SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,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 JANUARYJULY 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,Street, New York, New York 10017-5891
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(address of principal executive offices) (Zip(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/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 JanuaryJuly 31, 1998
----- -----------------------------------------------------------
Common stock, $.10 par value 9,978,625 Shares
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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.
July 31, APR.April 30,
ASSETS 1998 1997
CURRENT ASSETS: -------- --------1998
---------- ----------
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
-------- --------
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
GOODWILLAssets
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
44
-------- --------
TOTAL ASSETS $188,331 $160,310
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES $5,908 $8,009
ACCRUED SALARIES 1,601 2,208
DIVIDENDS PAYABLE---------- ----------
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 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,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; AUTHORIZEDpar value; authorized 30,000,000
SHARES; ISSUEDshares; issued 10,000,000 SHARESshares 1,000 1,000
ADDITIONAL PAID-IN CAPITALAdditional paid-in capital 959 954
RETAINED EARNINGS 104,910 83,194
TREASURY STOCK, AT COST959
Retained earnings 112,406 108,392
Treasury stock, at cost (21,375 SHARES ON 1/shares on 7/31/98,
21,875 SHARES ONand 4/30/97)98) (411) (421)
UNREALIZED GAIN ON SECURITIES, NET OF TAXES 16,706 11,637
-------- --------
TOTAL SHAREHOLDERS' EQUITY 123,164 96,364
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $188,331 $160,310
-------- --------
-------- --------(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
---------- ----------
---------- ----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.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
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
For the three months
ended
July 31, July 31,
1998 1997
---------- ----------
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
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Total expenses 13,621 12,195
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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
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Net income $6,509 $7,811
---------- ----------
---------- ----------
Earnings per share, basic & fully diluted $0.65 $0.78
---------- ----------
---------- ----------
The accompanying notes are an integral part of these financial statements.
3
VALUE LINE, INC.
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE THREE MONTHS ENDED JULY 31, 1998
(in thousands, except share amounts)
Common stock
Accumulated
Number Additional Other
of paid-in Treasury Comprehensive Retained Comprehensive
shares Amount capital Stock income earnings income Total
----------- -------- ---------- ---------- ------------- ---------- ------------- ----------
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
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-------------
Dividends declared (2,495) (2,495)
----------- -------- ---------- ---------- ---------- ------------- ----------
Balance at July 31, 1998 9,978,625 $1,000 $959 ($411) $112,406 $24,264 $138,218
----------- -------- ---------- ---------- ---------- ------------- ----------
----------- -------- ---------- ---------- ---------- ------------- ----------
The accompanying notes are an integral part of these financial statements.
4
VALUE LINE, INC.
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE THREE MONTHS ENDED JULY 31, 1997
(in thousands, except share amounts)
Common stock
Accumulated
Number Additional Other
of paid-in Treasury Comprehensive Retained Comprehensive
shares Amount capital Stock income earnings income Total
----------- -------- ---------- ---------- ------------- ---------- ------------- ----------
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
-------------
-------------
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
----------- -------- ---------- ---------- ---------- ------------- ----------
----------- -------- ---------- ---------- ---------- ------------- ----------
The accompanying notes are an integral part of these financial statements.
5
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
-------- -------- -------- --------
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
-------- -------- -------- --------
-------- -------- -------- --------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
3
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.
For the three months
ended
July 31, JAN.July 31,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES: -------- ------------------ ----------
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)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 (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
-------- --------
TOTAL ADJUSTMENTS (12,970) (21,874)
-------- --------
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 STOCKlosses 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)
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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 --
---------- ----------
Net cash (used in) investing activities (486) (2,370)
Cash flows from financing activities:
Proceeds from sale 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 PERIODDividends paid (2,495) (2,495)
---------- ----------
Net cash (used in) financing activities (2,495) (2,480)
---------- ----------
Net increase in cash and cash equivalents 5,136 3,624
Cash and cash equivalents at beginning of period 29,937 16,083
31,752
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $25,758 $26,451
-------- --------
-------- ------------------ ----------
Cash and cash equivalents at end of period $35,073 $19,707
---------- ----------
---------- ----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
4The accompanying notes are an integral part of these financial statements.
