-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, f5hq3p2gpkpmPOYZZmMTKZlvvAW4g+xeYHYJ0L/LfRYr+FwLSEAMJYA5BHqMQYFR LinTOvruDtiZRJoExt4CBA== 0000950130-95-000960.txt : 19950517 0000950130-95-000960.hdr.sgml : 19950516 ACCESSION NUMBER: 0000950130-95-000960 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950512 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYNETIC INC CENTRAL INDEX KEY: 0000850436 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DRUG STORES AND PROPRIETARY STORES [5912] IRS NUMBER: 222975182 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-17822 FILM NUMBER: 95538196 BUSINESS ADDRESS: STREET 1: 669 RIVER DRIVE CITY: ELMWOOD PARK STATE: NJ ZIP: 07407 BUSINESS PHONE: 2017033400 MAIL ADDRESS: STREET 1: 669 RIVER DRIVE CITY: ELMWOOD PARK STATE: NJ ZIP: 07407 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to ______ Commission File Number 0-17822 SYNETIC, INC. (Exact name of registrant as specified in its charter) Delaware 22-2975182 (State or other jurisdiction of (I.R.S Employer incorporation or organization) Identification No.) River Drive Center 2 669 River Drive Elmwood Park, New Jersey 07407 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (201) 703-3400 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at May 8,1995 - --------------------- ------------------------- Common Stock 16,579,737 shares par value $.01 per share SYNETIC, INC. AND SUBSIDIARIES Index ----- Page ---- Part I. FINANCIAL INFORMATION: Item 1. Financial Statements Consolidated Balance Sheets -- March 31, 1995 and June 30, 1994 3 Consolidated Statements of Income -- Quarters and Nine Months Ended March 31, 1995 and 1994 5 Consolidated Statements of Cash Flows -- Nine Months Ended March 31, 1995 and 1994 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 10 Part II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 12 SYNETIC INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands) ASSETS
March 31, June 30, 1995 1994 --------- -------- (unaudited) CURRENT ASSETS: Cash and cash equivalents.............. $ 5,700 $ 4,232 Marketable securities.................. 92,568 50,063 Accounts receivable, net of allowances for doubtful accounts and sales returns of $492 and $393 at March 31, 1995 and June 30, 1994, respectively.................... 6,261 5,609 Inventories............................ 6,212 6,250 Other current assets................... 2,680 5,016 -------- -------- Total current assets.................. 113,421 71,170 -------- -------- PROPERTY, PLANT AND EQUIPMENT: Land and improvements.................. 772 754 Building and improvements.............. 8,001 7,789 Machinery and equipment................ 16,419 13,613 Furniture and fixtures................. 2,316 1,687 Construction in progress............... 2,960 3,241 -------- -------- 30,468 27,084 Less: Accumulated depreciation........ (13,719) (12,042) -------- -------- Property, plant and equipment, net.... 16,749 15,042 -------- -------- OTHER ASSETS: Marketable securities.................. 48,192 48,256 Net assets of discontinued operations.. - 55,882 Other.................................. 1,854 3,659 -------- -------- Total other assets 50,046 107,797 -------- -------- $180,216 $194,009 ======== ========
The accompanying notes are an integral part of these consolidated balance sheets. -3- SYNETIC INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except per share data) LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, June 30, 1995 1994 ---------- -------- (unaudited) CURRENT LIABILITIES: Accounts payable........................... $ 768 $ 1,071 Accrued liabilities........................ 9,335 4,079 -------- -------- Total current liabilities................. 10,103 5,150 -------- -------- LONG-TERM DEBT.............................. - 80,716 DEFERRED TAXES AND OTHER LIABILITIES........ 8,181 3,013 STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value; 10,000,000 shares authorized; none issued.................................... - - Common stock $.01 par value; 50,000,000 shares authorized; 21,841,776 and 17,621,462 shares issued at March 31, 1995 and June 30, 1994, respectively; 16,573,313 and 17,621,512 shares outstanding at March 31, 1995 and June 30, 1994, respectively........... 218 176 Paid-in capital............................ 151,807 70,416 Treasury stock, at cost; 5,268,463 shares at March 31, 1995......................... (35,778) - Retained earnings.......................... 45,685 34,538 -------- -------- Total stockholders' equity................ 161,932 105,130 -------- -------- $180,216 $194,009 ======== ========
The accompanying notes are an integral part of these consolidated balance sheets. -4- SYNETIC, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Quarters and Nine Months Ended March 31, 1995 and 1994 (in thousands, except per share data) (unaudited)
Quarters Ended Nine Months Ended March 31, March 31, 1995 1994 1995 1994 ---- ---- ---- ---- Net Sales.................................. $ 9,865 $ 8,472 $28,288 $23,832 Cost and expenses: Cost of sales............................ 5,828 5,234 16,875 15,024 Selling, general and administrative...... 3,318 2,247 8,729 6,899 Interest and other income................ (2,029) (1,222) (5,011) (3,774) Interest expense......................... 635 1,487 3,603 4,500 Purchase and Sale Agreement related expenses and Other..................... 1,083 - 6,663 563 ------- ------- ------- ------- 8,835 7,746 30,859 23,212 ------- ------- ------- ------- Income (loss) from continuing operations before provision for income taxes........ 1,030 726 (2,571) 620 Provision (benefit) for income taxes....... 386 276 (970) 238 ------- ------- ------- ------- Income (loss) from continuing operations... 644 450 (1,601) 382 ------- ------- ------- ------- Discontinued operations: Income from operations, net of income taxes of $355 for the quarter ended March 31, 1994 and $842 and $1,285 for the nine months ended March 31, 1995 and 1994.................. - 153 963 1,241 Gain on sale of Institutional Pharmacy operations, net of taxes of $22,638............................... - - 11,785 - ------- ------- ------- ------- Income from discontinued operations........ - 153 12,748 1,241 ------- ------- ------- ------- Net income................................. $ 644 $ 603 $11,147 $ 1,623 ======= ======= ======= ======= Net income per share: Continuing operations.................... $ .04 $ .02 $ (.09) $ .02 Discontinued operations.................. - .01 .74 .07 ------- ------- ------- ------- Net income per share....................... $ .04 $ .03 $ .65 $ .09 ======= ======= ======= ======= Weighted average shares outstanding........ 15,829 17,913 17,236 17,966 ======= ======= ======= =======
