Item 1. BUSINESS.
Value Line, Inc. (the "Company"), a New York corporation, was organized in 1982 and is the successor to substantially all of the operations of Arnold Bernhard & Company, Inc. ("AB&Co.").
The Company's primary businesses are producing investment related periodical publications through its wholly-owned subsidiary, Value Line Publishing, Inc. ("VLP"), and providing invest-ment advisory services to mutual funds, institutions and individual clients. VLP publishes The Value Line Investment Survey, one of the nation's major periodical investment services, as well as The Value Line Investment Survey - Expanded Edition, The Value Line Investment Survey - Condensed Edition, Value Line Small Cap Plus, Value Line Select, The Value Line Mutual Fund Survey, The Value Line No-Load Fund Advisor, The Value Line OTC Special Situations Service, The Value Line Options Survey and The Value Line Convertibles Survey. The Company's periodical publications are direct marketed through media and direct mail to retail and institutional investors. The Company is investment adviser for the Value Line Family of Mutual Funds, which on April 30, 1998, included 15 open-end investment companies with various investment objectives. In addition, the Company manages investments for private and institutional clients and, through VLP, provides financial database information through computer media and computer time-sharing facilities (DataFile and other services). VLP also markets investment analysis software, Value Line Investment Survey FOR WINDOWS-Registered Trademark-, Mutual Fund Survey FOR WINDOWS-Registered Trademark-, Value Line Daily Options, Electronic Convertibles and other electronic products. The Company is registered with the Securities and Exchange Commission as an investment adviser under the Investment Advisers Act of 1940.
In addition to VLP, the Company's other wholly-owned subsidiaries include a registered broker-dealer, Value Line Securities, Inc., and an advertising agency, Vanderbilt Advertising Agency, Inc. These subsidiaries primarily provide services used by the Company in its publishing and investment management businesses. Compupower Corporation, another subsidiary, serves the subscription fulfillment needs of the Company's publishing operations. Value Line Distribution Center, Inc. ("VLDC") handles all of the mailings of the publications to the Company's subscribers. Additionally, VLDC provides office space for Compupower Corporation's client relations department and computer operation's center. The name "Value Line," as used to describe the Company, its products, and its subsidiaries, is a registered trademark of the Company. As used herein, except as the context otherwise requires, the term "Company" includes the Company and its consolidated subsidiaries.
A. Investment Information and Publications.
VLP publishes investment related publications and produces electronic products described below:
l. Publications:
The Value Line Investment Survey is a weekly investment related periodical that in addition to various timely articles on current economic, financial and investment matters ranks common
stocks for future relative performance based on computer-generated statistics of financial results and stock market performance. Two of the more important evaluations for each stock covered are "Timeliness(TM)" and "Safety." "Timeliness(TM)" relates to the probable relative price performance of a stock over the next six to twelve months, as compared to the rest of the approximately 1,700 covered stocks. Rankings are updated each week and range from Rank 1 for the expected best performing stocks to Rank 5 for the expected poorest performers. "Safety" rankings are a measure of risk and are based primarily on the issuer's relative financial strength and the stock's price stability. "Safety" ranges from Rank 1 for the least risky stocks to Rank 5 for the riskiest. VLP employs approximately 85 - 90 analysts and statisticians who prepare articles of interest for each periodical and who evaluate stock performance and provide future earnings estimates and quarterly written evaluations with weekly updates when relevant. The annual subscription price of The Value Line Investment Survey is $570.
During the year, we added a number of new features to each Value Line stock page. Among the changes was the addition of a Technical Rank, designed to complement the long-standing and widely used Timeliness(TM) and Safety(TM) Ranks. We also added the date when the various ranks were last changed along with an indication as to whether that change resulted in a raising or a lowering of the rank.
The Expanded Edition of The Value Line Investment Survey, introduced in 1995, provides detailed descriptions of 1,800 additional small- and medium- capitalization stocks, many listed on NASDAQ, beyond the 1,700 stocks of larger- capitalization companies traditionally covered in The Value Line Investment Survey.
Like The Value Line Investment Survey, the Expanded Edition has its own "Summary & Index" providing updated ranks and other data, as well as "screens" of key financial performance measures. The "Ratings and Reports" section, providing updated reports on about 140 stocks each week, has been organized to correspond closely to the industries reviewed in the Standard Edition of The Value Line Investment Survey. A combined Index, published quarterly, allows the subscriber to easily locate a specific stock among the 3,500 stocks covered.
The Expanded Edition includes a number of unique as well as standard features:
- - A new Performance Ranking System incorporates many of the elements of the Value Line Timeliness/(TM) Ranking System, modified to accommodate the 1,800 stocks in the Expanded Edition. The Performance/(TM) Rank is based on earnings growth and price momentum and is designed to predict relative price performance over the next six to 12 months.
- - An expanded Business Section provides detail about companies, focusing on business lines and strategies.
- - An enlarged Assets and Liabilities Section provides long-term statistics and a more complete balance sheet on each company.
- - New Total-Return Statistics provide an "at a glance" look at a particular stock's performance --appreciation plus dividends --over the past three months, six months, and one, three and five years.
The principal difference between the Expanded Edition and The Value Line Investment Survey is that the Expanded Edition does not include financial forecasts or analysts' comments. This modification has allowed VLP to offer this service at a relatively low price.
The annual cost of the Expanded Edition to current subscribers of The Value Line Investment Survey is $125 for their first subscription, $175 for renewals and $695 for new subscribers combining both Editions. Stand-alone subscriptions are offered at $249.
The Value Line Mutual Fund Survey introduced in 1993 provides full-page profiles of 1500 mutual funds and condensed coverage of an additional 500 funds. Every two weeks subscribers receive an updated issue, containing about 150 fund reports, plus a "Performance & Index" providing current rankings and performance figures for the full universe of more than 2,000 funds. The Value Line Mutual Fund Survey also includes semi-annual profiles and analyses on 100 of the nation's major fund families. Additionally, subscribers receive a 12-page periodical monthly newsletter containing articles of general interest to subscribers and readers, "The Value Line Mutual Fund Advisor," with articles on investment trends and issues concerning mutual fund investors. Funds are ranked for both risk and overall risk-adjusted performance using strictly quantitative means. A large binder is provided to house the periodic fund reports. A second binder is provided to full-term subscribers for the periodical monthly newsletter. The annual subscription price of The Value Line Mutual Fund Survey is $295.
VLP has instituted online distribution of individual one-page reports from The Value Line Investment Survey and The Value Line Mutual Fund Survey through the CompuServe online network. The price per page for these documents is $5.
