Item 1. BUSINESS.
Value Line, Inc. (the "Company"), a New York corporation, was organized in 1982 and is the successor to substantially all of the operations of Arnold Bernhard & Company, Inc. ("AB&Co."). As of June 18, 2003, AB & Co. owned approximately 86% of the Company's issued and outstanding common stock.
The Company's primary businesses are producing investment related periodical publications through its wholly-owned subsidiary, Value Line Publishing, Inc. ("VLP"), and providing investment advisory services to mutual funds, institutions and individual clients. VLP publishes in both print and electronic formats The Value Line Investment Survey(TM), one of the nation's major periodical investment services, as well as The Value Line Investment Survey - Small and Mid-Cap Edition, The Value Line 600, Value Line Select, The Value Line Mutual Fund Survey, The Value Line No-Load Fund Advisor, Value Line Insight, The Value Line Special Situations Service, The Value Line Options Survey and The Value Line Convertibles Survey. VLP also provides current and historical financial databases (DataFile, Estimates & Projections, Convertibles, Mutual Funds and other services) in standard computer formats and markets investment analysis software, Value Line Investment Survey FOR WINDOWS(R), Mutual Fund Survey FOR WINDOWS(R), Value Line Daily Options Survey and Value Line Electronic Convertibles. These electronic products are available on CD-Rom and offered directly on the Company's internet site, www.valueline.com. The Company's print and electronic services are marketed through media, direct mail and the internet to retail and institutional investors.
The Company is the investment adviser for the Value Line Family of Mutual Funds, which on April 30, 2003, included 15 open-end investment companies with various investment objectives. In addition, the Company manages investments for private and institutional clients. The Company is registered with the Securities and Exchange Commission as an investment adviser under the Investment Advisers Act of 1940.
In addition to VLP, the Company's other wholly-owned subsidiaries include a registered broker-dealer, Value Line Securities, Inc., and an advertising agency, Vanderbilt Advertising Agency, Inc. These subsidiaries primarily provide services used by the Company in its investment management and publishing businesses. Compupower Corporation, another subsidiary, serves the subscription fulfillment needs of the Company's publishing operations. Value Line Distribution Center, Inc. ("VLDC") handles all of the mailings of the publications to the Company's subscribers. Additionally, VLDC provides office space for Compupower
Corporation's computer operations center. The name "Value Line," as used to describe the Company, its products, and its subsidiaries, is a registered trademark of the Company. As used herein, except as the context otherwise requires, the term "Company" includes the Company and its consolidated subsidiaries.
A. Investment Information and Publications.
VLP publishes investment related publications and produces electronic products described below:
l. Publications:
The Value Line Investment Survey is a weekly investment related periodical that in addition to various timely articles on current economic, financial and investment matters ranks common stocks for future relative performance based on computer-generated statistics of financial results and stock market performance. A combined Index on our Web site allows the subscriber to easily locate a specific stock among the approximately 3,500 stocks covered in the Small and Mid-Cap Edition and in the standard edition of The Value Line Investment Survey. Two of the more important evaluations for each stock covered are "Timeliness(TM)" and "Safety (TM)." "TIMELINESS(TM)" relates to the probable relative price performance of one stock over the next six to twelve months, as compared to the rest of the approximately 1,700 covered stocks. Rankings are updated each week and range from Rank 1 for the expected best performing stocks to Rank 5 for the expected poorest performers. "Safety" Ranks are a measure of risk and are based primarily on the issuer's relative financial strength and its stock's price stability. "Safety" ranges from Rank 1 for the least risky stocks to Rank 5 for the riskiest. VLP employs approximately 110 analysts and statisticians who prepare articles of interest for each periodical and who evaluate stock performance and provide future earnings estimates and quarterly written evaluations with more frequent updates when relevant.
The Small and Mid-Cap Edition of The Value Line Investment Survey is a weekly publication introduced in 1995 that provides detailed descriptions of approximately 1,800 small-and medium-capitalization stocks, many listed on NASDAQ, beyond the 1,700 stocks of larger-capitalization companies traditionally covered in The Value Line Investment Survey - Standard Edition. Like The Value Line Investment Survey, the Small and Mid-Cap Edition has its own "Summary & Index" providing updated performance ranks and other data, as well as "screens" of key financial performance measures. The "Ratings and Reports" section, providing updated reports on about 140 stocks each week, has been organized to correspond closely to the industries reviewed in the Standard Edition of The Value Line Investment Survey. A combined Index, published semiannually, allows the subscriber to easily locate a specific stock among the approximately 3,500 stocks covered.
The Small and Mid-Cap Edition includes a number of unique as well as standard features. One unique feature, The Performance Ranking System, incorporates many of the elements of the Value Line Timeliness(TM) Ranking System, modified to accommodate the 1,800 stocks in the Small and Mid-Cap Edition. The Performance(TM) Rank is based on earnings growth and price momentum and is designed to predict relative price performance over the next six to 12 months.
The principal difference between the Small and Mid-Cap Edition and The Value Line Investment Survey's Standard Edition is that the Small and Mid-Cap Edition does not include Value Line's financial forecasts or analysts' comments. This modification has allowed VLP to offer this service at a relatively low price.
The Value Line Mutual Fund Survey is published once every three weeks and was introduced in 1993. It provides full-page profiles of 700 mutual funds and condensed coverage of more than 1,250 funds. Every three weeks subscribers receive an updated issue, containing over 200 fund reports, plus a "Performance & Index" providing current rankings and performance figures for the full universe of more than 2,000 funds, as well as articles on investment trends and issues concerning mutual fund investors. The Value Line Mutual Fund Survey also includes annual profiles and analyses on 100 of the nation's major fund families. Funds are ranked for both risk and overall risk-adjusted performance using strictly quantitative means. A large binder is provided to house the fund reports.
The Value Line No-Load Fund Advisor is a 36-page monthly newsletter for investors who wish to manage their own portfolios of no- and low-load, open-end mutual funds. Each issue features strategies for maximizing total return, with special attention given to tax considerations. Also featured are in-depth interviews with noted portfolio managers, model portfolios for a range of investor profiles, and information about retirement planning, industry news, and listings (with descriptions) of new funds worthy of further consideration. A full statistical review, including latest performance, rankings and sector weightings, is updated each month on 600 leading no-load and low-load funds.
Value Line Insight is a 12-page monthly newsletter that brings together the views and opinions of economists, analysts and mutual fund managers from the Company and external sources. The product critically assesses mutual fund manager stock selections using the Company's stock research. It is designed to help individual stock investors see what professionals are doing while mutual fund investors get a critical review of management actions.
Value Line Industry Watch is a 16-page monthly newsletter that brings together two powerful, proprietary Value Line tools into one-easy-to-use format. First, Value Line analysts examine over 90 industries to determine which are likely to be the top performers, and which the worst. From here, our analysts select stocks that receive high scores in Value Line's Timeliness Ranking System. We highlight the best stocks in the best industries so our readers can ffocus their investment efforts.
