<PAGE>
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, 1998 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 12, 1998
Common Stock 32,034,125
<PAGE>
SAFEGUARD SCIENTIFICS, INC.
QUARTERLY REPORT FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page
------------------------------ ----
<S> <C>
Item 1 - Financial Statements:
Consolidated Balance Sheets -
June 30, 1998 (unaudited) and December 31, 1997...........................3
Consolidated Statements of Operations (unaudited) -
Three and Six Months Ended June 30, 1998 and 1997.........................4
Consolidated Statements of Cash Flows (unaudited) -
Six Months Ended June 30, 1998 and 1997...................................5
Notes to Consolidated Financial Statements................................6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations......................11
PART II - OTHER INFORMATION
---------------------------
Item 5 - Other Information...................................................20
Item 6 - Exhibits and Reports on Form 8-K....................................20
Signatures...................................................................21
</TABLE>
2
<PAGE>
SAFEGUARD SCIENTIFICS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- ------------
ASSETS (UNAUDITED)
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 6,447 $ 5,382
Receivables less allowances 310,423 187,385
Inventories 204,613 198,053
Other current assets 7,032 6,459
---------- ----------
Total current assets 528,515 397,279
Property, Plant, and Equipment 133,661 105,188
Less accumulated depreciation and amortization (36,182) (28,221)
---------- ----------
Total property, plant, and equipment, net 97,479 76,967
Other Assets
Investments 244,767 185,111
Notes and other receivables 19,980 21,035
Excess of cost over net assets of businesses acquired, net 75,351 26,168
Other 8,530 7,981
---------- ----------
Total other assets 348,628 240,295
---------- ----------
Total Assets $974,622 $714,541
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current debt obligations $ 3,748 $ 3,396
Accounts payable 236,808 74,025
Accrued expenses 80,590 91,857
---------- ----------
Total current liabilities 321,146 169,278
Long-Term Debt 194,520 127,089
Deferred Taxes 32,231 20,044
Minority Interest and Other 104,413 100,179
Convertible Subordinated Notes 71,345 90,881
Shareholders' Equity
Common stock 3,280 3,280
Additional paid-in capital 62,762 49,952
Retained earnings 162,557 151,471
Treasury stock, at cost (6,663) (13,339)
Net unrealized appreciation on investments 29,031 15,706
---------- ----------
Total shareholders' equity 250,967 207,070
---------- ----------
Total Liabilities and Shareholders' Equity $ 974,622 $714,541
---------- ----------
---------- ----------
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
SAFEGUARD SCIENTIFICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended, Six Months Ended,
June 30 June 30
--------------------------------- -----------------------------------
1998 1997 1998 1997
-------------- --------------- --------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues
Net Sales
Product $534,099 $438,263 $ 913,370 $823,668
Services 68,435 64,443 131,062 126,614
-------------- --------------- --------------- ---------------
Total net sales 602,534 502,706 1,044,432 950,282
Securities and other gains, net 8,714 6,838 16,566 14,039
Other income 3,865 2,854 7,362 5,540
-------------- --------------- --------------- ---------------
Total revenues 615,113 512,398 1,068,360 969,861
Costs and Expenses
Cost of sales- product 479,669 392,929 813,089 734,997
Cost of sales- services 45,901 39,412 87,024 79,674
Selling and service 43,370 32,063 80,766 65,679
General and administrative 23,063 22,962 44,258 42,685
Depreciation and amortization 5,638 4,321 9,911 9,555
Interest and financing 6,691 5,125 12,494 10,323
Income from equity investments, net (2,742) (314) (4,247) (418)
-------------- --------------- --------------- ---------------
Total costs and expenses 601,590 496,498 1,043,295 942,495
-------------- --------------- --------------- ---------------
Earnings Before Minority Interest and
Taxes on Income 13,523 15,900 25,065 27,366
Minority interest (3,480) (6,505) (6,589) (10,484)
-------------- --------------- --------------- ---------------
Earnings Before Taxes On Income 10,043 9,395 18,476 16,882
Provision for taxes on income 4,017 3,759 7,390 6,754
-------------- --------------- --------------- ---------------
-------------- --------------- --------------- ---------------
Net Earnings $ 6,026 $ 5,636 $ 11,086 $ 10,128
-------------- --------------- --------------- ---------------
-------------- --------------- --------------- ---------------
Earnings Per Share
Basic $ .19 $ .18 $ .35 $ .32
Diluted $ .18 $ .17 $ .33 $ .31
Average Common Shares Outstanding
Basic 32,032 31,326 31,874 31,225
Diluted 32,750 32,017 32,582 32,023
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
SAFEGUARD SCIENTIFICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------------------------
1998 1997
--------------------- ---------------------
(UNAUDITED)
<S> <C> <C>
Operating Activities
Net earnings $ 11,086 $ 10,128
Adjustments to reconcile net earnings to cash provided (used)
by operating activities
Depreciation and amortization 9,911 9,555
Deferred income taxes 5,322 2,639
Income from equity investments, net (4,247) (418)
Securities and other gains, net (16,566) (14,039)
Minority interest, net 3,953 6,290
Cash provided (used) by changes in working capital items
Receivables (49,936) 175,730
Inventories 3,007 7,372
Accounts payable, accrued expenses, and other 73,849 (72,711)
---------------- ---------------
Cash provided by operating activities 36,379 124,546
Proceeds from securities and other gains, net 29,303 26,019
---------------- ---------------
Cash provided by operating activities and
securities and other gains, net 65,682 150,565
Other Investing Activities
Investments and notes acquired, net (50,141) (36,150)
Capital expenditures (10,796) (17,797)
Business acquisitions, net of cash acquired (45,490)
Other, net (1,057) 1,410
---------------- ---------------
Cash used by other investing activities (107,484) (52,537)
Financing Activities
Net borrowings (repayments) on revolving credit facilities 40,268 (103,242)
Net borrowings (repayments) on term debt 2,042 (418)
Repurchase of Company common stock (854) (4,800)
Issuance of Company common stock 1,120 1,430
Issuance of subsidiary common stock 291 1,354
---------------- ---------------
Cash provided (used) by financing activities 42,867 (105,676)
---------------- ---------------
Increase (Decrease) in Cash and Cash Equivalents 1,065 (7,648)
Cash and Cash Equivalents - beginning of year 5,382 12,881
---------------- ---------------
Cash and Cash Equivalents - End of Period $ 6,447 $ 5,233
---------------- ---------------
---------------- ---------------
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
SAFEGUARD SCIENTIFICS, INC.
Notes to Consolidated Financial Statements
June 30, 1998
1. General
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
1997 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. Comprehensive Income
The Company adopted Statement of Financial Accounting Standard No. 130,
"Reporting Comprehensive Income" (SFAS 130), which was effective for
fiscal years beginning after December 15, 1997. SFAS 130 establishes
standards for reporting and display of comprehensive income and its
components in a full set of general purpose financial statements.
Comprehensive income is the change in equity of a business enterprise
during a period from transactions and other events and circumstances from
non-owner sources. Other than net earnings, the Company's source of
comprehensive income is from net unrealized appreciation on its investments
which is disclosed separately in the Shareholders' Equity section of the
Consolidated Balance Sheets. Total comprehensive income (the sum of net
earnings and the change in unrealized appreciation on investments) was $3.7
million and $8.8 million for the three months ended June 30, 1998 and 1997,
respectively, and $24.4 million and $15.3 million for the six months ended
June 30, 1998 and 1997, respectively.
3. Reclassifications
Certain amounts in the 1997 consolidated financial statements have been
reclassified to conform with the 1998 presentation.
6
<PAGE>
4. Investments
The following summarizes the Company's investments (in thousands).
Investments are classified according to the applicable accounting method at
June 30, 1998. Market value reflects the price of publicly-traded
securities at the close of business at the respective date. Unrealized
appreciation reflects the net excess of market value over carrying value of
publicly-traded securities classified as available-for-sale.
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------------------------ --------------------------------
Carrying Market Carrying Market
Value Value Value Value
------------- ------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Equity Investees
Cambridge $ 28,681 $469,632 $ 24,679 $371,394
ChromaVision 12,429 34,028 4,689 30,044
Coherent 17,369 226,729 14,799 135,008
OAO 15,972 26,069 13,887 43,716
Sanchez 9,555 64,061 7,196 89,068
USDATA 7,194 15,029 7,194 13,325
Non-public companies 30,870 18,453
------------- --------------
122,070 90,897
Diamond 1,526 29,983 1,526 14,717
DocuCorp 3,470 9,473 7,718
Integrated Systems Consulting Group 1,891 9,771 1,891 7,785
Other public companies 12,783 14,430 15,393 20,104
Unrealized appreciation 43,987 23,796
Non-public companies 59,040 43,890
------------- --------------
$244,767 $185,111
------------- --------------
------------- --------------
</TABLE>
Coherent's merger with Tellabs, Inc., in which the Company exchanged all
of its shares of Coherent for 3,487,206 shares of Tellabs, was effective
August 3, 1998. See Note 8.
