<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 JANUARY 31, 1997 Commission file number 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 jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
220 East 42nd Street, New York, New York 10017-5891
- --------------------------------------------------------------------------------
(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 January 31, 1997
----- -------------------------------
Common stock, $.10 par value 9,977,125 Shares
----------------
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VALUE LINE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
Jan. 31, Apr. 30,
1997 1996
-------- --------
Assets
Current Assets: - -
Cash and cash equivalents (including short term
investments of $25,961 and $31,116, respectively) $ 26,451 $ 31,752
Trading securities 15,220 64,314
Short term securities available for sale --- 39,681
Accounts receivable, net of allowance for doubtful
accounts of $643 and $528, respectively 2,007 2,997
Receivable from affiliates 1,929 1,965
Prepaid expenses and other current assets 1,720 2,872
-------- --------
Total current assets 47,327 143,581
Long term securities available for sale 110,798 177,735
Property and equipment, net 13,132 12,120
Goodwill 47 390
-------- --------
Total assets $171,304 $333,826
-------- --------
-------- --------
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable and accrued liabilities $ 7,873 $ 8,433
Securities sold under agreements to repurchase --- 36,994
Dividends and interest payable 1,766 2,058
Accrued Salaries 2,495 1,808
Accrued taxes payable 14,422 5,489
-------- --------
Total current liabilities 26,556 54,782
Unearned revenue 40,504 42,993
Deferred income taxes 8,196 13,255
Deferred charges 1,322 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 954 944
Retained earnings 79,656 196,834
Treasury stock, at cost (21,875 shares on 1/31/97,
23,025 shares on 4/30/96) (421) (443)
Unrealized gain on securities, net of taxes 13,537 22,931
-------- --------
Total shareholders' equity 94,726 221,266
-------- --------
Total liabilities and shareholders' equity $171,304 $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)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine months ended
Jan. 31, Jan. 31,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Investment periodicals and
related publications $ 15,872 $ 14,869 $ 46,478 $ 42,944
Investment management fees & svcs 7,699 6,820 21,897 19,530
Settlement of disputed securities trades 196 --- 196 2,054
--------- --------- --------- ---------
Total revenues 23,767 21,689 68,571 64,528
--------- --------- --------- ---------
Expenses:
Advertising and promotion 4,769 4,154 11,725 10,837
Salaries and employee benefits 5,517 5,434 16,416 15,304
Printing, paper and distribution 2,099 2,075 6,455 5,767
Office and administration 2,967 2,514 7,115 7,424
--------- --------- --------- ---------
Total expenses 15,352 14,177 41,711 39,332
--------- --------- --------- ---------
Income from operations 8,415 7,512 26,860 25,196
Income from securities transactions, net 31,746 16,096 37,244 28,698
--------- --------- --------- ---------
Income before income taxes 40,161 23,608 64,104 53,894
Provision for taxes 15,048 9,317 24,626 21,128
--------- --------- --------- ---------
Net income $ 25,113 $ 14,291 $ 39,478 $ 32,766
Retained earnings, at beginning of
year 206,707 177,584 196,834 163,101
Dividends declared (152,164) (1,994) (156,656) (5,986)
--------- --------- --------- ---------
Retained earnings, at end of period $ 79,656 $ 189,881 $ 79,656 $ 189,881
--------- --------- --------- ---------
--------- --------- --------- ---------
Earnings per share $2.52 $1.43 $3.96 $3.28
--------- --------- --------- ---------
--------- --------- --------- ---------
</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 nine
months ended
Jan. 31, Jan. 31,
1997 1996
--------- --------
Cash flows from operating activities:
Net income $ 39,478 $ 32,766
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,064 981
Accretion of discount (224) (439)
(Gains) on sale of trading securities, securities
held for sale and futures contracts (46,783) (16,689)
Unrealized (gains)/losses on trading securities 14,348 (7,508)
Writeoff of goodwill 328 ---
Changes in assets and liabilities:
Increase/(decrease) in unearned revenue (2,489) 3,940
(Decrease) in deferred charges (208) (208)
Increase in accounts payable and accrued expenses 1,084 1,147
(Decrease) in accrued salaries (42) (476)
(Decrease) in interest payable (63) (452)
Increase in accrued taxes payable 8,933 2,584
(Increase)/decrease in prepaid expenses
and other current assets 1,152 (927)
Decrease in accounts receivable 990 1,330