The Value Line No-Load Fund Advisor is a periodical monthly newsletter for investors who wish to manage their own portfolios of no- and low-load, open-end mutual funds. Each issue features strategies for maximizing total return, with special attention given to tax considerations. Also featured are in-depth interviews with noted portfolio managers, model portfolios for a range of investor profiles, and information about retirement planning, industry news, and listings (with descriptions) of new funds worthy of further consideration. A full statistical review, including latest performance, rankings and sector weightings, is updated each month on 600 leading no-load and low-load funds. The annual subscription price of The Value Line No-Load Fund Advisor is $107.
The Value Line OTC Special Situations Service, published periodically 24 times a year, concentrates on fast-growing, smaller companies whose stocks are perceived by VLP analysts as having exceptional appreciation potential. The annual subscription price of The Value Line OTC Special Situations Service is $429.
The Value Line Options Survey, a periodical weekly service published 48 times a year, evaluates and ranks for future performance the most active options listed on United States exchanges (approximately 8,000). The annual subscription price of The Value Line Options Survey is $445. An electronic version of this publication, The Value Line Daily Options Survey (available over the internet), was introduced during the latter part of fiscal 1995.
The Value Line Convertibles Survey, a periodical service published 48 times a year, evaluates and ranks for future market performance approximately 580 convertible securities (bonds and preferred stocks) and approximately 75 warrants. The annual subscription price of The Value
Line Convertibles Survey is $625. Also introduced in 1997, the electronic convertibles are offered over the internet.
Value Line Small Cap Plus, a monthly newsletter first released in March 1998, covers, evaluates and rates 600 mostly small-cap stocks that VLP analysts consider promising for future growth potential but may not have an extensive financial history. Similar to the Value Line Investment Survey - Expanded Edition, each issue contains ratings and reports on about 200 stocks and includes a Performance Ranking System modified to accommodate the idiosyncrasies of the small-cap market. An annual subscription to Value Line Small Cap Plus costs $145.
Value Line Select was first published in January 1998. As a stock recommendation service with an exclusive circulation, it focuses each month on one company that VLP analysts, economists and statisticians recommend as an investment. Recommendations are backed by in-depth research and subject to ongoing monitoring. An annual subscription to Value Line Select is $795.
The Value Line Investment Survey - Condensed Edition is a monthly service, which contains full-page reports on more than 600 stocks. Its reports provide information on many actively traded, larger capitalization issues as well as some smaller growth stocks. Since it was introduced in fiscal 1996, it has proven to be very popular among investors who want the same type of analysis provided in the full Investment Survey, but who don't want or need coverage of the large number of companies contained in that publication. Readers also receive supplemental reports as well as a monthly Index, which includes updated statistics. An annual subsciption is $145.
2. Electronic Products:
Value Line Investment Survey FOR WINDOWS-Registered Trademark- is a powerful menu-driven software program with fast filtering, ranking, reporting and graphing capabilities on over 5,000 stocks, including the 1,700 stocks covered in VLP's benchmark publication, The Value Line Investment Survey. The product was introduced to the market during June 1996. Version 2 of the product was released in December of 1997 with major enhancements to the user interface and the ability for users to update their data from our internet site (www.valueline.com).
Value Line Investment Survey FOR WINDOWS-Registered Trademark- provides over 200 search fields on each stock, more than 50 charting and graphing variables for comparative research, and 10 years of historical financial data for scrutinizing performance, risk and yield. The software includes a portfolio module that lets users create and track their own stock portfolios. An exclusive E-page feature on the CD-ROM version allows the user to view and print actual full-page stock reports from the respected Value Line Investment Survey and Expanded publications. In addition, weekly updates and technical support are available through Value Line's web site (www.valueline.com). In addition to retrieving demos of the software and sample E pages, viewers can request information on Value Line's products.
To access the 1,700 stocks covered exclusively in The Value Line Investment Survey publication, subscribers are offered a two-month trial subscription with monthly CD-ROM updates and weekly internet updates for $55, a full-year subscription for $595 or $195 for subscribers to The Value Line Investment Survey print edition. This product is available on CD-ROM.
A Special 5,000 Stock Edition, a powerful yet economical professional tool on CD-ROM, is distributed on a monthly basis with weekly internet updates for $95 for a two-month trial subscription, or $995 for a full year or $495 for subscribers to The Value Line Investment Survey print edition. This Special Edition contains full financial and business descriptions on over 5,000 stocks, Timeliness Rankings on 1,700 stocks, Performance Ranks on over 3,100 stocks, Safety Rankings on over 4,200 stocks and 1,700 stocks with analysts' comments and estimates found in The Value Line Investment Survey publication.
Windows is a registered trademark of Microsoft Corp. Value Line, Inc. and Microsoft Corp. are not affiliated companies.
Both versions are compatible with Windows 98, Windows 95 or 3.X. A P.C. system of 486 or higher is recommended, with 16MB RAM and 70MB of free hard disk space.
Value Line Mutual Fund Survey FOR WINDOWS-Registered Trademark- and Value Line No-Load Analyzer FOR WINDOWS-Registered Trademark- are electronic versions of the Mutual Fund Survey launched in the latter part of fiscal 1995.
VALUE/SCREEN III is a data and software service for screening common stocks. It is compatible with DOS and Apple systems and is primarily sold to retail investors. It provides extensive financial data on about 1,600 companies covered by The Value Line Investment Survey. Users can screen on as many as 49 variables for companies' financial performance and for investment objectives. This product is not Year 2000 compliant and is scheduled to be discontinued by December 1999.
Value Line DataFile contains historic annual and quarterly financial records for more than 5,400 companies in numerous industries, including air transport, industrial services, beverage, machinery, bank, insurance and finance, savings and loan associations, toys, and securities bro-kers. DataFile is sold to the institutional market. Value Line Data File II, which includes less historical data is also available. During fiscal 1997, Value Line introduced the Value Line Mutual Fund Data File. VLP also offers an Estimates and Projections File, with year-ahead and three- to five-year estimates of financial performance and projections of stock-price ranges, as well as a Convertible Securities File and custom services.
The Total Return Service is a customized data service. It was developed to help publicly traded companies meet the SEC's mandated executive-compensation disclosure requirements. The service consists of a line graph comparing the total return of a public company's stock over the last five years to a published equity market index and a published or constructed industry index.
Technological initiatives to automate and upgrade information systems are currently underway. This project will increase the number of stocks in the various Value Line publications to include all U.S. company stocks covered on the major exchanges.
