VALUE LINE INC
10-Ks and 10-Qs
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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
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x
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QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF
1934
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For the
quarterly period ended
January 31,
2010
or
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o
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TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF
1934
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For the
transition period from _____________________________________ to
__________________________________
Commission
File Number:
0-11306
VALUE LINE,
INC.
(Exact
name of registrant as specified in its charter)
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New York
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13-3139843
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification No.)
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220 East 42nd Street, New York, New
York
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10017-5891
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(Address
of principal executive offices)
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(Zip
Code)
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(212)
907-1500
(Registrant's
telephone number, including area code)
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
by check mark whether the registrant has submitted electronically and posted on
its corporate Website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files)”.
Yes
¨
No
¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
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Large accelerated filer
¨
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Accelerated filer
¨
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Non-accelerated filer
x
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Smaller reporting company
¨
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(Do not check if a smaller reporting company)
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|||
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
¨
No
x
Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
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Class
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Outstanding at January 31,
2010
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Common stock, $.10 par
value
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9,981,600
Shares
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VALUE
LINE INC.
TABLE
OF CONTENTS
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Page No.
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||
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PART
I. FINANCIAL INFORMATION
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||
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Item 1.
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Condensed
Consolidated Financial Statements
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3
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Consolidated
Condensed Balance Sheets as of January 31, 2010 and April 30,
2009
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3
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Consolidated
Condensed Statements of Income for the three and nine months ended January
31, 2010 and 2009
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4
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Consolidated
Condensed Statements of Cash Flows for the nine months ended January 31,
2010 and 2009
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5
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Consolidated
Condensed Statement of Changes in Shareholders’ Equity for the nine months
ended January 31, 2010
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6
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Consolidated
Condensed Statement of Changes in Shareholders’ Equity for the nine months
ended January 31, 2009
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7
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Notes
to Consolidated Condensed Financial Statements
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8
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Item
2.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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16
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Item
3.
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Quantitative
and Qualitative Disclosures About Market Risk
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25
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Item
4.
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Controls
and Procedures
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26
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PART
II. OTHER INFORMATION
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||
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Item
1.
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Legal
Proceedings
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27
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Item 1A.
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Risk
Factors
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27
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Item
6.
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Exhibits
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27
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Signatures
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28
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EX-31.1
(Certifications required under Section 302 of the Sarbanes-Oxley Act of
2002)
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EX-31.2
(Certifications required under Section 302 of the Sarbanes-Oxley Act of
2002)
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EX-32.1
(Certifications required under Section 906 of the Sarbanes-Oxley Act of
2002)
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Part
I - Financial Information
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Item
1. Financial Statements
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Value
Line, Inc.
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(in
thousands, except share amounts)
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Jan.
31,
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Apr.
30,
|
|||||||
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2010
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2009
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|||||||
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(unaudited)
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||||||||
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Assets
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||||||||
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Current
Assets:
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||||||||
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Cash
and cash equivalents (including short term investments of $13,805 and
$42,068, respectively)
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$ | 14,224 | $ | 42,936 | ||||
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Trading
securities
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6,375 | 17,203 | ||||||
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Securities
available for sale
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44,287 | 46,526 | ||||||
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Accounts
receivable, net of allowance for doubtful accounts of $58 and $47,
respectively
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2,239 | 2,353 | ||||||
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Receivable
from affiliates
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1,897 | 1,312 | ||||||
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Prepaid
and refundable income taxes
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1,920 | - | ||||||
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Prepaid
expenses and other current assets
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1,020 | 1,047 | ||||||
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Deferred
income taxes
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6,235 | 493 | ||||||
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Total
current assets
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78,197 | 111,870 | ||||||
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Long
term assets
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||||||||
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Property
and equipment, net
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4,307 | 4,474 | ||||||
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Capitalized
software and other intangible assets, net
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631 | 1,211 | ||||||
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Deferred
income taxes
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2,626 | - | ||||||
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Total
long term assets
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7,564 | 5,685 | ||||||
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Total
assets
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$ | 85,761 | $ | 117,555 | ||||
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Liabilities
and Shareholders' Equity
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||||||||
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Current
Liabilities:
|
||||||||
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Accounts
payable and accrued liabilities
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$ | 3,709 | $ | 2,865 | ||||
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Accrued
salaries
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1,316 | 1,438 | ||||||
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Dividends
payable
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1,996 | 2,994 | ||||||
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Accrued
taxes payable
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- | 392 | ||||||
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Reserve
for settlement
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4,000 | - | ||||||
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Unearned
revenue
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21,311 | 23,742 | ||||||
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Total
current liabilities
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32,332 | 31,431 | ||||||
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Long
term liabilities
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||||||||
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Unearned
revenue
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4,259 | 5,255 | ||||||
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Total
long term liabilities
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4,259 | 5,255 | ||||||
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Shareholders'
Equity:
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||||||||
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Common
stock, $.10 par value; authorized 30,000,000 shares; issued 10,000,000
shares
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1,000 | 1,000 | ||||||
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Additional
paid-in capital
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991 | 991 | ||||||
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Retained
earnings
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47,313 | 78,935 | ||||||
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Treasury
stock, at cost (18,400 shares on 1/31/10 and 4/30/09)
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(354 | ) | (354 | ) | ||||
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Accumulated
other comprehensive income, net of tax
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220 | 297 | ||||||
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Total
shareholders' equity
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49,170 | 80,869 | ||||||
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Total
liabilities and shareholders' equity
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$ | 85,761 | $ | 117,555 | ||||
The
accompanying notes are an integral part of these consolidated condensed
financial statements.
3
Item
1. Financial Statements
Value
Line, Inc.
(in
thousands, except share & per share amounts)
(unaudited)
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Three
months ended
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Nine
months ended
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|||||||||||||||
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Jan.
31,
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Jan.
31,
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|||||||||||||||
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2010
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2009
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2010
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2009
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Revenues:
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||||||||||||||||
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Investment
periodicals and related publications
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$ | 8,864 | $ | 10,048 | $ | 27,343 | $ | 30,341 | ||||||||
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Copyright
data fees
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883 | 683 | 2,477 | 3,603 | ||||||||||||
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Investment
management fees & services
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4,825 | 5,125 | 14,407 | 20,452 | ||||||||||||
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Total
revenues
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14,572 | 15,856 | 44,227 | 54,396 | ||||||||||||
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Expenses:
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||||||||||||||||
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Advertising
and promotion
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2,440 | 2,435 | 6,933 | 9,004 | ||||||||||||
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Salaries
and employee benefits
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4,084 | 4,499 | 12,634 | 14,165 | ||||||||||||
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Production
and distribution
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1,330 | 1,445 | 3,895 | 4,434 | ||||||||||||
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Office
and administration
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2,135 | 2,857 | 7,825 | 8,442 | ||||||||||||
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Provision
for settlement
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- | - | 47,706 | - | ||||||||||||
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Total
expenses
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9,989 | 11,236 | 78,993 | 36,045 | ||||||||||||
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Income/(loss)
from operations
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4,583 | 4,620 | (34,766 | ) | 18,351 | |||||||||||
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Income
from securities transactions, net
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185 | 927 | 553 | 11,643 | ||||||||||||
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Income/(loss)
before income taxes
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4,768 | 5,547 | (34,213 | ) | 29,994 | |||||||||||
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Provision
for income taxes/(benefit)
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1,198 | 1,815 | (8,580 | ) | 10,658 | |||||||||||
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Net
income/(loss)
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$ | 3,570 | $ | 3,732 | $ | (25,633 | ) | $ | 19,336 | |||||||
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Earnings/(loss)
per share, basic & fully diluted
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$ | 0.36 | $ | 0.38 | $ | (2.57 | ) | $ | 1.94 | |||||||
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Weighted
average number of common shares
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9,981,600 | 9,981,600 | 9,981,600 | 9,981,600 | ||||||||||||
The
accompanying notes are an integral part of these consolidated condensed
financial statements.
4
Part
I - Financial Information
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Item
1. Financial Statements
|
Value
Line, Inc.
|
(in
thousands)
(unaudited)
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For
the nine months
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||||||||
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ended
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||||||||
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Jan.
31,
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Jan.
