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, 1999 Commission file number 0-11306
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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
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(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 July 31, 1999
----- ----------------------------
Class Outstanding at October 31, 1999
----- -------------------------------
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)
VALUE LINE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
JulyOct. 31, April 30,
Assets 1999 1999
----------- -----------Current Assets: ------------- -------------
Assets
Current Assets:
Cash and cash equivalents (including short term
investments of $44,286$37,231 and $41,250, respectively) $44,812$37,715 $41,826
Trading securities 14,51016,242 14,023
Accounts receivable, net of allowance for doubtful
accounts of $286$284 and $295, respectively 1,9081,985 1,846
Receivable from affiliates 2,9913,147 2,587
Prepaid expenses and other current assets 3,010 1,7923,324 2,817
Deferred income taxes 418 1,443
----------- -----------418
------------- -------------
Total current assets 67,64962,831 63,517
Long term securities available for sale 176,968184,419 168,591
Property and equipment, net 11,44711,287 11,662
Goodwill 36 37
----------- ------------------------ -------------
Total assets $256,100$258,573 $243,807
----------- -----------
----------- ------------------------ -------------
------------- -------------
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable and accrued liabilities $6,397$4,822 $5,842
Accrued salaries 9851,273 1,765
Dividends payable 2,495 2,495
Accrued taxes payable 4,576385 741
----------- ------------------------ -------------
Total current liabilities 14,4538,975 10,843
Unearned revenue 41,22837,611 43,100
Deferred income taxes 24,43627,147 22,264
Deferred charges 628558 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 130,004133,895 125,585
Treasury stock, at cost (21,375 shares on 7/10/31/99,
and 4/30/99) (411) (411)
Unrealized gain on securities, net of taxes 43,803Other comprehensive income 48,839 39,770
----------- ------------------------ -------------
Total shareholders' equity 175,355184,282 166,903
----------- ------------------------ -------------
Total liabilities and shareholders' equity $256,100$258,573 $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)
For the threeThree months ended JulySix months ended
Oct. 31, JulyOct. 31,
1999 1998 ----------- -----------1999 1998
---------- ---------- ---------- --------
Revenues:
Investment periodicals and
related publications $14,970 $15,597$14,430 $15,483 $29,400 $31,080
Investment management fees & svcs 8,861 8,5418,985 7,908 17,846 16,449
Gain on disposalsale of operating facility ----- --- --- 518
----------- --------------------- ---------- ---------- --------
Total revenues 23,831 24,656
----------- -----------23,415 23,391 47,246 48,047
---------- ---------- ---------- --------
Expenses:
Advertising and promotion 3,540 3,5314,368 4,018 7,908 7,549
Salaries and employee benefits 6,066 5,973
Printing, paper5,729 5,753 11,795 11,726
Production and distribution 1,746 1,8711,566 1,808 3,312 3,679
Office and administration 2,187 2,246
----------- -----------1,927 2,274 4,114 4,520
---------- ---------- ---------- --------
Total expenses 13,539 13,621
----------- -----------13,590 13,853 27,129 27,474
---------- ---------- ---------- --------
Income from operations 10,292 11,0359,825 9,538 20,117 20,573
Income from securities trans.,transactions, net 1,185 142
----------- -----------1,211 (31) 2,396 111
---------- ---------- ---------- --------
Income before income taxes 11,477 11,17711,036 9,507 22,513 20,684
Provision for income taxes 4,563 4,668
----------- -----------4,650 4,086 9,213 8,754
---------- ---------- ---------- --------
Net income $6,914 $6,509
----------- -----------
----------- -----------$6,386 $5,421 $13,300 $11,930
---------- ---------- ---------- --------
---------- ---------- ---------- --------
Earnings per share, basic & fully diluted $0.69 $0.65
