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, 1996 Commission file number 0-11306 ------- 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 -------------- 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 March 12, 1996 ----- ----------------------------- Common stock, $.10 par value 9,976,975 Shares ----------------
Part I - Financial Information Item 1. Financial Statements Value Line, Inc. Consolidated Balance Sheets (in thousands, except share amounts) <TABLE> <CAPTION> Jan. 31, Apr. 30, 1996 1995 ---------------------- <S> <C> <C> Assets Current Assets: Cash and cash equivalents (including short term investments of $41,262 and $43,608, respectively) $41,926 $45,026 Trading securities 59,082 48,187 Short term securities available for sale 39,538 39,099 Accounts receivable, net of allowance for doubtful accounts of $419 and $350, respectively 2,200 3,348 Receivable from affiliates 2,040 1,641 Prepaid expenses and other current assets 2,343 1,416 ---------------------- Total current assets 147,129 138,717 Long term securities available for sale 153,050 118,013 Property and equipment, net 12,214 7,922 Goodwill, net 337 346 ---------------------- Total assets $312,730 $264,998 ========= ========= Liabilities and Shareholders' Equity Current Liabilities: Accounts payable and accrued liabilities $7,931 $6,358 Securities sold under agreements to repurchase 36,994 36,994 Accrued salaries 990 1,466 Dividends and interest payable 2,077 534 Accrued taxes payable 5,638 3,054 ---------------------- Total current liabilities 53,630 48,406 Unearned revenue 40,729 36,789 Deferred income taxes 8,993 4,806 Deferred charges 1,600 1,808 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 944 940 Retained earnings 189,881 163,101 Treasury stock, at cost (23,025 shares on 1/31/96, 24,650 shares on 4/30/95) (443) (474) Unrealized gain on securities, net of taxes 16,396 8,622 ---------------------- Total shareholders' equity 207,778 173,189 ---------------------- Total liabilities and shareholders' equity $312,730 $264,998 ========= ========= </TABLE> The accompanying notes are an integral part of these financial statements. 2 OF 11
Part I - Financial Information Item 1. Financial Statements Value Line, Inc. Consolidated Statements of Income and Retained Earnings (in thousands, except per share amounts) <TABLE> <CAPTION> Three months ended Nine months ended Jan. 31, Jan. 31, 1996 1995 1996 1995 ---------------------- ------------------ <S> <C> <C> Revenues: Investment periodicals and related publications $14,869 $13,833 $42,944 $42,023 Investment management fees & svcs 6,820 5,592 19,530 17,422 Settlement of disputed securities trades --- --- 2,054 617 ---------------------- ------------------ Total revenues 21,689 19,425 64,528 60,062 ---------------------- ------------------ Expenses: Advertising and promotion 4,154 3,458 10,837 12,673 Salaries and employee benefits 5,434 4,774 15,304 14,124 Printing, paper and distribution 2,075 1,677 5,767 4,564 Office and administration 2,514 2,293 7,424 6,855 Mutual fund support expense --- --- --- 1,550 ---------------------- ------------------ Total expenses 14,177 12,202 39,332 39,766 ---------------------- ------------------ Income from operations 7,512 7,223 25,196 20,296 Income from securities transactions, net 16,096 4,366 28,698 8,467 ---------------------- ------------------ Income before taxes 23,608 11,589 53,894 28,763 Provision for taxes 9,317 4,578 21,128 11,363 ---------------------- ------------------ Net income $14,291 $7,01 $32,766 $17,400 Retained earnings, at beginning of year 177,584 152,317 163,101 145,918 Dividends declared (1,994) --- (5,986) (3,990) ---------------------- ------------------ Retained earnings, at end of period $189,881 $159,328 $189,881 $159,328 ====================== ================== Earnings per share $1.43 $0.70 $3.28 $1.74 ====================== ================== </TABLE> The accompanying notes are an integral part of these financial statements. 3 OF 11
Part I - Financial Information Item 1. Financial Statements Value Line, Inc. Consolidated Statements oCash Flows (in thousands) <TABLE> <CAPTION> For the Nine months ended Jan. 31, Jan. 31, 1996 1995 ----------- ----------- <S> <C> <C> Cash flows from operating activities: Net income $32,766 $17,400 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 981 1,023 Accretion of discount (439) (343) (Gains) on sale of trading securities and securities held for sale (7,505) (1,285) Unrealized (gains)/losses on trading securities (7,508) 929 Changes in assets and liabilities: Increase in unearned revenue 3,940 236 Increase/(decrease) in deferred charges (208) 1,018 Increase/(decrease) in accounts payable and accrued expenses 1,147 (1,321) Decrease in accrued salaries (476) (154) Increase/(decrease) in interest payable (452) 218 Increase/(decrease) in accrued taxes payable 2,584 (1,444) (Increase)/decrease in prepaid expenses and other current assets (927) 825 Decrease in accounts receivable 1,330 2,358 (Increase) in receivable from affiliates (399) (160) ----------- ----------- Total adjustments (7,932) 1,900 ----------- ----------- Net cash provided by operations 24,834 19,300 ----------- ----------- Cash flows from investing activities: Proceeds from sales of securities 18,085 2,000 Purchase of securities (37,581) (7,260) Proceeds from sale of trading securities 37,856 59,849 Purchase of trading securities (37,074) (52,712) Acquisition of property, and equipment, net (5,264) (956) ----------- ----------- Net cash provided by/(used in) investing activities (23,978) 921 ----------- ----------- Cash flows from financing activities: Proceeds from sale of treasury stock 35 --- Dividends paid (3,991) (5,985) Loan repayment --- (1,416) ----------- ----------- Net cash (used in) financing activities (3,956) (7,401) ----------- ----------- Net increase/(decrease) in cash and cash equivalents (3,100) 12,820 Cash and cash equivalents at beginning of period 45,026 14,330 ----------- ----------- Cash and cash equivalents at end of period $41,926 $27,150 ======== ======== </TABLE> The accompanying notes are an integral part of these financial statements. 4 OF 11
