FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended June 30, 1995 Commission File Number
1-5620
SAFEGUARD SCIENTIFICS, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-1609753
(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
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code
(610) 293-0600
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 and 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
--- ---
Number of shares outstanding as of August 9, 1995
Common Stock 9,749,563
SAFEGUARD SCIENTIFICS, INC.
QUARTERLY REPORT FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION
Page
Item 1 - Financial Statements:
Consolidated Balance Sheets -
June 30, 1995 (unaudited) and December 31, 1994 3
Consolidated Statements of Operations (unaudited) -
Three and Six Months Ended June 30, 1995 and 1994 5
Consolidated Statements of Cash Flows (unaudited) -
Six Months Ended June 30, 1995 and 1994 7
Notes to Consolidated Financial Statements 8
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K. 13
Signatures 14
SAFEGUARD SCIENTIFICS, INC.
CONSOLIDATED BALANCE SHEETS
(000 omitted)
<TABLE>
<CAPTION>
June 30 December 31
ASSETS 1995 1994
----------- -----------
(UNAUDITED)
<S> <C> <C>
Current Assets
Cash $ 11,581 $ 7,860
Receivables less allowances
($2,566 - 1995; $6,466 - 1994) 238,110 276,034
Inventories 151,657 160,380
Other current assets 4,209 5,832
----------- -----------
Total current assets 405,557 450,106
Property, Plant and Equipment 74,930 79,569
Less accumulated depreciation
and amortization (32,180) (36,014)
----------- -----------
42,750 43,555
Commercial Real Estate 25,627 25,538
Less accumulated depreciation (7,559) (7,105)
----------- -----------
18,068 18,433
Other Assets
Investments 74,789 66,310
Notes and other receivables 6,065 5,554
Excess of cost over net assets of
businesses acquired 20,917 22,187
Other 13,593 11,010
----------- -----------
115,364 105,061
----------- -----------
$581,739 $617,155
=========== ===========
</TABLE>
SAFEGUARD SCIENTIFICS, INC.
CONSOLIDATED BALANCE SHEETS
(000 omitted except shares)
<TABLE>
<CAPTION>
June 30 December 31
LIABILITIES AND SHAREHOLDERS' EQUITY 1995 1994
---------- ----------
(UNAUDITED)
<S> <C> <C>
Current Liabilities
Current commercial real estate debt $ 3,108 $ 3,120
Current debt obligations 8,444 14,041
Accounts payable 137,151 168,431
Accrued expenses 52,132 63,284
Taxes on income 1,100 374
---------- ----------
Total current liabilities 201,935 249,250
Long-Term Debt 192,656 201,393
Commercial Real Estate Debt 17,491 17,594
Deferred Taxes 9,246 7,336
Other Liabilities 810 969
Minority Interest 33,853 30,066
Shareholders' Equity
Common stock, par value $.10 a share
Authorized -20,000,000 shares
Issued -10,933,114 shares 1,093 1,093
Additional paid-in capital 25,397 25,669
Retained earnings 100,082 91,780
Treasury stock, at cost
1,214,552 shares-1995 (11,108)
1,449,596 shares-1994 (13,228)
Net unrealized appreciation on investments 10,284 5,233
---------- ----------
125,748 110,547
---------- ----------
$ 581,739 $ 617,155
========== ==========
</TABLE>
SAFEGUARD SCIENTIFICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(000 omitted except per share data)
<TABLE>
<CAPTION>
Three Months Ended
June 30
--------------------------
1995 1994
-------- --------
(UNAUDITED)
<S> <C> <C>
Revenues
Information Technology
Microcomputer Systems $350,710 $306,625
Information Solutions 10,793 15,824
Workstation and Security Systems 15,612
-------- --------
361,503 338,061
Metal Finishing 8,560 7,281
Commercial Real Estate 509 856
-------- --------
Net Sales 370,572 346,198
Gains on sales of securities, net 4,591 4,557
Other income 2,117 431
-------- --------
Total Revenues 377,280 351,186
Costs and Expenses
Cost of sales 303,044 287,762
Selling 35,220 29,534
General and administrative 19,691 18,262
Depreciation and amortization 4,136 4,109
Interest 5,106 4,056
Income from equity investments (696) (231)
-------- --------
Total Costs and Expenses 366,501 343,492
-------- --------
Earnings Before Minority Interest
and Taxes 10,779 7,694
Minority interest (2,836) (1,333)
-------- --------
Earnings Before Taxes On Income 7,943 6,361
Provision for taxes on income 3,177 2,553
-------- --------
Net Earnings $ 4,766 $ 3,808
======== ========
Earnings Per Share
Primary $ .45 $ .37
Fully Diluted .41 .35
Average Common Shares Outstanding
Primary 10,193 9,856
Fully Diluted 10,239 9,856
</TABLE>
SAFEGUARD SCIENTIFICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(000 omitted except per share data)
<TABLE>
<CAPTION>
Six Months Ended
June 30
--------------------------
1995 1994
-------- --------
(UNAUDITED)
<S> <C> <C>
Revenues
Information Technology
Microcomputer Systems $674,197 $587,482
Information Solutions 21,012 33,354
Workstation and Security Systems 33,396
-------- --------
695,209 654,232
Metal Finishing 17,467 14,541
Commercial Real Estate 1,055 2,071
-------- --------
Net Sales 713,731 670,844
Gains on sales of securities, net 6,599 6,864
Other income 5,049 2,162
-------- --------
Total Revenues 725,379 679,870
Costs and Expenses
Cost of sales 585,003 555,120
Selling 67,462 58,681
General and administrative 37,331 35,629
Depreciation and amortization 8,173 8,319
Interest 10,114 7,754
Income from equity investments (1,566) (373)
-------- --------
Total Costs and Expenses 706,517 665,130
-------- --------
Earnings Before Minority Interest
and Taxes 18,862 14,740
Minority interest (5,027) (2,719)
-------- --------
Earnings Before Taxes On Income 13,835 12,021
Provision for taxes on income 5,533 4,930
-------- --------
Net Earnings $ 8,302 $ 7,091
======== ========
Earnings Per Share
Primary $ .79 $ .69
Fully Diluted .72 .64
Average Common Shares Outstanding
Primary 10,124 9,822
Fully Diluted 10,211 9,822
</TABLE>
SAFEGUARD SCIENTIFICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000 omitted)
<TABLE>
<CAPTION>
Six Months Ended
June 30
------------------------
1995 1994
