<PAGE> 1
THE GOODHEART-WILLCOX COMPANY, INC.
QUARTERLY REPORT AND FORM 10-Q
FOR THE QUARTER ENDED JANUARY 31, 1996
<PAGE> 2
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
<TABLE>
<S> <C>
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934.
For the quarterly period ended January 31, 1996
</TABLE>
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
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
123 Taft Drive----, South Holland, Illinois 60473
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(Address of principal executive offices) (Zip Code)
(708) 333-7200
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(Registrant's telephone number, including area code)
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(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: February 29, 1996 - 747,900 shares.
<PAGE> 3
INDEX
THE GOODHEART-WILLCOX COMPANY, INC.
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
------ --------------------- ----
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets - January 31, 1996 and April 30, 1995 ..... 4
Consolidated Statements of Earnings - Three Months Ended January 31,
1996 and 1995; Nine Months Ended January 31, 1996 and 1995 .......... 6
Consolidated Statements of Stockholders' Equity - Nine Months Ended
January 31, 1996 and 1995 ........................................... 7
Consolidated Statements of Cash Flows - Nine Months Ended
January 31, 1996 and 1995 ........................................... 8
Notes to Consolidated Financial Statements - January 31, 1996 ......... 9
Item 2. Management's Discussion and Analysis of Financial Conditions and
Results of Operations ............................................... 15
SIGNATURES ...................................................................... 19
----------
PART II. OTHER INFORMATION
-------- -----------------
Item 6. Exhibit 27 - Financial Data Schedule .................................. 20
</TABLE>
<PAGE> 4
PART I - FINANCIAL STATEMENTS
FORM 10-Q
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
January 31, April 30,
ASSETS 1996 1995
----------- ----------
(Unaudited) (Note)
<S> <C> <C>
Current assets
Cash and cash equivalents ..................................... $ 6,832,000 $ 7,460,000
Accounts receivable - net of allowance for doubtful receivables
and returns of $233,000 and $183,000 ........................ 1,539,000 1,159,000
Inventories ................................................... 1,802,000 1,649,000
Deferred income taxes ......................................... 513,000 505,000
Other ......................................................... 219,000 86,000
----------- ----------
Total current assets ..................................... 10,905,000 10,859,000
Investment in marketable securities ............................. 89,000 89,000
Prepublication costs - net of accumulated amortization of
$1,058,000 and $892,000 ....................................... 1,440,000 1,097,000
Property and equipment - net .................................... 1,699,000 683,000
Cash surrender value of life insurance net of loans of $331,000
for 1995 and 1996 ............................................. 450,000 411,000
Other assets .................................................... - 53,000
----------- ----------
$14,583,000 $13,192,000
=========== ===========
</TABLE>
Note: The balance sheet at April 30, 1995 has been taken from audited
financial statement at that date.
4
<PAGE> 5
PART I - FINANCIAL STATEMENTS
FORM 10-Q
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS - CONTINUED
(UNAUDITED)
<TABLE>
<CAPTION>
January 31, April 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
----------- ---------
(Unaudited) (Note)
<S> <C> <C>
Current liabilities
Accounts payable ............................................. $ 660,000 $ 978,000
Accrued real estate taxes .................................... 102,000 80,000
Accrued compensation ......................................... 677,000 496,000
Accrued profit sharing contribution .......................... 240,000 -
Dividends payable ............................................ - 299,000
Royalties payable ............................................ 309,000 184,000
Income taxes payable ......................................... 327,000 235,000
----------- ---------
Total current liabilities ................................ 2,315,000 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 ......................................... 3,682,000 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 ............................................ 8,161,000 6,852,000
----------- ---------
8,760,000 7,451,000
Less cost of 14,100 shares of common stock held in treasury .. (282,000) (282,000)
----------- ---------
8,478,000 7,169,000
----------- ---------
$14,583,000 $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 integral part of these statements.