B. Investment Management:
As of April 30, 1998, the Company was the investment adviser for 15 mutual funds registered under the Investment Company Act of 1940. Value Line Securities, Inc., a wholly owned subsid-iary of the Company, underwrites and distributes shares of the Value Line Funds. State Street
Bank and Trust Company, an unaffiliated entity, acts as custodian of the Funds' assets. Share-holder services for the Value Line Funds are provided by National Financial Data Services, an unaffiliated entity associated with State Street Bank and Trust Company.
Total net assets of the Value Line Funds at April 30, 1998, were: (in thousands)
The Value Line Fund, Inc. $ 414,663 The Value Line Income Fund, Inc. 168,135 The Value Line Special Situations Fund, Inc. 145,759 Value Line Leveraged Growth Investors, Inc. 508,204 The Value Line Cash Fund, Inc. 306,198 Value Line U.S. Government Securities Fund, Inc. 183,328 Value Line Centurion Fund, Inc. 778,240 The Value Line Tax Exempt Fund, Inc. 201,044 Value Line Convertible Fund, Inc. 96,071 Value Line Aggressive Income Trust 165,501 Value Line New York Tax Exempt Trust 33,856 Value Line Strategic Asset Management Trust 1,312,231 Value Line Small-Cap Growth Fund, Inc. 21,426 Value Line Asset Allocation Fund, Inc. 133,233 Value Line U.S. Multinational Company Fund, Inc. 30,815 --------- $4,498,704 --------- ---------
The investment advisory contracts between each of the Value Line Funds and the Company provide that the Company will render investment research, advice, and supervision to the funds. These contracts must be approved annually in accordance with statutory procedures. The Company furnishes each fund with its investment program, subject to such fund's fundamental investment policies and to control and review by such fund's Board of Directors or Trustees. Each contract also provides that the Company will furnish, at its expense, various administrative services, office space, equipment and administrative personnel necessary for managing the affairs of the funds. Advisory fee rates vary among the funds and may be subject to certain limitations. Each mutual fund may use "Value Line" in its name only so long as the Company acts as its investment adviser.
Value Line Asset Management ("VLAM"), a division of the Company, manages pension funds and institutional and individual portfolios by utilizing the techniques developed for The Value Line Investment Survey. VLAM has varied investment advisory agreements with its clients which call for payments to the Company calculated on the basis of the market value of the securities portfolio under management.
C. Wholly-Owned Operating Subsidiaries:
1. Vanderbilt Advertising Agency, Inc.:
Vanderbilt Advertising Agency, Inc. ("Vanderbilt") places advertising for the Company's publications, investment advisory services, and mutual funds. Commission income generated by Vanderbilt serves to reduce the Company's advertising expenses.
2. Compupower Corporation:
Compupower provides computerized subscription fulfillment services for the Company as well as subscriber relations services for Company publications. Additionally, Compupower also provides microfiche and imaging services to Value Line, its affiliates and third-party customers.
3. Value Line Securities, Inc.:
Value Line Securities, Inc. ("VLS") is registered as a broker-dealer under the Securities Exchange Act of 1934 and is a member of the National Association of Securities Dealers, Inc. VLS acts as the underwriter and distributor of the Value Line Funds. Shares of the Value Line Funds are sold to the public without a sales charge (i.e., on a "no-load" basis). Since 1986, VLS has effected brokerage transactions in exchange-listed securities for certain of the Value Line Funds, clearing such transactions on a fully disclosed basis through unaffiliated broker-dealers who receive a portion of the gross commissions. VLS also receives 12b-1 fees from certain of the Value Line Funds.
4. Value Line Distribution Center, Inc.
Value Line Distribution Center, Inc. ("VLDC") handles all of the mailings of the publications to the Company's subscribers. Additionally, VLDC provides office space for the Compupower Corporation's subscriber relations and data processing departments.
D. Other Businesses.
The Company publishes the Value Line Arithmetic Composite and the Value Line Geometric Composite, daily indices of the stock market performance of the approximately 1,700 common stocks contained in The Value Line Investment Survey. The calculation of both indices is done by a firm unaffiliated with the Company. Futures contracts based upon fluctuations in the Value Line Arithmetic Composite are traded on the Kansas City Board of Trade, and options on the Index are traded on the Philadelphia Stock Exchange. The Company receives fees in connection with these activities.
E. Investments.
The Company invests in the Value Line Funds and in other marketable securities.
F. Employees.
At April 30, 1998, the Company and its subsidiaries employed 357 people.
The Company, its affiliates, officers, directors and employees may from time to time own securities which are also held in the portfolios of the Value Line Funds or recommended in the Company's publications. The Company has imposed rules upon itself and such people requiring monthly reports of securities transactions for their respective accounts and restricting trading in various types of securities in order to avoid possible conflicts of interest.
G. Assets.
The Company's assets identifiable to each of its principal business segments were as follows:
H. Competition.
The investment management and the investment information and publications industries are very competitive. There are many competing firms and a wide variety of product offerings. Some of the firms in these industries are substantially larger and have greater financial resources than the Company. The Company believes that it is one of the world's largest independent securities research organizations and that it publishes the world's largest investment service periodicals in terms of number of subscriptions, annual revenues and number of equity research analysts.
I. Executive Officers.
The following table lists the names, ages (at June 25, 1998), and principal occupations and employment during the past five years of the Company's Executive Officers. All officers are elected to terms of office for one year. Each of the following has held an executive position with the companies indicated for at least five years.
Name Age Principal Occupation or Employment - --------------------- --- ----------------------------------
Jean Bernhard Buttner 63 Chairman of the Board, President and Chief Executive Officer of the Company and AB&Co. Chairman of the Board and President of each of the Value Line Funds.
Samuel Eisenstadt 76 Senior Vice President and Research Chairman.
David T. Henigson 40 Vice President since 1992 and Treasurer since 1994; Director of Compliance and Internal Auditor; Vice President of each of the Value Line Funds since 1992 and Secretary and Treasurer since 1994; Vice President of AB&Co.
Howard A. Brecher 44 Vice President since 1996 and Secretary since 1992; Vice President, Secretary, Treasurer and General Counsel of AB&Co.
Item 2.
Item 2. PROPERTIES.
On June 4, 1993, the Company entered into a new lease agreement for approximately 80,000 square feet that provided for the relocation of its office space to 220 East 42nd Street, New York, New York. During January 1996, a subsidiary of the Company purchased for cash an approximately 85,000 square foot warehouse facility for $4,100,000. The new facility has consolidated into a single facility the distribution operations for the various Company publications and the fulfillment operations of Compupower Corporation. The remaining building capacity provides warehouse space, a disaster recovery site and will provide for future business expansion. The Company owned a distribution facility in North Bergen, New Jersey. The land and premises were sold in May of this year. The Company believes the capacity of these facilities is sufficient to meet the Company's current and expected future requirements.
