SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended JANUARYJULY 31, 1999 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 JanuaryJuly 31, 1999
----- -----------------------------------------------------------
Common stock, $.10 par value 9,978,625 Shares
----------------
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VALUE LINE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
Jan.VALUE LINE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
July 31, April 30,
1999 1998
---------- ----------1999
----------- -----------
Assets
Current Assets:
Cash and cash equivalents (including short term
investments of $30,422$44,286 and $29,072,$41,250, respectively) $31,071 $29,937$44,812 $41,826
Trading securities 14,489 8,86114,510 14,023
Accounts receivable, net of allowance for doubtful
accounts of $448$286 and $507,$295, respectively 1,813 1,2871,908 1,846
Receivable from affiliates 2,718 2,3392,991 2,587
Prepaid expenses and other current assets 1,353 1,6883,010 1,792
Deferred income taxes 1,444 1,444
--------- ---------418 1,443
----------- -----------
Total current assets 52,888 45,55667,649 63,517
Long term securities available for sale 173,719 149,277176,968 168,591
Property and equipment, net 11,852 12,65111,447 11,662
Goodwill 38 41
--------- ---------36 37
----------- -----------
Total assets $238,497 $207,525
--------- ---------
--------- ---------$256,100 $243,807
----------- -----------
----------- -----------
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable and accrued liabilities $8,461 $7,170$6,397 $5,842
Accrued salaries 1,362 1,764985 1,765
Dividends payable 2,495 2,495
Accrued taxes payable 2,088 347
--------- ---------4,576 741
----------- -----------
Total current liabilities 14,406 11,77614,453 10,843
Unearned revenue 40,254 42,54341,228 43,100
Deferred income taxes 21,664 15,29424,436 22,264
Deferred charges 767 975628 697
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 121,032 108,392130,004 125,585
Treasury stock, at cost (21,375 shares on 1/7/31/99,
21,375 shares onand 4/30/98)99) (411) (411)
Unrealized gain on securities, net of taxes 38,826 26,997
--------- ---------43,803 39,770
----------- -----------
Total shareholders' equity 161,406 136,937
--------- ---------175,355 166,903
----------- -----------
Total liabilities and shareholders' equity $238,497 $207,525
--------- ---------
--------- ---------$256,100 $243,807
----------- -----------
----------- -----------
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)
ThreeFor the three months
ended
Nine months ended
Jan.July 31, Jan.July 31,
1999 1998
1999 1998
-------- -------- -------- ------------------- -----------
Revenues:
Investment periodicals and
related publications $15,508 $15,394 $46,588 $46,136$14,970 $15,597
Investment management fees & svcs 8,030 8,130 24,479 24,2798,861 8,541
Gain on saledisposal of operating facility -- -- 518
--
-------- -------- -------- ------------------- -----------
Total revenues 23,538 23,524 71,585 70,415
-------- -------- -------- --------23,831 24,656
----------- -----------
Expenses:
Advertising and promotion 5,769 4,094 13,318 10,9643,540 3,531
Salaries and employee benefits 6,022 5,521 17,748 16,5186,066 5,973
Printing, paper and distribution 1,739 1,955 5,418 5,6411,746 1,871
Office and administration 2,203 2,070 6,723 5,966
-------- -------- -------- --------2,187 2,246
----------- -----------
Total expenses 15,733 13,640 43,207 39,089
-------- -------- -------- --------13,539 13,621
----------- -----------
Income from operations 7,805 9,884 28,378 31,32610,292 11,035
Income from securities transactions,trans., net 5,281 13,372 5,392 16,437
-------- -------- -------- --------1,185 142
----------- -----------
Income before income taxes 13,086 23,256 33,770 47,76311,477 11,177
Provision for income taxes 4,892 8,930 13,646 18,563
-------- -------- -------- --------4,563 4,668
----------- -----------
Net income $8,194 $14,326 $20,124 $29,200
-------- -------- -------- --------
-------- -------- -------- --------$6,914 $6,509
----------- -----------
----------- -----------
Earnings per share, basic & fully diluted $0.82 $1.44 $2.02 $2.93
-------- -------- -------- --------
-------- -------- -------- --------$0.69 $0.65
----------- -----------
----------- -----------
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.For the three months
ended
July 31, JAN.July 31,
1999 1998
----------- --------------------- ----------
Cash flows from operating activities:
Net income $20,124 $29,200$ 6,914 $ 6,509
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 1,339 1,186
Gains401 407
(Gains)/losses on sales of trading securities and securities held for sale and futures contracts (2,347) (13,919)(395) 295
Unrealized gains(gains)/losses on trading securities (978) (260)(43) 235
Gain on sale of operating facility (518) -- Writedown of equipment 84 --(518)
Changes in assets and liabilities:
DecreaseIncrease/(decrease) in unearned revenue (2,289) (3,220)(1,872) 779