5
<PAGE> 6
PART I - FINANCIAL STATEMENTS
FORM 10-Q
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine months ended
January 31, January 31,
--------------------- ------------------------
1996 1995 1996 1995
--------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Sales ...................... $2,933,000 $2,737,000 $12,417,000 $13,021,000
Cost of goods .............. 1,156,000 1,021,000 4,202,000 3,986,000
--------- --------- ---------- -----------
Gross profit .......... 1,777,000 1,716,000 8,215,000 9,035,000
Operating expenses
Selling, general and
administrative .......... 1,460,000 1,329,000 4,395,000 4,016,000
Royalties ................. 306,000 313,000 1,283,000 1,395,000
--------- --------- ---------- -----------
1,766,000 1,642,000 5,678,000 5,411,000
--------- --------- ---------- -----------
Operating profit ...... 11,000 74,000 2,537,000 3,624,000
Other income (expense)
Interest .................. 54,000 59,000 154,000 125,000
Other ..................... 3,000 23,000 19,000 30,000
--------- --------- ---------- -----------
57,000 82,000 173,000 155,000
--------- --------- ---------- -----------
Earnings before income
taxes ............... 68,000 156,000 2,710,000 3,779,000
Income tax expense (benefit)
Currently payable ......... 27,000 63,000 1,071,000 1,549,000
Deferred .................. - (4,000) (8,000) (76,000)
--------- --------- ---------- -----------
27,000 59,000 1,063,000 1,473,000
--------- --------- ---------- -----------
NET EARNINGS .......... $ 41,000 $ 97,000 $ 1,647,000 $ 2,306,000
========= ========= ========== ===========
Earnings per share ......... $.05 $.13 $2.20 $3.08
========= ========= ========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 7
PART I - FINANCIAL STATEMENTS
FORM 10-Q
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED JANUARY 31, 1996 AND 1995
(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) $7,169,000
Net earnings for period ............. - 1,647,000 - 1,647,000
Change in estimated value of
redeemable common stock in
excess of insurance proceeds based
on increase in cash surrender value
of life insurance ................. - (39,000) - (39,000)
Net change in unrealized loss on
marketable equity securities ...... - - - -
Cash dividends declared
($.40 per share) .................. - (299,000) - (299,000)
------- --------- -------- ---------
Balance at January 31, 1996 ......... $599,000 $8,161,000 $(282,000) $8,478,000
======= ========= ======== =========
Balance at April 30, 1994 ........... $599,000 $6,380,000 $(282,000) $6,697,000
Net earnings for period ............. - 2,306,000 - 2,306,000
Change in estimated value of
redeemable common stock in
excess of insurance proceeds based
on increase in cash surrender value
of life insurance ................. - (56,000) - (56,000)
Cash dividends declared
($.40 per share) .................. - (299,000) - (299,000)
------- --------- -------- ---------
Balance at January 31, 1995 ......... $599,000 $8,331,000 $(282,000) $8,648,000
======= ========= ======== =========
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE> 8
PART I - FINANCIAL STATEMENTS
FORM 10-Q
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED JANUARY 31,
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings .................................................. $1,647,000 $2,306,000
Adjustments to reconcile net earnings to net cash provided by
operating activities
Depreciation expense ...................................... 67,000 55,000
Amortization of prepublication costs ...................... 605,000 450,000
Deferred income taxes ..................................... (8,000) (76,000)
Other ..................................................... - 1,000
Changes in operating assets and liabilities
Accounts receivable .................................... (380,000) (34,000)
Inventories ............................................ (153,000) 452,000
Other assets ........................................... (133,000) (14,000)
Accounts payable ....................................... (318,000) (265,000)
Accrued expenses ....................................... 443,000 588,000
Royalties payable ...................................... 125,000 78,000
Income taxes ........................................... 92,000 728,000
----------- ----------
Net cash provided by operating activities ........... 1,987,000 4,269,000
Cash flows from investing activities:
Purchase of property and equipment ............................ (1,030,000) (63,000)
Purchases of prepublication costs ............................. (948,000) (530,000)
Increase in cash surrender value of officer's life insurance .. (39,000) (56,000)
----------- ----------
