UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
AMENDMENT
NO. 1
TO
FORM
10-Q
(Mark
One)
|
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF
1934
|
For the
quarterly period ended October 31,
2008
or
|
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For the
transition period from _____________________________________ to
__________________________________
Commission
File Number: 0-11306
VALUE LINE,
INC.
(Exact
name of registrant as specified in its charter)
|
New
York
|
13-3139843
|
|
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
|
|
220
East 42nd Street, New York, New York
|
10017-5891
|
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
(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 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.
|
Large
accelerated filer ¨
|
Accelerated
filer ¨
|
Non-accelerated
filer x
|
Smaller
reporting company ¨
|
|
(Do
not check if a smaller reporting
company)
|
|||
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.
|
Outstanding
at October 31, 2008
|
||
|
Common
stock, $.10 par value
|
9,981,600
Shares
|
EXPLANATORY
NOTE
This
Quarterly Report on Form 10-Q/A Amendment No. 1 for the period ended October 31,
2008 is being filed for the purpose of refiling the revised certifications
Exhibits 31.1 and 31.2, which omitted the certification regarding internal
control over financial reporting required by item 601(b)(31) of
Regulation S-K. In addition, the titles of Principal Executive
Officer and Principal Financial Officer have been added to the signature
page(s).
Other
than as set forth above, the information contained in this Form 10-Q/A has not
been updated to reflect events and circumstances occurring since its original
filing with the Securities and Exchange Commission on December 15, 2008. Such
matters have been or will be addressed, as necessary, in reports filed with the
Commission (other than this amended report) subsequent to the date of the
original filing of our quarterly report.
VALUE
LINE INC.
TABLE
OF CONTENTS
|
Page No.
|
||
|
PART
I. FINANCIAL INFORMATION
|
||
|
Item 1.
|
Condensed Consolidated Financial
Statements:
|
|
|
Consolidated
Condensed Balance Sheets as of October 31, 2008 and April 30,
2008
|
3
|
|
|
Consolidated
Condensed Statements of Income for the three and six months ended October
31, 2008 and 2007
|
4
|
|
|
Consolidated
Condensed Statements of Cash Flows for the three and six months ended
October 31, 2008 and 2007
|
5
|
|
|
Consolidated
Condensed Statement of Changes in Shareholders’ Equity for the six months
ended October 31, 2008
|
6
|
|
|
Consolidated
Condensed Statement of Changes in Shareholders’ Equity for the six months
ended October 31, 2007
|
7
|
|
|
Notes
to Consolidated Condensed Financial Statements
|
8
|
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
15
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
21
|
|
Item
4.
|
Controls
and Procedures
|
22
|
|
PART
II. OTHER INFORMATION
|
||
|
Item
1.
|
Legal
Proceedings
|
23
|
|
Item 1A.
|
Risk
Factors
|
23
|
|
Item
6.
|
Exhibits
|
23
|
|
Signatures
|
24
|
|
EX-31.1
(Certifications required under Section 302 of the Sarbanes-Oxley Act of
2002)
|
|
EX-31.2
(Certifications required under Section 302 of the Sarbanes-Oxley Act of
2002)
|
|
EX-32.1
(Certifications required under Section 906 of the Sarbanes-Oxley Act of
2002)
|
Part
I - Financial Information
Item
1. Financial Statements
Value Line,
Inc.
Consolidated
Condensed Balance Sheets
(in
thousands, except share amounts)
|
October 31,
|
Apr. 30,
|
|||||||
|
2008
|
2008
|
|||||||
|
(unaudited)
|
||||||||
|
Assets
|
||||||||
|
Current
Assets:
|
||||||||
|
Cash
and cash equivalents (including short term investments of $38,405 and
$8,159, respectively)
|
$ | 39,082 | $ | 8,955 | ||||
|
Trading
securities
|
17,091 | 19,857 | ||||||
|
Securities
available for sale
|
50,589 | 97,043 | ||||||
|
Accounts
receivable, net of allowance for doubtful accounts of $49, and $107,
respectively
|
2,527 | 2,733 | ||||||
|
Receivable
from affiliates
|
1,941 | 2,445 | ||||||
|
Prepaid
expenses and other current assets
|
992 | 1,048 | ||||||
|
Deferred
income taxes
|
759 | 155 | ||||||
|
Total
current assets
|
112,981 | 132,236 | ||||||
|
Long
term assets
|
||||||||
|
Property
and equipment, net
|
4,616 | 4,709 | ||||||
|
Capitalized
software and other intangible assets, net
|
807 | 1,008 | ||||||
|
Total
long term assets
|
5,423 | 5,717 | ||||||
|
Total
assets
|
$ | 118,404 | $ | 137,953 | ||||
|
Liabilities
and Shareholders' Equity
|
||||||||
|
Current
Liabilities:
|
||||||||
|
Accounts
payable and accrued liabilities
|
$ | 4,002 | $ | 5,135 | ||||
|
Accrued
salaries
|
1,461 | 1,471 | ||||||
|
Dividends
payable
|
3,993 | 2,995 | ||||||
|
Accrued
taxes payable
|
26 | 129 | ||||||
|
Unearned
revenue
|
23,185 | 26,610 | ||||||
|
Deferred
income taxes
|
0 | 7,839 | ||||||
|
Total
current liabilities
|
32,667 | 44,179 | ||||||
|
Long
term liabilities
|
||||||||
|
Unearned
revenue
|
5,974 | 5,920 | ||||||
|
Total
long term liabilities
|
5,974 | 5,920 | ||||||
|
Shareholders'
Equity:
|
||||||||
|
Common
stock, $.10 par value; authorized 30,000,000 shares; issued
10,000,000 shares
|
1,000 | 1,000 | ||||||
|
Additional
paid-in capital
|
991 | 991 | ||||||
|
Retained
earnings
|
78,572 | 70,954 | ||||||
|
Treasury
stock, at cost (18,400 shares on 10/31/08 and
4/30/08)
|
(354 | ) | (354 | ) | ||||
|
Accumulated
other comprehensive income, net of tax
|
(446 | ) | 15,263 | |||||
|
Total
shareholders' equity
|
79,763 | 87,854 | ||||||
|
Total
liabilities and shareholders' equity
|
$ | 118,404 | $ | 137,953 | ||||
The
accompanying notes are an integral part of these consolidated condensed
financial statements.
3
Part
I - Financial Information
Item
1. Financial Statements
Value
Line, Inc.
