Safeguard Scientifics Up 4.3% After Narrowing 2Q Loss
By Dinah Wisenberg Brin
Of DOW JONES NEWSWIRES
PHILADELPHIA -- Safeguard Scientifics Inc. (SFE) shares rose nearly 5% Thursday after the technology concern reported a narrower loss in the second quarter and progress in its transition into an operating company.
The once high-flying Wayne, Pa., company, which develops and operates technology businesses, reported a loss of $3.2 million, or 3 cents a share, in the second quarter, compared with a loss of $33.9 million, or 29 cents a share, in the same period of 2002.
Revenue was $419 million, down from $453 million in the year-earlier period, because of a revenue decline in its majority-owned CompuCom Systems Inc. (CMPC) subsidiary that was partially offset by revenue from a business acquired last year.
"We were very pleased with that outcome," said L. Jason Diamond, research director at CapStone Investments, which had estimated a loss of 9 cents a share for Safeguard. "I think it's an excellent quarter. It was far better than we anticipated."
Safeguard is making a transition from being a venture incubator focused on spinning companies off in initial public offerings to becoming an operating company with profitable businesses that work together, Diamond said.
"I think they're really moving towards that goal," he said, noting that Safeguard has been divesting itself of companies that have been a cash drain or don't fit with its new objectives. Diamond said he doesn't own shares or warrants of Safeguard and his firm doesn't do investment banking for the company.
Safeguard President and Chief Executive Anthony L. Craig said in a release issued after the market close Wednesday that the company is making progress in its evolution to an operating company. Chief Financial Officer Chris Davis said the company strengthened its balance sheet and realized value from companies it sold.
Safeguard shares traded recently at $2.95, up 13 cents, or 4.6%, on volume of 353,500 compared with average daily volume of 644,000.
As of Tuesday, the Safeguard Scientific parent company cash balance was $133 million and the market value of its ownership of public company marketable securities was $232 million, the company reported. Safeguard's "strategic initiative" companies, those in which it has a controlling interest and that are part of its operating strategy, lost nearly $10.5 million in the second quarter, versus a loss of nearly $7 million a year earlier, while their revenue rose to $26.7 million from nearly $12 million.
Revenue from "legacy" companies, those in which Safeguard has less than a controlling interest or that don't fall directly within its strategic initiatives, was about the same at nearly $14.7 million. Legacy-company income was $12.8 million, versus a year-earlier loss of almost $21 million.
Safeguard recorded $12.6 million in gains in the second quarter related to sales of its shares of Pac-West Telecomm Inc. (PACW) and DocuCorp International Inc. (DOCC), and from the sale of part of its shares of Internet Capital Group Inc. (ICGE) - three Safeguard legacy companies.
In connection with sales of certain legacy-company shares, Safeguard collected about $1 million from founder and former CEO Warren V. "Pete" Musser that was applied against the book value of his outstanding loan, CFO Davis said on a conference call Thursday morning.
Safeguard is pursing "all legal avenues" for collecting the entire amount due under the loan, Davis said, without elaborating. In May 2001, Safeguard entered into a $26.5 million loan agreement with Musser, with proceeds used to repay margin loans that a third party had advanced to Musser - margin loans that Safeguard guaranteed in October 2000, according to a quarterly report filed with the Securities and Exchange Commission in May. Safeguard sent Musser a demand notice in January of this year, when the loan became payable on a limited basis. When no payment was received, the company sent a default notice, according to the SEC document. A company spokesman was not immediately available Thursday afternoon.
-By Dinah Wisenberg Brin, Dow Jones Newswires; 215-656-8285; dinah.brin@dowjones.com
Former Safeguard Scientifics CEO Musser's loan from the company is currently in default, company spokesman Ed Callahan said later Thursday. Under terms governing the loan, Safeguard currently has limited recourse to collect payment but will have full recourse to pursue any amounts owed as of April 30, 2006, he said.
Safeguard has assigned the loan a conservative book value of $12.8 million as a receivable on its balance sheet, Callahan said. The company previously has taken impairment charges of $12.1 million for the loan.
In its quarterly report filed with the SEC in May, Safeguard said that Musser "may not have sufficient personal assets to satisfy the outstanding balance due under the loan" when the loan becomes "full recourse" in 2006.
Musser was not immediately available for comment.
-By Dinah Wisenberg Brin, Dow Jones Newswires; 215-656-8285; dinah.brin@dowjones.com
Updated July 31, 2003 5:35 p.m. |