31,
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|||||||
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2010
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2009
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|||||||
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Cash
flows from operating activities:
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||||||||
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Net
(loss)/income
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$ | (25,633 | ) | $ | 19,336 | |||
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Adjustments
to reconcile net (loss)/income to net cash (used in)/provided by operating
activities:
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||||||||
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Depreciation
and amortization
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548 | 882 | ||||||
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Amortization
of bond premium
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853 | - | ||||||
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Gains
on sales of trading securities and securities classified as available for
sale
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(71 | ) | (9,162 | ) | ||||
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Unrealized
losses/(gains) on trading securities
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201 | (81 | ) | |||||
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Deferred
income taxes/(benefit)
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(8,326 | ) | 28 | |||||
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Writedown
of software
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720 | - | ||||||
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Changes
in assets and liabilities:
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||||||||
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Proceeds
from sales of trading securities
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10,511 | 9,026 | ||||||
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Purchase
of trading securities
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- | (6,583 | ) | |||||
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Decrease
in unearned revenue
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(3,427 | ) | (3,354 | ) | ||||
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Decrease
in deferred charges
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- | 110 | ||||||
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Increase
in reserve for settlement
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4,000 | - | ||||||
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Increase/(decrease)
in accounts payable & accrued expenses
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844 | (1,242 | ) | |||||
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(Decrease)/increase
in accrued salaries
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(122 | ) | 61 | |||||
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(Decrease)/increase
in accrued taxes payable
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(392 | ) | 355 | |||||
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Increase
in prepaid and refundable income taxes
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(1,920 | ) | - | |||||
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Decrease
in prepaid expenses and other current assets
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27 | 58 | ||||||
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Decrease
in accounts receivable
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114 | 124 | ||||||
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(Increase)/decrease
in receivable from affiliates
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(585 | ) | 766 | |||||
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Total
adjustments
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2,975 | (9,012 | ) | |||||
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Net
cash (used in)/provided by operating activities
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(22,658 | ) | 10,324 | |||||
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Cash
flows from investing activities:
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||||||||
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Purchases/sales
of securities classified as available for sale:
|
||||||||
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Proceeds
from sales of fixed income securities
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30,202 | 28,603 | ||||||
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Proceeds
from sales of equity securities
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- | 37,755 | ||||||
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Purchase
of fixed income securities
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(28,748 | ) | (25,421 | ) | ||||
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Purchase
of equity securities
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- | (9 | ) | |||||
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Acquisition
of property and equipment
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(55 | ) | (152 | ) | ||||
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Expenditures
for capitalized software
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(466 | ) | (376 | ) | ||||
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Net
cash provided by investing activities
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933 | 40,400 | ||||||
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Cash
flows from financing activities:
|
||||||||
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Dividends
paid
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(6,987 | ) | (10,980 | ) | ||||
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Net
cash used in financing activities
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(6,987 | ) | (10,980 | ) | ||||
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Net
(decrease)/increase in cash and cash equivalents
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(28,712 | ) | 39,744 | |||||
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Cash
and cash equivalents at beginning of year
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42,936 | 8,955 | ||||||
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Cash
and cash equivalents at end of period
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$ | 14,224 | $ | 48,699 | ||||
The
accompanying notes are an integral part of these consolidated condensed
financial statements.
5
Part
I - Financial Information
Item
1. Financial Statements
VALUE
LINE, INC.
CONSOLIDATED
CONDENSED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR
THE NINE MONTHS ENDED JANUARY 31, 2010
(in
thousands, except share amounts)
(unaudited)
|
Common
stock
|
Accumulated
|
|||||||||||||||||||||||||||||||
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Number
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Additional
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Other
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||||||||||||||||||||||||||||||
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of
|
paid-in
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Treasury
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Comprehensive
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Retained
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Comprehensive
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|||||||||||||||||||||||||||
|
shares
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Amount
|
capital
|
Stock
|
income/(loss)
|
earnings
|
income
|
Total
|
|||||||||||||||||||||||||
|
Balance
at April 30, 2009
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9,981,600 | $ | 1,000 | $ | 991 | $ | (354 | ) | $ | 78,935 | $ | 297 | $ | 80,869 | ||||||||||||||||||
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Comprehensive
income/(loss)
|
||||||||||||||||||||||||||||||||
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Net
income/(loss)
|
$ | (25,633 | ) | (25,633 | ) | (25,633 | ) | |||||||||||||||||||||||||
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Other
comprehensive income/(loss), net of tax:
|
||||||||||||||||||||||||||||||||
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Change
in unrealized gains on securities, net of taxes
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(77 | ) | (77 | ) | (77 | ) | ||||||||||||||||||||||||||
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Comprehensive
income/(loss)
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$ | (25,710 | ) | |||||||||||||||||||||||||||||
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Dividends
declared
|
(5,989 | ) | (5,989 | ) | ||||||||||||||||||||||||||||
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Balance
at January 31, 2010
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9,981,600 | $ | 1,000 | $ | 991 | $ | (354 | ) | $ | 47,313 | $ | 220 | $ | 49,170 | ||||||||||||||||||
The
accompanying notes are an integral part of these consolidated condensed
financial statements.
6
VALUE
LINE, INC.
CONSOLIDATED
CONDENSED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR
THE NINE MONTHS ENDED JANUARY 31, 2009
(in
thousands, except share amounts)
(unaudited)
|
Common
stock
|
Accumulated
|
|||||||||||||||||||||||||||||||
|
Number
|
Additional
|
Other
|
||||||||||||||||||||||||||||||
|
of
|
paid-in
|
Treasury
|
Comprehensive
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Retained
|
Comprehensive
|
|||||||||||||||||||||||||||
|
shares
|
Amount
|
capital
|
Stock
|
income
|
earnings
|
income
|
Total
|
|||||||||||||||||||||||||
|
Balance
at April 30, 2008
|
9,981,600 | $ | 1,000 | $ | 991 | $ | (354 | ) | $ | 70,954 | $ | 15,263 | $ | 87,854 | ||||||||||||||||||
|
Comprehensive
income
|
||||||||||||||||||||||||||||||||
|
Net
income
|
$ | 19,336 | 19,336 | 19,336 | ||||||||||||||||||||||||||||
|
Other
comprehensive income,
net of tax:
|
||||||||||||||||||||||||||||||||
|
Change
in unrealized
gains on securities, net of
taxes
|
(15,350 | ) | (15,350 | ) | (15,350 | ) | ||||||||||||||||||||||||||
|
Comprehensive
income
|
$ | 3,986 | ||||||||||||||||||||||||||||||
|
Dividends
declared
|
(11,978 | ) | (11,978 | ) | ||||||||||||||||||||||||||||
|
Balance
at January 31, 2009
|
9,981,600 | $ | 1,000 | $ | 991 | $ | (354 | ) | $ | 78,312 | $ | (87 | ) | $ | 79,862 | |||||||||||||||||
The
accompanying notes are an integral part of these consolidated condensed
financial statements.
7
Notes
to Consolidated Condensed Financial Statements
The
interim consolidated condensed financial statements of Value Line, Inc.,
together with its subsidiaries (collectively referred to as the “Company”), are
unaudited. 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 16, 2009 for the fiscal year ended April 30,
2009. Results of operations covered by this report may not be indicative of the
results of operations for the entire year.
Value
Line, Inc. (the "Company", "VLI") is incorporated in the State of New
York. The Company's primary businesses are producing investment
related periodical publications and making available copyright data including
certain Value Line trademarks and Value Line proprietary ranking system
information to third parties under written agreements for use in third party
managed and marketed investment products, providing investment management
services to the Value Line Funds, institutions and individual accounts and
providing distribution, marketing, and administrative services to the Value Line
Funds. The name "Value Line" as used to describe the Company, its
products, and its subsidiaries, is a registered trademark of the
Company.
Principles
of consolidation: The consolidated condensed financial statements
include the accounts of the Company and all of its subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Accounting
Standards Codification (ASC):
During
fiscal year 2010, the Company adopted the FASB's
Accounting Standards Codification
(ASC).
The FASB's ASC is the source of authoritative U.S. accounting and
reporting standards for nongovernmental entities, in addition to guidance issued
by the SEC. The FASB’s ASC reorganizes the thousands of U.S. GAAP
pronouncements into roughly 90 accounting topics and displays all topics using a
consistent structure. Although not the official source, it also includes
relevant portions of authoritative SEC guidance that follows the same topical
structure in separate sections in the Codification. The financial
statements of the Company have been updated to reflect the relevant references
to the FASB's ASC.
Revenue
Recognition:
Depending
upon the product, subscription fulfillment is available in print, via Internet
access and CD-ROM. The length of a subscription varies by
product and offer received by the subscriber. Generally,
subscriptions are available as trial subscriptions, annual subscriptions and/or
multi-year subscriptions. Subscription revenues are recognized on a
straight line basis over the life of the subscription. Accordingly,
the amount of subscription fees to be earned by fulfilling subscriptions after
the date of the balance sheet is shown as unearned revenue within current and
long-term liabilities. Changes in unearned revenue generally indicate the trend
for subscription revenues over the following year as the current portion of
deferred revenue is expected to be recognized as revenue within 12
months.
Copyright
data revenues are derived from providing certain Value Line trademarks and Value
Line proprietary ranking system information to third parties under written
agreements for use in selecting securities for third party marketed products,
including unit investment trusts, annuities and exchange traded
funds. Value Line earns asset based copyright data fees as specified
in the individual agreements. Revenue is recognized monthly over the
term of the agreement and will fluctuate as the market value of the underlying
portfolio increases or decreases in value.
Investment
management fees consist of management fees from the Value Line Mutual Funds
("Value Line Funds"), and from asset management clients. Investment
management fees for the mutual funds are earned on a monthly basis as services
are performed and the fee is calculated based on average daily net assets of the
mutual funds in accordance with each fund's advisory
agreement. Investment management fees for the asset management
accounts are earned on a monthly basis as services are performed and the fee is
calculated on assets in accordance with each of the management agreements
(see Note 6).
The
management fees and average daily net assets for the Value Line Funds are
calculated by State Street Bank, which serves as the fund accountant, fund
administrator, and custodian of the Value Line Funds. The management fees for
the non-mutual fund asset management clients are calculated by the Company based
on the asset valuations provided by third party custodians.
The Value
Line Funds are open-end management companies registered under the Investment
Company Act of 1940. Shareholder transactions for the Value
Line Mutual Funds are processed each business day by the third party transfer
agent of the Funds. Shares can be redeemed without advance notice
upon request of the shareowners each day that the New York Stock Exchange is
open. Assets within the separately managed accounts are held at third
party custodians, are subject to the terms of each advisory agreement and do not
have any advance notice requirement for withdrawals, although they generally
have a 30 day advance notice requirement for termination of the
account.
8
Value
Line, Inc.
