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 October 31, 2004 Commission file number 0-11306
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VALUE LINE, INC.
----------------
(Exact name of registrant as specified in its charter)

New York 13-3139843

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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
--------------

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 SIX MONTHS ENDED OCTOBER 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 SIX MONTHS ENDED OCTOBER 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
October 31, 2004 and April 30, 2004, cash equivalents included $1,760,000 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.

7

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 $12,448,000 and a fair
market value of $13,906,000 at October 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 six months ended October
31, 2004, were $23,638,000 and the related gain on these sales was $247,000. The
proceeds from sales of trading securities during the six months ended October
31, 2003 were $11,713,000 and the related gain on these sales was $665,000.

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 $18,003,000 and the fair market
value was $35,204,000 at October 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 six months ended October 31, 2004, the decrease in
gross unrealized appreciation on these securities of $4,651,000, net of deferred
taxes of $1,628,000, was included in shareholders' equity. During the six months
ended October 31, 2004, the Company sold various securities from its long term
equity securities portfolio. The proceeds from sales of equity securities were
$12,672,000 and the related gain on these sales was $6,172,000. Proceeds and
capital gains for fiscal 2005 include $433,000 from the sale of shares of common
stock, received from a vendor in a negotiated contract. In addition, 15% or
$74,000 is being held in escrow until January 2006. 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 six months ended October 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 October 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
October 31, 2004 and April 30, 2004 was 1.31% and 2.59%, respectively.

During the six months ended October 31, 2004 the increase in unrealized holding
gains of $2,000 net of deferred taxes of $1,000 was included in shareholders'
equity.

Proceeds received from settlement of long-term fixed income securities sales of
$8,019,000 during the six months ended October 31, 2004 were equal to the cost
of the securities. Proceeds from sales of long-term fixed income securities
during the six months ended October 31, 2003 were $50,939,000 and the related
gain on sales was $591,000.

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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 $7,960,000 and $7,630,000 during the six
months ended October 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 $600,000 for the six months ended October 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
October 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 six months ended October 31, 2004,
decreases in gross unrealized gains on these securities were $4,651,000 and the
decreases in related deferred taxes were $1,628,000. The increases during the
six months ended October 31, 2003 in gross unrealized gains on these securities
and the related deferred taxes were $5,328,000 and $1,865,000, 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 six months ended October 31, 2004
and 2003, investment management fees, 12b-1 service and distribution fees and
brokerage commission income, net of clearing fees, amounted to $15,291,000 and
$15,046,000, respectively. These amounts include service and distribution fees
of $4,744,000 and $4,757,000, respectively. The related receivables from the
funds for management advisory fees and 12b-1 service fees included in Receivable
from affiliates were $2,402,000 and $2,448,000 at October 31, 2004 and April 30,
2004, respectively.

For the six months ended October 31, 2004 and 2003, the Company was reimbursed
$275,000 and $249,000, respectively, for payments it made on behalf of and
services it provided to Arnold Bernhard and Company, Inc. ("Parent"). At October
31, 2004 and April 30, 2004, Receivable from affiliates included a receivable
from the Parent of $59,000 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:
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The Company commenced an action in New York Supreme Court, seeking damages in
an unspecified amount, against a small mutual fund company pertaining to a
contemplated transaction. The Company was countersued for alleged damages in
excess of $5,000,000. The lawsuit was settled without a material adverse
effect on the Company.

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:
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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
$73,275,000 at October 31, 2004. In addition to $17,388,000 of working capital,
the Company has long-term securities with a market value of $55,887,000, that,
although classified as non-current assets, are also readily marketable should
the need arise.