Decrease in deferred charges (208) (209)(69) (69)
Increase/(decrease) in accounts payable and accrued expenses 1,291 (2,027)
Decrease555 (1,412)
(Decrease) in accrued salaries (402) (607)(780) (780)
Increase in accrued taxes payable 1,741 4,629
Decrease3,835 3,612
(Increase)/decrease in prepaid expenses and other current assets 335 157(193) 231
(Increase)/decrease in accounts receivable (526) 1,719
Increase(130) (1,031)
(Increase) in receivable from affiliates (379) (419)(404) (141)
-------- --------
Total adjustments (2,857) (12,970)905 1,608
-------- --------
Net cash provided by operations 17,267 16,2307,819 8,117
Cash flows from investing activities:
Proceeds from sales of securities 2,922 9,783
Purchases of long term securities (6,392) (11,289)(2,172) (1,295)
Proceeds from sales of trading securities 8,218 30,4286,283 2,461
Purchases of trading securities (13,294) (27,395)
Acquisition(6,264) (1,945)
Acquisitions of property, and equipment, net (686) (613)(185) (284)
Proceeds from sale of land, building & equipment 583operating facility -- 577
-------- --------
Net cash (used in)/provided by investing activities (8,649) 914(2,338) (486)
Cash flows from financing activities:
Proceeds from sales of treasury stock -- 15
Dividends paid (7,484) (7,484)(2,495) (2,495)
-------- --------
Net cash (used in) financing activities (7,484) (7,469)(2,495) (2,495)
-------- --------
Net increase in cash and cash equivalents 1,134 9,6752,986 5,136
Cash and cash equivalents at beginning of period 41,826 29,937 16,083
-------- --------
Cash and cash equivalents at end of period $31,071 $25,758
-------- --------
-------- --------$ 44,812 $ 35,073
======== ========
The accompanying notes are an integral part of these financial statements
4
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VALUE LINE, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED JULY 31, 1999
(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, 1999 9,978,125 $1,000 $959 ($411) $125,585 $39,770 $166,903
Comprehensive income
Net income $6,914 6,914 6,914
Other comprehensive income,
net of tax:
Change in unrealized
gains on securities 4,033 4,033 4,033
-------------
Comprehensive income $10,947
-------------
-------------
Dividends declared (2,495) (2,495)
----------- ----------- ----------- ----------- ----------- ------------- ----------
Balance at July 31, 1999 9,978,125 $1,000 $959 ($411) $130,004 $43,803 $175,355
----------- ----------- ----------- ----------- ----------- ------------- ----------
----------- ----------- ----------- ----------- ----------- ------------- ----------
The accompanying notes are an integral part of these financial statements.
45
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VALUE LINE, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINETHREE MONTHS ENDED JANUARYJULY 31, 19991998
(in thousands, except share amounts)
(unaudited)
Common stock
Accumulated
Number Par value Additional otherOther
of common of common paid-in Treasury Comprehensive Retained comprehensiveComprehensive
shares sharesAmount capital Stock income earnings income Total
--------- -------------------- ----------- ----------- ----------- ------------- ----------- ------------- ---------- -------- ------------- -------- ------------- ---------
BALANCE AT MAYBalance at May 1, 1998 9,978,625 $1,000 $959 ($411) $108,392 $26,997 $136,937
Comprehensive income
Net income $20,124 20,124 20,124$6,509 6,509 6,509
Other comprehensive income,
net of tax:
Change in unrealized
gains on securities $11,829 11,829 11,829
--------(2,733) (2,733) (2,733)
-------------
Comprehensive income $31,953
--------
--------$3,776
-------------
-------------
Dividends declared (7,484) 7,484)
--------- -------- ------ -------- -------- --------- -------
BALANCE AT JANUARY 31, 1999 9,978,625 $1,000 $959 ($411) $121,032 $38,826 $161,406
--------- -------- ------ -------- -------- --------- -------
--------- -------- ------ -------- -------- --------- -------
VALUE LINE, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED JANUARY 31, 1999
(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
--------- ---------(2,495) (2,495)
----------- ----------- ---------- ------------------- ----------- ------------- -------- ------------- ---------
BALANCE AT OCTOBER----------
Balance at July 31, 1998 9,978,625 $1,000 $959 ($411) $115,332 $18,902 $135,782
Comprehensive income
Net income $8,194 8,194 8,194
Other comprehensive income,
net of tax:
Change in unrealized
gains on securities $19,924 19,924 19,924
---------
Comprehensive income $28,118
---------
---------
Dividends declared (2,494) (2,494)
--------- -------- ------ ------- -------- --------- ---------
BALANCE AT JANUARY 31, 1999 9,978,625 $1,000 $959 ($411) $121,032 $38,826 $161,406
--------- -------- ------ ------- -------- --------- ---------
--------- -------- ------ ------- -------- --------- ---------
The accompanying notes are an integral part of these financial statements.
