Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

     Date of report (Date of earliest event reported)	 	October 29, 2004	

Safeguard Scientifics, Inc.

(Exact Name of Registrant as Specified in Its Charter)
Pennsylvania

(State or Other Jurisdiction of Incorporation)
 	 	 	
1-5620	 	23-1609753	

(Commission File Number)	 	(IRS Employer Identification No.)	
 	 	 	
800 The Safeguard Building	 	 	
435 Devon Park Drive	 	 	
Wayne, PA	 	19087	

(Address of Principal Executive Offices)	 	(Zip Code)	
610-293-0600

(Registrant’s Telephone Number, Including Area Code)
Not applicable

(Former Name or Former Address, if Changed Since Last Report)
     Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions ( see General Instruction A.2. below):
      o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
      o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
      o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
      o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

TABLE OF CONTENTS

									
	ITEM 2.02. Results of Operations and Financial Condition	
	ITEM 9.01. Financial Statements and Exhibits	
SIGNATURES	
Exhibit Index	
PRESS RELEASE	

Table of Contents
ITEM 2.02 . Results of Operations and Financial Condition
     On October 29, 2004, Safeguard Scientifics, Inc. (“Safeguard”) issued a press release setting forth Safeguard’s financial information for the third quarter ended September 30, 2004. A copy of Safeguard’s press release is attached hereto as Exhibit 99.1 and hereby incorporated by reference.
     This information shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (“Exchange Act”) or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing. 
ITEM 9.01. Financial Statements and Exhibits
     (c) Exhibits

99.1	 	Press Release of Safeguard Scientifics, Inc. dated October 29, 2004.	
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 hereunto duly authorized. 

 	Safeguard Scientifics, Inc.
 	 	
Dated: October 29, 2004 	By:  	CHRISTOPHER J. DAVIS  	 	
 	 	Christopher J. Davis 	 	
 	 	Executive Vice President and Chief Administrative & Financial Officer 	 	

Table of Contents

Exhibit Index

99.1	 	Press release of Safeguard Scientifics, Inc. dated October 29, 2004.	

 

EXHIBIT 99.1

News Release

CONTACT:	 	FOR IMMEDIATE RELEASE	
Janine Dusossoit	 	 	
Vice President, Investor Relations	 	 	
(610) 293-0600	 	 	
SAFEGUARD ANNOUNCES 2004 THIRD QUARTER
AND NINE-MONTH RESULTS
Wayne, PA, October 29, 2004 – Safeguard Scientifics, Inc. (NYSE: SFE), a strategic growth partner for information technology and life sciences companies in the Time-to-Volume stage of development, today announced its operating results for the third quarter ended September 30, 2004.
As previously reported, Safeguard completed the sale of its interest in CompuCom Systems on October 1, 2004. For the third quarter of 2004 and all periods reported, CompuCom results are shown as discontinued operations.
“Our consolidated companies are making headway in their markets,” said Anthony L. Craig, President and Chief Executive Officer of Safeguard Scientifics. “While their progress is not obvious in their third quarter results, we can point to some important milestones they have achieved, including launching new products and services, winning new customers and making acquisitions.”
“Safeguard’s strong balance sheet positions us well to continue funding the growth of our companies, as well as to consider acquisitions,” said Mr. Craig. “Subsequent to the close of the third quarter, we agreed to acquire the business and substantially all of the assets of Laureate Pharma L.P., a privately held bioprocessessing and drug delivery services company. Laureate is a strong competitor in a rapidly growing sector of the biopharmaceutical industry. We expect to close this transaction in the fourth quarter of 2004.”