Every issue of Value Line Industry Watch begins with an economic overview which explains how the current political and economic events are affecting various industries in the marketplace. Each issue provides an in-depth discussion of one or more industries that we consider to be especially noteworthy. Our industry review provides an intelligent backdrop for the heart of every issue: detailed reports on specific companies whose stock we expect will outperform the market. Our stock profiles include a basic review of the company with an explanation of why the business is doing well and the reasons we believe that stock is well positioned for appreciation. The stock profiles also include Value Line's proprietary ranks for Timeliness and Safety.
The Value Line Special Situations Service, published periodically 24 times a year, concentrates on fast-growing, smaller companies whose stocks are perceived by VLP analysts as having exceptional appreciation potential.
The Value Line Options Survey, a semi-monthly periodical service published 24 times a year, evaluates and ranks the expected performance of the most active options listed on United States exchanges (approximately 80,000). An electronic version of this publication, The Value Line Daily Options Survey (available over the Internet), was introduced during the latter part of
fiscal 1995. A new enhanced version was introduced in May of 2002. New features include an interactive database and a new spreadsheet.
The Value Line Convertibles Survey, a semi-monthly periodical service published 24 times a year, evaluates and ranks approximately 600 convertible securities (bonds and preferred stocks) and approximately 80 warrants for future market performance. The same information is also available online.
Value Line Select, a monthly publication, was first published in January 1998. As a stock recommendation service with an exclusive circulation, it focuses each month on one company that VLP analysts, economists and statisticians recommend as an investment. Recommendations are backed by in-depth research and are subject to ongoing monitoring.
The Value Line 600 is a monthly service, which contains full-page reports on more than 600 stocks. Its reports provide information on many actively traded, larger capitalization issues as well as some smaller growth stocks. Since it was introduced in fiscal 1996, it has proven to be very popular among investors who want the same type of analysis provided in the full Investment Survey, but who don't want or need coverage of the large number of companies contained in that publication. Readers also receive supplemental reports as well as a monthly Index, which includes updated statistics.
2. Electronic Products:
Value Line Investment Survey FOR WINDOWS(R), on CD-ROM, is a powerful menu-driven software program with fast filtering, ranking, reporting and graphing capabilities utilizing over 300 data fields for over 8,300 stocks, industries and indices, including the 1,700 stocks covered in VLP's benchmark publication, The Value Line Investment Survey. The product was introduced in June 1996. Version 3.0 has major enhancements to the user interface and the ability for users to update data from the Company's Internet site (www.valueline.com). New features are added continuously.
Value Line Investment Survey FOR WINDOWS(R) provides over 300 search fields and more than 100 charting and graphing variables for comparative research. In addition to containing digital replicas of the entire Value Line Investment Survey, the Windows version includes weekly data updates through its seamless integration with the Value Line Web site (www.valueline.com). The software includes a portfolio module that lets users create and track their own stock portfolios and ten years of historical financial data for scrutinizing performance, risk and yield.
Value Line Mutual Fund Survey FOR WINDOWS(R), a monthly CD-ROM product with internet updates, is the electronic version of the Value Line Mutual Fund Survey. The program features powerful sorting, filtering and portfolio analysis. Version 2 was introduced in 1998, with added features such as style attribution analysis, portfolio stress tester, portfolio rebalancing, correlation of fund returns and hypothetical assets to differentiate it from the competition.
Windows is a registered trademark of Microsoft Corp. Value Line, Inc. and Microsoft Corp. are not affiliated companies.
Value Line DataFile contains current and historic annual and quarterly financial records for more than 8,300 active companies and over 5,000 companies that no longer exist in numerous industries, including air transport, industrial services, beverage, machinery, bank, insurance and finance, savings and loan associations, toys, and securities brokers. DataFile has over 400 annual and over 80 quarterly fields for each of the companies included in the database. DataFile is sold to the institutional market. Value Line DataFile II, which includes less historical data is
also available. This version complies with Microsoft Access format for small businesses. During fiscal 1997, Value Line introduced the Value Line Mutual Fund DataFile. It covers over 12,500 mutual funds with up to 20 years of historical data which consists of almost 200 data fields. VLP also offers an Estimates and Projections File, with year-ahead and three- to five-year estimates of financial performance and projections of stock-price ranges on companies covered in the Value Line Investment Survey, as well as a Convertible Securities File and custom services.
The Total Return Service is a customized data service. It was developed to help publicly traded companies meet the SEC's mandated executive-compensation disclosure requirements. The service consists of a line graph comparing the total return of a public company's stock over the last five years to a published equity market index and a published or constructed industry index.
3. Value Line Internet:
Most Value Line products and services are available from the Company's Web site www.valueline.com. The site includes a multimedia section that features daily market reports and updates on stocks, options, mutual funds and convertibles as well as webcasting of daily analyst commentary and fast-breaking developments on companies in the news. In addition, the Company has added a host of new tools to chart and filter stocks and mutual funds along with tools to build a portfolio, customize a report and receive Value Line reports.
A new internet-only service, the Value Line Research Center, includes on-line access to the Company's leading publications covering stocks, mutual funds, options and convertible securities as well as special situation stocks. This service includes full subscriptions to The Value Line Investment Survey, The Value Line Mutual Fund Survey, The Value Line Daily Options Survey, The Value Line Investment Survey Small and Mid-Cap Edition, The Value Line Convertibles Survey, The Special Situations Service, Value Line ETF Survey, The Value Line No Load Fund Advisor, Value Line Insight, Value Line 600, Value Line Select and the recently introduced Value Line Industry Watch.
B. Investment Management.
As of April 30, 2003, the Company was the investment adviser for 15 mutual funds registered under the Investment Company Act of 1940. Value Line Securities, Inc., a wholly owned subsidiary of the Company, acts as principal underwriter and distributor for the Value Line Funds. State Street Bank and Trust Company, an unaffiliated entity, acts as custodian of the Funds' assets. Shareholder services for the Value Line Funds are provided by National Financial Data Services, an unaffiliated entity associated with State Street Bank and Trust Company.
Total net assets of the Value Line Funds at April 30, 2003, were:
The shareholders of the Value Line U.S. Multinational Company Fund, Inc. approved the liquidation of assets and dissolution of the fund on May 16, 2003.
The investment advisory contracts between each of the Value Line Funds and the Company provide that the Company will render investment advisory and other services to the Funds. These contracts must be approved annually in accordance with statutory procedures. The Company furnishes each fund with its investment program, subject to such fund's fundamental investment policies and to control and review by such fund's Board of Directors or Trustees. Each contract also provides that the Company will furnish, at its expense, various administrative services, office space, equipment and administrative personnel necessary for managing the affairs of the funds. Advisory fee rates vary among the funds and may be subject to certain limitations. Each mutual fund may use "Value Line" in its name only so long as the Company acts as its investment adviser.
