-----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, BirAef5jPLUUdLaF1fbn8L1S946EAojnoEx6bX9J39bIl5NJv872fZEkNELsd9D7 DuvoR5kB+djsxNSvDB5lBA== 0000950130-98-003464.txt : 19980708 0000950130-98-003464.hdr.sgml : 19980708 ACCESSION NUMBER: 0000950130-98-003464 CONFORMED SUBMISSION TYPE: 10-K405/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19980707 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-K405/A SEC ACT: SEC FILE NUMBER: 000-17822 FILM NUMBER: 98661231 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-K405/A 1 AMENDMENT NO. 2 TO FORM 10-K ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A2 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 1997 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 07407-1361 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (201) 703-3400 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: TITLE OF EACH CLASS ------------------- COMMON STOCK, $.01 PAR VALUE 5% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2007 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. [X] 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 15, 1997 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 $484,876,600. The number of shares of registrant's Common Stock, $.01 par value, outstanding at September 15, 1997 was 17,650,965. DOCUMENTS INCORPORATED BY REFERENCE None. ================================================================================ 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. 2 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: July 7, 1998 By: /s/ Charles A. Mele ------------------------------------ Name: Charles A. Mele Title: Vice President-General Counsel 3 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: PAGE ---- Report of Independent Public Accountants............... F-2 Consolidated Balance Sheets at June 30, 1997 and 1996.. F-3 Consolidated Statements of Income for the Years Ended June 30, 1997, 1996 and 1995............. F-5 Consolidated Statements of Changes in Stockholders' Equity for the Years Ended June 30, 1997, 1996 and 1995......................... F-6 Consolidated Statements of Cash Flows for the Years Ended June 30, 1997, 1996 and 1995............. F-7 Notes to Consolidated Financial Statements............. F-8 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 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, 1997 and 1996, 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, 1997. 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, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1997 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 24, 1997 F-2 SYNETIC, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands) ASSETS
JUNE 30, ------------------- 1997 1996 ------------------- CURRENT ASSETS: Cash and cash equivalents.......................... $ 77,303 $ 22,210 Marketable securities.............................. 11,765 140,268 Accounts receivable, net of allowances for doubtful accounts and sales returns of $739 and $671 at June 30, 1997 and 1996, respectively..... 9,094 7,299 Inventories........................................ 5,505 5,253 Other current assets............................... 9,233 4,821 -------- -------- Total current assets............................. 112,900 179,851 -------- -------- PROPERTY, PLANT AND EQUIPMENT: Land and improvements.............................. 1,613 823 Buildings and improvements......................... 9,911 8,992 Machinery and equipment............................ 23,444 19,295 Furniture and fixtures............................. 3,283 2,856 Construction in progress........................... 2,516 1,306 -------- -------- 40,767 33,272 Less: Accumulated depreciation.................... (18,681) (16,014) -------- -------- Property, plant and equipment, net............... 22,086 17,258 -------- -------- OTHER ASSETS: Marketable securities.............................. 226,760 - Other.............................................. 20,357 2,483 -------- -------- Total other assets.............................. 247,117 2,483 -------- -------- $382,103 $199,592 ======== ========
The accompanying notes are an integral part of these consolidated balance sheets. F-3 SYNETIC, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share data) LIABILITIES AND STOCKHOLDERS' EQUITY
JUNE 30, ------------------------- 1997 1996 ------------------------- CURRENT LIABILITIES: Accounts payable........................................... $ 2,344 $ 1,303 Accrued liabilities........................................ 14,203 7,014 Income taxes payable....................................... 3,044 5,206 -------- -------- Total current liabilities................................ 19,591 13,523 -------- -------- LONG TERM DEBT, LESS CURRENT PORTION............................ 165,000 - OTHER LIABILITIES............................................... 8,776 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; 22,865,149 and 22,007,290 shares issued; 17,564,980 and 16,738,827 shares issued and outstanding at June 30, 1997 and 1996, respectively.................. 229 220 Paid-in capital............................................ 196,212 158,227 Treasury stock, at cost; 5,300,169 and 5,268,463 at June 30, 1997 and 1996, respectively.................. (39,462) (36,575) Retained earnings.......................................... 31,757 59,217 -------- -------- Total stockholders' equity............................... 188,736 181,089 -------- -------- $382,103 $199,592 ======== ========