 

Financial Highlights
For the three months ended September 30, 2004, Safeguard’s consolidated revenues from continuing operations were $35.0 million, compared with $43.1 million for the third quarter of 2003. Net loss from continuing operations in the third quarter of 2004 was $19.1 million, or $0.16 per share, compared with net income from continuing operations of $17.0 million, or $0.14 per share in the third quarter of 2003. Net loss in the third quarter of 2004 was $19.1 million, or $0.16 per share, compared with net income of $18.2 million, or $0.15 per share in the third quarter of 2003. Prior year results include net gains of approximately $30 million from sales of interests in companies.
For the nine months ended September 30, 2004, revenues from continuing operations were $113.8 million compared to $125.0 million in the same period a year ago. Net loss from continuing operations was $14.6 million, or $0.12 per share, compared to a net loss of $5.8 million from continuing operations, or $0.05 per share. Net loss was $36.2 million, or $0.30 per share, compared to a net loss of $0.4 million, or $0.02 per share. The change is due to a decline in gains on sales of companies and increased losses at certain consolidated companies in 2004.
Parent Company
Parent company data includes Safeguard Scientifics and its wholly owned subsidiaries, including Alliance Consulting. As of October 27, 2004, at the parent company level, Safeguard’s cash balance was $254.0 million, and includes proceeds of approximately $128 million received from the sale of Safeguard’s interest in CompuCom Systems. On November 12, 2004, Safeguard will spend $56.4 million to redeem the balance of the 5% Subordinated Notes, including interest.
Web Cast
Safeguard will host a conference call and Web cast on October 29, 2004 at 9:00 a.m. (ET) to discuss third quarter 2004 results. Interested parties may access the live Web cast through the Safeguard Web site at www.safeguard.com. Web participants are encouraged to go to the Web site at least 15 minutes prior to the start of the call to register, download and install any necessary audio software. A replay of the Web cast will be archived and available at the Web site shortly after the call.
About Safeguard
Safeguard Scientifics, Inc. (NYSE: SFE) is a committed strategic growth partner for companies in the Time-to-Volume stage of development. Time-to-Volume companies are those that are generating revenues from a commercially viable product or service, but are facing new challenges as they scale their businesses to meet market opportunities. Focused primarily on the information technology and life sciences sectors, Safeguard generally acquires majority ownership interests in companies at this stage of growth. In addition to expansion capital, Safeguard provides its companies a wide range of operating and managerial expertise to drive their successful growth to become market leaders. For more information about Safeguard and its strategy, visit www.safeguard.com.
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Forward-Looking and Cautionary Statements
Except for the historical information and discussions contained herein, statements contained in this release may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Our forward-looking statements are subject to risks and uncertainties. These forward-looking statements that could cause actual results to differ materially, include, among others, managing rapidly changing technologies, limited access to capital, competition, the ability to attract and retain qualified employees, the ability to execute our strategy, the uncertainty of the future performance of our companies, acquisitions and dispositions of companies, the inability to manage growth, compliance with government regulations and legal liabilities, additional financing requirements, labor disputes, the effect of economic conditions in the business sectors in which our companies operate, and other uncertainties described in the Company’s filings with the Securities and Exchange Commission. Many of these factors are beyond our ability to predict or control. In addition, as a result of these and other factors, our past financial performance should not be relied on as an indication of future performance. The Company does not assume any obligation to update any forward-looking statements or other information contained in this press release.
NOTE TO EDITORS: Safeguard is a service mark of Safeguard Scientifics, Inc.
# # #
Safeguard Scientifics, Inc. · 800 The Safeguard Building · 435 Devon Park Drive · Wayne, PA 19087-1945
TEL: (610) 293-0600 · FAX: (610) 293-0601 · www.safeguard.com
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Safeguard Scientifics, Inc.
Condensed Consolidated Balance Sheets
(in thousands)

 	 	September 30,	 	December 31,	
 	 	2004
	 	2003
	
 	 	(unaudited)	 	 	 	 	
Assets	 	 	 	 	 	 	 	 	
Current Assets	 	 	 	 	 	 	 	 	
Cash and cash equivalents, restricted cash and short-term investments	 	 	 	 	 	 	 	 	
- Parent	 	$	143,463	 	 	$	131,065	 	
- Subsidiaries	 	 	22,278	 	 	 	13,800	 	
Accounts receivable	 	 	30,867	 	 	 	33,363	 	
Prepaid expenses and other current assets	 	 	7,468	 	 	 	7,278	 	
Current assets of discontinued operations	 	 	297,866	 	 	 	333,150	 	