The following summarized financial information for investees accounted for
on the equity method of accounting at June 30, 1998 has been compiled from
the unaudited financial statements of the respective investees and reflects
certain historical adjustments (in thousands):
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
---------------------------------- ----------------------------------
1998 1997 1998 1997
-------------- ---------------- --------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net Sales:
Public companies $ 203,531 $ 146,332 $ 393,558 $ 275,019
Non-public companies:
MultiGen 2,250 2,901 5,643 5,167
RMS 20,890 22,900 41,703 44,173
Other 8,000 5,360 14,691 11,041
-------------- ---------------- --------------- ---------------
$ 234,671 $ 177,493 $ 455,595 $ 335,400
-------------- ---------------- --------------- ---------------
-------------- ---------------- --------------- ---------------
</TABLE>
Net sales of companies accounted for on the cost method of accounting
including Diamond Technology, Integrated Systems Consulting Group,
DocuCorp International, Intellisource, MegaSystems, Diablo, and Whisper,
are not included in the above table.
7
<PAGE>
5. Debt
In April 1998, the Company increased the availability under its bank
revolving credit facility to $200 million from $150 million. Of the $200
million, $150 million matures in May 2002 and is secured by certain equity
securities the Company holds of its publicly-traded partnership companies,
including CompuCom (the "Pledged Securities"). The remaining $50 million is
unsecured, matures in April 1999, with availability limited to the lesser
of $50 million or 10% of the value of the Pledged Securities. There was
$38.9 million outstanding under the total facility at June 30, 1998.
Long-term debt consisted of (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------------- ----------------
(UNAUDITED)
<S> <C> <C>
Parent Company and Other Recourse Debt
Revolving credit facilities $ 58,877 $ 22,200
Other 16,218 7,822
----------------- ----------------
75,095 30,022
----------------- ----------------
Subsidiary Debt (Non-Recourse to Parent)
CompuCom 123,173 100,425
Other 38
----------------- ----------------
123,173 100,463
----------------- ----------------
Total debt 198,268 130,485
Current debt obligations (3,748) (3,396)
----------------- ----------------
Long-term debt $194,520 $127,089
----------------- ----------------
----------------- ----------------
</TABLE>
6. Earnings Per Share
The calculations of Earnings Per Share (EPS) were (in thousands except per
share amounts):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ---------------------------
1998 1997 1998 1997
---------- ---------- ----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Basic EPS
---------
Net earnings $ 6,026 $ 5,636 $ 11,086 $ 10,128
Average common shares outstanding 32,032 31,326 31,874 31,225
Basic EPS $ .19 $ .18 $ .35 $ .32
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Diluted EPS
-----------
Net earnings $ 6,026 $ 5,636 $ 11,086 $ 10,128
Adjustment (a) (194) (81) (420) (184)
---------- ---------- ---------- ----------
$ 5,832 $ 5,555 $ 10,666 $ 9,944
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Average common shares outstanding 32,032 31,326 31,874 31,225
Effect of dilutive options 718 691 708 798
---------- ---------- ---------- ----------
Average number of common shares
assuming dilution 32,750 32,017 32,582 32,023
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Diluted EPS $ .18 $ .17 $ .33 $ .31
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
(a) Net earnings are adjusted for the dilutive effect of public investee
common stock equivalents and convertible securities.
8
<PAGE>
7. Parent Company Financial Information
Condensed Financial Information is provided to reflect the results of
operations and financial position of the "Parent Company", or the Company
without the effect of consolidating its less than wholly-owned
subsidiaries.
The following summarizes the Parent Company Balance Sheets of Safeguard
Scientifics, Inc. and its wholly-owned subsidiaries (in thousands). These
Parent Company Balance Sheets differ from the Consolidated Balance Sheets
due to the exclusion of the assets and liabilities of the Company's less
than wholly-owned subsidiaries, primarily CompuCom and Tangram, with the
carrying value of these companies included in "Investments".
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets $ 11,496 $ 11,710
Investments 372,873 310,877
Other 50,465 37,567
------------ ------------
Total assets $434,834 $360,154
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities $ 11,419 $ 18,525
Long-term debt 74,588 29,689
Other liabilities 26,515 13,989
Convertible subordinated notes 71,345 90,881
Shareholders' equity 250,967 207,070
------------ ------------
Total liabilities & shareholders' equity $434,834 $360,154
------------ ------------
------------ ------------
</TABLE>
The following summarizes the Parent Company's investments in less than
wholly-owned subsidiaries (in thousands). Market value reflects the price
of publicly-traded securities at the close of business at the respective
date.
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------------------------- ------------------------------
Carrying Market Carrying Market
Value Value Value Value
------------- -------------- -------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CompuCom $125,742 167,238 $122,613 $211,504
Tangram 2,364 70,529 3,153 68,570
Cambridge 28,681 469,632 24,679 371,394
Coherent 17,369 226,729 14,799 135,008
Other public 108,807 202,844 83,290 218,759
Other 89,910 62,343
------------- -------------
$372,873 $310,877
------------- -------------
------------- -------------
</TABLE>
9
<PAGE>
7. Parent Company Financial Information (continued)
The following summarizes the Parent Company Statements of Operations of
Safeguard Scientifics, Inc. and its wholly-owned subsidiaries (in
thousands). These Parent Company Statements of Operations differ from
the Consolidated Statements of Operations by excluding the revenues and
related costs and expenses of the Company's less than wholly-owned
subsidiaries, primarily CompuCom and Tangram, with the Company's share
of the earnings or losses of these companies reflected in the caption
"Equity income, net". 1997 included net sales of $8.3 million and $16.0
million and cost of sales and operating expenses of $7.4 million and
$14.6 million, for the three and six months ended June 30, 1997,
respectively, related to Pioneer which was sold in mid-1997.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------- ------------------------------
1998 1997 1998 1997
--------------- ------------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues
Net sales $ 8,265 $ 15,982
Securities and other gains, net $ 8,714 6,838 $ 16,566 14,039
Other income 4,141 3,140 7,965 6,256
--------------- ------------- ------------- -------------
Total revenues 12,855 18,243 24,531 36,277
Costs and Expenses
Cost of sales and operating expenses 9,127 14,859 16,926 28,546
Equity income, net (4,797) (3,122) (7,982) (4,667)
--------------- ------------- ------------- -------------
Total costs and expenses 4,330 11,737 8,944 23,879
--------------- ------------- ------------- -------------
Earnings Before Taxes On Income 8,525 6,506 15,587 12,398
Provision for taxes on income 2,499 870 4,501 2,270
--------------- ------------- ------------- -------------
Net Earnings $ 6,026 $ 5,636 $ 11,086 $ 10,128
--------------- ------------- ------------- -------------
--------------- ------------- ------------- -------------
</TABLE>
8. Subsequent Event
In August 1998, Coherent merged with Tellabs, Inc. The Company received
3,487,206 shares of Tellabs in exchange for all of its Coherent shares.
Subsequent to the merger, the Company owns less than 5% of Tellabs and
will account for its investment in Tellabs on the cost method. The
Company expects to record a gain of approximately $245 million in
connection with this transaction in the third quarter. Subsequent changes
in the market price of Tellabs stock will be reflected in the
Shareholders' Equity section of the Consolidated Balance Sheets under the
caption "Net unrealized appreciation (depreciation) on investments."
Based on the August 14, 1998 market value, the value of the Company's
holdings in Cambridge has declined approximately $80 million since June
30, 1998, and the value of the Company's holdings in Tellabs has declined
approximately $60 million since August 3, 1998.
10
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
General
- -------
The Company's business strategy is the development of primarily
information technology-oriented, entrepreneurially-driven partnership companies
to achieve superior returns for its shareholders. The Company provides to its
partnership companies and associated venture funds active strategic management,
operating guidance, acquisition and disposition assistance, board and management
recruitment, and innovative financing. The Company offers its shareholders,
through the rights offering process, the opportunity to acquire direct ownership
in selected partnership companies which it believes are ready for public
ownership.
If the Company's ownership in any of the partnership companies changes
significantly, the Company's consolidated revenues and related costs and
expenses may fluctuate primarily due to the applicable accounting method used
for recognizing its participation in the operating results of that company.
