<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
MARK ONE
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 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 Drive
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 February 9, 1996
--------------------- -------------------------------
Common Stock 16,687,082 shares
par value
$.01 per share
<PAGE>
SYNETIC, INC. AND SUBSIDIARIES
Index
-----
Page
----
Part I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheets --
December 31, 1995 and June 30, 1995 3
Consolidated Statements of Income --
Quarters and Six Months Ended
December 31, 1995 and 1994 5
Consolidated Statements of Cash Flows --
Six Months Ended December 31, 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 4. Submission of Matters to a Vote of
Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
<PAGE>
SYNETIC INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
<TABLE>
<CAPTION>
December 31, June 30,
1995 1995
------------- ---------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............. $ 12,456 $ 7,499
Marketable securities................. 94,400 98,000
Accounts receivable, net of
allowances for doubtful accounts
and sales returns of $681 and $636
at December 31, 1995 and June 30,
1995, respectively.................. 6,324 6,665
Inventories........................... 4,924 5,446
Other current assets.................. 4,085 4,031
-------- --------
Total current assets................ 122,193 121,641
-------- --------
PROPERTY, PLANT AND EQUIPMENT:
Land and improvements................. 798 780
Building and improvements............. 8,273 8,286
Machinery and equipment............... 18,389 17,389
Furniture and fixtures................ 2,855 2,696
Construction in progress.............. 1,250 1,331
-------- --------
31,716 30,482
Less: Accumulated depreciation....... (14,697) (13,523)
-------- --------
Property, plant and equipment, net.. 17,019 16,959
-------- --------
OTHER ASSETS:
Marketable securities................. 46,811 46,854
Other................................. 2,360 2,720
-------- --------
Total other assets 49,171 49,574
-------- --------
$188,383 $188,174
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
-3-
<PAGE>
SYNETIC INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, June 30,
1995 1995
------------- --------
(unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt.......... $ - $ 216
Accounts payable........................... 756 648
Accrued liabilities........................ 5,227 9,337
Income taxes payable....................... 5,537 6,161
-------- --------
Total current liabilities................. 11,520 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; 16,660,615 and
16,598,530 shares issued at
December 31, 1995 and June 30, 1995,
respectively.............................. 219 219
Paid-in capital............................ 153,610 152,556
Treasury stock, at cost; 5,268,463 shares
at December 31, 1995...................... (36,575) (36,575)
Retained earnings.......................... 54,629 50,632
-------- --------
Total stockholders' equity................ 171,883 166,832
-------- --------
$188,383 $188,174
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
-4-
<PAGE>
SYNETIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Quarters and Six Months Ended December 31, 1995 and 1994
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Quarters Ended Six Months Ended
December 31, December 31,
1995 1994 1995 1994
-------- ---------- -------- --------
<S> <C> <C> <C> <C>
Net Sales.................................. $10,283 $ 9,469 $21,319 $18,423
Cost and expenses:
Cost of sales............................ 5,820 5,593 12,160 11,047
Selling, general and administrative...... 3,337 2,793 6,949 5,411
Interest and other income................ (1,998) (1,590) (4,050) (2,982)
Interest expense......................... - 1,488 9 2,968
Purchase and Sale Agreement related
expenses and other..................... - 5,580 - 5,580
------- ------- ------- -------
7,159 13,864 15,068 22,024
------- ------- ------- -------
Income (loss) from continuing operations
before provision for income taxes........ 3,124 (4,395) 6,251 (3,601)
Provision (benefit)for income taxes........ 1,051 (1,669) 2,254 (1,356)
------- ------- ------- -------
Income (loss) from continuing operations. 2,073 (2,726) 3,997 (2,245)
------- ------- ------- -------
Discontinued operations:
Income from operations, net of income
taxes of $427 for the quarter
ended December 31, 1994 and
$842 for the six months ended
December 31, 1994........................ - 430 - 963
Gain on sale of Institutional
Pharmacy operations, net of taxes
of $22,638............................... - 11,785 - 11,785
------- ------- ------- -------
Income from discontinued operations........ - 12,215 - 12,748
------- ------- ------- -------
Net income................................. $ 2,073 $ 9,489 $ 3,997 $10,503
======= ======= ======= =======
Primary
- -------
