<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 JULY 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 July 31, 1997
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Common stock, $.10 par value 9,978,625 Shares
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VALUE LINE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
July 31, Apr. 30,
Assets 1997 1997
Current Assets: ---------- ----------
Cash and cash equivalents (including short term
investments of $18,041 and $15,476, respectively) $19,707 $16,083
Trading securities 18,693 15,217
Accounts receivable, net of allowance for doubtful
accounts of $603 and $593, respectively 2,565 2,603
Receivable from affiliates 2,110 1,849
Prepaid expenses and other current assets 1,903 1,824
Deferred income taxes 1,205 1,205
---------- ----------
Total current assets 46,183 38,781
Long term securities available for sale 127,731 108,115
Property and equipment, net 13,221 13,370
Goodwill 43 44
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Total assets $187,178 $160,310
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---------- ----------
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable and accrued liabilities $7,497 $8,009
Accrued salaries 2,729 2,208
Dividends payable 2,495 2,495
Accrued taxes payable 4,870 808
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Total current liabilities 17,591 13,520
Unearned revenue 40,324 42,191
Deferred income taxes 13,773 6,982
Deferred charges 1,183 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 88,510 83,194
Treasury stock, at cost (21,375 shares on 7/31/97,
21,875 shares on 4/30/97) (411) (421)
Unrealized gain on securities, net of taxes 24,249 11,637
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Total shareholders' equity 114,307 96,364
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Total liabilities and shareholders' equity $187,178 $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)
For the three months
ended
July 31, July 31,
1997 1996
---------- ----------
Revenues:
Investment periodicals and
related publications $15,433 $15,438
Investment management fees & svcs 7,737 7,019
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Total revenues 23,170 22,457
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Expenses:
Advertising and promotion 3,154 3,082
Salaries and employee benefits 5,321 5,489
Printing, paper and distribution 1,776 2,280
Office and administration 1,944 2,185
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Total expenses 12,195 13,036
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Income from operations 10,975 9,421
Income from securities trans., net 1,903 1,458
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Income before income taxes 12,878 10,879
Provision for income taxes 5,067 4,353
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Net income $7,811 $6,526
Retained earnings, at beginning of
year 83,194 196,834
Dividends declared (2,495) (1,997)
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Retained earnings, at end of period $88,510 $201,363
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Earnings per share $0.78 $0.65
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The accompanying notes are an integral part of these financial statements.
3
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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,
1997 1996
Cash flows from operating activities: ----------- -----------
Net income $7,811 $6,526
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 404 334
Accretion of discount --- (120)
(Gains)/losses on sales of trading securities and
securities held for sale 1,143 (4,245)
Unrealized (gains)/losses on trading securities (2,578) 4,068
Changes in assets and liabilities:
(Decrease) in unearned revenue (1,867) (2,174)
(Decrease) in deferred charges (70) (69)
Increase/(decrease) in accounts payable and
accrued expenses (1,003) 500
Increase in accrued salaries 521 682
Increase in interest payable --- 38
Increase in accrued taxes payable 4,062 3,724
(Increase)/decrease in prepaid expenses and
other current assets (79) 519
(Increase)/decrease in accounts receivable 391 741
(Increase)/decrease in receivable from affiliates (261) 48
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Total adjustments 663 4,046
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Net cash provided by operations 8,474 10,572
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Cash flows from investing activities:
Proceeds from sales of securities --- 18,344
Purchases of securities (213) (4,907)
Proceeds from sales of trading securities 8,713 20,971
Purchases of trading securities (10,616) (18,269)
Acquisitions of property, and equipment, net (254) (221)
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Net cash provided by/(used in) investing activities (2,370) 15,918
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Cash flows from financing activities:
Proceeds from sale of treasury stock 15 ---
Dividends paid (2,495) (1,997)
Repayment of obligation under repurchase agreement --- (9,095)
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Net cash (used in) financing activities (2,480) (11,092)
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Net increase in cash and cash equivalents 3,624 15,398
Cash and cash equivalents at beginning of period 16,083 31,752
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Cash and cash equivalents at end of period $19,707 $47,150
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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 July 31, 1997 and April 30, 1997, cash
equivalents included $16,614,000 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.
Reclassification:
Certain items included in the prior year's Consolidated Statements of Cash Flows
have been restated to conform with the current year's presentation.
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
$14,599,000 and $13,702,000 and a market value of $18,693,000 and $15,217,000 at
July 31, 1997 and April 30, 1997, respectively.
Long-Term Securities Available for Sale:
The aggregate cost of the long-term securities was $90,425,000 and $90,211,000
and the market value was $127,731,000 and $108,115,000 at July 31, 1997 and
April 30, 1997, respectively. At July 31, 1997, the increase in gross unrealized
appreciation on these securities of $19,403,000, net of deferred taxes of
$6,791,000, was included in shareholders' equity.