(Increase)/decrease in receivable from affiliates 36 (399)
--------- --------
Total adjustments (21,874) (17,116)
--------- --------
Net cash provided by operations 17,604 15,650
--------- --------
Cash flows from investing activities:
Proceeds from sales of securities 147,505 27,269
Purchase of securities (24,342) (37,581)
Proceeds from sale of trading securities 107,425 37,856
Purchase of trading securities (58,314) (37,074)
Acquisition of property, and equipment, net (2,061) (5,264)
--------- --------
Net cash provided by/(used in) investing activities 170,213 (14,794)
--------- --------
Cash flows from financing activities:
Proceeds from sale of treasury stock 32 35
Dividends paid (156,156) (3,991)
Loan repayment (36,994) ---
--------- --------
Net cash (used in) financing activities (193,118) (3,956)
--------- --------
Net decrease in cash and cash equivalents (5,301) (3,100)
Cash and cash equivalents at beginning of period 31,752 45,026
--------- --------
Cash and cash equivalents at end of period $ 26,451 $ 41,926
--------- --------
--------- --------
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
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, in brokerage cash accounts 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 January 31, 1997 and
April 30, 1996, cash equivalents included $25,928,000 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 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
<PAGE>
Reclassification:
Certain prior year amounts disclosed in the Consolidated Statements of Cash
Flows have been reclassified to conform with the current year presentation.
MARKETABLE SECURITIES - NOTE 2:
Trading Securities:
Securities held by Value Line Securities, Inc. had an aggregate cost of
$13,095,000 and $48,066,000 and a market value of $15,220,000 and $64,314,000 at
January 31, 1997 and April 30, 1996, respectively.
Short-Term Securities Available for Sale:
Short-term securities available for sale, which were sold during fiscal 1997 as
further explained below, consisted 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 of fiscal 1997, the Company sold the FFCB securities
and received proceeds of $9,870,000 which were equivalent to the recorded market
value of these securities. During the second quarter of fiscal 1997, the Company
sold the FNMA securities and received proceeds of $30,187,000, including accrued
interest and realized a net capital gain of $154,000. 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 had
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 $89,972,000 and $142,456,000
and the market value was $110,798,000 and $177,735,000 at January 31, 1997 and
April 30, 1996, respectively. At January 31, 1997, the increase in gross
unrealized appreciation on these securities of $14,453,000, net of deferred
taxes of $5,059,000, was included in shareholders' equity. Realized gains and
the proceeds received from sales of these securities during the nine months
ended January 31, 1997 were $18,872,000 and $89,662,000, respectively. See
Subsequent Events Note 7.
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION - NOTE 3:
Cash payments for income taxes were $15,630,000 and $18,545,000 during the nine
months ended January 31, 1997 and 1996, respectively. Interest payments of
$985,000 and $2,107,000 were remitted during the nine months of fiscal 1997 and
fiscal 1996, respectively.
6
<PAGE>
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE - NOTE 4:
The obligation of $27,899,000 at April 30, 1996, under the agreement to
repurchase the Federal National Mortgage Association Floating Rate Notes due
August 5, 1997 (FNMA), described in Note 2, was repaid from the proceeds
received from the sale of the FNMA securities during November 1996. The
obligation to repurchase the Federal Farm Credit Bank securities of $9,095,000
at the end of fiscal 1996, was satisfied from the proceeds from the sale of
these securities during the first quarter of fiscal 1997.
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 reflects
the extent of involvement the Company has in these contracts. At January 31,
1997, the underlying notional value of such commitments was $7,088,000. 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
January 31, 1997. The fair value of derivative financial instruments recorded as
a liability in the Consolidated Balance Sheets at January 31, 1997 was $355,000.
The average fair value of derivative financial instruments was $5,025,000 for
the nine months ended January 31, 1997.
Net trading gains related to equity securities that aggregated $7,425,000, for
the nine months ended January 31, 1997 were offset by net trading losses during
the same period of $5,765,000 related to derivative financial instruments.