5
VALUE LINE, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED JANUARY 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
--------- ---------$112,406 $24,264 $138,218
----------- ----------- ---------- ------------------- ----------- ------------- ------------------
----------- ----------- ---------- ----------- ----------- ------------- ---------
BALANCE AT MAY 1, 1997 9,978,125 $1,000 $954 ($421) $83,194 $11,637 $96,364
Comprehensive income
Net income $29,200 29,200 29,200
Other comprehensive income,
net of tax:
Change in unrealized
gains on securities 5,069 5,069 5,069
---------
Comprehensive income $34,269
---------
---------
Exercise of stock options 500 5 10 15
Dividends declared (7,484) (7,484)
--------- -------- ------ ------- --------- -------- ---------
BALANCE AT JANUARY 31, 1998 9,978,625 $1,000 $959 ($411) $104,910 $16,706 $123,164
--------- -------- ------ ------- --------- -------- ---------
--------- -------- ------ ------- --------- -------- ---------
VALUE LINE, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED JANUARY 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 OCTOBER 31, 1997 9,978,625 $1,000 $959 ($411) $93,078 $24,395 $119,021
Comprehensive income
Net income $14,326 14,326 14,326
Other comprehensive income,
net of tax:
Change in unrealized
gains on securities (7,689) (7,689) (7,689)
---------
Comprehensive income $6,637
---------
---------
Dividends declared (2,494) (2,494)
--------- -------- ------ ------- --------- -------- ---------
BALANCE AT JANUARY 31, 1998 9,978,625 $1,000 $959 ($411) $104,910 $16,706 $123,164
--------- -------- ------ ------- --------- -------- ---------
--------- -------- ------ ------- --------- -------- ---------
The 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, 19981999 for the fiscal year ended April 30, 1998.1999. 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, 1999 and April 30, 1998,1999, cash
equivalents included $29,666,000$43,913,000 and $28,283,000,$40,925,000, 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 isare 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.
Earnings per Share, basic & fully diluted:
Earnings per share both basic and fully diluted, which are identical 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 SECURITIES - NOTE 2:
Trading Securities:
Securities held by Value Line Securities, Inc. had an aggregate cost of
$12,415,000$12,358,000 and $7,914,000$11,914,000 and a market value of $14,489,000$14,510,000 and $8,861,000$14,023,000 at
JanuaryJuly 31, 1999 and April 30, 1998,1999, respectively.
Long-Term Securities Available for Sale:
The aggregate cost of the long-term securities portfolio was $113,985,000$109,579,000 and $107,743,000$107,406,000
and the market value was $173,719,000$176,968,000 and $149,277,000$168,591,000 at JanuaryJuly 31, 1999 and
April 30, 1998,1999, respectively. At JanuaryJuly 31, 1999, the increase in gross unrealized
appreciation on these securities of $18,198,000,$6,205,000, net of deferred taxes of
$6,369,000,$2,172,000, was included in shareholders' equity.
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION - NOTE 3:
Cash payments for income taxes were $11,995,000$1,187,000 and $13,934,000$922,000 during the ninethree
months ended JanuaryJuly 31, 1999 and 1998, respectively.