------- -------
(UNAUDITED)
<S> <C> <C>
Operating Activities
Net earnings $ 8,302 $ 7,091
Adjustments to reconcile net earnings to
cash from operating activities
Depreciation and amortization 8,191 8,319
Deferred income taxes (698) 1,070
Income from equity investments (1,566) (373)
Gains on sales of securities, net (6,599) (6,864)
Minority interest, net 3,016 1,527
------- -------
10,646 10,770
Cash provided (used) by changes in working
capital items
Receivables 17,302 21,364
Inventories 5,313 (34,387)
Other current assets (118) (1,166)
Accounts payable and accrued expenses (27,746) (12,574)
Taxes on income 726 (3,478)
------- -------
(4,523) (30,241)
------- -------
Cash provided (used) by operating activities 6,123 (19,471)
Proceeds from sales of securities, net 13,044 2,876
------- -------
Cash provided (used) by operating activities
and sales of securities, net 19,167 (16,595)
Other Investing Activities
Investments and notes acquired, net (3,841) (4,573)
Expenditures for property, plant & equipment (5,860) (6,224)
Business acquisitions, net of cash acquired (1,754)
Other, net (4,765) (4,407)
------- -------
Cash (used) by other investing activities (16,220) (15,204)
Financing Activities
Net borrowings (repayments)on revolving
credit facilities (2,020) 18,865
Repayments on term debt (3,047) (3,988)
Borrowings on term debt 3,443 12,121
Stock issued by subsidiaries 549 2,631
Repurchase of common stock (32)
Stock options exercised 1,881 1,036
------- -------
Cash provided by financing activities 774 30,665
------- -------
Increase (Decrease) in Cash 3,721 (1,134)
Cash - beginning of year 7,860 9,796
------- -------
Cash - End of Period $ 11,581 $ 8,662
======= =======
</TABLE>
SAFEGUARD SCIENTIFICS, INC.
Notes to Consolidated Financial Statements
June 30, 1995
1. The accompanying unaudited interim consolidated financial
statements were prepared in accordance with generally
accepted accounting principles for interim financial
information. Accordingly, they do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements.
The Summary of Accounting Policies and Notes to Consolidated
Financial Statements included in the 1994 Form 10-K should
be read in conjunction with the accompanying statements.
These statements include all adjustments (consisting only of
normal recurring adjustments) which the Company believes are
necessary for a fair presentation of the statements. The
interim operating results are not necessarily indicative of
the results for a full year.
2. The Company has agreed to contribute a portion of its
ownership in CenterCore to the company, sell a significant
portion of its remaining interest in CenterCore to
CenterCore's management and provide up to $3 million in
advances to address CenterCore's funding requirements.
Anticipated obligations of the Company with respect to
CenterCore were provided for in 1994. CenterCore is not
included in the consolidated financial statements effective
January 1, 1995 due to the Company's future reduced
ownership.
3. In August 1995, the Company's credit facility was
renegotiated to increase the availability from $75 million
to $100 million and reduce the effective interest rate by
.5%. All other significant terms of the facility remained
the same.
In April 1995, CompuCom's credit facility was renegotiated
to increase the availability from $150 million to $175
million. All other significant terms of the facility
remained the same.
4. All share and per share data have been retroactively
adjusted to reflect the two-for-one split of the Company's
common shares effective September 7, 1994.
SAFEGUARD SCIENTIFICS, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Net sales for the quarter and six months ended June 30, 1995
increased to $370.6 million and $713.7 million from $346.2
million and $670.8 million for the same periods in 1994,
respectively. Net earnings for the quarter ended June 30, 1995
increased to $4.77 million or $.45 per share from $3.81 million
or $.37 per share for the same period in 1994. Net earnings for
the six months ended June 30, 1995 increased to $8.3 million or
$.79 per share from $7.1 million or $.69 per share for the same
period in 1994.
Comparison of the second quarter 1995 results to the second
quarter 1994 results is impacted by two companies which were
consolidated in 1994 but are not included in the consolidated
results in 1995. The third quarter 1994 rights offering of stock
in Coherent Communications to shareholders of the Company reduced
Safeguard's ownership in Coherent to below 50%. In 1995, the
Company uses the equity method of accounting for its remaining
investment in Coherent. During late 1994 into 1995, the Company
initiated actions that will result in Safeguard holding a
minority ownership position in CenterCore. As a result,
CenterCore is not included in the Company's consolidated
financial statements beginning January 1, 1995.
The net sales increase for the quarter ended June 30, 1995
reflects the 14% increase in sales at CompuCom Systems, Inc.
partially offset by the reduced sales due to the sale or
disposition of the two companies previously mentioned. The
higher sales at CompuCom are a result of the continued demand by
corporate customers for personal computers, as well as CompuCom's
strategy of expanding its enterprise network integration
capabilities through internal growth and growth via acquisitions,
remaining focused on its selling strategies, and providing
quality service. CompuCom's second quarter net sales reflect an
increase in service revenue in excess of 80% over the second
quarter of 1994 and approximately 25% over the first quarter of
1995, and include revenue from four acquisitions in the service
arena, International Micronet Systems, acquired in December 1994,
certain assets related to Allerion Corporation and Benchmark
Corporation, acquired during the first quarter of 1995, and the
purchase of Trellis-Hayes-Mirconet in the second quarter of 1995.
