-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OwaatcYnwg+Thb1NWCWc6nvVrg57V8umlHSr+BX7TUfWSmPy0z+uyZvudkZBRHhf s73rs8KyXQ/FLynAhrgqCQ== 0000912057-02-010350.txt : 20020415 0000912057-02-010350.hdr.sgml : 20020415 ACCESSION NUMBER: 0000912057-02-010350 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020131 FILED AS OF DATE: 20020318 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VALUE LINE INC CENTRAL INDEX KEY: 0000717720 STANDARD INDUSTRIAL CLASSIFICATION: INVESTMENT ADVICE [6282] IRS NUMBER: 133139843 STATE OF INCORPORATION: NY FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-11306 FILM NUMBER: 02577883 BUSINESS ADDRESS: STREET 1: 220 E 42ND ST CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2129071500 10-Q 1 a2073180z10-q.txt FORM 10-Q 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 January 31, 2002 Commission file number 0-11306 ------- VALUE LINE, INC. ---------------- (Exact name of registrant as specified in its charter) New York 13-3139843 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 220 East 42nd Street, New York, New York 10017-5891 - -------------------------------------------------------------------------------- (address of principal executive offices) (zip code) Registrant's telephone number including area code (212) 907-1500 -------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at January 31, 2002 ----- ------------------------------- Common stock, $.10 par value 9,979,625 Shares ---------------- PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Value Line, Inc. Consolidated Balance Sheets (in thousands, except share amounts) (unaudited)
Jan. 31, April 30, 2002 2001 --------- --------- Assets Current Assets: Cash and cash equivalents (including short term investments of $117,572 and $86,094, respectively) $ 117,836 $ 86,424 Trading securities 7,608 15,360 Accounts receivable, net of allowance for doubtful accounts of $125 and $131, respectively 1,729 2,216 Receivable from affiliates 2,655 2,821 Prepaid expenses and other current assets 806 1,274 Deferred income taxes 742 742 --------- --------- Total current assets 131,376 108,837 Long term securities 112,141 148,784 Property and equipment, net 8,761 9,423 Capitalized software and other intangible assets, net 3,173 3,948 --------- --------- Total assets $ 255,451 $ 270,992 ========= ========= Liabilities and Shareholders' Equity Current Liabilities: Accounts payable and accrued liabilities $ 4,921 $ 5,716 Payable to clearing broker 998 -- Accrued salaries 1,979 2,291 Dividends payable 2,495 2,494 Accrued taxes payable 252 423 --------- --------- Total current liabilities 10,645 10,924 Unearned revenue 39,128 39,526 Deferred income taxes 12,117 20,194 Deferred charges -- 142 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 970 963 Retained earnings 171,663 163,416 Treasury stock, at cost (20,375 shares on 1/31/02, and 21,075 on 4/30/01) (392) (406) Accumulated other comprehensive income, net of tax 20,320 35,233 --------- --------- Total shareholders' equity 193,561 200,206 --------- --------- Total liabilities and shareholders' equity $ 255,451 $ 270,992 ========= =========
The accompanying notes and independent auditor's review report 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)
Three months ended Nine months ended Jan. 31, Jan. 31, 2002 2001 2002 2001 ------- ------- ------- ------- Revenues: Investment periodicals and related publications $13,189 $14,189 $39,697 $42,060 Investment management fees & svcs 8,431 10,767 26,540 33,124 ------- ------- ------- ------- Total revenues 21,620 24,956 66,237 75,184 ------- ------- ------- ------- Expenses: Advertising and promotion 5,438 6,591 15,525 17,300 Salaries and employee benefits 5,771 5,975 17,541 18,066 Production and distribution 2,088 1,979 6,352 5,668 Office and administration 2,008 2,275 5,927 6,646 ------- ------- ------- ------- Total expenses 15,305 16,820 45,345 47,680 ------- ------- ------- ------- Income from operations 6,315 8,136 20,892 27,504 Income from securities transactions, net 3,074 10,803 5,509 13,017 ------- ------- ------- ------- Income before income taxes 9,389 18,939 26,401 40,521 Provision for income taxes 3,771 7,146 10,669 16,006 ------- ------- ------- ------- Net income $ 5,618 $11,793 $15,732 $24,515 ======= ======= ======= ======= Earnings per share, basic & fully diluted $ 0.56 $ 1.19 $ 1.58 $ 2.46 ======= ======= ======= =======
The accompanying notes and independent auditor's review report are an integral part of these financial statements. 3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS VALUE LINE, INC. Consolidated Statements Of Cash Flows (In Thousands) (unaudited)
