<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant / /
Filed by a party other than the registrant / /
Check the appropriate box:
/ / Preliminary proxy statement / / Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
/ / Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
GOODHEART-WILLCOX
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
GOODHEART-WILLCOX
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
/ / $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE> 2
[GOODHEART-WILLCOX LOGO]
THE GOODHEART-WILLCOX
COMPANY, INC.
123 WEST TAFT DRIVE -- SOUTH HOLLAND, ILLINOIS 60473
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JULY 9, 1996
To the Shareholders of The Goodheart-Willcox Company, Inc.:
The Annual Meeting of Shareholders of The Goodheart-Willcox Company, Inc.,
will be held at the offices of the Company on Tuesday, July 9, 1996 at 9:30 a.m.
C.D.T., for the following purposes:
1. To fix the number and elect directors of the Company to serve until the
next meeting of shareholders and until their respective successors shall
have been elected and qualified.
2. To consider and vote upon ratifying the selection of Grant Thornton LLP
as independent certified public accountants for the current fiscal year.
3. To transact such other business as may properly come before the meeting.
Shareholders of record at the close of business on May 24, 1996, are
entitled to notice of and to vote at the meeting and any adjournment thereof.
The Company's Annual Report, with financial statements for the fiscal year
ending April 30, 1996, a proxy statement and a form of proxy are enclosed
herewith.
Please execute the enclosed proxy and return it promptly in the enclosed
envelope to ensure that your shares are represented at the meeting. If you
attend the meeting and wish to vote in person, you may then withdraw your proxy.
By Order of the Board of Directors
DICK G. SNYDER
Vice President and Secretary
June 18, 1996
<PAGE> 3
THE GOODHEART-WILLCOX COMPANY, INC.
PROXY STATEMENT
The enclosed proxy is solicited by the Board of Directors for use at the
Annual Meeting of Shareholders of The Goodheart-Willcox Company, Inc. (the
"Company") to be held Tuesday, July 9, 1996, and at any adjournment thereof, for
the purposes set forth in the attached notice. The cost of proxy solicitation
will be paid by the Company and may be by mail or by telephone. All proxies
which are properly executed and received prior to the meeting will be voted in
accordance with the choices specified thereon. When no choice is specified, they
will be voted in accordance with the recommendations of management. Any
shareholder giving a proxy may revoke it by notice in writing delivered to the
Secretary at any time prior to its use, by delivering a later proxy or by voting
in person at the Annual Meeting.
At the close of business on May 24, 1996, the record date for the
determination of shareholders entitled to vote at the meeting, there were
outstanding and entitled to vote 747,900 shares of the Company's $1.00 par value
common stock. Each share is entitled to one vote on all matters. There are no
cumulative voting rights. The nominees receiving the greatest number of votes
cast by the holders of common stock will be elected directors. The affirmative
vote of the majority of shares of common stock present in person or by proxy at
the meeting is necessary for the ratification of the selection of the
independent certified public accountants.
The Company's Annual Report, including financial statements for the fiscal
year ending April 30, 1996, proxy statement and form of proxy are scheduled to
be mailed to shareholders on or about June 18, 1996.
ITEM 1. ELECTION OF DIRECTORS
Management has recommended that the number of directors to be elected at
this meeting be fixed at seven, the same number as were elected at last year's
Annual Meeting of Shareholders.
The directors are to be elected to hold office until the next annual
meeting of shareholders and until their successors are elected and qualified. It
is intended that proxies will be voted, unless otherwise specified, for the
nominees named below. Proxies will be voted in a discretionary manner should any
nominee be unable to serve. Management has no reason to believe that any nominee
will be unable to serve.
1
<PAGE> 4
The following table sets forth information as to the principal occupations
and affiliations during the last five years or more of each nominee:
<TABLE>
<CAPTION>
NAME AND PRINCIPAL OCCUPATIONS DIRECTOR
OR AFFILIATIONS SINCE*
------------------------------ --------
<S> <C>
Walter C. Brown, EdD, age 78, Consulting Editor to the Company since 1981;
Professor Emeritus, Division of Technology, College of Engineering and
Applied Sciences, Arizona State University, Tempe, Arizona, since 1966; past
President, International Technology Education Association; former Chairman of
the Board of Arizona Job Colleges, Inc.; past President, International
Council on Technology Teacher Education; consultant to the Company since
1959......................................................................... 1974
Robert C. DeBolt, age 57, President and Chief Executive Officer, since 1984,
F.H. Ayer Manufacturing Co., Chicago Heights, Illinois, a remanufacturer of
pumps, steam turbines and transmissions; Director, F.H. Ayer Manufacturing
Co., Field Technologies, Inc., Highland, Indiana, First National Bank,
Chicago Heights, Illinois; member Audit/Compensation Committee of Board of
Directors.................................................................... 1992
George A. Fischer, age 80, Chairman of the Board since June, 1980; President
and Chief Executive Officer from January, 1973 to June, 1980; prior thereto
various positions with the Company since 1955................................ 1955
John F. Flanagan, age 52, President and Chief Executive Officer since June,
1980; Treasurer from January, 1973 to April, 1988; Vice President from
January, 1973 to June, 1980; prior thereto various positions with the Company
since 1968................................................................... 1971
Wilma Pitts Griffin, PhD, CFCS, age 59, Professor since 1987, Department of
Family and Consumer Sciences, Baylor University, Waco, Texas; Associate
Professor, University of Texas, Austin, Texas, 1973 to 1987; President,
American Association of Family and Consumer Sciences, 1985 to 1986;
consultant to the Company since 1982; member, Audit/Compensation Committee of
Board of Directors........................................................... 1988
Clois E. Kicklighter, EdD, age 57, Dean since 1983, School of Technology,
Indiana State University, Terre Haute, Indiana; Professor of Construction
Technology since 1966; Chairman, Executive Board, National Association of
Industrial Technology, 1988-1989; Chairman, National Association of
Industrial Technology National Board of Accreditation, 1989 to present;
consultant to the Company since 1983......................................... 1988
Mrs. Loraine J. Mix, age 84, private investor.................................. 1973
</TABLE>
- ---------------
* Includes predecessors of the Company for years prior to July, 1972.
2
<PAGE> 5
ADDITIONAL INFORMATION
CONCERNING BOARD OF DIRECTORS
All seven of the nominees were elected directors of the Company at the last
Annual Meeting of Shareholders. The Board of Directors had six meetings during
the fiscal year ended April 30, 1996. All directors attended the 1995 Annual
Meeting of Shareholders and all the meetings of the Board during the fiscal
year.
AUDIT/COMPENSATION COMMITTEE
The Board of Directors has established an Audit/Compensation Committee
which recommends to the Board of Directors the engagement of independent
auditors of the Company and reviews with such auditors the scope and result of
their audits, the internal accounting controls of the Company and the
professional services furnished by such auditors to the Company. The Committee
further reviews and recommends to the Board of Directors compensation
arrangements for the officers of the Company. The Committee presently consists
of Wilma Pitts Griffin, Chairperson, and Robert C. DeBolt. During Fiscal 1996,
the Committee met on four occasions.