In addition, CompuCom believes the increase in net sales can also
be attributed to the weakened financial condition of certain
competitors, as corporate customers consolidate their outsourcing
and outtasking needs. Corporate demand for the remainder of 1995
will be influenced by the timing and acceptance of Windows '95.
CompuCom's sales growth, coupled with the sale or
disposition of the two companies previously mentioned, resulted
in CompuCom sales representing 94% of total sales for the six
months ended June 30, 1995 compared to 88% for the same period in
1994. As a result of the relative significance of CompuCom in
the consolidated results, fluctuations in other business units
have tended to have a minimal impact. CompuCom was a significant
contributor to the increase in net earnings as it reported a 48%
earnings increase for the three months ended June 30, 1995.
Also contributing to the earnings improvement in the quarter
ended June 30, 1995 was an increase in income from equity
investments in Coherent Communications, Cambridge Technology
Partners and USDATA Corporation.
Coherent's net earnings increased 149% compared to 1994 on
a 52% sales increase. Sales of its echo cancellers and related
products continued to increase, with particularly strong growth
in its European and Asian markets.
Cambridge's sales and earnings increased 73% and 98%,
respectively, in the second quarter of 1995 compared to the
comparable quarter of 1994. The company continues to see
increased demand for its services in the U.S. and Europe. It has
established itself as a global force in the client/server
application market by successfully applying its business
methodology globally, gaining international acceptance of its
unique fixed-time/fixed-price model and client-centered approach.
Cambridge presently has nine offices in the U.S. and seven in
Europe, with plans to establish a software development center in
Ireland.
Safeguard's latest rights offering, USDATA Corporation,
reported record sales of $11 million for the second quarter, its
initial quarter as a public company. USDATA's net income for the
quarter was $356,000, compared to $650,000 in 1994. The lower
income reflects USDATA's strategy to make significant investments
in sales and marketing in 1995 to increase awareness of its
products, accelerate growth and obtain a larger share of a
rapidly growing market. USDATA's objective is to ramp up sales
growth to new levels and begin to enjoy the bottom-line impact of
those revenue gains late this year.
Gross margin increased at CompuCom when compared to the same
quarter in 1994, principally due to higher product margins and
the increase in service-related activity resulting from
CompuCom's emphasis on the growth of the service business.
Although product margins at CompuCom declined from the first
quarter to the second quarter in 1995, product margins are higher
than the same periods in 1994 primarily due to price decreases
related to certain manufacturers' products and less price
competition, partially influenced by poor financial results of
certain competitors. Future product margins will be influenced
by manufacturers' pricing strategies together with competitive
pressures, and will be enhanced to the extent CompuCom is able to
increase service sales through internal growth and growth via
acquisitions. As service sales increase at a rate greater than
product sales, overall gross margin is favorably impacted due to
service margin as a percentage of service net sales being higher
than product margin. CompuCom participates in certain
manufacturer-sponsored programs designed to increase sales of
specific products. These programs, excluding volume rebates and
specific product rebates offered by certain manufacturers, are
not material when compared to CompuCom's overall financial
results.
The significant increase in selling expense both as a
percentage of net sales and in absolute dollars reflects expenses
associated with the overall service sales growth at CompuCom,
including the recent acquisitions, as well as costs related to
the planned development of an infrastructure necessary to manage
and expand the service business. Partially offsetting this
increase was continued improvement in product sales productivity
at CompuCom.
General and administrative expenses stayed relatively flat
as a percentage of sales. The increase in absolute dollars.
CompuCom's investment in information system resources required to
enhance customer satisfaction, particularly in the service
segment, and other discretionary spending necessary to meet
CompuCom's objectives increased these expenses relative to sales.
CompuCom's operating expenses are reported net of reimbursements
by certain manufacturers for specific training, promotional and
marketing programs. These reimbursements offset the expenses
incurred by CompuCom. Offsetting this is the relatively higher
sales growth compared to the increase in general and
administrative expenses at the Company's other business units.
Interest expense increased by $1 million and $2.4 million
for the quarter and six months ended June 30, 1995, respectively,
primarily as a result of higher average interest rates, increased
borrowing levels at CompuCom to fund working capital requirements
and increased borrowings at the Company for new business
opportunities. CompuCom is pursuing alternatives to reduce its
cost of funds.
Liquidity and Capital Resources
The Company and CompuCom each maintain separate, independent
bank credit facilities with several banks. CompuCom's credit
facility is non-recourse to the Company, and prohibits the
payment of common stock dividends while the credit lines remain
outstanding.
During August 1995 the Company increased total availability
under its credit facility to $100 million from $75 million and
effectively reduced the interest rate on the facility by .5%.
Borrowings at June 30, 1995 were $43 million leaving an
availability of $57 million if the credit facility increase were
in effect at that time. The Company also periodically generates
cash from the sale of publicly traded securities which it holds.
At June 30, 1995 the market value of its publicly traded
securities, including its common stock investment in CompuCom, is
in excess of $425 million. The bank credit facility is secured
by a pledge of these securities.
In March 1995, the Company transferred three commercial real
estate properties to the lender in full satisfaction of the
related debt.
The Company expects its future corporate liquidity to be
generated through internal cash flow, the sale, as required, of
selected minority-owned, publicly traded securities and increased
availability under the credit facility. These sources should be
sufficient to fund the Company's cash requirements into 1996.