The revenues and related costs and expenses of a partnership company
are included in the Company's consolidated operating results if the Company
owns more than 50% of the outstanding voting securities of the partnership
company. Participation of shareholders other than the Company in the earnings
or losses of a more than 50% owned partnership company is reflected in the
caption "Minority interest" in the Consolidated Statements of Operations.
Minority interest adjusts consolidated earnings to reflect only the Company's
share of the earnings or losses of the partnership company. The partnership
companies that are consolidated in 1998 are CompuCom Systems, Inc. and
Tangram Enterprise Solutions, Inc. Premier Solutions Ltd. and Pioneer Metal
Finishing, which were sold in mid-1997, were included in the Company's
consolidated operating results in 1997.
Investments in companies in which the Company owns 50% or less of the
outstanding voting securities, in which significant influence is exercised, are
accounted for on the equity method of accounting. Significant influence is
presumed at a 20% ownership level; however, the Company applies the equity
method for certain companies in which it owns less than 20% because it exerts
significant influence through representation on those companies' Boards of
Directors and other means. On the equity method of accounting, a partnership
company's revenues and related costs and expenses are not included in the
Company's consolidated operating results; however, the Company's share of the
earnings or losses of the partnership company is reflected in the caption
"Income from equity investments, net" in the Consolidated Statements of
Operations.
The net effect of a partnership company's results of operations on the
Company's net earnings is the same under either consolidation accounting or the
equity method of accounting, as only the Company's share of the earnings or
losses of a partnership company is included in the Company's net earnings in the
Consolidated Statements of Operations.
11
<PAGE>
Investments not consolidated or accounted for on the equity method are
accounted for on the cost method of accounting under which the Company's share
of the earnings or losses of such companies is not included in the Company's
Consolidated Statements of Operations.
As mentioned in Operations Overview, the Company's consolidated
revenues and related costs and expenses are significantly influenced by
CompuCom's results of operations. At June 30, 1998, the Company owns
approximately 51% of CompuCom's outstanding common stock and owns preferred
stock which gives it 60% of the vote for CompuCom's directors.
CompuCom competes in the computer reseller industry which has been
undergoing significant transformation and consolidation. Several of CompuCom's
competitors have been growing through acquisitions and others have been
acquired. In addition, companies previously engaged in the retail channel have
begun to enter the corporate reseller market, heightening the competition.
As a result, while growing internally, CompuCom is also looking to
strengthen its market share through acquisitions. If CompuCom were to use its
stock for acquisitions or if some other dilutive event were to occur, the
Company's voting interest in CompuCom could decrease below 50%. Under current
generally accepted accounting principles, the Company would cease consolidating
CompuCom's results and instead would account for its investment in CompuCom on
the equity method provided the Company maintained the ability to exercise
significant influence over CompuCom's ordinary course of business. The Company's
share of CompuCom's earnings, on the equity method versus consolidation, would
differ only to the extent that the Company's ownership of CompuCom changed.
However, the presentation of the Consolidated Statements of Operations and
Balance Sheets would change dramatically.
Note 7 to the Company's Consolidated Financial Statements summarizes
the Parent Company Statements of Operations and Balance Sheets of the Company
for the same periods presented in the Consolidated Financial Statements. These
statements differ from the Consolidated Financial Statements by excluding the
revenues, costs, expenses, assets, and liabilities of the Company's less than
wholly-owned subsidiaries (primarily CompuCom and Tangram) and instead treating
these companies as if they were accounted for on the equity method. The
Company's share of the results of operations of less than wholly-owned
subsidiaries is included in "Equity income, net" and the carrying value of these
companies is included in "Investments" in the Parent Company Statements of
Operations and Balance Sheets, respectively.
Although the Parent Company Statements of Operations and Balance Sheets
presented in Note 7 are accurate relative to the Company's historical
Consolidated Financial Statements, they are not necessarily indicative of future
Parent Company Statements of Operations and Balance Sheets.
12
<PAGE>
Operations Overview
- -------------------
Net sales by industry segment were (in thousands):
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
------------------------------- -------------------------------
1998 1997 1998 1997
-------------- -------------- -------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Information Technology
Microcomputer Systems and Services $597,557 $491,220 $1,035,309 $923,109
Information Solutions 4,977 3,221 9,123 5,824
-------------- -------------- -------------- -------------
602,534 494,441 1,044,432 928,933
Other 8,265 21,349
-------------- -------------- -------------- -------------
Total Net Sales $602,534 $502,706 $1,044,432 $950,282
-------------- -------------- -------------- -------------
-------------- -------------- -------------- -------------
</TABLE>
Net sales increased in the second quarter of 1998 compared to the
second quarter of 1997 as CompuCom (Microcomputer Systems and Services)
experienced a 22% sales increase, which was partially offset by the sale of
Pioneer (Other) in mid-1997. CompuCom's product sales increased 24% in the
second quarter of 1998 compared to the same period in 1997 primarily due to
internal product growth and the contribution from the Computer Integration
Corporation (CIC) acquisition during the second quarter. CompuCom sold more
desktop, laptop, and server units in the three and six months ended June 30,
1998 compared to the same periods in 1997. However, a decline in the average
sales prices of these units lessened the impact of this unit growth on
revenue. Services sales increased 6% due to increases in configuration and
field engineering, both of which have benefited from the increase in product
unit sales. CompuCom represented 99% and 98% of the Company's total
consolidated net sales in the second quarter of 1998 and 1997, respectively.
As a result of the relative significance of CompuCom in the consolidated
results, fluctuations in the financial results of other business units have
tended to have a minimal impact.
The Company's net earnings increased primarily from increased equity
income, higher securities and other gains, and improved results at Tangram,
partially offset by decreased earnings at CompuCom, increased general
corporate expense to support the increased activity at partnership companies,
and the loss of Pioneer's earnings due to its sale in 1997. CompuCom's net
earnings decreased due to increased selling expenses, continued investments
in its service business through the hiring and training of additional
engineer and support personnel, and lower services margins. CompuCom
completed the acquisition of Dataflex Corporation on June 26, 1998; however,
this acquisition did not have a material impact on CompuCom's performance in
the second quarter. Future improved profitability at CompuCom will depend on
its ability to hire and retain quality service personnel while effectively
managing the utilization of such personnel. It will also depend on increased
focus on providing technical service and support to customers, product
demand, competition, manufacturer product availability and pricing changes,
effective utilization of vendor programs, successfully managing the
implementation and operation of the channel assembly programs of its major
suppliers, adequately integrating recent and future acquisitions, and control of
operating expenses.
13
<PAGE>
The following summarizes significant pre-tax securities and other gains (in
millions):
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
------------------------------------- -------------------------------------
1998 1997 1998 1997
----------------- ---------------- ---------------- ----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cambridge $8.3 $6.5 $15.9 $ 12.0
Premier 6.3 6.3
Venture Funds 6.2 .2 6.2 .4
Diamond 4.3
DocuCorp 1.6
Sybase (2.2) (3.0) (2.2) (3.0)
Other (3.6) (3.2) (4.9) (6.0)
----------------- ---------------- ---------------- ----------------
$8.7 $6.8 $16.6 $14.0
----------------- ---------------- ---------------- ----------------
----------------- ---------------- ---------------- ----------------
</TABLE>
Securities and other gains in 1998 include the open market sales of
a portion of the Company's interest in Cambridge Technology Partners, the
sale of shares in the DocuCorp International rights offering to the Company's
shareholders, and distributions from the Company's associated Venture Funds.
Partially offsetting these gains was a write-down of the Company's holdings
in Sybase due to the other than temporary decline in the market price of that
stock, charges incurred in the disposition of investments and provisions for
other investments and notes. Securities and other gains in 1997 included the
open market sales of a portion of the Company's interest in Cambridge, the
sale of shares in the Diamond rights offering and the sale of all of the
assets of Premier Solutions Ltd. Partially offsetting these gains was a
write-down of the Company's holdings in Sybase due to the other than
temporary decline in the market price of that stock, charges incurred in the
disposition of investments, and provisions for other investments and notes.
Securities and other gains of varying magnitude have been realized in recent
years; prior gains are not necessarily indicative of gains which may be
realized in the future.
Income from equity investments fluctuates with the Company's
ownership percentage and the operating results of investees accounted for on
the equity method. Equity income increased in 1998 due to the continued
strong overall performance of the Company's public equity investments,
primarily Cambridge, Coherent, and Sanchez, and a decrease in the Company's
share of losses at its private equity investments. The Company's public
investments accounted for on the equity method in the second quarter of 1998
include Cambridge, ChromaVision Medical Systems, Coherent Communications, OAO
Technology Solutions, Sanchez Computer Associates and USDATA Corporation.
