2020 Annual Report (SE The Goodheart-Willcox Company, Inc. ft Office 2019 omens age) He = Ffeemeenenel rN ee sala DCO Cu AU mae HECouen eee Comprehensive Health Skills‘The Goodheart-Willcox Company, Inc. and Subsidiary Five-Year Summary Years Ended April 30, (in Thousands exept per share data) 2020 2019 2018 2017 2016 Selected Income Statement Data: Sales $23,443 $29,257 $41,162 $24,151 $20,684 Costs and expenses 26288 © 2602027764 «= A791 19A82 Other income 76 869 480 132, 2 Income taxes 401 542 5591 855 18 Net earnings 2,530 3,564 8,287 1,637 866 Earnings per common share $7.07 $8.56 $1988 $395 $2.09 Weighted average number of shares outstanding 357,721 416,163 416945414107 413,772 Dividends declared per share $2.78 $4.00 $12.00 $2.00 $2.00 Selected Balance Sheet Data: Total assets $56,485 $64,151 $63,211 $42,193 $38,450 Total stockholders’ equity 28,039 36532-36328 32,202, 51199 Contents Letter to Sharcholders.....22.+.s0seeesereseees Consolidated Statements of Earnings Consolidated Balance Sheets ....+..2+++0+++0 Consolidated Statements of Stockholders’ Equity . Consolidated Statements of Cash Flow Notes to Consolidated Financial Statements Statement of Management Responsibilities. ..... Independent Auditor's Report .. Corporate Information ‘The cover of this 2020 Annual Report continues the style used in previous reports by illustrating typical textbooks published by Goodheart-Willeox in fiscal 2020. Please visit www.g-w.com to view the entire product line devoted to preparing people for their lives and careers.To our Shareholders: ‘Your Company's performance for the first ten and a half months of Fiscal 2020 achieved typical operational and financial results from Goodheart-Willcox in publishing, promoting, and selling instructional content serving our customers in the Career and Technical Education and Health Education marketplaces. The COVID pandemic impacted both your Company and our customers beginning in mid-March. This letter will cover the financial performance and publishing results accomplished both before and after the pandemic-mandated reactions. Financially, the results of the Third Quarter, which ended January 31, 2020, reported Net Sales declined 0.6% from the same nine-month period in Fiscal 2019, Improved sales from the College channel, Career channel, and Business, Industry & Government channel helped overcome the absence of any substantial state textbook adoptions in the School 6-12 channel. Operating Profit was reported at 16.2% as a percentage of Net Sales. Net Earnings were $3,376,000 for the first nine months of Fiscal 2020. At the end of the Third Quarter, Goodheart-Willcox was tracking to report financial results similar to the prior fiscal year. From a publishing perspective, your Company successfully released seven new first editions to expand the product line. New products include Print Reading for HVACR which expands and supports the market-leading textbook in this field; CNC Manufacturing Technology to train entry-level technicians; Natural Resources ‘Systems providing coverage of resource management, sustainability, global environmental issues, and the science behind solutions; The Nursing Assistant— Brief Edition, which presents comprehensive content of all the key knowledge and skills students need for success when taking certification competency exams; and Introduction to Computer Science: Java Programming to introduce students to an easy-to-use programming language to learn coding concepts. Your Company revised 35 backlist titles to provide the most up-to-date content for educators and learners to build future careers. Solid revisions maintain ssales momentum for the Company and support efforts to gain market share in the CTE marketplace. The major revision of Modern Refrigeration and Air Conditioning as the 21* edition provides a comprehensive teaching and learning package designed to train students to become technicians. The G-W Training Series for ASE Certification package contains eight individual titles representing another major revision of textbooks, workbooks, and lab manuals with up-to-date coverage of advances in systems operation, diagnosis, service, and repair procedures to support students as they achieve ASE (Automotive Service Excellence) certification. The wide variety of revised products cross all curriculum areas and are represented by other titles shown on the cover of this Annual Report. At the beginning of Fiscal Year 2020, Goodheart-Willcox concluded a tender offer for the Company's common stock, providing a liquidity event for shareholders as well as providing tax advantages for reinvesting their proceeds. At the close, 52,557 shares of common stock were tendered by shareholders at the price of $150.00 per share, for a total transaction amounting to $7,883,550 and representing 11.78% of the total outstanding shares of the Company's outstanding stock. The shares were redeemed by The Goodheart-Willcox Company, Inc. Employees’ Profit Sharing and Stock Ownership Plan and will be used to retain and attract talent in order to strengthen and grow the Company. In mid-March, the reaction to the pandemic virus changed “business as usual” for Goodheart-Willcox and our customers. Goodheart-Willcox was designated as an Essential Business for delivering education to thousands ofstudents remotely. In order to balance the needs of the business with the health and safety of the workforce, we quickly set up employees to work remotely. ‘As schools shut their doors, incoming orders were reduced. Leadership implemented new guidelines dividing the Distribution team, with half of the employees coming into the warehouse every other day to continue shipping orders. The Customer Service team was divided, with half working remotely and half coming into the office on an every-other-day-basis to process orders, develop quotes, reply to inquiries, and provide the services our customers expect. The Publishing and Digital Media team members were quickly productive in their remote work environments, completing their responsibilities for editing, creating pages, acquiring new products, and developing the new and revised print and digital products for the 2021 and 2022 publishing plans. ‘The Educational Consultants on the sales team quickly applied technology to continue communicating with key customers and contacts. Your Company has been steadily investing in infrastructure to support the changing needs of the business. The