VALUE LINE INC - Quarter Report: 2008 January (Form 10-Q)

 

 

 

 

Class	Outstanding at January 31, 2008
Common stock, $.10 par value	9,981,600 Shares

 

 

		Jan. 31,				Apr. 30,
		2008				2007
		(unaudited)
Assets
Current Assets:
Cash and cash equivalents (including short term investments of $15,837 and $20,165, respectively)		$	18,033			$	20,605
Trading securities			20,052				15,849
Securities available for sale			83,603				76,822
Accounts receivable, net of allowance for doubtful accounts of $104 and $88, respectively			3,875				3,929
Receivable from affiliates			2,311				2,794
Prepaid expenses and other current assets			1,216				1,588
Prepaid and refundable income taxes			0				510
Deferred income taxes			139				139
Total current assets			129,229				122,236
Long term assets
Property and equipment, net			4,818				4,923
Capitalized software and other intangible assets, net			970				1,804
Total long term assets			5,788				6,727
Total assets		$	135,017			$	128,963
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable and accrued liabilities		$	4,571			$	5,316
Accrued salaries			1,311				1,545
Dividends payable			2,995				2,995
Accrued taxes payable			390				0
Unearned revenue			25,971				28,552
Deferred income taxes			7,626				8,654
Total current liabilities			42,864				47,062
Long term liabilities
Unearned revenue			6,684				5,948
Deferred charges			0				381
Total long term liabilities			6,684				6,329
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			69,172				57,383
Treasury stock, at cost (18,400 shares on 1/31/08 and 4/30/07)			(354	)			(354	)
Accumulated other comprehensive income, net of tax			14,660				16,552
Total shareholders' equity			85,469				75,572
Total liabilities and shareholders' equity		$	135,017			$	128,963

 

 

 

 

		Three months ended						Nine months ended
		Jan. 31,						Jan. 31,
		2008			2007			2008			2007
Revenues:
Investment periodicals and related publications		$	10,601		$	11,547		$	32,424		$	34,462
Licensing fees			2,072			1,711			5,517			5,289
Investment management fees & services			8,407			7,803			25,050			23,446
Total revenues			21,080			21,061			62,991			63,197
Expenses:
Advertising and promotion			3,253			3,928			10,327			10,979
Salaries and employee benefits			4,535			4,755			13,668			13,921
Production and distribution			1,424			1,663			4,698			5,268
Office and administration			2,531			1,856			6,580			5,240
Total expenses			11,743			12,202			35,273			35,408
Income from operations			9,337			8,859			27,718			27,789
Income from securities transactions, net			4,097			2,909			5,683			4,147
Income before income taxes			13,434			11,768			33,401			31,936
Provision for income taxes			4,963			4,576			12,628			12,564
Net income		$	8,471		$	7,192		$	20,773		$	19,372
Earnings per share, basic & fully diluted		$	0.85		$	0.72		$	2.08		$	1.94
Weighted average number of common shares			9,981,600			9,981,600			9,981,600			9,981,600

 

 

		For the nine months
		ended
		Jan. 31,				Jan. 31,
		2008				2007
Cash flows from operating activities:
Net income		$	20,773			$	19,372
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			1,230				1,555
(Gains) on sales of trading securities and securities classified as available for sale			(2,800	)			(1,984	)
Unrealized (gains) on trading securities			(277	)			(105	)
Deferred income taxes			(147	)			(68	)
Changes in assets and liabilities:
Purchase of trading securities			(3,926	)			(1,757	)
Decrease in unearned revenue			(1,845	)			(2,641	)
Decrease in deferred charges			(174	)			(63	)
Decrease in accounts payable and accrued expenses			(952	)			(2,066	)
Decrease in accrued salaries			(234	)			(102	)
Increase/(decrease) in accrued taxes payable			634				(455	)
Decrease in prepaid expenses and other current assets			275				36
Decrease in prepaid and refundable income taxes			510				0
Decrease in accounts receivable			54				404
Decrease in receivable from affiliates			483				265
Total adjustments			(7,169	)			(6,981	)
Net cash provided by operations			13,604				12,391
Cash flows from investing activities:
Purchases and sales of securities classified as available for sale:
Proceeds from sales of equity securities			2,793				2,061
Purchases of equity securities			(4,228	)			(2,272	)
Proceeds from sales of fixed income securities			5,137				10,825
Purchases of fixed income securities			(10,603	)			(12,775	)
Acquisition of property and equipment			(251	)			(38	)
Expenditures for capitalized software			(40	)			(241	)
Net cash used in investing activities			(7,192	)			(2,440	)
Cash flows from financing activities:
Dividends paid			(8,984	)			(7,985	)
Net cash used in financing activities			(8,984	)			(7,985	)
Net (decrease)/increase in cash and cash equivalents		$	(2,572	)		$	1,966
Cash and cash equivalents at beginning of year			20,605				15,331
Cash and cash equivalents at end of period		$	18,033			$	17,297