For the nine months ended Jan. 31, Jan. 31, 2002 2001 --------- --------- Cash flows from operating activities: Net income $ 15,732 $ 24,515 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,263 2,416 Gains on sales of trading securities and securities held for sale (3,641) (10,600) Unrealized losses on trading securities 398 1,647 Writedown of equipment 6 161 Changes in assets and liabilities: Decrease in unearned revenue (398) (3,009) Decrease in deferred charges (142) (208) Decrease in accounts payable and accrued expenses (795) (968) Decrease in accrued salaries (312) (175) (Decrease)/increase in accrued taxes payable (171) 1,895 Decrease/(increase) in prepaid expenses and other current assets 468 (128) Decrease in accounts receivable 487 229 Decrease/(increase) in receivable from affiliates 166 (203) --------- --------- Total adjustments (1,671) (8,943) --------- --------- Net cash provided by operations 14,061 15,572 Cash flows from investing activities: Proceeds from sales of long term securities 52,191 35,075 Purchases of long term securities (28,792) (34,348) Proceeds from sales of trading securities 31,726 30,543 Purchases of trading securities (29,479) (36,004) Acquisitions of property, and equipment (362) (580) Expenditures for capitalized software (470) (809) --------- --------- Net cash provided by/(used in) investing activities 24,814 (6,123) Cash flows from financing activities: Proceeds from sales of treasury stock 21 -- Dividends paid (7,484) (7,485) --------- --------- Net cash used in financing activities (7,463) (7,485) --------- --------- Net increase in cash and cash equivalents 31,412 1,964 Cash and cash equivalents at beginning of period 86,424 47,933 --------- --------- Cash and cash equivalents at end of period $ 117,836 $ 49,897 ========= =========
The accompanying notes and independent auditor's review report are an integral part of these financial statements. 4 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS VALUE LINE, INC. STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE NINE MONTHS ENDED JANUARY 31, 2002 (in thousands, except share amounts) (unaudited)
Common stock Accumulated Number Additional Other Total of paid-in Treasury Comprehensive Retained Comprehensive Shareholders' shares Amount capital Stock income earnings income Equity ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Balance at May 1, 2001 9,978,925 $1,000 $963 ($406) $163,416 $ 35,233 $200,206 Comprehensive income Net income $ 15,732 15,732 15,732 Other comprehensive income, net of tax: Change in unrealized gains on securities (14,913) (14,913) (14,913) -------- Comprehensive income $ 819 ======== Exercise of stock options 700 7 14 21 Dividends declared (7,485) (7,485) ---------- ------ ---- ----- -------- -------- -------- Balance at January 31, 2002 9,979,625 $1,000 $970 ($392) $171,663 $ 20,320 $193,561 ========== ====== ==== ===== ======== ======== ========
The accompanying notes and independent auditor's review report are an integral part of these financial statements. 5 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS VALUE LINE, INC. STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE NINE MONTHS ENDED JANUARY 31, 2001 (in thousands, except share amounts) (unaudited)
Common stock Accumulated Number Additional Other Total of paid-in Treasury Comprehensive Retained Comprehensive Shareholders' shares Amount capital Stock income earnings income Equity --------- --------- ---------- ---------- ---------- ---------- ---------- ---------- Balance at May 1, 2000 9,978,625 $1,000 $959 ($411) $149,304 $ 60,014 $210,866 Comprehensive income Net income $ 24,515 24,515 24,515 Other comprehensive income, net of tax: Change in unrealized gains on securities (17,388) (17,388) (17,388) -------- Comprehensive income $ 7,127 ======== Dividends declared (7,485) (7,485) --------- ------ ---- ----- -------- -------- -------- Balance at January 31, 2001 9,978,625 $1,000 $959 ($411) $166,334 $ 42,626 $210,508 ========= ====== ==== ===== ======== ======== ========
The accompanying notes and independent auditor's review report are an integral part of these financial statements. 6 VALUE LINE, INC. NOTES TO THE CONSOLIDATED 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 30, 2001 for the fiscal year ended April 30, 2001. 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 January 31, 2002 and April 30, 2001, cash equivalents included $117,424,000 and $86,011,000, 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 and government debt securities, is accounted for in accordance with Statement of Financial Accounting Standards No.115, "Accounting for Certain Investments in Debt and Equity Securities". The Valuel Line Mutual Funds are valued at market with unrealized gains and losses on these securities reported, net of applicable taxes, as a separate component of Shareholders' Equity. Investments in government debt securities that are held to maturity are carried at amortized cost. Realized gains and losses on sales of the long term securities are recorded in earnings on trade date and are determined on the identified cost method. Trading securities, which consist of securities held by the Company , are valued at market with realized and unrealized gains and losses included in earnings. Advertising expenses: The Company expenses advertising costs as incurred. 