The accompanying notes are an integral part of these consolidated balance sheets. F-4 SYNETIC, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share data)
YEARS ENDED JUNE 30, ----------------------------- 1997 1996 1995 --------- -------- -------- Net sales....................................... $ 52,885 $45,128 $39,179 -------- ------- ------- Costs and expenses: Cost of sales................................. 29,035 25,108 23,006 Selling, general and administrative........... 20,841 14,930 12,125 Interest and other income..................... (11,065) (3,952) (4,757) Dividend income............................... (1,829) (4,160) (2,555) Interest expense.............................. 3,116 - 3,619 Purchased research and development and other.. 37,413 - - Purchase and Sale Agreement related expenses and other.................................. - - 6,663 -------- ------- ------- 77,511 31,926 38,101 -------- ------- ------- Income (loss) from continuing operations before provision for income taxes............. (24,626) 13,202 1,078 Provision for income taxes...................... 2,834 4,617 443 -------- ------- ------- Income (loss) from continuing operations........ $(27,460) $ 8,585 $ 635 -------- ------- ------- Discontinued operations: Income from discontinued operations, net of provision for income taxes of $842....................................... - - 963 Gain on sale of Institutional Pharmacy operations, net of taxes of $23,037........... - - 14,496 -------- ------- ------- Net income (loss)............................... $(27,460) $ 8,585 $16,094 ======== ======= ======= Net income (loss) per share: Continuing operations......................... $(1.60) $.48 $ .04 Discontinued operations....................... - - .89 -------- ------- ------- Net income (loss) per share..................... $(1.60) $.48 $ .93 -------- ======= ======= Weighted average shares outstanding............. 17,133 18,026 17,379 ======== ======= =======
The accompanying notes are an integral part of these consolidated statements. F-5 SYNETIC, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (in thousands)
Common Stock -------------------- Number TOTAL of PAID-IN RETAINED TREASURY STOCKHOLDERS' Shares AMOUNT CAPITAL EARNINGS STOCK EQUITY ------------ ------ -------- --------- --------- -------------- 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................ 141 1 5,671 - - 5,672 ------ ---- -------- -------- -------- -------- Balance, June 30, 1996........................... 22,007 $220 $158,227 $ 59,217 $(36,575) $181,089 ------ ---- -------- -------- -------- -------- Net (loss)..................................... - - - (27,460) - (27,460) Issuance of common stock for exercise of stock options and 401(k) plan................ 323 3 13,503 - - 13,506 Issuance of common stock and warrants for acquisitions of Avicenna and CareAgents...... 535 6 24,482 - - 24,488 Adjustment to purchase price of Treasury stock........................................ - - - - (1,712) (1,712) Purchase of 49,506 shares of common stock for Treasury, net of 17,800 shares reissued.. - - - - (1,175) (1,175) ------ ---- -------- -------- -------- -------- Balance, June 30, 1997........................... 22,865 $229 $196,212 $ 31,757 $(39,462) $188,736 ====== ==== ======== ======== ======== ========
The accompanying notes are an integral part of these consolidated statements. F-6 SYNETIC, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
YEARS ENDED JUNE 30, ---------------------------------- 1997 1996 1995 ---------- ---------- ---------- Cash flows from operating activities: Net income (loss)......................................... $ (27,460) $ 8,585 $ 16,094 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Write-off of purchased research and development costs.. 37,413 - - Income from discontinued operations.................... - - (963) Gain on sale of Institutional Pharmacy business............................................... - - (14,496) Other expense.......................................... - - 1,056 Depreciation and amortization.......................... 3,294 2,619 1,545 Deferred income taxes.................................. (2,100) (254) (301) Changes in operating assets and liabilities, net of the effects of acquisitions: Accounts receivable, net............................. (795) (634) (1,056) Inventories.......................................... 147 193 804 Other assets......................................... (7,184) (173) (3,365) Accounts payable..................................... 776 655 (423) Accrued liabilities.................................. 1,690 (2,323) 1,206 Other liabilities.................................... 48 - 4,980 Income taxes payable................................. 3,188 2,625 946 --------- --------- --------- Net cash provided by operating activities............................ 9,017 11,293 6,027 --------- --------- --------- Cash flows from investing activities: Maturities and redemptions of marketable securities.... 396,638 708,685 383,064 Purchases of marketable securities..................... (494,895) (704,099) (430,916) Capital expenditures................................... (6,063) (2,790) (3,398) Net proceeds from sale of Institutional Pharmacy business.................................... - - 82,911 Net cash paid for acquired businesses.................. (10,612) - - --------- --------- --------- Net cash provided by (used for) investing activities............................ (114,932) 1,796 31,661 --------- --------- --------- Cash flows from financing activities: Purchases of Treasury stock............................ (3,570) - (36,575) Proceeds from issuance of stock options and 401(k) purchases..................................... 3,688 1,838 4,369 Proceeds from issuance of Convertible Debentures, net of underwriting discount......................... 160,890 - - Payments on long-term debt............................. - (216) (3,532) --------- --------- --------- Net cash provided by (used for) financing activities............................ 161,008 1,622 (35,738) --------- --------- --------- Net increase in cash and cash equivalents................. 55,093 14,711 1,950 Cash and cash equivalents, beginning of period................................................. 22,210 7,499 5,549 --------- --------- --------- Cash and cash equivalents, end of period.................. $ 77,303 $ 22,210 $ 7,499 ========= ========= =========
The accompanying notes are an integral part of these consolidated statements. F-7 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 subsidiaries, Porex Technologies Corp. and subsidiaries ("Porex"), Avicenna and CareAgents, after elimination of all material intercompany accounts and transactions. 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 for the fiscal year ended June 30, 1995 report separately as discontinued operations the net assets and operating results of the Institutional Pharmacy business. For the year ended June 30, 1997, the operations of the Company were primarily related to its plastics technology business. All revenues and a significant majority of operating expenses were derived from these operations. The consolidated financial statements for the fiscal year ended June 30, 1997 include certain costs associated with the Company's efforts in developing its healthcare communications business. 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-- Marketable securities consisted primarily of U.S. Treasury Notes and Federal Agency Notes at June 30, 1997 and U.S. Treasury Notes, Federal Agency Notes and Money Market Preferred Stock investments at June 30, 1996. These investments, which are carried at a cost of $238,525,000 and $140,268,000, net of unamortized premium, at June 30, 1997 and June 30, 1996, respectively, had an aggregate market value of $238,151,000 and $140,537,000 at June 30, 1997 and 1996, respectively. At June 30, 1997, gross unrealized losses pertaining to marketable securities and other investments were $374,000. Gains and losses on the sale of marketable securities and other investments are calculated using the specific identification method. F-8 SYNETIC, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) 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, 1997, the Company's investments consisted principally of U.S. Treasury Notes and Federal Agency Notes and are classified as held-to-maturity and are carried at cost, net of unamortized premium. 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):
JUNE 30, -------------- 1997 1996 ------ ------ Raw materials and supplies.. $2,672 $2,468 Work-in-process............. 347 548 Finished goods.............. 2.486 2,237 ------ ------ $5,505 $5,253 ====== ======
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. Development Costs-- The Company capitalizes costs incurred for the production of computer software used in the sale of its services. Costs capitalized include direct labor and related overhead for software produced by the Company and the costs of software purchased from third parties. All costs in the software development process which are classified as research and development are expensed as incurred until technological feasibility has been established. Once technological feasibility has been established, such costs are capitalized until the software is commercially available. Such costs are recorded at the lower of unamortized cost or net realizable value. For the year ended June 30, 1997, capitalized costs were not material and no costs were capitalized in previous years. Company-sponsored development costs related to both present and future products are expensed currently. Total development expenses were $6,419,000, $2,014,000, and $1,490,000 for the years ended June 30, 1997, 1996 and 1995, respectively, of which $4,628,000 in 1997 related to the healthcare communications business. F-9 SYNETIC, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) Accrued Liabilities-- Accrued liabilities consisted of the following (in thousands):
JUNE 30, --------------- 1997 1996 ------- ------ Accrued payroll and benefit costs.. $ 4,633 $3,568 Accrued interest................... 2,957 - Accrued acquisition costs.......... 3,236 - Accrued legal costs................ 1,575 1,890 Other.............................. 1,802 1,556 ------- ------ Total.......................... $14,203 $7,014 ======= ======
