1996 included Cambridge Technology Partners, Coherent
Communications Systems, Sanchez Computer Associates, and USDATA.
Cambridge Technology Partners (Massachusetts), Inc. is an international
professional services firm that works with clients to design, develop, and
deploy client/server and Internet applications. Cambridge's information
technology development offerings also include third-party software
implementation and management consulting services. Cambridge provides the
majority of its services on a fixed-price, fixed-timetable model with client
involvement at all stages of the process. In performing its services,
Cambridge employs a rapid development methodology which enables it to deliver
results in unprecedented time frames - typically within three to twelve
months. Cambridge believes the solutions it delivers help provide clients
with competitive advantages by focusing on high value-added areas such as
distribution, sales and marketing, and customer management.
In 1996, Cambridge strengthened its software package implementation service
offering through the acquisition of Ramos & Associates, Inc., which provides
strategic information solutions and consulting services in the Enterprise
Resource Planning services market. Overall, Cambridge increased its employee
headcount during 1996 from 1,278 to 1,824 at year-end in order to meet the
growing U.S. and international demand for its services. Cambridge's future
success will depend in large part on its continuing ability to attract,
retain, and motivate highly skilled employees.
Cambridge's information technology and management consulting services are
offered at the enterprise-wide, specific business process and application
software levels of an organization. Upon the completion of consulting
services, Cambridge typically designs and develops one or more strategic
software applications and then rolls-out such applications to the
organization's end-users. These software applications are designed to achieve
a competitive advantage, enhance the efficiency and functionality of specific
business processes, and support financial goals. A client engagement for the
design, development, and implementation of a strategic software application
typically results in fees of $1 million to $3 million. To date, Cambridge's
revenues have been generated principally from its custom software design and
development activities. Because of the size of these assignments, clients
may undertake projects on an irregular basis. However, no customer accounted
for more than 5% of net revenues in either 1996, 1995 or 1994.
At March 10, 1997, Safeguard owns approximately 18% of Cambridge's
outstanding common stock, and warrants which could increase its ownership to
19%.
Coherent Communications Systems Corporation develops, manufactures and
markets voice quality enhancement products for wireless (including digital
cellular and Personal Communication Systems ("PCS")), satellite-based
Cable Communication Systems, and wireline telecommunications systems
throughout the world. Coherent's principal product lines are transmission
products and teleconference products. Coherent's products utilize a
proprietary high speed reduced instruction set computer ("RISC") microchip
along with its proprietary software to enhance the quality of voice
communications during a telephone call in several ways, including eliminating
echoes inherent in modern telecommunications systems and hands free telephone
and teleconference usage. Coherent's products are compatible with domestic
and foreign telecommunications systems.
The technological advances incorporated into telecommunications systems, such
as wireless and digital transmission technology, speech compression, fiber
13
optic transmission lines and satellite links, make echo canceller products an
essential component of most digital telecommunications networks. Coherent
sells its transmission products to network operators and other end-users
through its direct sales force and third-party distributors, and to
telecommunications equipment manufacturers through its direct sales force.
Users of Coherent's transmission products include telecommunications network
operators throughout the world, such as British Telecommunications PLC,
Deutsche Bundespost, AT&T Wireless, Kokusai Denshin Denwa Co., Ltd. ,
Telefonos de Mexico, SA, Teleglobe Canada Inc., PTT Telecom Logistics
(Netherlands) and Telia Mobitel (Sweden). Coherent historically has
experienced its greatest success selling its transmission products
internationally, where competition is based principally on technological
characteristics. Competition in the U.S. has been more price sensitive.
However, Coherent believes that the release in 1996 of improved international
standards and the increasing demands for improved transmission quality have
made potential U.S. customers more concerned with cost effective performance.
Coherent expanded its direct sales efforts in the U.S. during 1996 to
capitalize on this trend. As a result, Coherent nearly doubled its North
American sales of transmission products from 1995, and overall North American
sales increased from 25% of total net sales in 1995 to 31% of total net sales
in 1996. Coherent's strategy for future growth is to continue to develop new
software products running on its echo canceller platforms to support new
telecommunications technologies, and to continue to develop and expand
strategic relationships with major telecommunications network operators,
telecommunications equipment manufacturers, and telecommunications equipment
distributors.
Coherent's teleconference products include Call Port-Registered Trademark-,
which is an audio subsystem for desktop computers; Conference
Master-Registered Trademark-, a high quality teleconferencing system; and
Voicecrafter-TM-, an audio subsystem for video conferencing systems. All
teleconference products incorporate Coherent's echo cancellation technology
and provide full-duplex, hands-free operation.
At March 10, 1997, Safeguard owns approximately 32% of Coherent's outstanding
common stock.
Sanchez Computer Associates, Inc. completed its rights offering in December
1996. Sanchez designs, develops, markets, implements, and supports a
comprehensive software system called PROFILE-Registered Trademark- for
financial services organizations worldwide. Sanchez's highly flexible
PROFILE family of products is comprised of three integrated modules which
operate on open client-server platforms. Historically, Sanchez has
experienced success installing PROFILE in emerging market banks, particularly
in Central Europe, with little existing enterprise-wide automation. Sanchez
has recently begun to expand its target markets to the Asian-Pacific Rim,
while also targeting large U.S. and Canadian banks looking to develop on-line
retail banking business to be conducted via alternate distribution channels.
Sanchez believes PROFILE can be the next generation infrastructure for direct
banking, providing the flexibility for banks to deliver customized banking
products over a wide variety of consumer interfaces, including over the
Internet.
At March 10, 1997, Safeguard owns approximately 24% of Sanchez's outstanding
common stock, and warrants which could increase its ownership to 26%.
USDATA Corporation provides a wide range of software components, hardware
systems and services, design consulting and maintenance support used by its
customers to improve the overall productivity of their businesses and to
monitor automated processes. The real-time information provided by USDATA's
products enables customers to reduce operating costs, improve product quality
and increase overall throughput and productivity.
USDATA produces automation software tools that enable an organization's
information systems to supervise, monitor and control manufacturing and other
automated processes and to interface with management information systems.