COMPENSATION OF DIRECTORS
Each director who is not on the Company's payroll is entitled to
compensation of $12,000 per annum, payable quarterly, except a director who is
absent from two consecutive regularly scheduled directors' meetings, with or
without cause, is not entitled to the next following quarterly payment and,
further provided, nonemployee directors shall be additionally entitled to a $500
attendance fee for each meeting of a duly constituted committee of the Board.
Directors are reimbursed for expenses incurred by attendance at the meetings.
3
<PAGE> 6
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table lists the beneficial ownership, as of May 1, 1996, of
persons known to the Company to be the beneficial owner of more than five
percent of the Company's common stock. The table also lists the beneficial
ownership, as of May 1, 1996, of common stock owned by all directors and
executive officers of the Company, and by all directors and executive officers
as a group:
<TABLE>
<CAPTION>
AMOUNT AND
NAME OF POSITION NATURE OF PERCENT OF
BENEFICIAL OWNER WITH COMPANY OWNERSHIP CLASS
---------------- ------------ ---------- ----------
<S> <C> <C> <C>
Mrs. Loraine J. Mix.................. Director 292,300(1) 39.1%
George A. Fischer.................... Director, Chairman of the Board 163,200 21.8%
Fred Eychaner........................ 111,412(2) 14.9%
Century Partners..................... 42,700(3) 5.7%
John F. Flanagan..................... Director and Executive Officer 20,634(4) 2.8%
Walter C. Brown...................... Director 1,000(5) *
Robert C. DeBolt..................... Director -- --
Wilma Pitts Griffin.................. Director 150 *
Clois E. Kicklighter................. Director 100 *
Donald A. Massucci................... Executive Officer 300 *
Dick G. Snyder....................... Executive Officer 700 *
Directors and Executive Officers as a Group (9 Persons)............. 478,384 64%
</TABLE>
- ---------------
* Less than one percent
(1) Mrs. Mix owns 27,100 shares and, in addition, is a co-trustee, with sole
voting and investment power relating to shares of the Company, and a
beneficiary together with her two daughters, one of whom is the wife of Mr.
Flanagan, of a testamentary trust established by the Last Will of Floyd M.
Mix, deceased, which trust holds 265,200 shares of the Company.
(2) On October 12, 1994, Mr. Fred Eychaner filed a Schedule 13D Statement with
the Securities and Exchange Commission disclosing the purchase of 111,412
shares of the Company's securities. Mr. Eychaner stated that the shares
were purchased for investment and additional purchases of the Company's
stock may be made subject to the availability of additional shares, an
acceptable price, alternative sources of investment, and other factors. Mr.
Eychaner also stated therein that there are no present plans to seek
representation on the Company's Board of Directors. His address is 1645
West Fullerton Parkway, Chicago, Illinois 60614.
(3) On or about February 12, 1990, Century Partners filed a Schedule 13G with
the Securities and Exchange Commission disclosing the purchase of 38,300
shares of the Company's securities. In addition, Century Partners advised
the Company that on June 9, 1993 it filed Amendment #1 to
4
<PAGE> 7
Schedule 13G with the Securities and Exchange Commission showing Century
Partners owner of record of 42,700 shares or 5.7% of the Company's
outstanding stock. Their address is 800 Post Road, P.O. Box 4032, Darien,
Connecticut 06820.
(4) Of these shares, 18,000 are owned beneficially and of record by Mr.
Flanagan's wife, 2,614 are owned jointly by Mr. Flanagan and his wife and
20 are held by him as custodian for their children.
(5) These shares are owned beneficially and of record by Dr. Brown and his wife
as co-trustees under a living trust.
STOCK PURCHASE AGREEMENT
On November 19, 1981, the Company entered into an agreement with George A.
Fischer for the right to purchase all his common stock (securities) in the
Company as of the date of his death. The price shall be equal to the fair market
value of the securities as of the date of his death as determined by a
designated securities dealer located in Chicago, Illinois. After an initial
payment of 40% of the securities' purchase price, the Company can pay for the
securities over a 5 year period. The Company owns and is the beneficiary of
insurance on the life of Mr. Fischer in order to meet a substantial portion of
its obligation under this agreement.
EXECUTIVE COMPENSATION
REPORT OF AUDIT/COMPENSATION COMMITTEE OF BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION
The Audit/Compensation Committee (the "Committee") of the Board of
Directors determines the base salary and annual bonuses for executive officers
based on Company and individual performance. Measurement of corporate
performance is based on Company goals and industry performance levels.
To aid the Committee in this process, a review and evaluation of executive
compensation practices of other similar sized publishing companies was conducted
in early 1996. The Company's executive level positions were matched to
comparable survey positions. Competitive market compensation levels were
determined for base salary level increase and performance bonuses for the
executive officers to a level consistent with those of other companies in the
industry.
Wilma Pitts Griffin, Chairperson
Robert C. DeBolt, Member
5
<PAGE> 8
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The Board of Directors adopted a Supplemental Executive Retirement Plan
("SERP") effective May 1, 1994. The SERP is a non-qualified retirement plan
established for the benefit of a select group of management employees of the
Company to supplement benefits provided under the Company's Employees' Profit
Sharing Plan ("Plan"). To the extent benefits under the Plan are limited by the
Internal Revenue Code of 1986, supplemental benefits are provided under the
terms and conditions of the SERP. The Company administers the SERP and the Board
of Directors may amend or terminate it at any time, provided that no amendment
shall reduce or discontinue any benefit accrued to the date of the Amendment.
The Company has not funded the SERP and there are no assets held by it.
SUMMARY COMPENSATION TABLE
The following table shows executive compensation for the fiscal years
indicated for the Chief Executive Officer and all other executive officers of
the Company ("Named Officers"):
<TABLE>
<CAPTION>
ALL OTHER
ANNUAL COMPENSATION COMPENSATION
------------------- ------------
NAME AND PRINCIPAL FISCAL OTHER ANNUAL
POSITION YEAR SALARY BONUS COMPENSATION
------------------ ------ -------- -------- ------------
<S> <C> <C> <C> <C> <C>
John F. Flanagan...................... 1996 $255,000 $ 81,000 N/A(2) $ 34,689
President and Chief Executive 1995 245,000 100,000 N/A(2) 34,689
Officer 1994 235,000 81,000 N/A(2) 33,393(1)
Donald A. Massucci.................... 1996 $110,000 $ 25,000 N/A(2) $ 25,511
Vice-President/Treasurer 1995 105,500 35,000 N/A(2) 26,336
1994 101,500 25,000 N/A(2) 21,939(1)
Dick G. Snyder........................ 1996 $110,000 $ 25,000 N/A(2) $ 29,548
Vice-President/Secretary 1995 105,500 35,000 N/A(2) 30,373
1994 101,500 25,000 N/A(2) 22,572(1)
</TABLE>
- ---------------
(1) Amounts of All Other Annual Compensation include amounts contributed or
accrued for fiscal 1996 by the Company for or in behalf of the Named
Officers under the Company's Employee Profit Sharing Plan, and the
Supplemental Executive Retirement Plan (SERP) and amounts paid in fiscal
1996 by the Company for life insurance coverage. For Messrs. Flanagan,
Massucci and Snyder, the respective amounts contributed to the Profit
Sharing Plan were: $22,500, $20,276 and $20,276, and the respective amounts
paid for life insurance premiums were $4,689, $5,235 and $9,272. The amount
accrued under the SERP for Mr. Flanagan was $7,500.
