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 JULYOCTOBER 31, 1998     Commission file number 0-11306

                                   ---------
                               VALUE LINE, INC.
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               (Exact name of registrant as specified in its charter)

              New York                                       13-3139843
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   (State or other jurisdiction of                        (I.R.S. Employer
    incorporation or organization)                       Identification No.)

   220 East 42nd Street, New York, New York                  10017-5891
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  (address of principal executive offices)                   (zip code)

Registrant's telephone number including area code (212) 907-1500
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     Indicate by check mark whether the registrant (1) has filed all reports
     required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
     of 1934 during the preceding 12 months (or for such shorter period that the
     registrant was required to file such reports), and (2) has been subject to
     such filing requirements for the past 90 days.

                                                Yes  X   No
                                                    -----        --------     ---

     Indicate the number of shares outstanding of each of the issuer's classes
     of common stock, as of the latest practicable date.

                  Class                         Outstanding at JulyOctober 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)

JulyOct. 31, April 30, Assets 1998 1998 ---------- ------------------ --------- Assets Current Assets: Cash and cash equivalents (including short term investments of $34,430$34,250 and $29,072, respectively) $35,073$34,744 $29,937 Trading securities 7,8157,795 8,861 Accounts receivable, net of allowance for doubtful accounts of $540$519 and $507, respectively 2,3182,206 1,287 Receivable from affiliates 2,4802,304 2,339 Prepaid expenses and other current assets 1,4571,564 1,688 Deferred income taxes 1,444 1,444 ---------- ------------------ --------- Total current assets 50,58750,057 45,556 Long term securities available for sale 146,368138,261 149,277 Property and equipment, net 12,47012,232 12,651 Goodwill 4039 41 ---------- ------------------ --------- Total assets $209,465$200,589 $207,525 ---------- ---------- ---------- ------------------ --------- -------- --------- Liabilities and Shareholders' Equity Current Liabilities: Accounts payable and accrued liabilities $5,758$7,238 $7,170 Accrued salaries 9841,211 1,764 Dividends payable 2,495 2,495 Accrued taxes payable 3,9592,187 347 ---------- ------------------ --------- Total current liabilities 13,19613,131 11,776 Unearned revenue 43,32239,904 42,543 Deferred income taxes 13,82310,936 15,294 Deferred charges 906836 975 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 959 959 Retained earnings 112,406115,332 108,392 Treasury stock, at cost (21,375 shares on 7/10/31/98, and21,375 shares on 4/30/98) (411) (411) Unrealized gain on securities, net of taxes 24,26418,902 26,997 ---------- ------------------ --------- Total shareholders' equity 138,218135,782 136,937 ---------- ------------------ --------- Total liabilities and shareholders' equity $209,465$200,589 $207,525 ---------- ---------- ---------- ------------------ --------- -------- ---------
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) (UNAUDITED)
For the threeThree months ended JulySix months ended Oct. 31, JulyOct. 31, 1998 1997 ---------- ----------1998 1997 ------- ------- ------- ------- Revenues: Investment periodicals and related publications $15,597 $15,433$15,483 $15,309 $31,080 $30,742 Investment management fees & svcs 8,541 7,7377,908 8,412 16,449 16,149 Gain on disposalsale of operating facility --- --- 518 --- ---------- ----------------- ------- ------- ------- Total revenues 24,656 23,170 ---------- ----------23,391 23,721 48,047 46,891 ------- ------- ------- ------- Expenses: Advertising and promotion 3,531 3,1544,018 3,716 7,549 6,870 Salaries and employee benefits 5,973 5,3215,753 5,676 11,726 10,997 Printing, paper and distribution 1,871 1,7761,808 1,910 3,679 3,686 Office and administration 2,246 1,944 ---------- ----------2,274 1,952 4,520 3,896 ------- ------- ------- ------- Total expenses 13,621 12,195 ---------- ----------13,853 13,254 27,474 25,449 ------- ------- ------- ------- Income from operations 11,035 10,9759,538 10,467 20,573 21,442 Income from securities trans.,transactions, net 142 1,903 ---------- ----------(31) 1,162 111 3,065 ------- ------- ------- ------- Income before income taxes 11,177 12,8789,507 11,629 20,684 24,507 Provision for income taxes 4,668 5,067 ---------- ----------4,086 4,566 8,754 9,633 ------- ------- ------- ------- Net income $6,509 $7,811 ---------- ---------- ---------- ----------$5,421 $7,063 $11,930 $14,874 ------- ------- ------- ------- ------- ------- ------- ------- Earnings per share, basic & fully diluted $0.65 $0.78 ---------- ---------- ---------- ----------$0.55 $0.71 $1.20 $1.49 ------- ------- ------- ------- ------- ------- ------- -------