DISCLOSURE OF CREDIT RISK OF FINANCIAL INSTRUMENTS WITH OFF BALANCE SHEET RISK -
NOTE 4:
In the normal course of business, the Company enters into contractual
committments, 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 July 31, 1999, the underlying notional value of such
committments was $3,491,000. The average fair value of the committments
during fiscal 2000 was $3,394,000. Risk arises from the potential inability
of counterparts 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 exchange traded futures contracts.
No single customer accounted for a significant portion of the Company's sales
nor accounts receivables in fiscal 2000 or fiscal 1999.
8
VALUE LINE, INC.
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
COMPREHENSIVE INCOME - NOTE 4:
During the fiscal year 1999, the Company adopted FASB statement no. 130,
Reporting Comprehensive Income.5:
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 JanuaryJuly 31, 1999 and 1998, 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 increase in gross unrealized gains was $30,652,000 and $18,198,000 and the
change in the related deferred taxes was $10,728,000 and $6,369,000 during the first three months and nine months ended January 31,of fiscal 1999 respectively. During the
three months ended January 31, 1998, the decrease in
gross unrealized gains on these securities was $11,829,000 and the change in the related deferred taxes was
$4,140,000.$6,205,000 and $2,172,000, respectively. The increasedecrease during the first quarter
of fiscal 1998 in gross unrealized gains on the long termthese securities during the nine months ended January 31, 1998 was $7,798,000 and the
increase in related
deferred taxes was $2,729,000,$4,204,000 and $1,471,000, respectively.
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 July 31, 1999 and April 30, 1999. Net realized trading losses related to
derivative financial instruments amounted to $69,000 at July 31, 1999. Income
from securities transactions in the Statement of Income are reflected net of
derivative trading activity.
GAIN ON SALE OF OPERATING FACILITY - NOTE 5:7:
Pursuant to the Company's realignment of its production and distribution
departments, the Company sold its vacantidle 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.
89
VALUE LINE, INC.
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
RELATED PARTY TRANSACTIONS - NOTE 6:8:
The Company acts as investment adviser and manager for fifteen open-ended
investment companies, the Value Line Family of Funds. The Company earns
investment management fees based upon the average daily net asset values of the
respective funds. The Company also earns brokerage commission income, net of
clearing fees, on securities transactions executed by Value Line Securities,
Inc. on behalf of the funds that are cleared on a fully disclosed basis through
non-affiliated brokers. For the ninethree months ended JanuaryJuly 31, 1999 and 1998
investment management fees and brokerage commission income, net of clearing
fees, amounted to $20,915,000,$7,975,000, and $18,783,000,$7,089,000, respectively. The related
receivables from the funds for management advisory fees included in Receivable
from affiliates were $2,440,000$2,727,000 and $2,177,000$2,487,000 at JanuaryJuly 31, 1999 and April 30,
1998,1999, respectively.
For the nine months ended January 31, 1999 and 1998, the Company was
reimbursed $224,000, and $219,000, respectively, for payments it made on behalf
of and services it provided to the Parent. At JanauryJuly 31, 1999 and April 30, 1998,1999, Receivable from affiliates included a
receivable from the Parent of $200,000$166,000 and $28,000,$26,000, respectively. For the ninethree
months ended JanuaryJuly 31, 1999
and 1998 the Company made federal income tax payments to the
Parent amounting to $9,920,000,$200,000.
BUSINESS SEGMENTS - NOTE 9:
The Company operates two reportable business segments: Publishing and
$10,300,000, respectively. At April 30, 1998 accrued taxes
payableInvestment Management Services. The publishing segment produces investment
related periodicals in both print and electronic form. The investment management
segment provides advisory services to mutual funds, institutional and individual
clients as well as brokerage services for the Value Line family of mutual funds.
The segments are presented netdifferentiated by the products and services they offer.
The accounting policies of a receivablethe segments are the same as those described in the
summary of $694,000.
9significant accounting policies. The Company allocates all revenues
and expenses, except for depreciation related to corporate assets, between the
two reportable segments.
10
VALUE LINE, INC.
