<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
MARK ONE
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to ______
Commission File Number 0-17822
SYNETIC, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-2975182
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
River Drive Center 2
669 River Drive
Elmwood Park, New Jersey 07407
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (201) 703-3400
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at May 10, 1996
--------------------- ------------------------------
Common Stock 16,691,747 shares par value
$.01 per share
<PAGE>
SYNETIC, INC. AND SUBSIDIARIES
Index
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Page
----
Part I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheets --
March 31, 1996 and June 30, 1995 3
Consolidated Statements of Income --
Quarters and Nine Months Ended
March 31, 1996 and 1995 5
Consolidated Statements of Cash Flows --
Nine Months Ended March 31, 1996 and 1995 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and
Analysis of Results of Operations and
Financial Condition 9
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
<PAGE>
SYNETIC INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
<TABLE>
<CAPTION>
March 31, June 30,
1996 1995
----------- ---------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............. $ 16,509 $ 7,499
Marketable securities................. 93,400 98,000
Accounts receivable, net of
allowances for doubtful accounts
and sales returns of $638 and $636
at March 31, 1996 and June 30,
1995, respectively.................. 7,059 6,665
Inventories........................... 4,966 5,446
Other current assets.................. 4,861 4,031
-------- --------
Total current assets................ 126,795 121,641
-------- --------
PROPERTY, PLANT AND EQUIPMENT:
Land and improvements................. 797 780
Building and improvements............. 8,550 8,286
Machinery and equipment............... 18,965 17,389
Furniture and fixtures................ 2,860 2,696
Construction in progress.............. 1,220 1,331
-------- --------
32,392 30,482
Less: Accumulated depreciation....... (15,385) (13,523)
-------- --------
Property, plant and equipment, net.. 17,007 16,959
-------- --------
OTHER ASSETS:
Marketable securities................. 46,790 46,854
Other................................. 2,016 2,720
-------- --------
Total other assets 48,806 49,574
-------- --------
$192,608 $188,174
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
-3-
<PAGE>
SYNETIC INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, June 30,
1996 1995
---------- --------
(unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt.......... $ - $ 216
Accounts payable........................... 898 648
Accrued liabilities........................ 5,531 9,337
Income taxes payable....................... 6,656 6,161
-------- --------
Total current liabilities................. 13,085 16,362
-------- --------
DEFERRED TAXES AND OTHER LIABILITIES........ 4,980 4,980
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value;
10,000,000 shares authorized; none
issued.................................... - -
Common stock $.01 par value; 50,000,000
shares authorized; 16,690,373 and
16,598,530 shares issued at
March 31, 1996 and June 30, 1995,
respectively.............................. 220 219
Paid-in capital............................ 154,168 152,556
Treasury stock, at cost; 5,268,463 shares
at March 31, 1996......................... (36,575) (36,575)
Retained earnings.......................... 56,730 50,632
-------- --------
Total stockholders' equity................ 174,543 166,832
-------- --------
$192,608 $188,174
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
-4-
<PAGE>
SYNETIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Quarters and Nine Months Ended March 31, 1996 and 1995
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Quarters Ended Nine Months Ended
March 31, March 31,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales.................................. $11,311 $ 9,865 $32,630 $28,288
Cost and expenses:
Cost of sales............................ 6,301 5,828 18,461 16,875
Selling, general and administrative...... 3,896 3,318 10,845 8,729
Interest and other income................ (2,071) (2,029) (6,119) (5,011)
Interest expense......................... 1 635 8 3,603
Purchase and Sale Agreement related
expenses and other..................... - 1,083 - 6,663
------- ------- ------- -------
8,127 8,835 23,195 30,859
------- ------- ------- -------
Income (loss) from continuing operations
before provision for income taxes........ 3,184 1,030 9,435 (2,571)
Provision (benefit)for income taxes........ 1,083 386 3,337 (970)
------- ------- ------- -------
Income (loss) from continuing operations. 2,101 644 6,098 (1,601)
------- ------- ------- -------
Discontinued operations:
Income from operations, net of income
taxes of $842 for the nine months ended
March 31, 1995........................... - - - 963
Gain on sale of Institutional
Pharmacy operations, net of taxes
of $22,638............................... - - - 11,785
------- ------- ------- -------
Income from discontinued operations........ - - - 12,748
------- ------- ------- -------
Net income................................. $ 2,101 $ 644 $ 6,098 $11,147
======= ======= ======= =======
Primary
- -------
Net income per share:
Continuing operations.................... $.12 $.04 $.34 $ (.09)
Discontinued operations.................. - - - .74
------- ------- ------- -------
Net income per share....................... $.12 $.04 $.34 $ .65
======= ======= ======= =======
Weighted average shares outstanding........ 18,125 15,829 17,947 17,236
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
-5-
<PAGE>
SYNETIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended March 31, 1996 and 1995
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income........................................... $ 6,098 $ 11,147
Adjustments to reconcile net income to
net cash provided by operating activities:
Income from Discontinued Operations.............. - (963)
Income from Sale of Institutional
Pharmacy business.............................. - (11,785)
Other expense.................................... - 1,083
Depreciation and amortization.................... 2,008 1,724
Changes in operating assets and liabilities:
Accounts receivable, net......................... (394) (652)
Inventories...................................... 480 38
Other assets..................................... 154 (1,158)
Accounts payable................................. 250 (303)
Accrued liabilities.............................. (4,232) (1,301)
Other liabilities................................ - 4,980
Income taxes payable............................. 917 (22,627)
--------- ---------
Net cash provided by (used for)
operating activities......................... 5,281 (19,817)
--------- ---------
Cash flows from investing activities:
Sales of marketable securities....................... 526,763 201,871
Purchase of marketable securities.................... (522,099) (244,312)
Capital expenditures................................. (1,910) (3,384)
Proceeds from sale of Institutional
Pharmacy business................................ - 102,314
--------- ---------
Net cash provided by
investing activities......................... 2,754 56,489
--------- ---------
Cash flows from financing activities:
Payments for treasury stock.......................... - (35,778)
Proceeds from exercise of stock options and
401(k) purchases................................... 1,191 3,987
Payments of long-term debt........................... (216) (3,413)
--------- ---------
Net cash provided by (used for)
financing activities......................... 975 (35,204)
--------- ---------
Net increase (decrease) in cash and cash equivalents 9,010 1,468
Cash and cash equivalents, beginning of period........ 7,499 4,232
--------- ---------
Cash and cash equivalents, end of period.............. $ 16,509 $ 5,700
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
-6-
<PAGE>
SYNETIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Financial statement presentation:
In the opinion of management, the accompanying consolidated financial
statements contain all normal and recurring adjustments necessary to present
fairly the financial position of Synetic, Inc. and subsidiaries (the "Company")
as of March 31, 1996 (unaudited) and June 30, 1995 (audited), and the results of
their operations and their cash flows for the nine months ended March 31, 1996
and 1995 (unaudited).
Principles of Consolidation--
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned operating subsidiary, Porex Technologies Corp.
("Porex"), after elimination of all material intercompany accounts and
transactions. All periods and related notes thereto have been restated to
reflect the sale of the Institutional Pharmacy Business consummated on December
14, 1994.
The accounting policies followed by the Company are set forth in the Notes
to Consolidated Financial Statements included in the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1995 (the "Annual Report"), which
notes are incorporated herein by reference.
The results of operations for the interim periods presented are not
necessarily indicative of the results to be expected for the full fiscal year.
Certain reclassifications have been made to prior year amounts to conform
to the current year presentation.
(2) Inventories:
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
March 31, June 30,
1996 1995
----------------------- --------
(unaudited)
<S> <C> <C>
Raw materials and supplies.. $2,306 $2,843
Work-in-process............. 498 549
Finished goods.............. 2,162 2,054
------ ------
$4,966 $5,446
====== ======
</TABLE>
(3) Marketable securities:
At March 31, 1996, marketable securities consisted primarily of U.S.
Treasury Notes and Money Market Preferred Stock.
(4) Computation of net income per share:
Net income per share is determined by dividing net income by the weighted
average number of shares of common stock and common stock equivalents
outstanding during the applicable period. Common stock equivalents consist of
common stock which may be issuable upon exercise of outstanding stock options as
calculated using the treasury stock method.
-7-
<PAGE>
(5) Supplemental cash flow information (in thousands):
<TABLE>
<CAPTION>
March 31,
Cash paid during the periods for: 1996 1995
--------- -------
<S> <C> <C>
Interest...................... $ 6 $ 2,864
Income taxes.................. 2,530 25,007
</TABLE>
-8-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
Consolidated Results of Operations:
- ----------------------------------
Net sales for the quarter and nine months ended March 31, 1996 increased by
$1,446,000, or 14.7% and $4,342,000, or 15.4%, respectively, over the comparable
prior year periods as a result of sales improvements across several product
lines, principally increased sales of medical components in the healthcare
sector and consumer products.
Cost of sales for the quarter and nine months ended March 31, 1996
increased by $473,000, or 8.1%, and $1,586,000, or 9.4%, respectively, over the
comparable prior year periods due to the increased sales volume noted above. As
a percent of net sales, cost of sales for the quarter and nine months ended
March 31, 1996 decreased to 55.7% and 56.6% from 59.1% and 59.7%, respectively,
in the comparable prior year periods principally due to increased sales of
higher margin products and the reduction of certain fixed manufacturing costs.
