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 July 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.

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 consolidated 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)

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

3

PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

VALUE LINE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)

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

4

PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

VALUE LINE, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED JULY 31, 2004
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)

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

5

PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

VALUE LINE, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED JULY 31, 2003
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)

The accompanying notes are an integral part of these consolidated 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 15,
2004 for the fiscal year ended April 30, 2004. 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 July
31, 2004 and April 30, 2004, cash equivalents included $14,252,000 and
$122,319,000 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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VALUE LINE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Marketable Securities - Note 2:
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Trading Securities:
Securities held by the Company had an aggregate cost of $11,856,000 and a
fair market value of $12,244,000 at July 31, 2004, and an aggregate cost of
$18,854,000 and a fair market value of $19,981,000 at April 30, 2004. The
proceeds from sales of trading securities during the first quarter of fiscal
2005, were $17,451,000 and the related gain on these sales was $468,000. The
proceeds from sales of trading securities during the three months ended July
31, 2003 were $3,787,000 and the related gain on these sales was $209,000.

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 $21,572,000 and the fair market
value was $39,556,000 at July 31, 2004. The aggregate cost of the long term
equity securities at April 30, 2004 was $24,502,000 and the fair market value
was $46,356,000. For the three months ended July 31, 2004, the decrease in
gross unrealized appreciation on these securities of $3,870,000, net of
deferred taxes of $1,355,000, was included in shareholders' equity. During
the first three months of fiscal 2005, the Company sold various securities
from its long term equity securities portfolio. The proceeds from sales of
equity securities were $6,500,000 and the related gain on these sales was
$3,570,000. This compares to proceeds of $2,094,000 and the related loss of
$6,000 on sales from the long term equity securities portfolio for the three
months ended July 31, 2003.

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

The aggregate cost and fair market value at April 30, 2004 for U.S. government
debt securities portfolio classified as available for sale were as follows:

The average yield on the U.S. Government debt securities held to maturity at
July 31, 2004 and April 30, 2004 was 1.24% and 2.59%, respectively.

Proceeds received from settlement of long-term fixed income securities sales of
$5,019,000 during the first quarter ended July 31, 2004 were equal to the cost
of the securities. Proceeds from sales of long-term fixed income securities
during the three months ended July 31, 2003 were $44,178,000 and the related
gain on sales was $406,000.

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VALUE LINE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Supplemental Disclosure of Cash Flow Information - Note 3:
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Cash payments for income taxes were $1,056,000 and $1,152,000 during the three
months ended July 31, 2004 and 2003, respectively.

Employees' Profit Sharing and Savings Plan - Note 4:
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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 was $360,000 for the three months ended July 31, 2004 and
2003.

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
July 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 three months ended July 31, 2004, decreases
in gross unrealized gains on these securities were $3,870,000 and the decreases
in related deferred taxes were $1,355,000. The increases during the first three
months of fiscal 2004 in gross unrealized gains on these securities and the
related deferred taxes were $1,616,000 and $564,000, respectively.

Related Party Transactions - Note 6:
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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 three months ended July 31, 2004
and 2003, investment management fees, 12b-1 service and distribution fees and
brokerage commission income, net of clearing fees, amounted to $7,777,000 and
$7,527,000, respectively. These amounts include service and distribution fees of
$2,417,000 and $2,362,000, respectively. The related receivables from the funds
for management advisory fees and 12b-1 service fees included in Receivable from
affiliates were $2,399,000 and $2,448,000 at July 31, 2004 and April 30, 2004,
respectively.

For the three months ended July 31, 2004 and 2003, the Company was reimbursed
$159,000 and $134,000, respectively, for payments it made on behalf of and
services it provided to Arnold Bernhard and Company, Inc. ("Parent"). At July
31, 2004 and April 30, 2004, Receivable from affiliates included a receivable
from the Parent of $43,000 and $70,000 respectively.

9

VALUE LINE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Federal, State and Local Income Taxes - Note 7:
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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:
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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)

11

VALUE LINE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

Contingencies - Note 9:
- -----------------------

The Company commenced an action in New York Supreme Court against a small
mutual fund company pertaining to a contemplated transaction. The Company is
seeking damages in an unspecified amount. The Company was countersued for
alleged damages in excess of $5,000,000. A related entity of the defendant in
the New York action brought suit against the Company and certain Directors in
Federal Court in Texas based on the same transaction. 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
the Company's meritorious defenses, it is management's belief that the expected
outcome of this matter will not have a material adverse effect on the Company's
consolidated results of operations and financial condition.