Net income per share:
Continuing operations.................... $ .12 $ (.16) $.22 $ (.12)
Discontinued operations.................. - .69 - .71
------- ------- ------- -------
Net income per share....................... $ .12 $ .53 $.22 $ .59
======= ======= ======= =======
Weighted average shares outstanding........ 17,885 17,745 17,858 17,939
======= ======= ======= =======
Fully Diluted
- -------------
Net income per share:
Continuing operations.................... $ - $ (.08) $ - $ (.02)
Discontinued operations.................. - .56 - .58
------- ------- ------- -------
Net income per share..................... $ - $ .48 $ - $ .56
======= ======= ======= =======
Weighted average shares outstanding........ - 21,897 - 22,144
======= ======= ======= =======
</TABLE>
-5-
<PAGE>
SYNETIC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended December 31, 1995 and 1994
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income........................................... $ 3,997 $ 10,503
Adjustments to reconcile net income to
net cash provided by operating activities:
Income from Discontinued Operations.............. - (963)
Income from Sale of Institutional
Pharmacy business.............................. - (11,785)
Depreciation and amortization.................... 1,294 1,209
Changes in operating assets and liabilities:
Accounts receivable, net......................... 341 (524)
Inventories...................................... 522 (259)
Other assets..................................... 182 (260)
Accounts payable................................. 108 (278)
Accrued liabilities.............................. (4,110) 1,185
Other liabilities................................ - 4,980
Income taxes payable............................. (378) 521
--------- ---------
Net cash provided by
operating activities......................... 1,956 4,329
--------- ---------
Cash flows from investing activities:
Sales of marketable securities...................... 338,443 138,506
Purchase of marketable securities................... (334,800) (175,759)
Capital expenditures................................ (1,234) (2,367)
Proceeds from sale of Institutional
Pharmacy business................................ - 102,314
--------- ---------
Net cash provided by (used for)
investing activities......................... 2,409 62,694
--------- ---------
Cash flows from financing activities:
Payments for treasury stock......................... - (35,778)
Proceeds from exercise of stock options and
401(k) purchases.................................. 808 2,227
Payments of long-term debt.......................... (216) (228)
--------- ---------
Net cash provided by (used for)
financing activities........................ 592 (33,779)
--------- ---------
Net increase (decrease) in cash and cash equivalents 4,957 33,244
Cash and cash equivalents, beginning of period........ 7,499 4,232
--------- ---------
Cash and cash equivalents, end of period.............. $ 12,456 $ 37,476
========= =========
</TABLE>
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<PAGE>
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 December 31, 1995 (unaudited) and June 30, 1995 (audited), and the results
of their operations and their cash flows for the six months ended December 31,
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>
December 31, June 30,
1995 1995
------------ --------
<S> <C> <C>
(unaudited)
Raw materials and supplies.. $2,431 $2,843
Work-in-process............. 491 549
Finished goods.............. 2,002 2,054
------ ------
$4,924 $5,446
====== ======
</TABLE>
(3) Marketable securities:
At December 31, 1995, marketable securities consisted primarily of U.S.
Treasury Notes and Money Market Preferred Stock.
(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.
-7-
<PAGE>
(5) Supplemental cash flow information (in thousands):
<TABLE>
<CAPTION>
December 31,
Cash paid during the periods for: 1995 1994
------ ------
<S> <C> <C>
Interest...................... $ 6 $2,836
Income taxes.................. 2,414 433
</TABLE>
-8-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
Consolidated Results of Operations:
- ----------------------------------
Net sales for the quarter and six months ended December 31, 1995 increased
by $814,000, or 8.6% and $2,896,000, or 15.7%, respectively, over the comparable
prior year periods as a result of sales improvements 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 quarter and six months ended December 31, 1995
increased by $227,000, or 4.1%, and $1,113,000, or 10.1%, respectively, over the
comparable prior year periods due to the increased sales volume noted above. As
a percent of net sales, cost of sales for the quarter and six months ended
December 31, 1995 decreased to 56.6% and 57.0% from 59.1% and 60.0%,
respectively, in the comparable prior year periods principally due to increased
sales of higher margin products and the reduction of certain fixed manufacturing
costs.