Cambridge's sales and earnings increased 52% and 49%, respectively, as
it continues to see increased demand for its services worldwide. Cambridge
continues to expand its service offerings through investing in and enhancing
proprietary service methodologies and increasing network and educational
services. Safeguard owns approximately 15% of Cambridge's common stock at
June 30, 1998.
14
<PAGE>
ChromaVision continues to make significant progress toward
commercialization of its Automated Cellular Imaging System (ACIS) including
1) the positive results of an independent clinical study performed at USC's
Norris Cancer Center; 2) an upcoming FDA 510 (K) filing; 3) the initiation of
a study to use the ACIS in the detection of Cytomegalovirus, a source of
serious disease in newborns and the leading cause of blindness in AIDS
patients; and 4) the resumption of Down syndrome testing which ChromaVision
expects will result in commercial availability of its Down syndrome
application by the end of 1998. Safeguard owns approximately 26% of
ChromaVision's common stock at June 30, 1998.
Coherent's sales and earnings increased 13% and 24%, respectively,
in the second quarter of 1998 compared to the same period in 1997. In August
1998, Coherent completed its merger with Tellabs, Inc. The Company received
shares of Tellabs valued at approximately $263 million in exchange for all of
its Coherent shares. Subsequent to the merger, the Company owns less than 5%
of Tellabs and will account for its investment in Tellabs on the cost method.
The Company expects to record a gain of approximately $245 million in
connection with this transaction in the third quarter. Subsequent changes in
the market price of Tellabs stock will be reflected in the Shareholders'
Equity section of the Consolidated Balance Sheets under the caption "Net
unrealized appreciation (depreciation) on investments."
During the first quarter of 1998, DocuCorp completed the rights
offering of its common stock to the Company's shareholders. As a result of
the rights offering, the Company owns less than 7% of DocuCorp's common
stock and discontinued accounting for its investment in DocuCorp on the
equity method of accounting subsequent to the completion of the offering.
OAO Technology Solutions incurred a $2.7 million loss for the second
quarter of 1998, primarily due to provisions for uncollectible accounts,
additional investments to expand its Canadian Applications Development and
Maintenance initiative, continued pricing pressure and lack of revenue growth
in the outsourcing business, and costs associated with severance, cost
reduction and management restructuring actions. OAO recently undertook a
number of aggressive actions to reposition the business for the future
including the acquisition of OAO Services, a nationwide provider of IT
staffing augmentation services with annual revenues of approximately $60
million, the appointment of a new CEO, and cost reduction actions including
layoffs, salary reductions and other items. Safeguard owns approximately 32%
of OAO's common stock at June 30, 1998.
Sanchez's revenues increased 74% and earnings per diluted share
increased 180% in the second quarter of 1998 compared to the same period in
1997. Sanchez announced that Sumitomo Bank, Ltd., one of the top ten
financial institutions in the world with assets of $426 billion, selected
PROFILE-Registered Trademark-/Anyware and PROFILE-Registered Trademark- for
Windows as the systems to replace its core legacy deposit system for
International Banking Operations. Safeguard owns approximately 27% of
Sanchez's common stock at June 30, 1998.
USDATA reported an improvement in net loss from continuing
operations in the second quarter of 1998 compared to the second quarter of
1997, primarily due to growth in revenues and decreased operating expenses.
In July 1998, USDATA announced the sale of its system integration and
hardware servicing business effective July 1, 1998. USDATA's second quarter
revenues and operating expenses reflect its ongoing software business.
Safeguard owns approximately 25% of USDATA's common stock at June 30, 1998.
15
<PAGE>
Costs and Expenses
- ------------------
The Company's overall gross margin was 12.8% and 13.8% in the three
and six months ended June 30, 1998 compared to 14.0% and 14.3% for the
comparable periods of 1997. The decreases are primarily attributable to
reduced service gross margins at CompuCom. This decrease was partially offset
by improved product gross margins for the six months ended June 30, 1998
compared to the same period in 1997. CompuCom's product gross margin for the
second quarter of 1998 was 9.5% compared to 9.6% for the same period in 1997.
CompuCom's product gross margin for the six months ended June 30, 1998
increased to 10.4% compared to 10.0% for the same period in 1997, primarily
due to an increase in the amount of manufacturer-sponsored incentives, which
lowered the average cost of the hardware units sold. Future product margins
at CompuCom will be influenced by competitive pressures from other resellers
in the industry, direct marketers, manufacturers' pricing strategies,
CompuCom's ability to successfully manage the channel assembly programs of
its major vendors, and the level of low-margin sales. CompuCom's integration
of acquired companies could also affect future product margins. CompuCom's
services gross margin was 31.3% and 31.7% in the three and six months ended
June 30, 1998 compared to 37.1% and 36.6% for the comparable periods of 1997.
The decrease was primarily caused by lower billing per engineer for
CompuCom's service personnel, particularly in the system engineering group.
CompuCom participates in certain manufacturer-sponsored programs designed to
increase sales of specific products. These programs, excluding volume
incentive programs and specific product rebates offered by certain
manufacturers, are not material when compared to CompuCom's overall financial
results.
Selling and service and general and administrative expense increased
in absolute dollars for the three and six months ended June 30, 1998 compared
to 1997 primarily due to increased expenses at CompuCom, partially offset by
the sale of Pioneer and Premier in 1997. The increases at CompuCom were
primarily due to the hiring of additional sales representatives during the
first quarter of 1998, higher commission expense, costs associated with the
integration of CIC during the second quarter of 1998, an increase in the
sales force as a result of the CIC aquisition, and costs related to
CompuCom's ongoing campus recruitment program for systems engineers. The
campus recruits complete training and certification programs before being
added to CompuCom's billable workforce. CompuCom's general and administrative
expenses are reported net of reimbursements by certain manufacturers for
specific training, promotional and marketing programs. These reimbursements
offset the expenses incurred by CompuCom.
Depreciation and amortization increased for the three and six months
ended June 30, 1998 compared to 1997 primarily due to increased depreciation
at CompuCom, partially offset by the elimination of depreciation and
amortization resulting from the sale of Premier and Pioneer in 1997. The
increase at CompuCom is associated with upgrading its hardware and software
at headquarters and branch locations, increased furniture and fixtures to
support headcount additions, depreciation related to CompuCom's headquarters
and operations campus which was placed in service during the third quarter of
1997, and an increase in amortization expense as a result of acquisitions
completed during the first half of 1998, primarily the CIC acquisition.
16
<PAGE>
Interest and financing expense increased for the three and six
months ended June 30, 1998 compared to the same periods in 1997 primarily as
a result of increased borrowings at CompuCom to fund the acquisition of CIC
and take advantage of more early-pay discounts offered by its larger vendors,
and increased borrowings by the Company primarily to fund investments in new
or existing partnership companies, partially offset by the elimination of
interest resulting from the sale of Premier and the elimination of interest
due to the conversion of $18.5 million of the Company's Convertible
Subordinated Notes into the Company's Common Stock in February 1998.
Liquidity and Capital Resources
- -------------------------------
In February 1996, the Company issued $115 million of 6% Convertible
Subordinated Notes (the "Notes") due February 1, 2006. The Notes are
convertible into the Company's Common Stock at $28.985 per share. Through
June 1998, approximately $43.7 million of Notes were converted into 1,506,119
shares of the Company's Common Stock.
In April 1998, the Company increased the availability under its
bank revolving credit facility to $200 million from $150 million. Of the $200
million, $150 million matures in May 2002 and is secured by certain equity
securities the Company holds of its publicly-traded partnership companies,
including CompuCom (the "Pledged Securities"). The value of these Pledged
Securities significantly exceeds the total availability under the bank
revolving credit facility. The remaining $50 million is unsecured, matures in
April 1999, with availability limited to the lesser of $50 million or 10% of
the value of the Pledged Securities. There was $38.9 million outstanding
under the total facility at June 30, 1998.
The Company has revolving credit facilities with certain partnership
companies whereby the Company may borrow up to $20 million from these
partnership companies on a revolving basis at a rate that varies with the
Company's effective borrowing rate. At June 30, 1998, $20 million was
outstanding under these agreements.
Availability under the Company's revolving credit facilities, proceeds
from the sales from time to time of selected publicly-traded securities, and
other internal sources of cash flow should be sufficient to fund the Company's
cash requirements for the next twelve months, including investments in new or
existing partnership companies, general corporate requirements, and the
repurchase of the Company's Common Stock from time to time in the open market.
In connection with certain investments, the Company is contingently obligated
for approximately $27 million of guarantee commitments. In addition, it has
committed capital of $88 million to various investments, venture funds and
private equity partnerships, to be funded over the next several years.
