<PAGE> 1
THE GOODHEART-WILLCOX
COMPANY, INC.
18604 WEST CREEK DRIVE -- TINLEY PARK, ILLINOIS 60477-6243
[GOODHEAR LOGO]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JULY 14, 1998
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 14, 1998 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 22, 1998, 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, 1998, 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 17, 1998
<PAGE> 2
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 14, 1998, 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 22, 1998, the record date for the
determination of shareholders entitled to vote at the meeting, there were
outstanding and entitled to vote 584,700 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, 1998, proxy statement and form of proxy are scheduled to
be mailed to shareholders on or about June 17, 1998.
ITEM 1. ELECTION OF DIRECTORS
Dr. Walter C. Brown has retired from active participation after almost 40
years of service to the Company as an author, editorial consultant and member of
the Board of Directors. His contributions to the Company have been many and are
gratefully appreciated. The Board has decided that it is not necessary at this
time to fill the vacancy on the Board caused by Dr. Brown's retirement which
will reduce the recommended size of the Board to five, the size of the Board
having been reduced to six upon the death of George A. Fischer in 1997.
The Board of Directors recommends that five directors be elected at the
annual meeting, each to serve terms of one year and until their respective
successors have been elected and qualified. The nominees for Director, all of
whom are now serving as Directors, are listed below together with certain
1
<PAGE> 3
biographical information. Except as otherwise indicated, each nominee for
Director has been engaged in his or her present principal occupation for at
least the past five years.
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. The Board of Directors has no reason to believe
that any nominee will be unable to serve.
NOMINEES FOR DIRECTOR
<TABLE>
<CAPTION>
NAME AND PRINCIPAL OCCUPATIONS DIRECTOR
OR AFFILIATIONS SINCE*
------------------------------ --------
<S> <C>
Robert C. DeBolt, age 59, 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., First National Bank, Chicago Heights,
Illinois; member Audit/Compensation Committee of Board of
Directors................................................. 1992
John F. Flanagan, age 54, Chairman of the Board since March,
1997; 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 61, 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 59, 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 86, private investor............... 1973
</TABLE>
- - ---------------
* Includes predecessors of the Company for years prior to July, 1972.
2
<PAGE> 4
ADDITIONAL INFORMATION
CONCERNING BOARD OF DIRECTORS
All five 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, 1998. All the incumbent directors attended the
1997 Annual Meeting of Shareholders and all the meetings of the Board during the
fiscal year except Dr. Brown who was unable to attend one meeting of the Board
because of illness.
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 1998,
the Committee met on three 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> 5
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table lists the beneficial ownership, as of May 1, 1998, 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, 1998, 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 290,782(1) 49.7%
Fred Eychaner.................. 111,412(2) 19.1%
Century Partners............... 42,700(3) 7.3%
John F. Flanagan............... Director and Executive Officer 22,152(4) 3.8%
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 (7 Persons).......... 314,184 53.7%
</TABLE>
- - ---------------
* Less than one percent
(1) Mrs. Mix owns 25,582 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 Schedule 13G with
the Securities and Exchange Commission showing Century Partners owner of
record of 42,700 shares. Their address is 800 Post Road, P.O. Box 4032,
Darien, Connecticut 06820.
4
<PAGE> 6
(4) Of these shares, 18,547 are owned beneficially and of record by Mr.
Flanagan's wife, 547 are owned beneficially and of record by Mr. Flanagan,
2,614 are owned jointly by Mr. Flanagan and his wife, 20 are held by Mr.
Flanagan and his wife as custodian for their children, and 424 are held by
their children.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company knows of no failure to file a required form.
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 made. The
Company's executive level positions were then matched to comparable 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
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.
5
<PAGE> 7
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.......................... 1998 $275,000 $150,000 N/A(2) $34,689(1)
Chairman, President and 1997 262,650 125,000 N/A(2) 34,689(1)
Chief Executive Officer 1996 255,000 81,000 N/A(2) 34,689(1)
Donald A. Massucci........................ 1998 $125,000 $ 60,000 N/A(2) $34,137(1)
Vice-President/Treasurer 1997 113,300 50,000 N/A(2) 29,756(1)
1996 110,000 25,000 N/A(2) 25,511(1)
Dick G. Snyder............................ 1998 $125,000 $ 60,000 N/A(2) $38,174(1)
Vice-President/Secretary 1997 113,300 50,000 N/A(2) 33,793(1)
1996 110,000 25,000 N/A(2) 29,548(1)
</TABLE>
- - ---------------
(1) Amounts of All Other Annual Compensation include amounts contributed or
accrued for fiscal 1998 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
1998 by the Company for life insurance coverage. For Messrs. Flanagan,
Massucci and Snyder, the amounts contributed to the Profit Sharing Plan were
$24,000 each. The respective amounts paid for life insurance premiums were
$4,689, $5,235 and $9,272 and the respective amounts accrued under the SERP
were $6,000, $4,902 and $4,902.
(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> 8
EXECUTIVE OFFICER EMPLOYMENT AGREEMENT
An agreement dated June 1, 1975, amended from time to time and further
amended April 17, 1998, between the Company and the Chief Executive Officer John
F. Flanagan provides that until May 31, 1999, 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, 1998, he is to be paid compensation of $300,000 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, 1998.
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> 9
Comparison of Five Year Cumulative Total Return, assuming reinvestment of
dividends, among Goodheart-Willcox (GWOX), S&P Publishing Index and S&P 500
Index.
