<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1996
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.)
669 RIVER DRIVE
ELMWOOD PARK, NEW JERSEY
(Address of principal 07407-1361
executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 703-3400
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ------------------------
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the registrant's voting stock (based on the
last sale price of registrant's voting stock on the NASDAQ National Market
System on September 1, 1996 and, for the purpose of this computation only, the
assumption that all of the registrant's directors and executive officers are
affiliates) held by non-affiliates of the registrant was approximately
$376,314,981.
The number of shares of registrant's Common Stock, $.01 par value,
outstanding at September 1, 1996 was 16,828,193.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information in the registrant's definitive proxy statement to be
filed with the Securities and Exchange Commission relating to the registrant's
1996 Annual Meeting of Stockholders is incorporated by reference into Part III.
<PAGE>
PART I
ITEM 1. BUSINESS.
INTRODUCTION
Synetic, Inc. ("Synetic") is a Delaware corporation and was incorporated in
1989. Its principal offices are located at 669 River Drive, Elmwood Park, New
Jersey 07407, and its telephone number is (201) 703-3400. As used herein, the
"Company" means Synetic and its subsidiaries, except where the context otherwise
requires.
Porex Technologies Corp. (together with its subsidiaries, "Porex"), a
wholly owned subsidiary of the Company, designs, manufactures and distributes
porous and solid plastic components and products used in health care, industrial
and consumer applications. Porex's principal products, which incorporate porous
plastics, are used to filter, wick, drain, vent or control the flow of fluids or
gases.
Prior to June 28, 1989, the date of the initial public offering of the
Company, the Company was an indirect wholly owned subsidiary of Medco
Containment Services, Inc. ("Medco"). Thereafter, the Company became a publicly
held, partially owned subsidiary of Medco. Medco provided health care cost
containment services, principally managed prescription drug programs, to benefit
plan sponsors. On November 18, 1993, Medco was acquired by Merck & Co., Inc.
("Merck") in a merger transaction (the "Merck/Medco Merger"), and as a result,
the Company became an indirect, partially owned subsidiary of Merck. Merck is a
pharmaceutical manufacturer. Until December 14, 1994, the Company's operations
consisted of Porex and a group of subsidiaries that provided institutional
pharmacy services (the "Institutional Pharmacies Business").
On December 14, 1994, the Company consummated certain transactions pursuant
to which: (1) the Company sold the Institutional Pharmacies Business to
Pharmacy Corporation of America ("PCA"), an indirect wholly owned subsidiary of
Beverly Enterprises, Inc. ("Beverly") (such sale is referred to herein as the
"Divestiture"), for approximately $107,300,000; (2) the Company purchased
5,268,463 shares of its common stock, par value $.01 per share ("Common Stock"),
from Merck for an aggregate purchase price of $36,575,078 (or approximately
$6.94 per share), pursuant to the Purchase and Sale Agreement, dated as of May
24, 1994, between the Company and Merck (the "Purchase and Sale Agreement"); and
(3) SN Investors, L.P. ("SN Investors"), a limited partnership the general
partner of which is SYNC, Inc. (the "General Partner"), whose sole stockholder
is Mr. Martin J. Wygod, Chairman of the Board of the Company, purchased
5,061,857 shares of Common Stock from Merck for an aggregate purchase price of
$35,140,764 (or approximately $6.94 per share), pursuant to an assignment by the
Company of the right to purchase such shares from Merck. The purchases of
shares of Common Stock from Merck by the Company and SN Investors are
hereinafter referred to as the "Purchase". The purchase prices stated above
reflect a final purchase price adjustment, pursuant to the terms of the Purchase
and Sale Agreement, in the amount of $2,331,256 that was paid to Merck on July
31, 1996, $1,142,315 of which is payable by SN Investors. The shares of Common
Stock purchased by the Company are being held as treasury shares and are no
longer outstanding or entitled to vote. The Company's purpose in entering into
the Purchase was to acquire a significant portion of its Common Stock on terms
it believed to be in the interests of its public stockholders and to structure
the Company as an independent public company with the benefit of Mr. Wygod's
association as a significant investor. Merck required the consummation of the
Divestiture as a condition to the Purchase.
Immediately prior to the consummation of the Purchase, Merck owned
approximately 58% of the issued and outstanding Common Stock. As a result of
the consummation of the Purchase, Mr. Wygod and SN Investors own an aggregate of
approximately 32% of the outstanding Common Stock as of September 1, 1996 and
Merck no longer owns an equity interest in the Company.
2
<PAGE>
The Company intends to pursue an acquisition program pursuant to which it
will seek to effect one or more acquisitions of or business combinations with
businesses that the Company believes have significant growth potential. The
Company intends initially to concentrate its acquisition efforts in the health
care industry but such emphasis is not intended to limit in any manner the
Company's ability to pursue acquisition opportunities in other industries. The
Company's acquisition program could result in a substantial change in the
business, operations and financial condition of the Company. No assurance can
be given that the Company will succeed in consummating any acquisitions or that
the Company will be able to successfully manage or integrate any business that
it acquires. The future growth of the Company will depend primarily on its
ability to consummate one or more such acquisitions and to operate such
businesses successfully. See "--Acquisition Program".
FORWARD-LOOKING INFORMATION
This report contains certain forward-looking statements and information
relating to the Company that are based on the beliefs of the Company's
management as well as assumptions made by and information currently available to
the Company management. When used in this report, the words "anticipate",
"believe", "estimate", "expect" and similar expressions, as they relate to the
Company or the Company's management, are intended to identify forward-looking
statements. Such statements reflect the current view of the Company with
respect to future events and are subject to certain risks, uncertainties and
assumptions. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those described herein as anticipated, believed, estimated or
expected. The Company does not intend to update these forward-looking
statements.
POREX
GENERAL
Porex Technologies Corp., a wholly owned subsidiary of the Company,
designs, manufactures and distributes porous and solid plastic components and
products used in health care, industrial and consumer applications. Porex's
principal products are porous plastics that are used to filter, wick, drain,
diffuse, vent or control the flow of fluids or gases. A large percentage of
Porex's products are sold to other manufacturers for incorporation into their
products.
Porex's health care products include proprietary products manufactured and
sold under Porex's trade names. These products are sold for clinical and
medical/surgical use in hospitals, clinics, physicians' offices and
laboratories. Porex also manufactures and sells a line of plastic vials and
produces components made to the specifications of original equipment
manufacturers ("OEMs") for incorporation into their health care products.
Porex's industrial and consumer products consist primarily of custom-
manufactured components made for manufacturers of industrial and consumer
products.
Porous plastics are permeable plastic structures having omni-directional
(i.e., porous in all directions to the flow of fluids or gases) interconnecting
pores. Porous plastics are manufactured by Porex with pore sizes between
approximately 5 and 500 micrometers (one micrometer is equal to one-millionth of
a meter; an object of 40 micrometers in size is about as small as can be
discerned by the naked eye). Porous plastic materials can be molded from
several thermoplastic raw materials and are produced by Porex at its own
manufacturing facilities as fabricated devices, custom-molded shapes, sheets,
tubes or rods depending on application or manufacturer specifications. Porex
also purchases for resale through its distribution channels certain products
which are complementary to its manufactured product lines.
3
<PAGE>
HEALTH CARE PRODUCTS
Porex's proprietary products for life sciences, clinical and surgical
applications include blood serum filters, blood tube closure devices, pipette
tips and a line of medical/surgical products designed primarily for use in
plastic and reconstructive surgery and maxillofacial surgery. Porex also
manufactures and sells a line of plastic vials and produces components for
incorporation into health care products made by OEMs.
LIFE SCIENCES AND CLINICAL PRODUCTS. Porex's blood serum filters are used
to separate microscopic particles and fibrous matter (fibrin) from centrifuged
blood serum to prevent clogging of automated laboratory chemical analysis
equipment. The filters allow the serum to pass through while blocking passage
of particulate materials. Analysis of the serum provides specific information
as to a patient's health. Porex also manufactures a line of closure devices
that are used with blood serum filters and tubes. In response to health
concerns regarding the handling of human blood, new blood testing equipment has
been developed which does not require filtered blood serum for analysis, or
which eliminates the need for handling of blood serum by medical personnel. The
use of such new equipment has reduced the demand for Porex's current line of
blood serum filters.
Porex produces a line of filtered and non-filtered pipette tips which are
used for dispensing fluids, primarily in industrial research laboratories.
SURGICAL PRODUCTS. Porex's surgical products are marketed primarily to
surgeons who specialize in plastic and reconstructive surgery and maxillofacial
surgery. The product line includes MEDPOR(R) Surgical Implant material, which
is polymeric biomaterial used for craniofacial reconstruction and augmentation,
and TLS(R) Surgical Drainage Systems for small wound sites. Porex also markets
TLS(TM) Surgical Marker pens to mark the areas of proposed surgical incision.
Porex manufactures MEDPOR(R) Surgical Implant material and distributes, and in
some cases assembles, the other items in its surgical product line.
OEM MEDICAL PRODUCTS. Porex manufactures various porous plastic components
that it sells to other health care product manufacturers for incorporation into
their finished products. These porous plastics are used to vent or diffuse
gases or fluids and are used as membrane supports in other manufacturers'
products. The components include (i) disks used to support membranes, modules
and other filtration devices, (ii) a venting system for catheters which allows
air to vent from a catheter as it is inserted into a vein, while at the same
time preventing blood spillage and possible contamination of hospital personnel,
(iii) a porous disk used in pipette tips to prevent the fluid to be pipetted
from passing into the pipette instrument, and (iv) an oxygen diffuser, which is
typically used in oxygen therapy equipment to humidify oxygen.
VIAL AND SOLID PLASTIC COMPONENTS. Porex manufactures and sells a full
line of plastic vials for pharmaceuticals. Porex also produces close tolerance
solid plastic components which use most thermoplastic resins, but primarily
polystyrene, polypropylene and thermoplastic rubber for medical and industrial
applications. These products are custom designed and produced to satisfy
individual customer specifications.
INDUSTRIAL PRODUCTS
Porex manufactures a variety of custom porous plastic components for
industrial applications. These components are produced as molded shapes, and in
sheets, tubes and rods, individually designed to customer specifications as to
size, rigidity, porosity and other needs.
Porex's industrial applications include (i) automotive products, primarily
porous plastic vents used in automobile batteries as a flame arrester, (ii)
wastewater treatment filter support media, (iii) filters to remove particulate
matter, oil and water residues from compressed air lines, (iv) silencers and
mufflers to reduce sound levels produced by compressed air exhaust, and (v)
products for facilitating the movement of powdered materials.
4
<PAGE>
Porex also manufactures a large variety of highly specialized plastic components
to meet specific applications for manufacturers.
In July 1996, Porex acquired Sintair Limited ("Sintair"), an English
company that has been Porex's representative in the United Kingdom for molded
porous plastic components for more than 10 years. Sintair also manufactures
porous plastic silencers and filter regulators for pneumatic applications and
sells porous sheet and fabricated materials. With this acquisition, Porex gains
a manufacturing base for the United Kingdom with personnel who are familiar with
these markets. By adding Porex's porous manufacturing and engineering expertise
to the Sintair client base, the Company anticipates gaining greater market
penetration in the United Kingdom than was possible under the prior arrangement.