 	 	
Total current assets	 	 	501,942	 	 	 	518,656	 	
 		
Property and equipment, net	 	 	17,521	 	 	 	14,873	 	
Ownership interests in and advances to companies	 	 	35,537	 	 	 	53,119	 	
Available-for-sale securities	 	 	6,471	 	 	 	—	 	
Intangible assets, net	 	 	7,856	 	 	 	10,017	 	
Goodwill	 	 	91,819	 	 	 	90,763	 	
Other	 	 	19,529	 	 	 	19,830	 	
Non-current assets of discontinued operations	 	 	87,256	 	 	 	129,228	 	

 	 	
Total Assets	 	$	767,931	 	 	$	836,486	 	

 	 	
Liabilities and Shareholders’ Equity	 	 	 	 	 	 	 	 	
Current maturities of long-term debt	 	$	4,221	 	 	$	11,530	 	
Current convertible subordinated notes	 	 	54,763	 	 	 	—	 	
Other current liabilities	 	 	43,492	 	 	 	42,763	 	
Current liabilities of discontinued operations	 	 	138,439	 	 	 	186,166	 	

 	 	
Total current liabilities	 	 	240,915	 	 	 	240,459	 	
 		
Long-term debt	 	 	12,127	 	 	 	2,537	 	
Minority interest	 	 	21,247	 	 	 	14,557	 	
Other long-term liabilities	 	 	12,651	 	 	 	13,152	 	
Convertible subordinated notes	 	 	—	 	 	 	200,000	 	
Convertible senior debentures	 	 	150,000	 	 	 	—	 	
Non-current liabilities of discontinued operations	 	 	120,771	 	 	 	129,610	 	
 		
Total shareholders’ equity	 	 	210,220	 	 	 	236,171	 	

 	 	
Total Liabilities and Shareholders’ Equity	 	$	767,931	 	 	$	836,486	 	

 	 	
As a result of the sale of CompuCom, the assets and liabilities of CompuCom are reflected as a discontinued operation as of September 30, 2004 and December 31, 2003. All prior periods have been reclassified to conform to this presentation. Certain other prior year amounts have also been reclassified to conform to the current year presentation.
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Safeguard Scientifics, Inc.
Condensed Consolidated Statements of Operations
(in thousands except per share amounts)

 	 	Three Months	 	Nine Months	
 	 	Ended September 30,
	 	Ended September 30,
	
 	 	2004
	 	2003
	 	2004
	 	2003
	
 	 	(unaudited)
	 	(unaudited)
	
Revenue	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Product sales	 	$	1,697	 	 	$	4,773	 	 	$	5,776	 	 	$	12,739	 	
Service sales	 	 	33,266	 	 	 	38,308	 	 	 	108,073	 	 	 	112,228	 	

 	 	 	 	

Total revenue	 	 	34,963	 	 	 	43,081	 	 	 	113,849	 	 	 	124,967	 	

 	 	 	 	

Operating Expenses	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cost of sales — product	 	 	588	 	 	 	822	 	 	 	2,070	 	 	 	5,786	 	
Cost of sales — service	 	 	24,664	 	 	 	23,552	 	 	 	72,798	 	 	 	69,304	 	
Selling and service	 	 	11,713	 	 	 	13,248	 	 	 	39,029	 	 	 	41,712	 	
General and administrative	 	 	13,274	 	 	 	12,000	 	 	 	40,792	 	 	 	43,465	 	
Amortization	 	 	1,089	 	 	 	2,048	 	 	 	3,781	 	 	 	5,635	 	

 	 	 	 	

