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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, 1998 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 January 31, 1998
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Common stock, $.10 par value 9,978,625 Shares
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<TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS VALUE LINE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
JAN. 31, APR. 30,
ASSETS 1998 1997
CURRENT ASSETS: -------- --------
<S> <C> <C>
CASH AND CASH EQUIVALENTS (INCLUDING SHORT TERM
INVESTMENTS OF $25,124 AND $15,476, RESPECTIVELY) $25,758 $16,083
TRADING SECURITIES 13,843 15,217
ACCOUNTS RECEIVABLE, NET OF ALLOWANCE FOR DOUBTFUL
ACCOUNTS OF $495 AND $593, RESPECTIVELY 1,350 2,603
RECEIVABLE FROM AFFILIATES 2,268 1,849
PREPAID EXPENSES AND OTHER CURRENT ASSETS 1,667 1,824
DEFERRED INCOME TAXES 1,205 1,205
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TOTAL CURRENT ASSETS 46,091 38,781
LONG TERM SECURITIES AVAILABLE FOR SALE 129,399 108,115
PROPERTY AND EQUIPMENT, NET 12,800 13,370
GOODWILL 41 44
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TOTAL ASSETS $188,331 $160,310
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-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES $5,908 $8,009
ACCRUED SALARIES 1,601 2,208
DIVIDENDS PAYABLE 2,495 2,495
ACCRUED TAXES PAYABLE 5,437 808
-------- --------
TOTAL CURRENT LIABILITIES 15,441 13,520
UNEARNED REVENUE 38,971 42,191
DEFERRED INCOME TAXES 9,711 6,982
DEFERRED CHARGES 1,044 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 104,910 83,194
TREASURY STOCK, AT COST (21,375 SHARES ON 1/31/98,
21,875 SHARES ON 4/30/97) (411) (421)
UNREALIZED GAIN ON SECURITIES, NET OF TAXES 16,706 11,637
-------- --------
TOTAL SHAREHOLDERS' EQUITY 123,164 96,364
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $188,331 $160,310
-------- --------
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</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
2
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<TABLE>
<CAPTION>
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)
THREE MONTHS ENDED NINE MONTHS ENDED
JAN. 31, JAN. 31,
1998 1997 1998 1997
-------- -------- -------- --------
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REVENUES:
INVESTMENT PERIODICALS AND
RELATED PUBLICATIONS $15,394 $15,872 $46,136 $46,478
INVESTMENT MANAGEMENT FEES & SVCS 8,130 7,699 24,279 21,897
SETTLEMENT OF DISPUTED SECURITIES TRANSACTIONS --- 196 --- 196
-------- -------- -------- --------
TOTAL REVENUES 23,524 23,767 70,415 68,571
-------- -------- -------- --------
EXPENSES:
ADVERTISING AND PROMOTION 4,094 4,769 10,964 11,725
SALARIES AND EMPLOYEE BENEFITS 5,521 5,517 16,518 16,416
PRINTING, PAPER AND DISTRIBUTION 1,955 2,099 5,641 6,455
OFFICE AND ADMINISTRATION 2,070 2,967 5,966 7,115
-------- -------- -------- --------
TOTAL EXPENSES 13,640 15,352 39,089 41,711
-------- -------- -------- --------
INCOME FROM OPERATIONS 9,884 8,415 31,326 26,860
INCOME FROM SECURITIES TRANSACTIONS, NET 13,372 31,746 16,437 37,244
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 23,256 40,161 47,763 64,104
PROVISION FOR INCOME TAXES 8,930 15,048 18,563 24,626
-------- -------- -------- --------
NET INCOME $14,326 $25,113 $29,200 $39,478
RETAINED EARNINGS, AT BEGINNING OF
PERIOD 93,078 206,707 83,194 196,834
DIVIDENDS DECLARED (2,494) (152,164) (7,484) (156,656)
-------- -------- -------- --------
RETAINED EARNINGS, AT END OF PERIOD $104,910 $79,656 $104,910 $79,656
-------- -------- -------- --------
-------- -------- -------- --------
EARNINGS PER SHARE $1.44 $2.52 $2.93 $3.96
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
3
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<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION VALUE LINE, INC.
ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED) FOR THE NINE
MONTHS ENDED
JAN. 31, JAN. 31,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES: -------- --------
<S> <C> <C>
NET INCOME $29,200 $39,478
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 1,186 1,064
ACCRETION OF DISCOUNT --- (224)
GAINS ON SALES OF TRADING SECURITIES, SECURITIES
HELD FOR SALE AND FUTURES CONTRACTS (13,919) (46,783)
UNREALIZED (GAINS)/LOSSES ON TRADING SECURITIES (260) 14,348
WRITEDOWN OF GOODWILL --- 328
CHANGES IN ASSETS AND LIABILITIES:
DECREASE IN UNEARNED REVENUE (3,220) (2,489)
INCREASE IN DEFERRED CHARGES (209) (208)
INCREASE/(DECREASE) IN ACCOUNTS
PAYABLE AND ACCRUED EXPENSES (2,027) 1,084
DECREASE IN ACCRUED SALARIES (607) (42)
INCREASE IN INTEREST PAYABLE --- (63)
DECREASE IN ACCRUED TAXES PAYABLE 4,629 8,933
DECREASE IN PREPAID EXPENSES
AND OTHER CURRENT ASSETS 157 1,152
DECREASE IN ACCOUNTS RECEIVABLE 1,719 990
INCREASE IN RECEIVABLE FROM AFFILIATES (419) 36
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TOTAL ADJUSTMENTS (12,970) (21,874)
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NET CASH PROVIDED BY OPERATIONS 16,230 17,604
CASH FLOWS FROM INVESTING ACTIVITIES:
PROCEEDS FROM SALES OF SECURITIES 9,783 147,505
PURCHASES OF SECURITIES (11,289) (24,342)
PROCEEDS FROM SALES OF TRADING SECURITIES 30,428 107,425
PURCHASES OF TRADING SECURITIES (27,395) (58,314)
ACQUISITION OF PROPERTY, AND EQUIPMENT, NET (613) (2,061)
-------- --------
NET CASH PROVIDED BY/(USED IN) INVESTING ACTIVITIES 914 170,213
CASH FLOWS FROM FINANCING ACTIVITIES:
PROCEEDS FROM SALES OF TREASURY STOCK 15 32
DIVIDENDS PAID (7,484) (156,156)
REPAYMENT OF OBLIGATION UNDER REPURCHASE AGREEMENT --- (36,994)
-------- --------
NET CASH (USED IN) FINANCING ACTIVITIES (7,469) (193,118)
-------- --------
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS 9,675 (5,301)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 16,083 31,752
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $25,758 $26,451
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</TABLE>
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:
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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 January 31, 1998 and April 30, 1997, cash
equivalents included $23,663,000 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:
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Trading Securities:
Securities held by Value Line Securities, Inc. Had an aggregate cost of
$12,067,000 and $13,702,000 and a market value of $13,843,000 and $15,217,000 at
January 31, 1998 and April 30, 1997, respectively.
Long-Term Securities Available for Sale:
The aggregate cost of the long-term securities portfolio was $103,698,000 and
$90,211,000 and the market value was $129,399,000 and $108,115,000 at January
31, 1998 and April 30, 1997, respectively. At January 31, 1998, the increase in
gross unrealized appreciation on these securities of $7,798,000, net of the
increase in deferred taxes of $2,729,000, was included in shareholders' equity.
Supplemental Disclosure of Cash Flow Information - Note 3:
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Cash payments for income taxes were $13,934,000 and $9,971,000 during the nine
months ended January 31, 1998 and 1997, respectively. Interest payments of
$705,000 were remitted during the nine months of fiscal 1997.
Financial Instruments with Off-Balance-Sheet Risk and
Concentration of Credit Risk - Note 4:
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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 January 31, 1998, the underlying notional value of such
commitments was $1,868,000. 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:
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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 January 31, 1998 and recorded as an asset or liability in the
Consolidated Balance Sheets. The fair value of the asset at January 31, 1998 was
$6,000 and the average fair value for the nine months ended January 31, 1998 was
a liability of $312,000, respectively.
Net realized and unrealized trading gains related to equity securities and
mutual fund shares held aggregated $16,833,000 and $260,000, respectively, for
the nine months ended January 31, 1998. Net trading losses related to derivative
financial instruments used to reduce financial market exposure from the
Company's equities securities holdings, amounted to $2,805,000 for the nine
months ended January 31, 1998. Income from securities transactions of
$16,437,000 is reflected net of derivative trading activity.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS:
LIQUIDITY AND CAPITAL RESOURCES:
Value Line, Inc. (the Company) has liquid resources which are used in its
business of $160,049,000 at January 31, 1998. In addition to $30,650,000 in
working capital, the Company has long-term securities available for sale with a
market value of $129,399,000, that, although classified as non-current assets,
are also readily marketable should the need arise.