CONSUMER PRODUCTS
Porex manufactures a line of porous plastic components used in a variety of
home and office products and appliances. Porex's consumer products include a
variety of writing pen tips or "nibs" which Porex supplies to manufacturers of
marking and highlighting pens. The porous nib conducts the ink stored in the
pen barrel to the writing surface by capillary action. Porex produces a variety
of porous plastic filters used in home water filters and conditioners. The
filters are used for particle and sediment removal through devices attached to a
sink or faucet. The Company also manufactures filters incorporating activated
carbon used to reduce chlorine levels in drinking water thereby improving its
taste and odor. Porex's porous plastic components are used in health and beauty
aid products (such as deodorant and fragrance applicators).
MARKETING AND DISTRIBUTION
As of June 30, 1996, Porex had over 300 customers for its porous and solid
plastic products. Porex distributes its proprietary blood serum filters,
pipette tips and related products through independent distributors. Porex's
surgical products are sold primarily through independent dealers and agents. In
the United States, sales of OEM health care products, industrial products and
consumer products are made directly by Porex's marketing staff.
Internationally, such products are sold by Porex's marketing staff in certain
countries and through independent distributors and agents in other countries who
work in conjunction with Porex's marketing staff. Export sales, which are made
principally to Europe and Asia, consist primarily of Porex's OEM medical
product, industrial product and consumer product lines. For the fiscal year
ended June 30, 1996, Porex's foreign sales and export sales were approximately
$12,270,000, or 27% of sales, as compared to approximately $10,403,000, or 27%
of sales, for the fiscal year ended June 30, 1995 and approximately $7,904,000,
or 24% of sales, for the fiscal year ended June 30, 1994. See Note 6 to the
Consolidated Financial Statements. No customer accounted for more than 10% of
Porex's total net sales for the fiscal years ended June 30, 1995 and 1996.
Porex has a marketing staff of 14 professional employees, six of whom work
with manufacturers on matters which include development of component products to
help solve such manufacturers' problems.
SEASONALITY AND BACKLOG
Sales of certain of Porex's product lines are somewhat seasonal but the
overall businesses are not seasonal to any significant extent. At June 30,
1996, Porex's backlog was approximately $8,162,000, as compared to approximately
$9,640,000 at June 30, 1995. The backlog consists primarily of blanket orders
with release dates of up to 12 months, the full amounts of which are expected to
be filled over a 12-month period.
PRODUCT AND PROCESS DEVELOPMENT
Porex maintains a continuing development program devoted primarily to
porous materials and their applications and proprietary products for the life
sciences and clinical laboratories. Development activities include
5
<PAGE>
designing new and improved products, either proprietary or for customers'
specific requirements, and new manufacturing processes.
Porex's development expenditures were $2,014,000, $1,490,000 and $1,328,000
for the fiscal years ended June 30, 1996, 1995 and 1994, respectively.
Recently, new product development activities have focused on porous components
for use in health care and other applications and proprietary products for the
life sciences market.
RAW MATERIALS
The principal raw materials used by Porex in its plastic products business
are a variety of plastic resins which are generally available from a number of
suppliers in the United States in adequate quantities to meet Porex's needs.
Porex has been able to obtain adequate supplies of raw materials and believes
that sufficient supplies will be available in the foreseeable future. Porex has
no long-term supply contracts for the purchase of raw materials. Because the
primary resource used in plastic resins is petroleum, the cost and availability
of plastic resins for use in Porex's products varies to a great extent with the
price of petroleum. Porex's inability to acquire sufficient plastic resins at a
reasonable price would affect Porex's ability to maintain its margins in the
short term.
Porex requires high-grade plastic resins with specific properties as raw
materials for certain of its porous plastic products. Accordingly, shipments of
raw materials from suppliers are closely monitored for compliance with Porex's
standards. Porex has routinely rejected pre-shipment samples of product from
raw material suppliers. Although there are various suppliers of high-grade
plastic resins with specific properties and Porex has not experienced any
material difficulty in obtaining adequate supplies of high-grade materials, the
inability to obtain such high-grade plastic resins, or any raw materials, could
have a material adverse effect on Porex. To ensure the availability of high-
grade plastic resins with specific properties, Porex occasionally purchases more
than it would otherwise currently require. Porex maintains an inventory of raw
materials sufficient to satisfy its production needs for an extended period of
time.
For its solid plastic products, Porex utilizes commercial grade
thermoplastic resins, including polyethylene, polypropylene and polystyrene.
Such materials are readily available from a number of sources and Porex is not
dependent on any single source of supply. Because of the ready availability of
such materials, Porex does not maintain a significant inventory of such raw
materials.
PATENTS AND TRADEMARKS
Porex owns a number of patents and trademarks in the United States and
foreign countries. The majority of Porex's patents and patent applications
relate to porous plastics and medical devices. Porex is the exclusive licensee
of a patented valve device used in one model of its blood serum filters, and of
a patent on a surgical drain device. Porex does not consider either license to
be material to its business operations. Porex owns one patent on blood serum
filters. Although Porex deems its patents to be important to its business and
intends to continue to seek patent protection when deemed appropriate, no
significant portion of the business of Porex is believed by management to be
materially dependent on any particular patent. Porex believes that its non-
patented manufacturing processes are protected under contractual and other legal
principles which, however, do not afford the statutory exclusivity possible for
patented processes.
REGULATION
The developing, testing, marketing and manufacturing of medical devices
such as plastic and reconstructive surgical implants and tissue expanders are
regulated under the Medical Device Amendments of 1976 to the Federal Food, Drug
and Cosmetic Act (the "1976 Amendments") and additional regulations promulgated
by the Food and Drug Administration (the "FDA"). In general, these statutes and
regulations require that manufacturers adhere to certain standards designed to
ensure the safety and effectiveness of medical devices. Compliance with such
requirements and the process of obtaining approvals can be costly, complicated
and time-consuming and there can
6
<PAGE>
be no assurance that such approvals will be
granted on a timely basis. When Porex merely distributes devices manufactured
by others, the actual manufacturer must bear the cost of achieving compliance
with these requirements.
Under the 1976 Amendments, each medical device manufacturer must be a
registered device manufacturer and must comply with regulations applicable
generally to manufacturing practices and clinical investigations involving
humans. The FDA is authorized to obtain and inspect devices, their labeling and
advertising, and to inspect the facilities in which they are manufactured in
order to ensure that a device is not improperly manufactured or labeled. Porex
is registered with the FDA.
In addition, the sale and marketing of specific medical devices are
regulated by the FDA under the 1976 Amendments, which classify medical devices
based upon the degree of regulation deemed appropriate and necessary. A device
is classified as a Class I, II or III device based on recommendations of
advisory panels appointed by the FDA. Class I devices are subject only to
general controls. Class II devices, in addition to general controls, are
subject to performance standards. Class III devices, including most devices
used or implanted in the body, require FDA pre-market approval before they may
be distributed other than in clinical trials.
Porex's MEDPOR(R) Surgical Implants are regulated as Class II medical
devices. Products which Porex may introduce in the future, if any, may also be
classified as Class I, Class II or Class III medical devices. The procedure for
obtaining classification of a new device as a Class I or Class II device
involves the submission of a petition to the FDA. If the FDA determines that
the device is substantially equivalent to a pre-enactment device or a device
subsequently classified in Class I or Class II, then within 210 days of the
filing of the petition it will grant approval to market the device commercially.
If the FDA determines the device is not substantially equivalent to a pre-
enactment device or a device subsequently classified in Class I or Class II, it
is automatically placed into Class III and will either require reclassification
or the submission of valid scientific evidence to prove the device is safe and
effective for human use. Devices to be implanted will be categorized as Class
III unless such classification is not necessary to ensure their safety and
effectiveness. For new Class III devices, Porex may submit to the FDA an
application for an Investigational Device Exemption ("IDE"). An approved IDE
exempts Porex from certain otherwise applicable FDA regulations and grants
approval for a clinical investigation, or human study, to generate data to prove
safety and effectiveness. In addition, the possibility exists that certain pre-
enactment, or substantially equivalent, devices may be placed into Class III by
the FDA.
When a manufacturer believes that sufficient clinical data have been
generated to prove the safety and effectiveness of the device, it may submit a
pre-market approval application ("PMA") to the FDA. The FDA reviews the PMA and
determines whether it is in submittable form and all key elements have been
included. Following acceptance of the PMA, the FDA continues its review process
which includes submission of the PMA to a panel of experts appointed by the FDA
to review the PMA and to recommend appropriate action. The panel then
recommends that the PMA be approved, not approved or approved subject to
conditions. The FDA may act according to the panel's recommendations, or it may
overrule the panel. In approving a PMA, the FDA may require some form of post-
market surveillance or other restrictions.
Vials that are used to contain and transport pharmaceuticals are not
directly regulated by the Food and Drug Administration. The US Pharmacopeia
specifies tests and properties that are necessary to maintain the potency and
pharmacological properties of the medicine the vial is to be used for. The U.S.
Consumer Product Safety Commission specifies in 16 CFR Part 1700 the tests that
a vial must pass to be considered child resistant and senior adult user-
friendly. Porex's vials have been designed to meet such standards.
Certain environmental regulations also apply to Porex's business, and the
Company believes that Porex is in substantial compliance with all of such
regulations. However, Porex is subject to random and scheduled checks by
environmental authorities. The Company does not anticipate that any material
capital expenditures will be required to comply with environmental regulations.
7
<PAGE>
COMPETITION
Competition in Porex's plastic products business is characterized by
technological change, product obsolescence and the introduction of competitive
products at lower prices. The Company believes Porex's principal competitive
strengths are its manufacturing processes, quality control, relationship with
its customers and distribution of its proprietary healthcare products.
In the porous plastics area, Porex's competitors include other producers of
porous plastic materials as well as companies that manufacture and sell products
made from materials other than porous plastics which can be used for the same
purposes as Porex's products. In this field, Porex has several direct
competitors in the United States and two significant direct competitors in
Europe. Porex competes with several manufacturers of blood serum filters whose
products perform the same function as Porex's original blood serum filter and
its other blood serum filters and which utilize technologies both similar to and
different from Porex's products. Porex's porous plastic pen nibs compete with
felt and fiber tips manufactured by a variety of suppliers in the United States
and other countries. Other of Porex's industrial products made of porous
plastic compete, depending on the industrial application, with porous metals,
metal screens, fiberglass tubes, pleated paper, resin-impregnated felt, ceramics
and other substances and devices.
The market for Porex's injection molded solid plastic components and
products is highly competitive and highly fragmented. The MEDPOR(R) Biomaterial
products compete for surgical use against autogeneous and allograph materials
and alloplastic biomaterials. Autogenous grafts are bone, tissue or cartilage
taken from the patient and allographs are donor bone, tissue or cartilage.
Competitive alloplastic materials include: solid silicone implant shapes, porous
hydroxyapitite shapes and granules, and PTFE sheet material. The Company's
surgical drains and markers compete against a variety of products from several
manufacturers.