ability to transition the majority of the workforce to perform in remote environments and to support customers with products and platforms to manage online remote learning would not have been possible without the ongoing commitment to investing in technology and workflow improvements. Goodheart-Willcox’s traditional educational customers were immediately faced with new challenges when their classroom environments were shuttered and instruction had to be delivered remotely. Goodheart-Willcox quickly responded to accommodate those programs that had been built around printed textbooks by providing over 268,000 free 90-day access codes for digital content in March and April so students could complete their semester remotely. The Digital Media team supported those educators requiring coaching and training. ‘As Goodheart-Willcox moves forward into a post-pandemic environment, what are the financial considerations? As a seasonal business where most textbooks and supplements are delivered for the start of the new semester, March and April are historically the slowest months for new orders. Fortunately, the impact of the pandemic was first felt in our quietest months instead of during the busy summer shipping season. Sales in April 2020 were approximately 75% of sales in the prior April 2019. The Company's shift to marketing and selling products using technology has saved considerable travel expenses. Goodheart-Willcox has retained all the Company's trained and experienced talent to perform remotely during the pandemic restrictions. Your Company has a strong balance sheet to weather the pandemic and to support the operational and financial performance of the Company until the “new normal” is achieved. Based on the Company's balance sheet, Goodheart- Willcox did not secure PPP loans or other available subsidies under the CARES Act. Our current financial strength allows Goodheart-Willcox to remain committed to serving our customers, to invest in building new and revised products for future publication, to enhance the Company's technology, and to recruit experienced talent to build long-term strengths. ‘The information and data published in this 2020 Annual Report illustrates that the sales momentum achieved early in the year suffered in the last few months of the fiscal year due to the impact of the pandemic on our school customers, resulting in Net Sales of $28,443,000 or a decline of 2.8% compared to the prior fiscal year. The Gross Profit as a Percentage of Sales was 86.7% compared to 85.5% one year earlier. Selling expenses were carefully managed duringFiscal 2020, with travel expenses and conference participation eliminated for the final six weeks of the fiscal year. Salaries experienced an increase due to acquiring additional talent to strengthen the areas of Digital Media, Information ‘Technology, Product Acquisition, and Editorial to grow the Company. The Net Sales decline coupled with increased Selling, General, and Administrative Expenses produced an Operating Profit of $2,155,000. The Net Earnings for Fiscal Year are reported at $2,530,000, which is a 29.0% reduction from the prior year. Following the successful tender offer described earlier in this letter and 4s illustrated in the Five-Year Summary on the inside front cover, the Earnings per Share amounted to $707 in Fiscal Year 2020, a 174% decrease from $8.56 reported in the prior Fiscal Year. Your Board of Directors declared an annual dividend (semi-annual prior to Fiscal Year 2020) of $2.75 to shareholders of record as of May 1, 2020 and payable June 1, 2020. While the financial “health” of Goodheart-Willcox should be the paramount concern for shareholders, another consideration weighing on the long-term success of the Company is the “health” of our customers. Instructors are now using technology to deliver digital content and distant instruction. Because many Career and Technical Education courses involve hands-on, minds-on learning, there is a pressing need to open facilities equipped with laboratory training equipment so students can demonstrate their knowledge and skills to diagnose, service, and troubleshoot. Students would additionally benefit having access to laboratory equipment to practice before challenging, certification exams. The fact that Goodheart- Willcox digital products are so easy to implement and use makes them appealing to both educators and students. Fortunately, Educational Consultants are equipped with appropriate technology to contact key decision-makers. Goodheart-Willeox has a lot to be proud of—from how rapidly every employee transitioned to working remotely, to our quick response of offering customers free 90-day digital access so students could complete their semester remotely. During these unique times, our primary focus is the health and safety of our workforce, along with the health of their families. All employees continue to display the very best of our Can-Do Attitude Core Value as Goodheart-Willcox progresses into the next chapter of serving the CTE community. We continue to maintain our rich history of delivering high-quality products and services as we approach our centennial celebration in 2021. Your Company is well positioned for the future. Your Board of Directors recently honored Robert C. DeBolt for 28 years of leadership, guidance, and service. He provided wise counsel and heartfelt concern for employees, shareholders, and customers. Bob DeBolt had perfect attendance at Board meetings for 28 years, supporting employee development and retention, encouraging expansion of the product offerings, and willingly shared his experience and wisdom. At the 2020 Annual Meeting of Shareholders, the Board will nominate a qualified candidate to fill the open Director position resulting from the retirement of Bob DeBolt. F SE lamepge John F. Flanagan Chair, President, and Chief Executive OfficerThe Goodheart-Willcox Company, Inc. and Subsidiary Consolidated Statements of Earnings Years Ended April 30, (in Thousands, except per share data) 2020 2019 2018 Revenue $28,443 $29,257 $41,162 Cost of goods sold 3,788 4,245 5,066 Gross profit 24,655 25,012 36,096 Operating expenses Selling, general and administrative 19,851 19033 18,992 Royalties 2,649 2742 3,756 ‘Total operating expenses 22,500 21775 22,698 Operating profit 2,155 3237 13,398 Other income 776 869 480 Earnings before income taxes 2,931 4106 13,878 Income taxes 401 542 5591 Net earnings $2,530 $3,564 $8,287 Earnings