Value Line Asset Management ("VLAM"), a division of the Company, manages pension funds and institutional and individual portfolios by utilizing the techniques developed for The Value Line Investment Survey. VLAM has varied investment advisory agreements with its clients which call for payments to the Company calculated on the basis of the market value of the assets under management.
C. Wholly-Owned Operating Subsidiaries.
1. Vanderbilt Advertising Agency, Inc.:
Vanderbilt Advertising Agency, Inc. ("Vanderbilt") places advertising for the Company's publications, investment advisory services, and mutual funds. Commission income generated by Vanderbilt serves to reduce the Company's advertising expenses.
2. Compupower Corporation:
Compupower provides computerized subscription fulfillment services for the Company as well as subscriber relation's services for Company publications. Additionally, Compupower also provides microfiche and imaging services to the Company, its affiliates and third-party customers.
3. Value Line Securities, Inc.:
Value Line Securities, Inc. ("VLS") is registered as a broker-dealer under the Securities Exchange Act of 1934 and is a member of the National Association of Securities Dealers, Inc. VLS acts as the underwriter and distributor of the Value Line Funds. Shares of the Value Line Funds are sold to the public without a sales charge (i.e., on a "no-load" basis). VLS effects brokerage transactions in exchange-listed securities for certain of the Value Line Funds, clearing such transactions on a fully disclosed basis through unaffiliated broker-dealers who receive a portion of the gross commissions. During the past three fiscal years, the Company received service and distribution fees, pursuant to SEC rule 12b-1 from certain Value Line Funds which were used to offset marketing and distribution costs for these funds.
4. Value Line Distribution Center, Inc.:
Value Line Distribution Center, Inc. ("VLDC") handles all of the mailings of the publications to the Company's subscribers. Additionally, VLDC provides office space for the Compupower Corporation's subscriber relations and data processing departments.
D. Other Businesses.
The Company publishes the Value Line Arithmetic Composite and the Value Line Geometric Composite, daily indices of the stock market performance of the approximately 1,700 common stocks contained in The Value Line Investment Survey. The calculation of both indices is done by a firm unaffiliated with the Company. Futures contracts based upon fluctuations in the Value Line Arithmetic Composite are traded on the Kansas City Board of Trade, and options on the Index are traded on the Philadelphia Stock Exchange. The Company receives fees in connection with these activities.
THE VALUE LINE STRATEGY TRUST SERIES I: The Company has licensed for a fee certain trademarks and proprietary information for a series of unit investment trusts, THE VALUE LINE STRATEGY TRUST SERIES I. The fundamental strategy for this Trust and future Trusts in this series is to invest in the 100 Rank #1 stocks and maintain a static portfolio position in these 100 stocks for a fourteen-month period. At the end of the fourteen months the portfolio will be liquidated and the investors will be invited to reinvest their distribution in the next available VALUE LINE STRATEGY TRUST SERIES. These unit investment trusts are sold by an extensive network of brokerage firms and provide publicity for the ranking system within the brokerage industry. As of April 30, 2003, total assets of approximately $26,728,000 had been invested in these Trusts.
VALUE LINE TARGET 25 PORTFOLIO: The fundamental strategy for this Trust and future Trusts in this series is to invest in a selected 25 stocks of the 100 Rank #1 stocks and maintain a static
portfolio position in these 25 stocks for a thirteen-month period. At the end of the thirteen months the portfolio is liquidated and the investors are invited to reinvest their distribution in the next available VALUE LINE TARGET 25 PORTFOLIO. First Trust Portfolios, the underwriter of this UIT, has indicated that it intends to introduce a new UIT series every month. These unit investment trusts are sold by an extensive network of brokerage firms and provide a unique exposure for the ranking system within the brokerage industry. As of April 30, 2003, aggregate assets of over $138,502,000 had been invested in these Trusts.
THE TARGET VIP AND THE U.S.A. MOMENTUM PORTFOLIOS: These are UIT products sponsored by First Trust Portfolios which use as a component of their portfolio strategy the Value Line Target 25 strategy. As of April 30, 2003, $49,253,000 was invested in these trusts.
ENHANCED INDEX PORTFOLIO: The Enhanced Index Portfolio offered by First Trust Portfolios, uses the same investment strategy as the Value Line Target 25 Portfolio except that the Enhanced Index Portfolio maintains a static investment position for a period of fifteen months. The fundamental difference is that this portfolio only places one-third of its assets into the Value Line Target 25 portfolio strategy. (The other two-thirds of the assets use a Dow Jones Index and the Nasdaq 100 Index strategy). As of April 30, 2003, aggregate assets of over $3,200,000 have been invested in the Value Line Target 25 Portfolio via this trust.
E. Investments.
From time to time, the Company invests in the Value Line Funds, long term fixed income government obligations and in other marketable securities.
F. Employees.
At April 30, 2003, the Company and its subsidiaries employed 261 people.
The Company, its affiliates, officers, directors and employees may from time to time own securities which are also held in the portfolios of the Value Line Funds or recommended in the Company's publications. Analysts covering stocks may not own stocks they cover. The Company has imposed rules upon itself requiring monthly reports of securities transactions by employees for their respective accounts and restricting trading in various types of securities in order to avoid possible conflicts of interest.
G. Assets.
The Company's assets identifiable to each of its principal business segments were as follows:
H. Competition.
The investment management and the investment information and publications industries are very competitive. There are many competing firms and a wide variety of product offerings. Some of the firms in these industries are substantially larger and have greater financial resources than the Company. The Company believes that it is one of the world's largest independent securities research organizations and that it publishes one of the world's largest investment periodicals service in terms of number of subscriptions, annual revenues and number of equity research analysts.
I. Executive Officers.
The following table lists the names, ages (at June 18, 2003), and principal occupations and employment during the past five years of the Company's Executive Officers. All officers are elected to terms of office for one year. Each of the following has held an executive position with the companies indicated for at least five years.
WEB SITE ACCESS TO SEC REPORTS
The Company's Web site address is www.valueline.com. The Company's annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to these reports are available free of charge on the Financial Info page of the Company's Web site as soon as reasonably practicable after the reports are filed electronically with the Securities and Exchange Commission.
Item 2.
Item 2. PROPERTIES.
On June 4, 1993, the Company entered into a lease agreement for approximately 77,000 square feet that provided for the relocation of its office space to 220 East 42nd Street, New York, New York. On September 14, 2000, the Company amended its New York lease for office space and returned to the landlord 6,049 sq. ft. of excess capacity. The Company now leases approximately 71,000 square feet of office space at 220 East 42nd Street in New York. During January 1996, a subsidiary of the Company purchased for cash an approximately 85,000 square feet warehouse facility for $4,100,000. That facility consolidated into a single location the distribution operations for the various Company publications and the fulfillment operations of Compupower Corporation. The remaining building capacity provides warehouse space, a disaster recovery site and is available for future business expansion. The Company believes the capacity of these facilities is sufficient to meet the Company's current and expected future requirements.