During recent years, CompuCom has utilized equity financing,
operating earnings, the bank credit facility and long-term
subordinated notes to fund its significant revenue growth and
related operating asset requirements. CompuCom maintains a
satisfactory relationship with several banks. In April 1995,
CompuCom increased its bank revolving credit facility from $150
million to $175 million to support its revenue growth. The
credit facility is subject to certain collateral restrictions and
matures in March 1997. At June 30, 1995 approximately $115
million of this facility was outstanding, with in additional $60
million available for borrowing. In addition, CompuCom currently
has outstanding $18.5 million of 9% Convertible Subordinated
Notes ("Notes") issued in 1992. The Notes are due in 2002 and
are convertible into 8,409,000 shares of CompuCom's common stock
at $2.20 per share. CompuCom may call the Notes on or after
September 15, 1995 subject to certain conditions as provided in
the Notes. However, given that CompuCom's stock price is well
above the conversion price of $2.20 per share, it is likely, that
if the debt is called by CompuCom, the holders will convert their
notes into common stock rather than accept cash repayment of the
principal.
The business is not capital asset intensive, and capital
expenditures in any year normally would not be significant in
relation to total assets. Capital asset requirements are
generally funded through internally generated funds, the bank
credit facility or other financing sources. There are no
material capital asset purchase commitments at June 30, 1995.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Number Description
10.1 $210,000 Secured Promissory Note dated November 1, 1994
from James W. Dixon to CompuCom Systems, Inc.
10.2 Financing and Security Agreement dated April 26, 1995
between Nations Bank of Texas, N.A. and CompuCom Systems,
Inc.
10.3 $175,000,000 Master Revolving Promissory Note due March
31, 1997 to Nations Bank of Texas, N.A. dated April 26, 1995
between Nations Bank of Texas, N.A. and CompuCom Systems, Inc.
11 Computation of Per Share Earnings
27 Financial Data Schedule (electronic filing only)
(b) No reports on Form 8-K have been filed by the
Registrant during the quarter ended June 30, 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
SAFEGUARD SCIENTIFICS, INC.
(Registrant)
Date: August 14, 1995 /s/ Warren V. Musser
_____________________________________
Warren V. Musser, Chairman,
President and Chief Executive Officer
Date: August 14, 1995 /s/ Gerald M. Wilk
_____________________________________
Gerald M. Wilk
Vice President
(Principal Financial and
Principal Accounting Officer)
INSTALLMENT PROMISSORY NOTE
$210,000.00 November 1, 1994
For value received, the sufficiency and receipt of which is hereby
acknowledged, James W. Dixon ("Borrower"), promises to pay to the order
of CompuCom Systems, Inc. ("Holder"), the principal sum of Two Hundred
and Ten Thousand and 00/100 Dollars ($210,000) with interest at the Prime
Rate of NationsBank of Texas, N.A., which rate shall be adjusted for
changes in the Prime Rate effective on the date on which a change in the
Prime Rate occurs. Payments due Holder under this Note shall be payable
in cash in the manner and at the times provided below, at the office of
Holder located at 10100 North Central Expressway, Dallas, Texas 75231.
1. Payment of Principal
On or before the payment by Holder to Borrower of an annual bonus
payable on or before March 31, 1995, $70,000 of the unpaid principal of
this Note together with all accrued interest owing thereon shall be due
and payable. On or before December 31, 1996, the remaining unpaid
principal of this Note ($140,000) together with all accrued interest
owing thereon shall be due and payable. However, in the event the
employment of Borrower by Holder terminates prior to the full payment of
this Note, any unpaid principal balance of this Note together with all
accrued interest owing thereon shall become immediately due and payable
at the time of such termination of Borrower's employment.
2. Right of Offset
If Borrower does not pay principal or interest on time, or in the
event the employment of Borrower terminates, Holder has the right to
offset any unpaid commissions, salary, vacation or bonuses owned to
Borrower against any amount of unpaid principal or accrued interest owing
on this Note.
3. Default
If Borrower shall fail to make the payment of any principal or
interest when due, the amount thereof shall bear simple interest, from
and after the date such payment was due until payment is made, at a rate
per annum equal to four (4) percentage points in excess of the Prime Rate
of NationsBank of Texas, N.A., which rate shall be adjusted for changes
in the Prime Rate effective on the date on which a change in the Prime
Rate occurs.
4. Prepayment
Borrower may prepay the principal of this Note, from time to time,
in whole or in part, without premium or penalty provided that all accrued
and unpaid interest thereon is paid at that time.
5. Security for Note
This Note shall be secured by a lien on the residence of Borrower at
5447 Surrey Circle, Dallas, Texas 75229.
6. Events of Default
(a) Any of the following shall constitute an "Event of Default" as
the term is used herein:
(i) a default in the payment by Borrower to Holder of any
principal or interest due under this Note after 10 days
notice from Holder of the failure of Borrower to make such
a payment required under this Note; or
(ii) institution of any proceedings by or against Borrower
under any Bankruptcy or insolvency statute or Borrower's
assignment for the benefit of creditors or the appointment
of a receiver, trustee, conservator or other judicial
representative for Borrower or Borrower's property.
(b) Any notice by Holder sent to Borrower at the address specified
below, or such other address of Borrower as may from time to
time be shown on Holder's records, at least five days prior to
the action contemplated in such notice, shall constitute
reasonable notice to Borrower.
(c) Waiver by Holder of any Event of Default hereunder shall not
constitute a waiver of any subsequent Event of Default.
(d) Borrower hereby waives presentment for payment, notice of
demand, notice of nonpayment or dishonor, protest, notice of
protest and all other notices in connection with the delivery,
acceptance, performance default or enforcement of payment of
the Note, and thereby waives all notice or right of approval of
any extension, renewals, modifications or forbearance which may
be allowed.
7. Other
(a) Borrower irrevocably empowers Holder or its agent as Borrower's
agent for service of process in any and all such actions which
may be instituted against Borrower by Holder, provided that
such process be forwarded within five days by said agent to
Borrower.
