Securities and Exchange Commission
Washington, D.C. 20549
FORM 11-K
ANNUAL REPORT
PURSUANT TO SECTION 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 [NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996].
For the fiscal year ended DECEMBER 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [NO FEE REQUIRED].
For the transition period from ________________ to ___________________
COMMISSION FILE NUMBER 001-05620
A. Full title of the plan and the address of the plan,
if different from that of the issuer named below:
SAFEGUARD SCIENTIFICS, INC.
RETIREMENT PLAN
(FORMERLY KNOWN AS SAFEGUARD SCIENTIFICS, INC. STOCK SAVINGS PLAN)
B. Name of issuer of the securities held pursuant to the plan
and the address of its principal executive office:
SAFEGUARD SCIENTIFICS, INC.
800 THE SAFEGUARD BUILDING
435 DEVON PARK DRIVE
WAYNE, PA 19087
SAFEGUARD SCIENTIFICS, INC. RETIREMENT PLAN
(FORMERLY KNOWN AS SAFEGUARD SCIENTIFICS, INC. STOCK SAVINGS PLAN)
Financial Statements and Supplemental Schedule
December 31, 2002 and 2001
(With Independent Auditors' Report Thereon)
REQUIRED INFORMATION
(1) Financial Statements
The following statements, including Independent Auditors' Report
thereon, of Safeguard Scientifics, Inc. Retirement Plan are submitted
herewith:
Statements of Net Assets Available for Plan Benefits, December 31, 2002
and 2001
Statements of Changes in Net Assets Available for Plan Benefits, Years
ended December 31, 2002, 2001, and 2000
Notes to Financial Statements
Schedule I - Schedule H, Line 4i - Schedule of Assets (Held at End of
Year), December 31, 2002
The Schedules for which provisions are made in the applicable
accounting regulations of the Securities and Exchange Commission are
included in the aforementioned financial statements of the Safeguard
Scientifics, Inc. Retirement Plan.
(2) Exhibits
The following Exhibits are submitted herewith:
Exhibit 23 - Consent of Independent Auditors
Exhibit 99.1 - Certification Pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
Exhibit 99.2 - Certification Pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the members
of the Safeguard Scientifics, Inc. Retirement Plan Committee have duly caused
this Annual Report to be signed on its behalf by the undersigned hereunto duly
authorized.
SAFEGUARD SCIENTIFICS, INC.
RETIREMENT PLAN COMMITTEE
Date: June 27, 2003 By: /s/ Joseph R. DeSanto
--------------------------
Trustee
SAFEGUARD SCIENTIFICS, INC. RETIREMENT PLAN
(Formerly known as Safeguard Scientifics, Inc. Stock Savings Plan)
TABLE OF CONTENTS
PAGE
Independent Auditors' Report 1
Statements of Net Assets Available for Plan Benefits, December 31, 2002 and 2001 2
Statements of Changes in Net Assets Available for Plan Benefits, Years ended
December 31, 2002, 2001, and 2000 3
Notes to Financial Statements 4
SCHEDULE:
1 Schedule H, Line 4i - Schedule of Assets (Held at End of Year), December 31, 2002 14
INDEPENDENT AUDITORS' REPORT
The Trustees
Safeguard Scientifics, Inc. Retirement Plan:
We have audited the accompanying statements of net assets available for plan
benefits of Safeguard Scientifics, Inc. Retirement Plan, formerly known as the
Safeguard Scientifics, Inc. Stock Savings Plan, as of December 31, 2002 and
2001, and the related statements of changes in net assets available for plan
benefits for each of the years in the three-year period ended December 31, 2002.
These financial statements are the responsibility of the Plan's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for plan benefits of Safeguard
Scientifics, Inc. Retirement Plan as of December 31, 2002 and 2001, and the
changes in net assets available for plan benefits for each of the years in the
three-year period ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States of America.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental Schedule H, Line 4i -
schedule of assets (held at end of year) is presented for the purpose of
additional analysis and is not a required part of the basic financial statements
but is supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure Under the Employee Retirement Income
Security Act of 1974. This supplemental schedule is the responsibility of the
Plan's management. The supplemental schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
/s/ KPMG LLP
June 19, 2003
Philadelphia, Pennsylvania
SAFEGUARD SCIENTIFICS, INC. RETIREMENT PLAN
(Formerly known as Safeguard Scientifics, Inc. Stock Savings Plan)
Statements of Net Assets Available for Plan Benefits
December 31, 2002 and 2001
2002 2001
------------ ---------
Investments, at fair value $ 5,511,031 8,501,220
Contributions receivable:
Employer's contribution 52,945 285,253
Participant contributions 6,770 22,488
Loans to participants 36,716 45,528
------------ ---------
Net assets available for plan benefits $ 5,607,462 8,854,489
============ =========
See accompanying notes to financial statements.