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 ------------- ------------- 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 CASH FLOWS (IN THOUSANDS) (UNAUDITED)
For the three months ended JulyFOR THE SIX MONTHS ENDED OCT. 31, JulyOCT. 31, 1998 1997 ---------- ----------------- -------- Cash flows from operating activities:CASH FLOWS FROM OPERATING ACTIVITIES: Net income $6,509 $7,811 Adjustments to reconcile net income to net cash provided by operating activities:$11,930 $14,874 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Depreciation and amortization 407 404 Losses874 788 (Gains)/losses on sales of trading securities, 295 1,143securities held for sale and futures contracts 670 (1,554) Unrealized (gains)/losses on trading securities 235 (2,578)515 (571) Gain on sale of operating facility (518) -- Changes in assets and liabilities: Increase/(decrease)--- Writedown of equipment 85 --- CHANGES IN ASSETS AND LIABILITIES: Decrease in unearned revenue 779 (1,867) Decrease(2,639) (4,295) Increase in deferred charges (69) (70) Decrease(139) (139) Increase/(decrease) in accounts payable and accrued expenses (1,412) (1,003)68 (2,727) Decrease in accrued salaries (553) (560) Increase/(decrease) in accrued salaries (780) 521 Increase in accrued taxes payable 3,612 4,062 (Increase)/decrease1,840 (54) Decrease in prepaid expenses and other current assets 231 (79)124 296 (Increase)/decrease in accounts receivable (1,031) 391 Increase(919) 298 (Increase)/decrease in receivable from affiliates (141) (261) ---------- ----------35 (350) ------- -------- Total adjustments 1,608 663 ---------- ---------- Net cash provided by operations 8,117 8,474 Cash flows(557) (8,868) ------- -------- NET CASH PROVIDED BY OPERATIONS 11,373 6,006 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from investing activities:sales of securities --- 9,762 Purchases of long term securities (1,295) (213)(1,586) (10,254) Proceeds from sales of trading securities 2,461 8,7133,870 21,936 Purchases of trading securities (1,945) (10,616) Acquisitions(3,840) (25,787) Acquisition of property, and equipment, net (284) (254)(602) (399) Proceeds from sale of operating facility 577 -- ---------- ----------land, building & equipment 582 --- ------- -------- Net cash (used in) investing activities (486) (2,370) Cash flows from financing activities:(1,576) (4,742) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from salesales of treasury stock ----- 15 Dividends paid (2,495) (2,495) ---------- ----------(4,990) (4,990) ------- -------- Net cash (used in) financing activities (2,495) (2,480) ---------- ----------(4,990) (4,975) ------- -------- Net increaseincrease/(decrease) in cash and cash equivalents 5,136 3,624 Cash4,807 (3,711) cash and cash equivalents at beginning of period 29,937 16,083 ------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $34,744 $12,372 ------- -------- ------- --------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 4 VALUE LINE, INC. STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE SIX MONTHS ENDED OCTOBER 31, 1998 (in thousands, except share amounts) (Unaudited)
Accumulated Number Par value Additional other of common of common paid-in Treasury Comprehensive Retained comprehensive shares shares 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 $11,930 11,930 11,930 Other comprehensive income, net of tax: Change in unrealized gains on securities ($8,095) (8,095) (8,095) ------------- Comprehensive income $3,835 ------------- ------------- Dividends declared (4,990) (4,990) --------- --------- ---------- Cash and cash equivalents at end-------- -------- ------------- -------- BALANCE AT OCTOBER 31, 1998 9,978,625 $1,000 $959 ($411) $115,332 $18,902 $135,782 --------- --------- ---------- -------- -------- ------------- -------- --------- --------- ---------- -------- -------- ------------- --------
VALUE LINE, INC. STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE THREE MONTHS ENDED OCTOBER 31, 1998 (in thousands, except share amounts) (Unaudited)