(2) The value of such benefits did not exceed the lesser of either $50,000 or
10% of the total annual salary and bonus reported for any Named Officer.
6
<PAGE> 9
EXECUTIVE OFFICER EMPLOYMENT AGREEMENT
An agreement dated June 1, 1975, amended from time to time and further
amended April 12, 1996, between the Company and the Chief Executive Officer John
F. Flanagan provides that until May 31, 1998, or any renewal date, he will serve
as Chief Executive Officer, with his duties to be determined by the Board of
Directors. Effective May 1, 1996, he is to be paid compensation of $262,650 per
year, plus reimbursement of expenses and any bonus awarded to him by the Board
of Directors. In the event Mr. Flanagan should die before the expiration date of
the agreement, the Company will pay his estate twenty-four months' full salary.
In addition, the agreement provides that if he is living and under continuing
disability for more than twenty-four months, the Company will pay him one-half
salary per month, not to exceed, however, sixty months. The agreement further
provides for reimbursement of medical care expenses incurred by him, his spouse
or defined dependents, not otherwise reimbursed by insurance provided by the
Company. From the date the agreement or any renewal expires, and if Mr. Flanagan
retires from the employ of the Company, he is to be paid consultative
compensation of $40,000 per year until his death.
SHAREHOLDER RETURN PERFORMANCE
The line graph following compares the annual change in the cumulative total
shareholder return, assuming reinvestment of dividends, on the Company's common
stock (GWOX) against the cumulative total return of the dividends of the S&P 500
Composite Stock Index (S&P 500) and the S&P Publishing Index for the five year
period ending April 30, 1996.
The graph is presented in accordance with SEC requirements. Shareholders
are cautioned against drawing any conclusions from the data contained therein,
as past results are not necessarily indicative of future performance. This graph
in no way reflects the Company's forecast of future financial performance.
7
<PAGE> 10
Comparison of Five Year Cumulative Total Return, assuming reinvestment of
dividends, among Goodheart-Willcox (GWOX), S&P Publishing Index and S&P 500
Index.
[GRAPH]
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
GWOX 100 80 71 69 82 110
S&P Publishing 100 114 125 131 154 201
S&P 500 100 110 127 149 149 187
</TABLE>
(April 30, 1991 = $100)
8
<PAGE> 11
ITEM 2. SELECTION OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
At a meeting held on April 12, 1996, the Board of Directors named Grant
Thornton LLP as independent certified public accountants to audit the financial
statements of the Company for the fiscal year ending April 30, 1997, subject to
ratification and approval by the shareholders. Grant Thornton LLP and its
predecessors have acted in that capacity for more than the past ten years. A
representative of Grant Thornton LLP is expected to be present at the Annual
Meeting of Shareholders to answer appropriate questions and, if such
representative wishes to do so, make a statement. Grant Thornton LLP performs
those procedures necessary to enable them to express their opinion on the annual
financial statements of the Company.
OTHER BUSINESS
Management knows of no matters to be presented to the meeting other than
those set forth in this proxy statement. However, if any other matter shall
properly come before the meeting, the shares represented by the proxies signed
and returned by the shareholders, if not otherwise specified, will be voted
thereon in the discretion of the persons voting such shares.
Any proposal which a shareholder contemplates presenting at the Annual
Meeting of the Shareholders of the Company in 1997 must be received at the
offices of the Company not later than March 15, 1997, to be considered for
inclusion in the Company's proxy statement and form of proxy for that meeting.
By Order of the Board of Directors
DICK G. SNYDER
Vice President and Secretary
9
<PAGE> 12
THE GOODHEART-WILLCOX COMPANY, INC.
ANNUAL MEETING OF SHAREHOLDERS -- JULY 9, 1996
Todd J. Scheffers and Dick G. Snyder, and each of them, with
power of substitution in each, are hereby authorized to
represent and vote the stock of the undersigned at the Annual
Meeting of Shareholders of The Goodheart-Willcox Company, Inc.,
to be held at 9:30 a.m. C.D.T., on July 9, 1996, or any
adjournment:
1. ELECTION OF DIRECTORS: WITHHOLD AUTHORITY
FOR all nominees listed below to vote for all nominees listed
(except as marked to the below / /
contrary below) / /
Walter C. Brown, Robert C. DeBolt, George A. Fischer, John F.
Flanagan, Wilma Pitts Griffin,
Clois E. Kicklighter and Loraine J. Mix
(INSTRUCTION: To withhold authority to vote for any
individual nominee write that nominee's name
on the space provided below.)
----------------------------------------------------------------
2. PROPOSAL TO APPROVE THE SELECTION OF GRANT THORNTON LLP
as the independent certified public accountants for the
current fiscal year.
/ / FOR / / AGAINST / / ABSTAIN
3. In their discretion on any other business that may
properly come before the meeting.
/ / GRANTED / / WITHHELD
(continued and to be signed on reverse side)
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS AND WILL BE
VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE, THE PROXY WILL
BE VOTED FOR THE ELECTION OF DIRECTORS, IN FAVOR OF ITEM 2 AND
GRANT THE DISCRETIONARY POWER IN ITEM 3.
Dated: ______________ , 1996.
----------------------------------
Signature
----------------------------------
Signature
NOTE:
Please sign exactly as your name
appears at the left. If shares are
held jointly, each holder must
sign. If signing for an estate,
trust or corporation, title or
capacity should be stated.
PLEASE PROMPTLY RETURN PROXY IN THE
ACCOMPANYING ENVELOPE. NO POSTAGE
REQUIRED IF MAILED IN THE UNITED
STATES.
I plan to attend the meeting. / /
<PAGE> 13
[GOODHEART-WILLCOX LOGO] 1996 ANNUAL REPORT
THE GOODHEART-WILLCOX CO., INC.
[GRAPHIC]
<PAGE> 14
TO OUR SHAREHOLDERS:
Fiscal nineteen ninety-six was another excellent year for Goodheart-Willcox.