[LINEGRAPH]
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
GWOX 100 88 87 102 146 255
S&P PUBLISHING-500 100 117 117 147 169 228
S&P 500 100 105 124 161 202 284
</TABLE>
8
<PAGE> 10
ITEM 2. SELECTION OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
At a meeting held on April 17, 1998, 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, 1999, 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 1999 must be received at the
offices of the Company not later than March 15, 1999, 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> 11
THE GOODHEART-WILLCOX COMPANY, INC.
ANNUAL MEETING OF SHAREHOLDERS - JULY 14, 1998
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 14, 1998, or any
adjournment.
1. ELECTION OF DIRECTORS: WITHHOLD AUTHORITY
FOR all nominees listed below to vote for all nominees
(except as marked to the listed below []
contrary below) []
Robert C. DeBolt, John F. Flanagan, Wilma Pirts 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)
<PAGE> 12
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: 1998
----------, -------------------------------
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 MAILED IN THE UNITED STATES.
I plan to attend the meeting. []
<PAGE> 13
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
FIVE YEAR SUMMARY
<TABLE>
<CAPTION>
Year Ended April 30,
- - ---------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED INCOME STATEMENT
DATA:
Sales $19,068,000 $16,631,000 $14,645,000 $14,708,000 $12,641,000
Costs and expenses 14,207,000 13,199,000 12,405,000 11,644,000 10,260,000
Other income (expense), net 5,000 692,000 227,000 260,000 (74,000)
Income taxes 1,893,000 1,349,000 871,000 1,307,000 950,000
Net earnings 2,973,000 2,775,000 1,596,000 2,017,000 1,357,000
===============================================================================================================
Earnings per share $5.09 $3.75 $2.13 $2.70 $1.81
- - ---------------------------------------------------------------------------------------------------------------
Weighted average number
of shares outstanding 584,700 739,405 747,900 747,900 747,900
===============================================================================================================
Dividends per share $1.00 $.90 $.80 $.80 $.70
===============================================================================================================
SELECTED BALANCE SHEET DATA:
Total assets $13,177,000 $14,065,000 $13,705,000 $13,192,000 $11,136,000
Redeemable common stock -- -- 3,077,000 3,643,000 2,696,000
Total stockholders' equity 10,955,000 8,573,000 8,739,000 7,169,000 6,697,000
===============================================================================================================S
</TABLE>
CONTENTS
1 - Letter to Shareholders
2 - Consolidated Balance Sheets
4 - Consolidated Statements of Earnings
5 - Consolidated Statements of Stockholders Equity
6 - Consolidated Statements of Cash Flows
7 - Notes to Consolidated Financial Statements
12 - Statement of Management Responsibilities
Report of Independent Certified Public Accountants
13 - Management's Discussion and Analysis of Financial Condition and Results of
Operation
Inside Back Cover - Corporate Information
Common Stock Price Ranges and Dividends
The front and back covers of this Annual Report shows eighteen new or revised
books published by Goodheart-Willcox in fiscal 1998.
<PAGE> 14
TO OUR SHAREHOLDERS:
Goodheart-Willcox's accomplishments in fiscal 1998 provided both the solid
financial results detailed in this annual report, and substantial improvements
to the structure of the corporation which should enhance operations into the
future. The paragraphs below describe the highlights of the fiscal year while
the five year summary of key financial data printed on the inside front cover
illustrates the growth of your Company.
Revenues improved 15% to a record $19,068,000. The growth in net sales is
attributed to stronger orders for the Company's products from open territories
and increased orders from the adoption states of Alabama, Kentucky, and North
Carolina. Technical titles as well as family and consumer science titles are
constantly being revised to keep content current with curriculum trends and to
build in design enhancements making the products visually appealing to
instructors and students. Expert authors, knowledgeable editors, creative
designers, effective marketing and sales personnel, and efficient customer
service and distribution staffs combine their skills to match Goodheart-Willcox
products with customers' needs. State textbook adoptions, which contribute
substantially to the Company's sales, will be much less of a factor for the
approaching two fiscal years due to the diminished number of states calling for
submissions in the curriculum areas served by Goodheart-Willcox.
Operating Income increased 42% to $4,861,000 as a result of the growth in sales
coupled with tight controls on costs and expenses. The cost of goods sold as a
percentage of sales was reduced 1.6% through careful decisions relating to
outside suppliers, timing of purchases, and the application of new technology.
Compared to the net sales increase of 15%, selling expenses declined as a
percentage of sales, partially as a result of reduced sampling for the
approaching adoption cycle, while general and administrative expenses increased
approximately 8%.
Prepayment of the installment note issued in the purchase of 163,200 shares of
the Company's stock was completed in fiscal 1998 using internally generated
funds. In October, following a successful summer sales experience, three annual
installments, aggregating $1,954,000, were prepaid. In April, after capital
allocation projections for the approaching fiscal year were completed, the final
two annual installments or $1,302,000 were prepaid. The prepayment of the
principal on the outstanding debt saved $637,000 in interest expenses for the
Company.
Information technology was the focus for three major projects in fiscal 1998 to
improve the Company's structure for the immediate future. The creative
department acquired a new network server and workstations enabling the
conversion to more productive software for the design and assembly of products.
Following extensive study and research, Goodheart-Willcox proceeded to develop a
model for business and marketing operations which will meet the future
expectations of our customers and our employees. Major emphasis was placed on
providing prompt customer service, easy order entry, accurate inventory and
warehouse management, and providing useable marketing data. Hardware and
software combinations were compared and evaluated for reliability, performance,
and growth potential. Proven hardware was acquired and software with an
extensive installed base was customized to fit our publishing enterprise.
Training of staff was completed in fiscal 1998 and carried over to the "go live"
date of June 1st in the first quarter of the new fiscal year. The third
information technology project this past fiscal year was the development of the
Goodheart-Willcox web site allowing potential customers to view catalog copy and
order products at www.goodheartwillcox.com.