14
USDATA's family of software products, marketed under the name
FactoryLink-Registered Trademark-, provides a powerful set of software tools
designed for users who are technically competent but who may not be
experienced software programmers.
USDATA is also engaged in the design and turnkey implementation of integrated
third-party data collection systems that allow remote, real-time data
collection using a variety of automatic identification techniques. USDATA
has executed a non-binding letter of intent to sell this portion of its
business.
At March 10, 1997, Safeguard owns approximately 20% of USDATA's outstanding
common stock, and warrants which could increase its ownership to 25%.
Diamond Technology Partners, Incorporated expects to complete its rights
offering in March 1997. Diamond is a management consulting firm that devises
business strategies enabled by information technology and manages the
implementation of those strategies. The distinguishing qualities of Diamond's
consulting process are its ability to synthesize strategy with technology and
deliver solutions with measurable results, which generally include the
design, deployment, and integration of information technology solutions
together with modification of business processes and organizational
structures. Diamond delivers its strategic consulting and information
technology solutions through a single, integrated multi-disciplinary team.
Upon completion of Diamond's rights offering, Safeguard will own
approximately 8% of Diamond's outstanding common stock and warrants which
could increase its ownership to 10%. Diamond's Chairman and CEO controls a
majority of the aggregate voting rights of the common stock.
Integrated Systems Consulting Group, Inc. ("ISCG") completed its rights
offering in May 1996. ISCG provides consulting services that address its
clients' information processing needs through technologically advanced
solutions, including client-server architecture, graphical user interface
based applications, relational and object-oriented databases and
cross-platform applications integration. ISCG delivers consulting services
principally in software applications development, but also in systems and
network management. ISCG focuses its marketing efforts on the pharmaceutical
industry. ISCG has extensive experience in the development, implementation,
integration and management of information systems used in the drug
development process. It uses this experience and expertise to help
pharmaceutical companies shorten the time required for developing, clinical
testing, and submission of FDA applications for new drugs. At March 10,
1997, Safeguard owns approximately 7% of ISCG's outstanding common stock and
warrants which could increase its ownership to 9%. ISCG's Chairman and CEO
owns approximately 38% of the outstanding common stock.
National Media Corporation is the world's largest infomercial company, using
transactional television to sell innovative consumer products. With its
international subsidiary, Quantum International, Ltd., the company reaches
364 million television households in more than 70 countries. At March 10,
1997, Safeguard owns preferred stock convertible into 2% of National Media's
outstanding common stock and warrants which could increase its ownership to
9%.
Private Companies
Diablo Research Corporation is a contract engineering company with expertise
in radio frequency technology and applications, CEBUS technology for home
automation and fixed wireless applications for the telecommunications
industry. At March 10, 1997, Safeguard owns approximately 20% of Diablo's
outstanding voting capital stock.
FormMaker Software, Inc. provides multi-platform, enterprise-wide document
automation solutions for document-intensive industries with mission-critical,
complex and high-volume needs. FormMaker also provides consulting,
implementation, training and outsourcing services. Another Safeguard
15
partnership company, Micro Dynamics Ltd., a document imaging systems company,
merged into FormMaker during 1996. FormMaker has agreed to merge with Image
Sciences, Inc., subject to satisfaction of certain conditions including
shareholder approval. The resulting company will be renamed DocuCorp
International. At March 10, 1997, Safeguard owns approximately 46% of
FormMaker's outstanding common stock, and warrants which could increase its
ownership to 48%, before the effect of the pending merger. If the merger is
completed, Safeguard will own 22% of DocuCorp's outstanding common stock,
and warrants which could increase its ownership to 24%.
Intellisource, Inc. provides outsourcing services ranging from advisory help
to turnkey solutions, enabling customers to gain the benefits of
reengineering support tasks while freeing resources for core competitive
activities. The company's subsidiary, Supply Chain Solutions, provides
"SCORE" software for supply chain management solutions. At March 10, 1997,
Safeguard owns approximately 12% of Intellisource's outstanding common stock,
and non-voting preferred stock which could be converted to increase
Safeguard's ownership to 65%.
Internet Capital Group, LLC was established by Safeguard in 1996 to identify,
invest in, and develop early to mid-stage Internet-related companies in the
target areas of enabling tools and technology businesses, software
application developers, content providers, and ongoing enterprises whose
business model is enhanced by the Internet. Internet Capital Group has
received commitments for $40 million of funding, of which Safeguard has
committed 33% of that amount.
MultiGen, Inc. develops and markets the leading real-time 3D authoring
software that is used to create, edit, and view scenes for visual simulation,
entertainment, CAD visualization, and virtual reality applications. The
company's newest products include the MultiGen-Registered Trademark- Series
II and its innovative real-time 3D virtual reality scene builder,
SmartScene-TM-. At March 10, 1997, Safeguard owns approximately 28% of
MultiGen's outstanding common stock.
MicroVision Medical Systems, Inc. has developed an automated intelligent
microscopy system which uses proprietary imaging technologies for a wide
variety of diagnostic and research applications. MicroVision intends to
introduce its system to the healthcare market to identify cells with specific
characteristics within a sample of cells by detecting color produced by the
reaction between common laboratory stains and the cells. The system software
can be configured to identify different stains, thereby allowing the system
to be adapted to identify a broad range of target cellular conditions.
MicroVision intends to establish its system as the preferred platform for
multiple diagnostic applications. At March 10, 1997, Safeguard owns common
stock and convertible preferred stock of MicroVision which constitutes
approximately 40% of MicroVision's outstanding capital stock.
OAO International Corporation provides global, full-service information
technology solutions and outsourcing services through industry-specific
partnerships. OAO's expertise lies in enterprise system management,
distributed systems management, help desk services, and software engineering.
It has teamed with such companies as IBM Global Services, Digital Equipment
Corporation, and Perot Systems. At March 10, 1997, Safeguard owns 50% of
OAO's outstanding common stock, subject to an option held by OAO's founder
which could reduce Safeguard's ownership to 40%.
