<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [ ]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement [ ] Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
[ ] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
GOODHEART-WILCOX COMPANY, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
GOODHEART-WILCOX COMPANY, INC.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE> 2
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 13, 1999
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 13, 1999 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 21, 1999, 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, 1999, 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
Senior Vice President and Secretary
June 16, 1999
<PAGE> 3
THE GOODHEART-WILLCOX COMPANY, INC.
PROXY STATEMENT
The enclosed proxy is solicited by the Board of Directors for use at the
Annual Meeting of Shareholders of The Goodheart-Willcox Company, Inc. (the
"Company") to be held Tuesday, July 13, 1999, 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 21, 1999, 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, 1999, proxy statement and form of proxy are scheduled to
be mailed to shareholders on or about June 16, 1999.
ITEM 1. ELECTION OF DIRECTORS
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. Five directors were elected at last
year's Annual Meeting of Shareholders. The nominees for director, all of whom
are now serving as directors, are listed below together with certain
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.
1
<PAGE> 4
NOMINEES FOR DIRECTOR
<TABLE>
<CAPTION>
NAME AND PRINCIPAL OCCUPATIONS DIRECTOR
OR AFFILIATIONS SINCE*
------------------------------ --------
<S> <C>
Robert C. DeBolt, age 60, 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 55, 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 62, 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 60, Dean Emeritus since 1998,
Dean 1983 to 1998, School of Technology, Indiana State
University, Terre Haute, Indiana; Professor of
Construction Technology 1966 to 1998; Chairman, Executive
Board, National Association of Industrial Technology, 1988
to 1989; Chairman, National Association of Industrial
Technology Board of Accreditation, 1989 to 1997; Chairman
National Association of Industrial Technology Foundation
Board, 1998 to present; consultant to the Company since
1983...................................................... 1988
Mrs. Loraine J. Mix, age 87, private investor............... 1973
</TABLE>
- ---------------
* Includes predecessors of the Company for years prior to July, 1972.
2
<PAGE> 5
ADDITIONAL INFORMATION
CONCERNING BOARD OF DIRECTORS
All five of the nominees were elected directors of the Company at the last
Annual Meeting of Shareholders. The Board of Directors had four meetings during
the fiscal year ended April 30, 1999. All the incumbent directors attended the
1998 Annual Meeting of Shareholders and all the meetings of the Board during the
fiscal year.
AUDIT/COMPENSATION COMMITTEE
The Board of Directors has established an Audit/Compensation Committee
which recommends to the Board of Directors the engagement of independent
auditors of the Company and reviews with such auditors the scope and result of
their audits, the internal accounting controls of the Company and the
professional services furnished by such auditors to the Company. The Committee
further reviews and recommends to the Board of Directors compensation
arrangements for the officers of the Company. The Committee presently consists
of Wilma Pitts Griffin, Chairperson, and Robert C. DeBolt. During Fiscal 1999,
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> 6
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table lists the beneficial ownership, as of May 1, 1999, 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, 1999, 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 290,142(1) 49.6%
Fred Eychaner.................. 111,412(2) 19.1%
Century American Corp.......... 42,700(3) 7.3%
John F. Flanagan............... Director and Executive Officer 22,792(4) 3.9%
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 *
Todd J. Scheffers.............. Executive Officer -- --
Directors and Executive
Officers as a Group (8
Persons)..................... 314,184 53.7%
</TABLE>
- ---------------
* Less than one percent
(1) Mrs. Mix owns 24,942 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 January 8, 1999, Century American Corporation filed a Schedule
13G with the Securities and Exchange Commission disclosing the acquisition
on December 31, 1998 of 42,700 shares of the Company's securities. Century
American Corporation's address is Suite 3707, 875 N. Michigan Avenue,
Chicago, Illinois 60611. On or about January 8, 1999, Century Partners
4
<PAGE> 7
filed Schedule 13G/A (Amendment No. 2) disclosing that as of December 31,
1998, it had disposed of the 42,700 shares of the Company's securities
previously reported as owned by it.
(4) Of these shares, 18,707 are owned beneficially and of record by Mr.
Flanagan's wife, 707 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 744 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
5
<PAGE> 8
at any time, provided that no amendment shall reduce or discontinue any benefit
accrued to the date of the Amendment. The Company has not funded the SERP and
there are no assets held by it.