The accompanying notes are an integral part of these consolidated statements. -5- SYNETIC, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended March 31, 1995 and 1994 (in thousands) (unaudited)
1995 1994 ---- ---- Cash flows from operating activities: Net income.................................... $ 11,147 $ 1,623 Adjustments to reconcile net income to net cash provided by operating activities: Income from Discontinued Operations...... (963) (1,241) Gain on Sale of Institutional Pharmacy business...................... (11,785) - Other expense............................ 1,083 - Depreciation and amortization............ 1,724 1,830 Changes in operating assets and liabilities: Accounts receivable, net................. (652) (728) Inventories.............................. 38 74 Other assets............................. (1,158) 1,082 Accounts payable......................... (303) (17) Accrued liabilities...................... (1,301) 2,039 Other liabilities........................ 4,980 - Income taxes payable..................... (22,627) (923) --------- -------- Net cash provided by (used for) operating activities................. (19,817) 3,739 --------- -------- Cash flows from investing activities: Sales of marketable securities................ 201,871 21,219 Purchase of marketable securities............. (244,312) (47,765) Capital expenditures.......................... (3,384) (1,610) Proceeds from sale of Institutional Pharmacy business.......................... 102,314 - --------- -------- Net cash provided by (used for) investing activities................. 56,489 (28,156) --------- -------- Cash flows from financing activities: Payments for treasury stock................... (35,778) - Proceeds from exercise of stock options and 401(k) purchases............................ 3,987 171 Payments and redemption of long-term debt..... (3,413) (542) -------- -------- Net cash (used for) financing activities.................. (35,204) (371) --------- -------- Net increase (decrease) in cash and cash equivalents 1,468 (24,788) Cash and cash equivalents, beginning of period.. 4,232 31,150 -------- -------- Cash and cash equivalents, end of period........ $ 5,700 $ 6,362 ======== ========
The accompanying notes are an integral part of these consolidated statements. -6- 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, 1995 (unaudited) and June 30, 1994 (audited), and the results of their operations and their cash flows for the nine months ended March 31, 1995 and 1994 (unaudited). Principles of Consolidation-- The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned operating subsidiary, Porex Technologies Corp. ("Porex"), after elimination of all material intercompany accounts and transactions. All periods and related notes thereto have been restated to reflect the sale of the Institutional Pharmacy Business, as discussed in Note 2. 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, 1994 (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) Purchase and Sales Transactions: On May 24, 1994, Merck & Co., Inc. ("Merck") and the Company entered into an 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 these transactions pursuant to which (1) the Company sold its Institutional Pharmacy Business to Pharmacy Corporation of America ("PCA") for $107.3 million 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, the Company has recorded a non-recurring charge of approximately $5 million relating to such stock options in conjunction with the consummation of these transactions. -7- (2) Purchase and Sale Transactions: (continued) The consolidated financial statements have been restated to report separately the net assets and operating results of the discontinued operations. As of June 30, 1994, the investment in the net assets of the discontinued operation consisted of (in thousands):
1994 -------- Current assets $21,700 Current liabilities (5,544) ------- Net current assets 16,156 Net fixed assets 4,215 Other noncurrent assets 42,723 Noncurrent liabilities (7,212) ------- $55,882 =======
Net sales of the discontinued operations were $19,345 and $39,583 for the quarter and nine months ended March 31, 1994, respectively. (3) Inventories: Inventories consisted of the following (in thousands):
March 31, June 30, 1995 1994 --------- -------- (unaudited) Raw materials and supplies.. $2,917 $3,089 Work-in-process............. 569 564 Finished goods.............. 2,726 2,597 ------ ------ $6,212 $6,250 ====== ======
(4) Marketable securities: At March 31, 1995, marketable securities consisted primarily of U.S. Treasury Notes and Money Market Preferred Stock. (5) 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. (6) Conversion of Subordinated Debentures: On January 27, 1995, the Company announced its intention to call for redemption on February 13, 1995, its outstanding $80,500,000 7% Convertible Subordinated Debentures Due 2001 (the "Debentures"). Holders of $79,104,000 aggregate principal amount of the Debentures surrendered their Debentures for conversion into an aggregate of 3,877,607 shares of common stock of the Company. The remaining $1,396,000 of the outstanding Debentures were redeemed at the redemption price of 104% plus accrued interest. -8- (7) Supplemental cash flow information (in thousands):