Accumulated Number Par value Additional other of period $35,073 $19,707common of common paid-in Treasury Comprehensive Retained comprehensive shares shares capital Stock income earnings income Total --------- --------- ---------- -------- ------------- -------- ------------- -------- BALANCE AT JULY 31, 1998 9,978,625 $1,000 $959 ($411) $112,406 $24,264 $138,218 Comprehensive income Net income $5,421 5,421 5,421 Other comprehensive income, net of tax: Change in unrealized gains on securities ($5,362) (5,362) (5,362) ------------- Comprehensive income $59 ------------- ------------- Dividends declared (2,495) (2,495) --------- --------- ---------- -------- -------- ------------- -------- BALANCE AT OCTOBER 31, 1998 9,978,625 $1,000 $959 ($411) $115,332 $18,902 $135,782 --------- --------- ---------- -------- -------- ------------- -------- --------- --------- ---------- -------- -------- ------------- --------
The accompanying notes are an integral part of these financial statements. 5 VALUE LINE, INC. STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE SIX MONTHS ENDED OCTOBER 31, 1997 (in thousands, except share amounts) (Unaudited)
Accumulated Number Par value Additional other of common of common paid-in Treasury Comprehensive Retained comprehensive shares shares 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 $14,874 14,874 14,874 Other comprehensive income, net of tax: Change in unrealized gains on securities 12,758 12,758 12,758 ------------- Comprehensive income $27,632 ------------- ------------- Exercise of stock options 500 5 10 15 Dividends declared (4,990) (4,990) --------- --------- ---------- -------- -------- ------------- -------- BALANCE AT OCTOBER 31, 1997 9,978,625 $1,000 $959 ($411) $93,078 $24,395 $119,021 --------- --------- ---------- -------- -------- ------------- -------- --------- --------- ---------- -------- -------- ------------- --------
VALUE LINE, INC. STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE THREE MONTHS ENDED OCTOBER 31, 1997 (in thousands, except share amounts) (Unaudited)
Accumulated Number Par value Additional other of common of common paid-in Treasury Comprehensive Retained comprehensive shares shares capital Stock income earnings income Total --------- --------- ---------- -------- ------------- -------- ------------- -------- BALANCE AT JULY 31, 1997 9,978,625 $1,000 $959 ($411) $88,510 $24,249 $114,307 Comprehensive income Net income $7,063 7,063 7,063 Other comprehensive income, net of tax: Change in unrealized gains on securities 146 146 146 ------------- Comprehensive income $7,209 ------------- ------------- Dividends declared (2,495) (2,495) --------- --------- ---------- -------- -------- ------------- -------- BALANCE AT OCTOBER 31, 1997 9,978,625 $1,000 $959 ($411) $93,078 $24,395 $119,021 --------- --------- ---------- -------- -------- ------------- -------- --------- --------- ---------- -------- -------- ------------- --------
The accompanying notes are an integral part of these financial statements. 6 VALUE LINE, INC. NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS SIGNIFICANT ACCOUNTING POLICIESSignificant Accounting Policies - NOTENote 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, 1998 for the fiscal year ended April 30, 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 JulyOctober 31, 1998 and April 30, 1998, cash equivalents included $33,124,000$33,400,000 and $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, "AccountingAccounting 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. Earnings 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 generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. 7 VALUE LINE, INC. NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS MARKETABLE SECURITIESMarketable Securities - Note 2: - ---------------------------------------------------- Trading Securities: Securities held by Value Line Securities, Inc. had an aggregate cost of $7,103,000$7,213,000 and $7,914,000 and a market value of $7,815,000$7,795,000 and $8,861,000 at JulyOctober 31, 1998 and April 30, 1998, respectively. Long-Term Securities Available for Sale: The aggregate cost of the long-term securities was $109,038,000$109,181,000 and $107,743,000 and the market value was $146,368,000$138,261,000 and $149,277,000 at JulyOctober 31, 1998 and April 30, 1998, respectively. At JulyOctober 31, 1998, the decrease in gross unrealized appreciation on these securities of $4,204,000,$12,454,000, net of deferred taxes of $1,471,000,$4,359,000, was included in shareholders' equity. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATIONSupplemental Disclosure of Cash Flow Information - NOTENote 3: - ----------------------------------------------------------------- Cash payments for income taxes were $922,000$6,914,000 and $1,095,000$9,688,000 during the threesix months ended JulyOctober 31, 1998 and 1997, respectively. OFF-BALANCE-SHEET RISKComprehensive Income - NOTENote 4: The Company executes, as agent, securities transactions on behalf of the 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.130no. 