<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended OCTOBER 31, 1997 Commission file number 0-11306
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VALUE LINE, INC.
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(Exact name of registrant as specified in its charter)
New York 13-3139843
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) 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 October 31, 1997
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Common stock, $.10 par value 9,978,625 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)
(UNAUDITED)
Oct. 31, Apr. 30,
Assets 1997 1997
Current Assets: --------- ---------
Cash and cash equivalents (including short term
investments of $11,579 and $15,476, respectively) $12,372 $16,083
Trading securities 20,260 15,217
Accounts receivable, net of allowance for doubtful
accounts of $556 and $593, respectively 3,255 2,603
Receivable from affiliates 2,199 1,849
Prepaid expenses and other current assets 1,528 1,824
Deferred income taxes 1,205 1,205
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Total current assets 40,819 38,781
Long term securities available for sale 128,173 108,115
Property and equipment, net 12,983 13,370
Goodwill 42 44
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Total assets $182,017 $160,310
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--------- ---------
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable and accrued liabilities $5,238 $8,009
Accrued salaries 1,648 2,208
Dividends payable 2,495 2,495
Accrued taxes payable 754 808
--------- ---------
Total current liabilities 10,135 13,520
Unearned revenue 37,896 42,191
Deferred income taxes 13,851 6,982
Deferred charges 1,114 1,253
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 959 954
Retained earnings 93,078 83,194
Treasury stock, at cost (21,375 shares on 10/31/97,
21,875 shares on 4/30/97) (411) (421)
Unrealized gain on securities, net of taxes 24,395 11,637
--------- ---------
Total shareholders' equity 119,021 96,364
--------- ---------
Total liabilities and shareholders' equity $182,017 $160,310
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--------- ---------
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)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
OCT. 31, OCT. 31,
1997 1996 1997 1996
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<S> <C> <C> <C> <C>
Revenues:
Investment periodicals and
Related publications $15,309 $15,168 $30,742 $30,606
Investment management fees & svcs 8,412 7,179 16,149 14,198
--------- --------- --------- ---------
Total revenues 23,721 22,347 46,891 44,804
--------- --------- --------- ---------
Expenses:
Advertising and promotion 3,716 3,874 6,870 6,956
Salaries and employee benefits 5,676 5,410 10,997 10,899
Printing, paper and distribution 1,910 2,076 3,686 4,356
Office and administration 1,952 1,963 3,896 4,148
--------- --------- --------- ---------
Total expenses 13,254 13,323 25,449 26,359
--------- --------- --------- ---------
Income from operations 10,467 9,024 21,442 18,445
Income from securities transactions, net 1,162 4,040 3,065 5,498
--------- --------- --------- ---------
Income before income taxes 11,629 13,064 24,507 23,943
Provision for income taxes 4,566 5,225 9,633 9,578
--------- --------- --------- ---------
Net income $7,063 $7,839 $14,874 $14,365
Retained earnings, at beginning of
period 88,510 201,363 83,194 196,834
Dividends declared (2,495) (2,495) (4,990) (4,492)
--------- --------- --------- ---------
Retained earnings, at end of period $93,078 $206,707 $93,078 $206,707
--------- --------- --------- ---------
--------- --------- --------- ---------
Earnings per share $0.71 $0.79 $1.49 $1.44
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
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)
(UNAUDITED) FOR THE SIX
MONTHS ENDED
OCT. 31, OCT. 31,
1997 1996
Cash flows from operating activities: --------- ---------
Net income $14,874 $14,365
Adjustments to reconcile net income to net cash
Provided by operating activities:
Depreciation and amortization 788 705
Accretion of discount --- (224)
Gains on sales of trading securities, securities
held for sale and futures contracts (1,554) (5,488)
Unrealized (gains)/losses on tradinG securities (571) 2,617
Writedown of goodwill --- 328
Changes in assets and liabilities:
Decrease in unearned revenue (4,295) (3,900)
Increase in deferred charges (139) (138)
Increase/(decrease) in accounts payable
and accrued expenses (2,727) 1,738
Decrease in accrued salaries (560) (269)
Increase in interest payable --- 181
Decrease in accrued taxes payable (54) (393)
Decrease in prepaid expenses
and other current assets 296 83
Decrease in accounts receivable 298 197
Increase in receivable from affiliates (350) (234)
--------- ---------
Total adjustments (8,868) (4,797)
--------- ---------
Net cash provided by operations 6,006 9,568
Cash flows from investing activities:
Proceeds from sales of securities 9,762 18,341
Purchases of securities (10,254) (5,520)
Proceeds from sales of trading securities 21,936 38,741
Purchases of trading securities (25,787) (37,750)
Acquisition of property, and equipment, net (399) (1,581)
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Net cash provided by/(used in) investing activities (4,742) 12,231
Cash flows from financing activities:
Proceeds from sales of treasury stock 15 3
Dividends paid (4,990) (3,993)
Repayment of obligation under repurchase agreement --- (9,095)
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Net cash (used in) financing activities (4,975) (13,085)
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Net (decrease)/increase in cash and cash equivalents (3,711) 8,714
Cash and cash equivalents at beginning of period 16,083 31,752
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Cash and cash equivalents at end of period $12,372 $40,466
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--------- ---------
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 15, 1997 for the fiscal year ended April 30, 1997. 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 October 31, 1997 and April 30, 1997, cash
equivalents included $9,559,000 and $13,815,000, respectively, invested in the
Value Line money market funds.