POTENTIAL LIABILITY RISK AND AVAILABILITY OF INSURANCE
The products sold by Porex expose it to potential risk for product
liability claims, particularly with respect to Porex's Life Sciences, Clinical
and Surgical products. The Company believes that Porex carries adequate
insurance coverage against product liability claims and other risks. There can
be no assurance, however, that claims in excess of Porex's insurance coverage
will not arise. In addition, Porex's insurance policies must be renewed
annually. In 1994, Porex was notified that its insurance carrier would not
renew its then-existing insurance coverage after December 31, 1994 with respect
to actions and claims arising out of Porex's distribution of silicone mammary
implants. However, Porex has exercised its right to purchase extended reporting
period coverage with respect to such actions and claims. Such coverage provides
insurance, subject to existing policy limits but for an unlimited time period,
with respect to actions and claims made after December 31, 1994 that are based
on events that occurred during the policy period. Porex has renewed its
insurance coverage with the same carrier for other liability claims. Although
Porex has been able to obtain adequate insurance coverage at an acceptable cost
in the past and seeks indemnification for products manufactured by others and
distributed by it, there can be no assurance that in the future it will be able
to obtain such insurance at an acceptable cost or be adequately protected by
such indemnification. See "--Health Care Products" and "Item 3. Legal
Proceedings--Mammary Implant Litigation."
ACQUISITION PROGRAM
The Company intends to pursue an acquisition program pursuant to which it
will seek to effect one or more acquisitions of or business combinations with
businesses that the Company believes have significant growth potential. The
Company expects that the growth potential from such transactions may come from,
among other factors, its ability to (i) improve the financial and operating
performance of an acquired business, (ii) redefine the business strategy of an
acquired business to enhance its market position or gain entry to new markets
for its products or services or (iii) enhance the value of an acquired business
by the acquisition of similar or complementary businesses.
8
<PAGE>
The Company intends initially to concentrate its acquisition efforts in the
health care industry but such emphasis would not limit in any manner its ability
to pursue acquisition opportunities in other industries. The Company's
acquisition program could result in a substantial change in the business,
operations and financial condition of the Company. The Company does not intend
to seek stockholder approval for any such acquisition or security issuance
unless required by applicable law or regulation. The success of the Company's
acquisition program will depend on, among other things, the availability of
acquisition candidates, the availability of funds to finance acquisitions, and
the availability of management resources to oversee the operation of acquired
businesses. No assurance can be given that the Company will succeed in
consummating any acquisitions or that the Company will be able to successfully
manage or integrate any business that it acquires. The future growth of the
Company will depend primarily on its ability to consummate one or more such
acquisitions and to operate such businesses successfully. Any acquisitions will
be limited, as required by the Purchase and Sale Agreement dated as of May 24,
1994, between Merck and the Company (the "Purchase and Sale Agreement"), to
areas of business other than the U.S. pharmaceutical business of Merck and the
business of Medco, as provided in the Purchase and Sale Agreement.
EMPLOYEES
As of June 30, 1996, the Company had 482 employees.
ITEM 2. PROPERTIES.
The Company leases approximately 7,000 square feet of corporate office
space in Elmwood Park, New Jersey. Porex owns a total of 47 acres of land at
three locations in Georgia with four buildings with an approximate area of
242,000 square feet, used for manufacturing, research, office space and
warehouse purposes. Porex also owns a manufacturing and warehouse facility in
Bautzen, Germany with approximately 54,000 square feet in three buildings and
leases a 2,300 square feet manufacturing and warehouse facility in Kings Lynn,
England.
The Company believes its facilities and equipment are well maintained, in
good operating condition and, in general, suitable for the Company's purposes
and adequate for its present operation.
ITEM 3. LEGAL PROCEEDINGS.
The description below of the mammary implant litigation and certain other
litigation contain forward-looking statements with respect to possible events,
outcomes or results that are, and are expected to continue to be, subject to
risks, uncertainties and contingencies, including but not limited to the
respective risks, uncertainties and contingencies identified in such
descriptions.
MAMMARY IMPLANT LITIGATION. During the year ended June 30, 1988, Synetic's
subsidiary, Porex began distributing silicone mammary implants ("implants") in
the United States pursuant to a distribution arrangement (the "Distribution
Agreement") with a Japanese manufacturer (the "Manufacturer"). Because of costs
associated with increased government regulation and examination, Porex's
supplier determined to withdraw its implants from the United States market. On
July 9, 1991, the FDA mandated a recall of all implants manufactured by
companies that elected not to comply with certain FDA regulations regarding data
collection. Accordingly, Porex notified all of its customers not to use any
implants sold by Porex and to return such implants to Porex for a full refund.
Porex had ceased offering implants for sale prior to the recall date. Porex
believes that after accounting for implants returned to it, the aggregate number
of recipients of implants distributed by Porex under the Distribution Agreement
in the United States totals approximately 2,500.
9
<PAGE>
Since March 1991, Porex has been named as one of many co-defendants in a
number of actions brought by recipients of implants. One of the pending
actions, Donna L. Turner v. Porex Technologies Corporation, et al., is styled as
a purported class action. Certain of the actions against Porex have been
dismissed where it was determined that the implant in question was not
distributed by Porex. In addition, as of September 23, 1996, 53 claims have
been settled on a favorable basis by the Manufacturer, or by the insurance
carriers of Porex, without material cost to Porex. As of September 23, 1996,
210 actions and 37 out-of-court claims were pending against Porex. Of the 210
actions, 93 involve implants identified as distributed by Porex and 84 cases
involve implants identified as not having been distributed by Porex. In the
remaining 33 actions, the implants have not been identified. The number of
claims made by individuals during the fiscal year ended June 30, 1996 was
significantly lower than the number of claims made during the fiscal year ended
June 30, 1995.
The typical case or claim alleges that the individual's mammary implants
caused one or more of a wide range of ailments. These implant cases and claims
generally raise difficult and complex factual and legal issues and are subject
to many uncertainties and complexities, including, but not limited to, the facts
and circumstances of each particular case or claim, the jurisdiction in which
each suit is brought, and differences in applicable law. The Company does not
have sufficient information to evaluate each case and claim.
In 1994, Porex was notified that its insurance carrier would not renew its
then-existing insurance coverage after December 31, 1994 with respect to actions
and claims arising out of Porex's distribution of implants. However, Porex has
exercised its right, under such policy, to purchase extended reporting period
coverage with respect to such actions and claims. Such coverage provides
insurance, subject to existing policy limits but for an unlimited time period,
with respect to actions and claims made after December 31, 1994 that are based
on events that occurred during the policy period. In addition, Porex has other
excess insurance where it has similarly purchased extended reporting period
coverage which by its terms would expire December 31, 1996. However, Porex
expects to purchase further extended reporting period coverage from the excess
insurers to the extent such coverage is reasonably available. The Company
believes that its present coverage, together with Porex's insurance policies in
effect on or before December 31, 1994, should provide adequate coverage against
liabilities that could result from actions or claims arising out of Porex's
distribution of implants. To the extent that certain of such actions and claims
seek punitive and compensatory damages arising out of alleged intentional torts,
if awarded such damages may or may not be covered, in whole or in part, by
Porex's insurance policies. In addition, Porex's recovery from its insurance
carriers is subject to policy limits and certain other conditions. Porex has
been expensing the retention amount under its policies as incurred.
The Company believes that Porex has a valid claim for indemnification under
the Distribution Agreement with respect to any liabilities that could result
from pending actions or claims by recipients of implants or any similar actions
or claims that may be commenced in the future. However, Porex's right to
indemnification is subject to a disagreement with the Manufacturer. Pending the
resolution of such disagreement, the Manufacturer has been paying a portion of
the costs of the settled claims.
Based on the foregoing, the Company believes that the possibility is remote
that pending actions and claims by recipients of mammary implant devices or any
similar actions and claims that may be commenced or made in the future could
pose a material risk to the financial position of the Company or its results of
operations.
STOCKHOLDER LITIGATION. On August 18, 1994, an action entitled Fuss v.
Wygod, et al. was filed against Synetic, its directors and Merck in the Court of
Chancery of the State of Delaware in and for New Castle County (the "Delaware
Court"). The action purportedly arises out of the events leading to the
Divestiture and the Purchase and is purportedly brought both derivatively on
behalf of Synetic and as a class action on behalf of Synetic's stockholders
other than the defendants. On October 14, 1994, the parties entered into a
Memorandum of Understanding (the "Memorandum") in connection with a contemplated
settlement of the lawsuit. The basis for the contemplated settlement included
(a) changes to the terms of the Purchase partially in response to the filing of
the lawsuit and (b) resolution of certain disclosure issues raised by
plaintiff's comments on a draft of the proxy
10
<PAGE>
statement sent to stockholders of Synetic in connection with the Divestiture and
the Purchase. The contemplated settlement was subject to, among other things,
dismissal of the lawsuit with prejudice and without awarding costs to any party,
except for certain fees and expenses that plaintiff's counsel intended to seek.
In addition, the defendants denied, and continue to deny, that they committed or
threatened to commit any violation of law or breaches of duty to the plaintiff
or members of the purported class and the defendants entered into the Memorandum
because, among other reasons, the proposed settlement eliminated the burden and
expense of further litigation and facilitated the consummation of transactions
that they believed were in the best interests of Synetic and its stockholders.
In June 1995, the plaintiffs completed discovery to confirm that the
proposed settlement was fair and reasonable and in the best interest of the
proposed class (the "Class"). On March 22, 1996, the parties executed a
Stipulation and Agreement of Compromise, Settlement and Release (the
"Settlement") and submitted the Settlement for approval by the Delaware Court.
After directing notice to the Class, on June 4, 1996, the Delaware Court held a
hearing and issued a Final Order and Judgment which, inter alia, approved the
Settlement as fair, reasonable, adequate and in the best interests of the Class,
dismissed the action with prejudice and released defendants from any liability
in connection with the Purchase and Divestiture. The Settlement is subject to a
supplemental hearing to confirm the Settlement, scheduled for October 22, 1996.
The Delaware Court also awarded attorneys' fees and expenses to plaintiff in the
amount of $275,000, to be paid by Synetic. Pursuant to the Purchase and Sale
Agreement, Merck is required to reimburse Synetic for 58.65% of such fees and
expenses.
ENFORCEMENT DIVISION INVESTIGATION. On July 6, 1994, the Division of
Enforcement of the Securities and Exchange Commission (the "Enforcement
Division") began an investigation regarding the trading in securities of
Synetic. The Company is cooperating fully with the Enforcement Division's
requests for information and, although it cannot predict the ultimate result of
the inquiry, the Company believes that such investigation is not directed at the
Company and, accordingly, will not have a material adverse effect on its
financial position or results of operations.
The Company is not a party of any other legal proceedings which, in its
belief, could have a material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
11
<PAGE>
EXECUTIVE OFFICERS
Pursuant to General Instruction G(3) to the Annual Report on Form 10-K, the
information regarding executive officers of the Company required by Item 401 of
Regulation S-K is hereby included in Part I of this report. The executive
officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
James V. Manning 49 President and Chief Executive Officer
Ray E. Hannah 60 Vice President--Technologies Group
Victor L. Marrero 39 Vice President--Finance and Chief Financial Officer
Charles A. Mele 40 Vice President--General Counsel
</TABLE>
Mr. Manning has been Chief Executive Officer of the Company since
January 1995 and President of the Company since August 1996 and has been an
executive officer of the Company for more than the last five years and was,
until December 1994, an executive officer of Medco for more than five years. He
is also Chairman of the Board of COMNET Corporation ("Comnet"), a computer
software company.
Mr. Hannah has been President of Porex since September 1987 and its
Chief Executive Officer since November 1992. Mr. Hannah was the Chief Operating
Officer of Porex from November 1984 to November 1992.