Dr. Walter C. Brown decided to retire from active participation after almost 40
years of service as an editorial consultant and member of the Board of
Directors. Dr. Brown is the author of six leading Goodheart-Willcox texts in the
fields of drafting, print reading, and mathematics. In addition to being elected
President of the American Industrial Arts Association and the Council on
Technology Teacher Education, he has substantially contributed to the growth and
development of the Company by his counsel, guidance, and direction.
Goodheart-Willcox is grateful and appreciative for Dr. Brown's total involvement
and support.
Net earnings increased approximately 7% to $2,973,000. Earnings per share
increased to $5.09 based on 584,700 shares outstanding. The Goodheart-Willcox
employees, management, and Board of Directors are pleased to report a
profitable, efficient, and productive year marked with record sales, increased
operating income and prepayment of the stock repurchase note while maintaining a
strong balance sheet, investment in information technology, and respectable
earnings.
John F. Flanagan
JOHN F. FLANAGAN
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
1
<PAGE> 15
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
April 30,
- - -----------------------------------------------------------------------------------------------------------
1998 1997
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,119,000 $ 2,613,000
Accounts receivable-net of allowance for doubtful
receivables and sales returns of $206,000 and $113,000 1,661,000 1,565,000
Inventories 2,415,000 2,730,000
Deferred income taxes 742,000 646,000
Other 106,000 125,000
- - -----------------------------------------------------------------------------------------------------------
Total current assets 7,043,000 7,679,000
- - -----------------------------------------------------------------------------------------------------------
Investment securities available-for-sale -- 92,000
PREPUBLICATION COSTS-net of accumulated amortization of
$1,557,000 and $1,528,000 1,149,000 1,487,000
PROPERTY AND EQUIPMENT-net 4,930,000 4,769,000
CASH SURRENDER VALUE OF LIFE INSURANCE 55,000 38,000
- - -----------------------------------------------------------------------------------------------------------
$13,177,000 $14,065,000
- - -----------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
2
<PAGE> 16
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
April 30,
- - -----------------------------------------------------------------------------------------------------------
1998 1997
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable, current portion $ -- $ 651,000
Accounts payable 805,000 1,020,000
Accrued compensation 399,000 360,000
Accrued other 379,000 170,000
Dividends payable 293,000 293,000
Royalties payable 260,000 224,000
- - -----------------------------------------------------------------------------------------------------------
Total current liabilities 2,136,000 2,718,000
- - -----------------------------------------------------------------------------------------------------------
DEFERRED INCOME TAXES 86,000 169,000
COMMITMENTS AND CONTINGENCIES -- --
NOTES PAYABLE, NET OF CURRENT PORTION -- 2,605,000
STOCKHOLDERS' EQUITY
Common stock 762,000 762,000
Retained earnings 15,902,000 13,513,000
- - -----------------------------------------------------------------------------------------------------------
16,664,000 14,275,000
- - -----------------------------------------------------------------------------------------------------------
Net unrealized gain on investment securities available-for-sale -- 7,000
Less cost of 177,300 shares of common stock held in Treasury (5,709,000) (5,709,000)
- - -----------------------------------------------------------------------------------------------------------
10,955,000 8,573,000
- - -----------------------------------------------------------------------------------------------------------
$13,177,000 $14,065,000
- - -----------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
3
<PAGE> 17
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Year Ended April 30,
- - -----------------------------------------------------------------------------------------------------------
1998 1997 1996
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SALES $19,068,000 $ 16,631,000 $ 14,645,000
Cost of goods sold 5,537,000 5,095,000 5,196,000
- - -----------------------------------------------------------------------------------------------------------
GROSS PROFIT 13,531,000 11,536,000 9,449,000
- - -----------------------------------------------------------------------------------------------------------
Operating expenses
Selling, general and administrative 6,688,000 6,377,000 5,693,000
Royalties 1,982,000 1,727,000 1,516,000
- - -----------------------------------------------------------------------------------------------------------
8,670,000 8,104,000 7,209,000
- - -----------------------------------------------------------------------------------------------------------
OPERATING PROFIT 4,861,000 3,432,000 2,240,000
Other income (expense)
Life insurance proceeds -- 548,000 --
Interest income 142,000 131,000 198,000
Interest expense (180,000) (14,000) --
Other 43,000 27,000 29,000
- - -----------------------------------------------------------------------------------------------------------
5,000 692,000 227,000
- - -----------------------------------------------------------------------------------------------------------
Earnings before income taxes 4,866,000 4,124,000 2,467,000
- - -----------------------------------------------------------------------------------------------------------
Income taxes 1,893,000 1,349,000 871,000
- - -----------------------------------------------------------------------------------------------------------
NET EARNINGS $ 2,973,000 $ 2,775,000 $ 1,596,000
- - -----------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE $5.09 $3.75 $2.13
- - -----------------------------------------------------------------------------------------------------------
Weighted average number of shares outstanding 584,700 739,405 747,900
===========================================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
4
<PAGE> 18
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
For the three years ended April 30, 1998
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------------------
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 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
Net earnings for the year 2,775,000 2,775,000
Change in estimated value of redeemable
common stock in excess of insurance
proceeds 163,000 2,914,000 3,077,000
Net change in unrealized gain (loss) on
investment securities available-for-sale 1,000 1,000
Cash dividends declared ($.90 per share) (592,000) (592,000)
Cost of 163,200 shares of common stock
acquired for treasury (5,427,000) (5,427,000)
- - ----------------------------------------------------------------------------------------------------------------------------------