2
SAFEGUARD SCIENTIFICS, INC. RETIREMENT PLAN
(Formerly known as Safeguard Scientifics, Inc. Stock Savings Plan)
Statements of Changes in Net Assets Available for Plan Benefits
Years ended December 31, 2002, 2001, and 2000
2002 2001 2000
------------ ---------- -----------
Additions:
Participant contributions $ 797,863 1,002,144 1,746,004
Employer contributions 231,374 729,920 316,915
Dividends and interest 32,971 82,884 231,684
Loan interest 3,485 6,744 7,374
------------ ---------- -----------
Total additions 1,065,693 1,821,692 2,301,977
------------ ---------- -----------
Deductions:
Administrative expenses 15,603 30,076 --
Benefits paid 1,573,579 1,789,368 993,606
Net depreciation in fair value of investments 2,723,538 4,954,498 42,596,390
------------ ---------- -----------
Total deductions 4,312,720 6,773,942 43,589,996
------------ ---------- -----------
Net decrease (3,247,027) (4,952,250) (41,288,019)
Transfers out of the plan to the TL Ventures
benefit plan (note 1) -- (4,648,866) --
Transfers out of the plan to the aligne, inc.
401(k) plan (note 1) -- (181,145) --
Transfers to the plan -- 6,113,922 --
Transfer from the aligne, inc. 401(k) plan -- -- 473,671
Net assets available for plan benefits:
Beginning of year 8,854,489 12,522,828 53,337,176
------------ ---------- -----------
End of year $ 5,607,462 8,854,489 12,522,828
============ ========== ===========
See accompanying notes to financial statements.
3
SAFEGUARD SCIENTIFICS, INC. RETIREMENT PLAN
(Formerly known as Safeguard Scientifics, Inc. Stock Savings Plan)
Notes to Financial Statements
December 31, 2002 and 2001
(1) DESCRIPTION OF THE PLAN
The following description of the Safeguard Scientifics, Inc. Retirement
Plan (the Plan), formerly known as the Safeguard Scientifics, Inc.
Stock Savings Plan, provides general information only. Participants
should refer to the Plan agreement for more complete information.
(A) GENERAL
The Plan is a contributory defined contribution plan
established in 1981 by Safeguard Scientifics, Inc. (the
Company). The Plan is subject to the provisions of the
Employee Retirement Income Security Act of 1974 (ERISA). The
Company has the right under the Plan to amend, modify,
suspend, or terminate the Plan at any time. A committee of
individuals (Plan Trustees) appointed by the Plan
administrator is generally responsible for the operations of
the Plan.
(B) ELIGIBILITY
Eligible employees in 2002 included salaried and hourly
employees of the Company, Safeguard International Group, Inc.,
and Penn-Sylvan Management Inc., subsidiaries of the Company.
Eligible employees in 2001 included salaried and hourly
employees of the Company, Technology Leaders Management, Inc.,
Safeguard International Group, Inc., Penn-Sylvan Management,
Inc., and aligne, inc. (aligne), subsidiaries of the Company
(collectively, the Employers). However, any person who is a
nonresident alien and receives no earned income from the
Employers which constitutes income from sources within the
United States, any leased employee, and any employee of other
members of the controlled group of employers (Technology
Leaders Management, Inc., Lever 8 Solutions, Inc., K
Consultants, Inc., and aligne, inc.) is not an eligible
employee. In addition, any person whose terms and conditions
of employment are determined through collective bargaining is
not an eligible employee unless the collective bargaining
agreement provides for the inclusion of such person in the
Plan. The Employers do not have any collective bargaining
agreements at December 31, 2002.
Effective as of January 2001, Technology Leaders Management,
Inc. d/b/a TL Ventures spun off the assets and liabilities
representing the interests and entitlements of the employees
of TL Ventures into its own retirement plan. Effective as of
April 2001, aligne spun off the assets and liabilities
representing the interests and entitlements of the employees
of aligne into its own retirement plan.