Item 3.
Item 3. LEGAL PROCEEDINGS.
There are no material pending legal proceedings.
Item 4.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the stockholders during the fourth quarter of the fiscal year ended April 30, 2003.
Part II
Item 5.
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Registrant's Common Stock is traded on the over-the-counter market. The approximate number of record holders of the Registrant's Common Stock at April 30, 2003 was 1,203. Over-the-counter price quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. The range of the bid and asked quotations and the dividends paid on these shares during the past two fiscal years were as follows:
Item 6.
Item 6. SELECTED FINANCIAL DATA.
Earnings per share for each of the fiscal years shown below are based on the weighted average number of shares outstanding.
Item 7.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
FISCAL 2003
OPERATING RESULTS
Net income for the twelve months ended April 30, 2003 of $19,987,000 or $2.00 per share compared to net income of $20,323,000 or $2.04 per share in fiscal 2002. Net income of $6,792,000 or $.68 per share for the last quarter of fiscal 2003 exceeded net income of $4,591,000 or $0.47 per share for the fourth quarter of the prior fiscal year by 48% due primarily to a lower income tax rate and an increase in income from securities transactions. The lower income tax rate was the result of a favorable tax determination from a local tax jurisdiction regarding the Company's income allocation method. Operating income of $24,095,000 for the twelve months ended April 30, 2003 was below operating income of $29,186,000 for the same period of last fiscal year. Revenues of $82,069,000 for the twelve months ended April 30, 2003 were the seventh highest in the Company's history and compared to revenues of $87,443,000 in the prior year. The decline in revenues and net income during the twelve months ended April 30, 2003 was largely the result of a 14% decline in investment management fees and services revenues that resulted primarily from a decrease in average net asset values in the Value Line mutual funds. The change in net asset values in Value Line's mutual funds was largely attributable to the overall decline in the financial markets with the NASDAQ index falling 13% during the twelve months ended April 30, 2003, representing a 71% decline from its all time high.
During fiscal 2003, the Company's stock outperformed the major market indices. Value Line, Inc's. stock was up 2.4% for the twelve months ended April 30, 2003, while during this same period, the NASDAQ index fell 13%.
Subscription revenues of $52,469,000 were 1% 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 2% 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. Investment management fees and services revenues of $29,600,000 for the twelve months ended April 30, 2003 were 14% below the prior fiscal year's revenues of $34,329,000. The change in total revenues was primarily attributable to the continued difficult financial market conditions impacting severely on investment management fees and services revenues, with stable subscription revenue moderating the overall effect.
Operating expenses for the twelve months ended April 30, 2003 of $57,974,000 were comparable to last year's expenses of $58,257,000. Total advertising and promotional expenses of $20,418,000 were 2% above the prior year's expenses of $19,928,000. The increase in advertising expenses resulted primarily from a 9% increase in postage rates associated with the Company's direct mail advertising for the Company's publications and the Value Line's mutual funds and an increase in discount brokerage commissions incurred for sales of Value Line's mutual funds' shares. Salaries and employee benefit expenses of $19,938,000 were 9% below expenses of $21,801,000 recorded in the prior fiscal year. Production and distribution costs for the twelve months ended April 30, 2003 of $9,400,000 were 6% above expenses of $8,831,000 for the twelve months ended April 30, 2002. The increase in production and distribution
expenses resulted from an increase in the average subscription circulation and the aforementioned increase in U.S. postal rates. 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 $8,218,000 were 7% above last year's expenses of $7,697,000. The net increase in administrative expenses compared to last year's resulted primarily from higher insurance premiums and increases in professional fees.
The Company's securities portfolios produced a gain of $6,626,000 for the twelve months ended April 30, 2003, which was 14% above the gain of $5,828,000 for the same period of last fiscal year. The Company's trading portfolio produced losses of $940,000 during the twelve months ended April 30, 2003 versus losses of $5,625,000 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 with the NASDAQ down 13% during the twelve months ended April 30, 2003. Income from securities transactions for the twelve months ended April 30, 2003 also included dividend and interest income of $4,361,000 and capital gains of $3,211,000 from sales of securities from the Company's long-term portfolio. This compares to dividend and interest income of $2,829,000 and capital gains of $8,633,000 from sales of securities from the Company's long-term portfolio for the same period of last fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
The Company had liquid resources, which were used in its business, of $228,471,000 at April 30, 2003. In addition to $12,408,000 of working capital, the Company had long-term securities with a market value of $216,063,000, that, although classified as non-current assets, are also readily marketable should the need arise.
The Company's cash flow from operations of $16,816,000 for the twelve months ended April 30, 2003 was 17% lower than fiscal 2002's cash flow of $20,145,000. The decrease in cash flow from operations was primarily a result of lower pretax earnings and a decrease in unserved paid subscription orders. Net cash outflows of $114,066,000 from investing activities during the twelve months of fiscal 2003 were $134,841,000 higher than net cash inflows for the twelve months of fiscal 2002 due largely to the Company's decision to re-deploy its cash 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. The Company understands 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.
FISCAL 2002
OPERATING RESULTS
Net income for the twelve months ended April 30, 2002 of $20,323,000 or $2.04 per share compared to net income of $24,091,000 or $2.41 per share in fiscal 2001. Operating income of $29,186,000 for the twelve months ended April 30, 2002 was below operating income of $37,811,000 for the same period last fiscal year. Revenues of $87,443,000 for the twelve months ended April 30, 2002 were the sixth highest in the Company's history and compared to revenues of $98,391,000 in the prior year. The decline in net income during the twelve months ended April 30, 2002 was largely the result of the lower level of revenues, primarily reduced 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 mutual funds was largely attributable to the overall decline in the financial markets with the NASDAQ index falling 20% during the twelve months ended April 30, 2002, representing a 67% decline from its all time high. Additionally, income from securities transactions included $8,000,000 or $.48 per share of capital losses recognized from sales of securities and a reduction in capital gain distributions from the Company's investments in the Value Line mutual funds.
Subscription revenues of $53,114,000 were 5% 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 5% 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. As of April 30, 2002, combined circulation to THE VALUE INVESTMENT SURVEY, VALUE LINE INVESTMENT SURVEY FOR WINDOWS, THE VALUE LINE RESEARCH CENTER, AND THE VALUE LINE 600 was 15% higher than the prior year's circulation. During fiscal 2002, the Company experienced an increase in subscription activity with total new subscription orders rising 14% from the level during the twelve months of the prior fiscal year. Investment management fees and services revenue of $34,329,000 for the twelve months ended April 30, 2002 was 19% below the prior fiscal year's revenue. The change in total subscription and investment management fees and services revenues was primarily attributable to the continued difficult financial market conditions.