Special Dividend - Note 10:
- ---------------------------

On April 23, 2004, the Board of Directors of the Company declared a
distribution from its Retained Earnings in the form of a special dividend of
$17.50 per share or $174,678,000 to all shareholders of record as of May 7,
2004, which was paid on May 19, 2004. The purpose of the dividend was to
return to all shareholders, in the form of cash, a significant portion of the
earnings of the Company from its successful operations over the past number of
years, at a time when shareholders could enjoy the present favorable tax rates
on dividends.

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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
$71,984,000 at July 31, 2004. In addition to $25,952,000 of working capital, the
Company has long-term securities with a market value of $46,032,000, that,
although classified as non-current assets, are also readily marketable should
the need arise.

The Company's cash flow from operations of $3,435,000 for the three months
ended July 31, 2004 was 38% lower than fiscal 2004's cash flow of $5,541,000.
The decrease in cash flow from operations during the first quarter of fiscal
2005 was primarily a result of the timing of payments for certain marketing
expenses, a decline in new publication orders, which resulted during volatile
financial market and geopolitical conditions, and the contribution to the
Company's profit sharing plan. Net cash inflows of $12,224,000 from investing
activities during the first three months of fiscal 2005 resulted primarily
from the redeployment of holdings in long term and trading equity securities
to fixed income and cash securities. Cash outflows from financing activities
of $177,172,000 reflect the Company's normal quarterly dividend of $.25 per
share as well as a special $17.50 dividend paid to all shareholders on May 19,
2004.

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 numerous 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 2005.

OPERATING RESULTS

Net income for the three months ended July 31, 2004 of $5,941,000 or $0.60
per share was 19% above income of $4,998,000 or $0.50 per share in fiscal 2004.
Operating income of $6,245,000 for the three months ended July 31, 2004 was 12%
above operating income of $5,572,000 for the same period of the last fiscal
year. Income from securities transactions for the first three months of fiscal
2005 was 32% above income for the same period of fiscal 2004. Revenues of
$21,241,000 for the three months ended July 31, 2004 were 1.5% higher than
revenues of $20,918,000 in the prior fiscal year.

13

Subscription revenues of $13,146,000 for the three months ended July 31,
2004 were 1% higher than revenues of $13,004,000 for the same period of the
prior fiscal year. Revenues from all electronic publications as well as
licensing fees were up 32% for the three months ended July 31, 2004 while
revenues from all print products were down 6% compared to the last fiscal year.
Investment management fees and services revenues of $8,095,000 for the three
months ended July 31, 2004 were 2% above the prior fiscal year's revenues of
$7,914,000.

Operating expenses for the three months ended July 31, 2004 of $14,996,000
were 2% below the last fiscal year's expenses of $15,346,000. Total advertising
and promotional expenses of $5,366,000 were 4% below the prior year's expenses
of $5,597,000. Salaries and employee benefit expenses of $5,333,000 were 4%
below expenses of $5,554,000 recorded in the prior fiscal year as a result of
staff reductions primarily in the Asset Management and Mutual Fund Survey
divisions. Production and distribution costs for the three months ended July 31,
2004 of $2,172,000 were 2% below expenses of $2,220,000 at July 31, 2003. The
decline in expenses was primarily due to lower paper, printing and distribution
costs that resulted from a migration in circulation from print to electronic
versions of our products and management's decision to discontinue issuing 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 $2,125,000 were 8% above the prior fiscal year's
expenses of $1,975,000. The net increase in administrative expenses was
primarily due to higher rent expenses resulting from scheduled lease increases
and increases in professional fees. These increases were partially offset by
lower software licensing and hardware maintenance fees that resulted from
renegotiating the vendors' pricing.

The Company's securities portfolios produced a gain of $3,360,000 for the
three months ended July 31, 2004 versus a gain of $2,539,000 for the same period
of the last fiscal year. The Company's trading portfolio produced a loss of
$279,000 during the three months ended July 31, 2004 versus gains of $934,000
during the same period of the last fiscal year. Income from securities
transactions for the three months ended July 31, 2004 also included dividend and
interest income of $66,000 and capital gains of $3,570,000 from sales of equity
securities from the Company's long-term portfolio. This compares to dividend and
interest income of $1,197,000 and capital gains of $401,000 from sales of
securities from the Company's long-term portfolio for the same period of the
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.

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 July 31,
2004 to be signed on its behalf by the undersigned thereunto duly authorized.

Value Line, Inc.
(Registrant)

Date: September 14, 2004 By: s/Jean Bernhard Buttner

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Jean Bernhard Buttner
Chairman & Chief Executive Officer

Date: September 14, 2004 By: s/Stephen R. Anastasio

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Stephen R. Anastasio
Chief Financial Officer

Date: September 14, 2004 By: s/ David T. Henigson

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David T. Henigson
Vice President and Treasurer

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