RMS Information Systems provides design, development, integration, and
operation of telecommunications, network services and facilities management
for voice, data, and video systems, principally to governmental agencies. At
the end of 1996, RMS was restructured through a transfer of its principal
business assets to a new entity to eliminate a part of its outstanding debt
burden, to exit a money-losing business, and to facilitate its strategy of
pursuing business in the commercial markets. At March 10, 1997, Safeguard
owns 20% of RMS' outstanding common stock.
Sentry Technology Group resulted from a 1996 merger between Value Sourcing
Group and Sentry Technology Group. The company provides information
technology market research, management consulting, and communications
services for IT buyers and sellers. Sentry publishes Software Magazine and
Client/Server Computing, two monthly magazines with an aggregate circulation
to 250,000 CIOs
16
and senior IT executives worldwide. At March 10, 1997, Safeguard owns
approximately 49% of Sentry's outstanding common stock.
Whisper Communications, Inc. has developed a two-way, fixed-base automated
meter reading technology which will allow utilities to remotely read meters
(gas, water, or electric) via the use of radio frequency technology and a
wireless communications backbone. At March 10, 1997, Safeguard owns
preferred stock convertible into approximately 18% of Whisper's common stock.
XL Vision, Inc. specializes in producing application-specific electronic
imaging solutions to meet specific customer needs and identifiable market
needs. XL Vision's product lines under development include PhotoVision-TM-,
an automatic identification system for use with credit cards, ATM cards and
ID cards; and Enhanced Vision Systems-TM-, proprietary thermal infrared
imaging systems capable of "seeing" in darkness, fog or haze. XL Vision spun
out MicroVision Medical Systems, Inc. as a separate company during 1996, and
is preparing to spin out Enhanced Vision Systems during the first half of
1997. At March 10, 1996, Safeguard owns 13% of XL Vision's outstanding
common stock, and convertible preferred stock which could increase its
ownership to 66%.
Safeguard's ownership percentages in certain of the partnership companies
described above include shares which Safeguard has granted to certain of its
executives under its long term incentive plan. These grants are subject to
certain restrictions, and Safeguard continues to control the voting of these
shares until the restrictions lapse.
Safeguard also participates in managing seven venture capital and private
equity funds. These funds invest in early stage, rapidly growing and/or
established businesses, and have co-invested in certain of the Company's
partnership companies. The following table lists these funds. While
Safeguard's focus is on the information technology industry, the funds also
invest in health care, life sciences, service-related companies, technology
companies in the energy utilities markets, basic industries, and later stage
companies in various industries. Radnor Venture Partners, Technology Leaders
I, and Technology Leaders II are fully invested (including reserves set aside
for follow-on investments).
Venture Capital and Private Equity Funds
Capital % Owned by Year
Name of Fund Commitments Safeguard(1) Established
- ------------ ----------- ------------ -----------
Radnor Venture Partners $33,000,000 14% 1988
Technology Leaders I 61,000,000 3% 1992
Technology Leaders II 113,000,000 4% 1994
TL Ventures III 285,000,000 4% 1996
EnerTech Capital Partners 50,000,000 6% 1996
Safeguard International Fund 75,000,000 13%(2) 1996
SCP Private Equity Partners 88,000,000 10%(2) 1996
(1) Represents the percentage of the outstanding limited partnership
interests in each fund owned by Safeguard. In addition, Safeguard owns
interests in the general partners of these funds which have carried interests
in the funds' profits.
(2) Estimated pending final fund closing.
EMPLOYEES
Safeguard and its consolidated subsidiaries have approximately 4,600
employees, of which approximately 81% are employed by CompuCom. The Company
believes relations with employees are good.
ITEM 1(d). FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND
EXPORT SALES
The Company does not believe that foreign or geographic area sales are
material or significant to an understanding of its business and operations
17
during the three-year period ended December 31, 1996. Where appropriate,
information concerning the Company's export sales is discussed in Item 1(c)
"Narrative Description of Business."
ITEM 1(e). EXECUTIVE OFFICERS
Information about the Company's executive officers can be found in Part III
of this report under "Item 10. Directors and Executive Officers of
Registrant." None of the officers have fixed term employment agreements.
ITEM 2. PROPERTIES
The Company owns its corporate headquarters and administrative offices
located in Wayne, Pennsylvania. The headquarters building is subject to a
$3.6 million mortgage bearing interest at 9.75%, which amortizes over a 30
year term and is callable by the lender at any time beginning in 2002. The
principal properties of the Company consisted of the following as of March
10, 1997:
INDUSTRY SEGMENT/LOCATION TYPE OF FACILITY LEASE EXPIRES
INFORMATION TECHNOLOGY
MICROCOMPUTER SYSTEMS AND SERVICES (COMPUCOM)
Dallas, TX Executive/Admin. Offices *
Paulsboro, NJ Distribution Center 2001(1)
Stockton, CA Distribution Center 1999(2)
Dallas, TX Customer Center 2000
Dallas, TX Sales and Service 1998
Dallas, TX Future Corporate/Operations * (3)
INFORMATION SOLUTIONS
Cary, NC (Tangram) Office/Distribution 2004
Malvern, PA (Premier) Office/Distribution 1998(4)
METAL FINISHING (Pioneer)
Minneapolis, MN Manufacturing/Office *
Green Bay, WI Manufacturing/Office *
Monroe, MI Manufacturing/Office * (5)
(*) Owned facility.
(1) CompuCom has a cancellation option exercisable at any time after August
1999.
(2) CompuCom has a cancellation option exercisable in May of each year.
(3) CompuCom purchased this facility in 1996 and is currently renovating the
facility for future occupancy by most of its current Dallas operations.
(4) Premier has a cancellation option exercisable at any time.
(5) Pioneer purchased land in 1996 and is constructing a new metal finishing
facility.
CompuCom's executive office building in Dallas, Texas is subject to a $3.9
million ten-year mortgage which matures in 2003. CompuCom's new corporate
and operations campus was purchased for approximately $26 million which has
been funded on an interim basis through its bank credit facility pending
permanent mortgage financing. Pioneer has a variable rate industrial revenue
bond mortgage on its Green Bay property with a principal balance of $1.9
million as of December, 31, 1996, which matures in 2002. Pioneer has a
variable rate industrial revenue bond mortgage on its Monroe property to
finance construction in an ultimate principal amount of $8 million, maturing
in 2008.
