<PAGE> 1
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 quarterly period ended July 31, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934.
For the transition period from to .
------- -------
Commission file number 0-7276
THE GOODHEART-WILLCOX COMPANY, INC.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
Delaware 36-2135994
--------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
123 Taft Drive, South Holland, Illinois 60473
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(708) 333-7200
--------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
--------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
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 .
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No .
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practicable date:
August 31, 1995 - 747,900 shares.
---------------------------------
<PAGE> 2
INDEX
THE GOODHEART-WILLCOX COMPANY, INC.
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
------ --------------------- ----
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets - July 31, 1995 and April 30, 1995 . . . . . . . . . . 3
Consolidated Statements of Earnings - Three Months Ended
July 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Stockholders' Equity - Three Months Ended
July 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Consolidated Statements of Cash Flows - Three Months Ended
July 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Notes to Consolidated Financial Statements - July 31, 1995 . . . . . . . . . . . . 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
PART II. OTHER INFORMATION
-------- -----------------
Item 6. Exhibit 27 - Financial Data Schedule . . . . . . . . . . . . . . . . . . . . . . . 17
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
----------
</TABLE>
<PAGE> 3
PART I - FINANCIAL STATEMENTS
FORM 10-Q
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
July 31, April 30,
ASSETS 1995 1995
------------ ------------
(Note)
<S> <C> <C>
Current assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . $ 5,298,000 $ 7,460,000
Accounts receivable - net of allowance for doubtful receivables
and sales returns of $207,000 and $183,000 . . . . . . . . . . . . . 3,208,000 1,159,000
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,840,000 1,649,000
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . 509,000 505,000
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225,000 86,000
------------ ------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . 11,080,000 10,859,000
Investment in marketable securities . . . . . . . . . . . . . . . . . . . . 89,000 89,000
Prepublication costs - net of accumulated amortization of $917,000
and $892,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,168,000 1,097,000
Property and equipment - net . . . . . . . . . . . . . . . . . . . . . . . 1,454,000 683,000
Cash surrender value of life insurance
net of loans of $331,000 and $331,000 . . . . . . . . . . . . . . . . . 424,000 411,000
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 53,000
------------ ------------
$ 14,215,000 $ 13,192,000
============ ============
</TABLE>
Note: The consolidated balance sheet at April 30, 1995 has been taken from
the audited financial statement at that date.
3
<PAGE> 4
PART I - FINANCIAL STATEMENTS
FORM 10-Q
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS - CONTINUED
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
July 31, April 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1995
-------------- ------------
(Note)
<S> <C> <C>
Current liabilities
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 662,000 $ 978,000
Accrued real estate taxes . . . . . . . . . . . . . . . . . . . . . . . 104,000 80,000
Accrued compensation . . . . . . . . . . . . . . . . . . . . . . . . . . 462,000 496,000
Accrued profit sharing contribution . . . . . . . . . . . . . . . . . . 80,000 -
Dividends payable . . . . . . . . . . . . . . . . . . . . . . . . . . . - 299,000
Royalties payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 457,000 184,000
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . 734,000 235,000
------------ ------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . 2,499,000 2,272,000
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 108,000 108,000
Commitments and contingencies . . . . . . . . . . . . . . . . . . . . . . . - -
Redeemable common stock, 163,200 shares at estimated redeemable
value in excess of insurance proceeds, less cash surrender value . . . . 3,656,000 3,643,000
Stockholders' equity
Common stock - authorized, 1,000,000 shares of $1 par value;
issued 598,800 shares, exclusive of 163,200 redeemable
shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 599,000 599,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,635,000 6,852,000
------------ ------------
8,234,000 7,451,000
Less cost of 14,100 shares of common stock held in treasury . . . . . . (282,000) (282,000)
------------ ------------
7,952,000 7,169,000
------------ ------------
$ 14,215,000 $ 13,192,000
============ ============
</TABLE>
Note: The consolidated balance sheet at April 30, 1995 has been taken from
the audited financial statement at that date.
