<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended Commission file number
July 31, 1996 0-11306
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VALUE LINE, INC.
----------------
(Exact name of registrant as specified in its charter)
New York 13-3139843
- --------------------------------------------------------------------------------
(State or other jursidiction of (I.R.S. Employer
incorporation of organziation Identification No.)
220 East 42nd Street, New York, New York 10017-5891
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(Address of principal executive offices) (zip code)
Registrant's telephone number including area code (212) 907-1500
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 31, 1996
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Common stock, $.10 par value 9,976,975 Shares
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<PAGE>
Part I - Financial Information
Item 1. Financial Statements
VALUE LINE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
July 31, Apr. 30,
Assets 1996 1996
Current Assets: ----------- ----------
Cash and cash equivalents (including short term
investments of $45,927 and $31,116, respectively) $47,150 $31,752
Trading securities 57,277 64,314
Short term securities available for sale 29,929 39,681
Accounts receivable, net of allowance for doubtful
accounts of $541 and $528, respectively 3,435 2,997
Receivable from affiliates 1,917 1,965
Prepaid expenses and other current assets 2,353 2,872
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Total current assets 142,061 143,581
Long term securities available for sale 169,121 177,735
Property and equipment, net 12,023 12,120
Goodwill 374 390
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Total assets $323,579 $333,826
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---------- ---------
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable and accrued liabilities $6,830 $8,433
Securities sold under agreements to repurchase 27,899 36,994
Accrued Salaries 2,490 1,808
Dividends and interest payable 2,096 2,058
Accrued taxes payable 9,213 5,489
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Total current liabilities 48,528 54,782
Unearned revenue 40,819 42,993
Deferred income taxes 11,057 13,255
Deferred charges 1,461 1,530
Shareholders' Equity:
Common stock, $.10 par value; authorized 30,000,000
shares; issued 10,000,000 shares 1,000 1,000
Additional paid-in capital 944 944
Retained earnings 201,363 196,834
Treasury stock, at cost (23,025 shares on 7/31/96,
23,025 shares on 4/30/96) (443) (443)
Unrealized gain on securities, net of taxes 18,850 22,931
---------- ---------
Total shareholders' equity 221,714 221,266
---------- ---------
Total liabilities and shareholders' equity $323,579 $333,826
---------- ---------
---------- ---------
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
Part I - Financial Information
Item 1. Financial Statements
VALUE LINE, INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
For the three months
ended
July 31, July 31,
1996 1995
---------- ----------
Revenues:
Investment periodicals and
related publications $15,438 $13,791
Investment management fees & svcs 7,019 6,237
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Total revenues 22,457 20,028
---------- ----------
---------- ----------
Expenses:
Advertising and promotion 3,082 3,105
Salaries and employee benefits 5,489 4,918
Printing, paper and distribution 2,280 1,798
Office and administration 2,185 2,658
---------- ----------
Total expenses 13,036 12,479
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Income from operations 9,421 7,549
Income from securities trans., net 1,458 9,322
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Income before income taxes 10,879 16,871
Provision for income taxes 4,353 6,647
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Net income $6,526 $10,224
Retained earnings, at beginning of
year 196,834 163,101
Dividends declared (1,997) (1,995)
---------- ----------
Retained earnings, at end of period $201,363 $171,330
---------- ----------
---------- ----------
Earnings per share $0.65 $1.02
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---------- ----------
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
Part I - Financial Information
Item 1. Financial Statements
VALUE LINE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
For the three months
ended
July 31, July 31,
1996 1995
Cash flows from operating activities: ----------- -----------
Net income $6,526 $10,224
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 334 317
Accretion of discount (120) (147)
(Gains) on sales of trading securities
and securities held for sale (4,245) (4,237)
Unrealized (gains)/losses on trading securities 4,068 (3,846)
Changes in assets and liabilities:
(Decrease) in unearned revenue (2,174) (538)
(Decrease) in deferred charges (69) (69)
Increase/(decrease) in accounts payable and
accrued expenses 500 (562)
Increase in accrued salaries 682 272
Increase in interest payable 38 12
Increase in accrued taxes payable 3,724 5,311
(Increase)/decrease in prepaid expenses
and other current assets 519 (52)
Decrease in accounts receivable 1,020 208
(Increase)/decrease in receivable from affiliates 48 (96)
----------- -----------
Total adjustments 4,325 (3,427)
----------- -----------
Net cash provided by operations 10,851 6,797
----------- -----------
Cash flows from investing activities:
Proceeds from sales of securities 18,344 15,000
Purchase of securities (4,907) (7,901)
Proceeds from sale of trading securities 20,332 13,154
Purchase of trading securities (17,909) (11,377)
Acquisition of property, and equipment, net (221) (313)
----------- -----------
Net cash provided by investing activities 15,639 8,563
----------- -----------
Cash flows from financing activities:
Proceeds from sale of treasury stock --- 19
Dividends paid (1,997) (1,995)
Repayment of obligation under repurchase agreement (9,095) ---
----------- -----------
Net cash (used in) financing activities (11,092) (1,976)
----------- -----------
Net increase in cash and cash equivalents 15,398 13,384
Cash and cash equivalents at beginning of period 31,752 45,026
Cash and cash equivalents at end of period $47,150 $58,410
----------- -----------
----------- -----------
The accompanying notes are an integral part of these financial statements.