Item 3.
Item 3. LEGAL PROCEEDINGS.
There are no material pending legal proceedings.
Item 4.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the stockholders during the fourth quarter of the fiscal year ended April 30, 1998.
Part II
Item 5.
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Registrant's Common Stock is traded in the over-the-counter market. The approximate number of record holders of the Registrant's Common Stock at April 30, 1998 was 1,350. Over-the-counter price quotations reflect inter- dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. The range of the bid and asked quotations and the dividends paid on these shares during the past two fiscal years were as follows:
Dividend High Low Declared Quarter Ended Bid Asked Bid Asked Per Share
July 31, 1996. . . . . . 38 1/4 38 3/4 30 1/2 33 1/4 .20 October 31, 1996 . . . . 38 1/4 39 33 1/4 34 .25 January 31, 1997 . . . . 46 51 29 30 15.25 April 30, 1997 . . . . . 33 1/4 34 1/4 29 29 3/4 .25 July 31, 1997. . . . . . 46 1/2 46 1/2 32 1/2 32 1/2 .25 October 31, 1997 . . . . 41 3/8 41 3/8 34 7/8 35 .25 January 31, 1998 . . . . 45 46 34 34 .25 April 30, 1998 . . . . . 45 1/2 46 37 3/4 38 1/2 .25
Item 6.
Item 6. SELECTED FINANCIAL DATA.
Earnings per share for each of the fiscal years shown below are based on the weighted average number of shares outstanding.
Item 7.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
FISCAL 1998
OPERATING RESULTS
Revenues and operating income for the twelve months ended April 30, 1998 were the highest in the history of the Company and exceeded the prior year's levels by 2% and 9%, respectively. Revenues for the three months ended April 30, 1998 were the second highest in Value Line's history. Net income for the twelve months ended April 30, 1998 of $35,177,000 or $3.53 per share compares to net income of $45,512,000 or $4.56 per share for the twelve months of fiscal 1997. Net income for the three months ended April 30, 1998 of $5,977,000 or $.60 per share was approximately equal to the prior year's net income of $6,034,000 or $.60 per share. Net income for both the three months and fiscal year of 1998 were ranked third highest for the Company. The special dividend of $149,700,000 paid during January 1997 significantly reduced the Company's securities portfolios. This reduction in the securities portfolios was the primary reason for the lower level of net income in fiscal 1998.
Revenues of $93,615,000 for the twelve months of fiscal 1998 were $1,841,000 or 2% above the comparable results for fiscal 1997. Subscription revenues for the twelve months of fiscal 1998 of $61,210,000 were 2% below revenues for the comparable period of fiscal 1997, primarily a result of the reduction in fulfillment revenues from former third party clients of the Compupower Corporation and reduced levels of revenues from the Value Line Mutual Fund Survey, print publication. Revenues from The Value Line Investment Survey, including a 9% price increase that went into effect February 1, 1996 and revenues from related publications were approximately equal to fiscal 1997's level. Revenues derived from investment management fees and services for the twelve months ended April 30, 1998 of $32,405,000 were $3,269,000 or 11% above the level for the comparable period of fiscal 1997. The increase in revenues resulted primarily from an 11% increase in the average annual net assets under management in the Company's mutual funds. The increase in the value of the portfolios under management resulted primarily from the appreciation in the financial markets. Assets under management in the Company's mutual funds at April 30, 1998 increased 23% from the levels at April 30, 1997.
Expenses for the twelve months ended April 30, 1998 were $54,255,000, 2% below last year's comparable level of $55,497,000. Advertising expenses of $15,090,000 were 4% below the prior year's level. Advertising for The Value Line Investment Survey family of products decreased 10% from the prior year's level because of a strategic reduction in advertising campaigns during periods of uncertain financial market stability. Promotional expenses for the Value Line Mutual Funds increased $1,525,000 from fiscal 1997's level. The increase in expenses relates primarily to a selling arrangement that became effective July 1, 1996 for two of the equity funds for which the Company is the advisor. Salary and employee benefit expenses of $22,153,000 for twelve months of fiscal 1998 were 1% above the prior year's level. Fiscal 1998's expenses include an increase in employment recruitment costs and the employment of additional staff for technology initiatives to automate and upgrade information systems that will increase the number of Company's covered in the
various Value Line equity publications and year 2,000 planning and execution. Additionally, the reduction in Compupower's staff, as a result of the termination of services to third parties, contributed to the stable level of expenses. Printing, paper and distribution expenses of $8,498,000 at April 30, 1998 were slightly higher than expenses of $8,495,000 for the comparable period of fiscal 1997. Expenses for the fourth quarter of fiscal 1998 include approximately $500,000 of costs related to the Compupower Corporation's migration of production and distribution data from a mainframe system to a client server database. The remaining expenses decreased from the prior year's level primarily due to the lower costs associated with production and distribution of the electronic products as compared with the print publications, an approximate 10% reduction in the cost of paper, shorter production runs and the utilization of new technology that maximizes 2nd class discounts offered by the U.S. Postal Service. Office and administration expenses of $8,514,000 decreased $747,000 or 8% from the prior year's level. This reduction was in part due to non-recurring professional fees related to a lawsuit from which the Company received a $558,000 award. Additionally, expenses for fiscal 1997 include a charge of $328,000 for the writedown of goodwill at the Company's fulfillment subsidiary resulting from a decision to restructure these operations. Administrative expenses for fiscal 1997 also include a negotiated settlement with the former landlord of the Company's headquarters' facility in which the Company received proceeds of $906,000.
The Company's securities portfolios produced income from securities transactions for the twelve months ended April 30, 1998 of $18,272,000 compared with $36,898,000 during the same period of last fiscal year. The primary cause for the decrease was the reduced levels of capital gains and dividend income from the Company's mutual fund holdings that resulted from the smaller size of those securities portfolios. The reduction in the portfolios resulted from the $15.00 per share special dividend distributed to all shareholders in January 1997 following the Company's achievement of record earnings during six of the last eight fiscal years. Also, the twelve months of fiscal 1997 include $31,789,000 of capital gains of which $17,643,000 resulted from sales of the Company's long term mutual fund holdings in connection with the special dividend.
Liquidity and Capital Resources
Value Line, Inc. (the Company) has liquid resources which are used in its business of $183,057,000 at April 30, 1998. In addition to $33,780,000 in working capital, the Company has long-term securities available for sale with a market value of $149,277,000, that, although classified as non-current assets, are also readily marketable should the need arise.