Balance at April 30, 1997 $ 762,000 $13,513,000 $ 7,000 $(5,709,000) $ 8,573,000
Net earnings for the year 2,973,000 2,973,000
Net change in unrealized gain (loss) on
investment securities available-for-sale (7,000) (7,000)
Cash dividends declared ($1.00 per share) (584,000) (584,000)
- - ----------------------------------------------------------------------------------------------------------------------------------
Balance at April 30, 1998 $ 762,000 $15,902,000 $ -- $(5,709,000) $10,955,000
==================================================================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
5
<PAGE> 19
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended April 30,
- - ----------------------------------------------------------------------------------------------------------
1998 1997 1996
- - ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $2,973,000 $ 2,775,000 $1,596,000
Adjustments to reconcile net earnings to net
cash provided by operating activities
Depreciation expense 335,000 199,000 91,000
Amortization of prepublication costs 1,059,000 1,001,000 851,000
Profit on sale of available-for-sale securities (16,000) -- --
Provision for (recovery of) doubtful
receivables and sales returns 93,000 -- (70,000)
Deferred income taxes (179,000) (113,000) 33,000
Changes in operating assets and liabilities
Accounts receivable (189,000) (144,000) (192,000)
Inventories 315,000 (763,000) (318,000)
Other assets 19,000 30,000 (69,000)
Accounts payable (215,000) 168,000 (126,000)
Accrued expenses 284,000 128,000 (369,000)
Net cash provided by operating
activities 4,479,000 3,281,000 1,427,000
==========================================================================================================
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (496,000) (2,715,000) (1,608,000)
Purchases of prepublication costs (721,000) (849,000) (1,393,000)
Proceeds from sale of investment securities
available-for-sale 101,000 -- 4,000
Change in cash surrender value of
officer's life insurance (17,000) 547,000 (174,000)
Net cash used in
investing activities (1,133,000) (3,017,000) (3,171,000)
==========================================================================================================
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (584,000) (598,000) (598,000)
Purchase of Treasury Stock -- (2,171,000) --
Repayment of notes payable (3,256,000) -- --
Net cash used in financing activities (3,840,000) (2,769,000) (598,000)
==========================================================================================================
NET DECREASE IN CASH AND CASH EQUIVALENTS: (494,000) (2,505,000) (2,342,000)
Cash and cash equivalents at beginning of year 2,613,000 5,118,000 7,460,000
==========================================================================================================
Cash and cash equivalents at end of year $2,119,000 2,613,000 $5,118,000
==========================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for income taxes $1,925,000 $ 1,342,000 $1,109,000
==========================================================================================================
SUPPLEMENTAL DISCLOSURE OF NON-CASH
ACTIVITY:
Unrealized gain (loss) on investment securities
available-for-sale -- $ 1,000 $ 6,000
Purchase of Treasury Stock financed with notes payable -- 3,256,000 --
==========================================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
6
<PAGE> 20
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS APRIL 30, 1998, 1997, AND 1996
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):
April 30,
1998 1997
---------- ----------
Last-in, first-out method $2,330,000 $2,639,000
First-in, first-out method 85,000 91,000
---------- ----------
$2,415,000 $2,730,000
========== ==========
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 $277,000 in 1998, $351,000 in 1997 and $369,000 in
1996.
NOTES CONTINUED ON PAGE 8
7
<PAGE> 21
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 1998, 1997, and 1996
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. The Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards
No. 128, Earnings Per Share, which is effective for financial statements
issued after December 15, 1997. The Company has adopted the provisions of
SFAS128 in these financial statements.
Common Stock. The Company has 1,000,000 shares of $1 par value common stock
authorized and 762,000 shares issued, of which 177,300 shares have been
repurchased by the Company. As of April 30, 1998 and 1997, the Company had
584,700 shares outstanding.
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.
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.
Recently issued accounting standards. During 1997 the Financial Accounting
Standards Board (FASB) issued Statements of Financial Accounting Standards
(SFAS) No. 130, "Reporting Comprehensive Income" and SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," both
effective for fiscal years beginning after December 15, 1997.
SFAS No. 130 requires disclose for the components of and total
comprehensive income in the period in which they are recognized in the
financial statements. Comprehensive income is defined as the change in
equity (net assets) of a business enterprise arising from transactions and
other events and circumstances from non-owner sources. It includes all
changes in shareholders' equity during the reporting period except those
resulting from investments by owners and distributions to owners. The
adoption of this new standard is not expected to have a material impact on
the disclosure of comprehensive income.
SFAS No. 131 requires disclosures of certain segment information based on
the way that management evaluates segments for making decisions and
assessing performance. It also requires disclosure of certain information
about products and services, the geographic areas in which the Company
operates, and major customers. The adoption of this new standard is not
expected to have a material impact on the disclosure of segment
information.
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, 1997:
Available-for-sale:
Municipal Income Trusts $ 85,000 $ 7,000 -- $ 92,000
======== ======= ======= =========
</TABLE>
NOTES CONTINUED ON PAGE 9
8
<PAGE> 22
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 1998, 1997, and 1996
continued
NOTE C - INVENTORIES
<TABLE>
<CAPTION>
Inventories consist of the following: 1998 1997
---------- ----------
<S> <C> <C>
Raw materials $ 87,000 $ 100,000
Work in process 85,000 91,000
Finished goods 2,243,000 2,539,000
---------- ----------
$2,415,000 $2,730,000
========== ==========
</TABLE>
Inventories would have been $2,640,000 and $2,491,000 higher at April 30, 1998
and 1997, 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 (increasing) net earnings by approximately
$12,000 (.02 per share), ($118,000) (.16 per share), and $228,000 (.30 per
share) for the years ended April 30, 1998, 1997, and 1996, respectively.