Income Taxes-- The Company accounts for income taxes pursuant to Statement of Financial Accounting Standard No. 109, "Accounting for Income Taxes" ("SFAS No. 109"), which uses the liability method to calculate deferred income taxes. The realization of deferred tax assets is based on historical tax positions and expectations about future taxable income. Foreign Currency Translation-- The financial statements and transactions of Porex's foreign manufacturing facilities are maintained in their functional currency (Deutsche mark and Pound sterling) 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 returns and allowances. Net Income (Loss) Per Share-- Net income (loss) per share is determined by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the fiscal year and, if dilutive, common stock equivalents. Common stock equivalents consist of common stock which may be issuable upon exercise of outstanding stock options as calculated using the treasury stock method. The Debentures, if converted, would not have had a dilutive effect on net income per share for the periods presented. In February 1997, the Financial Accounting Standards Board issued 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, primary net income per share is computed by dividing net income by the 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. F-10 SYNETIC, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) The Company is required to adopt the new standard during fiscal 1998, beginning with the December 31, 1997 interim consolidated financial statements. All prior periods presented are required to be restated at that time. The pronouncement is not expected to have a material impact on the Company's reported earnings per share. Reclassifications-- Certain reclassifications have been made to prior year amounts to conform to the current year presentation. Accounting for Stock-Based Compensation-- Effective July 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). As permitted by the standard, the Company has elected to continue following the guidance of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25"), for measurement and recognition of stock-based transactions with employees. The Company discloses 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 No. 123. (See Note 9) 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. (2) ACQUISITIONS: Avicenna -- On December 24, 1996, the Company acquired the outstanding equity and indebtedness (including employee stock options) of Avicenna, a privately-held, developmental-stage company located in Cambridge, Massachusetts, for 428,643 shares of the Company's common stock and 161,015 shares of the Company's common stock to be issued in connection with the exercise of employee stock options. The shares issued are subject to certain limitations restricting the liquidity and transferability of such shares. The fair value of the shares, as determined by management, was approximately $47.37 per share. As additional consideration, the Company agreed to issue to certain sellers, nontransferable warrants covering 250,000 shares of the Company's common stock, exercisable after December 23, 1998 at a price of $54.50 per share. Avicenna's business plan has been to market and build Intranets for managed care organizations, hospitals and physician groups. The acquisition was accounted for using the purchase method with the purchase price being allocated to assets acquired and liabilities assumed based on their fair values. Avicenna's results of operations have been included in the Company's financial statements since December 24, 1996. A summary of the purchase price allocation is as follows (in thousands):
Cash $ 42 Short-term investments 240 Other assets 216 Property, plant and equipment 759 Purchased research and development 28,600 Intangible assets 1,502 Goodwill 116 ------- $31,475 =======
F-11 SYNETIC, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (2) ACQUISITIONS: (CONTINUED) The amount allocated to purchased research and development of $28,600,000 was determined using established valuation techniques. Remaining amounts have been allocated to intangible assets and goodwill. CareAgents-- On January 23, 1997, the Company acquired CareAgents for 106,029 shares of the Company's common stock. The shares issued are subject to certain limitations restricting the liquidity and transferability of such shares. The fair value of the shares, as determined by management, was approximately $30.65 per share. CareAgents was an early development stage company focused on Internet-based clinical commerce applications. The acquisition was accounted for using the purchase method with the purchase price being allocated entirely to purchased research and development. CareAgents' results of operations have been included in the Company's financial statements since January 23, 1997. The amount allocated to purchased research and development of $3,585,000 was determined using established valuation techniques. The following summary, prepared on a pro forma basis, combines the results of operations of the Company, Avicenna and CareAgents assuming the acquisitions were consummated at the beginning of the period presented (in thousands, except per share amount): Year ended June 30, 1997 ------------- (unaudited) Sales $ 52,885 Net loss $(29,381) Net loss per share $ (1.69) The pro forma results are not necessarily indicative of what actually would have occurred if the acquisitions had been in effect for the entire period presented. In addition, they are not intended to be a projection of future results. The pro forma impact of the Avicenna and CareAgents acquisitions for the year ended June 30, 1996 was not material. Purchased Research and Development and Other-- The appraisal amounts allocated to purchased research and development of approximately $28,600,000 and $3,585,000 related to Avicenna and