Mr. Marrero has been Vice President--Finance and Chief Financial Officer
of the Company since December 1994 and has been an officer of the Company for
more than the last five years and was, until December 1994, Senior Vice
President--Treasurer of Medco for more than five years.
Mr. Mele has been Vice President--General Counsel of the Company since
July 1995 and was an executive officer of the Company from May 1989 until
December 1994 and was an executive officer of Medco for more than five years,
until March 1995. Mr. Mele is also a director of Comnet and Group 1 Software,
Inc., computer software companies.
Mr. Hannah is the only executive officer of the Company who devotes his
full time to the operation of Porex. Porex has additional senior officers who
also manage the day-to-day operations of Porex.
12
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is traded in the over-the-counter market and
included in the NASDAQ National Market System under the symbol "SNTC." The
following table sets forth, for the periods indicated, the high and low sale
prices for the Company's Common Stock as reported by NASDAQ.
<TABLE>
<CAPTION>
High Low
------- -------
<S> <C> <C>
Fiscal Year 1995
- ------------------
First Quarter............... $16 1/4 $11 1/2
Second Quarter.............. $20 1/4 $14 3/4
Third Quarter............... $25 1/2 $19
Fourth Quarter.............. $26 1/4 $23 1/4
Fiscal Year 1996
- ------------------
First Quarter............... $26 1/4 $22 1/4
Second Quarter.............. $29 5/8 $22 1/2
Third Quarter............... $39 1/2 $27 1/2
Fourth Quarter.............. $38 3/4 $32 1/2
</TABLE>
The Company's Common Stock was held by 142 stockholders of record as
of September 1, 1996. The Company believes that its Common Stock is
beneficially held by at least 400 stockholders.
The Company did not pay any dividends to the holders of its Common
Stock during the two fiscal years ended June 30, 1996. The Company intends to
continue to retain earnings to finance its business and its acquisition program
and, accordingly, does not currently anticipate paying cash dividends to holders
of its Common Stock.
13
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected consolidated financial data
for each of the five years in the period ended June 30, 1996. The selected
financial data for the four years in the period ended June 30, 1995 has been
restated to reflect the Divestiture.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- ----------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net sales................... $ 28,486 $ 30,645 $ 33,093 $ 39,179 $ 45,128
Income from continuing
operations before
provisions for income
taxes..................... 6,031 5,430 1,080 1,078 13,202
Provision for income taxes.. 2,151 2,046 411 443 4,617
-------- -------- -------- -------- --------
Income from continuing
operations................ 3,880 3,384 669 635 8,585
Income from discontinued
operations................ 1,376 2,734 1,823 15,459 -
-------- -------- -------- -------- --------
Net income.................. $ 5,256 $ 6,118 $ 2,492 $ 16,094 $ 8,585
======== ======== ======== ======== ========
Net income per share (1):
Continuing operations..... $ 0.24 $ 0.19 $ 0.04 $ 0.04 $ 0.48
Discontinued operations... 0.09 0.16 0.10 0.89 -
-------- -------- -------- -------- --------
Net income per share........ $ 0.33 $ 0.35 $ 0.14 $ 0.93 $ 0.48
======== ======== ======== ======== ========
<CAPTION>
AT JUNE 30,
---------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital............. $ 44,350 $ 65,673 $ 64,625 $105,279 $166,328
Net assets of discontinued
operations................ 25,352 52,548 55,882 - -
Total assets................ 163,011 189,494 194,009 188,174 199,592
Long term debt, less
current portion........... 81,714 81,058 80,716 - -
Stockholders' equity........ 74,056 102,378 105,130 166,832 181,089
</TABLE>
___________________
(1) Restated to reflect two-for-one stock split effected on February 26,
1993.
14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
As described in "Item 1. Business--Introduction", the Company has sold
its Institutional Pharmacies Business to Pharmacy Corporation of America. The
Divestiture was completed on December 14, 1994. The Company's remaining industry
segment is Plastic Products. The Company's consolidated financial statements
have been restated to report separately the results of operations and net assets
of the Institutional Pharmacies Business as discontinued operations.
The following table sets forth for the periods indicated the percentage
which certain items in the financial statements of the Company bear to net
sales.
<TABLE>
<CAPTION>
PERCENTAGES OF NET SALES
FISCAL YEARS ENDED JUNE 30,
---------------------------
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Net sales................................. 100% 100% 100%
Costs and expenses
Cost of sales........................... 55.6 58.7 65.0
Selling, general and administrative..... 33.1 31.0 27.3
Interest and other income............... (18.0) (18.7) (15.3)
Interest expense........................ - 9.2 18.0
Other expense........................... - 17.0 1.7
----- ----- -----
70.7 97.2 96.7
----- ----- -----
Income before provision for income taxes.. 29.3 2.8 3.3
Provision for income taxes................ 10.2 1.1 1.2
----- ----- -----
Income from continuing operations......... 19.1% 1.7% 2.1%
===== ===== =====
</TABLE>
FISCAL YEARS ENDED JUNE 30, 1996 AND 1995
CONSOLIDATED RESULTS OF OPERATIONS
Net sales for the year ended June 30, 1996 increased by $5,949,000, or 15.2%,
over the comparable prior year period. The sales increase was due primarily to
increased unit sales in medical products and plastic vials in the healthcare
segment and, to a lesser extent, to increased unit sales of writing components,
personal care items and home water filters in the consumer segment.
Cost of sales for the year ended June 30, 1996 increased by $2,102,000, or
9.1%, over the comparable prior year period due to the increased sales volume
noted above and additional depreciation and product development costs. As a
percent of net sales, cost of sales for the year ended June 30, 1996 decreased
to 55.6% from 58.7% in the comparable prior year period principally due to
certain fixed costs which do not increase proportionally with sales and
improvements in material and labor usage.
Selling, general and administrative expenses for the year ended June 30, 1996
increased by $2,805,000, or 23.1%, over the comparable prior year period due
primarily to an increase in expenses associated with the increase in sales
volume noted above and an increase in corporate overhead expense. As a percent
of net sales,
15
<PAGE>
selling, general and administrative expenses for the year ended
June 30, 1996 increased to 33.1% from 31.0% in the prior year primarily due to
the increased corporate overhead noted above.
Interest and other income and dividend income for the year ended June 30, 1996
increased by $800,000, or 10.9%, over the comparable prior year period primarily
as a result of the income earned on a full year of investment of the net
proceeds received from the sale of the Institutional Pharmacies Business.
Interest expense for the year ended June 30, 1996 decreased by $3,619,000 from
the prior year period as a result of the conversion and redemption of the
Company's Convertible Subordinated Debentures due December 1, 2001 (the
"Debentures") into common stock of the Company in February 1995.
Other expenses for the year ended June 30, 1996 decreased by $6,663,000 over
the comparable prior year period as a result of the one-time charge in December
1994 related to the issuance of stock options to certain officers as
compensation for services in conjunction with the consummation of the Purchase
and Sale Agreement and costs associated with the conversion and redemption in
February 1995 of the Debentures.
The effective tax rate for the year ended June 30, 1996 decreased to 35% from
41% in the prior year period primarily due to the nondeductibility of certain
conversion and redemption costs in the prior year.
FISCAL YEARS ENDED JUNE 30, 1995 AND 1994
CONSOLIDATED RESULTS OF OPERATIONS
Net sales for the year ended June 30, 1995 increased by $6,086,000, or 18.4%,
over the comparable prior year period 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. The effect of inflation was not significant for the year ended June 30,
1995.
Cost of sales for the year ended June 30, 1995 increased by $1,512,000, or
7.0%, over the comparable prior year period due to the increased sales volume
noted above and costs associated with the establishment of additional
manufacturing capabilities. As a percent of net sales, cost of sales for the
year ended June 30, 1995 decreased to 58.7% from 65.0% in the comparable prior
year period principally due to increased sales of higher margin products and
manufacturing efficiencies resulting from the automation of certain production
processes.
Selling, general and administrative expenses for the year ended June 30, 1995
increased by $3,073,000, or 33.9%, over the comparable prior year period due
primarily to costs associated with: (i) the addition of sales personnel, (ii)
the expansion of operations in Europe and (iii) increased corporate overhead.
As a percent of net sales, selling, general and administrative expenses for the
year ended June 30, 1995 increased to 31.0% from 27.3% in the prior year
primarily due to the increased corporate overhead noted above.
Interest and other income for the year ended June 30, 1995 increased by
$2,241,000, or 44.2%, over the comparable prior year period primarily as a
result of the income earned on the net proceeds received from the sale of the
Institutional Pharmacies Business.
Interest expense for the year ended June 30, 1995 decreased by $2,356,000 from
the prior year period as a result of the conversion and redemption of the
Company's Convertible Subordinated Debentures due December 1, 2001 (the
"Debentures") into common stock of the Company in February 1995.
Other expenses for the year ended June 30, 1995 increased by $6,100,000 over
the comparable prior year period as a result of the one-time charge in December
1994 related to the issuance of stock options to certain officers as
compensation for services in conjunction with the consummation of the Purchase
and Sale Agreement and costs associated with the conversion and redemption in
February 1995 of the Debentures.
16
<PAGE>
The effective tax rate for the year ended June 30, 1995 increased to 41% from
38% in the prior year period primarily due to the nondeductibility of certain
conversion and redemption costs relating to the Debentures.
CAPITAL RESOURCES AND LIQUIDITY
Cash, cash equivalents and marketable securities increased by $10,125,000 to
$162,478,000 during the year ended June 30, 1996 principally due to the income
earned from operations.
For the year ended June 30, 1995, Medco provided the Company with tax,
administrative and legal services. The cost of these services was calculated on
the same basis as historically determined. For the year ended June 30, 1996,
the cost of these services was incurred directly by the Company. 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, including these increased corporate overhead expenses, during
this period.
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) the Company's 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. There
can be no assurance that the Company's acquisition program will be successful.
See "Item 1. Business--Acquisition Program".
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Financial statements and supplementary financial information are contained on
pages F-l through F-17 and S-1 of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
17
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this item will be incorporated by reference
from the Company's definitive Proxy Statement for its 1996 Annual Meeting of
Stockholders to be filed pursuant to Regulation 14A, except that the information
regarding the Company's executive officers required by Item 401 of Regulation S-
K has been included in Part I of this Report.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item will be incorporated by reference
from the Company's definitive Proxy Statement for its 1996 Annual Meeting of
Stockholders to be filed pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item will be incorporated by reference
from the Company's definitive Proxy Statement for its 1996 Annual Meeting of
Stockholders to be filed pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item will be incorporated by reference
from the Company's definitive Proxy Statement for its 1996 Annual Meeting of
Stockholders to be filed pursuant to Regulation 14A.
18
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K.
(a)(1)-(2) Financial Statements and Schedules:
The financial statements and schedules listed in the
accompanying Index to Consolidated Financial Statements and
Supplemental Data at page F-l are filed as part of this
Report.
(a)(3) Index to Exhibits:
See Index to Exhibits on page E-1.
(b) Reports on Form 8-K:
None.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: September 27, 1996 By: /s/ James V. Manning
-----------------------------
James V. Manning, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on September 27, 1996.