Consolidated
Condensed Statements of Income
(in
thousands, except share & per share amounts)
(unaudited)
|
Three months ended
October 31,
|
Six months ended
October 31,
|
|||||||||||||||
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||
|
Revenues:
|
||||||||||||||||
|
Investment
periodicals and related publications
|
$ | 9,956 | $ | 10,860 | $ | 20,293 | $ | 21,823 | ||||||||
|
Licensing
fees
|
1,239 | 1,792 | 2,920 | 3,445 | ||||||||||||
|
Investment
management fees & services
|
7,132 | 8,458 | 15,327 | 16,643 | ||||||||||||
|
Total
revenues
|
18,327 | 21,110 | 38,540 | 41,911 | ||||||||||||
|
Expenses:
|
||||||||||||||||
|
Advertising
and promotion
|
3,328 | 3,478 | 6,569 | 7,074 | ||||||||||||
|
Salaries
and employee benefits
|
4,809 | 4,524 | 9,666 | 9,133 | ||||||||||||
|
Production
and distribution
|
1,459 | 1,611 | 2,989 | 3,274 | ||||||||||||
|
Office
and administration
|
2,465 | 2,081 | 5,585 | 4,049 | ||||||||||||
|
Total
expenses
|
12,061 | 11,694 | 24,809 | 23,530 | ||||||||||||
|
Income
from operations
|
6,266 | 9,416 | 13,731 | 18,381 | ||||||||||||
|
Income
from securities transactions, net
|
10,084 | 885 | 10,716 | 1,586 | ||||||||||||
|
Income
before income taxes
|
16,350 | 10,301 | 24,447 | 19,967 | ||||||||||||
|
Provision
for income taxes
|
5,808 | 3,942 | 8,843 | 7,665 | ||||||||||||
|
Net
income
|
$ | 10,542 | $ | 6,359 | $ | 15,604 | $ | 12,302 | ||||||||
|
Earnings
per share, basic & fully diluted
|
$ | 1.05 | $ | 0.64 | $ | 1.56 | $ | 1.23 | ||||||||
|
Weighted
average number of common shares
|
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
Item
1. Financial Statements
Value
Line, Inc.
Consolidated
Condensed Statements of Cash Flows
(in
thousands)
(unaudited)
|
For the six months
ended
|
||||||||
|
October 31,
2008
|
October 31,
2007
|
|||||||
|
Cash
flows from operating activities:
|
||||||||
|
Net
income
|
$ | 15,604 | $ | 12,302 | ||||
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||
|
Depreciation
and amortization
|
621 | 901 | ||||||
|
Gains
on sales of trading securities and securities available for
sale
|
(9,389 | ) | (7 | ) | ||||
|
Unrealized
losses on trading securities
|
197 | 41 | ||||||
|
Deferred
income taxes
|
(69 | ) | (14 | ) | ||||
|
Changes
in assets and liabilities:
|
||||||||
|
Proceeds
from sales of trading securities
|
9,026 | - | ||||||
|
Purchases
of trading securities
|
(6,583 | ) | (3,926 | ) | ||||
|
(Decrease)
in unearned revenue
|
(3,371 | ) | (2,570 | ) | ||||
|
Increase/(decrease)
in deferred charges
|
110 | (12 | ) | |||||
|
(Decrease)
in accounts payable and accrued expenses
|
(1,243 | ) | (1,341 | ) | ||||
|
Decrease
in accrued salaries
|
(10 | ) | (220 | ) | ||||
|
Decrease
in accrued taxes payable
|
(103 | ) | - | |||||
|
Decrease
in prepaid expenses and other current assets
|
125 | 244 | ||||||
|
Decrease/(increase)
in accounts receivable
|
206 | (341 | ) | |||||
|
Decrease/(increase)
in receivable from affiliates
|
504 | (163 | ) | |||||
|
Total
adjustments
|
(9,979 | ) | (7,408 | ) | ||||
|
Net
cash provided by operations
|
5,625 | 4,894 | ||||||
|
Cash
flows from investing activities:
|
||||||||
|
Purchases
and sales of securities classified as available for sale:
|
||||||||
|
Proceeds
from sales of fixed income securities
|
14,669 | 5,137 | ||||||
|
Proceeds
from sales of equity securities
|
37,755 | - | ||||||
|
Purchase
of fixed income securities
|
(20,598 | ) | (9,270 | ) | ||||
|
Purchases
of equity securities
|
(9 | ) | (8 | ) | ||||
|
Acquisition
of property and equipment
|
(150 | ) | (176 | ) | ||||
|
Expenditures
for capitalized software
|
(177 | ) | (32 | ) | ||||
|
Net
cash provided by/(used in) investing activities
|
31,490 | (4,349 | ) | |||||
|
Cash
flows from financing activities:
|
||||||||
|
Dividends
paid
|
(6,988 | ) | (5,989 | ) | ||||
|
Net
cash used in financing activities
|
(6,988 | ) | (5,989 | ) | ||||
|
Net
increase/(decrease) in cash and cash equivalents
|
30,127 | (5,444 | ) | |||||
|
Cash
and cash equivalents at beginning of year
|
8,955 | 20,605 | ||||||
|
Cash
and cash equivalents at end of period
|
$ | 39,082 | $ | 15,161 | ||||
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 Six Months Ended October 31, 2008
(in
thousands, except share amounts)
(unaudited)
|
Common stock
|
Accumulated
|
|||||||||||||||||||||||||||||||
|
Number
|
Additional
|
Other
|
||||||||||||||||||||||||||||||
|
of
|
paid-in
|
Treasury
|
Comprehensive
|
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
|
$ | 15,604 | 15,604 | 15,604 | ||||||||||||||||||||||||||||
|
Other
comprehensive income, net
of tax:
|
||||||||||||||||||||||||||||||||
|
Change
in unrealized gains on securities, net of taxes
|
(15,709 | ) | (15,709 | ) | (15,709 | ) | ||||||||||||||||||||||||||
|
Comprehensive
income
|
$ | (105 | ) | |||||||||||||||||||||||||||||
|
Dividends
declared
|
(7,986 | ) | (7,986 | ) | ||||||||||||||||||||||||||||
|
Balance
at October 31, 2008
|
9,981,600 | $ | 1,000 | $ | 991 | $ | (354 | ) | $ | 78,572 | $ | (446 | ) | $ | 79,763 | |||||||||||||||||
The
accompanying notes are an integral part of these consolidated condensed
financial statements.
6
Part
I - Financial Information
Item
1. Financial Statements
Value
Line, Inc.