6
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, 19971998 for the fiscal year ended April 30, 1997.1998. 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 JanuaryJuly 31, 1998 and April 30, 1997,1998, cash
equivalents included $23,663,000$33,124,000 and $13,815,000,$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"Accounting for Certain Investments
in Debt and Equity Securities.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 InstrumentsEarnings 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 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 intendedgenerally accepted
accounting principles requires management 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 gainsmake estimates and losses included in the
Consolidated Statements of Incomeassumptions that
affect certain reported amounts and Retained Earnings.
5disclosures. Accordingly, actual results
could differ from those estimates.
7
VALUE LINE, INC.
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARKETABLE SECURITIES - NOTENote 2:
- ------------------------------------
Trading Securities:
Securities held by Value Line Securities, Inc. Hadhad an aggregate cost of
$12,067,000$7,103,000 and $13,702,000$7,914,000 and a market value of $13,843,000$7,815,000 and $15,217,000$8,861,000 at
JanuaryJuly 31, 1998 and April 30, 1997,1998, respectively.
Long-Term Securities Available for Sale:
The aggregate cost of the long-term securities portfolio was $103,698,000$109,038,000 and $90,211,000$107,743,000
and the market value was $129,399,000$146,368,000 and $108,115,000$149,277,000 at JanuaryJuly 31, 1998 and
April 30, 1997,1998, respectively. At JanuaryJuly 31, 1998, the increasedecrease in gross
unrealized appreciation on these securities of $7,798,000,$4,204,000, net of the
increase in deferred taxes
of $2,729,000,$1,471,000, was included in shareholders' equity.
Supplemental Disclosure of Cash Flow InformationSUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION - NoteNOTE 3:
- -------------------------------------------------------------------
Cash payments for income taxes were $13,934,000$922,000 and $9,971,000$1,095,000 during the ninethree
months ended JanuaryJuly 31, 1998 and 1997, respectively.
Interest paymentsOFF-BALANCE-SHEET RISK - NOTE 4:
The Company executes, as agent, securities transactions on behalf of $705,000 were remittedthe 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 ninefirst 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 1997.
Financial Instruments with Off-Balance-Sheet Risk1998 in gross unrealized gains on these securities 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 January 31, 1998, the underlying notional value of such
commitmentsrelated deferred taxes 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$19,403,000 and $6,791,000, respectively.
8
VALUE LINE, INC.
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Estimated Fair Value of Financial and Derivative InstrumentsESTIMATED FAIR VALUE OF FINANCIAL AND DERIVATIVE INSTRUMENTS - Note 5:
- ----------------------------------------------------------------------------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 financial instruments held for trading purposes are reflected at fair
value at JanuaryAt July 31, 1998 and recorded as an asset or liability inApril 30, 1998, 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.Company held no financial derivative
instruments.
Net realized and unrealized trading gainslosses related to equity securities
aggregated $295,000 and mutual fund shares held aggregated $16,833,000 and $260,000,$235,000, respectively, for the ninethree 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 JanuaryJuly 31, 1998. Income from securities transactions of $16,437,000 is$142,000 are reflected
net of derivativesecurities trading activity.
7GAIN ON SALE OF OPERATING FACILITY - NOTE 7:
Pursuant to the Company's restructuring plan, 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
ITEM 2. MANAGEMENT'SMANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONSCONDITION
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$183,759,000 at JanuaryJuly 31, 1998. In addition to $30,650,000$37,391,000 in
working capital, the Company has long-term securities available for sale with a
market value of $129,399,000,$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 $16,230,000 decreased $1,374,000 from
last year's level$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 paymentnet increase of invoices
relatedunearned 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 advertising and promotional expenses. Furthermore, cash flowsthe
change in these items in fiscal 1998. Cash outflows from investing activities
during fiscal 1999 were $169,299,000 higher in the$1,884,000 less than fiscal 1997 as a direct
result of1998's results due primarily
to the receipt of $577,000 of proceeds from sales of mutual fund holdings in
preparationthe sale of the special dividend paidCompany's idle
operating facility and a reduction in January 1997.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 its computer systems and software
applications are converted to a year 2000 date 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 cost 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 $2,000,000 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 1998.1999.