4
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VALUE LINE, INC.
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SIGNIFICANT ACCOUNTING POLICIES - NOTE 1:
In the opinion of management, the accompanying unaudited consolidated condensed
financial statements contain all adjustments (consisting of normal recurring
accruals except as noted below) considered necessary for a fair presentation.
This report should be read in conjunction with the
financial statements and footnotes contained in the Company's annual report on
Form 10-K, dated July 18, 1996 for the fiscal year ended April 30, 1996. Results
of operations covered by this report may not be indicative of the results of
operations for the entire year.
Cash and Cash Equivalents:
The Company considers all cash held at banks and invested in the Value Line
money market funds with an original maturity of less than three months to be
cash and cash equivalents. As of July 31, 1996 and April 30, 1996, cash
equivalents included $36,711,000 and $25,238,000, respectively, invested
in the Value Line money market funds.
Securities Sold Under Agreements to Repurchase:
The Company has entered into agreements to sell and repurchase U.S. Government
Agency debt securities. The securities are recorded at market value and are
included in Short-term securities available for sale on the Consolidated Balance
Sheets.
Valuation of Securities:
The Company's long-term securities portfolio, which consists of shares of the
Value Line Mutual Funds, and the short-term securities portfolio, that the
Company classifies as available for sale, are valued at market value in
accordance with Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities".
Unrealized gains and losses on these securities are reported, net of
applicable taxes, as a separate component of Shareholders' Equity. Realized
gains and losses on sales of the securities are recorded in earnings on trade
date and are determined on the identified cost method.
Trading securities, which consist of securities held by Value Line Securities,
Inc., the Company's broker-dealer subsidiary, are valued at market with realized
and unrealized gains and losses included in earnings.
Financial Instruments with Off-Balance-Sheet Risk:
In the normal course of business, the Company enters into exchange traded
financial futures contracts. These contracts are intended to effectively
balance the Company's financial equity holdings. The Company accounts for
these instruments at market value, with gains and losses included in the
Consolidated Statements of Income and Retained Earnings.
5
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MARKETABLE SECURITIES - NOTE 2:
Trading Securities:
Securities held by Value Line Securities, Inc. had an aggregate cost of
$46,556,000 and $48,066,000 and a market value of $57,277,000 and $64,314,000 at
July 31, 1996 and April 30, 1996, respectively.
Short-Term Securities Available for Sale:
Short-term securities available for sale consist of the Company's holdings in
the following securities:
Federal National Mortgage Association (FNMA), floating rate notes due
August 5, 1997; par value $30,325,000.
Federal Farm Credit Bank (FFCB), floating rate notes due February 12,
1997; par value $10,000,000.
During the first quarter, the Company sold the FFCB securities and received
proceeds of $9,870,000 which was equivalent to the recorded market value of
these securities. The market value of the Company's holdings in the FNMA
securities, which approximates cost, at July 31, 1996 was $29,929,000. At April
30, 1996, the market value of the FNMA and FFCB securities, which approximates
cost, was $29,831,000 and $9,850,000, respectively. These notes were purchased
at a discount from their respective face values. The accretion of this discount
has been included as an addition to the cost of the securities and reflected as
interest income in the Consolidated Statements of Income and Retained Earnings.