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Disclosure of Reportable Segment Profit and Segment Assets
July 31, 1999
Publishing Investment Total
Management
Services
Revenues from external customers $14,970 $8,861 $23,831
Intersegment revenues 16 -- 16
Income from securities transactions 68 1,117 1,185
Depreciation and amortization 359 12 371
Segment profit 5,823 4,499 10,322
Segment assets 19,676 235,036 254,712
Expenditures for
segment assets 185 -- 185
July 31, 1998
Publishing Investment Total
Management
Services
Revenues from external customers $15,597 $8,541 $24,138
Gain on sale of operating facility 518 -- 518
Intersegment revenues 19 -- 19
Income from securities transactions 62 80 142
Depreciation and amortization 365 13 378
Segment profit 6,103 4,961 11,064
Segment assets 19,331 187,756 207,087
Expenditures for
segment assets 282 2 284
11
VALUE LINE, INC.
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Reconciliation of Reportable Segment Revenues,
Operating Profit and Assets
1999 1998
Revenues
Total revenues for reportable segments $23,847 $24,675
Elimination of intersegment revenues ($16) ($19)
-----------------------------
Total consolidated revenues $23,831 $24,656
-----------------------------
-----------------------------
Segment profit
Total profit for reportable segments $11,507 $11,206
Less: Depreciation related to corporate assets (30) (29)
-----------------------------
Income before income taxes $11,477 $11,177
-----------------------------
-----------------------------
Assets
Total assets for reportable segments $254,712 $207,087
Corporate assets 1,388 2,378
-----------------------------
Consolidated total assets $256,100 $209,465
-----------------------------
-----------------------------
12
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS:
LIQUIDITY AND CAPITAL RESOURCES:
Value Line, Inc. (the Company) had liquid resources which are used in its
business of $212,201,000$230,164,000 at JanuaryJuly 31, 1999. In addition to $38,482,000$53,196,000 of working
capital, the Company had long-term securities available for sale with a market
value of $173,719,000,$176,968,000, that, although classified as non-current assets, are also
readily marketable should the need arise.
The Company's cash flow from operations of $17,267,000$905,000 for fiscal the first nine monthsquarter
of fiscal 19992000 was $1,037,000 higherlower than fiscal 1998's cash flow of $1,608,000 primarily
due to athe higher volume of prepayments for subscriptions toduring the Company's products
resulting from an increase in total new, full term orders. Also, cash flow from
operations increased due to a change in the timingfirst
quarter of the receipt and payment of
invoices for significant advertising and promotion vendors. This increase to
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.fiscal 1999. Net cash outflows for investing activities during fiscal
19992000 were $9,563,000$1,852,000 higher than fiscal 1998's1999's outflows due primarily to the
Company's decision during fiscal 19992000 to invest additional cash in its short
term trading portfolio to support its trading strategies. The receipt of
$583,000$577,000 of proceeds during fiscal 1999, primarilythe three months ended July 31, 1998, from the sale
of the Company's North Bergen, New Jersey vacant operating facility also
contributed to the increase from fiscal 1998'svariance in cash flowflows from investing activities.
Year 2000 (Y2K):
Our Year 2000 planning was launched 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 survey 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.
The second phase of the project was the actual replacement and/or modification
of systems and applications. This phase also included the implementation of the
modified applications back into the production environment. The second phase is
now complete.
State of Readiness - Y2K
We are now well into thehas
been completed since January 1999.
The third phase of the project:project, testing and implementation.
This phase involves the rewriting of programs and modifying systems and
databases as required from thefurther implementation based on test
results.results, has also been completed. Due to the timely and successful initial
assessment of the Company's year 2000 readiness, we are able to continue to
enhance our current products, create new products and release updated versions
of our electronic products while still maintaining our Y2K test environments
throughout the year.
State of Readiness - Y2K
We are now well into the fourth phase of the project: Testing and
Implementation. This phase involves testing each system, implementing changes to
our product environment, and then re-testing each system. All mission critical
systems are Y2K compliant. Though we cannot provide absolute assurances, we
currently believe the Company has completed the tasks required to ensure Y2K
compliance and we will be testing throughout the year. 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 budgetexpenditures for the Y2K project is $840,000 of which
$391,000 was incurred during the nine months ended January 31, 1999.were $732,000.
The Company's fiscal year 2000 expenditures through July 31, 1999 for the Y2K
project were $108,000. The projected budget for the remainder of fiscal year
2000 is projected to be $400,000.$306,000. 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
We cannot predict with certainty what will happen as the millennium approaches.
We cannot be sure that we will find every problem in the Company's systems, that
the vendors the 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 will continue to work
toward compliance and urge its vendors to do the same, but 10neither the Company,
nor its vendors, can predict the future with certainty.
