-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FeDFqS5P9kzCjeNQQXVVdh9VfCy6UwyzeEzsk2fhSxixFV6vdmQn7FtCX9rSyP4y uqw89I3MOWqqFZFYBKKmuQ== 0000950130-98-000669.txt : 19980218 0000950130-98-000669.hdr.sgml : 19980218 ACCESSION NUMBER: 0000950130-98-000669 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980213 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYNETIC INC CENTRAL INDEX KEY: 0000850436 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089] IRS NUMBER: 222975182 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-17822 FILM NUMBER: 98537032 BUSINESS ADDRESS: STREET 1: 669 RIVER DRIVE CITY: ELMWOOD PARK STATE: NJ ZIP: 07407-1361 BUSINESS PHONE: 2017033400 MAIL ADDRESS: STREET 1: 669 RIVER DRIVE CITY: ELMWOOD PARK STATE: NJ ZIP: 07407-1361 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q MARK ONE [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to ______ Commission File Number 0-17822 SYNETIC, INC. (Exact name of registrant as specified in its charter) Delaware 22-2975182 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) River Drive Center 2 669 River Drive Elmwood Park, New Jersey 07407 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (201) 703-3400 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at February 10, 1998 --------------------- -------------------------------- Common Stock 17,683,714 shares par value $.01 per share SYNETIC, INC. AND SUBSIDIARIES Index ----- Page ---- Part I. FINANCIAL INFORMATION: Item 1. Financial Statements Consolidated Balance Sheets -- December 31, 1997 and June 30, 1997 3 Consolidated Statements of Income -- Six Months Ended December 31, 1997 and 1996 5 Consolidated Statements of Cash Flows -- Six Months Ended December 31, 1997 and 1996 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 ---------------------------------------- This report contains certain forward-looking statements and information relating to Synetic, Inc. (the "Company" or "Synetic") that are based on the beliefs of the Company's management as well as assumptions made by and information currently available to the Company's 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's management with respect to future events and the Company's future performance and are subject to certain risks, uncertainties and assumptions. Should management's current view of the future or 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. SYNETIC, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands) ASSETS
December 31, June 30, 1997 1997 ------------- --------- (unaudited) CURRENT ASSETS: Cash and cash equivalents............. $ 76,641 $ 77,303 Marketable securities................. 9,900 11,765 Accounts receivable, net of allowances for doubtful accounts and sales returns of $782 and $739 at December 31, 1997 and June 30, 1997, respectively.................. 9,249 9,094 Inventories........................... 5,906 5,505 Other current assets.................. 11,267 9,233 -------- -------- Total current assets................ 112,963 112,900 -------- -------- PROPERTY, PLANT AND EQUIPMENT: Land and improvements................. 1,606 1,613 Building and improvements............. 10,301 9,911 Machinery and equipment............... 26,134 23,444 Furniture and fixtures................ 3,546 3,283 Construction in progress.............. 3,194 2,516 -------- -------- 44,781 40,767 Less: Accumulated depreciation....... (20,026) (18,681) -------- -------- Property, plant and equipment, net.. 24,755 22,086 -------- -------- OTHER ASSETS: Marketable securities................. 226,799 226,760 Other................................. 19,662 20,357 -------- -------- Total other assets 246,461 247,117 -------- -------- $384,179 $382,103 ======== ========
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
December 31, June 30, 1997 1997 ------------- --------- (unaudited) CURRENT LIABILITIES: Accounts payable............................... $ 1,545 $ 2,344 Accrued liabilities............................ 17,561 14,203 Income taxes payable........................... 4,756 3,044 -------- -------- Total current liabilities.................... 23,862 19,591 -------- -------- LONG-TERM DEBT, LESS CURRENT PORTION............ 159,500 165,000 DEFERRED TAXES AND OTHER LIABILITIES............ 5,692 8,776 STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value; 10,000,000 shares authorized; none issued....................................... - - Common stock $.01 par value; 50,000,000 shares authorized; 22,935,919 and 22,865,149 shared issued; 17,661,456 and 17,564,980 shares issued and outstanding at December 31, 1997 and June 30, 1997, respectively................................. 229 229 Paid-in capital................................ 197,857 196,212 Treasury stock, at cost; 5,274,463 and 5,300,169 shares at December 31, 1997 and June 30, 1997, respectively.................. (38,503) (39,462) Retained earnings.............................. 35,542 31,757 -------- -------- Total stockholders' equity................... 195,125 188,736 -------- -------- $384,179 $382,103
