UNITED STATES
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 period ended June 30, 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 0-18194
WESTCOTT COMMUNICATIONS, INC.
(Exact name of Registrant as specified in its charter)
Texas 75-2110878
(State of Incorporation) (I.R.S. Employer Identification No.)
1303 Marsh Lane
Carrollton, TX 75006
(Address of principal executive offices)
(214) 417-4100
(Registrant's telephone number, including area code)
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
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
As of August 8, 1995 there were 19,740,229 shares of common
stock outstanding.
<PAGE>
WESTCOTT COMMUNICATIONS, INC.
INDEX
PART I: FINANCIAL INFORMATION
Page No.
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
December 31, 1994 and June 30, 1995. . . . . . . . . . . . . . . .3
Condensed Consolidated Statements of Income -
Three Months and Six Months Ended June 30, 1994 and 1995 . . . . .5
Condensed Consolidated Statement of Shareholders' Equity -
Six Months Ended June 30, 1995 . . . . . . . . . . . . . . . . . .6
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1994 and 1995. . . . . . . . . . . . . .7
Notes to Condensed Consolidated Financial Statements . . . . . . .9
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition. . . . . . . . . . . . . . . . . . . . . 12
PART II: OTHER INFORMATION
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
<PAGE>
Part I - Financial Information
<TABLE>
Item 1 - Financial Statements
WESTCOTT COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<CAPTION>
December 31, June 30,
1994 1995
____________ ____________
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . $ 5,815,118 $ 9,369,211
Accounts receivable (net of allowance
for doubtful accounts of $776,000
and $657,000 at December 31, 1994
and June 30, 1995, respectively). . . 20,939,216 19,561,087
Program inventory . . . . . . . . . . . 5,843,078 6,088,689
Prepaid commissions . . . . . . . . . . 2,038,547 1,884,714
Short-term investments. . . . . . . . . 718,437 -
Other current assets. . . . . . . . . . 3,834,796 4,512,110
____________ ____________
Total current assets. . . . . . . . . 39,189,192 41,415,811
Property and equipment, at cost:
Downlink equipment. . . . . . . . . . . 32,267,208 32,825,663
Studio equipment. . . . . . . . . . . . 10,990,730 11,291,660
Office furniture and equipment. . . . . 12,096,651 13,148,009
Leasehold improvements. . . . . . . . . 2,499,308 2,525,348
____________ ____________
57,853,897 59,790,680
Accumulated depreciation and
amortization . . . . . . . . . . . . . (22,298,155) (26,118,944)
____________ ____________
35,555,742 33,671,736
Other assets:
Equipment inventory . . . . . . . . . . 2,648,086 2,265,316
Program inventory . . . . . . . . . . . 9,802,493 11,494,197
Goodwill (net of accumulated
amortization of $3,197,000 and
$3,925,000 December 31, 1994 and
June 30, 1995, respectively). . . . . 16,491,866 19,795,165
Other intangibles, (net of accumulated
amortization of $3,144,000 and
$3,308,000 at December 31, 1994
and June 30, 1995, respectively). . . 2,997,859 3,783,288
Other assets. . . . . . . . . . . . . . 2,302,066 2,172,837
____________ ____________
$ 108,987,304 $ 114,598,350
____________ ____________
____________ ____________
</TABLE>
<PAGE>
<TABLE>
WESTCOTT COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS - (Continued)
LIABILITIES AND SHAREHOLDERS' EQUITY
<CAPTION>
December 31, June 30,
1994 1995
____________ ____________
(Unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable. . . . . . . . . . . . $ 2,430,582 $ 1,984,725
Income taxes payable. . . . . . . . . . 213,436 1,048,415
Accrued liabilities . . . . . . . . . . 4,557,849 5,068,506
Deferred income taxes . . . . . . . . . 1,154,962 -
Unearned revenue. . . . . . . . . . . . 14,994,796 11,522,857
Current portion of long-term
obligations . . . . . . . . . . . . . 10,000 10,000
____________ ____________
Total current liabilities . . . . . 23,361,625 19,634,503
Long-term obligations . . . . . . . . . . 32,254 26,508
Deferred income taxes . . . . . . . . . . 1,162,672 1,295,548
Minority interest liability . . . . . . . 132,940 196,188
Shareholders' equity:
Common stock, $.01 par value;
29,000,000 shares authorized;
19,561,123 and 19,733,991 shares
issued at December 31, 1994 and
June 30, 1995, respectively . . . . . 195,611 197,339
Additional paid-in capital. . . . . . . 71,398,368 73,295,253
Retained earnings . . . . . . . . . . . 12,859,978 20,109,155
Less treasury shares at cost; 45,920
shares. . . . . . . . . . . . . . . . (156,144) (156,144)
____________ ____________
Total shareholders' equity. . . . . 84,297,813 93,445,603
____________ ____________
$ 108,987,304 $ 114,598,350
____________ ____________
____________ ____________
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
WESTCOTT COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
Three Months ended June 30,
____________________________
1994 1995
____________ ____________
<S> <C> <C>
Revenues. . . . . . . . . . . . . . . . . $ 22,364,256 $ 23,483,949
Cost of revenues:
Programming and production . . . . . . 5,048,168 4,608,480