per common share $7.07 $8.56 $19.88 Weighted average number of shares outstanding 397721 416,163 416,945 4 The accompanying notes are an Integral part of these statements‘The Goodheart-Willcox Company, Inc. and Sul Consolidated Balance Sheets Years Ended April 30, (in Thousonds) 2020 2019 ASSETS Current assets: ‘Cash and cash equivalents 36,188 $16,520 Investment in available-for-sale securities 29,040 2725 Accounts receivable, net 2,248 2,000 Inventories, net i971 2,093 Other current assets 1152 on Total current assets 40,399 48,749 Prepublication costs, net of accumulated amortization of $464 and $561 a7 474 Property and equipment, net 5,330 5672 Deferred income taxes, net 7,081 6401 Other non-current assets 2,998 2,855 TOTAL ASSETS $56,485 $64,151 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: ‘Accounts payable $433, $899 Accrued compensation 1,327 678 ‘Accrued other expenses 1120 669 Deferred revenue 6,042 5,070 Dividends payable 936 821 Royalties payable 139 219 Total current liabilities 10,007 8,356 Long-term liabilities: Deferred revenue, net of current portion 17,626 18,193 Other long-term liabilities 813 1.070 Total long-term liabilities 18,439 19,263 TOTAL LIABILITIES 28,446 27,619 TOTAL STOCKHOLDERS’ EQUITY 28,039 36532 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $56,485 $64,151 The accompanying notes are an integral part of these statements‘The Goodheart-Willcox Company, Inc. and Subsidiary Consolidated Statements of Stockholders’ Equity For the three years ended April 30, 2020 Unearned Additional Common ESOP Paid-in Treasury Retained (in Thousands, exept pr share data) Stock Stock Capital Stock”_Earnings Total Balance at April 30, 2017 $762 $(4,488) $11,206 $(25,291) $50,013 $32,202 Net earnings for the year 8287 8,287 Amortization of unearned ESOP common stock 408 124 532 Purchase of 800 shares of treasury stock 65) (65) Issuance of 3,496 shares of common stock from treasury 37332 369 Cash dividends declared (§12.00 per share) (69007) (6,007) Balance at April 30, 2018 $762 $(4,080) $11,367 (25,014) $53,293 $36,328 Net earnings for the year 3564 3,564 Amortization of unearned ESOP common stock 408 213 on Purchase of 17,242 shares of treasury stock 74) (2,78) Issuance of 1,785 shares of common stock from treasury a9 79 260 Cash dividends declared (64.00 per share) (1.645) (1,645) ASC 606 adjustment 17178 Balance at April 30, 2019 $762 $3672) $11,561 $(27,509) $55,390 $36,532 Net earnings for the year 2530 2,530 Amortization of unearned ESOP common stock 599 201 800 Purchase of 19,843 shares of treasury stock 3.076) (3076) Issuance of 533 shares of common stock from treasury 3 83 Cash dividends declared ($2.75 per share) (946) (946) Purchase of 52,557 shares of common stock by ESOP (7,884) 7.884) Balance at April 30, 2020 $762 $(10,957) $11,762 $(30,502) $56,974 $28,039 6 ‘The accompanying notes are an integral part of these statements‘The Goodheart-Willcox Company, Inc. and Subsidiary Consolidated Statements of Cash Flow Years Ended April 30, in Toso) 2020 2019 2018 Cash flow from operating acti Net earnings $2,530 $3,564 $8,287 ‘Adjustments to reconcile net earnings to net cash provided by operating activities Depreciation expense 458 515 483 Amortization of prepublicati 353 433 458 ‘Amortization of contract acqui 59 50 = ESOP compensation expense 800 2 532 Deferred income taxes (680) (3,806) 2578 Changes in operating assets and liabilities Accounts receivable as2) 169 108 Inventories 122 1,200 (633) Other assets aa) (440) (1,378) Accounts payable (466) (128) 156 Accrued expenses 627 (61) 357 Deferred revenue 405 1,289 15,106 Net cash provided by operating activ 3,582 3,385 26,054 Cash flows from investing activities: Purchases of property and equipment a9) (102) (1317) Purchases of prepublication (356) (366) (328) Contract acquisition costs 60) (38) = Change in cash surrender value © 6) 53 Purchases of available-for-sale securities (69972) (209,460) (236,567) Sales of available-for-sale securities 68,284 220,582 218,781 Net cash (used in) provided by investing activities 2.216) 10,610 (19,378) Cash flows from financing activities: ividends paid (al) 515) (3,734) Purchase of common stock by ESOP 7,884) — = Purchase of treasury stock 3,076) (2,74) (55) Issuance of common stock from treasury 83 260 369 Net cash used in financing activities 11,698) 6.029) 3420) Net increase (decrease) in cash and cash equivalents (10,332) 8,966 3,256 Cash and cash equivalents at the beginning of year 16,520 7.554 4208 Cash and cash equivalents at the end of year $6,188 $16,520 $7,554 ‘Supplemental disclosure of cash flow information: Cash paid during the year for income taxes $1,208 $4,886 $2,788 ‘Supplemental disclosure of noncash financing activities: Dividends payable $946 $867 $1,273 ‘The accompanying notes are an integral part of these statements‘The Goodheart-Willeox Company, Inc. and Subsidiary Notes to Consolidated Financial Statements April 30, 2020, 2019, and 2018 (Dollars in Thousands, except pr share date) Note A~ Summary of significant accounting policies ‘The Goodheart-Willcox Company, Inc. ("the Company”), a Delaware corporation, publishes textbooks, student supplements, and instructor's resources, on technical, trades, engineering; family and consumer sciences; business, computer and career education; agriculture education; health sciences; and health education. ‘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 public and private schools, community colleges, career colleges, businesses, trade associations, ‘government accounts, retail book chains, and resellers. Historically, the Company has experienced its highest level of sales in the first and second quarters 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 is as 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. On May 1, 2018, the Company adopted Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers ("ASC 606") using the modified retrospective method applied to those contracts which were not completed as of May 1, 2018, Results for reporting periods beginning after May 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with legacy accounting under ASC Topic 605: Revenue Recognition (ASC 608). See Note C for further discussion regarding the Company's revenue recognition policy. Cash and cash equivalents. The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. It is the Company's policy to include investments in short-term municipals at $1 carrying value