<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 October 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: November 30, 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 - October 31, 1995 and April 30, 1995 . . . . . . . . 4
Consolidated Statements of Earnings - Three Months Ended October 31,
1995 and 1994; Six Months Ended October 31,1995 and 1994 . . . . . . . . . . . . 6
Consolidated Statements of Stockholders' Equity - Six Months Ended
October 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Consolidated Statements of Cash Flows - Six Months Ended
October 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Notes to Consolidated Financial Statements - October 31, 1995 . . . . . . . . . . 9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
PART II. OTHER INFORMATION
- -------- -----------------
Item 6. Exhibit 27 - Financial Data Schedule . . . . . . . . . . . . . . . . . . . . . . . 19
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
<PAGE> 3
PART I - FINANCIAL STATEMENTS
FORM 10-Q
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
________________________________________________________________________________
<TABLE>
<CAPTION>
October 31, April 30,
ASSETS 1995 1995
---------- -----------
(Note)
<S> <C> <C>
Current assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . $ 7,611,000 $ 7,460,000
Accounts receivable - net of allowance for doubtful receivables
and sales returns of $277,000 and $183,000 . . . . . . . . . . . . . 1,921,000 1,159,000
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,652,000 1,649,000
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . 513,000 505,000
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187,000 86,000
---------- ----------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . 11,884,000 10,859,000
Investment in marketable securities . . . . . . . . . . . . . . . . . . . . 89,000 89,000
Prepublication costs - net of accumulated amortization of
$1,031,000 and $892,000 . . . . . . . . . . . . . . . . . . . . . . . . 1,221,000 1,097,000
Property and equipment - net . . . . . . . . . . . . . . . . . . . . . . . 1,465,000 683,000
Cash surrender value of life insurance
net of loans of $331,000 and $331,000 . . . . . . . . . . . . . . . . . 437,000 411,000
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 53,000
---------- ----------
$15,096,000 $13,192,000
========== ==========
</TABLE>
Note: The balance sheet at April 30, 1995 has been taken from audited
financial statement at that date.
4
<PAGE> 4
PART I - FINANCIAL STATEMENTS
FORM 10-Q
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS - CONTINUED
(UNAUDITED)
________________________________________________________________________________
<TABLE>
<CAPTION>
October 31, April 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1995
--------- ---------
(Note)
<S> <C> <C>
Current liabilities
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 691,000 $ 978,000
Accrued real estate taxes . . . . . . . . . . . . . . . . . . . . . . . 79,000 80,000
Accrued compensation . . . . . . . . . . . . . . . . . . . . . . . . . . 545,000 496,000
Accrued profit sharing contribution . . . . . . . . . . . . . . . . . . 160,000 --
Dividends payable . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 299,000
Royalties payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 547,000 184,000
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . 548,000 235,000
---------- ----------
Total current liabilities . . . . . . . . . . . . . . . . . . . . 2,570,000 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 . . . . . . . . . . . . . . . . . . . . . . . 3,669,000 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,432,000 6,852,000
---------- ----------
9,031,000 7,451,000
Less cost of 14,100 shares of common stock held in treasury . . . . . . (282,000) (282,000)
---------- ----------
8,749,000 7,169,000
---------- ----------
$15,096,000 $13,192,000
========== ==========
</TABLE>
Note: The balance sheet at April 30, 1995 has been taken from audited
financial statement at that date.
The accompanying notes are an intregal part of these statements.