(b) All rights of Holder hereunder shall inure to the benefit of
its heirs, executors, administrators, successors and assigns
and all obligations of Borrower shall bind his heirs,
executors, administrators, successors and assigns.
(c) Borrower hereby agrees to pay all reasonable expenses incurred
by Holder incidental to or in any way relating to Holder's
enforcement of the obligations of Borrower hereunder,
including, but not limited to reasonable attorney's fees
incurred by Holder.
(d) Notices required to be given hereunder shall be deemed validly
given if sent first class mail, postage prepaid to:
If to Holder: CompuCom Systems, Inc.
10100 No. Central Expressway
Dallas, TX 75231
If to Borrower: James W. Dixon
5447 Surrey Circle
Dallas, TX 75229
(e) Any provision hereof found to be illegal, invalid or
unenforceable for any reason whatsoever shall not affect the
validity, legality or enforceability of the remainder hereof.
(f) This Note shall be governed by the law of the State of Texas.
IN WITNESS WHEREOF, the undersigned has set his hand and seal as of
the date first above written.
/s/ James W. Dixon
---------------------------------
James W. Dixon
WITNESS:
/s/ Robert J. Boutin
---------------------------------
NationsBank
NationsBank of Texas, N.A.
THIRD AMENDMENT
to
FINANCING AND SECURITY AGREEMENT
This Third Amendment to Financing and Security Agreement is
executed and entered into by COMPUCOM SYSTEMS, INC.
("Borrower") and NATIONSBANK OF TEXAS, N.A. ("Lender"),
effective as of the 26 day of April, 1995, as follows:
Recitals
Borrower and Lender are parties to the certain Financing
and Security Agreement dated effective as of August 4,
1993, as amended by the certain First Amendment to
Financing and Security Agreement dated as of March 31,
1994 and Second Amendment to Financing and Security
Agreement dated December 12, 1994 (hereinafter called
the "Financing and Security Agreement"). Terms defined
in the Financing and Security Agreement wherever used in
this Third Amendment, shall have the same meanings as
are prescribed by the Financing and Security Agreement.
Borrower and Lender have agreed to amend the Financing
and Security Agreement as provided herein.
NOW THEREFORE, premises considered, for value received,
Borrower and Lender hereby agree as follows:
1. ARTICLE I ("DEFINITIONS") of the Financing and Security
Agreement hereby is amended to add the following definitions,
which shall be deemed added immediately following paragraph
1.74 thereof:
" 1.75 Overadvance Allowance Amount means an amount
equal to the lesser of (i) ten percent (10.0%) of the
aggregate net amount of Eligible Accounts and Eligible
Inventory, or (ii) Fifteen Million Dollars
($15,000,000.00)."
2. Each of the following definitions contained in ARTICLE I
("DEFINITIONS") of the Financing and Security Agreement
hereby is amended to read in its entirety as follows:
" 1.7 Borrowing Base at any time means an amount equal
to the sum of (i) up to a maximum of eighty-five percent
(85.0%) of the net amount of Eligible Accounts plus (ii)
up to a maximum of fifty percent (50.0%) (but limited,
however, to an amount not exceeding $20,000,000.00) of
the net amount of Eligible Inventory plus (iii) the
Overadvance Allowance Amount if, and to the limited
extent, allowed by paragraph 2.7a and elected by
Borrower as provided therein, less (iv) the Reserve."
" 1.15 Credit Limit means the amount of One Hundred
Seventy Five Million and no/100 Dollars, less the
amount, if any, of any applicable reduction in the
Credit Limit pursuant to paragraph 2.11."
" 1.36 "Lender's Maximum Amount means the amount of
Fifty Three Million and no/100 Dollars ($53,000,000.00).
3. A new paragraph shall be added immediately following
paragraph 2.7 of the Financing and Security Agreement, which
shall read in its entirety as follows:
"2.7a Overadvance Allowance. On written notice
by Borrower to Lender, Borrower may elect to include the
Overadvance Allowance Amount in calculation of the
Borrowing Base, subject, however, to the following
conditions and requirements:
(a) Borrower shall notify Lender in writing
of its intention to elect to include the
Overadvance Allowance Amount in calculation of the
Borrowing Base, therein specifying the effective
date that such election will begin;
(b) As of the effective date of any such
election, no Event of Default shall have occurred
and be continuing, and no other event or condition
which would be the subject of a required notice
under paragraph 6.14 shall be in existence;
(c) Each such election shall be effective for
a period of sixty (60) days from the effective date
of such election specified in Borrower's written
notice thereof referenced above, and upon
expiration of such period the Overadvance Allowance
Amount shall automatically be excluded in
calculation of the Borrowing Base (until the
effective date specified in any subsequent election
(if any) allowed by this paragraph 2.7a); and
(d) No more than two (2) of such elections
may be made by Borrower during any calendar year;
and
(e) Subject to paragraph 9.10, on the
effective date of each election by Borrower under,
and allowed by, this paragraph 2.7a, Borrower shall
pay to Lender an overadvance fee in the amount of
$37,500.00 (at Lender's option with no obligation
to do so, such fee may be added to the amount due
by Borrower under the Facility, in which event such
fee will be deemed paid and the amount thereof
shall be treated as a loan under the Facility).
Upon the occurrence, and during the continuance of any
Event of Default, Lender shall have the right, upon
written notice to Borrower but without requirement for
prior notice, to terminate any election under this
paragraph then in effect, whereupon the Overadvance
Allowance Amount shall automatically be excluded in
calculation of the Borrowing Base (until the effective
date specified in any subsequent election (if any)
allowed by this paragraph 2.7a)."