Net cash used in investing activities ............... (2,017,000) (649,000)
Cash flows from financing activities:
Dividends paid ................................................ (598,000) (561,000)
----------- ----------
Net cash used in financing activities ............... (598,000) (561,000)
----------- ----------
Increase (decrease) in cash and cash equivalents .... (628,000) 3,059,000
Cash and cash equivalents at beginning of period ................ 7,460,000 5,570,000
----------- ----------
Cash and cash equivalents at end of period ...................... $6,832,000 $8,629,000
=========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes - net .......................................... $ 978,000 $ 815,000
=========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
8
<PAGE> 9
PART I - FINANCIAL STATEMENTS
FORM 10-Q
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1996
(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 and nine month periods ended January 31, 1996 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, vocational
subjects, and family and consumer sciences. The Company's activities include
the search for authors, the procurement and editing of manuscripts, and the
design, illustration and marketing of its textbooks. Printing and binding of
books is done by outside contractors.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary, G/W Investment Company, Inc. All significant
intercompany transactions have been eliminated in consolidation.
REVENUE RECOGNITION
The Company recognizes revenue at time of shipment from Company warehouse or
outside depositories. A provision for estimated returns, consisting of sales
value less related inventory value and royalty costs, is made at time of sale.
9
<PAGE> 10
PART I - FINANCIAL STATEMENTS
FORM 10-Q
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JANUARY 31, 1996
(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>
January 31, April 30,
1996 1995
----------- ----------
<S> <C> <C>
Last-in, first-out method ... $1,758,000 $1,612,000
First-in, first-out method .. 44,000 37,000
--------- ---------
$1,802,000 $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.
10
<PAGE> 11
PART I - FINANCIAL STATEMENTS
FORM 10-Q
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JANUARY 31, 1996
(UNAUDITED)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Expenditures for repairs and maintenance are charged against income when
incurred, and replacements are capitalized. Gains or losses on dispositions of
property and equipment are included in income.
PREPUBLICATION COSTS
The Company capitalizes certain outside contractor costs, primarily artwork,
film and preparation costs, associated with creation of the textbooks and
supplements. Prepublication costs are amortized over a period of three years,
under the straight-line method.
ADVERTISING COSTS
During fiscal 1995, the Company adopted Statement of Position (SOP) 93-7,
"Reporting on Advertising Costs," and has elected to expense advertising costs
annually. The impact of adopting the SOP was not material to the financial
statements for the year ended April 30, 1995.
EDITORIAL COSTS
Editorial costs are charged to expense as incurred.
INCOME TAXES
The Company accounts for taxes under the provision 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 January 31, 1996 and 1995.
11
<PAGE> 12
PART I - FINANCIAL STATEMENTS
FORM 10-Q
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JANUARY 31, 1996
(UNAUDITED)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
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.
NOTE B - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
January 31, April 30,
1996 1995
---------- ----------
<S> <C> <C>
Raw materials .... $ 51,000 $ 105,000
Work-in-process .. 44,000 37,000
Finished goods ... 1,707,000 1,507,000
---------- ----------
$1,802,000 $1,649,000
========== ==========
</TABLE>
Inventories would have been $2,492,000 and $2,301,000 higher at January 31, 1996
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.
12
<PAGE> 13
PART I - FINANCIAL STATEMENTS
FORM 10-Q
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JANUARY 31, 1996
(UNAUDITED)
NOTE C - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
January 31, April 30,
1996 1995
----------- ---------
<S> <C> <C>
Land ........................... $ 813,000 $ 75,000
Building and improvements ...... 1,320,000 1,026,000
Equipment ...................... 804,000 754,000
----------- ---------
2,937,000 1,855,000
Less accumulated depreciation .. 1,238,000 1,172,000
----------- ---------
$1,699,000 $ 683,000
=========== =========
</TABLE>
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.