(1) Principal Executive Officer: (3) A Majority of the Board of Directors:
By: /s/ James V. Manning Thomas R. Ferguson
----------------------------
James V. Manning Mervyn L. Goldstein
Chief Executive Officer Ray E. Hannah
Roger H. Licht
Per G.H. Lofberg
Charles A. Mele
Herman Sarkowsky
Paul C. Suthern
Albert M. Weis
Martin J. Wygod
(2) Principal Financial and
Accounting Officer: By: /s/ James V. Manning
------------------------
James V. Manning
Individually and as Attorney-in-Fact
By: /s/ Victor L. Marrero
-----------------------------
Victor L. Marrero
Vice President-Finance and
Chief Financial Officer
20
<PAGE>
SYNETIC, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND SUPPLEMENTAL DATA
The following financial statements of the Registrant and its
subsidiaries required to be included in Item 14.(a)(1) of Form 10-K are listed
below:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants F-2
Consolidated Balance Sheets at June 30, 1996 and 1995 F-3
Consolidated Statements of Income for the
Years Ended June 30, 1996, 1995 and 1994 F-5
Consolidated Statements of Changes in
Stockholders' Equity for the Years Ended
June 30, 1996, 1995 and 1994 F-6
Consolidated Statements of Cash Flows for the
Years Ended June 30, 1996, 1995 and 1994 F-7
Notes to Consolidated Financial Statements F-8
</TABLE>
The following financial statement supplementary data of the Registrant
and its subsidiaries required to be included in Item 14.(a) (2) of Form 10-K are
listed below:
Page
----
Schedule II - Valuation and Qualifying
Accounts. S-1
All other schedules not listed above have been omitted as not
applicable or because the required information is included in the Consolidated
Financial Statements or in the notes thereto. Columns omitted from schedules
filed have been omitted because the information is not applicable.
These financial statements have been prepared from the Company's books
and records after making all necessary adjustments thereto, and they represent
the final statements for the period under audit.
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Synetic, Inc.:
We have audited the accompanying consolidated balance sheets of
Synetic, Inc. (a Delaware corporation) and subsidiaries as of June 30, 1996 and
1995, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended June 30, 1996. These consolidated financial statements and the schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 financial position of Synetic, Inc. and
subsidiaries as of June 30, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1996 in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The schedule listed in the index
to consolidated financial statements and supplemental data is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in our audits of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
New York, New York
September 27, 1996
F-2
<PAGE>
SYNETIC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
June 30,
-------------------
1996 1995
-------- ---------
CURRENT ASSETS:
Cash and cash equivalents....................... $ 22,210 $ 7,499
Marketable securities........................... 140,268 98,000
Accounts receivable, net of allowances for
doubtful accounts and sales returns of $671
and $636 at June 30, 1996 and 1995,
respectively................................... 7,299 6,665
Inventories..................................... 5,253 5,446
Other current assets............................ 4,821 4,031
-------- --------
Total current assets........................... 179,851 121,641
-------- --------
PROPERTY, PLANT AND EQUIPMENT:
Land and improvements........................... 823 780
Buildings and improvements...................... 8,992 8,286
Machinery and equipment......................... 19,295 17,389
Furniture and fixtures......................... 2,856 2,696
Construction in progress........................ 1,306 1,331
-------- --------
33,272 30,482
Less: Accumulated depreciation................. (16,014) (13,523)
-------- --------
Property, plant and equipment, net.............. 17,258 16,959
-------- --------
OTHER ASSETS:
Marketable securities........................... - 46,854
Other........................................... 2,483 2,720
-------- --------
Total other assets............................. 2,483 49,574
-------- --------
$199,592 $188,174
======== ========
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
SYNETIC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30,
--------------------
1996 1995
--------- ---------
CURRENT LIABILITIES:
Current portion of long-term debt.................... $ - $ 216
Accounts payable..................................... 1,303 648
Accrued liabilities.................................. 7,014 9,337
Income taxes payable................................. 5,206 6,161
-------- --------
Total current liabilities.......................... 13,523 16,362
-------- --------
OTHER LIABILITIES...................................... 4,980 4,980
COMMITMENTS AND CONTINGENCIES (NOTE 10)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 10,000,000 shares
authorized; none issued............................ - -
Common stock, $.01 par value; 50,000,000 shares
authorized; 16,738,827 and 16,598,530 shares
issued and outstanding at June 30, 1996 and 1995,
respectively....................................... 220 219
Paid-in capital...................................... 158,227 152,556
Treasury stock, at cost; 5,268,463 shares at
June 30, 1996...................................... (36,575) (36,575)
Retained earnings.................................... 59,217 50,632
-------- --------
Total stockholders' equity......................... 181,089 166,832
-------- --------
$199,592 $188,174
======== ========
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE>
SYNETIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended June 30,
---------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Net sales...................................... $45,128 $39,179 $33,093
------- ------- -------
Costs and expenses:
Cost of sales................................. 25,108 23,006 21,494
Selling, general and administrative........... 14,930 12,125 9,052
Interest and other income..................... (3,952) (4,757) (4,754)
Dividend income............................... (4,160) (2,555) (317)
Interest expense.............................. - 3,619 5,975
Purchase and Sale Agreement related expenses
and other.................................... - 6,663 563
------- ------- -------
31,926 38,101 32,013
------- ------- -------
Income from continuing operations
before provision for income taxes............. 13,202 1,078 1,080
Provision for income taxes..................... 4,617 443 411
------- ------- -------
Income from continuing operations.............. $ 8,585 $ 635 $ 669
------- ------- -------
Discontinued operations:
Income from discontinued operations,
net of provision for income taxes
of $842 and $1,582 in 1995 and 1994,
respectively.................................. - 963 1,823
Gain on sale of Institutional Pharmacy
operations, net of taxes of $23,037........... - 14,496 -
------- ------- -------
Net income..................................... $ 8,585 $16,094 $ 2,492
======= ======= =======
Net income per share:
Continuing operations......................... $.48 $ .04 $ .04
Discontinued operations....................... - .89 .10
------- ------- -------
Net income.................................... $.48 $ .93 $ .14
======= ======= =======
Weighted average shares outstanding............ 18,026 17,379 17,968
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
SYNETIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Common Stock
-----------------
Number Total
of Paid-In Retained Treasury Stockholders'
Shares Amount Capital Earnings Stock Equity
------ ------ ------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30,1993........... 17,584 $176 $ 70,156 $32,046 - $102,378
------ ---- -------- ------- -------- --------
Net income..................... - - - 2,492 - 2,492
Issuance of common stock for
exercise of stock options
and 401(k) plan............... 37 - 260 - - 260
------ ---- -------- ------- -------- --------
Balance, June 30, 1994.......... 17,621 $176 $ 70,416 $34,538 - $105,130
------ ---- -------- ------- -------- --------
Net income..................... - - - 16,094 - 16,094
Issuance of common stock for
exercise of stock options
and 401(k) plan............... 368 4 5,200 - - 5,204
Issuance of common stock for
conversion of debentures...... 3,877 39 76,940 - - 76,979
Purchase of 5,268,463 shares
of common stock for Treasury.. - - - - (36,575) (36,575)
------ ---- -------- ------- -------- --------
Balance, June 30, 1995.......... 21,866 $219 $152,556 $50,632 $(36,575) $166,832
------ ---- -------- ------- -------- --------
Net income..................... - - - 8,585 - 8,585
Issuance of common stock for
exercise of stock options
and 401(k) plan............... 140 1 5,671 - - 5,672
------ ---- -------- ------- -------- --------
Balance, June 30, 1996.......... 22,006 $220 $158,227 $59,217 $(36,575) $181,089
------ ---- -------- ------- -------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
SYNETIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years Ended June 30,
-----------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income....................................... $ 8,585 $ 16,094 $ 2,492
Adjustments to reconcile net income to net
cash provided by operating activities:
Income from discontinued operations............. - (963) (1,823)
Gain on sale of Institutional Pharmacy
business....................................... - (14,496) -
Other expense................................... - 1,056 -
Depreciation and amortization................... 2,619 1,545 2,179
Deferred income taxes........................... (254) (301) (2,042)
Changes in operating assets and
liabilities, net of the effects of
acquisitions:
Accounts receivable, net..................... (634) (1,056) (910)
Inventories.................................. 193 804 326
Other assets................................. (173) (3,365) 2,438
Accounts payable............................. 655 (423) (24)
Accrued liabilities.......................... (2,323) 1,206 1,042
Other liabilities............................ - 4,980 -
Income taxes payable......................... 2,625 946 2,213
Net cash used by discontinued
operations................................. - - (653)
--------- --------- --------
Net cash provided by operating activities.. 11,293 6,027 5,238
--------- --------- --------
Cash flows from investing activities:
Sales of marketable securities................... 708,685 383,064 33,132
Purchases of marketable securities............... (704,099) (430,916) (60,231)
Capital expenditures............................. (2,790) (3,398) (2,777)
Net proceeds from sale of Institutional
Pharmacy business............................... - 82,911 -
Net cash used by Discontinued Operations......... - - (858)
Other............................................ - - (261)
--------- --------- --------
Net cash provided by (used for)
investing activities...................... 1,796 31,661 (30,995)
--------- --------- --------
Cash flows from financing activities:
Payments for Treasury stock...................... - (36,575) -
Proceeds from issuance of stock options and
401(k) purchases................................ 1,838 4,369 196
Payments on long-term debt....................... (216) (3,532) (542)
--------- --------- --------
Net cash provided by (used for)
financing activities...................... 1,622 (35,738) (346)
--------- --------- --------
Net increase (decrease) in cash
and cash equivalents............................. 14,711 1,950 (26,103)
Cash and cash equivalents, beginning of
period........................................... 7,499 5,549 31,652
--------- --------- --------
Cash and cash equivalents, end of period........... $ 22,210 $ 7,499 $ 5,549
========= ========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE>
SYNETIC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies:
On November 18, 1993, Medco Containment Services, Inc. ("Medco")
became a wholly-owned subsidiary of Merck & Co., Inc. ("Merck"). As a result of
this transaction, Merck acquired voting control of Synetic, Inc. (the
"Company").
On May 24, 1994, Merck and the Company entered into a Purchase and
Sale Agreement (the "Agreement") by which the Company and its Chairman, Martin
J. Wygod, would purchase the Company's common stock owned by Merck. As part of
this Agreement, the Company agreed to divest its Institutional Pharmacy
business. On December 14, 1994, the Company consummated the transactions
described above pursuant to which (1) the Company sold its Institutional
Pharmacy business to Pharmacy Corporation of America ("PCA") for $107.3 million,
subject to certain closing adjustments, and (2) the Company and a limited
partnership, whose general partner is controlled by the Company's Chairman,
purchased from Merck the 10,330,320 shares of the Company's common stock held by
Merck.
The Company has granted stock options with an exercise price below
fair market value on the date of award to certain officers in recognition of
their contribution in completing these transactions. Accordingly, included in
Purchase and Sale Agreement related expenses and other in the accompanying
financial statements for the fiscal year ended June 30, 1995, the Company
recorded a non-recurring charge of approximately $5 million relating to such
stock options in conjunction with the consummation of these transactions.
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 discontinuance of the Institutional Pharmacy business,
as discussed in Note 2.
Cash and Cash Equivalents--
The Company considers all liquid investment instruments with an
original maturity of three months or less to be the equivalent of cash for
purposes of balance sheet presentation and for the consolidated statements of
cash flows. These short-term investments are stated at cost, which approximates
market.