as a cash equivalent. The Company maintains its cash balances in one finan« institution in which at times the balance on deposit may exceed the maximum limits insured by the FDIC. The Company does not believe it is exposed to any significant credit risk. Investment in available for-sale securities. Investments in available-for-sale securities consist primarily of marketable debt securities. Investments in available-for-sale securities are reported at fair value based on quoted market prices. The Company recognized $7, $21, and $3 realized gain for the years ended April 30, 2020, 2019, and 2018, respectively, and $127, $1, and $0, unrealized gain/(loss) for the years ended April 30, 2020, 2019, and 2018, respectively. Such amounts are included within other income in the consolidated statements of earnings. Fair value of financial instruments. ASC Topic 820, Fair Value Measurements and Disclosures, provides a framework for measuring fair value of assets and liabilities in accordance with GAAP, and establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs and other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. The fair value of cash, accounts receivable, and accounts payable approximate the carrying value due to immediate or short-term maturity of these financial instruments. Accounts receivable. The Company grants trade credit to its customers located primarily throughout the United States and Canada. Receivables are valued at management's estimate of the amount that will ultimately be collected. The allowance for doubtful accounts is based on the specific identification of uncollected accounts and the Company's historical collection experience. As of April 30, 2020 and 2019, management has established an allowance for doubtful receivables of $174 and $15, respectively.The Goodheart-Willcox Company, Inc. and Subsidiary Notes to Consolidated Financial Statements April 30, 2020, 2019, and 2018 continued ‘Dollars in Thousands, xcept per share dat) Note A - Summary of significant accounting policies~continued Inventories. Inventories are valued at the lower of cost or net realizable value. The Company reviews the value of inventory based on historical sales, forecasted demand, contractual commitments, and textbook revision schedules to establish an allowance for excess finished goods inventory. Costs for finished goods are determined by the last-in, first-out (LIFO) method. Cost includes the purchase of paper, printing, and binding from outside sources. 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, therefor, clasifis all inventories as current asets, Certain physica inventory must be retained the length of state textbook adoption periods to avoid “out-of-stock penalties.” Property and equipment. Property and equipment are carried at cost less accumulated depreciation. Depreciation is provided on the straight-line method for building and improvements, and accelerated method for furniture, fixtures, and equipment over the estimated useful lives of the assets. Expenditures for repairs and maintenance are charged against income when incurred, and replacements are capitalized. Gains ot losses on dispositions of property and equipment are included within selling, general, and administrative expenses on the consolidated statements of earnings. republication costs. The Company capitalizes certain outside contractor costs, including manuscript review, photography and artwork, and preparation costs, associated with creation of the textbooks and supplements. republication costs are amortized over a period of three years under the straight-line method. Leases. As disclosed in Note H, the Company follows the lease accounting guidance in ASU No. 2016-02, Leases (Topic 842). The Company determines if an arrangement is a lease at inception. Operating lease right-of-use ROU”) assets are included in other non-current assets, and operating lease obligations are included in accrued other expenses and other long-term liabilities in the consolidated balance sheet. The Company has no finance leases. ROU assets and lease liabilities are recognized and measured on the date the underlying asset is made available to the Company. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. ‘The Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Operating lease ‘expense for minimum lease payments is recognized on a straight-line basis over the lease term. The Company accounts for the lease and non-lease components separately. The Company has elected as an accounting policy not to apply the recognition requirements for short-term leases. Therefore, leases with a term of twelve months or less are not recorded in the consolidated balance sheet. Advertising costs. The Company expenses advertising costs as incurred. Advertising costs were $507, $544, and $515 in 2020, 2019, and 2018, respectively. 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 bases of assets and liabilities and their financial reporting amounts. Deferred tax assets and liabilities are adjusted for the effects of the changes in tax laws and rates of the date of enactment. ‘The Company follows the provisions of ASC Topic 740, Accounting for Income Taxes, which prescribes a comprehensive model for the financial statement recognition, measurement, presentation, and disclosure of uncertain tax positions taken or expected to be taken in income tax returns. Under this provision, the Company classifies net deferred tax assets and liabilities as non-current in the accompanying consolidated balance sheets. Earnings per share. Earnings per share is computed on the weighted average number of shares outstanding for the period. For purposes of computing earnings per share, unreleased ESOP shares are not considered outstanding. ESOP shares committed to be released during the year are considered to become outstanding, ratably throughout the year.