13
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS:
neither the Company, nor its vendors, can predict the future with certainty.
Contingency Planning - Y2K
Value Line is in the process of finalizing contingency plans to account for the
possible failure of every Mission Critical system. Whether this involves
performing tasks manually, or locating alternative vendors for Mission Critical
software and hardware systems, Value Line is committed to having viable
contingency plans developed for every Mission Critical system. We continue to
reassess and adjust our risk management process and contingency plans. We
believe we have sufficient planning to properly communicate and coordinate any
disruption that the turn of the century could cause to our production
environment. We are carefully monitoring our third party vendors and should
have
developed a better understanding of theirplan to provide alternative suppliers for those vendors that will
not be compliant with the year 2000. We will continue to monitor and evaluate
all vendors' Y2K readiness by June of 1999.
Recent AICPA Pronouncements:
The Accounting Standards Committee ofstatus beyond 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 costs associated with developing or obtaining software for internal use to
amortize those costs over the software's estimated useful life in a systematic
and rational manner. Management estimates that the Company currently expenses
approximately $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.2000.
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 borrowing for the remainder of fiscal 1999.year 2000.
RESULTS OF OPERATIONS:
Net earningsincome for the ninethree months ended JanuaryJuly 31, 1999 were $20,124,000, $2.02was $6,914,000 or $0.69 per
share, compared to prior year net earnings for the nine months ended January 31, 1998,income of $29,200,000,$6,509,000, or $2.93$0.65 per share.share, an
increase of 6%. Revenues of $71,585,000$23,831,000 for the first three
quartersquarter of fiscal 1999 set a new record high for2000,
the Company and exceededsecond highest during any first quarter period, were $825,000 or 3% below
the prior year's revenues of $70,415,000 by 2%.$24,656,000. Operating income was $10,292,000 for
the ninethree months ended JanuaryJuly 31, 1999 of $28,378,000 was the second highest during any third
quarter period in the Company's history, exceeded only byas compared to operating income of
$11,035,000 for the nine monthssame period of last fiscal year. Operating income is ranked
the third highest during any first quarter period, surpassed by the last two
consecutive record first quarter periods. Both revenues and operating income for
the nine months ended
January 31, 1998, was $31,326,000, 9% higher than in fiscal 1999.
Revenues of $71,585,000 for the first nine months oflast fiscal year 1999 were
$1,170,000 above the comparable revenues in fiscal year 1998. Subscription
revenues of $46,588,000 were $452,000 (1%) above revenues in the comparable
prior year period. The increase in subscription revenues from the prior year is
due primarily to a 2% increase in revenues from The Value Line Investment Survey
and related products, including year-to-date revenues of approximately
$1,400,000 from new products introduced during 1998. Investment management fees
and services revenues of $24,479,000 for the three quarters ended January 31,
1999, were $200,000, or 1%, above the prior year's revenues. The higher
investment management fees and services revenues, compared to the prior year's
revenues, resulted primarily from the increase in the year-to-date average net
assets in the Company's mutual funds. This was partially offset by a decline in
revenues from individually managed customer asset accounts. During fiscal 1999,
the Company also recorded in revenuesincludes a gain of $518,000 from the sale of the Company'svacant, North
Bergen New Jersey vacant operating facility.
Subscription revenues of $14,970,000 were 4% below revenues from the prior
fiscal year. The decrease in subscription revenues compared to the prior year is
due primarily to a 4% net decrease in revenues from THE VALUE LINE INVESTMENT
SURVEY and related products. The lower publication revenues is due largely to
the recent decline in circulation to Company's print products that resulted from
the reduced level of advertising that occurred while the Company was in the
process of revising its advertising strategy. This decline in revenues from the
print products was offset in part by the additional revenues from new products.
Investment management fees and services revenues of $8,861,000 for the three
months ended July 31, 1999, were 4%, above the prior year's revenues. The higher
revenues from investment management fees and services, compared to the prior
year, resulted primarily from a 5% increase in the year-over-year average net
assets under management in the Company's mutual funds. Reduced revenues from
individually managed asset accounts partially offset the increased revenues from
the Company's mutual funds.