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 19, 1995 for the fiscal year ended April 30, 1995. 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, 1996 and April 30, 1995, cash equivalents included $37,605,000 and $41,503,000, 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 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 unrealized gains and losses included in earnings. Reclassification: Certain prior year amounts disclosed in the Consolidated Financial Statements and Notes thereto have been reclassified to conform to current year presentation. Marketable Securities - Note 2: - ------------------------------- Trading Securities: Securities held by Value Line Securities, Inc. had an aggregate cost of $44,501,000 and $40,767,000 and a market value of $59,082,000 and $48,187,000 at January 31, 1996 and April 30, 1995, respectively. 5 OF 11
VALUE LINE, INC. NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS Short-Term Securities Available for Sale: Short-term securities available for sale consists 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. The market value of the Company's holdings in these securities, which approximates cost, at January 31, 1996 and April 30, 1995 was $29,735,000 and $29,438,000 for the FNMA and $9,803,000 and $9,661,000 for the FFCB, respectively. These notes were purchased at a discount from their respective face values. The accretion of this discount has 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 $127,826,000 and $104,749,000 and the market value was $153,050,000 and $118,013,000 at January 31, 1996 and April 30, 1995, respectively. At January 31, 1996, gross unrealized gains on these securities of $25,224,000, net of deferred taxes of $8,828,000, were included in shareholders' equity. Realized gains and the proceeds received from sales of these securities during the nine months ended January 31, 1996 were $3,581,000 and $18,085,000, respectively. Supplemental Disclosure of Cash Flow Information - Note 3: - ---------------------------------------------------------- Cash payments for income taxes were $18,545,000 and $12,804,000 during the nine months ended January 31, 1996 and 1995, respectively. Interest payments of $2,107,000 and $1,042,000 were remitted during the nine months of fiscal 1996 and fiscal 1995, respectively. Securities Sold under Agreements to Repurchase - Note 4: - -------------------------------------------------------- The outstanding obligation of $36,994,000 at January 31, 1996 under the agreements to repurchase the Federal National Mortgage Association Floating Rate Notes due August 5, 1997 (FNMA), and Federal Farm Credit Bank Floating Rate Notes due February 12, 1997 (FFCB), stated in Note 2, mature on February 5, 1996 with respect to the FNMA ($27,899,000) and February 12, 1996 for the obligation to repurchase the FFCB securities ($9,095,000). These obligations accrue interest at the stated interest rates of 5.6%, respectively. The Company intends to refinance these obligations on a short term basis. Mutual Fund Support Expenses - Note 5: - -------------------------------------- On June 28, 1994, the Company purchased as part of its investment management operations for which it receives fee income, U.S. Government Agency notes with a market value as of that date of $38,615,000 from the Value Line Cash Fund for which it is the investment adviser, in order to maintain a $1.00 per share net asset value. In addition, as part of the same transaction the Company reimbursed the Value Line Cash Fund $1,550,000 for losses the Fund incurred on the sale which the Company may recoup in the future. 6 OF 11
VALUE LINE, INC. NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS Property and Equipment: - ----------------------- During January 1996, the Company purchased for cash an approximately 85,000 square foot warehouse facility for $4,100,000 under a newly formed subsidiary, Value Line Distribution Center, Inc. The new facility will house the distribution operations for the various Company publications and the fulfillment operations of the Compupower Corporation. The remaining building capacity will provide warehouse storage, a disaster recovery site and will provide for future business expansion. 7 OF 11
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 $246,549,000 at January 31, 1996. In addition to $93,499,000 in working capital, the Company has long-term securities available for sale with a market value of $153,050,000, that, although classified as non-current assets are also readily marketable as the need arises. The Company has entered into agreements to sell and repurchase U.S. Government Agency debt securities included in working capital with a market value of $39,538,000 at January 31, 1996. The repurchase obligations of $36,994,000 have been entered into on a short-term basis. The securities, currently available for sale, mature during calendar year 1997 and are readily marketable should management decide to liquidate the Company's holdings and related obligations. The Company's working capital, including cash, has increased $3,188,000, and its securities available for sale, classified as long term, have increased $35,037,000 for the nine months ended January 31, 1996. During January 1996, the Company purchased under a newly