CompuCom maintains separate, independent financing arrangements,
which are non-recourse to the Company and are secured by certain assets of
CompuCom. During recent years, CompuCom has utilized operating earnings, bank
financing arrangements, long-term subordinated notes, and internally
generated funds to fund its cash requirements. CompuCom's financing
arrangements consist of a $165 million working capital facility (increased
from $125
17
<PAGE>
million in June 1998), a $175 million revolving Securitization
Facility, and a $25 million real estate loan (collectively, the "credit
agreements"). At June 30, 1998, approximately $118 million was outstanding
under the working capital facility and the real estate loan, and the
Securitization Facility was fully utilized. The credit agreements mature in
November 2002, except for the real estate loan which is due in quarterly
installments beginning April 1999. CompuCom is currently evaluating other
permanent financing options for the real estate loan.
In the second quarter of 1998, CompuCom completed the acquisitions
of Computer Integration Corporation (CIC) and Dataflex Corporation (Dataflex)
for approximately $17 million and $24 million of cash, respectively, and were
accounted for on the purchase method.
Cash flow provided by operating activities decreased significantly
in 1998 as operating cash flow for the six months ended June 30, 1997
includes the effect of CompuCom's Securitization Facility in which $100
million of accounts receivable were sold with the proceeds used to pay down
long-term debt.
The Company's operations are not capital intensive, and capital
expenditures in any year normally would not be significant in relation to the
overall financial position of the Company. Capital asset requirements are
generally funded through bank credit facilities, internally generated funds,
or other financing sources. There are no material capital asset purchase
commitments at June 30, 1998.
Year 2000
- ---------
The Company is currently addressing the Year 2000 issue, which
results from the fact that many computer programs were previously written
using two digits rather than four to define the applicable year. Programs
written in this way may recognize a date ending in "00" as the year 1900
rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations. The Company has conducted
an assessment of its computer information systems and believes that it will
not need to incur any material extraordinary expense to correct its systems
which are not Year 2000 compliant on a timely basis. The Company has also
surveyed its majority-owned and equity investee partnership companies
regarding this issue. The Company's most significant consolidated subsidiary,
CompuCom, has completed initial assessment of its computer information
systems, and has plans in place to complete remediation and begin testing
during 1998. The balance of the Company's partnership companies are in varying
stages of assessing, remediating, and testing for internal Year 2000
compliance and assessing Year 2000 compliance of their vendors, business
partners, and customers. Most of the partnership companies are in the
business of providing software products, information technology consulting,
or outsourcing services. Those partnership companies which produce software
or products with embedded programming believe that the current version of
their products either are Year 2000 compliant or will be revised to be
compliant in 1998. Certain partnership companies are continuing to determine
the extent to which previously sold software products and services were
non-compliant. The total cost and time which will be incurred by the
partnership companies on the Year 2000 issue cannot presently be determined.
There can be no
18
<PAGE>
assurance that all necessary work will be completed in time,
or that such costs will not materially adversely impact one or more of such
partnership companies. In addition, required spending on the Year 2000 effort
will cause customers of most of the Company's partnership companies to
reallocate at least part of their information systems budgets. Although
several partnership companies have offerings which may be useful in such
efforts, such reallocations could materially adversely affect the results of
operations of many partnership companies.
Recently Issued Pronouncements
- ------------------------------
In 1997 and 1998, the Financial Accounting Standards Board (FASB)
issued pronouncements relating to the presentation and disclosure of
information related to segment data and the disclosure of information about
pensions and other postretirement benefits, respectively. The Company is
required to adopt the provisions of these pronouncements, if applicable, for
the year ending December 31, 1998. The adoption of these pronouncements will
not have an impact on the Company's financial position and results of
operations, but may change the presentation of certain of the Company's notes
and data related to the Consolidated Financial Statements.
19
<PAGE>
Item 5. Other Information
-----------------
Shareholders intending to present proposals at the next Annual
Meeting of Shareholders to be held in 1999 must notify the Company of the
proposal no later than December 2, 1998 if they wish to include the proposal
on the Company's proxy card and, along with any supporting statement, in the
Company's proxy statement. No proposal may be considered at the Annual
Meeting unless it has been so included in the proxy materials.
In July 1998, Who? Vision, a technology company focused on the
development of fingerprint indentification technologies, filed a registration
statement with the Securities and Exchange Commission for an initial public
offering of approximately 6,500,000 shares of Who? Vision common stock
through a rights offering to Safeguard's shareholders. The offering will be
made only by means of a prospectus, subject to the effectiveness of the
registration statement, and is expected to begin in late September.
The merger of Coherent Communications Systems Corporation with
Tellabs, Inc. was completed on August 3, 1998. Under the terms of the merger
agreement, each share of Coherent Communications common stock held by the
Company was exchanged for 0.72 shares of Tellabs common stock.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Number Description
------ -----------
10.1 Amended and Restated Credit Agreement, dated April
17, 1998, among Safeguard Scientifics, Inc.,
Safeguard Scientifics (Delaware), Inc., Safeguard
Delaware, Inc. and PNC Bank, N.A. (exhibits omitted).
(1)
10.2 Amendment No. 1 to Amended and Restated Credit
Agreement, dated as of June 26, 1998, among CompuCom
Systems, Inc., certain lenders party hereto, and
NationsBank of Texas, N.A., as administrative lender
(exhibits omitted) *
27 Financial Data Schedule (electronic filing only) *
* filed herewith
(1) Incorporated by reference from registrant's form 10-Q
for the quarter ended March 31, 1998 dated May 15, 1998
and made a part hereof by such reference
(b) No reports on Form 8-K have been filed by the Registrant
during the quarter ended June 30, 1998.
20
<PAGE>
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, 1998 /s/ Donald R. Caldwell
-----------------------------------------
Donald R. Caldwell
President and Chief Operating Officer
Date: August 14, 1998 /s/ Michael W. Miles
-----------------------------------------
Michael W. Miles
Senior Vice President and Chief Financial
Officer
(Principal Financial and
Principal Accounting Officer)
21
<PAGE>
Exhibit 10.2
CONSENT, WAIVER AND FIRST AMENDMENT
TO AMENDED AND RESTATED CREDIT AGREEMENT
THIS CONSENT, WAIVER AND FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT
AGREEMENT (this "First Amendment"), dated as of June 26, 1998, is entered into
among COMPUCOM SYSTEMS, INC., a Delaware corporation (the "Borrower"), COMPUCOM
PROPERTIES, INC., a Delaware corporation ("Properties"), COMPUTER INTEGRATION
CORP., a Delaware corporation ("CIC") (Properties and CIC being sometimes
collectively referred to herein as the "Guarantors"), the lenders listed on the
signature pages hereof (the "Lenders"), and NATIONSBANK, N.A., successor by
merger to NationsBank of Texas, N.A., as Administrative Lender for the Lenders
(in said capacity, the "Administrative Lender").
BACKGROUND
A. The Borrower, the Lenders and the Administrative Lender heretofore
entered into a certain Amended and Restated Credit Agreement, dated as of
November 3, 1997 (the "Credit Agreement"; the terms defined in the Credit
Agreement and not otherwise defined herein shall be used herein as defined in
the Credit Agreement).
B. The Guarantors have heretofore executed and delivered certain Loan
Documents pursuant to which the Guarantors have guaranteed the indebtedness and
obligations of the Borrower under, or in connection with, the Credit Agreement
and pursuant to which the Guarantors have granted certain Liens to the
Administrative Lender as security for such indebtedness and obligations.
C. The Borrower has advised the Administrative Lender and the Lenders
that the Borrower has entered into a certain Agreement and Plan of Merger, dated
as of April 10, 1998, among the Borrower, CompuCom Acquisition Corp., a Florida
corporation and a wholly-owned subsidiary of the Borrower (the "Acquisition
Subsidiary") and Dataflex Corporation, a Florida corporation ("Dataflex") (such
Agreement and Plan of Merger, together with the documents executed in connection
therewith or in connection with the consummation of the transactions
contemplated thereby, being collectively referred to herein as the "Dataflex
Acquisition Documents"), pursuant to which (i) the Borrower, through the
Acquisition Subsidiary, will acquire all of the issued and outstanding shares of
the common stock, other outstanding securities and other indicia of ownership of
Dataflex (or same will otherwise be terminated, retired or relinquished) and the
Borrower will pay certain other costs and expenses associated with such
transactions, for an aggregate amount not to exceed $25,000,000, (ii) the
Borrower will repay certain existing indebtedness of Dataflex in an aggregate
amount not to exceed $17,500,000 and (iii) Dataflex will merge with the
Acquisition Subsidiary, with Dataflex being the surviving entity and a
wholly-owned subsidiary of the Borrower.