----------- -----------
----------- -----------$0.64 $0.55 $1.33 $1.20
---------- ---------- ---------- --------
---------- ---------- ---------- --------
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 threesix months
ended
JulyOct. 31, JulyOct. 31,
1999 1998
---------- --------------------- --------
Cash flows from operating activities:
Net income $ 6,914 $ 6,509$13,300 $11,930
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 401 407812 874
(Gains)/losses on sales of trading securities and securities held for sale (395) 295(420) 670
Unrealized (gains)/losses on trading securities (43) 235(495) 515
Gain on sale of operating facility ----- (518)
Writedown of equipment --- 85
Changes in assets and liabilities:
Increase/(decrease)Decrease in unearned revenue (1,872) 779(5,489) (2,639)
Decrease in deferred charges (69) (69)(139) (139)
Increase/(decrease) in accounts payable and accrued expenses 555 (1,412)
(Decrease)(1,020) 68
Decrease in accrued salaries (780) (780)
Increase(492) (553)
Increase/(decrease) in accrued taxes payable 3,835 3,612(356) 1,840
(Increase)/decrease in prepaid expenses and other current assets (193) 231
(Increase)(507) 124
Decrease/(increase) in accounts receivable (130) (1,031)154 (919)
(Increase)/decrease in receivable from affiliates (404) (141)
--------(560) 35
----------- --------
Total adjustments 905 1,608
--------(8,512) (557)
----------- --------
Net cash provided by operations 7,819 8,1174,788 11,373
Cash flows from investing activities:
Proceeds from sales of long term securities 500 ---
Purchases of long term securities (2,172) (1,295)(2,374) (1,586)
Proceeds from sales of trading securities 6,283 2,46111,857 3,870
Purchases of trading securities (6,264) (1,945)(13,456) (3,840)
Acquisitions of property, and equipment, net (185) (284)(436) (602)
Proceeds from sale of operating facility -- 577
----------- 582
----------- --------
Net cash (used in) investing activities (2,338) (486)(3,909) (1,576)
Cash flows from financing activities:
Dividends paid (2,495) (2,495)
--------(4,990) (4,990)
----------- --------
Net cash (used in) financing activities (2,495) (2,495)
--------(4,990) (4,990)
----------- --------
Net increaseincrease/(decrease) in cash and cash equivalents 2,986 5,136(4,111) 4,807
Cash and cash equivalents at beginning of period 41,826 29,937
------------------- --------
Cash and cash equivalents at end of period $ 44,812 $ 35,073
======== ========$37,715 $34,744
----------- --------
----------- --------
The accompanying notes are an integral part of these financial statementsstatements.
4
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VALUE LINE, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREESIX MONTHS ENDED JULYOCTOBER 31, 1999
(in thousands, except share amounts)
(UNAUDITED)
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
$10,947Dividends declared
------------- ------------- Dividends declared (2,495) (2,495)
----------- ----------- ----------- ----------- ----------- ------------- -----------------------
Balance at JulyOctober 31, 1999 9,978,125 $1,000 $959 ($411)
$130,004 $43,803 $175,355
----------- ----------- ----------- ----------- ----------- ------------- ----------
----------- ----------- ----------- ----------- ----------- ------------- ----------------------- -------------
------------- ------------- ------------- -------------
Accumulated
Other
Comprehensive Retained Comprehensive
income earnings income Total
------------- ------------- ------------- -------------
Balance at May 1, 1999 $125,585 $39,770 $166,903
Comprehensive income
Net income $13,300 13,300 13,300
Other comprehensive income,
net of tax:
Change in unrealized
gains on securities 9,069 9,069 9,069
-------------
Comprehensive income $22,369
-------------
-------------
Dividends declared (4,990) (4,990)
------------- ------------- -------------
Balance at October 31, 1999 $133,895 $48,839 $184,282
------------- ------------- -------------
------------- ------------- -------------
The accompanying notes are an integral part of these financial statements.