Effective June 1, 2000, the aligne, inc. 401(k) plan merged
into the Plan. As a result, all account balances under the
aligne, inc. 401(k) plan became account balances under the
Plan. aligne, a wholly owned subsidiary of the Company, became
a participating affiliate in the Plan, and employees of aligne
became eligible to participate in the Plan.
(C) CONTRIBUTIONS
As of January 1, 2002, participants may defer from 1% to 45%
of eligible compensation plus up to 100% of any Employer-paid
cash bonus. Participants 50 years of age or older by December
31, 2002 may defer up to an additional $1,000 over the course
of the year, but only if the participant will otherwise make
the maximum salary deferral to the Plan based on any Plan or
legal limit.
4
SAFEGUARD SCIENTIFICS, INC. RETIREMENT PLAN
(Formerly known as Safeguard Scientifics, Inc. Stock Savings Plan)
Notes to Financial Statements
December 31, 2002 and 2001
As of January 1, 2001, participants may defer from 1% to 15%
of eligible compensation plus up to 100% of any Employer-paid
cash bonus. The amount of deferred compensation is treated as
a salary reduction and is not subject to federal income tax
until withdrawn from the Plan. During 2000, participants could
contribute from 2% to 14% of eligible compensation immediately
upon hire.
The Plan also permits participants to roll over certain
amounts received from another qualified retirement plan.
Before October 1, 1991, the Plan allowed after-tax
contributions that became part of a participant's After-Tax
Voluntary Contribution Subaccount. Although after-tax
contributions are no longer allowed under the Plan, such
contributions made to the Plan prior to October 1, 1991
continue to be held in the Plan.
Effective January 1, 2001, contributions by the Employers were
made on a matched basis dollar for dollar on salary deferrals
up to 3% of compensation and then 50 cents on the dollar on
salary deferrals from 3% to 5% of compensation. Plan
participants are eligible to join the Plan effective as of the
first day of the month following their hire date, and Plan
participants are eligible for the Employer matching
contributions immediately upon joining the Plan.
During 2000, contributions by the Employers were made on a
matched basis at a rate of 75% of participant deferred
compensation up to a maximum of 3% of eligible compensation
and Plan participants were eligible for the employer
contributions one year after their date of hire.
Total contributions in a plan year may not exceed maximum
allowable contributions as prescribed by the Internal Revenue
Service.
(D) PLAN AMENDMENTS
Effective January 1, 2002, the Plan was amended to (i) permit
catch-up contributions, (ii) provide that participants
receiving hardship distributions shall be prohibited from
making elective deferrals for six months, (iii) exclude
rollover contributions in determining the value of a
participant's nonforfeitable account balance for purposes of
the Plan's involuntary cash-out rules, (iv) adopt the minimum
distribution requirements pursuant to Section 401(a)(9) of the
Final and Temporary Treasury Regulations, and (v) permit
participants to defer from 1% to 45% of eligible compensation.
The Plan amendment also states that the catch-up contributions
are not eligible for the Employers' matching contribution.
Effective January 1, 2001, all contributions under the former
Money Purchase Pension Plan ceased and the Plan added a profit
sharing feature, which will allow the Employers to make annual
discretionary contributions to eligible employees. The vesting
period for discretionary profit sharing contributions is five
years. The discretionary profit sharing contributions vest at
a rate of 20% of each year of service, with full vesting
occurring after five years of service.
Effective January 1, 2001, the Employers' matching
contribution became equal to 100% of the first 3% contributed
by participants and 50% of the next 2%, and the eligibility
requirements were
5
SAFEGUARD SCIENTIFICS, INC. RETIREMENT PLAN
(Formerly known as Safeguard Scientifics, Inc. Stock Savings Plan)
Notes to Financial Statements
December 31, 2002 and 2001
amended to make participants eligible for participation in the
matching contributions as of the first day of the month
following their date of hire.
During 2000, the Plan adopted a prototype plan document. As a
result, a number of changes were made to the Plan.
Effective November 1, 2000, all participants were immediately
vested in Employers' current and previous nondiscretionary
matching contributions, and the vesting schedule for
contributions under the Money Purchase Pension Plan, which was
merged into the Retirement Plan on January 1, 2001, was
modified from a seven-year vesting schedule to a five-year
vesting schedule.