5
<PAGE> 5
PART I - FINANCIAL STATEMENTS
FORM 10-Q
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
________________________________________________________________________________
<TABLE>
<CAPTION>
Three months ended Six months ended
October 31, October 31,
-------------------------- --------------------------
1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Sales . . . . . . . . . . . . . . . . . . $5,111,000 $5,853,000 $9,484,000 $10,284,000
Cost of goods . . . . . . . . . . . . . . 1,783,000 1,738,000 3,046,000 2,965,000
--------- --------- --------- ----------
Gross profit . . . . . . . . . . 3,328,000 4,115,000 6,438,000 7,319,000
Operating expenses
Selling, general and
administrative . . . . . . . . . . 1,527,000 1,416,000 2,935,000 2,687,000
Royalties . . . . . . . . . . . . . . 527,000 632,000 977,000 1,082,000
--------- --------- --------- ----------
2,054,000 2,048,000 3,912,000 3,769,000
--------- --------- --------- ----------
Operating profit . . . . . . . . 1,274,000 2,067,000 2,526,000 3,550,000
Other income (expense)
Interest . . . . . . . . . . . . . . . 49,000 35,000 100,000 66,000
Other . . . . . . . . . . . . . . . . 9,000 8,000 16,000 7,000
--------- --------- --------- ----------
58,000 43,000 116,000 73,000
--------- --------- --------- ----------
Earnings before income
taxes . . . . . . . . . . . . 1,332,000 2,110,000 2,642,000 3,623,000
Income tax expense (benefit)
Currently payable . . . . . . . . . . 526,000 866,000 1,044,000 1,486,000
Deferred . . . . . . . . . . . . . . . (4,000) (25,000) (8,000) (72,000)
--------- --------- --------- ----------
522,000 841,000 1,036,000 1,414,000
--------- --------- --------- ----------
NET EARNINGS . . . . . . . . . . $ 810,000 $1,269,000 $1,606,000 $ 2,209,000
========= ========= ========= ==========
Earnings per share . . . . . . . . . . . $1.09 $1.69 $2.15 $2.95
==== ==== ==== ====
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 6
PART I - FINANCIAL STATEMENTS
FORM 10-Q
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED OCTOBER 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 . . . . . . . . . -- 1,606,000 -- 1,606,000
Change in estimated value of
redeemable common stock
in excess of insurance
proceeds based on increase
in cash surrender value
of life insurance . . . . . . . . . . -- (26,000) -- (26,000)
Net change in unrealized
loss on marketable
equity securities . . . . . . . . . . -- -- -- --
------- --------- -------- ---------
Balance at October 31, 1995 . . . . . . . $599,000 $8,432,000 $(282,000) $8,749,000
======= ========= ======== =========
Balance at April 30, 1994 . . . . . . . . $599,000 $6,380,000 $(282,000) $6,697,000
Net earnings for period . . . . . . . . . -- 2,209,000 -- 2,209,000
Change in estimated value of
redeemable common stock
in excess of insurance
proceeds based on increase
in cash surrender value
of life insurance . . . . . . . . . . -- (37,000) -- (37,000)
------- --------- -------- ---------
Balance at October 31, 1994 . . . . . . . $599,000 $8,552,000 $(282,000) $8,869,000
======= ========= ======== =========
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE> 7
PART I - FINANCIAL STATEMENTS
FORM 10-Q
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED OCTOBER 31,
(UNAUDITED)
________________________________________________________________________________
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,606,000 $ 2,209,000
Adjustments to reconcile net earnings to net cash provided by
operating activities
Depreciation expense . . . . . . . . . . . . . . . . . . . . . . . 44,000 37,000
Amortization of prepublication costs . . . . . . . . . . . . . . . 381,000 293,000
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . (8,000) (72,000)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 1,000
Changes in operating assets and liabilities
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . (762,000) (1,022,000)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . (3,000) 326,000
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . (101,000) (15,000)
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . (287,000) (215,000)
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . 208,000 390,000
Royalties payable . . . . . . . . . . . . . . . . . . . . . . . 363,000 408,000
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . 313,000 1,051,000
---------- ----------
Net cash provided by operating activities . . . . . . . . . 1,754,000 3,391,000
Cash flows from investing activities:
Purchase of property and equipment . . . . . . . . . . . . . . . . . . . (773,000) (49,000)
Purchases of prepublication costs . . . . . . . . . . . . . . . . . . . (505,000) (201,000)
Increase in cash surrender value of officer's life insurance . . . . . . (26,000) (37,000)
---------- ----------
Net cash used in investing activities . . . . . . . . . . . (1,304,000) (287,000)
Cash flows from financing activities:
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (299,000) (262,000)
---------- ----------
Net cash used in financing activities . . . . . . . . . . . (299,000) (262,000)
---------- ----------
Increase in cash and cash equivalents . . . . . . . . . . . 151,000 2,842,000
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . 7,460,000 5,570,000
---------- ----------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . $ 7,611,000 $ 8,412,000
========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes - net . . . . . . . . . . . . . . . . . . . . . . . . . $ 712,000 $ 429,000
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
8
<PAGE> 8
PART I - FINANCIAL STATEMENTS
FORM 10-Q
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 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 month and six month periods ended October 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, home
economics 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 the
sales value less related inventory value and royalty costs, is made at time of
sale.