18
In the opinion of management, the properties and plants are in good condition
and repair and are adequate for the particular operations for which they are
used. The extent of utilization of manufacturing facilities varies from
plant to plant. CompuCom's new 300,000 square foot New Jersey distribution
center doubles its previous warehouse space and contains a state-of-the-art
90,000 square foot configuration center, triple the size of the previous
configuration space. CompuCom's new Dallas property contains 250,000 square
feet of office space in two buildings on 20 acres. CompuCom is renovating
this space for use as its new corporate and operations campus, and will
relocate most of its Dallas area operations to this facility with expansion
capacity for future growth. The other existing facilities of the Company
generally are capable of supporting increased activity without any
significant capital expenditures.
ITEM 3. LEGAL PROCEEDINGS
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 or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of 1996.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company incorporates by reference the information contained under the
caption "Common Stock Data" on page 45 of its Annual Report to Shareholders
for the year ended December 31, 1996 which page is filed as part of Exhibit
13 hereto.
ITEM 6. SELECTED FINANCIAL DATA
The Company incorporates by reference the information contained under this
caption on page 28 of its Annual Report to Shareholders for the year ended
December 31, 1996 which page is filed as part of Exhibit 13 hereto.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company incorporates by reference the information contained under this
caption on pages 28 through 32 of its Annual Report to Shareholders for the
year ended December 31, 1996 which pages are filed as part of Exhibit 13
hereto.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company incorporates by reference the information on pages 33 through 45
of its Annual Report to Shareholders for the year ended December 31, 1996
which pages are filed as part of Exhibit 13 hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
19
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
EXECUTIVE OFFICERS:
The following persons were executive officers of the Registrant at March 20,
1997:
HAS BEEN AN
OFFICER
NAME AGE SINCE POSITION
Warren V. Musser 70 1953 Chairman of the Board and
Chief Executive Officer
Donald R. Caldwell(1) 50 1993 President and Chief Operating
Officer
Edward R. Anderson(2) 50 1994 President and Chief Executive
Officer, CompuCom Systems,
Inc.
Jerry L. Johnson(3) 49 1995 Senior Vice President--
Operations
Thomas C. Lynch(4) 54 1995 Senior Vice President
Michael W. Miles(5) 39 1996 Vice President and Chief
Financial Officer
James A. Ounsworth 54 1991 Senior Vice President, General
Counsel and Secretary
Glenn T. Rieger(6) 38 1993 Vice President
Charles A. Root 64 1984 Executive Vice President
(1) Mr. Caldwell has served as President of the Company since February 1996
and as Executive Vice President from March 1993 to February 1996. Prior
to joining the Company, from 1991 through 1993, Mr. Caldwell was President
of Valley Forge Capital Group, Ltd., a business mergers and acquisition
advisory firm that he founded. From 1990 through 1991, Mr. Caldwell was
Chief Administrative Officer of Cambridge Technology Partners
(Massachusetts), Inc., a provider of systems integration, consulting and
custom system development services.
(2) Mr. Anderson has served as President and Chief Executive Officer of
CompuCom Systems, Inc. since January 1994 and served as Chief Operating
Officer from August 1993 through December 1993. Prior to joining CompuCom,
Mr. Anderson served from May 1988 to July 1993 as President and Chief
Operating Officer of Computerland Corporation (now known as Vanstar), a
computer reseller.
(3) Mr. Johnson served at US West, a Regional Bell Operating Company, from 1985
through 1995, most recently as Vice President of Network Technology
Services.
(4) In 1995 Mr. Lynch retired from the U.S. Navy as an Admiral after 31 years,
including serving as Superintendent of the U.S. Naval Academy from 1991
through 1994 and the Director, Navy Roles and Missions from 1994 through
1995.
(5) Mr. Miles has served as Vice President and Chief Financial Officer since
January 1997 and has been with the Company since 1984 in various financial
positions, most recently as Vice President and Corporate Controller.
(6) Mr. Rieger has served as a Vice President of the Company since January
1994. Prior to joining the Company, from 1991 through 1993, Mr. Rieger was
a Managing Director of Valley Forge Capital Group, Ltd., a business
mergers and acquisition advisory firm.
20
DIRECTORS:
The Company incorporates by reference the information contained under the
caption "ELECTION OF DIRECTORS" in its definitive Proxy Statement relative to
its May 8, 1997 annual meeting of shareholders, to be filed within 120 days
after the end of the year covered by this Form 10-K Report pursuant to
Regulation 14A under the Securities Exchange Act of l934, as amended.
DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K:
The Company incorporates by reference the information contained under the
caption "SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE" in its
definitive Proxy Statement relative to its May 8, 1997 annual meeting of
shareholders, to be filed within 120 days after the end of the year covered
by this Form 10-K Report pursuant to Regulation 14A under the Securities
Exchange Act of l934, as amended.
ITEM 11. EXECUTIVE COMPENSATION
The Company incorporates by reference the information contained under the
captions "Directors' Compensation," "Compensation Committee Interlocks and
Insider Participation" and "EXECUTIVE COMPENSATION" in its definitive Proxy
Statement relative to its May 8, 1997 annual meeting of shareholders, to be
filed within 120 days after the end of the year covered by this Form 10-K
Report pursuant to Regulation 14A under the Securities Exchange Act of l934,
as amended.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company incorporates by reference the information contained under the
caption "SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" in
its definitive Proxy Statement relative to its May 8, 1997 annual meeting of
shareholders, to be filed within 120 days after the end of the year covered
by this Form 10-K Report pursuant to Regulation 14A under the Securities
Exchange Act of l934, as amended.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company incorporates by reference the information contained under the
captions "Compensation Committee Interlocks and Insider Participation" and
"CERTAIN TRANSACTIONS" in its definitive Proxy Statement relative to its May
8, 1997 annual meeting of shareholders, to be filed within 120 days after the
end of the year covered by this Form 10-K Report pursuant to Regulation 14A
under the Securities Exchange Act of l934, as amended.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements and Schedules
CONSOLIDATED FINANCIAL STATEMENTS *
INDUSTRY SEGMENTS
BALANCE SHEETS - December 31, 1996 and 1995
OPERATIONS - years ended December 31, 1996, 1995, and 1994
CASH FLOWS - years ended December 31, 1996, 1995, and 1994
SHAREHOLDERS' EQUITY - years ended December 31, 1996, 1995,
and 1994
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT
STAEMENT OF MANAGEMENT'S FINANCIAL RESPONSIBILITY
QUARTERLY FINANCIAL DATA
21
________
* Incorporated by reference from pages 33 through 45 of the Company's
Annual Report to Shareholders for the year ended December 31, 1996, which
pages are filed as part of Exhibit 13 hereto.