SUMMARY COMPENSATION TABLE
The following table shows executive compensation for the fiscal years
indicated for the Chief Executive Officer and all other executive officers of
the Company ("Named Officers"):
<TABLE>
<CAPTION>
ALL OTHER
ANNUAL COMPENSATION COMPENSATION
------------------------------------------------ ------------
NAME AND PRINCIPAL FISCAL OTHER ANNUAL
POSITION YEAR SALARY BONUS COMPENSATION
------------------ ----------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
John F. Flanagan...................... 1999 $300,000 $125,000 N/A(2) $34,689(1)
Chairman, President and 1998 275,000 150,000 N/A(2) 34,689(1)
Chief Executive Officer 1997 262,650 125,000 N/A(2) 34,689(1)
Donald A. Massucci.................... 1999 $135,000 $ 50,000 N/A(2) $34,272(1)
Vice-President/Treasurer 1998 125,000 60,000 N/A(2) 34,137(1)
1997 113,300 50,000 N/A(2) 29,756(1)
Dick G. Snyder........................ 1999 $135,000 $ 50,000 N/A(2) $38,184(1)
Senior Vice-President/Secretary 1998 125,000 60,000 N/A(2) 38,174(1)
1997 113,300 50,000 N/A(2) 33,793(1)
Todd J. Scheffers..................... 1999 $ 67,000 $ 10,000 N/A(2) $12,273(1)
Vice-President Sales 1998 63,000 8,000 N/A(2) 11,548(1)
(elected May 1, 1999) 1997 58,000 7,000 N/A(2) 10,530(1)
</TABLE>
- ---------------
(1) Amounts of All Other Annual Compensation include amounts contributed or
accrued for fiscal 1999 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
1999 by the Company for life insurance coverage. The amounts contributed to
the Profit Sharing Plan were $12,273 for Mr. Scheffers and $24,000 each for
Messrs. Flanagan, Massucci and Snyder. The respective amounts paid for life
insurance premiums for Messrs. Flanagan, Massucci and Snyder were $4,689,
$5,235 and $9,272 and the respective amounts accrued under the SERP were
$6,000, $5,037 and $4,912.
(2) The value of such benefits did not exceed the lesser of either $50,000 or
10% of the total annual salary and bonus reported for any Named Officer.
6
<PAGE> 9
EXECUTIVE OFFICER EMPLOYMENT AGREEMENT
An agreement dated June 1, 1975, amended from time to time and further
amended April 16, 1999, between the Company and the Chief Executive Officer John
F. Flanagan provides that until April 30, 2004, 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, 1999, he is to be paid compensation of $312,000
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 until his death at the rate of 50% of the annual compensation paid
to Mr. Flanagan during the year immediately prior to the termination of his
active employment.
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, 1999.
The graph is presented in accordance with SEC requirements. Shareholders
are cautioned against drawing any conclusions from the data contained therein,
as past results are not necessarily indicative of future performance. This graph
in no way reflects the Company's forecast of future financial performance.
7
<PAGE> 10
Comparison of Five Year Cumulative Total Return, assuming reinvestment of
dividends, among Goodheart-Willcox (GWOX), S&P Publishing Index and S&P 500
Index.
[GRAPH]
<TABLE>
<CAPTION>
'GWOX 'S&P PUBLISHING 500 'S&P 500 INDEX
----- ------------------- --------------
<S> <C> <C> <C>
'1994 100 100 100
'1995 98 100 117
'1996 116 125 153
'1997 165 144 191
'1998 288 194 270
'1999 294 244 328
</TABLE>
8
<PAGE> 11
ITEM 2. SELECTION OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
At a meeting held on April 16, 1999, 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, 2000, 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 2000 must be received at the
offices of the Company not later than March 15, 2000, 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
Senior Vice President and Secretary
9
<PAGE> 12
THE GOODHEART-WILLCOX COMPANY, INC.
ANNUAL MEETING OF SHAREHOLDERS - JULY 13, 1999
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 13, 1999, or any
adjournment:
<TABLE>
<S> <C>
1. ELECTION OF DIRECTORS: WITHHOLD AUTHORITY
FOR all nominees listed below to vote for all nominees listed below [ ]
(except as marked to the contrary below) [ ]
Robert C. DeBolt, John F. Flanagan, Wilma Pitts Griffin, Clois E. Kicklighter and Loraine J. Mix
(INSTRUCTION: To withhold authority to vote for any individual nominee write that nominee's name on the space provided below.)
------------------------------------------------------------------------------------------------------------------------------
2. PROPOSAL TO APPROVE THE SELECTION OF GRANT THORNTON LLP as the independent certified public accountants for the current
fiscal year.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. In their discretion on any other business that may properly come before the meeting.