The financial accomplishments documented in this annual report reflect the
strong performance of your Company in a soft market. Last year's letter to the
shareholders stated "For the approaching busy summer season, there are no
significant state adoptions in our curriculum areas. Increased sales from open
territories will only make up a part of the decline in potential adoption
opportunities in the coming year."
Achieving sales of $14,645,000, a decline of less than a half a percentage
point from the previous record year, is a major accomplishment for fiscal 1996.
The lack of state textbook adoption potential caused net sales to drop by
approximately 8% in the first two quarters of fiscal 1996 when about two thirds
of the annual sales are historically made. The major investment committed to
revising leading backlist titles paid off in the third and fourth quarters when
the sales of the newly released copyrights increased sales by about 16% in our
off-season. The final sales figure, which exceeded projections and
expectations, is a credit to your Company's editorial department, the creative
individuals in the production area, and the sales and marketing team. Striving
to meet ambitious sales goals is a way of life at Goodheart-Willcox.
Goodheart-Willcox continues to be profitable, reporting net earnings of
$1,596,000 for fiscal 1996. While below the record $2,017,000 of last year,
this figure compares favorably with the $1,357,000 earned in fiscal 1994. The
five year summary on page 6 shows a steady progression of earnings, including
the spectacular results of last year when major adoptions impacted the trend.
Your Company achieved these earnings by exceptional performance in publishing
successful products, and by monitoring costs and expenses, all in the face of
competitive and pricing pressures.
The financial stability of your Company allows management to take a long term
view of the publishing process. Goodheart-Willcox plans for the future by
devoting significant resources to prepublication products and services. The
rate of investment in new and revised textbook and supplement titles as a
percentage of sales for fiscal 1996 was approximately 9.5%, compared to an
investment rate of 6% in fiscal 1995 and 5% in 1994. The narrow market focus
of the product lines allows the Company to target shifts in curriculum trends,
provide timely products, and add value into proven backlist titles during the
revision process.
Goodheart-Willcox plans for the future by investing in facilities which will
support our employees and customers. A new warehouse and office building is
under construction on 5.9 acres in Tinley Park, Illinois, only about eight
miles from the current South Holland location. Upon relocation, it is
anticipated your Company will retain all the present talented employees as a
productive workforce for future growth. The warehouse will provide
approximately two and one-half times the current storage capacity while
allowing for strengthened distribution capability. New equipment for tele/data
applications should increase employee productivity and improve customer
servicing. The new facility is scheduled for occupancy in early fiscal 1997
and will be financed using existing capital resources.
People are the key to Goodheart-Willcox's success. Your Board members and
employees appreciate the opportunity to be associated with this Company and
pledge to dedicate our efforts to continue the Goodheart-Willcox history of
profitability while maintaining a leadership position in publishing.
/s/ George A. Fischer /s/ John F. Flanagan
George A. Fischer John F. Flanagan
Chairman of the Board President and Chief Executive Officer
<PAGE> 15
THE GOODHEART-WILCOX COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION> April 30,
-------------------------
1996 1995
---- ----
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 5,118,000 $ 7,460,000
Accounts receivable-net of allowance for doubtful
receivables and sales returns of $113,000 and $183,000 1,421,000 1,159,000
Inventories 1,967,000 1,649,000
Deferred income taxes 476,000 505,000
Prepaid income taxes 36,000 --
Other 119,000 86,000
----------- -----------
Total current assets 9,137,000 10,859,000
=========== ===========
INVESTMENT SECURITIES AVAILABLE-FOR-SALE 91,000 89,000
PREPUBLICATION COSTS-net of accumulated amortization of
$1,071,000 and $892,000 1,639,000 1,097,000
PROPERTY AND EQUIPMENT-net 2,253,000 736,000
CASH SURRENDER VALUE OF LIFE INSURANCE-net of loans of $363,000
and $331,000 585,000 411,000
----------- -----------
$13,705,000 $13,192,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 852,000 $ 978,000
Accrued real estate taxes 89,000 80,000
Accrued compensation 325,000 496,000
Dividends payable 299,000 299,000
Royalties payable 212,000 184,000
Income taxes payable -- 235,000
----------- -----------
Total current liabilities 1,777,000 2,272,000
=========== ===========
DEFERRED INCOME TAXES 112,000 108,000
COMMITMENTS AND CONTINGENCIES -- --
REDEEMABLE COMMON STOCK, 163,200 shares at estimated redeemable
value in excess of insurance proceeds less cash surrender value 3,077,000 3,643,000
STOCKHOLDERS' EQUITY
Common stock-authorized, 1,000,000 shares of $1 par value; issued and
outstanding, 598,800 shares, exclusive of 163,200 redeemable shares 599,000 599,000
Retained earnings 8,416,000 6,852,000
=========== ===========
9,015,000 7,451,000
=========== ===========
Net unrealized gain on investment securities available-for-sale 6,000 --
Less cost of 14,100 shares of common stock held in treasury (282,000) (282,000)
=========== ===========
8,739,000 7,169,000
=========== ===========
$13,705,000 $13,192,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 16
THE GOODHEART-WILCOX COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Year Ended April 30,
-------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
SALES $14,645,000 $14,708,000 $12,641,000
Cost of goods sold 5,196,000 4,590,000 3,973,000
----------- ----------- -----------
GROSS PROFIT 9,449,000 10,118,000 8,668,000
----------- ----------- -----------
Operating expenses
Selling, general and administrative 5,693,000 5,511,000 4,967,000
Royalties 1,516,000 1,543,000 1,320,000
----------- ----------- -----------
7,209,000 7,054,000 6,287,000
----------- ----------- -----------
OPERATING PROFIT 2,240,000 3,064,000 2,381,000
----------- ----------- -----------
Other income (expense)
Loss on sale of investment securities -- -- (15,000)
Interest 198,000 212,000 101,000
Other 29,000 48,000 (160,000)
----------- ----------- -----------
227,000 260,000 (74,000)
=========== =========== ===========
Earnings before income taxes 2,467,000 3,324,000 2,307,000
=========== =========== ===========
Income taxes 871,000 1,307,000 950,000
=========== =========== ===========
NET EARNINGS $ 1,596,000 $ 2,017,000 $ 1,357,000
=========== =========== ===========
EARNINGS PER SHARE $ 2.13 $ 2.70 $ 1.81
=========== =========== ===========
Weighted average number of shares outstanding 747,900 747,900 747,900
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 17
THE GOOHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
For the three years ended April 30, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Net unrealized gain (loss)
Common Retained on investment securities Treasury
stock Earnings available-for-sale Stock Total
------ -------- -------------------------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance at May 1,1993 $599,000 $5,612,000 $(15,000) $(282,000) $5,914,000
Net earnings for the year 1,357,000 1,357,000
Change in estimated value of redeemable
common stock in excess of insurance
proceeds (65,000) (65,000)