Selling, general and administrative expenses for the quarter and six months
ended December 31, 1995 increased by $544,000 or 19.5% and $1,538,000 or 28.4%,
respectively, over the comparable prior year periods due primarily to an
increase in expenses associated with the increase in sales volume noted above
and an increase in corporate overhead expenses. As a percent of net sales,
selling, general and administrative expenses for the quarter and six months
ended December 31, 1995 increased to 32.5% and 32.6%, respectively, from 29.5%
and 29.4%, respectively, in the comparable prior year periods primarily due to
the increase in corporate overhead noted above.
Interest and other income for the quarter and six months ended December 31,
1995 increased by $408,000 or 25.7% and $1,068,000 or 35.8%, respectively, over
the comparable prior year periods as a result of a combination of higher
interest rates on the Company's marketable securities and the income on the net
proceeds from the sale of the Institutional Pharmacy Business.
Interest expense for the quarter and six months ended December 31, 1995
decreased by $1,488,000 and $2,959,000, respectively, in the comparable prior
year periods 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.
Purchase and Sale Agreement related expenses and other for the quarter and
six months ended December 31, 1995 decreased by $5,580,000 from the comparable
prior year periods as a result of the one time charge in the prior year related
to the issuance of stock options issued to certain officers as compensation for
services in conjunction with the consummation of the Purchase and Sale
Agreement.
The effective tax rate for the quarter and six months ended December 31,
1995 decreased to 34% and 36%, respectively, from 38% in the comparable prior
year periods as a result of an increase in income in the current year eligible
for dividends received reduction.
-9-
<PAGE>
Capital Resources and Liquidity:
- -------------------------------
The description of the Company's Capital Resources and Liquidity below,
including the descriptions of the acquisition program contained herein or
referenced in "Item 1. Business--Acquisition Program" of the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1995 (the "1995 10-K"),
contain forward-looking statements with respect to possible events, outcomes or
results that are, and may continue to be, subject to risks, uncertainties and
contingencies, including the respective risks, uncertainties and contingencies
identified in such descriptions.
Cash, cash equivalents and marketable securities increased by $1,314,000 to
$153,667,000 during the six months ended December 31, 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. Financing for
such acquisitions may come from several other sources, including, without
limitation, (a) its cash, cash equivalents and marketable securities and (b)
proceeds from the incurrence of additional indebtedness or the issuance of
common stock, preferred stock, convertible debt or other securities. For a
further description of the Company's Acquisition Program, see "Item 1.
Business - Acquisition Program" in the 1995 10-K.
-10-
<PAGE>
SYNETIC INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The following matters were voted upon at an Annual Meeting of Stockholders
held on December 12, 1995 and received the votes set forth below:
1) Each of the following persons nominated was elected to serve as a
director for a three-year term and received the number of votes set
opposite his name:
<TABLE>
<CAPTION>
FOR WITHHELD
---------- --------
<S> <C> <C>
James V. Manning 15,000,700 3,240
Charles A. Mele 15,000,700 3,240
Albert M. Weis 15,000,700 3,240
</TABLE>
2) A proposal to ratify the appointment of Arthur Andersen LLP as
independent public accountants for the fiscal year ending June 30,
1996 was approved and received 14,995,660 votes FOR and 5,980 votes
AGAINST, with 2,300 abstentions and no broker non-votes.
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-
<PAGE>
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: February 14, 1996
-12-
<PAGE>
EXHIBIT INDEX
Number Description
------ -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SYNETIC
INC'S QUARTERLY REPORT FOR THE PERIOD ENDED DECEMBER 31, 1995 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 12,456
<SECURITIES> 141,211
<RECEIVABLES> 7,005
<ALLOWANCES> 681
<INVENTORY> 4,924
<CURRENT-ASSETS> 122,193
<PP&E> 31,716
<DEPRECIATION> 14,697
<TOTAL-ASSETS> 188,383
<CURRENT-LIABILITIES> 11,520
<BONDS> 0
219
0
<COMMON> 0
<OTHER-SE> 171,664
<TOTAL-LIABILITY-AND-EQUITY> 188,383
<SALES> 21,319
<TOTAL-REVENUES> 21,319
<CGS> 12,160
<TOTAL-COSTS> 12,160
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9
<INCOME-PRETAX> 6,251
<INCOME-TAX> 2,254
<INCOME-CONTINUING> 3,997
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,997
<EPS-PRIMARY> .22
<EPS-DILUTED> 0
</TABLE>