13
<PAGE> 14
PART I - FINANCIAL STATEMENTS
FORM 10-Q
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JANUARY 31, 1996
(UNAUDITED)
NOTE E - EMPLOYEE BENEFIT PLANS - CONTINUED
The Company has recorded contributions amounting to $240,000 and $221,000 for
the nine months ended January 31, 1996 and 1995, respectively.
NOTE F - COMMITMENTS AND CONTINGENCIES
Under an agreement between the Company and a principal stockholder/officer, the
Company will purchase 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 January 31, 1996 and April 30, 1995.
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 January 31, 1996 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
early fiscal 1997 at a total cost exclusive of land of approximately
$2,762,000.
14
<PAGE> 15
THE GOODHEART-WILLCOX COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS
OPERATING RESULTS
The Company's net sales for the third quarter of fiscal 1996 increased
$196,000, or approximately 7% from the same quarter in the previous
fiscal year due to increased orders from open territories coupled with
selective price increases. For the nine months ending January 31, 1996,
net sales decreased $604,000, or approximately 5% compared to the
previous nine month period ending January 31, 1995. The net sales
decrease for the first three quarters of 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 the third quarter of
fiscal 1995, net sales increased $383,000, or approximately 16% from the
same quarter in the previous fiscal year due to increased orders from
open territories and from selective price increases. For the nine
months ending January 31, 1995, net sales increased $2,378,000, or
approximately 22% compared to the previous nine month period ending
January 31, 1994 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 third 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 volume. The reserve
for future returns may experience minor fluctuation 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 third quarter of
fiscal 1996 was 39% compared to 37% in the third quarter of fiscal 1995
and 27% in the third quarter of fiscal 1994. For the nine months ending
January 31, 1996, the cost of goods sold as a percentage of sales was
34% compared to 31% for both of the nine month periods ending January
31, 1995 and 1994. The change in the ratio of the cost of goods sold as
a percentage of sales for the first three quarters was primarily
attributed to the increased cost of paper with an added influence
attributable to the substantial investment in the revision of major
backlist titles. 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 selling price
increases, adjustments to the print and reprint quantities, and the
application of computer technology by outside suppliers permitting more
rapid creative 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.
15
<PAGE> 16
Operating expenses consisting of royalties as well as selling, general,
and administrative expenses increased $124,000 or approximately 8% over
the third quarter of fiscal 1995. This compares to an increase of
$148,000 or approximately 10% in the third quarter of fiscal 1995 over
the previous third quarter of fiscal 1994. For the nine months ending
January 31, 1996, the operating expenses consisting of royalties as well
as selling, general, and administrative expenses increased $267,000 or
approximately 5% compared to an increase of $687,000 or approximately
15% for the previous nine month period of fiscal 1995.
Selling, general, and administrative costs as a percentage of sales for
the third quarter of fiscal 1996 were 50% compared to 49% in the third
quarter of fiscal 1995 and 53% in the third quarter of fiscal 1994.
For the nine month period ending January 31, 1996, the selling, general,
and administrative costs as a percentage of sales were 35% compared to
31% in fiscal 1995 and 34% in fiscal 1994. The ratios for the first
three quarters of fiscal 1996 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 nine months of fiscal
1996 due to the large number of new and revised titles, the sampling
expenses increased to $261,000 from $184,000 for the first nine months
of the previous fiscal year.