Total operating expenses	 	 	51,328	 	 	 	51,670	 	 	 	158,470	 	 	 	165,902	 	

 	 	 	 	

 	 	 	(16,365	)	 	 	(8,589	)	 	 	(44,621	)	 	 	(40,935	)	
Other income (loss), net	 	 	(921	)	 	 	31,205	 	 	 	39,556	 	 	 	48,277	 	
Impairment — related party	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(659	)	
Interest Income	 	 	582	 	 	 	605	 	 	 	1,556	 	 	 	1,838	 	
Interest and financing expense	 	 	(2,208	)	 	 	(3,082	)	 	 	(7,886	)	 	 	(9,180	)	

 	 	 	 	

Income (loss) before income taxes, minority interest and equity loss	 	 	(18,912	)	 	 	20,139	 	 	 	(11,395	)	 	 	(659	)	
Income tax benefit (expense)	 	 	72	 	 	 	(163	)	 	 	(57	)	 	 	(285	)	
Minority interest	 	 	2,543	 	 	 	604	 	 	 	5,885	 	 	 	4,906	 	
Equity loss	 	 	(2,772	)	 	 	(3,613	)	 	 	(9,073	)	 	 	(9,772	)	

 	 	 	 	

Net income (loss) from continuing operations	 	 	(19,069	)	 	 	16,967	 	 	 	(14,640	)	 	 	(5,810	)	
Discontinued operations, net of income taxes	 	 	(54	)	 	 	1,275	 	 	 	(21,578	)	 	 	5,363	 	

 	 	 	 	

Net Income (Loss)	 	$	(19,123	)	 	$	18,242	 	 	$	(36,218	)	 	$	(447	)	

 	 	 	 	

Basic income (loss) per share from continuing operations	 	$	(0.16	)	 	$	0.14	 	 	$	(0.12	)	 	$	(0.05	)	
Basic income (loss) per share from discontinued operations	 	 	—	 	 	 	0.01	 	 	 	(0.18	)	 	 	0.05	 	

 	 	 	 	

Basic net income (loss) per share	 	$	(0.16	)	 	$	0.15	 	 	$	(0.30	)	 	$	—	 	

 	 	 	 	

Diluted income (loss) per share from continuing operations (a)	 	$	(0.16	)	 	$	0.14	 	 	$	(0.12	)	 	$	(0.05	)	
Diluted income (loss) per share from discontinued operations (a)	 	 	—	 	 	 	0.01	 	 	 	(0.18	)	 	 	0.03	 	

 	 	 	 	

Diluted net income (loss) per share (a)	 	$	(0.16	)	 	$	0.15	 	 	$	(0.30	)	 	$	(0.02	)	

 	 	 	 	

Weighted average shares outstanding	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
— basic	 	 	119,572	 	 	 	118,580	 	 	 	119,464	 	 	 	118,365	 	
— diluted	 	 	119,572	 	 	 	120,622	 	 	 	119,464	 	 	 	118,365	 	
Certain prior year amounts have been reclassified to conform to the current year presentation.
(a) If a consolidated or equity method public company has dilutive options or securities outstanding, diluted net income (loss) per share is computed first by deducting from net income (loss) the income attributable to the potential exercise of the dilutive options or securities of the company.
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Safeguard Scientifics, Inc.
Results of Segment Operations from Continuing Operations
(in thousands)

 	 	Three Months Ended	 	Nine Months Ended	
 	 	September 30,
	 	September 30,
	
 	 	2004
	 	2003
	 	2004
	 	2003
	
 	 	(unaudited)
	 	(unaudited)
	
Revenues	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Alliance	 	$	21,749	 	 	$	21,744	 	 	$	69,008	 	 	$	65,461	 	
ChromaVision	 	 	2,564	 	 	 	3,079	 	 	 	6,886	 	 	 	8,786	 	
Mantas	 	 	5,988	 	 	 	7,155	 	 	 	17,116	 	 	 	16,103	 	
Pacific Title	 	 	4,635	 	 	 	7,796	 	 	 	19,496	 	 	 	24,702	 	
Other Companies	 	 	—	 	 	 	3,237	 	 	 	1,278	 	 	 	9,671	 	