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION - NOTE 3:
Cash payments for income taxes were $1,095,000 and $627,000 during the three
months ended July 31, 1997 and 1996, respectively. Interest payments of $481,000
were remitted during the first three months of fiscal 1996.
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 July 31, 1997, the underlying notional value of such commitments was
$9,268,000. 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 July 31, 1997 and recorded as a liability in the Consolidated Balance
Sheets. The fair value at July 31, 1997 was $510,000 and the average fair value
for the quarter ended July 31, 1997 was $862,000, respectively.
Net realized and unrealized trading gains related to equity securities
aggregated $1,443,000 and $2,578,000, respectively, for the three months ended
July 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 $2,586,000 for the quarter ended July 31, 1997. Income
from securities transactions of $1,903,000 are 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 $156,323,000 at July 31, 1997. In addition to $28,592,000 in
working capital, the Company has long-term securities available for sale with a
market value of $127,731,000, that, although classified as non-current assets,
are also readily marketable should the need arise.
The Company's cash flow from operations of $8,474,000 decreased $2,098,000 from
last year's level, primarily 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, the prior year's additional cash flows
reflect a reduction in prepaid expenses and other current assets, principally
inventory and prepaid postage with a redeployment of these funds to the
Company's mutual fund holdings.
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 three months ended July 31, 1997 was $7,811,000 or $.78 per
share compared to net income of $6,526,000 or $.65 per share for the first
quarter of fiscal 1997; an increase of $1,285,000 or 20% from the prior year's
level. Both revenues and operating income for the quarter ended July 31, 1997
set new record highs for the Company and exceeded the prior year's levels by 3%
and 17%, respectively. Net income was the third highest during any first
quarter period.
Revenues of $23,170,000 for the three months ended July 31, 1997 were $713,000
or 3% above the comparable results for fiscal 1997. Subscription revenues for
the first three months ended July 31, 1997 of $15,433,000 were approximately
equal with revenues from 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 increased 6% as a
result of a 9% price increase that went into effect February 1, 1996. Revenues
derived from investment management fees and services for the three months ended
July 31, 1997 of $7,737,000 were $718,000 or 10% above the level at July 31,
1996. The increase in revenues resulted primarily from a 8% increase in the
average annual net assets under management in the Company's mutual funds,
including the appreciation in the value of the portfolios under management
resulting from the rise in the financial markets. Assets under management in
the Company's mutual funds at July 31, 1997 increased 19% from the levels at
July 31, 1996.
Expenses for the three months ended July 31, 1997 were $12,195,000; 7% below
last year's comparable level of $13,036,000. Advertising expenses of $3,154,000
were 2% above the prior year's level. Advertising for The Value Line Investment
Survey increased $318,000, primarily from higher levels of media advertising
during the first quarter of fiscal 1998. Promotional expenses for the Value
Line Mutual Funds increased $167,000. The Company incurred expenses related to a
selling arrangement for two of the equity funds for which the Company is the
advisor that became effective July 1, 1996. Salary and employee benefit expenses
of $5,321,000 were $168,000 below the prior year's level of $5,489,000 for the
first quarter. Compupower's staff has been reduced as a result of the
termination of services to third parties. Printing, paper and distribution
expenses of $1,776,000 at July 31, 1997 declined $504,000 from expenses of
$2,280,000 for the comparable period of fiscal 1997 primarily due to 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 $1,944,000 decreased $241,000 or
11% from the prior year's level. Professional fees, included in the prior year,
related to a lawsuit from which the Company won a $558,000 award during the
latter part of fiscal 1997 accounted for the reduction. Additionally, expenses
related to credit card
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS:
processing fees declined $70,000 from the prior year's level from a negotiated
favorable pricing arrangement with the Company's credit card processing
merchant.
The Company's securities portfolios produced income from securities transactions
for the three months ended July 31, 1997 of $1,903,000 as compared with
$1,458,000 of income last fiscal year. The primary cause for the increase was
the additional capital gains from the Company's trading portfolio partially
offset by a decline in capital gains from stock future indices used to reduce
the Company's financial equity market exposure. An additional contributing
factor was the lower dividend income that resulted from a reduction in the size
of the trading and long term securities portfolios during January 1997. 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.
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,
1997 to be signed on its behalf by the undersigned thereunto duly authorized.
Value Line, Inc.
(Registrant)
Date: September 12, 1997 By: /s/Jean Bernhard Buttner
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Jean Bernhard Buttner
Chairman & Chief Executive Officer
Date: September 12, 1997 By: /s/Stephen R. Anastasio
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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> 3-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> JUL-31-1997
<CASH> 19,707
<SECURITIES> 18,693
<RECEIVABLES> 3,168
<ALLOWANCES> (603)
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<CURRENT-ASSETS> 46,183
<PP&E> 19,157
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<TOTAL-ASSETS> 187,178
<CURRENT-LIABILITIES> 17,591
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<COMMON> 1,000
<OTHER-SE> 113,307
<TOTAL-LIABILITY-AND-EQUITY> 187,178
<SALES> 15,433
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