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 JulyOctober 31, 1998 and 1997, the Company held long term securities classified as available-for-sale. The change in valuation of these securities, net of deferred taxes has been recorded in the Company's Consolidated Balance Sheets. The decrease in gross unrealized gains was $8,249,000 and $12,454,000 and the change in the related deferred taxes was $2,887,000 and $4,359,000 during the first quarter of fiscal 1999three months and six months ended October 31, 1998, respectively. The increase in gross unrealized gains on these securities was $225,000 and $19,628,000 and the change in the related deferred taxes was $4,204,000$79,000 and $1,471,000, respectively. The increase$6,870,000, during the first three months of fiscal 1998 in gross unrealized gains on these securities and the related deferred taxes was $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 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. At July 31, 1998 and April 30, 1998, the Company held no financial derivative instruments. Net realized and unrealized trading losses related to equity securities aggregated $295,000 and $235,000, respectively, for the three months and six months ended JulyOctober 31, 1998. Income from securities transactions1997, respectively. Gain on Sale of $142,000 are reflected net of securities trading activity. GAIN ON SALE OF OPERATING FACILITYOperating Facility - NOTE 7:Note 5: - ---------------------------------------------------- Pursuant to the Company's restructuring plan,realignment of its production and distribution departments, the Company sold its idlevacant 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. 98 ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS: LIQUIDITY AND CAPITAL RESOURCES: Value Line, Inc. (the Company) hashad liquid resources which are used in its business of $183,759,000$175,187,000 at JulyOctober 31, 1998. In addition to $37,391,000 in$36,926,000 of working capital, the Company hashad long-term securities available for sale with a market value of $146,368,000,$138,261,000, that, although classified as non-current assets, are also readily marketable should the need arise. The Company's cash flow from operations of $8,474,000$11,373,000 for the first six months of fiscal 19981999 was $357,000$5,367,000 higher than fiscal 1999's1998's cash flow primarily asdue to an increase in prepayments for future subscriptions to the Company's products and a result ofchange in the timing of incentive compensation payments. Also, the netreceipt and payment of invoices for significant advertising and promotion vendors. Tax related timing differences and the utilization of prior period credits also contributed to the additional cash flows from operations. This increase of unearned revenues from new businessto cash flow was partially offset by the increase in accounts receivable that resulted from the efficiencies in order processing in the new subscription fulfillment system during fiscal 1999 generated $1,224,000 in additionalsystem. Net cash flow as compared to the change in these items in fiscal 1998. Cash outflows fromfor investing activities during fiscal 1999 were $1,884,000$3,166,000 less than fiscal 1998's resultsoutflows due primarily to the Company's decision in fiscal 1998 to invest additional cash in its short term trading portfolio. The receipt of $577,000 of proceeds during fiscal 1999 from the sale of the Company's idleNorth Bergen, New Jersey vacant operating facility also contributed to the increase in comparable cash flow from investing activities. Year 2000 (Y2K): Preparedness for the Year 2000 by Value Line, Inc. began in 1997 with an initial assessment of the Company's systems, its risk of exposure, the steps necessary to achieve Y2K compliance, and the resources necessary to implement those steps. The first phase of the plan involved a complete assessment of the Company's systems and a reductionsurvey of vendors. Systems were categorized into three groups - Mission Critical, Critical, and Non-Critical. Mission Critical systems are systems that would result in a disruption of service or services. Critical systems are defined as those that could cause minor disruption of services. Non-Critical systems are defined as those that would have no significant impact on operations or services. State of Readiness - Y2K We are now into the second phase of the project: Remediation, Testing and Implementation. This phase involves remediating or replacing non-compliant systems, testing each system, implementing changes to our production environment, and then re-testing