CareAgents, respectively, were expensed in the periods of acquisition, with no corresponding tax benefits, as such research and development was in process at the time of the acquisitions and had no alternative commercial use. In addition, in June 1997, the Company charged to expense research and development costs of $5,228,000 associated with the acquisition of rights to certain intellectual property and software technologies to be utilized in the development of the Company's healthcare communications business. (3) Stockholders' Equity: In April 1997, the Company announced that its Board of Directors authorized a repurchase program involving the purchase of the Company's common stock and outstanding convertible debentures not to exceed $15 million in the aggregate. For the year ended June 30, 1997, the Company repurchased 49,506 shares at a cost of approximately $1,858,000 and the Company reissued 17,800 of these shares for employee stock option exercises. As of June 30, 1997, 31,706 of the shares repurchased were included in Treasury stock. In January 1997, the Company issued 106,029 shares for the acquisition of CareAgents and, in December 1996, the Company issued 428,643 shares for the acquisition of Avicenna. 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 "1991 Debentures"). (See Note 4.) F-12 SYNETIC, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (4) LONG-TERM DEBT: In February 1997, the Company issued to the public $165,000,000 aggregate principal amount of its 5% Convertible Subordinated Debentures due 2007 (the "Convertible Debentures"). The Convertible Debentures are convertible at any time prior to maturity, unless previously redeemed into shares of the Company's common stock, at a conversion price of $60.00 per share, subject to adjustment under certain circumstances. In connection with the issuance of the Convertible Debentures, the Company recorded debt issuance costs of approximately $5.1 million which are included in other assets in the consolidated financial statements. Such costs are being amortized to interest expense using the effective interest method over the life of the Convertible Debentures. In December 1991, the Company issued to the public $80,500,000 aggregate principal amount of its 1991 Debentures. The 1991 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 1991 Debentures. Holders of $79,104,000 aggregate principal amount of the 1991 Debentures surrendered them for conversion into an aggregate of 3,877,607 shares of common stock. The remaining $1,396,000 of the outstanding 1991 Debentures were redeemed at the redemption price of 104% plus accrued interest. Included in Purchase and Sale Agreement related expenses and other 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):
YEARS ENDED JUNE 30, --------------------------- 1997 1996 1995 -------- ------- -------- Current: Federal.......................... $ 4,427 $4,060 $ 2,594 State............................ 507 811 491 ------- ------ ------- Total current................. 4,934 4,871 3,085 ------- ------ ------- Deferred: Federal.......................... (2,057) (194) (2,070) State............................ (43) (60) (572) ------- ------ ------- Total deferred................ (2,100) (254) (2,642) ------- ------ ------- Total income tax provision.. $ 2,834 $4,617 $ 443 ======= ====== =======
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:
YEARS ENDED JUNE 30, ----------------------------- 1997 1996 1995 ---------- --------- -------- Federal statutory rate.............................................................. (35.0)% 35.0% 35.0% State tax, net of federal benefit................................................... 2.1 3.7 (4.8) Dividend exclusion.................................................................. (2.0) (7.7) (52.3) Non-deductible research and development............................................. 45.1 - - Non-deductible conversion costs..................................................... - - 67.6 Other, net.......................................................................... 1.4 4.0 (4.4) --------- --------- -------- 11.6% 35.0% 41.1% ========= ========= ========
F-13 SYNETIC, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (5) Income Taxes: (continued) Temporary differences resulted in the following deferred tax expense (benefit) (in thousands):
YEARS ENDED JUNE 30, --------------------------- 1997 1996 1995 -------- -------- -------- Book/tax differences in accounting method for assets acquired................................. $ (10) $ (69) $ 15 Accrued expenses..................................... (716) (140) (643) Deferred compensation - stock options................ - - (2,038) Difference between tax and book depreciation and amortization........................................ (1,414) (45) 38 Other, net........................................... 40 - (14) ------- ----- ------- $(2,100) $(254) $(2,642) ======= ===== =======
Deferred tax liabilities (assets) at June 30, 1997 and 1996, are comprised of the following (in thousands):
JUNE 30, ------------------------- 1997 1996 ---------- ---------- Tax over book depreciation and amortization......... $ (767) $ 868 Intangible assets amortization...................... 64 85 Accrued expenses.................................... (2,417) (1,525) Deferred compensation - stock options............... (1,693) (2,038) Inventory........................................... (347) (456) Prepaids and other.................................. (62) (56) --------- --------- $ (5,222) $ (3,122) ========= =========