formed subsidiary an approximately 85,000 square foot building located in the State of New Jersey for $4,100,000 in cash. The building will provide a central location for the Company's distribution and fulfillment operations, warehouse storage, a disaster recovery site and additional space for future business expansion. Management believes that the Company's cash and other liquid asset resources used in its business together with future cash flows from operations will be sufficient to finance current and forecasted operations. Management anticipates no significant borrowing requirements during fiscal 1996 other than the short term refinancing of the repurchase obligations. Results of Operations: Net income for the nine months ended January 31, 1996 of $32,766,000 or $3.28 per share was $15,366,000 or 88% higher than the prior year's net income of $17,400,000 or $1.74 per share. Net income of $14,291,000 or $1.43 per share for the third quarter of fiscal 1996 increased 104% from net income of $7,011,000 for the third quarter of fiscal 1995. Net income for the third quarter of fiscal 1996 set a new record high for earnings of any quarter in the Company's history. Net income for the nine months ended January 31, 1996 also set a new record for the earnings for any full year in the Company's history. Revenues of $64,528,000 for the nine months of fiscal 1996 increased 7% from revenues of $60,062,000 for the same period of fiscal 1995. Subscription revenues of $42,944,000 were 2% higher than revenues of $42,023,000 for fiscal 1995. Full term subscription levels to all products increased 28% from the prior year's level. The Value Line Investment Survey - Expanded Edition, introduced in the latter part of fiscal 1995, contributed in excess of $1,500,000 of revenues during the first nine months of fiscal 1996 while revenues from The Investment Survey increased over $900,000 during this period. These increases were partially offset by decreases in revenues from the print version of the Value Line Mutual Fund Survey. Revenues derived from investment management fees and services for the nine months ended January 31, 1996 of $19,530,000 were $2,108,000 or 12% higher than the level at January 31, 1995. The revenue increase was primarily a result of a 12% increase in the average annual net assets under management in Value Line mutual funds. Assets under management at January 31, 1996 increased 22% from the levels at January 31, 1995. Total revenues for the nine months ended January 31, 1996 and January 31, 1995 included proceeds of $2,054,000 and $617,000, respectively, from the settlement of a disputed securities transaction. 8 OF 11
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations: (continued:) Expenses for the nine months ended January 31, 1996 of $39,332,000 were 1% below the prior year's level of $39,765,000. The prior year's expenses included a one time charge of $1,550,000 in support of the Cash Fund, the majority of which already has been recouped. Advertising expenses of $10,837,000 were $1,836,000 or 14% below the prior year's level. The significant reduction in expenses was attributable to a decline in advertising for the print version of the Value Line Mutual Fund Survey while the development of a new electronic version was under commencement. Advertising expenses for The Value Line Investment Survey increased 22% while marketing expenses of $922,000 were incurred in fiscal 1996 for new products including The Value Line Fund Analyzer, The Value Line Investment Survey Expanded Edition, The No-Load Mutual Fund Advisor, The No-Load Analyzer, and the Value Line Investment Survey Condensed. Salary and employee benefit expenses of $15,304,000 for the nine months ended January 31, 1996 were 8% higher than the prior year's level of $14,124,000 as a result of filling vacant staff positions in the Data Processing and Mutual Fund divisions, additional staffing in the customer service department and the effect of a 4% general salary increase as of August 1, 1994. Office and administration expenses of $7,424,000 increased $570,000 or 8% from the prior year's level. The increases were a result of professional fees related to potential business expansion alternatives, a lawsuit in which the Company is a plaintiff and from the estimated restructure costs related to the purchase of the new facility. These increases were partially offset by a decrease in software amortization related to a decision during fiscal 1995 to replace the Company's fulfillment software. Fiscal 1995 also includes the absorption of expenses related to the establishment of two mutual funds. Income from securities transactions for the nine months ended January 31, 1996 of $28,698,000 increased $20,231,000 from the prior year's level of $8,467,000. The increase in capital gains produced by the Company's trading portfolios of $10,508,000 and the increase in capital gains distributions from the Company's mutual funds of $4,710,000 were the major contributors to the additional income. The additional capital gains during fiscal 1996 versus fiscal 1995 of $3,908,000 from the sale of equity and fixed income fund shares in connection with the Company's annual portfolio realignment also contributed to the increase in income from securities transactions. 9 OF 11
Item 14. Exhibits (a) 3. 1. -- By-laws of Value Line, Inc., as amended. 10 of 11
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, 1996 to be signed on its behalf by the undersigned thereunto duly authorized. Value Line, Inc. (Registrant) Date: March 16, 1996 By: ----------------------------- Jean Bernhard Buttner Chairman and President Date: March 16, 1996 By: ----------------------------- Stephen R. Anastasio Corporate Controller 11 OF 11