Net change in unrealized gain (loss) on
investment securities available-for-sale 15,000 15,000
Cash dividends declared ($.70 per share) (524,000) (524,000)
-------- ---------- -------- --------- ----------
Balance at April 30, 1994 $599,000 $6,380,000 $ -- $(282,000) $6,697,000
Net earnings for the year 2,017,000 2,017,000
Change in estimated value of redeemable
common stock in excess of insurance
proceeds (947,000) (947,000)
Cash dividends declared ($.80 per share) (598,000) (598,000)
-------- ---------- -------- --------- ----------
Balance at April 30, 1995 $599,000 $6,852,000 $ -- $(282,000) $7,169,000
Net earnings for the year 1,596,000 1,596,000
Change in estimated value of redeemable
common stock in excess of insurance
proceeds 566,000 566,000
Net change in unrealized gain (loss) on
investment securities available-for-sale 6,000 6,000
Cash dividends declared ($.80 per share) (598,000) (598,000)
-------- ---------- -------- --------- ----------
Balance at April 30, 1996 $599,000 $8,416,000 $ 6,000 $(282,000) $8,739,000
======== ========== ======== ========= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 18
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended April 30,
--------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 1,596,000 $ 2,017,000 $1,357,000
Adjustments to reconcile net
earnings to net cash provided
by operating activities
Depreciation expense 91,000 93,000 73,000
Amortization of prepublication costs 851,000 622,000 601,000
Provision for (recovery of) doubtful
receivables and sales returns (70,000) 544,000 16,000
Deferred income taxes 33,000 (56,000) 82,000
Loss on sale of investment -- -- 15,000
Changes in operating assets and liabilities
Accounts receivable (192,000) (326,000) (301,000)
Inventories (318,000) (76,000) 334,000
Other assets (33,000) 90,000 (35,000)
Accounts payable (126,000) 202,000 (23,000)
Income taxes payable (271,000) 207,000 (61,000)
Accrued expenses (134,000) 188,000 33,000
Net cash provided by operating
activities 1,427,000 3,505,000 2,091,000
CASH FLOWS FROM INVESTING ACTIVITIES: ----------- --------- ---------
Purchases of property and equipment (1,608,000) (127,000) (104,000)
Purchases of prepublication costs (1,393,000) (877,000) (671,000)
Proceeds from sale of investment securities
available-for-sale 4,000 -- 79,000
Change in cash surrender value of
officer's life insurance (174,000) (50,000) 180,000
Net cash used in
investing activities (3,171,000) (1,054,000) (516,000)
CASH FLOWS FROM FINANCING ACTIVITIES: ----------- ---------- --------
Dividends paid (598,000) (561,000) (486,000)
Net cash used in financing activities (598,000) (561,000) (486,000)
----------- ----------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS: (2,342,000) 1,890,000 1,089,000
Cash and cash equivalents at beginning of year 7,460,000 5,570,000 4,481,000
----------- ----------- ----------
Cash and cash equivalents at end of year $ 5,118,000 $ 7,460,000 $5,570,000
SUPPLEMENTAL DISCLOSURE OF CASH FLOW ----------- ----------- ----------
INFORMATION:
Cash paid during the year for income taxes $ 1,109,000 $ 1,137,000 $ 928,000
SUPPLEMENTAL DISCLOSURE OF NON-CASH ----------- ----------- ----------
ACTIVITY:
Unrealized gain (loss) on investment securities
available-for-sale $ 6,000 -- $ 15,000
----------- ----------- ---------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 19
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
FIVE YEAR SUMMARY
Year Ended April 30,
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
SELECTED INCOME STATEMENT
DATA:
Sales $14,645,000 $14,708,000 $12,641,000 $11,873,000 $11,081,000
Costs and expenses 12,405,000 11,644,000 10,260,000 10,061,000 9,766,000
Other income (expense), net 227,000 260,000 (74,000) 108,000 154,000
Income taxes 871,000 1,307,000 950,000 700,000 529,000
Net earnings 1,596,000 2,017,000 1,357,000 1,220,000 940,000
- -------------------------------------------------------------------------------------------------------------------
Earnings per share $ 2.13 $ 2.70 $ 1.81 $ 1.63 $ 1.25
- -------------------------------------------------------------------------------------------------------------------
Weighted average number
of shares outstanding 747,900 747,900 747,900 747,900 750,250
- -------------------------------------------------------------------------------------------------------------------
Dividends per share $ .80 $ .80 $ .70 $ .60 $ .60
- -------------------------------------------------------------------------------------------------------------------
SELECTED BALANCE SHEET DATA:
Total assets $13,705,000 $13,192,000 $11,136,000 $10,307,000 $9,261,000
Redeemable common stock 3,077,000 3,643,000 2,696,000 2,631,000 1,731,000
Total stockholders' equity 8,739,000 7,169,000 6,697,000 5,914,000 6,035,000
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
COMMON STOCK PRICE RANGES AND DIVIDENDS
Stock prices represent high and low closing bids
<TABLE>
<CAPTION>
Cash
Fiscal Price Range Dividend
Quarter Low High Declared
- --------------------------------------------------------------------
<S> <C> <C> <C>
1Q96 $21 $23 $ --
2Q96 24 1/2 26 1/2 --
3Q96 24 3/4 26 1/2 .40
4Q96 25 1/2 27 .40
- --------------------------------------------------------------------
1Q95 $17 $20 $ --
2Q95 18 21 --
3Q95 18 1/2 21 .40
4Q95 19 22 .40
</TABLE>
Fiscal year ends April 30
<PAGE> 20
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS APRIL 30, 1996, 1995 AND 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Goodheart-Willcox Company, Inc., a Delaware corporation, publishes
textbooks on trade and technical, family and consumer sciences, technology,
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 and supplements. Printing and
binding of books are done by outside contractors. The Company's sales are
primarily domestic, and the Company's customer base includes state schools
and community colleges. Historically the Company has experienced its
highest level of sales in the first and second quarter and its lowest level
in the fourth quarter. This pattern has resulted from the purchasing habits
of its school customers.
A summary of the significant accounting policies applied in the
accompanying consolidated financial statements follows
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 the 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.
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 C):
<TABLE>
<CAPTION>
April 30,
1996 1995
----- ----
<S> <C> <C>
Last-in, first-out method $1,898,000 $1,612,000
First-in, first-out method 69,000 37,000
---------- ----------
$1,967,000 $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. Available-for-sale securities are those that
management designated as available to be sold in response to changes in
market interest rates or liquidity needs. Investment securities
available-for-sale are stated at fair value, with the unrealized gains or
losses shown as a component of stockholders' equity. Gains or losses on
disposition of these securities are determined using the specific
identification method.
Property and equipment. Property and equipment are carried at cost less
accumulated depreciation. Depreciation is provided on 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.
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. The Company expenses advertising costs as incurred.
Advertising costs were $369,000 in 1996, $381,000 in 1995 and $297,000 in
1994.
Notes continued on page 8
7
<PAGE> 21
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS APRIL 30, 1996, 1995, AND 1994 CONTINUED
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED
Editorial costs. Editorial costs are charged to expense as incurred.