Notes
to Consolidated Condensed Financial Statements
Service
and distribution fees are received from the Value Line Funds in accordance with
service and distribution plans under rule 12b-1 of the Investment Company Act of
1940. The plans are compensation plans, which means that the
distributor’s fees under the plans are payable without regard to actual expenses
incurred by the distributor, and therefore the distributor may earn a profit
under the plan. Expenses incurred by EULAV Securities, Inc. ("ESI")
(formerly, Value Line Securities, Inc. ("VLS")), the distributor of the Value
Line Funds, include payments to securities dealers, banks, financial
institutions and other organizations (including an allocation of VLI expenses),
that provide distribution, marketing, and administrative services with respect
to the distribution of the Value Line Funds. Service and distribution
fees are received on a monthly basis and calculated on the average daily net
assets of the respective mutual fund in accordance with each fund prospectus
(see Note 6).
Valuation
of Securities:
The
Company's securities classified as available for sale consist of shares of the
Value Line Funds and government debt securities accounted for in accordance with
the requirements of the "Fair Value Measurements Topic of the Financial
Accounting Standards Board Accounting Standards Codification (FASB’s
ASC)". The securities available for sale and trading securities
reflected in the consolidated condensed financial statements are valued at
market and unrealized gains and losses on securities classified as available for
sale, net of applicable taxes, are reported as a separate component of
Shareholders' Equity. Unrealized gains and losses on trading securities are
included in the Statement of Income. Realized gains and losses on sales of the
securities classified as available for sale are recorded in earnings on the
trade date and are determined on the identified cost method.
The
Company classifies its securities available for sale as current assets. It does
so to properly reflect its liquidity and to recognize the fact that it has
assets available for sale to fully satisfy its current liabilities should the
need arise.
Market
valuation of securities listed on a securities exchange is based on the closing
sales prices on the last business day of each month. Valuation of open-end
mutual fund shares is based upon the publicly quoted net asset value of the
shares. The market value of the Company's fixed maturity government debt
obligations are determined utilizing publicly quoted market prices or other
observable inputs.
Effective
for fiscal 2009, the Company adopted the Fair Value Measurements Topic of the
FASB Accounting Standards Codification that defines fair value as the price that
the Company would receive upon selling an investment in a timely transaction to
an independent buyer in the principal or most advantageous market for the
investment. The Fair Value Measurements Topic established a
three-tier hierarchy to maximize the use of observable market data and minimize
the use of unobservable inputs and to establish classification of fair value
measurements for disclosure purposes. Inputs refer broadly to the information
that market participants would use in pricing the asset or liability, including
assumptions about risk. Examples of risks include those inherent in a particular
valuation technique used to measure fair value such as the risk inherent in the
inputs to the valuation technique. Inputs are classified as observable or
unobservable. Observable inputs are inputs that reflect the assumptions market
participants would use in pricing the asset or liability developed based on
market data obtained from sources independent of the reporting entity.
Unobservable inputs are inputs that reflect the reporting entity’s own
assumptions about the factors market participants would use in pricing the asset
or liability developed based on the best information available in the
circumstances. The three-tier hierarchy of inputs is summarized in the three
broad levels listed below.
Level 1 –
quoted prices in active markets for identical investments.
Level 2 –
other significant observable inputs (including quoted prices for similar
investments, interest rates, prepayment speeds, credit risk, etc.)
Level 3 –
significant unobservable inputs (including the Company’s own assumptions in
determining the fair value of investments).
The
valuation techniques used by the Company to measure fair value during the nine
months ended January 31, 2010 for Level 1 securities consisted exclusively of
quoted prices.
The
securities valued as Level 2 investments consist of municipal bonds (that are
pre-refunded by U.S. Treasury securities) and other U.S. Treasury securities.
Valuation techniques used by the Company to measure fair value for government
securities during the period consisted primarily of third party pricing services
that utilized actual market data such as trades of comparable bond issues,
broker/dealer quotations for the same or similar investments in active markets
and other observable inputs. When necessary, the third party services
use discounted future cash flows to calculate the net present
value.
9
Value
Line, Inc.
Notes
to Consolidated Condensed Financial Statements
The
following is a summary of the inputs used as of January 31, 2010 in valuing the
Company’s investments carried at fair value:
|
(in thousands)
|
||||||||||||||||
|
Valuation Inputs
|
Total
Investments
|
Cash
Equivalents
|
Investments in
Trading
Securities
|
Investments in
Securities
Available for
Sale
|
||||||||||||
|
Level 1 –
Quoted Prices
|
$ | 13,805 | $ | 13,805 | - | - | ||||||||||
|
Level
2 – Other Significant Observable Inputs
|
$ | 50,662 | - | $ | 6,375 | $ | 44,287 | |||||||||
|
Level 3 – Significant Unobservable
Inputs
|
- | - | - | - | ||||||||||||
|
Total
|
$ | 64,467 | $ | 13,805 | $ | 6,375 | $ | 44,287 | ||||||||
The
Company had no other financial instruments including futures, forwards and swap
contracts. For the period ended January 31, 2010, there were no Level 3
investments. The Company does not have any liabilities subject to Fair Value
Measurement.
Advertising
expenses: The Company expenses advertising costs as
incurred.
Reclassification: Certain
items in the prior year financial statements have been reclassified to conform
to the current year presentation.
Income
Taxes:
The
Company computes its income tax provision in accordance with the Income Tax
Topic of the FASB’s ASC. Deferred tax liabilities and assets are recognized for
the expected future tax consequences of events that have been reflected in the
Consolidated Condensed Financial Statements. Deferred tax liabilities and assets
are determined based on the differences between the book values and the tax
bases of particular assets and liabilities, using tax rates currently in effect
for the years in which the differences are expected to reverse.
The
Income Tax Topic of the FASB’s ASC establishes for all entities, a minimum
threshold for financial statement recognition of the benefit of positions taken
in filing tax returns (including whether an entity is taxable in a particular
jurisdiction), and requires certain expanded tax disclosures. As of
January 31, 2010, management has reviewed the tax positions for the years still
subject to tax audit under the statute of limitations, evaluated the
implications, and determined that there is no impact to the Company's financial
statements.
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 Condensed
Statements of Cash Flows, the Company considers all cash held at banks and short
term liquid investments with an original maturity of less than three months to
be cash and cash equivalents. As of January 31, 2010, and April 30, 2009 cash
equivalents included $13,805,000 and $42,068,000, respectively, invested in the
Value Line U.S. Government Money Market Fund. The Value Line Cash
Fund was renamed the U.S. Government Money Market Fund in August
2009.
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.
Subsequent
Events: Management has evaluated all subsequent transactions and events after
the balance sheet date through March 12, 2010, the date on which these financial
statements were issued, and except as already included in the notes to these
financial statements, has determined that no additional items require
disclosure.
Securities
held by the Company are classified as Trading Securities and Available-for-Sale
Securities. All securities held in ESI, as a broker/dealer, are classified as
trading securities. Securities held by the Company and its other
subsidiaries, are classified as available-for-sale securities.
Trading
Securities:
Trading
securities held by the Company at January 31, 2010 consisted entirely of
government debt securities and had an amortized cost of $6,270,000 and a market
value of $6,375,000. Trading securities held by the Company at April 30, 2009
had an aggregate cost of $17,133,000 and a market value of $17,203,000. The
proceeds from sales of trading securities during the nine months ended
January 31, 2010 were $10,511,000 and the related net realized
trading gains amounted to $94,000. The proceeds from sales of trading securities
during the nine months ended January 31, 2009, were $9,026,000 and the related
total realized capital losses net of capital gains amounted to $126,000. The
increase in unrealized gains of $35,000 and the decrease in unrealized losses of
$81,000 for the periods ended January 31, 2010, and January 31, 2009,
respectively, were included in the Consolidated Condensed Statement of
Income.
10
Value
Line, Inc.
Notes
to Consolidated Condensed Financial Statements
Securities
Available for Sale
Equity
Securities:
The
Company sold its portfolio of equity securities during the second quarter ended
October 31, 2008 and did not hold any equity securities as of January 31, 2010
and April 30, 2009.
During
the nine months ended January 31, 2009, proceeds of $37,755,000 were received
from sales of equity securities. During the second quarter of fiscal
2009, $9,600,000 of net capital gains were reclassified from Accumulated Other
Comprehensive Income to the Consolidated Condensed Statement of
Income.
Government
Debt Securities (Fixed Income Securities):
Government
debt securities consist of federal, state, and local government securities
within the United States. The aggregate cost and fair value at January 31, 2010
for government debt securities classified as available for sale were as
follows:
|
(in thousands)
|
||||||||||||
|
Amortized Historical
|
Gross Unrealized
|
|||||||||||
|
Maturity
|
Cost
|
Fair Value
|
Holding Gains
|
|||||||||
|
Due
within 1 year
|
$ | 35,053 | $ | 35,107 | $ | 41 | ||||||
|
Due
1 year through 5 years
|
8,895 | 9,181 | 299 | |||||||||
|
Total
investment in government debt securities
|
$ | 43,948 | $ | 44,288 | $ | 340 | ||||||
The
aggregate cost and fair value at April 30, 2009 for government debt securities
classified as available for sale were as follows:
|
(in thousands)
|
||||||||||||
|
Amortized Historical
|
Gross Unrealized
|
|||||||||||
|
Maturity
|
Cost
|
Fair Value
|
Holding Gains
|
|||||||||
|
Due
within 1 year
|
$ | 8,593 | $ | 8,599 | $ | 6 | ||||||
|
Due
1 year through 5 years
|
37,474 | 37,927 | 453 | |||||||||
|
Total
investment in government debt securities
|
$ | 46,067 | $ | 46,526 | $ | 459 | ||||||
The
decrease in gross unrealized gain on fixed income securities classified as
available for sale of $119,000 net of deferred income tax of $42,000, was
included in Accumulated Other Comprehensive Income on the Consolidated Condensed
Balance Sheets as of January 31, 2010. The increase in gross unrealized gain on
fixed income securities classified as available for sale of $625,000 net of
deferred income tax of $220,000, was included in Accumulated Other Comprehensive
Income on the Consolidated Condensed Balance Sheets as of April 30,
2009.