NOTE D - PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Property and equipment consists of the following: 1998 1997
---------- ----------
<S> <C> <C>
Land $ 814,000 $ 814,000
Building and improvements 4,056,000 4,013,000
Equipment 1,857,000 1,404,000
---------- ----------
6,727,000 6,231,000
Less accumulated depreciation 1,797,000 1,462,000
---------- ----------
$4,930,000 4,769,000
========== ==========
</TABLE>
NOTE E - INCOME TAXES
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
Currently payable: 1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Federal $1,690,000 $1,181,000 $683,000
State 382,000 281,000 155,000
---------- ---------- ----------
2,072,000 1,462,000 838,000
Deferred (179,000) (113,000) 33,000
---------- ---------- ----------
$1,893,000 $1,349,000 $871,000
========== ========== ==========
</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>
1998 1997
-------- ---------
Deferred tax assets
<S> <C> <C>
Inventory capitalization $551,000 $ 505,000
Accrued compensation 110,000 111,000
Allowance for doubtful receivables and sales returns 81,000 30,000
-------- ---------
742,000 646,000
Deferred tax liabilities
Depreciation (86,000) (169,000)
======== =========
Net deferred tax asset $656,000 $ 477,000
======== =========
</TABLE>
NOTES CONTINUED ON PAGE 10
9
<PAGE> 23
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 1998, 1997, and 1996
NOTE E - INCOME TAXES-CONTINUED
The components of the deferred tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Excess of tax over book depreciation $ (83,000) $ 57,000 $ 4,000
Inventory capitalization (46,000) (178,000) 6,000
Accrued compensation 1,000 (8,000) (7,000)
Allowance for doubtful receivables and sales returns (51,000) 16,000 30,000
---------- ---------- ----------
$ (179,000) $ (113,000) $ 33,000
========== ========== ==========
</TABLE>
A reconciliation of income taxes computed at the Federal statutory rate (34%)
and income tax expense is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Federal income taxes at statutory rate $1,654,000 $1,402,000 $839,000
State income taxes-net of Federal tax benefit 241,000 185,000 102,000
Municipal bond interest exemption (4,000) (30,000) (65,000)
Officer's life insurance (2,000) (222,000) (16,000)
Other 4,000 14,000 11,000
---------- ---------- ----------
$1,893,000 $1,349,000 $871,000
========== ========== ==========
</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 $344,000 in 1998, $359,000 in 1997 and $318,000 in
1996. 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 $16,000 in 1998, $11,000 in 1997, and $8,000 in
1996.
NOTE G - COMMITMENTS AND CONTINGENCIES
In April 1997, under an agreement between the Company and a principal
stockholder/officer, the Company purchased 163,200 shares of the Company's stock
owned by him upon his death for $5,427,000. The purchase price was based on the
fair market value of the Company's shares at that time, as determined by a named
third party and consisted of $2,171,000 in cash and a five year installment note
in the amount of $3,256,000. The note was paid in full in fiscal 1998. The
Company carried a life insurance policy to help meet a portion of the obligation
created by this agreement. Net proceeds from the policy were $1,207,000, which
had the effect of reducing the cash surrender value by $538,000 and resulting in
other income of $548,000 in fiscal 1997. In addition, the excess of estimated
fair market value over the amount of life insurance, net of cash surrender
value, previously segregated from stockholders equity has been recorded as
retained earnings. As a result of the acquisition of the stock by the Company,
the total outstanding shares of stock have been reduced from 747,900 to 584,700.
The Company has entered into employment agreements with the former Chairman of
the Board of Directors and President that provides for annual compensation and
certain other benefits including death in service benefit payments equal to two
years salary. The present value of the estimated benefits payable under these
agreements of approximately $160,000 is included in accrued compensation at
April 30, 1998 and 1997.
In May 1995, the Company acquired property in Tinley Park, Illinois, for
approximately $738,000. The Company completed construction of and relocated to
its new office and distribution facility on this property in August of 1996 for
a total cost of $2,973,000. The buildings formerly occupied by the Company are
being offered for sale and are included in property and equipment in the
accompanying balance sheets.
NOTES CONTINUED ON PAGE 11
10
<PAGE> 24
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 1998, 1997, and 1996
NOTE H - QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Net earnings
-------------------------
Net sales Gross profit Total Per share
----------- ------------ ---------- ---------
<S> <C> <C> <C> <C>
FISCAL YEAR 1998
FIRST $ 5,925,000 $ 4,192,000 1,203,000 $ 2.06
SECOND 6,420,000 4,845,000 1,516,000 2.59
THIRD 4,125,000 2,753,000 426,000 .73
FOURTH 2,598,000 1,741,000 (172,000) (.29)
----------- ----------- ---------- -------
$19,068,000 $13,531,000 $2,973,000 $ 5.09
=========== =========== ========== =======
Fiscal year 1997
First $ 4,505,000 $ 3,076,000 $746,000 $ 1.00
Second 6,507,000 4,489,000 1,390,000 1.86
Third 3,335,000 2,205,000 209,000 .28
Fourth 2,284,000 1,766,000 430,000 .61
----------- ----------- ---------- -------
$16,631,000 $11,536,000 $2,775,000 $ 3.75
=========== =========== ========== =======
</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, used to arrive at gross
profit above, includes such estimates.
11
<PAGE> 25
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
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.