 

 

 

 

		Common stock
		Number  of shares			Amount			Additional paid-in capital			Treasury Stock			Comprehensive income			Retained earnings			Accumulated Other Comprehensive income			Total
Balance at April 30, 2007			9,981,600		$	1,000		$	991		$	(354	)				$	57,383		$	16,552		$	75,572
Comprehensive income
Net income														$	20,773			20,773						20,773
Other comprehensive income, net of tax:
Change in unrealized gains on securities, net of taxes															(1,892	)					(1,892	)		(1,892	)
Comprehensive income														$	18,881
Dividends declared																		(8,984	)					(8,984	)
Balance at January 31, 2008			9,981,600		$	1,000		$	991		$	(354	)				$	69,172		$	14,660		$	85,469

 

		Common stock
		Number of  shares			Amount			Additional paid-in capital			Treasury Stock			Comprehensive income			Retained earnings			Accumulated Other Comprehensive income			Total
Balance at April 30, 2006			9,981,600		$	1,000		$	991		$	(354	)				$	44,256		$	16,042		$	61,935
Comprehensive income
Net income														$	19,372			19,372						19,372
Other comprehensive income, net of tax:
Change in unrealized gains on securities, net of taxes															(792	)					(792	)		(792	)
Comprehensive income														$	18,580
Dividends declared																		(8,485	)					(8,485	)
Balance at January 31, 2007			9,981,600		$	1,000		$	991		$	(354	)				$	55,143		$	15,250		$	72,030

 

 

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 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. As of January 31, 2008, 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 at this time.

 

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, 2008 and April 30, 2007, cash equivalents included $15,294,000 and $19,868,000, 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 by VLS, as a broker/dealer, are classified as trading securities. Securities held by the Company and its other subsidiaries, which are all held with the expectation that they may be sold in less than one year, are also classified as trading securities. All other investments not classified as trading securities are classified as available-for-sale securities.

Trading Securities:      

Trading securities held by the Company at January 31, 2008 had an aggregate cost of $20,042,000 and a market value of $20,052,000. Trading securities held by the Company at April 30, 2007 had an aggregate cost of $16,115,000 and a market value of $15,849,000. There were no sales and no realized trading gains or losses during the first nine months of fiscal year 2008 or 2007. The net changes in unrealized gains of $277,000 for the period ended January 31, 2008 and the net changes in unrealized gains of $105,000 for the period ended January 31, 2007, respectively, were included in the Consolidated Condensed Statement of Income.

 

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Securities Available for Sale:

Equity Securities:       

 

The aggregate cost of the equity securities classified as available for sale, which consist of investments in the Value Line Funds, was $28,145,000 and the market value was $50,542,000 at January 31, 2008. The aggregate cost of the equity securities classified as available for sale, which consist of investments in the Value Line Funds, was $23,917,000 and the market value was $49,719,000 at April 30, 2007. The total gains for equity securities with net gains included in Accumulated Other Comprehensive Income on the Consolidated Condensed Balance Sheet are $22,683,000 and $25,859,000, net of deferred taxes of $7,984,000 and $9,102,000, as of January 31, 2008 and April 30, 2007, respectively. The total losses for equity securities with net losses included in Accumulated Other Comprehensive Income on the Consolidated Condensed Balance Sheet are $287,000 and $58,000, net of deferred tax benefit of $101,000 and $20,000, as of January 31, 2008 and April 30, 2007, respectively.

