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Subj: Safeguard Scientifics Announces 1998 Fourth Quarter and...
Date: 2/17/99 7:50:04 AM Eastern Standard Time
Safeguard Scientifics Announces 1998 Fourth Quarter and Year End Operating Results
WAYNE, Pa., Feb. 17 /PRNewswire/ -- Safeguard Scientifics, Inc.
(NYSE: SFE), a company which invests in and operates rapidly growing
information technology businesses, announces operating results for the fourth
quarter and year ended December 31, 1998.
Net earnings for the year ended December 31, 1998, were $110.1 million, or
$3.22 a share (diluted), compared to $21.5 million, or $.66 a share (diluted),
in 1997. Net earnings for the fourth quarter of 1998 were $39.8 million, or
$1.18 a share (diluted), compared to $6.1 million, or $.19 a share (diluted),
in 1997. The significant earnings increase for the year reflects the net gain
in 1998 of $126.3 million (net of tax) resulting from the August merger of
Coherent Communications and Tellabs and net of the subsequent adjustment on
the Tellabs holdings, partially offset by a fourth quarter restructuring
charge at CompuCom. CompuCom's gross restructuring charge was $16.4 million
(pretax), of which Safeguard recognized approximately one half after minority
interest. The significant increase in the fourth quarter earnings includes
$48.3 million (net of tax) from gains on the Tellabs holdings.
Michael W. Miles, senior vice president and CFO, commented, "The reported
earnings for the quarter were once again favorably affected by the unrealized
gain on our Tellabs holdings. As we continue investing more heavily in the
Internet, we can expect more volatility in our earnings. Traditional earnings
and revenue growth models do not reflect Safeguard's value or growth
potential. Instead, it is measured by the value creation in the public and
private portfolio companies. We will not be forecasting financial models
going forward in order to be flexible in our Internet strategy. However, we
do expect to be profitable each quarter prior to any unrealized gain or loss
adjustment on our Tellabs holdings. Earnings in any particular quarter could
fluctuate depending on the timing of security sales."
"1998 was a very active year for Safeguard and its partnership companies,"
said Pete Musser, chairman and CEO of Safeguard Scientifics, Inc. "The
Company completed several very exciting new investments, including Kanbay,
Pac-West Telecomm, and US Interactive. In addition, several significant
mergers and acquisitions were completed, most notably Coherent's merger with
Tellabs, culminating a 17-year relationship between Coherent and Safeguard.
In contrast, the market was very volatile in 1998, with several of our public
partnership companies trading at what we believed to be undervalued prices.
As a result, we took advantage of the market conditions by spending over
$19.2 million to repurchase certain of the public portfolio companies' shares
in 1998 and also spent approximately $18.6 million to repurchase 765,000
Safeguard shares. Most of our stocks, most notably Safeguard, have recovered
nicely in 1999."
Safeguard recently announced the appointment of Harry Wallaesa as
president and COO, replacing Donald Caldwell, who announced in November that
he was resigning to start a new venture fund. Commented Mr. Musser, "Harry
brings an outstanding IT background to the Safeguard family, having been the
CIO of Campbell Soup and most recently as the founder and CEO of aligne, Inc.,
an IT strategic technology management consulting firm that provides strategic
management consulting services to executives of Fortune 500 companies. Harry
and aligne have assisted several of the Safeguard partnership companies, most
recently helping CompuCom redefine its services strategy. Harry has been
around the Safeguard family since 1993 and will have an immediate impact due
to his close knowledge of the Safeguard companies and culture."
Safeguard also announced that it would be acquiring a majority interest in
aligne, Inc., which it expects to close in the near future.
Selected Public Partnership Company Developments
The following are selected developments at public partnership companies.
-- CompuCom (Nasdaq: CMPC) announced a significant restructuring in
November to move to a branchless operating model. All branches were
closed, and the company reduced its workforce 10% with expected
annual savings in excess of $30 million. Tom Lynch, former senior
vice president of Safeguard, joined the CompuCom management team and
has made a significant contribution towards redirecting the marketing
and distribution organization within CompuCom. CompuCom also
recently added John McKenna to its management team as vice president
of managed desktop services. John recently worked with Oracle as
senior vice president of services and previously co-founded a
consulting and global technology services company.