======== ======== The accompanying notes are an integral part of these consolidated balance sheets. -4- SYNETIC, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Quarters and Six Months Ended December 31, 1997 and 1996 (in thousands, except per share data) (unaudited)
Quarters Ended Six Months Ended December 31, December 31, 1997 1996 1997 1996 ------------- ------------- --------- --------- Net sales.............................. $ 15,440 $ 11,899 $ 30,273 $ 23,084 Cost of sales........................ 8,055 6,348 16,371 12,474 Selling, general and administrative.. 7,070 3,839 13,752 7,590 Interest and other income............ (5,598) (2,343) (10,604) (4,562) Interest expense..................... 2,187 - 4,378 - Other expense........................ - 28,600 - 28,600 -------- -------- -------- -------- 11,714 (36,444) 23,897 (44,102) -------- -------- -------- -------- Income (loss) before provision for income taxes..................... 3,726 (24,545) 6,376 (21,018) Provision for income taxes............. 1,433 1,389 2,591 2,527 -------- -------- -------- -------- Net income (loss)...................... $ 2,293 $(25,934) $ 3,785 $(23,545) ======== ======== ======== ======== Net income per share-basic: Net income (loss) per share.......... $.13 $(1.54) $.21 $ (1.40) ======== ======== ======== ======== Weighted average shares outstanding.. 17,662 16,886 17,638 16,841 ======== ======== ======== ======== Net income per share-diluted: Net income (loss) per share.......... $ .12 $(1.54) $.20 $ (1.40) ======== ======== ======== ======== Weighted average shares outstanding.. 19,337 16,886 19,391 16,841 ======== ======== ======== ========
The accompanying notes are an integral part of these consolidated statements. -5- SYNETIC, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Six Months Ended December 31, 1997 and 1996 (in thousands) (unaudited)
1997 1996 --------- ---------- Cash flows from operating activities: Net income (loss)................................ $ 3,785 $ (23,545) Adjustments to reconcile net income to net cash provided by operating activities: Write-off of purchased research and development costs.......................... - 28,600 Depreciation, amortization and other........ 1,328 1,163 Changes in operating assets and liabilities: Accounts receivable, net.................... (155) 410 Inventories................................. (401) (618) Other assets................................ (2,078) 1,277 Accounts payable............................ (799) 235 Accrued liabilities......................... 3,160 96 Income taxes payable........................ 3,120 3,351 Other liabilities........................... (3,084) - -------- --------- Net cash provided by operating activities..................... 4,876 10,969 -------- --------- Cash flows from investing activities: Sales of marketable securities................... 19,365 218,457 Purchase of marketable securities................ (17,539) (229,202) Capital expenditures............................. (4,014) (2,668) Acquisition of businesses, net of cash acquired.. - 596 -------- --------- Net cash (used for) investing activities..................... (2,188) (12,817) -------- --------- Cash flows from financing activities: Payments for treasury stock...................... (216) (1,712) Payments for extinguishment of debt.............. (4,842) - Proceeds from exercises of stock options and 401(k) purchases............................... 1,708 1,888 -------- --------- Net cash provided by (used for) financing activities..................... (3,350) 176 -------- --------- Net (decrease) in cash and cash equivalents....... (662) (1,672) Cash and cash equivalents, beginning of period.... 77,303 22,210 -------- --------- Cash and cash equivalents, end of period.......... $ 76,641 $ 20,538 ======== =========
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 December 31, 1997 (unaudited) and June 30, 1997 (audited), the results of their operations for the six months ended December 31, 1997 and 1996 (unaudited) and the results of their operations and their cash flows for the six months ended December 31, 1997 and 1996 (unaudited). Principles of Consolidation-- The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned operating subsidiaries, Porex Corporation and subsidiaries ("Porex"), Avicenna Systems Corp. ("Avicenna") and CareAgents, Inc.("CareAgents"), after elimination of all material intercompany accounts and transactions. 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, 1997 (the "1997 10-K"), 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):