John F. Flanagan
John F. Flanagan
Chairman, 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
TINLEY PARK, ILLINOIS
We have audited the accompanying consolidated balance sheets of The
Goodheart-Willcox Company, Inc. and Subsidiary as of April 30, 1998 and
1997, and the related consolidated statements of earnings, stockholders'
equity, and cash flows for each of the three years in the period ended
April 30, 1998. 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, 1998 and
1997, and the consolidated results of their operations and their
consolidated cash flows for each of the three years in the period ended
April 30, 1998, in conformity with generally accepted accounting
principles.
Grant Thornton LLP
Chicago, Illinois
May 29, 1998
12
<PAGE> 26
THE GOODHEART-WILLCOX COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OPERATING RESULTS
The Company's net sales for the fiscal year ending April 30, 1998 increased
$2,437,000, approximately 15% over the previous fiscal year. The net sales
increase for the fiscal year was due to stronger orders for the Company's
products from open territories and increased orders from the adoption
states of Alabama, Kentucky, and North Carolina, along with selective price
increases. The Company's net sales for fiscal 1997 had increased
$1,986,000, approximately 14% over the previous fiscal year which was
attributed to stronger orders from open territories and increased orders
from the adoption state of New Mexico, along with selective price
increases. The Company's net sales for fiscal 1996 had decreased $63,000,
less than one-half percent from the previous fiscal year, and was
attributed to the lack of significant state textbook adoptions, coupled
with weaker orders from open territories during the first two quarters of
the fiscal year when a majority of the seasonal sales are historically
recorded. State textbook adoptions, which contribute substantially to the
Company's sales, historically have been held at regular intervals. During
the past several years, the intervals for several states have been
significantly increased. State textbook adoptions will be much less of a
factor for the approaching two fiscal years due to the diminished number of
states calling for submissions in the curriculum areas served by the
Company. Selective 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. The reserve for future returns will experience
minor revisions as the sales product mix continues to shift from middle and
senior high schools to community college bookstores, where the number of
books and supplements returned occurs with greater frequency. 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 1998 was 29%
compared to 31% in fiscal 1997 and 35% in fiscal 1996. The change in the
ratio of the cost of goods sold as a percentage of sales for fiscal 1998
reflects more favorable paper prices in a period of increased sales and
larger or more favorable press runs ordered in anticipation of strong sales
for the period. The change in the ratio of the cost of goods sold as a
percentage of sales for fiscal 1997 reflected fluctuations in the cost of
paper, which is a major component of the cost of goods sold, with added
influences being the substantial investment in the revision of a number of
backlist titles. In fiscal 1997, while paper prices stabilized, the buildup
of inventory in preparation of the seasonal selling patterns before the
opening of schools took place during a period of higher paper prices. 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
along with substantial investment in new and revised titles. As stated in
prior annual reports, "It is possible that the Company will not be able to
pass through all 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 selected selling price increases,
adjustments to the print and reprint quantities, and the application of
computer technology by outside suppliers permitting shorter press runs,
reduction in manufacturing time, the elimination of traditional film
processes, coupled with consistent high quality allowing the Company to
better control the unit cost of textbooks and supplements. Management
decisions must be balanced between the relative cost of the goods sold as a
percentage of sales versus the investment affecting the timing of when new
or revised products come to market and contribute to sales.
Operating expenses for fiscal 1998 consisting of royalties, selling,
general, and administrative expenses increased $566,000, approximately 7%
over the previous fiscal year due primarily to an increase in salaries for
added personnel along with increased depreciation of the new facility. This
compares to an increase in operating expenses in fiscal 1997 of $895,000,
approximately 12% over the previous fiscal year, and an increase of
$155,000, approximately 2% over the prior fiscal year. As a percentage of
sales, the selling, general, and administrative cost for fiscal 1998 was
35% compared to 38% in fiscal 1997 and 39% in fiscal 1996. A major
component of the operating expenses is the distribution of sample textbooks
and supplements as a marketing tool unique to the textbook industry. In
fiscal 1998 sampling expenses were $502,000 compared to $592,000 in fiscal
1997 and $440,000 in fiscal 1996. The sampling decrease of $90,000 can be
attributed to the diminished number of state adoption calls in the
curriculum areas served by the Company's products compared to previous
years.