Income taxes. Deferred income taxes are recorded to reflect the tax
consequences on future years of temporary differences between the tax basis of
assets and liabilities and their financial reporting amounts.
Earnings per share. Earnings per share is computed on the weighted average
number of shares outstanding for the period.
Cash equivalents. The Company considers all highly liquid debt instruments
purchased with a maturity of three months or less to be cash equivalents. The
cost of cash equivalents approximates fair value.
Reclassifications. Certain 1995 amounts have been reclassified to conform with
the 1996 presentation.
Pervasiveness of Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
NOTE B - INVESTMENT SECURITIES
The amortized cost, unrealized gains and losses, and fair value of the
company's investment securities are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
April 30, 1996:
Avaliable-for-sale:
Municipal Income Trusts $85,000 $6,000 -- $91,000
April 30, 1995: ------- ------- ------- -------
Available-for-sale:
Municipal Income Trusts $85,000 $ -- $ -- $85,000
Common Stocks 4,000 -- -- 4,000
------- ------- ------- -------
$89,000 $ -- $ -- $89,000
======= ======= ======= =======
</TABLE>
Available-for-sale securities shown above do not have contractual maturities.
NOTE C - INVENTORIES
<TABLE>
<CAPTION>
Inventories consist of the following: 1996 1995
---------- ----------
<S> <C> <C>
Raw materials $ 78,000 $ 105,000
Work in process 69,000 37,000
Finished goods 1,820,000 1,507,000
--------- ---------
$1,967,000 $1,649,000
========= =========
</TABLE>
Inventories would have been $2,645,000 and $2,301,000 higher at April 30, 1996
and 1995, respectively, if the first-in, first-out method of accounting had
been used on all inventories. The use of the LIFO method, as opposed to the
FIFO method, had the effect of decreasing net earnings by approximately
$228,000 (.30 per share), $103.000 (.14 per share), and $83,000 (.11 per share)
for the years ended April 30, 1996, 1995, and 1994, respectively.
8 Notes continued on page 9
<PAGE> 22
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS APRIL 30, 1996, 1995, AND 1994
continued
NOTE D - PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Property and equipment consists of the following: 1996 1995
---------- ----------
<S> <C> <C>
Land $ 814,000 $ 125,000
Building and improvements 1,027,000 1,026,000
Equipment 840,000 754,000
---------- ----------
2,681,000 1,905,000
Less accumulated depreciation 1,263,000 1,172,000
---------- ----------
1,418,000 733,000
Construction in progress 835,000 3,000
---------- ----------
$2,253,000 $ 736,000
========== ==========
</TABLE>
NOTE E - INCOME TAXES
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
Currently payable: 1996 1995 1994
-------- ---------- --------
<S> <C> <C> <C>
Federal $683,000 $1,078,000 $708,000
State 155,000 285,000 160,000
-------- ---------- --------
838,000 1,363,000 868,000
Deferred 33,000 (56,000) 82,000
-------- ---------- --------
$871,000 $1,307,000 $950,000
======== ========== ========
</TABLE>
The tax effects of the existing temporary differences that give rise to
deferred tax assets and liabilities at April 30, are as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Deferred tax assets
Inventory capitalization $ 327,000 $ 333,000
Accrued compensation 103,000 96,000
Allowance for doubtful receivables and sales returns 46,000 76,000
--------- ---------
476,000 505,000
Deferred tax liabilities
Depreciation (112,000) (108,000)
--------- ---------
Net deferred tax asset $ 364,000 $ 397,000
========= =========
</TABLE>
The components of the deferred tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
Excess of tax over book depreciation $ 4,000 $ 3,000 $ 3,000
Inventory capitalization 6,000 6,000 67,000
Accrued compensation (7,000) 5,000 (2,000)
Allowance for doubtful receivables and sales returns 30,000 (70,000) --
Other -- -- 14,000
-------- -------- -------
$ 33,000 $(56,000) $82,000
======== ======== =======
</TABLE>
Notes continued on page 10
9
<PAGE> 23
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS APRIL 30, 1996, 1995, AND 1994
continued
NOTE E - INCOME TAXES-CONTINUED
A reconciliation of income taxes computed at the Federal statutory rate (34%)
and income tax expense is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- ---------- --------
<S> <C> <C> <C>
Federal income taxes at statutory rate $839,000 $1,130,000 $784,000
State income taxes-net of Federal tax benefit 102,000 196,000 116,000
Municipal bond interest exemption (65,000) (52,000) (26,000)
Officer's life insurance (16,000) 17,000 61,000
Other 11,000 16,000 15,000
-------- ---------- --------
$871,000 $1,307,000 $950,000
======== ========== ========
</TABLE>
NOTE F - 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.
Company contributions were $318,000 in 1996, $306,000 in 1995, and $269,000 in
1994. 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's
contributions to the plan were $7,500 in 1996 and $7,500 in 1995.
NOTE G - 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.
Prior to fiscal 1994, the life insurance was with Executive Life Insurance
Company, held in conservatorship by the California Department of Insurance. In
fiscal 1994, the California Department of Insurance approved the sale of
Executive Life to Aurora National Life Assurance Company (Aurora). Under the
terms of the sale, Aurora assumed the obligations of the restructured policies
of Executive Life. In connection with the restructuring of Executive Life and
the sale to Aurora, the Company recorded in other expenses a fourth quarter
charge in fiscal 1994 of $180,000 for the reduction in the cash surrender value
of the life insurance. Aurora has assumed all policy obligations, thus no
reduction has been made in the amount of insurance proceeds available for stock
redemption upon the death of the principal stockholder.
The Company has entered into employment agreements with the chairman of the
board of directors and president 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
April 30, 1996 and 1995.
In May 1995, the Company acquired property in Tinley Park, Illinois, for
approximately $738,000 upon which it is constructing a warehouse and office
building. It is anticipated the building will be completed for occupancy in
early fiscal 1997 at a total cost exclusive of land of approximately
$2,798,000.
10
Notes continued on page 11
<PAGE> 24
THE GOODHEART-WILLCOX COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS APRIL 30, 1996, 1995, AND 1994
continued
NOTE H - QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Net earnings (loss)
------------------------
Net sales Gross profit Total Per share
----------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
FISCAL YEAR 1996
FIRST $ 4,373,000 $ 3,110,000 $ 796,000 $1.06
SECOND 5,111,000 3,328,000 810,000 1.09
THIRD 2,933,000 1,777,000 41,000 .05
FOURTH 2,228,000 1,234,000 (51,000) (.07)
----------- ----------- ---------- -----
$14,645,000 $ 9,449,000 $1,596,000 $2.13
=========== =========== ========== =====
Fiscal year 1995
First $ 4,431,000 $ 3,204,000 $ 940,000 $1.26
Second 5,853,000 4,115,000 1,269,000 1.69
Third 2,737,000 1,716,000 97,000 .13
Fourth 1,687,000 1,083,000 (289,000) (.38)
----------- ----------- ---------- -----
$14,708,000 $10,118,000 $2,017,000 $2.70
=========== =========== ========== =====
</TABLE>
The quantities and costs used in calculating cost of goods sold on a quarterly
basis include estimates of the annual LIFO effect. The actual effect cannot be
known until the year-end physical inventory is completed and quantity and price
indices developed. The quarterly cost of goods sold above includes such
estimates.