(e) PARTICIPANT ACCOUNTS
At December 31, 2002 and 2001, participant contributions were
invested as directed by each participant in 19 and 14 separate
investment alternatives, respectively, one of which was a
self-directed brokerage account. Participants may change
investment options daily and can change their contribution
percentage monthly.
In the event a participant fails to submit written notice of
allocation, contributions will be invested at the discretion
of the Plan administrator.
Interest, dividends, and other income earned by the investment
funds are reinvested in the same funds. Such amounts are
allocated to participants based upon the proportion of a
participant's balance to that total fund balance.
(f) PARTICIPANT LOANS
Eligible participants may borrow up to 50% of their vested
account balance. The minimum and maximum loan amount is $1,000
and $50,000, respectively. Loans bear interest at a rate equal
to prime plus 2% and must be repaid within five years or, when
the proceeds of a loan are used to purchase a dwelling unit,
15 years.
(g) VESTING
Participants are immediately vested in all contributions they
make to the Plan as well as all earnings (losses) on such
investments. Prior to November 1, 2000, Employers'
nondiscretionary matching contributions became fully vested
after the earlier of three years of employment; two years of
participation in the Plan; or upon death, disability, or
retirement, and contributions under the former Money Purchase
Pension Plan vested over a seven-year period. Effective
November 1, 2000, participants were immediately vested in
Employers' nondiscretionary matching contributions and the
vesting of the contributions under the former Money Purchase
Pension Plan was accelerated to a five-year vesting schedule
at a rate of 20% for each year of service. There is a
five-year vesting period for discretionary profit sharing
contributions in which participants vest at a rate of 20% for
each year of service, with full vesting occurring after five
years of service.
6
SAFEGUARD SCIENTIFICS, INC. RETIREMENT PLAN
(Formerly known as Safeguard Scientifics, Inc. Stock Savings Plan)
Notes to Financial Statements
December 31, 2002 and 2001
(h) PAYMENT OF BENEFITS
Upon retirement, death, disability, or termination of service
(subject to vesting requirements), participants or
beneficiaries are entitled to a distribution equal to the
total value of their accounts, and under certain circumstances
the Plan administrator may distribute all of a participant's
account if that participant is no longer eligible to make
contributions to the Plan. Participants experiencing serious
financial hardships may also be entitled to a distribution
upon approval of the Plan administrator. Such distributions
may be made:
(1) in cash as a lump-sum payment;
(2) in common stock for the value of an individual's
investment in that common stock;
(3) in the form of installments over a fixed period; or
(4) under other methods of payment that may be adopted
and applied uniformly among all Plan participants by
the Plan administrator.
Request for distribution of a participant's account will be
processed as soon as possible following the event (i.e.,
termination, retirement, disability, or death) that calls for
distribution.
(i) FORFEITURES
Forfeited amounts of $43,926, $38,424, and $12,934 were used
to reduce Employers' contributions under the Plan in 2002,
2001, and 2000, respectively, and were allocated to
participant accounts as if they were contributed by the
Employers. The remaining balance in the forfeiture account at
December 31, 2002 totaled $8,334.
(j) PLAN TERMINATION
Although it has not expressed any intent to do so, the Company
has the right under the Plan to terminate the Plan subject to
the provisions of ERISA. In the event of termination of the
Plan, each participant will immediately become fully vested
and be entitled to full distribution of its share of the Plan.
In addition, each of the Employers has the right to
discontinue its contributions at any time. None of the
Employers has expressed any intent to discontinue
contributions.
(k) ADMINISTRATIVE EXPENSES
Effective January 1, 2001, administrative expenses are paid by
both the Company and the Plan. During 2000, administrative
expenses were paid by the Company.
(2) SALE OF PIONEER METAL FINISHING
In 1997, Pioneer Metal Finishing (Pioneer) was sold to its management
group. The Plan granted immediate 100% vesting to those Pioneer
employees who were employed on the sale date. Approximately $36,000 and
$54,000 in benefit distributions from the Plan relating to the sale of
Pioneer were paid in 2002 and 2001, respectively.