The
average yield on the Government debt securities classified as available for sale
at January 31, 2010 and April 30, 2009 was 1.25% and 2.52%,
respectively.
Proceeds
from sales of government debt securities classified as available for sale during
the nine months ended January 31, 2010 and 2009 were $30,206,000 and
$28,603,000, respectively. During the nine months ended January 31, 2010 and
2009, capital losses on sales of fixed income securities of $20,000
and $312,000, respectively, were reclassified from Accumulated Other
Comprehensive Income in the Balance Sheet to the Consolidated Condensed
Statement of Income.
For the
nine months ended January 31, 2010 and 2009, income from securities transactions
also included $3,000 and $215,000 of dividend income and $728,000 and $2,208,000
of interest income, net of bond amortization.
Cash
payments for income taxes were $2,401,000 and $10,305,000 for the nine months
ended January 31, 2010 and 2009, respectively.
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 that provides for a discretionary annual
Company contribution.
11
Value
Line, Inc.
Notes
to Consolidated Condensed Financial Statements
The
Financial Accounting Standards Board ASC Comprehensive Income topic 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 otherwise would not be recognized in the calculation of net
income.
At
January 31, 2010 and 2009, the Company held both equity securities and U.S.
Government debt securities that are classified as Available for Sale on the
Consolidated Condensed Balance Sheets. The change in valuation of these
securities, net of deferred income taxes, has been recorded in Accumulated Other
Comprehensive Income in the Company’s Balance Sheets.
The
components of comprehensive income that are included in the Statement of Changes
in Shareholders’ Equity are as follows:
|
(in thousands)
|
||||||||||||
|
Before
|
Tax (Expense)
|
Net of
|
||||||||||
|
Nine months ended January 31, 2010
|
Tax Amount
|
or Benefit
|
Tax Amount
|
|||||||||
|
Unrealized
Gains/(Losses) on Securities:
|
||||||||||||
|
Unrealized
Holding Gains/(Losses) arising during the period
|
$ | (139 | ) | $ | 50 | $ | (89 | ) | ||||
|
Add: Reclassification
adjustments for losses realized
|
||||||||||||
|
in
net income
|
20 | (8 | ) | 12 | ||||||||
|
Other
Comprehensive income
|
$ | (119 | ) | $ | 42 | $ | (77 | ) | ||||
|
(in thousands)
|
||||||||||||
|
Before
|
Tax (Expense)
|
Net of
|
||||||||||
|
Nine months ended January 31, 2009
|
Tax Amount
|
or Benefit
|
Tax Amount
|
|||||||||
|
Unrealized
Gains/(Losses) on Securities:
|
||||||||||||
|
Unrealized
Holding Gains/(Losses) arising during the period
|
$ | (14,400 | ) | $ | 5,068 | $ | (9,332 | ) | ||||
|
Add: Reclassification
adjustments for losses realized
|
||||||||||||
|
in
net income
|
364 | (128 | ) | 236 | ||||||||
|
Less:
Reclassification adjustments for gains realized
|
||||||||||||
|
in
net income
|
(9,652 | ) | 3,398 | (6,254 | ) | |||||||
|
Other
Comprehensive income
|
$ | (23,688 | ) | $ | 8,338 | $ | (15,350 | ) | ||||
The
Company's subsidiary, EULAV Asset Management, LLC ("EULAV") acts as investment
adviser and manager for fourteen open-end investment companies, the Value Line
Funds. EULAV earns investment management fees based upon the average
daily net asset values of the respective Value Line Funds. As
discussed in Note 1, service and distribution fees are received by ESI from the
Value Line Funds in accordance with service and distribution plans under rule
12b-1 of the Investment Company Act of 1940. The plans are
compensation plans, which means that the distributor’s fees under the plans are
payable without regard to actual expenses incurred by the distributor, and
therefore the distributor may earn a profit under the plans. Expenses
incurred by ESI include payments to securities dealers, banks, financial
institutions and other organizations which provide distribution, marketing, and
administrative services (including payments by ESI to VLI for allocated
compensation and administration expenses) with respect to the distribution of
the mutual funds’ shares. Service and distribution fees are received
on a monthly basis and calculated on the daily net assets of the respective
mutual fund in accordance with each fund's prospectus.
For the
nine months ended January 31, 2010 and 2009, investment management fees and
12b-1 service and distribution fees amounted to $14,237,000 and $19,763,000,
respectively, which took into account fee waivers for certain of the Value Line
Funds. These amounts included service and distribution fees of $3,140,000 and
$4,447,000 earned by ESI during the nine months ended January 31, 2010 and 2009,
respectively. The related receivables from the funds for investment management
fees and service and distribution fees included in Receivables from affiliates
were $1,603,000 and $1,475,000 at January 31, 2010, and April 30, 2009,
respectively.
For the
nine months ended January 31, 2010 and 2009, total management fee waivers were
$652,000 and $142,000, respectively, and service and distribution fee waivers
were $2,020,000 and $2,280,000, respectively. The Company and its subsidiary,
ESI, have no right to recoup the previously waived amounts of management fees
and 12b-1 fees, except for waived management fees for the U.S. Government Money
Market Fund. Any recoupment is subject to the provisions of the
prospectus.
As of
January 31, 2010, the Company had $13,805,000 invested in the Value Line U.S.
Government Money Market Fund representing 11% of the fund's assets and less than
1% of all Value Line Funds assets. Purchases and redemptions routinely occur in
the Value Line U.S. Government Money Market Fund as part of business operations
of the Company.
12
Value
Line, Inc.
Notes
to Consolidated Condensed Financial Statements
For the
nine months ended January 31, 2010 and 2009, the Company was reimbursed
$1,471,000 and $893,000, respectively, for payments it made on behalf of and
services it provided to the Parent. At January 31, 2010, the Receivables from
the Parent amounted to $295,000. At April 30, 2009, Receivables from affiliates
were reduced by the Payables to the Parent in the amount of $164,000. These
transactions are in accordance with the expense sharing agreement with the
parent and tax sharing agreement as described in Note 7.
From time
to time, Arnold Bernhard & Co., Inc. (the "Parent") has purchased additional
shares of the Company in the market when and as the Parent has determined it to
be appropriate. As stated several times in the past, the public is
reminded that the Parent may make additional purchases from time to time in the
future. The Parent owns approximately 86.5% of the issued and outstanding common
stock of the Company.
The
Company computes its income tax provision in accordance with the requirements of
the Income Tax Topic of the FASB’s ASC.
The
provision for income taxes includes the following:
|
Nine
months ended January 31,
|
||||||||
|
2010
|
2009
|
|||||||
|
(in
thousands)
|
||||||||
|
Current
Tax Expense:
|
||||||||
|
Federal
|
$ | - | $ | 9,281 | ||||
|
State
and local
|
- | 1,430 | ||||||
| - | 10,711 | |||||||
|
Deferred
Tax Expense (Benefit):
|
||||||||
|
Federal
|
(6,662 | ) | (19 | ) | ||||
|
State
and local
|
(1,918 | ) | (34 | ) | ||||
| (8,580 | ) | (53 | ) | |||||
|
Provision
for income taxes
|
$ | (8,580 | ) | $ | 10,658 | |||
Deferred
income 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 assets is primarily the result of the tax benefit
from its net operating loss to be utilized by fiscal year ended April 30,
2011.
At the
end of each interim reporting period, the Company estimates the effective income
tax rate to apply for the full year. The Company uses the effective income tax
rate determined to provide for income taxes on a year-to-date basis and reflect
the tax effect of any tax law changes and certain other discrete events in the
period in which they occur.
The
overall effective income tax rate, as a percentage of pre-tax ordinary income,
for the nine months ended January 31, 2010 and 2009 was 25.08% and 35.53%,
respectively. The fluctuation in the effective income tax rate is attributable
to the non-deductible portion of the provision for settlement and non-taxable
investment income, events that do not have tax consequences, recorded during the
nine months ended January 31, 2010.
The
annual effective tax rate for fiscal 2010 could change due to a number of
factors including but not limited to an increase or decrease in the ratio of
income or loss to pre-tax items that do not have tax consequences, our
geographic profit mix between tax jurisdictions, new tax laws, new
interpretations of existing tax law and rulings by and settlements with tax
authorities. For the nine months ended January 31, 2010, there were no new
material uncertain tax positions.
The
provision for income taxes differs from the amount of income tax determined by
applying the applicable U.S. federal statutory income tax rate to pretax income
as a result of the following:
|
Nine months ended
January 31,
|
||||||||
|
2010
|
2009
|
|||||||
|
U.S.
statutory federal rate
|
35.00 | % | 35.00 | % | ||||
|
Increase/(decrease)
in tax rate from:
|
||||||||
|
Tax
effect of non-deductible portion of provision for
settlement
|
-11.97 | % | 0.00 | % | ||||
|
State
and local income taxes, net of federal income tax benefit
|
3.59 | % | 3.03 | % | ||||
|
Effect
of tax exempt income and dividend deductions
|
0.69 | % | -2.06 | % | ||||
|
Other,
net
|
-2.23 | % | -0.44 | % | ||||
|
Effective
income tax rate
|
25.08 | % | 35.53 | % | ||||
The
Company is included in the consolidated federal income tax return of the
Parent. The Company has a tax sharing agreement which requires it to
make tax payments to the Parent equal to the Company's liability as if it filed
a separate return.
13
Value
Line, Inc.