11
<PAGE> 25
THE GOODHEART-WILLCOX COMPANY, INC.
STATEMENT OF MANAGEMENT RESPONSIBILITIES
The management of Goodheart-Willcox Company, Inc. is responsible for
the integrity and objectivity of the financial and operating
information contained in this Annual Report. The consolidated
financial statements were prepared in conformity with generally
accepted accounting principles and include amounts that are based on
the best estimates and judgments of management. The audit report of
Grant Thornton LLP on these financial statements is the result of
their audit performed in accordance with generally accepted auditing
standards.
The Company maintains a system of internal financial controls designed
to provide management with reasonable assurance that transactions are
executed in accordance with appropriate authorization, assets are
properly safeguarded, and accounting records may be relied upon for
the preparation of financial statements. This system includes written
policies and procedures and an organizational structure that
segregates duties.
The Audit/Compensation Committee of the Board of Directors has an
oversight role in the area of financial reporting and internal
controls. This committee meets several times each year with management
and Grant Thornton LLP to monitor the proper discharge of each of
their respective responsibilities. Grant Thornton LLP has free access
to management and to the Audit/Compensation Committee to discuss the
results of their activities and adequacy of controls.
/s/ George A. Fischer /s/ John F. Flanagan
George A. Fischer John F. Flanagan
Chairman of the Board President and Chief Executive Officer
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
SOUTH HOLLAND, ILLINOIS
We have audited the accompanying consolidated balance sheets of The
Goodheart-Willcox Company, Inc. and Subsidiary as of April 30, 1996
and 1995, and the related consolidated statements of earnings,
stockholders' equity, and cash flows for each of the three years in
the period ended April 30, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position
of The Goodheart-Willcox Company, Inc. and Subsidiary as of April 30,
1996 and 1995, and the consolidated results of their operations and
their consolidated cash flows for each of the three years in the
period ended April 30, 1996, in conformity with generally accepted
accounting principles.
/s/ Grant Thornton LLP
Chicago, Illinois
May 31, 1996
12
<PAGE> 26
THE GOODHEART-WILCOX COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OPERATING RESULTS
The Company's sales for fiscal 1996 decreased $63,000 or less than
one-half percent from the previous fiscal year. The net sales decrease
for fiscal 1996 is attributed to the lack of significant state
textbook adoptions and weaker orders from open territories during the
first two quarters of the fiscal year when a majority of the seasonal
sales are recorded. In fiscal 1995, sales increased $2,067,000 or
approximately 16% over the previous fiscal year due to generally
stronger demand for new and revised Goodheart-Willcox products,
including strong state adoption orders from Indiana, Florida, and
Georgia. In fiscal 1994, sales increased $768,000 or approximately 6%
over the previous fiscal year due to the sales of new and revised
titles outside of the typical state adoption cycle coupled with sales
in two adoption calls from Florida and Texas. State textbook
adoptions, which contribute substantially to the Company's sales,
historically have been held at regular, predictable intervals. During
the past several years, the intervals for several states have been
significantly increased. Selective price increases are made each year
on a product by product basis after considering the costs 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. The
reserve for future sales returns is reviewed and modified slightly on
a quarter by quarter basis as the sales mix continues to shift from
the middle and senior high schools to community college bookstores
where the number of books and supplements returned occur with greater
volume. The reserve for future returns may experience minor
fluctuations 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 fiscal 1996 was 35%
compared to 31% in both fiscal 1995 and fiscal 1994. The change in
the ratio of the cost of goods sold as a percentage of sales for
fiscal 1996 was primarily attributed to the increase in the cost of
paper with an added influence due to the substantial investment in the
revision of a number of major backlist titles. As stated in the
annual report one year ago "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
selling price increases, adjustments to the print and reprint
quantities, and the application of computer technology by outside
suppliers permitting more rapid creation preparation, shorter press
runs, reduction in manufacturing time, and consistently high quality
allowing Goodheart-Willcox to better control the unit cost of
textbooks and supplements. Management decisions must be balanced
between the cost of goods sold as a percentage of sales versus the
timing of when new or revised products come to market and contribute
to sales.
Operating expenses consisting of royalties as well as selling,
general, and administrative expenses increased $155,000 or
approximately 2% over the previous fiscal year. This compares to an
increase of $767,000 or approximately 12% from the previous year over
fiscal 1994. Selling, general, and administrative cost as a
percentage of sales for fiscal 1996 was approximately 39% compared to
37% in fiscal 1995 and 39% in fiscal 1994. The ratio for fiscal 1996
reflects 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 unique to the textbook publishing
industry. In fiscal 1996, sampling expenses were $440,000 compared to
$342,000 in fiscal 1995 and $425,000 in fiscal 1994.
The half a percent decrease in net sales for fiscal 1996 coupled with
a 35% cost of goods sold as a percentage of sales and a 2% increase in
the operating expenses resulted in income from operations of
$2,240,000 or a decrease of approximately 27% under the previous
year's record income from operations of $3,064,000. In fiscal 1995, a
16% increase in net sales coupled with a 31% cost of goods sold as a
percentage of sales and a 12% increase in operating expenses increased
the Company's income from operations by $683,000 over the previous
fiscal year's income from operations of $2,381,000. In fiscal 1994, a
6% increase in net sales coupled with a 31% cost of goods sold as a
percentage of sales and a 6% increase in operating expenses increased
the Company's income from operations by $569,000 over the previous
fiscal year's income from operations of $1,812,000. Other income for
fiscal 1996 was $227,000 due to reduced interest income and reduced
royalty income as titles licensed to other publishers become dated.
Other income for fiscal 1995 was $260,000 due to the rise in interest
rates combined with the Company's increase in cash and cash
equivalents. For fiscal 1994, other income (expense) was ($74,000)
due primarily to the $180,000 reduction in the cash surrender value of
the life insurance policy carried to redeem the mandatorily redeemable
common stock. The Company's fiscal year end of April 30 divides
Management's Discussion and Analysis continued on page 14
13
<PAGE> 27
THE GOODHEART-WILLCOX COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS-CONTINUED
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 resulting sales primarily follow in the first two quarters
of the next fiscal year.
LIQUIDITY
Cash and cash equivalents totaled $5,118,000 at April 30, 1996, a
decrease of $2,342,000 from the year ending April 30, 1995. The
company had no outstanding long term debt at April 30, 1996 or 1995.