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
PART I - FINANCIAL STATEMENTS
FORM 10-Q
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
THREE MONTHS ENDED JULY 31,
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,373,000 $ 4,431,000
Cost of goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,263,000 1,227,000
----------- -----------
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,110,000 3,204,000
Operating expenses
Selling, general and administrative . . . . . . . . . . . . . . . . . . 1,408,000 1,271,000
Royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 450,000 450,000
---------- -----------
1,858,000 1,721,000
----------- -----------
Operating profit . . . . . . . . . . . . . . . . . . . . . . . . . 1,252,000 1,483,000
Other income (expense)
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51,000 31,000
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,000 (1,000)
----------- -----------
58,000 30,000
----------- -----------
Earnings before income taxes . . . . . . . . . . . . . . . . . . . 1,310,000 1,513,000
Income tax expense (benefit)
Currently payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 518,000 620,000
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,000) (47,000)
----------- -----------
514,000 573,000
----------- -----------
NET EARNINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 796,000 $ 940,000
=========== ===========
Earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.06 $ 1.26
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
PART I - FINANCIAL STATEMENTS
FORM 10-Q
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED JULY 31, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
Common Retained Treasury
stock earnings stock Total
--------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Balance at April 30, 1995 . . . $ 599,000 $ 6,852,000 $ (282,000) $ 7,169,000
Net earnings for period . . . . - 796,000 - 796,000
Change in estimated value of
redeemable common stock
in excess of insurance
proceeds based on increase
in cash surrender value
of life insurance . . . . . - (13,000) - (13,000)
--------- ----------- ---------- -----------
Balance at July 31, 1995 . . . $ 599,000 $ 7,635,000 $ (282,000) $ 7,952,000
========= =========== ========== ===========
Balance at April 30, 1994 . . . $ 599,000 $6,380,000 $ (282,000) $ 6,697,000
Net earnings for period . . . . - 940,000 - 940,000
Change in estimated value of
redeemable common stock
in excess of insurance
proceeds based on increase
in cash surrender value
of life insurance . . . . . - (19,000) - (19,000)
--------- ----------- ---------- -----------
Balance at July 31, 1994 . . . $ 599,000 $ 7,301,000 $ (282,000) $ 7,618,000
========= =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 7
PART I - FINANCIAL STATEMENTS
FORM 10-Q
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED JULY 31,
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 796,000 $ 940,000
Adjustments to reconcile net earnings to net cash used in
operating activities
Depreciation expense . . . . . . . . . . . . . . . . . . . . . . . 23,000 18,000
Amortization of prepublication costs . . . . . . . . . . . . . . . 186,000 143,000
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . (4,000) (47,000)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 1,000
Changes in assets and liabilities
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . (2,049,000) (1,914,000)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . (191,000) (128,000)
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . (139,000) (50,000)
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . (316,000) (86,000)
Royalties payable . . . . . . . . . . . . . . . . . . . . . . . 273,000 260,000
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . 70,000 244,000
Income taxes payable . . . . . . . . . . . . . . . . . . . . . 499,000 614,000
------------ ------------
Net cash used in operating activities . . . . . . . . . . . (852,000) (5,000)
Cash flows from investing activities:
Purchases of property and equipment . . . . . . . . . . . . . . . . . . (742,000) (18,000)
Purchases of prepublication costs . . . . . . . . . . . . . . . . . . . (257,000) (105,000)
Increase in cash surrender value of officer's life insurance . . . . . . (13,000) (19,000)
Change in other assets . . . . . . . . . . . . . . . . . . . . . . . . . 1,000 -
------------ ------------
Net cash used in investing activities . . . . . . . . . . . (1,011,000) (142,000)
Cash flows from financing activities:
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (299,000) (262,000)
------------ ------------
Net cash used in financing activities . . . . . . . . . . . (299,000) (262,000)
------------ ------------
Decrease in cash and cash equivalents . . . . . . . . . . . (2,162,000) (409,000)
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . 7,460,000 5,570,000
------------ ------------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . $ 5,298,000 $ 5,161,000
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes - net . . . . . . . . . . . $ 19,000 $ 6,000
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE> 8
PART I - FINANCIAL STATEMENTS
FORM 10-Q
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1995
(UNAUDITED)
================================================================================
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. The Company's business is seasonal, and operating results for
the three months ended July 31, 1995 are not necessarily indicative of the
results that may be expected for the year ended April 30, 1996. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's annual report on Form 10-K for the year ended
April 30, 1995.
