<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, 1998 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
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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, 1998
----- ----------------------------
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)
<TABLE>
<CAPTION>
July 31, April 30,
1998 1998
---------- ----------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents (including short term
investments of $34,430 and $29,072, respectively) $35,073 $29,937
Trading securities 7,815 8,861
Accounts receivable, net of allowance for doubtful
accounts of $540 and $507, respectively 2,318 1,287
Receivable from affiliates 2,480 2,339
Prepaid expenses and other current assets 1,457 1,688
Deferred income taxes 1,444 1,444
---------- ----------
Total current assets 50,587 45,556
Long term securities available for sale 146,368 149,277
Property and equipment, net 12,470 12,651
Goodwill 40 41
---------- ----------
Total assets $209,465 $207,525
---------- ----------
---------- ----------
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable and accrued liabilities $5,758 $7,170
Accrued salaries 984 1,764
Dividends payable 2,495 2,495
Accrued taxes payable 3,959 347
---------- ----------
Total current liabilities 13,196 11,776
Unearned revenue 43,322 42,543
Deferred income taxes 13,823 15,294
Deferred charges 906 975
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 959 959
Retained earnings 112,406 108,392
Treasury stock, at cost (21,375 shares on 7/31/98,
and 4/30/98) (411) (411)
Unrealized gain on securities, net of taxes 24,264 26,997
---------- ----------
Total shareholders' equity 138,218 136,937
---------- ----------
Total liabilities and shareholders' equity $209,465 $207,525
---------- ----------
---------- ----------
</TABLE>
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
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
For the three months
ended
July 31, July 31,
1998 1997
---------- ----------
<S> <C> <C>
Revenues:
Investment periodicals and
related publications $15,597 $15,433
Investment management fees & svcs 8,541 7,737
Gain on disposal of operating facility 518 ---
---------- ----------
Total revenues 24,656 23,170
---------- ----------
Expenses:
Advertising and promotion 3,531 3,154
Salaries and employee benefits 5,973 5,321
Printing, paper and distribution 1,871 1,776
Office and administration 2,246 1,944
---------- ----------
Total expenses 13,621 12,195
---------- ----------
Income from operations 11,035 10,975
Income from securities trans., net 142 1,903
---------- ----------
Income before income taxes 11,177 12,878
Provision for income taxes 4,668 5,067
---------- ----------
Net income $6,509 $7,811
---------- ----------
---------- ----------
Earnings per share, basic & fully diluted $0.65 $0.78
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
VALUE LINE, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED JULY 31, 1998
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Common stock
Accumulated
Number Additional Other
of paid-in Treasury Comprehensive Retained Comprehensive
shares Amount capital Stock income earnings income Total
----------- -------- ---------- ---------- ------------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at May 1, 1998 9,978,625 $1,000 $959 ($411) $108,392 $26,997 $136,937
Comprehensive income
Net income $6,509 6,509 6,509
Other comprehensive income,
net of tax:
Change in unrealized
gains on securities (2,733) (2,733) (2,733)
-------------
Comprehensive income $3,776
-------------
-------------
Dividends declared (2,495) (2,495)
----------- -------- ---------- ---------- ---------- ------------- ----------
Balance at July 31, 1998 9,978,625 $1,000 $959 ($411) $112,406 $24,264 $138,218
----------- -------- ---------- ---------- ---------- ------------- ----------
----------- -------- ---------- ---------- ---------- ------------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
VALUE LINE, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED JULY 31, 1997
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Common stock
Accumulated
Number Additional Other
of paid-in Treasury Comprehensive Retained Comprehensive
shares Amount capital Stock income earnings income Total
----------- -------- ---------- ---------- ------------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at May 1, 1997 9,978,125 $1,000 $954 ($421) $83,194 $11,637 $96,364
Comprehensive income
Net income $7,811 7,811 7,811
Other comprehensive income,
net of tax:
Change in unrealized
gains on securities 12,612 12,612 12,612
-------------
Comprehensive income $20,423
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-------------