Consolidated
Condensed Statement of Changes in Shareholders' Equity
For
the Six Months Ended October 31, 2007
(in
thousands, except share amounts)
(unaudited)
|
Common stock
|
Accumulated
|
|||||||||||||||||||||||||||||||
|
Number
|
Additional
|
Other
|
||||||||||||||||||||||||||||||
|
of
|
paid-in
|
Treasury
|
Comprehensive
|
Retained
|
Comprehensive
|
|||||||||||||||||||||||||||
|
shares
|
Amount
|
capital
|
Stock
|
income
|
earnings
|
income
|
Total
|
|||||||||||||||||||||||||
|
Balance
at April 30, 2007
|
9,981,600 | $ | 1,000 | $ | 991 | $ | (354 | ) | $ | 57,383 | $ | 16,552 | $ | 75,572 | ||||||||||||||||||
|
Comprehensive
income
|
||||||||||||||||||||||||||||||||
|
Net
income
|
$ | 12,302 | 12,302 | 12,302 | ||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Other
comprehensive income, net of tax:
|
||||||||||||||||||||||||||||||||
|
Change
in unrealized gains on securities, net of
taxes
|
3,444 | 3,444 | 3,444 | |||||||||||||||||||||||||||||
|
Comprehensive
income
|
$ | 15,746 | ||||||||||||||||||||||||||||||
|
Dividends
declared
|
(5,989 | ) | (5,989 | ) | ||||||||||||||||||||||||||||
|
Balance
at October 31, 2007
|
9,981,600 | $ | 1,000 | $ | 991 | $ | (354 | ) | $ | 63,696 | $ | 19,996 | $ | 85,329 | ||||||||||||||||||
The
accompanying notes are an integral part of these consolidated condensed
financial statements.
7
Value
Line, Inc.
Notes
to Consolidated Condensed Financial Statements
Note
1-Organization and Summary of Significant Accounting Policies:
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 17, 2008 for the fiscal year ended April 30,
2008. Results of operations covered by this report may not be indicative of the
results of operations for the entire year.
Value
Line, Inc. ("VLI") is incorporated in the State of New York. The
Company's primary businesses are producing investment related periodical
publications and data, licensing 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.
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.
Licensing
revenues are derived from licensing 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 an asset based licensing fee as specified in the individual licensing
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).
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 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 mutual funds’
shares. 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/or government debt securities accounted for in accordance
with Statement of Financial Accounting Standards No.115, "Accounting for Certain
Investments in Debt and Equity Securities". The securities available
for sale and trading securities reflected in the consolidated condensed
financial statements at fair value are valued at market and
unrealized gains and losses on securities available for sale, net of applicable
taxes, are reported as a separate component of Shareholders'
Equity. Realized gains and losses on sales of the securities
available for sale are recorded in earnings on 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.
8
Effective
for fiscal 2009, the Company adopted Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 157, Fair Value Measurements
(“FAS 157"). In accordance with FAS 157, fair value is defined 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 of the
investment. FAS 157 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 assumptions that market participants would use in
pricing the asset or liability, including assumptions about risk, for example,
the risk inherent in a particular valuation technique used to measure fair value
including such a pricing model and/or the risk inherent in the inputs to the
valuation technique. Inputs may be 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 assumptions 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 six
months ended October 31, 2008 consisted exclusively of quoted prices and other
observable inputs.
The
following is a summary of the inputs used as of October 31, 2008 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
|
$ | 38,405 | $ | 38,405 | - | $ | 0 | |||||||||
|
Level
2 - Other Significant Observable Inputs
|
$ | 67,680 | $ | 17,091 | 50,589 | |||||||||||
|
Level
3 - Significant Unobservable Inputs
|
- | - | - | - | ||||||||||||
|
Total
|
$ | 106,085 | $ | 38,405 | $ | 17,091 | $ | 50,589 | ||||||||
The
Company had no other financial instruments including futures, forwards and swap
contracts. For the period ended October 31, 2008, there were no Level 3
investments. The Company does not have any liabilities subject to FAS
157.
Advertising
expenses:
The
Company expenses advertising costs as incurred.
Income
Taxes:
The
Company computes its income tax provision in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes". 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.
In July
2006, the Financial Accounting Standards Board issued Interpretation No. 48,
"Accounting for Uncertainty in Income Taxes - an Interpretation of FASB
Statement No. 109" (the "Interpretation" or "FIN 48"). The
Interpretation 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. The Interpretation is
effective for fiscal years beginning after December 15, 2006, and is to be
applied to all open tax years as of the date of effectiveness. Management has
reviewed the tax positions for the years still subject to tax audit under the
statute of limitations, evaluated the implications of FIN 48, 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.
9
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 October 31, 2008 and April 30, 2008, cash
equivalents included $38,405,000 and $8,159,000, respectively, invested in the
Value Line Cash Fund.
Use of
Estimates:
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual
results could differ from those estimates.
Note
2-Investments:
Securities
held by the Company are classified as Trading Securities and Available-for-Sale
Securities. All securities held in VLS, 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 October 31, 2008 had an aggregate cost of
$17,472,000 and a market value of $17,091,000. Trading securities
held by the Company at April 30, 2008 had an aggregate cost of $20,042,000 and a
market value of $19,857,000. The proceeds from sales of trading
securities during the first six months of fiscal 2009 were $9,027,000 and
related net realized trading losses amounted to $126,000. There were no sales
and no realized trading gains or losses during the first six months of fiscal
year 2008. The net increases in unrealized losses of $197,000 and
$41,000 for the period ended October 31, 2008 and 2007, respectively,
were included in the Consolidated Condensed Statement of Income.
Securities
Available-for-Sale:
Equity
Securities:
As of
April 30, 2008, the aggregate cost of the equity securities classified as
available for sale, which consist of investments in the Value Line Funds, was
$28,149,000 and the market value was $51,870,000. The Company sold its portfolio
of equity securities subsequent to April 30, 2008 and did not hold any equity
securities as of October 31, 2008. The total gains for equity securities with
net gains included in Accumulated Other Comprehensive Income on the
Consolidated Condensed Balance Sheet were $23,972,000, net of deferred taxes of
$8,438,000, as of April 30, 2008. The total losses for equity securities with
net losses included in Accumulated Other Comprehensive Income on the
Consolidated Condensed Balance Sheet were $251,000, net of deferred tax benefit
of $89,000, as of April 30, 2008.
The
proceeds from sales of equity securities during the six months ended October 31,
2008 were $37,755,000 and the related net realized capital gain was $9,600,000.
There were no sales and no realized gains or losses on equity securities, for
which unrealized gains and losses were included in Accumulated Other
Comprehensive Income as of October 31, 2008. The increase in gross unrealized
gains on equity securities classified as available for sale of $5,340,000, net
of deferred taxes of $1,880,000, were included in Shareholders'
Equity at October 31 2007.