Delivery and transmission. . . . . . . 2,396,876 2,959,619
Sales and marketing. . . . . . . . . . 5,655,723 4,995,570
General and administrative . . . . . . 2,722,789 2,404,376
Depreciation and amortization. . . . . 2,489,404 2,943,955
____________ ____________
Total . . . . . . . . . . . . . . . 18,312,960 17,912,000
Income from operations. . . . . . . . . . 4,051,296 5,571,949
Interest expense. . . . . . . . . . . . . (40,716) (25,391)
Interest income . . . . . . . . . . . . . 24,411 129,799
Other income (expense). . . . . . . . . . (36,577) 56,867
____________ ____________
Income before income taxes. . . . . . . . 3,998,414 5,733,224
Provision for income taxes. . . . . . . . 1,518,665 2,293,290
____________ ____________
Net income available to common
shareholders. . . . . . . . . . . . . . $ 2,479,749 $ 3,439,934
____________ ____________
____________ ____________
Earnings per common share (Note 2). . . . $ .13 $ .18
____________ ____________
____________ ____________
Weighted average common
and common equivalent
shares outstanding . . . . . . . . . . 19,387,415 19,631,546
____________ ____________
____________ ____________
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
WESTCOTT COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(CONTINUED)
(Unaudited)
<CAPTION>
Six Months ended June 30,
__________________________
1994 1995
____________ ____________
<S> <C> <C>
Revenues. . . . . . . . . . . . . . . . . $ 43,001,440 $ 48,118,102
Cost of revenues:
Programming and production . . . . . . 8,858,899 9,523,355
Delivery and transmission. . . . . . . 4,696,017 6,293,636
Sales and marketing. . . . . . . . . . 10,536,705 9,840,969
General and administrative . . . . . . 5,215,358 4,846,756
Depreciation and amortization. . . . . 4,994,540 5,848,409
____________ ____________
Total. . . . . . . . . . . . . . . . 34,301,519 36,353,125
Income from operations. . . . . . . . . . 8,699,921 11,764,977
Interest expense. . . . . . . . . . . . . (90,297) (56,800)
Interest income . . . . . . . . . . . . . 58,672 232,146
Other income (expense). . . . . . . . . . (54,927) 37,562
____________ ____________
Income before income taxes. . . . . . . . 8,613,369 11,977,885
Provision for income taxes. . . . . . . . 3,244,681 4,728,708
____________ ____________
Net income available to common
shareholders . . . . . . . . . . . . . $ 5,368,688 $ 7,249,177
____________ ____________
____________ ____________
Earnings per common share (Note 2). . . . $ .27 $ .37
____________ ____________
____________ ____________
Weighted average common and common
equivalent shares outstanding. . . . . 19,621,683 19,581,297
____________ ____________
____________ ____________
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
WESTCOTT COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
For the six months ended June 30, 1995
(Unaudited)
<CAPTION>
Common Stock Additional
________________________ paid-in
Shares Amount capital
__________ __________ ____________
<S> <C> <C> <C>
Balance at December 31, 1994 . . . 19,561,123 $ 195,611 $ 71,398,368
Issuance of Common Stock under
Employee Stock Purchase Plan . . 7,169 72 86,763
Issuance of Common Stock under
Employee Stock Option Plan and
Non-Employee Stock Option Plan,
including federal income tax
benefit (Note 1) . . . . . . . . 31,000 310 240,377
Net Income . . . . . . . . . . . . - - -
__________ __________ ____________
Balance at March 31, 1995. . . . . 19,599,292 195,993 71,725,508
Issuance of Common Stock under
ETC Purchase Agreement (Note 3). 45,045 450 624,550
Issuance of Common Stock under
Employee Stock Purchase Plan . . 6,204 62 80,690
Issuance of Common Stock under
Employee Stock Option Plan and
Non-Employee Stock Option Plan,
including federal income tax
benefit (Note 1) . . . . . . . . 83,450 834 864,505
Net Income . . . . . . . . . . . . - - -
__________ __________ ____________
Balance at June 30, 1995 . . . . . 19,733,991 $ 197,339 $ 73,295,253
__________ __________ ____________
__________ __________ ____________
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
WESTCOTT COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
For the six months ended June 30, 1995
(CONTINUED)
(Unaudited)
<CAPTION>
Retained Treasury
earnings shares
____________ ___________
<S> <C> <C>
Balance at December 31, 1994 . . . $ 12,859,978 $ (156,144)
Issuance of Common Stock under
Employee Stock Purchase Plan . . - -
Issuance of Common Stock under
Employee Stock Option Plan and
Non-Employee Stock Option Plan,
including federal income tax
benefit (Note 1) . . . . . . . . - -
Net Income . . . . . . . . . . . . 3,809,243 -
____________ ____________
Balance at March 31, 1995. . . . . 16,669,221 (156,144)
Issuance of Common Stock under
ETC Purchase Agreement (Note 3). - -
Issuance of Common Stock under
Employee Stock Purchase Plan . . - -
Issuance of Common Stock under
Employee Stock Option Plan and
Non-Employee Stock Option Plan,
including federal income tax
benefit (Note 1) . . . . . . . . - -
Net Income . . . . . . . . . . . . 3,439,934 -
____________ _____________
Balance at June 30, 1995 . . . . $ 20,109,155 $ (156,144)
____________ _____________
____________ _____________
</TABLE>
See accompanying notes.