MANAGEMENT'S DISCUSSION AND ANALYSIS CONTINUED ON PAGE 14
13
<PAGE> 27
THE GOODHEART-WILLCOX COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS-CONTINUED
The 15% increase in net sales for fiscal 1998 over the previous fiscal year
coupled with a 29% cost of goods sold as a percentage of sales and a 7%
increase in operating expenses resulted in income from operations of
$4,861,000, an increase of $1,429,000 or approximately 42%. In fiscal 1997,
the 14% increase in net sales over the previous fiscal year coupled with a
31% cost of goods sold as a percentage of sales and a 12% increase in
operating expenses resulted in income from operations of $3,432,000, an
increase of $1,192,000, approximately 53%. In fiscal 1996, the half a
percent decrease in net sales from the previous fiscal year coupled with a
35% cost of goods sold as a percentage of sales and a 2% increase in
operating expenses resulted in income from operations of $2,240,000, a
decrease of approximately 27% from the previous year. Other income
(expense) for fiscal 1998 totaled $5,000 composed primarily of $142,000 of
interest income and $180,000 of interest expense paid on the installment
note issued in the purchase of treasury stock. Other income for fiscal 1997
totaled $692,000 composed primarily of $548,000 of extraordinary income
from life insurance proceeds and $131,000 of interest income, while there
was $67,000 less interest than the previous fiscal year due to the
investment in the new facility. Other income for fiscal 1996 was $227,000
due to reduced interest income and reduced royalty income as titles
licensed to other publishers became dated. Changes in other income or
expense for fiscal 1998 is primarily attributed to the interest expense
related to the repurchase of shares of the Company's stock. The change in
other income or expense for fiscal 1997 and 1996 may also be traced to
reduced interest income due to the investment in the new facility. The
Company's fiscal year ending April 30th divides the purchasing patterns of
its school customers such that the major marketing, sampling, 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 $2,119,000 at April 30, 1998, a decrease
of $494,000 from the year ending April 30, 1997. For the fiscal year ending
April 30, 1998 the Company had no current debt and no long term debt
compared to the fiscal year ending April 30, 1997 when the Company had a
current portion of a note payable of $651,000 and long term debt of
$2,605,000 resulting from the stock repurchase. As shown in the statements
of cash flows, the cash provided by the operating activities of the Company
for fiscal 1998 amounted to $4,479,000 as compared to $3,281,000 for fiscal
1997, an increase of $1,198,000, a change attributed to an increase in the
net earnings after adjustments to accounts primarily covering depreciation
expense, provision for doubtful receivables and sales returns, deferred
income taxes, inventories, accounts payable, and accrued expenses. In
fiscal 1997, the cash provided by the operating activities of the Company
amounted to $3,281,000 as compared to $1,427,000 for fiscal 1996, an
increase of $1,854,000, a change attributed to an increase in the net
earnings after adjustments to accounts primarily covering amortization of
prepublication cost, inventories, depreciation expenses, accounts payable,
and income taxes payable. In fiscal 1996, the cash provided by the
operating activities of the Company amounted to $1,427,000 as compared to
$3,505,000 for fiscal 1995, a decrease of $2,078,000 which is attributed
principally to the decrease in net earnings after adjustments to accounts
covering amortization of prepublication cots, provision for doubtful
receivables and sales returns, accounts receivable, inventories, accounts
payable, and income taxes payable. The significant changes in the assets
and liabilities for fiscal 1998 include a decrease in cash and cash
equivalents, a decrease in inventories, an increase in accounts receivable,
a decrease in investment securities, an elimination of both the current
portion and the long term portion of the note payable for the repurchase of
the Company's stock, a decrease in accounts payable, a decrease in
prepublication costs due to the projection of diminished adoption request,
an increase in property and equipment due to the investment in hardware for
information technology, and an increase in other accrued liabilities. The
changes in the assets and liabilities for fiscal 1997 include a decrease in
cash and cash equivalents along with an increase in property and equipment
reflecting the completion of the new office/distribution facility, an
increase in accounts receivable due to the increase in sales, a decline in
prepublication costs based upon the number of revisions in work during the
previous year, a decline in the cash surrender value of life insurance
resulting from the receipt of the proceeds from policies, an increase in
accounts receivable, an increase in income taxes due to the strong sales,
and an increase in treasury stock. There have been no changes in business
practices including credit terms or collection efforts from previous years.
MANAGEMENT'S DISCUSSION AND ANALYSIS CONTINUED ON PAGE 15
14
<PAGE> 28
THE GOODHEART-WILLCOX COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS-CONTINUED
Investment in new and revised products for fiscal 1998 was $721,000, a decrease
of $128,000 from fiscal 1997, accounted for in part by improved purchasing from
outside suppliers. Investment in new and revised products for fiscal 1997 was
$849,000, a decrease of $544,000 from fiscal 1996 when a significant number of
major titles were revised and substantial investment was allocated for the
purchase of prepublication services. In fiscal 1996, the investment in new and
revised products was $1,393,000, an increase of $516,000 more than the $877,000
for the purchase of prepublication services in 1995. The rate of investment in
new and revised products as a percentage of sales for fiscal 1998 was
approximately 4%, compared to an investment rate of 5% in fiscal 1997 and 10% in
fiscal 1996. The Company currently intends to maintain its traditional pace of
prepublication investment in products and services in future quarters to
maintain a publishing program of adding new titles and products to the line
while revising a backlist of products to match marketing and customer needs.
With advances in general technology, the magnitude of revision efforts required
to keep the industrial and technical product line up to date has typically
increased investment allocations over patterns earlier in the decade. The
investment in hardware and software to keep Goodheart-Willcox advancing with
technology included the acquisition in fiscal 1998 of new software/hardware
systems for the business/marketing/distribution operations and the creative
services area of the Company, which required $423,000, compared to $30,000 in
fiscal 1997 and $31,000 in fiscal 1996. In fiscal 1997, $2,715,000 was invested
in new equipment and facilities with added storage, racking, conveyors, and
material handling equipment to improve service to customers and to strengthen
warehousing and distribution capability. The added office capacity for sales and
marketing, customer service, editorial, and creative services should allow your
Company to increase employee productivity and retention, while attracting new
talent. The investment in property and equipment for fiscal 1996 amounted to
$1,608,000 when the land in Tinley Park was acquired. Changes in the cash
surrender value of life insurance were significant in fiscal 1997 when $547,000
in proceeds of an officer's policy were received. In fiscal 1998 investment
activity resulted in the sale for $101,000 of securities with a small gain while
there were no significant investment activities in the previous fiscal years.
A primary financing use of cash in each of the last three years was the payment
of dividends at the rate of $1.00 per share in fiscal 1998, $.90 per share in
fiscal 1997, and $.80 per share in fiscal 1996. In fiscal 1998, prepayment of
the installment note issued in the purchase of 163,200 shares of the Company's
stock was completed using internally generated funds. In the second quarter of
fiscal 1998, following a successful summer sales experience, three annual
installments, aggregating $1,954,000, were prepaid. In the fourth quarter of
fiscal 1998, after capital allocation projections for the approaching fiscal
year were completed, the final two annual installments or $1,302,000 were
prepaid. The prepayment of the principal on the outstanding debt saved $637,000
in interest expenses for the Company. In fiscal 1997, the purchase of the
treasury stock required $2,171,000 along with the acceptance of a note payable
in the amount of $3,256,000. The source of the cash portion of the purchase
price was provided in part by the $1,207,000 proceeds of an insurance policy
owned by the Company, and the balance provided by internally generated funds.
