VALUE LINE INC - 10-Q Quarterly Report

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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, 2004 Commission file number 0-11306
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VALUE LINE, INC.
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(Exact name of registrant as specified in its charter)

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

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

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

Yes /X/ No / /

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

CLASS OUTSTANDING AT JANUARY 31, 2004
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Common stock, $.10 par value 9,981,600 SHARES

PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

VALUE LINE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)

The accompanying notes are an integral part of these financial statements.

2

CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

The accompanying notes are an integral part of these financial statements.

3

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)

The accompanying notes are an integral part of these financial statements.

4

STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED JANUARY 31, 2004
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)

The accompanying notes are an integral part of these financial statements.

5

STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED JANUARY 31, 2003
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)

The accompanying notes 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 25,
2003 for the fiscal year ended April 30, 2003. Results of operations covered by
this report may not be indicative of the results of operations for the entire
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
January 31, 2004 and April 30, 2003, cash equivalents included $12,077,000 and
$4,979,000 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 securities are
valued at market with unrealized gains and losses on these securities reported,
net of applicable taxes, as a separate component of Shareholders' Equity.
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 held by the Company are valued at market with 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 and common stock equivalents 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.

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Marketable Securities - Note 2:

Trading Securities:
Securities held by the Company had an aggregate cost of $19,888,000 and a market
value of $22,413,000 at January 31, 2004, and an aggregate cost of $2,908,000
and a market value of $3,093,000 at April 30, 2003. The proceeds from sales of
trading securities were $22,179,000 and the related gain on these sales was
$1,285,000.

Long-Term Securities:
Equity Securities Available for Sale:
The aggregate cost of the long term equity securities, which are primarily
invested in the Value Line mutual funds, was $30,441,000 and the market value
was $54,157,000 at January 31, 2004. The aggregate cost of the long term equity
securities at April 30, 2003 was $31,366,000 and the market value was
$45,150,000. For the nine months ended January 31, 2004, the increase in gross
unrealized appreciation on these securities of $9,914,000, net of deferred taxes
of $3,470,000, was included in shareholders' equity.

During the nine months of fiscal 2004, the Company sold various securities from
its long term equity securities portfolio. The proceeds from sales of equity
securities were $2,094,000 and the related gain on these sales was $21,000,
which included $27,000 of capital gain distributions the Company received from
the Value Line family of mutual funds. This compares to proceeds of $19,595,000
and the related gain of $734,000 on sales from the long term equity securities
portfolio, which included capital gain distributions from the Value Line mutual
funds of $611,000 for the nine months ended January 31, 2003.

Government Debt Securities:
The Company's investments in debt securities are available for sale and valued
at market value. The aggregate cost and fair value at January 31, 2004 for U.S.
government debt securities classified as available for sale were as follows:

The aggregate cost and fair value at April 30, 2003 for U.S. government debt
securities classified as available for sale were as follows:

The average yield on the U.S. Government debt securities held to maturity at
January 31, 2004 and April 30, 2003 was 2.41% and 3.36%, respectively.

During the nine months of fiscal 2004 the decrease in unrealized holding gains
of $1,991,000 net of deferred taxes of $697,000 was included in shareholders'
equity.

Proceeds from sales of long-term fixed income securities during the nine months
ended January 31, 2004 were $62,329,000 and the related gain on sales was
$591,000. This compares to proceeds of $50,526,000 and the related gain of
$544,000 from sales of long term debt securities for the nine months ended
January 31, 2003.

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Supplemental Disclosure of Cash Flow Information - Note 3:

Cash payments for income taxes were $9,320,000 and $7,504,000 during the nine
months ended January 31, 2004 and 2003, 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 January 31, 2004 and 2003, was
$880,000 and $805,000, respectively.

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, 2004 and 2003, the Company held long term equity and long term fixed
income securities classified as available for sale. The change in valuation of
these securities, net of deferred taxes has been recorded in the Company's
Consolidated Balance Sheets. For the nine months ended January 31, 2004,
increases in gross unrealized gains on these securities were $7,923,000 and the
increases in related deferred taxes were $2,773,000. The decreases during the
nine months of fiscal 2003 in gross unrealized gains on these securities and the
related deferred taxes were $17,747,000 and $6,212,000, respectively.