<PAGE>
WESTCOTT COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months ended June 30,
_____________ ____________
1994 1995
____________ ____________
<S> <C> <C>
Operating activities:
Net income . . . . . . . . . . . . . . . . $ 5,368,688 $ 7,249,177
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization. . . . . . 4,994,538 5,848,409
Deferred income taxes. . . . . . . . . . (1,433,400) -
(Gain) Loss on sale of property
and equipment. . . . . . . . . . . . . (1,524) 27,041
Changes in operating assets
and liabilities:
Accounts receivable. . . . . . . . . 490,742 1,405,667
Other current assets and
prepaid commissions. . . . . . . . (1,515,712) (453,373)
Accounts payable and
accrued liabilities. . . . . . . . (1,075,415) (2,176,943)
Income taxes payable . . . . . . . . 2,673,429 834,979
Unearned revenue . . . . . . . . . . (4,266,275) (4,432,334)
____________ ____________
Net cash provided by
operating activities . . . . . . 5,235,071 8,302,623
Investing activities:
Net (increase) decrease in investments . . (379,504) 718,437
Additions to property and equipment. . . (4,940,723) (2,180,716)
Net increase in other assets . . . . . . (4,040,175) (922,514)
Net additions to program inventory . . . (2,477,175) (1,793,409)
Net additions to interest in partnership 53,892 63,248
Proceeds from sale of assets . . . . . . - 17,612
Purchase business combinations,
net of cash acquired (Note 3) . . . . . 10,662 (1,478,548)
____________ ____________
Net cash used in investing activities (11,773,023) (5,575,890)
Financing activities:
Payments on short-term debt and
long-term debt. . . . . . . . . . . . . . (339,041) (446,253)
Proceeds from short-term and long-term debt 1,422,975 -
Proceeds from issuance of stock, net. . . . 1,776,179 1,273,613
____________ ____________
Net cash provided by (used in)
financing activities. . . . . . . . . . 2,860,113 827,360
Net increase (decrease) in cash and
cash equivalents. . . . . . . . . . . . . . (3,677,839) 3,554,093
Cash and cash equivalents at beginning
of period. . . . . . . . . . . . . . . . . 5,545,539 5,815,118
____________ ____________
Cash and cash equivalents at end of period . $ 1,867,700 $ 9,369,211
____________ ____________
____________ ____________
Supplemental disclosures of cash
flow information
Cash paid during the period:
Interest. . . . . . . . . . . . . . . . $ 12,328 $ 56,800
Income taxes. . . . . . . . . . . . . . $ 726,458 $ 3,677,587
</TABLE>
See accompanying notes.
<PAGE>
WESTCOTT COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - (continued)
(Unaudited)
Noncash investing activity:
In March 1994, the Company issued 100,000 shares of its Common Stock valued at
approximately $2,100,000 and assumed liabilities of approximately $979,000 in
connection with the acquisition of Excellence in Training Corporation.
In April 1995, the Company issued an additional 45,045 shares of its Common
Stock valued at approximately $625,000 in connection with the acquisition of
Excellence in Training Corporation.
<PAGE>
WESTCOTT COMMUNICATIONS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation. The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with the instructions
to Form 10-Q and therefore do not include all information and footnotes
necessary for fair presentation of financial position, results of operations,
and cash flows in conformity with generally accepted accounting principles.
Management believes all adjustments necessary for a fair presentation of the
results of the interim period have been made and are of a normal recurring
nature.
In presenting the accompanying unaudited condensed consolidated financial
statements, certain amounts have been reclassified. These reclassifications
do not have a material impact on the Company's financial statements.
During the first six months of 1995, the Company recognized a federal
income tax benefit of approximately $216,000 resulting from the exercise of
employee stock options. Under generally accepted accounting principles, this
federal income tax benefit is recognized as a deferred tax asset and added to
additional paid-in-capital in the period of the tax deduction.
These unaudited condensed consolidated financial statements and the notes
thereto should be read in conjunction with the Company's most recent audited
financial statements included in its Annual Report on Form 10-K.
2. Earnings per share. Earnings per share are computed based on the weighted
average number of common and common equivalent shares outstanding.
3. Acquisitions. Effective March 1, 1994, the Company acquired all of the
outstanding stock of Excellence in Training Corporation ("ETC") in exchange for
100,000 shares of the Company's Common Stock valued at approximately
$2,100,000 and the assumption of approximately $979,000 of liabilities.