‘The Goodheart-Willcox Company, Inc. and Subsidiary Notes to Consolidated Financial Statements April 30, 2020, 2019, and 2018 continued (Dollars in Thousands, except pr share data) Note A - Summary of significant accounting policies~continued ‘Common stock. The Company has 1,000,000 shares of $1 par value common stock authorized and 762,000 shares issued, of which 427,232 and 446,542 (net of 334,768 and 315,458 shares which have been repurchased by the Company and held as treasury stock) are shares outstanding as of April 30, 2020 and 2019, respectively. As of April 30, 2020 and 2019, respectively, the Company had 343,947 and 410,542 (net of 83,285 and 36,000 unreleased ESOP shares, respectively) shares outstanding for purposes of computing earnings per share. eronsiveness of estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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. ‘Subsequent events, The Company has evaluated its subsequent events (events occurring after April 30, 2020) through June 15, 2020, which represents the date the financial statements were available to be issued. Note B - Fair value disclosures ‘The following is a description of the valuation methodologies used for instruments measured at fair value: Government agencies bonds and notes. Valuation inputs utilized by the independent pricing service for those US. Treasury and federal agency securities under Level 2 include benchmark yields, reported trades, broker/ dealer quotes, issuer spreads, benchmark securities, bids, offers, and reference data including market research publications. Also included are data from the vendor trading platform. Corporate obligations. Valuation inputs utilized by the independent pricing services for the corporate obligations under Level 2 include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities, bids, offers, and reference data including market research publications. Short term cash equivalents, The fair value of short term cash equivalents under Level 1 is the market value based ton quoted market prices, when available, or market prices provided by recognized broker/dealers. Assets and liabilities measured at fair value on a recurring basis as of April 30, 2020 and 2019 are summarized as follows: April 30, 2020 April 30, 2019 Total Level Level? Total Levell__Level2 Available-for-sale securities Government agencies bonds and notes $16,648, S— si664s $15,314 $— $15,314 Corporate obligations 12,392 — 23m gn — usu Total available-for-sale securities 29,040 — 29040 27,225 — 725 Short term cash equivalents 2,845 2,845 = n u = Total fair valued assets $31,885 $2,845 $29,040 $27,236 $27,205 As of April 30, 2020 and 2019, the Company did not have any investments with Level puts. 10‘The Goodheart-Willcox Company, Inc. and Subsidiary Notes to Consolidated Financial Statements April 30, 2020, 2019, and 2018 continued (Dollars in Thousands, except per share data) Note C- Revenue recognition, contracts with customers For the years ended prior to May 1, 2018 ‘The Company recognized revenue when the following criteria were met: persuasive evidence that an arrangement exists; delivery has occurred or services have been rendered; the price to the customer is fixed or determinable; and collectability is reasonably assured. Ifa of the above criteria have been met, revenue ‘was recognized upon shipment of products or when services have been rendered. The timing and amount of revenue recognized under ASC 605 approximates that which is recognized under ASC 606. ‘The Company adopted ASC 606 as of May 1, 2018, using the modified retrospective method whereby ‘comparative periods have not been restated and continue to be reported under the accounting standards in effect for those periods. The Company recorded an adjustment to increase opening retained earnings by $178 for contract acquisition costs related to multi-year subscriptions that were expensed in prior periods. For the years beginning after April 30, 2018 Revenue from contracts with customers is recognized using a five-step model consisting of the following: (1) identify the contract with a customer; 2) identify the performance obligations in the contract; (@) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the Company satisfies a performance obligation. Performance obligations are satisfied when the Company transfers control of a good or service to a customer, which can occur over time or at a point in time. The amount of reveniue is recognized is based on the consideration to which the ‘Company expects to be entitled in exchange for those goods or services, including the expected value of variable consideration. The customer's ability and intent to pay the transaction price is assessed in determining whether a contract exists with the customer. If collectability of substantially all the consideration in a contract is not probable, consideration received is not recognized as revenue unless the consideration is nonrefundable and the Company no longer has an obligation to transfer additional goods or services to the customer or collectability becomes probable. The revenue from the sale of printed products is recognized at the time when control of such products passes to the customer, generally upon shipment from the Company warehouse or outside depositories. The Company recognizes revenue from the sale of digital online content ratably over the subscription period, which ranges from one to eight years, with the deferral of revenue being reported on the balance sheet as deferred revenue. Where a contract contains multiple performance obligations, such as the delivery of printed products, supplementary materials, and/or digital online content, revenue is allocated on the basis of relative standalone selling prices. Where a contract contains variable consideration, significant estimation is required to determine the progress towards delivering the performance obligation. Amounts charged to customers for shipping, and handling are included in sales and the costs are included in cost of goods sold. Sales and other taxes are presented on a net basis and excluded from revenues. For sales that include a right of return, which primarily includes printed products returned in new or saleable condition within 12 months of the invoice date, the Company will estimate the transaction price and record revenues as variable consideration based on the amounts the Company expects to ultimately be entitled. In order to determine estimated returns, the Company utilizes historical and forecasted return rates, sales patterns, types of products, saleability of returned goods and recognizes a reduction to revenue, cost of goods sold, and royalty expense. In addition, a refund liability, $888 and $522 as of April 30, 2020 and 2019, respectively, is recorded within accrued other expenses for the consideration to which the Company believes it will not ultimately be entitled, a return asset is recorded within inventory for the expected inventory to be returned, and a reduction of royalty payable is recorded