Long-Term Securities Available for Sale:
The aggregate cost of the long-term securities was $140,122,000 and $142,456,000
and the market value was $169,121,000 and $177,735,000 at July 31, 1996 and
April 30, 1996, respectively. At July 31, 1996, the decrease in gross unrealized
appreciation on these securities of $6,279,000, net of deferred taxes of
$2,198,000, was included in shareholders' equity. Realized gains and the
proceeds received from sales of these securities during the three months ended
July 31, 1996 were $1,230,000 and $8,471,000, respectively.
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION - NOTE 3:
Cash payments for income taxes were $627,000 and $1,421,000 during the three
months ended July 31, 1996 and 1995, respectively. Interest payments of $481,000
and $604,000 were remitted during the first three months of fiscal 1997 and
fiscal 1996, respectively.
6
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SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE - NOTE 4:
The outstanding obligation of $27,899,000 at July 31, 1996 under the agreement
to repurchase the Federal National Mortgage Association Floating Rate Notes due
August 5, 1997 (FNMA), stated in Note 2, matures on September 9, 1996. The
obligation to repurchase the Federal Farm Credit Bank securities of $9,095,000
was satisfied from the proceeds from the sale of the securities during the first
quarter of fiscal 1997. The FNMA obligation accrues interest at the stated
interest rate of 5.6%. The Company intends to refinance this obligation on a
short term basis.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND
CONCENTRATION OF CREDIT RISK - NOTE 5:
In the normal course of business, the Company enters into contractual
commitments, principally financial futures contracts for securities indices.
Financial futures contracts provide for the delayed delivery of financial
instruments for which the seller agrees to make delivery at a specified future
date, at a specified price or yield. The contract or notional amount of these
contracts reflects the extent of involvement the Company has in these contracts.
At July 31, 1996, the underlying notional value of such commitments was
$35,972,000. Risk arises from the potential inability of counterparties to meet
the terms of their contracts and from movements in securities values. The
Company limits its credit risk associated with such instruments by entering
exclusively into highly liquid, exchange traded futures contracts.
ESTIMATED FAIR VALUE OF FINANCIAL AND DERIVATIVE INSTRUMENTS - NOTE 6:
Statement of Accounting Standards No. 119, "Disclosure About Derivative
Financial Instruments and Fair Value of Financial Instruments", requires
disclosure of information regarding derivative instruments, which include
financial index futures contracts.
Derivative instruments held for trading purposes are reflected at fair value at
July 31, 1996. The fair value and the average fair value of derivative financial
instruments recorded as an asset in the Consolidated Balance Sheets at July 31,
1996 and for the three months then ended was $1,329,000 and $304,000,
respectively.
Net trading losses related to equity securities aggregated $2,022,000 for the
three months ended July 31, 1996. Net trading gains related to derivative
financial instruments amounted to $969,000 for the three months ended July 31,
1996.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
LIQUIDITY AND CAPITAL RESOURCES:
Value Line, Inc. (the Company) has liquid resources which are used in its
business totaling $262,654,000 at July 31, 1996. In addition to $93,533,000 in
working capital, the Company has long-term securities available for sale with a
market value of $169,121,000, that, although classified as non-current assets,
are also readily marketable as the need arises. The Company has entered into
agreements to sell and repurchase U.S. Government Agency debt securities,
included in working capital with a market value of $29,929,000 at July 31, 1996.
These securities, currently available for sale, mature during calendar 1997 and
are readily marketable should management decide to liquidate the Company's
holdings and related obligations. The repurchase obligation of $27,899,000 has
been entered into on a short-term basis. To effectively balance its equity
securities holdings, the Company enters into exchange traded financial futures
transactions. The notional value of those contracts at July 31, 1996 was
$35,972,000.
The Company's cash flow from operations of $10,851,000 increased $4,054,000 from
last year's level, primarily on the strength of the record operating profits
contributed by the investment publications and advisory business segments.
Additionally, the Company sold a portion of the U.S. Government Securities under
repurchase agreements and received proceeds of $9,870,000 that were used
partially to repay the related repurchase obligation in the amount of
$9,095,000.
Managment believes that the Company's cash and other liquid asset resources used
in its business together with the future cash flows from operations will be
sufficient to finance current and forecasted operations. Management anticipates
no significant borrowing requirements during fiscal 1997 other than the short-
term refinancing of the repurchase agreement.