Operating expenses for the twelve months ended April 30, 2002 of $58,257,000 were 4% below last year's expenses of $60,580,000. Total advertising expenses of $19,928,000 were 7% below the prior year's expenses of $21,342,000. The decrease in advertising expenses resulted primarily from a 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 incurred for sales of the Value Line mutual funds directly related to a lower level of assets in the Value Line family of mutual funds. The Company increased its direct mail marketing efforts for the Value Line publications and the Value Line mutual funds by 34% compared to the same period 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 increased both direct mail marketing and product distribution expenses during fiscal 2002. Salaries and employee benefit expenses of $21,801,000 were 4% below expenses of $22,728,000 recorded in the prior fiscal year primarily due to reductions in staff levels partially offset by some annual increases in salaries, benefits and incentive compensation. Printing, paper and distribution costs for the twelve months ended April 30, 2002 of $8,831,000 were 10% above expenses of $8,058,000 for the twelve months ended April 30, 2001. The increase in production and distribution expenses resulted from an increase in subscription circulation and the
aforementioned increase in postage costs. 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 $7,697,000 were 9% below last year's expenses of $8,452,000. The net decrease in administrative expenses primarily resulted from a 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 $5,828,000 for the twelve months ended April 30, 2002, which was 87% above the gain of $3,118,000 for the same period last fiscal year. The twelve months of fiscal 2002 included gains of $6,365,000 offset by $3,699,000 of tax management related losses from sales of securities in the Company's long-term equity securities portfolio. Additionally, income from securities transactions during fiscal 2002 included $2,276,000 of capital gain distributions from the Value Line mutual funds, which was $8,200,000 less than last year's distribution partially due to the Company's effective tax management. The Company's trading portfolio produced losses of $2,191,000 during the twelve months ended April 30, 2002 versus a loss of $5,471,000 during the same period last fiscal year. The value of the Company's securities portfolios was negatively impacted by the declining financial market that started at the beginning of fiscal year 2001 and accelerated dramatically during the current fiscal year. Income from securities transactions included dividend income of $2,487,000 for the twelve months ended April 30, 2002, which compared with dividend income of $4,996,000 for the same period last fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
The Company had liquid resources, which were used in its business, of $237,521,000 at April 30, 2002. In addition to $108,477,000 of working capital, the Company had long-term securities with a market value of $129,044,000, that, although classified as non-current assets, are also readily marketable should the need arise.
The Company's cash flow from operations of $20,145,000 for the twelve months ended April 30, 2002 was 21% lower than fiscal 2001's cash flow of $25,648,000. 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 twelve months of fiscal 2002 were $2,039,000 or 9% lower than net cash inflows for the twelve months of fiscal 2001 due largely to the Company's decision to re-deploy its cash holdings into the Company's trading portfolio utilizing varied investment strategies.
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. The Company understands 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 2003.
Item 8.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following consolidated financial statements of the registrant and its subsidiaries are included as a part of this Form 10K:
Quarterly Results (Unaudited): (in thousands, except per share amounts)
Item 9.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
There have been no disagreements with the independent accountants on accounting and financial disclosure matters.
Item 10.
Item 10. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
MARKET RISK DISCLOSURES
Value Line, Inc.'s Consolidated Balance Sheet includes a substantial amount of assets and liabilities whose fair values are subject to market risks. Value Line's significant market risks are primarily associated with interest rates and equity prices. The following sections address the significant market risks associated with Value Line's business activities.
INTEREST RATE RISK
Value Line's management prefers to invest in highly liquid, government debt securities with extremely low credit risk. Although the principal is secure, the price of these debt instruments is interest rate sensitive. Value Line's strategy is to acquire securities that are attractively priced in relation to the perceived credit risk. Management recognizes and accepts that losses may occur. To limit the price fluctuation in these securities from interest rate changes, Value Line's management invests in relatively short-term obligations maturing in 1 to 5 years.
The fair values of Value Line's fixed maturity investments will fluctuate in response to changes in market interest rates. Increases and decreases in prevailing interest rates generally translate into decreases and increases in fair values of those instruments. Additionally, fair values of interest rate sensitive instruments may be affected by prepayment options, relative values of alternative investments, and other general market conditions.
The following table summarizes the estimated effects of hypothetical increases and decreases in interest rates on assets that are subject to interest rate risk. It is assumed that the changes occur immediately and uniformly to each category of instrument containing interest rate risks. The hypothetical changes in market interest rates do not reflect what could be deemed best or worst case scenarios. Variations in market interest rates could produce significant changes in the timing of repayments due to prepayment options available. For these reasons, actual results might differ from those reflected in the table. Dollars are in thousands.
EQUITY PRICE RISK
The carrying values of investments subject to equity price risks are based on quoted market prices or management's estimates of fair value as of the balance sheet dates. Market prices are subject to fluctuation and, consequently, the amount realized in the subsequent sale of an investment may significantly differ from the reported market value. Fluctuation in the market price of a security may result from perceived changes in the underlying economic characteristics of the investee, the relative price of alternative investments and general market conditions. Furthermore, amounts realized in the sale of a particular security may be affected by the relative quantity of the security being sold.
The table below summarizes Value Line's equity price risks as of April 30, 2003 and 2002 and shows the effects of a hypothetical 30% increase and a 30% decrease in market prices as of those dates. The selected hypothetical change does not reflect what could be considered the best or worst case scenarios. Dollars are in thousands.
Part III
Item 11.
Item 11. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
* Member of the Executive Committee
(b) The information pertaining to Executive Officers is set forth in Part I under the caption "Executive Officers of the Registrant."
Item 12.
Item 12. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the compensation for services in all capacities to the Company for the fiscal years ended April 30, 2003, 2002 and 2001 of the chief executive officer of the Company and each of the other executive officers of the Company who were serving at April 30, 2003.
(a) A portion of the bonuses are contingent upon future employment.
(b) Employees of the Company are members of the Value Line Profit Sharing and Savings Plan (the "Plan"). The Plan provides for a defined annual 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 Company's contribution expense was $862,000 for the year ended April 30, 2003. Each employee's interest in the Plan is invested in such proportions as the employee may elect in shares of one or more of the mutual funds for which the Company acts as investment adviser. Distributions under the Plan vest in accordance with a schedule based upon the employee's length of service and are payable upon the employee's retirement, death, total and permanent disability or termination of employment.
(c) Mr. Anastasio became Chief Financial Officer in April 2003.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
The following table sets forth the number of shares acquired by any of the named persons upon exercise of stock options in fiscal 2003, the value realized through the exercise of such options and the number of unexercised options held by such person, including both those which are presently exercisable and those which are not presently exercisable.
- ---------- (1) Market value of underlying securities at exercise date or year-end, as the case may be, minus the exercise price.
Item 13.
Item 13. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information as of July 24, 2003 as to shares of the Company's Common Stock held by persons known to the Company to be the beneficial owners of more than 5% of the Company's Common Stock.
- -------------------- (1) Jean Bernhard Buttner, Chairman of the Board, President and Chief Executive Officer of the Company, owns all of the outstanding voting stock of Arnold Bernhard & Co., Inc.