Exercise of stock options 500 5 10 15
Dividends declared (2,495) (2,495)
----------- -------- ---------- ---------- ---------- ------------- ----------
Balance at July 31, 1997 9,978,625 $1,000 $959 ($411) $88,510 $24,249 $114,307
----------- -------- ---------- ---------- ---------- ------------- ----------
----------- -------- ---------- ---------- ---------- ------------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VALUE LINE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
For the three months
ended
July 31, July 31,
1998 1997
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $6,509 $7,811
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 407 404
Losses on sales of trading securities 295 1,143
Unrealized (gains)/losses on trading securities 235 (2,578)
Gain on sale of operating facility (518) --
Changes in assets and liabilities:
Increase/(decrease) in unearned revenue 779 (1,867)
Decrease in deferred charges (69) (70)
Decrease in accounts payable and accrued expenses (1,412) (1,003)
Increase/(decrease) in accrued salaries (780) 521
Increase in accrued taxes payable 3,612 4,062
(Increase)/decrease in prepaid expenses and other current assets 231 (79)
(Increase)/decrease in accounts receivable (1,031) 391
Increase in receivable from affiliates (141) (261)
---------- ----------
Total adjustments 1,608 663
---------- ----------
Net cash provided by operations 8,117 8,474
Cash flows from investing activities:
Purchases of long term securities (1,295) (213)
Proceeds from sales of trading securities 2,461 8,713
Purchases of trading securities (1,945) (10,616)
Acquisitions of property, and equipment, net (284) (254)
Proceeds from sale of operating facility 577 --
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Net cash (used in) investing activities (486) (2,370)
Cash flows from financing activities:
Proceeds from sale of treasury stock -- 15
Dividends paid (2,495) (2,495)
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Net cash (used in) financing activities (2,495) (2,480)
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Net increase in cash and cash equivalents 5,136 3,624
Cash and cash equivalents at beginning of period 29,937 16,083
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Cash and cash equivalents at end of period $35,073 $19,707
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</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<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 15, 1998 for the fiscal year ended April 30, 1998. 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, 1998 and April 30, 1998, cash
equivalents included $33,124,000 and $28,283,000, 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.
Earnings per Share, basic & fully diluted:
Earnings per share are based on the weighted average number of shares of common
stock outstanding during the period.
Use of Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
7
<PAGE>
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
$7,103,000 and $7,914,000 and a market value of $7,815,000 and $8,861,000 at
July 31, 1998 and April 30, 1998, respectively.
Long-Term Securities Available for Sale:
The aggregate cost of the long-term securities was $109,038,000 and $107,743,000
and the market value was $146,368,000 and $149,277,000 at July 31, 1998 and
April 30, 1998, respectively. At July 31, 1998, the decrease in gross
unrealized appreciation on these securities of $4,204,000, net of deferred taxes
of $1,471,000, was included in shareholders' equity.
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION - NOTE 3:
Cash payments for income taxes were $922,000 and $1,095,000 during the three
months ended July 31, 1998 and 1997, respectively.
OFF-BALANCE-SHEET RISK - NOTE 4:
The Company executes, as agent, securities transactions on behalf of the Value
Line mutual funds. If either the mutual funds or a counterparty fail to
perform, the Company may be required to discharge the obligations of the
nonperforming party. In such circumstances, the Company may sustain a loss if
the market value of the security is different from the contract value of the
transaction.
No single customer accounted for a significant portion of the Company's sales
nor accounts receivables in fiscal 1999 or fiscal 1998.
COMPREHENSIVE INCOME - NOTE 5:
During the fiscal year 1999, the Company adopted FASB statement no. 130,
Reporting Comprehensive Income. Statement no.130 requires the reporting of
comprehensive income in addition to net income from operations. Comprehensive
income is a more inclusive financial reporting methodology that includes
disclosure of certain financial information that historically has not been
recognized in the calculation of net income.