7
<PAGE>
SPECIAL DIVIDEND DISTRIBUTION- NOTE 7:
On December 16, 1996, the Board of Directors of Value Line, Inc. declared a
special $15.00 per share dividend which was paid January 2, 1997, to all
Value Line, Inc. shareholders of record on December 26, 1996. The Company
paid this dividend out of accumulated earnings and profits.
The dividend was paid pursuant to a transaction in which Arnold Bernhard &
Co., Inc. ("AB&Co."), the owner of approximately 80% of the oustanding common
stock of Value Line, Inc., settled a lawsuit and purchased all the AB&Co.
shares held by the Arnold Van Hoven Bernhard family and the trustees of a
trust of which he is the income beneficiary. Accordingly, Jean B. Buttner,
Chief Executive Officer of the Company, now owns 100% of the voting shares of
AB&Co.
8
<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 $131,569,000 at January 31, 1997. In addition to $20,771,000
in working capital, the Company has long-term securities available for sale with
a market value of $110,798,000, that, although classified as non-current assets,
are also readily marketable should the need arise. During fiscal 1997, the
Company sold U.S. Government Agency debt securities under agreements to sell and
repurchase and received $40,057,000 from these sales.
On January 2, 1997, the Company paid a special dividend in the aggregate
amount of $149,700,000 or $15.00 per share. The dividend was paid pursuant to
a transaction in which Arnold Bernhard & Co., Inc. (AB&Co.), the owner of
approximately 80% of the outstanding common stock of Value Line, Inc.,
settled a lawsuit and purchased all the AB&Co. shares held by the Arnold Van
Hoven Bernhard family and the trustees of a trust of which he is the income
beneficiary. Accordingly, Jean B. Buttner, Chief Executive Officer of the
Company, now owns 100% of the voting shares of AB&Co.
During the third quarter of fiscal 1997, the Company sold various holdings
from its long term securities available for sale and its short term trading
portfolio and received $81,191,000 and $56,170,000, respectively. These
proceeds, together with $12,339,000 from the Company's holdings in the Value
Line Cash Fund account were used to finance the special dividend. The special
dividend was paid from the Company's accumulated earnings and profits.
The Company's cash flow from operations of $17,604,000 increased $1,954,000 from
last year's level, primarily on the strength of the Company's record operating
profits and net earnings contributed by the investment periodicals and related
publications and investment management services business segments.
Additionally, deferral of the Company's income tax payment, related to capital
gains on sales of the various securities, until the fourth quarter of fiscal
1997 also contributed to the increase in the cash flow from operations during
the third quarter.
The Company announced on November 25, 1996 that Arnold Bernhard & Co., Inc.
("AB&Co." ), the owner of approximately 80% of the outstanding common stock of
Value Line Inc., had entered into an agreement which resulted in the settlement
of a lawsuit that sought the dissolution of AB&Co. As part of the agreement,
AB&Co. purchased on January 2, 1997 all the shares held by the Arnold Van Hoven
Bernhard family and two co-trustees of a trust of which he is the income
beneficiary. Accordingly, Jean B. Bernhard, Chief Executive Officer of the
Company, now owns 100% of the voting shares of AB&Co.
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 1997.
RESULTS OF OPERATIONS:
Net earnings for the nine months ended January 31, 1997 were $39,478,000 or
$3.96 per share compared to net earnings of $32,766,000 or $3.28 per share for
the same period of fiscal 1996. Net earnings for the third quarter ended
January 31, 1997 of $25,113,000 or $2.52 per share was 74.4% above the net
earnings of $14,291,000 for third quarter of fiscal 1996. The nine months ended
January 31, 1997 included a one time gain of $17,580,000 on sales of various
securities holdings in preparation for the payment of a special dividend of
$15.00 per share on January 2, 1997. Revenues, operating income and net earnings
for the third quarter and nine months ended January 31, 1997 each set new
record highs for the Company.