BUSINESS ACTIVITY
The Company publishes textbooks on technology, trade and technical, family and
consumer sciences and vocational subjects. The Company's activities include
the search for authors, the procurement and editing of manuscripts, and the
design, illustration and marketing of its textbooks. Printing and binding of
books is done by outside contractors.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary, G/W Investment Company, Inc. All significant
intercompany transactions have been eliminated in consolidation.
REVENUE RECOGNITION
The Company recognizes revenue at time of shipment from Company warehouse or
outside depositories. A provision for estimated returns, consisting of sales
value less related inventory cost and royalty costs, is made at time of sale.
8
<PAGE> 9
PART I - FINANCIAL STATEMENTS
FORM 10-Q
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JULY 31, 1995
(UNAUDITED)
================================================================================
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
INVENTORIES
Inventories are valued at the lower of cost or market. Cost of inventories was
determined by the last-in, first-out (LIFO) and the first-in, first-out (FIFO)
methods as summarized below (see note B):
<TABLE>
<CAPTION>
July 31, April 30,
1995 1995
----------- -----------
<S> <C> <C>
Last-in, first out method . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,813,000 $ 1,612,000
First-in, first out method . . . . . . . . . . . . . . . . . . . . . . . . 27,000 37,000
----------- -----------
$ 1,840,000 $ 1,649,000
=========== ===========
</TABLE>
Cost includes the purchase of paper, printing and binding from outside sources.
No allocation of selling and administrative expenses is included in
inventories.
Even though some books will not be sold in the current period, large quantities
of books are printed initially for stock, due to economies of scale.
Management feels that substantially all books will be sold in the current
period and, therefore, classifies all inventories as a current asset.
INVESTMENT SECURITIES
During fiscal 1995, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 115 "Accounting for Certain Investments in Debt and Equity
Securities." The adoption of SFAS No. 115 did not have a material effect on
the financial statements for the year ended April 30, 1995.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost less accumulated depreciation.
Depreciation is provided on the straight-line and accelerated methods over the
estimated useful lives of the assets. Annual depreciation rates range from 20%
to 40% for equipment and from 3% to 20% for buildings and improvements.
9
<PAGE> 10
PART I - FINANCIAL STATEMENTS
FORM 10-Q
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JULY 31, 1995
(UNAUDITED)
================================================================================
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Expenditures for repairs and maintenance are charged against income when
incurred, and replacements are capitalized. Gains or losses on dispositions of
property and equipment are included in income.
PREPUBLICATION COSTS
The Company capitalizes certain outside contractor costs, primarily artwork,
film and preparation costs, associated with creation of the textbooks and
supplements. Prepublication costs are amortized over a period of three years,
under the straight-line method.
ADVERTISING COSTS
During fiscal 1995 the Company adopted Statement of Position (SOP) 93-7,
"Reporting on Advertising Costs," and has elected to expense advertising costs
annually. The impact of adopting the SOP was not material to the financial
statements for the year ended April 30, 1995.
EDITORIAL COSTS
Editorial costs are charged to expense as incurred.
INCOME TAXES
The Company accounts for taxes under the provisions of Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes". SFAS No.
109 utilizes the liability method, and deferred taxes are determined based on
the estimated future tax effects of differences between the financial statement
and tax bases of assets and liabilities given the provisions of the enacted tax
laws.
EARNINGS PER SHARE
Earnings per share is computed on the weighted average number of shares
outstanding of 747,900 for the periods ended July 31, 1995 and 1994.
CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents. The carrying value of
such assets approximates their fair value.
10
<PAGE> 11
PART I - FINANCIAL STATEMENTS
FORM 10-Q
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JULY 31, 1995
(UNAUDITED)
================================================================================
NOTE B - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
July 31, April 30,
1995 1995
----------- -----------
<S> <C> <C>
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 158,000 $ 105,000
Work-in-process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,000 37,000
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,655,000 1,507,000
----------- -----------
$ 1,840,000 $ 1,649,000
=========== ===========
</TABLE>
Inventories would have been $2,364,000 and $2,301,000 higher at July 31, 1995
and April 30, 1995, respectively, if the FIFO method of accounting had been
used on all inventories.
An actual valuation of inventory under the LIFO method can be made only at the
end of each year based on the inventory levels and costs at that time.