for the royalty related to the sales refund liability. nuThe Goodheart-Willcox Company, Inc. and Subsidiary Notes to Consolidated Financial Statements April 30, 2020, 2019, and 2018 continued (Datars in Thousands, except per stare data) Note C- Revenue recognition, contracts with customers-continued Contract acquisition costs Contract acquisition costs represent costs directly associated with entering into contracts with customers which will benefit a period greater than 12 months and are expected to be recovered. Such costs, $216 and $225 as of April 30, 2020 and 2019, respectively, are recorded within other non-current assets and amortized ratably over the average term of the contracts with the customers. Disaggregation of revenue ‘The following table presents revenue disaggregated by product line for the years ended April 30, 2020, 2019, and 2018: 2020 2019 2018 Printed products $20,743 $22,478 $35,782 Digital online content 6914 5817 out Other 786 962 766 Total revenue $28,443 $29,257 541,162 ‘The following table presents revenue disaggregated by customer channel for the years ended April 30, 2020, 2019, and 2018: 2020 2019 2018 Middle and high schools $15,690 518,966 $33,846 Colleges 8192 6,830 Private career schools 1478 1296 Business, industry & government 1,920 899 632 Other 1163 1,266 952 Total revenue $28,443 $29,257 $41,162 R‘The Goodheart-Willcox Company, Inc. and Subsidiary Notes to Consolidated Financial Statements April 30, 2020, 2019, and 2018 continued (Dollars in Thousands, except per share data) Note D - Inventories Inventories at April 30, 2020 and 2019 consist of the following: 2020 2019 Finished goods $2,429 $2578 Allowance for excess finished goods inventory (458) (485) $1971 $2,093 Inventories would have been $2,444 and $2,358 higher at April 30, 2020 and 2019, respectively, ifthe 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, decreased net earnings by approximately $210 or $0.59 and $499 or $1.20 per share in the year ended April 30, 2020 and 2019, respectively, and increased net earnings by approximately $79 or $.19 per share in the year ended April 30, 2018. Note E - Property and equipment Property and equipment at April 30, 2020 and 2019 consist of the following: Estimated : Useful Li 2020 2019 Land $739 $739 Building and improvements 10-40 years 7265 7214 Furniture, fixtures, and equipment 3-7 years 4,222 4,268 Construction in progress 15 16 12,241 12,237 Less accumulated depreciation 9) (6565) $5,330 $5,672 Depreciation expense totaled $458, $515, and $483 for the years ended April 30, 2020, 2019, and 2018, respectively. B‘The Goodheart-Willcox Company, Inc. and Subsidiary Notes to Consolidated Financial Statements April 30, 2020, 2019, and 2018 continued (Dollars in Thousands, excep pr share date) Note F-Income taxes Income tax expense (benefit) for the years ended April 30, 2020, 2019, and 2018 consists of the following: 2020 2019 2018 Current: Federal $850 $3517 State 231 831 1081 4348 Deferred (680) (3,806) Total income tax expense $401 $542 A reconciliation of income taxes computed at the blended Federal statutory rate and income tax expense is as follows: 2020 2019 2018 Federal income taxes ata statutory rate $615 $862 $4,219 State income taxes—net of federal tax benefit 101 7 325 Deferred tax rate differential 73) (135) 1,552 ESOP dividends (232) (220) 17) Other (10) (2) 2 Total income tax expense 401 $542 $5591 The tax effects of the existing temporary differences that give rise to deferred tax assets and liabilities at April 30, 2020 and 2019 are as follows: 2020 2019 Deferred tax assets Inventory capitalization and allowances $1110 $1,206 Accrued compensation 189 265 Allowance for doubtful receivables and sales returns 273 133 Deferred revenue 4844 4a Deferred expenses 1,390 1128 Total deferred tax assets 7,806 7143 Deferred tax liabilities Prepaid expenses 673) (653) Depreciation (452) (189) Total deferred tax liabilities 725) (742) Total net deferred tax assets $7081 $6401 “‘The Goodheart-Willcox Company, Inc. and Subsidiary Notes to Consolidated Financial Statements April 30, 2020, 2019, and 2018 continued (Dotrs in Thousands, excep pe share date) Note F - Income taxes-continued ‘The Company files tax returns in all appropriate jurisdictions, which include a federal return and various state tax returns. Open tax years forall jurisdictions are 2017 to 2020, which statutes expire in 2021 to 2024, respectively. When, and if applicable, potential interest and penalty costs are accrued as incurred, with penalties recognized in selling, general and administrative expenses and interest recognized in interest ‘expense in the statements of earnings. The Company has not recorded a reserve for any tax positions for which the ultimate deductibility is highly uncertain or for which there is uncertainty about the timing of such deductibility and, as of April 30, 2020 and 2019, the Company has no liability for unrecognized tax benefits. Note G - Employee benefit plans Effective May 1, 2000, the Company added employee stock ownership provisions to The Goodheart-Willeox ‘Company Employees’ Profit Sharing Plan to create The Goodheart-Willcox Company, Inc. Employees’ Profit Sharing and Stock Ownership Plan and Trust (the “Profit Sharing and ESOP Plan”) to enable eligible ‘employees to acquire stock ownership in the Company. Employees of the Company are generally eligible to participate in the ESOP after one year of service providing they worked at least 1,000 hours during such year and are age 21 or older. The ESOP is being accounted for under ASC Topic 718-40, Employee Stock Ownership Plans. The Profit Sharing and ESOP Plan covers all eligible employees and is a tax qualified, internally leveraged ESOP designed to utilize the tax incentives available to tax qualified ESOPs. On June 7, 2000, the ESOP trust borrowed $4,749 from the Company. The proceeds of the loan and an individual employee profit sharing account were used to purchase 175,516 then outstanding shares of the Company's common stock. Of the 175,516 shares purchased, 62,175 shares were purchased by an individual participant, who is currently the Company's President, with proceeds from his employee profit sharing. account, and 113,341 shares were held in a suspense account and have been released to employees based on principal repayments to the Company of the ESOP loan. The ESOP loan was fully repaid and all related shares were released to employees as of April 