7
SAFEGUARD SCIENTIFICS, INC. RETIREMENT PLAN
(Formerly known as Safeguard Scientifics, Inc. Stock Savings Plan)
Notes to Financial Statements
December 31, 2002 and 2001
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) BASIS OF ACCOUNTING
The accompanying financial statements of the Plan have been
prepared on the accrual basis of accounting. Purchases and
sales of securities are recorded on a trade-date basis, with
average cost used in determining gains or losses on sales of
investments. Dividends are recorded on ex-dividend dates.
(b) INVESTMENT VALUATION
Plan investments are stated at fair market value using quoted
market prices. Shares of mutual funds are valued at the net
asset value of shares held by the Plan at year-end.
Upon enrollment in the Plan, a participant may direct
contributions to any of the funds available in the Plan. The
investment funds at December 31, 2002 were as follows:
The American Century International Growth Fund seeks capital
growth and primarily invests in securities of issuers located
in at least three developed countries (excluding the United
States) that meet certain fundamental and technical standards
and have potential for capital appreciation. Under normal
market conditions, the fund's managers keep the fund
essentially fully invested in stocks and, when prudent, may
invest a portion of the assets in other securities. At
December 31, 2002, eight Plan participants were invested in
the fund. At December 31, 2002, the value per share and number
of shares were $6.38 and 6,994, respectively.
The Calvert Income Fund A seeks to maximize income, to the
extent consistent with prudent investment management and
preservation of capital, through investment in bonds and other
income-producing securities. The fund typically invests at
least 65% of its assets in investment grade debt securities.
The fund may invest up to 30% of its net assets in foreign
securities, 35% of its net assets in below-investment grade
bonds, up to 15% of its net assets in illiquid securities, up
to 5% of its total assets in currency contracts, and up to 5%
of its net assets in future contracts. The fund is also
permitted to use certain other investment techniques and
strategies that have higher risks associated with them. At
December 31, 2002, 26 Plan participants were invested in the
fund. At December 31, 2002, the value per share and number of
shares were $16.36 and 10,942, respectively.
The Calamos Growth Fund seeks long-term capital growth. The
fund targets securities of companies that offer above-average
potential for earnings growth. In seeking to meet its
objective, the fund utilizes highly disciplined institutional
management strategies that emphasize in-depth proprietary
analysis of the securities and their issuing companies, and
diversification across companies of various sizes and sectors
of the market. At December 31, 2002, 13 Plan participants were
invested in the fund. At December 31, 2002, the value per
share and number of shares were $31.46 and 1,404,
respectively.
The Excelsior Value and Restructuring Fund seeks long-term
capital appreciation by investing in companies that will
benefit from their restructuring or redeployment of assets and
operations in order to become more competitive or profitable.
The fund normally invests at least 65% of its assets in common
stock of U.S. and, to a lesser extent, foreign companies whose
share price, in the opinion of
8
SAFEGUARD SCIENTIFICS, INC. RETIREMENT PLAN
(Formerly known as Safeguard Scientifics, Inc. Stock Savings Plan)
Notes to Financial Statements
December 31, 2002 and 2001
the advisor, does not reflect the economic value of the
company's assets, but where the advisor believes restructuring
efforts or industry consolidation will serve to highlight the
true value of the company. At December 31, 2002, 49 Plan
participants were invested in the fund. At December 31, 2002,
the value per share and number of shares were $24.46 and
27,702, respectively.
The Fremont U.S. Micro-Cap Fund seeks long-term capital
appreciation. The fund ordinarily invests at least 80% of its
total assets in the stocks of U.S. micro-cap companies
(companies that fall within the smallest 5% of market
capitalization of companies listed on U.S. exchanges or on the
over-the-counter market). The fund seeks to identify companies
early in their growth cycle that possess various
characteristics, such as a leading market position, an
entrepreneurial management team, and a focused business plan,
or whose growth potential has been enhanced by new products,
new market opportunities, or new management. At December 31,
2002, 14 Plan participants were invested in the fund. At
December 31, 2002, the value per share and number of shares
were $18.98 and 2,669, respectively.
The American Funds Growth Fund seeks to provide long-term
growth of capital through a diversified portfolio of common
stocks and has the flexibility to invest wherever the best
growth opportunities may be. The fund emphasizes companies
that appear to offer opportunities for long-term growth, and
may invest in cyclical companies, turnarounds, and value
situations. The fund invests primarily in common stocks,
convertible preferred stocks, U.S. government securities,
bonds, and cash. At December 31, 2002, 43 Plan participants
were invested in the fund. At December 31, 2002, the value per
share and number of shares were $18.41 and 14,834,
respectively.