The following table sets forth information as of May 30, 2003, with respect to shares of the Company's Common Stock owned by each director of the Company, by each executive officer listed in the Summary Compensation Table and by all officers and directors as a group.
- ---------- * Less than one percent
(1) Excludes 8,609,403 shares (86.25% of the outstanding shares) owned by Arnold Bernhard & Co., Inc. Jean Bernhard Buttner owns all of the outstanding voting stock of Arnold Bernhard & Co., Inc. Substantially all of the non-voting stock of Arnold Bernhard & Co., Inc. is held by members of the Buttner family.
Item 14.
Item 14. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Arnold Bernhard & Co., Inc. utilizes the services of officers and employees of the Company to the extent necessary to conduct its business. The Company and Arnold Bernhard & Co., Inc. allocate costs for office space, equipment and supplies and support staff pursuant to a servicing and reimbursement arrangement. During the year ended April 30, 2003, the Company was reimbursed $527,000 for such expenses. In addition, a tax-sharing arrangement allocates the tax liabilities of the two companies between them. The Company pays to Arnold Bernhard & Co., Inc. an amount equal to the Company's liability as if it filed separate tax returns.
Item 15.
Item 15. CONTROLS AND PROCEDURES.
(a) Evaluation of controls and procedures.
The Company's Chief Executive Officer and Chief Financial Officer have reviewed and evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in the Exchange Act) within the past ninety days. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the Company's current disclosure controls and procedures are effective in providing them on a timely basis with material information relating to the Company required to be disclosed in the reports the Company files or submits under the Exchange Act.
(b) Changes in internal controls.
There have not been any significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. There were no significant deficiencies or material weaknesses and, therefore, no corrective actions were taken.
Item 16. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not Applicable.
Part IV
Item 17. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements See Item 8.
2. Schedules Schedule I - Marketable Securities. Schedule XIII - Other Investments. (Reg. S-X, Article 5)
All other Schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
3. Exhibits
3.1 Articles of Incorporation of the Company, as amended through April 17, 1983, are incorporated by reference to the Registration Statement - Form S-1 of Value Line, Inc. Part II, Item 16.(a) 3.1 filed with the Securities and Exchange Commission on April 7, 1983.
3.2 Certificate of Amendment of Certificate of Incorporation dated October 24, 1989.
10.8 Form of tax allocation arrangement between the Company and AB&Co. incorporated by reference to the Registration Statement - Form S-1 of Value Line, Inc. Part II, Item 16.(a) 10.8 filed with the Securities and Exchange Commission on April 7, 1983.
10.9 Form of Servicing and Reimbursement Agreement between the Company and AB&Co., dated as of November 1, 1982 incorporated by reference to the Registration Statement - Form S-1 of Value Line, Inc. Part II, Item 16.(a) 10.9 filed with the Securities and Exchange Commission on April 7, 1983.
10.10 Value Line, Inc. Profit Sharing and Savings Plan as amended and restated effective May 1, 1989, including amendments through April 30, 1995, incorporated by reference to the Annual Report on Form 10-K for the year ended April 30, 1996.
10.13 Lease for the Company's premises at 220 East 42nd Street, New York, N.Y. incorporated by reference to the Annual Report on Form 10-K for the year ended April 30, 1994.
21 Subsidiaries of the Registrant.
(b) Reports on Form 8-K.
None
(c) Exhibits.
21 Subsidiaries of the Registrant.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report on Form 10-K for the fiscal year ended April 30, 2003, to be signed on its behalf by the undersigned, thereunto duly authorized.
VALUE LINE, INC. (Registrant)
By: s/Jean Bernhard Buttner Jean Bernhard Buttner Chairman & Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
By: s/Jean Bernhard Buttner Jean Bernhard Buttner Chairman & Chief Executive Officer
By: s/Stephen R. Anastasio Stephen R. Anastasio Chief Financial Officer
By: s/David T. Henigson David T. Henigson Vice President and Treasurer
Dated: July 25, 2003
CERTIFICATION PURSUANT TO 18 U.S. C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Jean Bernhard Buttner, certify that:
1. I have reviewed this annual report on Form 10-K of Value Line, Inc;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: July 25, 2003 By: s/ Jean Bernhard Buttner ------------------------- Jean Bernhard Buttner Chairman & Chief Executive Officer
CERTIFICATION PURSUANT TO 18 U.S. C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, David T. Henigson, certify that:
1. I have reviewed this annual report on Form 10-K of Value Line, Inc;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: July 25, 2003 By: s/David T. Henigson ------------------------ David T. Henigson Vice President & Treasurer
CERTIFICATION PURSUANT TO 18 U.S. C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Stephen R. Anastasio, certify that:
1. I have reviewed this annual report on Form 10-K of Value Line, Inc;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: July 25, 2003 By: s/ Stephen R. Anastasio ------------------------ Stephen R. Anastasio Chief Financial Officer
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the annual report on Form 10-K of Value Line, Inc. (the "Company"), for the period ended April 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Jean Bernhard Buttner, Chairman & Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: July 25, 2003 By: s/ Jean Bernhard Buttner ------------------------------ Jean Bernhard Buttner Chairman & Chief Executive Officer
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the annual report on Form 10-K of Value Line, Inc. (the "Company"), for the period ended April 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, David T. Henigson, Vice President & Treasurer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: July 25, 2003 By: s/ David T. Henigson ----------------------- David T. Henigson Vice President & Treasurer
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the annual report on Form 10-K of Value Line, Inc. (the "Company"), for the period ended April 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Stephen R. Anastasio, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: July 25, 2003 By: s/ Stephen R. Anastasio -------------------------- Stephen R. Anastasio Chief Financial Officer
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report on Form 10-K for the fiscal year ended April 30, 2003, to be signed on its behalf by the undersigned as Directors of the Registrant.
s/Jean Bernhard Buttner s/Howard A. Brecher Jean Bernhard Buttner Howard A. Brecher
s/Harold Bernard, Jr. s/Samuel Eisenstadt Harold Bernard, Jr. Samuel Eisenstadt
s/Marion N. Ruth s/David T. Henigson Marion N. Ruth David T. Henigson
s/Dr. Herbert Pardes Dr. Herbert Pardes
Dated: July 25, 2003
HOROWITZ & ULLMANN, P.C. Certified Public Accountants
275 Madison Avenue New York, NY 10016 A member of the Telephone: (212) 532-3736 AICPA SEC Practice Section Facsimile: (212) 545-8997 New York State Society of CPAs E-mail:cpas@horowitz-ullmann.com
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Value Line, Inc.
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income and retained earnings, changes in stockholders' equity, and cash flows present fairly, in all material respects, the financial position of Value Line, Inc. and subsidiaries at April 30, 2003 and 2002, and the results of their operations, changes in stockholders' equity, and their cash flows for each of the three years in the period ended April 30, 2003, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
Our audits of the consolidated financial statements referred to above also included an audit of the Financial Statement Schedules listed in Item 14 (a) of Form 10-K. In our opinion, these Financial Statement Schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated statements.