The Company's cash flow from operations of $16,230,000 decreased $1,374,000 from
last year's level primarily as a result of the timing of the payment of invoices
related to advertising and promotional expenses. Furthermore, cash flows from
investing activities were $169,299,000 higher in the fiscal 1997 as a direct
result of the receipt of proceeds from sales of mutual fund holdings in
preparation of the special dividend paid in January 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 nine months ended January 31, 1998 of $29,200,000 or $2.93
per share was the third highest in the Company's history and compares to net
income of $39,478,000 or $3.96 per share for the first nine months of fiscal
1997. Net income for the third quarter of fiscal 1998 of $14,326,000 or $1.44
per share was the second highest in the Company's history and compares to net
income of $25,113,000 or $2.52 per share for the three months ended January 31,
1997. Both revenues and operating income for the nine months ended January 31,
1998 set new record highs for the Company. Revenues and operating income for the
nine months ended January 31, 1998 exceeded the prior year's levels by 3% and
17%, respectively. Operating income for the three months ended January 31, 1998
also set a new record high for the Company and exceeded the prior year's level
by 17%.
Revenues of $70,415,000 for the nine months ended January 31, 1998 were
$1,844,000 or 3% above the comparable results for fiscal 1997. Subscription
revenues for the first nine months of fiscal 1998 of $46,136,000 were 1% below
revenues for the comparable period of fiscal 1997, primarily a result of the
reduction in fulfillment revenues from former third party clients of the
Compupower Corporation. Revenues from The Value Line Investment Survey,
including a 9% price increase that went into effect February 1, 1996 and
revenues from related publications increased 3% from fiscal 1997's level.
Revenues derived from investment management fees and services for the nine
months ended January 31, 1998 of $24,279,000 were $2,382,000 or 11% above the
level for the comparable period of fiscal 1997. The increase in revenues
resulted primarily from an 8% 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 January 31,
1998 increased 7% from the levels at January 31, 1997.
Expenses for the nine months ended January 31, 1998 were $39,089,000, 6% below
last year's comparable level of $41,711,000. Advertising expenses of
$10,764,000 were 6% below the prior year's level as a result of reduced levels
of advertising for new products. Advertising for The Value Line Investment
Survey family of products decreased 12% from the prior year's level because of a
strategic reduction in advertising campaigns during uncertain financial market
conditions. Promotional expenses for the Value Line Mutual Funds increased
$971,000 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 $16,518,000 were less than 1% above the prior year's level of $16,416,000 for
the first nine months of fiscal 1998. 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 $5,641,000 at
January 31, 1998 declined $814,000 or 13% from expenses of $6,455,000
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS:
for the comparable period of fiscal 1997 primarily due to the lower costs
associated with production and distribution of the electronic products as
compared with the print publications, an approximate 10% reduction in the cost
of paper and the utilization of new technology that maximizes 2nd class
discounts offered by the U.S. Postal Service. Office and administration expenses
of $5,966,000 decreased $1,149,000 or 16% from the prior year's level. Part of
the prior year's office and administrative expenses include professional fees
relating to a lawsuit from which the Company won a $558,000 award during the
fourth quarter of fiscal 1997 and non-recurring professional fees.
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. Administrative expenses for fiscal
1997 also include a negotiated settlement with the former landlord of the
Company's headquarters' facility in which the Company received proceeds of
$906,000.
The Company's securities portfolios produced income from securities transactions
for the nine months ended January 31, 1998 of $16,437,000 compared with
$37,244,000 during the same period of last fiscal year. The primary cause for
the decrease was the reduced levels of capital gains and dividend income from
the Company's mutual fund holdings that resulted from the smaller size of those
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 nine months of fiscal 1997 include $32,435,000 of
capital gains of which $17,299,000 resulted from sales of the Company's long
term mutual fund holdings in connection with the special dividend.
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 January 31,
1998 to be signed on its behalf by the undersigned thereunto duly authorized.
VALUE LINE, INC.
(Registrant)
Date: March 16, 1998 By: /s/ Jean Bernhard Buttner
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Jean Bernhard Buttner
Chairman & Chief Executive Officer
Date: March 16, 1998 By: /s/ Stephen R. Anastasio
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Stephen R. Anastasio
Chief Accounting Officer
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF INCOME AND 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-30-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> JAN-31-1998
<CASH> 25,758
<SECURITIES> 13,843
<RECEIVABLES> 4,113
<ALLOWANCES> (495)
<INVENTORY> 0
<CURRENT-ASSETS> 46,091
<PP&E> 19,536
<DEPRECIATION> (6,736)
<TOTAL-ASSETS> 188,331
<CURRENT-LIABILITIES> 15,441
<BONDS> 0
0
0
<COMMON> 1,000
<OTHER-SE> 122,164
<TOTAL-LIABILITY-AND-EQUITY> 188,331
<SALES> 46,136
<TOTAL-REVENUES> 70,415
<CGS> 0
<TOTAL-COSTS> 39,089
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 47,763
<INCOME-TAX> 18,563
<INCOME-CONTINUING> 29,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,200
<EPS-PRIMARY> 2.93
<EPS-DILUTED> 2.93
</TABLE>