The Janus Worldwide Fund seeks long-term growth of capital in
a manner consistent with the preservation of capital. The fund
invests primarily in common stocks of companies of any size
located throughout the world. The fund normally invests in
issuers from at least five different countries, including the
United States, but may at times invest in fewer than five
countries or even a single country. At December 31, 2002, 28
Plan participants were invested in the fund. At December 31,
2002, the value per share and number of shares were $32.13 and
4,889, respectively.
The Parnassus Equity Income Fund seeks current income and
long-term growth of capital. The fund tries to achieve its
objective by investing primarily in a diversified portfolio of
equity securities that pay above-average dividends and that
the adviser believes have the potential for capital
appreciation. At December 31, 2002, three Plan participants
were invested in the fund. At December 31, 2002, the value per
share and number of shares were $21.20 and 241, respectively.
The Schwab Institutional Advantage Money Fund is designed for
retirement plans, plan participants, and other institutional
investors who seek maximum current income consistent with
liquidity and stability of capital, for investment of their
own funds or funds for which they act in a fiduciary, agency,
or custodial capacity. At December 31, 2002, 18 Plan
participants were invested in the fund. The number of shares
was 419,472 at December 31, 2002.
The Schwab Market Track Balanced Fund seeks to maintain a
defined mix of asset classes over time and invests mainly in a
combination of other Schwab funds that are managed using an
indexing strategy. The fund seeks both capital growth and
income. The fund also seeks to remain close to the target
allocations of 60% stocks (30% large-cap, 15% small-cap, and
15% international), 35% bonds,
9
SAFEGUARD SCIENTIFICS, INC. RETIREMENT PLAN
(Formerly known as Safeguard Scientifics, Inc. Stock Savings Plan)
Notes to Financial Statements
December 31, 2002 and 2001
and 5% cash. At December 31, 2002, two Plan participants were
invested in the fund. At December 31, 2002, the value per
share and number of shares were $11.91 and 851, respectively.
The Schwab Market Track Conservative Fund seeks to maintain a
defined mix of asset classes over time and invests mainly in a
combination of other Schwab funds that are managed using an
indexing strategy. The fund seeks income and more growth
potential than an all-bond portfolio. The fund also seeks to
remain close to the target allocations of 55% bonds, 40%
stocks (20% large-cap, 10% small-cap, and 10% international),
and 5% cash. At December 31, 2002, one Plan participant was
invested in the fund. At December 31, 2002, the value per
share and number of shares were $11.38 and 299, respectively.
The Schwab Market Track Growth Fund seeks to maintain a
defined mix of asset classes over time and invests mainly in a
combination of other Schwab funds that are managed using an
indexing strategy. The fund seeks high capital growth with
less volatility than an all-stock portfolio. The fund also
seeks to remain close to the target allocations of 80% stocks
(40% large-cap, 20% small cap, and 20% international), 15%
bonds, and 5% cash. At December 31, 2002, two Plan
participants were invested in the fund. At December 31, 2002,
the value per share and number of shares were $11.96 and
1,551, respectively.
The Plan offers a Self-Directed Brokerage Account, whereby the
participant invests his or her account balance in any
investment desired, within certain specific limitations. For
purposes of the Plan, participants are allowed to direct their
investments at their own discretion. The total number of
shares was 711,171 and there were 89 Plan participants at
December 31, 2002.
The Strong Growth 20 Fund - Investor Class seeks capital
growth and focuses, under normal conditions, on stocks of 20
to 30 companies that its manager believes have favorable
prospects for accelerating growth of earnings but are selling
at reasonable valuations based on earnings, cash flow, or
asset value, and can include stocks of any size. The fund can
also write put and call options and, to a limited extent, may
also invest in foreign securities. At December 31, 2002, 58
Plan participants were invested in the fund. At December 31,
2002, the value per share and number of shares were $10.19 and
68,329, respectively.
The Schwab S&P 500 Fund - Select Shares seeks to track the
total return of the S&P 500 Index. The fund normally invests
at least 80% of its assets in the stocks that compose the
index. The fund generally gives the same weight to a given
stock as the index does. The fund also may invest in futures
contracts and lend securities to minimize the gap in
performance that naturally exists between any index fund and
its index. At December 31, 2002, 19 Plan participants were
invested in the fund. At December 31, 2002, the value per
share and number of shares were $13.56 and 15,034,
respectively.