[ ] GRANTED [ ] WITHHELD
(continued and to be signed on reverse side)
</TABLE>
<PAGE> 13
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: , 1997. -----------------------------------
------------- Signature
-----------------------------------
Signature
NOTE:
Please sign exactly as your name
appears at the left. If shares are
held jointly, each holder must
sign. If signing for an estate,
trust or corporation, title or
capacity should be stated.
PLEASE PROMPTLY RETURN PROXY IN THE
ACCOMPANYING ENVELOPE. NO POSTAGE
REQUIRED IF MAILED IN THE UNITED
STATES.
I plan to attend the meeting. [ ]
<PAGE> 14
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
FIVE YEAR SUMMARY
<TABLE>
<CAPTION>
Year Ended April 30,
---------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED INCOME STATEMENT DATA:
Sales $18,626,000 $19,068,000 $16,631,000 $14,645,000 $14,708,000
Costs and expenses 14,141,000 14,207,000 13,199,000 12,405,000 11,644,000
Other income (expense), net 425,000 5,000 692,000 227,000 260,000
Income taxes 1,913,000 1,893,000 1,349,000 871,000 1,307,000
Net earnings 2,997,000 2,973,000 2,775,000 1,596,000 2,017,000
===============================================================================================================
Earnings per share $5.13 $5.09 $3.75 $2.13 $2.70
---------------------------------------------------------------------------------------------------------------
Weighted average number
of shares outstanding 584,700 584,700 739,405 747,900 747,900
===============================================================================================================
Dividends per share $1.05 $1.00 $.90 $.80 $.80
===============================================================================================================
SELECTED BALANCE SHEET DATA:
Total assets $16,318,000 $13,177,000 $14,065,000 $13,705,000 $13,192,000
Redeemable common stock -- -- -- 3,077,000 3,643,000
Total stockholders' equity 13,337,000 10,955,000 8,573,000 8,739,000 7,169,000
===============================================================================================================
</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 show twenty new or revised books
published by Goodheart-Willcox in fiscal 1999.
<PAGE> 15
TO OUR SHAREHOLDERS:
Fiscal 1999 was an "excellent down year" for your Company! The careful selection
of these words recognizes the financial results achieved set against the low
sales potential projected for the Company's specific curriculum markets.
Net sales of $18,626,000 exceeded expectations in a year marked by an absence of
significant state textbook adoptions. Quoting from last year's annual report
"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." For comparison purposes, net sales declined only
2.3% from the previous record year, as shown in the five-year summary on the
inside front cover of this annual report. New and revised titles proved popular
in the open territories helping to offset the lack of sales potential in the
adoption states. The current fiscal year 2000 will again present a challenge to
maintain respectable sales figures.
The operating profits for fiscal 1999 operations were $4,485,000, a decline of
$376,000 from the previous fiscal year. Going into this cycle of diminished
adoption sales potential, the Company managed to hold the total cost of goods
sold to a level $304,000 less than the previous year. Aggressive strategies to
compensate for the diminished adoption sales potential included additional
investment directed into a redesign of the Industrial & Technical and the Family
& Consumer Sciences catalogs, additional sales representation implemented in two
new territories for the Company, and plans were initiated for increasing the
productivity of the sales and business staff. In a fiscal year noteworthy for
its reduced revenue and considering the increased investment for aggressive
sales and marketing, it is a tribute to the focused employees and fine
reputation of your Company that the operating profit only declined 7.7%.
The one time gain on the sale of the former business and distribution facility
contributed earnings of $264,000 or approximately $.30 per share, resulting in
net earnings for fiscal 1999 of $5.13 per share. The sale produced a significant
shift in the position of other income and expenses compared to last fiscal year
when the Company reported an interest expense of $180,000 related to the
purchase of the Company's stock.
During fiscal 1999, Goodheart-Willcox completed the implementation of Daly &
Wolcott software operating on IBM hardware to provide prompt customer service,
easy order entry, accurate inventory and warehouse management, and enhanced
marketing and sales data. The business, customer service, marketing,
warehousing, and distribution operations are ready for the next century.
Additional modules will be implemented for future efficiency and productivity.
Looking ahead to the year 2000, Goodheart-Willcox allocated resources to plan
for the introduction of a significant number of revisions coordinated with the
new millennium. In anticipation of customers preferring products with year 2000
copyrights rather than 1990 copyrights, editorial and creative efforts were
directed toward publishing a number of revisions which may be submitted for
future adoption consideration. While striving to maintain sales and earnings in
this down year cycle, the Company has also been planning for the future by
building the inventory of copyright 2000 titles and supplements. The inventory,
as shown on the April 30, 1999 balance sheets, has increased by $1,062,000 over
the previous fiscal year in anticipation of the copyright 2000 opportunity for
Goodheart-Willcox.