March 31, Cash paid during the periods for: 1995 1994 --------- ---- Interest...................... $ 2,864 $2,831 Income taxes.................. 25,007 705
For the nine months ended March 31, 1995, non-cash financing activities related to the conversion of the Company's Debentures into shares of the Company's common stock totaled approximately $77,415. (See Note 6) -9- 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, 1995 increased by $1,393,000, or 16.4% and $4,456,000, or 18.7%, respectively, over the comparable prior year periods as a result of sales increases across several product lines, principally increased sales of writing instrument components in the consumer sector and medical products in the health care sector. Cost of sales for the quarter and nine months ended March 31, 1995 increased by $594,000, or 11.3%, and $1,851,000, or 12.3%, respectively, over the comparable prior year periods 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 quarter and nine months ended March 31, 1995 decreased to 59.1% and 59.7% from 61.8% and 63.0%, respectively, in the comparable prior year periods 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 quarter and nine months ended March 31, 1995 increased by $1,071,000 or 47.7% and $1,830,000 or 26.5%, respectively, over the comparable prior year periods due primarily to costs associated with: (i) the addition of sales personnel, (ii) the expansion of European operations,and (iii) increased corporate overhead. As a percent of net sales, selling, general and administrative expenses for the quarter and nine months ended March 31, 1995 increased to 33.6% and 30.9% from 26.5% and 28.9%, respectively, primarily due to the increased corporate overhead noted above. Interest and other income for the quarter and nine months ended March 31, 1995 increased by $807,000 or 66.0% and $1,237,000 or 32.8%, respectively, over the comparable prior year periods as a result of higher interest rates on the Company's marketable securities and the income on the net proceeds received from the sale of the Institutional Pharmacy Business. Interest expense for the quarter and nine months ended March 31, 1995 decreased by $852,000 and $897,000, respectively, from the comparable prior year periods as a result of the conversion and redemption of the Company's Debentures into common stock of the Company in February 1995. Purchase and Sale Agreement related expenses and other for the quarter ended March 31, 1995 were $1,083,000 which represented costs associated with the conversion and redemption of the Company's Convertible Debentures during the quarter. For the nine months ended March 31, 1995, such costs were $6,663,000 which represented the conversion and redemption costs noted above, as well as 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. The effective tax rate for the quarter and nine months ended March 31, 1995 did not vary materially from the comparable prior year periods. -10- Capital Resources and Liquidity: - ------------------------------- Cash, cash equivalents and marketable securities increased by $43,909,000 to $146,460,000 during the nine months ended March 31, 1995 principally due to the proceeds received from the sale of the Institutional Pharmacy Business which was reduced by tax payments relating to such sale and the Company's purchase of 5,268,463 shares of its common stock from Merck. Excluding the effects of these transactions, cash provided by operations, net of capital expenditures, increased by approximately $1,200,000. In accordance with the Purchase and Sale Agreement, the Company and Merck entered into a six month agreement for the provision of certain transition services by Merck or its subsidiaries to the Company, in order to permit an orderly transition to the Company's status as an independent entity. Such services include, among other things, administrative, legal and other transition services at a cost determined on the same basis as historically determined. As a result of the consummation of the Purchase and Sale Agreement noted above, the Company operates independently from Merck and Medco, and will no longer be charged corporate overhead costs based on the cost-sharing methodology previously utilized by Medco. The Company is now directly incurring certain corporate overhead costs, which were allocated pursuant to its services agreement with Medco prior to the consummation of the Purchase and Sale Agreement. The Company estimates such additional costs, which consist primarily of salaries and benefits, rent and insurance, will increase corporate overhead by approximately $2 million over the next twelve months. 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 various 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. There can be no assurance that the Company's acquisition program will be successful. -11- SYNETIC INC. AND SUBSIDIARIES PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) No exhibits are required to be filed with this report. (b) On January 27, 1995, the Company filed a report on Form 8-K presenting the consolidated financial statements of the Company, previously included in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1994, restated to report separately the net assets and operating results of the discontinued operations of the institutional pharmacy business sold to Pharmacy Corporation of America, an indirect wholly owned subsidiary of Beverly Enterprises, Inc., on December 14, 1994. -12- 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 12, 1995 -13- -----END PRIVACY-ENHANCED MESSAGE-----