-- Cambridge Technology Partners (Nasdaq: CATP) reported 40% revenue
growth in 1998 with earnings up 50%, excluding business combination
costs. At year-end, approximately 50% of its projects worldwide
contained an Internet or interactive component, and it was recognized
by Forrester in October 1998 as the number one transactive content
integrator.
-- ChromaVision Medical Systems, Inc. (Nasdaq: CVSN) is making
significant progress with clinical trials for its Automated Cellular
Imaging System (ACIS(TM)). The company submitted an application to
the FDA in November to use the ACIS for Immunohistochemical (IHC)
applications. Clearance from the FDA, which is expected in the first
quarter of 1999, would rapidly accelerate expansion of the spectrum
of clinical tests that can be performed on the ACIS platform.
-- Diamond Technology Partners (Nasdaq: DTPI) continues to be recognized
as a leader in the development and implementation of digital
strategies. It reported 46% growth in earnings for its fiscal third
quarter ended December 31, 1998, on revenue growth of 38%. It
continues to broaden its client base to 45 clients served in the most
recent quarter, and has had very low turnover of only 11% over the
last four quarters.
-- DocuCorp International (Nasdaq: DOCC) announced the introduction of
two new offerings for users of its popular Policy Production System
(PPS) that allow PPS to be accessed via the Internet or an intranet.
The new offerings are called Internet Policy Production System (iPPS)
and Internet Policy Production System Hosting (iPPS Hosting).
-- Sanchez Computer Associates, Inc. (Nasdaq: SCAI) reported an 84%
increase in earnings per share with 53% revenue growth. Sanchez also
recently announced the formation of a dedicated e-banking service
center through an agreement to purchase a banking technology center
near Pittsburgh. The new service offering, called e-Profile.com,
will allow leading financial institutions to launch new direct banks
from an operations and technology perspective in 30 to 90 days with
little or no up-front capital.
-- OAO Technology Solutions, Inc. (Nasdaq: OAOT) initiated management
and cost restructurings in 1998 which are expected to result in
annualized pretax savings in excess of $3.4 million. Combined with
two acquisitions in 1998, a $60 million IT staffing augmentation
services company and an Enterprise Resource Planning integrator, OAOT
is well-positioned to target higher margin services business in 1999.
It also recently announced a 10-year contract for approximately $150
million with IBM Global Services to provide application development
and maintenance services in support of IBM's application outsourcing
contract with AT&T.
Significant Corporate and Private Partnership Company Developments
Safeguard added to its pipeline of rights offering candidates by
completing seven new investments in 1998. The following are highlights at
several of the private partnership companies.
-- Pac-West Telecomm, Inc., a leading California-based competitive local
exchange carrier (CLEC), recently raised $150 million in 10-year
bonds to fund the company's expansion throughout the Western U.S. In
1999, it will begin the expansion of its business model, offering
local, long distance, international, and data services throughout
each of its new target markets to Internet service providers and
other medium and small businesses. The expansion will begin with the
installation of new facilities in Nevada, Washington, and Arizona in
1999. Pac-West reported over 40% revenue growth in 1998 and has been
profitable. Safeguard owns 16% of Pac-West.
-- Kanbay LLC, a Chicago-area based global IT consulting firm with
offices in the United States as well as India, United Kingdom and
Hong Kong, reported revenue growth of over 50% in 1998 and is also
profitable. The company utilizes an innovative IT multi-site
approach focused primarily on implementation and integration of
packaged solutions for the finance and telecommunications industries
as well as Year 2000 solutions. Safeguard owns 28% of Kanbay.
-- US Interactive, a Philadelphia-area based Internet professional
services firm, provides electronic enterprise solutions consisting of
applications (Internet, intranet, extranet) which helps customers
facilitate their eCommerce strategies. It significantly increased
its capabilities in 1998 with its merger with Digital Evolution in
Los Angeles, and expects 50% revenue growth in 1999. Safeguard owns
15% of US Interactive.
-- Internet Capital Group (ICG), a company formed in 1996 by Safeguard
and two of its executives, Walter Buckley and Ken Fox, along with
Compaq and Comcast Corporation to invest in and operate Internet-
related companies, had several outstanding success stories in 1998.