30, 2013. On April 28, 2009, the Company sold 80,000 shares of the Company's common stock, that were previously held as treasury shares, to the ESOP in exchange for a note, bearing interest at 3.58% with annual principal and interest payments of $578 through 2028. The issued shares are held in a suspense account and are being released to employees based on principal and intrest repayments to the Company ofthe ESOP loan through April (On May 24, 2019, the ESOP trust completed an offer to purchase shares of common stock of the Company at a cash purchase price of $150.00 per share, whereby the ESOP trust borrowed $7,884 from the Company to purchase 52,557 shares of the Company's common stock from shareholders of record. The borrowing is evidenced by a note, bearing interest at 2.74%, with a payment of principal and interest of $316 in April 2020, followed by annual principal and interest payments of $327 from April 2021 through April 2059. The issued shares are held in a suspense account and are being released to employees based on principal and interest repayments to the Company on the ESOP loan through April 2059. ESOP compensation expense is recorded based on the average market value, as determined in cooperation with an independent third party valuation expert, of the shares committed to be released during the year with a corresponding credit to unearned ESOP common stock for the cost of the shares committed to be released. ‘Any difference between the market value of the shares committed to be released and the cost of the shares. is charged or credited to additional paid-in capital. ESOP compensation expense was $800, $621, and $532 in fiscal 2020, 2019, and 2018, respectively. Shares of ESOP common stock are released or allocated to empl accounts as of year-end. Dividends paid on unallocated ESOP shares are not considered dividends for financial reporting purposes and are used by the ESOP to repay the loan to the Company. During fiscal 2020, 2019, and 2018, respectively, $72, $240, and $396 of such dividends were used to repay the ESOP loans. With respect to dividends paid on shares released to fully-vested employees’ stock contribution accounts, the Profit Sharing and ESOP Plan allows participants to elect to (a) reinvest such dividends in Company stock (issued from treasury), or (b) withdraw such dividends. During fiscal 2020, 2019, and 2018, respectively, participants elected to reinvest dividends in 533, 1,735, and 3496 shares of the Company’s common stock. 15‘The Goodheart-Willcox Company, Inc. and Subsidiary Notes to Consolidated Financial Statements April 30, 2020, 2019, and 2018 continued (Dollars in Thousands, excep pr share data) Note G - Employee benefit plans~continued As of April 30, 2020 and 2019, respectively, the ESOP trust held 241,012 shares and 210,787 shares of the Company's common stock, Unreleased ESOP shares held in suspense account as of April 30,2020, 2019, and 2018 are as follows: Balance at April 30, 2018 40,000 Released shares (4,000) Balance at April 30, 2019 36,000 ESOP Loan 52,557 Released shares, (6272) Balance at April 30, 2020 83,285 Fair value of unreleased ESOP shares: $12,263 ‘The Company has the final obligation to repurchase allocated shares from terminating and diversifying participants as outlined in the Profit Sharing and ESOP Plan document and Trust agreement. Repurchase obligations at April 30, 2020 total $35,487. ‘Company cash or stock contributions to the Profit Sharing and ESOP Plan are determined by its Board of Directors, typically as a percentage of employees’ eligible compensation, but shall not be less than the payments required to be received by the Company under the ESOP loan or more than the maximum amount deductible under the provisions of Section 404 of the Internal Revenue Code. For fiscal 2020, 2019, and 2018, respectively, the Company recorded an expense of $6, $421, and $656 for a cash profit sharing contribution. Effective September 1, 2018, the Company adopted The Goodheart Willcox Company, Inc. 401(k) Plan and ‘Trust. The plan allows participants to make elective pretax or posttax contributions, subject to certain IRS limitations. The Company matches 100% of participant contributions up to 3% of eligible compensation, plus 50% of participant contributions over 3% and up to 5% of eligible compensation. The Company recorded ‘employer match expense of $295 and $200 for the year ending April 30, 2020 and 2019. Effective May 1, 1994, the Company adopted The Goodheart Willcox Company, Inc. Supplemental Executive Retirement Plan (the “SERP”) for the benefit of certain management employees as determined by the Board of Directors. The purpose of the SERP is to provide additional benefits for those participants who have Profit Sharing and ESOP Plan benefits limited by the Internal Revenue Code. There were no SERP benefit payments for fiscal 2019 or 2018, and unpaid amounts totaling $358 are included in long-term liabilities at April 30, 2019 On July 19, 2019, the Company amended and terminated the SERP. On September 6, 2019, the Company liquidated the SERP and paid $358 to participants. 16‘The Goodheart-Willcox Company, Inc. and Subsidiary Notes to Consolidated Financial Statements April 30, 2020, 2019, and 2018 continued (Dollars in Thousands, except pr share data) Note H - Commitments and contingencies ‘The Company leases certain office equipment and automobiles under non-cancelable operating leases, which expire at various dates through fiscal 2024. The leases do not contain any material residual value guarantees or material restricted covenants. ‘The Company adopted the guidance of Topic 842 on May 1, 2019, using the modified retrospective method without restatement of comparative periods. As such, periods prior to the date of adoption are presented in accordance with ASC 840 - Leases. The Company utilized the available practical expedient that allowed for the Company not to reassess whether existing contracts contain a lease under the new definition of a lease, lease classification for existing leases, and whether previously capitalized initial direct costs would qualify for capitalization under the new guidance. ‘The adoption of Topic 842 resulted in the Company recognizing operating lease liabilities of $196 with a corresponding right-of-use asset of $196 based on the present value of the minimum lease payments. As of April 30, 2020, the right-oFuse asset had a balance of $136, which is