Government
Debt Securities:
Government
debt securities consist of federal, state, and local government securities
within the United States. The aggregate cost and fair value at October 31, 2008
for government debt securities classified as available for sale were as
follows:
|
(In Thousands)
|
||||||||||||
|
Historical
|
Gross Unrealized
|
|||||||||||
|
Maturity
|
Cost
|
Fair Value
|
Holding Losses
|
|||||||||
|
Due
in less than 2 years
|
$ | 41,164 | $ | 40,633 | $ | (531 | ) | |||||
|
Due
in 2 - 5 years
|
10,023 | 9,956 | (67 | ) | ||||||||
|
Total
investment in government debt securities
|
$ | 51,187 | $ | 50,589 | $ | (598 | ) | |||||
The
aggregate cost and fair value at April 30, 2008 for government debt securities
classified as available for sale were as follows:
|
(In Thousands)
|
||||||||||||
|
Historical
|
Gross Unrealized
|
|||||||||||
|
Maturity
|
Cost
|
Fair Value
|
Holding Losses
|
|||||||||
|
Due in less than 2 years
|
$ | 24,261 | $ | 23,921 | $ | (340 | ) | |||||
|
Due
in 2 - 5 years
|
21,079 | 21,252 | 173 | |||||||||
|
Total
investment in government debt securities
|
$ | 45,340 | $ | 45,173 | $ | (167 | ) | |||||
The
unrealized losses of $598,000 and $167,000 in government debt
securities net of deferred income tax benefits of $152,000 and
$59,000, respectively, were included in Accumulated Other Comprehensive Income
on the Consolidated Condensed Balance Sheets as of October 31, 2008 and April
30, 2008, respectively.
10
The
average yield on the Government debt securities at October 31, 2008 and April
30, 2008 was 2.33% and 2.91%, respectively.
Proceeds
from sales of government debt securities classified as available for sale during
the six months ended October 31, 2008 and 2007 were $14,669,000 and $5,137,000,
respectively. The company recognized total capital losses net of capital gains
of $85,000 and a capital gain of $7,000 on the sales of government debt
securities during the six months ended October 31, 2008 and 2007,
respectively.
For the
six months ended October 31, 2008 and 2007, income from securities transactions
also included $156,000 and $461,000 of dividend income and $1,388,000 and
$1,152,000 of interest income. There was no interest expense during
the first quarter of fiscal 2009 or 2008.
Note
3-Supplementary Cash Flow Information:
Cash
payments for income taxes were $8,946,000 and $8,054,000 for the six months
ended October 31, 2008 and 2007, respectively.
Note
4-Employees' Profit Sharing and Savings Plan:
Substantially
all employees of the Company and its subsidiaries are members of the Value Line,
Inc. Profit Sharing and Savings Plan (the "Plan"). In general, this
is a qualified, contributory plan which provides for a discretionary annual
Company contribution which is determined by a formula based on the salaries of
eligible employees as defined in the Plan. The estimated profit
sharing plan contribution, which is included as an expense
in salaries and employee benefits in the Consolidated Condensed Statement of
Income, was $515,000 and $480,000 for the six months ended October 31, 2008 and
2007, respectively.
Note
5-Comprehensive Income:
Financial
Accounting Standards No. 130, "Reporting Comprehensive Income",
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
October 31, 2008 and October 31, 2007, the Company held equity securities and/or
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 Consolidated Condensed 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
|
Net of
|
||||||||||
|
Tax
|
(Expense)
|
Tax
|
||||||||||
|
Amount
|
or Benefit
|
Amount
|
||||||||||
|
Six months
ended October 31, 2008
|
||||||||||||
|
Unrealized
Gains on Securities:
|
||||||||||||
|
Decrease
in Unrealized Holding Gains arising during the period
|
$ | (14,637 | ) | $ | 5,153 | $ | (9,484 | ) | ||||
|
|
||||||||||||
|
Add: Reclassification
adjustments for losses
realized in net income
|
99 | (35 | ) | 64 | ||||||||
|
|
||||||||||||
|
Less:
Reclassification adjustments for
gains realized in net income
|
(9,614 | ) | 3,325 | (6,289 | ) | |||||||
|
Change
in Other Comprehensive Income
|
$ | (24,152 | ) | $ | 8,443 | $ | (15,709 | ) | ||||
|
Six
months ended October 31, 2007
|
||||||||||||
|
Unrealized
Gains on Securities:
|
||||||||||||
|
Increase
in Unrealized Holding Gains arising during the period
|
$ | 5,314 | $ | (1,870 | ) | $ | 3,444 | |||||
|
Change
in Other Comprehensive Income
|
$ | 5,314 | $ | (1,870 | ) | $ | 3,444 | |||||
11
Note
6-Related Party Transactions:
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. 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 VLS include payments to
securities dealers, banks, financial institutions and other organizations which
provide distribution, marketing, and administrative services (including payments
by VLS 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 average
daily net assets of the respective mutual fund in accordance with each fund's
prospectus.
For the
six months ended October 31, 2008 and 2007, investment management fees and 12b-1
service and distribution fees amounted to $14,825,000 and $16,032,000,
respectively, which included fee waivers for certain of the Value Line
Funds. These amounts included service and distribution fees of
$3,362,000 and $3,537,000 earned by VLS in fiscal years 2009 and 2008,
respectively. The related receivables from the funds for investment
management fees and service and distribution fees included in Receivables from
affiliates were $1,905,000 and $2,557,000 at October 31, 2008 and April 30,
2008, respectively.
For the
six months ended October 31, 2008 and 2007, total management fee waivers were
$101,000 and $117,000 respectively, and service and distribution fee waivers
were $1,658,000 and $2,042,000, respectively. EULAV and VLS, have no
right to recoup the previously waived amounts of management fees and 12b-1
fees.
As of
October 31, 2008, the Company had $38,405,000 invested in the Value Line Cash
Fund ("Cash Fund"), which represents approximately 1.4% of total assets of the
Value Line Funds and 16% of the Cash Fund. Purchases and redemptions
routinely occur in the Value Line Cash Fund as part of business
operations.
For the
six months ended October 31, 2008 and 2007, the Company was reimbursed $653,000
and $739,000, respectively, for payments it made on behalf of and services it
provided to Arnold Bernhard & Co., Inc. (the "Parent"). At October 31, 2008,
Receivables from affiliates included a Receivable from the Parent of $35,000. At
April 30, 2008, Receivables from affiliates were reduced by a Payable to the
Parent in the amount of $130,000. These transactions are in
accordance with the tax sharing arrangement described in Note 7.
From time
to time, 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.
For the six months ended October 31, 2008, the Parent made no purchases of
Company's shares.
