Safeguard Scientifics Inc. reported the following in its 2012 financial statements (amounts in thousands)

In March 2010, the Company issued an aggregate of $46.9 million in face value of convertible senior debentures (bonds) with a stated maturity of March 15, 2014 (the “2014 Debentures”). At the time of issuance, as required under the terms of the 2014 Debentures, the Company placed approximately $19.0 million in a restricted escrow account to make all scheduled interest payments on the 2014 Debentures through their maturity. During 2012 and 2011, interest payments of $4.8 million and $4.8 million, respectively, were made out of the restricted escrow account and are considered non-cash activities. Upon repurchase of the 2014 Debentures, $7.7 million was released from the restricted escrow account representing interest payments that would have been due through maturity of the 2014 Debentures.

a. Why would a potential investor or creditor want to know about restrictions on Cash?
b. What is the difference between Restricted Cash that is considered current and Restricted Cash that is considered Long-Term?
c. How might the disclosures on Restricted Cash affect the calculation of working capital, the current ratio, and the quick ratio?
d. If Safeguard Scientifics had not retired its Debentures prior to maturity, what would have been the effect on the 2012 Cash balances (both restricted andunrestricted)?

  • CreatedAugust 19, 2014
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