Notes
to Consolidated Condensed Financial Statements
The
Company operates two reportable business segments: (1) Investment Periodicals,
Publishing & Copyright Data and (2) Investment Management. The Investment
Periodicals, Publishing & Copyright Data segment produces investment related
periodical publications (retail and institutional) in both print and electronic
form, and includes copyright data fees for Value Line proprietary ranking system
information and other proprietary information. The Investment Management segment
provides advisory services to the Value Line Funds, as well as institutional and
individual accounts. 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 and income from
securities transactions related to corporate assets, between the two reportable
segments.
Disclosure
of Reportable Segment Profit/(Loss) and Segment Assets (in
thousands)
|
Nine months ended January 31, 2010
|
||||||||||||
|
Investment
|
||||||||||||
|
Periodicals,
|
||||||||||||
|
Publishing &
|
Investment
|
|||||||||||
|
Copyright Data
|
Management
|
Total
|
||||||||||
|
Revenues
from external customers
|
$ | 29,820 | $ | 14,407 | $ | 44,227 | ||||||
|
Intersegment
revenues
|
15 | - | 15 | |||||||||
|
Income/(loss)
from securities transactions
|
(57 | ) | 167 | 110 | ||||||||
|
Depreciation
and amortization
|
514 | 33 | 547 | |||||||||
|
Segment
profit/(loss) from operations *
|
8,017 | (42,783 | ) | (34,766 | ) | |||||||
|
Segment
assets
|
12,467 | 12,189 | 24,656 | |||||||||
|
Expenditures
for segment assets
|
516 | 5 | 521 | |||||||||
|
Nine months ended January 31, 2009
|
||||||||||||
|
Investment
|
||||||||||||
|
Periodicals,
|
||||||||||||
|
Publishing &
|
Investment
|
|||||||||||
|
Copyright Data
|
Management
|
Total
|
||||||||||
|
Revenues
from external customers
|
$ | 33,944 | $ | 20,452 | $ | 54,396 | ||||||
|
Intersegment
revenues
|
133 | - | 133 | |||||||||
|
Income/(loss)
from securities transactions
|
(10 | ) | 707 | 697 | ||||||||
|
Depreciation
and amortization
|
840 | 30 | 870 | |||||||||
|
Segment
profit from operations
|
11,890 | 6,473 | 18,363 | |||||||||
|
Segment
assets
|
11,011 | 23,622 | 34,633 | |||||||||
|
Expenditures
for segment assets
|
528 | - | 528 | |||||||||
Reconciliation
of Reportable Segment Revenues, Operating Profit/(Loss) and Assets
|
(in thousands)
|
||||||||
|
Nine months ended January 31,
|
||||||||
|
2010
|
2009
|
|||||||
|
Revenues
|
||||||||
|
Total
revenues for reportable segments
|
$ | 44,242 | $ | 54,529 | ||||
|
Elimination
of intersegment revenues
|
(15 | ) | (133 | ) | ||||
|
Total
consolidated revenues
|
$ | 44,227 | $ | 54,396 | ||||
|
Segment
profit *
|
||||||||
|
Total
profit/(loss) for reportable segments
|
$ | (34,656 | ) | $ | 19,060 | |||
|
Add: Income
from securities transactions related to corporate assets
|
444 | 10,946 | ||||||
|
Less:
Depreciation related to corporate assets
|
(1 | ) | (12 | ) | ||||
|
Income/(loss)
before income taxes
|
$ | (34,213 | ) | $ | 29,994 | |||
|
Assets
|
||||||||
|
Total
assets for reportable segments
|
$ | 24,656 | $ | 34,633 | ||||
|
Corporate
assets
|
61,105 | 84,417 | ||||||
|
Consolidated
total assets
|
$ | 85,761 | $ | 119,050 | ||||
* Fiscal
2010 includes a charge of $720,000 related to the write-down of development
software and a provision for settlement of approximately $47.7 million included
in the Investment Periodicals, Publishing and Copyright Data and Investment
Management segments, respectively.
14
Value
Line, Inc.
Notes
to Consolidated Condensed Financial Statements
During
the second quarter of fiscal 2010, the Company expensed $720,000 of capitalized
development costs related to a production software project that was
determined to be no longer viable.
On
September 3, 2008, the Company was served with a derivative shareholder's suit
filed in New York County Supreme Court naming the Company's Directors and
alleging breach of fiduciary duty and related allegations, all arising from the
SEC matter. The complaint seeks return of remuneration by the Directors and
other remedies. Based on an evaluation of the case at this early
stage, including communications with the Company's insurance carrier, it is not
possible to estimate an amount or range of loss on the Company's financial
statements.
A second
derivative shareholder's suit was filed in New York County Supreme Court on or
about November 9, 2009, naming certain current and former Company Directors and
the Company's Parent as defendants. This suit primarily restates the
same or similar allegations and seeks similar remedies as were sought in the
earlier derivative shareholder's suit served in September
2008. Counsel for both Plaintiffs filed a motion to consolidate both
cases. This was granted in January 2010. Plaintiffs' counsel have
agreed from time to time to extend the defendants' time to answer, move or
otherwise respond to the complaints in both cases. Most recently, the parties
have agreed to adjourn defendants' time to respond, sine die pending the service
and filing of a consolidated amended complaint. The Company has
advised its insurance carriers of these developments.
On
November 4, 2009, the Company, its former CEO, and another former officer of the
Company concluded a settlement with the SEC as a result of an investigation
regarding the execution of portfolio transactions on behalf of the Value Line
Funds managed by the Company (the “Settlement”). Included in the Balance Sheet
is a reserve for settlement of $4,000,000 for expenses related to the settlement
including a $917,000 reimbursement of expenses to the Value Line Mutual Funds.
Additional information about the Settlement is included in the Form 8-K filed by
the Company on November 4, 2009 and Item 1 – Note 10 of the Form 10-Q filed by
the Company with the SEC on December 15, 2009, each of which is incorporated
herein by reference.
15
|
Item 2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS.
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Safe
Harbor Statement under the Private Securities Litigation Reform Act of
1995
This
report contains statements that are predictive in nature, depend upon or refer
to future events or conditions (including certain projections and business
trends) accompanied by such phrases as “believe”, “estimate”, “expect”,
“anticipate”, “will”, “intend” and other similar or negative expressions, that
are “forward-looking statements” as defined in the Private Securities Litigation
Reform Act of 1995. Actual results may differ materially from those
projected as a result of certain risks and uncertainties, including but not
limited to the following:
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·
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dependence
on key personnel;
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·
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maintaining
revenue from subscriptions for the Company’s
products;
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·
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protection
of intellectual property rights;
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·
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changes
in market and economic conditions;
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·
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fluctuations
in the Company’s assets under management due to broadly based changes in
the values of equity and debt securities, redemptions by investors and
other factors;
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dependence
on Value Line Funds for investment management and related
fees;
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competition
in the fields of publishing, copyright data and investment
management;
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the
impact of government regulation on the Company’s business and the
uncertainties of litigation and regulatory
proceedings;
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terrorist
attacks; and
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·
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other
risks and uncertainties, including but not limited to the risks described
in Item 1A, “Risk Factors” of the Company’s annual report on Form 10-K for
the year ended April 30, 2009, and other risks and uncertainties from time
to time.
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Any
forward-looking statements are made only as of the date hereof, and the Company
undertakes no obligation to update or revise the forward-looking statements,
whether as a result of new information, future events or otherwise.
Business
Environment
During
the Company’s third quarter ended January 31, 2010, the global financial markets
continued to improve from the March 2009 market lows. The NASDAQ and
the Dow Jones Industrial Average declined 39.1% and 38.6% respectively from the
end of September 2008 to March 9, 2009. From that point to January
31, 2010, those indexes have rallied nearly 69% and 54%
respectively. For the fiscal year ended January 31, 2010 the NASDAQ
and Dow Jones Industrial Average were up 25% and 23%
respectively. But the severe downturn and volatility in the financial
markets throughout the prior fiscal year continue to negatively impact the
Company’s revenues, assets under management and the assets attributable to third
party copyright data partners as compared to the nine months of the previous
fiscal year. Although we have not suffered a fundamental change in
our business model, the business environment remains challenging for our
business. In response, we continue to be diligent both in our
operational and marketing execution and in controlling expenses. The
Company remains debt free with liquidity sufficient to endure the economic
recession that most likely ended in terms of anticipated liquidity
needs.
Results
of Operations
The
operating results of the Company for the quarter ended January 2010 improved
from the previous quarter’s results. The nine-month results though
are worse than the comparable period of fiscal 2009 because of the late
2008/early 2009 market decline and the one-time provision for the SEC
settlement. Print publishing has continued its decline, as detailed
below. The ability of the Company to finance revenue initiatives as
well as known working capital needs remains very strong. Management
foresees no borrowing during the current fiscal year. Retained
earnings remain over $47 million and liquid asset resources over $64.8
million.
16
For the
nine months ended January 31, 2010 the Company’s net loss of $25,633,000 or
$2.57 per share was $44,969,000 below net income of $19,336,000 or $1.94 per
share for the nine months ended January 31, 2009. Net income for the
third quarter ended January 31, 2010 of $3,570,000 or $0.36 per share was
$162,000 or 4% below net income of $3,732,000 or $0.38 per share for the third
quarter of the prior fiscal year. The operating loss, including the SEC
settlement was $34,766,000 for the nine months ended January 31, 2010, which was
$53,117,000 below the operating income of $18,351,000 last fiscal year. The
operating and net losses of the Company were a result of the Company recording a
provision for settlement of $47,706,000 for settlement and related costs
associated with the Securities and Exchange Commission (“SEC”)
investigation. Excluding the provision for settlement and a one-time
charge of $720,000 for the write down of development software, operating income
for the nine months ended January 31, 2010 of $13,660,000 was $4,691,000 or 26%
below last fiscal year. Operating income of $4,583,000 for the third
quarter ended January 31, 2010 was level with operating income of $4,620,000 for
the third quarter of the prior fiscal year. Inclusive of the
$47,706,000 provision for settlement and the write off of a software project,
shareholders’ equity of $49,170,000 at January 31, 2010 was 38% lower than
shareholders’ equity of $79,862,000 at January 31, 2009.