Valuation of Securities:
The Company's long-term securities portfolio, which consists of shares of the
Value Line Mutual Funds 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 as part of its trading securities portfolio. These
contracts are intended to effectively manage the Company's financial equity
holdings in accordance with its asset allocation model. 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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VALUE LINE, INC.
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARKETABLE SECURITIES - NOTE 2:
Trading Securities:
Securities held by Value Line Securities, Inc. had an aggregate cost of
$18,174,000 and $13,702,000 and a market value of $20,260,000 and $15,217,000 at
October 31, 1997 and April 30, 1997, respectively.
Long-Term Securities Available for Sale:
The aggregate cost of the long-term securities portfolio was $90,642,000 and
$90,211,000 and the market value was $128,173,000 and $108,115,000 at October
31, 1997 and April 30, 1997, respectively. At October 31, 1997, the increase in
gross unrealized appreciation on these securities of $19,628,000, net of the
increase in deferred taxes of $6,870,000, was included in shareholders' equity.
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION - NOTE 3:
Cash payments for income taxes were $9,688,000 and $9,971,000 during the six
months ended October 31, 1997 and 1996, respectively. Interest payments of
$705,000 were remitted during the first six months of fiscal 1997.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND
CONCENTRATION OF CREDIT RISK - NOTE 4:
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 October 31, 1997, the underlying notional value of such commitments was
$8,125,000. The Company limits its credit risk associated with such instruments
by entering exclusively into highly liquid, exchange traded futures contracts.
6
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VALUE LINE, INC.
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
ESTIMATED FAIR VALUE OF FINANCIAL AND DERIVATIVE INSTRUMENTS - NOTE 5:
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 financial instruments held for trading purposes are reflected at fair
value at October 31, 1997 and recorded as an asset or liability in the
Consolidated Balance Sheets. The fair value of the asset at October 31, 1997 was
$317,000 and the average fair value for the six months ended October 31, 1997
was a liability of $475,000, respectively.
Net realized and unrealized trading gains related to equity securities
aggregated $4,402,000 and $571,000, respectively, for the six months ended
October 31, 1997. Net trading losses related to derivative financial instruments
used to reduce financial market exposure from the Company's equities securities
holdings, amounted to $2,848,000 for the six months ended October 31, 1997.
Income from securities transactions of $3,065,000 is reflected net of derivative
trading activity.
7
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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 of $158,857,000 at October 31, 1997. In addition to $30,684,000 in
working capital, the Company has long-term securities available for sale with a
market value of $128,173,000, that, although classified as non-current assets,
are also readily marketable should the need arise.
The Company's cash flow from operations of $6,006,000 decreased $3,562,000
from last year's level, partly as a result of the funding of the Company's
profit sharing plan during the first quarter of fiscal 1998 as compared to
the third quarter of fiscal 1997. Furthermore, as part of its ongoing cash
management program, the Company has been paying its invoices on a more timely
basis than in fiscal 1997.
Management 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 1998.
RESULTS OF OPERATIONS:
Net income for the six months ended October 31, 1997 of $14,874,000 or $1.49
per share was the third highest in the Company's history and compares to net
income of $14,365,000 or $1.44 per share for the first six months of fiscal
1997, an increase of 4% from the prior year's level. Net income for the
second quarter of fiscal 1998 of $7,063,000 or $.71 per share was the fourth
highest in the Company's history and compares to net income of $7,839,000 for
the three months ended October 31, 1996. Both revenues and operating income
for the six months and second quarter ended October 31, 1997 set new record
highs for the Company. Revenues exceeded the prior year's levels by 6% and 5%
for the second quarter and six months, respectively. In addition, operating
income for the second quarter and six months ended October 31, 1997 exceeded
the prior year levels by 16% and 16% respectively.