As shown in the cash flow statements, the cash provided by the
operating activities of the Company amounted to $1,427,000 for fiscal
1996 as compared to $3,505,000 for fiscal 1995, a decrease of
$2,078,000 which is attributable principally to the decrease in net
earnings after adjustments to accounts covering amortization of
prepublication costs, provision for doubtful receivables and sales
returns, accounts receivable, inventories, accounts payable, and
income taxes payable. In fiscal 1995 the cash provided by the
operating activities of the Company amounted to $3,505,000 as compared
to $2,091,000 for fiscal 1994, an increase of $1,414,000 which is
attributable principally to the increase in net earnings with other
adjustments to accounts covering provision for doubtful receivables
and sales returns, deferred income taxes, accounts receivable,
inventories, accounts payable, and income taxes payable. The changes
in assets and liabilities for fiscal 1996 include a decrease in cash
and cash equivalents as well as an increase in accounts receivable
from the better than expected sales in the third and fourth quarters,
an increase in inventories from the substantial efforts to revise
major titles, an increase in prepublication services for new and
revised products under development, and increase in property and
equipment from the construction of the new facility, and a decrease in
income taxes payable. The changes in assets and liabilities for
fiscal 1995 include an increase in the cash and cash equivalents as
well as an increase in inventories due to the addition of new products
and replenishing the warehouse following a successful shipping season,
an increase in prepublication investment, an increase in accounts
payable, an increase in accrued compensations due to the timing of the
distribution of the end-of-year checks, and an increase in income
taxes payable. There have been no changes in Goodheart-Willcox
business practices including credit terms, collection efforts, and
return policies from previous years.
Investment in new and revised products for fiscal 1996 was $1,393,000
or an increase of $516,000 more than the $877,000 invested in fiscal
1995 for the purchase of publication services. Prepublication
products and services amounted to $671,000 in fiscal 1994. The rate
of investment in new and revised products as a percentage of sales for
fiscal 1996 was approximately 9.5%, compared to an investment rate of
6% in fiscal 1995 and 5% in fiscal 1994. The Company currently
intends to maintain an aggressive pace of prepublication investment in
products and services in future quarters to maintain a publishing
program of adding new titles and products to the lines while revising
a backlist of products to match marketing needs. With advances in
general technology, the magnitude of revision efforts required to keep
the industrial and technical books up to date has increased the
investment allocations. The investment in new hardware and software to
keep Goodheart-Willcox advancing with technology is an on-going
process which required $31,000 in fiscal 1996, compared to $74,000 in
fiscal 1995 and $104,000 in fiscal 1994. In fiscal 1996 there was
$4,000 of investing activity in marketable securities while in fiscal
1995 there were no investing activities relating to marketable
securities, compared to fiscal 1994 when $79,000 was received from the
sale of marketable securities. In fiscal 1996, $832,000 was invested
in construction for the new warehouse/office facility being built in
Tinley Park, Illinois.
The primary financing use of cash in each of the last three years was
the payment of dividends at the rate of $.80 per share in both fiscal
1996 and fiscal 1995, and $.70 per share in fiscal 1994.
The first and second quarters historically have displayed increased
shipments and increased growth in accounts receivable while inventory
declines. The fourth quarter has historically displayed an
anticipated growth in inventories as new and revised products are
published for the next calendar/copyright year and for the next
marketing cycle. The 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 for various departments within Goodheart-Willcox
will be met
Management's Discussions and Analysis Continued on page 15
14
<PAGE> 28
THE GOODHEART-WILLCOX COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS-CONTINUED
from cash flow from operating activities. In fiscal 1997, the
investment in prepublication products and services is expected to
increase over the pattern established in previous years with plans to
revise popular backlist titles while adding 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 operation including editorial, creative,
sales and marketing, and distribution to the new facility which is
located 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. The present South Holland facility has been placed on the
market for sale. It is anticipated the new structure will be
completed for occupancy in early fiscal 1997 at a total cost of
approximately $2,798,000 using existing capital resources. In
addition, existing capital resources will be used to acquire
comprehensive tele/data cabling and a new telephone system to improve
customer servicing, new furnishings to increase employee productivity,
and new racking and added conveyor systems to strengthen warehousing
and distribution capability.
THE EFFECTS OF INFLATION
Inflation affects the Company due to increases in the cost of
materials and services. In fiscal 1995 and in the first three
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 or reprint
existing products has experienced dramatic price swings. Products
printed and bound in the third and fourth quarters of fiscal 1996
using the more costly paper available will be sold primarily in the
first and second quarters of fiscal 1997. By advanced planning and by
shifting grades of paper, the effect of the paper price increases may
be delayed. At the close of the third quarter of fiscal 1996, some
lead times for paper orders were shortening and there was some
softening of paper pricing. The ability to reflect such price
increases in the selling prices 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
costs 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 to meet key deadlines.
15
<PAGE> 29
THE GOODHEART-WILLCOX COMPANY, INC.
CORPORATE INFORMATION
CORPORATE OFFICE, The Goodheart-Willcox Company, Inc., 123 W. Taft Drive,
South Holland, Illinois 60473
ANNUAL MEETING, The next annual meeting will take place at 9:30 a.m.
C.D.T., July 9, 1996, at the Corporate Office, South Holland, Illinois
STOCK SYMBOL, GWOX, Over-the-Counter Market
TRANSFER AGENT, First National Bank of Chicago
GENERAL COUNSEL, Hedberg, Tobin, Flaherty & Whalen, A Professional
Corporation, Chicago
INDEPENDENT PUBLIC ACCOUNTANTS, Grant Thornton LLP, Chicago
S.E.C. FORM 10-K AVAILABLE, Copies of the Corporation's annual report on
Form 10-K, filed with the Securities and Exchange Commission, will be
available to stockholders without charge by written request addressed to
the Secretary of the Corporation.
DIRECTORS
Walter C. Brown, EdD, Professor Emeritus, Division of Technology, Arizona
State University
Robert C. DeBolt, President and Chief Executive Officer, F.H. Ayer
Manufacturing Co.
George A. Fischer, Chairman, The Goodheart-Willcox Company, Inc.
John F. Flanagan, President, Chief Executive Officer, The Goodheart-Willcox
Company, Inc.
Wilma Pitts Griffin, PhD, CFCS, Professor, Department of Family and
Consumer Sciences, Baylor University
Clois E. Kicklighter, EdD, Dean, School of Technology, Indiana State
University Loraine J. Mix, Private Investor
EXECUTIVE OFFICERS
George A. Fischer, Chairman
John F. Flanagan, President, Chief Executive Officer
Donald A. Massucci, Vice-President, Administration and Treasurer
Dick G. Snyder, Vice-President, Sales and Secretary
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[GRAPHIC]
THE GOODHEART-WILLCOX CO., INC., 123 W. TAFT DR. SOUTH HOLLAND, IL
60473-2089
