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 OCTOBER 31, 1997 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 October 31, 1997 ----- ------------------------------- Common stock, $.10 par value 9,978,625 Shares ----------------
PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS VALUE LINE, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AMOUNTS) (UNAUDITED) Oct. 31, Apr. 30, Assets 1997 1997 Current Assets: --------- --------- Cash and cash equivalents (including short term investments of $11,579 and $15,476, respectively) $12,372 $16,083 Trading securities 20,260 15,217 Accounts receivable, net of allowance for doubtful accounts of $556 and $593, respectively 3,255 2,603 Receivable from affiliates 2,199 1,849 Prepaid expenses and other current assets 1,528 1,824 Deferred income taxes 1,205 1,205 --------- --------- Total current assets 40,819 38,781 Long term securities available for sale 128,173 108,115 Property and equipment, net 12,983 13,370 Goodwill 42 44 --------- --------- Total assets $182,017 $160,310 --------- --------- --------- --------- Liabilities and Shareholders' Equity Current Liabilities: Accounts payable and accrued liabilities $5,238 $8,009 Accrued salaries 1,648 2,208 Dividends payable 2,495 2,495 Accrued taxes payable 754 808 --------- --------- Total current liabilities 10,135 13,520 Unearned revenue 37,896 42,191 Deferred income taxes 13,851 6,982 Deferred charges 1,114 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 93,078 83,194 Treasury stock, at cost (21,375 shares on 10/31/97, 21,875 shares on 4/30/97) (411) (421) Unrealized gain on securities, net of taxes 24,395 11,637 --------- --------- Total shareholders' equity 119,021 96,364 --------- --------- Total liabilities and shareholders' equity $182,017 $160,310 --------- --------- --------- --------- The accompanying notes are an integral part of these financial statements. 2
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 SIX MONTHS ENDED OCT. 31, OCT. 31, 1997 1996 1997 1996 --------- --------- --------- --------- <S> <C> <C> <C> <C> Revenues: Investment periodicals and Related publications $15,309 $15,168 $30,742 $30,606 Investment management fees & svcs 8,412 7,179 16,149 14,198 --------- --------- --------- --------- Total revenues 23,721 22,347 46,891 44,804 --------- --------- --------- --------- Expenses: Advertising and promotion 3,716 3,874 6,870 6,956 Salaries and employee benefits 5,676 5,410 10,997 10,899 Printing, paper and distribution 1,910 2,076 3,686 4,356 Office and administration 1,952 1,963 3,896 4,148 --------- --------- --------- --------- Total expenses 13,254 13,323 25,449 26,359 --------- --------- --------- --------- Income from operations 10,467 9,024 21,442 18,445 Income from securities transactions, net 1,162 4,040 3,065 5,498 --------- --------- --------- --------- Income before income taxes 11,629 13,064 24,507 23,943 Provision for income taxes 4,566 5,225 9,633 9,578 --------- --------- --------- --------- Net income $7,063 $7,839 $14,874 $14,365 Retained earnings, at beginning of period 88,510 201,363 83,194 196,834 Dividends declared (2,495) (2,495) (4,990) (4,492) --------- --------- --------- --------- Retained earnings, at end of period $93,078 $206,707 $93,078 $206,707 --------- --------- --------- --------- --------- --------- --------- --------- Earnings per share $0.71 $0.79 $1.49 $1.44 --------- --------- --------- --------- --------- --------- --------- --------- </TABLE> The accompanying notes are an integral part of these financial statements. 3
PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS VALUE LINE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED) FOR THE SIX MONTHS ENDED OCT. 31, OCT. 31, 1997 1996 Cash flows from operating activities: --------- --------- Net income $14,874 $14,365 Adjustments to reconcile net income to net cash Provided by operating activities: Depreciation and amortization 788 705 Accretion of discount --- (224) Gains on sales of trading securities, securities held for sale and futures contracts (1,554) (5,488) Unrealized (gains)/losses on tradinG securities (571) 2,617 Writedown of goodwill --- 328 Changes in assets and liabilities: Decrease in unearned revenue (4,295) (3,900) Increase in deferred charges (139) (138) Increase/(decrease) in accounts payable and accrued expenses (2,727) 1,738 Decrease in accrued salaries (560) (269) Increase in interest payable --- 181 Decrease in accrued taxes payable (54) (393) Decrease in prepaid expenses and other current assets 296 83 Decrease in accounts receivable 298 197 Increase in receivable from affiliates (350) (234) --------- --------- Total adjustments (8,868) (4,797) --------- --------- Net cash provided by operations 6,006 9,568 Cash flows from investing activities: Proceeds from sales of securities 9,762 18,341 Purchases of securities (10,254) (5,520) Proceeds from sales of trading securities 21,936 38,741 Purchases of trading securities (25,787) (37,750) Acquisition of property, and equipment, net (399) (1,581) --------- --------- Net cash provided by/(used in) investing activities (4,742) 12,231 Cash flows from financing activities: Proceeds from sales of treasury stock 15 3 Dividends paid (4,990) (3,993) Repayment of obligation under repurchase agreement --- (9,095) --------- --------- Net cash (used in) financing activities (4,975) (13,085) --------- --------- Net (decrease)/increase in cash and cash equivalents (3,711) 8,714 Cash and cash equivalents at beginning of period 16,083 31,752 --------- --------- Cash and cash equivalents at end of period $12,372 $40,466 --------- --------- --------- --------- The accompanying notes are an integral part of these financial statements. 4