9
<PAGE> 9
PART I - FINANCIAL STATEMENTS
FORM 10-Q
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
OCTOBER 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>
October 31, April 30,
1995 1995
--------- ---------
<S> <C> <C>
Last-in, first out method . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,570,000 $ 1,612,000
First-in, first out method . . . . . . . . . . . . . . . . . . . . . . . . 82,000 37,000
---------- ----------
$ 1,652,000 $ 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.
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.
10
<PAGE> 10
PART I - FINANCIAL STATEMENTS
FORM 10-Q
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
OCTOBER 31, 1995
(UNAUDITED)
________________________________________________________________________________
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
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 October 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.
11
<PAGE> 11
PART I - FINANCIAL STATEMENTS
FORM 10-Q
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
OCTOBER 31, 1995
(UNAUDITED)
________________________________________________________________________________
NOTE B - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
October 31, April 30,
1995 1995
--------- ---------
<S> <C> <C>
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 108,000 $ 105,000
Work-in-process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82,000 37,000
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,462,000 1,507,000
--------- ---------
$1,652,000 $1,649,000
========= =========
</TABLE>
Inventories would have been $2,447,000 and $2,301,000 higher at October 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>
October 31, April 30,
1995 1995
--------- ---------
<S> <C> <C>
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 813,000 $ 75,000
Building and improvements . . . . . . . . . . . . . . . . . . . . . . . . . 1,064,000 1,026,000
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 804,000 754,000
--------- ----------
2,681,000 1,855,000
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . 1,216,000 1,172,000
--------- ----------
$1,465,000 $ 683,000
========= ==========
</TABLE>
12
<PAGE> 12
PART I - FINANCIAL STATEMENTS
FORM 10-Q
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
OCTOBER 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 the Company 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 $160,000 and $151,000 for
the six months ended October 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 October 31, 1995
and April 30, 1995.
13
<PAGE> 13
PART I - FINANCIAL STATEMENTS
FORM 10-Q
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
OCTOBER 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 October 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 is constructing 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.
14
<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
Second Quarter Fiscal 1996 Compared With Second Quarter Fiscal 1995
OPERATING RESULT
The Company's net sales for the second quarter of the current fiscal 1996
decreased $742,000, or approximately 13% less than the same quarter in the
previous fiscal year, due to decreased orders from state adoptions and
decreased orders from open territories offsetting selective price increases.
For the six months ending October 31, 1995, sales decreased $800,000, or
approximately 8% compared to the previous six-month period. The sales decrease
for the first six months is due to the lack of significant state textbook
adoptions this past summer shipping season and weaker orders from open
territories. In the second quarter of fiscal 1995, sales increased $1,660,000,
or approximately 40% over the same quarter in the previous year, due to
increased orders from one state adoption where the Company does not use a
school book depository, increased orders from open territories, and selective
price increases. For the six months ending October 31, 1994, sales increased
$1,995,000, or approximately 24% compared to the previous six month period due
to strong adoption orders from a state where the Company does not use a
schoolbook depository, additional orders from open territories, and selective
price increases. Price increases are made each year on a product by product
basis after considering the cost of paper, printing, and 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 two quarters 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 may
experience minor revisions to reflect current business practices and
expectations of the return rate for various product categories and markets.
The cost of goods sold as a percentage of sales in the second quarter of fiscal
1996 was 35% compared to 30% in the second quarter of fiscal 1995 and 32% in
the second quarter of fiscal 1994. For the six months ending October 31, 1995,
the cost of goods sold as a percentage of sales was 32% compared to 29% for the
previous six months and 32% for the first two quarters of fiscal 1994. The
change in the ratio of the cost of goods sold as a percentage of sales for the
first two quarters 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 increases to our customers." Factors affecting the ratio of the cost of
goods sold as a percentage of sales are the result of decisions regarding
selective
15
<PAGE> 15
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 better control the unit cost of textbooks and
supplements.