RESULTS OF OPERATIONS:
Net earnings for the three months ended July 1996 were $6,526,000 or $.65 per
share compared to net earnings of $10,224,000 or $1.02 per share for the three
months ended July 1995. Both revenues and operating income for the first quarter
of fiscal 1997 set new record highs for the Company and exceeded the prior
year's level by 12% and 25%, respectively. Income from securities transactions
declined 84% from the comparable fiscal 1996 balance as a result of a down-turn
in the financial markets during the first quarter of fiscal 1997.
Revenues of $22,457,000 for the first three months of fiscal 1997 were
$2,429,000 or 12% above the comparable results for fiscal 1996. Subscription
revenues for the three months ended July 1996 of $15,438,000 increased
$1,647,000 or 12% from revenues of $13,791,000 for fiscal 1996, a reflection of
the higher level of revenues from The Value Line Investment Survey and the Value
Line Investment Survey-Expanded Edition. Total full term subscription levels for
all products at July 31, 1996 increased 12% compared to the level at July 31,
1995. This change included a 42% increase in full term subscriptions to The
Value Line Investment Survey-Expanded Edition, introduced in March 1995, and a
7% increase in full term subscriptions to The Value Line Investment Survey.
Revenues derived from investment management fees and services for the three
months ended July 31, 1996 of $7,019,000 were $782,000 or 13% above the level at
July 31,1995. The increase in revenues resulted primarily from a 17% increase in
the average annual net assets under management in the Company's mutual funds.
Assets in the Company's mutual funds at July 31, 1996 increased 8% from the
asset levels at July 31, 1995.
8
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Expenses for the three months ended July 1996 were $13,036,000 or 4% above last
year's comparable expenses of $12,479,000. Advertising expenses of $3,082,000
were approximately equal to the prior year's level. Advertising expenses include
a decrease of $342,000 for The Value Line Investment Survey offset partially by
an increase of $400,000 of advertising for various new products, including the
Value Line Investment Survey FOR WINDOWS. Salary and employee benefit expenses
of $5,489,000 were 12% above last year's comparable level of $4,918,000
primarily as a result of expenses for restructuring the Company's fulfillment
operation and additional staffing in various support departments as well as the
Asset Management division. Office and administration expenses of $2,185,000
decreased $453,000 or 17% from fiscal 1996's level largely from a decrease in
professional fees that were incurred in connection with an active lawsuit in
which the Company was the plaintiff in fiscal 1996.
The Company's investment portfolios produced income from securities transactions
for the three months ended July 31, 1996 of $1,458,000 compared to income of
$9,322,000 for the comparable three months of fiscal 1996. The decrease resulted
from lower capital gains produced by the Company's trading portfolios of
$6,891,000 and the decline in capital gains of $1,613,000 from sales of the
Company's mutual fund holdings. The correction in the financial markets during
the first quarter of fiscal 1997 as compared to the rapidly rising market during
the comparable quarter of fiscal 1996, was the primary cause for the decline in
capital gains. The Company's sale of stock futures indices produced a net gain
of $598,000 that partially offset the decline in capital gains.
9
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VALUE LINE, INC.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Form 10Q report for the period ended July 31,
1996 to be signed on its behalf by the undersigned thereunto duly authorized.
Value Line, Inc.
(Registrant)
Date: September 16, 1996 By: s/Jean Bernhard Buttner
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Jean Bernhard Buttner
Chairman & Chief Executive Officer
Date: September 16, 1996 By: s/Stephen R. Anastasio
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Stephen R. Anastasio
Corporate Controller
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
</LEGEND>
<CIK> 0000717720
<NAME> VALUE LINE, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-START> MAY-01-1996
<PERIOD-END> JUL-31-1997
<CASH> 47,150
<SECURITIES> 87,206
<RECEIVABLES> 3,976
<ALLOWANCES> (541)
<INVENTORY> 0
<CURRENT-ASSETS> 142,061
<PP&E> 18,721
<DEPRECIATION> (6,699)
<TOTAL-ASSETS> 323,579
<CURRENT-LIABILITIES> 48,528
<BONDS> 0
0
0
<COMMON> 1,000
<OTHER-SE> 220,714
<TOTAL-LIABILITY-AND-EQUITY> 323,579
<SALES> 15,438
<TOTAL-REVENUES> 22,457
<CGS> 0
<TOTAL-COSTS> 13,036
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 520
<INCOME-PRETAX> 10,879
<INCOME-TAX> 4,353
<INCOME-CONTINUING> 6,526
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<NET-INCOME> 6,526
<EPS-PRIMARY> .65
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