Your Board of Directors, at the April meeting, elected Dick Snyder as Senior
Vice President and Todd Scheffers as Vice President Sales to prepare the Company
for future growth opportunities. Sincere words of appreciation must be shared
with the Board of Directors for their support and leadership during this period
of change marked by unusual market conditions. The solid results of this fiscal
year would not have been possible without the extra efforts, ideas, and
contributions of the good people working as a team at Goodheart-Willcox.
/s/ John F. Flanagan
John F. Flanagan
Chairman, President, and Chief Executive Officer
1
<PAGE> 16
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
April 30,
-------------------------------------------------------------------------------------------------------
1999 1998
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,436,000 $ 2,119,000
Accounts receivable-net of allowance for doubtful
receivables and sales returns of $236,000 and $206,000 2,036,000 1,661,000
Inventories 3,477,000 2,415,000
Deferred income taxes 869,000 742,000
Other 160,000 106,000
-------------------------------------------------------------------------------------------------------
Total current assets 10,978,000 7,043,000
-------------------------------------------------------------------------------------------------------
PREPUBLICATION COSTS-net of accumulated amortization of
$1,143,000 and $1,557,000 1,166,000 1,149,000
PROPERTY AND EQUIPMENT-net 4,104,000 4,930,000
CASH SURRENDER VALUE OF LIFE INSURANCE 70,000 55,000
-------------------------------------------------------------------------------------------------------
$16,318,000 $13,177,000
=======================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE> 17
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
April 30,
--------------------------------------------------------------------------------------------------------------
1999 1998
--------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,273,000 $ 805,000
Accrued compensation 428,000 399,000
Accrued other 653,000 379,000
Dividends payable 322,000 293,000
Royalties payable 304,000 260,000
--------------------------------------------------------------------------------------------------------------
Total current liabilities 2,980,000 2,136,000
--------------------------------------------------------------------------------------------------------------
DEFERRED INCOME TAXES 1,000 86,000
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY
Common stock 762,000 762,000
Retained earnings 18,284,000 15,902,000
--------------------------------------------------------------------------------------------------------------
19,046,000 16,664,000
--------------------------------------------------------------------------------------------------------------
Less cost of 177,300 shares of common stock held in Treasury (5,709,000) (5,709,000)
--------------------------------------------------------------------------------------------------------------
13,337,000 10,955,000
--------------------------------------------------------------------------------------------------------------
$16,318,000 $13,177,000
==============================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 18
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Year Ended April 30,
---------------------------------------------------------------------------------------------------------------
1999 1998 1997
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SALES $18,626,000 $19,068,000 $16,631,000
Cost of goods sold 5,233,000 5,537,000 5,095,000
---------------------------------------------------------------------------------------------------------------
GROSS PROFIT 13,393,000 13,531,000 11,536,000
---------------------------------------------------------------------------------------------------------------
Operating expenses
Selling, general and administrative 6,979,000 6,688,000 6,377,000
Royalties 1,929,000 1,982,000 1,727,000
---------------------------------------------------------------------------------------------------------------
8,908,000 8,670,000 8,104,000
---------------------------------------------------------------------------------------------------------------
OPERATING PROFIT 4,485,000 4,861,000 3,432,000
Other income (expense)
Gain on sale of property
and equipment 264,000 -- --
Life insurance proceeds -- -- 548,000
Interest income 143,000 142,000 131,000
Interest expense -- (180,000) (14,000)
Other 18,000 43,000 27,000
---------------------------------------------------------------------------------------------------------------
425,000 5,000 692,000
---------------------------------------------------------------------------------------------------------------
Earnings before income taxes 4,910,000 4,866,000 4,124,000
---------------------------------------------------------------------------------------------------------------
Income taxes 1,913,000 1,893,000 1,349,000
---------------------------------------------------------------------------------------------------------------
NET EARNINGS $ 2,997,000 $ 2,973,000 $ 2,775,000
---------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE $5.13 $5.09 $3.75
===============================================================================================================
Weighted average number of shares outstanding 584,700 584,700 739,405
===============================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 19
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
For the three years ended April 30, 1999
- -----------------------------------------------------------------------------------------------------------------------------------