Revenues of $46,891,000 for the six months ended October 31, 1997 were
$2,087,000 or 5% above the comparable results for fiscal 1997. Subscription
revenues for the first six months of fiscal 1998 of $30,742,000 were $136,000
above revenues for the comparable period of fiscal 1997, reflecting
additional revenues from various new products offset by a reduction in
fulfillment revenues from former third party clients of the Compupower
Corporation. Revenues from The Value Line Investment Survey remained
approximately equal to the prior year's level and include a 9% price increase
that went into effect February 1, 1996. Revenues derived from investment
management fees and services for the six months ended October 31, 1997 of
$16,149,000 were $1,951,000 or 14% above the level at October 31, 1996. The
increase in revenues resulted primarily from an 13% increase in the average
annual net assets under management in the Company's mutual funds. A portion
of the appreciation in the value of the portfolios under management resulted
from the rise in the financial markets. Assets under management in the
Company's mutual funds at October 31, 1997 increased 9% from the levels at
October 31, 1996.
Expenses for the six months ended October 31, 1997 were $25,449,000, 3% below
last year's comparable level of $26,359,000. Advertising expenses of
$6,870,000 were 1% below the prior year's level. Advertising for The Value
Line Investment Survey increased 4% primarily from higher levels of
promotional incentives used to solicit new trial orders. Promotional
expenses for the Value Line Mutual Funds increased $463,000 from fiscal
1997's level. The increase in expenses relates primarily to a selling
arrangement that became effective July 1, 1996 for two of the equity funds
for which the Company is the advisor. Salary and employee benefit expenses of
$10,997,000 were less than 1% above the prior year's level of $10,899,000 for
the first six months. The reduction in Compupower's staff as a result of the
termination of services to third parties contributed to the stable level of
expenses. Printing, paper and distribution expenses of $3,686,000 at October
31, 1997 declined $670,000 from expenses of $4,356,000 for the comparable
period of fiscal 1997 primarily due to the lower costs associated with
production of the electronic products as compared with
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS:
the print publications, an approximate 10% reduction in the cost of paper
inventory and the utilization of new technology that maximizes 2nd class
discounts offered by the U.S. Postal Service. Office and administration
expenses of $3,896,000 decreased $252,000 or 6% from the prior year's level.
Part of the prior year office and administrative expenses include
professional fees relating to a lawsuit from which the Company won a $558,000
award during the latter part of fiscal 1997. Additionally, expenses for
fiscal 1997 include a charge of $328,000 for the writedown of goodwill at the
Company's fulfillment subsidiary resulting from a decision to restructure
these operations, and a negotiated settlement with the landlord of the
Company's headquarters facility in which the Company received an award of
$906,000.
The Company's securities portfolios produced income from securities
transactions for the six months ended October 31, 1997 of $3,065,000 compared
with $5,498,000 last fiscal year. The primary cause for the decrease was the
reduced level of dividend income from the Company's mutual fund holdings that
resulted from the smaller size of the trading and long term securities
portfolios. The reduction in the portfolios resulted from the $15.00 per
share special dividend distributed to all shareholders in January 1997
following the Company's achievement of record earnings during six of the last
eight fiscal years. Also, the six months of fiscal 1997 include $1,289,000
of additional capital gain income from sales of the Company's long term
mutual fund holdings.
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
October 31, 1997 to be signed on its behalf by the undersigned thereunto duly
authorized.
Value Line, Inc.
(Registrant)
Date: December 12, 1997 By: /s/Jean Bernhard Buttner
-----------------------------------
Jean Bernhard Buttner
Chairman & Chief Executive Officer
Date: December 12, 1997 By: /s/Stephen R. Anastasio
-----------------------------------
Stephen R. Anastasio
Chief Accounting Officer
-10-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEETS AND STATEMENT OF INCOME & RETAINED EARNINGS AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> OCT-31-1997
<CASH> 12,372
<SECURITIES> 20,260
<RECEIVABLES> 3,811
<ALLOWANCES> (556)
<INVENTORY> 0
<CURRENT-ASSETS> 40,819
<PP&E> 19,322
<DEPRECIATION> (6,339)
<TOTAL-ASSETS> 182,017
<CURRENT-LIABILITIES> 10,135
<BONDS> 0
0
0
<COMMON> 1,000
<OTHER-SE> 118,021
<TOTAL-LIABILITY-AND-EQUITY> 182,017
<SALES> 30,742
<TOTAL-REVENUES> 46,891
<CGS> 0
<TOTAL-COSTS> 25,449
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 24,507
<INCOME-TAX> 9,633
<INCOME-CONTINUING> 14,874
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,874
<EPS-PRIMARY> 1.49
<EPS-DILUTED> 1.49
</TABLE>