WiseWire, one of its earliest investments, was sold to Lycos, and
MatchLogic was sold to Excite in stock deals. In addition, last
week, its largest portfolio holding, VerticalNet, went public at $16
a share and immediately traded up to over $40, where it presently is
trading. ICG has over 25 companies in its portfolio, primarily
focused on the business-to-business market. Safeguard owns 26% of
ICG.
-- TL Ventures, one of Safeguard's associated private equity funds with
over $500 million under management, was also an investor with ICG in
WiseWire, MatchLogic, and VerticalNet through its latest fund, TL
III. In addition, a fourth success, WebLogic, was sold to BEA
Systems, Inc. in the fourth quarter. Safeguard received $10 million
of distributions from TL Ventures in 1998.
The Company continues to monitor the small capitalization IPO stock market
which remains weak for small cap stocks, except those involved in the
Internet. As a result, Safeguard is targeting its next rights offering to be
an Internet-related company.
Commented Mr. Musser, "The IPO market has been improving for selected
stocks, such as those involved with the Internet, and we want to ensure our
next rights offering is in the best interests of our shareholders, our rights
offering candidates, and the Company. The portfolio of private companies is
the strongest we've seen, and the new investment pipeline has some very
exciting opportunities that fit perfectly with our new investment strategy.
We also are fortunate to have Harry Wallaesa join us as president and COO
during this exciting time. He will be a real asset for the Company and our
partnership companies."
About Safeguard
Safeguard Scientifics, Inc. (www.safeguard.com) is a unique partnership of
entrepreneurial companies focused on information technology markets.
Safeguard has a proven track record of bringing emerging companies to market
through rights offerings to Safeguard shareholders. Past Safeguard rights
offerings include Novell, Inc., CompuCom Systems, Inc., Cambridge Technology
Partners, Coherent Communications Systems Corporation (merged with Tellabs,
effective 8/3/98), USDATA Corporation, Integrated Systems Consulting Group
(merged with First Consulting Group, effective December 18, 1998), Sanchez
Computer Associates, Diamond Technology Partners, Inc., ChromaVision Medical
Systems, OAO Technology Solutions, and DocuCorp International.
Safeguard Scientifics, Inc.
Comparative financial data
Consolidated Statements of Operations
Quarter Ended Year Ended
December 31, December 31,
1998 1997 1998 1997
(000's omitted, except per share data)
Product sales $545,745 $461,024 $1,994,965 $1,724,220
Service sales 75,913 68,607 280,178 261,005
Net sales $621,658 $529,631 $2,275,143 $1,985,225
Pre-tax earnings $61,507 $10,180 $171,547 $35,837
Net earnings $39,795 $6,108 $110,123 $21,501
Earnings per share
Basic $1.26 $.20 $3.46 $.69
Diluted $1.18 $.19 $3.22 $.66
Average common
shares outstanding
Basic 31,575 31,254 31,833 31,249
Diluted 34,372 31,952 34,914 31,996
Diluted earnings per share calculations adjust net earnings for the
dilutive effect of public investee common stock equivalents and convertible
securities. The Company's convertible subordinated notes were dilutive for
the quarter and year ended December 31, 1998, but were anti-dilutive for the
same periods in 1997.
Condensed Consolidated Balance Sheets
December 31, December 31,
1998 1997
(unaudited)
(000's omitted)
Receivables less allowances $302,811 $187,385
Inventories 138,551 198,053
Short-term investments 143,103 --
Other current assets 11,263 11,841
Investments and notes receivable 301,394 206,146
Other assets 171,162 111,116
1,068,284 $714,541
Current liabilities $288,644 $169,278
Long-term debt 205,044 127,089
Other liabilities 165,023 120,223
Convertible subordinated notes 71,345 90,881
Shareholders' equity 338,228 207,070
1,068,284 $714,541
SOURCE Safeguard Scientifics, Inc.
CO: Safeguard Scientifics, Inc.
ST: Pennsylvania, Illinois
IN: CPR FIN
SU: ERN PER
02/17/99 07:49 EST prnewswire.com
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