<PAGE>
D. The Borrower and the Guarantors have requested that the
Administrative Lender and the Lenders waive the Event of Default that would
otherwise exist under clause (v) of Section 7.6 of the Credit Agreement by
virtue of the consummation of the transactions contemplated by the Dataflex
Acquisition Documents and that the Administrative Lender and the Lenders waive
certain other requirements under the Credit Agreement in connection therewith,
all as more fully described herein, and, subject to the terms, conditions and
limitations set forth herein, the Administrative Lender and the Lenders are
prepared to do so. The Borrower, the Guarantors, the Lenders and the
Administrative Lender also desire to amend the Credit Agreement in certain
respects.
NOW, THEREFORE, in consideration of the covenants, conditions and
agreements hereinafter set forth, and for other good and valuable consideration,
the receipt and adequacy of which are all hereby acknowledged, the Borrower, the
Guarantors, the Lenders and the Administrative Lender covenant and agree as
follows:
1. AMENDMENTS.
1.1 Article I of the Credit Agreement is hereby amended by
adding thereto the following additional defined terms:
"`Borrower's Corporate Headquarters' means the building
located at 7171 Forest Lane in Dallas, Texas, together with
the land upon which such building is located and the other
improvements located on such land."
"`CIC' means Computer Integration Corp., a Delaware
corporation and a wholly-owned Subsidiary of the Borrower."
"`First Amendment' means that certain Consent, Waiver and
First Amendment to Amended and Restated Credit Agreement,
dated as of June 26, 1998, among the Borrower, Properties,
CIC, the Administrative Lender and the Lenders."
"`First Amendment Initial Pricing Period' means the period
from and including the effective date of the First Amendment
to and including the First Amendment Rate Adjustment Date."
"`First Amendment Rate Adjustment Date' means the date which
is two Business Days following the date that the Lenders
receive the financial statements for the fiscal quarter ended
September 30, 1998, required to be delivered pursuant to
Section 6.1 or 6.2 hereof, together with the Compliance
Certificate in connection therewith, required to be delivered
pursuant to Section 6.3 hereof."
-2-
<PAGE>
"`Properties' means CompuCom Properties, Inc., a Delaware
corporation and a wholly-owned Subsidiary of the Borrower."
"`Replacement Facility A Notes' means the promissory notes of
the Borrower evidencing Facility A Advances hereunder,
substantially in the form of Exhibit A hereto, together with
any extensions, renewals or amendments thereof, or
substitutions therefor, which Replacement Facility A Notes
constitute renewals, extensions, modifications and increases
of and to the Facility A Notes and the indebtedness evidenced
thereby."
"`Replacement Facility B Notes' means the promissory notes of
the Borrower evidencing Facility B Advances hereunder,
substantially in the form of Exhibit B hereto, together with
any extensions, renewals or amendments thereof, or
substitutions therefor, which Replacement Facility B Notes
constitute renewals, extensions and modifications of and to
the Facility B Notes and the indebtedness evidenced thereby."
"`Replacement Notes' means, collectively, the Replacement
Facility A Notes and the Replacement Facility B Notes."
1.2 The definition of "Applicable LIBOR Rate Margin" set forth
in Article I of the Credit Agreement is hereby amended to read as
follows:
"`Applicable LIBOR Rate Margin'" means the following per annum
percentages, applicable in the following situations:
<TABLE>
<S> <C>
(a) First Amendment Initial Pricing Period 0.875%
(b) Subsequent Pricing Period
(1) The Fixed Charge Coverage Ratio is greater than or equal 0.625%
to 2.50 to 1.00
(2) The Fixed Charge Coverage Ratio is less than 2.50 to 1.00 0.750%
but greater than or equal to 2.00 to 1.00
(3) The Fixed Charge Coverage Ratio is less than 2.00 to 1.00 0.875%
but greater than or equal to 1.50 to 1.00
</TABLE>
-3-
<PAGE>
<TABLE>
<S> <C>
(4) The Fixed Charge Coverage Ratio is less than 1.50 to 1.00 1.125%
</TABLE>
The Applicable Margin payable by the Borrower on the LIBOR Advances outstanding
hereunder shall be subject to reduction or increase, as applicable and as set
forth in the table above, on a quarterly basis according to the performance of
the Borrower as tested by using the Fixed Charge Coverage Ratio calculated as of
the end of each fiscal quarter during the Subsequent Pricing Period; provided,
that each adjustment in the LIBOR Basis shall be effective with respect to LIBOR
Advances (i) made following receipt by the Administrative Lender of the
financial statements required to be delivered pursuant to Section 6.1 or 6.2
hereof, as applicable, for each such fiscal quarter, and the corresponding
Compliance Certificate required pursuant to Section 6.3 hereof, on the date of
making such LIBOR Advance and (ii) outstanding on the date of receipt of such
financial statements and Compliance Certificate referred to in clause (i)
immediately preceding, on the date which is two Business Days following the date
of receipt of such financial statements and Compliance Certificate. If such
financial statements and Compliance Certificate are not received by the
Administrative Lender by the date required, effective as of the first Business
Day following notification thereof from the Administrative Lender to the
Borrower, the Applicable LIBOR Rate Margin shall be determined as if the Fixed
Charge Coverage Ratio is less than 1.50 to 1.00 until such time as such
financial statements and Compliance Certificate are received."
1.3 The definition of "EBITDA" set forth in Article I of the
Credit Agreement is hereby amended to read as follows:
"`EBITDA' means, for any period, determined in accordance with
GAAP on a consolidated basis for the Borrower and its
Subsidiaries, the sum of (a) EBIT plus (b) depreciation and
amortization (other than amortization of service parts), to
the extent that such depreciation and amortization are
included in determining EBIT."
1.4 The definition of "Facility A Commitment" set forth in
Article I of the Credit Agreement is hereby amended to read as follows:
"`Facility A Commitment' means $165,000,000, as reduced
pursuant to Section 2.6 hereof."
1.5 The definition of "Fixed Charges" set forth in Article I
of the Credit Agreement is hereby amended to read as follows:
"`Fixed Charges' means, for any date of calculation,
calculated for Borrower and its Subsidiaries on a consolidated
basis, the sum of, without duplication, (a) the greater of (i)
Current Maturities and
-4-
<PAGE>
(ii) 10% of Funded Debt, plus (b) interest expense (including
interest expense pursuant to Capitalized Lease Obligations);
provided, however, that (x) for purposes of calculating Fixed
Charges for the quarter ending September 30, 1998, 2.50% of
Funded Debt shall be utilized in the foregoing calculation,
(y) for purposes of calculating Fixed Charges for the quarter
ending December 31, 1998, 5.0% of Funded Debt shall be
utilized in the foregoing calculation and (z) for purposes of
calculating Fixed Charges for the quarter ending March 31,
1999, 7.50% of Funded Debt shall be utilized in the foregoing
calculation."
1.6 The definition of "Fixed Charge Coverage Ratio" set forth
in Article I of the Credit Agreement is hereby amended to read as
follows:
"`Fixed Charge Coverage Ratio' means the ratio of EBITDA to
Fixed Charges, calculated for the four consecutive fiscal
quarters immediately preceding the date of calculation;
provided, however, that for each of the three consecutive
fiscal quarters beginning with the fiscal quarter ending
September 30, 1998, the Fixed Charge Coverage Ratio shall mean
the ratio of EBITDA to Fixed Charges, calculated for the
actual fiscal quarter(s) that have ended since September 29,
1998 and prior to the date of calculation."
1.7 The definition of "Notes" set forth in Article I of the
Credit Agreement is hereby amended to read as follows:
"`Notes' means, collectively, the Facility A Notes, the
Facility B Notes, the Swing Line Note and the Replacement
Notes."
1.8 The definition of "Specified Percentage" set forth in
Article I of the Credit Agreement is hereby amended to read as follows:
"`Specified Percentage' means, as to any Lender, the
percentage indicated beside its name on the signature pages to
the First Amendment, or if applicable, specified in its most
recent Assignment Agreement."
1.9 The definition of "Subsequent Pricing Period" set forth in
Article I of the Credit Agreement is hereby amended to read as follows:
"`Subsequent Pricing Period' means the period from and
including the date which is the first day following the end
of the First
-5-
<PAGE>
Amendment Initial Pricing Period to and including the
Maturity Date."
1.10 Section 7.1 of the Credit Agreement is hereby amended by
adding a new clause (o) thereto reading as follows:
"(o) Subordinated Debt, not to exceed $150,000,000 in the
aggregate principal amount outstanding at any time."