The
following table illustrates the key earnings figures for the three and nine
months ended January 31, 2010 and 2009.
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Three
Months Ended January 31,
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Nine
Months Ended January 31,
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|||||||||||||||||||||||
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2010
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2009
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Percentage
Change
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2010
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2009
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Percentage
Change
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|||||||||||||||||||
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(in
thousands, except earnings/(loss) per share)
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FY
10 vs. 09
|
FY
10 vs. 09
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||||||||||||||||||||||
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Earnings/(loss)
per share
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$ | 0.36 | $ | 0.38 | -5.3 | % | $ | (2.57 | ) | $ | 1.94 | -232.5 | % | |||||||||||
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Net
income/(loss)
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$ | 3,570 | $ | 3,732 | -4.4 | % | $ | (25,633 | ) | $ | 19,336 | -232.6 | % | |||||||||||
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Operating
income/(loss)
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$ | 4,583 | $ | 4,620 | -0.8 | % | $ | (34,766 | ) | $ | 18,351 | -289.5 | % | |||||||||||
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Operating
expenses
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$ | 9,989 | $ | 11,236 | -11.1 | % | $ | 78,993 | $ | 36,045 | 119.2 | % | ||||||||||||
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Income
from securities transactions, net
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$ | 185 | $ | 927 | -80.0 | % | $ | 553 | $ | 11,643 | -95.3 | % | ||||||||||||
Operating
revenues which consist of investment periodicals and related publications
revenues, copyright data fees, and investment management fees and services
declined for the fiscal year 2010 compared to the previous year.
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Operating
Revenues
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||||||||||||||||||||||||
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Three
Months
Ended
January
31,
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Nine
Months
Ended
January
31,
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|||||||||||||||||||||||
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Percentage
Change
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Percentage
Change
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|||||||||||||||||||
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(in
thousands)
|
2010
|
2009
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FY
10 vs. 09
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2010
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2009
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FY
10 vs. 09
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||||||||||||||||||
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Investment
periodicals and related publications
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$ | 8,864 | $ | 10,048 | -11.8 | % | $ | 27,343 | $ | 30,341 | -9.9 | % | ||||||||||||
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Copyright
data fees
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$ | 883 | $ | 683 | 29.3 | % | $ | 2,477 | $ | 3,603 | -31.3 | % | ||||||||||||
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Investment
management fees and services
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$ | 4,825 | $ | 5,125 | -5.9 | % | $ | 14,407 | $ | 20,452 | -29.6 | % | ||||||||||||
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Total
operating revenues
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$ | 14,572 | $ | 15,856 | -8.1 | % | $ | 44,227 | $ | 54,396 | -18.7 | % | ||||||||||||
17
Investment
periodicals and related publications revenues
Investment periodicals and related
publications revenues were down $2,998,000 or 10% for the nine months ended
January 31, 2010 as compared to the first nine months of the prior fiscal
year. While the Company continues to attract new subscribers through
various marketing channels, primarily direct mail and the Internet, total
product line circulation continues to decline. Factors that have
contributed to the decline in the investment periodicals and related
publications revenues include competition in the form of free or low cost
investment research on the Internet and research provided by brokerage firms at
no direct cost to their clients. As of January 31, 2010, total company-wide
circulation has dropped 13% compared to the previous fiscal
year. Overall renewal rates for the flagship product,
The Value Line Investment
Survey
are 72%, up slightly from 70% a year earlier. Even so,
the Company is not adding enough new subscribers to offset the subscribers that
choose not to renew. The Company has been successful in growing
electronic investment periodicals revenues within institutional sales, which
increased $434,000 or 8% from the previous year. Fiscal year gross institutional
sales through January 31, 2010 were $6,883,000, up $1,168,000 or 20% from the
previous fiscal year. This is positive trend, but not sufficient to
offset the lost revenue from retail subscribers.
Within
investment periodicals and related publications are subscription revenues
derived from print and electronic products. The following chart
illustrates the year-to-year change in the revenues associated with print and
electronic subscriptions.
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Subscription Revenues
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Percentage
Change
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|||||||||||
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Nine Months Ended January 31,
(in thousands)
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2010
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2009
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FY 10 vs.
09
|
|||||||||
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Print
publication revenues
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$ | 17,874 | $ | 20,659 | -13.5 | % | ||||||
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Electronic
publication revenues
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$ | 9,469 | $ | 9,682 | -2.2 | % | ||||||
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Total
investment periodicals and related publications revenues
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$ | 27,343 | $ | 30,341 | -9.9 | % | ||||||
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Unearned
revenues (short and long term)
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$ | 25,570 | $ | 29,176 | -12.4 | % | ||||||
For the nine months ended January 31,
2010 print publication revenues decreased $2,785,000 or 14% from the last fiscal
year for the reasons described earlier. Print circulation, which has
always dominated our subscription base, has fallen 13% from the last fiscal
year. Electronic publications revenues were down $213,000 for the
nine months ended January 31, 2010. All the retail electronic
services continued to decline in circulation from the prior fiscal
year.
The electronic publication revenues are
broken down into institutional accounts and retail subscribers. For
the nine months ended January 31, 2010, institutional revenues increased
$434,000 or 8%, while revenues from retail subscribers were down $647,000 or 15%
as compared to the nine months ended January 31, 2009. The Company
has relied more on its institutional sales marketing efforts, and the increase
in institutional revenues is a direct result of a focused effort for sales to
colleges, libraries and money managers. The decrease in electronic
retail publications revenues is primarily attributable to the decrease in
circulation within the Company’s software products.
The Value Line Timeliness Ranking
System
TM
(“the
Ranking System”) has historically been a component in the Company’s flagship
product,
The Value Line
Investment Survey
, and is also an important part of the Company’s
copyright data business. As stated in other recent quarterly filings,
the rapid and severe price actions in the markets in 2009 appear to have favored
short-term investing, as investors bought well known names whose earnings have
plunged but whose stock prices were depressed in hopes the stock prices will
rebound. Such stocks are generally not well ranked by Value Line
because the Ranking System emphasizes earnings results and price
momentum. The Ranking System is designed to be predictive over a six
to twelve month period.
During
the six months and fiscal quarter ended January 31, 2010, the combined Value
Line Timeliness Rank 1 & 2 stocks’ performance of 8.3% and 6.7%, allowing
for weekly changes in Ranks, compares to the 8.6% and 4.4% return of the S&P
500 index, respectively.
If the market remains as volatile as it was last
year, or if fundamental market factors result in longer-term deterioration of
the Ranking System’s predictive performance, the Ranking System may continue to
struggle. This may hurt subscription revenues and copyright data
fees. The Company and its quantitative research staff continue to
work diligently to improve the Ranking System’s predictive performance although
no assurances are possible.
18
Copyright
Data Fees
Copyright
data fees have decreased $1,126,000 or 31% for the nine months ended January 31,
2010 as compared to the nine months ended January 31, 2009. As of
January 31, 2010, total third party sponsored assets were attributable to four
contracts for copyright data and represent $2.3 billion in various products as
compared to four contracts and $2.1 billion in assets last fiscal year,
representing a 9% increase in assets year over year. The combination
of the underperformance by the Ranking System and the broad and deep declines in
the equity markets from late 2008 and early 2009 significantly impacted assets
of the third party sponsors that are customers of our copyright data business
which resulted in lower asset based fees paid to the Company. The
Company believes the growth of the business is dependent upon the desire of
third parties to use the Value Line trademarks and proprietary research for
their products. Today this market is significantly more competitive as a result
of product diversification and growth of the use of indexes by portfolio
managers. Copyright data fees have been a critical component of the
Company’s plan to replace shrinking publishing revenues but no new contracts
have been added this fiscal year to date. The Company is considering
ventures with smaller size product distributors, but has not signed any year to
date. Unless the Ranking System’s predictive performance improves, we
anticipate copyright data revenues will continue to underperform.
Investment
management fees and distribution services revenues
Overall
fund assets declined by 2% from the start of this fiscal year and from January
2009. The following table illustrates the total fund assets as of
January 31, 2010 as compared to January 31, 2009.
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Total Net Assets
|
||||||||||||
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At January 31,
|
Percentage
Change
|
|||||||||||
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(in thousands)
|
2010
|
2009
|
FY 10 vs. 09
|
|||||||||
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Equity
funds
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$ | 1,913,592 | $ | 1,894,890 | 1.0 | % | ||||||
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Fixed
income funds
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$ | 251,067 | $ | 240,995 | 4.2 | % | ||||||
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U.S.
Government Money Market Fund
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$ | 127,174 | $ | 196,465 | -35.3 | % | ||||||
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Total
net assets
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$ | 2,291,833 | $ | 2,332,350 | -1.7 | % | ||||||
As a
result of the decline in average assets under management for the first nine
months of fiscal year 2010 as compared to the previous year, investment
management fees and distribution services revenues for the nine months ended
January 31, 2010 were down $6,045,000 or 30% below the prior fiscal
year. Management fees for the nine months ended January 31, 2010 were
down $4,219,000 or 28% as compared to the prior fiscal year. There was a net
decrease of $1,307,000 or 29% in distribution services revenues (12b-1
fees). During the period, contractual fee waivers have existed for
most of the Value Line Funds. For the nine months ended January 31, 2010 and
2009, 12b-1 fee waivers were $2,020,000 and $2,280,000,
respectively. For the nine months ended January 31, 2010 and 2009,
management fee waivers were $652,000 and $142,000,
respectively. Twelve of the fourteen funds have all or a portion of
the 12b-1 fees being waived and five of the fourteen funds have partial
management fee waivers in place. With very limited exception, the
Company and its subsidiaries have no right to recoup the previously waived
management fees and 12b-1 fees.