At July 31, 1998 and 1997, the Company held long term securities classified as
available-for-sale. The decrease during the first quarter of fiscal 1999 in
gross unrealized gains on these securities and the related deferred taxes was
$4,204,000 and $1,471,000, respectively. The increase during the first three
months of fiscal 1998 in gross unrealized gains on these securities and the
related deferred taxes was $19,403,000 and $6,791,000, respectively.
8
<PAGE>
VALUE LINE, INC.
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
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.
At July 31, 1998 and April 30, 1998, the Company held no financial derivative
instruments.
Net realized and unrealized trading losses related to equity securities
aggregated $295,000 and $235,000, respectively, for the three months ended
July 31, 1998. Income from securities transactions of $142,000 are reflected
net of securities trading activity.
GAIN ON SALE OF OPERATING FACILITY - NOTE 7:
Pursuant to the Company's realignment of its production and distribution
departments, the Company sold its idle North Bergen, New Jersey operating
facility during May 1998 for which it received gross proceeds of $577,000.
The gain on the sale of the operating facility is included in revenues in the
Consolidated Statements of Income.
9
<PAGE>
ITEM 2. MANAGEMENT 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 $183,759,000 at July 31, 1998. In addition to $37,391,000 in
working capital, the Company has long-term securities available for sale with a
market value of $146,368,000, 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 for fiscal 1998 was
$357,000 higher than fiscal 1999's primarily as a result of the timing of
incentive compensation payments. Also, the net increase of unearned revenues
from new business offset by the increase in accounts receivable that resulted
from the efficiencies in order processing in the new fulfillment system during
fiscal 1999 generated $1,224,000 in additional cash flow as compared to the
change in these items in fiscal 1998. Cash outflows from investing activities
during fiscal 1999 were $1,884,000 less than fiscal 1998's results due primarily
to the receipt of $577,000 of proceeds from the sale of the Company's
North Bergen, New Jersey idle operating facility and a reduction in the
Company's short term trading portfolio volume due to a re-deployment of
certain trading portfolio assets to the long term securities portfolio
during the latter part of fiscal 1998.
The Company recognizes the need to ensure that its computer systems and
software applications are year 2000 compliant with no disruption to
business operations. In light of this, the Company has established a central
committee to coordinate, evaluate and implement changes necessary for
compliance. Additionally, the Company is communicating with suppliers,
financial institutions, and others with which it does business to ensure they
are also compliant with the year 2000 date. Significant areas of operations
which will be impacted have already been identified and conversion efforts are
underway. The total cost of compliance and its effect on the Company's future
results of operations are being determined as part of the detailed conversion
planning. The cost, including routine hardware enhancements and modifications
to software applications, is not expected to exceed $1,000,000.
The Accounting Standards Committee of the AICPA recently issued Statement of
Position ("SOP") 98-1 which requires entities to adopt uniform rules in their
financial statements in accounting for the cost of computer software developed
or obtained for internal use. The SOP requires companies to capitalize as
long-lived assets many of the costs associated with developing or obtaining
software for internal use and amortize those costs over the software's estimated
useful life in a systematic and rational manner. Management estimates that the
Company currently expenses approximately $1,000,000 to $1,500,000 of expenses
each fiscal year that would qualify for amortization under the new statement.
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 the remainder of fiscal 1999.
RESULTS OF OPERATIONS:
Net earnings for the three months ended July 31, 1998, were $6,509,000, $.65 per
share, compared to net earnings of $7,811,000, $.78 per share, for the three
months ended July 31, 1997. Revenues exceeded the prior year's amounts by 6%
and were the highest during any first quarter period in the history of the
Company. Operating income for the first quarter of the 1999 fiscal year improved
1% from the similar period in the 1998 fiscal year and was also the highest
level achieved during the first quarter.