The Company's cash flow from operations of $20,421,000 increased $8,585,000 from last year's level primarily as a result of the larger tax payments remitted during the prior fiscal year that resulted from the additional income from securities transactions. Also, the increase in unearned revenues from new business and decline in accounts receivable from collections contributed to the increase in cash flow. Cash flows from investing activities during fiscal 1997 were $164,712,000 higher than fiscal 1998's results due to the receipt of proceeds from sales of mutual fund holdings in preparation of the special dividend paid in January 1997.
The Company recognizes the need to ensure that its computer systems and software applications are converted to a year 2000 date with no disruption to business operations. In light of this, the Company has established a central committee to coordinate, evaluate and implement changes necessary for compliance. Additionally, the Company is communicating with suppliers, financial institutions and others with which it does business to ensure that they are also compliant with the year 2000 date. Significant areas of operations which will be impacted have already been identified and conversion efforts are underway. The total cost of compliance and its effect on the Company's future results of operations are being determined as part of the detailed conversion planning. The cost, including routine hardware enhancements and modifications to software applications, is not expected to exceed $1,000,000.
The Accounting Standards Committee of the AICPA recently issued the Statement of Position ("SOP") 98-1 which requires entities to adopt uniform rules in their financial statements in accounting for the cost of computer software developed or obtained for internal use. The SOP requires companies to capitalize as long-lived assets many of the cost associated with developing or obtaining software for internal use and amortize those costs over the software's estimated full life in a systematic and rational manner. Management estimates that the Company currently expenses approximately $2,000,000 of expenses that would qualify for amortization under the new statement.
Management believes that the Company's cash and other liquid asset resources used in its business together with the future cash flows from operations will be sufficient to finance current and forecasted operations. Management anticipates no significant borrowing requirements during fiscal 1999.
FISCAL 1997
OPERATING RESULTS
Net income, revenues, income from operations and income from securities transactions for fiscal 1997 all set new record high levels for the Company, exceeding the previous record highs set in fiscal 1996. Net income for the year ended April 30, 1997 was $45,512,000 or $4.56 per share compared to net income of $41,714,000 or $4.18 per share for the same period during fiscal 1996. The year ended April 30, 1997 included a one time gain of $17,580,000 on sales of various securities holdings in preparation for the payment of a special dividend of $15.00 per share on January 2, 1997. Income from operations for the year ended April 30, 1997 exceeded the prior year's level by 12%.
Revenues of $91,774,000 for fiscal 1997 were $4,647,000 or 5% above the comparable results for fiscal 1996. Subscription revenues for the year ended April 30, 1997 of $62,442,000 increased $3,933,000 or 6% from revenues of $58,509,000 for fiscal 1996. The increase was a result of higher revenues from The Value Line Investment Survey, a portion of which was the result of a price increase effective February 1996. Additional revenues from new products, including The Value Line Investment Survey-Condensed Edition, The Value Line Investment Survey-Expanded Edition and the Value Line Investment Survey FOR WINDOWS-Registered Trademark-, introduced in July 1996, contributed to the overall increase in subscription revenues. Average full term sub-scription levels for all publications during fiscal 1997, through April 30, 1997 increased 8% com-
pared to the average level for the year ended April 30, 1996. Revenues derived from investment management fees and services for the year ended April 30, 1997 of $29,136,000 were $2,572,000 or 10% above the level at April 30, 1996. Revenues increased primarily as a result of additional average annual net assets under management in the Company's mutual funds. Included in fiscal 1997 and 1996 revenues are proceeds of $196,000 and $2,054,000, respectively received from the settlement of disputed securities trades.
Expenses for the year ended April 30, 1997 of $55,497,000 were $856,000 or 2% above last year's comparable expenses of $54,641,000. Advertising expenses of $15,739,000 were 3% above last year's level and include an increase for various new products, including the Value Line Investment Survey FOR WINDOWS-Registered Trademark-. Additionally, the Company incurred $848,000 of promotional expenses related to a selling arrangement for two of the equity mutual funds for which the Company is the advisor. Salary and employee benefit expenses of $22,002,000 were 5% above last year's comparable level of $20,892,000. Restructuring expenses for several of the Company's operations, incentive compensation and the additional staffing in various support departments as well as the Asset Management division accounted for most of the increase. Print-ing, paper and distribution expenses of $8,495,000 increased 1% for the year ended April 30, 1997 compared with expenses of $8,388,000 for fiscal 1996. The additional costs incurred during fiscal 1997, associated with the production and distribution of new products were offset by a decline in printing expenses that resulted primarily from a negotiated favorable pricing agreement with the Company's printing vendor that became effective January 1, 1996. Also, Compupower discontinued servicing third party customers and the Company closed The Value Line Investment Survey-Canadian Edition. The distribution costs have also been reduced through the use of new technology that maximizes 2nd class discounts offered by the U.S. Postal Service. Office and administration expenses of $9,261,000 decreased $778,000 or 8% from fiscal 1996's level. Proceeds of $906,000 were received from a negotiated settlement with the Company's landlord. There was also a decrease in professional fees that were incurred in fiscal 1996 in connection with an active lawsuit in which the Company was the plaintiff and the receipt of $558,000 of proceeds during fiscal 1997 from the settlement of this lawsuit. Restructuring Compupower resulted in a charge of $328,000 for the write-off of goodwill during fiscal 1997. Additional expenses were incurred to relocate the fulfillment, distribution and client relations operations to the Company's new operating facility located in New Jersey.
The Company's investment portfolios produced income from securities transactions for the year ended April 30, 1997 of $36,898,000 compared to income of $35,898,000 for the comparable period of fiscal 1996. The increase was a result of additional capital gains of $15,377,000 from sales of the Company's mutual fund holdings offset by lower capital gains from securities held in the Company's trading portfolios of $11,949,000. Additionally, capital gains distributions from the Company's mutual funds increased $2,518,000. The lower capital gains in the trading portfolio was a result of a significant reduction in the securities holdings during the third quarter of fiscal 1997. In addition, there was a correction in the financial markets during the first five months of fiscal 1997 as compared to the rapidly rising market during the comparable period of fiscal 1996. The Company's sale of stock futures indices, used to reduce the financial market exposure from the Company's equity securities holdings, resulted in an increase in capital losses of $4,253,000 during fiscal 1997. The increase in capital losses from sale of stock future indices resulted from a decision to reduce the Company's overall equity securities financial market exposure. The capital gains recognized from appreciation in the Company's long term securities portfolio offset the losses on the sales of the stock indices.