In accordance with the disclosure provisions of SFAS No. 109, the Company has included approximately $2,888,000 and $2,334,000 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 carrying amounts for income tax purposes. (6) Major Customers and Foreign and Export Product Sales: For the years ended June 30, 1997, 1996 and 1995, no customer accounted for more than 10% of the Company's net sales. Foreign product sales and net income of Porex's foreign manufacturing facilities, which are made principally in Europe, amounted to $7,854,000 and $1,247,000; $6,665,000 and $975,000; and $5,381,000 and $397,000 for the fiscal years ended June 30, 1997, 1996 and 1995, respectively. Identifiable assets of this facility were not material for the years presented. Export product sales of Porex, which are made principally to Europe and Asia, were $6,213,000, $5,605,000 and $5,022,000 for the fiscal years ended June 30, 1997, 1996 and 1995, respectively. (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, 1997, 1996 and 1995 included the following components (in thousands):
1997 1996 1995 -------- ------ ------ Service cost.................. $ 277 $ 269 $ 240 Interest cost................. 338 310 273 Actual return on plan assets.. (1,377) (789) (427) Net amortization.............. 923 447 127 ------- ----- ----- Net pension cost............ $ 161 $ 237 $ 213 ======= ===== =====
F-14 SYNETIC, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (7) PENSION AND PROFIT SHARING PLANS: (CONTINUED) The following table sets forth the funded status of the plans and amounts recognized in the Company's consolidated balance sheets (in thousands):
JUNE 30, ------------------ 1997 1996 -------- -------- Actuarial present value of benefit obligation: Vested benefit obligation..................... $(3,311) $(2,944) Nonvested benefit obligation.................. (67) (55) ------- ------- Accumulated benefit obligation................ (3,378) (2,999) Effect of future salary increases............. (1,600) (1,548) ------- ------- Projected benefit obligation.................... (4,978) (4,547) Plan assets at fair value....................... 6,703 5,105 ------- ------- Funded status................................... 1,725 558 Unrecognized net gain........................... (1,848) (792) Unrecognized net asset.......................... (194) (216) Unrecognized prior service cost................. 56 61 ------- ------- Consolidated balance sheets................... $ (261) $ (389) ======= =======
The Company funds the plans through annual contributions representing no less than the minimum amounts required as computed by actuaries to be consistent with the plans' 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, 1997 and 1996 were:
1997 1996 ----- ----- 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%
Plan assets consist primarily of debt and equity investments. In addition to the defined benefit pension plans discussed above, the Company maintains 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 $9,500 of their earnings annually. Effective February 1, 1997 the Company matches 50% of the first 2% and 25% of the second 4% of participants earnings which are contributed to the plan. From July 1, 1996 through January 31, 1997 and for the fiscal years ending June 30, 1996 and June 30, 1995 the Company matched 25% of the first 4% of participants earnings which were contributed to the plan. For the year ended June 30, 1997, the Company issued 3,341 shares of common stock to the plan. For the years ended June 30, 1997, 1996 and 1995, Company contributions were approximately $132,500, $81,000 and $59,100, respectively. (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. F-15 SYNETIC, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (8) RELATED PARTY TRANSACTIONS: (CONTINUED) 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 for the year ended June 30, 1995. No costs were incurred under this agreement for the years ended June 30, 1997 and June 30, 1996. (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"). In fiscal 1997, the Company adopted two stock option plans, the 1996 Class C Stock Option Plan (the "Class C Plan") and the 1997 Class D Stock Option Plan (the "Class D Plan"), and upon its acquisition of Avicenna, amended and assumed the Avicenna Systems Corp. 1995 Stock Plan (the "Avicenna Plan"), and converted options to purchase Avicenna shares into options to purchase the Company's shares. Non-Qualified stock options are granted under the Class A Plan, Class C Plan, Class D 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, the Class C Plan, the Class D Plan and the 1991 Special Plan are limited to the Company's officers, certain directors, employees, consultants, agents and key contractors. No additional options may be granted under the Avicenna Plan subsequent to the December 24, 1996 acquisition closing date. Except for the Avicenna Plan, 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 either 20% in each successive year after the date of grant, or 40% after the second anniversary of the grant and 20% in each successive year. The Avicenna Plan options vested 50% on December 24, 1996 (the closing date of the Avicenna acquisition) with the remaining 50% vesting on December 24, 1998 (the second anniversary of the closing date). No options may be granted