each system. Under the direction of the Y2K project team, the Information Technology Department is working towards the Y2K compliance of all systems by the first quarter of calendar 1999. Though we cannot provide absolute assurances, we currently believe the Company will reach its objectives by that time. The Year 2000 project is currently on schedule. Anticipated Costs - Y2K The Company's fiscal year 1998 expenditures for the Y2K project were $251,000. The Company's fiscal year 1999 budget for the Y2K project is $790,000 of which $232,000 was incurred during the six months ended October 31, 1998. The Company's fiscal year 2000 budget is projected to be $400,000. These expenditures include new software and hardware, allocation of staff time, temporary assistance for clerical tasks, legal counsel, testing tools and external, third-party monitoring of the Company's Y2K implementation plan. Risks - Y2K As the Securities and Exchange Commission recently noted, we cannot predict with certainty what will happen as the millennium approaches. We are attempting to purge every system of Year 2000 problems, but we cannot be sure that we will find every problem in the Company's short term trading portfolio volume due to a re-deployment of certain trading portfolio assets tosystems, that the long term securities portfolio duringvendors the latter part of fiscal 1998.Company relies upon will find every problem in their systems, or that the Securities Industry will not experience system failures that will negatively and materially impact Value Line. The Company recognizeswill continue to work toward compliance and urge its vendors to do 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,same, but because neither the Company, has establishednor its vendors, can predict the future with certainty, Value Line is also developing a central committeecontingency plan. 9 ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS: Contingency Planning - Y2K Value Line is in the process of finalizing contingency plans to coordinate, evaluateaccount for the possible failure of every Mission Critical system. Whether this involves performing tasks manually, or locating alternative vendors for Mission Critical software and implement changes necessaryhardware systems, Value Line is committed to having viable contingency plans developed for compliance. Additionally,every Mission Critical system by 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 areassecond quarter 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.calendar 1999. Recent AICPA Pronouncements: 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, for fiscal years beginning after December 15, 1998, many of the costcosts associated with developing or obtaining software for internal use andto 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$1,000,000 to $1,500,000 of expenses each fiscal year that would qualify for amortization under the new statement. Accordingly, earnings will increase to the extent of capitalized costs (net of amortization) during the initial year of application. Thereafter, assuming capitalized costs remain constant, the increase in earnings will diminish as the initial costs are amortized. Once the amount capitalized in the first year of application is fully amortized, the increase in earnings due to this accounting change will cease. 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 duringfor the remainder of fiscal 1999. RESULTS OF OPERATIONS: Net earningsRevenues of $48,047,000 for the first six months of fiscal 1999 exceeded the prior year's revenues of $46,891,000 by 2.5% and set a new record high for the Company. Revenues of $23,391,000 for the three months ended JulyOctober 31, 1998 were $6,509,000, $.65the second highest in the Company's history during any October quarter. Net earnings for the six months ended October 31, 1998, were $11,930,000, $1.20 per share as compared to net earningsincome for the six months ended October 31, 1997 of $7,811,000, $.78$14,874,000 or $1.49 per share. Net income of $5,421,000 or $.55 per share for the three months ended July 31, 1997. Revenues exceeded the prior year's amounts by 6% and were the highest during any first quarter period in the history of the Company. Operating income for the firstsecond quarter of thefiscal 1999 fiscal year improved 1% fromcompares to net income of $7,063,000 or $.71 per share for the similar period in the 1998during 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$31,080,000 were 1%$338,000 or 1.1% above revenues of $15,433,000 in the comparable prior year period. The increase from the prior year is due primarily to a 2%2.0% increase in revenues from theThe Value Line Investment Survey and related products, including revenues from Value