In addition, the Company entered into an obligation for additional purchase
price and noncompete agreements which are payable through 1996. In April, 1995,
in accordance with the terms of the obligation for additional purchase price,
the Company issued 45,045 additional shares of its Common Stock valued at
approximately $625,000.
Effective March 1, 1995, the Company acquired all of the outstanding
stock of Lockert Jackson & Associates, Inc. ("Lockert Jackson") in exchange
for $1,500,000 and the assumption of approximately $2,075,000 of liabilities.
In addition, the Company made a one-time payment of $500,000 in return for
five-year non-competition agreements, and will pay approximately $318,000 of
additional purchase price over the next three years. Lockert Jackson is
nationally recognized as a producer and distributor of "Emergency Medical
Update" and "Safety Watch," subscription based emergency medical and safety
video training products. This acquisition was accounted for as a purchase,
and accordingly, the net assets and results of operations of Lockert Jackson
are included in the Company's consolidated financial statements commencing
March 1, 1995.
Pro forma income statement data for the Lockert Jackson acquisition is not
presented as the pro forma impact on the Company's financial statements is not
material.
<PAGE>
WESTCOTT COMMUNICATIONS, INC.
Notes to Condensed Consolidated Financial Statements - (Continued)
(Unaudited)
4. Long-term Obligations. Effective June 28, 1993, the Company entered into a
two-year revolving credit facility with its bank pursuant to which it may
borrow up to $18,000,000. After the revolver term expires, outstanding
amounts under this facility would be convertible into a four-year term loan.
Effective June 28, 1995, this credit facility has been extended for one year
to June 28, 1996. The facility provides a sublimit of $1,000,000 for standby
letters of credit. A commitment fee of one-half of 1% of the unused credit
line and an interest rate of prime, or if lower, an alternate CD rate plus
1 1/2% will be charged.
The credit facility contains various restrictive covenants which, among
other things, prohibit the payment of dividends and require the Company to
maintain certain financial and tangible net worth ratios. The facility is
secured by studio equipment, downlink equipment, other equipment and fixtures,
subsidiary stock and accounts receivable. At June 30, 1995, there were no
amounts borrowed under this facility.
5. Subsequent Events. In March 1995, the Company delivered an acquisition
proposal to the Board of Directors of Sandy Corporation. Subsequently, the
Company and Sandy Corporation began negotiations regarding a possible
acquisition. In June 1995, Sandy Corporation announced that it had received a
proposal from Automatic Data Processing, Inc. There are no ongoing
discussions regarding the Company's acquisition proposal at this time.
<PAGE>
The following table contains information about products and services
offered by the Company.
<TABLE>
<CAPTION>
Current
Markets Offerings Description Medium
_______ _________ ___________ ______
<S> <C> <C> <C>
Government & LETN Law Enforcement Television Network S/V/W
Public Services FETN Fire & Emergency Television Network S/V
American Heat American Heat V
Pulse Pulse V
EMU Emergency Medical Update V
GSTN Government Services
Television Network V
Automotive ASTN Automotive Satellite
Television Network S
Detroit
(WCMI) Custom Programming N/A
Health Care HSTN Health & Sciences Television Network S
AHA American Hospital Association T
WHTG Executive Communications T
PSYCHNET Sponsored Programming S
LTCN Long Term Care Network S
IMN Custom Programming N/A
FMTN Family Medical Television Network S
Corporate & The CPA
Professional Report The CPA Report V
PSTN Professional Security
Television Network V
AFTN Accounting & Financial
Television Network V
ITS Industrial Training Systems V/C
Tel-A-Train Tel-A-Train V/C
ETC Excellence in Training V
Safety Watch Safety Watch V
ATSN Accountants Television
Satellite Network S
IDTN Electronic Classroom I
EXEN Executive Education Network I
Financial
Services BTCC Bankers Training &
Consulting Company V/C
Educational TI-IN K-12 Education S
</TABLE>
Legend: S = Private Satellite
V = Videotape
T = Teleconferencing
C = Computer-Based Training
W = Workstation
I = Interactive Multi-Media
N/A = Not Applicable
<PAGE>
Item 2 - Management's Discussion and Analysis of Results of Operations and
Financial Condition
Results of Operations:
Comparison of Six Months Ended June 30, 1995 to the Six Months Ended
June 30, 1994:
Revenues. The increase in revenues of $5,116,662 or 12% over the
corresponding period last year is primarily attributable to revenue growth in
networks internally-developed or acquired during the first quarter of 1994,
such as IDTN and ETC. Revenues from the Company's six principal markets for
the periods indicated were as follows:
<TABLE>
<CAPTION>
Markets Revenues
_____________________________ __________________________
Six Months Ended
June 30, June 30,
1994 1995
____________ ____________
<S> <C> <C>
Government and Public Services . . . . . $ 9,084,858 $ 10,063,961
Automotive . . . . . . . . . . . . . . . 5,274,477 5,428,164
Health Care. . . . . . . . . . . . . . . 9,469,819 10,323,731
Corporate and Professional . . . . . . . 11,097,176 13,824,173
Financial Services . . . . . . . . . . . 2,842,786 2,948,843
Education. . . . . . . . . . . . . . . . 4,478,794 4,931,154
Other. . . . . . . . . . . . . . . . . . 753,530 598,076
____________ ____________
Total. . . . . . . . . . . . . . . . $ 43,001,440 $ 48,118,102
____________ ____________
____________ ____________
</TABLE>
Revenues in the Government and Public Services market increased $979,103
or 11% primarily as a result of an increase in LETN workstation sales, a
product introduced during the first quarter of 1995. Also contributing to
this increase was EMU, a product acquired in the acquisition of Lockert
Jackson in the first quarter of 1995; and GSTN, which continued to experience
a growth in revenues as a result of an increase in subscribers over the same
period last year.