 	 	 	 	

Total Segment Results	 	 	34,936	 	 	 	43,011	 	 	 	113,784	 	 	 	124,723	 	
Other Items	 	 	27	 	 	 	70	 	 	 	65	 	 	 	244	 	

 	 	 	 	

 	 	$	34,963	 	 	$	43,081	 	 	$	113,849	 	 	$	124,967	 	

 	 	 	 	

Operating Income (Loss) (a)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Alliance	 	$	(1,314	)	 	$	244	 	 	$	(3,571	)	 	$	(2,083	)	
ChromaVision	 	 	(5,700	)	 	 	(2,522	)	 	 	(14,896	)	 	 	(8,035	)	
Mantas	 	 	(2,817	)	 	 	(3,942	)	 	 	(11,332	)	 	 	(16,256	)	
Pacific Title	 	 	(1,311	)	 	 	1,783	 	 	 	947	 	 	 	5,055	 	
Other Companies	 	 	—	 	 	 	305	 	 	 	(1,396	)	 	 	(2,350	)	

 	 	 	 	

Total Segment Results	 	 	(11,142	)	 	 	(4,132	)	 	 	(30,248	)	 	 	(23,669	)	
Other Items	 	 	(5,223	)	 	 	(4,457	)	 	 	(14,373	)	 	 	(17,266	)	

 	 	 	 	

 	 	$	(16,365	)	 	$	(8,589	)	 	$	(44,621	)	 	$	(40,935	)	

 	 	 	 	

Safeguard Share of Net Income (Loss) from Continuing Operations	
Alliance (b)	 	$	(1,393	)	 	$	212	 	 	$	(3,783	)	 	$	(2,236	)	
ChromaVision (b)	 	 	(3,374	)	 	 	(1,661	)	 	 	(9,220	)	 	 	(5,418	)	
Mantas (b)	 	 	(2,865	)	 	 	(3,636	)	 	 	(11,651	)	 	 	(13,253	)	
Pacific Title (b)	 	 	(1,098	)	 	 	1,834	 	 	 	870	 	 	 	4,337	 	
Other Companies (c)	 	 	(4,000	)	 	 	27,129	 	 	 	31,518	 	 	 	35,699	 	

 	 	 	 	

Total Segment Results	 	 	(12,730	)	 	 	23,878	 	 	 	7,734	 	 	 	19,129	 	
Other Items (d)	 	 	(6,339	)	 	 	(6,911	)	 	 	(22,374	)	 	 	(24,939	)	

 	 	 	 	

Net Income (Loss) from Continuing Operations	 	$	(19,069	)	 	$	16,967	 	 	$	(14,640	)	 	$	(5,810	)	

 	 	 	 	

As a result of the sale of CompuCom, we re-examined our operating segments in accordance with SFAS131, “Disclosures About Segments of an Enterprise.” We now report each of our consolidated companies as a separate segment. The results of operations of our other companies, in which we have less than a majority interest, as well as our ownership in funds, are reported in the “Other Companies” segment.

(a)	 	Operating Income (Loss) represents the revenues less operating expenses of each segment, and excludes any allocation to minority interest.	
 		
(b)	 	Safeguard Share of Net Income (Loss) from Continuing Operations includes the net results of each segment, including interest, adjusted for any amount allocated to minority interest.	
 		
(c)	 	Other Companies includes the results of operations of our other companies, in which Safeguard has less than a majority interest, as well as our ownership in funds. Our share of Other Companies consists primarily of equity income (loss) and gains (loss) on companies, both of which are reported below the operating income (loss) line.	
 		
(d)	 	Other Items includes corporate expenses and incomes taxes.	
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