1.11 Section 7.13 of the Credit Agreement is hereby deleted in
its entirety and the following is hereby substituted in lieu thereof:
"Section 7.13 Minimum Tangible Net Worth. The Borrower shall
not permit the Tangible Net Worth to be less than an amount
equal to the sum of (a) $135,000,000, plus (b) 75% of
cumulative Net Income for the period from, but not including,
March 31, 1998 through the date of calculation (but excluding
from the calculation of such cumulative Net Income the effect,
if any, of any fiscal quarter (or portion of a fiscal quarter
not then ended) of the Borrower for which Net Income was a
negative number, plus (c) 75% of the Net Cash Proceeds
received by the Borrower as a result of any offering of Equity
or pursuant to any conversion or exchange of convertible
Indebtedness or preferred Capital Stock into common Capital
Stock of the Borrower, plus (d) an amount equal to the net
worth of any Person that becomes a Subsidiary of the Borrower
or is merged into or consolidated with the Borrower or any
Subsidiary of the Borrower or substantially all of the assets
of which are acquired by the Borrower or any Subsidiary of the
Borrower to the extent the purchase price paid therefor is
paid in equity securities of the Borrower or any Subsidiary of
the Borrower."
1.12 Notwithstanding anything to the contrary contained in the
Credit Agreement or any of the other Loan Documents, subject to the
fulfillment of the following conditions precedent to the satisfaction
of the Administrative Lender, the Borrower may enter into any
transaction, or series of transactions, pursuant to which the Borrower
may sell the Borrower's Corporate Headquarters and contemporaneously
therewith leaseback the Borrower's Corporate Headquarters from the
purchaser thereof:
(a) no Default or Event of Default shall exist
immediately prior to, or after giving effect to, any
of such transaction(s);
-6-
<PAGE>
(b) contemporaneously with the consummation of such
transaction(s), in addition to any and all other
payments and/or prepayments that may be required by
the Credit Agreement and/or the other Loan Documents,
all of the Replacement Facility B Notes, together
with any and all accrued and unpaid interest thereon,
any and all costs and expenses of the Administrative
Lender and/or the Lenders relating thereto and any
and all other Obligations relating thereto shall have
been paid in full; and
(c) the documentation and other aspects of such
transaction(s) shall be reasonably acceptable to the
Administrative Lender.
1.13 The Replacement Notes constitute renewals, extensions,
amendments, increases (with respect to the Replacement Facility A Notes
only) and restatement of the outstanding principal balances under the
Facility A Notes and the Facility B Notes held by the Lenders, and are
not a novation of the Obligations evidenced thereby. On the effective
date of this First Amendment, the Facility A Notes and the Facility B
Notes and all of the outstanding indebtedness of the Borrower
thereunder shall be acquired by the Administrative Lender for the
ratable benefit of the Lenders in their respective Specified
Percentages (as set forth in this First Amendment). On the effective
date of this First Amendment, the outstanding indebtedness of the
Borrower under the Facility A Notes shall be renewed, extended,
modified, increased and restated by the Replacement Facility A Notes,
payable to the Lenders in their respective Specified Percentages (as
set forth in this First Amendment). On the effective date of this First
Amendment, the outstanding indebtedness of the Borrower under the
Facility B Notes shall be renewed, extended, modified and restated by
the Replacement Facility B Notes, payable to the Lenders in their
respective Specified Percentages (as set forth in this First
Amendment). The Borrower hereby consents to the acquisition by the
Administrative Lender of the indebtedness, rights and interests
described above. Except insofar as any of same may have heretofore
been, or may contemporaneously herewith or hereafter be, released
pursuant to written release documentation executed and delivered by the
Administrative Lender, all Liens covering the Collateral, or any part
thereof, under the collateral documents executed in connection with the
Credit Agreement shall remain valid, binding and enforceable Liens
against the Persons which granted such Liens, as security for the
Replacement Notes and all of the other Obligations.
2. CONSENTS/WAIVERS IN CONNECTION WITH DATAFLEX ACQUISITION.
2.1 Subject to the terms and limitations set forth herein, the
Administrative Lender and each of the Lenders hereby waive the Event of
Default that would otherwise exist under clause (v) of Section 7.6 of
the Credit Agreement by virtue of the fact that the aggregate
consideration (exclusive of Equity in the Borrower or any Subsidiary of
the Borrower, but inclusive of any Indebtedness incurred or assumed by
the Borrower or any Subsidiary of the Borrower) paid or given by the
Borrower and/or Borrower's Subsidiaries
-7-
<PAGE>
during calendar year 1998 in connection with Acquisitions would, by
virtue of the consummation of the transactions contemplated by the
Dataflex Acquisition Documents, exceed $20,000,000; PROVIDED, HOWEVER,
that the foregoing waiver shall be effective only to the extent that
the aggregate amount of consideration (exclusive of Equity in the
Borrower or any Subsidiary of the Borrower, but inclusive of any
Indebtedness incurred or assumed by the Borrower or any Subsidiary of
the Borrower) paid or given by the Borrower and/or Borrower's
Subsidiaries in connection with transactions contemplated by the
Dataflex Acquisition Documents does not exceed $42,500,000 and only
for so long as none of the material terms or provisions of any of the
Dataflex Acquisition Documents are amended, modified or waived by, or
with the consent of, the Borrower or any Subsidiary of the Borrower.
2.2 The Administrative Lender, each of the Lenders, the
Borrower and each of the Guarantors hereby further agree that,
notwithstanding anything to the contrary contained in any of the Loan
Documents, the provisions of Sections 5.12 and 7.6 of the Credit
Agreement requiring that certain property and assets of Dataflex be
pledged to the Administrative Lender, as additional security for the
Obligations, are hereby waived and, in lieu thereof, the Borrower and
Dataflex shall grant to the Administrative Lender, for the benefit of
the Lenders, the liens and security interests, and shall take the other
actions, required by paragraphs 3 and 4 hereof.
3. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF THE
BORROWER AND THE GUARANTORS. By its execution and delivery hereof, each of the
Borrower and each Guarantor hereby represents and warrants to the Administrative
Lender and to each Lender, and hereby covenants and agrees with the
Administrative Lender and each Lender, that, as of the date hereof and after
giving effect to the amendments contemplated by Section 1 hereof:
(a) The representations and warranties contained in the Credit
Agreement are true and correct on and as of the date hereof as made on
and as of such date, except to the extent that any representation or
warranty, by its own terms, relates only to a different specific date;
(b) No event has occurred and is continuing which constitutes
a Default or an Event of Default;
(c) Each of Borrower and each Guarantor has full power and
authority to execute and deliver this First Amendment, and this First
Amendment, the Credit Agreement, as amended hereby, and each of the
other Loan Documents constitute the legal, valid and binding
obligations of Borrower and each Guarantor, as applicable, enforceable
in accordance with their respective terms, except as enforceability may
be limited by applicable debtor relief laws and by general principles
of equity (regardless of
-8-
<PAGE>
whether enforcement is sought in a proceeding in equity or at law) and
except as rights to indemnity may be limited by federal or state
securities laws;
(d) No authorization, approval consent, or other action by,
notice to, or filing with, any governmental authority or other Person
(including the respective Board of Directors of Borrower or either
Guarantor) is required for the execution, delivery or performance by
Borrower and each Guarantor of this First Amendment;
(e) Neither CIC nor Dataflex has any Subsidiaries;
(f) On or before December 31, 1998, all distribution centers
of Dataflex, shall have been closed and any and all inventory and other
property of Dataflex located at such facilities shall have been moved
to distribution centers, or other facilities, of the Borrower;
(g) From and after the effective date of the merger of
Dataflex and the Acquisition Subsidiary, the aggregate fair market
value of Dataflex's inventory shall not, at any time, exceed
$6,000,000; provided, further, that from and after December 31, 1998
Dataflex shall not own any inventory whatsoever;
(h) From and after December 31, 1998, Dataflex shall not
generate or create any material new accounts receivables or other
receivables;
(i) Promptly following the consummation of the transactions
contemplated by the Dataflex Acquisition Documents, the Borrower shall
execute and deliver to the Administrative Lender such pledge
agreements, security agreements, financing statements, stock
certificates and stock powers (all in form and substance acceptable to
the Administrative Lender), and shall take such other actions and do
such other things, as the Administrative Lender shall reasonably
require in order to create a first priority Lien in favor of the
Administrative Lender, for the benefit of the Lenders, covering all of
the issued and outstanding capital stock and other indicia of
ownership, whether then existing or thereafter arising, of Dataflex, as
additional security for the Obligations; and
(j) Upon request of the Administrative Lender and the
Determining Lenders, the Borrower shall hereafter promptly deliver to
the Administrative Lender any and all security agreements, financing
statements, subordination agreements and other documents, agreements
and instruments, in each case duly executed by Dataflex and any other
necessary or appropriate Person(s), as the Administrative Lender shall,
from time to time, reasonably require in order to create a first
priority Lien in favor of the Administrative Lender covering all of the
accounts receivable and other receivables of Dataflex, as security for
the Obligations.