5
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VALUE LINE, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREESIX MONTHS ENDED JULYOCTOBER 31, 1998
(in thousands, except share amounts)
(UNAUDITED)
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
$3,776Dividends declared
------------- ------------- Dividends declared (2,495) (2,495)
----------- ----------- ---------- ----------- ----------- ------------- -----------------------
Balance at JulyOctober 31, 1998 9,978,625 $1,000 $959 ($411)
$112,406 $24,264 $138,218
----------- ----------- ---------- ----------- ----------- ------------- ----------
----------- ----------- ---------- ----------- ----------- ------------- ----------------------- -------------
------------- ------------- ------------- -------------
Accumulated
Other
Comprehensive Retained Comprehensive
income earnings income Total
------------- ------------- ------------- -------------
Balance at May 1, 1998 $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)
------------- ------------- -------------
Balance at October 31, 1998 $115,332 $18,902 $135,782
------------- ------------- -------------
------------- ------------- -------------
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,
1999 for the fiscal year ended April 30, 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 JulyOctober 31, 1999 and April 30, 1999, cash
equivalents included $43,913,000$36,822,000 and $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, areis 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 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
$12,358,000$13,639,000 and $11,914,000 and a market value of $14,510,000$16,242,000 and $14,023,000 at
JulyOctober 31, 1999 and April 30, 1999, respectively.
Long-Term Securities Available for Sale:
The aggregate cost of the long-term securities was $109,579,000$109,283,000 and $107,406,000
and the market value was $176,968,000$184,419,000 and $168,591,000 at JulyOctober 31, 1999 and
April 30, 1999, respectively. At JulyOctober 31, 1999, the increase in gross
unrealized appreciation on these securities of $6,205,000,$13,951,000, net of deferred
taxes of $2,172,000,$4,882,000, was included in shareholders' equity.
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION - NOTE 3:
Cash payments for income taxes were $1,187,000$10,028,000 and $922,000$6,914,000 during the threesix
months ended JulyOctober 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 JulyOctober 31, 1999, the underlying notional value of such committments was
$3,491,000.$11,485,000. The average fair value of the committments during fiscal 2000 was
$3,394,000.$3,516,000. 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 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 JulyOctober 31, 1999 and 1998, the Company held long term securities classified
as available-for-sale. The increase during the first threesix months of fiscal 2000
in gross unrealized gains on these securities and the related deferred taxes was
$13,951,000 and $4,882,000, respectively. The decrease during the first six
months of fiscal 1999 in gross unrealized gains on these securities and the
related deferred taxes was $6,205,000$8,249,000 and $2,172,000, respectively. The decrease during the first quarter
of fiscal 1998 in gross unrealized gains on these securities and the related
deferred taxes was $4,204,000 and $1,471,000,$2,887,000, 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
JulyOctober 31, 1999 and April 30, 1999. Net realized trading losses related to
derivative financial instruments amounted to $69,000$342,000 at JulyOctober 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 7:
Pursuant to the Company's realignment of its production and distribution
departments, 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
VALUE LINE, INC.
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
RELATED PARTY TRANSACTIONS - NOTE 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 threesix months ended JulyOctober 31, 1999 and 1998
investment management fees and brokerage commission income, net of clearing
fees, amounted to $7,975,000,$15,952,000, and $7,089,000,$13,794,000, respectively. The related
receivables from the funds for management advisory fees included in Receivable
from affiliates were $2,727,000$2,868,000 and $2,487,000 at JulyOctober 31, 1999 and April 30,
1999, respectively.
For the six months ended October 31, 1999 and October 31, 1998, the Company was
reimbursed $134,000 and $224,000, respectively, for payments it made on behalf
of and services it provided to the Parent. At JulyOctober 31, 1999 and April 30,
1999, Receivable from affiliates included a receivable from the Parent of
$166,000$230,000 and $26,000, respectively. For the threesix months ended JulyOctober 31, 1999
the Company made federal income tax payments to the Parent amounting to
$200,000.$7,900,000.
BUSINESS SEGMENTS - NOTE 9:
The Company operates two reportable business segments: Publishing and Investment
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 differentiated by the products and services they offer.
The accounting policies of the segments are the same as those described in the
summary of significant 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
October 31, 1999
Publishing Investment Total
Management
Services
Revenues from external customers $14,970 $8,861 $23,831$29,400 $17,846 $47,246
Intersegment revenues 1623 -- 1623
Income from securities transactions 68 1,117 1,185125 2,271 2,396
Depreciation and amortization 359 12 371766 15 781
Segment profit 5,823 4,499 10,32210,534 9,614 20,148
Segment assets 19,676 235,036 254,71220,064 237,345 257,409
Expenditures for
segment assets 185 -- 185434 2 436
JulyOctober 31, 1998
Publishing Investment Total
Management
Services
Revenues from external customers $15,597 $8,541 $24,138$31,080 $16,449 $47,529
Gain on sale of operating facility 518 -- 518
Intersegment revenues 19 -- 19
Income from securities transactions 62 80 142125 (14) 111
Depreciation and amortization 365 13 378821 16 837
Segment profit 6,103 4,961 11,06411,091 9,519 20,610
Segment assets 19,331 187,756 207,08719,508 178,830 198,338
Expenditures for
segment assets 282600 2 284602
11
VALUE LINE, INC.