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, 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
Net earnings for the year 2,997,000 2,997,000
Cash dividends declared ($1.05 per share) (615,000) (615,000)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at April 30, 1999 $ 762,000 $18,284,000 $ -- $(5,709,000) $13,337,000
===================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 20
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended April 30,
--------------------------------------------------------------------------------------------------------------
1999 1998 1997
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $2,997,000 $2,973,000 $2,775,000
Adjustments to reconcile net earnings to net
cash provided by operating activities
Depreciation expense 390,000 335,000 199,000
Amortization of prepublication costs 924,000 1,059,000 1,001,000
Profit on sale of available-for-sale securities -- (16,000) --
Profit on sale of property and equipment (264,000) -- --
Provision for (recovery of) doubtful
receivables and sales returns 30,000 93,000 --
Deferred income taxes (212,000) (179,000) (113,000)
Changes in operating assets and liabilities
Accounts receivable (405,000) (189,000) (144,000)
Inventories (1,062,000) 315,000 (763,000)
Other assets (54,000) 19,000 30,000
Accounts payable 468,000 (215,000) 168,000
Accrued expenses 376,000 284,000 128,000
Net cash provided by operating
activities 3,188,000 4,479,000 3,281,000
==============================================================================================================
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (145,000) (496,000) (2,715,000)
Purchases of prepublication costs (941,000) (721,000) (849,000)
Proceeds from sale of investment securities
available-for-sale -- 101,000 --
Proceeds from sale of property and
equipment 845,000 -- --
Change in cash surrender value of
officer's life insurance (15,000) (17,000) 547,000
Net cash used in
investing activities (256,000) (1,133,000) (3,017,000)
==============================================================================================================
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (615,000) (584,000) (598,000)
Purchase of Treasury Stock -- -- (2,171,000)
Repayment of notes payable -- (3,256,000) --
Net cash used in financing activities (615,000) (3,840,000) (2,769,000)
==============================================================================================================
NET DECREASE IN CASH AND CASH EQUIVALENTS: 2,317,000 (494,000) (2,505,000)
Cash and cash equivalents at beginning of year 2,119,000 2,613,000 5,118,000
==============================================================================================================
Cash and cash equivalents at end of year $4,436,000 $2,119,000 $2,613,000
==============================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for income taxes $1,842,000 $1,925,000 $1,342,000
==============================================================================================================
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITY:
Unrealized gain (loss) on investment securities
available-for-sale -- -- $ 1,000
Purchase of Treasury Stock financed with notes payable -- -- $3,256,000
==============================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 21
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 1999, 1998, and 1997
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. Costs
for finished goods and raw materials inventories are determined by the
last-in, first-out (LIFO) method. Costs for work in process inventories are
determined by the first-in, first-out (FIFO) method. (See Note C):
April 30,
1999 1998
---------- ----------
Last-in, first-out method $3,374,000 $2,330,000
First-in, first-out method 103,000 85,000
---------- ----------
$3,477,000 $2,415,000
========== ==========
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 $337,000 in 1999, $277,000 in 1998 and $351,000 in
1997.
Notes continued on page 8
7
<PAGE> 22
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 1999, 1998, and 1997
continued
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED
Editorial costs. Editorial costs are charged to expense as incurred.
Income taxes. Deferred income taxes are recorded to reflect the tax
consequences on future years of temporary differences between the tax basis
of assets and liabilities and their financial reporting amounts.
Earnings per share. Earnings per share is computed on the weighted average
number of shares outstanding for the period. 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, 1999 and 1998, 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 standard did not 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 standard did not have a
material impact on the disclosure of segment information. The Company
operates within one business segment.
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> 23
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 1999, 1998, and 1997
continued
NOTE C - INVENTORIES
<TABLE>
<CAPTION>
Inventories consist of the following: 1999 1998
---------- ----------
<S> <C> <C>
Raw materials $ 97,000 $ 87,000
Work in process 103,000 85,000
Finished goods 3,277,000 2,243,000
---------- ----------
$3,477,000 $2,415,000
========== ==========
</TABLE>
Inventories would have been $2,665,000 and $2,640,000 higher at April 30,
1999 and 1998, 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 increasing (decreasing) net
earnings by approximately $16,000 or $.03 per share, $92,000 or $.16 per
share, and ($118,000) or ($.16) per share, for the years ending April 30,
1999, 1998, and 1997, respectively.