/s/ Horowitz & Ullmann, P.C.
July 3, 2003 New York, NY
VALUE LINE, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
See independent auditor's report and accompanying notes to the consolidated financial statements.
VALUE LINE, INC. CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
See independent auditor's report and accompanying notes to the consolidated financial statements.
VALUE LINE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
See independent auditor's report and accompanying notes to the consolidated financial statements.
VALUE LINE, INC. STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE THREE YEARS ENDED APRIL 30, 2003, 2002 AND 2001 (in thousand, except share amounts)
See independent auditor's report and accompanying notes to the consolidated financial statements.
VALUE LINE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1-ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Value Line, Inc. (the "Company") is incorporated in New York State and carries on the investment periodicals and related publications and investment management activities formerly performed by Arnold Bernhard & Co., Inc. (the "Parent") which owns approximately 86% of the issued and outstanding common stock of the Company.
Principles of consolidation: The consolidated financial statements include the accounts of the Company and all of its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
Revenue recognition: Subscription revenues are recognized ratably over the terms of the subscriptions. Accordingly, the amount of subscription fees to be earned by servicing subscriptions after the date of the balance sheet is shown as unearned revenue. The unearned revenue shown on the balance sheet is a noncurrent deferred credit. This classification recognizes that the fulfillment of this commitment will require the use of significantly fewer current assets than the amount of the unearned revenues and, accordingly, combining it with current liabilities would significantly understate the liquidity position of the Company.
Investment management fees are recorded as revenue as the related services are performed.
Valuation of Securities: 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: Earnings per share are based on the weighted average number of shares of common stock and common stock equivalents outstanding during each year.
Cash and Cash Equivalents: For purposes of the Consolidated Statements of Cash Flows, the Company considers all cash held at banks and short term liquid investments with an original maturity of less than three months to be cash and cash equivalents. As of April 30, 2003 and 2002, cash equivalents included $4,979,000 and $116,885,000, respectively, invested in the Value Line money market funds.
Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
NOTE 2-SUPPLEMENTARY CASH FLOW INFORMATION:
Cash payments for income taxes were $11,480,000, $14,034,000, and $17,561,000 in fiscal 2003, 2002, and 2001, respectively. Interest payments of $49,000, $6,000, and $6,000, were made in fiscal 2003, 2002, and 2001, respectively.
NOTE 3-RELATED PARTY TRANSACTIONS:
The Company acts as investment adviser and manager for fifteen open-ended investment companies, the Value Line Family of Funds (see Note 4). The Company earns investment management fees based upon the average daily net asset values of the respective funds. Effective July 1, 2000, the Company received service and distribution fees under rule 12b-1 of the Investment Company Act of 1940 from thirteen of the fifteen 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 years ended April 30, 2003, 2002, and 2001, investment management fees, service and distribution fees and brokerage commission income, net of clearing fees, amounted to $28,022,000, $32,296,000, and $39,296,000, respectively. These amounts include service and distribution fees of $7,968,000, $6,269,000, and $6,366,000, respectively. The related receivables from the funds for management advisory fees and service and distribution fees included in Receivable from affiliates were $2,249,000, and $2,417,000, at April 30, 2003 and 2002, respectively.
For the years ended April 30, 2003, 2002, and 2001, the Company was reimbursed $527,000, $539,000 and $549,000, respectively, for payments it made on behalf of and services it provided to the Parent. At April 30, 2003 and 2002, receivable from affiliates included a receivable from the Parent of $45,000 and $47,000, respectively. For the years ended April 30, 2003, 2002, and 2001, the Company made federal income tax payments to the Parent amounting to $9,500,000, $11,498,000 and $14,250,000, respectively. At April 30, 2003, accrued taxes payable included a federal tax liability owed to the Parent in the amount of $425,000. At April 30, 2002, prepaid expenses and other current assets included a receivable of $24,000 from the Parent for federal income taxes. These data are in accordance with the tax sharing arrangement described in Note 6.
NOTE 4-INVESTMENTS:
TRADING SECURITIES:
Securities held by the Company had an aggregate cost of $2,908,000 and a market value of $3,093,000 at April 30, 2003, and an aggregate cost of $3,508,000 and a market value of $3,624,000 at April 30, 2002. Net realized trading losses amounted to $969,000 during the year ended April 30, 2003. Net realized trading losses amounted to $5,355,000 during the year ended April 30, 2002. Net realized trading gains related to equity securities aggregated $3,143,000 during fiscal 2001. The net change in unrealized gains for the periods ended April 30, 2003, 2002 and 2001 of $75,000, $258,000 and $2,842,000, respectively, is included in the Consolidated Statement of Income.
LONG-TERM SECURITIES AVAILABLE FOR SALE:
The aggregate cost of the long-term securities, which are primarily invested in the Value Line mutual funds, was $31,366,000 and the market value was $45,150,000 at April 30, 2003. The aggregate cost of the long- term securities at April 30, 2002 was $61,451,000 and the market value was $93,226,000. The decrease in gross unrealized gains on these securities of $17,987,000 and $22,431,000, net of deferred taxes of $6,295,000 and $7,851,000 were included in shareholders' equity at April 30, 2003 and 2002.
Realized capital gains from the sales of these securities were $2,609,000, $8,633,000, and $3,907,000, during fiscal years 2003, 2002 and 2001, respectively. The proceeds received from the sales of these securities during the fiscal years ended April 30, 2003, 2002, and 2001 were $39,598,000, $56,102,000 and $64,408,000, respectively.
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 April 30, 2003 for U.S. government debt securities classified as available for sale were as follows:
The aggregate cost and fair value at April 30, 2002 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 April 30, 2003 and April 30, 2002 was 3.36% and 3.76%, respectively.
Proceeds from sales of long-term fixed income securities during fiscal 2003 were $57,471,000 and the related gain on sales was $602,000. There were no sales of long-term fixed income securities during fiscal years of 2002 or 2001.
During the year ended April 30, 2003, the Company transferred investments in debt securities from held-to-maturity classification to available for sale classification. The amortized cost of the securities transferred was $112,154,000 and the unrealized gain on the securities was $1,555,000. The circumstances leading to the decision to transfer the securities were primarily the result of the changing market conditions increasing the possibility that the Company may sell the securities prior to their maturity. For the years ended April 30, 2003, 2002, and 2001, income from securities transactions also included $832,000, $2,487,000,and $4,996,000, of dividend income; $3,529,000, $343,000, and $34,000, of interest income; and $49,000, $6,000 and $6,000, of related interest expense, respectively. Investment income for fiscal year 2001 included capital gains related to derivative financial futures contracts in the amount of $513,000.