Liquidity and Capital Resources
The Company has liquid resources which are used in its business of $133,376,000 at April 30, 1997. In addition to $25,261,000 in working capital, the Company has long-term securities available for sale with a market value of $108,115,000, that, although classified as non-current assets, are also readily marketable should the need arise. During fiscal 1997, the Company sold U.S. Government Agency debt securities under agreements to sell and repurchase and received $40,057,000 from these sales. A portion of the proceeds were used to satisfy $36,994,000 of repurchase obligations.
On January 2, 1997, the Company paid a special dividend in the aggregate amount of $149,700,000 or $15.00 per share. The dividend was paid pursuant to a transaction in which Arnold Bernhard & Co., Inc. (AB&Co.), the owner of approximately 80% of the outstanding common stock of the Company, settled a lawsuit and purchased all the AB&Co. shares held by the Arnold Van Hoven Bernhard family and the trustees of a trust of which he is the income beneficiary. Accordingly, Jean B. Buttner, Chief Executive Officer of the Company, now owns 100% of the voting shares of AB&Co.
During the third quarter of fiscal 1997, the Company sold various holdings from its long term securities available for sale and its short term trading portfolio and received $81,191,000 and $56,170,000, respectively. These proceeds, together with $12,339,000 from the Company's holdings in the Value Line Cash Fund were used to finance the special dividend. The special dividend was paid from the Company's accumulated earnings and profits.
The Company's cash flow from operations of $11,836,000 decreased $9,050,000 from last year's level, primarily as a result of increased income tax payments from sales of securities holdings and increased operating profit.
Management believes that the Company's cash and other liquid asset resources used in its business together with future cash flows from operations will be sufficient to finance current and forecasted operations. Management anticipates no significant borrowing requirements during fiscal 1998.
Item 8.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of the registrant and its subsidiaries are included as a part of this Form 10K:
Page Numbers
Reports of independent accountants 22 Consolidated balance sheets--April 30, 1998 and 1997 24 Consolidated statements of income and retained earnings --years ended April 30, 1998, 1997 and 1996 25 Consolidated statements of cash flows --years ended April 30 1998, 1997 and 1996 26 Notes to the consolidated financial statements 27 Supplementary schedules 39
Item 9.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
There have been no disagreements with the independent accountants on accounting and financial disclosure matters.
Part III
Item 10.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information required by this item will be filed as an amendment to this Form 10-K.
Item 11.
Item 11. EXECUTIVE COMPENSATION.
Information required by this item will be filed as an amendment to this Form 10-K.
Item 12.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information required by this item will be filed as an amendment to this Form 10-K.
Item 13.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information required by this item will be filed as an amendment to this Form 10-K.
Part IV
Item 14.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements See Item 8.
2. Schedules Schedule I - Marketable Securities. Schedule XIII - Other Investments. (Reg. S-X, Article 5)
All other Schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
3. Exhibits
3.1 Articles of Incorporation of the Company, as amended through April 17, 1983 are Incorporated by reference to the Registration Statement - Form S-1 of Value Line, Inc. Part II, Item 16.(a) 3.1 filed with the Securities and Exchange Commission on April 7, 1983. 3.2 Certificate of Amendment of Certificate of Incorporation dated October 24, 1989. 10.8 Form of tax allocation arrangement between the Company and AB&Co. incorporated by reference to the Registration Statement - Form S-1 of Value Line, Inc. Part II, Item 16.(a) 10.8 filed with the Securities and Exchange Commission on April 7, 1983. 10.9 Form of Servicing and Reimbursement Agreement between the Company and AB&Co., dated as of November 1, 1982 incorporated by reference to the Registration Statement - Form S-1 of Value Line, Inc. Part II, Item 16.(a) 10.9 filed with the Securities and Exchange Commission on April 7, 1983. 10.10 Value Line, Inc. Profit Sharing and Savings Plan as amended and restated effective May 1, 1989, including amendments through April 30, 1995, incorporated byreference to the Annual Report on Form 10-K for the year ended April 30, 1996. 10.13 Lease for the Company's premises at 220 East 42nd Street, New York, N.Y. incorporated by reference to the Annual Report on Form 10-K for the year ended April 30, 1994. 21 Subsidiaries of the Registrant.
(b) Reports on Form 8-K.
None
(c) Exhibits.
21 Subsidiaries of the Registrant. 27 Financial Data Schedules.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report on Form 10-K for the fiscal year ended April 30, 1998, to be signed on its behalf by the undersigned, thereunto duly authorized.
VALUE LINE, INC. (Registrant)
By: s/Jean Bernhard Buttner Jean Bernhard Buttner Chairman & Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
By: s/Jean Bernhard Buttner Jean Bernhard Buttner Chairman & Chief Executive Officer
By: s/Stephen R. Anastasio Stephen R. Anastasio Principal Financial and Accounting Officer
Dated: July 15, 1998
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report on Form 10-K for the fiscal year ended April 30, 1998, to be signed on its behalf by the undersigned as Directors of the Registrant.
s/Jean Bernhard Buttner s/William S. Kanaga Jean Bernhard Buttner William S. Kanaga
s/Harold Bernard, Jr. s/Howard A. Brecher Harold Bernard, Jr. Howard A. Brecher
s/W. Scott Thomas s/Samuel Eisenstadt W. Scott Thomas Samuel Eisenstadt
s/Linda S. Wilson s/David T. Henigson Linda S. Wilson David T. Henigson
Dated: July 15, 1998
HOROWITZ & ULLMANN, P.C. CERTIFIED PUBLIC ACCOUNTANTS 275 MADISON AVENUE NEW YORK, NY 10016
TELEPHONE (212) 532-3736 --- FAX REPORT OF INDEPENDENT ACCOUNTANTS (212) 545-8997
To the Board of Directors and Shareholders of Value Line, Inc.
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income and retained earnings and of cash flows present fairly, in all material respects, the financial position of Value Line, Inc. and subsidiaries at April 30, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended April 30, 1998, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
Our audits of the consolidated financial statements referred to above also included an audit of the Financial Statement Schedules listed in Item 14(a) of Form 10-K. In our opinion, these Financial Statement Schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated statements.
/s/ Horowitz & Ullmann, P.C.
HOROWITZ & ULLMANN, P.C. CERTIFIED PUBLIC ACCOUNTANTS
New York, NY July 9, 1998
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the registration statement on Form S-8 (No. 2-90593) of our report dated July 9, 1998 relating to the consolidated financial statements of Value Line, Inc. and subsidiaries for the years ended April 30, 1998 and 1997 which appears on page 22 of this Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedules, which appear in this Form 10-K.