FINANCIAL STATEMENT SCHEDULES
INDEPENDENT AUDITORS' REPORT
Schedule I - Condensed Consolidated Financial Information
of Registrant
Schedule II - Valuation and Qualifying Accounts
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Safeguard Scientifics, Inc.:
Under date of February 7, 1997, we reported on the consolidated balance
sheets of Safeguard Scientifics, Inc. and subsidiaries as of December 31,
1996 and 1995, 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, 1996, as contained in the 1996 annual report to
shareholders. These consolidated financial statements and our report thereon
are incorporated by reference in the annual report on Form 10-K for the year
1996. In connection with our audits of the aforementioned consolidated
financial statements, we also audited the related consolidated financial
statement schedules as listed in the accompanying index. These financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statement
schedules based on our audits.
In our opinion, such 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.
/s/ KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
February 7, 1997
22
Safeguard Scientifics, Inc.
Schedule I
Condensed Consolidated Balance Sheets
December 31, 1996 and 1995
(In thousands)
ASSETS 1996 1995
- --------------- ---------- ----------
CURRENT ASSETS
Cash and cash equivalents................ $ 8,019 $ 1,999
Receivables less allowances
($25-1996; $136-1995)................... 4,140 3,538
Notes and other receivables.............. 9,403 4,259
Inventories.............................. 992 1,262
Other current assets..................... 8,127 8,562
----------- ----------
Total current assets..................... 30,681 19,620
PROPERTY, PLANT AND EQUIPMENT, NET....... 20,707 20,852
COMMERCIAL REAL ESTATE, NET.............. 17,787
OTHER ASSETS
Investments in unconsolidated subsidiaries
and affiliates.......................... 241,490 224,890
Notes and other receivables.............. 14,989 6,147
Other.................................... 9,846 1,873
---------- ----------
266,325 232,910
---------- ----------
$ 317,713 $291,169
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1995
- ----------------------------------------- ---------- ----------
CURRENT LIABILITIES
Current debt obligations.................... $ 3,560 $ 1,815
Current commercial real estate debt......... 3,103
Accounts payable............................ 1,730 1,162
Accrued expenses............................ 16,702 10,113
---------- ----------
Total current liabilities................... 21,992 16,193
LONG TERM DEBT.............................. 12,591 79,216
COMMERCIAL REAL ESTATE DEBT................. 17,380
DEFERRED TAXES.............................. 10,860 22,899
OTHER LIABILITIES........................... 1,128 1,172
CONVERTIBLE SUBORDINATED NOTES.............. 102,131
SHAREHOLDERS' EQUITY
Common stock................................ 3,280 3,280
Additional paid-in capital.................. 35,566 20,709
Retained earnings........................... 129,970 110,043
Treasury stock, at cost..................... (7,165) (10,471)
Net unrealized appreciation on investments.. 7,360 30,748
------------- ----------
169,011 154,309
------------- -----------
$ 317,713 $291,169
------------- -----------
------------- -----------
23
Safeguard Scientifics, Inc.
Schedule I
Condensed Consolidated Statements of Operations
Years Ended December 31, 1996, 1995 and 1994
(In thousands except per share amounts)
1996 1995 1994
---------- --------- ---------
REVENUES
Net sales............................. $ 30,286 $ 35,628 $ 35,024
Gains on sales of securities, net..... 26,011 17,464 21,789
Other income.......................... 10,273 9,210 7,323
--------- --------- ---------
Total revenues........................ 66,570 62,302 64,136
COSTS AND EXPENSES
Cost of sales......................... 19,223 23,899 22,054
Selling............................... 1,248 1,378 1,307
General and administrative............ 21,464 17,683 14,334
Depreciation and amortization......... 3,818 4,536 4,383
Interest.............................. 8,623 6,643 5,141
Equity in income of unconsolidated
subsidiaries and affiliates, net
of taxes............................. (12,345) (12,655) (2,378)
--------- --------- ---------
Total costs and expenses.............. 42,031 41,484 44,841
--------- --------- ---------
EARNINGS BEFORE TAXES ON INCOME....... 24,539 20,818 19,295
Provision for taxes on income......... 4,612 2,555 3,555
--------- --------- ---------
NET EARNINGS.......................... $ 19,927 $ 18,263 $ 15,740
--------- --------- ---------
--------- --------- ---------
EARNINGS PER SHARE
Primary............................... $ .61 $ .57 $ .51
Fully diluted......................... $ .61 $ .53 $ .47
AVERAGE COMMON SHARES OUTSTANDING
Primary............................... 31,348 30,734 29,439
Fully diluted......................... 31,348 30,908 29,679
24
Safeguard Scientifics, Inc.