19
Of the
fourteen funds managed by the Company, shares of Value Line Strategic Asset
Management Trust (“SAM”) and Value Line Centurion Fund are available to the
public only through the purchase of certain variable annuity and variable life
insurance contracts issued by The Guardian Insurance & Annuity Company, Inc.
(“GIAC”). The table below shows the assets in the equity funds broken down into
the two categories of equity funds.
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Equity Fund Net Assets (Variable Annuity and Open End Equity Funds)
|
||||||||||||
|
At January 31,
|
Percentage
Change
|
|||||||||||
|
(in thousands)
|
2010
|
2009
|
FY 10 vs. 09
|
|||||||||
|
Variable
annuity assets (GIAC)
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$ | 472,441 | $ | 455,140 | 3.8 | % | ||||||
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All
other open end equity fund assets
|
$ | 1,441,151 | $ | 1,439,750 | 0.1 | % | ||||||
|
Total
equity fund net assets
|
$ | 1,913,592 | $ | 1,894,890 | 1.0 | % | ||||||
As of
January 31, 2010, one of the six equity mutual funds, excluding SAM and
Centurion, had a five star rating by Morningstar, Inc. as compared to four of
the six equity funds, which had four stars a year ago. The equity
funds experienced net redemptions for the nine months ended January 31, 2010, as
compared to net sales the previous year. As of January 31, 2010, shareholder
accounts declined 18% from the previous year to 159,863 from 194,064. The
largest distribution channel for the Value Line Funds remains the fund
supermarket platforms such as Charles Schwab & Co., Inc.
The Value
Line fixed income mutual fund assets (excluding the Value Line U.S. Government
Money Market Fund, formerly the Value Line Cash Fund), represent 11% of total
mutual fund assets at January 31, 2010 and are up 4% from the previous
year. Value Line U.S. Government Money Market Fund assets represent
6% of the total fund assets at January 31, 2010 and have decreased 35% from the
previous year, primarily as a result of cash held by the Company and its Parent
in the Fund being redeployed into other fixed income investments such as
pre-refunded municipal bonds and U.S. Treasury securities. In
addition, the Company reduced its cash held in the U.S. Government Money Market
Fund by approximately $44 million as a result of the SEC settlement payment in
November 2009. Currently, management fees from the money market fund
are negligible with the Company waiving nearly all its fees since the end of
November 2009 in order to maintain a return to shareholders.
Shareholder
transactions for the Value Line Mutual Funds are processed each business day by
the third party transfer agent of the Funds. Shares can be redeemed without
advance notice upon request of the shareowners each day that the New York Stock
Exchange is open.
Separately
managed accounts revenues decreased $519,000 or 75% for the nine months ended
January 31, 2010 as compared to the nine months ended January 31, 2009 primarily
due to the loss of an account at the end of the last fiscal year. The
Company’s separately managed accounts as of January 31, 2010 have $49 million in
assets, down from $138 million at January 31, 2009. Of the $49
million, $28 million is affiliated with the Parent. Assets within the
separately managed accounts are held at third party custodians, are subject to
the terms of each advisory agreement and do not have any advance notice
requirement for withdrawals, although they generally have a 30 day advance
notice requirement for termination of the account. The Company did
not add any new accounts thus far during the fiscal year 2010 and lost one small
account in November 2009.
Expenses
Expenses
within the Company are categorized into advertising and promotion, salaries and
employee benefits, production and distribution, and office and administration.
For fiscal 2010, expenses include a Provision for Settlement of $47,706,000
related to the SEC matter. Operating expenses of $78,993,000 for the
nine months ended January 31, 2010 were $42,948,000 above operating expenses of
$36,045,000 last fiscal year. For the nine months ended January 31, 2010,
operating expenses, excluding the Provision for Settlement with the SEC were
$31,287,000 or $4,758,000, 13% below operating expenses last fiscal
year. Operating expenses of $9,989,000 for the third quarter ended
January 31, 2010 were $1,247,000 or 11% below operating expenses of $11,236,000
for the third quarter of the prior fiscal year.
20
Advertising
and promotion
|
Three
Months Ended January 31,
|
Nine
Months Ended January 31,
|
|||||||||||||||||||||||
|
2010
|
2009
|
Percentage
Change
|
2010
|
2009
|
Percentage
Change
|
|||||||||||||||||||
|
(in
thousands)
|
FY
10 vs. 09
|
FY
10 vs. 09
|
||||||||||||||||||||||
|
Advertising
and promotion
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$ | 2,440 | $ | 2,435 | 0.2 | % | $ | 6,933 | $ | 9,004 | -23.0 | % | ||||||||||||
Advertising
and promotion expenses for the nine months ended January 31, 2010 decreased
$2,071,000 as compared to the nine months ended January 31, 2009. Within the
investment management segment, supermarket and Guardian (GIAC) platform expenses
associated with the distribution of the mutual funds decreased $1,013,000 or 20%
below the prior year due to the decline in the average net assets under
management. In fiscal 2010, the Company has not engaged in print
advertising promoting the mutual funds primarily due to the volatility in the
marketplace and poor performance of many of the funds. Within the publishing
segment, costs associated with direct mail decreased $238,000 or 13% below last
fiscal year, due to increased selectivity in employing only the
highest-performing direct mail lists, resulting in a reduction in the overall
number of pieces mailed year to year. While mailing fewer pieces has
resulted in individual mail campaigns costing less and achieving higher front
end percentages, there were fewer new orders than in past years.
Salaries
and employee benefits
|
Three
Months Ended January 31,
|
Nine
Months Ended January 31,
|
|||||||||||||||||||||||
|
2010
|
2009
|
Percentage
Change
|
2010
|
2009
|
Percentage
Change
|
|||||||||||||||||||
|
(in
thousands)
|
FY
10 vs. 09
|
FY
10 vs. 09
|
||||||||||||||||||||||
|
Salaries
and employee benefits
|
$ | 4,084 | $ | 4,499 | -9.2 | % | $ | 12,634 | $ | 14,165 | -10.8 | % | ||||||||||||
Over the
past several years, the Company has saved money by combining the roles and
responsibilities of various personnel and by selective
outsourcing. Some duplication of effort has been eliminated and
certain tasks, such as selected data entry, have been outsourced to third party
vendors that the Company believes can provide better controls and results at a
favorable cost. Salaries and employee benefits decreased by $1,531,000 from the
previous year, partly due to the Company’s decision to not contribute to the
Value Line Profit Sharing Plan for fiscal year 2009 and overall staff
reductions.
Production
and distribution
|
Three
Months
Ended
January
31,
|
Nine
Months
Ended
January
31,
|
|||||||||||||||||||||||
|
Percentage
Change
|
Percentage
Change
|
|||||||||||||||||||||||
|
(in thousands)
|
2010
|
2009
|
FY 10 vs. 09
|
2010
|
2009
|
FY 10 vs. 09
|
||||||||||||||||||
|
Production
and distribution
|
$ | 1,330 | $ | 1,445 | -8.0 | % | $ | 3,895 | $ | 4,434 | -12.2 | % | ||||||||||||
Production
and distribution expenses for the nine months ended January 31, 2010 were
$539,000 below expenses for the nine months ended January 31,
2009. Amortized software costs decreased $255,000 below last fiscal
year due to a reduction in prior year expenditures for capitalized
costs. In addition, the decline in expenses was due to volume
reductions in paper, printing and mailing that resulted primarily from a
decrease in circulation of the print products.
21
Office
and administration
|
Three
Months
Ended
January
31,
|
Nine
Months
Ended
January
31,
|
|||||||||||||||||||||||
|
Percentage
Change
|
Percentage
Change
|
|||||||||||||||||||||||
|
(in thousands)
|
2010
|
2009
|
FY 10 vs. 09
|
2010
|
2009
|
FY 10 vs. 09
|
||||||||||||||||||
|
Office
and administration
|
$ | 2,135 | $ | 2,857 | -25.3 | % | $ | 7,825 | $ | 8,442 | -7.3 | % | ||||||||||||
Office
and administration expenses for the nine months ended January 31, 2010 were
$617,000 below expenses for the nine months ended January 31,
2009. Professional fees were down for the year to date as compared to
the previous year. Professional fees fluctuate year to year based on
the level of operations, litigation or regulatory activity requiring the use of
outside professionals. However, during the nine months ended January
31, 2010, the Company expensed $720,000 of capitalized development costs related
to a software production project that was determined to be no longer
viable.