Note
7-Federal, State and Local Income Taxes:
The
Company computes its income tax provision in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes".
The
provision for income taxes includes the following:
|
Six months ended October 31,
|
||||||||
|
2008
|
2007
|
|||||||
|
(in
thousands)
|
||||||||
|
Current:
|
||||||||
|
Federal
|
$ | 7,945 | $ | 5,964 | ||||
|
State
and local
|
1,048 | 1,733 | ||||||
| 8,993 | 7,697 | |||||||
|
Deferred:
|
||||||||
|
Federal
|
(126 | ) | (30 | ) | ||||
|
State
and local
|
(24 | ) | (2 | ) | ||||
| (150 | ) | (32 | ) | |||||
|
Provision
for income taxes
|
$ | 8,843 | $ | 7,665 | ||||
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 (liability)/assets are primarily a result of
unrealized gains on the Company's available for sale securities
portfolios.
12
The
provision for income taxes differs from the amount of income tax determined by
applying the applicable U.S. statutory income tax rate to pretax income as a
result of the following:
|
Six months ended October 31,
|
||||||||
|
2008
|
2007
|
|||||||
|
(in
thousands)
|
||||||||
|
Tax
expense at the U.S. statutory rate
|
$ | 8,556 | $ | 6,988 | ||||
|
Increase
(decrease) in tax expense from:
|
||||||||
|
State
and local income taxes, net of federal income tax benefit
|
666 | 1,125 | ||||||
|
Effect
of tax exempt income and dividend exclusion
|
(383 | ) | (365 | ) | ||||
|
Other,
net
|
4 | (83 | ) | |||||
|
Provision
for income taxes
|
$ | 8,843 | $ | 7,665 | ||||
The
Company is included in the consolidated federal income tax return of the
Parent. The Company has a tax sharing arrangement which requires it
to make tax payments to the Parent equal to the Company's liability as if it
filed a separate return.
Note
8-Business Segments:
The
Company operates two reportable business segments: (1) Investment Periodicals,
Publishing & Licensing and (2) Investment Management. The
Investment Periodicals, Publishing & Licensing segment produces investment
related periodical publications (retail and institutional) in both print and
electronic form, and receives licensing fees for Value Line proprietary ranking
system information and Value Line trademarks. 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 and Segment Assets (in thousands)
|
Six months ended October 31, 2008
|
||||||||||||
|
Investment
|
||||||||||||
|
Periodicals,
|
Investment
|
Total
|
||||||||||
|
Publishing &
|
Management
|
|||||||||||
|
Licensing
|
||||||||||||
|
Revenues
from external customers
|
$ | 23,213 | $ | 15,327 | $ | 38,540 | ||||||
|
Intersegment
revenues
|
8 | - | 8 | |||||||||
|
Income
from securities transactions
|
(11 | ) | 175 | 164 | ||||||||
|
Depreciation
and amortization
|
594 | 23 | 617 | |||||||||
|
Segment
profit from operations
|
8,535 | 5,200 | 13,735 | |||||||||
|
Segment
assets
|
9,881 | 26,681 | 36,562 | |||||||||
|
Expenditures
for segment assets
|
327 | - | 327 | |||||||||
|
Six months ended October 31, 2007
|
||||||||||||
|
Investment
|
||||||||||||
|
Periodicals,
|
Investment
|
Total
|
||||||||||
|
Publishing &
|
Management
|
|||||||||||
|
Licensing
|
||||||||||||
|
Revenues
from external customers
|
$ | 25,268 | $ | 16,643 | $ | 41,911 | ||||||
|
Intersegment
revenues
|
50 | - | 50 | |||||||||
|
Income
from securities transactions
|
165 | 645 | 810 | |||||||||
|
Depreciation
and amortization
|
857 | 36 | 893 | |||||||||
|
Segment
profit from operations
|
10,603 | 7,786 | 18,389 | |||||||||
|
Segment
assets
|
16,737 | 86,403 | 103,140 | |||||||||
|
Expenditures
for segment assets
|
208 | - | 208 | |||||||||
13
Reconciliation
of Reportable Segment Revenues, Operating Profit and Assets
|
(in
thousands)
|
||||||||
|
2008
|
2007
|
|||||||
|
Revenues
|
||||||||
|
Total
revenues for reportable segments
|
$ | 38,548 | $ | 41,961 | ||||
|
Elimination
of intersegment revenues
|
(8 | ) | (50 | ) | ||||
|
Total
consolidated revenues
|
$ | 38,540 | $ | 41,911 | ||||
|
Segment
profit
|
||||||||
|
Total
profit for reportable segments
|
13,899 | 19,199 | ||||||
|
Add: Income
from securities transactions related to corporate assets
|
10,552 | 776 | ||||||
|
Less:
Depreciation related to corporate assets
|
(4 | ) | (8 | ) | ||||
|
Income
before income taxes
|
$ | 24,447 | $ | 19,967 | ||||
|
Assets
|
||||||||
|
Total
assets for reportable segments
|
36,562 | 103,140 | ||||||
|
Corporate
assets
|
81,842 | 33,307 | ||||||
|
Consolidated
total assets
|
$ | 118,404 | $ | 136,447 | ||||
Note
9-Contingencies:
By letter
dated June 15, 2005, the staff of the Northeast Regional Office of the
Securities and Exchange Commission ("SEC") informed the Company that it was
conducting an informal inquiry primarily regarding the execution of portfolio
transactions by VLS for the Value Line Funds. The Company has supplied numerous
documents to the SEC in response to its requests and various employees and
former employees of the Company have provided testimony to the
SEC. On May 8, 2008 the SEC issued a formal order of private
investigation regarding whether the VLS' brokerage charges and related expense
reimbursements during periods prior to 2005 were excessive and whether adequate
disclosure was made to the SEC and the boards of directors and shareholders of
the Value Line Funds. Thereafter, certain senior officers of the Company
asserted their constitutional privilege not to provide testimony. Management
believes that the SEC has completed the fact finding phase of its investigation
and the Company will seek to settle this matter with the SEC. Management cannot
determine the effect that the investigation will have on the Company's financial
statements although it believes that any settlement is likely to be
material.
On
September 3, 2008, the Company was served with a derivative shareholder's suit
filed in New York County Supreme Court naming all of the Company's Directors and
alleging breach of fiduciary duty and related allegations, all arising from the
above SEC matter. The complaint seeks return of remuneration by the Directors
and other remedies.