Related Party Transactions - Note 6:

The Company acts as investment adviser and manager for fourteen 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 (rule
12b-1) from all but two of the fourteen mutual funds for which Value Line is the
adviser. Effective September 18, 2002, the Company began receiving service and
distribution fees under rule 12b-1 from the remaining two funds, for which Value
Line, Inc. 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, 2004
and 2003, investment management fees, 12b-1 service and distribution fees and
brokerage commission income, net of clearing fees, amounted to $22,952,000 and
$21,244,000, respectively. These amounts include service and distribution fees
of $7,205,000 and $5,658,000, respectively. The related receivables from the
funds for management advisory fees and 12b-1 service fees included in Receivable
from affiliates were $2,488,000 and $2,249,000 at January 31, 2004 and April 30,
2003, respectively.

For the nine months ended January 31, 2004 and 2003, the Company was reimbursed
$365,000 and $371,000, respectively, for payments it made on behalf of and
services it provided to Arnold Bernhard and Company, Inc. ("Parent"). At January
31, 2004 and April 30, 2003, Receivable from affiliates included a receivable
from the Parent of $50,000 and $45,000 respectively.

9

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:

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 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

Disclosure of Reportable Segment Profit and Segment Assets (in thousands)

11

Reconciliation of Reportable Segment Revenues,
Operating Profit and Assets (in thousands)

Contingencies - Note 9:

Value Line commenced an action in New York Supreme Court against a small mutual
fund company pertaining to a contemplated transaction. Value Line is seeking
damages in an unspecified amount. Value Line was countersued for alleged damages
in excess of $5,000,000.

Although the ultimate outcome of the litigation is subject to the inherent
uncertainties of any legal proceeding, based upon Counsel's analysis of the
factual and legal issues and Value Line's meritorious defenses, it is
management's belief that the expected outcome of this matter will not have a
material adverse effect on Value Line's consolidated results of operations and
financial condition.

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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
$246,599,000 at January 31, 2004. In addition to $35,871,000 of working capital,
the Company has long-term securities with a market value of $210,728,000, that,
although classified as non-current assets, are also readily marketable should
the need arise.

The Company's cash flow from operations of $14,083,000 for the nine months
ended January 31, 2004 was 8% higher than fiscal 2003's cash flow of
$12,991,000. The rise in cash flow from operations was primarily due to a 7%
increase in total new full term subscription orders, an increase of 7% in the
Company's investment management business, and containment of expenses. Net cash
outflows of $2,573,000 from investing activities during the nine months of
fiscal 2004 resulted primarily from additional investments in the Company's
short term equity trading portfolio. Net cash outflows for investing activities
for the nine months of fiscal 2003 were due largely to the Company's decision
last fiscal year to re-deploy its cash and equity holdings into Government debt
obligations with higher effective yields.

From time to time, the Company's Parent has purchased additional shares of
Value Line, Inc. in the market when and as the Parent has determined it to be
appropriate. As stated several times in the past, the public is reminded that
the Parent may make additional purchases from time to time in the future.

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 2004.

OPERATING RESULTS

Net income for the nine months ended January 31, 2004 of $15,427,000 or
$1.55 per share was 17% above income of $13,195,000 or $1.32 per share in fiscal
2003. Net income for the third quarter ended January 31, 2004 of $4,904,000 or
$0.49 per share compared with net income of $5,671,000 or $0.57 per share for
the same period of the prior fiscal year. Operating income of $17,439,000 for
the nine months ended January 31, 2004 was 1% above operating income for the
same period of last fiscal year. Operating income of $6,040,000 during the third
quarter of fiscal 2004 was 2% higher than operating income for the third quarter
of fiscal 2003. Income from securities transactions for the nine months of
fiscal 2004 rose $4,183,000 above income for the same period of fiscal 2003.
Revenues of $62,827,000 for the nine months ended January 31, 2004 were

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1% above revenues in the prior fiscal year. Total shareholders' equity of
$208,464,000 at January 31, 2004, has increased $13,086,000 or approximately 7%
from April 30, 2003.