Schedule I
Condensed Consolidated Statements of Cash Flows
Years Ended December 31, 1996, 1995 and 1994
(In thousands)
1996 1995 1994
--------- --------- ---------
OPERATING ACTIVITIES
Net earnings.................................. $ 19,927 $ 18,263 $ 15,740
Adjustments to reconcile net earnings to cash
from operating activities
Depreciation and amortization................. 3,818 4,536 4,383
Deferred income taxes......................... 109 1,891 3,006
Equity in income of unconsolidated subsidiaries
and affiliates, net.......................... (12,345) (12,655) (2,378)
Gains on sales of securities, net............. (26,011) (17,464) (21,789)
--------- --------- ---------
(14,502) (5,429) (1,038)
Cash provided (used) by changes in working
capital items
Receivables................................... (5,746) 422 (5,239)
Inventories................................... 270 29 (103)
Accrued liabilities and other................. 5,354 (7,587) 1,132
--------- --------- ---------
Cash (used) by operating activities............ (14,624) (12,565) (5,248)
Proceeds from sales of securities, net......... 41,982 24,952 16,953
--------- --------- ---------
Cash provided by operating activities and
sales of securities, net...................... 27,358 12,387 11,705
OTHER INVESTING ACTIVITIES
Investments and notes acquired, net.......... (64,110) (28,638) (49,343)
Capital expenditures......................... (5,985) (3,068) (2,375)
Other, net................................... (5,592) (1,302)
--------- --------- ---------
Cash (used) by other investing activities..... (75,687) (31,706) (53,020)
FINANCING ACTIVITIES
Net borrowings (repayments) on revolving
credit facilities........................... (63,425) 16,351 17,927
Net borrowings (repayments) on term debt..... 455 (1,035) 21,717
Issuance of convertible subordinated notes,
net......................................... 112,109
Repurchase of common stock................... (33) (551)
Stock options exercised...................... 5,210 3,771 1,358
--------- --------- ---------
Cash provided by financing activities......... 54,349 19,054 40,451
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................. 6,020 (265) (864)
Cash and cash equivalents--beginning of year.. 1,999 2,264 3,128
--------- --------- ---------
CASH AND CASH EQUIVALENTS--END OF YEAR........ $ 8,019 $ 1,999 $ 2,264
--------- --------- ---------
--------- --------- ---------
25
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1-DEBT
1996 1995
--------- ---------
(In thousands)
Revolving credit facility................. $ 47,800
Notes payable to equity investee
companies................................ 23,589
Industrial development revenue bonds, due
in installments through 2008............. $ 9,870 2,210
Mortgage note, 9.75%, payable monthly
through 2002............................. 3,487 3,516
Other..................................... 2,794 3,916
---------- ---------
16,151 81,031
Current debt obligations................. (3,560) (1,815)
---------- ---------
Long-term debt........................... $ 12,591 $ 79,216
---------- ----------
---------- ----------
Aggregate maturities of long-term debt during future years are as follows (in
millions): $3.6-1997; $.9-1998; $1.0-1999; $1.0-2000; $1.0-2001 and
$8.7-thereafter.
Interest paid in 1996, 1995 and 1994 was $6.3 million, $6.6 million, and $4.9
million, respectively, of which $1.1 million, $2.0 million and $2.7 million
in 1996, 1995, and 1994, respectively, related to commercial real estate
debt, and $3.4 million in 1996 related to convertible subordinated notes.
In connection with investments in certain unconsolidated subsidiaries and
investee companies, the Company is contingently obligated for approximately
$28 million in bank loan and other guarantees and $59 million for possible
future investments, including committed capital to various venture funds and
private equity partnerships.
NOTE 2-RECLASSIFICATIONS
Certain amounts previously reported in the condensed consolidated financial
statements have been reclassified to conform to the current year presentation.
26
SAFEGUARD SCIENTIFICS, INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
BALANCE ADDITIONS
BEGINNING CHARGED TO DEDUCTIONS BALANCE
DESCRIPTION OF YEAR OPERATIONS (1) OTHER END OF YEAR
- --------------------------------------------------- ----------- ----------- ----------- ----------- -----------
Allowance for doubtful accounts
Year ended December 31, 1994..................... $ 5,480 $ 3,378 $ 1,669 $ (723)(2) $ 6,466
Year ended December 31, 1995..................... $ 6,466 $ 1,277 $ 968 $(4,131)(3) $ 2,644
Year ended December 31, 1996..................... $ 2,644 $ 1,472 $ 995 $ (33)(4) $ 3,088
Inventory reserves
Year ended December 31, 1994..................... $ 15,400 $ 15,049 $ 18,627 $(1,148)(2) $ 10,674
Year ended December 31, 1995..................... $ 10,674 $ 13,333 $ 13,581 $ (902)(3) $ 9,524
Year ended December 31, 1996..................... $ 9,524 $ 15,529 $ 16,119 $ $ 8,934
(1) Net write-offs.
(2) Sale and deconsolidation of Micro Decisionware and Coherent, respectively.
(3) Deconsolidation of Center Core.
(4) Sale of the Phoenix location of Pioneer Metal Finishing and the Commerical
Real Estate operations.
27
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of 1996.
(c) Exhibits
The following is a list of exhibits required by Item 601 of Regulation S-K
filed as part of this Report. Where so indicated by footnote, exhibits which
were previously filed are incorporated by reference. For exhibits
incorporated by reference, the location of the exhibit in the previous filing
is indicated in parentheses.