14
|
Item 2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
|
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:
|
|
·
|
dependence
on key personnel;
|
|
|
·
|
maintaining
revenue from subscriptions for the Company’s
products;
|
|
|
·
|
protection
of intellectual property rights;
|
|
|
·
|
changes
in market and economic conditions;
|
|
|
·
|
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;
|
|
|
·
|
dependence
on Value Line Funds for investment management and related
fees;
|
|
|
·
|
competition
in the fields of publishing, licensing and investment
management;
|
|
|
·
|
the
impact of government regulation on the Company’s business and the
uncertainties of litigation and regulatory
proceedings;
|
|
|
·
|
terrorist
attacks; and
|
|
|
·
|
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, 2008, and other risks and uncertainties from time
to time.
|
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.
Results
of Operations
The
second fiscal quarter, which ended on October 31, 2008, was a difficult one
domestically, and, in particular, within the financial services industry. The
economy, which appeared to be in an orderly slowdown as the period began in
August, quickly deteriorated into a serious recession, marked by a full-blown
crisis in banking, widening pessimism among consumers and businesses, and a
meltdown in the stock market which is impacting the entire asset management
industry. According to the Investment Company Institute, (“ICI”) the
combined assets of the mutual funds in the United States decreased by $1.087
trillion, or 10.2 percent, to $9.6 trillion in October alone. For the
calendar year through October, net new sales are negative as redemptions
outweigh new sales for the mutual fund industry. Within the Company’s
Investment Management and Licensing businesses, we have experienced significant
asset erosion, similar to other money managers, which has impacted the Company’s
revenues and operating income. However, despite the decline in assets
under management, we have not seen the account closures that many other fund
families have experienced. As compared to a year ago, the total
number of shareholder accounts in the Value Line Funds (exclusive of the
variable annuity accounts) has slightly increased by 1%.
For
the six months ended October 31, 2008 the Company’s net income of $15,604,000 or
$1.56 per share was $3,302,000 or 27% above net income of $12,302,000 or $1.23
per share for the six months ended October 31, 2007. Net income for the second
quarter ended October 31, 2008 of $10,542,000 or $1.05 per share was $4,183,000
or 66% above net income of $6,359,000 or $0.64 per share for the second quarter
of the prior fiscal year. Operating income of $13,731,000 for the six months
ended October 31, 2008 was $4,650,000 or 25% below operating income of
$18,381,000 last fiscal year. Operating income of $6,266,000 for the second
quarter ended October 31, 2008 was $3,150,000 or 33% below operating income of
$9,416,000 for the second quarter of the prior fiscal year. The
Company’s income from securities transactions of $10,716,000 for the six months
ended October 31, 2008 was 576% above last year’s income of
$1,586,000. Shareholders’ equity of $79,763,000 at October 31, 2008
was 7% lower than shareholders’ equity of $85,329,000 at October 31,
2007.
15
Operating
revenues which consist of investment periodicals and related publications
revenues, licensing fees, and investment management fees and services all
suffered declines for the quarter and fiscal year to date:
|
Three Months Ended October 31,
|
Six Months Ended October 31,
|
|||||||||||||||||||||||
|
|
|
Percentage
Change
|
|
|
Percentage
Change
|
|||||||||||||||||||
|
(in thousands)
|
2008
|
2007
|
FY 09 vs. 08
|
2008
|
2007
|
FY 09 vs. 08
|
||||||||||||||||||
|
Investment
periodicals and related publications
|
$ | 9,956 | $ | 10,860 | -8.3 | % | $ | 20,293 | $ | 21,823 | -7.0 | % | ||||||||||||
|
Licensing
fees
|
$ | 1,239 | $ | 1,792 | -30.9 | % | $ | 2,920 | $ | 3,445 | -15.2 | % | ||||||||||||
|
Investment
management fees and services
|
$ | 7,132 | $ | 8,458 | -15.7 | % | $ | 15,327 | $ | 16,643 | -7.9 | % | ||||||||||||
|
Total
Operating Revenues
|
$ | 18,327 | $ | 21,110 | -13.2 | % | $ | 38,540 | $ | 41,911 | -8.0 | % | ||||||||||||
Investment
periodicals and related publications revenues
The
investment periodicals and related publications revenues were down $1,530,000 or
7% for the six months ended October 31, 2008 as compared to the first six 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 the increasing
amount of 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.
The unfolding recession and turmoil in the markets have also contributed to the
decline in subscriptions as individuals cut back on many forms of
discretionary spending.
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.
|
Six
Months Ended October 31,
|
|
|
Percentage
Change
|
|||||||||
|
(in
thousands)
|
2008
|
2007
|
FY 09 vs. 08
|
|||||||||
|
Print
publication revenues
|
$ | 13,917 | $ | 15,788 | -11.9 | % | ||||||
|
Electronic
publication revenues
|
$ | 6,376 | $ | 6,035 | 5.7 | % | ||||||
|
Total
Investment periodicals and related publications revenue
|
$ | 20,293 | $ | 21,823 | -7.0 | % | ||||||
|
Unearned
Revenues (Short and Long Term)
|
$ | 29,159 | $ | 31,930 | -8.7 | % | ||||||
For the
six months ended October 31, 2008 print publication revenues decreased
$1,871,000 or 11.9% below last fiscal year for the reasons described
above. Electronic publications revenues grew by $341,000 or 5.7% for
the six months ended October 31, 2008. The electronic revenues are
broken down into institutional accounts and retail subscribers. For
the six months ended October 31, 2008, institutional revenues increased $659,000
or 24%, while revenues from retail subscribers were down $318,000 or 10% as
compared to the six months ended October 31, 2007. The decrease in
electronic retail publications revenues is primarily attributable to the
decrease in circulation within the Company’s software
products. Circulation of The Value Line Investment Analyzer
decreased 14%, which resulted in a $229,000 decline in revenues from this
product. The increase
in institutional revenues is a result of expanding the sales force on the
institutional side of the business.
16
Licensing
revenues
Licensing
fee revenues have decreased $525,000 or 15% for the six months ended October 31,
2008 as compared to the six months ended October 31, 2007. As of
October 31, 2008, total third party sponsored assets attributable to the
licensing business represent $3.6 billion in various products. The
broad and deep declines throughout the equity markets have impacted
assets attributable to the licensing business and resulted in lower asset based
fees paid to the Company. While the third party sponsors continue to
raise assets the broad market decline has eroded those assets as well as
previous appreciation in existing assets. The Company is in discussion with new
sponsors to increase products offered, but no new agreements have been signed in
fiscal 2009. The Company believes the growth of the business is
dependent upon the desire of third party marketers to use the Value Line
trademarks and proprietary research for their products, signing new licensing
agreements, and the marketplace’s acceptance of new products. As stated in the
past, Value Line believes it was an early entrant into this new market seven
years ago. Today this market has significantly broadened as a result
of product diversification and growth of the use of indexes by portfolio
managers, and the Company and its third party sponsors face more competition in
the marketplace.