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 FINANCIAL STATEMENTS Marketable Securities - Note 2: Trading Securities: Securities held by the Company had an aggregate cost of $7,627,000 and a market value of $7,608,000 at January 31, 2002, and an aggregate cost of $14,981,000 and a market value of $15,360,000 at April 30, 2001 Long-Term Securities: Equity Securities Available for Sale: The aggregate cost of the long-term equity securities was $59,105,000 and the market value was $90,321,000 at January 31, 2002. The aggregate cost of the long-term equity securities at April 30, 2001 was $94,579,000 and the market value was $148,784,000. For the nine months ended January 31, 2002, the decrease in gross unrealized appreciation on these securities of $22,990,000, net of deferred taxes of $8,077,000, was included in shareholders' equity. During the second quarter of fiscal 2002, the Company sold various securities from its long term equity securities portfolio. The proceeds from these sales were $49,903,000 and the related gain on these sales were $6,472,000. In addition, the Company received capital gain distributions of $2,276,000 from its investment in the Value Line Mutual Funds, which were reinvested in their respective funds. Government Debt Securities Held to Maturity: The Company's investment in debt securtities are held to maturity and valued at amortized cost. The amortized cost and aggregate fair value at January 31, 2002 were $21,820,000 and $21,906,000 for U.S.government debt securities which mature as follows:
(In Thousands) Amortized Cost Fair Value - -------------------------------------------------------------------------------------- Due in 1-2 years 13,026 13,102 Due in 2-5 years 8,794 8,804 ----------------------------------------- Total investment in debt securities $21,820 $21,906 =========================================
The average yield on the debt securities held at January 31, 2002 was 3.46%. Supplemental Disclosure Of Cash Flow Information - Note 3: Cash payments for income taxes were $10,837,000 and $14,111,000 during the nine months ended January 31, 2002 and 2001, respectively. Employees' Profit Sharing And Savings Plan - Note 4: 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. The estimated profit sharing plan contribution, which is included as an expense in salaries and employee benefits in the Consolidated Statement of Income for the nine months ended Janaury 31, 2002 and 2001, was $954,000 and $1,035,000, respectively. 8 VALUE LINE, INC. NOTES TO THE CONSOLIDATED 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 January 31, 2002 and 2001, the Company held long term equity securities classified as available-for-sale. For the nine months ended January 31, 2002 and 2001 the decreases in gross unrealized gains on these securities were $22,990,000 and $26,751,000 and the decreases in related deferred taxes were $8,077,000 and $9,363,000, respectively. Related Party Transactions - Note 6: 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. Effective July 1, 2000, the Company received service and distribution fees under rule 12b-1 of the Investment Company Act of 1940 from all but two of the fifteen mutual funds for which Value Line is the adviser. 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 nine months ended January 31, 2002 and January 31, 2001 investment management fees, 12b-1 service and distribution fees and brokerage commission income, net of clearing fees, amounted to $24,976,000 and $30,682,000, respectively. These amounts include service and distribution fees of $4,809,000 and $4,742,000, respectively. The related receivables from the funds for management advisory fees and 12b-1 service fees included in Receivable from affiliates were $2,565,000 and $2,697,000 at January 31, 2002 and April 30, 2001, respectively. For the nine months ended January 31, 2002 and 2001, the Company was reimbursed $390,000 and $389,000, respectively, for payments it made on behalf of and services it provided to Arnold Bernhard and Company, Inc. ("Parent"). At January 31, 2002 and April 30, 2001, Receivable from Affiliates included a receivable from the Parent of $48,000 and $46,000 respectively. For the nine months ended January 31, 2002 and 2001, the Company made federal income tax payments to the Parent amounting to $8,898,000 and $11,450,000, respectively. 9 VALUE LINE, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Federal, State And Local Income Taxes - Note 7: The Company computes its tax in accordance with the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". The provision for income taxes includes the following:
Nine months ended January 31, 2002 2001 ----------------------------- (in thousands) Current: Federal $ 8,841 $14,004 State and local 1,958 2,537 ----------------------------- 10,799 16,541 Deferred: Federal (119) (519) State and local (11) (16) ----------------------------- (130) (535) ----------------------------- $10,669 $16,006 =============================
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 asset/(liability) are primarily a result of unrealized gains on the Company's trading and long term securities portfolios. Business Segments - Note 8: 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 FINANCIAL STATEMENTS Disclosure of Reportable Segment Profit and Segment Assets (in thousands)