The proceeds and realized capital gains from sales of equity securities classified as available for sale during the first nine months of fiscal 2008 and 2007 were $2,793,000 and $2,061,000, respectively, of which $2,793,000 and $2,061,000 representing capital gain distributions from the Value Line Funds were reclassified to earnings from Accumulated Other Comprehensive Income. The decrease in gross unrealized losses on equity securities classified as available for sale of $3,405,000 and the decrease in gross unrealized gains of $1,260,000, net of deferred taxes of $1,199,000 and $443,000 at January 31, 2008 and 2007, respectively were included in Shareholders’ Equity.

 

Government Debt Securities:

Government debt securities consist of federal, state, and local government securities within the United States. The Company’s investments in debt securities are classified as available for sale and valued at market value. The aggregate cost and fair value at January 31, 2008 for government debt securities classified as available for sale were as follows:

		(In Thousands)
Maturity		Historical Cost			Fair Value			Gross Unrealized Holding Losses
Due in less than 2 years		$	11,755		$	11,577		$	(178	)
Due in 2 years or more			21,079			21,485			406
Total investment in debt securities		$	32,834		$	33,062		$	228

 

The aggregate cost and fair value at April 30, 2007 for government debt securities classified as available for sale were as follows:

		(In Thousands)
Maturity		Historical Cost			Fair Value			Gross Unrealized Holding Losses
Due in less than 2 years		$	9,504		$	9,324		$	(180	)
Due in 2 years or more			17,857			17,779			(78	)
Total investment in debt securities		$	27,361		$	27,103		$	(258	)

The unrealized gains of $228,000 net of deferred income tax losses of $80,000 in government debt securities and unrealized losses of $258,000 net of income tax benefits of $91,000 were included in Accumulated Other Comprehensive Income on the Consolidated Condensed Balance Sheets as of January 31, 2008 and April 30, 2007, respectively.

 

The average yield on the Government debt securities classified as available for sale at January 31, 2008 and April 30, 2007 was 3.29% and 3.54%, respectively.

Proceeds from sales of government debt securities classified as available for sale during the nine months ended January 31, 2008 and 2007 were $5,137,000 and $10,825,000, respectively. The company recognized a gain of $7,000 on the sales of government debt securities during the first nine months of fiscal 2008. A loss of $77,000 on sales of government debt securities was recognized during the nine months ended January 31, 2007.

For the nine months ended January 31, 2008 and 2007, income from securities transactions also included $834,000 and $715,000 of dividend income and $1,770,000 and $1,379,000 of interest income. There was a $36,000 interest expense during the nine months ended January 31, 2007.

 

Note 3-Supplementary Cash Flow Information:    

Cash payments for income taxes were $12,239,000 and $13,115,000 for the nine months ended January 31, 2008 and 2007, respectively.

 

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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 and the amount of consolidated net operating income as defined in the Plan. The estimated profit sharing plan contribution, which is included as an expense in salaries and employee benefits in the Consolidated Condensed Statement of Income, was $690,000 and $963,000 for the nine months ended January 31, 2008 and 2007, respectively.

 

Note 5-Comprehensive Income:     

The Company has adopted Financial Accounting Standards No. 130, "Reporting Comprehensive Income". Statement No. 130 requires the reporting of comprehensive income in addition to net income from operations. Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of certain financial information that historically has not been recognized in the calculation of net income.

 

At January 31, 2008 and April 30, 2007, 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 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 Amount			Tax (Expense) or Benefit			Net of Tax Amount
Nine months ended January 31, 2008
Unrealized Gains on Securities:
Change in Unrealized Holding Gains Arising during the period		$	(119	)	$	41		$	(78	)
Less: Reclassification adjustments for gains realized in net income			(2,800	)		986			(1,814	)
Change in Other Comprehensive Income		$	(2,919	)	$	1,027		$	(1,892	)
Nine months ended January 31, 2007
Unrealized Losses on Securities:
Change in Unrealized Holding Losses Arising during the period		$	761		$	(268	)	$	493
Add: Reclassification of losses realized in net income			77			(27	)		50
Less: Reclassification of adjustments for gains realized in net income			(2,061	)		726			(1,335	)
Change in Other Comprehensive Income		$	(1,223	)	$	431		$	(792	)

 

Note 6-Related Party Transactions:     

The Company acts as investment adviser and manager for fourteen open-ended investment companies, the Value Line Funds. The Company 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, which means 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 nine months ended January 31, 2008 and 2007, investment management fees and 12b-1 service and distribution fees amounted to $24,139,000 and $22,608,000, respectively, which included fee waivers for certain of the Value Line Funds. These amounts included service and distribution fees of $5,397,000 and $5,603,000 earned by VLS in fiscal years 2008 and 2007, respectively. The related receivables from the funds for investment management fees and service and distribution fees included in Receivables from affiliates were $2,616,000 and $2,534,000 at January 31, 2008 and April 30, 2007, respectively.