Marketable Securities--
At June 30, 1996 and 1995 marketable securities consisted primarily of
U.S. Treasury Notes and Money Market Preferred Stock investments. These
investments, which are carried at a cost of $140,268,000 and $144,854,000, net
of unamortized premium, at June 30, 1996 and June 30, 1995, respectively, had an
aggregate market value of $140,537,000 and $145,539,000 at June 30, 1996 and
1995, respectively. At June 30, 1996, gross unrealized gains pertaining to
marketable securities and other investments were $269,000. Gains and losses on
the sale of marketable securities and other investments are calculated using the
specific identification method.
Investments in Debt and Equity Securities --
Effective July 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("SFAS No. 115"). This Statement addresses the accounting
and reporting for investments in equity securities that have readily
determinable fair values and for all investments in debt securities. At June
30, 1996, the Company's investments consisted principally of Money Market
Preferred Stock investments and U.S. Treasury Notes. The Money Market Preferred
Stock investments, with scheduled maturities of less than one year, are
classified as available-for-sale and are valued at estimated fair value, which
approximates cost. These investments are redeemed at face value upon maturity.
The U.S. Treasury Notes maturing February 1997 through June 1997 are classified
as held-to-maturity and are carried at cost, net of unamortized premium. Gross
unrealized holding gains pertaining to the U.S. Treasury Notes as of June 30,
1996 were $269,000.
F-8
<PAGE>
SYNETIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies: (continued)
Inventories--
Inventories are stated at the lower of (first-in, first-out) cost or
market. Cost includes raw materials, direct labor, and manufacturing overhead.
Market is based on current replacement cost for raw materials and supplies and
on net realizable value for work-in-process and finished goods. Inventories
consisted of the following (in thousands):
<TABLE>
<CAPTION>
June 30,
--------------
1996 1995
------ ------
<S> <C> <C>
Raw materials and supplies.. $2,468 $2,843
Work-in-process............. 548 549
Finished goods.............. 2,237 2,054
------ ------
$5,253 $5,446
====== ======
</TABLE>
Property, Plant and Equipment--
Property, plant and equipment are stated at cost. For financial
reporting purposes, depreciation is provided principally on the straight-line
method over the estimated useful lives of the assets. Annual depreciation rates
range from 2% to 5% for buildings and improvements and from 9% to 33% for
machinery and equipment and furniture and fixtures. For income tax purposes,
certain assets are depreciated using accelerated methods. Expenditures for
maintenance, repair and renewals of minor items are charged to operations as
incurred. Major betterments are capitalized.
Accrued Liabilities--
Accrued liabilities consisted of the following (in thousands):
<TABLE>
<CAPTION>
June 30,
--------------
1996 1995
------ ------
<S> <C> <C>
Accrued payroll and benefit costs.. $3,568 $3,224
Accrued legal costs................ 1,890 1,330
Payable to former Parent........... - 2,273
Accrued interest................... - 4
Other.............................. 1,556 2,506
------ ------
Total............................. $7,014 $9,337
====== ======
</TABLE>
Income Taxes--
Deferred income taxes are provided for differences in the timing of
income and expense recognition for financial and tax reporting purposes.
Effective July 1, 1993, the Company changed its method of accounting
for income taxes from the deferred method to the liability method required by
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). As permitted under the new rules, prior years' financial
statements have not been restated.
In accordance with the disclosure provisions of SFAS 109, the Company
has included approximately $2,172,000 and $950,000 of deferred tax assets in
other current assets and other assets, respectively, representing the effects of
temporary differences between carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
The effect of adopting SFAS 109 was not material to the results of
operations for the year ended June 30, 1994.
F-9
<PAGE>
SYNETIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies: (continued)
Foreign Currency Translation--
The financial statements and transactions of Porex's foreign
manufacturing facility are maintained in its functional currency (Deutsche mark)
and translated into U.S. dollars. The adjustments which result from the process
of translating these financial statements are not material and, therefore, are
not separately disclosed in the accompanying consolidated financial statements.
Revenue Recognition--
The Company designs, manufactures and distributes porous and solid
plastic components and products used in healthcare, industrial and consumer
applications. Revenue is recognized upon product shipment net of sales
returned.
Development Costs--
Company-sponsored development costs related to both present and future
products are expensed currently. Total expenditures on development were
$2,014,000, $1,490,000, and $1,328,000 for the years ended June 30, 1996, 1995,
and 1994, respectively.
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 each year. Common stock equivalents consist of common stock
which may be issuable upon exercise of outstanding stock options as calculated
using the treasury stock method.
Reclassifications--
Certain reclassifications have been made to prior year amounts to
conform to the current year presentation.
Accounting for Stock-Based Compensation--
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 123 "Accounting for
Stock Based Compensation". Adoption of the new standard by the Company is
required for its fiscal year ending June 30, 1997. In accordance with SFAS 123,
the Company will continue to measure compensation cost for its stock option
plans using the intrinsic value based method of accounting prescribed by
Accounting Principles Board ("APB") opinion No. 25, "Accounting for Stock Issued
to Employees". However, for each year in which an income statement is provided
the Company will disclose on a pro-forma basis both net income and earnings per
share as if the fair value based accounting method were used and the difference
between compensation cost recognized by APB No. 25 and the fair value method of
SFAS 123.
Use of Estimates--
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-10
<PAGE>
SYNETIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) Discontinued Operations:
On December 14, 1994, the Company sold its Institutional Pharmacy
business to Pharmacy Corporation of America, a wholly-owned subsidiary of
Beverly Enterprises, Inc., for approximately $107.3 million in cash, subject to
certain closing adjustments. As a result of this transaction, the Company
recorded an after-tax gain of $14,496,000. The consolidated financial
statements have been restated to report separately the net assets and operating
results of the discontinued operations.
Net sales of the discontinued operations were $37,089,000 for the
period ended December 13, 1994, and $78,705,000 and $63,077,000 for the years
ended June 30, 1994 and 1993, respectively.
(3) Stockholders' Equity:
In February 1995, the Company issued 3,877,607 shares of its common
stock resulting from the conversion of $79,104,000 aggregate principle amount of
its 7% Convertible Subordinated Debentures due December 1, 2001 (the
"Debentures"). (See Note 4.)
At June 30, 1994, 10,330,320 shares of the Company's $.01 par value
common stock were held by Merck. Pursuant to the Agreement between Merck and the
Company, the Company and a limited partnership, whose general partner is
controlled by the Company's Chairman, purchased these shares from Merck. The
Company's purchase of 5,268,463 of such shares is reflected as Treasury Stock in
the accompanying consolidated financial statements. (See Note 1.)
(4) Long-Term Debt:
In December 1991, the Company issued to the public $80,500,000
aggregate principal amount of its Debentures. The Debentures were convertible at
any time prior to maturity, unless previously redeemed, into shares of the
Company's common stock at a conversion price of $20.40 per share, subject to
adjustment under certain circumstances. On January 27, 1995, the Company called
for redemption on February 13, 1995 the Debentures. Holders of $79,104,000
aggregate principal amount of the Debentures surrendered them for conversion
into an aggregate of 3,877,607 shares of common stock. The remaining $1,396,000
of the outstanding Debentures were redeemed at the redemption price of 104% plus
accrued interest. Included in Other expense in the accompanying financial
statements for the year ended June 30, 1995 are approximately $1.1 million of
costs associated with the call for redemption.
(5) Income Taxes:
The income tax provisions are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Years Ended June 30,
---------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Current:
Federal......................... $4,060 $ 2,594 $ 778
State........................... 811 491 107
------ ------- -----
Total current................. 4,871 3,085 885
------ ------- -----
Deferred:
Federal......................... (194) (2,070) (436)
State........................... (60) (572) (38)
------ ------- -----
Total deferred................ (254) (2,642) (474)
------ ------- -----
Total income tax provision.. $4,617 $ 443 $ 411
====== ======= =====
</TABLE>
F-11
<PAGE>
SYNETIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) Income Taxes: (continued)
A reconciliation of the income tax provision, computed by applying the
federal statutory rate to income before taxes, and the actual provision for
income taxes is as follows:
<TABLE>
<CAPTION>
Years Ended June 30,
------------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Federal statutory rate................................ 35.0% 35.0% 34.0%
State tax, net of federal benefit..................... 3.7 (4.8) 7.3
Dividend exclusion.................................... (7.7) (52.3) (7.0)
Non-deductible conversion costs....................... - 67.6 -
Other, net............................................ 4.0 (4.4) 3.8
----- ------- -------
35.0% 41.1% 38.1%
===== ======= =======
</TABLE>
Timing differences resulted in the following deferred tax expense (benefit) (in
thousands):
<TABLE>
<CAPTION>
Years Ended June 30,
------------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Book/tax differences in accounting method
for assets acquired.................................. $ (69) $ 15 $ (44)
Accrued expenses...................................... (140) (643) (365)
Deferred compensation - stock options................. - (2,038) -
Difference between tax and book depreciation and
amortization......................................... (45) 38 (5)
Other, net............................................ - (14) (60)
----- ------- -------
$(254) $(2,642) $ (474)
===== ======= =======
</TABLE>
Deferred tax liabilities (assets) at June 30, 1996, are comprised of the
following (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Tax over book depreciation.................... $ 868
Intangible assets amortization................ 85
Accrued expenses.............................. (1,525)
Deferred compensation - stock options......... (2,038)
Inventory..................................... (456)
Prepaids and other............................ (56)
-------
$(3,122)
=======
</TABLE>
(6) Major Customers and Export Sales:
For fiscal years 1996, 1995 and 1994, no customer accounted for more
than 10% of the Company's net sales.
Foreign sales and net income of Porex's foreign manufacturing
facility, which are made principally in Europe, amounted to $6,665,000 and
$975,000; $5,381,000 and $397,000; and $3,056,000 and $287,000 for the fiscal
years ended June 30, 1996, 1995 and 1994, respectively. Identifiable assets of
this facility were not material for the years presented. Export sales of Porex,
which are made principally to Europe and Asia, were $5,605,000, $5,022,000 and
$4,848,000 for the fiscal years ended June 30, 1996, 1995 and 1994,
respectively.
F-12
<PAGE>
SYNETIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(7) Pension and Profit Sharing Plans:
The Company has defined benefit pension plans covering substantially
all of its employees. Net pension cost for the years ended June 30, 1996, 1995
and 1994 included the following components (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Service cost.................. $ 269 $ 240 $ 221
Interest cost................. 310 273 253
Actual return on plan assets.. (789) (427) (232)
Net amortization.............. 447 127 (45)
----- ----- -----
Net pension cost............ $ 237 $ 213 $ 197
===== ===== =====
</TABLE>
The following table sets forth the funded status of the plans and
amounts recognized in the Company's consolidated balance sheets (in thousands):
<TABLE>
<CAPTION>
June 30,
------------------
1996 1995
-------- --------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefit obligation..................... $(2,944) $(2,585)
Nonvested benefit obligation.................. (55) (59)
------- -------
Accumulated benefit obligation................ (2,999) (2,644)
Effect of future salary increases............. (1,548) (1,523)
------- -------
Projected benefit obligation.................... (4,547) (4,167)
Plan assets at fair value....................... 5,105 3,986
------- -------
Funded status................................... 558 (181)
Unrecognized net gain........................... (792) (193)
Unrecognized net asset.......................... (216) (238)
Unrecognized prior service cost................. 61 66
------- -------
Consolidated balance sheets.................... $ (389) $ (546)
======= =======
</TABLE>
The Company funds the Plan through annual contributions representing
no less than the minimum amounts required as computed by actuaries to be
consistent with the Plan objectives and government regulations. The net pension
liability is included in accrued liabilities.