December 31, June 30, 1997 1997 ----------------------- -------- (unaudited) Raw materials and supplies.. $3,154 $2,672 Work-in-process............. 672 347 Finished goods.............. 2,080 2,486 ------ ------ $5,906 $5,505 ====== ======
(3) Marketable securities: At December 31, 1997 and June 30, 1997, marketable securities consisted primarily of U.S. Treasury Notes and Federal Agency Notes. (4) Computation of net income (loss) per share: Effective with the quarter ended December 31, 1997, the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS No. 128"). The new standard simplifies the computation of net income per share and increases comparability to international standards. Under SFAS No. 128, basic net income per share is computed by dividing net income by the -7- weighted average number of common shares outstanding for the period. Diluted net income per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Dilutive securities consist of common stock which may be issuable upon exercise of outstanding stock options as calculated using the treasury stock method. The Company's 5% Convertible Subordinated Debentures due 2007 (the "Convertible Debentures"), were not included in the computation of diluted net income per share because their conversion price was greater than the average market price of the Company's common stock during the periods presented and, if included, would have had an anti-dilutive effect on net income per share for the periods presented. All prior periods have been restated in compliance with SFAS 128. (5) Supplemental cash flow information (in thousands): For the six months ended December 31, 1997 and 1996, the Company recognized tax benefits related to the exercise of stock options as increases to additional paid-in capital and decreases to income taxes payable of $1,364,000 and $4,542,000, respectively.
December 31, Cash paid during the periods for: 1997 1996 ------ ------ Interest...................... $4,108 $ - Income taxes.................. 516 1,239
-8- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION. The historical operations of the Company are primarily related to its plastics technology business. All revenues and a significant majority of operating expenses were derived from these operations. As discussed below, the consolidated financial statements for the three and six month periods ended December 31, 1997 include certain costs associated with the Company's activities in developing its healthcare communications business. Consolidated Results of Operations: - ---------------------------------- Net sales for the quarter and six months ended December 31, 1997 increased 29.8% and 31.1% to $15,440,000 and $30,273,000, respectively, from $11,899,000 and $23,084,000 in the comparable prior year periods. The sales of Interflo Technologies Inc. ("Interflo"), a company acquired in February 1997, accounted for $1,330,000 and $2,941,000 of the increases in sales for the quarter and six months ended December 31, 1997, respectively. The balance of the increases in sales for the periods was due principally to significant increased sales of writing instrument components, increased sales to medical original equipment manufacturers of porous components used in diagnostic products, and increased sales of porous plastic components to the industrial market, including components used in electronic devices. Cost of sales for the quarter and six months ended December 31, 1997 increased by $1,707,000, or 26.9%, and $3,897,000, or 31.2%, respectively, over the comparable prior year periods due to the increased sales volume noted above and, to a lesser extent, additional depreciation for equipment associated with process improvements. As a percent of net sales, cost of sales for the quarter ended December 31, 1997 decreased to 52.2% from 53.3% in the comparable prior year period principally due to increased leverage of certain fixed costs and improvements in material usage. As a percent of net sales, cost of sales for the six months ended December 31, 1997 did not vary materially from the comparable prior year period. Selling, general and administrative expenses for the quarter and six months ended December 31, 1997 increased by $3,231,000 or 84.2% and $6,162,000 or 81.2%, respectively, over the comparable prior year periods due primarily to the inclusion of $2,390,000 and $4,689,000, respectively, in expenses associated with the Company's healthcare communications business which related primarily to research and development activities for which there was no comparable amount in the prior year periods. Excluding these costs, as a percent of net sales, selling, general and administrative expenses for the quarter and six months ended December 31, 1997 decreased to 30.3% and 29.9%, respectively, from 32.3% and 32.9% in the comparable prior year periods due principally to an increase in sales which was not proportionately offset by expenses, since a portion of these expenses is