The Turner Midcap Growth Fund seeks capital appreciation. The
fund normally invests at least 80% of its assets in common
stocks and other equity securities of U.S. companies with
medium market capitalizations, which are defined as companies
within the range of companies included in the Russell Midcap
Growth Index. The fund invests in securities of companies that
are diversified across economic sectors and attempts to
maintain sector concentrations that approximate those of the
Russell Midcap Growth Index. At December 31, 2002, 21 Plan
participants were invested in the
10
SAFEGUARD SCIENTIFICS, INC. RETIREMENT PLAN
(Formerly known as Safeguard Scientifics, Inc. Stock Savings Plan)
Notes to Financial Statements
December 31, 2002 and 2001
fund. At December 31, 2002, the value per share and number of
shares were $14.71 and 29,904, respectively.
The Value Line Asset Allocation Fund seeks high total
investment return (current income and capital appreciation)
consistent with reasonable risk. The fund may invest in a
broad range of common stocks, bonds, and money-market
instruments. There are no limits on the percentage of the
fund's assets that can be invested in equity, debt, or money
market securities. At December 31, 2002, 37 Plan participants
were invested in the fund. At December 31, 2002, the value per
share and number of shares were $15.02 and 29,866,
respectively.
The Weitz Partners Value Fund's primary investment objective
is capital appreciation. The fund invests primarily in common
stocks and various securities convertible into common stocks,
such as rights, warrants, convertible preferred stock, and
convertible bonds, of sound, growing, well-managed businesses.
The fund also may invest in other securities of a company not
convertible into common stock, such as bonds and preferred
stock. The fund may, with respect to 50% of its total assets,
concentrate its investments by investing more than 5% of its
total assets in the security of one issuer. At December 31,
2002, 29 Plan participants were invested in the fund. At
December 31, 2002, the value per share and number of shares
were $17.15 and 16,542, respectively.
The Wasatch Core Growth Fund seeks to invest in long-term
growth through companies that it believes are high quality and
stable and have the potential to grow steadily. The fund seeks
to invest in these companies at prices it believes are
reasonable relative to its projection of a company's five-year
earnings growth rate. At December 31, 2002, 19 Plan
participants were invested in the fund. At December 31, 2002,
the value per share and number of shares were $26.68 and
3,010, respectively.
11
SAFEGUARD SCIENTIFICS, INC. RETIREMENT PLAN
(Formerly known as Safeguard Scientifics, Inc. Stock Savings Plan)
Notes to Financial Statements
December 31, 2002 and 2001
(4) INVESTMENTS
The following presents investments, at fair market value, that
represent 5% or more of the Plan's net assets:
DECEMBER 31,
---------------------------
2002 2001
----------- -----------
Safeguard Scientifics, Inc.
(405,915 and 463,262 shares, respectively) $ 665,701 * 1,621,417 *
Excelsior Value and Restructuring Fund - Class A
(27,702 and 28,229 shares, respectively) 677,591 * 905,025 *
Strong Growth 20 Fund - Investor Class
(68,329 and 67,423 shares, respectively) 696,270 * 993,813 *
Schwab S&P 500 Fund
(15,034 and 49,269, shares, respectively) 203,862 872,545 *
Weitz Partners Value Fund
(16,542 and 13,928 shares, respectively) 283,703 * 290,694
Schwab Institutional Advantage Money Fund
(419,472 and 246,369 shares, respectively) 419,472 * 246,369
Turner Midcap Growth Fund
(29,904 and 34,610 shares, respectively) 439,883 * 758,306 *
Value Line Asset Allocation Fund
(29,866 and 28,186 shares, respectively) 448,593 * 485,650 *
* Represents 5% or more of the Plan's net assets available for benefits.
During 2002, 2001, and 2000, the Plan's investments (including gains and
losses on investments bought and sold, as well as held during the years)
depreciated in value by $(2,723,538), $(4,954,498), and $(42,596,390),
respectively, as follows:
YEARS ENDED DECEMBER 31
---------------------------------------------
INVESTMENT 2002 2001 2000
-------------------------------------------------- -------------- ----------- ------------
Mutual funds $ (1,173,583) (648,694) (438,790)
Common stock (1,549,955) (4,305,804) (42,157,600)
-------------- ---------- -----------
$ (2,723,538) (4,954,498) (42,596,390)
============== ========== ===========
In March 2000, the Company completed a three-for-one split of its
common shares. The accompanying financial statements reflect this stock
split.