9
<PAGE>
RESULTS OF OPERATIONS (CONTINUED):
Revenues of $68,571,000 for the first nine months of fiscal 1997 were $4,043,000
or 6% above the comparable results for fiscal 1996. Subscription revenues for
the nine months ended January 31, 1997 of $46,478,000 increased $3,534,000 or
8% from revenues of $42,944,000 for fiscal 1996. The increase was reflective of
the 7% higher level of revenues from The Value Line Investment Survey, of which
2% was the result of a price increase effective February 1996. Additional
revenues from new products, including The Value Line Investment Survey-Condensed
Edition, The Value Line Investment Survey-Expanded Edition and the Value Line
Investment Survey FOR WINDOWS, introduced in July 1996, contributed 5% of the
overall increase in subscription revenues. Total full term subscription levels
for all products at January 31, 1997 increased 2% compared to the level at
January 31, 1996. Revenues derived from investment management fees and services
for the nine months ended January 31, 1997 of $21,897,000 were $2,367,000 or
12% above the level at January 31, 1996. The increase in revenues resulted
primarily from an increase in the average annual net assets under management in
the Company's mutual funds. Included in fiscal 1997 and 1996 revenues are
proceeds of $196,000 and $2,054,000, respectively, received from the settlement
of disputed securities trades.
Expenses for the nine months ended January 31, 1997 were $41,711,000 or 6% above
last year's comparable expenses of $39,332,000. Advertising expenses of
$11,725,000 were 8% above the prior year's level primarily resulting from
increased advertising for various new products, including the Value Line
Investment Survey FOR WINDOWS. Additionally, the Company incurred $503,000 of
promotional expenses related to a selling arrangement for two of the equity
mutual funds for which the Company is the advisor. Salary and employee benefit
expenses of $16,416,000 were 7% above last year's comparable level of
$15,304,000 primarily as a result of expenses for restructuring the Company's
fulfillment operation, incentive compensation and the additional staffing in
various support departments as well as the Asset Management division. Office
and administration expenses of $7,115,000 decreased $309,000 or 4% from fiscal
1996's level largely as a result of proceeds received from a negotiated
settlement with the Company's landlord and 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. Additionally, fiscal 1997 includes a charge of
$328,000 for the write-off of goodwill at the Company's fulfillment subsidiary
resulting from the decision to restructure these operations. Additional expenses
related to relocating the fulfillment operation to the Company's new
distribution facility, are also included in fiscal 1997.
The Company's investment portfolios produced income from securities transactions
for the nine months ended January 31, 1997 of $37,244,000 compared to income of
$28,698,000 for the comparable nine months of fiscal 1996. The increase was a
result of additional capital gains of $15,337,000 from sales of the Company's
mutual fund holdings offset by lower capital gains produced by the Company's
trading portfolios of $5,227,000. Additionally, capital gains distributions
from the Company's mutual funds increased $2,518,000. The correction in the
financial markets during the first five months of fiscal 1997 as compared to the
rapidly rising market during the comparable period of fiscal 1996, was primarily
responsible for the lower capital gains in the trading portfolios. The Company's
sale of stock futures indices, used to reduce the financial market exposure from
the Company's equity securities holdings, resulted in an increase in capital
losses of $4,376,000 during fiscal 1997. These losses were offset by capital
gains reported in the Company's long term securities portfolio.
10
<PAGE>
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 January 31,
1997 to be signed on its behalf by the undersigned thereunto duly authorized.
Value Line, Inc.
(Registrant)
Date: March 17, 1997 By: s/Jean Bernhard Buttner
-----------------------
Jean Bernhard Buttner
Chairman & Chief Executive Officer
Date: March 17, 1997 By: s/Stephen R. Anastasio
-----------------------
Stephen R. Anastasio
Chief Accounting Officer
11
<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> 9-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-START> MAY-01-1996
<PERIOD-END> JAN-31-1997
<CASH> 26,451
<SECURITIES> 15,2220
<RECEIVABLES> 2,650
<ALLOWANCES> (643)
<INVENTORY> 0
<CURRENT-ASSETS> 47,327
<PP&E> 13,132
<DEPRECIATION> 0
<TOTAL-ASSETS> 171,304
<CURRENT-LIABILITIES> 26,556
<BONDS> 0
1,000
0
<COMMON> 0
<OTHER-SE> 93,726
<TOTAL-LIABILITY-AND-EQUITY> 171,304
<SALES> 46,478
<TOTAL-REVENUES> 68,571
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 41,711
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 24,626
<INCOME-CONTINUING> 39,478
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39,478
<EPS-PRIMARY> 3.96
<EPS-DILUTED> 3.96
</TABLE>