Selling, general and administrative expenses for the quarter and nine
months ended March 31, 1996 increased by $578,000 or 17.4% and $2,116,000 or
24.2%, respectively, over the comparable prior year periods due primarily to an
increase in expenses associated with the increase in sales volume noted above
and an increase in corporate overhead expenses. As a percent of net sales,
selling, general and administrative expenses for the quarter ended March 31,
1996 did not vary materially from the comparable prior year. For the nine
months ended March 31, 1996 selling, general and administrative expenses
increased to 33.2% from 30.9% over the comparable prior year period primarily
due to the increase in corporate overhead noted above.
Interest and other income for the quarter ended March 31, 1996 increased by
$42,000 or 2.1% over the comparable prior year period due to slightly higher
interest earned on the Company's marketable securities. For the nine months
ended March 31, 1996 interest and other income increased by $1,108,000 or 22.1%
over the comparable prior year period due primarily to the investment of the net
proceeds from the sale of the Institutional Pharmacy Business.
Interest expense for the quarter and nine months ended March 31, 1996
decreased by $634,000 and $3,595,000, respectively, from the comparable prior
year periods as a result of the conversion and redemption of the Company's 7%
Convertible Subordinated Debentures into common stock of the Company in February
1995.
The Company incurred non-recurring costs associated with the conversion and
redemption of the Company's Convertible Debentures during the quarter ended
March 31, 1995 and a one-time charge in December 1994 related to the issuance of
stock options issued to certain officers as compensation for services in
conjunction with the consummation of the Purchase and Sale Agreement.
The effective tax rate for the quarter and nine months ended March 31, 1996
decreased to 34% and 35%, respectively, from 38% in the comparable prior year
periods as a result of an increase in income in the current year eligible for
dividends received reduction.
-9-
<PAGE>
Capital Resources and Liquidity:
- -------------------------------
The description of the Company's Capital Resources and Liquidity below,
including the descriptions of the acquisition program contained herein or
referenced in "Item 1. Business - Acquisition Program" of the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1995 (the "1995 10-K"),
contained forward-looking statements with respect to possible events, outcomes
or results that are, and may continue to be, subject to risks, uncertainties and
contingencies, including the respective risks, uncertainties and contingencies
identified in such descriptions.
Cash, cash equivalents and marketable securities increased by $4,346,000 to
$156,699,000 during the nine months ended March 31, 1996 principally due to the
income earned from operations.
The Company believes that its cash flow from operations and the income
earned on its investments are sufficient to meet the anticipated working capital
requirements of its business.
The Company continues to pursue an acquisition program pursuant to which it
seeks to effect one or more acquisitions or other similar business combinations
with businesses it believes have significant growth potential. Financing for
such acquisitions may come from several other sources, including, without
limitation, (a) its cash, cash equivalents and marketable securities and (b)
proceeds from the incurrence of additional indebtedness or the issuance of
common stock, preferred stock, convertible debt or other securities. For a
further description of the Company's Acquisition Program, see "Item 1. Business
- - Acquisition Program" in the 1995 10-K.
-10-
<PAGE>
SYNETIC INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit No. Description
27 Financial Data Schedule
(b) No reports on Form 8-K were filed by the Company during the quarter for
which this report was filed.
-11-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SYNETIC, INC.
/s/ VICTOR L. MARRERO
--------------------------------
Victor L. Marrero
Vice President - Finance
and Chief Financial Officer
Dated: May 15, 1996
-12-
<PAGE>
EXHIBIT INDEX
Number Description
------ -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SYNETIC,
INC.'S QUARTERLY REPORT FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 16,509
<SECURITIES> 140,190
<RECEIVABLES> 7,697
<ALLOWANCES> 638
<INVENTORY> 4,966
<CURRENT-ASSETS> 126,795
<PP&E> 32,392
<DEPRECIATION> 15,385
<TOTAL-ASSETS> 192,608
<CURRENT-LIABILITIES> 13,085
<BONDS> 0
220
0
<COMMON> 0
<OTHER-SE> 174,323
<TOTAL-LIABILITY-AND-EQUITY> 192,608
<SALES> 32,630
<TOTAL-REVENUES> 32,630
<CGS> 18,461
<TOTAL-COSTS> 18,461
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8
<INCOME-PRETAX> 9,435
<INCOME-TAX> 3,337
<INCOME-CONTINUING> 6,098
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,098
<EPS-PRIMARY> .34
<EPS-DILUTED> 0
</TABLE>