under any of the Plans after January 23, 2007, and all options expire within ten to fifteen years from the date of the grant. Under the Class B, the Class C, the Class D Plans, 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. The options granted under the Avicenna Plan were assumed and converted to the Company's stock options at an exercise price of $1.25 per share and were included in the acquisition cost of Avicenna. There are 7,920,045 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, 1997, there were 438,000 options granted to these individuals. The terms of these grants are similar to the Company's non-qualified stock option plans. F-16 SYNETIC, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (9) STOCK OPTIONS: (CONTINUED) The Company has elected to follow APB No. 25 in accounting for its employee stock options. Accordingly, no compensation cost has been recognized for the Company's option plans. Had the determination of compensation costs for these plans been based on the fair value at the grant dates for awards under these plans, consistent with the method of SFAS No. 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below: 1997 1996 ---- ---- Net income (loss): As reported $(27,460) $8,585 Pro forma $(30,746) $8,190 Earnings per share: As reported $ (1.60) $ 0.48 Pro forma $ (1.79) $ 0.45 The pro forma results indicated above are not intended to be indicative of or a projection of future results. The fair value of each option grant is estimated on the date of grant by using the Black-Scholes option-pricing model. The following weighted average assumptions were used for grants in 1997 and 1996: 1997 1996 ---- ---- Expected dividend yield 0% 0% Expected volatility .2722 .2722 Risk-free interest rates 6.5% 6.5% Expected option lives (years) .083-1.74 .083-1.74 Weighted average fair value of options granted during the year $ 10.11 $ 5.08 A summary of the status of the Company's stock option plans for the three year period ended June 30, 1997 is presented below:
Years Ended June, 30 ----------------------------------------------------------- 1997 1996 1995 ------------------- ------------------ ------------------ Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ------ -------- ------ -------- ------ --------- Beginning of year.............. 3,746,750 $12.52 3,591,900 $11.50 3,239,830 $12.16 Granted........................ 4,047,264 $39.22 366,000 $24.54 1,228,000 $11.37 Exercised...................... (343,990) $ 9.94 (137,350) $12.81 (364,570) $11.82 Canceled....................... (313,445) $39.90 (73,800) $16.13 (511,360) $15.17 --------- --------- --------- End of year.................... 7,136,579 $26.58 3,746,750 $12.63 3,591,900 $11.50 ========= ========= ========= Exercisable at end of year.................. 2,379,281 2,160,050 1,846,300 ========= ========= =========
F-17 SYNETIC, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (9) STOCK OPTIONS: (CONTINUED) The following table summarizes information with respect to options outstanding and options exercisable at June 30, 1997:
Options Outstanding Options Exercisable --------------------------------------------------- --------------------------- Weighted Average Weighted Weighted Range of Exercise Options Remaining Average Options Average Prices (in dollars) Outstanding Contractual Life Exercise Price Exercisable Exercise Price - ------------------ ----------- ---------------- -------------- ----------- -------------- $1.25-$5.25 647,547 3.60 $ 4.75 581,081 $ 5.15 $6.63-$10.00 977,000 7.51 $ 9.57 474,200 $ 9.11 $11.50-$25.00 1,859,600 9.91 $16.32 1,322,400 $15.43 $31.25-$37.00 2,179,250 12.30 $34.26 1,600 $32.94 $46.88-$52.56 1,473,182 10.14 $49.07 -- --
(10) COMMITMENTS AND CONTINGENCIES: Leases-- The Company leases office and warehouse space, equipment and automobiles under various noncancellable operating leases. Rental expense was $803,000, $318,000 and $197,000 for the fiscal years ended June 30, 1997, 1996 and 1995, respectively. The minimum aggregate rental commitments under noncancellable leases, excluding renewal options, are as follows (in thousands): YEARS ENDING JUNE 30, --------------------- 1998........ $2,043 1999........ 2,046 2000........ 2,023 2001........ 1,966 2002........ 1,360 Thereafter.. 3,625 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. Porex has been named as one of many co-defendants in a number of actions brought by recipients of silicone mammary implants. One of the pending claims is styled as a purported class action. Certain of the actions against Porex have been dismissed or settled by the manufacturer or insurance carriers of Porex without material cost to Porex. The Company believes its insurance coverage provides adequate coverage against liabilities that could arise from actions or claims arising out of Porex's distribution of implants. F-18 SYNETIC, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (11) QUARTERLY FINANCIAL DATA (UNAUDITED): The following table summarizes the quarterly financial data for the fiscal years ended June 30, 1997 and 1996 (in thousands, except per share data). Net income per share, excluding the non-recurring charges discussed in Note (2), are also presented below. Net income (loss) per share calculations for each of the quarters are based on the weighted average number of shares outstanding for each period; therefore, the sum of the quarters may not necessarily be equal to the full fiscal year per share amount.