Accordingly, interim LIFO calculations must necessarily be based on
management's estimates of expected year-end inventory levels and costs. Since
these are subject to many forces beyond management's control, interim results
are subject to the final year-end LIFO inventory valuation.
NOTE C - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
July 31, April 30,
1995 1995
----------- -----------
<S> <C> <C>
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 813,000 $ 75,000
Building and improvements . . . . . . . . . . . . . . . . . . . . . . . . . 1,040,000 1,026,000
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 796,000 754,000
----------- -----------
2,649,000 1,855,000
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . 1,195,000 1,172,000
----------- -----------
$ 1,454,000 $ 683,000
=========== ===========
</TABLE>
11
<PAGE> 12
PART I - FINANCIAL STATEMENTS
FORM 10-Q
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JULY 31, 1995
(UNAUDITED)
================================================================================
NOTE D - INCOME TAXES
Income tax expense varies from the amount computed by applying the statutory
Federal income tax rate to earnings before income taxes primarily because of
state income taxes, tax-exempt interest income, and officer's life insurance.
================================================================================
NOTE E - EMPLOYEE BENEFIT PLANS
The Company has a profit sharing plan, covering all full-time employees, to
which both the Company and eligible employees may contribute. Company
contributions are voluntary and at the discretion of the Board of Directors.
Annual contributions by the Company cannot exceed 15% of eligible compensation.
Effective May 1, 1994, the Company adopted The Goodheart-Willcox Company, Inc.
Supplemental Executive Retirement Plan for the benefit of certain management
employees as determined by the Board of Directors. The purpose of the plan is
to provide additional benefits for those participants who have profit sharing
benefits limited by the Internal Revenue Code.
The Company has recorded contributions amounting to $80,000 and $70,000 for the
quarter ended July 31, 1995 and 1994, respectively.
================================================================================
NOTE F - COMMITMENTS AND CONTINGENCIES
Under an agreement between the Company and a principal stockholder/officer, the
Company will purchase approximately 163,200 shares of the Company's stock owned
by him upon his death. The purchase price will be based on the fair market
value of the Company's shares at that time, as determined by a named third
party. The excess of the estimated fair market value of the mandatorily
redeemable shares over the amount of life insurance, net of cash surrender
value, carried to meet a portion of the Company's obligation under this
agreement has been segregated from stockholders' equity as of July 31, 1995 and
April 30, 1995.
12
<PAGE> 13
PART I - FINANCIAL STATEMENTS
FORM 10-Q
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JULY 31, 1995
(UNAUDITED)
================================================================================
NOTE F - COMMITMENTS AND CONTINGENCIES - CONTINUED
The Company has entered into employment agreements with two officers that
provide for annual compensation and certain other benefits including death
benefit payments equal to two years salary. The present value of the estimated
death benefit payable under these agreements of approximately $160,000 is
included in accrued compensation at July 31, 1995 and April 30, 1995.
In May 1995, the Company acquired property in Tinley Park, Illinois, for
approximately $738,000 (for which a deposit of $50,000 was recorded in other
assets at April 30, 1995) upon which it intends to construct a warehouse and
office building. It is anticipated the building will be completed for
occupancy in late fiscal 1996 at a total cost exclusive of land of
approximately $2,762,000.
13
<PAGE> 14
PART I - FINANCIAL INFORMATION
FORM 10-Q
THE GOODHEART-WILLCOX COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
First Quarter Fiscal 1996 Compared With First Quarter Fiscal 1995.
OPERATING RESULTS
The Company's net sales for the first quarter of fiscal 1996 decreased $58,000,
or approximately 1.5% from the same quarter in the previous fiscal year, due
primarily to the decline in state adoption sales while offsetting events
included selective price increases and sales increases from open territories.
In the first quarter of fiscal 1995, net sales had increased $335,000, or
approximately 8% over the same period in the previous fiscal year, due to
increased orders from open territories, selective price increases, and
increased orders from one state adoption where the Company does not use a
school book depository. Price increases are made each year on a product by
product basis after considering the cost of paper, printing, binding, the
overhead contribution, and competitive pricing. The selective price increases
will not totally offset any significant decline in school expenditures for
textbooks and supplements as witnessed in the first quarter of fiscal 1996. In
the first quarter of fiscal 1995, the reserve for future returns was increased
as the sales product mix continued to shift from middle and senior high schools
to community college bookstores, where the number of books and supplements
returned occur with greater frequency. The reserve for future returns will
experience minor revision to reflect current business practices.