HOROWITZ & ULLMANN, P.C. Certified Public Accountants
New York, NY July 9, 1998
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
Value Line, Inc. Notes to Consolidated Financial Statements
Note 1-Organization and Summary of Significant Accounting Policies:
Value Line, Inc. (the "Company") is incorporated in New York State and carries on the investment periodicals and related publications and investment management activities formerly performed by Arnold Bernhard & Co., Inc. (the "Parent") which owns approximately 80% of the issued and outstanding common stock of the Company.
Principles of consolidation: The consolidated financial statements include the accounts of the Company and all of its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
Revenue recognition: Subscription revenues are recognized ratably over the terms of the subscriptions. Accordingly, the amount of subscription fees to be earned by servicing subscriptions after the date of the balance sheet is shown as unearned revenue. The unearned revenue shown on the balance sheet is a noncurrent deferred credit. This classification recognizes that the fulfillment of this commitment will require the use of significantly fewer current assets than the amount of the unearned revenues and, accordingly, combining it with current liabilities would significantly understate the liquidity position of the Company.
Investment management fees are recorded as revenue as the related services are performed.
Valuation of Securities:
Effective May 1, 1994, the Company adopted the provisions of Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115"). As a result of adopting SFAS 115, the Company changed the method by which it values its long-term securities portfolio, which consists of shares of the Value Line Mutual Funds, and short-term securities portfolio, which the Company classifies as available for sale, from the lower of aggregate cost or market to market value. 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. SFAS 115 cannot be retroactively applied to the financial statements of periods prior to May 1, 1994.
Value Line, Inc. Notes to Consolidated Financial Statements
Trading securities, which consist of securities held by Value Line Securities, Inc., the Company's broker-dealer subsidiary are valued at market with unrealized gains and losses included in earnings.
Goodwill: Goodwill represents the excess of the purchase price over the fair value of net assets acquired and is being amortized over a period of 14 years. During fiscal 1997, the Company accelerated the amortization of the goodwill associated with the Compupower Corporation. This resulted from managements decision to cease third party activity and reorganize the fulfillment operation.
Earnings per share: Earnings per share are based on the weighted average number of shares of common stock and common stock equivalents outstanding during each year.
Cash and Cash Equivalents: For purposes of the Consolidated Statements of Cash Flows, the Company considers all cash held at banks and short term liquid investments with an original maturity of less than three months to be cash and cash equivalents. As of April 30, 1998 and 1997, cash equivalents included $28,283,000 and $13,815,000, respectively, invested in the Value Line money market funds.
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.
Note 2-Supplementary Cash Flow Information:
Cash payments for income taxes were $23,114,000, $33,677,000, and $24,056,000, in 1998, 1997 and 1996, respectively. Interest payments of $47,000, $1,188,000, and $2,618,000 were made in 1998, 1997 and 1996, respectively.
Value Line, Inc. Notes to Consolidated Financial Statements
Note 3-Related Party Transactions:
The Company acts as investment adviser and manager for fifteen open-ended investment companies, the Value Line Family of Funds (see Note 4). 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 years ended April 30, 1998, 1997 and 1996, investment management fees and brokerage commission income, net of clearing fees, amounted to $25,348,000, $22,443,000, and $19,686,000, respectively. The related receivables from the funds for management advisory fees included in Receivable from affiliates were $2,177,000 and $1,703,000 at April 30, 1998 and 1997, respectively.
For the years ended April 30, 1998, 1997, and 1996, the Company was reimbursed $461,000, $493,000, and $438,000, respectively, for payments it made on behalf of and services it provided to the Parent. At April 30, 1998 and 1997, Receivable from affiliates included a receivable from the Parent of $28,000 and $44,000, respectively. For the years ended April 30, 1998, 1997, and 1996, the Company made federal income tax payments to the Parent amounting to $18,800,000, $29,200,000, and $19,952,000, respectively. At April 30, 1998 and 1997, accrued taxes payable are presented net of a receivable of $694,000 and $834,000, respectively. These data are in accordance with the tax sharing arrangement described in Note 6.
Note 4-Investments:
Trading Securities:
Securities held by Value Line Securities, Inc. had an aggregate cost of $7,914,000 and $13,702,000 and a market value of $8,861,000 and $15,217,000 at April 30, 1998 and April 30, 1997, respectively.
Short-Term Securities Available for Sale:
Short-term securities available for sale, which were sold during fiscal 1997 as further explained below, consisted of the Company's holdings in the following securities:
Federal National Mortgage Association (FNMA), floating rate notes due August 5, 1997; par value $30,325,000.
Value Line, Inc. Notes to Consolidated Financial Statements
Federal Farm Credit Bank (FFCB), floating rate notes due February 12, 1997; par value $10,000,000.
During the first quarter of fiscal 1997, the Company sold the FFCB securities and received proceeds of $9,870,000 which were equivalent to the recorded market value of these securities. During the second quarter of fiscal 1997, the Company sold the FNMA securities and received proceeds of $30,187,000, including accrued interest and realized a net capital gain of $154,000. At April 30, 1996, the market value of the FNMA and FFCB securities, which approximates cost, was $29,831,000 and $9,850,000, respectively. These notes were purchased at a discount from their respective face values. The accretion of this discount had been included as an addition to the cost of the securities and reflected as interest income in the Consolidated Statements of Income and Retained Earnings.
Long-Term Securities Available for Sale:
The aggregate cost of the long-term securities, which are invested in the Value Line mutual funds, was $107,743,000 and $90,211,000 and the market value was $149,277,000 and $108,115,000 at April 30, 1998 and April 30, 1997, respectively. The change in gross unrealized gains on these securities of $23,630,000 and $17,374,918, net of the change in deferred taxes of $8,270,000 and $6,081,000, were included in shareholders' equity at April 30, 1998 and 1997, respectively. Realized gains from the sales of these securities were $11,980,000, $18,958,000 and $3,581,000 during fiscal years 1998, 1997 and 1996, respectively. The proceeds received from sales of these securities during the fiscal years ended April 30, 1998, 1997 and 1996 were $21,824,000, $91,662,000 and $18,085,000, respectively.
For the years ended April 30, 1998, 1997, and 1996, Income from securities transactions consisted of $2,818,000, $4,868,000, and $5,275,000, of dividend income; $15,998,000, $46,418,000, and $20,814,000, of net realized capital gains; $78,000, $1,474,000, and $2,758,000, of interest income; and $47,000, $1,124,000, and $2,148,000, of related interest expense, respectively. Income from securities transactions also included $568,000 and $14,732,000 of unrealized losses and $9,196,000 of unrealized gains for the years ended April 30, 1998, 1997 and 1996, respectively.