3.1 Amended and Restated Articles of Incorporation of the Company*
3.2 By-laws of the Company, as amended (6)(Exhibit 3.2)
4.1** 1979 Stock Option Plan (1)(Exhibit 10)
4.2** 1980 Stock Option Plan (1)(Exhibit 10)(5)(Exhibit 10.5)
4.3** 1990 Stock Option Plan, as amended*
4.4** Stock Option Plan for Non-Employee Directors (11) (Exhibit 4.8)
4.5** Safeguard Scientifics, Inc. Amended and Restated Stock Savings Plan
(14) (Exhibit 4.9)
4.6** First Amendment to Safeguard Scientifics, Inc. Stock Savings Plan*
4.7** Safeguard Scientifics, Inc. Stock Savings Plan Trust Agreement
(5)(Exhibit 4.2)
4.8 Trust Indenture Agreement dated February 1, 1996 (17) (Exhibit 10.34)
4.9 Purchase Agreement dated February 1, 1996 between Safeguard
Scientifics, Inc. and JP Morgan Securities, Inc. (17) Exhibit 10.35)
10.1** Safeguard Scientifics Money Purchase Pension Plan (6)(Exhibit 10.3)
10.2** First Amendment to Safeguard Scientifics Money Purchase Pension Plan
(11) (Exhibit 10.2)
10.3** Second Amendment to Safeguard Scientifics Money Purchase Pension Plan
(14) (Exhibit 10.3)
10.4** Third Amendment to Safeguard Scientifics Money Pension Plan (17)
(Exhibit 10.4)
28
10.5** Safeguard Scientifics Money Purchase Pension Plan Trust Agreement
(6)(Exhibit 10.4)
10.6** Safeguard Management Incentive Compensation Plan (7)(Exhibit 10.3)
10.7** Safeguard Scientifics, Inc. Long Term Incentive Plan, as amended and
restated effective June 15, 1994 (14) (Exhibit 10.6)
10.8** Form of Promissory Notes dated December 22, 1994 given by certain
executives for advances by the Company of income tax withholdings on
restricted stock grants (14) (Exhibit 10.7)
10.9** Form of Promissory Notes dated January 3, 1995 given by certain
executives for advances by the Company of income tax withholdings on
restricted stock grants (14) (Exhibit 10.8)
10.10** Form of Promissory Notes dated December 12, 1995 and December 20, 1995
given by certain executives for advances by the Company of income tax
withholdings on restricted stock grants. (17) (Exhibit 10.10)
10.11** Form of Promissory Notes dated February 12, 1997 given by certain
executives for advances by the Company of income tax withholdings on
restricted stock grants*
10.12** Safeguard Scientifics, Inc. Deferred Compensation Plan (2)(Exhibit
10.12)
10.13 Credit Agreement, dated as of September 13, 1996, between Safeguard
Scientifics, Inc., Safeguard Scientifics (Delaware), Inc. and PNC
Bank, N.A. (exhibits omitted) (19) (Exhibit 10.1)
10.14 Credit Agreement, dated as of September 26, 1996, between NationsBank
of Texas, N.A. and CompuCom Systems, Inc. (exhibits and schedules
omitted) (19) (Exhibit 10.2)
10.15 Amended and Restated Master Security and Administration Agreement,
dated as of September 25, 1996, among CompuCom Systems, Inc.,
NationsBank of Texas, N.A., CSI Funding, Inc. and Enterprise Funding
Corporation (exhibits omitted) (19) (Exhibit 10.3)
10.16 Amendment No. 1 dated December 5, 1996 to Amended and Restated Master
Security Agreement among CompuCom Systems, Inc., NationsBank of Texas,
CSI Funding, Inc. and Enterprise Funding Corporation*
10.17 Receivables Purchase Agreement dated April 1, 1996 between CompuCom
Systems, Inc. and CSI Funding, Inc. (exhibits omitted) (18) (Exhibit
10.6)
10.18 First Amendment to Receivables Purchase Agreement, dated as of
September 25, 1996, between CompuCom Systems, Inc. and CSI Funding,
Inc. (exhibits omitted) (19) (Exhibit 10.4)
10.19 Transfer and Administration Agreement, dated as of April 1, 1996,
among CSI Funding, Inc., CompuCom Systems, Inc., Enterprise Funding
Corporation and NationsBank, N.A. (exhibits omitted) (18) (Exhibit
10.7)
10.20 First Amendment to Transfer and Administration Agreement, dated as of
September 25, 1996, among CSI Funding, Inc.,
29
CompuCom Systems, Inc., Enterprise Funding Corporation and
NationsBank, N.A. (exhibits omitted) (19) (Exhibit 10.5)
10.21 Amendment No. 2 dated December 5, 1996 to Transfer and Administration
Agreement among CSI Funding, Inc., CompuCom Systems, Inc., Enterprise
Funding Corporation and NationsBank, N.A.*
10.22** Promissory Note dated February 12, 1997 from Edward Anderson to
CompuCom Systems, Inc.*
10.23** Pledge Agreement dated August 31, 1994 between Edward Anderson and
CompuCom Systems, Inc. (14) (Exhibit 10.27)
11 Computation of Per Share Earnings*
13 Pages 28 to 45 of Annual Report to Shareholders for year ended
December 31, 1996*
21 List of Subsidiaries*
23 Consent of KPMG Peat Marwick LLP, independent auditors*
27 Financial Data Schedule*
________________________________
* Filed herewith.
** These exhibits relate to compensatory plans, contracts or arrangements in
which directors and/or executive officers of the registrant may
participate.
(1) Filed on March 30, 1981 as an exhibit to the Annual Report on Form 10-K
(No. 1-5620) and incorporated herein by reference.
(2) Filed on March 30, 1987 as an exhibit to Annual Report on Form 10-K (No.
1-5620) and incorporated herein by reference.
(3) Filed on April 8, 1988 as an exhibit to Form 8-K (No. 1-5620) and
incorporated herein by reference.
(4) Filed on March 29, 1991 as an exhibit to Form 10-K (No. 1-5620) and
incorporated herein by reference.
(5) Filed on December 13, 1991 as an exhibit to Form 8-K (No. 1-5620) and
incorporated herein by reference.
(6) Filed on March 30, 1992 as an exhibit to Form 10-K (No. 1-5620) and
incorporated herein by reference.
(7) Filed on March 31, 1993 as an exhibit to Form 10-K (No. 1-5620) and
incorporated herein by reference.
(8) Filed on April 9, 1993 as an exhibit to Form 8 Amendment to Form 10-K
(No. 1-5620) and incorporated herein by reference.
(9) Filed on October 22, 1993 as an exhibit to Form 8-K (No. 1-5620) and
incorporated herein by reference.
(10) Filed on November 15, 1993 as an exhibit to Form 10-Q (No. 1-5620) and
incorporated herein by reference.
(11) Filed on March 30, 1994 as an exhibit to Form 10-K (No. 1-5620) and
incorporated herein by reference.
(12) Filed on August 15, 1994 as an exhibit to Form 10-Q (No. 1-5620) and
incorporated herein by reference.
(13) Filed on October 17, 1994 as an exhibit to Form 8-K (No. 1-5620) and
incorporated herein by reference.