The cost of goods sold as a percentage of sales in the first quarter of fiscal
1996 was 29% compared to 28% in the first quarter of fiscal 1995 and 32% in the
first quarter of fiscal 1994. The change in the ratio of the cost of goods
sold as a percentage of sales this past quarter was primarily attributable to
the increased cost of paper. As stated in the annual report for the year
ending April 30, 1995, "It is possible that the Company will not be able to
pass through all of the paper price increase to our customers." Factors
affecting the ratio of the cost of goods sold as a percentage of sales are the
result of decisions regarding selected selling price increases, adjustments to
the print and reprint quantities, and the application of computer technology by
outside suppliers permitting shorter press runs, reduction in manufacturing
time, and consistent high quality allowing Goodheart-Willcox to hold down the
unit cost of textbooks and supplements.
Operating expenses consisting of royalties, selling, general, and
administrative expenses increased $137,000, or about 8% over the first quarter
in fiscal 1995, compared to an increase of $89,000, or approximately 5%, in the
first quarter of fiscal 1995 over the same period in fiscal 1994. As a
percentage of sales, the selling, general, and administrative cost for the
first quarter of fiscal 1996 was 32% compared to 29% for the first quarter of
fiscal 1995 due to added investment in editorial capacity, staffing an
additional sales territory with the associated sampling cost, and the addition
14
<PAGE> 15
of personnel in the administrative area. A major component of the operating
expenses is the distribution of sample textbooks and supplements as a marketing
tool which is unique to the textbooks publishing industry. In the first
quarter of fiscal 1996, sampling expenses increased to $69,000 from $51,000 in
the first quarter of fiscal 1995.
The 1.5% decrease in net sales during the first quarter and the 8% increase in
operating expenses along with an increased cost of goods sold as a percentage
of sales reduced the Company's income from operations by $231,000 or
approximately 16%, to $1,252,000. For the first quarter of fiscal 1995, the
sales increase of 8% with the 5% increase in operating expenses tied to a lower
cost of goods sold improved the Company's income from operations by $316,000,
or approximately 27%, to $1,483,000 over the first quarter of fiscal 1994.
Other income for the first quarter of fiscal 1996 was $58,000, compared to
$30,000 in the first quarter of fiscal 1995. The Company's fiscal year ending
April 30 divides the purchasing patterns of its school customers such that the
major marketing and inventory buildup efforts occur at the end of the fiscal
year, while the resulting sales primarily follow in the first two quarters of
the next fiscal year.
LIQUIDITY
Cash and cash equivalents totaled $5,298,000 at July 31, 1996, a decrease of
$2,162,000 from the year ended April 30, 1995. The Company has no outstanding
long term debt. As shown in the cash flow statements, the cash used in the
operating activities for the first quarter of fiscal 1996 amounted to $852,000
as compared to $5,000 for the first quarter of fiscal 1995, a change which is
attributable to the decrease in net earnings after adjustments to accounts
covering the amortization of prepublication costs, inventories, accounts
payable, accrued expenses, and income taxes payable. The changes in assets and
liabilities for the first quarter of fiscal 1996 include an increase in
accounts receivable, an increase in inventories attributable to the addition of
new titles, an increase in accounts payable from the investment in new and
revised products for inventory and under development, and a decrease in accrued
expenses. There have been no changes in business practices including credit
terms or collection efforts from previous years. The cash used in the
operating activities of the Company for the first quarter of fiscal 1995
amounted to $5,000, as compared to $455,000 for the first quarter of fiscal
1994, an improvement of $450,000, which is attributable to the increase in net
earnings after adjustments to accounts covering inventories, accounts payable,
and income taxes payable.
Investment in new and revised products in the first quarter of the current
fiscal 1996 was $257,000, or an increase of $152,000 compared to the first
quarter of fiscal 1995 when $105,000 was used to purchase prepublication items.