Segment
Operating Profit
The
Company operates in two business segments, Investment Periodicals, Publishing
& Copyright Data and Investment Management.
|
Investment Periodicals, Publishing
& Copyright Data
|
Investment Management
|
|||||||||||||||||||||||
|
Nine Months Ended January 31,
|
Nine Months Ended January 31,
|
|||||||||||||||||||||||
|
Percentage
Change
|
Percentage
Change
|
|||||||||||||||||||||||
|
(in thousands)
|
2010
|
2009
|
FY 10 vs. 09
|
2010
|
2009
|
FY 10 vs. 09
|
||||||||||||||||||
|
Segment
revenues from external customers
|
$ | 29,820 | $ | 33,944 | -12.1 | % | $ | 14,407 | $ | 20,452 | -29.6 | % | ||||||||||||
|
Segment
profit/(loss) from operations
|
$ | 8,016 | $ | 11,890 | -32.6 | % | $ | (42,783 | ) | $ | 6,473 |
NMF
|
||||||||||||
|
Segment
profit margin from operations
|
26.9 | % | 35.0 | % | -23.3 | % | -297.0 | % | 31.6 | % |
NMF
|
|||||||||||||
* NMF –
not meaningful figure
Investment
Periodicals, Publishing & Copyright Data
Segment
revenues, operating profit and operating profit margins from the Company’s
Investment Periodicals, Publishing & Copyright Data segment declined
significantly from the previous fiscal year primarily due to the continued
deterioration in circulation of the total product line. As previously mentioned,
ranking system underperformance and competition in the form of free or low cost
investment research on the Internet and research provided by brokerage firms at
no cost to their clients contributed to the decline in revenue. The recession
and turmoil in the markets have also contributed to the decline in subscriptions
as individuals reduced many forms of discretionary spending, or have shifted
investments to fixed income, for which the Company does not provide research.
Investment Periodicals, Publishing & Copyright Data segment profit margin
from operations decreased as a direct result of the decline in
revenue.
22
Investment
Management
Revenues
from the Company’s Investment Management business segment declined significantly
from the previous fiscal year primarily due to the decline in investment
management fees from the Company’s family of mutual funds that was a direct
result of the deterioration in the underlying assets under management and fee
waivers. Segment operating profit and operating profit margin are negative for
the quarter ended January 31, 2010 due to the provision for settlement relating
to the SEC investigation described in Note 10 – Commitments and Contingencies
within the Notes to Consolidated Condensed Financial Statements.
Income
from Securities Transactions, net
During the nine months ended January
31, 2010 the Company’s income from securities transactions, net, of $553,000 was
$11,090,000 or 95% below income from securities transactions, net, of
$11,643,000 during the nine months ended January 31, 2009. Income
from securities transactions, net, includes dividend and interest income of
$731,000 at January 31, 2010 that was $1,692,000 or 70% below income of
$2,423,000 for the nine months ended January 31, 2009 primarily due to lower
yield on the Value Line U.S. Government Money Market Fund. In
addition, the Company does not own any equity investments. Capital
losses, net of capital gains during the nine months ended January 31, 2010 were
$130,000. Capital gains, net of capital losses during the nine months ended
January 31, 2009 were $9,243,000, which included a realized capital gain of
$9,600,000 from the sale of the Company’s entire equity securities
portfolio.
Effective
income tax rate
The
overall effective income tax rate, as a percentage of pre-tax ordinary income
for the nine months ended January 31, 2010 and January 31, 2009 was 25.08% and
35.53%, respectively. The fluctuation in the income tax rate is attributable to
the non-deductible portion of the provision for settlement described in Note 10
– Commitments and Contingencies within the Notes to the Consolidated Condensed
Financial Statements as of January 31, 2010 and the change in the non-taxable
investment income, events that do not have tax consequences.
Liquidity
and Capital Resources
The
Company had working capital of $45,865,000 as of January 31, 2010 and
$79,859,000 as of January 31, 2009. Working capital as of January 31,
2010 has been reduced by a settlement reserve provision of $47,706,000 relating
to the SEC investigation of which $43.7 million was paid in November
2009. Cash and short-term securities were $64,886,000 as of January
31, 2010 and $107,782,000 as of January 31, 2009.
The
Company’s cash and cash equivalents includes $13,805,000 at January 31, 2010
which is invested in the Value Line U.S. Government Money Market
Fund. The U.S. Government Money Market Fund operates under Rule 2a-7
of the Investment Company Act of 1940. There have been no delays in
redemption payments from this fund. The fund’s portfolio primarily
includes U.S. government agency securities, U.S. Treasuries, certificate of
deposits, commercial paper, and repurchase agreements collateralized with
U.S. Treasuries in which the custodian physically takes possession of the
collateral.
Cash
from operating activities
The
Company’s cash outflow from operations of $22,658,000 for the nine months ended
January 31, 2010 was 319% below cash flow from operations of $10,324,000 for the
nine months ended January 31, 2009. The primary change was the
prepayment of income taxes that are refundable offset by the decline in
purchases of fixed income securities within the Company’s trading portfolio and
by an increase in reserve for settlement.
23
Cash
from investing activities
The
Company’s cash inflow from investing activities of $933,000 for the nine months
ended January 31, 2010 was 98% lower than cash inflow from investing activities
of $40,400,000 for the nine months ended January 31, 2009. The
significant decrease in cash inflows was a result of sales of the Company’s
entire equity portfolio during fiscal year 2009.
Cash
from financing activities
The
Company’s net cash outflow from financing activities of $6,987,000 as of January
31, 2010 was 36% lower than cash outflow from financing activities of
$10,980,000 for the nine months ended January 31, 2009. The change in cash
outflow represents a decline in both the second and third quarters’ dividend to
$0.20 from $0.40 per share during fiscal 2010 and fiscal 2009,
respectively.
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 liquidity needs including operations and the
provision for the $43,706,000 SEC settlement paid during November
2009. Management does not anticipate any borrowing in fiscal
2010.
Critical
Accounting Estimates and Policies
The
Company’s Critical Accounting Estimates and Policies have not changed from those
reported in Management’s Discussion and Analysis of Financial Condition and
Results of Operations in the Company’s Form 10-K for the fiscal year ended April
30, 2009.
24
Market
Risk Disclosures
The
Company’s Consolidated Condensed Balance Sheet includes a substantial amount of
assets whose fair values are subject to market risks. The Company’s
significant market risks are primarily associated with interest rates and the
credit worthiness of the issuer. The following sections address the
significant market risks associated with the Company’s business
activities.
Interest
Rate Risk
The
Company’s strategy has been to acquire debt securities with low credit
risk. Despite this strategy management recognizes and accepts the
possibility that losses may occur. To limit the price fluctuation in
these securities from interest rate changes, the Company’s management invests
primarily in short-term obligations maturing in less than three
years.
The fair
values of the Company’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.
|
Estimated
Fair Value after
|
||||||||||||||||||||
|
Hypothetical Change in Interest
Rates
|
||||||||||||||||||||
|
(in
thousands)
|
||||||||||||||||||||
|
6
mos.
|
6
mos.
|
1
yr.
|
1
yr.
|
|||||||||||||||||
|
Fair
|
50bp
|
50bp
|
100bp
|
100bp
|
||||||||||||||||
|
Fixed Income Securities
|
Value
|
increase
|
decrease
|
increase
|
decrease
|
|||||||||||||||
|
As
of January 31, 2010
|
||||||||||||||||||||
|
Investments
in securities with fixed maturities
|
$ | 50,662 | $ | 49,984 | $ | 50,114 | $ | 49,704 | $ | 49,815 | ||||||||||
|
As
of April 30, 2009
|
||||||||||||||||||||
|
Investments
in securities with fixed maturities
|
$ | 63,729 | $ | 62,573 | $ | 62,966 | $ | 61,796 | $ | 62,222 | ||||||||||
Management
regularly monitors the maturity structure of the Company’s investments in debt
securities in order to maintain an acceptable price risk associated with changes
in interest rates.
Credit
Worthiness of Issuer
The
Company’s investments consist primarily of U.S. Treasury Notes and pre-refunded
municipal securities backed by U.S. Treasury Securities.
25
|
(a)
|
The
Company maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in the Company’s reports
filed with the SEC is recorded, processed, summarized and reported within
the time periods specified in the SEC’s rules and forms, and that such
information is accumulated and communicated to the Company’s management,
including its Acting Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow timely decisions regarding
disclosure.
|
The
Company’s management has evaluated, with the participation of the Company’s
Acting Chief Executive Officer and Chief Financial Officer, the effectiveness of
the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the
end of the period covered by this report. Based on that evaluation,
the Acting Chief Executive Officer and Chief Financial Officer have concluded
that the Company’s disclosure controls and procedures were effective as of the
end of the period covered by this report.
|
(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 have materially affected, or are
reasonably likely to materially affect, the registrant’s internal control
over financial reporting.
|
26
Refer to
Note 10 of the consolidated condensed financial statements for discussion of
legal proceedings.
There
have been no material changes to the risk factors disclosed in Item 1A – Risk
Factors in the Company’s Annual Report on Form 10-K for the year ended April 30,
2009.
31.1
Certificate of Acting Chief Executive Officer Required Under Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2
Certificate of Chief Financial Officer Required Under Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1
Joint Acting Chief Executive Officer/Chief Financial Officer Certificate
Required Under Section 906 of the Sarbanes-Oxley Act of 2002.
27
VALUE
LINE, INC.
Signatures
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
Value
Line, Inc.
|
||
|
(Registrant)
|
||
|
Date: March
12, 2010
|
By:
|
s/Howard A. Brecher
|
|
Howard
A. Brecher
|
||
|
Acting
Chief Executive Officer
|
||
|
(Principal
Executive Officer)
|
||
|
Date: March
12, 2010
|
By:
|
s/Mitchell E. Appel
|
|
Mitchell
E. Appel
|
||
|
Chief
Financial Officer
|
||
|
(Principal
Financial Officer)
|
28
TABLE OF CONTENTS
Part I - Financial InformationItem 1. Financial StatementsNote 1-organization and Summary Of Significant Accounting Policies:Note 2-investments:Note 3-supplementary Cash Flow Information:Note 4-employees Profit Sharing and Savings Plan:Note 5-comprehensive Income:Note 6-related Party Transactions:Note 7-federal, State and Local Income Taxes:Note 8-business Segments:Note 9-writedown Of Software Development Costs:Note 10-commitments and Contingencies:Item 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 6. Exhibits