Investment
management fees and distribution services revenues
The
financial markets have experienced unprecedented volatility and declines over
the past year some of which have not been seen in decades. Equity
indexes such as the DJIA, NASDAQ, and S&P 500 are down 33%, 40%, and 37%
respectively from October 31, 2007 to October 31, 2008. Such market
pressures have resulted in a contraction in total assets within the Value Line
Funds of 34.4% as compared to a year ago. The following tables
illustrate the total fund assets as of October 31, 2008 as compared to October
31, 2007.
|
October
31,
|
|
|
Percentage
Change
|
|||||||||
|
(in
thousands)
|
2008
|
2007
|
FY 09 vs. 08
|
|||||||||
|
Equity
funds
|
$ | 2,212,011 | $ | 3,656,441 | -39.5 | % | ||||||
|
Fixed
income funds
|
$ | 231,834 | $ | 278,999 | -16.9 | % | ||||||
|
Money
market fund
|
$ | 241,624 | $ | 159,810 | 51.2 | % | ||||||
|
Total
net assets
|
$ | 2,685,469 | $ | 4,095,250 | -34.4 | % | ||||||
As a
result of the decline in assets under management, investment management fees and
distribution services revenues for the six months ended October 31, 2008 were
$1,316,000 or 8% below the prior fiscal year. Management fees for the
first six months of fiscal year 2009 were down $1,032,000 or 8% as compared to
the first six months of fiscal year 2008. There was a net decrease of $175,000
or 5% in distribution services revenues. During the period, voluntary
and contractual fee waivers exist for certain of the Value Line Funds. For the
six months ended October 31, 2008 and 2007, 12b-1 fee waivers were $1,658,000
and $2,042,000, respectively. For the six months ended October 31,
2008 and 2007, total management fee waivers were $101,000 and $117,000,
respectively. The Company’s subsidiaries, EULAV Asset Management and
Value Line Securities, have no right to recoup the previously waived management
fees and 12b-1 fees from the Value Line Funds. Separately managed
accounts revenues decreased $109,000 or 18% for the six months ended October 31,
2008 as compared to the six months ended October 31, 2007 due to market decline
in the portfolios.
17
Of
the 14 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 channels the equity funds are available.
|
October
31,
|
|
|
Percentage Change
|
|||||||||
|
(in
thousands)
|
2008
|
2007
|
FY 09 vs. 08
|
|||||||||
|
Equity
fund assets sold through GIAC
|
$ | 521,810 | $ | 948,673 | -45.0 | % | ||||||
|
All
other equity fund assets
|
$ | 1,690,201 | $ | 2,707,768 | -37.6 | % | ||||||
|
Total
Equity fund net assets
|
$ | 2,212,011 | $ | 3,656,441 | -39.5 | % | ||||||
As
of October 31, 2008, 80% of the equity funds, excluding SAM and Centurion, had
four or five star ratings by Morningstar, Inc. The largest
distribution channel for the Value Line Funds remains the fund supermarket
platforms such as Charles Schwab & Co., Inc. The Company believes
the platforms will continue to grow as a percentage of assets under management
as more shareholders come into the Value Line Funds through intermediaries
rather than by opening direct accounts.
The
Value Line fixed income fund assets (excluding the Value Line Cash Fund),
represent 9% of total fund assets at October 31, 2008 and are down 16.9% from
the previous year. Cash Fund assets represent 9% of the total fund
assets at October 31, 2008 and have increased 51% from the previous
year. The increase in the Value Line Cash Fund is due to purchases by
Arnold Bernhard & Co., Inc. (“Parent”) in the fourth quarter of last fiscal
year and purchases by the Company in the second quarter ended October 31,
2008. The Parent has made no representations to the Company as to how
long the cash will remain in the Value Line Cash Fund. The increase
in the Cash Fund assets by the Company is due to the sale in the second quarter
of equity investments and will remain in the Cash Fund until redeployed by the
Company.
Expenses
within the Company are categorized into Advertising and promotion, Salaries and
employee benefits, Production and distribution, and Office and administration.
Operating expenses of $24,809,000 for the six months ended October 31, 2008 were
$1,279,000 or 5% above operating expenses of $23,530,000 last fiscal year.
Operating expenses of $12,061,000 for the second quarter ended October 31, 2008
were $367,000 or 3% above operating expenses of $11,694,000 for the second
quarter of the prior fiscal year.
Advertising
and promotion
|
Three
Months Ended October 31,
|
Six
Months Ended October 31,
|
|||||||||||||||||||||||
|
2008
|
2007
|
Percentage
Change
|
2008
|
2007
|
Percentage
Change
|
|||||||||||||||||||
|
(in
thousands)
|
FY 09 vs. 08
|
FY 09 vs. 08
|
||||||||||||||||||||||
|
Advertising
and promotion
|
$ | 3,328 | $ | 3,478 | -4.3 | % | $ | 6,569 | $ | 7,074 | -7.1 | % | ||||||||||||
Advertising
and promotion expenses for the six months ended October 31, 2008 decreased
$505,000 as compared to the first six months ended October 31,
2007. Costs associated with direct mail decreased $568,000 or 31%
below last fiscal year, due to an ongoing targeted reduction in the overall
number of pieces mailed year to year. Print advertising promoting the
Value Line Funds in select markets increased by $239,000 for the six months
ended October 31, 2008. While supermarket platform expenses were
level with the prior year, the platform expenses are expected to be lower in the
upcoming months due to the decline in fund assets under
management.
18
Salaries
and employee benefits
|
Three
Months Ended October 31,
|
Six
Months Ended October 31,
|
|||||||||||||||||||||||
|
2008
|
2007
|
Percentage
Change
|
2008
|
2007
|
Percentage
Change
|
|||||||||||||||||||
|
(in
thousands)
|
FY 09 vs. 08
|
FY 09 vs. 08
|
||||||||||||||||||||||
|
Salaries
and employee benefits
|
$ | 4,809 | $ | 4,524 | 6.3 | % | $ | 9,666 | $ | 9,133 | 5.8 | % | ||||||||||||
Over
the past several years, the Company has increased productivity by combining the
roles and responsibilities and by selective outsourcing. Some
duplication of effort has been eliminated and certain tasks, such as some data
entry, have been outsourced to third party vendors that the Company believes can
provide better controls and results at a favorable cost. As of October 31, 2008,
the Company employed 205 employees comparable to 203 employees last fiscal
year. Salaries and employee benefits are higher by $533,000
from the previous year due to cost of living increases to staff and additional
hiring of new salesmen in Institutional Sales to expand the
department.