4. The second sentence of paragraph 6.6 ("Interim Financial
Statements") hereby is amended to read in its entirety as
follows:
"Such financial statements shall be accompanied by a
statement signed by Borrower's president, chief
financial officer or controller representing to Lender
that such financial statements are true and complete and
fairly present the financial condition and results of
operations of Borrower and the Subsidiaries."
5. The following shall be added to paragraph 6.5 ("Annual
Financial Statements") immediately following the end thereof:
"Notwithstanding the foregoing, until directed otherwise
by Lender in writing, at Borrower's option the foregoing
consolidating financial statements, and accompanying
signed statement, may exclude ClientLink, Inc."
6. The following shall be added to paragraph 6.6 ("Interim
Financial Statements") immediately following the end thereof:
"Notwithstanding the foregoing, until directed otherwise
by Lender in writing, at Borrower's option the foregoing
consolidating financial statements, and accompanying
signed statement, may exclude ClientLink, Inc."
7. Borrower acknowledges that effective simultaneously upon
execution hereof Lender and one or more Participants have
agreed to amend the Participant's Committed Amount under
their respective Participation Agreements. Lender and
Borrower acknowledge and confirm the following in respect of
Participants and the Participant's Committed Amount relative
to each, and Lender's Maximum Amount, effective as of the
date hereof:
<TABLE>
<CAPTION>
Participants
Participant Participant's Participant's
Committed Amount Change (+ or -) Committed Amount
(existing) (revised)
<S> <C> <C> <C>
Barnett Bank of Tampa $14,500,000.00 -0- $14,500,000.00
Midlantic Bank, N.A. $20,000,000.00 -0- $20,000,000.00
The Daiwa Bank, Ltd. $8,000,000.00 $7,000,000.00 $15,000,000.00
National Canada
Finance Corp. $15,000,000.00 $2,500,000.00 $17,500,000.00
Sanwa Business Credit
Corporation $22,500,000.00 $7,500,000.00 $30,000,000.00
Union Bank $20,000,000.00 $5,000,000.00 $25,000,000.00
Lender
Lender Lender's Change (+ or -) Lender's
Maximum Maximum
Amount (existing) Amount (revised)
NationsBank of Texas, N.A. $50,000,000.00 $3,000,000.00 $53,000,000.00
</TABLE>
8. Subject to paragraph 9.10 of the Financing and Security
Agreement, in consideration of this Third Amendment and
increase of the Credit Limit as provided herein, Borrower
agrees to pay to Lender a Credit Limit increase fee in the
amount of $62,500.00 [which is calculated by multiplying the
amount of increase of the Credit Limit resulting from this
Agreement ($25,000,000.00) by one-quarter of one percent
(0.25%)], which shall be payable upon execution hereof.
9. The following items shall be delivered to Lender prior
to or simultaneously with execution and delivery of this
Third Amendment (or, in the case of any of the items
referenced in subparagraphs (e) and (f) below, within such
period of time thereafter as Lender may specify to Borrower
in writing):
(a) A certificate signed by the corporate
secretary of Borrower (i) certifying to Lender that its
Certificate of Incorporation and Bylaws have not been
amended since Borrower's certification thereof under
Secretary's Certificate dated April 5, 1994 previously
delivered to Lender, and that the officers of Borrower
specified therein are duly elected, qualified and acting
in the capacities therein stated, as of the effective
date hereof and (ii) attaching and certifying
resolutions duly adopted by the board of directors of
Borrower authorizing this Third Amendment and the
transactions evidenced hereby, and authorizing and
directing one or more named officers of Borrower to
execute and deliver this Third Amendment, and all
related documentation required by Lender, on behalf of
Borrower, which certificate shall be in form
satisfactory to Lender;
(b) The Revolving Note, amended and restated, and
duly executed.
(c) Amendments to Participation Agreements as
referenced in paragraph 4, in form satisfactory to
Lender;
(d) Such consents and agreements in respect of the
Subordinated Note Agreement and the Intercreditor
Agreements as Lender may require, in form satisfactory
to Lender;
(e) If requested by Lender, an opinion of
Borrower's counsel, in form satisfactory to Lender; and
(f) Such other documentation as Lender may
reasonably require in connection with the Financing and
Security Agreement or this Third Amendment.
10. In consideration of this Third Amendment, Borrower
represents to Lender that (i) no Event of Default, or other
event or condition which would be the subject of a required
notice under paragraph 6.14 of the Financing and Security
Agreement, is in existence as of the effective date hereof,
(ii) each of the representations and warranties contained in
the following paragraphs of the Financing and Security
Agreement are true and correct as of the effective date of
this Third Amendment: paragraphs 3.3, paragraph 3.4, and
paragraph 5.1 through paragraph 5.18. Borrower hereby
ratifies and confirms the Financing and Security Agreement as
being and continuing in full force and effect, as amended by
this Third Amendment.
11. This Third Amendment (i) shall be deemed effective
prospectively as of the effective date specified in the
preamble, (ii) contains the entire agreement among the
parties and may not be amended or modified except in writing
signed by all parties, (iii) shall be governed and construed
according to the laws of the State of Texas and (iv) may be
executed in any number of counterparts, each of which shall
be valid as an original and all of which shall be one and the
same agreement. A telecopy of any executed counterpart shall
be deemed valid as an original.
THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
EXECUTED as of the effective date specified in the
preamble.
NATIONSBANK OF TEXAS, N.A.
By: /s/ Dan Lane
Dan Lane
Vice President
COMPUCOM SYSTEMS, INC.
By: /s/ Robert J. Boutin
Robert J. Boutin
Senior Vice President, Finance
and Chief Financial Officer
CONSENT BY PARTICIPANTS
Each of the undersigned consents to Borrower's and
Lender's execution of the above Second Amendment to Financing
and Security Agreement:
BARNETT BANK OF TAMPA MIDLANTIC BANK, N.A.