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Reconciliation of Reportable Segment Revenues,
Operating Profit and Assets
October 31,
1999 1998
Revenues
Total revenues for reportable segments $23,847 $24,675$47,269 $48,066
Elimination of intersegment revenues ($16)23) ($19)
-------------------------------------------------------------
Total consolidated revenues $23,831 $24,656
-----------------------------
-----------------------------$47,246 $48,047
--------------------------------
--------------------------------
Segment profit
Total profit for reportable segments $11,507 $11,206$22,544 $20,721
Less: Depreciation related to corporate assets (30) (29)
-----------------------------(31) (37)
--------------------------------
Income before income taxes $11,477 $11,177
-----------------------------
-----------------------------$22,513 $20,684
--------------------------------
--------------------------------
Assets
Total assets for reportable segments $254,712 $207,087$257,409 $198,338
Corporate assets 1,388 2,378
-----------------------------1,164 2,251
--------------------------------
Consolidated total assets $256,100 $209,465
-----------------------------
-----------------------------$258,573 $200,589
--------------------------------
--------------------------------
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 $230,164,000$238,275,000 at JulyOctober 31, 1999. In addition to $53,196,000$53,856,000 of
working capital, the Company had long-term securities available for sale with a
market value of $176,968,000,$184,419,000, that, although classified as non-current assets,
are also readily marketable should the need arise.
The Company's cash flow from operations of $905,000$4,788,000 for fiscal the firstsecond quarter of
fiscal 2000 was lower than fiscal 1998's1999's cash flow of $1,608,000$11,373,000 primarily due
to the higher volume of prepayments for subscriptions during the firstsecond quarter
of fiscal 1999. Net cash outflows for investing activities during fiscal 2000
were $1,852,000$2,333,000 higher than fiscal 1999's outflows due primarily to the
Company's decision during fiscal 2000 to invest additional cash in its short
term trading portfolio to support its trading strategies. The receipt of
$577,000 of proceeds during the three monthssix ended JulyOctober 31, 1998, from the sale of the
Company's North Bergen, New Jersey vacant operating facility also contributed to
the variance in cash flows 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 has
been completed since January 1999.
The third phaseand fourth phases of the project, testing and further implementation
based on test 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 intoin the fourthfifth phase of the project:test schedule: Testing and Implementation.
This phase involves testing each system, implementing changes to our
productproduction 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
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS:
The Company's fiscal year 1998 expenditures for the Y2K project were $251,000.
The Company's fiscal year 1999 expenditures for the Y2K project were $732,000.
The Company's fiscal year 2000
13
expenditures through JulyOctober 31, 1999 for the Y2K project were $108,000.$348,000. The
projected budget for the remainder of fiscal year 2000 is $306,000.$266,000. 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 because neither 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:certainty, Value Line will
keep its contingency plan updated and modify the plan as required.
Contingency Planning - Y2K
Value Line is in the process of finalizingcontinuously monitoring 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 viablehas contingency plans developedin
place. We are continuously monitoring and updating the plan as required. We
have made detailed plans for every Mission Critical system. We continuethe week prior to reassess and adjust our risk management processpost January 1, 2000 to
double check all systems and contingency plans. We
believeapplications to be sure we are ready to conduct
"business as usual" on Monday, January 3, 2000. Also, we have sufficient planningestablished an
emergency command center that includes key personnel 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 have
developed a plan to provide alternative suppliers for those vendors that will
not be compliantassist with the
year 2000. We will continue to monitor and evaluate
all vendors' Y2K status beyond the year 2000.millennium rollover.
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 fiscal year 2000.