Nine months ended January 31, 2002 Publishing Investment Total Management Services Revenues from external customers $39,697 $ 26,540 $ 66,237 Intersegment revenues 163 -- 163 Income from securities transactions 75 5,434 5,509 Depreciation and amortization 2,184 43 2,227 Segment profit 11,072 9,856 20,928 Segment assets 18,535 235,832 254,367 Expenditures for segment assets 819 13 832 Nine months ended January 31, 2001 Publishing Investment Total Management Services Revenues from external customers $ 42,060 $ 33,124 $ 75,184 Intersegment revenues 101 -- 101 Income from securities transactions 216 12,801 13,017 Depreciation and amortization 2,307 61 2,368 Segment profit 11,652 15,900 27,552 Segment assets 20,007 265,388 285,395 Expenditures for segment assets 1,280 100 1,380
11 VALUE LINE, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Reconciliation of Reportable Segment Revenues, Operating Profit and Assets (in thousands)
Nine months ended January 31, 2002 2001 Revenues Total revenues for reportable segments $ 66,400 $ 75,285 Elimination of intersegment revenues (163) (101) ------------------------ Total consolidated revenues $ 66,237 $ 75,184 ======================== Segment profit Total profit for reportable segments $ 26,437 $ 40,569 Less: Depreciation related to corporate assets (36) (48) ------------------------ Income before income taxes $ 26,401 $ 40,521 ======================== Assets Total assets for reportable segments $ 254,367 $ 285,395 Corporate assets 1,084 618 ------------------------ Consolidated total assets $ 255,451 $ 286,013 ========================
12 [LETTERHEAD OF HOROWITZ & ULLMANN, P.C.] Report Of Independent Accountants To the Board of Directors and Shareholders of Value Line, Inc. New York, NY We have reviewed the accompanying consolidated balance sheet of Value Line, Inc. and its subsidiaries as of January 31, 2002 and the related consolidated statements of income, changes in stockholders' equity, and cash flows for the nine months ended January 31, 2002 and 2001. All information included in these financial statements is the representation of the Company's Management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet as of April 30, 2001 and the related consolidated statements of income, changes in stockholders' equity, and cash flows for the year then ended -(not presented herein), and in our report dated July 12, 2001, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information, set forth in the accompanying consolidated balance sheet as of April 30, 2001 is fairly stated in all material respects. /s/ HOROWITZ & ULLMANN, P.C. March 11, 2002 13 ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS: LIQUIDITY AND CAPITAL RESOURCES: The Company had liquid resources, which were used in its business, of $232,872,000 at January 31, 2002. In addition to $120,731,000 of working capital, the Company had long-term securities with a market value of $112,141,000, that, although classified as non-current assets, are also readily marketable should the need arise. The Company's cash flow from operations of $14,061,000 for the nine months ended January 31, 2002 was 10% lower than fiscal 2001's cash flow of $15,572,000. The decrease in cash flow from operations was primarily a result of lower pretax earnings partially offset by an increase in unserved paid subscription orders. Net cash inflows from investing activities during the first nine months of fiscal 2002 were $30,937,000 higher than net cash flows for the first nine months of fiscal 2001 due largely to the Company's decision to realign its long-term securities holdings and substantially reduce its equity trading portfolio holdings. 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 2002. RESULTS OF OPERATIONS: Net income for the nine months ended January 31, 2002 of $15,732,000 or $1.58 per share compared to net income of $24,515,000 or $2.46 per share during last fiscal year. Net income for the third quarter ended January 31, 2002 was $5,618,000 or $.56 per share compared to net income of $11,793,000 or $1.19 for the three months ended January 31, 2001. The decline in net income during the nine months and third quarter periods was largely the result of a decrease in income from securities transactions. The decline resulted primarily from the reduction of $8,200,000 in annual capital gain distributions from the Company's investments in the Value Line mutual funds, reflecting effective tax management. The remaining decrease in net income resulted from the lower level of revenues, primarily investment management fees and services revenue due to a decline in average net asset values in the Value Line mutual funds. The change in net asset values in the Value Line family of mutual funds is largely attributable to the overall decline in the financial markets with the NASDAQ index falling 30% during the past twelve months. Subscription revenues of $39,697,000 were 6% below revenues for the same period of the prior fiscal year. The decrease in subscription revenues compared to the prior year's is primarily a result of the 6% decline in revenues from THE VALUE