Subscription revenues of $38,769,000 for the nine months ended January 31,
2004 were 2% below revenues for the same period of the prior fiscal year. The
decrease in subscription revenues compared to the prior year's was primarily a
result of the 3% decline in revenues from THE VALUE LINE INVESTMENT SURVEY and
related products, which included VALUE LINE INVESTMENT SURVEY FOR WINDOWS, THE
VALUE LINE RESEARCH CENTER, THE VALUE LINE 600, THE VLIS SMALL AND MID-CAP STOCK
EDITION, AND VALUE LINE SELECT. Since April 2003, the Company experienced an
increase in subscription activity with total new full term subscription orders
rising 7% from the level during the nine months of the prior fiscal year.
Investment management fees and services revenues of $24,058,000 for the nine
months ended January 31, 2004 were 7% above the prior fiscal year's revenues of
$22,449,000.

Operating expenses for the nine months ended January 31, 2004 of
$45,388,000 were 1.3% above last year's expenses of $44,792,000. Total
advertising and promotional expenses of $16,119,000 were 4% above the prior
year's expenses of $15,485,000 primarily due to additional costs associated with
marketing two of the Company's equity mutual funds, higher discount brokerage
fees related to sales of the Value Line mutual funds shares, and increased
postal expenses for direct mail. Salaries and employee benefit expenses of
$16,283,000 were 2% above expenses of $15,949,000 recorded in the prior fiscal
year. Production and distribution costs for the nine months ended January 31,
2004 of $6,563,000 were 8% below expenses of $7,136,000 for the nine months
ended January 31,2003 primarily due to lower paper printing and distribution
costs that resulted from a migration in circulation from print products to
electronic version of our products and management's decision to discontinue
sending out print copies of the Reference Library to trial subscribers of THE
VALUE LINE INVESTMENT SURVEY AND THE VLIS SMALL AND MID-CAP STOCK EDITION.
Office and administrative expenses of $6,423,000 were 3% above last year's
expenses of $6,222,000. The net increase in administrative expenses resulted
primarily from higher rent expenses resulting from scheduled increases, higher
bank collection fees associated with an increase in the Company's publishing
credit card business, and increases in professional fees.

The Company's securities portfolios produced a gain of $7,511,000 for the
nine months ended January 31, 2004, which was 126% above the gain of $3,328,000
for the same period of last fiscal year. The Company's trading portfolio
produced a gain of $3,634,000 during the nine months ended January 31, 2004
versus losses of $1,080,000 during the same period of last fiscal year. Income
from securities transactions for the nine months ended January 31, 2004 also
included dividend and interest income of $3,349,000 and capital gains of
$613,000 from sales of securities from the Company's long-term portfolio of
equity and fixed income securities. This compares to dividend and interest
income of $3,135,000 and capital gains of $1,280,000 from sales of securities
from the Company's long-term portfolio for the same period of last fiscal year.

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Item 4. Disclosure Controls and Procedures

(a) The registrant's principal executive officer and principal financial
officer have concluded that the registrant's disclosure controls and
procedures (as defined in Exchange Act Rule 13a - 15(e)), based on their
evaluation of these controls and procedures as of the end of the period
covered by this report, are appropriately designed to ensure that material
information relating to the registrant is made known to such officers and
are operating effectively.

(b) The registrant's principal executive officer and principal financial
officer have determined that there have been no changes in the registrant's
internal control over financial reporting that occurred during the
registrant's last fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the registrant's internal control
over financial reporting.

15

VALUE LINE, INC.

Signature

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,
2004 to be signed on its behalf by the undersigned thereunto duly authorized.

Value Line, Inc.
(Registrant)

Date: March 16, 2004 By: s/Jean Bernhard Buttner
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Jean Bernhard Buttner
Chairman & Chief Executive Officer

Date: March 16, 2004 By: s/Stephen R. Anastasio
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Stephen R. Anastasio
Chief Financial Officer

Date: March 16, 2004 By: s/ David T. Henigson
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David T. Henigson
Vice President and Treasurer

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