Production
and distribution
|
Three
Months Ended October 31,
|
Six
Months Ended October 31,
|
|||||||||||||||||||||||
|
2008
|
2007
|
Percentage
Change
|
2008
|
2007
|
Percentage
Change
|
|||||||||||||||||||
|
(in
thousands)
|
FY 09 vs. 08
|
FY 09 vs. 08
|
||||||||||||||||||||||
|
Production
and distribution
|
$ | 1,459 | $ | 1,611 | -9.4 | % | $ | 2,989 | $ | 3,274 | -8.7 | % | ||||||||||||
Production
and distribution expenses for the six months ended October 31, 2008 were
$285,000 below expenses for the six months ended October 31,
2007. Amortized software costs decreased $187,000 below last fiscal
year due to a decrease in expenditures for capitalized projects. 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. Partially offsetting the savings during the six
months ended October 31, 2008 was an approximate 8% increase in the cost of
paper mid fiscal year 2008 and an increase in postage rates. The
Company anticipates paper prices will increase again in the fiscal year as raw
material prices increase. The Company continues to look at purchasing
and delivery options in an effort to reduce costs of the print products to
offset raw material price increases.
Office
and administration
|
Three
Months Ended October 31,
|
Six
Months Ended October 31,
|
|||||||||||||||||||||||
|
2008
|
2007
|
Percentage
Change
|
2008
|
2007
|
Percentage
Change
|
|||||||||||||||||||
|
(in
thousands)
|
FY 09 vs. 08
|
FY 09 vs. 08
|
||||||||||||||||||||||
|
Office
and administration
|
$ | 2,465 | $ | 2,081 | 18.5 | % | $ | 5,585 | $ | 4,049 | 37.9 | % | ||||||||||||
Office
and administration expenses for the six months ended October 31, 2008 were
$1,536,000 above expenses for the six months ended October 31,
2007. Professional fees significantly increased as compared to fiscal
year 2008 primarily as a result of the SEC proceeding. Professional
fees fluctuate year to year based on the level of operations, litigation or
regulatory activity requiring the use of outside professionals.
19
Income
from securities transactions, net
During
the six months ended October 31, 2008 the Company’s income from securities
transactions, net, of $10,716,000 was $9,130,000 higher than income from
securities transactions, net, of $1,586,000 during the six months ended October
31, 2007. Income from securities transactions, net, includes dividend
and interest income of $1,544,000 at October 31, 2008 that was $70,000 or 4%
lower than income of $1,614,000 for the six months ended October 31, 2007 due to
a decline in interest rates. Capital gains, net of capital losses
during the six months ended October 31, 2008 were $9,192,000, which include a
realized capital gain of $9,600,000 from the sale of equity securities within
the Company’s portfolio. This compares to capital losses, net of
capital gains of $34,000 during the six months ended October 31,
2007.
Liquidity
and Capital Resources
The
Company had working capital of $80,314,000 as of October 31, 2008 and
$85,872,000 as of October 31, 2007. Cash and short-term securities
totaled $106,762,000 as of October 31, 2008 and $121,179,000 as of October 31,
2007.
Cash
from operating activities
The
Company’s cash flow from operations of $5,625,000 for the six months ended
October 31, 2008 was 15% above cash flow from operations of $4,894,000 for the
six months ended October 31, 2007. The primary change was the timing
of purchases and maturity of fixed income government debt securities within the
company’s trading portfolio and a lower effective tax rate on the Company’s
investment income.
Cash
from investing activities
The
Company’s cash inflow from investing activities is $31,490,000 for the six
months ended October 31, 2008 compared to cash outflow from investing activities
of $4,349,000 for the six months ended October 31, 2007. The
significant increase in cash inflows is a result of sales in the equity
portfolio and the maturity of fixed income securities during the six months of
the fiscal year 2009.
Cash
from financing activities
The
Company’s net cash outflow from financing activities was $6,988,000 that
represents a quarterly dividend of $.30 per share paid in May 2008 for the last
quarter of fiscal 2008 and $.40 per share paid for the first quarter of fiscal
2009. At the July 2008 board meeting, the board approved a quarterly dividend of
$.40 per share, an increase of $.10 per share, paid in August 2008. Therefore,
fiscal 2009 net cash outflow from financing activities was 17% higher than cash
outflow from financing activities of $5,989,000 in the prior fiscal
year.
Management
believes that the Company’s cash and other liquid asset resources used in its
business together with the future cash flows from operations will be sufficient
to finance current and forecasted operations. Management does not
anticipate any borrowing in fiscal 2009.
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, 2008.
20
Item
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
Market
Risk Disclosures
The
Company’s Consolidated 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 equity
prices. 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, if not exclusively in short-term obligations maturing in less than 5
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
|
||||||||||||||||||||
|
(bp
= basis points)
|
||||||||||||||||||||
|
6
mos.
|
6
mos.
|
1
yr.
|
1
yr.
|
|||||||||||||||||
|
Fair
|
50bp
|
50bp | 100bp | 100bp | ||||||||||||||||
|
Fixed Income Securities
|
Value
|
increase
|
decrease
|
increase
|
decrease
|
|||||||||||||||
|
As
of October 31, 2008
|
||||||||||||||||||||
|
Investments
in securities with fixed maturities
|
$ | 67,677 | $ | 66,553 | $ | 67,046 | $ | 66,049 | $ | 66,729 | ||||||||||
|
Investments
in securities with fixed maturities
|
$ | 65,030 | $ | 63,947 | $ | 64,753 | $ | 63,146 | $ | 64,250 | ||||||||||
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.
21
Item
4. CONTROLS AND PROCEDURES
|
(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 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
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
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.
|
22
Part II -
Other Information
Item
1. Legal Proceedings
Refer to
Note 9 (Contingencies) of the consolidated condensed financial statements for
discussion of legal proceedings.
Item
1A. Risk Factors
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,
2008.
Item
6. Exhibits
31.1
Certificate of 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 Chief Executive Officer/Chief Financial Officer Certificate Required Under
Section 906 of the Sarbanes-Oxley Act of 2002.
23
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: June
8, 2009
|
By:
|
/s/Jean
Bernhard Buttner
|
| Jean Bernhard Buttner | ||
|
Chairman
& Chief Executive Officer
(Principal Executive Officer)
|
||
|
Date: June
8, 2009
|
By:
|
/s/Mitchell
E. Appel
|
| Mitchell E. Appel | ||
|
Chief
Financial Officer
(Principal Financial
Officer)
|
||
24