Note 5-Property and Equipment:
Property and equipment are carried at cost. Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the assets, or in the case of leasehold improvements, over the remaining terms of the leases. For income tax purposes, depreciation of furniture and equipment is computed using accelerated methods and buildings and leasehold improvements are depreciated over prescribed, extended tax lives.
Value Line, Inc. Notes to Consolidated Financial Statements
During January 1996, the Company purchased for cash an approximately 85,000 square foot warehouse facility for $4,100,000 under a newly formed subsidiary, Value Line Distribution Center, Inc. The new facility houses the distribution operations for the various Company publications and the fulfillment operations of the Compupower Corporation. The remaining building capacity will provide warehouse storage, a disaster recovery site and will provide for future business expansion.
Note 6-Federal, State and Local Income Taxes:
The Company computes its tax in accordance with the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes".
Value Line, Inc. Notes to Consolidated Financial Statements
The provision for income taxes includes the following:
Deferred taxes are provided for temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities. The tax effect of temporary differences giving rise to the Company's deferred tax (liability)/asset are as follows:
Value Line, Inc. Notes to Consolidated Financial Statements
Included in Deferred income taxes in total current assets are deferred federal tax assets of $957,000 and $897,000 and deferred state and local tax assets of $486,000 and $308,000 at April 30, 1998 and 1997, respectively.
The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory income tax rate to pretax income as a result of the following:
The Company is included in the consolidated federal income tax return of the Parent. The Company has a tax sharing arrangement which requires it to make tax payments to the Parent equal to the Company's liability as if it filed a separate return.
Note 7-Employees' Profit Sharing and Savings Plan:
Substantially all employees of the Company and its subsidiaries are members of the Value Line, Inc. Profit Sharing and Savings Plan (the "Plan"). In general, this is a qualified, contributory plan which provides for a discretionary annual Company contribution which is determined by a formula based upon the salaries of eligible employees and the amount of consolidated net operating income as defined in the Plan. Plan expense, included in salaries and employee benefits in the Consolidated Statements of Income and Retained Earnings, for the years ended April 30, 1998, 1997, and 1996 was $1,455,000, $1,550,000, and $1,331,000, respectively.
Value Line, Inc. Notes to Consolidated Financial Statements
Note 8-Incentive Stock Options:
On April 17, 1993, the Incentive Stock Option Plan expired. On the date of expiration, 22,550 options available for grant were cancelled. Information on the 1983 Incentive Stock Option Plan for the three years ended April 30, 1998, is as follows:
Options outstanding at April 30, 1998 expire at various dates through March 2003. At April 30, 1998, 2,975 of the outstanding options were exercisable. Of the common stock held in treasury at April 30, 1998, 2,975 shares were held for exercise of stock options.
Note 9-Treasury Stock:
Treasury stock, at cost, for the three years ended April 30, 1997, consists of the following:
Value Line, Inc. Notes to Consolidated Financial Statements
Note 10-Lease Commitments:
On June 4, 1993, the Company entered into a 15 year lease agreement that provides new primary office space, replacing the previous lease that expired during the second quarter of fiscal year 1994. The lease includes free rental periods as well as scheduled base rent escalations over the term of the lease. The total amount of the base rent payments is being charged to expense on the straight-line method over the term of the lease. The Company has recorded a Deferred charge on its Consolidated Balance Sheets to reflect the excess of annual rental expense over cash payments since inception of the lease.
Future minimum payments, exclusive of forecasted increases in real estate taxes and wage escalations, under operating leases for office space, with remaining terms of one year or more, are as follows:
Value Line, Inc. Notes to Consolidated Financial Statements
Rental expense for the years ended April 30, 1998, 1997, and 1996 under operating leases covering office space was $1,288,000, $1,456,000, and $1,402,000, respectively.
Note 11-Business Segments:
The Company operates in two business segments: Investment Periodicals and related Publications, and Investment Management. Identifiable assets consisted of:
Revenues and income from operations were as follows:
Value Line, Inc. Notes to Consolidated Financial Statements
Note 12-Net Capital:
The Company's wholly owned subsidiary, Value Line Securities, Inc. is subject to the net capital provisions of Rule 15c3-1 under the Securities Exchange Act of 1934, which requires the maintenance of minimum net capital of $100,000 and requires that aggregate indebtedness, as defined, shall not exceed fifteen times net capital, as defined. Additionally, dividends may only be declared if aggregate indebtedness is less than twelve times net capital.
At April 30, 1998, Value Line Securities, Inc. net capital, as defined, of $10,196,000 exceeded required net capital by $10,096,000 and the ratio of aggregate indebtedness to net capital was .10 to 1.
Note 13-Off-Balance-Sheet Risk:
The Company executes, as agent, securities transactions on behalf of the Value Line mutual funds. If either the mutual fund 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 in 1998, 1997 or 1996, nor accounts receivable for 1998 or 1997.
Value Line, Inc. Notes to Consolidated Financial Statements
Note 14-Estimated Fair Value of Financial and Derivative Instruments:
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 April 30, 1998, the Company held no derivative financial instruments. The average fair value of derivative financial instruments for the year ended April 30, 1998 consists of a liability of $243,700.
Net realized trading gains related to equity securities aggregated $6,869,000 for the year ended April 30, 1998. The net unrealized losses on trading securities for the period ended April 30, 1998 was $568,000. Net trading losses related to derivative financial instruments amounted to $2,925,000 for the year ended April 30, 1998.
Note 15-Special Dividend Distribution:
On December 16, 1996, the Board of Directors of the Company declared a special $15.00 per share dividend which was paid January 2, 1997, to all shareholders of record on December 26, 1996. The Company paid this dividend out of accumulated earnings and profits.
The dividend was paid pursuant to a transaction in which the Parent settled a lawsuit and purchased all the AB&Co. shares held by the Arnold Van Hoven Bernhard family and the trustees of a trust of which he is the income beneficiary. Accordingly, Jean B. Buttner, Chief Executive Officer of the Company, now owns 100% of the voting shares of the Parent.
Note 16-Year 2000:
The Company recognizes the need to ensure its computer systems and software applications are converted to a year 2000 date with no disruption to business operations. In light of this, the Company has established a central committee to coordinate, evaluate and implement changes necessary for compliance. Additionally, the Company is communicating with suppliers, financial institutions, and others with which it does business to ensure they are also compliant with the year 2000 date. Significant areas of operations which will be impacted have already been identified and conversion efforts are underway. The total cost of compliance and its effect on the Company's future results of operations are being determined as part of the detailed conversion planning. The total cost, including routine hardware enhancements and modifications to software applications is not expected to exceed $1,000,000.