RESULTS OF OPERATIONS:
Net income for the threesix months ended JulyOctober 31, 1999 was $6,914,000$13,300,000, or $0.69$1.33
per share, compared to prior year net income of $6,509,000,$11,930,000, or $0.65$1.20 per share,
an increase of 6%11%. Revenues of $23,831,000$47,246,000 for the first quarter of fiscal 2000,
the second highest during any first quarter period,six months ended October 31,
1999 were $825,000$801,000, or 3%2%, below the prior year's revenues of $24,656,000.$48,047,000.
Operating income was $10,292,000$20,117,000 for the threesix months ended JulyOctober 31, 1999 as
compared to operating income of $11,035,000$20,573,000 for the same period of last fiscal
year. Operating income is ranked the third highest during any firstsecond quarter
period, surpassed by the last two
consecutive record first quarter periods.second quarters of 1998 and 1996. Both revenues and
operating income for last fiscal year includesinclude a gain of $518,000 from the sale
of the vacant North Bergen, New Jersey operating facility.
Subscription revenues of $14,970,000$29,400,000 for the six months ended October 31, 1999
were 4%6% below revenues from the prior fiscal year. The decrease in subscription
revenues compared to the prior year iswas primarily due primarily to a 4%5% net decrease in
revenues from THE VALUE LINE INVESTMENT SURVEY and related products. The lower
publication revenues isare largely due largely to the recent decline in circulation toof the
Company's print products that resulted fromproducts. This decline is the result of the reduced level of
advertising that occurred while the Company washas been in the process of revising its
advertising strategy. This decline inThe lower revenues from the print products was partially
offset in part by the additional revenues from new products. Investment management fees and
services revenues of $8,861,000$17,846,000 for the threesix months ended JulyOctober 31, 1999 were
4%,8% 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
14
management in the Company's mutual funds. Reduced revenues from individually
managed asset accounts, the majority of which switched to index funds, partially
offset the increased revenues from the Company's mutual funds.
Operating expenses for the threesix months ended JulyOctober 31, 1999 were $13,539,000,$27,129,000,
1%, below last year's total expenses of $13,621,000.$27,474,000. Total advertising and
promotional expenses of $3,540,000$7,908,000 were approximately equal to the5% above prior year's expenses. When
compared to the prior year, savings from the planned reduction in advertising
through JulyOctober 31, 1999 were offset by the increase in expenses relating to a
selling arrangement for two of the Company's equity mutual funds of which the
Company is the adviser. Salaries and employee benefit expenses of $6,066,000$11,795,000
were 2%1% above expenses of $5,973,000$11,726,000 recorded in the prior fiscal year.
Production and distribution costs of $1,746,000$3,312,000 were 7%10% below expenses of
$1,871,000$3,679,000 for the threesix months ended JulyOctober 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$4,114,000 were 3%9% below last year's expenses of
$2,246,000.$4,520,000. 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:
benefits associated
with the adoption, in the latter half of fiscal year 1999, of SOP 98-1
"Accounting for the Costs of Computer Software developedDeveloped for Internal Use".
The Company's securities portfolios produced income of $1,185,000$2,396,000 for the threesix
months ended JulyOctober 31, 1999, an increase of 735%2,059% over last year's income of
$142,000. This$111,000. The increase was due primarilylargely to a strong rally in the equity market,
primarily technologymarket.
Technology stocks performed particularly well during the Company's firstsecond fiscal
quarter ended JulyOctober 31, 1999.
15
VALUE LINE, INC.
Signatures
Pursuant to the requirements of the Securitiessecurities Exchange Act of 1934, the
registrant has duly caused this Form 10Q report for the period ended JulyOctober 31,
1999 to be signed on its behalf by the undersigned thereunto duly authorized.
Value Line, Inc.
(Registrant)
Date: September 14,December 15, 1999 By: /s/s/Jean Bernhard Buttner
------------------------------------------------
Jean Bernhard Buttner
Chairman & Chief Executive Officer
Date: September 14,December 15, 1999 By: /s/s/Stephen R. Anastasio
-----------------------------------------------
Stephen R. Anastasio
Chief Accounting Officer
16