fixed and does not vary directly with sales. Interest and other income, net of interest expense for the quarter and six months ended December 31, 1997 increased by $1,068,000 or 45.6% and $1,664,000 or 36.5%, respectively, over the comparable prior year periods principally as a result of the Company recording a $600,000 gain from the repurchase of Convertible Debentures and an increase in funds available for investment generated by the proceeds of the Company's Convertible Debentures issued in February 1997, partially offset by the interest expense associated with the Convertible Debentures. -9- During the quarter ended December 31, 1996, the Company recorded a charge to income of $28,600,000 for purchased research and development costs relating to the acquisition of Avicenna. Excluding the purchased research and development charge in the prior year periods for which no tax benefit was recognized, the effective tax rate for the for the quarter and six months ended December 31, 1997 increased to 38.5% and 40.6%, respectively, from 34.3% and 33.3% in the comparable prior year periods as the Company currently records no state tax benefit for the expenses associated with its healthcare communications business and, to a lesser extent, due to the change in composition of the Company's marketable securities resulting in a decrease in investment income subject to the dividend received deduction. Capital Resources and Liquidity: - ------------------------------- Cash, cash equivalents and marketable securities decreased by $2,488,000 to $313,340,000 during the six months ended December 31, 1997 principally due to the Company's repurchase of $5,500,000 face amount of Convertible Debentures and the interest payment related to the Convertible Debentures, partially offset by cash provided by operations. As a result of the continuing efforts in developing its healthcare communications business, the Company expects to incur significant research and development expenditures in connection with this new area of business until the products and services are successfully developed and marketed. During the six months ended December 31, 1997, the Company incurred expenditures of approximately $5,318,000 related to the development of its healthcare communications business. 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 the research and development expenditures noted above. 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 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" in the 1997 10-K. -10- SYNETIC INC. AND SUBSIDIARIES PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits Exhibit No. Description ----------- ----------- 11 Computation of Earnings Per Share 27 Financial Data Schedule -11- 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/ Anthony Vuolo ----------------- Vice President and Chief Financial Officer Dated: February 13, 1998 -12- EXHIBIT INDEX Number Description ------ ----------- 11 Computation of Earnings Per Share 27 Financial Data Schedule EX-11 2 COMPUTATION OF EARNINGS PER SHARE Exhibit 11 ---------- SYNETIC, INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE
QUARTERS ENDED SIX MONTHS ENDED DECEMBER 31, DECEMBER 31, ------------------ ------------------ 1997 1996 1997 1996 ------- --------- ------- --------- Basic earnings(loss) from operations.................... (A) $ 2,293 $(25,934) $ 3,785 $(23,545) Assumed conversion of convertible debentures(1)...................... - - - - ------- ------- -------- -------- Diluted earnings from operations..... (B) $ 2,293 $(25,934) $ 3,785 $(23,545) ======= ======== ======= ======== Weighted average shares outstanding - basic................ (C) 17,662 16,886 17,638 16,841 Common stock equivalents for dilutive earnings per share using the treasury stock method....................... 1,675 - 1,753 - ------- ------- -------- ------- Additional equivalent shares upon assumed conversion of convertible debentures(1)...................... - - - - ------- ------- -------- ------- Weighted average shares and common equivalent shares outstanding for diluted earnings per share..... (D) 19,337 16,886 19,391 16,841 EARNINGS PER SHARE Basic................................ (A)/(C) $ .13 $ (1.54) $ .21 $ (1.40) Diluted.............................. (B)/(D) $ .12 $ (1.54) $ .20 $ (1.40) - ---------------------------
(1) The Convertible Debenture conversion is not included in the computation of earnings per share as it is anti-dilutive for all periods presented. EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SYNETIC, INC'S 12/31/97 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS JUN-30-1998 JUL-01-1997 DEC-31-1997 76,641 9,900 10,031 782 5,906 112,963 44,781 20,026 384,179 23,862 159,500 0 0 229 194,896 384,179 30,273 30,273 16,371 16,371 0 0 4,378 6,376 2,591 3,785 0 0 0 3,785 .21 .20
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