By: /s/ Emily D. Waterman By: /s/ Joseph G. Meterchick
Name: Emily D. Waterman Name: Joseph G. Meterchick
Title: Vice President Title: Vice President
NATIONAL CANADA FINANCE CORP. UNION BANK
By: /s/ Bill Handley/Larry L. Sears By: /s/Stephen Sweeney
Name: Bill Handley/Larry L. Sears Name: Stephen Sweeney
Title: Vice President/Group Vice President Title: Vice President
SANWA BUSINESS CREDIT CORPORATION THE DAIWA BANK, LTD.
By: /s/ Michael J. Cox By: /s/ James T. Wang
Name: Michael J. Cox Name: James T. Wang
Title: Vice President Title: Vice President/Manager
By: /s/ Kirk L. Stites
Name: Kirk L. Stites
Title: Vice President
NationsBank
NationsBank of Texas, N.A.
MASTER REVOLVING PROMISSORY NOTE
$175,000,000.00 Dated effective as of April 26 , 1995
FOR VALUE RECEIVED, the undersigned, COMPUCOM SYSTEMS,
INC. a Delaware corporation ("Borrower") hereby promises to
pay to the order of NATIONSBANK OF TEXAS, N.A., a national
bank with its principal office located at NationsBank Plaza,
6th Floor, 901 Main Street, Dallas, Texas 75202 ("Lender"),
the principal amount of ONE HUNDRED SEVENTY FIVE MILLION AND
NO/100 DOLLARS ($175,000,000.00) or such lesser amount as
may from time to time be advanced and remain unpaid and
outstanding hereunder, together with accrued interest as
provided hereinbelow.
This promissory note is executed and delivered by
Borrower pursuant to the certain Financing and Security
Agreement dated effective as of August 4, 1993, as amended
by the certain First Amendment to Financing and Security
Agreement dated effective as of March 31, 1994, the certain
Second Amendment to Financing and Security Agreement dated
effective as of December 12, 1994, and the certain Third
Amendment to Financing and Security Agreement of even date
herewith, each between Lender and Borrower (hereinafter
called the "Financing and Security Agreement") and is the
Revolving Note as defined therein. All terms defined in the
Financing and Security Agreement, wherever used herein,
shall have the same meaning prescribed by the Financing and
Security Agreement.
All loans from time to time requested by Borrower
hereunder are subject to the terms and provisions of the
Financing and Security Agreement. The maximum principal
amount at any time outstanding hereunder shall not at any
time exceed the Availability. The unpaid principal from day
to day outstanding under this promissory note shall bear
interest at the applicable rate prescribed by the Financing
and Security Agreement. Lender's records shall be
conclusive proof of loans, payments and interest accruals
hereunder, absent proof by Borrower of error.
All unpaid principal and accrued interest under this
promissory note shall be payable as follows: (a) accrued
interest on the Category I Facility Balance and on any
portion of the Category II Facility Balance accruing
interest according to the Contract Rate shall be payable
monthly on the last day of each calendar month, and (b)
accrued interest on any Tranche accruing interest according
to a LIBOR Fixed Rate shall be payable monthly on the last
day of each calendar month and on the last day of the
Interest Period applicable to such Tranche. Subject to
Lender's rights under Article VIII of the Financing and
Security Agreement, all unpaid principal borrowed under the
Facility and all unpaid accrued interest thereon, and all
other amounts payable hereunder relative to the Facility,
shall be due and payable to Lender in full on the last day
of the Contract Term. To the extent that any accrued
interest is not paid prior to the fifth day following its
due date as specified above, Lender may at its option (but
with no obligation to do so), add the amount of such accrued
interest to the unpaid principal due by Borrower under the
Facility, in which event such amount will be deemed paid and
the aggregate amount thereof shall be treated as a loan
under the Facility. Any payment which is due on a day which
is not a Business Day shall instead be deemed to be due on
the next succeeding Business Day, and interest thereon shall
accrue and be payable at the then applicable rate during the
time of such extension.
If at any time, from time to time, the aggregate unpaid
principal amount outstanding hereunder exceeds the
Availability, Borrower shall make an immediate payment of
principal in an amount not less than the amount of such
excess and all such amounts, if any, shall be payable on
demand.
No delay by Lender in the exercise of any power or
right hereunder shall operate as a waiver or impair Lender's
rights and remedies under this promissory note or the Loan
Documents. Except as specifically provided in the Financing
and Security Agreement, Borrower and each other party ever
liable hereunder severally hereby expressly waives
presentment, demand, notice of intention to demand, notice
of intention to accelerate, notice of acceleration, protest,
notice of protest and any other notice of any kind, and
agrees that its liability hereunder shall not be affected by
any renewals, extensions or modifications, from time to
time, of the time or manner of payment hereof, or by any
release or modification of any Collateral.
This promissory note in all respects is subject to the
Financing and Security Agreement. All obligations and
indebtedness from time to time evidenced hereby are secured
by continuing security interests and liens in all
Collateral. Proceeds of Collateral shall be subject to the
Financing and Security Agreement. Lender shall have all
rights and remedies provided by the Financing and Security
Agreement and the other Loan Documents.
Borrower hereby promises to pay to Lender all fees,
costs and expenses incurred by Lender in enforcement and
collection of any amounts under this promissory note,
including without limitation, reasonable attorneys fees.