included in the other non-current assets, line item of the consolidated balance sheet and the current and non-current lease liabilities related to the rightof-use asset of $61 and $75, respectively, are included in the accrued other expenses and other long-term liabilities line item of the consolidated balance sheet. Total rent expense under operating leases was $68, $69, and $61, for the years ended April 30, 2020, 2019, and 2018, respectively. Future minimum lease payments under all operating leases having remaining lease terms in excess of one year at April 30, 2020, are as follows: Year Ending Apr 2021 $61 2022 54 2023, 18 2024 7 $40 ‘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 totaling $737 and $712 is included in long-term liabilities at April 30, 2020 and 2019, respectively. On January 30, 2020, the World Health Organization declared the coronavirus outbreak a Public Health Emergency of International Concern and on March 11, 2020, declared it to be a pandemic. Actions taken around the world to help mitigate the spread of the coronavirus include restrictions on travel, quarantines in certain areas, and forced closures for certain types of public places and businesses. The coronavirus and actions taken to mitigate the spread of it have had and are expected to continue to have an adverse impact ‘on the economies and financial markets of many countries, including the geographical areas in which the Company operates. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES ‘Act) was enacted to, among other provisions, provide emergency assistance for individuals, families, and businesses affected by the coronavirus pandemic. While the Company has experienced declines in revenues, and operating results, the ultimate impact of the pandemic on the Company's results of operations, financial position, liquidity, or capital resources cannot be reasonably estimated at this time. 7‘The Goodheart-Willcox Company, Inc. and Subsidiary Notes to Consolidated Financial Statements April 30, 2020, 2019, and 2018 continued (Doles in Thousands, except per share data) Note I - Quarterly financial data (unaudited) Fiscal year 2020 First Second Third Fourth Total Fiscal year 2019 First Second Third Fourth Total Net sales $10,150 8311 6,252 3,730 $28,443 $10,312 8812 5744, 4389 $29,257 Gross profits $8,861 7279 5468 3,047 $24,655 $9,051 7,668 4,978 3315 $25,012 Net earnings Per share Total $2,015, 1,283, 78 (846) $2,530 $2,832 1,855 (257) (866) $3,564 $4.90 3a 2 2.36) $7.07 $6.70 442 (0.62) (212) $8.56 ‘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 balances are final and price indices developed. The quarterly cost of goods sold, used to arrive at gross profit above, includes such estimates. 18The Goodheart-Willeox Company, Inc. and Subsidiary ‘Statement of Management Responsibilities ‘The management of The 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 accounting principles generally accepted in the United States and include amounts that are based on the best estimates and judgments of management. The audit report of RSM US LLP on these financial statements is the result of their audit performed in accordance with auditing standards generally accepted in the United States. ‘The Company maintains a system of internal financial control 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 control. This committee meets several times each year with management and RSM US LLP to monitor the proper discharge of each of their respective responsibilities. RSM US LLP has free access to management and to the Audit & Compensation Committee to discuss the results of their activities and adequacy of internal control. vr j ‘ c John F Flanagan Chair, President, and Chief Executive Officer 9Independent Auditor's Report To the Board of Directors and Stockholders The Goodheart-Willcox Company, Inc. Report on the Financial Statements We have audited the accompanying consolidated financial statements of The Goodheart Willcox Company, Inc. and Subsidiary which comprise the consolidated balance sheets as of April 30, 2020 and 2019, the related consolidated statements of earnings, changes in stockholders’ equity and cash flows for each of the years in the three-year period ended April 30, 2020 and the related notes to the consolidated financial statements, (collectively, the financial statements). Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Respon: Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, ‘we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Goodheart-Willcox Company, Inc. and Subsidiary as of April 30, 2020 and 2019, and the results of their operations and their cash flows for each of the years in the three-year period ended April 30, 2020 in accordance with accounting principles generally accepted in the United States of America, Bsa vs 44P Chicago, Illinois June 15, 2020The Goodheart-Willeox Company, Inc. and Subsidiary Corporate Information Corporate Office, The Goodiveari-Willeox Company, Inc, 18604 West Creek Drive, Tinley Park, IL 60477 Annual Meeting, The next anual meeting wil take place at 9:30 a.m. Central Daylight Time, July 14, 2020, at the Corporate Office, Tinley Park, Mlinois Stock Symbol, GWOX, Over-the-Counter Market Transfer Agent, Continental Stock Transfer & Trust Company General Counsel, Clingen Callow & McLean, LLC, Lisle, Iinois Independent Public Accountants, RSM LIS LLP Directors Claudia L. Berry, retired Vice President, Lakeshore Wenlth Group, Huntington National Bank Shannon F. DeProfio, Corporate Secretary and Vice President Publishing, The Goodheart-Willcox Company, Inc. John F. Flanagan, Chair, President, and Chief Executioe Officer, The Goodheart-Willcox Company, In. Fred R. Sasser, Chair Emeritus, Sasser Family Holdings, Inc. ‘At the 2020 Annual Meeting of Shareholders, the Board will nominate a qualified candidate to fill the open Director position resulting from the retirement of Bob DeBolt. Executive Officers Shannon F. DeProfio, Corporate Secretary and Vice President Publishing John F. Flanagan, Chair, President, and Chief Executive Officer Carolyn Gomer, Vice President Finance and Treasurer Todd J. Scheffers, Vice President Sales & Marketinges Pair Boge ric: Mle Ua yet oS) Eva umeel ast a 7 ; r 7 a jesse Health skills Enc Ucar eee reese eee WHITE & | Comprehensive Health Skills = bide "BB: essentiar | S Ae ee 13 AL DESIGN The Goodheart-Willcox Company, Inc. 18604 West Creek Drive, Tinley Park, IL 60477-6243 www.g-w.com