(14) Filed on March 30, 1995 as an exhibit to Form 10-K (No. 1-5620) and
incorporated herein by reference.
(15) Filed on August 14, 1995 as an exhibit to Form 10-Q (No. 1-5620) and
incorporated herein by reference.
(16) Filed on November 14, 1995 as an exhibit to Form 10-Q (No. 1-5620) and
incorporated by reference herein.
30
(17) Filed on April 1, 1996 as an exhibit to Form 10-K (No. 1-5620) and
incorporated herein by reference.
(18) Filed on May 15, 1996 as an exhibit to Form 10-Q (No. 1-5620) and
incorporated herein by reference.
(19) Filed on November 12, 1996 as an exhibit to Form 10-Q (No. 1-5620) and
incorporated herein by reference.
31
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Dated: March 24, 1997 SAFEGUARD SCIENTIFICS, INC.
By: /s/ Warren V. Musser
----------------------------------
Warren V. Musser, Chairman and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Dated: March 24, 1997 /s/ Warren V. Musser
-----------------------------------------
Warren V. Musser, Chairman and Chief
Executive Officer (Principal Executive
Officer)
Dated: March 25, 1997 /s/ Michael W. Miles
-----------------------------------------
Michael W. Miles, Vice President and Chief
Financial Officer (Principal Financial and
Accounting Officer)
Dated: March 26, 1997 /s/ Vincent G. Bell, Jr.
-----------------------------------------
Vincent G. Bell, Jr., Director
Dated: March 27, 1997 /s/ Donald R. Caldwell
-----------------------------------------
Donald R. Caldwell, Director
Dated: March 25, 1997 /s/ Robert A. Fox
-----------------------------------------
Robert A. Fox, Director
Dated: March 25, 1997 /s/ Delbert W. Johnson
-----------------------------------------
Delbert W. Johnson, Director
Dated: March 21, 1997 /s/ Robert E. Keith, Jr.
-----------------------------------------
Robert E. Keith, Jr., Director
Dated: March 24, 1997 /s/ Peter Likins
-----------------------------------------
Peter Likins, Director
Dated: March 26, 1997 /s/ Jack L. Messman
-----------------------------------------
Jack L. Messman, Director
Dated: March 25, 1997 /s/ Russell E. Palmer
-----------------------------------------
Russell E. Palmer, Director
Dated: March 27, 1997 /s/ John W. Poduska Sr.
-----------------------------------------
John W. Poduska Sr., Director
Dated: March 25, 1997 /s/ Heinz Schimmelbusch
-----------------------------------------
Heinz Schimmelbusch, Director
Dated: March 23, 1997 /s/ Hubert J. P. Schoemaker
-----------------------------------------
Hubert J. P. Schoemaker, Director
32
SAFEGUARD SCIENTIFICS, INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
BALANCE ADDITIONS
BEGINNING CHARGED TO DEDUCTIONS BALANCE
DESCRIPTION OF YEAR OPERATIONS (1) OTHER END OF YEAR
- --------------------------------------------------- ----------- ----------- ----------- ----------- -----------
Allowance for doubtful accounts
Year ended December 31, 1994..................... $ 5,480 $ 3,378 $ 1,669 $ (723)(2) $ 6,466
Year ended December 31, 1995..................... $ 6,466 $ 1,277 $ 968 $(4,131)(3) $ 2,644
Year ended December 31, 1996..................... $ 2,644 $ 1,472 $ 995 $ (33)(4) $ 3,088
Inventory reserves
Year ended December 31, 1994..................... $ 15,400 $ 15,049 $ 18,627 $(1,148)(2) $ 10,674
Year ended December 31, 1995..................... $ 10,674 $ 13,333 $ 13,581 $ (902)(3) $ 9,524
Year ended December 31, 1996..................... $ 9,524 $ 15,529 $ 16,119 $ $ 8,934
(1) Net write-offs.
(2) Sale and deconsolidation of Micro Decisionware and Coherent, respectively.
(3) Deconsolidation of Center Core.
(4) Sale of the Phoenix location of Pioneer Metal Finishing and the Commerical
Real Estate operations.
27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Dated: March 24, 1997 SAFEGUARD SCIENTIFICS, INC.
By: /s/ Warren V. Musser
----------------------------------
Warren V. Musser, Chairman and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Dated: March 24, 1997 /s/ Warren V. Musser
-----------------------------------------
Warren V. Musser, Chairman and Chief
Executive Officer (Principal Executive
Officer)
Dated: March 25, 1997 /s/ Michael W. Miles
-----------------------------------------
Michael W. Miles, Vice President and Chief
Financial Officer (Principal Financial and
Accounting Officer)
Dated: March 26, 1997 /s/ Vincent G. Bell, Jr.
-----------------------------------------
Vincent G. Bell, Jr., Director
Dated: March 27, 1997 /s/ Donald R. Caldwell
-----------------------------------------
Donald R. Caldwell, Director
Dated: March 25, 1997 /s/ Robert A. Fox
-----------------------------------------
Robert A. Fox, Director
Dated: March 25, 1997 /s/ Delbert W. Johnson
-----------------------------------------
Delbert W. Johnson, Director
Dated: March 21, 1997 /s/ Robert E. Keith, Jr.
-----------------------------------------
Robert E. Keith, Jr., Director
Dated: March 24, 1997 /s/ Peter Likins
-----------------------------------------
Peter Likins, Director
Dated: March 26, 1997 /s/ Jack L. Messman
-----------------------------------------
Jack L. Messman, Director
Dated: March 25, 1997 /s/ Russell E. Palmer
-----------------------------------------
Russell E. Palmer, Director
Dated: March 27, 1997 /s/ John W. Poduska Sr.
-----------------------------------------
John W. Poduska Sr., Director
Dated: March 25, 1997 /s/ Heinz Schimmelbusch
-----------------------------------------
Heinz Schimmelbusch, Director
Dated: March 23, 1997 /s/ Hubert J. P. Schoemaker
-----------------------------------------
Hubert J. P. Schoemaker, Director
32