In no contingency or event whatsoever shall the amount
of interest under this promissory note paid by Borrower,
received by Lender, agreed to be paid by Borrower, or
requested or demanded to be paid by Lender, exceed the
Maximum Rate. In the event any such sums paid to Lender by
Borrower would exceed the maximum amount permitted by
applicable law, Lender shall automatically apply such excess
to any unpaid principal or, if the amount of such excess
exceeds said unpaid principal, such excess shall be paid to
Borrower. All sums paid, or agreed to be paid, by Borrower
hereunder which are or hereafter may be construed to be
compensation for the use, forbearance, or detention of money
shall be amortized, prorated, spread and allocated in
respect of the Obligations throughout the full Contract Term
until the Obligations are paid in full. Notwithstanding any
provisions contained in the Loan Documents or herein, Lender
shall never be entitled to receive, collect or apply as
interest any amount in excess of the Maximum Rate and, in
the event Lender ever receives, collects, or applies any
amount that otherwise would be in excess of the Maximum
Rate, such amount shall automatically be deemed to be
applied in reduction of the unpaid principal balance of the
Obligations and, if such principal balance is paid in full,
any remaining excess shall forthwith be paid to Borrower.
In determining whether or not the interest paid or payable
under any specific contingency exceeds the Maximum Rate,
Borrower and Lender shall, to the maximum extent permitted
under applicable law, (I) characterize any non-principal
payment as a standby fee, commitment fee, prepayment charge,
delinquency charge or reimbursement for a third-party
expense rather than as interest, (ii) exclude voluntary
prepayments and the effect thereof, and (iii) amortize,
prorate, allocate and spread in equal parts throughout the
entire period during which the indebtedness was outstanding
the total amount of interest at any time contracted for,
charged or received. Nothing herein contained shall be
construed or so operate as to require Borrower to pay any
interest, fees, costs, or charges greater than is permitted
by applicable law. Subject to the foregoing, Borrower
hereby agrees that the actual effective rate of interest
from time to time existing with respect to loans made by
Lender to Borrower hereunder, including all amounts agreed
to by Borrower or charged or received by Lender, which may
be deemed to be interest under applicable law, shall be
deemed to be a rate which is agreed to and stipulated by
Borrower and Lender in accordance with applicable law.
This promissory note is in renewal and increase of the
certain promissory note dated effective as of March 31, 1994
executed by Borrower payable to the order of Lender in the
face amount of $150,000,000.00 (the "March 1994 Revolving
Note"). All obligations and indebtedness previously
evidenced by the March 1994 Revolving Note hereby is renewed
and hereafter shall be deemed outstanding under, and payable
in accordance with, this promissory note.
This promissory note may not be changed, amended or
modified except in writing executed by Lender and Borrower.
This promissory note shall be governed by and construed
according to the laws of the State of Texas, except as to
provisions relating to the rate of interest to be charged on
the unpaid principal hereof, in which case, to the extent
federal law otherwise would allow a higher rate of interest
than would be allowed by the laws of the State of Texas,
such federal law shall apply.
THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE
OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF
THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.
NATIONSBANK OF TEXAS, N.A. COMPUCOM SYSTEMS, INC.
By: /s/ Dan Lane By: /s/ Robert J. Boutin
Dan Lane Robert J. Boutin
Vice President Senior Vice President, Finance
and Chief Financial Officer
COMPUCOM SYSTEMS, INC.
By: /s/ Robert J. Boutin
Name: Robert J. Boutin
Title: Senior Vice President, Finance
and Chief Financial Officer
SAFEGUARD SCIENTIFICS, INC.
EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS
(000 omitted except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
----------------------- ----------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Primary earnings per common share
Net earnings $ 4,766 $3,808 $ 8,302 $7,091
Adjustment (1) (177) (157) (299) (313)
-------- -------- -------- --------
$ 4,589 $3,651 $ 8,003 $6,778
======== ======== ======== ========
Average common shares outstanding 9,669 9,446 9,605 9,404
Average common share equivalents 524 410 519 418
-------- -------- -------- --------
Average number of common shares and
common share equivalents outstanding 10,193 9,856 10,124 9,822
======== ======== ======== ========
Primary earnings per common share $.45 $.37 $.79 $.69
======== ======== ======== ========
Fully diluted earnings per common share
Primary net earnings $ 4,766 $3,808 $ 8,302 $7,091
Adjustment (1) (571) (394) (1,001) (823)
-------- -------- -------- --------
$ 4,195 $3,414 $ 7,301 $6,268
======== ======== ======== ========
Average common shares outstanding 9,669 9,446 9,605 9,404
Average common share equivalents 570 410 606 418
-------- -------- -------- --------
Average number of common shares
assuming full dilution 10,239 9,856 10,211 9,822
======== ======== ======== ========
Fully diluted earnings per common share $.41 $.35 $.72 $.64
======== ======== ======== ========
(1) Net earnings are adjusted for the dilutive effect
of public subsidiary common stock equivalents (primary)
and convertible securities (fully diluted).
Share and per share data have been retroactively adjusted
to reflect the two-for-one split of the Company's
common shares effective September 7, 1994.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
SAFEGUARD SCIENTIFIC, INC.
Exhibit 27 - FINANCIAL DATA SCHEDULE
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1995
AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX
MONTHS ENDED JUNE 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 11,581
<SECURITIES> 0
<RECEIVABLES> 240,676
<ALLOWANCES> 2,566
<INVENTORY> 151,657
<CURRENT-ASSETS> 405,557
<PP&E> 100,557
<DEPRECIATION> 39,739
<TOTAL-ASSETS> 581,739
<CURRENT-LIABILITIES> 201,935
<BONDS> 210,147
<COMMON> 1,093
0
0
<OTHER-SE> 124,655
<TOTAL-LIABILITY-AND-EQUITY> 581,739
<SALES> 713,731
<TOTAL-REVENUES> 725,379
<CGS> 585,003
<TOTAL-COSTS> 585,003
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,114
<INCOME-PRETAX> 17,296
<INCOME-TAX> 5,533
<INCOME-CONTINUING> 8,302
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,302
<EPS-PRIMARY> 0.79
<EPS-DILUTED> 0.72
</TABLE>