4. CONDITIONS OF EFFECTIVENESS. This First Amendment shall be effective
as of the date first above written, subject to the following:
-9-
<PAGE>
(a) The Administrative Lender shall have received counterparts
of this First Amendment executed by each Lender;
(b) The Administrative Lender shall have received counterparts
of this First Amendment executed by the Borrower and by each Guarantor;
(c) The Administrative Lender shall have received a Subsidiary
Guaranty executed by Dataflex;
(d) The Borrower shall have pledged to the Administrative
Lender, for the benefit of the Lenders, as additional security for the
Obligations, all of the issued and outstanding capital stock and other
indicia of ownership, whether now existing or hereafter arising, of the
Acquisition Subsidiary, pursuant to documentation acceptable to the
Administrative Lender;
(e) The Administrative Lender shall have received the
Replacement Notes, executed by the Borrower;
(f) The Administrative Lender shall have received
indorsement(s), in form and substance acceptable to the Administrative
Lender, to the existing mortgagee title policy in favor of the
Administrative Lender and the Lenders, covering the Borrower's
Corporate Headquarters, confirming that the Lien in favor of the
Administrative Lender and the Lenders, and such existing mortgagee
title policy, with respect to the Borrower's Corporate Headquarters
cover the Replacement Facility B Notes and that neither such Lien nor
such mortgagee title policy are adversely affected by the execution and
delivery of such Replacement Facility B Notes;
(g) Prior to the consummation of the transactions contemplated
by the Dataflex Acquisition Documents, the Administrative Lender shall
have received such corporate resolutions, opinions, certificates and
other information, documents and papers as the Administrative Lender
shall have reasonably requested, in each case, executed by all
necessary or appropriate parties and in form and substance acceptable
to the Administrative Lender; and
(h) The transactions contemplated by the Dataflex Acquisition
Documents shall have been consummated in accordance with the terms and
provisions of the Dataflex Acquisition Documents, to the reasonable
satisfaction of the Administrative Lender.
5. REFERENCE TO THE CREDIT AGREEMENT.
(a) Upon the effectiveness of this First Amendment, each
reference in the Credit Agreement to "this Agreement", "hereunder", or
words of like import shall mean and be a reference to the Credit
Agreement, as affected and amended hereby.
-10-
<PAGE>
(b) The Credit Agreement, as amended by the amendments
referred to above, and each of the other Loan Documents shall remain in
full force and effect and are hereby ratified and confirmed by each of
the Borrower and each Guarantor. Without limiting the generality of the
foregoing, each Guarantor hereby acknowledges and agrees that neither
this First Amendment nor the transactions contemplated hereby shall
release, terminate, diminish or otherwise adversely affect any Guaranty
or Collateral Document executed by such Guarantor in connection with
the Credit Agreement or any of such Guarantor's obligations thereunder.
6. COSTS, EXPENSES AND TAXES. The Borrower agrees to pay on demand all
reasonable costs and expenses of the Administrative Lender in connection with
the preparation, reproduction, execution and delivery of this First Amendment
and the other instruments and documents to be delivered hereunder (including the
reasonable fees and out-of-pocket expenses of counsel for the Administrative
Lender with respect thereto and with respect to advising the Administrative
Lender as to its rights and responsibilities under the Credit Agreement, as
hereby amended).
7. EXECUTION IN COUNTERPARTS. This First Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which when taken together shall constitute but one and
the same instrument.
8. GOVERNING LAW: BINDING EFFECT. This First Amendment shall be
governed by and construed in accordance with the laws of the State of Texas and
shall be binding upon the Borrower, each Guarantor, the Administrative Lender
and each Lender and their respective successors and assigns.
9. HEADINGS. Section headings in this First Amendment are included
herein for convenience of reference only and shall not constitute a part of this
First Amendment for any other purpose.
10. ENTIRE AGREEMENT. THE CREDIT AGREEMENT, AS AMENDED BY THIS FIRST
AMENDMENT, AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS,
OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
-11-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment as of the date first above written.
BORROWER: COMPUCOM SYSTEMS, INC.
By: /s/ Daniel Celoni
----------------------------
Name: Daniel Celoni
--------------------
Title: Treasurer
--------------------
GUARANTORS: COMPUCOM PROPERTIES, INC.
By: /s/ M. Lazane Smith
----------------------------
Name: M. Lazane Smith
---------------------
Title: President
---------------------
COMPUTER INTEGRATION CORP.
By: /s/ Daniel Celoni
----------------------------
Name: Daniel Celoni
---------------------
Title: V. P.
---------------------
ADMINISTRATIVE LENDER NATIONSBANK, N.A., successor by merger to NationsBank of
Texas, N.A., as Administrative Lender
By: /s/ Timothy M. O'Connor
----------------------------
Name: Timothy M. O'Connor
---------------------
Title: Vice President
---------------------
-12-
<PAGE>
LENDERS: NATIONSBANK, N.A., successor by merger to
NationsBank of Texas, N.A., as a Lender,
Swing Line Bank and Issuing Bank
Specified Percentage: 14.210526316%
By: /s/ Timothy M. O'Connor
-------------------------------
Name: Timothy M. O'Connor
--------------------
Title: Vice President
--------------------
SANWA BUSINESS CREDIT CORPORATION
Specified Percentage: 8.947368421%
By: /s/ Stanley Kaminski
-------------------------------
Name: Stanley Kaminski
--------------------
Title: Vice President
--------------------
FIRST UNION NATIONAL BANK, successor by
merger to Corestates Bank, N.A.
Specified Percentage: 10.526315789%
By: /s/ Robert A. Brown
-------------------------------
Name: Robert A. Brown
--------------------
Title: Vice President
--------------------
NATIONAL CITY BANK OF KENTUCKY
Specified Percentage: 10.526315789%
By: /s/ Lisa M. Mahoney
-------------------------------
Name: Lisa M. Mahoney
--------------------
Title: Assistant Vice President
-------------------------
PNC BANK, NATIONAL ASSOCIATION,
successor-by- merger to Midlantic
Bank, N.A.
Specified Percentage: 10.526315789%
By: /s/ Joseph G. Meterchick
-------------------------------
Name: Joseph G. Meterchick
--------------------
Title: Vice President
--------------------
CREDIT LYONNAIS NEW YORK BRANCH
Specified Percentage: 7.894736842%
By: /s/ Robert Ivosevich
-------------------------------
Name: Robert Ivosevich
--------------------
Title: Senior Vice President
----------------------
-13-
<PAGE>
UNION BANK OF CALIFORNIA, N.A.
Specified Percentage: 8.947368421%
By: /s/ Ann Yasuda
-------------------------------
Name: Ann Yasuda
----------------------
Title: Vice President
----------------------
By:
-------------------------------
Name:
----------------------
Title:
----------------------
NATIONAL BANK OF CANADA
Specified Percentage: 8.947368421%
By: /s/ Bill Handley
-------------------------------
Name: Bill Handley
----------------------
Title: Vice President
----------------------
By: /s/ Larry L. Sears
-------------------------------
Name: Larry L. Sears
----------------------
Title: Vice President and
Manager
----------------------
COMERICA BANK
Specified Percentage: 8.947368421%
By: /s/ Reginald M. Goldsmith III
-------------------------------
Name: Reginald M. Goldsmith III
----------------------
Title: Vice President
----------------------
FLEET NATIONAL BANK
Specified Percentage: 10.526315789%
By: /s/ Frank Benesh
-------------------------------
Name: Frank Benesh
----------------------
Title: Vice President
----------------------
-14-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1998 AND THE CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998 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-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 6,447
<SECURITIES> 0
<RECEIVABLES> 315,886
<ALLOWANCES> 5,463
<INVENTORY> 204,613
<CURRENT-ASSETS> 528,515
<PP&E> 133,661
<DEPRECIATION> 36,182
<TOTAL-ASSETS> 974,622
<CURRENT-LIABILITIES> 321,146
<BONDS> 265,865
0
0
<COMMON> 3,280
<OTHER-SE> 247,687
<TOTAL-LIABILITY-AND-EQUITY> 974,622
<SALES> 913,370
<TOTAL-REVENUES> 1,068,360
<CGS> 813,089
<TOTAL-COSTS> 900,113
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,494
<INCOME-PRETAX> 20,818
<INCOME-TAX> 7,390
<INCOME-CONTINUING> 11,086
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,086
<EPS-PRIMARY> .35
<EPS-DILUTED> .33
</TABLE>