The Company's cash flow from operations of $2,512,000 for the six months
ended October 31, 2004 was lower than fiscal 2004's cash flow of $6,517,000. The
decrease in cash flow from operations during the first six months of fiscal 2005
was primarily a result of a decline in new publication orders, which resulted
during volatile financial market and geopolitical conditions. In addition,
operating cash flow declined from lower interest income as a result of the
special dividend paid in May 2004 and higher income taxes due to an increase in
capital gains from sales of long-term equity securities holdings during fiscal
2005. Net cash inflows of $3,128,000 from investing activities during the six
months ended October 31, 2004 resulted primarily from the redeployment of
holdings in long-term and trading equity securities to long-term fixed income
and cash securities. Cash outflows from financing activities of $179,667,000
reflect the Company's normal quarterly dividend of $.25 per share for the first
two quarters of fiscal 2005 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 six months ended October 31, 2004 of $11,739,000 or
$1.18 per share was 12% above income of $10,523,000 or $1.05 per share in fiscal
2004. Net income for the second quarter of fiscal 2005 of $5,798,000 was 5%
above income of $5,525,000 for the comparable period of fiscal 2004. Operating
income of $12,113,000 for the six months ended October 31, 2004 was 6% above
operating income of $11,399,000 for the same period of the last fiscal year.
Operating income of $5,868,000 for the three months ended October 31, 2004 was
slightly above the operating income of $5,827,000 for the second quarter of the
last fiscal year. Income from securities transactions for the six months ended
October 31, 2004 was 18% above income for the same period of fiscal 2004.
Revenues of $42,038,000 for the six months ended October

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31, 2004 were 1% higher than revenues of $41,484,000 for the comparable period
of fiscal 2004. Revenues of $20,797,000 for the second quarter of fiscal 2005
were 1% above revenues of $20,566,000 for the three months ended October 31,
2003. Retained Earnings of $26,208,000 increased 35% or $6,749,000 during the
six months ended October 31, 2004, which was 22% higher than last year's growth
for the same period.

Subscription revenues of $26,099,000 for the six months ended October 31,
2004 were 2% higher than revenues of $25,637,000 for the same period of the
prior fiscal year. Revenues from all electronic publications as well as
licensing fees were up 29% for the six months ended October 31, 2004 while
revenues from all print products were down 5% compared to the last fiscal year's
level. Subscription revenues of $12,953,000 for the second quarter of fiscal
2005 were 3% above revenues of $12,633,000 for the three months ended October
31, 2003. Investment management fees and services revenues of $15,939,000 for
the six months ended October 31, 2004 were above the prior fiscal year's
revenues of $15,847,000.

Operating expenses for the six months ended October 31, 2004 of $29,925,000
were slightly lower than the last fiscal year's expenses of $30,085,000. Total
advertising and promotional expenses of $10,790,000 were 2% above the prior
year's expenses of $10,590,000. Salaries and employee benefit expenses of
$10,525,000 were 3% below expenses of $10,897,000 recorded in the prior fiscal
year. Production and distribution costs for the six months ended October 31,
2004 of $4,245,000 were 4% below expenses of $4,403,000 at October 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. Office and administrative expenses of $4,365,000 were
4% above the prior fiscal year's expenses of $4,195,000. The increase in
administrative expenses was primarily due to an increase in professional fees
and higher rent expenses resulting from scheduled lease increases. These
increases were partially offset by lower depreciation of fixed assets and lower
software licensing and hardware maintenance fees that resulted from
renegotiating vendors' pricing.

The Company's securities portfolios produced income of $6,929,000 for the
six months ended October 31, 2004 versus income of $5,884,000 for the same
period of the last fiscal year, an increase of 18% or $1,045,000. Income from
securities transactions for the six months ended October 31, 2004 included
dividend and interest income of $174,000 and capital gains of $6,749,000 from
sales of equity securities from the Company's short-term trading and long-term
portfolios, which compares to dividend and interest income of $2,305,000 and
capital gains of $3,583,000 from sales of securities from the Company's
short-term trading and long-term portfolios for the same period of the last
fiscal year. The lower dividend and interest income during fiscal 2005 was a
result of sales of the Company's fixed income securities during the latter part
of fiscal 2004 in preparation for payment on May 19, 2004 of a special dividend
of $17.50 per share to all common stockholders of record as of May 7, 2004.
Capital gains for fiscal 2005 include $433,000 from the sale of shares received
under the terms of a CEO negotiated contract with a vendor.

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

Value Line, Inc.
(Registrant)

Date: December 15, 2004 By: s/Jean Bernhard Buttner

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Jean Bernhard Buttner
Chairman & Chief Executive Officer

Date: December 15, 2004 By: s/Stephen R. Anastasio

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Stephen R. Anastasio
Chief Financial Officer

Date: December 15, 2004 By: s/ David T. Henigson

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David T. Henigson
Vice President and Treasurer

16