Revenues in the Automotive market increased $153,687 or 3% due primarily to
an increase in revenues for WCMI resulting from several custom programming
projects completed during the first six months of 1995. This increase was
partially offset by a decrease in revenues for ASTN as a result of a decrease
in subscribers over the same period last year.
Revenues in the Health Care market increased $853,912 or 9% primarily due to
LTCN which experienced an increase in revenues as a result of an increase in
subscribers over the same period last year. In addition, WHTG experienced an
increase in teleconference revenues in connection with its alliance with the
Joint Commission on Accreditation of Healthcare Organizations.
Revenues in the Corporate and Professional market increased $2,726,997 or
25% primarily as a result of IDTN's electronic classroom which began operations
in the first quarter of 1994; and ETC, which was acquired in the first quarter
of 1994. Partially offsetting these increases were decreases in one-time sales
revenues for Tel-A-Train and ITS which management believes result from an
industry-wide decline in safety training sales, and a decline in international
sales as a result of the decline in economic conditions in Mexico.
Revenues in the Financial Services market increased $106,057 or 4% due to
an increase in subscription-based revenue as a result of an increase in
subscribers for BTCC over the same period last year.
Revenues in the Education market increased $452,360 or 10% over the same
period last year primarily due to revenues generated from a government grant
received in the first quarter of 1995.
<PAGE>
Programming and Production. Programming and production costs increased
$664,456 or 8% primarily as a result of production costs associated with IDTN
which began operations in early 1994, and royalties paid for ETC which was
acquired in the first quarter of 1994. In addition, programming and production
expenses for WCMI increased over the same period last year, as several custom
programming projects were completed during the first six months of 1995 as
compared with the same period last year. Offsetting these increases were
decreases in programming and production costs for many of the Company's more
mature satellite networks such as ASTN, LETN, TI-IN, FETN, IMN and HSTN, as a
result of the more efficient use of production facilities and utilization of
existing program inventory.
Delivery and Transmission. An increase of $1,597,619 or 34% over the
corresponding period last year is primarily due to an increase in transponder
expense, resulting from an amendment in 1994 to the Company's long-term
transponderlease which increased its satellite transponder capacity. Delivery
and transmission costs also increased over the same period last year for IDTN,
which began operations in early 1994. In addition, Tel-A-Train experienced a
small increase in the cost of collateral materials and hardware from the first
six months of 1994 to the first six months of 1995.
Sales and Marketing. A decrease of $695,736 or 7% over the corresponding
period last year is due primarily to a reduction in commission expense for
ITS resulting from the decrease in revenues for the same period last year, and
as a result of the implementation of a new sales commission plan in late 1994.
LETN also experienced a reduction in commission expense resulting from the
decrease in revenues over the same period last year. Partially offsetting these
decreases were an increase in sales and marketing expenses attributable to the
increase in LETN workstation sales; and an increase in marketing expense for
ETC, which was acquired in the first quarter of 1994.
Sales personnel are compensated through commissions on new sales and
renewals, supplemented by a small base salary. Therefore, commission expense
for the satellite networks in any reporting period will vary with the number of
subscriptions and renewals sold during such reporting period. Commissions
relating to videotape and teleconference networks, however, are deferred and
amortized over the life of the respective contract, which is generally a period
of one to three years.
General and Administrative. General and administrative expenses decreased
$368,602 or 7%. This category includes operating costs for the Company's travel
agency, bad debt expense, executive compensation, facilities and other expenses
not directly attributed to the operation of the programming, production and
sales and marketing departments. The decrease in general and administrative
expense over the same period last year is primarily attributable to the sale of
the travel agency in the first quarter of 1995; the reduction of overhead
expenses at Tel-A-Train; and the reduction in outside consulting expense for
BTCC. These decreases were partially offset by an increase in general and
administrative expense for ETC, which was acquired in the first quarter of 1994.
Depreciation and Amortization. The $853,869 or 17% increase in depreciation
and amortization expense over the same period last year is primarily
attributable to depreciation increases for the installation of downlink
equipment at customer receive sites for the Company's satellite networks, as
well as One-Touch equipment installed at TI-IN sites during 1994. Equipment
installed for IDTN electronic classrooms, computer equipment and software,
leasehold improvements and production equipment purchases necessary to
accommodate the Company's overall growth also contributed to this increase in
depreciation expense. Amortization decreased slightly over the same period last
year as certain intangible assets became fully-amortized.