NOTE D - PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Property and equipment consists of the following: 1999 1998
---------- ----------
<S> <C> <C>
Land $ 739,000 $ 814,000
Building and improvements 2,991,000 4,056,000
Equipment 2,002,000 1,857,000
---------- ----------
5,732,000 6,727,000
Less accumulated depreciation 1,628,000 1,797,000
---------- ----------
$4,104,000 $4,930,000
========== ==========
</TABLE>
NOTE E - INCOME TAXES
<TABLE>
<CAPTION>
Income tax expense (benefit) consists of the following:
Currently payable: 1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Federal $1,729,000 $1,690,000 $1,181,000
State 396,000 382,000 281,000
---------- ---------- ----------
2,125,000 2,072,000 1,462,000
Deferred (212,000) (179,000) (113,000)
---------- ---------- ----------
$1,913,000 $1,893,000 $1,349,000
========== ========== ==========
</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>
1999 1998
---------- ----------
<S> <C> <C>
Deferred tax assets
Inventory capitalization $ 662,000 $ 551,000
Accrued compensation 115,000 110,000
Allowance for doubtful receivables and sales returns 92,000 81,000
---------- ----------
869,000 742,000
Deferred tax liabilities
Depreciation (1,000) (86,000)
---------- ----------
Net deferred tax asset $ 868,000 $ 656,000
========== ==========
</TABLE>
Notes continued on page 10
9
<PAGE> 24
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 1999, 1998, and 1997
continued
NOTE E - INCOME TAXES-CONTINUED
The components of the deferred tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Excess of tax over book depreciation $ (85,000) $ (83,000) $ 57,000
Inventory capitalization (111,000) (46,000) (178,000)
Accrued compensation (5,000) 1,000 (8,000)
Allowance for doubtful receivables and sales returns (11,000) (51,000) 16,000
---------- ---------- ----------
$ (212,000) $ (179,000) $ (113,000)
========== ========== ==========
</TABLE>
A reconciliation of income taxes computed at the Federal statutory rate
(34%) and income tax expense is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Federal income taxes at statutory rate $1,669,000 $1,654,000 $1,402,000
State income taxes-net of Federal tax benefit 231,000 241,000 185,000
Municipal bond interest exemption -- (4,000) (30,000)
Officer's life insurance 1,000 (2,000) (222,000)
Other 12,000 4,000 14,000
---------- ---------- ----------
$1,913,000 $1,893,000 $1,349,000
========== ========== ==========
</TABLE>
NOTE F - EMPLOYEE BENEFIT PLANS
The Company has a profit sharing plan covering all full-time employees.
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 $370,000 in 1999,
$344,000 in 1998 and $359,000 in 1997. 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 1999, $16,000 in 1998, and $11,000 in 1997.
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 an employment agreement with the 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 this agreement is included in
accrued compensation at April 30, 1999 and 1998.
Notes continued on page 11
10
<PAGE> 25
THE GOODHEART-WILLCOX COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 1999, 1998, and 1997
continued
NOTE H - QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Net earnings
-------------------------
Net sales Gross profit Total Per share
----------- ------------ ---------- ---------
<S> <C> <C> <C> <C>
FISCAL YEAR 1999
FIRST $ 5,265,000 $ 3,711,000 $ 957,000 $1.64
SECOND 6,831,000 5,056,000 1,610,000 2.75
THIRD 3,473,000 2,435,000 424,000 .73
FOURTH 3,057,000 2,191,000 6,000 .01
----------- ----------- ---------- ---------
$18,626,000 $13,393,000 $2,997,000 $5.13
=========== =========== ========== =========
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
=========== =========== ========== =========
</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> 26
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.
/s/ 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, 1999 and
1998, and the related consolidated statements of earnings, stockholders'
equity, and cash flows for each of the three years in the period ended
April 30, 1999. 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, 1999 and
1998, and the consolidated results of their operations and their
consolidated cash flows for each of the three years in the period ended
April 30, 1999, in conformity with generally accepted accounting
principles.
/s/ Grant Thornton LLP
Chicago, Illinois
June 2, 1999
12
<PAGE> 27
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, 1999 decreased
$442,000, or approximately 2% from the previous fiscal year. The net sales
decline for the fiscal year was attributed to the absence of significant
state textbook adoption potential in the curriculum areas served by the
Company's product lines, while solid orders from open territories helped to
somewhat offset the impact due to the lack of adoption calls, along with
selective price increases. The Company's net sales for the fiscal 1998 had
increased $2,437,000 or approximately 15% over the previous fiscal year 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 or 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.
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. However, fiscal 1999 was an exception to the typical cyclical
pattern of state textbook adoptions in that there was an absence of
opportunity to submit products for sales in any of the categories in which
the Company publishes textbooks or supplements. State textbook adoptions
will continue to be much less of a factor for fiscal year 2000 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 fiscal year
1999. 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 to the Company 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 1999 was 28%
compared to 29% in fiscal 1998 and 31% in fiscal 1997. The change in the
ratio of the cost of goods sold as a percentage of sales for fiscal 1999
reflects the careful adjustment of print quantities to match the projected
absence of state adoptions coupled with decisions regarding the quantities
of products manufactured for initial press runs for new titles as well as
the quantities selected for reprints of backlist titles, factoring in
decisions which matched product characteristics with the available
manufacturing technology provided by suppliers. The change in the ratio of
the cost of goods sold as a percentage of sales for fiscal 1998 reflected
more favorable paper prices in a period of increased sales and larger or
more favorable press runs ordered in anticipation of stronger sales for the
period. The change in the ratio of 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. 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, reduced manufacturing
time, the elimination of the 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 income.