12
SAFEGUARD SCIENTIFICS, INC. RETIREMENT PLAN
(Formerly known as Safeguard Scientifics, Inc. Stock Savings Plan)
Notes to Financial Statements
December 31, 2002 and 2001
(5) INCOME TAX STATUS
Participant contributions are made from compensation before income tax
deductions in accordance with Section 401(k) of the Internal Revenue
Code. Participants are not subject to income tax on contributions to
the Plan, appreciation in Plan assets, or income earned thereon until
their funds are withdrawn from the Plan.
The Internal Revenue Service has determined and informed the Company by
a letter dated July 19, 1995 that the Plan is designed in accordance
with the applicable sections of the Internal Revenue Code. The Plan has
been amended since receiving the determination letter. However, the
Plan administrator believes that the Plan is designed and is currently
being operated in compliance with the applicable requirements of the
Internal Revenue Code. In 2000, the Plan adopted a prototype plan that
has received an opinion letter from the Internal Revenue Service that
the prototype satisfies the applicable sections of the Internal Revenue
Code.
(6) SUBSEQUENT EVENT
Effective January 1, 2003, the Plan was amended to eliminate the
Employers' fixed matching contribution and provide in its place a
year-end discretionary matching contribution to all participants who
have made salary deferrals under the Plan during the Plan year and are
active employees on December 31. Any discretionary matching
contribution made by the Employers will be 100% vested.
13
SCHEDULE 1
SAFEGUARD SCIENTIFICS, INC. RETIREMENT PLAN
(Formerly known as Safeguard Scientifics, Inc. Stock Savings Plan)
Schedule H, Line 4i - Schedule of Assets(Held at End of Year)
December 31, 2002
IDENTITY OF ISSUE, DESCRIPTION OF INVESTMENT INCLUDING
BORROWER, LESSOR, MATURITY DATE, RATE OF INTEREST, CURRENT
OR SIMILAR PARTY COLLATERAL, PAR, OR MATURITY VALUE COST VALUE
---------------------------- -------------------------------------------- ------------ -----------
American Century
Investments American Century International Growth Fund $ 76,817 $ 44,620
Calvert Group Calvert Income Fund A 194,885 179,017
Calamos Funds Calamos Growth Fund 56,113 44,174
Excelsior Funds Excelsior Value and Restructuring Fund 944,899 677,591
Fremont Funds Fremont U.S. Micro-Cap Fund 95,849 50,664
American Funds American Funds Growth Fund 328,300 273,105
Janus Janus Worldwide Fund 293,027 157,094
Parnassus Funds Parnassus Equity Income Fund 5,363 5,102
Schwab Funds ** Schwab Institutional Advantage Money Fund 419,472 419,472
Schwab Funds ** Schwab Market Track Balanced Fund 10,460 10,141
Schwab Funds ** Schwab Market Track Conservative Fund 3,465 3,402
Schwab Funds ** Schwab Market Track Growth Fund 19,316 18,554
Various * Self-Directed Brokerage Account 1,475,486 1,475,486
Strong Funds Strong Growth 20 Fund - Investor Class 1,596,819 696,270
Schwab Funds ** Schwab S&P 500 Fund - Select Shares 283,381 203,862
Turner Turner Midcap Growth Fund 1,060,957 439,883
Value Line Mutual Funds Value Line Asset Allocation Fund 586,538 448,593
Weitz Funds Weitz Partners Value Fund 378,291 283,703
Wasatch Funds Wasatch Core Growth Fund 121,335 80,298
-----------
5,511,031
Participant loans ** Interest rates ranging from 8.5% to 10.5%,
maturity dates on the four outstanding loans
ranging from September 2003 to August 2011 -- 36,716
-----------
$ 5,547.747
===========
*Includes the stock of Safeguard Scientifics, Inc. (405,915 shares with a
current value of $665,701), which is the plan administrator, and thereafter, any
transactions related to this investment are party-in-interest transactions.
**Parties-in-interest
See accompanying independent auditors' report.
14