<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number 0-17822
SYNETIC, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-2975182
(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)
River Drive Center 2
669 River Driver
Elmwood Park, New Jersey 07407
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (201) 703-3400
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at November 10, 1995
- ------------------ --------------------------------
Common Stock 16,653,129 shares par value
$.01 per share
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SYNETIC, INC. AND SUBSIDIARIES
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Index
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Page
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Part I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheets --
September 30, 1995 and June 30, 1995 3
Consolidated Statements of Income --
Three Months Ended September 30, 1995
and 1994 5
Consolidated Statements of Cash Flows --
Three Months Ended September 30, 1995
and 1994 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and
Analysis of Results of Operations
and Financial Condition 9
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
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SYNETIC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
------
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<CAPTION>
September 30, June 30,
1995 1995
-------------- ---------
(unaudited)
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CURRENT ASSETS:
Cash and cash equivalents................ $ 10,952 $ 7,499
Marketable securities.................... 97,000 98,000
Accounts receivable, net of allowances
for doubtful accounts and sales
returns of $675 and $636 at
September 30, 1995 and June 30, 1995,
respectively........................... 6,374 6,665
Inventories.............................. 5,299 5,446
Other current assets..................... 4,547 4,031
-------- --------
Total current assets................... 124,172 121,641
-------- --------
PROPERTY, PLANT AND EQUIPMENT:
Land and improvements.................... 798 780
Buildings and improvements............... 8,297 8,286
Machinery and equipment.................. 17,865 17,389
Furniture and fixtures................... 2,778 2,696
Construction in progress................. 1,443 1,331
-------- --------
31,181 30,482
Less: Accumulated depreciation........ (14,106) (13,523)
-------- --------
Property, plant and equipment, net... 17,075 16,959
-------- --------
OTHER ASSETS:
Marketable securities.................... 46,833 46,854
Other.................................... 1,723 2,720
-------- --------
Total other assets..................... 48,556 49,574
-------- --------
$189,803 $188,174
======== ========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
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SYNETIC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(in thousands, except share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
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<CAPTION>
September 30, June 30,
1995 1995
-------------- ---------
(unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt........... $ - $ 216
Accounts payable............................ 1,055 648
Accrued liabilities......................... 8,201 9,337
Income taxes payable........................ 5,922 6,161
-------- --------
Total current liabilities................. 15,178 16,362
-------- --------
DEFERRED TAXES AND OTHER LIABILITIES.......... 4,980 4,980
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value;
10,000,000 shares authorized; none
issued.................................... - -
Common stock, $.01 par value;
50,000,000 shares authorized; 16,650,796
and 16,598,530 shares issued at
September 30, 1995 and June 30 1995,
respectively.............................. 219 219
Paid-in capital............................. 153,445 152,556
Treasury stock, at cost; 5,268,463 shares
at September 30, 1995..................... (36,575) (36,575)
Retained earnings........................... 52,556 50,632
-------- --------
Total stockholders' equity................ 169,645 166,832
-------- --------
$189,803 $188,174
======== ========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
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SYNETIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended September 30, 1995 and 1994
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
September 30,
1995 1994
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<S> <C> <C>
Net sales................................ $11,036 $ 8,954
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Costs and expenses:
Cost of sales.......................... 6,340 5,454
Selling, general and administrative.... 3,612 2,618
Interest and other income.............. (2,052) (1,389)
Interest expense....................... 9 1,478
------- -------
7,909 8,161
------- -------
Income from continuing operations
before provision for income taxes...... 3,127 793
Provision for income taxes............... 1,203 313
------- -------
Income from continuing operations........ 1,924 480
------- -------
Discontinued operations:
Income from operations, net of income
taxes of $415 for the quarter ended
September 30, 1994..................... - 535
------- -------
Income from discontinued operations...... - 535
------- -------
Net income............................... $ 1,924 $ 1,015
======= =======
Net income per share:
Continuing operations.................. $ .11 $ .03
Discontinued operations................ .00 .03
------- -------
Net income per share..................... $ .11 $ .06
======= =======
Weighted average shares outstanding...... 17,830 18,133
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE>
SYNETIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended September 30, 1995 and 1994
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
September 30,
1995 1994
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<S> <C> <C>
Cash flows from operating activities:
Net income.................................... $ 1,924 $ 1,015
Adjustments to reconcile net income to
net cash provided by operating activities:
Income from Discontinued Operations....... - (535)
Depreciation and amortization............. 640 568
Changes in operating assets and liabilities:
Accounts receivable, net.................. 291 (647)
Inventories............................... 147 84
Other assets.............................. 424 2,049
Accounts payable.......................... 407 (67)
Accrued liabilities....................... (1,137) 3,073
Income taxes payable...................... (43) (2,715)
--------- --------
Net cash provided by
operating activities.................. 2,653 2,825
--------- --------
Cash flows from investing activities:
Sales of marketable securities................ 205,021 35,069
Purchases of marketable securities............ (204,000) (36,049)
Capital expenditures.......................... (699) (1,437)
--------- --------
Net cash provided by (used for)
investing activities.................... 322 (2,417)
--------- --------
Cash flows from financing activities:
Proceeds from exercise of stock options and
401(k) purchases............................ 694 551
Payments and redemption of long-term debt..... (216) (114)
--------- --------
Net cash provided by
financing activities...................... 478 437
--------- --------
Net increase in cash and cash equivalents....... 3,453 845
Cash and cash equivalents, beginning of period.. 7,499 5,549
--------- --------
Cash and cash equivalents, end of period........ $ 10,952 $ 6,394
========= ========
</TABLE>
The accompanying notes are an integral part of these statements.