Assumptions used in the accounting for the Company's defined benefit
plans as of June 30, 1996 and 1995 were:
<TABLE>
<CAPTION>
1996 1995
----- -----
<S> <C> <C>
Discount rate............................ 7.5% 7.5%
Rate of increase in compensation levels.. 0%-5% 0%-5%
Expected long-term rate of return on
assets................................. 8.0% 8.0%
</TABLE>
Plan assets consist primarily of debt and equity investments.
The Company has a defined contribution profit sharing plan covering
substantially all of its employees. Participants must be at least 21 years of
age and have completed one year of service and may contribute up to 10% of their
earnings. The Company matches 25% of the first 4% of participants earnings
which are contributed to the Plan. For the year ended June 30, 1996, the
Company issued 2,897 shares of common stock to the Plan. For the years ended
June 30, 1996, 1995 and 1994, Company contributions were approximately $81,000,
$59,100 and $64,400, respectively.
F-13
<PAGE>
SYNETIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(8) Related Party Transactions:
Tax-sharing agreement--
The Company and Medco had a tax-sharing agreement which provided,
among other things, for the allocation of federal income taxes on a separate
company basis prior to July 6, 1989 and other related matters with respect to
income taxes of the Company.
Services agreement--
Through December 14, 1994, the Company and Medco had a services
agreement pursuant to which Medco provided the Company with various services of
its management. The Company paid the actual costs of providing these services.
Where actual costs were not available, the Company paid amounts based on
mutually agreed upon allocation methods. Costs for such services were
approximately $337,000 and $429,000 for the years ended June 30, 1995 and 1994,
respectively. No costs were incurred under this agreement for the year ended
June 30, 1996.
Sales to former affiliate--
Medco purchased plastic vials manufactured by the Company for the
years ended June 30, 1996, 1995 and 1994. These sales were based on prices and
terms generally available to non-affiliates. Pursuant to an agreement, Medco
will continue to purchase such plastic vials until December 14, 1996. Through
December 14, 1995, the cost to Medco of the plastic vials was the price in
effect on the date of the agreement, at which time the price increased by 3%,
subject to certain adjustments.
(9) Stock Options:
In May 1989, the Company adopted two stock option plans, the 1989
Class A Stock Option Plan (the "Class A Plan") and the 1989 Class B Stock Option
Plan (the "Class B Plan"). In September 1991, the Company adopted the 1991
Special Non-qualified Stock Option Plan (the "1991 Special Plan") and in
December 1991, the Company adopted the 1991 Director Stock Option Plan (the
"Director Plan") (collectively, the "Plans"). Non-Qualified stock options are
granted under the Class A Plan, the 1991 Special Plan and the Director Plan.
Options granted under the Class B Plan may be either incentive stock options or
non-qualified stock options. Eligibility for the grant of options under the
Class A Plan and the Director Plan are limited to certain of the Company's
directors. Eligibility for the grant of options under the Class B Plan and the
1991 Special Plan are limited to the Company's officers, certain directors,
employees, consultants, agents and key contractors. No options under the Plans
may be exercised during the first year after the date of grant, and options
granted under the Plans become exercisable at a rate of 20% in each successive
year after the date of grant. No options may be granted under any of the Plans
after October 8, 2001, and all options expire within ten to fifteen years from
the date of the grant. Under the Class B Plan, the 1991 Special Plan and the
Director Plan, the exercise price may not be less than 100% of the fair market
value of the Company's common stock on the date of grant. Under the Class A
Plan, the exercise price may not be less than 85% of the fair market value of
the Company's common stock on the date of grant. All options granted under the
Class A Plan had an exercise price equal to 100% of the fair market value on the
date of grant. There are 3,953,020 shares reserved for issuance under the
Company's Plans.
In addition to the Company's stock option plans, the Company has
granted options to certain directors, consultants and key employees. At June
30, 1996, there were 180,000 options granted to these individuals. The terms of
these grants are similar to the Company's non-qualified stock option plans.
F-14
<PAGE>
SYNETIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9) Stock Options: (continued)
A summary of stock option transactions is shown below:
<TABLE>
<CAPTION>
Years Ended June 30,
-------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Options outstanding,
beginning of period................. 3,591,900 3,239,830 3,748,210
Options granted...................... 366,000 1,228,000 168,800
Options exercised.................... (137,350) (364,570) (31,800)
Options cancelled.................... (73,800) (511,360) (645,380)
---------- ---------- ----------
Options outstanding, end
of period........................... 3,746,750 3,591,900 3,239,830
========== ========== ==========
Options available for
grant, end of period................ 386,270 686,470 573,110
========== ========== ==========
Options exercisable, end
of period........................... 2,160,050 1,846,300 1,912,100
========== ========== ==========
Price range of outstanding options,
end of period....................... $ 5.25 $ 5.25 $ 5.25
to to to
$ 33.25 $ 21.50 $ 22.00
========== ========== ==========
Average price of options
exercised........................... $ 12.81 $ 11.82 $ 5.25
========== ========== ==========
</TABLE>
(10) Commitments and Contingencies:
Leases--
The Company leases warehouse space, equipment and automobiles under
various noncancellable operating leases. Rental expense was $318,000, $197,000
and $148,000 for the fiscal years ended June 30, 1996, 1995 and 1994,
respectively. The minimum aggregate rental commitments under noncancellable
leases, excluding renewal options, are as follows (in thousands):
<TABLE>
<CAPTION>
Years Ending June 30,
---------------------
<S> <C>
1997................. $248
1998................. 106
1999................. 77
2000................. 63
2001 and Thereafter.. 32
</TABLE>
Employment agreements --
The Company had fee arrangements with two of its senior executive
officers, which terminated on May 19, 1994, which provided for the payment of a
fee to such officers in connection with certain acquisitions made by the
Company. Such fees totaled, in aggregate, approximately $563,000 during the
fiscal year ended June 30, 1994.
F-15
<PAGE>
SYNETIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(10) Commitments and Contingencies: (continued)
Legal proceedings --
In the normal course of business, the Company is involved in various
claims and legal proceedings. While the ultimate resolution of these matters
has yet to be determined, the Company does not believe that their outcome will
have a material adverse effect on its financial position.
(11) Quarterly Financial Data (Unaudited):
The following table summarizes the quarterly financial data for the
fiscal years ended June 30, 1996 and 1995 (in thousands, except per share data):
<TABLE>
<CAPTION>
Income (loss)
Before Provision Net Income
Quarter Ended Net Sales For Taxes Net Income Per Share
- ------------- ---------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
1995
- ----
September 30, 1994.. $ 8,954 $ 794 $ 481 $ .04
December 31, 1994... 9,469 (4,395) (2,726) (.16)
March 31, 1995...... 9,865 1,030 644 .04
June 30, 1995....... 10,891 3,649 2,236 .13
1996
- ----
September 30, 1995.. $11,036 $ 3,127 $ 1,924 $ .11
December 31, 1995... 10,283 3,124 2,073 .12
March 31, 1996...... 11,311 3,184 2,101 .12
June 30, 1996....... 12,498 3,767 2,487 .14
</TABLE>
(12) Fair Value of Financial Instruments:
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of Statement of
Financial Accounting Standards No. 107, "Disclosures about Fair Value of
Financial Instruments." The estimated fair value amounts have been determined
by the Company using available market information and commonly accepted
valuation methodologies. However, considerable judgment is required in
interpreting market data to develop the estimates of fair value. Accordingly,
the estimates presented herein are not necessarily indicative of the amounts
that the Company could realize in a current market exchange. The use of
different market assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts.
<TABLE>
<CAPTION>
At June 30, 1996
---------------------
Estimated
Carrying Fair
Amount Value
--------- -----------
(in thousands)
<S> <C> <C>
Assets:
Cash and cash equivalents $ 22,210 $ 22,210
Marketable securities 140,268 140,537
</TABLE>
F-16
<PAGE>
SYNETIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(12) Fair Value of Financial Instruments: (continued)
Cash and cash equivalents --
The carrying amounts of these items are a reasonable estimate
of their fair value.
Marketable securities --
Marketable securities, consisting of publicly-traded U.S. Treasury
Notes and Money Market Preferred Stock investments, are valued based on quoted
market prices or dealer quotes.
The fair value estimates presented herein are based on information
available to the Company as of June 30, 1996. Although the Company is not aware
of any factors that would significantly affect the estimated fair value amounts,
such amounts have not been revalued since that date, and current estimates of
fair value may differ significantly from the amounts presented herein.
(13) Supplemental Cash Flow information (in thousands):
<TABLE>
<CAPTION>
Years Ended June 30,
-----------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Interest Paid....................... $ 6 $ 2,870 $5,688
Income Taxes Paid................... 3,212 27,435 604
</TABLE>
F-17
<PAGE>
SYNETIC, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended June 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E
- ------------------------------ ---------- ------------------------ ----------- ----------
Additions
------------------------
Balance at Charges to Charges to Balance at
Beginning Costs and Other End of
Description of Period Expenses Accounts (Deductions) Period
- --------------------------------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Deducted in the Balance Sheet
from the asset to which
it applies:
Allowance for doubtful accounts
and sales returns
June 30, 1996.................... $636,000 126,000 (7,000) (84,000)(1) $671,000
June 30, 1995.................... $393,000 307,000 7,000 (71,000)(1) $636,000
June 30, 1994.................... $229,000 164,000 13,000 (13,000)(1) $393,000
</TABLE>
- ------------------------------------
(1) Write-off of uncollectible accounts and other reductions, net of
recoveries.
S-1
<PAGE>
INDEX TO EXHIBITS
Number Title
- ------ -----
3.1 Certificate of Incorporation of the Company, as amended. Incorporated by
reference to Exhibit 3.1 to the Company's Registration Statement on Form
S-1 (No. 33-28654) (the "Registration Statement").
3.2 By-Laws of the Company, as amended. Incorporated by reference to Exhibit
3.2 to the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1994 (the "1994 10-K").
10.1 1989 Class A Non-Qualified Stock Option Plan of the Company. Incorporated
by reference to Exhibit 10.1 to the Registration Statement.*
10.2 1989 Class B Non-Qualified Stock Option Plan of the Company. Incorporated
by reference to Exhibit 10.2 to the Registration Statement.*
10.3 1991 Director Stock Option Plan of the Company. Incorporated by reference
to Exhibit 4.2 to the Company's Registration Statement on Form S-8 (No.
33-46640).*
10.4 Form of Stock Option Agreement dated as of May 17, 1989 between the
Company and the members of the Stock Option Committee of the Board of
Directors. Incorporated by reference to Exhibit 10.3 to the Registration
Statement.*
10.5 Retirement Plan for Salaried Employees of Porex Technologies Corp. of
Georgia. Incorporated by reference to Exhibit 10.4 to the Registration
Statement.*
10.7 Form of Indemnification Agreement between the Company and the directors
and officers of the Company. Incorporated by reference to Exhibit 10.6 to
the Registration Statement.