The 7% increase in net sales during the third quarter of fiscal 1996
coupled with a 2% increase in the cost of goods sold as a percentage of
sales and a 8% greater operating expense, decreased the Company's income
from operations by $63,000, or approximately 85%, to $11,000. For the
third quarter of fiscal 1995, the 16% increase in net sales coupled with
a 10% increase in the cost of goods sold as a percentage of sales (due
in large part to the revised accounting estimates for the expected
end-of-year inventory levels under the LIFO method the previous year)
and an approximate 10% increase in the operating expenses resulted in
income from operations of $74,000, or a decline of approximately 66%
from the previous third quarter's income from operations of $215,000.
For the nine months ending January 31, 1996, the 5% decline in net sales
coupled with the 3% increase in the cost of goods sold as a percentage
of sales and a 5% greater operating expense, decreased the Company's
income from operations by $1,087,000, or approximately 30%, to
$2,537,000. For the nine months ending January 31, 1995, the 22% sales
increase and the 15% increase in operating expenses tied to lower cost
of goods sold at 31% improved the Company's income from operations by
$1,005,000, or approximately 38%, to $3,624,000. Other income for the
third quarter of fiscal 1996 was $57,000 compared to $82,000 in the
third quarter of fiscal 1995. For the nine month period ending January
31, 1996, other income was $173,000 compared to $155,000 in the similar
period of the previous 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> 17
LIQUIDITY
Cash and cash equivalents totaled $6,832,000 at January 31, 1996, a
decrease of $628,000 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 nine months of fiscal 1996 amounted to $1,987,000, as
compared to $4,269,000 for the first nine months of fiscal 1995, a
change which is attributed to the decrease in net earnings after
adjustments to accounts covering amortization of prepublication costs,
accounts receivable, inventories, accrued expenses, and income taxes
payable. The cash provided by the operating activities of the Company
for the first nine months of fiscal 1995 amounted to $4,269,000, as
compared to $2,725,000 for the first nine months of fiscal 1994, an
improvement of $1,544,000 which is attributed principally to the
increase in net earnings with other adjustments to accounts covering
deferred income taxes, inventories, accounts payable, accrued expenses,
and income taxes payable. The changes in the assets and liabilities for
the first nine months of fiscal 1996 include a decrease of cash and
cash equivalents, an increase in accounts receivable, an increase in
inventories attributable to the addition of new and revised products, an
increase of prepublication services for new and revised products under
development, an increase in property and equipment from the construction
of the new facility, a reduction in accounts payable, and an increase in
income taxes payable. There have been no changes in business practices
including credit terms or collection efforts from previous years.
Investment in new and revised products in the first nine months of
fiscal 1996 was $948,000, or an increase of $418,000 over the first nine
months of fiscal 1995 when $530,000 was used for the purchase of
prepublication services. The rate of investment in new and revised
products as a percentage of sales for the first nine months of fiscal
1996 was approximately 8%, compared to an investment rate of 4% for the
similar period of the previous fiscal year. The Company currently
intends to continue an aggressive pace of prepublication investment to
maintain a publishing program of adding new titles while revising a
backlist of products to match market 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. In the third quarter of fiscal 1996, there were no
investing activities related to marketable securities, as was also the
case in the first and second quarters.
The primary financing use of cash in the nine months ending January 31,
1996 was the payment of dividends at $.80 per share. For the previous
nine month period ending January 31, 1995, the primary financing use
of cash was the payment of dividends at the rate of $.75 per share.
The first and second quarters historically have displayed increased
shipments and increased growth in accounts receivable while inventory
declines. This past third quarter, the strength of the Company's product
line also contributed to increased sales. The fourth quarter has
historically displayed an anticipated growth in inventory as new and revised
products are published for the next calendar/copyright year and for the next
17
<PAGE> 18
marketing cycle. 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.
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 from cash flow from operating activities. In fiscal 1996,
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 this 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. At the close of the third quarter, the architectural plans were
nearly complete. The current facility has been placed on the market for
sale. It is anticipated the new structure will be completed for
occupancy in late Spring/early Summer 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 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 increases. 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 the following
fiscal year. 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, 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 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 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.
18
<PAGE> 19
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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