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 ------- 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 January 31, 1997 ----- ------------------------------- Common stock, $.10 par value 9,977,125 Shares ----------------
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
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
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
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
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
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
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
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
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
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