<PAGE>
Interest. Interest expense decreased by $33,497 or 37% primarily as a
result of the payment of $1,100,000 of long-term debt in December, 1994.
Interest income increased $173,474 or 296% over the same period last year
primarily as a result of the increase in temporary interest-bearing investments.
Income Taxes. The provision for income taxes as a percentage of income
before income taxes increased from 38% for the six-month period ended June 30,
1994 to 39.5% for the six-month period ended June 30, 1995 primarily as a result
of an increase in non-deductible goodwill amortization, an increase in state
income taxes and the application of graduated tax rates.
Comparison of Three Months Ended June 30, 1995 to the Three Months Ended
June 30, 1994:
Revenues. The increase in revenues of $1,119,693 or 5% over the
corresponding period last year is primarily attributable to revenue growth in
IDTN, a network internally-developed during the first quarter of 1994; and due
to the introduction of LETN workstations during the first quarter of 1995.
Revenues from the Company's six principal markets for the periods indicated were
as follows:
<TABLE>
<CAPTION>
Markets Revenues
___________________________________ _________________________
Three Months Ended
June 30, June 30,
1994 1995
____________ ____________
<S> <C> <C>
Government and Public Services . . . . . $ 4,602,840 $ 5,211,991
Automotive . . . . . . . . . . . . . . . 2,682,188 2,655,077
Health Care. . . . . . . . . . . . . . . 5,030,676 4,705,710
Corporate and Professional . . . . . . . 6,270,508 7,189,770
Financial Services . . . . . . . . . . . 1,354,831 1,524,138
Education. . . . . . . . . . . . . . . . 1,985,599 1,912,828
Other. . . . . . . . . . . . . . . . . . 437,614 284,435
____________ ____________
Total. . . . . . . . . . . . . . . . . $ 22,364,256 $ 23,483,949
</TABLE>
Revenues in the Government and Public Services market increased $609,151 or
13% primarily as a result of an increase in LETN workstation sales, a product
introduced during the first quarter of 1995. Also contributing to this increase
were revenues generated from EMU, a product acquired in the acquisition of
Lockert Jackson in the first quarter of 1995; and GSTN, which continued to
experience a growth in revenues as a result of an increase in subscribers over
the same period last year.
Revenues in the Automotive market decreased $27,111 or 1% due primarily to a
decrease in subscribers for ASTN. This decrease was partially offset by an
increase in revenues for WCMI attributable to several custom programming
projects completed during the second quarter of 1995.
Revenues in the Health Care market decreased $324,966 or 6% primarily as a
result of a decrease in revenues for IMN and WHTG resulting from a reduction in
teleconference series offered by these networks during the second quarter of
1995 over the same period last year. Partially offsetting this decrease was an
increase in revenues for LTCN as a result of an increase in subscribers over the
same period last year.
Revenues in the Corporate and Professional market increased $919,262 or 15%
primarily as a result of IDTN's electronic classroom which began operations in
the first quarter of 1994. Partially offsetting these increases were decreases
in one-time sales revenues for Tel-A-Train and ITS which management believes
<PAGE>
result from an industry-wide decline in safety training sales, and a decline in
international sales as a result of a decline in economic conditions in Mexico.
Revenues in the Financial Services market increased $169,307 or 12% due to
an increase in subscription-based revenue as a result of an increase in
subscribers for BTCC over the same period last year.
Revenues in the Education market decreased $72,771 or 4% due to a decrease
in production revenue generated from the summer migrant program during the same
period last year. This decrease was partially offset by an increase in revenues
generated from the introduction of elementary and middle school products and
services, as well as the addition of new high school subscribers.
Programming and Production. Programming and production costs decreased
$439,688 or 9% primarily as a result of more efficient use of production
facilities and utilization of existing programming inventory on the Company's
more mature networks such as ASTN, LETN, HSTN and FETN. In addition, both IMN
and TI-IN experienced a decrease in production expenses resulting from a
decrease in production revenues for the second quarter of 1995 over the same
period last year.
Delivery and Transmission. An increase of $562,743 or 23% over the
corresponding period last year is primarily due to an increase in transponder
expense, resulting from an amendment in 1994 to the Company's long-term
transponder lease which increased its satellite transponder capacity. Delivery
and transmission costs also increased over the same period last year for IDTN,
which began operations in early 1994. In addition, Tel-A-Train experienced a
small increase in the cost of collateral material and hardware from the second
quarter of 1994 to the second quarter of 1995.
Sales and Marketing. A decrease of $660,153 or 12% over the corresponding
period last year is due primarily to a reduction in commission expense for ITS
and Tel-A-Train resulting from the decrease in revenues for the same period, and
as a result of the implementation of a new sales commission plan in late 1994.