LINE INVESTMENT SURVEY and related products, which include THE VALUE LINE INVESTMENT SURVEY FOR WINDOWS, THE RESEARCH CENTER, CONDENSED EDITION, EXPANDED EDITION, AND VALUE LINE SELECT. As of January 31, 2002, combined circulation of THE VALUE INVESTMENT SURVEY, VALUE LINE INVESTMENT SURVEY FOR WINDOWS, THE RESEARCH CENTER, AND CONDENSED EDITION was 2% higher than the prior year's circulation. The change in total subscription revenues is primarily attributable to the continued difficult financial market conditions that investors face with the NASDAQ index falling 30% during the past 12 months. This in turn, restrained demand for the Company's investment publications. Recently, the Company experienced an increase in subscription activity with total new subscription orders rising over 5% from the level during the first nine months of the prior fiscal year. Investment management fees and services revenues of $26,540,000 for the nine months ended January 31, 2002, were 20% below the prior fiscal year's revenues. 14 ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS: Operating expenses for the nine months ended January 31, 2002 of $45,345,000 were 5% below last year's expenses of $47,680,000. Total advertising expenses of $15,525,000 were 10% below the prior year's expenses of $17,300,000. The decrease in advertising expenses resulted primarily from the lower level of marketing costs for two of the equity mutual funds for which the Company is the advisor and a decline in discount brokerage commissions, which were directly related to the lower level of assets under management in the Value Line family of mutual funds. The Company increased its direct mail marketing efforts for both, the Value Line publications and the Value Line mutual funds by 37% compared to the same period of last fiscal year primarily due to the effectiveness of this method of advertising. In addition, the United States Postal Service raised postal rates approximately 9% and 2% effective January 1, 2001 and July 1, 2001, respectively, which has increased both direct mail marketing and product distribution expenses during fiscal 2002. Salaries and employee benefit expenses of $17,541,000 were 3% below expenses of $18,066,000 recorded in the prior fiscal year. Production and distribution costs for the nine months ended January 31, 2002 of $6,352,000 were 12% above expenses of $5,668,000 for the nine months ended January 31, 2001. The increase in production and distribution expenses was a result of the aforementioned increase in postage costs and a reclassification from administrative expenses, maintenance and amortization costs for new product development expenditures for Version 2 of the Company's Website. Additionally, expenses associated with outsourcing a portion of the Company's stock and mutual fund data collection services and amortization of previously deferred costs for the development of computer software for internal use contributed to the higher production expenses. Office and administrative expenses of $5,927,000 were 11% below last year's expenses of $6,646,000. The net decrease in administrative expenses primarily resulted from the aforementioned reclassification of maintenance and amortization expenses for software development to production expenses and a decline in depreciation and rent expenses. The Company's securities portfolios produced a gain of $5,509,000 for the nine months ended January 31, 2002, which is 58% below the gain of $13,017,000 for the same period of last fiscal year. The first nine months of fiscal 2002 include gains of $6,472,000 attributable to sales of securities from the Company's long-term securities portfolio. The Company's trading portfolio produced losses of $5,505,000 during the nine months ended January 31, 2002, versus a loss of $1,490,000 during the same period of last fiscal year. The value of the Company's securities portfolios has been negatively impacted by the declining financial market that started at the beginning of fiscal year 2001 and has accelerated dramatically during the current fiscal year. Income from securities transactions also included dividend income of $2,114,000 for the nine months ended January 31, 2002, which compares to dividend income of $4,190,000 for the same period of last fiscal year. Capital gain distributions from the Company's mutual funds of $2,276,000 were $8,200,000 below the prior year due to the Company's effective tax management of the Value Line mutual funds. 15 VALUE LINE, INC. Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Form 10Q report for the period ended January 31, 2002 to be signed on its behalf by the undersigned thereunto duly authorized. Value Line, Inc. (Registrant) Date: March 18, 2002 By: /s/ Jean Bernhard Buttner ------------------------- Jean Bernhard Buttner Chairman & Chief Executive Officer Date: March 18, 2002 By: /s/ Stephen R. Anastasio ------------------------- Stephen R. Anastasio Chief Accounting Officer Date: March 18, 2002 By: /s/ David T. Henigson ------------------------- David T. Henigson Vice President and Treasurer 16 -----END PRIVACY-ENHANCED MESSAGE-----