The first and second quarters of the Company's fiscal year have historically
displayed increased shipments and increased growth in accounts receivable while
inventory declined. In the third quarter this past fiscal year, the strength of
the Company's product lines 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
marketing cycle. The seasonal and cyclical nature of selling products such as
textbooks and supplements into the educational 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 software and hardware on
a department wide basis, such as the editorial area, will be met from operating
cash flow. In fiscal 1998, the Company acquired new software and hardware for
the business/marketing/distribution operations to improve customer service,
inventory and warehouse management, and information technology. Also in fiscal
1998, the creative area acquired a new network server and workstations enabling
the conversion to more productive software for the design and assembly of
products. In fiscal 1999, the investment in prepublication products and services
is expected to follow the pattern established in previous years with plans to
revise popular backlist titles and add new products to the Company's line.
MANAGEMENT'S DISCUSSION AND ANALYSIS CONTINUED ON PAGE 16
15
<PAGE> 29
THE GOODHEART-WILLCOX COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS-CONTINUED
The Company's warehouse and distribution operations relocated to a new
facility in Tinley Park, Illinois on July 1, 1996 and the business,
marketing and sales, editorial, and creative operations relocated August
26, 1996. The new facility project was completed using internally generated
funds with no financing expenses for the company. The Company's previous
land and building in South Holland, Illinois are being offered for sale and
carried at net book value which is less than the estimated fair market
value less cost to sell. In fiscal 1998, prepayment of the installment note
issued in the purchase of the Company's stock was completed using
internally generated funds. The prepayment in fiscal 1998 of the principal
on the outstanding debt saved $637,000 in interest expenses for the
Company.
THE EFFECTS OF INFLATION
Inflation affects the Company due to increases in the costs of materials
and services. Fiscal 1998 showed a slight tightening of available press
time in the short term, thus necessitating clearer projections for initial
printings or reprints. Paper prices in fiscal 1998 did not experience
dramatic changes thus allowing moderate reaction in setting price
adjustments for the Company's products. Advance planning and shifting
grades of paper may soften the effect of some of the paper cost
fluctuations. In fiscal 1997, paper prices appeared more stable than in the
prior period, thus allowing better control over the cost of goods sold
going into the inventory which was sold in fiscal 1998. In fiscal 1996, the
Company experienced tightening of suppliers' schedules and some price
increases which appeared to be more inflationary than patterns experienced
in the previous fiscal year. The cost of paper purchased in fiscal 1996 to
replenish inventory and to print new products to be sold in fiscal 1997
experienced dramatic increases. The ability of the Company to reflect cost
increases from suppliers and from internal pressures 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 of the cost increases, whether the result of increases in paper, other
materials, or services. The Company manages its cost of doing business in
these uncertain and changing times by using various suppliers, reviewing
the variety of paper grades appropriate for various titles, scheduling
press runs in batches, balancing the quantities printed with considerations
for unit cost versus inventory turnover, nurturing close relationships with
key suppliers, while staying alert to outside opportunities available to
meet key deadlines.
IMPACT OF YEAR 2000
The business, customer service, marketing, warehousing, and distribution
operations acquired new vendor-supported software in fiscal 1998 and are
now Year 2000 compliant. In addition to addressing internal considerations,
the Company believes there can be no guarantee that the systems of external
suppliers and customers will be converted in a timely manner, thus
potentially having an adverse effect. The Company believes that with the
conversion this past fiscal year to new software and any future upgrading
of vendor-supported software, the Year 2000 issue should not pose
significant internal operational problems. Future vendor-supported software
upgrades will not be material to the Company's results of operation.
16
<PAGE> 30
THE GOODHEART-WILLCOX COMPANY, INC.
CORPORATE INFORMATION
CORPORATE OFFICE, The Goodheart-Willcox Company, Inc., 18604 West Creek
Drive, Tinley Park, IL 60477
ANNUAL MEETING, The next annual meeting will take place at 9:30 a.m.
C.D.T., July 14, 1998, at the Corporate Office, Tinley Park, Illinois
STOCK SYMBOL, GWOX, Over-the-Counter Market
TRANSFER AGENT, First Chicago Trust Company of New York
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.
John F. Flanagan, Chairman, 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
John F. Flanagan, Chairman, President, Chief Executive Officer
Donald A. Massucci, Vice President, Administration and Treasurer
Dick G. Snyder, Vice President, Sales and Secretary
<TABLE>
<CAPTION>
COMMON STOCK PRICE RANGES AND DIVIDENDS
Stock prices represent high and low closing bids
- - ---------------------------------------------------------------------------------
Cash
Fiscal Price Range Dividend
Quarter Low High Declared
- - ---------------------------------------------------------------------------------
<S> <C> <C> <C>
4Q98 $58 1/2 $60 1/4 $.50
3Q98 47 53 1/2 .50
2Q98 47 53 1/2 --
1Q98 38 1/4 48 1/4 --
- - ---------------------------------------------------------------------------------
4Q97 $35 3/4 $45 3/4 $.50
3Q97 31 1/2 33 1/2 .40
2Q97 30 3/4 36 3/4 --
1Q97 26 27 1/2 --
</TABLE>
Fiscal year ends April 30