10.8 Form of Services Agreement between the Company and Medco. Incorporated by
reference to Exhibit 10.7 to the Registration Statement.
10.9 Form of Tax Sharing Agreement between the Company and Medco. Incorporated
by reference to Exhibit 10.8 to the Registration Statement.
10.10 Form of Indemnification Agreement between the Company and Medco.
Incorporated by reference to Exhibit 10.9 to the Registration
Statement.
10.12 Purchase and Sale Agreement, dated as of May 24, 1994, between Merck &
Co., Inc. and the Company (the "Purchase and Sale Agreement").
Incorporated by reference to Exhibit 99.1 to the Company's Current Report
on Form 8-K dated June 6, 1994.
E-1
<PAGE>
Number Title
- ------ -----
10.13 Purchase Agreement, dated as of May 24, 1994, between Medco Containment
Services, Inc. and Porex Technologies Corp. Incorporated by reference to
Exhibit 10.23 to the 1994 10-K.
10.14 Stock Purchase Agreement, dated as of August 9, 1994, between the
Company and Pharmacy Corporation of America. Incorporated by reference
to Exhibit 10.24 to the 1994 10-K.
10.15 Amended and Restated Investment Agreement, dated as of September 13,
1994, between Martin J. Wygod and the Company. Incorporated by reference
to Exhibit 10.1 to the Company's Current Report on Form 8-K dated
September 16, 1994.
10.16 Form of Stock Option Agreement, made as of December 7, 1994, between the
Company and each of James V. Manning (for 150,000 shares), Paul C.
Suthern (for 180,000 shares), Victor L. Marrero (for 125,000 shares),
David J. Schlanger (for 125,000 shares), Pamela B. Spira (for 125,000
shares) and Anthony Vuolo (for 125,000 shares). Incorporated by
reference to Annex A to the Company's Proxy Statement for its Annual
Meeting of Stockholders held on May 17, 1995. *
21.1** Subsidiaries of the Company.
23.1** Consent of Arthur Andersen LLP.
23.2** Consent of Emens, Kegler, Brown, Hill & Ritter Co., L.P.A.
24.1** Powers of Attorney of the Company.
27** Financial Data Schedule.
99.1 Excerpt from the Consulting Agreement between Merck & Co., Inc. and
Martin J. Wygod relating to provisions incorporated in the Purchase and
Sale Agreement. Incorporated by reference to Exhibit 99.1 to the
Company's Current Report on Form 8-K dated June 6, 1994.
___________________________
*Management contract or compensation plan or arrangement.
**Filed herewith.
E-2
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
The following are the subsidiaries of Synetic, Inc., excluding subsidiaries the
omission of which is permitted under Item 601(b)(21) of Regulation S-K.
Name of Subsidiary Jurisdiction of Incorporation
- ------------------ -----------------------------
Porex Technologies Corp. Delaware
Porex Scientific, Inc./1/ Delaware
SYNC Corp. New Jersey
- -------------------------
/1/ A wholly owned subsidiary of Porex Technologies Corp.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K into the previously filed Registration
Statements of Synetic, Inc. and Subsidiaries on Form S-8 (File Nos. 33-34925,
33-34926, 33-38446, 33-46639 and 33-46640).
ARTHUR ANDERSEN LLP
New York, New York
September 27, 1996
<PAGE>
EXHIBIT 23.2
[Letterhead of Emens, Kegler, Brown, Hill & Ritter]
September 27, 1996
Synetic, Inc.
669 River Drive
Elmwood Park, NJ 07407-1361
Dear Ladies and Gentlemen:
We hereby consent to the incorporation by reference into the Synetic,
Inc. Registration Statements on Form S-8 (File Nos. 33-34925, 33-34926, 33-
38446, 33-46639 and 33-46640), including the Form S-3 resale prospectuses
included therein, filed with the Securities and Exchange Commission, of the
Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996.
We also consent to all references to our firm included in such Registration
Statements.
Columbus, Ohio
September 27, 1996
Very truly yours,
EMENS, KEGLER, BROWN, HILL
& RITTER CO., L.P.A.
By: /s/ Jack A. Bjerke
------------------------------
Jack A. Bjerke, Vice President
<PAGE>
EXHIBIT 24.1
<PAGE>
SYNETIC, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby constitute
and appoint Victor L. Marrero and James V. Manning and each of them, each with
full power to act without the other, his true and lawful attorneys-in-fact and
agents, each with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign the Annual Report
on Form 10-K of Synetic, Inc. for the fiscal year ended June 30, 1996 (the
"Annual Report") and to sign any and all amendments to the Annual Report, and to
file the same, with all exhibits thereto and all other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that each of said attorneys-in-fact and agents or any of them may lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of
this 19th day of September, 1996.
/s/ Thomas R. Ferguson
------------------------------
THOMAS R. FERGUSON
<PAGE>
SYNETIC, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby constitute
and appoint Victor L. Marrero and James V. Manning and each of them, each with
full power to act without the other, his true and lawful attorneys-in-fact and
agents, each with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign the Annual Report
on Form 10-K of Synetic, Inc. for the fiscal year ended June 30, 1996 (the
"Annual Report") and to sign any and all amendments to the Annual Report, and to
file the same, with all exhibits thereto and all other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that each of said attorneys-in-fact and agents or any of them may lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of
this 19th day of September, 1996.
/s/ Mervyn L. Goldstein, M.D.
--------------------------------
MERVYN L. GOLDSTEIN, M.D.
<PAGE>
SYNETIC, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby constitute
and appoint Victor L. Marrero and James V. Manning and each of them, each with
full power to act without the other, his true and lawful attorneys-in-fact and
agents, each with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign the Annual Report
on Form 10-K of Synetic, Inc. for the fiscal year ended June 30, 1996 (the
"Annual Report") and to sign any and all amendments to the Annual Report, and to
file the same, with all exhibits thereto and all other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that each of said attorneys-in-fact and agents or any of them may lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of
this 19th day of September, 1996.
/s/ Ray E. Hannah
--------------------------
RAY E. HANNAH
<PAGE>
SYNETIC, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby constitute
and appoint Victor L. Marrero and James V. Manning and each of them, each with
full power to act without the other, his true and lawful attorneys-in-fact and
agents, each with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign the Annual Report
on Form 10-K of Synetic, Inc. for the fiscal year ended June 30, 1996 (the
"Annual Report") and to sign any and all amendments to the Annual Report, and to
file the same, with all exhibits thereto and all other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that each of said attorneys-in-fact and agents or any of them may lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of
this 20th day of September, 1996.
/s/ Roger H. Licht
-----------------------------
ROGER H. LICHT
<PAGE>
SYNETIC, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby constitute
and appoint Victor L. Marrero and James V. Manning and each of them, each with
full power to act without the other, his true and lawful attorneys-in-fact and
agents, each with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign the Annual Report
on Form 10-K of Synetic, Inc. for the fiscal year ended June 30, 1996 (the
"Annual Report") and to sign any and all amendments to the Annual Report, and to
file the same, with all exhibits thereto and all other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that each of said attorneys-in-fact and agents or any of them may lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of
this 19th day of September, 1996.
/s/ Per G.H. Lofberg
-----------------------------
PER G.H. LOFBERG
<PAGE>
SYNETIC, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby constitute
and appoint Victor L. Marrero and James V. Manning and each of them, each with
full power to act without the other, his true and lawful attorneys-in-fact and
agents, each with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign the Annual Report
on Form 10-K of Synetic, Inc. for the fiscal year ended June 30, 1996 (the
"Annual Report") and to sign any and all amendments to the Annual Report, and to
file the same, with all exhibits thereto and all other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that each of said attorneys-in-fact and agents or any of them may lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of
this 20th day of September, 1996.
/s/ Charles A. Mele
----------------------------
CHARLES A. MELE
<PAGE>
SYNETIC, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby constitute
and appoint Victor L. Marrero and James V. Manning and each of them, each with
full power to act without the other, his true and lawful attorneys-in-fact and
agents, each with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign the Annual Report
on Form 10-K of Synetic, Inc. for the fiscal year ended June 30, 1996 (the
"Annual Report") and to sign any and all amendments to the Annual Report, and to
file the same, with all exhibits thereto and all other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that each of said attorneys-in-fact and agents or any of them may lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of
this 19th day of September, 1996.
/s/ Herman Sarkowsky
------------------------------
HERMAN SARKOWSKY
<PAGE>
SYNETIC, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby constitute
and appoint Victor L. Marrero and James V. Manning and each of them, each with
full power to act without the other, his true and lawful attorneys-in-fact and
agents, each with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign the Annual Report
on Form 10-K of Synetic, Inc. for the fiscal year ended June 30, 1996 (the
"Annual Report") and to sign any and all amendments to the Annual Report, and to
file the same, with all exhibits thereto and all other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that each of said attorneys-in-fact and agents or any of them may lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of
this 20th day of September, 1996.
/s/ Martin J. Wygod
---------------------------
MARTIN J. WYGOD
<PAGE>
SYNETIC, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby constitute
and appoint Victor L. Marrero and James V. Manning and each of them, each with
full power to act without the other, his true and lawful attorneys-in-fact and
agents, each with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign the Annual Report
on Form 10-K of Synetic, Inc. for the fiscal year ended June 30, 1996 (the
"Annual Report") and to sign any and all amendments to the Annual Report, and to
file the same, with all exhibits thereto and all other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that each of said attorneys-in-fact and agents or any of them may lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of
this 20th day of September, 1996.
/s/ Albert M. Weis
----------------------------
ALBERT M. WEIS
<PAGE>
SYNETIC, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby constitute
and appoint James V. Manning, with full power to act as his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign the
Annual Report on Form 10-K of Synetic, Inc. for the fiscal year ended June 30,
1996 (the "Annual Report") and to sign any and all amendments to the Annual
Report, and to file the same, with all exhibits thereto and all other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and necessary to be done as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent may lawfully do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of
this 20th day of September, 1996.
/s/ Paul C. Suthern
-----------------------------
PAUL C. SUTHERN
<PAGE>
SYNETIC, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby constitute
and appoint Victor L. Marrero with full power to act as his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign the
Annual Report on Form 10-K of Synetic, Inc. for the fiscal year ended June 30,
1996 (the "Annual Report") and to sign any and all amendments to the Annual
Report, and to file the same, with all exhibits thereto and all other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and necessary to be done as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent may lawfully do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of
this 20th day of September, 1996.
/s/ James V. Manning
------------------------------
JAMES V. MANNING
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SYNETIC,
INC.'S FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 22,210
<SECURITIES> 140,268
<RECEIVABLES> 7,970
<ALLOWANCES> 671
<INVENTORY> 5,253
<CURRENT-ASSETS> 179,851
<PP&E> 33,272
<DEPRECIATION> 16,014
<TOTAL-ASSETS> 199,592
<CURRENT-LIABILITIES> 13,523
<BONDS> 0
0
0
<COMMON> 220
<OTHER-SE> 180,869
<TOTAL-LIABILITY-AND-EQUITY> 199,592
<SALES> 45,128
<TOTAL-REVENUES> 45,128
<CGS> 25,108
<TOTAL-COSTS> 25,108
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 13,202
<INCOME-TAX> 4,617
<INCOME-CONTINUING> 8,585
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,585
<EPS-PRIMARY> .48
<EPS-DILUTED> 0
</TABLE>