VALUE LINE, INC. NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS SIGNIFICANT ACCOUNTING POLICIES - NOTE 1: In the opinion of management, the accompanying unaudited consolidated condensed financial statements contain all adjustments (consisting of normal recurring accruals except as noted below) considered necessary for a fair presentation. This report should be read in conjunction with the financial statements and footnotes contained in the Company's annual report on Form 10-K, dated July 15, 1997 for the fiscal year ended April 30, 1997. Results of operations covered by this report may not be indicative of the results of operations for the entire year. Cash and Cash Equivalents: The Company considers all cash held at banks and invested in the Value Line money market funds with an original maturity of less than three months to be cash and cash equivalents. As of October 31, 1997 and April 30, 1997, cash equivalents included $9,559,000 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
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 $18,174,000 and $13,702,000 and a market value of $20,260,000 and $15,217,000 at October 31, 1997 and April 30, 1997, respectively. Long-Term Securities Available for Sale: The aggregate cost of the long-term securities portfolio was $90,642,000 and $90,211,000 and the market value was $128,173,000 and $108,115,000 at October 31, 1997 and April 30, 1997, respectively. At October 31, 1997, the increase in gross unrealized appreciation on these securities of $19,628,000, net of the increase in deferred taxes of $6,870,000, was included in shareholders' equity. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION - NOTE 3: Cash payments for income taxes were $9,688,000 and $9,971,000 during the six months ended October 31, 1997 and 1996, respectively. Interest payments of $705,000 were remitted during the first six months of fiscal 1997. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONCENTRATION OF CREDIT RISK - NOTE 4: In the normal course of business, the Company enters into contractual commitments, principally financial futures contracts for securities indices. Financial futures contracts provide for the delayed delivery of financial instruments for which the seller agrees to make delivery at a specified future date, at a specified price or yield. The contract or notional amount of these contracts reflects the extent of involvement the Company has in these contracts. At October 31, 1997, the underlying notional value of such commitments was $8,125,000. The Company limits its credit risk associated with such instruments by entering exclusively into highly liquid, exchange traded futures contracts. 6
VALUE LINE, INC. NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS ESTIMATED FAIR VALUE OF FINANCIAL AND DERIVATIVE INSTRUMENTS - NOTE 5: Statement of Accounting Standards No. 119, "Disclosure About Derivative Financial Instruments and Fair Value of Financial Instruments," requires disclosure of information regarding derivative instruments, which include financial index futures contracts. Derivative financial instruments held for trading purposes are reflected at fair value at October 31, 1997 and recorded as an asset or liability in the Consolidated Balance Sheets. The fair value of the asset at October 31, 1997 was $317,000 and the average fair value for the six months ended October 31, 1997 was a liability of $475,000, respectively. Net realized and unrealized trading gains related to equity securities aggregated $4,402,000 and $571,000, respectively, for the six months ended October 31, 1997. Net trading losses related to derivative financial instruments used to reduce financial market exposure from the Company's equities securities holdings, amounted to $2,848,000 for the six months ended October 31, 1997. Income from securities transactions of $3,065,000 is reflected net of derivative trading activity. 