INCOME (LOSS) NET BEFORE INCOME PROVISION (LOSS) QUARTER ENDED NET SALES FOR TAXES NET INCOME (LOSS) PER SHARE - -------------------------- ------------ ---------- ----------------- --------- 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 Year ended June 30, 1996.. $45,128 $13,202 $8,585 $.48 INCOME (LOSS) NET BEFORE INCOME PROVISION (LOSS) QUARTER ENDED NET SALES FOR TAXES NET INCOME (LOSS) PER SHARE - -------------------------- ------------ ---------- ----------------- --------- 1997 - ---- September 30, 1996........ $11,185 $ 3,527 $2,389 $.13 December 31, 1996......... 11,899 (24,545) (25,934) (1.54) March 31, 1997............ 14,243 (1,516) (2,420) (.14) June 30, 1997............. 15,558 (2,092) (1,495) (.09) Year Ended June 30, 1997.. $52,885 $(24,626) $(27,460) $(1.60)
F-19 SYNETIC, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (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. 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. AT JUNE 30, 1997 -------------------- CARRYING ESTIMATED AMOUNT FAIR VALUE -------- ---------- (in thousands) Assets: Cash and cash equivalents.. $ 77,303 $ 77,303 Marketable securities...... 238,525 238,151 Liabilities: Long term debt............. 165,000 146,025 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 Federal Agency Notes, are valued based on quoted market prices or dealer quotes. Long term debt-- The Convertible Debentures are publicly traded and are valued based on quoted market prices. (See Note (4).) The fair value estimates presented herein are based on information available to the Company as of June 30, 1997. 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. F-20 SYNETIC, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (13) SUPPLEMENTAL CASH FLOW INFORMATION (IN THOUSANDS): YEARS ENDED JUNE 30, ----------------------- 1997 1996 1995 ------ ------ ------- Interest Paid...... $ - $ 6 $ 2,870 Income Taxes Paid.. 1,788 3,212 27,435 The following non-cash transactions were excluded from the consolidated statements of cash flows for the years ended June 30, 1997, 1996 and 1995: In fiscal years 1997, 1996 and 1995, 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 $7,450,000, $3,833,000 and $835,000, respectively. In February 1995, in connection with the call for redemption of the Company's 1991 Debentures, holders of $79,104,000 aggregate principal amount of the 1991 Debentures surrendered them for conversion into an aggregate of 3,877,607 shares of common stock. The remaining $1,396,000 of the outstanding 1991 Debentures were redeemed at the redemption price of 104% plus accrued interest. (See Note (4).) Additional information with respect to the acquisitions referred to in Note (2) above is as follows (in thousands): Year Ended June 30, 1997 ------------- Fair value of assets acquired $47,537 Net cash paid (10,612) Value of stock paid (24,488) ------- Liabilities assumed $12,437 ======= F-21 SYNETIC, INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Years Ended June 30, 1997, 1996 and 1995
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 - ---------------------------------------- ---------- ---------- ----------- --------------- ---------- Deducted in the Balance Sheet from the asset to which it applies: Allowance for doubtful accounts and sales returns June 30, 1997........................... $671,000 205,000 14,000 (151,000)(1) $739,000 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
- ------------------------------------ (1) Write-off of uncollectible accounts and other reductions, net of recoveries. S-1 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. 10.11** 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 Number Title ------ ----- 10.12** 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. 10.13** 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. 10.14** 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. 10.15** 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.* 10.16** Merger Agreement, dated December 23, 1996, among the Company, Synternet Acquisition Corp., a wholly owned subsidiary of the Company, Avicenna and the certain other individuals and entities. Incorporated by reference to Exhibit 10.2 to the Company's Registration Statement on Form S-3 (No. 333-18771). 10.17** 1996 Class C Stock Option Plan of the Company. Incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-8 (No. 333-36041).* 10.18** 1997 Class D Stock Option Plan of the Company. Incorporated by reference to Exhibit 4.2 to the Company's Registration Statement on Form S-8 (No. 333-36041).* 10.19** 1991 Special Non-Qualified Stock Option Plan of the Company. Incorporated by reference to Exhibit 4.3 to the Company's Registration Statement on Form S-8 (No. 333-36041).* 21.1** Subsidiaries of the Company. 23.1 Consent of Arthur Andersen LLP. 23.2** Consent of 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 E-2 Number Title - ------ ----- 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. ** Previously filed with the Company's Annual Report on Form 10-K for the Fiscal Year Ended June 30, 1997. E-3 EX-23.1 2 CONSENT OF ARTHUR ANDERSEN LLP EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included in this Form 10K/A2, dated July 7, 1998, 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, 33-46640, 333-19043, 333-21555, and 333-36041), Form S-3 (File No. 333-18771) and S-4 (File No. 333-50801). /s/ Arthur Andersen LLP Arthur Andersen LLP New York, New York July 6, 1998 -----END PRIVACY-ENHANCED MESSAGE-----