Partially offsetting this decrease was an increase in sales and marketing
expense attributable to LETN workstation sales, a product introduced in the
first quarter of 1995.
Sales personnel are compensated through commissions on new sales and
renewals, supplemented by a small base salary. Therefore, commission expense
for the satellite networks in any reporting period will vary with the number of
subscriptions and renewals sold during such reporting period. Commissions
relating to videotape and teleconference networks, however, are deferred and
amortized over the life of the respective contract, which is generally a period
of one to three years.
General and Administrative. General and administrative expenses decreased
$318,413 or 12%. This category includes operating costs for the Company's
travel agency, bad debt expense, executive compensation, facilities and other
expenses not directly attributed to the operation of the programming, production
and sales and marketing departments. The decrease in general and
administrative expense over the same period last year is primarily attributable
to BTCC which experienced a decrease in outside consulting expense over the
same period last year, and as a result of the sale of the travel agency in the
first quarter of 1995.
Depreciation and Amortization. The $454,551 or 18% increase in depreciation
and amortization expense over the same period last year is primarily
attributable to depreciation increases for the installation of downlink and CDV
equipment at LETN, FETN, HSTN, LTCN and TI-IN sites, as well as One-Touch
equipment installed at TI-IN sites during 1994. Equipment installed for IDTN
electronic classrooms, computer equipment and software, leasehold improvements
and production equipment purchases necessary to accommodate the Company's
<PAGE>
overall growth also contributed to this increase in depreciation expense.
Amortization remained relatively stable with a slight decrease as certain
intangible assets became fully-amortized.
Interest. Interest expense decreased by $15,325 or 38% primarily as a
result of the payment of $1,100,000 of long-term debt in December, 1994.
Interest income increased $105,388 or 432% over the same period last year
primarily as a result of the increase in temporary interest-bearing investments.
Income Taxes. The provision for income taxes as a percentage of income
before income taxes increased from 38% for the three-month period ended June 30,
1994 to 40% for the three-month period ended June 30, 1995 primarily as a result
of an increase in non-deductible goodwill amortization, an increase in state
income taxes and the application of graduated tax rates.
Liquidity and Capital Resources. During the quarter ended June 30, 1995,
the Company satisfied its liquidity needs principally from cash flow from
operations. In addition, the Company has a credit facility under which the
Company may borrow up to $18,000,000. No amounts had been drawn against this
facility as of June 30, 1995. The facility, which has been extended through
June 28, 1996, provides a sublimit of $1,000,000 for standby letters of credit.
A commitment fee of one half of 1% of the unused credit line and an interest
rate of prime, or if lower, an alternate CD rate plus 1 1/2% will be charged.
As of June 30, 1995, the Company had $9,369,211 in cash, cash equivalents and
temporary investments.
During the six months ended June 30, 1995, the Company generated
approximately $8 million in cash from operations. Approximately $6 million in
cash was used in investment activities, primarily in connection with the
purchase of equipment, investment in program inventory and the acquisition of
Lockert Jackson in the first quarter of 1995. The Company's financing
activities during this period provided approximately $827,000 in cash, primarily
resulting from the issuance of common stock.
The Company has identified capital needs of approximately $6 million through
mid-1996 primarily to fund additional purchases and installations of downlink
equipment, computer hardware and software for the A/S 400, purchases and
installation of equipment for EXEN classroom sites, and investments in program
inventory. The Company believes that cash generated from operations, cash on
hand, and funds available under the revolving line of credit will be sufficient
to meet its budgeted capital and liquidity requirements through the foreseeable
future.
<PAGE>
Part II - Other Information
Item 1 - Legal Proceedings
None
Item 2 - Changes in Securities
None
Item 3 - Defaults
None
Item 4 - Submission of Matters to a Vote
(a) The annual shareholders' meeting was held on May 25, 1995.
(b) Directors elected at the annual shareholders meeting were Carl
Westcott, Jack T. Smith, Jeffrey M. Heller, Gary J. Fernandes,
Stansfield Turner and Kern Wildenthal. All of the above have
previously served as directors.
The directors elected at the annual shareholders' meeting each received
the following votes:
<TABLE>
<CAPTION>
Broker
For Withheld Non-Votes
__________ ________ _________
<S> <C> <C> <C>
Carl Westcott 14,175,722 67,110 -
Jack T. Smith 14,174,002 68,830 -
Jeffrey M. Heller 14,175,522 67,110 -
Gary J. Fernandes 13,339,522 903,310 -
Stansfield Turner 14,210,122 32,710 -
Kern Wildenthal 13,303,322 939,510 -
</TABLE>
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
11. Computation of Earnings Per Share
27. Financial Data Schedule
<PAGE>
SIGNATURES
Pursuant to the requirements of Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WESTCOTT COMMUNICATIONS, INC.