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS: LIQUIDITY AND CAPITAL RESOURCES: Value Line, Inc. (the Company) has liquid resources which are used in its business of $158,857,000 at October 31, 1997. In addition to $30,684,000 in working capital, the Company has long-term securities available for sale with a market value of $128,173,000, that, although classified as non-current assets, are also readily marketable should the need arise. The Company's cash flow from operations of $6,006,000 decreased $3,562,000 from last year's level, partly as a result of the funding of the Company's profit sharing plan during the first quarter of fiscal 1998 as compared to the third quarter of fiscal 1997. Furthermore, as part of its ongoing cash management program, the Company has been paying its invoices on a more timely basis than in fiscal 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 six months ended October 31, 1997 of $14,874,000 or $1.49 per share was the third highest in the Company's history and compares to net income of $14,365,000 or $1.44 per share for the first six months of fiscal 1997, an increase of 4% from the prior year's level. Net income for the second quarter of fiscal 1998 of $7,063,000 or $.71 per share was the fourth highest in the Company's history and compares to net income of $7,839,000 for the three months ended October 31, 1996. Both revenues and operating income for the six months and second quarter ended October 31, 1997 set new record highs for the Company. Revenues exceeded the prior year's levels by 6% and 5% for the second quarter and six months, respectively. In addition, operating income for the second quarter and six months ended October 31, 1997 exceeded the prior year levels by 16% and 16% respectively. Revenues of $46,891,000 for the six months ended October 31, 1997 were $2,087,000 or 5% above the comparable results for fiscal 1997. Subscription revenues for the first six months of fiscal 1998 of $30,742,000 were $136,000 above revenues for the comparable period of fiscal 1997, reflecting additional revenues from various new products offset by a reduction in fulfillment revenues from former third party clients of the Compupower Corporation. Revenues from The Value Line Investment Survey remained approximately equal to the prior year's level and include a 9% price increase that went into effect February 1, 1996. Revenues derived from investment management fees and services for the six months ended October 31, 1997 of $16,149,000 were $1,951,000 or 14% above the level at October 31, 1996. The increase in revenues resulted primarily from an 13% 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 October 31, 1997 increased 9% from the levels at October 31, 1996. Expenses for the six months ended October 31, 1997 were $25,449,000, 3% below last year's comparable level of $26,359,000. Advertising expenses of $6,870,000 were 1% below the prior year's level. Advertising for The Value Line Investment Survey increased 4% primarily from higher levels of promotional incentives used to solicit new trial orders. Promotional expenses for the Value Line Mutual Funds increased $463,000 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 $10,997,000 were less than 1% above the prior year's level of $10,899,000 for the first six months. 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 $3,686,000 at October 31, 1997 declined $670,000 from expenses of $4,356,000 for the comparable period of fiscal 1997 primarily due to the lower costs associated with production of the electronic products as compared with 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS: the print publications, an approximate 10% reduction in the cost of paper inventory and the utilization of new technology that maximizes 2nd class discounts offered by the U.S. Postal Service. Office and administration expenses of $3,896,000 decreased $252,000 or 6% from the prior year's level. Part of the prior year office and administrative expenses include professional fees relating to a lawsuit from which the Company won a $558,000 award during the latter part of fiscal 1997. 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, and a negotiated settlement with the landlord of the Company's headquarters facility in which the Company received an award of $906,000. The Company's securities portfolios produced income from securities transactions for the six months ended October 31, 1997 of $3,065,000 compared with $5,498,000 last fiscal year. The primary cause for the decrease was the reduced level of dividend income from the Company's mutual fund holdings that resulted from the smaller size of the trading and long term 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 six months of fiscal 1997 include $1,289,000 of additional capital gain income from sales of the Company's long term mutual fund holdings. 9
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 October 31, 1997 to be signed on its behalf by the undersigned thereunto duly authorized. Value Line, Inc. (Registrant) Date: December 12, 1997 By: /s/Jean Bernhard Buttner ----------------------------------- Jean Bernhard Buttner Chairman & Chief Executive Officer Date: December 12, 1997 By: /s/Stephen R. Anastasio ----------------------------------- Stephen R. Anastasio Chief Accounting Officer -10-