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SYNETIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Financial statement presentation:
In the opinion of management, the accompanying consolidated financial
statements contain all normal and recurring adjustments necessary to present
fairly the financial position of Synetic, Inc. and subsidiaries (the "Company")
as of September 30, 1995 (unaudited) and June 30, 1995 (audited), and the
results of their operations and their cash flows for the three months ended
September 30, 1995 and 1994 (unaudited).
Principles of Consolidation--
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned operating subsidiary, Porex Technologies Corp.
("Porex"), after elimination of all material intercompany accounts and
transactions. All periods and related notes thereto have been restated to
reflect the sale of the Institutional Pharmacy Business, consummated on December
14, 1994.
The accounting policies followed by the Company are set forth in the Notes
to Consolidated Financial Statements included in the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1995 (the "Annual Report"), which
notes are incorporated herein by reference.
The results of operations for the interim periods presented are not
necessarily indicative of the results to be expected for the full fiscal year.
Certain reclassifications have been made to prior year amounts to conform
to the current year presentation.
(2) Inventories:
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
September 30, June 30,
1995 1995
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(unaudited)
<S> <C> <C>
Raw materials and supplies.. $2,731 $2,843
Work-in-process............. 545 549
Finished goods.............. 2,023 2,054
------ ------
$5,299 $5,446
====== ======
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(3) Marketable securities:
At September 30, 1995, marketable securities consisted primarily of U.S.
Treasury Notes and Money Market Preferred Stock.
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(4) Computation of net income per share:
Net income per share is determined by dividing net income by the weighted
average number of shares of common stock and common stock equivalents
outstanding during the applicable period. Common stock equivalents consist of
common stock which may be issuable upon exercise of outstanding stock options as
calculated using the treasury stock method.
(5) Supplemental cash flow information (in thousands):
<TABLE>
<CAPTION>
September 30,
Cash paid during the periods for: 1995 1994
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<S> <C> <C>
Interest...................... $ 6 $ 10
Income taxes.................. 1,225 9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Consolidated Results of Operations:
- ----------------------------------
Net sales for the three months ended September 30,1995 increased by
$2,082,000, or 23.3% over the comparable prior year period as a result of sales
increases across several product lines, principally increased sales of writing
instrument components in the consumer sector and medical products in the health
care sector.
Cost of sales for the three months ended September 30, 1995 increased by
$886,000, or 16.24%, over the comparable prior year period due to the increased
sales volume noted above. As a percent of net sales, cost of sales for the
three months ended September 30, 1995 decreased to 57.4% from 60.9% in the
comparable prior year period principally due to increased sales of higher margin
products and the reduction of certain fixed manufacturing costs.
Selling, general and administrative expenses for the three months ended
September 30, 1995 increased by $994,000 or 38% over the comparable prior year
period due primarily to an increase in sales commissions due to the increase in
sales volume noted above and increased corporate overhead. As a percent of net
sales, selling, general and administrative expenses for the three months ended
September 30, 1995 increased to 32.7% from 29.2% primarily due to the increase
in corporate overhead noted above.
Interest and other income for the three months ended September 30, 1995
increased by $663,000 or 47.7% over the comparable prior year period as a result
of higher interest rates on the Company's marketable securities and the income
on the net proceeds received from the sale of the Institutional Pharmacy
Business.
Interest expense for the three months ended September 30, 1995 decreased by
$1,469,000 from the comparable prior year period as a result of the conversion
and redemption of the Company's 7% Convertible Subordinated Debentures into
common stock of the Company in February 1995.
The effective tax rate for the three months ended September 30, 1995 did
not vary materially from the comparable prior year period.
-9-
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Capital Resources and Liquidity:
- -------------------------------
Cash, cash equivalents and marketable securities increased by $2,432,000 to
$154,785,000 during the three months ended September 30, 1995 principally due to
the income earned from operations.
The Company believes that its cash flow from operations and the income
earned on its investments are sufficient to meet the anticipated working capital
requirements of its business.
The Company continues to pursue an acquisition program pursuant to which it
seeks to effect one or more acquisitions or other similar business combinations
with businesses it believes have significant growth potential. For a further
description of the Company's Acquisition Program, see "Item 1. Business -
Acquisition Program" in the Company's Annual Report on Form 10-K for the fiscal
year ended June 30, 1995.
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<PAGE>
SYNETIC INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit No. Description
27 Financial Data Schedule
(b) No reports on Form 8-K were filed by the Company during the quarter
for which this report was filed.
11
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SIGNATURE
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 thereunto duly authorized.
SYNETIC, INC.
/s/ VICTOR L. MARRERO
-----------------------------------
Victor L. Marrero
Vice President - Finance
and Chief Financial Officer
Dated: November 14, 1995
12
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SYNETIC,
INC.'S QUARTERLY REPORT FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995.
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 10,952
<SECURITIES> 143,833
<RECEIVABLES> 7,049
<ALLOWANCES> 675
<INVENTORY> 5,299
<CURRENT-ASSETS> 124,172
<PP&E> 31,181
<DEPRECIATION> 14,106
<TOTAL-ASSETS> 189,803
<CURRENT-LIABILITIES> 15,178
<BONDS> 0
<COMMON> 219
0
0
<OTHER-SE> 169,426
<TOTAL-LIABILITY-AND-EQUITY> 189,803
<SALES> 11,036
<TOTAL-REVENUES> 11,036
<CGS> 6,340
<TOTAL-COSTS> 6,340
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9
<INCOME-PRETAX> 3,127
<INCOME-TAX> 1,203
<INCOME-CONTINUING> 1,924
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,924
<EPS-PRIMARY> .11
<EPS-DILUTED> 0
</TABLE>