The Company currently intends to continue an aggressive pace of prepublication
investment in future quarters to maintain a publishing program of adding new
titles while revising a backlist of products to match market needs. With the
advances in general technology, the magnitude of revision efforts required to
keep the industrial and technical books up to date has increased. An
investment of approximately $738,000 was made to acquire 5.9 acres in a
business park for construction of a warehouse and office facility. In the
first quarter of fiscal 1996, there were no investing activities related to
marketable securities, as was also the case in the first quarter of fiscal
1995.
The primary financing use of cash in the first quarter of the current fiscal
1996 was the payment of dividends at the rate of $.40 per share compared to the
payment of dividends at the rate of $.35 per share in the first quarter of
fiscal 1995.
15
<PAGE> 16
The first quarter historically has displayed increased shipments and increased
growth in the accounts receivable. In looking ahead into the second and third
quarters, there is an anticipated growth in inventories as new and revised
products are published for the next copyright year. Also, in the second and
third quarters, the accounts receivable decline as cash and cash equivalents
increase. The seasonal nature of selling products such as textbooks and
supplements into the school market with two separate semesters tends to affect
the periodic liquidity of the Company due to the required buildup of inventory
for the anticipated needs of schools opening in the fall.
CAPITAL RESOURCES
It is anticipated that the future capital needs of the Company will be met from
internally generated funds. The investment in computer hardware and software
on a department by department basis will be met from cash flow from operating
activities. In fiscal 1996, the investment in prepublication products and
services is expected to follow the pattern established in previous years with
plans to revise popular backlist titles and add new titles and products to our
line. In the first quarter of fiscal 1996, the Company acquired 5.9 acres in
Tinley Park, Illinois, for approximately $738,000 on which it intends to
construct a warehouse and office facility. The Company intends to relocate
its entire business operations to this new facility which is approximately
eight miles from the current South Holland facility. The site was selected
with the intention of retaining all of the present talented employees as a
productive workforce for future growth. It is anticipated the building will be
completed for occupancy in the Spring of 1996 at a total cost of approximately
$2,762,000, using existing capital resources.
THE EFFECTS OF INFLATION
Inflation affects the Company due to increases in cost of materials and
services. In fiscal 1995 and in the first quarter of fiscal 1996, the Company
experienced some tightening of suppliers schedules and some price increases
which appear to be more inflationary than patterns experienced in the previous
fiscal year. Paper used to replenish inventory and to print new products is
experiencing dramatic price increases. By advance planning and by shifting
grades of paper, the effect of the paper price increases may be delayed. The
ability to reflect such cost increases in the selling price of
Goodheart-Willcox products depends upon the pricing of competing product lines
and general market conditions, which may require the Company to absorb part or
all of these paper price increases. The Company continues to manage its cost
of doing business in these very uncertain times by using various suppliers with
specialized graphic arts equipment and production capabilities, by obtaining
quotations from new suppliers, by reviewing the variety of paper grades
appropriate for various titles, by scheduling press runs in batches, and by
staying alert to outside opportunities available to meet key deadlines.
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE GOODHEART-WILLCOX COMPANY, INC.
-----------------------------------
(Registrant)
Date
-------------------------- --------------------------------------------
John F. Flanagan
President
Date
-------------------------- --------------------------------------------
Donald A. Massucci
Vice President, Administration and Treasurer
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF THE GOODHEART-WILLCOX COMPANY, INC. FOR THE THREE MONTHS
ENDED JULY 31, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-END> JUL-31-1995
<CASH> 5,298
<SECURITIES> 89
<RECEIVABLES> 3,208
<ALLOWANCES> 207
<INVENTORY> 1,840
<CURRENT-ASSETS> 11,080
<PP&E> 2,649
<DEPRECIATION> 1,195
<TOTAL-ASSETS> 14,215
<CURRENT-LIABILITIES> 2,499
<BONDS> 0
<COMMON> 599
0
0
<OTHER-SE> 7,635
<TOTAL-LIABILITY-AND-EQUITY> 7,952
<SALES> 4,373
<TOTAL-REVENUES> 4,373
<CGS> 1,263
<TOTAL-COSTS> 3,121
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,310
<INCOME-TAX> 514
<INCOME-CONTINUING> 796
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 796
<EPS-PRIMARY> 1.06
<EPS-DILUTED> 0
</TABLE>