NOTE 5-PROPERTY AND EQUIPMENT:
Property and equipment are carried at cost. Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the assets, or in the case of leasehold improvements, over the remaining terms of the leases. For income tax purposes, depreciation of furniture and equipment is computed using accelerated methods and buildings and leasehold improvements are depreciated over prescribed, extended tax lives.
Property and equipment consist of the following:
NOTE 6-FEDERAL, STATE AND LOCAL INCOME TAXES:
The Company computes its tax in accordance with the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes".
The provision for income taxes includes the following:
Deferred taxes are provided for temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities. The tax effect of temporary differences giving rise to the Company's deferred tax (liability)/asset are as follows:
Included in deferred income taxes in total current assets are deferred state and local income taxes of $48,000 and $112,000 at April 30, 2003 and 2002, respectively. Accrued taxes payable at April 30, 2003, included a deferred federal tax liability of $99,000. At April 30, 2002, deferred income in current assets also included $463,000 of deferred federal income taxes.
The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory income tax rate to pretax income as a result of the following:
The provision for income taxes has been reduced by approximately $1,257,000 for the fiscal year ended April 30, 2003, primarily resulting from the favorable disposition of a pending tax audit, which was concluded during the year. The Company is included in the consolidated federal income tax return of the Parent. The Company has a tax sharing arrangement which requires it to make tax payments to the Parent equal to the Company's liability as if it filed a separate return.
NOTE 7-EMPLOYEES' PROFIT SHARING AND SAVINGS PLAN:
Substantially all employees of the Company and its subsidiaries are members of the Value Line, Inc. Profit Sharing and Savings Plan (the "Plan"). In general, this is a qualified, contributory plan which provides for a discretionary annual Company contribution which is determined by a formula based upon the salaries of eligible employees and the amount of consolidated net operating income as defined in the Plan. Plan expense, included in salaries and employee benefits in the Consolidated Statements of Income and Retained Earnings, for the years ended April 30, 2003, 2002, and 2001 was $862,000, $1,171,000, and $1,180,000, respectively.
NOTE 8-INCENTIVE STOCK OPTIONS:
On April 17, 1993, the Incentive Stock Option Plan expired. On the date of expiration, 22,550 options available for grant were cancelled. Information on the 1983 Incentive Stock Option Plan for the three years ended April 30, 2003, is as follows:
At April 30, 2003, all of the options under the option plan were exercised. Of the common stock held in treasury at April 30, 2002, 1,475 shares were issued during fiscal 2003 for the exercise of stock options.
NOTE 9-TREASURY STOCK:
Treasury stock, at cost, for the three years ended April 30, 2003, consists of the following:
NOTE 10-LEASE COMMITMENTS:
On June 4, 1993, the Company entered into a 15 year lease agreement to provide primary office space. The lease includes free rental periods as well as scheduled base rent escalations over the term of the lease. The total amount of the base rent payments is being charged to expense on the straight-line method over the term of the lease. The Company has recorded a deferred charge on its Consolidated Balance Sheets to reflect the excess of annual rental expense over cash payments since inception of the lease. On September 14, 2000, the Company amended its lease for primary office space and returned to the landlord approximately 6,000 square feet of excess office capacity, reducing the Company's future minimum lease payments, accordingly.
Future minimum payments, exclusive of forecasted increases in real estate taxes and wage escalations, under operating leases for office space, with remaining terms of one year or more, are as follows:
Rental expense for the years ended April 30, 2003, 2002 and 2001 under operating leases covering office space was $1,350,000, $1,373,000, and $1,446,000, respectively.
NOTE 11-BUSINESS SEGMENTS:
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.
Disclosure of Reportable Segment Profit and Segment Assets (in thousands)
Reconciliation of Reportable Segment Revenues, Operating Profit and Assets (in thousands)
NOTE 12-NET CAPITAL:
The Company's wholly owned subsidiary, Value Line Securities, Inc. is subject to the net capital provisions of Rule 15c3-1 under the Securities Exchange Act of 1934, which requires the maintenance of minimum net capital of $100,000 or one-fifteenth of aggregate indebtedness, if larger. Additionally, dividends may only be declared if aggregate indebtedness is less than twelve times net capital.
At April 30, 2003, the net capital, as defined of Value Line Securities, Inc. of $3,803,000 exceeded required net capital by $3,703,000 and the ratio of aggregate indebtedness to net capital was .07 to 1.
NOTE 13-DISCLOSURE OF CREDIT RISK OF FINANCIAL INSTRUMENTS WITH OFF BALANCE SHEET RISK:
In the normal course of business, the Company enters into contractual commitments, principally financial futures contracts for securities indices. Financial futures contracts provide for the delayed delivery of financial instruments for which the seller agrees to make delivery at a specified future date, at a specified price or yield. The contract or notional amount of these contracts reflects the extent of involvement the Company has in these contracts. At April 30, 2003 and 2002, the Company did not have any investment in financial futures contracts. The Company limits its credit risk associated with such instruments by entering into exchange traded future contracts.
The Company executes, as agent, securities transactions on behalf of the Value Line mutual funds. If either the mutual fund or a counter party fail to perform, the Company may be required to discharge the obligations of the nonperforming party. In such circumstances, the Company may sustain a loss if the market value of the security is different from the contract value of the transaction.
No single customer accounted for a significant portion of the Company's sales in 2003, 2002 or 2001, nor accounts receivable for 2003 or 2002.
NOTE 14-COMPREHENSIVE INCOME:
During the fiscal year 1999, the Company adopted FASB statement no. 130, Reporting Comprehensive Income. 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 April 30, 2003, 2002, and 2001, the Company held long term 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. The decreases in gross unrealized gains were $16,431,000 and $22,431,000 and the changes in the related deferred taxes were $5,751,000 and $7,851,000 for the years ended April 30, 2003 and 2002. The decrease in gross unrealized gains was $38,125,000 and the change in the related deferred taxes was $13,344,000 during the year ended April 30, 2001.
NOTE 15-ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED FOR INTERNAL USE:
During fiscal year 1999, the Company adopted the provisions of the Statement of Position 98-1, (SOP 98-1), "Accounting for the Costs of Computer Software Developed for Internal Use". SOP 98-1 is effective for tax years ending after December 31, 1998.
The SOP 98-1 requires companies to capitalize as long-lived assets many of the costs associated with developing or obtaining software for internal use and amortize those costs over the software's estimated useful life in a systematic and rational manner.
At April 30, 2003 and 2002 the Company capitalized $868,000 and $949,000 of costs related to the development of software for internal use. Such costs are capitalized and amortized over the expected useful life of the asset which is approximately 3 years. Amortization expense for the years ended April 30, 2003, 2002 and 2001 was $1,062,000, $917,000, and $703,000, respectively.
VALUE LINE, INC. SCHEDULE 1-MARKETABLE SECURITIES AS OF APRIL 30, 2003
VALUE LINE, INC. SCHEDULE XIII-OTHER INVESTMENTS:4/30/2003
Exhibit 21
Subsidiaries of the Registrant