Date: August 14, 1995 By: /s/ JACK T. SMITH
(Jack T. Smith)
President and
Chief Operating Officer
Date: August 14, 1995 By: /s/ PHYLLIS FARRAGUT
(Phyllis Farragut)
Executive Vice President and
Chief Financial Officer
(Chief Accounting Officer)
<PAGE>
INDEX TO EXHIBITS
Sequentially
Numbered
Exhibit Page
11 Computation of Earnings Per Share
27 Financial Data Schedule
EXHIBIT 11
<TABLE>
WESTCOTT COMMUNICATIONS, INC.
COMPUTATION OF EARNINGS PER SHARE
<CAPTION>
Three Months ended
June 30,
___________________________
1994 1995
____________ ____________
<S> <C> <C>
Earnings per share:
Net income available to common
shareholders. . . . . . . . . . . $ 2,479,749 $ 3,439,934
____________ ____________
____________ ____________
Weighted average Common and
Common equivalent shares(1) . . . 19,387,415 19,631,546
____________ ____________
____________ ____________
Earnings per share. . . . . . . . . $ .13 $ .18
____________ ____________
____________ ____________
Earnings per Common and
Common Equivalent Share:
Weighted average shares
outstanding . . . . . . . . . . . 19,387,415 19,631,546
Net shares to be issued upon exercise
of dilutive stock options after
applying treasury stock method. . 242,588 246,983
____________ ____________
Weighted average Common and
Common equivalent shares . . . . 19,630,003 19,878,529
____________ ____________
____________ ____________
Earnings per Common and
Common equivalent shares. . . . . $ .13 $ .17
____________ ____________
____________ ____________
Earnings per Common Share
Assuming Full Dilution:
Weighted average shares
outstanding . . . . . . . . . . . 19,387,415 19,631,546
Net shares to be issued upon exercise
of dilutive stock options after
applying treasury stock method. . 239,700 352,322
____________ ____________
Weighted average Common and
Common equivalent shares. . . . . 19,627,115 19,983,868
____________ ____________
____________ ____________
Earnings per Common Share assuming
assuming full dilution. . . . . . $ .13 $ .17
____________ ____________
____________ ____________
</TABLE>
<PAGE>
<TABLE>
Six Months ended
June 30,
____________________________
1994 1995
____________ ____________
<S> <C> <C>
Earnings per share:
Net income available to common
shareholders. . . . . . . . . . . $ 5,368,688 $ 7,249,177
____________ ____________
____________ ____________
Weighted average Common and
Common equivalent shares(1) . . . 19,621,683 19,581,297
____________ ____________
____________ ____________
Earnings per share. . . . . . . . . $ .27 $ .37
____________ ____________
____________ ____________
Earnings per Common and
Common Equivalent Share:
Weighted average shares
outstanding. . . . . . . . . . . . 19,292,486 19,581,297
Net shares to be issued upon exercise
of dilutive stock options after
applying treasury stock method . . 329,197 248,600
____________ ____________
Weighted average Common and
Common equivalent shares . . . . . 19,621,683 19,829,897
____________ ____________
____________ ____________
Earnings per Common and
Common equivalent shares . . . . . $ .27 $ .37
____________ ____________
____________ ____________
Earnings per Common Share
Assuming Full Dilution:
Weighted average shares
outstanding. . . . . . . . . . . . 19,292,486 19,581,297
Net shares to be issued upon exercise
of dilutive stock options after
applying treasury stock method . . 329,754 301,299
____________ ____________
Weighted average Common and
Common equivalent shares . . . . . 19,622,240 19,882,596
____________ ____________
____________ ____________
Earnings per Common Share assuming
assuming full dilution . . . . . . $ .27 $ .36
____________ ____________
____________ ____________
</TABLE>
(1) For the three-month and six-month periods ended June 30, 1995, the
calculation of earnings per share was based upon weighted average common shares
outstanding, due to the fact that both primary and fully-diluted earnings per
share were more than 97% of earnings per common share outstanding. For the
three-month and six-month periods ended June 30, 1994, the calculation of
earnings per share was based upon weighted average common and common equivalent
shares outstanding.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Condensed Consolidated Balance Sheets, Statements of Income, Statement
of Shareholders' Equity and Statements of Cash Flows at and for the six months
ended June 30, 1995, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 20,487,797
<ALLOWANCES> 656,710
<INVENTORY> 21,576,203
<CURRENT-ASSETS> 41,415,811
<PP&E> 59,790,680
<DEPRECIATION> 26,118,944
<TOTAL-ASSETS> 114,598,350
<CURRENT-LIABILITIES> 19,634,503
<BONDS> 36,508
<COMMON> 197,339
0
0
<OTHER-SE> 93,248,264
<TOTAL-LIABILITY-AND-EQUITY> 114,598,350
<SALES> 0
<TOTAL-REVENUES> 48,118,102
<CGS> 0
<TOTAL-COSTS> 36,353,125
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 651,548
<INTEREST-EXPENSE> 56,800
<INCOME-PRETAX> 11,977,885
<INCOME-TAX> 4,728,708
<INCOME-CONTINUING> 7,249,177
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,249,177
<EPS-PRIMARY> .37
<EPS-DILUTED> .36
</TABLE>