Operating expenses for fiscal 1999 consisting of royalties, selling,
general, and administrative expenses increased $238,000, approximately 3%
over the previous fiscal year due primarily to an increase in advertising
in an effort to offset the absence of adoption sales potential, an increase
in salaries for added personnel to serve our customers, and a decrease in
royalties tied to reduced sales. This compares to an increase in operating
expenses in fiscal 1998 of $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. As a percentage
Management's Discussion and Analysis continued on page 14
13
<PAGE> 28
THE GOODHEART-WILLCOX COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS-CONTINUED
of sales, the selling, general, and administrative cost for fiscal 1999 was
37% compared to 35% in fiscal 1998 and 38% in fiscal 1997. 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 1999 sampling expenses were $470,000 compared to $502,000 in fiscal
1998 and $592,000 in fiscal 1997. The sampling decrease of $32,000 can be
attributed to the second year of the diminished number of state adoption
calls in the curriculum areas service by the Company's products compared to
previous years.
The 2% decline in net sales for fiscal 1999 under the previous fiscal year
coupled with a 28% cost of goods sold as a percentage of sales and a 3%
increase in operating expenses resulted in income from operations of
$4,485,000, a decrease of $376,000 or approximately 8%. In fiscal 1998, the
15% increase in net sales 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 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, and increase of $1,192,000,
approximately 53%.
Other income for fiscal 1999 totaled $425,000 composed primarily of
$264,000 from the gain on the sale of the former business and distribution
facility in South Holland, Illinois, and $143,000 of interest income. Other
income 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 the treasury stock. Other income for fiscal
1997 totaled $692,000 composed primarily of $584,000 of extraordinary
income from life insurance proceeds and $131,000 of interest income, while
there was $67,000 less interest than the previous year due to the
investment in the new facility. Another factor influencing other income or
expense may be attributed to reduced interest income due to investment in
the new facility, new hardware, and new software. 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 $4,436,000 at April 30, 1999, an increase
of $2,317,000 from the year ending April 30, 1998. Accounts receivable, net
of allowances for doubtful receivables and sales returns, totaled
$2,036,000 at April 30, 1999, an increase of $375,000 from the fiscal year
ending April 30, 1998. For the fiscal years ending April 30, 1999 and April
30, 1998 the Company had no current debt and no long-term debt. As shown in
the statements of cash flows, the net cash provided by the operating
activities of the Company for fiscal 1999 amounted to $3,188,000 as
compared to $4,479,000 for fiscal 1998, a decrease of $1,291,000, a change
attributed to an increase in net earnings after adjustments to accounts
primarily covering depreciation expense, amortization of prepublication
costs, profit on sales of property and equipment, deferred income taxes,
accounts receivable, inventories, accounts payable, and accrued expenses.
In fiscal 1998, the cash provided by the operating activities of the
Company 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 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. The significant changes in the assets and
liabilities for fiscal 1999 include an increase in cash and cash
equivalents, an increase in accounts receivable, an increase in inventories
in preparation for year 2000 copyrights, a decrease in property and
equipment resulting from the sale of the former business and distribution
facility, an increase in accounts payable, and a decrease in deferred
income taxes. 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
Management's Discussion and Analysis continued on page 15
14
<PAGE> 29
THE GOODHEART-WILLCOX COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS-CONTINUED
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. There have been no changes in business practices
including credit terms or collection efforts from previous years.
Investment in new and revised products for fiscal 1999 was $941,000, an
increase of $220,000 which may be attributed to the significant number of
titles under revision for year 2000 copyrights. 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. The rate of investment in new and
revised products as a percentage of sales for fiscal 1999 was approximately
5%, compared to an investment rate of 4% in fiscal 1998 and 5% in fiscal
1997. 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 attention directed at year 2000 copyrights. 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 technology, hardware, and software to keep Goodheart-Willcox advancing
with technology included the implementation in fiscal 1999 of new software
and hardware systems for the business/marketing/distribution operations
acquired in fiscal 1998, along with new software and hardware for the
creative services area in fiscal 1998. The technology investment for fiscal
1999 amounted to $161,000, compared to $423,000 in fiscal 1998 and $30,000
in fiscal 1997. Investment in new equipment and facilities amounted to
$145,000 in fiscal 1999 compared to $496,000 in fiscal 1998 with the
acquisition of new software and hardware and $2,715,000 in fiscal 1997 with
the acquisition of office capacity for sales and marketing, customer
service, editorial and creative services, along with warehouse space
including added storage, racking, conveyors, and material handling
equipment to improve service to customers and to strengthen distribution
and warehousing capability. The significant investment in fiscal 1997 was
made to service the needs of customers, to increase employee productivity
and retention, and to attract new talent. Changes in the cash surrender
value of life insurance were notable 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 either fiscal 1999
or fiscal 1997.