Operating expenses for the ninethree months ended JanuaryJuly 31, 1999, were $43,207,000,
as compared to$13,539,000,
1%, below last year's total expenses of $39,089,000.$13,621,000. Total advertising and
promotional expenses of $13,318,000$3,540,000 were $2,354,000 aboveapproximately equal to the prior year's
expenses. Promotional expenses for the Value Line Family of Mutual Funds were
$1,002,000 aboveWhen compared to the prior fiscal year's expenses primarily due to anyear, savings from the planned reduction in
advertising through July 31, 1999 were offset by the increase in expenses
relating to a selling arrangement for two of the Company's 11equity mutual funds
of which the Company is the adviser. Salaries and employee benefit expenses of
$6,066,000 were 2% above expenses of $5,973,000 recorded in the prior fiscal
year. Production and distribution costs of $1,746,000 were 7% below expenses of
$1,871,000 for the three months ended July 31, 1998. The lower expenses resulted
from a decrease in maintenance expenses related to the Company's web-site and a
decline in paper, printing and distribution expenses that were directly related
to lower production runs for print publications. Office and administration
expenses of $2,187,000 were 3% below last year's expenses of $2,246,000. The
decline in administrative expenses from last year's level was a result of
reduced professional fees and lower telephone and insurance expenses. Additional
costs included in fiscal year 2000 include expenses related to the amortization
of capitalized employee salaries and fringe
14
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS:
equity mutual fundsbenefits associated with the adoption, in the latter half of which the Company is the adviser. In addition, the
current year's advertising expenses for The Value Line Investment Survey and
related products andfiscal year 1999,
of SOP 98-1 "Accounting for the new publications, including Value Line Select, were
$840,000 and $421,000, respectively, higher than the prior year's expenses.
Salaries and employee benefit expensesCosts of $17,748,000 were $1,230,000 (7%) above
expenses of $16,518,000 in the comparable prior year's period. The increase from
the prior year is primarily the result of revisions to the salary structure in
the Research Department, employment of additional staff in the Asset Management
division, and general increases in salaries and incentive compensation granted
in March and August 1998. Production and distribution costs of $5,418,000 were
4% below expenses of $5,641,000Computer Software developed for
the nine months ended January 31, 1998.
Increases in production and distribution expenses that resulted from the new
publications and increased expenses for software and Internet development and
maintenance have been offset by lower expenses for paper usage, service mailers,
and subscriber guides resulting from lower production runs for print
publications. Office and administration expenses of $6,723,000 are 13% above
last year's expenses of $5,966,000. The increase is primarily due to increased
fees for professional services, higher property rent pursuant to a scheduled
rent increase included in the Company's New York City lease, and additional
depreciation expenses resulting primarily from a change to the asset lives
assigned to personal computers. These increases were partly offset by reduced
consulting fees at the Company's fulfillment operation and lower insurance
expenses. Fiscal year-to-date 1998 office and administrative expenses benefited
from proceeds of $126,000 received from the settlement of an intellectual
property infringement lawsuit in which the Company was the plaintiff.Internal Use".
The Company's securities portfolios produced income of $5,392,000$1,185,000 for the first
ninethree
months ended July 31, 1999, an increase of fiscal year 1999, a decrease of $11,045,000 from735% over last year's net
income of
$16,437,000.$142,000. This was due primarily to the $9,119,000 reductiona strong rally in the size of the capital gain distributions fromequity market,
primarily technology stocks during the Company's family of mutual
funds. The lower capital gains distributions from the Value Line mutual funds
resulted from management's effective tax planning decisions to minimize capital
gain distributions from the Company's mutual funds. The tax planning strategy
maintained fund shareholder values while reducing the tax liability for all
Value Line mutual fund shareholders, including the Company. Although the
Company's earnings were lower due to the reduced taxable capital gain
distributions, shareholder's equity increased by the appreciation in the value
of the long-term securities portfolio that resulted from the higher net asset
value of the mutual fund shares. This was a direct result of reducing the
realization of taxable capital gains within the Value Line mutual funds.
12first fiscal quarter ended July
31, 1999.
15
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 JanuaryJuly 31,
1999 to be signed on its behalf by the undersigned thereunto duly authorized.
Value Line, Inc.
(Registrant)
Date: March 17,September 14, 1999 By: s//s/Jean Bernhard Buttner
-------------------------------------------------------
Jean Bernhard Buttner
Chairman & Chief Executive Officer
Date: March 17,September 14, 1999 By: s//s/Stephen R. Anastasio
-------------------------------------------------------
Stephen R. Anastasio
Chief Accounting Officer
1316