Operating expenses consisting of royalties, selling, general, and
administrative expenses increased $6,000, or less than one percent over the
second quarter of fiscal 1995, compared to an increase of $450,000 or 28% for
the previous second quarter of fiscal 1994. For the six months ending October
31, 1995, the operating expenses consisting of royalties as well as selling,
general, and administrative expenses increased $143,000, or approximately 4%,
compared to an increase of $539,000, or approximately 17% for the first six
months of fiscal 1995. As a percentage of sales, the selling, general, and
administrative cost for the second quarter of fiscal 1996 was 30% compared to
24% for the second quarter of fiscal 1995. For the six-month period ending
October 31, 1995, the selling, general, and administrative cost as a percentage
of sales was 31% compared to 26% for the same period in the previous fiscal
year and 29% for the first two quarters of fiscal 1994. The ratios for the
current period reflect added investment in editorial capacity, staffing an
additional sales territory with the associated sampling cost, and the addition
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 textbook publishing industry. In the first six
months of fiscal 1996, the sampling expenses increased to $157,000 from
$120,000 for the first six months of the previous fiscal year.
The 13% decline in net sales during the second quarter of fiscal 1996, coupled
with a higher cost of goods sold as a percentage of sales and slightly higher
operating expenses, decreased the Company's income from operations by $793,000,
or approximately 38%, to $1,274,000. For the second quarter of fiscal 1995,
the 40% increase in net sales coupled with a lower cost of goods sold as a
percentage of sales and slightly higher operating expenses improved the
Company's income from operations by $830,000, or approximately 67%, to
$2,067,000. For the six months ending October 31, 1995, the 8% decline in net
sales and the 4% increase in operating expenses tied to a higher cost of goods
sold at 32% decreased the Company's income from operations by $1,024,000, or
approximately 29%, to $2,526,000. For the six months ending October 31 of the
previous fiscal year, the 24% sales increase and the 17% increase in operating
expenses tied to a lower cost of goods sold as a percentage of sales at 29%
improved the Company's income from operations by $1,146,000, or approximately
48%, to $3,550,000. Other income for the second quarter of fiscal 1996 was
$58,000 compared to $43,000 in the second quarter of fiscal 1995. For the six
month period ending October 31, 1995, other income was $116,000 compared to
$73,000 in the similar period of the pervious fiscal year. 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
16
<PAGE> 16
LIQUIDITY
Cash and cash equivalents totaled $7,611,000 at October 31, 1995, an increase
of $151,000 from the year ended April 30, 1995. The Company has no outstanding
long term debt. As shown in the cash flow statements, the cash provided by the
operating activities of the Company for the first six months of fiscal 1996
amounted to $1,754,000, as compared to $3,391,000 for the first six months of
fiscal 1995 a change which is attributable to the decrease in net earnings
after adjustments to accounts covering the amortization of prepublication cost,
accounts receivable, inventories, accrued expenses, and income taxes payable.
The changes in the assets and liabilities for the first six months of fiscal
1996 include an increase in accounts receivable, an increase in inventories
attributable to the addition of new and revised products, a decrease in
accounts payable from the investment in new and revised products for inventory
and under development for future release, and an increase in accrued expenses.
There have been no changes in business practices including credit terms or
collection efforts from previous years. The cash provided by the operating
activities of the Company for the first six months of fiscal 1995 amounted to
$3,391,000 compared to the amount from the previous six month period of
$2,325,000.
Investment in new and revised products in the first six months of fiscal 1996
was $505,000, or an increase of $304,000 over the first six months of fiscal
1995 when $201,000 was used for the purchase of prepublication services. 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 the construction of a warehouse and office facility. In the
second quarter of fiscal 1996, there were no investing activities related to
marketable securities, as was also the case in the first quarter.
The primary financing use of cash in the six months ending October 31, 1995 was
the payment of dividends at $.40 per share compared to the payment of dividends
at the rate of $.35 per share for the first six months of fiscal 1995.
The first and second quarters historically have displayed increased shipments
and increased growth in accounts receivable while the inventory declined. In
looking ahead to the third and fourth quarters, there is an anticipated growth
in inventories as new and revised products are published for the next
calendar/copyright year and for the next marketing cycle. Also, in the third
quarter, the accounts receivable historically decline as cash and cash
equivalents increase. The seasonal and cyclical 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.
17
<PAGE> 17
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 the
Company's 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 is constructing a
warehouse and office facility. The Company intends to relocate the 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. At the close of the second quarter, the
architectural plans were approaching completion. It is anticipated the
structure 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 costs of materials and
services. In fiscal 1995 and in the first two quarters 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
previous fiscal years. Paper used to replenish inventory and to print new
products is experiencing dramatic price increases. By advanced 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 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.
18
<PAGE> 18
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
19
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