RESULTS OF OPERATIONS:
Net incomeearnings for the ninethree months ended JanuaryJuly 31, 1998, of $29,200,000 or $2.93were $6,509,000, $.65 per
share, was the third highest in the Company's history and comparescompared to net incomeearnings 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$7,811,000, $.78 per share, for the three
months ended JanuaryJuly 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 levelsamounts by 3%6%
and 17%, respectively.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 this period.
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
JanuaryJuly 31, 1998, also set a new record high for the Company and exceededwere $804,000, or 10%, above 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.revenues. The
increase in revenues resulted primarily from an 8%13% increase in the average
annualtotal 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 managementTotal net assets in the
Company's mutual funds at
January10
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS:
July 31, 1998, increased 7%were 2% higher than the net asset balance at July 31, 1997. The
Company also recorded revenues of $518,000 from the levels at January 31, 1997.sale of its North Bergen,
New Jersey, idle operating facility.
Expenses for the nine months ended January 31, 1998first quarter of the 1999 fiscal year were $39,089,000, 6% below$13,621,000,
$1,426,000, or 12%, above last year's comparable leveltotal costs of $41,711,000. Advertising$12,195,000. Total
advertising and promotional expenses of $10,764,000$3,531,000 were 6% below$377,000, or 12%, above
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.expenses. Promotional expenses for the Value Line Mutual
Funds, increased
$971,000 from fiscal 1997's level. The increase inincluding expenses relates primarilyrelating to a selling arrangement that became effective July 1, 1996 for two of the
equity mutual funds for which the Company is the advisor. Salaryadvisor, were $315,000 above
the prior year expenses. Salaries and employee benefit expenses of $16,518,000 were less than 1% above$5,973,000
compare to expenses of $5,321,000 recorded in the prior year's level of $16,416,000 for
the first nine months of fiscal 1998.year period.
The reductionincrease resulted primarily from increases in Compupower's staff as a
result of the termination of services to third parties contributedsalaries and incentive
compensation, revisions to the stable
level of expenses.salary structure in the certain production
departments, and increases in expenses for employee benefits. Printing, paper,
and distribution expensescosts of $5,641,000 at
January 31, 1998 declined $814,000 or 13%$1,871,000 increased 5% from expenses of $6,455,000
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS:
for the comparable period ofJuly 1997 fiscal
1997year-to-date due primarily due to the lower costs
associated with productionincreased Internet 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.other software development
costs. Office and administration expenses of $5,966,000 decreased $1,149,000$2,246,000 increased $302,000, or
16%, from the prior year's level. Partexpenses primarily as a result of the prior year's officeincreased fees for
professional services 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,higher 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.property rent and utilities.
The Company's securities portfolios produced income from securities transactionsa net gain for the ninethree months
ended JanuaryJuly 31, 1998, of $16,437,000 compared with
$37,244,000 during the same period$142,000, a decrease of $1,761,000 from last fiscal year.year's net
income of $1,903,000. The primary cause for
the decrease was the reduced levels of capital gains and dividend incomenet decline in earnings from the Company's mutual fund holdings that resulted fromprior year was
primarily due to 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 salessize of the Company's long
term mutual fund holdingstrading portfolio
during the latter part of fiscal 1998 and a general decline in connection with the special dividend.
9fair market
value of the Company's securities portfolio versus the prior year, due to recent
equity market volatility.
11
VALUE LINE, INC.
SIGNATURESSignatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Form 10Q report for the period ended
JanuaryJuly 31, 1998 to be signed on its behalf by the undersigned thereunto duly
authorized.
VALUE LINE, INC.Value Line, Inc.
(Registrant)
Date: March 16,September 14, 1998 By: /s/ Jean Bernhard Buttner
-----------------------------------------------------------------
Jean Bernhard Buttner
Chairman & Chief Executive Officer
Date: March 16,September 14, 1998 By: /s/ Stephen R. Anastasio
-----------------------------------------------------------------
Stephen R. Anastasio
Chief Accounting Officer
-10-
12
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