 

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Note 8-Business Segments:

 

The Company operates two reportable business segments: Investment Periodicals, Publishing & Licensing and 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)

		Nine months ended January 31, 2008
		Investment Periodicals, Publishing & Licensing			Investment Management			Total
Revenues from external customers		$	37,941		$	25,050		$	62,991
Intersegment revenues			74			-			74
Income from securities transactions			205			4,088			4,293
Depreciation and amortization			1,170			48			1,218
Segment operating profit			15,622			12,108			27,730
Segment assets			16,439			81,652			98,091
Expenditures for segment assets			291			-			291

		Nine months ended January 31, 2007
		Investment Periodicals, Publishing & Licensing			Investment Management			Total
Revenues from external customers		$	39,751		$	23,446		$	63,197
Intersegment revenues			83			-			83
Income from securities transactions			131			2,992			3,123
Depreciation and amortization			1,490			55			1,545
Segment operating profit			15,831			11,969			27,800
Segment assets			18,304			77,784			96,088
Expenditures for segment assets			275			4			279

Reconciliation of Reportable Segment Revenues, Operating Profit and Assets

		(in thousands)
		2008			2007
Revenues
Total revenues for reportable segments		$	63,065		$	63,280
Elimination of intersegment revenues			(74	)		(83	)
Total consolidated revenues		$	62,991		$	63,197
Segment profit
Total profit for reportable segments			32,023			30,923
Add: Income from securities transactions
related to corporate assets			1,390			1,024
Less: Depreciation related to corporate assets			(12	)		(11	)
Income before income taxes		$	33,401		$	31,936
Assets
Total assets for reportable segments			98,091			96,088
Corporate assets			36,926			27,859
Consolidated total assets		$	135,017		$	123,947

 

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·	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 year ended April 30, 2007, and other risks and uncertainties from time to time.

 

Nine Months Ended January 31, (in thousands)		2008			2007			Percentage Change FY 08 vs. 07
Investment periodicals and related publications		$	32,424		$	34,462			-5.9	%
Licensing Fees		$	5,517		$	5,289			4.3	%
Investment management fees and services		$	25,050		$	23,446			6.8	%
Total Operating Revenues		$	62,991		$	63,197			-0.33	%

 

 

Nine Months Ended January 31, (in thousands)		2008			2007			Percentage Change FY 08 vs. 07
Print publication revenues		$	23,393		$	25,827			-9.4	%
Electronic publication revenues *		$	9,031		$	8,635			4.6	%
Total Investment periodicals and related publications revenue		$	32,424		$	34,462			-5.9	%
Unearned Revenues (Short and Long Term)		$	32,655		$	33,482			-2.5	%

 

 

Nine Months Ended January 31, (in thousands)		2008			2007			Percentage Change FY 08 vs. 07
Equity funds		$	3,221,732		$	3,203,167			0.6	%
Fixed income funds		$	271,562		$	293,707			-7.5	%
Money Market funds		$	167,625		$	179,668			-6.7	%
Total net assets		$	3,660,919		$	3,676,542			-0.4	%
Equity fund assets sold through GIAC		$	812,361		$	925,515			-12.2	%
All other equity fund assets		$	2,409,371		$	2,277,652			5.8	%
Total Equity fund net assets		$	3,221,732		$	3,203,167			0.6	%

 

Nine Months Ended January 31, (in thousands)		2008			2007			Percentage Change FY 08 vs. 07
Advertising and promotion		$	10,327		$	10,979			-5.9	%

 

 

 

Nine Months Ended January 31, (in thousands)		2008			2007			Percentage Change FY 08 vs. 07
Salaries and employee benefits		$	13,668		$	13,921			-1.8	%

 

Nine Months Ended January 31, (in thousands)		2008			2007			Percentage Change FY 08 vs. 07
Production and distribution		$	4,698		$	5,268			-10.8	%

 

 

Nine Months Ended January 31, (in thousands)		2008			2007			Percentage Change FY 08 vs. 07
Office and administration		$	6,580		$	5,240			25.6	%