The primary financing use of cash in each of the last three years was the
payment of dividends at the rate of $1.05 per share in fiscal 1999, $1.00
per share in fiscal 1998, and $.90 per share in fiscal 1997. 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
installments of $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 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. The third quarter in fiscal 1999 did
not include significant state adoption sales when compared to previous
third quarters. 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.
Management's Discussion and Analysis continued on page 16
15
<PAGE> 30
THE GOODHEART-WILLCOX COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS-CONTINUED
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-by-department basis, such as the editorial,
creative, or marketing areas, will be met from operating cash flows. In
fiscal 1999, the Company converted to new software and hardware for the
business, marketing, and distribution operations to improve customer
service, inventory and warehouse management, and information technology.
The business, marketing, and distribution software and hardware were
acquired in fiscal 1998 using internally generated funds. 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 2000, 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. Attention will be paid to copyright year
2000 issues so backlist titles in the product line are included in a
revision schedule. The Company's previous land and buildings in South
Holland, Illinois were sold in fiscal 1999 and recorded as a decrease in
net property and equipment, an increase in cash and cash equivalents, and
an increase in other income as a gain on the sale of property and
equipment. 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 expense for the Company.
THE EFFECTS OF INFLATION
Inflation affects the Company due to increases in the costs of materials
and services which may not be passed through to customers. Fiscal 1999
displayed less tightening of available press time than the previous year,
however the lessons of previous years lead the Company to continue careful
planning with suppliers and manufacturers to assure predictable delivery of
products into inventory for ultimate sales to customers. 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 1999 and 1998 did not experience dramatic changes, thus
allowing moderate reaction in setting price adjustments for the Company's
products. Advanced planning and shifting grades of paper for marketing
reasons may soften the effect of some of the manufacturing price
fluctuations. 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 materials or
services. The Company manages its cost of conducting business in these
periods by using assorted suppliers, reviewing the variety of paper grades
appropriate for the various titles and products, scheduling press runs in
batches, using direct-to-plate technology, balancing the quantities printed
with consideration for the unit cost versus the inventory turnover,
nurturing close relationships with key suppliers, all the while staying
alert to outside opportunities available to meet key deadlines.
IMPACT OF YEAR 2000
The business, customer service, marketing, warehouse and distribution
operations acquired new vendor-supported software in fiscal 1998 and
converted to daily use in fiscal 1999. The business, customer service,
marketing, and warehouse and distribution software is now Year 2000
compliant. The Company believes that with the conversion in fiscal 1998 and
1999 to new software and hardware along with any future vendor-supported
software upgrades, the year 2000 issue should not pose significant internal
operational difficulties. Future vendor-supported software upgrades will
not be material to the Company's results of operation or financial
condition. In addition to addressing internal considerations, the Company
believes that there can be no guarantee that the systems of external
suppliers, manufacturers, or customers will be converted in a timely
manner, thus potentially having an adverse effect.
16
<PAGE> 31
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 13, 1999, at the Corporate Office, Tinley Park, Illinois
STOCK SYMBOL, GWOX, Over-the-Counter Market
TRANSFER AGENT, EquiServe, First Chicago Trust Division
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
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 Emeritus, 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
Todd J. Scheffers, Vice President Sales
Dick G. Snyder, Senior Vice President, and Secretary
COMMON STOCK PRICE RANGES AND DIVIDENDS
Stock prices represent high and low closing bids
---------------------------------------------------------------
Cash
Fiscal Price Range Dividend
Quarter Low High Declared
---------------------------------------------------------------
1Q98 $38 1/4 $48 1/4 --
2Q98 47 53 1/2 --
3Q98 47 53 1/2 $.50
4Q98 58 1/2 60 1/4 $.50
---------------------------------------------------------------
1Q99 58 1/2 63 1/4 --
2Q99 62 1/2 63 1/4 --
3Q99 63 -- $.50
4Q99 61 -- $.55
FISCAL YEAR ENDS APRIL 30