Line Select, which was introduced during March 1998. Investmentnew products. Revenues from investment management fees and services of $8,541,000$16,449,000 for the threesix months ended JulyOctober 31, 1998, were $804,000,$300,000, or 10%2.0%, above the prior year's revenues. The increase in revenues resultedfrom the prior year is primarily from an 13%the result of a 6% increase in the year-to-date average total net assets in the Company's family of mutual funds. Total net assets in the Company's mutual funds at 10 ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS: July 31, 1998, were 2% higher than the net asset balance at July 31, 1997. The Company also recorded revenues of $518,000 from the sale of its North Bergen, New Jersey, idlevacant operating facility. ExpensesOperating expenses for the first quartersix months of the 1999 fiscal year 1999 were $13,621,000, $1,426,000,$27,474,000, $2,025,000 or 12%,8% above last year's total costsexpenses of $12,195,000.$25,449,000. Total advertising and promotional expenses of $3,531,000$7,549,000 were $377,000,$679,000, or 12%10%, above the prior year's expenses. PromotionalThe increase was due largely to the additional promotional expenses for the Value Line family of Mutual Funds, including additional expenses relating to a selling arrangement for two of the equity mutual funds for which the Company is the advisor, were $315,000 above the prior year expenses.advisor. Salaries and employee benefit expenses of $5,973,000 compare to$11,726,000 were 7% above the prior year's expenses of $5,321,000 recorded in$10,997,000. The increase from the prior fiscal year period. The increase resultedyear's expenses is primarily from increases in salaries and incentive compensation,the result of revisions to the salary structure in the certain production departments,Equity Research Department, employment of additional staff in the Asset Management division and general increases in expenses for employee benefits. Printing, paper,salaries and incentive compensation. Production and distribution costs of $1,871,000$3,679,000 were approximately equal with expenses for the six months ended October 31, 1997. The increases in production and distribution expenses that resulted from increased 5% fromcirculation to new products and the July 1997 fiscal year-to-dateadditional expenses related to software and Internet maintenance have been more than offset by lower expenses in our print publications due primarily to increased Internetlower print production runs and other software development costs.the lower costs of producing and distributing our increasingly popular electronic products. 10 ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS: Office and administration expenses of $2,246,000$4,520,000 increased $302,000,$624,000, or 16%, from the prior year's expenseslevel primarily as a result of increased fees for professional services and higher expenses for property rent and utilities.depreciation expenses. In addition, fiscal year-to-date 1998 office and administrative expenses were reduced by proceeds of $126,000 from the settlement of an intellectual property infringement. The Company's securities portfolios produced a net gainincome of $111,000 for the threesix months ended JulyOctober 31, 1998, of $142,000, a decrease of $1,761,000$2,954,000 from last year's net income of $1,903,000. The net decline$3,065,000. This decrease was due primarily to a restructuring of the Company's trading portfolio which resulted in earnings from the prior year was primarily due to thea reduction in the size of the Company's trading portfolio during the latter part of fiscal 1998 and a general1998. Additionally, the extreme volatility in the equities securities markets during the first five months of fiscal 1999 due to continuing weaknesses in several foreign economies, which have severely impacted the United States financial markets also contributed to the decline in income from securities. The overall equity market condition improved during the fair market valuelast month of the Company's securities portfolio versus the prior year, due to recent equity market volatility.second quarter period. 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 JulyOctober 31, 1998 to be signed on its behalf by the undersigned thereunto duly authorized. Value Line, Inc. (Registrant) Date: SeptemberDecember 14, 1998 By: /s/ s/Jean Bernhard Buttner ---------------------------------------------------------------- Jean Bernhard Buttner Chairman & Chief Executive Officer Date: SeptemberDecember 14, 1998 By: /s/ s/Stephen R. Anastasio ---------------------------------------------------------------- Stephen R. Anastasio Chief Accounting Officer 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