Revenues of $24,656,000 for the three months of fiscal year 1999 were $1,486,000
above the comparable figures in fiscal year 1998. Subscription revenues of
$15,597,000 through July 1998 were 1% above revenues of $15,433,000 in the
comparable prior year period. The increase from the prior year is due primarily
to a 2% increase in revenues from the Value Line Investment Survey and related
products, including revenues from Value Line Select, which was introduced during
March 1998. Investment management fees of $8,541,000 for the three months ended
July 31, 1998, were $804,000, or 10%, above the prior year's revenues. The
increase in revenues resulted primarily from a 13% increase in the average
total net assets in the Company's mutual funds. Total net assets in the
Company's mutual funds at
10
<PAGE>
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS:
July 31, 1998, were 2% higher than the net asset balance at July 31, 1997. The
Company also recorded revenues of $518,000 from the sale of its North Bergen,
New Jersey, idle operating facility.
Expenses for the first quarter of the 1999 fiscal year were $13,621,000,
$1,426,000, or 12%, above last year's total costs of $12,195,000. Total
advertising and promotional expenses of $3,531,000 were $377,000, or 12%, above
the prior year's expenses. Promotional expenses for the Value Line Mutual
Funds, including expenses relating to a selling arrangement for two of the
equity mutual funds for which the Company is the advisor, were $315,000 above
the prior year's expenses. Salaries and employee benefit expenses of
$5,973,000 compare to expenses of $5,321,000 recorded in the prior fiscal year
period. The increase resulted primarily from increases in salaries and
incentive compensation, revisions to the salary structure in certain production
departments, and increases in expenses for employee benefits. Printing, paper,
and distribution costs of $1,871,000 increased 5% from the July 1997 fiscal
year-to-date due primarily to increased Internet and other software development
costs. Office and administration expenses of $2,246,000 increased $302,000, or
16%, from the prior year's expenses primarily as a result of increased fees for
professional services and higher expenses for property rent and utilities.
The Company's securities portfolios produced a net gain for the three months
ended July 31, 1998, of $142,000, a decrease of $1,761,000 from last year's net
income of $1,903,000. The net decline in earnings from the prior year was
primarily due to the reduction in the size of the Company's trading portfolio
during the latter part of fiscal 1998 and the extreme volatility in the
securities markets due to the weakness in Asian, Russian, Latin America and
other foreign economies which have severely impacted the United States
financial markets.
11
<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
July 31, 1998 to be signed on its behalf by the undersigned thereunto duly
authorized.
Value Line, Inc.
(Registrant)
Date: September 14, 1998 By: /s/ Jean Bernhard Buttner
-----------------------------------
Jean Bernhard Buttner
Chairman & Chief Executive Officer
Date: September 14, 1998 By: /s/ Stephen R. Anastasio
-----------------------------------
Stephen R. Anastasio
Chief Accounting Officer
12
<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
July 31, 1998 to be signed on its behalf by the undersigned thereunto duly
authorized.
Value Line, Inc.
(Registrant)
Date: September 14, 1998 By:
-----------------------------------
Jean Bernhard Buttner
Chairman & Chief Executive Officer
Date: September 14, 1998 By:
-----------------------------------
Stephen R. Anastasio
Chief Accounting Officer
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEETS, CONSOLIDATED STATEMENT OF NET INCOME AND CONSOLIDATED STATEMENT
OF SHAREHOLDERS EQUITY 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-30-1999
<PERIOD-END> JUL-31-1998
<CASH> 35,073
<SECURITIES> 7,815
<RECEIVABLES> 2,858
<ALLOWANCES> (540)
<INVENTORY> 0
<CURRENT-ASSETS> 50,587
<PP&E> 19,690
<DEPRECIATION> (7,220)
<TOTAL-ASSETS> 209,465
<CURRENT-LIABILITIES> 13,196
<BONDS> 0
0
0
<COMMON> 1,000
<OTHER-SE> 137,218
<TOTAL-LIABILITY-AND-EQUITY> 209,465
<SALES> 15,597
<TOTAL-REVENUES> 24,656
<CGS> 0
<TOTAL-COSTS> 13,621
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 11,177
<INCOME-TAX> 4,668
<INCOME-CONTINUING> 6,509
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,509
<EPS-PRIMARY> 6,509
<EPS-DILUTED> 6,509
</TABLE>
